China's Credit Growth Supported by Recovery in Business Conditions Across Multiple Sectors

    Data released by the central bank on September 12 showed that at the end of August, the stock of total social financing, broad money supply (M2), and RMB loans grew by 8.8%, 8.8%, and 6.8% year-on-year, respectively, with the overall growth rate of financial aggregates remaining at a high level. Additionally, the “scissors gap” between narrow money (M1) and M2—calculated as M2's year-on-year growth minus M1's year-on-year growth—narrowed further to its smallest margin this year. This indicates more funds shifting into demand deposits, which can be channeled into economic activities such as consumption and investment.

    Analysts indicate that China's economy is currently transitioning to medium-high growth, accelerating structural transformation, and maintaining relatively high household leverage. Concurrently, banks face pressure on asset quality and slowing credit demand. Macroeconomic policy focus has shifted toward improving people's livelihoods and boosting consumption, with certain reforms and policy measures—though slow to yield immediate results—now entering a “window of opportunity” for long-term benefits. Given the substantial scale of China's financial aggregates, optimizing financial structure has become increasingly important alongside maintaining reasonable aggregate growth.

Core Data

    ——By the end of August, the M2 money supply grew by 8.8% year-on-year, while the M1 money supply increased by 6%.

    ——In the first eight months, RMB loans increased by 13.46 trillion yuan.

    ——Preliminary statistics show that the cumulative increase in social financing scale reached 26.56 trillion yuan in the first eight months, up by 4.66 trillion yuan compared to the same period last year.

    ——In August, the weighted average interest rate for new corporate loans was approximately 3.1%, about 40 basis points lower than the same period last year; the weighted average interest rate for new personal housing loans was approximately 3.1%, about 25 basis points lower than the same period last year.

    Improving Business Conditions Across Multiple Sectors Support Credit Growth

    By the end of August, the outstanding balance of RMB loans reached 269.1 trillion yuan, up 6.8% year-on-year. Analysts noted that factors such as industry recovery, sustained export resilience, the summer consumption peak, and supportive real estate policies underpinned August's credit growth.

    A reporter learned from a bank branch in eastern China that its manufacturing loan reserves and disbursements outperformed last year. In the first eight months of this year, new manufacturing loans accounted for 53% of new corporate loans, a 33-percentage-point increase over the whole of last year. Advanced manufacturing sectors, in particular, showed high prosperity, with enterprises in related fields demonstrating strong new financing demand.

    “Recent industry sentiment in textiles and apparel, specialized equipment, and computer communications has remained robust, driving corresponding investment and financing demand and boosting credit growth,” analysts stated.

    Personal loan growth also saw an uptick. Analysts attribute this primarily to August being the traditional summer consumption peak season. Endogenous growth in personal consumption demand, coupled with exogenous stimulus from policies like “trade-in incentives,” further unleashed consumption demand and increased loan demand.

    Since August, cities including Beijing, Shanghai, and Shenzhen have successively introduced new real estate policies to better meet both basic and upgrading housing needs. Some Shanghai-based banks reported a rebound in residential property demand, driving a noticeable increase in inquiries and signed contracts for personal housing loans.

    After accounting for the impact of local hidden debt swaps, August's loan growth rate was even higher. By the end of August, special refinancing bonds totaling 1.9 trillion yuan had been issued this year to replace hidden debts. “After adjusting for these effects, August's loan growth rate was around 7.8%, indicating robust credit support for the real economy,” analysts noted. While this measure may temporarily dampen credit expansion, it will ultimately help repair local governments' balance sheets and improve capital circulation in the real economy.

    The gap between M1 and M2 narrowed further.

    Social financing data maintained robust growth, reflecting financial support for the real economy.

    Data released by the central bank showed that the outstanding balance of social financing reached 433.66 trillion yuan at the end of August, up 8.8% year-on-year—0.7 percentage points higher than the same period last year. Government bonds accounted for 91.36 trillion yuan of this total, growing 21.1% year-on-year.

    “Since the beginning of this year, a more proactive fiscal policy and appropriately loose monetary policy have formed a synergistic effect. The pace and scale of government bond issuance have been brought forward, with cumulative incremental financing consistently exceeding the same period last year, providing solid support for the growth of total social financing,” analysts noted.

    By the end of August, the outstanding balance of corporate bonds and domestic stocks of non-financial enterprises increased by 3.7% and 3.4% year-on-year, respectively. Analysts pointed out that financing channels for the real economy have become increasingly diversified in recent years. The proportion of direct financing, including corporate bonds, government bonds, and domestic stocks of non-financial enterprises, has steadily increased.

    The growth rate of M1 continued to rebound in August, while the gap between M1 and M2 narrowed further to 2.8 percentage points, marking the lowest level since the adjustment of M1 statistics at the beginning of this year. Data showed that at the end of August, the M2 balance stood at 331.98 trillion yuan, up 8.8% year-on-year, maintaining the same growth rate as the previous month. while the M1 balance reached 111.23 trillion yuan, growing 6% year-on-year, an increase of 0.4 percentage points from the previous month.

    Analysts noted that factors such as increased fiscal policy support, reasonable growth in social financing and loans, and a low base from the same period last year have provided some support for M2 growth. Additionally, the upward trend in M1 growth has driven the narrowing of the M1-M2 gap. This gap serves as a key indicator for gauging corporate investment intentions and household consumption tendencies. This is because, unlike fixed deposits sitting idle in bank accounts, M1 represents readily accessible “liquid money” for payment transactions. Its growth indicates more funds are being converted into demand deposits, facilitating economic activities such as consumption and investment.

    Continuous Advancement of Credit and Monetary Easing

    Alongside the growth in aggregate financial data, multiple indicators reflect the financial system's efforts to optimize credit structure and drive down pricing. By the end of August, inclusive micro and small enterprise loans reached 35.20 trillion yuan, up 11.8% year-on-year, while medium- and long-term loans to the manufacturing sector stood at 14.87 trillion yuan, rising 8.6% year-on-year. Both loan categories grew faster than the overall loan portfolio during the same period.

    Loan interest rates remain at historically low levels. In August, the weighted average interest rate for new corporate loans stood at approximately 3.1%, about 40 basis points lower than the same period last year. The weighted average interest rate for new personal housing loans was around 3.1%, about 25 basis points lower than the previous year.

    “Currently, the macroeconomy is operating steadily, and social expectations continue to improve. The market widely anticipates that the annual economic growth target of around 5% will be smoothly achieved. The performance of financial markets also reflects strong market confidence,” Analysts anticipate.

    Analysts indicate that in recent years, the central bank has continuously cut reserve requirement ratios and interest rates, maintaining a supportive monetary policy stance. Both M2, reflecting broad money supply, and the total social financing scale, reflecting broad credit, have maintained year-on-year growth rates between 8% and 9%. Loan interest rates have declined more significantly than policy rates, leading to a noticeable decrease in the comprehensive financing costs for the real economy.

    Looking ahead at monetary policy, analysts anticipate that macro policies will maintain continuity and stability. Moderately loose monetary policy will continue to provide strong support for the real economy, with particular emphasis on structural optimization. Currently, China's economic growth has shifted to a medium-to-high speed trajectory, structural transformation is accelerating, household leverage remains high, bank asset quality faces pressure, and credit demand is slowing. Given the already substantial scale of China's financial system, optimizing structure is now more critical than maintaining overall reasonable growth.

    “Structural monetary policy tools can continue to play a leading role in providing policy support and incentives, enhancing financial institutions' capacity and willingness to support key sectors. At the same time, synergies between monetary and credit policies and measures such as fiscal interest subsidies and risk compensation should be leveraged to continuously enhance the effectiveness of financial support for key areas,” analysts stated.