Another major dairy producer, Yashili International Holdings, will open a new factory in Waikato, New Zealand, with an investment of 1.1 billion yuan, to produce infant formula.

Lin Jinlin, spokesman for Yashili International Holdings Ltd, said quality dairy sources are important.

On Tuesday, China Mengniu Dairy, the country's largest dairy producer, acquired more than 75 percent of Yashili.

Industry analysts expect more mergers in the industry.

Gao Fu, an official with the Ministry of Industry and Information Technology, said such integration would enhance industrial resources, consolidate brands and improve competitiveness.

The ministry has pushed domestic dairy producers to "get married". Gao hopes to see about 10 companies, with annual revenues exceeding 2 billion yuan in two years, taking up 70 percent of the industry.

"Out of about 120 baby formula producers in China, only 15 percent have their own cow farms," said Wang Dingmian. "Many of these enterprises that don't have financial capabilities to run cow farms may have to quit."

It takes time to restore consumer confidence in domestic milk powder as many consumers have turned to foreign producers, Wang Dingmian said.

According to him, public confidence in domestic dairy products hit a low after the 2008 incident, resulting in soaring sales of foreign brand milk, which has accounted for 85 percent of the market in some major cities.

However, a number of low quality foreign formula milk brands also entered the Chinese market, according to Xiang Jianjun, a researcher with CIConsulting, a leading industry research institution.

The General Administration of Quality Supervision, Inspection and Quarantine said on Thursday it would take stricter measures, such as requiring all overseas dairy producers to register in China before they can export to the country, and banning companies from outsourcing baby formula production.

Imported baby formula must arrive in packages for retail to avoid repackaging and redistribution, during which imported goods are sometimes adulterated.