New loans in July record net decrease of 34 billion yuan: Beijing repeatedly demands to "expand domestic demand", but residents and are voting with their feet

A set of financial data released on August 14 put together several long-standing issues in the Chinese economy that have been dealt with separately in policy languages: falling interest rates, official demands to expand domestic demand, continued local investment, while residents and simultaneously reduced borrowing.

According to the data calculated by the People's Bank of China, China's new yuan loan net decreased 3400 billion yuan in July, about $504 billion, the largest single-month decline since recorded, is also the second monthly contraction this year. The market previously expected not to decrease, but to add 450 billion yuan. The first seven months of new loans 10.38 trillion yuan, also lower than the same period last year 12.87 trillion yuan.

The first puzzle came from the residential sector. Residential loans fell $46.3 billion in July, including housing loans. Long-term adjustments to real estate, weak employment and income expectations, so that more and more households face low interest rates, the first thing to consider is not increasing leverage, but reducing debt. The interest rate can be lowered by the central bank, but whether a family is willing to back up its twenty-three-year debt, ultimately depends on its judgment of future income and asset prices.

The second block comes from enterprises.In July, corporate loans decreased by 130 billion yuan, while in June they increased by 1.5 trillion yuan.Centralized investment by banks at the end of the quarter could explain some monthly fluctuations, but could not explain the constantly refreshing low points in the growth rate of the loan balance, as well as the continued weakness in the private sector’s financing willingness.Official data showed that manufacturing, service and construction activities simultaneously shrunk in July.

On August 12, the People's Bank of China said it would continue to implement a "moderate easing" monetary policy and launch new policy measures in time; the central level also continued to demand expansion of domestic demand and stable growth.But two days later the credit numbers showed that the financial system can provide funding, which is not equal to households and willing to take new long-term risks.

This leads Beijing to gradually shift the question of “do banks have money to lend” to “why society is not willing to borrow money”.When real estate wealth effect decreases, employment and income expectations are underestimated, and the private sector faces policy uncertainty, more administrative mobilization is also difficult to replace real confidence.

Economic governance under Xi’s rule increasingly emphasizes the Party’s centralized leadership in finance, industry and resource allocation, while demanding that society expand consumption and enterprises increase investment.There is a contradiction between these two logic sets that cannot be eliminated by slogans: investment and consumption first need to have stable expectations for the future, while the highly centralized policy system itself is increasing the difficulty of the private sector to judge future rules.

The negative growth of $34 billion is therefore not just a financial statistical table. It records an expanding expected decline between residents, and central policy objectives.When more and more people choose to repay debt instead of borrow money, what really needs to be explained is no longer “insufficient stimulus”, but why society’s confidence in the future is weak to low interest rates and it is difficult to restart credit expansion.