2016-12-09

Chinese PPI Inflation 1.5pc for Month Of November

Chinese producer price inflation is now running at rates that annualize to double digits. Why would anyone hold paper yuan if this keeps up? Most Chinese and businesses haven't adjusted their yuan expectations. Can China stop yuan outflows into copper, cement, trucks, factories, steel, furniture, and even toilet paper? Chinese will hoard anything if it keeps value better than the yuan.
NBS: 2016年11月份工业生产者出厂价格同比上涨3.3%

2016-12-08

SAFE: 4 Types of Outbound Investment Being Scrutinized

SAFE is cracking down on what it determines to be bad, abnormal or dubious investments:
Reuters: China checking outbound investment deals amid forex crackdown
Authorities will target new companies that have invested overseas but are not believed to have real businesses, and firms deemed unable to sustain overseas operations, an official at the State Administration of Foreign Exchange (SAFE) told Xinhua.

They will also check overseas investment projects unrelated to parent companies' main business operations, and firms suspected of obtaining yuan funding via "abnormal sources" and illegally moving assets overseas, the SAFE official said.

Authorities will guarantee "real and reasonable demand" for foreign exchange for investing overseas while cracking down on fake investment activities, the official said.
More interesting is what SAFE told Xinhua. As part of its message that reserves and outflows are stable, it said there hasn't been a surge in companies or individuals seeking foreign exchange.
In this regard, the State Administration of Foreign Exchange on the 8th accepted an exclusive interview with Xinhua News Agency, said there is no surge in businesses and individuals purchase of foreign exchange.
While there's no doubt some capital flight taking place, a lot of outflows are pent up investment/diversification demand. Think about real estate: the Chinese government has no problem with massive investment in the sector because it produces domestic GDP. Any company pouring cash into Chinese real estate can look overseas though, and see relative bargains (plus geographic, economic and currency diversification) all over the globe. The demand for overseas investment is very high and has little to do with currency expectations.

The general public and most companies haven't yet jumped on the depreciation train. The outflows to this point are the new normal, not a panic or shift in fundamental expectations. China burned through nearly $1 trillion in reserves, will the public and most companies also stay pat when the next trillion is burned off, and USDCNY is heading for 8?

iFeng: 外管局:目前存在四类境外投资异常行为

China Prepares for Trade Negotiations: Credit Cards

SCMP: China orders banks to stop issuing dual-currency credit cards to stem capital flight
The People’s Bank of China has ordered the country’s banks to stop issuing credit cards that allow customers to transact purchases in dual currencies, in the latest move to plug regulatory gaps and stem capital flight while the renminbi continues to sink to an eight-year low.

Credit cards issued in China with Visa or Mastercard must be replaced with those issued by the country’s dominant currency clearing company China UnionPay Co when they expire, according to a November 23 report in the Communist Party’s mouthpiece People’s Daily newspaper, citing a recent undated meeting called by the central bank with Chinese lenders.
FT: Bank card groups to lose China market share
The world’s largest bank card companies are set to lose a share of China’s $8tn payment card market as they scramble to build their own clearing businesses.

China’s banks have halted all orders for co-branded credit cards bearing the logos of foreign card issuers such as Visa and MasterCard, according to Goldpac Group, a Hong Kong-listed company that manufactures about 30 per cent of credit cards for the Chinese market.

The move followed a notice from the People’s Bank of China that told banks not to renew the cards, Goldpac confirmed.

The co-branded cards, which sport foreign company logos alongside that of state payment clearing monopoly Unionpay, have been a trademark of China’s tight control over its capital account and payments made in renminbi. While the cards allowed foreign groups to process US-dollar denominated payments for Chinese customers travelling overseas, Unionpay has kept a firm hold on domestic currency clearing for card payments.
iFeng: 央妈对你手上这类银行卡宣判死刑!立即执行!
The meeting officially announced that the more than 10 years of double standard CUP cards are removed, for the future bank card clearing paved the way for the competition, reflecting the central bank pay system leadership visionary strategic thinking, the Sino-US relations under the framework of this plan to open up the bank card clearing market paving the way for Sino-US trade negotiations.

...At present, there are two kinds of chip card standard in the Chinese market, one is the international common EMV standard, one is the People's Bank of China PBOC standard. EMV standard is the international IC card organization - Europay (European card, has been MasterCard acquisition), MasterCard and Visa co-sponsored the development of financial IC card payment technical standards, has become a recognized global standard. EMVCo is a nonprofit organization that manages the EMV standard. There are currently six members, namely Visa, MasterCard, American Express, DISCOVER, Japan's JCB and China UnionPay (just joined in May 2013).

PBOC financial IC card leading group office director Li Xiaofeng said, PBOC from 2.0 to 3.0, to achieve the digestion of EMV to introduce a leap in independent innovation. To high-speed rail, technology, safety standards are not bad, "big country to have their own cards and standards." "From an international point of view, the highest level of market competition is the standard dispute." Li Xiaofeng said.

The current PBOC standard only UnionPay, and China UnionPay as a local card organization, in the regulatory support, VISA and MasterCard as a leader in international card standards, the standard of China's card has been disagree. "" From April 1, 2015 onwards, the issuing bank's new financial IC card should be consistent with PBOC3.0 specification "

"The new card requirements are PBOC3.0, should refer to the local currency bank card. Card organization of foreign currency credit card can still support its standard bank card issuance, but can not issue the currency card." In other words, the wild card organization once issued RMB Single-currency card, it must comply with PBOC standards.

"This is a major measure to protect China's financial security, optimistic view, first of all to help China UnionPay international, with China's spending power is strong, will inevitably supervise the acquisition of foreign institutions to accept the corresponding transformation of the environment, wild card organization for a large number Of China 's cardholders, but also to help foreign acquisition of institutional transformation, which is China' s bank card has become a major step in international standards, is the national level strategy.

2016-12-07

Chinese Reserves Fall 2.2pc in November

Chinese forex reserves fell 2.2 percent in November 2016. It was the largest drop since the 3.0 percent one-month slide in January 2016. November and December 2015 were also larger, as was August 2015. Before that, you have to go back to September 2014 and May 2012 to find similarly large declines. The year-on-year decline slowed from 11.5 percent in October, to 11.2 percent in November, due to the favorable yoy comparison. The yoy decline peaked (for now) in February 2016 at 15.8 percent.

2016-12-05

China Has 50T in Assets Earning Less Than 1pc

Zhu Rongji's son, Zhu Yunlai, a financial expert and former president and chief executive officer of China International Capital Corporation, delivered a keynote speech on the theme of "economic situation and structural reform."
We look at a few big industries, the coal, steel, electricity, transportation, real estate, these five industries add up to nearly 50 trillion of assets, but the basic rate of return of less than 1%, 50 trillion what is the concept? Our entire industrial assets are almost 102 trillion, which if the coal and steel belonging to the industrial part, they add up to almost 10 trillion. This is a big head in the economy, our profit margins, the rate of return in the systematic decline in debt ratio is on the rise. From here you can see the economic structure, especially through the system of macro statistics, we can see the impact is relatively large.
iFeng: 朱镕基之子谈改革:五大产业资产50万亿 回报率不足1%

The problem is as it ever was: there is too much debt backing assets with low ROI due to overcapacity. The path forward for the economy at large is to outgrow these sectors, but in the process, the economy will also outgrow the control of party members. Hence the snail's pace.

CASS: Top 10 Cities For Home Price Risk

The top 10 cities with the most overall risks are Shenzhen, Xiamen, Shanghai, Beijing, Nanjing, Tianjin, Zhengzhou, Hefei, Shijiazhuang and Fuzhou (limited to 35 large and medium-sized cities).

Vertical, the current housing market risk as a whole higher than in 2010. Valuation of the housing market is too high will be very likely to slow housing prices or even falling house prices situation. The current round of the property market overheated mainly concentrated in the first-tier cities and some second-tier cities and other hot cities, whether it is hot city housing prices or the degree of accumulation of risk, have more than 2009-2010 period, it is worthy of high vigilance.

...The report predicts that in 2017 the Chinese property market will usher in a short-term adjustment period, the overall fall will be steadily, but with uncertainty. Based on the China Housing Index, fundamentals, the reform of dividends and investment speculative demand conversion and other aspects of the forecast, the future adjustment of the magnitude and duration of the property market depends on the intensity of regulation and reform.
iFeng: 机构警示国内十个房价风险最大城市(名单)

2016-12-03

Hangzhou, Nanjing Sales Cut in Half, Beijing Adjusts

November homes sales fell 11 percent across Centaline's 54 city survey. Shenzhen sales fell 30 percent, while Hangzhou and Nanjing were halved.
11月楼市调控加码 这两个城市成交“腰斩”

Although sales have been fallen in Beijing as well, prices aren't expected to drop much. Sales and prices are being affected by tightening regulations, with many existing home listings disappearing. In one anecdotal example, there is an area that had 10 homes listed before, now it is 3, and the lower supply is helping support prices.
iFeng: 楼市需求依旧庞大 北京二手房言“跌”很难

2016-12-02

Reserve Decline Worse Than 1997 for China

China, is now playing a soul-stirring "capital outflow sniper", which is "China's economic defense."

The last time China faced the threat of significant outflows in the mid-1990s, it did not utilize capital controls, in part because it had much tighter controls to begin with. Now is a different story.

Only in the past two months, we see regulators shoot four times, the goal is clear, cut off the capital outflow through black channels: in October, UnionPay cut off Hong Kong insurance payment channels; November, bitcoin, huge foreign investment projects, Shanghai Free Trade Area strengthen the review of overseas investment channels. Almost all the central bank's big news are related to combat capital outflows.

We then lengthen the timeline, you will find that from the end of last year to stop some of Deutsche Bank's foreign exchange business, to November this year, the RMB exchange rate fluctuations every time, are accompanied by capital outflows warning and regulators war.

Regulators are so battle ready for capital outflows with rarely seen poewr, even in the mid-1990s when China faced a serious capital outflow, that was not the case.

This "capital outflow sniper war" continues, however, it can be said that results are slowing in the last six months: in the first stage, monthly outflows fell about $50 billion, and the last seven months were reduced by about $10 billion.
Why launch a war now? Some numbers to put the situation in context:
However, it is unexpected, accompanied by the overseas investment surge, the speed is almost out of control. Reflected in the foreign exchange reserves, in June 2014 reached its peak and after a sharp turn, two years later it has dropped dropped by $870 billion.

What is the concept of $870 billion? The total resources of the IMF total $660 billion. During the entire Southeast Asian financial crisis, the world's foreign exchange reserves fell $350 billion, and in two years, China's foreign exchange reserves shrunk by more than 20%. Is not difficult to foresee, if left alone, 10 years later the foreign exchange reserves would be dismal.
Reserves have already declined by more than in 1997 on a percentage basis and there hasn't been any crisis yet.

iFeng: 中国正在进行一场“资本外流狙击战”