China’s red-hot economy expanded by 8.7 per cent in 2009 but inflation surged towards the end of the year, according to government data Thursday that laid bare the risks of overheating.

Gross domestic product in the world's third-largest economy returned to double-digit growth in the fourth quarter of 2009 at 10.7 per cent, and over the full year GDP surpassed the government's target of eight per cent.

That target is seen as crucial to stave off social unrest in China's population of 1.3 billion people, but the country's biggest rise in inflation in 13 months underlined the broader challenges of breakneck growth.

The nation's consumer price index, the main gauge of inflation, rose 1.9 per cent year-on-year in December. China's authorities are already clamping down on bank lending and hiking borrowing costs to keep a lid on price pressures.

The 10.7 per cent growth in the final quarter of 2009 was the best result since the second quarter of 2008.

It followed revised growth of 9.1 per cent in the third quarter, 7.9 per cent in the second quarter and a revised 6.2 per cent in the first three months of last year.

The full-year figure exceeded analyst expectations, but was down from 9.0 per cent in 2008 and was the slowest full-year increase in eight years.

China's urban fixed asset investment, a measure of government spending on infrastructure and a key driver of the economy, rose 30.5 per cent in 2009 while overall fixed asset investment rose 30.1 per cent, Thursday's data showed.

Industrial output from China's millions of factories and workshops rose 18 per cent in the fourth quarter, and 11 per cent for all of 2009.

Retail sales jumped 15.5 per cent in 2009. After inflation, the figure is put at an increase of 16.9 per cent.