2016-02-29

More Evidence of Outflows Via Current Account

Last week I posted China, capital outflow and that over-reporting of imports problem, which covered the data uncovered by Christopher Balding, showing capital is moving through the current account.
Sixth, the nature of capital flight from China cuts directly to the heart of why capital controls would be a poor remedy. Capital is not leaving through the capital account. Rather with a restricted capital account and a relatively free international transaction via the current account, enterprising Chinese are moving capital via the current account. To arrest the flood of capital leaving this way, it would require China to bring goods and services trade in the world’s second largest economy to a complete standstill.
The evidence grows.

FT: China, capital outflow and that over-reporting of imports problem
We unveil the channels of capital outflows in this report and find that overreporting imports appears to be the most important channel of capital outflows (Figure 2). In 2015 the China Customs reported total goods imports of USD1.7tr. But the actual payment importers made was much higher, at USD2.2tr. The difference is a stunning half trillion of US dollars.

Where do we get the data on actual payment for imports? The State Administration of Foreign Exchange (SAFE) actually reports on a monthly basis how many FX transactions go through the banking system, and breaks down the transactions based on the balance of payment definition (such as goods trade). This set of data may not be well known outside the FX community; hence the lack of attention to this large discrepancy between bank payment data and Customs data.

How do we know this discrepancy reflects capital outflows? Because the size of such import discrepancy is linked to market expectations of the RMB’s future trends. For instance, it jumped from USD25bn in July 2015, right before the RMB fixing reform, to USD57bn in Aug and USD67bn in Sep (Figure 2). It subsequently dropped in Oct and Nov 2015 when the PBoC acted to stabilize expectations on the exchange rate, but then widened again in Dec 2015 and Jan 2016 with intensified RMB depreciation expectations.
Like a bucket with holes in it, the more liquidity you pour in, the greater the pressure, the faster the outflow.
The effectiveness of capital controls is also important for China’s economic outlook. Monetary policy has been loosened, as evidenced by the record-high new loans in January and the statement by the PBoC governor at the G20 conference about the monetary policy stance being “prudent with a slight easing bias”. But the policy easing would not be effective if the capital controls are not effective, as credit expansion would be offset by capital outflows.

Effective capital controls are not the panacea for China and would likely create new problems. The property bubble in some of the cities will likely become bigger as credit growth rises. Trade will become less convenient due to increased documentation requirements. Even legitimate outward investment such as FDIs may slow down. The fundamental problems in the economy and the FX market are still not resolved…

China Growth Industry: Bad Debt Collection and Management

China.org: As bad loans rise, so do private debt-collection companies
Chai Jun, a manager with Shanghai Heng Xin Asset Management Company, said it may cost more than 3 million yuan annually for a branch of a commercial bank in Shanghai to hire a full-time debt-collection team dedicated to errant credit card-holders alone. However, outsourcing the whole task could cut the cost by more than half.

The need for external debt-collection agencies is particularly felt before the end of June and December every year, the "seasonal peak" for lenders that scramble to meet regulators' half-yearly asset quality requirements.

No wonder, Shanghai China Promise's staff strength rose from 120 to 500 in the last two years. It plans to hire more in the next few years.

...Such tasks may include making phone calls and visiting a debtor's home. If debt-collection agencies exceed their remit or violate the law, banks cannot be held responsible, although their reputation may get besmirched.

"Debt-collectors generally don't adopt violent means. An odd extreme case could involve getting physical with truant debtors, but that's about it. For debt-collection agencies, profits are not so high as to compel them into adopting illegal methods," Xiao said.

But unlike banks, other lenders like peer-to-peer lending platforms, small loan companies and guarantee companies engaged in private lending are said to be not averse to dropping the kid-glove treatment and instead using threats to make errant debtors repay.

PBoC Liquidity Going Straight Into First-Tier Housing; Boom Compared to Stock Market Bubble of 2015

China's ping-pong housing policy has failed again. The government has no idea how to regulate the economy and housing prices are once again headed skyward as the broken economic system funnels credit straight into the housing market in first-tier cities.

The latest piece appearing in iFeng (originally appearing 澎湃新闻) relays an interview with Huaxin Securities chief economist Zhang Jun, who warns that liquidity is flowing straight into housing and the government is going to clampdown sooner rather than later. He sees a healthy end to the boomlet in prices after the government tightens buying requirements and/or lending standards, but let us not forget these standards were loosened again only a month ago. With the third- and fourth-tier markets left for dead and second-tier working through inventory, the first-tier is the only game in town. Rising bad debts impair bank's ability to lend, while weakness in the industrial sector makes banks leery of lending. The crash in stocks, WMP bankruptcies and trouble with P2P lending has investors turning back to real estate. The result is the liquidity gusher designed to smooth out economic growth went straight into a speculative bubble.

Intervention in the economy only appears to work when things are going well. Like King Canute, the Chinese Premier could demand the economy grow faster and with a little twist of the liquidity spigot at the PBoC, make it so. China can still artificially drive credit growth, which the Fed, ECB and BoJ would love to do, and it can even tell the credit where to flow initially, but it cannot make it stay there.

iFeng: 一线房价暴涨因流动性注入 拐点或不用等太久
February 28, Pengpai News (www.thepaper.cn) interviewed Morgan Stanley Huaxin Securities chief economist Zhang Jun. Zhang Jun believes that under the national real estate to the inventory in the background, is the first-tier cities housing prices rose modestly healthy and beneficial. However, the recent first-tier cities grew too much too fast, there are "out of control" signs, the current boom is difficult to maintain but also great risks. "Zhang Jun forecast, this year the purchase of first-tier cities is likely to increase efforts to tighten lending in order to prevent prices rising too fast," the ideal state is a return to steady or rose modestly state, but does not rule out the possibility there will be slightly lower. "

And no liquidity injection into the real economy, but real estate

This is a first-tier cities such skyrocketing why?

Zhang Jun believes two reasons. The first is due to a substantial increase in money and credit.

The latest central bank data show that in January the overall large-than-expected financial data, the month the new RMB loans increased 2.51 trillion, a record single-month record high. Although the effects of the surge in January and Chinese New Year credit data has a certain relationship, and the central bank itself said the general figures for January will not be excessive reaction. But Zhang Jun believes that the huge rise in monetary and credit or first-tier cities is closely related to the rapid expansion.

"This round of first-tier cities housing prices soaring in fact very easy for us to think of the situation by the end of 2014 to 2015, the stock market rose sharply, when the stock market rose a big reason is because there is a lot of liquidity into the stock market." Zhang Jun analysis, the current situation is very similar to the release of large amount of liquidity did not enter the real economy, but flows into the real estate market.

"Meanwhile, the residents themselves are thinking about how to configure the hands of liquidity, but now, stocks and P2P products many people do not dare to buy, for the residents of the difficulties encountered personal asset allocation, and it was generally thought to be relatively safe or real estate investment. "Zhang Jun said.

"Third and fourth-tier cities demand is very low, if you want to digest inventory rely more on improving demand and investment, but only the latter two are excited: the value of the asset must be expected," Zhang Jun analysis, first-tier cities have always been the weathervane for second and third tier cities housing prices, under the second and third tier cities high inventory predicament difficult to digest, first-tier and other cities housing prices rising is undoubtedly good for reducing inventory, "I think perhaps the why the first-tier cities prices have soared, but the government has no reason to immediately stop it."

..."I think many people have a sense of panic on the first-tier cities such high prices, many people may have been prepared to exit quickly from these high prices, but how long exactly it will take to appear in the first-tier cities is unknown." Zhang Jun believes the inflection point may not wait too long to see.

"I think the government has a much higher degree of care for the real estate market than the stock market, the current first-tier cities have been very unreasonably high, if the real estate bubble burst, it will cause very bad consequences, not only will second and third tier inventory reduction be out of reach, but the entire country's economy will suffer a heavy blow. "Zhang Jun analysis, rapid growth in house prices this year's first-tier cities could further strengthen efforts to purchase at the same time to tighten lending, and then it may be the turning point of house price growth.

"But I do not think that would be the turning point to bring prices fall, because it means that plunged the bubble burst, it is necessary to prevent, I think, will be the turning point, after the termination of skyrocketing housing prices, the ideal state is a return to steady or rose modestly state, but does not rule out the possibility of slightly lower."Zhang Jun said.
The ideal and what you get are two different things.

China.org: Shenzhen tries to cool realty market
He attributed the city's skyrocketing home prices to limited land supplies and strong demand from local residents, especially young people, as Shenzhen has developed into one of the most competitive cities in the country.

"Young people have developed strong purchasing power in Shenzhen, which has helped push up prices," said Qiao.

...In Shenzhen, particularly, new-home prices soared 52.7 percent year-on-year in January, the sharpest increase in a single month among all the major cities, followed by Shanghai and Beijing, where prices surged 21.4 percent and 11.3 percent year-on-year.

Average prices for new houses in Shenzhen reached about 43,000 yuan ($6,570) per square meter in December.

The sharp increase has resulted in "frenzy" buying from individual investors in Shenzhen, with some having bought houses by crowdfunding investment, according to local media reports.

"We have noticed that ... and more stricter purchasing policies will be introduced to cool the market," said Qiao.
Here are other recent posts covering the housing boom.

Govts Will Not Allow Home Prices to Fall, Oppose Developer Price Cuts
Guotai Junan Warns on Easy Money and Asset Bubbles

China Unbalancing As Recession Hits Services; Industrial Support Courts Disaster

From October 2015: Chinese Recession Ready to Move Into Services. Recessions typically begin in the higher stages of production, such as mining and manufacturing, and spread to the lower stages over time, with retail and consumer sectors hit last. The bigger question, which looks to be answered in the affirmative, is whether as manufacturer to the world, the slowdown in China's industrial sectors heralded a global recession. For now though, those hoping for a services led recovery in China are out of luck.

FT: China’s rebalancing paradox hits home
A recent pledge by government ministries to support industry extolled the sector as “the backbone of the real economy” and “the main battlefield for stabilising the economy”. Infrastructure and real estate — two key drivers of demand for industrial goods — were the biggest beneficiaries of January’s lending boom, which has reportedly continued into February, according to banking sources of FT Confidential Research, a unit of the Financial Times.

Such moves to support industry should not come as a surprise. China has no option but to resuscitate its industrial sector, as FTCR argued last year.

Why? Because China’s industrial-led slowdown is also leading to slower growth in consumer spending and service sector activity.
Here's a look at some companies that make popular brands of snacks, instant noodles and drinks:
No surprise. The FT article goes on to say the slowdown is hindering rebalancing instead of hastening it. This is due to the government still refusing to accept the pain caused by a real rebalancing. It is why I believe the ultimate end game is a massive devaluation in the yuan.

It will also drive the world closer to a trade war. The scenario laid out in The Logic of Strategy: Yuan Devaluation and the Road to Trade War is coming closer to reality with each passing day. The Trump campaign is a nationalist campaign and it heralds the end of existing trade deals. Trade agreements will be renegotiated or scrapped under a President Trump.

MUST LISTEN: Stephen Miller Makes Case Against Marco Rubio in Epic Rant. The key portions are where he talks about sovereignty and opposition to trade deals. Trump will either get better deals on NAFTA and with China, or NAFTA and the WTO will die, to thunderous applause in America.

Large Decline in Chinese Stocks Underway; Analog Suggests 50% Slide into July

A week prior, investors were optimistic about a new securities regulator, hoping for higher prices and an easing of regulations. Unfortunately for investors and for him, he took the job right as the market was poised to begin a decline of as much as 50 percent.
The analog continues to bear fruit.
The ChiNext is 4.4% above its 52-week low set on September 15, 2015. If that low is taken out, it will be clear to everyone a new decline is underway.

Chinese Insurer Told to Stop Buying Stocks By Regulator

A new chill has hit the A-share market: an insurer was told to halt equity investments due to its weak repayment ability.
Besides signs of tightening liquidity, analysts said stocks tumbled amid concern recent gains weren’t justified by fundamentals and policymakers may introduce policies to restrain housing-price gains in some of the nation’s largest cities. Losses accelerated in the afternoon after regulators banned Zhongrong Life Insurance Co. from adding to its equity investments.

iFeng has the story: 中融人寿炒股被叫停 保监会主席:险资整体风险可控
In the opinion of investors, insurance companies are rich and powerful gold master, who said the win put who scored. But February 25 CIRC supervision of a paper letter solvency problems due to make financial life ordered to stop increasing equity investments, an increase of one point letting market worries - the insurance company in the end is the true gold master, or a large turnip?

Faced with the market worried, CIRC Chairman Xiang Junbo has spoken, "We did repeatedly estimated the overall risk insurance funds overall control, and for some small insurance companies, we continue to conduct stress tests, basically no problem."
One of the factors driving the A-share bull market was buying by insurance companies. With talk of money flowing back into property as investors abandon stocks, news of an insurer being banned from buying stocks was most unwelcome.
according to the CIRC's stress test results, there are 18 qualified companies undergoing stress tests, most have passed, as for potential risks for individual companies, will take targeted regulatory measures.

Guotai Junan 2015 Provincial Economic Review: No Rebalacing, Northeast Hard Hit

Some interesting charts and tables from a Guotai Junan report on the economic performance of provinces in 2015. 国泰君安: 2015地方省市经济全景图:谁在升落? The headline interpretation is my own, as evidenced by the charts below.

On some charts I've highlighted some of the Northeast provinces with a red box. Chart 28, which shows selected NPL ratios by province. If this is a business cycle contraction, the recession in the industrial sectors will spread into services and across other provinces, which will raise NPLs in the direction of those northeast provinces. Even if the problem stays localized, those bad debt ratios are only the start as overproduction is tackled.

The share of fixed asset investment as a percentage of GDP may shock anyone who believes in rebalancing. The 100% plus provinces are small (population) Western provinces being built up presently, such as the 120%+ FAI/GDP in Qinghai and Tibet. However, after the low figures in Beijing and Shanghai, and slightly higher in Guangdong, the FAI/GDP is 60% or higher.

Hot Topic at G20: When China Cut Interest Rates and RRR? Update: Today

Most interpret Zhou Xiaochuan's speech at the G20 as signaling easier monetary policy.

China CITIC International chief economist Liao Qun, said, "Two years ago the central bank has expressed a prudent monetary policy, this is only the official language, the reality does not conform to this presentation today will be expressed to sound a bit more relaxed, is the actual situation approach, also showed that this year is likely to continue further monetary easing. "he expects China to drop quasi four times, once cut interest rates, the main purpose is to steady growth.

Nomura's chief China economist in Hong Kong, Zhao Yang, said in a telephone interview, "sound a bit loose" description of reality, before the Chinese economy downward pressure is undervalued, especially the real estate market to the inventory pressure is very great. Partial easing monetary policy constraints on the economy is very small, before the central bank to ease monetary policy to let fear of skyrocketing housing prices, but now in addition to first-tier cities continued to rise outside, the four-tier cities prices are still significant downward pressure. Economic data released in early March if worse than expected, do not rule out the possibility of 50 points on March RRR; estimated annual RRR four times.

Minsheng Bank Li Zhiqiang, chief analyst also expressed a similar view. He said that in the context of the overall maintain an accommodative central bank operational tools both traditional drop prospective, there are directional flow tools.

"During the year is expected to drop quasi or fully visible, think twice the frequency, amplitude, a total of 100 basis points, in addition to MLF (medium-term lending convenient) at least such an amount will not be reduced, even slightly added," Li Zhiqiang expressed.

iFeng: 这个词在G20火了 中国要降息、降准

Update: China didn't wait to cut the RRR.

Reuters: China cuts reserve requirement ratio for fifth time since Feb. 2015
China's central bank reduced the amount of cash that banks must hold as reserves for the fifth time since February, 2015, as it seeks to revive a stumbling economy.

The People's Bank of China said on its website that it would cut the reserve requirement ratio by 50 basis points for all banks, taking the ratio to 17 percent for the country's biggest lenders.

Guotai Junan Warns on Easy Money and Asset Bubbles

China is stuck in a quandary at the moment. Third- and fourth-tier cities struggle to reduce inventory, while first-tier prices are "skyrocketing". If history is any guide, easy money by the central bank will flow into speculative assets and the runaway prices in Shenzhen will repeat in Beijing, Shanghai and other cities.

The Guotai Junan report covers broad housing inventory (property for sale plus advance sales and construction). Narrow inventory of 720 million sqm is less than 7 months sales of 1.28 billion sqm in 2015, but the broad measure climbs above 8 billion sqm, or more than 6 years of inventory. Commercial property is in even worse shape, GJ estimates inventory will take 15.6 years to clear at the current pace of sales.

Estimates also put current sales demand at near 100%, raising the risk of rising inventories:
According to the National Research Center, Liu Shijin estimated peak value of housing demand is 12 to 13 million units, according to the count of 100 square meters each, residential peak demand of about 1.2 to 1.3 billion square meters in 2015, residential sales area was ​​1.12 billion square meters, which means that housing demand has limited room for growth.
The worst areas are as follows:
Generally higher in the west, northeast and Shanxi provinces, the third- and fourth-tier inventory-to-sales ratio relatively high, sales flexibility relatively low. Highest Shanxi 9.9 years, followed by Ningxia 8.4 years, Jilin, Liaoning and also ranked in the forefront, were 7.8 and 7.5 years. Stock highest capital city of Hohhot and Taiyuan were 16.1 years and 11.1 years.
Second-tier cities look stronger due to lower inventory and the potential for sales increases:
Second-tier cities moderate inventory levels, sales volume elastic moderate. Stock Minimum provinces were Jiangxi, Hunan, Hubei, Henan and Guangdong, generalized sales ratio was 4.4,4.5,4.5,4.8 and 5.0. Provincial capitals and major cities, Hefei, Wuhan, Nanchang, Xiamen and Nanjing minimum between 4.4 to 5.4. These are the major second-tier cities. There are also some second-tier cities high inventory levels, such as Hangzhou , Ningbo, sales ratio up to 9.4 and 10.2. Inventory and sales characteristics secondary cities, making its overall inventory problem is not, on the one hand there is a certain pressure, on the other hand there is the potential to solve and space.
First-tier cities are in the best shape thanks to strong sales. GJ has moved beyond bifurcation and is now describing the above as a three-track market.
On the whole, the regional real estate stock track tri-run trend. The four-tier cities significantly higher inventory levels, sales and low elasticity, inventory problems are most serious. The second-tier inventory level between them, but the first-tier cities sales high flexibility, small inventory pressure, moderate elasticity of second-tier cities sales, inventory pressure, but there is the potential to solve. 2015 first-tier cities prices rose, second-rier saw a small rise and third-tier down, highlighting the inventory problem in different regions.
GJ provides the case of Wenzhou as an example of inventory reduction.
(1) Wenzhou real estate stock was very impressive, beyond the current Shanxi

Wenzhou real estate stock was very high in 2011, with sales over Wenzhou area of ​​the construction area is 23.8 years, meaning that the prevailing sales pace, Wenzhou real estate stocks need about 24 years to digest is completed. Such a high sales ratio (generalized stock), far more than the current maximum stock Shanxi (sales ratio was 9.9 years).

(2) stock decreased, prices also rose

According to the Wenzhou Daily reported, Wenzhou city property stocks dropped significantly, to the period of the (narrow stock) by the end of 2014 to 15 months to 6 months of the end of 2015, exceeding market expectations. Wenzhou Cape Property Marketing Planning Co., Ltd. Deputy General Manager Chen earned that this year the urban inventory to faster than expected to shorten the period of 6-9 months.

Generalized stock, the 2015 ratio of Wenzhou area of ​​the construction area and sales dropped to 8.9 years, a substantial decline compared with 2011.

House prices, in February 2015 --12 months, Wenzhou prices continued to rise, the cumulative increase of 3.5%, which is the first time in 2011 continued to rise, to display the stock situation has improved.

(3) Wenzhou destocking experience

Full price adjustment, low house prices enhance the attractiveness of the house. Rate Wenzhou high inventory makes depth adjustment, beginning in 2012, Wenzhou house prices continued to fall. China Index Research Institute released data show that house prices in malls, Wenzhou sample residential average price in January 2012 from 2.1 yuan / square meter, in January 2015 fell to 1.3 yuan / square meter, down nearly 40%.

With the real estate policy stimulus, as well as the national real estate sales pick up, prices rise, since the previous adjustment Wenzhou more fully, is expected to turn for the better with the volume increase, to the velocity improved significantly.

Flexible market mechanism of supply and demand elasticity, help to improve the rate of change in inventories. Wenzhou private economic activity, the market mechanism more flexible, so the fluctuations in prices, sales and so on in the country at a high level, prices above us talked, sales, 2009-2015, Wenzhou real estate sales were 314,228,136, 203,350,418 and 525 million square meters, far exceeding the national average large fluctuations. Flexible market mechanisms, high elasticity of supply and demand, so that supply and demand balance in Wenzhou accelerate recovery time.

Policy support. April 2, 2015, Wenzhou issued "Opinions on Promoting the real estate market continues stable and healthy development," including "eight real estate New Deal", outsiders called "Wen eight." Highlights include:

First, the control supply. "Wen eight" in the first talk is to control the supply of land for housing supply obviously more under construction or residential land area size is too large, reducing the supply of residential land until suspended, suspended in particular it is very clear and firm .

Second, the demand for housing subsidies incentives. Between April 9, 2015 to 31 December 2015, the first individual to purchase new ordinary commodity housing, after obtaining housing all warrants, giving a mortgage subsidy of 0.6%.

Third, it allows developers to adjust the structure of housing condominiums, some units unreasonable to adjust to market demand. "Just be king, price change, propped up the entire Wenzhou property market." This is a Long Katherine (Wenzhou) Co., Ltd. real estate marketing features Wenzhou property market in 2012 are summarized, the company is the largest real estate marketing company in Wenzhou. Supporting Wenzhou property market turnover of several of the main real estate without exception, are the main push of 90 square meters just need a small apartment, and the price discount card played.

It is from the beginning of the introduction of the policy, superimposed State RRR rate cut support, Wenzhou house prices bottoming out in early 2015, sales also rose significantly, inventory to clear.
The report concludes by warning of the risks from government intervention:
Destocking during the greatest risk: excessive currency relax and structured asset price bubbles.

As the real estate of the monetary easing are more sensitive to the inventory process, there may be a tendency to over-reliance on monetary policy. But monetary policy more than a short sky, will solidify the economic structure, slow clearing, over-generous supply is not conducive to the overall situation of reform side.

China's current economic vulnerability enhance room real estate bubble burst once great harm, although the central discrimination measures taken (such as the continued implementation of the purchase, etc.), the 2015 first-tier cities still rose, need to guard against first-tier cities continued to rally, and spread to two lines city.

In addition, residents plus lever there are some risks. Although Chinese residents generally low level of leverage, but revenue growth has increased pressure drop and employment background, residents in lever may cause a sharp rise in social problems.
The above is only a slice of the entire report, which iFeng appears to have printed in its entirety. A lot of it is a summary of policies passed by the central government, local governments, and central banks over the past year or so.

iFeng: 中国楼市去库存需警惕两个现象 已经出现了

2016-02-28

Govts Will Not Allow Home Prices to Fall, Oppose Developer Price Cuts

Over the past ten years, the local economy has long been inseparable from real estate, the pillar of industry, the future is difficult to fundamentally change. This is an inextricable knot.

"In the local county or city level, real estate is still without question the pillar of industry, which is why the central government regulation and control, the root of where they are difficult to actively cooperate." Sichuan deputy mayor who requested anonymity told the "China Times" reporter He said that the economic development of backward areas, no major industrial projects, only rely on real estate to promote economic development.

Based on this, real estate has become a major source of local government revenue, and in some places even become the "only" source. Data show that in 2015 local real estate sales were 12.8495 million square meters, sales of 8.7281 trillion yuan, the government took 73%; of which, real estate development land supply needed to become a major part of the local finance. The reporter saw a number of local officials in the opinion, for real estate, no matter how the regulation of central and local governments always have their own calculations.

"Leave real estate, every business will be hit." The deputy mayor said that the leading role of the real estate can not be underestimated, can promote the development of almost all sectors.

...In addition, it is undeniable that, in China, living in the house is an ideal investment good. With low bank interest, stock market and other risky factors pushed down, a house has become the most stable and appreciating of investment goods.

"From the inception of commercial housing, it can be said that the market price all the way to triumph, even if there is a period of decline in house prices, it is short-lived." A real estate speculators who said that the house superior ability to add value, like stimulants exciting . Many people have already bought houses enjoy the benefits brought about by the appreciation of the great house, and then again and again to buy a house constantly.
Cities rely on real estate development to grow the economy. Without it economic growth collapses. Households rely on housing as an investment with little to no alternatives. Home price declines are temporary and will be opposed by government, so buy buy buy!
"Prices can rise, can stabilize, but cannot fall." A Beijing-based developer told the "China Times" reporter: "Developers want to lower prices, but what they say does not count," the predicament: "prices will not drop, every stakeholder who benefits will not allow this, even if the developers wants to lower prices sometimes the local governments have opposed them. Although the local government will not issue a policy against lowering prices, the pressure is obvious."

iFeng: 地方财政患房地产依赖症 降价有时政府反对

Urbanization Plan Meets Reality: Cities Lack Policies, Enthusiasm; Rural Support Policies Counteract

"The current inventory mainly in the third and fourth tier cities." Director of the Chinese Academy of Social Sciences Research Center of Urban and Competitiveness Ni Pengfei introduction of migrant workers is to purchase stock, the largest new investment demand stable.

According to Ni Pengfei's estimates, combined household population urbanization planning around "Thirteen Five" period, the transfer of 13 million migrant workers, if 70% of migrant workers in the city buy a home, there is still hope for digesting the current inventory and maintaining stable growth.
However, the cities aren't that attractive:
Speaking of urbanizing rural workers, to solve the inventory problem with rural migrants, Wu Jinsong, deputy director of Anhui Provincial Development and Reform Commission said the task is arduous. One part is the local governments aren't sure what to do, the enthusiasm is not high, lack of supporting measures, there's no great attraction for rural residents; the second part is rural support policies and other factors, some farmers do not want to move to the city or they will move, but do not want to change their residency.
iFeng: 房地产去库存背后:1300万农民工如何落户成市民?

Housing Frenzy in Beijing

Last week I posted one example of bubble behavior in Beijing, as people paid up to ¥1000 for a service ticket in order to avoid wait times at the property office. Transaction Tax Cut Spurs Bubble Activity in Beijing: ¥1000 For Reservation Number

Now another example emerges as sellers are throwing out high opening prices. It begins with a sale in Daxing, an outer suburb of Beijing, which saw a property sell for ¥47,000 per square meter, followed by news that Vanke had hiked prices on all its projects in Beijing; the company denied the report.

The latest news says ¥3 million yuan is now the "opening price" for homes that are not too far outside the city. Analysts are more conservative in their estimates, projecting an increase of 5% to 10% in 2016, and say these high prices may be artificial. Still, even if that is true, it reflects an attempt by sellers to cash in on the current mood which increasingly bears the hallmarks of speculative fervor. After Spring Festival, prices in the East Fourth Ring increased ¥4,000 to ¥5,000 yuan per square meter, or about 10%. The average price hike in the city is about ¥1,000 per sqm.

One property near Jinsong subway station (between Guomao and Panjiauan on the 10 line) sold for ¥1.8 million before this year, now a similar property is listed for ¥2.1 million. The transacted price will be closer to ¥1.9 million according to analysts, reflecting the ¥1,000 per sqm rise in price.

The advice for buyers is to recognize prices will rise, but not get caught up in the bubble.

iFeng: 300万元是起步价? 警惕北京楼市虚涨喊价

China's Real Estate Cheerleader Kicked Off Weibo

I've dubbed Ren Zhiqiang China's real estate cheerleader because I can't recall him ever being truly negative on the sector. That said, he was a successful developer and outspoken critic of the Communist Party at times. From his bio:
Ren's parents were persecuted during the Cultural Revolution, and he went to the countryside of Yan'an to work as a sent-down youth in 1968. A year later, he enlisted in the People's Liberation Army, serving as a military engineer in the 38th Army, and later a platoon leader.

Ren left the army in 1981 and became deputy general manager of Beijing Yida. In 1984 be joined Beijing Huayuan Group Corporation as a department head. He was imprisoned in September 1985, but was released 14 months later without being convicted of any crime. According to his long-time colleague, he was sent to jail because he had offended the head of the audit department of Beijing's Xicheng District. Ren became vice president of Huayuan Corporation in 1988, and President in 1993. In 2004 he became a Director of the Bank of Beijing Co., Ltd, and in 2007 Chairman of Beijing Huayuan Property Co., Ltd. He holds a Master of Laws degree from Renmin University of China.

In 2010 China Daily reported that Ren, as chairman of Huayuan Real Estate Group, was paid the highest salary of anyone in the 258 listed companies that had filed annual reports. His salary was reportedly 7.07 million yuan ($1.04 million). He resigned as head of the property company in 2014.
Bloomberg: Chinese Tycoon Loses 37 Million Web Followers After Faulting Xi
Shortly after Xi’s Feb. 19 media tour, Ren published a post on his Weibo account criticizing the president’s assertion that the state media serve the party, instead of the taxpayers who fund its budget. “When does the people’s government turn into the party’s government?” he said. The posts were deleted.

The following Monday, a news site affiliated with Beijing’s municipal party committee published a commentary accusing Ren of spreading “anti-Communist Party” thought. The retired developer represented capitalist forces trying to promote Western values and topple the party, the commentary on the site Qianlong said.
China is in the midst of trying to lift the real estate sector and they shut down the sector's biggest cheerleader.

The silencing of dissent is taking place all over the world. China is shutting social media accounts, U.S. companies are voluntarily silencing critics of the regime, and Europe already has laws on the books to put people in jail for criticizing government policies. The establishment around the world is trying to silence opposition voices because they have all placed self-preservation at the top of their agenda. Do not watch the government reports on the economy or central bank policy statements. All over the world, the people running the show are fearful of regime change.

2016-02-27

China Wants to Export More

The Standard: (G20) Lou Jiwei calls for removal of trade barriers
Lou suggested removal of trade barriers and more encouragement for companies to invest.

China, he said, still has ample room for fiscal policy adjustment, is likely to raise the deficit ratio and will continue to cut taxes to support innovation and small businesses.

China raised its fiscal-deficit-to-GDP ratio to 2.3 percent for 2015, compared with the 2014 target of 2.1 percent, with the number expected to rise to 3 percent or more in 2016.
Trade barriers are more likely to go up in the next couple of years.

Social Mood Shift and Preference Cascades

The West is dominated by a suffocating political and media establishment which silences dissent, but a backlash has begun.

The latest example of silencing dissent comes from Twitter. The social media site launched a "Trust & Safety Council" staffed with left-wing feminist ideologues. The results quickly manifested: Twitter Shadowbanning ‘Real and Happening Every Day’ Says Inside Source. A shadowban allows a site to effectively ban a user, without the user knowing. The social media site is silencing right-wing voices by hiding their tweets, making it appear as if they are not active on the site. If you visit the person's Twitter account, the tweets are there, but they do not show up in timelines. Right-wingers are the main target of the policy, yet Bernie Sanders supporters also say they are being shadowbanned: Twitter accused of shutting down Hillary critics and also Did Twitter's Exec Censor #WhichHillary in advance of Key Primaries? Twitter users speak out. Twitter executives are Hillary supporters.

While Twitter provides a timely example, the wider social environment is also heavily policed. Many right-wingers on Twitter and online operate anonymously to protect themselves and their employers from retribution by social media mobs. There is a site detailing the success these mobs have had over the years at the New Blacklist. There are lots of examples, one of the most egregious was Brandon Eich. He created JavaScript and co-founded Mozilla, which developed the Firefox browser. He was hounded out of his own company for making a contribution to California's Proposition 8 campaign in 2008, which limited marriage to between a man and woman. Although Eich's position was exactly the same as Barack Obama's at the time, 6 years later gay and progressive activists launched an attack campaign against Eich, eventually causing him to leave this own company. Although Eich is high profile, there are many cases of low level employees being fired from their jobs for posting something unpopular on social media, be it a Halloween costume or saying they support the police.

What results is much dissent takes place anonymously, online, away from the mainstream debate. (Not a few websites have shut down comment sections to silence debate as well, further insulating the mainstream.) The political and media establishment end up in a bubble, an echo chamber where they are only talking to themselves. Most media and politicians believe they are on different sides, that there is a battle between right and left, but much of the public believes they are one. The growing number of Republican establishment types saying they will vote for Hillary if Trump is the GOP nominee merely confirms the public's suspicions.

In response to growing efforts to silence debate and economically punish dissenters, there are active efforts to build alternative media and technology to completely cut off the need to engage with the mainstream/establishment. Brandon Eich has developed a new browser called Brave which could disrupt not only the browser wars, but also the entire online business model because it blocks advertising and replaces a website's ads with its own. There are multiple efforts underway to disrupt social media and other businesses which leverage their position in society to silence dissent. The example of what Fox News did to the media establishment is going to unfold across multiple industries in the coming years.

In terms of current politics, the issue that was most out of whack with public opinion was immigration. Since social mood peaked in 2000, most of the world is shifting away from pro-immigration to anti-immigration. European anti-immigration parties rose rapidly in the polls and some nations implemented anti-migrant policies, including in Australia. In the U.S., however, shifting mood was ignored. Objective polls routinely showed a majority of the public favoring some level of restriction or reduction in immigration, but the establishment pushed ever harder for peak social mood policies. Opponents of this policy were dubbed racists, xenophobes, yahoos, etc.

Now a phase shift in public opinion is underway. The mainstream opinion, manufactured by the media and political establishment, is revealed to be not so mainstream. Preference cascades are underway as formerly unspoken beliefs are publicly raised, resulting in very shocking and rapid changes.

USA Today: Glenn Reynolds: A Trump wave is on the way
In his terrific book, Private Truths, Public Lies:The Social Consequences of Preference Falsification, Timur Kuran writes about the phenomenon he calls “preference falsification”: People tend to hide unpopular views to avoid ostracism or punishment; they stop hiding them when they feel safe.

This can produce rapid change: In totalitarian societies like the old Soviet Union, the police and propaganda organizations do their best to enforce preference falsification. Such regimes have little legitimacy, but they spend a lot of effort making sure that citizens don't realize the extent to which their fellow-citizens dislike the regime. If the secret police and the censors are doing their job, 99% of the populace can hate the regime and be ready to revolt against it — but no revolt will occur because no one realizes that everyone else feels the same way.

This works until something breaks the spell and the discontented realize that their feelings are widely shared, at which point the collapse of the regime may seem very sudden to outside observers — or even to the citizens themselves. Kuran calls this sudden change a “preference cascade,” and I wonder if that’s not what’s happening here.

Novelist Bret Easton Ellis, for example, recently tweeted: "Just back from a dinner in West Hollywood: shocked the majority of the table was voting for Trump but they would never admit it publicly.” What he describes is preference falsification — but if people stop hiding, it will become a cascade. And Ellis himself has started that process with this tweet. Meanwhile, confronted with PC nonsense, college students have started chanting ”Trump! Trump!” (Law professor Ann Althouse has been predicting this cascade for weeks.)
He goes on to describe a similar shift may be underway in the UK, where a vote for Brexit is four months away.

All of this flows from changes in social mood. The volatility in politics reflects the volatility in financial markets because they are both expressions of changing social mood. If you're placing bets on politics or the markets, erring on the side of extreme volatility will likely be a profitable strategy in the coming year or more.

2016-02-26

The Establishment Is Spent: Securitized Loans For Healthcare

When the economy reaches peak debt, the public no longer wants to borrow and healthcare spending is possibly beyond its sustainable share of GDP, a great solution to keep the system running is debt for healthcare.
At a time when breakthrough therapies for certain cancers, hepatitis C, and rare diseases remain out of reach for many patients due to their prohibitive cost, new research by Dana-Farber Cancer Institute and MIT Sloan School researchers offers a potential remedy: securitized consumer healthcare loans (HCLs).

HCLs, the equivalent of mortgages for large healthcare expenses, spread the cost of curative therapies over many years, making them more affordable to the people who need them.
If you aren't laughing yet, hang on, the punchline is coming.
“This is an instance where financial engineering could benefit the entire ecosystem,” said Lo. “It helps patients by providing them with affordable access to therapeutic drugs and cures. It helps biopharmaceutical companies by enabling them to get paid back for the substantial investments in R&D they make to develop the therapies in the first place. And it helps insurance companies by linking payment to ongoing benefit.”
That wasn't it. Here it comes:
Securitized HCLs may also be profitable investments. Based on numerical simulations and statistical models, a large, diversified fund of HCLs generated hypothetical annual returns of 12%. For comparison, over the ten-year period from January 2006 to December 2015, the Standard & Poor’s 500 Index saw a compound annual return of only of 7.3%.
This fails on so many levels. It adds more debt, which the economy doesn't need. The models don't/won't work. Subprime was a major component of the speculative excess. Implied government backing also fueled the bubble. As it did with housing, the government will find a way to force lending to the poor. Does the model assume poor people will not be denied loans? People will buy assuming government is backing the loans. Increased funding always increases demand, which leads to higher prices, which will force more people into taking out loans to buy healthcare. This plan would either result in a spectacular collapse of the financial and healthcare system, or a purely government funded system. In either case, it would lead to runaway prices and give banks greater control of the economy. This is exactly the type of "solution" one would expect if the banks are running the country.

Bears Come Out of Hibernation in March

Before the week kicked off, the analog was warning of the next decline phase for the Chinese market. Abandon All Hope, Ye Who Enter Here.
In the past week, the analog did turn down.
In order to take out the 52-week low set in September, the ChiNext would need to fall 10%. The Nasdaq declined into day 269 post peak before seeing a meaningful bounce and a change in the pace of decline. Were the ChiNext to follow this path, the timing of the bottom would be mid-July to mid-August. The Nasdaq fell 53% over this period. A similar drop in the ChiNext would carry it below 1000 points. ]

Such a decline is unlikely to happen in isolation and the implications for global markets are bearish. It appears the decline will kick off in early March.

China Faces Two Dilemmas, Bears Await A Mistake

iFeng: 中国正面临两个“两难”抉择:做空者正静待中国出错
China is currently facing two "dilemma" choice, the first one is how to balance the loose monetary policy and the yuan stable relationship , before central bankers said on many occasions excessively loose monetary policy will increase the devaluation pressure. The second is how to balance the intervention and foreign exchange reserves declining relationship , the purpose of the intervention is to prevent excessive depreciation of the renminbi, but the intervention will consume foreign exchange reserves, foreign exchange reserves fell too fast and if they may trigger a new round of devaluation expectations.

To strike a balance while comparable tightrope, and short overseas who experienced the war of public opinion after the first round, is quietly waiting for China mistakes.
Short sellers logic is very simple, it is these two staring China "dilemma." First, in order to maintain the stability of RMB if China do not dare to use monetary easing, then the bet in the case of absence of loose monetary policy, the economy could accelerate the decline, which Forced China change yuan policy attitudes. Secondly, since mid-January, China's foreign exchange reserves to defend the continued use of the RMB exchange rate stability, in the case of the remaining reserves of 3.2 trillion US dollars in the short term to avoid the edge. But the "dead bite" China's foreign exchange reserves data, once foreign exchange reserves continue to be more than 100 billion US dollars per month rate of decline, then the rate of decline of foreign exchange reserves by propaganda and liquidity and authenticity, creating panic questioned reserves data, especially "instigation" added Aunt domestic purchase of foreign troops, and thus make a profit.

It should be said that this is a very high degree of difficulty balancing game, but since January, the central bank seems to do both balanced and in the central bank to maintain the stability of the money market liquidity situation without creating a new devaluation pressure.
This battle isn't measured in months, but years, and until the fundamentals change, China has to win every single month.
The latest central bank announced in January the central bank balance sheet shows a substantial expansion of the balance sheet, total assets increased from December 31.78 trillion yuan to 33.7 trillion yuan sharp end of January, monthly growth of 1.92 trillion, an increase of a record high . It also reversed the central bank balance sheet from the start of March 2015 contraction trend (Figure 2). Although the foreign assets of the central bank's balance sheet by the impact of capital outflows further decline, but other depository bonds [ 0.01% ] rapid increase right (as shown in the table), leading to the rapid expansion of central bank balance sheets of the main reasons.
Since December last year, the RRR rate cut due to fears unleashed loose signal may increase the devaluation pressure on the central bank more cautious in the use of traditional monetary policy tools, but fortunately the new currency lending standing facilities and medium term facilitation including borrowing the use of open market operations and conventional policy tools, making the territory of liquidity in the case of capital outflows remain relaxed. While the yuan has not been the central bank balance sheet impact of rapid expansion, begun to stabilize since mid-January, indicating that compared with the traditional monetary policy, concealment new monetary policy tools better, the negative impact of RMB emotions surface It is relatively small. The central bank announced last week routine open market operations also means the central bank more inclined to use the new monetary policy tools and open market operations to maintain an accommodative monetary policy and the exchange rate stable equilibrium.


...But balance does not mean twist devaluation expectations. The SAFE latest data also show that foreign exchange market sentiment is still fragile. January sale of foreign exchange forward contract increased from $ 21.5 billion in December to $ 28.4 billion. Enterprise forward exchange since September last year the central bank has begun to collect 20% of the reserve, once fallen sharply, but the past two months the figure rose again (Fig. 5), show that although rising costs, but companies are still inclined to long-term potential to hedge the risk of devaluation.
In fact, companies have already begun to deleverage foreigndebt, both from international banks or SAFE published external debt data reported to the Bank for International Settlements Chinese claims of view, this trend is evident (Figure 6). It should be said, is the impact of corporate deleveraging can be estimated. RMB biggest enemy is not the overseas business is not short sellers, but the household sector. Although in 2015 the household sector foreign currency deposits surged $ 18.4 billion, but the proportion of residents of foreign assets is still very low (Figure 7). "Hidden Meeting the people" has become a slow devaluation of original sin. Therefore, I believe that the central bank wire may not finish.

January New Home Prices Rebound, First-Tier Still Dominating

NBS reports new home prices increased 0.27% mom, an increase from December's 0.20% increase.

First-tier share of the price increase. In November, the first-tier plus Xiamen were 55% of the national price increase, with Shenzhen nabbing 22% of the total national increase. In December, those numbers were 54% and 23%, almost no change. In January, the first tier and Xiamen accounted for 52% of the total increase, with Shenzhen alone accounting for 21%, rising 4% mom. In the past year, prices are up an average of 1% nationally. Shenzhen alone is 74% of the total increase yoy. The first-tier plus Xiamen accounted for 141% of the total increase, or without those 5, prices fell 0.4% yoy nationally across 65 cities.


Existing home prices were up the same amount as new home prices last month, rising 0.27% mom. The first-tier plus Xiamen accounted for 68% of the increase in existing homes nationally.

Source: 2016年1月份70个大中城市住宅销售价格变动情况

2016-02-25

Another Show for the G20

China always puts on a show ahead of a major visit to a country (signing big trade deals just before or during a visit) and ahead of events like the G20 meetings.

Bloomberg: China Tweaks Monetary Stance as Zhou Flags Scope to Act
China’s central bank tweaked the description of its monetary policy stance to reflect a recent ramp-up in liquidity injections and moves to guide money market rates lower, with Governor Zhou Xiaochuan highlighting scope for further actions if needed.
"China still has some monetary policy space and multiple policy instruments to address possible downside risks," Zhou said at a conference in Shanghai, speaking hours before meeting his counterparts from the Group of 20 developed and emerging markets.

Pettis Rebuts Some of Bass' Letter

Valuewalk: Michael Pettis: Here Is Why Kyle Bass Is Mistaken On China
My skepticism about the validity of the IMF’s minimum required reserves formula does not mean that I am skeptical about everything in the letter Kyle Bass sent out to Hayman Capital clients. He addresses important issues, including its large and rising debt burden, but for the reasons discussed above I think China will be able to withstand net capital outflows longer than he and the market might currently believe. If I am right, however, it doesn’t mean that we can simply ignore the extent of the net outflows. And clearly the PBoC isn’t ignoring it. For reasons I can’t publicly disclose I am quite certain that Beijing and its policy advisors have been watching the large net monthly outflows with as much concern as anyone in the market.

China and U.S. on Path to Economic Conflict

There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.

The Logic of Strategy: Yuan Devaluation and the Road to Trade War
The protectionists are ever so slowly gaining the upper hand thanks in part to negative social mood. 2008-2009 will probably mark the peak moment for Wall Street and the Treasury Department, even though there is as yet no sign of it in Washington. Changes can be seen in the form of issues such as immigration, which has turned the grassroots of the conservative movement against the Chamber of Commerce and large corporations (due to an attack initiated by the latter against the former). This has pushed the Overton window of acceptable debate among conservatives who can now take shots at big business. There is also the growing libertarian faction pulled together by Ron Paul that supports his son, Rand Paul, that consistently attacks the Federal Reserve and Wall Street. Put it together and it is not hard to envision an anti-Wall Street, pro-manufacturing political consensus emerging. This will cut across party lines, with manufacturing unions pulling in Democratic support if there are specific bills to vote on.
This has now coalesced into the Trump campaign.
With a growing economic case against free trade, a shift in social mood making anti-free trade opinion more popular, plus the loss of political support for the financial sector, free trade will become a centerpiece issue in American politics. The trigger will be one of two factors. One is economic. China's credit bubble isn't going to slowly ride off into the sunset. There will be pain, it is only a matter of where it lands. The path of least resistance is devaluation of the yuan, something I have been looking for here for several years now due to the growth in credit. A target of ¥8 to $1 is a reasonable ballpark figure, with ¥10 to 1 not unbelievable given the rise of the shadow banking sector. The actual number isn't as important as the size of the devaluation: it will likely be large and set off the anti-China arguments that have been growing in the United States. The left and right have their beef with China's economic policies and the right has provided the main rhetorical cover for business. When that goes, there will be a bipartisan push for policies that counteract China's "predatory" currency policies. A Chinese devaluation could be the trigger.
A major devaluation by China, or a large crisis that impacts the U.S., would likely tip the election to Trump in a general election versus Hillary Clinton.
The ultimate containment strategy for the U.S. and regional partners (who all have access to U.S. markets) then, is an economic strategy. Yes, these nations will suffer slower growth, but they will retain their sovereignty. For East Asian nations, a distant hegemon is better than the near one with an appetite for your territory.
The economic containment strategy will now find a hearing in Washington as the political winds shift.

Free Beacon: China Warns U.S. After Trump Wins Nevada Caucus
China warned the United States on Wednesday not to adopt punitive currency policies that could disrupt U.S.-China relations after Donald Trump’s win in the Nevada caucus.

Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing that “we are following with interest the U.S. presidential election.”
Even if there's no direct confrontation, there's little sign of the type of international cooperation needed to navigate a potential breakdown in the global economy or global financial/monetary system.

Bloomberg: China Unveils Its Deliverables for G-20 -- And No Plaza Pact
China began signaling what its officials plan to present to counterparts at the two-day Group of 20 meeting in Shanghai, laying out a platform for more government spending and renewed pledges of currency stability.

Notably rejected in comments from Finance Minister Lou Jiwei published Thursday was a proposal that emanated from some private-sector analysts for a grand, 1985 Plaza Accord-style deal among G-20 members to guide exchange rates.

Transaction Tax Cut Spurs Bubble Activity in Beijing: ¥1000 For Reservation Number

Scalpers are charging up to ¥3000 for service numbers at the government office where property transfers are recorded, due to long wait times in the wake of the transaction tax cuts.
The specific policies to Beijing, but later than 140 square meters of the only family housing, deed tax increased from 3% to 1.5% of the total housing fund. It does not look great, but the effect was particularly evident.

...According to 我爱我家 data center statistics, in the first week (February 14 to February 20) after the Spring Festival, Beijing new home net signed volume of only 1006 sets. The secondary residential net signed volume is as high as 6048 units, average daily turnover of 864 units, the highest trading volume since 2010.

From the price perspective, the average transaction price 41,490 yuan / square meter, compared with 2015 annual average price rose about 5%.

...The new policy to the owners and customers have brought mental changes, including the owners of more brewing prices. Xiao Gu said in Beijing many owners are selling the house for a house, he wants to buy a house prices, he will increase his selling price, eventually leading to a chain reaction.
This has resulted in some bubbly behavior: paying for a reservation number:
Now that the volume is large, the transfer of more people, so the reservation number is quite difficult. Due to the large number of people go through, on behalf of the reservation business is also booming. Taobao, enter the word Beijing transfer agent may be seized several shops in this business. In some shops turnover ranking, monthly volume of dozens, mostly ordinary numbers in the thousand or so, the price is even higher if expedited.

In a shop, the owner drying out a series of successful single theme, saying last week, supplied a total of 168 successful reservation number, each priced at 999 yuan, if you need a specified time the price increases by 499 yuan.

Online news says that there are already scalpers charging ¥3000 for a number this week, ¥1000 for next week.
I can understand someone wanting to pay to skip at the hospital, but waiting a few days to transfer a property? One reason someone might want to do this is if they fear rising prices. Chinese buyers and sellers will sometimes back out of a transaction if the market moves against them. In this case, if you bought a property before the tax was announced, the seller might try to claw back some of the tax savings. It may also be the case that, as in other situations, wealthier people would rather pay than wait.

iFeng: 新政后北京二手房有多火?网上一个号卖千元

2016-02-24

Runaway First-Tier Home Prices Brings Restrictions

The current rise in home prices is among the biggest gains in history, exceeding most of the years when the government became very concerned about an overheating market. Capital is flowing overseas, but within China, where can people hide from negative interest rates on deposits, depreciating currency, falling stocks and general economic malaise?
Expected until mid-2016, housing prices in Beijing, Nanjing, Suzhou, Guangzhou several hotspots of the city, compared to the current round of housing prices start in the first quarter of 2015, will rise 40 to 60%.

Such a large increase, will equal or surpass 2013, 2010, 2009, 2007, 2005 gains. In the above-mentioned rate fever year, in most cases it will be the introduction of shrinkage policies to curb housing prices. Today, in most second-tier cities and almost all four-tier cities housing prices steady or Yindie background, the central commitment to inventory conditions, relax under the premise of frequent policy, policy-tier cities in the country and local You will tighten it?

I believe that: After the first-tier cities housing prices skyrocketing, will appear Alert local policies!
Governments are either starting to tighten restrictions, increasing supply, or planning to:
First, the recent rumors: start from March 1, Shenzhen is likely to implement the new policy, non-deep household buyers required to pay social security from one year to three years. I believe that specific point in time is difficult to say, but Shenzhen tighten restriction, probability large. Guards Shenzhen housing prices skyrocketing, there is no reason the government does not "pour cold water." Before the Spring Festival, Shenzhen mayor said: as the price stability in a reasonable range, the municipal government on the one hand to increase the personnel housing and protection of housing construction, on the one hand to study the regulation policies to stabilize prices. And in many policies, the current restriction Shenzhen most relaxed, tightened some reasonable.

Second, recently, "the General Office of Shanghai Municipal Government Urban Planning and Land Resources Bureau four departments on the implementation of further optimization of the city and the views of the land and housing supply structure notice" that Shanghai will be to optimize the structure of housing supply, increase small sets type of housing supply ratio, not less than 70% of the central city, suburban, not less than 60%
One first-tier city isn't tightening, it's secretly easing.
Third, Guangzhou secretly tax cuts. February 24, news reports: In some districts include Yuexiu District, Guangzhou, Tianhe and Haizhu District, including, as long as no room, even the first suite of standard deed tax. The February 19, three ministries "on the adjustment of the real estate transaction deed link business tax incentives notice" clearly states: Beijing, Shanghai, Guangzhou, Shenzhen temporarily embodiment of the present notice first and second deed tax incentives The second business tax incentives. This means that the Guangzhou politely refused national policies. By 2015, the Guangzhou property market is weak, not how the basic price rise, compared to a lot of difference brothers Shenzhen city, easing can be understood. Some time ago, there was news that Guangzhou will relax the restriction. No movement restriction, there is the action of the tax.
iFeng: 第107期:一线城市房价暴涨与政策异动

Shanghai Trying to Cool Housing Market

Reuters: Shanghai to increase supply of small homes to cool market
Local authorities in Shanghai issued new rules to increase the supply of medium- and small-sized apartments after the recent surge in home prices in the city, official media reported on Tuesday.

The financial centre would ensure the land supply for homes smaller than 100 square meters accounts for at least 70 percent of total land supply in downtown areas while the ratio was lowered to 60 percent for suburb areas, the Xinhua news agency quoted Shanghai Land Bureau as saying.

The move would make Shanghai the first Chinese city to take measures to cool the overheating housing market in big cities.
This is mild compared to the measures being mulled in Shenzhen, which include raising down payments and qualifications for purchase.

Chinese Coal Miners Want Price Supports

Chinese coal miners want the exact opposite of the government's plan to end overproduction. They want price supports to help them avoid bankruptcy and job cuts.

Bloomberg: Chinese Coal Miners Said to Lobby Government for Price Floor
Chinese coal companies lobbied government officials, including Premier Li Keqiang, to set a price floor for coal to protect against bankruptcy and prevent job cuts, according to people familiar with the matter.

The proposal was made to Li during his trip to Shanxi province in January by state-owned coal firms and local officials, one of the people said, asking not be identified as the information isn’t public. Industry groups and mining companies also sought a floor from the government at a separate meeting in Beijing last month, another person said, adding that the cabinet may not agree as efforts are focused on cutting industrial overcapacity.

CICC Rebuts Bass on Yuan Depreciation Risk

Barron's: CICC: Why Kyle Bass Is Wrong On China
Foreign investors have been worried about shadow banking. Traditional bank loans aside, Chinese banks also lend through wealth management and trust products. CICC acknowledged that wealth management was growing fast, rising 17% in total value in the fourth-quarter from the September quarter. But only 30% of those went to loans, estimates CICC. “So the total credit risk of those wealth management products is not as big as Mr. Bass described,” wrote Eva Yi and Hong Liang.
This matters for bank liability, but doesn't really rebut the argument about the growth in money and credit.

Negative Rates Closer Than We Think?

Reuters: Fischer says no Fed plan to move to negative interest rates
Federal Reserve Vice Chairman Stanley Fischer said there is no plan to use negative rates in the United States, though the matter is under study.

"We are some ways away from that," Fischer said at an energy conference in Houston. He said the use of negative rates in countries like Denmark "has been better than people expected," particularly in discouraging rapid inflows of capital.
The first sentence makes it sound like the Fed officials are "some ways" away from it, but it's unclear how much of that statement is conditional on the economy and financial markets.

Negative interest rates for a small country such as Denmark, specifically trying to stem inflows, is a much different story than negative interest rates on a major currency such as the euro and yen, to say nothing of the reserve currency.

China Can't Stop CNY Outflow Because It's Flowing Through Current Account

There is hot money in China but it flowed in via the current account, not the capital account.

Balding's World: Why China Does Not Have a Trade Surplus
The differences between import and international payment data, however, is astounding. Whereas Chinese Customs reports $1.68 trillion and SAFE report $1.57 in goods imports into China, banks report paying $2.55 trillion for imports. In other words, funds paid for imported goods and services was $870-980 billion or 52-62% higher than official Customs and SAFE trade data. This level of discrepancy is extreme in both absolute and relative terms and cannot simply be called a rounding error but is nothing less than systemic fraud.

...There are a number of important conclusions and implications of the data presented here. First, if we adjust the Chinese traded good surplus on a cash flow basis and include the trade deficit resulting in a net export deficit, Chinese GDP growth in 2015 grew only 0.3%.

...Third, this sheds new light on the state of Chinese finances and RMB outflows. For instance, the differential between Customs and bank data reveals rising outflow discrepancies since 2012. While many have begun to worry recently about rising pressure on the RMB, it is clear that outflows from China are long lasting, large, and completely domestically driven.

...Sixth, the nature of capital flight from China cuts directly to the heart of why capital controls would be a poor remedy. Capital is not leaving through the capital account. Rather with a restricted capital account and a relatively free international transaction via the current account, enterprising Chinese are moving capital via the current account. To arrest the flood of capital leaving this way, it would require China to bring goods and services trade in the world’s second largest economy to a complete standstill.
Fake export invoicing caused the yuan to rally in 2013, as I covered in How Fake Exports Caused The Yuan Rally. That was back when companies were importing money by the boat loads to arbitrage interest rate differentials, investing in WMPs and other high yield assets. The aftermath (to this point) was covered earlier this year in a Chinese article, which I posted here: Why the Yuan Must Devalue: $700 Billion in Short-Term Loans Betting on Yuan Appreciation & Rate Arbitrage; One-Third of Reserves Is Hot Money. In addition to reversing the prior trades, domestic Chinese business with ample bank credit and currency depreciation expectations are undoubtedly be running the arbitrage in reverse.

2016-02-23

Weak Propaganda Makes Bears Strong

An article trying to say why not to panic over China. The article doesn't address any serious concerns and the last line contradicts the whole article. This is the type of response that, were it to come from a private company facing concerns about its business, would make me put everything into a short position.
People's Daily: Economic Watch: No need for panic about China's economy
"Good times may breed crises in the West," Jin wrote in an article on news site Project Syndicate. "In China, it is crises that bring better times."
Good times lead to crisis in the West, but bad times lead to good times in China. So what leads to bad times? Feng shui? In any event, if this was true, then everyone in China should be happy with the uber bears calling for a 1930s Great Depression for China, since it will usher in a new Golden Age.

Also, the propaganda ministry is getting sensitive.

Mises turned down a job with Kreditanstalt in 1929 because "A great crash is coming, and I don't want my name in any way connected with it." The bank was the first major domino to fall in 1931, the year that crushed recovery hopes and made everyone realize the depression was far worse than believed.

Raise Personal Income By Lowering Govt or Corporate Share

New policies for achieving the goals of the 13th 5-year plan are expected.

EO: “十三五”规划纲要呼之欲出 民生领域改革将出新政
In the "double" of the two stated objectives, the deputy director of the Central Financial Work Leading Group Office Yang Weimin, China International Economic Exchange Center Zheng Xinli, vice chairman and other experts believe that the per capita income of urban and rural residents to achieve "double" the goal is more important , but also more difficult. Yang Weimin has said in public, in the "Thirteen Five" period, an important policy orientation is to achieve high growth in people's income, if income growth can not keep her, will have a negative impact on social stability.

Close to the above NDRC experts told the Economic Observer reported, to achieve high growth in household income, on issues related to the increase in income in the proportion of resident income distribution, further analysis, it relates to the government is to reduce the proportion of enterprises or decrease proportion. In this regard, in the "five" plan, and there is no clear definition, now resulting in the income share of national income distribution is still declining. In the "Thirteen Five" Plan has been basically completed, and this may give a clear answer.

...For many people there are employment issues of concern, "Thirteen Five" plan proposed in there 25 times referred to "employment", also emphasized "to promote employment and entrepreneurship, adhere to the strategy of giving priority to employment", which shows the central emphasis on employment . Beginning last year, the State Council has issued a series to promote the "public entrepreneurship and innovation" policy measures, such as the development of e-commerce, innovation and entrepreneurship education colleges, migrant workers and other support staff home business, these are "Thirteen important policy approach "period to achieve positive employment.
Taxes are already relatively low as a share of the economy. EO: 来这里看看,中国税负到底重不重?
The authoritative department estimated that China's macro tax burden in 2015 was 29.1%.

If you include the land transfer income, excluding the cost of compensatory costs should only be included land net. Land plus net income in 2015, estimated that the Chinese macro tax burden was 30.1%.

...The first is to reduce the tax burden on small and micro enterprises, followed by the use of tax cuts to promote economic restructuring. For example perfect light industry, textiles, machinery, automobile and other key sectors of the four areas of enterprise newly purchased fixed assets accelerated depreciation policy. Additional deduction applies to relax the policy range R & D activities to further expand the scope of R & D costs plus the allowed deductions, simplify accounting management, reduce audit procedures.

Shenzhen Mulls Real Estate Restrictions, Raise Down Payment

Chinese real estate policy swings from crisis to crisis, from slamming on the brakes to pressing the gas pedal to the floor. With prices up 46.8% yoy in December, Shenzhen is the first of the top-tier cities to mull restrictions on home buying.

EO: 深圳楼市传来收紧信号
Control measures being discussed include increasing the requirements that the buyers pay Social Security tax from one year to three years, and lengthen the time to qualify for the sales tax exemption from two to five years and so on....the first time mortgage lending requirements will increase, even if the loan has been repaid, property buyers can not re-qualify for first time mortgages......the first home down payment ratio increased from 25% to 30%.

...Many respondents believe that the 2016 Shenzhen tighten regulation, price gains narrowed is a high probability event.

Home Ownership Results: Property Rights

Property rights are not consistent in China. Some places have relatively secure rights, in other places not so much. But the widespread return of property ownership in China has revived the idea of property rights.

Caixin: Rules Opening Gated Communities 'Could Infringe Property Rights'
The ruling Communist Party and the cabinet released a directive on February 21 that proposes opening up the gates of enclosed residential areas and government compounds. The government also said that no more gated communities should be built so that the traffic situation can be improved and land better used.

The authorities did not say when the new rules would come into effect or how they will be implemented, but the announcement generated much discussion among property analysts, academics and the public.

More than 70 percent of nearly 38,000 Internet users polled by the news portal Sina.com opposed the idea, with most survey respondents saying property owners should be compensated if they have to comply with the requirement. Many respondents cited safety concerns as their main reason for objecting.

Death of the Dollar: Brazil Edition

Brazil has burned through 30 percent of its foreign reserves trying to defend the real and it has nothing to show for it. It has spent roughly 5% of GDP. And the real weakens.

Alhambra: OECD Gets Brazil Really Wrong; Common Factors With Far More Than Brazil
The relevance of Brazil relates to the orthodox mangling of what the “dollar” truly represents, and further how that damage manifests (and how far it might). To be clear, I’m not suggesting the world will all follow as far as Brazil has and might still in the near future, only that there are some very realistic and very negative scenarios that should be accounted for in analyzing the potential future economic track anywhere the “dollar” is upsetting conditions. I think in many cases, at least some very important “dollar” and “dollar”-related markets, there is already thinking in that direction for much more than EM’s.

That depression potential again extends as much from the sustained decline as its ultimate degree. Without the “dollar” these financialized economies have no support and thus the artificial nature of the past two decades or so is being revealed in a decidedly weak economic foundation. In many ways, an extended contraction is much, much worse than even a violently sharp but temporary recession. While I believe fully that the global economy’s permanent alteration and predicament traces back to the events of the eurodollar panic and Great Recession, there was at least some reasonable hope in 2009 for symmetry. Just the potential for sharp recovery makes a big difference, especially in financial factors that can become only disastrously self-reinforcing without it. That is Brazil already, and there is a lot it can tell us about both potential “unexpected” weakness and the (sometimes intentional) inability of economists to understand it.

Brookings: IMF Therapy for Brazil
More to the point, Brazil has run out of good – let alone easy – options. The only alternatives to an IMF program are an inflationary spiral to dilute the real value of debt and other nominal liabilities, or a downward economic spiral that may cause a need for debt restructuring.

2016-02-22

Push to Encourage Rural Migration into Cities Begins, Will Central Govt Add Policy Support?

The next move, the central government will introduce policies to encourage farmers to purchase homes?

......Among the many articles on Chinese real estate analysis, we can see that the real estate inventory focused on four-tier cities, these cities how to digest property stocks has become a priority.

As consumer groups, Daily News noted in a recent report, which interviewed a number of experts have said that for the third- and fourth-tier cities such prices are not high and the overall inventory relatively high, and how to use subsidies to encourage household registration system to attract migrant Workers buyers will be the focus.

According to China Business News reported, in January, the person in charge of a local Land and Resources revealed, " 'people linked to' the general direction of the policy have been identified, by the end of 2015, when the leadership of the Ministry of Land and local homeland Leader resources Office were notified.. "

"Human and hook" is a term of land and resources management. The so-called people to hook, specifically refers to hook new urban population size and construction land and supply. In previous research and discussion, the "people linked to" has been described as "new construction land to increase the size and number of settled agricultural work to absorb the hook." This time, the number of new urban population has also been included in the new construction land "preconditions."

Local Land and Resources Department who said, "people to hook" is a big policy, which means to be applied to real estate inventory in the field come from the central government to consider, the town has been hoping to become new citizens to the inventory of real estate the main role.

National Land and Resources Work Conference held on January 7, the Minister of Land Jiang Daming, he says real estate inventory pressure is too large towns to reduce or even stop commercial housing land supply. People of migrant workers process faster, real estate to stock performance prominent towns to implement "people linked to" policy, a corresponding increase in housing land targets.

In addition, February 1, Deputy Minister of the Ministry of Housing Luke Hua, the real estate market regulation Secretary Gao Zhiyong led to the Meishan City, Sichuan research, research topic is "to guide and encourage rural residents into the city into the town, the real estate industry to promote the sustained and healthy development, accelerate new urbanization. "
iFeng: 去库存下一招:鼓励农民进城购房或全国铺开

Shifting Mood on Trade: U.S. Reacts to China Buying Companies

BI: China is buying up American companies fast, and it's freaking people out
Chinese companies have been buying up foreign businesses, including American ones, at a record rate, and it's freaking lawmakers out.
Always a good tell of social mood when the report uses loaded emotional words.

Narrative Control in China

Xinhua: Xi underscores CPC's leadership in news reporting
Chinese President Xi Jinping on Friday ordered news media run by the Communist Party of China (CPC) and the Chinese government to strictly follow the Party's leadership and focus on "positive reporting."

Speaking in a symposium Friday afternoon after touring China's three leading news providers, the People's Daily, Xinhua News Agency and China Central Television, Xi, also General Secretary of the CPC Central Committee, called Party- and government-run news outlets the "publicity fronts" of the party and the government.

All news media run by the Party must work to speak for the Party's will and its propositions and protect the Party's authority and unity, Xi said.
If only China was like the West, where reporters don't have to be told to hide stories that deviate from the official Narrative and play up those that push the Narrative. The difference is there are few true believers in Beijing, but many in Washington and New York.

As for actual effects, I don't expect the order will have much effect on economic reporting beyond the major headlines for public consumption, but we'll see.