The conversation surrounding the slowing financial scale indicators in China has recently resurfaced, particularly with the release of the latest dataAnalysts note that while newly added loans in May were nearly one trillion yuan—a year-on-year decline—it remains a substantial figure in aggregate termsFurthermore, the overall growth of social financing has continued to be stable, illustrating a robust support system for the real economyGiven the massive financial base, it is deemed inappropriate to assess changes in the financial stock metrics solely by comparing year-on-year increases.

According to Dong Ximiao, the chief researcher at Zhailian, the decline in new loans for the month was anticipatedHe emphasizes that financial institutions are still experiencing a lack of sufficient demand for credit, and improvements in the quarterly GDP accounting methods have alleviated issues where local governments artificially inflated deposit and loan figures

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Within this context, the new loans in May, nearly reaching one trillion yuan, are not disappointingMoreover, he pointed out that risks related to local government debt and small financial institutions have also contributed to the downward pressure on loan growthHowever, if these factors are taken into account, the new loans for the month actually surpassed the levels of the previous year.

The quality and effectiveness of financial support for the real economy have indeed been improvingWen Bin, chief economist at Minsheng Bank, pointed out that with strict regulations on manual interest subsidies and the circulation of funds, many businesses have found it increasingly difficult to continue past practices of dual increases in deposits and loans, or exploiting low interest rates while hoarding depositsThe active cleaning of financial data might make new increments appear less, but when the inflated figures are excluded, the remaining financial data reflects a more tangible and efficient support system for the economy, aligning with the demands for high-quality development.

Additionally, May saw a significant rise in the issuance of corporate and government bonds, with an increase of nearly 900 billion yuan compared to the previous year

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Some corporations have started repaying loans early, further contributing to the decrease in loan growthNotably, the recently issued special government bonds, which offer yields higher than bank deposits, strong liquidity, and relatively lower risks, have garnered considerable interest from institutional and individual investors alikeConsequently, a large amount of residents' and business savings have been diverted into the bond market through various investment vehicles, demonstrating a significant transformation in investment preferencesData from Wind Information indicates that between January and May, the total assets of bond funds surged by 492.1 billion yuan— a marked increase compared to just 73.2 billion yuan during the same period last year.

In the current year, the overall issuance of broad money and RMB loans has slowedThe People's Bank of China has consistently communicated through various channels that the current total money supply is sufficiently abundant, and the high growth rate of credit cannot be sustained indefinitely

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Future policy adjustments will likely focus more on revitalizing existing funds and improving their efficiency of useIt is essential to recognize that revitalizing existing funds will inject new momentum into the economy, albeit not reflected through increased loan figuresThis will objectively cause the growth rate of money supply to decelerate, but it does not indicate a subjective intent by the central bank to tighten credit.

Furthermore, it is important to differentiate between flow and stock concepts in economic analysisIndicators such as GDP, consumption, or investment are measured as flow concepts, whereas commonly used financial metrics like broad money supply, social financing scale, and RMB loan balances represent stock conceptsStock indicators assess the cumulative total of flows minus overdue amounts, meaning they represent the results after considering the renewal of financial resources

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Earlier flows continue to support the real economy in multiple cycles, while flow indicators simply capture one-time activities without recurrence, marking a significant distinction between the twoTo expect a year-on-year increase in financial stock is to compare net increments across different periods, which can lead to a misunderstanding of actual financial resource effectivenessConsequently, industry insiders advocate for a nuanced understanding of stock comparisons, acknowledging that simplistic year-on-year growth figures may not fairly represent financial support outcomes.

As the narrative unfolds, the ongoing transformation of China's monetary credit system is shifting away from extensive horizontal expansion towards a focus on internal development and restructuring of the economyThis realignment brings about a shifting suite of credit demands, especially as industries heavily reliant on credit, such as traditional heavy manufacturing, start to reach saturation points in their borrowing needs

Meanwhile, light-asset service sectors are increasingly becoming predominant, consuming significantly less creditBroadly, as the economy evolves, loan growth is likely to undergo a transitional decelerationMoving forward, sustained high-quality economic development will not depend on the rapid expansion of credit scales.

When stretched across a more extended timeframe, the correlation between financial scale indicators and the development of the Chinese economy appears to be diminishing graduallyHistorically, there has been a substantial focus on monetary supply and credit as overarching financial metrics, often presumed to correlate heavily with economic growthHowever, as China undergoes financial deepening and structural transformation, this correlation is waningIn the past, many developed economies experienced similar phases of focusing on aggregate financial metrics, only to later shift away from preoccupying themselves with these indicators as disintermediation of finance developed more prominently.