HEAVY industry continued to lead the rapid growth of China's industrial output in March, but activity is expected to slow in the next few months as tightening policies begin to make effect.

Industrial output rose 14.8 percent in March from a year earlier, compared with a 14.1 percent increase in the first two months, the National Bureau of Statistics said.

Heavy industry grew 15.6 percent last month on a yearly basis, compared with 14.4 percent in the first two months, while light industry activity grew 12.8 percent, compared with 13.3 percent.

"Chinese industrial production remains strong even as recent policy tightening measures start to have a dampening effect on activity. But activity will slow as the year progresses," Moody's analyst Matt Robinson said.

"Interest rate increases are raising borrowing costs for firms and discouraging investment at the margin." he said.

In the first quarter, the country's fixed-asset investment grew 25 percent from a year earlier, compared with a 24.9 percent increase in the first two months.

Fixed-asset investment totaled 3.95 trillion yuan (US$604 billion) in the first quarter, with housing investment growing 37.4 percent to 625.3 billion yuan.

"It was reported that Chinese companies borrowed US$12.2 billion from the international bond markets so far this year, more than five times the amount they raised in the same period of last year," said Yao Wei, an analyst at Societe Generale.

"It seems the government has to tighten domestic liquidity conditions by much more to offset the capital inflows being raised externally."