China's Credit Expansion Stalls as Borrowing Demand Remains Muted

China’s credit growth faced a significant setback in October, with new bank loans shrinking for the third time this year. Despite proactive efforts from Beijing to bolster the economy through targeted monetary support, the data reveals a persistent reluctance among households and businesses to take on new debt. According to calculations based on People's Bank of China figures, new yuan loans fell by 100 billion yuan, missing market expectations that had anticipated a modest increase.

The downturn was broad-based, affecting both major sectors of the economy. Household borrowing, which encompasses mortgage activity, saw a notable decline of 430 billion yuan. Simultaneously, corporate lending contracted by 160 billion yuan, a sharp reversal from the previous month's performance. Analysts note that while October is historically a slower period for lending due to seasonal factors and the national holiday, the scale of this contraction underscores a deeper issue regarding weak credit demand.

This trend of subdued borrowing persists even as policymakers maintain an accommodative stance. While the central bank has pledged to adjust monetary tools to support growth, the effectiveness of these measures is currently limited by cautious sentiment. Businesses remain hesitant to invest amid economic uncertainty, and households continue to prioritize debt repayment over new consumption or property investment.

Looking ahead, the broader credit landscape remains heavily reliant on government bond issuance to maintain momentum. While the economy is on track to meet its annual growth targets, the reliance on state-led financing rather than private sector expansion highlights the structural challenges facing the nation. With outstanding yuan loan growth hitting a record low of 4.7 percent, the central bank faces the difficult task of balancing economic stability with the reality of a cooling appetite for credit.