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China Cuts Interest Rates

October 22, 1997

BEIJING (AP) _ China’s central bank cut interest rates Wednesday in an attempt to stimulate economic growth after new figures pointed toward a slowdown.

Rates on lending were cut by an average of 1.5 percentage points, while rates paid on deposits are to fall by an average of 1.1 percentage points, state television reported.

The step came two days after the government reported the economy grew at an annual rate of 8 percent in the three months ending in September _ down from 9.5 percent for the first half of the year.

The figures have raised concern that China could be facing a period of falling output and prices, and a potential contraction in the economy.

Interest charged on one-year loans will fall from 10.08 percent to 8.64 percent, while loans for one to three years will fall from 10.98 percent to 9.36 percent, the official Xinhua news agency reported.

Interest on one-year term deposits will be cut from 7.47 percent to 6.67 percent, while rates for deposits of three to five years will be cut from 8.28 to 6.21 percent, the report said.

``Growth seems to be slowing and there needs to be some stimulus,″ said Nicholas Kwan, an economist with Merrill Lynch and Co. in Hong Kong.

Economists have questioned what impact the lower rates would have, noting that two previous rate reductions failed to produce a significant rise in consumption.

The central bank has kept credit tight to control inflation. But some commentators have said it would be forced to relax its policy because the country’s economic slowdown is more pronounced than predicted.

Chinese leaders endorsed a set of sweeping reforms during a Communist Party congress last month that will include capitalist-style bankruptcies, layoffs and mergers.

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