End of China's 40-Year Economic Boom, Central Bank Set to Announce Interest Rate Prescription

China's Central Bank to Determine Benchmark Interest Rates Amid Economic Challenges

In an effort to address its ongoing financial crisis, China is preparing to announce its benchmark interest rates today (August 21).

The decision holds the potential to unveil clues about how China intends to navigate the economic downturn while striving to stimulate growth. As China faces escalating debt default concerns within its real estate and financial sectors, the People's Bank of China is on the brink of determining its key lending rates, effectively setting the benchmark interest rates.

Observers speculate that China's authorities are likely to opt for a slight interest rate reduction as part of their strategy to bolster the economy.

Although substantial stimulus measures are required due to the comprehensive crisis, the situation also calls for careful consideration of the United States' stance.

If the interest rate differential widens significantly between the U.S. and China, it could lead to the unintended consequence of capital outflows.

Despite the challenges, China remains confident in its ability to sustain economic growth.

[Spokesperson for China's Ministry of Commerce, Sujia Ting: Since the beginning of this year, China's national economy has shown steady recovery, and the service sector continues to experience rapid growth.]

However, The Wall Street Journal, under the headline "End of China's 40-Year Economic Boom," assesses that China's economic model has been disrupted, signaling potential risks.

Indeed, the real estate sector, accounting for 25% of China's economy, has witnessed a 8.5% decline in development investment since the start of the year, marking a five-month downward trend.

As the real estate supply continues to increase and development funds decrease, clear signals of economic downturn persist.

In response, Chinese authorities are pursuing traditional stimulus measures like expanding infrastructure such as highways and airports. Nevertheless, the effectiveness of these measures is diminishing due to excessive and redundant investments at the local government level, resulting in mounting debt.

[Gary Ng, Chief Economist at Natixis Investment Bank: If land sales do not rebound, it could impact the fiscal situations of many local governments, affecting other aspects of the economy as well.]

UK consultancy firm Capital Economics projects China's economic growth rate to hover around 2% by 2030.

With the current signs of economic slowdown, analysts speculate that China's economy, resembling Japan's prolonged stagnation after the 1990s, could tread a similar path.