Contrary to popular belief, falling interest rates reflect a weak economy where banks are de-risking and moving to safety, not a successful stimulus policy. China's current situation, with plunging rates and slowing growth, is a perfect real-world example of Milton Friedman's "interest rate fallacy."
Because commercial bank loans are created from nothing, repaying that debt doesn't transfer money—it extinguishes it. This process of "zeroing out" the ledger via double-entry accounting actively removes liquidity from the system. A slowdown in new lending combined with debt repayment can rapidly shrink the money supply.
Unlike a monolithic central bank, China relies on thousands of local banks. These banks are pressured by local governments, who must hit CCP-mandated growth targets, to issue high-risk loans. This top-down pressure on a decentralized system creates a massive, hidden credit bubble.
In a weak economy, government stimulus often fails because it's reacting to underlying fundamental problems, like a banking sector that is de-risking. Chinese data shows that as government bond issuance (stimulus) has skyrocketed, economic growth has continued to decline, proving the stimulus isn't working.
Japan's "lost decades" demonstrate that once a population becomes psychologically conservative—saving instead of spending and avoiding risk—no amount of stimulus can restart the economic engine. This is a warning for the US, where people ejecting from the workforce reflects a psychological shift that policy alone can't fix.
To meet aggressive CCP growth quotas without breaking rules against direct borrowing, local Chinese governments create corporate entities (LGFVs). These entities then borrow heavily from commercial banks, creating a huge, opaque system of high-risk debt that is now becoming unstable as the economy slows.
The vast majority of new money (liquidity) enters the economy when local banks create it "out of thin air" by issuing loans. The central bank's role is merely to enable this process. Therefore, tracking local bank lending is a more accurate gauge of economic health than focusing on central bank actions.
Unless you are a full-time, proven professional trader, you cannot possibly know enough to time the market or predict specific outcomes accurately. The only rational strategy to protect against this inherent ignorance is diversification across various asset classes, rather than making concentrated bets.