China vows export crackdown amid milk crisis

BEIJING (Reuters) - China vowed to stop toxic milk from reaching processors and export markets after tainted infant powder made more than 54,000 children sick in a scandal that has mired the nation's reputation in a fresh crisis.

Milk powder laced with the industrial chemical melamine has led to nearly 13,000 Chinese infants being admitted to hospital, 104 in a serious condition with kidney stones and agonising complications. Four have died in past months.

Outside the mainland, two more children in Hong Kong were found to be sick after consuming toxic Chinese milk powder, bringing the total there to four.

The city's health department said the two new cases involved Hong Kong children living on the mainland who were diagnosed with kidney stones. Both are in stable condition after treatment.

Germany's biggest retailer Metro AG withdrew Sanlu milk powder products from two of its 37 wholesale stores in China and recalled them from customers on Tuesday.

Meanwhile, Swiss Nestle SA and French Group Danone SA said their milk products in China and Hong Kong were safe. Hershey Co said it does not use milk from China in any of its products, including those sold in the country.

Melamine, which can be used to cheat quality checks, has also been found in candy, buns and carton milk sold to other countries and regions, unleashing fear in markets already shaken by a string of "made-in-China" scandals last year.

But with the scenes of sick infants and details of a government cover-up alarming Chinese citizens and foreign consumers, officials vowed a shake-up.

China will also speed up preparing a food safety law, a World Health Organisation (WHO) representative said.

Agriculture Minister Sun Zhengcai said he would "battle" merchants blamed for selling adulterated milk to dairy companies, acknowledging the problem extended far beyond infant formula.

"The intermediate link in purchasing raw milk is basically out of control," Sun said, according to a report on the ministry website (http://www.agri.gov.cn) late on Monday.

"These grave problems and this state of disorder have reached the stage where a clean-up is unavoidable."

China has said it found melamine in nearly 10 percent of milk and drinking yoghurt samples from three major dairy companies: Mengniu Dairy Co Ltd, the Inner Mongolia Yili Industrial Group Co Ltd and the Bright Dairy Group.

Sun singled out local "milk stations," which collect fresh milk from farmers and sell it on.

Their operators have been blamed for adding nitrogen-rich melamine to sub-standard or watered-down milk, fooling quality checks measuring protein, which is also rich in nitrogen. Many were unregistered and unregulated, he said.

"STRICT INSPECTIONS"

The milk scare has had an "adverse effect on the reputation of our products," the Commerce Ministry said in a directive seeking to shore up consumer trust in other products.

"There will be strict inspections of businesses producing and exporting dairy products, food, pharmaceuticals, toys, furniture and other things concerning physical safety," it said.

China has the world's third biggest dairy sector by volume, after India and the United States, the Chinese dairy products industry association recently estimated.

By 2007, China had more than 12 million dairy cattle that produced over 35 million tonnes of milk. Exports have grown strongly and, in 2007, milk powder exports grew to 62,000 tonnes, a rise of more than 200 percent on 2006 volumes, the industry report said.

But now foreign markets are spooked.

Markets that have banned or recalled Chinese milk products include Japan, Brunei, Singapore, Malaysia, Hong Kong and Taiwan, and official worry has been spreading.

Philippine President Gloria Macapagal Arroyo has ordered the temporary suspension of the import and sale of milk products from China, a government spokeswoman announced.

Taiwan plans to send experts to China to examine the milk powder contamination after the self-governed island banned all mainland dairy products, the government said on Tuesday.

Malaysia extended its ban on Chinese dairy products to chocolates, sweets and other foods containing milk. Vietnam stopped sales of milk products from unidentified sources and ordered checks focussed on finding those from China.

Tanzania seized about 34 tonnes of milk powder from China and suspended Chinese dairy product imports.

Mengniu Dairy shares plunged nearly two-thirds to a 33- month low on Tuesday after brokers downgraded the stock on concerns the scandal would dent industry growth.

China's quality chief, Li Changjiang, quit on Monday, joining a growing line of executives and officials accused of hiding the milk poisonings or not doing enough.

The official Xinhua news agency reported that the Sanlu Group, the dairy firm at the heart of the scandal, knew in June its infant milk powder had problems.

But Sanlu officially reported the melamine poisonings to Shijiazhuang, the north Chinese city where it is based, only on August 2 and Shijiazhuang failed to report the poisonings upward until September 8, after the Beijing Olympic Games.

The WHO representative in Beijing, Hans Troedsson, said China needed deeper reforms to ensure safety controls were enforced, not just announced. The country was likely to speed up approving a food safety law, possibly by early next year, Troedsson added.

"What needs to be stepped up is supervision, inspection and regulation at the local level," he said.

(Additional reporting by Ben Blanchard in BEIJING, Ralph Jennings in TAIPEI, James Pomfret in Hong Kong, George Obulutsa in DAR ES SALAAM, and Raju Gopalakrishnan in MANILA; Editing by Paul Tait/Elaine Hardcastle/Andre Grenon)