China credit growth misses estimates amid weakening loan demand

China’s aggregate financing to the real economy (AFRE) missed expectations through August, totaling CNY23.91 trillion against an estimated CNY24.372 trillion. This shortfall of approximately CNY460 billion highlights a continuing trend of weakening loan demand. New yuan loans for August reached RMB 300 billion, falling short of the RMB 404 billion consensus.

While private-sector borrowing has retreated, government bond issuance has increased, acting as a primary driver for total financing flows. The growth rate of the financing stock has recently outpaced nominal GDP growth.

The slowdown in Chinese credit demand is impacting global commodities, specifically iron ore. As Chinese demand is projected to fall by 3% annually for the foreseeable future, iron ore prices face downward pressure. This is compounded by increased supply capacity from Australian mining operations, such as the Pilbara region, which is expected to see significant ramp-ups in locomotive traffic and port delivery through 2027 and 2028.