The figures, released on Thursday by the National Bureau of Statistics, leave China firmly on course to chalk up its fifth straight year of double-digit growth and to overtake Germany before long as the third-biggest economy in the world.
"It's stunning. We should expect them to raise interest rates or reserve requirements at any moment," said Tim Condon, head of Asia research at Dutch bank ING in Singapore.
The spurt in gross domestic product growth from 11.1% in the first quarter blew past expectations of a 10.8% rise and prompted several banks to raise their 2007 growth forecasts.
Goldman Sachs now expects an eye-popping 12.3%, while JPMorgan Chase is projecting 11.3%. Both banks had previously forecast full-year growth of 10.8%.
Annual consumer price inflation in June also beat forecasts, jumping to a 33-month high of 4.4% from 3.4% in May due to a spike in the cost of pork and grain.
Li Xiaochao, the statistics agency's spokesman, said price pressures remained relatively strong, even though first-half consumer price inflation excluding food was just 0.7%.
"We will continue with moderate tightening to control the monetary and credit situation," Li told reporters.
The quarterly growth rate was the strongest since the last three months of 1995, Lehman Bros. said. The economy expanded 10.9% that year after 13.1% growth in 1994.
Tai Hui, an economist with Standard Chartered Bank in Hong Kong, said 11.9% growth was "in the stratosphere".
"Obviously, this puts even more pressure on the authorities to take prompt action to look at their strategy," he said. "They may not call it overheating, but the truth is, these numbers are incredibly high."
Hui and Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, both said an interest rate rise — which would be the third this year — could come as soon as Friday.
The Shanghai stock market took the prospect of imminent tightening in its stride. The exchange's main index recouped early losses to trade flat in early afternoon.
Higher borrowing costs, five increases so far this year in the proportion of deposits that banks must hold in reserve, and a flurry of edicts by government planners have had little impact on the economy, which is firing on all cylinders.
Investment in fixed assets such as factories and real estate was up 25.9% in the first half of the year; the trade surplus is setting successive monthly records; and retail sales in the first six months grew at the strongest rate since 1997.
Qu Hongbin, chief China economist at HSBC in Hong Kong, said that as well as raising interest rates and banks' required reserves, the government was likely to impose new curbs on investment in sectors that guzzle energy and spew out pollution.
"However, all these measures are usual stuff. Although they may help stop growth in investment and credit from accelerating further, they won't cause a meaningful slowdown in growth in the second half of 2007," he said in a note to clients.
While Beijing needs to control inflation, the ruling Communist Party must also find some 10 million jobs every year for workers leaving the land and flocking to the city, he noted.
And because rising inflation is almost entirely due to a surge in food prices, the central bank would not slam on the brakes, Qu said.
Indeed, given the current rate of economic growth, consumer price inflation of 4-5% should not be seen as a big problem. "As a result, the risk of over-tightening in the rest of the year is still remote, in our view," he added.
Among other figures released on Thursday, industrial output in June rose 19.4% from a year earlier, retail sales were up 16.0% and investment in urban areas in June was up 28.5%. All were stronger than expected.
After leapfrogging Britain in 2005 to become the fourth-largest economy, China is now breathing down Germany's neck.
Li said estimates of aggregate GDP vary depending on the exchange rates used. "But one thing is certain: we are drawing nearer to Germany and the gap between us is becoming smaller."
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