2014-09-21

Handan Residents Afraid to Buy Homes; Market Frozen With Developers on the Brink

Earlier this week I posted Another Credit Guarantee Gone Bust, One Month After Backing A Trust, which covers the latest incident of a debtor fleeing his or her debts. In that case, the debtor is the developer Shi Yubao of Golden Century, who borrowed privately from thousands of people. The result of this episode, and no doubt the defaults earlier in the year that involved similar borrowing practices (see link above for more info), is that Handan residents are now afraid to purchase a home. They fear the others developers could also run away too since many of them have used the similar methods to raise capital.

Many developers in Handan have closed their sales offices and are in no mood to sell homes, they're looking for a way out instead. Besides the home buyers disappearing, the lenders want their money back. Suppliers and contractors want their money too. Normally, they would settle their accounts with developers at year end, but now they want to be paid in advance for fear the developer could skip town.

There is nearly a ¥10 billion black hole of private lending. Dozens of developers have 300 projects underway in Handan, at least half used private money. About ¥6 billion is already in trouble, but it could grow to ¥10 billion as other developers get into trouble. Interest rates on money raised from individuals can exceed 20%, and in order to keep up with debt costs, developers need rising home prices. With the market cooling, the developers can no longer out run their interest costs. According to the article, price growth through August is only 3% since 2012. Back in 2012, the estimated average profit on a home sale was only 19%. With construction costs rising, financing costs piling up and prices barely rising, profits have no doubt tumbled.

Handan developers are intimately tied in with local government and non-local developers avoid the market. Golden Century CEO Yu Shibao, the man who has fled town and precipitated this latest crisis, was appointed to a supervisory position in the Hebei Province People's Procuratorate. The firm also obtained the best pieces of land in Handan at preferential prices. Other developers also have ties to provincial government offices.

某城房企集体违约引崩盘 当地人不敢再买房

China Will Not Alter Policy For GDP Growth

China says will not alter policy because of one economic indicator
China will not dramatically alter its economic policy because of any one economic indicator, Finance Minister Lou Jiwei said on Sunday, in remarks that came days after many economists lowered growth forecasts having seen the latest set of weak data.

2014-09-20

Loan Demand Slumps in Q3

No surprise given the weak credit numbers, but the PBOC business survey reflects the weakness. Overall demand for business loans (according to bankers surveyed) was down to 66.6% (chart below). Broken down further, the demand from large, medium and small enterprises was as follows: 55.3%, 62% and 70.8%. No surprise there either as small firms still have a harder time accessing credit.


Here's the entrepreneurs' macroeconomic temperature (green) and economic confidence (red).

Here's the survey numbers for the bankers. Survey results are at their worst since Q3 2012.

Depositors are also surveyed. Here's their feelings on current wages (blue) and expected wages (red). Optimism is still there even though the trend is down.

The desire to spend more (dark blue), save more (light blue), invest more (red).

All data from the PBOC.

Caixin Covers the Interest Rate Spat Between Xinhua and PD; Beijing Youth Daily Calls It a Fairy Fight

Xinhua, People's Daily in Rare Tussle, over Rate Cuts
Xinhua News Agency and People's Daily have crossed swords over who has more faith in policymakers' determination to push through economic reforms and whether it is fine to cut interest rates, a rare public display of friction for the state media outlets.

Fears that China is falling short of the government's growth target for this year and calls for strong stimulating policies such as reducing interest rates have gained momentum, after August's weak economic data was published, an article published by Xinhua's website said on September 16.

"Looking back at the past few months, voices like this were heard at home and abroad almost every time monthly and quarterly economic data came out," the article says. "This means the speakers do not see clearly the 'new norm' of China's economy and lack faith in the reform that China has been pushing forward with force."

The article they site in the article came out a day before the one I saw: “强改革+巧调控”:中国经济持续健康发展“稳定器”

That was the first shot. The People's Daily rebutted with: Rate Cuts Not The Opposite of Reform

Xinhua fired back: Still Not Time For Rate Cuts; Don't Quench Thirst With Poison

Technically the PD is correct, but Xinhua is right on policy. It is not yet time for rate cuts.

However, if you want to know what the leadership thinks, turn to the Beijing Youth Daily, put out by the Communist Youth League. They summed up the two sides and called it a fairy fight.

评论:是否降息为何上演“神仙打架”

Li Keqiang: Use Reforms to Lower Financing Costs

Premier Li Keqiang met with PBOC head Zhou Xiaochuan and CBRC head Shang Fulin in Shanghai. They openly discussed interest rate policy.

Li Keqiang said the best way to reduce interest rates and take pressure off the PBOC would be to speed up reforms in the Shanghai free trade zone. He said to Zhou and Shang, allowing you to reduce interest rate pressure is really difficult, but you must force down rates through reform, lower the capital costs for business by letting the cross border capital flows into the country, this is the best method. The article mentions how Li has repeatedly brought up the funding costs of SMEs, such as at the July State Council meeting. (See below for the Google translation of the article.)

Rhetoric about 7.5 percent growth aside, an economic slowdown without a monetary bailout forces reform because it is the only option. The mistake some analysts are still making is they think the growth target is the top of the agenda. The reform agenda is priority one.

On the continuum of possible economic policies and outcomes, the worst are those that slow or stop the reforms. At one end is monetary stimulus, booming economy and a return to business as usual. At the other end, there may be a limit to how much pain can be inflicted before insiders reject the policies. In between, the worse the slowdown, the greater the need for reform.

李克强对周小川尚福林称:让你们把利率压下来挺困难

2014-09-19

The Last Days Of Lehman Brothers

August Price Drop Worst in 10 Years

Chinese media have dubbed the August price drop the worst in 10 years due to its nationwide scope. 8月房价环比跌幅近十年最大 降价潮或持续

China's real estate industry at its lowest point since 2008. 中国楼市多项数据已跌到08年来最低点

The second article also mentions the second round of bailouts now under way in Sichuan, Fujian and Hubei, using tax rebates, subsidies and credit easing. The oft quoted Zhang Dawei of Centaline called the credit easing policies interesting, since local governments have zero control over banking policies.

Shanghai Gold Becomes The People's Gold

Shanghai launches its gold exchange
Premier Li Keqiang, who visited the FTZ on Thursday, said he has been closely following the progress of the international bourse and commended the SGE for launching trading. Li said more efforts are needed to promote the cross-border use of the yuan and also take stock of the various measures being undertaken at the FTZ.

The head of the People's Bank of China, the central bank, Zhou Xiaochuan, and Shanghai Mayor Yang Xiong jointly pushed the button that marked the launch of the first trade. The first matched deal between SGE's international members was completed a minute after the launch, and enabled China's gold market to be linked to the international market.

Video of the opening.


李克强妙解“上海金”:让“上海金”变“百姓金”
Li Keqiang on September 18th at Bank of China, visit Shanghai branch of the FTA. Turning to the international board of the Shanghai Gold Exchange is known as the "Shanghai gold" will start trading the evening, the Prime Minister said that the release of the Chinese continue to expand the financial opening up a strong signal. Since the reform and opening up, Shanghai has "a good drums Amoy gold", gold will continue to release future potential to benefit more people, so that "Shanghai gold" into "the people of gold."

Here's an opinion piece: In order to internationalize the renminbi, China must first internationalize the gold market.

解读黄金国际板:若想人民币国际化必先黄金市场国际化

The article has two charts showing trading volumes in NY, London and Shanghai. The growth in Shanghai below comes before the opening of the international board.

This chart shows the trade volume in London and NY in tons (unit is 10,000) of gold.

Here is Shanghai versus NY trade volume.

2014-09-18

Jingle Mail Comes to Hangzhou

The numbers aren't huge, but it is a relatively new phenomena. It is happening at the high of the market, and one luxury building has seen 5 homes returned in the first half of September.

Since the buying restrictions have eased, many people have come to return homes, but most of them are simply changing the names on the property now that it is not illegal to own several homes.

Of the people who want to genuinely return the home, the reason is lack of funds, often due to sudden financial problems. In some cases the developers help the owner find a new buyer.

The article doesn't say it explicitly, but it sounds like the situation is similar to Wenzhou: investors and businessmen are recouping capital due to cash flow difficulties.


From iFeng: 杭州多个楼盘频遭退房 平均1天1套不少人没钱了

Pan Shiyi: Market Still Adjusting

Summery: real estate not at the turning point, business isn't good this year, only IT firms are supporting the commercial rental market. SOHO is doing well, capturing the IT demand for rental space.

From iFeng: 潘石屹:市场还在调整中

China Launches the International Gold Board

International board opened today with a price of ¥245.28 per gram.

Videos below are in Chinese.

The report below is about the god board as part of the internationalization of the renminbi. International traders do not need to change currency in order to trade on the exchange. Around 1:50, a woman from the Shanghai Institute of International of Finance Center says the new board will allow China to increase its influence and slowly increase its say in the market.



More discussion here.

China's Double Bubble in Housing

China has two different housing bubbles. In the first-tier cities, prices are too high for the average worker. In the third- and fourth-tier cities, inventory is excessive. According to Shanghai E-House Research Institute, inventory climbed 2.8% in third-tier cities in August, but in first- and second-tier cities, the increases were 2.5% and 0.7%.

The solution to both bubbles is lower prices.

From iFeng: 中国楼市目前存在两类泡沫 房价一定还会下跌

China Charts Roundup

Lots of charts over at Solarcycles: Problems in China

New Home Prices Fall 1.1% in August as Buying Restrictions Fail to Stop the Decline

I predicted that by October, nearly all cities would see yoy price declines. Thanks to unfavorable comparisons over last years and falling prices, the number of cities with yoy price declines jumped from 3 in July to 19 in August and a majority will probably be down yoy by the end of this month.

March: 4 cities saw declines in price mom, 10 cities were flat, 56 were up.
April: 8 cities saw declines in price mom, 18 cities were flat, 44 were up.
May: 35 cities saw declines in price mom, 20 cities were flat, 15 were up.
June: 55 cities saw declines in price mom, 7 cities were flat, 8 were up.
July: 64 cities saw declines in price mom, 4 cities were flat, 2 were up.
August: 68 cities saw declines in price mom, 1 city was flat, 1 was up.

On average, prices fell 1.1% in August, up from 0.9% in July.

Prices declines were less volatile in August, with the largest decline 1.7% in Huizhou (Guangdong) and Jinhua (Zhejiang). Some cities fell as much as 2.4% in July.

New commercial homes fell 1.2% overall with the largest drop 2.1% in Hangzhou.

Xiamen remains the outlier; when the October data is out, it will be the only city still showing yoy price gains.

70 city new home price changes by area: below 90 sqm prices fell 1.1% mom; 90-144 sqm prices fell 1.2%; above 144 sqm prices fell 1.2%.

Only 1 city saw existing home prices increase, while 2 were flat. The average change across 70 cities was a 0.8% decline in existing home prices, the same as in July.

70 city existing home price changes by area: below 90 sqm prices fell 0.8% mom; 90-144 sqm prices fell 0.8%; above 144 sqm prices fell 0.9%.

Source:2014年8月份70个大中城市住宅销售价格变动情况
Data below

2014-09-17

Is Central Bank Intervention Hiding Social Mood?

Look for negative mood in the media and it is all over the place. Ebola. ISIS. Unemployment. Crisis on the border. Ebola and ISIS on the border!? President Obama a failure, even his supporters abandon him.

One doesn't have to believe any of the scare stories for it to be a mood indicator. It appears as headlines and popular stories, thus it reflects the public's mood. That disease outbreaks and weak presidents are more likely during negative mood is corroborating evidence of negative mood.

So why are stocks at an all-time high?

What Was That Strange Streak Of Light In The Bay Area Sky Friday Morning?
“I am used to seeing planes early in the morning with lights, but this was different,” said one bystander. “This had something coming out of it, it wasn’t just the light. I could see it spraying something.”
Mosquito fogging in Contra Costa County isn’t done by air, but by truck, and there were no plans to fog for mosquitoes in the area.
The light was also spotted by Barry Formslag of Novato.

“About 6 a.m. this morning, I came out, I was walking down the driveway and I looked up at the sky and saw this little orange ball – above the Redwood trees,” Formslag told KPIX 5.
The phenomenon was also reported in Nevada and Oregon.

KPIX 5 went to Bing Quock of the Morrison Planetarium at the California Academy of Sciences. “Looking at the website of the American Meteor Society, it looks like there are several reports of a large bright object falling through the sky,” he said. “It’s rather unusual in that this one had a rather large tail following behind it.”

U.S. STATE DEPARTMENT ORDERS 160,000 EBOLA HAZMAT SUITS

Backing for Condoleezza Rice to take over scandal hit NFL

CDC issues Ebola checklist: 'Now is the time to prepare'

Texas Sheriff: Reports Warn Of ISIS Terrorist Cells Coming Across The Border

Obama's Approval Rating

And the latest, this op-ed in the NYTimes: The Great Unraveling