2015-01-31

Wind Power Access Rights Collapse

Yet the energy produced is still too expensive.

Massachusetts Wind Leases Sold for Fraction of Prior Sale Price
The U.S. Interior Department sold two leases to build wind farms off the coast of Massachusetts to the only two bidders and for a fraction of what the agency received from previous sales.
RES America Inc. agreed to pay $281,285 for access to 187,523 acres and Offshore MW LLC is paying $166,886 for 166,886 acres, according to the Bureau of Ocean Energy Management. Previous auctions generated millions of dollars.

“We knew that developing an offshore wind facility in these areas is going to be more expensive,” she said. “As a result of that, we set the minimum price for the bids lower than for the other states. We’re happy with the results of this auction.”

“It’s difficult with the Investment Tax Credit to find a utility willing to pay four to five times the price of wholesale power for offshore wind, especially as the price for solar and onshore wind decline,” Grace said. “With the expiration of the federal tax credits, it’s even more difficult to justify.”

Euro High or Low?

U.S. Dollar has seen its annual high or low in January in 20 of past 21 years
There is an extremely powerful tendency for the U.S. Dollar Index to experience its annual high or low in January. The same (but opposite) is true for the Eurocurrency.

In fact, in 20 of the past 21 years the EuroFX has topped or bottomed in January. In four of these 20 years the January high or low was part of topping or bottoming phase that was not resolved until February or March. The table and chart below tell the story.

A $1.21 high for 2015, or a $1.10 low for 2015?

2015-01-30

QE and Volatility

Chinese Investors Create Ghost Cities in America

China's overseas property investment to reach $20 bln in 2015-study
Chinese investors are set to fork out $20 billion on offshore property this year, up 21 percent on 2014 as more domestic real estate developers and insurers internationalise their holdings, Jones Lang LaSalle Inc said on Monday.

Chinese offshore property investment had increased 46 percent to $16.5 billion last year on the year before, with nearly 70 percent going to commercial real estate, the property consultancy said in a report.

This story is about outbound investment to California and comes with this anecdote:
Chinese Real-Estate Firm Looks West—to California
“Around 2011, that’s when the floodgates really opened up,” said Ken DeLeon, founder of DeLeon Realty, which specializes in high-end homes in Silicon Valley. Mr. DeLeon said developers have begun bringing in feng shui consultants, and prices of homes are listed with more eights at the end, a lucky number in Chinese culture.

Some of the homes end up sitting vacant for much of the year, brokers say, used only when the owner visits the area.

This, in turn, has sparked concerns among some longtime residents that an influx of foreign ownership could ultimately lead some neighborhoods to become empty during days and nights, where homes are just investments.

Peter Carpenter, a board member of the Menlo Park Fire Protection District, which includes Atherton, said he worries about firefighters, who typically take risks to extinguish a fire under the presumption that a house is occupied.

“If you knew for sure that there was nobody in it, you would take a very different approach,” he said. “From a fire-department standpoint, it means putting your people at risk for no reason.”

Offshore Yuan Sinks Again

Offshore Yuan Drops to Weakest Since 2012 on PBOC Easing Signs
The yuan traded in Hong Kong fell to its weakest level since 2012 as the People’s Bank of China said it pumped funds into the money market, fueling speculation the authority is easing policy further amid an economic slowdown.

As I pointed out yesterday in Will China Devalue or Deflate?, if China eases, the yuan will devalue.

A falling offshore yuan can have a big impact on the Mainland market.
The Informational Power of the Offshore Yuan Exchange Rate

2015-01-29

All But One Chinese Province Misses GDP Target in 2014

 
  2014 GDP Growth Forecast 2014 Actual GDP Growth GDP Miss
1 Shanxi 山西 9.00% 4.90% 4.10%
2 Liaoning 辽宁 9.00% 5.80% 3.20%
3 Yunnan 云南 11.00% 8.10% 2.90%
4 Heilongjiang 黑龙江 8.50% 5.60% 2.90%
5 Gansu 甘肃 11.00% 8.90% 2.10%
6 Ningxia 宁夏 10.00% 8.00% 2.00%
7 Guizhou 贵州 12.50% 10.80% 1.70%
8 Guangxi 广西 10.00% 8.50% 1.50%
9 Hebei 河北 8.00% 6.50% 1.50%
10 Qinghai 青海 10.50% 9.20% 1.30%
11 Shanxi 陕西 11.00% 9.70% 1.30%
12 Inner Mongolia 内蒙古 9.00% 7.80% 1.20%
13 Tianjin 天津 11.00% 10.00% 1.00%
14 Xinjiang 新疆 11.00% 10.00% 1.00%
15 Fujian 福建 10.50% 9.90% 0.60%
16 Shanghai 上海 7.50% 7.00% 0.50%
17 Sichuan 四川 9.00% 8.50% 0.50%
18 Hunan 湖南 10.00% 9.50% 0.50%
19 Zhejiang 浙江 8.00% 7.60% 0.40%
20 Anhui 安徽 9.50% 9.20% 0.30%
21 Hubei 湖北 10.00% 9.70% 0.30%
22 Jiangxi 江西 10.00% 9.70% 0.30%
23 Jiangsu 江苏 9.00% 8.70% 0.30%
24 Shandong 山东 9.00% 8.70% 0.30%
25 Beijing 北京 7.50% 7.30% 0.20%
26 Henan 河南 9.00% 8.90% 0.10%
27 Chongqing 重庆 11.00% 10.90% 0.10%
28 Tibet 西藏 12.00% 12.00% 0.00%

Source: 
20多省去年GDP增速未达预期 山西差4.1%为差距最大

Beckground: Liaoning Sounds Warning on Chinese Economy

Some of the 2015 Forecasts:

Some provinces, such as Liaoning, cut their forecasts about to their 2014 growth rate. That's probably still too optimistic, but it is one of the more realistic forecasts.

Beijing and Shanghai Reject Calls For Easing

Developers want Beijing and Shanghai to ease buying restrictions, but officials are holding the line. Only 5 cities still have buying restrictions: the four tier-one cities and Sanya.

Critics argue that if first-tier cities lifted restrictions, first-tier cities might suck the oxygen out of the market. Rapidly increasing prices in first-tier cities would draw developers and investors, while the third- and fourth-tier cities sink. In any event, first-tier cities do not want rapidly rising prices in the first place.

"From the perspective of land finance, the land market in first-tier cities has warmed, relaxing buying restrictions is useless. In addition, the third- and fourth-tier cities are different, there demand is weak, but first-tier cities' housing demand is still very strong. If buying restrictions are canceled, it could cause rapid increases in house prices in the short term." China Index Academy, executive vice president Huang Yu said.

An insider at the Shenzhen Urban Planning and Land Committee told reporters that behind the first-tier cities unwillingness to ease buying restrictions is not central government pressure, but all kinds of local government concerns.

iFeng: 北京上海楼市限购拒谢幕 开发商执着呼吁局部松绑

Will China Devalue or Deflate?

Two articles out today discussing the impact of devaluation on the stock market and real estate, along with the PBOC's new worry: capital outflows.

BLS Says Patriots Ball Boy Found Tampering With CPI Spreadsheets

Europe has slipped into deflation and so has the United States. This data is from the Billion Price Project at MIT. The freshest data comes from their sister side, Price Stats. It shows the decline in monthly inflation continued unabated into 2015, so monthly deflation is now at 2008 levels. Monthly deflation only lasted for 5 months in 2008/2009.

Mish has a discussion of deflation at his site (Asset Price Deflation Coming Up? Food Prices About to Drop? CPI About to Go Negative? Credit Deflation?), and he posted this picture. The annual CPI bottoms out one year after the peak in oil prices.

Here's the core CPI, which didn't go negative in 2008, but did slip below zero for one month in January 2010.

I went back to the late 1990s to see how the CPI was doing then, and the drop in oil all the way to $8 a barrel did slow inflation, but it didn't cause deflation. Looking at 2008 and current prices, annual deflation is likely to last until the summer, assuming the drop is similar to 2008. If a more pernicious slowdown is underway, perhaps due to a rapidly slowing Chinese economy, the deflation could last much longer than the 2008 episode.

2015-01-28

China Relaxes Public Housing Fund Rules Again

The rules for the housing fund were eased in 2014, with changes such as allowing savers to tap the funds nationwide. Previously, a Beijing worker, for example, could only tap housing funds for a Beijing home or rental.

The new change allows savers to tap the funds for rent after making 3 continuous monthly contributions.

iFeng: 租房提取住房公积金条件放宽:连续缴存3个月可提

More Bad News For China Debt

Local borrowing sounds alarm bells
Recent estimates from China International Capital Corporation put local government debt levels at around 22 trillion yuan ($3.51 trillion) by the end of 2014, with 15 to 20 percent of this amount tied up in "highly risky" projects.

The local government bond market is now valued at about 5.6 trillion yuan, most of which will mature in 2016. By that point, local governments could face enormous repayment pressure.

More debt and less growth:

Local govts lower 2015 GDP forecasts
Fifteen provincial-level governments out of 17 that had published their economic growth targets as of Tuesday have cut their forecasts for 2015, to focus on quality and efficiency of growth amid a slowing economy.

Three out of China's four municipalities have lowered their 2015 growth targets. Beijing set its 2015 growth target at 7 percent, down from 7.5 percent in 2014. North China's Tianjin cut the 2015 forecast to 9 percent from 11 percent in 2014, and Southwest China's Chongqing has set a 10 percent growth goal for 2015, compared with 11 percent in 2014.

Many provinces have missed their growth targets for 2014. For instance, North China's Hebei Province saw GDP growth of 6.5 percent in 2014, compared with the target of 8 percent.
The forecasts are still too optimistic: 2015 growth will be slower than 2014.

Shanghai to introduce stress tests for city's banks
Shanghai's banking regulator is requiring commercial banks in the city to run stress tests related to credit for realty development, including credit for developers and home buyers, in a bid to curb risk exposure, Reuters reported on Tuesday.

The report quoted a circular from the Shanghai Office of the China Banking Regulatory Commission dated Monday, saying that the CBRC will continue monitoring risks that may be brought by realty development and credit to property companies outside the city.

China's Albatross of Debt

A great piece on Chinese debt.
WSJ: Debt That Once Boosted Its Cities Now Burdens China (Alternate Link)

A little over a year ago, a Chinese credit agency downgraded a government-owned financing company in this dusty industrial city. Default—nearly unheard-of in China on government bonds—was a possibility, it said.

But during discussions with lenders, city officials made sure Wuhan Urban Construction Investment & Development Corp. could keep borrowing...

...Wuhan Urban, whose debt jumped 20% in 2013, has borrowed big. A listed unit raised 650 million yuan ($103.9 million) in November from bond sales to underwrite a construction blitz that earned Wuhan’s mayor, Tang Liangzhi, the nickname Mr. Dig Dig...

...“When it comes to raising funds for the purpose of developing the city, we leave no stone unturned,” Wuhan Urban said in a July report...

...“The guys running local government financing operations won’t roll over and die,” says Fraser Howie, co-author of “Red Capitalism,” a study of China’s financial system. “These companies take on a life of their own.”

...Roughly 8,000 local-government-financing firms across China are responsible for the rapid development of cities but also the glut of housing, industrial parks and other projects economists and officials say threaten China’s economic health. “If you’re building projects that can’t cover their cost, you’re spending money on keeping them going,” says Mr. Howie. “Some hospital somewhere isn’t being built; some small company isn’t getting money.”
The punchline is that China is adding debt faster than Japan and Korea prior to their recessions.

Also, land sales had fueled a lot of this development, but as Deutsche Bank pointed out, land sale finance will hit this year: Deutsche Bank Says Land Sales Slowdown Only Started Hitting in Q4
There is a common misperception that land revenue has already dropped sharply in 2014. The market appears well aware of the slowdown of property sales and land auctions in 2014. It likely overlooked the lag between land auctions cooling off and the decline of fiscal revenue. The reality is, land market started to cool down sharply in March 2014, but land sale from a fiscal revenue perspective in yoy terms remained positive until Q3 2014. We believe the fiscal shock to local government revenue only started in Q4. The full impact will likely be seen in H1 2015.

What happened to real estate investment in December 2014? It went negative for the first time in at least a decade and probably much longer.

Any guesses where Jan-Feb will land, short of a massive increase in credit?

Background on how a real estate recession is a Threat to China's Development Model
China International Finance Limited, chief economist Peng Wensheng sees three effects from weak land sales. The first is reduced local government investment, reduced fixed asset investment. [There's your economic rebalancing away from investment.] The second is increased debt risk for local governments. The third is restrained credit growth. Peng also makes the important point that real estate price decline expectations are still forming. As I've pointed out here in previous posts, the situation was worse from a price standpoint in 2011. Peng goes on to note that developers haven't started to reduce land purchases yet, but that could be coming in the next few months, in which case land revenue growth for many cities will decline and even turn negative.

To recap the situation: Chinese local governments sell land to developers who build homes and commercial centers. The revenue from land sales pays for development of supporting infrastructure, everything from roads and subways to schools and parks. Land sales also finance local government debt which exploded after 2008. In the post-2008 economy, developers rushed to build property amidst a real estate bubble and when the government moved to restrict activity in first- and second-tier cities, developers poured into third- and fourth-tier cities and repeated the model. However, developers have run ahead of many local governments. In areas where there are true ghost cities, support infrastructure such as schools and hospitals have not been built. If the real estate bubble bursts and land sales fall, local governments will need to find another revenue source or they may be unable to finance the infrastructure that generates GDP growth and supports the local real estate market, and they may even face a debt crisis in some of the worst hit areas. This ignores all the potential issues with indebted developers, plus overproduction and bad debts in other sectors of the economy.

Do You Plan to Hoard Dollars?

As I've covered previously, when the Chinese yuan slides, the financial media in China starts talking of hoarding dollars. Mostly unseen since 2012, it's back.

21st CBH: 人民币贬值持续 囤点美元划算不? (Yuan Devaluation Continues, Do You Plan to Hoard Dollars?)
The question is, after you've exchanged for dollars, what do you do with them, just hoard them? Renminbi financial products yield 4.4% or you can put cash into the stock market or P2P lending, but U.S. dollar financial products only yield 1.2% to 2.5%. A lot of bank sub-branches do not even offer U.S. dollar products. For investors thinking of changing yuan to dollars to profit from a rise in the dollar, it is worth it to think twice.

It goes on to suggest investors use QDII products that invest in the U.S. to profit from a rising dollar, though this carries more risk. The one product mentioned is a real estate investment fund from GF Securities. For people traveling abroad, it is suggested to "cash in" now before the dollar gains more strength versus the yuan.

Key point: Chinese individuals can walk into most banks and walk out with U.S. dollars, or put them into a U.S. dollar account. If the Chinese herd decides buying dollars is the thing to do, the move will be incredible.

A-Share Futures Slump on Margin Check News

Bloomberg: China Index Futures Fall in Singapore on Margin Curb Concern
Chinese stock-index futures slumped amid speculation increased regulatory scrutiny of margin loans will spur some leveraged investors to reduce holdings.
SGX FTSE China A50 Index futures for January delivery dropped as much as 5.2 percent before paring losses to 2 percent at 11:41 p.m. in Singapore.

7 Provinces Launch Govt Homebuying Schemes

I covered the launch of Fuzhou's bailout plan here: Chinese Governments Get Serious About Bailouts and Growth. Six other provinces have cities that have launched bailout plans involving the direct purchase of private homes: Sichuan, Anhui, Jiangsu, Liaoning, Inner Mongolia and Guizhou. Governments are trying to find ways to digest 600 million sqm in empty homes and the need to provide 7 million affordable homes. Since the Ministry of Housing plans to spend about ¥500 billion on shantytown renovations this year, and 40% can be used for relocation, this equals ¥200 billion for home purchases, equal to roughly 1 million homes.

For example, the government took the financial Appropriations, what can only acquire real estate? Was selected as replacement housing real estate projects, how to enjoy tax relief? Real estate projects under construction, which projects are eligible to enjoy the ride halfway CDB support? How to prevent government officials in the selection of housing projects in the process of the abuse of power? These types of problem are unresolved.

"Although the details of the operation still encounter many problems, but at least three or four lines to ease pressure on the stock as a short-term strategy for promoting stable and healthy development of the real estate market in these areas is of great significance." Yanghongxu think.

But insiders pointed out that even though the policy is good, but for a huge inventory digestion in third- and fourth-tier cities, the effect may not be large. Assuming a home is 60 square meters, the repurchase of 1 million units will only take care of 60 million square meters of inventory, accounting for 10% of the 600 million square meters in stock. Last year new home sales topped 1.2 billion square meters.

Yanghongxu that the government purchase and the practice of real estate as a long-term solution is not appropriate, otherwise there might return to the era of welfare housing. China's housing supply system, improve housing security system, should be independent of the development of logic and institutional framework.

White Knight Unlikely For Kaisa

I haven't seen this argument before: the article linked below notes that it may difficult to find a white knight for Kaisa due to the large number of projects frozen by and intertwined with the Shenzhen government. For "strangers" to Shenzhen, there is not much advantage.

iFeng: 融创10余人进驻佳兆业总部 一次性全盘接手有困难

2015-01-27

How Yuan Devaluation Affects the Chinese Economy

The Chinese media is informing the public what to expect from, and how to handle, a currency devaluation.

How Does Yuan Devaluation Affect the Zhang Sixpack? Homeowners May See Asset Values Shrink (人民币下跌对老百姓的影响如何?有房一族资产或缩水)

If the future of the RMB exchange rate to enter the depreciation cycle, will lead to a large number of international capital outflow China gamble RMB appreciation in the short term, this will lead to domestic local illiquid market and push up interest rates, resulting in house prices, stock market and other asset prices fall, affecting banks and financial system's debt security.

Devaluation of the renminbi is not conducive to foreign investment. At present, China's overseas investment is speed, but whether it is government investment or business investment, will be affected by the exchange rate. In the case of devaluation of investment dollars in overseas projects, purchase of foreign exchange to increase their cost disadvantage.

Moreover, unilateral devaluation of the RMB yuan overseas equivalent balances seigniorage, resulting in the loss of overseas yuan holders of wealth, adversely affect the internationalization of the RMB.

The article breaks down the public into different groups.

One group is the import buyers. These people will feel a loss as they see import prices rise substantially.

Second, the asset holders:
There is a "coincidence": RMB appreciation nine years, is China's real estate prices continued to rise 9 years.

2005, the RMB appreciation after starting there is a clear signal: the long-term appreciation versus the US dollar.

In theory, there is a lot of dollars into China, into RMB assets, depreciation of the dollar relative to circumvent. After entering these dollars to the existence of some form of assets.

Which is to buy more real estate. One of the reasons prices rose over the past few years is the appreciation of the renminbi. In appreciation of this process, homeowners, people, the rapid appreciation of the assets. Expected real estate appreciation, but also inspire more people desire to buy a house.

If devaluation, investors worried that the withdrawal will be assets of real estate, especially those early influx of domestic funds from abroad, due to devaluation and out of China, or did not dare to easily enter the Chinese market, a variety of factors that boost domestic housing asset prices will go away.

Overseas students: wait and see how the currency behaves; wait for a good price. (This advice is based on currency volatility, not a major long-term decline).

Tourists: if the yuan starts depreciating, convert all your cash before leaving the country, instead of using credit cards.

Investors: yuan and A-shares are correlated. A drop in the yuan will lead to a drop in equities. Aviation and real estate could suffer, utilities, telecom and healthcare may hold up better.


Beijing Rents Fall, Subway Hikes Blamed

Beijing switched from a 2 yuan flat price for subway rides to a system based on distance. The result is much higher prices than before:
Near Tongzhou orchard subway station, Xiao Li told ChinaNews only 84 yuan per month to work on the subway ride before, after subway prices were raised this soared to 252 yuan, the cost of commuting traffic is 3 times higher.
Some analysts expected rising subway prices to affect rents, but the reality is the change didn't affect rental rates. Instead, rents fell in eastern part of the city center. Rents did fall in the commuter district of Tongzhou, as well as the southern districts of Daxing and Fengtai.

The most likely cause of falling rents is falling home prices. Chaoyang is the most developed district and Haidian is filled with universities and good middle schools.

iFeng: 北京地铁涨价城区房租反跌 租金涨幅被指透支

China Sells Treasuries, Yuan Falls

Patrick Chovanec has a piece in Foreign Policy explaining why China's sale of treasuries isn't bad news for the U.S., let alone the treasury market itself:

Why China’s U.S. Treasury Sell-Off Is Good News
But when the PBOC sells U.S. Treasurys, the opposite occurs. It can’t spend the dollars it receives in the Chinese economy, and if it exchanges them for yuan, it’s in effect taking money out of the Chinese economy. The PBOC can counter this tightening effect by injecting more yuan, on its own, but selling U.S. Treasurys does nothing to channel more funds into the domestic Chinese economy. Quite the contrary — it is buying reserves that expands a country’s money supply and credit; selling those reserves is (other things being equal) contractionary.

Then what good are the dollars the PBOC gets when it sells U.S. Treasurys? Though accepted around the world, U.S. dollars are fundamentally a claim on goods and services, and assets, in the U.S. economy. When China draws down its reserves, it means money wants to flow out of the Chinese economy, to purchase those goods, services, and assets from abroad.
The whole piece is worth reading.

Some information to add on, from 2010: China to use "effective exchange rate"
Caixin: The reform that started in July 2005 focused on setting the yuan exchange rate with reference to a basket of currencies. However, there are many questions about this "basket." How did PBOC choose currencies in the basket, and what are their weights?

Hu: To select a basket of currencies, some countries or agencies have taken into account a single measure. For example, the Bank for International Settlements considers the weight of foreign trade. Because the exchange rate floats mainly on the basis of supply and demand in the real economy, the current account can comprehensively reflect the real economy. While in the current account, foreign trade is the most representative factor. As a result, in the selection of currencies in the basket, trade is among the first priorities.

In our opinion, the effective exchange rate basket should have a variety of currencies to reflect diversification of trade and investment. The weight is to be determined based on the current account situation and the currency structure of capital, and the financial account, and cross-border receipts and payments. Usually, currencies in those countries with active economic relations with us or frequently used in bilateral economic activities will be selected for the basket currencies.

In 2012, I wrote Chinese yuan is down for the year, more losses coming
One of my main reasons for predicting a depreciating Chinese yuan (and I've been wrong for about 2 years thus far) is that I expect a U.S. dollar bull market against foreign currencies, and the PBOC's switch to a currency basket means it will break with the U.S. dollar. Previously, China was adding euros during the first and second round of the Greek crisis, which structurally weakened the yuan (based on my expectation of euro depreciation). The above article shows that the PBOC hadn't followed its rhetoric and is only now relying on the currency basket, which could go a long way to explain the depreciation in May. The wildcard in the basket is the yen.

Next up: Beijing’s Twisted Logic
An even curiouser pronouncement came in response to last week’s move by the European Central Bank to print 60 billion euros a month to buy government and corporate bonds. In a news conference, People’s Bank of China Vice Governor Pan Gongsheng said Friday that the flood of new euros was likely to boost China’s exports to Europe and put downward pressure on China’s yuan.

Boost exports and push down the yuan? It is a most provoking thing when a person doesn’t know a cravat from a belt.

For starters, printing 60 billion euros a month is a sure-fired way to weaken the value of the euro against any currency whose supply isn’t increasing at an equivalent rate.
As far as I can tell, Pan Gongsheng didn't say against which currencies the yuan would depreciate. Since the USDCNY cross is the most closely watched, I assume any non-specified talk of depreciation and appreciation is against the U.S. dollar.

China does have an incentive to further weaken the yuan though:
Traders violate this peg at their peril, for the PBoC has used money-printing for years to buy up nearly $4 trillion dollars to keep the yuan from rising. It can now sell those dollars if necessary to keep the yuan from falling.

In fact, it has been. With its own economy weakening, the property market falling and Beijing declaring open season on official corruption, money has been seeping out of China for months. So despite rising exports China’s foreign-exchange reserves have dropped 3.5% since June, to $3.84 trillion. The PBoC isn’t mounting a very determined defense, however. Despite selling off some of its dollar hoard, it has nudged the yuan 2% lower against the U.S. dollar since late June.

...A weaker yuan would make China’s exports cheaper overseas, helping China maintain market share against Japan, whose central bank is printing up to 80 trillion yen a year to boost exports. It would also help shore up exports to Europe, China’s second-largest export market after the United States.

Pan may have simply scrambled the order of events when he suggested a weak euro would help China’s exports and weaken the yuan. It’s surely the other way around: China will weaken the yuan and support exports to Europe.
Both are true. The Chinese central bank can take advantage of a falling euro to diversify away from the U.S. dollar, as it did during the prior rounds of the European sovereign debt crisis. The goal may not be to devalue the yuan, but as the euro share of reserves rises and the Chinese reform the financial system, the market increasingly determines the direction of the yuan and that value is increasingly tied to the EURUSD cross. The Chinese buy yuan, propping up the euro versus the dollar, while devaluing the yuan versus both. Then if the euro (and other currencies) tumbles versus the U.S. dollar, the yuan decouples from the dollar and recouples with the non-dollar currencies.

Weak yuan not a product of ‘engineering’
China isn’t trying to engineer yuan weakness, unlike what happened in the first half of 2014, and will push back against the weaker spot rate through fixings, Brown Brothers Harriman & Co strategists led by Marc Chandler wrote in a note yesterday.

The Bloomberg Dollar Spot Index rose to the highest level in data going back to late 2004 as the euro tumbled after the European Central Bank announced a bond-buying program last week. PBOC Deputy Governor Pan Gongsheng said the ECB stimulus was adding to depreciation pressure on the yuan.

This isn't helping matters: Clients urged to be wary as deposits vanish
Cases in which clients' bank deposits have disappeared have triggered a call for Chinese banks to strengthen internal management and for depositors to be wary of interest rates that are much higher than benchmark figures.

In several widely reported cases, criminals colluded with bank clerks or executives.

They lured clients with high deposit rates, provided them with false information and later transferred the clients' money to criminals' accounts.

Zhao Xijun, deputy dean of the School of Finance at Renmin University of China, said, "Banks must improve supervision of their operations to prevent their clerks from doing illegal business while keeping other people in the dark."

The cases reported include the embezzlement of 95.05 million yuan ($15.26 million) from 42 depositors at a rural commercial bank in Hangzhou, Zhejiang province.

Mingtiandi points to the dollar outflows: MOST CHINESE COMMERCIAL PROPERTY INVESTMENT NO LONGER IN CHINA AS OUTBOUND DEALS JUMP 46%
Chinese investments in overseas real estate increased by 46 percent to a record $16.5 billion in 2014, as China’s slumping property market combined with regulatory reforms to send its investors across borders in search of deals.

For the first time ever, Chinese buyers have spent more on commercial real estate outside of China than domestically in 2014, according to a report released today by property consultancy JLL, as outbound acquisitions of office and retail space jumped by nearly half compared to the previous year.
China could slam the door on these flows, but it has actually been encouraging them in recent years: Lenovo Heeds Jiang’s ‘Go Out’ Call in Second China M&A Wave
Fifteen years ago, China initiated a “Go Out” policy that encouraged state-owned companies to acquire overseas energy and mining assets to feed an emerging export juggernaut.

Today a new generation of Chinese buyers has emerged: private companies led by deal-hungry entrepreneurs. Rather than looking for natural resource deals, firms like Lenovo Group Ltd. (992), Fosun International Ltd. (656) and Dalian Wanda Group are pursuing everything from computer servers to movie theaters and brand names like Club Med.

2015-01-26

Beijing Existing Home Sales Pick Up

Existing home sales are picking up in Beijing. In the first 10 months of 2014, sales were below 10,000 every month and September was the only month above 9000 homes. In 2013, there were nine months of sales above 10,000 homes. This month, sales could crack 13,000......as of yet no news of a pick-up in new home sales.

iFeng: 北京二手房单月成交量或破1.3万套 房价微涨
Since last year, Beijing has been sluggish recovery in the secondary housing market recently. According to the chain of home real estate market research statistics show that the fourth week of January 2015, Beijing second-hand housing transaction price was 35,190 yuan / square meter, rose 3.8 percent last week.

"Overall, from the beginning of December last year, Beijing second-hand housing market has been warmer, but the rebound is relatively stable, the volume has gone up, the average transaction price does not rise sharply." Chain of home real estate market research to Zhang Xu "Securities Daily" reporters bluntly last week, prices have risen is actually affected by structural factors, and some regional second-hand housing prices are still declining.

Monthly volume will break the 13,000 units mark

According to the chain of home real estate market research center statistics, as of January 25, Beijing secondary residential net signed volume of 9261 units, a decrease of 19.5% over the same period last month, is expected this month, the volume will be about 13,000 units.

In fact, since last year, Beijing second-hand housing market has suffered, remains in the doldrums. According to the Central Plains real estate monitoring data show that by 2014, 10 months, secondary residential net signed volume has been hovering around 10,000 sets of the following, just over 9000 units in September; and in 2013 as a whole, there are nine single month net signed more than 10000 sets, even the highest monthly amount of net signed up more than 43,000 sets.

However, since November 2014, all the second-hand housing market recovery. If you can achieve a breakthrough in January this year 13,000 units of volume, this would mean that Beijing second-hand housing market, hold a slight rebound stable situation, rather, "Alice inclusive" pattern.

China Housing Area Under Construction

Trust Funding Gone, PBOC Defends Yuan

China Property Agony Deepens as Trust-Loan Lifelines Cut
Issuance of property-related products, which channel money from wealthy individual investors, tumbled 62 percent from a year earlier to 38.5 billion yuan ($6.2 billion) in the fourth quarter, data compiled by research firm Use Trust show. Builders must repay 241 billion yuan of trusts in 2015, up from 178 billion yuan last year. Kaisa, which missed a bond coupon payment this month, failed to repay a 2.5 billion yuan trust last week, people familiar with the matter said.

China Switches to Supporting Yuan as Outflows Mount
After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China is now propping up the yuan to stem an exodus of capital that’s threatening the economy.

A gauge of capital flows on the PBOC’s balance sheet fell by the most since 2003 last month in a sign it’s selling foreign currency, while the yuan’s reference rate set daily by policy makers is at its strongest-ever level compared with the market price.

Flashback to June 2014: Real Estate Trust Problem Stretches into 2015; Too Early To Say No Crisis
The trusts, which channel money from wealthy individuals to smaller builders that have trouble obtaining financing elsewhere, must repay 203.5 billion yuan ($32.7 billion) in 2015, according to Use Trust, a Chinese research firm. That’s almost double the 109 billion yuan due this year. New issuance of the products slumped to 40.7 billion yuan this quarter, the least in more than two years, Use Trust data show.

November 2014: Trust Apocalypse Averted in 2014

As for the yuan and PBOC reserves, one or the other is set to tumble.

Liu Shijing: China's Real Estate Turn Is Not Cyclical

Background on Liu Shijin.

China needs two to three years for the economy to bottom from the time when investment bottoms. A soft or hard landing in real estate is possible based on international experience.
刘世锦:住宅需求峰值已达到 房地产处历史拐点
Deputy director of the Development Research Center of the State Council in Beijing, said Liu Shijin on the 24th, the current Chinese real estate is not cyclical, but are at a historic turning point.

Liu Shijin in the sixth China Economic Outlook Forum sponsored by the China Economic Times made the above remarks.

Recently, some real estate experts, including many influential people believe that China's real estate market is cyclical current estimated price of real estate in September 2015 at the line, but Liu Shijin do not agree.

In Liu Shijin view, China's real estate market is at a historical turning point. "History of urban residential peak demand is 1.2 - 1.3 million units, this figure has reached 2014, after reaching there will gradually go flat, gradual downward trend, so our view is very clear, China's real estate is in historic turning point. "Liu Shijin said.

For the trend of prices, Liu Shijin that from the whole country, there will be a certain level of overall prices down, but the price will be significant changes in the regional characteristics.

For example, he said, even the United States more than a dozen states have offices in Beijing, we can understand why the Beijing housing prices down get down. But now, many places are like Erdos (8.67, -0.08, -0.91%) like a ghost town, the local prices and Beijing is certainly not the same, so the rate change has obvious regional characteristics.

Decline in real estate, in the end is the short term rapid fall in the end, or the gradual decline in the fluctuations? Liu Shijin reminder, this thing is now not sure, from the international experience, both of which are, in the end is how Chinese form, you also need attention.

Liu Shijin that now infrastructure and export growth which two "Boots" has landed, real estate investment has retreated, after bottoming only other real estate investment, high investment will be bottoming out, the high growth of the Chinese economy will bottoming bottoming one to two years estimated time, no more than three years.

National Bureau of Statistics latest figures show that in 2014 China's real estate development and investment fell 9.3 percentage points more than in 2013, real estate sales fell 7.6 percent, commercial housing sales fell 6.3%, real estate for sale in the area increased by about 129 million square meters more than at the end of 2013.

He also said: Interest cuts weak in stimulating China's real economy

"Considering the overcapacity in many industries, interest cuts may cause huge capital flow into stock markets other than supporting real economy," said Liu Shijin, deputy head of the Development Research Center of the State Council, China's cabinet.

He said the deflation risk in China comes from shrinking demands and excessive production instead of insufficient money supply, which is totally different from the cases in mature markets like the United States.

"Stimulus is not opposite to reforms," he said. "China's current fiscal policies are effective in improving demands through increasing infrastructure investment."

2015-01-25

Chinese Governments Get Serious About Bailouts and Growth

Over the weekend, two Chinese cities rolled out major policies to spur the economy and bailout the housing market.

The most important news comes from Fujian province. In Fuzhou, the city government is implementing one of the Ministry of Housing ideas for absorbing housing inventory, offering to buy empty houses from city residents. Homes between 45 and 135 sqm can be sold to the government at a discount of at least 15% from the market price.

The full impact of this policy is hard to predict. This is good news for lenders, since housing speculators can repay their loans, but the effect on the housing market is less clear. Once the government has the homes they will face pressure to generate cash flow. Renting them out will put downward pressure on rental prices and satisfy rental demand, potentially relieving some demand from home buyers. In high demand areas, the plan could bear dividends as former ghost cities are brought to life and increase overall demand. In less attractive areas (the under developed, uncompetitive fourth-tier cities), the government may achieve nothing except the concentration of risk on the municipal balance sheet.

iFeng: 福州统购市民余房 商品房价低于市场评估价15%以上

Hangzhou is offering subsidies of up to ¥1 million ($161,000) to highly skilled individuals who purchase a home, and they can also receive a ¥30,000 subsidy ($4800) on car purchases.

There are five classes of talent, from A to E. A top level A talent is a global talent. B is a national talent. C is a provincial talent. D is a municipal talent. E is for high level talent. The A class talent will be assessed individually, B class can receive the ¥1 million housing subsidy.
For example, for A class talent will take one person, one proposed solution to the housing problem; for B, C, Class D personnel there are ¥1 million, ¥800,000, ¥600,000 in housing subsidies; E class talent can receive ¥1200 / month rent subsidies.

Global entrepreneurs who launch innovative new companies can receive a ¥5 million subsidy, while a team of entrepreneurs can earn up to ¥20 million. A major groundbreaking project can receive up to a ¥100 million subsidy.

This policy is very aggressive and signals some concern about the economy, but it is a smart way to attract talent. On the plus side, Hangzhou, and Zhejiang province more broadly, is also friendly to private capital and entrepreneurship. This isn't an unfriendly, high tax, high regulation area trying to lure in businesses. It's a capitalist-friendly city looking to grow its way out of trouble.

iFeng: 杭州出台人才新政 买房政府最高补贴100万

The People's Daily days the housing market will not collapse, and will hopefully rebound in 2H 2015.
The current volatility of the property market in some people's eyes has been exaggerated as a prelude to the collapse. Experts believe that the real estate "crash," said to be worried over. On the one hand, there is still a lot of macro-economic development potential; on the other hand, the rigid requirements to support the property market will move. ICBC chairman Jiang Jianqing said the mainland Chinese real estate has always been a very strong demand, excessive inventory places may need to make adjustments, but after a period of time to adjust to reach a steady state of equilibrium, will not pose a significant risk.

"Historically, Japan and the US real estate bubble are generated in the urbanization rate has reached more than 75 percent, and economic growth is slow, but there is still room for development of urbanization in China, and the economy has maintained rapid growth, so the crash occurs unlikely. "Director of the National Development and Reform Commission reform and development of cities and small towns Tie Center said.

iFeng: 人民日报:中国楼市不会崩盘 下半年有望再回暖

Zhang Xin of SOHO China rebuts the urbanization drive. China property tycoon calls top of urbanisation drive
“By now, most of the cities in China are built,” she said on the fringes of the World Economic Forum in Davos. “Even small towns are quite built. So I think the intense urbanisation has come to an end.”

In the piece below, she sounds optimistic about the government's ability to manufacture GDP out of Chinese savings, but addressing Kaisa she says, "Instantly, the debt market is gone."


Finally, in other housing news, Beijing says affordable housing policy is history. Beijing started building affordable housing in the 1990s. The price was held at ¥4,000 per sqm and there were strict income restrictions on who could live there. After this year, all of the wait-listed families will be able to buy homes and the city will end the policy. Going forward, the city will help low income residents rent public housing.

iFeng:北京不再新建经适房 4000元经适房将成历史

Cement Production In 2014

Updated with December 2014 data.

2015-01-24

Beijing Luxury Housing in Focus

The Economic Observer takes a look at Beijing's high-end housing market, where supply opens 2015 at 10 times year ago levels.

北京豪宅供应同比放大十倍 限购松绑遇阻人口控制

Fake Bank in Nanjing

Only in China.

China: Fake bank swindles customers out of $32m
To customers in the eastern city of Nanjing the interior looked like any other state-owned bank, with uniformed clerks working behind the counters, the Southern Metropolis Daily website reports. Almost 200 people deposited their cash, including a businessman who handed over 12m yuan ($1.9m; £1.3m) in 2014. But he grew suspicious when he wasn't paid the promised interest on his money, and went to the police after the bank refused to return his savings. A police investigation found that it was actually a rural cooperative, which had none of the accreditations required to operate as a bank. It had been promising interest rates of 2% per week and high interest subsidies, police say.

The fact the "bank" was able to operate for so long has left some Chinese social media users incredulous. "More than a year, it looks like the authorities have gone blind," says one user on the Weibo social network. "Fake banks, and a fake local government," comments another user. Police have arrested five people over the scam, including a woman who reportedly high-tailed it to Macau, China's famous gambling centre, with the customers' money.

2015-01-23

Debt Is Still The Problem

Worth watching for a refresher on debt, the failure of QE and modern banking.

Where's the Recession? Real Estate Investment By Province, December 2014

Real estate investment contracted nationally in December. There was no single month decline in real estate investment based on the NBS data that goes back to the early 2000s, the worst single month was 1% growth at the start of 2009. Last month, real estate contracted 1.9% nationally versus December 2013, though growth was 10.5% for the year.

Following are several charts of individual province's real estate growth figures. The YTD growth figure, the headline number that was 10.5% growth in December, is in red. If you want to see a province that isn't listed, put it in the comments and I can add it. The most important ones are the top 5 provinces for real estate investment. The number fluctuates month-to-month, but these provinces are consistently at the top and they accounted for 44% of national real estate investment in December.

Liaoning was covered in Liaoning Sounds Warning on Chinese Economy. It, along with Heilongjiang, is heavily exposed to industries such as steel, coal and oil. These provinces turned to real estate as a way to generate growth in recent years, but now everything is collapsing simultaneously. Jiangsu province is a wealthy province surrounding Shanghai. It's unclear if this dip will be a one-off drop or a trend. Zhejiang province is the center of the 2014 real estate slowdown, with cities such as Hangzhou, Ningbo and Wenzhou figuring prominently.

Buyers Still Wait and See In Beijing

An article in the Beijing Evening News argues that Beijing buyer's hopes for falling prices have increased. Also, due to many developers focusing on the high-end market, a price war over luxury homes could kick off in 2015. High prices at land sales, while good for Beijing government finances, are also a sign that luxury supply will be high.

iFeng: 2015年楼市释放宽松信号 购房人或加深观望

Beijing's deputy mayor says buying restrictions won't be lifted. He's answering recent public discussion of the policy.

Chen Gang, vice mayor of Beijing in Beijing Fourteenth General Assembly on behalf of the third meeting of the People sub-group team meeting, said that the city real estate has gradually entered into benign and healthy development stage . Beijing housing price, limited credit policy has been liberalized, but do not consider lifting the restriction.

Chen said, housing prices return to reason, regardless of new homes last year, second-hand house prices fell by an average of about 2% to 3%. "Reducing the move to sell." Chen Gang said, "Last year, 100,000 new homes for sets, sold 69,000 units, almost reaching 70%." In addition, the real estate investment structure has also been optimized to return to the residents who own homes, rather than speculators and house flippers.

iFeng: 北京市副市长陈刚:北京不考虑取消住宅限购

Beijing will continue supplying affordable housing to the market, selling it for 70% of the surrounding market price. Additionally, the remodeling of up to 100,000 shantytown homes is expected to be completed in 2015.

iFeng: 北京自住房不停止供应 按周边房价70%制定售价

Another Building Locked in Shenzhen, Another Developer Arrested

He Jianhua of Gangfei Development (港丰地产) was arrested and buildings locked.

iFeng: 深圳又一家房企被锁盘 港丰地产老板何建华被捕

Offshore Yuan Joins Euro Plunge

Still below the low from early 2014, but not far from it. A good time to review Currency War: Battle of Hong Kong and The Informational Power of the Offshore Yuan Exchange Rate

New All-Time High In Euro Gold Comes Into View

The price of euro gold hit 1146 euros per ounce today. A new all-time high would be hit if the price of gold climbed above $1560 per ounce and the euro remained unchanged, or if the price of gold is unchanged and the euro falls to $0.83. A move to $1400 in gold and a drop to parity for the euro would also do the trick.

2015-01-22

Buying Restrictions End in Sichuan With Real Estate In A Deep Freeze

Yesterday I posted Latest RE Bailout: Shaoxing Offers Subsidies. Now Sichuan has ended buying restrictions and Beijing's buying restrictions are being debated.

In Sichuan, all buying and price restrictions are canceled. iFeng: 四川楼市全面取消限购限价 购房落户政策将放开
According to Sichuan Provincial Housing Department expressed an insider, the above measures are in accordance with the needs of the market-oriented reform, the real estate market to adjust itself. In addition to the purchase and price restrictions being canceled, policies such as in Chengdu, 90 sqm home purchase settlement policy in the future will be gradually liberalized. 2014 was the most difficult year the property market, but according to market test data, sales data by the end of 2014 has gradually picked up, housing prices back to life, the investment in the next round but also confident, 2015 Sichuan property market will pick up.

National Real Estate Managers Union Sichuan Branch Secretary Xu Ho to the "Daily Economic News" reporter, said, "Now the government does not want the real estate bust situation continues, after deregulation will promote the improvement of the type of demand, but the introduction of new financial policies need to be . "

Mao Daqing of Vanke and the Chinese People's Political Consultative Conference says Beijing should end buying restrictions on properties priced below 50,000 yuan/sqm. iFeng: 政协委员毛大庆:提案放开北京5万以上住宅限购
Mao Daqing, in an interview with People's Daily reporter said, Beijing increasingly high land prices make him uneasy, Beijing the next few years is likely to enter ordinary residence "is luxury" of the embarrassing situation. Based on this, he suggested that the government should first try to release the price of yuan / square meters of residential price controls, and also appropriate to relax the purchase of 50,000 yuan / square meter and above residential restriction policy, and the establishment of an early warning mechanism to guard against financial risks.

And in the land transfer, Mao Daqing think it should be adjusted as soon as land transfer. Reduce the amount of land transfer listed, but should take a more tender to sell the form, thus avoiding extremely high land prices caused some developers too irrational bidding.

China's property market no longer 'red hot but deep cold'
"China's urbanisation-led growth is almost coming to an end. Very little money is going into buying new land and building new buildings because so many buildings have been built," said Zhang Xin, chief executive and co-founder of real estate giant SOHO China.

"Real estate has moved from red hot to deep cold. This is the cold, cold sector of the economy. No money wants to go into real estate," Zhang said.

"Developers like me which used to spend so much time buying land and building buildings, now are also moving on the consumption side," she said.

That means finding more creative ways to rent out office space, for instance.

"Can I come up with a new product that can suit the new generation, the mobile generation?" she said.

No wonder Chinese Real Estate Investment Contracts in December.