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Daily Archives: May 17, 2022

Chart: Historical Asset Bubbles

See large image . . . . . .

Source : Bank of America

Chart: S&P500 Secular Bull Market

See large image . . . . . .

Source : Bank of America

Chart: China’s Loan Failed to Pickup

Source : Bloomberg

China Military Body May be Target of Japan Counterstrike Capability

Speculation is growing in security circles in Japan as to whether targets of a proposed “counterstrike capability” would include China’s Central Military Commission, the highest decision-making organ of the country’s armed forces led by President Xi Jinping.

The speculation came to light in a parliamentary meeting last week when the Defense Ministry did not answer directly a question from an opposition lawmaker seeking to know whether what has until recently been called “enemy base attack capability” targets would include China’s CMC.

The meeting came after the ruling Liberal Democratic Party on April 27 suggested Prime Minister Fumio Kishida’s government acquire counterstrike capability to attack enemy bases and “command and control functions.”

The LDP has yet to clearly say what such functions entail but defense experts say the proposed capability could cover command centers issuing orders for missile attacks and would expand Japan’s options for retaliating against mobile- and submarine-launched missiles.

In a meeting last Wednesday of the House of Representatives Committee of Foreign Affairs, Japanese Communist Party member Keiji Kokuta asked if the government envisages the CMC and the Five Theater Commands as among the targets of a counterstrike capability.

The five commands are in charge of defense of the eastern, southern, western, northern and central regions of China. The Eastern Theater Command, for example, oversees Taiwan, Japan and the East China Sea.

Masahisa Sato, director of the LDP Foreign Affairs Division, and other security experts say China has about 1,900 short- and medium-range missiles that can reach Japan.

Kokuta cited a document the Japanese Ground Staff Office used in an internal meeting in September 2017.

The document shows an organizational chart of the Chinese military and says there is a command system between the CMC and the Five Theater Commands.

Kokuta said the LDP proposal does not exclude the CMC and the five commands from possible targets, and asked, “Wouldn’t this lead to a full-scale war with China?”

Makoto Oniki, deputy minister of defense, did not directly address the question and said, “Attacking the base of a guided missile would constitutionally fall under the scope of self-defense if (the government) perceives there were no other means (to defend Japan).”

Oniki said he is not in a position to comment on the LDP proposal, which also includes a call to double Japan’s defense budget to 2 percent or more of gross domestic product over five years.

The LDP wants the proposal to be reflected when the government revises the National Security Strategy and other documents by the end of the year.

Speaking at Wednesday’s meeting, Foreign Minister Yoshimasa Hayashi said the government is considering adopting a counterstrike capability “without ruling out any possible option so as to fully prepare ourselves for safeguarding people’s lives.”

LDP lawmakers hope developing a counterstrike capability will serve as a deterrent against possible attacks on Japan, especially in light of China’s assertiveness in the Indo-Pacific region and North Korea’s nuclear and missile development.

Critics, however, say such a measure would represent a major shift from Japan’s exclusively self-defense-oriented security posture under its war-renouncing Constitution.

Source : The Mainichi

IMF Lifts Weighting of Dollar, Chinese Yuan in SDR Basket

The International Monetary Fund said on Saturday it has increased the weighting of the dollar and Chinese yuan in its review of the currencies that make up the valuation of its Special Drawing Rights (SDR), an international reserve asset.

The review is the first since the yuan, also known as the renminbi, joined the basket of currencies in 2016 in what was a milestone in Beijing’s efforts to internationalise its currency.

The IMF raised the U.S. currency’s weighting to 43.38 per cent from 41.73 per cent and the yuan to 12.28 per cent from 10.92 per cent. The euro’s weighting declined to 29.31 per cent from 30.93 per cent, the yen’s fell to 7.59 per cent from 8.33 per cent and the British pound fell to 7.44 per cent from 8.09 per cent.

The IMF said in a statement its executive board had determined the weighting based on trade and financial market developments from 2017 to 2021.

“Directors concurred that neither the COVID-19 pandemic nor advances in Fintech have had any major impact on the relative role of currencies in the SDR basket so far,” the IMF said.

Although the yuan’s value has declined recently, it has risen roughly 2 per cent against the dollar since 2016, and appreciated about 6 per cent against its major trading partners.

In a statement on Sunday, the People’s Bank of China said China will continue to promote the reform and opening of its financial market.

The updated weightings take effect on Aug. 1.

Source : CNA

The SDR interest rate (SDRi)

The SDRi provides the basis for calculating the interest rate charged to members on their non-concessional borrowing from the IMF and is paid to members for their remunerated creditor positions in the IMF. It is also the interest paid to members on their SDR holdings and charged on their SDR allocations.

Source : IMF

How the War in Ukraine Is Rattling China’s Energy Transition

Since Russia attacked Ukraine in late February, prices of crude oil and natural gas have jumped as sanctions on the major energy exporter have left many countries scrambling for alternative sources of fossil fuel.

If the war lasts more than six months, crude prices may top the record high seen during the global financial crisis in 2008, Sun Renjin, secretary-general of the expert committee at the China Petroleum Circulation Association, predicted at a mid-April conference.

China is already feeling the pressure. In March, its producer price index — which gauges changes in prices of goods circulated among manufacturers — recorded a month-on-month increase of 1.1%, the fastest pace in five months. The country’s consumer price index — which measures changes in prices of a select basket of consumer goods and services — climbed 1.5% year-on-year in March, the fastest pace in three months.

Experts at the April conference estimated that China — the world’s largest importer of oil — may pay nearly $100 billion more for the crude oil imports this year. Those costs would ripple through its economy.

Ironically, some say this could slow progress on the country’s “dual carbon” goals — peaking emissions by 2030 and achieving net neutrality by 2060. Beijing has been promoting the use of natural gas — which burns more cleanly than coal — as part of its transition away from fossil fuels. Volatility in the global gas market may push many Chinese industrial users to rely on coal.

Surging costs

From late February, Brent crude futures set to for delivery in June jumped from $90 to well over $100, peaking at nearly $120 per barrel. A natural gas benchmark, Dutch TTF natural gas futures that expire the same month, swung from under 90 euros at a day before the conflict to around 105 euros now, peaking at 211 euros per megawatt hour.

Additional costs involved in importing liquified natural gas (LNG) have also increased, ratcheting up pressure. On April 24, the most recent date for which data is available, China’s comprehensive import price index for LNG was up 171% year-on-year.

China is heavily dependent on energy imports.

In 2021, China imported over two-thirds of the crude oil it used, according to the CNPC Economics & Technology Research Institute. That year, the country imported 121.4 million tons of natural gas, 20% more than the previous year, customs data show. Imports accounted for some 44% of total gas consumption, according to the China Petroleum and Chemical Industry Federation.

Overall, coal still accounted for more than half of total energy consumption, compared to just 8.4% from natural gas and 18.9% from crude oil, figures from the 2020 China Statistical Yearbook showed.

Figures from the General Administration of Customs showed that China’s LNG imports were down 6.7% year-on-year in January and 11.8% in February. March brought a 12% drop compared to last year, according to 315i.com.

Kevin Jianjun Tu, the managing director of Agora Energy Transition in China, said that in a short term, coal will play an even bigger role in China’s energy market.

Many parts of China suffered a severe power crunch between late September and mid-October of 2021, as a manufacturing boom led to high demand while the coal supply was constrained by Beijing’s emission-reduction campaign. In China’s latest five-year plan for its energy system published in March, the authority didn’t cap the country’s consumption and output of coal. Instead, it emphasizes the essential role of coal in ensuring the stability and safety of the country’s energy supply.

End customers

Price hikes may cause China’s growth in natural gas use to slow to 6% from last year’s 12.7% expansion, says Yang Jianhong, chief researcher at Beijing BSC Energy Consulting.

And this is an “optimistic” prediction, Yang added, as major industrial consumers like those in engineering, power generation, and transportation companies are particularly sensitive to price changes.

He gave trucks running on LNG as an example. From 2018 to 2020, annual sales of such vehicles in China jumped from 71,000 to 147,000 units. However, that declined to just 50,000 units in 2021 due to high LNG prices. This year, sales are expected to dip to 30,000 units, according to Yang.

“When customers switch to other energy sources, they don’t switch back easily,” cautioned Yang, adding that natural gas may be marginalized.

Oil refiners are also feeling the pain from high oil prices, even as the price of their products rises to new highs.

Beijing raised the prices of gas and diesel seven times from the start of the year to early April, though they’ve fallen back slightly since. At the end of March, the government-set upper price limit for a liter of standard gasoline was over 9 yuan — a record — in 27 of the Chinese mainland’s provincial-level regions.

In mid-April, gas and diesel prices fell for the first time this year, but about two weeks later authorities raised them again, in the eighth such increase within four months.

But even though drivers will be forking out more at the pump, refiners won’t be celebrating. A source at a state-owned refiner told Caixin that the increase in refined oil prices is smaller than the growth of crude oil prices, leading many refiners to stop production or reduce output to prevent losses.

Sinopec Shanghai Petrochemical Co. Ltd., a unit of one of the country’s big three oil giants, said in its annual earnings call on March 24 that profit margins are narrowing as it cannot pass costs on to downstream customers.

Liu Bingjuan, a senior oil product analyst from research institute Oilchem.net, told the aforementioned April conference that some privately owned refiners in Shandong province lost money in March because of higher prices and the impact of Covid-19 flare-ups.

LNG power generation

Power generators are also hurting, as they are locked into a long-term supply contracts and face widespread shortages.

“Currently, energy prices are way above electricity prices, and power generators are definitely losing money,” a source at a state-owned natural gas power plant in Guangdong province told Caixin.

As of the end of 2021, Guangdong had 159 million kilowatt-hours of installed natural gas power generation capacity, accounting for nearly 20% of the country’s total, the most of any province.

Based on the April 13 spot price, the cost of burning gas to generate power in Guangdong was about 1.5 yuan ($0.23) per kilowatt-hour while the provincial price ceiling for electricity was just 0.55 yuan per kilowatt-hour. In other words, for each kilowatt-hour of electricity sold, the generator would lose 0.95 yuan.

A senior industry insider suggested that the government could allow electricity prices to fluctuate more above the government-set price point, to prevent such losses when commodity prices spike.

According to the source, his plant’s contracted suppliers could only provide natural gas to cover one-fourth to one-third of projected electricity demand in 2022.

Another source from a smaller local power generator said that they could not even get a long-term contract signed. A source from a Shenzhen power plant added that their contracted supplier simply stopped providing natural gas due to shortages.

The most essential prerequisite of a long-term contract is sufficient supply. If there is not enough supply, the contract will become invalid, said the senior industry insider.

Although China overtook Japan to become the world’s largest LNG buyer in 2021, many major Chinese buyers resell much of their LNG to other countries, rather than using it themselves, according to commodity market information provider 315i.com.

“If they sell LNG to domestic power plants, they could only earn $500 per ton at most. But if they resell it to Europe, they could make up to $1,875 per ton,” a source from a state-owned oil and gas company told Caixin.

Zhang Mianrong, chairman of Guangdong Electric Power Trading Center, told a conference on March 24 that the province is expected to see a tight supply this year, especially in the second quarter.

Currently, China is trying to allow market forces to play a bigger role in the natural gas sector. Domestically, major resources are held by the big three state-owned oil producers — China National Petroleum Corp., China Petrochemical Corp., and China National Offshore Oil Corp. (CNOOC). Midstream, the cost of pipeline transportation is controlled by the State Grid. And finally, end market prices are guided by the government.

Marketization will help companies pass costs along the production chain. But multiple sources told Caixin that rising LNG prices could hinder this process, as the market will become sluggish due to less import and consumption volumes.

The sluggish market will then push smaller players out of the game. A senior industry source sighed, “if many companies die out amid the volatility, how can we hope to achieve marketization?”

Source : Sixth Tone

South Africa in New Surge of COVID from Sub-variants of Omicron

Andrew Meldrum wrote . . . . . . . . .

South Africa is experiencing a surge of new COVID-19 cases driven by two omicron sub-variants, according to health experts.

For about three weeks the country has seen increasing numbers of new cases and somewhat higher hospitalizations, but not increases in severe cases and deaths, said Professor Marta Nunes, a researcher at Vaccine and Infectious Diseases Analytics at Chris Hani Baragwanath Hospital in Soweto.

“We’re still very early in this increase period, so I don’t want to really call it a wave,” Nunes said. “We are seeing a slight, a small increase in hospitalizations and really very few deaths.”

South Africa’s new cases have gone from an average of 300 per day in early April to about 8,000 per day this week. Nunes says the actual number of new cases is probably much higher because the symptoms are mild and many who get sick are not getting tested.

South Africa’s new surge is from two variations of omicron, BA.4 and BA.5, which appear to be very much like the original strain of omicron that was first identified in South Africa and Botswana late last year and swept around the globe.

“The majority of new cases are from these two strains. They are still omicron … but just genomically somewhat different,” said Nunes. The new versions appear to be able to infect people who have immunity from earlier COVID infections and vaccinations but they cause generally mild disease, she said. In South Africa, 45% of adults are fully vaccinated, although about 85% of the population is thought to have some immunity based on past exposure to the virus.

“It looks like the vaccines still protect against severe disease,” Nunes said.

Nunes said that the BA.4 and BA.5 strains of omicron have spread to other countries in southern Africa and a few European countries, but it is too early to tell if they will spread across the globe, as omicron did.

The increase in COVID cases is coming as South Africa is entering the Southern Hemisphere’s colder winter months and the country is seeing a rise in cases of flu.

At a COVID testing center in the Chiawelo area of Soweto, many people come in to be tested for COVID, but find out they have flu.

“Now we’re in flu season … so it’s flu versus COVID-19,” said Magdeline Matsoso, site manager at the Chiawelo vaccination center. She said people come for testing because they have COVID symptoms.

“When we do the tests, you find that the majority of them, they are negative when it comes to COVID, but they do have flu symptoms,” said Matsoso. “So they get flu treatment and then they go home because the majority is related to flu and not COVID.”

Vuyo Lumkwani was one of those who came to get tested.

“I wasn’t feeling well when I woke up this morning. I woke up with body pains, a headache, blocked (nose), feeling dizzy, so I decided to come here,” she said.

“I was terrified about my symptoms because I thought it might be COVID-19, but I told myself that I’d be OK because I have been vaccinated,” said Lumkwani. She said she was relieved to be diagnosed with flu and advised to go home with some medications and rest.

Source : AP