"The children's publications market has been thriving with many quality works that boost healthy development, but problems also exist, such as shoddy quality, improper content and overly high prices," the circular said.
It asked administrative departments to strictly ban publications that contain murder, violence, obscenity and erotic content.
The circular, jointly issued by five departments including the Ministry of Education and the Publicity Department of the Communist Party of China Central Committee, directed the publishing houses to train professional editing teams for children's titles, state-run Xinhua news agency reported.
Figures show that 523 of a total 581 Chinese publishing houses released books for children and total publications in the genre soared to over 31,000 last year from 10,460 in 2007, an annual increase of 40 per cent.
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While the traditional publication market keeps shrinking in general, Xu said, children's books remain one of the few profitable genres, and many publishers "are digging into this last piece of cake".
On the list of the country's top 100 best-sellers in the first half of 2013, children's books accounted for 52 titles.
According to the new circular, administrative departments should strengthen supervision and impose serious punishment on violators for printing, copying or releasing children's books with improper content.
It also stressed online monitoring of information on harmful publications, calling for timely deletion of questionable digital publications and shutting down websites in severe cases.
Prof Fang Weiping at Zhejiang Normal University called for a rating system based on children's vocabularies and their abilities to perceive and accept.
"Children's reading quality ultimately depends on their parents' and teachers' judgement on children's books. They should introduce good books to the kids and guide their reading," said Sun Weiwei, an author of children's books.