Dairy firms hit with fines

Chen Lianfang, a senior analyst in the dairy sector at Beijing Orient Agribusiness Consultant, said the government's intervention will lead to industry consolidation, as it creates a level playing environment in the market.

"High-end consumers worship foreign brands, who knew well that they could maintain prices at a high level," he said. "But it restricted competition in the market and harmed the interests of consumers."

China is an important growth market for dairy companies and one of the world's largest for infant formula. Sales of dairy products are expected to climb to $46.5 billion by 2016, up 66 percent from 2011, according to market research firm Euromonitor International.

Concerns about the safety of domestic milk powder, especially after a melamine-tainted milk powder scandal in 2008 that killed at least six children and sickened about 300,000 others, have fueled Chinese demand for foreign infant formula.

The demand for foreign brands has sent ripples through markets around the world. Mainland tourists have swept Hong Kong, Australia and Britain for baby formula.

John Ross, a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of China, warned that it will take a long time for China to consolidate the industry and create a small number of large players in the industry.

"China's food production industry is, however, not yet consolidated enough," he said. "It creates both greater quality of maintaining its own standards and creates favorable openings for foreign companies which they are tempted to exploit — as seen in the price fixing scandal."

"There will be a long-term struggle to both improve its quality and prevent foreign companies exploiting the situation," he said.