August New Loans at 60 Billion—Worse Than During the Lockdown! Residents Won't Borrow, Enterprises Won't Invest, and Society Quietly Goes on Strike. Banks Pay 1.6% on Deposits to Buy 1.2% Government Bonds. Total Societal Interest Hits 14 Trillion—1.65 Times GDP Growth! Ponzi Financing and Sovereign Credit Are Clearing the Corpse of Private Credit

This article provides a detailed analysis of the financial data released by the People's Bank of China in August 2026. Through in-depth calculations of massive data regarding new loans, financing structures, interest expenditures, and early mortgage repayments, it points out that the private sector is facing severe "credit annihilation." The money borrowed by the private sector, after deducting interest and old debts, is almost zero, and the real effective credit increment of the entire society relies entirely on government debt. Meanwhile, the article criticizes the official and inside-the-system economists for whitewashing the data as "optimized financing structures" and "new quality productive forces filling the gap," revealing that China's economy is facing severe private demand contraction and deflationary pressure.

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Right on September 14, the People's Bank of China released the financial data for August. The newly added RMB loans nationwide in August were only 60 billion, while the market expectation previously was 404 billion—falling short of expectations by more than 360 billion, which is only 15% of the expected amount. In the first 8 months of this year, the newly added loans nationwide stood at 10.44 trillion, compared to 13.46 trillion in the same period of 2025, dropping by nearly 3 trillion in a year's time. Regarding the total financing aggregate of the entire society, the total social financing in August was 1.66 trillion, among which government bonds alone accounted to 1.01 trillion, plunging off a cliff by 35% year-on-year. All the growth came from government borrowing, while the corporate and residential sectors combined only brought in 60 billion, and the year-on-year growth rate of RMB loan balances dropped to 4.9%, the lowest figure since statistical records began.

In the past, counter-cyclical regulation was effective only when real estate easing was implemented alongside increased land acquisition and auctions, relaxed bank lending, and lower loan rates, following the real estate node. Because the real estate cycle still existed, people at that time still believed in the myth that housing prices would rise indefinitely. Now that the underlying economic structure is gone, the cycle is also gone, and there is no such thing as counter-cyclical adjustment. Even if interest rates are lowered to zero or even negative figures, it is fundamentally useless. In the first 8 months of this year, household loans accumulated a net decrease of 1.03 trillion, whereas in the same period of 2025, it was still a net increase of 711.1 billion. The profound issue we must discuss today is credit annihilation. What is credit annihilation? It is when the speed at which a country's private sector borrows new money begins to fail to keep up with the speed of repaying principal and interest. The 60 billion in August is not the scariest part at all; the scariest part is that the money borrowed by the private sector in this entire year, after combining interest payments and settling old debts, leaves a remainder of zero.

Let us first break down the August figures on a per capita basis. On the household side, loans in August decreased by 202.9 billion, and both short-term and long-term ends are sliding simultaneously. Short-term loans are generally consumer loans for residents, while for enterprises, they are operational loans. When real estate loans contracted over the past two years, banks used low-term consumer loans and operational loans as substitutes, so the short end was at least positive back then. Now, both ends are turning negative simultaneously, indicating that residents are not only refusing to buy houses, but even refusing to borrow money for turnover; individual businesses are not borrowing money to stock up on goods, and enterprises are not continuing to invest to do business. This is the hallmark of a silent strike by the entire society. In March 2022, during the Shanghai lockdown and the nationwide abnormal zero-COVID policy, the newly added loans for that month still reached 4.6 trillion. Even during the worst-performing lockdown periods when it was under 4 trillion, it was still over 600 billion. Yet now, it is surprisingly only 60 billion—one-tenth of that period. The average income of these two months in July and August this year without lockdown had an effect even worse than during lockdown; this is the entire society on a silent strike.

This will have a huge impact on the Chinese public, causing household balance sheets to contract from the asset side down to daily cash flow. At this point, even if banks want to use one side to supplement the other, there is nothing left to supplement. Short-term loans decreased by 121.9 billion, and medium-to-long-term loans decreased by 82.2 billion. According to the People's Bank of China's Q2 report on loan allocation, the balance of personal housing loans is 36.29 trillion, a year-on-year decrease of 3.8%. The six major banks saw their combined personal housing loan balances decrease by 508.6 billion in the first half of the year; in 2025, the total decrease for the whole year was only 711.5 billion, showing an accelerating contraction. The non-performing loan ratio for personal mortgages at the Industrial and Commercial Bank of China rose by 23 basis points to 1.29% in half a year, and the mortgage non-performing loan ratios of all six major banks are rising. The nonsense about transaction volumes warming up in Shenzhen is completely unfounded; even if all 60 billion in new loans were generated in Shenzhen, how many houses could that actually buy? Ordinary people are not taking out new mortgages now; not only are they not borrowing, they are paying off old mortgages early, and short-term consumer loans are also shrinking. The balance of consumer loans, excluding mortgages, is 20.83 trillion, a year-on-year decrease of 0.7%.

Things are no better on the corporate side. In August, corporate loans increased by 260 billion, with short-term loans decreasing by 160 billion and medium-to-long-term loans increasing by 320 billion; in August of last year, new medium-to-long-term loans were 470 billion. In a self-congratulatory CCP party article, the loan growth in the five major financial areas accounts for more than 70% of the total loan growth. The CCP has created a 'five major categories' concept, collectively referring to technology, green, inclusive, elderly care, and digital finance as the five major chapters. Once the CCP starts coining terms, what kind of money is being provided? It is all administrative, directive lending, accounting for 70%, which means less than 30% is actual credit demand arising from the market itself. In the first eight months, the net financing of corporate bonds was 2.79 trillion, 1.23 trillion more than the same period last year. These corporate bonds are essentially of the nature of local government financing platforms; in essence, local platforms have swapped loans for bonds—a swap, just exchanging them for IOUs with lower interest rates and longer terms, not new investment.

Aggregate financing is the total amount of financing obtained by the whole society from the financial system, including loans, bonds, and stocks. Aggregate financing in August was 1.66 trillion, with net government bond financing at 1.01 trillion, accounting for 60.8%. RMB loans issued to the real economy were only 60 billion, accounting for 3.6%. Sixty percent of the social financing in a single month is borrowed by the CCP government, while borrowing by enterprises and residents accounts for only a little over 3%. Deposits held by banks are being used to buy bonds. The trading structure in the first half of 2026 shows that large banks net sold 911.6 billion in ultra-long-term government bonds of over 20 years, and small and medium-sized banks also net sold 321.5 billion, while at the same time, small and medium-sized banks net purchased 1.98 trillion in short-term government bonds of under one year. The one-year government bond yield is around 1.2%, the listed one-year deposit rate for major banks is 0.95%, and the deposit cost for rural commercial banks is between 1.6% and 1.9%. Using deposits costing over 1.6% to buy 1.2% government bonds is a money-losing business. Because no one is willing to borrow for corporate loans, and banks are afraid to hold long-term bonds, this is the physical manifestation of an asset famine. Small and medium-sized banks will inevitably be dragged to death by this interest rate inversion. The bill financing rate has dropped to 0.94%, which is even lower than the 0.95% deposit rate; banks cannot even cover their deposit costs by discounting a bill. In the deposit structure of the first 8 months, non-financial corporate deposits only increased by 1.85 trillion, fiscal deposits increased by 2.06 trillion, and non-bank financial institution deposits increased by 6.32 trillion. Money has flowed from enterprises and residents into the national treasury and the securities market, and has not flowed into any real economic sector at all. The interbank lending rate is around 38%, and the overnight fund rate is 37%; money is just being churned between banks and cannot get out of the financial system.

Let us start calculating the total destruction of credit. The net increment of effective credit equals nominal new financing minus interest on existing debt, minus residents' early mortgage prepayments, minus the write-off and disposal of bad debts, and minus the limit losses caused by debt swaps and rollovers. Over a rolling 12-month period from September 2025 to August 2026, total social financing for the entire year of 2025 was 35.6 trillion, minus the 2.64 trillion year-on-year lesser increase in the first 8 months of 2026, equaling 32.96 trillion, roughly 33 trillion. Among this, government bonds accounted to 12.8 trillion, and the nominal new addition for the private sector was 20.2 trillion. The total stock of interest-bearing debt in the whole society: RMB loans totaled 278.6 trillion, government bonds 103.7 trillion, corporate bonds 36.7 trillion, commissioned trusts, bills, and foreign currency loans roughly 19 trillion, totaling 438 trillion. Stock loans are calculated at 3.4%, newly issued loans at 3.05%, stock mortgages after batch issuance in 2024 are around 3.2%, consumer and business loans 4% to 6%, with weighted calculation averaging around 3.4%. The Chinese Communist Party (CCP)'s debt cost: government bond coupon rates are roughly 2.4%, local government debt interest paid in the first 7 months was 897.7 billion, annualized at 1.54 trillion, divided by the 60 trillion statutory debt balance is approximately 2.72%, government bond stock coupons are about 2.3%, corporate bonds 3%, non-standard assets 5%, total annual interest expenditure for the whole society is about 14 trillion, ranging between 13.1 trillion and 15 trillion. The government sector accounts for 2.5 trillion, and the private sector 11.5 trillion. The rolling 12-month new credit volume for the whole society is 33 trillion; 14 divided by 33 equals 42%, meaning for every 100 RMB of new money borrowed in the whole society, 42 RMB is only enough to pay interest on old debts. For every 100 RMB borrowed by the private sector, 57 RMB goes toward paying interest. Comparing interest with the GDP boasted by the Chinese Communist Party (CCP), nominal GDP is 143.7 trillion, with a nominal growth rate of 5.9% in the second quarter, expanding the economic scale by only 8.5 trillion in a year. However, the 14 trillion in interest is 1.65 times the 8.5 trillion increment. Real growth is at most 1%, plus a 1.5% deflator, meaning nominal GDP will at most not exceed 8.5%, and interest is 3.9 times the increment. When an economy's annual nominal income cannot pay the interest on its existing debt, the gap can only be covered by borrowing new debt or living off past reserves. This is the textbook definition of Ponzi finance and also a Minsky moment.

Are residents not prepaying their mortgages? Personal housing loan balances decreased by 1.38 trillion in a year, with the Big Six banks seeing a net decrease of 508.6 billion in the first half of the year, and the gross amount of early mortgage prepayments for the whole year is estimated around 3 trillion. Regarding the write-off and disposal of bad debts, the banking sector disposed of 3.8 trillion in non-performing assets throughout 2024, and in the first half of 2025, factoring in the disposal of 1.5 trillion, it was over 100 billion more than 2024, conservatively estimated at 4.1 trillion. Regarding the losses from debt swaps and rollovers, in 2026 there were 2 trillion in replacement bonds at a 2.07% interest rate replacing original stock debts at a 5.5% rate. The Chinese Communist Party (CCP) also carried out a bridge market rollover in Zunyi, for example changing an original loan with 7% remaining for 5 years into a 20-year bond at 3.5%, paying only interest for the first 10 years, discounted at 5%, resulting in creditor loss limits of 30% to 50% of the principal, with both estimates around 1.2 trillion. Coupled with real estate development loans shrinking by 1.1 trillion in a year and consumer loans shrinking by 0.35 trillion, the credit eliminated in the single year of 2026 is approximately 9.7 trillion, equivalent to 6.8% of nominal GDP. Private sector annual financing is around 20.2 trillion; subtracting 11.5 trillion in interest, minus 3 trillion in early mortgage prepayments, minus 4.1 trillion in disposal, and minus 1.2 trillion in losses leaves only 0.3 trillion, which is practically zero. Even if only interest, swap losses, and write-offs are deducted, the private sector is left with only 6.2 trillion—down 57% over five years compared to 14.5 trillion on the same caliber in 2020. The conclusion is that all effective increments of China's credit system in 2026 will come entirely from the Chinese Communist Party (CCP) government, and the money borrowed by the private sector leaves nothing after paying off interest and old debts.

The velocity of money circulation has dropped drastically. The velocity of money is nominal GDP divided by M2, which was 0.497 in 2019, dropped to just 0.412 in 2025, and falls to a mere 0.403 based on rolling four quarters in 2026, dropping a full 20% over 7 years. M2 increased by 7.5% in a year, indicating that money is increasing, but its velocity is slowing down. In the first 8 months, household deposits, non-bank deposits, and fiscal deposits combined increased by 15.37 trillion without entering any transactions. Excluding exports and government spending, China's private demand is shrinking at a rate of 3% to 5% per year, which is the true magnitude of deflation. The 1.5% deflator claimed by the Chinese Communist Party (CCP) is precisely covering up this number.

How does the CCP's media explain this set of data? The most common narrative is that the proportion of direct financing has increased and the financing structure has been optimized. In its Q2 Monetary Policy Implementation Report on August 12, the People's Bank of China (PBOC) wrote to downplay the focus on loans as a single financing channel, suggesting that loans and bond financing be observed together. On September 14, Xinhua News Agency used the words of Tian Xuan, Dean of the Guanghua School of Management at Peking University, as an endorsement, claiming that the expansion of total credit is not weak, but that its structure has changed. On September 15, Wen Bin, Chief Economist at China Minsheng Bank, titled his article 'August Financing Structure Continues to Optimize, Better Adapting to New Quality Productive Forces.' Looking at the PBOC's own metrics, direct financing in the first eight months was 12.03 trillion yuan, accounting for 50.31% of total social financing. Of this, government bonds were 8.77 trillion yuan, accounting for 73% of the total scale; corporate bonds were 2.79 trillion yuan, accounting for only 23%; and equity financing was 470 billion yuan, accounting for only 4%. The truly market-oriented direct financing—the 470 billion yuan in stocks plus the non-LGFV and non-central SOE portions of corporate bonds—totals less than 5% of total social financing. Who bought the 8.77 trillion yuan in government bonds? Commercial banks accounted for 58% of the total purchase scale, insurance companies accounted for 15%, and the central bank accounted for 4.7%. Commercial banks create deposits to buy government bonds even when they lack deposits; accounting-wise, this is exactly the same as issuing loans. If a liquidity gap occurs, commercial banks borrow the central bank's balance sheet, euphemistically calling it 'outright reverse repos' to exchange for reserves to continue buying bonds. Economically, this is clearly indirect financing; the only difference is that the borrower has changed from an enterprise to the treasury. The stock of total social financing is 464.8 trillion yuan, with government bonds at 103.7 trillion yuan (up 13.5% year-on-year) and loans at 278.6 trillion yuan (up 5% year-on-year). In August alone, the scale of government bonds was 1.01 trillion yuan, while the scale of loans was 60 billion yuan. By the end of 2025, the statutory government debt was 102.5 trillion yuan, with a statutory debt ratio of 73.2%, an increase of 4.5 percentage points in one year. This is a sign that private credit has run out of breath, and sovereign credit is cleaning up the mess for private credit.

Regarding the phrase 'New Quality Productive Forces,' it claims that insufficient effective demand is a period of transition shock, and that new growth drivers are filling the gap. On July 5, Wang Shunyong, Deputy Director of the National Bureau of Statistics, said that new growth drivers contributed over 40% to economic growth in the first half of the year, increasingly shouldering the burden of the Chinese economy. Data from the Fifth National Economic Census shows that at the end of 2023, there were 51.16 million people employed in the construction industry and 14.4 million in the real estate industry, totaling 65.56 million people. Computer, communications, and electronic manufacturing employed 10.48 million, automobile manufacturing 5.58 million, and electrical machinery 8.14 million. These three categories combined total 24.19 million; even with a massive boom to 27 million, it is only about 40% of the real estate and construction chain. New energy vehicles, integrated circuits, and lithium batteries are only a small part of these three categories. In terms of GDP, in 2025, the real estate industry plus the construction industry accounted for 12.1% of GDP, while high-tech manufacturing accounted for only 17.1% of industrial enterprises above designated size. Industry accounts for 30% of GDP, and high-tech manufacturing accounts for only about 5% of GDP. A sector accounting for 5% is expected to fill the gap left by a sector accounting for 12%, not even counting the multiplier effect of the real estate upstream and downstream chains. The capital expenditure of all major Chinese tech giants combined is less than 130 billion USD; the tech structural transformation is nonsense. A successful transformation should involve both increased volume and price, not just rising prices without volume growth. Profits simply cannot fill the hole left by a sector that accounts for 12% of the entire economic structure and supports 65 million jobs.