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(CNBC) - By Jeff Cox - China's move this week to keep its economy afloat isn't generating the big headlines that Europe's actions got, but is no less important in keeping the world's economic engine churning.
While coordinated action by the world's other central banks to enhance liquidity for Europe's banks stole the focus Wednesday, China's decision to cut reserve requirements for banks was even more important, some believe.
That's because the developed world has come to depend on China for a variety of reasons — from buying up American debt to providing loans to growing businesses to keeping its mighty manufacturing base growing.
Easing the amount of money banks have to keep on hand, as the People's Bank of China did with a lowering of the rate by half a percentage point, helps accomplish those goals by keeping the lending spigots flowing.
"A change in the reserve requirement literally either frees up or delimits real lending by that nation's banks," hedge fund manager Dennis Gartman told subscribers to The Gartman Letter. "A lowering — or raising — of funding costs is a fly on the mule's skin, but a change in the reserve requirement is a board laid straight away to the mule's forehead."
Worries over China's economic growth have come as a surprise. Whereas the nation actually had been trying to slow down and control inflation that peaked above 6 percent over the summer, it now finds itself fighting to avoid a slowdown triggered by the European crisis.
Fresh data Thursday showed the Chinese factory sector contracting for the first time in three years, as a purchasing managers' index slipped to 49.0, the lowest since February 2009.
Gartman asserted, then, that the change to the reserve rate requirement in China trumps the decision by six major central banks, including the U.S. Federal Reserve , to cut the interest rate charged for currency swaps. That move essentially lowers the cost of liquidity injections into areas, Europe in particular, that may need it should markets freeze up.
The two moves, though not explicitly coordinated, attack the same problem.
In the case of the PBOC action, the goal is to make sure the nation maintains its ability to grow as it faces a difficult period, inspired mostly by the slowdown in Europe and the corresponding pullback in demand for Chinese products.
Read full story at CNBC.com...
