2016: The Year to Buy a Home

With "many positive government policies coming into effect, 2016 is the year to buy" reads the headline of this article.

Year 2016 will be the opportunity to buy a house

Whether the purchase conditional deregulation, or credit and reduced taxes, the current industry trend of the property market policy for next year forecasts are optimistic and positive. 2016 may also be because more stimulating policies, a new opportunity in the purchase.

Democratic National Construction Association, deputy director of the Economic Commission for maguangyuan published an article on the 29th, if we can build a real institutional system of housing finance, tax relief, etc., to achieve changes in China's real estate there is hope reborn. "I believe next year in order to complete the task of de-stocking, credit policy, tax policy, financial subsidies, housing finance and other aspects will have some action, 20% of the down payment will certainly be launched, various short-term measures are meant to buy a house you can enjoy the stimulation of bonus. "In his view, first-tier cities, major cities and population flows into urban future, is certainly the best time to buy a house window, as investment in real estate in other cities, has little significance. In order to buy a house to live, next year is a good time to be sure.

Meanwhile, although the land price and other factors may cause prices to remain at a high level, but decision-making is still to encourage developers to cut prices. In the 21st concluded Central Economic Work Conference made it clear that, to encourage real estate development enterprises to adapt to market rules adjustment of marketing strategy, due to lower housing prices. Of course, this "price" is more serious point to stock tier cities.

iFeng: 多项利好政策房价普涨 2016年成买房机会年

In Beijing, only 9 new projects will hit the market in January, but immediate demand remains strong. Prices are expected to rise as a result.

iFeng: 2016年元月北京仅9个新盘入市 刚需房短缺

China's Insurers Draw Regulator Attention

WSJ: China Regulators Seek to Cover Risks Posed by Aggressive Insurers
Analysts say Beijing is most concerned about the smaller companies, which are pitching investment products with promised annual returns as high as 8%, to savers who are frustrated with China’s volatile stock market and with low interest rates offered by bank savings accounts. China has cut interest rates six times since November last year, dropping deposit rates to 1.5% from 3%.

The regulators appear to have two main concerns. They worry that insurers, which need to boost their own returns to meet the promised high payouts, have been scooping up stocks, helping to drive the market to a one-month high and adding volatility. They are also uneasy about the products themselves, and the risk of a mismatch between the insurers’ investments and their promised payouts.
Last year, the concern was real estate and overstated assets. Another Insurance Company in Financial Trouble. This year stocks. Maybe next year bonds and currency?

Shanshui HR Disaster: Gangsters Barge Into Board Meeting, Ex-Directors Loot Company, Destroy Books

Link (PDF)
This follows an announcement concerning former directors nuking the company's computers, stealing the books and other important company property such as official seals.

H/T: @vikramreuters


Yuanna See Some Intervention? Manna From Heaven Pattern in CNH

iFeng: 离岸人民币三天跌700点2小时急涨500点 到底发生了什么

AFR: China seeks to contain widening yuan spread
A three-month ban on settling offshore clients' yuan transactions in the onshore market was imposed Tuesday by the People's Bank of China, they said, asking not to be identified because they aren't authorised to speak publicly on the matter. The clampdown comes as the growing offshore-onshore spread makes it profitable to buy the currency in Hong Kong and sell it in Shanghai. The PBOC didn't immediately respond to questions regarding the matter, which was reported earlier by Reuters.
Usually the gap closes quickly:
The faster rate of convergence in the latter case—when CNH trades at a discount to CNY—implies that capital controls are less restrictive with respect to arbitraging capital inflows to the mainland than outflows from the mainland. This difference may reflect the fact that recent liberalization measures have focused more on easing constraints on inflows than outflows (see section IV below), such as the opening of channels for renminbi denominated FDI and QFII that can be used to bring offshore renminbi funds onshore.
China is stopping capital from flowing into China, which means the gap will persist. Instead of CNY and CNH meeting in the middle, CNH will remain lower because arbitrage is being restricted. This creates a greater depreciation signal. It tells the market, CNY is the artificial price and CNH is the real price, and that both CNY and CNH should be trading lower.
The PBOC said last week that it would allow more foreign institutions with significant volumes to trade in the onshore foreign-exchange market, which it said will help narrow the difference. The PBOC is unlikely to allow the gap to stay persistently above 1000 so-called pips because it hurts sentiment, said Zhou Hao, an economist at Commerzbank in Singapore. The offshore yuan was last trading at 6.5760 a dollar in Hong Kong and the rate in Shanghai was 6.4902, leaving a spread of 858 pips. The difference exceeded 1200 pips on Wednesday before the offshore yuan erased a 0.5 per cent loss in late trading.
Notice the down spike in the chart above, the 天上掉馅饼 or Manna From Heaven pattern. Intervention against the market trend is a losing bet. The PBoC is shelling out USD to pay for free chairlift rides back to the top of the mountain.

China Hopes to Revive Rust Belt

Xinhua: China stresses reform in revitalizing northeast industrial base
Key sectors and enterprises should achieve international competitiveness by 2020 while industries in recession and regions that run out of resources should make significant breakthroughs in transforming growth patterns, the statement said.

In another ten years, northeast China should try to become an important region to help sustain growth of the overall economy. To be more specific, it should become the manufacturing base for advanced equipment and strategic base for major technological equipment. New raw materials, modern agriculture, and technological innovations should all find their bases there.

China Tries to Stem Yuan Outflows, But Can't Turn Off CNH Signal

Reuters: China suspends forex business for some foreign banks: sources
China's central bank has suspended at least three foreign banks from conducting some foreign exchange business until the end of March, three sources who had seen the suspension notices told Reuters on Wednesday.

Included among the suspended services are liquidation of spot positions for clients and some other activities related to cross-border, onshore and offshore businesses, the sources said.

The sources, speaking on condition that the banks were not named, said the notices sent to the affected foreign banks by the People's Bank of China (PBOC) gave no reason for the suspension.

If you haven't already read The Informational Power of the Offshore Yuan Exchange Rate, check it out. More than the gap between CNH and CNY signaling outflows, the price of CNH is valued as a market price within China, where CNY is still seen as heavily controlled by the central bank.

Tongzhou 2016 Development Plan: Deport Migrants

Beijing plans to remove 500 polluting companies from the Tongzhou district and along with it, 5% of the city's migrant population.
Tongzhou more than a further exit 500 polluting enterprises, reduced by at least 5% of the floating population. At the same time, key areas and key links transportation, environmental governance are to achieve a breakthrough, including promoting new Beijing East Station, Beijing-Qinhuangdao high-speed demolition work. Yesterday, the sixth meeting of the Conference of the Fifth People's Congress held in Tongzhou District, Mayor Yue Peng's government work report.
To be clear, the 5% is not a byproduct of the business closings. It is a hard target:
Yue Peng said, 2016 will strengthen efforts to control population size, to complete the total floating population of more than 5 per cent reduction target.
iFeng: 官方:明年北京通州将减少5%以上流动人口

2015 Real Estate Big Change: Central Govt Now Calling for Price Cuts

The headline for this article on various changes in real estate this year highlights the government's call for price cuts.
Set the tone to the inventory of real estate developers, the central propaganda "price"

November 10 morning, the CPC Central Committee General Secretary and State President and CMC Chairman Xi Jinping, head of the Central Financial Work Leading Group in the Central Financial Work Leading Group eleventh meeting stressed that "to resolve the real estate stocks, promote the sustainable development of the real estate industry." It is first mentioned in the real estate industry since eighteen Xi Jinping, and set the tone for the real estate industry.

In mid-December, the Central Economic Work Conference will "to resolve the real estate inventory" as one of five major tasks of China's economic work in 2016, and has opened the household registration system reform, the development of the housing rental market, and other flavors "prescription." Where housing prices follow the market rules to encourage appropriate price, popular media attention. 20 years, this is the first direct meeting "propaganda" to encourage developers to cut prices.

But many industry insiders said publicly that the local land finance "chronic illness" under the high land prices, rising labor costs and other profit developers have been diluted, while lower prices could bring "trouble room", buyers wait exacerbate other negative effects, It will weaken the enthusiasm of developers to cut prices.

Excess inventory four or five lines city, in-migration, industrial hollowing background, still need to go through a long period of inventory to contradictions oversupply of property in order to gradually eased. (Hu Yi)
iFeng: 2015中国房地产大事记:中央喊话降房价


Another Data Point Shows Industrial Slowdown

BI: The most important China chart of 2015
This slowdown in the secondary industry is part of China's intentional shift toward an economy focused on services and consumer consumption rather than manufacturing.

Chu's point is that it's happening harder and faster than anyone thought it would.
In 2016, we will see if this is rebalacing or a business cycle recession. If the latter, then the Chinese Recession Is Ready to Move Into Services.

Socionomics Test Case: Germany 2016

ZH: Germans pessimistic about economic upside of refugee influx
The findings on German sentiment on the refugee crisis come after another survey released last week showed that some 50 percent of those surveyed were looking at the coming year "with great skepticism and mixed feelings." Only 27 percent had said this ahead of 2015.
Similarly, only 18 percent of the 1,000 respondents said that they viewed the coming year "with great confidence and optimism," compared to 45 percent a year ago.
"The mood's tipping. The German angst is coming back," researcher Horst Opaschowski concluded.
The DAX gained in 2015 thanks to European QE, but is down about 12% from March highs. The economy is already starting to show signs of negative mood.

The Economy Didn't Collapse, We've Been Hiding a Depression

Global Times: Inflated statistics wreak havoc on economies of Northeast China
The practice of inflating official economic statistics has been rampant in China's three northeastern provinces. Local officials have been reflecting on the reasons for the practice, accessing the damage done to the local economies, and thinking about ways to correct their wrongdoings. The three provinces ranked near the bottom of the country's GDP ranking for the first three quarters of 2015.
I wrote Liaoning Sounds Warning on Chinese Economy in October 2014 and the data already showed a clear slowdown in economic activity, via in one case, real estate investment. What exactly was the Northeast hiding, in plain sight, except for the GDP?

We can always find a few data points that work, even if it comes from outside (such as exports/imports from a trading partner not matching up). Hopefully it extrapolates to something meaningful in the case of a mammoth economy such as China's. I don't rely on GDP for any country and prefer to use other statistics when it comes to forecasting. GDP is something economists focus on; if you're not comparing nations it is generally not a useful number except in a few cases. I used it as an undergrad in economics and it gets lots of press, but I rarely consult GDP unless its used as a yardstick for convenience such as comparing debt to GDP. I do check the Atlanta Fed's model, but even then I'm more interested in the directional change. China produces plenty of data that's clean enough and they're quite open about the economic numbers other than GDP, even in the press. One reason I started posting Chinese news and blog posts was because foreign media sounded very bullish on China in recent years, but the domestic press was quite negative at times, which contradicted both the prevailing opinion overseas and the strong-form claims of media censorship (at least pertaining to economics).

There's a real economy out there regardless of what a made up GDP number says. Imagine there was no GDP reported at all, there is still a real economy expanding or contracting. The price of commodities today, with some speculative variation, largely reflects the underlying economy. Imports by China's trading partners are real too. In contrast, GDP is in all cases a man-made number, one that is mainly useful to central planners. To wit: Freedom Works: The Case of Hong Kong
The laissez-faire attitude of the Hong Kong government on economic matters was cemented by Sir John Cowperthwaite, the colony’s financial secretary from 1961 to 1971, whom Welsh called a “political economist in the tradition of Gladstone or John Stuart Mill” and the personification of “unreconstructed Manchester-school free traders.” Cowperthwaite had almost complete control of Hong Kong government finances and used it to implement his policy of “positive nonintervention.” Friedman gave Cowperthwaite a great deal of the credit for Hong Kong’s success, citing approvingly Cowperthwaite’s refusal to collect most economic statistics on the grounds that “[i]f I let them compute those statistics, they’ll want to use them for planning.” Jimmy Lai has a bronze bust of Cowperthwaite at his company’s entrance (as well as ones of Friedman and F. A. Hayek).
This next link goes to a paper that claims there was more at work than intelligent economic planning in earlier years. Government without Statistics: Policy-making in Hong Kong 1925-85, with special reference to Economic and Financial Management (PDF).

Perhaps China could have learned something? (returning to Global Times article above):
In the three northeastern provinces, the problem is even worse, according to the Xinhua report, which said the meddling with figures has hindered both the central and local economic planning.

"Falsified statistics undercut the economy's sustainability," Zhao Zhenqi, a financial official with the Jilin Provincial People's Congress, was quoted in the Xinhua report.
Occam's Razor: the slowdown is a direct result of central planning at the central and local level. Unless they were fabricating everything up and down the line, to the point of distorting private company and bank loan data, this didn't affect growth. The Northeast is a commodity intensive economy, the industrial heartland of China. An economic rebalancing was going to hit these sectors no matter what, a major slowdown definitely would and has. As I wrote in the Liaoning post linked above:
Liaoning is more exposed to the higher stages of production and therefore is one of the provinces most likely to experience a slowdown first assuming a normal contraction phase of a business cycle. We know steel and other industrial sectors have overcapacity. Problems in steel surfaced in late 2011, but wider economic growth was not impacted until very recently, following a steady deterioration in the market for more than 2 years and then a slowdown in real estate as well.

Liaoning's slowdown could be a false signal, but it could also be the beginning of a much sharper slowdown in China's economy. Industrial production in Shanxi province, which leans more on the coal industry, also slumped in recent months. Real estate was the replacement growth source for economies experiencing recessions in their main industries; now that real estate is slowing, the remaining economy is revealed.
This was central planning! All they did in the Northeast was to have the bad luck of following the investment plan of everyone else and fail to learn from Ordos: the real estate economy is dependent on the local economy. The real estate sector can lift growth for a time, but excessive real estate development is pulling growth forward in time. Once the real estate market turns, or the credit market supplying the funds turns, the real estate sector would slow and the underlying slowdown in the rest of the economy (if it hasn't recovered) would necessitate a large drop in reported growth. Chinese planners intentionally pumped money into infrastructure and real estate in order to make up for the 2008 slowdown. A centrally planned replacement economy for the slowing real economy that itself went into recession.
One way of falsifying fiscal revenue involves local finance departments that first allocate funds to tax-paying institutions and then levy the money back, according to media reports.

The falsified figures include those for the local GDP growth, investment, consumption, exports and imports, funds spent on the renovation of run-down areas, as well as urban and rural residents' income.

"If the figures hadn't been tampered with so much, the repercussion wouldn't now be so severe," Xinhua said, quoting officials.
The only repercussion is if the government would have done something about the slowdown.
In the end of 2014, Fuxin and Huludao, two cities in Liaoning Province, faked the number of newly commissioned housing projects. The non-existent projects accounted for 52.8 percent and 29.3 percent of the two cities' total projects, respectively.
OK, but real estate investment was already collapsing. They faked data, but it failed to show up in real estate investment? Or there was even more fakery at the end of 2013? In which case the economy didn't collapse, in started contracting 2 or more years ago.


Anyone on the ground in Northeast China should have known the Northeast was in trouble earlier than Q4 2015. Local officials would not have been using fabricated data themselves. The central government would have known something was off by comparing various statistics and noticing discrepancies, which is why they were already auditing earlier in the year. Official data gave reason to see a major slowdown over a year ago at least, as covered here. The fake data is serious, but the real economy is the story and fake numbers on a piece of paper didn't have as large an effect as officials claim.

If instead the fake data is as serious as officials claim, then what do you make of the slowdown in Hunan real estate investment, which looks a lot like Liaoning one year ago and is far from a Northeast province? If the fake data goes much deeper and this is a national problem, malinvestment and bad debt are much worse than believed.

WaPo: Here’s why it matters that China is admitting that its statistics are ‘unreliable’

Xinhua: “注水数据”贻害大 “挤出水分”须较真

An oldie, but a goodie from 2004: Lies, damn lies and Chinese statistics
According to the National Bureau of Statistics, the national GDP registered 5.877 trillion yuan (US$708 billion) in the first six months of 2004, and a year-on-year growth of 9.7%. Theoretically, these data must cover China's 23 provinces, five autonomous prefectures and four provincial-level municipalities. However, if one adds up the interim GDP results released by all these 32 local governments, one gets 7.027 trillion yuan, and an average growth of 13.4%. That's just how exaggerated the reports by local governments can be.

...The nationwide statistical growth race is far too evident between regions of similar economic strength and political importance. Take two municipalities for example: Beijing declared that its 2004 interim GDP increased by 15.4% year-on-year, while the adjacent Tianjin city quoted 15.9%. Given that the former is preparing itself for the 2008 Olympic Games, its rapid GDP growth is understandable, but no one has any clue as to why Tianjin is growing even faster.


Hangzhou Bodypainting to Raise Cancer Awarness

Maybe NSFW.

Zombie Companies Don't Die, They Just Fade Away

Eight industries are being targeted under the "zombie company" reform plan, including steel and cement. The plan is for the overcapacity to fade away...

The government will use various methods, including the market, forced mergers and environmental regulations. The latter is probably all the government needs to shut 100% of excess production, if it would enforce its own regulations.

In the December 22 meeting of the National Development and Reform Work Conference, the National Development and Reform Commission director, said Xu Shaoshi, should actively and steadily disposal "zombie companies" to resolve the overcapacity as "a bid." Next year the NDRC will promote the development of the implementation of industrial restructuring and disposal of "zombie companies" program, the main use of market mechanisms, economic instruments, legal way, through strict environmental protection, energy, technical standards, Forced to withdraw excess capacity.

SASAC Deputy Director Zhang Xiwu in the 11th State Council Information Office held a policy of routine briefing that the next two years will optimize the allocation of resources by accelerating, the central enterprises to promote the group level and industry sector mergers and acquisitions, reduce duplication of investment. Phasing out inefficient areas that do not meet national energy consumption, environmental protection, quality, safety and other standards and long-term loss of overcapacity industries and enterprises, the implementation of Guantingbingzhuan or peeling restructuring measures to promote quality and efficiency of central enterprises.

...He pointed out that the capacity to bear the brunt of the eight sectors, namely steel, coal , cement, glass, petroleum, petrochemical, iron ore , non-ferrous metals. As of early December 2015, a few large industries producer price index (PPI) has been more than 40 consecutive months of negative growth state, which several major industries of the entire industry's contribution to the PPI fell 70% -80%, a loss of up to 80% Lee as thin as paper, state-owned enterprises in these sectors "to production capacity," the task is heavy, a lot of "zombie companies" will exit the market.

"Supply-side reform is to implement a breakthrough for repaying the 'zombie' companies, time is tight and heavy task, you must take the initiative." Kum pointed out to capacity, lay off "zombie companies" can be summarized into five paths: one from solving "zombie companies" to start, Guantingbingzhuan, with the transfer of property, closure and bankruptcy of ways to speed up cleanup exit; the second is stripped out, restructuring and merger and re-allocation of resources; third is to use "the cage for a bird," the idea enchant product, for technology, renewal of the way they operate, to provide an effective supply; Fourth, to expand exports, open up new markets, from the demand side to speed up production capacity; Five is to accelerate production output, the supply-side capacity to digest. Through mergers and acquisitions, can effectively alleviate the pains to capacity, while reshaping the vitality of enterprises.


Local Govts to Central Govt: We Will Take Your Reforms Under Advisement

Local governments are proving to be the stumbling block for central government reforms once again. Much needed cuts to steel production and hukou reform could be the latest victims.

On hukou reform: Chinese municipalities may not want unskilled labor in their cities. Instead, they may use hukou reform to attract talent away from other cities, but stop short of fully opening up to population movement. A game of hot potato will commence, with cities try to skim as much talent off the top, while resisting an "open door" policy. The latter would solve housing inventory issues, but might strain budgets, particularly if any housing subsidies fell on the local government. Social welfare will also be available to migrants if they obtain hukous and if many are low skill or unskilled, welfare use (such as it exists) may be significant for cities feeling the bite from falling land sales. This is enough of a concern that it was directly addressed by CASS.

CASS research report released on the 25th, the reform of the household registration system should not only consider the development of the elite. Differentiated policy should not become settled into the city of layers of screening.

The report said, "If the local accounts as a reward talented people of prizes, the household registration reform so that few have the ability to become the elite of the city want to get their accounts, then I am afraid that such reform is not only not solve the fundamental problem, but also bring new social conflicts."

...The traditional household registration system affect China's urbanization process of sustainable development. Since the reform and opening up, China has a large number of rural population work in the cities every year inflows, but because of household registration can not be successfully settled in the city, can not enjoy the social benefits provided by the city, causing a large number of migrant workers walk in the countryside and the city room, forming a "pseudo-urbanization" or "counter-urbanization" phenomenon, and caused urbanization is not complete, not happy, unsustainable phenomenon.

Sine: 社科院:户籍改革不能只让少数精英落户

On steel: local governments are subsidizing local mills.
Local governments are still giving steel producers hundreds of millions of yuan in the apparent hopes that the big contributors to public coffers will rebound and not have to lay off large numbers of workers.

Lingyuan Iron & Steel Co. Ltd., a state-owned manufacturer in Chaoyang, in the northeastern province of Liaoning, recently got 790 million yuan from the city government, the company said on December 25.

Rather than allowing market forces to reinvigorate the industry, the local government's payouts hurt the central government's efforts to reduce excess capacity, said Hu Yanping, an analyst of Custeel.com, a website run by the China Iron and Steel Association (CISA).
Perhaps the slide into the abyss will be avoided this year? We'll know in about three months.
Caixin: Steel Firm Subsidies 'Get In Way of Efforts to Trim Overcapacity'

They're also building more coal plants: Misalignment of Energy Goals Fuels Appetite for Coal
Provinces were still handing out large numbers of permits to build new coal plants to shore up regional growth figures even the country experienced its worst electricity oversupply ever in 2015, experts say.

Meanwhile, not a few local governments are headed into a debt crisis:
Chen Zhu, vice chairman of the NPC Standing Committee, said he was worried that some local governments may face de facto bankruptcy in the future.

Chen's view was shared by other legislators including Liao Xiaojun, who warned incompetence in handling local government debt would lead to systemic risks.
Chinese legislators call for efforts to control local gov't debt

Economic Reform Rap: You Must Trust the Government

B Shares Correct

B-shares fell 8% on Monday, following a better than 50% rise since August. The ChiNext analog remains in play.

Youth Population Falling, Home Prices Will Follow in Decades Ahead

The absolute number of people moving to the cities is falling. In terms of the growth boost from urbanization, the peak has passed. Furthermore, since urban populations have lower fertility, the expected population growth must be adjusted lower if the current urbanization push successfully accelerates the urbanization process.
In fact, if you take out inflation, twenty years from now the cheapest thing in China may be a house.
An example:
Ten years from now the house may be cheap based on per capita income. Such as the present per capita monthly income is 3,000 yuan, the average home prices is 8500 yuan per square, and a decade later the per capita monthly income is 10,000 yuan, the average price of housing may is 12,000 yuan per square, relatively speaking, houses will be much cheaper. Far from maintaining its value, the house will suffer a serious devaluation!
This would require annualized wage growth of about 13%, versus housing price growth of 3.5%.

Chinese wage growth is slowing with the economy, down to about 8% annual growth currently. In order to get to 13%, a simple path is 5% inflation (currency devaluation likely playing a role here) on top of current wage growth. If home prices rise at 3.5% per year and inflation is 5%, depreciation is 1.5%.
According to statistics, the proportion of the population aged 0 to 14 years has been falling since the 60s and 70s of the last century to the present, all the way down to 16.6% in 2010. In the next 10 years, the number of childbearing women aged 23 to 28 years will shrink 44.3%. If there is not a significantly increased fertility rate, the proportion of the population aged 0 to 14 will fall to 10%.

In this regard, demographers judgment, China's negative population growth trend has been set, the biggest risk facing the 21st century is negative population growth. Even now open to restrictions on the two children, but to raise a child contradiction current consumption and income, it is difficult to make policies to bring population growth stimulating effect.

Chinese society has now entered the "aging" country, in another ten years, China will be a more aging society, young people will become "scarce," demand for housing will be significantly reduced.
High home prices further reduce fertility by making family formation more expensive. The article also discusses a point made previously by Chinese forecasters: future "only grandchildren" will inherit at least three homes.

The article also discusses how, thanks to land sales, local government expenditures grew 10 times faster than revenue collection. Without land sales, local government spending growth cannot be sustained.

iFeng: 外来人口将会是负增长 房价或20年后最便宜


China Fallout Goes Everywhere in 2016

Caixin: It's Time to Worry German's Economy
On October 14, the German government lowered its GDP growth forecast for this year from 1.8 percent to 1.7 percent. Despite this, the economic minister, Sigmar Gabriel, expressed his expectation of higher economic growth next year.

A majority of financial market participants share Gabriel's trust in higher German growth next year, but the reality is that the headwinds for the country's economy are strengthening. This is critical for China because Germany is one of its top export destinations.
2016 is when the China slowdown goes global and the feedback loop really kicks in:
German exporters are feeling the pain from the slowdown in business investments in many emerging market countries, as commodity prices have tumbled.
China could see exports to Germany drop because Chinese purchases of commodities dropped, which caused demand for German imports in emerging markets to fall, which leads to a slowing German economy in 2016.

Chinese Govt Tells Developers to Cut Prices, Will They Listen?

Central planning leads to never-ending and ever-growing unintended consequences. Last year, the goal was to spur sales by driving up demand, to support home prices. Recognizing demand is gone, now the government wants developers to slash prices to move inventory. But land sales fund local government spending......
In this regard, the majority of the people rejoice, many people said that major cities housing prices are too high, their own food or drink for decades can not buy on a house. The central government requires developers to lower prices, indicating that decision-makers have been fully aware of the people suffer room some time now.

...In particular note is the first-line and some second-tier cities housing prices climbing, the atmosphere is extremely strong speculative demand, causing housing supply situation. While the third and fourth tier cities due to the excessive investment in residential real estate a few years ago, resulting in overcapacity situation. A large number of real estate backlog of empty houses sold.

Therefore, China's real estate industry is also facing structural problems. Now the question is central to encourage real estate prices, housing prices will take the initiative to cut prices it? I think, perhaps in response to the call center developers to fine-tune Rate possibility moderately large, sharp decline in housing prices is the probability that does not exist.
Cutting to the punchline:
Central encourage developers to lower prices, does not mean that prices will plummet, more does not mean that the property market will quickly digest high inventories. Given the current relationship between the costs and profits, some developers will be decreased slightly, but he will not take the initiative to a substantial decline in house prices. So really want to drop prices must fall high land prices and taxes, but also to let the local government to get rid of dependence on the real estate industry. Otherwise, prices even fine-tune the impact of destocking is not large.
iFeng: 中央鼓励楼市降价 房地产商会听话吗?

Diversity Drives Conflict Among Upper Class

The moderate position on immigration says America doesn't need lots of low skilled immigration, but the door to high skilled immigration should remain wide open. The reality on the ground is high rates of immigration at the top is driving a new form of white flight, from Asian dominated schools which replicate Asian education culture.

NYTimes: New Jersey School District Eases Pressure on Students, Baring an Ethnic Divide
But instead of bringing families together, Dr. Aderhold’s letter revealed a fissure in the district, which has 9,700 students, and one that broke down roughly along racial lines. On one side are white parents like Catherine Foley, a former president of the Parent Teacher Student Association at her daughter’s middle school, who has come to see the district’s increasingly pressured atmosphere as antithetical to learning.

“My son was in fourth grade and told me, ‘I’m not going to amount to anything because I have nothing to put on my résumé,’ ” Ms. Foley said.

On the other side are parents like Mike Jia, one of the thousands of Asian-American professionals who have moved to the district in the past decade, who said Dr. Aderhold’s reforms would amount to a “dumbing down” of his children’s education.

“What is happening here reflects a national anti-intellectual trend that will not prepare our children for the future,” Mr. Jia said.
This trend isn't going to stop, it's going to accelerate due to the demographic changes already baked into the cake, and this battle will soon hit the university system.

Risky Takeover Financing Comes to China

Caixin: Vanke's New Investor Got Funds in Way Analysts Say Is Risky
Most of the capital that Baoneng Group has used and plans to use to take control of China's largest property developer came from bank wealth management products funneled through a complex and highly leveraged arrangement that analysts say is risky.
Once the credit cycle reboots, there will be a lot of money flowing into equities.


First-Tier Housing Bifurcating Internally; Beijing Under 30万 Selling

Outer ring housing selling for less than 30,000 yuan per sqm is selling well in Beijing. The top 10 hot sellers in 2015 are all under this price. The article also notes the high and low sales of 2015:
Beijing Morning Post reporter noted that the average transaction price 10 selling items on the list for this part are less than 30,000 yuan / square meters, the lowest average transaction price of your royal purple Park, only 11,705 yuan / square meter; Beijing Yintai, Park Hyatt House the highest average transaction price for the 299,930,000 yuan / square meter.

iFeng: 北京纯商品住宅市场分化 单价3万内项目热销

PBoC Fourth Quarter Surveys Are Out: Chinese Workers Aren't Optimistic

Depositor Survey: 2015年第4季度城镇储户问卷调查报告
Banker Survey: 2015年第4季度银行家问卷调查报告
Business Survey: 2015年第4季度企业家问卷调查报告

Every single category in the business survey deteriorated. The first category, macroeconomic conditions is already very low. Business confidence, the second number, fell below 50% for the first time since 2012.

For the bankers, there's a ray of hope in easy money. Monetary policy approval jumped markedly in the fourth quarter. Loan demand edged up a tenth of a point and loan approval moved higher. Manufacturing and services loan demand fell; it also fell across all firm sizes.
Employment satisfaction and confidence fell. The blue line shows current job satisfaction and the red line is expected satisfaction. Not a lot of change, but a downward trend.
The more important chart is the one for wages. Same color scheme: blue current wage satisfaction, red expected. A majority of workers are no longer confident in their future wages, and while they've always been somewhat unsatisfied with their wages, dissatisfaction stepped up in the past year.
This drop in wage confidence did not show up in the consumption/saving/investment survey, which shows a continued trend of increasing consumption since 2010.

In October, I wrote Chinese Recession Ready to Move Into Services and this survey reflects what I wrote there. Chinese workers sense trouble on the horizon and its reflected in their concern about their wages. This lack of confidence is the result of cases such as this one that was reported in September: Solar "Reshuffling," AKA Bankruptcy, Accelerates in China; Late Wages and Disguised Layoffs at Yingli. With the government focused on overproduction and listing the various industries suffering from it, any worker in those sectors will not be confident about the year ahead.


Merry Christ Mass! 圣诞快乐!

China's 5 Housing Rescue Policies for 2016; Reduce Down Payment to 10%

The headline of the article says "Cut Prices!" but it deals with 5 government rescue policies for the housing market. Each policy is rated by effectiveness.

5. government purchases of real estate used for affordable housing

Effect: ★★★ Timing: anytime
4. cities implement land supply restrictions

Effect: ★★★☆ Timing: anytime

3. A discount price system for rural residents moving to city

Effect: ★★★★ Timing: anytime, on demand as people arrive

2. mortgage interest tax deduction

Effect: ★★★★★ Timing: second half at the earliest

1. First home down payment lowered to 10%

Effect: ★★★★★☆ Timing: anytime

iFeng: 降价!2016年最有可能出台的房地产五大救市政策

Protectionism Begins: U.S.Slaps 256% Tariff on Chinese Steel

Bloomberg: U.S. Calls for 256% Tariff on Imports of Steel From China
Corrosion-resistant steel imports from China were sold at unfairly low prices and will be taxed at 256 percent, according to a preliminary finding of the U.S. Department of Commerce.

Centaline 54 City Index Strong in First 10 Days of December

As of December 21, according to Beijing Centaline Property Research Center statistics show that in 54 major cities, early December residential contracts reached 197,000 units, up 3.6 percent, signs of mild winter, especially in a second-tier cities prices The overall high level upward.
iFeng: 54城12月上旬成交火爆 北京老项目封盘待涨

People's Daily to Developers: With So Many Homes, How Will You Sell Them? Cut Prices.

The People's Daily is not optimistic on housing, admitting it will be difficult to digest housing inventory in a country where the average household already owns 1.1 homes. The burden will fall on developers who will need to cut prices or offer upgrades to move property.
So many houses, by the government to stimulate demand to absorb okay? It would be difficult. Weakness in the property market is not a cyclical problem. Today, our household is nearing 1.1 homeownership units, supply and demand has been reversed. Since late last year even though government has canceled all kinds of restrictive policies, and the introduction of interest rate cuts, lower pay scale, tax relief and other incentives, the property market is still slow, but the city continued to increase differentiation. This shows that the "one size fits all" and "tonic" is not suitable for the current property market.
They "can't" sit around for the market to work though:
Is it feasible for us to rely on entirely on the market to slowly digest inventory? I'm afraid not. Asset value stability in property market not only households, but also directly affect the smooth operation of macro economy. By the impact of high inventory, real estate investment in the first three quarters of this year, the direct contribution of economic growth dropped to only 0.04 percentage points. This means not only real estate-related steel, cement, building materials, furniture and many other industries had a hard time, but also brings jobs and financial pressure, and increase the banking systemic risk, how can the government sit idly by?

When we acknowledge the existence of the property bubble, trying to defuse the risk adjustment, you must choose "a poke burst" or "slow leak." Guide rational expectations, to avoid market panic caused by market "cliff-style" to fall, all levels of government duty. Therefore, this year's Central Economic Work Conference was raised from the supply side of a number of institutional reforms, in particular the implementation of the household registration system reform, accelerate the people of migrant workers, on the formation of market demand, stabilize market expectations is important.

Although the central government introduced policies to reform the bonus is released, creating a favorable environment to maintain market stability, but resolving property stocks also rely on the developers themselves, the appropriate price is the most sensible choice. Cold line always higher developer must face, from any industry will be a shortage economy to the total balance. Especially for the third and fourth tier cities, came the turning point of the real estate industry, markdowns and upgrade is the inevitable choice. After all, buy this thing, the government, experts, developers said the will not, people will have to see his face. Such a large investment in an asset, the developers did something none of sincerity, who will dig up the money to save you?
iFeng: 人民日报:这么多的房子 未来究竟要怎么卖?

Analysts Putting Numbers to China's Economic Plans: Deficit Above 3%, Tax Cuts to Exceed 1% of GDP

Chinese Academy of Social Sciences Institute of Finance and Economics Strategic Research Director Wang Dehua financial audit on the "First Financial Daily" reporters, said the rate of break 3% budget deficit next year is feasible, the so-called 3% deficit rate red line is nonsense.

Associate Professor, School of Public Economics and Management, Shanghai University of Finance and Zhengchun Rong told reporters that next year the deficit ratio is likely to exceed 3%. Because the current rapid decline in revenue, while the rigid expenditure diminished, the active fiscal policy to increase the intensity of the background, the deficit expanded imperative.

UBS Securities "issued in 2016 set the tone for China's economic policy" ("the UBS report"), said the deficit could increase to more than 3%, while quasi-fiscal (such as policy banks loans) will continue to overweight.
UBS reports according to estimates, in 2016 camp changed to increase the size of about 383.6 billion yuan tax, social security tax costs associated with the size of about 240.3 billion yuan, tax cuts and then count the small and micro enterprises and other projects, in 2016 the total tax scale about 743.7 billion yuan, accounting for GDP (gross domestic product) is about 1.1%.
Sohu: 中央经济会议释放财政加强信号 明年财政赤字或破2万亿


China Will Repeat Eastern Urbanization Strategy in West

No surprise that China would go back to the old playbook.

The Google tranlate is a bit messy but one part of the plan is to send eastern officials to train their counterparts out west:
Meeting mentioned the eastern city group to optimize promotion, foster the development of a number of urban agglomeration in the Midwest, a regional central cities, promote frontier central city, the port city of joint development, so that the central and western regions of the masses at home can share Towns of the results.

...Meanwhile, the meeting proposed to enhance the construction level, strengthen the urban underground and above ground infrastructure, construction sponges city, shanty towns and to accelerate reconstruction, orderly comprehensive renovation of old residential quarters, and strive to 2020 basically completed the existing urban shantytowns , villages and reconstruction, promoting the city green development, improve building standards and project quality, attaches great importance to do a good job of building energy efficiency. To enhance the management level, and strive to build smart city to implement the residence permit system as the starting point to promote the urban resident population equalization of basic public services , strengthen urban public management, to enhance the quality of the people.

iFeng: 中央城市工作会议:中西部培育城市群 东部升级

History Repeats: China At High Risk of Crisis

Like clockwork.
Bloomberg: Man Who Called China's Boom and Bust Now Warns of Crisis Risks
Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong, says a shortage of dollars was the common feature in the oil rout in the 1970s, Latin American debt turmoil in the 1980s, the Asian currencies collapse in 1997 and the global crisis in 2008. Next year will see Federal Reserve interest-rate increases, an improving U.S. current-account balance and a stronger greenback, putting strains on the most-leveraged parts of the world’s second-largest economy, he says.

"Historically, every time the U.S. current account improved, concurrent with dollar strength, some country somewhere in the world plunged into some sort of crisis," Hong said. “The pressure from a Fed tightening and thus a dollar liquidity shortage scenario will more likely show up” in Hong Kong property as well as China’s online lending and high-yield corporate bonds, he said in an interview.

Armenia and Azerbaijan At War

Al Arabiya: Armenia says ceasefire with Azerbaijan in tatters
Armenia said on Tuesday that the ceasefire with arch-foe Azerbaijan over the breakaway region of Nagorny Karabakh virtually no longer exists, describing frequent skirmishes at the frontline as “war.”

This could end up involving the Russo-Turkish conflict: Russia and Turkey Try to ‘Blackmail’ Armenia into Their Conflict

Supply-Side With Chinese Characteristics

Xinhua: Backgrounder: What is China's supply-side reform?

This article begins with this sentence:
While supply-side economics, as a macroeconomic theory, is nothing new, China's supply-side reforms have some unique features.
You can see where this is going.
Q: What is supply-side management?

A: Supply-side economics holds that the best way to stimulate economic growth is to lower barriers to production, particularly through tax cuts. The wealth-owners, rather than spending on direct "demand" purchases, will then be more enticed to invest in things that increase supply, such as new businesses, innovative goods and services.
So far so good.
To fully understand the supply side, it is easier to first understand the demand side.
Uh oh.
China's three decades of rapid growth were fueled by capital investment, exports and consumption, usually thought of as being on the demand side.

In 2008, following the subprime crisis in the United States, China pushed out a 4-trillion-yuan (620 billion U.S. dollars) stimulus package. The rationale was that pouring money into public works, principally infrastructure projects such as highways and railways, creates jobs and stimulates demand for construction materials like steel and cement. Wages paid to workers are, in turn, spent on necessities and business keeps going.

While this kind of stimulus can keep an economy afloat in times of crisis, problems such as overcapacity and rising home prices emerge. During the infrastructure frenzy, difficult issues such as income distribution were put on the back burner.
Demand side stimulus almost never works. One way it's done is through the crack-hit/sugar-high of a short-term spending boost or tax rebate. As far as policies go, it's not the worst thing a government can do and if there was a temporary blip in growth, it could smooth out the economy. A government should never implement a short-term demand boost though, because it will fail most of the time and when it doesn't fail, it wasn't necessary because the dip in growth was brief and shallow. Another strategy is to create "permanent" demand. See U.S. education and healthcare for examples of this unsustainable demand-side spending, which typically leads to high rates of inflation in the sector.

The reason China has such a big problem today is not solely due to the 2008 stimulus, but it was made worse by it. China directed spending into investment and maybe leaders were thinking in terms of demand as the Xinhua article states. However, the project was so large that it generated supply distortions. Chinese policy makers didn't target their stimulus to absorb excess cement, they created a massive credit fueled infrastructure boomlet that led to increased investment in cement plants. They made the problem worse, not better. They created several trillion dollars worth of debt and ended up deeper in the hole because instead of allowing the market to reallocate capital and labor away from sectors suffering overproduction, they pushed more capital in labor into those very sectors.
Q: What are the reforms?

A: Compared to stimulating demand, which tends to be short-lived, supply-side management is expected to generate sustainable, quality growth.

The Chinese economy is no longer galloping ahead on the back of investment, exports and consumption.

Adjusting banking regulations and interest rates has not been very successful in boosting investment or consumption.

With growth falling below 7 percent, China's economy is in dire need of a makeover. Instead of working on the demand side, attention has turned to stimulating business through tax cuts, entrepreneurship and innovation while phasing out excess capacity resulting from the previous stimulus. Such measures are intended to increase the supply of goods and services, consequently lowering prices and boosting consumption.
Clearly, reform must happen on the supply-side. The failure to this point is due to the avoidance of rebalacing and reallocating capital, instead preserving and growing misallocated resources and its associated debt.
Q: Is supply-side management a substitute for demand-side management?

A: No. Attending to the supply side, albeit belatedly, does not reduce the importance of demand-side management, partly because stimulating the supply side takes time. Enterprises do not become more vibrant, efficient and productive overnight.

President Xi Jinping said last month that China should work more on the supply side "while moderately expanding overall demand." The same line appeared in a statement released on Monday following the Central Economic Work Conference. Demand-side management is not going away.
The United States was suffering from multiple economic problems in 1980. The response was a massive tax cut and deregulation, along with 20% interest rates to tame inflation. The immediate effect was jump in unemployment and an increase in the deficit, along with a soaring U.S. dollar. The effects were long-lasting and global, but in the U.S. alone, there was long-term fallout that sapped the Texas economy. Bank failures followed years later (Memories of '80s oil bust keep bank regulators vigilant). I don't want to draw too many parallels with the U.S. in the 1980s, and not because the 1930s are a more appropriate comparison. What I want to convey is: in a dynamic economy such as the United States, the immediate impact of a major supply-side policy response is negative for GDP, tax revenues, bad debt, etc. China does not want to face this reality. (Another example: if I was in charge of healthcare reform, I would enact supply-side reforms that would lower the price of medicine, that in turn would lead to losses for the industry because healthcare spending/supply is currently misallocated. The result of serious and intelligent healthcare reform would be a recession in the U.S. economy even if healthcare spending remained the same percentage of GDP, though that would be unlikely.)

Q: What are China's concrete supply-side reforms?

A: Cutting housing inventories, tackling debt overhang, eliminating superfluous industrial capacity, cutting business costs, streamlining bureaucracy, urbanization and abandoning the one-child policy are all examples of supply-side reforms.

Viewed as a whole, these measures can also be considered "structural" reform. By cutting capacity, nurturing new industries and improving the mobility of the populace, vitality and productivity should increase.
Cutting housing inventory is not a supply-side reform. Tackling debt overhang is not a supply side reform. Both are good reforms if the market is allowed to operate and greatly discount the price of homes and debt to reflect real supply-demand dynamics. Eliminating superfluous industrial capacity is a supply-side reform if the market is doing the reallocation of capital and labor. Cutting business costs and streamlining bureaucracy is a supply-side reform. Urbanization is not a supply side reform. Forcibly relocating people from rural to urban in order to sell homes is demand side stimulus! One can see the logic of it given China's current situation, but it is not supply side reform. Where are all the rural people going to work after they move to the cities, if the talent and businesses prefer the first- and second-tier cities? A supply side reform would be, as an example, the creation of Shenzhen. Create an area with low costs for business, business moves in and the people follow. Abandoning the one-child policy is not supply side, particularly since having another child creates demand for 18 years, but no increased supply until the child enters the workforce.

Hopefully, this in English language propaganda explaining the government's policies. If they really believe this is all supply-side reform, odds of success must be marked considerably lower.

Optimists may counter that China can rely on rapid growth in other sectors of the economy. However, the immediate impact of supply-side reform is unemployment and debt default because recognition of failure is immediate. It takes time to shift capital and labor into new sectors. Secondly, as Christopher Balding points out regarding these reforms (Catching up to the Chinese Economy):
However, I believe the likelihood of it [reforms] happening is quite low.

I don’t say this for pure skeptic reasons but a variety of reasons, not least of which is just pure mathematics. Let me give you one example. The plan notes the importance of deleveraging. However, they simply cannot deleverage and maintain GDP growth of anywhere close to 6.5%. Let me give you a slightly oversimplified model that will explain why. (I should re-emphasize this model is using easy ratios in an oversimplified model but it will clearly convey the idea). Let’s assume that that GDP growth is 6% and credit is growing at 12%. If they only want to slow leverage build up, not even delever, and cut credit growth to 8%, in our simplified scenario that would cut GDP growth to 4%. Now let’s add in another wrinkle, one recent report had (again using a nice round number) 50% of credit being used to pay of old debts. Let’s now assume that 6% of credit growth goes to GDP growth and 6% to paying off old debts. If they cut credit growth to 8% (leaving 4% to fall on the 6%/6% division), if the entire 4% reduction fell on credit growth to pay off old debts, that could easily trigger a wave of defaults. Conversely, if the brunt of that credit cut fell on GDP expansion and new capacity expansion (already problematic), that could easily torpedo any growth targets for 2016. Remember, this still assumes total leverage is rising, just slower than before.

This is the key point: I see absolutely no evidence that the Chinese government is prepared to either accept or even recognize that those types of trade offs are necessary. Beijing wants to believe that markets move in one direction and do exactly what you want them to do and that just isn’t reality. One of the most fundamental laws of economics is that man has unlimited wants and limited means. There is a very small number of people, firms, or governments to whom this does not apply in the course of human events. Tradeoffs have to be made and at this point, I see no evidence that Beijing is prepared to recognize that tradeoffs need to be made and then make difficult decisions to make them.
To extend the idea of trade-offs: a steel worker will not become a computer programmer in less than 1 year, if ever. A steel mill doesn't, Transformer-like, change itself into a battery factory. There might be rapid growth in software and electric battery production in the short-run, but it will not match the 100% reduction in capital and labor allocated to a steel mill that closes its doors. What actually happens is capital (or credit) stops flowing into steel, the mill closes and steel investors, entrepreneurs and creditors lose money. New capital flows into new investments which take time to build.

The bill for years of misallocated resources is coming due.


China 5 Economic Goals for 2016: Deleverage, Destock, Cut, Shut and Fix

China has 5 main goals for 2016: reduce housing inventory, deleverage balance sheets, shut overproduction, cut business costs and fix the weak links.
next year the economy has five tasks: reduction of industrial capacity, destocking, deleveraging, reduce costs and improve weaknesses.
How to reduce housing inventory? Tell developers to cut prices. Not a bad idea considering the government decided it will finance the purchases of those homes. Prepare for offers you cannot refuse!
China will encourage real estate developers to reduce prices in order to inventory, repeal outdated restrictive measures.
Also discussed was promoting the rental market, as well as consolidation in the industry.

Supply side is the focus of reforms, at least at the Central Economic Work Conference. The problem for China is that its supply is in the wrong places, it has misallocated capital. China is the textbook case of Austrian malinvestment that can be cleared most quickly and efficiently by the price mechanism.
The meeting stressed that to promote supply-side structural reforms, is a major innovation to adapt and lead the economic development of the new norm, is to adapt the international financial crisis, competition in comprehensive national initiative to choose the new situation, China's economic development is to adapt to the inevitable requirement of the new normal.
The five goals are fleshed out:
First, actively and steadily resolve the overcapacity. In accordance with corporate body, government promotion, market guidance, according to disposal methods, study and formulate a comprehensive package of policy system, local conditions, orderly disposal and properly handle and maintain social stability and promoting structural reforms relationships. According to the law to create the conditions for the implementation of market-based bankruptcy procedures to expedite the bankruptcy case to liquidation. To propose and implement fiscal support, non-performing assets, the unemployed re-employment and livelihood security as well as special awards supplement other policies, capital market to meet corporate mergers and acquisitions. Mergers and acquisitions as much as possible, less liquidation, placement of workers do work. To strictly control increment, to prevent new overcapacity.

Second, to help enterprises reduce costs. To carry out the real economy, reduce business costs of action, play "combination punches." To reduce the institutional transaction costs, the transformation of government functions and decentralization, further clean standardize intermediary services. To reduce the tax burden, further positive tax clearance fee, to clean up all kinds of unreasonable charges, create a fair tax environment, research to reduce the VAT rate in manufacturing. To reduce social insurance, research streamline merge "insurance policy." To reduce the financial cost, the financial sector to create interest rate normalization policy environment, none of the real economy. To reduce electricity prices, electricity market reform to promote and improve the coal price linkage mechanism. To reduce logistics costs and promote circulation system.

Third, to resolve the real estate inventory. To improve household population urbanization rate according to accelerate and deepen the reform of the housing system requirements, by accelerating the people of migrant workers, and expand effective demand and open up channels of supply and demand, inventory digestion, stabilize the real estate market. To implement the household registration system reform program, to allow the transfer of population and other non-agricultural household population settled in the place of employment, so that they form in the expectations and demands of long-term employment to buy or rent. To clear the direction of deepening the reform of the housing system to meet the new needs of the public housing as the main starting point to build both available for rent housing system as the main direction of the public rental to non-household population. To develop the housing rental market and encourage individuals and institutional investors to purchase stock of real estate , becoming the rental market housing providers, in order to encourage the development of rental housing for the main business of specialized enterprises. Real estate development enterprises should be encouraged to follow the laws of the market to adjust marketing strategy, due to lower housing prices, to promote the real estate mergers and acquisitions, increased industrial concentration. To cancel the restrictive measures obsolete.

Fourth, to expand the effective supply. To fight poverty battle, poverty persist precise, accurate poverty, filing legislation aimed card poverty, increase funding, policy, work and other investment, do solid work, improving the quality of poverty reduction. To support technological upgrading of enterprises and equipment renewal, reduce the debt burden, innovative financial support ways to improve the technological transformation of enterprises investment capacity. Foster the development of new industries, speed up technology, products, and other innovative formats. Hard and soft infrastructure to be filled short board, and improve investment efficiency and precision, promote the formation of market-oriented and sustainable investment mechanism and operation mechanism. To increase investment in people, and enable workers to better adapt to changing market conditions. To continue to focus on agricultural production, protect agricultural products[ 5.29% funds research report ]Effective supply, protect the rations of safety, security and stable growth of farmers' income, strengthening agricultural infrastructure modernization, implementation of storing grain on the ground, hiding food in technology strategy and policy priorities of the funds used in the protection and improve comprehensive agricultural production capacity and the quality of agricultural products, benefits on.

Fifth, guard against and defuse financial risks. To dispose of the law on the credit default. To effectively resolve local government debt risk, good stock of local government debt replacement, improve the full-bore government debt management, improving the way local government bond issuance. To strengthen all-round supervision, standardize the behavior of various types of financing, financial risk efforts to conduct special rectification, and resolutely curb the spread of illegal fund-raising momentum, strengthen risk monitoring and early warning, and properly handle risk cases, and resolutely hold the bottom line and regional systemic risk does not occur.

Marketwatch: China reveals focus of its 2016 economic plan
China will focus on reducing industrial overcapacity, slashing its glut of unsold homes and mitigating financial risks under a new economic plan for next year, a senior Chinese official said Monday.

That plan, which the official said had been approved at a meeting of top leaders led by President Xi Jinping, nods to persistent problems that are hurting growth in the world's second-largest economy. China is set to report its slowest annual economic growth rate in 25 years, and many economists said it would struggle to reach that goal.

Reuters: China to make monetary policy more flexible in 2016 to support reform
China will make its monetary policy more flexible next year to create conditions for structural reforms, while expanding its budget deficit, Xinhua news agency said on Monday, citing decisions made at a top-level meeting.

The annual Central Economic Work Conference is keenly watched by investors for clues on policy priorities and main economic targets for the year ahead.

"The prudent monetary policy needs to be more flexible so as to create appropriate monetary conditions for structural reforms," Xinhua said, citing a statement after the conference.

iFeng: Hundreds of billions of corporate tax relief is coming! Development and Reform Commission has launched research
In recent years, enterprises accelerate the increase in the cost of the entity. Industrial enterprises, for example, by the end of 2014 the industrial enterprises above designated size main business income, main business costs accounting for up to 86 percent, accounting for 9% of all kinds of taxes, the main profit accounting for only 5%. In the main business costs, raw material costs, capital costs, transaction costs and accounted for the bulk.

..."It is estimated that, from the micro level, the comprehensive tax burden on Chinese companies an average of about 40% and to our total revenue divided by GDP obtained by the state's macro tax burden in 2014 It reached 37 percent, roughly equivalent to the highest level of developed countries, higher than the average for developing countries is about 10 percent. "Only the tax burden down, in order to give enterprises to create a better living space.
A ~10% cut in taxes would deliver a ~20% boost to profits. Cuts of that magnitude aren't in the pipe, but if the government can lower financing costs (a big if considering the track record) and reduce regulations, it might be able to accomplish significant cost reductions for business. This is an eminently achievable goal, a conservative goal with a high probability of success. The problem doesn't lie in achieving positive results though, it lies in dealing with the negative effects of prior policies.

We will know soon after Chinese New Year whether the central government will be able to achieve the goal of shuttering excess production. If they can't, there's not much to say except to review your bearish scenarios.

Based on modern Chinese economic history and statements about easy money and rising debt, the central government is likely to pay for the transition. The costs will fall on the banks and the central government or central bank will absorb the cost.

If China is successful: short yuan and long distressed asset managers.

Housing Beats Stocks in 2016, If You're Buying First Tier

However, if the Shenzhen and Shanghai and other first-tier cities and a handful of second-tier cities are "blue chip stocks" of property, then in the majority of the third- and fourth-tier cities the words optimistic are not spoken.

...The focus of this round to the inventory of the property market is clearly not in the hot core of first and second tier cities, but in the majority of the third- and fourth-tier cities and some second-tier cities deserted. On the "annihilation" of the property market inventory problem, people of migrant workers will play an important role. December 14, the CPC Central Committee Political Bureau held a meeting called by accelerating the people of migrant workers, promoting the reform to meet the new public housing system as a starting point, to expand effective demand, stabilize the real estate market.

Currently, including Henan, Anhui and other places have introduced the relevant incentives for farmers into the city to buy a house.
iFeng: 楼市这一年:一线城市买房比炒股更靠谱


Fed Rate Hike Spillover: Hong Kong Home Prices

SCMP: Hong Kong homeowners slashing prices after US rate hike
But even though more owners are willing to cut prices by five to 10 per cent, buyers are still not biting, said Jeffrey Ng, executive director of Hong Kong Property Services (Agency).

“What we have seen is that most potential buyers want to make use of the negative news to ask for a bargain,” he said.

ChiNext Tries to Breakout

The most recent high is 2897 on November 25.

Another Think Tank Sees Slow Growth in 2016

SCMP: Top Chinese think tank warns of gloomy economic prospects for 2016
“China’s economy will face big downward pressures next year, and economic growth rate is likely to drop further,” the report said. GDP growth is forecast to come in at 6.9 per cent this year, the slowest since 1990.

...“Some hidden unemployment problems will float to the surface to intensify unemployment pressure, and it will be a threat to job stability next year,” according to the report.

While the booming e-commerce sector was creating new jobs such as parcel delivery positions, it was also destroying traditional jobs in retailing, it added.

The battle to clear up zombie companies, meanwhile, would be an uphill one due to “all kinds of difficulties”, including local government protectionism, the institute added.


Japan Revises Military Strategy to Deal With China

Reuters: Japan's far-flung island defense plan seeks to turn tables on China
Tokyo is responding by stringing a line of anti-ship, anti-aircraft missile batteries along 200 islands in the East China Sea stretching 1,400 km (870 miles) from the country's mainland toward Taiwan.

Interviews with a dozen military planners and government policymakers reveal that Prime Minister Shinzo Abe's broader goal to beef up the military has evolved to include a strategy to dominate the sea and air surrounding the remote islands.

While the installations are not secret, it is the first time such officials have spelled out that the deployment will help keep China at bay in the Western Pacific and amounts to a Japanese version of the "anti-access/area denial" doctrine, known as "A2/AD" in military jargon, that China is using to try to push the United States and its allies out of the region.

All About Designing a Chinese Font

Quartz: The long, incredibly tortuous, and fascinating process of creating a Chinese font
The default set for English-language fonts contains about 230 glyphs. A font that covers all of the Latin scripts—that’s over 100 languages plus extra symbols—contains 840 glyphs, according to Březina. The simplified version of Chinese, used primarily in mainland China, requires nearly 7,000 glyphs. For traditional Chinese, used in Taiwan and Hong Kong, the number of glyphs is 13,053.

An experienced designer, working alone, can in under six months create a new font that covers dozens of Western languages. For a single Chinese font it takes a team of several designers at least two years.
Much more at the link.


China Look to Korea and Notice It Collapsed Before Recovering

Korean conglomerates wanted to be world beaters, but they relied on cheap credit and government support, churning out junk products at low prices. How did they reform?

Bloomberg: To Fix China, Look to Korea
The key was breaking the triangle between government, banking and corporations. During the high-growth period in Korea, the close networks among the nation’s top policymakers, chaebol chiefs and major bankers propelled stellar growth rates by funneling credit to favored industries, thus creating the conditions for high investment. But by the 1990s, that system had begun to work against the economy. Gorged with easy money, chaebols never had to become truly competitive. Managers, free from oversight by bankers or the demands of profitability, wasted funds on uneconomic projects while starving potentially more productive and innovative parts of the economy of resources.

The 1997-98 Asian financial crisis undid those cozy networks. At the time, Koreans saw the experience as a national humiliation, which forced them into a painful International Monetary Fund bailout. But today, it's considered a necessary evil, which set the stage for Korea’s leap into the ranks of truly advanced economies.
China has more debt than Korea and foreign nations will throw up protectionist barriers against Chinese firms.
Nevertheless, Beijing’s plans don’t even come close to what Korea has already achieved.
Reform will be forced upon China via crisis.

Bank of Jinzhou Rallies After IPO

Bank of Jinzhou (0416) has rallied 12% after its IPO a little over a week ago. Some previous discussion is here: Rubber Meets Road: Liaoning Bank to IPO in Hong Kong

One reason for solid post-IPO performance is the weak pricing, in part due to links with the high-profile Hanergy.

EJ Insight: Hanergy link shakes investor confidence in Bank of Jinzhou IPO
The relationship between Bank of Jinzhou, Hanergy and one of the solar-panel maker’s few known customers, Baota Petrochemical Group Co., has come to light in dribs and drabs.

Last week, Hanergy said it canceled contracts to supply equipment to two customers, one of which is Baota, after they missed a deadline to pay for at least 80 percent of their purchases.

Baota, through a subsidiary, is a major shareholder in the Bank of Jinzhou. The bank, in turn, is one of Hanergy’s lenders.
No surprise then: Bank of Jinzhou Prices Hong Kong IPO Near Bottom End
Bank of Jinzhou Co., a city commercial lender based in northeastern China’s Liaoning province, raised US$794 million in its Hong Kong IPO on Monday, after pricing the deal near the bottom end of the range, according to people with knowledge of the matter.

The bank sold 1.32 billion shares at 4.66 Hong Kong dollars each, near the lower end of a HK$4.64-HK$5.54 indicative price range.
There was only one cornerstone investor:
Hong Kong Tian Yuan Manganese International Trade Co. plans to buy 200 million shares in Bank of Jinzhou’s offering as a cornerstone investor, the terms show.
Much of the pop in Jinzhou shares came in the afternoon trading session on the initial trading day, causing some to suspect intervention. Quartz: A Chinese bank’s IPO pop suggests the “Beijing boost” has come to Hong Kong

Bank of Qingdao (3866) IPOd a little earlier in the month; shares are flat since it started trading. Bank of Zhengzhou (6196) is up next:
Commercial lender Bank of Zhengzhou Co. raised US$656 million in its Hong Kong initial public offering on Wednesday, after pricing the deal at the bottom end of an indicative range, according to people with knowledge of the matter.

The bank, based in Zhengzhou city in central China’s Henan province, sold 1.32 billion shares at 3.85 Hong Kong dollars a share, at the lower end of its HK$3.85 to HK$4.21 expected range.

Protectionism Growing; EU Extends Tariffs on Aluminum Foil, Registers Chinese Steel

Bloomberg: EU to Register China Reinforcing Steel, Expanding Tax Threat
The European Union ordered its customs officials to register imports of steel from China used to reinforce concrete, expanding the threat of tariffs on the shipments.

The step is part of an inquiry into whether Chinese producers of high fatigue performance steel concrete reinforcement bars sold them in the 28-nation bloc below cost, a practice known as dumping. Registration allows the EU to impose duties on past transactions. Levies against below-cost -- or “dumped” -- imports are known as anti-dumping duties.

Housing Supply and Demand in 35 Chinese Cities

A report from 同策咨询研究部 has Chinese investors looking at which cities have good supply-demand ratios, and which do not.

Based on their calculations, a city is said to have excess demand below 1.1, situation is normal between 1.1 and 2.0, above 2.0 is said to be excess supply.

City Supply & Demand Ratio Ranking
Shenzhen 0.57 1
Fuzhou 0.86 2
Shanghai 0.91 3
Hefei 0.91 4
Shijiazhuang 0.94 5
Canton 1 6
Beijing 1.04 7
Chengdu 1.17 8
Xiamen 1.28 9
Tianjin 1.33 10
Hangzhou 1.38 11
Nanchang 1.48 12
Xi'an 1.55 13
Seaport 1.6 14
Nanjing 1.63 15
Ningbo 1.63 16
Changsha 1.7 17
Zhengzhou 1.73 18
Xining 1.73 19
Wuhan 1.96 20
Yinchuan 1.99 21
Suzhou 2.03 22
Chongqing 2.03 23
Wuxi 2.22 24
Jinan 2.25 25
Kunming 2.39 26
Harbin 2.39 27
Taiyuan 2.8 28
Hohhot 2.81 29
Qingdao 3.07 30
Changchun 3.27 31
Lanzhou 3.7 32
Shenyang 4.32 33
Guiyang 5.33 34
Dalian 7.18 35

iFeng: 七大城市房价还要涨 买房这14个城市风险大