The World Bank on Wednesday raised its annual economic growth forecast for China to 10 per cent and said the world’s second—largest economy remained “surprisingly strong” in the third quarter of this year.

Growth of China’s estimated gross domestic product had “moderated somewhat to a still healthy pace” of 9.6 per cent year—on—year in the July—September quarter and its “economic prospects remain sound,” the bank said in a quarterly report on China.

“Growth may ease a bit further as global growth decelerates and the macro stance is normalized but it remains supported by the traditional growth drivers and a robust labour market,” said Louis Kuijs, the lead author of the report.

Mr. Kuijs said the bank expected full—year growth of 10 per cent this year, up from its previous forecast of 9.5 per cent, to be followed by a drop to 8.7 per cent in 2011 and then “easing somewhat further in the medium term.” The report said strong exports had again “contributed significantly to year—on—year growth” and led to another rise in China’s large trade surplus, while growth in investment, urban consumption and imports had decelerated.

It pointed to several risks for the Chinese economy, including higher food prices spurring inflation, which it forecast to remain at three per cent or higher.

China’s trade surplus, which has caused friction with the United States, was also likely to rise again in 2011 and the medium term, it said.

“The key concerns are asset price increases, strained local finances and non—performing loans, while inflation risks cannot be ruled out,” said Ardo Hansson, the bank’s lead economist for China.

The report urged the government to do more to promote the private sector and use market—based mechanisms for encouraging energy efficiency and use of renewable energy sources.

China reported economic growth of 9.1 per cent last year.

The 9.6—per—cent growth in the July—to—September period followed a 11.9—per—cent annual growth in the first quarter and 10.3 per cent in the second quarter.