PBOC Will Let Some Trusts Fail; CASS Sees Small Rebound in Real Estate Prices

If certain trusts will be allowed to fail, certain other trusts will not be.......
PBOC Says Some Investment Products Should Be Allowed to Fail
China's central bank said Tuesday that certain high-risk financial products should be allowed to fail and fast-growing Internet banking products need tighter supervision as part of reforms to foster a more competitive, efficient financial system.

In an annual report on the nation's financial stability, the People's Bank of China said greater competition and innovation in the state-dominated banking sector would ultimately make the industry more responsive to consumer needs.

CASS forecasts 7.4 pct economic growth in 2014
The CASS also reported on real estate on Tuesday, indicating wider gaps in housing prices between different cities this year, through lack of a healthy expansion mechanism. Some megacities with large migrant populations will face pressure from housing price rises, while small cities with excess construction will see property bubbles.

The regulations on the property industry will further push forward property taxes in more pilot cities and continue restrictions in housing purchase and mortgages in megacities this year, the CASS said.

The Chinese article has the rebound story: 社科院:2014房价或小幅增长 楼市调控面临“两难” (CASS: slight increase in 2014 prices or market regulation facing a "dilemma")
Chinese Academy of Social Sciences Institute of Urban Development and Environment released April 29 Economic Blue Book "analysis of China's economic prospects," pointed out that in 2014 the real estate market transaction volume may still be essentially flat with last year, even a slight increase, prices are likely to remain modest growth, But between the city, the differentiation between regional markets will intensify.

Blue Book said that although the country earlier this year, the monthly real estate transactions is shrinking trend, the individual parts of the city appeared estate price phenomenon, but the market has experienced a period of deliberation and policy sidelines after the heat of the 2014 real estate market will continue trading. Blue Book said that although the country earlier this year, the monthly real estate transactions is shrinking trend, the individual parts of the city appeared estate price phenomenon, but the market has experienced a period of deliberation and policy, the 2014 real estate market transactions will stay hot.

Among them, there are five reasons: First, consumer demand driven by income growth and urbanization trends will remain strong; Second, buying restrictions changed investment and speculative demand, but have limited market impact, especially on the housing market; Third, demand for real estate devaluation of the RMB exchange rate factors are expected to result in a wait and see, will be re-released after the return of normal fluctuations in exchange rates.

Fourth, the end of 2013 to early 2014, there have been another round of land acquisition, the " land king " frequent, rapid land price growth in some cities will lead to cost-push; fifth, 2013 real estate transaction volume surge, the rapid growth of house prices, the majority of the leading development companies get huge sales and profits, making 2014 price change destocking pressure is not great.

Blue Book also suggested that in the prices run high and economic growth is relatively slow dual background, Chinese real estate regulation facing a "dilemma", while allowing continued high growth rates will further accumulate bubble risks, falling house prices and could harm the real estate and related fields investment, triggering financial risks.

Outlook 2014, the Blue Book emphasized that macroeconomic remain 7-8% of the steady and rapid growth, the country's economic policy will be further residential urbanization, improving people's livelihood tilt mechanism due to the lack of long-term stable and healthy development of the real estate market , the real estate market will be further differentiated in some cities because of soaring land prices face greater pressure on housing prices, real estate market trends in 2014 will depend on policy choices and implementation of regulatory policy differences and diversity will become the norm.

In addition, the Blue Book expects a higher proportion of the working population of the metropolis of foreign real estate, especially in the housing market and volume go up, while most ordinary urban real estate turnover and prices remain relatively stable trend. Some lack of industry support and build the city's pre-sided town house prices bubble risk of oversupply will be greatly enhanced.

Freegold in Action

This chart shows that once the price suppression of gold ended in 1971 and the price of gold was free to float at a market price, the price of commodities tumbled rapidly as gold was freed from its chains. Commodity prices have since fluctuated in a range of 50% based on economic cycles, as demand for commodities and money rises and falls. If you click through to the article, it shows that in terms of gold, the price of commodities has been in a steady downtrend for many decades, which as author Dan Popescu points out, makes perfect sense given technological progress. Prices should be falling, but it has been masked by massive amounts of inflation in the supply of money and credit.

A great post on what is and what isn't inflation in Gold vs the CRB Commodity Index, where the chart comes from.


Beijing Raises Water Prices 20% to 125%

Market pricing comes to water too.

Beijing to raise tap water price in May
According to the plan, the lowest tier water price will rise from 4 yuan to 5 yuan per cubic meter from May 1, for households with an annual consumption less than 180 cubic meters, which covers 90 percent of households.

Households with an annual water consumption ranging between 180 and 260 cubic meters will be charged 7 yuan per cubic meter. The water price for annual consumption over 260 cubic meters will rise to 9 yuan per cubic meter.

That Crappy Housing

In The Two Views on China's Housing Market, there's the quote from Rafael Halpin about "crappy legacy housing."

Here's the latest example.

Dilapidated residential building torn down in E China
A 25-year-old dilapidated apartment building that housed 30 families was demolished by local authorities in Changshu, east China's Jiangsu province, on Monday, the Yangtse Evening Post reports.

The building reportedly had visible cracks in the walls, a sinking ground and pieces of the building were crumbling within the past 20 days.

......The building collapses in Fenghua and Changshu mark the beginning of a wave of such disasters, as the "fast food" buildings erected in China's coastal cities throughout the 1980s and 1990s enter 20s and 30s.
There may be more teardowns with the new housing minister.

China's Crisis Similar to U.S. Savings & Loan Crisis of the 1980s


Google Translated Link: Lessons for China from the U.S. Savings & Loans Crisis

It is a presentation by Hao Jiang of Cantor Fitzgerald. He makes the case that the parallel for China's current situation is the U.S. savings & loan crisis of the early 1980s, with some similarities such as interest rate deregulation and real estate speculation.

There are a lot of graphs at the link and it's very long, so I'm not going to cut and paste the text. Google Translate seems to get the gist across and there's charts to help explain the points.

May is the Peak Month in 2014 for Maturing Real Estate Trusts with 20% Due

Mature trusts to test China
China's financial system is about to be tested with $US420 billion-worth of trust products coming due this year as worries grow that many debt-laden companies don't have the cash to pay back investors.

May is the start of a peak period for maturing trust products, which lend money from investors to areas like the property sector or industries shunned by banks, such as coal. These trusts have been a fast-growing source of credit in China. Nomura estimates that the crunch will come in third quarter through September, when one trillion yuan ($A172.5bn) of trust products are due, up from 694bn yuan in the first quarter.

There are ¥633.5 billion in maturing real estate trusts this year and more than ¥120 billion come due in May.

亿元房地产信托下月到期 为全年到期最高峰
trust statistics show that in 8547 a total of trust products expire, the total size of 1.273306 trillion yuan. Among them, the real estate investment trust focused on cashing peak in the second quarter.

According to Haitong Securities estimates, in 2014 the real estate trust maturity about 633.5 billion yuan, of which the value of the annual peak in May due, the amount due throughout the year accounted for about 20%. In other words, a rough estimate, the size of the real estate trust projects due in May or more than 120 billion yuan.

According to incomplete statistics Haitong Securities, from August 2012 to early this year, at least a total of 16 projects under pressure into the trust. Someone's private enterprises to small scale enterprises, the industry distribution, the real estate industry was the hardest hit, with 10 projects related to real estate.

Trust industry has pointed out that with the tightening of national regulatory policies, three, four-city housing supply pressure than a second-tier cities bigger, in addition, the main strength of the financing terms, in the case of capital chain tension, financing more difficult for small and medium developers, project its issue of trust or honor more prone to risk.

However, he believes that the current real estate investment trust in relation to other minerals, such as trusts are still relatively high-risk security. "Real estate projects generally have mortgaged land or buildings under normal circumstances, real estate mortgage rates are at about 30% to 40%, even if the substance of the financing counterparty defaults, trust companies to cover the principal and interest can be handled by collateral."

Investment remind preferred a second-tier cities well-qualified project

Guangzhou Man Investments executive director Liao Weihua pointed out, buy trust products, the first manager to pay attention to the strength and experience; followed depends on the strength and willingness to repay the financing side; Furthermore, what is the use of funds for project financing side repayment First, what is the second source.

Bohai Securities analyst Kang Kai is recommended that investors need to be cautious configure real estate trust products, the preferred second-tier cities in well-qualified real estate company development projects. Haitong Securities believes that with the release of the real estate needs of the industry slowdown, should be mainly invested enterprises.

Way out of trouble funding strand breaks? Information Management project or a broker disk access

On the one hand is a real estate investment trust expires huge scale, on the other hand is the size of the decline in trust financing, for some long-term projects, will result in funding strand breaks? In this regard, the industry pointed out that not all projects go through the real estate trust to borrow new-old "just needs to butt extremely individual items."

A large trust company pointed out that many of the "in" prefix Trust last year has been a lot of advance payment of real estate trust, both because of concerns about the risk, on the other hand it is this part of the project ahead of schedule to recover the funds, or find a new take over funds, these funds are part of taking over from the bank, the other part is from the Information Management projects.

"For example, some projects have been capped, or four cards are complete can begin selling properties, and this time the bank can intervene through mortgage loans to; Furthermore, there is no development loan facility for some banks, but also by way of resale to the loan. "he said.

According to reports, the business is a resale interbank business, the specific mode of operation are: Bank under resale agreement before buying financial assets expire at a fixed price and then sell back to another bank.

"Resale accomplished primarily through tripartite, for example, A bank wants to lend to its large customers, but due to the limited line of credit or other reasons, do not put out, this time to find A bank trust, set up a single trust lending to businesses. "who explained that these trust," that a single trustee who lend money to? A Bank B Bank to find, let B bought the trust. A to B to issue a "fallback Letter" premium to buy back the trust after the trust expires usufruct. "

Insiders pointed out that the essence of resale by the bank will be in the hands of the money market in the form of mortgage lending. Here, trust, brokerage, funds are acting as an "intermediary" role, a certain amount of access fees. According to incomplete statistics, the trust shall resale business accounted for half of the bank's balance sheet business.

Furthermore, the trust pointed out that although the decline in trust financing, but funds and brokerage of real estate projects this year, the "Sturm und Drang" momentum "if coupled with information management projects with a total financing of real estate projects will only increase not decrease . "he said.

Three Reasons To Worry About A Crisis in China

IMF: Three Reasons Not to Worry About a Crisis in China
1. China’s owes most of its debt to itself. True, China’s debt – some tallies put the sum of private and government debt at double China’s gross domestic product – is scary. How companies and local governments will manage to service that debt as growth cools and interest rates rise is a puzzler. The IMF’s latest Regional Economic Outlook, released Monday, predicts China’s economic growth will slow to 7.5% this year from 7.7% last year, then further to 7.3% in 2015.

Mr. Rhee says China is bound to see a rising number of credit defaults. But unlike Thailand or South Korea before the Asian financial crisis erupted in 1997, China hasn’t borrowed heavily abroad in foreign currencies. China’s total foreign debt amounts to only about 9% of its GDP, according to the country’s foreign-exchange regulator. South Korea’s was roughly one-third of GDP back in 1997.

That means that if China’s currency falls further (it has dropped roughly 3% so far this year), it won’t necessarily cause a dramatic increase in borrowers’ debts in local-currency terms that then causes bankruptcies to snowball.
Debt deflation is debt deflation. China has a far smaller risk of a crisis originating in the currency market in response to debt deflation, but this doesn't remove the risk of debt deflation. The idea that debt levels don't matter is nonsense. If an entity cannot pay the debt, the debt has lower value and the losses have to borne by someone, or they get socialized by the central government via inflation.

2. China’s government debt is low. Like many governments in advanced economies, Beijing runs a budget deficit. But that deficit is relatively small – about 2.1% of GDP. And total government debt, both those owed by the national government and China’s much more heavily indebted provinces, still add up to only about 53% of GDP, according to Bank of America Merrill Lynch. Compare that with the U.S., where government debt is roughly as big as GDP, or Japan, where government debt has ballooned to roughly 240% of GDP.

That means China can afford to spend more to offset the economic slowdown if it becomes too painful to borrowers. It can even afford to bail out banks or borrowers it deems too big to fail. In the worst case scenario, China’s central bank can follow the lead of the U.S. Federal Reserve and the Bank of Japan and create money by buying up assets – a policy known as quantitative easing. “If something bad happens, they will muddle through,” said Mr. Rhee.
U.S. debt is higher because the U.S. offset $3 trillion in deleveraging by the financial sector with a big increase in federal debt. The U.S. federal government had a debt to GDP ratio of about 60% before the financial crisis and now it is over 100%. Things always look better before the bailout.

3. China’s slowdown, like its economy, is central planned. While it’s easy to overestimate the degree of control Communist Party leaders have over economic decision making on the ground, they nonetheless are able to exert their influence in a way that policy makers in the United States and other democratic nations can only envy.

The U.S. Congress rebuffed former Treasury Secretary Henry Paulson’s first plan for halting the financial crisis in late-2008. China’s economic mandarins have much wider latitude to implement policy without the say-so of China’s National People’s Congress. Most of the country’s banks are state-controlled and state-run companies still dominate the economy.

China can instruct banks how to lend and to whom, and can even tell big companies how and where to invest. That’s a solution China’s leaders seem eager to avoid, but it remains an option. On the contrary, central bankers in the U.S. and Europe have found that even record-low interest rates could not compel banks to lend or companies to borrow, a situation that made their economic crises worse.
The entire reason why people are looking for a crisis in China instead of a normal slowdown as part of a rebalancing is because in 2008 the central planners forced the banks to lend. Absent that huge run-up in debt, China would have had a longer recession in 2008, but it would have rebalanced some and be a much stronger economy today, with lower debt levels.

Number 4: The IMF doesn't know what it is talking about.

China's GDP Gets Real

It is now well known among China observers that GDP figures are man made. This is doubly true for local and provincial governments that do their own calculations. Adding up all the provincial GDP figures results in growth far above the national total. In past years, promotions within the party were based in part on GDP growth and this fueled the building frenzy along with the loose statistical standards. My favorite article on the topic remains this one from 2004: Lies, damn lies and Chinese statistics
Take two municipalities for example: Beijing declared that its 2004 interim GDP increased by 15.4% year-on-year, while the adjacent Tianjin city quoted 15.9%. Given that the former is preparing itself for the 2008 Olympic Games, its rapid GDP growth is understandable, but no one has any clue as to why Tianjin is growing even faster.

This is now changing.

China’s Provinces Fail to Meet Lower 2014 Growth Goals: Economy
Almost all Chinese provinces failed to meet their growth targets in the first quarter even after scaling back their ambitions as the government instructs officials to focus on reining in debt and curbing pollution.

Thirty of 31 provinces and municipalities reported missing their goals, with the biggest shortfall in northeastern Heilongjiang, where an expansion of 4.1 percent compared with an 8.5 percent target for the year. Most localities’ targets are lower than in 2013. The latest data were released by government websites and newspapers.

......Six provinces missed their goals by more than 3 percentage points. In Hebei, where the government is cutting steel capacity, growth was 4.2 percent, compared with a target of 8 percent. The province surrounding Beijing is the country’s biggest steelmaker, accounting for about a quarter of national output last year, and its cities are shrouded in smog.

The world’s second-biggest economy is going through “a difficult period of adjustment,” former central bank adviser Li Daokui said in Beijing on April 27. The government will stabilize growth in the second half, including by speeding economic changes to allow more private investment, Li said.

In Shanxi, a region hit by slumping coal prices and mine closures, an expansion of 5.5 percent compared with a full-year target of 9 percent. Heilongjiang, Hebei and Shanxi are “all provinces which suffer relatively severe overcapacity,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

......The latest numbers indicate that a divergence between local and national data is narrowing. The total of local numbers for nominal first-quarter gross domestic product was 3.7 percent higher than the national figure. That compares with an excess of almost 11 percent in 2013.

Regions have an incentive to avoid inflating growth figures now that officials are being judged on an array of issues including debt and the environment, not only gross domestic product.

......Local-government borrowing will be an “important indicator” in regional officials’ performance reviews and people should be punished for decisions that “result in huge losses to the country,” waste resources or cause ecological damage, the official Xinhua News Agency reported in December, citing the Communist Party’s Organization Department.

China Will Have a New Housing Minister; Nanning Fires First Rescue Shot; More May Come in Second Half of 2014

In the latter two stories, there is emerging trend of easing real estate restrictions based on residency. One of Li Keqiang's main policies is reforming the hukou system, a rigid system in which your local residence is more akin to national citizenship than state or provincial residency in most nations. Many Chinese in Beijing and Shanghai are not much better off than actual foreigners living in these cities in terms of their ability to get their children into schools and gain access to government services because they cannot obtain residency. Since residency entails access to social services, many wealthy and established cities are hesitant to extend residency. In other places, such as development zones or poorer cities, residency may be given with the purchase of a home.

China: Urbanization and Hukou Reform
Resolving who pays for reform is one of the key challenges. Since a major tax overhaul in 1994 local governments have been left with a substantial gap between the amount of tax revenue they receive and their spending liabilities. It is estimated that while local government is responsible for around four fifths of expenditure they only receive half of this from tax.

This disparity has forced local officials to devise alternative ways of funding their spending obligations. Many cities have resorted to the socially destructive practice of illegal land seizures. However, with the amount of available land diminishing local governments have been piling up debt. When combined with the liabilities arising from the credit-fuelled infrastructure stimulus of 2008/9 local government finances are now in a parlous state.

Consequently local governments are deeply opposed to hukou reform. A 2012 project led by the National Reform and Development Commission, which interviewed city leaders across eight provinces, found nearly all said their administrations could not afford the extra spending to provide public services to hundreds of millions of migrants.

Therefore if hukou reform is to be central to China's new urbanization strategy China's leaders will have to agree how to resolve the funding issue. Will fiscal policy be reformed to give local governments a greater share of revenue? Will a cost-sharing model be developed between central and local government? Will local governments be given new means of raising revenues?
China is speeding up its property tax, a necessity for generating revenue once land sales cool. (See: China pushes for property registration) As for residency, if the real estate rescue policies all entail letting non-residents buy homes, this could be a hint of hukou reform coming down the line. At the very least, it bears watching what policies the central government allows and which it does not at a time when local governments are coming under severe economic pressure and are in less of a position to resist central government reforms.

On to the news, the Ministry of Housing and Urban-Rural Development will have a new minister soon. It's a tough job given the prominence of housing in the Chinese economy and the minds of the public.

“最难当的部长”:辽宁省长陈政高履新住建部 (The Toughest Ministry Post: Liaoning Province Governor Chen Zhenggao to head MHURD)

Not yet official, but widely reported in the press and insiders say, "It's no secret within the Ministry of Housing."

The news notes that Chen is known for tearing down shanty towns and rebuilding cities, something that is promoted as part of Li Keqiang's push for urbanization, affordable housing, restoration of old cities and tearing down of shanties.

It is a tough post. On current minister Jiang Weixin:
During 2013 two sessions, real estate regulation "five new rules" introduced, immediately sparked widespread concern in the market. The Minister of the Ministry of Housing and CPPCC member Jiang Weixin coming out of his hotel for an appearance in the CPPCC, was subjected to a large number of media reporters containment, questions can simply use the "indiscriminate bombing" to describe. Jiang Weixin overwhelmed frequently to reporters pleading for his life, I hope you "Do not ask again." In the first day of the meeting, Jiang Weixin, Minister again encounter one day 3 containment, and eventually silence.

2014 two sessions, bear reporters Zhuidu of Jiang Weixin, still Cherishing such as gold. But he'd squeezed out of this "two-way regulation" words, which is considered to feed the media reporters.

But regardless of any minister who is destined to be subject to local government "land finance", while the face of "liquidity" but hands-free "property rights", the current status quo in central China, the ministry is hard to change the power structure in . For Chen Gao, the "price" is always going to be a difficult problem, affordable housing and urban redevelopment or will become its breakthrough achievements.
Full Article: “最难当的部长”:辽宁省长陈政高履新住建部

Also out today, Nanning, capital of Guangxi province, fires the first shot with an easing of real estate buying restrictions. 地方救市第一枪打响:南宁官方正式下文松绑限购

The policy change allows people without residence permits in Nanning to buy homes, but only if they live in nearby cities.
Xinhua Beijing April 29 listing (Reporter Zhu Ling) yesterday evening, Nanning City Housing Authority issued a document called: According to relevant regulations, "Zhuang Autonomous Region People's Government of Guangxi Beibu Gulf Economic Zone to promote the opening up and development of policies and regulations", combining " Guangxi Beibu Gulf Economic Zone to promote city development plan "spirit, from April 25, 2014, Beihai Guangxi Beibu Gulf Economic Area, Fangchenggang, Qinzhou, Yulin, Chongzuo residence households can join permanent residents of Nanning in buying homes.
English coverage here in Reuters, but it only mentions the Economic area as being allowed to buy property: China city loosens property rules amid market cooling

The maps below show the cities mentioned in the Chinese article are the main cities to Nanning's west, east and south.

Related: The City of the Dead: The ghostly Chinese town filled with luxury properties that nobody lives in

Google Translated Chinese article:
yesterday evening, Nanning City Housing Authority issued a document called: According to relevant regulations, "Zhuang Autonomous Region People's Government of Guangxi Beibu Gulf Economic Zone to promote the opening up and development of policies and regulations", combining " Guangxi Beibu Gulf Economic Zone to promote city development plan "spirit, from April 25, 2014, Beihai Guangxi Beibu Gulf Economic Area, Fangchenggang, Qinzhou, Yulin, Chongzuo residence households can refer to permanent residents in Nanning policy in Nanning purchase.

Shanghai E-House Real Estate Institute researcher Yan Yuejin think, Nanning "relaxation" restriction , essentially not consumed inventory. The strategic position of Guangxi Beibu Gulf Economic Zone is obvious, but how to achieve such a reasonable allocation of the regional population, capital and other resources and enhance the economic zone heat accelerate the natural need strategic thinking. Therefore, Nanning purchase deregulation, more emphasis is to remove the administrative shackles, the release of the economic circle of purchasing power.

According to the latest data CRIC database, Nanning on April 27 in the housing stock of 5.46 million square meters, a total of 48,900 sets. Prior to the first quarter of Nanning 1.62 million square meters of real estate transactions. Yan Yuejin said, according to the market's ability to digest a quarter of the current inventory of Nanning approximately 13.5 months, which is not too high.

Yan Yuejin also believe that, as the capital of Guangxi, Nanning gathered a lot of land and investment resources, the future of high-speed rail as highlighting Nanning Economic Circle, which will purchase the entire market policies proposed deregulation of interest demands.

Recently a "country 23 provinces 'financial dependence on the land' ranking report" shows that the size of the land sinking only 700 billion yuan in Guangxi, but the land debt service ratio as high as 38.09%. The report analyzes that the main local debt growth in the first municipal government in Guangxi, and debt payments in land purchasing and storage spending large, and in the actual economy, local government investment in land purchasing and storage of large, land revenue will particularly dependent. As early as in 2010, one of the king Nanning floor price broke through the 10,000 yuan / square meter.

No doubt, this is the first official release of the adjusted purchase documents. Earlier in succession came the Wenzhou, Changsha, Hangzhou and other cities in the brewing relaxed restriction, the last are rumors. Just yesterday, will implement differentiated Tianjin Binhai outgoing purchase, as long as no room in the coastal range to buyers in the District, but no official document issued

Gao Hua Securities believes that the restriction is not enough to relax and restore the balance between supply and demand of the industry. Because the impact on investor trading volume depends on the price rise is expected, however, rising prices seem to run counter to the economic reforms so far have been rising house prices. If this policy is not expected to pay too loose, then the boost trading volume effect may be temporary.

More rescue policies may come in the second half of the year: 多地调研房地产救市措施 楼市下半年或迎来调整窗口期 (Many local governments study real estate rescue measures)

The evening of April 13, an "on the promotion of the healthy development of the real estate market continues to ten measures" (hereinafter referred to as "Min ten") in the widely circulated, exacerbated the real estate market is expected to bidirectional regulation.

"Min ten" in the purchase, credit limit and other aspects of the 10 relaxed regulatory policies, but the rumor by government investigations, and related media, which "considered an internal draft." Allegedly, the "first collected the views of the developers, and then studied to see."

After this year, two of the country under the "two-way control" policy guidance, high inventory levels in some cities often tentative policy baseline, have developed regulatory policies, but so far no one dare "stands out." Appropriate policies are in the "research", "feedback" stage.

Although there is no "eat crabs," but temptations have done the groundwork for future policies.

Local government anxiety

April 22, Wuxi Municipal Government issued the "on access, Wuxi hukou registration requirements of the notice" (the "Notice") stipulates that from 1 May 2014, Wuxi City area (including Wuxi city and Jiangyin, Yixing Second City) implementation of a unified household registration entry registration requirements in Wuxi purchase complete sets of commercial housing (including second-hand ), the average floor area of 60 square meters or more, and have a stable job in the city staff, grant themselves, their spouses and minor children to tin settled.

Wuxi City since 2003 carried out the reform of housing hukou system. Then settled foreigners purchase policy is 100 square meters. 2012 New Year's Day, Wuxi, account access policy with the new adjustment, foreigners purchase settled threshold from the original 100 square meters to 70 square meters.

And the "notice" will further lower the standard, from 70 square meters to 60 square meters adjustment, although the gap is only 10 square meters, and is not associated with the current local government regulation, but it was widely interpreted as a "curve rescue ", indicating that market participants already is" and boots landing "mentality.

Behind this attitude, after the stock surged, the regulation of various cities tempted hand.

April 16, the National Bureau of Statistics released a quarterly housing data, the end of March, real estate for sale area 520 million square meters, compared to 2013 increased by 30 million square meters. This is since 2005, the highest value of real estate held for sale area.

2014 onwards, the national real estate sales and sales growth has declined for three consecutive months both. National Bureau of Statistics data show that in the first quarter, 201 million square meters of commercial housing sales area, sales of 133 million yuan, down 3.8% and 5.2%, respectively, of which residential sales area, the amount decreased 5.7%, 7.7%.

In addition, real estate development and investment growth also declined in the first quarter, the national real estate development and investment 1.5339 trillion yuan, down 2.5% qoq growth.

This part of the inventory of already high city is very painful.

Wenzhou price 32 consecutive months, the year before last year, GDP grew at only 6.7%, 7.7%. The degree of dependence on the land throughout Zhejiang ranked first in the country's finances, Hangzhou, Wenzhou property market down, will further affect revenue.

Wuxi is also true. Official statistics from Wuxi, as of the end of December 2013, Wuxi City real estate stocks increased to 17.27 million square meters, the removal is not currently for sale, but estimates have been put into use in non-residential area of ​​about 200 million square meters, the stock room to go Nearly three years of the cycle. Real estate transactions in the first quarter of this year, Wuxi 10716 units, down 24.12%, 22.16% reduction in transaction size.

In this case, although the Government has not introduced around the bailout policies, but related surveys and comments, it is clear already that may arise subsequent downturn made emergency preparedness.

Ambiguous prelude

"Wenzhou before and after the two sessions, led by the Municipal Construction Committee, drafted a comprehensive plan to adjust the purchase reported to the provincial government, but so far not below, the provincial government could not even recognize the external program received." People's Congress of Zhejiang Province, Wenzhou SME Development Association president Zhou German to Chinese Real Estate News revealed reporters.

A Wenzhou executives admitted that housing prices, Wenzhou bailout of dystocia is not surprising, the current round of calls for the purchase of deregulation began in Wenzhou, but due to its sensitivity too, is destined to Wenzhou will not be the first to be approved by the city. Earlier, the news about the new Wenzhou, Wenzhou will be relaxed, warm providers and buyers of foreign naturalization policies have been rampant, but was subsequently denied by local government officials.

In addition to Wenzhou, had heard about the charge of the bailout plan has Hainan, Hunan, Guangdong, Zhejiang and other provinces of the Office of Housing and Urban per capita that the current government did not mean to save the city, but no relaxation of market regulation plans.

April 21, Zhengzhou City Housing Authority said that the future will be based on the market situation may be, to purchase a timely policy adjustments. This news release makes Zhengzhou become the only official release of timely market regulation will loose city. But China Real Estate News reporter then learned from the Housing and Construction Office of Henan Province, the province will not introduce new policies recently.

After repeatedly denying that there have been new urban release relaxed regulation of the wind, the local government temptations unsuccessful execution stage classification regulation to cast a "unrequited love" colors.

"The government and game developers are, on the one hand the government has yet to find that step to save the city, on the one hand and barely particularly worried that some developers, the government has not yet determined, but also do not dare and central formal negotiations this matter. " Sunac China [ Introduction News ] Peng, general manager of the Chinese real estate company in Hangzhou newspaper reporter said from the heart to really make government regulation to promote relaxation, may also need a process.

China Real Estate News reporter learned that the investigation, some cities in the Yangtze River Delta, the real estate control policies at the implementation level there are signs offside and loose. In some areas of Wenzhou, such as home buyers no more than two sets of housing, can then purchase, than either has several residential Wenzhou, Wenzhou buyers limited to purchase. In Hefei, outsiders year even without local social security, developers can also help introduce packaging company, with prices ranging from 15,000 ~ 18,000 yuan made the purchase and loan eligibility. Government issued a document, but acquiesced to such acts phenomenon has become an alternative for local classified austerity measures are not introduced before.

"The future will be bright tight dark pine is a main tone." Zhang Huifang, general manager of Hangzhou win home marketing agency, said that many cities have begun to make adjustments to the purchase of the policy, the surface tight, but somewhat loose inside identified, has been formed around not written agreement.

Or adjust the window period ushered in the second half

Recently, the Hangzhou Municipal Government held a quarter of the economy in 2014 to analyze the situation in which, referring to the real estate market, said the current "still stable." But Hangzhou Development and Reform Commission proposal to risks and actively prevent the real estate market, significant market rumors, the first time to clarify, stabilize market expectations. In addition, significant price adjustment policy is to establish a system for forecasting the real estate business, to ensure a smooth real estate market.

From the government's perspective, the real estate market downturn, will directly affect the revenue. Jiangsu Zhenjiang New Area an investment [ Introduction News ] Bureau told China Real Estate News reporter: "Admittedly, on the one hand, there are now a large part of government revenue is by land, once the real estate market fell sharply, directly affecting the land auction, which is the local government does not want to see the other hand, investment is still an important task of the local government, from the current situation, housing prices are still around investment focus. "

Determine the central idea of ​​the classification regulation, the regulation provides for local government deregulation policy basis, but in countries without explicit prior to the introduction of mentoring programs or articles of association, the local government wants to purchase deregulation, and depression, "there is no Zeidan Zeixin" the cycle of.

In addition, the current property market turned down, or short wait is uncertain. China Real Estate News reporter interviewed accepted industry generally believe that the real estate market will not be too serious crisis. This is perhaps the reason to suspend the current regulation. Once the bailout prematurely, it may for the subsequent introduction of the policy and industrial restructuring impact, not to mention the pressure from the central government level.

Therefore, a comprehensive consideration of various factors, or become the property later this year to fine-tune the window period. After the introduction of the second quarter of the data, if the downturn, rescue measures will be included at the central level of acquiescence and even support; addition, through market research and feedback, the corresponding rescue measures will be more perfect. And because no longer a "one size fits all" regulation, the idea of ​​local government regulation will not be relaxed or tightened single, but can be considered comprehensive and integrated development.

"On the one hand, the downward trend in the property market began to pressure the local finance and economic growth needs to gradually revealed; the other hand, under the guidance of the spirit of bi-regulation, where also need to adjust the time." Vice president of the China Real Estate Association Bian hong deng told the media.


Will UKIP Win A Shock Victory?

I have followed some of the European parliamentary elections in the U.K. As the headline says below, UKIP has come under increasing criticism since it has emerged as a major contender in the election, with a possible shot at coming in first. What I noticed is that most of the criticism is not policy oriented, but rather about issues such as party leader Farage's employment of his wife. Opponents are throwing everything they have at UKIP, which indicates to me that UKIP has public on their side when it comes to the main issues in the campaign.

European elections: Ukip under repeated fire – but it's not putting off the voters, say the polls
The Ukip leader endured what was one of the toughest weeks of his political career and yet support for his party was sustained. Mr Farage could even come first in the elections in less than four weeks.

A series of Ukip posters that warned "26 million people are looking for work – and whose jobs are they after?" and "British workers are hit hard by unlimited cheap labour" were condemned by opponents but a YouGov poll showed that the majority of voters – 57 per cent – believe the ads were a "hard-hitting reflection of reality", and 59 per cent said they were not racist.

......However, there were fresh claims about one of Ukip's candidates when it emerged that a former Conservative council leader – who resigned after a scandal over expenses – is to stand for the party at the next general election.
According to the report in the Independent, Labour leads with 31% support in an average of polls, while UKIP is close behind with 27%.

UKIP is a member of Europe of Freedom and Democracy
The group is a coalition of ten political parties – the largest being the UK Independence Party (UKIP) with eleven seats and the Italian Northern League, with nine seats – along with one independent. EFD is the most hostile to European integration among the groups in the European Parliament.

One surprise to some is that opposition to the centralization in the EU hasn't come from Spain or Greece, but rather from the UK and......Germany.

Germany's CSU to fight European election on eurosceptic platform
Germany's Bavarian conservatives, sister party of Chancellor Angela Merkel's Christian Democrats (CDU), on Saturday agreed a manifesto for the European elections aimed at trying to hold on to voters tempted by more eurosceptic parties.

Policies outlined by the CSU include a proposal to secure Germany a veto on the European Central Bank's council, to drastically reduce the European Commission in size and to grant indebted euro zone states the right to go bankrupt.

Merkel does not back these moves so they are highly unlikely to become government policy, but the manifesto highlights fears among German conservatives they will lose voters to the anti-euro AfD, polling a little above 5 percent, in the May 22 vote.

"Europe must be turned on its head," states the programme passed on Saturday in Bavaria, describing the EU as a "project of the political elites".

Meanwhile in France, National Front 'not worried' about finding anti-EU allies in Parliament
UKIP and the Alternative for Germany (AfD) have already refused any alliance with the French far-right.

"I am not worried about forming a future political group in the European Parliament, and we will reveal our choice of partners at a later stage," Marine Le Pen declared.

The euroskeptic parties have a big impact in domestic politics, but while UKIP is aiming for a big win at home, the skeptics of all nationalities have a small influence in Brussels. In many countries, anti-EU sentiment is policy driven, not fundamental. The Spanish, Greeks and Italians are mad at the EU, but they don't want to abandon the euro or leave the EU. Within Spain (Catalonia), the U.K. (Scotland) and Italy (the Northern League) there are secession movements, but they would likely join the EU. The creation of the EU makes national governments less important and will increasingly make them irrelevant over time.

China's Biggest Real Estate Bubbles

A hot topic in the news today: researchers in China devised a method for quantifying overvaluation in real estate. Among the factors are disposable income, population density, construction costs, mortgage rates and real estate developer investment. (中国30城房价泡沫排行榜 近七成城市超警戒线)

I found a link to a 2012 version of the research: 产业经济学系讨论稿系列No.120:中国30个大中城市房地产泡沫:基于预期均衡价格模型分析【高波 王辉龙 李伟军】pdf, although that may be the latest research because all of these stories are referencing 2012 in the stories. That would likely mean these bubbles have increased by more than 10% in many cities, pushing them to 30% to 40%.

The number one bubble city was Shanghai, at 35.1% above "fair value." Shanghai is likely to always trade at a premium though, so it's hard to know what the market will decide is fair value. Other cities on the list may not be as lucky.

2012 Home Price Bubble Top 10
  Shanghai.....35.10%....April 2014 New Home Price :33402元/平米
  Hangzhou.....34.10%....April 2014 New Home Price:18151元/平米
  Nanchang.....33.52%....April 2014 New Home Price:9654元/平米
  Shenyang.....32.34%....April 2014 New Home Price:7953元/平米
  Nanjing......30.91%....April 2014 New Home Price:14118元/平米
  Tianjin......29.46%....April 2014 New Home Price:11181元/平米
  Chongqing....29.03%....April 2014 New Home Price:7926元/平米
  Lanzhou......27.26%....April 2014 Existing Home Listed Price:5714元/平米
  Yinchuan.....26.07%....April 2014 Home Price:5427元/平米
  Jinan........25.69%....April 2014 New Home Price:8754元/平米

This is also a top story in the Chinese news today.

How Vulnerable are Chinese Banks to a Real Estate Downturn?
What is clear, however, is that real estate price corrections have large consequences beyond simply an increase in real estate developer defaults and mortgage foreclosures. Real estate demand supports a wide variety of industries and real estate as an asset plays a critically important role as collateral for lending and as an investment for households. Large drops in real estate prices lead to contractions in investment and consumption which will damage the economy and ultimately feedback upon the financial system in the form of more defaults. China isn’t in danger of a US-style wave of foreclosures, but the financial sector is certainly not insulated from a real estate-induced economic slowdown.

WMP Non-Guaranteed Product Yields in 2014

Liquidity has been strong in the WMP market, but these charts make clear how investors are moving into shorter duration products in 2014.

The two charts below show non-guaranteed WMPs from small/medium banks (top) and state-owned/large banks on bottom. The lines show yields on 1,2,3,6 and 12 month products. In the small/medium chart, the effect of the trust default in late January is visible.

Developers Turn to Perpetual Debt

Chinese Developers Tap Alternative Funding
The central government— treading a fine line between reining in rising property prices and addressing off-balance sheet problems— has stepped in with measures to clamp down on the availability of bank lending.

However, mainland regulators on March 19 allowed two Chinese developers — Tianjin Tianbao Infrastructure and Join In Holding — to issue new A-share stock sales in the form of private placements, opening up a fundraising avenue that has been closed for almost four years.

Although this is viewed by analysts as a positive step as it opens up an alternative route for the sector, Daiwa's China property analyst Felix Lam believes that the Chinese Securities Regulatory Commission will be very selective in extending stock sale approvals.

"CSRC will need to filter out those developers that really need the money for developments and those that would use to the money to do something else," he said.

......"Bond financing it is much preferred as is cheaper, and it's able to provide adequate size and tenor." As such, Chinese developers have seized the opportunity to lengthen tenors by issuing perpetual notes, with the latest being Greentown China.

The real estate company raised a $500 million perpetual bond in January at a coupon of 9%, and is the fifth ever Chinese developer to do so, according to Dealogic data.

But real estate borrowers will be taking a more cautious or "watch-and-see" approach to issuing on the back of an increasingly volatile backdrop thanks to current industry headwinds, as well as ongoing Fed tapering concerns and rising tensions between Russia and Ukraine, say debt bankers.

Perpetual bonds arrive in China
Under International Financial Reporting Standards, perpetual bonds count as equity as long as they do not have a set maturity and the call is an option of the issuer.

However, according to two sources, the proposed perpetual MTNs will still be counted as debt, instead of equity, on China Merchants' balance sheet. China Chengxin International Credit Rating has rated the issuer and the bonds at AAA.

Without the benefit of equity treatment, companies will have few reasons to issue perpetual bonds other than the greater flexibility that comes with the lack of a fixed maturity. They are also likely to cost more relative to selling standard five-year MTNs.

WMP Update thru April 25

From 金牛理财。

First up the total interest rate on WMPs.

Interest rates on large (yellow) versus small/medium (orange) banks with the spread in blue.

Interest rates on guaranteed (yellow) versus non-guaranteed (orange) products and the spread.

Interest rates on short-term (yellow) versus intermediate/long term (orange) products and the spread.


Moving The System Into Reverse

China's monetary and development policy has been unchanged for many years. Reserve assets are accumulated, which fuels expansionary monetary policy, which fuels asset price increases, which attracts hot money that adds to reserve accumulation. Local government led investment is fueled by land sales, which fuels more real estate development and higher land prices.

Now that is changing. Reforms over the next 5 to 10 years, if successful, will guarantee that China doesn't work this way anymore. That's a good thing in the long-run, but the odds that nothing goes wrong is unlikely. It would be great if that were the case, but I wouldn't bet on it. People are accustomed to things working in a certain way and when it changes, it takes time for people to adjust. If they all adjust at the same time, it results in a volatile change in the market.

As Zhang Mo Nan says in the article below, bursting asset bubbles often complete the transition process— and even if they don't complete the process, they advance the ball a long way. This is why governments that do not intervene in market panics see their economies experience V shaped recessions: the transition is rapid. Governments that prevent rebalancing see L shaped depressions because they fight the market and preserve the dysfunctional system that led to the crisis in the first place.

China is already on the path to reform. The leadership is moving slowly because they don't want a disorderly transition. They want the growth from new markets to offset the slowdown in old markets, but there is a crisis of any size, it will accelerate reform, not derail it— assuming the leadership has consolidated power and squelched opposition.

张茉楠:货币扩张环境发生趋势性改变 Zhang Mo Nan: Monetary Expansion Trend Changing

Our money creation mechanism may be changing, future monetary policy is not only possible to enter "when fine-tuning" may also be necessary to make an inventory of the stock and currency adjustments. All along, China's monetary creation depends on the external surplus. In an open economy, foreign exchange reserves and the movements is not only a link between a country's domestic and foreign financial policies, but also reflects an important factor in the effectiveness of monetary policy and constraints. Caused by rising foreign exchange reserves will change the delivery of base money, enhance endogenous money supply.

From the central bank balance sheet perspective, the main asset is the central bank's foreign exchange reserves, IMF latest data show that the central bank's total assets up 31.7 trillion yuan (U.S. $ 5.1 trillion), of which the proportion of foreign currency reserve assets of the People's Bank's total assets at 83 %, respectively, 1.3 times the United States, Britain, Japan and the European Central Bank assets, 8.1-fold, 2-fold and 1.2-fold. From In this sense, the process is essentially the foreign exchange reserves increased by the People's Bank assets increased and the increase in base money in the process, which also led to foreign exchange earnings generated by external money creation to become the main channel.

However, two-way fluctuations in the RMB exchange rate, balanced two-way capital flows will become the norm, under the capital account deficit may occur in the background, based on the currency exchange rate mechanism will be put in a fundamental change, which is a traditional central bank money creation mechanism will be a new challenge. This year, the devaluation trend is more obvious, according to a report the Bank for International Settlements (BIS) released the latest, March RMB real effective exchange rate (REER), decreased 2.7% to 117.45, for the second consecutive monthly decline, a record in October 2013 Since the lowest level. Nominal effective exchange rate index for March was 112.64, also hit its lowest level since October last year, a decline of 1.8%. In mid-February to mid-March month, the RMB against the U.S. dollar fell 2.6%.

More and more facts indicate that the expansion of RMB assets and monetary trends in the internal and external environment is undergoing changes. According to estimates, currently with the U.S. interest rate, the forward exchange rate of RMB spot estimates of risk-free arbitrage narrowed significantly, foreign exchange continued to decline. February new foreign exchange from financial institutions of 437.366 billion yuan in January plunged to 128.246 billion yuan, a decrease of approximately 71% qoq, the highest since September last year lows. By FX channel functions are transformed into water leakage function. Particularly in light of the Fed's global "central bank" status, the Fed gradually withdraw monetary policy changes will affect the changes triggered by QE, including China, the global monetary and financial cycle.

On the one hand, due to the increase in the private sector to buy foreign assets, the central bank passively withdraw RMB liquidity, resulting in some degree of monetary tightening; the other hand, once formed devaluation expectations, reducing the non-governmental sector increased by U.S. $ RMB assets in the domestic asset allocation is Monetary assets to increase performance and reduce the risk of asset allocation, therefore, increased demand for liquidity, foreign exchange as a mechanism for the creation of base money will be weakened.

From a longer period, the growth rate of China's currency will inevitably stepped decline. First, determine the growth rate of the money supply is the most fundamental factor of economic growth, economic growth declined, the money supply growth rate will decline. Conditions of sustained high growth, long-term structural factors and macroeconomic situation is undergoing major changes, the future potential growth hub down, the appreciation of the RMB-way track changes and external liquidity pressure drop will be a long-term trend, coupled with the risk facing long-term decline in the valuation of assets and to bubble pressure stage of monetary expansion is also facing an inflection point.

Secondly, from a global rebalancing of the environment, the U.S. economy, "and then industrialization" and "rebalancing" may appear stronger than anticipated positive factors. U.S. aims to "to enhance the real economy can trade level" rebalancing strategy will lead to its economy increasingly clear long-term rate of return is expected to rise, while attracting global capital return to the U.S., or will gradually change over the past decade global capital the direction of flow.

Based on the above consideration of many factors, changes in foreign exchange could be a long-term change in the economic structure of a comprehensive reflection. Over the past decade, due to changes in the age structure of our population and the rural surplus labor to urban areas, rising savings rate, reflected in the balance of payments, the performance of the trade surplus continues to expand; reflected in the monetary environment is the rapid growth of foreign exchange , resulting in a lot of pressure of monetary expansion, and the future is likely to change this pattern.

All along, the high savings rate means faster asset or wealth accumulation, the rapid growth of wealth and rapid growth also requires liquid assets, money is the main form of liquid assets. However, the future with the acceleration of the process of population aging, high domestic savings will have a fundamental change in the situation, which will make the original "savings - surplus - monetary expansion," the cycle is reversed, the source of monetary expansion, which led to the disappearance.

Long period of evolution of the monetary and financial policy makers biggest implication is that to avoid asset bubbles out of control, strengthen financial stability mechanisms and measures. From the world experience, several major monetary and financial cycles are based on asset bubble burst, even in the form of the financial crisis to complete the transition.

Thus, with the trend of the future incremental foreign exchange decreased, the situation as the main channel of money creation will change occurs, the central bank deposit rate by reducing the need to enhance the money multiplier, which also means more money creation will depend on domestic credit growth, and was originally used to "sterilize" the foreign exchange deposit reserve ratio is likely to be money "anti-sterilize" the primary way in the coming period to improve M2 through this way. In addition, you can adjust the commercial banks and financial institutions excess reserves and the excess reserve rate impact of interest rate and liquidity, either through bonds or bond market, create a "bond pool" to hedge against the risk of falling water "currency pool."

Chinese Government Takes Hands Off Approach to Real Estate; Sector Will Return to Pre-Stimulus Role in Economy

Key points in the article:

Price cuts are not having the effect of rapidly increasing sales, instead the price cut phenomena is starting to look like dominoes falling. In first tier cities like Beijing, Guangzhou, etc. there are hidden price cuts such as zero down payments.

In Q1, the commercial/residential area sold fell 3.8% yoy; area of residential sales fell 5.2%; residential yuan sales fell 7.7%; sales fell sharply in second- and third-tier cities. According to Centaline, first-tier Hangzhou saw sales volume plunge 94% qoq.

What surprises the public is how calm the central and local governments are in the face of the slowdown. There have been many rumors of government aid, such as in Fujian. One industry insider said maybe the local government's want to aid the industry, but they won't take a step as long as the central government is resolute.

Aside from a previous policy aimed at increasing supply and building affordable housing, the government has not intervened in the market. When prices shot up in 2013, the government said and did nothing. Now prices are coming down, the government has said and done nothing, thus letting the market set prices.

The writers asks, does this mean real estate is moving from a pillar of the economy to an observer?

In 2013, real estate investment contributed 13.6% of GDP growth. This ignores all the industries it helps such as steel, cement and household appliances. Given the urbanization policy and its role in the economy, real estate will not undergo a fundamental change. It will remain a pillar of the economy. But after local governments used real estate to stimulate their economies (post-2008), now there are many stories of ghost cities and indebted governments, real estate has become the pillar of the economic bubble. The government will not travel the old road and instead let the market set rational prices, this will allow real estate to return to its pre-stimulus position as a pillar of the economy.

My comment: Although the media has dubbed price cuts from earlier this year as the first wave, this is only true in some localities. The first widespread wave of price cuts will come when there is widespread recognition that the government is really going to take a hands off approach. Right now, prices have come down a little in many places, but from experience people expect the government to step in or they expect the market will turn up on its own, so prices aren't tumbling— except where there's major oversupply and extremely indebted developers. The government isn't going to act until at least this wave one occurs. Sticking with Elliot waves as an example, there may be a bounce if people think the government will step in at that time and that is when we will really see whether Xi and Li are in control and committed to reform because there will be great pressure to take some action at that time. Wave 3, the big wave that delivers the bulk of the losses, will happen if the government still refuses to intervene.

The article is from Xinhua. If an English version of this story comes out I will substitute it for the Google translation below.

楼市开始出现明显降温迹象 支柱地位会不会动摇 (Clear Signs of Property Slowdown; Will Pillar of the Economy Waver?)
Whether it is frequently heard around the estate discount promotion news, or recently released a quarterly real estate sales and price data, all convey such a signal: high fever in China's property market is finally beginning to show significant signs of cooling. Real estate growth in the face of the stall, the local government's property market deregulation "grapevine" continues, but in the end no city started the "rescue" the first shot. The real estate industry has always been regarded as "an important pillar" of national economic development, while macroeconomic pressure ahead run to re-enter the cycle, the real estate industry will not take up the front line of promoting economic "pillars" again?

Cooling housing market

One after another price cut in the recent Chinese property market is not news. If the developers had little promotional price cuts across the market, do not have too strong for representation, then, the recent domestic real estate enterprises giant Vanke [ Introduction News ] held in Hangzhou, the markdowns seem meaningful.

With lower overall property market in Hangzhou, Vanke multiple projects in Hangzhou recently started a substantial promotional activities, Vanke "We Qiantang House" project launched 52 sets of small apartment decorated lowered standards, compared to the previous sale of units total price from 400,000 to 500,000 yuan discount.

However, low-cost strategy does not return quickly recovered volume, contrary to like pushed to the first domino, followed by more and more cities added to the ranks of markdowns: Changzhou, Ningbo Yingkou, Lianyungang (quotes, interrogation), Qinhuangdao and other places prices have started to show signs of decline. Even the prices firm in Beijing, Guangzhou, Shenzhen and other cities, recently heard some real estate to sell discount "zero down payment" disguised price cuts and other phenomena.

Macroeconomic data also confirms the market changes in wind direction: a quarter of the real estate data from the National Bureau of Statistics show that the national real estate sales area fell by 3.8%, including residential sales fell 5.7 percent; sales fell 5.2 percent, with residential sales decreased significantly, reaching 7.7%. Among them, the second and third tier cities in the volume shrinkage of the most powerful. According to Centaline research statistics, Hangzhou property market in the first quarter of this year, total sales volume in the lower margin reached 94%.

As people are most concerned about housing prices, as early as February this year, 70 cities new commercial housing prices rose year on year for the first time appeared in the ring than double drop since February 2011. National Bureau of Statistics on April 18 released the latest data show that the March 70 cities new commercial housing prices stop rising or falling over the city has reached 14.

Subtle attitude of the Government

Whether the trend is still realistic, cool the property market is evident, however, compared with last year's hot real estate market suddenly decline, more surprising is that the central and local governments in the regulation of real estate issues patience and calm.

With the April 1st quarter release of macroeconomic data, quarterly growth of China's economy to new lows, the economic pressure in the front row of the background, has long been used as an important macro-control "lever" in the real estate market, any policy side The trouble will lead to people's particular attention.

Recent month, accompanied by a cooling property market, more and more "relaxed control" "Exit restriction," the news began to spread among the people. A number of cities including Wenzhou, Changsha, Hangzhou, Fujian were reported execution for four years, "restriction" policy or appeared relaxed, two sets of mortgage money usher resize the window sill or so, "the grapevine." However, they continue to spread the message afterwards almost all gone below. A real estate industry source told reporters, in the face of the real estate market stall, perhaps local governments really have the urge to give the property market deregulation, but as long as the central spiritual unchanged no one dares to act rashly.

For the real estate market regulation policy, the central government-related position described as "Ximorujin." Since last year, the new government has repeatedly emphasized that in addition to increasing housing supply, accelerate the construction of affordable housing and shantytowns outside, almost no direct administrative intervention involving property control, even last year, when prices rose fastest, nor the introduction of any new policies for market regulation. In fact, with this year's two sessions during the "two-way control" of the proposed features of the real estate market regulation has become increasingly apparent.

Maintain the status quo under the existing regulatory framework for real estate, the property market under the background of economic pressure, "inaction" Does that mean that the real estate of this "pillar" industries to play the role of a spectator in the current round of economic cycle as well?

"Pillars" of the status of the return

In fact, as an important pillar industry of the national economy, the real estate industry in the medium to long term investment in fixed assets account for a large proportion - the National Bureau of Statistics show that the contribution of real estate investment to GDP in 2013 was about 13.6%. Moreover, the real estate industry related degree to make a huge iron and steel, cement, household appliances, decoration and so many industries have a decisive influence in the healthy and stable development stage, the real estate industry, has an unusual macroeconomic significance . Especially with the proposed new urbanization and the gradual implementation of the strategy, the real estate industry pillar position will not change fundamentally in the next several years.

However, it is precisely because of these characteristics of the real estate industry, it can easily be used as an entry point to stimulate the economy, stimulating growth in the short term as a rich financial "doping."

Means over a long period of time, the local government quickly stimulate investment and enhance GDP, without exception, are achieved by stimulating the real estate industry. After reaching the short-term economic stimulus, the effect of the expansion of investment, "doping" the frequent use, but also make it increasingly prominent side effect - more and more deserted "ghost town", excessive overdraft land resources, local debt pressure, the extremely high prevalence of speculative and investment prices - turned into a pillar of macroeconomic bubble economy "pillar."

At the time of macroeconomic downward pressure, not easy to introduce policies to stimulate the real estate market, the property market does not relax the established regulatory policy, preferring to bear the cost of bringing the market return to the rational, nor repeat the previous old - in a number of industry experts on these practices is the real estate previous "doping" role gradually pull back "industry-led" original effect, is the real estate "pillars" role-based return.

Hangzhou: The Second Wave of Price Cuts; Villa Price Cut In Half at Lin'an Development

A colorful Chinese idiom for price cuts is back in the headlines: 腰斩, an imperial form of execution involving cutting someone in half at the waist. This time it is villa prices in Hangzhou.

Villas are unattached homes. Sometimes they are stacked close together, sometimes they have a bit more room. Sometimes the sale price is competitive on a per sqm basis, but most often these are luxury properties with high prices per sqm and overall, given the larger area. In Beijing recently, villa prices rose even though home prices have seen weakness.

You can the property discussed in the article here: 湖光山社

According to the data at the link, it hit the market in April 2012. People in the area received text messages saying, "Buy A Villa at Apartment Prices!" and "Price Cut in Half." However, when the reporter called, he found that there was only one home offered at that price. Still, the sales agent revealed that the homes currently sell for ¥7000 / sqm, down from ¥12,000 to ¥13,000 / sqm, which is a decline of 40 to 50%.

The property is in Lin'an district of Hangzhou. Overall, the average price of homes sold during Q1 in Hangzhou was down 11.3% from last year and volume was down almost 38%, but the number of homes and area for sale were up 36.2% and 36.2% yoy, respectively.

Yesterday, Hangzhou property market ushered in the opening of this year's largest tidal wave, 12 real estate focused on the opening weekend. Meanwhile, Hangzhou property market has been filled with the second wave of price cuts, price cuts, a lower opening, special rooms and other promotional means endless. Following the March Hangzhou property market "horse for the first down," the second wave in late April caused the price, especially for a substantial price reduction Lin'an Qingshan Lake high-end residential sector, so that the original firm has been involved in a round of high-end residential market price cuts.

" villa sell apartment price "became the second wave of price cuts in the property market in Hangzhou mark this year. "6388 yuan / square meter, single-family sales crown achievement Hangzhou! lake and mountain community [ News Price apartment Review ] Fold liquidation huge benefits! grab earn! "Recently, in Hangzhou, Zhejiang Liu received seven years to such a "villa sell apartment price" message. He learned then call the sales office said real estate is located in Hangzhou Lin'an Qingshan Lake, the lake and the mountains SMS estate agency, according to 6388 yuan / square meter price, a 400 square meters of the total amount of monomer present as long as 3 million villa million, representing in the previous prices, "the equivalent of playing on the break."

April 23, Daily News reporter to call the buyers as sales offices mountain lake community, it was introduced, priced at 6388 yuan / square meter house price is 305 yuan, equivalent to the price of an ordinary apartment, but belong to a special room, only one.

However, the sales staff said, although only one set, but the project is currently an independent villa price has dropped to 7,000 yuan / square meter, the average selling price in the previous 12,000 yuan -13 000 yuan / square meter, "the equivalent of playing five , 40%. "

Mountain lake club or just move the current mansion a microcosm of the market. Data show that since the first quarter, sales area Lin'an city blocks 70.35% of the total sales area, mansion-lined plate Qingshan Lake area accounted for only 9.25% of sales.

Hangzhou official statistics: the first quarter, the average price of commercial housing turnover Hangzhou fell by 11.3%, while the volume of 10,112 units, down 37.8%. Currently, Hangzhou commercial housing turnover volume and price down facing the situation.

In addition, the pressure on the stock Hangzhou property market continues to rise, as of the end of March, Hangzhou salable commodity housing 76,004 sets of salable area 9,981,000 square meters, an increase of 36.2%, 32.6%. In the first quarter of 2014, the economic situation analysis meeting held in late April in Hangzhou, an official analysis, said:. "Hangzhou property market is facing downside risks."

It's Still Early

Someone Is Betting That The Chinese Currency Collapses By The End Of 2014?
And clearly the hedging of those losses is underway en masse... (the size of the circles is the notinal being hedged - we have highlighted a few for context) as it is clear, hedgers are concerned that CNY would weaken to 6.65 or beyond by the end of the year

Private Investment in Beijing Still Very Limited; Property Benefits

Private investment is increasing in the economy, but a lot of it is still flowing into real estate, especially in Beijing where the government dominates investment.


Recently, the Municipal Bureau of Statistics, National Bureau of Investigation Corps Beijing, Beijing released the investigation of private investment.

In 2013, private investment was 241.95 billion yuan, up 15.9 percent over the previous year, the growth rate increased 11 percentage points over the previous year; this accounted for 34.4 percent of total investment, up 2.1 percentage points over the previous year. In the first quarter of this year, private investment was 38.64 billion yuan, an increase of 35.5%, higher than the growth rate of 30 percent for total investment, has become a major highlight of the city's economic development.

2013, private investment as a share of the city's total investment was 30 percent, over the same period the national private investment share of total national fixed asset investment was 63%, a large gap, which is mainly due to the structural characteristics of the economy long-term accumulation formation.

Nearly half of private investment in the country focused on the secondary industry, and tertiary industry accounted for more than 85% of Beijing total investment because private investment in secondary industries is limited. Meanwhile, the Beijing economy has headquarters economy, the knowledge economy, the distinctive characteristics of the green economy, the headquarters of investment, technology investment, relatively large proportion of environmental investment, and investment in these areas to a large extent by the government, the central state-owned enterprises and municipal dominant.

In terms of industries, in 2013, the ratio of the city's private investment in real estate development to non-real estate development was 73:27. In the first quarter of 2014, the ratio was 69.1:30.9, the proportion of real estate development decreased, but remained at nearly 70%.

Non-real estate sector is mainly concentrated in the manufacturing and information services, accounting, respectively, 8% and 4.5%. Proportion of private investment in some industries than 1%, of which electricity, heat, gas and water production, resident services, education, health private investment accounted for as low as 0.2%.

Currently, Beijing private investment funds in place to self-financing project-based. First quarter, excluding private investment in real estate development projects this year, the actual funds 13.93 billion yuan, an increase of 34.3% over the previous year. Which corporate self-financing 9.26 billion yuan, an increase of 15.8%, accounting for 66.4% of the total funds available; whereas the use of fiscal funds of 7.5 billion yuan, up by 5.5 times, the proportion was 5.4%; domestic loans 2.93 billion yuan, an increase of 3.2 times, accounting for 21.1%.

Overall, Beijing channels for private investment is still relatively simple, nearly 90% of private investment concentrated in real estate, manufacturing and information services.

Explanations for Renminbi Devaluation

Zhong Wei of Beijing Normal University cites three possibilities for the yuan depreciation.

First, he sees no problem with the balance of payments that would justify yuan depreciation, and there is still an abundance of hot money inflows. But there's a gap between foreign exchange purchases (by banks) and payments for exports, which may be due to arbitrage.

What happens is a Chinese exporter receives payment for many months of orders ahead of time. He takes the dollars and exchanges them for renminbi, investing them at high interest rates. Before the contract is due, the importer cancels the order and the exporter must exchange the renminbi back to dollars and refund the customer. Using this tactic, there's no need to export fake goods and worry about getting hassled at customs. If arbitrage is taking place, than this has inflated export numbers and a bigger devaluation may be on the way.

The second possibility for imbalance in fund flows is the one used to explain the February drop: the PBOC is combating hot money inflows (appreciation expectations). If it is hot money flows, it signals the capital flows are larger than believed and volatility in the yuan exchange rate will be higher moving forward.

There's also a third guess at the end foreigners buying A-shares. I don't follow his logic, though one explanation that makes sense to me is that investors buying A-shares are offsetting it with currency hedges.

Of these three, Occam's Razor favors the first. In the wake of the government crackdown on fake export currency arbitrage last year, the arbitrageurs didn't quit, they changed their tactics. The government may just now shutting down this trick as well, or the arbitrageurs were chased out by the PBOC move in February, or they are simply worried about the financial system in China.

Background on the forex gap: Chinese banks continue net forex purchases
Chinese banks bought more foreign currency than they sold in March, the eighth consecutive month of net foreign exchange purchases, China's forex regulator said Thursday.

Chinese lenders bought 167.8 billion U.S. dollars' worth of foreign currency in March and sold 127.6 billion U.S. dollars, resulting in a net buy of 40.2 billion U.S. dollars, the State Administration of Foreign Exchange (SAFE) said in a statement.

The run of net forex purchases began in August last year, but the surplus has been narrowing, down from 45.7 billion U.S. dollars in February and 73.3 billion U.S. dollars in January.

"Overall, China is maintaining cross-border capital inflows but the trend has been easing recently," said Guan Tao, head of the SAFE's Balance of Payments Department.

Zhong Zhengsheng, macroeconomic researcher with Guosen Securities, pointed out that due to expectation of yuan depreciation, clients are proving more willing to hold foreign assets.
And there you have yet another explanation: Chinese investors increasingly want to hold dollars.

There's a mix of several factors in play, but arbitrage through fake trade is the most important (if occurring) because it is distorting trade data.

Since 2014, the gradual devaluation of the RMB, as of mid-April, the depreciation rate of the RMB against the U.S. dollar, has appreciated the full year 2013, exhausted. How to understand the reason for this devaluation happen?

After careful analysis, I think the reason devaluation is more complex, there are three possibilities: arbitrage, to gamble and do more than sing the air.

Balance of payments does not support devaluation

From the international balance of payments perspective, explain whether the presence of factors that support the devaluation? I believe that does not exist. On foreign capital inflows, the current account surplus, foreign debt and foreign reserve situation, does not support the devaluation.

On foreign investment in China, the current FDI inflows remained stable at around $ 10 billion per month in the first quarter of 2014, FDI inflows of $ 41 billion, which in March was $ 10.5 billion. Foreign investment has reached $ 2.3 trillion in China. During the subprime crisis, FDI in China has declined, but is not currently a similar situation. Foreign continue to get the honeymoon period has no excess profits in China, but it still attaches great importance to the steady growth of the Chinese market.

On current foreign exchange, the 2014 first quarter current account surplus of $ 159.2 billion realized foreign exchange, which in March foreign exchange surplus of $ 40.2 billion, some scholars have speculated in March may appear huge hot money fled, Sold Department of sharp reversal from a surplus of deficit, this situation did not occur.

For the purposes of external debt and foreign reserves, China's foreign debt was only $ 42 billion in 2013, a slight increase of the annual $ 5 billion. Nearly $ 5 trillion in foreign reserves can not display more devaluation signals.

We can say that the international balance of payments does not support devaluation.

Receipt and payment of foreign exchange and a huge difference

If we carefully observe changes in foreign exchange and the receipt and payment, and may fall into confusion, the two should have a basic change in the same direction, why the current poles apart? This difference shows that China is currently difficult to explain the existence of excessive foreign exchange inflows and outflows of foreign exchange too little.

Often project, the first quarter current account surplus of $ 159.2 billion foreign exchange settlement achieved, but the receipt and payment of only $ 50.3 billion surplus, the difference between the high $ 110 billion. 2014 a quarter of trade in goods surplus of $ 162.1 billion foreign exchange realization, but the receipt and payment of a deficit of $ 5.2 billion, a larger difference between the two. Receipt and payment of foreign exchange differences and larger areas are Shanghai, Shandong and so on.

In China, including financial institutions, companies need to seek cross-border foreign exchange receipts and payments from the balance. Receipt and payment of foreign exchange and the amount of the previous close, while the timing data with the changes. But in 2013 the goods trade down, and foreign exchange differences between the receipt and payment of $ 280 billion; case $ 167.3 billion by the first quarter of 2014 appeared, and the receipt and payment of foreign exchange differences between the 2014 The extremely alarming. Why is there such a huge suspense?

Three huge differences may occur

The receipt and payment of foreign exchange and cause a huge difference, I believe that arbitrage may point to a large organization, especially in the mature central enterprises overseas network.

We can cite examples: a Chinese exporters received a $ 100 million-called export orders, the foreign counterpart has paid for foreign six months of D / A acceptances. The exporter may apply for $ 100 revokes the order, the Chinese exporter will be "forced" to buy $ 100 million in foreign exchange, refund to exporters. This process is apparent as import and export contracts entered into and canceled, the outer tube observation trade finance real false export arbitrage arbitrage behavior. Any costs of such behavior, no original camouflage export declaration, inspection, insurance, transportation, etc., do not need to re-export the high seas migratory only need to enter into forward contracts and canceled.

Evidence that foreign trade enterprises export earnings rate (the ratio of the export value of foreign exchange received) on the rise, in 2013 an increase of 2 percentage points. While imports of pay rate (the ratio of the amount paid for the import of foreign exchange) is declining, 2013 decreased by 7 percentage points.

Technical factors supporting this approach is that in 2013 the import and export of foreign exchange transaction-verification system was abandoned, and export receipt and payment verification networking reporting more relaxed, in practice local foreign exchange management agencies usually check on the receipt and payment of 12 months, and rarely individually checked. Previously written off individually when the receipt and payment business, so companies can not be the receipt and payment accounts in one pot, and now, at least within 12 months, can be relatively safe to do that.

In this process, there is a mature financial network of overseas central level should be the protagonist. Financing sources in the petroleum, petrochemical, and accounted for by domestic bank loans less than 10%, "barrels of oil" itself has a high degree of financialization.

If the difference between the receipt and payment of foreign exchange and arbitrage lead, then it means that now the real exports of goods, even worse than the export statistics. After coming arbitrage arbitrage space contraction, the magnitude of devaluation may be greater.

Of course, a huge difference and the receipt and payment of foreign exchange may also point to financial institutions hot money inflows. So, short of RMB devaluation the central bank is likely to gamble in their.

Recalling the 1997 financial crisis, Hong Kong, and its layout is very simple principle: the Anglo-American capital-based organizations in the spot market continued to sell dollars, buy dollars, the stock market continued to buy shares in the Hang Seng sample, which makes the preparation stage hoarding HK faced appreciation pressures, rising stock market indices. After ready enough chips HK and Hong Kong stocks, speculators built on a lot of bearish stock index futures contract positions, and then continued to buy foreign currency in the foreign exchange throwing HK, so HK under enormous pressure to devalue, a sharp rise in the overnight rate; while throwing in the stock market sample stocks, the Hang Seng index was dropped sharply. In the hoarding - sell-off, speculators in the foreign exchange market and the stock market is a loss, but stock index futures contracts can create unlimited profit amazing.

In the financial blocking action, the Hong Kong SAR Government was underfunded and can not continue to undertake the Anglo-American capital of HK and sell stocks, the mainland Chinese government stepped in to buy almost unlimited stance continued to buy. Lead to a complete collapse of confidence short speculators.

This is great with money to bet against the background of the will. Maybe it can explain why, in the balance of payments - either under the capital account or current account surplus in the background are the RMB has depreciated. This is a warning to the central bank institutions hot money, a method of RMB only moderately but not excessively speculative speculative warning.

But perhaps the size of the organization is not so huge hot money. Cross-border sales and overseas payment options exist yuan, could explain part of the difference between the form and the receipt and payment of foreign exchange.

RMB cross-border purchase and sale of businesses might be interested in the receipt and payment have an impact, there is corporate demand payment of RMB cross-border payments can not be paid in foreign exchange, but in the SAFE statistics, enterprises need to purchase foreign exchange from banks, but still deemed foreign exchange payment. In addition companies may also direct payment to overseas accounts, without having to purchase foreign exchange through the territory. But these factors only explain arise between the receipt and payment of foreign exchange settlement and about half a huge difference.

If the difference between the receipt and payment of foreign exchange and contain elements of gambling, it is likely a reflection of the interest rate market in China in the process, some seemingly synchronized promote market-oriented, innovative initiatives to relax capital controls, but it makes Cross-border capital flows become more difficult to control the risk. Meanwhile, the RMB exchange rate fluctuations are more likely to occur.

A huge difference and the receipt and payment of foreign exchange, there is a possibility that the greatest changes in the international asset allocation point, that may sing the air to do more foreign.

This is just a guess, insufficient evidence. The external situation is that the U.S. economic growth and lower-than-expected labor force participation rates, inflationary pressures than expected large, so the pressure of the Fed rate hike may be more urgent, which makes the possibility of the U.S. bond market at low tide in the stock market to increase.

Now this huge difference in China occurred in the field of foreign exchange, a possibility can not be excluded: foreign financial institutions interested in A shares of increasingly strong, wishing at low tide in the global capital injection of A shares have become quite cheap among. Therefore, from the second half of 2013 QFII positions gradually increased, showing foreign financial outlook for the Chinese economy to be added pessimism, perhaps absorb cheap chips are packaged skills.

(The author is professor of Beijing Normal University)