Weak Confidence Drags China's Credit Growth to Multi-Year Lows

Source: Coindoo Original Title: Weak Confidence Drags China’s Credit Growth to Multi-Year Lows Original Link: China’s credit engine is no longer being held back by cautious banks. Instead, borrowers themselves are stepping away.

Across households, companies, and local governments, the appetite for new debt has weakened so much that 2025 became the quietest year for bank lending in nearly a decade. Even a surprise jump in December lending failed to change the broader picture of an economy struggling to generate demand for credit.

Key Takeaways

• China’s weakest loan growth in years reflects a lack of borrower demand, not tight bank supply.
• Household lending has fallen to levels last seen two decades ago as the property slump deepens.
• Local government debt cleanups are removing a major source of bank credit growth.
• The central bank is prioritizing credit quality and targeted support over aggressive stimulus.

Borrowers retreat as confidence fades

At the heart of the slowdown is a collapse in household borrowing. Individuals took on less new debt than at any point since the mid-2000s, a striking signal of how deeply the property downturn has reshaped behavior. Falling home prices have left many households wary of mortgages, while others face the risk of owing more than their homes are worth.

This pullback in household lending has become a structural drag. Without rising home values or improving income prospects, consumers see little incentive to borrow, limiting any rebound in spending and reinforcing deflationary pressures.

Businesses and local governments feel the squeeze

Corporate borrowing has not been immune either. Weak domestic demand and squeezed profit margins have made companies reluctant to expand or invest, even as financing remains available. At the same time, local governments are borrowing less through banks as Beijing forces a cleanup of off-balance-sheet liabilities.

The debt restructuring campaign has pushed local authorities to replace opaque loans with bond issuance, removing a key source of bank credit growth. According to Xing Zhaopeng of Australia & New Zealand Banking Group Ltd, this process alone has been enough to depress headline loan figures and could continue to weigh on credit until the cleanup nears completion later in the decade.

A strong December hides a weak year

Against this backdrop, December’s lending numbers stand out but do not change the trend. Banks issued about 908 billion yuan in new loans during the month, far more than expected and more than double November’s total. Government and corporate financing played a large role in that burst.

Zooming out, however, 2025 tells a different story. Total new yuan loans for the year fell to roughly 16.3 trillion yuan, the weakest annual outcome since 2018. Broader credit growth also lost momentum, even after accounting for bond issuance and other financing channels.

Credit policy shifts from speed to efficiency

Rather than reacting aggressively, the People’s Bank of China appears comfortable with the slowdown. Officials have signaled that improving how credit is used matters more than expanding it rapidly, even if that means tolerating weaker headline numbers.

Michelle Lam of Societe Generale SA does not expect a meaningful acceleration in lending next year, noting that policymakers are focused on directing funds to priority sectors rather than reviving broad-based borrowing.

Targeted easing replaces big stimulus

While economists still expect modest rate cuts in 2026, the central bank has made clear that sweeping stimulus is unlikely. Deputy Governor Zou Lan recently reiterated that there is room to lower rates and reserve requirements, but emphasized targeted tools instead of across-the-board easing.

That approach leaves fiscal policy to carry most of the burden in supporting growth, while monetary policy plays a secondary role in an economy adjusting to slower, more uneven expansion.