The sizzling pace of Chinese capital spending barely slowed in November despite curbs on lending, showing why the authorities intend to tighten monetary policy further in 2008.
Spending in urban areas on fixed assets such as factories and power plants rose 26.8 percent in the first 11 months from the same period of 2006, hardly changed from the 26.9 percent increase in the first 10 months, the National Bureau of Statistics said on Friday.
Economists had forecast 26.5 percent growth.
Analysts had cheered a slowdown in the creation of new loans after the central bank recently ordered banks to freeze credit for the rest of the year or risk punishment.
But Friday's investment report showed spending on new projects grew by 28.0 percent in the January-November period, up from 26.5 percent in January-October.
Lending in the property sector and for new investment projects accelerated sharply in November, confirming the authorities' concern about a possible rebound of investment over the next few months, said Wang Tao, an economist with Bank of America in Beijing.
Wang said China's tightening measures had had more of an impact on central government and state firms than on local firms and governments.
Goldman Sachs economists Yu Song and Hong Liang calculated that fixed-asset investment grew 26.1 percent in November from a year before, down from 30.7 percent in October, mainly due to the disappearance of low base effects.
Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said he thought that pre-emptive action taken by the central bank, the People's Bank of China, had been adequate.
But if the figure is still at these levels towards the start of the second quarter, I'd be worried. We'd have to start seriously considering the risk of overheating, he said.
The investment data completed China's monthly economic indicators, which gave grounds for concern about the government's campaign to tamp down growth.
Most worrying was November's 11-year high in consumer price inflation, at 6.9 percent, as well as mounting price pressures in the pipeline with producer price inflation of 4.6 percent.
Chinese policy makers have been trying to cool over-investment for fear that excess supply will drive down profit margins and leave companies unable to service their debt.
The country's leaders declared last week that they would tighten monetary policy next year.
Apart from five rises in official interest rates and 10 increases in banks' required reserves, the authorities have unfurled a series of administrative measures to discourage investment.
They have tweaked taxes to penalize gas-guzzling, polluting industries and have made it harder to convert farm land into factory sites.
Analysts expect the mix of policies to drag down capital spending, the main engine of China's growth, next year.
Although investment growth for the whole of this year will still be high due to the very rapid expansion in the first half, I believe there's no doubt that it will trend down in 2008, Zhao Qing Ming, an economist with China Construction Bank in Beijing, said.
Zhao said making it harder to access bank credit plus rising raw material prices would also discourage investment.
Central bank governor Zhou Xiaochuan has expressed concern that a reshuffle of local government officials in 2008 could produce a repeat of 2003, when investment soared as new appointees sought to make their mark by boosting growth.
(Additional reporting by Eadie Chen, Editing by Alan Raybould)