Wed, 31st August 2016

Anirudh Sethi Report


Archives of “china” Tag

South China Sea Time Bomb: Beijing Sets “Red Line” on Japan-US Joint Operations

In this April 26, 2012 file photo released by China's Xinhua News Agency, Chinese navy's missile destroyer DDG-112 Harbin fires a shell during the China-Russia joint naval exercise in the Yellow SeaOn Saturday, diplomatic sources confirmed that China had issued a severe warning to Tokyo in late June demanding that Japan refrain from dispatching Self-Defense Forces to join US operations testing the freedom of navigation in the South China Sea.

Japan will “cross a red line” if SDF vessels take part in the freedom of navigation operations, Chinese Ambassador Cheng Yonghua conveyed to Tokyo at the time. Cheng threatened military action if Japan failed to comply with the ultimatum.

The warning came two weeks prior to The Hague international arbitration court’s adverse ruling deeming the waters and territory that the Chinese people had historically viewed as their own were to be stripped of their control and that Beijing must immediately remove itself from the disputed territory.

On Saturday, diplomatic sources confirmed that China had issued a severe warning to Tokyo in late June demanding that Japan refrain from dispatching Self-Defense Forces to join US operations testing the freedom of navigation in the South China Sea.

Chinese appetite fuels higher pork prices.YTD Up by 10%

Chinese consumers just cannot get enough pork. The richer the nation becomes, the more pigs its citizens want to eat. Despite a seasonal dip in pork consumption during July — the Chinese eat less meat in warmer months — prices are up 10% so far in 2016 compared to the same period last year, and some forecast that pork demand this year will soar by 30% from a year ago.

Prices for the white meat are currently just below the record high of 21.2 yuan ($3.1) per kilogram reached at the end of June 2016, up from the recent low mark of 12 yuan in early 2015, according to official Chinese figures.

 One reason for the price jump is that a large number of pigs died as a result of heavy rains, landslides and flooding in northern China in July, which affected 10 provinces or regions. About 10,000 pigs drowned at a village in Hubei province alone, according to Chinese media reports.

The outlook for domestic pork supply could worsen, as the National Bureau of Statistics has said that five of the provinces hit hardest by the flooding produce a third of China’s pork.

Another factor squeezing pork supply has been the rising price of corn — the key ingredient in pig feed — which rose by 11% from January to May, according to China’s Ministry of Agriculture.

Is China’s DF-41 Missile Really a Late Soviet Gift to Beijing?

DF-41 ICBMOn July 8, Washington and Seoul announced that the two countries had reached an agreement to deploy the THAAD (Terminal High Altitude Area Defense) in South Korea.

Mentioning the alleged similarities between Russia’s RS-36M2 Voyevoda (NATO reporting name – Satan) and  China’s DF-41, ICBMs Vasily Kashin dismissed them as a mixture of fact and fantasy.

“The DF cannot be considered as an analogue of any missile built in Ukraine during the Soviet days, even though the Chinese may have managed to obtain some crucial technology from Ukraine’s Yuzhmash missile design bureau”, he said.

Voyevoda was a giant liquid-fuel silo-based missile with a takeoff weight of 211 tons, while the DF-41 is a solid-fuel missile that can also be moved around by rail and on wheels.

“The RT-23, which, like the DF-41, is a three-stage solid-fuel missile with ten individually targeted warheads, is closer to modern Chinese ICBMs, but, developed 30 years ago, it is still a far cry from what the Chinese are working on now,” Vasily Kashin noted.

“The RT-23 had a liftoff weight of 105 tons, which made its use on railway cars a problem – the missile was too heavy to carry. Moreover, its range was only 10,000 kilometers, which is way less than what the Chinese say their DF-41 will be able to fly to,” he added.

Breaking -Steel Giant POSCO’s Profit zooms by 88%

Posco on Thursday reported an 88 per cent jump in second-quarter net profit as steel prices continued to rise on reduced Chinese output.

The world’s fifth-largest steelmaker by production posted a net profit of Won220.5bn for the April-June period, compared with Won117.4bn a year earlier. Its operating profit fell slightly to Won678.5bn while sales decreased 15.4 per cent to Won12.86tn

The strong performance underlines an upturn in the Asian steel sector as China, the world’s biggest steel consumer and producer, plans to cut steelmaking capacity by 100m-150m tonnes in the next five years.

The South Korean steelmaker returned to profit in the first quarter after reporting its first ever loss amid a flood of cheap Chinese exports, which drove steel prices to their lowest level in more than a decade.

Steel prices in China have increased about a third this year, helping many Chinese steel mills to return to profits from heavy losses last year. Posco’s executives forecast that steel prices in China would remain strong in the second half as Beijing tries to restructure the country’s steel sector to cut overcapacity.

Bitcoin and China’s endless chain of bubbles

From the stock and property markets to other segments of the economy, bubbles are continually cropping up in China. Lately, the country’s investors have been turning to bitcoin in droves.

Chinese investors are constantly shifting from one promising asset to another, seeking to maximize their returns amid excess liquidity. The slowdown in growth means the authorities have little choice but to maintain a fairly accommodative monetary policy, contributing to the abundance of cash.

 Chinese President Xi Jinping stressed during a roundtable discussion last Friday that his administration will “continue its aggressive fiscal policy and moderate monetary policy to expand demand adequately.”

It is under these circumstances that China has emerged as a global center of bitcoin trading, with the country purportedly accounting for 40% of investors and 80% of transactions in the market for the digital currency.

MSCI delays including China A shares in key index

International investors’ concerns about the quality of mainland China’s markets have once more put paid to hopes that MSCI would finally include the world’s second largest markets in its globally-followed indices.

The index provider had raised expectations that it would accept mainland A-shares when it laid out a “roadmap” for inclusion in March. But on Tuesday it said “international institutional investors clearly indicated that they would like to see further improvements in the accessibility of the China A shares market before its inclusion in the MSCI Emerging Markets Index”

Including mainland shares would have been seen as a vote of confidence in China’s market development after Beijing introduced several market reforms following last summer’s rout, when its heavy-handed approach and companies’ ability to suspend their shares at will unnerved international onlookers.

MSCI is the world’s largest index provider and its benchmark emerging markets index — in which A-shares would have made the most impact — are followed by an estimated $1.5tn of funds. Including A-shares would have added another link between China and the global financial system by forcing international fund managers to invest onshore.

Inclusion of Chinese stocks at some point is still considered by analysts to be inevitable. Shanghai and Shenzhen markets are both more than 40 per cent below their June 2015 peaks but combined, still represent the world’s second largest market by capitalisation — behind New York but ahead of Tokyo.

China’s Debt Bomb: No One Really Knows The Payload

No one knows if it’s a hand grenade or a nuclear warhead…

The ramp up in Chinese debt accumulation has been a leading concern of investors for years. The average total debt of emerging market economies is 175% of GDP, and skyrocketing corporate non-financial debt has launched China far beyond that number.

The real question is: by how far?

The answer is disconcerting, as VisualCapitalist’s Jeff Desjardins warns, because nobody really knows.

If the Chinese debt bomb is detonated, the impact on markets is anybody’s guess. Kyle Bass says the losses would be 5x that of the subprime mortgage crisis, while Moody’s says the bomb will be safely disarmed by authorities far before it goes off.

In today’s chart, we look at various estimates to the size of China’s debt bomb, its payload, and what might spark the fuse…

China has deployed more troops near Indian border, says Pentagon

China has increased defence capabilities and deployed more troops along the Indian border, the Pentagon has said, as it warned of increasing Chinese military presence including bases in various parts of the world, particularly Pakistan.

“We have noticed an increase in capability and force posture by the Chinese military in areas close to the border with India,” Deputy Assistant Secretary of Defence for East Asia Abraham M Denmark told reporters during a news conference here after Pentagon submitted its annual 2016 report to the US Congress on ‘Military and Security Developments Involving the People’s Republic of China’.

 However, Denmark said it is difficult to conclude on the real intention behind this.
“It is difficult to say how much of this is driven by internal considerations to maintain internal stability, and how much of it is an external consideration,” he said in response to a question on China upgrading its military command in Tibet. Referring to US Defence Secretary Ashton Carter’s recent trip to India, Denmark said he had a very positive and productive visit. “We’re going to continue to enhance our bilateral engagement with India, not in the China context, but because India is an increasingly important player by themselves and we are going to engage India because of its value,” he said.

ALERT- Moody’s on China – debt has increased to around 280% of GDP

Reuters reporting on Moody’s China commentary:

  • Many sovereigns, including China, are exposed to contingent liability risks from the banking system and state-owned enterprise debt
  • “Across all sectors, debt in China has increased to around 280% of GDP”
  • In china, estimates that portion of SOE liabilities that could potentially require restructuring amounts to 20-25% of GDP
  • Believes that without reform of state-owned enterprises in China, contingent liabilities would likely rise

Some bearish commentary from Moody’s on China.