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Posted: 2015-10-26 15:30:00

Chinese officials signaled that they are increasingly concerned about the country’s slowing economy when they cut interest rates on Friday and lowered the amount of reserves banks are required to hold. But it is not clear that the actions will be sufficient to boost growth.

The People’s Bank of China cut its interest rate for one-year loans by a quarter of a percentage point, to 4.35 percent, and lowered its reserve requirements by half a percentage point, to 17.5 percent. It was the sixth time the bank has cut rates since November. The central bank also said it would no longer cap the interest rates banks can pay for deposits.

Just days earlier, the government announced that the economy grew at 6.9 percent in the third quarter, its slowest quarterly pace since 2009. Some independent analysts say the actual growth rate is probably much lower than the government’s estimate. Barclays, for example, estimates the economy grew at 5.2 percent in the third quarter, based on 11 different indicators like industrial production and retail sales.

China is slowing down after years of rapid growth driven by a boom in investment and borrowing. That’s why cutting interest rates and bank reserves might not do much to stimulate the economy, at least not right away. Many Chinese industries, like manufacturing and mining, are closing factories and firing workers. They are not likely to borrow money even if interest rates fall and banks are more eager to lend to them. In fact, many Chinese businesses have borrowed too much money in recent years and will struggle to repay their debts.

Policy makers need to do more to shift the economy away from investment and toward consumer demand and services. The central bank’s decision to remove limits on deposit rates is a good step in that direction, because it should force banks to compete with one another to attract savers. Because they could not earn much by depositing money in banks, a lot of Chinese families invested in risky real estate projects or the inflated stock market. Now, they should have better options.

Because it is the world’s second-biggest economy, China’s monetary and fiscal policies increasingly matter to the rest of the world. If the country’s growth slows sharply in the coming months, that could help to tip the already fragile global economy into another recession.

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