>>> What to look at today -3rd of January 2017

Asian equity markets have returned on a strong note, with S&P/ASX200 leading the charge to a 17-month high above 5,700; Nikkei225 remains on holiday. Among USD majors, high-beta/commodity FX are seeing the strongest gains; NZD is preferred with a rise of over 50pips, as some analysts still anticipate headwinds for AUD from further RBA rate cuts. China Caixin Dec Manufacturing PMI tops consensus by a full point, rising to a 4-year high with its 6th straight expansion.
Impressive Caixin PMI that tracks smaller Chinese institutions follows the official govt PMI focused on SOEs out this weekend, which showed a retreat in both manufacturing and services. PBoC's yuan fix was set at the weakest point in 2 weeks, while a state researcher is calling for a large one-off devaluation to keep the currency at equilibrium. Another China state researcher forecast 2017 GDP around 6.5% - the bottom end of the 6.5-7.0% official target range for 2016; Exports were estimated to fall 3%. Report out of IMF notes "China urgently needs to tackle its corporate-debt problem before it becomes a major drag on growth", adding current focus on addressing the overcapacity problem does not tackle its financial implications.

Nikkei Closed Hang Seng +0.67% CSI +0.89% Shanghai +0.92%

Eur$ 1.0487 CNH 6.9598 CNY 6.9545 JPY 117.49 GBP 1.2303 CHF 1.0220 RUB$61.0211 WTI$ 54 +0.52%

S&P +0.50% EuroStoxx +0.30% FTSE +0.65% CAC +0.40% DAX +0.27% SMI +0.66%

Macro :
- Caixin China Dec. Manufacturing PMI 51.9; Est. 50.9
- Japan, Europe Stocks Top Picks on Inflation, Yields: Strategists
- U.S. Finalizing Study on Protecting Semiconductor Sector: WSJ
- Earnings Set to Drive European Stocks in 2017, Barclays Says

Keep an eye on :
- AIR FP : Airbus CEO Enders Bought 16,448 Co. Shares on Oct. 31: Filing
- AIR FP : Airbus Sees German, Spanish Need for 100 New Fighter Jets: Welt
- AF FP : Air France-KLM Says Its Debt Level Dropped in 2016
- EDP PL : Portuguese Electricity Demand Rose 3.3% in December, REN Says
- FCT IM : French shipbuilder STX France is likely to be acquired by the Italian ship builder Fincantieri - Het Financieele Dagblad
- GLJ GY : Grenke Group 2016 New Business Volume Rises 16%
- MMT FP : M6 CEO De Tavernost Tells Les Echos He’s Confident for 2017
- EGL PL : Mota Agrees to Sell 85% Stake in Aruba Concessions to InfraRed

>>> STX France likely to be acquired by Fincantieri; no bid from Damen Shipyards

STX France likely to be acquired by Fincantieri; no bid from Damen Shipyards—report (translated)

French shipbuilder STX France is likely to be acquired by the Italian ship builder Fincantieri, Dutch daily Het Financieele Dagblad reported.

Dutch ship builder Damen Shipyards will not place a bid, the company told Het Financieele Dagblad. Damen was expected to be an important bidder for STX France, the report said, but according to unnamed sources the Dutch ship builder decided to not place a bid because the price was too high for the companies Dame was cooperating with, namely MSC and Royal Caribbean Cruises Limited.

With Damen out of the race for acquiring a 66.7% stake it is likely Fincantieri will acquire STX France, the report said. STX France is expected to cost EUR 100m-EUR 200m.

However, unnamed sources told Het Financieele Dagblad that if Fincantieri and STX France fail to make a deal, Damen could well regain interest.

STX France is a daughter company of bankrupt South Korean ship builder STX Offshore Shipbuilding. STX France is the only profitable part of the company, the report said.

>>> Asian Update

Asia Mid-Session Market Update: China Caixin PMI hits 4-year high as strength in SMEs diverges from slower SOEs

***Key economic data***
- (CN) CHINA DEC CAIXIN MANUFACTURING PMI: 51.9 V 50.9E; 6th consecutive expansion; highest print since Jan 2013
- (AU) AUSTRALIA DEC CORELOGIC RPDATA HOUSE PRICES M/M: 1.4% V 0.2% PRIOR (7-month high)
- (AU) AUSTRALIA DEC AIG MANUFACTURING INDEX: 55.4 V 54.2 PRIOR (3rd straight expansion, 5-month high)
- (SG) SINGAPORE Q4 ADVANCED GDP Q/Q: 9.1% V 4.0%E; Y/Y: 1.8% V 0.3%E
- (ID) INDONESIA DEC CPI M/M: 0.4% V 0.5%E; Y/Y: 3.0% V 3.1%E; CPI CORE Y/Y: 3.1% V 3.1%E

***Politics***
- (US) President Elect Trump said to choose Robert Lighthizer for US Trade Representative
- (US) Sonny Perdue III (former governor of Georgia) speculated as Donald Trump's pick to be US Sec of Agriculture - press

***Asia Session Notable Observations, Speakers and Press***
- Asian equity markets have returned on a strong note, with S&P/ASX200 leading the charge to a 17-month high above 5,700; Nikkei225 remains on holiday.
- Among USD majors, high-beta/commodity FX are seeing the strongest gains; NZD is preferred with a rise of over 50pips, as some analysts still anticipate headwinds for AUD from further RBA rate cuts.
- China Caixin Dec Manufacturing PMI tops consensus by a full point, rising to a 4-year high with its 6th straight expansion. Production grew at the fastest rate in nearly 6 years, output growth accelerate to a 71-month high, and input price inflation picked up to its sharpest since early 2011, while Employment continued to decline amid corporate cost reduction. Caixin economist concludes it remains to be seen if the stabilization of the economy is consolidated due to uncertainties in whether restocking and consumer price rises can be sustainable. Impressive Caixin PMI that tracks smaller Chinese institutions follows the official govt PMI focused on SOEs out this weekend, which showed a retreat in both manufacturing and services.
- PBoC's yuan fix was set at the weakest point in 2 weeks, while a state researcher is calling for a large one-off devaluation to keep the currency at equilibrium.
- Another China state researcher forecast 2017 GDP around 6.5% - the bottom end of the 6.5-7.0% official target range for 2016; Exports were estimated to fall 3%. Report out of IMF notes "China urgently needs to tackle its corporate-debt problem before it becomes a major drag on growth", adding current focus on addressing the overcapacity problem does not tackle its financial implications.
- Far east PMI's were mixed; Malaysia and Indonesia remained in contraction; Taiwan and Vietnam in respectively 7th and 13th consecutive months of expansion.

China:
- (CN) China trade official: China economy is invulnerable to trade war - China Daily
- (CN) China state researcher Zhu Baoliang: 2017 GDP estimated to be around 6.5% vs official 2016 target range of 6.5-7.0% - Chinese press
- (CN) IMF: China credit risks appear high but manageable if problems are addressed promptly

Japan:
- (JP) Japan Chief Cabinet Sec Suga: Policy focus this year will be on managing risks around foreign exchange
- (JP) BOJ may extend its no-interest lending facility to financial institutions by another year to help stimulate lending and defeat deflation - Nikkei
- (JP) Japan PM Abe reiterates view of no plans to dissolve Lower House - financial press

Australia:
- (AU) JPMorgan chief Australia economist Auld: RBA may get nervous and ease policy again in 2017 if there are "wobbles" in strength of economy - press

***Asian Equity Indices/Futures (23:30ET)***
- Nikkei225 closed, Hang Seng +0.5%, Shanghai Composite +0.7%, ASX200 +1.2%, Kospi +0.7%
- Equity Futures: S&P500 +0.4%, Nasdaq +0.6%, Dax +0.2%, FTSE100 +0.6%

***FX ranges/Commodities/Fixed Income (23:30ET)***
- EUR 1.0455-1.0485; JPY 117.20-117.5; AUD 0.7190-0.7230; NZD 0.6915-0.6970
- Feb Gold +0.5% at 1,158/oz; Feb Crude Oil +0.6% at $54.05/brl; Mar Copper +1.4% at $2.54/lb
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.9498 V 6.9370 PRIOR; Weakest Yuan setting since Dec 16th
- (CN) PBOC to inject combined CNY40B in 7-day and 14-day reverse repos v CNY250B prior
- (CN) Trading in China govt bond holdings maturing in 2065 halted due to abnormal fluctuations - press
- (KR) South Korea sells 30-yr govt bond, avg yield 2.19%

***Asia equities / Notables / movers by sector***
- Consumer discretionary: MGM China 2282.HK -6.6%, Galaxy Entertainment Group 27.HK -2.4%, Sands China 1928.HK -1.5% (Macau gaming Dec revenue data)
- Financials: China Aoyuan Property Group 3883.HK -2.3% (Dec result); Evergrande Real Estate Group 3333.HK +3.5% (asset sales plan); ANZ Bank ANZ.AU +1.7% (agrees to sell stake in Shanghai Rural Commercial Bank); Wharf Holdings 4.HK +4.0% (Citi raised to buy)
- Industrials: Hyundai Heavy 009540.KR -1.7% (guidance); Korean Air Lines Co 003490.KR -0.2% (Samsung Securities cuts to Hold); Daelim Industrial Co 000210.KR +0.9% (Dongbu Securities raised to buy); Hyundai Motor Co 005380.KR +1.0% (Dec result)
- Technology: NCsoft Corp 036570.KR +4.4% (Eugene raises earnings forecasts)
- Materials: Kingsgate KCN.AU -3.5% (closure of Chatree gold mine in Thailand); Galaxy Resources GXY.AU +4.8% (may sell stake in project)

FT : Automated advisers: short circuit Premium

Automated advisers: short circuit Premium
Further takeovers are likely, as long as bidders believe savings will outweigh prices

Robots may well conquer the world. Established businesses may first conquer the robots. That bodes badly for the independent future of robo-advisers, start-ups attempting to automate investment advice.

Autonomous Research estimates robo-advisers spend at least $500 to acquire just one new client. Assuming an average annual charge of 0.25 per cent on assets of $25,000, it would take eight years to break even on the cost of client acquisition alone.

Private valuations of big US names in robo advice, such as Betterment, Wealthfrontand Personal Capital, reflect tech sector froth more than the dull realities of retirement planning. Wealth managers are often valued at about 2 per cent of their assets. Thus $6bn of assets under management suggests a worth of $120m for Betterment. A funding round in March valued the company at $700m.

Big fund managers and insurers, such as BlackRock and Northwestern Mutual,that have bought into this buzzy sector, are likely to have done so at high rather than low multiples. They usually aim to integrate technology into existing products. They hope to cut servicing costs, particularly on small “orphan” accounts whose owners take little interest in them. Automated advice to these customers may permit big financial groups to discharge their duty of care more efficiently.

Further takeovers are likely, as long as bidders believe savings will outweigh purchase prices and robo-advisers go on shouldering steep costs to garner customers. Independence has certainly proved heavy going for Nutmeg, a UK online wealth manager, whose most recent accounts showed steep losses.

Acquirers from the financial sector are less willing than venture capitalists to burn money on marketing. Robo-advisers still hope to reach a tipping point where their services will appeal to a mass market, not just early adopters. But slow progress towards this goal suggests their efforts to become disruptive big businesses are suffering a short circuit

WSJ : China Infrastructure Spending Won’t Prop Up Metals as Housing Slows

China Infrastructure Spending Won’t Prop Up Metals as Housing Slows
Bond-Market Troubles Dim Outlook for Financing of Projects

Global commodities producers are hoping that China will order big lumps of iron, coal and copper in the new year to send prices higher.
The miners are banking on a boost in infrastructure spending, which they believe would offset the price declines caused by slowing growth in housing. China is the marginal buyer of every big commodity, but the idea that Chinese infrastructure can itself drive prices much beyond recent highs looks misplaced.
Ramp UpChina domestic investment, change from year earlier.THE WALL STREET JOURNAL.Source: CEICAll figures 3-month moving average.
%Real estateInfrastructure2007’08’09’10’11’12’13’14’15’16-100102030405060
There are two main reasons to be skeptical. First, with the exception of certain categories like power lines, infrastructure is, on average, less metal-intensive than offices or homes. Real estate accounts for around 20% of fixed-asset investment in China but nearly 40% of steel demand, notes CRU, the London-based metals consultancy. Although infrastructure accounts for a quarter of investment, it sucks up only 13% to 14% of Chinese steel output. In other words, infrastructure investment likely needs to rise around 3% to offset every 1% fall in real estate to replace lost iron-ore demand.

For copper, investment in the most important type of infrastructure—electric power—has also slowed sharply since mid-year. Higher coal prices in mid-2016 pushed down growth in grid investment to around 5% on the year in October and November, down sharply from the 40% gains in early 2016.
Nuts and BoltsChina infrastructure investment, change from year earlier.THE WALL STREET JOURNAL.Source: CEIC3-month moving average.
%Power, Utilities andITTransportEnvironment andWater2008’10’12’14’16-20020406080
The recent convulsions in China’s bond market could cause substantial problems for infrastructure funding. Most infrastructure in China is financed through municipal bonds or so-called local government financing vehicles (LGFVs), off-balance-sheet entities cities use to circumvent restrictions on local borrowing.
The sell-off in Chinese government bonds has particularly punished both of these types of quasi-sovereign debt.
Demand for official municipal bonds, meanwhile, could be dented by the recent troubles in the money market. Chinese banks like munies in part because they are widely accepted as collateral for money-market transactions, notes Frances Cheung, head of rates for Asia, excluding Japan, at Société Générale. With money markets in full deleveraging mode now after the U.S. Federal Reserve’s rate increase, bank demand for municipal bonds could weaken. That means higher funding costs for local governments.
The slowdown in Chinese real-estate construction next year is unlikely to be catastrophic, and there is little reason to expect carnage in the commodities markets on the scale of 2014 or 2015, particularly if miners hold the line on further capacity expansions.
But by the same token, investors shouldn’t count on Chinese infrastructure spending to push commodities higher, unless the central government steps in with much more aggressive direct stimulus.

WSJ : Anshu Jain Joins Cantor Fitzgerald as President

Anshu Jain Joins Cantor Fitzgerald as President
Former Deutsche Bank co-CEO to oversee companywide strategy and expansion efforts

Anshu Jain, former co-chief executive of Deutsche Bank AG, has joined Cantor Fitzgerald LP as its president, according to Howard Lutnick, Cantor’s CEO and chairman.
In the newly created role, Mr. Jain will help oversee companywide strategy and expansion efforts in areas including fixed-income and equities trading and prime brokerage, Mr. Lutnick said in an interview Monday.
Mr. Jain also will help New York-based Cantor expand in Asia, Mr. Lutnick said. Mr. Jain will be based in London.

(ZH) Bitcoin Surges Above $1,000 As China Unveils New Capital Controls

Bitcoin Surges Above $1,000 As China Unveils New Capital Controls

As noted yesterday, for the first time in three years, and only the second time in history, bitcoin rose above $1,000 in Yuan-denominated Chinese trading, however it was limited to the lower side of this "round number" psychological barrier in US trading, as BTC flirted with $999.99 for most of the day on the popular Coinbase exchange, without crossing it.

Overnight, however, Chinese demand proved too great and US markets had no choice but to arb the difference. So with Bitcoin trading in China at an implied price of over $1,050 at this moment, bitcoin finally soared above $1,000 in the US as well, trading just around $1,024 on Coinbase as of this moment.


Various catalysts for the recent surge have been cited, chief among which is the ongoing crackdown against cash in India providing a new source of demand for bitcoin. However, the most immediate driver of the recent burst in Chinese demand originates, not unexpectedly, from China where Beijing over the weekend implemented even more of what we have said since September 2015 will keep pushing bitcoin relentlessly higher: capital controls.
Recall that as we noted over the weekend, in order to further curb capital outflows, Chinese banks will be required to report all yuan-denominated cash transactions exceeding 50,000 yuan (around 7,100 US dollars) to the People's Bank of China (PBOC), down from the current level of 200,000 yuan, according to a PBOC document released on Friday. Cross-border transfers more than 200,000 yuan by individuals will also be subject to the report process. In terms of foreign currencies, the report threshold remains at the equivalent of 10,000 US dollars for both cash transactions and overseas transfers.
How do we know that this latest PBOC intervention in capital markets was merely the latest form of capital controls? Because the PBOC immediately said it wasn't.
As Xinhua reported overnight, "the policy stoked worries that the government is trying to impose capital control in a disguised form."
"It is not capital control at all," central bank economist Ma Jun said.
Actually, imposing limits on capital movement, i.e. controls, is by definition just that.

Logic, however, did not prevent Ma from continuing on a tangent, and he "explained" that the responsibility of report will be assumed by financial institutions, and there will be neither extra documentation nor official approval procedures for businesses and individuals. "They will not feel any change," Ma added. He also noted that each person's current annual foreign exchange purchase quota of 50,000 US dollars is unchanged, and normal activities, ranging from business investment and operation abroad to individuals' overseas trips and study, will not be affected, Ma said.
The PBOC has said the move aims to improve monitoring of money laundering, financing for terrorists, graft and tax fraud, instead of targeting common business activities. Appealing to the Chinese savers not to withdraw their money out of fears of even more capital controls, Ma said that the world's major countries also have similar rules, citing that transactions worth 10,000 US dollars or more are subject to reporting in the United States, Canada and Australia. Regulators in those countries can even adopt stricter rules if necessary after obtaining legal authorization, Ma said.
Judging by the move in Bitcoin since the announcement, nobody believes Mr. Jun.
And yet, what is surprising is that if China indeed wishes to limit capital flight by bitcoin it could easily do so with the flip of a switch, sending the price plunging. As we noted recently, according to Bloomberg sources, Chinese officials have been considering policies including restricting domestic bitcoin exchanges from moving the cryptocurrency to platforms outside the nation and imposing quotas on the amount of bitcoins that can be sent abroad. Further indicating that Chinese regulators were "just a little behind the curve", they allegedly noticed only recently that some investors bought bitcoins on local exchanges and sold them offshore, evading rules on foreign exchange and cross-border fund flows, the report further reveals.
A quick look at the uncanny correlation between the decline in the Yuan and the rise in the bitcoin, confirms that the digital currency has indeed been largely used to evade capital controls.
Based on this chart alone, the recent surge in Bitcoin would imply that a substantial devaluation of the yuan is looming. That, or even more aggressive capital controls.
As for those buying into bitcoin here on the momentum, most of which originates in China, we urge readers to be cautious as by now the PBOC has certainly noticed that the digital currency remains one of the final, and most successful, means of bypassing capital controls in China. Should Beijing mandate that bitcoin no longer be a means to illegally transfer capital offshore, there is risk of a dramatic, and sharp, drop in its price.

(BI) The boss of one of the largest accounting firms in the world says we should

The boss of one of the largest accounting firms in the world says we should stop freaking out about China

The boss of one of the world's largest accountancy firms thinks China is "a lot more bullish" than press reports make it out to be and he sees it as a major growth area for 2017.

KPMG global chairman John Veihmeyer told Business Insider in an interview that China, along with a number of other emerging markets, is seeing a flow of outbound investment from the region despite reports of an economic slowdown.

"China is a lot more bullish than press reports make it out to be. We have spent a lot of time there and I think we are seeing continued appetite outbound and this will continue to have an impact. We are seeing significant interest in a series of roadshows in a number of different countries, including China," said Veihmeyer to BI.

According to the latest data from China’s National Bureau of Statistics (NBS), the economy grew by 6.7% year-on-year in the September quarter, a figure that was in line with expectations. In seasonally adjusted terms, the economy grew by 1.8% during the quarter, again in line with expectations. The June quarter growth rate, previously reported at 1.8%, was revised up to 1.9%.

Economists note that China's government investment has played a crucial role in helping to stabilise the economy.

Subsequently, China's debt to GDP ratio keeps rising and while borrowing has helped fuel growth in China — it's starting to lose its effectiveness. Analysts at Morgan Stanley said in a note to clients that China's debt to GDP rose to 276% in the third quarter this year from 249% in 2015.

However, Veihmeyer told us that his clients — which include some of the largest companies in the world across all sectors — are more optimistic this year than last year and that KPMG's on-ground experience with China gives the group greater confidence in how China will perform.

"On balance there is slow growth [across the world] that we've been dealing with, not just economically, but geopolitically and socially, but I am generally optimistic for the global economy and at KPMG we see where the opportunities exist to grow effectively," said Veihmeyer.

(TheDailyBeast) WHOSE WAR? The Many Armies of Iraq: If ISIS Goes, Do They Turn o

WHOSE WAR?
The Many Armies of Iraq: If ISIS Goes, Do They Turn on Each Other?
Officially, the Shiite militias are under presidential control, the Iranian clients are behaving themselves, the Sunnis and Kurds are being respected… officially.

ERBIL, Iraq—Two injured Iraqi soldiers stretched on hospital beds were still in their uniforms, a haphazard mix of mismatched camouflage in the military ward of a hospital north of Mosul. The walls were peach-colored, as if painted for some other kind of place. The tang of antiseptic hung in the air.
Another soldier was in a wheelchair, his lower half covered in a heavy multicolored blanket.
The three men, all in their twenties, were injured trying to rescue Iraqis fleeing the so-called Islamic State just after dawn on Dec. 26 outside the village of Telskuf, about 20 miles from the besieged ISIS capital in Iraq.

The soldiers say ISIS fighters spotted them as the they dashed from behind defenses to escort the villagers, and opened up with gunfire and mortars.
“A third of the people were killed, a third injured, and a third got away,” one of the soldiers said in Arabic. Two of the soldiers were shot and a third hit by shrapnel from a mortar blast.
The three wounded soldiers asked that their names not be published for fear of ISIS retribution against members of their families still trapped inside Mosul.
These men are not from the Iraqi Army, or the Kurdish Peshmerga, nor are they part of the newly legalized Popular Mobilization Forces—the mostly Shiite militia groups, which now answer directly to Iraq’s Prime Minister Haider al-Abadi, and which previously were accused of summary killings, kidnapping, and torture.
These three wounded belong to a militia that is mostly Sunni from Mosul, and they’re fighting to free their loved ones. They don’t trust Abadi or his Shiite-dominated administration. And when ISIS is gone, if they feel their community is suffering abuse again, they could become the vanguard of an ISIS 2.0, dragging Iraq into a civil war akin to Syria next door–and miring the U.S. in the chaos.
Abadi’s government is aware of the risk, and is considering completely withdrawing its mostly Shiite army from all Iraqi bases once the fight against ISIS is done, and deploying its newly legalized militia groups to keep the peace in the cities they come from.

But this particular group of locals, the Knights of Ninewa, or Haras Ninewa, aren’t invited. Made up of Arab Sunnis, Shiites, Christians, and Yazidis, this force answers to the former Mosul governor Atheel al-Nujaifi, a man some Shiite politicians blame for failing to stop ISIS's initial takeover of the city in 2014. That intramural conflict has lain dormant as everyone fights ISIS, but will re-emerge the moment that fighting stops.
The resentments are already building. The men in the hospital told The Daily Beast that they get no pay nor medical benefits nor survivor benefits for their families if they are injured, unlike Abadi's now-legal Shiite militia groups. They have no confidence that the Iraqi government will do any better representing the rights of Sunnis and other minorities after Mosul is captured than it did before ISIS rule.
***
Given the kind of allegations leveled in the past against some of the militias in the mostly Shiite Popular Mobilization Forces, the organization’s current charm offensive seems incongruous at times as its leaders vow to professionalize and eject any member who abuses the group’s newly awarded authority as the prime minister’s de facto strike force.
"Since its first day, it was for all of Iraq, not for a specific sect of religion," PMF spokesman Ahmed al-Asadi told The Daily Beast in an interview at his heavily but discreetly defended Baghdad home.
He described the PMF as “a volunteer force” of nearly 60 different groups that has worked unpaid until now. The Iraqi government has just budgeted a salary for 110,000 fighters as part of the new law, which al-Asadi said is being parceled out among roughly 142,000 “troops.”
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Some of the groups were formed originally to fight the U.S. military occupation: Shiite leader Muqtada al-Sadr’s forces killed Americans by the dozen. But most of the fighters signed up after Iraqi Shiite Grand Ayatollah Ali al-Sistani issued a fatwa or religious order in 2014 calling on Iraqis to protect the state from ISIS. Some of the factions, like K’tab Hizbullah and Asa’ib Ahl al-Haq are considered to be veritable extensions of the Iranian military’s Quds Force, although al-Asady disagrees.
Al-Asady concedes that the bulk of the combined officially recognized militias are Shiite, but says there are also groups that include minorities like Sunnis, Christians, and Yazidis.
He says that now that the militias are legal, they will separate from the political parties or movements that gave rise to them, and answer only to the prime minister. The Iraqi military code of justice will also apply to them, although the details are still being worked out as the law Iraq’s Parliament passed is a scant page and a half long.
Such forces have been accused of carrying out a scorched earth policy toward Sunnis and anyone suspected of working with ISIS, a reaction to the continuing campaign of deadly attacks and bombings aimed at Shiite neighborhoods (like the explosions that killed more than 20 people in Baghdad on Saturday).
Reports persist that the most hard line of the groups are holding up to 3,000 prisoners in up to five makeshift jails, some for alleged crimes, and some to exchange for ransoms that help fund militia activities.
Al-Asady denies those reports, but he says Iraq's justice ministry has appointed a judge who is working his way through 300 reported cases of abuse by militia members ranging from alleged prisoner abuse to summary executions. He said only roughly a quarter of those accused are genuine militia members and the rest are part of wannabe groups like the Knights of Ninewa.
He insists the wider force is now being trained to understand the Geneva Conventions and international human rights law.
“Instilling discipline started about a year and a half ago. We opened specialized training camps,” to provide “moral guidance… tasked with spreading this culture across the PMF.”
He said the militias had invited international human rights organizations to lecture dozens of his forces, like the International Committee of the Red Cross. The ICRC confirmed it had held seminars with some of the groups.
***
U.S. Coalition Commander Lt. Gen. Stephen Townsend says the militia groups have been remarkably disciplined since he arrived, although he’d heard the previous allegations of human rights abuses.
“It all seems to be focused on fighting Daesh,” the general said, using the pejorative Arabic acronym for ISIS.
Townsend said he thought the PMF could be a force for stability in Iraq if it becomes more of a national guard rather than an extension of Iran.
That’s a big “if” when many of the groups already have a heavy complement of Iranian advisers and equipment, leading to allegations that Quds Force commander Qasem Suleimani is orchestrating Iraq’s war on ISIS. Indeed, Suleimani taunts the U.S. on social media, but Townsend does not allow himself to be baited.
Townsend is relentlessly circumspect.
“They [the Iranians] are advising the PMF because no one else is,” Townsend said. “They are a neighbor of Iraq's. They are a fact of life here. I can’t do much about it.”
He, and other senior western officials who asked to remain anonymous, hold on to the hope that Iraq’s desire for independence will trump Iran’s ability to act as puppeteer.
“Not all Iraqi Shia align with Iran. There are plenty of nationalists that see Iran as… a competitor,” Townsend said.
As for Iranians and American military advisers on the battlefield?
“They stay over there, and we stay over here," he said. “I try not to let them trouble me.”
***
Iraq’s Deputy National Security Advisor Safa al-Sheikh said some of the militias had been somewhat difficult to control, which is all the more reason to bring them under the Iraqi government’s legal umbrella, he said.
“It’s important to have a law, in order to contain the popular mobilization units, to put them [under] discipline,” he said in an interview at his office inside the Iraqi government’s heavily defended Green Zone.
He said there were tens of thousands of minorities who also made up militia groups under the government’s control, adding that “the PMF has been misinterpreted outside Iraq.”
That especially applies to groups like K’tab Hezbollah and Asa'ib Ahl al-Haq (AAH), which are advised by the Iranian military.
“There is a great influence of Iran on them. There is some influence of the Iraqi government on them, and there is a good degree of self interest” driving their actions, Safa said.
Disciplining members who step out of line will be a challenge, he said.
K’tab Hezbollah and AAH are believed to hold the bulk of the illegally detained prisoners, according to human rights, Western and Iraqi officials who all spoke anonymously because of the sensitivity of the subject.
Safa said the Iraqi government had not been able to verify the existence of the secret detention facilities, but authorities did find evidence of other abuses.
“We have heard about the detention facilities, but we could never verify these numbers in these reports,” he said. “However they could find violations that happened including killing of some of the detainees—more than 10 people in one incident,” after the battle to drive ISIS out of Fallujah. He said that that particular case was attributed to the individual seeking revenge because his brother had been killed, but he did not offer further details.
“Bottom line, it was not a policy by the groups,” he said.
Safa said the Iraqi government is considering a post-ISIS plan that would see Iraq’s mostly Shiite army withdrawn from all the cities, especially non-Shiite ones, so as not to cause friction with the local population which he says is what contributed to the rise of ISIS in Mosul and throughout Sunni-majority Anbar Province. In their place, PMF forces that came from the towns they would patrol would back up local police as a sort of reserve force.
***
“Why have them?” said Kurdish Foreign Minister Falah Mustafa. “We should have invested in the Iraqi army. Not have a force from one sect.
"Are we going to the Islamization of this country? Are we going to see the majority set aside the minorities?" he asked.
In an interview with The Daily Beast at his ministry office in Erbil, Mustafa said that while Kurds “appreciate the sacrifices of some of those who have come to help protect Baghdad and the country,” not all of the groups are disciplined.
“This will create a problem for the future of Iraq,” he said.
Mustafa griped that while the militia groups will now be paid by the Iraqi government, his Peshmerga forces had to be funded by the Pentagon—to the tune of $450 million for his roughly 180,000 volunteers. U.S. Forces work closely with the Peshmerga as they do with the Iraqi army, but they do not advise the militia groups.
***
Back in the hospital, the newly legal status of the mostly Shiite PMF groups doesn't sit well with the injured militiamen from Mosul who have no hope of receiving pay or benefits from the Iraqi government.
“If anything happens to me, no one will take care of my family,” one of the fighters said.
From their perspective the money just goes to the Shiite-dominated Iraqi government. But even more telling, in their view, is the way the U.S.-led coalition doles out critical support during combat.
Just before they were attacked, they say, four Humvees with Americans in them had been observing them from a distance. When they came under fire, they say, the Americans quickly drove away rather than helping them the way they have seen the American soldiers do for the Peshmerga or Iraqi troops.
U.S. military advisors have been ordered to stay out of the front lines by the White House, except in the rare special operations missions accompanying elite Iraqi or Kurdish forces on a specific raid or operation.
But from the point of view of the wounded fighters of the Knights of Ninewa, the Americans should have helped.
"They just left us," one said.
Worse, they think the new incoming Trump administration will work with the Shiite government to keep them down.
"Trump is going to raze the Muslim world," one of them said, to nods all around.