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China cuts interest rates in new growth effort
2008-12-22
BEIJING - China cut interest rates Monday for the fifth time in four months in a new effort to revive economic growth amid government anxiety about spreading job losses and worker protests. The benchmark one-year lending rate will fall by 0.27 percentage point to 2.25 percent, effective Tuesday, the central bank said. That came just four weeks after China's biggest rate cut in 11 years and left the benchmark rate at its lowest level since February 2004. Beijing is trying to prod consumers and businesses to spend in an effort to support a massive government stimulus package intended to rev up domestic economic activity and shield China from a global downturn. Manufacturing, investment and other key drivers of the economy are still weakening despite earlier rate cuts. The latest cut followed a weekend pledge by Premier Wen Jiabao to make a priority of creating jobs for new university graduates, reflecting the communist government's fears of unrest as unemployment rises. Thousands of factories have closed as global demand for Chinese exports plunges, and workers have clashed with police in protests over unpaid wages. Domestic industries such as real estate and auto sales also have cooled, leading to more job losses. China's economy is expected to grow by a still-robust 9 percent this year, down from last year's 11.9 percent. But communist leaders worry about unrest as laid off factory workers stream home from coastal areas to their hometowns. Analysts have cut forecasts of next year's growth as low as 6 percent. "Currently we are most concerned about two issues, migrant workers returning home and employment for graduates," Wen said Saturday during a visit to a Beijing university, according to the state Xinhua News Agency. It said he promised to "put the issue of graduate employment first" but mentioned no new initiatives for migrant workers. The decision to target university students reflects the Communist Party's unease that economic trouble might erode its support among China's commercial and professional elite, who have benefited most from three decades of economic reform. The country's top economic planner warned last month that rising unemployment "will lead to instability" and Beijing is pressing companies to minimize job cuts. Also Monday, the central bank increased the amount of money available for bank lending by cutting the reserves Chinese institutions must hold by 0.5 percentage points to 15.5 percent of their deposits. The move will release resources to finance Beijing's 4 trillion yuan ($586 billion) plan to inject money into the economy through construction and other projects. The central treasury is providing only about 25 percent of that spending, with the rest due to come from state companies and bank lending.
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