China Cuts Key Rates for Fifth Time in Three Months (Update2)

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Source: Bloomberg

Dec. 22 (Bloomberg) -- China cut interest rates for the fifth time in three months after trade growth collapsed because of recessions in the U.S., Europe and Japan.

The one-year lending rate will drop by 0.27 percentage point to 5.31 percent and the deposit rate by the same amount to 2.25 percent from tomorrow, the People’s Bank of China said on its Web site. The central bank also reduced the proportion of deposits lenders must set aside as reserves by 0.5 percentage point.

Today’s measures are likely to be supplemented by a second stimulus plan aimed at spurring consumer spending following a 4 trillion yuan ($584 billion) package in November that was focused on infrastructure. China’s exports fell for the first time in seven years last month, imports plunged and manufacturing shrank by a record, threatening to push the world’s fourth-largest economy into its deepest slowdown in two decades.

“Monetary policy is now playing a supportive role to the main show in town: fiscal stimulus,” said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai

Read more: http://www.bloomberg.com/apps/news?pid=20601080&sid=aZqSqGaeeiJk&refer=asia

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1. Taiwan Seeks Warmth Of China's Fold

Taiwan and China have become fast 'frenemies': even as they remain at loggerheads politically, they have become more closely aligned economically, huddling closer together to ward off the chill of global recession. Taiwanese banks and electronics giants had reason to rejoice after Beijing and Taipei concluded their most recent round of economic talks.

China said it would expand loans to Taiwanese companies operating on the mainland, would open its doors wider to Taiwanese financial services firms and would buy more liquid crystal displays from Taiwan, after officials concluded their two-day negotiations Monday.

Seven Taiwanese banks, such as First Commercial Bank and Hua Nan Commercial Bank, will be able to deliver financial services by setting up branches on the mainland rather than simply operating representative offices. The easing of restrictions makes it easier for Taiwanese firms to obtain funding in China as they struggle with higher labor costs there at the same time as the global demand slump is cutting into sales.

Chinese banks will also extend 130.0 billion yuan ($19.0 billion) of loans to Taiwanese companies on the mainland over the next three years. Beijing pledged to double its projected purchase of liquid crystal displays from Taiwan next year to $2 billion worth; the collapse of the global LCD market has slammed the Taiwanese, Japanese and South Korean consumer electronics sectors alike. It is unclear, though, how Beijing will direct companies' purchase decisions to fulfill its commitment. The changes are part of a 10-point proposal that will serve as the blueprint for a formal memorandum of understanding between the two governments that is expected to be inked early next year.

http://www.forbes.com/markets/2008/12/22/taiwan-china-banks-lcd-equity-cx_twdd_1222markets04.html

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2. i wonder if the u.s. will just walk away from our debt

like other countries did in the 70's and 80's, and we'll just start over