China to rein in bank loans

Chinese state media had reported that major banks received verbal orders from authorities to stop lending for the rest of January.

HONG KONG, January 20, 2010 (AFP) - China will rein in credit after explosive growth last year but has no plans to stop banks lending, a top regulator said Wednesday as the nation vies to cool its red-hot economy.

Liu Mingkang, chairman of the China Banking Regulatory Commission, said new bank loans this year would fall to about 7.5 trillion yuan (1.1 trillion US dollars) from about 9.5 trillion yuan in 2009.

"This year, we will continue to control the pace of the credit supply," Liu told the Asian Financial Forum in Hong Kong.

But the watchdog's chief denied a report that it had asked several banks to stop extending new loans for the rest of this month.

Chinese state media had reported that major banks received verbal orders from authorities to stop lending for the rest of January.

"I've made it very clear about bank lending. We have never asked the banks to stop lending," he told Dow Jones Newswires on the sidelines of the forum.

Liu also told the conference that China's banking sector has undergone "substantial and qualitative changes over the last few years."

His comments come after China's central bank moved earlier this month to hike the minimum amount of money that banks must keep in reserve.

Analysts have said the policy was likely a response to concerns about asset bubbles, bad loans and an overheating economy.

Beijing is also expected to raise interest rates and let the yuan, which has been effectively pegged to the US dollar since mid-2008, appreciate in value as critics accuse China of keeping the currency artificially low.

In the past year China adopted what it called a "moderately loose" monetary policy and embarked on an unprecedented four-trillion-yuan (586-billion-dollar) spending spree to keep the economy growing amid the global downturn.

It also urged banks to pump up lending, but after the amount of new loans subsequently surged, the government in recent months reversed course and called for "reasonable" lending as inflation fears rose.