China fears boom and bust cycle

Francis Markus BBC Shanghai correspondent

Is China building the future too fast?

The Chinese government has issued a new warning that too much bank lending for real estate and certain industrial projects could lead to supply gluts and trigger a financial crisis.

The country's central bank, the People's Bank of China, has taken fresh measures to try to curb the amount of money that Chinese banks are lending.

The move comes after Premier Wen Jiabao warned last month of the need to avoid a boom and bust cycle.

All over China, gleaming new towers of steel and concrete are going up, bridges and roads are mushrooming, and factories are springing up.

Curbing overheating

But this new industrial revolution is increasingly worrying the government because of the growing warning signs of overheating in the economy.

Raw material prices are rapidly surging, energy is in short supply, and the country's transport infrastructure is becoming ever more overloaded.

It is a sign of Beijing's deep concern that the People's Bank of China has now announced fresh measures to try to curb lending for new projects by commercial banks.

It is raising the minimum reserve requirements that banks have to hold up to 7.5% of their outstanding loans.

The hike, which is designed to help reign in the country's spiralling billions of dollars of bad loans is the third in the space of eight months.

Chinese leaders seem to be finding that warning about potential overheating is not enough to curb the frenzied expansion.

But if these measures to curb bank lending do not work, and inflation continues to rise, then they could be forced to use even more drastic strategies like slamming the brakes on the economy by raising interest rates