Rates cut again to fuel economic growth

By Wang Yanlin  |   2008-12-23  |     NEWSPAPER EDITION

CHINA'S economic data last month, which showed a slowdown in foreign trade and industrial output, indicated firmer action may be needed to boost growth, analysts said.

"China is now facing the worst economic problem in the past two decades," ratings agency Moody's said in a recent note. "The government has unveiled a massive stimulus package. But it can't totally counteract the negative influence of the contraction in global trade despite the package's huge size."

China's central bank yesterday announced its fifth interest rate cut since mid-September and another reduction in its banking reserve requirement to free up more money to stimulate the country's slowing economic growth.

The country had also said it would spend 4 trillion yuan (US$586 billion) over the next two years to spur economic growth.

China's exports fell 2.2 percent from a year earlier last month, the first drop in seven years, while imports had a more drastic slump of 17.9 percent. Affected by the prospect of slowing exports, China's industrial output last month also grew at the slowest pace of 5.4 percent in more than a decade.

Foreign direct investment in China shrank 36.5 percent last month from a year ago to US$5.32 billion.

Although last month's economic data was disappointing, Stephen Green, an economist with the Standard Chartered Bank, said the outlook for China's economy is positive.

"The slowdown in exports and the impact on investments have already prompted rate cuts by the central bank and sparked the government to launch a huge fiscal boost," Green said. "China's policy stimulus is likely to be successful, allowing the economy to rebound next year."