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China further restricts foreign dairy brands

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The Chinese government has imposed new limits on foreign brands of milk powder and infant formula sold in China, according to reports on Monday by the state-run news media.

The restrictions appear to be the latest attempt by the government to reduce the enormous demand for foreign-made dairy products and bolster the sales of domestic brands.

The new restrictions require foreign makers of milk powder to register the products, as well as their manufacturing and storage centers, with the government before the products can be sold in China. On Monday, The Beijing News released a list of the 41 foreign companies and manufacturing sites that have been registered so far. It includes subsidiaries of Nestlé, a Swiss company, in Germany and the Netherlands; Wyeth Nutrition, a company that Nestlé recently bought from Pfizer, in Ireland; Abbott Laboratories, an American company, in the Netherlands; and Nutricia, owned by Danone of France, in New Zealand, Germany and the Netherlands. The list could expand as more companies apply to register their products with China's General Administration of Quality Supervision, Inspection and Quarantine.

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The new rule officially went into effect last Thursday. A month before, the government began requiring foreign makers of milk powder to put Chinese-language labels on products intended for sale in China before the products were shipped to the country.

The Beijing News quoted a dairy industry expert who said that the government was trying to stop "illegal" brands from being sold in China and to allow only large, trusted brands into the market.

The demand in China for foreign-made infant formula and milk powder surged in 2008, when at least six babies died and more than 300,000 children fell ill after drinking milk products tainted with melamine, a toxic chemical used in manufacturing. Government officials prevented Chinese news organizations from reporting the deaths and illnesses until after the end of the Beijing Summer Olympics, leading to accusations of a government cover-up. Later, the government suppressed calls by grieving parents for a thorough investigation.

Last year, Allen Wang, chief executive and co-founder of Babytree.com, the largest online forum for Chinese parents, said surveys by his company showed that about two-thirds of Chinese parents were using infant formula and that foreign brands commanded a 60 percent market share. Many Chinese parents favor infant formula over breast-feeding, in part because of aggressive marketing by formula makers.

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The surge in demand for foreign-made products led to a big increase in prices. Both Mr. Wang and the online edition of People's Daily, the mouthpiece of the Communist Party, said last year that the prices of foreign-made infant formula sold in China had risen by at least 30 percent since 2008.

But many Chinese say the foreign brands of formula sold in their country could be fake or tainted by retailers or distributors, so they buy large amounts of infant formula while traveling overseas, or they purchase the formula through small online Chinese companies that guarantee that the products were originally bought abroad. Many Chinese go to Hong Kong to buy foreign-made formula, leading the territory's government last year to impose a two-can limit on departing travelers. Some big retailers in other countries, like Boots and Sainsbury's in Britain, have also declared two-can limits on purchases of infant formula by individual customers in their stores.

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Last August, the Chinese government announced that it had fined six infant milk powder companies a total of 667.8 million renminbi, or about $107 million, for anticompetitive behavior and price fixing after an investigation. Five of the companies were foreign. The government said three other companies, two of them foreign, were excluded from the punishment because they had cooperated with the investigation and "took self-rectification measures."

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Some foreign officials said the investigation and fines were an attempt to protect the domestic milk powder industry. When the government announced the investigation and said it would ensure stricter standards, Chinese state-run newspapers ran editorials saying they hoped the new standards would bolster the domestic milk power industry.

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