The dairy industry is regaining strength, though concerns linger.

Profits for the dairy sector jumped 35.8 percent over the previous year to reach 2.95 billion yuan ($448.3 million) in the fourth quarter of 2010, said a report by the China Economic Monitoring Center under the National Bureau of Statistics. Sales reached 52.5 billion yuan ($8 billion), an increase of 20 percent year on year.

The magnitude of the bounce-back was a reason to celebrate, given how much the tainted formula scandal affected consumer confidence. On top of the reputation crisis came the global financial meltdown that rippled through China's economy.

Policymakers have spared no effort to revitalize the sector. The General Administration of Quality Supervision, Inspection and Quarantine announced in November 2010 that all dairy firms must apply for new production certificates in 2011 and those with weak quality guarantees will be shut down.

"Industry profitability has recovered to the highest level since 2008," said the report. "The momentum will continue into this year, but growth may slow down because of a relatively high comparison base."

But one cause for concern was exports, which nosedived 19.6 percent year on year in the fourth quarter of 2010. "It seems that the industry still has a long way to go before moving out of the shadow of the health scare in 2008," said Song Kungang, President of the China Dairy Industry Association.

In addition, cost inflation is also threatening to eat into profits, he said.