Sanlu Group Co., China's biggest milk powder producer, ordered the recall after more than 50 babies suffered kidney stones and one died, the official Xinhua News Agency said. It said tests found it was tainted with melamine, a chemical used in plastics.
"Those responsible will face serious punishment," said a Health Ministry spokesman, Mao Qunan, quoted by Xinhua. The agency said investigators concluded the chemical was added when the milk was purchased from farmers but gave no other details. It said 78 "suspicious people" were summoned for questioning.
A leading Chinese business magazine, Caijing, quoted Sanlu's brand manager, Su Changsheng, as saying the company knew about the contamination on Aug. 6 but refrained from telling the public. Su said Sanlu kept silent because some grocers refused to return tainted powder, but the report did not say why that prevented a warning.
People who answered the phone at Sanlu said managers were not available to comment.
China has suffered a string of safety incidents over tainted toothpaste, toys, seafood and other products that caused deaths or injuries. The incidents damaged foreign confidence in the safety of Chinese goods and prompted a shake-up of the country's regulatory system in an effort to reassure consumers.
Melamine is the chemical involved in a massive pet food recall last year. It is not supposed to be added to food, but suppliers in China sometimes mix it in to make food appear to be high in protein. Melamine is nitrogen rich, and standard tests for protein in bulk food ingredients measure levels of nitrogen.
The Sanlu manager Su, quoted on Caijing's Web site, said "criminal farmers" added melamine to the milk, possibly to make the protein content appear higher. The tainted milk was used in powder made from March to Aug. 5 for newborn babies to to 3 year olds, Su said. He said other batches were free of the chemical.
The Health Ministry launched a nationwide investigation, ordering local officials to report all possible cases and "is urgently organizing experts to conduct research and treatment," a ministry statement said.
Fonterra Co-operative Group, a New Zealand dairy farmers' group that owns 43 percent of Sanlu, said it was advised the company had a "quality issue in its products as a result of receiving defective milk in China."
"We understand that the product involved is only sold in China," Fonterra said in a statement e-mailed to The Associated Press.
The milk powder is sold in China under the name Sanlu Bei Bei Infant Powder.
At about 1 p.m. on Friday, hackers changed Sanlu's Web site to say "Melamine Group" for about 20 minutes before the original page was restored, the Web portal Sina.com reported.
In Washington, the Food and Drug Administration warned consumers to avoid infant formula from China. Authorities said Chinese formula is not approved for importation into the United States but might be sold at ethnic grocery stores.
"We're concerned that there may be some infant formula that may have gotten into the United States illegally and may be on the ethnic market," said Janice Oliver, deputy director of the FDA's food safety program.
Sanlu, based in Shijiazhuang, a city southwest of Beijing, has 18 percent of China's market for milk powder, according to government data. The company says it produces 6,800 tons of milk a day.
Sanlu became the dairy supplier to China's space program in June and might provide milk for astronauts on the country's upcoming third manned space flight.
In 2004, more than 200 Chinese infants suffered malnutrition and at least 12 died after being fed phony formula that contained no nutrients. Some 40 companies were found to be making phony formula and 47 people were arrested.
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