The Happy Dairy Commune was established in 1956 in a village in Hebei’s Shijiazhuang. It initially had 32 cows. Its long-serving chairwoman Tian Wenhua first joined as a vet in 1966 but by 1983 Happy Dairy had been licenced as one of just three state-owned firms allowed to produce infant formula.
Operating at the lower end of the market, it made China’s top-selling milk powder between 1993 and 2008. Tian was portrayed as a heroine who helped hundreds of millions of mothers – unable to afford foreign formula – feed their babies.
But there was no happy ending for Tian and her dairy firm, which had grown via mergers into a national giant renamed the Sanlu Group. In 2008, it was hit by a scandal – infamous even today – in which its infant formula was revealed to be contaminated by melamine. This caused kidney damage in more than 50,000 babies.
The source of the contamination happened upstream, where cattle farmers and wholesalers used chemical additives to skirt protein-level tests on water-diluted milk. Nevertheless Sanlu was held responsible for the appalling safety standards. The 52 year-old firm went bust and Tian was sentenced to life imprisonment.
Confidence in Chinese dairy products, as well as the country’s food safety standards in general, took a shuddering blow. To this day Chinese parents buy foreign formula brands in bulk when overseas (in markets like Hong Kong, there are limits on how many cans can be taken back across the border) and a decade on regulators are still working to rebuild confidence in food safety in general.
That’s why another explosive scandal has been making headlines this week. This time it involves a leading vaccine maker. Although the crisis is still unfolding, the fear is that it could wreak just as much damage as Sanlu’s tainted milk.
What went wrong this time?
Ten years ago shocked parents only learned about the melamine scandal after a suspiciously high number of babies were diagnosed with kidney stones in Gansu province.
This time round the scandal was uncovered by a regulatory check-up. An unannounced inspection of vaccine samples was reportedly triggered after a complaint by a whistle blower, who had worked for the vaccine maker in question.
On July 15 the China Food and Drug Administration (CFDA), the safety watchdog, made an announcement that Changchun Changsheng had violated drug production protocols in its rabies vaccines. The Shenzhen-listed firm was found to have fabricated production and inspection records, changed process parameters and used equipment improperly. The CFDA ordered the Jilin-based company to stop manufacturing and recall the products in question. A separate taskforce was assigned to investigate the pharmaceutical firm’s other products.
Initially the notice aroused little public attention. Few were aware that Changsheng was the second biggest rabies vaccine maker in China (it has 23% of the market: it produced 3.5 million shots of the vaccine last year) and the CFDA had stressed that the batch of problematic vaccines had been “effectively controlled”.
However, public outrage grew as articles about Changsheng’s tainted track record began to go viral across the internet, including a Xinhua report from November last year that more than 250,000 of its DPT vaccines (supposed to inoculate children against diphtheria, whooping cough and tetanus) were found to be substandard too.
In this case, Xinhua reported that the faulty vaccines had been sold to medical institutions in Shandong province.
On July 20, just days after the CFDA had uncovered the problem with the rabies vaccines, and nine months after the Xinhua report on the company’s DPT treatments, the Changchun branch of the food and drug regulator issued a separate notice that Changsheng would be fined Rmb3.4 million ($510,000) for selling substandard DPT vaccines.
The derisory penalty – and the signs of a disjointed response from the CFDA and its local branches – added fuel to the fire, further damaging public confidence. The hashtag “Changsheng vaccine scandal” began to snowball on social media in spite of state censors’ relentless efforts to erase the theme online.
How many people have been put at risk by the faulty vaccines?
One of the lessons of the tainted milk scandal was the importance of information transparency when public confidence got rocked by a health crisis. A decade ago it was New Zealand Prime Minister Helen Clark who claimed to have informed Beijing about the severity of the problem at Sanlu, when that firm’s executives fled China (Sanlu was the joint venture partner of New Zealand dairy giant Fonterra).
In fairness to the China Centre for Disease Prevention and Control, another government body, it had assured worried parents that Changsheng’s defective DPT vaccines weren’t effective, but also weren’t harmful to health. But the newsflow from the body’s Shandong branch was slow and it only posted on its website this Monday that the DPT vaccines had been administered to about 210,000 children in eight cities.
Thousands of parents were soon scrambling for answers about whether their children may have received faulty immunisations under the state-sponsored vaccine programme because of products from Changsheng.
The Shandong authorities reiterated that none of the recipients had shown any adverse reaction to taking Changsheng’s DPT vaccines, and arrangements had been made for them to receive compliant jabs. But by then the scandal had widened into a broader fear about the company’s other offerings, such as it hepatitis B vaccines. “If a vaccine company fakes data when delivering samples to national drug authorities, it’s possible that it could get away with producing other substandard products,” a professor at Peking University’s immunology department told ThePaper.cn, a state-run news website.
The central government also started to find itself in the spotlight, as the public questioned its spotty record in regulating the sector. Many were asking why Changsheng retained lucrative government contracts to provide vaccines across the country.
Who is behind Changsheng?
Changsheng’s official website now displays nothing but a ‘404 error’ holding page (some say this is the work of vigilante hackers). But a widely forwarded article titled ‘Kings of Vaccines’ has detailed the company’s extraordinary history. The WeChat post, which has since been taken down by censors (but is still available on overseas websites), was written by a famous WeChat zimeiti (professional blogger) with the pseudonym Shouye, or Grandpa Beast in Chinese (his previous widely-read scoop was an article on how a Belt and Road project in Malaysia had proved disastrous for property giant Wanda, see WiC395).
Changsheng – originally a state-owned company – was privatised in 2003 following a management buyout by its current chairwoman Gao Junfang. That deal had earlier stoked questions about state-owned assets being sold on the cheap. But according to Grandpa Beast, the bigger question was how Changsheng was able to outbid its competitors for government contracts. Changsheng’s rabies vaccines, he noted, were being sold at Rmb239 per jab. That was almost double the Rmb149 price of another major player, Shanghai-listed Chengda Biotech. In spite of the price gap many local health authorities were awarding Changsheng fat contracts.
Another inexplicable discrepancy, Grandpa Beast pointed out, was Changsheng’s sales expenses. They had reached Rmb583 million, or 47 times the sum Chengda Biotech was spending (per salesperson) to sell its vaccines.
“Many infectious diseases can be prevented. But something [in China] cannot be prevented,” Grandpa Beast warned rather cryptically.
The blogger stopped short of pointing out what that “something” was. But this week China Daily stepped forward to make plain what was going on. Citing publicly available information on court rulings, it reported that Changsheng had been involved in at least 10 bribery cases over the past decade. “But in all cases, the companies that paid the bribes were rarely prosecuted, as the amount of money offered was not enough to draw a harsher penalty under the law, and the company was not the only one to offer a bribe,” the newspaper noted.
How has the government reacted?
Unsurprisingly, Changsheng has now become the subject of multiple probes, including an investigation by the country’s powerful anti-corruption watchdog.
In April 2016 there was another case in which $50 million-worth of outdated and badly stored vaccines were sold (see WiC318). China’s Premier Li Keqiang vowed at the time that the quality of the country’s vaccines would become “an untouchable red line” and a screen-grab of an Xinhua article on Li’s directive was another widely forwarded item on social media.
That means that the new scandal at Changsheng has not reflected well on the Premier, although Li has taken a fire-and-fury tack once again. The latest case had “crossed a moral line”, he said, and he demanded that the Chinese people were provided with a clear explanation. The State Council, which Li heads, has also promised a crackdown on any illegal acts involved.
The case has also caught the attention of Li’s senior colleague, President Xi Jinping, who called the company’s actions “vile and shocking” in comments made during an overseas visit to Africa. Xi also promised “severe punishment to cure the chronic disease [in the vaccine industry] and scratch poison from one’s bones”.
Law enforcers have taken his cue. The Party’s top anti-graft agency said this week that it was already investigating reports of corruption at Changsheng and it promised to “severely punish” any local officials found guilty of dereliction of duty.
Also this week, police in Changchun took away Changsheng boss Gao and 14 senior executives for questioning over “suspected criminal behaviour”.
The businesswomen’s prospects look dire, say media outlets, if the punishment of Sanlu’s chairwoman Tian Wenhua is any precedent.
“Let the vaccine safety lawbreakers lose all their fortunes,” Xinhua demanded in an editorial, lambasting the toothless punishments dished out to previous offenders in the sector (where fines have typically been capped at the Rmb3 million level).
Feeling let down by their own authorities, internet users have been flocking to the official weibo account of the US embassy in China to register their protests at how low – and unpunishing – this figure is.
“Johnson & Johnson was ordered to pay $4.7 billion for making talcum powder that contained cancer-causing materials. How big would the fine be for fake vaccines?” one local queried.
“Here in China the offender would be fined Rmb3 million and made to drink three cups of baijiu,” another wearily responded.
The wider impact
The firm’s punishment from investors has been more immediate, with Changsheng Biotech’s share price falling by the 10% limit for six consecutive days. Changsheng’s market value was sliced from Rmb24 billion to Rmb11 billion as a result and financial regulators have weighed in too by slapping the dreaded “ST” (aka “Special Treatment”) code on the company, which means it will have to undergo wholesale restructuring or risk an enforced delisting.
The scandal has spilled over into the broader pharma sector and the stock prices of A-share drug firms plunged pretty much in unison. Even Wuxi AppTech, the best-performing biotech company since its listing in early May, has dropped nearly 13% since July 15.
The news about Changsheng’s failures comes at a time when Dying to Survive (see WiC417), a satirical movie on overpriced cancer drugs, has been doing well across the country. The film had already prompted questions from consumers on why patented drugs developed by foreign pharmaceutical firms are often too expensive and why Indian firms have been able to develop a more reliable and affordable generic drug market (see WiC418).
They may get some of their answers from the Changsheng case. “The Indians have turned fake drugs into real drugs; we Chinese have turned real drugs into fakes,” a widely forwarded remark on WeChat suggested. “Drugs developed by foreign firms are too expensive. Drugs developed by Chinese firms are too fake. We can die but we better not get sick,” warned another.
And in another throwback to the Sanlu milk powder scandal, there are signs that the Changsheng fiasco is funnelling more worried parents across the border into Hong Kong. Why? Chinese parents want their children to get genuine vaccinations, worried that the ones at home aren’t fit for purpose.
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