BEIJING (MNI) - The Chinese government is targeting new loan creation in 2010 at CNY6 to 7 trillion versus an anticipated CNY9.7 trillion in new credit this year, the China Business News reported Monday.

The newspaper cited unidentified regulatory sources as saying that the new loan target is designed to anticipate a flow of funds into the real economy, but also government supervision over the twin problems of industrial overcapacity and asset speculation.

It quoted one source acknowledging that the China Banking Regulatory Commission intends to increase its supervision of the industry in the new year via higher capital adequacy ratios (CAR) and loan-loss provision ratios.

"Big banks should have their CAR above 11% and small banks above 10%, along with the loan-loss provision ratio for the whole banking industry at above 150%," the source said.

The loan-loss revision ratio was reiterated in a CBRC statement issued last week, though the watchdog at the same time denied that it was imposing 13% CARs on large banks.

Chinese banks lent out CNY8.97 trillion in the 10 months to the end of October, nearly double the CNY4.91 trillion extended over the whole of 2008. The source said that the government is targeting new loans over the whole of 2010 at around 70% of 2009's anticipated CNY9.7 trillion haul.

The government's shift to an "appropriately loose" monetary policy stance at the beginning of November last year provided a green light to an industry, which had been constrained by lending quotas owing to resurgent inflation.

Policy is expected to tighten in the new year, even if the State Council's official monetary policy stance remains unchanged, as Beijing moves to restore a degree of order to the economy.

beijing@marketnews.com ** Market News International Beijing Newsroom +86-10 5864 5241**