June 17 (Bloomberg) -- China's spending on factories and real estate grew 25.6 percent through May, led by property development and boosted by reconstruction work after snowstorms in January and February.

Urban fixed-asset investment rose to 4.03 trillion yuan ($585 billion) in the first five months from a year earlier, the statistics bureau said, after gaining 25.7 percent in the four months through April. Today's figure matched the median estimate of 20 economists surveyed by Bloomberg News.

Spending was more than the combined value of the economies of Thailand, Singapore and New Zealand. Economists are split on whether three extra working days in May, inflation and reconstruction have disguised signs of a slowdown in the world's fourth-biggest economy.

``Factoring in the extra working days, the Chinese economy has actually slowed,'' said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong. ``Growth will keep slowing gradually because of weaker global demand for exports and monetary-policy tightening; inflation is the major risk.''

The yuan rose 0.1 percent to 6.8915 versus the dollar as of 3:14 p.m. in Shanghai. The currency has gained 20 percent since a peg to the U.S. currency was scrapped in 2005.

Investment in real-estate development rose 31.9 percent in the first five months from a year earlier. Spending on non- ferrous metals jumped 41.5 percent and that on coal surged 47 percent.

`Sluggish' Growth

China is rebuilding roads, power lines, factories and homes after the worst snowstorms in half a century and the May 12 earthquake that killed more than 69,000 people.

Investment growth was ``sluggish'' given that the government shortened a holiday from a year earlier, Liang Hong and Song Yu, economists at Goldman Sachs Group Inc. in Hong Kong, said in a note. Restrictions on bank lending and pre-Olympic Games construction may be the cause, they said.

The government uses so-called ``window guidance'' to tell banks how much to lend and has also ordered lenders to set aside more deposits as reserves, pushing the requirement to a record 17.5 percent from June 25.

In contrast, Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong, said fixed-asset spending growth was ``solid'' and this month's data indicated a ``decent expansion in real economic activities.''

``By any standards, this is still a very strong pace of investment,'' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore.

84,368 New Projects

New investment projects rose by 9,667 in the first five months from a year earlier to 84,368. Planned spending on those ventures was 2.72 trillion yuan, down 2.5 percent.

The nation may take eight years to repair roads, bridges and tunnels damaged by the nation's most powerful earthquake in more than half a century, the transport ministry said this month. State Grid Corp. of China, the country's largest electricity distributor, this month put the cost of repairs to the national grid at 34.6 billion yuan.

Dongfang Electric Corp., China's second-largest maker of power-plant turbines and boilers, is among companies rebuilding after losing 500 workers and factories accounting for 20 percent of revenue in the quake.

Reconstruction spending after the disaster will top 500 billion yuan in three years, boosting demand for cement, glass, machinery and steel, Deutsche Bank AG said in a report this month.

Raw-Material Prices

``Investment growth will be biased towards an upward trend this year because of the reconstruction and the absence so far of significant monetary tightening by the central bank,'' said Tim Condon, head of Asia research at ING Groep NV in Singapore. ``The risks are higher raw-material prices and a rebound in inflation.''

A weakening outlook for exports may prompt the government to boost infrastructure spending to prime an economy that expanded 10.6 percent in the first quarter, according to Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong.

Global economic growth will slow to 2.7 percent in 2008 from 3.7 percent last year on rising food and energy prices and the subprime credit crisis, the World Bank said last week.

Foreign direct investment continues to bolster factory spending, soaring 55 percent to $42.8 billion in the first five months from a year earlier. China Oriental Group Co., a steelmaker partly owned by Luxembourg's ArcelorMittal, announced last week plans to build a coking plant.

Inflation's Role

Fixed-asset investment in urban areas climbed 25.9 percent in the first five months of 2007 from a year earlier and 25.8 percent in all of last year.

Inflation slowed to 7.7 percent last month as food-price increases eased. Producer prices jumped 8.2 percent, the biggest gain in more than three years, and money-supply growth accelerated, signaling pressure for inflation to rebound.

Excluding inflation, investment growth this year is running 4 to 5 percentage points lower than in 2007, according to Donald Straszheim, vice chairman at Roth Capital Partners in California.

Chen Xingdong, chief China economist at BNP Paribas SA in Beijing, said investment in manufacturing and property had slowed ``significantly'' after adjusting for price gains.

China hasn't moved interest rates after six increases in 2007, seeking to avoid attracting more capital from abroad to an economy already flooded with cash.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net

Last Updated: June 17, 2008 03:21 EDT