THE growth of China's gross domestic product slowed to 9.5 percent in the second quarter as the central government revved up efforts to curb credit expansion and rein in inflation.

The economic growth on the whole remained solid and stable, said a spokesman at the National Bureau of Statistics. How to handle the relationship between maintaining stable growth, adjusting economic structure and managing inflation would be a testing challenge for the rest of this year, he said.

China's GDP grew 9.6 percent year-on-year in the first half to 20.44 trillion yuan (US$3.15 trillion). The rate reflects a 9.7 percent growth in the first quarter and a 9.5 percent growth in the second quarter. It fell from last year's rate of 10.3 percent.

"China's slower economic growth is in line with the central government's target of cooling the economy and restructuring it," said Sheng Laiyun, a bureau spokesman. "Mild moderations in some indicators are the results of an active macroeconomic control and the exit of stimulus measures."

China's industrial growth and retail sales both eased in the first six months. Industrial output expanded 14.3 percent from a year earlier, down from the pace of 15.7 percent in 2010. Retail sale gained 16.8 percent to 8.58 trillion yuan, less than last year's 18.4 percent.

Only fixed-asset investment bucked the trend by gaining 25.6 percent to 12.45 trillion yuan, up from the pace of 23.8 percent in 2010 thanks to the government-backed affordable housing program.

Despite of cooling signs in the economy, China's inflation surged to a three-year high of 6.4 percent in June, triggering concerns of stagflation, which refers to a period of economic stagnation accompanied by inflation.

"China should still treat managing inflation as the top priority at the moment," said Lu Zhengwei, chief economist at the Industrial Bank. "China's economy performed better than expected in the first half, and the fear of a hard landing as some investment bank analysts trumpeted is absurd."

Lu said the central bank may still have to raise interest rates once or twice within this year to tame price jumps.

The People's Bank of China announced an interest rate increase on June 6, the third time this year and the fifth increase since October when the country shifted to a prudent monetary policy stance. Besides, the central bank has also raised reserve requirement ratio nine times since mid-November to a record 21.5 percent.

On Monday, Premier Wen Jiabao reiterated that tackling inflation was the government's top priority, while central bank governor Zhou Xiaochuan stressed the need to make price stability the foremost task. Such announcements reinforced expectations for more increases in interest rates and bank reserve requirements.

Jing Ulrich, managing director and chairman of global markets in China at J.P. Morgan, said tightening monetary measures may continue to stall China's economic growth until the last quarter of this year when the growth rate may pick up again.

Disposable income of urban residents rose 13.2 percent from a year earlier to 11,041 yuan through June, while rural residents' income expanded 20.4 percent to 3,706 yuan, the bureau said.