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The recent substantial granting of credit and the high increase of investments in China's factories, real estate and other projects have set off the alarm bells in Beijing.

Chinese Premier Wen Jiabao wants to put on the brakes due to the "excessively fast growth of investments and granting of credit" to ease off the "blind growth."

In the first quarter, China's economy has already expanded 10.3 percent, exceeding the desired eight percent.

Most banks have done a poor job of "reforming" their management, banking regulatory chief Liu Mingkang was quoted as saying by the South China Morning Post.

"In a great number of transactions, the operational risks are enormous," he said at a banking forum here.

Bank employees are missing the necessary knowledge in order to estimate risks correctly when granting credit, said an unusually candid Liu.

Central bank governor Zhou also warned of risk controls, saying: "It is likely we will have problems and when those problems occur, the pace of reform and experimentation might be greatly slowed down."

In the first five months of the year China's banks added 1.8 trillion yuan ($225 billion) in new loans, already reaching 72 percent of the full-year target of 2.5 trillion yuan.

In May alone twice as many credits were extended compared to the same period last year, with pending credits granted in the 12 months since then increasing by 15.97 percent, the Shanghai Securities News reported.

The dangers of a new wave of bad loans have worried Liu.

"Inconsistencies in debt repayment procedures are very common in the market," Liu said. "If the risk of default becomes reality, the losses will be huge."

The central bank has initiated some "fine tunings" to rein in increased investment in construction and factories, excess bank lending and a surge in the money supply.

In an aggressive move to discourage lending, the People's Bank of China raised the key lending rate commercial banks charge on one-year loans in the local currency 27 basis points, to 5.85 percent - the first increase since October 2004.

On Friday, the central bank ordered national banks to set aside capital reserves of a half percent point more to 8 percent and 8.5 percent for smaller banks and credit unions.

The move will take about 150 billion yuan ($21 billion) out of circulation, but there is still speculation as to whether more drastic measures are necessary.

Figures released Wednesday by the central bank showed China's broadest measure of the money supply for circulating cash jumped 19.1 percent by the end of May from a year earlier, exceeding economists forecasts and raising expectations the government may take further measures to tighten credit.

The latest survey by China's central bank showed 42.6 per cent of bankers in the country believe that the economy is overheated, and a third of them think the situation will change little.

Meanwhile, 18.5 percent see the present monetary policy as too gentle and think a more restrictive policy may come out next quarter to apply the brakes further, reported Xinhua news agency.