2015-02-28

PBOC Cuts Interest Rates, Rate Cutting Cycle Still in Early Phase

The PBOC cut interest rates by 25 basis points, lowering the one-year loan rate from 5.60% to 5.35%. The deposit rate falls from 2.75% to 2.5%. However, the PBOC increased the deposit band to 130% of the official rate, up from 120%. Banks could pay 3.30% interest on deposits before the cut, today it is 3.25%. This ends up being a rate cut across the board, unlike in November, when deposit rates were allowed to go up.

Liu Shan, deputy editor of the China Business Times, discusses the reasons for rate cut. He notes that deflationary forces in the economy and a monetary phenomena and lists the causes, which include
...the failure of the transmission mechanism of commercial banks. On the one hand is the lack of bank credit, mainly reflected a drop in demand in the real economy of credit, banks are more cautious lending, securities companies and banks to use the "two financial" business to put money into the stock market; the other is debtors are using new credit to repay old credit, not to support new investment. These two reasons lead to central bank liquidity not effectively flowing into the real economy, inflation will not be able to support prices.

Followed by contraction of the money supply base money growth. This is a consequence of the outflow of funds, recently the phenomenon of foreign exchange decreased significantly, while creating the conditions for the normalization of the deposit reserve ratio, but the money supply growth rate declined, no doubt suppressed the general price level rose.

In front of the complex world economic situation, China's macroeconomic authorities presumably deflation problem is getting a headache, because the long-term economic recession would lower prices, thereby affecting employment.

How to deal with deflation footsteps getting closer, is the central problem of the urgent need to face.

In terms of housing, the new rate cuts will save a borrower 144 yuan per month on a ¥1 million, 20-year mortgage. (央行再次重磅降息 百万月供减少144元楼市迎利好) Combined with the November cut, borrowers can save 378 yuan per month. This article is also optimistic about the rate cut boosting the real estate market, even in fourth-tier cities, which seems like a stretch. They are correct in expecting further rate cuts though.

Pressure on the yuan will increase as both devaluation and interest rate cut expectations harden.

ZeroHedge has further coverage of the rate cuts, including Goldman's take: China Cuts Interest Rates, Takes Number Of Central Banks Easing In 2015 To 21. The post has this chart showing the housing decline in China thus far is worse than the initial decline in the U.S.

2015-02-27

Hong Kong and Macau Consider Visitor Limits

Hong Kong and Macau are on the front line of the emerging Chinese middle class. I expect foreign countries in Europe may impose similar restrictions eventually, if the growth of tourism follows a similar pattern. One factor at play is Chinese are highly tolerant of crowds due to their experience in China. Going to the mall on an average day in Beijing is like going to an American mall on Black Friday. "Nobody goes there anymore, it's too crowded" culturally translates into Chinese as "it's too crowded there, so everyone goes there now." From the Western perspective, Chinese do not respect personal space. This pictograph essay doesn't get into that aspect of the cultural differences, but the street on Sunday picture is a good approximation of it: Chinese designer depicts Eastern vs. Western human behaviors in clever pictographs. Chinese culture is not unique in this respect. Westerners don't want to ride on a rush hour train in Japan either, but Japan's population is 1/13th of China's, limiting the impact on tourism.

Tourism Tensions Have HK Mulling Limits on Visitor Numbers
Hong Kong's government is considering curbing the number of tourists from the mainland it allows into the city to address the public's concerns.

Hong Kong's leader, Leung Chun-ying, said on February 24 that he would talk to central government leaders about the possibility of limiting the number of visitors when he attends the annual session of the Chinese People's Political Consultative Conference in Beijing.

..."The SAR government has noticed that people's daily lives have been affected by the increase in mainland tourists coming to Hong Kong," Leung told reporters, referring to the city's status as a special administrative region.

Macau govt wants to cap number of mainland tourists
The Macau government wants to impose a limit to the number of mainland tourists that visit the city, Secretary for Social Affairs and Culture Alexis Tam Chon Weng announced.

Mr Tam said tourists already swamp some areas of the city, which has a negative impact on the population’s daily life.

The announcement came on the heels of the overcrowding faced at Macau’s borders and main tourist spots during the Lunar New Year festive season, which started on February 19.

Mr Tam told reporters that the Macau government plans to soon discuss the issue with mainland’s central government. He said no cap had yet been decided and that limits could vary for different seasons of the year. Mr Tam added he hoped the cap could be introduced still this year.

Market Expects March Rate Cuts

The market expects the PBOC will cut interest rates in March in order to combat deflationary forces tearing through the economy.
市场对通缩局面担忧趋严重 消息称3月份降息临近
Increased risk of deflation in the market place expectations on monetary policy. While several agencies have told the reporter to predict the future monetary policy will be mainly neutral, but the market for a rate cut as soon as the voice more and more. And a source told the newspaper reporter, said March rate cut was imminent.

CRE Securities research director Zhong Zhengsheng macroeconomic forecasting to the reporter, according to the central bank's monetary policy report, monetary policy remains neutral, but that does not mean that will not cut interest rates, in fact, including the new monetary policy tools included, as well as lower interest rates and a series of prospective liquidity management are integrated into the central bank's monetary policy options. With the intensification of market expectations for the Fed to raise interest rates in the second half, then the corresponding, our expectations of a rate cut RRR should be in the first half.
Some analysts think other measures, such as RRR cuts, may have more impact or may be needed in addition to interest rate cuts. Whatever the policy choice, expectations are high for monetary easing next month.

Chinese Wonder If Wall Street Bank Has Suppressed Gold Price By One-Third

Banks Face U.S. Manipulation Probe Over Metals Pricing
The U.S. Justice Department is investigating whether the world’s biggest banks manipulated prices of precious metals such as silver and gold as it pushes to wrap up probes into currency-rate rigging, according to people with knowledge of the matter.
The one-third lower price comes from Nick Barisheff, who uses U.S. federal debt growth to come up with an expected current value of $1,800 per ounce.

21st CBH:华尔街投行涉嫌操纵金价 金价或被压低1/3

2015-02-26

Why Chinese Buy Foreign Real Estate

Here's a contrast in living standards, from low to high. The Chinese peasant lives at a standard of living not far above 1980s standards, while middle income Westerners can live better than China's wealthiest.

First, is the home and neighborhood of a Chinese peasant. The headline roughly translates as: A Real Rural Home in Henan, After Seeing People Shocked (河南真实的农村房曝光 看后令人大吃一惊)

Next is the picture gallery which followed that above story, about a middle class home in Canada. The headline roughly translates as: Canadian Middle Class Home, After Seeing China's Wealthy All Cry 加拿大中产阶级的房子 中国富豪看后都哭了.

Sign of the Times: Shippers In Trouble

Caixin: Three Private Shipping Companies Run into Financial Troubles
Three private shipping companies in China have run into financial troubles since the beginning of this year, problems one expert blames on overcapacity and weak demand for commodities.

Dalian Winland Group Co. Ltd. declared bankruptcy on February 13. The company, set up in 1993, has 18 bulk cargo ships and four container ships.

Also, the heads of Shanghai Hong Sheng Gang Tai Shipping Co. Ltd., a domestic operator of container ships, went missing on February 9, leaving behind huge unpaid debts.

And Xia Hanren, the boss of Zhejiang Xiazhiyuan Ship Management Co. Ltd., fled to Singapore at the end of January to escape mounting debts.

China's weak demand for commodities and overcapacity resulting from many new ships hitting the water recently have triggered the troubles, said Zhou Shu, an analyst from Shanghai Shipping Exchange, an information provider.

Customs data show the country imported 78.57 million tons of iron ore in January, down 9.4 percent from the same month a year earlier. It imported 16.78 million tons of coal, down more than half.

Steel companies bought less iron ore in January, said a middleman involved in ship rentals, and traders were reluctant make purchases. He blamed weak demand for steel and tight financial situations for the problems.

Germans Oppose Another Bailout

Eventually a price will be paid at the ballot box, but not yet.

ZeroHedge: "NEIN" - Germany's Bild Has A Message For Greece: "No More Billions For Greedy Greeks"

Chinese Fear Ominous Sign in Currency Market, Dub Yuan a Fixed Currency, Market Dead

Chinese currency traders viewed the first day of trading in the Year of the Goat as ominous, as the renminbi barely moved on Thursday, effectively a dead market. The lack of activity comes as the yuan is sitting on the edge of the daily trading band. Unable to trade the yuan lower, the currency has become fixed again. The peg is here again.

iFeng: 人民币再趋跌停 交易员:这个市场死掉了 不会动了
Reuters quoted a trader saying, this market is dead, it doesn't move.

Another trader at a large Chinese bank feels the same: "Hey, everyday a fixed exchange rate, saves me effort."
Other traders see the yuan as being weak against the dollar due to U.S. dollar strength, not yuan weakness. Which is partially the case, but what if the U.S. dollar bull market is only beginning?

Yuan Within 0.03% of Weak End of Band Amid Easing Speculation
The yuan was little changed from Wednesday to close at 6.2589 a dollar, China Foreign Exchange Trade System prices show. The gap with the central bank’s reference rate of 6.1379 was 1.97 percent at the close, after earlier widening to 1.9958 percent, near the 2 percent limit.

“It seems that they are leaning toward a weaker yuan but they are doing it very, very slowly and very gradually,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong, referring to the PBOC. “There’s probably going to be some mild intervention just to make sure we don’t hit that top band.”

Spooked by Yuan Drop: China’s Megarich
Because of the extreme concentration of money at the apex of Chinese society, national stability rests to an extraordinary extent in the hands of just two million or so families. They are the top 1% of urban households, and already, their confidence in China’s future under President Xi Jinping is shaky.

Many are fleeing with their cash--not all of it, but enough to bid up prices of luxury real estate from Mayfair to Manhattan to Mission Bay, a waterfront neighborhood of Auckland, New Zealand.

Financial authorities are trying to ensure that the remainder doesn’t disappear across the borders. A potential trigger for a disorderly exodus of capital, one that could threaten the entire fragile financial system, would be a precipitous decline in the value of the Chinese currency.

That’s one reason—an important one—why a sharp yuan drop is unlikely, even though a slowing economy is increasing domestic pressure on the government to let the yuan fall in a bid to boost exports.

China Links Shanghai and Hong Kong Gold Markets

Trading in Shanghai is small now, but it may not stay that way for long once China has the infrastructure in place to handle larger trading volumes.

Shanghai-Hong Kong gold link-up may offer new regional benchmark
China is set to launch a link between gold markets in Shanghai and Hong Kong this year following a landmark stock connect scheme, aiming to enhance its pricing power of gold contracts and ultimately challenge its competitors in the West.

While China is the world's largest consumer of the precious metal, having surpassed India, daily trading of gold in financial centre Shanghai is small compared with London.

The move to develop gold trading comes as more trade flows to Asia and is in line with Beijing's efforts to open up its domestic markets to foreign investors. China wants more market players to use its yuan currency when settling trade contracts and for making investments.

"We will cooperate with the Shanghai Gold Exchange and set up a link this year, making it a platform for market participants in Hong Kong to enter mainland China's gold market," Chan Sheung Chi, president of Hong Kong's Chinese Gold & Silver Exchange Society said this week.

Casino Stocks Tumble on New Year's Slump

Macau casinos hit lunar new year cold streak
Barclays estimates that average daily table revenues in Macau were HK$510.5m (US$66m) for the week to February 23, a period including five days in the holiday period, compared with HK$541m the week before. Phoebe Tse, the bank’s gaming analyst, said the figures were “much weaker than we had anticipated”.

...Shares in Wynn Macau and Melco Crown Entertainment sank almost 6 per cent on Wednesday, while Sands China fell 5.6 per cent and Galaxy Entertainment Group shed 4.9 per cent.
The stocks tumbled as much as 8 per cent during the trading session, which saw Hong Kong’s Hang Seng index finish with a gain of 0.1 per cent. Many gaming companies have seen their share prices fall as much as 50 per cent over the past 12 months as the troubles facing the sector have mounted.
Even the Cambodian casino stocks are selling off though.

Beijing's glare deepens crisis in Macau
During a recent visit to four of the city's glitziest casinos, VIP rooms were mostly desolate, with some shuttered and one boarded up, their tables covered with wood and white cloth.

At nearby pawn shops and jewellers, used by many gamblers to evade China's strict currency controls, and at money remittance agents in the Chinese border city of Zhuhai, there are fewer customers about.

In February last year, operators of the Chinese-controlled enclave's 35 casinos were riding high, their revenues for the month up 40 percent year on year. This year, February revenues are expected to fall 40 percent, having fallen in each of the previous eight months, too.

2015-02-25

China Has More Real Estate Policies Prepared In Case Holiday Slumber Doesn't End

Developer sales in January were weak and Spring Festival has shut the industry down in February. 【晚报】中国已做好支持楼市政策储备 春节楼市暂休眠
Shanghai Real Estate Institute released a "typical January 2015 Housing Enterprise Report" shows that in January 2015, including Vanke, Hengda, Poly, the sea, green, Wanda, Country Garden, Shimao, Greentown and financial record, including the top ten housing prices transaction area, the average turnover and turnover performance are unsatisfactory. Among them, the sales amounted to 52.52 billion yuan, a decline of 58.4% mom, down 5% yoy; the average transaction price of 11,727 yuan / square meter, a decline of 15% mom, down 5.3% yoy; closing an area of ​​4.48 million square meters, a decline of 51.1% mom, an increase of 0.3% yoy.

China eyeing measures to ease housing slump
China is preparing measures to counter a housing market slump and will roll them out if the economy needs support, people with knowledge of the matter said.
The government could reduce down-payment requirements for second homes, the people said, declining to be identified as the information is not public. Another step could be letting homeowners sell properties without paying sales tax after two years, down from five years, they added.

...“The government is quite concerned,” Citigroup Inc Hong Kong senior China economist Ding Shuang (丁爽) said by telephone.
While the manufacturing data “shows some rebound, the overall economic downturn is not arrested. The government will carefully monitor the economic data and react,” Ding said.
Implementation of the easing policies would depend on whether an economic downturn continues or worsens, the people said.

Growing Backlash to Foreign Buying of Real Estate

I'm only surprised how long it took for the laws to be enacted.
Surge in Chinese housebuying spurs global backlash
Australia plans to impose a new tax on foreign property buyers after Chinese investment in Australian real estate soared 60 per cent last year, in the latest sign of a gathering international backlash against wealthy Chinese property investors.

The move, which came after locals complained about being priced out of the housing market, follows the introduction of similar, more punitive, taxes in Hong Kong and Singapore aimed primarily at discouraging the flood of mainland Chinese money into those markets. Governments in all three locations say that the new taxes are not directed at any single nationality.

...“The domestic Chinese market is very unstable, full of bubbles and depends on government policy,” says Cathy Zhang, senior sales consultant at Ausunland Group.

Prices for prime residential real estate in cities such as Los Angeles and Miami are roughly 25 per cent lower than in Shanghai.

Government restrictions, worsening pollution and decrepit health and social services have also led many Chinese to buy property in more developed countries they may wish to eventually emigrate to.

...Capital controls restrict Chinese residents from exchanging more than $50,000 in foreign currency each year, which would make it almost impossible for a Chinese person to buy a prime residential property abroad.

This means effectively that all property purchases by Chinese nationals overseas are technically illegal.
The fees are laughable though, at 1%. There is a 25% fine for foreign buyers who purchase existing homes, however.

Given negative social mood, growing backlash against immigration and increased discussion of capital controls at central banks, it was only a matter of time before foreign buying of real estate was added to the list. Numbers matter as well. The United States cannot accommodate the potential demand from wealthy and even upper middle class residents of the emerging markets, let alone smaller countries such as Australia. Hong Kong residents increasingly protest Chinese tourism due to the large number of visitors and Macau is considering restricting travel as well. Restrictive policies will become the norm in coming years.

On Tap: More Reform and Tax Cuts

Two sessions preview: China at the crossroads of another wave of reforms
The "One Belt and One Road" represents for China and the outside world a prime opportunity to build cooperation. The Belt will link China with Europe through Central and Western Asia while the Road will connect China with Southeast Asian countries, Africa and Europe. "It serves more as a roadmap for Chinese investments to go global and for China to forge a global partnership network." Zhao Minghao, a research fellow at the Charhar Institute, a Chinese foreign-policy think tank, told the Global Times.

The "One Belt and One Road" signals a recalibration of both China's internal and external policies. It aims to propel an open economic system within the country while further integrating China into the world economy and deepening cooperation with the outside world, especially in terms of building infrastructure and other development projects.

Xi announced the creation of a $40 billion Silk Road Fund to support the development of the "One Belt and One Road" on November 8 at a dialogue meeting on strengthening connectivity and improving cooperation in the country's neighborhood. The fund is designed to improve trade and transport links in Asia and was established on December 29. According to a statement by the People's Bank of China on Monday, the Fund is now active, and will "seek investment opportunities and provide monetary services throughout the Belt and Road Initiatives."

China provided $10 billion tax breaks for SMEs
China has expanded preferential tax policies for small companies and reduced their tax burden to boost economic growth and employment, state-run Xinhua news agency reported.

Nearly 80 percent of urban jobs are provided by small companies, which were also the mainstay of China's exports.

Tax breaks for the SMEs amounted 61.2 billion yuan (USD 10 billion) in 2014, the State Administration of Taxation (SAT) said today.

China pledges SME tax breaks to spur growth
The cabinet said it would extend existing tax breaks to small businesses until the end of 2017, as well as lower the threshold for companies that qualify for the preferential treatment.

Tax cuts include a cut in unemployment insurance.
iFeng: 李克强主持召开国务院常务会议:确定进一步减税降费
The meeting decided that, in the pre-state has issued a series of preferential policies on the basis of small and micro enterprises continue to increase innovation and entrepreneurial efforts to reduce costs of tax cuts. First, from January 1, 2015 to December 31, 2017, will enjoy preferential corporate income tax for small and micro businesses range from annual taxable income of less than 100,000 yuan (including 10 million) to expand less than 200,000 yuan (including 20 million), according to the tax rate of 20% corporate income tax, help small businesses grow quickly. Second, real personal income equity, real estate, technology inventions and other non-monetary assets investments from April 1, 2015, would have been the pilot by staging a one-time tax of tax incentives to promote the country, to stimulate private investment in energy individual. The third is the provision of unemployment insurance rate from the current 3 percent unified regulations to 2%, the ratio of specific units and individual contributions from all over in full to consider raising the unemployment insurance benefits, and promote re-employment of the unemployed, the implementation of the unemployment insurance subsidies and other stable post determined on the basis of factors. Preliminary estimates, only the fee reduction measures will reduce the burden on businesses and employees annually than 400 billion yuan.

First and Second Tier Developers Optimistic

First- and second-tier developers are optimistic that prices will rise in 2015 and investment plans were stepped up ahead of the Spring Festival.

Developers say that prices in the center of the cities held firm, while prices outside of the city fell much more. They are looking for prices to bottom out and possibly even rise in Q1 and optimistic prices will rise by the end of the first half.

Developers don't have new investments underway, but with the outlook improving, developers are making plans.

Credit was tight ahead of the holiday, but the industry expects those conditions to ease in March.

iFeng: 一二线开发商认为房价将回升 预计普遍较乐观

2015-02-24

Monthly Charts of Gold Show Bullish Turn

The spike to above $1900 doesn't appear on the monthly chart. In U.S. dollars, gold has flat-lined, the short-term indicators barely turning positive and the price chart still in a slow downtrend that started at the end of the 2013 crash. If the U.S. dollar continues to rally, the slow downtrend in gold is equivalent to a rally in foreign currencies. Gold is consolidating at a higher plateau before its next run.

What's Going On With Solar and Interest Rates?

Why does solar rise and fall with interest rates?

Solar stocks appear highly correlated to movements in the 10-year treasury yield.

The iShares 7-10 Year Treasury (IEF) has a -0.83 correlation with Guggenheim Solar (TAN) over the past 5 years.

The correlation is also high versus the 5-year treasury yield. TAN has a -0.83 correlation with PIMCO 3-7 Year U.S. Treasury (FIVZ) and a -0.84 correlation with TENZ. The last chart shows TAN versus the inverse of TENZ, price only (dividends excluded).

Intuitively, the opposite correlation would make the most sense, since solar projects often rely on cheap financing. Is solar more competitive at higher interest rates? Or are solar stocks pure risk on/risk off plays?

2015-02-23

Peak Demographics? Slowing Economy? Protest Victory? Currency War? Mainland Tourists Avoid HK

Hong Kongers have been protesting against Mainland tourists for years now and maybe it finally has made a dent.

Number of mainland visitors to Hong Kong falls for ‘first time since handover’
Immigration Department figures showed that 675,155 mainlanders entered Hong Kong during the five days from Wednesday to Sunday, down 0.16 per cent from last year.

By contrast, the 676,297 mainlanders who visited Hong Kong in the same period last year represented a 13.7 per cent jump from 594,302 in 2013.

The latest figures have shocked experts in the retail and tourism industries, who attributed the decline to a recent spate of protests against mainland visitors. They also said many mainlanders now prefer Japan and Europe because currencies in those countries have been weak compared to the yuan.

Chinese Buyers Flood Australian Housing Market For New Year

Chinese New Year creates frenzy at Sydney auctions
"It is an absolute feeding frenzy right now and shows no sign of waning," he said.

The period leading up to and just after Chinese New Year is considered a lucky time to purchase a home. And Sydney's red-hot property market fuelled by record low interest rates and the low Australian dollar are proving added incentives for many Chinese buyers, both those who live here and those who have flown over from China to visit friends and family.

...Such is the surge in interest from mainland China that some agents advise their clients to time the sale for the lunar new year period.

"If you can take advantage of that [Chinese New Year] then you will most likely have more buyers at that time, especially the ones who come from overseas," said Leon Chung, sales manager at Loyal Property in Chatswood.
Are auctions the traditional way of selling homes in Australia, or is this a sign of the bubble?

From 2013: Australia Turns to Auctions as Housing Revives: Mortgages
Australians selling properties are increasingly turning to auctions as interest rates matching the lowest in 50 years fuel demand for homes in the country’s largest cities.

...Unlike in the U.S., where auctions are frequently used to dispose of distressed properties, home sellers in Australia are more likely to try them when the market is strengthening and there’s the prospect of higher prices, a probability that’s growing after the Reserve Bank of Australia cut rates to a half-century low.
How much is the land in the Outback? Get the Chinese to pay for a giant infrastructure project to carve a huge canal into the center of Australia, desalinate the water and then sell the land to the Chinese. Everyone in Australia can become rich and move to New Zealand.

If it works, repeat it in Arizona.

iFeng: 华人春节高调涌入澳洲房市 当地市场库存不足

Asian Dollar ADXY Ready To Take Over For DXY

The Asian dollar index is nearing a support level near 110 (it closed at 111.70 on Friday). A move below would open up the possibility of a move to the lows from the 2008/2009 crisis, and then beyond.

I Want You To Get Rich

2015-02-22

Hold On To Your Shorts

Foreign investors will be able to short A-shares via the Stock Connect this year.

Traders given green light to short Shanghai shares to boost Stock Connect scheme
The new lunar year will see more measures to boost the lacklustre Shanghai-Hong Kong Stock Connect scheme, beginning with the provision of short-selling.

The Hong Kong Exchanges and Clearing (HKEx) has told brokers in a circular that from next Monday, it will allow investors to short-sell Shanghai-listed A shares under the scheme.

Factory Shutdowns Begin in China; Is Japan Winning the Currency War?

China's manufacturing industry expects an explosion in factory closings this year and the first wave is hitting now.

Citizen closed a watch factory ahead of Spring Festival, affecting 1,000 workers. Watch factory to pay more
Most of the workers at a well-known Japanese company in Guangzhou, Guangdong province, that shut down last week have signed contracts to leave the company of their own accord after mediation from local labor department and trade unions by Monday noon.

Foreign manufacturer exodus from China
A recent case in point is the decision of Citizen China, which produces Japanese Citizen watches, to fold its production base in Guangzhou, on the heels of Microsoft which announced on Dec. 17 its decision to close the mobile-phone factories of Nokia, under its auspices, in Beijing and Dongguan by the Spring Festival moving facilities to Nokia's factory in Hanoi.

A number of other foreign enterprises are scheduled to join the exodus this year, including Panasonic, Sharp, Daikin, and TDK, all Japanese firms, which plan to transfer some capacity from China back to Japan or to other countries. Others, such as Uniqlo, Nike, Foxconn, Funai, Clarion, and Samsung, are setting up new factories in Southeast Asia and India, while scaling down their Chinese operations.
Notably, Japanese companies are moving back to Japan, in part due to the cheaper yen and perhaps expectations of further weakness in the yen. China, on the other hand, is squeezing its low cost manufacturers with a stronger yuan.

Hundreds of factories have shut or ceased operations in Dongguan ahead of the holiday and Wenzhou's industry is fading:
Industry insiders estimate that there are more than 100 large scale factories closing before the Spring Festival, in Dongguan hundreds of large factories closed down or stop operations. Furthermore, known manufacturing capital, to manufacture glasses, shoes, lighters the world famous Wenzhou, the manufacturing industry is currently experiencing a hollowing out, shoes, lighters and other industries, their one proud aura is gradually fading.
Low cost manufacturing is moving overseas because costs in China are rapidly rising. I posted this demographic chart of China back in 2011, highlighting the entry level workforce demographic:

In 2015, the entire cohort from 2010 has moved up, so the entry level workforce has declined by roughly 10%. Since most of the low skill labor in factories is female and Chinese demographics are skewed male due to the one-child policy, the decline in labor force is more acute.

China's goal is to move up the value added chain, but some areas haven't adapted:
Counselors' Office of the State Council Research Fellow Yao opinion, the problem lies in China is big but not strong. "Our machines accounted for 38% of world production, but we basically rely on imported high-end CNC machine tools. Our steel production is number one in the world, but the high tonnage cranes at the ports use imported steel rope. We are first in the world in aluminum production, but we have to import aluminum for aircraft. We give the average person to do three sets of clothes a year and a half, but so much of the export garment basically OEM. "

In this regard, some experts said the fact that Chinese manufacturing industry for so many years, most remain at the low end of the industry chain, low profits, do not keep up with new technology. There are many domestic and international phenomenon indicates that manufacturing companies refused to spend capital to upgrade, you have to face the nightmare of shutting down.
This is not a long-term crisis for China. The change has been planned for and its one of the reasons why China is keeping the yuan relatively strong. A strong yuan and tighter credit conditions forces a rebalancing away from low cost manufacturing and intensive infrastructure investment. The issue in 2015 is whether or not the economy can handle major changes in several sectors at once. The soft landing for the economy is a relatively smooth transition over several years. A hard landing occurs if the rebalancing is concentrated in time.

iFeng: 业内预计中国制造业倒闭潮或在2015年爆发

2015-02-20

Deal or No Deal in Europe

German leftists lampoon the German pensioner ready to fire thunderbolts at Greece

Meanwhile the center-right says "end the horror"

and discussed The joy of "Grexit"
What Greece and Estonia have in common? They both came in a severe crisis in 2009. And what is the difference between the two? The crisis in Estonia was then much more difficult. And the Estonians are now more confident - at least the financial crisis there applies here already overcome.

German-Led Bloc Willing to Let Greece Leave Euro: Malta
Germany and its allies are ready to let Greece leave the euro unless Prime Minister Alexis Tsipras accepts the conditions required to extend his country’s financial support, according to Malta’s finance minister, Edward Scicluna.

Greece’s creditors are cranking up the pressure on Tsipras as he seeks a deal to prevent his country defaulting on its obligations as early as next month. By bowing to German demands, the premier risks a domestic backlash from voters and party members whom he’s promised an end to austerity.

“Germany, the Netherlands and others will be hard and they will insist that Greece repays back the solidarity shown by the member states by respecting the conditions,” Scicluna said in an interview. “They’ve now reached a point where they will tell Greece ‘if you really want to leave, leave.’”

This is the end game. There are no bluffs left.


Germany you got to let me know
Should I stay or should I go?
If you say the euro's fine
I'll be here 'til the end of time
So you got to let me know
Should I stay or should I go?

It's always loans, loans, loans
You're happy when I'm on my knees
One day it's fine and next it's black
So if you want me to pay you back
Well, come on and let me know
Should I stay or should I go?

Should I stay or should I go now?
Should I stay or should I go now?
If I go, there will be trouble
And if I stay it will be double
So come on and let me know

This indecision's bugging me (esta indecision me molesta)
If you don't want me, set me free (si no me quieres, librame)
Exactly whom I'm supposed to be (digame que tengo ser)
Don't you know which clothes even fit me? (no sabes que ropas me queda)
Come on and let me know (me tienes que decir)
Should I cool it or should I blow? (me debo ir o quedarme)

Split

Should I stay or should I go now? (yo me enfrio o lo soplo)
Should I stay or should I go now? (yo me enfrio o lo soplo)
If I go there will be trouble (si me voy va a haber peligro)
And if I stay it will be double (si me quedo sera el doble)
So ya gotta let me know (me tienes que decir)
Should I cool it or should I blow? (me debo ir o quedarme)

Should I stay or should I go now? (tengo frío por los ojos)
If I go there will be touble (tengo frio por los ojos)
And if I stay it wil be double
Si me quedo sera el doble
So ya gotta let me know me tienes que decir
Should I stay or should I go?

Anbang Keeps Buying

Chinese insurer bags pricey Fifth Avenue trophy
The company is purchasing the office space at 717 Fifth Ave., a 26-story, roughly 350,000-square-foot office tower, from the Blackstone Group for an undisclosed sum. Anbang is not buying the property's roughly 110,000 square feet of ultra-valuable retail space in the deal.

2015-02-19

Real Estate New Normal: Small and Medium Developers Face Bankruptcy

There is bifuraction in the real estate market between the top tier cities and the lower tier cities, with prices and sales of both homes and land rising in the top cities. A similar split is occurring among developers as the smaller firms struggle to remain independent or even survive. Large developers are diversifying, increasing investments overseas, focusing on growth areas such as nursing homes, shifting their business into property management and services, etc.

iFeng: 房地产新常态特征明显 中小房企面临关门倒闭

2015-02-18

Weak Solar Activity Points to Cooler Climate

*The sun has gone quiet again during the weakest solar cycle in more than a century*
For the past 5 days, solar activity has been very low and one measure of solar activity – its X-ray output – has basically flatlined in recent days (plot below courtesy NOAA/Space Weather Prediction Center). Not since cycle 14 peaked in February 1906 has there been a solar cycle with fewer sunspots. We are currently more than six years into Solar Cycle 24 and today the sun is virtually spotless despite the fact that we are still in what is considered to be its solar maximum phase. Solar cycle 24 began after an unusually deep solar minimum that lasted from 2007 to 2009 which included more spotless days on the sun compared to any minimum in almost a century.

Arrest Climate-Change Deniers
Italian scientists convicted for 'false assurances' before earthquake

春节快乐!

2015-02-17

Chinese Media Begins Discussing "Shock Moves" By PBOC

Concerns about a rising U.S. Dollar Index and a weak economy have Chinese wondering if a shock move from the PBOC could be on the way. The point here is not to analyze the authors opinion, merely to relay the current hot topics. This article was a top headline on 21st Century Business Herald yesterday.

人民币收盘较中间价贬值1.9959% 事实上已跌停
In this regard, the market gives several possible answers - shock devaluation of the exchange rate + RRR cut + prudent rate cut; foreign exchange market intervention + RRR cuts + interest rate cuts and so on. Among them, opinion on the exchange rate formation mechanism and the future exchange rate movements are the most divisive.

...The author believes that overseas economies continue to add liquidity, the domestic show "deflation" (not yet a "crunch") under the trend of steady economic growth and macroeconomic adjustment of industrial structure will remain ideas. Therefore, relatively reasonable monetary policy portfolio, should be implemented rhythmically RRR and interest rates, and the gradual liberalization of the RMB against the US dollar exchange rate fluctuation limit, as much as possible to allow the market mechanism to adjust the exchange rate "or overvalued," "or undervalued "water.

Specifically, let the yuan against the dollar by 2% intraday volatility gradual integration with non-US currencies, such as the current RMB against the euro, sterling and other volatility limit of 3%, the RMB against the Malaysian ringgit, the Russian ruble's volatility is limited to 5% and so on. At the end of the transition period, the People's Bank may choose to cancel the transaction price fluctuation limit of RMB against the US dollar. At that time, also the RMB exchange rate, domestic spot market and the offshore market forces to balance these three moments.

Bloomberg: Gold Futures Tumble to Six-Week Low on Signs China’s Demand Ebbs
Gold futures fell to a six-week low approaching $1,200 an ounce on speculation that Chinese demand will fall during the Lunar New Year holiday. Silver tumbled, and platinum dropped to the cheapest in more than five years.
Volume in the Shanghai Gold Exchange’s benchmark spot contract dropped to the lowest in a year. Markets in China, the world’s second-biggest buyer, will be closed for five sessions starting Wednesday.
Chinese have ways to buy dollars, but there are limits and restrictions. There are no limits on how much gold Chinese citizens can buy.

Yuan depreciation is not yet a hot search phrase, but deflation is picking up:

Beijing Population Growth Slowing

Demographics in action: Growth of Beijing's Population Continues to Slow, Official Data Show
China's capital had 21.516 million permanent residents by the end of last year, 368,000 more than a year earlier, according to an annual report published by the Beijing Municipal Bureau of Statistics on February 12.
About 8.187 million people from outside Beijing live in the city, about 38 percent of the population.

Beijing's population growth has slowed since 2011, when it added 567,000. It added 507,000 in 2012 and 455,000 in 2013, previous reports said. Fewer people from outside the capital also arrived in those years.

The capital had 20.693 million residents at the end of 2012, and 21.148 million at the end of 2013.

The decline is due to measures by the central and local governments to curb population growth in large cities like Beijing, Shanghai and Guangzhou, said Lu Jiehua, a professor of sociology at Peking University.

No Bounce in Home Prices Nationally in January, But Clear Bifurcation

Many headlines focused on the year-on-year price drop, but since a) prices are still falling and b) the peak was May to July 2014, this isn't surprising. The two important revelations in the data are that home prices did not rebound in January. The average price decline month-on-month was 0.43%, slightly more than the 0.40% decline in December. Nationally, the recovery stalled. Second, there is more bifurcation in the market. First-tier new and existing home prices increased or held steady in many cases, with declines limited to a drop of about 0.1%. In real estate, price follows sales and we've been seeing sales increase in first-tier cities in recent months, now prices are stabilizing. New home prices are down 5.1% yoy.

Since 2010, average prices are up 8.2% nationally.

March: 4 cities saw declines in price mom, 10 cities were flat, 56 were up.
April: 8 cities saw declines in price mom, 18 cities were flat, 44 were up.
May: 35 cities saw declines in price mom, 20 cities were flat, 15 were up.
June: 55 cities saw declines in price mom, 7 cities were flat, 8 were up.
July: 64 cities saw declines in price mom, 4 cities were flat, 2 were up.
August: 68 cities saw declines in price mom, 1 city was flat, 1 was up.
September: 69 cities saw declines in price mom, 1 city was flat, 0 were up.
October: 69 cities saw declines in price mom, 1 city was flat, 0 were up.
November: 67 cities saw declines in price mom, 3 cities were flat, 0 were up.
December: 65 cities saw declines in price mom, 4 cities were flat, 1 was up.
January 2015: 65 cities saw declines in price mom, 3 cities were flat, 2 were up

Existing home prices were stronger than new home prices again in January. The decline was to 0.36%, slightly ahead of December's 0.32% mom decline. Prices are down 4.4% yoy. Since 2010, existing homes have only risen an average of 2.4%. Of the 70 cities tracked by the National Bureau of Statistics, 26 have existing homes prices below 2010 levels.

70 city new home price changes by market segment: below 90 sqm prices fell 0.42% mom; 90-144 sqm prices fell 0.46%; above 144 sqm prices fell 0.57%. The trend is the same for yoy and prices gains since 2010, with large homes only up an average of 6.1% since 2010 versus 10.4% for houses smaller than 90 sqm.

70 city existing home price changes by market segment: below 90 sqm prices fell 0.36% mom; 90-144 sqm prices fell 0.33%; above 144 sqm prices fell 0.39%. Notably, existing homes larger than 144 sqm are down 0.27% on average since 2010.

Full report: 2015年1月份70个大中城市住宅销售价格变动情况

Below are new home price changes, sorted by 1 Year change.


1 Month 1 Year Since 2010
Hangzhou -0.30% -10.10% -7.90%
Shenyang -0.40% -8.40% 10.10%
Shaoguan -0.70% -8.00% 4.60%
Guilin -0.40% -8.00% 9.60%
Dandong -1.60% -7.90% 8.70%
Quanzhou -1.60% -7.70% 0.30%
Luzhou -0.60% -7.70% 5.00%
Changsha -0.30% -7.60% 13.30%
Qingdao -0.60% -7.30% 2.30%
Dalian -0.60% -7.20% 9.50%
Jinzhou -0.90% -7.00% 8.50%
Fuzhou -0.50% -6.50% 12.20%
Baotou -1.10% -6.50% 5.70%
Bengbu -0.50% -6.40% 1.80%
Anqing -0.20% -6.10% 3.00%
Chongqing -0.40% -6.00% 7.50%
Huizhou -0.30% -6.00% 7.80%
Hohhot -0.40% -5.90% 8.50%
Ningbo -0.20% -5.90% -5.60%
Yangzhou -0.60% -5.90% 5.30%
Ganzhou 0.20% -5.90% 8.20%
Nanchong -0.40% -5.90% 5.90%
Yantai -0.60% -5.80% 5.90%
Zhangjiang -0.40% -5.80% 11.20%
Haikou -0.50% -5.60% -1.70%
Qinhuangdao -0.70% -5.60% 8.90%
Jinhua -0.40% -5.60% -1.50%
Chengdu -0.30% -5.50% 7.70%
Jiujiang -1.00% -5.50% 4.00%
Xiangyang -0.30% -5.50% 9.10%
Nanchang 0.00% -5.40% 11.90%
Guangzhou 0.00% -5.40% 22.00%
Beihai -0.80% -5.40% 6.30%
Yichang -0.20% -5.30% 9.20%
Luoyang -0.60% -5.20% 10.60%
Nanning -0.30% -5.10% 6.80%
Wuxi -0.60% -4.90% 2.10%
Pingdingshan -0.60% -4.90% 9.40%
Sanya -0.50% -4.90% 1.50%
Jilin -0.40% -4.80% 9.80%
Taiyuan -0.30% -4.70% 10.20%
Harbin -0.60% -4.70% 9.10%
Jinan -0.30% -4.70% 8.20%
Kunming -0.20% -4.60% 9.10%
Xuzhou -0.40% -4.60% 8.20%
Wuhan -0.10% -4.50% 11.10%
Urumqi -0.40% -4.50% 18.60%
Changde -0.80% -4.50% 7.80%
Changchun -0.20% -4.40% 8.70%
Xi'an -0.50% -4.30% 11.10%
Shanghai 0.00% -4.20% 15.80%
Tangshan -0.70% -4.10% -0.60%
Zunyi -0.80% -4.10% 8.90%
Shijiazhuang -0.10% -3.90% 15.70%
Xining -0.80% -3.80% 16.70%
Yinchuan -0.30% -3.70% 10.50%
Dali -0.40% -3.70% 3.30%
Tianjin -0.20% -3.60% 8.30%
Wenzhou -0.60% -3.60% -23.00%
Jining -0.20% -3.60% 9.50%
Lanzhou -0.40% -3.50% 12.00%
Beijing -0.10% -3.20% 17.60%
Guiyang -0.30% -3.20% 10.10%
Mudanjiang -0.40% -3.10% 9.80%
Yueyang -0.20% -2.70% 11.30%
Nanjing 0.00% -2.40% 10.50%
Hefei -0.20% -2.40% 10.70%
Shenzhen 0.30% -1.30% 23.90%
Zhengzhou -0.30% -0.70% 19.90%
Xiamen -0.10% 0.80% 26.20%

2015-02-16

Yuan Depreciation Goes Mainstream

CBS MarketWatch: Watch out: Yuan plunge is possible, warn analysts
Bank of America Merrill Lynch Global Research warns in a new report that it sees a “non-negligible” risk that China’s government will surprise the market by slashing the value of its currency.

To reach this conclusion requires not just a hard-nosed appraisal of China’s economic numbers, but also to consider the unthinkable, namely that Beijing might actually lose control of the situation.

...By borrowing from the thinking of Nassim Taleb of “Black Swan” and “Antifragile” fame, it argues that such attempts to engineer stability have ended up creating a highly fragile situation.

Although on the surface China looks stable when you consider its consistently high growth rates, limited bad-debt levels and a pegged currency and capital controls, the instability comes from leaving no means to release tension. The implicit backing of debt by the state means this has obscured normal price and risk discovery.

The theory continues that when everyday volatility is suppressed, this can lead to hidden, unobservable risks which can unravel violently and without warning.

China's capital flows to remain volatile in 2015
"Even though China continues to have a large trade surplus and the yuan's interest rate remains above that of other currencies, increasingly diverse and complex factors may cause greater volatility in the country's cross-border capital flows," it said.

It also said that the yuan's exchange rate may remain fixed in the short term as an emergency measure to deal with internal and external shocks, but that the rate needed to change in the long-term to prevent imbalance and distortions in the economy.

In "What Risks Do A Sharp Depreciation In The Yuan Bring?", a UBS analysts discusses the risks. (人民币急剧贬值会带来哪些风险)
On the yuan, given the volatility of its features (a month dollar / yuan implied volatility of about 2-3%), tail risk refers to the depreciation of the dollar against the 5% or more.
Paging Taleb, tail risk in the yuan is a bad week for any other currency.

The article goes on to discuss how China was unwilling to depreciate in 2008, but may be willing now.
First, by the end of 2008 when the global financial system on the verge of collapse and cause serious crisis of confidence. Therefore, China's central bank would like to see the dollar / yuan remained stable, international investors have avoided adding more uncertainty. Today the situation has been different: monetary policy differences are mainly due to a stronger dollar overall. In this case, China's central bank, or consider the necessity to deal with the fall devaluation. Second, compared with 2008, is currently China's current account surplus and willingness to achieve budget surpluses have been substantially reduced. In particular, the current account surplus-GDP ratio from about 9 percent in 2008 to drastically reduce the current level of only 2-3%. Third, we believe that the Chinese central bank's views on the valuation of the yuan has changed in 2008 when the central bank that the yuan is undervalued, but since 2013 is considered a reasonable valuation. Therefore, we believe that the central bank's trade-weighted exchange rate of RMB appreciation excessive tolerance will decline. Based on these factors, we believe that the current China's central bank to make the possibility of devaluation is higher than in 2008.

Rising dollar makes renminbi second-most overvalued currency
The dollar’s recent ascent has therefore pulled RMB away from other currencies, leaving it increasingly overvalued: while RMB saw a 2.6% nominal depreciation against the dollar in 2014, it appreciated by 6% against a trade-weighted basket in the same year. Indeed, according to the Barclays behavioural equilibrium exchange rate model, the renminbi remains the second-most overvalued currency in the world, behind the Philippine peso but ahead of CHF and NZD.
If like myself, you have a very bullish target on the U.S. dollar index, the Chinese yuan is going to move into extreme overvaluation along with the greenback as the global carry trade (i.e. debt) unwinds.

More Chinese head abroad for CNY (Chinese New Year)
China's outbound tourism boom is forecast to spike 20 per cent this year after hitting a record 109 million travellers last year. Many Chinese have been going on overseas holidays during the Chinese New Year as incomes rise, family bonds weaken and the importance of traditional festivals declines.

But this year, the trend has hit a fever pitch, buoyed by new factors such as an appreciating yuan against foreign currencies and relaxation of visa requirements by more countries for Chinese tourists. Tour agencies say they are seeing spikes of 30 per cent to as much as 300 per cent in tourist numbers to many regions, especially destinations in North-east Asia, Europe and the US.

And don't forget the informational power of the offshore yuan:

4 Sentences For Understanding Chinese Real Estate

An article presents 4 sentences for understanding the Chinese real estate situation in 2015 and whether prices will rise or fall:

1. Market circumstances have changed, regulation fades - deregulation and increased market forces will be the trend in 2015

2. Regulation has changed, "fade out" is the essence of reform - governments will focus on supplying affordable housing, rather than seeking to regulate the entire market

3. Regulation enters a deeper stage, price volatility is inevitable

4. In diversifying (rebalancing) the economy, it is difficult for real estate to fade
First, real estate is not hot enough, and the Chinese economy's downward indeed reinforce each other; Second, China's economic dependence on the real estate industry is gradually reduced; Third, the real estate industry uneven quality from the overall look is still not sharp decline; Fourth, the 2015 deployment of restructuring, tax reform, a number of actions to deepen reform, it is precisely to try to mitigate downstream impacts to local governments to increase the diversity of new stable sources of revenue.

Therefore, the "fade regulation" does not mean "real estate fade", the industry will continue to play a supporting role in the long-term. However, the real estate industry single handedly driving the Chinese economy, is an outdated expectation.

iFeng: 4句话搞懂2015年房价是涨还是跌 该买房吗?

2015-02-15

Temporary Resident Permits Abolished

Hukou reform takes another step forward.
China to abolish controversial temporary residence permit
Permanent residence permit holders will enjoy many of the same privileges as local residents. They may receive social security, buy apartments and cars and receive the same public services as local people. In many Chinese cities, only locals or migrants with more than five years of paying local taxes in the city are allowed to buy apartments and cars.

According to the reform plan, the level of public services enjoyed by residents will depend on their duration of residence.

2015-02-14

Lending Surge in January Ahead of February Spring Festival

Lending was strong in January ahead of a late February Spring Festival.
China January new yuan loans surge to a 5-1/2-year high
China's economy extended 1.47 trillion yuan ($235.6 billion) in new loans in January, beating analysts' expectations in a lending surge not seen since mid-2009.

Economists polled by Reuters had predicted new local-currency loans would rebound to 1.35 trillion yuan in January, compared with 697 billion in December.

The central bank also said on Friday that broad M2 money supply (M2) grew 10.8 percent year-on-year, missing expectations of 12.1 percent and 12.2 percent in the previous month.
The increase in M2 over December was over 1 percent though, so it follows December's acceleration.

Total social financing was also strong, although the year on year growth was negative. As with the lending, the early surge doesn't tells us too much about what's to come in 2015. Bank lending was roughly 70% of total social financing.

SCMP Interactive Map of Ghost Cities

Chasing ghosts
The South China Morning Post has compiled a ghost town map based on an experimental model proposed by Chinese economic researcher Chen Qin, who considers two indicators: future supply and demand ratio; and measuring oversupply or undersupply against existing homes in one city.Though it has limitations, this could help shed some light on potential ghost towns, or where housing supply will substantially outstrip demand by 2020.From the map, the "ghost towns" are clustered in northeast China, where local economies rely heavily on natural resources, heavy industries and farming, and are not diversified enough to offer a variety of jobs.Ordos, the most well-known of China’s ghost towns, ranked first based on Chen’s second indicator – a result confirmed by the CLSA report, which predicted that the vacancy rate in Kangbashi (the new town in Ordos) would continue to deteriorate in the next five years.

2015-02-13

Cities See MoM Drop In Housing Inventory in January, Price Turn Expected By The Fall

35 cities in China have seen inventory drop for the first time in 11 months and the data has "escaped danger" now that sales are ticking up and inventory moving lower. Some are more cautious, saying they expect inventory could move up again as new projects come into the market during the heavy holiday selling season, but the general opinion among industry insiders is that the market is turning.

房价上涨一大信号:35城楼市库存11个月首降
Yesterday, the latest data "Securities Times" reporter from Shanghai E-House Real Estate Institute show that as of the end of January 2015, Shanghai E-House Real Estate Institute of monitoring of the total 35 cities in new commercial housing stock is 271.21 million square meters, mom fell 0.7 percent, an increase of 17.1% yoy.

Beijing mortgage rates have come down as well, with mortgage discounts climbing above 7%. Korean bank Woori is offering the largest discount of 15%. 北京首套房贷款平均利率走低 跌破9.3折