China's Credit Growth Remained at Historic Lows in July, with Government Bond Financing Beginning to Provide Support

Overview

Nomura believes China's July credit data did not show a clear improvement in domestic demand. New aggregate social financing exceeded market expectations, but outstanding ASF growth remained at the historic low of 7.4%; new RMB loans turned negative, while credit demand from both corporates and households remained weak.

Core views

RMB loans remained the core drag: new RMB loans in July were negative RMB 340 billion, and outstanding loan growth fell to the historic low of 5.1%. Lower year-on-year bill financing weighed on loan growth, but private-sector credit demand remained soft even excluding bill financing. Following a weak second quarter, government bond financing turned supportive of credit expansion in July, while corporate bond financing also increased.

Analysis framework

The report assesses China's domestic demand, private-sector credit demand, and fiscal and monetary policy transmission through year-on-year and month-on-month breakdowns of aggregate social financing, RMB loans, bank deposits, M1/M2, government and corporate bond financing, and interbank liquidity indicators.

Methodology notes

• Macro-Financial AnalysisAggregate Social Financing Breakdown

  Breaks down aggregate social financing into bank loans, government bonds, corporate bonds, bills, shadow financing, and other components.

  Used to identify the main drivers and drags of credit expansion and distinguish the contributions of private-sector and government-sector financing.

• Monetary and Liquidity AnalysisMoney Supply and Interest Rate Indicator Tracking

  Observes monetary conditions by combining M1, M2, DR007, 10-year government bond yields, and central bank liquidity injections.

  Used to assess marginal changes in liquidity conditions and the impact of changes in fiscal deposits on money supply growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Chinese Government Bonds

  Accelerating government bond issuance is the main positive support for aggregate social financing.

  Strengths

  Increased fiscal financing helps stabilize aggregate credit expansion and provides funding for faster fiscal spending.

  Weaknesses

  Improved government financing is still insufficient to demonstrate a recovery in private-sector demand.

  Comparison

  Compared with weak bank loans, government bond financing provided more prominent support to July aggregate social financing.

  Risks

  Support for credit expansion could weaken if fiscal spending implementation is slow or the issuance pace falls short of expectations.

• Corporate Bonds

  Net corporate bond financing increased year on year, supporting direct financing.

  Strengths

  Direct financing can partially cushion weakening traditional bank lending.

  Weaknesses

  The report still judges overall private-sector credit demand to be subdued.

  Comparison

  Corporate bond financing performed better than RMB bank loans, but the improved scale did not change the overall weak credit backdrop.

  Risks

  The improvement in financing may be influenced by individual large financing events, and its sustainability remains to be seen.

• China Money Market

  Liquidity tightened marginally in July, while the central bank continued net liquidity injections through various tools.

  Strengths

  The central bank's net injection of RMB 684 billion helped maintain liquidity.

  Weaknesses

  M2 growth slowed, and increased fiscal deposits disrupted money supply.

  Comparison

  DR007 declined slightly from June but remained marginally above the 7-day reverse repo rate.

  Risks

  Changes in fiscal deposits, bond supply, and the pace of policy operations could lead to volatility in liquidity conditions.

Key data

• New Aggregate Social Financing in JulyRMB 1.402 trillionAbove market expectations of RMB 1.081 trillion; RMB 1.131 trillion in July 2025.
• Year-on-Year Growth in Outstanding Aggregate Social Financing7.4%Unchanged from June and at a historic low.
• New RMB Loans in July-RMB 340 billionBelow market expectations of -RMB 100 billion and below Nomura's forecast of RMB 139 billion.
• Year-on-Year Growth in Outstanding RMB Loans5.1%Further slowed from 5.2% in June, reaching a record low.
• Net Government Bond Financing in JulyRMB 1.318 trillionAbove RMB 1.248 trillion in the same period last year.
• Net Corporate Bond Financing in JulyRMB 454 billionAbove RMB 275 billion in the same period last year.
• M2 Year-on-Year Growth7.7%Below 8.0% in June.
• M1 Year-on-Year Growth4.0%Unchanged from June.
• Average Daily DR007 in July1.418%1.438% in June, slightly above the central bank's 7-day reverse repo rate of 1.40%.

Impact & implications

The data indicate that private-sector willingness to leverage remains weak and the recovery in domestic demand lacks clear momentum. Statements from both the Politburo meeting and the central bank point to stronger countercyclical adjustment, but no signal of large-scale additional stimulus has been released. Nomura expects fiscal policy to remain dominant, with government bond issuance and fiscal spending likely to accelerate in the coming months, while new RMB loans may continue to weigh on credit growth in the near term.

Risks

• Persistently weak domestic demand, with further declines in medium- to long-term loans to corporates and households.
• Fiscal policy intensity, government bond issuance, and fiscal spending progress falling short of expectations.
• Weakening property developer sales continuing to suppress demand for household medium- to long-term loans.
• Base effects and monthly volatility in bill financing may amplify short-term noise in loan data.
• Some data text in the report contains recognition inconsistencies; individual figures should be verified against the original official data releases.

What to watch

• Whether government bond issuance and fiscal spending accelerate further in the coming months.
• Whether short- and medium- to long-term loans to corporates and households show sustained improvement.
• Changes in property sales and their impact on household medium- to long-term loans.
• Whether corporate bond and equity financing can continue to offset weak bank lending.
• Subsequent changes in M1, M2, fiscal deposits, and DR007.
• Whether the central bank introduces incremental easing or stimulus measures beyond its existing guidance.