China’s Direct Funding Boosts Social Financing Amid Low Household Demand

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China’s total social financing reached CNY35.6 trillion (USD5.11 trillion) last year, driven significantly by an increase in government and corporate bond issuance. Despite this growth, a widening gap between M2 and M1 suggests that private sector demand remains sluggish, and money circulation is weak, according to data from the central bank.

The expansion in new social financing, up CNY3.34 trillion (USD479.4 billion) from the previous year, mainly stemmed from strong direct financing activities. Net government bond funding hit CNY13.84 trillion, representing an increase of CNY2.54 trillion, while non-financial enterprise bond financing rose by CNY482.5 billion to CNY2.39 trillion, stated a senior official at the central bank’s statistics department.

Financing through stocks by non-financial firms also increased, reaching CNY476.3 billion—up CNY186.3 billion—supported by policies aimed at stabilizing the capital market and investor sentiment.

Government Borrowing Leads, Households Fall Behind

Overall, last year’s social financing pattern was characterized by robust government demand, steady enterprise financing, but weak household activity, according to industry analysts. They noted that China continues to operate within a policy cycle that features heightened fiscal support and active monetary cooperation—a trend expected to persist this year.

Maintaining a proactive fiscal stance will help sustain necessary fiscal deficits and manage overall debt levels, analysts said. The fiscal deficit is projected to stay between 4% and 4.2%, with government debt issuance possibly increasing to CNY13 trillion to keep supporting social financing.

December saw new yuan-denominated loans totaling CNY910 billion, down CNY80 billion (USD11.5 billion) from the previous year. For the entire year, new loans amounted to CNY16.27 trillion, a decline of CNY1.82 trillion from 2021, according to the central bank.

The decline in new lending is primarily linked to ongoing weakness in the property sector and tepid investment and consumption, which dampen credit demand from enterprises and households, explained a leading macro analyst.

Money Supply Growth Picks Up Pace

At the close of last year, the broad money supply, M2, stood at CNY340.29 trillion (USD48.85 trillion)—growing 8.5% year-on-year, slightly faster than the previous month. Meanwhile, M1, representing more liquid forms of money, was CNY115.51 trillion, up 3.8% from the previous year but slightly lower than last month.

The faster M2 growth in December was mainly driven by government bond issuance being converted into deposits among enterprises and households through fiscal spending. Additionally, the full deployment of CNY500 billion in policy-based financial tools in October supported large-scale lending in December and increased deposit creation.

Persistent weakness in the property market along with subdued consumption and investment demand continues to challenge the growth of M1 and contributes to the widening M2-M1 gap, highlighting the need for macroeconomic policies to further boost domestic demand.

Looking ahead, analysts project total social financing to reach approximately CNY38 trillion this year, with government bond issuance maintaining rapid growth. New yuan loans are expected to be around CNY18 trillion, and M2 growth is forecast to be approximately 8.3% year-on-year.