The cabinet met Friday to discuss improving quality control in the production of formula, and called for the industry to look into mergers among individual manufacturers to increase compliance with stricter food safety standards.
Premier Li Keqiang said in a statement from the State Council the quality of baby formula was a high priority.
"Baby milk powder safety is not only an issue concerning people's livelihood, but also a major economic and social issue affecting the nation's future," the statement said. "It is urgent for the government to upgrade the safety standard of domestic baby milk powder."
Beijing said it would increase the standardization of dairy farming and apply more electronic monitoring of product as it moves through the manufacturing chain.
China's official Xinhua news agency said China's formula industry is regrouping after a series of scandals caused by low-quality baby formula appearing on the domestic market.
The reluctance to purchase Chinese products opened the door for overseas producers to scoop up nearly half of the market.