While the worsening US credit crisis is not directly hitting China's financial sector and capital market as in other countries, analysts said it is indirectly impacting the country's real economy.
The Chinese stock market is considered to have slumped in tandem with other major bourses, but the slide in Chinese stocks in the past few weeks has been seen as mild compared with those in other markets such as Japan.
As such, the cut in bank interest rates on Wednesday was seen by economists and stock analysts as a move to help sustain economic growth. Such a move would also help "lift" some of the market gloom.
The recent global coordinated rates cut "opens up the gateway to possibilities of further timely global coordination if needed, which is crucial to confidence recovery", said Jerry Lou, an analyst from Morgan Stanley Research Asia/Pacific.
But the move has yet to quell the credit crisis in the West, with London's FTSE 100 closing down over 5 percent on Wednesday, to hit a four-year low of 4366.69 points.
Following the synchronized rate cut, China lowered its benchmark interest rates by a 0.27 percentage point and the reserve requirement ratio (RRR) by a half percentage point late on Wednesday.
China's rate action should help stabilize market sentiment temporarily, but this will probably neither mark the end of the global financial crisis nor significantly boost domestic asset markets, said Huang Yiping, an economist with Citigroup.
JPMorgan expected two more 0.27 percentage point cuts in benchmark interest rates during the first and second quarters in 2009, and further reserve requirement ratio cuts by 0.25 percent.
Zhong Hua, an analyst from Changjiang Securities, said property developers with intense capital chains may be stimulated from the moves.
The lowered RRR will help mitigate the tight liquidity situation faced by smaller banks, which can correspondingly strengthen credit support to small and medium-sized enterprises, according to Morgan Stanley's chief China economist Wang Qing.
However, economy and finance experts said that although China is inevitably caught up in the global credit turmoil in general, the country's financial market has not been overwhelmed.
There is no huge impact on the Chinese financial market from the credit crisis, given its financial institutions' limited exposure to the US financial products, Zhong said.
Banks which hold Fannie Mae and Freddie Mac debts and credit default swaps would be severely hurt, but the reported amount of US mortgage debt assets possessed by China's banks and insurers were "quite limited" given their proportions in banks' total net assets, said Liu Jun, an analyst at Changjiang Securities.
However, China's real economy may be swept by the financial woes while further government stimulus packages are expected to help allay gloomy investor sentiment.
The unfolding financial crisis may worsen into a global economic recession, which will harm China's economic fundamentals due to the heavy dependence of the country's export-oriented economy on the overseas market, said Liu Zhibiao, a professor from Nanjing University's department of international economics and trade.
The slowdown of the real economy in turn will eat into the profits of export enterprises, which are mainly labor-intensive manufacturers, Liu said.
Shrinking export demand and the decreasing growth of companies' earnings indicate that one-fold currency policies are not sufficient, prompting the need for the government to devise more fiscal policies to anchor the weak market, Zhong said.
(China Daily October 10, 2008)
