Someone suggested this week that China will exit deflation in 2026.

That’s not a strawman. The allusion to reflation across the world’s second-largest economy came from a popular strategist who said “the next ‘end of deflation’ [trade] will likely be Chinese assets,” where capital could be reallocated from bonds to stocks on the thaw.

Maybe that’s right, but for now China’s still a snowball. Annual inflation’s running below 1% again and factory gate prices spent a 40th month in negative territory in January.

With that in mind, it’s worth highlighting the latest credit growth data from Beijing released late this week. Typically, I skip the January figures because the holiday seasonal makes the numbers difficult to interpret, but given the stakes, I’ll indulge.

New yuan loans were just CNY4.71 trillion last month. That sounds like a lot, but it’s not. Note from the chart below that all of the large spikes are in January — that’s the seasonal I mentioned. The 4.71 trillion figure needs to be considered in context. This was the lowest January print since 2022, when Xi Jinping was still inclined to locking down entire cities to curb pestilence.

In addition to representing a large decline versus 2025’s January lending, last month’s total missed estimates. And, more to the deflationary point, the growth rate of the outstanding loan stock decelerated to just 6.1%, a new record low.

That’s not what you want to see if you’re trying to ward off deflation. That growth rate — for the country’s outstanding stock of loans, illustrated above by the red line — was over 13% this time five years ago.

Other metrics from the release — including the headline TSF measure, which I deemphasized in my coverage years ago due to the difficulty of discerning signal versus noise from China’s main credit aggregate — painted a more encouraging picture. But as a general rule, if you have to work too hard to find a silver lining, there isn’t one.

The figure above shows you overall bank lending by year for the past decade. 2025 marked a second year during which new loans shrank.

Party officials and analysts can make all the excuses they want, and I won’t pretend to be an expert on each and every credit sub-aggregate from the TSF release. But at the end of the day, weak credit demand among households and businesses is indicative of economic lethargy.

From the very moment credit was invented as a way of electrifying the already transformative technology that is money, demand for credit was a reliable proxy of underlying macro momentum. Or a lack thereof.