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China’s Central Bank Flooding Economy with More Cash To Prop-Up Sagging Growth

The command economy that is China is showing evident signs of a significant economic slowdown. The People’s Bank of China (PBOC), the country’s central bank, has announced a sharp cut in the amount of cash banks must hold as reserves to release more cash to harried small businesses reeling from the United States’ trade war with China

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Arthur J. Villasanta – Fourth Estate Contributor

Beijing, China (4E) – The command economy that is China is showing evident signs of a significant economic slowdown. The People’s Bank of China (PBOC), the country’s central bank, has announced a sharp cut in the amount of cash banks must hold as reserves to release more cash to harried small businesses reeling from the United States’ trade war with China.

The reduction in the mandatory reserve ratio requirement or RRR should help lower financing costs and spur growth amidst a steadily worsening trade war. This is the fourth RRR cut implemented by the PBOC this year, and one or two more cuts are expected before the year ends, said economists.

The RRR currently stands at 15.5 percent for large commercial lenders and 13.5 percent for smaller banks. PBOC will cut these percentages by 100 basis points effective Oct. 15. It also implemented a 100 basis points cut in April.

This RRR cut will inject a net $109.2 billion in cash into the banking system by releasing a total of $173 billion in liquidity. Some $65 billion of this total will offset maturing medium-term lending facility (MLF) loans.

Despite the cash flush economy, smaller companies (which account for the bulk of employment) are having a hard time securing bank loans. These small and micro-enterprises also have to contendwith rising borrowing and operating costs.

The dearth of funds for small firms has been worsened by the central government’s crackdown on shadow banking, the main source of easy funding for small and micro-firms. The government is worried about the systemic risks to the economy posed by untrammelled shadow banking.

PBOC has repeatedly urged banks to significantly lower funding costs for smaller firms but with hardly any success. Banks still prefer to lend to large state-owned enterprises and corporations to maximize profits and reduce risks.

The weighted average lending rate for non-financial firms (which reflects corporate funding costs) rose to 5.97 percent (up by 1 basis point) following a rise of 22 basis points in the first quarter and 47 basis points in 2017.

China is also trying to prevent far lower economic growth by investing billions of dollars in infrastructure projects. Investment growth has slowed to a record low.

The trade war with the U.S. is forcing China’s policymakers to shifting their priorities to reducing risks to growth, and not on expanding growth. China’s economic growth rate slowed slightly to 6.7 percent in the second quarter year-on-year based on suspect data from the government. The true growth rate might be much lower, said some Western analysts.

The “very timely” RRR cut is big enough to help boost confidence in the economy, said Xu Hongcai, deputy chief economist at the China Center for International Economic Exchanges, a Beijing think tank.

“The trade war’s impact on the economy is showing. There is room for further reductions and I expect another 1 percentage point cut by the year-end.”

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Politics

US Budget Deficit Hits Record $204.9B for November

The federal budget deficit surged to a record for the month of November of $204.9 billion, but a big part of the increase reflected a calendar quirk.

In its monthly budget report, the Treasury Department said Thursday that the deficit for November was $66.4 billion higher than the imbalance in November 2017.

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Washington, DC, United States (VOA) – The federal budget deficit surged to a record for the month of November of $204.9 billion, but a big part of the increase reflected a calendar quirk.

In its monthly budget report, the Treasury Department said Thursday that the deficit for November was $66.4 billion higher than the imbalance in November 2017.

But $44 billion of that figure reflected the fact that December benefits in many government entitlement programs were paid in November this year because Dec. 1 fell on a Saturday.

For the first two months of this budget year, the deficit totals $305.4 billion, up 51.4 percent from the same period last year. The Trump administration is projecting that this year’s deficit will top $1 trillion, reflecting increased government spending and the loss of revenue from a big tax cut.

The new report showed that the higher tariffs from President Donald Trump’s get-tough trade policies are showing up in the budget totals. Customs duties totaled $6 billion in November, up 99 percent from November 2017.

Trump has imposed penalty tariffs on steel and aluminum imports froma number ofcountries and on $250billionof Chinese imports as the administration seeks to apply pressure to other countries to reduce their barriers to American exports. However, China and other nations have retaliated by imposing penalty tariffs on U.S. exports, sparking a tit-for-tat trade war.

The administration still believes it will prevail and is currently in talks with China over trade practices the administration feels are unfair to American companies and workers.

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Criminal Probe Launched into Trump’s Inaugural Spending

Federal prosecutors based in Manhattan have launched a criminal probe to determine if $107 million in donations to then President-elect Donald Trump’s inaugural committee were illegally spent.

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Manhattan, NY, United States (4E) – Federal prosecutors based in Manhattan have launched a criminal probe to determine if $107 million in donations to then President-elect Donald Trump’s inaugural committee were illegally spent.

Investigators are also looking into whether some of the committee’s top spenders traded money for access to the incoming Trump administration. They also want to know if Trump’s people sought money in exchange for “policy concessions or to influence official administration positions.”

Giving money in exchange for political favors can run afoul of federal corruption laws. Diverting funds from Trump’s inaugural committee, which is a registered nonprofit, also violates federal law.

More specifically, Trump’s inaugural committee is being probed for accepting cash-for-access from Middle Eastern nations like Qatar, Saudi Arabia and the UAE. Secret recordings made by Trump’s personal lawyer Michael Cohen revealed these cash-for-access transactions.

Investigators are focusing on Middle Eastern donors like Qatar, Saudi Arabia and the United Arab Emirates. They’re trying to determine if these nations used straw donors to disguise their donations to Trump’s inaugural committee and the pro-Trump super PAC, Rebuilding America Now, in hopes of buying influence.

Foreign nations are banned from contributing to federal campaigns, PACs and inaugural funds by law.

Federal prosecutors have questioned Richard Gates, ex-partner of former Trump campaign chairman Paul Manafort. In February, Manafort pleaded guilty to conspiracy and lying charges lodged by special counsel Robert Mueller.

Gates served as deputy chairman of Trump’s inaugural committee. He’s cooperated with investigators in Mueller’s probe of Russian interference during the 2016 U.S. presidential election.

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China Beginning to Feel the Pain from Trump’s Trade War

China said its retail sales and industrial output growth for November badly missed their targets, confirming that China’s economy continues to slow down amid Trump’s trade war.

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Arthur J. Villasanta – Fourth Estate Contributor

Beijing, China (4E) – China said its retail sales and industrial output growth for November badly missed their targets, confirming that China’s economy continues to slow down amid Trump’s trade war.

China’s National Bureau of Statistics (NBS) reported that industrial output grew 5.4 percent year-on-year, the slowest pace in almost three years. This growth was also lower than the 5.9 percent analysts had predicted.

On the other hand, retail sales rose 8.1 percent, which is the weakest pace since 2003. This pace is also lower than the 8.8 percent analysts expected. November retail sales growth was down from 8.6 percent in October.

Fixed asset investment rose 5.9 percent from January to November, marginally higher than the 5.8 percent forecast by economists. FAI rose 5.7 percent from January to October.

Despite Trump’s trade war, data from China unexpectedly shows its economy on the upside for much of 2018. Manufacturing benefited from front-loading, or rushing to ship as much goods as possible, before tariff deadlines hit on Jan. 1, 2019.

The weaker Chinese data in November shows the positive impact of front-loading is beginning to vanish and that downward pressure on the Chinese economy is increasing, said RBC Capital Markets in Hong Kong. Industrial output and retail sales data released on Friday were ugly, said the firm.

NBS said after the release of the data that the impact from bilateral trade tensions with the U.S. was not yet obvious. So, the worst is yet to come and policymakers will be very worried, particularly with consumption growth falling off a cliff.

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