Household loans decreased by 366.8 billion yuan in the first half of the year. Why is debt continuing to shrink?

Chinese households are continuously reducing their debt levels.

On July 15, the People's Bank of China (hereinafter referred to as "the Central Bank") released the financial statistics for the first half of 2026.

On one hand, household loans decreased by a total of 366.8 billion yuan in the first half of the year, with the year-on-year increment falling by 1.54 trillion yuan. Among them, net reductions in household loans were recorded in February, April and May, indicating that residents repaid more loans than they borrowed during this period.

On the other hand, household deposits increased by 7.58 trillion yuan, with new household deposits in June reaching 1.95 trillion yuan, ending two consecutive months of net decline. By the end of June 2026, the balance of Chinese household savings hit 173.48 trillion yuan, approaching the historical peak recorded in March 2026.

"The trend of households 'depositing more and borrowing less' has continued to strengthen since 2022, and credit demand has further contracted since 2025, with clear signs of proactive debt repayment," Zeng Gang, Deputy Director of the National Institution for Finance & Development, told *Caijing*.

In response, Xie Guangqi, Director of the Monetary Policy Department of the Central Bank, stated at a State Council Information Office press conference on July 15: "A large proportion of household loans are mortgage loans. As households proactively and appropriately 'deleverage', their interest payment expenses and debt levels have decreased, and their balance sheets will also undergo dynamic changes accordingly."

Looking at monthly data, the "deposit migration" trend among households is showing a slowdown.

In June 2026, deposits of non-banking financial institutions decreased by 990 billion yuan, with the year-on-year reduction expanding by 470 billion yuan. This figure indicates that funds are flowing back from asset management products such as wealth management, insurance, and funds to bank deposits.

"The decline in the growth rate of non-bank deposits reflects that deposit migration has slowed down amid the volatile capital market environment," Lin Yingqi, Director of the Research Department and Banking Analyst at China International Capital Corporation, told *Caijing*.

Wind data shows that in the first half of 2026, the A-share market consolidated at high levels, with the Shanghai Composite Index fluctuating around the 4000-point mark and once approaching the 3800-point level during the period.

Focusing on the overall data for the first half of the year, household deposits recorded a year-on-year decrease of 3.19 trillion yuan in increment, while deposits of non-banking financial institutions saw a year-on-year increase of 2.1 trillion yuan, indicating that household deposits generally continued to migrate to the capital market in the first half of the year.

Looking ahead, several interviewees believe that the household "deleveraging" trend will continue in the short term.

"Referring to international experience and China's own cyclical patterns, this round of household balance sheet adjustment is expected to take some more time, with the core variables lying in whether housing price expectations can stabilize, and whether employment and income levels can continue to improve," Zeng Gang told *Caijing*.

Morgan Stanley estimated in a recently released report that the "deleveraging" process of China's household sector will continue for another two years.

"Sustained 'deleveraging' while external demand remains strong will support more sustainable growth of the financial system in the long run," the aforementioned report projected. After two years of "deleveraging", the growth rate of total household assets is expected to rebound to 4%-5% starting from 2028.

Household Loans Decreased by 366.8 Billion Yuan

In the first half of 2026, the overall scale of Chinese household debt declined.

According to data from the Central Bank, household loans decreased by a total of 366.8 billion yuan in the first half of the year, with the year-on-year increment falling by 1.54 trillion yuan. This means that in the first half of the year, residents "borrowed less and repaid more", resulting in a 366.8 billion yuan reduction in their liability scale. This marks the first time since statistical records began that financial data has shown a cumulative net reduction in household loans over a half-year period.

Wind data shows that in the first half of the year, short-term household loans decreased by 588.1 billion yuan, with the year-on-year reduction expanding by 587.8 billion yuan; medium- and long-term loans increased by 221.2 billion yuan, with the year-on-year increment falling by 948.8 billion yuan.

Looking at monthly data, in June 2026, new loans to the household sector amounted to 264.6 billion yuan, with the year-on-year increment falling by 333 billion yuan. Among them, new short-term loans reached 106.1 billion yuan, with the year-on-year increment falling by 156 billion yuan; new medium- and long-term loans hit 158.4 billion yuan, with the year-on-year increment falling by 176.9 billion yuan.

"The year-on-year decline in (household) short-term loans exceeded expectations, reflecting the overall weakness of household consumption demand, and there has been no significant improvement in the overall lack of effective financing demand," commented Ming Ming, Chief Economist at CITIC Securities.

"The deleveraging of the household sector in the first half of the year was mainly affected by factors such as the ongoing adjustment of the real estate market, insufficient household consumption willingness, and the weak recovery of individual business activities," commented Wang Qing, Chief Macro Analyst at Oriental Jincheng.

The real estate sector is widely regarded as a key drag on household credit.

According to calculations from the National Bureau of Statistics, real estate development investment fell by 18.0% in the first half of 2026. The sales area of new commercial housing across the country was 401.4 million square meters, down 11.6% year on year; the sales revenue of new commercial housing reached 3.7945 trillion yuan, down 13.6%.

Goldman Sachs stated in a report released in June that China's household leverage ratio has been declining since mid-2024, mainly driven by the reduction in the balance of housing mortgage loans. Short-term consumer loans have also weakened, highlighting that the household sector's demand remains cautious beyond housing-related spending.

It is worth noting that the current corporate loan interest rate has fallen below the personal housing loan interest rate.

According to data released by the Central Bank, the weighted average interest rate of newly issued corporate loans in June was approximately 3.0%, around 20 basis points lower than the same period of the previous year; the weighted average interest rate of newly issued personal housing loans was about 3.1%, largely unchanged from the same period of the previous year.

"This 'inversion' phenomenon is not accidental, but the result of proactive policy guidance," Zeng Gang analyzed to *Caijing*. "The logic behind it is clear: guide financial resources to tilt toward the real economy, manufacturing industry, and small and medium-sized enterprises, reduce corporate financing costs, support economic growth through credit expansion, and at the same time prevent excessive capital flow into the real estate sector that leads to idle circulation. This structural change reflects the policy orientation of supporting the real economy, and also embodies the Central Bank's policy intention of differentiated pricing in the easing cycle."

Against this backdrop, Zeng Gang believes that there is room for further reduction in personal housing loan interest rates, which will help ease the home purchase burden of residents, stimulate marginal home purchase demand, and is reasonable under the policy goal of promoting the real estate market to stop declining and stabilize.

Lin Yingqi also believes that against the backdrop of persistently weak housing mortgage loan demand, reducing the cost of household housing loans remains a viable policy option. "In addition to lowering the LPR (Loan Prime Rate), alternative methods such as fiscal interest discounts and adjustments to housing provident fund loan policies can also reduce housing mortgage costs and boost credit demand while protecting bank interest margins."

"However, the deep-seated reason for sluggish real estate demand also lies in weak household income expectations, downward pressure on housing prices, and long-term changes in population structure, and the marginal effect of simply lowering interest rates is diminishing," Zeng Gang emphasized. Policies should be more aligned with supply-side destocking measures and substantive demand-side support such as urban village renovation, to avoid falling into the policy paradox of "the more interest rates are cut, the stronger the wait-and-see sentiment becomes".

"According to our real estate team's forecast, after housing prices stabilize in the second half of 2027, a stable period for housing prices will arrive in 2028," the Morgan Stanley report stated. It is expected that by 2028, the growth rate of total assets of Chinese households will rebound to 4%-5%, marking the end of the household sector's "deleveraging" cycle.

Meanwhile, the Morgan Stanley report emphasized that since the third quarter of 2025, policies including tightening high-interest consumer loans and canceling the growth target for inclusive finance loans have been introduced, reinforcing the "deleveraging" trend of the household sector. "Sustained 'deleveraging' and the withdrawal of temporary stimulus policies will further pave the way for more sustainable development of the financial system," the report noted.

In fact, the reduction in household loans is consistent with the overall slowdown in bank loan growth. In the first half of 2026, RMB loans increased by 10.72 trillion yuan, with the year-on-year increment falling by 2.2 trillion yuan. Among them, new RMB loans in June amounted to 1.61 trillion yuan, with the year-on-year increment falling by 630 billion yuan.

Xie Guangqi stated that the growth rate of RMB loans has slowed down in the first half of the year, but bond financing has increased significantly. At the same time, loans in emerging fields need to first offset the decline in traditional sectors such as real estate before they can show a net increase in total loan volume. "For a period of time ahead, monetary credit will continue to shift from extensive expansion to intensive development, and the trend of 'slower speed with improved quality' in loans may become one of the new normal states of macroeconomic operations," Xie Guangqi said.

Household Deposits Increased by 7.58 Trillion Yuan

In the first half of 2026, Chinese households' enthusiasm for saving remained undiminished.

Data from the Central Bank shows that RMB deposits increased by 17.76 trillion yuan in the first half of the year, of which household deposits increased by 7.58 trillion yuan. By the end of June 2026, the balance of Chinese savings deposits reached 173.48 trillion yuan.

Behind the growth of Chinese household savings is the overall increase in household income.

Data from the National Bureau of Statistics shows that in the first half of the year, the per capita disposable income of national residents was 22,981 yuan, a nominal year-on-year increase of 5.2%, and a real year-on-year increase of 4.2% after adjusting for price factors.

However, in the first half of 2026, the growth rate of household deposits is slowing down.

Data shows that the increment of household deposits in the first half of the year decreased by 3.19 trillion yuan year on year. At the same time, deposits of non-banking financial institutions increased by 4.65 trillion yuan, with the year-on-year increment expanding by 2.1 trillion yuan.

In the view of industry insiders, the year-on-year decrease in the increment of household deposits and the year-on-year increase in the increment of non-banking financial institutions' deposits indicate that household deposits have been converted into asset management products. In other words, some residents choose to use part of their deposit funds to purchase asset management products such as wealth management, insurance, and funds after their deposits mature.

In fact, since 2025, with the downward trend of bank deposit interest rates and the concentrated maturity of time deposits, the growth rate of household deposits has slowed down significantly. According to previous estimates from institutions including China International Capital Corporation, the maturity scale of time deposits in 2026 is expected to range between 50 trillion yuan and 70 trillion yuan.

The Central Bank's 2025 Q4 Monetary Policy Implementation Report once discussed the destination of household deposits: if households convert their deposits into asset management products, these products will invest in interbank deposits and certificates of deposit, which will directly increase the deposits of non-bank institutions in banks. If the funds are invested in other underlying assets, they will eventually be converted into deposits of enterprises and related institutions, and will ultimately flow back to the banking system in terms of destination.

At the aforementioned State Council Information Office press conference, Yan Xiandong, Spokesperson of the Central Bank and Director of the Survey and Statistics Department, disclosed the data changes of asset management products in the first half of 2026.

By the end of June 2026, the total assets of asset management products amounted to 124.8 trillion yuan, a year-on-year increase of 12.7%, and the balance increased by 4.6 trillion yuan compared to the beginning of the year.

Yan Xiandong stated that from the perspective of funding sources, the household sector remains the main source of incremental funds for asset management products. By the end of June, the funds raised by asset management products from the household sector increased by 7.7% year on year, with the balance increasing by 1.1 trillion yuan compared to the beginning of the year.

Looking at monthly data, the scale of new household deposits has shown significant fluctuations.

From April to June 2026, the growth scales of household deposits were -1.94 trillion yuan, -110 billion yuan, and 1.95 trillion yuan respectively.

The shift from net reduction to net growth reflects the trade-off Chinese households are making between asset returns and liquidity.

Goldman Sachs' report shows that for a long time, Chinese household wealth has been highly concentrated in real estate and bank deposits. By the first quarter of 2026, real estate and cash/deposits accounted for 52% and 25% of the Chinese household wealth structure respectively, down 15 percentage points and up 9 percentage points compared to the mid-2021 level.

In addition, the proportion of other financial assets (including stocks and bonds) in household wealth rose from 15% in mid-2021 to 20% in the first quarter of 2026.

Goldman Sachs believes that as the role of real estate in wealth accumulation gradually weakens and deposit interest rates remain at low levels, household savings may gradually shift to a wider range of financial assets. "Considering that the level of precautionary savings remains high, we expect the proportion of deposits in household assets to remain largely stable," Goldman Sachs stated.

In the process of household savings shifting to financial assets, who will benefit?

Goldman Sachs believes that stocks and insurance are expected to be the main beneficiaries in the medium term. It is estimated that by 2035, the proportion of stocks and insurance in household asset allocation will rise from the current level of about 6% to around 11% and 10% respectively.

Morgan Stanley also stated in its report that household asset reallocation activities will drive capital inflows into the capital market, thereby promoting the recovery of the return on equity (ROE) of leading securities firms and achieving valuation repair; while the environment of high household savings and low deposit costs can support the steady growth of the insurance industry.

In addition, Morgan Stanley noted that Hong Kong-listed bank stocks performed impressively in the first half of 2026. It is expected that after the dividend payout in November, their short-term trend may weaken, and the market will gradually stabilize and rebound from the end of 2026 to 2027. "We believe that more attractive investment opportunities will emerge after the (bank stock) price correction in the second half of 2026," the Morgan Stanley report stated.

"Judging from the changes in net interest margins, the outlook for bank stocks in the second half of the year is not pessimistic," Zeng Gang told *Caijing*. In 2026, benefiting from the repricing of deposit interest rates, the cost on the liability side is accelerating its decline. Especially after the second quarter, the interest margin is expected to stabilize or even rebound slightly. It is estimated that the overall profitability of banks will perform well this year, and the defensive attributes of leading large banks will remain intact.

This article is from the WeChat Official Account "Caijing Mayflower" (