Nov. 15 (Bloomberg) -- China's industrial output rose at the slowest pace in almost two years in October, indicating that a government clampdown on investment is succeeding and an export boom may be losing steam.

Production rose 14.7 percent from a year earlier to 760 billion yuan ($96 billion) after gaining 16.1 percent in September, the National Bureau of Statistics said today. That was lower than every forecast of 20 economists surveyed by Bloomberg News.

Output growth has eased since June as Premier Wen Jiabao moved to choke off funding for wasteful investment projects that threaten to leave China with idle plants. A slowdown in exports could help stem a record trade surplus that's flooded the economy with cash and strained relations with the U.S. and Europe.

``Exports have begun to show signs of weakening,'' said Jim Walker, chief economist at CLSA Asia-Pacific Markets in Hong Kong. At the same time, government ``tightening this year clearly has had an impact on parts of the economy.''

October's increase was the smallest since December 2004, adjusting for distortions caused by the Lunar New Year holiday. For the first 10 months combined, output rose 16.9 percent from a year earlier.

The Shanghai and Shenzhen 300 Index, which tracks yuan- denominated A shares listed on China's two exchanges, gained 1.6 percent as of 1:06 p.m. local time. Property developers such as China Vanke Co. advanced as the report eased concerns that new economic curbs may be needed.

`Gradual Deceleration'

The Purchasing Managers' Index, an indicator of manufacturing activity in China, fell for the first time in three months, the China Federation of Logistics and Purchasing and the statistics bureau said Nov. 1. Export orders slowed, the survey of more than 700 companies showed.

Textile output rose 12 percent after gaining 14.8 percent in the first nine months, today's report said. Output of electrical machinery climbed 12.6 percent after a 16.1 percent jump. Output of telecommunications products also slowed. The bureau didn't give a comparable breakdown for September.

Inventories at U.S. wholesalers rose to a more than one-year high in September, a Nov. 9 report showed, suggesting companies in the world's largest economy may place fewer orders with overseas producers. The U.S. is China's largest export market.

``We see a gradual deceleration in industrial activities as the U.S. economy slows,'' said Amy Auster, a senior economist at ANZ Banking Group Ltd. in Melbourne. ``The government is also trying to engineer a soft landing.''

Vigilant Central Bank

The central bank on Nov. 3 ordered commercial lenders to set aside more money as reserves for the third time this year to curb a credit-fueled investment boom that may leave China with too many factories.

Economists Liang Hong at Goldman Sachs Group Inc. and Qu Hongbin at HSBC Plc said today's report presents further evidence that investment growth may be easing. A report due tomorrow is expected to show urban spending on plants, property and other fixed assets expanded at a slower pace in October, according to a Bloomberg News survey of 19 economists.

China's central bank yesterday said spending could rebound as the nation's record trade surplus pumps money into the economy. The bank indicated it may continue to remove money from the banking system by raising the reserve requirement ratio and issuing treasury bills.

Even so, the World Bank yesterday raised its estimate for China's economic growth in 2007 to 9.6 percent, the second increase in four months, saying the government may relax its lending clampdown as investment cools.

Buoyant Consumers

Meanwhile, rising incomes are pushing up demand for everything from jewelry to cars, stimulating production. Retail sales grew 14.3 percent in October, the fastest pace in almost two years, the statistics bureau said this week.

Maanshan Iron & Steel Co., the publicly traded unit of China's sixth-biggest steelmaker, on Nov. 7 said it plans to sell 5.5 billion yuan of bonds to finance a new plant to make steel used in cars.

``There's no need to be concerned about this slowdown, it's very modest and reflects continued moderation in fixed-asset investment,'' said Qian Wang, a Hong Kong-based economist at JPMorgan Chase & Co. ``Retail sales are still growing strongly and that's offsetting the slowdown in investment demand.''

A slowdown in exports could partly be a result of the government's own efforts to narrow the trade surplus, which ballooned to a record $23.8 billion in October, said Paul Tang, an economist at Bank of East Asia Ltd.

Export Tax

The Ministry of Finance is raising export taxes on oil, steel and nonferrous metals this month and cutting import levies for alumina. In September, the government announced it will reduce incentives for overseas sales of steel and textiles.

``The government is targeting a slowdown in exports and manufacturing investment because in the past it wasn't sustainable,'' said Tang, who's based in Hong Kong. ``It wants to shift the economic model towards domestic consumption.''

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

Last Updated: November 15, 2006 02:43 EST