China's dairy companies especially those specializing in infant formula are now preparing for more intense competition from their foreign peers as a result of regulations recently issued to upgrade imported dairy products.

To date, entry approvals have been granted by China's quality monitoring bureau to 1,000 foreign dairy producers.  Forty-one of these dairy companies are infant formula milk manufacturers from 13 different countries, including New Zealand and Singapore.

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The newly issued regulation for compliance starting May 1 requires all foreign dairy companies to ensure that their products meet China's safety standards and that they register with the General Administration of Quality Supervision, Inspection and Quarantine. 

This new effort from the Chinese government is a most welcome move that will upgrade the quality of dairy products available in the country. Superior quality products will be made available while inferior ones that do not meet standards will not be allowed in the dairy market including fake foreign brands manufactured locally.

With this new regulation, an estimated 50 percent of the small foreign manufacturers of milk powder that do not have research capabilities will be restricted from entering the Chinese market.

Although the regulation seems harsher to foreign milk companies, it will not likely affect the operation of big foreign milk producers like Danone, Mead Johnson and Wyeth that are already in the list of approved dairy companies. 

With substandard competitors swept out by the new regulation, these leading milk producers will get a bigger share of the market and offer stiffer competition to Chinese dairy companies. 

A few days after the resolution took effect, foreign milk products have already been enjoying a bigger chunk of the Chinese market. 

Chinese consumers show preference for foreign milk products which they regard as healthier and safer.  A total of 301,000 tonnes of milk powder from foreign milk manufacturers were bought by Chinese consumers during the first two months of 2014, up by 79.3 percent compared to the same period last year.

To brace up for even more intense competition from their foreign counterparts, Chinese dairy companies have already started focusing on strengthening their weak points. 

For example, Sanyuan, one of China's top dairy producers based in Beijing, has received a financial aid of 10 million yuan or US$1.62 million from the municipality for research on infant formula.  Improving research capability is the company's attempt to upgrade the quality of their product and inevitably give a good positive image to local milk brands.

Beingmate, another leading Chinese dairy company, is working on its marketing strategies and on merging with and acquiring smaller milk companies to increase its share of the market.

Beingmate's move is in consonance with the resolution's direction toward integration in the dairy industry which will strengthen large producers and those with potential.