For the second time in less than a month, China cut interest rates today, supporting efforts to strengthen domestic economic growth. The 0.27 percentage point cut brought the rate for one-year bank loans to 6.93 per cent and followed a reduction of the same size announced in mid-September. China's consumer price inflation has fallenfrom a 12-year stint at 8.7% (February) to 4.9% (August). Its GDP is expected to fall to between 8 – 9% in 2009 after its more than five-year golden period of double-digit expansion.
Although these cuts were conducted in concert with those implemented by the US, Europe, and other members of the international community, the People's Bank of China (China's central bank) did not officially link its actions with its counterparts. Analysts showed “little doubt the timing was influenced by the international effort to counter the effects of the global financial crisis.”
Qu Hongbin, chief economist for China at HSBC hypothesized that China's reluctance to acknowledge a link between its actions and those of other central banks is a careful maneuver around directly developing policy to help Wall Street. He says, "The PBOC [is] fully aware of the global situation . . . but from the political point of view they have to be very careful."
Interestingly, despite the global economic crisis, China's finance industry has managed to shirk most of the negative impacts being felt around the globe. However, it's being reported that foreign and small Chinese banks are finding it increasingly difficult to sustain themselves in the domestic interbank market, caused by credit freezes and the subsequent overcautiousness displayed by wealthy local lenders. "Chinese GDP is slowing but not slumping, " quoted Ben Simpfendorfer, chief China economist for RBS.
