The China Surprise We Should Have Seen Coming

In a year of unpleasant surprises from China's economy, here's a development we should have foreseen: The central bank lowered interest rates. With growth disappointing and prices declining, Tuesday's easing from the People's Bank of China ought to have been a no-brainer.

That such an official response to the country's dour performance is considered a jolt speaks volumes about the opacity with which the PBOC operates, relative to its big-power peers. It also says a lot about how much expectations need to be reset. The world has become so accustomed to a China that turns in enviable economic results that it's hard to get our heads around what happens when slow growth becomes the norm rather than the exception.

The monetary authority reduced the rate on one-year loans by 15 basis points, a slightly bigger cut than the one undertaken in June, but a relatively modest adjustment by the standards of the Federal Reserve and the European Central Bank. Moves up or down in borrowing costs among that August group tend to be in increments of a quarter or half-point. The PBOC has elected to startle with a fraction of that. Just one of the analysts surveyed by Bloomberg News forecast it.

Surprise! PBOC Trims Key Rate

Most reports point to an economy that, far from roaring back from Covid Zero, is struggling to make much headway. Less than an hour after the PBOC announcement came another slew of downbeat data: industrial production softened in July, retail sales rose much less than anticipated, property investment continued its losing streak and unemployment ticked up. (Troublingly, the National Bureau of Statistics said it will suspend the publication of youth jobless figures. Recent reports had shown a jump in the number of young people out of work.)