Amid the ongoing trade war between the U.S. and China, it seems that Beijing may be getting the short end of the stick already.
On Sunday, the People’s Bank of China said it was cutting the reserve requirement ratio for most banks by 100 basis points, which will result in an injection of 750 billion yuan ($109.2 billion) in cash into China’s banking system. The move is intended to provide easier lending and more liquidity in China's economy as the impact of U.S. sanctions start to hit manufacturing and the overall economy.
Several analysts are claiming that the ratio move shows China is getting nervous about a protracted trade war with the U.S. However, if China is getting the jitters, the official tone coming out of Beijing is more stiff lipped defiance. The government claims in a 71-page paper that it’s not afraid of a trade war and that its economy is “heavily resilient.”
Fraser Howie, an independent analyst and China watcher told CNBC on Monday that "China is probably facing its worst period since the global financial crisis.”
“All news is against it,” he said. "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.”
Bloomberg News said in a report that the Bank of China move was understandable as a short-term response to a more challenging growth environment, but it risks being another attempt to crank up an old economic- model whose effectiveness has declined and whose unfavorable side effects could increase. The bank move also could be a preemptive step to avoid massive outflows of investor money from its financial system if the trade war continues.
On the energy front, China has already blinked, maybe even twice or thrice (if that is a word).
First, it conceded in August by removing U.S. oil imports from a list of possible duties. Two months earlier, China - perhaps trying to either intimate U.S. oil producers (who have been largely supportive of Trump’s policies thus far) who would in turn pressure President Trump, or either by pressuring Trump directly, indicated it would levy a 25 percent duty on U.S. oil imports.
Second, since China is the largest buyer of American crude, Beijing likely discarded one of its strongest bargaining chips in the trade war so far. Some reports claim that U.S. oil imports to China are worth $8 billion all by themselves, so erasing oil from the tariff list reduced the value of sanctioned goods by roughly one-third.
As far as Beijing’s LNG tariff threats are concerned, the reduction from an earlier 25 percent duty to 10 percent could also be considered another blink on China's part. Beijing, though it does have a host of other gas and LNG suppliers, at the end of the day still needs American LNG as the country continues to pivot away from dirtier burning coal needed for power production in favor of cleaning burning natural gas. By 2020, per government mandate, gas is earmarked to make up at least 10 percent of China’s energy mix, with further earmarks by 2030.
Moreover, Beijing's 10 percent duty on U.S.-sourced LNG will merely see that cost passed onto China's state-run oil majors, while also increasing revenue for LNG sellers, including American LNG exporters.https://archive.fo/dJ8HFhttps://www.zerohedge.com/news/2018-10-10/china-blinks-first-lng-face-us