HONG KONG, June 5: China, worried that finance is spinning out of control,' has ordered banks to reign in credit, stop engaging in business and pay peasants for their summer harvest, a pro-Beljlng newspaper said Saturday, reports AP.

The front-page article In the Wen Wei Po was one of the clearest signs yet that the top ranks of power tn Beijing fear the economy Is overheating.

The report, quoting unidentified senior leaders, said banks were overextended. They had used credit to fuel booms in property and share markets and spent vital funds setting up their own firms. It

said.

"The financial order Is chaotic." the paper said.

Reforms of finance and banking in China have failed to keep step with breakneck growth. Banks have to prop up inefficient state-run firms and do not have enough autonomy to allow interest rates to regulate supply and demand for # loans.

Sixteen-per cent inflation In cities during the first quarter of this year spurred depositors to withdraw savings and buy gold and consumer durables. Last week, the Wen Wei said bank deposits fell 4.5 billion yuan (830 million dollar) in March.

The new regulations order banks to recover funds earmarked for major state- approved construction projects and agriculture.

"Even though the financial situation Is qdite serious at the moment funds for agriculture and the summer harvest must be guaranteed," the newspaper said.

Cash demands on banks are most acute in July, when the crops are harvested and the state has to pay for what It contracted farmers to plant. Last year, farmers in southwest China's Sichuan province smashed government offices when banks paid lOUs instead

of cash, and Beijing is worried about peasant unrest again this year.

The newspaper said banks also are prohibited from engaging in business and must shut down their companies, which have eaten up large amounts of capital.

Senior leaders also said a rush to set up development zones had drained funds out of banks and into unprofitable fixed capital Investments, the newspaper said.

Since senior leader Deng Xiaoping gave the green light to faster economic growth in early 1992, about 9,000 development zones have sprung up across the country. The zones

have fueled the property boom and contributed to rocketing prices for construction materials.

In a separate article, the Wen Wet quoted Xiao Haikuan. a senior official at the People's Bank of China, as saying banks ♦ere guilty of financing development zones with irregular loans.

"Bank loans have risen, but deposits have dropped. This has led to credit inflation, loan inflation and rising prices," he said.

Xiao also said raising interest rates could not effectively rein in credit or cool local officials' enthusiasm for breakneck growth. v "Local areas are developing with great vigor and they are not ready to admit that they are overheated, they Just think other areas are overheated."

Xiao said the erroneous belief that the value of the Chinese currency will drop after China joins the General Agreement on Tariffs and Trade had exacerbated a loss In its value. The Chinese yuan dropped to more than 10 yuan to one US dollar this week at officials currency exchange markets.

The people who hold this opinion are throwing away their (yuan) and hoarding dollars.” he said.