China's largest dairies will reportedly receive about CNY30bn (US$4.9bn) in support from state authorities as Beijing looks to improve product safety in the sector.

According to official state publication the China Business Journal, the country's largest dairy firms, including Yili Industrial Group, Feihe International, Heilongjiang Wondersun Dairy Co Ltd and China Mengniu Dairy, will benefit from government subsidies, funding from China Development Bank and beneficial tax rates. 

Chinese authorities have indicated they want to improve dairy standards, particularly in infant formula, by tightening regularity oversight. In June, Beijing again moved to strengthen safety standards in infant formula production when nine government bodies - including the country's Food and Drug Administration - united in an attempt to standardise and reorganise the domestic infant formula sector.

The state is pushing for consolidation in the sector, arguing fewer, bigger companies will have higher standards and be easier to regulate. Officials reportedly aim to reduce the number of domestic infant formula firms to between three and five companies with revenues of over CNY50bn (US$8.17bn) by 2018.

China Huishan Dairy Holdings Co. confirmed last week that it expects to benefit from government steps to encourage good practice in the dairy supply chain, including tax benefits and grants to promote safety standards. 

"Companies with complete control over their raw milk sources and stringent safety and quality assurance measures, such as Huishan Group, are expected to benefit from the implementation of such policy," the company predicted in its IPO filing last week. 

Chinese dairy manufacturers were rocked by the 2008 melamine contamination scandal that sickened around 300,000 babies and resulted in the deaths of six infants. Further high-profile safety scares have hit domestic dairy manufactures, resulting in a drop in consumer confidence in Chinese-made infant formula. In a series of policy announcements, Beijing has made clear its intent to foster the development of a safe and trusted domestic dairy sector.