Hainan Development Bank, the biggest commercial bank on the southern island province of Hainan, has been placed under trusteeship and could ultimately be declared bankrupt, according to the official with the central bank, the People's Bank of China. Separately, one of China's earliest and most prestigious trust and investment companies, China Venturetech Investment Corp, was ordered shut, according to a Venturetech official, who declined to be identified. It was not the first time China had closed a trust and investment firm. But Communist authorities had never before ordered a commercial bank to halt business, the central bank official said. Industry analysts said the twin moves signalled a tough new approach by the government to bad debt among its banks, and would mark the start of a wave of consolidations within the troubledtrust and investment industry.

A Hainan Bank official blamed bad loans to the property sector for the bank's demise. He also said the central bank was at fault for ordering the bank to merge with 32 urban credit cooperatives in December and take over their debt.

"Bank loans could not be recalled because the property sector has declined, triggering a payments crisis," he said. He said the cooperatives were offering higher-than-official interest rates on some deposits, but the Hainan Bank was told by the central bank to reduce those rates to official levels. As a result, angry depositors withdrew funds. There were several violent incidents, the official said, but gave no details. Beijing-based China Venturetech was set up by the ministry of finance and several domestic companies in 1985 and had registered capital of about 100 million yuan ($12 million).

Its deputy president is Chen Weili, the daughter of the late Chen Yun, an enormously influential Chinese economist who became a conservative rival to thelate reformist leader Deng Xiaoping. The Venturetech official said the central bank on Sunday ordered the company closed, effective from Monday. "One reason for the closure is that its financial affairs are not in good shape. The other is that the firm cannot pay maturing debt," he said.

"A team will be sent by the central bank to clear the company's accounts," he said. The securities business of the firm would be handed to a domestic securities company, and a plan to handle Venturetech's trust business would be decided after the company's accounts were settled, he said. Venturetech ranked among the top handful of Chinese trust and investment firms in terms of size. Beijing has launched a major effort to clean up its financial system amid the Asian financial crisis.

Massive non-performing loans to struggling state enterprises by its commercial banks have left them technically bankrupt by some standards.

Last week, Moody's Investors Service Inc said the Chinese banking system was "critically weak",although it was impossible to measure its problems because of poor data and corruption.

The Hainan Bank, controlled by the provincial government, was set up in 1995 through the merger of five trust and investment companies, the China Economic Times reported. It had registered capital of 1.677 billion yuan ($202 million).