On October 21st, the central bank made a significant decision to slash interest rates by 0.30%, marking its third reduction in 2024 and the largest rate cut in financial history. This move has sparked various speculations and even conspiracy theories. Some market insiders suggest this could be a carefully orchestrated strategy in collaboration with foreign entities. They believe that after a significant influx of capital, the Federal Reserve might respond with a rate hike in November, diverting global financial attention.

But is there any truth behind this theory? It’s a question that deserves careful consideration.

Let’s first analyze the broader implications of this rate cut. Many investors are wondering if this signals the start of a new bull market. However, given the economic stagnation over the past five years, relying solely on interest rate cuts might not be enough to ignite substantial growth.

The Federal Reserve’s Next Move: What’s at Stake?

As the world’s foremost financial leader, the U.S. plays a pivotal role in shaping global economic trends. In September, the Federal Reserve reduced rates by 0.60%, prompting previously stagnant capital to start flowing once again. Since China's entry into the World Trade Organization (WTO), global trade and finance have become increasingly interconnected, making the U.S. nervous about China’s rise as the second-largest economy.

The main concern? There’s no "new economic pie" being created, so the U.S. has to share its existing wealth. This has led to friction as the profit margins available to U.S. capitalists have been reduced, partly due to China’s economic ascent.

Since 2022, the U.S. has initiated a series of aggressive measures against China across several sectors, followed by a cycle of interest rate hikes. This set the stage for a well-calculated economic maneuver by the Federal Reserve.

By manipulating interest rates, the U.S. financial system seeks to gain the upper hand in the global market. When the Fed lowers rates, American financiers take advantage of cheap dollars to invest abroad. These dollars accumulate in foreign central banks. When the Fed later raises rates, these dollars flood back into the U.S., depleting the reserves of other countries. This could lead to currency devaluation and, in some extreme cases, trigger financial crises.

This ‘shearing sheep’ strategy—where the U.S. cycles between cutting and hiking rates to redistribute global wealth—is a calculated method of exerting financial control. By first creating liquidity through rate cuts, the U.S. allows its currency to flow into foreign markets. Once conditions are ripe, a rate hike recalls these dollars, leaving foreign nations to struggle with weakened currencies and economic turmoil.

So, when the central bank announced a 0.30% rate cut on October 21st, it wasn’t surprising that suspicions arose once more.

However, while the U.S. commands significant global financial influence, this tactic may not be as effective against China, which boasts a history of strategic wisdom spanning thousands of years.

China’s Strategic Response

Despite the potential risks, China isn’t hesitant to lower its interest rates. First, let’s look at the U.S. economy. Despite the rate cut, robust non-farm payroll data released on October 4th suggest the U.S. economy remains strong. Yet, the international landscape tells a more complicated story.

Before the U.S. made its move in September, Europe had already embarked on its own rate-cutting cycle. If the U.S. decides to raise rates again, it could deal a severe blow to its allies, particularly the international capital that has already fled the American financial system.

Can the U.S. Afford Another Hike?

The question now is whether the U.S. economy can bear another interest rate increase. According to the U.S. Treasury, the national deficit reached $1.95 trillion in 2024, with over $1.2 trillion in interest expenses alone. Further hikes would only deepen the fiscal hole, with the total national debt poised to surpass $38 trillion, regardless of whether the next president is Harris or Trump.

Unless the U.S. opts for a drastic, unprecedented move like defaulting on its debts—an action that would shake the very foundations of global finance—the U.S. could be digging its own grave. After all, the country spent decades dismantling the British pound’s gold standard to establish dollar dominance after World War II. Any moves to renege on its debts could lead to the collapse of dollar hegemony.

A-Shares and China’s Bull Market Outlook

So, what does China’s interest rate cut mean for the A-shares market? From press conferences in late September to the recent cut in October, it’s clear that China is determined to revive its stock market, even in the face of pressure from global financial institutions.

It’s crucial to recognize that China’s stock market was originally designed to help state-owned enterprises (SOEs) overcome financial difficulties. The bull market of 2006 was aimed at facilitating the privatization of state-owned shares and driving market reforms.

The current push for a bull market is rooted in China’s broader goals for modernization, which require sustained economic growth. The stock market plays a crucial role by providing capital and investment opportunities, stimulating economic activity, and instilling market confidence. China’s modernization efforts will undoubtedly benefit from a strong bull market.

However, China is also grappling with several pressing economic challenges, such as growing structural imbalances and the coexistence of inflation and deflation across different sectors. These problems have led to stagnation in some parts of the economy.

Although China has adopted various measures to counteract these issues, the results have been underwhelming. The scope for further monetary easing is limited, and continued rate cuts may even exacerbate the risk of stagflation.

Broader Implications: Global Capital Flows and Domestic Policy

The global financial landscape is highly complex, and international capital is constantly seeking safer and more profitable investment opportunities. While China’s rate cut may attract capital inflows, these investors will also evaluate the country’s economic fundamentals and policy consistency.

In addition, unchecked capital inflows could spark asset bubbles or other financial challenges. Therefore, while China seeks to attract investment, it must simultaneously ensure that it regulates and manages these inflows effectively.

From a business perspective, lower interest rates could ease borrowing costs for companies, encouraging expansion and investment. However, this also depends on market sentiment. If businesses are pessimistic about the future, they may refrain from investing, despite lower borrowing costs.

Different sectors will respond differently to rate cuts. Capital-heavy industries, such as real estate and manufacturing, stand to benefit, though they also face significant challenges like overcapacity and inventory surpluses. Rate cuts may provide short-term relief but won’t solve these deeper issues.

For consumers, rate cuts have mixed effects. Lower deposit rates may drive people away from savings accounts and into riskier investments. But not everyone is financially literate, and poor investment decisions could lead to losses. On the flip side, reduced loan costs might encourage consumers to make big-ticket purchases, like homes or cars, but only if they have confidence in their income and job prospects.

In conclusion, interest rate cuts are a multifaceted economic tool with far-reaching implications. While they offer some potential benefits, they aren’t a silver bullet for deeper economic challenges. To achieve sustainable growth, a more comprehensive approach is required—one that includes structural reforms, technological innovation, and strengthened international cooperation.

Only then can both China and the global economy navigate these turbulent financial waters toward long-term prosperity.

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