2019-02-14

Big Trouble in China Housing: Govt Bans "Malicious" Price Cuts

Pizhou, Fujian has a solution to falling home prices: ban them. They're not alone in using this strategy. Other cities have told developers to reverse price cuts and one went so far as to punish a developer's creditors.

iFeng: 房企“恶意降价”被紧急叫停,房价到底能不能降
On the finite price, the price can not rise. And the property market environment is so cold, the price of the house is not good to sell. It is not easy to cut prices. After the new term "price reduction attempt" was born, a new word appeared in Zhangzhou City, Jiangsu Province, "malicious price cuts."

This is really an anecdote. Developers who have such a big hatred, do you have to carry "malicious" to cut prices? Who is going to be malicious?
A developer was warned about cutting prices to move inventory:
At the beginning of February 2018, the Real Estate Chamber of Commerce of Zhangzhou City, Jiangsu Province issued a "Circular on the recent sales chaos in the real estate market in Zhangzhou", which was circulated on the Internet. It has attracted many onlookers.

The announcement states:

There are some properties in Zhangzhou that have disrupted the market with low prices and unfair competition. The sales price is seriously lower than the filing price. The individual properties have dropped by 2,000 yuan/square meter. This kind of behavior has seriously disrupted the order of the real estate market.


The Zhangzhou Real Estate Chamber of Commerce requires housing companies to sell according to the record price, and must not provoke a price war.
Neither the public nor the developers are amused.
The price cut is to disrupt the market order. This wave of operation not only makes the developers of price cuts a bit confusing, but also makes the masses of people somewhat shocked. When the housing enterprises raised their prices, they never saw someone saying "malicious price hikes" and "disturbing the market order." When the house prices fell, the market order was disrupted.

Coincidentally, just a few months before the “bad price cut” in Ganzhou, the neighboring Anhui Province had a joke about the developer’s “price reduction attempt”.

In November 2018, a property in Hefei, Anhui Province, reported a price reduction of 6,000 yuan / square meter, the results did not take long, the local real estate director personally went to the investigation, and the price back went up again. Immediately after the price reduction of a real estate in Lushan, the local government organized a symposium on “the attempt to reduce the price”, suspended the pre-sale permit for the relevant real estate, and imposed penalties on the four cooperative banks.
Propping up home prices isn't only a strategy for keeping the people content. The main goal may be supporting land sales that fund local governments. Cities are racing against the credit impulse though. If inflation arrives in time, nominal prices can rebound. If not, developers are going to be stuck will immobile inventory as debt comes due. And then it will be the bond market's problem.

2019-02-11

2nd Tier Developer Sales Offices Deserted

The initial post-Spring Festival reports from the housing market indicate lower buyer interest, but prices remain stable for now. Since price follows volume, a downturn in home prices is still ahead.

iFeng: 二线城市春节楼盘不“打烊” 售楼处门可罗雀
“We arranged the duty during the Spring Festival, which is normal business, but basically two or three groups of customers will see the house one day.” The salesperson of a real estate in Beijing’s South Third Ring Road told China Securities Journal, during the Spring Festival and after the holiday, There are no promotions for the property.

In Xi'an City, Shaanxi Province, Nanjing City, Jiangsu Province, and Fuyang City, Hubei Province, China Securities Journal also found that the property that was known as “the Spring Festival is not fighting” did not appear to be selling well during the Spring Festival, and the sales office was deserted, home prices stable.

...The flatness of the property market during the Spring Festival may be a microcosm of the whole year. Yan Yuejin, research director of the think tank center of Shanghai Yiju Real Estate Research Institute, said: “The current market is in the expectation of cooling. From the real estate sales office, blind sales promotion may not bring the transaction volume up, so the rhythm will also Slightly slower."

“Policy determines short-term demand, and real estate sales are mainly affected by mortgage loan and provident fund loan conditions.” Zhang Wenlang, a macro analyst at Everbright Securities, said that the central bank’s depositor survey showed that the proportion of home buyers’ expected price increases began in June 2018. It began to decline, reflecting that the wait-and-see mood in the market began to increase. Mortgage and provident fund loans in 2019 may only be marginalized.

Shen Yi, a researcher at the Shanghai Yiju Real Estate Research Institute, said that as the effects of regulation continue to appear, it is expected that the overall property market turnover will fall back and the market will return to rationality.

Most Important Currency Chart

This is the broad trade weighted U.S. dollar index. It includes, importantly, currencies such as the Chinese yuan. The index made a short-term high on December 14, 2018. The chart looks similar to the U.S. Dollar Index (DXY) over this time frame, with one difference: it made a higher high in 2018. DXY still has not exceeded its 2017 high and it was still 5 percent off the high at its 2018 peak.
Money has moved into emerging markets on the expectation that a repeat of 2016-2017 is underway. The post-election spike in USD was a temporary move in the midst of a broader rally in emerging markets and commodities. Tthese investors are betting USD has peaked, at least temporarily, and another rally in emerging markets and commodities is underway. They may even believe this is the big one and the U.S. dollar had made its ultimate peak for this bull cycle, in which case this index will break the lower trendline and keep falling all the way through 100.

A longer-term look at the chart shows why dollar "bulls" aren't throwing in the towel. The index was 126.16 on February 4 (it will be higher at the next update), a 2.5 percent move away from taking out the December high. It is also only 3.3 percent away from taking the all-time high of 130.21 set on February 27, 2002.
The two key components are the euro, which is by far the largest developed market currency, and the Chinese yuan, king of the emerging markets. For the U.S. dollar broad trade weighted index to break out or break down, both the euro and yuan will confirm it.
I remain "bullish" on the dollar. The bounce in the yuan and EM currencies was a relief rally with some possible political adjustment of the yuan ahead of major trade negotiations with the United States. The European and Chinese economies remain weak. Fiscal or monetary intervention is increasingly likely. Most importantly for the market narrative, the Fed is still tightening. If Europe and China ease and that in turn boosts global growth, the Federal Reserve will likely resume tightening. The divergence in monetary policy could power another bullish leg for USD. Finally, I still believe the euro is politically unstable and the final stage of this economic cycle will be deflationary/dollar bullish.

2019-02-08

Turn in Social Mood: Internet is Totalitarian Tool, Americans Itching for Trade War

Technology is a tool, like a hammer, an automobile or a gun. These can be used to build homes, transport goods and keep order. They can also be used to smash buildings, move soldiers for an invasion and murder people.

When people are optimistic, they prefer the positive and optimistic views of technology. The Internet became a mass phenomena at peak social mood. People mainly focused on the benefits and ignored costs for many years. They thought it would unite the world, expand people's right to free speech and even break totalitarian regimes as online freedom directly or indirectly triggers demand for more liberty in the wider society. Instead, social media tears diverse nations apart because each subgroup (however defined) can form its own media and narratives about society. Internet companies that used to be at the forefront of the "information wants to be free" zeitgeist, are now among the most secretive, they're serial violators of privacy. Some, such as Google, Facebook and Twitter, are the most repressive companies in the world when it comes to speech rights. Finally, authoritarian regimes led by China are harnessing the power of the Internet.

Instead of preventing 1984, the Internet has enabled totalitarianism like never before. Fifty years ago, extreme repression was required for totalitariansm because thought control required physical control and punishment. Today, the government can control what you think by controlling the information you receive. It knows what you're thinking if you are online. It can implement a thorough totalitarian program without you ever seeing a secret police officer. In fact, you might not even have a negative experience as your life is gameified. You will get dopamine hits for doing what Big Brother wants. Digital currencies will eventually give the government 100 percent control over your economic life. Unless you wander into the woods and become a hermit, you will be at their mercy. Most terrifying for those in the West is that the framework of this system is already being implemented by Silicon Valley companies. Good think is rewarded and bad think punished by social media companies. The end goal in China and Silicon Valley is the same, to use technology as a means for totalitarian control over society.

Turning back to social mood, China also benefited from positive mood. It was a country experiencing rapid economic growth. It was the future, a land of opportunity, and one day an partner for developed countries. As mood turns negative, China is a military, economic and political threat. Any negative story about China gets covered like never before.

Boston Globe: China and the AI threat to open societies
I want to warn the world about an unprecedented danger that’s threatening the survival of open societies.

The rapidly improving instruments of control that machine-learning and artificial intelligence can produce are giving repressive regimes an inherent advantage. For them, these instruments of control are a help; for open societies they constitute a mortal danger.

In China, President Xi Jinping wants a one-party state to reign supreme. Xi is trying to consolidate all the available information about a person into a centralized database to create a “social credit system.” Based on these data, people will be evaluated by algorithms that will determine whether they pose a threat to the one-party state. People will then be treated accordingly.

The social credit system is not yet fully operational, but it’s clear where it’s heading. It will subordinate the fate of the individual to the interests of the one-party state in unprecedented ways.

I find the social credit system frightening and abhorrent. Unfortunately, some Chinese find it attractive, because it provides information and services that are not currently available and can also protect law-abiding citizens against enemies of the state.
The irony is that's written by George Soros, one of the advocates of implemented a velvet-gloved version of this system in the West.

PJ Media: SPLC Leads Soros-Funded Groups in 'Orwellian' Attempt to Ban 'Hate Speech' on Social Media
Last week, the Southern Poverty Law Center (SPLC) teamed up with five other groups funded by George Soros to pressure tech companies to "reduce hateful activities on their platforms." While this sounds like a noble goal, mainstream conservative and Christian groups that have fallen afoul of the SPLC warned that these liberal organizations have an "Orwellian" definition of hate that most Americans would disagree with. Worse, social media companies already seem biased against conservatives, and this SPLC campaign would only embolden that bias.
The difference between Soros, Silicon Valley and China is the latter has more power and far less fear of reprisal. Both think they are doing good for their society and moving it forward into a progressive, socialist future.

MIT Technology Review: The real reason America is scared of Huawei: internet-connected everything
5. Why is Huawei’s 5G causing so much concern?
As the world’s biggest supplier of networking equipment and second largest smartphone maker, Huawei is in a prime position to snatch the lion’s share of a 5G market that, by some estimates, could be worth $123 billion in five years’ time.

Stalling the company’s expansion into Western markets could have the convenient side effect of letting competitors catch up. But there are also legitimate security concerns surrounding 5G—and reasons to think it could be problematic for one company to dominate the space.

The US government appears to have decided that it’s simply too risky for a Chinese company to control too much 5G infrastructure.

The focus on Huawei makes sense given the importance of 5G, the new complexity and security challenges, and the fact that the Chinese company is poised to be such a huge player. And given the way Chinese companies are answerable to the government, Huawei’s apparent connections with the Chinese military and its cyber operations, and the tightening ties between private industry and the state, this seems a legitimate consideration.

But the ongoing fight with Huawei also goes to show how vital new technology is to the future of global competition, economic might, and even international security.

On trade, China can do no good.

NYTimes: China’s Online Censorship Stifles Trade, Too
China has long defended its censorship as a political matter, a legitimate attempt to protect citizens from what the government regards as “harmful information,” including material that “spreads unhealthy lifestyles and pop culture.” But you don’t need to be a trade theorist to realize that the censorship is also an extremely effective barrier to international trade. The global internet economy is worth at least $8 trillion and growing, yet the Trump administration has focused chiefly on manufacturing, technology transfers and agriculture, and does not seem to have pressed for concessions on this issue.

Sheltered from American, Japanese and European competition, Chinese internet businesses have grown enormously over the past decade. Nine of the world’s 20 largest internet firms, by market value, are now Chinese. Some of this growth reflects the skill and innovation of Chinese engineers, a vibrant start-up culture and the success of Chinese business in catering to local tastes. But it’s hard to believe that this has been unaided by censorship.
Even one of China's reform achievements, opening its stock market, is coming under scrutiny.

WSJ: How China Pressured MSCI to Add Its Market to Major Benchmark
The move by MSCI Inc. came after it came under heavy pressure from the Chinese government, which tried to curtail the company’s business in the country, according to people familiar with the matter.
If President Trump doesn't know it, he'll soon learn the American public is itching for a trade war with China.

It is still too early to say the die is cast, but if social mood continues on a negative trend, it's a guarantee that Silicon Valley companies will be targeted for political reprisals. The political right has a personal reason for hating Big Tech because it is the target of political censorship, but censorship is so widespread (and often hamhanded) that is has made enemies all over the political spectrum. Add in privacy violations and antitrust, and it may not be long before companies such as Google find their allies in DC are few and far between. They will be as untouchable as tobacco companies.

Reuters: Google, Facebook spend big on U.S. lobbying amid policy battles

The same can be said for China. We'll know in a few weeks if the die is cast on trade, but the shifting social mood has uncovered widespread dissatisfaction with China. All corners of American society are coming out with China-negative stories as would happen in the run-up to a real war. If I was betting solely on President Trump I'd lean towards a deal getting done, but negative social mood and the news flow indicates the public might outflank Trump on trade and eventually find a candidate who will launch a full-blown trade war.

2019-02-01

2019-01-26

Socionomics Confirmed by Study: Pop Music Turned Angry As Social Mood Turned Negative

Pop music was at its happiest in the 1950s and early 1980s, a confirmation of Socionomic theory that predicts happier, positive themes during positive mood and sad, angry and negative themes as mood turns. Using the stock market as a guide, from the late 1960s through early 1980s was a period of very negative mood. The bull market kicked off in the early 1980s and popular cultural was immediately flooded with happier tunes and heroes in the movies.

Daily Mail: Pop songs have become angrier AND sadder! Scientists analysed lyrics from 6,000 best-selling songs from the 1950s to 2016 to make the finding
Songs released during the mid 1950s were the least angry and the anger expressed in lyrics has increased gradually until peaking in 2015.

The analysis also revealed some variations with songs released between 1982 and 984 being less angry compared to any other period, except for the 1950s.

In the mid 1990s, songs became angrier and the increase in anger was sharper during that time in comparison to previous years.

The expression of sadness, disgust and fear also increased over time, although the increase was milder compared to the increase in the expression of anger.

Disgust increased gradually, but was lower in the early 1980s and higher in the mid and late 1990s.

Popular music lyrics expressed more fear during the mid 1980s and the fear decreased sharply in 1988.
Fall of communism?
Another sharp increase in fear was observed in 1998 and 1999, with a sharp decrease in 2000.
There was the Asian Crisis in 1997, a large market correction in 1998 and fear over Y2K, followed by the stock market peak in 2000.
The study also showed that joy was a dominant tone in popular music lyrics during the late 1950s, but it decreased over time and became much milder in the recent years.

An exception was observed in the mid 1970s, when joy expressed in lyrics increased sharply.
The stock market made its nominal low in 1974 and it would rally 78 percent into the 1976 high.

2019-01-23

Necessity is the Mother of Invention: Chinese Stock Market Edition

Global Times: New regulations needed for China’s stock market
China's stock market, which started from scratch in the 1990s, is now undergoing a period of transition and transformation, with many basic institutional arrangements still missing. Here are some thoughts about defining the basic institutional arrangements.

First, the delisting system and the registration-based stock listing system. The mainland A-share market, where about 3,000 to 4,000 companies are currently listed, has only seen a limited number of companies delisting by the end of 2018.

In the global equity market, however, the number of newly-listed companies is generally equivalent to the number of companies delisting each year.

Under the system of "survival of the fittest" in the capital markets, companies that are unqualified, record bad performance or violate regulations are removed from the stock markets, and only those high-quality, good performing and well managed stocks can remain. Therefore, a sound delisting system would prompt listed companies to pay more attention to their own quality, results and openness of disclosures.

Second, there are 140 million individual stock investors in China, accounting for more than 80 percent of the total A-share transactions annually. Therefore, the Chinese equity market has always been criticized for being a retail market and lacking medium- and long-term institutional funds. Interestingly, in major global stock markets, 80 percent of transactions are reserved for institutional investors and 20 percent for retail investors.

Among various medium- and long-term investments, what the A-share market lacks most is annuity investments, one of the three pillars of the social pension insurance. In the US, corporate annuities account for majority of the US pension system.

Third, China's fund management industry has a history of more than 10 years, but it still needs further improvement. In markets like the UK, for example, some fund management companies have been in business for more than 200 years.

At present, there are about 100 public funds controlling 13 trillion yuan and more private funds managing more capital. Out of the 13 trillion yuan ($1.92 trillion) of public funds, only less than 2 trillion yuan is invested in the stock market, which is far from enough to support the market.
SCMP: Shanghai’s hotly anticipated tech board vital to China’s global financial ambitions, says top official
The new board is a key pillar of a new action plan, unveiled at the briefing, to build the city into one of the world’s top financial centres by next year.

It is one of the most important moves by China’s leadership to deepen financial reforms and help Shanghai maintain its status as a pioneer of those reforms, said Zheng.

The action plan outlines six “missions” aimed at helping Shanghai to deepen its financial reforms and further open up its markets. The goal is to develop Shanghai into a top-notch global financial market with a focus on yuan-denominated products, equipped with a strong capacity to deploy financial resources.
China.org: Shanghai aims to become leading global finance hub
Approved by the State Council, eight central regulatory bodies led by the People's Bank of China, the central bank, issued the plan which aims for the municipality to establish itself as a global financial market leader and a go-to market for renminbi-based trading by 2020. A legal, innovative, highly efficient, transparent and open financial system is expected to be in place by that time.

Xu Zhong, director-general of the PBOC's research bureau, said the release of the action plan indicates that Shanghai has entered into the final stage before becoming a global financial hub.

Wu Qing, Shanghai's vice-mayor, said the city should focus on the development of six sectors-asset management, cross-border investment and financing, financial technology, insurance, renminbi asset pricing and financial risk management.
CNStock: 中央深改委会议通过设立科创板并试点注册制总体实施方案
The meeting reviewed and approved the “Implementation Plan for Establishing the Science and Technology Board and the Pilot Registration System on the Shanghai Stock Exchange”, “Implementation Opinions on Establishing the Science and Technology Board and the Pilot Registration System on the Shanghai Stock Exchange”, and “Building a National Park as "Guidance Opinions on the Nature Protection System of the Subject", "Opinions on Deepening the Reform of Education and Teaching Reform to Improve the Quality of Compulsory Education", "Opinions on Encouraging and Leading Talents to Flow to the Frontier and Grassroots Areas" and "Towards Deepening Reform in the Field of Politics and Law" Implementation Opinions, “Guiding Opinions on Coordinating the Reform of Property Rights System of Natural Resources Assets”, “Several Opinions on Establishing a Land and Space Planning System and Supervising Implementation”, “Guiding Opinions on Building a Market-Oriented Green Technology Innovation System”, Natural Forest Protection and Restoration System Program, National Ecological Civilization Experimental Area (Hainan) Implementation Plan, Hainan Tropical Rainforest National Park System Pilot Program and Central Comprehensive Deepening Reform Committee 2019 Work Points, Central Comprehensive Deepening Reform Committee Summary of work in 2018 Divisions "," the party's eighteen big comprehensively deepen reforms since the implementation of the summary evaluation report. "

  The meeting pointed out that the establishment of the science and technology board and the pilot registration system on the Shanghai Stock Exchange is an important measure to implement the innovation-driven development strategy and deepen the capital market reform. It is necessary to enhance the inclusiveness of the capital market for science and technology innovation enterprises, focus on supporting key core technology innovations, and improve the ability of serving the real economy. It is necessary to steadily pilot the registration system, and promote the reform of the basic systems such as issuance, listing, information disclosure, trading, and delisting, and establish and improve the stock issuance and listing system centered on information disclosure.

2019-01-17

No Stimulus Coming


From last month via the SCMP: Guangzhou further eases housing restrictions, sets stage for more mainland China cities to loosen curbs
The mainland Chinese city of Guangzhou, one of the country’s largest, further eased housing restrictions on Monday, five days after it scrapped a ban on sales of apartments to individuals.

The city authorities said in a document that Guangzhou residents who had paid towards a housing provident fund policy could withdraw money for buying homes for living in nearby cities such as Foshan and Dongguan.
The December 70-city NBS report is out and it shows home prices rose 3 percent in Guangzhou last month, before the easing restrictions kicked in. As I wrote a few weeks ago, Chinese policymakers are trapped because increased credit growth will be like a match to gasoline in the housing market.

SCMP: Prices of China’s new homes grow at the weakest pace in eight months as purchase curbs bite hard amid a slowing economy
The prices of new homes rose by 0.77 per cent last month across 70 cities monitored by the government, according to Bloomberg’s calculation of data released by the National Bureau of Statistics. This was slower than the 0.98-per cent gain in November, and was the slowest clip since April 2018.

“The continuous slowdown in prices suggests that some developers are cutting the prices of newly launched projects to boost year-end sales,” said Yan Yuejin, research director at E-House China R&D Institute.
This is slower growth, but it is not slow enough for policy easing, particularly in the credit market.

The existing housing market shows more signs of slowdown with 22 cities reporting falling prices. Existing home prices increased only 0.3 percent, one of the widest single-month gaps in recent years.

This Chinese article says "the turn" to broad home price declines is underway.

21st Century: 22城二手房价格下跌 市场正接近全面下调拐点
Compared with the new home market, the price control of second-hand houses is relatively loose, and in many hot cities, second-hand house transactions have accounted for more than half of the market. The industry generally believes that the change in second-hand housing prices is more reflective of market trends.

Some institutions believe that the reality of the decline in second-hand housing prices in 22 cities indicates that housing prices are moving toward a downward turning point. But this view is controversial. The Shell Research Institute pointed out that the just-needed groups that are more sensitive to price are choosing to enter the market after the price stabilizes, and more and more owners also choose to raise the price. These leading indicators mean that there is limited room for future prices to continue to fall.
The real value of the renminbi for Chinese citizens is how much house it can buy. What will be the value in the yuan if a stimulus program causes Chinese homes to jump another 50 or 100 percent in price?