China's food safety commission under the State Council (Cabinet), said that Shanghai police had transferred six of the suspects to judicial organs for prosecution and hunting down another suspect.
The fake baby formula was sold under brands of "Similac", a popular formula line under New York-listed Abbott Laboratories, and "Beingmate", one of China's largest baby formula producers.
The latest scandal was a fresh blow to sensitive Chinese consumers, whose trust in baby formula products was eroded by a 2008 case in which six infants died for consuming baby milk tainted by melamine.
From December 9, 2015 to January 7, 2016, they have arrested nine suspects and seized about 1,000 cans of milk powder, over 20,000 empty cans and 65,000 fake "Similac" trademarks.
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The fake products had been sold into four provinces, including Henan, Anhui, Jiangsu and Hubei, according to Yan Zuqiang, deputy director of the Shanghai food safety office.
According to the commission, three vendors in Hubei, Jiangsu and Anhui have voluntarily destroyed 3,300 cans after becoming suspicious of the powder, while Shanghai police have confiscated another 5,000 cans.
There are still 3,300 cans of fake "Similac" powder left unaccounted for, and another vendor in Anhui confessed 3,600 cans of "Beingmate" had been sold.
Meanwhile, a test of 14 key items found the fake products within national safety standards, the commission added.
Deputy head of the food safety commission Teng Jiacai said the agency will further improve food safety mechanism to strengthen regulation in the industry.