Chinese to tighten dairy testing

Babies affected developed urinary problems, including kidney stones

China says it will launch nationwide testing of all dairy products following the deaths of three babies from contaminated milk formula.

More than 6,200 babies have fallen ill after drinking milk tainted with the toxic chemical melamine, officials say.

Tests have shown that 69 batches of formula from 22 companies contained the banned substance.

The Chinese government has described the dairy market as “chaotic” and said its supervision is flawed.

Two of the companies involved have exported their products to Bangladesh, Yemen, Gabon, Burundi, and Burma, although it is not clear if contaminated batches are involved.

Kidney failure

The third fatality occurred in the eastern province of Zhejiang, Health Minister Chen Zhu said. The two earlier deaths had been reported in Gansu province.

More than 1,000 children were still in hospital, Mr Chen said, of whom more than 150 were suffering acute kidney failure.

He said all affected infants would receive free medical care.

In response, Li Changjiang, head of China’s quality control watchdog, said 5,000 inspectors would be dispatched nationwide to monitor companies and begin testing for melamine in all dairy products, he said.

It is believed that the melamine, which is used in the production of plastics, was added to the fresh milk to make it appear to have a higher protein content.

In a statement, the Chinese cabinet said the incident reflected “chaotic industry conditions and loopholes in the supervision and management of the industry”, state-run Xinhua news agency reported.

“It is necessary to learn lessons, properly deal with the incident, improve the inspection and supervision system and strengthen the management of the dairy industry,” it said.

Companies caught up in the scandal include the giant milk company Mengniu Dairy.

It says it is recalling three batches of formula made in January, after government tests found melamine in its product.

The dairy has also suspended trading of its shares on the Hong Kong stock exchange.

Bosses fired

The company at the heart of the scandal, the Sanlu Group, has fired its chairwoman and its general manager, the Xinhua agency said.

Chinese Health Minister Chen Zhu said all the seriously ill children had become ill after drinking Sanlu powered milk.

Correspondents say that melamine appears to have been added at milk collection stations, before being passed on to Sanlu.

Four officials linked to agriculture and quality control in Hebei province, where the Sanlu group is based, have been sacked, Xinhua reported.

Parent’s anger over milk scandal

The agency also said six people had been arrested in connection with the scandal and 22 were still being questioned.

Those arrested include two villagers charged with selling melamine and adding it to milk sold to the Sanlu Group.

An owner of a private food additive shop who allegedly sold the chemical to milk dealers was also arrested, as well as two milk sellers who admitted selling the tainted product, Xinhua said. Details of the sixth arrest were not given.

Sanlu made the information about the contamination of its products public last week after its New Zealand stakeholder, Fonterra – a global supplier of dairy ingredients – informed the New Zealand government, which then told the Chinese government.

Mr Li, head of the quality control watchdog, said two companies – Yashili and Suncare – exported milk powder and they were recalling their products.

On Wednesday, Bangladesh said food and commerce officials would meet this weekend to determine whether tainted products had entered the country.

Mr Li also said that melamine had also been found in a yogurt ice bar made by Yili, one of China’s biggest dairy producers, and sold in Hong Kong.

The brand has now been recalled by the Hong Kong supermarket chain Wellcome.

Confidence undermined

Mr Li said tests for melamine had not been made before, because it was banned from food products.

China is keen to try to reassure parents that it is in control of what is happening.

This scandal has undermined confidence in food safety in China and many parents are worried about what they will feed their babies, he adds.

Analysts say the incident is an embarrassing failure for China’s product safety system, which was revamped after a spate of international recalls and warnings last year over a range of goods.

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US GDP rebounds with 3.3% growth

Tax rebates have encouraged consumers to spend more

The US economy grew at a revised 3.3% annually in the second quarter of 2008, the Commerce Department said, much higher than its first estimate of 1.9%.

The rebound was linked to strong US exports, helped by the weak dollar, while government tax rebates also boosted consumer spending.

GDP grew at a rate of 0.9% in the first quarter, after a 0.2% contraction in the last three months of 2007.

The Federal Reserve has warned the economy will remain weak this year.

“While we’re not out of the woods yet, maybe we’re beginning to see some sunlight,” said John Wilson, equity strategist at Morgan Keegan.

“At some point, the market will begin to look through the trough and gauge the strength of the coming upturn.”

‘No recession’

The data showed that exports grew at an annualized rate of 13.2%, higher than the government’s initial estimate of 9.2%.

Imports fell at a rate of 7.6% as the US economic slowdown reduced demands for goods made overseas.

The improved trade balance added 3.1 percentage points to second-quarter GDP, the biggest since 1980.

The slowdown in the housing market was evident, as builders cut back and businesses reduced their spending.

Consumer spending, boosted by the government’s $600 tax rebate payments, rose by 1.7%, slightly higher than the previous quarter’s 1.5%.

Some observers said that the figures lent support to the argument that the US was not heading for a recession.

“For a recession the economy is certainly growing very quickly,” said Avery Shenfeld, senior economist at CIBC World Markets.

“A lot of that growth is driven off exports and pessimists might say that can’t continue during slowing growth overseas.

“But I would say this happened precisely during the period of slowing growth overseas … this is still an economy that faces slow times but not a recession.”

16-year low

However recent data on the US housing market suggests a grim outlook for the sector.

US house prices were down a record 15.4% in the April to June quarter compared with a year ago, according to a closely-watched report released earlier this week.

The decline was recorded by the latest S&P/Case-Shiller survey of US national home prices.

The report said the fact that the falls were nationwide was the latest sign the US housing downturn is continuing.

Separate government data said sales of new homes were at an annual rate of 515,000 units in July, up slightly from June, but still near a 16-year low, and half the rate of new home sales one year ago.