SHANGHAI: OFFICIALS SHAKEN BY MILK SCANDAL BUT LITTLE

C O N F I D E N T I A L SECTION 01 OF 03 SHANGHAI 000427

SIPDIS

STATE FOR EAP/CM AND DRL
NSC FOR WILDER, LOI

E.O. 12958: DECL: 9/29/2033
TAGS: PGOV ECON CH
SUBJECT: SHANGHAI: OFFICIALS SHAKEN BY MILK SCANDAL BUT LITTLE
POLITICAL IMPACT SO FAR

REF: A. (A) BEIJING 3635

B. (B) SHANGHAI 412

CLASSIFIED BY: CHRISTOPHER BEEDE, POL/ECON CHIEF, US CONSULATE
SHANGHAI, DEPT OF STATE.
REASON: 1.4 (b),(d)




1. (C) Summary: Officials in Shanghai and other East China
cities appear shaken by the current milk scandal, but there have
been few apparent political outcomes such as forced resignations
or incidents of social instability. High-level officials in
Shanghai continue to reassure the public and the international
community that dairy products are safe, and local officials in
other cities believe they have avoided the worst of the crisis.
In Shanghai, there have been no reported protests, leaving
observers to surmise that rich residents can afford to buy safe
milk while poor residents manage to get by. Local officials
seem concerned about the issue and the potential of political
fallout in the future. End Summary.



No Political Fallout Yet

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2. (C) There have been no reports of forced resignations or
other sanctions against officials in East China as a result of
the national milk supply crisis (Ref A). Shanghai contacts
agree that most of the political fallout from the crisis is
focused in Shijiazhuang and other milk producing areas in
northern and central China. Lin Shangli, Professor of Public
Policy at Fudan University, told Poloff on September 25 that he
does not expect any Shanghai officials to be fired because of
the tainted milk powder scandal. Chen Yun, also a Fudan
professor, blamed poor Central Government oversight for the
crisis, calling it "ridiculous" that a "growth at all costs"
mentality allows local officials and businessmen to ignore
Central Government rules as they produce milk that is unsafe or,
citing another example, fail to protect coal miners in Shanxi
Province.




3. (SBU) High-level officials in Shanghai Municipality have
attempted to reassure the public that dairy products on the
city's shelves are safe. Local media reported on September 24
that Shanghai Mayor Han Zheng urged officials at a work
conference to strengthen supervision of dairy products and to
provide adequate medical treatment to sick babies. Han
emphasized the importance of punishing local officials who are
negligent in the supervision of any industry, offering as proof
of the government's seriousness the news that several officials
(including the General Manager) of the Shanghai Pesticide
Factory were fired for a chemical leak accident on September 15.



Reassuring the International Community

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4. (SBU) Addressing the concerns of the international community,
Fan Xiping, Deputy Party Secretary of the Shanghai CPC, told
visiting U.S. Consumer Product Safety Commission (CPSC) Director
Mark Nord on September 24 that all of Shanghai's dairy products
are safe (see septel). In a meeting with the Consul General two
days earlier, Feng Guoqin, Chairman of the Shanghai Committee of
the Chinese People's Political Consultative Conference (CPPCC)
defended Shanghai's food safety record, stating that there are
more than 40 inspection teams working in the city to ensure that
all dairy products are safe (Ref B).




5. (C) Officials at the Shanghai Food and Drug Administration
(SFDA) likewise reassured Congenoffs on September 22 that they
are taking steps to remove tainted products from store shelves.
(Note: Nonetheless, Congenoff employees have found many of the
products listed by the Central Government as tainted available
on store shelves in Shanghai. End Note.)


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The View from Northern Jiangsu Province

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6. (C) Xu Jiping, Acting Mayor of Lianyungang Municipality, a
city of 4.8 million people in northern Jiangsu Province, offered
the view from other parts of East China, telling the Consul
General on September 29 that Lianyungang is meeting Central and
Provincial Government standards for food safety in the dairy
industry and has not seen many cases of residents falling ill.
Mayor Xu boasted that the municipality is well organized to
handle these types of problems, adding that there were only a
few cases of milk contamination in Lianyungang because most of
the milk consumed in the city is produced locally by an
Australian joint venture company. On inspecting dairy products,
Xu said the Municipal Industrial and Commercial Bureau receives
instructions from Central Government inspectors on what products
to remove from store shelves, and then the bureau transmits this
information to stores.



People Are Angry, But Reaction Muted

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7. (C) Throughout East China, media coverage and discussion in
internet chat rooms has focused less attention on the milk
scandal than on other news, notably the global financial crisis
and the Shenzhou VII space mission. Many average Shanghai
citizens have grumbled to Congenoffs that they are unhappy about
the current situation, but there does not appear to have been
any significant protests in East China either at stores or
on-line.




8. (C) Lin Shangli at Fudan offered his own reasons for the
relatively calm response to the milk crisis in East China.
First, he said, citizens of Shanghai and other cities in East
China enjoy a higher standard of living than Chinese in other
regions. With higher incomes, residents of Shanghai in
particular can afford to switch to imported milk, and while they
may have to pay more, they and their children are thus less
likely to be affected by the melamine contamination. Second,
for those unfortunate poor residents who previously drank Sanlu
and other low-end domestically manufactured dairy products, Lin
said, the poor are "used to" these types of scandals that are a
result of lax supervision. So long as officials now appear to
care about the well-being of low income families, Lin added, the
government can pacify social unrest before it starts.



Disappointment in Local Company

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9. (C) To the extent Shanghai residents are expressing their
discontent, it is aimed at Shanghai-based Guangming (Bright)
Dairy, China's third largest dairy company, which prior to the
scandal was thought to have good quality control. Despite the
public's concerns, Qian Li, a Quality Control Director at
Bright, took a business as usual approach, applying for a U.S.
business visa shortly after the scandal broke. Qian even
claimed the current milk scandal has had virtually no impact on
sales, telling Poloff on September 29 that more stringent
product safety inspection requirements at Bright has allowed
more dairy products to remain on the shelves in Shanghai than in
other cities. (Comment: We are highly skeptical of Qian's
claims, and several of post's Agricultural Trade Office (ATO)
industry contacts support Professor Lin's conclusion, noting a
jump in demand for imported dairy products. End Comment.)



Comment

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10. (C) Government officials in Shanghai and surrounding cities

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are intensely focused on the milk contamination scandal, and
many of the officials we met, from the Shanghai Deputy Party
Secretary to the Lianyungang delegation, appeared shaken by the
milk scandal and concerned about the potential for political
fallout in the future. Likewise, average citizens in Shanghai
appear even more skeptical of the government's efforts to
address food safety concerns. Even so, for now, public reaction
remains muted.
CAMP