China has been accused of keeping the yuan artificially low to help exports
Page last updated at 07:30 GMT, Wednesday, 17 March 2010
The World Bank has raised its 2010 economic growth forecast for China to 9.5% from 9%.
It said consumption by both businesses and households would grow strongly, even though government stimulus measures were being pared back.
But the bank warned that Beijing needed to cool inflation and try to cut the risk of a bubble in property prices.
It urged China to let its currency appreciate to contain prices and to stop the economy overheating.
"Strengthening the exchange rate can help reduce inflationary pressures and rebalance the economy," the World Bank said in quarterly update on the world's third largest economy.
Earlier this week, Chinese Premier Wen Jiabao accepted that inflation would be a major challenge as Beijing tried to keep its recovery going.
However, he rejected criticism that China was keeping its currency undervalued in order to boost exports.
He said keeping the yuan stable was "an important contribution" to global recovery from the economic downturn.
Currency pressure
The yuan was tied to the dollar until 2005 when it was allowed to rise in value by about 20%.
The peg was reinstated in 2008 when the global economic crisis cut demand for Chinese products and factories began closing.
China is facing pressure, particularly from the United States, to let the yuan appreciate. A failure to revalue its currency and keeping it artificially low, is giving Beijing an unfair edge in trade, critics say.
China's GDP grew by 8.7% in 2009. Beijing's official growth target for 2010 is 8%.
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