The World Bank has raised its 2010 economic growth forecast for China by 0.5% to 9.5%.
Consumption by both businesses and households would grow strongly, it says, even though government stimulus measures were being trimmed back.
China's GDP grew by 8.7% in 2009. Beijing's official growth target for 2010 is 8%.
However, the bank warns Beijing needs to cool inflation and try to prevent a bubble in property prices.
Echoing sentiments from the US, it also urges 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 says in a quarterly statement.
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 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.
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