April 19 (Bloomberg) -- China's economy, the world's seventh largest, probably expanded in the first quarter at the slowest pace in almost two years after the government restricted lending and investment to keep inflation in check.

Gross domestic product likely rose 9 percent from a year earlier after climbing 9.5 percent in the fourth quarter, according to the median estimate of 11 economists surveyed by Bloomberg News. That would be the smallest gain since the second quarter of 2003. The National Bureau of Statistics is due to report first-quarter GDP tomorrow at 10 a.m. in Beijing.

A slowdown in China, the world's biggest consumer of steel, mobile phones and motorbikes, may add to concern that global expansion is cooling after reports last week showed U.S. factory production and consumer confidence fell in March. Shares of miners including BHP Billiton have dropped in the past month and oil and metals prices are slumping.

A disappointing report ``may raise fears that both the two major locomotives are now slowing,'' said Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London. ``China has been contributing significantly more to world growth than both Japan and Europe.''

China's crude-oil imports fell 1.7 percent by volume in the first quarter, steel-product imports dropped 41 percent and copper imports declined 13 percent, the customs bureau said April 11. New yuan-denominated loans were 12 percent lower than a year earlier and car sales fell 3.2 percent, official figures show.

Inflation, Blackouts

Premier Wen Jiabao last year ordered banks to curb lending to industries including real estate, steel and cement after surging fixed-asset investment drove raw-materials prices higher and strained power supplies. Inflation reached a seven-year high of 5.3 percent in the third quarter and blackouts affected 24 of China's 27 provinces and its four biggest cities in 2004.

China's consumer prices probably rose 3 percent from a year earlier in March, within the government's 4 percent limit, and growth in industrial production likely moderated to 15 percent from 17 percent in the first two months, Bloomberg surveys showed.

Output gains may slow further after the central bank, which in October raised its benchmark lending rate for the first time in nine years, tightened property lending rules on March 16. The State Council, China's highest ruling body on April 14 called for more measures to rein in real-estate investment.

Shares of BHP Billiton, the world's largest mining company, have dropped 13 percent in the past month and those of Rio Tinto, the third-largest miner, have declined 10 percent on the Australian Stock Exchange. The cost of crude oil in New York has fallen 10 percent this month and the price of copper on the London Metal Exchange has fallen 3.5 percent.

Slowdown a Concern

``Although some of the biggest consumers of commodities, such as China, are still growing, there is concern of a slowdown,'' said Calvin Vaudin, a fund manager at Ashburton Ltd. in Jersey, Channel Islands, which oversees $1.4 billion.

The International Energy Agency lowered its forecast for world oil demand for the first time in four months on April 12, partly because of moderating consumption in China, the world's second-largest consumer and importer of the fuel. Chinese demand growth slowed to an annual rate of 5.4 percent in the first two months, down from 21 percent a year earlier, the agency said.

Economic growth in China will probably ease to 8.5 percent this year from an eight-year high of 9.5 percent in 2004, the Bloomberg survey showed. Fixed-asset investment is expected to increase about 18 percent this year after climbing 26 percent in 2004, according to the State Information Center, the research arm of China's top planning body.

Surging Exports

Rising exports are helping keep China's economy expanding faster than the official 8 percent target as the government restricts investment. The country overtook Japan last year to become the world's third-biggest exporter and its shipments rose 33 percent to $60.9 billion in March, the customs bureau reported April 12.

The U.S., which had a record $162 billion trade deficit with China last year, is calling for an immediate loosening of the yuan's peg to the U.S. dollar, saying the link gives Chinese exporters an unfair advantage. The peg enabled the yuan to track the dollar's 7.6 percent slide versus the euro in the past year, making Chinese goods cheaper in Europe.

U.S. Treasury Secretary John Snow, who led an April 15-16 gathering of Group of Seven nations' finance ministers in Washington, said China could and should embrace a looser exchange rate immediately. The U.S. Senate and the European Union have said they plan to impose tariffs or other restrictions on Chinese imports unless the peg is scrapped.

Foreign Investment

``Pressure on China to change its currency policy is rising,'' said Martin Schulz, an economist at Fujitsu Research Institute in Tokyo.

Restricting imports from China may hurt companies including Finland's Nokia Oyj, the world's largest mobile-phone maker, and Taiwan's Quanta Computer Inc., the biggest manufacturer of notebook computers. Foreign companies, which invested a record $60.6 billion in China last year, account for more than half of China's overseas sales.

Quanta said on April 4 it will shift mass production of notebook computers to China, where it already employs more than 13,000 people, and cut 800 manufacturing jobs in Taiwan. Unskilled workers in China earn $1 for every $25 their U.S. counterparts make, according to the Asian Development Bank.

``Moving production to China is the only way for Taiwan manufacturers to stay competitive,'' Quanta's Chief Financial Officer Tim Li said in a phone interview.

Consumer Spending

Rising demand from China's consumers is also luring investment from abroad. China's retail sales probably increased 14 percent from a year earlier in March, the Bloomberg survey showed, and the commerce ministry predicts spending will top 6 trillion yuan for the first time this year.

Households in the world's most-populous nation are buying more computers, cell phones and clothing after incomes rose last year at the fastest pace since 1997. Per capita disposable incomes in urban areas -- home to a third of the nation's 1.3 billion people -- increased 7.7 percent in real terms to 9,422 yuan and those in rural areas climbed 6.8 percent to 2,936 yuan, official figures show.

Avon Inc., the world's biggest direct seller of cosmetics, predicts its China sales will increase about 40 percent from $220 million this year and forecasts sales in its home market, the U.S., will decline.

China is ``a $1 billion opportunity over the long term and we are highly optimistic this will be the fastest-growing market in the world over the next decade,'' Avon Chief Executive Andrea Jung said in Beijing on April 8.

To contact the reporter for this story: Nerys Avery in Beijing at navery1@bloomberg.net

Last Updated: April 18, 2005 12:01 EDT