BEIJING (Reuters)-China said on Wednesday that a third baby died from drinking contaminated milk. The number of patients has jumped to thousands, and an official said the health threat had been concealed for at least a month.

Minister of Health Chen Zhu said at a press conference that the number of children who became ill after drinking milk powder containing compound melamine increased nearly fivefold to 6,244, and the number of children with "acute renal failure" reached 158.

The escalating scandal has triggered the recall of exports, the firing of officials, and the detention of dismissed company executives.

"China's dairy industry has been pushed to the brink of a complete crisis," said Li Zhiqi, a Beijing consultant who works with dairy companies.

A government survey announced on Tuesday showed that one-fifth of 109 dairy producers inspected products containing melamine, which is prohibited from being used in food.

Earlier this week, after Sanlu Group, China's largest manufacturer of infant milk powder, revealed last week that its products contained melamine, officials said 1,253 children were sick and two died.

Melamine is rich in nitrogen and is used to measure protein, so it can be used to camouflage diluted milk. It can cause kidney stones and other organ problems. So far, four suppliers have been arrested for selling milk mixed with melamine to Sanlu.

China's quality supervision agency said that two manufacturers are recalling milk powder exported to Yemen, Bangladesh, Myanmar, Gabon and Burundi. This panic has spread across the country. Officials did not specify whether these exported products were contaminated.

Taiwan, the autonomous island that China claims to own, issued a ban on 22 mainland companies from producing all dairy products.

In recent years, Chinese products have repeatedly exposed toxic and blemish scandals, and this is not the first time that melamine is commonly used in the manufacture of plastics, fertilizers and cleaning products. In 2007, the US government discovered that pet food ingredients from China were contaminated with melamine.

The new panic claims that officials have covered up the truth, once again shaking the confidence of investors and consumers. Sanlu is one of the seven dairy companies that are counted. Its safety is very high and does not require normal government quality inspections.

Facing widespread public alert, Minister Chen urged the hospital to prevent further deaths.

"As much as possible to minimize the harm of contaminated milk powder to the health of infants," he said.

China is the world's second largest infant formula market, and Sanlu has long dominated. It is located in Shijiazhuang, the capital of Hebei Province in northern China, and is owned 43% by New Zealand dairy giant Fonterra.

Sanlu ceased production last week and announced a large-scale recall. But New Zealand Prime Minister Helen Clark said on Monday that officials only acted after the New Zealand government put pressure on Beijing.

Yang Chongyong, deputy governor of Hebei Province, said on Wednesday that Shijiazhuang officials had postponed reporting the poisoning incident throughout August (during Beijing’s hosting of the Olympic Games).

"It should be said that the Shijiazhuang government did not announce this major food safety incident to the public in time," Yang told reporters. "...They have a great responsibility."

Yang said that Sanlu had been silent for longer.

He said: "We know that before reporting the problem to the Shijiazhuang government on August 2, they had covered up many facts."

Fonterra CEO Andrew Ferrier defended his company, saying that it should have gone public as soon as possible without being criticized.

"They (Chinese officials) are very clear about how they want to proceed with this recall," he said. He added that Sanlu's threat test does not include melamine.

"You do your best. Sometimes things like this (occur), whether you like it or not. If someone breaks the law and adds toxic chemicals to the product, we are all vulnerable."

On Chinese trading websites, the price of this substance is approximately RMB 10,000 (US$1,460) per ton.

Other violating companies include Inner Mongolia Yili Industrial Group, the sponsor of the Beijing Olympics, and Mengniu Dairy Co., Ltd., which is listed in Hong Kong. Mengniu Dairy suspended trading on Wednesday, and the company said it plans to recall "substandard" products.

Yili shares fell close to the 10% daily limit on Wednesday. In contrast, the Hong Kong Hang Seng Index fell 1.7%, and the Shanghai Composite Index fell 3.1%.

As with past product safety scandals, the government responded by firing junior officials. The police announced that they had detained Tian Wenhua, the chairman of Sanlu who had just been fired.

Li, a consultant based in Beijing, said that more needs to be done to clean up the dairy industry.

"The government has food safety measures and regulations. But they are often too broad," he said. "This shows that we need regulation that is suitable for specific industries."

Reporting by Ben Blanchard and Ian Ransom in Beijing, Alison Leung in Hong Kong, and Gyles Beckford in Wellington; Editing by Nick Macfie and Jerry Norton

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