China's outstanding bank loans surged to 209.4 billion yuan (US$26 billion; euro20 billion) in May, nearly double a year ago, the central bank said, fanning worries that efforts to curb soaring investment may not be working.

A Cabinet meeting Wednesday drew calls for tighter controls on investments and land use.

China should not just pursue fast economic growth and blind expansion in investment, state-run China Central TV reported, citing the meeting.

The People's Bank of China, or central bank, echoed that concern.

"Each bank needs to pay close attention to the risks that overly rapid lending can bring and reasonably control their lending," the central bank said in a statement following a meeting with major banks Wednesday.

Figures released Wednesday by the central bank showed China's broadest measure of money supply, M2, jumped 19.1 percent by the end of May from a year earlier, exceeding economists forecasts and raising expectations the government may take further measures to tighten credit.

The data confirmed earlier state media reports that suggested a recent interest rate hike and other measures aimed at discouraging real estate speculation and other risky investments have not yet had much impact.

May's new loan figure compares with 108.5 billion yuan (US$13.6 billion; euro10.8 billion) in May 2005.

The central bank's report did not include total lending for January-May. Reports last week put new bank loans for the first five months at 2.12 trillion yuan (US$264 billion; euro207 billion).

The reports forecast that lending may exceed 3 trillion yuan (US$374 billion; euro245 billion) this year, way above the central bank's annual target of 2.5 trillion yuan (US$312 billion; euro245 billion).

China's economy grew 10.3 percent in the first three months of the year, boosted by strong growth in bank lending and surging exports.

Separately, the country's main benchmark of industrial output rose 17.9 percent in May from a year earlier to 706 billion yuan (US$88.2 billion; euro70 billion), the National Bureau of Statistics reported Wednesday. It said industrial output rose 17 percent year-on-year in January-May.

Forecasts for May had put growth in industrial output at below 17 percent.

Auto production rose 28.4 percent in May from a year earlier to 620,000 units, up from 21 percent growth in April. Pig iron output rose 23 percent, crude steel 19.6 percent and steel products 27 percent, the bureau said.

Manufacturing remains "very, very robust," Tan Hui, an economist with Standard Chartered Bank said, noting worries over excess production in some industries, such as autos and steel.

Meanwhile, other data released Wednesday showed that property prices in 70 major Chinese cities rose 5.8 percent in May from a year earlier.

The fastest growth was in the northeastern city of Dalian, where residential prices climbed 15.2 percent from a year earlier, the National Development and Reform Commission reported.

Next in line was Shenzhen, which borders Hong Kong, where prices rose 13.7 percent, followed by the northern city of Hohhot, where prices climbed 11.4 percent, it said.

The government recently enacted measures aimed at preventing property prices from spiraling higher and encouraging construction of affordable housing, instead of luxury apartment blocks and villas.

Prices in Shanghai, where such measures were implemented more than a year ago, saw real estate prices fall 6.2 percent year-on-year in May, the commission said.

Zhou Xiaochuan, China's central bank chief, told a seminar in Beijing earlier this month that another rise of interest rates was not on the agenda.

At that time, he said as financial data for May were not yet available, it was not known whether the April loan rate hike had had its desired effect.

Despite the signs of an overheating Chinese economy, official figures released Monday showed China's main gauge for inflation, the consumer price index, remained low, rising 1.4 percent from a year earlier, up from a 1.2 percent year-on-year increase in April.

The index rose 1.2 percent in the January-May period from a year earlier, suggesting that the government could meet its target of keeping inflation within 2 percent this year.

Less into saving; More into borrowing

Chinese people, renowned for their enthusiasm in saving cash, are becoming less enthused and at the same time more willing to borrow money from banks.

So it would seem from a monthly monetary report from the central bank yesterday.

The country's outstanding renminbi loans by the end of May stood at 21.16 trillion yuan (US$2.65 trillion), up 16 per cent from a year ago. The growth was 3.6 percentage points higher than the same period last year and 0.6 of a percentage point higher than in April.

The steady increase in lending was mainly supported by growth in medium and long-term loans.

However, it seems people are less willing to save there was only 12.2 billion yuan (US$1.5 billion) of new savings in domestic financial institutions in May, the lowest monthly increase in almost five years.

The central bank thought the slow-down could be caused by a boom in the stock market, which staged an upturn from a bear market over the past few months and diverted some of the cash intended for savings accounts.

China's M2, the broader measurement of money supply, rose by 19.1 per cent to 31.67 trillion yuan (US$3.96 trillion) by the end of last month compared to a year ago.

The People's Bank of China had warned of excessive lending and investment growth in its first quarter monetary report issued two weeks ago. It also raised the benchmark lending rate on April 28 to curb loans for investment projects, but chose to keep the official deposit rate unchanged to discourage savings.

Zhu Jianfang, an analyst with CITIC China Securities, said the investment growth might be more moderated in the second half of the year if tightening measures start to take effect, but the growth so far is still "acceptable."

Moreover, consumption demand is strong both within the country and overseas, said Zhu. The trend of solid consumption growth will be maintained, the expert said.

China's retail sales reported stronger-than-expected growth in May, rising 14.2 per cent year-on-year to 617.6 billion yuan (US$77.2 billion), according to the National Bureau of Statistics on Tuesday.

Meanwhile, the renminbi exchange rate remained basically stable last month.

Central Bank sells 100b yuan of bills

China's central bank sold 100 billion yuan ($12.5 billion) of one-year treasury bills to selected banks, draining cash from the financial system to cool a surge in new lending that's fuelling an investment boom.

The amount is four times the 25 billion yuan of one-year bills that the People's Bank of China sold in a weekly auction yesterday. The central bank didn't identify the lenders who bought the securities, in a statement on its Web site today.

China is trying to rein in credit-fueled investment that's creating excess capacity, driving prices and profits down in some industries. New yuan lending in the first four months of 2006 totaled 1.58 trillion yuan ($198 billion), almost two-thirds of the central bank's target for the full year, contributing to accelerating production and money supply.

"Today's move means the central bank is punishing some banks, mainly the four biggest state-owned lenders, for not having restricted loans," said Lu Wenlei, a fixed-income analyst at Shenyin Wanguo Research and Consulting Co. in Shanghai.

China Construction Bank, Agricultural Bank of China and Industrial & Commercial Bank of China -- three of the big four state-owned lenders -- will buy 90 percent of the bills, Market News International reported yesterday, citing unidentified traders.

The securities sold today will yield 2.11 percent, the central bank said. That's less than the 2.48 percent yield on the bills auctioned yesterday, the highest in almost 15 months.

The central bank holds weekly auctions of treasury bills to drain local currency from the system and keep the yuan's exchange rate stable. The process is meant to control money supply and stem inflation.