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Liu Junluo Calls For Massive Stimulus; Slams China's Idiot Economists for Falling into Fed & Shinzo Abe's Trap

Liu Junluo was a trader by profession. He has written several books such as "Who Kidnapped China's Economy." He is a popular blogger and author. He takes the opposite opinion to what you normally see in the Western blogosphere, where China is smart and the West is dumb. In his view, the Americans are smart and the Chinese are stupid, constantly being played for fools. He also leans towards nationlism, a popular opinion among Chinese netizens.

2014 China urgently needs a massive fiscal stimulus
People still remember the end of 2008, China launched an unprecedented 4 trillion fiscal expansion. By the end of 2008, Chinese economists are loudly shouted 4 trillion fiscal stimulus is how important and wise. Indeed, so far as many Chinese are still Economics 2008 4 trillion fiscal expansion excuse.

Today, the reality is our U.S. stock market hit a record high and the Chinese stock market into a catastrophic crisis.

In 2007, when the Chinese stock market 4,5 thousand points I pointed out - the future of the U.S. government strategy is made in China to the 2000 stock market crash the following 2008 after China's real estate boom into the most crazy and by the end of 2008. At the time, this view is a fantasy for the Chinese people things. However, in September 2008 to allow the U.S. central bank Lehman Brothers went bankrupt. As a result, by the end of 2008 China's stock market plummeted to 2000 points or less on schedule. So, we immediately launched a 4 trillion foolish fiscal expansion. Meanwhile, China is also scheduled today in unprecedented real estate bubble.

September 2008, the U.S. Treasury Department could have easily rescued Lehman Brothers with $20 billion. So, when the U.S. Treasury natural crocodile tears that he has no money. The $ 20 billion for an economy the size of $ 15 trillion in national currency and the country has the world right, is simply a fraction of thing. In this way, we should know the 2008 4 trillion fiscal expansion is the Chinese being fooled by America.

Today, Chinese economists desperately oppose China launched a massive fiscal expansion. Talking about reform, talk about how there can be no creation without destruction, after the crisis China can have hope, and so on. The problem is that China's central bank and Chinese economists are idiots, fooled by a handful of Americans at the end of 2008. Now, the United States and Japan are waiting for emergency fire Chinese real estate crash and debt crisis. Idiot Chinese economists again want to sacrifice themselves for the U.S. central bank and Japan's Shinzo Abe.

At present, China's central bank already missed the opportunity to release money. China can only rely on an immediate 4 trillion yuan strategic fiscal expansion to counter the United States and Japan.

2014 edition confront the mind with the mind

(1) all of the state-owned shares is injected into the Social Security Fund;
(2) the establishment of grain and oil reserves with more than 1 year's supply;
(3) a substantial increase in personal income, slash the personal income tax;
(4) to stop the stock market IPO, allowing only military, agriculture, new energy enterprises in the equity financing;
(5) stop mixed-ownership policy;
(6) to provide rental subsidies and free food to low-income families;
(7) start to pay for universal health care;
(8) start the 2014 Chinese version 4 trillion fiscal expansion into the military, agriculture and new energy;
(9) start 2014 Chinese version of QE, which is China's central bank begins large-scale buying of Chinese long-term bonds.
(10) re-revised steady GDP growth of 7.5 percent catastrophic error strategy should be based to a substantial increase in GDP growth rate of 10% correct strategy.

And in February 2008, I published an article in Sina blog , "Mr. crash - the Great Depression, Bernanke and short," the article pointed out - the U.S. central bank will soon manufacture the stock market crash and the global economy, therefore, China should immediately confront the mind with the mind. At that time, I suggested, "February 2008 edition confront the mind with the mind," the policy is as follows:

February 2008 edition confront the mind with the mind

(A) establish a $ 300 billion fund stock tray, allowing banks to buy shares of listed companies, to suspend futures;
(B) the purchase by the public investment vigorously turning public benefits;
(C) to provide rental subsidies to low-income families, a "total social housing";
(D) to stop the appreciation of Renminbi;
(E) public ownership of national resources;
(Vi) the privatization of monopoly industries;
(Vii) the elimination of export tax rebates, export of resource products to increase high export tariffs;
(H) a substantial increase in personal income significantly longer significantly longer significantly reduce individual income tax;
(Ix) the establishment of $ 300 billion global resource reserves;
(J) the establishment of a special fund $ 300 billion in transition;
(Xi) the establishment of small government, big market framework;
(Xii) the establishment of the RMB currency of target.

February 2008, China's stock market is still popular in the 4500's. No Chinese feel China has been under the control of the United States began systematically. If, in February 2008 China to launch immediately above the 12 policy. So, by the end of 2008 China's stock market will not fall below 2000 points to the end of 2008, a disastrous 4 trillion fiscal expansion will not be available. Thus, today's Chinese economy will not fall into the absurd unprecedented real estate bubble. How can it be that, step by step, the nation was led by the nose by Americans?

So, as I have been saying the last ten plus years - Americans are not clever, clever is the old adage "mediocrities lead the nation to disaster."

"2014 edition" the 10 policy must be synchronized immediately launched, one cannot be too little, one cannot be too much.

Of course, China's future is bound to fail. Because my 2014 Edition 4 trillion fiscal expansion and China QE policy is opposed and mocked by all Chinese economists.

So, can only say that the U.S. central bank and Japan Shinzo Abe are laughing to their heart's content. Therefore, China's central bank and the idiot Chinese economists are just the U.S. central bank and Shinzo Abe's faithful unsung heroes.

This is China's great tragedy. Originally there should be a strong China, or inevitably would be a strong China, but today no one understands the U.S. central bank and Shinzo Abe's strategy, can only be caught in the United States and Japan's set up, entering the trap and suffering a crushing defeat.

Liu Jun Luo
2014 Thursday, April 17, 2009

America's Political Shift: The Opposite of the Narrative

On the Precipice of a “Majority-Minority” America: Perceived Status Threat From the Racial Demographic Shift Affects White Americans’ Political Ideology
The U.S. Census Bureau projects that racial minority groups will make up a majority of the U.S. national population in 2042, effectively creating a so-called majority-minority nation. In four experiments, we explored how salience of such racial demographic shifts affects White Americans’ political-party leanings and expressed political ideology. Study 1 revealed that making California’s majority-minority shift salient led politically unaffiliated White Americans to lean more toward the Republican Party and express greater political conservatism. Studies 2, 3a, and 3b revealed that making the changing national racial demographics salient led White Americans (regardless of political affiliation) to endorse conservative policy positions more strongly. Moreover, the results implicate group-status threat as the mechanism underlying these effects. Taken together, this work suggests that the increasing diversity of the nation may engender a widening partisan divide.

This is the exact opposite of "the narrative," the story that the media fits news events into. The narrative says the GOP needs to become more like the Democrats and attract minority voters, shift its politics to the left if it hopes to win in the future. Reality says the opposite; white voters see the Republican party as the white party, and since the Republican party is conservative, they express greater conservatism. Given that those changes will increase and become more apparent in the future, the Republican party is going to become more conservative, not less, and that will help them win elections.

Even this story fits into the narrative though. What is happening is not so much a "perceived status threat" as the victory of identity politics. In fact, I'd argue that whites would not be increasingly conservative if whites were allowed organize politically and socially, the same way Hispanics, Asians and African-Americans organize. More on this at the end.

America's New Demographics

Whereas in the 1960s, America was 85% and 10% black; in 2050 America will be 47% white, 30% Hispanic, 13% black and 9% Asian. The main dividing line in American politics is increasingly race and ethnicity, with religion also playing an important role. In California, the latest battle was between Hispanics and Asians. Friction lingers among Asian-Americans over affirmative action debate.

Since the Democratic party aimed to win the growing populations of minority voters, this leaves the Republican party as the white party.

How Democrats Can Compete for the White Working Class
For Democrats, one of the more worrisome findings that Democracy Corps turned up is that these voters are far more suspicious of government than the general public. This is in contrast to Democrats generally, who are by most measures far more pro-government than the rest of the electorate, according to American National Election Studies,

Democracy Corps found that less well-educated whites agree, by a huge 46.2 percentage point margin, with the statement “When something is run by the government, it is usually inefficient and wasteful.” This is 11.6 points more than all voters.

Similarly, the general public agrees that “It is the responsibility of the government to take care of people who can’t take care of themselves” by a 19.5 percentage point margin, while whites who did not go to college agree by half that.

Asked to choose between two statements — “I’m more concerned we will go too far in cutting spending and will cut off programs that middle- and working-class people rely on” or “I’m more concerned we won’t go far enough in cutting spending and our deficits will continue to grow” — all voters came down firmly on the side of worrying about cutting too much, 58-42. The white, noncollege voter was evenly split.
Toss in the demographic numbers and it is not hard to see what is happening. White voters are beginning to see themselves as a group, the same way African-Americans, Asians and Hispanics see themselves as groups with group interests.

The above author is optimistic though:
The declining commitment of white noncollege voters outside the South to conservative values has been masked, politically and culturally, by the continued ferocity of sociocultural and racial conservatism among working class whites in the South. But insofar as the second demographic transition is taking hold among these voters in the North, the Midwest and the West, Democratic prospects may well be better than national polling data suggests.

This article disagrees:
Democrats Try Wooing Ones Who Got Away: White Men
Now, as chairman of the Democratic Party in Oakland County, Michigan’s second largest, Mr. Houston is finding out how difficult it can be to persuade other white men here to support Democrats, even among the 20 or so, mostly construction workers, who join him in a rotating poker game.

...... Even in places like Michigan, where it has been decades since union membership lists readily predicted Democratic votes, many in the party pay so little attention to white working-class men that it suggests they have effectively given up on converting them.
And now it may be too late.
Some white men have proved to be within reach: single men, college students and graduates with advanced degrees, the nonreligious, and gay men. But working-class married men remain hardest to win over and, unless they are in unions, get the least attention — to the dismay of some partisans.
The unions were explicitly racialist in their policies throughout U.S. history. If race does become the dividing line, unions will also break apart.

The problem for Democrats is that as whites increasingly join the rest of the country practicing identity politics, they are increasingly becoming non-white.

This article from a right-wing site notes how Democrats fielded many white candidates for the 2014 election. The Democrats’ 2014 Whitewash. The real story buried within is how the primaries played out. In Texas, the Hispanic districts voted for the Hispanic candidate; the white districts for the white candidate. However, the Hispanic candidate had no campaign, just an Hispanic surname. This is similar to the 2010 primary victory of Alvin Greene in South Carolina, who won the Democratic primary for U.S. Senate despite having no campaign.

Although the left is considered pro-diversity, America's most left-wing cities are also its whitest cities, places like San Francisco, Portland, Seattle and Minneapolis.

Among the media, academia and within planning circles, there’s a generally standing answer to the question of what cities are the best, the most progressive and best role models for small and mid-sized cities. The standard list includes Portland, Seattle, Austin, Minneapolis, and Denver. In particular, Portland is held up as a paradigm, with its urban growth boundary, extensive transit system, excellent cycling culture, and a pro-density policy. These cities are frequently contrasted with those of the Rust Belt and South, which are found wanting, often even by locals, as “cool” urban places.

But look closely at these exemplars and a curious fact emerges. If you take away the dominant Tier One cities like New York, Chicago and Los Angeles you will find that the “progressive” cities aren’t red or blue, but another color entirely: white.

In fact, not one of these “progressive” cities even reaches the national average for African American percentage population in its core county. Perhaps not progressiveness but whiteness is the defining characteristic of the group.
Don't look at what people say, look at what they do. Some whites are becoming increasingly conservative in response to changing demographics. Other whites are becoming increasingly liberal and moving to segregated cities that the liberal dominated media hail as the great cities of America.

From last week on Bloomberg: Why Are Liberal Cities Bad for Blacks?

The mainstream of American political discourse is confused because it cannot deal objectively with the changing face of America. It cannot deal with the fact that ideology is taking a backseat to identity or the fact that it appears the future is a fractured and segregated one. In part this is because "the narrative" tells a very different story than reality. As the shift unfolds in reality, American politics becomes more bizarre as the elite in politics and media try to hold power by turning up the volume on ideology. This extends all the way into foreign policy, where the bizarre antagonism of Putin is the top strategy at the moment due what is dubbed World War G.
Putin’s moves were not isolated events. They fit into a pattern of behavior over the past couple of years that deliberately distances Russia from the socially and culturally liberal West: laws giving official sanction to the terrorizing of gays and lesbians, the jailing of members of a punk protest group for offenses against the Russian Orthodox Church, the demonizing of Western-backed pro-democracy organizations as “foreign agents,” expansive new laws on treason, limits on foreign adoptions.
The U.S. sought to strike a blow against Russia in Ukraine, a counter strike to Russia's success against Western cultural incursions. Instead of winning Ukraine, Putin upped the stakes by directly confronting the West and expanded Russian territory. (Not to mention the own goal by the Americans, whose actions elevated the far-right in Ukraine.)

Putinism and the Anti-WEIRD Coalition
I’ll elaborate what Putinism actually is, but before I do, it’s important to understand why President Obama and countless other Westerners cannot see what is right before them. Putin and the Kremlin actively parrot their propaganda, they are doing anything but hide it, yet we still cannot make it out.

This is simply because we are WEIRD. That’s social science shorthand for Western, Educated, Industrialized, Rich, and Democratic – and nobody is WEIRDer than Americans. In the last several decades many Americans, and essentially all our elites, have internalized a worldview based on affluence, individualism, and secularism that makes us unique, globally speaking. So much so that we seem unable to comprehend that there actually are opposing viewpoints out there.

Barack Obama, by virtue of his diverse ethnic and religious background and elite education, is almost an ideal stand-in for the WEIRD demographic, as he embodies so many things WEIRDos admire: education, affluence, diversity, progressive social views, etc. He comes close to being almost the perfect post-modern American, which perhaps is why so many Americans of that bent adore him deeply. Thus when President Obama says he detects no ideological rivalry with Putin’s Russia, he undoubtedly speaks the truth as he sees it.
This is also happening within America due to the demographic shift. The elite have their worldview, but increasingly the world and even the United States itself do not resemble it.


Home Speculators Don't Give Up, They Move

Baoding is a city just to the south of Beijing in Hebei province. It was the capital of Hebei until moved to Tianjin during the Great Leap Forward. During the Cultural Revolution, the capital moved back to Baoding, but Beijing decided it didn't want the city's troubles repeated in Beijing,so it moved the capital of Hebei south to Shijiazhuang. Some background on the events is here and here.

Baoding always struck me as a potential suburb of Beijing, and now there is a plan now (mostly from the Baoding side) to integrate the cities by moving some government offices from Beijing. There's nothing concrete yet, but that hasn't stopped a rush to buy property in Baoding, sending home prices up by as much as 1000 yuan / sqm. Homes in Baoding sell for well under 10,000 yuan /sqm, which makes it very attractive to speculators who see prices converging with the Beijing city suburbs, where prices are far above 10,000 yuan / sqm.

Chinese media coverage has been mixed, which includes highly critical. Here's the header for the iFeng page devoted to the topic:

The farce is the sudden rush to buy property and the fact that nothing has been approved in terms of Baoding integrating with Beijing. It is more than a rumor, but less than reality.

The top story on that iFeng site as of today is a government investigation into real estate advance sales. 保定楼市飙涨过后 政府严查违规预售商品房. Apparently some firms with only land permits and planning approval sold homes to buyers. Who are these home buyers?

Here's Caixin's coverage of the story.

Hebei Hopes to Turn Cities into Satellites by Pushing Them into Beijing's Orbit
Property agents in Baoding, in the northern province of Hebei, have been busy answering the phone lately. For the past few weeks, calls have come one after another.

Tong Yonghua, an entrepreneur and head of the Zhejiang Business Association of Baoding, said his organization has been showing around fellow businessmen from the eastern province over the past week and many of them were interested in buying apartments.

"Seven or eight of us association members have already put deposits down on some 50 apartments," said Tong, who is from Wenzhou, the unofficial entrepreneurial capital of the country. "This is the best opportunity in Baoding in years."
Wenzhou property prices have been falling for years due to the bursting of the housing bubble and Zhejiang is one of the epicenters of the current bubble's burst, yet folks are still lining up to speculate on property. There have been price cuts on new homes in many areas, but the whole housing market hasn't cracked yet except in some places such as the ghost city in Ordos. In terms of psychology, the media and average home buyer are turning pessimistic on housing, but the speculators are still pouring in.

The housing market in Baoding heated up after media reports that provincial officials in Hebei want to develop some cities into satellites of Beijing, and Baoding might host some central government offices.

A Hebei official has said the idea is still just that, and that the central government has not approved anything.

Lang Xianping Explains Renminbi Devaluation to Studio Audience

From April 14, 2014.

At the beginning the host cracks some jokes about what is money? For women it includes credit cards...

2:00 He asks what is the world's most stable currency? Some people shout out U.S. dollars, he says it is definitely not U.S. dollars. It is in fact Yap Island, where they use stones for money. The largest is 8 tons. That is stable money. On Yap island, you don't need to buy fixed assets, your money is a fixed asset. It's also very hard for their corrupt politicians to move their money overseas. He goes on to crack some more currency jokes on hyperinflation and a case in Zaire where the money from before 1997 could still be used, but the former dictator Mobutu's head needed to be cut off. [I tried looking that up but didn't find anything. Although searching for head cut off came up with lots of examples.......]

5:00 The most moving (as in emotionally) currency is renminbi. It valuable. The best thing is to earn renminbi in China and spend it in America. This is because Americans are very poor, so you can buy things cheaply there. [He is referencing the fact that America has a lower cost of living.] He says his girlfriend told him to stop playing the forex market. A brand name handbag in China is 10,000 yuan, in America it is 7,000 yuan, every time we buy one, we make 3,000 yuan.

6:00 Enter Lang Xianping.

7:00 At 2013 Year End the world's 8 biggest banks all forecast a rising yuan. Including Barclays, Nomura, Credit Suisse, HSBC, Morgan Stanley, Goldman Sachs and UBS. They forecast it would rise to 6 to 1 U.S. dollar. In Q1, the yuan depreciated 2.64%.

He says he doesn't look at the yuan, he looks at the results of the games that China, the U.S. and E.U. play. A new "Three Kingdoms." The U.S. is the economic leader. Europe and China are under U.S. pressure fighting for survival.

8:50 He shows the exchange rate with a red line showing the banks' forecast. The bounce in Q1 reversed the gains from 2013. Why? He says this is the inevitable result of the struggle between the "Three Kingdoms."

9:50 The new "Three Kingdoms" map.

In 2005, renminbi began appreciating. America wanted renminbi to go from 8.27 to 4.10. A rise of 100%. At the end of 2013, renminbi was 6.1, appreciation of 36%, far from 100%. Why didn't American continue to pressure China? It's because China's prices have risen as well. Renminbi has no more room to go up. He uses the Big Mac Index to illustrate. In 2005, a Big Mac was $1.27 in China. Today it is $2.74. Doesn't this mean the dollar depreciated? It depreciated 115%? Or renminbi doubled? So by the Big Mac Index, America's goal has been accomplished.

11:40 After this pressure what happens? Point two is most important. “Three Kingdoms” games officially start. The American economy is the first to pick up. In 2013, U.S. GDP growth in Q1-Q4 is 1.3%, 1.6%, 2%, 2.6%。 Accelerating growth. Unemployment falls to post-crisis low of 6.7%. Investment increased 2.3% in 2013, and this year forecasts are for growth of between 4.9% and 7.3%. Finally, America's stock market explodes higher. Last year the S&P 500 gained 31.8%.

If you see these indicators, what will you do? Sell your currency for dollars and invest in U.S. stocks. This causes the currency to depreciate. South Africa, Turkey, Brazil, Russia, their currencies devalued greatly. The whole world depreciated. So renminbi falls 2.64%, you think it is strange? Euro depreciates, you think it strange? It's not strange because the U.S. economy is rebounding it will lead the dollar to rebound.

14:00 Now today we most want to pay attention to the Europe and China. In 2012, Europe GDP growth is -0.6%. Last year, -0.4%. In February of this year, the unemployment rate is still at historic highs, 11.9%. What will Europe do? Print money. Europe's inflation rate is only 0.5%, their target is 2%. So they have plenty of room to print. This causes the euro to depreciate.

China? It's economy also has great problems. This year, 11 provinces including Sichuan and Henan will invest 1.6 billion yuan. In a few years, 15 provinces will invest 18 billion yuan. Invest in energy, transportation, water, environmental protection, etc. Why invest? To stimulate growth. Now if these 15 provinces will in future invest 18 billion yuan, where will this money come from? Printing money! So both China and Europe are printing money. But China is in worse shape because we have 4 big credit problems.

1. Private companies can't access capital (broke their capital chains)
2. Real estate, coal and mining company trust crisis
3. Local government might have a debt crisis

All these three borrow whose money? Banks.

4. So the 4th crisis is a banking crisis. If the 4 big banks default, what will the government do? Print money! Of course renminbi will depreciate.

16:50 Then how will we invest? U.S. dollars? Gold? Euros? First gold. The most recent 11 investment bank forecasts for gold in 2014. The lowest is $1050, the highest is $1300. Average of $1204 per ounce. This is their forecast, not mine.

17:50 Now dollars. The forecast is for it to continue rising. The dollar moves inversely to gold. If the dollar rises, there's a 70% chance that gold will fall. This is the current status quo.

18:30 Euros. Average forecast is for the euro to fall to $1.295 versus the dollar. It will depreciate 5.8%. This is the investment banks' forecast.

19:00 Renminbi. The forecasters all got it wrong. Turns out no one dared make another forecast. Why don't they dare forecast? Because the more they see, the more they do not understand. If you only look at renminbi, it should rise. Then why did it suddenly drop?

19:30 This is what I say. Only from a global macroeconomic perspective can you fully understand the yuan's current situation. I don't want to give too many people's opinion. So in the end, I put a big red question mark, because all the big banks say they cannot forecast the yuan exchange rate.

20:00 Question time. First one is about yen depreciating 30% in 2013 and the stock market rising. If renminbi depreciates, how do we protect our assets?

Lang Xianping answers: China's situation is very complex. Of course, exports will be helped. But the profits of publicly listed companies cannot be solved by depreciation. And the small depreciation of 2.64% has little effect, doesn't help the economy's problems. As for stocks, there are also economic reforms that need to be successful. So these are not easily solved by the exchange rate.

Next question is about how the central bank controls the exchange rate.

Lang Xianping: For the past 8 years, renminbi went up, the best investment strategy was to buy renminbi, stick it in real estate, WMPs or trusts and then exchange it back to dollars. But the situation has changed.

Next question is about depreciation helping exporters and the economy to grow at 7.5%.

Lang Xianping: Cannot rely on consumers, consumption is depressed. Investment is paid for with money printing. Then there's exports, which is helped by depreciation.

A final question on profiting from depreciation doesn't help the economy.

In the discussion afterward, the host brings up that for 9 years, everyone expected appreciation and planned for it; when renminbi falls, no one is prepared. Also how the yen fell 30% and America didn't do much, but renminbi falls 2.64% and America is very concerned.

Is the exchange rate a political or economic problem? Lang Xianping says every exchange rate it a political question, not only an economic one.

An audience member says if renminbi depreciates, her child can go to graduate school in America. If it appreciates, her child can go to undergrad in America too.

Lang Xianping around 42:00 compares the yuan's small drop to the big drops in other emerging market currencies and says if that happens, there will be huge problems. He doesn't want to think about it.

At the end the host mentions there are now Taiwan aunties buying renminbi. (a reference to China's gold buying aunties)

China's Aunties Pulled Forward Gold Demand into 2013; 2014 Will See Weaker Growth

Chinese gold demand overdraft Aunt difficult now hunters scene
"China's real consumer demand growth will slow, but overall still maintain growth, investment in gold bullion gold jewelry consumption is still the subject if the Chinese consumer demand slowdown, the price of gold will bring some pressure. "said Wang Jin Qing, In February this year, China's major distribution companies Jewelers sales rose only 12.10%, its lowest value since February five years, expected this year, China's gold consumption without major highlight, the effect of the price of gold is also more limited.

In addition, the World Gold Council believes that after 2013 China's gold demand hit a record high and become the world's largest gold market, Chinese demand in 2014 will likely appear consolidation, because "Chinese Mother" early overdraft needs.

English coverage: Gold: Chinese Demand is Strong, But Strong Enough?
The catalyst is a report overnight by the World Gold Council predicting a “consolidation” in China’s gold demand during 2014 — for consolidation read slowdown. The report didn’t give a forecast for this year’s Chinese demand, but the WGC’s Albert Cheng tells the Wall Street Journalhe expects demand to run in place at about the 2013 level of 1,187 metric tons.

The other factor that’s spooking gold traders this morning is highlighted by the Financial Times: The surprising swift rise in the use of gold as collateral in financing deals, which may have reached 1,000 metric tons, according to the WGC. The report makes clear this use of gold is tied to the country’s shaky shadow-banking system:

The use of gold for purely financial operations is a form of demand that represents a small part of the much wider growth in shadow banking, which while entirely legal, is considered a grey area. Not surprisingly, there is little hard data on the shadow banking sector but J.P. Morgan recently estimated it at RMB46tn (US$1.7tn), equal to about 84% of China’s GDP. No statistics are available on the outstanding amount of gold tied up in financial operations linked to shadow banking but Precious Metals Insights believes it is feasible that by the end of 2013 this could have reached a cumulative 1,000t, equal to a nominal value of nearly $40bn.

To put the $40 billion figure in perspective, it’s equal in size to the heavy 2013 exchange-traded fund outflows when led the metal’s 28% price loss for the year.
The first thing to keep in mind is rehypothecation. Who knows how many tons might actually exist. There are already cases of people rehypothecating assets multiple times, including an entire office building.

The second thing to keep in mind is that China's central bank wants gold moving into the country, either in its hands or the hands of its citizens.

The third is that it is easier to buy gold than foreign currency in China.

If there's a major financial crisis that sees the yuan weaken, gold will catch a bid.

Hangzhou New Home Prices: 8 Districts Down, 2 Up Big

Location, location, location.

杭州楼市降价进行时:10区8降 两区仍坚挺大涨逾两成
This chart shows weekly new home prices in 10 districts of Hangzhou. The week to week volatility is incredible due to the changing makeup of the market each week. Only one of the two areas seeing big price increases has seen a steadily rising price; the other saw prices drop earlier in the year.

Real Estate Data Reveals Sales Slump

A Chinese article claims a jump in housing inventory is the result of plunging sales.

Bureau of real estate data big secret exposed; area of ​​520 million square meters of commercial housing for sale
Real estate development before March sales data released by the National Bureau of Statistics show that in March before the end of March, housing sale area 521,630,000 square meters, an increase of 7.66 million square meters more than the end of February. Among them, the Sale area increased 4.92 million square meters.

The increase in inventory is closely related with the sales slump. Data show that in January-March, area of ​​201.11 million square meters of commercial housing sales, down 3.8%; decline expanded 3.7 percentage points higher than 1-2 months; where residential sales fell 5.7%. Commercial sales 1.3263 trillion yuan, down 5.2%, a decline of 1.5 percentage points compared to expand 1-2 months; where residential sales fell 7.7%.

"From the data, has been basically clear the market in the fourth quarter of 2013 have peaked, volume and price gains will continue to fall." Central Plains real estate market research director Zhang Dawei analysis, this time to see more than a month from the Spring Festival, the current housing prices between the game and the customer base has seen a subtle change. In the credit tightening, since under the impact of various factors such as housing supply, the supply and demand sides of the market anticipation has emerged steering, buyers wait and see mood increase, while housing prices, "none other running volume" psychological getting the upper hand, the supply and demand pattern has quietly changed.

His analysis, in 2013, there have been the property of differentiation gradually spread to a second-tier cities. Market data changes from the beginning to see, a second-line adjustment trend more obvious. Currently, Hangzhou , Nanjing, a small part of the real estate and other second-tier cities, there have been price adjustments. First-tier cities, there have been local price stagnation.

National Bureau of Statistics data also confirms this obvious "distinction." Data show that in January-March, the eastern area of ​​96.99 million square meters of commercial housing sales, down 10.0 percent, a decline of 4 percentage points higher than the expansion in January-February; sales of 798.1 billion yuan, down 11.5%. Central china area of ​​53.23 million square meters of commercial housing sales, an increase of 6.8%; in the West region area of ​​50.89 million square meters of commercial housing sales dropped 1.0%. Thus, in the first- and second-tier cities of the East, the decline in momentum is more pronounced.

Statistics show that in the first quarter of this year, the Guangzhou city's total net signed 16,194 primary residential units, fell 40 percent year on year, the total turnover of the area of ​​1.846 million square meters, a 42.5 percent drop.

Dawei analysis, the future will be more and more cities are facing price adjustment pressures. In the second quarter, including the possibility of a further cut in Hangzhou and other cities have, and other cities with the increase in supply, demand the sidelines, the market will once again cool.

Sluggish sales market also affected the acquisition of real estate and land development companies. Data show that in March before new housing construction area of ​​290.9 million square meters, down 25.2%, of which residential new construction area of ​​212.38 million square meters, down 27.2%. Area of ​​185.2 million square meters of houses completed, a decrease of 4.9%, which was completed residential area of ​​139.1 million square meters, down 7.3%.

Centaline research statistics: As of April 15, the nation's major urban land transactions in the continued slowdown appeared after the Spring Festival. Tier cities March monthly turnover of land amounting to 33.21 billion, in April the first half turnover of only 24 billion. Were lower than the prior year. Land volume in April and second tier cities also fell significantly in the first half, only the first half of April to sell 27.8 billion, much lower than before.

According to Centaline, March, ten benchmark housing prices in the country's 40 major cities to purchase only the amount of 6.293 billion yuan, nearly 19-month low. This is mainly due to the supply of land is low in March, the Spring Festival this year, coupled with a strong atmosphere watching the property market, housing prices in a sales situation is not under good circumstances, to purchase land who are more cautious


Trust Investors Protest

In addition to real estate rage, there is now trust rage.
Chinese Police Confront Trust Investors Demanding Repayment
“They told us the interest rate is three times the bank saving rate,” Wang, the woman whose husband had invested in the Songhuajiang River trust, said. “They said they wouldn’t risk the bank’s reputation. It’s our hard-earned money.”

China's Soft Power Grows

China's media control spreads to Taiwan, Hong Kong
The protest and its fallout come amid a growing fear among many Taiwanese that China's influence is already starting to spread to the local media. Highlighting these concerns is the brewing controversy over how some major Taiwanese bookstores have decided not to sell a book by Yuan Hongbing, a Chinese defector and author.

Titled "Shafo" (killing a Buddha), the book was published last autumn. In it, Yuan claims that the 10th Panchen Lama, a leader of Tibetan Buddhism and a living Buddha, died suddenly in January 1989 not of a heart attack, as the Chinese government says, but because he was assassinated at Beijing's behest for political motives.

In November last year, Yuan spoke out against Eslite Bookstore, Taiwan's largest bookstore chain, and other shops for not selling the book. They defended their actions by pointing out the highly sensitive nature of the book. News reports later said many other Taiwanese bookstores also became cautious about carrying Yuan's books, and not just Shafo.

......In Hong Kong, meanwhile, a series of unsettling incidents has taken place since the beginning of the year. Commercial Radio Hong Kong, for example, abruptly fired the popular host of a current-affairs program in February. That same month, a former chief editor of the Ming Pao Daily News, an influential daily, was attacked by unknown assailants and seriously injured. Both journalists are known for being critical of Beijing's heavy influence in the Hong Kong government.

Relevant: China Film takes 1st stake in Hollywood movies
"Seventh Son" is a fantasy adventure starring Jeff Bridges and Julianne Moore that's scheduled for release on Feb. 6, 2015. "Warcraft," based on a popular video game series, is slated for release March 11, 2016.

If approved for release in China, China Film would distribute the movies under current rules and regulations for foreign films, which are limited to just 34 a year. The deal calls for China Film to be credited on the movies.

China Film, which is planning to go public, owns stakes in movie theater chains that make up half of the country's box office receipts. Its parent, China Film Group, is the gatekeeper for foreign studios because it controls film imports and co-productions.

The projects are the first since Legendary and China Film teamed up about a year ago to produce global blockbusters. It's one of a number of recent tie-ups between companies in the world's two biggest movies markets.

China doesn't have to buy in to influence Hollywood though. There are rumors that certain films are denied entry due to unfavorable comments on China made by the director or stars in a film. There's also this example. It comes from the presskit for a movie Dragon Day, so it comes with a grain of salt.

The concept of a massive cyberwar from China taking over the US brings to mind big Hollywood effects and big budgets. Naturally, I think there is a story that can be told at that level, and considered it. We even had some studios interested in the script, but they told me “you can’t have China be the bad guy”. They wanted me to rewrite it to make North Korea the invaders. These studios were afraid of offending their Chinese financiers. Plus, I knew with a larger studio, the script could easily go into development hell like my previous script, and I wasn’t ready for another round of that.

Invest In A Trust for Only 100 Yuan

This story doesn't represent the market situation for trusts, rather the Wild West atmosphere that sometimes bubbles to the surface in China. A website in China offers to let investors buy into trusts for as little as 100 yuan, well below the 1,000,000 yuan minimum that most trusts require. The firm pools the money and then invests at the required minimum with a trust company. The trust companies have all distanced themselves from the firm. It's unclear how much money the firm has raised, but it sounds like it could be shut down shortly, particularly since the the most recent shadow banking regulations specifically targeted investment pools.

Secret: one hundred yuan to buy the trust is it for real?
Recently, a company called 100 Trust website attracted attention, this site claims that investors need only 100 dollars, you can buy the original threshold of up to one million of trust products. One hundred yuan to buy the trust, what fly do not fly it?

100 on the official website of the Trust, "100 yuan to vote", the words "Trust is the balance of treasure" abnormal eye-catching website description also lists several advantages of high yield, low risk, high flexibility, low threshold, etc. Select Trust 100 platform offerings, the expected annual rate of return as high as 8% to 12%, the investment threshold as low as 100 yuan each, and simple procedures.

Trust 100 Website Customer Service Representative: You just register as our member, to indicate when you can enjoy the relatively satisfactory products on our website above, and then invest on it.

As of April 14, 100 in the Trust website home page, showing the four raise investment trust products, the amount ranging from one million to two million, three finished products have been raised, leaving a product, 1000000 The amount in five days, has raised more than 900,000 in proceeds of the recording site, there are more than 100 investors, the minimum investment amount $ 100, maximum of $ 100,000. Trust Service 100 website said they signed with investors through the website agency Investment Agreement, signed a subscription agreement with the issue of trust trust products, but this agreement in their mouth, and did not show on the website, this customer service staff explained only spent the money to see the agreement.

Trust 100 customer service: to the time after you purchase is successful, we will put the contract payment to your personal account allows you to view, if no investment is temporarily not open.

So these trust products distribution company, and whether this cooperation Trust 100 sites of it, reporter then contacted several trust companies, they both said that sales activity did not trust 100 authorized and recognized.

Thailand Trust Co., Ltd. Product Manager Mr. Wang: We have looked for it, it does not withdraw what can I do? We will soon have a public statement, which is illegal, we do not make it illegal to do this thing, it does not commissioned sales in this area.

Aviation Trust Co., Ltd. Wu: our side there is no cooperation with the Trust 100 this site, and then we had just a moment to negotiate with this site, we ask them to withdraw the product as soon as possible.

Sichuan Trust Co. Schilling: You say the starting point of our starting point here is one million hundred trusts, also seen on other financial sites before us, but this has nothing to do with us here.

Trust in raising products 100 sites listed, has been associated with trust in his official website announcement, pointing out unauthorized collection of personal finance site for individual funds, mob subscription products, has violated the CBRC program management of the trust prescribed way to remind investors not to participate. The company said there could be held accountable Trust 100 sites.

Aviation Trust Co., Ltd. Wu: We do not know how else they would hang up, and find many of the Trust's products are at the top, we really do not have any cooperation with this website, we are here also to inform them revoked, Otherwise we will prosecute them here.

Syndicates buy Trust: financial innovation or financial irregularities

Trust disassociate themselves with the Trust have 100 sites, repeatedly stressed that their products are in the threshold of one million or more. This threshold is the CBRC 2009 release of "Trust Capital Trust scheme management approach" setting. The Trust 100 by public subscription method, the threshold is lowered to 100 yuan, layman's terms, is buying syndicates Trust website operator believes that this is not illegal, but also reduces the risk.

Trust 100 site founder Fu Jia want: We did a split, we do this transaction structure from legal compliance standpoint we do, from the body is involved in the protection we have done, if we return to legislative intent, In fact, we further reduce the risk.

Fu Jia described by desire, trust 100 sites are gathered together the money to everyone, after reaching one million threshold, then a single identity to purchase trust products enable ordinary people to enjoy high-income trust products, there is no violation. But experts believe that this is only superficial.

Financial commentator Ye Tan: She raised all the way through the collection to 1,000,000 scale, go and trust companies to form a single contract, this is a great trust law for destruction.

Currently, the collection belongs to the private nature of trust in our country, is not open to the public, to ensure that holders of trust products have a high risk tolerance. If the access threshold is too low, the number of participants too, will deviate from the original intention to establish trust products.

Experts governing China Trust Industry Association Li Xianming: According to our understanding of the situation, trust itself is unaware of this situation, there is no authorization. So it hit a trust 100 banner, sell trust products, is its own unauthorized conduct of operations.

There is no basis for a legally authorized nor approved by regulatory agencies engaged in this activity it. At least from the perspective of the CBRC, we understand not approved it engaged in this activity, so that it trusts 100 itself this approach is flawed, it is worth questioning.

Chinese Opinion Writer References Dutch Disease in Relation to Real Estate

Expert: China's real estate risk brunt of vigilance "Dutch disease"
The so-called "Dutch disease" refers to a country's economy, especially the particularly dependent on exports of natural resources such as oil and copper resources, such as a large oil field once found, will lead to a lot of social resources to flow to the oil fields, the entire economy will naturally Industry very dependent, leading to future problems of sustainability and economic growth will increase volatility.

And China's real estate industry will have similar importance. Compared to other industries, to solve more difficult once the real estate risk. Zhang Zhiwei pointed out, we must first face is higher than other issues of systemic risk. For example on the financial impact of last year 39% of the revenue from the real estate, of which 25% is land revenue, other real estate transaction taxes. This is an indispensable source of revenue, if the real estate market declined significantly, it will put pressure on revenue.

In addition, many other industries rely on real estate development. From an investment perspective, investment in fixed assets, plus real estate financing platform where nearly half the level of the total investment.

From the point of view of supply and demand, oversupply of real estate has entered the state. If the next few years, the market decline, real estate investment growth from an average of 20 percent annual growth fell to 10 percent is not impossible, it would have a greater economic impact. Is also yet to find a substitution effect can occur when the real estate downturn in the industry.

Said Zhang Zhiwei, Nomura expects a quarter of China's economy will grow by 7.3% year on year in March, the industrial added value in terms of the data may be a slight rebound. But the general direction, March improved data or short-lived. The bank expects the second quarter GDP growth will drop to a level close to 7%. The reason consists of two aspects. First, there is also a higher financing costs, the lag effect of its impact on the economy is expected to gradually appear in the first half of this year. The second is the slowdown in the coming months, the real estate investment.

Nomura also expects further monetary policy fine-tuning, or there may be a few months further big moves in the future, in May and June may cut the RRR 50 basis points.

Dutch Disease
In economics, the Dutch disease is the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector (or agriculture). The mechanism is that an increase in revenues from natural resources (or inflows of foreign aid) will make a given nation's currency stronger compared to that of other nations (manifest in an exchange rate), resulting in the nation's other exports becoming more expensive for other countries to buy, making the manufacturing sector less competitive.
In this case, the author leans towards what the Austrians call malinvestment, although since I do believe the yuan is overvalued, there are also aspects of the Dutch Disease exacerbating trends.

Malinvestment is a concept developed by the Austrian School of economic thought, that refers to investments of firms being badly allocated due to what they assert to be an artificially low cost of credit and an unsustainable increase in money supply, often blamed on a central bank. This concept is central to the Austrian business cycle theory. Austrian economists such as Nobel laureate F. A. Hayek advocate the idea that malinvestment occurs due to the combination of fractional reserve banking and artificially low interest rates misleading relative price signals which eventually necessitate a corrective contraction—a boom followed by a bust.

Andy Xie has discussed how high real estate costs impact the the economy. This isn't the article I'm thinking of, but he touches on the topic.
When the bubble bursts, the incentive for businessmen will change. The reward will go to those who build better products, not those sitting on a piece of land. I believe that many great companies will rise up in the next decade. Even the property industry will be better.

......Some argue that the property bubble is essential to China’s economic prosperity. This is utter nonsense. While the property industry has become bigger relative to the economy over the past decade, it mostly consumes resources and doesn’t enhance overall productivity.

It is the main driver for China’s inflation. If it shrinks, the economy may suffer temporarily. However, overall productivity will rise. The resulting income growth will bring back more sustainable economic prosperity.

......Some financial accidents, e.g., trust products defaulting, may occur in the coming months. Their impact on the real economy will be limited. As the land bubble deflates, the resulting reductions in production costs and consumer prices should support the real economy by boosting exports and consumption.
I'm not sure about exports. However, it is the case that a bursting of the bubble will free up a lot of income for Chinese consumers. They will lose wealth on paper, but the economy will see a lot of capital released from the property sector.

Andy Xie also sees China's property bubble going the way of Japan and Taiwan, not Hong Kong and SE Asia:
China’s property market will adjust similar to what happened in Japan and Taiwan rather than in Hong Kong or Southeast Asia. The former was gradual, and the latter fast.

In 1998, banks in Southeast Asia owed short-term dollar debts to Western banks. When the debts weren’t rolled over, these countries had to raise real interest rates enormously to contract domestic credit in order to pay off foreign creditors. Surging real interest rates caused their property markets to drop off a cliff.

After land prices peaked in 1992, Japan and Taiwan faced much less pressure because they didn’t have short-term foreign debt. Their land prices declined gradually and in waves, i.e., every recovery had lower highs and lower lows in both price and volume.
Still, Xie thinks prices will eventually come down by 70 to 80% by the end.

Existing Home Sales Weak in Beijing; Using Your Parents' Life Savings for a Downpayment

South China Morning Post has a trio of good articles on housing.

Secondary market transactions diverge, says survey
Transactions in existing homes in Beijing fell to the lowest volume for March since 2009. As more buyers moved to the sidelines, the average secondary home price in the city dipped 0.11 per cent for the fourth consecutive month, to 42,392 yuan (HK$53,264) per square metre.

The average price rose 14.7 per cent year on year, less than February's gain of 17.5 per cent.

Shanghai's secondary home market showed more signs of stabilisation last month.
Volume leads price, but these markets are still holding up well. In 2011, real estate rage was in Shanghai and price cuts were seen there and in Beijing. Regulators chased the developers and excessive speculation out of Beijing and Shanghai. They flowed into smaller cities, which is the center of trouble in 2014.

Young homebuyers in China can't be too proud to accept parents' help
I came across quite a few such families in Beijing. Among my neighbours were retirees who lived with their son and took care of their grandson. The elderly couple had sold their home in Shenyang to help make the down payment.

Developers may welcome such young homebuyers, but the government needs to be concerned, especially when there are growing worries about a widening pension fund deficit as the population ages rapidly.
A guy I knew in the mid-2000s told me he earned more in 1 year than his father saved in his entire life. He worked for a multinational tech company and was earning a middle class salary at the time. A 60-year old parent in 2004 was 30 in 1974 and 50 in 1994. Now 10 years later, a similar parent may have save a lot more. Still, if the parents have enough money to help a child, it is very likely coming from a home sale or a mortgage on the parents' home. Many people did receive "free homes" as part of state-owned reforms in the 1980s. The companies laid off workers, but let them take ownership of their company provided housing. Once the real estate boom hit, this became the largest asset by far for many families.

Developers offer buyers financing to get around banks’ loan-to-value curbs
Hong Kong's biggest developers are skirting around bank restrictions by offering loans to raise the mortgage ceiling up to 85 per cent of a flat's value - which could put buyers at risk of a default if home prices fall significantly.

To speed up sales of large units, developers are providing an array of financial schemes as banks reduce the maximum loan-to-value (LTV) ratio for high-priced homes.

"A higher loan-to-valuation ratio will definitely mean higher risk," said Ivy Wong Mei-fung, Centaline Mortgage Broker's managing director.

Developers are doing similar things in China, along with several other sales tactics. See: The Giveaways Begin Again: Free Coach Bag If You Have ¥300,000 in Assets; Low Down Payments


Haining, Zhejiang Is Building 8 Years of Housing Supply; Real Estate Executive Says Housing Market Will Crash

The string of bad housing news out of Zhejiang province keeps on going. This story is a paper napkin story: the situation is so bad that an executive can calculate disaster by adding up all the area under construction and dividing it by the population.

Selected portions of this Google Translated article follows. (cleaned up in parts to convey meaning)

浙江海宁1.6万套库存压顶消化需8年 房企称就要崩盘
Similar to the recent housing crisis broke in Yuyao, the same as the Chinese economy Haining county, in 2013 Haining ranked No. 21 in China's top 100 economies by county.

21st Century Network in Haining survey found that there are a number of local real estate began to cut prices, individual housing prices due to funding strand breaks and on the verge of bankruptcy.

......In March, for example, in March 2013, Haining City, sales of residential units for 778 units, of which 406 sets of urban residential, urban sales price reached 12,000 yuan / square meter, and in March 2014 the city's sale of 330 units of housing, urban 174 residential units, urban sales price 10,021 yuan / square meter.

......"Haining property market will collapse," and in an interview with 21st Century Network, a large room Haining local real estate executive directly flashed his views.

He demonstrated a 21st Century Network, "Haining real estate under construction and for sale" table, diagrams include 29 properties, the total area of ​​more than 6,000,000 square meters, more than 40,000 homes.

"This chart is my design, friends and engage in real estate companies, but also missed some real estate, according to our latest statistics, Haining real estate for sale and under construction in the area reached 9.5 million square meters. 30 square meters per person, that satisfies 300,000 people, and Haining total population (including non-residents) was 680,000," this executives said.
By the executive's math, that is 40% of the population's housing demand for sale or under construction.

21st Century Netcom survey of real estate listed on the chart found a lot more than just the actual data. For example the first developement on the list, 王庭世, area listed as 1.2 million cubic meters, but in fact the project planning for the 1.4 million square meters.

......According to the Bureau of Statistics data released Haining, Haining full year 2013, housing construction area of ​​14,826,300 square meters.

However, this figure is much higher than the houses Haining transparent online data.

According to Haining transparent network, as of April 14, 2014, Haining city houses sold 16,129 units, salable area 1,970,200 m2. But even this set of data, Haining property inventory is still high, far more than other counties belong Jiaxing even comparable with some of the prefecture-level city in Zhejiang.
If the 14.8 mil number is right, by the executive's math they are building enough housing to satisfy 70% of the total population.

According transparent network data, as of April 14, Tongxiang city has 9615 homes available for sale, salable area 1,248,300 square meters, Haining, Tongxiang and adjacent to the total economy less, both of 2013 GDP , respectively 63.365 billion yuan and 57.347 billion yuan. Comparative statistics show that in 2013 prefecture-level city in Jinhua City, salable area of 2,099,700 square meters.

......According to March of this year sales of 778 units, Haining only digest this 16,129 houses will need 21 months, should the real estate sector in accordance with the 9.5 million square meter data to digest these stocks will need more than 8 years.
I think they made a mistake. From the article, the 778 figure is for 2013, for 2014 they reported 330 units sold. So those figures are double if going off of this month's low sales figure, which makes for a better headline, but using the better sales number actually drives the point home better since that was a normal month for sales.

For the "crash" on local people, the president of the Asia-Pacific Urban Real Estate Association Xie Yifeng network for the 21st century, "said to conclude the entire city will collapse is premature."

In his opinion, the same high inventory, but the situation there are different situations Haining compared with these Midwestern cities like Shenmu (see NYT on Shenmu last August: Easy Credit Dries Up, Choking Growth in China, Haining, Yuyao more comprehensive economic strength, the ability to resist risks it stronger. "However, individual housing prices collapse is inevitable." He added.

......The above real estate sector told 21st Century Network, a company called Rucker Haining Real Estate Development Co. (hereinafter referred to as Rucker estate) companies actually bankrupt.

According to its introduction, Rucker real estate is one of the larger local businesses, industries involved in real estate, hotels, restaurants, culture and the arts, industrial socks, etc., over 1 billion yuan in capital, but now due to funding strand breaks, Rucker's estate Multiple projects have failed to materialize.

Analysis of China's 23 Provinces Shows Housing Bubble Laden Provinces Are Most Reliant on Land Sales to Repay Debt; Zhejiang Tops the List

China Economic Weekly (中国经济周刊) and China Economic Research Institute (中国经济研究院)teamed up to study China's 23 provinces' exposure to land prices. Zhejiang topped the list as most exposed.

First some background. China $3 trillion local government debt stirs alarm
Analysts said this suggested China is not on a verge of a fiscal crisis - the figure is less than half the debt burdens in Japan and Greece where public finances are strained - but warned the world's second-biggest economy needed to urgently reduce debt if it wanted to safeguard growth and financial stability.

This is especially because the long-awaited report showed some governments were using new loans to repay more than a fifth of their debt, and that authorities still relied heavily on selling land to pay off old loans.

...About 37 percent of debt owed by provincial, city and county governments are backed by land sales revenues, it said. Of all debt directly incurred by China's central and local governments, 5.4 percent are overdue and have not been repaid.

A $6.8 Trillion Price Tag for China's Urbanization
“Urbanization has relied on land conversion and land financing, which is causing urban sprawl and—on occasion—ghost towns and waste. Land conversion has added to inequalities and has fed social unrest among farmers whose land has been expropriated,” said Sri Mulyani Indrawati, managing director and chief operating officer at the World Bank, in a speech in Beijing on March 25. “In the future, a higher portion of local expenditures needs to be financed through local revenues, such as phased-in property taxes and adequate charges for urban services.”

...To date, China’s localities have turned to debt—often backed by land sales–to finance operations. The median debt-to-gross domestic product ratio of all of China’s 30-some provinces is 31 percent, with a high of 79 percent in the poor southwestern province of Guizhou, notes a March 25 report by Moody’s Investors Services. “Many provinces are reliant on land sales for a large portion of their revenues. While this revenue source has proven to be quite lucrative, it has also been highly volatile and therefore not a reliable source for debt repayment,” the report cautions.
Land sales and debt backed by land sales fuels urbanization which then fuels land prices. A virtuous cycle that turns vicious if it reverses and the cities haven't moved on to a new revenue model.

Where Is China’s Debt Bomb Hiding?
A final concern is the degree to which provinces rely on land sales for their revenue. Again, Zhejiang, Jiangsu, and Chongqing are among the most dependent, with Fujian and Shandong rounding out the top five. (Tibet relies less on land sales than any other region in China.) “While this revenue source has proven to be quite lucrative, it has also been highly volatile and therefore not a reliable source for debt repayment,” warns Moody’s.

One way to make indebtedness less of a risk would be to allow municipalities or provinces to issue bonds, particularly to help cover infrastructure projects that may not provide returns for many years (to date, bond financing by local governments is largely barred). “It’s not fair if projects that will benefit future generations are funded only through the tax payments of the current generation. So it’s OK to issue some bonds but under strict conditions,” said Chinese Finance Minister Lou Jiwei at a recent conference in Beijing, reported China Daily on March 26.

In sum, many of China's localities and provinces are heavily reliant on land sales for financing both their operations, which includes urbanization drives that lift GDP, as well as debt repayment. The new report, below, shows that the places most reliant on land sales are also in several cases experiencing the largest housing bubbles.

Select parts of (Google Translated) article follows: 23省份土地财政依赖度排名:浙江依赖度第一
"Report" shows, from the "promised land revenue to repay the total debt," the absolute value, such that the total debt, the rank order of Beijing, Zhejiang, Shanghai, Sichuan, Liaoning, Hubei, Guangdong, Chongqing, Shandong, Tianjin , Fujian, Jiangxi, Hunan, Anhui, Hebei, Guangxi, Heilongjiang, Shaanxi, Jilin, Hainan, Shanxi, Gansu, Jiangsu, unpublished data.

From the land of financial dependence, namely "land sinking in the government bears the responsibility to repay the debt in proportion", the rank order of Zhejiang, Tianjin, Fujian, Hainan, Chongqing, Beijing (estimate), Jiangxi, Shanghai, Hubei, Sichuan , Liaoning, Guangxi, Shandong, Jiangsu, Anhui, Heilongjiang, Hunan, Guangdong, Shanxi, Jilin, Gansu, Hebei, Shanxi.

There are also at least 23 provinces, 1/5 of the repayment of the debt by selling land

Zhejiang, Tianjin, 2/3 of land revenue to repay debt depends

"Report" shows that 23 provinces, Zhejiang Province ranked first with 66.27%; ranked second in Tianjin, 64.56%. In other words, Zhejiang, Tianjin two governments bear the responsibility to repay the debt, the share has 2/3 of the land to repay depends.

Zhejiang Provincial Audit Department audit released announcement made clear that a higher reliance on debt repayment local land revenue. By the end of 2012, Zhejiang province, city and county government bears the responsibility to repay the debt, the promised land transfer revenue sources for the debt service debt balance was 273.944 billion yuan, accounting for city and county levels of government bears the responsibility to repay the balance of 413.391 billion yuan of debt of 66.27%.
Zhejiang is ground zero for the housing bust. Hangzhou is in Zhejiang. The city I posted on yesterday, Yuyao,where home prices are sinking fast is in Zhejiang. Ningbo, home to the bankrupt developer Zhejiang Xingrun, is in Zhejiang. In a bit I'm going to post a news story on Haining, just north of Yuyao, which reportedly has 8 years of housing supply.

What happens if real estate prices don't recover and/or land sales dry up? Bank loans? Central government aid? That works if the real estate slowdown or a real estate crash is temporary. If it is long-term, Zhejiang faces much higher debt servicing costs. If the late 1990s early 2000s are a model (when the central government bought up the bad debt from the banks and recapitalized them), maybe the central government will take up all the debt and then reissue it as muni bonds that each province must repay, then sell them off to private investors, creating a muni bond market.

Top-ranking Beijing ranked first in absolute "commitment to the land transfer income to repay the total debt", but did not give its statistical deadlines in the same relative ratio of the total debt. In recent years, Beijing's land kings continue to emerge, according to the Beijing Municipal Audit Bureau, as of the end of 2012, the size of their land revenue used to repay debt reached 360.127 billion yuan, ranked first in 23 provinces. As of June 2013, the Beijing Municipal levels of government debt outstanding was 649.6 billion yuan, the average annual growth of 33% in the last three years. Accordingly, estimates that by the end of 2012, the size of local government debt at 600 billion yuan in Beijing should be up and down, sinking land that Beijing's share in the overall debt should be 50% to 60%.

The smallest proportion of the three provinces, namely Gansu (22.4%), Hebei (22.13%), Shanxi (20.67%). This means that even a small degree of dependence on the land sinking provinces, but also at least one debt 1/5 to rely on the land to repay.
These last three provinces are not economic leaders at the moment. Shanxi was, but coal prices have cratered. Hebei and Gansu are underdeveloped.

There is one bright spot in the report:
However, Guangdong exception. Large-scale land insolvent Guangdong, ranked No. 7, but the land sinking ranked 17th in the proportion of the entire debt. It is understood that the total economy of Guangdong ranked first in the country long-term, well-developed private economy, especially the real economy developed, effectively easing the finances of local government land hunger.
Why isn't Guangdong in trouble? Maybe because their highest ranking official was Wang Yang, who is expected to rise into the Politburo Standing Committee on the next go around. He guided the province to greater economic freedom until being promoted to Vice Premier in 2013. He was praised for his "Guangdong Model" and has said, "We must hasten the development of small government and a great society." That smaller government didn't require as much reliance on land sales.

Below is the full Google translated article:
" China Economic Weekly "and the China Economic Research joint research and publish: Which is more dependent on the provincial land finance?

"China Economic Weekly" reporter, Chinese economic researcher Liude Bing | authored

23 provinces "land finance dependence" ranking Overview

Beijing land total debt service first, Zhejiang dependence of the first

"Report" shows, from the "promised land revenue to repay the total debt," the absolute value, such that the total debt, the rank order of Beijing, Zhejiang, Shanghai, Sichuan, Liaoning, Hubei, Guangdong, Chongqing, Shandong, Tianjin , Fujian, Jiangxi, Hunan, Anhui, Hebei, Guangxi, Heilongjiang, Shaanxi, Jilin, Hainan, Shanxi, Gansu, Jiangsu, unpublished data.

From the land of financial dependence, namely "land sinking in the government bears the responsibility to repay the debt in proportion", the rank order of Zhejiang, Tianjin, Fujian, Hainan, Chongqing, Beijing (estimate), Jiangxi, Shanghai, Hubei, Sichuan , Liaoning, Guangxi, Shandong, Jiangsu, Anhui, Heilongjiang, Hunan, Guangdong, Shanxi, Jilin, Gansu, Hebei, Shanxi.

There are also at least 23 provinces, 1/5 of the repayment of the debt by selling land

Zhejiang, Tianjin, 2/3 of land revenue to repay debt depends

"Report" shows that 23 provinces, Zhejiang Province ranked first with 66.27%; ranked second in Tianjin, 64.56%. In other words, Zhejiang, Tianjin two governments bear the responsibility to repay the debt, the share has 2/3 of the land to repay depends.

Zhejiang Provincial Audit Department audit released announcement made clear that a higher reliance on debt repayment local land revenue. By the end of 2012, Zhejiang province, city and county government bears the responsibility to repay the debt, the promised land transfer revenue sources for the debt service debt balance was 273.944 billion yuan, accounting for city and county levels of government bears the responsibility to repay the balance of 413.391 billion yuan of debt of 66.27%.

Top-ranking Beijing ranked first in absolute "commitment to the land transfer income to repay the total debt", but did not give its statistical deadlines in the same relative ratio of the total debt. In recent years, Beijing's Wang continue to emerge, according to the Beijing Municipal Audit Bureau, as of the end of 2012, the size of their land sinking up 360.127 billion yuan, ranked first in 23 provinces. As of June 2013, the Beijing Municipal levels of government debt outstanding was 649.6 billion yuan County, the average annual growth of 33% in the last three years. Accordingly, estimates that by the end of 2012, the size of local government debt at 600 billion yuan in Beijing should be up and down, sinking land that Beijing's share in the overall debt should be 50% to 60%.

The smallest proportion of the three provinces, namely Gansu (22.4%), Hebei (22.13%), Shanxi (20.67%). This means that even a small degree of dependence on the land sinking provinces, but also at least one debt 1/5 to rely on the land to repay.

Land sinking scale and proportion of the overall debt incomplete peer

Guangdong accounted for more than a small amount, less Hainan, a large proportion of the total

In absolute terms, 23 provinces, Beijing, Zhejiang and Shanghai need to rely on revenue from land sales to debt servicing debts top three, namely 360.127 billion yuan, 273.944 billion yuan, 222.265 billion yuan; land compensation debt is the smallest size in Jilin, Shanxi, Gansu, were 58.616 billion yuan, 26.894 billion yuan, 20.654 billion yuan.

"Report" shows that the size of the land and the land sinking in debt service accounted for the overall debt data presented in these two relatively close correlation: the size of the land sinking more than 100 billion yuan in the province, land sinking in the overall debt The proportion is higher. Because it is easy to sell, sell at high prices in order to ensure the solvency of land size, but also more dependent on the land. Zhejiang, Shanghai, Sichuan, Liaoning, Hubei, Chongqing, Shandong, the size of their land sinking columns 2 to 9, the overall proportion of their land sinking in debt were ranked No. 1,8,10, 11,9,5,13 bit. Beijing ranked first in the scale of land sinking, its proportion of the total debt of 50% to 60%, ranking higher.

However, Guangdong exception. Large-scale land insolvent Guangdong, ranked No. 7, but the land sinking ranked 17th in the proportion of the entire debt. It is understood that the total economy of Guangdong ranked first in the country long-term, well-developed private economy, especially the real economy developed, effectively easing the finances of local government land hunger.

On the contrary, the size of the land sinking below the 100 billion yuan in the province, the land sinking in debt accounted for most of the entire row behind. But there are exceptions.

Despite the small size of land sinking in Hainan, only 500 billion, but the proportion of land sinking the entire debt was ranked 4th in. In recent years, Hainan's real estate market is very hot, especially in the international tourism island , driven by the concept of social and economic development of Hainan Island high degree of reliance on the real estate industry, this situation is also reflected out of the land on Hainan debt tables.

Guangxi scale land sinking only 700 billion yuan, ranking the 16, but the land debt service ratio as high as 38.09%, ranked 12. Further analysis found that, on one hand, the whole place Guangxi smaller debt, as of the end of 2012, the Tibet Autonomous Region (excluding towns) only 190 billion yuan, ranking in the middle of all the provinces on the list, below average; another On the one hand, Guangxi local debt structure, the main local government debt grew at city level, and Guangxi in debt payments, land purchasing and storage spending big in the actual economy, local government investment in land purchasing and storage of large, will be particularly dependent on revenue from land because the land as government funds fiscal revenues, the main beneficiary of that is the city level and county-level governments.

This directly shows that the more dependent on local land finance, will inevitably push to increase the size of the land, as well as the introduction of high-priced land. As early as in 2010, one of the king Nanning floor price broke through the 10,000 yuan / square meter.

6 Report of the land outside the province dependence How?

Irregularities in some areas using BT (build - transfer) mode

Except these 23 provinces listed, Henan, Guizhou, Inner Mongolia, Ningxia, Qinghai, Yunnan these six provinces, and 23 provinces are not part of the statistics provincial, municipal and county governments, if the land does not exist solvency problem?

"China Economic Weekly" reporter interviewed found that since last year, Henan, Guizhou, Yunnan and other places, land sales situation is very active. Zhengzhou had appeared in several cases a king-level plots; while in Henan Nanyang, Xinyang, and Kunming, Yunnan and other places, have appeared since last year over land disturbance.

On the other hand, "China Economic Weekly" reporter from six provinces in the audit report found the place where land-related debt has been manifested in the form of a face-lift. Such as Guizhou Province audit found that some local violations by BT (build - transfer) mode, to non-financial institutions and individual borrowers, etc. borrowing government debt 40.064 billion yuan, as Xiuwen County Urban Construction Investment and Development Co., Ltd. to sell the land with the expected sources of income as the debt service fund, investment cooperation were signed BT mode 1.202 billion yuan framework agreement with four companies. Henan, Yunnan, Inner Mongolia and other places, there is also a large real situation with land revenue "disguised" to repay local government debt.

Background Report

The past 20 years, with the rise and development of Chinese real estate industry, aspects of China's urban construction, local government funding, quality of life, economic development in rural areas around the city, gained rapid development and greatly improved. Which is the direct contribution of land finance. Land of local government finance new and important source of revenue for urban social and economic development has played a positive role. At the same time, some local governments for economic growth and fiscal revenue considerations and the pursuit of the double, to varying degrees to a "land impulse", which over-reliance on land expenditure finance, even as a place to land revenue The main channels of debt, that is currently being criticized by outsiders "Land fiscal dependency syndrome."

At present, for "over-reliance on local government bonds are financial as well as compressed land market regulation space, kidnapped Chinese economy "and other concerns, the public debate varies, but all the controversy is the lack of quantitative criteria, not a quantitative indicator.

Quantitative indicators is a necessary foundation to analyze and solve problems. Financial terms of the land, with specific quantitative data, you can more clearly understand and analyze the current situation and problems of land finance, in particular to accurately define and determine a reasonable degree of dependence between local debt and finance land for real estate and local policies provide analysis of major issues such as debt ideas and decisions.

Data sources report

From January 23, 2014, the provinces, autonomous regions and municipalities Audit Office (Office) published a succession provinces government debt audit results, which is the country's first centralized provincial audit department announced local bonds.

From the published audit report, the audit department of the provincial audit report on local government debt is basically used the same reporting format: mainly divided into "major initiatives in recent years to strengthen the management of government debt," "government debt scale and structural situation "," the province's government debt burden of the situation "," the main problem in the presence of government debt management "Four section.

In "The main issue government debt management exist," the forum, the main problem the audit department announced three, one government bears the responsibility to repay the debt faster growth, the second is part of the heavy debt burden of local and industry, three local government debt dependence on land revenue higher.

Among them, the third question, namely, "local government debt dependence on higher land revenue," the provincial audit report a problem most attention. According to statistics, 29 provinces (except Xinjiang, Tibet, Hong Kong, Macao and Taiwan) audit notice, when "The main problem in government debt management presence" in the introduction, there are 23 provincial audit department explicitly "local debt-dependent land income to repay "included.

23 provinces audit agency gives the end of 2012, "the land sinking in the government bears the responsibility to repay the debt in proportion" of the specific numerical values ​​or estimates related items are available. This value reflects the proportion of land in the local government debt in the financial, but also reflects the degree of financial dependence of local governments on land. Therefore, we will audit report of "land sinking in the government bears the responsibility to repay the debt in proportion" as "land finance dependence."

Calculation of quantitative indicators report

"Land finance dependence," or "land sinking in the government bears the responsibility to repay the debt in the proportion of" value, which is calculated as follows: the total "commitment to the land revenue to repay all levels of local government debt" (ie numerator), divided by the "provincial cities and counties in three government bears the responsibility to repay the outstanding debt" (ie, the denominator) results.

Specifically, is, first, the delineation of the scope of the provincial audit department "is committed to the land transfer income to repay the debt," the local governments of the provinces and calculate the total. For example, Zhejiang was "provincial, municipal and county government," three levels of government; range Sichuan is "18 municipal, 111 county-level government" (ie, Sichuan Province, 21 cities (prefectures), 183 counties (cities, districts) , there are 18 municipal, 111 county-level government commitment to the land transfer income to repay the debt, others are not counted).

Secondly, the provincial audit department and then the statistics of the province, "provincial cities and counties in three government bears the responsibility to repay the outstanding debt" (there are very few provinces such as Sichuan, the provincial government statistical excluding debt statistics only two counties government).

Finally, will be divided over two statistics, namely, "promised land transfer income to repay the debt" divided by total "provincial cities and counties in three government bears the responsibility to repay the outstanding debt" to arrive "in the government debt-negative Land have the responsibility to repay the debt in proportion, "this value. That is what we call the "land finance dependence."

According to the audit report disclosed above provincial government audit departments and their associated data, "China Economic Weekly," China Economic Research Institute and published a joint study "of 23 provinces 'financial dependence on the land' Ranking Report" (the "Report" ).

U.S. Education Bubble Bursting

The U.S. higher education bubble is in the process of bursting. Like Chinese housing, there is too much supply and not enough demand even at lower prices. Like Chinese housing, people do not believe university tuition goes down.

"Death Spiral" - Harvard Professor Predicts Up To Half Of US Universities May Fail In 15 Years

Small U.S. Colleges Battle Death Spiral as Enrollment Drops
Declining enrollment has forced many colleges to offer deeper tuition discounts to attract students, according to the National Association of College and University Business Officers. The average freshman discount rate rose to 45 percent in 2012 from about 40 percent in 2008, according to Nacubo.
That sounds a lot like the Chinese housing market.

Harvard Business School professor Clayton Christensen has predicted that as many as half of the more than 4,000 universities and colleges in the U.S. may fail in the next 15 years. The growing acceptance of online learning means higher education is ripe for technological upheaval, he has said.
I have heard it quipped that half of the universities could be shut in America and there would be no impact to intellectual achievement. Even if you believe that there are no BS majors (not Bachelors of Science, the other BS), many people will be able to obtain a university degree at far lower cost online.

The corollary to universities in America is developers in China. They will go bust or exit the market, and many Chinese people will be able to buy homes at far cheaper prices. In both cases, this is a very good outcome. The short term in painful though. If half of universities do fail in the next 15 years, it would probably be a cluster event in the midst of another economic/financial crisis. Unemployment will soar, student loans will dry up, and many people will go to work instead of going to university. A crash in the Chinese housing market will be painful in the short-term, slowing GDP growth substantially and an outright recession is not an impossibility.

In the long-run though, the collapse of these bubbles will end the misallocation of capital. American and Chinese consumers will have more savings (less debt) and more disposable income, a good mix for future economic growth.


No Credit Acceleration in March, No Crunch Either

Compare and contrast the headlines.

Reuters: China March social financing jumps
Bloomberg: China New Credit Falls 19% From Year Earlier, PBOC Says

The difference is Reuters is talking about month-to-month numbers that are quite volatile. Below is the monthly TSF number, below it is the year-on-year change.

That second chart gives a good visual of the slowdown in China's economy.

Foreign reserves increased in the first quarter. I expect reserves will reverse, but as long as they keep increasing it is a good sign for the Chinese economy.

From 2011 and into early 2012, forex reserves actually declined in some months and went y-o-y negative by summer 2012. It turned negative in September 2011, the month in which real estate rage first erupted in China and the global equity market correction started bottoming out. That month also marked the peak price for gold. Based on the numbers out today, which only give the figure for end of Q1, forex growth is slowing again, albeit very slightly.

As for money supply, M2 grew at 12%. M1 recovered, but back to y-o-y growth in the low single digits, the weakest since 2012. The Shanghai Composite, for comparison, was down 9% y-o-y at the end of Q1.

Elsewhere, evidence of tightening credit conditions continue to surface.
Taiwan banks put clamps on loans to mainland China firms
Taiwanese banks are shutting off lending to mainland firms. Offshore loans to mainland firms in the first quarter was just 15 per cent of the sums lent in the previous quarter, according to Thomson Reuters Loan Pricing Corp.

The banks' sudden departure from the market is pushing up mainland firms' offshore borrowing costs, by about 50 basis points to 1 per cent per year, said Stephen Chan, the Taipei-based head of corporate finance for Fubon.

Taiwanese institutions are a major supplier of foreign currency loans to mainland firms. By one estimate, they provide up to three-quarters of offshore loan capital to the mainland's small to medium-sized enterprises.
Several explanations are given in the article, with the simplest being the banks hit their lending limits.

Yuyao, Zhejiang Sees Developer Slash Prices 40% in a One-Off Sale; Offical: Everyone Already Has 2 Homes

Yuyao, Zhejiang is between Ningbo and Hangzhou in Zhejiang province. Hangzhou is the epicenter for some of the recent price cuts.

浙江部分楼盘一次性直降30万 当地炸开了锅风险暴露

Rough English translation: Zhejiang Buildings One-Off Price Cut of ¥300,000; Blows The Lid Off Revealing Local Risk
A source told the " First Financial Daily "reporters, before this month, Shimao [ Introduction News ] Mou Lake Project 230 villas, a one-time opening more than 40% of sales price. Xiao Xu sales staff, told reporters that the average price of 230 villas about 150 yuan / sets, of which at least five sets of prices of 99 yuan / set, and after an internal pricing is 220 yuan / sets or more, the cheapest should also be 1.7 million yuan / sets.

In the industry view, the Lake Villa Le Mou big price cuts, just opened in Yuyao market "syndrome" tip of the iceberg.

......"Companies want money back as soon as possible." Le Mou Lake project sales staff Xiao Xu said, according to each average 1.5 million yuan to sell, B, C villas barely protected. He said the floor price of the land close to 4,000 yuan / square meter, the cost of each villa built at least 1.3 million yuan, "sold 990,000 yuan, at least to a loss of about 300,000 yuan." Before Mou surrounding Lake Villa price per square meter in about ¥20,000 to ¥30,000.

......"Supply is too big, the house too much, and now Yuyao property in a very difficult stage." A building housing the Bureau of Yuyao City department staff to accept the "First Financial Daily" reporters, said that this year the sales situation is bad , calls for housing prices, the pressure was relatively large.

......According to the Idea Real Estate Consulting Co., in March this year, the stock of housing 21,050 units in Yuyao,compares to Cixi, Xiangshan, Ninghai and Fenghua 3.28; 2.93; 5.69; and 36.86 times, respectively, accounting for 54% of the total supply in the five counties. In March, Yuyao new supply 584 units, is 1.59 times the sum of the other four counties.

......It is noteworthy that, one Yuyao City officials believe that every Yuyao household currently has at least two houses. Plus, listing far oversupply, house is no longer a people, "investment goods," low non-resident buyers demand, which means the potential purchasing power is declining. "Common problems Yuyao Real Estate current situation, but also the four-tier cities face."

......Currently, the resident population Yuyao more than a million, there are eight large urban complexes, as well as adequate housing four or five years of demand.

......"Real estate has bundled the entire Yuyao economy." The official said, the peak in 2010, Yuyao City, the land sale revenue was more than 10 billion yuan. Currently, more than 20 percent of revenue comes from local property taxes.

.....Yuyao city government report showed that GDP was 74.963 billion yuan last year, Yuyao, an increase of 7.3%; public budget revenue 10.634 billion yuan, down 5.8%; public budget spending 7.459 billion yuan, an increase of 10%; investment in fixed assets 44 billion yuan, up 21.7%, of which 13.303 billion yuan investment in real estate development.

......The official said that before 2008, Yuyao real estate development is relatively normal, prices are also relatively stable. However, after four trillion stimulus push to the large number of local house prices, land prices are doubled up in 2010, "the prefect name House" floor price of up to 17,000 yuan / square meter, a local "king."

.....These investment over the large room, the room for negotiation, financing capability and other advantages, to take place at least 30% less than the cost of local housing prices. Meanwhile, in a large room to improve the quality of Yuyao city, while also greatly squeezed local small room rate for survival, so Yuyao property into the "Developers predator competition" stage.

Housing prices in Yuyao, a local newspaper reporter admitted to the responsible person, Yuyao development is too big, they have no room for survival. Future development projects they are either transferred to a second-tier cities, or exit the real estate market.