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Reports: China bank officials deny halt <http://cbs.marketwatch.com/1.gif>
By CBS MarketWatch
Last Update: 12:39 AM ET April 29, 2004

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SAN FRANCISCO (CBS.MW) -- Chinese banking officials on Thursday denied media reports they have banned new lending to help slow China's overheated economic growth -- reports that contributed to a stock pullback on Wall Street and a sharp drop in gold futures.
Hong Kong media reported earlier Thursday that China's four large state banks had been told to suspend new loans until May 1 and that smaller commercial banks also reportedly have stopped new lending, anticipating tighter loan policies from the government.

A story in the online edition of the Wall Street Journal reported an official at the China Banking Regulatory Commission Wednesday denied any halt to lending."We didn't issue such a notice," the official said.

A People's Bank of China spokesman also said it had not issued such an order."We have never made a such a requirement. We have absolutely have not done that," the spokesman said.

Yet the China Securities Journal, a publication linked to the Chinese central bank, also reported the loan moratorium and said it is scheduled to last until a weeklong holiday begins on Saturday, according to the Journal.

Bank executives, according to the report, said the order offered no explanation for the lending halt although some indicated such a move might cause serious economic disruptions.

China's State Council this week issued guidelines for companies in the cement, steel and real-estate sectors, ordering companies in those sectors to lessen the amount of bank loans, and use more of their own money for new investments, the official Xinhua news agency reported. The move was made to curb over-investment in those sectors, the news agency said.

Concerns over the impact of China's effort to stem the fast pace of its economic growth are reverberating in the global economy. News the country would take steps to slow growth contributed to a 1.3 percent decline in the Dow Wednesday and a 2 percent drop in the Nasdaq Composite. See Market Snapshot.

Gold futures logged their biggest hit since January, falling as much as $15 an ounce Wednesday to a six-month low, as investors feared that new rules in China would reduce bank lending and slacken the Asian country's demand for metals. Read Metal Stocks.

For now,"any signs that Chinese demand will slow is seen as a negative sign by investors here, especially funds selling for technical reasons," Standard Bank analyst Robin Bhar told AFX News. But overall demand will eventually help the base metals prices recover, he said.

Lending in China is ballooning, with many commercial banks reporting new loans growing at a rate of 40 percent a year. The government is seeking to temper corporate investment, but does not want to dampen consumer spending.

While fears that China's economic engine could sputter dented stock markets in the United States and Europe, economists said the real concern about China is not a slowdown but the opposite -- that the country's economy would continue to grow at such a rapid pace that any eventual decline would be severe.

"The real risk is that China doesn't slow down in some kind of orderly fashion and that is it forced to deal with constraints that wrench it down without control," said Robert Brusca, chief economist at Fact and Opinion Economics."Everyone is hoping for some slowdown in China because it is straining resources right now," he said.

Under a pall of worries about developments in China, declines in commodities dragged down stock markets in the Asia-Pacific region Thursday. Shares of South Korea's largest steelmaker, Posco (PKX: news, chart, profile), fell more than 6 percent by midday. Australia's BHP Billiton (BHP: news, chart, profile), the world's largest global mining company, was down almost 3 percent. See Asian Markets report.

Japanese financial markets were closed Thursday for one of the Golden Week string of holidays.