2017-03-27

Nationalism Rising in China: Take Taiwan By Force

SCMP: Push to absorb Taiwan ‘is growing’ on mainland
Li Yihu, dean of Peking University’s Taiwan Studies Institute, said the mainland side saw Taiwan’s Tsai Ing-wen administration as trying to promote independence through tactical approaches, including culture and education and the appointment of pro-independence judges in 2019 to initiate constitutional interpretations.

“All those pro-independence moves will stimulate the mainland to take coercive steps to respond,” said Li, a deputy to the National People’s Congress.

...He stressed that Beijing had no “timetable for reunification”, but wanted “a route chart” of meet President Xi Jinping’s goal of reunifying with Taiwan as early as 2021, the 100th anniversary of the Communist Party’s founding.
China and Taiwan have diverging education systems teaching two separate nationalist agendas. In the near-term of the next few decades, Taiwan and China will become more nationalistic. The odds of Taiwan falling fully within China's orbit over the very long-run are high, but the long-run might be a century or two. If Chinese leaders want reunification in the short-term, they may need a military solution. Then they'll have to contend with a nationalistic Japan. The U.S. might want to sit out a war over Taiwan, but the U.S. might also like the opportunity to do what England did to Germany twice.

Beijing Metes Out More Punishment for Real Estate Violations

Xinhua: Beijing punishes developers, agents violating property sale ban
Six business apartment projects and 15 real estate agent offices in Beijing were punished Monday for violating a government ban aimed at cooling the red-hot housing market.

The six projects, including some belonging to China's top developers Vanke and Evergrande, were banned from sale, while the 15 real estate agent offices were ordered to close shop for overhauls, according to the Beijing Municipal Commission of Housing and Urban-Rural Development.

EO Asks: Is This the Housing Market Top? Flight From Currency, 1929 Parallel

An opinion article in the Economic Observer partially attributes the latest run-up in home prices to flight from the currency. Aside from that, the article is noteworthy because it says discussion of home prices is back at peak bubble levels. Additionally, this was the second most popular article on EO website today.

Discussing how Beijing's tightening policies have driven up prices 10 to 20 percent, and developers suddenly reluctant to sell property:
The reason, on the surface, is mainly because of the recent introduction of Beijing's land tightening policy, the market demand side worries future housing prices will rise again leading to panic buying. At a deeper level it reflects the consensus on the potential decline in purchasing power of the currency and the pressing demand for assets that can preserve value and appreciate. Residents would rather tighten their belts and live frugally, avoiding audacious consumption. From this point of view, no matter how much land supply there is in Beijing, it is not enough to satisfy demand.
Housing and home prices is always a major topic in China, but author thinks this time it has 1929 parallels:
Regardless if they are uncle or aunt, barber or waiter, talk about home prices and everyone is clear and logical, as if everyone investing in the property market investment is Warren Buffett. This is reminiscent of the eve of the 1929 Wall Street stock market crash, the story of Rockefeller and the shoe shine boy, and in 2007 and 2015, China's stock market rose sharply and everyone was trading stocks. Common sense says if everyone knows the price will rise, it indicates this is the crazy stage, the possibility of falling is far higher than the possibility of another rise. Of course, this is only looking at the emotional level, we also need careful analysis at the rational level.
Moving on to exchange rate and "price-to-earnings ratio" of assets:
But with the economic growth rate of the downlink, the RMB exchange rate and its pricing of asset prices can not match the previous high "price-earnings ratio", in accordance with the economic law in mid-2014 both should fall. But the renminbi is not freely convertible currency, so the foreign exchange reserves in the top one year after the "811 exchange reform" initiative to release the exchange rate risk an important measure, due to rush, including the stock market, including financial markets, including a series of chain reaction, the final Had to give up a one-time devaluation strategy, instead of indirect capital control through the slow depreciation of the gradual release of exchange rate risk. But this period due to the economic downturn facing the risk of stall, in 2015 we once again adopted a counter-cyclical easing of real estate policy, led directly to the exchange rate risk has not yet effectively released the background, the real estate bubble once again blown big, real estate " Price-earnings ratio "does not fall, and the bubble expansion is different from the past, driven mainly by the middle class adding leverage, which also includes" down payment "such as leveraged tool applications, and promote the basic principles of the stock market in 2015 the same. This point can be seen from the following data, in 2016 half of new loans were residential mortgages, and new home sales accounted for a rising proportion of M2 year after year, in 2016 new and existing home sales reached a record 100 percent of teh increase in M2.
Fan goes on to make the logical point that if asset values keep rising in China, the pressure on currency outflows will keep rising too:
As a result, the rapid rise in RMB asset prices and the slow depreciation of the RMB formed a significant departure from the capital control, the faster the price rise, the greater the depreciation of the renminbi is expected. It is like the pool to close the outlet at the same time open a large inlet, "water" put more assets from the "bubble", and the threshold appears in the reservoir filled the moment. In 2016 the academic community appeared similar to the "security or exchange rate", "exchange rate or save the storage" and the like discussion, in fact, this is only stay in the short-term tactical strategy choice only, the real strategic decision is how Improve the return on investment in society as a whole.
Finally, the behavior of speculators may point to a turning point:
Judging from the law of the property market, the market comprehensive interest rate is the most important factor affecting the rise in house prices. Therefore, since 2017 Beijing and Beijing, Tianjin and Hebei regional property market's contrarian rise is more due to fear of rising property prices causing panic buying, the hidden factor latent economic growth exceptions, very different from the high-level [govt] inhibition of asset bubble decision. To be focused on the release of demand, the steady increase in market interest rates will drive some early investment, speculative home buyers to sell housing, Shenzhen recently appeared a large number of real estate speculators to gradually sell housing cases, so the recent real estate speculation may indicate the property market The inflection point has arrived.

ChiNext Analog

2017-03-26

At Least 40 Cities Restrict Home Buyers

The count of cities passing some form of buying restrictions hit 40 overnight, with Foshan making it more difficult for non-residents to purchase property. Xiamen requires a 2-year holding period before a buyer can transfer a property to close a "gifting" loophole. The reporter in question counted 40 cities with restriction for the article, but notes that it is not a complete tabulation.

iFeng: 40余城发调控政策二三线成重点 楼市何去何从?

Hong Kong Renminbi Deposit Contraction

Data through January 2017.

SCMP: Hong Kong’s yuan deposits fall 46 per cent from their 2014 peak

2017-03-25

Real Estate Policy Still Tightening

Beijing is closing the divorce loophole.

SCMP: Beijing imposes fresh home purchase restrictions to close the ‘divorce’ loophole

The move is only the latest in an unending string of tightening policies across the country. Meanwhile, economists and officials turn their focus to monetary and credit policies.

iFeng: 楼市调控再次升级 严控信贷资金过度流向房地产
In response to rising house prices, Industrial Bank chief economist Lu Zhengwei in an interview with the people's financial, said the rapid growth of money and credit is one of the important reasons leading to high prices. Real estate needs include residential demand and speculative demand. Residential demand reflects the commodity properties of commercial housing, speculative demand reflects the financial properties of commercial housing. When the speculative demand is greater than the residential demand, commercial housing use of its strong value-added financial attributes, has become the most important asset pool to absorb the currency.

National Development and Reform Commission Director He Lifeng also in China Development Forum said that at present, a large number of funds into the real estate market, once led the first-tier cities and hot second-tier cities in the housing prices rose too fast, further pushing up the cost of real economic development. To solve the imbalance between the real estate and the real economy, we should strengthen the land reform through sound monetary policy, speed up the supervision and coordination mechanism, and properly handle the non - performing assets to ensure that there is no systemic risk.

He Lifeng believes that the need to control the excessive flow of credit funds to the real estate industry, increase the intensity of policy interpretation and information dissemination, strengthen the communication of market players, enhance policy transparency, to the community to release a positive signal to guide all aspects of the future development of a good enhancement Market confidence.

..."Real estate is a highly leveraged activity in the sharp rise in real estate prices to give special attention, our top priority is to control the lever, the lever to control at a suitable level, to improve the down payment is the most direct action to reduce the lever. "Lu Zhengwei said.
Rising home prices are a symptom of loose monetary policy.

Flashback to 2016.

FT: Is there a new Plaza Accord?
Foreign exchange traders are buzzing with talk of a new “Plaza Accord”, following the marked change in the behaviour of the major currencies after the Shanghai G20 meetings in late February.

Since then, the dollar has weakened, just as it did after the Plaza meetings on 22 September 1985. The Chinese renminbi has been falling against its basket, in direct contrast with the “stable basket” exchange rate policy that was publicly emphasised by PBOC Governor Zhou just before Shanghai. The euro and, especially, the yen have strengthened, in defiance of monetary policy easing by the ECB and the Bank of Japan.
Marketwatch: Did central bankers make a secret deal to drive markets? This rumor says yes
Rumors are flourishing that global policy makers made a secret deal at the G-20 meeting in Shanghai late last month. This “Shanghai Accord” to weaken the greenback was aimed at calming the financial markets, which had gotten off to an awful start to the new year, according to the chatter.
The rebound in commodities and Chinese home prices were all a result of China's accelerated credit growth.

Now they are doing the cleanup. As before, real estate proves stubborn and policy tightening looks increasingly likely to overshoot.

Marketwatch: China money market jittery as PBOC cash dries up
Borrowers and lenders remain edgy after the Chinese central bank held off injecting cash into markets for the second day in a row, ending a three-day streak of pump priming this week. As a result, short-term funding costs remain close to levels unseen in more than two years, testament to Beijing's resolve to reduce its economy's unhealthy reliance on cheap credit and ballooning debt.

"What the central bank is doing is a proactive choice, which sends a clear message to markets that they aren't getting what they want," said Ding Shuang, an economist with Standard Chartered in Hong Kong.
The pumping was a response to the return of the cash crunch, the symptom of tight (for China) monetary policy.

2017-03-24

Huishan Dairy Collapses, Liaoning Again

Caixin: China Huishan Dairy Shares Plunge 91% Before Trading Halted
Shares of China Huishan Dairy Holdings Co. Ltd.’s plunged 91.4% Friday before the company halted trading, in the largest drop ever recorded on the Hong Kong stock exchange.

The dramatic fall came after financial regulators in northeast Liaoning province held a meeting on Thursday afternoon with 23 creditor banks to discuss Huishan’s debts, people with knowledge of the matter told Caixin. The creditor banks include Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and Ping An Bank.

China Huishan Dairy is the country’s largest cattle farms operator.. It came under the media spotlight last December when its stock was shaken after being attacked by short seller Muddy Waters, which published reports alleging Huishan’s fraudulent and overstated revenue. Huishan denied the allegations.
There may be knock on effects:
In June 2015, Champ Harvest Ltd., the controlling shareholder of Huishan Dairy, pledged its shares in the dairy company as collateral to obtain loans from Ping An Bank. To date, Champ Harvest’s outstanding loans with Ping An Bank total 2.1 billion yuan, and 3.434 billion shares have been pledged.