MONEY interest rates

China Cuts Interest Rates, Sending Stock, Commodity Markets Higher

A man rides his electric bicycle passing the People's Bank of China (PBoC).
A man rides his electric bicycle passing the People's Bank of China (PBoC). Zhang Peng—LightRocket via Getty Images

Beijing moves to support an economy growing at its slowest rate in five years

China’s central bank cut its official interest rates for the first time in two years Friday, in a surprise move that sent international stock and commodity markets sharply higher.

The action by the People’s Bank of China, which comes in response to a string of disappointing economic data and increasing signs of tension in local money markets, is the authorities’ strongest show of support in months.

The economy is currently growing at its slowest rate since 2009, and while Beijing has tried to appear relaxed about that, surveys are now showing output stagnating and jobs being shed across the key manufacturing sector.

The PBoC’s action also adds to the trend of central banks across the world easing monetary policy to fight off a growing threat of deflation–a trend that goes in the opposite direction to the U.S., where the Federal Reserve is preparing to tighten policy as the economic recovery gains traction after six years of emergency measures.

The PBoC cut its one-year deposit rate by 0.25 percentage points to 2.75% and the one-year lending rate by 0.40 percentage points to 5.6%.

It timed its announcement to come after the close of financial markets in China, but European stock markets surged on the news, as did prices for commodities such as crude oil. The benchmark contract on the New York Mercantile Exchange rose by $1.50 a barrel, or 2.5%, to its highest level in two weeks, while in Europe, the German DAX index soared 2% and the U.K.’s FTSE 100 rose 1.0%.

European markets were also buoyed by a strongly-worded speech by European Central Bank President Mario Draghi promising aggressive action to ensure the Eurozone doesn’t fall into deflation.

Official interest rates don’t have quite the same function in China’s economy as they do in western ones, due to their interplay with other tools, such as caps on deposit rates and statutory reserve requirements. And the market for money is in any case effectively sealed off from the rest of the world by China’s capital controls. As such, they may not have the same kind of stimulating effect that a similar move by, for example, the Federal Reserve (in the days before the 2008 crisis).

Interestingly, the PBoC also relaxed its control of the amount that banks can offer for deposits. They can now offer 1.2 times the benchmark rate, rather than 1.1 times. These range from 0.35% to 4% depending on maturity. The PBoC enforces a strict cap of 75% on loan-to-deposit ratios in the banking system.

Taken together, the measures look designed to support liquidity into a banking system that is facing challenges on a number of fronts. The sector is seeing a sharp rise in bad loans, especially to real estate developers and construction companies, which is hitting revenue. In addition, banks are also looking to raise capital themselves and amass cash to service clients’ demands for other stock offerings that are due next week in China.

Earlier Friday, the PBoC had felt the need to issue a statement via its account on the Chinese Twitter-equivalent Weibo reassuring market participants that liquidity was “ample”. Benchmark one-week interbank rates had risen by an alarming 0.2o percentage point to 3.48% earlier, according to the Wall Street Journal.

This article originally appeared on Fortune.com

TIME Bizarre

Feel Good Friday: 10 Photos to Start Your Weekend

From snow men to fire breathing, here's a handful of photos to get your weekend started right.

TIME Companies

Google Just Took its First Step Back Into China

The Google logo is reflected in windows
The Google logo is reflected in windows of the company's China head office as the Chinese national flag flies in the wind in Beijing on March 23, 2010. AFP/Getty Images

Chinese developers can now sell their apps as exports in Google's app store

Google is trying to woo mobile developers in China.

The search giant has announced that Chinese app developers will now be able to sell apps to Google Play users in more than 130 other countries. It’s one of Google’s first attempts to engage with the Chinese marketplace since leaving the country in 2010 in following conflicts with the government over national censorship policies.

The Google Play Store is severely restricted in China, so app makers in the country will be selling their wares as exports. It’s no surprise that Google is having second thoughts on leaving the country behind: China has more than 600 million Internet users, and that figure is expected to reach 800 million next year.

This olive branch to developers may be the first step in a more ambitious strategy. Google is reportedly looking to partner with a Chinese phone manufacturer or wireless carrier to launch a full-featured version of the Play store in the country, according to the Wall Street Journal.

TIME Bill Cosby

Morning Must Reads: November 21

Capitol
The early morning sun rises behind the US Capitol Building in Washington, DC. Mark Wilson—Getty Images

Obama Unveils Immigration Plan

President Barack Obama announced on Thursday night he is granting temporary legal status and work permits to almost 5 million undocumented immigrants living in the U.S. illegally, the largest single immigration action in modern American history

Behind Bill Cosby’s Silence

The comedian and his wife Camille have largely been reticent about sexual-allegations directed at him. History tells us why this silence is oppressive

Forecasters Warn of Rain in N.Y.

After relentless snowfall blanketed much of western New York this week, officials warned on Thursday that a new danger is now threatening the area — rain

NSA Warns Cyber Attacks Could Cripple U.S. Infrastructure

NSA director Mike Rogers said U.S. adversaries are performing electronic “reconnaissance” on a regular basis so that they can be in a position to disrupt the industrial control systems that run everything from chemical facilities to water treatment plants

World Heads Toward Warmest Year Ever

October marked the fifth month to break worldwide heat records. The National Oceanic and Atmospheric Administration announced on Thursday that the average global temperature for October was 58.43ºF (14.74ºC)

U.S. to Up Nonlethal Aid to Ukraine, Says Report

Washington is ready to increase its delivery of nonlethal aid to the Ukrainian government, but will refrain from furnishing Kiev with weapons to use in its fight against pro-Russian forces in the country’s southeast, according to a Reuters report citing unnamed U.S. officials

University of California Approves Steep Tuition Hike

Tuition at University of California schools could rise by as much as 28% by 2019 under a plan approved on Thursday. The vote by the system’s board pitted top state officials, including Governor Jerry Brown, against those who run the UC’s 10 campuses

Michael Brown Sr. Urges Calm Ahead of Grand Jury

The father of Michael Brown, the black teenager shot by a police officer in Ferguson, Mo., this summer, has asked people not to “hurt others” or “destroy property” ahead of a grand jury decision into whether the officer will be indicted in the killing

Suicide Helpline Aims to Help Transgender People

On 2014′s annual day of remembrance for transgender victims of violence, Trans Lifeline, a crisis hotline staffed entirely by transgender people, aims to help transgender people struggling with depression or suicidal thoughts

How TIME Reviewed the Work of Mike Nichols

The Oscar-winning director, who died on Wednesday aged 83, first appeared in TIME in 1958 as he was becoming famous as a comedian. But after Hollywood came calling, his movies got rave reviews from our critics — with one or two notable exceptions

Zoolander Will Return, With Penelope Cruz Attached

The Spanish actress will bring her finest Blue Steel to Ben Stiller’s long anticipated sequel to his 2001 supermodel comedy. No word yet on whether Will Ferrell and Owen Wilson will return for the follow-up, which is reportedly set in Europe

Oakland Raiders Win First Game Since 2013

The Raiders used a 17-play touchdown drive and a late defensive stop to pull off the shocking upset, 24-20. It was their first victory since a 28-23 triumph at Houston on Nov. 17 of last season

We will hold an #AskTIME subscriber Q&A today, Friday, November 21, at 1 p.m., with TIME Washington bureau chief, Michael Scherer, who wrote this week’s story on America’s New Anchor, Jorge Ramos of Noticiero Univision. His other stories can be found here.

You can submit your questions beforehand on Twitter using the #AskTIME hashtag or in the comments of this post. We depend on smart, interesting questions from readers.

You will need to be a TIME subscriber to read the Q & A. ($30 a year or 8 cents a day for the magazine and all digital content.) Once you’re signed up, you can log in to the site with a username and password.

Get TIME’s The Brief e-mail every morning in your inbox

TIME China

China Stock-Market Link Shows Promise and Frustration of Beijing’s Reforms

A banner introducing the Shanghai-Hong Kong Stock Connect is displayed in front of a panel showing the closing blue-chip Hang Seng Index at the Hong Kong Stock Exchange in Hong Kong
A banner introducing the Shanghai–Hong Kong Stock Connect is displayed in front of a panel showing the closing blue-chip Hang Seng Index at the Hong Kong Stock Exchange in Hong Kong on Nov. 10, 2014 Bobby Yip—Reuters

The new connection between the exchanges in Shanghai and Hong Kong is another small step toward prying open China’s financial system to the world

When Great Britain handed Hong Kong back to China in 1997, it did so under the formula of “one country, two systems.” Though officially controlled by Beijing, Hong Kong maintained a separate governing, legal and financial system from the mainland. Starting Monday, however, the relationship is changing to something more like “one country, two a-bit-more-connected systems.”

That’s because of Shanghai–Hong Kong Stock Connect, a pilot program that is linking the stock exchanges of the two metropolises together. For the first time, investors in Hong Kong and China will be able to directly trade shares on each other’s stock markets.

This may sound like an arcane event in the heady world of global finance, of interest only to a few local traders. But it’s not. Even though China is the world’s second largest economy, its financial system and capital markets remain fairly closed off. Controls limit flows of money in and out of the country, while foreign investors can buy Chinese shares only on a highly restricted basis. The Connect program is a step in a much bigger process with much bigger implications for the global economy — opening China up to international finance and upgrading its financial markets. The Stock Connect scheme “should increase the scale and relevance of these markets and also improve market efficiency and the robustness of China’s financial system in general,” HSBC equity strategists noted in a recent report. “We also believe the co-operation between Hong Kong and Shanghai shows the way forward for other markets in China — i.e. a coordinated and controlled approach to opening markets.”

If Beijing continues to reform its financial system — as its top leaders have pledged — the consequences could be huge. Already a titan in manufacturing, a China with a more open, professional and market-oriented financial sector could also become a major player in international banking and other services. Just as newly wealthy Chinese shoppers are reshaping global consumer markets, Chinese investors, once able to more freely take their money out of the country, would become much more important on the world stage too. HSBC, in its report, pointed out that if the Hong Kong exchange was integrated with China’s bourses (in Shanghai and Shenzhen), it would be the second largest stock market in the world, based on the combined value of their listed companies.

That is, of course, in theory only. China never employs the big-bang strategy when it comes to reform, and the Connect program is no different. At the start, the amount of money flowing through the scheme in either direction has been capped, to about $49 billion into China and $41 billion into Hong Kong. That may sound like a lot, but in fact, each figure is the equivalent of only 1% of the total capitalization of the markets in China and Hong Kong. Many investors may dither on the sidelines for the moment since there is some remaining uncertainty over how the scheme will actually operate.

Most analysts also doubt the scheme will be expanded quickly. “The Connect scheme has the potential over the medium term to become an important conduit for flows into and out of China,” commented Mark Williams, chief Asia economist at research firm Capital Economics. However, “most likely, the Connect scheme will be scaled up only slowly. And it has been devised so that flows will be monitored and could be curtailed if they threatened market or economic instability.”

So like much of China’s recent reform efforts, the promise of what could be and the reality of what actually is differ greatly. On a certain level, that makes sense. If China threw its unsophisticated and ill-prepared financial system to the trials of global money flows, disaster could result. At the same time, Beijing’s policymakers introduce change in such tiny steps it’s hard to tell when they might actually get somewhere.

TIME Music

Taylor Swift Takes Her Music Off Chinese Streaming Services

Taylor Swift Performs On ABC's "Good Morning America"
Taylor Swift Performs On ABC's "Good Morning America" at Times Square on October 30, 2014 in New York City. Jamie McCarthy—Getty Images

Will her refusal to stream for free lose her fans in a growing music market?

Earlier this year, Taylor Swift sold out Shanghai’s Mercedes-Benz Arena in one of her final concerts promoting her album Red. But today, Swift’s vociferous fans across China, just like their American counterparts, no longer have free access to her material.

This shouldn’t be surprising: Swift has removed her music from free streaming services globally, telling TIME: “I think there should be an inherent value placed on art.” But in the U.S., at least, there’s a popular option available for purchasing that art. Swift’s album sold huge amounts of copies at physical retailers like Target and on iTunes. But trade site China Music Business makes clear that the Chinese music-listening public isn’t accustomed to downloading music, and that the share of music consumption via download (as opposed to streaming) is only shrinking. In the U.S., Taylor Swift’s desire to ensure her music isn’t streamed for free is viable. There’s an existing music-sales apparatus that people are accustomed to using. Even a star of Swift’s caliber, though, may not be able to sell records in China.

This makes Swift’s removing her music from Chinese streaming services in some ways a bigger risk than her doing the same stateside, not least because those services aren’t necessarily equipped to accommodate her requirement that her music be on a special paid tier (Xiami, an Alibaba-owned streaming service with two different tiers separated by audio quality, cannot do so due to “technical issues”). Another problem for Swift: The companies have communicated almost nothing about the singer’s decision to the Chinese public. (The Spotify-Swift debate that’s still ongoing in the U.S. has as its Chinese counterpart bland statements from streaming services about “copyright reasons.” Swift has phenomenal power, to be sure. But overcoming ingrained issues with a listening public very different from America’s may well test that power’s limits.

TIME China

‘One-Night Stands’ Not Permitted Under China’s New Porn Restrictions

Masturbation and extramarital affairs are among the plot lines banned from streaming videos

Streaming videos in China are about to get a lot more tame: the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), a media regulator, announced new guidelines that prohibit depictions of sexual activities ranging from extramarital affairs to sexual abuse. The new restrictions, reportedly published in SAPPRFT’s circular, will also prohibit story lines involving kidnapping, gambling and violent crimes.

While some of the banned activities are quite specific (like murder), others are more vague, like too much touching. Websites with offending videos are required to cut or delete them and remove explicit headlines.

Opponents to the new regulations argue that once all of the prohibited content is cut, there may be little left to view. The Hollywood Reporter notes that it’s unclear what this will mean for American programs that stream in China, like Game of Thrones, which hardly goes five minutes without depicting sex or violence to some degree.

[Global Times]

TIME China

China Unveils New ‘Stealth’ Fighter in Show of Strength

China J 31 Fighter
In this In this photo provided by Xinhua News Agency, a J-31 stealth fighter takes off for test flight ahead of the China International Aviation & Aerospace Exhibition in Zhuhai, China's southern Guangdong province, on Nov. 10, 2014 Liu Dawei—AP

The FC-31's unveiling coincided with Obama’s visit to Beijing for the APEC summit

On Tuesday, military-hardware enthusiasts in China got a first glimpse of the country’s new “stealth” fighter jet at the China International Aviation & Aerospace Exhibition in Zhuhai, in southern Guangdong province.

This was the first time China has unveiled such an aircraft while it was still in the development stage, CNN reports.

The Aviation Industry Corporation of China based the new twin-engined Shenyang FC-31 fighter on its ongoing J-31 Falcon Eagle program.

But just how “stealthy” the jet will be is impossible to tell without knowing how it was built, says Reuben F. Johnson, correspondent for IHS Jane’s Defense Weekly.

He told CNN that the aerodynamics could have been better designed as the fighter “bleeds” energy when it goes into a turn and is quick to lose altitude.

Add a couple of weapons and prep it for a mission and the FC-31’s weight will make it perform even worse, Johnson says.

But the unveiling could have been a show of strength from China’s People’s Liberation Army, as the event coincided with U.S. President Barack Obama’s visit to Beijing for the APEC summit.

Read more at CNN

TIME Hong Kong

Hong Kong’s Pro-Democracy Student Protesters Prepare to Visit Beijing

Chow, secretary-general of the Hong Kong Federation of Students, attends a rally at the Chinese University in Hong Kong
Alex Chow, secretary-general of the Hong Kong Federation of Students, attends a rally at the Chinese University in Hong Kong on Sept. 22, 2014 Bobby Yip—Reuters

But many doubt they will be allowed to board the plane

Three leading Hong Kong student protesters plan to visit Beijing on Saturday to press their demands for greater democracy.

Alex Chow, Eason Chung and Nathan Law from the Hong Kong Federation of Students (HKFS) want to ask China’s leaders to allow the Special Administrative Region to have unfettered elections for its top post of chief executive in 2017.

Beijing has allowed a popular vote but insists on first vetting all candidates through a 1,200-strong nominating committee perceived as loyal to the Chinese Communist Party. Pro-democracy activists see this as a betrayal and have paralyzed large swaths of Hong Kong for six weeks in protest.

The HKFS trio hope to discuss the Occupy movement with Chinese Premier Li Keqiang, but many doubt they will be allowed to leave Hong Kong.

The Hong Kong government, taking its cue from Beijing, views the protests as illegal. Hong Kong has been governed by the “one country, two systems” principle since Great Britain handed the territory back to China in 1997.

Businessmen are fearful of the economic impact of the protests on one of Asia’s main financial centers. Plans are already under way for police to clean diminishing protest sites on Monday or Tuesday, according to local media.

TIME #TheBrief

#TheBrief: The Most Important Thing About the U.S.-China Climate Deal

The ambitious plan will face opposition at home and abroad

The U.S. and China announced a landmark joint agreement Wednesday to cut back on greenhouse gas emissions.

“We have a special responsibility to lead the global effort when it comes to climate change,” stated Obama at the APEC summit on Nov. 12.

Together, the U.S. and China emit almost a third of the world’s greenhouse gasses. Under the terms of the proposal, the U.S. will emit at least 26% less carbon dioxide in 2025 than it did in 2005. China said it would boost use of renewable and nuclear energy to begin reducing emission levels.

This plan, however, is not popular with everyone. Watch #TheBrief to find out the most important thing about the deal.

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser