CHINA HAS CORNERED THE GLOBAL MARKET FOR VITAMINS

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---------CHINA HAS CORNERED THE GLOBAL MARKET FOR VITAMINSBy Tim JohnsonWith Fan LinjunMcClatchy NewspapersMay 31, 2007http://www.realciti es.com/mld/ krwashington/ 17306239. htmSHIJIAZHUANG, CHINA - If you pop a vitamin C tablet in your mouth, it's agood bet it came from China. Indeed, many of the world's vitamins are nowmade in China.In less than a decade, China has captured 90 percent of the U.S. market forvitamin C, driving almost everyone else out of business.Chinese pharmaceutical companies also have taken over much of the worldmarket in the production of antibiotics, analgesics, enzymes and primaryamino acids. According to an industry group, China makes 70 percent of theworld's penicillin, 50 percent of its aspirin and 35 percent of itsacetaminophen (often sold under the brand name Tylenol), as well as the bulkof vitamins A, B12, C and E.In the wake of a pet food scandal, in which adulterated wheat gluten fromChina led to the deaths of thousands of pets in North America, and otherinstances of food and toothpaste tampering, China's vitamin producers arereaching out to reassure U.S. consumers that their vitamins are safe.Whether that's true isn't clear, however. Foreign food-safety experts sayChina's larger companies have reputations to protect. The question is howthey maintain quality control.In this pharmaceutical hub, a two-hour train ride south of Beijing, managersat what may be the world's largest vitamin C factory said they're constantlyimproving quality control to keep pace with the tenfold increase inproduction this decade."We used to only comply with domestic standards. Now we must comply withinternational standards," said Liu Lifeng, an aide to the general manager atthe Weisheng Pharmaceutical Co. Ltd.Food and drug safety inspectors drop in at the plant from time to time."The authorities come unexpectedly without telling us," added Tian Yumiao,the senior director of the quality control department of Weisheng.But the inspectors aren't exactly neutral guardians of public health. Theywork for the city government, which is a part owner of the parent company ofWeisheng Pharmaceutical. That kind of relationship between food and druginspectors and China's booming agricultural and pharmaceutical industries iscoming to the fore as an issue in the food safety debate. The localgovernment in this thriving city of 2 million people would suffer if it didanything to hurt the growth of local vitamin and drug producers, and localofficials might be reluctant to admit that a public safety issue had arisen."That's a conflict of interest right there," said Kathryn Boor, a foodsafety expert at Cornell University. "You really need a disinterested partyinvolved in inspections. "Issues of food and drug safety ripple across China today. The former chiefof the state Food and Drug Administration, Zheng Xiaoyu, was given the deathsentence Tuesday for taking $832,000 in bribes to let unsafe drugs on themarket. One Zheng aide was sentenced to a 15-year jail term last autumn, anda second was accused in May in the bribery scandal.A survey earlier this year said more than three-fifths of Chinese worryabout whether the food they eat is contaminated or adulterated.Observers of China's food and dietary supplements industry say many largercompanies, such as Weisheng, are well-managed and obtain key globalcertifications.At the sprawling Weisheng plant, uniformed employees bustle about on neatlyswept walkways, entering production areas where assembly lines purr.Machinery seemed clean, although managers barred a visitor from takingphotographs in factory areas. Only minor odors emanated from a waterrecycling area."The industry in China is bifurcated between top-notch companies that arehighly skilled and do all the right things, and the second- and third-tierproducers, some of which are just sloppy bucket shops," said Peter Kovacs, afood industry consultant based in Incline Village, Nev.Foreign brokers concur that the low end of China's market has severeproblems."Sometimes you enter a factory, and you say, 'I can't believe they producefood here.' It's dirty and the machines are old," said Jan Willem Roben ofVision Ingredients in Shanghai, a broker of food additives for export.Since U.S. laws don't require food and drug sellers to label products withthe country of origin of ingredients, it's impossible for consumers to knowwhere food or supplements are coming from, not to mention what factoryproduced them.Vitamins fall into an area in China that straddles the food industry,comprising some 2 million businesses that exported $2.5 billion worth ofgoods last year, and the drug industry, which has 5,000 companies. Cases ofadulterated or mislabeled products have hit both food and drug companies.Fake drugs to treat impotency and help with weight loss are legion in China.Some African nations complain of fake Chinese medicines hitting theirpharmacy shelves. Shady small pharmaceutical firms have exported bogusanti-malaria medication to Southeast Asia, where the illness is prevalent,allowing sick people to grow sicker."We really believe they are criminals," said Dr. Henk Bekedam, chief of theWorld Health Organization office in China, referring to producers of fakemedicines.Cheap labor has given China Inc. its edge in manufacturing. Butpharmaceutical laboratories, which aren't labor intensive, benefit fromsubsidized rates on water and energy consumption, and often-lax oversight ofenvironmental rules.China's entry into vitamin C involved ingenuity -- and an unwitting assistfrom the U.S. Department of Justice. In the late 1970s and early 1980s,several big Chinese drug companies, working with the government-backedChinese Academy of Sciences, devised a method to cut the normal five-stepprocess for making vitamin C to a two-step fermentation process, leavingEuropean, U.S. and Japanese firms a step behind.The new method cut costs and gave China a manufacturing edge. It wasn'tuntil 1997, when U.S. attorneys broke up what they said was a price-fixingcartel of European and Japanese producers, that the door swung wide open forthe Chinese producers.Firms such as Weisheng, which had planned to produce 3,000 tons of vitamin Ca year, stepped up its capacity to 30,000 tons a year by mid-2004, which itclaims is the largest in the world. Another company across the city, HebeiWelcome Pharmaceutical Co. Ltd., has a capacity of 20,000 tons a year.Together, the two companies make nearly half of the annual world production."The Chinese did a good job in this. They used their existing know-how andleveraged it in a clever way," said Alexander Filz, a spokesman for DSM, aDutch chemical, nutritional and pharmaceutical company, which is the solecompetition in Europe for vitamin C production.But then Weisheng and three other big vitamin C producers appeared to takecues from their shattered competitors. Critics say the Chinese companiespracticed predatory pricing, undercutting the remaining producers, with aneye to cornering the world market and making an eventual killing."They formed the cartel in December 2001 when the prices were under $3 akilogram," said William Isaacson, a Washington, D.C., attorney. Isaacsonrepresents clients who are suing the Chinese companies in federal court inBrooklyn, N.Y., for damages from current high prices.Today, only one Western company still makes vitamin C -- Dutch-based DSM --and as China monopolizes vitamin C production, prices have hit $6 a kilogram(2.2 pounds).Managers at Weisheng brush off the price-fixing charges, which may come to ahead at a June 5 court hearing in Brooklyn, and say potential contaminationof vitamin C couldn't occur under their strict quality control system."It's impossible," said Zhang Heming, vice director of the umbrellaShijiazhuang Pharmaceutical Co. Ltd. "I've done research on this pet foodcase.""Our procedures, our facilities, even our air conditioners and water supplyall comply with international standards," said Tian, the quality controldepartment director.An assistant brought in a pile of certificates showing the company had metstringent European and British quality standards, and said U.S. standardsare similar.Chinese food safety experts bristle at what they say is the West'sexaggerated response to the pet food scare, in which melamine, a toxicchemical used in plastics, was added to wheat gluten, and the general "foodfright" swirling around Chinese exports.He Jiguo, a food safety expert at China Agriculture University, said it'sdifficult to deter companies with criminal or fraudulent intent before amishap is reported."There are thousands of illegal things you can add to a product. Thesupervisory authorities can't literally test for each one of them," He said."It is only after an accident happens that one finds out, just as a policeofficer can't arrest a thief before he commits a crime."One Dutch expert said European and U.S. companies are reaping the benefitsas Chinese companies reel from the fallout from food safety worries."There is an interest in the farm lobby in Europe and the United States toexaggerate. Everybody is always very happy when there's poor quality comingfrom the competition, " said M.A. Keyzer, the director at the Centre forWorld Food Studies in Amsterdam.Early reports indicate that Chinese food exporters already are experiencinga drop in sales.Boor, the Cornell expert, said concerns about the safety of the global foodtrade are a useful wake-up call to U.S. consumers."I think we take an awful lot for granted here in the U.S. that people aredoing their jobs all along the food chain," Boor said.

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