Private equity companies are starting to pay more attention to food safety issues when they invest in food companies, according to industry observers.

"When investing in food companies, we're more concerned with food safety issues as a food safety crisis showed it can be a disaster for listed firms," Meng Liang, managing director of DE Shaw & Co (Asia Pacific), said yesterday in Shanghai.

The tainted milk scandal in 2008 hit China's dairy industry severely when melamine, an industrial chemical, was found in products of listed dairy firms, including China Mengniu Dairy Co, Yili Industrial Group Co and Bright Dairy.

The scandal wiped 20 billion yuan (US$2.93 billion) off Hong Kong-listed Mengniu's market value within one month.

A new food safety law took effect on June 1, 2009.

"Foreign investors are very keen in China's food companies," said Wang Qing, a Freshfields Bruckhaus Deringer partner in China. "The new law raised their confidence in the industry."