Chinese Home Prices Rise 1.0 pc in October

It wasn't only third- and fourth-tier cities driving the increase. Prices in Wuhan climbed 2.5 percent, Chengdu 1.7 percent, Hangzhou 1.2 percent, Zhengzhou and Fuzhou 1.0 percent.

Until home prices cool, there won't be a loosening of credit, lest it risk another housing bubble or worse.


M2 Contracts in October

M2 fell 0.34 percent in October. This was the largest one-month decline since an outlier drop of 1.27 percent in July 2014. Growth fell slowed to 8.0 percent yoy and 4.4 percent over the past 3 months.
MLF outstanding also fell in October.


Chinese Banks Follow Through on Mortgages for Rent as Central Bank Ditches Market Currency

When has increasing credit access made something cheaper? Never, as far as I can tell. Whenever the government says it wants to make something affordable, prepare for a surge in prices.

The rental market in China is no different.

Back in June Chinese media covered Beijing's latest solution to the housing bubble and soaring home prices: mortgages for renters. See: The Final Stage: China Copies U.S. Housing Bubble Policies. Banks planned to lend at sub-market rates to encourage rentals.

Fast forward two months. Central Planning Goes Haywire: Beijing Rents Soaring Turns out government targeting of rental properties caused real estate firms to pile in and renovate existing properties, hiking up rents in the process. Also see: Central Planning 101: Blood-Sucking Realtors! The Rent Is Too Damn High!

No worries though! Banks are here to make housing and rent even more affordable with more loans for rent!

Caijing: 多家银行进军住房租赁市场
In recent years, the state has launched a number of initiatives to vigorously promote the development of the housing rental market in order to promote the “rental purchase and purchase” of the housing market in China. According to a report released by the Chain Institute, by 2025, the size of China's housing leasing market (total rent) will jump to 3 trillion yuan.

Faced with a broad market, since last year, many Internet organizations and many well-known real estate companies have entered the housing rental market. However, among the new market participants, the “Banking System” is very eye-catching.

Mr. Gu, who works in Guangzhou, has been renting for 1 year in Suide Road, Baiyun District. Since the move last year, the price of renting houses has been rising, and the house rented by Mr. Gu has been locked for three years. “One year ago, I signed a long-term lease agreement of RMB 48,000 with the owner through the platform launched by CCB, and paid a one-time rent for three years, and the rent enjoyed a 5% discount.”

It is good to be able to lock in rents, but the three-year rent is also a small expense. However, Mr. Gu is not worried. “I borrowed 75,000 yuan from CCB. The monthly repayment pressure is not large. After the preferential rent and loan interest are offset, it saves more than 1,500 yuan.”
Banks make money coming and going because they're also leasing the property from the owners:
In April of this year, Ms. He, a citizen of Guangzhou, “saves” 120 square meters of unused housing to CCB. The lease period is 6 years and the rent is 500,000 yuan. "Compared with the rental price, I value the safety of the bank. I have to rent for 6 years at a time. I don't have to worry about issues such as follow-up management."

“The services of some housing leasing agencies are gradually alienating, and the use of rent maturity mismatches to form a 'fund pool' has brought hidden dangers to the long-term rental market.” An intermediary said that banks entering the leasing industry can allow “markets to return to the market”. , financial return to finance." Financial affairs can be done by more professional institutions, and intermediaries can become more pure.
But not everyone is down with the plan. The officials in Wuhan are warning residents against long-term contracts because developers might use them to disguise property sales...because 20 years of rent is effectively a 20-year mortgage.

Caijing: 武汉:租赁住房单次租期不超20年 不得一次性收取5年以上租金
According to the regulations, in the future, all new rental housing units in Wuhan should be used for leasing. They should not be sold on a rent basis. The single lease period for external leases must not exceed 20 years, and no one should pay more than 5 years of rent at one time. Other ways to sell in disguise.

The regulations also pointed out that the development and construction units should strictly follow the land transfer contract agreement and the project design documents to fully construct the leased housing to ensure that the construction progress of the new (matching) construction of the leased housing does not lag behind the other commercial houses on the plot for sale; in principle, new ( The allocation of rental housing should be relatively concentrated, according to the layout of the building.

At the same time, in the first phase of the commercial housing project to be developed in phases, it is necessary to ensure that the new (allocated) leased housing and the corresponding supporting infrastructure and public facilities will be started simultaneously and delivered simultaneously; the newly built and leased housing will be small and medium-sized ( If the commercial housing development project obtained through bidding and auction is approved to be converted into rental housing, it shall not be transferred within 10 years.
State-owned banks in Guangzhou are doing what Wuhan's government warns against.

All of China's central planning points in one direction: yuan depreciation. And with yuan bears growing in number, it's no wonder the central bank threw yuan internationalization under the bus.

Bloomberg: China Signals Tougher Yuan Management at Expense of Market Role
China signaled tougher management of the yuan, dropping a phrase underlining the importance of market forces from a key policy report for the first time in five years.

The People’s Bank of China cut its pledge to allow "market supply and demand to play a bigger role in deciding the exchange rate" from a section on future tasks in its third-quarter monetary report. The last time that phrase wasn’t used was in the fall of 2013. Policy makers will take steps to ensure the yuan is basically stable at reasonable and balanced levels, according to the report published late Friday.
All this will do is exacerbate outflow pressures, domestic inflation and economic distortions. The wheels are coming off.


China Welcomes Stock Manipulators in Bid to Boost Liquidity, Australia Fraudulent Lending

Chinese ADRs were pummeled on Friday and one stock in particular, Bitauto (BITA) collapsed right to its major support level. It is a trifecta of trouble: China, Internet and autos.

An article at CNstock discusses how the 5G sector, hit by a "Black Swan," has led the market rebound. 饱受“黑天鹅”事件困扰的板块,缘何成了反弹领先者? Everything looks like a bear market bounce to me.

On the mainland exchanges, "hot money" is returning to the market because Chinese regulators said they would intervene less in the markets. The dearth of trading has caused the shift in focus. According to one report, traders suspected of manipulation are no longer receiving warnings for their suspicious trading activity.

CNStock: 游资努力重返市场!操盘一周,他们有话要说……
"Before this, our group died in silence, no one spoke, and on the day the news was released, our group blew up. There was more discussion in one day than in the previous year." Mr. W said to the reporter.

In the past week, the hot money has struggled to return to the market, despite “demon stocks” made them feel pressure, their existence also provided valuable liquidity to the market.

On October 30, the official website of the China Securities Regulatory Commission issued a statement during the trading hours, indicating that it will optimize transaction supervision and enhance market liquidity.

This news generated a strong response within the hot money community. For this sudden and unexpected news, the long-lost group of hot money in the past week, first of all, will be suspicious, and then gradually dispelled doubts, more and more people try to test.

The hot money has always been adhering to the short and fast style. When the news was first seen, Mr. W entered the trading. In fact, Mr. W has been away for more than two years. In mid-October this year, he was told by the broker that his account had been removed from the blacklist.

There were three transactions this week. I still received the supervision letter for the first time, but I did not receive window guidance or supervision letter the next two times. The trading environment is indeed picking up.” Mr. W’s feelings also led to other active funds around him.

A number of active investors focused on short-term trading said that through a week of operations, they found that the verbal instructions and warning letters received were indeed decreasing.
Alhambra: Why Chinese Authorities Are Freaking Out
The economic stats all keep pointing in this direction. China’s economy isn’t right now collapsing but that isn’t the problem. Again, what the numbers suggest is we’ve seen the best there is and it isn’t (ever) going to get any better. And it isn’t near enough growth.

There just isn’t sufficient economic momentum anywhere in the world to overcome eurodollar tightening. In fact, the two go hand in hand; lack of momentum leads to monetary caution, spurning further growth creating more monetary tightening. The result is growing desperation in China, as elsewhere, about where things might be going just on the other side of the horizon.
A credit-driven decline in Chinese economic activity followed by the rapid or large one-off depreciation of the yuan still looks likely to me. It may be that as in 2016, central bankers and politicians intervene, but there's no more than one save left because the U.S. markets are peaking. If there's a rebound in the U.S., it will unfold similar to the final melt-up phase of the dotcom bubble in 1999. It will take another leg down in the markets to change central bank policies though. The major indexes will officially enter bear market territory as the Nasdaq did in 1998 when it fell 30 percent.

Australia strikes me as a good candidate for China fallout. Recently, China's government told banks to lend to small businesses and not call in loans early. Australia's Treasurer just did the same. (H/T to Macrobusiness.) AFR: Josh Frydenberg tells banks to ease up on lending crackdown
"I would encourage the banks when it comes to lending, in particular for small business, make sure you get the balance right, keep the books open and don't lose sight of the broader public good," he said.

"We all know the royal commission has brought into focus the issues of responsible lending and examples of misconduct. While both issues are important, I do see them to some extent as separate, with different responses required."

The tightening of credit has taken its toll not just on investors but owner-occupiers with housing loans falling sharply in September, according to the latest housing finance figures from ABS.
Macrobusiness has a more detailed look at the topic, though it may go behind the paywall.

China remains in focus because of its size and because the markets haven't priced in a yuan devaluation. It will be a called a "Black Swan" by the same folks who thought 2008 was a surprise. Aside from a breakup/crisis in the euro, my top bear market recognition event is substantial yuan depreciation, but that doesn't mean it will make for the best short candidates in terms of total decline.

My read of the China charts: the downturn that started in June hasn't broken yet. Tactically, I'm not going to short if there are sustained rallies, but the risk/reward remains in favor of the bears heading into this week.


No Lending Coming

I didn't jump to conclusions on Friday, but my gut reading was correct. Small business has rhetorical support from government, but no concrete measures. The banks will not follow through on lending, not enough to make a big difference.

Friday: China Compels Banks to Lend to Small Business, Bank Stocks Tank

Saturday: It's a guideline, not a rule.

CNStock: 监管人士:“一二五”是方向性目标,信贷标准没放松
 The “one-two-five” goal of private enterprise loans has caused widespread market debate. The Shanghai Securities News reporter learned from the supervisors that “one two two five” is not a hard assessment indicator, and the credit standard has not been relaxed.

  Experts in the industry analyzed that in the long run, supporting private enterprises with good services, and the bank's own stable development, prevention and control risks, the goal is consistent.

  After combing, there are probably three misunderstandings in the market for “one two two five”. After communicating with banking industry insiders and regulators, the reporter will help you to remove these misunderstandings and correctly understand “one two five”


Federal Reserve Increased Balance Sheet Last Week

The Fed increased its balance sheet by $2.2 billion in the week ended November 7. Stocks enjoyed a strong rally. The S&P 500 Index rose 102 points. The Fed now has to reduce $52.2 billion this month, assuming they don't make up the smaller reduction in October, in which case the reduction could go as high as $68 billion.

China Compels Banks to Lend to Small Business, Bank Stocks Tank

Reuters: China unveils more funding support for private firms
“The next step is to increase support for private and small enterprises, so that state-owned enterprises, private enterprises and other enterprises will be treated equally,” state radio quoted the cabinet saying, at a regular meeting.

China’s major commercial banks should lower their average lending rate in the fourth quarter by 1 percentage point for small firms from the first quarter, it was quoted as saying.

China will crack down on banks’ abrupt withdrawal of loans from small firms, which will be encouraged to tap bond and equity financing, state radio said.

Loans for small firms with a credit line of 10 million yuan ($1.44 million) or less will be included in collateral for the central bank’s medium-term lending facility (MLF), it said. Previously, the upper limit was 5 million yuan.
The government is forcing large state-owned banks to bear the cost of this program and shares fell yesterday, some as much as 4 percent. Leaving aside the forced interest rate cut (assuming banks follow through), banks haven't been lending to smaller companies because they fear the risk. Thus while it is a good step forward in one sense, it is another example of heavy handed central planners dealing with an economy distorted by their own policies.


Yuan Defense Costs: Reserves Fall $34 Billion in October

China's forex reserves declined $34 billion in October, the largest decline since December 2016. Reserves in SDRs declined $35 billion. Reserves fell the $3.053 trillion.

Breaking USDCNY 7 will also break $3 trillion in reserves. Quickly thereafter, reserves will be below $2.9 trillion and the cost of defending the yuan will start rising rapidly along with depreciation expectations. Markets are whistling past a global financial panic.