The Chinese Dairy Wars

(Global Times) On October 20, the Mengniu Group issued the following statement:

Recently, there have been rumors that Mengniu organized the Syrutra scandal of sexual precocity, and also some senior managers from Mengniu have been detained by the police. For this, Mengniu stated that:

1 Mengniu never planned, organized or carried out any activities related to the Syrutra scandal.

2 Mengniu has reported to the police about this event to find out the legal responsibilities of any individual or organization that spread this false information.

3 All senior managers at Mengniu are in normal condition.

4 We retain the rights to look into the legal responsibilities of any individual or organization that spread this false information.

5 We fully understand the harm of illicit competition. Putting ourselves in a rival company's place, we know exactly how it feels, so we earnestly hope that the police can unveil the truth behind the Syrutra scandal as soon as possible.

6 Mengniu has suffered from similar defamation more than once in recent years, and we have highly restrained ourselves.

We call for maintaining the order in the country's dairy industry, since it is not only related to the country's dairy industry and consumers, but also the order of the whole society. We hope to join hands with the country's peers to make the country's national dairy industry stronger.

(Global Times)  The statement from the Yili Group on the malicious attack by a business competitor.

We have recently received inquiries from the media about Yili being victim of unfair competition by industry peers, we appreciate the attention from all circles of society.

Here, we report the matter to the public:

1 In the middle of July, 2010, we found some reports and words which attacked the products and brands of our company on the media; and reported to the police in Hohhot, Inner Mongolia Autonomous Region on July 30.

2 After an investigation by the police, the case was cleared. And it (case) involved personnel from Mengniu, Mengniu's contracted PR agency, and a Beijing-based marketing consulting company. Data showed that Yang Zaifei, assistant of Mengniu's president was the executive director and general manager of the PR agency and the latter's vice general manager, Zhao Shiyong, was the chief consultant of Mengniu.

3 One of Mengniu's directors in charge of children-milk products, An Yong, and three individuals at Mengniu's contracted PR agency were arrested recently.

(  Statement from the Shengyuan Company concerning the media reports about the blackhands that staged the <Premature Sexuality> incident.

1. Shengyuan solemnly states again that the Shengyuan milk powder is safe, high-quality and guaranteed.  The "Sexual Prematuration caused by milk powder" was a sheer fabrication.  The authoritative state department has reached that conclusion, just as all the industry experts around the world have.  Shengyuan was innocently swept into this "sexual prematuration" incident and sustained tremendous damage.  The Shengyuan Company supports the judicial investigation and media supervision and it opposes irresponsible hyping.

2. As a company that produces infant and children nutritional products, Shengyuan has building trust as its corporate goal. The company pays attention to product safety and quality and it pays attention to consumer service and user experience.  Only this can we win consumer trust.  Only by doing so can the Shengyuan Company have long-term development.

3. Concerning the report of the black hands staging the <Premature Sexuality> incident in the background, Shengyuan was very shocked when it learned the news.  It never imagines that such things can happen.  If true, then the act of use libel to destroy industry competitors for self interests will destroy its own corporate image, damage the image of manufacturing in China as a whole and malign the image of China as a whole.  Such acts must be punished by the law as well as public opinion. The Shengyuan Company believes that justice will prevail.  We advocate fair industrial competition with the emphasis being placed on product safety and customer service.  There is the only direction that we should work together towards.  This is the only way that our people will have a bright future.  Only when everybody does well do we have the opportunity.

4. Shengyuan calls on the media to report on this matter in a fair and objective manner.  We call on the government to investigate this case and get to the truth.  If the case should be as described, the organizations and individuals involved should be severely punished.  The government must eliminate all the harmful elements in order to bring a blue sky to the Chinese dairy industry.

5. The Shengyuan Company is actively cooperating with the media on reports about this case, working with the government's judiciary departments on the investigation and keeping its right to use legal methods to reveal the truth and protect its own rights and interests.

(The Standard)  Mengniu pours cold milk on 'arrests' rumors.  October 21, 2010.

China Mengniu Dairy (2319) has denied reports that it was involved in any activities damaging the business reputation of a rival company.

Mengniu added that all members of management are working as usual, denying a Caijing report that executives and its outside public relations representatives have been arrested or are under investigation. Shares of Mengniu plunged 2.5 percent to HK$23 yesterday.

"Mengniu Group never planned, organized or acted related to the claim that Shengyuan dairy products triggered precocious puberty," the group said in the statement. The milk maker also said it has reported the matter to the police.

There have been postings on several mini-blogs in the mainland saying Mengniu was behind a plan to damage the image of Shengyuan.

At least 10 people, including executives of the mainland dairy product maker and its public relations firm, were arrested, according to the postings. They included executive assistant to the chairman Yang Zaifei, director of liquid milk operation An Yong, and Zhao Xiyong - deputy manager of Beijing Bosi Zhiqi Public Relations Consulting.

At least three others from the consulting firm have been detained, sources said. Mainland market watchers doubt the postings. The rapid spread of the rumors indicate someone is trying to harm Mengniu, said Wang Dingmian, an independent dairy industry analyst.

Shengyuan, which focuses on the milk powder market, in which Mengniu has only a 5 percent market share, are not direct competitors. But the Mengniu statement, which denied all allegations involving Shengyuan, did not respond to claims by Yili, another rival, that Mengniu targeted that company in July, and planned to spread rumors involving its products.

Yili said the case is under investigation, while some Mengniu staff had been arrested.

(South China Morning Post)  Dairy executives held over smear campaign  By Zhuang Pinghui.  October 21, 2010.

A senior executive of mainland dairy giant Mengniu and three of the company's online marketing managers have been arrested for running a smear campaign against major rival Yili.

In a statement released yesterday afternoon, Yili identified the executive as An Yong , who is in charge of Mengniu's children's dairy products. The three marketing managers are from the Beijing-based PR firm BossePR.

The Yili statement contradicted an earlier one put out by Mengniu, which said "all senior executives of Mengniu are working as usual".

Shanghai-listed Yili, the country's largest dairy company, is the main competitor of Hong Kong-listed Mengniu.

The public sparring between the Inner Mongolian diary giants has brought to light not only their long-term feud, but also the dirty tactics many mainland companies use to smear one another through gossip and innuendo on the internet.

It looks set to bring further damage to the battered reputation of the mainland's dairy industry, which is still recovering from the infamous scandal over milk tainted with the industrial chemical melamine, which left at least six children dead and 300,000 ill in 2008.

The statements from the two companies came a day after a media frenzy caused by the internet leak of Yili's internal correspondence on the development of the police investigation, which detailed a systematic attack on Yili's dairy products for children organised with strategic planning and arranged by professional online marketing firms.

Yili said in yesterday's statement that it had detected many postings and reports online attacking the company's brand and products since the middle of July. Yili reported the matter to Hohhot police on July 30.

"The case of deliberately damaging Yili's reputation has been cracked after a police investigation," said the statement. "This case involves employees from Mengniu Dairy (SEHK: 2319); Beijing BossePR, whose chairman and general manager also works as the assistant to the general manager of Mengniu, and the Edayspring online marketing consulting firm."

An Yong and the three Beijing BossePR employees - Zhao Ning , Hao Liping and Ma Ye - have been formally arrested. Two other executives are wanted by police, according to the statement.

A separate report by Caijing magazine confirmed the arrests, citing a senior official with Hohhot police.

Officials from Mengniu and Yili were not available for comment yesterday despite repeated attempts to contact the companies.

According to the leaked internet documents, senior Communist Party officials had "attached high importance to the case" and a Politburo member, Minister of Public Security Meng Jianzhu and Inner Mongolia party chief Hu Chunhua had all instructed police to make a speedy and thorough investigation.

The documents detailed how online marketing firms had published postings saying that one of Yili's products for children, containing deep-sea-fish oil, could cause premature puberty. Soon afterwards three newspapers published articles attacking Yili's products, without mentioning its brand name. Major internet news portals picked up the reports. Yili later received confirmation from those portals that the articles were arranged and paid for by public relations firms, according to the leaked documents.

The documents also said a mainland reporter was fed a story that three baby girls in Hubei had developed breasts early, while online postings appeared saying Yili's products contained a substance that would cause premature puberty.

The media and internet blogs initially focused on Synutra, a Hubei-based company specialising in baby milk products, alleging its products caused the babies to grow breasts.

The shares of the Nasdaq-listed company plunged by 27 per cent a day after the reports. A week later the Ministry of Health announced that "the cases of premature development of breasts in three baby girls in Hubei had no link to being fed the Synutra baby formula".

(Caixin)  Mengniu Investigated for Slander Against Rivals    Wang Shanshan   October 20, 2010

Police in Inner Mongolia have launched an investigation into dairy producer China Mengniu Dairy for alleged slander against its major rival, Inner Mongolia Yili Industrial Group, according to an internal source from the Hohhot public security bureau.

Three people from Beijing BossePR Consulting Co., a company hired by Mengniu to draft and conduct the defamation, have been rumored to be detained by police and a director of Mengniu's child dairy department, An Yong, has also been arrested.

The Hohhot police source confirmed with Caixin that the case has been filed with the local public security bureau but did not provide more information on the detentions.

A source closed to Beijing BossePR told Caixin that Yang Zaifei, the company's founder, has been under police investigation.

Caixin obtained a copy of a draft plan that aimed to stir public fears over product safety against its rivals a supposed addition of the chemical, docosahexaenoic acid (DHA). A source close to the situation said that the document was found by police when they searched the office of BossePR.

According to the document, an Internet campaign named the "731 Plan," was to be conducted for up to ten days at the end of last July, and included the use of online articles written by fake consumers and fraudulent blogs in order to trigger public fears over the product safety of rivals. The total budget of the campaign was 250,000 yuan.

However, the credibility of the document has yet to be verified by the public security department.

(Xinhua)  Police cracks case of Internet public relations company being hired to damage the business reputation of Yili.  October 20, 2010.

On the afternoon of October 12, the Xinhua reporter learned from the Inner Mongolian province Special Economic and Technology Development Zone public security bureau: the Internet story about Yili's QQ Star Children Milk being maliciously attacked was a premeditated case of business libel, as determined by the police,  At this time, the case has basically been solved and the suspects are placed under police control.

On October 19, certain Internet forums and microblogs began to say that the Yi Group's QQ Star Children Milk had been maliciously libeled by hired Internet public relations companies.  Netizens were "shocked" and demanded to know the "truth."

To get to the truth, we must go back to the beginning of the case -- July this year.

On July 16, 2010, a certain newspaper published a so-called "Serious fraud with deep sea fish oil" news story. A large number of other attacking articles appeared to say that "deep sea fish oil is worse than hogwash oil."

Thereafter the attack against "deep sea fish oil" drilled systematically deeper.  In addition to saying that deep sea fish oil products is not fit for consumption, the arrow was directed at Yili's QQ Star Children Milk.  Consumers were urged to boycott Yili's QQ Star Children Milk which uses deep sea fish oil.

The associated essays appeared at the major portals, personal blogs and Q&A sections of Baidu and other mainstream websites.

The Yili Group quickly filed a report to the Hohhot Special Economic and Technology Zone public security bureau.  A police investigation team was set up.

After more than two months of meticulous investigation, this police found that this was a case in which "an Internet public relations company was hired to systematically and purposefully damage the business reputation of a company for profit."

The police confirmed:  On July 15, the Mengniu Company's Future Star brand manager An Yong and Beijing BossePR public relations consulting company met to discuss how to attack its competitor -- Yili's QQ Star Children Milk -- and formulated an Internet battle plan.

According to the police, these Internet attack tactics include: Finding Internet writers to compose critical posts to be posted at almost 100 Internet forums; incite popular passion; contact popular bloggers to write critical essays which are then "recommended" on the front page of the portals" in order to enhance the impact; make up Q&A's using the status of parents and pregnant women to condemn the Yili company; create large amounts of Internet reports and grassroots blog posts.  The entire project cost about 280,000 yuan.

This project was formulated jointly by Mengniu's Future Star brand manager An Yong, Beijing BossePR public relations consulting company (Hao Liping, Zhao Ning, Ma Ye, etc) and Beijing "Dasipurui" Internet marketing company (Zhang Ming and others) and the blogger Li Youping (a partner at the "Dasipurui" Company).

The entire Internet campaign lasted one month. The post with the highest number of page views reached about 20 million persons.

The police said that this case has been broken open.  The three suspects An Yong, Hao Liping and Zhao Ning have been officially arrested on October 16.  Another suspect Ma Ye has been detained by the police.  Zhang Ming and Li Youping are fugitives of the law.

On the evening of October 20, our reporter contacted Mengniu vice-president Hu Sudong.  Hu Suwong said that An Yong is a project director at Mengniu who did all this on his own.  Mengniu supports the police in carrying out the law.

(  October 21, 2010

Yesterday our reporter called the mobile phone of Yang Zaifei.  The mobile phone has been turned off.

The public information on Beijing BossePR Public Relations Consulting Limited Company CEO Yang Zaifei was that he graduated from the School of International Relations, Chinese People's University in 1995.  He has worked as a reporter for CCTV's <Focus Interview> and <Economics 30 Minutes> programmes.  In 2001, he founded the BossePR Public Relations Company.

The public information indicates that BossePR was the thinktank for Mengniu Dairy Industry over the past ten years.  Mengniu rose from being number 1,116 in the Chinese dairy industry to number 1 as well as top 20 in the world.  BossePR provided in-depth and important public relations support during that rapid development.

According to a ex-colleague at CCTV, Yang Zaifei's public relations company is in fact Mengniu's corporate public relations agent.  Being an ex-reporter, Yang knew how the media work.  According to a media person who is familiar with Yang, the latter is knowledgeable and powerful in public relations capability.  Yang has performed outstandingly in the Mengniu OMP public relations crisis and the trademark dispute with Chinese FOods.  Our reporter learned that Mengniu is the "biggest client" of Yang's public relations company.  In recent years, Yang's compare took charge of all external publicity for Mengniu.  Sometimes Yang can directly answer the questions from reporters.  At certain functions, Yang Zaifei participates as the "assistant to the Mengniu CEO."


Yesterday afternoon, the front entrance to the BossePR office in Zhaoyang district, Beijing was closely locked.  When our reporter showed up, the receptionist asked for our purpose.  When told that this was a reporter trying to gather information on the "slander gate" between Mengniu and Yili, the receptionist said that the company was operating normally.  When asked about whether CEO Yang Zaifei and vice-president Zhao Yong were at the office, the reply was that both were away on business.

According to a company worker who refused to divulge a his name, company workers know all about the Internet reports.  At present, the whereabouts of Yang Zaifei and Zhao Yong are unknown.  Yesterday afternoon, all company workers were told that everything on the Internet is rumors and that everybody should continue to work in peace.  This person said that "everybody knows that BossePR has worked with Mengniu over many years."

(Global Times)  Milk quality scandal increases focus on corporate responsibility   By Jin Jianyu.  October 21, 2010.

The allegations regarding the safety of infant powdered milk produced by the Inner Mongolia Yili Industrial Group have proved to be without foundation íV and are said to have been publicized by rival dairy group Mengniu, the Xinhua News Agency reported Thursday.

According to the report, Mengniu's director in charge of infant milk formula, An Yong, and a Beijing public relations company, are allegedly behind the plot. The local procuratorial organ arrested three suspects, including An Yong, on Saturday.

Police in the Inner Mongolia Autonomous Region declined to comment on the case.

In July, Yili heard many rumors saying there were quality issues relating to the deep sea fish oil in one of its infant formulas. The company reported the rumors to the local police on July 30, according to a circular issued by Yili's Public Relations Department on Wednesday.

An investigation carried out by the district police showed that members of the public were paid a fee to post online comments on nearly a hundred forums and blogs, in order to create concerns about Yili's allegedly problematic products among netizens and consumers.

Some of the people who made the unfavorable comments even pretended to be parents of babies or said that they were pregnant women. And the police said that it cost Mengniu nearly 280,000 yuan ($42,133) to carry out this online attack.

Fish oil, a widely used nutritional additive, is added to Yili's allegedly problematic milk product while another additive, micro algae oil, is an ingredient in Mengniu's similar products.

The suspects were quoted by the report as saying that the purpose of spreading the rumor was to promote the micro algae oil products.

"It's ill-advised to tarnish a commercial rival's reputation through illegal ways," Chen Tao, a committee member of the Beijing Lawyer Association, told the Global Times.

"The loss outweighs the gain," Chen also said.

He added that there should be more emphasis on both moral and legal awareness in business management in order to maintain a fair and legal dairy market.

Hu Xingdou, an economist with the Beijing Institute of Technology, echoed Chen and said, "Corporate social responsibility, including producing quality products and adopting lawful competition methods, should be reinforced."

Hu suggested setting up a managing committee or association in the dairy industry, or intensifying the role of the already-established diary industry association, to solve problems by means of dialogue, and avoid cut-throat competition.

But he said this case could also lead companies which have resorted to inappropriately competitive measures to try and increase the pressure on their perceived rivals.

"This can also promote the quality of dairy products, as the company may fear being exposed by the rival," he added.

(Daqi)  Netizen tells how Mengniu plotted to frame Shengyuan.  October 20, 2010.

I am a strategist at a certain public relations company.  Today I want to tell everybody about how Mengnui framed Shengyuan up.

You may not know that the "Shengyuan sexual prematuration Milk Formula" incident was actually systematically planned and organized by Mengniu Dairy Industry against our QQ Star children and infant milk formulae.  Because we reacted rapidly and made correct decisions, we were able to avert the crisis.  Otherwise we would have been buried deep in the "sexual prematuration Gate."

The first step of the plan was to manipulate the alternate media to attack deep sea fish oil products.  People were made to become aware of deep sea fish oil products and became fearful. On July 13, 2010, <Life Times> published <Most deep sea fish oil have problems, experts claim that fake products are persvasive>.  This article was carried 23 times.  On July 14 and 16, <Beijing Times>, <Beijing Entertainment News> and <Dongfang Zaoboa> followed up with the article <Deep sea fish oil market is a mixed lot, huge concerns over EPA levels> to poing out that <EPA ingredients in deep fish sea oil pose risk to children's health, pure plant algae oil DHA extracted from laboratories is the best healthy choice>.  None of these articles carried bylines.  They are the classical paid advertorials.

At the same time, almost twenty mainstream websites (MOP,, NetEase,, Tencent, People's Net, Xinhua Net, etc) re-published these articles.  The article did not mention the name of the company.  When the Shengyuan Group public affairs office contacted these media outlets, they were told that these articles were purchased ads placed by a public relations company.  According to the stated original plan, there would be several more articles to appear in the print media.  Our company used the public relations technique of "getting to the source" and contacted that advertising company which were publishing these articles.  We successfully prevented the remaining essays from showing up.  During the process, we learned that two of the companies had business dealings with Mengniu's public relations firm.

The second step of that plan was to use Internet promoters to began deep attacks on the Internet.  They pointed out that the EPA in deep sea fish oil causes sexual prematuration in children, and attack all those companies which use deep sea fish oil product by name (Yili, Jinlongyu, Shengyuan, Anli, etc).  On July 19 and 20, at MOP, Qianlong Net, Yahoo,,,, etc), there appeared the article <Experts: "Deep sea fish oil" risk exceed that of "hogwash oil">.  The article claimed that the "deep sea fish oil" DHA contains EPA which causes sexual prematuration amongst children."  The article directly named names: "At present, the major brands that advertise themselves as using deep sea fish oil include the Yili QQ Star Children's Milk, the Shengyuan milk powder, Jinlongyu, Anli Deep Sea Fish Oil, etc."

At around July 17 right after the "Deep Sea Fish Oil Gate" was initiated, they leaked information to a certain Hubei reporter that "A Wuhan female infant was sexually premature due to ingesting of the Shengyuan Xiubo brand milk powder."  On August 5, <Health Times> was the first to publish the article entitled <Three Wuhan female infants drank a certain brand of milk powder and are exhibiting premature sexual characteristics such as breast development>.  On August 6, <Phoenix TV> and published the article <Female infants exhibit premature sexuality possibly because of milk powder, Shengyuan responds that there are absolutely no problems with its products>.  At the same time, other media followed up in the light of the broad public and media attention.  On August 8, the various media outlets began to chase after the "Shenyuan sex hormones gate" which drew consumer attention.

In third step was to direct the efforts of the Internet promoters against the Yili QQ Star children milk to involve that product into the "Sexual prematuration gate."  This would affect regular sales of Yili QQ Star to the advantage of Mengniu children milk.  A number of Internet criticisms were aimed at the deep sea fish oil used in the Yili QQ Star product.  (The safety of deep sea fish oil is accepted by the Ministry of Health and it is permitted to be used as a new source of food.  There is no question about anything related to sexual prematuration.  Among infant food which has the strictest safety standards, 75% of the product use deep sea fish oil DHA including the products of Unilever, Nestle, Mead Johnson and others name brands inside and outside China).  They malicious exaggerate that the EPA ingredients in deep sea fish oil also led to sexual prematuration among children.  These essays were carried by non-mainstream media to increase the pressure.

After July 27, MOP,, Tianya Forum, Kaixin Net and other Internet forums were flooded with large numbers of posts with titles such as <Extremely angry!  Cruel injuries to children!  Yili QQ Star contains deep sea fish oil>, <Yili QQ Star, we hope that you have the courage to come out and acknowledge your errors>, <Call to assembly to boycott Yili: We will use our actions to save our children> and so on.  These posts were cross-posted all over the place.  At Kaixin Net alone, the relevant posts drew more than 300,000 page views per day.  Yili products were the target of this attack.  The incident spiraled upwards.  Many consumers who didn't know the truth began to suspect all products that have deep sea fish oil.  They called the customer service lines to ask about the problems with fish oil.  The Yili Group came under tremendous pressure.

Mengniu's internal planning proposal was later found.  It showed that Mengniu was going to use mobile phone text messages to begin another round of attacks.  Fortunately, the Shengyuan Company was able to initiate the crisis management system.  With the assistance of various levels of government departments, Mengniu's efforts were foiled.

The investigative team found out that the earliest posts taht appeared at MOP, and Tianya Forum came from the computer of Beijing resident Li Youping.  Li had report titled <Report on the posting of more than 1,300 posts on Yili deep sea fish oil> to 29-year-old Zhang Ming from Ningxia.  Li and Zhang are the general manager and the supervisor of the "Daisipurui" Internet Marketing Consulting Limited Company registered in the Shijing district of Beijing.  On the website of this company, the biggest client is listed as Mengniu Dairy Industry.

News will be coming about soon that many Mengniu persons have been arrested.  The public relations company is also involved.

The Mengniu CEO assistant Yang Zaifei, Mengniu Children Milk project leader An Yong, and several members at the Beijing BossePR public relations company and the Beijing "Daisipurui" Internet marketing company are involved.  The Beijing BossePR public relations consulting company vice-president Zhang Shiyong (who had been the chief advisor at the Mengniu Grouip), vice-president and project leader Xiao Xuemei and five others are being interrogated.  Internet Department leaders Zhang Ning, Ma Ye and Hao Liping were detained.

(China Daily Dairy giant Mengniu in smear scandal    By Chen Xin.  October 21, 2010.

A highly publicized incident about milk products that caused baby girls to develop breasts may have been a smear campaign by a competitor.

Mengniu Dairy Co, the largest dairy company in the country by market value, on Wednesday denied rumors that it was assisted by a public relations company in plotting online attacks against its competitors, the Yili Group and Synutra International.

Rumors are now circulating that Mengniu made up a story that spread online in July, which claimed Yili's infant formula contained fish oil that could lead to premature sexual development.

Mengniu also allegedly plotted a public relations campaign to create a milk powder scandal, in which Synutra products were reported to have caused baby girls to develop breasts.

Two members of management at Mengniu and members of staff at its partner BossePR have been detained, according to the rumors.

"Mengniu never planned or participated in any activity related to the Synutra case," Mengniu said in a statement sent to China Daily on Wednesday.

"We have reported the case to the police and any individual or organization who made up and released the false information will be held legally responsible," the statement read.  "All our senior management staff are now safe and sound at work," the company said.

But Liu Jiang, a police officer at Hohhot public security bureau in Inner Mongolia autonomous region, where Mengniu and Yili are based, has confirmed that a Mengniu executive has been detained, reported on Wednesday.

Yili also insisted on Wednesday that its reputation has been tarnished by competitors. "We are sure that Mengniu's division manager, An Yong, and members of staff at BossePR have been caught by police," Ma Teng, publicity manger of Yili, told China Daily on Wednesday.

"Their detention may not be directly related to the Synutra case, but we cannot exclude its connection to our case," Ma said.

Qingdao-based Synutra was put in the spotlight in August after infant girls in Hubei, Guangdong and Shandong provinces were reported to have developed prematurely after drinking the company's baby formula.

The Ministry of Health later cleared Synutra, saying the content of sex hormones in Synutra milk powder did not exceed national or international standards.

Chen Yu, a dairy industry analyst for the Ministry of Agriculture, said infant milk powder accounted for a very small amount of Mengniu's business and that Synutra, a leading infant milk powder producer, is not one of Mengniu's main competitors. "It is not logical for Mengniu to plot a scandal against Synutra," Chen told China Daily.

Niu Gensheng, a former Yili employee, founded Mengniu in 1999. Mengniu and Yili are now each other's biggest competitor.

(Daqi)  We thank Mengniu for letting us see the truth about "Internet criminal organizations"  Xuan Huahua.

... This case is amusing.  Mengniu wanted to cause trouble for consumers and competitors, but it ended up causing trouble for itself.  As a veteran Internet user, I am less interested in the corporate battles (that is something the public security bureau need to spend lots of overtime to sort out).  On the contrary, I am more interested in whether the "Internet crime world" (in the form of "Internet public relations company") will be revealed truthfully via this case.

The so-called "Internet crime world" is commonly referred to as "Internet promoters," "Internet hit men" and "Internet posting navy."  To be more respectful, they could be called "Internet public relations company" and "Internet marketing company."  The reason why they are called "Internet crime organizations" is that not only do they hype brands, market products, defend brands and manage crisis, they can also run intensive campaigns to smear and libel competitors upon instruction by their clients, such that those competitors are unable to sustain normal operations.  A number of renowned Chinese companies (such as Xindongfang, Wanke, Sanlu, Kangsifu) are victims of these "Internet crime syndicates."

In December last year, CCTV's <Economics in 30 Minutes> broadcast a special segment about the gray industry known as "Internet crime world."  The various aspects were shocking.  According to these "Internet marketing companies," they can control all of the major Internet forums in China through various means for the purpose of manipulating public opinion.  They can magnify certain negative news to an unlimited degree, even affecting court decisions.  At the end of the programme, there was a call for an anti-crime sweep of the Internet.

Even though many renowned companies have been hurt by these "Internet crime gangs," there has unfortunately been very few instances in which they can defend their rights and uncover the perpetrators.  Under the existing legal framework, Internet libel is a civil case.  The public security bureau do not accept complaints and the company must file its own lawsuit in court.  But the problem is that the company does not have the means to obtain evidence on the Internet (such as tracking down the author of an post) on its own.  They won't even know who to sue, much less showing up in court in file a lawsuit.  This means that the "Internet criminal organizations" are become more powerful but also more mysterious and impenetrable.

For this reason, I am "grateful" for the role of Mengniu in this case.  I am "grateful" because they made the "Internet crime organizations' reveal their true selves.  I believe that when the truth of the case becomes known, we will have a new understanding of these "Internet crime organizations."  We will know how they are organized, operated and functioned.  And then we can hopefully come up with a set of laws that can completely eradicate this new tumor of society.

(  Mengniu's statement concerning the An Yong incident and slandering/being slandered.  October 22, 2010.

Recently many reporters have called to ask about the "An Yong incident" and the "Weiwan incident."  In order for consumers and other members of the public to understand the truth and to promote the healthy development of the Chinese milk industry, our group is announcing the latest developments:

1. The public security agency has conducted an investigation and found that the "An Yong incident" was purely an individual act connected to his personal interests and not a corporate action by the Mengniu Group.

An Yong was a product manager in the Liquid Milk Division of the Mengniu Group.  Each product has its own product manager.

In July 2010, An Yong discovered that the Yili Group's child milk product stated on its packaging label that it contains the fish oil DHA.  Without checking with his superiors, An Yong went ahead with a partner company to say that the EPA in the fish oil posed health risks to children and infants.  An Yong is responsible for his actions.  The company is responsible for failure to educate and mismanagement.  We apologize profoundly for any bad effects by An Yong on the Yili Company and consumers.

An Yong used to be a Yili Group employer.  He came over to Mengniu in 2005.  In working to damage a fellow company, he did not seek permission from anyone.  He did it on his own.  We are still trying to understand the details.  At this time, An Yong has been arrested by the Hohhot city public security bureau.  He has also been fired from the Mengniu Group.  Our next step is to seriously reflect on this incident, enhance our employee education, tighten our management and prevent any future occurrence of such incidents.

Beijing BossePR Public Relations Consulting Limited Company CEO Yang Zaifei was not an employee of Mengniu nor was he the assistant to the Mengniu CEO.  That company was providing long-term services to our group.

3. The Weiwan incident was plotted and operated by the leader of the Yili Group Liquid Milk Division at the time.  After the incident was exposed, Zheng Junhuai tried to protect him.  When Zheng fell out with him, he even used the relevant documents to file a lawsuit.  The Weiwan case is still not closed yet.  It is still awaiting disposal out there.

In recent years, the Mengniu Group has run into many other similar smear campaigns.  The public security bureau found that between 2003 and 2004, the Yili Group spent more than 5.9 million yuan to hire public relations company to attack our company in the news.

Between 2003 and 2004, the Yilli Group hired the Beijing Weiwan Brand (International) Communication Organization to buy off media to promulgate negative information about the Mengniu Group.  According to the public security bureau investigation, the five campaigns that were carried out involved sign contracts worth 5,921,700 yuan involving about 100 articles in newspapers and Internet websites in eleven provinces/cities that defame the Mengniu Dairy Industry Company.  After the incident was exposed, the CEO of Weiwan and two other workers were detained.

Among the contracts signed between the Yili Group and Weiwan seized by the public security bureau, there was one in which the Yili Group gave Weiwan 4,443,000 yuan to initiate the so-called "Joint public relations communication in the Extra Copy project for the Yili Group."

The public security bureaus in Hohhot, Beijing and elsewhere found that the "Joint public relations communication in the Extra Copy project for the Yili Group" consists of six proposed actions (five of wich were actually carried out): (1) Action Thunderbolt; (2) Action Thunderclap; (3) Action Flying Milk; (4) Action Advertising Sign King; (5) Action Extra Copy; (6) Action Counter-Concept Marketing.  The total budget was 5,921,700 yuan.

The proposal of these six actions clearly showed the strategy in attacking the Mengniu Diary Industry: "catch the cow," "fight the cow" and "attack the cow" so that the "tough cow" becomes a "sick cow" and finally a "dead cow."  The actions employ mainly the buying of newspaper space through advertising in order to place fake articles that denigrate Mengniu.  Some of the article titles are: <Mengniu does not know how to be a "mad cow">, <Mengniu suspected of deceptive advertising>, <The Mengniu phenomenon -- the Emperor's new clothes>, <The hidden Mengniu crisis: no strategies, no core skills>, <Rapid expansion led experts to question three huge problems facing by CCTV brand king Mengniu>, <Crazy cow runs into hidden crisis?>, <Hard to stop the rampaging Mengniu>, <The hidden crisis at "brand king" Mengniu>, etc.

As of now, that case has not been closed.  We hope that this case can be solved during the current national campaign against unfair business competition.

Note: This web page includes the links to some of the Yili documents for the Extra Copy project.

(South China Morning Post Mengniu smear suspect 'co-operating with police'    By

Dairy giant Mengniu said yesterday that a business manager with the group was co-operating with police over an alleged smear campaign against rival company Yili, but it denied the company had masterminded the attack. The manager is not in senior management, a company statement said. It said the manager was co-operating with the relevant authorities. The man was named by police yesterday as An Yong , a brand manager for Mengniu's children's milk products.

"To the best knowledge of the company, none of the directors or senior management of the group were arrested and all directors and senior management attended the office as usual," the statement said. The statement denied the group had "planned, organised or acted relating to the claim [that] rival companies' products triggered precocious puberty".

Earlier yesterday Xinhua reported that police had said that a smear campaign was carried out against Yili by an employee of its biggest competitor Mengniu. Three employees of an online marketing firm BossePR were also arrested.

Liu Jiang , a police official in Hohhot , Inner Mongolia , told China Central Television yesterday that a police investigation showed that the manager's action was a personal act and not linked to the company. Police in Hohhot, where both dairy giants are based, told Xinhua the series of articles criticising Yili's children's milk, posted online in July, was "a case of damaging business reputation" and "organised and planned with malice aforethought and carried out for profit".

The statement came immediately after Yili's statement, which said employees from Mengniu and an online marketing firm had been arrested.

Police said the attack had been organised by An Yong and carried out by three employees from BossePR, a Beijing online marketing firm that has been affiliated with Mengniu for years, according to Xinhua. Police told Xinhua the suspects had admitted that the strategy was to attack Yili's children's milk products to increase the value of Mengniu's.

An and the BossePR staff made detailed plans on July 14 on how to attack the Yili products, police said. It included smear postings on the internet, which were picked up by news portals.  They also had writers invent parents or pregnant women to complain about Yili products and had mobile bloggers carry and comment on the articles in a bid to persuade mobile customers to boycott Yili's products, police said.

The campaign lasted a month, and the most popular posting received more than 200,000 hits. About 280,000 yuan (HK$326,000) was spent on the operation, according to the police.

Yili, which was aware of the unusual postings in July, called Hohhot police on July 30, who carried out a two-month investigation. The three BossePR employees arrested are Hao Liping , Zhao Ning and Ma Ye . Two employees from another online marketing firm are being sought by police.

(South China Morning PostMengniu says sorry for smear aimed at Yili   By Zhuang Pinghui   October 23, 2010.

Dairy giant Mengniu apologised for an act of commercial libel by one of its former employees against competitor Yili, but said it had also been the victim of such smear campaigns. In a statement released yesterday, Mengniu, one of the mainland's largest dairy firms, for the first time acknowledged that An Yong , a brand manager of its liquid milk division, was arrested for "expressing opinions that the substance EPA in fish oil was harmful to the health of children in July".

Police had said suspects were trying to attack Yili's products to increase the sales of Mengniu's.

An, a former employee of Yili, joined Mengniu in 2006 as a brand manager, and his income had been connected to the sales of the product. But he had been fired, Mengniu added. The company stressed An had acted "on the circumstances of not seeking approval from any higher level" and "took the liberty" to work with a contracted public relations company. "We express deep regret to the relevant party and customers for the damages An Yong has done," the statement said.

In an earlier statement to the Hong Kong Stock Exchange, where the company is listed, the firm said a manager was co-operating with the relevant authorities, and none of the directors or senior management of the group had been arrested. It denied it had "planned, organised or acted relating to the claim [that] rival companies' products triggered precocious puberty". Mengniu's statement came after Yili's accusation on Wednesday that a Mengniu employee and its online marketing firm was behind a smear campaign against Yili's children's dairy product.

Police in Hohhot , Inner Mongolia , where the two companies are based, told state media that An and three employees from BossePR, Mengniu's online marketing firm, were arrested for allegedly damaging business and product reputation. The month-long, 280,000 yuan (HK$326,500) operation involved publishing smear postings on blogs and news portals and impersonating parents and experts to question the safety of the competitor's products through the internet and in the media. Police said it was An's "personal act" and "currently no evidence suggested the case has a deeper background".

In the statement, Mengniu also accused Yili of masterminding five campaigns in 2003 and 2004 to attack Mengniu's products. Citing the police investigation, the statement said Yili promised to pay a Beijing public relations company 5.92 million yuan to publish hundreds of articles in the print media in 11 provincial capitals and on the internet.

The head of that public relations company, whom the statement did not identify, had been detained by police. The company provided electronic or photographic copies of the campaign's plan and the contract between the company with the PR agency on its website.

Yili's public affairs department did not return calls, but in an interview with The Beijing News, an unidentified senior executive told the newspaper "if what they said was true and they had obtained so much evidence, why wouldn't they provide it to the police at that time? ... Mengniu is trying to mislead the public." However, many expressed online their doubts over whether the company was unaware of the employee's act, and said the firm should take responsibility as well, rather than acting like a victim. Others said they had lost confidence in the dairy industry as a whole.

Chen Yu , a director of the Dairy Association of China, was concerned the current dispute between Yili and Mengniu would affect the entire industry, which is still struggling since the scandal over melamine-tainted milk broke two years ago. He told the 21st Century Business Herald that it "would eventually  lead to lower confidence in the domestic dairy industry and send corporate competition in unhealthy directions".

(Shanghai Daily)  The shadowy world of online PR   By Claire Wang.  October 23, 2010.

THE libel case between Mengniu and Yili has exposed the shadowy world of online public relations campaigns, where industry insiders say PR companies make big money posting positive comments on behalf of a company or negative ones to damage rivals. Internet PR companies also offer to remove negative comments. Deleting one negative post on a website could cost thousands of yuan, depending on the popularity of the website or BBS, The Beijing Times reported yesterday.

For example, deleting one post from the most popular domestic online forums costs 2,200 yuan (US$330), while the average price for removing posts on other websites is 1,500 yuan each, according to the rate offered by PR agency Black Pioneer. The agency claimed to the newspaper that it has access to a large group of specialists, including Internet security experts, lawyers and hundreds of editors and writers. They can remove online negative information through connections with website staff, an employee said.

Removing a post from a website is relatively straightforward. If a PR company has connections with the website, a phone call can often solve the problem, the report said, citing Li Mingwei, a former Internet PR company employee. In some instances, PR companies may share profits with websites, Li added.

Indeed, some PR companies and websites deliberately produce negative reports and extort money from the company involved by offering so-called "solutions."
Many IT companies have become involved in the Internet PR market due to the low costs. The domestic Internet PR market exceeds 1 billion yuan, according to a report by China International Public Relations Association.

(South China Morning Post)  Spotlight falls on murky world of Net marketing   By Priscilla Jiao.  October 25, 2010.

The recent smear campaign involving two mainland dairy giants has put malicious online marketing in the spotlight, stirring calls for better regulation to serve as a warning and improve ethics.

Inner Mongolian dairy company Mengniu last week apologised for an act of commercial libel by one of its former employees against major competitor Yili, but said it had also been the victim of such smear campaigns launched by Yili. The latter denied it in an interview with the Beijing News, saying Mengniu was trying to "mislead the public".

Media commentators and internet users believe the public sparring has shed light on the common practice many mainland companies use to belittle their rivals.

Instead of having correct information to help them make purchasing choices, the public is witnessing the tactics that are still battering the reputation of the dairy industry, two years after the scandal over milk tainted with the industrial chemical melamine.

Online gossip and innuendo, which are widely practised on the mainland in the consumer goods area, are by-products of the widespread use of the internet on the mainland, where 420 million Net users are more reliant on the Web to make purchasing decisions than people in the West, a Chinese consumer report by Roland Berger Strategy Consultants said this year.

The strengths of online marketing over more traditional public relations methods are that it is faster, more interactive, can target its consumers more precisely while also reaching a wider audience and is much cheaper. That is why about 90 per cent of existing traditional PR companies and numerous newly established companies use online strategies, according to the China International Public Relations Association (Cipra).

A mature business chain of online marketing has formed connecting manufacturers, PR companies, smaller online marketing companies and internet thugs and spammers.

Most companies do not think twice about launching attacks when they become aware of a serious weak point in a rival product, but the practice is seen usually in more competitive industries. "It is seen much less in monopolistic industries," Yang Fei , vice-director of Communication University of China's Internet Word-of-Mouth Institute, said.

But the practice is more than simply a moral issue, because if it is made up solely to undermine a rival, it can lead to a lawsuit, Bruce Tang, an internet analyst, said.

"About three out of 10 marketing cases in the industry of fast-moving consumer goods involve disparaging their rivals," Tang said. "But it is often impossible to collect evidence to file a lawsuit against unethical rivals."

Not only might it be difficult to prove in court, but the fact is that hiring spammers to create or lead a trend among consumers and increase sales or paying websites to delete negative posts is not generally regarded as a breach of business ethics.

The problem was that mature regulations and laws to deal with the practice had not caught up with the pace of the industry, Tang said.

But Yang said it was difficult to launch regulations to reduce malicious online marketing because it was difficult to define it. "Self-discipline could be realised jointly through companies, industry associations and the media," he said.

Fan Feng , vice-secretary of the interactive marketing commission of the Internet Society of China and founder of the internet news site, said online marketing on the mainland relied more on self-discipline at this stage.

The State Council Information Office said it would push for a system to register online posters and require the use of their real names. "It would help curb the malicious online marketing," Fan said.

An online PR guideline issued in March by Cipra said companies involved in unethical online smear tactics should be exposed or even expelled from the association, although it has no legal authority to do it.

"In the West, such as the US, online marketing is much better regulated by libel law, so disparaging is much less common," Tang said.