China's economy is expected to continue to power ahead with a growth of 9.8 percent this year, and inflation at 3.7 percent, the Chinese Academy of Sciences, a government think tank, predicts in a report.

Despite central government packages to rein in the market, the academy said that housing prices could rise 12.77 percent this year because of high demand and lack of supply.

Economic growth this year may be slower than in 2010 due to a higher base but this will help the world's second-largest economy avoid overheating, the report said on Saturday.

"Domestic consumption will be a more important driver by contributing 94 percent to economic growth, compared with 92 percent in 2010," said Chen Xikang, an academy researcher.

At the beginning of last year, the academy estimated that Gross Domestic Product would grow 10.2 percent in 2010. In fact, China saw GDP expand 10.3 percent to 39.7 trillion yuan (US$6 trillion) yuan.

It is targeting an 8 percent growth this year. However, inflationary risks remain.

"The Consumer Price Index, the main gauge of inflation, may be around 3.7 percent in 2011 as a result of rising agricultural product prices, higher labor costs and resources prices as well as ample market liquidity amid massive bank lending," said the academy's Yang Xiaoguang.

"Yet, severe inflation will not happen this year," Yang added.

China's CPI settled at 3.3 percent last year after peaking at a 28-month high of 5.1 percent in November.

On the property front, the academy estimated that nationwide home prices would average 5,711.51 yuan per square meter this year, up 12.77 percent from 2010. Meanwhile, investment in the property sector is expected to increase 30.57 percent year on year to 6.34 trillion yuan.

"The price growth will slow down while some first-tier cities should see price drops amid the central government's harsh policies," said the academy's Dong Jichang. "But demand still outpaces supply."

Dong said regulations to limit the number of house purchases by each household and the upcoming property tax would be effective in curbing speculation while the government had sent strong signal to stick to stringent controls by increasing the interest rate.