May 20, 2009

China's banking regulator is tightening controls on lending to prevent abuses, as auditors reported that some spending for economic stimulus programs is being diverted or delayed.The new rules, announced by the China Banking Regulatory Commission late Tuesday, apply to bank loans worth more than 5 million yuan ($732,000) or accounting for more than 5 percent of the total investment in a project.They require banks to hold loans until project contracts are finalized and to disburse the funds directly to the businesses supplying goods and services.

The aim is to make it more difficult for project managers to embezzle or otherwise misuse the money.The banking regulator said it was seeking public opinion on the rules until June 16.China's banks issued 5.2 trillion yuan ($760 billion) in new loans in January-April alone, exceeding the minimum target for the year, as authorities rushed projects backed by a 4 trillion yuan ($586 billion) economic stimulus package that aims to combat fallout from the global slump.