"It's a must for us to tap the capital market for expansion," board secretary Zhang Fangjun told Reuters in a telephone interview.

Wondersun, which claims to be China's fifth largest dairy firm, is selecting an underwriter for the planned initial public offering, Zhang said. But he declined to reveal the likely size of the offer.

Wondersun is joining a number of other local dairy producers with plans to go public. They include Sanlu Dairy Group, partly owned by New Zealand dairy export giant Fonterra Co-operative Group Ltd, and Hunan Taizinai Group.

They are under pressure to compete with larger rivals such as Mengniu Dairy, Yili, Sanyuan and Shanghai-based Bright Dairy in China, the world's fastest-growing dairy market with annual sales of more than $10 billion.

China's demand for dairy products is expected to grow 12.8 percent each year to reach 40 million tons by 2010, according to Rabobank Groep.

Per capita consumption of fresh dairy products in China is now only 300 grams a year, compared with 21 kilograms in western Europe, according to Danone.

Mengniu overtook Yili to become China's largest liquid milk producer after using proceeds raised from a Hong Kong IPO in 2004 to finance expansion.

The market has also attracted overseas competitors such as France's Groupe Danone and Swiss food group Nestle .

Wondersun, based in northeastern China's Heilongjiang province, plans to focus on baby milk powder. China is the world's second-biggest baby milk powder market and is expected to become the biggest in 2010.

The company initially planned to list in 2003, but it later scrapped the plan because of unfavourable market conditions.

Uni-president, Taiwan's biggest food conglomerate, currently has a 35 percent stake in Wondersun, up from 15 percent it purchased in 2005 for 300 million yuan ($40 million), Zhang said.

Wondersun, with 1.67 billion yuan worth of assets at the end of December, generated sales of 2.2 billion yuan of sales in 2006, Zhang said.