China's slower loan growth is the new normal, says central bank governor

China's central bank governor, Pan Gongsheng, has said slower loan growth is becoming a new normal for the world's second-largest economy, as shrinking property and local government sectors reduce credit demand faster than emerging industries can replace it.

The remarks, published on Wednesday in the Communist Party's flagship theoretical journal Qiushi, followed data showing that new loans rebounded in August from a record contraction in July but still fell short of analyst forecasts, with weak demand from households and businesses continuing to weigh on credit expansion.

"Slower but higher-quality loan growth is likely to become one of the new normal features of macroeconomic operations," Pan wrote, adding that maintaining previous rates of overall credit growth would be difficult and unnecessary.

He attributed the shift to structural changes in the economy. Lending to the property sector and local government financing vehicles is contracting, while new industries are not yet able to fully offset the decline. A large share of China's outstanding loans, which exceed 280 trillion yuan, is tied to these shrinking sectors.

By contrast, fast-growing areas such as high-tech manufacturing and green technology, which accounted for more than 40% of economic growth in the first half of 2026, depend more on technology, data and intellectual property than on land and factories, making them less reliant on bank credit.

Pan said financing conditions remain relatively accommodative and that effective borrowing needs are still being met. The central bank has increasingly played down bank loans as the primary gauge of credit conditions, pointing to a more diversified financial system in which bond issuance and other channels play a growing role.

In 2025, loans accounted for 45% of the increase in total social financing, while bond and equity financing combined made up 47%, surpassing loans for the first time, according to the central bank.

Pan also said slower growth in aggregate financing would help stabilise leverage after years of rapid debt accumulation. He warned that excessive financial expansion could inflate leverage, trap funds in speculative circulation and delay the exit of inefficient firms and excess capacity, undermining economic efficiency.