Sept. 17 (Bloomberg) -- China widened an investigation of its food industry after contaminated milk powder killed three children and sickened more than 1,300, prompting criticism that the government waited too long to act.

The government ordered the recall of melamine-tainted products made by 22 companies, fired four officials, detained a company chairwoman and said foodmakers will undergo mandatory checks for toxic substances. Shares of dairy companies slumped in Shanghai, led by Inner Mongolia Yili Industrial Group Co.

The scandal raises questions about the effectiveness of tighter controls China promised after scares over contaminated seafood, toothpaste and pet-food exports. Tainted milk powder was exported to five countries in Asia and Africa, with no shipments to the U.S. or Europe, quality inspection director Li Changjiang said at a briefing today in Beijing.

``It took too long to get public,'' said Andrew Ferrier, chief executive officer of New Zealand's Fonterra Cooperative Group, whose Chinese affiliate Sanlu Group Co. produced melamine- tainted milk. ``We had been urging that from day one.''

While Fonterra, which owns 43 percent of Sanlu, urged a full public recall of the products since Aug. 2, local government officials were only prepared to have stores take items off shelves without making a public announcement, Ferrier said.

5,000 Inspectors

The government has sent 5,000 inspectors to all of the country's dairy producers, Health Minister Chen Zhu said at the same briefing where Li spoke.

Authorities in Hong Kong, where the two biggest retailers have pulled Yili ice cream products from shelves and offered refunds, are testing more items, Constance Chan, controller of the city's Centre for Food Safety, said today.

Melamine can be used to disguise diluted milk because it can make the protein level appear higher than it is. The chemical, used to make plastics and in tanning leather, was found in exported pet food last year and blamed for killing thousands of cats and dogs in the U.S.

The General Administration of Quality Supervision, Inspection and Quarantine said checks for toxic substances will be made mandatory for foodmakers for the first time, after samples of the 22 companies' products were found to be tainted.

Kidney Failure

A total of 6,244 infants were taken to clinics on suspicion of being poisoned, of which 1,327 were hospitalized and 158 were found to have kidney failure, Chen said. Most of those affected showed symptoms three to six months after ingesting Sanlu milk powder, Chen said.

China's biggest dairy makers, including China Mengniu Diary Co., Yili and Sanlu, were among those with products linked to tainted milk, the regulator said. Melamine was first found in Sanlu's products.

Goldman Sachs Group Inc. removed Mengniu from its ``Conviction Buy'' list because the scandal `` is likely to lower consumption for liquid milk in the short term,'' according to a note to clients today.

Tian Wenhua, chairwoman of Hebei province-based Sanlu, was detained by police, the Web site run by the provincial government said today. She was fired and removed from her post as the secretary of the corporation committee of the Communist Party of China, the official Xinhua News Agency said. Four local officials in Hebei, where Sanlu is based, were also fired, Xinhua reported.

`Like a Tsunami'

Officials at Sanlu and Yili were unavailable for comment. Calls to the companies in the past two days weren't returned. Sanlu apologized to consumers and promised to recall all milk powder produced before Aug. 6, Xinhua reported Sept. 15.

``The milk scandal is like a tsunami for the food industry,'' Guo Changsheng, an analyst at Shanghai Securities Co., said. ``Food exports will again be greatly hurt amid concerns over quality and safety. China needs to rebuild its entire food standard system.''

The China dairy market was worth $19 billion last year, Merrill Lynch & Co. said, citing Euromonitor data.

Melamine allows producers squeezed by inflation and government-imposed price limits to get ``higher-rated protein content at no extra cost,'' according to Steve Dickinson, a partner at law firm Harris Moure Plc who has studied China's food-safety system.

Earlier this year, pesticide-tainted dumplings imported from China sickened at least 10 people in Japan.

Mengniu Recall

China in 2007 signed agreements with the U.S. designed to boost food and drug safety after tainted goods from China, including toys with lead paint, and contaminated seafood, toothpaste and pet food, reached consumers.

Mengniu, which was halted in Hong Kong trading today, said it will recall products that fail tests and will offer compensation to affected customers.

Yili fell by the daily 10 percent limit in Shanghai to 12.09 yuan, the lowest price since March 2006.

Synutra International Inc., a Chinese maker of infant formula, lost more than half its value in Nasdaq trading after eight batches of its products appeared on China's list of tainted infant formula.

Two companies exported milk to Bangladesh, Myanmar, Yemen, Burundi and Gabon, the quality-inspection agency said.

China imported $1.2 billion of dairy products in 2007, with milk powder being the biggest import, Michael Harvey, international analyst with Melbourne-based trade group Dairy Australia said.

To contact the reporters on this story: Lee Spears in Beijing at lspears2@bloomberg.net; Helen Yuan in Shanghai at hyuan@bloomberg.net

Last Updated: September 17, 2008 06:27 EDT