Growth in China's fixed-asset investment slowed in October, suggesting state efforts to prevent the economy overheating are having an effect.
Fixed-asset investment rose 22.6 percent from a year earlier to ?395 billion (US$48 billion) after rising 26.5 percent in September, according to Beijing-based Mainland Marketing Research Co (China), which releases monthly figures on behalf of the National Bureau of Statistics.
The government has sounded warnings about a rush among local companies to expand metal production in a bid to profit from rising output in the auto, appliance and real-estate industries.
"In the steel sector, the rate of price increases has slowed, and inventories are growing," said Chen Xingdong, chief China economist at BNP Paribas Peregrine. "Everyone wants to produce, so profit margins are going to be squeezed."
Tighter margins may trigger bankruptcies, hurting a banking system riddled with bad loans. Standard & Poor's earlier this month estimated China's state-owned banks, including Bank of China and Industrial & Commercial Bank of China, have bad-loan ratios of 45 percent.
The state has already tightened rules governing lending to property developers, aluminum makers and other industries, and in September raised banks' reserve requirements to help damp money-supply growth. M2, the broadest measure of money supply, grew faster than the central bank's 18 percent targeted growth rate every month this year.
"Banks have come under pressure to restrict lending," BNP's Chen said. "The government has put out a lot of information about overcapacity developing in the manufacturing sector, and investors are learning."
Even as the government tries to slow investment gains, the lure of wages less than one-twentieth those in the US and economic growth triple that of the Group of Seven industrialized economies is proving irresistible to companies such as Ford Motor Co and Posco.
Local companies too are pressing ahead with expansion.
Fixed-asset investment accounts for almost a third of the China's gross domestic product, which increased 8.5 percent in the first nine months of this year. The government predicts that pace will be maintained for the full year.
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