Goldman Sachs says the economy will grow 8.7pc this year and 9.5pc the next US investment bank Goldman Sachs has upgraded its forecast for the mainland's gross domestic product growth this year to 8.7 per cent. The upgrade comes just two months after the bank revised its growth forecast from 7 per cent to 8.1 per cent, a sign that China's economic progress is indeed becoming red-hot. Goldman estimates the mainland's economy will grow as much as 9.5 per cent in 2004, the highest rate in years. Latest figures show that retail sales rose in October at their fastest pace in two years, a sign of strong consumer demand. However, the firm's China economist, Liang Hong, said she did not believe the economy was overheating, as some have suggested. 'In our view, not only is China not overheating, but its growth trajectory is likely to be stronger and to be sustained longer than people expect in the near-to-medium term,' Ms Liang said in Goldman's latest report. Overheating can occur when demand exceeds supply. Ms Liang said she believed the mainland was just 'over-investing', meaning investments were more than the market demand in certain areas. But she said the economy was headed towards healthy growth overall. 'China is still at an early stage of a new expansion cycle after an extended period of below-potential economic performance,' she said. 'Growth will accelerate for some time before overstretched domestic capacity would lead to pressures on inflation and the current account. 'Second, we believe the growth engine next year is likely to run on all three cylinders - namely consumption, investment and exports. At the margin, we see domestic demand - led by private consumption - as an increasingly important driver of growth.' The Goldman report was timed with yesterday's release of last month's consumer retail figures. These showed that mainland consumers purchased 420 billion yuan (HK$394 billion) worth of merchandise, up 10.2 per cent from October last year. Most of the purchasing power came from urban areas, where consumers spent 274 billion yuan, up 11.6 per cent from a year ago. Despite the Sars crisis, consumers spent billions to make up for the two months they stayed at home in April and May. Qiu Xiaohua, deputy director of the State Statistical Bureau, poured cold water on fears of overheating. 'The economy slowed initially because of Sars,' he said. 'The fast growth that came later only made up for the slow growth earlier.' October statistics for industrial production shows that the primary engine of growth - manufacturing - continues to fire at full speed, with manufacturers producing 375 billion yuan worth of output, up 17.2 per cent over the same month last year. Despite the pace of growth, some economists fear the mainland could be on the brink of a slowdown, after an effort by the People's Bank of China to put the brakes on property loans. Ms Liang disagreed, saying the bank appears to be supporting growth over containing inflation.