The first round...

...of competitive devaluation.

When you are a price insensitive purchaser of foreign bonds (in order to prop up your flailing export industry), this seems like a rational response...unless you also have inflation approaching 8%.

http://biz.yahoo.com/rb/080915/china_economy_pboc.html

BEIJING (Reuters) - China's central bank, acting against a background of extreme stress in global financial markets, cut benchmark lending rates by 0.27 percentage point on Monday.

The cut lowers the cost of one-year bank loans to 7.20 percent.

Benchhmark deposit rates remain unchanged with the one-year rate at 4.14 percent.

The People's Bank of China also cut the reserve requirement for all except the country's five biggest banks and the Postal Savings Bank by 1 percentage point.

It is the first time that the central bank has lowered the proportion of deposits that lenders must hold in reserve since November 1999.