Wal-Mart says it will take legal action against its supplier after it recalled donkey meat that contained the DNA of other animals, including fox.
The supermarket giant has set up an investigation team to look into the incident and plans to strengthen its food safety rules.
It said the person in charge at the supplier factory had already been detained.
"We are deeply sorry for this whole affair," Greg Foran, president/CEO, Wal-Mart China, told Reuters.
"It is a deep lesson (for us) that we need to continue to increase investment in supplier management."
Wal-Mart will reimburse customers who bought its 'Five Spice' donkey meat sold at some outlets in China.
It is collaborating with The Shandong Food and Drug Administration to investigate the incident.
Duck meat fine
Donkey meat is a popular snack in some areas of China where it slaughtered 2.4 million donkeys in 2011, according to the country's livestock industry yearbook.
In the same year, China fined Wal-Mart, along with Carrefour, a combined 9.5 million yuan ($1.57m) for manipulating product prices. Wal-Mart was also fined for selling duck meat past its expiry date.
The scandal could dent Wal-Mart's reputation for quality in China's $1 trillion food and grocery market where it plans to open 110 new stores in the next few years.
China is the largest grocery market in the world and is set to grow to $1.5 trillion by 2016, according to the Institute of Grocery Distribution.