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China's economy will grow at a robust annual rate of 8.5 percent this year and may pick up further steam in 2006-2007 due to strong investment, the Asian Development Bank said in a report issued Wednesday.

The ADB's forecast, revised upward from an earlier prediction of 8 percent growth, is a full percentage point lower than the sizzling 9.5 percent growth seen last year.


But the Manila-based bank said it expects the economy to grow at even faster rates of 8.7 percent in 2006 and 8.9 percent in 2007 due to strong investment in many construction projects still in the pipeline.


The Chinese government has set its growth target for 2005 at between 8 percent and 8.5 percent.


Regulators have been tightening credit and limiting lending for investments in property development and a number of booming industries, hoping to relieve strain on energy supplies and transport and achieve a more sustainable growth level.


The ADB said it expected a modest slowdown in 2005 due to an anticipated decline in growth in investment in construction, factories and other such fixed assets. The government's main index for such spending, fixed asset investment, is forecast to rise 18 percent on-year this year, compared with 25.8 percent growth for 2004.


But the regional lender warned against "a possible return to extraordinarily high growth rates of investment."


"A relaxation of macroeconomic controls could spark a rebound in investment growth and overheating in some subsectors," the bank said.


The report forecast that inflation will remain at a moderate 3.6 percent, thanks to overcapacity in many industries and a leveling off of increases in grain prices.


The government has said it intends to keep price increases within 4 percent this year, and it has ordered local officials to impose prices freezes if inflation appears to be surging beyond that limit.


The ADB said inflation would fall further, to 3.3 percent in 2006 and 3.2 percent in 2007.