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China falls back into crisis mode

Officials face suspicion that they hid the infant formula scandal during the Olympic revelry.

September 24, 2008|Mark Magnier | Times Staff Writer

"The reality in China is there's no separation at all," said Arthur Kroeber, Beijing-based editor of China Economic Quarterly. "It's endemic."

Particularly damning are suggestions that local officials and top executives were warned about the problem in March, or even earlier. But with little pressure from voters, shareholders, an independent news media or consumer advocates, those involved apparently felt little need to address it.

Investigators haven't fully explained what happened, but analysts suspect that a near-total ban on bad news before the Olympics led to a coverup that jeopardized the lives of thousands more children.

Sanlu is 43%-owned by New Zealand's Fonterra Co-operative Group. The dairy giant said it was aware in August of problems with Sanlu production, several weeks before the public was informed, and pressed its Chinese partner and local officials to disclose the information, but they refused.

The crisis also suggests that, even as the senior leaders tried to address one threat, they inadvertently may have created another. Economic experts say that at least part of the responsibility for the milk crisis may be traced to the Communist Party's fear that higher food prices could set off protests. That led officials to discourage price increases or to impose caps. Suppliers, unable to raise prices as their costs rose, came under pressure to cut corners.

As the scandal has intensified, the party has fallen back on traditional damage-control tactics. It has arrested 19 people and sacked several officials, including the longtime head of the main government watchdog agency. It has restricted news about the scandal in the mainstream news media. And it has warned lawyers trying to represent the victims.

"We've been told not to talk to the foreign press," said one attorney trying to help victims obtain compensation.

Many of the same tactics were used to quell anger over shoddy school construction after a disproportionate number of children died in the Sichuan earthquake. But with each major crisis, some analysts say, it becomes more difficult to contain the anger below the surface in a society riven by corruption, inequity and environmental degradation.

"Very few business leaders or local officials really care about the environment or consumer quality," said Cheng Li, senior fellow with the Brookings Institution in Washington. "At some point this will create a real political disaster."

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mark.magnier@latimes.com

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