Milk Scandal Renews Fears Of 'Made In China' Label

China recently vowed to clean up its dairy sector, after contaminated milk killed at least four children in a scandal that broke last month. The damage from the scandal has been spreading, with many multinational companies forced to recall products tainted with melamine, an industrial chemical used by Chinese dairy producers to mask the dilution of their milk.

Many are asking how long it will take for the "Made in China" brand to recover.

One national brand that has been badly tarnished is White Rabbit candies. When Richard Nixon visited China in 1972, then-Premier Zhou Enlai gave him a bag of the candies as a state gift, along with two giant pandas for the United States. The white, chewy sweets were a homegrown brand — something China could be proud of.

Now, White Rabbit candies are being recalled from shelves around the world along with a host of other products tainted with melamine: yogurt drinks, milk tea drinks, chocolate and cookies.

Olympic Gains Erased

Jeremy Haft, author of All the Tea in China, says the milk scandal reawakens bad memories.

"For most Americans, we're in a position of deja vu," Haft says. "Suddenly people are recalling toothpaste, tires, toys, the poisoned batches of heparin. And yes, the Chinese brand for quality and reliability has been tarnished."

This scandal has toppled national icons, including Yili, one of the country's biggest dairies and an Olympic sponsor.

This summer's Olympic Games had caused an improvement in the perception overseas of the "Made in China" brand, one survey by the global branding consultancy Interbrand shows. But Jonathan Chajet, who conducted the research, says those gains have been wiped out.

"Immediately following the Olympics, there was quite an improvement of people's perceptions of China — perhaps they were a little less fearful of buying products made in China," Chajet says. "As soon as the milk scandal hit, the data showed the levels went back to immediately before the Olympics."

Not The First Milk Scandal

Even worse for the China brand: This was not the first scandal over milk powder. Four years ago, more than a dozen Chinese babies died from malnutrition after drinking fake formula with no nutritional value. Even that wasn't enough to clean up the dairy industry, says Edward Zhang, a consultant for DeLaval, a Swedish dairy company.

"The government didn't take continued action," Zhang says. "They have their action immediately. But after that time, most of the action disappeared."

Certainly, this time China's government has been sending out the big guns. President Hu Jintao himself has been out on the farms, addressing dairy farmers, and 32 people have been arrested so far. In a high-level Cabinet meeting, the government acknowledged that the dairy industry was chaotic and vowed more oversight. But Haft says such action may not necessarily work.

"The supply chain — that is, all the players that get together to make a product — tends to be three to four times longer than a typical supply chain in the U.S.," Haft says. "Every player adds risk, it adds input costs, it adds turnaround time. And many of those players are middlemen who are very difficult to regulate and police. What we're having here with milk is a symptom of [a] deeper problem that cannot be wished away by the authorities, and really cannot be policed away by the authorities."

Change Unlikely Despite Human Cost

The human toll has been high: Four deaths have been announced so far, and 54,000 sick infants are crowding China's hospitals, according to the most recent figures. Even this, researcher Chajet believes, might not bring about real change.

"As dark as this sounds, I'm not sure that enough babies died in this case for there to be enough public outrage that there will be mass change that Westerners might look toward," Chajet says.

This scandal could cost China's dairy industry as much as $4 billion in lost sales, according to one estimate, and it will also damage Chinese brands already struggling to make headway overseas.

Haft says the fallout will be long-lasting.

"Since the problems are so very systemic, my personal belief is it could take a generation or more for Chinese industries to truly sort themselves out, truly integrate and truly mitigate the tremendous risks you encounter doing manufacturing on the ground in China," Haft says.

And against the backdrop of global financial turmoil, as the export environment becomes more difficult, pressures will grow on struggling Chinese businesses to cut corners to squeeze out more profit. The milk powder scandal is the worst so far to taint the "Made in China" brand, but it's unlikely to be the last.

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