Probe finds 20 percent of China milk companies in scandal

By Ben Blanchard

SHIJIAZHUANG, China (Reuters) - Twenty percent of Chinese dairy firms probed in the wake of a baby milk health scare have been found to have produced melamine-tainted formula, state media reported on Tuesday.

Chinese quality officials last week ordered a nationwide probe into all baby milk powders after it was reported that dozens of children had developed kidney stones after drinking tainted formula produced by the Sanlu Group.

Two infants have since died and more than 1,200 diagnosed with kidney illness in a growing scandal that authorities have warned may be yet to peak.

The head of the state-owned company has been sacked.

The results of the government-led probe announced on Tuesday showed that Sanlu Group, which has been the focus of public anger over the scandal, is by far from the only offending company.

Out of 109 dairy producers checked, 22 had been found to have produced batches of milk contaminated with melamine, including Beijing Olympic Games supplier Yili and other major brands, state television said, citing China's quality watchdog.

State-owned Sanlu, 43 percent owned by New Zealand dairy giant Fonterra, topped the list of offenders with all 11 batches checked found to be tainted with melamine, a banned toxin linked to pet deaths in the United States last year.

Hong Kong-listed Mengniu Dairy was rated as the seventh worst, with three out of 28 batches shown to be contaminated with melamine. Inner Mongolia Yili Industrial Group, a Shanghai-listed dairy firm and Beijing Games sponsor, was also named.

The 69 tainted batches out of 491 tested "would be taken off the shelves, sealed, recalled and destroyed," the report said, promising "serious" punishment to those found responsible.

All Shanghai-listed dairy stocks fell their 10 percent limit in early trade but recovered some of their losses later in the day.

CHAIRWOMAN SACKED

Melamine is rich in nitrogen, an element often used to measure protein, and can be used to disguise diluted milk. It is the same additive which caused the deaths of pets in the United States last year from contaminated pet food.

The Municipal Party Committee of Shijiazhuang, capital of northern Hebei province and headquarters of Sanlu, sacked the company's board chairwoman and general manager, Tian Wenhua, as hundreds of angry parents queued outside the company's offices on Tuesday.

Tian "bore very large responsibility" for the quality scare, state media portal Chinanews.com said in a brief statement on its website, citing the government committee.

Sanlu last week halted production after investigators announced they had found the problem, but the company had been receiving complaints in March that babies' urine was discolored and that some had been admitted to hospital, officials said.