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China may see 8% growth this year

Greg Elms | Lonely Planet Images | Getty Images

China bears could be in for a big letdown this year, if the latest growth upgrades for the world's second-largest economy are anything to go by.

Deutsche Bank on Tuesday raised its third-quarter gross domestic product (GDP) growth forecast to 7.9 percent on year from 7.7 percent, and its fourth-quarter forecast to 8.0 percent from 7.8 percent.

(Read more: China's economy coming up trumps)

Growth of 8 percent would be the fastest pace since the first quarter of 2012, when the economy expanded 8.1 percent. Growth at such levels would ensure the government achieves its 2013 growth target of 7.5 percent.

"The specific trigger for this upgrade is the August industrial production data. Retail sales and fixed asset investment data also exceeded consensus estimates, suggesting that inventory restocking is not the only reason for the on-going recovery," Jun Ma, chief economist at the bank wrote in a note.

Industrial output came in well above expectations, rising 10.4 percent on year in August, against forecasts for a 9.9 percent rise. Retail sales, meanwhile, climbed 13.4 percent on year in August, above expectations for a 13.2 percent rise.

"End demand from consumers and investment activities are beginning to support the overall economy," he said.

(Read more: Impressive China data fuels optimism on growth)

Stephen Roach, Former Morgan Stanley Asia Chairman and China watcher, echoed the bank's call. He told CNBC that he believes the economy is headed back towards 8 percent growth by year-end.

"The downside risks in China were vastly overblown from the start," he said on Tuesday. "By my count, this is the fifth hard-landing in ten years that has turned out to be a soft landing."

The market's view of the Chinese economy has shifted several times in the recent months.

China's cash crunch in June renewed fears of a hard landing for the economy. However, an easing of tight liquidity conditions, combined with the government's mini package of fiscal stimulus measures and a pickup in external demand has since boosted optimism over the country's outlook.

(Read more: Is China about to launch a new round of stimulus?)

Goldman Sachs, for example, downgraded its growth forecast in late June only to upgrade its outlook in early September.

However, Nomura's chief China economist, Zhiwei Zhang warns that the strong recovery in the third quarter is unlikely to be sustained into the following year.

"First, property sector investment, a major driver of the recovery in July, has softened as suggested by leading indicators of the sector. Second, money market and bond rates are still on an upward trend that will adversely affect investment," he said.

"Moreover, as the economy recovers and the government is on track to achieve its target of 7.5 percent, the likelihood of new loosening measures declines," he added.

(Read more: China a 'stallion' amid emerging market turmoil)

Despite this, on Tuesday the bank raised its third and fourth quarter growth forecasts to 7.8 percent and 7.5 percent, respectively, from 7.4 percent and 7.2 percent

—By CNBC's Ansuya Harjani; Follow her on Twitter @Ansuya_H

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