| SHANGHAI, Sept 23
SHANGHAI, Sept 23 A unit of French food group
Danone SA said on Monday it opened an investigation
after Chinese state TV reported that it bribed medical staff to
boost sales of its infant formula at hospitals in a number of
regions across northern China.
The latest allegations follow a report by China Central
Television (CCTV) last week that Dumex, Danone's milk powder
business, bribed staff in a single hospital in the northern city
of Tianjin to give its milk powder to new-born babies. Dumex
said it expected to have a report ready by early next week.
China is a magnet for foreign milk powder makers, with the
country's $12.4 billion market expected to double by 2017. But
foreign firms are under scrutiny after recent media reports
alleging corrupt sales practices in the industry. Authorities
last month fined a group of mostly foreign milk powder producers
$110 million for price fixing.
CCTV quoted an unnamed whistleblower with computer records
showing Dumex spent nearly 500,000 yuan ($81,700) in April alone
in bribes to medical staff in seven provinces in northern China.
The records detailed the names of recipients, the amounts
given and the cities where each transfer took place. Images from
the report showed the amounts of each transfer ranged from 100
yuan to several thousand yuan.
"Without (our bosses') approval, we wouldn't be able to do
this sort of thing," the whistleblower told CCTV.
Similar reports were carried in a number of official
newspapers on Monday, including the Beijing Times and the China
"Dumex started the investigation as soon as we saw the news,
and the report should be ready by Oct. 1," the company said in a
statement emailed to Reuters, declining to comment on whether
senior staff in China were aware of the payments.
"Dumex has a strict policy prohibiting any staff or dealer
to promote infant formula milk powder in hospital channel(s) ...
If any employee has any illegal behaviors, we will take decisive
and stringent measures to prevent and correct."
Milk powder firms typically spend close to 5 percent of
their revenue opening medical sales channels, a separate report
in the 21st Century Business Herald newspaper said, citing a
China-based former employee at a foreign milk powder brand.
Last week's CCTV report on Dumex said milk formula makers
were bribing medical staff to recommend their products to new
mothers. International guidelines used in China say doctors
should promote breastfeeding unless there are medical reasons
LEVEL PLAYING FIELD?
Milk powder is a sensitive issue in China after a scandal in
2008 when the industrial chemical melamine was added to baby
milk and killed at least six children and left thousands ill.
This damaged the reputation of local firms and boosted the
market share of international brands, who now account for close
to 80 percent of the infant formula market in China's major
cites such as Beijing and Shanghai, and around 50 percent in
second-tier cites, according to data from Rabobank.
The escalation of the corruption allegations in Chinese
media and the pressure over pricing is a potential warning sign
that China's resolve to nurture home-grown milk powder producers
is hardening, some analysts said.
"(The government) should create an equal playing field for
both foreign and Chinese companies so they can compete at the
same level. This is obviously not what is happening now," said
Sandy Chen, senior analyst for food & agribusiness at Rabobank.
"I wouldn't say these are pure coincidences. If you are
trying to consolidate the market, provide support to domestic
producers, and re-boost confidence in domestic brands, it
obviously all adds up."
Chinese milk powder makers including Inner Mongolia Yili
Industrial Group Co Ltd and China Mengniu Dairy Co
Ltd are set to get 30 billion yuan ($4.9 billion) in
official funds to support sector consolidation, recent Chinese
media reports said.
Hospitals were an important sales channel for milk powder
makers because doctors could have a significant impact on which
milk powder brand mothers ultimately buy, said Chen.
China accounted for a fifth of the total revenue for
Danone's baby-nutrition division in 2012. Danone had a 9.2
percent share by retail value of China's infant formula milk
market last year, according to market research firm Euromonitor.
Chinese authorities have been cracking down in recent months
on graft in various industries, especially the pharmaceutical
sector. Autos, telecoms and banks might come next, regulators
($1 = 6.1212 Chinese yuan)
(Editing by Dean Yates and Ian Geoghegan)