China's new yuan loans contracted in July for the second time this year, underscoring how fragile domestic credit demand remains even as the banking system sits on ample liquidity. The People's Bank of China has yet to release the official July figure, but the contraction marks a rare repeat of the pattern seen in July 2025, when new loans fell by 50 billion yuan for the first monthly decline in two decades.
Total RMB loan balances stood at 282.63 trillion yuan at the end of June, up 5.2% from a year earlier, with first-half new loans reaching 10.72 trillion yuan. Yet the flow data tells a different story. Banks extended 1.61 trillion yuan in new loans in June, a sharp pickup from May's 520 billion yuan but still short of the 1.95 trillion yuan economists had expected. The shortfall appeared even as lenders rushed to meet quarter-end targets, pushing commercial-bill rediscount rates briefly to 0.01% before regulators imposed a 0.5% floor.
Forecasts for July have been unusually dispersed. DBS Group Research projected new yuan loans of just 10.8 billion yuan, while a Caixin survey of eight institutions averaged 126 billion yuan, with half of respondents seeing the figure below 100 billion yuan. A separate brokerage estimate ranged from zero to 500 billion yuan. The wide spread reflects genuine uncertainty about whether the rebound will be driven by seasonal arithmetic — July 2025 saw a 50 billion yuan contraction — or by a genuine pickup in borrowing appetite.