Why China avoids using interest rates

The article focused on China's decision to keep benchmark interest rates on loans unchanged for the fourteenth consecutive month, despite economic growth slowing to 4.3% in the second quarter of the year—the slowest rate in over three years. This pause aims to address economic challenges, including the real estate sector crisis, weak domestic demand, and declining market confidence, alongside the ongoing divergence between strong exports and falling domestic consumption. The article explains that merely lowering interest rates would not be sufficient to stimulate the economy, as the issues also involve household confidence, the labor market, and declining property values, leading to increased savings rather than spending. Instead of broad rate cuts, Beijing prefers targeted fiscal measures such as boosting government expenditures, supporting specific sectors, and improving social safety nets. This approach has global repercussions, as raw material demand depends on the strength of export industries, and restoring economic balance requires internal confidence and not relying solely on debt.

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