Guangdong's drug-safety agency has revoked the licence of a drug maker after it was found to have falsified production records, Xinhua reported.
The provincial Food and Drug Administration cancelled the licence of Baoshantang Pharmaceutical Company because it logged fake data related to the processing of herbal extracts.
The extracts were used to make a popular vitamin C-infused flu medication marketed under the brand name Yinqiao.
News of the licence cancellation came after state broadcaster CCTV reported that tablets of Yinqiao contained high levels of toxins including arsenic and mercury because farmers had used sulphur to steam raw herbs.
The company, based in Jieyang and which employs more than 100 people, was responsible for processing the herbs used to make the medicine, which reportedly boosts the immune system.
It performed the task on behalf of Guangzhou Pharmaceutical Holdings, one of the country's largest drug makers.
Guangzhou Pharmaceutical, which was responsible for buying the herbs, final production and distribution of the drug, has pulled the drug from shelves and seized remaining stock for examination by authorities.
An investigation by local drug-safety authorities found that Baoshantang may have violated a production contract by using non-medicinal herbs in the production of the dry extract for the medicine.
They also accused the factory of forging production logs and receipts to cover up the contract violations and the use of non-medicinal herbs in production.
Authorities described the violation of the production agreement as "very serious" and notified police, Xinhua reported.
A manager at Baoshantang confirmed to the South China Morning Post yesterday that the factory had stopped production, with more than 100 poor workers now facing unemployment.
"Nearly 20 members of managerial staff have been working day and night with local police, assisting in the investigation," he said, declining to be named.
He insisted that the factory did not intentionally try to cover up anything or avoid the scrutiny of authorities, saying the problem was because of "issues with our chaotic management, which led to production logs not being properly recorded".