Indonesia scores tentative tin win; blueprint for more commodities?

 Indonesia's bold attempt to challenge the London Metal Exchange (LME) for supremacy in the global tin market by imposing strict export rules and driving up prices looks to be paying off.

Shipments from the world's biggest tin exporter slumped to below 1,000 tonnes in September from over 6,000 tonnes after Jakarta ruled at the end of August that all tin ingot shipments should trade via a local platform, the Indonesia Commodity and Derivatives Exchange (ICDX), before being exported.

By November, shipments had recovered to August levels, but tin prices have risen more than 8 percent to $23,000 a tonne since the end-August policy move.

"By imposing the new tin trade rules we have set a price target at $25,000-$29,000 a tonne this year," Sutriono Edi, head of Indonesia's Commodity Futures Trading Regulatory Agency, told Reuters. "It's better for us to export less volume but for higher value and better prices, than export a bigger volume but with low value and low prices.

The stricter trading rules, and subsequent drop in exports, spooked suppliers to some of the world's biggest electronic companies, including Apple Inc  and Samsung Electronics . Neither company responded to emailed requests for comment.Indonesia controls 40 percent of internationally traded tin and, outside China, supplies up to two-thirds of Asia's electronics industry with a material used in circuit boards that go into smartphones and tablets.

The new rule slashed trade between buyers and sellers who cannot directly agree term deals for 2014. Traders stepped in to fill the gap, but Indonesia's supply, now under government control, has left some traders uneasy.

"There are a lot of customers trying other sources," said one physical tin trader whose company has signed up to the ICDX. "Maybe what Indonesia wants to see is they strangle the market a bit, then LME stocks start running down and the price goes up."

Several top-tier LME members, including JPMorgan Chase  are showing interest in joining the ICDX, metals traders said, in a sign the new contract is gaining traction and could be a serious challenger to the LME, which owns the 136-year-old metals contract that is the global benchmark. JPMorgan did not respond to a request for comment.

Launched early last year, liquidity in the ICDX tin contract had ground to a halt until a relaunch of several contracts and the new government regulation gave it new life from August.

"The ICDX has established itself as the only credible source of supply for Indonesia's physical market - it's quite an achievement," said one London-based trader. "If there's no chaos on the supply side, I should have more confidence next year that I should get the tonnage supplied as promised."

Some people in the tin industry said there was a risk that the LME, now owned by the Hong Kong Exchange and Clearing Ltd, could become complacent. "The new owners ... are not paying attention to the risks to the current contracts," said one senior metals industry source. "If (ICDX) can get enough physical prices based on their new reference, that could give it an opportunity to launch a product to rival LME pricing."

A spokeswoman for the LME declined to comment.

"FAIR AND EQUAL"

Indonesian officials say the new laws should prolong the life of the country's depleting tin reserves through sustainable mining. Critics counter that it's more about restricting supply to a narrow channel and raising prices to benefit vested business interests - a charge government ministers deny.

Indonesia hopes the new rules will also deter illegal tin mining and set a blueprint for other commodities where the country is the world's biggest exporter, such as palm oil, thermal coal and nickel ore, industry and government sources said. It is also home to the mine which holds the world's biggest gold reserves.

"We have the chance to be a price setter for tin," said Trade Minister Gita Wirjawan, a former Goldman Sachs banker who has presidential aspirations. "If the ICDX succeeds in keeping prices up, we can make it the basis for other commodities."

While tin contributes less than 1 percent of Southeast Asia's biggest economy's GDP, it is a test case for a government keen to flex its muscles in global commodity markets.

Source: Reuters

China official factory PMI seen dipping in December

Growth in China's factory activity may have pulled back slightly in December, a Reuters poll showed, reinforcing views that the world's second-largest economy could lose some steam at the year end while Beijing is shifting its focus to structural reforms.

China's official manufacturing purchasing managers' index (PMI) likely eased to 51.2 in December, down a touch from November's 51.4, according to the median forecast of 11 economists in the poll.

A reading above 50 indicates expanding activity while one below that level points to a contraction.

Source: Reuters

UK government could sell off Lloyds bank stake in 2014 - Telegraph

The British government could sell off all of its 18.4 billion pound stake in the Lloyds banking group in 2014, the Daily Telegraph reported, citing unnamed sources.

The newspaper reported that the entire government holding could be sold off in the next 12 months in a combination of retail and institutional offerings.

"Post-results is when a further institutional offering would make most sense. After that, the thinking is an autumn sale, combining an institutional and a retail segment, is a realistic prospect," a source was quoted as saying by the newspaper.

Source: Reuters

Chinese police shoot dead eight after Xinjiang 'terrorist attack'

Police in China's restive far western region of Xinjiang shot dead eight people during a "terrorist attack" on Monday, the regional government said, the second outbreak of violent unrest this month in a region that has a substantial Muslim population.

The attack happened in Yarkand county close to the old Silk Road city of Kashgar in Xinjiang's far south, the Xinjiang government said in a statement on its official news website (www.ts.cn).

"At around 6:30 am, nine thugs carrying knives attacked a police station in Kashgar's Yarkand county, throwing explosive devices and setting police cars on fire," the brief statement said.

"The police took decisive measures, shooting dead eight and capturing one," it added, labelling the incident a "violent terrorist attack" which was being investigated further.

Earlier this month, police shot and killed 14 people during a riot near Kashgar in which two policemen were also killed.

Source: Reuters

Chinese PM Li Keqiang pledges 'appropriate liquidity' in 2014

Chinese Premier Li Keqiang has said that the government will keep liquidity at an appropriate level in 2014 to maintain the stability of financial markets and the broader economy.

He made the remarks during a recent inspection tour to the northern Chinese city of Tianjin, according to an account published on the website of the State Council, China's cabinet, late on Sunday.

The comments came after cash crunches in China's money markets in June and December, which many market observers believe were engineered by the central bank, which refused to aid the market with large cash injections to help banks cope with elevated cash demand at the end of each quarter.

Source: Reuters

China, South Korea alarmed as yen slide threatens exporters

China and South Korea's anxiety over the rapidly falling yen came to the fore on Monday as senior officials said their exporters could be hurt by Japan's attempts to pull its moribund economy out of a two-decade slump.

Beijing and Seoul understand the need for Tokyo to revive its $5 trillion economy and escape persistent deflation.

But they are worried that the massive monetary and fiscal stimulus championed byJapanese Prime Minister Shinzo Abe has sharply weakened the yen and put their exporters at a disadvantage in global markets.

So far, Chinese and South Korean officials have refrained direct action to maintain competitiveness, such as intervening by buying dollars in currency markets, but there is a risk of a response if their export sectors are severely hampered.

"(Japan) will look to keep the economy growing by boosting exports through the yen's depreciation," Xu Shaoshi, chairman of China's National Development and Reform Commission, said at a meeting with the South Korean finance minister in Seoul.

"This is a policy that will affect South Korea and China, and therefore needs to be monitored closely," Xu said.

PLUMBING LOWS

The yen fell to a five-year low against the dollar on Monday, and has plunged 26 percent over the past 15 months.

With the Chinese yuan and Korean won both gaining against the dollar this year, the impact has been even more pronounced on the exchange rates between three of the world's top seven exporting nations.

The yen hit a 15-year low of 5.7533 yuan and a 5-year low of 9.9983 won on Monday. Over the past 15 months, it has weakened by nearly 30 percent against both currencies, Thomson Reuters data shows.

Source: Reuters

Second blast in Russian city kills 10 on trolleybus - reports

At least 10 people were killed when an explosion ripped through a trolleybus in the second deadly blast in the Russian city of Volgograd in two days, the Interfax news agency reported, citing law enforcement officials.

The explosion came a day after a suicide bomber killed at least 17 people in the main railway station of the southern Russian city 40 days before Russia is to hold the Winter Olympics in the Black Sea resort city of Sochi.

Source: Reuters

Xinhua Insight: China's high-speed rail on fast track

Several new high-speed railway links in China are expected to start operations by the end of 2013, extending the network to over 12,000 kilometers, more than half of the world total.

"We are looking forward to the new line," said Xie Fugui, a businessman in the southern city of Guangzhou. "Most of my suppliers are from Chaozhou, and it takes me at least six hours to go there by coach, but the new railway will cut my travel time by half."

Xie was talking about the Xiamen-Shenzhen line between the port of Xiamen in east China's Fujian Province, and Shenzhen, China's first Special Economic Zone. Travel time between the two cities shortened from 13 hours to four hours as it opened on Saturday.

The 513 km line extends east to Shanghai and westward to Guangzhou, significant business hubs.

It is the last link in the chain between the most dynamic cities and manufacturing centers in east and south China, with a population over 700 million, and almost as large as Europe.

"We can now invite foreign buyers to visit our plants in Chaozhou. Many of them are interested in such visits, but few were willing to waste so much time," Xie said.

Thanks to the new line, Xie can visit his parents in Fujian more often, as the trip is now much easier and cheaper. Tickets for a second-class seat from Shenzhen to Xiamen, further than the distance between New York and Montreal, costs only 150 yuan (25 U.S. dollars).

Others pin hopes on the capital and intellectual flows which the new railway will bring, essential to the development of millions of small and medium enterprises(SMEs) along the southeast coast.

"Convenient transport will stimulate SMEs, and strengthen the links between the economic engines," said Long Guanghui, director of DTZ Shenzhen.

The "engines" Long refers to are the Yangtze Delta, the Pearl River Delta, and the Western Taiwan Strait Economic Zone, which are connected by several high-speed rail links now, and may turn into a world-class urban belt on a par with the northeast coast of the United States, or the Seto Inland Sea of Japan, according to Chen Hongyu, counselor of Guangdong provincial government.

Other new high-speed rail lines which began services on Saturday include one in the northwestern province of Shaanxi, starting point of the ancient Silk Road, and another in south China's Guangxi Zhuang Autonomous Region, the bridgehead of China-ASEAN cooperation.

Along with the development of domestic high-speed rail, the government and rail enterprises are actively seeking overseas customers.

STEPPING OUT OF SHADOW

The first Chinese "Harmony" high-speed train pulled out of the station in April 2007. Six years and five months later, the world's second largest economy has built the world's biggest high-speed rail network. It was a short time and full of ups and downs.

Huge shadow was cast in 2011 when a crash claimed 40 lives in east China. Since then, a series of corruption scandals have brought about the arrest of the former railways minister, Liu Zhijun, on charges of corruption and abuse of power.

"About 95 percent of construction projects were suspended after the incidents," said Deng Hanquan, a construction supervisor on the Xiamen-Shenzhen Railway, initially planned for completion in 2011. Many people both at home and abroad questioned the whole strategy of high-speed rail.

"The former railways ministry was a mixture of administrative and commercial operations and a monopoly. It was a hotbed of corruption," said Xiao Jun, a professor at Shenzhen University. "Besides investigating the accident and scandals, the government has taken action to solve institutional problems."

The ministry was split into administrative and business arms in March.Responsibilities for planning and policy were taken over by the state railways administration under the Transport Ministry, while the China Railway Corporation (CRC) was established to deal with commercial concerns. Liu Zhijun was sentenced to death with a two-year reprieve in July.

The cabinet issued a new document in August to "reform the investment and financing system of railways and to accelerate railway construction." The CRC then revised the annual construction plan. The number of new projects for 2013 increased from 38 to 47, and all blueprints had to be complete by the end of October.

"Construction gradually resumed and now we are back in the fast lane," Deng Hanquan said.

Xiao Jun believes that what happened in the high-speed rail sector proves that fighting corruption will not hamper economic development.

"On the contrary, it is the zero-tolerance of corruption and the improvement of systems that restored public confidence in the industry," Xiao added.

He stressed that the world's largest constructor and operator of high-speed rail must continuously eliminate institutional flaws, carry on the separation of government and enterprise, and enforce supervision of investment in the public sector.

Source: Xinhua

How Snapchat Became The Breakout Consumer Product Of 2013, by Semil Shah

Snapchat — in my personal opinion, the clear breakout consumer product of 2013. The framework is provided courtesy of Fred Wilson, a high-level litmus test that, when applied, starts to make the improbable seem obvious in hindsight:

The Right Person(s): Clearly the Snapchat founders are smart enough to build something on their own, to iterate on their vision for a product, and to navigate the choppy waters of the early-stage app ecosystem and investment market. Once Snapchat made it through Series A and the 2012 Christmas “present” from Facebook, the company’s CEO Evan Spiegel assumed the mantle of “David” against Zuckerberg’s “Goliath” and became the  person who embodied this character.

The Right Idea: How many times have you been presented with the option to sign up to a new service by using Facebook Connect alongside terms of service disclaimers including “We will not post any information to Facebook”? Snapchat’s value proposition is essentially the modern, mobile,digital reflection of those types of disclaimers. Even with family over the holidays, when pictures are taken, you hear more than just one person blurt out “Don’t post those to Facebook!” The idea of Snapchat — to allow people to share images without posting to the web or Facebook — was definitely the right idea.

The Right Product: Building on the idea of Snapchat above, the actual product, like Instagram, unbundled one of the most important parts of Facebook — mobile photographs. However, once Instagram became a part of Facebook, and once those images helped build Instagram user profiles on the web, one could argue mobile-only Snapchat unbundled the forced permanence, faux-filtered finishes, and broadcast nature of Instagram to put people and faces at the center of images and to share them with individuals or groups in a more private, time-sensitive, mobile-only, intimate way.

The Right Time: In 2013, the two leading social networks made big moves — Facebook transformed enough of its business to mobile to convince Wall Street that big profits could continue to roll in, and Twitter finally went public and is performing well even with spikes in trading volume. At the same time, however, mobile messaging apps, especially those from Asia, grew so big, dominant web platforms finally took notice, seeing them as a new platform threat. All of these companies combined could one day represent nearly one trillion dollars in public and/or private valuations, so as the market recognizes this, a property like Snapchat can easily be perceived to be worth much, much more than we imagine today.

The Right Market: Mobile. Mobile. Mobile. User-generated pictures taken and viewed on mobile devices. A demographic centered around mobile-native teens and expanding rapidly. A communications app with network effects that can spread globally because the medium is universal. Oh, and mobile, mobile, mobile — a shift so huge, it could still be one of the most underhyped trends in technology relative to its scale.

And, there you have it — Snapchat is  the “breakout” company of 2013. I’m not  going out on a limb with this one! In about a 12-month time span, the company grew exponentially, became one of the most dominant mobile photo-sharing networks, rebuffed multibillion dollar acquisition offers from the two dominant web companies, and closed increasingly bigger Series A, B, and C financing rounds from some of the most successful investors at each stage, including the most recent round led by one of the world’s leading tech hedge funds. While the future of Snapchat is uncertain — will they be able to sell ads, deliver ads without ruining the user experience, capitalize on in-app purchases, or sell itself in early 2014? — the app remains at the top of the charts and shows no sign of slipping. For all of these reasons, Snapchat is 2013’s breakout.

Source: techcrunch

China's auto sector hits new highs

China's auto sales and output hit new highs in November, driven by strong demand for passenger vehicles.

The China Association of Automobile Manufacturers says auto sales rose 14 percent in November year on year to just over 2 million units, while production rose 21 percent from a year earlier to 2.1 million units.

Both figures were all-time highs for the industry, showing momentum for continued strong growth. Already the numbers for January to November exceed full year 2012. The association forecasts the industry to grow between 8 and 10 percent in the following five to 10 years.

Source:  CCTV

Xinhua Insight In Depth: Defiant Abe a real danger

No matter what pretexts Japanese politicians employ to justify it, the Yasukuni Shrine in the heart of Tokyo is a highly symbolic reminder of Japan's militarist past, because it enshrines 14 convicted Class-A war criminals such as Hideki Tojo and other war criminals among Japan's war dead.

Whether a Japanese prime minister visits the shrine is a tested-and-true political weather vane for judging its political direction, as well as proof that he respects or disregards the sensitivities of other countries and the postwar international order.

On Thursday Shinzo Abe signed the entry book to the shrine as Japan's prime minister, revealing the claims by his subordinates, that he visited it in a "private capacity" and it was a matter of "personal belief", to be poor disguises and outright lies.

Resorting to their same old gangster logic in the dispute over the Diaoyu Islands, they want us to swallow Abe's offensive pilgrimage to Yasukuni as a non-issue.

Responding to the ensuing angry diplomatic ripples, the unapologetic Foreign Minister Fumio Kishida highlighted his government's "hope" to "avoid letting an affair as such develop into a political or diplomatic issue". This "hope" is sheer hypocrisy. Because Abe knows full well "it is a reality that the visit to Yasukuni Shrine has become a political and diplomatic issue".

Contrary to his claim that Abe had "no intention at all of hurting the feelings of Chinese or South Korean people", Abe made the visit anticipating opposition from both countries, as Japanese New Komeito Party chief Natsuo Yamaguchi confirmed.

Abe knew it would be an insult. But he does not care. What he wants to do is use the opposition of neighboring countries to fuel domestic nationalism and garner more support.

Abe's shrine visit is a signal that nothing at home is holding him back from his ultra-rightist political agenda to rewrite Japan's pacifist Constitution and revive his war-cabinet grandfather's dream of making Japan a military power.

If Abe truly loves peace, he would not have sought to break Japan's tradition and let it export weapons again. If he respects international law, he would not have claimed there is no clear definition of "aggression". If he honors humanity, he would not be trying to sweep under the carpet the atrocities committed by the Japanese troops and instead show respect to their victims, both the buried and the breathing.

Abe's calculated move, on the anniversary of his administration's taking office, is an intolerable insult to the feelings of Chinese and Korean peoples among others and a blatant attack on human decency, as well as a shameful challenge to the international consensus on history and justice, to which our response should in no way stop at diplomatic representations.

Abe's nasty track record — his denial of the aggressive nature of Japanese intrusions during WWII, his lack of remorse for Japan's historical sins, and his crooked approach to territorial disputes — disqualifies him from having an opportunity to explain, face to face, to Chinese and South Korean leaders his motive and purpose. His tribute to Yasukuni has slammed the door to dialogue shut.

Given the Abe administration's bankrupt political credibility and dangerous political orientations, the international community and China should not be fooled by his excuses, instead it is time for them to seriously reconsider their relationship with Japan, from perspectives of security, diplomacy and economy.

A Japan obsessed with its militarist past is a real danger to the Asia-Pacific.

In a few years, China's overseas investment may surpass the foreign direct investment it attracts

"Compared with inbound investment, China's outbound investment is expected to take off in the coming years," said Commerce Minister Gao Husheng.

China's foreign trade grew at its weakest pace in the past two years since the opening-up of the economy began some three decades ago, but its share of global trade and outbound investment is still rising, a senior commerce official said.

"Compared with inbound investment, China's outbound investment is expected to take off in the coming years," said Commerce Minister Gao Hucheng during an interview at the ministry's annual meeting on Friday.

Gao said China's total outbound investment is expected to reach $90 billion this year, a year-on-year increase of 15 percent.

Trade has given Chinese enterprises the money, technology and management skills to invest abroad.

"With the economic recovery, developed countries are in need of updated infrastructure. In developing countries, there are markets for Chinese companies to build entirely new infrastructure projects," said Gao.

In a few years, China's overseas investment may surpass the foreign direct investment it attracts, experts said.

In the January-November period, Chinese investors splashed out $80.24 billion in nonfinancial direct investment, up 28 percent from the same period last year.

During the same period, China's actual use of foreign capital was $105.5 billion, up 5.48 percent, according to the ministry.

The trend of rising Chinese ODI "will be pulled up by China's high savings rate and Chinese enterprises' stronger competitiveness," said Mei Xinyu, a foreign trade expert at the Chinese Academy of International Trade and Economic Cooperation, a think tank of the Ministry of Commerce.

"More Chinese investment will flow into global infrastructure, manufacturing and so on," Mei said.

However, Gao said that to protect the interests of Chinese enterprises in the process of going global, more legal support is necessary.

Despite criticism of China's investment environment, Gao said foreign investment in the country has been edging up, and more of it will shift away from industry and into the service sector. The total trade in services surpassed $520 billion in 2013.

"Of course, we will further standardize measures on attracting investment, clarify preferential policies and promote fairer competition between foreign and domestic companies," said Gao.

As for this year's 8 percent growth target for foreign trade, Gao said the actual outcome will be close. Total foreign trade is predicted to climb to $4.14 trillion, which would be an increase of more than 7 percent.

"Although we are moving at a slower pace, we are playing a bigger role in the international trading markets," said Gao.

Echoing the Chinese government's call for adjusting the economic structure and stimulating domestic demand, which came at the annual Central Economic Work Conference earlier this month, Gao stressed that China should maintain its competitive edge in traditional industries, such as textiles, furniture, and toys.

"As China is losing its cheap labor and material costs, it is important to cultivate brands and improve the quality of our products," Gao added.

At the same time, it is urgent for the country to create new comparative advantages in emerging industries, including water and electric power, construction equipment, high-speed rail transport and nuclear energy, according to Gao.

Source:China Daily

CEBR: China to Become World Largest Economy in 15 Years

The London-based Center for Economics and Business Research (CEBR) said China's gross domestic product (GDP) in US dollars would overtake the United States in 2028.

China is expected to overtake the United States in 2028 to become the world's largest economy, according to a research report released Thursday.

The London-based Center for Economics and Business Research (CEBR) said in its annual report 2013 that China's gross domestic product (GDP) in US dollars would overtake the United States in 2028.

"This is later than some analysts have suggested and reflects the continuing performance of the US as the West's strongest economy and the slowing down of the Chinese economy," the report said.

Based on CEBR's forecasts, India will overtake Japan in 2028 to become the world's third largest economy.

It said: "Japan is likely to follow a weak currency policy for the foreseeable future which means that its GDP in dollar terms gets overtaken by India earlier than we had previously expected."

Brazil overtook the UK in 2011 to become the world's 6th largest economy. But CEBR said that the country had since fallen back but would overtake both the UK and Germany to become the world's fifth largest economy in 2023.

"In 2014, while the Football World Cup is held in Brazil, it still looks likely that Britain will have a larger economy than Brazil," it said.

What Makes Girls Fall In Love With Computers And Code?

The perennial discussion about women in technology is in high gear once again , this time after remarks made by Y Combinator co-founder Paul Graham about the relative dearth of female tech founders and the perks of starting to code at a young age in an interview with The Information were picked up by Valleywag.

Discussions about career, gender and age with a dash of the inherent class associations that often accompany them are always dicey topics, so it makes sense that this interview hit a nerve. For his part, Graham (who, it should be mentioned, in interviews with TechCrunch has always expressed a very strong interest in funding more female founders and voiced pride inshifting the gender ratio  in Y Combinator’s founder classes) says he’s been misquoted and misunderstood, and there are some very eloquent  arguments being made that at least some of the pile-on seems to be unwarranted. That said, people on all sides of the debate are making good points, and will probably continue to do so for a while.

The real upshot of all this may be that more people are talking about solutions to the inequalities in tech. Because putting the controversy aside, there is one thing that isn’t really up for debate: There are still far fewer females in the technology industry than there are men. 

Wilson offers up some examples of initiatives tackling the problem full time, including Girls Who Code and Black GirlsCode. He also referenced TechCrunch’s interview from this past October’s Grace Hopper Celebration of Women in computing  with Dr. Maria Klawe, who has nearly closed the gender gap at the elite Harvey Mudd computer science department since she joined the college as president in 2006.

In fact, the Hopper conference was teeming with women who had fallen in love with computers and engineering, and anyone interested in learning how to welcome more women into tech should make it a priority to attend. While there this past fall, I asked a number of Hopper attendees to talk about what they love about the act of building things through code, and we’ve edited a number of those responses together for the video embedded at the bottom of this post. It’s interesting to watch today in relation to the current discussion about girls in tech, because many of the Hopper attendees I talked to had discovered their interest in computer science around the age of 13 or younger.

The thing that’s most striking about all of these responses is that there’s really nothing overtly gendered about them. They could have just as easily come from a group of males.

So perhaps the best way to get a girl interested in computers is simply to put them in front of her as often and as early in life as we do for her male counterparts and even more importantly, encourage her to approach computers as a producer, rather than as a consumer. As Maria Klawe put it in the video, “One of the things I hate about the current state of things is people think of technology as something you use, but not something you create.”

Indeed, that’s a mindset people of all ages and genders would do well to change.

Source: Techcrunch, by Colleen Taylor 

China's Xi Factor

HONG KONG - Before China's leadership transition earlier this year, experts said that the Chinese Communist Party was intent on preventing a larger-than-life personality from assuming power.

Yet the new president and CCP leader, Xi Jinping, is hardly dull. He began his term by paying homage to Deng Xiaoping at his statue in Shenzhen, where, more than three decades ago, the former Communist Party leader had launched the campaign to convert a reluctant Party to free-market reforms. In a top-level November meeting, Xi set out the details of a fundamental change in economic direction, overshadowing his colleagues.

Xi now leads a new economic group that will coordinate and impose his reforms on fractious colleagues. And, unlike Hu, he immediately became head of the military and now runs a parallel national security council. At first glance, a new "paramount leader" appears to be emerging.

Recent history explains this re-concentration of power. In 1993, central-government leaders enjoyed relatively limited powers: they did not control the money supply and had difficulty firing provincial governors or relocating top generals. Central government revenue was low; indeed, proportionately smaller than that of central governments in any other major economy.

This changed when then-Party leader Jiang Zemin and his prime minister, Zhu Rongji, centralized authority in order to stave off economic crisis at a time of growing risk to China's banks. In the process, the labor force of China's state enterprises declined by 50 million, China lost 25 million manufacturing jobs, and central-government employment was slashed. These measures saved China's economy, but at the price of widespread social stress, which made Zhu widely disliked when he left office.

Riding a wave of resentment against inequality and social tensions, Hu and his prime minister, Wen Jiabao, promised a "harmonious society," without the stresses of Zhu's agenda. They slowed economic reform and ceased political reforms. The bureaucracy expanded from 40 million to 70 million, and power devolved to provinces, bureaucracies, and state-owned enterprises (SOEs).

The somnolent Hu/Wen era, fortunately, did not dampen the economic growth triggered by the earlier reforms undertaken by Jiang and Zhu. But the economic-growth model that those reforms created was running out of steam. Low-cost exports were struggling as labor costs rose. Investment in infrastructure was shifting from growth-enhancing projects, such as inter-city highways, to less productive shopping malls in second- and third-tier cities. Productivity plummeted in SOEs, whose privileged access to financing crowded out private-sector investment. Local-government funding, through the seizure and resale of property, was reaching its limits.

Thus, it became essential to launch a new wave of far-reaching reforms, including liberalization of interest rates, securities markets, and foreign-exchange controls, in order to fund the more productive private sector and reduce excess capacity in SOEs. In particular, the reforms were needed to deflate an emerging property bubble resulting from huge savings and foreign capital inflows that had no other profitable investment outlet.

The government planned to liberalize interest rates and the capital account to encourage investment in modern, high-value industries, rather than continue to subsidize low-value exports. It started to shift the economy's base from export-oriented industries to domestic growth, and from manufacturing to services. And it announced its intention to slow local governments' seizures of farmland and excessive borrowing through captive enterprises.

Unsurprisingly, opposition to reform was implacable. SOEs were determined to defend their privileges. Highly leveraged local governments could not tolerate higher interest rates or an appreciating currency, and they were adamant about continuing land sales and opposing property taxes. They feared the financial burden of new requirements to provide social services to urban migrants.

As a result, a new, lean leadership team had to be mobilized. The number of top leaders was cut from nine to seven.

Moreover, a leading economic group was established to enforce bureaucratic compliance, as was a national security council (similar to that in the United States) to coordinate foreign policy. Previously, the military often kept the foreign ministry in the dark; and the party's foreign-affairs office, which handled North Korea, often failed to coordinate its activities with the foreign ministry, which handled South Korea. An anti-corruption campaign weakened opposition, and Zhu re-emerged as a hero. This set the stage for Xi's arrival.

In short, the new-style leadership, a form of managed charisma, was collectively designed to serve national needs. And it implies that Xi is unlikely to emerge as paramount leader. The Chinese presidency's authority has certainly increased; but Xi is powerful only when he has the votes. On contentious issues, he has but one of seven.

Source: Project Syndicate, by By William H. Overholt*                                                                          *Senior Fellow at the Fung Global Institute and Harvard University's Asia Center.

China's PM Li Drops in to Help Realize Home Dreams

Premier Li paid a surprising visit to Li Zongyi's home in the Xiyuzhuang community, one of the oldest shantytowns in the city, and promised residents that they will be able to move into new apartments next year.

For Li Zongyi, 77, an unexpected visitor to her home has realized her decades-long dream.

The guest was Premier Li Keqiang. During a one-day trip to Tianjin on Friday, he paid a surprising visit to Li Zongyi's home in the Xiyuzhuang community, one of the oldest shantytowns in the city, and promised residents that they will be able to move into new apartments in the next year.

Han Huixia, Li Zongyi's daughter, said: "I have been waiting for this moment for so long. I dare not burn coal to keep warm in winter, in case there is a gas leak or a fire."

Like families in the Xiyuzhuang community, hundreds of millions of residents in shantytowns nationwide are expected to move into new apartments, analysts said, as the country pushes ahead with renovation projects for these areas.

Huang Xiaohu, a researcher at a consultancy center affiliated to the Ministry of Land and Resources, said the renovation of some shanty areas can be very difficult, due to the complexity of the local population, a lack of financial support, and disagreements among residents on the relocation plan.

The Xiyuzhuang community, covering 64 hectares and with low-income residents comprising 20 percent of its households, is a typical case, Huang said, as the cost of compensation is too high.

"The only way out in this case is to let the government play the dominant role and provide residents with low-cost houses, instead of costly commercial apartments," he said.

A State Council meeting in June pledged to improve housing conditions for the underprivileged and to promote urbanization by accelerating shantytown reform.

Urbanization will also be pushed for another 100 million people living in the country's less developed western areas.

To achieve the target, the government will encourage private capital and enterprises to invest in the shantytown transformation, and will allow local authorities to use corporate bonds to solve the financing problem.

As of 2013, China has solved the housing problems of 2.18 million households living in shantytown areas and embarked on projects that could solve such problems for another 3.23 million households, 6 percent higher than planned.

Tao Ran, a professor at Renmin University of China, said the government has looked to the resettlement of residents in shanty areas to be one of its key economic drives in coming years.

But some fundamental work should be addressed before any steps are taken, he said.

Tao suggested that a universal guideline be introduced for local governments to follow during demolition of homes to avoid misconduct and conflicts. 

Source: China Daily

China PM Li Says Economy "Smooth and Stable" in 2014

China's economy and financial market will be on a steady path in 2014, Premier Li Keqiang said on Friday during a trip to Tianjin.

The country has the conditions in place to maintain the "smooth running of its economy and the general stability of its financial market" in the year to come, Li said.

He added that this could be achieved by pushing ahead with economic reforms and opening up the market, according to an article released on Sunday.

Li also said the government will keep a stable fiscal policy in 2014, maintain liquidity at an appropriate level, maintain reasonable growth of monetary credit and social financing, and keep the basic stability of the overall price level.

Li highlighted the supporting role of the financial industry in China's real economy during the one-day trip in Tianjin.

During his time in the city, he visited a sub-branch of the Industrial and Commercial Bank of China Limited, one of the bank’s financial leasing companies, a café-like incubation center that provides services for start-up companies, and an impoverished downtown area.

The premier pledged to push forward with financial reforms and improve the financial market's ability to support the real economy in 2014.

"Financial industry should collaborate with real economy to achieve a win-win situation. It must develop according to the need of real economy," Li said.

"Real economy requires the support of the financial market, while the smooth operation of real economy benefits the financial market in return."

Source: China Daily

China Energy Giant Inks Deal with US Shale Gas Company

China Shenhua Energy Co Ltd. announced it will join with an energy firm called Energy Corp of America to develop a shale gas project located in the state of Pennsylvania.

The booming US shale gas industry is to embrace a new partner - China's Shenhua Energy Co Ltd, the biggest coal producer in the world.

The Chinese energy giant announced that it will join with an energy firm called Energy Corp of America to develop a shale gas project located in the state of Pennsylvania.

According to a statement released by Shenhua, the company plans to invest $90 million to set up a subsidiary for the new project.

The project, which includes 25 shale gas wells, is expected to produce 3.8 billion cubic meters of gas in its first 30 years of operation.

Shenhua had already secured a gas project in Central China's Hunan province at the beginning of this year. It plans to expand its shale gas business in Southwest China's Guizhou province, the statement said.

However, Shenhua has never been involved in foreign shale gas projects before, and neither have other coal firms in China.

Spurred by the application of new technology, including hydraulic fracturing and horizontal drilling, US unconventional gas production has been on a continuous rise starting from 2007.

David Sandalow, assistant secretary for policy and international affairs at the US Energy Department, said earlier this year that the US spent 20 years before the shale gas industry achieved commercialized production driven by investment from the government.

Like other industries, innovation is the key to solving environmental problems during shale gas exploration, he said.

Earlier this month, the National Energy Administration said China has made much progress in shale gas development in Chongqing city, which is expected to reach a capacity of 5 billion cubic meters of the energy source by 2015.

Source: China Daily

UN chief regrets Abe's Yasukuni visit

UN Secretary-General Ban Ki-moon has expressed regret over Japanese Prime Minister Shinzo Abe's visit to Yasukuni Shrine.

The shrine honors Japan's war dead. Those remembered include military and political leaders convicted of war crimes after World War Two.

Ban said in a statement issued on Saturday by his spokesperson that he is aware of the visit by Prime Minister Abe and the strong reaction to it by China and South Korea.

The secretary general added that it is highly regrettable that tension from the past is still plaguing the region.

Source: NHK

War shrine shows limit in US support to Japan

The United States on Thursday criticized Prime Minister Shinzo Abe for a war shrine visit that infuriated Japan's neighbors, in a rare break to usually unstinting US support to its ally.

US advocacy of a stronger Japan -- including a more active security role by the officially pacifist country -- has been a core principle for Washington in a region marked by the rise of China and an increasingly worrisome North Korea.But Abe, known for his passionate belief that Japan should take greater pride in its history, defied US admonitions -- until now voiced quietly -- to stay away from the Yasukuni shrine, which venerates the souls of 2.5 million Japanese war dead.
"Japan is a valued ally and friend. Nevertheless, the United States is disappointed that Japan's leadership has taken an action that will exacerbate tensions with Japan's neighbors," a State Department statement said.
The US executive branch virtually never rebukes Japan, which Washington is bound by treaty to protect, except on trade issues.
China and fellow US ally South Korea voiced outrage over Abe's visit to the Yasukuni shrine, which in addition to common soldiers honors officials executed by a US-backed war crimes tribunal after World War II.
Abe made clear he did not intend to promote militarism, saying that he sought friendship with Chinese and Koreans, and had visited the shrine "to renew the pledge that Japan must never wage a war again."

SOURCE : AFP

Byron Wien*: Reflections at Year-End *Vice Chairman of Blackstone Advisory Partners LP

I think most investors would agree that as the year began they did not expect the Standard & Poor's 500 to have risen 27% by Thanksgiving.  Stocks have continually worked their way higher with the only meaningful corrections occurring in June, August and October when the talk of reducing the $85 billion a month monetary easing program picked up (June, August) and the government shut down (October).  All of this has taken place without the help of especially strong earnings or declining interest rates.  The U.S. economy has struggled to grow at 2% and the much-anticipated year-end acceleration has failed to materialize.  The individual investor has become less enchanted with bonds and has been buying stocks, but it has not yet become a tumultuous shift.  Corporations have been purchasing their own stock back, but nothing much beyond normal levels.  Washington continues to be dysfunctional so nothing has happened there to increase confidence.  Geopolitical issues have improved, but we are not yet at a point where we can feel comfortable about the Middle East, Europe or the South China Sea.

I continue to believe that the monetary expansion of the Federal Reserve was a major factor in the appreciation of equities this year.  In my view, about three-quarters of the $85 billion a month of the bond-buying program flows into financial assets rather than the real economy, so the program is a very inefficient form of economic stimulation.  The main effect of the expansion is to move stock prices higher and keep interest rates low.  If you assume that of the $85 billion, 75% goes into financial assets, that's about $63 billion.  If 75% of that goes into equities that's $47 billion.  The average daily dollar volume for the New York Stock Exchange and the Nasdaq is about $34 billion.  Assuming 22 trading days a month that's $748 billion.  The $47 billion seems like a minor factor influencing the stock market, so it must be the confidence the monetary easing engenders that propels the market higher.  We saw a hint of that when Ben Bernanke said he was thinking of tapering and confidence declined.

"Renewed confidence has been reflected in mutual fund flows.  Up until this year investors have been more favorable toward bond funds, but the strong performance of equities in 2012 and so far this year has changed the mood.  As a result, through October flows into U.S.-oriented equity mutual funds have been $20.2 billion and international equity funds have gotten $113 billion, while bond funds have experienced withdrawals of $39 billion.  Institutional investors also have been more willing to take the cash they have had in reserves and put it into equities.  The prevailing view seems to be that as long as monetary policy is accommodative, stocks will keep rising.  In the view of most investors, valuation is not yet a problem.  The S&P 500 is selling at less than sixteen times earnings, a long way from the excessive multiple levels of 2007 and 1999.  Fifteen times is the long-term average. 

The bear market of 2008-9 was caused by the sub-prime mortgage crisis and the recession it produced.  Interest rates were low when the decline started and they stayed low throughout the rise in the market.  In this cycle, which has lasted 56 months, the S&P 500 has risen 166% with 106 points coming from earnings improvement and only 59 points from multiple expansion.  Based on history, the current bull market is already aging and with most observers expecting interest rates to rise, there is not much chance for further multiple expansion.  These factors would argue for limited upside.

While the U.S. economy has continued to plod along at a growth rate of 2%, and earnings and revenues for the S&P 500 had been increasing at 2% and 2.5% respectively, there has been some improvement since October.  Earnings and revenues are now increasing at 5% and 4%, respectively.  While this does not yet confirm the acceleration that many were expecting for the second half, it does reflect a more positive business environment.  Earnings for the S&P 500 for 2013 are running at a rate of about $105.  The consensus estimate for 2014 is about $120.  I have been skeptical about an increase of that magnitude with profit margins at a high and revenues increasing modestly, but if the present favorable trend continues, earnings may turn out to be stronger than I had thought. 

I was originally planning to write about the emerging markets this month.  Equities for these countries have been doing better since the summer, but overall, the performance in 2013 has been disappointing.  The economies are still growing, but their rate of growth has slowed down substantially and this has cooled off investor enthusiasm.  Their GDP is expanding faster than their developed country counterparts.  China is expected to grow at 7.4% in 2014, India at 4.5%, Brazil at 2.3% and Mexico at 3.5%.  Emerging markets are 45% of world GDP, however, and, in my view, they are going to increase their importance going forward.  The standard of living in these countries is rising in contrast to the developed world and that should provide numerous investment opportunities in the future.  It is just hard to know when these markets will start to perform again. 

There is reason to think important changes are taking place in China.  The November Third Plenum proposed a number of reforms.  The country is shifting toward market-driven pricing for fuel and pharmaceuticals rather than state control.  Eventually even the currency could float.  The one-child policy will be relaxed over time.  The hukou system, which deprived migrant workers of the ability to transfer social welfare benefits from their home town to their new place of employment, is in the process of change.  State-owned enterprises will set aside 30% of their profits for programs like social security and healthcare.  The result of these initiatives will be a shift in the balance of the economy from an export orientation to internal consumption.  Instead of providing favorably priced goods to the United States and buying our Treasury securities, China may become the most important customer for our manufactured products.  Xi Jinping, China's President, has the power and political base to make this happen.  Let's see how long it takes. 

After an initial surge of enthusiasm about the effects of Shinzo Abe's first two "arrows" of fiscal and monetary stimulus, investors have become skeptical about the third arrow which is a growth strategy based on deregulation, increased competitiveness and innovation.  The major impediment to the success of the growth plan is Japan's aging population and declining workforce.                               Abe has already accomplished more than his critics thought he could, so perhaps further favorable surprises are ahead.

 This is the time in the year where everyone is speculating about the prospects for equities in the year ahead.  As usual the consensus is that the market will be up 10% in 2014.  I have been an observer of strategists' estimates for half a century and I can tell you that as a group they always think the market will be up 10% in the following year whether stocks were up 20% or down 20% in the previous year.  What nobody seems to be talking about is the possibility of a "fat tail."  With the uncertainties surrounding Obama's Affordable Care Act, and the risks of the initiatives in Syria and Iran taking a turn for the worse, profit margins peaking and earnings falling short, the downside is certainly not out of the question. 

As for the positives, the tone of economies around the world is improving, individuals are coming back into the equity market, share buy-backs continue, merger and acquisition activity is picking up, growth in Europe is getting better, the decline in oil prices increasing consumer purchasing power and interest rates are likely to stay low because of a reduction in bond offerings.  This could produce another year of strong stock market gains.  At this point I don't know which of the "fat tails" is more likely.  While investor optimism is approaching extreme levels on the positive side, which is a warning signal, stocks don't appear to be melting up yet.  I just have a feeling that 10% appreciation won't be the number at year-end 2014"'.

Source: Caijing.com   Reflections at Year End, by Byron Wien

PM Abe understanding of Japan's WW II intervention and Yasukani Shrine

On Thursday, Prime Minister Shinzo Abe visited Yasukuni Shrine in Tokyo to pray, as he said, “for the souls of all those who had fought for the country and made ultimate sacrifices.”

Source: Tokyo Reporter

Japan: New Year's Holidays abroad

Travelers who will spend the New Year's holidays abroad crowd into Narita Airport on Saturday, the peak of the vacation exodus.

According to Narita International Airport Corp., an estimated 1,275,900 people will use the airport between Dec. 20 and Jan. 5, a 6.5 percent increase from the same period in the previous year.

Source: Yomiuri

China: Making sense of property tax proposal

Property tax has become a hot topic of discussion in the Chinese media after figuring in the Decisions on Major Issues Concerning Comprehensively Deepening Reforms, issued by the Third Plenary Session of the 18th Communist Party of China Central Committee as a blueprint for reforms.

China has implemented many tax reforms in the past three decades but none has attracted as much public attention as property tax. The response it has generated is surprising especially because property tax in sample cities account for only a small percentage of the total tax; it is estimated to reach 152.5 billion yuan ($25.11 billion) this year, just about 5 percent of the value-added tax. Why this big interest in a "small tax"?

History tells us that property tax has always sparked disputes. When the United Kingdom tried to collect community charge poll tax in the 1980s, it met with fierce resistance from residents, and was ultimately forced to replace it by council tax in 1993.

China used to collect tax on realty in the 1950s. But after the 1986 tax reforms, property tax was applicable only to real estate used for business purpose in urban areas. The point of public debate now is whether such a tax should be extended to residential buildings as well, something that Shanghai and Chongqing municipalities did in 2011.

The reason why people are concerned about property tax lies primarily with the high and rising costs of owning a house. For a long time, many urban residents had only land-use rights on the house they lived in because of the collective land ownership system. The change came with "marketization" reform in 2000, under which a majority of residential houses became the property of residents through commercial trade or other reformatory means.

By 2012, the total area of residential houses in China had reached 19.83 billion square meters, or 14.5 sq m per person; the figure could be 30 sq m per person if the previously built houses are included. The 2012 Research Report of China Household Finance Security, jointly released by the People's Bank of China and Southwestern University of Finance and Economics, says 89.68 percent of Chinese families have their own houses, a much higher percentage than in Western countries.

For ordinary wage-earning people or families, a house is often the most prized possession, although many of them may be mortgaged in lieu of loans. Better-off or rich families also use real estate as an essential tool of investment. Therefore, property tax will have a direct impact, mainly negative, on ordinary people's investment, rents and loans. In other words, property tax might add up to a small amount for the State, but it affects the core interests of a very high percentage of people and is thus bound to raise their concern.

Besides, ordinary residents also hope that the property tax is used to bridge the widening social gap. Since China relies heavily on indirect taxes for its tax revenue, almost all the tax burden is borne by ordinary people (as consumers). But the document issued by the plenum, in principle, says that the percentage of direct tax will be increased, and the public hopes the tax on private property will help prevent the social gap from widening further.

Of course, people's opinions on property tax differ, because different people own different number of houses which they got through different channels. For example, many families have one or two houses in which they or their relatives live and it might not be fair to collect property tax from them. Hence, before introducing the realty tax, the authorities need to consider the interests of people across the social divide and allow them to express their views and reservations freely.

The heated public debate on property tax has shown that people have come to know where their interests lie. So property tax should be delicately planned and implemented to better protect people's interests and narrow the widening social gap.

Source: China Daily