Mr Chan is a veteran investor in the mainland property market. Armed with professional knowledge, this Hong Kong financial analyst has made a fortune from these investments. His winning streak ended recently when the mainland government's repeated efforts to rein in the overheated property market finally started to take hold. For Mr Chan, it means he will have to delay his planned retirement. But for property developers and industries that live off property investments, a liquidity squeeze is in the making. Mr Chan's troubles began last year. He sold his flats in Shanghai and Beijing for a handsome profit, betting that property prices in these first-tier cities had peaked. This spring, he shifted his bet to second- and third-tier cities, buying three flats in different cities for more than HK$5 million. Mr Chan was scheduled to put up the money last month upon completion of the flats. That never happened. 'I was asked to produce proof that I am a resident in those cities,' Mr Chan says. 'Without the proof, I cannot get the approval to transfer the money into the mainland. Of course, I can't.' The same thing happened in all three cities. It wasn't that this veteran investor hadn't studied the directive issued by six Beijing ministries in July aimed at limiting foreign investment in the property market. The new rules clearly require that foreigners provide proof of residency as a pre-condition to buying a mainland flat. What tripped him up - and many others like him - was that the rules were made retroactive. Under pressure from the top to show results after repeated attempts to cool the market failed to have the desired effect, mainland authorities are applying the new rules strictly. In so doing, they threaten to seriously diminish the cash flow of many developers, particularly private ones. At the same time, bank loans are becoming increasingly difficult to secure. Since monetary measures including two interest rate increases and a rise in the bank reserve ratio have apparently had little effect in slowing credit growth, Beijing has resorted to an old trick - the quota. The China Bank Regulatory Commission is understood to have issued guidelines recently to banks setting limits on loans to several industries. Among them are the raw material and property sectors. Private entrepreneurs with limited political clout are hit the hardest. In the real world, what does this mean? The size of bribes needed to get credit is rising higher and higher, one private entrepreneur says. 'Bankers are now asking for stakes in my company.' Those willing and able to pay the price will still get loans. Even then, the terms are harsh: Short-term loans now often have to be reconfirmed every month. This isn't the first time entrepreneurs have felt the bite of a government crackdown. Similar things happened during the 2004 austerity campaign. Only this time, the squeeze is much more intense. Two years ago, some of these borrowers turned to banks in Hong Kong to get the money they needed. They are trying again this time but finding that bankers are largely unresponsive to their requests. That's curious, as local banks are flooded with liquidity and otherwise scrambling to expand their loan books even if profits suffer. Foreign banks have turned more cautious for three obvious reasons. Many banks were terribly burned during the last slowdown. 'Putting up property as collateral is no longer good enough. You have to borrow against your cash flow,' a banker says. Beijing's effort to root out corruption involving property developers and local bureaucrats is another concern. In explaining why she rejected an application to finance a factory in the heart of one city, a banker says: 'Every window of the factory is broken. It's obviously a property project in disguise. My concern is how he manages to get the factory from the government.' There are relations with regulators to be considered as well. No one wants to be seen lending to industries that mainland authorities are trying to cool down. The Hong Kong Monetary Authority is also closely watching the mainland exposure of local banks. Banks' vulnerability to the mainland's austerity measures has become a key issue in the Hong Kong regulator's routine checks on banks. The loan base and degree of diversification are discussed in great depth during these visits. 'So far, we have not seen any major increase in non-bank China exposure,' a regulatory source says. A major liquidity squeeze, particularly in the private sector, is in the making. This will extend beyond the property market and related industries. The only difference is in the magnitude.