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Mia Nurmamat

Mandy Zuo

Slower but higher-quality loan growth may become a “new normal” for the Chinese economy as its financial structure undergoes a profound shift, China’s central bank governor Pan Gongsheng has said.
“Maintaining past credit growth rates is difficult and unnecessary,” said Pan in an article published on Wednesday in the Communist Party’s theoretical journal, arguing that revitalising inefficient existing loans was essentially equivalent to new lending in supporting growth.
This shift is part of the dynamic alignment between the financial sector and the ongoing industrial transformation – from real estate and infrastructure towards high-end manufacturing and green industries, he added.
Pan’s comment came as the central bank’s latest credit data showed new lending by China’s banks returned to growth in August after a record contraction the previous month, but the scale remained subdued as sluggish consumption and investment continued to weigh on credit demand.
The country’s real estate and local government financing vehicle loans still account for a large share of the more than 280 trillion yuan (US$41.7 billion) outstanding loan balance at present.
However, both are shrinking – real estate loans fell by more than 2 trillion yuan between 2025 and the first half of 2026, he noted, adding that other sectors must first offset this decline before total credit can grow.
The change was also unfolding amid a changing financial landscape in which the share of indirect financing, dominated by bank loans, continued to decline, while the share of direct financing, including bonds and equities, rose steadily.
New bank loans totalled 60 billion yuan (US$8.94 billion) in August, reversing a record contraction of 340 billion yuan in July, according to data released by the People’s Bank of China on Monday.
The figure, however, fell well short of the 380 billion yuan consensus forecast among economists surveyed by Wind. For the first eight months of the year, banks extended 10.44 trillion yuan in new loans, down 22 per cent from 13.46 trillion yuan in the same period last year.

The credit figures were followed by economic data on Tuesday that pointed to deepening weakness in domestic demand. Retail sales grew just 0.4 per cent year on year in August, while fixed-asset investment fell 7.2 per cent in the first eight months, according to the National Bureau of Statistics.
Corporate medium- and long-term loans increased by about 320 billion yuan last month, compared with an increase of 470 billion yuan a year earlier, calculations based on central bank data showed.
Household credit demand remained restrained, with shrinking short-term borrowing pointing to weak appetite for consumer and business loans, while the property slump and early mortgage repayments continued to weigh on longer term lending, according to a report by Southwest Securities on Monday.
“Loan growth is likely to remain weak, although the year-on-year decline may gradually narrow as faster fiscal disbursement and special treasury bond funding help banks increase longer-term lending for infrastructure and equipment upgrades,” the brokerage said.
Weak home sales would continue to constrain mortgage demand, the report added.
“Credit expansion in the fourth quarter may depend more heavily on policy funding, while a recovery in underlying financing demand will take time,” it said.
The weakness in household borrowing contrasted with shifts in deposits. Household deposits rose by about 40 billion yuan in August after declining by roughly 630 billion yuan in July, while deposits at non-bank financial institutions, including brokerages, increased by about 560 billion yuan.
BOC International (China) said in a report on Tuesday that financing demand from the real economy remained weak in August, extending the trend of previous months.
“With domestic demand weak and uncertainty surrounding external demand still elevated, monetary policy should seek to meet the real economy’s financing needs by improving the structure of lending to businesses,” the brokerage said.
It added that policymakers could work through financial institutions to strengthen monitoring of the financing needs and liquidity conditions of small- and medium-sized enterprises.


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Loans reverse record contraction a month earlier but fall far short of expectations as property slump drags and deposits rise


Loans reverse record contraction a month earlier but fall far short of expectations as property slump drags and deposits rise.


‘New normal’: China to see slower loan growth amid sluggish consumption, investment

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Loans reverse record contraction a month earlier but fall far short of expectations as property slump drags and deposits rise

Loans reverse record contraction a month earlier but fall far short of expectations as property slump drags and deposits rise