China's New Loans Fall ¥10 Billion in April, Signaling Deeper Slowdown

China’s credit expansion slowed dramatically in April as new loans contracted for the first time in nine months, a far deeper decline than anticipated that signals weakening demand across the world's second-largest economy. Aggregate financing, a broad measure of credit, grew by just 620 billion yuan, roughly half of the consensus forecast, according to data from the People's Bank of China (PBoC).

"The magnitude of April's weak credit performance exceeded expectations, even after accounting for seasonal factors," JPMorgan analysts said in a research report. The bank noted it now favors a more defensive portfolio positioning, preferring the Big Four state-owned banks which are seen as having stronger loan pipelines.

The details show a record single-month contraction in borrowing from both households and companies. Household loans, which include mortgages, shrank by 787 billion yuan, while corporate loans fell by 870 billion yuan. The sharp drop was partially offset by a 1.24 trillion yuan surge in bill financing, a move JPMorgan believes sends a negative signal for blended loan yields and net interest margins for banks.

The data casts significant doubt on the durability of China's economic recovery and complicates the PBoC's policy path. While first-quarter GDP growth was better than expected, this credit collapse suggests a fragile domestic picture. The central bank has pledged an accommodative stance, but with producer price inflation recently hitting a 45-month high, its room for aggressive easing may be limited ahead of the next policy rate decision.

The second consecutive monthly contraction in household borrowing highlights the depth of the property sector's crisis and its chilling effect on consumer confidence. "Weak household loan demand was the main culprit," Capital Economics said in a note, pointing to a collapse in both mortgage and short-term consumer credit. This persistent weakness in domestic demand remains a primary drag on the economy, with the gap between the M1 and M2 money supply measures widening to negative 3.6 percent, reflecting weaker transactional money demand as households opt for precautionary savings.

The unexpected credit downturn sent ripples through markets, with the offshore yuan (CNH) weakening against the dollar. The data reinforces concerns about China's growth trajectory, which could weigh on demand for key commodities like copper and iron ore. Outstanding yuan loan growth slowed to a record low of 5.6 percent from a year earlier, a clear sign that both private-sector investment appetite and household consumption remain subdued despite earlier signs of a recovery.

This article is for informational purposes only and does not constitute investment advice.