BEIJING (Reuters) - China's industrial output grew a higher-than-expected 16.6 percent in the year through May, which analysts said reflected strong exports and consumer spending and raised questions about government attempts to rein in investment.

Seven economists polled by Reuters had expected Wednesday's data to show a median 15.5 percent rise after a 16.0 percent increase in April and 15.1 percent for March.

"My feeling is that we're seeing stronger growth from consumers and overseas consumers rather than strength from the investment side," said Tai Hui, an economist with Standard Chartered Bank in Hong Kong.

That view was backed by strong retail sales, which were 12.8 percent higher in May than a year earlier, and by exports, which rose more than 30 percent in the 12 months through May as China cemented its status as a low-cost maker of everything from shoes to electronics.

"The robust industrial output growth in May was mainly helped by strong external demand. Exports are expected to remain strong in the first half and slow gradually in the second half," said Xiao Minjie, an economist with the Daiwa Institute of Research in Shanghai.

May output of steel materials jumped 35.5 percent from a year earlier, well above the recent trend in the low 20 percent range.

Coal production rose a strong 11.6 percent from a year earlier, although the increase marked the first time this year that annual growth has returned to the low double-digit rates seen throughout 2004.

Although May's industrial output data showed an uptick in the annual growth of recent months, it was still well below the rates seen early last year, when growth was more than 19 percent in March and April.

The strength of the latest data may cast doubt on government attempts to rein in heated investment that it fears could unbalance the whole economy.

"I think there is a strong case for more policy action, but to be honest I don't know whether that's going to happen, especially with the 1.8 percent CPI," said Yiping Huang, a Citigroup economist in Hong Kong, referring to the latest annual rise in the consumer price index.

"For some policy makers you probably don't want to do anything when inflation is below 3 percent, but growth is strong," Huang said.

Output rose 16.7 percent in 2004 and 17.0 percent in 2003, when China's investment boom was at its peak.

Since mid-2003, China has clamped down on the pace of investment by reducing credit and making it tougher to win approval for some kinds of industrial projects.

Data for May's fixed-asset investment is due out on Thursday at 0200 GMT. The median estimate of five analysts polled by Reuters last week was for a rise of 25 percent from a year earlier.

Daiwa's Xiao said he expected industrial output growth to slow to an annual 15 percent in the second half as Beijing's credit and investment curbs have more effect.

"Fixed-asset investment in some provinces has slowed sharply and national investment should also be slowing," Xiao said.

"Speaking overall, most economic indicators are pointing to a gradual slowdown in the broad economy."

Intel Tuesday established a $200 million venture capital fund for Chinese businesses.

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