China official says milk scandal "under control"

BEIJING China, seeking to assure the world its products are safe, said on Wednesday a tainted milk scandal had been brought under control.

And in New York, Chinese Premier Wen Jiabao told an audience that his government would seize the crisis as an opportunity to overhaul safety controls.

"There is no problem," Xiang Yuzhang, the national quality watchdog's chief inspection official, told reporters in Beijing.

"It has been brought under control, more or less. There are no more problems in the market. As far as I know, there will be no more bad news."

But China could face an uphill struggle to convince its own people and those abroad that it has the situation in hand. The government has said the Sanlu Group, the company at the center of the scandal, knew for months there was a problem with its milk powder before reporting it.

Australia on Wednesday issued fresh warnings for China and nearby nations in the wake of the scandal, advising its citizens overseas to avoid all Chinese-made milk products, unless companies have confirmed their goods are free from contamination.

Beijing is battling public alarm and international dismay after close to 13,000 Chinese children crowded hospitals, ill from infant milk formula tainted with melamine, a cheap industrial chemical that can be used to cheat quality checks.

Nitrogen-rich melamine can be added to watered-down milk to fool quality checks, which often use nitrogen levels to measure the amount of protein in milk. The chemical is used in making plastics.

China has a bad record of glossing over or ignoring bad news, initially covering up the SARS epidemic in 2003, for example.

So far, four deaths have been blamed on kidney stones and complications caused by the toxic milk. China's latest food safety crisis has triggered arrests, official sackings and bans and tightened inspections by trade partners.

WEN PLEDGES IMPROVEMENTS

China would "strengthen institutional development, and take seriously supervision and inspections in every link of production, truly ensuring the interests of consumers," Xinhua news agency quoted Wen as saying.

This was not the first time that a Chinese leader has sought to reassure a foreign audience that the country was cracking down on unsafe products.

Last year, China launched a quality drive after a surge of scares over toys, toothpaste, pharmaceutical ingredients and pet food ingredients -- which were also laced with melamine.

At that time, Chinese officials often said foreign media and critics had exaggerated the country's problems.

But now they are focused on quelling domestic alarm and anger, with 54,000 Chinese children affected and more than 100 in serious condition, revelations of a government-blessed cover-up, and consumers wondering just what milk products might be safe.

China has said it found melamine in nearly 10 percent of milk and drinking yoghurt samples from three major dairy companies.

Robert Madelin, director-general for health and consumer protection at the European Commission, told the same conference that Xiang attended that the scandal had implications beyond China.

"In an area such as melamine, what we can say is that all big players are in a world market. So what happens in China is affecting also foreign investors in China, with European capital or American capital. It is affecting traders in Europe with interests in China, with friends in China, with sources in China," he said.

New Zealand dairy export giant Fonterra Co-operative Group slashed the value of its big investment in Sanlu Group by nearly 70 percent on Wednesday.

Many of the infant poisonings are linked to Sanlu's popular milk powder. The company has ceased production.

The official Xinhua news agency reported that Sanlu knew for many months that its infant milk powder was tainted.

Fonterra repeated that it first knew of the contamination in early August, and took what it regarded as the best action by working with local Chinese authorities on a product recall.

"If something did exist prior to that we're shocked that it did and we obviously feel that if people were aware of it, it should have gone to the board," chief executive Andrew Ferrier told a media briefing in Auckland.

Fonterra cut the value of its 43 percent stake in Sanlu to about NZ$62 million ($42 million).

It said the write-down reflected the damage done to the Sanlu brand and the likelihood it would not recover.

(Additional reporting by Chris Buckley in Beijing, Gyles Beckford in Wellington and Rob Taylor in Canberra; Editing by David Fogarty)