China's rapid growth is slowing as the impact of its massive stimulus eases and Beijing clamps down on a credit boom.

The world's third-largest economy expanded by 10.3% in the second quarter over a year earlier, down from the first quarter's explosive 11.9% growth, the National Bureau of Statistics said today.

A Chinese slowdown could have global implications if it cuts demand for imported iron ore, industrial components and other foreign goods. Global companies are looking to China to drive demand amid weak sales elsewhere.

China rebounded quickly from the global downturn, powered by $586bn (£385bn) of stimulus spending and a flood of bank lending. But communist leaders worry about surging housing prices and a possible spike in bad loans at state-owned banks. They have imposed curbs on lending and investment, key drivers of growth and demand for imported iron ore and other foreign goods.

"A slowdown in the growth rate will benefit the economy because it will prevent it from growing too fast and being overheated," said a statistics bureau spokesman, Sheng Laiyun, at a news conference. He said that despite the decline, the latest growth is "very high" and within the government's target range. Beijing's official growth target for the year is 8%, which analysts say it easily should achieve.

Sheng said lower growth would work in favour of Beijing's effort to boost domestic consumption and reduce heavy reliance on resource-intensive investment and exports to drive Chinese growth.

Other indicators show manufacturing activity, bank lending, auto sales and other areas all moderating from 2009's heady growth rates. June exports rose 35% over a year earlier but analysts expect Europe's debt crisis to cool global demand.

The latest data leaves China poised to pass Japan as the second-largest economy behind the United States. China reported 2009 output of $4.98tn, just behind Japan's $5.1tn. And China is growing much faster than its neighbour.

June inflation eased to 2.9% over a year earlier, falling back below the government target of 3% for the year after prices rose 3.1% in May.

"With the inflation target in the bag, the government can focus its attention on preserving growth," said Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates, in a report to clients. "We expect growth to continue to slow, but not collapse, over the course of the year."

Despite the credit clampdown, the International Monetary Fund raised its China growth forecast for this year from 10% to 10.5% this month. But some private sector analysts have cut their estimates. Goldman Sachs lowered its forecast this month from 11.4% to a still robust 10.1%.

Today's data also showed investment continues to grow faster than retail spending despite efforts to promote domestic consumption. Retail sales rose 18.2% in the first half but spending on factories and other fixed assets jumped 25% pace.

"Though we have this good start, we still have to be keenly aware of the volatile situation outside China and the many difficulties and challenges we face in this country," said Sheng, the statistics bureau spokesman.