China's urban fixed-asset investment grew at a steady 25.6 percent in the first five months this year to 4.02 trillion yuan (US$582.6 billion), compared to 25.9% in the same period of 2007, the National Bureau of Statistics said today.

The pace of growth may pick up in the following months because of demand to rebuild parts of Sichuan after the province was hit with a devastating earthquake on May 12, analysts said.

From January to May, spending by state-owned and state-controlled enterprises rose 18 percent to 1.6 trillion yuan. Investors from Hong Kong, Macau and Taiwan increased spending by 14.1 percent to 198.4 billion yuan while foreign investment expanded 16.7 percent to 243.5 billion yuan.

Spending on property development surged 31.9 percent to 951.9 billion yuan.

The FAI accelerated 25.7 percent during the first four months and 25.9 percent in the first quarter.

"Investment growth has been squeezed a bit by tighter credit controls so far this year. But its pace may pick up after the earthquake, which devastated almost everything in some areas in Sichuan," said Li Maoyu, an analyst with Changjiang Securities Co.

The central bank has ordered lenders to set aside 17.5 percent of deposits as reserves to drain liquidity from the market. It was the fifth time the reserve ratio has been increased this year.

Meanwhile, the government has allocated about 500 billion yuan for reconstruction in Sichuan, which would boost the growth of fixed-asset investments.

Shen Minggao, a Citigroup economist, said the year-to-date growth of urban fixed asset investment slowed "slightly but steadily."

"The fear of a profit squeeze due to rising costs and strong currency and tightening policies scared away some overseas investors but not necessarily domestic investors," said Shen.

He added although signs of slowing growth were still at an early stage, they could affect the government's effort in fighting inflation and reducing odds for rate hikes the rest of the year.

(Shanghai Daily June 17, 2008)