China’s new loans post first drop in 13 years on weak demand

NEW loans extended by Chinese banks posted their first decline since 2011 last year, underscoring weak demand for financing in an economy plagued by deflation and a housing slump.

Financial institutions offered 18.09 trillion yuan (S$3.4 trillion) of new loans in 2024, according to data released by the People’s Bank of China on Tuesday (Jan 14), representing the first annual drop in 13 years. Aggregate financing, a broad measure of credit, also rose less than the previous year’s increase marking the first slowdown since 2021.

Some encouraging developments were seen in December, however, as Beijing’s stimulus blitz kicked in, suggesting the plunge in credit demand was bottoming out. Aggregate financing climbed 2.86 trillion yuan last month and 998 billion yuan in new loans was extended, both at the highest in three months, as government bond issuance accelerated and the housing market showed initial signs of an improvement.

“Demand rebounded in December supported by huge government financing. This will likely continue in 2025 as the fiscal front will be more proactive,” said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group. “The worst time of credit has passed.”

Credit decline

Subdued borrowing demand from the household and corporate sectors drove the declines in the full-year credit numbers. While China’s economic momentum improved in recent months on the back of Beijing’s rate cuts and property sector support, its growth prospects this year remain far from upbeat, hobbled by persistent deflation and a looming trade war with the US.

Medium- to long-term news loans to households – a key gauge of mortgage lending activity – were just 2.25 trillion yuan in 2024, the lowest in more than a decade. Short-term new loans to residents, usually used for shopping and investment in small businesses, came in at 473 billion yuan, the worst reading since 2008.

Businesses remained reluctant to invest, with medium- to long-term new loans to companies reaching 10.1 trillion yuan last year, compared with 13.6 trillion yuan in 2023. That’s the first slowdown in the annual pace of new credit issuance since 2018.

“China’s better-than-expected December credit data masks the fact that non-government financing remained weak,” said David Qu, economist for Bloomberg Economics. “It suggests the recovery is losing steam in the third month after the policy stance turned more supportive. Clearly, the economy needs more help.”

Policymakers will need to roll out more assertive policies to help domestic demand recover and absorb any blow to export growth from the expected US tariff hikes. The government has ramped up bond issuance to pick up the slack, providing a boost to overall credit.

Officials have also promised to cut interest rates and unleash long-term interbank liquidity to encourage lending.

The PBOC is having to balance its competing goals of supporting growth and preventing the yuan from depreciating too fast. It’s so far held back from easing monetary policy with steps such as a cut to banks’ reserve requirement ratio, since that could put more pressure on the yuan and fuel capital outflows.

Policymakers are also likely keeping some stimulus in reserve should it be needed to contain trade shocks after Donald Trump’s inauguration as US president this month. BLOOMBERG