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Chinas second interest rate cut

Chinas’ one year lending rate is set to decrease by 31 basis points and the deposit rate will follow with a decrease of 25 basis points. The need to cut interest rates again usually signifies a weak economy that is in need of a boost or heading into a recession. However, this is not necessarily true in the case of China. China is cutting rates to maintain a higher growth rate as opposed to coming from a brink. The downturn in Europe has caused a decrease in Chinese exports and many economists and investors believe that the property market has been overbuilt.

Many U.S. investors in China feel the Chinese markets slowing. The investor level of expectation has begun to dwindle and the impression of China being immune to the global crisis has changed. The rate cut is designed to maintain an economic growth of at least 7.5 to 8 percent. A great year of growth for the U.S. or any other developed nation is 2-4 percent. Chinas’ slowdown shouldn’t be seen as a sign of coming recession but it is a sign that China is emerging from a developing nation to a developed nation.

Even when there is income disparity and other indicators of millions still living in poverty, Chinas’ growth is evident. The Chinese central bank would like to maintain the 7.5 to 8 percent growth and that is completely understandable but as the economy is becoming more globally integrated it has evolved. The Chinese economic evolution will continue until it is in line with the same pace as Europe and the U.S.