China said the money supply increased dramatically in 2009, as did outstanding loans at banks. (The Associated Press)

Economic growth in China surged 10.7 per cent in the fourth quarter, the country's bureau of statistics reported Thursday as it declared that it had recovered from the global financial crisis.

China said its economy grew by 8.7 per cent in all of 2009 — down from 9.6 per cent in 2008 — with year-over-year GDP figures rising steadily through each quarter of 2009.

China's estimates of its economic growth are sometimes viewed as lacking the same statistical rigour of those made by Western economies. But there's widespread agreement that China's economy is responding to a huge government stimulus package and an "easy money" policy.

Figures from China's National Bureau of Statistics released Thursday showed that the money supply and the amount of outstanding loans grew substantially in 2009.

China said total money supply (calculated using the measure known as M2) grew by 27.7 per cent during the year while the amount of cash in circulation rose 11.8 per cent.

The amount of outstanding loans at all financial institutions was 40 trillion yuan ($6.1 trillion Cdn). That was an increase of a third from the beginning of 2009.

Inflation watch

Growth of that magnitude raises worries that an overheated economy would lead to runaway inflation.

Chinese officials acknowledged that the country's inflation rate turned positive in December and said they would be keeping a close eye on the CPI to prevent a sudden erosion in the spending power of its hundreds of millions of consumers.

"We need to prevent overly fast price increases and closely watch the trend in consumer inflation," said Ma Jiantong, commissioner of the National Bureau of Statistics, at a news conference.

Last week, China raised bank reserve requirements, restricting lending as a way of cooling its economy's rapid growth.

Asian markets retreated Thursday amid worries that the Chinese recovery might be undermined by new government efforts to restrain its economy.

"The Chinese authorities seem to be juggling knives at this juncture," said Thomas Lam, chief economist at financial services firm OSK-DMG in Singapore. "Let's hope they don't cut themselves or drop the knives on the audience."

(With files from The Associated Press)