Hong Kong's Baby Formula Brouhaha

In what seems a particularly strange burst of cognitive dissonance, the thousands of travelers into and out of Hong Kong's gleaming international airport at Chek Lap Kok are greeted with stern loudspeaker announcements in English and Chinese that they can be jailed for up to two years and fined as much as HK$500,000 for possession of two cans of - milk powder.

It is a story that speaks to Hong Kong's worsening relations with the mainland, whose millions of parents want powdered milk for their babies because they don't trust manufacturers in their own country. Thus an army of "parallel traders" has sprung up, buying every tin of brand-name powdered milk that they can get their hands on and transporting them over the border for sale, leaving behind them denuded shelves and outraged locals who have held noisy demonstrations protesting that they have been unable to find baby formula for their own children.

There is a real question whether there is a shortage at all, which has resulted in the unlikely criminalization of owning more than 1.8 kg. in two tins. Some critics say that actually the shortage is the result of artificial constraints on supply by a combination of retailers and importers who require that consumers can only buy the baby formula for newborns if they also buy the formulas for the next two baby stages up, enabling retailers to gouge buyers.Under rules in force in the territory, the manufacturer can insist that only the product approved for distribution in Hong Kong can actually be distributed there and that all other products for distribution elsewhere, although legitimately produced under the legitimate brand name, may not be sent to the territory.

Also, rules against parallel imports, or imports that do not flow through Hong Kong's food cartels, prevent others from importing and selling the products directly, making a mockery of the territory's reputation as a free trade port. Zong Qinghou, head of the Hangzhou Wahaha Group of companies, told the National People's Congress today that it is unnecessary for the Hong Kong government to restrict travelers from carrying baby formula out of the SAR because in fact the Australian and US dairy industries are suffering from overcapacity and can produced as much as anybody wants.

"Some Australian dairy company has invited on its own initiative to invest in milk processing industry and export products to China, because they are troubled with overproduction," Zong said. He hinted that the seeming shortage of baby formula in Hong Kong earlier could be suspiciously artificially created.

Outrage at the depletion of milk powder supplies is only the latest flashpoint between the mainland and Hong Kong, but it is outrage that has been growing for years as mainland tourists - 27 million of them in 2012 - have flooded into the city. They have been blamed for taking hospital beds away from local mothers waiting to give birth, causing the closure of longtime favorite shops and restaurants as landlords opt for the vastly higher rents paid by luxury brands catering to the Chinese, and driving up property prices as rich mainlanders swarm residential districts, presumably with cash liberated from illegal activities.

Local residents are now calling mainlanders "locusts" and regard them as uncouth hillbillies. A year ago, there was an ugly incident filmed on the city's light rail system in which a mainland family took out food to eat, which is not allowed by local authorities. That engendered a screaming match that made it onto You Tube and was downloaded by thousands of locals who denounced the mainlanders.

It seems an unlikely situation. In 2003, when Hong Kong was nearly at the nadir of its long downward spiral as the result of a property crash and the after-effects of the Asian Financial Crisis, the Chinese government essentially gifted Hong Kong with the Closer Economic Partnership Arrangement, or CEPA, a free trade agreement which has provided an enormous boost to the local economy. Along with that was the agreement to allow the almost free flow of the mainland tourists.

As late as 2008, the current situation seemed unthinkable, when millions of Hong Kong's 7.5 million residents, waving Chinese flags, cheered the Beijing Olympic Games in a huge burst of patriotic enthusiasm. That is long gone, with some residents of the city now waving flags left over from the British colonial period.

This has not gone unnoticed in China, where resentment is growing against the upstart city on its southern flank, defiantly speaking Cantonese instead of Mandarin, driving on the left side of the road and cursing mainlanders when they arrive to spend vast amounts of money toi prop up the economy. The hyper-nationalist Global Times on Tuesday carried a commentary slamming Hong Kong's move as like a "UN embargo," questioning whether the territory's citizens had become too lazy after being fed with the support and assistance of the mainland. "Because of safety concerns, mainland people go to buy baby formula in Hong Kong, which should be regarded a good opportunity instead of a burden for Hong Kong," the editorial said. "Hong Kong really cannot bear the price of losing its role as a window of the Chinese mainland."

The restriction on travelers' carrying baby formula out of the SAR continues to be bombarded by mainlanders who find it unbelievable that buying milk powder could result in a being jailed. In fact nearly all of the popular foreign brands of milk powders are on sale on the mainland, many being manufactured there while some is directly imported. But the Chinese have lost confidence in a home market which is full of fake products. Foreign baby formula manufactured in China can be faked and imported tins are substituted with fake powder, many say. Zhu Zhangjiang, an NPC deputy from Zhejiang province, caused an uproar when he showed up at the National people's Congress in Beijing today with what he said were 300 samples of poisonous foodstuffs including a chemical used as additive in chicken feed that enables hens to lay eggs with bright red yolks and expensively priced "healthy" peanuts which were in fact colored with harmful dye.

Milk powder is particularly evocative, hearkening back to 2008 when some of the country's most prominent dairies adulterated their milk products with melamine, a nitrogen-rich compound not intended for human consumption that was used to increase protein content. Some 300,000 children fell victim, with 55,000 hospitalized and six dying from kidney stones and other kidney damage.

The raid on Hong Kong's milk powder supply finally resulted in a draconian crackdown that many critics said never needed to take place, blaming a government that bowed to citizen outrage rather than taking the wiser step - since Hong Kong Kong is ostensibly a free port and an entrepot for China - of empowering traders to import vast quantities of milk powder for sale into the mainland outside of the monopoly framework controlled by Hong Kong's oligarchs .

Instead, customs officials arrested 45 people on charges of trying to smuggle baby milk powder across the border into China after an after an emergency two-can limit on exports of milk formula, launched in February, was made permanent.

The central government, in advance of the two-week National People's Congress, has repeatedly sought to address the milk powder problem.

"The milk powder problem is something we don't need a long time to solve," China's health minister, Chen Zhu, told reporters last week, saying the State Council, China's cabinet, is seeking a solution which could include a new food regulatory agency.

For Hong Kong -- and for China as well -- the problem could be solved by returning to the territory's free-trade history rather than protecting the oligarchs with distribution "rights" from competition by suppliers of identical goods from other sources. The existence of the ban on parallel imports is evidence of how far the government protects the interests of business groups who thrive on monopoly while parroting the fiction that the territory is the most competitive place on the globe.