2017-02-25

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.

2017-02-24

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%.

2017-02-23

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).

2017-02-22

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

2017-02-21

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.

2017-02-18

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.

2017-02-17

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.