China: Credit growth slowed to a record low

Research evidence excerpt

China: Credit growth slowed to a record low

he pandemic clearly has likely raised concerns of top

policymakers. On 13 July, Premier Li Qiang Premier Li called for “stepping up

countercyclical policy adjustment” to stabilize growth, suggesting a more accommodative

policy stance in H2, albeit perhaps on a moderate scale. The Politburo is set to meet later

this month for economic policymaking in H2. We expect the mid-year Politburo meeting to

initiate a new round of supportive measures. However, the scale might be limited for three

reasons. First, conventional monetary policy measures, such as rate cuts and RRR cuts,

are either of limited room or of limited impact. Second, Beijing recognizes some short-term

policies such as the trade-in programs may lead to pay-back effects and cannot be used

too frequently. Third, Beijing may not be ready to significantly step up fiscal spending on

infrastructure capex on concerns of falling returns, and Beijing is not ready to hike social

welfare spending either on concerns of an unmanageable fiscal deficit.

Net government bond financing is likely to pick up in H2

Looking ahead, we expect government bond financing to pick up in H2, owing to Beijing's

need to support contracting fixed asset investment (FAI), which should in turn support

steady credit expansion. FAI growth remaineddeeplynegativeinJune. In H1 2026, total

net government bond financing under AF amounted to RMB6,440bn, lower than the

RMB7,656bn in the same period of 2025. Based on the net total new government bond

quota approved at the March 2026 NPC of RMB11.59trn and the RMB2trn annual quota

for the local government debt swap programme in 2026, if the total quota is fully

exhausted by end-2026, this would support a further RMB7,150bn of net government bond