Surprise China rate cut highlights tough choices facing Xi Jinping

PBOC on Tuesday lowered the rate on its one-year loans by 15 basis points to 2.5%-the steepest cut in three years

President Xi Jinping has resisted pulling the trigger on a major stimulus to revive the world's second-biggest economy. The grim market reaction to a surprise rate cut shows investors want to see him take much bolder steps.

The People's Bank of China (PBOC) on Tuesday lowered the rate on its one-year loans-or medium-term lending facility-by 15 basis points (bps) to 2.5%, the steepest cut in three years. The move came shortly before the release of July data that showed weak consumer spending growth, sliding investment and rising unemployment.

Zooming out, the economic picture looks even worse. Bank loans plunged to a 14-year low last month, while deflation is setting in and exports are contracting. One of China's largest property developers is at risk of default and a financial conglomerate with 1 trillion yuan ($138 billion) under management missed payments on investment products, stoking fears about possible contagion.

All of that is adding pressure on Xito do more in two areas he has sought to avoid: Helping out the heavily indebted property sector and giving consumers more cash to spend something an adviser to the PBoC this week called "the most urgent goal".