ZHU He, GUO Kai
CF40 Institute
Abstract: Since March 2026, China’s macro data shown a marked internal divergence: nominal indicators such as inflation, exports, profits, and tax revenue have continued to recover, signaling improving cash flow for the corporate and government sectors; at the same time, new aggregate financing to the real economy (AFRE) has fallen well below the prior-year level, with the weakness most concentrated in those same two sectors.
We offer a new conjecture to explain the divergence. New AFRE serves two roles—generating output and absorbing shocks. Normally, new financing and output keep a fairly stable relationship, as 2012–2021. But when large shocks hit, part of new financing is diverted to absorb them, causing and abrupt shift to the financing-to-output relationship. This is precisely what happened in 2022–2025, when the financing required per unit of incremental GDP rose far above its 2012–2021 steady-state level, yet much of it in fact went to absorbing shocks.
Under this framework, we offer a preliminary estimate of the appropriate scale of new AFRE for 2026. Given the property market’s structural stabilization and the sharp decline in real interest rates, the financing needed to absorb shocks should fall markedly. Across scenarios our conclusion is consistent: the new financing required in 2026 falls below the roughly ¥35.6 trillion recorded in 2025. The implication is that recovering nominal growth and slowing credit can occur together—weaker financing may reflect not faltering demand but improving corporate cash flow.
The briefing closes with five further reflections.
