China urges foreign banks to up lending

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The threat of loans going sour caused HSBC and Citi to rein in credit last month. Foreign banks should "increase their contribution" to China's economy and lend more to small firms, the Shanghai branch of China's banking regulator said.

Advances by foreign lenders in the city dropped in January.

However, the regulator's calls could go unheeded. Local banks are given first chance to lend on state-backed infrastructure projects, leaving foreign rivals to shoulder more risk, said analyst Yang Qingli of Beijing-based bank BoCom.

"Nobody can afford to stay on the sidelines any more, even if it comes at the cost of lending to riskier companies. That's what's left for foreign banks now," he added.