Pan Gongsheng: Slower but Higher-Quality Lending to Become the New Macroeconomic Normal
nashnova research
Why is loan growth slowing at the root?
Outstanding loans exceed RMB 280 trillion. Real estate and local-government financing vehicles — LGFV, entities local governments set up to borrow for infrastructure — still account for a large share.
But both segments are shrinking, not growing. From 2025 through H1 2026, real-estate loan balances fell by more than RMB 2 trillion.
New-economy credit demand is not yet large enough to fill the gap. In plain terms = the old engine has stalled, and the new one has not scaled up enough to compensate.
Why does the new economy barely borrow from banks?
High-tech manufacturing and green technology contributed over 40% of economic growth in H1 2026, yet they rely on technology, data, and IP — not land and factories.
The data confirms it: the ratio of medium- and long-term loan balances to value-added in new-economy sectors is generally below 1; for information services it is roughly 0.1. This means → for every yuan of output these industries create, they need less than ten cents in bank term loans.
Early-stage tech firms depend mainly on private equity and venture capital; bank loans, bonds, and public equity come into play only at later stages.
Bond-plus-equity financing has overtaken loans — what does that signal?
In 2025, loans accounted for about 45% of new aggregate social financing, while bonds plus equity reached roughly 47% — exceeding loans for the first time. By end-June 2026, direct financing made up about one-third of total social financing stock.
This reflects a structural shift: China's financing mix is moving from bank-loan dominance toward a multi-channel system — and the PBOC is actively downgrading bank lending as the primary gauge of credit conditions.
Pan warned that excessive financial expansion can push up leverage, trap capital in speculative loops, and shield inefficient firms and overcapacity from exit. Slowing aggregate financing growth helps stabilize the leverage ratio after years of rapid debt buildup.
How is the monetary-policy framework changing?
The PBOC has issued its 15th Five-Year Reform and Development Plan. The core direction: de-emphasize quantity targets, strengthen price-based — i.e. interest-rate — transmission.
Aggregate financial indicators will be repositioned as "observational, reference, and expectational" gauges — no longer policy anchors. In plain terms = going forward, the test of PBOC policy effectiveness is how smoothly rates transmit, not how much lending gets pushed out.
August new yuan loans came in at just RMB 60 billion, still below expectations. This means → persistently weak credit data may accelerate the market's re-pricing of this framework shift.
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