– M2-M1 scissors gap narrows to -1.2%, indicating improved corporate and consumer activity. – Social financing scale grows 8.7% year-on-year, driven by government bonds and diversified funding channels. – Resident credit demand rebounds, supported by policy measures and low interest rates. – Financial data suggests sustained monetary support amid China’s economic transition. The latest financial data from the People’s Bank of China (中国人民银行) reveals a significant narrowing of the M2-M1 scissors gap to -1.2%, underscoring positive shifts in China’s economic landscape. Released on October 15, the consolidated financial statistics report highlights robust growth in broad money supply and social financing, despite high base effects from the previous year. This development signals enhanced corporate operational vitality and a resurgence in personal investment and consumption, offering fresh insights for global investors monitoring Chinese equity markets. The M2-M1 scissors gap, a key indicator of monetary fluidity, has drawn attention as it reflects underlying economic momentum.
Latest Financial Data Highlights Economic Resilience
The People’s Bank of China (中国人民银行) reported that as of September 2025, the broad money supply (M2) reached 335.38 trillion yuan, growing at 8.4% year-on-year. This represents a 1.5 percentage point increase compared to the same period last year, demonstrating sustained monetary support even amid elevated base figures. Simultaneously, the social financing stock stood at 437.08 trillion yuan, up 8.7% year-on-year, with cumulative incremental social financing for the first three quarters hitting 30.09 trillion yuan—a notable rise of 4.42 trillion yuan from the previous year. These figures illustrate the effectiveness of China’s proactive fiscal and monetary policies in fostering a conducive financial environment for economic recovery.
M1 Growth Accelerates Markedly
Narrow money supply (M1) recorded a 7.2% year-on-year increase in September, surging from a low of 0.1% in February 2025. This 7.1 percentage point rebound is attributed to factors such as the activation of corporate and household time deposits, alongside improved business confidence. The narrowing M2-M1 scissors gap to -1.2% from -2.8% in the prior month underscores a gradual normalization of monetary circulation, which often precedes broader economic upturns. Analysts note that this trend aligns with increased industrial production and retail sales data, suggesting that policy measures are gaining traction.
Social Financing Scale Maintains Rapid Expansion
Social financing has emerged as a cornerstone of China’s financial support system, with its存量 (stock) growing steadily at 8.7% year-on-year. The incremental social financing for the first three quarters of 2025 reached 30.09 trillion yuan, reinforced by diversified funding sources beyond traditional bank loans. Government bond issuances played a pivotal role, with net financing of approximately 11.46 trillion yuan in the first nine months—up 4.28 trillion yuan year-on-year. This surge is largely driven by bonds targeting dual-carbon goals (两重) and new infrastructure initiatives (两新), as well as efforts to address local government implicit debt.
Shift Towards Direct Financing Channels
A notable evolution in China’s financial landscape is the rising prominence of direct financing. In the first three quarters, RMB-denominated loans accounted for only 48.32% of incremental social financing, down from 63.9% in the first quarter. Conversely, government and corporate bond financing climbed to 43.3% of the total. This diversification reduces reliance on bank lending and enhances financial system stability. For instance, banks hold about 70% of government bonds and 20% of corporate credit bonds, illustrating their dual role in credit provision and capital market participation. Experts argue that this broader approach better captures the full spectrum of financial support to the real economy, as highlighted in the PBOC’s revised reporting framework.
Resident Credit Demand Shows Signs of Recovery
Household credit demand has perked up, reflecting improved consumer sentiment and policy tailwinds. In the first three quarters, household loans increased by 1.1 trillion yuan, with medium to long-term loans rising by 1.33 trillion yuan. Short-term loans saw a decline of 230.4 billion yuan, indicating a preference for durable goods financing over immediate consumption. The implementation of consumer loan subsidy programs and service-sector business support policies in September has lowered borrowing costs, spurring credit uptake. Concurrently, corporate loans expanded by 13.44 trillion yuan, driven largely by manufacturing and high-tech sectors.
Structural Optimization in Credit Allocation
Credit growth is not only quantitative but also qualitative. As of September, inclusive small and micro-enterprise loans totaled 36.09 trillion yuan, growing at 12.2% year-on-year, while medium to long-term manufacturing loans reached 15.02 trillion yuan, up 8.2%. Both categories outpaced overall loan growth, underscoring targeted support for strategic industries. Additionally, lending rates remained subdued, with new corporate loan weighted average rates at approximately 3.1%—40 basis points lower than a year ago. This affordability enhances capital accessibility for businesses and households alike, reinforcing the positive momentum signaled by the narrowing M2-M1 scissors gap.
M2-M1 Scissors Gap Convergence Reflects Economic Vitality
The contraction of the M2-M1 scissors gap to -1.2% is a critical development, as it often correlates with economic acceleration. M1’s rebound from early-year lows suggests that corporate liquidity needs are rising due to expanding production and investment activities. Similarly, household deposit mobilization points to growing confidence in consumption and asset markets. Historically, a narrowing scissors gap has preceded periods of GDP growth, and current data implies that China’s economy is transitioning from stabilization to recovery. The M2-M1 scissors gap improvement aligns with other indicators, such as rising industrial output and retail sales, providing a composite picture of renewed dynamism.
Implications for Monetary and Fiscal Policy
The evolving financial data supports continued accommodative policy settings. The People’s Bank of China (中国人民银行) is likely to maintain its moderate easing stance, utilizing tools like reserve requirement ratio cuts and interest rate adjustments to sustain liquidity. Fiscal policy will remain active, with emphasis on民生 (livelihood) projects and consumption stimulation. Experts suggest that future measures may include enhanced social safety nets and reduced corporate社保 (social security) burdens to rebalance demand structures. This approach aims to address structural imbalances, such as over-reliance on investment, by fostering sustainable consumption-led growth. The ongoing narrowing of the M2-M1 scissors gap will be closely watched for confirmation of these trends.
Broader Economic Context and Market Outlook
China’s financial system now boasts substantial scale, with social financing stock exceeding 430 trillion yuan and M2 surpassing 330 trillion yuan. This magnitude necessitates a shift from rapid expansion to efficient allocation, consistent with the nation’s quality-focused development paradigm. The diversification of financing channels—encompassing bonds, equities, and other instruments—reduces systemic risks and enhances resilience. For global investors, the narrowing M2-M1 scissors gap and robust social financing data signal potential opportunities in sectors like advanced manufacturing, green energy, and consumer services. However, vigilance is warranted regarding regional debt pressures and global monetary policy shifts.
Expert Insights on Sustainable Growth
Market authorities emphasize that China’s current challenges involve structural demand imbalances rather than sheer insufficiency. Over-dependence on investment has historically exacerbated supply-demand gaps, calling for fiscal reforms that prioritize social welfare. Increasing government spending on healthcare, education, and pensions could boost household disposable income and drive consumption. As the M2-M1 scissors gap narrows, it heralds a more balanced economic trajectory, but sustained progress will require policy coordination and market-oriented reforms. Investors should monitor upcoming data releases and policy announcements for further clues on the sustainability of this recovery. The convergence of the M2-M1 scissors gap to -1.2%, coupled with strong social financing and credit metrics, paints an encouraging picture of China’s economic health. These developments suggest that monetary and fiscal policies are effectively underpinning growth, while structural shifts toward diversified financing and consumption support long-term stability. For institutional investors and corporate executives, the data implies potential in sectors benefiting from credit expansion and policy tailwinds. Moving forward, close attention to the M2-M1 scissors gap and related indicators will be essential for timing entry and exit points in Chinese equities. Consider consulting detailed PBOC reports and economic analyses to refine investment strategies in this evolving landscape.