China's financial landscape experienced a notable shift last year, with the first annual decline in new loans since 2011. This downturn highlights the tepid demand for financing in an economy grappling with deflation and a sluggish housing market. According to data released by the People’s Bank of China, financial institutions extended 18.09 trillion yuan ($2.47 trillion) in new loans during 2024, marking the first yearly drop in over a decade. Aggregate financing, a broad indicator of credit availability, also saw a slowdown compared to previous years, reflecting a deceleration not seen since 2021.

A glimmer of hope emerged in December as Beijing's stimulus measures began to take effect. Both aggregate financing and new loan extensions reached their highest levels in three months, driven by accelerated government bond issuance and early signs of improvement in the housing sector. Senior strategist Zhaopeng Xing from Australia & New Zealand Banking Group noted that this rebound, fueled by robust government financing, is expected to continue into 2025, signaling a more proactive fiscal approach. However, underlying borrowing demand from households and businesses remained subdued throughout the year, with mortgage lending activity hitting its lowest point in over a decade.

The economic challenges faced by China underscore the need for comprehensive policy support to bolster domestic demand and mitigate external shocks. Policymakers must implement assertive measures to counteract the effects of potential US tariff hikes on export growth. The government has already ramped up bond issuance to stimulate overall credit and promised further interest rate cuts and long-term liquidity injections to encourage lending. Balancing growth support with currency stability remains a critical challenge for the People’s Bank of China. Despite these efforts, the road to recovery requires sustained commitment and strategic planning to ensure sustainable economic growth and resilience against global uncertainties.