China's New Bank Loans Plummet Amid Trade War, Economic Uncertainty

China’s new bank lending fell sharply in February, dropping to 1.01 trillion yuan ($139.62 billion), the lowest February level since 2020. This steep decline follows January’s record 5.13 trillion yuan, highlighting growing economic concerns despite Beijing’s efforts to stimulate growth. Analysts had predicted a drop to 1.275 trillion yuan, but the actual figure was weaker than expected.

The decline comes amid escalating U.S.-China trade tensions, with both nations imposing new tariffs. Washington’s additional 10% levy on Chinese imports took effect on March 4, prompting Beijing to retaliate with higher tariffs on $21 billion worth of American goods. The ongoing trade war adds further pressure to an already struggling economy facing sluggish domestic demand, persistent deflation, and a prolonged property market downturn.

Household loans, including mortgages, contracted by 389.1 billion yuan, reversing January’s 443.8 billion yuan rise. Corporate loans also tumbled to 1.04 trillion yuan from 4.78 trillion yuan. In total, new loans for January and February reached 6.14 trillion yuan, slightly down from last year’s 6.37 trillion yuan.

Despite weak bank lending, non-bank credit showed stronger growth, supported by increased government bond issuance. The People’s Bank of China (PBOC) reaffirmed its commitment to cutting interest rates and reducing reserve requirements for banks to inject liquidity. Meanwhile, financial regulators urged banks to ease consumer credit quotas and loan terms to boost spending.

With outstanding yuan loans rising just 7.3% year-over-year—the slowest pace on record—China’s economy faces mounting challenges in reaching its 5% growth target. The government remains focused on fiscal stimulus, but the combination of weak lending, trade war tensions, and economic headwinds suggests a tough road ahead.