The World Bank yesterday raised its forecast for China's economic growth this year to 9.5 per cent from 9.2 per cent after stronger-than-expected economic growth in the first quarter.

The Chinese economy grew 10.2 per cent in the first quarter, compared to 9.9 per cent for the whole of last year.

While revising its economic forecast for China, the World Bank also urged the Chinese Government to take further steps to rein in the credit and investment boom.

"More policy action is needed to keep credit and investment growth in check, mitigate external imbalances and to entrench the rebalancing of growth patterns," the World Bank said in its quarterly update.

Fixed-asset investment jumped by 27.7 per cent in the first quarter, up from the previous year's 25.7 per cent, which prompted the central bank to rise the lending rate by 27 base points to 5.85 per cent on April 27, the first rate rise in 18 months.

 "Further monetary tightening, after the increase in benchmark bank lending rates, should include mopping up liquidity in the inter-bank market, possibly supported by measures to limit credit to risk sectors such as real estate," the World Bank said.

"But it (China) should avoid abrupt monetary tightening," Louis Kuijs, senior economist at the World Bank's Beijing office, said yesterday at a press briefing, noting that the current level of excessive liquidity in the banking system was not as severe as in early 2004.

Li Yong, vice-minister of finance, forecast on Saturday that the Chinese economy could grow by up to 9.5 per cent this year.

"Because there could be more tightening policies, 8-9 per cent growth is also likely," Li said on the sidelines of the Asian Development Bank meeting in India.

It is the second time this year that the World Bank has revised upwards its economic growth forecast for China.

In March, the bank raised the  forecast from 8.7 per cent to 9.2 per cent.

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