* U.S. regulators punish big formula for China practices
SHANGHAI, Nov. 8 (Reuters) - In the two days after Lucy Yang
gave birth at Peking University Third Hospital in August 2012,
doctors and nurses told the 33-year-old technology executive
that while breast milk was the best food for her son, she hadn't
produced enough. They advised her instead to start him on infant
formula made by Nestle.
"They support only this brand, and they don't let your baby
drink other brands," Yang recalled. "The nurses told us not to
use our own formula. They told us if we did, and something
happened to the child, they wouldn't take any responsibility."
For Nestle and other infant formula producers, there is one
significant complication for their China business: a 1995
Chinese regulation designed to ensure the impartiality of
physicians and protect the health of newborns. It bars hospital
personnel from promoting infant formula to the families of
babies younger than six months, except in the rare cases when a
woman has insufficient breast milk or cannot breastfeed for
medical reasons. Nestle told Reuters it supports this code and
has tried to strengthen its implementation. Peking University
Third Hospital declined repeated requests for comment.
Most women have enough breast milk to feed their infants,
scientific studies show. The World Health Organization
advocates exclusive breastfeeding for the first six months of
life, starting within an hour of delivery. Breastfeeding leads
to better health for babies and mothers, including protection
against infection for infants and lower rates of breast and
ovarian cancer for women, WHO says.
A Reuters examination reveals that global infant formula
companies have found ways to skirt and violate the 1995 code,
which they support publicly. Reuters interviewed nearly two
dozen Chinese women who have delivered babies at hospitals
around China over the last two years. Like Lucy Yang, most
experienced the aggressive tactics of formula makers.
Until very recently, enforcement of China's 1995
regulation had been rare. Neither WHO nor UNICEF can point to a
single instance where fines had been imposed since it was
introduced. Reuters contacted five prominent Chinese law firms
and - underlining the regulation's obscurity in Chinese legal
circles - not one was familiar with it.
The National Health and Family Planning Commission, one of
the government bodies charged with enforcing the regulation, did
not respond to a question about its enforcement. Neither did the
State Administration for Industry and Commerce, which also has
But the enforcement climate may be changing. The new Chinese
government that took office this year is in the midst of a
widespread crackdown on corruption, and the practices of big
formula appear to be in its cross-hairs. On Oct. 14, Paris-based
Danone Corp said it would replace managers in China
after state-owned CCTV broadcast a report that the company's
formula unit - Dumex - had bribed doctors in the northern city
of Tianjin to gain better access for its product.
Dumex China expressed "deep regret" over what it called
"lapses" and promised "full accountability."
The same day, local officials said 13 medical workers in
Tianjin had been dealt a range of punishments from warnings to
Big formula's practices in China have also caught the
attention of U.S. regulators. In August 2012, Pfizer Inc
and its unit Wyeth agreed to pay more than $45 million combined
as part of separate settlements with the U.S. Securities and
Exchange Commission (SEC) over violations of the Foreign Corrupt
Practices Act (FCPA).
In its complaint, the SEC charged that between 2005 and
2010, Wyeth paid bribes to officials outside the United States,
including those in Chinese state-owned hospitals, to encourage
them to recommend Wyeth's nutritional products and to gain
access to records of new births that could be used for
marketing, and then disguised these payments as expense claims.
Under the terms of the settlement, Wyeth neither admitted nor
denied the allegations.
Infant formula is controversial in many countries, and China
is no exception. In the 1970s, growing concern that formula
marketed to mothers in developing countries was contributing to
malnutrition led to a global boycott of Nestle products. It
prompted the World Health Assembly, the WHO's decision-making
body, to pass a code curbing the marketing of baby formula.
Since then, 103 countries, including China, have introduced
legislation to implement parts of this code.
While campaigns promoting the benefits of breastfeeding have
tainted formula's image in the West, in China, public debate
about formula is mostly about safety. In 2004, at least 50
children died from malnutrition after drinking fake infant
formula with little nutritive value. Four years later, formula
sold by local brand Sanlu - laced with the industrial chemical
melamine - sickened nearly 300,000 infants and killed six,
fueling national outrage over government food safety controls.
The stain of Sanlu has proven hard to erase. Because many
Chinese parents still doubt the quality of domestic brands,
international formula makers can charge a premium to domestic
brands. Foreign formula firms now control about a third of the
Chinese market, according to consultancy Euromonitor
International. In 2012, two of the three best-selling brands
were foreign. Mead Johnson has a 14 percent market
share, Danone controls 9 percent and Nestle 7.5 percent.
China is fertile ground for formula makers. A traditional
Chinese belief that women should rest for the first month after
delivery gives older family members greater say in the feeding
and care of newborns. Relatives often prefer formula as it helps
babies sleep for longer stretches. Many families, moreover,
prize pudgy babies, who are seen as healthier. Formula-fed
infants gain weight more quickly, studies show.
China's high rate of cesarean sections - the world's second
highest at 46 percent of all deliveries - leads more mothers to
start their babies on formula. Mothers fear drugs used in the
operation will affect their breast milk. There is also a common
belief that China's chronic air pollution is harming mothers'
Government surveys show a low breastfeeding rate - just 28
percent of Chinese women were exclusively breastfeeding at six
months as of 2008, down from 51 percent in 2003. Independent
researchers suggest the real figure is much lower. One study
published in the Journal of Health, Population and Nutrition in
2010 found exclusive breastfeeding rates at six months in parts
of China were as low as 0.2 percent.
With infant formula sales in the United States declining
because of a falling birth rate and a rise in breastfeeding,
developing nations - China foremost among them - are formula
companies' biggest opportunity.
In 2008, China surpassed the United States to become the
world's largest formula market. Euromonitor expects sales of
infant formula in China to double from $12 billion last year to
$25 billion in 2017.
Under China's 1995 code, companies may not distribute free
formula or samples to pregnant women, their families and
hospitals. They can't sell products at a discount. Nor may they
offer hospitals funding, equipment or information in order to
promote their product.
The regulation bars hospitals and academic institutions from
accepting gifts or help from formula companies or promoting
infant formula products. It requires medical institutions to
"actively advocate" the advantages of breastfeeding.
Penalties for violations, however, are lenient - the maximum
fine is 30,000 yuan ($4,900). Enforcement is complicated by its
division across several government bodies: the National Health
and Family Planning Commission (NHFPC), the State Administration
for Industry and Commerce, the State Administration of Radio,
Film and Television, and the General Administration of Press and
Public awareness of the regulation is low. Chinese research
firm Beijing Shennong Kexin Agribusiness Consulting counts
hospitals as one of the four primary channels for sales of
infant formula, alongside supermarkets, baby product stores, and
Doctors and their recommendations have the largest impact,
it wrote in a November 2012 report. Consumers find "organizing
activities inside hospitals around nutrition more scientific and
Reuters found formula company advertising and promotion
commonplace inside hospitals. In August, visitors to the
maternity ward at Hangzhou Tianmushan Hospital in eastern China
were greeted with banners from Mead Johnson that read: "Healthy
babies, happy mothers" and "Give baby the best start in life!"
A picture of a baby drinking from a bottle and the Mead
Johnson logo adorned the floor guide. On the VIP maternity wing,
nurse Xia Lingling - a new mother herself - said Mead Johnson
representatives regularly visited to drop off samples for new
mothers and to give talks to the staff.
Xia explained that every patient who delivers at the
hospital and stays on the VIP wing receives a free container of
Mead Johnson upon the baby's birth. Mead Johnson "promotes their
infant formula here . . . it's a form of advertising," said
Zhang Yueqin, an obstetrician at the hospital.
A Hangzhou Tianmushan spokesman, who would only give his
name as Fan, denied the hospital touted Mead Johnson formula to
mothers. He said promotional materials were intended to improve
the medical knowledge of expectant and new mothers. The hospital
displayed no branded posters from Mead Johnson, he said. By late
September, the posters had been taken down, Reuters confirmed.
In a statement emailed to Reuters, Mead Johnson said it does
not provide formula directly to mothers in hospitals. It does
give samples to health care professionals "for the purpose of
professional evaluation or research, and all of them are clearly
marked 'For medical use only - Not for Resale' on the label,"
the statement said.
Mead Johnson said it provided posters and "other materials
to display in or around maternity wings" if requested by
hospital staff. These materials "fully comply with the laws and
regulations in China," it said.
Mothers whom Reuters interviewed said formula was pushed to
them in myriad ways: doctors gave them discount cards for infant
formula during prenatal checkups; hospital staff strapped
identity bands branded by formula companies to their babies'
limbs; formula representatives entered their hospital rooms to
distribute samples as they recovered from giving birth.
At Beijing Tiantan Hospital, representatives from companies,
including Nestle and Wyeth, visited with formula samples for
mothers and presents for doctors, said Dr. Yang, who worked as
an obstetrician there until 2009. "We weren't given a
commission, just small gifts."
She declined to elaborate on the nature of the gifts, or be
identified by her full name. Kuang Yuanshen, a hospital
spokesman, said that without more detail, it was impossible to
confirm Dr. Yang's allegations. Wyeth said by email that company
representatives were "strictly forbidden" from visiting
hospitals to distribute free samples.
Four former formula company representatives, however,
confirmed these kinds of dealings take place. A former Nestle
sales representative said she brought samples to doctors and
took them to dinner. A former Nestle marketing executive said it
was standard industry practice in China to provide financial
incentives to doctors to recommend a certain brand of formula.
Chinese doctors, she said, expect it.
In an emailed response to questions, Nestle confirmed it has
"a medical-trained team who visits hospitals to provide factual
information about our product features and up-to-date nutrition
and health-related information to doctors." Nestle "does not
provide any free supply to hospitals nor incentivize doctors to
promote our products," it said.
Many underpaid and overworked doctors in China's
state-dominated healthcare system have no choice but to rely on
incentives from companies, however, says John Cai, director of
the Centre for Healthcare Management and Policy at the China
Europe International Business School in Shanghai. The official
annual take-home pay for an obstetrician with nearly two
decades' experience in a public hospital might be only $5,000,
depending on the services she offers, doctors said.
"A company might approach you and say they'd like to support
your work," says Qiu Liqian, an obstetrician and associate
professor at the Women's Hospital at Zhejiang University Medical
School. "If you're organizing an academic conference, or you're
organizing an event on nutrition, or an event on preventing
infection, they would offer their assistance." Formula companies
pay for prominent Chinese doctors to attend academic
conferences, which she called "free holidays".
Bribery to obtain an unfair business advantage is illegal
under both China's Anti-Unfair Competition and Criminal Laws.
Bribery can include paying for sponsorship, scientific research
and travel expenses under the Anti-Unfair Competition Law; under
an interpretation of the Criminal Law, paying travel costs is
one of many recognized forms of bribery.
Some formula companies also utilize a large underground
market in hospital patient information. This gives them
immediate access to the names, phone numbers and due dates of
pregnant women and new mothers, according to a medical
researcher and sales executive who have seen name lists of
pregnant women for sale at hospitals in Beijing and Shanghai.
Under a 2009 amendment to China's Criminal Law, it is
illegal for employees in the medical sector to sell patients'
personal data. Stealing or acquiring such information illegally
is also a crime.
Contacting mothers through prenatal classes is one way
formula companies get access to expecting mothers. At one such
class taught by Abbott at Shanghai East International Medical
Center, participants received a 400-gram (15-oz) tub of Abbott
formula, according to Gao Meng, a 33-year-old office manager
from Shanghai who attended.
Shanghai East confirmed that Abbott representatives had
trained their nurses in Lamaze breathing techniques and taught
prenatal classes at the hospital between April and July this
year, because of their "expertise" in Lamaze breathing. No
infant formula was distributed at these classes, a spokeswoman
said. A spokesman for Abbott declined to comment.
Hospitals and doctors sell access to prenatal classes to
third-party companies, including formula manufacturers, said a
sales executive who uses Shanghai hospitals as a marketing
platform for his company's nanny services. That access allows
companies to lead classes, distribute promotional materials or
make an appearance to plug their products, he said.
Eighteen mothers in cities around China interviewed by
Reuters said infant formula companies contacted them by phone or
text message, both during their pregnancies and starting as soon
as an hour after they had delivered their babies.
Yang Jing, a 33-year-old department store manager in Beijing
who had a baby in 2011, said formula companies including Wyeth
called her to ask about her son's development. Formula would
help her son be stronger, they told her. Samples arrived at her
home. She said she had never given a formula company her
Wyeth said it "has clear guidelines for our sales activities
to exclude any sales or marketing activities relating to breast
milk substitutes that would target consumers, either by phone or
face to face contact." It promised an investigation into this
Most of the major infant formula companies have cultivated
ties with the government in China - including departments
affiliated with the National Health and Family Planning
Commission (NHFPC), one of the agencies tasked with enforcing
the 1995 regulation on formula marketing.
Companies fund hospital research and awards for doctors,
sponsor conferences and train state medical personnel - the same
medical professionals who are supposed to be actively advocating
Nestle has been among the most active in the government
relations area, breastfeeding advocates say. It has sponsored
training for officials from mother-and child clinics. It backed
a Chinese academic study analyzing the composition of Chinese
mothers' breast milk. Peking University Third, where Lucy Yang
had her baby, was among the hospitals the Swiss food giant chose
to conduct clinical trials on the use of breast milk "fortifier"
for premature infants between 2010 and 2011.
Nestle said it "works with the Ministry of Health and
healthcare institutions to promote public awareness and
knowledge of health and nutrition."
Last year, Mead Johnson launched a three-year training
programme for medical personnel in the southwestern province of
Yunnan, working with a Chinese foundation. The programme focused
on improving staff's understanding of nutrition and "scientific
feeding" for children from birth to age three, according to
company publicity materials.
Training of medical personnel that is intended as a gift is
a clear violation of both the 1981 WHO code and China's 1995
regulation, said Beijing-based WHO technical officer Wen
In a statement, Mead Johnson described its training project
ACCESS TO POLICYMAKERS
Nestle and other foreign formula companies also enjoy direct
access to Chinese policymakers. During discussions about
revising the 1995 regulation that began in December 2011, the
Ministry of Health (now the NHFPC) solicited opinions from big
foreign formula brands as well as global health and children's
Nestle sought to weaken some of the proposed provisions,
some of which were more stringent than the 1995 regulation and
would have brought China closer in line with WHO regulations,
according to a copy of its submission obtained by Reuters.
Despite publicly supporting the WHO code, Nestle objected to
a proposed rule that formula packaging should display in a
conspicuous way the wording "breastfeeding is recommended". The
WHO code says formula containers should clearly and
conspicuously display a statement on the superiority of
Nestle told Reuters that the proposed labeling risked
inconsistency with a Chinese infant food safety standard "which
provides clear guidelines to ensure that messages on labels are
displayed in a standardized manner".
Nestle further opposed a proposed ban in the revised code on
formula companies funding hospital research into breast milk
alternatives. In its statement to Reuters, Nestle said the
research was "necessary for the development of
science-based products that can save the lives of those infants
who cannot have adequate breast feeding." Nestle also sought to
limit the proposed code's application to formula for "full term,
healthy babies", an exclusion not in the WHO code, though it
says it did not try to make an exception for specialty formulas.
"Quite frankly," Nestle wrote Reuters, "all our
recommendations were meant to introduce a stricter local code as
well as implementation." Nestle added that it urged extending
the curb on promoting formula from infants' first six months to
their first 12.
SIGNS OF CHANGE
The Chinese government is showing signs of taking the 1995
regulation more seriously. After the Chinese television story
about Dumex, the health ministry warned hospitals to strengthen
enforcement of the code. Three government agencies jointly
issued a notice reinforcing its main principles.
But while the 1995 regulation is getting more attention, the
attempt to revise it remains in limbo. The NFPHC, in a faxed
response to questions, said the number of government departments
involved and the number of sectors the code covered, as well as
the reorganization of government departments, had slowed the
process of revision.
Wen, the WHO technical officer, said there may not have been
sufficient public education about the 1995 code. But she
stressed that infant feeding was an issue that "all of society"
needed to address. "If training is confined to the medical
system," she said, "it will only have a limited impact on
raising the exclusive breastfeeding rate."
(Additional Reporting by Adam; Rose, Li Hui and Megha
Rajagopalan; Editing; by Bill Tarrant and Bill Powell)