Caterpillar's China woes warn foreign investors

SHANGHAI: Caterpillar's revelation it found fake accounts at a just-acquired Chinese firm which will cost it hundreds of millions of dollars is a cautionary tale for those looking to enter the hugely promising market.

The US equipment giant said this month it would take a $580 million charge after uncovering "accounting misconduct" at Siwei Mechanical and Electrical Manufacturing Co., which it bought last year for at least $650 million.

Caterpillar, one of the first US manufacturers to start exporting to China nearly four decades ago and which opened its first Beijing office in 1978, said it had removed several top Siwei managers for overstating profits.

Analysts said the stumble by a Chinese market veteran served as a reminder of the pitfalls of doing business in the world's most populous country.

"This is going to teach firms that they've really got to do due diligence, especially when they see a company as large as Caterpillar run into a situation like this," said Ben Cavender, of Shanghai-based consultancy China Market Research Group.

But there would still be strong demand to invest in it, he added.

Foreign investors have poured more than $1.0 trillion into China since it launched economic reforms in 1978, with $112 billion last year alone.

The country became the world's second most attractive location for foreign investment in 2008, behind only the United States, according to the Organisation for Economic Co-operation and Development.

Foreign companies that arrived early and persisted are now among the most successful, analysts say, but some met spectacular failure.

The travails of American Motors Corp. - later bought by Chrysler - to produce its iconic Jeep brand in China in the 1980s are documented in the book "Beijing Jeep" by the author James Mann.

US aircraft maker McDonnell Douglas announced in 1994 it would manufacture 20 MD-90 planes in China, but fell way short due to technical and regulatory issues. The project was quietly scrapped after Boeing took over the company.

Analysts see a link between Caterpillar's experience and a series of accounting scandals involving Chinese firms listed in the United States and other overseas markets which burned shareholders.

Investors in Toronto-listed Sino-Forest Corp. lost hundreds of millions of dollars when it collapsed following allegations it had misstated its revenue and exaggerated the size of its plantations in China.

"There's been a whole series of disclosures which relate to very poor due diligence of US-listed Chinese companies, and there's a parallel there," said Steve Vickers, founder of a Hong Kong-based risk consultancy.

Sharp increases in profits and a firm which has been through a reverse takeover - in which a private company seeking to go public merges with an already quoted one but controls most of the new entity - are warning signs, Vickers said.

Financial reporting requirements are not as stringent for reverse takeovers as they are for traditional initial public offerings and the technique became controversial after Chinese firms that used it to list in the US were found to have accounting problems.

"Reverse takeovers, sudden rises in profit of massive scale are glaringly obvious examples of what people should look for. To me, that would be a huge alarm bell," Vickers said.

Siwei become publicly traded by taking over Hong Kong-listed ERA in a reverse takeover. In turn, Caterpillar announced it was buying ERA in 2011, saying the deal would allow it to find more customers in China.

Caterpillar discovered the problems five months after completing the transaction, and said it believed its process for vetting mergers and acquisitions was "rigorous and robust", according to a statement.

It said it was still investigating and would consider options, including litigation, to recover its losses, adding it was unaware of any criminal investigations by the Chinese or US governments so far.

The Wall Street Journal reported that two foreign investors controlled just under half of ERA's shares before the Caterpillar deal: former head of the American Chamber of Commerce in China, Emory Williams, and James Thompson III, son of the founder of moving company Crown Worldwide Group.

A spokesman for Caterpillar, based in the US state of Illinois, declined to comment on Friday.

- AFP/de

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Rajasthan must act against Nandy for casteist comments: Mayawati

NEW DELHI: BSP leader Mayawati on Saturday demanded that the Rajasthan government take strong action against social scientist Ashis Nandy for his comments linking OBCs, the SCs and the STs to corruption and that he be told to leave the Jaipur Literature Festival.

Talking to reporters here, Mayawati said Nandy's comments were "wrong, baseless and unfortunate" and reflected casteist mindset.

They were made as part of a thought-out conspiracy to defame people from these communities, said the Bahujan Samaj Party (BSP) supremo.

"Hence, the Rajasthan government should take strong action against him without delay," Mayawati said.

She said the organisers should also immediately "throw out" Nandy from the festival for his "casteist remarks".

Asked if the BSP will raise the issue in the budget session of parliament, she said the party will take into account steps taken by the Rajasthan government, the organisers and the "kind of apology" tendered by Nandy.

Nandy stirred up a row at Jaipur Literature Festival on Saturday, saying most of the corrupt in the country were people from the other backwards classes (OBC), the Scheduled Castes (SCs) and the Scheduled Tribes (STs).

"It will be an undignified, even vulgar statement. But it is a fact that most of the corrupt come from the OBC, the Scheduled Castes and now increasingly the STs and as long as it is the case, the Indian republic will survive," he said at a session titled "Republic of Ideas".

"I will give an example. The state of least corruption is West Bengal. In 100 years, nobody from the backward classes and SC and ST have come anywhere near power in West Bengal. It is an absolutely clean state," he said.

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CDC: Flu seems to level off except in the West

New government figures show that flu cases seem to be leveling off nationwide. Flu activity is declining in most regions although still rising in the West.

The Centers for Disease Control and Prevention says hospitalizations and deaths spiked again last week, especially among the elderly. The CDC says quick treatment with antiviral medicines is important, in particular for the very young or old. The season's first flu case resistant to treatment with Tamiflu was reported Friday.

Eight more children have died from the flu, bringing this season's total pediatric deaths to 37. About 100 children die in an average flu season.

There is still vaccine available although it may be hard to find. The CDC has a website that can help.

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CDC: http://www.cdc.gov/flu/

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Cops Using More Private Cameras to Nab Suspects

Philadelphia detectives were able to quickly make an arrest in the murder and burning of a female pediatrician by viewing surveillance video of nearby stores and a hospital that captured the suspect entering the doctor's home and later getting into his truck.

In the hours after Dr. Melissa Ketunuti's body was found strangled and burning in her basement, city's Homicide Task Force collected surveillance footage from a coffee shop, drug store and hospital overlooking Ketunuti's block. It was footage taken from Ori Feibush's coffee shop that allowed cops to identify Smith.

The suspect, an exterminator named Jason Smith, soon confessed to detectives, police said.

Lately a range of crimes have been solved by the seemingly ubiquitous security videos maintained by private companies or citizens, and investigators have been able to quickly apprehend suspects by obtaining the video, deftly turning private cameras into effective police resources.

Philadelphia Police Arrest Suspect in Doctor's Killing Watch Video

Pa. Doctor Killing: Person of Interest in Custody Watch Video

Private surveillance cameras have become so pervasive that the face of a suspect who allegedly shot a Bronx, N.Y., cab driver in a botched robbery on Jan. 14 was splashed throughout the media within days because the cabbie had rigged his vehicle with a camera.

The New York Police Department arrested Salvatore Perrone after he was caught on surveillance video recorded near two of three shopkeeper slayings in Brooklyn, N.Y., in November. He has since been charged with murder.

And in Mesa, Ariz., surveillance footage taken in November by resident Mitch Drum showed a man rolling on the ground trying to extinguish flames that had engulfed his shirt, which had caught fire while he was allegedly siphoning gas from a car by Drum's house. The man was arrested.

Though surveillance cameras have been a staple of security since a network of government operated cameras dubbed the "ring of steel" was introduced in London in the early 1990s, police have recently launched programs to partner with more businesses.

In Philadelphia, police have launched a program for businesses to register private cameras with the department. According to the SafeCam website, businesses will only be contacted when there is a criminal incident in the vicinity of the security camera. At that point, police will request a copy of the footage for their investigation.

"Businesses are saying, 'I have a camera at this location, and it may or may not be of use to you. It's a registration to say, 'feel free to call me,'" Sgt. Joseph Green told ABCNews.com

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At least 26 die in Egyptian clashes over death sentences

PORT SAID, Egypt/CAIRO (Reuters) - At least 26 people died on Saturday when Egyptians rampaged in protest at the sentencing of 21 people to death over a soccer stadium disaster, adding to bloody street turmoil confronting Islamist President Mohamed Mursi.

Armored vehicles and military police fanned through the streets of Port Said after the violence. The state news agency quoted a general as saying the military aimed to "establish calm and stability in Port Said and to protect public institutions".

Unrest flared with nationwide rallies on Friday to mark the second anniversary of the overthrow of autocrat Hosni Mubarak, a democratic revolution that protesters now accuse Mursi of betraying by ramming through an Islamist-hued constitution.

While anniversary-related violence subsided, a new outbreak hit Port Said after a court sentenced 21 men to die for involvement in the deaths of 74 people after a local soccer match on February 1, 2012, many of them fans of the visiting team.

Residents ran wildly through the streets of Port Said, outraged that men from their city had been blamed for the stadium disaster, and gunshots were reported near the prison where most of the defendants were being held.

Security sources said 26 people, at least two of them policemen, had been killed in the Mediterranean coastal city. State television reported more than 200 people had been wounded.

Witnesses said some men stormed two police stations in Port Said, where protesters lit tires in the street, sending black smoke funneling into the air.

At least nine people were killed in clashes with police on Friday, mainly in the port of Suez where the army has also deployed. Hundreds were injured as police rained down tear gas on protesters armed with stones and some with petrol bombs.

The schism between Islamists and secular Egyptians is hurting efforts by Mursi, freely elected in June, to revive an economy in crisis - deprived of fresh investment and tourism due to political upheaval - and stem a slide in Egypt's currency.

The political strife and lack of security that has blighted the Arab world's most populous country over much of the post-Mubarak era is casting an ominous shadow over a parliamentary election expected to start in April.

DIVERSITY

Highlighting tensions, the opposition National Salvation Front coalition called for a government of national unity and an early presidential vote among other demands. It said it would call for more protests next Friday and could boycott the parliamentary election if its demands are not met.

Mursi's opponents say he has failed to deliver on economic pledges or be a president representing the full political and communal diversity of Egyptians, as he pledged.

His supporters say his critics do not respect the democracy that has given Egypt its first freely elected leader.

The Muslim Brotherhood, which propelled Mursi to office, said in a statement that "corrupt people" and media who were biased against the president had stirred up anger on the street and incited violence.

At the Port Said soccer stadium a year ago, many spectators were crushed and witnesses saw some thrown off balconies after the match between Cairo's Al Ahly and local team al-Masri.

Families of victims in court cheered and wept for joy when Judge Sobhy Abdel Maguid read a list of 21 names "referred to the Mufti", a phrase used to denote execution, as all death sentences must be reviewed by Egypt's top religious authority.

A total of 73 people have been standing trial. Other rulings will be issued on March 9, the judge said.

One relative in the court shouted: "God is greatest." Outside the Al Ahly club in Cairo, fans also cheered. They had threatened more violence unless the death penalty was meted out.

Thousands took to the streets of Cairo, Alexandria and other cities on Friday to protest against what they call the creeping authoritarianism of Mursi's rule. Protesters in Cairo were again hurling stones at police lines in Cairo on Saturday.

SEEKING CHANGE

"We want to change the president and the government. We are tired of this regime. Nothing has changed," said Mahmoud Suleiman, 22, in Cairo's Tahrir Square, the cauldron of the 2011 anti-Mubarak revolt and near where youths stoned police.

Ahmed Salama, 28, a protester camped out with dozens of others in Tahrir, said: "The protests will continue until we realize all the demands of the revolution - bread, freedom and social justice."

Ismailia and Suez, cities which like Port Said lie on the Suez Canal, witnessed some of the worst violence on Friday. But a canal official said the unrest on Friday and Saturday had not disrupted traffic in the waterway vital to international trade.

In a statement in response to Friday's violence, Mursi said the state would not hesitate in "pursuing the criminals and delivering them to justice". He urged Egyptians to respect the principles of the revolution by expressing views peacefully.

The president met on Saturday with the National Defence Council, which includes senior ministers and security officials, to discuss the spate of violence.

In a televised statement, the National Salvation Front said it was holding Mursi responsible for the disturbances.

The Front was formed from disparate groups last year when Mursi awarded himself extra powers and fast-tracked an Islamist-flavored constitution to a referendum, opposed by the Front although the document was passed in the popular vote.

"Egypt will not regain its balance except by a political solution that is transparent and credible, by a government of national salvation to restore order and heal the economy and with a constitution for all Egyptians," prominent opposition politician Mohamed ElBaradei wrote on his Twitter account.

Until the Front was formed, the opposition had struggled to unite and their vote had been split at presidential and parliamentary polls, helping Islamists. The last parliament was dissolved based on court order, demanding a new vote this year.

Mustapha Kamal Al-Sayyid, a professor of political science at Cairo University, said the latest violence reflected the frustration of many liberal-minded Egyptians and others.

"The state of polarization between Islamists and others is most likely to continue and will have a very negative impact on the state's politics, security and economy," he said.

Inspired by the popular uprising in Tunisia, Egypt's revolution spurred further revolts across the Arab world. But the sense of common purpose among Egyptians two years ago has unraveled, triggering bloody street battles last month.

(Additional reporting by Omar Fahmy; Writing by Edmund Blair; Editing by Mark Heinrich)

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PM Lee congratulates Workers' Party on by-election win, calls on people to come together as one

Singapore: Prime Minister Lee Hsien Loong has congratulated the Workers' Party and MP-elect Ms Lee Li Lian for winning the Punggol East by-election.

He said in a statement issued just after the by-election results were announced that he respects the choice of Punggol East voters.

"Now that the Punggol East by-election is over, we should re-focus on national issues" said Mr Lee in his media release.

He said Singapore has a heavy agenda coming up, such as The White Paper on Population that will soon be debated in Parliament, and Budget 2013 which is less than a month away.

"Let us come together as one people to do our best for Singapore" said PM Lee.

He said the PAP fielded a good candidate and Dr Koh Poh Koon had showed character and courage in contesting this election, and did the PAP proud.

Mr Lee noted that many voters were impressed by Dr Koh's sincerity and commitment. But unfortunately there were not enough of them for him to win, as he went on to thank all those who voted for Dr Koh and the PAP.

- CNA/sf

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Jaipur Literature Fest: Jeet Thayil wins 2013 DSC Prize, Muslim groups upset

JAIPUR: Kerala-born writer Jeet Thayil was named the winner of the prestigious DSC Prize for South Asian Literature for his debut novel "Narcopolis" on Friday, but Muslim groups slammed his selection saying it was done to "provoke" their sentiments.

Thayil, who was at the centre of a controversy last year for reading excerpts from "The Satanic Verses" after Salman Rushdie's visit to the Jaipur Literature Festival was cancelled, is the first Indian to win the prize.

The award carrying a prize money of USD 50,000 was given to Thayil for his novel which has a Mumbai setting and deals with the lesser known aspects of drugs and its effects.

The author who first made his mark as a poet said it was natural for him to choose the topic for Narcopolis as he had lived the life.

"It was the story that I know very well. I have lived that life in Mumbai and I always that thought it was the chronicle of a life that was never been documented in fiction and I thought it would be a worthwhile story to be told," he said after receiving the award from actor Sharmila Tagore and dedicating it to Pakistani author Jamil Ahmad.

"I dedicate this award to Jamil Ahmad with whom I became friends," Thayil, son of Padma Bhushan TJS George, said.

Muslim groups, however, are not happy over his selection.

"It seems that the award to Jeet Thayil, who has once hurt the religious sentiments of Muslims by reading from the banned "The Satanic Verses", was conferred to provoke sentiments of Muslims," said Mujahid Ali Naqvi, secretary of Azmat E Rasool foundation.

He said it was not immediately decided whether the organization would stage a protest or not. "We will take a collective decision tomorrow."

The other books in the running were Ahmad's "The Wandering Falcon", Mohammed Hanif's "Our Lady of Alice Bhatt", Bangladeshi author Tahmima Anam's "The Good Muslim", Amitav Ghosh's "River of Smoke" and Uday Prakash's "The Walls of Delhi".

Thayil, a performance poet, song writer and guitarist, was given the Sahitya Akademi award last year for his poetry collection "These Errors are Correct". "Narcopolis" was also nominated for the 2012 Man Booker Prize.

Instituted in 2011, the first DSC award went to Pakistani author HM Naqvi for "Homeboy". Sri Lankan author Shehan Karunatilaka won it last year for his book "Chinaman".

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Penalty could keep smokers out of health overhaul

WASHINGTON (AP) — Millions of smokers could be priced out of health insurance because of tobacco penalties in President Barack Obama's health care law, according to experts who are just now teasing out the potential impact of a little-noted provision in the massive legislation.

The Affordable Care Act — "Obamacare" to its detractors — allows health insurers to charge smokers buying individual policies up to 50 percent higher premiums starting next Jan. 1.

For a 55-year-old smoker, the penalty could reach nearly $4,250 a year. A 60-year-old could wind up paying nearly $5,100 on top of premiums.

Younger smokers could be charged lower penalties under rules proposed last fall by the Obama administration. But older smokers could face a heavy hit on their household budgets at a time in life when smoking-related illnesses tend to emerge.

Workers covered on the job would be able to avoid tobacco penalties by joining smoking cessation programs, because employer plans operate under different rules. But experts say that option is not guaranteed to smokers trying to purchase coverage individually.

Nearly one of every five U.S. adults smokes. That share is higher among lower-income people, who also are more likely to work in jobs that don't come with health insurance and would therefore depend on the new federal health care law. Smoking increases the risk of developing heart disease, lung problems and cancer, contributing to nearly 450,000 deaths a year.

Insurers won't be allowed to charge more under the overhaul for people who are overweight, or have a health condition like a bad back or a heart that skips beats — but they can charge more if a person smokes.

Starting next Jan. 1, the federal health care law will make it possible for people who can't get coverage now to buy private policies, providing tax credits to keep the premiums affordable. Although the law prohibits insurance companies from turning away the sick, the penalties for smokers could have the same effect in many cases, keeping out potentially costly patients.

"We don't want to create barriers for people to get health care coverage," said California state Assemblyman Richard Pan, who is working on a law in his state that would limit insurers' ability to charge smokers more. The federal law allows states to limit or change the smoking penalty.

"We want people who are smoking to get smoking cessation treatment," added Pan, a pediatrician who represents the Sacramento area.

Obama administration officials declined to be interviewed for this article, but a former consumer protection regulator for the government is raising questions.

"If you are an insurer and there is a group of smokers you don't want in your pool, the ones you really don't want are the ones who have been smoking for 20 or 30 years," said Karen Pollitz, an expert on individual health insurance markets with the nonpartisan Kaiser Family Foundation. "You would have the flexibility to discourage them."

Several provisions in the federal health care law work together to leave older smokers with a bleak set of financial options, said Pollitz, formerly deputy director of the Office of Consumer Support in the federal Health and Human Services Department.

First, the law allows insurers to charge older adults up to three times as much as their youngest customers.

Second, the law allows insurers to levy the full 50 percent penalty on older smokers while charging less to younger ones.

And finally, government tax credits that will be available to help pay premiums cannot be used to offset the cost of penalties for smokers.

Here's how the math would work:

Take a hypothetical 60-year-old smoker making $35,000 a year. Estimated premiums for coverage in the new private health insurance markets under Obama's law would total $10,172. That person would be eligible for a tax credit that brings the cost down to $3,325.

But the smoking penalty could add $5,086 to the cost. And since federal tax credits can't be used to offset the penalty, the smoker's total cost for health insurance would be $8,411, or 24 percent of income. That's considered unaffordable under the federal law. The numbers were estimated using the online Kaiser Health Reform Subsidy Calculator.

"The effect of the smoking (penalty) allowed under the law would be that lower-income smokers could not afford health insurance," said Richard Curtis, president of the Institute for Health Policy Solutions, a nonpartisan research group that called attention to the issue with a study about the potential impact in California.

In today's world, insurers can simply turn down a smoker. Under Obama's overhaul, would they actually charge the full 50 percent? After all, workplace anti-smoking programs that use penalties usually charge far less, maybe $75 or $100 a month.

Robert Laszewski, a consultant who previously worked in the insurance industry, says there's a good reason to charge the maximum.

"If you don't charge the 50 percent, your competitor is going to do it, and you are going to get a disproportionate share of the less-healthy older smokers," said Laszewski. "They are going to have to play defense."

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Online:

Kaiser Health Reform Subsidy Calculator — http://healthreform.kff.org/subsidycalculator.aspx

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Alleged Doctor Killer Had Anger Issues, Friend Says

Jason Smith, the Philadelphia exterminator who police say showed up at the home of Dr. Melissa Ketunuti this week to solve her rodent problem before strangling her, was a problem child as an adolescent, a family friend told ABC News.

The family friend from many years ago, who asked for anonymity, said Smith, 36, had behavior and anger issues, and that he also liked to set things on fire.

After Smith and Ketunuti got into "some kind of argument" in Ketunuti's basement, he struck her, strangled her and set her on fire, according to police.

Smith reportedly admitted to the brutal slaying after hours of police questioning Wednesday night.
Smith told police that Ketunuti had "belittled" him, sources told ABC News affiliate WPVI-TV in Philadelphia

He snapped and apparently tried to hide any evidence by setting the 35-year-old doctor on fire with paper he lit in the kitchen, the station reported.

Philadelphia Police Department/AP Photo

Pa. Doctor Killing: Person of Interest in Custody Watch Video

Philadelphia Doctor's Murder Leaves Police Baffled Watch Video

"People like Mr. Smith basically walk around with a huge chip on their shoulder, and they feel so inadequate and so insecure that any perceived belittlement of them will set them off," ABC News consultant and former FBI agent Brad Garrett said.

Capt. James Clark of the Philadelphia Police Department said Smith's mood and clarity varied during his alleged confession.

"At some points, he was solemn. At other points, it was like he was in a fog," Clark said at a news conference.

Smith has been charged with murder, arson, abuse of a corpse and risking a catastrophe.

Ori Feibush, who owns a coffee shop near Ketunuti's street, said he and police pored over hours of surveillance video until they saw Ketunuti walking home from doing errands, with Smith steps behind her.

"Forty-five minutes later, we see this same guy walking past, but [he] looks a little more disheveled and he's got gloves on," Feibush told ABC News.

Police say that after the slaying, Smith circled Ketunuti's block twice, before heading off to another job.

Ketunuti was a doctor at the Children's Hospital of Philadelphia and had lived alone in the Graduate Hospital neighborhood of the city for about three years. Her family released a statement saying they are "devastated by this senseless act of violence."

"Melissa's friends from childhood, college, residency and elsewhere remember her many kindnesses, even during long hours, as well as her zest for life: traveling, running and spending time with friends and family," the statement said. "Melissa was a source of joy to everyone in her life. Her passing has left an enormous gap in our lives."

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North Korea threatens war with South over U.N. sanctions

SEOUL (Reuters) - North Korea threatened to attack rival South Korea if Seoul joined a new round of tightened U.N. sanctions, as Washington unveiled more of its own economic restrictions following Pyongyang's rocket launch last month.

In a third straight day of fiery rhetoric, the North directed its verbal onslaught at its neighbor on Friday, saying: "'Sanctions' mean a war and a declaration of war against us."

The reclusive North has this week declared a boycott of all dialogue aimed at ending its nuclear program and vowed to conduct more rocket and nuclear tests after the U.N. Security Council censured it for a December long-range missile launch.

"If the puppet group of traitors takes a direct part in the U.N. 'sanctions,' the DPRK will take strong physical counter-measures against it," the North's Committee for the Peaceful Reunification of Korea said, referring to the South.

The committee is the North's front for dealings with the South. DPRK is short for the North's official name, the Democratic People's Republic of Korea.

The U.N. Security Council unanimously condemned North Korea's December rocket launch on Tuesday and expanded existing U.N. sanctions.

On Thursday, the United States slapped economic sanctions on two North Korean bank officials and a Hong Kong trading company that it accused of supporting Pyongyang's proliferation of weapons of mass destruction.

The company, Leader (Hong Kong) International Trading Ltd, was separately blacklisted by the United Nations on Wednesday.

Seoul has said it will look at whether there are any further sanctions that it can implement alongside the United States, but said the focus for now is to follow Security Council resolutions.

The resolution said the council "deplores the violations" by North Korea of its previous resolutions, which banned Pyongyang from conducting further ballistic missile and nuclear tests and from importing materials and technology for those programs. It does not impose new sanctions on Pyongyang.

The United States had wanted to punish North Korea for the rocket launch with a Security Council resolution that imposed entirely new sanctions against Pyongyang, but Beijing rejected that option. China agreed to U.N. sanctions against Pyongyang after North Korea's 2006 and 2009 nuclear tests.

NUCLEAR TEST WORRY

North Korea's rhetoric this week amounted to some of the angriest outbursts against the outside world coming under the leadership of Kim Jong-un, who took over after the death of his father Kim Jong-il in late 2011.

On Thursday, the North said it would carry out further rocket launches and a nuclear test, directing its ire at the United States, a country it called its "sworn enemy".

U.S. Defense Secretary Leon Panetta said the comments were worrying.

"We are very concerned with North Korea's continuing provocative behavior," he said at a Pentagon news conference.

"We are fully prepared ... to deal with any kind of provocation from the North Koreans. But I hope in the end that they determine that it is better to make a choice to become part of the international family."

North Korea is not believed to have the technology to deliver a nuclear warhead capable of hitting the continental United States, although its December launch showed it had the capacity to deliver a rocket that could travel 10,000 km (6,200 miles), potentially putting San Francisco in range, according to an intelligence assessment by South Korea.

South Korea and others who have been closely observing activities at the North's known nuclear test grounds believe Pyongyang is technically ready to go ahead with its third atomic test and awaiting the political decision of its leader.

The North's committee also declared on Friday that a landmark agreement it signed with the South in 1992 on eliminating nuclear weapons from the Korean peninsula was invalid, repeating its long-standing accusation that Seoul was colluding with Washington.

The foreign ministry of China, the North's sole remaining major diplomatic and economic benefactor, repeated its call for calm on the Korean peninsula at its daily briefing on Friday.

"The current situation on the Korea peninsula is complicated and sensitive," spokesman Hong Lei said.

"We hope all relevant parties can see the big picture, maintain calm and restraint, further maintain contact and dialogue, and improve relations, while not taking actions to further complicate and escalate the situation," Hong said.

But unusually prickly comments in Chinese state media on Friday hinted at Beijing's exasperation.

"It seems that North Korea does not appreciate China's efforts," said the Global Times in an editorial, a sister publication of the official People's Daily.

"Just let North Korea be 'angry' ... China hopes for a stable peninsula, but it's not the end of the world if there's trouble there. This should be the baseline of China's position."

(Additional reporting by Michael Martina in Beijing; editing by Jeremy Laurence and Raju Gopalakrishnan)

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