CICC: Weak loans, declining social financing, favorable for bonds

Event

On September 12, 2025, the central bank announced the financial data for August 2025. In August 2025, RMB loans increased by 590 billion yuan, a year-on-year decrease of 310 billion yuan; the social financing increment in August was 25,693 billion yuan, a year-on-year decrease of 463 billion yuan, and the year-on-year growth rate of social financing balance dropped from 9.0% in July to 8.8%; the year-on-year growth rate of M1 in August was 6.0%, and M2 was 8.8%.

Comment

The financial data for August showed weak performance, especially with a significant year-on-year decrease in real credit. Government bond financing's support for social financing weakened, and the year-on-year growth rate of social financing balance turned downward. In terms of credit, new RMB loans in August were 590 billion yuan, a year-on-year decrease of 310 billion yuan, with both household and corporate loans remaining weak, particularly with bill financing showing a year-on-year decrease of 492 billion yuan.

Regarding social financing, the increment in August was 25,693 billion yuan, a year-on-year decrease of 463 billion yuan, and the year-on-year growth rate of social financing balance dropped from 9.0% in July to 8.8%. The year-on-year decrease in real credit issuance continued in August, coupled with a year-on-year decrease in government bond financing, leading to a significant year-on-year decrease in social financing and a downward shift in the year-on-year growth rate of social financing balance.

In terms of currency, RMB deposits increased by 2,060 billion yuan in August, a year-on-year decrease of 160 billion yuan, with the year-on-year balance of RMB deposits dropping from 8.7% to 8.6%. Although household deposits showed a year-on-year decrease in August, non-bank deposits maintained rapid growth, providing overall support for RMB deposits. The year-on-year growth rate of M1 rose from 5.6% in July to 6.0% in August, with the low base continuing to drive the recovery of M1 year-on-year. M2 remained flat at 8.8% year-on-year compared to July, with non-bank deposits still being an important support factor.

Since the fourth quarter of last year, fiscal policy has been continuously strengthened, with government bond financing maintaining rapid growth. The year-on-year balance of government bonds rose from 15.2% in October last year to 21.1% in July this year. Against the backdrop of continued weakness in private sector financing, this effectively supported the improvement of social financing, with the year-on-year balance of social financing rising from 7.8% in October last year to 9.0% in July this year.

However, the total scale of new debt arranged in this year's budget has limited year-on-year growth, as previous fiscal policy efforts have overdrawn budget arrangements. In August, government bond financing began to show a year-on-year decrease, dragging down the year-on-year growth rate of social financing balance. After September, high base factors may become more apparent, and the year-on-year growth rate of social financing balance still faces downward pressure.

While the growth rates of credit and financing are slowing, the growth rates of deposits and broad money remain stable, and the gap between the year-on-year growth rates of social financing balance and M2 may continue to decline, which is conducive to a decrease in bond yields. The stock market remained strong in August, while the bond market continued to be disturbed. However, considering the weak economic fundamentals and the possibility that the central bank may accelerate monetary easing following the Federal Reserve's interest rate cuts in September, we believe that the downward trend in bond yields has not changed, and the adjustments caused by stock market disturbances are rather good entry opportunities. We remain optimistic about the domestic bond market and suggest that investors pay attention to trading opportunities arising from recent adjustments

I. Loan Growth Rate Continues to Decline, Weak Recovery in Real Credit Demand

In August, the growth rate of RMB loans further declined to 6.8% (from 6.9% last month), with an increase of 590 billion yuan for the month, a year-on-year decrease of 310 billion yuan. The main drag came from bill financing, which saw a year-on-year decrease of 492 billion yuan. However, corporate short-term loans contributed an increase of 260 billion yuan year-on-year, resulting in a combined year-on-year drag on RMB loans of 232 billion yuan.

Other sub-items also performed relatively poorly. In August, household loans increased by 30.3 billion yuan, a year-on-year decrease of 159.7 billion yuan, with short-term and medium-to-long-term loans increasing by 10.5 billion yuan and 20 billion yuan, respectively, year-on-year decreases of 61.1 billion yuan and 100 billion yuan, reflecting insufficient loan demand for consumption and mortgages in the household sector. Corporate loans increased by 590 billion yuan, a year-on-year decrease of 250 billion yuan. Aside from the aforementioned bill financing and short-term loans, medium-to-long-term loans increased by 470 billion yuan, a year-on-year decrease of 20 billion yuan, with the rate of decline narrowing. Attention should be paid to whether corporate medium-to-long-term loan issuance will stabilize further.

Overall, credit in August continued to show weak growth, and the willingness of households and enterprises to leverage remains relatively insufficient. We do not rule out the possibility of further policy measures being introduced, including boosting confidence and expectations in the real economy through income and employment initiatives, to stimulate a recovery in effective financing demand. There is also still some room for monetary policy easing, especially considering the market's significantly strengthened expectations for a rate cut by the Federal Reserve in September. If the Federal Reserve implements a substantial rate cut this month, the external constraints on China's monetary policy turning to easing will also weaken accordingly.

II. Government Bond Financing Decreased Year-on-Year, Growth Rate of Social Financing Balance Declined

In August, the increment of social financing was 25,693 billion yuan, a year-on-year decrease of 463 billion yuan. The year-on-year growth rate of the social financing balance fell from 9.0% in July to 8.8%. The year-on-year decrease in real credit issuance continued in August, coupled with a year-on-year decrease in government bond financing, leading to a significant year-on-year decline in social financing and a downward shift in the social financing balance.

Specifically, in August, net financing from government bonds was 13,658 billion yuan, a year-on-year decrease of 2,519 billion yuan. The absolute scale of government bond issuance remains large; however, it has shifted from an increase to a decrease year-on-year, weakening the support of government bond financing for social financing. In August, domestic real credit increased by 6,233 billion yuan, a year-on-year decrease of 4,178 billion yuan, further increasing the drag of credit on social financing. Combined with limited year-on-year changes in other sub-items, the social financing data in August reflects insufficient real financing demand.

Looking ahead, there are no significant signs of improvement in private sector financing. Previous fiscal overspending has limited the growth of government bond issuance, and since September last year, the base for government bond financing has been relatively high. The support of government bond financing for social financing may continue to weaken, and we expect the year-on-year balance of social financing to still face downward pressure after September.

III. Strong Stock Market Supports Non-Bank Deposit Growth, RMB Deposit Growth Rate Remains High

In August, RMB deposits increased by 2,060 billion yuan, a year-on-year decrease of 160 billion yuan, with the year-on-year balance of RMB deposits falling from 8.7% to 8.6%. In August, household deposits decreased year-on-year; however, non-bank deposits maintained rapid growth, providing overall support for RMB deposits Specifically, in August, household deposits increased by 110 billion yuan, a year-on-year decrease of 600 billion yuan, indicating relatively weak growth in household deposits; non-bank deposits increased by 1.18 trillion yuan in August, a year-on-year increase of 550 billion yuan. The stock market remained strong in August, coupled with low deposit rates, leading households to continue reducing deposits while increasing other investments; corporate deposits increased by 299.7 billion yuan in August, a year-on-year decrease of 50.3 billion yuan, reflecting insufficient vitality in the real economy and a slowdown in monetary creation, resulting in slow growth in corporate deposits; fiscal deposits increased by 190 billion yuan in August, a year-on-year decrease of 368.7 billion yuan, with a faster pace of fiscal injection against the backdrop of weak private sector demand.

In August, M1 increased year-on-year from 5.6% in July to 6.0%, with a low base continuing to drive the year-on-year rebound of M1. M2 remained flat year-on-year at 8.8% in August, with non-bank deposits still being an important supporting force. In the short term, a strong stock market is favorable for the growth of non-bank deposits, and we expect the growth rate of broad money to remain stable.

Chart 1: Year-on-year growth of government bonds slows down

Note: Data as of August 2025

Source: People's Bank of China, Wind, CICC Research Department

Chart 2: Year-on-year growth rate of government bond balance declines from a high level

Note: Data as of August 2025

Source: People's Bank of China, Wind, CICC Research Department

Chart 3: Year-on-year difference between social financing balance and M2 year-on-year growth tends to decline

Note: Data as of August 2025 Source: People's Bank of China, Wind, CICC Research Department

Risk: Monetary policy easing may be less than expected.

Author of this article: Fan Yangyang, Dongxu, Source: CICC Fixed Income Research, Original title: "【CICC Fixed Income】Weak Loans, Falling Social Financing, Positive for Bonds - August Financial Data Review."

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