China continues to make bold moves to boost its faltering economy. The People's Bank of China made a 108-basis-point cut to interest rates on Wednesday following the markets' close as it continued its recent policy of monetary loosening in the face of slowing growth, export and industrial production figures.

Though a rate cut was expected by the central bank, its magnitude--the largest since the Asian financial crisis in October 1997--was surprising. "Bottom line is the Chinese authorities think the economy is slowing down fast," said Nigel Rendell, a senior emerging market strategist at RBC Capital Markets.

Earlier this week, the World Bank cut its forecast for economic growth in China to 7.5%, from 9.2%, though many economists expect an even slower rate of expansion, of anywhere between 2.0% and 7.0%.

This is the fourth time in three months that Beijing has reduced Chinese interest rates, but the several prior reductions, in October and August, were by just 27 basis points each time. China's benchmark rate now stands at 2.52%. The central bank also lowered its reserve requirements by 200 basis points for large banks and by 100 basis points for smaller banks on Wednesday.

The government has meanwhile been shifting fiscal gears as well, announcing on Nov. 9 a $586.0 billion fiscal stimulus plan. China is keenly monitoring the economic moves made by its key export partner, the United States, where consumer spending has recently slowed. (See "Americans Earn More, Spend Less.") Exports represented 37.1% of China's nominal gross domestic product in 2007.

China's economy is still feeling the impact of previous measures that Beijing made to cool the economy and keep a lid on inflation; it was tightening monetary policy in the first half of this year, when the economy appeared to be growing too quickly. But in October, a lower than expected level of imports for the month showed that China was not picking up the slack from slowing economies elsewhere. (See "China's Disquieting Trade Surplus.")

China's currency actually strengthened slightly after the rate cut: the U.S. dollar bought 6.82 yuan late Wednesday in Beijing, down from the 6.83 yuan it bought on Thursday. Commodities were firmer, though, with spot oil futures up 89 cents, at $51.66 a barrel on the Nymex, and copper futures up 5 cents, at $1.7090 a pound.

Rendell expects the currency to stay between 6.80 and 6.90 against the dollar, which is the range around which it has hovered since June. If exports suffered more markedly, the analyst said Beijing might let the yuan weaken further in 2009. But, given that China still has a notable current account deficit, there would undoubtedly be strong international pressure to keep it from going down that route any time soon, which would put struggling exporters in the West at a disadvantage.

China is scrambling to prop up its economy. The People's Bank of China made a 108-basis-point cut to interest rates on Wednesday after the markets closed, accelerating its recent policy of monetary loosening in the face of slowing exports and industrial production.

Though a rate cut was expected by the central bank, its magnitude--the largest since the Asian financial crisis in October 1997--was surprising. "Bottom line is the Chinese authorities think the economy is slowing down fast," said Nigel Rendell, a senior emerging market strategist at RBC Capital Markets. "It would not be unusual to cut by around 25 basis points--to do more than four times that highlights the downside risks."

Commodities firmed up on expectations of stronger demand from China, following the lowering of interest rates. Crude futures jumped $2.24, to $53.01 a barrel, on the Nymex; copper futures were up 6 cents, at $1.7140 a pound.

Earlier this week, the World Bank cut its forecast for economic growth in China to 7.5%, from 9.2%, though many economists expect an even slower rate of expansion, of anywhere between 2.0% and 7.0%.

This is the fourth time in three months that Beijing has reduced Chinese interest rates, but the several prior reductions, in October and August, were by just 27 basis points each time. China's benchmark rate now stands at 2.52%. The central bank also lowered its reserve requirements by 200 basis points for large banks and by 100 basis points for smaller banks on Wednesday.

The government has meanwhile been shifting fiscal gears as well, announcing on Nov. 9 a $586.0 billion fiscal stimulus plan. China is keenly monitoring the economic moves made by its key export partner, the United States, where consumer spending has recently slowed. (See "Americans Earn More, Spend Less.") Exports represented 37.1% of China's nominal gross domestic product in 2007. "I think China is looking at what's happening to consumers in the U.S. and what is likely to happen in the coming months," said Rendell. "They see house prices down, equity prices down and people being made unemployed."

China's economy is also still feeling the impact of previous measures that Beijing made to cool the economy and keep a lid on inflation; it was tightening monetary policy in the first half of this year, when the economy appeared to be growing too quickly. But in October, a lower than expected level of imports for the month showed that China was not picking up the slack from slowing economies elsewhere. (See "China's Disquieting Trade Surplus.")

China's currency actually strengthened slightly after the rate cut: the U.S. dollar bought 6.82 yuan late Wednesday in Beijing, down from the 6.83 yuan it bought on Thursday.

Rendell expects the currency to stay between 6.80 and 6.90 against the dollar, which is the range around which it has hovered since June. If exports suffered more markedly, the analyst said Beijing might let the yuan weaken further in 2009. But, given that China still has a notable current account deficit, there would undoubtedly be strong international pressure to keep it from going down that route any time soon, which would put struggling exporters in the West at a disadvantage.

More From Paul Maidment

If China knows about anything, it is propaganda. The considerable power of the state's propaganda machine is now being thrown behind the effort to stop the economy from slowing too much.

On Sunday, as Prime Minister Wen Jiabao was on the last day of a three-day tour of Shanghai and Zhejiang province exhorting local companies to show confidence that they would get through what he called "difficult times," state broadcaster CCTV was reporting that provinces across China would add 10 trillion yuan ($1.5 trillion) to the 4 trillion yuan stimulus package that Beijing announced earlier this month.

Ten trillion yuan is an eye-catching number. It is twice the level of all state spending in 2007, not to mention two and a half times greater than the central government's proposed package of investments in infrastructure and social programs over two years. Lest we forget, Beijing was meant to be financing only a third of that directly; the rest was to come from provincial and local administrations, and from state-owned banks and companies.

It has not been clear what was new money in the 4 trillion yuan package and what old, already budgeted for in the current five-year plan or earmarked for natural disaster relief, and just bundled up to provide an eye-catching headline number. The 10 trillion yuan suffers from similar opaqueness behind the headline number.

CCTV came up with it after doing the rounds of the provinces counting up spending plans. The two biggest sets it found were 3 trillion yuan in Yunnan in the southwest and 2.3 trillion yuan in Guangdong, the southern export hub. These, though, are spending proposals, not commitments.

What we suspect is happening is this: after three years in which provincial governments have found financing infrastructure projects difficult as central government tried to stamp down on inflation by restricting credit, they are now rushing to find projects with which to lay claim to the 80 billion yuan not yet allocated out of the 100 billion yuan Beijing wants spent in the final quarter of this year. Those with the fattest pipeline, local officials believe, have the best chance of securing funding.

CCTV interviewed one local official in Hubei province who boasted how his colleagues had put in extra hours over the past two weeks as policy had suddenly reversed from curbing inflation to slowdown prevention, and had come up with 100 infrastructure and local develop projects to pitch. The official said their marching orders were to find already started projects being held back for lack of capital, or new projects that could give a quick boost to the economy.