China’s rate cut a baby step as other reforms needed
Cutting rates won't help economy unless Beijing takes other steps needed to liberalise economy
Never let it be said that Chinese economic reforms proceed quickly. Last week, Beijing ended its monopoly on the salt industry, which had provided Chinese administrations with as much as half their revenues for 13 centuries.
Salt taxation has been a fiscal money-spinner, but it created discontent, smuggling and rebellion not only in China, but also in imperial Russia and colonial India. It also helped inspire the French Revolution.
Last week's more important shift, though, was communicated by the People's Bank of China - the decision to cut interest rates to help the flagging economy.
Economists in the past century discovered that interest rates could be a very good lever for economic activity, as the price of money affects every part of the economy, including that of future investment.
China's debt levels are now estimated by some economists to be a staggering 250 per cent of gross domestic product - so cutting the benchmark lending rate by 40 basis points to 5.6 per cent and the deposit rate by 25 basis points to 2.75 per cent surely comes at a good time.
But can such miniscule changes really make an impact on the economy?