(Adds official comment)
BEIJING, Nov 18 (Reuters) - Growth in spending on China's roads, power plants and other projects slowed for a fourth straight month in October as government steps to cool red-hot sectors of the economy hit their mark.
Fixed asset investment was 22.6 percent higher in October than a year earlier, the State Statistical Bureau said on Tuesday, down from 26.5 percent in September, 30.7 percent in August, 32.3 percent in July and 35.3 percent in June.
The falls signal success in government efforts to prevent China, the world's sixth-largest economy, from growing too fast and fuelling bad bank loans and inflation risks.
"The steady slowdown in fixed asset investment growth shows the government's tightening measures have started taking some effect," said HSBC economist Qu Hongbin in Hong Kong.
"This is in fact a good thing because the biggest problem is investment overheating, which could be reflected in non-performing loans if the government fails to stem it."
Fixed asset investment from January to October was 30.2 percent higher than in the year-earlier period, the bureau said in a statement.
Investment in basic infrastructure rose 28.6 percent in the first 10 months from a year earlier, while real estate investment in the same period jumped 31.3 percent, the bureau said.
Economists have voiced concern that fixed asset spending, especially in the property, auto and steel sectors, has been causing pockets of overheating in China's economy, which grew an eye-popping annual 9.1 percent in the third quarter of this year.
Fixed asset investment rose 16.1 percent in all of 2002, when the overall economy grew an annual eight percent.
OVERHEATING DEBATE
Loan growth and foreign investment in China also declined in October, according to official data, providing further evidence the economy might be starting to cool.
Actual foreign direct investment in China plunged more than a third in October from a year earlier, the fifth month in a row to show a fall, though pledges for future investment remained strong, the data showed.
China, rapidly becoming a global manufacturing hub as foreign companies set up shop, drew $3.36 billion in actual investment in October, down 35 percent from the $5.16 billion a year earlier.
To curb over-investment, the central bank increased bank reserve requirements in September after shelving plans for new industrial development zones in August and tightening lending rules for luxury homes in June.
Economists expected the easing of growth in fixed asset spending, a key driver of the economy, could gradually cut into the manufacturing sector and herald a slowdown in the country's economic growth.
"GDP growth is expected to slow in the fourth quarter and probably next year. There could be a soft landing," Qu said.
He predicted China's benchmark consumer price index would rise three percent next year due to rising food prices, suggesting mild inflation.
Chinese officials have predicted the economy could expand at an annual 8.5 percent this year and around eight percent in 2004.
The State Statistical Bureau's vice head, Qiu Xiaohua, was quoted in a Xinhua report as denying the economy was overheating, despite China's trade surplus having plunged an annual 40 percent in the first 10 months of 2003 due to surging imports.
Weak rural consumption was also cited as evidence the economy was not overheating.
The bureau has rejected suggestions that its figures under-estimated China's true economic performance.
Some economists have argued that China's official growth data could be under-estimated given the sizzling investment and export growth in recent months with investment bank UBS predicting the economy could actually expand by about 11 percent this year.