China's spending on factories, real estate and other fixed assets probably grew at a slower pace in October as the government curbed lending and project approvals.

Fixed-asset investment in towns and cities climbed 27.6 percent in the first 10 months from a year earlier after rising 28.2 percent through September, according to the median forecast in a Bloomberg News survey of 19 economists. The report is due tomorrow at 10 a.m. in Beijing.

Slowing spending may ease pressure on Premier Wen Jiabao to tighten restrictions on lending and raise interest rates, which could cause China's record trade surplus to widen further. With investment cooling, Wen may seek to narrow the trade gap by encouraging consumption and allowing faster currency gains.

"Significant new macro tightening measures, over and above the ones in place, are undesirable if not flanked by measures to boost consumption," Bert Hofman, chief economist at the World Bank in Beijing said yesterday. "Policymakers' concerns about too rapid investment growth have diminished from three months ago."

China's industrial production rose last month at the slowest pace in almost two years, gaining 14.7 percent from a year earlier, the statistics bureau said today.

Expansion in China, the world's fourth-largest economy, accelerated to 11.3 percent in the second quarter from a year earlier, the fastest pace in 12 years. Growth was powered by surging investment that created surplus capacity in industries such as steel, cement and autos.

Central Bank Vigilant

That prompted Wen to step up efforts to control spending. He imposed a mix of administrative and monetary tools to restrict investment, tightening land use and project approvals, raising interest rates and forcing banks to set aside more money as reserves to shrink the pool of funds available for lending.

Economic growth slowed to 10.4 percent in the third quarter as investment cooled, lessening expectations that the government will have to clamp down again.

"We expect a gradual relaxation of administrative austerity measures, less frequent monetary tightening actions and a neutral fiscal policy structurally favoring consumption," Ma Jun, head of China research at Deutsche Bank in Hong Kong, said in a report.

Still, the central bank yesterday indicated it isn't ready to stand down, saying the slowdown in lending and investment since June is "unstable" and warning that spending may rebound as the trade surplus pumps cash into China's economy.

Record Trade Surplus

"Under the current liquidity conditions in China, raising the reserve requirement ratio and issuing central bank bills are suitable tools," the bank said in its third-quarter monetary policy report, referring to its two main methods for removing money from the financial system.

The trade surplus reached a record $23.8 billion in October, bringing the total for the year to $133 billion, a third higher than for all of 2005. The gap helped drive China's foreign exchange reserves to $1 trillion, the most ever held by any nation.

On Nov. 3, the central bank raised the percentage of deposits lenders have to set aside as reserves by 0.5 percentage point to 9 percent, effective Nov. 15. The ratio has increased in three steps from 7 percent in June.

"Investment, output and money supply growth have all slowed to a range that the government is happier with and that's more sustainable," said James McCormack, head of Asia sovereign ratings at Fitch Ratings in Hong Kong. "What they have to do now is to tackle the root cause of the problem, which comes back to the balance of payments surplus."

Power Generation

Such a push should involve letting the yuan rise faster, which would encourage imports while damping exports, the World Bank said yesterday. The Chinese currency has risen 3 percent since July 2005, when China revalued it and imposed a 0.3 percent daily trading band against the dollar.

The government has taken a selective approach to curbs on investment, encouraging projects in areas such as transport and power generation to avoid bottlenecks as the economy expands.

Electricity producers including Huaneng Power International Inc. will boost the nation's total generating capacity by at least 80,000 megawatts -- or about 15 percent -- this year, and will add another 75,000 megawatts in 2007, the China Electricity Council said last month.

At the same time, Wen is restricting wasteful spending in industries that are heavy consumers of energy, such as aluminum and steel. Authorities in Inner Mongolia in northern China said last month they canceled 43 new investment projects in the first half, without specifying further.

Bloomberg Survey

Other companies are pulling back as falling profits make new projects less viable.

Semiconductor Manufacturing International Corp., China's biggest chipmaker, will cut its planned capital spending for next year to less than $700 million from $1.1 billion, the company said on Oct. 31, after its third-quarter loss widened on falling prices.

The following tables list economists' forecast for growth in urban fixed-asset investment and industrial output in October from a year earlier.