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Chinese companies added to U.S. blacklist in latest Beijing rebuke

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The United States said on Friday it would add 33 Chinese firms and institutions to an economic blacklist for helping Beijing spy on its minority Uighur population or because of ties to weapons of mass destruction and China’s military.

The U.S. Commerce Department’s move marked the Trump administration’s latest efforts to crack down on companies whose goods may support Chinese military activities and to punish Beijing for its treatment of Muslim minorities. It came as Communist Party rulers in Beijing on Friday unveiled details of a plan to impose national security laws on Hong Kong.

Seven companies and two institutions were listed for being “complicit in human rights violations and abuses committed in China’s campaign of repression, mass arbitrary detention, forced labor and high-technology surveillance against Uighurs” and others, the Commerce Department said in a statement.

Two dozen other companies, government institutions and commercial organizations were added for supporting procurement of items for use by the Chinese military, the department said in another statement.

The blacklisted companies focus on artificial intelligence and facial recognition, markets that U.S. chip companies such as Nvidia and Intel have been heavily investing in.

Among the companies named is NetPosa, one of China’s most famous AI companies, whose facial recognition subsidiary is linked to the surveillance of Muslims.

Qihoo360, a major cybersecurity firm taken private and delisted from the Nasdaq in 2015, recently made headlines for claiming it had found evidence that CIA hacking tools were used to target the Chinese aviation sector.

The Commerce Department said it was adding the firms and institutions to its “entity list,” which restricts sales of U.S. goods shipped to them and some more limited items made abroad with U.S. content or technology. Companies can apply for licenses to make the sales, but they must overcome a presumption of denial.

Softbank Group Corp-backed CloudMinds was also added. It operates a cloud-based service to run robots such as a version of Pepper, a humanoid robot capable of simple communication. The company was blocked last year from transferring technology or technical information from its U.S. unit to its offices in Beijing, Reuters reported in March.

An AI robot by CloudMinds is on display on the opening day of the China International Robot Show 2018 at the National Exhibition and Convention Centre on July 4, 2018 in Shanghai, China.

China News Service

Qihoo, NetPosa and CloudMinds could not be immediately reached for comment.

Xilinx, which makes programmable chips, said at least one of its customers was on the list but that it believes the business impact will be negligible.

“Xilinx is aware of the recent additions to the Department of Commerce’s Entity List and is evaluating any potential business impact,” the company said. “We comply with any new U.S. Department of Commerce rules and regulations.”

The new listings follow a similar October 2019 action when Commerce added 28 Chinese public security bureaus and companies — including some of China’s top artificial intelligence startups and video surveillance company Hikvision — to a U.S. trade blacklist over the treatment of Uighur Muslims.

The actions follow the same blueprint used by Washington in its attempt to limit the influence of Huawei Technologies for what it says are national security reasons. Last week, Commerce took action to try to further cut off Huawei’s access to chipmakers.

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The Chinese yuan could weaken to 7.40 per dollar amid US-China tensions

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China’s President Xi Jinping and US President Donald Trump during a meeting outside the Great Hall of the People in Beijing.

Artyom Ivanov | TASS | Getty Images

The Chinese yuan could weaken to as low as 7.40 against the U.S. dollar as tensions between Beijing and Washington show little signs of abating anytime soon.

That’s according to Marc Chandler, chief market strategist and managing partner at Bannockburn Global Forex.

“If you were to tell me what we’re gonna go … toward 7.30, 7.40 on the (yuan against the dollar), I could see how that could happen because I don’t see how these tensions can ease in the next several months,” Chandler told CNBC’s “Squawk Box” on Thursday.

As of Thursday morning Singapore time, the onshore Chinese yuan traded at 7.1675 per dollar, while its offshore counterpart changed hands at 7.1855 against the greenback. A day earlier, the offshore yuan touched its weakest level against the dollar since Sep. 3, when the dollar traded as high as 7.1963 against the offshore currency. 

The onshore yuan trades in the mainland and is tightly controlled by China, while the offshore yuan trades more freely outside the mainland, mostly in Hong Kong but also in Singapore, London and New York.

The weakening of the yuan comes as tensions between China and the U.S. ramped up in recent days over a number of issues — from Beijing’s treatment of minority Uighur Muslims in the Xinjiang region to a proposed national security bill for Hong Kong that sparked a fresh wave of protests. The U.S. has also threatened sanctions on China.

At present, Chandler said, the People’s Bank of China appears to be “tolerating” the weakness in the Chinese yuan which “typically happens as the tensions with the U.S. escalate.”

“The Chinese do look like they’re tolerating or resisting very moderately the downward pressure on the (yuan),” the strategist said. He warned this could have a “spillover” impact beyond just the Chinese currency and the Hong Kong dollar, but also for Beijing’s competitors in East Asia or the broader emerging markets.

“I think this is the fear that people have … that China weakens and that is … the lead indicator of emerging markets as an asset class,” Chandler said.

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Top campaign advisor says Biden would sanction China over Hong Kong

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Former Vice President Joe Biden (D) speaks about the Coronavirus and the response to it at the Hotel Du Pont in Wilmington, DE.

Michael Brochstein | Barcroft Media | Getty Images

Joe Biden would sanction China if president for its plan to impose new national security rules on Hong Kong, his campaign said on Wednesday, and accused President Donald Trump of having “enabled” Beijing’s curbs on freedoms in the former British colony.

The United States had to “take a stand against China’s crackdown in Hong Kong,” said Tony Blinken, a senior foreign policy advisor for Biden, the likely Democratic nominee to take on Trump in November’s election.

He said the former vice president would rally American allies to pressure China, leverage he said Trump had “forfeited,” and criticized the Republican president for praising leader Xi Jinping in the face of pro-democracy protests that shook the territory last year.

A Biden administration would “fully enforce” the Hong Kong Human Rights and Democracy Act, “including sanctions on officials, financial institutions, companies and individuals,” Blinken said in a statement.

The act, approved by Trump last year, requires the State Department to certify at least annually that Hong Kong retains enough autonomy to justify the favorable U.S. trading terms that have helped it remain a world financial center.

U.S. Secretary of State Mike Pompeo told Congress on Wednesday the proposed new legislation undermines Hong Kong’s autonomy so fundamentally that he could not support recertification.

It now falls to President Donald Trump to decide to end some, all or none of the U.S. economic privileges the territory enjoys. He said on Tuesday Washington was working on a strong response that would be announced before the end of the week.

Beijing’s security proposal, unveiled last week, sparked the first large street demonstrations in Hong Kong for months.

Pro-democracy demonstrators in Hong Kong have for years opposed the idea of national security laws, arguing they could erode the city’s high degree of autonomy guaranteed under the “one country, two systems” formula in place for two decades.

“China shouldn’t get the economic benefit of Hong Kong’s free economy without the rule of law that underpins it,” Blinken said.

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India GDP for Jan-Mar quarter expected to slow due to coronavirus lockdown

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Migrant workers and families wait for transport to go back to their native places after the goverment eased a nationwide lockdown imposed as a preventive measure against the COVID-19 coronavirus, in Ghaziabad on May 16, 2020.

Prakash SINGH | AFP

India is set to report growth numbers for the first three months of this year, and analysts expect Asia’s third largest economy to have expanded at a slower pace.

On Friday, India will release data on its gross domestic product for the January to March period. The economy is expected to have expanded by 2.1% compared to a year ago, according to 52 economists polled by Reuters. If so, it would be India’s weakest growth since comparable records began in early 2012, the news wire reported.

Growth momentum in South Asia’s largest economy was already decelerating in previous quarters, before the coronavirus pandemic forced the country into a nation-wide lockdown that was extended multiple times, and grounded most economic activities in the ensuing weeks.

GDP is expected to worsen in the current April to June quarter, according to investment bank Goldman Sachs which recently predicted a massive 45% decline during that period, compared to the previous three months. 

Some countries have already registered a “notable deceleration” in growth in the first three months of the year, due to the fallout of volatile financial markets, a marked slowdown in China, and weakening flows in tourism and trade sectors, Radhika Rao, an economist at Singapore’s DBS Group, said in a note. 

“Households and businesses also likely grew cautious on their spending as it (was) a matter of not ‘if’ but ‘when’ the pandemic would quicken on their shores,” she wrote. “India is likely to witness something similar, not helped by the decelerating momentum in growth even prior to the infection spread.” 

Performance indicators

Several high-frequency data pointed to a significant impact in the January-March period, which is also the fourth quarter of India’s fiscal year 2020. 

The Index of Industrial Production, a composite indicator used to measure the level of industrial activity in the Indian economy every month, was down 16.65% in March from a year ago — or lower by 10% from February. 

Factory activities slipped, diesel consumption was down and passenger vehicle sales almost halved in March. 

“High-frequency growth indicators are exhibiting broad-based declines across indicators on both the demand and the supply sides,” Sonal Varma, chief economist for India and Asia ex-Japan at Nomura, said in a note. She explained that data showed declines in the services sector and in the consumption of non-essential goods exceeded the slump in investment and industrial activity. 

Varma pointed out that while the April data captured the “most intense period” of the lockdown, March data already showed a slump in consumption. 

Dismal outlook

The infection’s spread accelerated in India by March, and it forced the government to implement a national lockdown in the last week that month. As the number of officially reported cases climbed, the shutdown was extended multiple times.

In April, however, some of those restrictions were relaxed, and subsequently, districts were demarcated based on the risk of spreading the infection. Some restrictions are set to be eased first in lower risk zones. 

More than 158,000 people are now confirmed to have been infected in India and more than 4,000 have died, according to Johns Hopkins University data. 

Nomura’s Varma said that while in theory, the partial relaxation of lockdown measures and the division of regions into low-risk or high-risk zones should open up around 70% of the economy on a sector-by-sector basis, there are other practical challenges to consider.

A volunteer in Chennai, India holds a placard to raise awareness about the coronavirus on a street during a government-imposed nationwide lockdown to combat the spread of Covid-19.

Arun Sankar | AFP | Getty Images

“Restrictions on inter-state travel, labour shortages, new social distancing norms and the absence of a homogeneous market for both demand (for goods) and supply (of inputs) suggest that, even as capacity utilization is likely to rise from April lows, it will likely remain ‘sub-optimal’ for much longer,” she said in the note. 

Even when businesses are able to open up, they will have to deal with severe cash flow shocks, as they struggle to remain solvent and search for fresh financing, Varma added.

DBS’ Rao said while the current April-June quarter will mark the trough in the current cycle, “consumer discretionary sectors, production and services, are likely to take longer to recover.” 

A strong agricultural sector may help to offset some of that weakness, Rao said, adding that risks of a second wave of infection domestically also warrants attention. DBS predicted a 1.3% growth for the January-March period compared to a year ago. 

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