Mengniu said in a statement posted on its website over the weekend that it had destroyed a batch of products at a plant in the southwestern province of Sichuan found by the government quality watchdog to contain aflatoxin, a substance produced by food fungus that can cause severe liver damage, including liver cancer.

"Mengniu would like to express our sincere apologies to consumers," the company said, adding that none of the tainted products had made their way into the market.

"We will draw a big lesson from this incident and will work harder to meet all national and corporate standards on quality in the future," it said.

The incident comes when China's rapidly growing but fragmented dairy industry is attempting to win back consumers' confidence after a series of scandals involving milk tainted with toxic substances.

In 2008, at least six children died and nearly 300,000 became ill from powdered milk laced with melamine, an industrial chemical added to low quality or diluted milk to fool inspectors by giving misleadingly high readings for protein levels.

Earlier this month, a Chinese court sentenced a woman to death and jailed her husband for life for lacing milk sold by a competitor with the industrial salt nitrite as a form of revenge, killing three children and making 36 sick.

The Hong Kong stock market, where Mengniu's shares are listed, is closed on Monday and Tuesday for a public holiday. The company's shares last traded at HK$26.50 ($3.41). They have gained around 28 percent so far this year.

In October, Mengniu had said it was not in direct talks with Pfizer to bid for the U.S. drug giant's nutrition business, following a media report it was considering such a move. ($1 = 7.7770 Hong Kong dollars)

• A Permanent Economic Emergency