China's GDP growth is forecasted to be 8.7 percent for 2011, a slow down from 10 percent forecast annual growth last year, but inflation remains the biggest challenge for China's economy in the months to come, according to Deutsche Bank officials speaking in Beijing Monday.

The GDP slowdown could be attributed to expectations of slowed 2011 growth for ex-ports, investments and consumption, Ma Jun, Deutsche Bank's chief economist for Greater China, forecast at the press conference.

Ma said however that decision makers should be more concerned with inflation rather than an economic slowdown.

He warned that if decision makers fail to implement aggressive anti-inflation mea-sures at the beginning of the year, they might have to draft even tougher measures to tackle the problem in the second half.

The Consumer Price Index (CPI) year-on-year growth is estimated to stay at between 4 to 5 percent in the first half till the middle of the year when it is likely to reach a new high of 5.5 percent, and decline to 3.5 percent at the end of this year, Ma said.

But heavy snow in China's north and south as well as poor weather overseas could further push up food prices, Ma, Deutsche Bank's chief economist for Greater China said.

To address the issue, it's likely the government will hike interest rates three to four times in 2011, or up 75 basis points above the prime interest rate this year, he predicted.

These interest rate hikes will lead to about 5 percent annual appreciation of the yuan against the US dollar, which will assist China's commodity importation at reduced prices which may help ease domestic inflation by adding up the supply.

Zhang Youxian, an analyst at the Bank of China's Institute of International Finance, agreed with Ma's prediction on the interest rate hikes.

Faced with rising financing costs, followed by the interest hikes, more enterprises may issue bonds for financing in-stead of relying on traditional lending, the Deutsche Bank official said.