Chinese authorities have announced that Shu Yuhui, the CEO of healthcare product maker Quanjian Group, along with a dozen employees, has been arrested for alleged false marketing and operating pyramid schemes. The arrests followed an investigation into the company after allegations made in late December 2018 through popular Chinese health website Dingxiang (Clove) Doctor that the company misled the family of a four-year-old girl, who was suffering from cancer, into giving up medical treatments to concentrate on a herbal remedy made by the company to cure her cancer in 2012. The girl eventually died in 2015, while the company continued to use her image in its advertisements.
Since then, countless similar accusations against the company have emerged over numerous
alleged fraudulent practices, which eventually came to the attention of health authorities. Founded in 2004, Quanjian had an estimated revenue of 20 billion yuan (US$2.92b) in 2017, and it runs a hospital claiming to specialize in treating cancer, which whistleblowers say is more inclined to sell its own products. It also operates about 5,000 clinics throughout the country offering what it calls “fire therapy,” which is now also under scrutiny.
While authorities have launched an investigation into the company’s business, the question one needs to ask following the scandal is how a company that relied on false marketing and other fraudulent practices to market its products could have managed to evade regulations for so many years and develop into a multibillion-yuan business.
It is not the first time that Quanjian has been linked to false marketing. In the past few years, China Central Television (CCTV), China’s State broadcaster, has exposed at least 10 health products, which Quanjian advertised as being able to treat illness. Despite all this exposure, there appeared to be no serious consequences for the company. On the contrary, the company has expanded its business into other fields, such as real estate and sports. It is no exaggeration to say that the Quanjian scandal exposes the total failure of China to regulate the food supplement industry.
Over the past years, the food supplement industry has been a hotbed of illegal advertising and fraudulent practices such as pyramid schemes. One reason is the lack of a national regulatory system. For example, it is estimated that central agencies have approved 9,900 heath products. But at the provincial and lower level, local authorities have approved more than 50,000 food supplements and heath products. The discrepancy between central and local policies and between police of different regions has created a regulatory vacuum that fueled the booming market in dietary supplements, which many claim to serve medical purposes. In 2018, the supplement market was estimated to be worth 237.6 billion yuan (US$34.7b).
As the booming industry became an important source of tax revenue for many local governments, they were likely to turn a blind eye to dubious practices. Moreover, the institutional arrangement regarding regulation of the sector is also to blame. For example, while food and health authorities are responsible for either approving or denying certain health products for consumption, the duty to inspect and detect counterfeit products, as well as advertising standards, lies within the remit of the Bureau of Industry and Commerce.
Now that authorities have finally acted against Quanjian, they must not treat it as an isolated incident. The government should seek a systematic approach to tackle an issue that is posing an increasing threat to public health. As seniors are more likely to fall victim to fraud involving food supplement products that claim to have medical properties, the problem will only become more serious as China’s population continues to age.
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