China’s GDP grew by 10.3 percent in 2010, up from 9.2 percent the previous year, according to data released Thursday by the National Bureau of Statistics. The country’s economy expanded at a faster pace than many economists forecast, leading to widespread expectations that the country will aggressively tighten its monetary policy and allow its currency to strengthen against the dollar. Inflation in the month of December grew by 4.8 percent, a decline from the 28-month high of 5.1 percent recorded in November. However, full-year inflation rose by 3.3 percent, topping the government target of 3 percent.

The recent figures underscore the challenges China faces in controlling inflation. Chinese authorities raised the reserve requirement ratios for banks seven times since early 2010 and the People’s Bank of China has raised interest rates twice in the past few months. But despite these measures fixed-asset investment rose by 23.8 percent last year and property investment jumped 33.2 percent. And bank lending by all accounts has continued at a breakneck pace. Furthermore, bank lending may be even higher than expected, as so-called “shadow loans” that banks extend off the books may have amounted to USD455 billion last year, according to Fitch Ratings.

On Thursday China’s banking regulator, the China Banking Regulatory Commission (CBRC) announced that lenders must bring all off-book loans onto their balance sheets by the end of this year. Last August the CBRC had told banks they had two years to recognize shadow loans on their balance sheets.

The benchmark Shanghai Composite Index (SCI) fell 2.9 percent to 2677.65, its lowest level since the end of September, over fears that Beijing will further tighten its monetary policy to tame inflation. The SCI has fallen by 4.6 percent this year.