China’s economy grew by 11.9 per cent in the year to the second quarter, its fastest pace in 12 years, demonstrating the strength that has put it on track to overtake Germany as the world’s third-largest economy this year.

The spurt in gross domestic product (GDP) far outpaced economists’ projections of more than 10 per cent. It cemented expectations that the Government will move quickly, possibly as soon as today, to tighten policy to prevent the economy from overheating.

After leapfrogging Britain in 2005 to become the world’s fourth-largest economy, China is now breathing down Germany’s neck. Its GDP was $2.7 trillion (£1.3 trillion) in 2006, just below Germany’s $2.9 trillion, World Bank figures show.

China is now on track for a fifth year of double-digit growth. The surprisingly high rate led many economists to upgrade forecasts for this year. Goldman Sachs now expects 12.3 per cent growth, up from an earlier 10.8 per cent forecast. However, rapid growth is a dilemma for China’s rulers, who want to control the breakneck pace without risking a slowdown. That would make it hard to provide ten million new jobs a year for workers flocking to cities.

Tim Condon, head of research for the Dutch bank ING in Singapore, said: “It’s stunning. We should expect them to raise interest rates or reserve requirements at any moment.”

Many analysts said that a rate rise, which would be the third this year, could come as soon as today.

It is not only the economy that showed eye-popping growth. The soaring cost of pork – with prices up 70 per cent this year – and grain propelled annual consumer price inflation to a 33-month high of 4.4 per cent in June. Other figures were also stronger than expected. Industrial output for June rose by 19.4 per cent from a year earlier. Retail sales were up by 16 per cent and investment in urban areas soared by 28.5 per cent.

Tai Hui, an economist for Standard Chartered Bank in Hong Kong, said: “This puts even more pressure on the authorities to take prompt action to look at their strategy. They may not call it overheating, but the truth is these numbers are incredibly high.”

China may also act to allow its currency, the yuan, to appreciate faster to cap the gusher of export earnings pouring into the country.

There are few signs of slowdown yet. Stephen Green, of Standard Chartered, said: “These numbers show China’s growth accelerated in the second quarter. The question is, how sustainable is this? The rhetoric in Beijing suggests the authorities think it is sustainable.”

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