China's industrial output grew 15.7 percent in August from a year earlier, the slowest pace in 17 months, indicating the government's cooling measures are beginning to work.

The latest figure, 1 percentage point lower than the one recorded in July, gives further weight to the claim the macroeconomic control measures are starting to bite, economists said.

Meanwhile the country's urban fixed-assets investment, a closely watched economic indicator, also slowed in August to 21.5 percent, slipping from July's 27.4 percent, the National Bureau of Statistics said on Tuesday.

And China's money supply and lending growth are also showing signs of cooling down.

M2, the broad measure of money supply that covers cash in circulation and all deposits, slowed to 17.9 percent in August, down from 18.4 percent in July, the Shanghai Securities News reported on Tuesday, quoting unidentified sources.

Local currency loans climbed 16.1 percent in August from a year earlier, slowing slightly from July's pace of 16.3 percent.

Financial institutions issued a total of 189.5 billion yuan (US$23.8 billion) in new local currency loans last month, rising from the previous month's 171.8 billion (US$21.5 billion), the Shanghai-based newspaper said.

"This stream of economic figures offer timely relief to the government that its economic cooling measures are beginning to work at last," said Li Yongsen, an economist with the Renmin University of China.

But he said figures for the following months are critical to determine whether there is any need to fine-tune the existing tightening policy.

"It is still too early to declare a definite victory yet as a single month's figure is not adequate enough to draw a conclusive judgment," Li cautioned.

"The cooling measures are working but it is premature to give out a verdict that it is problem-free," the economist said.

The Chinese economy surged by 10.9 percent in the first half of this year and it galloped 11.3 percent in the second quarter, the highest pace recorded in a decade, raising concerns of an overheated economy and spurring the government to take tougher measures on land use and credit.

The central bank has raised its benchmark lending rate twice since April.

It has also increased the reserve ratios money that banks must deposit in the central bank for commercial banks twice, all aimed at mopping up liquidity and curbing lending.

However, according to the Shanghai Securities News, the total loans offered by financial institutions in the first eight months amounted to 2.54 trillion yuan (US$318 billion), slightly surpassing the full-year target of 2.5 trillion yuan (US$313 billion) set by the central bank.

The growth of the M2, although it slowed a little last month, is still widely expected to beat the central bank's growth target of 16 percent.

The M1, an indicator covering cash in circulation and current account deposits, rose by 15.6 percent year-on-year in August, according to the newspaper.

Some analysts said the money supply growth figures in August show the central bank still has room to further increase the interest rate or bank reserve.

(China Daily September 14, 2006)