The online campaign, at a cost of 280,000 yuan ($41,791), was executed by a Beijing Internet marketing company, which took a variety of measures to spread the rumors, including posts on forums, blogs and websites. It even initiated a public letter-signing campaign among netizens to refuse fish oil DHA.

The Hohhot police said that the online posts drew a considerable amount of negative attention to Yili and that the most-read article had recorded more than 200,000 hits.

Far-reaching implication

Mengniu has denied any involvement in the dirty tactics and insisted that An acted without the company's knowledge or permission.

"We are deeply sorry for the negative impact on Yili and the consumers," said the company in a statement on October 22. "Without first consulting his supervisor, An worked with the partner PR agency and spread accusations online that the fish oil in Yili's baby milk was harmful to human health. He should take responsibility for the consequences."

The statement went on to say An was a former employee of Yili before coming to Mengniu in 2005 and that he had already been fired.

"We will learn from this incident, strengthen internal management and improve employee education to prevent this from happening again," said Mengniu.

However, in the statement Mengniu also went on the offensive. It claimed that Yili had spent more than 5.9 million yuan ($880,597) between 2003 and 2004 hiring PR companies to launch media attacks against Mengniu.

In response, Yili accused Mengniu of trying to distract public attention from the scandal. "This case is still unsolved," the Beijing News quoted an anonymous PR manager of Yili as saying. "Why did they bring up things that happened several years ago? Is it to confuse the public?"

The furore underscores the brutally competitive nature of the country's dairy market, already heavily hit by the Sanlu melamine scandal in 2008 that put thousands of babies in hospital and forced Sanlu to shut down.

The malicious competition will hurt the health of the industry, said Wang Dingmian, a dairy expert and former Executive Director of the Dairy Association of China.

The enterprises must first learn how to honor their social responsibility and seek consumer recognition by branding and marketing, instead of attacking each other, he said.

Tan Guiqiu, a professor at the China University of Political Science and Law, believed it is urgent now to curb this malicious competition. The illegal marketing tactics destroy the reputations of not only rival companies, but also the whole industry, and dented consumer confidence.

"The competition between Chinese dairy makers will allow foreign companies to swoop in," said Chen Lianfang, a senior analyst at the Beijing-based Orient Agribusiness Consulting Ltd.

A mature brand, especially in food production, should pay more heed to its product quality than just maintaining a brand name. Meanwhile, efforts are also needed to strengthen supervision over online marketing tactics and create a healthy business environment, said Chen.