July 6th, 2012
09:19 AM GMT
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China gate-crashed the monetary policy party on Thursday.

Within a single hour, the Bank of England and the European Central Bank both made scheduled and much anticipated moves to pump more money into their financial systems. The unexpected guest was China.

Growth fears prompt China rate cut 

The country's central bank announced that it would cut interest rates for the second time in a month, a move that surprised many analysts.

The People's Bank of China (PBOC) lowered its benchmark lending rate by 0.31 of a percentage point to 6% and its deposit rate by one quarter of a percentage point.

It's an aggressive play, and one that many economists think is a sign the Chinese economy is weakening faster than previously thought. Certainly, sliding exports to Europe, and rising costs in China are not helping to generate momentum in the world's second largest economy.

The country reports second-quarter growth data next Friday, which will shed more light on the state of the economy. But the rate cut could be a foreboding sign.

ECB cuts rates to record low 0.75%

Globally, so many businesses and even whole countries (like resource-rich Australia) are relying on Chinese growth to keep them out the economic quagmire caused by a slumping Europe and a lackluster United States.

Signs that China's rapid growth might now be one the wane are alarming indeed.

The fact that China has chosen to cut interest rates and not use some of its other more subtle economic tools is also significant. Analysts say this shows they are making a serious and public effort to try to stimulate not just banks' lending, but also investment itself.

It's a key year for China, with a new president and prime minister on the way for 2013. In a research note, China economists at Barclays said this also played into the interest rate cut, showing that the Chinese government "will not ignore growth risks in this critical year of leadership transition."

Now what about that curious timing?

Much to the frustration of those who cover it, the PBOC does not have scheduled meetings or policy announcements like the U.S. Federal Reserve or the European Central Bank. But the time of the announcement Thursday - 7:01pm in Beijing and just one minute after the Bank of England's statement - could hardly have been an accident.

Frederic Neumann of HSBC says it's likely that the Chinese government was going for maximum effect to "reinforce the view that China is helping the world economy as much as it can."

So maybe China did crash the party, but at least it brought a gift.

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Filed under: China


soundoff (23 Responses)
  1. Max

    The European Union is China`s Largest Trading partner. The European Union is the US Largest Trading Partner. The European Union at $2,131,000,000,000 is the World Biggest Exporter (followed by China in 2 and the US in 3). Who thought the world wasn't interconnected and effecting each other anymore think again. We should all hope for stability and success in all parts of the world or our children our families and we ourselves will be affected.

    And we should all be very concerned about large companies and large banks and how they operate their business. Now we learn banks have been playing with numbers to increase profits all at the expense of people`s mortgages and other finances. We learn that US banks have been actively engaged in hiding Greek Debt figures for the EU government, something that if known in time could have greatly reduced instability over the past years. We need more rules for Banks and large Companies and governments leaders as well.

    The people need to protect themselves and come together to force on transparency and accountability. For all that has happened so far you would expect many Bank directors in jail. Wall street protests and groups like Anonymous and the revaluations like Wiki leaks are just the very beginning as long as this injustice continues. The people have had enough.

    July 6, 2012 at 10:17 am |
  2. canicular

    We Chinese people have already suffer enough economic pressure and financial stress. Why do our leaders make such aggressive desicions? Maybe they just want to exploit compatriots and flatter Europeans.

    July 6, 2012 at 10:30 am |
  3. Raj Bhandari

    I agree with MAX. We need more rules for Banks and large Companies and governments leaders as well from US, EU and ASIA

    July 6, 2012 at 11:00 am |
  4. AJ

    Max...Finally a voice of logic. How refreshing is this!!!

    July 6, 2012 at 11:16 am |
  5. FenseSitter

    My Chinese relatives in China believe China is going to get worse before it gets better

    July 6, 2012 at 12:46 pm |
  6. darketernal

    China can't rescue anyone, they are bankrupt themselves, the pyramid ponzi scheme's the bankers are playing must stop, money = debt, and if that isn't changed back into value our entire world economy will collapse.

    July 6, 2012 at 12:51 pm |
  7. raika45

    China does not help any one, unless it can gain from it.For them it is business.Even in this case China is looking at the long term view.Do not underestimate this country.It did not make trillions within a few years by being stupid.

    July 6, 2012 at 2:31 pm |
  8. Myto Senseworth

    Good artical. It's nice to see news on CNN.

    July 6, 2012 at 5:59 pm |
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    July 8, 2012 at 9:38 pm |
  10. Marco Hsiao

    [ Mainland China's export is still nice ]

    The fact: In 2011, Mainland China has a bigger export than EU, Germany, the US and India. In 2012, the exporting growth rate for the EU, Germany, US (16 trillion Federal debt) and India might be 1%, 2%, 2.5 % and 4%, but Mainland China could be 7%. The leading gap is expanding.

    Mainland China's export on Southeast Asia, Russia, Latin America and Africa are growing nicely. 7 % growth on both export and GDP would be healthy. After Mainland China has half civilian banks (state occupies 50%) and more state enterprises convert to civilians', its productivity will be stronger.

    China's neighboring Asian countries are growing steadily, many just needs to upgrade traffic infrastructure; so in the future China's export will be stronger, because her trade with her neighbors will be greater.

    July 9, 2012 at 3:27 am |
  11. Marco Hsiao

    [ It is harmonious growth ]

    Some illogical words appear on the article! It is strange. "China gate-crashed the monetary policy party on Thursday"? "So maybe China did crash the party, but at least it brought a gift"? No crash sign certainly. Don't make illusion! But the US has big crash sign – 16 trillion Federal debts.

    Mainland China's per capita income is increasing fast, more and more delicious restaurants are opened; quality is upgraded gradually; people feel their country is becoming greater; thus people are more and more delight. It is harmonious growth.

    July 9, 2012 at 3:28 am |
  12. Phil Manhire

    Raika45 is correct – China's interest rate move has come about not from largesse given to the greater community but for its own economic purposes. One shouldn't think for a moment that China is doing anything but looking after its own interests, i.e., to become the world's largest economy and to have its currency be recognized as the preferred Reserve Currency – as quickly as possible.

    July 9, 2012 at 5:27 am |
  13. Digby Geen

    China should not have to recuse the west.
    How can a country that sells low cost clothes and trinkets rescue the west.
    All of China's overseas reserves will already be invested.
    So how can they invest them somewhere else ?

    July 11, 2012 at 9:39 pm |
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    July 12, 2012 at 8:53 pm |
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