2015-04-30

Atlanta Fed's Initial Forecast for 2015Q2 GDP Growth

The Atlanta Fed's forecast is starting low since it has very little data to go on at this point. Were it to hold for the quarter though, the first half GDP growth would be about 0.5% (based on the initial estimate for Q1).
Unlikely the Fed hikes interest rates with this level of growth in 2015.

Sinopec Executives Must Cut All Business Ties With Relatives and Children

The government has published its Sinopec recommendations. A major recommendation that is family members cannot have any outside business with the company.

3. About over leadership of relatives or do business in the system and Sinopec have business dealings, some through interbank operations, profit and other issues related party transactions.

For relatives of business leaders in the system or have business dealings with Sinopec issues, party has attached great importance, leadership management organization registered party submitted a spouse, children and their spouses as well as other specific relationship to invest in shares, to do business situation, and clear requirements leading cadres relatives, children quit business in Sinopec. While taking the following measures: First, a special verification team consisting of five of 16 party leaders managed to register relatives and Sinopec reports have conducted business case investigation and verification, the next step will be classified put forward opinions. The second is to report personal matters leaders carried out spot checks to verify the information on the 26 reporting false leaders, it will be processed according to different situations.

4. Management on the part of the chief party cadres above close relatives working in the system, some cadres spouse, children problem in the petrochemical and other overseas units to work in.

One middle-level leadership for spouses, children within the system of practitioners, focusing on working to avoid violating the provisions, and leadership personnel (department) working in the same unit, the unit employed outside the three kinds of situations of the sort. Second, according to comb case, issued "on regulating the middle-level leaders of the spouse, children within the system of practitioners issues related to notice" to take internal digestion, cross-unit adjustment, return to work and other ways to clean up the specifications, and the 134 party management Spouse leaders and practitioners in the children presented the views of system specifications, clear cleanup progress. Three is drafting "middle-level leadership spouse, children within the system employed Interim Provisions" on the specification lead spouses, children employed in the formation of long-term mechanism system.
iFeng: 中石化:领导干部亲属、子女退出在中石化的业务经营

H/A-Share Discount May Day Edition

Here's the discount list as of the Thursday close. Markets will be closed for May Day.

Chinese Company Says Annual Report May Not Be Truthful

WSJ: This Listed Chinese Company Says It Won’t Stand By Its Own Earnings Report
“The company’s board of directors, board of supervisors and senior management are unable to guarantee the truthfulness, accuracy and comprehensiveness of the annual report. Nor are they able to guarantee that the report doesn’t contain any false records, misleading statements or significant omissions.”

“The reason is: the current state of the company,” Boyuan said.

That “current state” includes having recently been placed under investigation by China’s securities watchdog and police for allegations of illegal disclosure and failure to disclose important information.
At least they're honest.

Oil Divestment: Try Harder

Sometimes when I consider Tainter, debt levels and demographics, I think it could be a long, slow slog back to high returns on invested capital. Then I see these stories.

Guardian: Group representing 1m medical students backs fossil fuel divestment
The fossil fuel industry is a bigger threat to global health than tobacco and the Bill and Melinda Gates Foundation and the Wellcome Trust have a moral obligation to divest from it, an international organisation that represents 1 million medical students has said.

A letter to the charities from the International Federation of Medical Students’ Associations (IFMSA) called on the charities to drop their fossil fuel company interests, which amount to almost £1.5bn.

The students said investments in coal, oil and gas companies were in direct contravention of the solemn Hippocratic 0ath, which doctors take before they begin their service.
My buy orders aren't going to fill themselves. Let's get going with this divestment.


“The threat to public health posed by fossil fuels is even greater [than tobacco],” said the students, who noted the medical profession’s leading role in the tobacco divestment movement. “The arguments that led the health sector to divest from tobacco provide a still more compelling mandate for divestment from fossil fuels.
I wonder if the Russians are paying for this, like they did with the nuclear disarmament movement in the 1980s.

Equity Rally Displacing Gold

Chinese speculators bypassed real estate for equity and now they're moving away from gold as well.
HK Trade Data Shows Chinese Gold Demand Falling As Investors Turn To Equities – Analysts
Looking forward, UBS said that physical gold demand will struggle in China as equity markets remain the investment of choice for investors.

“Hong Kong's Hang Seng Index has reached record highs and the Shanghai Composite Index is around the highest levels since 2007. Equities appear to be diverting investors' attention away from gold, and we think this has been augmented by the latter's lacklustre performance and the overall absence of a clear price trend in the past couple of years,” they said.

Analysts at HSBC also agreed that gold demand in China could struggle as investors buy more equities.

A-Share Bull Market Draining Bank Deposits

China's 11 big listed banks saw their deposits fall 2.1%, ¥1.49 trillion, in 2014. The bull market in A-shares and the rise of Internet banking and online money market funds pulled deposits away.

The PBOC reported that in Q1, the entire financial system saw deposits rise by 10% versus 2014, but deposits at banks were down 30% in Q1 and 18% in March versus the year earlier period. Some banks finished Q1 with deposits lower than 1H 2014, others were down from the end of Q3.

Zhejiang Online: 遭遇史上最难拉存款 五大行利率最高上浮到顶

Related from Bloomberg: China Banks’ Worst Year Since 2004 Seen as Bad Loans Climb
ICBC, China Construction Bank Corp., Agricultural Bank of China Ltd, Bank of China Ltd. and Bank of Communications Co. all this week reported profit growth of less than 2 percent, down from an average of about 10 percent for the same period in 2014.

Communist Leadership: We Must Slash Taxes

Liu Shan says the latest Politburo meeting, at which the leadership said more tax cuts are needed, delivered 9 signals.

1. The economy is slowing

The economy will not hit bottom in Q2 and if no new policies are launched, the growth rate for the full year will fall below the "psychological limit." Growth of 7% is the public number, 6.8% is the real number below which government goals will be threatened. However, new industries and rebalancing are laying groundwork for future growth.

2. Stable development

The government wants to combat risks in the economy to ensure stable growth. As Liu Shan puts it, this means the government may use some of its "old methods" to boost growth in the short-term. See 3, 4 and 6.

3. Stimulate real estate and improve market environment

4. Increase infrastructure/fixed asset investment

5. Cut taxes

6. Ease monetary policy

7. Stock market still plays a role in reform

8. Bottom line: protect against risk and do not allow defaults

on the one hand want to avoid an economic downturn that leads to debt risk, on the other hand also worried about an inflating stock market bubble, leading to systemic market risk

To deal with the risks, further deleverage the stock market; prevent defaults in the shadow banking and financial market

9. Merge Beijing-Tianjin-Hebei

This meeting laid out the plan for merging the three areas into a single economic zone.

iFeng: 第71期:政治局会议释放九大信号

Hefty Bank Fees Bleed SMEs Dry

Chinese banks are squeezing businesses with high fees based on a percentage of the loans. A business taking out ¥500 million loan will pay about ¥10 million in fees! As one businessman put it, some companies are working only for the bank, and when they cannot endure it any longer, they close their doors.

A study done in Yiwu, Zhejiang found bank fees were costing SMEs between 2 and 5 percent of loan value. Even though interest rates are falling, the high fees more than make up for lower rates.

In one case there is a medium sized enterprise in Yiwu. The company has ¥192 million in total credit, ¥145 is loans, ¥8.8 million is banker acceptances, ¥38 million is domestic letters of credit. There are 7 banks cooperating on the financing. Of the ¥192 million in credit, the company only laid its hands on ¥144 million and its composite financing rate inclusive of all fees and interest works out to an annualized 10.02%!

In the past year, this company paid ¥14.74 million to the banks. Of that, ¥9.8 million was interest costs from loans with rates of 6.16% to 8.25%. Other fees included ¥700,000 yuan to "buy deposits"; discounted bills interest expenses of ¥1,080,000; intermediary costs and other expenses ¥2.76 million; loan maturity costs ¥300,000; service charge and other expenses ¥50,000 yuan; assessment fees, insurance and other expenses of ¥50,000. In sum, that comes to ¥4.94 million, or roughly 33% of the total cost, which translates into the equivalent of 3.27% in interest.

On top of that, since 2H 2013, the banks in Yiwu calculate interest monthly and so compounding has a much greater effect on total costs. A 6% interest loan costs 6.09% if interest is calculated twice a year, but 6.167% if calculated monthly. The difference is ¥31,000 in interest on a ¥100 million loan.

One Miss Song borrowed and repaid loans, then borrowed more to buy imported machines as her garment business grew in size. Between all of the bank fees, she eventually lost ¥6 million. Her company was seized and the assets sold at auction.

21st CBH: 企业融资难调查:贷款5亿需交费1000万

Caixin Unloads on the Bull Market

History has shown that any attempt to control the stock market can be futile and dangerous. Blind approval of the current rally will only create a mad bull and only worsen deep-rooted conflicts. Regulators should remind investors of the risks rather than trying to rein in the market. The number of stock trading accounts in the first quarter surged by 433 per cent to more than 7.95 million, and most are held by novice investors. More importantly, the massive funds in the market have yet to be put to a stress test. A sudden correction could lead to chaos. Regulators should closely monitor the risks and crack down on illegal activities such as insider trading, information disclosure fraud and market manipulation.

Any hopes that the stock market can boost the economy fail to understand the relationship between the two. Only unwavering reforms can produce a healthy stock market that will help the real economy.

Caixin: Notion that Stock Market Can Boost Economy Is Misguided

2015-04-29

Reformers Speak Out

Criticism of the government is now accepted if it fits in line with Xi Jinping and Li Keqiang's desire for a larger private economy and smashing corruption.

Reuters: Beijing support emboldens critics among China's businessmen
"We don't have equal business opportunities," said Zheng Jianjiang, chairman of AUX Group Co, an air conditioner and home appliance maker that employs more than 20,000 workers nationwide.

"Whenever there is a big cake, the state-owned enterprises eat the whole thing. We can hardly take a bite."

Liu Yonghao, founder of agribusiness giant New Hope Group, has also been grumbling aloud.

"Lots of firms have gone belly up very quickly because they can't get money from banks nor help from the government," he told Reuters last month.

...Last month Wu Hai, the 46 year-old founder of Crystal Orange Hotel Group, caused an internet sensation when he posted an open letter to Premier Li on Weibo chiding government for handicapping the private sector with red tape.

"Companies are servants who never dare to fight back, while 'public servants' are masters," Wu said. He also took a swing at what he called the "special tax" of official corruption, which is the target of a high-profile campaign by President Xi Jinping.

"All of us in the hotel industry are afraid of three holidays: Mid-Autumn Festival, Dragon Boat Festival, and Spring Festival, because that's time for us to pay the 'special tax'."

H/A-Share Discount List for 20150430

Largest H-Share/A-Shares Discounts for 2015-04-30

Survey: Less Than One-Third of Chinese Want Second Child

As I've argued before, China's fertility rate will continue to fall as the country urbanizes because urbanization is nearly everywhere associated with lower fertility. Now there's a survey showing that while Chinese overwhelmingly want the one child policy abolished, most have no interest in having two children.

The survey was carried out in Beijing, Shanghai, Guangdong, Sichuan and Henan and had more than 10,000 respondents. By a rate of 93% to 7%, the respondents favored fully liberalizing policy.

Greatest support for liberalization was in the 36-40 age group; people with a professional background had the highest support, followed by civil servants, self-employed, foreign-funded enterprises, freelancers and so on; From the geographical point of view the economic level, for the full liberalization of Guangdong second child of the loudest voices in support reaches 95.3%, Henan, Sichuan followed. Economically developed cities such as Beijing, Shanghai is significantly lower, respectively, 89.1% and 85.1%.

37.4% of respondents would definitely not have a second child versus 29.7% who said they would. Rural respondents were only slightly more willing to have a second child at 35%. Those unwilling were slightly lower as well at 31.5%. Guangdong was the the highest urban area with 36.9% willing to have a second child, followed by Beijing.

SRI: 社评院:已生一孩群体明确想生二胎的占29.8%

Flash Crash Nonsense

Flash crash charges garner increasing skepticism in high-speed world

What happened on May 6 was a crash in the financial market. That HFT played some role in it is beyond a doubt, but there was real panic in the market all day on May 6, 2010.

Below is an hourly chart of the S&P 500 Index. The index is moving down steadily and in the afternoon, there is the flash crash.

Here's one of the ETFs I remember watching that day: iShares S&P U.S. Preferred Stock (PFF).

The Power of Chinese Pollution

Amazing if accurate. With so much junk science out there, I don't believe anything unless it's replicated. A great way to check this would be to get data on the birth tourists who move to Los Angeles for their last month or two of pregnancy.

"These findings not only illustrate one of the many significant health consequences of pollution, but also demonstrate that this phenomenon can be reversed," said David Rich, the study's lead author and epidemiologist with New York's University of Rochester Medical Centre.

Babies born to mothers whose eighth month of pregnancy fell between August 8 and September 24, 2008, were an average 23 grams heavier than those born in the same period in the years before and after.

"Twenty-three grams doesn't seem big … but for a baby with already very low weight it's a big difference," said Duke University's Professor Jim Zhang Junfeng, who worked on the report.

SCMP: Chinese babies born in low-smog Olympics year 23 grams heavier

Survey: First-Tier Price Rise Expected, Trouble in the Lower Tiers

A new report from the Sharpen Research Institute predicts prices will rise in first tier cities and fall in second- and third-tier cities. An index is used, where 100 represents no expected price increase. Numbers above 100 indicates expected price increases, below 100 expected price declines.

In the top ten cities in the focus of the survey, Beijing (101.49), Shanghai (113.97), Guangzhou (102.91), Shenzhen (117.02) and other cities housing prices were above 100. Tianjin (97.08), Wuhan (84.34), Chengdu (83.52), Chongqing (82.85), Suzhou (82.04), Hangzhou (71.75) and other cities are less than 100.
The overall survey's number was 87.86

The survey found that plans to buy a house within the next year, 26.3% of respondents, which plans to buy a new house proportion accounted for 55.8%, 17.3% intend to buy second homes, 26.9% said both OK. Buyers age 26-35 years old accounted for 47.0%, is the main crowd, followed by 19-25 years (12.7%), 45 years of age (12.4%).

A breakdown of home buying reasons:
The survey purchase plans for the coming year of the respondents to analyze its purchase purpose, of which 51.7% of the people are for the first home, 22.1% is to improve housing conditions [trade up], 11.0% want to buy a house for parents or children, 8.8% buy a house for good schools [as people do in the U.S.], 6.0% is used for investment, 0.5% for other purposes.

SRI:省社评院民调:十大城市受访者整体看跌房价 但看涨北上广深房价

2015-04-28

China Finally Gets Serious About Consumer Economy

In June, tariffs on popular consumer items will be cut in a trial run. The consumer economy has been slow to take off because the government is protecting local brands. Once the tariffs come down, consumption will rise as consumers see their disposable income increase and domestic firms are forced to up their game. This is also part of the strategy to make the yuan fully convertible. In order to add the yuan to the SDR basket, there needs to be a way for foreigners to obtain yuan through trade and investment. It's estimated that if the drop in tariffs leads to a 50% increase in imports, it will raise overall retail sales by 1%.

Some imported products, such as cosmetics, carry up to 30 per cent consumption tax. In addition, some companies must pay between 5 per cent and more than 20 per cent in import duties, she said.

I could easily see cosmetics sales doubling. L'Occitane (0973.HK) is up more than 3% in HK trading, even though the market is down today. Keep an eye on L'Oreal and other cosmetics firms in European trading.

SCMP: China to cut tariffs on popular imports in bid to boost spending
Xinhua: 降关税增设免税店 国务院“组合拳”引高端消费回流

Day 26: Baofeng Up Limit 10% Again

Stock now up 10 times since IPO on March 24. Insane. I wonder if it is easy to short or not...volume is rising so the streak of up days is probably very close to ending.

Dongguan Looks for A New Way

In recent years, manufacturers have abandoned Dongguan as the cheap manufacturing model gave way to a strong renminbi, rising wages and changing global demand. Dongguan is starting to claw its way back though, with biotechnology and solar companies starting to fill in. For some companies the path to profitability is hard, with no way to re-purpose existing machinery. Others are investing in automation to solve the problem of higher wages.

EO: 东莞寻路

Google Translated article follows:

New Accounts Surge Ahead of May Day Holiday

H/A Share Discount List for 20150429

H-Share/A-Share Discount List 2015-04-29


Chinese QE Is Coming: Renminbi Headed Lower, Buy Gold, Silver, Commodities and Equities

中国式QE将形成独立的“游泳池”
First, the reason for today's financial difficulties arise, because the rate of return on capital investment declining results, but also the financial expenditure and economic growth can not match ending, extrinsic aging phenomenon is exacerbated by fiscal spending and sacrifice the environment for growth model is not sustainable. Thus, when the country needs to improve management efficiency, improve the efficiency of the use of financial, economic efficiency and thus recovery. However, the central bank to buy bonds anyway, can not solve the problem of economic efficiency, are avoided solve the problem, so as loose personal view is that the introduction of such a QE from the beginning, the exchange rate officially entered the downward track.

Second, will the renminbi foreign exchange rate immediately depreciate? It may not in the short-term. However, it will immediately "reinforce and improve the walls of the pool," so that the pool of capital selectively and out, in order to meet the requirements of SDR. If added to the SDR, central banks will need to buy the yuan, it will ease pressure on the yuan devaluation, which a little desperate, if the yuan cannot join the SDR, you will need an abacus to calculate the exchange rate.
Gold, silver, commodities and equities PRICED IN YUAN are headed higher.

Capital Controls To Ease Further

China to promote yuan by relaxing investment scheme rules
Currently, foreign asset managers and banks investing in Chinese stocks and bonds through the $150 billion Qualified Foreign Institutional Investor (QFII) program can only move capital in and out of China on a weekly basis and are therefore restricted in their ability to manage and value funds.

But the changes now being reviewed by China's chief executive body, the State Council, would make the yuan convertible within the limits of the scheme and allow the cross-border flow of billions of dollars' worth of investments at a day's notice.

The reform could also increase the chances of Chinese stocks being represented in global benchmarks such as the MSCI Emerging Market Index.

Optimism Rising in China: Analyst Forecasts 15% Increase in Beijing Home Prices

Zhang Dawei of Centaline says Beijing home sales in April will surge and home prices will rise 15% in 2015.

Today, although not the end of April, but the results have been evident for gambling. April 25, the data show, compared to March, the first three weeks of April, the number of property transactions Tongzhou rose more than 20 percent, the Beijing property market Transacted new homes rose nearly 50 percent, second-hand housing market is more popular, an increase of over 60%

..."Stimulus certainly will not stop here, there will be a rate cut later, do not underestimate the determination of the government bailout." As we all know, this round of market rebound thanks to policy easing, relaxed pace made under the current economic environment continues , the property market will continue to climb.

"April has been rising very obvious, May rise market is beyond doubt." Dawei this anticipation: "Beijing's second-hand housing market is very hot, it will be passed to the new home market."

iFeng: 专家:5月楼市将涨15% 五一成最佳购房时机

2015-04-27

Margin Trading in China

Sign of the A-Share Times

Here's Baofeng, a company involved in online music and entertainment. Since it IPO'd on March 24, it has moved up the limit 10% every day. Both a log and linear chart below.

H/A Share Discount List for 20150428

H-Share/A-Share Discount List 2015-04-28


Low Jiwei: China's Odds of Falling Into Middle Income Trap Exceed 50%, Solution Is More Reform

China would need to royally screw up its economy in order to get stuck in the middle income trap. History and the performance of Taiwan show China will certainly become a high income country. The path may or may not be straight, but the destination is not in doubt unless new leaders decide Maoism and policies such as the Great Leap Forward will work better next time.

US scholar says China will not get stuck in middle income trap
China's per capita income is currently about one quarter of the US, when it reaches half this level, its growth rate is likely to drop to a "lower new normal," Sachs added.

"You need to make breakthroughs in innovation-based economy, which is not simply using technology from outside," Sachs said, adding that the transition was as much dependent on structural transition to quality growth.

"Don't expect 7% growth to be permanent. This is gradually decreasing," the professor said, adding that other countries that had not been able to maintain such a growth level have been caught in the middle income trap

A paper from the Asian Development Bank also favors an optimistic view: The Middle-Income Transition around the Globe: Characteristics of Graduation and Slowdown

Corroborating evidence: Taiwan, South Korea, Hong Kong, Singapore and Japan made it into the high income countries. China would be the outlier of East Asia if it failed to reach high income status.

At least one Chinese economist, who also happens to be the finance minister, isn't entirely optimistic though. Lou Jiwei thinks China has better than 50% odds of sliding into the middle income trap over the next 5 to 10 years due to demographics: the rapidly aging population will cause China to grow old before it grows rich.

Lou proposes 5 policies to avoid the trap.

1. End agricultural subsidies and encourage imports. Chinese are always worried about war and losing access to food, but the bigger worry is wasting human capital in agriculture.

2. Hukou reform to allow for greater mobility. Government should help the transition by subsidizing social expenses.

3. Labor reform. Companies and individuals should make their own decisions, instead of labor unions or industry groups.

4. Land reform. Government should allow rural areas to decide how land is developed and money from land sales is spent.

5. Social security reform. Cut social insurance rates and create a new system of "pay more, get more."

While Lou believes China will avoid the middle income trap, he said the largest problem at the moment is deleveraging. He said leverage ratios cannot move higher, otherwise when the crisis breaks out, it will be uncontrollable.

iFeng: 财政部部长:中国有50%以上可能滑入中等收入陷阱

When The Credit Cycle Ends, It's Over: Banks Refuse to Buy Local Govt Debt

Originally posted 4/24/15, update below.

FTAlphaville: The trouble with market-based financing… in China
The thing about market-based financing is that market-based financing isn’t always available the way you want it.

Which is why it’s big news in China on Friday, as the FT reports, that several Chinese provincial governments have been forced to postpone bond auctions as banks balk at the low yields on offer. The news comes by way of state media.

Now, the reason this is interesting is because last month when China’s finance ministry revealed its plan for provincial governments to refinance RMB1tn in debt, analysts were super cheery about its chances of lowering debt-servicing costs and extending maturities for provincial authorities.
When credit is tightening, people don't line up to overpay for bad debts.

FT: China banks balk at local debt-swap plan
Local governments are not legally responsible for repaying LGFV debt, but investors largely viewed such debt as carrying an implicit government guarantee — an ambiguity that elevated yields. Converting the implicit guarantee into an explicit one is intended to lower yields.

...“Banks aren’t very enthusiastic about this plan,” said Sun Binbin, a bond analyst at China Merchants Securities in Shanghai.

“Maybe the bank president has a positive attitude because he wants to establish good relations with the local government and open up other business opportunities in the region. But for the treasury department, they’re under pressure. Other business lines aren’t part of their KPI [key performance indicator]. They’ll take losses on these bonds — rates are low, and liquidity is poor.”
This follows the lack of enthusiasm for low down payment mortgages and discounted mortgages. To the government's credit, they're no longer forcing banks to make loans based on politics instead of profits. The next step is crucial though. If the government leaves it up to the market, interest rates are likely to rise as investors demand greater compensation in a tight credit market. Another option is for the government to buy the assets itself, a Chinese quantitative easing program by another name.

UPDATE: China Local Government Debt Surge Boosts Focus on PBOC Help
The PBOC is discussing adopting unconventional policies including making direct purchases of local government bonds from the market, Market News International reported Monday, citing unidentified people. Previous reports from the Wall Street Journal and Bloomberg News indicated officials were considering letting banks use the notes as collateral for loans from the central bank.

The PBOC and Ministry of Finance didn’t immediately reply to faxes seeking comment on plans to support the municipal bond market or upcoming sales.

Purchases of securities would expand the PBOC’s balance sheet, similar to how the U.S. Federal Reserve grew its assets in recent years as it took on mortgage securities in an effort to shore up the American housing market. While the PBOC isn’t allowed to buy government bonds at Ministry of Finance auctions, it can do so in the open market.
If China joins the QE party, there will be no one left. This is the final stage of the post-2008 rally.

2015-04-26

If You're Looking to Buy Real Estate In China, Look To Nansha

The Nansha New Area, a free trade zone in Guangdong province, has seen a flurry of real estate activity ahead of the May 1 holiday. Several buildings were sold out in a day, with one building selling out 220 apartments in 1 hour. One investor bought out an entire floor of 20 apartments.

One reason why sales are brisk: inventory is close to zero. Nansha is also an up and coming area, and Guangdong is a great province for business, run by bureaucrats who could probably win a Republican primary in the U.S.

Vice Premier Wang Yang, formerly CPC Guangdong Committee Secretary:
Amidst the Global financial crisis of 2008, Wang disagreed with the central government's policies on small and medium-sized businesses, remarking in controversy that they are "not productive and will eventually be eliminated by the market." He also made remarks such as "those businesses going bankrupt should go bankrupt".

Liberals aim to unleash new wave of reform:
"We must hasten the development of small government and a great society," Wang told a provincial social development meeting.

Wang is now serving under Li Keqiang, but Wang wasn't an outlier in Guangdong politics.

iFeng: 广州南沙再现“日光盘” 多楼盘五一将调房价

H/A Share Discount List for 20150427

H-Share/A-Share Discount List 2015-04-27


Xi Jinping and Song Jiang

A Byronic Hero for China's Supremo
The born-red Xi is still an enigma. He is given the mandate to preserve the regime. His admiration for Song Jiang has never been mentioned inside China or in the gossipy overseas networks. It is intriguing that this predilection for a Byronic hero, if true, was revealed to a foreign journalist. The culturally coded language conveys that Xi is no Maoist. That a man sitting in his chair is a secret admirer of Song Jiang is enough to make Mao turn in his glass coffin.

The War on Cash

The Bankster War on Cash; JPMorganChase Begins to Prohibit the Storage of Cash in Its Safety Deposit Boxes
Letters are apparently going out to some JPMoragnChase customers announcing that cash will be prohibited from being stored in the bank's safety deposit boxes.
This follows restrictions on the use of cash to pay bills and comes as the government increasing treats people who use or carry cash as criminal suspects.

ZeroHedge has more: Largest Bank In America Joins War On Cash

2015-04-25

A Big Fat Zero For Hope In The Future

"We have zero growth, zero inflation and zero hope."

Borrowing Surge Points to Weakness in Real Estate

Chinese real estate data is improving in first-tier cities such as Beijing, see Beijing Real Estate Market: Activity Up More Than Prices and Beijing Real Estate Market Condition: Better, But Not Great. It is possible that March or April will mark the bottom for home prices. It may also be a false dawn similar to the small spikes in sales that followed policy easings throughout 2014.

A couple of things I saw on Friday make me think things may be deteriorating behind the scenes. First is the rapid increase in loans:

Loans to Chinese property developers surge again in Q1
Loans to Chinese property developers surged again in the first quarter despite the country's housing downturn, official data showed on Friday, a sign that authorities were exhorting banks to do more to support the cooling property market.

Banks' loans to property developers leapt 24.1 percent to 6.08 trillion yuan ($981.8 billion) by the end of March, central bank data showed, picking up from a rise of nearly 23 percent in the corresponding period last year.

Growth in loans to build public housing was even stronger. They shot up 64.3 percent in the first quarter to 1.28 trillion yuan, faster than last year's rise of 57 percent.
I read this and immediately thought of Kaisa and the steel sector.

Kaisa's debt load went from 35.2 billion yuan in July 2014 to 65 billion yuan today. About half of that debt is coming due in 2015. As debt was rising from July 2014, Kaisa's cash balance has gone the other way, collapsing 83%.

In addition to the ¥1.3 trillion in bank loans, much of it short term, the industry's top 80 firms also owe ¥1.7 trillion in short-term high interest loans. Firms are borrowing to repay old debt, for instance a Xinjian unit of Baosteel saw its short-term debt climb 13.3% last year, even as long-term debt fell 29%.
Debt piles up fastest at the end, when the only way to survive is to extend and pretend. Fake it until you make it, stay solvent until business conditions improve and then dig your way out of the hole. A rapid increase in debt can be a sign that the end is close at hand.

Another story out yesterday: Glorious Property Seen Close to Default After Kaisa Tumble
Attention has rapidly shifted to Glorious Property Holdings Ltd., whose controlling shareholder is billionaire Zhang Zhirong. Moody’s Investors Service cut its senior unsecured rating to Ca, just one step from the lowest grade typically signaling default, on April 20 citing sliding sales. It settled $19.5 million of interest Friday on its $300 million of 13 percent notes due Oct. 25, which have dropped 6.3 cents this month to trade at 78.4 cents on the dollar.

...Glorious, which according to its website focuses on developing large scale and high quality properties in cities in the Shanghai region, Yangtze River Delta and northeast China, had missed scheduled payments as of Dec. 31 on loans of 149.6 million yuan ($24 million) in principal and 46.4 million of interest, according to its annual results dated April 15.

Since the end of last year, the company also failed to meet repayment deadlines on 500 million yuan of principal and 397.3 million yuan interest on unspecified borrowings this year, it said, without giving further details. While the builder subsequently settled the bulk of the missed payments, it was still delinquent on 130.3 million yuan, it said.
Last year, Glorious sparked homeowner protests when it slashed prices in Jinan: Dozens of Police Keep Order As Jinan Homeowners Protest Price Cuts

Last year, there were no stop stories of firms at risk of bankruptcy. Even earlier this year, in February: Glorious Property Falls Into Debt Trap. In the Xinhua coverage linked in that post, one analyst report said 90% of developers (mainly small and medium firms) are already insolvent, but since the big firms are "too big to fail," the government will bail them out and the sector will avoid an economic chain reaction. The rapid increase in debt in the first quarter of 2015 fits perfectly with that report.

Bloomberg Stares Into the Abyss

Q: If China Sees Capital Outflows Now, What Happens in Crisis?

A: Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes... The dead rising from the grave! Human sacrifice, dogs and cats living together... mass hysteria!

“We have both a booming stock market and capital outflows, which is counterintuitive,” said Jean-Charles Sambor, Asia-Pacific Director at the Institute of International Finance in Singapore. “The downside risk would be to have broad-based outflows if the macro story deteriorates further or the stock exchange collapses, which would create a confidence crisis.”

...So far at least, officials are playing down the risk. Guan Tao, head of the State Administration of Foreign Exchange’s international payment department, on Thursday said the outflows weren’t surprising and that authorities aren’t considering new measures to clamp down on departing money.
"When it becomes serious, you have to lie." I don't think the authorities are lying now.
...One trigger to accelerate the outflow could be a steep correction in stock prices that spurs domestic investors to seek safety in overseas assets. The Shanghai Composite Index has soared about 90 percent over the past six months as the central bank cut interest rates and took steps to revive lending growth.
Why would this be? Equities are rising as outflows rise. One possibility is that stock prices and capital outflows are not related. Another is that stock prices and capital outflows are inversely correlated. Another is that both capital outflows and stock prices are both affected by the same variable.

Perhaps fear of currency depreciation?

Up China’s sleeve is plentiful ammunition to fight speculators if it ever came to a crisis. The People’s Bank of China can lower the amount of reserves banks must hold, pumping cash into the system to offset outflows. Then there’s the $3.73 trillion pot of foreign currency reserves it can use to shore up the yuan, as analysts say it did in the first quarter.

“If there is an economic crisis, my guess is that the fear-driven outflows could rise sharply, putting immense pressures on the PBOC’s foreign reserves,” said Stephen Jen, co-founder of SLJ Macro Partners LLP in London and a former IMF economist. “But the foreign reserves are there for a reason, precisely to meet this contingency.”
Nope. Foreign reserves are there because when dollars come into China, the central bank swaps renminbi for U.S. dollars. Rising reserves caused by dollar inflows are inflationary in the financial system. If China uses reserves to buy up yuan, it is contracting the money supply. Deflation. The very thing that may force a crisis in China is disinflation or deflation in the financial system. A falling yuan is the market's response to seeing a deflationary threat in a currency that is backed by a foreign reserve currency.

The only thing China can do for certain is arrest a decline by revaluing the renminbi or announcing their gold holdings. Markets always overreact, so instead of USD/CNY going to 8:1 in a crisis, the Chinese government might be able to halt a decline at 7:1, but only if that's in the ballpark of the real value. If China tries to halt the decline at 7:1 and the market wants to take it to 10:1, then China will be no more successful than Thailand in 1997 or Mexico in 1994. China was very successful in 1994 when they devalued big. Do you think they learned from their success?

If the currency needs to fall and doesn't (if it is really overvalued), exports will collapse and capital flows will intensify as Chinese flee an overvalued yuan via other means because putting up capital controls would not stop Chinese citizens from dumping RMB for gold, stocks or houses. The CCP or PBOC can decide what sectors pay the price or reap the rewards, but they cannot make the Sun rise in the West or even control real long-term interest rates. Every action has a cost: TANSTAAFL. If China decides it doesn't want the price to paid with the currency, then it will have to pay another way.

Chinese leaders, ironically, have the most control over their economy and yet appear to be the most pragmatic of all. Over in the U.S. and Europe, there is a whiff of panic if stocks drop a few percentage points. The economy more and more becomes the simulacra. Instead of minding the real economy, leaders are focused solely on the copy of the copy, a market where paper representing shares of companies is the most important thing in the world and if it drops a few percentage points, central planners panic and try to prop it up, as if the numbers going up on the S&P 500 Index will somehow flow backwards through the system and cause reality to change. Aside from the weak wealth effect, it is no more successful than coloring on a map and expecting the dirt beneath your feet to change color.

There's nothing new about China other than it is the largest Asian nation to embark on the development path. Maybe undemocratic state run market socialism will prove to be more successful than democratic state run market socialism, but other than a few tweaks, China will not escape history and the laws of economics. The real threat to the markets is the gap between perception and reality, from people who are making bets based on the idea that "this time is different." In the case of China, they're no more wrong than they are elsewhere. Most likely, if China has a major crisis, it will unfold amid a global crisis. Hopefully, the adjustment is not extreme and there isn't a recession that will Be "Remembered For 100 Years".

2015-04-24

Day Trading Street Peddlers


H/T: When Your Banana-Guy Starts Trading Stocks, You Know It's Over

That Was Fast: Immigration Issue Gains Attention

Only a day ago I said Immigration Restriction A Winner In 2016. GOP presidential candidate Scott Walker took up the issue of restricting both legal and illegal immigration, and now Drudge has joined the effort.
Notice the headlines below with Germany and the EU dealing with immigration issues.
Census: Record 51 million immigrants in 8 years, will account for 82% of U.S. growth
The media and both political parties effectively suppressed nearly all discussion of immigration restriction over the past 15 years, all the while pushing even more extreme policies. Currently, the U.S. government is flying illegal immigrants into the U.S. The gap between public sentiment and government/media on the issue has widened to extreme proportions. This creates a situation where the policy can shift rapidly from expectations.

While immigration isn't the most important issue to voters, the issue crystallizes the public's belief that government doesn't care about them or listen to them. Anti-immigration has no core constituency; it cuts across all groups. Low skill immigration hits poorest Americans the hardest because the new immigrants are able to quickly compete with them for jobs. Some high skilled workers are anti-immigration too because H1-B visas are used to displace American programmers with cheaper foreign labor.

The next time social mood swings negative, many Americans may sound a lot like this woman:

New and Active Accounts Soar for Week Ended April 17

Another Default, Another Credit Guarantee In Play: Jiangsu Dahong Textile

A private SME in Jiangsu, Jiangsu Dahong (江苏大宏纺织集团股份有限公司), has missed a bond payment and has yet to contact investors. Besides missing a bond payment, the company has overdue loans with banks.

The bond in question is a $300 million 3-year bond (with a 2 year sell-back option) issued in 2013. The bonds were originally rated AA- and are now rated CCC.

Dahong's business has stagnated and the firm cannot fund the debt from its normal operations.

Sheyang Investment and Development Co. has unconditionally guaranteed the debt of Dahong. Sheyang also provided $60 million in land as guarantee. However, after default, Sheyang has provided no compensation.

Offering documents show that as of the end of 2012, Dahong had total assets of 1.461 billion yuan, total liabilities of 744 million yuan, 717 million yuan of shareholders' equity; in 2012 the company had operating income of 1.317 billion yuan and 110 million yuan in profit.

But the latest rating report shows that, as of the end of September 2013, total assets were 761 million yuan, down by almost half, and from January to September 2013, total profit was 19 million yuan, down almost 4-fold.

Creditors have met and are investigating to see if the assets in 2012 were fraudulently reported or if assets were illegally transferred out of the company later.

Besides the overdue bonds, Dahong has overdue bank loans worth 246 million yuan.

Of the 300 million bond, 162.8 million was to be used to repay bank loans, the remained used for working capital.

A supplementary agreement explains why Sheyang provided the unconditional guarantee: Sheyang took 180 million of the bond proceeds.

Currently, Sheyang says it can repay the 180 million, but hopes investors can give it a 3 year grace period to repay creditors the other 120 million.

At the end of 2013, Sheyang had total assets of 6.068 billion yuan, equity was 3.42 billion yuan, asset-liability ratio 43.63%; total revenue was 610 million yuan, profit was 140 million yuan.

21CBH: 违约再现:江苏大宏纺织3亿私募债困局

Great Moments in Google Translate

Last month there was a lot of behind the scenes criticism from the U.S. directed at the UK and European allies.

Guardian: US anger at Britain joining Chinese-led investment bank AIIB

Here's a clip from a Chinese article describing the 30 minutes phone call between US Secretary of the Treasury Lew and UK Chancellor of the Exchequer Osborne, in which Lew criticized Osborne for 30 minutes. It is left in the nearly unintelligible Google Translate.

iFeng: 美财长曾30分钟电话痛批英国加入亚投行:背信弃义
Britain announced in the Asian Infrastructure Investment Bank (Asian investment bank, AIIB) of March 12, the US Treasury Secretary Jacob Lew boob (59) toward the phone, endlessly say 30 minutes - "Since last year autumn, China's plan to change what happened what? This perfidious intolerable! "

The other end of the phone is the Chancellor of the Exchequer Osborne (43 years old). "We still decided to participate in. From China's internal oversight action," Osborne apathy rejected entanglement Jacob Bubu Lu.

2015-04-23

Taiwan ETF Closes At New All-Time High

Taiwan actually isn't so much a China story as a Nasdaq story. The technology heavy Taiwan index is at a new all-time high on the same day the Nasdaq broke its 2000 high.

Could Greece Default and Stay In The Eurozone?

A few scenarios are examined in: Could Greece default and stay inside the Eurozone?
While default sounds definitive it is rarely so clear cut. Default is often subjective and murky, even more so when it involves different obligations of a sovereign state. Different creditors have different definitions of default, some of which are linked to each other and some of which aren’t. Ultimately, it depends who Greece ‘defaults’ on and whether it eventually makes amends – i.e. is the default temporary or is it a permanent write off. For the purposes of this blog we take ‘default’ at its most basic level – non-payment to creditors.

S&P 500: Sell Yourself to China

China overhauling IPO process, mulls foreign firms listing: report
China will switch to a "registration system" for initial public offerings (IPO), ending the current approval process, the official China Securities Journal reported on Tuesday, a day after parliament began reviewing draft changes to the Securities Law.

A registration system - used in mature markets such as the United States, where the market decides who gets to list, when, and for how much - will obviate the China Securities Regulatory Commission's (CSRC) role as the approval agency, industry sources say, and leave companies to register with stock exchanges to float shares.

...The draft also stipulated requirements for share issuance by foreign companies in China, the newspaper said, without going into details. The move would be a step toward creating an "international board", which China has said it would launch eventually.
Imagine the P/E ratios of firms such as Apple, Google, Goldman Sachs or Coca-Cola in China. Given these companies are transparent and pay sizable dividends relative to many Chinese companies, they'd easily climb in price to double, triple or even more of their U.S. market P/E.

iFeng: 证监会:适度加大新股供给 每月将核发两批次

H/A Share Discount List for 20150424

H-Share/A-Share Discount List 2015-04-24


Rogoff: It's The Debt!

Cutting straight to the conclusion of Debt supercycle, not secular stagnation:
In sum, the case for describing the world as being in a debt supercycle is both theoretically and empirically compelling. The case for secular stagnation is far thinner. It is always very difficult to predict long-run future growth trends, and although there are some headwinds, technological progress seems at least as likely to outperform over the next two decades as it is to exhibit a sharp slowdown.

Again, the US appears to be near the tail end of its leverage cycle, Europe is still deleveraging, while China may be nearing the downside of a leverage cycle. Though many factors are at work, the view that we have lived through a debt supercycle, marked by a severe financial crisis (Lo and Rogoff 2015), is far more constructive for policy analysis than the view that the world is suffering from long-term secular stagnation due to a chronic shortfall of demand.
Remove the debt and growth will return. Preserve the debt and stagnation sets in.

2015-04-22

Hebei Credit Collapse: State Owned Credit Guarantee on the Brink as AIG Business Model Falters

"The profit model is an important reason for the large-scale collapse of credit guarantee firms, a 2% profit is not sufficient for taking on 100% of the risk." (Source: Credit Guarantee Firms Go Down Like Dominoes)

The pre-2008 AIG business model of guaranteeing lots of debt for small upfront premiums is still undergoing a full on collapse in China.

Recently the Economic Observer covered the troubles in the steel industry, which are rapidly piling up short-term debt. Although not specifically about Hebei, the province has a large steel industry. It's also in Hebei that Baoding Tianwei recently went bankrupt and it has credit guarantees of its own. On top of it all, the largest credit guarantee firm in the province has been placed in trusteeship as it teeters on the edge of bankruptcy.

Hebei Loan Guarantee Firm Wobbles, Worrying 50 Financial Institutions
The largest loan guarantee company in the northern province of Hebei has been in trouble since investors discovered it did not have enough capital to back its guarantees.

At least 50 financial institutions – ranging from banks and trust companies to securities firms and peer-to-peer lending websites – are worried their investments are in trouble, several employees from those financial institutions said.

The employees said the company has guaranteed at least 50 billion yuan worth of loans. Starting in July, some borrowers have defaulted on their loans and investors have been unable to get repayment from the guarantee company, they said.

...An executive from a fund investment company said it would not have lent to some projects if it were not for the guarantee the state-owned enterprise (SOE) provided.

"These are projects that we normally would not do," he said, "but because they were guaranteed by the company, we took them on anyway."

..."We believe that an SOE will not really default," a manager from a trust company in Shanghai said. "But no one knows how much longer the suspension will last."

As covered in previous posts about credit guarantees, there's once again the risk that one firm can bring down dozens if it indeed goes bankrupt.

Hebei Financing Investment Guarantee (HFIG) is linked with several major companies doing business in the province: 河北最大担保公司河北融投被托管 涉资数百亿
According to the 21st Century Business Herald, in the real estate business, Hebei financial investment with a number of developers have in-depth cooperation, such as Hebei local leading federal estate and housing prices nationwide Greentown Group, Glorious Property, etc., there are Ping An Trust Cooperation Trust, China Australia Trust, Hua Xinxin care, Bohai International Trust and so on. Hebei financial investment and in 2014 for the first time with the P2P platform modular boxes cooperate for the latter to provide financing guarantees for about 500 million yuan.

21st CBH has more in-depth coverage of HFIG: 河北融投担保被指“大跃进” 华融称不当“接盘侠.

The Hebei government has placed the company in trusteeship and created a working group to deal with it. The group is currently investigating the situation and all manner of risky ventures are being exposed. Complicating matters is the fact that HFIG has guaranteed a lot of loans to state-enterprises, so a default by HFIG could trigger a cascade of credit problems for state-owned companies. Credit rating firms recently warned on HFIG, although Dagong gave the firm, which is the second largest credit guarantee firm in all of China, an AA+ rating. There are rumors that bad bank Huarong will buy shares in the firm, which Huarong has denied.

The headline for the 21st CBH article also describes HFIG as having a "Great Leap Forward," and no, that is not a positive even in China. The firm's business model is described as "too radical." With an implicit government guarantee behind it, HFIG was willing to take on any project. The firm rapidly expanded beyond the ability of managers to control it, leading to an unsustainable business model of throwing caution to the wind. One private investor involved with the firm says bankruptcy is highly likely given the firm is already in trusteeship.

Huarong is seen as a possible white knight, but the firm says rumors of its involvement are pure speculation. The company did sign an agreement with the Hebei government in December 2014, but it was a general agreement, nothing specific to the current situation with HFIG.

In addition to the troubles with HFIG and Baoding Tianwei, the first state-owned company to default, there are also private defaults that have hit in April. One was a Shenzhen company that sold its Hunan-style restaurants in order to get into cloud computing. Chinese Defaults Head Into the Cloud
But on Tuesday, struggling restaurateur-turned-technology startup Cloud Live Technology became the first company to miss a principal payment.

The Google Translation will butcher this, but 21st CBH has an article covering several other bonds that are considered at risk of defaulting in 2015: 首例国企债“天威中票”违约跟踪 高危信用债雷区预警

Understand China's Stock Market in One Picture

Here's the only picture you need to understand China's stock bull market that began in summer 2014. It is the stock chart of Baoding Tianwei Baobian Electric (600550), the first state-owned company to declare bankruptcy. Included is the Shanghai Composite for comparison.

Outside of some large companies with heavy institutional ownership, stock prices reflect psychology and not much else.

H/A Share Discount List for 20150423

H/A Share Discount List for 2015-04-23


Beijing Public Housing: First Come, First Serve

Only a year ago, Beijing had oversubscribed lotteries in order to dole out public housing. Within a few months, some winners gave up their right to buy some of the less attractive properties due to falling prices making the private market more attractive. Now, a public rental in Tongzhou will go to whichever qualified renters show up first, and are willing to pay ¥30/sqm.

iFeng: 京首个“先到先得”公租房配租 每月每平30元

Hottest Apartment Size: 40 to 70 SQM; Elmer Fudd Prowls Chinese Land

Market psychology has shifted as Chinese Millenials opt for small homes. They're attractive because of low prices, low down payments, ease of renting or selling. In other words, they see housing as a risk, not a way to get rich.

iFeng: 40~70平方米小户型成为市场上最受欢迎的户型

The land market is extremely quiet in April, with no transactions to date and the next auction on April 27. This follows a quiet March that only saw two land deals. Beijing recently reduced land supply by 25% in a bid to shore up the market, and clearly there is a big lack of demand. At least one analyst sees transaction prices rising this year thanks in part to limited supply, but total sales are likely to fall.

iFeng: 北京土地市场4月静悄悄 预计全年“量跌价涨”

Land sales fell 20.4% nationally in Q1, with land zoned for housing down 38.7%.
End of the first quarter, the 105 major cities monitored integrated, commercial, residential, industrial land prices were 3541 yuan / square meter, 6593 yuan / square meter, 5305 yuan / square meter and 746 yuan / square meter. The four land prices had QoQ growth rates of 0.55%, 0.62%, 0.53% and 0.54%, respectively, YoY growth rate of 3.25%, 3.22%, 2.98% and 3.62%.

Shanghai E-House Real Estate Institute researcher Yan Yuejin believe there has been a large-scale land supply drop. This land market downturn is expected that the transaction. At this time the local government will have more conservative land policy.

iFeng: 国土部:一季度房地产用地降38.7% 4-5月或现地王

2015-04-21

Immigration Restriction A Winner In 2016

After all but ignoring the issue in previous election cycles, immigration restrictions will be an issue in the 2016 election.

Scott Walker Tacks Far Right On Immigration
"In terms of legal immigration, how we need to approach that going forward is saying -- the next president and the next Congress need to make decisions about a legal immigration system that’s based on, first and foremost, on protecting American workers and American wages. Because the more I’ve talked to folks, I’ve talked to [Alabama Sen. Jeff] Sessions and others out there -- but it is a fundamentally lost issue by many in elected positions today -- is what is this doing for American workers looking for jobs, what is this doing to wages. And we need to have that be at the forefront of our discussion going forward," Walker said in an interview with Glenn Beck, according to Breitbart News.

Sessions, chairman of the Senate Judiciary Committee’s immigration panel, has been one of the biggest opponents of President Barack Obama's immigration policies and frequently criticizes the administration over its so-called "amnesty" for undocumented immigrants. In a Washington Post op-ed on Friday, he argued that it was time to curb immigration flows into the country "so that wages can rise, welfare rolls can shrink and the forces of assimilation can knit us all more closely together."
Immigration restriction polls about 60-70% support when questions aren't asked in a biased way. This is easy low hanging fruit for any candidate who is willing to suffer the storm created by leftist media outlets, as the evidence from Europe makes clear.

The one issue that unites the upstart parties across Europe, who range from left to right on economic issues, is anti-immigration: Sweden Democrats, Norway's Progress Party, France's National Front, UK's UKIP, Alternative for Germany, Danish People's Party, Austria's Freedom Party, Holland's Party for Freedom, Italy's Northern League and the Finns Party are a few of the parties that have either surprised with their rapid growth or shocked with surprise electoral wins. Australia has also swung right on illegal immigration: Australian government targets asylum seekers with graphic campaign

From the socionomic view, peak support for immigration would have been around the year 2000, when social mood peaked. All over the world, political parties have shifted on the issue as social mood declined, moving towards more centrist policies. In the U.S., policy has remained extreme even for peak mood, with politicians of both parties supporting cheaper foreign workers (both high and low skill), refusal to do basic policing on the border, paying to fly illegal immigrants from foreign countries so they don't have to walk (and also paying to fly other people back on nearly empty planes, bureaucracy for the win).

If Walker or any candidate runs on an anti-immigration platform, they will endure non-stop attacks in the media, but they are likely to pick up several points in the general election. Given the two parties both have about 45% support heading into the voting, that extra few points will be enough to win the election.

H/A Share Discount List for 20150422

H-Share / A-Share Discount List for 20150422

Chinese Guy In Trouble With His Dozens of Girlfriends

Chinese Casanova busted by his 17 girlfriends in hospital gets police escort home
A man in China, whose multifaceted love life unravelled following a car crash last week, has been taken home early from hospital by his mother with a police escort to protect him from the 17 women he was reportedly dating.

The man, named only as Yuan, is suspected of fraudulent financial dealings with the women, reports said.

Yuan’s web of womanising began to unravel following a car accident, in a vehicle he reportedly borrowed from one of the girlfriends, which put him in hospital on 24 March.

While he was confined to a hospital bed, a stream of girlfriends started turning up at the hospital, often at the same time. 17 are reported to have visited overall.

The women are believed to be between the ages of 20 and 40 and only learned of their deception when they arrived at his bedside, The China Daily reports.

The hospital told local newspaper Xiaoxiang Chen Bao that Yuan fled the hospital in a hurry with the police support before he had fully recovered from his injuries suffered in the crash.

Xiao Li, a girlfriend of Yuan’s for 18 months, told the paper: “I was really worried when I heard he was in hospital. But when I started to see more and more beautiful girls turn up, I couldn’t cry anymore.”

China's Real Estate Investment Slowdown By Province

Here are a few places real estate investment is cratering. Two of the three northeast provinces are still suffering a major slowdown (Jilin has bounced back in 2015), but some troubling new editions are Jiangsu, Anhui, Shandong, Shaanxi, Henan, Hubei and Hunan. A few are pictured below.

Here's the slowdown in Hubei:

Liquidity Evaporates As Credit Conditions Worsen

The PBOC slashed reserve requirements on Sunday and the reason for the cuts are evident in the following days. Kaisa defaulted on Monday and Tuesday, a state-owned subsidiary in Baoding, Hebei defaulted.

Baoding Tianwei set to post China's 3rd domestic bond default Tuesday
China's Baoding Tianwei Baobian Electric Co Ltd said it has not yet raised enough funds to make a bond interest rate payment due later on Tuesday.

If it cannot make the payment by the close of business, it will become the third listed Chinese firm to publicly default on an interest payment to bond investors on an onshore issue.

"As of the time of this announcment, our company has not yet raised the funds to pay interest, and the probability of making the payment has become highly uncertain," a notice posted by the company on the website of China's bond clearinghouse stated.

The firm, a subsidiary of state-owned China South Industries Group Corporation, warned investors on April 16 that it might miss an 85.5 million yuan ($13.8 million) interest payment due on April 21.

Behind the scenes is the troubled credit guarantee industry. Some background on credit guarantee firms from 2014:
Rumored Mass Death of Companies in Xiaoshan District of Hangzhou If Banks Collect on Debts; Government Tells Banks to Sit Tight or Leave
Credit Guarantee Firms Go Down Like Dominoes
Who Broke China Bond Market's No Default Streak? Mutual Credit Guarantees

In Hebei, only about half of credit guarantee firms are still in operation as banks raise their standards for cooperation. The main reason companies are shutting their doors is due to bad economic conditions. These guarantee firms are the lifeblood of small and medium companies who would otherwise be forced into the extremely high interest private lending market, and their quiet contraction is a major deflationary force ripping through the Chinese economy.
21st CBH: 河北地区担保业现状:仅半数正常营业 银行提高合作门槛

And it turns out Baoding Tianwei has credit guarantees too: 保定天威保变电气股份有限公司独立董事关于公司2014年度关联方资金往来及对外担保的专项说明及独立意见
3. As of December 31, 2014, the company accumulated external guarantee balance 258,633,882.26
Yuan, respectively:
(1) is a wholly owned subsidiary of Tianwei change (Hefei) Co., Ltd. guarantee balance transformer 50,000,000.00 yuan; a wholly owned subsidiary of Tianwei change (Qinhuangdao) Transformer Co., Ltd. Tam
Paul balance of $ 50,000,000.00.
(2) for the shares of the company Leshan Electric Tianwei Silicon Technology Co., Ltd. guarantees the balance 139,665,099.10 yuan.
(3) for the affiliates Baoding Tianwei Wind Power Technology Co., Ltd. guarantees the balance 18,973,783.16 yuan, this guarantee is formed prior to the replacement of assets. Bear directly or indirectly, for asset-liability ratio over 70% of the secured object Insurance amount of $ 189,665,099.10, which Tianwei change (Hefei) Transformer Co., Ltd. 50,000,000.00 yuan, Leshan Electric Tianwei Silicon Technology Co., Ltd. 139,665,099.10 Yuan.
The numbers aren't huge, but it shows that behind every bankruptcy in China, there is likely a web of mutual credit guarantees that could pull several, or dozens, of firms into a crisis. At this point, there have been no reports of other firms having guaranteed Baoding Tianwei's credit...

The trouble for China's economy is the under developed financial system. The PBOC can cut the RRR and Li Keqiang can encourage bank lending, but if small and medium companies do not have access, it doesn't help them. Meanwhile, if the credit guarantee market that serves them goes bust, they face tightening credit conditions even as policy shifts to easing.

Logic of Strategy: Vietnam Seeks Philippine Alliance to Stop Chinese Aggression

Vietnam asked Philippines to form pact to counter China, Aquino reveals
A new “strategic partnership” being negotiated between two states fending off China’s maritime claims in the South China Sea was suggested by Vietnam, Philippine President Benigno Aquino has revealed.

It had been widely assumed that the proposed pact between Vietnam and the Philippines was initiated by Manila, which has taken a high-profile stand against China.

In an exclusive interview with the South China Morning Post, the Philippine president said China’s moves in the South China Sea were even more alarming than a year ago, when he likened global inaction to China’s push to appeasing Hitler – comments that angered China.

In the interview last Thursday, Aquino stood by his remarks. Pulling out a map of the South China Sea, he said: “Perhaps it’s even worse today.”

...Asked to assess China’s possible reclamation of more reefs and shoals in the disputed waters, Aquino said: “I will tend to sound like a rabble rouser. Can I just say, I hope not.”

“I don’t see the logic of their move. Therefore I hope that logic and rationality prevail. Since there is no gain, why embark on something like that?”

He said the world was watching China.

...“Perhaps, we should also focus on the fact that, to a large degree, this is the only contentious issue between our relations. And removing that is really, I think, a worthwhile goal.”
It may be the only contentious issue, but it is a big enough issue to blow up everything else should social mood take a turn for the worse.

2015-04-20

Steel Collapse

China's steel industry is moving towards a trough. Last year, Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee set the tone for a year with rising NPLs in the steel sector. Recently, charges of corruption have rocked the industry:

China Baosteel executive under investigation for corruption
A top executive of China's Baosteel Group, the parent of Baoshan Iron & Steel (600019.SS), is being investigated for "serious disciplinary violations", China's corruption watchdog said on Tuesday, as Beijing intensifies its war on deep-seated graft.

China's steel industry comes under the anti-corruption spotlight
A Deputy General Manager [Sun Wendong] at Wuhan Iron and Steel Co. has been detained on suspicion of accepting bribes, according to an announcement made by the listed firm to the Shanghai stock exchange yesterday evening.

...The steel industry has been one of the areas targeted with close to ten steel executives investigated since last year, according to a report in today's Beijing News.

Anti-corruption teams are stationed in the steel industry for two months, scheduled to finish at the end of April. Insiders were surprised at the two arrests because the men were widely considered low key, capable managers, with the WISCO executive pegged as a potential future CEO.

Corruption charges are the least of the industry's worries as rising debt levels indicate business conditions are worsening. An undercurrent of default is raging as short term debt hit recently hit ¥980 billion, or 74% of the industry's ¥1.33 trillion in bank loans.

Previous government efforts to rescue the industry have failed. Reorganizations were supposed to help, but local governments each have an incentive to fight for their local mills and the central government fears economic instability. One proposed restructuring that would merge WISCO and Liuzhou Steel is 10 years in the making. An "Action Plan" was put together in 2012 that would allow the market to play a decisive role in allocating resources, strengthen the position of companies in the industry and create a competitive environment.

The 2012 Action Plan wasn't only for steel. The government was to halt approval of iron, aluminum, cement, plate glass and other industrial projects. For steel, the government wanted to leave about 300 companies. This number confused the public, since the market was supposed to be playing a role. Why did the government delineate the number of desired firms? The number comes from a government study which found 300 firms is appropriate during "normal conditions." The 300 firms accounted for about 90% of China's steel production.

The reason for the government's failure to tame the steel industry became crystal clear in 2014, when credit guarantees became a major issue. As with other industries, mutual credit guarantees form a web of interlocking liability. If one steel mill is shuttered, it sets off a chain reaction that shutters several more. In March 2014, Haixin Steel ceased operations with ¥20 billion in debt owed to 33 different lenders. Disaster fell on other steel and energy companies that had guaranteed Haixin's debt. This daisy chain of mutual guarantees tied the government's hands, restricting their actions for fear of setting off more bankruptcies.

If ¥20 billion can wreak havoc on the industry, imagine the problem facing the government today. In addition to the ¥1.3 trillion in bank loans, much of it short term, the industry's top 80 firms also owe ¥1.7 trillion in short-term high interest loans. Firms are borrowing to repay old debt, for instance a Xinjian unit of Baosteel saw its short-term debt climb 13.3% last year, even as long-term debt fell 29%. This increases the risk of default should credit conditions tighten.

Amid this looming chaos, a new three-year action plan is being developed for steel, plus a new 5-year plan and long-term industrial policies. If the government failed when debt levels were much lower and the economy was growing much faster, what are the odds of success today?

EEO: 钢的“底”

H/A Shares Discount List for 20150421


H-Share/ A-Share Discount List for 2015-04-21

Chinese Stock Market Sets World Record on Monday

Bloomberg: China Stocks Drop on Record Turnover as Margin Curbs Trump PBOC
The Shanghai index’s trading volumes were 74 percent above the 30-day average, while its 100-day volatility jumped to a five-year high, according to data compiled by Bloomberg. The combined turnover on the Shanghai and Shenzhen stock exchanges climbed to a record 1.8 trillion yuan ($290 billion).

Kaisa Officially Defaults

Bloomberg: Major Chinese Developer Says It Can’t Pay Dollar Debts
The company didn’t pay $52 million of interest on 2017 and 2018 notes due last month, according to a Hong Kong stock exchange statement Monday. Kaisa had until Monday to make the payments after a 30-day grace period expired at the weekend.

The default at Shenzhen-based Kaisa follows a series of mishaps since December, capped by the surprise return of founder Kwok Ying Shing last week. The developer has sought ways to service 65 billion yuan ($10.5 billion) of debt owed to both onshore and offshore lenders while also becoming embroiled inPresident Xi Jinping’s crackdown on graft.

Kaisa “is focused on facilitating the release of its 2014 audited financial results,” according to its statement. Following that release, the company “will continue its efforts to reach a consensual restructuring of its outstanding debts.”

2015-04-19

Chinese New Home Prices Barely Drop in March

Chinese new homes prices fell an average of 0.16% across the government's 70 city survey last month. There is still bifurcation in the market, but improvements were across the board, with no city seeing a 1 percent drop month-on-month. The shift points to a potential bottom in the market and based on the early data from April, prices are likely to be rising nationally this month.

Year over year, prices are down 6.1%.

Since 2010, average prices are up 7.6%.

March 2014: 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.
February: 66 cities saw declines in price mom, 2 cities were flat, 2 were up.
March: 49 cities saw declines in price mom, 9 cities were flat, 12 were up.

Existing home prices fell 0.15% in March. Prices are down 5.2% yoy. Since 2010, existing homes have only risen an average of 1.9%.

70 city new home price changes by market segment: below 90 sqm prices fell 0.09% mom; 90-144 sqm prices fell 0.18%; above 144 sqm prices fell 0.19%. The trend across market segments is the same for yoy and prices gains since 2010, with large homes only up an average of 5.3% since 2010 versus 9.9% for houses smaller than 90 sqm.

70 city existing home price changes by market segment: below 90 sqm prices fell 0.15% mom; 90-144 sqm prices fell 0.09%; above 144 sqm prices fell 0.19%. Existing homes larger than 144 sqm are down 0.9% on average since 2010. Existing homes smaller than 90 sqm are up only 2.9 percent since 2010.

Source: 2015年3月份70个大中城市住宅销售价格变动情况

Chinese Regulators Panic, Era of Tight Money Is Over

Turns out we may have only had hours to buy the dip in Chinese stocks as regulators went into panic mode over the weekend.

China Not Trying to Chill Red-Hot Stock Market, Says Regulator
In a statement published Saturday evening, the commission said measures rolled out on Friday, including tightening rules on margin lending and promoting the use of short selling, aren’t aimed at clamping down on a red-hot market.

The measures are about “maintaining the healthy development of the market,” the CSRC said in the statement. “They aren’t intended to encourage short selling, let alone depressing the market…the market shouldn’t over-interpret the measures.”
We're not trying to pop the bubble, but even if we we're, there isn't a bubble. Please continue buying.

The PBOC joining in the panic on Sunday: China makes big cut in bank reserve requirement to fight slowdown
China's central bank on Sunday cut the amount of cash that banks must hold as reserves, the second industry-wide cut in two months, adding more liquidity to the world's second-biggest economy to help spur bank lending and combat slowing growth.

The People's Bank of China (PBOC) lowered the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 percent, effective from April 20, the central bank said in a statement on its website www.pbc.gov.cn.

"Though the growth in the first quarter met the official target of around 7 percent for 2015, the slowdown in several areas, including industrial output and retail sales, has caused concern," said a report published by the official Xinhua news service covering the announcement.

The latest cut, the deepest single reduction since the depth of the global crisis in 2008, shows how the central bank is stepping up efforts to ward off a sharp slowdown in the economy.

"The size of the cut is more than expected," said Shenwan Hongyuan Securities analyst Chen Kang.

"It's going to release around a trillion yuan (in liquidity) at least."

...Premier Li Keqiang publicly exhorted banks to lend more to the real economy during a visit to major banks on Friday.
One of the main arguments here for the past couple of years was the tight money orientation of Xi, Li and Zhou. I don't think that is the case anymore. While monetary policy may be tight because the central bank is behind the curve, the era of tight monetary policy is over.

The cut is positive for equities. Thus far CNH and CNY are stable, but let's see if it holds.

H/A Share Discount List for 20150420

Largest H/A-Share Discounts as of 2015-04-15

Finland Shifts Right

Millionaire businessman wins Finland election
YLE forecast Sipila won 46 seats in the 200-member parliament, with Stubb's center-right National Coalition with 37 seats and center left Social Democrats with 37 seats. The euro skeptic and anti-immigration Finns Party was fourth with 35 seats.

...While the Finns Party did worse than expected - latest polls had them a close second - Sipila may still favor the populists over the center-left Social Democrats in building a new coalition, analysts say.

Sipila has said he is open to including the Finns Party in a coalition, even though they could complicate ties with Europe because they oppose bailouts and want to kick Greece out of the euro zone.

"If The Finns go to government, I believe Finland's policy towards Greece will change. It will change for the better, because it can't get any worse," Finns Party leader Timo Soini told reporters.

2015-04-17

Robots Will Replace Hookers in China

Once the sexbots hit the market, prostitutes will be in trouble.

Like millions in China who leave their hometowns to work in the cities, the 29-year-old car designer leads a bachelor’s life during the week, returning to his wife and toddler in neighbouring Hebei province every weekend.

Liu has been married for more than a decade, and does not want to be unfaithful, but still needs to satisfy his sexual appetites.

“Honestly, it is very easy to just pay a little money to find a woman in China, but I simply cannot bring myself to cheat on my wife, so I have never considered it,” he said with a nervous laugh.

But a blow-up alternative was not an option. “There was no way I would have sex with that kind of cheap inflatable plastic,” he explained.

Instead he forked out 15,800 yuan (HK$20,000), almost a month’s pay, for his more realistic Chinese-made “156”.

“The only way a doll is better than a woman is that it won’t resist, so people can do whatever they want with it,” he added.

...“If a married man refuses to see prostitutes and uses a doll instead, isn’t it admirable?”

...“A doll’s perfection is derived from mathematical calculations, but it will never be more beautiful than a woman because she has a soul, expresses emotions and shows reaction.

“To me it has absolutely nothing that’s better than a real woman, but I can at least try to deceive myself with it,” he said.

'It's better than cheating on my wife': Sex dolls fulfil the needs of China's lonely men

Overseas Homes and Equities Attract Investors, Chinese Home Price May Track GDP At Best

Another article, this time from China Finance Online (CNFOL), argues that price increases will fade in the coming weeks. Developers remain skeptical of a major rebound, with many seeing govt intervention as helpful, but unable to reverse a market that has, in their view, permanently shifted.

From the large market environment, the current property market landscape has changed dramatically. Yu Liang, president of Vanke Group by the end of March in the earnings call, said the property market, the central government introduced policies to boost the market will indeed play an important role, but the policy itself does not change the entire industry, from the "Golden Age" to the "Silver Age" change trend. "Silver Age" of the property, the property market supply and demand structure reversal from the previous shortage becomes localized oversupply, prices lost ground rapidly rising.

And according to the current market circumstances, in addition to a few cities, housing prices in most regions are impossible because of the introduction of the policy stimulus and rising. Eastern Region director of research at Jones Lang LaSalle Zhifeng Zhou pointed out that after the New Deal, the probability of large price tier cities, three, four-tier cities excess supply, high inventories, weak demand situation is difficult to change in the short term, they will not have rising price conditions.

...Based on the above analysis, we believe that prices rebound, just a normal reaction to a weak market, once the policy effect is digested by the market, the market will establish a new equilibrium. We expect that the market will be the extent of trading activity has improved in a few areas such as population import city, because of the substantial increase in demand and prices rose slightly, the rate of increase of about 7%, with the country's economic growth is similar. Some cities, such as supply and demand imbalance, Ningbo, Wenzhou, Dalian, prices rose difficult.

For buyers, do not have to because the individual real estate price and disrupted their purchase plans. At this stage, the market is relatively abundant supply, even if the encounter has a price of real estate, buyers can buy similar properties to replace, rather than panic buying

iFeng: 楼市一大信号证明房价不会大涨 背后原因曝光

A separate article says the developers willing to talk about rising prices have disappeared. At a recent trip to the Beijing Real Estate Expo, a reporter found developers are talking about everything except prices. In recent years, rising prices and the need to pre-order as the main sales point. Now, the sales people are talking about transportation, landscaping, facitilities, etc. Only one out of six agents tried to push investment and rising prices as a reason to buy.

Additionally, although public discussion focuses on rising prices, developers were actually willing to cut prices. In one case, a development in Zhouzhou, a city near Baoding in Hebei (about 1 to 1.5 hours away from Beijing) was selling for ¥7200 per sqm, up from ¥7,000 last year. However, agents said recent homes have sold for ¥7,000 and if you are willing to pre-buy, you can get a new home for ¥6000 per sqm.

The stock market is drawing away speculators:
"For now, the environment does not support price increases." Beijing Organizing Committee Secretary exhibitions Brings the case said, the better the real estate market compared to previous years, and now the country has launched a real estate registration system, to prepare for the real estate tax; On the other hand, a booming stock market, investment funds have more channels to choose from, the real estate investment is no longer a single product.

One area of growth is to convince Beijing city residents with expensive homes, to trade out to a large apartment or villa outside of the city:
"For first-tier city consumers, sell your old house for a big house, the time has come." Brings said, on the one hand, the new policy has been greatly reduced cost wards, on the other hand, in the foreseeable future, the first-tier cities especially housing hot spots will remain stable, not rose nor fell.

iFeng: 北京房展探“水温”:谁还相信房价会大涨?

Home buyers are more willing to buy overseas though: Why Chinese nationals are investing more in overseas properties
Compared with Europe, the cost of living and housing prices in the United States are relatively lower, thus leaving much larger room for appreciation. Because there are a large number of immigrants in the United States, it is easier for foreigners to assimilate into the culture.

Also, the quality of housing construction in America is high, and homeowners have permanent ownership.

In the United Kingdom, London is the primary city suitable for real estate investment, but some investors have complained that the weather in London is not very good and it is more difficult for foreigners to integrate into society.

The greatest attraction of real estate investment in Australia is that the country does not levy an inheritance tax.

The Beijing expo was "bursting" with overseas listings:
As in previous years, the biggest surprise of this year's overseas pavilions are also exhibitions, and a total of 30 countries, more than 140 overseas exhibitors, the conventional participating countries are the United States, Australia, New Zealand, Europe, France, Britain, Germany and Italy, Southern Europe Cyprus, Spain, Greece, etc. Moreover, this will also have a project in Taiwan exhibitors. Project types include luxury apartments, luxury villas, commercial real estate, land investment, the US EB-5 and so on.

China Daily: 北京房展海外楼盘爆棚