July 9 (Bloomberg) -- A surge in China’s lending is boosting concern that attempts to revive the world’s third- largest economy will lead to bad debts and asset bubbles.

New loans rose almost fivefold in June from a year earlier to 1.53 trillion yuan ($224 billion), the central bank said on its Web site yesterday. The June number is a preliminary calculation, the People’s Bank of China said.

Chinese banks have extended 47 percent more loans this year than the central bank’s minimum target for 2009, after the government eased lending restrictions to counter an export collapse. The benchmark stock index climbed 69 percent this year, property prices rebounded, and the banking regulator cautioned this week that rapid credit growth poses risks for lenders and the financial system.

“China needs a solid economic recovery right now, not an asset-price bubble,” said Sherman Chan, an economist with Moody’s Economy.com in Sydney.

The Shanghai Composite Index was unchanged as of 11:30 a.m. local time.

First-half lending rose to a record 7.37 trillion yuan, more than three times the amount a year earlier. June’s lending was more than double that of May.

Billionaire George Soros said yesterday that China can be “one of the motors of the world economy” as the government’s 4 trillion yuan stimulus package takes effect.

Factory Closures

Alcoa Inc., the largest U.S. aluminum producer, said that China’s measures have pushed domestic aluminum demand beyond supply for the first time since the global recession forced metal producers to curtail output.

Premier Wen Jiabao is targeting economic growth of 8 percent this year to create enough jobs to maintain social stability after the global recession slashed exports and shut factories.

Riots that left at least 156 people dead in the northwestern city of Urumqi highlighted ethnic tensions fueled by economic disparities. The clashes have pitted Uighurs, Turkic-speaking natives of Xinjiang province, against the dominant Han Chinese and ethnically similar Hui group.

Flooding the economy with cash may bring financial dangers. The rapid expansion of credit poses risks for the nation’s lenders and excessive concentrations of credit can undermine financial stability, the China Banking Regulatory Commission said July 7.

‘Wasteful Investment’

“Excess liquidity is fueling speculation and that means asset bubbles and wasteful investment,” said Isaac Meng, a senior economist at BNP Paribas SA in Beijing. “Expect credit to slow dramatically in the second half.”

New lending in the next six months could be as little as one quarter of the first-half total as policy makers rein in credit, Meng estimates.

That tightening may have already begun. The central bank resumed the sale of one-year bills today after almost eight months.

“The message to the banks is clear,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale in Hong Kong. “Stop lending and start buying bonds.”

China’s housing sales surged 45.3 percent in the first five months as stimulus spending stoked investment and domestic demand. Part of the surge in June lending likely reflects mortgage loans, said Wang Qian, an economist with JPMorgan Chase & Co. in Hong Kong.

To contact the reporter on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net.

Last Updated: July 8, 2009 23:34 EDT