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While the United States and now Europe are acting to rescue distressed financial institutions, it's interesting to note that Chinese authorities are offering a hand to companies caught in the contaminated milk scandal.

According to the official Xinhua news agency, Beijing is implementing an emergency plan to subsidize dairy farmers suffering from shrinking demand. Provincial governments are also taking action. The Inner Mongolian Autonomous Region government has come up with a $14.6-million (U.S.) rescue package and reducing tax obligations for two of the country's largest dairy companies, the Yili Group and the Mengniu Group. Subsidies have also been promised by provincial governments in Hebei, Shanxi and Liaoning.

But, as with the worldwide financial crisis, rescues are only a stopgap measure. What is needed is wholesale reform.

Ironically, China's main regulatory body, the General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ), had granted "inspection free" status to certain dairy companies, such as Sanlu Group, the country's biggest milk powder manufacturer, as well as Yili and Mengiu, all of whose products were found to contain melamine, a chemical that makes watered-down milk appear rich in protein - and can lead to kidney problems.

Milk has long ceased to be a simple domestic problem. Canada and other countries have taken measures to ban products containing Chinese milk, including yogurt, ice cream, chocolates and candies. The reputations of international brands such as Cadbury and Lipton have suffered because they used Chinese ingredients.

At stake here is not just the future of the Chinese dairy industry, but the reputation of China itself. Following cases of lead-coated toys, toxic toothpaste and poisonous pet food, the milk scandal has dealt a body blow to the country's good name as it was basking in the afterglow of the Olympics.

Now, all products from China, especially food, are being viewed skeptically. Even furniture looks unsafe, after sofas sold in Europe were found to cause skin burns and allergies because of toxic gas emitted by an anti-mould agent.

Beijing has tried to contain the fallout from the melamine scandal by blaming lower-level officials, saying they did not report to the central government. However, this is far from convincing. If the central government had been doing its job properly, this problem would not have arisen. It was, after all, the central government's quality control agency, AQSIQ, that exempted these companies from inspection in the first place. And it was the Communist Party's propaganda department that issued a directive ordering Chinese media not to report on food safety in the weeks and months before the Olympics.

The Sanlu Group, the main company involved, sought to stifle information about its poisoned product even as it continued to market the milk powder. According to the official People's Daily, the company asked the government of Shijiazhuang, where the company was headquartered, for "strengthened management" of the news media.

Damage done by party censorship of the media was revealed by Fu Jianfeng, an editor at Southern Weekend, who wrote the following damning indictment in his blog after the scandal became public in September:

"Actually, our reporter He Feng had received the information at the end of July that more than 20 babies were hospitalized for kidney stones in Tongji hospital, Wuhan city, Hubei province, as a result of consuming the tainted Sanlu milk powder. But for reasons that everybody knows, we were not able to investigate the case at that time because harmony was needed everywhere. As a news editor, I was deeply concerned because I sensed that this was going to be a huge public-health catastrophe. But I could not send any reporters to investigate."

Even now, Chinese authorities are trying to manage the story. And they have threatened to revoke the licences of lawyers who volunteered to help victimized families.

What's needed is greater openness, not more control. If China is to fulfill its dream of becoming a great country, it will have to let reporters and lawyers perform their proper functions in society.

Frank Ching is the author of China: The Truth About Its Human Rights Record