China's gross domestic product is expected to grow 9.8 percent in 2011, with inflation likely to stand at around 3.7 percent for the year, the official China News Service said, citing a government think tank.

The Economic Forecasting Institute of the China Academy of Sciences said domestic demand would become a bigger driver of the Chinese economy this year and that foreign trade growth was likely to be slower than in 2010.

It said inflation was expected to reach its highest levels in the first quarter as a result of rising commodity prices and salaries.

However, measures aimed at increasing food supplies, together with oversupply in the manufacturing sector and the appreciation of the yuan, would curb inflationary pressures later in the year, the report added.

China's central bank has raised interest rates twice and reserve rate requirements four times since October amid concerns that excess liquidity was driving up consumer prices.

Inflation reached a 28-month high of 5.2 percent in November last year, slowing to 4.6 percent in December, according to official data.

China's economy grew 10.3 percent in 2010, official data showed last week.