Domestic credit in May still needs recovery, as China's economy is in a period of parallel old and new growth drivers --- W24 Domestic Macro Distillation

Domestic credit in May still needs recovery, as China's economy is in a period of parallel old and new growth drivers --- W24 Domestic Macro Distillation

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  1. Domestic loans increased by 520 billion yuan in May, surpassing expectations, but less than last year, with resident loans decreasing and corporate loans increasing. Government bonds dragged down aggregate financing, while corporate bonds and stocks filled the gap. M1 rebounded to 5.5%, M2 remained at 8.6%, resident deposits decreased, and funds continued to move toward non-bank sectors.
  2. China's economy is in a phase of parallel old and new growth drivers. New drivers are growing fast but their share remains low, while old drivers are slowing, dragging on investment and employment. Once the transition is completed, new drivers will comprehensively support production, investment, exports, employment, income, profits, and taxes.

I. Domestic Credit in May Still Needs Recovery

Domestic Credit in May Still Needs Recovery (Huatai)

Huatai noted that domestic loans increased by 520 billion yuan in May, exceeding expectations but less than last year, with resident loans decreasing and corporate loans increasing. Government bonds dragged down aggregate financing, while corporate bonds and stocks filled the gap. M1 rebounded to 5.5%, M2 remained at 8.6%, resident deposits decreased, and funds continued to move toward non-bank sectors.

  1. Domestic new loans in May reached 520 billion yuan, expected 422.7 billion yuan, 100 billion yuan less year-on-year, stock year-on-year growth rate 5.5%.
    • Resident loans decreased by 141.2 billion yuan, corporate loans increased by 110 billion yuan year-on-year.
    • Real estate transactions saw marginal recovery in May, but transmission to mortgage loans was less efficient than expected, and consumer credit demand was also weak.
  2. Government bonds drag, corporate bonds and stocks support.
    • Direct financing in May was 1.42 trillion yuan, 199.8 billion yuan less year-on-year.
    • Among them, government bond financing was 1.22 trillion yuan, 236.2 billion yuan less year-on-year, mainly affected by last year's base, and is the main drag on aggregate financing.
    • Corporate bond financing and non-financial enterprise domestic stock financing increased year-on-year.
  3. M1 growth rate slightly rebounded, resident deposits continued to decrease.
    • M1 and M2 year-on-year growth rates in May were +5.5% and +8.6%, up 0.5 percentage points and flat from last month, respectively.
    • Resident deposits decreased by 580 billion yuan year-on-year, the main drag on deposit growth.

Against the backdrop of falling deposit interest rates, resident assets continue to move toward wealth management, insurance, stock market and other non-bank areas.

II. China’s Economy Is in the Parallel Phase of Old and New Drivers

China’s Economy Is in the Parallel Phase of Old and New Drivers (Yuekai)

Yuekai pointed out that China’s economy is in a phase of parallel old and new growth drivers. New drivers are growing fast but their share remains low, while old drivers are slowing, dragging on investment and employment. Once the transition is completed, new drivers will comprehensively support production, investment, exports, employment, income, profits, and taxes.

  1. Currently, China's economy is in the parallel phase of old and new growth drivers.
    • New drivers are growing rapidly and clearly outperform, but old drivers have a large stock and strong spillover effects, and new drivers have not yet replaced old drivers to become the leading force.
    • When the transition between old and new drivers is completed in the future, new drivers will not only outperform in production, investment, and exports, but also support employment, resident income, corporate profits, and tax contributions.
  2. New drivers' growth accelerates but share remains low; adjustment of old drivers drags on investment and employment.
    • On the production side, new drivers' growth accelerated from 5.8% in 2023-2025 to 6.4%, while old drivers slowed from 3.6% to 3.0%.
    • On the investment side, high-tech industry investment growth consistently outperforms overall, while real estate and infrastructure investment fell from the peak of 48.2% in 2020 to 39.2%, but the scale is still large, dragging overall investment.
    • On the export side, new drivers’ export growth outpaces total exports and old drivers.

On the employment side, from 2013-2023, employment in new driver industries increased by 25.39 million, rising to a share of 19.4%, while old driver industries decreased by 10.91 million, falling to a share of 35.5%.

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