2017-03-26

At Least 40 Cities Restrict Home Buyers

The count of cities passing some form of buying restrictions hit 40 overnight, with Foshan making it more difficult for non-residents to purchase property. Xiamen requires a 2-year holding period before a buyer can transfer a property to close a "gifting" loophole. The reporter in question counted 40 cities with restriction for the article, but notes that it is not a complete tabulation.

iFeng: 40余城发调控政策二三线成重点 楼市何去何从?

Hong Kong Renminbi Deposit Contraction

Data through January 2017.

SCMP: Hong Kong’s yuan deposits fall 46 per cent from their 2014 peak

2017-03-25

Real Estate Policy Still Tightening

Beijing is closing the divorce loophole.

SCMP: Beijing imposes fresh home purchase restrictions to close the ‘divorce’ loophole

The move is only the latest in an unending string of tightening policies across the country. Meanwhile, economists and officials turn their focus to monetary and credit policies.

iFeng: 楼市调控再次升级 严控信贷资金过度流向房地产
In response to rising house prices, Industrial Bank chief economist Lu Zhengwei in an interview with the people's financial, said the rapid growth of money and credit is one of the important reasons leading to high prices. Real estate needs include residential demand and speculative demand. Residential demand reflects the commodity properties of commercial housing, speculative demand reflects the financial properties of commercial housing. When the speculative demand is greater than the residential demand, commercial housing use of its strong value-added financial attributes, has become the most important asset pool to absorb the currency.

National Development and Reform Commission Director He Lifeng also in China Development Forum said that at present, a large number of funds into the real estate market, once led the first-tier cities and hot second-tier cities in the housing prices rose too fast, further pushing up the cost of real economic development. To solve the imbalance between the real estate and the real economy, we should strengthen the land reform through sound monetary policy, speed up the supervision and coordination mechanism, and properly handle the non - performing assets to ensure that there is no systemic risk.

He Lifeng believes that the need to control the excessive flow of credit funds to the real estate industry, increase the intensity of policy interpretation and information dissemination, strengthen the communication of market players, enhance policy transparency, to the community to release a positive signal to guide all aspects of the future development of a good enhancement Market confidence.

..."Real estate is a highly leveraged activity in the sharp rise in real estate prices to give special attention, our top priority is to control the lever, the lever to control at a suitable level, to improve the down payment is the most direct action to reduce the lever. "Lu Zhengwei said.
Rising home prices are a symptom of loose monetary policy.

Flashback to 2016.

FT: Is there a new Plaza Accord?
Foreign exchange traders are buzzing with talk of a new “Plaza Accord”, following the marked change in the behaviour of the major currencies after the Shanghai G20 meetings in late February.

Since then, the dollar has weakened, just as it did after the Plaza meetings on 22 September 1985. The Chinese renminbi has been falling against its basket, in direct contrast with the “stable basket” exchange rate policy that was publicly emphasised by PBOC Governor Zhou just before Shanghai. The euro and, especially, the yen have strengthened, in defiance of monetary policy easing by the ECB and the Bank of Japan.
Marketwatch: Did central bankers make a secret deal to drive markets? This rumor says yes
Rumors are flourishing that global policy makers made a secret deal at the G-20 meeting in Shanghai late last month. This “Shanghai Accord” to weaken the greenback was aimed at calming the financial markets, which had gotten off to an awful start to the new year, according to the chatter.
The rebound in commodities and Chinese home prices were all a result of China's accelerated credit growth.

Now they are doing the cleanup. As before, real estate proves stubborn and policy tightening looks increasingly likely to overshoot.

Marketwatch: China money market jittery as PBOC cash dries up
Borrowers and lenders remain edgy after the Chinese central bank held off injecting cash into markets for the second day in a row, ending a three-day streak of pump priming this week. As a result, short-term funding costs remain close to levels unseen in more than two years, testament to Beijing's resolve to reduce its economy's unhealthy reliance on cheap credit and ballooning debt.

"What the central bank is doing is a proactive choice, which sends a clear message to markets that they aren't getting what they want," said Ding Shuang, an economist with Standard Chartered in Hong Kong.
The pumping was a response to the return of the cash crunch, the symptom of tight (for China) monetary policy.

2017-03-24

Huishan Dairy Collapses, Liaoning Again

Caixin: China Huishan Dairy Shares Plunge 91% Before Trading Halted
Shares of China Huishan Dairy Holdings Co. Ltd.’s plunged 91.4% Friday before the company halted trading, in the largest drop ever recorded on the Hong Kong stock exchange.

The dramatic fall came after financial regulators in northeast Liaoning province held a meeting on Thursday afternoon with 23 creditor banks to discuss Huishan’s debts, people with knowledge of the matter told Caixin. The creditor banks include Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and Ping An Bank.

China Huishan Dairy is the country’s largest cattle farms operator.. It came under the media spotlight last December when its stock was shaken after being attacked by short seller Muddy Waters, which published reports alleging Huishan’s fraudulent and overstated revenue. Huishan denied the allegations.
There may be knock on effects:
In June 2015, Champ Harvest Ltd., the controlling shareholder of Huishan Dairy, pledged its shares in the dairy company as collateral to obtain loans from Ping An Bank. To date, Champ Harvest’s outstanding loans with Ping An Bank total 2.1 billion yuan, and 3.434 billion shares have been pledged.

2017-03-23

Cash Crunch Effect: China B-Shares Tumble in Afternoon Trading

iFeng: 上证B指午后放量大跌逾3% 多股逼近跌停
Fox Business: China Shares Inch Up Despite B-Share Slump
The index tracking the dollar-dominated Shanghai B-shares tumbled as much as 3.9 percent, before closing 1.7 percent lower, posting its worst day in two months. Shares traded in Shanghai and Shenzhen exchanges in foreign currency are B shares, while A shares are those denominated in yuan.

"The sharp drop in the Shanghai B-share market, is mainly due to investors' concerns over tight liquidity in the country's interbank market and stepped-up regulation on domestic financial institutions," said Yang Weixiao, an analyst with Founder Securities, adding the soured sentiment could spread to the A-share market.

MSCI Considers A Shares Again

Reuters: MSCI seeks feedback on potential China stocks inclusion
If the proposed new rules are applied, the number of Chinese stocks that would have to be included would drop dramatically by two-thirds to 169 stocks leading to a sharp drop in market turnover, a crucial source of costs for passive funds.

Bloomberg: MSCI Shuns Most of China's $7 Trillion Market in Index Proposal
Only 169 mainland China-listed companies will be considered for inclusion by benchmark gauges, down from 448 under a previous proposal, and all will be large-cap shares currently accessible to foreign investors through exchange links with Hong Kong. The weighting of yuan denominated stocks, known as A shares, would be just 0.5 percent of the MSCI Emerging Market Index, half the previous suggested level, according to a consultation paper published on MSCI’s website Wednesday.

2017-03-22

China Can't Deleverage, At Least Not Yet

Balding's World: Is China Deleveraging? Part I
If we combine loans outstanding to households and non-financial enterprises and government categories, we see that outstanding loans grew 12.6% in 2016. Nominal GDP grew at 8% so the great Chinese deleveraging actually saw leverage relative to nominal GDP increase if we account for the fastest growing sector of Chinese lending. In other words, if the Chinese credit market consisted of just nonfinancial corporates and households, outstanding debt is still growing 1.59 times faster than nominal GDP.

There is one final note here. This all relies on official data and makes no assumptions about its validity. The calculations here are nothing more complicated than basic math using official numbers. However, concern about official data is perfectly valid. For instance, at the end of 2015, Liaoning would have had an official bank loan to nominal GDP ratio of 121%. However, at the end of 2016 after the National Bureau of Statistics in Beijing adjusted its GDP downward after years of self admitted fraud, this changes the outlook enormously. At the end of 2016 with the adjusted GDP data has a bank loan to nominal GDP ratio of 169%.

This is just a sliver of the overall story but even by this narrow definition, there is no deleveraging taking place even with the most generous of definitions.
A test for Chinese deleveraging: is the GDP growth collapsing?

I'm using Steve Keen's simplified debt model to show how we should expect a major slowdown if China deleverages. See: Get ready for an Australian recession by 2017

Assume China's nominal GDP is 80 trillion yuan, and debt is 160 trillion yuan (200 percent of GDP).

If GDP grows 8 percent, that's 86.4 trillion yuan.
If credit grows 12.6 percent, that is 20.2 trillion yuan.

Total nominal demand was 106.6 trillion and 19 percent was credit.

In Year 2 China lowers credit growth to match nominal GDP.

China's GDP was 86.4 trillion. It grows 8 percent to 93.3 trillion.
Credit was 180.2 trillion, it grows 8 percent or 14.4 trillion.

Total nominal demand is 107.7 trillion, growth of 1 percent. Credit drops to 13 percent of total nominal demand.

China can't quickly deleverage and maintain its GDP growth rate. It wants to slow credit, slowly, and then let GDP growth do the work of growing out of the debt.

In the meantime, the PBoC is spending (printing?) resources trying to fight deflationary pressure from the dollar. China will need years to complete this process, but if the U.S. dollar bull market still has a year or two to go, the greatest risk of crisis is still ahead.