China’s New Bank Loans Drop for First Time Since 2005

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Aug 14, 2025 - 10:17 Updated: Aug 14, 2025 - 10:00
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China’s New Bank Loans Drop for First Time Since 2005
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New bank loans in China contracted last month for the first time in 20 years, new data released on Aug. 13 show.

In July, new yuan loans declined by 50 billion yuan ($6.97 billion), following the 2.24 trillion yuan ($312.2 billion) increase in June. This represented the first monthly decline since July 2005.

The market had penciled in growth of 300 billion yuan ($41.8 billion).

While July typically reports slower growth as financial institutions curtail their earlier efforts to meet quarterly lending targets, experts say the worse-than-expected figures could suggest deteriorating credit demand.

In previous years, according to historical data, banks issued 679 billion yuan (2022), 345.9 billion (2023), and 260 billion yuan (2024) in new loans.

Outstanding loan growth, meanwhile, slowed to 6.9 percent year over year in July, down from 7.1 percent in the previous month. This came in below the consensus estimate of 7 percent and represented the slowest growth since 1998.

Total social financing—a wider gauge of credit and liquidity—advanced by a larger-than-expected 1.16 trillion yuan ($161.6 billion), down from the 4.2 trillion yuan ($585.4 billion) expansion registered in June.

“There was a small pick-up in overall credit growth in China’s economy in July, as a result of a further surge in government borrowing,” Leah Fahy, China economist at Capital Economics, said in a note. “But bank loan growth has continued to slow, suggesting that private sector credit demand remains subdued.”
Money supply growth rocketed 8.8 percent, up from the 8.3 percent recorded in June. This firmly surpassed the market forecast of 8.2 percent.

Reading the Tea Leaves

Looking ahead, StoneX senior analyst Natalie Scott-Gray anticipates additional credit support and interest rate cuts in the fourth quarter to ensure the world’s second-largest economy reaches its gross domestic product targets.

This past spring, Chinese officials trimmed the reserve requirement ratio—the amount of capital commercial banks are required to hold in reserve and not lend out—by 0.5 percentage points. The action injected approximately 1 trillion yuan into the financial system.

Exports surged by a higher-than-expected pace of 7.2 percent from a year ago in July, despite President Donald Trump’s tariffs. Imports also swelled 4.1 percent, higher than the market forecast.

But while China’s growth rate, unemployment rate, exports, and retail sales have improved, “fixed asset investment and property market remain weak,” she said in a note.

July retail sales, which will be published on Aug. 15, are forecast to ease to 4.6 percent year over year. Elsewhere on the data front, the jobless rate is estimated to tick up to 5.1 percent from 5 percent, and year-to-date fixed asset investment is projected to slow to 2.7 percent from 2.8 percent.

Beijing plans to implement additional stimulus measures to support the economy.

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An employee uses balloons to attract customers to a promotional sale at a fashion retailer in a shopping mall in Shenzhen, China's Guangdong Province, on Nov. 1, 2019. Andy Wong/AP
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Beijing recently announced it will employ measures to bolster domestic consumption by extending interest subsidies on loans to businesses and households. The purpose of offering a one percentage point subsidy on loans is to encourage spending and lower borrowing costs.

These efforts, says Vice Finance Minister Liao Min, “will support domestic consumption to become a major driving force of the national economy.”

This program is scheduled to take effect on Sept. 1 and will remain in effect until Aug. 31, 2026.

Domestic demand has deteriorated significantly, with the country flirting with price deflation this year as business and consumer confidence remain near historic lows. Households have been cautious, a feeling supported by the personal savings rate staying above 30 percent amid ongoing uncertainty.
The trade situation with the United States has stabilized. Trump agreed earlier this week to extend the tariff pause for another 90 days, preventing near-embargo-level tariffs from returning.
China’s July Consumer Price Index jumped 0.4 percent following two consecutive months of negative readings. The Producer Price Index—a gauge of prices paid by businesses for goods and services—fell 3.6 percent year over year last month in the country, marking the 34th straight month of producer deflation.

Nomura economists have been skeptical about short-term fixes for China’s consumption challenges, noting that stimulus “cannot be deployed too often.”

“China should also consider longer-term structural policies to support consumption,” they said in a recent report, pointing to reforms to the social security system.

Increasing basic pension payments for low-income households, boosting subsidies for medical insurance, and providing family support benefits to reduce the costs of raising children are several policy prescriptions the Chinese regime could consider to support the economy in the long run, the institution’s economists noted.

Reuters contributed to this report.
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