China’s economic juggernaut slowed but still maintained double-digit growth in the first half of the year as it battled inflation and absorbed global setbacks, official data showed today.

The world’s fourth biggest economy expanded by 10.4 per cent in the first half and 10.1 per cent in the second quarter, the National Bureau of Statistics said, down from the 11.9 per cent recorded for 2007.

A spokesman for the bureau said that domestic inflation, problems with food supplies and global economic woes were among the chief concerns for China.

“Pressure for rapid price increases remains high, there are factors constraining steady agricultural production. The international financial situation is severe and there are uncertainties in world economic development."

But the spokesman said that China’s economy remained strong and that the slowdown was under control. “The national economy maintains the momentum of steady and fast growth. This slowdown is in line with our expectations."

Yao Jingyuan, chief economist at NBS, forecast that the economy would lgrow at 10 per cent for the full year, above the target of 8 per cent set by Premier Wen Jiabao.

China’s consumer price index - the main gauge of inflation - rose 7.9 per cent in the first half of this year, with food prices soaring 20.4 per cent, according to the bureau.

However, inflation has come off 12-year highs seen earlier in the year, when it peaked at 8.7 per cent in February, with economists saying the fall was due to a raft of economic tightening measures, including interest rate hikes.

For June alone, inflation was 7.1 per cent, and there were few expectations inflation would fall steeply enough to achieve the government’s full-year target of 4.8 per cent.

China had already released data last week showing the nation’s trade surplus had fallen nearly 12 per cent in the first half, as exporters struggled with the global economic slowdown, particularly problems in the United States.

The appreciation of the yuan against the dollar, as well as curbs such as tariffs on exports imposed by the government to rein in the surplus, also contributed to the decline.

Jing Ulrich, chairman of China Equities for JPMorgan Securities, said that although the economy was slowing down and exporters were feeling the heat, the government had the tools to maintain control.

“Despite the multiple challenges of a global slowdown, high inflation and natural disasters, the Chinese authorities have a range of options for addressing the key domestic policy challenges."

Economists said the earthquake that devastated large areas of southwest China in May, leaving 88,000 people dead or missing, did not have a big impact on the economic growth numbers in the second quarter although a big reconstruction effort could lift the growth numbers in the short term.

Industrial output, a key measure of activities in the nation’s factories, expanded by 16.3 per cent in the first half and 16 per cent for June alone, according to the bureau's figures. China’s fixed asset investments rose 26.3 per cent in the first half.

Hong Kong shares ended the morning session higher as investors hoped that the inflation fall and slowing growth may persuade China to start easing its monetary policy, lifting corporate earnings.

“It is highly likely that China will loosen its monetary policy in the third quarter, especially during the Olympics, to support the stock market,” said Peter Lai, director at DBS Vickers. “Oil prices will hopefully trend lower and that will lessen the burden on inflation.”

Investors were also encouraged to buy stocks after Wall Street’s gains overnight, which pushed up Asian stock markets. The Hang Seng Index rose 545.08 points or 2.6 per cent to end the morning at 21,768.58. The China Enterprise Index, which tracks the performance of Hong Kong-listed mainland companies, rose 3.7 per cent.

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