China: Credit rebound masks persistent loan weakness

September credit flows improved, but the rebound was seasonal and corporate-led rather than broad-based. Loan growth slowed another 0.1%pt to a record-low 4.8%oya, while non-loan TSF—mainly government bonds and stronger shadow credit—provided the principal offset. Corporate bond financing contracted and equity financing remained moderate. New CNY loans rose to CNY1,080bn, slightly above our and market expectations, but loan growth slowed to 4.8%oya. TSF also modestly exceeded expectations at CNY3,548bn, yet TSF growth slowed 0.1%pt to 7.1%oya. The broader monetary indicators remained soft: M2 growth slowed to 7.2%oya and M1 growth to 3.2%. Credit composition confirms that September's rebound did not mark a turn in private credit demand. This divergence points to weak monetary transmission despite low policy rates and repeated PBOC guidance to expand lending. The outlook is one of managed stabilization, not a self-sustaining credit cycle.