Monday, September 15, 2008

China cuts rates

At least the capitalists in China are reacting to this crisis.

China's central bank cut interest rates for the first time in more than six years in a surprise move that underscored how concern over the strains in the U.S. financial system is reordering economic priorities world-wide.

Worries about the spillover from the U.S. appeared to lead Chinese authorities to shift decisively -- and more quickly than most anticipated -- toward supporting growth, after an inflation scare that has been their top preoccupation for more than a year.

The central bank's announcement came just hours after news of the latest shocks to rattle Wall Street, with Lehman Brothers Holdings Inc. saying it would file for bankruptcy protection and Merrill Lynch & Co. agreeing to be sold to Bank of America Corp...

"This should ease concern about a worst-case scenario happening in China," said Wang Qing, China economist for Morgan Stanley. The central bank's rapid shift in policy is intended to "remind us that the Chinese authorities are still on top of the difficulties the economy is facing and [to] demonstrate their flexibility in managing the economic downturn," he said.

While China's economy grew more than 10% in the first half, worries that a sharper slowdown is on the way have deepened. Demand for China's exports has weakened, stock prices have collapsed and housing sales have turned down. Last week, official data showed that inflation fell below 5% in August for the first time since June 2007, removing the main impediment to a stimulus.

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