By Aileen Wang and Kevin Yao
BEIJING (Reuters) - China's economy grew at its quickest pace this year between July and September in a rebound fuelled largely by investment, although signs are already emerging that the pick up in activity may lose some vigour.
Gross domestic product in the world's second-biggest economy rose 7.8 percent from a year earlier, official data showed, marking only the second quarter in the last 10 in which growth has accelerated.
An unexpected fall in exports in September, and easing growth in factory output and retail sales suggested the economy was already slowing down at the end of the quarter.
Authorities are also expected to cool credit growth as inflation pushes to a seven-month high, another factor analysts say will drag on economic activity.
"The growth peak was behind us in the third quarter," said Ting Lu, an economist at Bank of America-Merrill Lynch. "We believe the People's Bank of China will slightly shift its monetary policy from a moderate expansion in the third quarter to a neutral stance."
After three decades of double-digit growth heavily reliant on exports and investment, China is trying to shift or "restructure" the economic mix so that activity is geared much more to consumption, as it is in more developed countries.
But the latest figures show investment accounted for over half of the expansion so far this year, underlining the challenge Beijing faces to restructure the economy, which it hopes will provide for more sustainable growth in the future.
Reducing reliance on China's traditional growth drivers is expected to crimp the economy, although sluggish global demand has provided an added drag.
In the first nine months of the year, the $8.5 trillion economy grew 7.7 percent from a year earlier, putting it on track to achieve Beijing's 2013 growth target of 7.5 percent, which would still be China's worst performance in 23 years.
The surprise fall in exports came after emerging market demand wilted as choppy financial markets sapped confidence, a trend the government said this week is likely to continue.
The impasse in the U.S. Congress over the government's debt ceiling could be replayed before a new February 7 deadline, shaking confidence once more.
And with the yuan hitting a record high on Friday for the fifth consecutive day, Chinese exporters face the hurdle of a rising currency eroding their competitiveness.
"The economy is facing a complex and uncertain domestic and international environment," Sheng Laiyun, a spokesman for the National Bureau of Statistics told a briefing.
"In addition, we have accumulated chronic structural imbalance problems in our economy and need to deepen reforms."
The data shows China is a long way from having consumption as the main driver of its economic growth.
Consumption accounted for 46 percent of growth in the first nine months, compared with 56 percent taken up by investment. Exports, on the other hand, subtracted 1.7 percent from growth.
The government has sped up projects in infrastructure to support growth, although it has stayed away from more aggressive measures to avoid undermining its efforts to steer the economy in another direction.
Overall investment in infrastructure expanded at a red-hot pace of 29 percent between January and September, the second-fastest area of investment growth after agriculture.
Nie Wen, an analyst at Hwabao Trust in Shanghai, estimated government-backed investment could have accounted for around 25 percent of the total in the first three quarters of the year, Usually, it is 15-20 percent, Nie said.
Investment in the property sector, where prices are at record highs despite measures to calm the market, were also especially buoyant, with the housing industry accounting for 16 percent of the economic activity in the first nine months. That is up from 15 percent in the first six months.
Overall investment rose in the first nine months by 20.2 percent from a year earlier, compared with expectations for a 20.3 percent gain.
CONTROL LOAN GROWTH
The figures suggesting the economy lost steam towards the end of the third quarter mirror a fall in power consumption growth, one of the barometers of economic health favoured by China's Premier Li Keqiang.
Factory output in September climbed 10.2 percent from a year earlier, slightly above expectations of 10.1 percent but weaker than August's annual pace of 10.4 percent.
Retail sales rose 13.3 percent from a year ago, slightly missing forecasts for a 13.5 percent rise and down from August's 13.4 percent gain, despite a seasonal spike in car purchases.
To underpin the economy, most analysts believe China will keep interest rates unchanged in the next year-and-a-half.
But with inflation hitting a seven-month high in September of 3.1 percent at a time when the central bank has voiced concerns about a brisk expansion in credit, points to some policy tweaks.
Chinese banks lent more than expected in September, data showed last week, taking total loans issued for the year to 7.3 trillion yuan, a level that could easily breach last year's 8.2 trillion yuan.
Lu from Bank of America-Merrill Lynch said the government could take steps to crimp rapid credit expansion and avoid expanding its "mini stimulus", which has so far included accelerating infrastructure investment.
"This could be as good as it gets," said Mark Williams from Capital Economics in London. "We continue to expect gross domestic product growth to slow next year to around 7 percent."
(Additional reporting by Shao Xiaoyi and Natelie Thomas; Writing by Koh Gui Qing; Editing by Neil Fullick)