China encourages baby formula mergers

Policy measures concerning land allocation will also be carried out, according to the plan.

The Chinese baby formula industry has been embroiled in a series of safety scandals since 2008, when milk powder containing melamine left at least six infants dead and many others suffering kidney problems.

As a result, an increasing number of Chinese parents have opted for foreign-branded dairy products for their children in recent years. About three-fifths of all baby formula sold on the Chinese market, worth around 60 billion yuan in total, is from foreign-branded.

To restore consumer confidence and revamp the domestic dairy sector, the CFDA has unveiled a series of moves, highlighted by a revised regulation in December 2013 to step up standards for domestic infant formula producers.

Following the half-year campaign, the administration said on May 30 it had renewed production permits for 82 baby formula producers. A total of 51 producers failed to obtain renewed production permits or asked to delay applications for renewals.

Meanwhile, stricter regulation is likely to force companies to merge or switch to manufacture other products, while some might be shut down, according to Gao Fu, an official from the Ministry of Industry and Information Technology.

Gao said by the end of 2013, the ten largest infant formula makers in China accounted for 45 percent of the entire market, making the goal to increase the percentage to 65 percent by 2015 attainable.

But the ministry official also stressed that companies should act on their own accord in M&A, as there will be no "forced marriage" or government imperatives.

"The work of the government should be focused on fostering an environment for development, improving policies and regulations by removing unfit rules hampering corporate M&A, as well as strengthening fiscal, financial and land policies," Gao said.

According to Gao, Friday's plan applies only to dairy producers in China that have legally acquired baby formula production permits. Companies can only be eligible for M&A as long as they have high standards in a number of areas, including milk sourcing, processing technology and business performance.