refer his observations to epidemiologists, was asked to refer his query to the health department. in june, jiangsu media reported a two-month surge in the number of babies diagnosed with kidney disease; in july, a parent of a sick baby in hunan questioned sanlu's powdered milk and complained to the aqsiq. gansu province sent a report to the ministry of health on 16 july to alert that one local hospital had identified an increase in the incidence of kidney ailments among babies in the months earlier, and that most victims had consumed sanlu's baby formula. the health ministry sent investigators to gansu in early august. cover-up allegations fonterra notified the new zealand government on 5 september and three days later, prime minister helen clark had beijing officials alerted directly. news reports began circulating in china on 9 september, and the news was broken internationally by reuters the following day. the state-controlled media report did not initially identify the company involved. posts on chinese social portal tianya named sanlu as the culprit, which sanlu denied. according to a state council investigation, sanlu had known about infants made sick by its products as early as december 2007, but no testing was performed until june 2008. it said leading government officials in shijiazhuang city had failed to report the contamination to provincial and state authorities (until 9 september) in violation of rules on reporting major incidents involving food safety. according to the people's daily, on 2 august, sanlu asked the shijiazhuang city government to assist them in controlling the media's reporting of the recall. according to accounts confirmed by media reports and health officials, the company tried to buy off critics and cover up the contamination. in a memo dated 11 august, beijing-based public relations agency teller international advised sanlu to seek cooperation with major search engines to censor negative information. the agency reportedly had repeatedly contacted key account staff at baidu and proposed a ¥3 million (us$440,000) budget to screen all negative news. after the memo began circulating on the internet, baidu denounced, in a communiqué on 13 september 2008, the approaches by said agency on several occasions, saying the proposal was firmly rejected, as it violated their corporate principles of unbiased and transparent reporting. new zealand prime minister helen clark said that she believed the chinese government had been inclined to try to solve the problem quietly, without a recall. western media speculated that china's desire for a perfect summer olympics contributed to the delayed recall of the baby milk, citing a guideline allegedly issued to chinese media that reporting food safety issues, such as cancer-causing mineral water, was "off-limits". the central government denied issuing this guidance. hebei provincial vice-governor said his administration was only notified by shijiazhuang on 8 september. however, a journalist at southern weekend wrote an investigative report in late july for publication about infants who had fallen ill after consuming baby formula from sanlu. six weeks later, senior editor fu jianfeng made a post on his personal blog stating that this report had been suppressed by authorities because of the imminent beijing olympics. while this was happening, sanlu was honoured in a national award campaign called "30 years: brands that have changed the lives of chinese". the press release on the award, written by a senior public relations manager at sanlu, passed as news content on people's daily and in other media. sanctions on 15 september, the company issued a public apology for the contaminated powdered milk; sanlu was ordered to halt production, and to destroy all unsold and recalled products. authorities reportedly seized 2,176 tons of powdered milk in sanlu's warehouses. an estimated 9,000 tons of product had been recalled. tian wenhua, chairwoman and general manager of sanlu and secretary of the sanlu communist party chapter was stripped of her party and functional posts during an extraordinary meeting of the hebei provincial standing committee of the ccp; four shijiazhuang officials, including vice mayor in charge of food and agriculture, zhang fawang, were reportedly removed from office. shijiazhuang mayor ji chuntang resigned on 17 september. li changjiang, minister in charge of the aqsiq, was forced to resign on 22 september after the state council inquest concluded he was responsible for the "negligence in supervision". investigators also blamed the shijiazhuang government. local party secretary wu xianguo was fired on the same day. arrests sanlu general manager tian wenhua was charged under articles 144 and 150 of the criminal code. a spokesman for the hebei provincial public security department said police had arrested 12 milk dealers and suppliers who allegedly sold contaminated milk to sanlu, and six people were charged with selling melamine. three hundred kg of suspicious chemicals, including 223 kg of melamine, were confiscated. among those arrested were two brothers who ran a milk collection centre in hebei for allegedly supplying three tonnes of adulterated milk daily to the dairy; the owner of another collection centre which resold seven tons of milk a day to sanlu, was arrested, and his operation was shut down. zhang yujun (alias zhang haitao), a former dairy farmer from hebei, produced more than 600 tons of a "protein powder" mixture of melamine and maltodextrin from september 2007 to august 2008. he and eight other traders, dairy farm owners and milk purchasers who bought the powder from him were arrested in early october, bringing the total to 36. during the week of 22 december 2008, 17 people involved in producing, selling, buying and adding melamine in raw milk went on trial. tian wenhua, former sanlu general manager, and three other company executives appeared in court in shijiazhuang, charged with producing and selling milk contaminated with melamine. according to xinhua, tian pleaded guilty, and told the court she learned about the tainted milk complaints from consumers in mid-may. she then apparently headed a working team to handle the case, but did not report to the shijiazhuang city government until 2 august. the intermediate people's court in shijiazhuang sentenced zhang yujun and geng jinping to death, and tian wenhua to life in prison, on 22 january 2009. zhang was convicted for producing 800 tons of the contaminated powder, geng for producing and selling toxic food. geng jinping managed a milk production center which supplied milk to sanlu group and other dairies. the china daily reported geng had knelt on the courtroom floor and begged the victim's families for forgiveness during the trial. the court also sentenced sanlu deputy general managers wang yuliang and hang zhiqi to fifteen years and eight years in jail, respectively, and former manager wu jusheng to five years. several defendants have appealed. zhang yujun and geng jinping were executed on 24 november 2009. tian wenhua received several sentence reductions for good conduct over the years. in 2011, her life term was reduced to 19 years. further reductions have since lowered that sentence to 15 years and three months. she is scheduled for release in 2024. effect on the company and bankruptcy the value of the company plunged as a result of the scandal. on 24 september, fonterra announced it had written down the carrying value of its investment by nz$139 million (two-thirds), reflecting the costs of product recall and the impairment of the 'sanlu' brand because of the "criminal contamination of milk". by 27 september, china daily reported sanlu was close to bankruptcy, and might be taken over by the beijing sanyuan foods company. the company is also facing lawsuits from parents (see anger at sanlu). the beijing review said sanlu expects to have to pay compensation claims totaling ¥700 million, and it became clear the company would be broken up and sold. on 25 december, shijiazhuang court accepted a creditor's bankruptcy petition against sanlu. media commentators expected the sanlu distribution network to be sold. chinese majors on 16 september, the aqsiq released test of samples from 491 batches of products sold by all 109 companies producing baby formula. it said all 11 samples from sanlu failed the melamine test. sanlu, whose products sell at half the price of equivalents on the market, recorded the highest levels of contamination among all the samples tested, at 2,563 mg/kg or parts per million ("ppm"). tainted samples were found among 21 other suppliers, where concentrations ranged from 0.09 to 619.00 ppm. there was melamine contamination in 10% of liquid milk samples from mengniu and yili, and 6% of those from bright dairy. on discovery of contamination, the three major producers were all stripped of their status as 'chinese national brands'. yili, mengniu and bright dairy & food co. recalled tainted powdered milk and apologised in separate statements. mengniu recalled all its baby formula, and trading in its shares on the hong kong stock exchange was suspended on 17 september. shares in other dairy companies fell strongly the next day. mengniu's cfo attempted to reassure consumers by offering a no-quibble refund on all products, and by drinking liquid milk in front of reporters in hong kong. he also said that its export products were less likely to be contaminated. on 30 september, the aqsiq announced test results of a further 265 batches of powdered milk produced by 154 different companies prior to 14 september, where it found 31 batches produced by 20 domestic dairy companies were tainted with melamine. on 1 december, china's ministry of health issued an update, saying nearly 300,000 babies were sickened after consuming melamine-contaminated infant formula. trade and industry impact chinese industry the state council ordered the testing of product of all dairy producers, and to this end, some 5,000 inspectors were dispatched. the chinese market has grown at an average annual rate of 23% since 2000. in 2006, milk production reached 30 million tons, ten times the volume of a decade before. it was valued at some ¥122 billion (us$18 billion) in 2007, and consumers had severely lost confidence in the industry. the events have exposed the often-incestuous relationship between local business and local government. in addition to the tax revenues to local authorities—sanlu contributed ¥330 million in 2007, many companies invite local officials to become "silent partners" in their corporations—in return for "protection" at the political level; former sanlu chairman tian wenhua was made honorary deputy to the provincial people's congress. the scandal has also highlighted structural problems of inadequate production volume, inherent quality issues, and poor production methods. the inner mongolia region produces over one-fourth of china's milk, and mengniu and yili have invested millions to establish state-of-the-art dairy facilities in its capital, hohhot. the companies still rely on small-scale farmers for over 90% of their production because of the capacity constraint of the modern facilities. both companies were said by farmers and agents to have habitually purchased milk which failed quality tests, for only two-thirds the normal price. a new policy was put in place on 17 september to stop that practice. pos materials from yili dairy declaring clean bill of health from aqsiq consumer panic resulting from the contaminated milk lessened demand for dairy products, causing hardship to more than 2 million chinese farmers who had nowhere to sell their milk and no means by which to support their dairy cows. farmers reportedly poured away milk and faced selling cows to a buyerless market. since the scandal erupted, sales have fallen by 30–40% on a comparative basis, according to the chinese dairy association. the association estimates the financial effect of the order of ¥20 billion, and forecasts that confidence may take up to two years to be fully restored. in an effort to prop up sales and retain their market share, dairy firms have cancelled their common accord not to use promotions to fight the sales decline: substantial discounts (including bogof), free gifts and other point of sale incentives were being offered to shoppers. their new products are conspicuously labelled "safety inspection passed" to allay consumer fears. foreign operations in china mengniu-arla, a joint-venture between danish/swedish co-operative arla foods and mengniu halted production on 16 september 2008 after three of 28 tests taken from mengniu showed traces of melamine; the contaminated batches had been recalled. mengniu, milk supplier to starbucks, was replaced by vitasoy when the coffee retailer eschewed milk in favour of soya milk in its china operations. kfc also suspended selling mengniu milk. seoul-headquartered lotte group, a major snacks maker, recalled its