Nearly half of all Chinese dairy producers will have to halt production as the country gears up to streamline the scandal-tainted industry.

The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) ordered in November 2010 that all dairy firms must apply for new production certificates by the end of March 2011 and those with weak quality guarantees will be shut down.

As of March 31, only 643 dairy companies, or about 55 percent of the total 1,176 milk enterprises, were granted licenses to continue production, said Li Yuanping, spokesman of the AQSIQ.

In addition, local authorities are required to strengthen their efforts to crack down on unlicensed production, and enhance supervision over those qualified companies to guarantee their product safety, said Li.

Of the 533 producers that failed to obtain a license, 426 face permanent closure, while 107 were told to suspend operations until they carried out improvements, he said.

China's dairy industry received a deadly blow from a melamine-tainted baby formula scandal in 2008, which undermined consumer confidence for domestic dairy brands.

Though the industry has regained much of the lost ground, product safety remains an acute concern. As recently as February, there were media reports that dairy products containing leather-hydrolyzed protein, a banned additive, were still sold in markets.

"The industrial wind-up is a needed boon," said Wang Dingmian, a dairy expert and former Executive Director of the Dairy Association of China. "Many smaller companies will be forced out of market, which is good news for bigger players."