2015-10-31

CREIS: House Prices Rise Again in October

CREIS 100-city survey shows an increase of 0.30% for the month. The biggest increase was Shenzhen again, this time 3.49% on the month. Another first-tier city saw one of the largest drop though: Guangzhou new home prices fell 1.24% in October. Dalian, the capital of Liaoning province, saw the largest drop at negative 2.39%.

100-city Survey data: 2015年10月中国房地产
Google Translated: 100-city Survey Data page
Full Report: 10月百城住宅均价连续第3个月双涨 同比上涨2.07%

Mood Shifts in Germany

The language in the article itself signals the changing mood.
NYTimes: Germany’s Gathering Clouds of Discontent
IT’S getting darker and colder here in Germany, and it’s not just because winter is coming....Chancellor Angela Merkel’s open-door policy for refugees has soured....Ominous street protests, outfitted with mock guillotines, are now almost daily occurrences...they’re angry about more than just refugees...What’s worrying is that these fantasies of violence are the extreme expression of a sentiment that, in milder gradations, is taking hold of ever-larger parts of German society...Boris Palmer, the mayor of the prosperous university town of Tübingen, warned: “We can’t manage this.” As a prominent member of the liberal Green Party, Mr. Palmer is the last person to stir up xenophobia. Yet even he has warned that the refugee crisis means that “the social peace in this country is at stake.”
Within 5 years, 10 years at the most, the political landscape will be completely changed. These shifts are not temporary and they are happening during the period of a high social mood. These are the good times.

Social Mood Darkens


Global Mood Gets Darker




Global cyber wars. Independence referendums. Border restrictions. Nuclear weapons. Impeachments. Fringe candidates. These topics have become daily fixtures in the news.
In this timely article, socionomist Chuck Thompson explains how all these events express a global shift toward negative social mood. Read an excerpt of the September 2015 article below.


Mood Trending Negatively but Still Relatively Elevated in
the US, For Now

The Dow Jones Industrial Average has been trending net down since May. Elliott Wave International’s analysis indicates that it is likely still early in the renewed negative mood trend, so social manifestations borne of the previous long-term positive mood trend remain at the
fore. If mood continues to trend negatively, though, these manifestations should give way to a greater quantity and intensity of social expressions that align with the traits listed on the right side of Table 1, adapted from Chapter 14 of Robert Prechter’s The Wave Principle of Human Social Behavior.
Cyber Threats Loom, But US Response Has Been Mild
In a speech at Fort Meade, Maryland, President Obama voiced frustration about the growing number of cyberattacks on the US. He said that Russia, China and Iran have all become adept at such attacks, and that “offense is moving a lot faster than defense.”

The US has followed a low-key approach to cyberattacks. And David Rothkopf, editor of the FP Group, which publishes Foreign Policy Magazine, says other nations are taking advantage of US complacency:
The Chinese have discovered they can launch cyberattacks against us and that our officials seek to downplay them or offer up limp, ineffective responses, like indicting people behind them who will never ever see the inside of a U.S. court.
Yet, Obama did issue a warning at Fort Meade, saying, “There comes a point at which we consider this a core national security threat [and] we can choose to make this an area of competition, which I guarantee you we’ll win if we have to.”

The US and China announced that they had reached a cybercrime truce with regard to economic espionage in a joint press conference in late September. The prospects for maintaining the truce are slim if mood continues to trend negatively in both countries. In the February 2012 issue, Alan Hall warned about the potential for intensifying cyber war during a negative mood trend:
As animosity rises and military budgets fall, expect even more belligerence-on-the-cheap. Verbal threats, espionage, trade wars, financial conflicts, internal terrorism, cyberattacks, authoritarian clashes, border conflicts, drone attacks and anti-satellite attacks should all increase.

…Mood Grows Darker Elsewhere
The mood trend is far more negative in other parts of world. The character of unfolding events in Eastern Europe, Russia, Brazil and beyond provide a flavor of what may be on the menu throughout the West when mood becomes predominantly negative.

Negative Mood Dogs Brazil’s President
The political career of Brazil’s president, Dilma Rousseff, is a textbook study of the political and economic consequences of negative mood on formerly adored public figures. Brazil’s Sao Paulo Stock Exchange is down 33% compared to October 2010, when Rousseff was elected to
her first term as president.

Her opponents have filed a petition for her impeachment with Brazil’s Congress. Helio Bicudo, a founder of her own Worker’s Party, wrote the petition. Bicudo was involved in Brazil’s only successful impeachment movement, which resulted in the removal of Fernando Collor from the
presidency in 1992.

The impeachment petition is just one of many issues facing Rousseff. These include allegations of $800 million in bribes paid to government officials for contracts with state-controlled oil company Petrobras, whose board Rousseff chaired.

In addition, a government watchdog is looking into allegations that accounts were altered during Rousseff’s tenure to create a more politically acceptable national budget deficit. Brazil’s unemployment rate climbed to a seven-year high of 7.5% in July. The country also faces a pension
crisis, and many economists say Brazil’s problems have their roots in policy changes that originated with Rousseff.

In a recent poll, 71% of voters rated Rousseff’s performance as “bad or terrible” while only 8% judged it “good or excellent.” That makes Rousseff the country’s most unpopular democratically elected president since 1985, when a military dictatorship ended. …
 



Continue reading this 6-page article to discover how negative social mood is driving a series of dark events across the globe, from the migrant and refugee crisis in Eastern Europe, to Russia’s involvement in Syria’s civil war, to North Korea’s “rocket launches” – and more!
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2015-10-30

Chinese Consumer Finance NPLs Climb at 100% Ann Rate

Caixin: 消费金融公司不良率提高至2.85%
Compared to 1.56% at the end of 2014, by the end of September 2015 consumer finance companies' NPL ratio reached 2.85%, nearly double.
More than a 100% annualized increase. This won't rise linearly either. According to one executive in the industry, the blowout increase is still in front of us:
A consumer finance company executives said the outbreak of the NPL ratio of consumer finance companies have a lag, consumer finance companies are not yet non-performing rate outbreak "blowout", there's a high probability the future NPL rate will rapidly rise.
As seen at the end of every credit bubble, the executive also says the rise in bad debts is related to recent rapid expansion in the industry, leading to lax risk controls.

Final SDR Push Sends Yuan Sharply Higher

Bloomberg: Yuan Rises Most Since 2005 as PBOC Mulls Easing Capital Controls
The yuan surged the most since China scrapped a dollar peg in 2005 as the central bank said it will consider a trial program in the Shanghai free trade zone allowing domestic individual investors to directly buy overseas assets.

...China may dismantle capital controls by 2020, people familiar with the matter said last week.
Easing capital controls raises the value of the yuan because it makes the yuan more useful. In the current state of things, however, this increase in value that comes from being able to move in and out of China, is dwarfed by the potential demand for foreign assets.

Shanxi Nominal GDP Rises 5.9% in Q3

Shanxi, one of three northeast provinces that have been sitting on their GDP numbers, finally announced. It grew 5.9% in Q3 versus Q3 last year. Real GDP is reported as rising 2.8%, but nominal GDP is down 1.2% YTD.

Taiyuan News: 山西公布前三季度经济运行情况 GDP同比增长2.8%

Still waiting on Heilongjiang and Liaoning.

2015-10-29

Beijing Housing Supply Tumbles

Only 22 buildings will hit the Beijing market in November, lowest total in six months. Buying restrictions in Tongzhou are having an effect as sales there tumbled in September and October. Only 2 buildings are scheduled to hit the market in Tongzhou next month. Prices remain elevated over 2014 levels.
It is worth mentioning that, although turnover fell, but Beijing is still in the new disc transaction price of about 30,000 yuan record highs. As of October 28, October Beijing average transaction price of new commodity housing 29,716 yuan / square meter, down 1,262 yuan / square meter over the same period in September, a decrease of 4%; however, there have been 5,062 yuan more than the same period of 2014 / sq m It rises.

It is understood that in October the new disc transaction price fell about 4%, due by the end of October signed a number of suburban area down the average price of real estate, such as the Great Wall is located in Miyun Longhu source of the sun and Miyun waterfront home, contract price is about 15,000 yuan / square meter, and is located in South six ring outside of commercial and residential projects in Daxing, Beijing Beijing Urban Construction passwords, contract price of about 18,000 yuan / square meter.

Centaline Dawei, chief analyst said that although this year's Beijing property market, "Golden September and Silver October," the volume is not erupt, but the prices are still high, in addition to restriction under Tongzhou, September, October Tongzhou, there was greater decline in turnover are suppressed regional markets heat, also affected the overall turnover of the property market in October.

iFeng: 北京楼市供应渐“入冬” 11月仅22新盘入市

Property Inventory Still Great, Local Officials Request More Stimulus

Second- and third-tier cities are still suffering from excess inventory and more stimulus programs are expected. According to one local government official, housing officials from around China traveled to Beijing during the National Day holidays to ask for more policy support.
"At present the central policy level has basically liberalized, except for a few cities, most local policies on real estate has been stable to stimulate, expected in the fourth quarter will be focused around the introduction of relevant policies." Eastern province of Housing and Urban Department officials Zhang Jian (pseudonym) on the "China Times" reporter, said, according to his knowledge, just around the National Day, many local government officials went to Beijing "to hold small meetings" and hope to the relevant departments to give more policy support.

"From the central level, the caliber of the real estate policy currently classified as 'stable' instead of 'stimulus' and, therefore, no specific policies. If the credit adjustment can not bring improvement in real estate investment data, the next step or will continue in Fund quota management, real estate transaction taxes and other aspects of some action. "Development Research Center of the State Council, an official said.
THe article recycles a lot of data, then goes on (bold in original):
Recently, Chongqing issued a circular calling on the financial difficulties of real estate projects under construction, not simply pumping loans, stop lending and pressed loans to encourage financial institutions to the rational allocation of credit resources, improve the real estate development loans and individual housing mortgage loans, with appropriate mitigation gradual slowdown in real estate investment, and accelerate to the inventory.

Shandong Province, has recently introduced policies to encourage real estate companies will propose the transformation of commercial electric commercial property, teachers apartment, pension, real estate, tourism, real estate.
Chongqing is the fastest growing province as of Q3.

One analyst is worried about the bailouts though, seeing them as lifting demand beyond what the market can bear. He fears a collapse could be postponed until Q3 2016:
However, the central and local frequent introduction of bailout policies, Zhang Hongwei, said concerns. He believes that the policy stimulus, the upcoming end of prosperity or lurking behind the crisis, several rounds of bailout policies continue overdraft demand for property, which in terms of the property market next year, or will be a bad news, which means that demand for property is possible crisis in the third quarter of 2016 broke out, then, the property market will be plunged into a new round of adjustment period.

iFeng: 二三线楼市库存压力大 地方或出台几大政策

China Makes It Official: Two Child Policy

Reuters: China adopts two-child policy

Fertility will converge with Japan, South Korea, Hong Kong, Singapore, Taiwan, overseas Chinese diaspora.

10 Points For Reviving the Economy

From Minsheng Macro:
1. encourage officials to rebuild incentive compatible mechanisms to promote governance modernization.

2. deregulation policy, significantly reducing service barriers to market forces to break supply bottlenecks.

3. expansionary fiscal policy, tax cuts increase the deficit bonds, from the demand side to solve the mismatch between production and demand.

4. reduce excess policy to accelerate corporate restructuring mergers and acquisitions, from the supply side to solve production and demand mismatch.

5. stable housing market policy, organizational Chinese version of the Housing Bank and revitalize the stock to stock benefit people's livelihood.

6. policy to promote PPP, improve the investment environment, government social capital to none.

7. technology transformation strategy, the formation of a national research center, build research capital market as a whole industrial chain.

8. hold the bottom line, clean up bad debt, signal reforms will withstand pressure.

9. rules, active secondary open, strengthen the international rules influence.

10. active thinking, airing encourage suggestions, activating social cohesion thought the market consensus.
The points are then broken down further in the article.

iFeng: 走出当前经济困境的“治安十策”

2015-10-28

Investors Abandon Trusts for Private Equity Due to Default Risk

Chinese investors are moving away from trusts as defaults become a greater concern. The article discusses the high profile SOE defaults covered in the global financial press as a reason for the shift. This isn't systemic risk, but it does show these defaults you're seeing in the global financial media are already having an impact on the entire financial system.

Wholly owned subsidiary of a national party card securities Securities 2.05 billion yuan of trust scheme can not be exposed overdue payment conditions, coupled with debt after the debt crisis in the steel, so that the risk of trust products honor more and more in public view.

...On the other hand, the advantages of rigid payment trust and other financial products is being broken. Since October this year, there are a number of companies are caught in debt crisis. Yingli announcement that fails to send in full payment of principal and interest due in the vote, Nanjing Yurun release payment risk warning, Hebei melt cast breach caused bloodshed. The China Steel Corp. issued a five-year period "10 Steel debt," sell-back period has to, but deep debt crisis and Steel shares already Huitianfali; preceding national securities violations, according to its holding company Founder Securities announced, National Securities 2.05 billion yuan in its first principal payment of 350 million yuan, the investment direction of a single light Stone Capital Trust scheme Shares of working capital loans in the October 21 final repayment date, appeared unable to pay overdue The situation, the company has 2.05 billion yuan in respect of the matter reported to the police department. Coupled with the first half of this year "ST Hunan, Hubei debt" and "12 Rich 01" payment crisis, which from time to time be exposed to trust payment risk events, display a rigid payment trust wealth management products unspoken rules have been broken.
Quanjing: 兑付风险频现 信托资金向私募基金转移

Chinese Run Out of SPR Space

Oil imports have run ahead of SPR construction.

Reuters: Inside Oil

Steel Industry May Finally Be Facing the End; Systemic Financial Crisis Looming?

Four years into a slowdown and Chinese steel mills may finally be forced to adjust.

Bloomberg: China Steel Head Says Demand Slumping at Unprecedented Speed
Demand is collapsing along with prices, banks are tightening lending and losses are stacking up, the deputy head of the China Iron & Steel Association said on Wednesday.

“Production cuts are slower than the contraction in demand, therefore oversupply is worsening,” said Zhu at a quarterly briefing in Beijing by the main producers’ group. “Although China has cut interest rates many times recently, steel mills said their funding costs have actually gone up.”
Many steel mills have mutual credit guarantees. Larger mills may have given credit guarantees to smaller mills or steel traders, who guarantee the debts of other traders. It may only take one or two bankruptcies to set off the daisy chains. Local governments have been good about defusing these bankruptcy risks to this point because losses have been limited is size and geography, but...

Reuters: Sinosteel's debt woes cast doubt on China's SOE reform programme
The prospect of China's state-owned metals trader Sinosteel defaulting on its debt leaves Beijing with a dilemma: stick with its pledge to let market forces operate in its sprawling state sector or step in to save jobs and keep the steel giant afloat.

Don't forget about Hebei Financing Investment Guarantee, the bankrupt state-owned credit guarantee firm.
Yesterday, we learned Hebei's nominal GDP contracted 7.3% in Q3. Not a surprise considering everything that's been going on and the fact that Hebei's economy (as of 2013)
is largely dominated by iron and steel manufacturing, as consolidation in the steel industry continues, this is likely to increase.
This has been a slow motion deflationary wave, with the government preventing a washout deflationary wave at every juncture. Support for industries such as steel has increased the risk, the bailouts created moral hazard, and allowed for a massive increase in debt as firms borrowed to stave off bankruptcy. The government could have solved the problem for a much smaller sum 4 years ago. Now it has far more production to cut, far more debt to write off, and far more interlocking credit guarantees that could serve as path to even wider economic impact than is already coming.

To give an idea of how big of a blow-up may be in front of us, Christopher Balding helps us by Sizing up NPL risk in China:
Let me put these financial costs in perspective.

A sample of most NYSE stocks finds that total interest expense as a percentage of total liabilities was 1.5 per cent with the median firm paying interest expense equal to 2 per cent of liabilities. The 2 per cent interest expense relative to liabilities is extremely common for NYSE listed firms. Walmart for instance, one of the largest listed consumer firms pays 2.1 per cent on interest expense relative to liabilities or the average of all Chinese firms. What makes this interest cost difference between Walmart and Chinese firms unbelievable is that Walmart incurred most liabilities where the official interest rate was 0.25 per cent while the official interest rate in China only recently dropped beneath 5 per cent. In other words, while Walmart was paying eight times the official interest rate on average for liabilities, Chinese firms were paying one-third the official interest rates. Put yet another way, relative to the national interest rate, US firms are paying twenty-four times more interest expenses than Chinese firms.
The article provides details for where these calculations come from. Chinese firms and banks don't want to default and have NPLs, so they find many ways to structure deals and give grace periods that put American-style "extend and pretend" to shame.

Balding also points to this: China Minsheng Bank reorganises loan ops as systemic risks seen rising
China Minsheng Banking Corp , the country's biggest private lender by assets, warned on Thursday of growing systemic risks in its home market and said it was reorganising its loan operations after suffering a sharp rise in bad debts.

Minsheng Bank's profit growth and business operations are facing "the biggest pressure in recent years," said Assistant President Shi Jie, responsible for the bank's credit assessment department, at a press conference on Thursday.

"The possibility for systemic, concentrated financial risk to happen in China is growing ... Next year Minsheng Bank will face an even worse environment and bigger challenges," Shi said.
There have been some big system crises locally due to credit guarantees, such as Xiaoshan last year: Rumored Mass Death of Companies in Xiaoshan District of Hangzhou If Banks Collect on Debts; Government Tells Banks to Sit Tight or Leave. China doesn't need a systemic financial crisis in the banking system to have a systemic crisis. Local economies are tied together by mutual credit guarantees. The failure of a major steel producer could set off systemic financial crises in multiple localities due to the triggering of credit guarantees. A city bank could go from a low NPL ratio to a massive NPL ratio seemingly overnight if the local government can't contain the problem and the mutual credit guarantees all blow up at once.

In the U.S., you'd expect some construction firms or auto dealers to default on their loans if the North Dakota shale oil producers go bust and take down the local economy. In China, instead of this taking months or even a year or more, everybody goes "bust" at once because the shale oil firm may have guaranteed loans to the construction firm, and the construction firm to the auto dealer. Everyone is immediately embroiled in a a financial crisis even if their core business is solid and their own debts are serviceable. Even if things don't blow up economically, it will be a total nightmare for the courts and banks for years to come as they try to sort out who owes what to whom.

7 Years Later, Nature Reclaims Beichuan

The area was devastated in the Wenchuan county earthquake of 2008; now nature is reclaiming the abandoned buildings. More pics here: 地震7年后,一切还给了大自然

Li Junluo: China Should Dump 2 Trillion Treasuries Now

Liu Junluo sees China trapped. The Fed rate hike was a lie, the country is stuck with Treasuries so the U.S. doesn't fear retaliation, unemployment and food costs will be major problems in 2016. He say Lockheed Martin (LMT) is the winner of the TPP (rearming Japan?).

Before, I had to speak very clearly - if the US and Japan TPP agreement is reached, that the United States Lockheed Martin will officially enter the main upward move. 10 month, the US-Japan TPP agreement, Lockheed Martin is expected to expand as the upward move.

US Lockheed Martin is meant skyrocketing global arms race began. "US Lockheed Martin soared + Fed QE4 + food dollar + dollar index soared, "the United States is the real strategic tool. The US destroyer USS Lassen was the great bull market of the United States Loma sector to pave the way. So, we know ourselves, know our enemy, always victorious.

No Liu piece is complete without a comment about Chinese economists, and his latest is no different: "Chinese economists are all a bunch of crooks and gits."

His LMT call looks good though.

Chinese Real Estate Bulls and Bears

A summary of some bull and bear opinion in China. A good cross section. It closes by saying there are still way more bulls than bears in Chinese real estate.

iFeng: 关于房价官员学者开发商怎么说 预测两级分化
Bulls

● unsustainable real estate boom, but the Great Depression may not be coming soon, as long as the monetary policy remains loose, the downturn in the real economy will not be absorbed, capital flows into real estate and the stock market and other virtual market, cannot be stopped. Government can certainly squeeze the real estate market, but that means that the outbreak of the debt crisis, the pros and cons, it is easy to measure.

- Financial commentator Ye Tan published "Give me a break, far from the arrival of winter real estate" on October 24 in her blog.

● It is important that future investment is urbanization. Population movements driven by what? Driven by wealth and money. This year, the highest growth rate of housing prices in Shenzhen, Shenzhen why the short term prices will rise rapidly as more Internet-related jobs this year in Shenzhen ninety percent population growth rate almost doubled, young, educated, creative and capable people We are gathered to Shenzhen.

- Ren Zhiqiang explained his views on the property on October 22, "the positive and the island."

● This year, the first-tier cities in general has entered a process of warming, housing prices in Shenzhen also appeared periodically, gaining momentum move up north, on the broad property market heating process is relatively mild, but Beijing has repeatedly occur from the beginning of the year Xindi king. Look at the policy level, policy optimization and adjustment, track overall framework continue to improve, this is a very good new mechanism, in general, the probability of severe difficulties occur developers is getting low.

- Former director of the Institute of Fiscal Science, economists Jia Kang said in a famous speech in August.

● With the voice of public opinion, our national real estate bubble may soon shattered ...... I say that our country has not seen such a phenomenon. You have to consider the 15 million Chinese migrants to cities each year, enough to cover the house, plus the original update, the year add up to two billion square meters of urban and rural house is built out, the world was built four billion square meters, a US construction crane suppliers say that the world needs 40,000 units a year worldwide, 20,000 units sold to China went. On this issue, our real estate proportion in the national economy is surprisingly high, we are only 20% of the investment contribution.

--10 17, Tsinghua University, China and the World Economic Forum on the State Department counselor, Urban Planning Society of China chairman Qiu said.

● our local governments in the implementation of the land market is the "bilateral monopoly" approach: land monopoly buyer in order to drive down the purchase price; monopoly seller of land is to enhance the selling price. Forming an intermediate form of the difference of local government revenue. This model plus a variety of taxes, resulting in house prices in local government revenues accounted for half or more.

As long as the sale of land "bilateral monopoly" model of change, as long as the tax structure between central and local governments do not adjust, then we do not go to complain about "price is too high" would "undermine city competitiveness" pseudo-problem like this. Dance in shackles Shenzhen government has jumped the most beautiful, and you can expect them to trouble Which will lead to?

- September this year, director of Shenzhen Real Estate Research Center, the State Council special allowance Wang Feng "on the city's high prices and personnel housing problem consideration," said.

Xi wind Reviews

Bullish camp, although there are "limited Bullish" and the extent of "willful see more" different, but they look much summed up in three reasons: First, China is in the process of urbanization, the city each year 15 million people in need of housing, there is a huge market demand; Second Local Government "bilateral monopoly" plus a variety of tax is the main reason for rising house prices, as long as such models and tax structure does not change, prices will rise; Third, the real estate in fact kidnapped economy, particularly in the crucial moment of China's economic hard landing or a soft landing in the real estate decline will mean the economic crisis, the government in fact had no other choice. Of course, there is a "reason" is that the Chinese economic growth target as a prerequisite for anti-push, such as Dong Zhiyong.
Bears

● Although since 2014 the government introduced a series of powerful save real estate policies, but these policies only encourage investors to hold more housing and enter the housing market, did not cause consumer demand for housing to rise. In this case, the Chinese real estate market is simply not sustainable. Reversal Shenzhen real estate market it was clear that this also means that the future of China's real estate market will become more difficult.

- Researcher at the Chinese Academy of Social Sciences Institute of Finance Yixianrong October 23 issued a "Shenzhen property market reversal means that the future real estate market is more difficult," on his blog.

● I always thought that the real estate market does not rectify, China sooner or later a major event, the last two years I added that the whole ruthless, and immediately the accident. Now it's a hot potato. I worked in an internal report in June this year, said: "The current economic trend key showings City, the housing market has become an inevitable decline stereotype." Here that the housing market means that house prices and trading volume.

- October 21, the honorary Director-General of the Research Institute for Finance of DRC, research fellow and Counselor of the State Counci, Xia Bin said.

● central bank to adjust the ratio of house prices down payment, intended to "silver October" to stimulate home sales, although short-term disturbances can play a role, but under the influence of monetary cycles, economic cycles and population cycles, still can not change the trend of the property market in the long-term adjustment. If you want to buy a house, please think twice.

--10 20 March, China Business Times, deputy editor of the country by the Nankai University, Professor Liu Shan says.

● The house was built more than enough, the fundamentals of the real estate industry has been reluctant to support prices rose. So young people not to buy a house, now is a shared economy, rent is part of the shared economy.

- In July this year, Pan Shiyi said.

Xi wind Reviews

Compared to people bullish, bearish man much less, which is the entire real estate market bullish bearish similar proportion. Officials experts and real estate developers are not the same reason bearish, but also summed up in three points: First, on the whole, the house is too large Chinese stocks have been unable to support the real estate rise; the second is, whether it is from natural law or social law, there is no house prices can only rise, not to mention real estate has soared nearly 30 years; the third is the people's purchasing power has been unable to support housing prices at a high level, which is the real estate industry boom degree of reasons for the decline; Fourth It is the new norm does not support the real estate economy continued to rise.

More on the Bond Bubble in China

Reuters: High leverage shifts to China's bond market after equities deflate
Investment funds have flowed rapidly into corporate bonds since the stock market collapsed in June, triggering a surge of debt issuance. Demand has compressed corporate and sovereign bond spreads to their narrowest in four years - an oddity, when industrial profits are falling and credit risks are rising.

While bond investors say corporate bond prices are not at unreasonable levels, they are wary a sharp correction could be sparked by a bond default from major state-owned companies or a change in monetary policy.

"What concerns us is the narrowing credit spread between corporate bonds and government bonds, despite shrinking corporate profits," said Zhou Hao, senior emerging markets economist at Commerzbank in Singapore. "In addition, we are also worried about the rising leverage ratio in bond positions."
Chinese investors are playing musical chairs with excess liquidity. Liquidity races around trying to avoid destruction.

2015-10-27

Hebei Nominal GDP Contracts 7.3% in Q3; Guangdong Slows to 4.3% Growth

Hebei's Q3 2015 nominal GDP was down 7.3% versus Q3 2014. Growth cratered in Jiangxi, falling to 0.75%. Guangdong nominal GDP growth fell to 4.3%, not a collapse, but a major slowdown for the country's largest provincial economy (To give an idea of the impact of the slowdown, if Guangdong's Q4 is like Q3, the full year growth will be a solid 7.7%, but well below the 9.1% YTD trend forecast in the table below.). Guangdong's growth was slower than numbers reported by Jilin and Inner Mongolia, two provinces caught up in the northeast industrial slowdown. Inner Mongolia rebounded from negative 0.6% growth in Q2 to 6.8% growth in Q3; Jilin 6.6% growth.



Heilongjiang, Liaoning and Shanxi have yet to announce their GDP.

The chart below shows YTD changes in GDP through Q3.

Rank: first number is GDP rank, second is change in rank. Name of province. Population (10,000). Per capita GDP (10,000) First three quarters GDP total. YTD nominal GDP change. YTD real GDP change. 2014 YTD GDP through Q3. 2014 full year GDP. 2015 full year GDP forecast (simply an extension of Q3 GDP growth rate). 2015 YE forecast GDP rank and change.


Source: 2015年前三季度最新全国各省市GDP总值排行榜(榜单)

Related: China Northeast in Recession, Unadjusted Nominal GDP Declines; Global Economy on Knife's Edge
GDP Growth By Province Through 2015 Q2; 5 Provinces in Recession

Hacking Solves Everything

FT: Chinese hackers target Anthem for healthcare know-how

Not sure what can be learned from the U.S. healthcare system, and also unclear why China didn't ask. It's not a state secret. It's like Homer Simpson in "The Cartidge Family" episode, using his gun to turn on the TV and also to get a ball out of a tree.

Social Mood: Still Negative and Heading Lower

Socionomics.net: Social Mood Continues to Bend Gender Lines
Robert Prechter’s groundbreaking socionomics report “Popular Culture and the Stock Market” noted that “men are more ‘masculine’ during bull markets, and women more ‘feminine.’”9 But in bear markets, those sexual stereotypes fall from favor and society embraces a greater variety of gender roles and identities.

Gender-bending seems more prevalent today than in recent decades, and the signs of social mood’s impact on the perception of sexuality are mounting.

NYTimes: Sweeping Away Gender-Specific Toys and Labels
“The gender barriers are breaking down, and both manufacturers and retailers are not labeling toys like they used to,” said Jim Silver, the editor in chief of TTPM, a toy review website. “The industry’s learned that you shouldn’t be labeling for a specific gender. There are so many girls who want to be Iron Man and Captain America, and boys who want to play with Easy-Bake.”

The shift is part of a wider movement in retail to blur gender lines, as society moves beyond stereotypes, and celebrities as varied as Caitlyn Jenner and Jaden Smith put a spotlight on an array of gender identities. In fashion, designers like Rad Hourani are creating androgynous labels, and top-tier designers, from Marc Jacobs to Hermès, are eroding the divide between feminine and masculine clothes.

The rise in popularity of athletic wear and relatively genderless offerings from companies like North Face and Patagonia have also helped spread unisex design. Footwear brands like Converse, Vans or Birkenstock also now market the same styles for both men and women. Wearable technology, like smartwatches and activity monitors, has been relatively gender-neutral.
The degree of the androgynous push suggests this current negative turn in social mood is extremely deep, but the stock market is far off in the opposite direction.

The Hunt for Chickens in the Finance Industry Continues

Bloomberg: China's Top Graft Buster Turns Sights on Financial Industry
China’s top graft buster is turning its sights on the financial industry with plans to dig into organizations ranging from the world’s biggest bank to the regulator overseeing a volatile stock market.
The People’s Bank of China, the nation’s five biggest lenders, sovereign-wealth fund China Investment Corp. and the banking, securities and insurance regulators are among 31 entities that will be inspected for possible misconduct or corruption.

Northeast Industrial Production Slumps

Liaoning is the worst of all, sliding 7.6% in September. Another province worth noting, not shown below: Shanghai. It has seen three straight months of 6% contraction in industrial production.

2015-10-26

September Real Estate Investment By Province; Half Contract

Single month year-on-year contractions:

Jilin -30.8%
Heilongjiang -33.4%
Inner Mongolia -14.6%
Liaoning -43.5%

Other provinces in contraction (some not listed below): Shanghai, Jiangsu, Zhejiang, Shandong, Henan, Hunan, Chongqing, Guizhou, Yunnan, Shaanxi, Gansu, Ningxia.

Provincial real estate investment growth after the jump.

More Analogs and Parallels to 1998

ZH: If This Really Is "1998 All Over Again", Oil Is About To Soar

Why The Establishment Doesn't Want Trump to Win

WashTimes: Tea party targeting accusations, legal issues persist for IRS after Justice ends probe
The IRS is still holding up the nonprofit applications of tea party groups, including one that has been waiting nearly six years for approval, as conservatives panned the Justice Department’s announcement last week that it had cleared the tax agency, and former senior executive Lois G. Lerner, of any wrongdoing.

The Obama administration’s decision, outlined in a Friday afternoon letter to Congress, said the IRS did mishandle nonprofit status applications from conservative groups but said the bad behavior wasn’t criminal.
Political targeting by the IRS is full on Banana Republic. It doesn't really get any more corrupt than this and the establishment of both parties don't care. They do not want opposition to the agenda.

Guardian: IRS possessed Stingray cellphone surveillance gear, documents reveal
Stingrays are the best-known example of a type of device called an IMSI-catcher, also known as “cell-site simulators”. About the size of a briefcase, they work by pretending to be cellphone towers in order to strip metadata and in some cases even content from phones which connect to them.

Despite their extensive capabilities, they require only a low-level court order called a PEN register, also known as a “trap and trace”, to grant permission for their use.

Limbaugh: Speakstakes: Paul Ryan Situation Remains Murky
Okay. So I just got a great question in the e-mail. "Rush, in your scenario you said that the Republican donors, they want Jeb or whoever from the establishment as president, Ryan as speaker, and in the first 12-to-18 months they get their agenda implemented. What happens if Hillary wins, Rush? What then?" Folks, that's easy -- "What happens if Hillary wins?" -- and you better be prepared for that right now. If Hillary Clinton wins, the first thing on Election Night... They won't even wait 'til the next day to say it. If Hillary Clinton wins, the Republican Party will come out en masse, and they will say, "See?

"We told you we need to do comprehensive immigration reform right now or we will never win back the White House." That's already built in. If Hillary Clinton wins, no matter who the Republican nominee is, that's what the RNC and that's what the Republican establishment is going to say. They're gonna lay the loss off on you, because you stood in the way of them doing amnesty. And once again, conservatives will be blamed for Hillary winning. That's already written. That's already done deal. The one thing that stands in the way of all of this, Donald Trump or Ben Carson. If either of those two being the nominee, it just gums up everything that is on the easel right now, in terms of the agenda.
The goal of the establishment is to secure its power by replacing the American people with a compliant class of voters. This is low level war by the managers of America against the people and it is starting to look like Weimar Germany in the potential for instability down the road, particularly when the next downturn in the economy or U.S. dollar drives negative social mood higher.

Cry Havoc, And Let Slip The Dogs of Deposit War

The first thing that came to mind when I read the PBoC abolished the deposit ceiling was rate war. I wasn't the only one.

Reuters: China's rate liberalization won't trigger deposit war
China's landmark decision to scrap a long-standing ceiling on bank deposit rates is unlikely to have much impact on the real economy - or help credit-starved smaller firms - as lenders focus on protecting margins rather than competing for new funds.
This article tells you all you need to know about why banks will fight if they have to: Chinese Cash Crunch Could Return in September; Why Not Spend ¥8 million to Avoid a ¥10 million Fine?. The regulatory snapshot rules have changed, but there will still be a need to attract deposits. Also:
Even with the deposit rates ceiling removed, banks will still not price deposits at a level high enough to compete against wealth management products, which currently offer returns from 3 to 20 percent, bankers said.
At this point in the cycle, the most likely situation is some banks hold rates steady versus competitors who cut deposit rates. If I was a totally profit maximizing bank, I'd be readying a marketing push for my U.S. dollar deposit products, which might see a bump in interest rates by early next year.

Debt Risk Worries Turn to Sino Ocean Land

Sino-Ocean Land Holdings (3377) is the focus of renewed debt worries. Weak sales and a weak balance sheet has people wondering if the firm won't run into financing trouble.

Note: Google translates Sino-Land as "offshore real estate"

iFeng: 远洋地产或存资金链断裂风险:负债460亿再举债百亿
Meanwhile the huge liabilities, sales did not reach the target. According to this year's sales target of 42 billion yuan of offshore real estate, as of the third quarter, the sales revenue of 22.1 billion yuan, like in the fourth quarter to reach 20 billion yuan in sales, the difficulty is not small.

...Changjiang Daily reporter inquiries found that , since last year, the frequent offshore real estate financing, corporate debt continues to climb.

In July last year, offshore real estate issue 1.2 billion dollars Senior Notes. Six months of this year, January 29, again issued $ 1.2 billion two-year senior notes, became in 2015 the largest Asian investment grade bonds trading margin narrowed.

Open offshore real estate Annual Report 2014 found that the company can be said to bear the financial weight. The report shows that as of the end of 2014, the net debt ratio of about 66%, total loans reached 45.6 billion yuan, an increase of nearly thirty percent, then to pay interest expenses reached 470 million yuan, compared with 2013 increased the amount of over 100 million yuan.

The first half of this year, the financial situation of Sino-Ocean Land has not significantly improved. This year's semi-annual report, the Group's turnover 15.107 billion yuan, down 15% from a year earlier, gross margin remained at 20 percent, with the year-ago quarter, in which the core net margin rose by 2% compared with last year. Group has total interest-bearing liabilities amounted to 46 billion yuan, total cash resources of 17.436 billion yuan, net gearing ratio was 63%, compared with last year fell by 3 percentage points, but still a relatively high level since 2009.
This is not as bad as Kaisa, but something to keep an eye on. The debt ratios deteriorate rapidly as the end approaches because firms relying on debt use it to maintain operations. The article also discusses Sino-Land's "crazy expansion:"
Ocean Land shoulder huge debt supported by its crazy expansion, this expansion continued to show rapid trend.

August 15 this year, Sino-Land in downtown Wuhan, the two projects have appeared. October 24, Changjiang Daily reporter in a real estate sales department located at Hankou Road, see the tree aunts, promotional exhibition card display, offshore real estate tentacles has been extended from Beijing to Chongqing, Tianjin, Shanghai, Hangzhou , Wuhan, Guangzhou , Shenzhen, Hong Kong, Qingdao and other major cities in the country a second-tier.

Data show that in 2014, when the country entered the property market downturn, the pace of offshore real estate suddenly taken adverse economic expansion, breath scored 13 spend 18.7 billion yuan, a total of 1,455,000 square meters.

Changjiang Daily reporter noted that offshore real estate is about to enter the Wuhan city center last year, has now opened is located in Hankou He Zhujiadun of two real estate plots, resulting from last year acquired Fuxing Fitch. Last August's announcement showed an EIA, the program requires an investment of 9 billion yuan to develop.
The punchline:
Huge debt hanging, a number of big moves in urgent need of funds of funds and real estate sales are not ideal due to the slow return, profit compression, no doubt cover the head crazy expansion in offshore real estate haze, its tight liquidity or deposit fracture risk.

...Shen Meng believes that crazy about the expansion in 2010, Zeng offshore real estate trouble. Today, offshore real estate at the time of planning the business model innovation and profit model needs careful restructuring, debt to repay, under apparent turnaround has not yet appeared in the macroeconomic environment, capital chain stretched too tight too risky.

Sino Ocean plans to raise 5 billion yuan in two bond tranches for working capital and to pay down existing debt. However, there's 46 billion yuan in debt on its balance sheet, which is why it has also been shedding assets.

The Standard: Evergrande takes over Chongqing project
Evergrande Real Estate Group (3333) will spend HK$7 billion to take over a Chongqing project from Sino Land (0083), Chinese Estates (0127) and CC Land (1224).
Evergrande will spend HK$3.5 billion buying all of Sino Land's 50 percent interest in the project, Sino Land and its parent Tsim Sha Tsui Properties (0247) announced jointly yesterday.

The company is also putting a big chunk of capital into Huarong's IPO. The investment is equivalent to more than 80% of the planned bond issue.

Moody's: Sino-Ocean's planned investment in Huarong delays deleveraging efforts
Moody's Investors Service says that Sino-Ocean Land Holdings Limited's (Baa3 stable) proposed subscription of China Huarong Asset Management Co., Ltd.'s (A3 stable) shares will delay its deleveraging efforts, but has no immediate impact on its Baa3 issuer rating and its stable rating outlook.

On 14 October, Sino-Ocean announced that it will -- as its cornerstone investor -- subscribe to Huarong's H-shares for a total consideration of HKD5.3 billion.

...The impact of the proposed transaction on Sino-Ocean's financials will also be mitigated by the slowdown in its purchases of land this year for its land bank, mainly due to high land prices in the markets that it operates. According to the company, its purchases of land declined by about 33.8% year-on-year in 1H 2015 as measured by gross floor area.

Sino-Ocean says that it intends to cooperate with Huarong on the acquisition and disposal of real estate assets, and to also cooperate with Huarong's property arms to jointly develop property projects.

Deflation In Producer Prices Continues, Accelerates In Ag Prices

Consumer prices are headed for a drop in October thanks to falling pork, soybean and vegetable prices.

Source: 50个城市主要食品平均价格变动情况(2015年10月11-20日)

Producer prices are still falling as well, led by plunging agricultural prices. Soybeans are down 11% in 20 days, corn down 8%.

Source: 流通领域重要生产资料市场价格变动情况(2015年10月1—10日)

Poland Dumps Centrists For Rightists

Poland now joins Hungary in having the right-wing take over the center, with the opposition further to the right. The opposition may be made up of anti-EU Christians, pro-business and what appears to be a movement similar to Beppe Grillo's 5-star in Italy. A rock star led group seeks to replace proportional representation with the Anglo-American first past the post system. He finished third and grabbed 42% of the youth vote.

BBC: Poland elections: Conservatives secure decisive win
Poland's opposition Law and Justice party - conservative and Eurosceptic - has won parliamentary elections.

The party is expected to have enough seats to govern alone - something unprecedented in 26 years. Exit polls suggest it got 39% of the vote.

...If the numbers suggested by the exit poll are confirmed, it will be the first time since democracy was restored in Poland in 1989 that a single party has won enough seats to govern alone, the BBC's Adam Easton in Warsaw says.

Chinese Banks Raising Capital

Reuters: China banks come back for more capital as bad loans pile up
Mounting bad loans are running down Chinese banks' capital buffers, forcing them to turn to investors for fresh funds despite raising a record amount last year.

Commercial banks are issuing expensive preference shares as well as convertible and perpetual bonds to shore up their capital bases, even after 2014's bumper issuance when lenders raced to meet new regulatory requirements.

From a year ago: China Banks May Need to Raise $200 to $500 Billion to Cover Bad Debts thru 2018

Why Are Chinese Malls Closing?

Reuters: A China twist: why are malls closing if consumption is rising?
Rising vacancy rates and plummeting rents are increasingly common in Chinese malls and department stores, despite official data showing a sharp rebound in retail sales that helped the world's second-largest economy beat expectations in the third quarter.

The answer to that apparent contradiction lies in the rising competition from online shopping and government purchases possibly boosting retail statistics. Add poorly managed properties into the equation and the empty malls aren't much of a surprise.
Chinese cities are constantly building new shopping areas. Aside from a city such as Beijing, which is already built out with prime shopping areas such as Xidan, the competition and drive for new properties is intense. In Wuhan, Han Street Outdoor Walking Plaza & the New Wanda Mall Complex (汉街) has attracted new business, as has Wuhan Tiandi in Hankou. The older areas are like drive-in movie theaters, bowling alleys and roller rinks in the U.S. Once popular destinations eclipsed by a new generation of consumption patterns, the difference being the level of investment and time to change. The malls are expensive and consumption patterns sometimes shift inside of 10 years, if not faster.
A joint report by the China Chain Store Association and Deloitte showed that by the end of this year, the total number of China's new malls is projected to reach 4,000, a jump of over 40 percent from 2011.
In some cases, the new malls will be category killers that create new traffic patterns. In other cases, they will be the failed investments.

The situation with the malls reminds me of the ghost cities. China builds much faster than the demand, but for many years the demand showed up eventually. Common sense and experience told you they wouldn't change their behavior in time, one day they would build ahead of demand and demand wouldn't materialize.

2015-10-25

The Perils of A-Share Investing

Shangdong Hualian Mining (600882)
is principally engaged in mining and manufacturing businesses. The Company’s main products consists of self-produced iron ore powder, imported iron ore powder and others. The Company distributes its products in Shandong Province.
Shares have been halted since May, so if you didn't sell, too bad, your iron miner from Shandong is becoming a dairy farmer in Jilin.

Xinhua: 华联矿业主营业务持续不振 跨界卖牛奶
Main iron ore mining in Shandong Hualian Mining Holdings Ltd. today announced a major asset reorganization, held investor briefings situations announcement said the company will focus on the development of the dairy industry in the future, the company will form a double main business after the reorganization common development of business models.
Capital destruction at work.

Yuan Bulls Will Be Crucified On A Cross of USTs

China has a debt buildup worse than any emerging market in history, all of which ended in crisis. It has a pegged currency regime similar to that of the Asian Tigers, which blew up in 1997. It has reserves so large that the comparable situations are USA 1920s and Japan 1980s. It printed money faster than all but a handful of nations in the past decade, many of those other nations are currently financial basket cases.

ZH: The Fatal Fallacy Of Faith In The Fed's Assumed Powers

In the parlance of what I have used to describe for Brazil, the PBOC like Banco do Brasil enticed Chinese banks already short (synthetically) the “dollar” to become more so – all because they are coaxed into believing, as Yellen, that the central bank will have it covered on the other end. The PBOC’s motivation is only immediate, just hoping that the unwind into the future can be more manageable. What Brazilian banks found was quite the opposite, and Brazil is now suffering greatly for it.
China is growing the bearish bets against the yuan by providing liquidity to the derivatives market. Instead of stabilizing the yuan, the PBoC has destabilized it by weakening the position of the PBoC and Chinese banks. The Chinese central bank has gone all in. If there's no bullish turn, no positive outcome for the yuan, the decline is going to be all the larger and disorderly due to central bank policy.

Trouble will resume as soon as the U.S. dollar breaks out to a new high. Here's the Bloomberg USD Index, which has about 31% in the euro and 19% in the yen, which is much less, and much more, respectively, than DXY. This index also has some exposure to Chinese, Mexican, Korean and Brazilian currencies.

Rate Cut Fallout: Dividend Yield Exceeds Deposit Rates


As of October 23 closing, there are 215 in Shanghai and Shenzhen A-share dividend is higher than 1.5%, that is to say without considering the stock price change factor, the dividend yield above 215 buy stock is higher than the earnings of deposit.

The highest dividend yield among the top three stocks of Fangda Special Steel, Gree and SAIC, the dividend rate reached 12.48%, 8.24 % and 7.32%, respectively. In addition, the top 20 before the dividend rate, the bank occupied seven seats, the Agricultural Bank the highest dividend rate of 5.76%.

iFeng: 不再设存款利率上限!银行“躺着赚钱”时代一去不复返

The Most Surprising Thing About The EU's Breakup

Reuters: EU risks 'falling apart' over migration crisis: Slovenia's PM
"If we don't find a solution today, if we don't do everything we can today, then it is the end of the European Union as such," Prime Minister Miro Cerar said. "If we don't deliver concrete action, I believe Europe will start falling apart," he told reporters.

A breakup of the EU has been expected here for years based on trends in social mood, but I expected the breakup to be fueled by negative social mood actions, the desire by nationalists to take control of their countries. There are growing nationalist movements around Europe and they are winning political victories, but instead of the nationalists driving the breakup with their policies, it is the pro-EU politicians pushing for a breakup with insane peak social mood policies. The migrant policy of Germany would be extreme at the peak of social mood, but now we are 15 years into a negative social mood period. The EU should be proposing to police its borders, expel terrorists and focus on tightening immigration policy. This would be a moderate policy given current mood. Instead, the EU is opening the borders and flooding Europe with hostile minorities from cultures and religions that want to conquer Europe. If you tried to come up with a policy to break the EU apart as fast as possible, it would be hard to come up with something better, and yet the most pro-EU politicians are behind it.

We Have Market Interest Rates, Now Let's Increase Central Bank Control Over Them

I present the first and last paragraphs of an article on the abolition of the deposit rate ceiling.
On the 23rd, the central bank said, for commercial banks and rural cooperative financial institutions it will no longer set the deposit rate limit. Many market institutions interpret believes that the interest rate market-oriented reform has been basically completed.
Let the free markets reign!
"From this perspective, the interest rate reform will enter a new phase, the core is to establish a sound market interest rates appropriate to the formation and regulation mechanism, improve the effectiveness of the central bank to control the market interest rates." The central bank official says.


21st CBH: 央行“双降”稳增长狭义利率市场化基本完成

2015-10-24

A-Shares Have Fallen After Previous RRR Cuts, Rate Cuts Positive

First chart is rate cuts. Change in deposit rate, lending rate and the next day stock market change. The only drop following a rate cut was August 25 of this year, amid a global sell-off.

RRR cuts are not as positive, with equities falling after the past 4 cuts. The chart shows the before, after, change in RRR, then the next day returns for the Shanghai and Shenzhen stock markets.

Source: 中国央行历次降息、降准后股市次日表现一览

China's Double Down Friday Increases Yuan Depreciation Pressure

However, in Liu Dongliang's opinon, must also be acknowledged that the role of monetary policy to stimulate the real economy are declining, macroeconomic performance continued to be lower than expected, so the future fiscal policy is bound to play a greater role, PPP, government guidance funds, spontaneous self also local debt, a special financial bonds is expected to accelerate the landing.

Anyway, the "double drop will make the market sentiment look for continued devaluation of RMB, the future yuan devaluation pressure is still as large as before, expected short-term maintenance of stability the central bank may still be active, probably of large two-way exchange rate fluctuations, but medium to long term, ending devaluation pressure will rely on a substantial improvement in the macro economy. "said Liu Dongliang.

EO: 取消利率管制 央妈“双降”亮点

Soaring Land Sales Will Lead To A Great Depression in Real Estate

The past few weeks have seen articles on soaring land prices in first-tier cities, with Shanghai halting land auctions. Rising land prices are an issue of cost, with rising costs leading to more luxury apartment construction as a matter of necessity.

Now one article sees a depression on the other side of this land price rally. This article was a top headline in the real estate section of iFeng. The term "land king" in the article refers to developers who set new records for expensive land purchases.

iFeng: 若下半年地王现象持续 楼市陷入大萧条调整期
From the land market performance this year, if the land market "king" phenomenon in the second half of this year continued to frequent, which means that the property market will fall into a Great Depression period of adjustment.
Central bank rate cuts have had an impact, but its leading to soaring land prices and stabilization of real estate.
In fact, since entering in 2015, the central bank already has three RRR, interest rates four times, and almost every time the central bank cut interest rates drop quasi have on the property market had a significant positive stimulus.

Zhang Hongwei author consulted with the policy research center director believes that the property market "bailout" policy more frequently, but described the current property market situation more grim, the future of the property market is facing more problems, the future still hides more market risk.

Zhang Hongwei pointed out that, after the central bank to "double down", the property market will demand a large number of overdrafts, the property market into the Great Depression after the madness in the second half.
He sees the correction coming in the first half of 2016:
After the central bank "double down", round of market volume and price go up to last until the end of the fourth quarter of this year, meaning that the central bank "double down", the property market will demand a lot of overdrafts, the property market in the second half into madness after the Great Depression, From the perspective of time, the early 2016 began a new round of real estate market correction is likely to be coming.
He sees developers as being caught up in a land buying frenzy that will leave them short on capital when the fervor runs out and the correction follows.
By then, if the company did not do "rainy day" in the second half, then housing prices is likely to be caught in the situation of passive push plate, enterprise funds face will therefore encounter problems.

In addition, this year, north of Guangzhou-Shenzhen-tier cities, Hefei, Nanjing, Wuhan and other cities, "land kings" are frequent.

Centaline statistics since 2015 that the country's 20 largest first- and second-tier city benchmark for housing prices land purchases by area accounted for 65.9% of nationwide land sales, the full return of key cities. From the transaction data, the benchmark for housing prices in first-tier cities accounted for up to 12.4% of nationwide area under construction. These two indicators are in the historical record.

Centaline Dawei, chief analyst, said after the recent market heating up, first- and second-tier supply of land, housing prices in active fighting. "Land king" is still frequent, reflecting the developers view first- and second-tier market more emotionally.

Zhang Hongwei expected, Beijing, Shanghai and other places frequently occurring king project will usually affect nearby property and even the whole city.
History shows that the "land king" phenomena often emerges right before the real estate market turns down, sort of like the Skyscraper Index.
Recalling the past few years, "land king history." The land kings of fourth quarter 2007 and first half of 2008, became frustrated sellers in the fourth quarter of 2008 and the first half of 2009.

The kings of the fourth quarter of 2009 and first half of 2010, felt a very cool wind in the second half of 2011 and the first half of 2012. The land kinds in the second half of 2013 second half were miserable in 2014.
Ultimately, the theory rests on the idea that the housing recovery is in first-tier cities, but demand there is all but sated:
Consultation with the policy research results show that around 2010, there were already 1.0 homes for every urban Chinese household, in accordance with international standards, the average urban households reached 1.0, which means the Chinese real estate market supply and demand has been basically balanced, the property market began to enter the second half, the future market incremental housing growth will decrease.

Since the market demand has largely been met, the improvement of the property market fundamentals this year due to several rounds of "rescue" policy is unsustainable.
Chinese housing supply remains elevated:
Today, per capita housing area has no any one emerging market countries is higher than in developed countries. China is a rare exception, in 2012, the per capita housing area in China has exceeded the China Taiwan and South Korea.

In other words, in the residential housing market, China has no need to catch up with the so-called head-on. However, the Chinese housing inventory problem worse than in 2008 or 2012.
The key is income growth. If wages rise fast enough, they will support prices:
Theoretically, if the Chinese increase the per capita housing area, we can continue to maintain the real estate bubble.
There's not a lot of reason to be optimistic though, because once the real estate bubble bursts, its share of GDP collapses and takes the whole economy with it:
But in fact, in view of China has realized the huge debt of local governments, developers funding chain issues, historical path of other countries and is committed to making China's economy toward consumption-led development efforts in the direction taken by the above hypothesis not a reality operability.

In 2013, the proportion of residential housing in GDP has exceeded the overwhelming majority of countries (hereinafter, this proportion continue to improve). After 2005 or 2006 years ago, the proportion of Spain's higher, but the proportion of residential housing investment spending in GDP fell from 12 percent to 4 percent, well below the 6% level of the mid-1990s.

This data can come to the point: When the real estate bubble burst, the market activity will be greatly reduced to the level before equalization.

One example is the recent US housing sales data, after six years of economic recovery, the US home sales equivalent to only half the level in 2002.

Finally, the development of Asia, both the Republic of Korea or Japan, its share in GDP in real estate never achieve this high level of China.
And there's all that bad real estate investment data:
The latest statistics show that the first three quarters, the national real estate market, investment growth continued to drop, new housing construction area and completion of the area have come down, driven by continued accommodative policies, continued modest growth in real estate sales, inventory declined, the property market recovery trend evident. But by the end of the decline in demand and economic situation and other factors, inventory pressure is still evident.

Currently, real estate stocks have been going to the critical period. Recently, Chongqing issued "Chongqing Municipal People's Government Office to further promote the stable development of the real estate market notice" to appropriate mitigation gradual slowdown in real estate investment, and accelerate to the inventory.

"Notice" to encourage the rational allocation of credit resources of financial institutions and improve the real estate development loans and individual housing mortgage loans. Financial difficulties of real estate projects under construction, not simply pumping loans, stop lending and mortgage pressure. Households for the first time to buy ordinary housing commercial individual housing loans, the minimum down payment ratio to 25%. Housing provident fund loans unified minimum down payment ratio adjusted to 20%.

It is worth mentioning that, just five days ago, Zhongshan, Guangzhou enacted a new policy points home, to purchase ordinary housing within the city, home points from 100 points to 150 points, which is also being viewed as a disguised form of bailout.
I missed that bailout. An article discussing it is here: 楼市库存压顶 多地救市政策密集出台加快去化. Some cities have point systems to qualify for subsidies or preferential treatment, such as for business owners or skilled workers, so now buying a house gives you points. There have been several local rescue efforts recently:
According to CSC Research and Development Department's latest report shows that since 2014 to date, local release bailout policies over 27, only in September this year, there are at least six local release bailout New Deal.

September 5, Liaoning Province issued "on efforts to promote real estate sales," which require municipalities to basic commodity housing stock of the situation to carry out thorough investigations, combined with the region's affordable housing projects the annual plan and the city inhabitable houses demolition plan the development of real estate to the inventory of the work program.

September 11, Shenyang publish Deal said that between May 6, 2015 until May 2016 5 day period, residents buy Shenyang ordinary commodity housing, apply for a record contract and pay the deed tax, which paid more than 1% of the part of the deed municipal and district levels, the financial rewards in the form of subsidies.

September 28, Jiaozuo said, had "Jiaozuo Municipal People's Government on the promotion of Jiaozuo City, sustained and healthy development of the real estate market" in the deed tax to pay for individual buyers enjoy 100% subsidy policy, will be postponed for three months.

September 29, the Guangdong Department of Finance announced that the members of their families to buyers who purchase records check, qualifying can enjoy the reduced rate of 1% or 1.5% deed tax preferential policies.

On the 30th, it announced in Inner Mongolia between August 1, 2015 to 30th June 2016, to the city center in Chifeng City (Hongshan, Songshan, the new city) Buy residential district building floor area ratio above 1.0, the building area 144 square meters (including 144 m2) the following new ordinary commodity housing, according to the houses they purchase amount actually paid 50% of the deed to give financial subsidies.

In this regard, E-House Research Director Institute think tank Center Yan Yuejin view, the main reason for the local market is still frequently save enormous pressure on the stock.
After some discussion of why Chinese are buying increasing amounts of U.S. real estate, the article concludes:
Fully visible, dependent on the property market in the current economic situation is more serious, China's property market situation more grim future, the future will hide more market risk.

2015-10-23

ChiNext Rallies Into Week End

Yuan Headed For SDR Inclusion Clears Way for Depreciation

China's efforts at Propping Up Yuan Ahead of SDR Inclusion can be eased once the political goal of inclusion is achieved.

Bloomberg: IMF Said to Give China Strong Signs of Reserve-Currency Nod

Patrick Chovanec explains why it doesn't really matter: 4 Trillion Reasons China’s Currency Isn’t Ready for Prime Time

The only thing it will do is allow China to tick off a box, having achieved a superficial modicum of "internationalization" for the renminbi. It doesn't matter whether a currency is in or out of the basket (unless it's used to replace the U.S. dollar as reserve currency) and the demand for renminbi will not change as a result. As Mish succinctly puts it:
The Yuan is pegged to the dollar. As long as that peg is in place, one may as well keep dollars instead of yuan in reserves, assuming the exchange rate is steady.

But China recently devalued the yuan. It makes far more sense to hold dollars, not yuan, if one expects another devaluation.
And devaluation or depreciation is all the more likely once the yuan is added to the SDR.

Daimler Sales Are Doing Fine

Reuters: Daimler defies China gloom as luxury car sales boom
Its luxury-car division Mercedes-Benz launched the redesigned A-Class compact car and the GLC and GLE sport-utility vehicles (SUVs) in September, and its sales in China - the world's biggest car market - jumped 53 percent in that month. Audi's sales in the country rose 2.9 percent.

The upbeat Chinese prospects contrast with weak sales figures in the country from other carmakers, including General Motors and BMW, which raised concerns that a big source of profitable growth over the past decade may be running dry as the market matures and economic growth slows.
Long baijiu, short yuan.

PBoC Cuts Rates; Deposit Ceiling Gone

With the economy slowing, the PBoC cut interest rates and reserve requirements (RRR) again today. Some headlines call it a "surprise" and it was out of the ordinary in terms of timing in the week, a Friday evening, but the economy is weakening and it there will be more easing to come.

Bloomberg: China Cuts Interest Rates, Reserve Ratio to Counter Slowdown
The one-year lending rate will drop to 4.35 percent from 4.6 percent effective Saturday the People’s Bank of China said on its website on Friday, while the one-year deposit rate will fall to 1.5 percent from 1.75 percent. Reserve requirements for all banks were cut by 50 basis points, with an extra 50 basis point reduction for some institutions. The PBOC also scrapped a deposit-rate ceiling, a further step in the liberalization of interest rates.
The scrapping of the deposit ceiling is good news, but the rate cut is a BB fired at a charging elephant.

PBoC Statement: 央行有关负责人就降息降准以及放开存款利率上限答记者问. There should be an English version out soon, but the Google translate gives the gist.

Land Prices Expected to Soar in Beijing

iFeng: 北京土地扎堆入市难解渴 业内称楼面价将飙升
There are 27 operating sites will focus on trading next month; Industry sources say that the absolute shortages lead to land floor price soaring.

...But in volume terms this year, Beijing land market the number of severely diminished compared to previous years. Beijing Land Bureau official website show that as of October 19, Beijing residential land to sell a total of 25, plus the pending transfer of the 19, a total of only 44. Based on past statistics, in 2014 the number of residential land to sell to 52, in 2013 it reached 74. Insiders pointed out that, even if part of the Homestead end of the year and still have successful transfer, it may not be able to surpass last year's level.

According to agency estimates, deductions have been identified as well as commercial and affordable housing parts may occur, the whole year is expected to sell in 2015 in Homestead, pure commercial residential building area will not be more than 3 million square meters, according to both sets of 100 square meters calculation , can only provide about 30,000 new units of housing supply, but only the first three quarters of this year, namely, the achievement of pure Beijing commercial housing turnover 42,000 sets. Insiders pointed out that in absolute short supply, while showing rising cost of land floor price trend is inevitable.

...Although the Beijing land market has supply scarcity, developers are returning to a first- and second-tier strategy, and Beijing still is considered the safest city in real estate investment.
Location, location, location.

New Home Prices Rise Faster, But First Tier Still Dominates

New home prices rose 0.20% month on month in September, faster than the 0.17% increase in August, the 0.15% increase in July and the 0.16% increase in June. As in August, prices have stabilized, but are not accelerating higher.

Shenzhen was responsible for 58% of the price increase in July. The four first-tier cities combined for 95% of the total increase. Things improved slightly in August. Shenzhen accounted for 42% of the increase, while first-tier cities combined for 69% of the total increase. The four first-tier were the top four gainers as well. In September, Shenzhen is still going strong at 29% of the total national increase in new home prices (its prices climbed 4% for the month). The four first tier cities were 57% of the total increase. Clearly there's a favorable trend away from first-tier city dominance and more cities are turning positive in the prices. Removing the first-tier cities shows an increase of only 0.09% in the remaining 66 cities, an annualized rate of 2.8%.

Year over year, prices are down 2.0%.

Since 2010, average prices are up 8.5%.

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.
April: 47 cities saw declines in price mom, 5 cities were flat, 18 were up.
May: 41 cities saw declines in price mom, 9 cities were flat, 20 were up.
June: 34 cities saw declines in price mom, 9 cities were flat, 27 were up.
July: 39 cities saw declines in price mom, 10 cities were flat, 31 were up.
August: 26 cities saw declines in price mom, 9 cities were flat, 35 were up.
September: 21 cities saw declines in price mom, 10 cities were flat, 39 were up.

Existing home prices were about the same as new home prices last month, increasing 0.18%, but there's a clear deceleration in the gains. That rise is down from the 0.24% increase in August and the 0.3% increase in June and July. Prices are down 1% yoy. Since 2010, existing homes have risen an average of 3.5%. Shenzhen existing home prices increased 3.3%, Beijing increased 1.4%, Guangzhou increased 1.2%, Shanghai 1.0%. These four accounted for 54% of the national existing home price increase, slightly higher than August, which was slightly higher than July. So contra new homes, where bifurcation is easing very slightly, bifurcation intensified slightly in existing homes.

Source: 2015年9月份70个大中城市住宅销售价格变动情况

2015-10-22

Winter Has Arrived Early for Banks as Assets Fall, Bad Debts Rise

Provincial GDPs are rolling out (with the northeast yet to report) and Chongqing leads the way with the fastest 9 month growth rate of 11%.

Sina: 14省份前三季度GDP出炉 京沪增速低于全国水平

The fast GDP growth isn't helping Chongqing's banking system though, where winter has come early.

不良周期银行业样本:重庆国有大行股份行正提前过冬
According to the Chongqing Banking Bureau released October 15 in Chongqing banking financial institutions statistical indicators, the state-owned and big listed firms in Chongqing, in the third quarter asset size shrinkage occurs, bad debts accelerated, net profit growth is also slowing, these two types of banks in the most prominent.
The headers across the top are end of Q2 total, change from end of 2014, end of Q3 total, change from end of 2014. The first two types of banks, SOE and listed banks, show asset contraction. City banks and rural financial institutions have seen assets increase. The numbers are in units of 100 million yuan.
Another city seeing asset shrinkage is the export powerhouse city of Ningbo, in Zhejiang province.
Although the changes seen from simple data structures banking assets in the region, but in the third quarter asset size shrinkage phenomenon also appears in Ningbo City, Zhejiang Province.
Data show that, shares of Bank of Ningbo City, with total assets of city commercial banks have appeared decline in the third quarter, in which total assets by the end of June stock line of 503.839 billion yuan fell to 486.266 billion yuan, with total assets of city commercial banks 651.012 billion yuan by the end of June fell to 650.845 billion yuan.
Are exporters hoarding US dollars offshore?
The phenomenon is not expected to be isolated in Chongqing and Ningbo:
Seen by a moderate slowdown in overall credit growth, shrink the size of the assets will not be a regional phenomenon, and may even appear in more cities.
Back to Chongqing, here's the numbers for bad debts, format the same as the table above:
State owned bank bad debts up 32% in Q3 alone and already up 76% on year-end totals. The net increase was more than double the increase in Q2. The listed banks are a little better, smaller banks and rural institutions better, yet still not great with a 10% increase in the quarter. Listed banks in Chongqing are far worse with their total increase this year, with bad debts up 143% from year end.
Banking asset quality showed significant pro-cyclical when the economy downward pressure increases, the accumulation of increasingly prominent structural contradictions, the asset quality of the banking industry is facing challenges.

Huge economic downward pressure, especially in the "three superimposed" stage, as digestion and stimulate policy implementation had massive growth of credit, some of the potential risks to the banking sector began to emerge and become non-performing assets.
Profits are also taking a hit. This time the second columns are showing the year-on-year change for 6 month and 9 month profit totals.
Again, the smaller banks are doing better, the larger banks are experiencing accelerating slowdowns.

Earlier today I wrote Chinese Recession Ready to Move Into Services.

Chinese Recession Ready to Move Into Services

If China's slowdown is more recession than rebalancing, the service sector is about to be hit.

Christopher Balding has been digging into Chinese economic data, most recently in Official Data Manipulated By Internal Weighting, where he looks at the official services PMI.
Second, not only was the Expected Business Activities Index and outlier, it was an extreme outlier. The average of the Expected Business Activities Index of 59.9 over the past 12 months while the non-manufacturing PMI was only 53.8. In other words, it was on average 6.1 points higher than the average.

Third, even given the extreme outlier nature of Expected Business Activity, it still required underlying statistical manipulation to meet the headline number. This was accomplished by overweighting the one variable that was above the average even by so large amount. Though we can’t know exactly how they weighted all nine components, if we take a simple model where all other eight components are weighted identically and Expected Business Activity is overweighted, we can arrive at a plausible estimate. Using this simple technique, I find that Expected Business Activity would receive a 36% weighting with all other components receiving an 8%. In other words, Expected Business Activity is 4.5 times more important than any other variable.
Balding accepts the number as hope among Chinese entrepreneurs. The service sector is literally not depressed, but the numbers show that the only thing keeping a depression at bay may be psychology.

On consumption, he's had a lot of posts recently, one from September is Is the Chinese Service Sector Growing Enough to Drive 7%?
Let’s take a slightly stylized version of the Chinese economy. Assume they have a 50/50 split between production and services, which isn’t exact but close enough for our purposes. Now let’s assume that production is growing at 2%. It is hard to find any output growing that fast, much less all output, but let’s assume that for the moment. For the remaining 50% of the economy to push total GDP growth to 7%, that would require the service sector in aggregate to grow at, in our somewhat simplified version of the Chinese economy, a total of 12%. So far, if we exclude top line NBSC data, I haven’t been able to find any service sector growing at double digits much less the entire service sector using key metrics. I am not the brightest guy around but I struggle to see how health service provision and consumption can increase in double digits when visits and medicines are growing so much slower. I fail to see how telecom services can positively contribute to service sector growth when virtually all its components are negative. Service and consumption need to grow significantly faster than 7% to push the entire economy up to 7% given the acknowledged slowdown in output and it simply is not merely a flesh wound.

If any rebalancing is taking place, it is from the shrinking of the industrial sector. The services sector is growing faster than the manufacturing sector and rising as a share of GDP, but it isn't pulling overall GDP higher.

However, we can also use Hayek's triangle to understand why consumption numbers won't slip until services numbers slip, and both will come after the industrial numbers slip.
This triangle shows the movement of capital and labor through the economy, starting with the mining sector and ending up with the final goods, which are 70% consumer goods. Along the way, the triangle is expanding as capital and labor are added to goods. You start with oil at the far left, and as you move right, it is broken into component parts, some of it turns into plastic, the plastic turns into a toy and is sold to the consumer.

Notice the difference in size. In a developed economy such as the United States, the sectors on the far left are very small, a few percentage points of the economy. Manufacturing is also seen as a small fading part of the modern economy, but this view is incorrect. Obviously, since everyone is a consumer and the goal of production is consumption, most goods are consumed. This is where the "70% of GDP is consumption" comes from, but it is not the true picture of the American economy, let alone the Chinese economy. Instead, the real picture is revealed by measuring gross output. Where GDP measures the output of final goods, GO measures all goods and services produced, including those of the intermediate stages. Instead of a measure of the total value of goods produced, it measures total economic activity, and it shows manufacturing is the single largest sector of the U.S. economy.
Let's put these two ideas together. One, sectors such as resource extraction are small, accounting for only a few percentage points of GDP and even GO in the advanced U.S. economy. These sectors are leveraged to consumer growth: a small change at the right of the Hayekian triangle above, causes a huge change at the far left. We can see this impact in nearly every recession. Recall the drop in consumption in 2008; it was quite mild. In the whole recession, GDP was barely dented. However, oil prices collapsed from $150 to $35 and other industrial commodities saw similar moves.

We can see the same effect in gross output. U.S. GDP expanded 0.12% in 2009, but GO collapsed 8% that year and private (ex govt) GO plunged nearly 10%.
The slowdown in economic activity often begins on the left side of the triangle, such as the housing slowdown in the U.S. which was well underway heading into 2008. This is the classic boom-bust cycle discussed by Austrian economics, most simply stated (and stripping out the theory) as an expansion in credit which leads to malinvestment in the capital goods sector. The recession begins in those sectors and the permeates throughout the whole economy over the course of many months or even years if intervention slows the process.

Today in China, the industrial sectors are contracting and the resource sector, located all over the globe, is similarly in contraction. The recession has begun in the higher stages of production and is slowly working its way through the economy. If there is a slowdown in consumption, it is unlikely to hit until well into 2016——if it even hits at all because Chinese have the ability to maintain consumption growth from savings. The intermediate stages should really feel the slowdown in the next few quarters and by mid-2016, it won't require digging into the data to see the effects.