China calls for clampdown on lending

China's Cabinet has called for new measures to clamp down on investment and bank lending to head off signs that the breakneck economy may be overheating.

Chinese Premier Wen Jiabao (溫家寶) and other members of the State Council called for the policy changes after examining data on the money supply and investment in buildings, factories and other fixed assets, the government's Xinhua News Agency reported on Friday.

"The government made the decision after concluding that the investment in fixed asset and money supply increased overheatedly in the first quarter," Xinhua said.

China's economy has grown at around a 10 percent clip for each of the past three years.

Throughout the run-up, Chinese leaders have worried that the pace could spark inflation or touch off an investment binge into unneeded projects that will leave already debt-laden banks with more bad loans.

The brief Xinhua dispatch did not provide details on the new policy measures. When similar concerns have emerged over the past two years, the government has allowed banks to raise interest rates and discouraged lending to real estate development and factory expansions.

Among the troubling signs for the economy, the central bank said Friday that new loans in the first quarter reached 1.26 trillion yuan (US$156 billion) -- more than half the bank's target for all of this year.

China's foreign exchange reserves, already the largest in the world, surged 7 percent in the first quarter to US$875.1 billion, the People's Bank of China said.

These figures, economists said, show the government is having difficulty managing the amounts of money circulating through the system. The economy "is still being super-stimulated by sizable amounts of cheap money," said Stephen Green, an economist with the Standard Chartered Bank.