US meets tech leaders, forms task force to fight online militants

White House Chief of Staff Denis McDonough led a high-level government delegation that held talks with representatives from some of the country's biggest technology companies, including Apple CEO Tim Cook. 

PHOTO: REUTERS

JAN 9, 20167:57 AM

[WASHINGTON] The Obama administration on Friday sent its top national security officials to meet tech industry leaders in Silicon Valley and announced a new task force to counter online propaganda as the United States tries to crack down on the unprecedented use of the Internet by jihadists.

White House Chief of Staff Denis McDonough led a high-level government delegation that held talks with representatives from some of the country's biggest technology companies, including Apple CEO Tim Cook.

It was the latest effort by the Obama administration to cajole tech firms to be more cooperative with the intelligence community following a rift prompted by former National Security Agency contractor Edward Snowden's disclosures, which detailed government surveillance.

The talks, at a government complex next to San Jose City Hall, were described by a senior administration official as a"technological brainstorming meeting" to look at ways to make it harder for violent extremists to use the Internet to recruit support or to plan attacks. "We explained our policies and how we enforce them - Facebook does not tolerate terrorists or terror propaganda and we work aggressively to remove it as soon as we become aware of it," a Facebook spokesman said after the meeting, which lasted two hours and 15 minutes.

Google, Twitter, Microsoft, Yahoo and LinkedIn were also planning to send senior executives as President Barack Obama works to reassure the public that his administration is succeeding against Islamic State in the wake of recent attacks in Paris and San Bernardino, California.

A 2015 Brookings Institution report found that Islamic State, which controls large areas of Syria and Iraq, had operated at least 46,000 Twitter accounts during a three-month period in 2014.

Security was surprisingly light around the San Jose venue and local media posted pictures on Twitter of Homeland Security Secretary Jeh Johnson and McDonough walking down the street to get coffee ahead of the meeting.

ENCRYPTED COMMUNICATIONS

Several social media companies have updated their terms of service within the last 18 months to take a tougher stance against content that can incite violence, but some are reluctant to appear too cooperative with the government because of privacy and commercial concerns.

Twitter, long maligned for being less cooperative than other companies such as Facebook, updated its policies last week to explicitly prohibit "hateful conduct." Law enforcement's struggles to crack encrypted electronic communications used by criminal and terrorism suspects was also on the agenda but was not expected to be a central focus, sources said.

Intelligence officials and some lawmakers have complained that the growing prevalence of strong encryption on email, call and messaging platforms, such as iMessage or WhatsApp, hamstring their ability to monitor communications between criminal suspects.

The Obama administration abandoned a push last year for legislation that would force US companies to build so-called "backdoors" into their products to allow investigators access to encrypted data, amid concerns from technologists and privacy advocates. The meeting was not expected to prompt a change in the White House's official stance.

Attorney General Loretta Lynch and FBI Director James Comey and other senior officials also attended the San Jose talks.

As part of the online efforts against jihadists, a new group known as the Countering Violent Extremism Task Force will "integrate and harmonise" government efforts to prevent violent extremism in the United States, White House national security spokesman Ned Price said.

Some of the changes appear largely bureaucratic, however, and reflect the government's ongoing struggles to address the Islamic State's presence online.

The task force will involve the Department of Homeland Security and the Department of Justice and other federal and local agencies.

In addition, the State Department said it is revamping how it delivers anti-propaganda on sites like Twitter with the formation of a new Global Engagement Center. It will shift away from a heavily criticized campaign that included producing English counter-propaganda content and toward assisting allies in creating more targeted anti-militant communications.

REUTERS

    
 

Iceland OKs some foreign investment as it slowly lifts capital controls

Iceland, in the slow process of lifting capital controls it imposed after a 2008 financial meltdown, said on Friday its pension funds would be allowed to invest 20 billion Icelandic crowns (S$222.2 million) abroad.

PHOTO: BLOOMBERG

JAN 9, 20167:51 AM

[COPENHAGEN] Iceland, in the slow process of lifting capital controls it imposed after a 2008 financial meltdown, said on Friday its pension funds would be allowed to invest 20 billion Icelandic crowns (S$222.2 million) abroad.

The Icelandic central bank said the funds would be available in the first four months of this year and follows a similar move last year when pension funds were allowed to invest 10 billion crowns in the second half.

The central bank has long said Icelandic pension funds should be able to invest abroad to diversify their own portfolios.

Authorities in Iceland struck agreements last year with creditors of three failed banks, which once held assets worth over 10 times the country's gross domestic product, on how they will repatriate any funds recovered.

That agreement is seen as a critical step before controls are lifted although officials have said that the process of removing them will be slow and carefully planned.

The central bank has said it would intervene on the foreign currency market to keep the crown stable once it is allowed to be traded more, and that today's Icelandic banks will have their activities limited to mostly domestic operations.

The government has had to strike a balance between returning the country to international financial norms and ensuring that once capital controls are lifted, money does not flow out of the country so fast the currency crashes and the economy suffers.

REUTERS

    
 

German budget surplus nearly twice as high as expected: Spiegel

The German government can count on a larger-than-expected budget surplus of more than 10 billion euros (S$15.7 billion) in 2015, which will help Berlin meet the costs of an unprecedented refugee influx, Der Spiegel reported on Friday. 

PHOTO: AFP

JAN 9, 20167:48 AM

[BERLIN] The German government can count on a larger-than-expected budget surplus of more than 10 billion euros (S$15.7 billion) in 2015, which will help Berlin meet the costs of an unprecedented refugee influx, Der Spiegel reported on Friday.

The magazine said last year's budget surplus would be nearly twice the previously expected 6 billion euros.

A spokeswoman for the finance ministry declined either to confirm or deny the report, saying officials were still calculating the exact number. The final figure would probably be published next week, she added.

Germany is shouldering much of the burden of Europe's biggest migrant crisis since World War Two, with over 1 million people having arrived in the country in 2015 alone.

The DIW economic institute has estimated that state spending on refugees will rise from roughly six billion euros this year to 15 billion euros in 2016 and 17 billion euros in 2017.

Chancellor Angela Merkel's ruling coalition has already agreed to funnel all extra money from last year into a reserve to pay for the costs of accommodating and integrating the hundreds of thousands of refugees who were granted asylum.

A higher-than-expected budget surplus in 2015 could mean Finance Minister Wolfgang Schaeuble finds it easier to maintain a balanced budget also in 2016, despite the ballooning costs of the refugee influx.

Germany's budget surplus is largely down to a rising tax intake. Record-high employment and high wages have boosted revenue from income tax, while strong private consumption has pushed up receipts from value-added tax.

REUTERS

    
 

Fed must not overreact to developments in China: Lacker

Richmond Fed President Jeffrey Lacker said the Asian financial crisis of the late 1990s, which helped prompt interest rate cuts by the US central bank, was a "great analogy" for viewing the current situation. 

PHOTO: BLOOMBERG

JAN 9, 20167:21 AM

[BALTIMORE] The Federal Reserve must be careful about reacting to China's financial turmoil without seeing clear signs of danger for the US economic outlook, a Fed policymaker said on Friday.

Richmond Fed President Jeffrey Lacker said the Asian financial crisis of the late 1990s, which helped prompt interest rate cuts by the US central bank, was a "great analogy" for viewing the current situation.

"People overestimated the implication of the Asian market volatility for US growth and we overreacted," Mr Lacker told reporters after a speech in Baltimore. "And I think we have to be careful not to overreact without evidence of significant effects on US fundamentals."

The Fed raised its target interest rate last month by a quarter of a per centage point, ending seven years of near-zero rates.

Mr Lacker, who does not have a vote on the Fed's rate-setting committee this year but will participate in its discussions, had pressed for rate increases earlier in 2015, but his colleagues balked after worries over slower economic growth in China triggered a global equities selloff.

Speaking after the US Labour Department reported a robust increase in nonfarm payrolls for December, Mr Lacker said the data showed job growth was "very solid" and that wages were on a clear upward trend that suggested inflation could move higher this year.

He said he favors the Fed committing to a steady winding down of the massive trove of securities it acquired as part of its efforts to stimulate the economy in response to the 2007-2009 financial crisis.

The Fed's balance sheet should be wound down as quickly as it was built up, he said, adding that the central bank doesn't need to hold any more than US$100 billion in excess reserves.

REUTERS

    
 

Winter comes to China shipyards facing near-record maturing debt  

China's shipyards and shipping firms face a year of near-record bond repayments, stoking speculation debt failures will spread as the economy slows. 

PHOTO: REUTERS

JAN 8, 20163:34 PM

[SHANGHAI] China's shipyards and shipping firms face a year of near-record bond repayments, stoking speculation debt failures will spread as the economy slows.

The companies must repay 50.3 billion yuan (S$10.9 billion) of notes this year, the second highest ever after an unprecedented 54 billion yuan in 2015, data compiled by Bloomberg show.

Sainty Marine Corp, the biggest shipyard in Jiangsu province, said on Dec 23 it had 542.9 million yuan of overdue borrowings. Zhoushan Wuzhou Ship Repairing & Building Co in December became the first state-owned shipbuilder to go bankrupt in a decade, according to Minsheng Securities Co.

"Winter has come to the whole Chinese shipbuilding industry," said Xiang Feiyan, a bond analyst at Zhong Tai Securities Co in Shanghai.

"Default risks for smaller shipbuilders are high while they are struggling with the slumping economy and the government's curb on overcapacity."

Premier Li Keqiang is allowing mergers and acquisitions to consolidate the industry as he seeks to boost international competitiveness. Regional peers are also struggling as the weakest Chinese economy in a quarter century curbs demand, with Korean authorities calling for asset sales after operating losses mounted at the world's three biggest shipyards.

DEMAND SLUMPS

China's new ship orders tumbled 59 per cent in the first 11 months of 2015 from a year earlier, according to data released by China Association of the National Shipbuilding Industry on Dec 15.

Profits at manufacturers for the shipping industry dropped 28.5 per cent in the 10 months through October.

The industry hardship comes amid a slide in the nation's equities and currency this year, and after at least seven companies reneged on obligations in 2015 amid the worst economic slowdown in a quarter century.

The yield premium on the country's top-rated corporate notes over similar-maturity government bonds has fallen six basis points this week, set for its biggest weekly decline in two months.

China Bond Rating Co, a Beijing-based credit assessor, said Sainty Marine and Evergreen Holding Group have the highest default risks among shipbuilders.

Investors in Sainty Marine's 2019 bonds have an option to sell the 780 million yuan of notes back to the issuer on Sept 18. Evergreen Holding's 400 million yuan of securities will mature on May 15.

Yu Pingfeng, a finance official at Evergreen, said the company will repay the bonds on time. An official at Sainty Marine's investor relations department, who wouldn't give her name, declined to comment.

FAILURE WATCH

Sainty Marine suffered a 397.5 million yuan loss in the third quarter, compared with a shortfall of 0.2 million yuan a year earlier, according to Bloomberg data. Its total liabilities of 8.3 billion yuan exceeded its 7.8 billion yuan of assets as of Sept 30.

"We may see the first bond default in the shipbuilding industry this year," said Zhong Tai Securities' Xiang.

"But we can't exclude the possibility local governments may step in if the troubled company's fall would have a big impact on local employment or the economy."

Jiangsu Guoxin Investment Group Ltd, a state-owned investment company, provides a guarantee for the 2019 debentures issued by Sainty Marine, according to its prospectus.

At a meeting late last year, bondholders urged the shipbuilder to disclose a comprehensive repayment plan and redeem some of the notes before the due date, according to a Dec 29 company statement.

RATINGS CUT

"At the bondholder meeting, Guoxin expressed strong willingness to bail out the Sainty Marine bond," said Wei Yuanyuan, a bond analyst at China Bond Rating in Beijing.

"Whether Sainty Marine will default will depend on whether it can get external support."

Pengyuan Credit Rating Co on Dec. 4 downgraded Sainty Marine's issuer rating to B from BB, citing sluggish demand and financial losses. The yield on its 2019 bonds was at 6.82 per cent before trading was halted from Aug 6, according to exchange data.

Evergreen Holding had a loss of 407.6 million yuan in the first nine months of 2015, compared with profit of 321.8 million yuan a year earlier, according to a company statement.

The yield on its 2018 debenture climbed 66 basis points this week to 12.12 percent, exchange data show.

"There have been an increasing number of shipbuilders going bankrupt since 2012," said Ms Wei at China Bond Ratings. "As the industry is cutting capacity we may see more bankruptcies or credit events."

BLOOMBERG

      

Top hedge fund says China should have waited on stock crash rule

JAN 8, 201610:47 AM

[SINGAPORE] APS Asset Management Pte, whose long-short China hedge fund returned 42 per cent last year to beat most peers, said the nation's authorities should have waited before suspending the circuit-breaker rules because retail investors will eventually learn to deal with them.

Chinese authorities don't need to tinker with the circuit- breaker system, APS founder and chief investment officer Wong Kok Hoi said in an e-mailed response to questions. The nation's economic fundamentals haven't deteriorated markedly in the past week, Wong said.   "It might not have achieved the intended desired results thus far, but retail investors will soon get used to it, and when they do irrational investor behavior would disappear," MR Wong said, referring to rules that suspend stock trading in China if losses exceed a certain threshold.

The CSI 300 Index plunged as much as 7.2 per cent on Thursday, triggering an automatic shutdown for a second time this week and prompting the China Securities Regulatory Commission to suspend the rule that came into effect on Jan 4. The flip-flop in the circuit-breaker rule adds to the sentiment among global investors that authorities are ill-prepared as as they try to stabilize markets and shore up the economy.

The breakers, which kick in to halt exchanges for 15 minutes after a 5 per cent drop in the benchmark and for the rest of the day after a 7 per cent retreat, have been criticized by analysts for deepening losses as investors scramble to exit positions before they're blocked from selling.

Wong is holding onto his view that the CSI may reach 7,000 within the next five years, up from Thursday's close of 3,294.38. APS "started buying a little" on Thursday, after staying out of the market on Monday, when the first shutdown occurred, he said.

APS's US$97 million Greater China Long/Short Fund rose 42 per cent in 2015, the Singapore-based money manager said in an e- mail. That compares with a 9.4 percent gain in the Shanghai Composite Index. The fund's 40 per cent return last year until the end of November makes it the second-best performer so far among long-short equity vehicles investing in the country, according to Singapore-based data provider Eurekahedge Pte, which hasn't yet compiled data for the full year.

The firm's APS China A Share Fund, which has US$2.3 billion of assets including related strategies, returned 23 per cent last year. The APS Asia-Pacific Long/Short Fund, with US$341 million of assets, rose 30 per cent.

BLOOMBERG

    
 

Yuan estimates slashed at Goldman, CICC as PBOC's grip loosens

At least five banks and brokerages cut their yuan estimates in the past two days after the central bank's weakening of its reference rate fueled speculation China is becoming less willing to support its currency.

PHOTO: EPA

JAN 8, 20168:41 PM

[MUMBAI] At least five banks and brokerages cut their yuan estimates in the past two days after the central bank's weakening of its reference rate fueled speculation China is becoming less willing to support its currency.

Goldman Sachs Group Inc, Standard Chartered Plc, ABN Amro Bank NV, Macquarie Bank Ltd and China International Capital Corp slashed their forecasts for the yuan, which slumped to a five-year low on Thursday. ABN Amro, which Bloomberg data show was the most-accurate yuan forecaster over the last four quarters, said the depreciation has triggered market concerns that the People's Bank of China is seeking a devaluation.

The cut in fixings suggests a possible shift in policy makers' "reaction function, that is an increased willingness to allow currency depreciation in light of disappointing exports and general economic conditions," Goldman Sachs economists led by Andrew Tilton and Yu Song wrote in a note to clients Friday.

The year 2016 "will be a year of continued 'bumpy deceleration' and significant policy easing in the Chinese economy," they wrote, adding that "the potential for greater yuan depreciation remains a large source of uncertainty."

The PBOC kept investors guessing as it supported the exchange rate from March to August, shocked global markets with its yuan devaluation in August and then spent billions of dollars to prop up the currency amid a successful bid to win reserve status at the International Monetary Fund on Nov 30. The yuan weakened 4.5 per cent in 2015, the biggest decline in data going back to 1994.

China's foreign-exchange reserves shrank by a record US$108 billion to US$3.33 trillion in December, the PBOC said Thursday. The central bank ended an eight-day run of reductions to the yuan's reference rate, setting it slightly stronger on Friday. That may be a sign of a stricter adherence to the mechanism announced in August, when it said it will make the exchange rate more market-driven, according to Goldman Sachs.

The yuan traded little changed at 6.5920 a dollar as of 7:33 pm in Shanghai Friday. Macquarie slashed its one-month prediction for the currency to 6.7 from 6.43, while Goldman cut its 12-month forecast to 7 from 6.60. ABN Amro sees the yuan weakening to 6.70 by year-end, compared with a previous forecast of 6.55, while CICC now predicts a drop to 6.87. Standard Chartered estimates a decline to 6.56 versus 6.42 earlier.

The currency will end the year at 6.65 a dollar, according to the median estimate in a Bloomberg survey. That compares with a projection of 6.60 on Dec 31.

BLOOMBERG

    
 

China's currency stance tests world policymakers' sense of perspective

Assessments of China's intentions after it let the yuan depreciate more quickly this week possessed some qualities of a fairground mirror, with policymakers in nearby Asia far less alarmed about risks of a"currency war" than those further away. 

PHOTO: EPA

JAN 8, 20167:17 PM

[SINGAPORE] Assessments of China's intentions after it let the yuan depreciate more quickly this week possessed some qualities of a fairground mirror, with policymakers in nearby Asia far less alarmed about risks of a"currency war" than those further away.

As global currency and stock markets shivered on Thursday, Mexico's Finance Minister Luis Videgaray vented fears that China's machinations could lead to a spiral of competitive devaluations, echoing a complaint commonly heard from Brazil in recent years. "There is a real worry that in the face of the slowing Chinese economy the public policy response is to start a round of competitive devaluation," Videgaray said during an event in Mexico City.

The unpleasant start to 2016 caused by tanking Shanghai shares and the yuan's latest slip had analysts also flagging the possibility that Beijing, in its haste to stem the rot in the world's second-largest economy, was weakening its currency to revive sagging exports.

A view among Asian neighbours, however, was that China had more to lose from capital outflows than it could gain from increased exports if the yuan was allowed to sink too far.

Latin American currencies weakened far more sharply than most Asian currencies last year, a factor that probably helped shape the differing perspectives between policymakers from these regions. "I doubt China would seek a weaker yuan in the way that could shake the confidence of its economy," a senior official at Japan's Ministry of Finance told Reuters. "Blatant yuan devaluation would prompt heavy criticism from the US and other countries, but it's not the time to worry about a currency war,"said the official, whose own government faced similar suspicions over polices adopted three years ago that led to a steep drop in the yen.

US Republican presidential candidates have seized on the yuan's slide to lambast China over policies they say are designed to gain an advantage in trade. "They're now rapidly trying to goose up exports," US Senator Marco Rubio of Florida told reporters on the campaign trail in New Hampshire.

Minutes of the Federal Reserve policy meeting in December, when interest rates were increased for the first time in nearly a decade, also showed US central bankers had "lingering concerns" over the potential for China's slowdown to impact US growth.

A European Central Bank official, who didn't want to be identified, said the weaker yuan would have a "relatively minor impact" on the eurozone's imported inflation, but the underlying message on the health of China's economy was "a much bigger concern" and any increase in market volatility could upset the US Fed's schedule on interest rates.

Beijing's critics, according to some Asian central bankers, were in danger of misreading its actions in the currency market.

While the People's Bank of China (PBOC) fixed its daily yuan guidance rate lower for eight days in a row, culminating in a 0.5 per cent drop on Thursday - it nudged the rate higher on Friday - dealers suspect the central bank of intervening in the past two days through state banks to ease pressure on the currency.

During recent months, the PBOC has spent billions of dollars from reserves bolstering the yuan. "It's not like they're buying heaps of dollars to weaken their currency," said a senior Bank of Korea official, speaking on condition of anonymity. "I feel they'd rather want to slow down the pace (of depreciation), but for now it seems China is letting the yuan move in line with markets." How far and how fast could be the most pertinent questions.

Sources told Reuters on Thursday that the PBOC is under increasing pressure from policy advisers to let the currency fall quickly and sharply, by as much as 10-15 per cent, as its recent gradual softening is thought to be doing more harm than good.

Indeed, the two Asian BRIC economies, China and India, registered currency depreciations of 4-5 per cent last year, while Brazil's currency dropped nearly 33 per cent and Russia's fell by more than a fifth. Other emerging markets suffered similar steep falls in their currencies' value - South Africa's rand lost almost 26 per cent and the Turkish lira weakened more than 20 per cent.

India, which like most other places uses interest rates rather than the exchange rate as a main policy tool, would take a long, hard look before weakening the rupee in response to the cheaper yuan. "Depreciating the rupee has more cost than benefit for India as we are net importers. There's tremendous pressure on corporate balance sheets who are net importers," noted a senior policymaker directly aware of Reserve Bank of India's thinking.

Elsewhere in Asia, the only countries whose currencies depreciated in double-digits were Indonesia and Malaysia by just over 10 per cent and 18 per cent respectively.

Southeast Asian countries, like them, selling commodities and raw materials to China are particularly exposed to the chill from weak prices and lacklustre demand behind what ANZ Research has dubbed the "Asian trade recession".

A weaker yuan could dent their exports to China in the short term, but if it helped check China's economic slowdown it might be better for them later on. "ASEAN central banks I believe recognise that a currency war makes no sense, and is self defeating," Diwa Guinigundo, the Philippine central bank's deputy governor, told Reuters by text message. "There are equally important factors other than the exchange rate that should be leveraged to ensure external competitiveness to help foster economic growth."

REUTERS

      

Chinese firms step up dollar debt redemptions as yuan weakens

Chinese companies that have borrowed heavily in global dollar debt markets are increasingly planning early repayments of their dollar-denominated loans and bonds as the Chinese yuan's weakness extends into the new year. 

PHOTO: REUTERS

JAN 8, 20165:34 PM

[HONG KONG] Chinese companies that have borrowed heavily in global dollar debt markets are increasingly planning early repayments of their dollar-denominated loans and bonds as the Chinese yuan's weakness extends into the new year.

Bankers say the expected yuan depreciation over the next few years as US interest rates head higher and China's take the opposite track will push more companies to follow suit to reduce exposure to dollar debt.

China SCE Property Holdings Limited said on Wednesday that it would redeem its US$350 million senior note due 2017, while another real estate company, SUNAC China Holdings Limited, said it had completed the redemption of its dollar note due next year.

Under normal circumstances, non-investment-grade companies rarely redeem bonds early as they don't always have easy access to refinancing, but that is changing as the yuan's fall deepens and financing channels in China become available. "Most of the companies we talked to are waiting for the call option dates to arrive to redeem their bonds. The yuan has weakened sharply and funding costs in China's domestic market have become much cheaper now," said a debt capital market (DCM) banker at an American bank in Hong Kong.

Dollar bond issuances by Chinese companies started to pick up in 2013, and many of them carried call options that usually allowed issuers to redeem bonds three years later, so there could soon be a flurry. "Issuers started to contact us in September to ask about early redemptions of their dollar bonds, and such redemptions gradually came out since the end of last year," said a DCM banker at a Chinese bank in Hong Kong. "Even for companies that have sold dollar bonds without call options, many of them are consulting with us on how to redeem them ahead of due time," the banker said.

Chinese companies sold a total of US$60.3 billion worth of dollar-denominated bonds in 2015, more than six times the 2010 figure, Thomson Reuters data show.

The yuan posted a record yearly loss against the dollar last year and bearish bets on the currency hit a near six-year high as China's central bank allowed the currency to depreciate at a faster pace, a Reuters poll showed on Thursday. "Hedging cost for dollar debt is high as forward and option contracts are expensive now due to high volatility, so it makes sense to just adjust debt structure by cutting dollar debt exposure," said a corporate treasurer at a Chinese state-owned enterprise in Hong Kong.

China Eastern Airlines said on Monday it had recently repaid US$1 billion worth of dollar debt to reduce its exposure to currency volatility. It would adopt various measures in the short run to further optimise debt structure.

The company's dollar debt ratio is now just over 70 per cent, down from 80 per cent at the end of September last year, and the ratio would continue to fall, according to the board secretary Wang Jian.

Smaller competitor Spring Airlines will also pay back some dollar debt this year before it's due. "We started to do this from 2013 and got more aggressive after the currency reform in August," said Chen Ke, its chief financial officer.

The market consensus is for the yuan to fall further this year, though analysts are divided on how much. Kevin Lai, Daiwa's Asia ex-Japan chief economist, expects it to hit 7.5 to the dollar by the end of the year.

REUTERS