The World Bank raised its forecast for the world's second-biggest economy Thursday, but warned that China faces risks from inflation and a possible slowdown in its surging real estate sector.
The bank, in its China Quarterly Update released Thursday, estimated its economy would grow by 9.3 per cent this year and by 8.7 per cent in 2012.
The country embarked on a massive stimulus program during the global crisis in 2008, but the Washington-based lender said the government should be prepared if its efforts to cool inflation overshoot.
"With tension between the underlying upward housing price pressure and the policy objective to contain price rises, interaction between the market and policy measures could lead to a more abrupt than planned downturn in the real-estate market," the bank said.
Beijing has hiked interest rates four times since October and is expected to further constrain credit.
"Much of the impact of the higher oil and industrial commodity prices is still in the pipeline, inflation expectations are high and there is little spare capacity in the economy," senior economist Louis Kuijs said.
In a briefing for journalists, bank economists warned that allowing its currency to appreciate would help to curb imported inflation.
It warned that rising prices for commodity imports will further "substantially" reduce China's current account surplus this year.
The bank reduced its estimate for the surplus to 3.6 per cent of gross domestic product in 2011, from its projection in November of 5.3 per cent.