Stable credit totals in Jan-Feb 2026 mask ‘inflated’ growth in China; what the CCP’s ‘professionalization’ of social workers entails

  1   Stable credit totals in Jan-Feb 2026 mask ‘inflated’ growth in China and structural risks

On March 13, the People’s Bank of China released financial data for January–February 2026.

Social financing

• Total incremental social financing reached 9.6 trillion yuan, an increase of 316.2 billion yuan (up 3.41 percent) compared with the same period last year.
• RMB loans to the real economy reached 5.75 trillion yuan, 1.248 trillion yuan less than the same period last year (down 2.12 percent).
• Net corporate bond financing reached 655.4 billion yuan, 39.8 billion yuan more year-on-year (up 6.47 percent).
• Net government bond financing reached 2.38 trillion yuan, 9.4 billion yuan less year-on-year (down 0.39 percent).

Money supply (as of end February)

• Broad money (M2): Balance of 349.22 trillion yuan, up 9 percent year-on-year (compared with 7.0 percent growth in the same period last year).
• Narrow money (M1): Balance of 115.93 trillion yuan, up 5.9 percent year-on-year (compared with 0.1 percent growth in the same period last year).

RMB deposits

• RMB deposits increased 5.95 percent during the January-February 2026 period to reach 9.26 trillion yuan.
  • Household deposits grew 5.24 trillion yuan, down 14.52 percent year-on-year.
  • Non-financial enterprise deposits contracted by 44.5 billion yuan, narrowing from the 1.10 trillion yuan contraction recorded in the prior year.
  • Fiscal deposits increased 1.2 trillion yuan, down 24.53 percent year-on-year.
  • Deposits of non-bank financial institutions increased 2.84 trillion yuan, up 65.12 percent year-on-year.

RMB loans

• New RMB loans decreased 8.63 percent during the January-February 2026 period to reach 5.61 trillion yuan.
  • Household loans decreased 194.2 billion yuan, compared with an increase of 547 billion yuan in the same period last year.
    • Short-term loans decreased by 359.6 billion yuan, compared to a decrease of 323.8 billion yuan during the same period last year.
    • Medium- and long-term loans increased 165.4 billion yuan, down 56.30 percent year-on-year.
  • Loans to enterprises and public institutions increased 5.94 trillion yuan, up 2.06 percent year-on-year.
    • Short-term loans increased 28.02 percent year-on-year to reach 2.65 trillion yuan.
    • Medium- and long-term loans increased 1.75 percent year-on-year to reach 4.07 trillion yuan.

  Our take

The PBoC’s data for the first two months of 2026 reveals an economy undergoing a “painful restructuring,” where monetary transmission mechanisms, credit allocation logic, and social financing models are experiencing a fundamental paradigm shift.

1. China’s money supply data for February 2026 reflects technical changes following a revision of statistical definitions, revealing the underlying logic of liquidity redistribution across sectors. On the surface, M2 growth rebounded from 8.5 percent at the end of 2025, while M1 growth appeared relatively stable following the revision. However, understanding China’s actual economic conditions in early 2026 requires the parsing of statistical changes, blocked monetary transmission, and the distorted behavior of micro-entities.

i) For the previous thirty years, M1 mainly consisted of currency in circulation (M0) and corporate demand deposits. Since January 2025, however, the PBoC has included personal demand deposits and funds from non-bank payment institutions (e.g., Alipay/WeChat Pay balances) in the M1 supply.

While technically intended to close gaps caused by fintech innovation, this revision has created a “masking effect” in 2026. For instance, M1 growth in February 2024 was only 1.2 percent, reflecting extremely weak corporate financial activity. But by February 2026, the M1 was up 5.9 percent, which seemed to indicate recovery. This “recovery,” however, is a “data illusion” caused by the broader scope of what constitutes the money supply. In reality, non-financial enterprise deposits decreased by 44.5 billion yuan in early 2026, contrasting sharply with a 5.24 trillion yuan increase in household deposits. This extreme polarization shows that the corporate sector — the true engine of production — remains on the brink of contraction.

ii) The persistent “scissors gap” between M2 and M1 indicates a high degree of capital stagnation within the financial system, suggesting that the real economy remains under the threat of a liquidity trap. In February 2026, this gap was around 3.1 percent. Although this gap is smaller than the 7-plus percentage-point gaps seen in 2024, the narrowing mainly results from the expanded definition of M1, rather than a meaningful slowdown in M2. This suggests that China has not fully escaped the “liquidity trap” environment.

Despite the CCP authorities’ implementation of a “moderately accommodative” monetary policy, including flexible use of reserve-requirement cuts and interest-rate reductions, funds are circulating more efficiently within the financial system than flowing into the real economy. Large amounts of money remain parked in time deposits and wealth-management products. This manifests as stable M2 growth, but fails to translate into the immediate purchasing power and investment demand represented by M1.

2. The structure of social financing growth in the first two months of 2026 reveals a severe divergence between the expansion of public-sector credit and shrinking demand in the private sector. While total incremental social financing appeared expansionary, a deeper look shows that China’s credit growth is undergoing a structural shift dominated by the public sector.

i) The year-on-year shortfall in new RMB loans to the real economy reflects a significant lack of effective financing demand, despite an environment of ample money supply.

Within the incremental total social financing for the first two months of 2026, RMB loans issued to the real economy increased by 5.75 trillion yuan, representing a year-on-year decrease of 124.8 billion yuan. This indicates that under a “moderately loose” monetary policy, the banking system possesses sufficient liquidity, yet the real economy’s capacity to absorb new loans is declining.

Of particular concern is the surge in undiscounted bankers’ acceptances. By the end of February, the balance of this category grew by 12.9 percent year-on-year, with an increase of 453.8 billion yuan in the first two months. This represented a 287 billion yuan spike compared to the same period last year. This phenomenon is often viewed as a sign that enterprises, when faced with limited access to long-term financing or low investment appetite, turn to bill financing for short-term turnover or arbitrage. It suggests that a portion of credit growth is inflated, with funds circulating mainly to prevent debt chains from breaking rather than to expand production.

ii) Local government bonds have taken a dominant position in the growth of total social financing, indicating that economic growth is heavily reliant on the monetization of fiscal deficits.

Government bonds serve as another pillar of the 2026 social financing data. According to the 2026 PRC budget report, the quota for new local government special bonds has reached 4.4 trillion yuan, supplemented by the issuance of 1.3 trillion yuan in ultra-long-term special treasury bonds. In January 2026, regions such as Shandong and Ningbo took the lead in launching bond issuances, with total disclosed issuance plans for the first quarter ranging from 1.37 trillion to 2 trillion yuan.

The sustained rise in the proportion of high-intensity government bond financing within total social financing reflects that the economy’s reliance on “fiscal stimulus” has reached an all-time high. This practice of using public credit to compensate for the contraction of private credit may stabilize social financing aggregates in the short term, but it also deepens the entanglement between fiscal and financial systems. Furthermore, as fiscal deposits increased by 1.2 trillion yuan in the first two months, the temporary stagnation of these funds in the treasury has actually created a “crowding-out effect” on market liquidity.

3. The violent fluctuations in the deposit structure at the beginning of 2026 reveal that the liability side of the banking sector is undergoing a structural collapse and capital migration triggered by declining interest rates.

By the end of February, the balance of RMB deposits grew by 8.7 percent year-on-year, with an increase of 9.26 trillion yuan in the first two months. Within this, household deposits increased by 5.24 trillion yuan (a year-on-year shortfall of 890 billion yuan), while deposits from non-bank financial institutions surged by 2.84 trillion yuan (a year-on-year increase of 1.12 trillion yuan).

i) The Chinese banking industry is facing an unprecedented challenge on the liability side. In 2026, approximately 77 trillion yuan in household time deposits are set to mature, with 32 trillion yuan due in the first quarter alone. Most of these funds were deposited around 2023, when three-year fixed deposit rates were generally above 3 percent. However, following multiple rounds of rate cuts, the interest rates for renewing these funds have plummeted to between 1.2 percent and 1.5 percent by 2026.

This massive interest rate gap has intensified a phenomenon known as “deposit migration” (存款搬家). Data shows that in January 2026, new household deposits were 3.39 trillion yuan lower than in the same period of 2025, while non-bank financial institution deposits saw a surplus increase of 2.56 trillion yuan. This indicates that residents are no longer satisfied with low-yield bank deposits and are shifting funds into wealth management products, public funds, or the stock market. By the end of 2025, total assets in wealth management products had reached 119.9 trillion yuan.

ii) The abnormal growth of non-bank financial institution deposits reflects a closed-loop circulation of funds within the financial system, exacerbating the damage to real-world economic efficiency. When individuals purchase wealth management products, the funds are converted into deposits held by those products at custodian banks, which are then categorized as “non-bank financial institution deposits.”

This phenomenon reveals two core problems:

• A dual squeeze on interest margins: On one hand, banks face declining yields on the asset side (to support the real economy). On the other hand, while liability rates are falling, the massive outflow of deposits forces banks to buy back funds through higher-cost channels, such as interbank certificates of deposit.
• Arbitrage through capital idling: Certain enterprises, leveraging their privileged status, obtain low-cost loans and immediately reinvest the funds into high-yield wealth management products or deposit them into finance companies to become interbank deposits. This distortion — where “the core business is unprofitable, but finance becomes the main business” — severely degrades the efficiency of capital utilization.

4. In summary, the financial statistics for February 2026 portray an economy in a state of “high-pressure balance.” While the policy level has maintained a surface-level stability through large-scale debt expansion and statistical optimization, the underlying issues — structural distortions within the economic system, weak domestic demand, and the blockage of credit transmission — remain severe. The future trajectory of the Chinese economy will depend on whether private sector confidence can be substantively rebuilt, rather than continuing to rely solely on the persistent overextension of government credit.

  2   What the CCP’s ‘professionalization’ of social workers entails

On March 14, PRC state mouthpiece Xinhua reported that the CCP General Office and the State Council General Office issued an opinion on “promoting the development of the social work professional workforce” (關於推進社會工作專業人員隊伍建設的意見). Xinhua said officials from the Central Social Work Department answered questions from journalists regarding the drafting and implementation of the Opinion, explaining its background, main content, and policy measures.

The Opinion contains six sections and eleven measures, covering overall objectives, training, deployment, evaluation, incentives, and organizational implementation. Key sections include:

Overall requirements and goals

• Guided by “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, social work officials should serve the public and grassroots communities while promoting professionalization and specialization. The goal is to build a social work professional workforce that listens to and follows the Party.
• Within five years, the social work apparatus will create a more balanced workforce structure, significantly improve professional standards, expand the pool of high-level talent, and steadily increase the number of social work positions.

Accelerating professional training

• Political and ideological guidance
  • Strengthen political education.
  • Expand Party-building work within social work organizations.
  • Train and recruit Party members within the profession.
• Professional development
  • Clear professional responsibilities and standards will be established across many sectors, including community governance, rural governance, petition and complaint handling, services for new employment groups, worker assistance, youth affairs, educational counseling, grassroots cultural activities, drug rehabilitation, social assistance, elderly care and aging services, child welfare, charitable activities, marriage and family services, community corrections, employment services, public health, and disability services.
• Deepening professional training and education
  • Expand professional training for existing personnel.
  • Cultivate high-level social work talent.
  • Support universities in developing high-quality social work programs and increasing the share of practical training.

Expanding the use of social work professionals

• Optimizing workforce distribution
  • Promote balanced social service development between urban and rural areas.
  • Encourage professionals to work in rural regions, central and western China, and border areas.
• Expanding job positions
  • Use platforms such as Party–mass service centers and grassroots social work stations to encourage social organizations, enterprises, and government agencies to create social work positions.
• Standardizing employment
  • Improve mobility mechanisms for professionals.
  • Establish clearer career advancement and professional promotion channels.

Reforming evaluation systems

• Improving evaluation standards
  • Assess personnel based on ethics, knowledge, capability, and performance.
  • Establish integrity records and disciplinary mechanisms.
• Professional qualification reform
  • Explore category-based evaluation systems.
  • Develop a complete professional qualification system for social workers.

Strengthening incentive mechanisms

• Reasonable remuneration
  • Establish reasonable salary levels for social work professionals.
  • Ensure social insurance and housing fund benefits.
• Policy support
  • Provide preferential policies for those working long-term at the grassroots level or in difficult regions.

Organizational implementation

• Party leadership
  • Maintain the CCP’s comprehensive leadership over the development of the social work workforce.
• Interdepartmental coordination
  • Party organizational departments will take the lead.
  • The Central Social Work Department will guide implementation.
  • Fiscal authorities will provide funding support while encouraging social capital participation.

  Backdrop

The CCP authorities established the Central Social Work Department during the Two Sessions in 2023 (March 16) as part of sweeping Party and state institutional reform. The main functions of the Department include:

• Coordinating and guiding petition and complaint work, as well as the collection of public suggestions.
• Coordinating and promoting Party-led grassroots governance and strengthening local political authority at the community level.
• Exercising unified leadership over Party work within nationwide industry associations and chambers of commerce.
• Coordinating and promoting reforms and transformation of industry associations and chambers of commerce.
• Guiding Party-building activities in mixed-ownership enterprises, private enterprises, and emerging sectors, including new economic organizations, new social organizations, and new forms of employment groups.
• Guiding the development of the social work professional workforce.

  Our take

1. The Central Social Work Department (CSWD) represents an effort by the Xi Jinping leadership to respond to structural changes in society and reshape the relationship between the Party and Chinese society (from “the government managing society” to “the Party directly leading society”).

i) The CSWD consolidates functions previously handled by institutions such as the Ministry of Civil Affairs, and the National Public Complaints and Proposals Administration. These functions include guiding grassroots governance structures, overseeing Party-building within social organizations, managing volunteer service systems, and promoting the legal institutionalization of the petition system.

With the CSWD, Beijing can now technically bypass lengthy administrative bureaucracies and reach grassroots units directly.

ii) One of the strategic focuses of the CSWD is strengthening Party-building in the so-called “two types of enterprises and three new groups” (兩企三新), or mixed-ownership enterprises, private enterprises, new economic organizations, new social organizations, and new employment groups.

Beijing likely believes that the “two types of enterprises and three new groups” represent blind spots in traditional governance and potential sources of social instability. By establishing Party organizations within these sectors, the CSWD will be — at least on paper — better able to politically monitor and mobilize the most dynamic segments of the economy and society to achieve the central government’s goals.

iii) The CSWD’s push to legalize and institutionalize petition work is likely intended to channel public grievances into controlled legal pathways. Ideally, the department will strengthen so-called “source governance” (i.e. keep petitions local) and establish local mechanisms to resolve public grievances at the grassroots level (an approach often referred to as the “modernized Fengqiao Experience”), with the goal of reducing large-scale petitions to Beijing which are considered threats to political security.

iv) The CSWD’s integration of the “Fengqiao” governance model with advanced surveillance technologies is aimed at strengthening Beijing’s social controls and preventing potential collective protests or social conflicts from breaking out.

Meanwhile, the Opinion’s call to “encourage social organizations, enterprises, and government agencies to create social work positions” is likely intended to grow the pool of grassroots information collectors (i.e. informants) in Chinese society. Combined with grid-style governance systems and advanced surveillance, Beijing will theoretically be able to enhance its comprehensive monitoring of society.

2. The Opinion is a milestone in the Xi leadership’s effort to advance the “professionalization” of social work in the CCP regime. Beijing is looking to elevate social workers from being civil affairs assistants/administrators into a highly professionalized and politicized governance cadre.

i) The Opinion explicitly calls for building social workers who “listen to the Party, follow the Party, possess strong capabilities, and demonstrate professional excellence” (聽黨話、跟黨走、本領強、業務精). In parsing the Party wording, this means that the “professionalism” of social workers must be subordinate to their political loyalty. The establishing of strict entry barriers and evaluation systems to the social work profession is a way for the state to ensure that this force — embedded at the deepest grassroots level of communities — will consistently function as the Party’s intelligence and enforcement extensions.

ii) The Opinion proposes the establishment of a “social work professional integrity evaluation system.” This is not merely an assessment of professional competence, but also real-time monitoring of political loyalty and moral conduct among the social work cadre. Through a mechanism of “honoring integrity and punishing dishonesty,” the CCP authorities create a sophisticated internal incentive and disciplinary system within the governing apparatus.

iii) The functions of social workers cover 18 fields, including community governance, rural governance, petition management, and services for workers in new forms of employment. Within these areas, social workers not only provide services such as psychological counseling and social assistance, but also collect public sentiment, mediate disputes, and guide public opinion. This form of “service-oriented control” is more subtle than simple public security surveillance and is something that the public will find easier to accept, thereby reducing resistance to authoritarian governance.

3. The Xi leadership’s promotion of a professionalized social work force and governance is partly an economic choice. Beijing is looking to optimize the cost-effectiveness of “stability maintenance” work and address the local government debt crisis amid mounting pressure from soaring fiscal deficits and domestic security spending.

China’s 2025 fiscal report showed that although national general public budget expenditures continue to grow, local governments face a severe mismatch between revenue and spending, with deficits remaining at record highs. For a long time, the PRC’s spending on domestic security has been on a similar level to its national defense spending. To reduce this burden, the state must shift toward a more “resource-integrated” governance model.

By allowing the CSWD to coordinate social resources, mobilize volunteers (low-paid or unpaid), and promote the professionalization of social workers, the state is effectively socializing the cost of governance. Compared with expensive riot police forces and physical barriers, grassroots social workers combined with “Big Data” monitoring platforms offer higher cost effectiveness and can more effectively prevent the secondary economic losses caused by large-scale social conflicts.

4. Under Xi Jinping’s leadership, the PRC is using the CSWD and a professionalized force of social workers as operational vehicles to construct a new paradigm of “legalized totalitarian governance” (極權治理法制化).

The strategic significance of this paradigm lies in its attempt to prove that an authoritarian system — without democratizing or accepting checks and balances — can achieve efficient management of a complex modern society through high-level technocracy and legalization. It transforms the “rule of law” into a precise set of administrative procedures, the communist “mass line” into precise digital surveillance, and “social services” into a soft mechanism of control.

Xi’s experiment with a “professionalized” social work force will be a stress test of the limits of 21st-century authoritarianism. Its success or failure will not only determine the longevity of the CCP’s rule but will also potentially provide a highly precise and dangerous blueprint for other regimes worldwide pursuing digital authoritarianism. Professionalized control, a digitized “Fengqiao Experience,” and legalized totalitarianism are weaving together an omnipresent modern governance network that Beijing intends to shape China’s political ecology under CCP rule for decades to come.