Financial Statistics Report/Total Social Financing (PBOC)

In April 2025, Chinese banks issued CNY 280 billion in new yuan loans, sharply down from CNY 730 billion a year earlier and significantly below market expectations of CNY 700 billion. This marked the weakest April credit issuance since 2005, highlighting the initial fallout from escalating trade tensions with the United States, which appear to be weighing on corporate and household borrowing. Despite this, total social financing rose by CNY 1.16 trillion, supported by increased government bond issuance - including anticipated ultra-long-term special debt issued later in the month. Meanwhile, outstanding loan growth reached another record low of 7.2% year-over-year, and broad money supply (M2) expanded by 8%, the fastest annual pace in over a year, reflecting banks’ purchases of those bonds.

Interpretation

April’s credit data reveals a stark divergence in China’s financial landscape: tepid private sector demand for credit amid geopolitical and economic uncertainty, counterbalanced by a state-led push through fiscal and quasi-fiscal channels.

The collapse in new yuan lending to just CNY 280 billion - a 61% drop from a year earlier and the weakest April figure in two decades - is striking. This isn’t merely seasonal volatility or technical adjustment; it signals the same ongoing malaise owing to banks’ unsolved balance sheet constraints. As has become standard since 2023, the only sector moving or growing is the public one.

This weakness in conventional bank lending comes despite what is supposed to be “accommodation” from the People's Bank of China (PBOC). However, lower interest rates reflect the difficulties embodied in the loan statistics, meaning the rate environment is accurately describing conditions in the Chinese financial system. Unless banks are willing and able to take on new opportunities and risks, it doesn’t matter what authorities have in mind.

Instead, total social financing (TSF) rose by CNY 1.16 trillion, propped up largely by public sector borrowing. The surge in TSF suggests that Beijing is once again turning to the familiar playbook: filling private demand shortfalls with state-directed investment. Much of the increase is tied to heightened government bond issuance, including the ultra-long-term special debt instruments slated for later in the month to finance a range of bailouts, from Local Government Financing Vehicles to the largest banks themselves (recapitalization).

Yet this strategy is not without risk. While headline TSF looks resilient, the quality and composition of that financing are shifting further toward government-led channels, raising concerns about capital misallocation and the crowding-out of genuinely productive private investment. Moreover, another slowdown in outstanding loan growth signals more of the same deterioration in private credit creation at a time when policymakers need dynamism, not drift.

Without a real boost in the banking sector, China’s economy is stuck at a time when challenges rather than activity are growing.