Business and Banking Confidence Slump in Q4

The PBOC's survey of business conditions is out. Pessimism is high in both the banking and business surveys. The bright spot in the business survey is that respondents have been consistent in their opinion of profitability, despite pessimism over the economy.

Business survey: 2014 年第 4 季度企业家问卷调查报告

Banking survey: 2014 年第 4 季度银行家问卷调查报告

Depositor Survey: 2014 年第 4 季度城镇储户问卷调查报告

Here's the banking survey results:

China Housing Update for December Shows Market Differentiation

Generally, sales have stabilized and rebounded in first-tier cities, while price declines have narrowed. 央行降息满月:楼市现止跌企稳 一线城市房价企稳反弹

More ghost cities emerge in third and fourth tier cities due to large inventory. One issue discussed in this article is the death of the demographic dividend. Most young people today "own" a house in a third- or fourth-tier city because their parents home will pass to them, but this is not an incentive to leave a second-tier city, and in fact the flow of population is going into second-tier cities. Many industries only exist in first- and second-tier cities. So these are potentially new ghost cities as the older population dies off and the young population leaves, something that can be seen across the Rust Belt and Northeast region of the U.S. 三四线再曝鬼城:房子积压太多 还在疯狂盖

Nanjing housing market is hot and cold as market differentiation takes hold. Recently, cheap and expensive housing have both come to market. A high end property quickly sold 90% of its units, while a low-end property struggled to even sell 10% of its units. 南京楼市冰火两重天 专家:市场分化明年将持续

Guangzhou is the exact opposite of Nanjing. November sales were up in the cheaper segments and down in the more expensive ones. The general situation has cooled a bit in December, with the market dominated by those with current housing demand. 楼市寒冬持续 广州小户型二手房成交量同比下滑

The PBOC's Q4 survey of business and banking conditions is out and nearly 60% of Chinese still believe home prices are too expensive. 央行:近60%居民认为目前房价高

Foreign Banks To Receive Equal Treatment in 2015 or Not

Two views on China's shift in its regulatory stance concerning foreign banks. The Chinese view in the 21st CBH article below says this gives foreign banks equal treatment and is evidence that China's financial opening is picking up speed. The FT article argues that nothing fundamental has changed.

China eases rules for foreign banks

Social Mood Still Sinking, Political Authorities Divide The Public

In Europe, extremist immigration policies from the era of peak social mood continues to create conflict. The elites still fail to hear the message though, branding opponents of extremist immigration policies as xenophobic. We are now well into the mood cycle and many mainstream parties still have not changed their immigration policies.
Xenophobia mushrooms in shadow of Berlin tower blocks
As Germany confronts a rise in far-right populism, with "anti-Islamisation" marches drawing thousands in the eastern city of Dresden, this bland corner of the sprawling capital, a district home to almost 300,000 people, has become another flashpoint of resentment and xenophobia.

"I have nothing against foreigners, I've been around them all my life," said Fritz Siebke, 91, enjoying a Christmas season banquet of meat rolls, potato dumplings and gravy with fellow German pensioners at a district community centre.

"But since we've accepted refugees into Marzahn-Hellersdorf, things have changed in the neighbourhood. My gardening tools were stolen from right outside my house. In the past, that wouldn't have happened."

Christa Timm -- a fellow retiree who has lived here "for half a century," since the days when a Marxist-Leninist regime was in charge -- grumbled that "it would have been good if the authorities had informed us properly."

In Sweden:
Anti-immigrant sentiment is part of the story, though Swedish public opinion has become much more favorable toward immigration since the early 1990s. For some, immigration has become a symbol of a society gone astray. For others, the number of immigrants over the last few years has simply been too high.
In fact, the numbers are high – not in comparison with a country like Turkey, but certainly relative to other European Union countries. Sweden and Germany receive the largest inflows of immigrants by far – and Germany is nearly ten times the size of Sweden.

...In the new century, refugees have come increasingly from the Middle East and the Horn of Africa. One percent of Sweden’s population today is from Iran, and almost 2% are from Iraq. Indeed, after the Iraq war, the small town of Södertälje took in more Iraqi refugees than the United States did.

Given the numbers, immigration in Sweden has worked much better than expected. But there are problems. The Swedish labor market’s sometimes rather strict systems and stable structures have impeded integration relative to many other countries.
No mention of the rapes. Here is a chart of Sweden's rising immigration population along with the rising number of rapes. This increase is in distinct contrast to most crime rates in the West, which are generally falling as the native population ages.

The key issue here isn't the behavior of immigrants, it is the elite response. The political establishment doesn't just ignore the issue, it attacks those who even bring it up as racist and xenophobic. As the German woman stated, "it would have been good if the authorities had informed us properly." Authorities aren't informing the public, they're actively covering up incidents, such as the systematic rape of children in Rotherham. The public is angry that these things happen, but the authorities respond by attacking the people, which ratchets up the anger and leads to populist movements. The political establishment could defuse right-wing populism tomorrow by shifting their policies, but instead they are pushing even harder in the opposite direction. It does not take a genius to predict political victory for whichever party opposes mass immigration.

The typical elite opinion can be seen in this FT editorial on the Sweden Democrats victory: Rightwing populists in Europe make mischief
However, the priority now must be to expose the Sweden Democrats as a party with a reckless approach and an array of intolerant, socially divisive policies wholly out of keeping with Swedish political culture. The main parties need not be scared by the Sweden Democrats’ threat to make the election campaign “a referendum for or against increased immigration”.

The Sweden Democrats abandoned their neo-Nazi doctrines more than 10 years ago, making it inaccurate to label them a far-right party, but most Swedes correctly regard the party’s aggressive line on immigration as unpalatable. The more intensely the party dwells on immigration, the more remote its chances of making an electoral breakthrough. Come March, Swedish voters can show the world that the tide of rightwing European populism is anything but unstoppable.
There is a massive chasm between the voters and the political establishment. Instead of making mischief, the far-right is on its way to making policy because they have a near total monopoly on the hottest political issue for the rest of this decade.

Leaving aside the immigration issue, there's negative social mood. Is the west clinically depressed?
To some people, the future will always be behind them. Rarely, however, has such gloom covered most of the western world at the same time. Even during those brief moments — the stagflation of the 1970s, for example — it faded with the crisis.

Today’s pessimism is more troubling in two ways. First, economics does not fully explain it.
Socionomics argues that negative social mood created the weak economy.
What then, is the matter with the west? The answer is beguilingly simple. We are growing older. In economic terms that means secular stagnation.
Aging may play some role, but it doesn't explain all of it. The article notes how stagnation leads to more conflict as people fight over fewer resources. The elite solution of importing more foreigners to fight over dwindling resources is a recipe for political disaster.

The U.S. is also seeing major negative mood as the society fragments. Only a little more than a week ago: AL SHARPTON LEADS MARCH IN DC AS NYC PROTESTERS CHANT: ‘WHAT DO WE WANT? DEAD COPS!’

This weekend, the call was answered. Progressives and the Police
‘What do we want? Dead cops!” So chanted marchers at one of the protests organized in the last month against the failure of grand juries to indict white officers in the death of black crime suspects Michael Brown and Eric Garner. On Saturday they got their wish, as a black assailant citing revenge for Brown and Garner traveled from Maryland to murder two cops sitting in their patrol car in Brooklyn.

Bratton: Tensions in NYC like 1970s
“Many issues of the 1970s are now revisiting us once again. And once again at the forefront of dealing with those will be America’s police forces,” Bratton said at a police promotion ceremony on Friday at NYPD headquarters, according to Capital New York.

Many Americans share Bratton’s alarm, according to a handful of recent polls.
Just Friday, a Gallup poll said the number of Americans citing race relations or racism as the most important problem in the country jumped to 13 percent, the highest since 1992 — in the midst of the Rodney King verdict — and up from 1 percent only one month previous in November.

Similarly, in an NBC News/Wall Street Journal poll also released last week, a majority of 57 percent of Americans said race relations are “bad” with an additional 23 percent who said they’re “very bad.” A pair of polls from Quinnipiac University showed New York City voters disapprove of Mayor Bill de Blasio’s handling of relations between police and the community — with approval numbers dropping even further among minorities.
The difference with the 1970s is that the U.S. was still mainly dominated by a single ethnic group, so political debate was mainly ideological. Now politics is identity driven, with no dominant group able to set policy. President Obama's main political agenda are things such as the "War on Women" and drumming up local news into national news, such as the Trayvon Martin and Michael Brown shootings. Divide and conquer is now the operating agenda of America's political establishment. Exactly the policy agenda one would expect in a time of negative social mood.

Xi‘an Credit Guarantee Firms Go Bust

Several non-financial credit guarantee firms (non-financial refers to firms that have not obtained a license to operate as a financial company) collapsed in Xi'an recently and their bosses have fled.

The non-financial guarantee industry in Xi’an is a desolate scene. Funding strands break, the bosses of five of the companies fled, and many investors suffered heavy losses, causing anxiety among people and drawing the attention of authorities. At least ten firms are involved in a payment crisis and at least 300 million yuan is at stake, with as much as 100 million lost.

Many firms hold negative views of the situation. For example, one boss of a guarantee company went to police, admitted that there was a crisis of confidence, a payment crisis, and asked to close his company. Investors money is with other firms and he can do nothing. But the police refused his request and said that the police cannot get involved if there is no case report.

One of the insiders told the reporter that companies are responding to the crisis differently: some are raising money to ward off a payment crisis; other firms published an announcement stating the investment funds will be gradually repaid, but the firm is shutting other operations; others still to believe that there is a narrow chance of a government bailout.

Many firms operating in Xi'an came from Henan province in recent years and were engaged in illegal fundraising, using high interest rates as bait. Older Xi'an credit guarantee firms have a license to operate as a financial company and mostly did traditional business such as guarantees on mortgages and car loans. The Henan companies were mainly raising cash from private investors and making high interest loans to private parties. Police are now investigating the situation and new licenses for non-financial firms have been suspended until the matter is sorted out.

The main reason for the present situation in Xi'an is that most of the money went into the real estate industry. This year's downturn in home prices has developers struggling and defaulting on debt. Also, some bosses fled simply because they're crooks who squandered investors money. If history is any guide, losses may end up being less than expected, but the number of firms it touches may climb in the coming weeks and months.

East Money: 西安担保业严冬 多家非融资性担保公司崩盘
Guhantai: 陕西投资担保企业连续崩盘 数以干计投资人受损

Prior coverage of credit guarantee crises.


November Home Price Decline Slows Again

New home prices fell 0.56% in November, a reduction from the 0.76% decline in October. Year-on-year prices are now down an average of 3.6%. New home prices in only 2 of the 70 cities are not down yoy.

March: 4 cities saw declines in price mom, 10 cities were flat, 56 were up.
April: 8 cities saw declines in price mom, 18 cities were flat, 44 were up.
May: 35 cities saw declines in price mom, 20 cities were flat, 15 were up.
June: 55 cities saw declines in price mom, 7 cities were flat, 8 were up.
July: 64 cities saw declines in price mom, 4 cities were flat, 2 were up.
August: 68 cities saw declines in price mom, 1 city was flat, 1 was up.
September: 69 cities saw declines in price mom, 1 city was flat, 0 were up.
October: 69 cities saw declines in price mom, 1 city was flat, 0 were up.
November: 67 cities saw declines in price mom, 3 cities were flat, 0 were up.

Existing home prices firmed even more than new homes. The decline in November shrank to 0.38%, up from a 0.84% decline in October.

70 city new home price changes by market segment: below 90 sqm prices fell 0.5% mom; 90-144 sqm prices fell 0.6%; above 144 sqm prices fell 0.7%.

70 city existing home price changes by market segment: below 90 sqm prices fell 0.4% mom; 90-144 sqm prices fell 0.4%; above 144 sqm prices fell 0.5%.

Below is the data from the housing report, but adjusted to show the change. I sorted it by the change since 2010. It shows how wide the gap is from the hot markets to the cold.

The NBS report is here: 2014年11月份70个大中城市住宅销售价格变动情况

MoM YoY Since 2010

Last Month = 100 Last Year = 100 2010 = 100
Wenzhou -0.5 -5.5 -22.2
Hangzhou -0.4 -9.5 -7.4
Ningbo -0.4 -4.4 -5
Jinhua -0.2 -4.3 -0.7
Haikou -0.3 -3.7 -0.5
Tangshan -0.1 -2.8 0.1
Quanzhou -1.2 -4.7 2.4
Bengbu -0.7 -5.3 2.7
Sanya -0.6 -3.2 2.7
Wuxi -0.6 -3.7 2.9
Anqing -0.9 -5 3.7
Qingdao -1 -4.8 3.9
Dali -0.6 -2.4 4.3
Jiujiang -0.3 -3.5 5.4
Shaoguan -0.7 -7.3 5.9
Yangzhou -0.4 -4.2 6.2
Nanchong -0.7 -3.9 6.9
Luzhou -0.4 -4.6 7
Beihai -1 -3.5 7.2
Baotou -0.7 -4.5 7.3
Yantai -0.9 -3.6 7.4
Nanning -0.3 -3.3 7.8
Ganzhou -0.6 -5.2 8
Chongqing -0.5 -4.8 8.3
Chengdu -0.6 -4.2 8.3
Huizhou -0.5 -4 8.7
Tianjin -0.3 -2.3 8.8
Jinan -0.4 -3.2 8.9
Xuzhou -0.6 -3.6 8.9
Changde -0.3 -2.5 8.9
Changchun -0.6 -2.9 9.5
Hohhot -0.9 -3.7 9.9
Kunming -0.6 -2.8 9.9
Xiangyang -0.7 -4.3 9.9
Qinhuangdao -0.5 -4.1 10
Jining -0.4 -2.5 10
Yichang -0.9 -3.9 10
Zunyi -0.5 -2.6 10
Jinzhou -0.9 -5 10.1
Harbin -0.4 -3.2 10.3
Jilin -0.3 -3.5 10.5
Pingdingshan -0.7 -3 10.5
Nanjing 0 -1.5 10.7
Guiyang -0.4 -2 10.8
Mudanjiang -0.2 -1.7 10.9
Guilin -1.3 -6 10.9
Taiyuan -0.4 -3 11
Hefei 0 -0.6 11
Yinchuan -0.9 -2.3 11.1
Dandong -1.3 -4.9 11.1
Wuhan -0.3 -3.6 11.2
Dalian -1.4 -4.7 11.3
Shenyang -1.2 -6.7 11.5
Luoyang -0.4 -3.1 12
Yueyang -0.5 -1.8 12
Xi'an -0.7 -2.4 12.2
Nanchang -0.4 -4.4 12.3
Zhangjiang -1 -4.1 12.6
Lanzhou -0.3 -2.6 12.7
Fuzhou -0.4 -4.7 13.1
Changsha -0.9 -5.7 14.5
Shijiazhuang -0.2 -2.8 16.1
Shanghai -0.4 -2.9 16.1
Beijing -0.2 -2.1 17.9
Xining -0.4 -1.3 18
Urumqi -0.7 -2.7 19.7
Zhengzhou -0.2 0.4 20.2
Shenzhen 0 -1.9 22
Guangzhou -0.4 -3.8 22.3
Xiamen -0.4 2.9 27

Why Is Oil Down? China's "Open Secret" Slowdown

Wondering why oil is down? Demand is down. Saudi Arabia Says Hard for OPEC to Give Up Market Share
Global oil markets are experiencing “temporary” instability caused mainly by a slowdown in the world economy, Oil Minister Ali Al-Naimi said, according to comments published yesterday by the Saudi Press Agency. He reiterated the country’s intention to maintain output amid plunging prices.

China's slowdown is an open secret: for all the government is blamed for massaging the data, it puts out a lot of data that shows sharp slowdowns in various sectors and geographic regions. The charts below are cherry picked to show where the economy is slowing. The slowdown/recession is still concentrated in the northeast and real estate related sectors, although the drop in electricity production and autos hints at a widening slowdown.

Auto production is down.
Related: Massive Volume "Panic Selling" Cuts Warren Buffett's Chinese Car Maker BYD In Half Overnight
The reason - perhaps unsurprising - given by some is worries over Mainland China IPOs "caused a liquidity squeeze," as the recent rally in mainland shares is led by leverage financing leading to major margin-calls on modest drops. Is it any wonder the PBOC is trying to tamp down the speculation.
I don't think so, since earlier this month a CASS researcher explained how smart money is buying when there are liquidity freezes. Also, BYD trades in HK, not only the Mainland, but the drop was larger in the market without a liquidity freeze......ZeroHedge links to a story with the real reason (reason not in headline): China Stocks Fall From 4-Year High on IPO Concern as BYD Slumps
BYD, the automaker partially owned by Warren Buffett’s Berkshire Hathaway Inc., slumped as much as 47 percent in Hong Kong and plunged by the daily limit in Shenzhen.

......The shares slid 10 percent in Shenzhen. Investors are speculating on BYD’s outlook after Geely Automobile Holdings forecast a plunge in profits on the slumping ruble, said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc.
The contagion begins? BYD addressed 6 rumors today: 比亚迪紧急会议澄清六大传言:王传福没“出事”
1. Russia is not the presence of large amounts of foreign exchange losses, BYD sales to Russia a year only a few hundred thousand dollars ; 2. electric cars are all running correctly; 3. battery factory normal operation; 4. for the reduction of major investors rumors, investors and members through communication, nor understand; 5. the possibility of Buffett's holdings of small, recently did a communication; 6. Wang no "trouble", he still presided over the shareholders' meeting yesterday, today also met with the staff.

Electricity production:

Cement production:

Industrial production in China's industrial heartland. Hebei technically isn't in the northeast, but has many steel mills. Beijing and national rate in for comparison.

Real estate investment in Liaoning province, Heilongjiang and Jilin.


Cash Crunch Hits China As SHIBOR, WMP and Discounted Bill Rates Jump; PBOC Is Boxed In

Interest rates are moving up across the board now (SHIBOR, WMPs, deposit rates...) and 21st Century Business Herald asks, is the PBOC going to pour liquidity into the market or cut the reserve ratio? Unstated is the expectation that something has to be done. (21st CBH infographic at bottom.)

The charts are as follows: SHIBOR, discount rate in Yangtze River Delta region, WMP interest rates, central bank repos, and central bank interventions (repos in orange, liquidity injections in purple and blue). It shows the PBOC stopped repos in November.

China experienced a serious cash crunch in June 2013 and the situation has only grown worse in terms of the economic fundamentals. The central bank stepped in at prior quarter ends to avoid a repeat of the cash crunch, but rising bad loans and tighter credit in the economy only make the conditions tougher on the banks.

Chinese coverage here: 年底钱紧央行降准预期加大 银行间拆放利率飙升 (cleaned up Google Translated portions below)
Banks are short of money at year-end again.

...calls grow louder for the central bank to add liquidity or drop reserve ratios

...In fact, the negative factors facing the financial side of this week's performance in several ways. First, the start of the 18th batch of the seventh IPO subscription amount is expected to freeze the funds or continue record year peak . According to Guotai Junan estimates, including Guoxin Securities , the mineral resources of 12 new shares is expected to issue 1.56 billion shares IPO is expected to freeze the funds over 2.2 trillion, the largest in history. Secondly, the recent depreciation of the RMB spot exchange rate to accelerate, or increase outflows, November new foreign exchange malaise. The central bank data show November financial institutions foreign exchange increased by only 2.2 billion yuan, down sharply from October's increase of 66.1 billion yuan.
The last point is typical of every significant yuan depreciation in the past 5 years: dollars dry up fast. The yuan is now down to 6.22 versus the USD in HK.

The PBOC is boxed in because it can't ease monetary policy with capital flowing out of the banking system and into the stock market, or overseas. A move to cut rates will boost the stock market and depreciate the yuan.
"Based on the current exchange rate to fall, the stock market fiery and hot money outflows, the central bank will not easily use an open, substantial liquidity tool. But with the gradual increase in financial pressure, the greater the probability of reverse repurchase and adjust the deposit reserve ratio. " Haitong Securities analyst told Economic Herald reporters that the introduction of a limited scale, temporary and targeted delivery tools, such as expectations continued to do more to determine the MLF.

English coverage: China money rates rise sharply as mini-crunch anniversary approaches
China's money rates surged Thursday afternoon, with the weighted average for the benchmark seven-day repo contract quoted at up to 8.5 percent, the highest level since January.

The rise follows another week of relative passivity by the People's Bank of China in the interbank market, where the bank neither drained nor injected funds. It has sat on the sidelines during biweekly open market operations for seven straight sessions.

21st CBH infographic: 年末流动性再趋紧 央行公开市场放量or全面降准?


Long Crude, Short Oil Stocks

Flexible Yuan Goes Down, Not Up

Compare these two parts of the article:

China Warms to a More Flexible Yuan
The shift comes as the People’s Bank of China grapples with what some within the central bank call “unprecedented” downward pressure on the yuan, thanks to a strengthening U.S. dollar and a slowing Chinese economy. The yuan has fallen more than 2% against the dollar since the beginning of this year, putting it on track for its first annual decline in five years. On Wednesday, it was down 2.3% against the dollar for the year.

But the PBOC is unlikely to permit the yuan to slide more than 3% against the dollar, the officials and advisers to the central bank say. Big yuan depreciation could cause money to flow out of the country just when China needs funds to spur economic growth.

The yuan is down 2.3% this year and a decline of more than 3% will cause capital outflows.

Jim Rickards has described a change in the market as a "phase transition." It is a jump from one equilibrium to a new equilibrium. Today, people believe the yuan is a stable currency with a bias towards appreciation. They expect very little volatility, and almost none on the downside.

The PBOC and China generally have the illusion of control because of their past success. Even the most competent can lose control by believing they control the market. China's leaders appear competent because they are willing to cede control of the economy to the market as it grows in size and complexity. If Chinese leaders suffer from the Fatal Conceit, the yuan will fall. If they open the economy, the yuan is a better bet, but it could also fall due to volatility in the market. The risk today is on the downside, and if its cheap to bet on a move outside of expectations in 2015, I'd take it.


Yes Virginia,There Is A Market

Bloomberg noticed that interest rates went up in China.

How China’s Interest-Rate Cut Raised Borrowing Costs
What if a central bank cut interest rates and borrowing costs rose?

Since the People’s Bank of China surprised markets with the first benchmark rate reduction in two years on Nov. 21, the five-year sovereign bond yield climbed 15 basis points, that for similar AAA corporate notes surged 37 and AA debt yields jumped 76.

In the past four weeks, I've posted: Deposit Rates Go Up in China
Reality in China: Banks May Eliminate Rate Cuts
Deposit Competition Begins: Some Chinese Banks Hike Long Term Deposit Rates

Rates went up immediately due to the increased role of the market in setting interest rates. Nominal interest rates are much higher in the private Chinese economy. Ignoring current economic trends, if the Chinese economy opens up and allows a greater role for private companies (as is happening), interest rates would rise without an offsetting inflow of capital, artificial or real. Since foreign investment is falling.....

Moreover, China's push for a bull market rally had consequences too. Also Bloomberg: China’s Stocks Sink Most Since 2009 as Turnover Jumps to Record
The nation’s clearing agency for exchanges has stopped accepting new applications for repurchase agreements that involve bonds rated below AAA or sold by issuers graded lower than AA, according to a statement yesterday. The move will help remove riskier debt from the repo market before China requires local government financing vehicles to clarify next month which bonds are backed by the state, according to Guotai Junan Securities Co.

The yield on Kashi Urban Construction Investment Group Co.’s 800 million yuan of debt due November 2019 climbed 75 basis points to 7.17 percent, the biggest jump since July, exchange data show. Kashi Urban Construction is an LGFV.

One-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, jumped as much as 29 basis points to 3.67 percent, the highest since August.

It also doesn't help that China still tries to manipulate the market. As ZeroHedge noted: When Central-Planning Fails: "Stimulative" Chinese Rate Cuts Spark Surge In Borrowing Costs
The reason is simple - the leveraged-speculative surge into Chinese stocks triggered by the "easy" rate-cuts sparked a major rotation from bonds into stocks - which forced the PBOC to stymie leveraged-trading and implicitly tighten financial conditions dramatically for the stressed corporate bond market.

China's rate cut does not signal good news for the market; it signals the central bank is finally coming around to the reality of economic weakness. Credit is tight and the push for a bull market, while it can alleviate some funding needs for financial firms, has unintended consequences for the bond market. Policy makers are constrained by the market and there's no painless way out.


Lanxiang Vocational School

On the lighter side:
Lanxiang Vocational School Promo Video, Netizen Reactions
he Shandong Lanxiang Vocational School gained international attention four years ago when it was singled out by The New York Times as one of the schools responsible for the hacking and cyber attacks against Google and other US companies and government agencies. As a result, Lanxiang has become somewhat of a joke among Chinese netizens where “hacker school” seems hardly fitting for a school better known for teaching people how to drive excavators.

With Lanxiang back in the headlines following a recent campus brawl and then a scandal involving its president, Chinese netizens took the opportunity to poke fun at Lanxiang Vocational School’s over-the-top promotional videos detailing its courses in auto repair, cooking, hairstyling, computer, welding, machine tools, and of course… excavators.


Industrial Production and Fixed Asset Investment Slows

I covered November monetary data here: Lending Spikes in November
November real estate investment here: November Real Estate Growth Slowest in 2014, Land Sales Growth Shrinks

Fixed asset investment was down slightly in November. Private fixed asset investment is in yellow; total fixed asset investment in blue. Private investment was 64.6% of total investment in November.

Digging into the numbers reveals the same trend in the other data sets. November data is the second weakest for the year after September. The October spike is a bounce, not a trend yet. Private fixed asset investment slowed to 14.9% in November; it was 11.7% in September. Below trend growth is the story of 2014 and 2015 will likely open with a big drop in growth that will "surprise" anyone watching the year-to-date cumulative figures.

Industrial production continues to slow. Looking at the breakdown of data from the report, the real estate slowdown is still having a big impact. Cement production fell 4% in November; plate glass contracted 6.3%. More concerning for the broader economy is the 4.5% drop in auto production, as well as the 0.6% growth in electricity production, which is now only up 3.9% ytd in 2014.

The drop in oil prices has further to go if the Chinese economy continues to slow.

Crude Crash Set To Continue After Arab Emirates Hint $40 Oil Coming Next
“We are not going to change our minds because the prices went to $60 or to $40,” Mazrouei told Bloomberg at a conference in Dubai. “We’re not targeting a price; the market will stabilize itself.” He said current conditions don’t justify an extraordinary OPEC meeting. “We need to wait for at least a quarter” to consider an urgent session, he said.

And with OPEC’s 12 members pumped 30.56 million barrels a day in November, exceeding their collective target for a sixth straight month, according to data compiled by Bloomberg. Saudi Arabia, Iraq and Kuwait this month deepened discounts on shipments to Asia, feeding speculation that they’re fighting for market share amid a glut fed by surging U.S. shale production.

The above only focuses on the (unchanged) supply side of the equation - and since the entire world is rolling over into yet another round of global recession, following not only a Chinese slowdown to a record low growth rate, but also a recession in both Japan and Europe, the just as important issue is where demand will be in the coming year.

Japan's election could throw some logs on the fire.

Ruling coalition secures 2/3 majority
The Liberal Democratic Party led by Prime Minister Shinzo Abe and its coalition partner, Komeito, garnered 325 seats, one more than a two-thirds majority, in the 475-seat Lower House.

A two-thirds majority in the chamber will allow the re-enactment of bills rejected by the Upper House. A two-thirds majority in the Lower House also makes it possible to propose amending the Constitution.

Prime Minister Abe told NHK that he will give top priority to the economy and pursue economic diplomacy to heighten Japan's status. He said he will enact legislation regarding security in the next Diet session to protect the people's lives.
CRemilitarization and yen devaluation.


Lending Spikes in November

M2 money supply increased 11.98% in November, the slowest growth since September. The big growth area was bank loans, which appears to have been the result of central bank internvention. Without the spike in bank loans, the decline in total social financing (TSF) would have been right on trend.

Chinese banks increase lending faster than seen
Chinese banks increased lending faster than expected in November amid signs that the central bank's bid to expand credit to a slowing economy was working.

The People's Bank of China last month continued to rein in lightly regulated shadow-bank lending even as it routed credit to the real economy, economists said Friday. But some added that it was too early to tell whether the monthly new loan expansion represented a sustained credit boost or a temporary blip at a time of weakness in the nation's manufacturing, real estate and trade sectors.

China tells banks to step up lending to lift flagging growth
China has told its banks to lend more in the final months of 2014 and relaxed enforcement of loan-to-deposit ratios to expand credit, sources told Reuters, as Beijing prepares to release data that could confirm the relentless slowing of its economy.

...Two sources with knowledge of the matter said China's central bank increased the annual new loan target to 10 trillion yuan ($1.62 trillion) for 2014, up from what Chinese media have said was a previous target of 9.5 trillion yuan.

Banks have disbursed 8.23 trillion yuan of loans between January and October, so they will have to quicken the pace in the last two months if they are to meet the new target.
Charts below the break.


November Real Estate Growth Slowest in 2014, Land Sales Growth Shrinks

Real estate investment slowed again in November, this time to 7.59% year-on-year growth. This is the worst monthly growth total since September's 8.63% growth, and going back in time, these numbers are worse than only a couple of months in 2009, at the depth of the financial crisis. I show the one month, yoy change in the last chart, which shows investment running below trend.

The drop in land sales was no doubt led by smaller cities, as covered earlier this week in A Tale of Two Tiers.

Charts after the break.

Full NBS report in Chinese here.