China's Credit Growth Remained at Historic Lows in July, While Government Bond Financing Began Providing Support

Overview

Nomura believes that China's July 2026 credit data overall show that domestic demand has yet to see a meaningful improvement. New aggregate financing was slightly above market expectations, but outstanding aggregate financing growth remained at the historic low of 7.4%; new RMB loans weakened materially, with net short- and medium-to-long-term loans to both corporates and households negative.

Core views

Bank lending remains the main drag on slower aggregate financing growth, with weak private-sector credit demand the core reason. More positively, net government bond financing became a driver of credit growth in July, while corporate bond financing continued to improve. The bank expects fiscal policy to continue leading growth stabilization in the coming months, with government bond issuance and fiscal spending likely to accelerate, although new RMB loans may remain a drag in the near term.

Analysis framework

The report assesses domestic credit expansion and the degree of policy support through new and outstanding aggregate financing, sectoral and maturity breakdowns of RMB loans, bank deposits, M1/M2 growth, government and corporate bond financing, and interbank liquidity indicators.

Methodology notes

• Macro Credit AnalysisAggregate Financing and Bank Credit Breakdown

  Aggregate financing is broken down into RMB loans, government bonds, corporate bonds, bills, and shadow financing, and credit demand is assessed in conjunction with loans to sectors including corporates and households.

  This method distinguishes the structural drivers behind changes in total credit and identifies the relative contributions of fiscal financing and private-sector financing.

• Money and Liquidity AnalysisMoney Supply and Interest Rate Indicator Tracking

  The monetary environment is assessed using M1, M2, fiscal deposits, DR007, 10-year government bond yields, and central bank liquidity injections.

  Money growth, fiscal deposits, and market interest rates collectively reflect liquidity conditions and the impact of fiscal funds on bank-system liquidity.

Asset mapping & comparison

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

• Chinese Government Bonds

  Faster government bond issuance has become an important source of support for aggregate financing.

  Strengths

  The rebound in fiscal financing helps stabilize growth and improve the overall financing structure.

  Weaknesses

  Increased bond supply may exert temporary upward pressure on yields.

  Comparison

  Compared with bank lending, government bond financing provided more visible support to aggregate financing in July.

  Risks

  If fiscal spending transmission is ineffective or private demand remains weak, the financing rebound may provide limited support to the real economy.

• Chinese Credit Bonds

  Net corporate bond financing increased year on year, indicating some improvement in direct financing channels.

  Strengths

  It can partly offset weak traditional bank lending.

  Weaknesses

  The degree of improvement may not indicate a broad-based recovery in overall corporate financing demand.

  Comparison

  Corporate bond financing outperformed new RMB loans.

  Risks

  Weak economic demand and credit differentiation may limit the sustainability of credit expansion.

• Chinese Banking Sector

  Bank lending remains the main drag on aggregate financing growth.

  Strengths

  The central bank's net liquidity injection in July helped maintain bank-system liquidity.

  Weaknesses

  Weak corporate and household credit demand constrains loan issuance and asset expansion.

  Comparison

  Loan financing was weaker than government and corporate bond financing.

  Risks

  Prolonged weak credit demand may increase pressure on banks' asset returns and credit risk management.

Key data

• New Aggregate Financing (July)RMB1.402 trillionAbove the market consensus expectation of RMB1.081 trillion; year-on-year growth in outstanding aggregate financing was 7.4%.
• New RMB Loans (July)-RMB340 billionBelow market expectations; year-on-year growth in outstanding RMB loans fell to a record low of 5.1%.
• Net Government Bond Financing (July)RMB1.318 trillionAbove RMB1.248 trillion in the same period last year, becoming modest support for aggregate financing.
• Net Corporate Bond Financing (July)RMB454 billionAbove RMB275 billion in the same period last year.
• M2 Year-on-Year Growth (July)7.7%Down from 8.0% in June.
• M1 Year-on-Year Growth (July)4.0%Unchanged from June.
• Average Monthly DR007 (July)1.418%It was 1.438% in June, slightly above the 1.40% 7-day reverse repo rate.
• Average Monthly 10-Year Government Bond Yield (July)1.738%Up slightly from 1.729% in June.

Impact & implications

The key implication of the report is that support for credit expansion is shifting from bank lending to government bonds and direct financing. If fiscal spending and government bond issuance accelerate as expected, they may cushion pressure on aggregate demand; however, with household mortgages and corporate medium-to-long-term financing remaining weak, the recovery in endogenous demand still faces challenges. For the rates market, coordination between increased fiscal supply and central bank liquidity operations will be an important variable.

Risks

• Continued weak private-sector credit demand may undermine the effect of fiscal stimulus on domestic demand.
• Faster government bond supply may push up government bond yields and affect liquidity.
• Weaker property sales may continue to suppress household medium-to-long-term loans.
• If policy support falls short of market expectations for large-scale stimulus, the economic recovery may be slow.

What to watch

• The subsequent pace of government bond issuance and fiscal spending.
• Whether medium-to-long-term loans to corporates and households show sustained improvement.
• Changes in property sales and household mortgage demand.
• Whether year-on-year growth in aggregate financing and RMB loans stabilizes.
• Changes in liquidity indicators such as M1, M2, fiscal deposits, and DR007.
• The People's Bank of China's liquidity injections and monetary policy guidance.