An outpouring of Chinese government bond issuance and early signs of improvement in the housing market helped stir up appetite for financing in December, drawing to a close a year when new loans declined for the first time since 2011.
The worst of the plunge in demand for credit is likely over as Beijing’s stimulus blitz kicks in. Aggregate financing climbed 2.86 trillion yuan ($529.67 billion) last month while 998 billion yuan in new loans was extended, the highest totals for both measures in three months.
“Demand rebounded in December supported by huge government financing,” said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group. “This will likely continue in 2025 as the fiscal front will be more proactive.”
A sustained turnaround is still in doubt for a country plagued by deflation and a housing slump. While China’s economic momentum improved in recent months on the back of Beijing’s interest-rate cuts and support for the property sector, its growth prospects this year remain far from upbeat, hobbled by downward pressure on prices and a looming trade war with the US.
Subdued borrowing demand from the household and corporate sectors drove the declines in the full-year credit numbers.
Financial institutions extended 18.09 trillion yuan of new loans in 2024, according to data released by the People’s Bank of China on Tuesday, representing the first annual drop in 13 years. Aggregate financing, a broad measure of credit, also rose less than the previous year’s increase — the first slowdown since 2021.
See also: China home prices fall at slower pace as stimulus takes hold
Medium- to long-term new 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.
See also: China’s 2024 growth meets official 5% target on stimulus bump
The government has ramped up bond issuance to pick up the slack. While providing a boost to overall credit, the move actually brought down loan figures as a result of a program to swap so-called “hidden debt” onto the official balance sheet.
The PBOC-backed Financial News on Wednesday cited market estimates in saying that loans declined by some 1.2 trillion yuan in December alone amid the effort to reduce local debt, including 1.1 trillion yuan swapped into special local bonds.
What Bloomberg Economics says...
“China’s better-than-expected December credit data masks the fact that non-government financing remained weak. It suggests the recovery is losing steam in the third month after the policy stance turned more supportive. Clearly, the economy needs more help.”— David Qu, economist.
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. Officials have promised to cut interest rates and unleash long-term interbank liquidity to encourage lending.
Borrowing costs have already declined sharply over the past year thanks to previous easing measures.
The average weighted interest rate on new yuan and foreign currency corporate loans fell to 3.43% last month, down 36 basis points from a year earlier, Xuan Changneng, a PBOC vice governor, said at a briefing on Tuesday. The rate on mortgage loans dropped 88 basis points over the same period to 3.11%, he said.
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.
