China’s growth accelerated to a more-than-forecast 9.8 percent in the fourth quarter, adding pressure for more monetary tightening to counter inflation. The expansion reported by the statistics bureau in Beijing today compared with a 9.6 percent annual gain in the previous three months. The median estimate in a Bloomberg News survey of 22 economists was 9.4 percent. Consumer prices rose 4.6 percent in December, matching the median forecast. Chinese officials may keep ratcheting up bank reserve requirements and allow more gains in the yuan after the currency strengthened to a 17-year high as President Hu Jintao visited the U.S. this week. The World Bank sees “considerable scope” for higher benchmark interest rates, with Citigroup Inc. and Credit Suisse Group AG estimating that inflation may peak at as much as 6 percent in the first half. “Growth won’t be a problem this year,” said Zhuang Jian, a Beijing-based economist with the Asian Development Bank, before today’s release. “Inflation remains the top immediate risk for the economy.” December’s inflation compared with November’s 5.1 percent annual pace, which was the fastest in more than two years. For 2010 as a whole, consumer prices rose 3.3 percent, breaching a government target of 3 percent. Overtaking Japan China’s economy expanded 10.3 percent in 2010 to 39.8 trillion yuan ($6.04 trillion), the fastest pace in three years, the statistics bureau report showed. That compared with 9.2 percent in 2009. The nation’s standing as the world’s No. 2 economy may be confirmed on Feb. 14 when Japan reports gross domestic product for the fourth quarter. Urban fixed-asset investment rose 24.5 percent in 2010 from a year earlier. Retail sales grew at an annual 19.1 percent in December, partly boosted by inflation, and industrial production rose 13.5 percent, the statistics bureau said. Producer prices jumped 5.9 percent. Premier Wen Jiabao pledged this week to prevent “abnormal” loan growth amid concern that resurgent lending may add to excess money in the financial system, fueling asset bubbles and inflation. China’s foreign-exchange reserves jumped by a record $199 billion in the fourth quarter and new loans breached the government’s target for 2010. Companies from Baoshan Iron & Steel Co. to Starbucks Corp. and McDonald’s Corp. have raised prices. Risk of ‘Overshooting’ Policy makers’ commitment to taming inflation means they risk “overshooting” and causing a slowdown that hampers the global recovery, Allen Sinai, president of Decision Economics in New York, said in an interview in Tokyo this week. The central bank will increase the key one-year lending rate to 6.81 percent from 5.81 percent this year and let the yuan gain about 6 percent against the dollar, Nomura Holdings Inc. estimated this week. The Chinese currency closed yesterday at 6.5824 per dollar, with President Barack Obama telling counterpart Hu that the yuan remains undervalued and gains so far have “not been fast enough.” Chinese Commerce Minister Chen Deming said U.S. export controls and China’s role in global manufacturing helped to explain the nations’ trade imbalance. China aims to hold inflation at 4 percent for the full year, state television reported last month, citing the National Development and Reform Commission, the top economic planning agency. ‘Social Discontent’ Inflation of even that level is “serious” in China, according to Ma Jun, Deutsche Bank AG’s chief China economist. “People are used to low inflation and high inflation will easily cause social discontent,” he said, citing a 1.6 percent average annual rate for the 10 years through 2009. The central bank has raised reserve ratios for the largest banks to 19 percent, excluding any extra requirements for individual lenders. Still, local-currency lending has already exceeded 1 trillion yuan in the year to date, the 21st Century Business Herald reported, citing an unidentified person familiar with the matter. Lending was 481 billion yuan in December. The benchmark Shanghai Composite Index rose by the most in five weeks yesterday after speculation that the December inflation number had leaked and was 4.6 percent, less than November’s rate. --Li Yanping, Zheng Lifei. With assistance from Jay Wang, Sophie Leung and Aki Ito. Editors: Paul Panckhurst, Ken McCallum. To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net Zheng Lifei in Beijing at +86-10-6649-7560 or Lzheng32@bloomberg.net To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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