China Stronger than expected credit extension despite a decline in loan stock

Economics Research 14 August 2026 | 6:54PM HKT

China: Stronger-than-expected credit extension despite a decline in loan stock

Bottom line: Xinquan Chen | July credit extension beat market expectations, mainly due to stronger government Goldman Sachs (Asia) L.L.C.

bond issuance and shadow banking credit extension. However, outstanding loan stock declined from June to July. The divergence between loan and credit extension is in line with PBOC’s emphasis of direct financing. M1 growth was unchanged in July, while M2 growth slowed. Fiscal deposits rose by more than a year ago, suggesting a slower pace of fiscal spending.

New RMB loans (flow, reported): RMB -340bn in July (RMB loans to the real economy: RMB -590.5bn) vs. GS forecast: RMB -100bn, Bloomberg consensus: RMB -100bn.

Outstanding RMB loan growth: 5.1% yoy in July (+4.3% mom sa ann, estimated by GS); June: 5.2% yoy (+3.5% mom sa ann).

Total social financing (TSF flow, reported): RMB 1410bn in July, vs. GS forecast: RMB 1200bn, Bloomberg consensus: RMB 1085bn.

TSF stock growth: 7.4% yoy in July, vs. 7.4% in June. The implied month-on-month growth of TSF stock: 8.5% in July (seasonally adjusted annualized rate), vs. 5.8% in June.

M2: 7.7% yoy in July (7.7% mom sa ann estimated by GS) vs. GS forecast: 8.0% yoy, Bloomberg consensus: 7.9% yoy. June: 8.0% yoy (2.9% mom sa ann).

1. July total social financing (TSF) flows came in above consensus expectations, mainly due to stronger government bond issuance and shadow banking credit extension. After seasonal adjustment, TSF flows rose from June to July mainly on faster government bond issuance: government bond net issuance rose to RMB 1378bn (vs. RMB 867bn in June; Exhibit 1). In year-over-year terms, TSF stock growth was unchanged at 7.4% yoy in July.

2. RMB loan stock (not seasonally adjusted) fell by RMB340bn in July, below market expectations. Outstanding RMB loan growth edged down to 5.1% yoy in July (vs. 5.2% yoy in June). July is usually a seasonally weak month for loan extension. The detailed breakdown shows that household loans declined by a similar amount a year ago (an RMB 460bn decline this July vs. an RMB489bn decline a year ago). Outstanding corporate loans declined by RMB 130bn in July (vs. an RMB 60bn

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extension a year ago). Bill financing was the only component of corporate loans to register a net increase (RMB 376bn in July vs. RMB 871bn in July 2025).

3. M1 growth was unchanged at 4.0% yoy in July (Exhibit 2), while M2 growth moderated to 7.7% yoy in July (vs. 8.0% yoy in June). The detailed breakdown suggests the slowdown in M2 growth mainly reflected slower growth of deposits of non-bank financial institutions. Meanwhile, fiscal deposits rose by RMB 979bn in July, about RMB 209bn higher than the increase a year ago, suggesting a slower pace of fiscal spending.

Exhibit 1: TSF flows rose from June to July after seasonal Exhibit 2: M2 growth slowed from June to July, mainly adjustment reflecting slower growth of deposits of non-bank financial institutions

RMB trillion, sa RMB trillion, sa Percentage point Percentage point 6 6 20 20 Others* Contribution to year-over-year M2 growth Banker's acceptance bills 5 Trust and entrusted loans 5 Cash in circulation (M0/M1) Corporate demand deposits (M1) Household demand deposits (M1) Corporate time deposits Corporate bonds 15 Household time deposits Other deposits 15 4 Government bonds 4 M2 Loans Total TSF flows 3 3 10 10

-1 -1 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25 Jan-26 -5 -5 *Others primarily include equity financing, loan write-offs and depository financial institutions' ABS

Source: PBOC, Data compiled by Goldman Sachs Global Investment Research Source: CEIC, Goldman Sachs Global Investment Research

Andrew Tilton Hui Shan Lisheng Wang Goldman Sachs (Asia) L.L.C. Goldman Sachs (Asia) L.L.C. Goldman Sachs (Asia) L.L.C.

Xinquan Chen Yuting Yang Chelsea Song Goldman Sachs (Asia) L.L.C. Goldman Sachs (Asia) L.L.C. Goldman Sachs (Asia) L.L.C.