Joincare's purchase of gutter oil stems from its desire to cut production costs. Figures from the company showed that in 2010 it completed sales revenue of 941 million yuan ($148.42 million), earning net profits of 339 million yuan ($53.47 million). Its parent company Joincare Pharmaceutical Group Industry Co. Ltd. pulled in sales revenue of 4.47 billion yuan ($705.05 million) and its net profits reached 740 million yuan ($116.72 million). Nearly half of the parent company's net profits came from Joincare Biotechnological Co. Ltd.

Chinese police launched a crackdown on the illegal production and sale of gutter oil. After July 2011, Joincare abandoned the purchase of gutter oil. That year, with its sales revenue declining to 698 million yuan ($110.09 million), the company suffered losses of 43 million yuan ($6.78 million). Joincare attributed the losses to the price drop of its major product, 7-aminocephalosporanic acid (7-ACA), a key chemical component of cephalosporin antibiotics, to its lowest in 10 years and the decline of the product's profit rate to 5.18 percent. However, the company did not mention the impact on production costs after abandoning the purchase of gutter oil.

In the first half of this year, Joincare, which had claimed to only use soybean oil, realized sales revenue of 229 million yuan ($36.12 million), a decline of 53 percent from a year ago, and suffered losses of 51 million yuan ($8.04 million).

According to an announcement by Joincare Pharmaceutical, 7-ACA production line is regarded as an important profit contributor to its subsidiary Joincare Biotechnological. Involvement in the gutter oil scandal posed problems in the sale of 7-ACA. The gutter oil scandal has limited Joincare Pharmaceutical's profits, and the company's future looks bleak.

On September 5, Shenzhen-listed Beijing Dabeinong Technology Group Co. Ltd. issued an announcement admitting that two of its subsidiaries in Zhengzhou and Xinxiang of Henan Province once purchased soybean oil from Huikang Oil. In the ensuing days, other listed companies, such as Tangrenshen Group Co. Ltd., Henan Huaying Agricultural Development Co. Ltd. and Hunan Zhenghong Science and Technology Development Co. Ltd., admitted buying soybean oil from Huikang.

A foreign-invested company—Chia Tai Group—is also involved in the scandal. Prosecutors said its subsidiaries in Shanxi and Hubei provinces are suspected to have purchased soybean oil blended with gutter oil.

Hard to supervise

After media reports revealed Joincare Biotechnological Co. Ltd.'s role in the gutter oil scandal, Joincare Pharmaceutical Co. Ltd. suspended its stock transactions the following day. In a statement, the company said that it would work to avoid fostering relations with suppliers that use gutter oil.

Joincare added that gutter oil often cannot be detected. "We checked all the soybean oil we had purchased with eight indicators, while the national standards require only four indicators," said Qiu Qingfeng, board secretary of Joincare. "But we still failed to detect the inferior ingredients in the oil."

Qiu said Joincare isn't to blame. Last year the Ministry of Public Health received 315 tips from institutions and the public on detecting gutter oil but has yet to come up with a uniform method for doing so.

Police discovered the production of gutter oil after nearby residents complained of a strong odor from a plant in Shandong Province. Police found a large amount of swill and many buckets of blended oil from the plant. Since the person in charge could not provide any documents of purchasing these materials, the plant was suspected to produce gutter oil.

The police once sent 10 samples of oil seized from the plant for testing. Compared with normal soybean oil, only two samples were found disqualified for a few indicators.

The State Administration for Industry and Commerce and the State Administration of Quality Supervision, Inspection and Quarantine are responsible for ensuring product quality, but limited technology makes it difficult to uncover gutter oil in finished products.

Luo Yunbo, Dean of the College of Food Science and Nutritional Engineering of China Agricultural University, believes China should learn from the practices in Western countries, where governments carry out strict supervision on the use of recycled cooking oil.

In the 1960s, Japan was also known to use gutter oil. To solve the problem, the Japanese Government stipulated that companies would extract used oil from refuse and sell it to the government at steep prices. The government would then use the oil as fuel for its garbage trucks.

In the United States, cooking oil waste is recycled by companies licensed by public health and environment protection departments. Those companies are equipped with special facilities for transportation, recycling and processing. If restaurants sell waste oil to individuals or institutions without their knowledge, they could be forced to shut down.

In Beijing alone, 600,000 tons of cooking oil is consumed each year, leaving 90,000 tons of waste oil. Among the leftover oil, 60,000-70,000 tons can be effectively collected. There are only two bio-diesel refineries in Beijing, with an annual production capacity of less than 10,000 tons, leaving whereabouts of the remaining tens of thousands of tons unknown.

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