CHINA Law and Practice Contributed by: Chen Yanhong, Beijing DHH Law Firm
1. Loan Market Overview 1.1 The Regulatory Environment and Economic Background
structural shift: credit resources are increasingly flow- ing toward the real economy and gradually concen- trating in lower-risk areas. 1.2 Impact of Global Conflicts Global conflicts have exerted a multifaceted impact on China’s loan market, which is mainly reflected in the following three aspects. First, financing demand has become structurally dif- ferentiated. Industries heavily reliant on imports – such as semiconductors, energy, and high-end manufactur- ing – have faced supply chain fluctuations and rising raw material costs, leading to a significant increase in short-term liquidity needs. However, to mitigate risks, banks have simultaneously tightened credit approval standards, commonly requiring companies to provide proof of supply chain stability or incorporating risk premiums into pricing, typically resulting in interest rate mark-ups of 10% to 20%. Second, cross-border loan contract terms have undergone significant optimisation. In loans related to cross-border trade, banks are increasingly incorporat- ing “exchange rate risk hedging clauses” and “supply chain disruption force majeure clauses.” Some com- mercial banks have also introduced structured prod- ucts such as “foreign exchange lock-in loans” to help companies mitigate financial risks associated with sharp currency fluctuations. Third, credit allocation has shown imbalanced dis- tribution across regions and industries. Banks have shown a greater inclination to extend credit to domes- tic demand-driven sectors – such as infrastructure and consumer industries – which are less directly affected by global conflicts, reflecting a strategic shift in credit policy toward structural risk hedging. 1.3 The High-Yield Market China’s high-yield market – which primarily includes high-yield bonds, private credit, and trust plans, with returns generally ranging between 6% and 10% – is playing an increasingly important complementary role within the broader lending system. Its influence on financing terms and market structure is mainly dem- onstrated in two ways.
In recent years, China’s economic policy has con- sistently centred on “maintaining stable growth and optimising the economic structure.” As the economy gradually recovers in the post-pandemic era, financ- ing demands among various entities have shown sig- nificant divergence. On one hand, funding needs in the real economy – particularly in manufacturing, tech- nological innovation, and the green economy – have remained strong. Notably, inclusive loans to small and micro enterprises (with credit lines of RMB10 million or less per borrower) have maintained an average annual growth rate of over 20%, with the outstanding bal- ance reaching RMB36 trillion by the second quarter of 2025. On the other hand, the focus of China’s real estate loan policy in 2025 is to stabilise the housing market. The policy stance remains accommodative, aiming to lower the threshold and cost of home pur- chases while improving housing demand. Accordingly, in May 2025, policies were introduced to reduce the five-year and above loan prime rate (LPR), as well as the interest rates on housing provident fund loans, in order to ease the mortgage burden on households. On the regulatory front, the People’s Bank of China (PBOC) has continued to advance the LPR reform, steadily reducing actual financing costs. In 2025, the one-year and over-five-year LPRs were lowered to 3.0% and 3.5%, respectively. Additionally, reserve requirement ratio cuts were employed to release long-term liquidity and enhance financial support. Meanwhile, the National Financial Regulatory Admin- istration (formerly the China Banking and Insurance Regulatory Commission (CBIRC)) has intensified “penetrating supervision,” increasing efforts to reg- ulate non-standard financing and shadow banking activities, thereby steering the banking sector toward more standardised credit practices. Furthermore, the “Measures for the Risk Classification of Commercial Banks’ Financial Assets,” which took effect in 2023, mandate that risk classification cover the entire lifecy- cle of credit assets. This has further prompted com- mercial banks to optimise credit resource allocation and reduce capital exposure to high-risk sectors. Overall, China’s loan market is currently undergoing a
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