Oct. 28 (Bloomberg) -- China’s banking regulator said it plans to tighten rules for personal loans to prevent the misuse of funds lent for auto and real-estate purchases.

The draft regulations are aimed at ensuring loans enter the real economy rather than being used for speculative purposes, the China Banking Regulatory Commission said in a statement on its Web site today. Loans exceeding 300,000 yuan ($43,937) will be given directly to the counterparty of the borrower rather than the borrower, according to the draft.

Chinese banks’ new loans tripled to 7.37 trillion yuan ($1.08 trillion) in the first half from a year earlier after the government eased restrictions to help revive the economy. The credit boom has fanned concern that funds are being used for speculation, increasing the risk of asset bubbles and bad loans.

“This is the very first step towards tightening,” said Gabriel Gondard, Shanghai-based deputy chief investment officer at Fortune SGAM Fund Management Co., which oversees about $7.2 billion. “They’re taking action now because the economic figures last week were reassuring.”

China’s economy grew 8.9 percent last quarter, the fastest pace in a year, picking up from 7.9 percent growth in the second quarter. Economic growth of 6.1 percent in the first three months of the year was the slowest pace of expansion in almost a decade.

Net credit slowed in the third quarter to 1.28 trillion yuan, or a monthly average of 426 billion yuan, after the CBRC imposed tighter capital requirements and drafted rules on working-capital and infrastructure loans to prevent misuse of funds.

Faster Growth

Chinese banks offered 650.8 billion yuan of new personal loans in the first half, an increase of 150 percent from a year earlier, the CBRC said today.

China’s home prices rose at the fastest pace in a year in September as lending and stimulus spending drove a recovery in the world’s fastest-growing major economy. Prices in 70 cities climbed 2.8 percent from a year earlier after gaining 2 percent in August, the National Bureau of Statistics said on Oct. 15.

Moody’s Investors Service this month raised the outlook on China’s residential property market to stable from negative, citing stabilization of the real-estate industry. A measure tracking 24 property stocks in Shanghai has rallied 122 percent this year, the best performer among the five industry groups.

On July 27, the CBRC told banks to ensure loans intended for investment in fixed assets go to projects that support the real economy. Three days later, the regulator tightened rules on working capital loans, which companies use to finance goods and services.

An estimated 1.16 trillion yuan of loans were invested in the stock market in the first five months of this year, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China’s cabinet.

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Last Updated: October 28, 2009 04:24 EDT