Central bank of China lowers interest rate

A Chinese bank clerk shows off 10,000 Japanese Yen notes among the stacks of 100 yuan notes, at a bank in Huaibei, east China's Anhui province on May 29, 2012.

Jeremy Hobson: China's central bank this morning surprised global markets by cutting interest rates for the first time since 2008.

And for more on that story, let's turn to Marketplace's Scott Tong who covered China for years. He joins us this morning live from Washington. Good morning, Scott.

Scott Tong: Good morning, Jeremy.

Hobson: Let's start with why the Chinese Central Bank did this.

Tong: Well the People's Bank of China often telegraphs their moves, so the fact that it surprised us got a lot of our attention. China's economy has been slowing down five quarters in a row. You can see it in manufacturing numbers, their sales to Europe are soft -- we know why that's the case -- borrowing is slowing down. I mean China is not all about exports, but it does business with a whole lot of countries that don't look great right now. Europe, India, us, so that's what they are worried about.

Hobson: Well you say it is slowing down, but it is growing much faster than our economy, it's growing very fast. Why are they so worried there about a slowdown?

Tong: You and I would take 8 percent any day, right. China has a lot of people who are still moving from the countryside to the cities just like America years ago. So they have to keep creating jobs for these people -- a lot of new people entering the workforce. The underlying reality in a one party state is this tacit deal that the government will keep people's lives improving at 8 percent a year, and the people will stay out of the streets and keep the regime in power.

Hobson: Marketplace's Scott Tong in Washington, thanks a lot, Scott.

Tong: You're welcome.

About the author

Scott Tong is a correspondent for Marketplace’s sustainability desk, with a focus on energy, environment, resources, climate, supply chain and the global economy.

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