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A People’s Liberation Army Navy fleet  — including the aircraft carrier Liaoning, submarines, vessels and fighter jets —takes part in a review in the South China Sea on Apr. 12, 2018.

Visual China Group | Getty Images

China has rejected Philippine allegations that a Chinese fishing vessel abandoned 22 Filipinos after it sank their boat in the South China Sea, as pressure builds on President Rodrigo Duterte to take a tougher line.

China’s embassy in Manila said the crew had sought to rescue the Filipino fishermen but fled after being “suddenly besieged by seven or eight Filipino fishing boats”.

“There was no such thing as (a) ‘hit-and-run’,” it said in a statement late on Friday, adding it would handle the issue in a “serious and responsible manner.”

The sinking took place on Sunday near the Reed Bank, the site of untapped gas deposits that an international arbitration court in 2016 ruled the Philippines had sovereign rights to exploit. Beijing disputes that.

The issue could complicate what are determined efforts by Duterte to build a strong relationship with China, despite deep mistrust among his U.S.-allied defense apparatus, which remains wary about China’s maritime militarization and what it sees as bullying and denial of Manila’s access to its own offshore oil and gas reserves.

Duterte has made no mention of Sunday’s incident during any of the lengthy and unscripted speeches he has since given. His defense minister, navy chief and spokesman have publicly denounced the Chinese crew and his foreign minister said he had lodged a protest with Beijing.

Presidential spokesman, Salvador Panelo, did not respond to a request for comment on China’s version of events.

Opposition Senator Risa Hontiveros on Saturday called for bilateral ties to be downgraded and said China’s denial was “preposterous” and the story made no sense.

She said Duterte had plenty to say about mundane issues, but should speak up when it came to sovereignty.

“Nothing is more reassuring to the public than to see and hear their own president, the supposed architect of the country’s foreign policy, telling them that he is on top of the situation,” Hontiveros said.

Sunday’s incident is the latest confrontation involving China’s vast fishing fleet, which experts say has been co-opted to serve as Beijing’s militia and augment its constant coastguard presence in waters also claimed by MalaysiaTaiwan, Vietnam, the Philippines and Brunei.

Philippines Supreme Court judge Antonio Carpio, a staunch critic of China’s maritime claims and conduct, said that among its massive fishing contingent were boats with reinforced steel hulls “purposely for ramming fishing vessels of other coastal states.”

“The Filipino people must send a strong signal to China that any new ‘grey zone’ offensive of ramming Filipino fishing vessels … will mean a break of diplomatic ties,” Carpio said in a statement late Friday.

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House bill calls for sanctions over China’s Muslim detainment camps

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People protest at a Uighur rally on February 5, 2019 in front of the US Mission to the United Nations, to encourage the State Department to fight for the freedom of the majority-Muslim Uighur population.

Timothy A. Clary | AFP | Getty Images

The U.S. House of Representatives on Tuesday overwhelmingly approved a bill that would require the Trump administration to toughen its response to China’s crackdown on its Muslim minority, demanding sanctions on senior Chinese officials and export bans.

The Uighur Act of 2019 is a stronger version of a bill that angered Beijing when it passed the Senate in September. It calls on President Donald Trump to impose sanctions for the first time on a member of China’s powerful politburo, even as he seeks a deal with Beijing to end a damaging trade war buffeting the global economy.

The bill, passed 407 to 1 in the House, requires the U.S. president to condemn abuses against Muslims and call for the closure of mass detention camps in the northwestern region of Xinjiang.

It calls for sanctions against senior Chinese officials who it says are responsible and specifically names Xinjiang Communist Party Secretary Chen Quanguo, who, as a politburo member, is in the upper echelons of China’s leadership.

China has consistently denied any mistreatment of Uighurs and says the camps are providing vocational training. It has warned of retaliation “in proportion” if Chen were targeted.

The revised bill still has to be approved by the Senate before being sent to Trump. The White House has yet to say whether Trump would sign or veto the bill, which contains a provision allowing the president to waive sanctions if he determines this to be in the national interest.

China said on Wednesday it resolutely opposes the U.S. House of Representatives’ bill requiring the Trump administration to toughen its response to what the bill called China’s crackdown on ethnic minorities in the western region of Xinjiang.

The foreign ministry, in a statement attributed to spokeswoman Hua Chunying, said Xinjiang is China’s internal affair and urged the U.S. to correct its mistakes and stop the bill from becoming law.

China will respond further depending on the development of the situation, the statement said.

The White House and the Chinese embassy in Washington did not immediately respond to requests for comment.

The bill comes days after Trump angered Beijing by signing into law congressional legislation supporting anti-government protesters in Hong Kong.

China responded to that on Monday by saying U.S. military ships and aircraft would not be allowed to visit Hong Kong, and announced sanctions against several U.S. non-government organizations.

Analysts say China’s reaction to passage of the Uighur bill could be stronger, though some doubted it would go so far as imposing visa bans on the likes of Secretary of State Mike Pompeo, who has called China’s treatment of Uighurs “the stain of the century” and has been repeatedly denounced by Beijing.

On Tuesday, the editor-in-chief of China’s Global Times newspaper said China might ban all U.S. diplomatic passport holders from entering Xinjiang and that Beijing was also considering visa restrictions on U.S. officials and lawmakers with “odious performance” on the Xinjiang issue.

‘Modern-day concentration camps’

Republican Congressman Chris Smith called China’s actions in “modern-day concentration camps” in Xinjiang “audaciously repressive,” involving “mass internment of millions on a scale not seen since the Holocaust.”

“We cannot be silent. We must demand an end to these barbaric practices,” Smith said, adding that Chinese officials must be held accountable for “crimes against humanity.”

Democratic House Leader Nancy Pelosi called China’s treatment of the Uighurs “an outrage to the collective conscience of the world.”

“America is watching,” she said.

Chris Johnson, a China expert at Washington’s Center for Strategic and International Studies, said passage of the bill could lead to a further blurring of lines between the trade issue and the broader deteriorating Sino-U.S. relationship, which China in the past has tended to keep separate.

“I think there’s a sort of piling on factor here that the Chinese are concerned about,” he said.

Trump said on Monday the Hong Kong legislation did not make trade negotiations with China easier, but he still believed Beijing wanted a deal.

However, on Tuesday, he said an agreement might have to wait until after the U.S. presidential election in November 2020.

Johnson said he did not think passage of the Uighur act would cause the delay, but added: “It would be another dousing of kindling with fuel.”

The House bill requires the president to submit to Congress within 120 days a list of officials responsible for the abuses and to impose sanctions on them under the Global Magnitsky Act, which provides for visa bans and asset freezes.

Democratic lawmaker Brad Sherman said it was “long past the point when this should have been done,” adding: “It should not be linked to ongoing negotiations on trade or any other issues.”

The bill also requires the secretary of state to submit a report on abuses in Xinjiang, to include assessments of the numbers held in re-education and forced labor camps. United Nations experts and activists say at least 1 million Uighurs and members of other largely Muslim minority groups have been detained in the camps.

It also effectively bans the export to China of items that can be used for surveillance of individuals, including facial and voice-recognition technology.

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‘Better put on your helmet’

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Traders work on the floor of the New York Stock Exchange.

Brendan McDermid | Reuters

President Trump’s comment that he had no deadline on a China deal has predictably thrown markets into a tizzy, as the self-imposed deadline of Dec. 15 for additional tariffs is now less than two weeks away.

The market is now grappling with the likelihood of no trade deal, but the critical issue is tariffs. I asked UBS Art Cashin if traders would be satisfied with 1) no new tariffs on Dec. 15, 2) keeping additional tariffs, and 3) no deal going into the new year.

“I don’t think it would cause a big swing one way or another,” he said. “I think they would say, obviously negotiations are still going on. The reason you’ve had two pretty significant down days is, people were believing there would be a deal by the end of the year. Now, that’s clearly in doubt and that’s where we’re going.”

If additional tariffs are put on Dec. 15, that is a different story: “Then there’s another sell-off. If they put on additional tariffs and he bumps them by 10% or 15%, a sell-off but nothing severe. 50% or something like that? Better put on your helmet,” Cashin said.

Apple, which is down 3.5% this week and which has a huge manufacturing footprint in China around its iPhone, is particularly susceptible to an escalation in the trade war, according to Dan Ives at Wedbush.

“The most important question for investors is if Apple will be exempt from the next wave of tariffs that could hit on Dec. 15 if a phase one agreement does not come and thus remains an ominous date and line in the sand for US tech vendors,” he said.

Despite signs that even a so-called phase one trade deal might not be achieved, bulls are still holding out the prospects that the markets might be mollified by some sign — any sign — that talks are continuing.

Under this scenario, it’s hoped that Chinese officials might still extend an offer to visit Beijing, a position held by Ed Mills, Washington Policy Strategist for Raymond James.

“If a trip takes place, it could be announced sometime late this week for negotiations mid-to-late next week,” he said. “This could provide an opportunity for officials to rebuild good faith around avoiding the Dec. 15 tariffs.”

Mills even holds out hope for a reset in U.S.-China relations in 2020.

“Alternatively, direct intervention by Trump and Xi following a phone call may further extend the current tariff schedule,” he said. “There is speculation that the Nov. APEC summit could be rescheduled for some time in Jan., and an agreement of a one-month tariff delay by the two leaders would better align negotiations to such a timeline. This delay could be beneficial for both sides as it would likely see a decrease of Congressional attention on human rights issues given expected end of year actions on government funding, impeachment, and ultimately recess for the winter holidays, which could provide ample time to reset the U.S.-China relationship heading into 2020.”

As the expectations for a trade deal diminish and the bar gets set lower and lower, some are finally starting to look at the long-run implications of this dispute, and that it may be a permanent part of U.S.-China relations.

Evercore ISI analyst Jaewoo Nakajima recently surveyed Taiwan supply contractors.

“Every company contact in Taiwan was definitely skeptical of a US-China trade deal, with the majority believing that trade tensions between the US and China will persist for years,” he concluded.

“From Taiwanese companies’ viewpoint, even if there’s a rollback of tariffs, differences are irreconcilable between the US and China on fundamental economic issues such as intellectual property protection, Chinese govt subsidies to Chinese manufacturers, and discriminatory market access for foreign enterprises,” he said. “Because many believe trade tensions will persist for years (and their implied assumption is that Trump will be re-elected in 2020), Taiwanese companies spoke of a ‘decentralized manufacturing’ and ‘two supply-chain systems.’ In the long run: There will be two dominant supply-chains in the world, one that’s US-centric and another China-centric.”

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Asia stocks trade lower as Trump hints at delay in trade deal with China

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Investors have been anticipating a “phase one” trade deal between Washington and Beijing to be inked, ahead of a closely watched date of Dec. 15, when additional tariffs on Chinese exports to the U.S. are set to kick in.

But Trump told reporters on Tuesday: “In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right.” When asked if he had a deadline for the deal, he added: “I have no deadline, no.”

Fox News reported that the White House still plans on moving ahead with scheduled Dec. 15 tariffs on Chinese goods notwithstanding recent efforts at a “phase one” trade truce.

Meanwhile, a private survey of China’s services sector is expected on Wednesday, with the Caixin services Purchasing Managers’ Index for November set to be out around 9:45 a.m. HK/SIN.

Overnight stateside, stocks tumbled amid the trade uncertainty. The Dow Jones Industrial Average fell 280.23 points to close at 27,502.81 while the S&P 500 slipped 0.7% to end its trading day at 3,093.20. The Nasdaq Composite closed about 0.6% at 8,520.64.

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.737 after falling from levels above 97.9 seen earlier.

The Japanese yen traded at 108.62 against the dollar after strengthening from lows around 109.2 yesterday. The Australian dollar changed hands at $0.6851 after rising from levels below $0.684 in the previous session.

What’s on tap:

  • Australia: Third quarter GDP data at 8:30 a.m. HK/SIN
  • China: Caixin services Purchasing Managers’ Index at 9:45 a.m. HK/SIN

— CNBC’s Thomas Franck contributed to this report.

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