The net interest margin of Chinese banks fell to around 1.35%, the lowest level on record.

In 2012, it hovered around 2.7%; half of that has vanished over the past decade.

The compression is political, not market-driven.

Beijing has been cutting benchmark rates, renegotiating mortgages, and pushing subsidized credit, with banks serving as the instruments that absorb the cost of the stimulus.

The problem lies in the chain reaction: thinner margins generate less capital, and less capital means less credit—precisely when the economy needs it most.

Stimulus via the banking system has limits, and those limits are now becoming apparent.