CHINESE policy makers are tightening the credit taps to avoid banking problems, asset bubbles and inflation, amid the first signs of deceleration in the resurgent economy.

Data yesterday showed a sharp decline in new bank lending last month while industrial production grew slower than expected and investment slowed from its breakneck pace.

China's flood of liquidity - bank lending rose 201 per cent in the first half of the year, from a year earlier, to 7.4 trillion yuan - has generated strong imports that have helped sustain regional economies such as those of Australia, South Korea and Singapore.

Singapore's trade ministry yesterday revised up its June quarter gross domestic product estimate to an annualised 20.7 per cent after a revised 12.2 per cent contraction in the March quarter.

But the People's Bank of China said yesterday that the value of new loans had fallen to 356 billion yuan last month, from 1.53 trillion yuan in June.

While the Premier, Wen Jiabao, and senior policy makers have recently insisted the country's loose monetary policy settings remain unchanged, Huang Yiping of Peking University said the central bank had been telling commercial banks to slash their lending. The new central directives were not strict credit quotas but "more like window guidance", he said

"The People's Bank and policy makers have been reluctant to announce a change in macro policy until they are sure the recovery is strong and sustainable," Professor Huang said.

Banks appear to have jumped at the chance to tighten lending after nine months of official pressure to relax credit standards and join an all-out effort to pull China out of the financial crisis.

"Obviously the lending in the first half was unsustainable," said Professor Bai Chong-En, a director of CITIC Bank.

Many prominent economists and former officials will welcome the lending slow-down after warning that China faced a difficult post-stimulus adjustment that would be more disruptive the longer it was delayed.

Wu Xiaoling, who stepped down as the deputy governor of China's central bank last year, has warned that lending could be as high as 12 trillion this year, compared with 5 trillion last year, ''and that will sow bad seeds for economic adjustment''.

She had told a meeting of central bankers and economic policy advisers that half of all new lending this year could end up as bad loans, sources at the meeting said.

"A lot of economists and [the People's Bank of China] are worried about asset bubbles and inflation and are trying to talk the market down," said Stephen Green, the China economist at Standard Chartered, adding that other policy makers did not share the same priorities.

For Australia, the effect of tightening liquidity and slowing investment on commodities exports is likely to be uneven.

Copper imports fell 15 per cent last month after a series of monthly records but iron ore imports rose 5 per cent to a record 58 million tonnes, according to customs data published yesterday. Steel production last month rose 13 per cent to a record 50.7 million tonnes, after a 30 per cent rise in steel prices since April.

Chinese exports showed further signs of stabilising.