No Worries, Housing Isn't Crashing Like In 2008

They aren't yet comparing the real estate market to 2008, but in Shenzhen, they're saying the sudden loss of confidence and cashing out by investors isn't like 2008. This comes amid a 70 percent drop in average transaction price in Shenzhen and Shanghai, and a 33 percent drop in Beijing, plus pyramid leveraging schemes by speculators over the past couple of years.

iFeng: 深圳地产投资客开始套现 但称市场信心远未降至2008年
Azu recently sold a suite in Shenzhen Pingshan, cashed out 2.2 million, in mid-2015 he spent 2.3 million to buy two homes. "The other home has zero cost, if house prices fall then I'm not afraid." Azu told reporters that this is a 17-year experience in the real estate investment housing room brother told him the real estate speculation principle, "safety first, make money second."

..."Now is far from the depth of 2008, then the market did not have the confidence, new house prices were generally cut in half, existing home prices a big sale and no one buys, now as long as you're willing to cut the price you can certainly sell it." House brother said.
The article also has the example of Mr. Zhang, who leveraged up his housing investments and used private investment levered at 9:1 to speculate.
To Mr. Zhang, for example, in 2014 to join the real estate team, sold Longhua Century Spring City 60 square meters two rooms for 2 million yuan in principal, in May that year to buy Nanshan District habitat 88 square meters, the total price of 230 Million, a year up to 5 million yuan, through the bank to mortgage, borrow 70% or 3.5 million, minus the previous 0.7 million mortgage loan, he had 2.8 million in cash, in June 2015 and 7 million total Price to buy the second set of Kam Lu Garden 88 square meters.
A good example for all those who still believe Chinese use cash to buy homes and have low debt levels. Speculators are pyramiding up their gains via mortgage borrowing. If you look at the last house purchased, you'd see a 50 percent cash downpayment, but the cash comes from the mortgage on an existing property.
This is one of the technology is that the first to buy a house quota, the divorce when the divorce, followed by second-hand housing do not buy new homes, and then through a high valuation, as well as the lender's cash flow, pay as low as possible down payment of 20 percent, borrow 80 percent, increase the leverage.
Here they're talking about getting a divorce to get around the home buying quoatas, then getting a high estimate on the home price to drive up the amount they can borrow, thanks to the divorce qualify as a first-time homebuyer. Use every method possible to use as much bank money as possible for real estate speculation.
Today, Mr. Zhang's house has risen to 7 million yuan, the second set rose to 13 million yuan, if he does not want sell and instead wants to buy a third home, he can continue to increase the mortgage, that is 7 million - 3.5 million + 13 Million - 7 million = 9.5 million in equity, mortgage 70 percent, and can borrow 6.65 million yuan in cash.

However, Mr. Zhang due to fear of regulation, he did not increase the mortgage, the debt control rate of 50% or less. Now Mr. Zhang has 4 homes, besides two in Xi'an, the two in Shenzhen have a market value of 20 million yuan in Shenzhen, debt of 8 million, monthly mortgage payment of 50,000 yuan. He told reporters that the cash flow is more adequate, there is 2 million cash on hand, plus rental income of eight thousand per month, three or four years for no problem, he envisaged the next wave of real estate boom to sell when One or two sets, he can achieve financial freedom.

According to the official data of Shenzhen, Shenzhen last year, the proportion of investors to 40%, the proportion of loans also more than 60 percent, the country's largest real estate plus leverage, the largest cash flow test.

Now the only worry that Mr. Zhang is that he set up a special real estate real estate fund, faced with no rice for the pot.

According to Mr. Zhang, organize friends into a real estate fund is a more popular model, you can do 1 to 9 leverage, that is, 10 million yuan principal, you can get 90 million in loans, the loan interest rate is about 10% Investment 100 million yuan of the project, the sale of the old building after the renovation and then sold, one square meter gross profit to 10,000 yuan.

But since last year, Shenzhen, the introduction of intensive policies to combat real estate, such as real estate license can not be sub-card, factory change apartment has also been severely cracked, the fund can no longer invest in real estate and other initiatives, so that these fund companies difficult.


Liaoning GDP Adjusted Down 23pc

FT: Chinese province’s GDP fall hints at extent of past exaggeration
Economic output in China’s northeastern industrial province of Liaoning shrank by 23 per cent in nominal terms last year, according to official statistics — showing the extent to which officials had previously exaggerated performance in China’s struggling rust-belt.

The sudden drop in provincial gross domestic product is only partly due to a fall in the real economy — in inflation adjusted terms, GDP fell by 2.5 per cent according to the national statistics bureau.
For everyone who likes to point out Chinese GDP is almost useless, I will reiterate that this issue was made clear at least as early as 2014 because real estate investment data (to name one data set) was not cooked.

Liaoning Sounds Warning on Chinese Economy

The yoy cumulative growth rate nationally was 12.5% as in the list above. The yoy national growth rate for the month of September alone was 8.6%. For Liaoning, it was negative 41%.


China Credit Slowdown Could Slow Global Economy

ZH: UBS Calls It: "The Global Credit Impulse Suddenly Collapsed To Negative"
In the note, UBS writes that "Our global credit impulse (covering 77% of global GDP) has suddenly collapsed" and explains that "as the chart below shows the 'global' credit impulse over the last 18 months is essentially mainly China (the green shaded bit), which even now is still creating new credit at an annualized rate of around 30pp of (Chinese) GDP. But the credit impulse is the 'change in the change' in credit and even the Chinese banks could not sustain the recent extraordinary pace of credit acceleration. As a result: whereas back in Jan '16 the global credit impulse was positive to the tune of 3.8% of global GDP (of which China comprised 3.5% of global GDP) it has now fallen back to -0.1% of global GDP (China's contribution is -0.3% of global GDP).


3 Years Later: Liaoning Still a Warning

Back in 2014 I wrote Liaoning Sounds Warning on Chinese Economy.

Fast forward to today in Reuters: How one Chinese region shows risks of relying on heavy borrowing
After years of investment in infrastructure, some of it encouraged by the central government, Liaoning is China's only shrinking provincial economy, its population is in decline and its debt is almost three times annual revenues.

Liaoning highlights the risks of relying on repeated borrowing to invest in infrastructure and fuel economic activity - a regular fall-back policy China has used when GDP risks missing annual targets, including in 2016.

It also points to the urgency for China to move away from a reliance on state firms, which for decades provided China’s economic backbone. Most other provinces have reduced their reliance on state-firms to a much greater extent than Liaoning and its neighbors, Heilongjiang and Jilin. But they still wield considerable influence nationwide.
In addition to its reliance on SOEs, Liaoning was also more reliant on industry, energy and industrial commodities. This was the trigger for Liaoning's troubles, but its development model is shared by most of the country to this day, evidenced by 45 trillion yuan in infrastructure plans for 2017.

The whole nation is like a giant version of Liaoning, not as fragile, but with a similar risk profile. All of China has a rising debt load and will have similar demographics soon enough. One sector's implosion won't sink China, but the global economy performed relatively well from 2011 to 2017 despite troubles in natural resources. What happens when three or four major problems manifest simultaneously?

Chinese Home Prices Plateau in January

Chinese new home prices rose 0.2 percent nationally in January. Existing home prices increased 0.4 percent. Government efforts to slow new home prices in the top and hot cities worked, but existing home prices kept rising in most cities. Some declines, such as the 0.1 percent in Shenzhen, were marginal. Shanghai saw the largest decline in existing home prices nationally, with a drop of 0.4 percent. Existing home prices rose in 51 cities versus the 45 cities with rising new home prices.

SCMP: China’s home prices continue to cool in January
China’s residential property market continued to lose heat in January, with 14 out of 15 cities under the government’s scrutiny reporting declining or unchanged prices, in the latest evidence that the state’s heavy-handed curbs on the property market are having an effect.

Guangzhou was the sole city among the 15 major cities to defy the government’s attempt to deflate the property bubble, with January prices rising 0.6 per cent from the previous month, marginally slower than the 0.7 per cent month-on-month gain in December, according to data released by the National Bureau of Statistics Wednesday.

Shanghai’s prices of new homes fell 0.1 per cent in January, compared with December, according to data by the National Statistics Bureau, while Beijing prices were unchanged.
NBS: 2017年1月份70个大中城市住宅销售价格变动情况


Tighten, Ease. Tighten, Ease. PBoC Cuts RRR

Caixin: PBOC to Cut Reserve Requirement for Qualifying Banks
China’s central bank will ease capital requirements for qualifying financial institutions in an effort to direct more credit to rural and small businesses, according to a People’s Bank of China (PBOC) document dated Feb. 16.
The PBOC asked subsidiaries to assess local banks’ 2016 loan books, according to the document. It said banks meeting certain criteria will be eligible for a lower reserve requirement ratio (RRR) — the amount of cash that banks must hold in reserve — effective Feb. 27.
RRR falls as dollars flow out of China and liquidity tightens. RRR rises when dollars flow in and liquidity is abundant.


The End: Provinces Plan 45 Trillion Investment Binge

We have finally reached the end of the cycle. You can be bullish, you can be bearish, but this is it. Chinese officials are out of ideas. Real estate investment is already slowing and the economy needs an offseting source of growth if GDP targets are to be met. Provincial leaders opened the old playbook: 23 of 34 provinces have announced 40 trillion yuan in infrastructure spending. Adding in the remaining provinces will push the final total past 45 trillion.
"China Times (Public: chinatimes)" Reporters compared to investment plans around the discovery of investment projects in many projects around the "iron machine" project investment is dominated, its status is difficult to shake. As we all know, real estate investment in the past has been unabated, but the real estate this year may no longer be a hot investment. So, the local government to stabilize GDP, what can replace the past continued growth in real estate investment? The answer is, infrastructure investment.

According to statistics released by the provinces, 23 provinces announced 2017 fixed asset investment targets, the cumulative investment of more than 40 trillion yuan, adding in yet to announce provinces,this year's investment will not be less than 45 trillion.

"These investments are mainly to cope with the economic slowdown, through the investment to play a key role in the project." Beijing Fusheng De economic consulting firm chief economist Feng Delin to "China Times (Public: chinatimes)" reporter said that the current investment is necessary But also to consider the profitability of investment projects and sources of funding channels.
Some of the plans involve picking new industries. The same development model that led to coal, steel and cement overcapacity, as well as the much quicker failure of local electric car manufacturers.

There's also lots of infrastructure spending. Or rather, mostly infrastructure spending:
As a reporter to sort out, after the Spring Festival launched a number of major investment projects around, of which Hubei, Shaanxi, Henan and other places to start a major project total investment of more than 100 billion yuan, the first batch of Jiangsu started a major project investment is up to 1.33 trillion yuan giant

According to the Shaanxi provincial government announced on January 4, Shaanxi Province will be arranged in 2017 600 key projects, with a total investment of 3.7 trillion yuan, annual investment of 482 billion yuan, these projects include infrastructure, energy and chemical industry, equipment manufacturing, Strategic emerging industries. Shaanxi Development and Reform Commission said that in the context of the national investment growth slowed down significantly, Shaanxi Province, the focus of the project for the province's economic development provides a strong support.

On the same day, Zhejiang announced a new 624 projects with a total investment of 790.3 billion yuan. The day before, Henan Province, signed a total of 108 PPP projects, a total investment of 379.4 billion yuan.

In the interview, many places are still trying to launch a number of major infrastructure projects. "Plans to invest 1 billion yuan Langzhong Airport continued construction, is stepping up." Sichuan Langzhong Airport Construction Headquarters Office Director Tang said. January 16, Sichuan Guangyuan Mayor Zou Zijing to participate in the review of the Sichuan Provincial Government "work report" suggested that to vigorously support the G5 Jingkun high-speed Guangyuan section expansion transformation, Guangyuan Panlong airport expansion project. Aviation is ready to dock the planning of the two navigation airports, that is, in Guangyuan Wangcang County and Qingchuan County to build airports, do low-level tourism projects.

"Central and western heavily dependent on investment to stimulate economic growth phenomenon still exists." Guangyuan City, Sichuan Province, a deputy director of investment to tell the "China Times (Public: chinatimes)" reporter, the province of each city and county infrastructure investment space Are still large, many places high-speed rail, poor roads, also need a huge investment.
iFeng: 45万亿!地方投资大爆发各地大项目纷纷落地

What Chinese local governments want and what they get are two different things. If financing isn't there, these plans won't get off the ground. Recall PPP financing went terribly in 2016, covered in-depth here: Why Did Private Investment Collapse? Private Investors Fled Public Projects. The government sent investigators around the country and the numbers improved in the second half. That occurred during a real estate boom, in a comparatively optimistic period with booming credit growth. This year is less optimistic and local governments are under pressure because land finance growth is slowing. That's why, even though the PBoC is tightening credit and local governments are cracking down on speculation in real estate, they don't want land prices to fall.

Back to the iFeng article:
Where will the money come from?

Reporters learned that the investment for major infrastructure projects, the pressure on local funds is not small. "If the local govt can not get matching funds, no matter how good the major projects have to be stranded." The vice mayor bluntly, how to implement the project funding problems, can be said to be encountered around the common problems.

Journalists found that the provinces in the deployment of economic work are pointed out that multi-channel to raise project funds, such as "innovative investment and financing mechanism to attract social capital to participate in infrastructure construction" and other statements.

The fact is that, around the huge project investment plan, so that PPP once again become the focus of the market. Different from the past, PPP is expected to accelerate this year, and from the traffic, municipal, environmental protection to the pension, medical, tourism and other fields to expand. In the policy level, the Ministry of Civil Affairs and other 13 ministries and commissions to promote the old PPP; at the market level, some released last year's performance notice of listed companies, one of the major contribution is the implementation of PPP projects.

Encouraged by the policy overweight, since the PPP project last year, blowout growth. Ministry of Finance announced the latest data show that as of the end of December 2016, a total of 11260 projects, the investment amount of 13.5 trillion yuan. Among them, in attracting private capital, according to the Ministry of Finance PPP project library statistics there were 163 private enterprises (including private owned and private holdings), accounting for 39%.

PPP projects this year there will be a blowout growth. "Dali Erhai Lake Interception Project, Tengchong Global Tourism International Outdoor Sports Cultural Center, Ruili City Urban Underground Corridor Construction Project ... ..." This is February 14 in Kunming, Yunnan Province, the largest one of the PPP project promotion , The meeting focused on the display of various types of PPP demonstration projects, a total investment of 399.6 billion yuan, the project covers transportation, municipal and other 14 areas. Guangzhou recently announced that the document will start 28 pilot projects, investment of nearly 211.9 billion.

Journalists combing, despite the expansion of investment, PPP project investment is still dominated by municipal engineering and transportation. As of the end of December last year, in the number of PPP projects and investment in the industry, municipal, transportation, urban comprehensive development of three industry projects and investment in the top three.
They managed to revive PPP investment in 2016, but I suspect 2017 will be more difficult because local finances will eventually be under pressure following weaker land sales. Private businesses will also be under greater pressure because the private economy will be starved for credit as the real estate engine slows down. Even with all the support in 2016, the best rate of success was below 50 percent:
How is the PPP project floor rate? Reporters found that as of the end of December 2016, the national project landing rate of 31.6%, while the third batch of demonstration projects landing rate is surprisingly reached 42.9%.
Finally, the article ends with a blast of ice cold reality: the whole thing rests on land finance.
"Needless to say, this year's highlight will still further stimulate the vitality of private investment." Zhang Hanya stressed that the activation of private investment will allow private subjects willing to invest, to relax the industry access policy implemented.

But the reporter also noted that in solving the financial problems, many places did not give up land financing. With the local two sessions have been held, the hot city that will strictly implement the control policy, but the dependence on the land finance does not seem to be reduced, some cities reliance on land sales is still quite great.
The 45 trillion yuan plan shows the Chinese government is out of ideas. The development model is exhausted. Back in 2014, flaws in the land finance model were exposed. The need for reform and a new revenue stream, via a property tax, was identified. Instead of reform, the Chinese economy got more credit. The only thing forestalling a significant deceleration is still massive credit growth. Remove the credit and there will be a reckoning.

If history rhymes, by April or May real estate investment will slow significantly and the government spending plans will be off to a weak start. By May or June there will be panic because land sales will have slowed. Local finances will hold up in the first half, but the outlook for second half will turn for the worse. The Federal Reserve might hike in June or July, adding deflationary pressure. Then, once again, we'll see if China really wants to deleverage, or if it prefers the stability afforded by massive credit growth.

Eventually, the cost of this development model will be borne by the Chinese yuan.


Regime Change Finally Comes to Washington

The MSM functions like the state-controlled media in China, except instead of the Party controlling the media, the media controls the party and the government by manufacturing public opinion and public conversations. But once many voices can join the conversation, political control quickly collapses because it's impossible to claim objectivity. The MSM can run propaganda and fake news when, like the CCP, it controls all the important megaphones. Once they lose control to social media and the Internet, then collapse is swift. There is no going back to "real news" because it has been "fake" for decades. The music industry adapted, publishing hasn't really adapted yet, we'll see if the MSM will adapt or become niche outlets amid a bigger market.

Regulators Continue Tightening, Hoping to Shift Capital to Lower Tiers

Caijing: 多重“紧箍咒”上身 中国房企资金链或遭重压
In addition, following Beijing policy of 100% self-supported land buys for developers, Tianjin has also introduced a new mechanism for land transfer, that is, after the offer reaches the ceiling, no longer accept the higher offer, the enterprise reported "self-support area."

...In contrast to the trend of returning home prices to last year, this year, due to tightening domestic liquidity, financing more difficult, many housing prices to seek foreign financing.

Zhongyuan Real Estate Research Center released data show that the continuation of the downturn since the fourth quarter of last year, in January 2017, China's housing prices, including private equity, corporate bonds, medium-term notes and other domestic financing amount, totaling 1.3080 billion yuan (RMB, the same ), Compared to the same period last year, down as high as 92%. And enterprises in the territory of the financing costs also appeared to rise significantly. In January this year, many companies issued a debt rate higher than 6%, and last September, this level is roughly around 4%.
Beijing banks are still offering mortgages for second homes, contrary to rumors (perhaps caused by a bank hitting its lending limit), but banks could suspend mortgage creation in the future.
iFeng: 北京二套房停贷?银行:仅是放缓 未来不排除停贷可能
Recently, a "bank will stop two sets of mortgage central bank to enlarge the move," the news yesterday detonated friends circle, the news that some banks in Beijing will stop issuing two suites loans. This morning, the law late reporter interviewed a number of banks learned that the two suites are currently not stop lending, but the slowdown in the release rate. But by the credit limit, do not rule out the possibility of stopping the future two sets of mortgages.

...For the network, "a bank to stop two suites loan" message, the official said, it may be the bank this month, the amount of loans or have been exhausted, "and so the amount of the next month should be restored, To any notice required to stop two sets of housing loans. "
Finally, amid tightening credit conditions, the government is telling the industry to move into third- and fourth-tier cities. After summing up all the restrictions put in place over the past six months, we learn
iFeng: 房地产融资全面收紧 知情人士:引导资金向三四线城市
The next step will continue to tighten it? How long will it last? Will house prices fall?

A person who has repeatedly participated in the national real estate regulation and control to the economic observation newspaper analysis, this round of property market regulation, the main objective is to control prices, not to control land prices, local government regulation and control policies, to suppress the king, but never limit land prices.

"The regulation of the property market depends on the land price, if the local government flow, these financial investigation, propaganda, local government control measures may be out; if the land price does not fall, the premium rate is high, the control measures are long-term." It is believed the latest financial regulation is like an arrow targeting the bond market, hoping to guide the funds away from risky debt, to guide the funds to the third- and fourth-tier cities, and then slowly release the risk, rather than open fire and kill all the birds at once.


Chinese Developer Credit Growth Contracts in 2016

iFeng: 房地产融资降温显成效:地产开发贷负增长
21st century economic report combing the latest data and research found that the bank table development loan growth continued to decline in 2016, real estate development loans even 4.9% of the negative growth. Off-balance sheet financial funds transfusion real estate, then in reality encountered a "channel hard to find" and "non-standard amount of tension" problem.

...Central bank statistics show that by the end of 2016, real estate development loans 7.11 trillion yuan, up from the 6.47 trillion yuan at the end of 2015, increased by 9.9%, while total loan growth was 13.5%. Among them, the real estate development loan balance year on year also fell, down 4.9%.
It's not clear where the decrease comes in, although there are specific on foreign currency real estate development loans in Shanghai:
From the Shanghai data, the trend is also very obvious. Central Bank Shanghai headquarters statistics show that 2016 years, the Shanghai region and foreign currency real estate development loans decreased by 76.42 billion yuan, fell by 70.4 billion yuan yoy. Real estate development loans and housing development loans decreased by 41.77 billion yuan and 47.37 billion yuan, respectively, year on year decrease of 11.33 billion yuan and 42.06 billion yuan.

Rumor: Insurance Regulator Under Investigation

SCMP: What’s in the short leash on China’s insurers – risk or politics?
Xiang has not appeared in public since the annual insurance conference in mid January where he pledged to rein in the wild behaviour of China’s insurance money.

With the blessing of former premier Wen Jiabao, the ex-auditor and central banker landed the top job at the China Insurance Regulatory Commission in 2011.

He is in charge of granting life insurance licences, or virtual cash machines, or money printers as insiders call them.

In the first 11 months of 2016, China’s life insurers sucked in more than 1.1 trillion yuan of insurance premium, with investment schemes containing minimal insurance elements.

...Front line salespeople typically promise their policyholders a guaranteed rate of return of over 6 per cent, double the prevailing bank deposit rate. Insurance companies are taking deposits from the public, without submitting to the regulatory restrictions and operating costs of a bank.

Much of the money will be used to serve the insurers’ owners, for buying equities that owners are hoping to jack up, or investing in the owners themselves as trust products.

Not surprisingly, the queue for an insurer’s licence is long, growing to more than 100.
SCMP: Cross hairs are on insurers as China takes aim at raiders
China’s insurers are getting cross hairs on their backs, as financial regulators take aim at corporate raiders who use insurance premiums collected from policyholders to finance their takeovers and equity investments.
Insurers should “reflect on their faults,” manage their funds with greater care, said Chen Wenhui, vice chairman of the China Insurance Regulatory Commission (CIRC) in Beijing on Thursday, during an annual conference with insurance companies nationwide .
Some insurers have been “reckless” with their investments, by making highly leveraged hostile takeovers, or leading outsize acquisitions overseas far beyond their core business, Chen said.

Beijing Land Sale: Low Premium, Priced Below Surrounding Property

Beijing auctioned two plots of land in Fangshan on February 16. They sold out in 21 minutes, with premiums of 10.7 and 9 percent.
The plots limit the highest price of only 40,944 yuan / square meter, compared to the surrounding project price about 20% lower, these projects limit the success of residential sales, will undoubtedly have a certain impact on the region's current price system
iFeng: 北京土地市场降温了?21分钟低价拍出房山2宗地


Federal Reserve: Revise Potential GDP and Declare Victory

Jeffrey Snider at Alhambra explains how America experienced a "lost decade," yet the Federal Reserve is ready to hike interest rates because it declares current conditions the new normal.
It is a gross dereliction of duty, especially where central bankers are now declaring both a deeply unsatisfactory and dangerous future as well as how that is the proper economic state. It is entirely nonsense, as the answer lies in the very place that central banks refuse to consider – the global money system. The results you see above are not unique to the United States, having been replicated all over the world. As discussed here, it is endemic in Europe as well, and can be spotted all over the emerging market world. There is nothing proper about it.

...Like it or not, we are in a depression having lost already one decade to it. The Fed raising rates is a wholly disastrous outcome because it means officials will no longer even try to do anything about it! It’s not that we want them to do more QE or come up with the next useless program, rather we require at the very least an honest and open discussion about what happened and further why it was and is unacceptable.
China's stimulus provided the global recovery and it ended in 2011. It's possible the rebound in 2016 was also the work of China's money printers. With credit tightening in China now, either the U.S. steps up credit growth or the reflation trade will likely run into the brick walls of the Marriner Eccles Building.

China's Goldilocks Monetary Policy

The central planners in China are telling us they know exactly how much credit the second largest economy in the world needs, and where it needs to go.

iFeng: 易纲年内首次回应货币政策:中性态势就是不紧不松
What is the neutral monetary policy? 2017 monetary policy will be tightening? In today's China Economic Forum 50 annual meeting, the central bank vice president Yi Gang for the first time in response to the meaning of neutral monetary policy, he said, "sound Monetary policy is a neutral monetary policy we will maintain the overall stability of monetary policy, "he further explained that the sound monetary policy is a neutral trend, and the neutral situation is not tight.

Yesterday's financial data released in January showed a new loan of 2.03 trillion yuan in January, although lower than the level of the same period last year, but also hit the second highest level in the history of the month. At the same time in January the scale of social financing reached 3.74 trillion yuan, a record high since the data statistics. Yi Gang said that the amount of two trillion the number of loans should also be a very suitable number of loans.
What is neutral monetary policy? A neutral policy with respect to the currency is the gold standard. But they're not talking about gold, or inflation, but credit. What is neutral credit policy? Obviously faster growth is loosening, and slower growth is tightening, but what are they trying to control for? If they're aiming for GDP growth or short-run financial stability, "neutral" credit policy would be loosening. If they're neutral on monetary policy, they will allow credit disinflation, slower than expected GDP growth and asset price deflation in 2017. If they think they will hit some magic equilibrium in the middle, they are hoping for Goldilocks.


More Tightening: Private Equity Restricted in 16 Hot Cities

ET Realty: Chinese association bans some types of property investment in 16 cities
China's asset management association has banned registration of private equity schemes for residential property investment in 16 cities where it says the market has overheated.
The Chinese article's headline refers to this move as a "band tightening spell," for those familiar with Journey to the West.

iFeng: 重磅消息突袭楼市 这16个城市被套上“紧箍咒”
It is clear that the real estate enterprises that are allowed to finance by means of entrusted loans, trust plans and accepting assets will be directly affected by the private equity management plan.

...Sun Haibo, founder of the Institute of Financial Supervision, it seems that although 16 projects outside the city can still finance, but "strict control of real estate enterprises to obtain liquidity and land transfer financing financing" has been the policy tone.
The government is targeting debt financing disguised as equity:
Sun Haibo that the trust company used to evade the banking sector on the real estate industry financing limit is the most important means of "Ming shares of real debt", because this name does not look at the financing of the project qualification or funding purposes. However, the debt of such financing is too weak to circumvent the supervision of the CBRC, but it will lead to legal risks. Therefore, this restriction will help to reduce the systemic risk, but the financing channels of housing prices will inevitably be tightened.

Well-known real estate expert Xue Jianxiong also believes that the regulation can be described as all-round, the focus is to avoid systemic financial risks.

M2 Growth Remains in Downtrend

Chinese M2 grew 11.3 percent yoy in January, but that required a 1.7 percent mtm increase in M2. Every January typically sees spikes in M2, and this year is no different. However, the 3-month growth rate in M2 is only 15.5 percent, below the 17 percent growth seen in January 2016.

If you are bearish on the reflation trade, there the rise and fall in Chinese M1:
Total social financing was up from a year ago, but the rate of increase here is slowing too.
The spike in M2, along with declining reserves, deteriorated the FX reserve coverage of M2 money supply.

Reuters: China Jan new yuan loans 2.03 trln yuan, below forecast but 2nd highest on record
Reuters: China Jan total social financing surges to 3.74 trln yuan

End of Reflation? Chinese Monthly PPI Increase Halves

One stat I had been watching is the monthly change in Chinese PPI. It pointed to accelerating inflation, hitting 1.6 percent in December. In January it fell in half, down to 0.8 percent. It's still the third highest number in the past four months, but if it harbingers disinflation, the global reflation trade could be hitting the skids amid monetary tightening in China.

There's not much to see in the CPI. Porkflation is still an issue, but there's no sign of the PPI inflation spreading into consumer prices. Although the CPI jumped 1.0 percent in January, there's a jump every year before the Spring Festival.


No Steel Cuts?

SCMP: China’s steel capacity grows despite drive to cut output, Greenpeace says
The regional arm of the NGO and Chinese consultancy Custeel found that most steel mills shut down during the drive last year were already idle.

The cuts made during the campaign were offset by resumed production and newly added output, leading to a net increase of 36.5 million tonnes in operating capacity, according to the report published on Monday.

The study came as the top ­economic planner announced crude steel production increased 1.2 per cent to hit 808.37 million tonnes last year, against a 2.3 per cent drop in 2015.

CBRC Focused on Avoiding Systemic Financial Risk

Let credit flow, tighten, deal with the fallout. Rinse and repeat.
iFeng: 地方监管布局:严查表外业务 防范交叉金融业务风险
ccording to the 21st Century Business Herald reporter interviewed that more than 2016 the main table of the banking business growth rates are as high as 50% of the Shanghai banking balance sheet balance of business or even 1.8 times the total assets.

Intuitively, over the past two years the financial market division often became the bank's "most profitable" department, the position in the bank gradually increased. In addition, the wealth management business, especially with the industry financial management, also in 2016 to become the focus of the whole financial market.

...Off-balance sheet business risk has undoubtedly aroused great concern from regulators and institutions. 21st Century Business Herald Reporter learned from multiple channels, more than the CBRC will be off-balance-sheet business checks as the 2017 focus of the work.

...In addition, the 21st century economic reporter was informed that in 2016 Jiangsu banking assets custody and issuance of non-guaranteed financial management scale (table) year on year growth of about 50%. Chongqing's foreign-related business scale also increased by over 50%, higher than the loan growth rate of 40 percentage points.

Particularly noteworthy indicators are the ratio of off-balance sheet assets to total assets of banks. As of the end of 2016, the proportion of off-balance sheet assets and gross assets (total assets) in Chongqing's banking sector has exceeded 70%, while the scale of Shanghai's off-balance sheet business is more than 180%.

...According to the 21st century economic report reporter learned that in the past two months, there are brokerage collection management products due to the allocation of more non-standard assets, liquidity management problems, failed to pay the principal and interest in full and on time. But in general, will be resolved by the same industry financial institutions, the current point of view did not produce a chain reaction.

...21st century economic reporter was informed that in January this year, more than banking regulatory bureau held in 2017 working meeting were stressed on the cross-financial business to penetrate the principle of the funds from the banking system of various types of business, according to Substantive emphasis on the principle of form, into the comprehensive risk management.

Incentives: Electric Car Edition

Caixin: China Pulls Plug on Electric Vehicle Fraud
Nearly 4,500 subsidized electric vehicles produced by the seven companies were found to have less powerful batteries than the firms declared when applying for incentives, according to an MIIT statement published on Saturday.

The seven firms are Zhengzhou Nissan Auto Co. Ltd., SAIC Bus Tangshan Co. Ltd., Chongqing Lifan Passenger Vehicle Co. Ltd., Chongqing Hengtong Bus Co. Ltd., Shanghai Sunwin Bus Co. Ltd., Nanjing Special Auto Manufacturing Co. Ltd., and China Youngman Automobile Group Co. Ltd.

The MIIT has removed the models in question from the list of approved electric vehicles and stopped accepting applications from the seven firms. It has also ordered them to rectify all existing problems within two months, after which they will be reassessed by MIIT.

The move comes amid an ongoing nationwide investigation, which started in January 2016, into new-energy vehicle subsidy fraud — spurred by a government incentive program — that has seen firms collect hundreds of millions of yuan after inflating the number of vehicles they had made.
Why mess with electric cars when you can go Rent Seeking in China's Robotics Industry?

PBoC Addresses the Bitcoin Problem

Bloomberg: China Bitcoin Exchanges Halt Withdrawals After PBOC Talks
BTC China subjected all bitcoin withdrawals to a 72-hour review, while Huobi and OKCoin suspended them completely, the three venues said in separate statements on Thursday. They all said the measures were in response to central bank requirements. Conversion to and from the yuan is not affected and the curbs will be dropped after updates to compliance systems, the exchanges said.
You can trade Bitcoin freely in China as long as you enter and exit in yuan. If you want to enter in yuan and exit in Bitcoin, taking your Bitcoin off the exchange with the potential to send it anywhere in the world, you can't anymore.
The People’s Bank of China told nine bitcoin venues at a meeting in Beijing on Wednesday that it will close exchanges that violate rules on foreign exchange management, money laundering, and payment and settlement. Chinese authorities are scrutinizing the cryptocurrency amid concerns it’s being used to spirit money out of the country, undermining official efforts to clamp down on capital outflows and prop up the yuan. Demand from investors in Asia’s largest economy, home to most of the world’s bitcoin trades, has fueled a 160 percent rally versus the dollar over the past year.

...“The Chinese government is worried about capital flight,” said Arthur Hayes, a former market maker at Citigroup Inc. who now runs BitMEX, a bitcoin derivatives venue in Hong Kong. “Bitcoin is seen as another way to move money out of China, even though most people trade it for onshore capital appreciation and as another asset in their portfolio.”
It's not clear if the PBoC is concerned about outflows through Bitcoin, or concerned about potential outflows if Bitcoin prices start climbing towards $10,000. More likely, the central bank treats the almost totally Chinese dominated Bitcoin market the way the Federal Reserve treated gold in the past: a very public referendum on the currency.

EO: 外汇成绩单出炉 央妈终于要对“坏孩子”比特币出手了

Cost of High Speed Rail Manifests

Caixin: China to Boost High-Speed Rail Tickets on Ningbo-to-Shenzhen Line
China will raise prices on a stretch of its state-of-the-art high-speed rail network in the southeast part of the country, marking the first such increase since 2015 as the operator seeks to strike a balance between supply, demand and its large debt load.

The hikes will see second-class ticket prices rise by 25% to 30% on the stretch of rail between the eastern port city of Ningbo and the southern city of Shenzhen, across the border from Hong Kong, an official with the local rail authority told Caixin, speaking on condition of anonymity. First-class ticket prices will rise by an even steeper 65% to 70%, he said.

...To partly compensate for the price hikes, the rail operator will increase train speeds on the line to 250 kph from a previous 200 kph. Upgrades are currently being made to the line to facilitate such higher speeds, and should be ready by the time new prices take effect on April 21. By comparison, trains on the lines connecting Shanghai and Ningbo run at 300 kph.

New Housing Differentiation in 2017

More regional variation and local conditions are expected to differentiate housing in 2017. This article from 360 Financial sees cities such as Tianjin, Wuhan and Zhengzhou coming out ahead.
1. 2017 is expected to difficult to reproduce the real estate market in 2016, the broad based market, but it will not be a universal decline

2. This year the price differentiation between the cities will become more apparent

(1) is expected to first-tier cities may be a slight correction in housing prices, the whole year will still rise slightly

(2) expected second-tier cities will be hot and cold housing prices uneven

...Tianjin, Beijing, Hefei, Chongqing, Shanghai and Shenzhen are the most populous cities in China in the past five years, and the population competitive advantage is prominent. Can be seen, Tianjin has exceeded Beijing, Shanghai, Shenzhen and other first-tier cities, becoming the most nearly five years of population growth in the city. This is mainly due to Tianjin is still in the city expansion period, while benefiting from the Beijing, Tianjin, Hebei city group planning good. Hefei is due to strong investment in the tertiary industry in recent years, the transport facilities are also constantly improving, commercial and entertainment areas are gradually forming, and promote the number of resident residents of Hefei increased sharply.

The first category, Tianjin. Tianjin has a population of more than 15 million, and is the last five years, China's population into the largest cities, promising Tianjin is not only because of the strategic position of Beijing and Tianjin is significant, because Tianjin is currently far lower than most per capita housing construction area second-tier cities, the future is still With a larger room for growth.

The second category, Wuhan, Zhengzhou. Wuhan and Zhengzhou, the size of the population reached 10 million, also belong to the second echelon of population flows, a large number of people to bring large-scale housing needs...Moreover, the three cities in 2016, although housing prices rose significantly, but the rate of increase was significantly less than Hefei, Xiamen and other cities.

...The third category, Chengdu, Xi'an. The western node-type city development is expected to enter a new stage, prices are still relatively depressions. Chengdu, Xi'an and other western cities in the rising cycle of 2016 were not more than 10% price increase, the western level of economic development and the eastern developed areas are still gaps, relatively adequate land supply, so the residential market in recent years, relatively stable performance.

...The fourth category: Hangzhou, Jinan and Qingdao and other tourist cities, air quality is better, are more typical consumer-oriented cities, including Hangzhou, Yangtze River Delta city group back in employment there is also a strong competitive edge. Jinan and Qingdao are the first cities in Shandong Peninsula.

(3) third- and fourth-tier inventory reduction is still the main task

On the three or four lines of urban real estate market inventory pressure, and can not simply according to 70 cities, 100 city data to infer its inventory. This is because there are 293 prefecture-level cities in China, 361 county-level cities, there are 1381 counties, the current published data and can not truly cover the three or four lines of the city's inventory situation. In a word, the actual inventory of the three or four line cities may be much higher than the statistical data. Even in the urbanization of migrant workers and public services to get policy support. To the inventory is still long way to go.

But in the three or four lines within the city, "differentiation" will also exist. Focusing on the Yangtze River Delta and the Pearl River Delta city group from the first city / regional center close to the small and medium cities, the two city groups a good economic foundation, the future is expected to further absorb the population to enter. Secondly, it is favorable to medium and small cities in Chengyu (near Chengdu) and the middle reaches of the Yangtze River (near Wuhan), which is close to the first city. On the one hand, these cities have a certain economic base. The first city is a regional center. Conditions are better, there is a large number of agricultural population to be transferred, the other is located in the Midwest, there may be a certain degree of policy tilt.
iFeng: 2017二线城市房价冷热不均 四大城市被看好

Pan Gongsheng: FX Window Once Open, Will Not Close

A description of this 3-hour interview should show up in English soon enough. Pan Gongsheng, head of SAFE, says once opened the forex window will not close.

Update: Caixin has English coverage: Head of Foreign Exchange Watchdog Vows to Strengthen Fight Against Capital Flight.

The interview is much longer for those who want to brave Google translate or can read Chinese. iFeng has the full text. Relevant portion and subject of article headline:
At the policy level, China's current account has been convertible since 1996. In recent years, the capital investment has also been gradually convertible, and the degree of capital convertibility under the securities has also been gradually increased. China's economy is deeply integrated into the global economic and financial integration. Trends can not be changed. Therefore, we adhere to the principle that open windows will not close. Foreign exchange control policy will not be back, no return to the old capital controls.
iFeng: 外管局局长接受媒体专访:打开的窗户 不会再关上

Tighter Credit Coming to 20 Hot Cities

Mortgage tightening is coming to 20 "hot" cities (second-tier cities with rapid price gains in 2016) following the tightening in first-tier cities.

iFeng: 媒体:20个热点城市房贷收紧政策可能全面跟进
According to the "Economic Information Daily" reported that, following Beijing, Tianjin, Guangzhou, Qingdao and other cities have introduced mortgage tightening measures, the focus of regulation and control of 20 hot cities may follow up.

...Wuhan, Jinan, Wuxi, Fuzhou, Chengdu, Shijiazhuang, Nanchang, Changsha, Nanjing, Suzhou, Hangzhou, Hefei, Xiamen, Zhengzhou, Qingdao.

"Economic Information Daily" quoted sources, the central bank made it clear that commercial banks must strictly control the first quarter of new loans. In the first quarter of the total new housing loans and growth rate is lower than the fourth quarter of 2016, credit growth too fast banking, may face a macro-prudential assessment system based on differential deposit reserve rate penalty.

Compared to last year's list of 16 hot cities, the list of the media added Shijiazhuang, Nanchang, Changsha, Qingdao, four cities.

...On the eve of last year's National Day, the central level to convene a meeting, requiring 16 cities to strictly control housing prices, followed by the major cities have introduced property market regulation and control policies.

...The Shanghai Securities News reporter learned from the industry, in order to implement the real estate regulation and control, reasonable control of business growth, effective slow release industry concentration high risk, the recent CBRC issued a notice intended to house prices rose too fast 16 hot city banking Financial institutions to carry out special inspections.

...It is understood that the contents of the special inspection involves a wide range, including personal housing mortgage loans, real estate development loans and financial funds are illegal entry into the real estate field. Shanghai, Guangzhou, Shenzhen, Xiamen, Hefei, Nanjing, Suzhou, Wuxi, Hangzhou, Tianjin, Fuzhou, Wuhan, Zhengzhou, Jinan and Chengdu.

China Banking Regulatory Commission asked to check the 16 cities of banking financial institutions as of the end of September 2016 and real estate-related business, according to the actual situation appropriate retrospective or extension, and asked the local banking regulatory bureau on December 5 will be special inspection report.

HK Banks Benefit From Restricted Capital Flows

Bloomberg: Trapped China Cash Breathes Life Into Hong Kong Yuan Banking
Banks in Hong Kong are finding a new source of revenue in helping multinational companies deal with a growing headache: how to cope with tightening restrictions on transferring profits and dividends out of China.

As Beijing clamped down on outflows that threatened to destabilize its currency, companies are suddenly turning to lenders in Hong Kong to hedge their currency risks, bolster the yield on money trapped inside China and for new loans, according to bankers and analysts.


SOEs Ordered Out of Land Market, Again

Easy money and perverse incentives combined to send real estate prices ever higher, driving land prices to all-time highs in 2016. SOEs were the among the worst actors. The central government told SOEs to get out of the land market in 2010, but they never left, becoming a key player in the 2015-2016 land bubble. Legitimate land needs of developers were swamped by a wave of speculative money looking for a new home following the stock market bust. Many state-owned firms anticipated a government forced consolidation wave, betting that getting bigger would increase their chances to be in the driver's seat. A tidal wave of capital and these incentives combined for a land rush the likes of which preceded two of the past three real estate busts.

iFeng: 央企退房令真相调查:为自保疯狂炒地
Recently, media reports, most of the central enterprises did not implement the SASAC "check-out order" issued issued at the 2010 Lianghui. In 2016, of the the top 15 land buyers, central and state-owned enterprises took 8 spots.

Just the past year, especially in the first half of 2016, China's land, especially high-priced land market is "national team" occupied half of the country.
Flashback to 2016:
Reform Can Wait: 4 Trillion Stimulus All Over Again as SOEs Pour into Land Market
SOEs and Financial Companies Push Private Developers Out With Insane Land Grab
Ministry of Finance Owned Cinda Real Estate Becomes Land King
Land King High Tide in 2007 and 2010 Preceded Downturns
July 2016: China Real Estate Bubble: Gold Miner Parent Becomes Shanghai Land King
August 2016: Cinda Spends 35 B Yuan for 6 Land King Buys

Several factors drove land purchases by SOEs. First was the speculative nature of the bubble. After the stock market burst in June 2015, China's wave of liquidity had to go somewhere. Some of it flowed through SOEs and investment firms into the land market.
In addition, in the first quarter of 2016, bank lending and social financing were unprecedented, with new loans of 4.61 trillion yuan and total social financing of 6.5 trillion yuan, all exceeding or close to the highest level in history. In the central control of local debt background, the central enterprises with its unique state-owned capital guarantee, collateral and other advantages, access to large-scale low-cost bank credit funds.
Second, land was considered a good asset that won't drop in price, which is why firms such as Cinda, without core real estate business, were among those most aggressively buying land. Third, driving up prices has a direct impact on balance sheets by driving up the value of land banks. Fourth, real estate SOEs are valued in part on assets. With the government contemplating consolidation and reorganization for SOEs, large land banks boosts a company's valuation. Companies believed they would survive a forced consolidation wave if they were the larger firm:
After all, if a central enterprises do not have sufficient land reserves, and from the perspective of corporate valuation in a "weak", most likely to be merged with other central enterprises. Only do large-scale at the same time, access to high prices to do high-cost, to discourage the main business for the real estate of the central enterprises to eat their enthusiasm. And once more "right to speak", the dominant party may also be able to acquire other central enterprises "check out" assets.
And now comes the epilogue, heavily indebted firms with "frozen" land assets that will require far more capital to develop, but credit conditions tightening amid a government push for deleveraging and price stability in the real estate industry.

Shenzhen: Developers Quietly Cut Prices, Speculators Dump Homes

Government policies aimed at slowing the housing market are finally biting following rate hikes and tighter credit conditions. In Shenzhen, a relatively new group of white collar speculators used consumer credit to buy near the peak. As credit tightens and prices drop, many will end up losing money after taxes, fees and interest.

iFeng: 房贷收紧后:开发商变相降价 炒房客闻风抛房
"Huaxia Times" reporter recently survey found that, in the weather-vane market of Shenzhen, the existing housing market has seen some eager investors begin to cut prices 10% to 20%, while developers have special room price cuts up to 10%.

...High leverage is one of the most important factors in high house prices. What happens if administrators reduce leverage?

Xu Feng believes that the future in the supply side, the new housing market does not rule out a small number of developers based on financial pressure will let prices drop, in the existing housing market speculators sitting on several homes may drop the price and exit, hopefully the housing market will gradually stabilize.

According to our reporter learned that the developers of Shenzhen have special room price of the situation, such as Kaisa City Square, last year the price of 50,000 yuan / square meters, the current price of 45,000 to 48,000 yuan / square meter. While other developers are still in wait-and-see attitude, because the price of the record by the government's strict control, the same real estate price record prices do not allow more than the previous price, since the second half of last year.

...According to the Shenzhen Municipal Planning Commission data, in September last year, the average new home price was 61,600 yuan / square meter, down to 54,931 yuan / square meter in January this year, down 7,000 yuan / square meter, in January 2017 Shenzhen new house turnover of only 1652 units, Month since the new month, decreased 23.6% mtm, down 70% yoy; existing homeg transactions 2747 sets, down 27.9% mtm, down over 80% yoy.
A new class of white collar speculators are feeling the pinch of tighter credit conditions:
Reporters found that the last two years to join the ranks of real estate speculators in Shenzhen, white-collar investors, are now under financial pressure, most of them used consumer loans and credit, or used a first home as collateral for a mortgage, to make a down payment on a second or third home. Especially investors who entered in the first half of 2016, they are stuck at the property market peak, including taxes and fees will sell at a loss.
Shenzhen home prices spiked nearly 60 percent in 2015 heralding the broader national bull market in 2016. As of December 2016, NBS reports Shenzhen new home prices were up 23.5 percent yoy and 49.5 percent from the start of 2015. Prices have been decelerating since mid-2016 and started falling month-on-month in October.

Some history:

June 2014: Shenzhen Vacancy Rate Estimated At 85%; Centaline Says Prices Will Be Cut in September and Last For 3 Years
July 2014: Shenzhen Existing Home Sales Plummet in June
August 2014: Shenzhen Nervous, Hosts Closed Door Meeting With Developers
A massive stock market bubble grows in the interim, with spillover into the Shenzhen housing market. The stock market bubble peaks in June 2015.
June 2015: Calls For Govt Intervention to Stop Home Price Increases in Shenzhen
June 2015: Shenzhen Sees Wave of Contract Disputes as Home Prices Soar 40% to 60%
July 2015: Beijing, Shanghai, Shenzhen Home Prices At New All-Time Highs
July 2015: Average Worker Needs 85 Years of Savings to Buy Home In Shenzhen
August 2015: Shenzhen Home Prices Rise 20% in Three Months, Some Beijing Developers Hiked 10-20%, Each New Project Opens 5% Higher
January 2016: CREIS: New Home Prices Rise 0.4% in January; Shenzhen Out of Control
January 2016: Shenzhen Banks Feel Pressure to Reign in Lending Amid Home Price Bubble
February 2016: Shenzhen Mulls Real Estate Restrictions, Raise Down Payment
March 2016: Beijing and Shanghai Consider Real Estate Restrictions; Shenzhen Hikes Transaction Tax
March 2016: Shenzhen's Credit Driven Housing Bubble; Shanghai Psychology Shifts
March 2016: Down Payment Loans Decline in Beijing, Shenzhen Investigates, Will Home Prices Fall?
June 2016: Shenzhen Crowns New Land King
October 2016: Buying Restrictions Working: Suzhou Prices Tumble, Shenzhen Buyers Disappear, Hangzhou Sales Drop
October 2016: Shenzhen Hikes Second Home Down Payment to 70pc

With Prices Expected to Fall, Is Real Estate Tax Back On?

The real estate tax seems to fluctuate with the housing market. When it is booming, land sales are sufficient. Talk of the tax is pushed off in case it spooks the market. When real estate tumbles, the imminent need for a stable revenue source becomes apparent. No surprise then, that the two part headline from iFeng reads: Real estate tax will arrive soon! Is 2017 the year home prices finally drop? (“房地产税”快来了!2017年房价终于要跌了?)
A few days ago, the State Council promulgated the Guidance on Innovating the Government's Way of Disposing Resources, which explicitly referred to "supporting various regions to explore and innovate on real estate tax, pension and medical security".

In the central government, "the house is used for living, not for speculation." To make certain real estate market advances in the direction of fighting against speculation, preventing house-flipping. The real estate tax was once considered a "weapon" for lowering home prices, the real estate tax has once again come into the people's vision. For a time, many people began to worry, is 2017 the year the property market changes?
Whether the real estate tax can impact prices is another question, the answer to which is very likely no:
In this issue, the new Institute of Supply Economics, the first dean, chief economist Jia Kang is not Fan Gang as optimistic, Jia Kang said that if the property tax is not associated with house prices, this view is not established, From no change, will affect and guide all aspects of the main economic behavior and choice, thereby affecting prices. Jia Kang pointed out that the real estate tax and the land system, housing system, investment and financing system together to consider. It can not be said that the real estate tax this factor determines the price.

Moreover, from an economic point of view, the impact of commodity prices, there are only two fundamental factors: First, supply and demand; the second is the money supply. The so-called supply and demand, that is, a number of commodity demand and supply less, the price will rise; less demand and supply, the price will fall. The so-called money supply, that is, when printed too much money, money is not worth, which is commonly referred to as inflation, this time all the goods will be different degrees of price increases.

So, the introduction of real estate tax, is affecting the supply and demand or affect the money supply? Needless to say, certainly not the money supply, because it can affect the money supply, in fact, only the central bank's printing press. That real estate tax really can be as people expect, can change the entire housing market supply and demand relationship? The answer is clearly not, because the new house, second - hand housing and rental three blocks constitute the overall real estate market. Rigid demand in the real estate market dominated today, due to the collection of real estate taxes may be released a little stock of real estate, really not enough to play the role of lower prices.
Tighter credit will lower prices though:
The market is expected to 2017 will continue to increase the property market regulation, the industry generally said that the future of China's hot city of the real estate market continued to tighten the probability of events will be, by combing discovery, at present, Beijing, Guangzhou, Chongqing, Qingdao, Hangzhou, Dalian, Zhuhai, Tianjin Such as Beijing, Guangzhou, Qingdao, Dalian, Zhuhai and other cities in the first suite of interest rates fully or partially adjusted to 9 fold, of which Hangzhou part of the bank's first suite interest rates have been raised to 95 fold, the first set of mortgage interest rates in Chongqing From 8.5 discount interest rates to the benchmark interest rate. With the future as the intensity of regulation and control, the property market will be more stringent regulation is expected this year, the property market or a sustained cooling and falling house prices.


The Weaker Yuan Solves A Problem

Caixin: China May Lift Fiscal Revenue Growth Target for First Time in Five Years
The 5% target for this year’s national fiscal revenue increase, if approved next month, would be higher than 2016’s goal of 3% and will mark the first time the government has raised the figure since 2012.

Growing inflationary pressures in the country since late last year may have provided conditions for such an increase, since the lion’s share of China’s tax revenues is generated from indirect taxes that are typically based on prices. And as prices go up, so does government income from these taxes.

The producer price index, a key gauge of wholesale prices, rose for the fourth straight month in December to hit the highest level in more than five years after having previously lingered in negative territory for 54 months in a row on sluggish domestic demand.
Most commentary on the weak yuan focuses on its trade impact, but the real "benefit" is from domestic inflation.

Chinese Exports and Imports Rebound in January

One point for reflation:

Marketwatch: China exports beat forecasts, up nearly 8% in Jan.
China's exports rose 15.9% in January from a year earlier in yuan terms, following a 0.6% increase in December, official data showed Friday.

Imports in January surged 25.2% in yuan terms from a year earlier, extending a 10.8% rise in December, the General Administration of Customs said.

...China's trade surplus widened in January to $51.35 billion from $40.82 billion the previous month, exceeding a median forecast for a $50 billion surplus.


Deleveraging Finally Begins in China?

Although the term deleveraging has been thrown around for years in China, actual deleveraging has yet to take place: until now?

iFeng: 专家谈房地产市场当前局势:在去杠杆通道中前行
Chen Sheng, executive director of China Real Estate Data Research Institute, told reporters that the transaction from the hot city fell sharply in January, the property market during the Spring Festival trading volume deserted, and bond financing basically stagnated, personal mortgage interest rates from the real estate market, vice chairman of the China Real Estate Research Institute, from the view of tightening credit and other trends, the "leveraged property market" is entering the slow path of deleveraging.
Home and land sales collapsed in January:
According to the China Index Research Institute, in January this year, a total of 300 cities nationwide transactions of residential land (including residential land and residential land with integrated land) was 477, a decrease of 54% month-to-month, down 17% year-on-year; turnover of 23.18 million square feet M, decreased by 53% mtm.

Correspondingly, the country's 300 residential land (including residential land and residential land with a comprehensive land) to sell a total of 206.5 billion yuan, a decrease of 46% mtm, an increase of 51% yoy.

"In January, the hot city transaction data dropped significantly, bond financing basically suspended, is expected to continue to adjust the property market." Chen Sheng Shang Zhengbao said that this information means that 2016 "leveraged on the property market" is slowly into the deleveraging channel.

Reflation Bets

These look like good bullish setups: India and Peru. Maybe a pullback in both though, certainly SCIF looks a bit overbought here, but then again the November drop might be the handle on this cup.

Jeffrey Snider argues the reflation trade is going to have a "show me" moment soon.

Alhambra: The First Real Reality Check?

Reflation and the Strong Dollar

The U.S. dollar analog continues going strong. In the two charts below, I compare oil and copper. Oil bottomed a little before the U.S. dollar 3-month sell-off concluded in 2016, it bottomed a little before the same dollar move in late 1998. Copper retested its bottom amid the global recession, but it did not make a new low. There are other factors at work, but it's possible a bottom is in even if the dollar marches on to a new high.

On the dollar chart I mark where we are versus the prior point in the cycle. For copper, I marked the dollar analog to this month. For oil, I looked at the bottoms.

Fighting China's Demographic Winter

Bloomberg: China Should Allow Three or More Children: Top Demographer
"Now the policy allows you to have a second child, but many people, at least 50 percent of them, do not want the second child," said Cai, a former head of the Institute of Population and Labor Economics at CASS. "Population policy, which encouraged people to give birth more, should be a policy package including allowing people to have a second and third or even more babies. If the total fertility rate can increase, the newborn will be the labor force in 20 years."
Given the ability for China to force policy, it wouldn't surprise to see the government order people to have more children. Otherwise, it will require a full court press, including media. As I said before, China should tell every TV show have it's main characters get pregnant. It would be far more effective, and efficient, than these other ideas.

China's energy use will peak in about 5 years due to current demographic trends, as the chart below shows. The article shows how the energy consumption in the U.S., E.U., Japan, Indian and China tracks the core working population age 25-54 years.

ZH: Energy Consumption Vs. Core Populations - Trending Down Together

Yuan in Eye of Hurricane

Bloomberg: China Has Got the Yuan in a Sweet Spot
This “honeymoon” for the yuan will likely last in the near term as the dollar continues to weaken before the outlook for U.S. fiscal stimulus clarifies, according to Zhong Zhengsheng, managing director of Beijing-based research firm CEBM Group Ltd. “The most likely scenario is that the yuan will remain stable or rally against the dollar, while it silently depreciates versus a basket of exchange rates,” he wrote in a Feb. 6 note.
It's called the eye of the hurricane, and it's not a "sweet" spot. The yuan is still depreciating, but it's hidden by the decline in the U.S. dollar. Once the U.S. dollar resumes appreciation, the yuan will resume its decline. For the bears this is a sweet spot to be building a position.

Central Planning Redux: PBoC Sets 1Q Lending Target Below Q4 Level

iFeng: 知情人士:央行明确控制一季度新增贷款 低于去年四季度
Reluctant to be named Informed sources had said that because of credit growth too fast, the Chinese central bank made it clear that commercial banks must strictly control the first quarter of new loans. In principle, a quarter of the total amount of new housing loans and growth rate is lower than the fourth quarter of last year.
This may explain why small and medium banks in Shanghai, as one anecdotal example, are encouraging early repayment of existing mortgages. The article goes on to discuss the tightening:
Today, "China Securities News" quoted in the front page article quoted a number of analysts, taking into account the steady exchange rate, financial deleveraging, control the real estate bubble and inflationary pressures, this year's monetary control has continued to tighten the possibility.

Minsheng Bank Research Institute of Financial Development Research Center, said Wang Yifeng, deputy director of commercial banks to raise mortgage interest rates is the market of the autonomous behavior. Since 2016, various types of housing loans booming demand and supply, especially in large amounts of personal mortgage loans, but according to estimates, the first set of mortgage loans as a result of more discounts, the overall pricing is low, affecting bank returns.

"Considering this year the market demand for mortgage loans is still strong, the company demand for loans to pick up, coupled with the central bank raised the short-term capital costs and other factors, some commercial banks in the initiative to optimize pricing behavior, the lower the pricing of the first set of mortgage Loans to internal requirements, the market this year, the overall pricing of mortgage prices higher than last year, which is conducive to stabilizing the bank net interest margin, "he said.

Hai Tong Securities in today's report that, from the perspective of bank asset allocation, if the mortgage risk capital account for the factors taken into account, the current mortgage interest rates and bond yields are still relatively low. To improve returns, it is estimated that discounted mortgages will all disappear in the future. "In the mortgage market, interest rates have also begun, and will continue," the report said.
The article references this Bloomberg article from January 25. China Said to Order Banks to Curb New Loans in First Quarter

Related from SCMP: Mortgage draw downs slow to a trickle as China tightens credits
Chinese commercial banks are slowing the ability of their borrowers to draw down on their loans, amid a directive by the People’s Bank of China to tighten the disbursement of credit to keep property prices in check and prevent capital flight.

One of Bank of Communications’ Shanghai branches delayed the drawdown of a 1.5 million yuan mortage loan -- approved at the end of 2016 -- by three months until March, according to a borrower who declined to be named. The bank’s branch declined to comment.

Similar delays of between three to four months have been reported across the city at the China Merchants Bank and the Industrial & Commercial Bank of China, according to bank customers. Officials at both banks declined to comment.


Small Shanghai Banks Encouraging Mortgage Borrowers to Repay Early

That was fast. A year ago China was in the middle of a roaring housing bubble, one that was starting to spread into second-tier cities. Credit growth was strong as well, but mortgage lending made up a large amount of credit growth, more than 100 percent in July. Fast forward to today. After about 4 months of intensifying buying and credit restrictions, plus a Spring Festival bookended by rate hikes, credit conditions have gone from loose to very tight. So tight that some Chinese banks are encouraging borrowers to repay their debt ahead of schedule.

iFeng: 一二线城市房贷全面收紧 有银行鼓励提前还款
Under the control of the real estate industry in 2017, the financial environment to tighten the trend has been significant trend. Reporters learned that recently small and medium-sized commercial banks in Shanghai to ease the balance of housing loan pressure to require sub-branches to encourage mortgage customers in advance of repayment, and even advance payment of relief money to give concessions. In addition, Beijing, Shanghai, the two first-tier cities are currently less than 9% off housing loan interest rates have been extinct, there are commercial banks will be less than 95% discount mortgage interest rate approval power all reverted to the branch level, you want to get 9 Discount interest rates more difficult. There are indications that the property market in 2017 the financial environment or will no longer be relaxed.

According to report, small and medium commercial banks in Shanghai in order to ease the mortgage balance of pressure, at the end of January issued a "mortgage on the end of the emergency pressure on the balance of the notice," asked the branch, the business department as soon as possible repayment of existing housing loans repayment ahead of schedule Demand for the mortgage has been applied for early repayment and early intention to apply for early repayment of the customer, asked the branch to proactively contact customers, as soon as possible to complete the repayment operation, and part of the advance repayment to customers free of charge penalties preferential policies to guide Customers use idle funds for part of the early repayment.

"Although this initiative to encourage early repayment of mortgage customers is still only individual banks stage of window guidance, but small and medium-sized banks housing loans tight is a common phenomenon." Shanghai Centaline Property Market analyst Lu Wenxi told reporters in Shanghai mortgage Large state-owned banks have not seen such a situation, but a number of small and medium-sized commercial banks have reflected the tight mortgage balance, and only in residential real estate loans, commercial real estate is not affected. Beijing and Shanghai from the two large real estate intermediary agencies to reflect the situation, the current housing loans to banks lending pace is generally slowed down.

"Although this initiative to encourage early repayment of mortgage customers is still only individual banks stage of window guidance, but small and medium-sized banks housing loans tight is a common phenomenon." Shanghai Centaline Property Market analyst Lu Wenxi told reporters in Shanghai mortgage Large state-owned banks have not seen such a situation, but a number of small and medium-sized commercial banks have reflected the tight mortgage balance, and only in residential real estate loans, commercial real estate is not affected. Beijing and Shanghai from the two large real estate intermediary agencies to reflect the situation, the current housing loans to banks lending pace is generally slowed down.
The article also discussed the extinction of the 10 percent mortgage discount in the top-tier cities.
Beijing, Shanghai, Guangzhou is currently less than 10% discount housing loans preferential interest rate has been completely extinct, there are commercial banks will be less than 95% discount mortgage interest rate approval power all reverted to the branch level, you want to get 10% Interest rates are harder. Second-tier cities in a few years after the bank raised the first mortgage interest rates, such as Qingdao, Dalian, Zhuhai and other places of the bank interest rate discount from 85 fold to 9 fold. There are indications that the property market in 2017 the financial environment or will no longer be relaxed.
The central bank is walking a thin line: 央行利率新措施出炉 严厉举措透露出一大信号
Fed rate hike in March this year, the probability is not high, from the real estate, stock market, the bubble is being gradually squeezed. The central bank so quickly to tighten the monetary direct fuse is what? Is to control the financial high leverage.

Central Bank to see the data, so that the central bank had to raise the interest rate corridor - in January the loan is too much, State Securities February 8 research report that the "early lending early earnings" and the end of 2016 part of the credit demand extension After the impact of commercial banks is expected to add 2.8 trillion yuan in January credit, social financial 3.6 trillion yuan, seasonal high growth, the latter with the central bank to raise money market interest rates to strengthen the MPA assessment and other multi-caliber regulation and slowdown in real estate sales, Credit expansion is expected to come down. Before the Spring Festival put so much money, the central bank after the Spring Festival must be recovered as soon as possible.

If not recovered, the consequences are serious. Financial institutions to get the money in hand, and no good project lending, will enter the virtual economy through various channels, or the use of highly leveraged gloves wolves-style equity acquisition, or to enter the real estate market so that mortgages soar, Or like the first half of 2015, like in the back support the stock secondary market.

Even more frightening is that some local banks are likely to put a lot of money behind the stealth shareholders, so that these capital predators in the market turn the clock over and over again, who wants to make money who make a fortune.

February 7 of the "China Securities Journal" published an article some truth. The article argues that the financial deleveraging has become the most important macro-control, while ensuring the liquidity of basic and reasonable demand, the central bank through the delivery of "short money" and "money" to suppress leveraged arbitrage, term arbitrage operating orientation will not change.

...To prevent the beginning of crazy lending, to prevent funds disguised into the stock and real estate market, is the fuse of the central bank attack. Long-term reasons, it is to deal with capital outflows, to prevent the Federal Reserve to raise interest rates to prevent inflationary pressures caused by rising PPI.

From the second half of last year to raise capital costs, so that various industries in the warm water to gradually adapt to high-interest environment, so as not to raise interest rates when the real rush. But it needs to be emphasized that the central bank will certainly go to leverage while maintaining overall market stability.
Policymakers believe credit will flow into the "real" economy if they choke off all other avenues, but every time they've tightened, the economy slows. The private sector either doesn't want to borrow or banks don't want to lend to the higher risk businesses. Policymakers panic, open the spigots, force SOEs to borrow and watch the private sector speculate on bonds, stocks, housing, or take the money out of the country. China's GDP growth is part of a magic act, misdirection to give an air of stability while the economy swings from hot to cold and back again at an ever increasing pace.