China's central bank governor signaled an end to the era of massive credit growth, framing the slowdown in lending as a natural development during the economy's transition to a new normal. Governor Pan Gongsheng stated in the Party's policy magazine Qiushi that the moderation in overall financing helps keep debt levels stable. He cited the rise of high-tech sectors that rely less on debt compared to traditional property developers as a key reason for the shift.

Pan noted that the ratio between mid- and long-term loans and new industry output is usually below one, unlike traditional industries where the ratio is above one. Following more than a decade of torrid credit growth, the abrupt deceleration has raised concerns about economic health. While the property market bubble burst was a major factor, many see household and business reluctance to borrow as evidence of low confidence.

Pan warned that if financing growth outpaces real economy needs, it could result in idle funds and drive up the macro leverage ratio, undermining economic efficiency. Going forward, the PBOC will downplay numeric loan targets and improve short-term rate adjustment mechanisms. The comments expand on remarks made at the Lujiazui forum in Shanghai in June, offering a detailed diagnosis of China's economic challenges.

China's tilt to bonds from loans gives the PBOC a broader easing tool as the once-mighty credit cycle fades as a world market force.