China's banking regulator Monday announced a broad inspection into bank loans for fixed asset projects, the latest move by the Chinese Government to slow down frenzied fixed investment growth and contain related financial risks.

The China Banking Regulatory Commission (CBRC) said the inspection will cover all fixed asset loans by Chinese financial institutions dated before the end of March this year, as well as their promises of credit to planned fixed asset projects, with an emphasis on projects with total investment exceeding 30 million yuan (US$3.6 million).

Priority is being particularly placed on "key" projects such as factories manufacturing steel, aluminium and cement, office buildings and training centers by government agencies, golf courses, exhibition centers, shopping malls and logistics parks, the commission said in a press release.

The financial institutions are required to complete their internal loan inspections before June 10, while CBRC inspectors will pay visits to sites in selected regions afterwards, the release said.

Despite some tightening measures in the latter half of last year, China's fixed investment continued 2003's sizzling growth to surge by 42.8 percent in the first four months of this year, prompting the government to stage further policy initiatives in the past two months, including some controversial administrative measures.

Fixed investment expansion was seen to have been fuelled by rapid credit growth, which had also led to worries about new bad loans being accumulated.

The CBRC said no further loans should be granted to projects that are found to be in explicit defiance of State policies, and the banks must work to collect their loans or try to minimize potential losses when immediate repayment is not possible.

Banks are required to suspend loans to projects that have failed to meet environmental standards or approval procedures, and reconsider lending only when corrections have been made.

The commission also ordered banks to stop any loans to new projects for steel, aluminium or cement that are scheduled for construction this year without approval from the State Council, China's cabinet.

In another press release yesterday, the CBRC cited its Vice-Chairman Tang Shuangning as urging the chiefs of the nation's 11 joint-stock commercial banks at a recent meeting to step up their studies of State industrial and monetary policies and strengthen risk prevention efforts.

Some domestic banks, especially the smaller joint-stock commercial banks, are believed by analysts not to have strictly followed the government's recent tightening policies as they eagerly pursued profits and a bigger market share.

There is a tendency of "blind loan expansion" among those banks, which is "likely to lead to new financial risks," Tang said.

The commission also published an earlier speech by CBRC Chairman Liu Mingkang Monday, where he said China would soon promulgate rules on qualified domestic institutional investors, a long-anticipated scheme to allow Chinese residents to invest overseas.

Liu also said that China is considering allowing commercial banks to set up fund management companies, and encouraged foreign banks to participate as strategic investors.

The nation is also considering allowing foreign investors to establish financial companies in China, and the CBRC would support them by buying into domestic financial companies with a 20 percent ceiling for a single investor, Liu said.

(China Daily June 1, 2004)