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Cablegate: Delayed Revelations of Melamine-Tainted Dairy Products

VZCZCXRO3209
RR RUEHCN
DE RUEHGH #0009/01 0080853
ZNR UUUUU ZZH
R 080853Z JAN 10
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 8464
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 9129

UNCLAS SECTION 01 OF 03 SHANGHAI 000009

SENSITIVE
SIPDIS

USDA FOR FAS/OSTA AND FAS/OCRA/CHINA
HHS FOR OGHA AND PASS TO FDA/LUMPKIN AND CDC/BLOUNT
STATE FOR EAP/CM, OES/PCI, EEB/TPP/ABT
USDOC FOR ITA/MAC/OCEA

E.O. 12958: N/A
TAGS: ETRD ECON EAGR SENV TBIO PGOV CH
SUBJECT: DELAYED REVELATIONS OF MELAMINE-TAINTED DAIRY PRODUCTS
SUGGEST GOVERNMENT COVER-UP

REF: 08 SHANGHAI 498

SHANGHAI 00000009 001.2 OF 003


1. (SBU) SUMMARY: December 31 media reports of the closure of
Shanghai Panda Dairy for producing melamine-tainted milk
products have led to the revelation that Chinese authorities
have known of the company's transgressions for nearly a year.
Chinese authorities quoted in the media have attributed the long
delay in informing the public to the lengthy, ongoing criminal
investigation. It is not clear exactly when Shanghai Panda was
shut down and for what period of time tainted products may have
reached Chinese consumers. Shanghai Panda is not authorized to
export, and the U.S. Food and Drug Administration (U.S. FDA)
does not have any record of Shanghai Panda exporting to the
United States. The discovery that the Central Government and
dairy industry were aware of the incident by at least April 2009
has fueled suspicions of a cover-up to aid China's dairy
industry that is still reeling from the fall 2008 melamine
scandal. END SUMMARY.

2. (U) On December 31, Chinese and international media reported
the recall of product from and the closure of Shanghai Panda
Dairy Co., Ltd. (Shanghai Xiongmao Rupin Youxian Gongsi)
following the discovery of "unacceptably high levels" of the
chemical melamine in milk products produced by the company.
Reports also said that the company's chairman WANG Yuechao,
general manager HONG Qide, and deputy general manager CHEN Dehua
were taken into custody. The melamine was discovered during
routine inspections by the Shanghai Municipal Government of
high-calcium milk powder marketed as a vitamin supplement for
middle-aged and elderly consumers, as well as in condensed milk,
according to the press reports. Media reports that also quote
Shanghai prosecutors alleged that Shanghai Panda Dairy used
recalled milk products not destroyed after the fall 2008
melamine-tainted milk scandal. However, in various press
reports, General Administration of Quality Supervision,
Inspection, and Quarantine (AQSIQ) Inspection Division Deputy
Director YAN Fengmin refuted claims that the raw material used
in this latest incident with Shanghai Panda was left over from
products in the 2008 scandal. An industry source told the
Consulate that the Shanghai Quality Supervision Bureau would
have sealed the Shanghai Panda warehouse in 2008 and required
the owners to destroy the contaminated products by either
incineration or putting them in a landfill. This source
speculated that Shanghai Panda managed to remove and keep some
tainted powder from its warehouse in 2008 and secretly mixed it
with good powder for the products currently under investigation.

3. (U) Melamine is an industrial chemical used in plastics
which, when added to milk products, boosts the protein level
reading of quality tests. The chemical was at the heart of one
of China's worst food safety scandals in the fall of 2008 where
six children died and over 300,000 were sickened by
melamine-tainted milk products. As a result of the scandal, in
November 2008, the U.S. FDA issued an import alert on dairy and
dairy-containing products from China, largely prohibiting the
importation of such products to the United States. Chinese
firms who are able, through reliable laboratory testing, to
demonstrate that their products are free from melamine and other
similar substances are permitted to ship their products to the
United States.

4. (SBU) Shanghai Panda was one of the companies implicated in
September 2008 (with the second highest melamine content of the
22 companies implicated), and was allowed to resume production
only after it promised to strengthen its safety procedures,
according to media reports. According to AQSIQ contacts,
Shanghai Panda's export authorization was revoked by Shanghai
CIQ on September 16, 2008. Shanghai Panda is not registered in
U.S. FDA's food facility database, nor does U.S. FDA have any
record of Shanghai Panda exporting to the United States.

5. (SBU) Shanghai Food and Drug Administration International
and Legal Affairs Division Director XU Jin confirmed to Congen
Shanghai that the most recent revocation of the food
manufacturing license and sanitation certification of Shanghai
Panda Dairy arose from a new discovery of melamine-contaminated
milk products separate from the 2008 incidents. The new finding
of contamination was uncovered by Shanghai's (Food) Quality
Supervision Bureau, reported to the Shanghai Municipal
Government via the interagency Food Safety Committee, which made
the decision to shut down the company, Xu said.

6. (SBU) Subsequent media reports have alleged that Chinese
food-safety authorities were aware that Shanghai Panda was

SHANGHAI 00000009 002.2 OF 003


producing melamine tainted products as early as December 2008 (a
mere three months after the company was implicated in the 2008
melamine scandal), and began a full-scale investigation in
February 2009, without any warning or announcement to the public
for nearly one year. On January 6, 2010, Fengxian District
prosecutors issued a statement confirming that authorities had
discovered tainted products from Shanghai Panda and initiated an
investigation in February of last year and that the three
executives were arrested in April 2009, not recently as the
initial December 31 reports suggest. Consulate dairy industry
contacts also confirmed the Shanghai government identified a
potential problem with Shanghai Panda Dairy in early 2009 and
started the investigation immediately. While Shanghai
authorities have not offered any reason for such a delay in any
public announcement, AQSIQ Inspection Division Deputy Director
YAN Fengmin was quoted in press reports as saying that the case
was withheld for such a long time because it was "under criminal
investigation."

7. (U) The Consulate has discovered a Chinese-language article
indicating that on April 29, 2009, AQSIQ issued an internal
circular to all provincial inspection and quarantine bureaus on
the investigation into Shanghai Panda Dairy's "illegal
production of fake or substandard dairy products." The April 29
document was not announced or released to the public at that
time (NOTE: What appears to be a full text of the document in
Chinese is available at
http://law.baidu.com/pages/chinalawinfo/11/82 /
413f0a606870323a1cdb64e4eefb2934_0.html. END NOTE). The AQSIQ
circular also states that the company was effectively shut down
and tainted product recalled and destroyed in April 2009,
although some recent press reports suggest that Shanghai Panda
product was on the shelves as recently as two weeks ago.
Moreover, the AQSIQ document also notes that the Shanghai Panda
products were believed to have contained melamine-tainted raw
materials from the 2008 scandal, which contradicts recent AQSIQ
statements in the press. Subsequently, during a November 26
2009 teleconference reported in the Chinese media, Minister of
Health CHEN Zhu noted that severe punishment should be given to
food producers that continually offend food safety laws.
According to press accounts of that conference, Chen
specifically mentioned an investigation by the Shanghai
Municipal Public Security Bureau of Shanghai Panda Dairy for
producing condensed milk containing melamine, but again, no
formal public warning or indictment of the company was made at
that time.

8. (SBU) Following Chen's statement, the Shanghai-based
attorney for Zhejiang Panda Dairy, Co. Ltd. issued a statement
to clarify that the Zhejiang company (owned by the state-run
Zhejiang Cereals, Oils and Foodstuffs Import and Export Co.,
Ltd. and located in the city of Wenzhou) is a separate entity
and has no ownership relationship with Shanghai Panda Dairy.
There are several dairy companies in China that use the "panda"
brand name and some media reports have suggested linkages
between the various panda dairy companies and Shanghai Panda,
although most of these connections are unconfirmed or have been
explicitly denied by the companies in question. In the case of
Zhejiang Panda, however, some press reports have indicated that
Shanghai Panda's chairman WANG Yuechao is a relative of Zhejiang
Panda general manager LI Zuogong. Consulate dairy industry
contacts also noted that Shanghai Panda Dairy "was managed" by
people who used to work for Zhejiang Panda Dairy. According to
the available media reports, Shanghai Panda is a private company
and its products are only available in smaller cities in China.
Our contacts indicated that up to now, Shanghai investigators
have not discovered in which part of the production procedure
the melamine was added to the milk products.

COMMENT
-------

9. (SBU) The 2008 melamine-tainted milk scandal received
intense international and domestic attention and generated
concerns over China's food and product safety regime. The
scandal helped to push forward passage in February 2009 of
China's comprehensive Food Safety Law aimed at strengthening and
streamlining China's food safety system through nationwide
standards, enhanced coordination among government agencies, and
other mechanisms. Facts are still dribbling out in this most
recent case, but it appears that authorities and the industry
had knowledge of Shanghai Panda's transgressions a year before
being announced to the public. The long delay in announcing the

SHANGHAI 00000009 003.2 OF 003


discovery of melamine-tainted products at Shanghai despite
evidence that the Central Government was aware of the problem by
at least April 2009 suggests a cover-up, possibly to protect a
Chinese dairy industry reeling from the 2008 revelations. It
will be interesting to see the extent to which the authorities
allow the media to investigate this case as a gauge of official
willingness to accept public scrutiny of the behavior of China's
regulatory agencies.
CAMP

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