2016-04-30

New Shenzhen Housing Policy May Drive Smaller, Indebted Developers Out

Developers in China often sell homes even before construction begins. This benefits cities, which can sell land quickly, and developers, who don't need as much bank financing if they can sell enough homes ahead of time. Speculators or need to make small downpayment. It creates oversupply when the market cools, which is why there are some eye popping estimates of real estate inventory based on the total amount of planned housing. Buyers also have incentive to walk away if prices slide. Developers with less access to capital rely more heavily on advance sales.

In Shenzhen, the government is looking to shift the market towards selling finished homes in a bid to limit the rise in home prices. It's a pilot project for now, but if the test is successful, it may push smaller and financially weaker developers out of the city:
iFeng: 部分一线城市试点现房发售 中小房企首当其冲
At present, the Shenzhen market, the majority of the new disc are in the form of pre-launch of Forward House, the city of Shenzhen is the first contact with controlling pre-sale system. As a result, the implementation of the 22-year real estate sale license system is quietly changing, the pilot could become a future trend in the sale of real estate in Shenzhen.

Some analysts said, the implementation of real estate is now on sale from the sale into the policy, developers sold Forward House get a lot of risk-free capital construction costs have does not work, perhaps the further regulation of the Shenzhen property market initiatives. At present, Shenzhen extremely scarce supply of land, take-the-shelf system can raise the threshold, the lack of financial strength of small developers in the door, and keep land prices from rising too fast. In addition, sales of existing homes also makes home buyers can purchase to reduce check-in time, and thus avoid risks.
According to data, medium sized developers obtain about 40 percent of funding from pre-sales:
Market data show that real estate project development funding funds owned enterprises and financial accounting system were obtained by the sale at about 4o percent, while the rest are mainly bank loans and other sources of loan funds. Some developers sell homes only 8-9 months after obtaining land, or even less, but now the system will stretch the sales cycles out to 2-4 years. Thus, if the sale of finished real estate is now a trend, small and medium real estate business in Shenzhen has become more difficult.
iFeng: 部分一线城市试点现房发售 中小房企首当其冲

Hukou Reforms Underway

China.org: Hukou reform under way in 29 regions across China
To date, 29 province-level regions, apart from Beijing and the Tibet autonomous region, have unveiled official plans on the reform of the housing registration system, according to China News Service. The plans have in general phased out the so-called urban and rural hukou and replaced them with more general terms such as residential hukou, family hukou, or collective hukou.

In mega cities such as Shanghai, Chengdu, Wuhan and Xi'an, point-based hukou policies are prevalent. The policies, despite their variance in different places, generally take into account the factors of the legitimacy of a person's job and residence, insurance and a fixed number of years he or she has lived in the city.

According to the proposals of the State Council, China should fully liberalize household registration in townships and small cities. Some provinces have adopted more relaxed measures. Southwest China's Sichuan province, for instance, extends the application of this policy to big and midsized cities. Guizhou, also in Southwest China, plans to remove the hukou restrictions in midsized cities, as well as in townships and small cities.
iFeng: 29省份出台户籍改革方案 部分地区放宽落户条件
In contrast, the full liberalization of some provinces more settled in restricted areas of the range. For example, in Sichuan that "full liberalization of small cities and towns settled limit"; Shanxi proposed "full liberalization of small cities and towns settled limit," Guizhou also proposed "full liberalization of medium and small cities and towns settled restrictions" Wait.

For big city settled conditions, the national version of the household registration reform provisions opinion "big city life to participate in the urban social insurance requirements shall not exceed five years," and Henan shortened to "no more than two years," Anhui shortened to "not more than 3 years . "
Related: Urbanize This: Migrant Worker Population Ages, Growth Slows, Low Wages

HK Negative Equity Mortgages Rise 15 Times, Value 12 Times

Bloomberg: Hong Kong Negative Equity Mortgages Jump 15 Times as Prices Drop
The number of Hong Kong homeowners with apartments worth less than their mortgages surged 15 times in the first quarter, according to the Hong Kong Monetary Authority.

The number of negative-equity mortgages rose to 1,432, with a total value of HK$4.9 billion ($634 million), for the three months ended March, from 95 such home loans worth HK$418 million in the previous quarter, the city’s de facto central bank said on its website Friday.
A stark contrast to what was going on in Shenzhen at the time.

Xi Jinping Comments; Sounds Less Proactive Tone Vs 2015

Earlier this week I posted PBoC Not Curbing Lending, Market Looks to Politburo.

Xi Jinping spoke on Friday.

iFeng: 重磅!习近平谈楼市、股市、汇率、失业、货币政策
Meeting said that to implement the proactive fiscal policy and prudent monetary policy. This year the central economic work conference "proactive fiscal policy to intensify," "flexible and prudent monetary policy to moderate" compared to the words last year, this year "to intensify," and "to be flexible and appropriate" these five words are removed, in other words monetary and fiscal policy will not be as proactive as before.
Considering last year's active policy led to devaluation in August, this either means we can expect worse later this year, or these comments can be ignored. Take your pick!
Recently, foreign investment banks Deutsche Bank released a report that China's monetary policy and fiscal policy from the previous year or in the relatively relaxed adjusted to neutral. After the economy to show positive signals, China will be more focus on financial stability, the current slowdown in credit growth in the second half or in order to prevent long-term macroeconomic risks. Today, Xi Jinping pledged to maintain the healthy development of the stock market, it indicates the central importance of the stock market.
The RMB is stable, but also will depreciate:
However, due to the recent slowdown in US interest rates, exchange rate relative to the dollar sharply appreciated. Fu Billiton chief market analyst at FX Jameel Ahmad said that this may be a double edged sword, on the one hand short selling capital did not dare to stir up trouble, effectively resist the pressure of capital outflows and currency depreciation; the other hand, the appreciation of the RMB continuous passive, some degree will damage export competitiveness of Chinese goods.

Moneta macro analysis reports, after the Spring Festival this year, the central bank in setting the central parity of RMB against the US dollar, seems to embody a kind of "strategic devaluation" of intent, this idea has not changed. First, strong dollar, the central parity of RMB against the US dollar homeopathic down, but have dropped so CFETS control index remained stable; the second is a weaker dollar, the RMB against the US dollar central parity homeopathic increase, the increase rate control to achieve such CFETS index devalued; Third, dollar stabilize, the central parity of RMB against the US dollar change to a lesser extent, CFETS index movements depend on the performance of a basket of other currencies.
Victory is declared in first and second-tier cities with rising home prices, but third- and fourth-tier cities are still a problem:
Session to digest orderly real estate stock, which is a quarter of first-tier cities and some second-tier cities housing prices rose sharply not unrelated. In the third- four-tier cities with large inventories and without any signs of inventory reduction, the central ministries have to tighten policy again. For some time, will be given more emphasis on differentiation of real estate policy.
Sounds somewhat bearish for real estate investment growth.
Central Bank: From May 3, will be the foreign currency financing of cross-border integration of the full aperture of prudent macro management pilot extended to financial institutions and corporations nationwide. This will help control leverage and currency mismatch risks, to achieve integrated management of the foreign currency; avoid the original local currency, foreign currency management of cross-border financing, respectively, to adapt to different modes of additional costs caused.

Central Bank: combining financial regulatory reform, promoting recovery Provincial People's Bank branch management system. Improve coordination committee branches operating mechanism, strengthen the overall direction and management of the branch. This means that the inter-provincial branch of the central bank supervision system implemented in 1998 will be significant changes.

2016-04-29

The Precious Accelerate


Acting Man: Silver is on Fire
How much higher can the price of silver go? One talk show host appealed to the “silver faithful” with a promise of a price to skyrocket to levels even they will find “stunning”. Our response is to point to the basis (blue line). Note that we switched from May to July.

If gold is showing some signs of abundance, silver is practically lying about in the market landscape. To carry silver for July delivery yields an annualized profit of over 1.1%. The flow of metal into the carry trade must be a torrent. If anything occurs that will stun the silver faithful, it will be the epic drop in the silver price. This will be decried as a smash-down.
I remained heavily overweight the precious metals these past few years despite deflation expectations, mainly because I expect gold would remonetize amid deflation. It's also a good hedge though: even if I'm completely wrong on commodities, I will make money thanks to holdings in the precious.

Slope: Gold Breaks Out Again

The moves look extended, but the U.S. Dollar Index is right at the low of its trading range today. The dollar will likely decide whether commodities and precious metals correct or rally further.


How Long Until the Borders Close? Belgians Issued Iodine Pills

Telegraph: All Belgian residents issued with iodine tablets to protect against radiation
The entire population of Belgium is to be issued with a ration of iodine tablets, months after warnings about the threat of Isil building a dirty bomb.

...It emerged following last month’s terrorist attacks that an Isil cell may have been plotting to kidnap a nuclear expert in order to build a “dirty bomb”. Eleven nuclear workers had their passes revoked.

People's Daily Responds to U.S. Steel Charges

An article in the People's Dails asks, "what kind of market economics is this?" in regards to U.S. anti-China steel tariffs.
April 28 Ministry spokesman Zheng Lixin to a question on China's steel industry, said the Chinese steel industry capacity utilization and the world average is consistent, steel overcapacity is not unique to China, the world needs a common response. In particular, he stressed that the current Chinese steel mainly for domestic consumption, itself remains the world's fifth largest steel importer, and has been carried out under the WTO trade rules. China not only does not encourage exports of steel products, and is the world's largest producer of steel in the country a unique initiative to take restrictive measures against ordinary steel exports.

International Economy and Trade Department of Economics, Peking University Professor Wang Yuesheng, in an interview with this reporter said, similar to the "337 investigation" of trade protectionism has long been common in recent years, from the differences between the parties to the business interests of its essence, but different during the performance level, in the form of different.

"Accusing the presence of 'price-fixing', 'false labels' and other Chinese steel trade issues, said its rigorous basis itself is not clear enough. For example, the United States does not recognize China's market economy status, it will' default 'government and business relationship' is not normal ', which led to the true costs of steel products in China for its determination is too low." said Wang Yuesheng, such "beggar thy neighbor" thinking of the business is likely to lead to counter-measures business partners, or even a trade war. Especially in the sensitive period fragile world economy, trade war would lead to a lose-lose, is not conducive to long-term interests of most people.
The U.S. is among the nations least reliant on trade and it has a huge trade deficit. Leaving aside the zero sum game of global power, the U.S. is among the nations that will be least affected by a trade war.
It is worth mentioning that the trade-protectionist does "more harm than good", the Chinese officials not only did not heavily subsidized steel companies , but the steel industry "reduce overcapacity" is the main battlefield in pursuit of economic transformation and upgrading. For example, recently the central bank and other four ministries published an updated opinion on requirements: the steel and coal industry long-term losses, loss of liquidity and market competitiveness of enterprises, must be resolutely quit compression related loans. Related departments should take the initiative to track local governments and the central enterprises to solve the steel, coal embodiment surplus production capacity, early response possible risks.
Yet steel production rises because local governments do not listen to Chinese officials.
Seclusion is not a way out, there is openness and cooperation in the future. The United States as a typical immigrant country, open and inclusive values, mutual win-win spirit of the contract are the achievements of its economic strength and great power status of important spiritual core. By contrast, in the face of the demands of the interests of minority groups in the industry, if lazy, Flurry big stick of trade protectionism, it will undoubtedly make these excellent market economy and free trade tradition into disrepute.

In fact, the trade protectionism in the United States is also unpopular. US Microsoft founder Bill Gates said, whether it is software, aircraft, or pharmacy, movies, US is the biggest beneficiary of economic globalization, any impediments to international trade moves to the United States are unfavorable. A US study wisdom Kubidesen Institute for International Economics also show that in 2009 the United States had taken a Chinese tire tariffs up to 35%, which led to US consumers within the next few years have to pay $ 1.1 billion for the purchase of additional tires, In fact this is only to protect Americans 1200 jobs.

"For the United States, despite its own to take care of business interests is understandable, but in the face of disagreement or should strengthen communication and consultation with trading partners, and should not be taken frequently blunt, forced sanctions. To China, we also to continue to deepen reform, further rationalize the relationship between government and the market, improve corporate governance, try not to give any excuse for protectionists. further, in the medium and long term we should also further enhance the gold content technology and core competitiveness of Chinese products.

People's Daily: 打压中国钢铁是哪门子市场经济

2016-04-28

Westpac Shuts Out Chinese Borrowers

Sky News:Westpac enforces non-resident borrowers ban
Westpac has announced it has stopped lending money to foreign property investors.

First home buyers are being given a crack at entering the property market, after the major lender announced it was banning non-resident borrowers.

Westpac are following in the footsteps of Commonwealth Bank, who last week declared they would no longer accept mortgage applications from non-Australian residents.
They are doing this due to the risk involved, but the news played up the nationalism angle. Mood is shifting...

Govt Orders End of Commodities Speculation

Reuters: China securities regulator orders major commodities exchanges to control futures speculation - sources
China's securities regulator ordered the country's major commodity futures exchanges this week to control speculative trading activity, sources told Reuters, after a surge in prices sparked fears of a boom-and-bust cycle.

In response, commodity futures exchanges in Dalian, Shanghai and Zhengzhou ordered major institutional investors that lack a commodities background to rein in their trading, three people with direct knowledge of the situation said. The sources didn't define what was meant by a lack of background in commodities.
Volume has fallen. Prices initially dipped and rebounded, but if volume stays down, prices will follow.

China's National Team Owns 6 pc of Stock Market

China is 60 percent Japanese. (See: The Bank Of Japan Is Now A Top 10 Holder In 90% Of Japanese Stocks)

Stats: 549 billion shares across 1433 firms worth 2.74 trillion yuan. This is 6.11 percent of total market capitalization on the Shanghai and Shenzhen exchanges, more than half of the companies listed.

About 73 percent is held in bank shares:
Distribution by industry, "national team" funds most emphasis on banks, non-bank financial sector, architectural and medical biological, holding a market value of 2 trillion yuan, respectively, 165.714 billion yuan, 63.676 billion yuan and 45.306 billion yuan, accounting for "national team" 73.12% of the total market value of shares, 6.04%, 2.32% and 1.65%. In other words, "national team" of the banking sector accounted for the most heavily loaded positions total 70 percent above.

Wallstcn: 国家队最新持仓曝光:持有市值2.74万亿 持仓七成为银行股

760 Billion Yuan in Coal Debts Come Due

Hexun: 煤炭金属矿业将到期7600亿债权 违约或集中爆发
Bloomberg data show that in coal and metals and mining industries with excess production capacity of these two companies this year 2-4 quarter cumulative maturity scale over 760 billion yuan, recording the highest increase of 34% over last year, compared with same period in 2014 more than doubled. Maturity bonds in the entire bond market this year will also climb to a high, from the beginning of this quarter will face a maximum high for three consecutive quarters, the total will reach 4.12 trillion yuan, up 23% over last year.

Haitong Securities ( 600837 , stock it ) has said Jiang Chao, frequent credit default push up credit spreads, corporate financing costs easy or hard to drop. Increasing the risk of default by the new companies will push the cost of the old, or cause disruption to refinance, and may even form a "risk of default increases - Refinancing blocked - economic downturn - further increasing the risk of default," the vicious circle.

He also said the analysis, low-rated bonds due for repayment amount start to rise sharply from the fourth quarter of 2015, but it is also since then, a series of events of default Shanshui Cement continue to impact the market nerves. The low-rated bonds due amount is still in an upward trend, and the third quarter of 2016 reached a peak . With the large capacity due to the propulsion and low-rated bonds are expected to emerge more events of default, default will show normalized.

Various types of bond holding financial institutions recently focused on dumping bonds as soon as possible to avoid debt default, to avoid "stepping on a mine."

Loan Loss Reserves Fall Below Regulatory Red Line, Some Banks Assume Cut to 120 pc

Shanghai Daily: ICBC’s bad-loan ratio worsens
THE bad-loan buffer of Industrial and Commercial Bank of China fell below the regulatory minimum, highlighting debt issues again in Chinese banks.

ICBC’s coverage for bad loans stood at 141.21 percent of the current 204.66 billion yuan (US$31.6 billion) of non-performing loans by March, the world’s largest bank by assets said in a statement to Hong Kong’s stock exchange yesterday. The provisions breached the current regulatory minimum of 150 percent for the first time since it listed.
The government is expected to ease requirements on banks this year, and the iFeng article below claims some banks are assuming the regulatory minimum may drop t0 120%.

iFeng: 国有大行拨备覆盖率跌破红线!为利润让道?

Bank of China announced on the 26th of a quarterly reporting period, the NPL coverage ratio was 149.07 percent. 28, ICBC a quarterly show, the first-quarter provision coverage ratio was 141.21 percent, are less than the CBRC had set 150% of the regulatory red line.

...Caixin has reported that at the end of March, the difference in regulatory thinking, seven listed banks will be dynamically adjusted provision coverage ratio fell to 130% -140% range. China Banking Regulatory Commission said that the measures are still being studied.

● Agricultural Bank (601288.SH, 1288.HK), China Construction Bank (601939.SH, 0939.HK), China's banking provision coverage may be reduced to 130%;

● Industrial and Commercial Bank of China, Bank of Communications (601328.SH, 3328.HK), China Merchants Bank (600036.SH, 3968.HK), Industrial Bank provision coverage may be reduced to 140%;

● CITIC Bank (601998.SH, 0998.HK), Shanghai Pudong Development Bank, Everbright Bank, Minsheng Bank ( 600016.SH, 1988.HK), Ping An Bank, Huaxia Bank [ 0.99% funds research report ] will keep 150% of the official requirements remain unchanged.

As early as February of this year, Bloomberg, citing people familiar with news on condition of anonymity, the State Department is considering lowering the bank bad debt provision coverage. China Banking Regulatory Commission has not yet determined the specific details. Two informed sources, some large banks assume 120% coverage in 2016 when budgeting.
WSJ: Big China Banks Relax on Liquidity to Do More Lending
Banks continued to lower their cash buffer for bad loans, as they have done steadily in recent years. But for the first time the level fell below the minimum of 150% of their bad loans, which the government requires the banks to maintain to safeguard their ability to weather losses.

Steel Trade War Is Glimpse of Future: Great Political Changes Underway

EU must take tough stance in steel dispute with China - German economy minister
"What is really at stake in the EU is whether we have the courage to take an aggressive position against China," Gabriel said in the German Bundestag lower house of parliament, adding that he would be in favour of taking such a stance.
The U.S. is getting aggressive: U.S. Steel accuses China of stealing trade secrets
Pittsburgh-based U.S. Steel said regulators should remove "all unfairly traded Chinese steel products" from the U.S. market, claiming the Chinese firms illegally conspired to fix prices, stole trade secrets and circumvented trade duties by using false labels.

"We have said that we will use every tool available to fight for fair trade," U.S. Steel CEO Mario Longhi said in a statement.
An article in iFeng reads: China's Steel Overcapacity Words Do Not Match Actions, US-EU Furious
iFeng: 中国钢铁去产能“言行不一” 现在欧美怒了
Chinese Ministry of Commerce website shows that this complaint is for China Hebei Iron and Steel Group Corporation, Shanghai Baosteel Group Corporation and other Chinese steelmakers about 40 carbon steel and alloy steel product exports to the US. United Steelworkers of America expressed support for the US Steel action.
A big dispute between the US and EU is over China's market status. The EU wants to designate China as a market economy, while the U.S. opposes the move. Tariffs on steel are much harder to impose if China gains market economy status, which is why this battle comes at an inopportune time for China.
In addition, the EU will decide in December whether to grant China market economy status, and now the steel issue a "handle" by the United States and the European Union grabbed hold. Under the terms of "China's WTO accession protocol," after December 11, 2016, against China's anti-dumping "surrogate country" approach will lose multilateral legal basis, Members shall immediately stop using the "surrogate country" approach. This way, the Western countries an important opportunity to recognize China's market economy status.

If China successfully obtain this status, then think about Europe on Chinese goods if anti-dumping duties, it becomes increasingly difficult. Many EU member states and then worry if the grant China market economy status, with the lifting of the EU anti-dumping measures, the relevant European industry and employment will be subject to further shocks.
The Chinese response is laughable:
For China steel dumping, the Chinese side had explained that the Chinese government attaches great importance to overcapacity, has taken positive steps over the past three years reduced the more than 9,000 tons of steel production capacity, the future will again Yajian crude steel production capacity of 1 on the basis of to 1.5 million tons.
This is like U.S. government accounting, propose a big spending increase, then call it a cut when the increase is reduced. Steel production hit a record in March. There are no cuts in production because China's capacity utilization is so low, it could still increase production amid mill closings.

The iFeng article admits the Chinese actions haven't matched the leadership's words:
February 4, the State Council published "on the iron and steel industry to resolve the overcapacity views the development of a turnaround," he pointed out from the beginning of 2016, within 5 years reduce steel production capacity by 100 million to 150 million tons. Recently, according to media reports, accounting for about 27% of the total capacity of Hebei Iron and Steel announced plans to phase out 100 million tons of production capacity in the next five years. Jiangsu has put forward, by the end of 2018, 12.55 million tons of steel production capacity Yajian. Plus Guizhou, Liaoning and other provinces, the local and national goals over 100 million to 1.5 million tons. There insider said, on the one hand officials would like to take over the fight performance, on the other hand in order to win more central resettlement funds and preferential policies.

However, the truth is that many Chinese steel mills have resumed production. According to "21st Century Business Herald" message, shut down for five months Songjeong Tangshan Iron and Steel Plant has been re-ignited. In addition, the recent days Rail Group, Tangshan Port and other steel production fully restored, Shanxi Haixin also plans to resume production by the end of April early May. It's expected China's average daily steel output in April will be a record high. Earlier, Reuters quoted Macquarie analyst Ian Roper said last year China closed 50 million -60 million tons production capacity, and has now resumed production of more than 40 million tons.
As with other failed reform efforts, this looks like another case of the local governments ignoring central mandates:
In fact, steel prices are a lot of local economic "lifeline", when the performance evaluation of the performance of the "key", in addition also involves local employment stability. Therefore, many local governments unanimous choice is, even if it is "zombie companies", but also with local finance its "continued life."
Finally, U.S. steel tariffs are working, cutting Chinese imports in half in April.

Steel Industry Executive Summary: April 2016 (PDF)
To give you an idea about why this is all about China, here's monthly production through February. Chinese production spiked back to 70 million tons in March and as mentioned above, is expected to go higher in April.
The U.S. industry's steel report shows the U.S. doesn't have the biggest complaint with China. That would be Vietnam, Thailand, India, Pakistan, Turkey, Saudi Arabia and Italy.
In conclusion, the case for countervailing duties is clear. China is by far the largest steel producer and due to its own sclerotic economic policies, increased production by 15 percent since 2013. Now it says the world must share the burden of overproduction, but China can't even make it's own local governments shut down local production. Meanwhile, the rest of the world wants China to absorb all of its own self-inflicted losses. The political climate has changed and I would bet on Donald Trump winning the presidency at this moment, but even if Clinton wins, the U.S. will at least side with the steel makers on this narrow issue. Tariffs are having positive effects in the U.S. Everything is working in favor of a protectionist U.S. policy on steel, which will very likely be replicated across other industries with the implementation of a national economic policy under a President Trump. With a President Clinton, there is likely no change in the free trade orthodoxy and both TPP and TPIP will pass, despite what she says during the campaign. (One reason why I expect Trump will win is that voters will want the sure thing in November on trade.)

Trump has created the coalition I predicted in 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 is crystallized in Trump's foreign policy speech, when he said, "We will no longer surrender this country, or its people, to the false song of globalism."

Trade Conflict Inevitable

One way or another, China will see the terms of trade changed and it will not be in China's favor. The best way for China to strengthen its position without any negative diplomatic effects: slash overproduction. If China doesn't cut production, it will hold the weak hand because it will bear the entire brunt of a trade war.

As touched upon in The Logic of Strategy: Yuan Devaluation and the Road to Trade War, once trade is subordinated to national security, once free trade orthodoxy is removed and trade becomes negotiable, you will rapidly see a coalition of business, foreign policy, military and security interests which will emerge to support a new trade policy. Countries such as Vietnam will likely jump on board with a policy to slow China's economic growth, and thus its military spending and ability to project power into the South China Sea. If China understood even a hint of what may be coming, they would be rolling tanks into the steel mills.

The Bigger Political Shift

Very few people predicted the rise of Trump, but I laid it out back in 2014. (Immigration Issue Set to Explode in America; Prepare for Political Volatility) Once he rose, experts didn't think he could win. Now the same people think Trump won't win in November. I expect he will win an electoral college landslide because major changes are underway as negative social mood has finally found its political agenda.

I explained the political shift here: Political Revolution Comes to America Via Immigration Issue. Way back in 2013 I wrote: Rise of the New American Right Leaking Into Mainstream; What is Neoreaction? and this week, it finally made the NYTimes in The Reactionary Mind, the first in a series of articles by Ross Douthat.

Trump isn't connected to neoreaction (since it dislikes democracy and populism), but the forces that have pushed neoreaction to the fore are similar to the forces propelling Trump to the White House. This is a giant wave with many unrelated parts and it only makes sense if you are looking at the macro scale. The conservative movement that arose in response to the communist threat amid the Cold War, is dying. As in Europe, socialism was seen as an acceptable compromise if it meant stopping communism, but now that communism is gone and the old Clash of Civilizationsis back, the table is being reset. There's a lot going on: neoreactionaries are attacking the heart of modern Western ideology, nationalists have secured power in Hungary and Poland, with nationalist parties rising across Europe, identity politics is replacing ideological battles in the mainstream political debate, and there are focused attacks on institutions such as the current war within the GOP. While some of these groups are literally at odds with each other, they all share in the current socionomic zeitgeist. Until social mood bottoms and turns higher once more, these trends will remain in place. Should they secure meaningful victories, they may also reshape politics, culture and society for generations.

Urbanize This: Migrant Worker Population Ages, Growth Slows, Low Wages

NBS has a report on China's migrant population: 2015年农民工监测调查报告.

Slowing migrant population growth

Most migrant population growth is from locals

Age breakdown, with China's aging demographics clearly visible.

The a geographic breakdown. Non-local migrants are those heading to other cities in their province or to other provinces.

Industry Breakdown

Average time spent working

Average wages

Workers are earning an average of 3000 yuan per month and they have living costs of about 1500 yuan per month. Of that, about 500 yuan per month is rent, so at most they have 2000 yuan per month in disposable income, assuming they don't have any other expenses, such as a family back home.

The problem of low wages is driven home by an article which argues Chinese home prices need to fall to levels seen 10 years ago if migrants are to afford them. It uses Tangshan as an example, where home prices have fallen to levels seen a decade earlier, yet homes still do not sell:
According to media reports, three years ago, the central area of ​​residential transactions fold to touch 9,000 yuan / square meter, per capita GDP ranking first in Hebei Province Tangshan City. Due to continuous years of stagnation, the average price of three years ago sold for 7,000 yuan / square meter of the project, now majority or the price. In 2007, housing prices in Tangshan will reach 7,000 yuan / square meter. 2008 is in the property market downturn, the urban average price was dropped to 5,000 yuan / square meter.

That is, Tangshan prices, have fallen to levels from 10 years ago. Even so, according to the Tangshan local industry say, as of now such sales pace, completely digest the current inventory Tangshan market, will certainly be more than 10 years. Although the name of the industry to the inventory, may be "out" too thorough a little. After all, any city can not supply and demand appear completely on the other, exactly the same, there is no gap phenomenon. However, leaving the 3-year inventory, but also more than seven years. The Tangshan, Hebei is one of the most economically developed regions, if Tangshan destocking time to be more than 7 years, what about in in other regions of Hebei, the other third- and fourth-cities around the country?
It goes on to note that migrants can't afford homes, but to allow a fall in prices will anger the current owners:
Right now, the call center around the need to focus on shantytowns. It should be said that this is more reliable than the migrant workers into the city to a stock method. The core of the problem, and still is the issue price. In other words, the current prices, whether with slum upgrading district matches, monetary compensation squatters, and whether affordable housing stock, is a big problem. If at this time the Government can give some support in terms of policy, so that developers can make some concessions, so the housing prices at a reasonable level, the stock is likely to go to produce a more active role. Especially developers to price, should the losses that may arise in the future is calculated, such as inventory and then three years, the number of financial and operating costs will increase, thus bringing profit to those fans who should also be a promotional tool A destocking mode. The government in the relevant tax aspects, some support to the buyers, it is possible from the psychological and confidence of buyers produce effective actuation.

Overall, according to the third and fourth tier cities the current situation, prices dropped only 10 years ago, will have the effect of de-stocking, will it be possible to activate the fan enthusiasm of residents, on the contrary, the difficulty will be quite large.

iFeng: 去库存就得房价降到10年前 这事靠谱吗

Mounting Unpaid Bills

FT: Unpaid bills add to China debt problems as receivables mount
Listed companies had to wait a median 70 days to receive payment last year, the longest delay in 14 years, as cash flows tightened amid slack final demand. That compares with a median 60 days in 2014 and 46 days in 2011, according to Wind Information, a Chinese financial database.

Ms Yu says that an increasing share of customers now insist on paying with a bankers’ acceptance rather than cash. Similar to a postdated cheque, bankers acceptances are a kind of IOU from a company and its bank. Ms Xu says that a few years ago, 5 to 10 per cent of her sales were paid this way, but that has now risen to 20 to 30 per cent. Most cannot be cashed for 90 or 180 days.

Nor does the problem end with Ms Yu. “We have no choice but to pass the delays upstream [to our suppliers],” she says.
That 70 days is higher than any year this century except for 2000, when it reached 110 days.

Evergrande Getting Bigger, But Is It Too Big Too Fail

There is an ad for Verizon mobile service in the U.S. with a technician walking all over asking: "can you hear me now?" I imagine after each deal Evergrande makes, it places a call to Beijing and asks: "am I too big to fail now?"

Bloomberg: Evergrande Pays 10 Billion Yuan to Lift Shengjing Bank Stake
Evergrande Real Estate Group Ltd. has agreed to buy Shengjing Bank Co. China-traded shares worth 10 billion yuan ($1.54 billion), extending a shopping spree by the Chinese developer facing mounting debt.

...The firm has become the most indebted of 198 listed Chinese real estate developers, Bloomberg-compiled data show. There is a 6.2 percent probability it will miss payments in the next 12 months, up from 1 percent a year ago...

Steel Mills Reopening

AFR: China re-opens steel production 10 times greater than Australia
Research house MySteel estimates around 50 million tonnes of Chinese capacity has been re-started this year, the equivalent of 41 blast furnaces with an annual capacity of 1.2 million tonnes.

The restarted capacity is more than 10 times Australia's total production and accounts for most of the 60 million tonnes China shut in 2015.

The closures were part of government efforts to modernise the sector, reduce air pollution and cut over-capacity.

"The market is so good why would steel mills not re-open?" said Xu Xiangchun, the chief information officer at MySteel via phone.

...Stockbroking firm Everbright Securities estimates the average Chinese steel mill is now making a profit of 400 yuan per tonne of steel produced, the highest level since 2008.

2016-04-27

Commodities Trading Volume Collapses


ZH: Chinese Commodity Trading Volume Crashes: "Most Don't Even Know What They Are Trading"

Shenzhen Cools: Registry No Longer Crowded, Listed Prices Drop

Beijing homebuyers were paying several thousand yuan this year to cut in line at the property registry: Frantic Flippers Cause Reservation Number Prices to Double in March, a phenomena that was repeated in other cities (to varying degrees based on local regulations governing the process). Shenzhen was also crowded as home buyers flooded the registry, but now there are no crowds. Additionally, one real estate agency says 70% of listings have fallen in price.

iFeng: 新政满月楼市观望居多 二手房七成下调报价
As the property market hot observe the most intuitive place, city real estate registration center has been playing the market "barometer" of the role. Reporters multiple days in the city center real estate registration office paper outlets found that, although use "deserted" to describe, but to apply for transfer mortgage business significantly reduced, compared with last year when the property market hot crowded situation, now people come to do the transfer don't need to squeeze in.

...In the second-hand housing market, according to the Shenzhen Centaline monitoring the property market after landing the New Deal, the secondary market basically just need customer satisfaction, the Central Plains Bacheng managers bearish market outlook 70% of owners lower asking price, short-term lack of strength in raising prices. Last week, most of the area still offer down. Luohu West offer down 3.4%, white sand ridge zone offer cumulative decline of 10.5%. In addition, some area offer has continued to decline in a few weeks. As Nantou Area has eight weeks down, the cumulative decline of 23.7%; Shekou area seven weeks down, the cumulative decline of 15.5%; building the Great Wall area for four weeks lowered offer, is down 21.3%; Longhua center for four weeks lowered , the cumulative drop of 10.4%; Futian central Area 3 consecutive weeks down, quotes fallen 8.5%.

China NBS Hit With Graft Charges

This explains the strange holes in Chinese data, like why there's no provincial level industrial production numbers reported for February.

Reuters: China stats bureau called out for profiting from data
China's Communist Party anti-graft watchdog said on Wednesday that hundreds of staff working for the country's statistics bureau have been using data for personal gain, including collecting fees for providing information and other services.

...China's statistics bureau also has a history of periodically cancelling or delaying publication of data. Over the last few months, the NBS has delayed the public release of data including power generation, base metals production and quarter-on-quarter GDP growth for the first quarter of this year.

Unprecedented Default and Downgrade Wave Hits China

Caijing: 债市违约连环炮!千亿债券取消发行评级下调潮来袭

First: 11 companies and 22 bonds have defaulted in 2016. Most of the defaults are in energy, mining, coal, etc.

Bloomberg: China Steelmaker Default Risks Flag Debt Woes at State Firms
Xining Special Steel Co., whose products are used in the rail, automobile and energy industries, has a 5.7 percent probability of missing debt payments in the next 12 months, the highest among 420 listed Chinese issuers with note payments due in the coming year, according to the Bloomberg Default Risk model. That compares with an average 1.2 percent probability for all the firms. The model tracks metrics including share performance, debt and cash flow.

Second: Poor financials, market volatility and rising bond yields have led to a wave of bond cancellations, totaling more than 100 billion yuan.
Wind Information carding Chinese currency network, Shanghai Clearing House and China Bond Information Network bulletin in April found that 103 companies postponed or canceled bond issue, totaling 100.91 billion yuan, the amount is about 3.4 times last year at this time, are due to market volatility plus large, covered species in the vote, short financial, short melt. Bond issuance canceled concentrated in traditional industries relatively poor profitability of the industry, the energy industry such as mining and construction related industries. According to Bloomberg data show that there are 62 Chinese companies in March canceled 44.8 billion yuan bond issue plan, the size equivalent to three times last year.

...Analysts believe that the size of the planned bond issuance to abandon the surge reflects nearly 25 years in the face of the worst economic slowdown in the background, investors are increasingly worried about the risk of default. In the past two years, even if China's central bank to ease monetary policy to support the economy, there are still at least 12 Chinese companies with bond defaults.

Third: the downgrade wave is coming

Bloomberg: China Ratings Downgrade Wave Seen as Next Driver of Bond Slump
China Securities Co. and HFT Investment Management Co. predict downgrades will surge as a slumping economy makes financial reports due by April 30 a gloomy read. Companies in China must repay 547 billion yuan ($86 billion) of onshore notes in May, the most in any month ever, data compiled by Bloomberg show. Investors are avoiding risky debt, with the yield premium on three-year AA- rated local bonds, considered junk in China, widening 43 basis points in April, the most since 2014.

“An explosion of credit risks is spreading,” said He Qian, a Shanghai-based fund manager at HFT Investment Management Co., which manages 46.9 billion yuan of assets. “The risks are spreading from privately held companies to state-owned companies, from overcapacity industries to all other industries.”

...At least seven companies missed bond payment this year, up from only two in the same period of 2015 as Premier Li Keqiang tries to rid industries with overcapacity of zombie producers. Onshore agencies have cut 33 issuer ratings, almost double the 17 for the first four months of 2015, according to China Chengxin International Credit Rating Co. There have been 34 upgrades versus 37 percent a year ago.

"We will see a wave of rating downgrades in the middle of this year,” said Wei Zhen, a money manager at Bosera Asset Management Co.
Maybe China has landed. FT Alphaville looks at SocGen predictions for a hard landing back in 2013, “What if China lands hard?” they asked in 2013, and finds many of their market predictions were sound, even if there was no official hard landing. (If the Chinese economy has a hard landing in the forest, does it make a sound?) There have been positive data spikes such as the rise in real estate investment, which is positive for GDP. There won't be a cost free recovery: inflation is going to advance rapidly if this is a recovery. Nonetheless, the bull take is that China has once again managed to save its economy.

I will stick the with negative view. China needs to rebalance away from infrastructure development; it is increasing it. The speculation in commodity markets, plus boosting of steel production and exports with bank financing, is not positive. Meanwhile, in the background, outflows and credit conditions remained neutral to worse.

We have witnessed an incredible bear market rally. Time is running out on the ChiNext analog, but I think it will recouple in May. I am betting (with June puts) that May is going to be volatile for global markets. Whether 2016 turns into another "Tragic Year" will likely depend on the credit and currency markets.

Coke Futures Limit Down After Fees Rise 1200 pc in 3 Days

Coke futures limit down in overnight session, but thermal coal rallied.

QQ: 交易手续费三天涨12倍 焦煤期货跌停领跌黑色系
JRJ: 快讯:多品种短线跳水 焦煤跌停

Caution: Commodity Markets Flash Yellow

The Economic Observer warns speculators to be wary of commodities, as the light may quickly change to red.

EO: 小心!大宗商品市场黄灯已亮……红灯还远吗?
"The market is showing 'yellow', the next step may be a red light, or it could be a green light, but from yesterday (April 25) and today's sudden turn in performance, the next step in the commodity market red is a high probability. "

Free Trade Will Lose The 2016 Election

The rise of Trump in the United States shocked the political class because it was out of touch with shifting mood among the electorate. I warned this would happen years earlier, in part from polling data on issues such as illegal immigration, and from applying socionomic theory. The same is about to happen on trade. Just as Trump pierced the political class' control over the political debate, the debate on economics is about to be blown open.

Steve Keen demolished Keynesian and neoclassical economic models in Debunking Economics and in 1,000,000 economists can be wrong: the free trade fallacies, he explains why the Ricardian theory of trade is flawed:

Unfortunately, like so much else in economics the model of Free Trade is, to quote the humorist H.L. Mencken, “neat, plausible, and wrong.” The theoretical fallacies at its core have been there since David Ricardo first coined his model of comparative advantage during the political battle to repeal the “Corn Laws,” which restricted the importing of cereal crops into England.

The arguments in favour of the Corn Laws included the belief that if trade were unregulated, English industry—in particular its agriculture—might be wiped out by foreign competition. Ricardo, in a brilliant debating ploy, conceded his opponents’ case that a rival country (Portugal, which was then one of Britain’s major rivals) was better at both agriculture and manufacturing than England and then preceded to “prove” that England would still benefit from Free Trade.

He assumed that in Portugal 80 men could produce a quantity of wine (say, 1000 gallons), whereas England would need 120 men to produce the same amount and that Portugal was more efficient too at producing cloth—needing 90 men to produce a quantity of cloth (say, 100 square yards of cotton) whereas England needed 100.

Without trade, both countries would have to produce both goods for themselves so that per 1,000 workers, Portugal would produce some combination lying between the extremes of 12,500 gallons of wine and 1,100 yards of cotton, while England would produce a combination lying between 8,333 gallons of wine and 1,000 yards of cloth.

If however Portugal specialised only in wine and England specialised only in cloth, the total output would be 12,500 gallons of wine and 1,000 yards of cloth. This is more than the total output of the two countries in the absence of trade. With Free Trade, they could specialise in their comparative advantages and welfare in both countries would be higher.

This argument was so clever that it aided the campaign to repeal the Corn Laws and it has seduced almost all economists ever since.

But there is an obvious fallacy to this neat and plausible argument: To effect specialisation, England has to shift labour and capital from wine to cloth (and Portugal has to do the opposite). Arguably labour can be retrained—a vigneron can become a machinist—but how do you convert wine press into a spinning jenny?
It may be even harder to retrain workers in today's modern economy because the jobs that are leaving or being destroyed by automation are lower skill jobs. People doing low skill jobs are not going to be retrained to work in the knowledge sectors.
The obvious answer is that you don’t. Instead, you sell the wine press and buy a spinning jenny with the proceeds. But because of the introduction of trade, the price of wine in England would have fallen, so that the sale price of the wine press will also fall (economists have modified Ricardo’s model to introduce curves where Ricardo had straight lines, so that total specialisation is no longer required and there would still be some wine production in England under the “new” model of Free Trade), while the price of spinning jennies will have risen, given the new export market to Portugal. Some capital is necessarily destroyed by the opening up of trade and it applies in reverse in Portugal as well.

Since capital is destroyed when trade is liberalised, the watertight argument that trade necessarily improves material welfare springs a leak. If economics were a real science, this real-world complication to Ricardo’s argument would be considered, but it has never been seriously addressed.
Another problem with free trade in a time of rising nationalism is that trade deals now supersede domestic law. In many countries, voters are choosing walls and fences to protect their gardens. Dani Rodrik has looked at how free trade empowers a nation's elites at the expense of the electorate.
More on the political trilemma of the global economy
Today the prevailing worry of progressives is that an oligarchy of financiers, investors, and skilled professionals has captured the polity and is using globalization as a way of imposing its policy priorities. What globalization does for these groups is actually to expand their political opportunities, rather than constrain them. In effect, globalization becomes an instrument for narrowing the scope of what governments can do (in taxation, spending, and regulation) so as to advance the interests of this particular oligarchy.

The defining feature of a democracy is that the electorate can decide on their own path and future, even when it may conflict what a narrowly based, internationally mobile elite want – and that is what hyper-globalization restricts.
Free Trade Doesn't Work by Ian Fletcher is another work criticizing free trade.



Eammon Fingleton has written on manufacturing and trade here: Eamonn Fingleton Archive

U.S. economic policy, from the reserve currency, to interest rate policy, to trade, has been mainly in service of Wilsonian wing of American politics since the end of the Cold War. Wall Street owns the U.S. Treasury and the FIRE economy rules Capitol Hill. The banks peaked in 2008 though, and a rising regulatory burden has seen their economic power slowly squeezed. Manufacturing has been on the losing end of Fed and trade policy, but that may be coming to an end. Even without any change in policy, low cost natural gas and other factors such as automation are working in manufacturing's favor, and with greater economic success comes greater economic influence. Add a change in political sentiment and a rapid change in fortunes could follow.

Dormant economic and political factions are rising amid a period of increasing political volatility. Few expect long-lasting changes in economic policy, particularly when the global free trade system is ready to score great victories with the TPP and TTIP. Many political experts thought Trump would never win a primary as late as November though, and certainly he would not be the nominee. If he wins, a couple of years from now, the TPP and TTIP may be as dead as Jeb Bush's campaign. Even if Trump loses, it sounds like Clinton will ape him on anti-trade rhetoric. This will greatly shift the Overton Window, re-centering the debate on nationalist policies.

2016-04-26

Industrial Production in Northeast

Provincial Real Estate Investment Growth Through March

Provincial level data is out for real estate investment, coming on the heels of the full provincial GDP reports for Q1. The spike in Heilongjiang and Jilin real estate investment helped prop up their GDP numbers. Liaoning has improved considerably, but is still in contraction.

Nationally, real estate investment increased 9.7% in the month of March yoy; up 6.2% YTD.

Provincial charts after the jump.

Can't Hide The Decline Anymore: Liaoning GDP Negative 1.3 pc in Q1

Liaoning can no longer hides its recession with adjustments to GDP (see China Northeast in Recession, Unadjusted Nominal GDP Declines), it reported a 1.3 percent contraction in the first quarter.

iFeng: 31省份一季度GDP增速出炉 辽宁首现负增长(表)
The Western media focused on the fact that 24 provinces beat the national growth rate, but the Chinese media notices something else: GDP is lower in every province except Qinghai and Hainan.
It is noteworthy that, the provinces in the first quarter GDP performance is worse than last year. From 28 provinces and cities in the first quarter GDP growth rate last year of comparison, last year's GDP growth rate of more than local only Hainan and Qinghai provinces.
Official propaganda says don't worry: China to revitalize northeast rustbelt
China will rejuvenate its northeast rustbelt region through more reforms and economic restructuring, according to a policy document released Tuesday.

State-owned enterprises (SOEs) will be restructured, private firms will receive more support and regional cooperation will drive development, according to the document jointly published by the Communist Party of China (CPC) Central Committee and the State Council.

The region's equipment manufacturing sector will be modernized, and high-end industries, the modern service sector and modern agriculture will all be supported, it said.
Except as I noted way back in October 2014, in Liaoning Sounds Warning on Chinese Economy:
Liaoning is more exposed to the higher stages of production and therefore is one of the provinces most likely to experience a slowdown first assuming a normal contraction phase of a business cycle. We know steel and other industrial sectors have overcapacity. Problems in steel surfaced in late 2011, but wider economic growth was not impacted until very recently, following a steady deterioration in the market for more than 2 years and then a slowdown in real estate as well.
If you believe recessions begin at the higher stages of production and work their way through the economy or if you believe real estate is still a major growth industry for China, then Liaoning is about 12 to 18 months ahead of the rest of China.

Remain Takes the Lead in Brexit Referendum Polling

An trend towards the Leave side, market by a diminishing lead for the Remain side since February, is over as support swings back to Remain. The latest polls are post-Obama intervention.

PBoC Not Curbing Lending, Market Looks to Politburo

A day earlier this news leaked: PBoC Asks Banks To Pare Back Lending: Caixin
Well-respected Chinese financial magazine Caixin reported this afternoon that the PBoC is now asking its banks to pare back lending this month. The central bank is asking banks to lower the amount of new loans to just 70% of what was planned at the beginning of the month.
This order is "non-existent" according to reports out today. Additionally, the market is expect a change in monetary policy at the end of the month. As reported earlier,

iFeng: 央行压缩4月信贷子虚乌有 货币政策走向月底定调
Shenwan Hong outlook analysts believe that short-term funds face tense due to the seasonal factors, business tax, MPA assessment and disturbance MLF maturity, and in view of the risk event, with China Railway Materials represented by a series of events of default and local state-owned central enterprises and constantly exposed to spillover effects and June the Federal Reserve may raise interest rates again, both domestic liquidity will face greater pressure. Internal structural problems in financial markets has not yet been resolved, but the external market conditions contrast relative shortage of money during a friendly in 2013, we believe the possibility of similar 620 money shortage is unlikely, but it is difficult to avoid the impact of short-term liquidity.

CITIC Securities, chief fixed-income analyst at research clearly indicates that the future liquidity will continue to serve or reverse repurchase MLF + mode to expand, short-term drop quasi possibility of further decline. Current monetary policy tools focus more on short-term and structured, and the resulting market liquidity is more cyclical bias and fragmented.

Guo Lei, chief macroeconomic analyst at Founder, said Yi-prudential policy in the short term is difficult to loose monetary policy is only possible to present more than 20% of the M1 preliminary vigilant, at least try to maintain a neutral state, but will not significantly reverse drain, close attention Politburo meeting in late April set the tone.
The PBoC injected more than 1 trillion yuan over 5 days this month to deal with tight credit conditions and there are no lending curbs. Money supply growth is accelerating, but new credit is flowing into commodities, homes and debt extensions for zombies. The PBoC is in crisis management mode. I don't see an economic recovery or even stability, only the appearance of stability amid a massive bear market rally.

Coal Tumbles in Overnight Session

Wallstcn: 交易所连出重拳 黑色系商品夜盘下跌
As of Tuesday night DCE ZCE closing plate, black line fell across the board. Coke, coking coal, thermal coal fell 2%, respectively, 3.9%, 1%; iron ore fell 1.9%. Currently rebar, hot-rolled coil were down 1.3%, 2.6%.

PBoC Emits 1 Trillion Yuan in 5 Days

Bloomberg on April 19: PBOC Injects Most Funds in Two Weeks to Meet Demand for Cash
Maturing MLFs, tax payments and payments toward their required reserves will drain more than 1 trillion yuan from the financial system in April, Huachuang Securities Co. estimated this month.

iFeng today: PBoC Emits 1 Trillion Yuan in 5 Days (央行逆回购加MLF操作 5天放水超万亿)
the central bank open market continuing large-scale reverse repurchase, a total of 140 billion. Plus MLF and last week three days reverse repo operations conducted yesterday, the central bank to the market within 5 days water 1.102 trillion.

China's central bank open market today will be 140 billion yuan 7-day reverse repurchase operations. In addition, the open market today, there are 90 billion yuan 7-day reverse repurchase expired. Today, Shanghai shibor overnight and weekly rates eased.

Yesterday, the central bank open market 180 billion yuan 7-day reverse repurchase operations, funds due 30 billion. While 18 financial conduct MLF total of 267 billion yuan operating mechanism. Last week, the central bank Wednesday to Friday 2500,2600 and 2400 were carried out 7 days reverse repo billion, net invested 635 billion.

In the market liquidity is tight, closely watched central bank action.

...CITIC Securities fixed income team analysts believe that this week the central bank liquidity would have been a stressful situation but also due to hedge reverse repo huge, difficult to achieve significant volume of liquidity, or financial tensions will continue . The central bank through reverse repo 7 days with MLF to market liquidity the central bank and the market reflects the game between the RRR is not available on short-term liquidity to continue to repurchase release with MLF based.

How Day Traders Made a Commodities Rally; Exchanges Keep Hiking Fees

Bloomberg: A Life Expectancy Under 4 Hours Shows China Commodity Frenzy
“The fact that duration of trade is shorter than usual confirms our fear that a big role in this current rally of prices has been fueled by private, short-term traders chasing momentum,” Gianclaudio Torlizzi, managing director of Milan-based consultancy T-Commodity srl, said by e-mail. “This dynamic increases the risk of an overshooting of the commodities market compared to fundamentals.”

Dividing the average aggregate open interest at the end of each day by the aggregate volume shows the number of futures traded for every outstanding contract. Multiply that ratio by the number of hours in each trading day and you get an estimate for the average tenure of each contract.

For iron ore and steel rebar on the Shanghai Futures Exchange, it’s under four hours; for West Texas Intermediate crude on the New York Mercantile Exchange it’s almost 40. Natural gas is nearly 70 hours.
An unsustainable trend in the market, meanwhile the exchanges are trying to cool trading with almost daily measures now:

Sina: 降温进行时!两大交易所再出手
n order to cool the market madness, the previous period, DCE, ZCE Futures on the three recently shot shouted, raising commodity trading fees, or adjust the trading margin and price limits. Today (April 26), ZCE and DCE continues to cool the commodity markets.

...DCE issued a notice, it was decided that, with effect from April 27, coke and coking coal by the breed standard fee turnover of 1.8 live births adjusted turnover of 3.6 births, iron ore breed standard fee by the turnover 1.8 adjustment of the very extreme of the turnover of 3, polypropylene breed standard fee by a turnover of 1.8 live births adjusted turnover of 2.4 live births.

Just last Friday, the DCE has just announced that from April 26, 2016 will be coking coal and coke by the breed standard fee turnover of 0.6 live births adjusted turnover of 1.8 live births.

ZCE issued a notice, it was decided that, upon settlement since April 27, PTA futures contracts margin requirement from 5 percent to 6 percent, price limits range from four percent to five percent, cotton varieties standard transaction fee from 4.3 yuan / hand adjusted to 6 yuan / hand.

Steelpocalypse: China Steel Industry Losses Explode in Q1, Production Record In March, Trade War Looms

Steel exports from China are becoming a big news story. BBC has a brief roundup here: What's behind China's cheap steel exports?
Chinese steel production has expanded hugely. Over the past 25 years, output has grown more than 12-fold. By comparison, the EU's output fell by 12% while the US's remained largely flat.
The problem isn't 25-years in the making, not even five. China grew steel production in the face of a global economic slowdown that was starting to emerge in 2011. The other factor is China's economy really started slowing in 2014 and there was nowhere left to stuff steel (more than 2 years after the steel traders went bust). The result was a surge of exports. If production fell to 2012 levels, it would exceed all of China's exports in 2015.

WSJ: Chinese Steel Imports Inflame Campaign Rhetoric
NWI Times: Chinese steel production soars to record high
China produced a record 70.7 million tons of steel in March, even as the Chinese government said it would stop subsidizing steel production.
The News: Steel Trade War
The problem, though, is two-fold. Firstly, that capacity closure figure is only around half CISA’s estimate of excess capacity in China’s steel sector, which produces as much as the rest of the world combined.

Secondly, the entire Chinese sector has just been thrown a lifeline in the form of rising domestic prices, improved margins and, for the most financially beleaguered producers, a stay of execution.

The collective willingness to grasp that lifeline explains why the country’s steel output surged last month.

Resurgent steel prices in China are down to resurgent domestic demand and the filling of a de-stocked supply chain in the country.

Mills, in other words, are restarting capacity only because they are being incentivised by “market forces” to do so.

But those “market forces” are directly down to government intervention.
Bloomberg: Warnings Flash for China's Red-Hot Steel Market on 47% Surge
Warnings are stacking up fast after China’s eye-popping steel rally. Fitch Ratings Inc. said prices lifted in part by heightened speculation are destined to slump, while a bank in Singapore flagged the risk of a boom-bust cycle reminiscent of China’s equity market.

The rapid advance isn’t sustainable as mills are expected to bring back idled capacity, raising supply, Fitch said in a report on Monday. Price gains have been driven by a seasonal recovery in activity that’s been exacerbated by increased speculation in the futures market, according to analyst Laura Zhai.
Another wave of export dumping to come, right when the U.S. presidential election is heating up and German steelworkers have already taken to the streets, to name two of the many countries already taking action.

The Economic Observer covers the steel industry today, including brief reports on 18 steel companies and the first quarter report from CISA. The headline reads: Steel Industry First Quarter: Losses Increase 6.6 Times, EBIT Drops 10 Billion (钢铁业一季报:增亏6.6倍至87亿、利税大减100亿!)
first quarter of the market steel prices rebound somewhat unexpected, given agony of Chinese steel companies really brought much good?

The results may be more surprising: China Iron and Steel Association latest statistics show that the first quarter of this year, China Steel Association member steel companies profit amounted to net loss of 8.748 billion, an increase of 7.6 billion from last year's loss, or an increase of 659.51 percent!
Things aren't so bad though, the loss rate is decelerating:

It is noteworthy that, although a substantial increase in the amount of loss, but a loss of the same period has decreased from 51.52 percent last year to 36.36 percent in the first quarter of this year, 15.16 percent decrease year on year.
EBIT also collapsed:
According to CISA statistics, exacerbated by the overall impact of the loss in the first quarter of this year, China Steel Association member enterprises realized EBIT of 5.461 billion, lower by 10 billion from last year, profits fell by 146.52%.
Overproduction has yet to be meaningfully addressed:
Steel Association official said the first quarter of this year, the reason why there have been some new changes in the market, mainly because since the fourth quarter last year, steel production decreased; steel stocks are low; bottom pull up in prices; and the state has increased investment , lowering interest rates and real estate registration policy loosening is expected to improve the macroeconomic environment and other factors.

However, the current problems of the steel industry is still unresolved. Currently the country's crude steel capacity utilization less than 70%, to resolve capacity has not yet started; at the same time, long-standing market concentration is low, disorderly competition and other issues remain unresolved.
The mutual credit guarantees and cross ownership in the industry are having an effect: the Dongbei Steel default has creditors freezing the equity of companies it owns stakes in:
1. Fushun Special Steel: stock have been frozen by creditors to apply for 8 billion bank credit

April 23, Fushun Special Steel announced that the controlling shareholder of Dongbei Special Steel Group and Societe Generale Financial Leasing Co. contract dispute occurred, Societe Generale Financial Leasing Co., Ltd. filed a lawsuit, Industrial Financial Leasing Co., Ltd. to the Tianjin Higher People's Court apply for property preservation, Dongbei Special steel Group company held 330 million shares of tradable shares and fruits (including distributed bonus shares, increase by transferring shares, cash dividends) were waiting to freeze, and 170 million shares of restricted shares outstanding and fruits (including distributed bonus shares, increase by transferring shares, cash dividends) were waiting to freeze. Freeze for 3 years from the date officially frozen into the calculations. The total waiting to freeze shares of the company 500 million shares, representing 38.58% of total equity.

This is the third event from the equity frozen since March 24 Dongbei Special Steel announced the death of its chairman Yang Hua, Fushun Special Steel Special Steel Group, its parent company, Northeast contract dispute caused, arising from either of these three incidents parties are financial leasing companies.

March 29, Fushun Special Steel announced that, due to the controlling shareholder of Dongbei Special Steel Group Co., Ltd. and Far Eastern International Leasing contract disputes occur, the Far East International Leasing Co., Ltd. filed a lawsuit to the Far East International Leasing Co., Ltd., Shanghai Pudong New Area People's Court apply for property preservation.
China Development Bank loaned money to another steelmaker:
3. Xining Special Steel: subsidiary eligible CDB Development Fund replenishment of 80 million, 12-year investment canopy change projects

April 12, Xining Special Steel announced that the Xining Special Steel Co., Ltd. CDB Development Fund, Property Qinghai West Steel Co., Ltd. signed the "investment contract" in recent days, the National Development Fund through open westward steel home replenishment in the form of 080 million yuan for its Xining, Qinghai, Xining Special steel family member courtyard shantytowns investment projects, annual cash dividends, repurchase premiums, etc., in accordance with the highest rate of return on investment is not more than 1.2% / year investment income, investment period is 12 years. After the capital increase, the National Development Fund to open its stake West Steel home is 44.37%. The company invested to 10,030.58 million, 55.63% stake.
4. New Steel shares: 41.8 million dividend, integrated trading subsidiary to expand trade financing

Notice that 2015 net profit of the parent company 66.7 million, 41.8 million dividend plan.

...Under the new Steel shares announcement April 19, the decision to acquire new shares of the new steel Steel Group, a wholly owned subsidiary of Jiangxi Xinyu Iron and Steel Import and Export Co., Ltd. (hereinafter referred to as the "New Steel Import and Export Corporation") all the shares held by the Group of new steel It has a 100% stake in the new steel import and export companies. Aim is to further reduce the company and controlling shareholder of Xinyu Iron and Steel Group Co., Ltd. related transactions (hereinafter referred to as the "New Steel Group") between the positive response to adjust credit policies, the use of import and export financing platform for the company to carry out, to protect the company's normal operations.

...Meanwhile, the new steel shares announced that wholly owned subsidiary of Xinyu Iron and Steel (Singapore) Limited company to be established in Shanghai FTA, investment amounting to 100 million yuan. New steel shares explained that the move is a further advantage of Shanghai FTA policy advantages, to broaden the company's business financing channels, to reduce financing costs.
Batou wants to increase production:
10. Baotou Steel shares: 2016 Target: steel production increased by 500 million tons, iron production increased by 4.38 million tons, 247 million profit plan

April 20, Baotou Steel shares issued report: 2016 company plans to produce 13.05 million tons of iron, steel-producing 12.87 million tons, 12.07 million tons of goods billet, produced 3.6 million tons of tailings dilute the election, niobium tailings 3.3 million tons, 45,000 tons of rare earth concentrates; sales revenue of 29.85 billion yuan, total profit of the company 247 million yuan. Fixed asset investment 4.471 billion yuan.

The 2015 annual cumulative production of iron-clad steel 8.67 million tons shares, steel production 7.88 million tons, 7.71 million tons of goods billet, sales income of 22.501 billion yuan, profits of 3.3 billion yuan net loss.
Related from Bloomberg: Angang Warns of First-Quarter Loss as China Steel Demand Shrinks

Eye on Chinese Repo Rates as May Approaches

May will be interesting. The commodities rally will be tested or may top, outflow pressure should resume, and the ChiNext analog is going to resume or be completely busted.
ZH: Despite Record Liquidity, Chinese Repo Rates Are Rising Again

Chinese Hoard Cheap Oil

ZH: "China Is Hoarding Crude At The Fastest Pace On Record"

2016-04-25

Prepare For A Giant Ball of Liquidity Flowing Into Gold

FT Alphaville: Shockingly, loose credit and moral hazard are to blame for something in China
It seems to us that offshore assets, thus pressure on RMB, and deposits are the more likely outlets… Properties in top cities may also be an outlet, depending on the government’s tolerance of housing price increases (due to social stability concerns).
An unconventional asset is Bitcoin, which can be used as a conduit to move offshore. Folks who can't get their money out can go traditional and buy gold for investment at jewelers, banks and gold shops.