Arab Today, arab today china rate cuts welcome but not enough
Last Updated : GMT 11:49:51
Arab Today, arab today
Arab Today, arab today

China rate cuts welcome, but not enough

Arab Today, arab today

Arab Today, arab today China rate cuts welcome, but not enough

china yuan
Beijing - AFP

China's latest interest rate cut -- the fifth since November -- is not enough to reverse slowing growth in the world's second-largest economy, analysts say, urging authorities to embrace lower taxes and other more aggressive measures.

Increasing anxiety about weakness in China's economy, which is undergoing a difficult transition, has sent domestic and global financial markets into a tailspin and raised questions about the grip its Communist Party rulers have on policy.

China accounts for more than 13 percent of worldwide gross domestic product (GDP) and is the planet's biggest trader in goods, making the health of its economy key to global growth.

After the benchmark Shanghai stock index slid 22 percent over four days the People's Bank of China on Tuesday cut lending and deposit rates by 0.25 percentage points each, and banks' minimum reserve levels by 0.50 percentage points.

That took its lending rate to a record low 4.60 percent, which should make it easier for individuals, companies and local governments to borrow -- essential as China tries to wean its economy off exports and investment and move towards a consumer-driven model.

But four previous cuts since November have failed to add any sparkle and analysts said the impact of the latest adjustments would be limited without structural changes to accompany them.

China's state-controlled banks -- the vast majority of the official banking system -- prefer to lend to state-owned companies, denying access to funds for private firms, which are a more effective driver of growth.

The central bank needs to "make sure the money can go to the real economy", ANZ economist Liu Li-Gang told AFP.

ANZ said reforms to the bond market were also needed to ensure firms and authorities can issue debt more easily, giving them an alternative source of borrowing.

Economists at China International Capital Corporation said reducing taxes, especially for the corporate sector, could be a more efficient way to boost the economy and profitability by freeing up funds for productive investment.

Chinese infrastructure spending has primarily benefited state-owned companies where some of it has been squandered.

- 'Down the drain' -

The ruling Communist Party needs to ensure continued growth to create a steady flow of jobs and raise living standards in the world's most populous nation, a key element of its claim to legitimacy.

But GDP grew 7.4 percent last year, its worst for nearly a quarter of a century, and slowed further to 7.0 percent in both the first two quarters this year.

Official concerns about economic weakness go back to 2013, with authorities deploying what economists dubbed a "mini stimulus" including tax breaks for small companies, targeted infrastructure outlays and selected cuts to banks' minimum reserve levels.

But from November the pace picked up with more reserve reductions and interest rate cuts -- also designed to reduce high consumer saving rates and free up funds to replace investment as the country's economic driver.

Another target for reform is China's stock market, which has plummeted more than 40 percent since a spectacular debt-fuelled rally peaked in mid-June, with broad government interventions failing to halt the decline.

Analysts point out that its rise -- fuelled by enthusiastic but ill-informed "mom and pop" investors -- was not driven by fundamentals, and that the fall is similarly disconnected.

"The stock market is sliding, but the economy is not," the Global Times tabloid, which has close ties to the communist party, stressed in an editorial, while acknowledging that the falls had "made many people lose heart".

Despite the white-knuckle ride from the popping of the China bubble, which triggered huge losses on global markets, some hope the government's failure to prop up overvalued shares will teach authorities a valuable lesson.

ANZ's Liu described the two trillion yuan ($312 billion) they are estimated to have spent in efforts to support the market as "down the drain".

"If they had used it to support the real economy, China's economy would be much better now, so would the stock market," he told AFP.

- 'What it had to do' -

In theory, China still has ample room to reduce borrowing costs, unlike the major economies of the US, Japan and the eurozone, where rates are at or near zero.

But interest rate cuts put more downward pressure on China's yuan currency, which was devalued in a shock move earlier this month and which authorities have since promised will remain stable.

While that makes Chinese exports cheaper abroad, a potential economic boost, it also makes imports more expensive -- and raises competition worries for other countries' exporters. US officials, for example, have long argued that the yuan is undervalued.

Yao Wei, Paris-based economist at Societe Generale, said in a note that the central bank "did what it had to do", but that the impact of the interest rate and bank reserve cuts would depend on whether authorities continue spending foreign reserves to defend the unit.

China may have used more of its reserves to prop up the currency since the August 11 devaluation than the almost 700 billion yuan of added liquidity expected from the bank reserve cut -- neutralising the impact.

The People's Bank of China should either defend the currency to the hilt or let it float freely, she said.

"The PBoC has to decide its currency strategy first."

 

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

Arab Today, arab today china rate cuts welcome but not enough Arab Today, arab today china rate cuts welcome but not enough

 



Arab Today, arab today
Arab Today, arab today Mohamed Bahari prepares new collection for spring 2017

GMT 06:15 2017 Monday ,27 February

Mohamed Bahari prepares new collection for spring 2017
Arab Today, arab today As Olympics loom, China plunges into snow biz

GMT 10:08 2017 Tuesday ,28 February

As Olympics loom, China plunges into snow biz
Arab Today, arab today Sheds light on major steps in 12-year career

GMT 06:07 2017 Monday ,27 February

Sheds light on major steps in 12-year career
Arab Today, arab today UN envoy sets out framework

GMT 07:25 2017 Monday ,27 February

UN envoy sets out framework
Arab Today, arab today Kalam Nawaem made a difference in social issues

GMT 06:43 2017 Tuesday ,28 February

Kalam Nawaem made a difference in social issues
View News in Arabic - Business: اقتصاد دولي
Arab Today, arab today
Arab Today, arab today
Arab Today, arab today Parliament considers solutions to overpopulation

GMT 20:27 2017 Monday ,27 February

Parliament considers solutions to overpopulation
Arab Today, arab today Penguins in the age of dinos

GMT 11:44 2017 Saturday ,25 February

Penguins in the age of dinos
Arab Today, arab today Pluto's unruly moons

GMT 06:31 2015 Thursday ,04 June

Pluto's unruly moons
Arab Today, arab today 'Constructive' Vauxhall talk with union

GMT 08:54 2017 Saturday ,25 February

'Constructive' Vauxhall talk with union
Arab Today, arab today Tesla back into red but revenue grows

GMT 07:27 2017 Thursday ,23 February

Tesla back into red but revenue grows
Arab Today, arab today Aspires present the story of Egypt’s first president

GMT 06:18 2017 Sunday ,26 February

Aspires present the story of Egypt’s first president
Arab Today, arab today Ex-yoga missionary unleashes rage

GMT 12:16 2017 Thursday ,23 February

Ex-yoga missionary unleashes rage

GMT 06:42 2017 Saturday ,25 February

Reasons for the delay 'On the Stairs of Servants'

GMT 05:14 2017 Thursday ,23 February

UK appoints 1st Scotland Yard chief in 188 years

GMT 18:23 2017 Friday ,24 February

Fadi explains secrets of  Nancy Ajram's newlook

GMT 10:28 2017 Wednesday ,22 February

Milan laughs while Rome cries

GMT 19:45 2017 Monday ,20 February

Sarah Belamesh designs antiques of "ceramic"

GMT 10:51 2017 Saturday ,25 February

Pigs with edited genes show resistance

GMT 18:28 2017 Saturday ,25 February

Tourist guide explains types of tourism

GMT 13:12 2015 Saturday ,09 May

Sheikh Sultan opens Sharjah Centre

GMT 06:28 2017 Tuesday ,28 February

Dumbphones survive rise of the smartphone

GMT 22:42 2017 Thursday ,23 February

Nasima Gamei revives heritage in jewelries
Arab Today, arab today
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday