China's economy would expand 9.5 percent this year, fuelled by a transformed growth model featuring less government-led investment, a recovery in exports and solid domestic consumption, the World Bank (WB) said in a report released Wednesday.

The projection, made in the latest China Quarterly Update, is higher than the WB's previous forecast of 8.7 percent last November and the 8 percent target set in the 2010 government work report delivered by Premier Wen Jiabao on March 5.

"In 2010, government-led investment is bound to decelerate, while exports are likely to continue to recover amid a pickup in the global economy, and consumption should remain solid," said Ardo Hansson, the bank's Lead Economist for China.

Despite the global recession, China's economy grew 8.7 percent in 2009, and the growth momentum continued in the first months of 2010, said the report, which found that the massive investment-led stimulus was the key driving force in propping up the economy last year.

The report also said that real estate investment gained prominence more recently and household consumption growth has held up very well.

China's top statistics authority said on March 11 that, nationwide, real estate investment surged 31.1 percent year on year in the first two months to 314.4 billion yuan, up 30.1 percentage points from the rate in the same period last year.

The Washington-based lender forecasted inflation would increase in 2010 but was unlikely to reach high rates given an excessive global capacity in supply.

It expected the consumer price index (CPI) to rise by 3.5 to 4 percent in 2010, compared with the previous forecast of 2.8 percent and the 3 percent target set by the Chinese government.

China's CPI rose 2.7 percent year on year in February, higher than January's 1.5 percent. The country's CPI ended nine months of decline in November last year, when it rose 0.6 percent.

Premier Wen said in the work report that China would stick to an appropriately easy monetary stance and a proactive fiscal policy as China sought to counter the lingering impact of the international credit crunch.

He also stressed China needs to strike a balance between maintaining a relatively fast and stable development, economic structural adjustment and management of inflation expectation to advert a possible "double dip" this year.

The World Bank predicted the global economy would grow 2.7 percent in 2010, with emerging economies expanding 5.2 percent, after it shrank 2.2 percent last year.