China's economy is expanding at its strongest rate in over a decade, data showed yesterday, as gross domestic product (GDP) grew 11.3 per cent in the second quarter on the back of strong investment and exports.

The surprisingly strong performance by the world's fastest-growing major economy exposes just how far short efforts to reduce the risk of China's economy overheating have fallen. And it has financial markets betting on an interest rate tightening to cool the engines of China's economic boom.

While official quarterly gross domestic product figures only go back as far as 2003, economists said growth was the fastest since the first quarter of 1995. China grew 10.9 per cent in full-year 1995 and 13.1 per cent in 1994.

Analysts have been wondering when a downturn will hit the world's fourth-largest economy, but the factories producing all the cheap goods currently flooding the world market are not listening. Muscular growth is being funded by a ready supply of cash and an exchange rate that most reckon is undervalued.

This combination has had a supercharging effect on industrial output, which rose 19.5 per cent on a year previously, while retail sales were up 13.9 per cent. In the first six months, investment in fixed assets such as factories and flats was up nearly 30 per cent per cent from a year earlier.

Companies have huge cash reserves and China's trade surplus is enormous, hitting a record of nearly €12 billion in June.

"Credit, investment, expenditure and physical activity data all show a fast-growing economy, but not as overheated as three years ago . . . every detailed indicator we watch suggests the economic situation is not as worrisome as in the 2002-2003 overheating period," said Jonathan Anderson, chief Asia economist with UBS in Hong Kong.

"The strong GDP outturn could well cause the authorities to take additional tightening measures - but on balance, we still believe the government will wait for the policies already in place to take effect," said Mr Anderson.

The second quarter's annual expansion rate was up from 10.3 per cent in the first quarter. Consumer price inflation (CPI) rose 1.3 per cent in the first half.

Mr Anderson said one of the reasons for the recent "acceleration" in economic growth data was a liberalisation in how statistics were gathered and reported. The government is encouraging statistical agencies to present a more accurate picture of the economy, even if it means showing double-digit growth.