China’s Central Bank Pushes Banks to Boost Lending amid Slowing Domestic Demand

The People’s Bank of China (PBOC) has reportedly instructed major state-owned banks to increase lending this month, signaling Beijing’s urgent efforts to support an economy grappling with weakening domestic demand.

According to sources familiar with the matter, the guidance, issued last week, comes after a sharp and unexpected decline in new loans in April, marking the first contraction in nine months. The slowdown has been particularly pronounced in consumer and corporate credit, reflecting weak appetite for borrowing despite historically low interest rates.

Monthly credit data in China serve as a key indicator of economic activity in the world’s second-largest economy. Analysts note that April’s drop in yuan-denominated loans, influenced by seasonal factors and subdued household borrowing, underscored the fragility of current economic momentum.

Although China’s economy grew 5% in the first quarter, at the upper limit of Beijing’s annual target range of 4.5%–5%, early signs in the second quarter point to deceleration. Persistent weakness in the property market continues to undermine growth, while external pressures, such as rising energy costs amid ongoing U.S.-Israel-Iran tensions, add further risk.

Consumer confidence has been dampened by the prolonged slump in housing, while cautious private sector investment has further constrained demand for credit across the economy. Policymakers are attempting to shift support from traditional infrastructure and real estate to technology and clean energy sectors, but demand in these new areas has yet to offset the broader slowdown in lending.

Adding to the challenge, banks have tightened lending standards for small and medium-sized private enterprises and households, even restricting credit for borrowers with no history of default, according to Xiaoxi Chang of Javelin Dragonomics. “Regulators want banks to expand consumer lending, but they also want them to maintain risk management controls, which remains a priority,” Chang said.

Some banks have turned to short-term commercial bonds to meet lending targets, compensating for weak demand from the real economy. However, economists do not expect the PBOC to accelerate broader monetary easing soon, citing ongoing inflationary pressures and the need to balance stimulus with financial stability.