Confirmation that China is well on the road to economic recovery came yesterday with official figures showing that growth in output accelerated between July and September.

Gross domestic product (GDP) was 8.9 per cent higher in the third quarter, compared with the same period last year, on the back of huge government spending. Annual growth had risen by 7.9 per cent in the second quarter and by 6.1 per cent in the first three months of the year — the trough of the Chinese slowdown.

GDP rose by 7.7 per cent in the first nine months of the year, putting the target of 8 per cent for the full year easily within reach. Industrial production growth quickened to 13.9 per cent in the 12 months to September, from 12.3 per cent in August, while daily steel output in September matched August’s record, and iron ore production scaled a new high.

Beijing’s 4,000 billion yuan (£350 billion) stimulus package, including huge spending on rail and road networks, put the once-fanciful 8 per cent growth target within reach. However, many analysts believe that the figures underplay China’s economic growth and that officials have been smoothing the numbers. The country is still in the throes of deflation, with the CPI measure of inflation dropping to -0.8 per cent in September.

Mark Williams, international economist for Capital Economics, said: “Our proxy for Chinese activity suggests that economic growth slipped as low as 5 per cent in the first quarter, well under the official 6.1 per cent. But it also suggests that the subsequent recovery has been even more dramatic than the Government has acknowledged.”

Beijing is eager to avoid pressure to restart appreciation of the yuan, which has barely moved against the dollar for two years. Nor is the Government in any rush to ease policy amid concerns that private sector growth is lagging behind the state sector. A lower third-quarter figure will also help to ensure that China can close the year with even stronger growth statistics — and further delay tightening.

Chris Scicluna, head of economics for Daiwa Securities, said: “The rise in GDP could reach double digits in the final three months of the year.” The Chinese economy is certainly expected to grow well into next year as the fiscal stimulus continues to feed through. But analysts said that consumer spending will be a key factor. “There is uncertainty whether Chinese households will contribute more to growth,” Mr Scicluna said.

A senior Chinese economist said yesterday that there were positive signs from private investment and consumer spending, but warned that it was not yet enough. Liu Shijin, a senior economist with the Development Research Centre, a think-tank in Beijing, said: “We always hope China’s growth can rely less on investment and exports and more on consumption and we have seen encouraging signs in the past months, although we still can’t say its a trend.”

Analysts are also concerned about the possibility of an asset price bubble.Mr Williams said: “The conditions are in place to propel further increases on both equity and property markets. The Government may welcome some price rises as a boost to confidence, but big gains could risk instability when markets return to earth.”

Mr Liu also raised worries over inflation next year. “If we want to keep CPI below 3 per cent, the pressure will be very big, and we cannot rule out the possibility of [CPI being] higher than 5 per cent,” he said.

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