China comfortably beat its target of 8 per cent economic growth last year and came close to overtaking a stagnant Japan as the second-biggest economy in the world, even as signs emerged yesterday that inflationary pressures are building.

The economy accelerated in the fourth quarter to expand by 10.7 per cent and grew by 8.7 per cent in 2009, in spite of the biggest global economic crisis in generations.

China's gross domestic product reached $4,900bn, just short of the $5,100bn Japan is expected to register after last year's contraction, according to Goldman Sachs.

However, consumer price inflation jumped sharply again last month, from 0.6 per cent in November year-on-year to 1.9 per cent, the latest indication that the economy could be at risk of overheating. Factory gate prices rose 1.7 per cent in December, reversing November's 2.1 per cent fall.

“My first worry is how to control price rises while promoting economic growth, ” said Ma Jiantang, director of the National Bureau of Statistics.

Regulators have ordered some banks to stop new loans until the end of the month for fear that frantic lending had been compromising monetary policy that most economists already considered too loose.

Some economists expect interest rates to start rising in China from the second quarter, although officials are concerned about a collapse in domestic house prices if they tighten too quickly and remain wary of a double-dip in the global economy. Modest appreciation of the renminbi is also widely forecast.

“Strong growth accompanied by rising inflation is an unpleasant outcome and will only harden fears of policy tightening,” said Ben Simpfendorfer, an economist at Royal Bank of Scotland. “Prices of goods that matter to consumers such as food, housing and utilities are rising faster than income growth and that will worry Beijing.”