Trump's tariffs drag Chinese loan growth lower in April
Beijing's campaign to defuse local government debt risk also hits Chinese lending.
In this briefing:
China's loan growth slides in April, contracting 450 billion yuan compared to the same period last year.
Trump’s Liberation Day tariffs play a major role in undermining loan growth.
Beijing's efforts to defuse local government debt risk are also a factor.
Household lending has contracted, as China's property market remains enervated.
Chinese regulators are also cracking down on risk in relation to consumer loans.
Aggregate financing levels have risen, however, due to gains in net government financing and corporate bond issues.
"Optimisation" of China's credit structure considered a key bright point for April.
Loan and credit growth expected to improve on Chinese central bank's interest rate and reserve ratio cuts, as well as structured monetary policy measures.
China's loan growth weakened in April, on the back of Trump's Liberation Day tariffs, as well as Beijing's ongoing efforts to defuse risk in relation to local government debt.
Renminbi loans increased 280 billion yuan in April, 450 billion yuan less than the figure of 730 billion yuan for the same period last year, according to data from the Chinese central bank.
The April print marks a plunge compared to 3.64 trillion yuan in March, and falls far short of consensus expectations of 700 billion yuan.
The renminbi loan growth rate was 7.2% at the end of April, for a 0.2 percentage point decline compared to March.
Liberation Day tariffs hit Chinese loan growth
Wen Bin (温彬), chief economist at China Minsheng Bank, says the shock of Trump's Liberation Day tariffs was one of several factors contributing to the weak print for Chinese lending in April.
"Upon entering April, global economic and trade frictions expanded, and domestic and overseas uncertainty increased," Wen wrote (“温彬：如何看待4月信贷增长及后续宽信用进程”).
"This formed disruptions for market expectations and export growth...the pace of credit growth slackened for foreign trade enterprises, both the upstream and downstream of the industrial chain, as well as households."
In April, loans to enterprises and public institutions increased 610 billion yuan - 250 billion yuan less than the increase for the same period last year.
Short-term loans fell -480 billion yuan, while medium and long-term loans increased 250 billion yuan, and bills financing 834.1 billion, for declines of -70 billion yuan, -160 billion yuan and -4 billion yuan respectively compared to the same period last year.
Beijing's campaign to defuse local government debt risk also undermines lending
China's efforts to defuse local government debt risk was another major factor behind the lending slump in April.
Wen notes that China has accelerated its efforts to dissolve local government debt since last year.
This is due to concerns over systemic risk implications, as well as the need to shore up the role of local governments in China's fiscal stimulus campaign.
From Q4 2024 until April, China has seen the issuance of 3.6 trillion yuan in special purpose refinancing bonds for dissolving local government debt.
These have been used to swap out around 2.1 trillion yuan in bank loans taken out by regional authorities.
According to Wen, if China's debt dismantling campaign is excluded, then renminbi loans at the end of April maintained a comparatively high growth rate of over 8%.
Household loans contract as China's property market continues to struggle
April saw household loans contract 521.6 billion yuan - 5 billion yuan more than the decline for the same period last year.
Short-term loans fell 401.9 billion yuan, while medium and long-term loans contracted 123.1 billion yuan.
Wen points to the ongoing weakness in home sales and consumer demand as key culprits for the contraction in household loans.
"New home sales have marginally declined, and when you add to this the need for continued stimulation of consumer demand, household [loan] growth slackened in April."
Sales by China's top 100 real estate companies in April fell 10.4% on month and 8.7% compared to the same period last year, according to figures from CRIC (克而瑞).
The China Index Academy's data paints an even more dire portrait of the housing market. Its figures indicate the top 100 enterprises saw sales fall 16.9% compared to the same period last year, further expanding the pace of decline compared to March.
Regulators crack down on consumer loan risk
Weakness in consumer lending was another key culprit behind the contraction in short-term household lending.
Wen notes that this weakness arrives despite Beijing focus on expanding domestic demand and "vigorously spurring consumption."
A key issue may lie with recent hikes to consumer loan rates enforced by Chinese regulators, the purpose of forestalling risk.
"In April, policies to spur consumption and stabilise growth continued, with vehicle sales posting a sizeable increase of almost 10%," Wen notes.
"However, starting from April, commercial banks hiked their rates for consumer loan products to 3% and higher, to reduce a rise in potential risk.
"The volume of consumer lending thus fell back."
Xue Hongyan (薛洪言), deputy-head of the Xingtu Financial Research Institute, has referred to consumer loans as a potential "disaster zone" for bad debt in the Chinese banking system, due to their conspicuously high non-performance rates.
Aggregate financing rises despite weak loan growth
Aggregate financing to the real economy - a broad measure of credit extension in the Chinese economy - saw robust growth in April, despite weakness in renminbi lending.
New aggregate financing was 1.16 trillion in April, for sizable expansion of 1.22 trillion yuan compared to the same period last year. In April, growth in aggregate financing accelerated 0.3 percentage points on the previous month to hit 8.7%.
Low base effects played a key role here, with aggregate financing posting a negative growth print in April last year.
Wen also highlights the role of increased fiscal spending and corporate bond issuance in driving aggregate financing higher.
Net financing by the Chinese government leaps
April saw net government financing come in at 976.2 billion yuan, for an increase of 1.07 trillion yuan compared to the same period last year.
The strong figures arrive following Beijing's call for "more active" fiscal policy at its Central Economic Work Conference in December.
On 17 April, the Ministry of Finance announced arrangements for the issuance of 1.3 trillion yuan in ultra-long-term special treasuries, with the first issue scheduled for 24 April.
The pace of Treasury issuance accelerated in the first quarter of 2025, coming in at 3.3 trillion yuan, for net financing of 1.5 trillion yuan.
Special-purpose local bond issuance also accelerated, with 2.8 trillion yuan of issues in the first quarter, for net financing of 2.6 trillion yuan.
April also saw a 234 billion yuan increase in corporate bond financing, for an expansion of 63.3 billion compared to the same period last year, providing another firm support for China's total credit growth.
China's credit structure "further optimises"
Wen highlights "optimisation" of China's credit structure as one of the bright spots for April, despite lacklustre growth in renminbi lending.
This is embodied by gains in the share of lending to manufacturing and consumer sectors, as well as declines in credit supply for the real estate sector.
From 2020 to Q1 2025, the manufacturing sector's share of medium and long-term loans rose from 5.1% to 9.3%, while consumption-related sectors saw their shares increase from 9.6% to 11.2%.
At the same time, the share of lending to traditional real estate and construction fell from 15.9% to 13%.
"This indicates that the economic transition towards new quality productive forces and vigorous stimulus of domestic consumer demand has obtained greater support in terms of financial resources," Wen Bin wrote.
The shifts arrive just as the Chinese central bank signals greater use of structured monetary policy tools to channel more credit to priority sectors of the economy.
The outlook ahead
Despite the weak loan print for April, Wen Bin expects growth in lending to improve in the near term.
He points in particular to the raft of monetary policy measures unveiled by the Chinese central bank on 7 May, including:
A 10 basis point reduction to the short-term policy interest rate, which will drive reductions to China's benchmark loan prime rate (LPR).
A 0.5 percentage point reduction to the required reserve ratio, which will provide around one trillion yuan in long-term liquidity.
An increase in the quota for structured monetary policy tools of 1.1 trillion yuan, as well as a 25 basis point reduction in rates for selected instruments.
Wen highlights the role of structured monetary policy tools in guiding credit to priority areas of the Chinese economy.
"This will strengthen the stimulus role of structured instrument policies, guiding financial institutions to expand their support for areas including science and technology innovation, services consumption, micro-and-small private enterprise, support for agriculture and small business, capital markets and real estate."