"Greed is universal. But in China, it is especially dangerous because of the lack of regulations and enforcement," says Wang Fei-ling, an expert in Chinese policy at Georgia Institute of Technology. "That combination creates rampant corruption, which is the most serious problem China faces."

It's not hard to think of examples of the sort of thing Wang is talking about: In the past few years, lead-laced toys, toxic pet food, contaminated toothpaste, and other dangerous products have frightened and angered American consumers, creating an image of China as an entrepreneurial Wild West (or East), where reckless companies boost their profits by foisting poison on the world.

The latest example hits home for pharma. In February, Baxter was forced to recall millions of doses of the anticoagulant heparin—made in China—after nearly 800 people suffered severe allergic reactions and 19 died from taking it. As more facts emerged, the picture grew grimmer: The drug (a biologic manufactured from the intestines of pigs) came from a plant in Changzhou that had never been inspected by FDA. Contamination was discovered. And then, as this magazine went to press, the evidence suggested that a cheap copycat substance was intentionally cut into crude heparin.

The question for the pharma is hair-raisingly obvious. If Chinese counterfeiters have achieved this level of scientific prowess, how is it possible to outsource the manufacturing of drug ingredients to China without incurring massive costs to safeguard the supply chain?

A Crisis of Trust—and Pigs

Last July, the former head of China's State Food and Drug Administration (SFDA) was executed for taking $850,000 from national drug companies in exchange for approving fake and tainted products. More than 100 deaths were traced to drugs he licensed; the actual number is thought to be much higher—during his eight-year tenure, he approved 150,000 drugs.

"I was chief counsel at FDA and in talks with the Chinese government over the safety of food and drugs when that happened," says Sheldon Bradshaw, now a partner with Hunton & Williams. "The negotiations came on the heels of the melamine scandal, and the execution of the former head of the agency that I was talking with was certainly enlightening about how China does things."

The melamine—added to up the protein content of pet food—killed thousands of US dogs and cats last spring, and although it was only one of a rash of "Made in China" recalls, it sparked a special outrage in households nationwide.

The rawness of that memory may be one reason that the execution of the SFDA head fell short of reassuring US consumers. While 88 percent of Americans believe US-made prescription drugs are safe, only 14 percent say the same about drugs made in China, according to an American University survey last September.

While the pet food recall was going on, global health officials were growing alarmed about a mysterious epidemic laying waste to pigs throughout southeastern China, where SARS and bird flu were spawned. As in those health emergencies, the Chinese government for months maintained an information blackout. The epidemic, fueled by a virulent form of "blue ear" pig disease, has decimated China's pork industry, causing steep inflation and growing unrest.

It is also a likely indirect cause of the heparin scandal. According to Guy Villax, the CEO of Hovione, a Portuguese manufacturer of active pharmaceutical ingredients with a factory in Macao, China, the price of exported Chinese heparin more than doubled last summer, suggesting a shortage—most likely due to the pig epidemic. Yet, oddly, the volume jumped as well, a telltale sign of counterfeiting. "The shortages drove prices up, and that created an opportunity to make profits," Villax says. "So greed comes in."