China′s Central Bank has instructed banks to further cool loan growth. This directive, known as "informal guidance", actually appears to be the toughest measure taken to cool loan growth. The Central Bank had previously raised the benchmark lending rate by 1.12 percent and increased banking reserve ratios; but despite this, banks have issued 3.5 trillion yuan or approximately 471 billion in new loans during the January through October period.

The government target of 15 percent loan growth has already been exceeded; thus, the Central Bank is now seeking new measures to slow bank lending, which could, in effect, mean a de facto "lending freeze". This will impact the cotton and textile sectors. Mills already report very difficult conditions in obtaining new loans for cash flow and inventory requirements; and in some instances, mills are having trouble drawing down credit lines already setup but unused. Any loan restraints will likely encourage mills to maintain very low mill inventories.