Baby formula sector revamp soon

Quality standards for baby formula will be as stringent as those of medical products, said Gao from the ministry. The criteria for milk source base construction, production conditions, equipment renovation, and environment control will also be improved. "Substandard enterprises will be forced out of business, or may have to merge with bigger companies," he said.

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Several large-scale mergers have already taken place in the sector last year. In June 2013, China Mengniu Dairy Co Ltd signed a deal to buy the Guangdong-based Yashili International Holdings Ltd for over HK$11 billion ($1.42 billion). In September, Inner Mongolia Yili Industrial Group Co Ltd invested 310 million yuan in China Hui-shan Dairy Holdings Co Ltd, while in November, the Shanghai-based Synutra International Inc acquired New Zealand-based dairy brand Youthbase.

The industry blueprint also outlines several steps that are expected to provide new wind for infant formula companies. Prominent among them are the simplified procedures for mergers and acquisitions. Companies that are involved in mergers will enjoy deduction and exemption of deed tax and increment tax on land value. Companies that actively eliminate obsolete production capacity will get a bonus from the central fiscal revenue.

"The stricter standards will facilitate the consolidation of upstream milk sources," said Song, "The mergers are going to be initiated by the companies themselves while the government plays a supportive role. Also, companies in different regions and of different ownership are allowed to be merged. With these measures put in place, Chinese baby formula companies will be able to form a production chain and eventually go global."

Song Kungang, director-general of the China Dairy Industry Association, said the Chinese dairy industry has gone through major changes in the past five years. Remarkable improvements have been made in equipment, technology, testing capacity, and milk bases owned by manufacturers themselves. Chinese baby formula is among the best in the world, he said.