The mainland is now the world's fourth largest producer of condoms, helped by strict family planning regulations aimed at limiting population growth.
However, health activists say the country needs to do more to promote condom use to prevent the spread of Aids.
The mainland trails only behind Britain, the United States and Japan in terms of condom production and sales, Xinhua quoted an institution under the State Family Planning Commission as saying.
Most mainland couples are limited to having just one child in a policy dating back to the early 1980s.
The mainland has the capacity to produce more than three billion condoms annually, with more than 1,000 domestic brands, the report said.
Annual consumption now stands at roughly two billion and experts forecast sales to rise 15 per cent a year to create a market valued at more than 10 billion yuan (HK$9.4 billion).
The government buys 1.2 billion condoms annually and distributes them for free, according to state media.
More than 300 companies are producing or packaging condoms on the mainland, including seven key state firms.
The mainland also imports more than 30 brands of condoms from 12 countries or regions, including Sweden, Malaysia, South Korea, Taiwan and Hong Kong. Imports reached more than 150 tonnes in 1999, the report said, but did not give current figures.
The mainland did not produce its own condoms until 1955, when the first factory was established in Guangzhou. The first joint venture, with a Japanese company, started production in 1965.
Britain's SSL International, maker of Durex brand condoms, recently won a court case against domestic firm Wuhan Jissbon Hygiene Products for copying material from its Web site. SSL International set up a joint venture on the mainland in 1998.
The Xinhua report criticised the 'chaotic' state of the condom market and said the free distribution of condoms was a financial burden for the government.
However, it added that condom distribution among unmarried people, migrant workers and those at high risk for Aids was lacking.
Some experts say the mainland is facing the threat of an Aids explosion, in part because of the government's denial of the scale of the problem.
PLAYING IT SAFE
China has the capacity to produce more than three billion condoms every year
A total of about two billion condoms are used on the mainland each year
The central government buys and distributes 1.2 billion free condoms every year