The momentum behind China's economic rebound remains strong. But underpinned by recently announced economic indicators of the third quarter, the quality of the economic growth has been somewhat worrying. Driven mainly by credit, the economic upturn has fueled inflationary risks. Hu Yuyue, Director of the Securities and Futures Institute of the Beijing Technology and Business University, shared his opinions on these issues in an article recently published in the Shanghai Evening Post. Edited excerpts follow:

As the Chinese economy continues an upward trend with its third-quarter gross domestic product (GDP) surging 8.9 percent year on year, and considering the accelerated recovery and chilly fourth-quarter last year, China's goal of maintaining an annual growth of 8 percent is quite attainable.

However, the large volume of investment, which accounted for a staggering 87.6 percent of GDP during the first half of 2009, triggered concerns that the economy may be improving too quickly. According to the latest economic figures, during the first three quarters, investment pushed China's GDP up by 7.3 percentage points, contributing a hefty 94.81 percent to the economy. The statistics further prove that China's GDP has become increasingly reliant on investment throughout the third quarter, allowing asset investment to dwarf domestic consumption and exports as the only pillar driving the macroeconomy forward.

Although the government began tightening credit markets during the second half of 2009, the investment frenzy spurred by record amounts of loans during the first half cannot be curbed overnight. In the context of the export market slump, loose fiscal policies have led to excess production capacities in various sectors.

Since the financial crisis broke out, the shrinking demands of the major world economies have eroded China's exports, which decreased year on year during the first three quarters, dragging the GDP growth down by 3.6 percentage points. Despite the surge in Christmas orders, China's exports in September slid by 15.2 percent year on year, considerably smaller than the rate of decline in August. But trade wars and the prevalence of protectionism might hinder further growth in exports.

Rising agricultural product prices have also fueled concerns. According to statistics from the Ministry of Agriculture, the price of meat and eggs increased for 15 consecutive weeks before major agricultural product prices declined slightly on the eve of the National Day on October 1.

Since food accounts for 33 percent of the consumer price index (CPI) in China, the price hikes have accelerated the recovery of the CPI, which dropped only 0.8 percent year on year in September. As the economic recovery will push up consumption demand, CPI hikes seem to be inevitable.

As China's moderately accommodative monetary policy continues, M2, the broad money supply, surged by 29 percent year on year in September, the fastest monthly growth since 1997. Meanwhile, asset prices, including real estate and stock prices, have been advancing on inflationary anticipation.

China's economic recovery is at a critical point amid a still chilly economic environment, rendering proactive fiscal policies and moderately accommodative monetary policies imperative. Meanwhile, China needs to optimize its economic structure and overcome its strong reliance on investment, while addressing trade protectionism and paying close attention to the possibility of inflation.

How to overcome these barriers poses as big a challenge to the Chinese Government as that of maintaining fast economic growth. In the long run, we need an annual growth of 8 percent that is based on a balanced economic structure.