The China Banking Regulatory Commission (CBRC) has told banks to prevent personal loans from flowing into the country's red-hot stock market, where a bubble is being formed, domestic newspapers reported pn January 25.

The CBRC issued the notice to commercial banks after finding some individual investors had borrowed money from banks to buy stocks, taking advantage of various personal financing products offered by domestic lenders, the Securities Times said.

The report did not say how much money from bank loans had been channelled into the stock market. It also cited difficulties faced by banks in tracking those loans.

The surge in the Shanghai and Shenzhen stock markets has alarmed regulators.

The government has told mutual funds to slow the launch of new funds. Shang Fulin, chairman of the China Securities Regulatory Commission, said Monday that the foundation for long-term, stable development of the domestic stock market was not strong.

The benchmark Shanghai Composite Index has risen more than 150 percent since the start of 2006, thanks to a series of structural reforms.

On Thursday, a front-page report in the China Securities Journal said a bubble was being formed in the A-share market and it urged investors to limit their own risks amid the likelihood of wild fluctuations.

"It is gradually becoming a consensus that the formation of a bubble is inevitable," the report said, adding that China's relatively low interest rates had been driving investors to divert bank savings into stocks.

Domestic investors had opened a total of more than 80 million stock accounts as of January 23. An average of 90,000 A-share trading accounts have been opened every day this week, a record high, the Shanghai Securities News said.

The report also cited the wide valuation premium enjoyed by some domestic currency A shares to their Hong Kong-listed counterparts.

China Life's A shares last traded at 43.9 yuan apiece in Shanghai, 84 percent more than the company's Hong Kong-listed shares, which ended Wednesday at HK$23.85 (US$3.07).

(Source: Shenzhen Daily/Agencies, January 28, 2007)