Projecting a 9.6% growth for China in 2011, the International Monetary Fund (IMF) has said that the country's economy faces increasing pressure from credit and asset bubbles.
"There are mounting concerns about the potential for steep corrections in property prices and their implications," the IMF said in its annual World Economic Outlook report.
The IMF report said that credit and asset price behaviour was disconcertingly hot in China.
Even though the government had taken measures like increasing banks' reserve requirements and raising interest rates to fight inflation, credit growth remained high compared with the run-ups to previous credit booms and busts, it said.
Still, China along with India will continue its solid growth, despite concerns over rising oil prices and the fallout from the Japanese earthquake, according to the report.
The world's third-largest country in terms of area, has set annual economic growth target at 8% for 2011 and 7% for the next five years.
China, which grew by 10.3% in 2010, may witness a rise in inflation to 5% in 2011, as the economic engines shift to a growth model that favours domestic consumption over export-led growth, according to the report.
Inflation has been one of the major concerns for both consumers and the government, which released RMB 4 trillion at home as economy stimulus measures after the global financial crisis.
Last week, China's central bank announced raising of interest rates for the second time this year. The move came as inflation surged to 4.9% in February, surpassing the government's target of 4%.
Wang Qing, an economist with Morgan Stanley in Hong Kong, said in a recent research note that China's CPI (Consumer Price Index) was expected to grow by 5.2% in March.
"Fighting inflation will be the main goal for the Chinese government. And there is no need for Chinese policymakers to be concerned that economic growth may slow down owing to price surges in crude oil and the global commodity markets," Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong told China Daily.
China has raised the reserve requirement ratio of banks nine times since the beginning of last year to soak up excess liquidity in the market.
At the annual session of the National People's Congress last month, Chinese Premier Wen Jiabao said that inflation was a great concern for most Chinese people and that taming inflation would be the government's "top priority" in 2011.
The IMF warned on Monday that China's price pressures, which started in a narrow range of food products, have now widened to other sectors.
