Expansion may drop to 7 percent or “slightly below” this quarter from a year earlier, Dong Tao, a Hong Kong-based economist with Credit Suisse Group AG said last month. Ding Shuang, a Hong Kong-based economist at Citigroup Inc., forecast 7.5 percent. That follows an 8.1 percent expansion in the first three months of the year, the fifth quarterly deceleration.

Tao said the government may respond with a stimulus of as much as 2 trillion yuan, half the size of a package announced in late 2008 to cushion the economy from the impact of the global financial crisis.

Even so, the official Xinhua News Agency said in a May 29 article that the government has no intention of rolling out another “massive” stimulus, damping speculation of more- aggressive policies to support growth.

China's inflation has slowed this year, giving the government more room to ease policies. The consumer-price index rose 3.4 percent in April from a year earlier, the third straight month it's been below the official target of 4 percent. The rate was 6.5 percent in July, the highest since 2008.

Eoin Treacy's view China led the way in terms of monetary austerity as it unwound the 2009 stimulus. The spread between the 10yr and 2yr hit zero late last year and has since reversed course. Rather than considering today's interest rate cut as an isolated event I believe it is important to view it in the context of a broad spectrum easing program which is by no means over. The Chinese authorities have been quick to disabuse investors of expectations that it is about to flood the market with liquidity as it did in 2009, however that does not preclude the potential for additional simulative measures.

The Shanghai A-Share Index will need to find support above 2350 if medium-term recovery potential is to remain credible. The Hong Kong listed H-Shares Index needs to sustain a move above 10,000 to indicate a return to demand dominance.

The Chinese have committed themselves to not reflating the property bubble and have recognised that their reliance on infrastructure investment at this stage of development is no longer the most productive route to prosperity. Taking this into account, the repercussions of Chinese easing will probably be more positive for the consumer sector than the traditional commodity demand growth sector.

This report from Deutsche Bank, kindly forwarded by a subscriber may also be of interest.