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