FOREIGN PREFERENCE, A family looks at foreign milk powder products at a supermarket in Beijing. REUTERS/KIM KYUNG-HOON

CHINA MILKPOWDER How big formula bought China Foreign companies have acquired a third of China’s booming market for baby formula, often by flouting rules promoting .

BY ALEXANDRA HARNEY

SPECIAL REPORT 1 CHINA MILKPOWDER FLOUTING BREASTFEEDING RULES

SHANGHAI, NOV 8, 2013

n the two days after Lucy Yang gave birth at Peking University Third Hospital in AugustI 2012, doctors and nurses told the 33-year-old technology executive that while was the best food for her son, she hadn’t produced enough. They ad- vised her instead to start him on for- mula made by Nestle. “They support only this brand, and they don’t let your baby drink other brands,” Yang recalled. “The nurses told us not to use our own formula. They told us if we did, and something happened to the child, they wouldn’t take any responsibility.” For Nestle and other producers, there is one significant com- plication for their China business: a 1995 Chinese regulation designed to ensure MELAMINE TRAGEDY: Chinese dissident artist Ai Weiwei made this creative statement - a map of the impartiality of physicians and protect China made of baby formula cans – to commemorate the 2008 melamine scandal that affected the health of newborns. It bars hospital 300,000 , including his then 4-year-old son. REUTERS/ TYRONE SIU personnel from promoting infant formula to the families of babies younger than six months, except in the rare cases when a The nurses told us not to about its enforcement. Neither did the State woman has insufficient breast milk or can- use our own formula. They told Administration for Industry and Commerce, not breastfeed for medical reasons. Nestle us if we did,and something which also has enforcement authority. told Reuters it supports this code and has happened to the child, they But the enforcement climate may be tried to strengthen its implementation. wouldn’t take any responsibility. changing. The new Chinese government Peking University Third Hospital declined that took office this year is in the midst of a repeated requests for comment. Lucy Yang widespread crackdown on corruption, and Most women have enough breast milk Beijing the practices of big formula appear to be to feed their infants, scientific studies show. in its cross-hairs. On Oct. 14, Paris-based The World Health Organization advo- Like Lucy Yang, most experienced the ag- Danone Corp said it would replace man- cates exclusive breastfeeding for the first gressive tactics of formula makers. agers in China after state-owned CCTV six months of life, starting within an hour Until very recently, enforcement of broadcast a report that the company’s for- of delivery. Breastfeeding leads to better China’s 1995 regulation had been rare. mula unit — Dumex — had bribed doctors health for babies and , including Neither WHO nor UNICEF can point to in the northern city of Tianjin to gain bet- protection against infection for infants and a single instance where fines had been im- ter access for its product. lower rates of breast and ovarian cancer for posed since it was introduced. Reuters con- Dumex China expressed “deep regret” women, WHO says. tacted five prominent Chinese law firms over what it called “lapses” and promised A Reuters examination reveals that and – underlining the regulation’s obscurity “full accountability.” global infant formula companies have in Chinese legal circles - not one was fa- The same day, local officials said 13 found ways to skirt and violate the 1995 miliar with it. medical workers in Tianjin had been dealt code, which they support publicly. Reuters The National Health and Family a range of punishments from warnings to interviewed nearly two dozen Chinese Planning Commission, one of the govern- dismissals. women who have delivered babies at hos- ment bodies charged with enforcing the Big formula’s practices in China have pitals around China over the last two years. regulation, did not respond to a question also caught the attention of U.S. regulators.

SPECIAL REPORT 2 CHINA MILKPOWDER FLOUTING BREASTFEEDING RULES

Land of milk and money The top four foreign infant fomula makers in China spent more than 10 billion yuan ($1.5 billion) on advertising in 2012 versus 3 billion yuan ($440 million) in 2008. Together they control almost 34 percent of market.

ADVERTISING SPEND BRAND AWARENESS (TIER 1-2 CITIES) SHARE OF CHINA’S MARKET Billion yuan Percent* Percent of retail market

6 90 15 14% 2008 2012 80%

4 60 10 $3.5

2 30 5

0 0 0 Nestle Mead Danone Abbott Nestlé Mead Danone Abbott Nestlé Mead Danone Abbott Johnson Johnson Johnson

Note: Nestlé acquired Pfizer Nutrition/Wyeth in April 2012. Advertising spend for Nestlé combines Nestlé and Wyeth; brand awareness for Nestlé refers to Wyeth; Share of China’s market for Nestlé refers to Pfizer Inc. Advertising spend and brand awareness for Danone refers to the Dumex brand. *Based on China Reality Research’s (CRR) August 2013 survey of 40 domestic retailers and 240 middle-class in China. Sources: International Monetary Fund; CRR/CLSA; Euromonitor International.

In August 2012, Pfizer Inc and its unit countries, and China is no exception. In - sickened nearly 300,000 infants and killed Wyeth agreed to pay more than $45 million the 1970s, growing concern that formula six, fueling national outrage over govern- combined as part of separate settlements marketed to mothers in developing coun- ment controls. with the U.S. Securities and Exchange tries was contributing to malnutrition led The stain of Sanlu has proven hard to Commission (SEC) over violations of the to a global boycott of Nestle products. It erase. Because many Chinese parents still Foreign Corrupt Practices Act (FCPA). prompted the World Health Assembly, doubt the quality of domestic brands, in- In its complaint, the SEC charged that the WHO’s decision-making body, to pass ternational formula makers can charge a between 2005 and 2010, Wyeth paid bribes a code curbing the marketing of baby for- premium to domestic brands. Foreign for- to officials outside the United States, in- mula. Since then, 103 countries, including mula firms now control about a third of the cluding those in Chinese state-owned hos- China, have introduced legislation to im- Chinese market, according to consultancy pitals, to encourage them to recommend plement parts of this code. Euromonitor International. In 2012, two Wyeth’s nutritional products and to gain While campaigns promoting the ben- of the three best-selling brands were for- access to records of new births that could efits of breastfeeding have tainted formula’s eign. Mead Johnson has a 14 percent mar- be used for marketing, and then disguised image in the West, in China, public debate ket share, Danone controls 9 percent and these payments as expense claims. Under about formula is mostly about safety. In Nestle 7.5 percent. the terms of the settlement, Wyeth neither 2004, at least 50 children died from mal- China is fertile ground for formula admitted nor denied the allegations. nutrition after drinking fake infant formula makers. A traditional Chinese belief that with little nutritive value. Four years later, women should rest for the first month after GLOBAL BOYCOTT formula sold by local brand Sanlu - laced delivery gives older family members greater Infant formula is controversial in many with the industrial chemical melamine say in the feeding and care of newborns.

SPECIAL REPORT 3 CHINA MILKPOWDER FLOUTING BREASTFEEDING RULES

Relatives often prefer formula as it helps Hospital in eastern China were greeted babies sleep for longer stretches. Many with banners from Mead Johnson that families, moreover, prize pudgy babies, who read: “Healthy babies, happy mothers” and are seen as healthier. Formula-fed infants “Give baby the best start in life!” gain weight more quickly, studies show. A picture of a baby drinking from a bot- China’s high rate of cesarean sections - tle and the Mead Johnson logo adorned the the world’s second highest at 46 percent of floor guide. On the VIP maternity wing, all deliveries - leads more mothers to start nurse Xia Lingling – a new mother herself their babies on formula. Mothers fear drugs – said Mead Johnson representatives regu- used in the operation will affect their breast larly visited to drop off samples for new milk. There is also a common belief that mothers and to give talks to the staff. China’s chronic air pollution is harming Xia explained that every patient who mothers’ milk supply. delivers at the hospital and stays on the Government surveys show a low breast- VIP wing receives a free container of feeding rate - just 28 percent of Chinese Mead Johnson upon the baby’s birth. women were exclusively breastfeeding Mead Johnson “promotes their infant for- at six months as of 2008, down from 51 POSTER CHILD: The Mead Johnson logo on mula here . . . it’s a form of advertising,” percent in 2003. Independent researchers the wall of the Hangzhou Tianmushan hospital, said Zhang Yueqin, an obstetrician at the suggest the real figure is much lower. One Zhejiang province. REUTERS/ALEXANDRA HARNEY hospital. study published in the Journal of Health, A Hangzhou Tianmushan spokesman, Population and Nutrition in 2010 found who would only give his name as Fan, de- exclusive breastfeeding rates at six months Penalties for violations, however, are le- nied the hospital touted Mead Johnson in parts of China were as low as 0.2 percent. nient - the maximum fine is 30,000 yuan formula to mothers. He said promotional With infant formula sales in the United ($4,900). Enforcement is complicated materials were intended to improve the States declining because of a falling birth by its division across several government medical knowledge of expectant and new rate and a rise in breastfeeding, developing bodies: the National Health and Family mothers. The hospital displayed no brand- nations - China foremost among them - Planning Commission (NHFPC), the ed posters from Mead Johnson, he said. By are formula companies’ biggest opportunity. State Administration for Industry and late September, the posters had been taken In 2008, China surpassed the United Commerce, the State Administration of down, Reuters confirmed. States to become the world’s largest for- Radio, Film and Television, and the General In a statement emailed to Reuters, Mead mula market. Euromonitor expects sales Administration of Press and Publication. Johnson said it does not provide formula of infant formula in China to double from Public awareness of the regulation is low. directly to mothers in hospitals. It does give $12 billion last year to $25 billion in 2017. Chinese research firm Beijing Shennong samples to health care professionals “for Kexin Agribusiness Consulting counts the purpose of professional evaluation or FREE SAMPLES hospitals as one of the four primary chan- research, and all of them are clearly marked Under China’s 1995 code, companies may nels for sales of infant formula, alongside ‘For medical use only – Not for Resale’ on not distribute free formula or samples to supermarkets, baby product stores, and the the label,” the statement said. pregnant women, their families and hospi- Internet. Mead Johnson said it provided posters tals. They can’t sell products at a discount. Doctors and their recommenda- and “other materials to display in or around Nor may they offer hospitals funding, tions have the largest impact, it wrote maternity wings” if requested by hospital equipment or information in order to pro- in a November 2012 report. Consumers staff. These materials “fully comply with the mote their product. find “organizing activities inside hospi- laws and regulations in China,” it said. The regulation bars hospitals and aca- tals around nutrition more scientific and PUSHING FORMULA demic institutions from accepting gifts or persuasive.” help from formula companies or promoting Reuters found formula company ad- Mothers whom Reuters interviewed said infant formula products. It requires medical vertising and promotion commonplace formula was pushed to them in myriad institutions to “actively advocate” the ad- inside hospitals. In August, visitors to the ways: doctors gave them discount cards for vantages of breastfeeding. maternity ward at Hangzhou Tianmushan infant formula during prenatal checkups;

SPECIAL REPORT 4 CHINA MILKPOWDER FLOUTING BREASTFEEDING RULES

hospital staff strapped identity bands doctors and took them to dinner. A former Dairy kings branded by formula companies to their ba- Nestle marketing executive said it was stan- Foreign brands hold sway in China’s baby bies’ limbs; formula representatives entered dard industry practice in China to provide milk formula market. 63 percent of parents their hospital rooms to distribute samples financial incentives to doctors to recom- would recommend a foreign infant as they recovered from giving birth. mend a certain brand of formula. Chinese formula brand to other nursing mothers. At Beijing Tiantan Hospital, represen- doctors, she said, expect it. tatives from companies, including Nestle In an emailed response to questions, TOP TEN BRANDS and Wyeth, visited with formula samples Nestle confirmed it has “a medical-trained 2012 share of total market for mothers and presents for doctors, said team who visits hospitals to provide factual Chinese Foreign Dr. Yang, who worked as an obstetrician information about our product features and Beingmate there until 2009. “We weren’t given a com- up-to-date nutrition and health-related Hangzhou Beingmate mission, just small gifts.” information to doctors.” Nestle “does not Dumex She declined to elaborate on the na- provide any free supply to hospitals nor in- Danone ture of the gifts, or be identified by her full centivize doctors to promote our products,” name. Kuang Yuanshen, a hospital spokes- it said. S-26 Nestlé man, said that without more detail, it was Many underpaid and overworked doc- impossible to confirm Dr. Yang’s allega- tors in China’s state-dominated healthcare Enfamil Mead Johnson tions. Wyeth said by email that company system have no choice but to rely on incen- representatives were “strictly forbidden” tives from companies, however, says John Yili Inner Mongolia Yili from visiting hospitals to distribute free Cai, director of the Centre for Healthcare samples. Management and Policy at the China Biostime Biostime International Four former formula company represen- Europe International Business School in tatives, however, confirmed these kinds of Shanghai. The official annual take-home Yashili Yashili International dealings take place. A former Nestle sales pay for an obstetrician with nearly two de- representative said she brought samples to cades’ experience in a public hospital might Enfagrow Mead Johnson Gain REUTERS TV See the video http://link.reuters.com/peb54v Abbott Labs. Wonder Sun Wondersun Dairy 0510

RECOMMENDED INFANT FORMULA BRANDS FOR NURSING MOTHERS Percent of respondents* Chinese Foreign 100

50

63%80% 47% 0 All China Tier 1-2 Tier 3-4 Witness: Breaking the rules in China’s baby formula industry cities cities Reuters’ Alexandra Harney investigates China’s multi-billion dollar infant formula business *Based on China Reality Research’s (CRR) August and finds global brands going to extreme - sometimes illegal - lengths to push products to 2013 survey of middle-class parents in China. N=240 new parents. See the video: http://link.reuters.com/peb54v Sources: Euromonitor International; CRR/CLSA.

SPECIAL REPORT 5 CHINA MILKPOWDER FLOUTING BREASTFEEDING RULES

FORMULA ONE: Exclusive breastfeeding rates for infants at the age of six months were as low as 0.2 percent in parts of China, one study found. REUTERS/ KIM KYUNG-HOON AND DAVID GRAY

be only $5,000, depending on the services mothers, according to a medical researcher a spokeswoman said. A spokesman for she offers, doctors said. and sales executive who have seen name Abbott declined to comment. “A company might approach you and lists of pregnant women for sale at hospitals Hospitals and doctors sell access to pre- say they’d like to support your work,” says in Beijing and Shanghai. natal classes to third-party companies, in- Qiu Liqian, an obstetrician and associ- Under a 2009 amendment to China’s cluding formula manufacturers, said a sales ate professor at the Women’s Hospital at Criminal Law, it is illegal for employees in executive who uses Shanghai hospitals as a Zhejiang University Medical School. “If the medical sector to sell patients’ personal marketing platform for his company’s nan- you’re organizing an academic conference, data. Stealing or acquiring such informa- ny services. That access allows companies to or you’re organizing an event on nutrition, tion illegally is also a crime. lead classes, distribute promotional mate- or an event on preventing infection, they Contacting mothers through prenatal rials or make an appearance to plug their would offer their assistance.” Formula com- classes is one way formula companies get products, he said. panies pay for prominent Chinese doctors access to expecting mothers. At one such Eighteen mothers in cities around China to attend academic conferences, which she class taught by Abbott at Shanghai East interviewed by Reuters said infant formula called “free holidays”. International Medical Center, partici- companies contacted them by phone or text Bribery to obtain an unfair business ad- pants received a 400-gram (15-oz) tub of message, both during their pregnancies and vantage is illegal under both China’s Anti- Abbott formula, according to Gao Meng, a starting as soon as an hour after they had Unfair Competition and Criminal Laws. 33-year-old office manager from Shanghai delivered their babies. Bribery can include paying for sponsorship, who attended. Yang Jing, a 33-year-old department scientific research and travel expenses un- Shanghai East confirmed that Abbott store manager in Beijing who had a baby der the Anti-Unfair Competition Law; un- representatives had trained their nurses in in 2011, said formula companies including der an interpretation of the Criminal Law, Lamaze breathing techniques and taught Wyeth called her to ask about her son’s de- paying travel costs is one of many recog- prenatal classes at the hospital between velopment. Formula would help her son be nized forms of bribery. April and July this year, because of their stronger, they told her. Samples arrived at “expertise” in Lamaze breathing. No infant her home. She said she had never given a UNDERGROUND MARKET formula was distributed at these classes, formula company her address. Some formula companies also utilize a Wyeth said it “has clear guidelines for large underground market in hospital pa- our sales activities to exclude any sales or Follow Reuters Special Reports tient information. This gives them imme- on Facebook: marketing activities relating to breast milk diate access to the names, phone numbers facebook.com/ReutersReveals substitutes that would target consumers, and due dates of pregnant women and new either by phone or face to face contact.” It

SPECIAL REPORT 6 CHINA MILKPOWDER FLOUTING BREASTFEEDING RULES

promised an investigation into this case. its training project as “philanthropic”. introduce a stricter local code as well as implementation.” Nestle added that it urged IT’S ACADEMIC ACCESS TO POLICYMAKERS extending the curb on promoting formula Most of the major infant formula compa- Nestle and other foreign formula com- from infants’ first six months to their first 12. nies have cultivated ties with the govern- panies also enjoy direct access to Chinese SIGNS OF CHANGE ment in China — including departments policymakers. During discussions about affiliated with the National Health and revising the 1995 regulation that began in The Chinese government is showing signs Family Planning Commission (NHFPC), December 2011, the Ministry of Health of taking the 1995 regulation more serious- one of the agencies tasked with enforcing (now the NHFPC) solicited opinions from ly. After the Chinese television story about the 1995 regulation on formula marketing. big foreign formula brands as well as global Dumex, the health ministry warned hospi- Companies fund hospital research and health and children’s organizations. tals to strengthen enforcement of the code. awards for doctors, sponsor conferences and Nestle sought to weaken some of the Three government agencies jointly issued a train state medical personnel - the same proposed provisions, some of which were notice reinforcing its main principles. medical professionals who are supposed to more stringent than the 1995 regulation But while the 1995 regulation is get- be actively advocating breastfeeding. and would have brought China closer in ting more attention, the attempt to revise it Nestle has been among the most active line with WHO regulations, according to a remains in limbo. The NFPHC, in a faxed in the government relations area, breast- copy of its submission obtained by Reuters. response to questions, said the number of feeding advocates say. It has sponsored Despite publicly supporting the WHO government departments involved and training for officials from mother-and child code, Nestle objected to a proposed rule the number of sectors the code covered, as clinics. It backed a Chinese academic study that formula packaging should display in well as the reorganization of government analyzing the composition of Chinese a conspicuous way the wording “breast- departments, had slowed the process of mothers’ breast milk. Peking University feeding is recommended”. The WHO code revision. Third, where Lucy Yang had her baby, was says formula containers should clearly and Wen, the WHO technical officer, said among the hospitals the Swiss food giant conspicuously display a statement on the there may not have been sufficient public chose to conduct clinical trials on the use of superiority of breastfeeding. education about the 1995 code. But she breast milk “fortifier” for premature infants Nestle told Reuters that the proposed la- stressed that infant feeding was an issue between 2010 and 2011. beling risked inconsistency with a Chinese that “all of society” needed to address. “If Nestle said it “works with the Ministry infant food safety standard “which pro- training is confined to the medical system, of Health and healthcare institutions to vides clear guidelines to ensure that mes- public education about the code will only promote public awareness and knowledge sages on labels are displayed in a standard- have a limited impact.” of health and nutrition.” ized manner”. Last year, Mead Johnson launched a Nestle further opposed a proposed ban Additional reporting by Adam Rose, Li Hui three-year training programme for medical in the revised code on formula companies and Megha Rajagopalan; Editing personnel in the southwestern province of funding hospital research into breast milk by Bill Tarrant and Bill Powell Yunnan, working with a Chinese founda- alternatives. In its statement to Reuters, tion. The programme focused on improv- Nestle said the research was “necessary for ing staff ’s understanding of nutrition and the development of science-based prod- “scientific feeding” for children from birth ucts that can save the lives of those infants to age three, according to company public- who cannot have adequate breast feeding.” FOR MORE INFORMATION ity materials. Nestle also sought to limit the proposed Alexandra Harney, Special Training of medical personnel that is in- code’s application to formula for “full term, Correspondent, China tended as a gift is a clear violation of both healthy babies”, an exclusion not in the [email protected] the 1981 WHO code and China’s 1995 WHO code, though it says it did not try to Bill Tarrant, Enterprise Editor regulation, said Beijing-based WHO tech- make an exception for specialty formulas. [email protected] nical officer Wen Chunmei. “Quite frankly,” Nestle wrote Reuters, Michael Williams, Global Enterprise Editor In a statement, Mead Johnson described “all our recommendations were meant to [email protected]

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SPECIAL REPORT 7