Since April, the Chinese central bank has also increased the proportion of deposits banks must hold in reserve, instructed banks to curb lending to specific sectors and sucked more money out of the banking system through open market operations.

Government ministries have weighed in with strict orders to local authorities to rein in capital spending. Three senior officials in Inner Mongolia were punished this week for flouting Beijing's orders.

Powered by investment and exports, annual gross domestic product growth quickened to 11.3 percent in the second quarter, the fastest pace in a decade, from 10.3 percent in the first three months.

By increasing yields on the yuan the rate rise will encourage companies and individuals to get round the country's currency controls and bring more money into China.

To Zhong Wei, an economist at Beijing Normal University, this is a strong pointer that the authorities are willing to allow a faster rate of climb in the yuan, which has been allowed to rise just 1.7 percent since it was depegged from the dollar in July 2005.

"The rate move indicates that the pace of the yuan's appreciation will significantly accelerate this year," he said.

But Richard McGuire, a strategist at RBC Capital Markets, disagreed: "A change in interest rates in China is a signal that it's unwilling to change its forex policy."

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