July TSF Growth Was Flat, with Credit Deleveraging and Government Bond Support Occurring in Parallel
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July TSF Growth Was Flat, with Credit Deleveraging and Government Bond Support Occurring in Parallel
July TSF growth remained at 7.4% year on year, with government bond issuance serving as the main support; continued household deleveraging and slower loan growth indicate that stimulus is adjusting toward a more sustainable level.
- Outstanding TSF grew 7.4% year on year in July, unchanged from June; year-to-date new TSF totaled Rmb22.25 trillion, down Rmb1.74 trillion year on year.
- Year-on-year RMB loan growth further declined to 5.2% from 5.3% in June, while bills provided less support to credit growth.
- Household loans fell by a net Rmb460 billion in July and by a cumulative Rmb827 billion year to date, indicating continued household deleveraging.
- Government bond financing increased by Rmb1.32 trillion in July, providing key support for TSF.
- Household and corporate deposits declined by Rmb630 billion and Rmb1.63 trillion, respectively, while non-bank financial institution deposits increased by Rmb1.11 trillion, suggesting funds may continue to flow into wealth-management and capital-market products.
Report interpretation
Overview
This report interprets China's July 2026 TSF and credit data. Morgan Stanley believes that TSF growth remained stable, but RMB loan growth continued to slow and household deleveraging persisted; government bond issuance provided the main support for TSF. Overall, the signals are consistent with the view that policy stimulus is gradually shifting toward a more sustainable level.
Core views
TSF growth remains resilient in the near term, but is structurally supported by government bond financing rather than household and corporate credit expansion. The normalization of loan growth, reduced bill usage, and household debt repayment reflect weaker window guidance for banks, prudent consumer-credit disbursement, and low household risk appetite. The bank believes long-term TSF growth of around 6% is more sustainable and could improve loan pricing, resource allocation, and financial institutions' profitability.
Analysis framework
Based on July year-on-year and month-on-month data for TSF, RMB loans, deposits, M1, and M2, together with financing components and deposit flows among households, corporates, and non-bank institutions, the report assesses the credit structure and sustainability of policy stimulus.
Methodology notes
Identifies the sources of policy support and the quality of credit expansion through aggregate TSF, loan growth, and financing components.
The report assesses the aggregate amount and structure of credit supply through changes in year-on-year TSF growth, RMB loans, government bonds, bills, and other components.
Observes savings reallocation through changes in household, corporate, and non-bank financial institution deposits.
Declines in household and corporate deposits alongside rising non-bank deposits are interpreted as indicating that some funds may be migrating into wealth-management and capital-market products.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China Financials SectorSector coverage
- Strengths
- Government bond financing supports TSF; a more sustainable level of stimulus could improve loan pricing, resource allocation, and long-term profitability.
- Weaknesses
- RMB loan growth is declining, household and corporate credit demand remains weak, and household deleveraging continues.
- Comparison
- Government bond financing is stronger than private-sector credit expansion, including household and corporate loans; non-bank deposit growth is significantly stronger than household deposit growth.
- Risks
- If household deleveraging persists, corporate financing demand remains weak, or money-supply growth continues to slow, financial institutions' asset expansion and earnings improvement may fall short of expectations.
Key data
- July year-on-year growth in outstanding TSF7.4%Unchanged from June.
- Year-to-date new TSFRmb22.25 trillionRmb1.74 trillion less than a year earlier.
- Year-on-year growth in RMB loans5.2%Below 5.3% in June.
- Net change in household loans in July-Rmb460 billionCumulative decline of Rmb827 billion year to date.
- Government bond financing in JulyRmb1.32 trillionThe main support for TSF.
- Net change in non-bank financial institution deposits in July+Rmb1.11 trillionMay reflect fund flows into wealth-management and capital-market products.
- Year-on-year M1 growth4.0%Remained stable.
- Year-on-year M2 growth7.7%Down from 8.0% in June.
Impact & implications
For China's financial sector, more moderate and sustainable credit expansion, if it reduces pressure for inefficient lending, could benefit loan pricing, capital allocation efficiency, and long-term profitability; however, near-term household credit contraction and deposit outflows also imply pressure on growth in traditional deposit-and-loan businesses.
Risks
- Continued household deleveraging, with mortgage and consumer credit demand recovering slowly.
- Weak corporate loans and non-bill financing, which could undermine private-sector credit expansion.
- Deposit migration into wealth-management and capital-market products, which could intensify competition on banks' funding side.
- TSF growth could come under pressure if support from government bond financing weakens.
- The report's view of long-term improvement depends on simultaneous optimization of loan pricing and resource allocation.
What to watch
- Whether subsequent year-on-year TSF growth converges toward the sustainable range of around 6%.
- Whether short- and medium-to-long-term household loans can stabilize and recover.
- The degree of government bond issuance support for TSF and the extent to which private-sector credit takes over.
- Changes in deposit flows among households, corporates, and non-bank financial institutions.
- M1 and M2 growth, as well as subsequent developments in bank loan pricing and net interest margins.