China new bank loans beat expectations in June

Chinese banks issued CNY 2.24 trillion in new yuan loans in June 2025, the highest monthly total in three months and a significant rebound from CNY 620 billion in May. The figure also exceeded market expectations of CNY 1.8 trillion and surpassed the CNY 2.13 trillion issued in June 2024, reflecting a combination of seasonal lending momentum, increased fiscal activity, and targeted policy support aimed at bolstering economic growth in the second half of the year.

June is typically a strong month for credit issuance in China, as banks seek to fulfill quarterly lending targets and accommodate rising funding needs from both businesses and local governments. This year, those seasonal trends were amplified by the government’s front-loaded bond issuance, part of its broader effort to accelerate infrastructure investment and stimulate domestic demand amid continued external headwinds.

The jump in government bond sales helped lift overall liquidity in the banking system and prompted a parallel increase in loan disbursements to state-linked and private borrowers.

Total social financing (TSF)—a broader measure of credit and liquidity that includes bank loans, bonds, trust loans, and off-balance-sheet financing—also rose sharply to CNY 4.2 trillion in June, up from CNY 2.29 trillion in May and CNY 3.3 trillion a year earlier. The figure came in well above the consensus forecast of CNY 3.65 trillion, signaling that credit conditions improved more rapidly than anticipated and suggesting that policy transmission is gaining traction.

Strong TSF growth is often viewed as an early indicator of economic stabilization, particularly in sectors like construction, infrastructure, and manufacturing that are sensitive to financing conditions.

Despite the pickup in monthly lending, the growth rate of outstanding yuan loans remained subdued, holding steady at 7.1% year-on-year—the lowest pace since 1998, though slightly higher than the expected 7.0%.

The persistently weak loan growth reflects structural challenges in the economy, including cautious corporate sentiment, weak private sector investment, and still-subdued property sector activity. It also points to lingering credit risk concerns among banks, which remain hesitant to expand balance sheets aggressively in a still-uncertain macro environment.

In a further sign of easing financial conditions, the M2 money supply—an important measure of broad liquidity in the economy—increased by 8.3% in June, up from 7.9% in May and above expectations of 8.1%. The acceleration in M2 growth underscores Beijing’s continued efforts to support aggregate demand, particularly as policymakers shift their focus from broad deleveraging to fostering stability and ensuring sufficient funding for key development initiatives and local governments.

Looking ahead, the June credit data is likely to boost expectations for a firmer recovery in the second half of the year, especially if accompanied by follow-through in consumer spending, industrial output, and investment. However, analysts caution that demand-side constraints and structural imbalances remain unresolved, and that sustained improvement will require not only ample liquidity, but also stronger confidence among households and firms.

The People’s Bank of China is expected to maintain a pro-growth stance for the remainder of 2025, with further support measures—including targeted rate cuts or reserve requirement reductions—still on the table if growth momentum stalls. Markets will be watching closely for any signals from upcoming Politburo meetings and mid-year economic policy statements to gauge the next phase of China's fiscal and monetary strategy.