The People's Bank of China has advised local banks on Sunday to increase their money reserves in a bid to rein in waves of fresh lending that could burst the property bubble and eventually lead to economic overheating.

According to AAP, China's central bank is poised to require banks' reserve requirement ratio to hike by 50 basis points beginning May 10. The ratio is the minimum amount that banks must keep on hold and cannot be utilised for any purposes.

The Chinese government is excluding rural, credit and cooperative banks for now, as government efforts are underway to arrest the floods of new lending that started last year which analysts feared could lead to rash of bad loans that may snag the economic growth.

To counter the creeping economic overheating, the government has fixed a loan target of 7.5 trillion Yuan or $A1.19 trillion this year as it also increased interest rates on benchmark three-month and one-year treasury bill.

Beijing has also introduced further restrictions on advance sales of new property developments, restrained loan applications for third home purchases and increased the minimum down payments for those who are buying their second home.

To arrest the possible pile up of bad loans, the central bank has ordered lenders to conduct quarterly stress tests on mortgages as analysts are predicting that the government will raise interest rates next and adjust the exchange rate policy which has pegged the Yuan to the dollar since 2008.

China observers said that Beijing's moves to curtail lending may have started affecting the country's banking industry as new loans granted by Chinese banks in March plunged to 510.7 billion Yuan, yet property values still surged during the same period, marking the fastest pace seen in five years and underscoring that economic managers will be facing a daunting task ahead.