What is China doing to boost its slumping economy?

As growth slides to 30-year low central bank embarks on series of corrective steps

(Image credit: Frederic J. Brown/AFP/GettyImages)

China has cut its lending rates as the country grapples with a slumping economy and protracted trade war with the US.

On Wednesday, the People’s Bank of China cut its one-year loan prime rate (LPR) and five-year LPR by five basis points from 4.20% to 4.15% and from 4.85% to 4.8% respectively.

Reuters says the move was “widely expected”, but with growth sliding to near 30-year lows and a partial trade deal with the United States proving elusive, China has been forced to “slowly pick up its tempo of policy easing in recent weeks, with authorities pushing banks to keep supporting cash-strapped small- and medium-sized businesses”.

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On Monday, the central bank made a surprise reduction in another key short-term rate, the seven-day reverse repurchase rate, the first in more than four years, according to Refinitiv.

A day later, central bank governor Yi Gang said Beijing would step up credit support and lower real lending rates.

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The series of rate cuts are a “reassuring sentiment signal” that the Chinese central bank is still willing to step up credit support for businesses despite a real estate bubble and rising debt levels, Stephen Innes, chief Asia market strategist at AxiTrader, told CNN.

The global debt load has surged by $78trn since 2008, and China alone has accounted for 40% of the increase, according to a recent report by the Institute of International Finance (IIF).

But rather than introduce large-scale policy measures to counter an ongoing economic slowdown, Beijing “has instead taken a series of small steps to fine-tune policy, indicating it believes growth could bottom out next year”, says the South China Morning Post.

It adds that “while many economists still expect Chinese growth to continue slowing next year, some now believe that if a trade war truce can be agreed with the United States, then growth could stabilise around 6% next year and even rebound slightly”.

CNN says “the central bank faces a balancing act, however, with China’s consumer inflation on the rise. Lower interest rates tend to increase inflationary pressures, as they make borrowing cheaper and cause people to spend more”.

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