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.
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