New financial data released by the central bank on September 14th reveals a continued trend of slowing and higher-quality bank lending in August. The month saw new yuan loans of only 60 billion yuan, a significant year-on-year decrease of 530 billion yuan. Concurrently, the stock of social financing规模 at the end of August reached 464.8 trillion yuan, marking a 7.2% year-on-year increase, while new social financing for the month totaled 1.6577 trillion yuan, down 908.3 billion yuan compared to the same period last year.
The loan structure is undergoing profound changes as direct financing channels gain prominence. An analysis of the financial data suggests that while the growth of social financing scale and M2 remains above 7%, broadly matching nominal economic growth, the composition is shifting. Bond and stock financing are expanding rapidly, whereas loan growth is decelerating. Notably, lending in key sectors outlined in the national "Five Major Financial Articles" continues to see double-digit growth, with incremental loans to these sectors now accounting for over 70% of the total increase in various loans. This indicates that credit resources are increasingly flowing towards new growth drivers such as technological innovation and green transformation, effectively supporting the economy's structural upgrade.
Where the slowdown is most evident
August witnessed the addition of merely 600 billion yuan in new yuan loans, a substantial decrease of 530 billion yuan year-on-year, underscoring the persistent weakness in overall lending. This significant contraction pulled down the year-on-year growth rate of outstanding loans to 4.9% by the end of August, marking the lowest level on record.
An industry analyst noted that August, as a mid-quarter month, typically sees seasonal improvement in credit compared to July. Additionally, the accelerated implementation of policies to stabilize property, investment, and consumption, alongside faster government bond issuance and fund disbursement, provided some support to financing demand. However, the overall credit expansion remains constrained by a manufacturing sector still in contraction territory, sluggish consumer spending and property sales, pending deployment of new policy-based financial tools, and the ongoing substitution effect of credit bonds for bank loans. This "slowing down and improving quality" of loans has become a new normal in macroeconomic operations, requiring a comprehensive view of support from various channels like credit and bonds.
A breakdown by sector shows that new corporate loans stood at 260 billion yuan in August, a year-on-year decrease of 330 billion yuan. Within this, medium and long-term corporate loans added 320 billion yuan, down 150 billion yuan year-on-year, reflecting persistently weak performance. Short-term corporate loans contracted by 160 billion yuan, a year-on-year reduction of 230 billion yuan, further indicating tepid corporate credit demand. Meanwhile, bill financing increased by 100 billion yuan, up 469 billion yuan year-on-year, partly substituting for short-term loans.
Household loans decreased by 202.9 billion yuan in August, a year-on-year decrease of 233.2 billion yuan, with both short-term and medium-to-long-term loans seeing significant year-on-year increases in their declines. This suggests households are still deleveraging and repairing their balance sheets, primarily influenced by the ongoing correction in the real estate market. Weak consumer confidence and subdued individual business activity are also suppressing new household loan demand.
Overall, the August credit data remains weak, but it no longer fully represents the entire picture of financing growth. Behind this is a deep-seated adjustment in the financing structure as the economy accelerates its transformation. The importance of direct financing is rising, and the trend of loans prioritizing quality over quantity is becoming a new norm.
Direct financing's growing dominance
New social financing in August totaled 1.66 trillion yuan, a sequential increase of 250.9 billion yuan but a massive year-on-year decrease of 908.3 billion yuan. This dragged down the year-on-year growth rate of the social financing stock to 7.2% by the end of the month. The primary drags on the year-on-year decline were weaker yuan loans to the real economy and government bond financing, which decreased by 570.1 billion yuan and 357.5 billion yuan year-on-year, respectively. It is important to note that the absolute scale of new government bond financing was a substantial 1.01 trillion yuan; the sharp year-on-year decrease is mainly due to a high comparison base from the previous year and a significant increase in bond maturities this year. Additionally, higher bill financing shifted from off-balance-sheet to on-balance-sheet, leading to a year-on-year decrease in off-balance-sheet bill financing, and continued downsizing of trust loans also contributed to the overall reduction in social financing.
In the first eight months of the year, cumulative social financing增量 reached 23.91 trillion yuan, a year-on-year decrease of 2.64 trillion yuan, though still at a relatively high level. Within this total, yuan loans to the real economy increased by 10.23 trillion yuan (accounting for 42.79% of the total), while direct financing, including government bonds, corporate bonds, and equity financing, surged to 12.03 trillion yuan, representing a 50.31% share. This marks a significant milestone where direct financing's share has clearly surpassed that of bank loans, up nearly 20 percentage points compared to the same period five years ago. Corporate bonds have also increased their share of social financing to 11.67%, a rise of 5.8 percentage points year-on-year. As the industrial structure evolves and financial markets develop, enterprises have more diverse financing channels, and bond and equity financing are accordingly creating a benign substitution and diversion effect on bank loans.
Narrowing M2-M1 gap signals economic trends
By the end of August, broad money (M2) grew by 7.5% year-on-year, down 0.2 percentage points from the previous month, while narrow money (M1) grew by 4.1%, up 0.1 percentage points. The "scissors gap" between M2 and M1 narrowed to 3.4 percentage points, a relatively low level in recent years. The slowdown in M2 growth is likely due to the overall low increase in credit, which weakens deposit creation, and reduced non-bank deposits amid greater stock market volatility. The high comparison base from the previous year also constrained M2's performance.
Despite the slowdown, the current growth rates of M2 and social financing stock, running between 7.0% and 8.0%, are still significantly higher than the 5.4% nominal GDP growth rate in the first half of the year. This indicates that social financing conditions remain relatively loose and monetary policy maintains a supportive stance. The slight acceleration in M1 growth is primarily due to a low comparison base from August last year, when the month-on-month growth rate was significantly below the decade average. The current low M1 growth rate reflects weak domestic demand and low investment and consumption activity among businesses and households.
The persistently high M2-M1 gap suggests insufficient economic vitality and hindered transmission from a loose monetary policy to a broad credit expansion. This is attributed to the ongoing correction in the real estate market, which dampens investment and consumption momentum. Consequently, macro policies need to be continuously strengthened to boost domestic demand, with a key focus on stabilizing the real estate sector.
Looking ahead, with the recent release of the "15th Five-Year Plan for Building a Strong Financial Nation," macroeconomic and financial policies are expected to increase counter-cyclical adjustments to expand demand and optimize supply. However, maintaining steady growth in economic and financial data will require coordinated efforts from monetary, fiscal, and industrial policies to improve market expectations, increase real income, and boost overall confidence, thereby smoothing the economic cycle. There is ample room for monetary policy to maneuver in both aggregate and structural tools. It is anticipated that the central bank may implement interest rate cuts and reserve requirement ratio (RRR) cuts around the end of the third quarter, which would be a crucial measure to spur consumption, stabilize investment, and boost domestic demand, also serving an important role in stabilizing the real estate market.