China's economic growth is at 9.5 per cent as government fights to control inflation and high prices [EPA]

China's economic growth has slowed down in the second quarter this year after the government stepped up its battle against inflation.

Growth was 9.5 per cent in the three months to the end of June compared to a year earlier. That figure is down from 9.7 per cent in the previous quarter.

High house prices in China caused by high inflation 

But it may not be good news for China, as inflation hit a three-year-high of 6.4 per cent last month, even though controlling prices is the top priority for the Chinese government.

The slowdown in growth comes amid concerns China is heading for a hard fall after manufacturing activity almost stalled in June, which could have a serious impact on countries struggling to recover from the financial crisis.

China's factory output grew by a better-than expected 15 per cent in June, while retail sales increased by 17.7 percent.

But the biggest concern for the Chinese economy is the fear of China's housing market bursting, between 2009 and 2010 there was a 41 per cent rise in housing constructions as prices soared.

But due to high costs many properties remain unoccupied. According to China’s electricity authority, last year more than 65 million recently sold homes used no power because they are standing empty.

China has already raised interest rates three times this year; the most recent increase coming last week. Analysts say further tightening measures are likely before the year is over in order take action to deflate the housing bubble before it bursts.

Source: Agencies