China's state-owned enterprises (SOEs) are facing headwinds due to acute cost inflation.

In the first seven months of 2011, SOEs raked in a combined profit of 1.34 trillion yuan ($207.1 billion), growing 24.4 percent from the previous year, said the Ministry of Finance (MOF). Of this total, central SOEs earned 909.5 billion yuan ($141 billion), with the remainder going to local SOEs.

But in July alone, SOEs' profits dropped 5 percent from June, representing the biggest month-on-month decrease so far this year.

SOEs' revenues totaled 20.65 trillion yuan ($3.2 trillion) from January to July, up 25.2 percent from a year ago. But the figure for July went down 5.3 percent from June.

The SOEs also suffered a decrease in profitability as their profit-to-sales ratio came in at 4.8 percent, 0.1 percentage point lower than the same period last year. The worst performers in July were machinery, steel and chemical sectors, which experienced a slump in profits, said the MOF.

Cao Jianhai, a researcher with the Institute of Industrial Economics of the Chinese Academy of Social Sciences, said the profit gloom is in part due to the relatively high comparison base of last year.

"Meanwhile, costs inflation is eating into their profit margins, and a slowdown in railway investments has also curbed demands for their products," he said.