2014-11-27

Oil Price Slump Bad News for China's Energy & Industrial Belt

The hardest hit provinces in China are those where coal, oil and steel are major industries. A month ago I posted Liaoning Sounds Warning on Chinese Economy. Today, the provincial real estate investment figures are out again and it shows and uptick in most of the country, but the provinces with large industrial and energy sectors remain below the national growth rate.


Here are the real estate investment growth rates for these provinces:


In June of this year, I had two post on Tianjin.

Tianjin Rebuilds Manhattan in Binhai; Has 90% Empty Ghost City in Baodi
Tianjin Industrial Growth Rate Falls to 13 Year Low in May; City Government Shocked

Tianjin's industrial production growth rate dipped into the summer and then rebounded to 9.5% in October. Looks like the real estate sector was used to pull growth higher......

Russian Ruble Crumbles

Ruble down more than 2%, oil down more than 6% and no bottom as of yet, Russian stocks down 2%, but closed before the action heated up in the oil market.

OPEC Balks

Bad news for expensive producers and poorly managed countries. Good news for a U.S. dollar rally...

Chinese Store Bans Chinese Customers

China already had its Cultural Revolution and isn't interested in angry mobs. Complaining on Weibo is fine, but that'll be the extent of it.

Beijing store sparks racism row... by banning Chinese customers
A clothing store in Beijing has sparked a bizarre race row by banning Chinese customers from the premises for being "too annoying".......the mainland had not outlawed racial discrimination, so the sign was not breaking any laws.

2014-11-26

Trust Apocalypse Averted in 2014

Trusts are coming due and those in the real estate sector were the subject of great concern this year. As it stands today, trust firms are scheduling their final payments and are not expected to default. Apocalypse averted, at least for now. Next year will be another year of concern if the housing and credit markets don't rebound.

到期近百亿元 10月房地产集合信托兑付压力大

Local Govt Bad Debt Cleanup Continues

All is well, don't mind the bad banks behind the curtain.
China approves second batch of local asset management companies
The mainland banking regulator has approved a second batch of asset management companies tasked with cleaning up debt at the city and provincial level, bringing the number of formally approved "bad banks" to 10.

The China Banking Regulatory Commission cleared governments in Beijing, Chongqing, Tianjin, Fujian and Liaoning to set up AMCs, state-backed Economic Information said on its website yesterday. The second wave of approvals comes after Zhejiang, Jiangsu, Anhui, Guangdong and Shanghai established locally controlled firms in July.

2014-11-25

PBOC Adviser: No More Rate Cuts Until Q4 Data

China won't consider more rate cuts or easing until fourth quarter data out: official
China's central bank will wait until fourth-quarter economic data is out and monitor U.S. and Japanese monetary policy before considering any more rate cuts or easing, a central bank adviser said on Tuesday.

The People's Bank of China surprised the markets by cutting rates last Friday for the first time in more than two years to help stabilize the world's second-largest economy. Reuters then reported that China was prepared to ease policy again.

"Regarding the next step, whether to cut rates again or take similar action, we still need to look at the fourth quarter's macroeconomic index," said Chen Yulu, who sits on the central bank's monetary policy committee. He was speaking on the sidelines of an economy and finance forum in Beijing.

"It is also important to make decisions taking into account Japanese and U.S. monetary policy," Chen said.

Reality in China: Banks May Eliminate Rate Cuts

Instead of lowering the cost of lending, banks may eliminate their 10% mortgage discounts in the wake of the PBOC's rate cut. The net result will be little to no change in rates.

iFeng: 降息后房贷利率仍可打9折 业内:折扣可能取消
However, the industry believes that the higher cost of capital in the current environment, whether it can really reduce the cost of credit is still in doubt, Wu Hao Wei Jia Anjie mortgage expert, believes that before the end of the year, the Bank may cancel the first suite of lending rates discount. "Asymmetric cuts in fact did not reduce the bank's cost of funds, coupled with the end has always been funding constraints, the bank is likely to cancel the mortgage interest rate discount, becomes the benchmark interest rate." Wu Hao think.

Kuroda Says Dump Yen, Yuan to Fall

ADXY is below 114 and DXY is on the verge of breaking out, signaling global U.S. dollar rally is ready to begin.

Kuroda Tells Japan Inc. to Stop Hoarding Cash as Costs to Rise
Bank of Japan chief Haruhiko Kuroda urged business leaders to use profits more productively, saying hoarding cash will become costly as the central bank stamps out deflation.

Yesterday, there were reports of trouble in the interbank market. Liquidity Alert? China's Interbank Market Delays Close By 30 Minutes

Also, reports that Chinese bond sales are being pulled: China’s Companies Scrap $1 Billion in Bond Sales as Yields Jump
China’s companies scrapped or delayed at least 7.55 billion yuan ($1.2 billion) of bond sales since Nov. 20 as borrowing costs jumped, flagging fundraising strains even as the central bank eased monetary policy.

The yield on AAA rated corporate securities due in three years rose 17 basis points last week, the most in a year, to 4.43 percent. The increase comes as investors held more cash ahead of planned new share sales this week, with initial public offerings to lock up at least 1 trillion yuan, according to Australia & New Zealand Banking Group Ltd.

Has the PBOC blown the devaluation horn? Survey says not so much: 人民币对美元暴跌200点 央行降息吹响贬值号角?
China Merchants Bank Head of Financial Markets analyst Liu Dongliang also pointed out: "After the theoretical existence of downward pressure on the RMB exchange rate cut, but China's current implementation of the" managed floating exchange rate system "will not allow this to happen, The central bank will not secure the exchange rate depreciation, interest rate double loose situation also does not appear, the RMB exchange rate will only be a mild correction, on the whole will remain strong, not even rule out the possibility of further appreciation. "

November 24, UBS (UBS) issued to China 2015 ~ 2016 economic outlook is expected in the context of a strong dollar, the RMB against the US dollar will be a slight devaluation of the RMB against the US dollar by the end of 2015 will reach 6.35 by the end of 2016 amounted to 6.40 , it is still possible during the periodic revaluation and two-way volatility increases.

And then there's the old economic argument for the rate cuts: News Analysis: China's interest rate cuts set to support property demand

China cannot simultaneously cut interest rates and expect the yuan to appreciate because hot money will flow out of the country. Short of igniting an economic boom, a yuan rally isn't going to happen. Since the leadership does not want an investment led boom, which is the only way the current economy would be able to deploy massive capital inflows/credit growth, the hot money will leave if rates continue to slide. The other option is to let the tight credit conditions deflation do its work. The painless short-term solutions are gone. Long-term, reforms will lift the economic growth rate, but short-term there are no painless or costless options.

2014-11-24

TB Cows Sink Modern Dairy

This story broke two weeks ago.

China Modern Dairy Plunges as Government Probes Cow TB

Chinese investigations have turned up more evidence: many employees of the firm came down will contagious diseases from working with the sick animals, and more than 70% of the milk from Modern Dairy went to Mengniu.

iFeng: 现代牧业每年有员工被查染上布病 超七成原奶供应蒙牛

Chinese Realtors Have a New Enemy

Chinese real estate agencies struggling with the slowing real estate market turned to rental properties as a new profit center. Now this move is coming under assault as a new app helps link up renters with landlords, causing realtors to slash their fees by 50%

O2O搅局租房市场 中介费打5折能否成为常态

China Liberalizes the Healthcare Market

China has started reform of the healthcare system, with Shanghai taking the lead in the market pricing of drugs and medical devices.

Economic Observer: 新价改“闯关”

One feature of China's system is that it costs almost nothing to see a doctor, but medicine is inflated by hospitals and doctors. Market pricing will help correct these types of situations.
On the day of the State Council executive meeting, Premier Li Keqiang to the outside to release the two signals, one price reform will "accelerate", on the other hand, the core price change is "a greater degree the market pricing."

Li Keqiang at the meeting, for example in medicine prices, public hospitals, physician fee price is too low, but it still exists to hold down prices, therefore, through reform, and gradually straighten out such an unreasonable price mechanism.

Reforms are kicking off in Shanghai: 药价改革上海破冰 非政府定价药品放开

The Google translation is a bit stilted, but the message comes through: reform will take time since monopsony pressure in the bidding process will still hold down prices.
About Shanghai reforms, the majority of business people believe that the future of the pharmaceutical industry price changes will not be much. Classification of essential drugs and medicines as well as non-Medicare drug pricing drugs outside of the government, in the current pharmaceutical market structure, the implementation of the Medicare drug bidding, the bidding policy around, the prices are being suppressed, "If bidding policy does not change, drug prices changed little. "A pharmaceutical source said.

Drugs at his own expense, in the eyes of those companies, this part should make independent pricing, currently the country have set up barriers, origin price, price, etc. local provinces offer process conditions, virtually has limited business of their own products the right to decide the price.

"Fully competitive areas, such as basic drug prices will not go up, a single species may raise prices." Pharmaceutical companies believe that drug prices after the reintroduction of market prices will return to the normal rules of market economy status.

"Drug prices, and finally from a planned economy to a market-oriented economy in the form of changes in the morphology." Pharmaceutical Industry Association, one person said.
Considering the vast majority of the developed world relies on socialist economics for healthcare, it would be surprising if China implements more market reforms than the West, but for now the trend in reform favors China.

Another Chinese Developer In Trouble As Debt Collectors Swarm Stalled Project

Coastal Greenland Limited, symbol 1124 on the Hong Kong market, is caught up in a massive development called 世润. Creditors have gone to court in Shenzhen to collect debts on the shuttered project.

沿海国际深陷“追债门”

2014-11-23

Liquidity Alert? China's Interbank Market Delays Close By 30 Minutes

A large Chinese bank in search of liquidity kept the interbank from closing on November 20. The Google Translation gives the gist of the situation.

21st CBH: 流动性警报?银行间市场交易罕见延时30分钟

Analysts Not Optimistic About Rate Cut Results

As said previously, China has a greater ability to shift costs in its economy, but it is not immune to economic reality. The cost of inflation and credit bubbles cannot be avoided, at best it can be delayed and shifted. Now the bill is coming due.

China's rate-cut likely to hurt banks, curb new loans to small borrowers
China's latest interest rate cut is set to dent the profitability of domestic lenders, especially mid-sized banks, which are already suffering from higher bad loans and a slowdown in profit growth.

The central bank unexpectedly cut rates late on Friday, stepping up efforts to support small and medium-sized enterprises (SMEs) which are struggling to repay loans and access credit, as the economy slides to its slowest growth in nearly a quarter of a century.