There is more than one way to skin a cat. And there are many roads to higher asset prices. One route is via improved business efficiency and better operational returns. Straightforward enough.
But shorter by far is via cheaper money. On Friday, the People’s Bank of China offered the path of least resistance, when it cut benchmark rates. Asset prices rallied.
Arguably, there is small cause for cheer. China’s economy is slowing: last quarter it delivered only 7.3 per cent growth year-on-year, the lowest level since the recent financial crisis. Last week, preliminary figures suggested that manufacturing is stagnant. And non-performing loans have been rising. This asymmetric rate move – one-year benchmark deposit rates were cut only 25 basis points, while loan rates came down 40bp – will squeeze banks’ margins at a dangerous time.