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Investing in China May Pay Off If You Are Patient

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Tuesday, 15 January 2019 10:50 AM Current | Bio | Archive

China Announces Further Tax Cuts for Small Businesses

The Australian daily “Financial Review” reports that officials from China’s three main bodies responsible for economic policy held a joint press conference where they released details President Xi Jinping's commitment to provide greater support for the private sector.

China has said it intends to continue with tax cuts for small businesses according to Zhu Hexin, deputy governor of the People's Bank of China (PBOC).

Mr. Zhu also said China would avoid a flood of liquidity, and maintain a stable macro-leverage ratio. The central bank will also work more to improve policy transmission and guide funding costs lower.

These measures will boost market confidence and change people's view on the economy from pessimistic to optimistic. These measures will have a genuine impact on companies.

China's loans to small and medium-sized enterprises rose 17.1 percent in the January-November period over a year ago.

For investors, it could be helpful keeping in mind that these kind of statements should become more frequent in the future and not getting too positively impressed by them when considering to invest in China, which could be not such a bad idea, especially when the investor remains patient.

Shutdown Crisis: Day 25

The U.S. government remains shut down for the 25th day.

Opinion polls continue to indicate that President Trump is blamed by a majority of the voters for the shutdown, which has led to some Republicans of the Senate to seek an end to the shutdown, The Washington Post reported.

Senators are meeting today. The House is voting on measures to end the shutdown as well, which the President is unlikely to agree to.

Shutdown and the IRS Tax Refunds

There is a question over what will happen with the tax rebate (refund) that is scheduled this year.

If the IRS is shut down, it cannot process rebates and the rebates will have some economic effect, though no one is entirely sure what that effect will be owing to the “byzantine” complexity of the U.S. tax code.

Media reports are suggesting that the IRS will get some workers to work without pay in order to process the tax rebates. Even if that happens, there is a risk that, as with other areas of the government, workers forced to work without pay are then struck by mysterious illnesses sweeping through the workforce increasing sick leave and delaying the rebates.

U.S. Producer Price Inflation

The Producer Price Index (PPI) for final demand fell 0.2 percent in December, seasonally adjusted. Final demand prices advanced 0.1 percent in November and 0.6 percent in October. On an unadjusted basis, the final demand index moved up 2.5 percent in 2018, the same as in 2017.

Producer Price Inflation headline numbers show the effects of a falling oil price. The core PPI figures are watched for hints as to overall pricing power in the corporate sector. On a yearly basis, the core PPI index increased 2.7 percent.

With rising labor costs, pricing power is a relevant thing to monitor these days, although we must remember that the core producer price figures are not entirely free of the influence of energy costs. Oil is still part of corporate producer prices, it’s just embedded into other prices.

Brexit Saga

The interminably tedious process of getting the UK to leave the European Union (EU) is set to become even more interminable. It’s hardly possible that it could become any more tedious.

The UK Parliament will vote today on the UK’s government withdrawal agreement with the European Union, the BBC reported. The UK Parliament will reject the government’s withdrawal agreement with the European Union. The UK government will have until Monday to come up with an alternative solution to the withdrawal agreement with the European Union.

There is increasing speculation that the UK will delay withdrawing from the European Union beyond March 29. That would require a change in the law in the UK. Parliament would still have to agree to a delay. It would also require either the EU to agree or it would require the UK to withdraw the withdrawal.

It might mean that the UK has to “participate” in the European Union Parliamentary elections that are expected to be held on May 23–26 2019. There is a question over whether the next EU budget would be affected and so forth…

There are lots of percentage possibilities floating around in the media at the moment. It’s safe to assume that most of these are meaningless noise and can be disregarded.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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For investors it could be helpful keeping in mind that these kind of statements should become more frequent in the future and not getting too positively impressed by them when considering to invest in China, which could be not such a bad idea, especially when the investor remains patient.
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2019-50-15
Tuesday, 15 January 2019 10:50 AM
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