China's decision to cut rates points to escalating concerns about a slowdown in economic growth.

Turmoil engulfed global financial markets in the wake of an unprecedented shakeup on Wall Street that saw Lehman Brothers (LEH:Lehman Brothers Holdings Inc"Lehman et al. do not have any direct impact upon China's banks -- exposures to them in the Chinese banking system are small, but the fear must be about the medium-term impact through the real economy, and of investors just selling out of panic," Green said. "This is the strongest positive message the market has seen in ages from Beijing."
Chinese officials appear to perceive inflation as a "less serious threat," particularly considering the decline in commodities prices in recent weeks, Green said. Other analysts agreed that China's decision to cut rates points to escalating concerns about a slowdown in economic growth.
Flemming Nielsen, senior analyst at Danske Bank, said that the Chinese government is "shifting its focus from fighting inflation to stimulating growth."
The recent sharp decline in consumer price index inflation has made this policy shift possible, Nielsen said in a research note. CPI in August declined below 5% from the year before and is likely to decline further below 4% in early 2009, he said.
"The macroeconomic picture currently is growth moderation rather than a sharp contraction, and the underlying inflationary pressure should not be underestimated," Nielsen said. "Thus it would be premature to expect major fiscal easing soon."
Diana Choyleva, an analyst at Lombard Street Research, was critical of the central bank's move.
"China's surprise policy rate cut is bad news," Choyleva said in a research note. "The authorities have switched their priority from fighting inflation to supporting growth when there is no clear evidence either that the economy's overheating has been curbed or that there has been a marked growth slowdown."
While headline inflation has declined, producer and core price inflation are still rising, she said. In addition, China controls some key prices, such as those of energy, education and medicine. Broad money and credit growth continue to be robust.