China's manufacturing PMI Photo: Xinhua

Profits of China's major industrial firms saw a year-on-year increase of 19.6 percent, a strong rebound for the third month in a row, suggesting that recovery of the world's second-largest economy is gaining momentum and at a better-than-expected speed, analysts said.

Profits at China's industrial firms reached 589.5 billion yuan ($85.58 billion) in July, up 19.6 percent on last year, from an increase of 11.5 percent in June, data from the National Bureau of Statistics (NBS) showed on Thursday.

From January to July, profits of industrial enterprises fell by 8.1 percent year-on-year, with the rate of decline further narrowed by 4.7 percentage points from January to June, NBS data shows.

NBS senior statistician Zhu Hong attributed the profit growth in July to the implementation of pandemic prevention and control work as well as a series of social economic development polices.

"As the source of major momentum for China's economic growth, the recovery of China's industrial firms also indicate a strong rebound of the country's economy, and the almost 20 percent growth rate is also higher than expectations," Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Thursday. 

Dong said the growth may also be due to a stimulus policy from the central government, which he said had pushed the development of both the country's "new infrastructure" and "old infrastructure."

NBS' Zhu said the growth in profits was mainly driven by equipment manufacturing, auto, and the electronics industry. Specifically, the profits of high-tech manufacturing companies have increased substantially. In July, the profits of the high-tech manufacturing industry increased by 36.5 percent year-on-year, and the growth rate was 27.5 percentage points faster than in June.

Nevertheless, Zhu noted that although profits were up in July, the growth rate of accounts receivable increased compared with June, resulting in greater pressure on corporate cash flow. This, coupled with a more complex domestic and foreign environment, means future profit growth is still uncertain.

NBS data showed that liabilities at industrial firms rose 6.5 percent year-on-year at the end of July, up from a 6.4 percent growth at the end of June. 

"The challenges that lie ahead are still huge - industries that have had a hard time during the pandemic such as film, restaurant, aviation and tourism may not see short-term compensation, and an intensified China-US tech war has made it urgent for China to overcome any technological shortcomings," Dong said.

Dong noted that concerns and potential risks still lie beneath the cheering data: "Will a loosened policy aimed at stimulating growth curb the pace of China's industrial upgrading? We have to make it clear after this special period that industrial upgrading will remain the major task for the long-term development for China's economy," Dong added.