China expected to become more proactive on growth

An installation made of sock textiles is on display at a demonstration hall of the local sock-making industry in Zhuji, Zhejiang province, in February.[Photo/Agencies]

Interest rate cut part of more aggressive policy approach, economists say

Continuing weakness in industrial activity is forcing the Chinese government to adopt more aggressive policies to accelerate growth and increase employment, economists said.

The weekend announcement by the People's Bank of China of a second interest rate cut in less than four months coincided with the release of the manufacturing Purchasing Managers Index for February, which edged slightly upward from a 28-month low of 49.8 in January to 49.9.

"Maintaining growth is now the most important task for the leadership," said Lian Ping, chief economist at Bank of Communications.

Expectations that the US Federal Reserve may postpone its interest rate increase until the second half could also push China's rate cut earlier than forecast, he said.

Beijing may be more proactive through the first half of the year to spend more on government-led investment projects and provide more incentives to private investors and consumers, economists said.

February's PMI was still below the median of 50, showing the manufacturing industry is still contracting.

The output subindex slipped to 51.4 from 51.7 in January, meaning slower production growth, while the employment subindex dropped to 47.8 from 47.9, the lowest level since March 2013, indicating fewer new jobs were available.

Some economists have speculated that China's GDP may fall below 7 percent in the first quarter. The People's Bank of China, or China's central bank, announced late on Saturday that it would cut the benchmark interest rate by 25 basis points, after which the one-year lending rate would fall to 5.35 percent and the one-year deposit rate drop to 2.5 percent.

The bank also increased interest rate flexibility by raising the ceiling for the floating interest rate for savings to 1.3 times the benchmark rate, up from 1.2 times. Benchmark interest rates are close to their lowest level in 10 years.

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