Posts Tagged ‘International Monetary Fund’

Greece’s Tsipras Faces Battle to Quell Syriza Hard-Line Revolt

July 29, 2015

Greece — Ruling party’s central committee to decide whether to hold inner-party referendum

Greek Prime Minister Alexis Tsipras, right, listens to Finance Minister Euclid Tsakalotos as Justice Minister Nikos Paraskevopoulos, center, looks on during a parliamentary session in Athens on July 23. “Syriza’s problems are not going to become the country’s problems,” Mr. Tsipras said in a radio interview Wednesday, referring differences within the party.
Greek Prime Minister Alexis Tsipras, right, listens to Finance Minister Euclid Tsakalotos as Justice Minister Nikos Paraskevopoulos, center, looks on during a parliamentary session in Athens on July 23. “Syriza’s problems are not going to become the country’s problems,” Mr. Tsipras said in a radio interview Wednesday, referring differences within the party. PHOTO: REUTERS
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By Nektaria Stamouli and Viktoria Dendrinou
The Wall Street Journal
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ATHENS—Greece’s ruling Syriza party is sliding toward a split as hard-left dissidents resist Greek Premier Alexis Tsipras’s acquiescence to creditors’ demands, endangering his fragile government and complicating the country’s ongoing bailout negotiations.

Syriza’s central committee—the body that sets the party’s policies—is due to meet Thursday to decide how to handle a rift that erupted in mid-July, when a quarter of the party’s lawmakers voted against a set of austerity measures, which were a prerequisite for the country’s prospective new bailout program from the eurozone and International Monetary Fund, worth up to €86 billion ($95 billion).

The central committee is due to decide whether Syriza will hold an emergency congress in September or carry out an inner-party referendum to decide on the party’s future.

If the committee decides to hold a referendum, it could take place this weekend.

Despite his consistently high popularity with the Greek public, Mr. Tsipras faces a difficult battle inside his own party with an uncertain outcome.

After a tentative deal on July 12 between eurozone leaders, more than half of the Syriza central committee’s members signed a statement denouncing the agreement and calling it a “coup” against Greece.

Mr. Tsipras and his top aides have said the government aims to finalize a bailout deal as quickly as possible, before dealing with Syriza’s internal rebels at a party congress in the fall, which could lead to the party splitting, with national elections following soon afterward.

“Syriza’s problems are not going to become the country’s problems,” Mr. Tsipras said in an interview Wednesday on local radio.

Mr. Tsipras said he expects all party members to support the government’s efforts until after the deal is sealed and the country has escaped the danger of bankruptcy before setting in motion any inner-party changes.

But the risk of an immediate party split could threaten the negotiations between Athens and its creditors and pose a risk to financial stability. Greece faces another looming debt deadline on Aug. 20, when it must repay some €3.2 billion in bonds held by the European Central Bank.

The main bloc of dissidents stems from the Left Platform, a faction within Syriza that is calling for Greece to leave the euro.

In a recent cabinet reshuffle, Mr. Tsipras removed ministers representing that group in an effort to assemble a team of ministers who would help implement the tough economic overhauls demanded by creditors.

Members of the Left Platform have called on the government to “immediately stop the negotiations, which are leading to a third bailout” and look for an “alternative solution to the creditors’ blackmail.”

“We must admit that Syriza never became a unified party,” Mr. Tsipras said during Wednesday’s radio interview. “The effort to move from a party of many factions to a unified one didn’t bring the desired results.”

While not expressly demanding the resignation of lawmakers who didn’t support the government’s position, Mr. Tsipras said that according to party rules they should have stepped down already.

“You cannot vote against the government’s proposals and say you support the government; this is surrealism,” Mr. Tsipras said.

Write to Nektaria Stamouli at nektaria.stamouli@wsj.com and Viktoria Dendrinou atviktoria.dendrinou@wsj.com

Greece: Yanis Varoufakis faces criminal prosecution over clandestine ‘Plan B’ currency plot

July 29, 2015

Supreme court lodges legal case to Greek parliament as “treason” charges escalate against former finance minister

A European Union flag flutters outside the Athens stock exchange, Greece, July 27, 2015. Greece's stock exchange will remain closed until the government issues a new decree on the bourse, the country's regulator said in a statement on Monday. REUTERS/Ronen Zvulun

A European Union flag flutters outside the Athens stock exchange

There is no Alan Greenspan or Mario Draghi in China — China’s Stock Market Needs A Public Face

July 28, 2015

An investor covers her face with playing cards in front of an electronic stock information board at a brokerage house in Nanjing. The absence of a reassuring public face to China’s rescue efforts has been felt by investors.
An investor covers her face with playing cards in front of an electronic stock information board at a brokerage house in Nanjing. The absence of a reassuring public face to China’s rescue efforts has been felt by investors. PHOTO: REUTERS

China’s mainland investors’ susceptibility “following the herd” in stock market

July 26, 2015

The recent crash shows mainland investors’ susceptibility to following the momentum of stocks and those with money but less financial knowledge

 By Peter Guy
South China Morning Post

Nothing explains a market crash more vividly than the financial behaviour of individuals.

Recent research and surveys revealed some of the unique characteristics of this early generation of mainland investors who are experiencing their first taste of the market thrill of victory and the agony of defeat.

Some of their beliefs and actions wildly contradict each other, raising questions about how to regulate and market to the world’s largest, but most inexperienced, retail investor market.

While each investor has a unique success story about making money, all  seem to lose money the same way. While the  bubble burst shows how fools and their money are soon parted, maybe the retail investors who bolted in the recent crash were not altogether foolhardy.

Mainland investors are characterised by their susceptibility to following stock price momentum, which feeds their tendency to buy high and sell low. However, there were signs of cautious behaviour, too.

Shanghai stock board

A study and tests of individual investors in China by M&G Investments showed there was a negative correlation between net worth and actual investment knowledge – those with more money to invest actually had less financial knowledge.

“Those investors with a net worth greater than US$15 million consistently overestimated their investment knowledge compared to those with lower net worth,” M&G managing director Andrew Hendry said.

China’s 20 years of uninterrupted economic boom has created first generation wealth whose arrogance and overconfidence can easily translate into trouble at the first sign of easy trading profits.

Ironically, those with a net worth below US$5 million demonstrated more sophistication and a stronger basic knowledge of investment concepts, according to the report. They tend to be humble and ask more questions because they have a lower self-perception of investment knowledge.

CLSA’s analysis of the crash showed it was unlikely to lead to significant systemic risk to the financial system because margin financing peaked at 2 trillion yuan (HK$2.53 trillion), which was only 4 per cent of total retail deposits. However, optimism was unrealistic as at the peak of the market, 54 per cent of investors with four to five years of investing experience were surprisingly positive the market would continue rising in the next three months.

The central government market intervention underscored the lack of maturity and liquidity in the Chinese capital market.Photo: Xinhua

CLSA also found  two-thirds of retail investors  did not  use margin financing and 69 per cent would not alter their margin financing levels. Those who used the most margin lending were high-net-worth clients who qualified for more leverage. So perhaps, the government’s reaction to the volatility was more worrisome than investors’ response to losses.

The M&G report showed the richest people had the poorest knowledge and were highly dependent on investment blogs and online brokers. Financial advisers and private bankers could be relegated to executing trades.

China’s investors are hungry for information. They mostly rely on blogs, websites, social media and advice from friends and family rather than financial advisers. Those most reliant on the internet also have the most exaggerated perception of their own investment prowess and become their own worst enemies for wealth creation.

Across all wealth levels, Chinese prefer to manage more of their  money. Mutual funds do not play a dominant role in personal portfolios. Unlike in the US, where only 15 per cent of retail investors primarily invest in stocks and the rest park their money in mutual funds, Chinese prefer to play stocks.

Although the new mainland-Hong Kong mutual fund recognition scheme  will allow eligible Hong Kong  funds to be sold to retail investors on the mainland, it does not yet allow Hong Kong asset managers to establish and operate their own product distribution and financial advisory platforms. Removing this impediment is a critical reform for raising investment education levels to world  standards.

The mainland’s rich  are failing to translate their internet activity into actual financial knowledge. In fact, their understanding of investments is far worse than they realise. Across all markets, except Singapore, these investors think their financial insight is higher than it actually is. If wealth managers cannot create a pivotal role where they become a trusted resource for investment management, then they risk losing their wealthier clients to the internet.

Peter Guy is a financial writer and former international banker

China creates instability in South China Sea — Ready to establish a new world order?

July 26, 2015

By  Christopher Morris

As the South China Sea situation continues to escalate, so the tensions between the East Asian nation and the United States also expand. The existing conflict in the region continues to intensify, as all of the major players with a stake in the South China Sea continue to make moves in order to emphasize their own particular dominance.

South China Sea flare-up

It is not only the United States and China that have claimed a particular interest in this region. Taiwan and Japan are also intrinsically tied up in the outcome of the current situation, even if the former realistically lacks the financial resources, military might and diplomatic influence to risk a direct confrontation with China.

Of course, China also claims sovereignty of Taiwan itself – refusing to even acknowledge the name of Taiwan as a country – and is therefore extremely unlikely to kowtow to any form of diplomatic pressure from the relatively small East Asian nation. But in truth the South China Sea situation is just the latest in a series of territorial conflicts involving China that indicate the extent to which the superpower is flexing its military, diplomatic and geopolitical muscle.

Unquestionably, China is now a major superpower. While we may still be living on a planet crafted in the image of an Anglo-American world order, the reality is that China has significant influence and power within it. The world’s most populous nation has already overtaken the United States as the largest producer of gross domestic product on the planet, at least according to the International Monetary Fund. And this is indicative of a growing financial and political prominence of this nation of over one-billion people in the contemporary economic system.

As China takes an increasingly hawkish position on geopolitical matters, and enters into important allegiances with the likes of Russia, so its position on the world stage is altered radically. While the United States has been the unchallenged superpower on the planet for many years, China is now beginning to develop economically and militarily in such a fashion that suggests it will seriously challenge US hegemony in the coming years.

China territorial disputes

Previous territorial disputes involving China, the Philippines, Vietnam, Taiwan, Malaysia and Brunei have underlined the extent to which China is now creating instability in the East Asian region in general. The resentment that has built up as a result of these manoeuvres could now have a serious influence over the South China Sea situation. China views the region as essential to its plans to expand its empire, but other nations are naturally not too enamored with this prospect.

And the current situation has naturally incited the interest of the United States. That US government is certainly not one to stand idly by when it believes that its interests are threatened, and an emboldened and increasingly powerful China is naturally inimical to American interests.

Whether one agrees with the interventionist foreign policy of the United States or not, the current stance of the US government towards China is pretty much inevitable when one considers the geopolitical context. Neither power should necessarily be viewed as good or bad, rather that the existing situation has been coming to a head for some time, and indeed was predicted some decades ago based on a basic demographics and economic data.

US-China relationship

But the question with regard to the South China Sea is whether the United States should saber rattle in China’s direction, or whether a less robust and more diplomatic approach would be advisable. Although there are tensions between the United States and the China over the South China Sea region, and the seemingly strong bond between China and Russia is hardly a positive thing for US-China relations, the fact remains that the diplomatic relationship between the two nations is not too sour. The US and China have managed to recently collaborate on the Iranian nuclear agreement, and although there is definitely potential for this to go awry in the future, it does indicate that the two nations are capable of behaving harmoniously.

There are also intrinsic links between the United States and China economically. Trade between the two nations is almost inevitable, considering that they are the largest economies on the planet by some distance. And major corporations such as Apple Inc. (NASDAQ:AAPL) choose to locate their production facilities in China, and thus there is now an almost symbiotic relationship between the United States and China in this regard.

This symbiosis also carries into the debt-based relationship between the two nations. China is the largest holder of US debt on the planet, and this further incentivizes the two nations to reach diplomatic solutions in any areas of conflict.

And there is also a history of cooperation between the United States and China at military level. This is perhaps not something that the average person would associate with the United States, as it is generally presumed that the most powerful nation on the planet has something of a frosty military relationship with China.

 

But despite this perception, China has participated in the world’s largest international maritime exercise, RIMPAC 2014, which is hosted biannually by the U.S. Pacific Command. RIMPAC 2014 consisted of a series of drills that enabled the world’s most populous nation to learn directly from what is undoubtedly its greatest military power. With the Chinese military able to learn a huge amount about US tactics, techniques and procedures, it seems that the United States government is not hellbent on keeping its military capabilities secret from this new theaterwide threat to its dominance.

South China Sea rhetoric

However, despite the apparent cooperation between China and the United States, the US government has still engaged in confrontation in the South China Sea, both rhetorically and physically. It may seem illogical for the US to be training Chinese forces in the American way of waging war, while at the same time the two nations continue to drift alarmingly closer to armed confrontation. Such are the vagaries of foreign policy in this often upside-down world.

In reality, a closer collaboration between the United States and China would be beneficial to both nations, and the US should desist from aggressive public rhetoric against the East Asian nation. Any aggressive military action against China would be counter-productive and short-sighted, and ultimately achieve nothing in a world in which the two nations will remain intrinsically linked for the foreseeable future.

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http://www.valuewalk.com/2015/07/us-china-peace-tested-by-south-china-sea-conflict/

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New BRICS development bank will help the global economy to grow

July 25, 2015

By The Editorial Board
South China Morning Post

The West-centric world order drove the fastest-developing countries, Brazil, Russia, India, China and South Africa, to set up their own organisation under the banner of their acronym, BRICS. The institution they opened in Shanghai on Tuesday, the New Development Bank, plainly states on its website that it provides “an alternative to the US-dominated World Bank and International Monetary Fund”. But the reality, backed by the assertions of officials from both sides, is that it is about supplementing rather than supplanting. By keeping true to that objective, member nations will benefit, but by extension, so, too, will the global economy.

Financing infrastructure projects in member countries will be the bank’s initial aim when it begins operations either at the end of this year or early in 2016. While BRICS countries were driving world growth when the organisation was established in 2009, the flat global economy and Western sanctions against Russia have caused a considerable slowdown, necessitating a developmental kick-start. There is even greater impetus given the IMF’s downgrading of international growth this year to 3.3 per cent and with the US tipped to raise interest rates in coming months, which may prompt an outflow of capital from developing and emerging economies.

Healthy BRICS economies are important for global development and vice versa. The nations have 40 per cent of the world’s population, account for about 20 per cent of GDP and contribute almost half the growth. Such significance is why officials have welcomed the bank in terms of supporting the work of other financial institutions, including the Asian Infrastructure Investment Bank, also being pushed by China.

But there is another goal: Finance Minister Lou Jiwei said it would help “explore innovations in governance models”, while bank president Kundapur Vaman Kamath said it would “improve and complement the system in our own way”. The new bank is a major achievement for BRICS, but could also help shore up and even grow the global economy.

China’s Stock Market Pain Is India’s Financial Gain After Investors Spooked By Chinese Government Intervention

July 24, 2015

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Bloomberg

The tumult in China’s stock markets has turned into a blessing for Indian shareholders.

International investors are pulling out of China, fueling record outflows through the Shanghai-Hong Kong exchange link, amid a $2.8 trillion plunge in mainland equity values since June 12. They’ve plowed $705 million into India over the same period, sparking a world-beating 7 percent gain in the benchmark S&P BSE Sensex index.

China’s interventionist response to the rout — including unprecedented trading restrictions — has prompted foreigners to shift their equity exposure to India, according to hedge fund Alexander Alternative Capital LLC. The $2 trillion economy, which got a fresh boost from tumbling crude prices this month, is less exposed than its emerging-market peers to slowing growth in China, Aquarius Investment Advisors Pte. says.

“The recent travails in China make India seem like an oasis of calm in terms of volatility,” Jonathan Schiessl, the head of equities at the U.K.-based Ashburton Investments, which oversees $12 billion, said in an e-mail. The fund has cut its exposure to China by 1 percent in the past month to invest in Indian equities and raise its cash position, he said.

Gains in Indian shares over the past six weeks mark a turnaround from the preceding four months, when China’s bull market and doubts over Prime Minister Narendra Modi’s economic policies kept foreigners away. The Sensex tumbled 11 percent from this year’s peak on Jan. 29 through June 12, making it the world’s worst performer after Egypt.

IMF Forecast

Those concerns have been allayed by the biggest jump in indirect tax receipts in May since 2011, which gives Modi ammunition to boost expenditure. A 12 percent decline in Brent crude prices this month has also pared government subsidy bills in a country that imports about three-quarters of its oil.

India’s economy expanded 7.5 percent in the March quarter, beating China’s 7 percent growth, while the International Monetary Fund predicts India will outpace its neighbor in the current fiscal year.

The longer-term growth outlook is also stronger in India because of its superior demographics, according to Franklin Templeton Templeton Investments. More than 62 percent of the nation’s 1.2 billion people are between age 15 and 59, government data show. China’s pool of workers in this age group is expected to shrink by 61 million by 2030, according to United Nations. That’s about the equivalent of losing the combined working populations of the U.K. and France.

“India is in a phase in which multiple engines of growth can drive GDP from 7-8 percent to 9-10 percent in the next five years,” said Sukumar Rajah, who manages about $9 billion as chief investment officer of Asian Equity at Franklin Templeton in Singapore. “For China, we expect growth to decelerate over the next few years partly because it doesn’t benefit from demographic trends the way that India does.”

State Intervention

Templeton is overweight India and underweight Chinese shares in Hong Kong relative to benchmark indexes, Rajah said. He’s bullish on Indian industrial companies such Larsen & Toubro Ltd. amid signs of increased spending on infrastructure.

The Hang Seng China Enterprises Index declined 0.8 percent at 1:19 p.m. in Hong Kong on Friday after a private gauge of Chinese manufacturing unexpectedly fell to the lowest level in 15 months. India’s Sensex lost 0.3 percent in Mumbai trading, poised for a weekly decline.

For overseas money managers, China’s meddling has raised concern about the government’s promise to enact the free-market reforms needed to make mainland shares eligible for MSCI Inc.’s benchmark indexes. Measures to end the rout include a ban on selling by major shareholders, halting initial public offerings and allowing more than 1,400 companies to suspend trading.

“The intervention puts a wet blanket on China’s indices being included in the MSCI gauges,” said Michael Corcelli, chief investment officer of Alexander Alternative in Miami. The steps “are bad for China and definitely good for India,” he said.

Deficient Rainfall

India’s stocks rally may unravel if the strengthening El Nino weather pattern weakens monsoon rains, said Anil Ahuja, the Singapore-based chief executive officer of hedge fund IPEplus Advisors.

The June-September rainfall, which was 16 percent above a 50-year average at the end of last month, is now 7 percent below normal, according to the weather office. The monsoon waters more than half of India’s farmland and a shortfall can stoke food prices.

The Sensex gauge trades at 15.9 times 12-month projected profits, compared with a five-year mean of 14.4, data compiled by Bloomberg show. The Hang Seng China Enterprises is valued at 8 times.

“A weak monsoon has not been priced in,” Ahuja said. “Valuation multiples are high versus long-term averages. If earnings don’t begin to justify valuations soon, investors will start to move away.”

Indian earnings are projected to grow about seven times faster than China over the next 12 months. Profits at Sensex companies will climb 30 percent, versus 4.3 percent for the Hang Seng China Enterprises Index, analyst estimates compiled by Bloomberg show.

“India’s recent outperformance could be because it has a steady macro-economic picture and is relatively insulated from any slowdown in China compared with other emerging markets such as South Korea and Brazil,” said A.S. Thiyaga Rajan, a Singapore-based senior managing director at Aquarius. “India could see greater interest, now that it is projected to be the fastest-growing major economy.”

http://www.bloomberg.com/news/articles/2015-07-23/china-pain-is-india-s-gain-as-international-funds-flee-to-mumbai

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China’s yuan is on track to post one of its longest streaks of stable trading in a decade

July 21, 2015

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China: A decade after Beijing lifted its official peg to the dollar, its control of the yuan could set back ambitions to broaden use of the currency

Ten years ago Tuesday, the People’s Bank of China unpegged the yuan from the U.S. dollar.
Ten years ago Tuesday, the People’s Bank of China unpegged the yuan from the U.S. dollar. PHOTO: XAUME OLLEROS/BLOOMBERG NEWS
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By Anjani Trivedi
The Wall Street Journal

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China’s yuan is on track to post one of its longest streaks of stable trading in a decade, just as its financial markets reel and growth sputters, reflecting how disconnected the currency remains from the country’s hefty challenges.

Ten years ago Tuesday, the People’s Bank of China unpegged the yuan from the U.S. dollar. Yet the currency remains tightly controlled, with the central bank regularly buying and selling it in the domestic foreign-exchange market to maintain a desired level.

That firm grip has steadied the yuan despite a ream of unsettling news out of China, ranging from a selloff that had knocked trillions in value from Chinese equities to second-quarter growth of 7%, matching the economy’s slowest rate of expansion in decades. Since May, the Chinese currency has barely moved against the U.S. dollar, declining 0.01%.

“Even though they don’t have a formal peg now, this is the closest it has been to such a period of stability,” said Khoon Goh, a currency strategist at Australia and New Zealand Banking Group Ltd. in Singapore. Despite recent moves in global financial markets, “the [Chinese yuan] has remained remarkably stable.”

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The currency’s unusual stability and Beijing’s careful management could set back broader economic reforms aimed at shepherding the yuan toward greater international clout, analysts say.

 

The sentiment echoes similar concerns about Beijing’s closely engineered stock-market rescue. China put in place a range of measures—from halting initial public offerings to preventing some stock sales—that many have said could delay China’s goal of opening up its markets.

China doesn’t “want to see the market spooked one way or another,” said Sacha Tihanyi, a senior currency strategist at Scotiabank in Hong Kong. “The equity market meltdown created a whole new reason to clamp down on [the currency] some more.”

Around the globe, meanwhile, a renewed debt crisis in Greece, collapsing gold prices and divergent monetary policies among global central banks have whipsawed currency markets. The Federal Reserve’s plans to raise short-term interest rates later this year sent the dollar to its highest in over a decade earlier this year against the Japanese yen. That pushed other Asian currencies to depreciate more than 3% against the U.S. dollar since early May.

Over the past year, China’s flagging economy has led Beijing to undertake aggressive stimulus measures. But Beijing’s ambitions for the yuan—and larger goals to open up its markets—have kept it from devaluing the currency, a tactic often used by countries seeking to bolster their exports, and thus economic growth.

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Rather, China is trying to avoid mistakes made by many other emerging-market countries. By opening up their capital accounts too fast, allowing funds to flow freely across their borders, they laid the groundwork for furious surges and rapid depreciations in their currencies, such as those in Thailand during the 1990s.

To be sure, the recent pattern follows two years of relatively volatile trading as Beijing tried to make its currency more market-driven, ending one-way bets on the yuan’s appreciation and stemming speculative money flows.

A big factor behind Beijing’s push for stability is a desire for inclusion in the International Monetary Fund’s Special Drawing Rights, an exclusive basket of currencies comprised of the U.S. dollar, the euro, the British pound and the yen that make up the fund’s emergency lending reserves. The IMF will consider a decision on including the yuan later this year.

It also highlights officials’ efforts to pivot the economy toward growth-based consumption, rather than the export-oriented expansion that would benefit from a cheaper yuan. In the face of a fitful stock market and collapsing growth, a stable currency, too, could encourage offshore investors into Chinese assets as Beijing tries to stem capital outflows.

‘Even though they don’t have a formal peg now, this is the closest it has been to such a period of stability’
—Khoon Goh, a currency strategist at Australia and New Zealand Banking Group

After years of fixing its currency against the U.S. dollar, the Chinese central bank dropped its official peg in 2005, revaluing the yuan overnight. The move helped integrate China’s rising economy into global markets and allayed tensions with trading partners frustrated by what they considered a too-cheap currency that gave Chinese manufacturers an unfair advantage. The yuan has broadly appreciated 30% since the currency was revalued by 2% to 8.11 yuan per U.S. dollar on July 21, 2005.

Now, China’s central bank sets a daily reference rate for the yuan against the U.S. dollar and allows the currency to trade 2% above or below it, barring a two-year period during the global financial crisis when Beijing effectively relinked its currency to 6.83 yuan per U.S. dollar as an emergency measure.

The recent calm has even withstood a volatile stretch for the U.S. dollar in recent months, as patchy economic data led to fluctuating expectations of a rise in U.S. rates.

Declining reserves of foreign currency at the People’s Bank of China suggest that the central bank has been buying the yuan to keep it strong and steady against the dollar. Earlier this month, data from the central bank showed its foreign-exchange holdings in the second quarter fell $40 billion to $3.69 trillion from the previous quarter.

But even after a decadelong reform process, global usage of China’s yuan remains “low relative to China’s share of global GDP, trade and investment,” analysts from HSBC wrote in a note to clients Monday.

Write to Anjani Trivedi at anjani.trivedi@wsj.com

China emerges a major winner from Iran nuclear deal

July 20, 2015

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Emanuele Scimia says the lifting of sanctions will not only benefit Chinese trade, but also pave the way for Beijing’s geopolitical advances as it pushes its Silk Road vision

By Emanuele Scimia
South China Morning Post

The protagonists of the multilateral deal on the limitation of Iranian nuclear activities are repeating as a mantra that there are no clear winners and losers from the talks. In their reasoning, this means they reached an acceptable result for all parties involved in the process. Yet it must be said that even if the official diplomatic narrative does not depict China as a winner at the negotiating table regarding Iran’s nuclear future, facts attest that Beijing will probably be one of the principal beneficiaries of the agreement.

Iran and the P5+1 group of world powers – the United States, China, Russia, Britain and France plus Germany – signed last Tuesday a long-expected deal to degrade Tehran’s sensitive nuclear programme in exchange for the lifting of damaging sanctions that the United Nations, United States and European Union had imposed on Tehran over the past years in an effort to halt its uranium enrichment.

The gradual relief of sanctions on the Iranian regime could pave the way for Beijing’s geopolitical advances in the Middle East and the Persian Gulf. That fits in with a much bigger picture of China trying to promote its Silk Road economic belt and Maritime Silk Road project, a proposed land- and sea-based transport system that aims to connect China with Western Europe.

China was Iran’s largest commercial partner in 2013, with a combined trade worth about €30 billion (HK$252 billion), according to the International Monetary Fund. These numbers are likely to increase after the Iranian market becomes more accessible, particularly in the energy sector.

China is one of the largest importers of Iranian crude and condensate, the US Energy Information Administration reports. Despite the regime of sanctions, Chinese state-run companies such as China Petroleum and Chemical Corporation (Sinopec) and China National Petroleum Corporation are still participating in upstream projects in Iran, exploring and developing some Iranian oil fields. After the financial and economic restrictions on Tehran are lifted, Beijing could invest in energy infrastructure in the country to secure further flows of raw materials for its gigantic industrial complex, as well as for its growing market of final consumers – and all of this against a backdrop of declining oil and gas prices.

Chinese capital will ultimately tie Iran to Beijing’s economic clout and geopolitical design for the Eurasian space. A case in point is Beijing’s interest in the China-Pakistan Economic Corridor – which should connect to the two Silk Roads, and then another connection using the planned Iran-Pakistan gas pipeline. The building of its Pakistani section has been delayed, notably because of pressures from the US and Saudi Arabia. But in April, Beijing pledged help for its construction.

In the end, the deal on the Iranian nuclear programme could serve as a cornerstone of stability in the region spanning Iran, Pakistan and Afghanistan, which is central to China’s Silk Road strategy. It is a multilateral pillar adding to the diplomatic moves that Beijing is conducting on its own, such as its attempts at brokering, with the involvement of Pakistan’s leadership, a peace agreement between the Afghan government and the Taliban leadership.

It is worth noting that the apparent resolution of the crisis does pose challenges for China as well. The Washington-Tehran tug of war in the past 10 years over the supposed military nature of the Iranian nuclear programme benefited Beijing, as it forced the US to concentrate more diplomatic, military and economic resources on the Middle East, and less on other geopolitical theatres such as the Pacific Rim.

Now that Iran will be gradually legitimised within the international system of relations, the US may refocus on its much-trumpeted rebalancing/pivot to Asia-Pacific. However, apart from this “unintended consequence”, it seems China’s gains from the agreement on Tehran’s nuclear capability far outweigh its losses, at least in the immediate future.

Emanuele Scimia is an independent journalist and foreign policy analyst

Greece latest: Violent protests erupt in Athens

July 15, 2015

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Photo: Greek riot police deploy near the Parliament in Athens after dusk on July 15, 2015

By  | |
CNBC

Violence erupted on the streets of Athens ahead of a parliamentary vote on whether Greece will accept creditor-proposed reforms in exchange for a third bailout.

The vote is expected to pass, but the atmosphere’s tense, with multiple politicians from within Prime Minister Alexis Tsipras’s own party opposing the deal. Indeed, one of Greece’s deputy finance ministers, Nadia Valavani, resigned on Wednesday.

Meanwhile, officials in Brussels have outlined proposals for short-term financing for the debt-stricken country.

Here are the key developments on Greece:

–Police responded with tear gas after protesters threw petrol bombs in Athens
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–Greek parliamentary vote due before midnight Wednesday
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–IMF warns Greece needs extra debt relief
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Tsipras tells Greek TV that he does not believe in the deal
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–Greek minister says country is being destroyed
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–Short-term financing could come from EU-wide fund
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–Non-euro nations to be compensated if Greece can’t repay loans
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–Banks to remain closed until Thursday
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From BBC News
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Protest in Athens on 15 July 2015
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Striking public sector workers protest in Athens over the austerity measures being debated in parliament
Greek debt crisis

Greek MPs are debating tough economic measures they must approve by the end of the day in order for an €86bn eurozone bailout deal to go ahead.

The new legislation includes tax rises and an increase in the retirement age.

PM Alexis Tsipras has said he does not believe in the deal, but has urged MPs to agree to the measures.

The vote is expected to pass with opposition help, despite a revolt from some hardliners in the ruling left-wing Syriza party.

Pro-European opposition parties have pledged to vote for the measures.

Hardliners in the ruling left-wing Syriza party are likely to vote against, and the junior coalition party has offered only limited support.

“If I don’t have your support it will be hard for me to remain as prime minister,” Mr Tsipras has told his MPs, as government estimates suggest between 30 and 40 will oppose the measures.

Opponents of the deal took to the streets of Athens ahead of the vote, and unions and trade associations representing civil servants, municipal workers and pharmacy owners held strike action.

More than half of the members of Syriza’s central committee have signed a statement condemning the bailout agreement, describing it as a coup against their nation by European leaders.

Follow the latest updates here

The possible bailout was agreed in Brussels on Monday by eurozone members, though one of Greece’s creditors, the International Monetary Fund (IMF), has suggested in a report that it does not go far enough – and that Greece will need some of its debts to be written off.

Greece’s economy has shrunk by 25% in the last five years amid austerity measures designed to curtail its ballooning public sector debt.

In order to begin negotiations over a third bailout worth €86bn (£61bn; $95bn) over three years, Greek MPs need to approve measures including:

  • The ratification of the eurozone summit statement
  • VAT changes including a top rate of 23% to take in processed food and restaurants and; a 13% rate to cover fresh food, energy bills, water and hotel stays; and a 6% rate for medicines and books
  • The abolition of the VAT discount of 30% for Greek islands
  • A corporation tax rise from 26% to 29% for small companies
  • A luxury tax rise on big cars, boats and swimming pools
  • And end to early retirement by 2022 and a retirement age increase to 67

Monday’s announcement of a possible deal was met with anger among many in Greece, who called it a “humiliation”.

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Vote risk for Syriza government

The Greek constitution states that a government must have a majority – 151 seats out of 300.

But if it loses a vote, the government can still function in a minority capacity as long as the opposition does not call a vote of confidence and as long as the numbers don’t fall below 121.

The number of anti-bailout MPs is known to be at least 30 within Syriza’s 162-seat coalition.

The question is whether there will be more than 41.

If the numbers go below 121, Prime Minister Alexis Tsipras’s government will be severely damaged and will likely look to opposition parties to join a national unity government.

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Mr Tsipras has said he does not believe in the deal, though he agreed to it.

In a television address on Tuesday, he called the proposals “irrational” but said he was willing to implement them to “avoid disaster for the country” and the collapse of the banks.

As parliamentary committees considered the details of the laws, Deputy Finance Minister and Syriza member Nadia Valavani announced her resignation, saying: “I’m not going to vote for this amendment, and this means I cannot stay in the government.”

And tempers flared when former Finance Minister Yanis Varoufakis was heckled with shouts of “You got us here” while addressing one committee.

The jeers came when he said he doubted the deal could work, and compared it to the conditions imposed on Germany in the Treaty of Versailles after World War One.

Meanwhile, French MPs have overwhelmingly backed the Greek bailout deal. Because of their constitutions, several eurozone members, including Germany, must ratify the deal in their parliaments before it can proceed.

Banks stay shut

Greece faces an immediate cash crisis. Banks have been shut since 29 June.

Mr Tsipras has warned banks are unlikely to reopen until the bailout deal is ratified, and this could take another month.

The European Commission has formally proposed a short-term €7bn loan for Greece through the EU-wide European Financial Stability Mechanism (EFSM).

Use of the EFSM for eurozone rescues has been opposed by Britain and other countries which are not part of the euro but are European Union members.

One British official in Brussels told the BBC the UK government had no objection in principle to the use of the EFSM – as long as British taxpayers’ money was ring-fenced from any liability.

Valdis Dombrovskis, a senior European Commission official, said it was working to protect non-euro states from any negative financial consequences should the loan not be repaid.

‘Need for debt help’

The IMF report was written before the eurozone reached a deal with Greece in the early hours of Monday. It was shared with eurozone leaders in advance, but made public only on Tuesday.

It predicts that, in two years’ time, Greek debt will reach close to 200% of GDP (national income) which could “only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far”.

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It recommends a “very dramatic extension” on the maturity of Greece’s debts, “with grace periods of, say, 30 years on the entire stock of European debt”.

“Other options,” it says, “include explicit annual transfers to the Greek budget or deep upfront haircuts (debt write-offs)”.

Germany, the largest contributor to Greek rescue funds, and a number of other eurozone countries have long resisted any talk of haircuts and debt relief.

The European Commission published its own assessment on Wednesday, taking a more optimistic view of Greece’s debt sustainability than the IMF but also suggesting debt relief.

The Commission’s report says rescheduling the debt is possible, but only if Greece implements the reforms being demanded by its creditors. It rules out debt write-offs.

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Analysis – by Chris Morris, BBC News, Brussels

The IMF report highlights a massive flaw in the deal hammered out so painfully between Greece and the rest of the eurozone: the numbers don’t add up.

It believes that without a restructuring of the Greek debt, it will keep on rising.

But the point about this deal is – once again in the eurozone, it was a case of politics trumping economics.

The desire to keep the eurozone together was stronger (for now) than the economic forces threatening to pull it apart.

There was plenty of talk about debt restructuring during the negotiating process, but not on the scale that the IMF is suggesting.

Officially, there will be a discussion of restructuring only after a first review of the new bailout is successfully concluded.

That is several months down the line.

But, while the IMF report doesn’t comment directly on Monday’s deal (because the report had already been written by then), it certainly implies that the IMF may feel it is unable to take part in the new bailout programme for Greece.

And that would leave a large hole – both in terms of numbers and political credibility.

http://www.bbc.com/news/world-europe-33535205

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According to the IMF, Greece needs more relief than EU governments have offered. Prime Minister Alexis Tsipras is desperately trying to corral lawmakers into voting for fresh austerity imposed by international creditors.
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In a report Tuesday, the International Monetary Fund announced that creditors would have to go “far beyond” existing debt relief estimates to stabilize Greece’s finances. The IMF’s stark warning on Greece’s debt came as Prime Minister Alexis Tsipras struggled to persuade deeply unhappy lawmakers to vote for a package of austerity measures and liberal economic reforms to secure a new bailout.

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According to the IMF, EU countries will have to give Greece a 30-year grace period on European debt or else make annual transfers to the country’s budget or accept “deep upfront haircuts” on existing loans. “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM,” the IMF reported, referring to the European Stability Mechanism bailout fund.

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With opposition help, Greek legislators are expected to accept new credit-for-austerity measures on Wednesday. Prime Minister Alexis Tsipras has until Wednesday night to get the measures – a prerequisite for the 18 other eurozone lenders to begin formal negotiations on the package – adopted by the Greek parliament. The bill includes increases in value-added tax, pension cuts and vast privatizations.
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‘Tough and punitive’

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Tsipras had agreed to the terms during 17 hours of talks on Monday. “The policies imposed on us were irrational,” Tsipras said late Tuesday in an interview with state television. “We faced a tough and punitive position from our partners.” The prime minister said he took “full responsibility” for signing an accord he did “not believe in, but which I signed to avoid disaster for the country” in the shape of leaving the eurozone.

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If Greece enacts the measures, the German parliament would meet in a special session on Friday to debate whether to authorize the government to open new loan negotiations. In Brussels on Tuesday, German Finance Minister Wolfgang Schäuble said some members of his government thought it would make more sense for Greece to leave the eurozone temporarily rather than take another bailout.

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“There are many people, including in the federal government, who are quite convinced that in the interests of Greece and the Greek people that what we wrote down would have been much the better solution,” said Schäuble, who has taken a tough stance on Greece in recent months and years.

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In an interview published Tuesday, Italian Finance Minister Pier Carlo Padoan said most nations fell in line behind Germany: “In the end, only we, the French and little Cyprus were for a compromise.”

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Though Germany’s harsh austerity advocacy has proved popular at home, it is facing backlash from abroad.

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mkg/msh (Reuters, AFP, dpa, AP)

http://www.dw.com/en/as-tsipras-awaits-fate-imf-tells-creditors-greece-needs-help/a-18584447


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