China's new lending in July fell to less than a quarter of June's level, as banks sought to limit credit risks and the flow of money into stocks and property.
Banks extended 355.9 billion yuan in loans, down from 1.53 trillion yuan in June, the People's Bank of China reported on its website last week. M2, the broadest measure of money supply, rose 28.4 percent.
China Construction Bank Corp, the nation's second-largest lender, said recently that it will cut new lending by about 70 percent in the second half to avert a surge in bad debt.
The government wants to avert bubbles in stocks and property without choking off the recovery of the world's third-biggest economy.
A smaller loan number "is probably a good thing - we're coming off this ridiculously high level of lending in the first half," said Paul Cavey, an economist with Macquarie Securities in Hong Kong.
Premier Wen Jiabao reiterated in a statement on Aug 9 that a "moderately loose" monetary policy and "proactive" fiscal policy will remain unchanged because the economy faces problems including sliding export demand and industrial overcapacity.
UBS AG stated in a July 31 note that the scale of China's new lending in the first half was "neither sustainable nor necessary." New loans of 300 billion yuan to 400 billion yuan a month in the second half would be "more than enough" to support the nation's recovery, the report said.
Chinese banks usually "frontload" lending in the first half of each year.
The credit boom and a 4 trillion yuan stimulus package drove 7.9 percent economic growth in the second quarter from a year earlier and helped General Motors Co to report a 78 percent increase in vehicle sales in China in July.
A record $1 trillion yuan in loans through June has also helped to drive this year's 79 percent gain in the Shanghai Composite Index.
Central bank and finance ministry officials said on Aug 7 that they will scrutinize gains in stock prices without capping new lending. The Financial Times reported the same day that the central bank had told the largest state-controlled lenders to slow growth in new loans, citing unidentified people familiar with the matter.
Credit exploded after the People's Bank of China scrapped quotas limiting lending in November and told banks to back Wen's 4 trillion yuan stimulus package.
Zhang Jianguo, the president of China Construction Bank, expressed concern about loan growth last week, saying some industries are growing too rapidly and some money isn't flowing into the real economy.
Housing prices "are rising too fast and housing sales are growing too fast", Zhang said.
Property sales climbed 60 percent in value in the first seven months from a year earlier, the statistics bureau said.
China's banking regulator urged lenders on July 27 to ensure credit for investment projects flows into the real economy.
Three days later, the regulator announced plans to tighten rules on working capital loans.
Stephen Roach, chairman of Morgan Stanley Asia, said on July 29 that surging lending and infrastructure spending worsened imbalances in the Chinese economy and "could sow the seeds for a new wave of non-performing bank loans".
Instead of pumping up growth, the government should do more to boost private consumption, he said.