p>The Chinese government has laid down the law to the country's property and steel industries, and in doing so caused consternation in the stockmarket.

The Shanghai market fell 1.6% yesterday after rising by just under 1% on Monday and 3.7% last week as investors speculated that the tough controls on property would be relaxed, and access to bank loans improved.

Figures out this week have shown that housing prices are falling, while the amount of bank lending continues to fall sharply.

The prices of property and resource companies fell yesterday in reaction to a series of statements from government departments.

The State Council made it clear that its policies to control the overheated housing sector won't be relaxed and the Ministry of Industry and Information Technology said the government would intensify its campaign to rationalise the steel industry by closing down small, inefficient producers (who are big energy users).

And, the country's banking regulator said it has made no changes to policies on home lending, according to a statement released late Monday.

The regulator told commercial banks to strictly enforce home loan rules.

Seeing the property sector has proven to be the toughest to control, and the steel sector is the most visible sign of the country's enormous industrial drive, the two moves carry a lot of symbolism inside and outside of the country.

The move to maintain the strict controls on property ownership and finance seem to be a determined attempt by the State Council to rule out a rumoured relaxation of the measures.

Chinese investors have been optimistic in the past week or so that the strict property controls would be eased soon.

But in a report carried in official newspapers and reported by the Xinhua news website, the country's housing department said measures to rein in rapidly soaring housing prices in cities will continue and local governments should implement them "unswervingly".

The department denied some media reports on a possible policy withdrawal.

"We will urge local governments to make sure that they strictly implement the differentiated housing loans policy to crack down on housing speculations," the ministry said in a brief statement posted on its website.

The ministry added it would adopt "positive" measures to increase the supply of commercial homes in the market, speed up construction of housing for low-income residents and renovation of shantytowns, and strengthen supervision of the real estate market conditions.

The statement came shortly after the National Bureau of Statistics (NBS) released its latest figures on housing prices in Chinese cities.

The growth in housing prices in 70 major Chinese cities slowed to an annual rate of 11.4% in June, one percentage point lower than the increase in May, and under the peak 12.8% annual rate in April.

The State Council, China's Cabinet, introduced a series of tightening measures in April to rein in soaring house prices and curb speculation, including tightened scrutiny of developers' financing, suspension of loans for third-home purchases and higher down-payment requirements for second-home purchases.

And the reiteration of the steel consolidation plan sends a message that China will close small energy inefficient plants in favour of bigger, more efficient (and 'greener') operations run by state-owned or dominated steel companies.

In a new policy document, the Industry Ministry reiterated China's pledge to eliminate mills that produced less than 1 million tonnes of crude steel last year, while manufacturers of higher end steel products will have to produce more than 300,000 tonnes a year to stay in business.

Xinhua reported that China's Industry minister told a meeting in Dalian that steel enterprises would be held to tougher environmental and resource consumption standards and would also be forced to control overcapacity and shut down obsolete facilities.

Regulations on financing and land use will also be tweaked in order to encourage further consolidation in the sector, and mills will also be encouraged to travel wider in their search for takeover targets, according to a note issued by the ministry.

The ministry said last month that China would put 60% of its total steel capacity in the hands of its 10 biggest steel mills by 2015, up from 44% at the end of last year.

However, China's long-standing plans to rein in its fragmented steel sector have been hindered by issues such as jurisdiction and the allocation of tax revenues. (Local vs. provincial and national government departments.)

China is doing the same thing in the coal industry to try and bring about better safety and more efficient use of coal resources.

It is why imports of coking and thermal coal are rising rapidly, and why the country is looking to Mongolia for more and more of its coal needs over the next five years.