Chinese Reserves Fall 2.2pc in November

Chinese forex reserves fell 2.2 percent in November 2016. It was the largest drop since the 3.0 percent one-month slide in January 2016. November and December 2015 were also larger, as was August 2015. Before that, you have to go back to September 2014 and May 2012 to find similarly large declines. The year-on-year decline slowed from 11.5 percent in October, to 11.2 percent in November, due to the favorable yoy comparison. The yoy decline peaked (for now) in February 2016 at 15.8 percent.


China Has 50T in Assets Earning Less Than 1pc

Zhu Rongji's son, Zhu Yunlai, a financial expert and former president and chief executive officer of China International Capital Corporation, delivered a keynote speech on the theme of "economic situation and structural reform."
We look at a few big industries, the coal, steel, electricity, transportation, real estate, these five industries add up to nearly 50 trillion of assets, but the basic rate of return of less than 1%, 50 trillion what is the concept? Our entire industrial assets are almost 102 trillion, which if the coal and steel belonging to the industrial part, they add up to almost 10 trillion. This is a big head in the economy, our profit margins, the rate of return in the systematic decline in debt ratio is on the rise. From here you can see the economic structure, especially through the system of macro statistics, we can see the impact is relatively large.
iFeng: 朱镕基之子谈改革:五大产业资产50万亿 回报率不足1%

The problem is as it ever was: there is too much debt backing assets with low ROI due to overcapacity. The path forward for the economy at large is to outgrow these sectors, but in the process, the economy will also outgrow the control of party members. Hence the snail's pace.

CASS: Top 10 Cities For Home Price Risk

The top 10 cities with the most overall risks are Shenzhen, Xiamen, Shanghai, Beijing, Nanjing, Tianjin, Zhengzhou, Hefei, Shijiazhuang and Fuzhou (limited to 35 large and medium-sized cities).

Vertical, the current housing market risk as a whole higher than in 2010. Valuation of the housing market is too high will be very likely to slow housing prices or even falling house prices situation. The current round of the property market overheated mainly concentrated in the first-tier cities and some second-tier cities and other hot cities, whether it is hot city housing prices or the degree of accumulation of risk, have more than 2009-2010 period, it is worthy of high vigilance.

...The report predicts that in 2017 the Chinese property market will usher in a short-term adjustment period, the overall fall will be steadily, but with uncertainty. Based on the China Housing Index, fundamentals, the reform of dividends and investment speculative demand conversion and other aspects of the forecast, the future adjustment of the magnitude and duration of the property market depends on the intensity of regulation and reform.
iFeng: 机构警示国内十个房价风险最大城市(名单)


Hangzhou, Nanjing Sales Cut in Half, Beijing Adjusts

November homes sales fell 11 percent across Centaline's 54 city survey. Shenzhen sales fell 30 percent, while Hangzhou and Nanjing were halved.
11月楼市调控加码 这两个城市成交“腰斩”

Although sales have been fallen in Beijing as well, prices aren't expected to drop much. Sales and prices are being affected by tightening regulations, with many existing home listings disappearing. In one anecdotal example, there is an area that had 10 homes listed before, now it is 3, and the lower supply is helping support prices.
iFeng: 楼市需求依旧庞大 北京二手房言“跌”很难


Reserve Decline Worse Than 1997 for China

China, is now playing a soul-stirring "capital outflow sniper", which is "China's economic defense."

The last time China faced the threat of significant outflows in the mid-1990s, it did not utilize capital controls, in part because it had much tighter controls to begin with. Now is a different story.

Only in the past two months, we see regulators shoot four times, the goal is clear, cut off the capital outflow through black channels: in October, UnionPay cut off Hong Kong insurance payment channels; November, bitcoin, huge foreign investment projects, Shanghai Free Trade Area strengthen the review of overseas investment channels. Almost all the central bank's big news are related to combat capital outflows.

We then lengthen the timeline, you will find that from the end of last year to stop some of Deutsche Bank's foreign exchange business, to November this year, the RMB exchange rate fluctuations every time, are accompanied by capital outflows warning and regulators war.

Regulators are so battle ready for capital outflows with rarely seen poewr, even in the mid-1990s when China faced a serious capital outflow, that was not the case.

This "capital outflow sniper war" continues, however, it can be said that results are slowing in the last six months: in the first stage, monthly outflows fell about $50 billion, and the last seven months were reduced by about $10 billion.
Why launch a war now? Some numbers to put the situation in context:
However, it is unexpected, accompanied by the overseas investment surge, the speed is almost out of control. Reflected in the foreign exchange reserves, in June 2014 reached its peak and after a sharp turn, two years later it has dropped dropped by $870 billion.

What is the concept of $870 billion? The total resources of the IMF total $660 billion. During the entire Southeast Asian financial crisis, the world's foreign exchange reserves fell $350 billion, and in two years, China's foreign exchange reserves shrunk by more than 20%. Is not difficult to foresee, if left alone, 10 years later the foreign exchange reserves would be dismal.
Reserves have already declined by more than in 1997 on a percentage basis and there hasn't been any crisis yet.

iFeng: 中国正在进行一场“资本外流狙击战”

Chinext Analog


Ni Pengfei: Buying Restrictions to Last Thru 2017

State Council scholar Ni Pengfei says buying restrictions won't end in 2017.

iFeng: 倪鹏飞:楼市调整将持续2017整年 房地产利润要平均化
But we are more worried about is that in the long run market supply is expanding, oversupply is increasing, developer investment confidence is falling, which means relying solely on real estate investments to spur economic growth may be over, is unsustainable .
On the current policies end date:
Reporter: Do you think this round of adjustment cycle will continue to how long?

Ni Pengfei: Following the regular cycle and system cycle, typically a three-year period, an increase of half a year, year and a half of the decline, if other conditions remain unchanged the whole year of 2017 will be a period of adjustment.
Real estate started rebounding in summer 2015 so that fits his timeline of 1.5 years up, followed by 1.5 down.
Why does the money flow into the real estate, the fundamental reason is that the interests are too high. Popular, the industry has a monopoly so the interests are not equal, resulting in high monopoly profits, profit averaging is to break the monopoly to compete. In general, this involves three levels of the problem, namely the land system, financial system, fiscal and taxation system, which support the real estate market and land market monopoly, resulting in large-scale investment speculation.

In fact, to establish a market regulation mechanism to curb investment speculation to create the conditions. For example, taxes, the collection of real estate tax, the formation of certain pressure on speculative investment.

In addition to establishment of a sound mechanism of government regulation, the market is changing, especially in the financial sector, real estate is a financial product, even the relatively robust market mechanism USA also had a housing bubble.

Torschlusspanik Begins: China Implements Capital Controls

Well, there's no point in warning people about a collapse in the Chinese yuan anymore because there's soon to be no way out. Renminbi is turning back into something similar to Disney dollars, which are valid only in the theme park.

SCMP: China’s central bank caps yuan’s outflow to stem currency’s slump
Non-financial companies domiciled in China will be limited to lending the equivalent of 30 per cent of the owners’ equity to an overseas company in yuan, according to a November 26 circular by the People’s Bank of China, a copy of which was obtained by the South China Morning Post. Both the lender and the borrower must share an existing shareholding relationship, the document said.

...On Monday, the Shanghai branch of the State Administration of Foreign Exchange said approval from the authorities was required for applications for cross-border payments exceeding US$5 million meant for overseas investment purposes, according to sources.

The government has also tightened checks on overseas acquisitions and imposed rules to make it more troublesome to bring yuan abroad.
With the new curbs, Beijing is shifting its emphasis from propping up the yuan’s value in the currency markets to blunt controls for taking it offshore.
And there was the restriction on gold imports yesterday. Everyone seems to be focused on how this is a reversal of China's plans to internationalize the renminbi, yet ignores the more obvious explanation: liquid reserves are close to exhausted or are projected to exhaust if the U.S. dollar continues to appreciate.

The news comes on the same day a Hurun report said yuan devaluation fear has 60 percent of HNWIs wanting to buy property overseas: 担心人民币贬值,超6成高净值人群欲海外购房投资
"I think for most Chinese HNWIs, the current global asset allocation is to buy a house and foreign currency deposits, it's that simple,"
The market is priced for perception, not reality. If perception aligns with reality then you have stability. When it deviates, there is mispricing and risk for profit to the up and downside. I don't have a magic insight into market perception and others may have a better read, but my take is that while the renminbi depreciation crowd has bigger megaphone since August 2015, it is still a small minority position. I don't sense that the bulk of investors are properly assessing the risk of a major devaluation of the Chinese currency, even as the evidence for it is piling up at an accelerating pace.

The U.S. dollar remains key. If DXY turns back below 100 and stays there, the odds of an acute crisis fall. If DXY is already on the way to 120, watch out.

Short of an extreme crisis, the yuan is unlikely to be the biggest loser from a yuan devaluation. However, I suspect the yuan is still the largest domino in the market. A big depreciation in the euro or yen could shock the market, but yuan devaluation will spark much greater panic.

Also relevant: Horseman Capital Asks "Is China Running Out Of Money"