Killer inflation leads to China milk scandal affecting 53,000 children amidst Beijing Olympics cover-up

The head of China's food safety watchdog, Li Changjiang, resigned Monday [22 Sep 2008] for failing to stop the widespread contamination of baby formula as the number of children sickened in the scandal soared to nearly 53,000, including 4 infants who died. Investigators revealed that Sanlu, China's biggest producer of powdered milk, had received complaints as early as December 2007 linking its infant formula to illnesses in babies. Tests revealed the milk was tainted with melamine, used to make plastics and fertilizer, which causes kidney stones and can lead to kidney failure. Suppliers trying to cut costs are believed to have added it to watered-down milk because its high nitrogen content masks the resulting protein deficiency.

Baby formula and other Chinese milk products have been pulled from stores, and have been recalled or banned in Japan, Singapore, Malaysia, Brunei, Hong Kong, and other countries around the world. Reporters Without Borders said Beijing had ordered news of the scandal hushed up ahead of the Olympics. Shijiazhuang city government spokesman Wang Jianguo said the Sanlu Group had asked for government help to cover up the extent of the problem, on 2 Aug 2008, 6 days before the opening of the 2008 Beijing Olympics.

- It is now official : inflation is a killer. In between rising input prices of everything, and consumer expectations of low "Made in China" prices, something had to give. That something has been food safety, and to make matters worse, it is now known that this has been going on for months and it was covered up for the Olympics.

Inflation, economics, and "matters of the face" make for a lethal combination. Who is going to trust "Made in China" now? For years, China has been absorbing global inflationary pressures and for a while, they had a good thing going, and even got themselves labelled as the "exporter of deflation" around the world. Something has snapped in the system - Chinese suppliers will no longer be able to meet expectations of ever-lower prices. The resulting price snapback is going to ripple through the supply chain. Global inflationary pressure meets global deflationary credit crisis. It's going to be a historical battle, one for the ages.

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