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Friday, Oct. 10, 2008

Distressed Chinese dairy companies get help


HONG KONG — At a time when the United States — and now Europe — is acting to rescue financial institutions such as Bear Stearns, Merrill Lynch and AIG, it is interesting to note that Chinese authorities are offering a hand to distressed companies caught in the contaminated milk scandal.

According to the official Xinhua news agency, the Chinese government is implementing an emergency rescue plan to subsidize dairy farmers suffering from shrinking demand since the scandal.

Provincial governments, too, are taking action. The Inner Mongolian Autonomous Region government has come up with a $14.6 million rescue package to aid two of the country's largest dairy companies, the Yili Group and the Mengiu Group, and reduce their tax obligations. Subsidies have also been promised by governments in Hebei, Shanxi and Liaoning provinces.

As in the worldwide financial crisis, rescues are only a stopgap measure. What is needed is wholesale reform.

It has been learned that the General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ), the main regulatory body, had granted "inspection free" status to dairy companies such as Sanlu Group, the country's biggest milk powder manufacturer, and to Yili and Mengiu, all of whose products were found to contain melamine, a chemical that causes kidney problems but makes watered-down milk appear rich in protein.

China's tainted milk has long ceased to be simply a domestic problem. Countries around the world from Canada to Australia have taken action to protect their citizens by banning products that contain milk from China, including yogurt, ice cream, chocolates and candies. The reputation of international brands, such as Cadbury and Lipton, has suffered because they used ingredients from China.

In fact, what is at stake is not just the future of the Chinese dairy industry but China's reputation as a producer. Coming after earlier cases of lead-coated toys, toxic toothpaste and poisonous pet food, this new scandal has dealt a body blow to the country's good name, just as it was basking in the afterglow of the Olympic Games, which were widely hailed as a great success.

Now, all products from China, especially food, are being viewed with skepticism. Even furniture, it turns out, is unsafe as some sofas have been found to cause skin burns and allergies as a result of toxic gas emitted by an anti-mold agent.

The Chinese government has tried to contain the fallout from the melamine scandal by blaming lower-level government officials, saying they did not report to the central government in Beijing. This is far from convincing.

If the central government had been doing its job properly, this problem would not have arisen. It was, after all, the central government's quality control agency, AQSIQ, that had exempted some companies from inspection in the first place.

It was also the Communist Party's propaganda department that issued a directive ordering the country's media not to report on food safety in the weeks and months leading up to the Olympics.

The Sanlu Group, the main company involved, sought to prevent word of its poisoned product from getting out even while it was continuing to market the milk powder. According to the official People's Daily newspaper, the company had asked the municipal government of Shijiazhuang, where the company has its headquarters, for "stronger management" of the news media.

Damage done by the party's censorship of the media was revealed by Fu Jianfeng, an editor at Southern Weekend, who wrote the following damning indictment in his blog after the scandal became public in September: "Actually, our reporter He Feng had received information at the end of July that more than 20 babies had been hospitalized for kidney stones in Tongji Hospital, Wuhan city, Hubei province as a result of consuming tainted Sanlu milk powder. But for reasons that everybody knows, we were not able to investigate the case at that time because harmony was needed everywhere.

"As a news editor, I was deeply concerned because I sensed that this was going to be a huge public health catastrophe. But I could not send any reporters to investigate."

Even now, Chinese authorities are trying to manage the news. They have threatened to revoke the licenses of lawyers who volunteered to help victimized families.

This does not reflect a proper understanding of the situation. What is needed is greater openness, not more control. If China is to fulfill its dream of becoming a great country, it will have to let reporters and lawyers perform their proper functions in society.

Frank Ching is a Hong Kong-based journalist and commentator (Frank.ching@gmail.com).


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