China is planning to tighten controls on bank lending to avoid a “hard landing” for the rapidly expanding economy in the wake of the US economic slowdown.

Dow Jones cited a memo detailing a meeting between the Chinese authorities and bank executives, showing that both foreign and domestic financial institutions were told to submit lending plans for next year. The Chinese authorities also recommended quarterly lending quotas.

The meeting, led by Yi Gang, a vice governor of China's central bank, took place last Thursday and included China Banking Regulatory Commission officials and representatives from 21 of China’s biggest banks.

It emerged that banks who exceed quarterly lending limits will face penalties, such as having to buy special central bank bills or make special deposits to the central bank.

The memo said: “If loans get out of control, that could lead to harsh macro controls and the biggest losers would be commercial banks."

Wang Tao, the Bank of America economist, said in a note: “The meeting confirmed that preventing economic overheating and general inflation are the top priorities of economic work in 2008.

"It called for enhanced and improved macroeconomic control, suggesting further tightening measures could be in the pipeline.”

China has raised both interest rates and reserve requirements while imposing other investment curbs to slow a boom in investment in factories, real estate and other projects it fears could lead to defaults on bank loans and cause a debt crisis.

The attempt to stem lending is also aimed at fighting inflation, which surged to 6.5 per cent in October, matching an 11 year high set in August. China’s growth for this year is forecast at 11.5 per cent.

Last week, a Government spokesman denied a report that banks were ordered to stop almost all lending.

But Ms Wang said: “This meeting has set the tone for the upcoming annual economic conference in December that will discuss concrete policies for 2008, and the National People’s Congress next March.”

Policies could include tighter control of new investment projects in the first quarter of next year and further liquidity withdrawal by China's central bankers.

Figures released yesterday showed that confidence among American consumers sank to a two-year low last month as the slump in house prices across the United States gathered pace, sparking renewed warnings of recession from economists.

Average US national house prices fell 1.7 per cent in the third quarter, the largest quarterly fall for more than two decades, according to the closely tracked S&P/Case-Shiller index.

Consumer confidence levels fell for a fourth month in a row in November, to their lowest since October, 2005, in the aftermath of Hurricane Katrina, according to a regular poll from the Conference Board, a private research group.

Its headline index of sentiment suffered a sharper-than-forecast plunge, falling to 87.3 in November, from a revised October reading of 95.2.

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