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Seminar on "The September 2008 Melamine Crisis in China: Implications for US-China Relations"

by Dr Elizabeth Wishnick
(please refer below for the speakers' profile)

Date: 25th May 2009, Monday
Venue:
RSIS Conference Room 1, Level B4
Time: 3.00pm - 4.30pm

Introduction

Dr Elizabeth Wishnick presented her paper in which she examined the political and economic factors that led to the 2008 melamine crisis in China and its consequences for US-China relations. This food safety crisis was over milk tainted with melamine, which sickened nearly 300,000 children and may have led to six deaths. She argued that although the United States and other countries tend to focus on the consequences of China’s rising military and economic power, particularly its space programme, the country’s weakness in areas of governance such as food safety will pose an even greater challenge. She offered some recommendations on how China and the US could contribute to better governance and accountability in the global food supply chain.

Elizabeth Wishnick
Dr Wishnick

Presentation

The Melamine Crisis in China

Chinese milk products in September 2008, particularly produced by the Sanlu company, were found to be tainted with the chemical melamine. This led to the recall of major brand-name products because Chinese powdered milk is part of the global food supply chain, and the incident caused ripple effects throughout the world. This was not the first food safety scandal in China; after melamine was found in pet food in the United States in 2007, the chemical was supposedly banned as a food addictive, but was then sold as ‘crystallized protein’. There were incidents with other food products over the course of 2007-2009 in China. By December 2008, some 300,000 children had fallen ill and six had died from drinking melamine-tainted milk. Sanlu went bankrupt, with its chief executive officer getting life imprisonment and two men sentenced to death for selling the tainted milk to dairy farms.   

The Paradox of Chinese Power

This crisis came at the same period of time when China was celebrating its first manned spacewalk using very high-end technology, putting it on par with only two other countries in the world - the US and Russia. Ironically, Sanlu was the official milk powder supplier to the Chinese space programme. This was the juxtaposition of two very difference sides of the Chinese economy, which was pointed out by the Chinese media. The scandal highlighted the weaknesses of the Chinese system, including poor enforcement of the rule of law at the local level, inadequate regulation, lack of accountability, with poor overall governance. Dr Wishnick suggested that we have been focusing too much on one particular reality of China at the expense of another, and this was especially true for US concerns about the consequences of China’s rise in terms of military and economic power. But China’s weaknesses, not strengths, might be more of a challenge to deal with; where global food supply is concerned, the combination of globalisation and poor governance in one country would have ripple effects throughout the entire global food supply chain. She posed a question about the paradox of Chinese power, which witnessed a space-walk but could not seem to produce a ‘decent glass of milk’. She discussed four different reasons, reflecting the economic and political realities in China:

  1. There are ‘two Chinas’: urban and rural. The dairy-producing, rural areas have a poorer financial base, which have struggled to catch up with the urban centres in terms of income parity. The Sanlu company was located in one such province – Hebei – and there were many incentives to keep it going despite earlier reports about problems. Sanlu was the largest seller of baby milk powder in China, and the second-largest such seller in the world. China itself is the world’s third-largest milk-producing country.
  2. China has a very decentralised economy, with about 400,000 very small-scale food producers in the country, two-thirds of whom have not been properly registered. More of these small-scale enterprises had been established by local governments in order to address the influx of returning migrant workers from urban centres due to the recession. In this environment, Dr Wishnick stated that milk has been sold by millions of individual farmers to unregulated middlemen – the ones accused of adding melamine to milk in order to artificially boost the nitrogen content – who in turn sold them to largely state-owned companies such as Sanlu. Adding melamine masked the milk’s dilution or sometimes their poor quality, and so satisfied the minimum government requirement for protein content – as the test for nitrogen content in milk was the test for protein. Hence, more milk could be sold by adding melamine to fulfil content requirements. Besides Sanlu, 22 other companies were also implicated in this or similar incidents.
       
  3. The timing of the crisis. Although Sanlu knew about this contamination at least as early as August 2008, the Beijing Olympics in that month led central and local authorities to clamp down on news coverage of the issue. In addition, there was the unwillingness of Sanlu’s chairperson – who was also the communist party secretary of Hebei province – to do anything about it. This was only reversed when the New Zealand prime minister brought it to the attention of the Chinese government, following complaints from New Zealand company Fonterra, which owned 43 per cent of Sanlu. 
  4. Issues of governance. Two reasons that contributed to this incident was that there were no rules regulating non-milk products in milk, and that there were exemptions for major brands from inspection. Measures to put in place to address it, including compensation to victims, led to Sanlu’s bankruptcy. A new food safety law, which had been in development for some time, came into effect on 1 June 2009. This included calling on social organisations and the media to help focus attention on food safety and report where violations occur. However, Dr Wishnick questioned its effectiveness in the absence of a free press, non-governmental organisations committed to food safety, and a judicial system that is responsive to liability claims from private citizens. She also pointed out legal experts who have cast doubts on the effectiveness of this law due to lack of accountability, corruption due to ‘incentives’, and the incentives themselves – both Western business partners and Chinese firms demand and supply at low prices. This comparative advantage in price gives incentives to ‘cut corners’ on milk production and to avoid inspections which could lead to improvements that in turn could increase costs.  

Consequences for the United States

Dr Wishnick commented that although the US also has food safety issues, compared to China it has more channels for monitoring and recompense – in the form of consumer groups, industry associations, media, political and legal system, and availability of legal recourse for victims. Still, it was important for the US to have its own food protection framework, both for its consumers’ benefit and for greater leveraging with China. She highlighted a gap in the US between the number of laws and organisations monitoring food safety and the actual information available to consumers about the sources of their food products. For instance, there were – and still are – no laws to identify sources of dairy and other products imported into the US.

In addition, only 33 Chinese food producers importing food into the US were inspected in the period 2001 – 2007, out of about 1,000 total inspections, which was about one per cent of all US food imports. Based on the low number of total inspections of global food imports, the refusal rate of Chinese products is thus very low. The US on its part has several constraints, such as the incapacity of the Food and Drug Administration due to a low budget to inspect all Chinese food imports into the US. Dr Wishnick said that the US and China have signed agreements to work on food safety, most recently in December 2007, and that Chinese companies that export goods to the US with a high refusal rate (such as seafood) must register with China’s quality-control agency and undergo mandatory inspections. She stated that increased technical assistance from the US to build Chinese capacity was needed, but would be difficult in an environment of decentralisation as well as the current economic crisis.

Conclusion: The Greater Challenge From China

China’s weaknesses, more than its strengths, pose the greater challenge to other countries. Strong economic performance has come along with the problems of governance and food safety, which will be difficult to resolve. Resolution would depend on independent efforts and political will inside China, especially at the local levels. Dr Wishnick believed the central government was aware that such issues would hurt China’s reputation, but at the local levels there were more bread-and-butter issues at stake, in terms of employment and social stability. Thus, there is a tension between what local governments would be willing to do or acknowledge, and what the central government would want them to do. 

Q&A Session

Question: I would have thought that China’s greater exposure to the world market is good news for everybody, because ultimately they will have to clean up their act. I suspect that many countries other than China (eg. Latin America) have greater volumes of food imports into the US. So I don’t see that as necessarily disproportionate. We may not be able to eliminate all risk all of the time, but we do need an understanding of whether it’s disproportionate, given the circumstances. Overall, I would have thought that China is moving in the right direction.

Wishnick: One problem in China is risk communication. The new law in China seeks to improve that; but if you look at various incidents, there is a tendency not to provide timely notification for various bureaucratic reasons. As a result people inside China tend to be very sceptical of what they’re told by the government – that they feel they’re not being told the whole story – so there is more panic setting in. There is a problem of not communicating the actual degree of risk; it can be under-securitised. Another is that until you have a more accountable system where people can hold companies accountable, because I think there’s collusion on the corporate level to keep this information out of the public sphere so that more products can be sold. This case also highlighted wealth disparity – where powdered milk was only available to poorer segments of the population such as migrant workers. This showed a pattern of almost-disregard by the government for its citizens.

Question: It seems that such incidents have deep roots in the low accountability of local governments. Of course the ‘invisible hand’ of the market can help to eliminate undesirable activities. But how much should we rely on the market and how much on government regulations or enforcement for food security in a globalised world, where external pressures are applied to the political, economic and social fields?

Wishnick: One problem is that if you have a global food supply chain, people will be at risk. It is not possible to track where all your food comes from, because every batch of product will have a different set of suppliers; logistically it will be impossible to track. Alternatively, the market itself can create pressures for creating better products. Also, regulations are only effective if they are followed and implemented. In the US, Americans are better able to hold food processors accountable, and have more choice in purchasing their food and more access to information about their food products because of US laws.

Question: Do you think there’s an ideal situation where centralisation versus de-centralisation of food production and distribution is concerned?

Wishnick: I think it’s not practical for most people; there are both costs and benefits to centralisation and de-centralisation. But you’re not able to get all your products from local producers. China for example is not going to shut down all its 400,000 food processors; what we have to do is find a way for those to trade safely. And that’s the challenge for the international community, because there are sovereignty, political and economic issues. And how do you identify where the threat is coming from? There also might be the perception of the risk rather than the risk itself.

About the Speaker

Dr Elizabeth Wishnick is an Assistant Professor of Political Science and Law at Montclair State University and an Adjunct Associate Research Scholar at the Weatherhead East Asian Institute, Columbia University. Her current book project, China as a Risk Society, examines how transnational problems shape Chinese foreign relations with neighboring states and involve Chinese civil society in foreign policy. 

Dr Wishnick also writes on great power relations in Asia, and her study on ‘Russia, China, and the United States in Central Asia: Prospects for Great Power Competition and Cooperation in the Shadow of the Georgian Crisis’ was published by the Strategic Studies Institute of the U.S. Army War College in February 2009. She is the author of Mending Fences: The Evolution of Moscow's China Policy from Brezhnev to Yeltsin (Seattle: University of Washington Press, 2001).

She received a Ph.D. in Political Science from Columbia University, an M.A. in Russian and East European Studies from Yale University, and a B.A. from Barnard College.


Posted on: 25/5/2009 3:00:00 PM  |  Topic: Food Security


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