China Monetary Policy Moves Continue to Fall Short

By Diane Alter, Contributing Writer, Money Morning • September 24, 2015

China monetary policy has seen numerous manipulative moves over the last several months as the government tries stimulate growth and stabilize the crashing Chinese stock markets.

So far, results have been uninspiring as China's growth continue to wane.

The Asian Development Bank cut its growth forecast for China on Tuesday following a string of dismal economic data, including slowing exports.

The world's second-largest economy, which grew a revised 7.3% last year, is now projected to expand by 6.8% in 2015 and 6.7% in 2016. The bank previously forecast 7.2% and 7%, respectively.

China has set a growth target of about 7% this year, which is already its slowest pace in 25 years. While China maintained a 7% pace in the first half of 2015, recent economic reports suggest China's economic growth is softening and the country won't hit that 7% target.

Chinese stock markets remain volatile. Chinese stocks, which fell more than 60% this summer from June highs, remain down 45%.

Here are some of the biggest China monetary policy moves we've seen over the last two months...

The Biggest China Monetary Policy Moves We've Seen

• On Aug. 11, China's central bank unexpectedly allowed the yuan to trade more freely. The People's Bank of China (PBOC) typically sets a daily 2% midpoint around which the yuan can rise and fall. But going forward, the midpoint will be based on the previous day's closing price.
• On Aug. 25, the PBOC cut its key lending rate 0.25% to 4.6%. That marked the fifth time China's central bank trimmed rates since November. The PBOC also lowered the amount banks are required to hold in reserves, a move aimed to spur lending.
• On Sept. 8, China's finance ministry said that the Asian nation would roll out a "more forceful" fiscal policy to stimulate its economy. The ministry said it will allocate more funds to support infrastructure projects and implement tax cuts for small businesses. It also said it would accelerate the approval process for duty-free stores to boost construction.

But for the most part, the China monetary policy moves have done nothing more than raise questions about the government's ability to effectively control the country's economy...

Many economists say China is undergoing a major transformation. They say it's transitioning from an economy sustained by investment to an economy powered by consumption. It's what Chinese officials are calling the "new normal." And it's a gigantic shift that comes with many challenges.

Money Morning Capital Wave Strategist Shah Gilani says any kind of slowdown in China will eventually cause ripples across global markets.

The country's extraordinary growth over the last couple decades has indeed moved the needle all over the world. But that unprecedented growth has been fueled by mountains of debt. And the October through June 150% rise in China's Shanghai Composite was driven by an explosion in margin lending to new investors.

And those aren't the only problems Chinese stock markets are facing. There are other major problems that can affect global markets and U.S. investors...

To find out exactly how China got to this vulnerable spot, plus how investors can protect themselves - and even profit - from these events, watch the following video:

Stay informed on what's going on in the markets by following us on Twitter @moneymorning.

Related Articles:

• BBC News: China Market Slump: Central Bank Cuts Interest Rates
• ABC News: Wall St Falls amid Fears Over China's Slowing Economy and U.S. Rate Uncertainty