MercoPress. South Atlantic News Agency

China freezes liquidity and sends global markets tumbling

Beijing is concerned about the over heating of its economy and inflation

Global shares have fallen amid concerns that China's plans to reduce lending by its banks will hurt the worldwide economy. The falls came after Chinese state media said authorities had ordered commercial banks to stop lending for the rest of January.

While Beijing is reacting to fears about inflation and its economy overheating, it may hit global trade.

The US's Dow Jones index lost 1.1%, while the UK's FTSE 100 shed 1.7%.

The FTSE closed Wednesday trading 92 points lower at 5,321, with banking and mining stocks among the biggest fallers. Stock indexes also ended down across Europe, with both Germany's Dax and France's Cac losing 2%.

Meanwhile, the Dow Jones finished 122 points lower at 10,603.

Weak US banking results added to the gloom among investors, with Bank of America reporting a 194 million USD loss for the last three months of 2009.

The reported curb on bank lending in January is just the latest effort by the Chinese central bank to cool the sector.

Last week it ordered the commercial banks to keep more funds in reserve for the first time since June 2008. This also meant they had fewer funds to lend. Chinese banks dished out a record 9.6 trillion Yuan (1.4 trillion USD) in new loans last year.

Reports say they have lent 1.1 trillion Yuan so far this year.

The Chinese economy has grown significantly over the past couple of years, at a time when many of the world's major economies were going through recessions.

Beijing's increased concern that the economy may be overheating comes before it releases the country's economic growth figures for 2009 on Thursday.

It is expected to report growth of 8% for the year.

Many analysts also expect the figures to indicate that China has overtaken Japan as the world's second biggest economy, although Japan's latest GDP figures will not be released until 15 February.

China has not been immune to the global downturn, however. At the end of 2008, the government announced a 4 trillion Yuan stimulus plan to boost the domestic economy as exports slumped. Yet exports have since bounced back, with China now believed to have overtaken Germany as the world's largest exporter.

The 4 trillion Yuan government investment accounted for an estimated 88% of GDP growth in 2009. (BBC).-