SINGAPORE - The People's Bank of China cut its benchmark lending rate and reserve requirement ratio yesterday (Aug 25). And as I look at the screen - a few greens, a few reds. In short, the market was not impressed. Actually, the Shanghai Composite is down another 1 per cent.

And the market's indifference is understandable. Let's break down the GDP (the economy) to its components: C+I+G+(X-M). Where C is consumption, G is government spending, I is investment and (X-M) is net exports.

You can't stimulate consumption via interest rate cuts. At least not in Asia anyway. Now, you might get a bit of movement if you did that in the US or indeed, Australia. But Chinese consumers are not going to say: "Hey, my credit card interest rate just went down 0.5 pr cent, let me go out and buy a new TV set on credit." What is more likely to happen is the consumer is going to say: "Hmm, my savings deposit will earn me a bit less now, so I better spend a bit less and save a bit more to offset that." Counter-productive.

In other economies, you would expect either boosting the amount of credit available (via a reserve requirement ratio cut) and that making that credit cheaper might, over time, lift investment growth. But so far, these cuts - which started late last year - have not done very much. The problem in China is investment had been dominated by the state and state-owned companies. So this component is driven by policy rather than the "animal spirits" of the private sector which might be stimulated by cheaper and more available credit.

Also, you don't stimulate net exports through interest rates, which explains why the Chinese allowed the yuan to devalue recently.

Now that leaves us with "G" - government. And this is what the market is waiting for - the "big bazooka" of government spending. The problem with that is the state must be thinking how this can solve its problems when the last time it unleashed that "big bazooka', it backfired - hence the higher non-performing loans and the higher credit to GDP ratio problems of today.

The writer is chief investment officer at DBS' Consumer Banking Group and Wealth Management.