China’s new loans shrink to least in seven years as demand weakens

[BEIJING] In 2025, Chinese banks extended the smallest amount of new loans since 2018, while credit expansion slowed in December – in a reflection of sluggish demand from borrowers that is weighing on growth. 

Financial institutions extended 908 billion yuan (S$167.6 billion) of new loans in December, Bloomberg calculations showed, based on data released by the People’s Bank of China (PBOC) on Thursday (Jan 15).

That was better than economists’ expectations of 800 billion yuan.

For the full year of 2025, new loans reached 16.27 trillion yuan. Aggregate financing, a broad measure of credit, increased to 2.2 trillion yuan in the month, versus a median forecast of 1.9 trillion yuan.

China is in the grip of an extended slowdown in loan growth that started in early 2023, and showed no letup in 2025.

Weak consumer spending and business investment have pushed the economy into a deflationary spiral, which sapped its appetite for borrowing by eroding corporate profits and workers’ wages. 

Faster government bond sales in the first half of 2025 initially provided enough of an offset to engineer a rebound in overall credit growth at the time.

But their effect has faded in recent months, as a higher base of comparison from 2024 kicked in, pulling the expansion rate lower. 

Another drag came from the government’s efforts since late 2024 to reduce “hidden” or off-balance sheet debt. Beijing directed local authorities to sell more bonds that replaced much of that debt, some of which was in the form of bank loans.

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The extent of the deterioration in credit does not mean officials will act any time soon.

The PBOC has signalled its tolerance of the slowdown, as it takes a patient approach with the economy’s transition toward new growth drivers such as advanced technologies. 

The central bank is increasingly on the sidelines, when it comes to managing an economy hampered by weak demand and deep-seated imbalances, with fiscal stimulus expected to do most of the heavy lifting. 

Economists still expect the PBOC to deliver modest easing in 2026, including 20 basis points of cuts in its policy interest rate, a Bloomberg survey revealed.

Without a turnaround in demand for financing, however, that is unlikely to reverse the decline in credit expansion. BLOOMBERG