Ban on Chinese bank loans to beat inflation

China's Central Bank has instructed some of the nation's biggest banks to stop lending until the end of the month in a bid to curb inflation.

The move left investors fretting today that demand from China will slow as the authorities tighten controls over the economy, pushing down shares across Asia and sending the price of oil sinking.

Chinese banking shares were hard hit, with both Bank of China and China Construction Bank sliding four per cent.

The authorities are attempting to remove excess cash from the financial system as it can increase inflation and create asset bubbles.

Last year, Chinese banks lent a record 9.6 billion yuan (£863.5 million), helping the country to bounce back from the economic slump but sparking fears that the economy could overheat.

China's Central Bank last week increased bank reserve requirements for the first time since June.

Today's move came as economics experts said fears are growing among investors that China will face a banking crisis this year.

In an analyst's note, Credit Suisse said: "It is very unlikely there will be a banking crisis in China in 2010, but the preconditions may be increasingly set and investors may start to worry about the banking system."

The bank says a bubble is forming in the residential property market.