Beijing ? Investigators believe dairy farmers added a dangerous chemical to milk that has been linked to kidney stones in dozens of babies and one death in China’s latest product safety scandal.

The government vowed “serious punishment” on Friday after China’s biggest milk powder producer recalled 700 tons of baby formula. The official Xinhua News Agency said the powder was tainted with melamine, a toxic chemical used in plastics that contaminated pet food last year.

U.S. authorities warned American consumers to avoid all Chinese infant formula. Although Chinese formula is not approved for import into the United States, it might be sold at ethnic grocery stores, the Food and Drug Administration said.

A New Zealand company that owns a stake in the Chinese producer said it believed none of the powder was exported from China.

The producer, Sanlu Group, knew about the contamination Aug. 6 but refrained from telling the public, said a company manager, Su Changsheng, quoted on the Web site of Caijing, a leading Chinese business magazine. Su said Sanlu kept silent because some grocers refused to return tainted powder.