China says it's not afraid of trade war with the US — its actions show Beijing is nervous

CNBC ^ | 10/8/2018 | Yen Nee Lee

[Zhang Fei]

The decision by China's central bank to cut the amount of reserves held by banks is an indication that authorities in the world's second-largest economy are getting nervous about a long-drawn trade war with the U.S., experts said.

China insisted last month, in a 71-page paper, that its economy is "highly resilient" and Beijing is not afraid of a trade war.

At the World Economic Forum in Tianjin, China in September, an official from the country's securities regulator said there was nothing President Donald Trump's administration could do to make a significant dent in the Chinese economy. Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said that the worst that could happen is the U.S. imposing levies on all Chinese imports, but that would only hit 0.7 percentage points of China's growth.

But the central bank's move to ease some pressure on the banking sector signals that the situation in China is perhaps not all rosy, experts noted.

"China is probably facing its worst period since the global financial crisis. All news is against it," Fraser Howie, an independent analyst who has written books about China and its financial system, told CNBC's "The Rundown" on Monday.

"They certainly want to play down any talks of panic or near panic ... but they're clear it's not business as usual in China," he added.

The People's Bank of China announced on Sunday a 100 basis points cut to the reserve requirement ratio (RRR) for most banks, which will result in an injection of 750 billion yuan ($109.2 billion) in cash into the banking system. But the central bank maintained that its monetary policy is still prudent and neutral — not accommodative.

A neutral monetary policy means the central bank is neither trying to slow nor stimulate the economy.

[Zhang Fei]

Normally, China would pretend to cave, and we'd pretend that they were caving, while keeping to the same old rules. Given the rival factions circling and plotting to oust him out of simple self-preservation, Xi is likely to hang tough, since any concessions would reek of weakness. We are unlikely to see any movement on Chinese protectionism even if the Chinese bubble finally bursts and the economy starts contracting big time (i.e. 15-20%). At that point, Xi's hold on power will be seriously weakened, and he'll be spending all his time quashing intra-party factional plots against him rather than worrying about trade policy.

[Zhang Fei]

What’s significant about this move is that it’s the fourth time the central bank has cut the reserve requirement ratio in 2018. That’s not normal.

[ZULU]

Trump is setting up the Economic version
of the Battle of Canna to take out these thugs with trade.

[be-baw]

Great analysis.

[mrsmith]

China m,arkets down 4% and Yuan down 1/2% LOL!

[Vince Ferrer]

The People's Bank of China announced on Sunday a 100 basis points cut to the reserve requirement ratio (RRR) for most banks, which will result in an injection of 750 billion yuan ($109.2 billion) in cash into the banking system.

So what? China's economy is slowing down, it doesn't need money for new factories, its overseas investments in places like Africa are slowing. What would anyone do with the money?

[Jeff Chandler]

They’re afraid the market for tilapia will dry up and they’ll have to drain the sewage ponds they grow them in.

[Zhang Fei]

[Great analysis.]

---

The maneuvering in China right now is the kind of thing you get in countries where oligarchy (rule by a group of self-appointed elders) devolves into absolute dictatorship. I’d say it’s akin to the transition from the Roman Republic (with the difference that Chinese plebes, unlike the Roman citizens of old, have no vote) into the Roman Empire. It’s basically the Senate (the Party’s senior people) vs Julius Caesar (Xi), although Xi is just a backroom schemer with nowhere near Caesar’s many accomplishments, and therefore, no particular prestige and therefore hold on loyalty among the major power-holders, except those he personally appointed.

I expect they are all getting ready for the big game internally, which may end up with Xi getting ousted in favor of one of his rivals or being on big fizzle. In this time period, the economy is the least of the Party’s worries. They are all trying to figure out who will win and looking to side with that winner. The problem for Xi is that he is attacking so many people that he could end up with all of them, despite their disparate and mutually antagonistic interests, lining up against him. Who will be Xi’s Brutus and Cassius? Or will Xi defeat his rivals in detail? Time will tell. Too bad they can’t all lose.

[Gene Eric]

It should be. Communism is without fortitude.

[cba123]

The thing is, at the moment America is spending a new world record amount, paid to China, from America to buy things which were made, there in China.

An all time record amount, spent by America, paid to China.

China is making tons of money, right now, and America is paying it.

We are building up China.

Not the right approach, in my humble opinion.

[nikos1121]

I’ve always thought, why not send our products for manufacture to South America of even Africa? Certainly now, it seems Mexico and Central and S. America could make these products.

Buttom line, get gov’t out of our pockets, and American will once again make these products and better.

Stupid politicians we’ve had.... Bush, Sr., Clinton, Bush, Jr, Obama... each year was worse than before.

[nikos1121]

For years and years China and the other countries have laughed at us. Laughed...

Look at this video of Corrine Kennedy the ambassador to Japan.

This is so embarrassing, that it makes me sick.

https://nypost.com/2016/12/21/caroline-kennedy-koi-dance-video-goes-viral-rightfully/

[BeauBo]

“Normally, China would pretend to cave, and we’d pretend that they were caving, while keeping to the same old rules.”

I think it is different this time. I don’t think that Trump wants a new trade deal with China, like he wanted with the EU, NAFTA, Korea, or Japan. I think his objective is to pull the supply chain out of communist China for good. I think he will place across the board tariffs, and then just sit back to let them do the work.

Although exports to the USA might only be 4-5% of China’s GDP, supporting supply chain activity accounts for more, and exports to other areas may take a smaller hit as well, from the new deals the USA signed with other nations.

Much more significant than even the contraction in the manufacturing sector (concentrated in Guangdong), will be the relatively huge reduction in foreign currency earnings(real money). China needs to import a relatively high proportion of its raw materials and energy, for which it needs foreign reserves. Its foreign reserves from exports have given it the buffer in the past, to protect its currency and stock markets from crashing.

This is not going to be a gradual adjustment either, in global/historical terms. So far, President Trump has spent his time in office preparing to force this adjustment - warning companies, lowering US taxes and regulations to pick up the business, and renegotiating trade arrangements with the EU, NAFTA, Japan and Korea; to close the major backdoors for Chinese exports to avoid tariffs.

The tariffs themselves are just now going into effect. 24 September 2018 was the real start, with the first round a few months earlier being relatively trivial. On January 1st, 2019, they kick up to significant levels (25% tariffs on almost half of communist Chinese imports). By then however, the comment period will be up on the next round of tariffs - essentially all the rest.

There is a train wreck coming for communist Chinese exports next quarter. Everyone can see it coming, and no one can stop it. The supply chain will come out, faster than it went in.

[JudgemAll]

Less than 3% growth in China and the cities cannot absorb the peasantry, and the whole shebang goes to hell

China is hungry, and it reminds me of the crazy beast in Revelations which tramples on everything.