PBOC governor: Slower credit growth reflects economic upgrading

Slower growth in China's aggregate financing helps keep the macro leverage ratio broadly stable, while moderating loan growth reflects economic restructuring and upgrading, China's central bank governor said, signaling how markets should expect and interpret future financing data.

"Maintaining past growth rates in overall lending would be both difficult and unnecessary," Pan Gongsheng, governor of the People's Bank of China, said in a signed article published in Qiushi Journal on Wednesday.

According to Pan, financing growth naturally moderates as outstanding balances expand, consistent with China's changing development stage.

Over the past years, stronger countercyclical policies increased debt, while low prices weighed on nominal economic growth, pushing up China's macro leverage ratio, Pan said. He cautioned against financing growth exceeding the real economy's needs, leaving funds idle, further increasing leverage and hindering the exit of outdated capacity and inefficient businesses.

"The slowdown in the growth of financial aggregates helps maintain the macro leverage ratio generally stable," Pan added.

The National Institution for Finance & Development said China's macro leverage ratio fell 1.1 percentage points to 308.2 percent in the second quarter, its first quarterly decline since 2022, helped by recovery in nominal GDP growth.

Meanwhile, slower but higher-quality lending may become the new normal, Pan said. Declining property and local government financing vehicle loans offset growth elsewhere, while emerging industries require less credit relative to their output.

Financial markets also offer alternatives for financing innovative industries, meaning loan growth alone cannot gauge financial support for the economy. Direct financing accounted for roughly one-third of outstanding aggregate social financing at the end of June, he said.

The comments followed data showing aggregate social financing growth eased to 7.2 percent in August from 7.4 percent in July, while medium- to long-term household loans contracted.

During the 15th Five-Year Plan (2026-30) period, the central bank will lessen emphasis on quantitative targets, particularly lending, and strengthen interest rate mechanisms, Pan said.

The PBOC will also improve financial market connectivity, prudently develop interest rate and foreign exchange derivatives, and build a cross-border payment system with multiple channels and broad coverage, he added.