Tue, 17th January 2017

Anirudh Sethi Report


Archives of “Kuomintang” Tag

China “Shocked” By Navarro Appointment, As Trump Team Proposes 10% Import Tariff

As the FT first reported yesetrday, in a dramatic development for Sino-US relations, Trump picked Peter Navarro, a Harvard-trained economist and one-time daytrader, to head the National Trade Council, an organization within the White House to oversee industrial policy and promote manufacturing. Navarro, a hardcore China hawk, is the author of books such as “Death by China” and “Crouching Tiger: What China’s Militarism Means for the World” has for years warned that the US is engaged in an economic war with China and should adopt a more aggressive stance, a message that the president-elect sold to voters across the US during his campaign.


In the aftermath of Navarro’s appointment, many were curious to see what China’s reaction would be, and according to the FT, Beijin’s response has been nothing short of “shocked.” To wit:

 The appointment of Peter Navarro, a campaign adviser, to a formal White House post shocked Chinese officials and scholars who had hoped that Mr Trump would tone down his anti-Beijing rhetoric after assuming office.

“Chinese officials had hoped that, as a businessman, Trump would be open to negotiating deals,” said Zhu Ning, a finance professor at Tsinghua University in Beijing. “But they have been surprised by his decision to appoint such a hawk to a key post.”

China’s True FX Outflows Since August 2015 Are $1.1 Trillion, Double The Official Number

Two months ago, when looking at an alternative measure of Chinese capital outflows using SAFE data, Goldman found that contrary to official PBOC reserve data, “China’s Capital Outflows Are Soaring Again”, having hit $78 billion in September.

Over the weekend, and following the latest PBOC data which revealed an outflow of $56 billion in November (which was only $34 billion when FX adjusted), Goldman repeated its FX flow calculation using SAFE data, and found the China continues to mask the full extent of its outflows, which in November spiked to $69 billion, and that “since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data”, once again suggesting that China is eager to mask the true extent of reserve outflows, perhaps in an attempt to not precipitate the feedback loop of even further panicked selling of Yuan and even more outflows, and thus, even more reserve depletion.

According to Goldman’s MK Tang, money has been leaving in yuan payments for 14 consecutive months, while the central bank’s yuan positions have slumped the most since January. The situation could get worse, said Banny Lam, head of research at CEB International Investment Ltd, cited by Bloomberg.

China to penalise U.S. automaker for monopolistic behaviour – China Daily

China will soon slap a penalty on an un-named U.S. automaker for monopolistic behaviour, the official China Daily newspaper reported on Wednesday, quoting a senior state planning official.

Investigators found the U.S. company had instructed distributors to fix prices starting in 2014, Zhang Handong, director of the National Development and Reform Commission’s price supervision bureau, was quoted as saying.

 News of the penalty comes at a sensitive time for China-U.S. relations after U.S. president-elect Donald Trump called into question a long-standing U.S. policy of acknowledging that Taiwan is part of “one China”.

Beijing maintains that self-ruled Taiwan is a wayward province of China and has never renounced the use of force to take it back.

Zhang was quoted in an exclusive interview with the newspaper as saying that no one should “read anything improper” into the timing or target of the penalty.

The article did not give further details.

China Newspapers Blast “Diplomatic Rookie” Trump For “Inability To Keep His Mouth Shut”

It seems that Trump’s phone call with Taiwan’s president Tsai Ing-wen as well a recent pair of tweets from the president-elect blasting China for devaluing their currency, taxing U.S. imports and military provocations in the South China Sea have served their purpose of ruffling some feathers in Beijing.

While the “official reaction” out of Beijing to Trump’s “provocations and falsehoods” has been muted, newspapers across China, often viewed as a mouthpiece of the Communist Party, have spent the day lashing out at the “diplomatic rookie.”.  Per Yahoo News, the People’s Daily accused Trump of “provoking friction and messing up China-US relations,” a move they say will not help “make America great again.”

 Donald Trump is a “diplomatic rookie” who must learn not to cross Beijing on issues like trade and Taiwan, Chinese state media said Tuesday, warning America could pay dearly for his naivety.

Trump’s protocol-shattering call with Taiwan’s president and a subsequent Twitter tirade against Beijing’s policies could risk upending the delicate balance between the world’s two largest economies, major media outlets said.

“Provoking friction and messing up China-US relations won’t help ‘make America great again'”, said a front-page opinion piece in the overseas edition of Communist Party mouthpiece People’s Daily.


Speculation grows over possible extension of Xi’s term

Speculation is rife in Chinese political circles about the results of the recent annual meeting of the Communist Party of China’s leaders, in the seaside resort of Beidaihe.

Following the unusually long meeting in the town in Hebei Province, some pundits say Chinese President Xi Jinping, like Japanese Prime Minister Shinzo Abe, wants to extend his term in office. According to party observers, there was no specific discussion of candidates to succeed Xi as the Communist Party’s general secretary, and Xi seemed to be paving the way for extending his term.

 The meeting this year was different from the one in the summer of 2006, when candidates to be China’s future leader were discussed. Li Keqiang, now China’s premier, was seen as the leading candidate for the top job at that time, while Xi was hardly mentioned — at least publicly.

The top echelons of the party will be reshuffled at its convention in the fall of 2017, and usually, party leaders exchange frank opinions about the nation’s future leadership during their summer gathering the year before. But little information was leaked about this year’s meeting, possibly because Xi suppressed discussions in a bid to avoid gradually becoming a lame duck, even if he retains his current post following next year’s convention.

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.

China raises alert level ahead of Typhoon Nida

China issued an “orange alert” for Typhoon Nida on Sunday, predicting the storm would hit the southern province of Guangdong on Tuesday, state news agency Xinhua reported.

The National Meteorological Center (NMC) raised the threat level to the second-most severe alert on a four-colour scale after issuing a yellow alert earlier in the day.

 It warned of strong winds and heavy rain along the coast affecting Guangdong, Fujian and Hainan provinces as well as the Guangxi Zhuang Autonomous Region.

The storm is currently off the coast of the Philippines, and weather reports indicate it will also hit the financial centre of Hong Kong.

Typhoon Nida will be the fourth typhoon this year to hit China, where natural disasters have killed 800 people since June — the largest number of casualties since a similar period in 2011.

Nida is expected to pick up speed with winds forecasted to reach 38-45 meters per second by the time it makes landfall, according to the NMC.

Earlier this month, Typhoon Nepartak drove at least 420,000 Chinese from their homes and caused more than 7.1 billion yuan ($1.07 billion) in losses in Fujian province alone.

South China Sea Tensions Surge After Taiwan Deploys Frigate, China Warns Of “Air Defense Zone”

Following the much anticipated ruling by the international court which found yesterday that China does not have a right to claims on the South China Sea, an unexpected supporter for China’s position – which has vocally warned it won’t comply with the tribunal’s ruling – emerged overnight when Taiwan, which shares territorial claims with China in the disputed area – sent a naval frigate to patrol the disputed waterway Wednesday, to show the government’s “determination” to defend its national interest.

The order from Taiwan’s president Tsai Ing-wen came just hours after the Permanent Court of Arbitration found found that the largest natural feature in the contested Spratly Islands, the Taiwanese-held Itu Aba, was a “rock” rather than an island and didn’t qualify for a 200-nautical mile (370 kilometer) exclusive economic zone. The frigate’s planned patrol included a resupply stop at the feature, which Taiwan calls Taiping, a defense ministry spokesman said.

Taiping island

China ETF Tumbles After MSCI Snubs China For 2nd Time, Delays Inclusion In Emerging Market Index

While nowhere near comparable to the euphoria from last year, when hopes that China would be included in the MSCI emerging market index led to a tremendous rally in Chinese stocks on expectations of substantial inflows once asset managers had to allocate funds to China…

… today’s silver lining for the US bulls, and certainly China mainland investors, was the expectation that after having snubbed China last year, MSCI would at least include it today.

Alas no such luck, because moments ago Bloomberg reports that…

Chinese Premier Li pledges to cut taxes, ‘zombies’ at China congress

Chinese Premier Li Keqiang told the National People’s Congress on Saturday that the country “will face more and tougher problems and challenges” this year as international trade slows and the world’s second-largest economy is hampered by excess capacity.

      In the 36-page Government Work Report delivered at the opening session of the country’s rubber-stamp parliament, Li said economic growth in 2016 would be “6.5-7%.” This is the first time in two decades that the Chinese government has given a target range for growth rather than a specific figure. 

     The fiscal deficit is forecast at 2.18 trillion yuan, or 3% of gross domestic product, a significant increase from last year’s 2.3%. “The moderate increase in the government deficit is projected primarily to cover tax and fee reductions for enterprises,” Li said.

     By replacing the business tax with a value-added tax in all sectors, abolishing murky government-managed funds that collect fees from companies and giving more companies exemptions from administrative charges, “The burden on enterprises and individuals will be cut by more than 500 billion yuan ($77 billion) this year,” he said.

Clearing the deadwood 

The premier pledged to kill off “zombie enterprises” — uncompetitive companies protected by generous government subsidies — through mergers, reorganizations, debt restructurings and liquidation. The government will allocate 100 billion yuan to retrain and find new jobs for workers laid off from these companies.

     Li called 2016 a “crucial year in carrying out structural reform,” and said the measures introduced in the Work Report “will help guide market expectations and keep them stable.”