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Sat, 22nd July 2017

Anirudh Sethi Report

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Archives of “republic of china” Tag

China Small Caps Crash To Lowest Since 2015 Amid Deleveraging “Selling Panic”

Despite China reporting solid economic data on Monday, with beats across the board in everything from retail sales, fixed asset investment, industrial production and GDP printing at 6.9% and on track for its first annual increase since 2010…

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… despite the biggest net liquidity injection by the PBOC since mid June after the central bank injected a net 130 billion yuan, and despite yet another rebound in the Yuan, overnight China’s Shanghai Composite slumped by 1.4%, the most since December as a result of a plunge in the small-cap ChiNext index, which tumbled by 5.1%, and is now down 16% in 2017 to levels not seen since January 2015 following a fresh round of broad deleveraging amid concerns about tougher regulations and more IPOs following a high-level conference over the weekend attended by President Xi Jinping in which China hinted at the formation of a “super-regulator”.

Russia’s Putin : Agree with China Xi, US should freeze military exercises and No. Korea should freeze missile programme

Putin speaking

Ads:
  • Call on No. Korea to abide by UN resolution on missile testing
  • Calls for all side to show restraint, readiness for talks without any preconditions
  • Back Chinese proposal to simultaneously suspend No. Korea missile activity and US-So.Korea “war games”
  • Moscow and Beijing says US THAAD (Terminal High Altitude Area Defense) missile shield deployment in North East Asia is harmful for regional security. Call for immediately halt deployment of THAAD.
Putin and Pres. Trump will meet on Friday. Last week, Trump’s advisors said there was “no specific agenda”.  Trump has been trying to align more closely with China in an attempt to defuse the tension from No. Korea.
The agenda is taking some shape. I am sure they will have other things to talk about as well.

Trump Calls China, Japan Leaders To Discuss North Korea, Gets A Warning From Beijing Instead

Ahead of this week’s G-20 summit in Hamburg, Germany, Donald Trump called the leaders of China and Japan to discuss the “threat posed by North Korea’, along with trade issues, the White House said on Sunday. Trump spoke with Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe, whose LDP had just suffered a devastating loss in the Tokyo Assembly elections, and according to the White House read out, “both leaders reaffirmed their commitment to a denuclearized Korean Peninsula” adding that “President Trump reiterated his determination to seek more balanced trade relations with America’s trading partners.”

The terse statement did not provide further details of the call or say if Trump managed to persuade Xi to endorse his approach of exerting maximum pressure on North Korea, including a slew of further economic and trade sanctions.

According to Reuters, the call may have been prompted by Trump increasing frustration with China’s inability to rein in North Korea, and the reference to trade was an indication the president may be ready to return to his tougher-talking ways on business with Beijing after holding back in hopes it would put more pressure on Pyongyang. Trump and Xi discussed the “peace and stability of the Korean peninsula”, China’s Foreign Ministry said, without elaborating.

 Ministry spokesman Geng Shuang later told a daily briefing that the United States was “very clear” about China’s position on North Korea. Geng did not elaborate on what Xi told Trump about North Korea.

China Sends Warships, Fighter Jets To Intercept US Destroyer In South China Sea

Just days before Trump’s meeting with the Chinese president in Hamburg later this week for the G-20 summit, the Trump administration sent a guided-missile destroyer near Triton Island in the South China Sea, Bloomberg reported, a move “which may cause concern ahead of President Donald Trump’s meeting with his Chinese counterpart.”

According to an anonymous official cited by Bloomberg, the U.S. Navy sent the destroyer USS Stethem within 12 nautical miles (22 kilometers) of Triton Island on Sunday, passing through the contested waters on the basis of “innocent passage.”

The Arleigh Burke-class guided-missile destroyer USS Stethem

It was the second such operation conducted by the US during Donald Trump’s presidency. On May 24, the US Navy guided-missile destroyer, the USS Dewey, came within 12 miles of the Mischief Reef in the Spratly Islands, another disputed archipelago that lies in the southern part of the South China Sea. At that time, the Chinese Defense Ministry also sent two frigates to “warn off” the US vessel and said that it was “firmly opposed to the US behavior of showing force and boosting regional militarization.”

The news of the US ship deployment to the contested area comes just days after reports suggest China has completed construction of new missile shelters on Mischief and Fiery Cross reefs.

MSCI to make decision on China A-share inclusion on June 20

Mark your calendars China watchers.

MSCI will on June 20 announce whether it would finally include China’s domestic A-shares in its global indices.

The US index provider last June delayed for a third straight year the A-shares’ inclusion into its benchmark $1.5tn emerging markets stock index, citing regulation worries and accessibility for global investors.

Ahead of this year’s decision, China has embarked on a series of new actions aimed at addressing these concerns. Its banking regulator has launched a “regulatory windstorm” while the central bank has made the first move to ease capital controls, providing much needed liquidity to the offshore renminbi market.

Meanwhile, BlackRock has for the first time publicly backed the inclusion of onshore stocks in MSCI’s indices and Chinese officials have even criticised dividend-dodging companies, dubbed “iron cockerels”, and promised extra scrutiny.

North Korea says ready to strike US aircraft carrier

North Korea said on Sunday it was ready to sink a U.S. aircraft carrier to demonstrate its military might, as two Japanese navy ships joined a U.S. carrier group for exercises in the western Pacific.

US President Donald Trump ordered the USS Carl Vinson carrier strike group to sail to waters off the Korean peninsula in response to rising tension over the North’s nuclear and missile tests, and its threats to attack the United States and its Asian allies.

The United States has not specified where the carrier strike group is as it approaches the area. U.S. Vice President Mike Pence said on Saturday it would arrive “within days” but gave no other details.

North Korea remained defiant.

“Our revolutionary forces are combat-ready to sink a US nuclear powered aircraft carrier with a single strike,” the Rodong Sinmun, the newspaper of the North’s ruling Workers’ Party, said in a commentary.

The paper likened the aircraft carrier to a “gross animal” and said a strike on it would be “an actual example to show our military’s force”.

The commentary was carried on page three of the newspaper, after a two-page feature about leader Kim Jong Un inspecting a pig farm.

North Korea will mark the 85th anniversary of the foundation of its Korean People’s Army on Tuesday.

It has in the past marked important anniversaries with tests of its weapons.

North Korea has conducted five nuclear tests, two of them last year, and is working to develop nuclear-tipped missiles that can reach the United States.

It has also carried out a series of ballistic missile tests in defiance of United Nations sanctions.

North Korea’s growing nuclear and missile threat is perhaps the most serious security challenge confronting Trump.

He has vowed to prevent the North from being able to hit the United States with a nuclear missile and has said all options are on the table, including a military strike.

North Korea Threatens US With “Super-Mighty Preemptive Strike”

Whether China is right about North Korea conducting a nuclear test on April 25 remains to be seen, but for now Kim Jong-Un is content with merely escalating the verbal warfare and overnight North Korean state media warned the United States of a “super-mighty preemptive strike” following the latest round of comments by Rex Tillerson who said the United States was looking at ways to bring pressure to bear on North Korea over its nuclear programme.

The Rodong Sinmun, the official newspaper of the North’s ruling Workers’ Party, did not mince its words: “In the case of our super-mighty preemptive strike being launched, it will completely and immediately wipe out not only U.S. imperialists’ invasion forces in South Korea and its surrounding areas but the U.S. mainland and reduce them to ashes” it said according to Reuters.

The threat will hardly come as a surprise: the reclusive communist nation regularly threatens to destroy Japan, South Korea and the United States “and has shown no let-up in its belligerence after a failed missile test on Sunday, a day after putting on a huge display of missiles at a parade in Pyongyang.”

The comments come in response to Tillerson statement in Washington on Wednesday when he told reporters that “we’re reviewing all the status of North Korea, both in terms of state sponsorship of terrorism as well as the other ways in which we can bring pressure on the regime in Pyongyang to re-engage with us, but re-engage with us on a different footing than past talks have been held,”

China greasing economy with $55bn in tax breaks

China’s State Council on Wednesday approved 380 billion yuan ($55.1 billion) in tax relief that will mainly favor farmers and small businesses in a move that is seen as both economic and political.

The second large-scale tax cut to follow last year’s comes as China’s economy is forecast to slow down in the latter half of 2017, during which the Communist Party will convene its 19th National Congress and reshuffle top leadership.

China will modify its value-added tax this July by removing the 13% bracket while retaining the 6%, 11% and 17% tiers. The 13% rate currently applies to farm products and natural gas, but they will move to the 11% category. Farmers as well as households that purchase rice and vegetables will likely benefit from this change.

For smaller companies, those that pay 300,000 yuan or less in annual taxable revenue qualify for preferential tax treatment. The ceiling will be lifted to 500,000 yuan. Furthermore, small businesses and startups will be allowed to deduct 75% of research and development costs, up from 50%. These tax breaks will remain in effect until the end of 2019.

The Chinese government enacted about 500 billion yuan worth of corporate tax cuts in 2016. Helped also by a surge in infrastructure spending, the real economy grew 6.9% during the January-March period this year, marking the second quarter of economic acceleration. However, the People’s Bank of China, the country’s central bank, has been gradually raising market interest rates in order to rein in the real estate bubble.

US agreed to clear military strike against North Korea with Japan

Multiple Japanese reports

Kyodo and Nikkei have similar reports saying that US officials have discussed the option of attacking North Korea with Japanese leaders. The US officials reportedly agreed to discussions (or notifications) for Japan before anything takes place.

North Korea has nuclear weapons that can reach Japan.

The sources who spoke with Kyodo said the action would be a second (or third) option in China refuses to pressure North Korea into curbing its missile and nuclear programs.

 

Watching and waiting for China’s capital-control-induced bubble

Anyone in mainland China with a lot of money to move — companies foreign or domestic, or individuals — now seems likely to run into the capital controls that the authorities have thrown up in hopes of stopping a sell-off in the currency.

Real estate tycoon Pan Shiyi has given up on selling the Hongkou Soho, a striking Shanghai office tower whose tenants include Japanese electronics group Panasonic. Located just north of the Bund, the city’s iconic waterfront, the building was designed by Japanese architect Kengo Kuma. Pan had been looking to invest proceeds from the sale overseas but sees little hope of gaining approval for that.

 Similar cases of apparent official obstruction have surrounded other foreign deals. Online game developer Giant Interactive’s agreed-on purchase of an Israeli peer for 30.5 billion yuan ($4.42 billion) remains under review. Technology group LeEco and conglomerate Dalian Wanda Group have yet to complete their respective U.S. acquisitions of television maker Vizio and TV studio Dick Clark Productions.

Meanwhile, total social financing, China’s broad measure of credit and liquidity, continues rising by double digits. With limited outlets to overseas, Chinese money has nowhere to go but domestic assets.