The latest data from the People’s Bank of China shows that in July, there was a negative growth of 50 billion yuan in new Renminbi loans, marking the first historic record of decline in the past 20 years. This unusual data has shocked the market, reflecting the dual contraction of borrowing willingness among both enterprises and households, continued stagnancy in the real estate market, and severe lack of investment confidence in China’s economy.
Some scholars have used the term “shock” to describe the current stagnant state of economic activity, warning that China’s economy may be facing unprecedented challenges.
According to the latest data released by the central bank on August 13th, new Renminbi loans decreased by 50 billion yuan in July 2025, marking the first negative growth since July 2005 and the largest monthly decline since December 1999.
This data starkly contrasts market expectations. Economists surveyed by The Wall Street Journal predicted an increase of 270 billion yuan, while Reuters’ forecast even reached as high as 300 billion yuan. The actual result deviated from expectations by 320-350 billion yuan.
Even more surprising is the fact that while new loans in June amounted to a staggering 2.24 trillion yuan, there was a sudden net decrease of 50 billion yuan in July, indicating that borrowers are more inclined to repay early rather than take out new loans.
The incremental value of social financing aggregate, which serves as a broader financing indicator, also fell sharply to 1.16 trillion yuan in July, a steep decline from June’s 4.2 trillion yuan.
Although broad money supply (M2) increased by 8.8% year-on-year, slightly higher than the market expectation of 8.4%, experts believe that this is mainly driven by government bond issuance rather than a revival in private sector credit demand.
Sun Guoxiang, a professor at the Department of International Affairs and Business at Nanhua University in Taiwan, pointed out in an interview with Dajiyuan that the July loan data “clearly shows a significant decrease in loan willingness among Chinese consumers and the corporate sector.” He believes that the continued stagnancy in the Chinese real estate market is the primary reason for the reduction in household loans.
Reuters also reported that the decrease in household loans is particularly prominent, reflecting the ongoing crisis in the Chinese real estate market. The demand for corporate loans is also weak, indicating a general lack of economic confidence.
Goldman Sachs and S&P Global analysts previously analyzed that China’s housing inventory reached an astounding 93 trillion yuan in 2024, far exceeding the total real estate sales in 2023 (9 trillion yuan), making the short-term alleviation of inventory pressure difficult.
Additionally, the new construction volume in 2023 dropped by 58% from its peak in 2019, and by 23% year-on-year in the first eight months of 2024, further confirming the deep stagnation in the real estate market.
The demand for corporate loans in China is being suppressed by multiple unfavorable factors. Sun Guoxiang analyzed that slowdown in exports, geopolitical pressures, and the U.S.-China trade dispute have collectively undermined corporate confidence.
According to a Fitch Ratings report, influenced by the trade war and real estate downturn, China’s economic growth rate is expected to decrease from 5.0% in 2024 to 4.2% in 2025. The weakening of exports will bring more headwinds. The rise in corporate risk aversion and the decrease in investment willingness have led to inadequate demand for commercial loans.
Reuters’ analysis suggests that the current decline in loans is closely related to the escalating U.S.-China tariff dispute, further weakening the confidence of both businesses and consumers.
Sun Guoxiang emphasized that although loan disbursement in July typically slows down following the quarterly sprint in June, the magnitude of this decline “far exceeds expectations,” reflecting the exacerbation of “structural issues.” He believes that behind this lies the deeper problem of “rising non-performing loans in Chinese banks and the need for risk control.” Banks are facing significant pressure from the rise in personal non-performing loan rates, hence they are reluctant to easily lend even with policy guidance.
Wang Guochen, a research assistant at the First Research Institute of the China Institute of Economic Research, holds a more pessimistic view on the current situation. He told Dajiyuan that the decline in loans reflects multi-dimensional issues: low corporate investment willingness leading to insufficient demand for commercial loans; subdued public willingness to purchase houses making it difficult to distribute real estate loans; although there are policy incentives for consumer loans, the overall scale remains insignificant.
He stated that the demand for loans is continuously decreasing among both the rich and the poor, indicating a general lack of economic confidence among the public.
Wang Guochen described the current economic situation as “dead,” using an electrocardiogram analogy: “What you see now, whether it’s loans or even deposits, is approaching zero. So, their various lines of investments and consumption, the PMI, almost every line is starting to move towards zero, moving toward the origin point, and each line is getting flatter, just like that death line.”
He believes this indicates that the overall economic activity of the country is “trending towards stagnation or standstill.”
Experts are generally cautious in their assessments of the future of China’s economy. Sun Guoxiang stressed that with the rise in non-performing loan ratios and deteriorating asset quality, “the slowdown in loans may become the norm, affecting macro liquidity management and financial stability.”
Wang Guochen, on the other hand, made a more pessimistic judgment. He stated that many research institutions, such as the Hudson Institute, are already exploring how the world should respond to the collapse of the Chinese economy, implying that “everyone is already planning for the aftermath of the CCP.” He believes that China may face a more severe challenge than Japan’s “lost two decades,” and even the unexpected collapse similar to the “Soviet model” cannot be ruled out.