2012-03-31

Wenzhou pilot program will impact real estate

So says a independent property analyst in China.

Wenzhou Pilot Plan Seen As Curbing Property Prices
Nearly 20 percent of private funds in Wenzhou were usually channeled into to real estate investment, Xie Yifeng, an independent property analyst, said. The pilot plan would no doubt speed up the movement of money out of the sector, especially given continued government restrictions on property investment, Xie said.

...In Wenzhou, the country's unofficial capital of private enterprise, business-savvy locals are known for buying homes nationwide as investments. This is blamed for helping to inflate the property bubble.
Wenzhou cash speculates in property all over China. They are "group buyers" as well, pooling funds and buying up blocks of property in other cities. Speculation occurs at the margin with excess cash, therefore the removal of Wenzhou capital from the market would have a disproportionate impact on property prices.

Escalating racial tensions across the world; European right begins international organization

During rising social mood, society is open to new ideas, tastes, cultures and people. This reaches extreme levels as the social mood peak causes people to ignore potential problems, such as immigrants bringing cultures that are incompatible with their own. Thus, during peak social mood, people will only see the positive effects from a policy and not the negative effects, which is why the decline in social mood is necessary to correct policy mistakes. In the area of race and cross cultural relations, however, this can quickly turn into heated tension. Extreme xenophobia doesn't appear until social mood gets very negative, but tensions are already stirring up trouble across the globe.

It's all about race now
But now that it is being investigated by a special prosecutor, the FBI, the Justice Department and a coming grand jury, what is the purpose of this venomous portrayal of George Zimmerman?

As yet convicted of no crime, he is being crucified in the arena of public opinion as a hate-crime monster and murderer.

Is this our idea of justice?

No. But if the purpose here is to turn this into a national black-white face-off, instead of a mutual search for truth and justice, it is succeeding marvelously well.
Americans want to fight, thus many are picking a fight over the shooting death of Trayvon Martin. The anger coming from some segments of the black community are a reflection of social mood and the desire to fight, as is the media's decision to play up the conflict and cast it in a confrontational light. However, what is happening in the U.S. does not hold a candle to what is unfolding in Europe. America may see increased tensions and riots, but it will pale against the change in Europe.

Europe: Terror fuels immigration tensions (Socionomic rewrite: Social mood and immigration policy fuels terror)
An al-Qaeda-inspired gunman kills paratroopers and Jewish children in southern France. A far-right fanatic enraged by Muslim immigration guns down dozens of youths at a summer camp in Norway.

Two atrocities in the space of the year, coming from opposite ends of the spectrum, are raising fears across Europe that a growing climate of ethnic and religious hostility is inspiring extremist violence - and creating the conditions for deadly clashes.
The conditions for deadly clashes are a combination of immigration policy and social mood. It was the immigration policies during rising social mood that put people of extremely different cultures next to each other and did not require the newcomers to assimilate, instead allowing them to maintain their separate identity. Now that social mood is declining, instead of xenophobic ideas expressing themselves at the national level, they are expressing themselves at the individual and community level.
The attacks in France and Norway represent the most horrific extremes of two trends of intolerance troubling Europe: Strengthening far-right sentiment that has sometimes bled into the mainstream, and growing Islamic radicalisation in Europe's disadvantaged, immigrant-heavy neighbourhoods.

With Europe still stunned by last week's killings in Toulouse, France, a loosely knit group of xenophobic "defence leagues" plans to rally in Denmark on Saturday against what they call the growing Islamic presence in western Europe.
Yes, but notice the difference. It was government policy to import Muslims and their radicalization is not in reaction to the far-right. Instead, the rise of the far-right is in fact the result of the center-left/far-left's open immigration policies that ignored the threat of radical Islam. Now they have created the perfect powder keg with a foreign population that doesn't require any scapegoating. Had Europe imported millions of Chinese or Mexicans, there would still be some racial tension and opposition from the far-right due to social mood, but the extremists would need to manufacture scapegoats and crimes to further their case. In Europe, they let in enemies of their own civilization, and when the far-right attacks the situation, average people see the common sense in their argument. Thus, whereas anti-Chinese or anti-Mexican sentiment might remain on the fringes, anti-Islamic sentiment is widespread and Europe's left is handing this issue to the far right, essentially catapulting them into the mainstream of the debate. This is one reason why the right-wing in Europe will remain ascendant for years to come.
Volatile mood

Danish intelligence services expect up to 700 of these strident, anti-Muslim "counter-Jihadists". A counter-demonstration is anticipated to draw several thousand people. Police vow to keep the two groups apart. But the clashing views on display show Europe's heightened polarization.

"These terrorist events are creating sparks, and a small spark can set off a huge fire," said Magnus Ranstorp, research director of the Centre for Asymmetric Threat Studies in Sweden. "It can set off huge social polarisation, and this is what the terrorists want to achieve. Now there is an increased rightwing climate - the counter-jihad movement - feeding off these Islamophobic forces."

The mood is volatile, Ranstrop said, made more so by the methods of the killers - citing how in France, Mohamed Merah shot video of his attacks that was mailed to the Al-Jazeera television network.

"You have the counter-jihad movement, and on the other side you have an old al-Qaeda structure giving out directives for people to carry out their own personal jihads by solo terrorist activity. The manner in which you carry out these attacks matters: Recording them, sending films to Al-Jazeera, shooting people execution style, all to create polarisation and revulsion, to create an overreaction."
The media is generally left-wing and so is the political establishment of nearly all Western governments, so it is easy to see their thinking. In the mind of the European left, immigrant terrorists and the home grown radicals who oppose them, are equivalent. The reality is that when push comes to shove (and what we have seen thus far are only pushes, the shoves will come later when social mood declines sharply), the average European will side with their own people against foreign elements.

A key thing to remember is that there would be conflict no matter what because social mood is negative and declining. However, the fault lines, the specific cases are the result of previous policies during rising social mood. In the case of Europe, we might have seen an anti-capitalist movement given the failure of the banking system and the involvement of the Anglo-American financial system. Instead, immigration policy has created a much greater fault line because it transcends politics and economics and goes to the core identity of individual Europeans. As the previous article notes, this is not a nationalist movement but an identity movement:
The rally was organised by one of the rising forces of Europe's far-right scene - the Danish Defence League. It's backed by the English Defence League, which gained prominence in Britain amid urban rioting last summer.

Similar groups from Russia, Finland, France, Germany, Norway, Poland, Romania, and Sweden are expected.
The far-right is often accused of nationalism, but it's major political issue is now pan-European.

Ultimately, one cannot have an optimistic view for Muslims in Europe. If Prechter's social mood/Elliot Wave forecast is correct, we must assume the far-right will not only gain majority power in government, but also that xenophobia will reach illogical extremes to match the illogical openness of peak social mood. In the end, we may see Muslim religion banned or the outright deportation of Muslims from Europe with widespread popular approval.

Anti-fascists mobilise against English Defence League summit in Denmark
Hundreds of demonstrators will confront the English Defence League tomorrow as the far-right group holds its first ever European summit in a bid to set up a Continent-wide alliance of anti-Islamic organisations.
Who are the anti-fascist forces?
Last week, a group of around 5,000 people attended an anti-EDL concert. The Mayor’s Office said the concert was set up to show that Aarhus “does not want to be associated with extremist groups [which represent] everything we want to distance ourselves from”.
The establishment in Europe has positioned itself against the most powerful pan-European political force in a generation. Conflict is assured because the government will oppose this force, rather than channeling it by passing immigration restrictions or other laws aimed at sapping support for the far-right. Simply put, by the end of this phase of negative social mood, the far-right will no longer be the far-right, it will be the center-right.

Chinese stock market headed for wave 3 style plunge?

ZeroHedge has eyes on China with a late Friday post on the Chinese market.
As we write, it seems beyond dispute to say that the Chinese hierarchy is battling it out behind closed doors to determine the long term future of the regime and, by implication, the direction of the entire nation. In such momentous times, we would perhaps be foolish to think that the routine application of short-term countercyclical policy will bear overmuch weight in their counsels. Simply out, there is too much political infighting for any large-scale action to be taken as "Having moved against the state-capitalist left of old man Jiang and his Chongqing bruisers, surely the last thing Hu & Co. would want in their final months in office would be to unleash another oligarch-enriching orgy of speculation of the kind such a mass stimulus would be almost bound to foment."

In contrast, while most of the wave counts I've seen make allowances for declines, even to test the 2008 low, they all seem to place the previous high as a wave 1 top, with wave 3 coming next. While social mood remains negative, the market is still the indicator and an upturn in shares would not be immediately correlated with positive news.

Chinese microblog services shut down comments system; Nanfang Daily reports on coup rumors, 6 bloggers detained; Government criticizes microblog services

Sina Weibo is shitting down it's comments for 4 days in order to delete comments concerning recent events in China. Nanfang Daily newspaper reports on the rumors, blasting it across the front page, and says 6 bloggers have been taken into custody. I assume that the comment system has been shut down now that they have the source of the rumors, making it easier for them to track the spread of comments and to delete "sensitive" comments.
Weibo Notice

You microblogging users:
  more rumors and other illegal and harmful information, the micro-blog in the comment thread. In order to concentrate on cleaning up, at 8:00 on March 31st to April 3, 2008 the morning of 8 pm, to suspend the functions of micro-blog comments. After clean up, we will again open comments. The clean-up of the necessary information, in order to facilitate the exchange environment, to provide better understanding and understanding of the hope that the majority of users. Thank you for your support.

Sina microblogging
March 31, 2012
新浪微博公告

各位微博用户:
  最近,微博客评论跟帖中出现较多谣言等违法有害信息。为进行集中清理,从3月31日上午8时至4月3日上午8时,暂停微博客评论功能。清理后,我们将再开放评论功能。进行必要的信息清理,是为了有利于为大家提供更好的交流环境,希望广大用户理解和谅解。感谢大家的支持。
新浪微博
2012年3月31日

Here's the cover page for Nanfang Daily, March 31, 2012. Here's the link to today's paper: Nanfang Daily. If you get here late, you can use the archive button. It's on the left hand side above the page listing, there's a button that says data next to 按日期查询. Click that to change the date. Below is a screenshot.

Here's the same article, from ifeng.com: 6网民谣传“军车进京、北京出事”被拘 (6 bloggers who spread rumor "military vehicles enter Beijing, something's up in Beijing" have been detained)
CNN reports on the story as well: China crackdown on websites spreading coup rumors
Sina's Weibo and Tencent's QQ -- Chinese versions of Twitter, which is banned in the mainland -- will stop use of comment function on the popular sites to "clean up rumors and other illegal information spread through microbloggings," according to Xinhua.

The comments sections will be disabled until April 3. The microblog sites have "criticized and punished accordingly" by officials in Beijing and Guangdong, state med reported.

2012-03-30

Urine soaked eggs

If only April Fool's were a few days early, but this is not a joke, there are stories from March 2011 about this "delicacy."

童子尿煮蛋变童子蛋竟受追捧 摊贩小学收尿
Urine-soaked eggs a spring taste treat in China city
Basins and buckets of boys' urine are collected from primary school toilets. It is the key ingredient in "virgin boy eggs", a local tradition of soaking and cooking eggs in the urine of young boys, preferably below the age of 10.

There is no good explanation for why it has to be boys' urine, just that it has been so for centuries.

The scent of these eggs being cooked in pots of urine is unmistakable as people pass the many street vendors in Dongyang who sell it, claiming it has remarkable health properties.

"If you eat this, you will not get heat stroke. These eggs cooked in urine are fragrant," said Ge Yaohua, 51, who owns one of the more popular "virgin boy eggs" stalls.

"They are good for your health. Our family has them for every meal. In Dongyang, every family likes eating them."

It takes nearly an entire day to make these unique eggs, starting off by soaking and then boiling raw eggs in a pot of urine. After that, the shells of the hard-boiled eggs are cracked and they continue to simmer in urine for hours.
If this is a hoax, it is very a elaborate one because there's even a Chinese wiki entry on this at Hudong(互动): 童子尿煮鸡蛋

Western do-gooders piss off Chinese workers

Westerners love to talk about democracy and workers' rights, but when workers get in the way of a sweat shop narrative, it's better to ignore them and just focus on making the do-gooders feel good.

Apple supplier Foxconn cuts working hours, workers ask why
We are here to work and not to play, so our income is very important," said Chen Yamei, 25, a Foxconn worker from Hunan who said she had worked at the factory for four years.

"We have just been told that we can only work a maximum of 36 hours a month of overtime. I tell you, a lot of us are unhappy with this. We think that 60 hours of overtime a month would be reasonable and that 36 hours would be too little," she added. Chen said she now earned a bit over 4,000 yuan a month.
Behind the scenes of all the attacks on Chinese working conditions are the unions, looking to increase their relative competitiveness.

China slashed import taxes, balance of trade headed south

China OKs Measures To Boost Imports, Balance Trade
China's cabinet has agreed to temporarily lower import duties on energy and raw materials and boost financing for importers in key sectors to help reduce the country's trade surplus and ease trade frictions.

The State Council said in a statement posted on the government's website Friday it would encourage policy banks to provide financing for imports of high technology items as well as some resources, adding that boosting imports is crucial to achieving more balanced trade.
The move is aimed to ease some of the protectionist tensions.
China's vice commerce minister, Zhong Shan, said last year Beijing is facing severe trade challenges with the number of foreign trade disputes climbing. The latest data showed that 16 countries started a total of 60 investigations into Chinese products between January and November last year.

The cabinet said the move would also ease pressure on domestic resources and the environment as well as speed China's efforts at upgrading its technology.

Import tariffs for some consumer goods and components for strategic industries will also be lowered temporarily while China will expand its program of offering tariff-free imports for certain goods, the statement said.
Unspoken is that lower tariffs will lower prices and help keep a lid on inflation. Now let's see how the rest of the world responds.

Wen Jiabao's revenge

I have never believed Wen Jiabao is the best actor in China. Many Chinese complain that Wen says good things, but nothing ever happens. Instead, his reform ideas have been stopped by internal forces (even financial reform was stopped in the mid 2000s because it would threatened the SOEs controlled by party members) and that the recent political changes are part of a greater shift towards Wen Jiabao's ideas. This article in Foreign Policy gives a detailed background into Wen Jiabao and his rise to power.

The Revenge of Wen Jiabao
Responding to a gently phrased question about Chongqing, Wen foreshadowed Bo's political execution, a seismic leadership rupture announced the following day that continues to convulse China's political landscape to an extent not seen since 1989. But the addendum that followed might be even more significant. Indirectly, but unmistakably, Wen defined Bo as man who wanted to repudiate China's decades-long effort to reform its economy, open to the world, and allow its citizens to experience modernity. He framed the struggle over Bo's legacy as a choice between urgent political reforms and "such historical tragedies as the Cultural Revolution," culminating a 30-year battle for two radically different versions of China, of which Bo Xilai and Wen Jiabao are the ideological heirs. In Wen's world, bringing down Bo is the first step in a battle between China's Maoist past and a more democratic future as personified by his beloved mentor, 1980s Communist Party chief Hu Yaobang. His words blew open the facade of party unity that had held since the massacres of Tiananmen Square.
Must read for anyone interested in China.

H/T: Vox Popoli.

2012-03-29

Shenzhen signals major economic slowdown

If the data coming out of Shenzhen is any indication of a trend, a significant economic slowdown is already underway in China. Manufacturing leads the economy and any broad economic slowdown will be experienced first in the manufacturing intensive region in Guangdong.

Slowdown in Shenzhen mirrors national gloom (socionomic indicator right in the title)
Shenzhen, which has blazed the path of economic reform on the mainland for more than 30 years, has reported rare plunges in enterprise profits and trade in the latest sign that the country's economy is slowing amid global uncertainty.

The city's statistics bureau said on Monday that the profits of major industrial enterprises fell 3 per cent year on year in the first two months of this year, the Yangcheng Evening News reported yesterday. Their sales fell by 5.4 per cent.
The numbers are even worse at the factory level, with companies unable to take on new business due to high real estate and labor costs:
Chai Kwong-wah, president of the Hong Kong Small and Medium Enterprises General Association, said a survey had found that more than 40 per cent of its members planned to close their factories in Shenzhen and the rest of the Pearl River Delta.

"I started to run a toy factory in Shenzhen in the 1990s," Chai said. "But I've never seen such inflation before. I have to say that this year will be the toughest one for all factories, especially in the export-production industry. We see little hope. No government measures can save us."

Chai said that even though the euro-zone debt crisis was easing and manufacturers were not short of overseas orders, skyrocketing rentals and labour costs meant they would suffer immediate losses of 10 per cent to 20 per cent on taking up orders.
The shorts have done well in March, but this is likely the early stages of a larger move in the financial markets as people become aware of the situation.

Major financial reforms begin in China

A plan to allow Wenzhou residents to invest overseas is back on track. (See: Wenzhou overseas investment plan stopped for background.) Additionally, the residents will be allowed to create private loan companies in a sign of major financial sector reforms. This is the first "fallout" of the Bo Xilai firing—reform is back on track. China Daily has coverage in Wenzhou to pilot reforms
Wenzhou won Beijing's approval on Wednesday for a landmark financial pilot project that will allow residents of the coastal city to, among other things, invest privately overseas and set up loan companies.

At a State Council executive meeting chaired by Premier Wen Jiabao, the government selected Wenzhou in eastern Zhejiang province, a city with a deep tradition of entrepreneurship, to be a "pilot zone" for a series of financial reforms.

The decision was hailed as a "milestone" by Wang Jianhui, chief economist with Southwest Securities, as it showed the government's determination to lead "the reforms that are urgently needed".

Owners of private businesses welcomed the move. "I see a lot of new investment opportunities coming up," said Zhu Jianfeng, general manager of Gold Emperor Group, a Wenzhou-based shoemaker. "We will wait for the full details to emerge and then see what we can really do."

The State Council decision covered 12 major points, which include developing privately owned financial services, setting up village banks and rural financial co-ops and encouraging lending by State-owned banks to smaller businesses.

The government of Zhejiang province was required by the State Council to set up a working group to lead the implementation of the reform program and to work closely with the People's Bank of China.
This last bit is important. The People's Bank of China was a source of reform until about 2005, when reform stopped dead in its tracks and the Ministry of Finance reasserted its power. Previous reform attempts have been stopped, but this one seems likely to continue because the reformers just won a major political victory.

The Wall Street Journal also covers the news in China Tests Financial Relaxation in Wenzhou and goes into political details.
There was no indication from the State Council statement that the government was yet ready to move on interest-rate liberalization, even though central-bank Gov. Zhou Xiaochuan said recently that the time was "basically ripe" for such a move. The People's Bank of China reports to the State Council.

Early last year, the Wenzhou government proposed to give its locals more freedom to invest overseas, only to suspend the move due to a lack of consent by the central government. Wenzhou officials then worked out a new proposal—similar to the original one—and submitted it for approval as part of the broader plan to make the city a testing ground for financial reforms.

While it appeared that the government has now sided with Wenzhou, the State Council statement didn't give unambiguous approval, and it's unclear how much freedom the government is ultimately willing to give Wenzhou residents to invest overseas.

Chinese officials are buffeted by crosswinds. On the one hand, some in the State Council worry about large capital outflows as the economy slows. On the other hand, the central bank is continuing its drive to encourage Chinese businesses to invest overseas as part of its effort to diversify its $3.2 trillion worth of foreign-exchange reserves, by far the world's largest.

Mysterious booms are back

Stronger booms heard in Clintonville
Clintonville police say they received about 65 calls Tuesday night, from people reporting three or four loud booms. Officials say the calls came in from 10:35 until 11:40 p.m.

Authorities say the reports came from the same part of the city that has been experiencing the booms for more than a week, but there were also some reports farther west, including Clinton Avenue. Several callers told police that these booms were stronger than those from last week, but no damage has been reported.

2012-03-28

Survey of Chinese opinions on housing

ifeng.com carried out a survey on their website (十问 “总理房价”). It asked 10 questions of visitors and over 800,000 people participated (thus far). I have translated relevant portions below, click on the pictures to increase the size. Important results: the average respondent is between 30 and 35, which makes this a very good survey in terms of who would be buying homes. Over 80% of the respondents earn about ¥4,000 per month, which is livable in first tier city (most restaurants now pay more than ¥2000 per month for entry level staff) and decent in smaller cities. The results show that there's a great number of potential home buyers. In some places the responses are wishful thinking, such as the question on how much home prices should fall to reach a reasonable level, although later, respondents were split as to whether prices would fall to that reasonable level. Note that they also have no confidence in rising wages and don't believe government housing is the answer: they want prices to fall. Luckily for them, that is what the market will do if allowed, though unlucky for them if it massively slows the economy too.



Chinese booze stocks tumble; Maotai loses ¥14 billion in market cap thanks to government crackdown on waste

公款禁买高档酒 茅台市值一天缩水142亿 (Public money forbidden from buying expensive liquor, Maotai loses ¥14 billion in market cap in one day)

Although the government crackdown on bureaucrats buying high-end liquor will crimp sales, liquor stocks are still sought after by institutional funds. Some analysts believe the decline will bring in new buyers and others say the shares are reasonably priced. However, the estimated P/Es in the chart below look awfully high to me and those earnings are based on bubble-fueled spending. Jiugui (third from bottom on the chart), for example, saw earnings increase 142% on a 72% sales increase last year. (Jiugui means drunkard in Chinese)

This chart shows the stock symbol, name, closing price, change for the day, estimated P/E and return for the year. Maotai is the first stock listed.
As this one year chart of Maotai shows, yesterday's drop wasn't the worst suffered by the firm. News items do not drive share prices, social mood and investor psychology determines the direction and magnitude of price moves. Perhaps the move should have been bigger, since this is a major development, but investors may not believe the ban will take effect. Similar to how housing shares shrugged off the government's restrictive housing policies until the effects were clear to all.



Bo Xilai's allies continue to lose power

Another of Bo's men sidelined in Chongqing
Chongqing municipal people's congress chairman, Chen Cungen , has been removed from the southwestern municipality's Communist Party standing committee, local media said yesterday. It is the latest twist following the dismissal as party secretary Bo Xilai just under a fortnight ago.

Meanwhile, a campaign spearheaded by Bo that encouraged the singing of "red" or revolutionary songs, which was also criticised as a throwback to the days of the Cultural Revolution, appears to be being gradually phased out.
Red songs are not popular with ordinary Chinese, so this news will be welcomed. Also on a positive note for average citizens of Chongqing, they will be able to watch normal television programming once more:
On the red-songs front, the city's propaganda department head, He Shizhong, told lower-level heads from across the municipality at a meeting on Monday that there was room for improvement in a range of activities, including the reading of classic literature, the telling of revolutionary stories and the spreading of mottoes, the Chongqing Daily reported yesterday.

He was also quoted as saying that one of the priorities for Chongqing Cable TV was to boost its ratings and influence.

The broadcaster's ratings and revenue dropped significantly when Bo ran the city after it was ordered to drop popular prime-time series and commercials to make way for programmes extolling revolutionary ideals. Chongqing Cable TV will now run "red" programming once a week rather than every day. Station officials have also been quoted as saying that it would soon begin accepting commercials.

2012-03-27

Currency Wars: The Warring States Period; China should follow Germany's example: give up your currency to control the continent

The Economic Observer interviews Song Hongbing, a popular author with ordinary Chinese, but not accepted by mainstream Chinese economists. He argues that China should focus on integrating Asia before floating the yuan and that the U.S. is best position to win this round of the Currency Wars. Song wrote a popular book Currency Wars in 2007 and there have been several sequels. The wikipedia entry on Currency Wars gives a decent synopsis, along with criticism by economists and financiers.

Interview: "Currency Wars" Author
EO: What’s have you found?

Song: Based on a recent survey that I did at ETH Zurich University, we analyzed the equity structure of 37 million transnational enterprises and found that 147 of the biggest financial institutes exercise control over 37 million enterprises. Furthermore, there are 20 or 30 big holding groups behind these 147 institutions. This shows how the minority financial holding companies at the top of the pyramid are actually controlling most of the transnational groups in basic materials and energy.

The survey has proved my hypothesis in the book Currency War II. There were 60 families controlling over 60% industries in the US, despite their recent disappearance from the world fortune ranking since 1940. Why did they disappear, you may ask? Is it because of war? Keep in mind, however, there has been no war on U.S. soil since then. I have the sense that at that time the major and vital enterprises in the world were still controlled by a minority of families. Large banks and enterprises are actually very centralized. Many big financial families set up funds and donated their fortunes, especially after 1930. What they want is the control instead of the ownership. Although there might be some philanthropists, the common practice of setting up charity foundations doesn’t seem logical to me.
That survey linked in the quoted text goes to this article Revealed – the capitalist network that runs the world.

EO: The world is really messy now. Your fourth book is “The Warring States Period”. Who do you think will be the “winner”?

Song: According to the current situation, the U.S. and Europe are the first and second countries that are most likely to succeed. Comparatively, China is not yet at the same level. The competition for leadership of the world economy therefore is mainly between the US and Europe. Although China is also willing, the country isn’t yet as competent.
Song goes on to discuss China's strategy, which should be to focus on Asia until its domestic economy is large enough to support the internationalization of the yuan:
EO: In your supposed era of warring states, does China have a decisive role?
Song: I’m not so pessimistic about that. The core idea is that a large domestic market is the base for a country’s ascent. Some have mentioned the internationalization of the yuan, however it’s obvious that the yuan can’t become the world’s reserve money if China’s domestic market isn’t the largest in the world. The Chinese economy is dependent on exports, which means the currency will flow back when goods are exported. Japan and Germany both tried the internationalization of deutschmarks and yen. However, their share in the international currency never exceeded 7%, which is also because of their export-orientated economies.

This could serve as a lesson for China. A third of China’s GDP comes from its domestic market, which is only a ninth of the size of the American market. The best outcome for export-oriented countries can’t be better than was the case for the deutschmark or the yen.

What’s the strategic purpose of promoting the internationalization of the yuan? In my opinion, the answer is to replace the dollar. However, is it possible to guarantee an efficient supervision of yuan trading abroad now? The more yuan that flow abroad, the more dangerous it will be. The same applies when pricing the yuan. If the State Administration of Foreign Exchange and the People’s Bank of China set up the exchange rate at 6.36, while the deal in New York 5, which standard will the market follow? As there are many financial derivatives abroad, the number of the deals there may exceed those in Beijing. In this case, China may lose the pricing right.

This is precisely why I look into the past. Looking back, we can observe how the pound and dollar rose. When comparing the domestic market in the U.S. and Great Britain to the one in China, it’s impossible to argue that the yuan could replace U.S. dollar in the next 30 years. It would be better to promote an Asian currency and benefit from the indirect internationalization of yuan. However, there are also problems, such as how Asia should be integrated.
To read the rest of the article, where Song discusses what lessons the U.S. and U.K. have for China and how to integrate Asia, click Interview: "Currency Wars" Author.

Chinese developers rush to unload ¥5 trillion inventory

Chinese developers are putting 100% of their workforce into sales with inventory and debt pressure mounting, as ¥5 trillion in inventory weighs on their balance sheets. Inventory increased 50% in 2011 over 2010; the average inventory per developer is ¥10 billion.

Among them, China Merchants (000024.SZ) had inventory of ¥51.44 billion yuan, an increase of 33% over 2010; Vanke (000002.SZ) inventory reached ¥208.3 billion yuan, up 56%; Beijing Capital Development (600376.SS) ¥43.049 billion, an increase of 72%; Sino-Ocean (3377.HK) inventory is quite small, but the increase was very high, from ¥231 million at the end of 2010 to ¥487 million at the end of 2011, an increase of 111%.

Credit remain tight, trust loans are coming due and the inventory has become a nightmare for the developers. Ren Zhongwei of Beijing Normal University's Institute for Monetary Research estimates the inventory has a cost of capital of ¥345. In 2011, the property sector had profits of ¥500 billion, but this will fall in 2012 and that could put the industry close to break even.

Industry analysts say that after the "winter" comes the selling season. Sales dried up at the end of 2011 and into 2012, while prices declined. Now comes the rush to unload inventory and what I expect will be the waterfall price declines, as I wrote here:
To sum things up: home prices need to fall at least 20% in order for buyers to see their costs decline, due to higher interest rates and taxes. There's some local differences such as the high transaction tax in Beijing, but overall, it seems that 20% is a good rough estimate. On top of that, prices will need to fall at least another 5 to 10% to attract buyers who now expect price declines. Now we're talking about a 30% price decline as the baseline scenario! Markets always overshoot and China will be no different. Waterfall price declines are coming in 2012; local government and the banking sector will be severely impacted.
I do not have a wave count on Chinese home prices, but to put it into terms of Elliot Wave, wave 3 is coming. The "winter" of 2011 and early 2012 was wave 1, the recent thaw that's seen transaction volumes and some prices rebound is wave 2.

Source: 500强房企库存近5万亿 开发商进入全员卖房模式

Chinese banks start raising capital, again

China's banks need to replenish their capital after billions in bad loans were made the previous three years. First a look at recent earnings reports.

Slowing China growth hits CCB earnings, shares down
CCB (601939.SS), which is valued at $193 billion, said total non-performing loans (NPLs) rose almost 10 percent in the quarter, hit mainly by a deterioration in the manufacturing, real estate and retail sectors.

"They are trying to manage the quality of their loans very tightly, but NPLs is an issue the market is very concerned about and any tick upwards will not be good," said Patrick Pong, an analyst at Mirae Asset Management in Hong Kong.

"If the economy slows down, credit quality will naturally worsen," he said.
NPLs will jump as the economy slows, especially when real estate projects start to fail.

China Minsheng Bank in shares refinance
China Minsheng Banking Corp has jump-started its mega-refinancing deal that is expected to raise up to HK$11.3 billion to cover potential bad loans and satisfy the regulator's tightened capital requirements.

The share placement added to evidence that mainland lenders are hungry for capital infusions amid rising risks of a bad debt crisis.
The big question is whether foreigners will throw good money after bad:
Mainland banks have raised more than US$272 billion through bond and equity issues globally since 2005, according to data provider Dealogic.

Since late 2009, when Beijing unveiled its infrastructure-focused stimulus package, Chinese banks freely granted credits to state-owned companies to fund a construction spree.

2012-03-26

Chinese luxury home prices continue to decline, reaching nearly 50%; Aoyuan project faces cash crunch?

多豪宅项目价格松动 楼市隐现新一轮打折降价潮 (Luxury home prices slacken, a glimpse at the next wave in price cuts)

Aoyuan is in talks to sell a 51% stake in its Chang An development in Beijing.
The board of directors (the “Directors”) of China Aoyuan Property Group Limited (the “Company”, together with its subsidiaries, the “Group”) wishes to state that the Company has been approached by and is in the process of negotiations with a third party independent of the Company and its connected persons (as defined under the Listing Rules) in relation to a possible disposal of the Company’s entire interest in a project company, representing 51% of the entire equity interest in a property development project of Chang’an Ave in Beijing, the PRC. The possible disposal would result in a notifiable transaction. However, such negotiations are still in progress and no formal agreements have been concluded in the meantime. Further announcement will be made in compliance with the Listing Rules as and when appropriate.
The linked Chinese article above speculates that the sale is due to Aoyuan's (3883.HK) debt levels and the firm's cash needs. The firm denies this is the reason, but the article states that Aoyuan's cash fell 60% from 2010 to 2011, while short-term debt increased 48%. Thus, at the end of 2011, Aoyuan had ¥877 million cash on hand and ¥2,616 million in short-term bank loans. Aoyuan's current ratio fell from 2.0 in 2010 to 1.5 at the end of last year.

Aoyuan's Chang An property only sold ¥1 billion of property since 2010 and no second round of sales has been announced. Against this sales total are bank loans, stock loans, unpaid salaries and unpaid suppliers amounting to ¥3 billion.

Luxury home prices are falling generally, with some declines reaching almost 50%. For example, in Shanghai's Lujiazui district, a new Sun Hung Kai (0016.HK) property hit the market at ¥160,000/sqm , well below expectations of ¥300,000/sqm and below neighboring properties that sell for ¥170,000/sqm. Other luxury properties in the city are down 20-30% in price.

Centaline says that the 37 listed property firms sported debt-to-equity ratios of 72.3% at the end of 2011. Previously, firms used the rising property market to bring down debt levels, but now they've hit a wall as the property market declines and transaction volume falls. WIND's 48 listed firm average shows that these firms had negative cash flow in 2011, to tune of ¥1.25 billion. The net cash position of these 48 firms also declined by ¥4.26 billion last year. These numbers are all headed in the wrong direction as year-on-year sales numbers show 2012 is shaping up worse than 2011.

Average debt-to-equity ratio of Chinese developers is 68%, a small step to the 70% troublezone

The financial position of Chinese developers continues to deteriorate. Chinese financial markets focus on a debt-to-equity ratio of 70% as a sign for when developers may begin having trouble repaying their debt.
地产500强负债均值68% 距70%极限仅半步
According to WIND Information and Statistics, as of noon March 21, Shanghai and Shenzhen A total of 32 real estate companies announced the 2011 annual report. Among them, 21 the amount of the liabilities grew 10 liabilities rose by more than 30%, 9 gearing ratio exceeding 70%.
32 Housing prices liabilities amounted to 481.84 billion yuan, compared with 370.652 billion yuan in 2010, an increase of 111.188 billion yuan, an increase of 30%. Among them, the total liabilities of the leading housing prices Vanke 228.376 billion yuan, accounting for 47% of the total liabilities of housing prices in 32, its assets and liabilities increased from 75% to 77%. Offshore real estate About News Total liabilities increased from 59.6 billion yuan at the end of 2010 to 71.5 billion yuan at the end of 2011.
A 30% increase in liabilities is typical at the end of a bubble, as asset values rapidly increase.
A sharp rise in asset-liability ratio at the same time, most developers inventory turnover decreased significantly, the inventory period last year also up sharply. The data show that 21 of the company's stock rose, accounting for 65.63%. Vanke A, China happiness 7 Housing prices late last year, inventory rose by more than 30%.
I previously discussed some inventory and debt/equity ratios in Chinese real estate market on the verge of explosive price declines and Chinese developers debt/equity ratios as of Q3 中国开发商的资产负债率.

Hong Kong election the closest since the Asian financial crisis; French election tightens

Another election is in the books, this time in Hong Kong. Yet another contested election, this time with comparisons to the previous trough in social mood, the Asian financial crisis.
C.Y. Leung seeks unity after divisive poll
Chief executive-elect Leung Chun-ying called for unity yesterday and promised to defend Hong Kong's core values after winning a narrow victory in the most controversial leadership contest since 1997.

...Leung saw his own support on the 1,193-strong Election Committee climb steadily as that for Tang fell amid scandals over marital infidelity and unauthorised renovations to a Tang family home in Kowloon Tong.

Yet despite winning in the first round with 57.7 per cent of the votes available - and 61 per cent of those actually cast - his victory was unconvincing, and the narrowest since the first chief executive, Tung Chee-hwa, won 320 of 400 votes in 1996. In 2007 Donald Tsang Yam-kuen was re-elected to his current term with 649 votes from the 796-strong Election Committee, or 81.5 per cent.
France's election also seems to be tightening in part due to the terrorist attacks last week.

Hollande hits back at Sarkozy on security
The run-up to the first round of voting in the French presidential election on April 22 is set to prove a gruelling test for the opposition Socialist candidate, whose long-standing lead in the opinion polls is under pressure from both Mr Sarkozy and Jean-Luc Mélenchon, the candidate of the hardline Left Front.

In a sign of the increasingly bitter tone of the campaign, Mr Sarkozy was quoted as calling Mr Hollande “nul” (or “useless”) in a Le Monde magazine profile. “He’s no good and it’s beginning to show,” said the president.

Mr Sarkozy scents a breakthrough – buoyed by a poll showing 74 per cent support for his handling of the crisis over the killing of three Jewish children, a Jewish teacher and three Muslim paratroopers by the self-styled Islamist terrorist Mohamed Merah, who later died in a shoot-out with police.
Before, Sarkozy was under threat from the right-wing National Front, now the socialist candidate is also under threat from a left-wing party. Without doing a detailed analysis, here's a rough look at how social mood may affect the election. If the CAC 40 climbs to it's post 2008 highs around 4000 (or at least maintains the current uptrend), that would be a good sign that Sarkozy will be reelected. If the CAC 40 declines towards 3200 or the current uptrend breaks, then Sarkozy's chances will fall with it. This late in the game, there's little chance for an outsider victory, but if for some reason the CAC tumbles to fresh lows (which would require a 20% drop from here), either the left or right could knock out Hollande or Sarkozy in the first round of voting.





2012-03-25

Chinese villagers demand gold; 100g of gold and 100g of silver in dividends delivered to every resident


Changjiang village and its residents are the collective owners of the Jiangsu Xinchangjiang Group, a top 500 company in China, and have raked in benefits in the past including private villas for every family, stock dividends, and a previous silver and gold giveaway in 2010. Last week’s giveaway fulfills the promise made by party chief Li Liangbao to get gold into the hands of every villager. Gold was specifically requested by the villagers given its investment purposes and reputation.

At around 400 RMB ($62.50) per gram of gold at today’s market price, each resident received a windfall of roughly 40,000 RMB ($6,250). The largest amount given to a single household was 700 grams, or roughly 280,000 RMB ($43,750).

Given the precious cargo of the barge used to ferry the precious metals up the Yangtze, the entire operation was shrouded in secrecy. Before the gold arrived, villagers received a secretive message along with a safe, sparking rumors their gold was arriving soon. Sure enough, two days later the barge arrived and villagers quickly queued to receive their share.

H/T: ChinaSmack. Jiangsu Village Gives Every Villager Gold and Silver Bars
Original Chinese article: 江苏长江村给每个村民派发100克黄金100克白银

It is stories like these that serve as a good reminder to Western people that they are not the center of the world anymore. One can often find anti-gold standard sentiment from the likes of Warren Buffett and Ben Bernanke, to name two of the most prominent. This post from Marignal Revolution and the ensuing comments Selgin reviews Bernanke on the Gold Standard show much of the negativity surrounding gold. The purpose here is not to debate the merits of a gold standard and how it would work, only that as 2.5 billion Indian and Chinese people make their way up the development ladder, what they think matters more than what economists and leaders in relatively declining Western powers think. If the Asians overvalue gold, it may be that Western nations would be wise to sell overvalued gold into Asian hands and rely on other monetary standards, but at this point, the anti-gold sentiment, from an investment standpoint is overdone. (Though short-term we could see a significant reversal if Chinese buying is hampered by slower growth.

2012-03-24

Yen trouble is bad news for China

Andy Xie is looking at Japan's mess and considers the impact for China.

The Yen's Looming Day of Reckoning
Japan's nominal GDP contracted 8 percent in the four years to the third quarter of 2011, and six percentage points of that was due to deflation. Without increased government expenditure, the contraction will be one percentage point more. Japan has not seen this kind of sustained deflation since the 1930s.
...A yen collapse will impact China and South Korea most, just like in 1998. It will trigger substantial weakness in their industries. If a banking system succumbs, the shock can bring down an entire economy, as South Korea's experience in 1998 demonstrates.
Both China and South Korea have weak banking systems. South Korea's banking system is one of the most leveraged in the world due to high level of household loans. In 1998, a similar shock sank its banking system that was overleveraged with industrial loans. Now it is overleveraged with household loans. A shock could sink it again.

Overinvestment and a property bubble make China's banking system very vulnerable to such a shock. Unless China substantially increases the capital in its banking system, a big yen devaluation could cause China's banking system to sink. China suffers from overinvestment and a property bubble, as Southeast Asia and South Korea did in 1997. In terms of the magnitude of leverage, China's situation is much worse. Hence, a yen devaluation could wreak havoc to China's economy.

2012-03-23

Social mood and the political blame game

When there is violence that is seen as politically motivated, the right-wing often takes the blame because the right-wing is out of power in the West (and most of the world). The Western world exists in a left-wing political order established centuries ago and right-wing governments (monarchies and non-universal suffrage republics, as two examples) have been dying out ever since. However, the right-wing doesn't look so weak in Europe anymore. Toulouse: The Dark Side of Diversity
As the gunman had targeted a Jewish school and the bullets were identical to those used in the murders of two North African soldiers and one black soldier, suspicion fell on some neo-Nazi racist.

And in France’s tight presidential campaign, left and center moved swiftly to exploit the atrocities by charging the French right with creating an atmosphere in which such racist horrors can occur.

...When John F. Kennedy was assassinated by a Marxist in Dallas, the Goldwater right was charged with creating an atmosphere of hate that had made it likelier to happen there. When Rep. Gabrielle Giffords was shot by a crazed gunman who wounded a dozen others and slaughtered six, moral responsibility was laid at the feet of Sarah Palin.
But then the true story came out shortly thereafter:
Unfortunately for the French left, however, by Wednesday, the mass murderer had been identified as a homegrown Salafist jihadi and self-styled member of al-Qaida who had spent time in Afghanistan and Pakistan and been under surveillance for years by French intelligence.

Le Pen seized on the news to blast the left, which had sought to blame the atrocities on her, and charged the French government with underestimating the Islamist threat and being lax on national security.

...“The threat of Islamic fundamentalism has been underestimated. ... (I) have been talking about this for months and months, and the political class has rejected (me). Some are going to have difficulty explaining themselves, but I have a clear conscience.”
The left is losing power in Europe after gaining power for centuries and reaching extreme dominance at the turn of the 21st century. In a situation such as this in America, where the left is still more dominant, the right still ends up taking the blame. Although Gifford's shooter was crazy, the left still blames Palin and the Tea Party for their rhetoric and tone. In France, this strategy is backfiring because the right is ascendant.

Mystery booms solved?

USGS: Micro-quake near Wis. city bothered by booms
The U.S. Geological Survey said the 1.5-magnitude earthquake struck Tuesday just after midnight in Clintonville, a town of about 4,600 people about 40 miles west of Green Bay.

Geophysicist Paul Caruso told The Associated Press that loud booming noises have been known to accompany earthquakes. It's possible the mysterious sounds that town officials have been investigating are linked to the quake, he said.
Residents and even teh geophysicist quoted in the article are skeptical that it caused the sounds, but there's at least an explanation now. Previous coverage here and here.

2012-03-22

End of The Road: social mood and economics

This is a clip from a new documentary End of the Road: How money became worthless. Early in the clip their is a mention of the mood on Wall Street, "something isn't right." Consider the failure of the central bank and current policies in light of social mood as you watch this video.

End of the Road Documentary Trailer from Tim Delmastro on Vimeo.

Mysterious booms update

Wis. town longs for relief from mysterious booms
The strange disturbance sounds like distant thunder, fireworks or someone slamming a heavy door. At first, many people were amused. But after a third restless night Tuesday into Wednesday, exasperation is mounting. And some folks are considering leaving town until investigators determine the source of the racket.

...Sharon Binger said the disturbance has left cracks in her basement walls and floor, and that they're getting worse. She said her insurance company won't pay for the damage until she knows what caused it.

"This is an issue," she said, demanding answers from officials at the meeting. "There is something else going on."

Kuss urged Binger to write down when the cracks occurred and promised to send officials to the woman's home to look over the damage.

Debby Ernst has not heard the sound or felt the tremors but said she is still considering going elsewhere until the mystery is solved.

"It worries me. I'm scared," Ernst, a gas station cashier, said in a phone interview. "Who's to say it ain't going to get worse?"
Note the last comments there. A person who hasn't heard or seen anything is worried and scared. The story by itself isn't driven by social mood, it seems as though something is going on in the town. However, this story is a microcosm of society and reflects how social mood spreads. The national coverage of these mysterious events is what makes it interesting from a socionomic perspective.

There is finally a scientific explanation for the booms that hasn't been ruled out:
However, he speculated that water and granite could hold the key to the mystery. Granite has small cracks that water can fill, but if the underground water table falls especially low, water can seep out, leaving gaps that cause the rocks to settle and generate loud noises.

"Maybe the very dry winter caused more water to be removed from the water table, either through pumping or natural flow," he said.

Yuan has a big one-day move, but forwards head in the opposite direction

The renminbi had a volatile day of trading, gaining 0.02 versus the U.S. dollar on the day. Dow Jones Newswire reports China Yuan Up Late On PBOC's Unexpected Stronger Guidance
China's yuan rose against the U.S. dollar Thursday, after the central bank guided the yuan unexpectedly stronger via a daily reference rate in a bid to curb recent selling pressure on its currency amid renewed concerns about the country's economic outlook and capital outflows.

..."The PBOC may want to use the stronger fixing to boost international investors' confidence in the yuan and China's economy, especially as worries about capital flight are growing again," said a trader with a foreign bank in Shanghai.

...Offshore, one-year dollar-yuan nondeliverable forwards rose to 6.3460/6.3510 from 6.3315/6.3415 late Wednesday, and implying a 0.7% decline by the yuan against the dollar over the next year.
Below is the one-day chart and the three-month chart. I added a line on the three-month to show today's gain.



Coup rumors swirling in Western press; in China not so much

The Western press is eating up coup rumors, but what's happening is a less than smooth leadership change. Western media outlets are running with the story, but there's no supporting evidence in China and the rumors haven't spread. Instead, where there is some rumored discussions, it is over the fate of Bo ally Zhou Yongkang.
Inside the Ring: Beijing coup rumors

Another posting quoted internal sources as saying senior Communist Party leaders are divided over the ouster of Mr. Bo. The divide was said to pit Prime Minister Wen Jiabao and against party security forces and Minister of Public Security Zhou Yongkang.

Late Wednesday, another alarming indicator came when Beijing authorities ordered all levels of public-security and internal-security forces under Mr. Zhou to conduct nationwide study sessions, although Mr. Zhou’s name was not on the order - a sign his future may be in doubt.

Additional references on Chinese social media included vague mention of high-level party political struggles and related police activity in Beijing.

One posting referred to a mysterious atmosphere in Beijing and a reported shooting Tuesday night. The posting was quickly censored by authorities.
Here's the Chinese news on the study sessions, which will be conducted in every province, city and county: 中央政法委将集中培训各地3300名政法委书记 (Central Political and Law Commission will focus on training all 3300 Politics and Law Committees). Google translation:
The first training will be held in Beijing next week

Learned from the Central Political and Law Commission in the first half of this year, the country will place province, city and county three Party Politics and Law Committee secretary of the Central Political and Law Commission for centralized training, in-depth study and implement the scientific development concept and the "two sessions", the National Political Work Conference, further enhancing the political awareness of Politics and Law Committee secretary, and overall awareness, sense of responsibility, legal awareness and honesty and awareness, improve their level of competence of the leadership, management, political and legal work. The first training will be held in Beijing next week.

Responsible person of the Central Political and Law Commission the ranks guidance Room 21, said in an interview with reporters, the Central Political and Law Commission decided to focus on the training of local party committees Politics and Law Committee secretary, in-depth study and implement the scientific concept of development, promoting the need for the Rule of Law is to strengthen and innovation social management and further improve the comprehensive management work of the new situation under the political and legal needs, but also for the local party committee after the political and legal which has Committee Secretary adjustment changes the actual organized, Strengthening Local Party Politics and Law Committee the building of leading bodies and cadres, to promote the major initiatives of the scientific development of political and legal career.

With the continuous development of our economy and society, the test of political and legal work and law enforcement teams faced an increasingly grim, the increasing workload of the tasks undertaken, increasing demands of the masses. Especially in recent years, the central law enforcement authorities, further promote the resolution of social conflicts, social management innovation, fair and honest law enforcement three focus on ideology and operational capacity of the majority of police officers and men put a higher demand. Firm to build a political, operational proficiency, good style, and impartial enforcement of high-quality judicial ranks, is an important foundation for promoting the scientific development of the political and legal career. Politics and Law Committee secretary of the local Party committees at all levels is both implement central decisions and arrangements of political and legal work of the organizers, but also to promote the local law-enforcement work carried out in depth the commander, or political and legal construction of the contingent leader and leader, shoulder to political direction, maintaining social stability, to maintain fairness and justice, and safeguarding the interests of the people, to grasp the major political and legal construction of the contingent liability.

"Through learning and training, the focus on resolving the 'what, how dry' problems so that the local Party committees at all levels Politics and Law Committee secretary to thoroughly study and understand the decisions and arrangements of the CPC Central Committee and State Council on Political comprehensive management work, to further deepen the comprehensive management work to the political and legal situation new understanding of the task to further deepen the understanding and innovative social management guiding ideology, basic principles and objectives and tasks, and further deepen the understanding of job responsibilities, accurately grasp the overall situation, dealing with complicated situations, in strict accordance with the law and do mass work. ability to co-ordinate planning political and legal work, and ability to coordinate to solve major problems, better shoulder of socialism with Chinese characteristics, builders, and defenders of the sacred mission to lead the majority of police officers and men. "the official further said.

According to reports, the week of the first training classes will be held in Beijing on March 26. The training will take special counseling, on-site teaching, exchange of experiences, watch feature films, a combination of group discussion, the focus on the situation and tasks facing the political and legal work to strengthen and innovate the public administration, local party committees Politics and Law Committee secretary's job responsibilities and capabilities quality to carry out teaching.

It is reported that the National Local Party Politics and Law Committee secretary of the large-scale centralized training from the end of April. By then, there will be three places of more than 3,300 provincial, city and county party committees Politics and Law Committee secretary to attend the training.
This is not the sign of a coup. Rather, it is a sign that there is some uneasiness about the leadership shakeup underway and this training session will calm nerves and get everyone on the same page. The coup rumors are just that, and even the Epoch Times reported that tank photos posted on Weibo were fakes.

It makes sense that Zhou Yongkang could see his power reduced or even be removed from office, since he was a big supporter of Bo Xilai, but there's no evidence of that yet, aside from the fact that his name wasn't on this training order.

What all of this does show is that Beijing's secrecy can sometimes backfire, but more importantly, that social mood is negative and almost no one is immune. Nearly everyone feels broader social mood to some degree because they interact with people. Even if the leaders of a nation are walled off from the public, they still interact with family and friends who have family and friends, etc. There's anxiety up and down the leadership chain in China because it is a reflection of social mood. People are concerned about the real estate market, their investments, the economy—even the price of gold is down. It is in the context of negative social mood that the political transition became a messy affair.

Looking farther back, it was peaking social mood in the mid-2000s that made leaders move away from reform and assert greater political control over the economy. When times are good, reforms can be delayed because people want to get along and compromise. It is the hard-nosed reformers who lose during this period. A one-to-one comparison of China and the United States is not possible due to differing political systems, but the surprising rise in support for Ron Paul is not dissimilar from the rising power of the reformers in Beijing and their political enemies also share similarities.

2012-03-21

Mysterious missiles, mysterious explosions and now mysterious booms

There's always "mysterious" new stories floating around, but they are hitting with greater frequency due to the negative social mood.

Mysterious booms baffle officials in eastern Wis.
Local resident Al Miller said he's been hearing rumblings for a couple weeks but chalked it up to thunder or didn't think much of it. But an especially loud boom woke him around 3 a.m. Monday.

"My house shook and it was just like a shock," the 71-year-old said. "I got out of bed and was like `Wow.' I thought one of my trees fell onto the house."

When he went outside and saw the trees still standing, he also noticed his neighbors' lights popping on because they'd heard it, too.

Harold Tobin, a University of Wisconsin-Madison seismologist, said there are similar reports of booms in different parts of the U.S. and world from time to time. Sometimes they're explained, sometimes they're not, he said.

"I'm as intrigued and as puzzled as other people are," he said Tuesday.

2012-03-20

Financial firm fails in Beijing

Take out a loan from a bank, using a guarantee from a credit firm. Use part of the money to make short-term, high-yield loans to said firm. That firm then loans high-interest money to pawn shops.

Fool's Gold Behind Beijing Loan Guarantees
The domino effect began in January when bankers reacted to rumors of a liquidity crunch at one of Beijing's most prominent loan-guarantee firms, Zhongdan Investment Credit Guarantee Co. Ltd.

Several banks that cooperated with Zhongdan smelled trouble and started calling loans they had issued to companies backed by the firm.

At the time, Zhongdan counted more than 300 clients and 3.3 billion yuan worth of loan guarantee contracts, according to the firm's President Liu Hui.

The next domino fell when the creditor companies, seeking to appease the banks, turned to Zhongdan for help repaying the called loans.

But Zhongdan executives balked, and the domino effect accelerated as companies teetered under bank pressure and the city's business community shuddered with credit freeze fears.

Now trying to sort out the Zhongdan case are the loan guarantor's executives, its hundreds of business clients, some of China's top banks, and officials with Beijing's Municipal Finance Bureau and Banking Regulatory Bureau.
The joys of subprime lending at the end of a credit bubble.
An executive for a building materials manufacturer that signed a contract with a Zhongdan subsidiary, for example, said the guarantor forged documents to obtain bank loans.

To nail one loan, he said, Zhongdan formed a shell building materials supplier and wrote a fake contract between the supplier and his company. The document was presented to the bank, which approved the loan. Zhongdan later de-registered the phony supplier.

Another business owner surnamed Fang told Caixin most of Zhongdan's clients willingly participated in its wealth management schemes, sometimes letting the firm use every bit of the borrowed money to invest and earn up to 18 percent interest. Investment targets were not specified.
The article goes on to say this type of behavior went on for years. It would have been relatively easy in 2009 and 2010, when the government was urging the banks to lend. The sheer volume of credit allowed unqualified borrowers to slip through the cracks, including what may be a significant amount of fraud. Big things have small beginnings.

Chinese and Americans agree: oil prices are too high; Beijing prices beat highest U.S. prices

The cover story on the DrudgeReport and the business section of the Beijing Times are exactly the same on March 20. Chinese prices have risen steadily thanks to the rolling off of price controls. I believe Drudge found one of the most expensive gas stations in America, but the price of the V-Power, which I believe is 93 octane, comes to about ¥7.85, less than the ¥8.33 in Beijing.



Fourth Update: Bo Xilai arrested? Chinese text of audio recording

The underlined sections are the important ones, where the senior officials are told of Bo Xilai's anger at Wang Lijun's investigation and subsequent events.

BBC has an article discussing the audio: Audio sheds light on sacking of China's Bo Xilai


Third Update: Earlier today I saw a rumor that turned last night's weibo posts on a possible detention and questioning of Bo Xilai into a coup. The source was the anti-communist party Falun Gong paper, Epoch Times, which I take with a dump truck of salt. Coup in Beijing, Says Chinese Internet Rumor Mill. Now it showed up on ZeroHedge: Andy Lees On China Coup Rumors.

The rumors are just that, but they do have some information value because they tell us about the social mood in China—negative.

Second Update: While the original post (pasted below) remains a rumor, we can now at least understand how it started.

New Details Emerge of a Top Chinese Official’s Removal
The report also states for the first time that the Chongqing police chief who set off that earthquake — Mr. Bo’s trusted aide, Wang Lijun — had sought political asylum when he fled to at a United States consulate to escape Mr. Bo’s wrath.

...It also raises the prospect that Mr. Bo could face criminal charges, a rarity for an official of his rank. The party secretaries of Beijing and Shanghai, province-level cities like Chongqing, were dismissed in 1995 and 2006, and later were imprisoned for corruption. Like Mr. Bo, both were also members of the Politburo, the 25-member body that oversees Communist Party affairs.

...The party investigation’s “preliminary findings” state that Mr. Wang, whose portfolio included Chongqing’s security apparatus, told Mr. Bo on Jan. 28 about “important cases related to the Bo family.” Mr. Wang told him that some investigators on the cases had felt pressured and sought to resign.

“Comrade Bo was very unhappy about this,” the leaked transcript states. Within days, he arranged for Mr. Wang to be removed as police chief and demoted to a lesser role supervising education and science, without seeking the approval of the Ministry of Public Security, the document adds, “as rules dictated.”
The article also rehashes some things talked about on this blog, such as the fact that Bo Xilai was a populist politician.
But that same personality and political bent were said to nettle President Hu Jintao and Premier Wen Jiabao, who appeared to resent his mixing of state power over the economy and society with the promotion of his personal and political interests. Some in the elite also frowned on Mr. Bo’s crowd-courting, almost Western, style of politicking.
The article doesn't mention it, but after the Wang Lijun scandal, Bo visited the 14th Group Army, a unit created by his father, Bo Yibo. Mix populism and an appear to military power and that isn't Western politicking, it more resembles Chavez-style politicking.

Original post: Normally I ignore rumors, but this could be accurate. There's a rumor circulating on weibo that Bo Xilai has been detained and questioned:
薄被双规,周也不妙,BD进京!有大动作,——军车如林,长安街不断管制。每个路口还有多名便衣,有的路口还拉了铁栅栏
Bo has been detained and interrogated, is also not good, the BD to Beijing! Big movements - military vehicles, such as Lin, Chang An Avenue, continue to control. Each intersection there are more than plain-clothes, and some intersection pull the iron fence
Screen shot in case it is deleted. Reporters have also "tweeted" the same story, but they used Bo Xilai's full name, so their posts were deleted.

Update: I forgot to put in the link to the post, but it is deleted now anyway. At this point I still believe it's just a rumor.

Third update: Bo Xilai arrested? Social mood in China

Earlier today I saw a rumor that turned last night's weibo posts on a possible detention and questioning of Bo Xilai into a coup. The source was the anti-communist party Falun Gong paper, Epoch Times, which I take with a dump truck of salt. Coup in Beijing, Says Chinese Internet Rumor Mill. Now it showed up on ZeroHedge: Andy Lees On China Coup Rumors.

The rumors are just that, but they do have some information value because they tell us about the social mood in China—negative.

Second Update: While the original post (pasted below) remains a rumor, we can now at least understand how it started.

New Details Emerge of a Top Chinese Official’s Removal
The report also states for the first time that the Chongqing police chief who set off that earthquake — Mr. Bo’s trusted aide, Wang Lijun — had sought political asylum when he fled to at a United States consulate to escape Mr. Bo’s wrath.

...It also raises the prospect that Mr. Bo could face criminal charges, a rarity for an official of his rank. The party secretaries of Beijing and Shanghai, province-level cities like Chongqing, were dismissed in 1995 and 2006, and later were imprisoned for corruption. Like Mr. Bo, both were also members of the Politburo, the 25-member body that oversees Communist Party affairs.

...The party investigation’s “preliminary findings” state that Mr. Wang, whose portfolio included Chongqing’s security apparatus, told Mr. Bo on Jan. 28 about “important cases related to the Bo family.” Mr. Wang told him that some investigators on the cases had felt pressured and sought to resign.

“Comrade Bo was very unhappy about this,” the leaked transcript states. Within days, he arranged for Mr. Wang to be removed as police chief and demoted to a lesser role supervising education and science, without seeking the approval of the Ministry of Public Security, the document adds, “as rules dictated.”
The article also rehashes some things talked about on this blog, such as the fact that Bo Xilai was a populist politician.
But that same personality and political bent were said to nettle President Hu Jintao and Premier Wen Jiabao, who appeared to resent his mixing of state power over the economy and society with the promotion of his personal and political interests. Some in the elite also frowned on Mr. Bo’s crowd-courting, almost Western, style of politicking.
The article doesn't mention it, but after the Wang Lijun scandal, Bo visited the 14th Group Army, a unit created by his father, Bo Yibo. Mix populism and an appear to military power and that isn't Western politicking, it more resembles Chavez-style politicking.

Original post: Normally I ignore rumors, but this could be accurate. There's a rumor circulating on weibo that Bo Xilai has been detained and questioned:
薄被双规,周也不妙,BD进京!有大动作,——军车如林,长安街不断管制。每个路口还有多名便衣,有的路口还拉了铁栅栏
Bo has been detained and interrogated, is also not good, the BD to Beijing! Big movements - military vehicles, such as Lin, Chang An Avenue, continue to control. Each intersection there are more than plain-clothes, and some intersection pull the iron fence
Screen shot in case it is deleted. Reporters have also "tweeted" the same story, but they used Bo Xilai's full name, so their posts were deleted.

Update: I forgot to put in the link to the post, but it is deleted now anyway. At this point I still believe it's just a rumor.

2012-03-19

Update: Bo Xilai arrested?

While the original post (pasted below) remains a rumor, we can now at least understand how it started.

New Details Emerge of a Top Chinese Official’s Removal
The report also states for the first time that the Chongqing police chief who set off that earthquake — Mr. Bo’s trusted aide, Wang Lijun — had sought political asylum when he fled to at a United States consulate to escape Mr. Bo’s wrath.

...It also raises the prospect that Mr. Bo could face criminal charges, a rarity for an official of his rank. The party secretaries of Beijing and Shanghai, province-level cities like Chongqing, were dismissed in 1995 and 2006, and later were imprisoned for corruption. Like Mr. Bo, both were also members of the Politburo, the 25-member body that oversees Communist Party affairs.

...The party investigation’s “preliminary findings” state that Mr. Wang, whose portfolio included Chongqing’s security apparatus, told Mr. Bo on Jan. 28 about “important cases related to the Bo family.” Mr. Wang told him that some investigators on the cases had felt pressured and sought to resign.

“Comrade Bo was very unhappy about this,” the leaked transcript states. Within days, he arranged for Mr. Wang to be removed as police chief and demoted to a lesser role supervising education and science, without seeking the approval of the Ministry of Public Security, the document adds, “as rules dictated.”
The article also rehashes some things talked about on this blog, such as the fact that Bo Xilai was a populist politician.
But that same personality and political bent were said to nettle President Hu Jintao and Premier Wen Jiabao, who appeared to resent his mixing of state power over the economy and society with the promotion of his personal and political interests. Some in the elite also frowned on Mr. Bo’s crowd-courting, almost Western, style of politicking.
The article doesn't mention it, but after the Wang Lijun scandal, Bo visited the 14th Group Army, a unit created by his father, Bo Yibo. Mix populism and an appear to military power and that isn't Western politicking, it more resembles Chavez-style politicking.

Original post: Normally I ignore rumors, but this could be accurate. There's a rumor circulating on weibo that Bo Xilai has been detained and questioned:
薄被双规,周也不妙,BD进京!有大动作,——军车如林,长安街不断管制。每个路口还有多名便衣,有的路口还拉了铁栅栏
Bo has been detained and interrogated, is also not good, the BD to Beijing! Big movements - military vehicles, such as Lin, Chang An Avenue, continue to control. Each intersection there are more than plain-clothes, and some intersection pull the iron fence
Screen shot in case it is deleted. Reporters have also "tweeted" the same story, but they used Bo Xilai's full name, so their posts were deleted.

Update: I forgot to put in the link to the post, but it is deleted now anyway. At this point I still believe it's just a rumor.

China stirs up the Cultural Revolution; full-scale attack on leftists

There are too many articles to cover, but ifeng.com has special coverage of the Cultural Revolution. Everything is in Chinese, but there's tons of content. Google Translate may or may not do a good job with it, due to many political slogans that may not translate. Below is a screen shot of the front page, the character 左 front and center links to the special reports. Below that are some pictures from the report showing the period. Mao was officially blamed for the Cultural Revolution in the early 1980s and this topic is open for discussion in China, unlike 1989. In the intro to the coverage, it asks questions such as why does leftism lead to disaster? Although this is focused on China, many of the deeper questions are universal, as the Cultural Revolution reflects violence and cruelty seen in the French Revolution and subsequent leftist revolutions until the present day.







Beijing banks offer interest rate discounts

From today's Beijing Times (京华时报)

The left hand percentage is the first-time homebuyer down payment, the percentage on the right is the second home down payment. To the right of each is the interest rate discount/premium. All second home mortgages are charged a 10% premium (the far right column), but four banks are offering 10% discounts to new homebuyers. They are Bank of China (中国银行), Agricultural Bank of China (中国农业银行), Huaxia Bank (华夏银行), and Citibank (花旗银行).

Bo Xilai arrested?

Normally I ignore rumors, but this could be accurate. There's a rumor circulating on weibo that Bo Xilai has been detained and questioned:
薄被双规,周也不妙,BD进京!有大动作,——军车如林,长安街不断管制。每个路口还有多名便衣,有的路口还拉了铁栅栏
Bo has been detained and interrogated, is also not good, the BD to Beijing! Big movements - military vehicles, such as Lin, Chang An Avenue, continue to control. Each intersection there are more than plain-clothes, and some intersection pull the iron fence
Screen shot in case it is deleted. Reporters have also "tweeted" the same story, but they used Bo Xilai's full name, so their posts were deleted.

Update: I forgot to put in the link to the post, but it is deleted now anyway. At this point I still believe it's just a rumor.

Liberals aim to unleash new wave of reform

The liberal/reform faction in the Chinese government is stepping up their rhetoric. Aside from the attack on the conservatives/leftists, they also say that reform is urgently needed.
Leftist social critic finds microblog blocked
Major leftist websites Utopia, at wyzxsx.com, Redchinacn.com, Maoflag.net and others have been inaccessible for several days. They were apparently taken offline after Wen criticised conservatives last week.

These sites had been rallying behind Bo and his so-called Chongqing model of development – a combination of equal growth, conservative ideological control and a ruthless crackdown on organised crime with little regard to due process.

Political science professor Mao Shoulong of Renmin University said the targeting of leftist academics was borne out of Beijing's need for ''a unified ideology'' ahead of the 18th party congress in autumn. ''It's also a way of showing support for the new Chongqing leadership [and avoiding] any further instability there,'' he said.
It may shock outside observers to see the left being censored, but such is the new China. Mao is history and this leadership transition may mark the boldest step forward since the late 1970s, and at least the early 1990s in terms of economic reform.

Li Keqiang vows changes to China's economic model
China cannot delay tough economic reforms, Vice-Premier Li Keqiang said yesterday.

His remarks underscored the top leadership's push for market-based change after the sacking last week of Chongqing party boss Bo Xilai , who pushed for a bigger state role in the economy.
Click the Li Keqiang tag to see previous articles. He has been pushing for major tax reform and policies aimed at creating a large middle class.
"China has reached a crucial period in changing its economic model and [change] cannot be delayed. Reforms have entered a tough stage," Li said, echoing comments made by Wen last week.

"We will make policies more targeted, flexible and forward-looking to maintain relatively fast economic growth and keep price levels basically stable," Li said in a speech at an economic policy conference attended by top Chinese officials, the head of the International Monetary Fund and dozens of foreign business leaders.

He said Beijing would "deepen reforms on taxes, the financial sector, prices and income distribution and seek breakthroughs in key areas to let market forces play a bigger role in resource allocation".
Other liberals are also looking to take on new leadership roles in the coming year. One of those was Bo Xilai's biggest critic, Guangdong party secretary Wang Yang. He is briefly profiled along with other rising leaders in the SCMP article, Glimpse of those waiting in the wings.
Wang is also a media icon for the new generation of leaders. His liberal and transparent approach in quelling social unrest such as village land disputes or factory strikes is a sharp contrast to conservative officials, who tend to react to unrest with violence or suppression.

Wang has stepped up his push for a smarter, leaner form of government in what is being seen as an attempt to bolster his support among the liberal camp.

"We must hasten the development of small government and a great society," Wang told a provincial social development meeting.
The coming years will be critical for Chinese development. Besides dealing with the bad debts in the banking system, negative social mood and an economic model well past its expiration date, the Chinese also must contend with demographic changes. In 2011, Nicolas Eberstadt covered the demographic situation in China in The demographic risks to China’s long-term economic outlook

In simplest terms, China's demographic dividend is coming to an end and productivity growth will be needed to generate GDP growth.