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China to Rein in Bank Lending, Ballooning Surplus

China will take steps to contain a renewed burst in bank lending and a larger-than-expected rise in the country's controversial trade surplus last month, senior officials said on Friday.

Speaking on the sidelines of a annual parliamentary session, which ends on Friday, central bank governor Zhou Xiaochuan said the authorities would place further controls on bank lending.

"From a commercial perspective, it is understandable for the banks to lend aggressively at the beginning of the year," Zhou told reporters. "But from a macro perspective, after serious study, we decided to place further controls (on it)," he said. He did not offer any timeframe.

Lending data released this week reinforced concern that banks, awash with cash, may fund a new round of speculative investment. Lending surged by 413.8 billion yuan in February, compared with an increase of 149.1 billion yuan in February 2006.

Separately, Commerce Minister Bo Xilai said the nation's trade surplus had been "too large" in February and reaffirmed that Beijing planned new steps to trim exports and step up imports.

China on Monday reported its second-biggest monthly trade surplus on record, dwarfing forecasts and handing fresh ammunition to critics who say Beijing is giving its exporters an unfair edge by holding down the yuan.

The surplus for February ballooned to $23.76 billion, with exports leaping 51.7% from a year earlier. "We are also very nervous about that," Bo said of the size of February's surplus. "We're seriously studying the whole situation to find the underlying reasons."

One reason for the surge was a propensity among Chinese firms to ship their goods out of the country to prevent them from being penalized by possible policy changes, he said.

The Commerce ministry would make appropriate adjustments to the export tax rebate system, paying special attention to the area of processing trade as that generated the biggest portion of the surplus, Bo told reporters, without giving details.

Zhou also said the authorities were keeping a wary eye on inflation, which he said had been running too high.

Asked whether the central bank would raise interest rates soon, Zhou said they were seriously studying the inflation situation and would take "appropriate measures".