The rate cut by China´s central bank PBOC took the markets by surprise on Friday. Business analyst Shaun Rein sees at CNBC some weaknesses in the countries economy, but no reason for panic. China is moving towards services and innovation, and that transition comes with some bumbs.
Sonia: What does China’s rate cut mean for the global economy?
A: The rate cut means that you are going to see other countries or other regions like the European Union might reduce some of the rate cuts so it might spur a lot of funds flowing into equity markets, so I expect that you are going to see some strength in Asian equities, in Hang Seng in Hong Kong over the next day or two. I think it is good for the equity market but I do not think the government is going to do too much because of concerns about credit problems that are very real in the country in China today.
Latha: Do you expect growth to pickup anytime soon in China? Is that the market’s belief at least?
A: The reality is no. I do not see the economy here growing to 8-10 percent a year like it has done the last three decade but that is a good thing. I think overall the government by allowing slowdown is actually doing the right thing and pushing towards economic reform. There are two parts to that – (1) you were starting at such a low base in the last three decades, growth has been high but the promise that too much of growth was based on export oriented and that’s not how they think. The government is trying to switch more towards more consumption and services. I had a new book that came out two weeks ago called ‘The End of Copycat China’, which looks at the shift and the government pushing up services and innovation.
Latha: Should this rate cut fire up metal stocks if the intention is to generate different kind of growth?
A: In the long-term it’s not going to be the major difference on growth. It’s going to increase stock because you got the hedge funds, there are investing based on sentiment rather than economic numbers.
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