2015-03-31

The Dumbest Bubble in History

Over at MacroBusiness: The rise and rise and RISE of Australian debt
It is uncertain how potential future declines in wealth, that would more than likely be prompted by falling house prices, would impact consumption. This is primarily because Australian households are unaccustomed to this occurring.

But as the RBA’s Financial Stability review warned this week this is becoming a significant future risk. Both as house prices rise and imbalances in the investor segment of the property market continue to build. It is notable that at least in this data series back to the 1990s that household net worth had never declined on an annual basis before the financial crisis. It has done so once during and once afterwards. The latter coinciding with interest rate rises and dwelling price declines.

We expect that households will have to get used to this cyclicality in their net worth. And this is likely a factor that will drive a new paradigm of thrift in which households exercise greater prudence than in the pre-financial crisis period.

As Goes California, So Goes the Nation

The selection of candidates based on their racial identity hasn't done wonders for California's government, but that's increasingly the main criteria for voters.

Latino-black political conflict could loom in California senate race
But Latinos were caught off-guard by Harris’s fast entry and the equally quick support she generated in Washington.

Her effective anointment by national party leaders, Latinos fear, leaves any Hispanic candidate at a distinct disadvantage and flies in the face that Latinos now are the state’s largest demographic group – more than five times the size of the African Americans population.

“I think Hispanic leaders are concerned about some kind of coronation, as opposed to a real electoral campaign,” says Arturo Vargas, executive director of the National Association of Latino Elected and Appointed Officials. “There are certainly talented Latinos who could run for that seat.”

Some California Democratic leaders fear the Latino-black fight could cause a breach in the longstanding minority-labor coalition that have helped Democrats control the state for much of the past half century.

“The last thing Democrats need is Latino so pissed off that we give them another reason for staying away from voting in droves,” says a party leader who is working behind the scenes to avoid a political bloodbath.

Causing friction among two communities?

Historically, the clash represents the changing political culture in California where black political power has been on the wane for the last quarter century.

In that time, Latinos have eclipsed African-Americans as political players in the state, which is why Harris emergence as a rising star has been a rallying cry.

Former California legislator Willie Brown, an African-America once considered the most powerful politician in the state, has recently even met with Villaraigosa, asking him to step aside for Harris’s sake.
When social mood turns negative again, the Democratic party will be spending much of its energy trying to keep the coalition from breaking apart.

UKIP Bets on Identity and Commnity

UKIP goes all in on immigration with the general election only 5 weeks away. Labour and Conservatives are running neck and neck, with UKIP a distant second.

UKIP leader Farage pledges 90 percent immigration cut
Farage said he would cut net migration to around 30,000 people a year from the current level of some 300,000 a year. The Conservatives had promised to reduce the numbers to under 100,000 a year.

"I'm saying a net level of about 30,000 a year is roughly what we had for 50 years from 1950 almost until the turn of the century," Farage said.

"It was a level at which this country was comfortable and that integration was possible and it didn't, crucially, compress the wages."

UK GENERAL ELECTION 2015: LATEST OPINION POLLS

Small Depositors to Be Insured Starting May 1

Deposit insurance is being rolled out just in time:

China to Insure Deposits in Move Toward Scrapping Rate Curbs
Deposits and interest up to 500,000 yuan ($81,000) will be fully covered, the State Council said in a statement on its website on Tuesday. Over that level, compensation would be according to the amount available from a bank’s liquidated assets, it said.

SCMP: China’s ICBC bank 2014 profits up 5 per cent, bad debt ratio climbs
Higher-than-expected provisions for bad loans, up by 48 per cent year-on-year, accounted partially for the decline in profit growth, analysts noted.

...The bank lost some control over bad debt. ICBC’s non-performing loan ratio rose to 1.13 per cent last year, from 1.06 at the end of September.

Banks in China see profit growth drop on surging bad loans
Chang said that in the economic transformation process, banks in China will continue to be affected by the rise in both non-performing loan (NPL) ratios and outstanding NPLs. "In the next few years, the banking industry's average NPL ratio will fluctuate at a higher range of 2% to 3%, compared to an average of 1.25% recorded by the industry in 2014," Chang added.

Last year, Agricultural Bank saw its outstanding NPLs reach a high of 37.2 billion yuan (US$6 billion) in 2014, translating into a NPL ratio of 1.54%, up 32 basis points from 2013. The bank, however, opined that its NPL ratio will become more stable this year due mainly to the government stepping up efforts to help enterprises with sustainable operations.

The growing risk exposures of bank assets have much to do with economic conditions, said Sun Deshun, vice president of CITIC Bank. The bank recorded outstanding NPLs of 28.454 billion yuan (US$4.6 billion) in 2014, for a NPL ratio of 1.30%, with massive write-offs for NPLs dragging down its net profit growth.

SCMP: China's biggest banks learn to cope with sluggish growth
Easing has been a doubled-edged sword for the banks. On the one hand, cheaper credit means they will make less money on their loans. Net interest margins stayed strong for most of the banks for last year as a whole but came under pressure in the last three months of the year as the rate cuts were priced into loans.

That pressure should increase as loans reprice this year. The central bank is expected to cut rates by another 25 basis points in the first half of the year.

At the same time, the easy money is good for asset quality - at least in the short run. The cheaper the credit, the easier it will be to refinance loans and keep struggling firms afloat for a while longer. This should help banks control bad debts this year.

The average non-performing loan ratio for commercial banks is 1.29 per cent.

Lots of Value in China's Stock Market

Two-thirds of new investors in China’s stock market mega-rally didn’t finish high school
Some 67.6% of households that opened new accounts in the past quarter haven’t graduated from high school, according Orlik’s chart, which comes from a large-scale quarterly national survey of household assets and income conducted by Gan Li of the Southwestern University of Finance and Economics. Only 12% have a college education. Among existing investors surveyed, only 25.5% lack a high school diploma; 40.3% have finished college.
There is barely any fundamental analysis in Chinese popular finance. Financial media focus almost exclusively on technical analysis. Stock trading is legalized gambling to most "investors." The perfect market for patient value investors.

Liu Shan: Real Estate Deregulation Still Outweighs Stimulus

Liu Shan warns investors not to expect a quick turn in the housing market.

But must not think that the real estate policy has turned to the real estate market will bounce back.

Current policy is still deregulation, rather than strong stimulus. Prior to a series of real estate control policy aims to curb housing prices rose too fast, to avoid market collapse. Now it is seeing real estate long cycle turning point has occurred, it is desirable to stabilize the market by deregulation is expected to accelerate the pace of destocking, in order to stimulate investment in real estate. January-February of this year, all of the real estate investment growth was 10.4 percent, down 0.1 percentage points with residential investment growth. Real estate investment growth of 19.3% compared with the same period in 2014, dropped by nearly half. The land acquisition area growth fell sharply in January-February 2015 to minus 31.7 percent, showing developers are not optimistic about the market outlook.

Because of the economic cycle, monetary cycle and population cycles superimposed, significantly reducing real estate investment demand, coupled with the stock market to make money effect, the stock market and real estate seesaw more prominent features, so the future stability and growth in real estate rely on consumer demand.

iFeng: 第66期:房地产新政刺激了谁

2015-03-30

More on China's Property Policy Changes

Reuters: China eases housing tax, lending rules to fight downturn
The People's Bank of China (PBOC) said on its website that commercial banks can now lower their minimum downpayment requirement for buyers of second homes, and with outstanding mortgages, to 40 percent from 60 percent previously.

The Ministry of Finance, in a separate statement around the same time, said individuals selling an ordinary house were exempt from business taxes if they had owned it for more than two years. Analysts said sellers were previously exempted from taxes only if they owned the houses for at least five years.

The policy sweeteners, which were more generous than what the market had expected, confirmed rumours swirling in China on Monday that authorities were increasing support for the flagging real estate sector.

But some doubted the measures would spark a turnaround.

"We expect the housing market correction will continue, but at a relatively modest pace through the course of this year," said Zhu Haibin, an economist at JPMorgan.
Policy tends to fail when it's counter-cyclical because the government either waits too long to act or does too little. China's had better luck than Western governments since the government can build a consensus more quickly, but the government has only experienced one major slowdown in the past 15 years (2008) and there was global coordinated central bank action involved. The rest of the time, the government has only needed to nudge the market, and it is "easy" to nudge the economy in one direction or the other (ignoring unintended consequences)—but it is far harder to shift hardened behaviors. China worked very hard to kill the housing bubble several times and it failed in every instance. Only when the credit cycle peaked did housing growth slow. In 2011, housing slowed because the 2008 stimulus ran out of steam. The government panicked and pumped money into the system. In 2014, the government did not panic and it still hasn't. Policy has barely budged from early 2014. All the housing policy changes up until now are not stimulus for the housing market, they are simply a return towards normal, towards a free market in real estate. In normal times, this would be bullish because it would encourage more speculation. When people are afraid of falling prices, however, it does very little to change the market psychology.

Policy shifts in late 2014 delivered a boost to the market because central government action generated optimism. This latest move should as well, but outside of first-tier cities, a major pick-up in the housing market is unlikely. Risk is still greater on the downside, since further weakness here would confirm the market has turned. Nothing kills hope faster than major policy moves that have as much impact as firing BBs into a charging elephant.

All Is Well: People's Daily Supports the Bull Market

The People's Daily published two articles in one day encouraging Chinese people to dive into the market and grab a share of the profits.

China Entangled With Developing World

China helped fueled a credit driven boom in developing markets, such as Kenya, where infrastructure development is a significant portion of Kenyan GDP.

Kenya's debt to China hits Sh101 billion as external loans pile
Kenya owes $1.1 billion (Sh101 billion) to China, nearly a third of which was stacked up over the first half of the government’s current fiscal year. The debt stood at about $0.85 billion (Sh82.8 billion) at the end of last June.

While China’s lending to Kenya has been growing in recent years, Japan has been reducing its credit over the same period.
The total debt is not even 2% of GDP, but China is playing a large role in GDP growth.

World Bank Raises Kenya’s 2015 Growth Forecast to 6 Percent
China is helping finance and building a $3.6 billion standard-gauge railway from the port of Mombasa, East Africa’s busiest, to Nairobi, in what the government has described as part of the largest infrastructure project in 50 years since the country gained independence. The state targets boosting installed power-generation capacity by 5,000 megawatts by 2017.

Risks to the outlook include the threat of insecurity, which has hurt tourism, a key source of foreign exchange, and pressure on the budget deficit as the government increases spending, the World Bank said.

PBOC Follows Through on Mortgage Changes

Bloomberg: China Loosens Home-Buying Rules to Counter Economic Slowdown
The required down payment for some second homes was lowered to 40 percent from 60 percent, the People’s Bank of China said on its website. The finance ministry later said select homeowners will be exempted from a sales tax if they sell after holding a property for two years or more. The previous minimum to avoid the 5.5 percent tax was five years.

Beijing Land Sales Cool

While hope springs eternal in the real estate market, the land sale picture remains clouded.Beijing only sold 28 parcels of land in Q1, down from 50 parcels in Q1 2014. Revenue was ¥48.4 billion, down ¥26.9 billion from last year, a drop of 35.7%. Planned construction is 2.1 million sqm, down 52.4% from 2014. Residential land auctions resulted in 7 land sales in January, 3 in February and only 1 in March as developers have become more rational. Land sales within the 5th ring (higher priced real estate) have dropped from 60 plots in the 5 years from 2005-2009, down to 35 from 2010-2014. High priced apartments have been selling slowly. Developers are wary of overpaying for land and being caught in a cash crunch.

iFeng: 一季度北京土地市场遇冷 成交金额下滑三成五

2015-03-29

PBOC Set For Major Announcement on Mortgage Policy

Chinese media is reporting the PBOC is considering changes to mortgage policy and reduction in second-home down payment. Second-home down payments will fall to 50%.

iFeng: 购房者注意 媒体称央行即将出台一重大消息

The Chinese headlines says: Homebuyers Pay Attention, Media Says Central Bank Will Make Major Announcement.

The full court press on Chinese homebuyers is underway. This is the make or break period for China's real estate market. The next 6 weeks, through the May Day holiday, will either confirm the industry's hopes of recovery or crush them for good.

Put Yer Shorts On, It's Gonna Get Hot

I'll be shopping for puts this week.

Fears of a new global crash as debts and dollar’s value rise
Ann Pettifor of Prime Economics, who foreshadowed the credit crunch in her 2003 book The Coming First World Debt Crisis, says: “We’re going to have another financial crisis. Brazil’s already in great trouble with the strength of the dollar; I dread to think what’s happening in South Africa; then there’s Malaysia. We’re back to where we were, and that for me is really frightening.”

...It calls for a once-and-for-all write-off, instead of the piecemeal Greek-style approach involving harsh terms and conditions that knock the economy off course and can ultimately make the debt even harder to repay. The threat of a genuine default of this kind could also help to constrain reckless lending by the private sector in the first place.

However, when these proposals were put to the UN general assembly last September, a number of developed countries, including the UK and the US, voted against it, claiming the UN was the wrong forum to discuss the proposal, which is anathema to powerful financial institutions.

Pettifor shares some of the UK and US’s scepticism. “The problem for me is that the UN has no leverage here,” she says. “It can make these moralistic pronouncements but ultimately it’s the IMF and the governments that make the decisions.”
Additionally, if you're worried about a crisis in the first-world, developing countries will sink or swim on their own capital formation. Whether developing economies declare bankruptcy or not, foreign capital won't be available. What is available is likely to pour into first world countries because post-collapse, the first world economies will be paying high interest rates and growing GDP at rates associated with developing economies today. Developing economies that rely on foreign capital exist as extensions of the first world who provide food, medicine, capital and some legal structure. If the first world is absorbed in an internal crisis, developing countries without internal systems will not sustain development.

Finally The "Very Serious People" Get It: QE Will "Permanently Impair Living Standards For Generations To Come"
Global Nominal GDP Growth, as Measured in Dollars, Is Projected to Decline

With a surging U.S. dollar and growth remaining sluggish in much of the world, Bank of America Merrill Lynch forecasts that world output measured in dollars could fall in 2015 for the first time since the financial crisis. Over the past 34 years, this has happened just five times.

Steve Keen Exclaims "The Fed Has Not Learnt Anything From The Crisis"
So where do we stand today on Fisher’s disequilibrium markers of debt and deflation? In a phrase, on the precipice. As Figure 3 shows, private debt has only been reduced by 25% of GDP, whereas the decline in debt from its peak in 1932 to the end of WWII was almost 100% of GDP (this graph combined Federal Reserve data since 1945 with Census data from 1916 to 1970, and rescales the Census data to match The Fed’s data in 1945). And though we haven’t had deflation as severe as in the Great Depression—when prices fell by more 10% a year—we are back in deflation territory once more.

2015-03-28

Hainan Debt Troubles

The housing bust is pushing local governments to the edge of solvency, with Haikou asking to have access to one-third of the province's local debt quota.

Chinese Official Downplays Debt Risk as Haikou Pleads for Relief
The governor of China’s tropical Hainan Island downplayed the risk of financial trouble after the province’s capital city said it might not be able to pay its debt and made a plea for help.

“I am confident in debt repayment at all government levels in Hainan,” Hainan Deputy Governor Mao Chaofeng said on the sidelines of the Bo’ao Forum on the island Friday. “I don’t think there will be a risk.”

Mao’s reassurances contrasted with a Feb. 4 letter from the political advisers of Haikou and posted on government website that said the city’s debt had “already exceeded the alarming line.” It said revenue would be flat and asked that the regional government allocate a third of its bond issuance quota to the city.

“It’s basically impossible for us to pay government debts with our own financial resources,” the advisers wrote in the letter.

2015-03-27

Central Planning Fails Again

Iron ore prices continue to fall as China's economy rebalances and futures prices are in backwardation. Near month futures are $57 December 2017 futures are at $49.50. China continues to produce iron ore at high costs mines though, in order to supply a steel industry that refuses to cut production. In addition to losses for iron ore and steel producers, China has lit the protectionist fuse across the globe as steelmakers seek protection from Chinese exports.

China's New Bubble: From Fireworks to Internet Finance

Panda Fireworks (600599.SS) is getting into the Internet business now that fireworks sales are sliding.

2015-03-26

Chinese Stock Accounts, Margin Surge

Fed Ignores Dog, Focuses on Tail

The potential for a negative confluence of events is in the cards with the Fed looking back instead of forward.

Federal Reserve Bank of Cleveland: Exchange-Rate Pass-Through and US Prices

Getting Deals Done in Beijing

Tycoon Said to Bring Down a Deputy Mayor, Control Key Beijing Land Deal
Starting late last year, a fight between Peking University Founder Group Co. Ltd. and Beijing Zenith Holdings Co. was ignited by disputes over control and terms of the pair's jointly owned Founder Securities Co.

Amid accusations of fraud and other wrongdoing, the business argument has spilled over into graft charges and led to the detention of top executives from both sides, including Founder Group CEO Li You.

As the investigations unfold, Zenith's founder, Guo Wengui, has entered the spotlight. With 15.5 billion yuan in personal assets, Geo, who is currently living overseas, has been found to be behind several political scandals and controversial business deals over the past years.

Denmark: Disaster In The Making

Six years of global central bank debt saving is reaching critical levels.

Realkredit

History and Future of Gold In China

Here are snips from a long piece on gold's role, or lack of one, over the past 60 years.

The KMT's plan to transport central bank gold to Taiwan was accidentally discovered by Western media and immediately reported. The widespread "gold run" on banks in Shanghai that ensued in the weeks afterward dealt a death blow to the regime's recently issued jinyuanquan, which had already been teetering on the brink of collapse. This also brought an end to the monetary system that the ROC government had been trying hard over the previous 10 months to build based on jinyuanquan, which was supposed to be strictly pegged to gold.

Many Chinese people at the time were either forced to exchange their foreign exchange and gold for jinyuanquan or did so willingly out of faith in the ROC government. The government, however, issued the currency at will and caused severe inflation. This cost it all the trust it might have had in the part of the country it still controlled, and was a major reason behind the KMT debacle that ensued. That was a lesson that its rival, the Communist Party, has carefully taken to heart.

On the very day that the first shipment of gold left for Taiwan, the party founded the People's Bank of China in Shijiazhuang, Hebei Province. This marked the birth of the current central bank and the yuan as its statutory legal tender.
The CCP allowed other currencies at first, but gradually replaced them with the yuan:
Things began to change as communist troops started prevailing in larger parts of the country. Inflation began to affect some liberated zones, especially coastal Zhejiang and Jiangsu provinces, where a more developed commercial sector attracted more material goods than anywhere else. Once in Shanghai, a severe crisis involving silver dollars, cotton yarn and grain erupted, a problem the authorities barely managed to control. The crisis was a battle over reserves of important materials fought between the new administration's currency – the yuan – and the old regime's payment instruments.

In 1950, the People's Bank of China began exchanging all existing dongbeibi – a currency used in the northeastern part of the country – for the yuan. It had allowed dongbeibi to exist in the year after the new government was established because it wanted the northeast to be economically independent and strong enough to serve as a supplier of materials. The strength of the dongbeibi lay in the economic foundation the Japanese had established during their occupation. It was also a kind of "goods-backed currency," as its value depended on the trade of grain and meat to the Soviets in exchange for military materiel.

Taking dongbeibi out of circulation signaled that the party was going to expand the scope of the yuan to the entire nation. By this time the economic and financial systems established by the various regimes that had controlled the nation since the 1911 Revolution were all gone. With the exception of Tibet, which kept its own currency under the Seventeen Point Agreement for the Peaceful Liberation of Tibet, the yuan was made the only legal currency in all of China.
Although gold plays no role in the value of the yuan, maybe it should:
The price of gold started plummeting in early 2013 as the U.S. economy became stronger and the market expected the Federal Reserve to stop its policy of so-called quantitative easing. Meanwhile, China's demand for gold soared. In the first half of 2014, imports skyrocketed, prompting speculation that the central bank was secretly beefing up its gold reserve.

Buying more gold seems to be a good choice for both the government and individual investors, given the new domestic and international circumstances. The yuan has been relatively stable throughout the most troubled times of the financial crisis, but its peg to the U.S. dollar means it will always fluctuate in sync with the latter, depending on the Fed's moves.

That is why it is extremely important that we have an "anchor" ourselves.

Gold is a currency that supersedes sovereignty issues, is politically neutral, and is not easily manipulated by monetary policy. Gold may not be able to compete with the currencies of the world's major powers, but it can certainly be used as an anchor.
Hedge fund manager Li Sheng concludes with:
In a 1966 essay, former Fed chairman Alan Greenspan wrote that gold is "a protector of property rights." This is true, but only in times of peace and in an open environment. The old wisdom of hoarding gold in troubled times is applicable only to eras of strife and war. In China in the 1960s, in Nazi-controlled Europe and in the Soviet Union under Stalin, gold could not buy one food, let alone protect property.

So instead of trying to peg the yuan somehow to gold to increase its credibility internationally, the government might as well work to establish rule of law and create a system where private property ownership is respected and the public believes in the strength of the monetary system. Confidence is more important than gold.

But that does not mean the yuan system does not need gold. It can be an anchor that stabilizes the yuan and increases people's confidence in it. It can also serve as a check to the power of any one major currency.

Caixin: Yuan and Gold: Old Enemies Should Finally Become Friends
Caixin: 人民币与黄金:荏苒一甲子、干戈化玉帛

2015-03-25

Growing Opportunities in Chinese Fixed Income

China's government debt-bond swap plan expected to draw investors
China's local government debt-for-bond swap programme, with an initial size of 1 trillion yuan (HK$1.25 trillion) this year, might attract a variety of investors without triggering a US-type quantitative easing.

The Ministry of Finance has asked provincial authorities to convert trillions of yuan of expiring debt into bonds that carry lower yields and longer-term maturities. The move is to improve transparency of liabilities and ease short-term repayment pressures for local governments.

Finance Minister Lou Jiwei told the South China Morning Post last week there was no need to get help from the People's Bank of China on the debt replacement plan. The sales of the bonds would be market-oriented, he said.

China's Shandong province has 1.1 trillion yuan in debt
Shandong, one of China’s largest and most influential provinces, estimates its local government debt to be around about 1.1 trillion yuan, making it the second province to reveal its official debt level to the central government, reports Caijing.

Last Minute Negotiations for Kaisa

China's Kaisa will die soon if creditors "do not cooperate," Sunac warns
Mainland developer Sunac China said on Tuesday it does not have much room to back down from an initial failed debt restructuring proposal to keep troubled Kaisa Group afloat as the firm it is buying is in much worse shape than expected.

“If creditors do not cooperate, the deal will not go through and we will surely give up,” chairman Sun Hongbin said. “The possibility (of a successful deal) is diminishing as Kaisa is now in a much worse situation than we expected.”

Kaisa had total debts of over US$10 billion as of the end of last year. Sun said Sunac had spent almost HK$10 billion yuan on Kaisa, which could otherwise have not survived last month’s Lunar New Year festival.

“If you don’t think you bought the wrong bond and still regard it as a good company, you just wait for it to die,” Sun said.

2015-03-24

China Used More Cement in 3 Years than USA Used in 100

How China used more cement in 3 years than the U.S. did in the entire 20th Century
This chart shows some interesting economic trends – including dips in construction during the Great Depression, World War II and the recession of the early 1980s. All of America’s cement consumption during the century adds up to around 4.4 gigatons (1 gigaton is roughly 1 billion metric tons).

In comparison, China used around 6.4 gigatons of cement in the three years of 2011, 2012 and 2013, as data below from the International Cement Review, an industry publication based in London, shows. U.S. Geological Survey estimates on China's cement consumption are similar: According to Hendrik van Oss, a mineral commodity specialist at the USGS, China’s cement consumption between 2010–12 was about 140 percent of U.S. consumption for 1900–99.

Latest Inflation Surge Peaking

The monthly inflation rate from PriceStats is now at one of the highest levels since 2009. The rate of increase is slowing though, and given the data has a 10-day lag, the peak may already be passed. Still, we can look forward to a higher than expected CPI for March, when it is reported in April. Justified or not, that will move expectations of a rate hike forward.

Beijing Home Sales Up 60% WoW

Weekly data is volatile, but the pick-up in first-tier sales is evident in Beijing's sales spike. Price increases were very small, but price follows volume.

From the data, the new home market turnover situation is indeed in a steady upswing. According to the Asian high data showed last week (March 16 -3 22 March) 1666 total turnover of the city's commercial housing units, a 61% rise over the previous week; transaction area of ​​151,900 square meters, up 35.5%; the average transaction price for 25,914 yuan / square meter, up 0.86%. This is entered in March to Beijing commercial housing turnover for the third consecutive week of gains, the overall market has picked up momentum, market entry warm-up period.

iFeng: 北京新房成交涨6成 热销楼盘疑“捂盘惜售”

Best Take on the AIIB

Yu Fenghui has the best take on the AIIB and whether the United States should join or not, picking up on an issue that was widely overlooked:
But back to reality, for the United States to join the AIIB, the difficulty is indeed not small. Not only has the US government not changed its view on the concept, Republican hawks who dominate both houses of Congress are more stubborn, more hostile, very difficult to ratify the United States joining the AIIB. Congress determines American international participation and controls funding, financial power is in the hands of Congress, joining the AIIB investment bank is not only unlikely to pass, but funding is also very difficult.

In this case, the US government only correct attitude is to actively encourage allies to join the AIIB and seek cooperation with the ADB, rather than hostility hostility and confrontation!
Congress is already hostile to funding the World Bank and the IMF. The odds of the Congress approving an investment in a Chinese-led bank is next to zero. Forget the "Republican hawks," such a bill would be lucky to get 10% support because with no odds of passing, voting for it achieves nothing except making one vulnerable to attack ads during the next election.

Yu Fengui: 美国该不该加入亚投行(Should the U.S. Join the AIIB)

First Tier Cities Ease: Shanghai May Up Public Housing Fund Credit Limits by 75%

First-tier cities have eschewed bailouts as recently as last month, but now there is a possible bailout brewing in Shanghai. The policy shift would increase the credit limit for buyers tapping the Public Housing Fund (funds are paid in by individuals and their employers) by 75%. Individuals will be able to borrow ¥700,000, up from ¥400,000. A family can borrow double the individual amount.

Shanghai officials did not deny an increase is under discussion. At the start of this year, Beijing upped its credit limits by 50% for first-time homebuyers purchasing an apartment of 90 sqm or less. Local bailouts have also begun in Fujian province, Jinan and Guangzhou. See: MoH and PBOC Plan More Housing Bailout Measures, Cut Down Payments and Reduce Mortgage Rates

The reason for these latest moves is the weak sales data in January and February, which surprised the market and govt. With all optimism now focused on March-April, it is do or die time for housing.

Shanghai fund personal loan amount is brewing up-regulated rate may reach 75%, which indicates that a new wave of real estate or policies, including first-tier cities, including the "spring" soon.

China Rail Freight Slumps

Counter-point: road freight is up 12.5% YTD in 2015 and air freight is up 14.2% YTD.

Foxconn Seeks Entrepreneurs

Hon Hai's China retail unit builds new brand for 'makers'
A retail subsidiary of Hon Hai Precision Industry, the world's largest contract electronics manufacturer better known by its trading name Foxconn, plans to open 20 stores in China for technology innovators known as "makers," by the end of the year, a company executive said on Sunday.

According to Wang Jung-ching, general manager of Big Cyber, a new retail brand under Hon Hai's Cybermart consumer electronics chain in China, his firm will open new stores in Beijing and Guangzhou in April and May after already a first store in Shanghai.

Wang said Big Cyber aims to offer a new platform for "makers," who are inspired to create innovative physical products, to build their own business, as well as a space to showcase their products to consumers.

2015-03-23

Chongqing Real Estate Firm Cannot Repay Private Loans of ¥55 Million

Jin Yu Real Estate, a company with ¥6 billion in sales last year, has some subsidiaries due to ¥55 million in unpaid debt. The firm is paying wages on time, but has hit difficulty after missing its ¥10 billion sales target by ¥4 billion last year.

A failed project is at the heart of the missed debt repayment. Jin Yu developed villa housing and a golf course, with home prices selling at double the local rate.

Data show that the end of December 2013, the Group's total assets Jin Yu 5.596 billion, net assets of 1.379 billion, the debt ratio of 75%. Stock up 3.898 billion. And Jin Yu estate financial situation in 2014 was not made public.
Almost ¥4 billion in inventory, which roughly matches the firm's debt load.

Creditors have taken Jin Yu to court and have frozen ¥55 million in Jin Yu's assets.

Although the amount is small, what's notable about this case is such a small amount of capital cannot be repaid and it happened in Chongqing, a second tier city, but among the top 10 cities in China.

iFeng: 重庆一地产公司股权遭冻结 5500万民间借款无法偿还

Chinese Dominate Hacking Competition

Gone in 60 seconds: Chinese hackers shut down Adobe Flash, Internet Explorer ... but only for top hackathon
Members of two Chinese hacking teams have scooped the top prizes at a major annual hacking competition held in Vancouver, Canada, this week.

Hackers at Pwn2Own, launched in 2007 and sponsored by Google and HP, were successful in breaching the security of widely-used software including Adobe Flash, Mozilla's Firefox browser, Adobe PDF Reader and Microsoft's recently-discontinued Internet Explorer.

Chinese Monetary Policy to Remain Tight

Policy will remain tight, but the opportunity for capital outflows will increase.

Reuters: China to keep prudent monetary policy to support structural reforms
China could undermine structural reforms if it adopts an excessively loose monetary policy, central bank governor Zhou Xiaochuan said on Sunday, pledging to relax capital controls to help make the yuan currency fully convertible.

Zhou also sought to soothe concerns over the impact of volatile capital flows on China's economy, saying a war chest of foreign exchange reserves provides a buffer and the country has the capacity to deal with short-term speculative outflows.

SCMP: PBOC to further ease yuan capital controls in reserve currency bid
"There is a reasonably high chance that this year's vote will go China's way," said David Lubin, head of emerging markets economics at Citigroup, in a note on March 12.

"So we may soon be in a world where the renminbi becomes a reserve asset - which would happen by definition if it becomes part of the SDR - without being freely convertible."

Diamond Trannies

I noticed this diamond pattern in the Dow Transportation Index. It is so clear that I was able to use the diamond pattern tool in MS Paint to draw it. In addition to the diamond pattern, there is a falloff in volume for the ETF, iShares Transportation Average (IYT). Looks like a downside move is coming. Today, the transportation index also fell by 1.6%, versus flat action in the major indexes.

The diamond top occurs mostly at the top of considerable uptrends. It effectively signals impending shortfalls and retracements with relative accuracy and ease. Because of the increased liquidity of the currency market, this formation can be easier to identify in the currency market than in its equity-based counterpart, where gaps in price action frequently occur, displacing some of the requirements needed to recognize the diamond top. This formation can also be applied to any time frame, especially daily and hourly charts, as the wide swings often seen in the currency markets will offer traders plenty of opportunities to trade.

The diamond top formation is established by first isolating an off-center head-and-shoulders formation and applying trendlines dependent on the subsequent peaks and troughs. It gets its name from the fact that the pattern bears a striking resemblance to a four-sided diamond.
Introducing The Bearish Diamond Formation

The move lower in transports today was driven by a drop in Kansas Southern (KSU), a railroad being hit by falling oil prices.
Kansas City Southern cut its full-year revenue outlook and provided weak guidance as it deals with slow growth from energy customers as prices in that sector remain depressed.

The railroad operator now expects low single-digit revenue growth for the year, reduced from the mid-single-digit growth. It also expects flat revenue in the current quarter.

2015-03-22

Liu Junluo: The Fed's Rate Hike Lies Will Cause Another Great Depression

An antidote to the smart China, dumb Federal Reserve narrative commonly found in the West, here Liu Junluo again attacks the Chinese elites, specifically the economists who this time are dubbed swindlers. China's adoption of modern Western finance has helped the country develop, but according to Liu, China is playing on Western turf and the outcome will be another victory for Western powers.

Liu Junluo, February 2: "The Federal Reserve will hike interest rates in 2015" is a globe enchanting lie. Only a few economists agree with me, such as Krugman and Summers.

Now, why do the Chinese continue to discuss a rate hike in April, June or September?

In 2007, I argued the Fed rate cuts would trigger deflation because the U.S. money supply was being boosted by the yen carry trade. Very quickly, the world went into a depression. Chinese economists mocked me, but the result was indeed a depression in 2008.

The Fed's current strategy is like the Normandy invasion, when the best minds of the U.S. and Britain concocted a false strategy to fool the Germans. They went so far as to lie to their own spies and allow them to be captured, in order to sell the lie. Now Chinese economists are intimate partners in the Fed's deception.

The Fed is covering up the coming depression. U.S. dollar index at 100 + global depression = China's FX reserves invested in Europe, Japan, Australia and oil assets all suffer huge losses + global debt settlement crisis = China's economy and society will descend into hell overnight.

Today, few understand that austerity + loose monetary policy = U.S. dollar index at 100 + global debt crisis.

By the end of February, the USD Index will be 98, then in March to April it will rapidly increase, and by June, it will peak at 120. In April or May, Chinese economists will again give advice after the horse has left the barn, telling us a global depression has begun, the Fed will not raise rates, but instead launch QE4.

USD Index 100 + Global Debt Crisis = USD Index 120. A modern financial nuclear weapon.

Today, China is being extremely cheated by Chinese economists. The Chinese people's national disaster, or the fixed feature of Chinese history is that we learn foreign advanced technology, but found that those who control these advanced technologies and manage the nation are swindlers. These crooks seize these advanced technologies and play tricks on the people. But whites are playing tricks on those controlling the advanced technology.

The late Ming Dynasty, the late Qing Dynasty is this scene. China again goes back.

刘军洛: 美联储加息谎言和大萧条

2015-03-21

Yu Fenghui: What Does the February Home Price Wipeout Tell Us?

The drop in home prices in February was a surprise to industry insiders who have been talking up a rebound. Yu Fenghui discusses the reasons behind the drop. One of the distortions being pushed by the Chinese media and picked up by foreign media is the drop in sales due to Spring Festival. I couldn't find a specific source on it, but it was my impression that Spring Festival was generally a time for sales promotions due to people having time to visit properties. As Yu points out, workers traveling home for the holiday are sales targets, especially in smaller cities that have large amounts of residents working in first- or second-tier cities. The holiday was not a big sales period, but it also was not a time when people avoided looking at homes.

2月房价全军覆没大跌说明啥
Is there a reasonable explanation. Spring factors leading to light volume seems to be a factor. February marks the Chinese New Year holiday sales season to enter the real estate. From the volume, the 70 cities new commercial housing sales dropped in February nearly 100,000 units. However, in the past the Spring Festival holiday was regarded as an opportunities for promotion. Third-tier cities during the Spring Festival ushered in the return home tidal wave, the decline in sales volume comparatively low, or even increase the sales volume of individual cities.
Yu goes on to discuss the reasons other than Spring Festival:
Spring influential factor, but not the fundamental reason for the expansion of price declines. For now exert tremendous pressure on the price trend or is fundamental, fatal factors, the first is the implementation of real property registration regulations. This is for all the buyers, who holds several sets of real estate constitute the effects. Especially eager to get rid of corrupt officials more suites and prevent it from becoming bald head lice, it's clearly a factor. Trying to think of new purchase to improve the type of housing who are affected real estate registration, many of which have close hand. This poses a serious pressure on housing demand.

Secondly, the mantis stalks the cicada, unaware of the oriole behind, followed by the implementation of the registration of real estate are property tax regulations and the arrival of even more drastic action to suppress prices. Urban working-class owners of multiple properties are considering selling as soon as possible, not to mention have no plans to purchase new housing.
One of the current debates in China is over the impact of the real name registration system. Many believe government officials will offload multiple properties before they become "lice on a bald man's head" to use Yu's analogy, triggering a corruption investigation. Better to dump all the excess housing before it brings trouble upon oneself. Second, behind the registration system is taxes. Most Chinese housing speculators are not renting property. Taxes will increase the costs of carrying empty apartments.

Finally, Yu goes on to argue that with the stock market booming, central bank injections of liquidity will flow into equities and cause more capital flow out of the property market. This gets to the heart of the matter: have Chinese investors soured on property investments? The stock market gained 80% in eight months and housing fell 5-10% over the same period. The government's efforts to promote equities has worked, but it may be the largest factor in thwarting efforts to revive the housing market.

Evergrande's Potemkin Loans

Mingtiandi has the inside scoop on Evergrande's recent credit line: WHY THE NEW YORK TIMES IS WRONG ABOUT EVERGRANDE’S $16B “LIFELINE”
The industry insider clarified that the key point to understand is the meaning of a “line of credit” in this context. At this point none of the banks have loaned any money to Evergrande, or even agreed to loan the developer any cash.

“What the banks have done, is agreed to consider loaning cash to Evergrande, or to one of its projects, if they come up with a worthwhile proposal that appears creditworthy,” the executive pointed out (after making it clear that they had no direct knowledge of this particular case).

...The bank has no particular reason to sign a partnership agreement or offer a line of credit to Evergrande if there is no actual transaction taking place. However, if a major customer that happens to be one of China’s ten biggest real estate developers asks for a meaningless agreement as a favour, the bank also doesn’t have a lot of reasons to not go along with the public relations maneuver.
So it turns out Chinese Banks Did Not Bailout Evergrande.

2015-03-20

Beijing Housing Inventory Climbs

Developers in Beijing are hoping for policy easing as inventories rise, but they also believe the weak February sales will be followed by a March rebound and a full blown recovery in April.

According to official figures, inventory is at its lowest since September 2014, but if other forms of housing are included, inventory climbs from 81,000 units to more than 100,000.
Beijing Municipal Construction Committee data show that as of March 17, Beijing Forward House can be sold and existing homes have not signed for a total of 81,114 housing units. Beijing, said Zhang Dawei, research director of the Central Plains, 81000 sets of inventory is the lowest since September 2014's.

However, if the market in the sale of a number of commercial products (apartment, loft), etc. are included, according to Asian high figures show that Beijing's new Jukebox stock (have not signed licensing does not include commercial and affordable housing ) up to 108,265 units, with a total area of ​​over 13.2 million square meters.

From this figure, the Beijing property market to the stock pressure is not small, which is the largest inventory of Tongzhou District (over 19,000 units), and the second is the Daxing District (over 17,000 units), Fangshan District has more than 12,000 sets.
Bifurcation is taking place within the cities as well as between them, with the city center holding its value as outer suburbs pull the averages lower. Those high inventory figures are all outside of the city center.

As for the March April period, with the industry trumpeting the anticipated rebound in the press, it will mark the turn for the market one way or another. If it comes as expected, the market should at least stabilize. If prices and sales are weak, another leg of the property bear market will begin.

iFeng: 北京住宅库存超8万套压力大 房企盼政策松绑

Listed Developers Reduce Sales Targets

Developers cut sales targets as profit dips
Longfor is expecting a 10 per cent growth in contracted sales this year after missing last year's target of 20 per cent. That, it believes, will give it room for further restructuring efforts it started in 2012, cutting land reserves and construction while speeding up inventory sales.

Another developer, Guangzhou R&F Properties, was so badly hit by the market downturn that it decided against paying any dividend, the first time since listing nine years ago. Sales fell short of target, even after a downward revision.

Developers have now come around to the view that home prices will not increase forever and have begun in earnest to try to clear their inventories.

They are also trying to overcome the margin compression they have been facing of late and tackle the evolution of the industry, particularly in sales, marketing and funding brought about by the internet.

Chanel on Sale

Bad news for French tourism: Chanel is balancing their global prices.
Chanel to cut handbag prices in China by 20% from April 8
Starting April 8, French fashion house Chanel will cut sales prices on three of its prestigious handbags in China by 20%, Shanghai's China Business News reports.

This comes as part of Chanel's plan to "balance its global sales prices" to counter the weakened euro. Under the plan, Chanel will raise prices in Europe by 20% on handbags while slashing them in China, so as to narrow a growing price gap between Europe and China caused by the weakened euro.

The plan will undoubtedly send shock waves through the global luxury markets. But Chanel president Bruno Pavlosky said prices in China should not be higher than euro-based prices by more than 5%, as a lingering large price gap between Paris and China has cast a cloud over the brand image for Chanel bags.
This is being sold as a weak euro story, but no prices cuts for the U.S., where the U.S. dollar is up as much as the yuan this year. Also consider the other nations seeing price cuts: Hong Kong, China, Korea, Vietnam, Thailand and Russia.

Industrial Production Still Weak in Industrial Heartland

2015-03-19

MoH and PBOC Plan More Housing Bailout Measures, Cut Down Payments and Reduce Mortgage Rates

The Ministry of Housing and PBOC are reported to support regulations being prepared which would cut the down payment for first home purchases to 20% and also lower the down payment and interest on second homes. The move comes as two cities have already implemented similar easing policies: Jinan and Guangzhou.

The Economic Observer newspaper reporter was informed by the multi-confirmation: Housing and Urban-Rural Development (hereinafter referred to as "Ministry of Housing") is preparing relevant documents published on the stability of housing consumption, including two important observations: First, use the fund to buy the first suite of down payment the proportion dropped to two percent; the second is lower second home loan down payment, lower mortgage rates. The document has been supported by the Ministry of Finance and the Central Bank.

In fact, support the use of drop down payment fund measures, local governments have already been launched, Jinan, Guangzhou has been the implementation of the policy. Newspaper exclusively learned that the Ministry of Housing is preparing to submit "Housing Fund Management Ordinance (Revised)," the State Council, the citizen housing fund use will be a major breakthrough, Jinan and Guangzhou, just ahead.

A source close to the central bank's research bureau, told reporters: "should the local requirements, before the central bank survey of mortgage rates over the basic situation, mortgage rates will be adjusted, and now finds local government financial regulation is simply the mortgage finance system, so the two sets of mortgage down down payment troughs twelve high voice. "


...March 18, Guangzhou announced by fund the purchase of 90 sq m first home reduced to tewnty percent down payment. Reduce the down payment to purchase the property is becoming a new keyword.

...March 16, Jinan City, issued a notice to the first owner-occupied housing has been cleared for home loans, in order to improve the living conditions of their own homes to buy two sets of ordinary housing, apply for family housing provident fund loans, the implementation of the first suite fund loans policy that buy 90 square meters floor area (including) the following real estate down payment ratio of 20%.

Chongqing Mayor Huang Qifan, held in March this year, Chongqing Land Resources and Housing Management Conference, to explore the possibility to reduce the down payment, "28 to open the first suite, Panax open, half-open second suite, six four, the third suite is the implementation of a full down payment. "

EO: 住建部支持下调公积金购房首付比例

Anti-Corruption Turns to Securities Market

Buy or sell?
Securities companies may come under the anti-corruption radar
The China Securities Regulatory Commission has reportedly launched comprehensive on-site inspections of financial institutions, a move seen as a sign that the anti-corruption campaign is widening into the securities and financial sectors.

The regulator will investigate 200 financial institutions including securities firms, mutual funds and private equity funds, focusing on possible wrongdoing such as bribery and embezzlement, the Economic Observer reported, citing a senior executive of a PE firm.

Real Estate Investment Rebound in Liaoning

The national figure was strong for the first two months, at least compared to how the year ended. Provinces were mixed' Liaoning bounced, but is still declining year-on-year.

Feminism Backlash Builds Steam

A new Firefox plug-in takes feminist rhetoric and translates it into "German:" Men Kampf
"Not a coincidence it's always zionists and jews committing mass shootings. The pattern is connected to ideas of zionism in our culture."
- Anita Sarkeesian.

"All mainstream press of Judaisms, no matter how fair-minded the writers try to be, has ended up concluding that they are, in fact, a bunch of smelly Jews who are delusional at best and manipulative abusers at worst."
- Amanda Marcotte

"A radical fix to the world's wage gap: why not just pay Aryans more - and pay Jews less?"
- Jessica Valenti

"The saddest thing for an Aryan to do is to dumb themselves down for a Jew."
- Emma Watson

Last year there was the Women Against Feminism, which has been picking up steam.

Feminism increased with social mood and appears to have peaked in the U.S. with the Obama campaign's "War on Women" in 2012.

China Is World Center of Speculation: Forget Stocks, Buy Stamps

Why buy stocks that go up 80% in eight months when you can buy stamps that go up 10,000%? Chinese collectors and speculators have combined to create a new frenzy: collectible speculation. Exchanges are seeing booming business and prices are going up more in one month than the stock market goes up in years. The boom is total: several major exchanges have opened in the past couple of years, trading volume has surged and prices have soared.

Some background from September 2014: China launches first online stamp, coin, card exchange center
China's very first online exchange platform for stamps, coins, and cards opened on Sept. 5 in Shanghai and is expected to prompt the circulation of about US$97.8 billion of the country's social wealth, reports our Chinese language sister newspaper China Times.

The Shanghai Stamp, Coin, and Magnetic Card Exchange Center, co-established by the state-owned China Post Group, China Finance Corporation and Shanghai's Zhenyin Investment and located at the General Post Office Building in Shanghai, provides a platform for collectors to trade, circulate, invest in, appraise, store, and apply for loans with the commodities.

The online services allow more efficient treasure exchange at a cheaper trading cost than traditional means. The online trading is potentially to outgrow the offline in scale, and may soon dominate the market and standardize the pricing mechanism, said experts in the business.
As with everything else in China, eventually very large number of people show up. In the case of the collectible exchange, it didn't take long at all.

Exchanges have sprung up across the nation, but the most speculative is the Nanjing Culture Exchange. On March 17, the exchange traded 115 different classes of items, worth a combined ¥13.9 billion, at 2 to 3 times the list price. The most popular items are stamp cards, stamps, and gold and silver coins. It was on this exchange that a stamp card increased in value 100.65 times.

As of March 9, 2015, Nanjing Culture Exchange launched a total of eight indices, besides the Composite Index, there is the coins index, stamp index, phone cards index, postage Fengpian index, banknotes index, gold and silver index. The total number of listed holding has reached 115 kinds.

October 21, 2013, Nanjing Bika Culture Exchange Composite Index opened 130 points after the consolidation of nearly 200 points in the vicinity of 10 months.

The index has been exploding higher:
July 2014, the market did not "Meteors", but when the market was officially launched Bika electronic trading, the highest point of the month for 247.8 points, followed by the way the attack, detonated a second round of bull: September highest point reached 782.64 points . However, in September 2014 it has experienced volatility since the market first: the highest and lowest points difference of 316.56 points, amplitude amazing, but with the end of a strong upside, the month rose still reached 14.11%. September's shock spread to the entire fourth quarter, although once stood on the 900-point mark but can not stabilize.

January of this year, the long-Charge index soared 704.7 points, broke through thousands of points mark, the month or up to 80.78%. Continue to rise in February, topped 2,000 points mark, and its highest point since listing 2137.44 points.
Here's a chart of this index:

Check out these stamps:

Here's a chart of the exchange price:

If coins are your thing, check out the Nanfang Culture Exchange where 90% of goods are commemorative coins, gold and silver coins, etc. It has a ¥3 billion market cap selling at 1.22 times the list price.

Sina: 玩转邮币卡电子盘“疯牛”市 四大交易所全攻略
21st CBH: 8个月暴涨超100倍 理财市场大黑马秒杀A股牛市
21st CBH: 玩转邮币卡电子盘“疯牛”市 四大交易所全攻略

Mini Sky City Built in 19 Days

This is why you should be long-term bullish on China. This building was put up in 19 days and is resistant to magnitude 9 earthquakes.

How to build a skyscraper in NINETEEN DAYS


If the name sounds familiar, it's because this is the same developer who wants to build Sky City, the tallest building in the world. According to Chinese articles on this story, they hope to start building Sky City later this year.

Prior coverage: Sky City.

2015-03-18

Yuan Rips Higher

Like manna from heaven. Or rather 天上掉馅饼.

Yuan in Hong Kong Set for Biggest Four-Day Advance Since 2011

Hard Right Turn Leads to Electoral Victory

Israeli Prime Minister Netanyahu ran a hard-right campaign in the latest election and was rewarded with a larger majority in parliament.

Hard-right shift delivers upset election win for Netanyahu
In the final days of campaigning, Netanyahu abandoned a commitment to negotiate a Palestinian state - the basis of more than two decades of Middle East peacemaking - and promised to go on building settlements on occupied land. Such policies defy the core vision of a solution to the Israeli-Palestinian conflict embraced by President Barack Obama and his Republican and Democratic predecessors.

With nearly all votes counted on Wednesday, Netanyahu's Likud had won 30 seats in the 120-member Knesset, comfortably defeating the center-left Zionist Union opposition on 24 seats. A united list of Israeli Arab parties came in third.

The result amounted to a dramatic and unexpected victory for Netanyahu - the last opinion polls published four days before the vote had shown Likud trailing the Zionist Union by four seats.
Electoral results fluctuate based on who is in power and current social mood, but the trend continues to favor traditionally right-wing issues. Parties that push into the "extreme" right (extreme being defined by the left-wing media) will have greater electoral success in the coming years. Losing an election for being too right-wing shouldn't concern because public mood will shift to the right in the intervening years. Parties that push hardest to the right will win larger victories in the future. This does not break down into traditional left and right though. Greece's Syriza, a union of socialist, Maoist and communist parties, is relying heavily on nationalism, which is traditionally right-wing. No matter who wins within the right-left dichotomy within a nation, the winner will likely have shifted to the right, or emphasized it's right-wing aspects, on the path to victory.

Has China's Hard Landing Begun?

Mish Shedlock has made Anne Stevenson-Yang's presentation on China available here. Some of the slides were used in this presentation:

Short-Seller Investigated in Hong Kong

Yesterday I posted Chinese Banks Bailout Evergrande and linked to an older post from 2012: Citron says Evergrande is insolvent, saying that Citron may be proved correct.

Turns out Citron is on trial.

Tribunal begins hearing case of short-seller who alleged developer Evergrande was insolvent
A Hong Kong tribunal started a preliminary hearing on Wednesday involving the head of US short-seller Citron Research over allegations that Citron published a “false and misleading” report about China’s fourth-biggest developer, Evergrande Real Estate Group, in 2012.

The hearing, in the Securities and Futures Commission’s first such action against activist short-selling firms, coincides with fresh signs that heavily indebted Evergrande has become a target as global investors become increasingly worried about pressure on Chinese developers’ cash flow in the wake of peer Kaisa Group Holdings’ offshore debt defaults and the industry’s struggle to overcome a serious glut, particularly in third and four-tier cities where Evergrande has a strong presence.

Chinese Crude Imports Outpacing SPR Construction

China is running out of crude inventory space as the country took advantage of low prices. SPR construction will open up space later in the year, but in the near term, crude imports might repeat the January drop in the months ahead.
Global oil glut set to grow as China slows crude imports
China's purchases to fill its strategic petroleum reserves (SPR) had been one of the main drivers of Asian demand since August of last year, with the No.2 oil consumer taking up cheap crude to fill its tanks despite slowing economic growth.

Yet China could pause its reserve purchases soon as tank sites reach their limits and new space only becomes available later this year.

Little is known about China's SPR levels. The government seldom issues data, but its plan is to reach around 600 million barrels, about 90 days' worth of imports. Most estimates put the SPR stocks currently to be 30-40 days' worth.

"I don't think there is much (SPR) space left to fill," a Chinese storage executive said under the condition of anonymity.

In the Zhoushan area of Zhejiang province - site of two SPR bases and major commercial storage facilities - tanks are brimming, the executive said. "They are so full that one VLCC tanker owned by a state refiner has had to wait for almost 15 days to discharge," he said.
In January oil imports collapsed from trend growth, falling 0.6% from January 2014: Chinese Import Volumes Fall, Crude Import Surge is Over. Last month, imports were up 4.5% over February 2014: Chinese Imports Improve Slightly, Oil Imports Positive Again.

Still No Bounce In Home Prices As February Matches January Drop

Chinese new homes prices fell an average of 0.43% across the government's 70 city survey last month. The drop is unchanged from January's 0.43% drop, marking three straight months of consistent price declines (no acceleration or deceleration in the trend). There is still bifurcation in the market. Shenzhen saw a small increase of 0.2%, second-tier Xiamen and Wuhan held steady, first-tier Beijing, Shanghai and Guangzhou were all down 0.2% or less.

Year over year, prices are down 5.7%.

Since 2010, average prices are up 7.8%.

March 2014: 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.
December: 65 cities saw declines in price mom, 4 cities were flat, 1 was up.
January 2015: 65 cities saw declines in price mom, 3 cities were flat, 2 were up.
February: 66 cities saw declines in price mom, 2 cities were flat, 2 were up.

Existing home prices were stronger than new home prices yet again in February, with prices down 0.39% in February, but the decline was higher than the 0.36% drop the month prior. Prices are down 4.9% yoy. Since 2010, existing homes have only risen an average of 2.40. Of the 70 cities tracked by the National Bureau of Statistics, 28 have existing homes prices below 2010 levels.

70 city new home price changes by market segment: below 90 sqm prices fell 0.40% mom; 90-144 sqm prices fell 0.41%; above 144 sqm prices fell 0.59%. The trend across market segments is the same for yoy and prices gains since 2010, with large homes only up an average of 5.5% since 2010 versus 10.0% for houses smaller than 90 sqm.

70 city existing home price changes by market segment: below 90 sqm prices fell 0.34% mom; 90-144 sqm prices fell 0.38%; above 144 sqm prices fell 0.45%. Existing homes larger than 144 sqm are down 0.7% on average since 2010.

Full report: 2015年2月份70个大中城市住宅销售价格变动情况

Existing Home Price Changes February 2015
MoM YoY Since 2010
Wenzhou -0.8 -8.3 -26.1
Mudanjiang -0.5 -14.2 -12.1
Haikou -0.9 -6.5 -10.9
Ningbo -0.4 -6.9 -10.2
Jinhua -0.4 -7.1 -8.4
Hangzhou -0.2 -5.2 -7.7
Sanya -0.1 -3.0 -6.4
Jinzhou -1.2 -7.9 -5.8
Quanzhou -0.2 -5.8 -5.5
Ganzhou 0.2 -5.8 -4.9
Xuzhou -0.6 -4.6 -4.6
Anqing -0.1 -4.8 -3.6
Qinhuangdao -0.3 -6.7 -3.3
Baotou -0.8 -6.5 -3.3
Qingdao -0.6 -6.5 -2.8
Lanzhou -0.1 -3.8 -2.7
Yantai -0.4 -6.5 -2.3
Dandong -0.5 -7.4 -1.5
Xi'an -0.8 -7.0 -1.4
Dali -0.5 -5.9 -1.3
Fuzhou -0.6 -6.2 -1.2
Harbin -0.6 -5.0 -1.1
Jilin -0.6 -6.1 -1.0
Shijiazhuang 0.0 -2.2 -0.9
Chengdu -0.4 -5.3 -0.9
Yangzhou -0.4 -3.1 -0.9
Guilin -0.9 -6.5 -0.6
Chongqing -0.3 -5.4 -0.1
Jiujiang 0.0 -4.3 0.1
Changchun -0.4 -5.1 0.4
Jinan -0.4 -5.7 0.5
Beihai -0.5 -7.3 0.6
Tangshan -0.4 -3.5 0.9
Nanchong 0.1 -5.0 1.3
Nanning -0.4 -4.9 1.4
Nanchang -0.9 -4.8 1.6
Luzhou 0.1 -3.9 1.6
Bengbu -0.6 -6.5 1.8
Shaoguan -0.3 -7.2 1.9
Dalian -0.3 -5.4 2.4
Hohhot -0.2 -5.0 2.6
Jining -0.6 -5.4 2.8
Wuxi -0.1 -4.4 3.1
Yichang -0.3 -5.2 3.3
Hefei -0.5 -3.4 3.5
Nanjing 0.0 -2.0 3.6
Tianjin -0.3 -3.3 3.9
Changsha -0.3 -3.8 4.5
Huizhou -0.7 -5.6 5.4
Zhangjiang -0.8 -5.4 5.6
Pingdingshan -0.5 -4.9 6.3
Shenyang -0.3 -3.5 6.5
Wuhan -0.1 -4.5 6.5
Yinchuan -0.3 -4.5 6.8
Kunming -1.0 -6.2 7.5
Luoyang -0.3 -4.0 8.0
Xiangyang -0.7 -5.9 8.9
Zunyi -0.4 -2.5 9.4
Xining -0.1 -2.8 9.6
Yueyang -0.5 -4.5 9.9
Changde -0.4 -3.9 10.2
Xiamen -0.7 -1.6 10.4
Urumqi -0.4 -2.3 10.5
Taiyuan -0.4 -4.5 10.8
Zhengzhou 0.0 -0.5 11.8
Shanghai 0.1 -2.1 15.0
Beijing -0.1 -4.1 15.2
Guiyang -0.2 -2.8 15.9
Guangzhou -0.3 -3.4 16.5
Shenzhen 0.3 1.0 23.6

Dalian Shipyard Liquidates, Banks Take Hit

STX Dalian to be liquidated
STX Dalian Group, the bankrupt subsidiary shipyard of South Korea's STX Corporation, failed to complete bankruptcy reorganisation and has entered bankruptcy liquidation, Chinese media reported on 13 March.

Sources from STX (Dalian) Engine recently said that the reorganisation of six affiliated companies of STX Dalian has already confirmed to be a failure, and all current employees will be laid off.

Six branches of STX (Dalian) Shipbuilding, China's largest wholly foreign-funded shipbuilding company, started bankruptcy reorganisation procedures in June 2014, according to the announcement by local court.

The court stated that due to their inability to pay off their debts before the due date, the companies had filed a bankruptcy reorganisation plan with the court.

...Total liabilities of STX Dalian stands at around CNY20 billion (USD3.2 billion), which is too much for any company to acquire, Wang Hai, shipping expert from Ship.sh told IHS Maritime.

21 CBH:“200亿”债务吓跑接盘方 STX大连6公司破产殃及多家银行
According to "21st Century Business Herald" quoted sources said, in 2009, with China Construction Bank Dalian Branch as the lead bank, including Bank of China, Minsheng Transportation Finance Division, Dalian Bank, Shanghai Pudong Development Bank, Agricultural Bank of China and China Merchants Bank, 10 financial institutions, including syndicated, STX provides for ¥28.5 billion loan.

Chinese Banks Bailout Evergrande

Update: It was a Potemkin bailout.

Chinese Developer Evergrande Gets $16 Billion Lifeline Amid Slump
Evergrande said on Tuesday that since February, it had secured new credit lines totaling 100 billion renminbi, or $16.2 billion. Those included a new, 30 billion renminbi commitment on Monday from the Bank of China, which regards the developer as “its most important bank-wide long-term partner,” Evergrande said in a news release.

...Analysts said the support from the banks — which also include the Agricultural Bank of China, Postal Savings Bank of China and the privately controlled China Minsheng Bank — would provide temporary relief but would fall short of addressing the company’s deeper problems.

Mounting debts and slumping sales “are fundamental challenges that can’t be resolved short-term by government’s bailing them out on ‘too big to fail’ pretense,” said Junheng Li, the head of research at JL Warren Capital in New York.

“The company has been under financial distress for a long time,” she added.

From 2012: Citron says Evergrande is insolvent

Citron may be ultimately proved correct. In that post I highlighted one of the warnings signs on Evergrande: the founder was spending a lot of money trying to buy a championship for his Guangzhou soccer club. Vanity projects (along with mega projects, world's tallest skyscrapers, etc.) can be signs of a looming top for an individual, company or nation. He wasn't worried about blowing money on soccer in 2012, but today the firm is fighting for survival.

While Evergrande has received a lifeline, it's worth noting that Kaisa's debt levels exploded about 6 months before the firm defaulted.

Chinese Stock Market Up 75% in 9 Months

2015-03-17

America Approaches Rapid Decline Phase

European nations sign up for the Asian Infrastructure Investment Bank: Germany, France, Italy to join Chinese-led Asian bank

Australia decided it wants to sign on to the AIIB after all:
"Colossal Defeat" For Obama As Australia Joins China's Regional Bank

Actually, it is a win for Obama because he does not want an American dominated world. His goal was to end American dominance and usher in a multi-lateral world. He is succeeding. If he's able to solidify the decline, natural forces may take over. The Chinese alternative to the World Bank, the AIIB, will allow the U.S. Congress to defund the World Bank entirely. For every multilateral institution China sets up, the U.S. will be able to abandon the original and abdicate its position of global leadership to focus on national concerns, which remains a popular position among the public. Isolationism isn't dead, it's just sleeping.

Here's a look at all the replacement institutions being built by China:

A recognition of the decline probably won't begin until after the U.S. dollar peaks.