China Economy:Weak endogenous credit demand

CMB International Global Markets | Equity Research | EconomicPerspectives China EconomyWeakendogenouscreditdemand Frank Liu(852) 3761 8957frankliu@cmbi.com.hk China’sMar credit data suggested liquidity conditions remained broadlyaccommodative, but endogenous credit demand softened further. Social financingmoderated as government bond issuance slowed down, indicatingthatfiscalimpulsewas less than expected. M1 and M2 edged down while staying atrelatively solid levels. However, new RMB loans weakened further, draggedmainly by a renewed slump in household borrowing, with both consumer creditand mortgage demand still soft. Corporate borrowing edged down in aggregate,as the mix remained skewed toward short-term funding rather than long-termcapex. Withfragilehousehold confidence,ongoing pressure inthe property sectorandonly tentativecorporate capex appetite, further easing should increasinglyfocus on lowering the absolute financing costsand improving credit pass-throughrather than simply maintaining abundant liquidity. We continue to expect thePBOC to cutLPRand RRR by10bpsand 50bpsrespectivelyby end-3Q26, whilerelying on structural monetary tools in the near term to support targeted sectorsand credit delivery. Social financing softened as fiscal credit moderated.Outstanding socialfinancing (SF) growth eased to 7.9% YoY in Mar 2026 from 8.2% in Jan-Feb.Monthly SF flow rose to RMB5.23tn in Mar, higher than marketexpectations at RMB5.09trn,while combined SF flow in 1Q26 edged down2.3%YoY.Government bond financing remained the key anchor atRMB1.16trn in Mar, though it fell 21.8% from a high base lastyear, indicatingthatfiscal impulsewas lessthan expected early in the year. Corporate bondfinancing notably surged to RMB395bn in Mar compared to-RMB90.5bnlast year, indicating the recovering corporate credit demand. By contrast,new RMB loans undersocial financing fell17.5% YoY to RMB3.2tnin Mar.Shadow financing also contractedas entrusted loans and trust loans sawnegative flow while undiscounted bankers’acceptances moderated.M2growth easedto 8.5% in Marafter holding at9.0% YoY in Jan-Feb, whileM1 moderatedto 5.1% in Marfrom 5.9% in Feb, implyingthatmoneycirculation lost some momentum toward quarter-endas domestic economicactivitiesmoderated. New RMB loans stayed weak.New RMB loansdropped17.9% in Mar toRMB3trn,below market expectations of RMB3.2trn.Household loansremained thelargest drag, as total household borrowing droppedby 50.2%tojust RMB490bn.Consumer credit turned weaker,with short-termhousehold loansdipped 59.6% in Mar to RMB195.6bn. Medium-and long-termhousehold loans also fell 41.5% YoY to RMB295.3bn, indicatingthathousing demand remained subdued and the property sector was still in adeleveraging phase. On the corporate side, aggregate borrowingdroppedby 6.3% to RMB2.7trn in Mar, but the composition remained defensive.Corporate short-term loans rose2.8% YoY, while medium-and long-termcorporate loans fell14.6%, suggestingthatfirms still prioritized working-capitalmanagement and liquidity buffers over long-duration capexexpansion. Liquidity remained adequate, butcredit demand fromreal economyweakened further.The centralbank is still able to keep system liquiditysupportive, asbanks’7D repo ratedroppedbelowthe PBOC policy rate andreflected in still-solid M1/M2 growth, but credit demand in the real economyremained weak. Monetary conditions are not tight, yet credit creation is stillfailing to translate into a meaningful pickup in household leverage or private-sector long-term borrowing. Withfragilehousehold confidence,ongoingpressure inthe property sector andonly tentativecorporate capex appetite,further easing should increasingly focus on lowering the absolute financingcosts and improving credit pass-through rather than simply maintainingabundant liquidity. We therefore continue to expect a 10bp LPR cut and 50bp RRR cut by end-3Q26fromthePBOC, alongside continued targetedsupport through structural monetary tools. Source:Wind, CMBIGM Source:Wind, CMBIGM Source:MoF, CMBIGM Source:MoF, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer thatthe analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the