Sharp Drop in New Loans: Chinese Residents Begin Deleveraging—What Does This Mean?

Borrowing is an investment in the future, reflecting confidence in what lies ahead. According to Gelonghui data, new loans to Chinese residents in January and February 2025 were the lowest in a decade, plunging 86% compared to 2024. In just four years, new resident loans have plummeted from trillions to billions.

This phenomenon can be understood as a "balance sheet recession," where residents actively reduce borrowing. It is driven by a combination of a persistent downturn in the real estate market, population decline, and intensifying aging.

In one sentence: Residents’ expectations for the future have collapsed. Another key factor behind the loan decline is the growing risk of deflation, or more precisely, heightened deflationary expectations.