Dairy company Sanlu, which is almost half owned by New Zealand co-operative Fonterra, failed to report complaints about its tainted baby formula for months, China state media is reporting.
The formula, contaminated with the toxic industrial chemical melamine, has left four babies dead and 53,000 ill.
The state-run CCTV's news channel quoted an investigation source as saying Sanlu began receiving complaints of sick children as early as December but did not tell officials in its home city until the beginning of August.
It says the officials delayed referring the matter to higher authorities for more than a month.
Prime Minister Helen Clark has criticised Fonterra for not speaking up earlier about the contaminated baby formula problem in China.
Miss Clark says the alert received by New Zealand's embassy in Beijing on 14 August was in the form a comment at a social function to an embassy staff member.
The dairy co-operative part-owns Sanlu, one of 22 Chinese companies involved in the scandal.
Miss Clark says the New Zealand media began reporting about the milk scandal on 12 September.
She says that when Fonterra spoke about the contamination three days later it was via a video conference link from Singapore, which was inadequate.
She says the company knew it was going to be a big issue but did not have an adequate strategy for communicating with the New Zealand public.
Miss Clark says international coverage of the scandal has not focused on New Zealand's link to Sanlu.
Meanwhile, the Food Safety Authority says it does not believe there is a high risk of a brand of Chinese milk-based lollies containing melamine.
It says its tests on White Rabbit Creamy Candy for formaldehyde last year were negative, but it is carrying out tests for melamine after the sweet tested postive for that chemical in Singapore.
Deputy chief executive Sandra Daly says the authority has no plans to recall the lollies before those tests are done.