China curbs bank loans to cool investment fever

--In recent weeks, regulators in China have quietly ordered commercial banks to freeze lending through the end of this year, according to bankers in several cities. These bankers say that to comply, they are canceling loans and credit lines with businesses and individuals. --The order on loans may have a particularly disruptive effect on foreign banks with incorporated subsidiaries in China. Foreign bankers occupy only a corner of China's financial system and they say they are eager to remain on good terms with regulators. Foreign banks in the key Shanghai market -- including Britain's HSBC Holdings PLC, New York-based Citigroup Inc., Standard Chartered PLC of the U.K. and Hong Kong's Bank of East Asia Ltd. -- controlled 6.2% of industry deposits at the end of September and more than 16% of loans outstanding, according to official figures. --Since foreign banks have fewer deposits than their more entrenched Chinese counterparts and regulators are already pushing them to keep loans outstanding at 75% of deposits, they have very little financial flexibility. Their earnings could also take a hit if they need to get compliant with rules by borrowing in local money markets or selling loans. --The latest lending directive is a reminder of April 2004, when the China Banking Regulatory Commission said it offered "guidance" to banks they slow new loan approvals. It quickly backed off when economists howled that the government should treat banks like commercial enterprises, and instead, authorities lifted interest rates for the first time in nine years.