2017-04-24

First Time in Nearly 20 Years: China Runs First Quarter National Deficit

The first quarter of this year, China has a rare 155 billion yuan deficit. "In general, the fiscal deficit in the second half, but the first quarter of this year there is a fiscal deficit, which is not nearly a decade or two, which shows that fiscal policy efforts than before." Shanghai University of Finance and Economics Institute Assistant researcher Wu Huabin told the first financial reporter.

Another number of experts interviewed by the first financial interview that the first quarter of this year, mainly due to financial deficits in the fiscal deficit significantly accelerated, and this year to be scheduled to set a record high budget deficit.

However, positive fiscal policy is not just reflected in the fiscal expenditure overweight. Since April this year, more than 5800 billion yuan tax reduction policies are being implemented, to reduce the burden on enterprises to release economic vitality is also a major point of active fiscal policy. Positive fiscal policy also through the PPP model (government and social capital cooperation), industrial funds, leveraging the trillion social capital, stimulate market vitality, thus stabilizing economic growth.
iFeng: 一季度罕见财政赤字1551亿元 近20年罕见

Opening China's Auto Market

The Salt Lake Tribune: China carmakers may be ‘destroyed’ if foreign caps lifted
Chinese state-owned auto giants such as SAIC Motor Corp. and Dongfeng Motor Group Co. may see billions of dollars in profits evaporate if the government lifts protectionist measures and lets foreign companies operate without a local partner.

China requires overseas carmakers such as General Motors, Toyota and Volkswagen to form joint ventures with locals in order to sell their brands in the world's biggest market.

The policy enacted two decades ago capped foreign investment at 50 percent, helping local brands develop manufacturing expertise while still profiting from sales of foreign marques.

Those alliances seem to be working for domestic automakers, which earned 67 billion yuan ($9.7 billion) with their partners in 2014, according to the latest China Association of Automobile Manufacturers statistics. Yet the government may relax the restriction as it tries to make state-run businesses more efficient and to respond to changes in trade policy being pushed by U.S. President Donald Trump.

China Threatens Trade Retaliation

China Daily: Move to protect US steelmakers is against norms of world trade
It is clear that national security is only an excuse to justify the real aim of blocking foreign products to benefit the domestic steel industry. The probe, which will be led by Ross, could result in recommendations on curbing steel imports that will affect the interests of a number of the US' major trade partners, including China.

Yet reducing imports of foreign steel products will not alter the weak competitiveness of US steelmakers. Instead, if the US does take protectionist measures, then other countries are likely to take justifiable retaliatory actions against US companies that have an advantage over those countries in fields such as finance and high-tech, leading to a tit-for-tat trade war that benefits no one.
China is not tailoring its response to the American people, but to the American elites. This will usually work, but now populism is rising. During a period of negative social mood, a large segment of the population on both sides of the political aisle would consider it a bonus if Wall Street and some high tech companies such as Apple or Google are collateral damage in a trade war.

Steel Crackdown Continues

Reuters: China clamps down on excess steel as Japan decries Trump 'protectionism'
China's Ministry of Industry and Information Technology released a list on Monday of 29 firms that will be removed from its official register of steel enterprises. Most have already stopped producing steel, but some had illegally expanded production or violated state closure orders.

"It's all enveloped in this strategy to improve the financial condition of the industry which has been weighed down by excess capacity for some time, partly as a result of inefficient operations," said Daniel Hynes, commodity strategist at ANZ.

China is aiming to shed between 100 million to 150 million tonnes of excess capacity over the 2016-2020 period. It also plans to shut around 100 million tonnes of low-grade steel production by the end of June.

On Monday, another 40 steel firms have been asked to make changes in areas such as environmental protection and safety.

ChiNext Approaches Post-Peak Low

Bloomberg: China Stocks Sink Most in Four Months Amid Leverage Crackdown
China’s authorities are taking advantage of a strengthening economy to reduce financial-system risk by tightening the screws on leverage. The banking regulator said late Friday it will strengthen a crackdown on irregularities in the financial sector, echoing comments by the securities watchdog just days earlier, while the top insurance official is being investigated on suspicion of “severe” disciplinary violations. The Shanghai Composite has slumped almost 5 percent since closing at a 15-month high on April 11, the biggest loss among global gauges.

2017-04-23

Will Anti-Money Laundering Rules Finally Break Housing Market?

New housing rules require "know your customer" regulations be fully implemented and all money flowing through official bank channels. This piece argues buying a house will expose home buyers to a detailed investigation of their finances, risking exposure of tax evasion or money laundering, ending the illicit demand that helped fuel home flipping.
iFeng: 楼市这项政策将带来巨变 很多人却没有看懂!
In the future, the property market regulation can also require each homebuyer to provide the first payment source, when the time can check your money from wages or bonuses, or parents to provide assistance, or from the down payment or private lending. You suddenly deposited into their account of large amounts of cash, when the time must account for the source, or even check you have no tax.

When the bank is serious, through the way through the supervision of "know the customer", you are basically placed under the microscope. By then, buying a house is a very risky thing. Well, the Inland Revenue Department will know that you are tax evasion, the central bank know you money laundering, the Commission for Discipline Inspection know you bribe, the bank know you use the first mortgage.

Buy a house before you need to first reflect on three days to see if their money is clean or not, is there a loophole. At that time, if you hate who, to persuade him to buy a house, to the eyes!

To that time, if your funds have the slightest flaws, do you dare to buy it? As for the real estate, it is even more clearly seen.

When the government really want to control the price the real estate speculators have no way to escape!

2017-04-22

Excess Inventory Resolved by 2018

iFeng: 高善文:大量中小城市楼市去库存将2018年基本完成
China's small and medium-sized cities real estate inventory reduction will be completed in 2018, this transition marks the basic normalization of economic operation, and will have a significant impact on the large class of asset markets.

...In 2016 due to the impact of stimulus policies and demand overdraft, real estate inventory consumption is undoubtedly very fast, and unsustainable. But if the inventory reduction maintains the pace of 2015, then by the first half of 2018, the third- and fourth-tier level of "unsatisfactory" inventory will drop to near zero.

...A topic worthy of discussion is that many people believe that since 2016 the focus of the city's real estate market is re-bubble. If the price from the point of view, the situation is undoubtedly the case. However, from the start of the new changes to see the problem, these cities so far there is no rapid accumulation of inventory, which is very worthy of vigilance.

Summary In the late 1980s, after the United States in 2005, and China since 2010, a key feature of the real estate bubble was the rapid expansion of real estate investment and the subsequent accumulation of large inventories. In fact, it is precisely because of the rapid accumulation of inventory and difficult to deal with, in the housing bubble burst, only the formation of a serious bank bad debts, excess capacity and price adjustment.

From this point of view, since the beginning of 2016 in some second-tier cities, housing prices rose rapidly at the same time, the rapid expansion of supply and inventory accumulation is not obvious so far, rising house prices mainly reflects a serious imbalance between supply and demand.

With the start of demand regulation, this imbalance is expected to ease in the short term, but the long-term correction of this imbalance will undoubtedly require a more robust response from the supply level, or a fundamental reversal of the trend of population movements.

S&P 500 Best Case 4pc Ann Return Through 2021

John Hussman puts out this chart of stock valuation (as a percentage of gross value added) and the subsequent 12-year return for stocks. Currently, it forecasts a 12-year return of near 0 percent. If I extrapolate off the 2009 low, I get the S&P 500 at 2750 in 2021, an annualized gain of 4 percent for the next four years. That is the best case scenario. On his chart, the red line would defy history and float sideways and higher until it meets the 2009 peak figure, avoiding a correction or bear market in the interim.

Hussman: The Value of Dry Powder