Under the proposed law, firms caught using banned substances in food, producing food from inedible ingredients, or illegally making, selling or using banned food additives, will be banned from operating in Shanghai, Xinhua reported late on Wednesday quoting city officials.

China's food safety record is abysmal. Frequent media reports refer to cooking oil being recycled from drains, carcinogens in milk, and fake eggs. In 2008, milk laced with the industrial chemical melamine killed at least six children and sickened nearly 300,000.

On Monday, Shanghai's food safety authority said the level of antibiotics and steroids in Yum Brands Inc's KFC chicken was within official limits, but found a suspicious level of an antiviral drug in one of the eight samples tested.

Yum faced criticism last week from China's state-owned broadcaster, which said Yum's KFC chickens in China contained an excessive level of antibiotics.

The planned regulation, expected to take effect next year, will see blacklisted firms barred from operating food businesses in the city, Xinhua reported, quoting Gu Zhenhua, deputy director of the municipal food safety committee's office.

(Reporting by Melanie Lee; Editing by Daniel Magnowski)

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