2014-10-21

Real Estate, Fixed Asset Investment Slows Sharply Again

The cumulative growth rate for real estate investment in 2014 slipped to 12.5% in September, down from 13.2% in August. The drop was baked into the cake because the single month yoy growth figures have been running much slower than the cumulative total. In July the monthly yoy growth figure was 11.9%. In August, it slumped to 9.9%. In September, the yoy single month real estate investment growth rate fell to 8.6%.

Falling producer prices are starting to have an effect on some of the numbers. Going by the raw data, the yoy growth figures are coming in below the gov't reported number. This amounts to a small difference in the cumulative numbers, but does not explain the big gap between the September yoy growth figure of 8.6% and the cumulative figure of 12.5%; investment is slowing sharply as the year goes on.

Original RE investment report is available here: 2014年1-9月份全国房地产开发和销售情况.

The other investment numbers:

Fixed Asset Investment: the Chinese govt reports the 16.1% cumulative growth through September. 2014年1-9月份全国固定资产投资 The raw unadjusted data shows growth was only 15.7% cumulative. As for the yoy single month comparison, growth fell to 11.5% in September, down from the 13.3% growth rate in August. As with RE investment, well below trend.

Private Fixed Asset Investment: the official number is 18.3% cumulative yoy growth. Unadjusted data shows 17.7% growth. In August the single month growth figure was 16.0%; growth collapsed to 11.7% in September. 2014年1-9月份民间固定资产投资

Industrial production did jump in September. Here's ZeroHedge: Do You Believe In Chinese Miracles? Manufacturing is a leading indicator, but investment is a leading indicator of manufacturing. The data points to a accelerating slowdown in Q4 unless the October numbers rebound.

Here's the real estate detail:
Real Estate Investment Growth Rate

Land purchases by developer (area)
New Home Sales By Area (yellow) and Yuan (blue)

Developer Capital Growth Rate


Table  2014 Jan-Sep national real estate development and sales
Indicators
The absolute amount
An increase ( )
Real estate investment (¥100 Million)
68751
12.5
 Of which: Residential
46725
11.3
    Office
4008
22.8
    Commercial space business
10342
22.8
Housing construction area (10,000 square meters)
673,230
11.5
 Of which: Residential
479,017
8.1
    Office
27381
24.5
    Commercial space business
86673
20.1
New housing construction area (10,000 square meters)
131,411
-9.3
 Of which: Residential
91754
-13.5
    Office
5315
15.4
    Commercial space business
18263
0.0
Housing area (10,000 square meters)
56504
7.2
 Of which: Residential
43269
5.1
    Office
1415
15.3
    Commercial space business
6408
12.2
Land acquisition area (10,000 square meters)
24014
-4.6
Land transaction price (¥ 100 million)
6781
11.5
Sales of commercial area (10,000 square meters)
77132
-8.6
 Of which: Residential
67669
-10.3
    Office
1647
-9.5
    Commercial space business
5468
7.0
Commercial sales (million)
49227
-8.9
 Of which: Residential
40516
-10.8
    Office
1986
-19.7
    Commercial space business
5469
6.8
Real estate for sale (10,000 square meters)
57148
28.0
 Of which: Residential
37676
28.5
    Office
2250
34.7
    Commercial space business
10982
27.1
Real estate development enterprise funds in place (million)
89869
2.3
 Of which: domestic loans
16288
11.8
    Utilization of foreign capital
430
9.9
    Self-financing
37535
11.5
    Other funds
35616
-9.1
     Among them: the deposit and advance payment
21582
-11.1
        Individual mortgage loans
9794
-4.9

Table  2014 Jan-Sep Real Estate Development Investment
Land  area
Investment 
(million)

An increase 
)

Residential
Residential
Total national
68751
46725
12.5
11.3
  Eastern region
38737
26062
12.6
10.9
  Central Region
14536
10260
10.7
12.0
  Western Region
15479
10402
14.0
11.5

Table  2014 Jan-Sep Real Estate Sales
Area
Real estate sales
Commercial sales
Absolute 
(10,000 square meters)
An increase 
)
Absolute 
(million)
An increase 
)
Total national
77132
-8.6
49227
-8.9
  Eastern region
35908
-15.3
28418
-15.5
  Central Region
20693
-2.9
10337
1.1
  Western Region
20531
-0.6
10472
2.8

Can MBS Save the Housing Market?

MBS solves two problems for China. One, it needs a way to get credit flowing to home buyers. Two, it needs a large and deep market of RMB bonds in order to interntionalize the yuan.

ECNS: China encourages RMBS to boost housing market
"I think encouraging MBS is the most important part of this policy," said Jiang Xun, chief economist at a Chinese think tank, referring to the financial instrument's ability to free up capital for lending and potentially making it easier for home buyers to obtain loans.

Statistics show that the country's individual home loan balance has reached 10 trillion yuan ($1.6 trillion), a huge potential pool for MBS.

There are worries too, however. Products with short terms and high yields have been prominent in the Chinese market, and MBS, which usually has a maturity of 10 years or longer, may find it hard to lure investors, at least at the early stages.
Until a crisis wipes out short-term high interest loans, then investors will be clamoring for the relative safety of MBS.

SCMP: China calls on banks to boost mortgage securities market
The mainland's central bank and banking regulator have called on lenders to create a larger mortgage-backed securities market as part of an effort by the central government to revive a flagging real estate sector.

ECNS: MBS unlikely to find favor in China
MBS are underdeveloped in China for a number of reasons. First, there are no State-backed institutions in the country which can provide credit guarantees. Second, it is difficult to fix prices for such products, making them unattractive to both issuers and investors. Looking ahead, it will also be difficult for these securities to gain traction in the local market without further liberalizing interest rates.
If you build it, they will come. There are problems to overcome, but the MBS market would be a great improvement over the opaque trusts and WMPs savers currently buy.

2014-10-20

Renminbi Projected to Pass Pound and Yen in Next 5 Years

Renmin University has created a renminbi internatioanlization index (RII) to measure the use of the yuan globally. In 2009, the index stood at 0.02%; at the end of September it reached 2.01%. The pound and yen are currently around 4% of the global market and the creators of the index expect the yuan could pass both within the next 5 years, assuming no adverse event changes the trajectory.

21st Century Business Herald: 人民币国际化的下一个5年:赶超英镑日元

Steel Debts Still Exploding, Foshan Bank NPLs Up 217% in 7 Months

Back in April I posted Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee. Steel traders were pulling similar scams to what was uncovered at the Qingdao port earlier this year, only they did a much more thorough job of Ponzi-ing up the system. Many steel traders in Fujian were using their rehypothecated proceeds to open credit guarantee firms, which then guaranteed their buddies rehypothecated steel loans. It started blowing up in early 2012 and the courts started clogging in 2014.

Now steel debts are blowing up in Foshan, in Guangdong province, a totally separate system of steel trading debts from the one that went bust in 2012 in Fujian. The bad debt ratio for banks in Foshan has gone from 0.85% at the start of the year to 2.60% in July. One steel debtor sums up China's debt problems. He says he didn't gamble with the money, he didn't squander it, it's become fixed assets. One thing fixed assets are not is liquid.

At heart are also the joint credit guarantees, with dozens of cross guarantors for each borrower. As one debtor put it, the bank even brought in some cross guarantees for him, he doesn't know them, how can he know if they repaid? If 20 of them haven't repaid their debts, how's he supposed to come up with the money?

He goes on to describe the situation using ants and elephants. In prior years, sometimes an ant would die, and the elephant could carry it on its back. Now the elephant is going to die, do you think the ants can carry it?

Banks are blamed for pushing loans on borrowers, getting them to renew their loans as they came due in addition to cross guaranteeing other borrowers.

Steel traders were paying 15% to the banks and earning 36% buying real estate or loaning out the cash at higher interest rates, who wouldn't borrow as much as possible? Their risk control was lacking though: everyone focused on whether steel prices were up or down, and whether they had orders, instead of the financial risk growing in the system.

Why did Foshan's debts last two years longer than in Fujian? The answer appears to be real estate. The situation is exploding in 2014 because the slowdown in real estate has slowed the flow of capital and falling asset prices are deflating. Borrowers are caught short of cash and are unable to cash out their assets.

Wenzhou. Xiaoshan. Qingdao. Zhouning. Foshan. How many more local credit busts are out there? The same pattern repeats over and over in different provinces. The local economies are still mildly autarkic in China and this keeps the dominoes from falling between economic regions, but it doesn't stop individual dominoes from falling all over the place, which set of localized daisy chain defaults. Systematic risk has yet to emerge, but the bigger risk is the system that is repeated in local economies all over China. The big risk isn't dominoes falling nationally, it's that dozens or hundreds of different local economies all fail for the same reason.

iFeng: 佛山钢贸不良贷款7个月增217%:商户叫冤 银行焦虑

Beijing Rent Falls in September

Average rent in Beijing fell for the second straight month in September, down 0.2%. This is larger than the 0.1% decline in August. Rent is up 0.3% year-on-year.

Analysts see little chance of a trend reversal in the coming months due to the peak rental season, driven by college graduates, having passed.

iFeng: 北京房租连降两月 专家:年内已很难上涨

Clown Terror Across America

Fear rises as social mood declines.

Creepy clown sightings go nationwide

2014-10-19

Local Officials Want A Third Bailout as Mortgage Easing Impact Muted

The Chinese media dub the lifting of buying restrictions as the first market rescue. The second rescue was the new mortgage policies. Now local officials are begging for a third bailout in Beijing.

In the days before and after the National holiday, many local government officials traveled to Beijing and met with government officials, including the Ministry of Housing, as well as holding small meetings with central bank officials. They are asking for more policy easing. Local officials are saying that banks are constrained and the mortgage easing isn't hitting the ground in smaller cities. First tier cities aren't much better; in Shanghai the discount off prime offered by banks is 5%, nowhere near the 39% allowed by the new policy. In Shenzhen, a bank manager quoted in the article below said bank financing costs are high, making discounts difficult.

A source close to officals in the Hunan housing department said that the central bank must loosen monetary policy and make sure policies are implemented at the commercials banks in order for credit to flow. A source close to the Ministry of Housing in Beijing, however, says the government is taking a wait-and-see attitude on the current policy adjustment. The central government is also planning next year's economic policies, and real estate is only one part of the picture.

Should sales fail to recover in October, one widely rumored move is a cut in the time required to qualify for an exception from real estate sales tax, from 5 years down to 2 years. Other tax cuts at the national or local level may also form the basis of round three of the real estate market rescue.

Activity has increased in October following the mortgage easing though. Centaline has seen customer traffic for existing homes climb 60% over September in the six largest cities. It has also seen prices climb across the board, with the prior week in Beijing seeing a 13.4% increase in average transaction price. Home sellers are refusing to negotiate again and raising their prices. This has some talking of a bifurcated market, with inventory overhang weighing on some cities, but prices rising in others.

All year I've been saying the central bank is not going to ease monetary policy based on the statements made by top officials. I realize the government could change its mind on a dime if need be, but there's been zero sign from the officials that count; their comments are as stridently against easy money as they were earlier in the year. Were the housing market to bifurcate, that will be the stake through the heart of easy money. There's absolutely no way, short of a crisis, that monetary policy will ease in the face of rising prices because it would immediately reflate the housing bubble, as fast as a match lights gasoline thanks to all the easing policies currently in place.

iFeng:地方官员频繁进京表达诉求 第三轮救市隐现