Is Abbott Labs selling bad infant formula in China?

In a reversal of the usual concerns about unsafe infant formula coming from China, Abbott Laboratories (ABT, quote) has been accused of exporting unsafe infant formula to Hong Kong. Moreover, the company seems to be going to some lengths to keep the matter quiet.

Questions are being raised about ABT's Similac formula

CER Research, an arm of the respected China Economic Review, published a report March 22 claiming that the Similac Stage 1 formula produced by Abbott Laboratories tested “well below accepted international and Chinese standards.” Similac tested the worst of six infant formulas purchased in Shanghai and Hong Kong in December 2011.

According to CER Research, the team had purchased the Similac as a benchmark for quality, assuming it would top the results. However, testing by Muva Kempten, a world-class food lab based in Germany, showed “very low level of whey/casein and a very high heat treatment intensity, both of them significant negative factors with regard to infant formula.”

Abbott refused to comment during preparation of the report, and has since released a statement that — according to CER Research – criticized the report for lacking “scientific-ness, objectivity and fairness.” In an unusual move, Abbott’s statement was released only in Chinese.

Bad infant formula has been a major concern for Chinese parents after a 2008 incident killed six infants and hospitalized nearly a thousand more. Even after the introduction of stricter regulations, many Chinese buy more expensive foreign brands because of their perceived higher safety and health value.

The Abbott statement said the product, bought in Hong Kong, was not meant for sale in the China mainland market and therefore did not need to meet the Chinese national standard with regard to product safety. However, the CER report also raised concerns based on international standards.

ABT dropped very slightly yesterday, but so far there seems to be little effect from the report. Investors should remain alert and wary, though. Similac is sold all over the world, including the United States, and this has the potential to blow up into something very bad for Abbott.