2017-03-31

Chinese Finance on the Nasdaq


Bloomberg: This Chinese Stock Soared 4,500% on Nasdaq and No One Knows Why
Shares of Wins Finance Holdings Inc., a company that guarantees loans for small businesses in China and leases equipment to them, have soared as much as 4,555 percent since debuting on Nasdaq in 2015. The firm’s market value surpassed $9 billion in February, about four times as much as LendingClub Corp., an online lender with 50 times the revenue. Even Wins said in a release that it had no idea what drove the surge in its stock, which boasts the best performance in the Nasdaq Composite Index over the past 12 months.

...Wins had operating revenue of $9.8 million in the fiscal year that ended in June and does about two-thirds of its business in Jinzhong, a city in Shanxi province, a coal mining center, according to its most recent annual report. That was a drop of 34 percent from the previous year.

Beijing Bans House Flipping, Punishes 55 Agencies

Beijing banned the buying and selling of the same house within one year and has punished 55 real estate agencies, all in the past two weeks.

3.17

Beijing second home down payment raised to 60%, recognize the room and credit

3.18

"School District housing" can not be used as a qualification for admission

3.21

Beijing 16 banks reduce mortgage interest rates discount to 5%

3.22

11 real estate agents were ordered to shut down

3.22

Non-Beijing residents purchase qualification requires continuous tax payments for 60 months

3.23

Irregular housing cannot be registered, not settled, not near school

3.24

Within one year of divorce, second-home mortgage rules apply

3.25

Primary and secondary schools and real estate business cooperation is limited

3.26

Restrictions on individual purchasers

3.29

It is forbidden to sell the same set of houses within one year
Beijing ordered many real estate agencies to shut down as they comply with regulations:
Previously, due to illegal publicity "commercial housing", speculation "astronomical school district room" and other reasons, Beijing has 54 real estate intermediary was ordered to shut down or suspend business for rectification.
The breakdown on the closing of real estate agencies:
3.20

Beijing Municipal Housing Construction Committee of the law enforcement agencies on the real estate brokerage stores conducted a random law enforcement inspection, check the focus is to release false listings and price information, to participate in real estate, driving up prices and other illegal activities.

3.22

Due to remote operation, unlicensed business and other illegal acts, 11 real estate intermediary stores were canceled for the record, ordered to shut down.

3.23

Beijing Municipal Construction Committee to discuss the top ten intermediary agencies, explicitly prohibit intermediaries to participate in real estate.

3.24

Because of the alleged "astronomical school district room" involved in the tax payment, illegal agents, driving up prices and other illegal acts, chain home, I love my home, the Central Plains intermediary company in the West Side Fenghui Garden and other four district near the 10 intermediary stores, was ordered Closed for a month.

3.24

Due to off-site operation, unlicensed business and other illegal acts, Beijing Yiran Heaven and Earth Real Estate Brokerage Co., Ltd. and other five real estate intermediaries were ordered to shut down.

3.25

Wheat company Hongxi Taiwan branch and other 12 real estate intermediary stores were ordered to shut down due to illegal business.

3.28

Due to suspected illegal agents to do class housing sales, false propaganda business class housing use, chain home Changping 36th branch 15 real estate intermediary stores were ordered to suspend business for rectification.

3.28

Due to illegal publicity "commercial housing", Yue popular real estate intermediary was ordered to suspend business, according to the law to write off the company's real estate brokerage institutions for the record.

Law enforcement departments strike out, for the real estate intermediary remediation effect of the initial show. As of March 28, 54 real estate agents were ordered to shut down or suspend business for rectification. According to the district housing management departments to check statistics, 91 real estate intermediary companies have shut down their own.

March 29, housing and urban and rural construction informed the Beijing SouFun Network Technology Co., Ltd. Wuhan Branch and other 30 illegal real estate intermediaries and development enterprises.
Caijing: 北京楼市调控12天放10个大招 55家房产中介遭严惩

SCMP: Beijing yanks license of Fang Holdings’ unit for defying rules on converted flat listings
NYSE-listed Fang Holdings became the latest target of Beijing’s property crackdown, after a local unit had its real estate brokerage license revoked, in what amounts to the harshest penalty so far given to a real estate company for violating rules against marketing flats converted from commercial or office space.

The license cancellation is part of a clampdown on sales of “commercial-converted apartments”, flats that are built on land zoned for commercial or office use. The practise was until recently very common in major Chinese cities where residential land supply is disproportionately low.

...In addition to the action against Fang Holdings, 15 branches of property offices belonging to Homelink, 5i5j and Centaline Property have been closed for violating the listing ban. However, the shutdown order was limited to individual branches found to be in violation of the directive, as authorities stopped short of taking action against the parent companies.

2017-03-30

Lyme Disease Set to Explode

New Scientist: Lyme disease is set to explode and we still don’t have a vaccine
Lyme disease is the most common infection following an insect bite in the US: the Centers for Disease Control estimates that 300,000 Americans contract Lyme disease each year, calling it “a major US public health problem”. While it is easy enough to treat if caught early, we are still getting to grips with lifelong health problems that can stem from not catching it in time (see “Do I have Lyme disease?“).

This is less of a problem when Lyme is confined to a few small areas of the US, but thanks in part to warmer winters, the disease is spreading beyond its usual territory, extending across the US (see map) and into Europe and forested areas of Asia. In Europe in particular, confirmed cases have been steadily rising for 30 years – today, the World Health Organization estimates that 65,000 people get Lyme disease each year in the region. In the UK, 2000 to 3000 cases are diagnosed each year, up tenfold from 2001, estimates the UK’s National Health Service.
The numbers don't justify the hype. Neither does the subheader: "there's nothing you can do to protect yourself," referring to the lack of a vaccine. There's lots of things people can do to reduce their risk though, such as wearing long pants.

Chinese Housing Markets Upside Down: Existing Home Prices Exceed New Home Prices

China's crackdown on housing hits developers as well as buyers, with some cities starting to see existing home prices climb past new home prices. Given tight restrictions on pricing and sales, developers are deciding not to sell their property when it is priced below market:
In Shanghai, a real estate, an average price of 85,000 yuan / square meter, while the surrounding second - hand housing average price has reached 90,000 yuan / square meter. Similarly, in the southwest of Nanjing River area, the average price of primary housing 35,000 yuan / square meter, the surrounding second - hand housing average price reached 40,000 yuan / square meter. A second - hand housing prices upside down serious, leading to a new real estate hard to find a room.

Some people may ask, new home prices can not rise? The answer is "NO!" On the pricing of first-hand housing, the government has strict rules and restrictions, and according to different plates and real estate, set the property market price red line. For example, Nanjing to the south of the river, Hexi central, Xianlin, Jiangbei, Jiangning five plates of new commercial housing to declare the implementation of the price ceiling price.

The price is not high, will be low and feel a disadvantage, and desperate, some not bad money developers simply do not sell a license, direct cover plate does not sell.

...Yiyou Research Institute think tank center research director Yan Yuejin said that the current round of the property market regulation is very severe, fully illustrates the real estate market control urgency, reflects the current tight control of the guidance, but also means afterwards the real estate market industry discipline can be better established.
iFeng: 楼市调控城市扩容 一二手房“价格倒挂”频现

Shandong Bad Debt Daisy Chains Exploding, Loanshark City Falls on Hard Times

A blanket of liquidity covered up bad debt for more than a year, but "neutral" monetary policy has revealed the underlying problem once more. iFeng has an entire special section devoted to Shandong's exploding daisy chains.

iFeng: 山东债务连环劫

The debt issues became headline news after a major news story involving the stabbing of a loan shark.

Global Times: Lenders plagued by ‘deliberate defaults’
The legal system has loopholes in terms of protecting the rights of private creditors, especially when some borrowers "deliberately default on loans," and that situation has driven the growth of debt collection agencies, several private lenders told the Global Times on Tuesday.

Their comments come amid a public controversy over the "Shandong loan shark killing" case, where a man called Yu Huan reportedly stabbed and killed one of his mother's debt collectors, to whom she owed 170,000 yuan ($24,696.37). Yu claimed that debt collectors insulted and threatened his mother, Su Yinxia, in front of him for more than an hour.

Su's company, Shandong-based Yuanda Gongmao, borrowed 1.35 million yuan at a 10 percent monthly interest rate from a local real estate company, which later hired the debt collectors. As of April 2016, Su had repaid 1.84 million yuan in principal and interest and signed over a property valued at 700,000 yuan, but she was unable to pay the remaining 170,000 yuan.
If this website for Yuanda Gongmao is the company in question, one might also ask why a real estate developer was lending to a company that makes machines for processing chicken, fish and dog meat, as well as jujube paste.

As for the daisy chain at focus today, it's Tianxin Group and seven of it subsidiaries.

Metal Bulletin: Parent company of Shandong Tianyuan Copper begins bankruptcy proceedings
China’s Shandong-based Tianyuan Copper will undergo restructuring as its parent company Shandong Tianxin Group begins bankruptcy proceedings, according to a statement released by the Dongying Intermediate People’s court on Tuesday February 7.
Seven of Tianxin's divisions are in default. The government hopes to sell the debt to a state-owned finance company.

iFeng: 山东债务连环劫:不只邹平齐星 东营天信系也陷危机
Dongying Court on February 7 published information, Tianxin Group involved nearly 30 companies, business mainly related to textile, photovoltaic, copper processing, real estate, etc., is now officially placed on the 7, respectively, Tianxin Group Co., Ltd., Shandong Tianyuan Copper Ltd., Dongying Tianze Import and Export Co., Ltd., Dongying Tianze Waste Material Recycling Co., Ltd., Dongying Tianze Logistics Co., Ltd. and Shandong Aona Textile Technology Co., Ltd., the other part of the Shandong Science and Technology Co., The case is pending.

21st Century Economic News reporter According to Dongying Court published information calculation, the total liabilities of the seven companies about 16.335 billion yuan. The total amount of debt will also be raised if the debt that may have existed on the business that has not yet been placed. Such a big debt crisis, how to resolve?

21st Century Business Herald reporter learned from the creditors, for about 30 days of the letter and its affiliated companies, the actual control of the company, as well as other secured company's financial claims solution, in February this year, the local government has brewing bank debt package, Hoping to sell financial claims to state-owned Dongying City Finance Group.
Before filing for bankruptcy, the company was ranked #18 in Shandong's list of 100 top private enterprises and #341 in China Entrepreneurs' top 500.

In addition to the company's seven divisions, credit guarantee companies are also in trouble:
According to the Chinese referee document network incomplete statistics, from the beginning of 2016 to March 29, 2017, the seven companies involved in a total of 10 private lending, the latest together for the Shandong Aona Textile Technology Co., Ltd. to Liu Huashan loan 18.2 million yuan, but it is difficult to return all the principal and interest of the private loan dispute case.

In addition, there are a number of days for the Group and its related enterprises to provide financing guarantee enterprises are implicated.

Such as March 10, Shandong Jinmao Textile Chemical Group announced that as of February 9, 2017, its Shandong Tianyuan Copper Co., Ltd. in the Bohai Bank Jinan Branch and the Agricultural Bank of China Dongying Dongcheng branch provided no more than 49 million yuan and not more than 48 million yuan joint guarantee guarantee. But the relevant banks have not yet filed a lawsuit against Tianyuan Copper or asked the company to fulfill its guarantee obligations.

March 16, Dongying Court announcement shows that the days of the Group's first creditors meeting will be held on May 16, 2017 at 3 pm in Dongying District, Dongying District, Yellow River Road, No. 36
Another firm in trouble is Qixing Group, one of several companies in Zouping that are in financial trouble.

Aluminum Insider: Massive Debt Forces Chinese Firm to Idle Smelter, Refinery in Shandong
According to Aladdiny, a Chinese information provider, Shandong Qixing Group Co., Ltd. suspended operations of its 130-thousand-metric-ton-per-annum aluminium smelter and is planning to stop production at its 500-thousand-metric-ton-per-annum alumina refinery due to the firm’s substantial debt burden.

The report went on to say that the company might consider re-starting production in six months should the market be conducive to it.

This situation points up a larger problem occurring in the Chinese aluminium industry – stifling debt.
iFeng: 深度:债务崩盘的山东模版 从疯狂民间高利贷说起
Since the reform and opening up, Zouping has developed into one of the few industrial counties in Shandong Province, Zouping the number of listed companies, the amount of financing in Shandong Province ranked the first county-level cities, the national economy top 100 basic competitiveness in the top 20.

Turning back to six years ago, loansharking was Zouping young people's most beautiful "career", and proud of it. Many people give up their stable work, specializing in private lending, in order to lead the luxury car access, big money to spend their lives.

Between 2011 and 2012, in the streets of Zouping, BMW, Audi, Cadillac, Infiniti, Porsche and other luxury cars are everywhere, the drivers mostly young people.
Local financial business executives told reporters that many young people in Zouping view, this is a fortune "way", and less investment, quick results. In 2011, many of the original often appear in the rural village, the city streets of young people gone, they crowded in the county, township hotels around. Soon, when they once again appeared in front of the villagers, the car is BMW, Mercedes ... ... at that time, private lending did bring them benefits, "overnight riches."
Another firm in bankruptcy is brick maker Changxing Group:
Changxing Group is the representative enterprise of Changjiang Town, Zouping County. Its core enterprises include Shandong Xingxing Paper Co., Ltd. and Shandong Changxing Wind Power Technology Co., Ltd., which belong to wind power, papermaking, building materials and chemical materials industry. During the National Day in 2013, the group came out more than 60 billion loans can not pay the news, the loan involves more than a dozen banks, mainly due to wind power investment dragged down.

As the Changxing Group into a debt crisis, and apply for the impact of bankruptcy proceedings, which led to the majority of financial institutions on the Zouping County concerns, resulting in Zouping County is classified as a high-risk areas of financial. Since then, the major financial institutions have compressed the scale of credit for enterprises in Zouping County, up the approval authority, making the corporate financing environment is very difficult.
Meanwhile Qixing involves 36 companies and 7 billion yuan in debt:
Qixing Group funds strand breaks, 36 financial institutions to save more than 7 billion credit exposure.
But that is not all. Mutual credit guarantees and private borrowing at high interest could push the debt total into the dozens of billions:
With the capital chain broken, Qixing Group, a number of projects due to shortage of funds have been discontinued. A source close to the Qixing Group, said the Qixing Group, first level mutual guarantees reach 10 billion, outside level two mutual guarantees is in the billions or hundreds of billions of dollars, the government is introducing a rescue policy. Even more surprising is that the total amount of Qixing Group's debt is not limited to the banking industry, there is much social financing, this figure is about 4 billion yuan. Qixing's debt chain involves a wide range, not only a number of credit guarantee firms, as well as social financing companies. The so-called social financing, in fact, to a large extent, "usury".
Of course the credit guarantee firms are being pulled by the undertow:
Xiwang Group as a guarantor of the loan, has also been involved, and the amount is huge. According to the Shanghai Clearing Network, "Xiwang Group Co., Ltd. 2017 second issue of short-term financing vouchers to raise instructions," disclosed in the West Wang Group and Qixing Group for the mutual relationship, the West Group of Star Group's loans to provide joint and several liability guarantee, As of the end of June 2016, involving the amount of 2.464 billion yuan.
Then there's Weiqiao Group:
However, March 22, China's Hongqiao and Weiqiao textile both announced that the delay in the release of performance and suspension. China's Hongqiao said the suspension was due to the need for more time to deal with the problems raised by its auditors at the end of 2016, and its auditors had suspended the first quarter of 2017.
More on that story from Aluminum Insider: Metal Fatigue – Has China Hongqiao’s Weiqiao Model Run Its Course?
The world’s largest aluminium company finds its finances again in question after being suspended from the Hong Kong Stock Exchange.

China Hongqiao Group Limited saw the trading of its shares halted Wednesday morning, one day after announcing that the publication of its annual results would be delayed. According to the relevant filing, Hongqiao advised the market that publication was delayed due to unspecified issues raised by its auditor Ernst & Young in the course of its work. These issues mean the audit may not hit the desks of shareholders until the end of next month.

...As the lion’s share of the cost of aluminium production is wrapped up in generating power, a good place to begin investigating is looking into the cost of producing that energy. According to Emerson’s calculations (utilizing publicly reported numbers), as the cost of coal rose, the cost reported by Hongqiao fell. Taking the first nine months of 2010 as an example, the market price of coal rose by 23%, while the reported cost of power produced by Hongqiao dropped by 33%. The firm’s internally-generated power costs continued to fall, even as coal prices rose, each year after 2011. Despite investigating several different alternatives, Emerson came to no plausible reason why this could happen.
EJ Insight: China Hongqiao fights back short-seller via southbound trading
Recently, China Hongqiao came under attack from short-seller Emerson Analytics, which alleged in a research report that Hongqiao had under-reported the cost of its self-generated power and alumina and that the share price should be worth only HK$3.1, or 60 percent lower than its level when the report was published.

Hongqiao’s share price slumped nearly 10 percent on March 1, when the short-seller published the report.
Finally, returning to the conclusion of the iFeng article:
The above enterprises are Zouping local giant-type enterprises, account for more than half of Zouping's GDP.

This year, the local corporate financing costs rise significantly, even for several well-known enterprises. "For example, Weiqiao Venture Group's debt costs, up 1.5 percentage points over last year." Even so, there are not many companies to obtain financing, especially bank loans. Other financial institutions, a large part of the funds from the banks, and now most of the "no rice."

Zouping County, some enterprises began to set up a common maintenance of regional normal credit order alliance. Dozens of enterprises together, hoping to dialogue with the banks to ensure that loans on time.

"The most extreme approach is if the banks call the loans, then none of the enterprises borrowing from this bank can pay back their loans."
The government always finds a way to stop the credit pyramid from imploding, and they're hard at work again after 2016's firehose of liquidity was turned off.

2017-03-29

Horror Ready For a Comeback?

Horror movies tend to earn peak profits amid periods of negative mood. Does the recent media blitz for IT reflect a shift in mood?

EW: Beware: Here's the terrifying new trailer for Stephen King's It

More Evidence of Immigration Driving Wages Lower

From down undah.

MacroBusiness: The evidence is clear: immigration reduces wages
On the specific issue of whether immigration lowers incumbent workers’ wages, the PC’s view is clear. In 2006, the PC completed a major study on the Economic Impacts of Migration and Population Growth, which modelled the impact of a 50% increase in the level of skilled migration over the 20 years to 2024-25 and found that the benefits from increasing skilled migration accrue to the migrants themselves and wealthy capital owners, whereas existing resident workers are made worse-off.
One way you will see the goal posts shifted in the immigration debate is the pro-immigration side will say immigration is good for the economy. What economy? They are talking about national GDP, not GDP per capita. If a nation created a "foreign zone" and banned any natives from entering, and any foreigners from leaving, national GDP would rise because economic activity in the foreign zone counts towards GDP. They'll also count small shops as adding to GDP. For instance, if lots of Koreans move in and open a Korean-lanuguage laundromat to service the Korean community, it improves GDP growth, but doesn't increased demand for native labor. This is with a good immigrant community that can provide for itself. Most immigrants coming in the West require subsidies and generational studies indicate the subsidies will never end.
The bottom line is that running a high immigration program requires massive investment and costs a lot, and these costs are borne to a large extent by the incumbent population.

Therefore, if you want wages to be reduced, traffic congestion to get worse, to pay more for utilities and housing, and to see the environment get degraded, then continue with current mass immigration settings. But if you care about maintaining Australian living standards, then immigration needs to be slashed to sensible and sustainable levels.
An interesting question is did economists, sociologists, et al forget the law of supply and demand, and impact on native wages, home prices, school overcrowding, crime rates and on and on? Or were they cowed into silence by political correctness? If the latter, what changed? Social mood. People who were quiet before are ready to fight because social mood is changing. The public is becoming more receptive to these arguments.

Good News for Marine Le Pen: Paris Bans Porno Ads

Yves Saint Laurent just called the top in hemlines.

Daily Mail: Paris bans 'sexist' adverts from billboards following outcry over 'porno chic' fashion campaign
Adverts considered 'sexist' have today been banned from billboards across Paris after feminists raised an outcry over so-called 'porno chic'.

The Paris city council voted for the ban today and the city's Mayor Anne Hidalgo said Paris was 'leading the way' in the fight against sexism.

Among those ads which are expected to be banned are those from Yves Saint Laurent's latest campaign, which have been accused of 'degrading' models and even 'inciting rape'.

Hélène Bidard, a French Communist Party councillor and Deputy Mayor, tweeted today: 'Victory in the Paris Council. @JCDecaux_France agrees not to disseminate sexist, discriminatory, LGBT phobic ads in Paris.'
Remove the political overtones and it is a clear sign of negative social mood.

One month ago: Saint Laurent channels ‘80s glam for Paris Fashion Week
Over 100 looks walked the runway: The first half was mostly comprised of body-hugging ruched leather dresses and miniskirts with exaggerated ruffles and up-to-there hemlines. Sexy — and so ’80s.

Vaccarello dialed up the high-wattage glamour even more for the second half — sending a mix of womenswear and menswear in almost entirely black looks covered in sparkles from every, and any, angle. Sparkles were up the shoulder, framing a plunging neckline, smattered all over a loose, long-sleeve T-shirt dress. Even a slouchy knee-high boot received the bedazzled treatment. Translation? Dressing like a disco ball is the look for fall.

Key line:
'We had a similar type of porno chic (in fashion advertising) a decade ago, and here we have it coming back again which isn't acceptable,' Martin added.
When exactly? 2006.

Boston Globe: The pornification of America
What is new and troubling, critics suggest, is that the porn aesthetic has become so pervasive that it now serves as a kind of sensory wallpaper, something that many people don't even notice anymore. The free-speech-versus-censorship debates that invariably surround actual pornography do not burn as hot when the underlying principles of porn are filtered more subtly into the mainstream. And those principles, critics say, often involve reducing women to subjugated sex objects while presenting men in dominant roles.

Braving the inevitable accusations of prudery -- which they reject -- critics such as Paul are sounding the alarm. They say the current hypersexualized climate distorts the attitudes of young people toward sex and relationships. In particular, they contend it has a damaging effect on the self-image of young women and girls, who are confronted with a culture that objectifies them while disguising it as female empowerment.

Beijing City Master Plan: More Rail, Population Limits, Development Restrictions

According to the draft plan, the future of Beijing urban development will be strictly in the population limit, ecological control lines, urban development boundary "three red line" within.

Beijing Municipal Planning and Land Resources Management Committee Director Wei Chenglin introduction, in accordance with the "water to the city, with water set people" requirements, clear Beijing resident population scale by 2020 control at 23 million people, after 2020 long-term stable control at 23 million.

Ecological control line in the overall integration of landscape forest resources on the basis of conditions. Wei Chenglin, Beijing will be about 16410 square kilometers of urban space is divided into ecological control area, limit the construction area, prohibit the construction area, the ecological control area in 2020 about 73% of the city area, 2030 to 75%.

In addition, the overall draft plan clearly, Beijing urban and rural construction land will be based on the current 2921 square kilometers, by 2020 cut to 2860 square kilometers and by 2030 cut to 2760 square kilometers. "Clear urban development boundaries, to determine the urban space rigid control of the border and binding targets, strict control of urban and rural construction land size, to achieve intensive and efficient development." Beijing Vice Mayor Sui Zhenjiang said.

By 2020, the rail transit mileage of about 1000 km; to 2030, the green travel ratio of more than 80%, in the city center public transport travel ratio of 42%.
All of this is doable without a lot of changes. This last one requires a big change in environmental regulation:
Air treatment, the overall draft plan clearly, Beijing 2020 PM 2.5 annual average underwear in 56 micrograms / cubic meter, by 2030 reduce to around 35 micrograms / cubic meters, meeting national standards.
北京城市总体规划草案发布:15年后首都是什么样?

Britain Triggers Article 50


Telegraph: What is Article 50? The only explanation you need to read

The Expanding Tally of Buying Restrictions

Beijing is highlighted in red, it has implemented the most forms of restrictions. Most cities have used 限购, which is tightening qualifications such as residency. 限贷 refers to limits on credit, such as increased interest rates, increased down payments. Others have limited access to public housing funds 限公积金 or tightened criteria 公积金, tightened social insurance requirements 限社保, demanded tighter checks on individuals and banks 认购认贷, and sometimes limited sales 限售. Beijing added the provisions against fake divorces, selling commercial property to individuals and tightened taxes paid requirements.

The latest cities to implement buying restrictions are cities that haven't seen price run-ups:
March 29 at noon, Gansu Tianshui, Guiyang and Changchun three cities joined the city of control, but, compared to hot spots and hot spots around the city, the three cities of the control efforts smaller.
iFeng: 楼市调控新风向!这三个房价涨幅较小城市也出政策了

2017-03-28

Buying Restrictions Pile Up

Hangzhou and Xiamen further tightened property rules on March 28.

iFeng: 重磅!杭州、厦门升级楼市调控措施:认房又认贷
Caixin: Three Cities Join Growing Push to Combat Frenzied Homebuying

An official with Beijing's Municipal Housing Construction Committee said the city is weathervane for the nation's real estate market. Not only referring to the rise and fall in prices, but in the rollout of new regulatory measures such as tackling fake divorces, and earlier this week, restricting commercial property sales. Yet another wave of property restrictions could be coming in the next few months...

iFeng: 向北京看齐!楼市调控政策北京已成全国风向标

After the Crackdown: Beijing Commercial Housing Market Grinds to a Halt

Beijing has been cracking down on the real estate sector, using any relevant law and any government power to restrict the industry. See Beijing Metes Out More Punishment for Real Estate Violations and Five Branches of Beijing Muni Govt Ramp Up Real Estate Controls.

Following the latest crackdown on commercial property, realtors have pulled advertising and banks have halted lending. These are ostensibly commercial or dual use properties, but sold to individual buyers.
Commercial housing" may face resale difficulties , buyers are afraid of "getting their hands smashed"

In Yan Yuejin view, this move on the Beijing business class project to implement a strict purchase practices. "Second - hand housing business to allow the sale of property to individuals, in fact, to prevent second - hand housing land east of all kinds of controversy set", set the two conditions for the subscription, so that this property back to the residential properties.

"As a result of the conditions on purchases of existing commercial projects, the basic and ordinary residential, such properties existing home transactions is bound to face the risk of backing out." Yan Yue Jin that the future business class project prices or decline.

It is based on this concern, many of the completion of business projects signed by the project buyers eager to "go back". A few days ago to pay the first payment, set in Beijing Daxing District, a set of "commercial housing," Ms. Cui, these two days but busy consulting and check out the process, "the future business projects do nothing market, and now do not refund Room, afraid to hit in their own hands.

New projects can not be sold to individuals, how will it impact the commercial market?

According to Centaline real estate chief analyst Zhang Dawei statistics, 90% of the Beijing commercial properties are sold to individuals, and now the policy adjustment, "rules of the game" completely changed.

Zhang Dawei said that this policy will directly affect at least 600,000 units of commercial properties, is expected turnover will fall, prices will be lower. "Beijing is the first to regulate the commercial market, afterwards other cities are likely to open a wave of comprehensive closure of business projects, since residential purchase restriction led to investment in commercial property, could face a huge risk.
iFeng: 北京商住房限购追踪:中介紧急下架房源 银行停贷

Reuters: China stops individuals from buying Beijing commercial property
New commercial plots can now only be sold to enterprises, public entities and social organizations, said a statement issued by Beijing's banking, industry and commerce, housing and urban planning authorities.

The statement posted on the Beijing Municipal Commission of Housing and Urban Rural Development website on Sunday said that personal loans for buying commercial property have also been suspended.

...Only second-hand commercial property can be sold to individuals, who have to prove income tax payments for five consecutive years and hold no property, the regulators said in their statement.

The smallest unit available should be a minimum of 500 square meters and real estate agencies that falsely advertise commercial plots as housing will be punished.

Why Does China Inhibit Stock Prices, But Not Home Prices?

Vice President of Renmin University Wu Xiaoqiu says China's regulatory regime allows home prices to rise, but not stock prices.
Wu Xiaoqiu: Many people think that these two types of assets is a seesaw, why? I do not know how long this regulation can last, a lot of regulation is over half a year, the next round facing a more explosive rise. We have done very well in many areas, can find some way, but in such as stable housing prices, so that it can and economic, income growth match the rational rise, so far have not found a way. Facts have proved that the purchase is not an effective way, this is not a time to take such measures, but many times, and should think about other ways.

As for the stock market can not rise also depends on policy guidance, and now the Chinese market, the stock market-related policies are still more stringent, we still do not welcome the stock market prices. In the stock market prices and real estate prices rose between, seems to be more tolerant of real estate prices, not tolerate the rise in stock prices. In fact, the rational study of the conclusion is just the opposite, the stock market price rise higher than the real estate prices on the future economic damage is relatively small.
The answer is China's wealth is wrapped up in housing. It isn't that China wants to let home prices rise, but not stocks. It would prefer neither rise and capital flow into other areas of the economy. But if there's going to be a bubble, might as well be in GDP-driving real estate.

iFeng: 吴晓求:政策能容忍房价上涨 不太能容忍股价上涨

Fake Steel Cuts

Reuters: China's Hebei province launches new probe into steel overproduction
China'sHebei province, a major steel-producing area, has launched a fresh probe into steel overproduction in the city of Tangshan amid concerns that firms have continued to raise output despite mandatory capacity cuts. Hebei was ordered by China's central government to investigate firms in Tangshan that have "restricted but not cut production, restricted production but not actually cut emissions, and cut capacity but actually increased output," according to a provincial notice dated March 25 circulated by traders on Monday and seen by Reuters.

...Tangshan produces around 90 million tonnes of steel a year, more than the whole of the United States.

...Environmental group Greenpeace said in February that China's active steel capacity actually rose by 35 million tonnes in 2016 after the high-profile closure programme focused mainly on shutting plants that had already been idled.
China boosted credit in 2016 to smooth the production cuts in steel and coal. If companies instead took advantage of the spike in credit and bump in prices, they're set to be shuttered amid contracting credit conditions. Does China print more or allow more pain?

Only three weeks ago, this was a headline: Hebei aims to shut last 'zombie' steel mills in small victory on excess.

In November 2016: China's Tangshan to build new $5.5 billion steel project, cut capacity: Xinhua

Tangshan in 2014: Hebei Tangshan Has 100 Months of Housing Supply; Construction Stopping.

The latest news about Tangshan helped weigh on iron ore prices: Iron ore is copping a drubbing, making it five big losses in the past six sessions

The failed production cuts follows the fake data in Liaoning.

FT: Fake China data: was it just one province?

A major employer in Liaoning recently collapsed: China is desperately trying to save a dairy company that, turns out, is too big to fail
The Chinese government can’t afford to let Huishan fail. Credit markets already deeply distrust the rust-belt Liaoning province. Authorities there were revealed to be faking economic numbers, including the province’s GDP growth, from 2011 to 2014. The province was the only province that fell into recession last year. Meanwhile local firms Dongbei Special Steel and Dalian Machine Tool went into default last year.

If Huishan does go bust, the fallout could also be disastrous for some Chinese banks. At least one of them has already felt the chill: Jiutai Bank, which is the dairy maker’s second-biggest creditor, saw the biggest one-day drop in its shares this week. According to Caixin, the small bank’s loan to Huishan currently stands at around $266 million, bigger than its estimate of impairment losses on bad loans for the whole of 2016.

The situation is not much easier for the midsize Ping An Bank, which lent nearly $300 million to Yang’s offshore entity Champ Harvest, with a 25% stake in Huishan as collateral. If Ping An were to write off the loan in full, estimates Daiwa Capital Markets (paywall), its pretax profits could drop by 2% this year.
There's a lot more of these stories to come if credit continues to tighten.

2017-03-27

Nationalism Rising in China: Take Taiwan By Force

SCMP: Push to absorb Taiwan ‘is growing’ on mainland
Li Yihu, dean of Peking University’s Taiwan Studies Institute, said the mainland side saw Taiwan’s Tsai Ing-wen administration as trying to promote independence through tactical approaches, including culture and education and the appointment of pro-independence judges in 2019 to initiate constitutional interpretations.

“All those pro-independence moves will stimulate the mainland to take coercive steps to respond,” said Li, a deputy to the National People’s Congress.

...He stressed that Beijing had no “timetable for reunification”, but wanted “a route chart” of meet President Xi Jinping’s goal of reunifying with Taiwan as early as 2021, the 100th anniversary of the Communist Party’s founding.
China and Taiwan have diverging education systems teaching two separate nationalist agendas. In the near-term of the next few decades, Taiwan and China will become more nationalistic. The odds of Taiwan falling fully within China's orbit over the very long-run are high, but the long-run might be a century or two. If Chinese leaders want reunification in the short-term, they may need a military solution. Then they'll have to contend with a nationalistic Japan. The U.S. might want to sit out a war over Taiwan, but the U.S. might also like the opportunity to do what England did to Germany twice.

Beijing Metes Out More Punishment for Real Estate Violations

Xinhua: Beijing punishes developers, agents violating property sale ban
Six business apartment projects and 15 real estate agent offices in Beijing were punished Monday for violating a government ban aimed at cooling the red-hot housing market.

The six projects, including some belonging to China's top developers Vanke and Evergrande, were banned from sale, while the 15 real estate agent offices were ordered to close shop for overhauls, according to the Beijing Municipal Commission of Housing and Urban-Rural Development.

EO Asks: Is This the Housing Market Top? Flight From Currency, 1929 Parallel

An opinion article in the Economic Observer partially attributes the latest run-up in home prices to flight from the currency. Aside from that, the article is noteworthy because it says discussion of home prices is back at peak bubble levels. Additionally, this was the second most popular article on EO website today.

Discussing how Beijing's tightening policies have driven up prices 10 to 20 percent, and developers suddenly reluctant to sell property:
The reason, on the surface, is mainly because of the recent introduction of Beijing's land tightening policy, the market demand side worries future housing prices will rise again leading to panic buying. At a deeper level it reflects the consensus on the potential decline in purchasing power of the currency and the pressing demand for assets that can preserve value and appreciate. Residents would rather tighten their belts and live frugally, avoiding audacious consumption. From this point of view, no matter how much land supply there is in Beijing, it is not enough to satisfy demand.
Housing and home prices is always a major topic in China, but author thinks this time it has 1929 parallels:
Regardless if they are uncle or aunt, barber or waiter, talk about home prices and everyone is clear and logical, as if everyone investing in the property market investment is Warren Buffett. This is reminiscent of the eve of the 1929 Wall Street stock market crash, the story of Rockefeller and the shoe shine boy, and in 2007 and 2015, China's stock market rose sharply and everyone was trading stocks. Common sense says if everyone knows the price will rise, it indicates this is the crazy stage, the possibility of falling is far higher than the possibility of another rise. Of course, this is only looking at the emotional level, we also need careful analysis at the rational level.
Moving on to exchange rate and "price-to-earnings ratio" of assets:
But with the economic growth rate of the downlink, the RMB exchange rate and its pricing of asset prices can not match the previous high "price-earnings ratio", in accordance with the economic law in mid-2014 both should fall. But the renminbi is not freely convertible currency, so the foreign exchange reserves in the top one year after the "811 exchange reform" initiative to release the exchange rate risk an important measure, due to rush, including the stock market, including financial markets, including a series of chain reaction, the final Had to give up a one-time devaluation strategy, instead of indirect capital control through the slow depreciation of the gradual release of exchange rate risk. But this period due to the economic downturn facing the risk of stall, in 2015 we once again adopted a counter-cyclical easing of real estate policy, led directly to the exchange rate risk has not yet effectively released the background, the real estate bubble once again blown big, real estate " Price-earnings ratio "does not fall, and the bubble expansion is different from the past, driven mainly by the middle class adding leverage, which also includes" down payment "such as leveraged tool applications, and promote the basic principles of the stock market in 2015 the same. This point can be seen from the following data, in 2016 half of new loans were residential mortgages, and new home sales accounted for a rising proportion of M2 year after year, in 2016 new and existing home sales reached a record 100 percent of teh increase in M2.
Fan goes on to make the logical point that if asset values keep rising in China, the pressure on currency outflows will keep rising too:
As a result, the rapid rise in RMB asset prices and the slow depreciation of the RMB formed a significant departure from the capital control, the faster the price rise, the greater the depreciation of the renminbi is expected. It is like the pool to close the outlet at the same time open a large inlet, "water" put more assets from the "bubble", and the threshold appears in the reservoir filled the moment. In 2016 the academic community appeared similar to the "security or exchange rate", "exchange rate or save the storage" and the like discussion, in fact, this is only stay in the short-term tactical strategy choice only, the real strategic decision is how Improve the return on investment in society as a whole.
Finally, the behavior of speculators may point to a turning point:
Judging from the law of the property market, the market comprehensive interest rate is the most important factor affecting the rise in house prices. Therefore, since 2017 Beijing and Beijing, Tianjin and Hebei regional property market's contrarian rise is more due to fear of rising property prices causing panic buying, the hidden factor latent economic growth exceptions, very different from the high-level [govt] inhibition of asset bubble decision. To be focused on the release of demand, the steady increase in market interest rates will drive some early investment, speculative home buyers to sell housing, Shenzhen recently appeared a large number of real estate speculators to gradually sell housing cases, so the recent real estate speculation may indicate the property market The inflection point has arrived.

ChiNext Analog

2017-03-26

At Least 40 Cities Restrict Home Buyers

The count of cities passing some form of buying restrictions hit 40 overnight, with Foshan making it more difficult for non-residents to purchase property. Xiamen requires a 2-year holding period before a buyer can transfer a property to close a "gifting" loophole. The reporter in question counted 40 cities with restriction for the article, but notes that it is not a complete tabulation.

iFeng: 40余城发调控政策二三线成重点 楼市何去何从?

Hong Kong Renminbi Deposit Contraction

Data through January 2017.

SCMP: Hong Kong’s yuan deposits fall 46 per cent from their 2014 peak

2017-03-25

Real Estate Policy Still Tightening

Beijing is closing the divorce loophole.

SCMP: Beijing imposes fresh home purchase restrictions to close the ‘divorce’ loophole

The move is only the latest in an unending string of tightening policies across the country. Meanwhile, economists and officials turn their focus to monetary and credit policies.

iFeng: 楼市调控再次升级 严控信贷资金过度流向房地产
In response to rising house prices, Industrial Bank chief economist Lu Zhengwei in an interview with the people's financial, said the rapid growth of money and credit is one of the important reasons leading to high prices. Real estate needs include residential demand and speculative demand. Residential demand reflects the commodity properties of commercial housing, speculative demand reflects the financial properties of commercial housing. When the speculative demand is greater than the residential demand, commercial housing use of its strong value-added financial attributes, has become the most important asset pool to absorb the currency.

National Development and Reform Commission Director He Lifeng also in China Development Forum said that at present, a large number of funds into the real estate market, once led the first-tier cities and hot second-tier cities in the housing prices rose too fast, further pushing up the cost of real economic development. To solve the imbalance between the real estate and the real economy, we should strengthen the land reform through sound monetary policy, speed up the supervision and coordination mechanism, and properly handle the non - performing assets to ensure that there is no systemic risk.

He Lifeng believes that the need to control the excessive flow of credit funds to the real estate industry, increase the intensity of policy interpretation and information dissemination, strengthen the communication of market players, enhance policy transparency, to the community to release a positive signal to guide all aspects of the future development of a good enhancement Market confidence.

..."Real estate is a highly leveraged activity in the sharp rise in real estate prices to give special attention, our top priority is to control the lever, the lever to control at a suitable level, to improve the down payment is the most direct action to reduce the lever. "Lu Zhengwei said.
Rising home prices are a symptom of loose monetary policy.

Flashback to 2016.

FT: Is there a new Plaza Accord?
Foreign exchange traders are buzzing with talk of a new “Plaza Accord”, following the marked change in the behaviour of the major currencies after the Shanghai G20 meetings in late February.

Since then, the dollar has weakened, just as it did after the Plaza meetings on 22 September 1985. The Chinese renminbi has been falling against its basket, in direct contrast with the “stable basket” exchange rate policy that was publicly emphasised by PBOC Governor Zhou just before Shanghai. The euro and, especially, the yen have strengthened, in defiance of monetary policy easing by the ECB and the Bank of Japan.
Marketwatch: Did central bankers make a secret deal to drive markets? This rumor says yes
Rumors are flourishing that global policy makers made a secret deal at the G-20 meeting in Shanghai late last month. This “Shanghai Accord” to weaken the greenback was aimed at calming the financial markets, which had gotten off to an awful start to the new year, according to the chatter.
The rebound in commodities and Chinese home prices were all a result of China's accelerated credit growth.

Now they are doing the cleanup. As before, real estate proves stubborn and policy tightening looks increasingly likely to overshoot.

Marketwatch: China money market jittery as PBOC cash dries up
Borrowers and lenders remain edgy after the Chinese central bank held off injecting cash into markets for the second day in a row, ending a three-day streak of pump priming this week. As a result, short-term funding costs remain close to levels unseen in more than two years, testament to Beijing's resolve to reduce its economy's unhealthy reliance on cheap credit and ballooning debt.

"What the central bank is doing is a proactive choice, which sends a clear message to markets that they aren't getting what they want," said Ding Shuang, an economist with Standard Chartered in Hong Kong.
The pumping was a response to the return of the cash crunch, the symptom of tight (for China) monetary policy.

2017-03-24

Huishan Dairy Collapses, Liaoning Again

Caixin: China Huishan Dairy Shares Plunge 91% Before Trading Halted
Shares of China Huishan Dairy Holdings Co. Ltd.’s plunged 91.4% Friday before the company halted trading, in the largest drop ever recorded on the Hong Kong stock exchange.

The dramatic fall came after financial regulators in northeast Liaoning province held a meeting on Thursday afternoon with 23 creditor banks to discuss Huishan’s debts, people with knowledge of the matter told Caixin. The creditor banks include Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and Ping An Bank.

China Huishan Dairy is the country’s largest cattle farms operator.. It came under the media spotlight last December when its stock was shaken after being attacked by short seller Muddy Waters, which published reports alleging Huishan’s fraudulent and overstated revenue. Huishan denied the allegations.
There may be knock on effects:
In June 2015, Champ Harvest Ltd., the controlling shareholder of Huishan Dairy, pledged its shares in the dairy company as collateral to obtain loans from Ping An Bank. To date, Champ Harvest’s outstanding loans with Ping An Bank total 2.1 billion yuan, and 3.434 billion shares have been pledged.

2017-03-23

Cash Crunch Effect: China B-Shares Tumble in Afternoon Trading

iFeng: 上证B指午后放量大跌逾3% 多股逼近跌停
Fox Business: China Shares Inch Up Despite B-Share Slump
The index tracking the dollar-dominated Shanghai B-shares tumbled as much as 3.9 percent, before closing 1.7 percent lower, posting its worst day in two months. Shares traded in Shanghai and Shenzhen exchanges in foreign currency are B shares, while A shares are those denominated in yuan.

"The sharp drop in the Shanghai B-share market, is mainly due to investors' concerns over tight liquidity in the country's interbank market and stepped-up regulation on domestic financial institutions," said Yang Weixiao, an analyst with Founder Securities, adding the soured sentiment could spread to the A-share market.

MSCI Considers A Shares Again

Reuters: MSCI seeks feedback on potential China stocks inclusion
If the proposed new rules are applied, the number of Chinese stocks that would have to be included would drop dramatically by two-thirds to 169 stocks leading to a sharp drop in market turnover, a crucial source of costs for passive funds.

Bloomberg: MSCI Shuns Most of China's $7 Trillion Market in Index Proposal
Only 169 mainland China-listed companies will be considered for inclusion by benchmark gauges, down from 448 under a previous proposal, and all will be large-cap shares currently accessible to foreign investors through exchange links with Hong Kong. The weighting of yuan denominated stocks, known as A shares, would be just 0.5 percent of the MSCI Emerging Market Index, half the previous suggested level, according to a consultation paper published on MSCI’s website Wednesday.

2017-03-22

China Can't Deleverage, At Least Not Yet

Balding's World: Is China Deleveraging? Part I
If we combine loans outstanding to households and non-financial enterprises and government categories, we see that outstanding loans grew 12.6% in 2016. Nominal GDP grew at 8% so the great Chinese deleveraging actually saw leverage relative to nominal GDP increase if we account for the fastest growing sector of Chinese lending. In other words, if the Chinese credit market consisted of just nonfinancial corporates and households, outstanding debt is still growing 1.59 times faster than nominal GDP.

There is one final note here. This all relies on official data and makes no assumptions about its validity. The calculations here are nothing more complicated than basic math using official numbers. However, concern about official data is perfectly valid. For instance, at the end of 2015, Liaoning would have had an official bank loan to nominal GDP ratio of 121%. However, at the end of 2016 after the National Bureau of Statistics in Beijing adjusted its GDP downward after years of self admitted fraud, this changes the outlook enormously. At the end of 2016 with the adjusted GDP data has a bank loan to nominal GDP ratio of 169%.

This is just a sliver of the overall story but even by this narrow definition, there is no deleveraging taking place even with the most generous of definitions.
A test for Chinese deleveraging: is the GDP growth collapsing?

I'm using Steve Keen's simplified debt model to show how we should expect a major slowdown if China deleverages. See: Get ready for an Australian recession by 2017

Assume China's nominal GDP is 80 trillion yuan, and debt is 160 trillion yuan (200 percent of GDP).

If GDP grows 8 percent, that's 86.4 trillion yuan.
If credit grows 12.6 percent, that is 20.2 trillion yuan.

Total nominal demand was 106.6 trillion and 19 percent was credit.

In Year 2 China lowers credit growth to match nominal GDP.

China's GDP was 86.4 trillion. It grows 8 percent to 93.3 trillion.
Credit was 180.2 trillion, it grows 8 percent or 14.4 trillion.

Total nominal demand is 107.7 trillion, growth of 1 percent. Credit drops to 13 percent of total nominal demand.

China can't quickly deleverage and maintain its GDP growth rate. It wants to slow credit, slowly, and then let GDP growth do the work of growing out of the debt.

In the meantime, the PBoC is spending (printing?) resources trying to fight deflationary pressure from the dollar. China will need years to complete this process, but if the U.S. dollar bull market still has a year or two to go, the greatest risk of crisis is still ahead.

6 Days 10 Cities Housing Crackdown

The iFeng headline asks, which city is next?
March 17, Beijing, Guangzhou, Zhengzhou, have issued a limited number of restrictions on the purchase of loans, Shijiazhuang also announced the day to join the restricted loan limit camp; 18, Changsha tightly restricted purchase; 19, Hebei Baoding suspended to have the main city of 3 sets and above 2011, Dongguan, Langfang, Jurong, Jiaxing has introduced control policies; 22 evening, the Beijing Local Taxation Bureau also issued a document on non-local household registration of households in the purchase of a tax in the assessment of the tax; Payment conditions to make changes.
iFeng: 6天10城先后出手“稳房价” 下一城会是哪?

Five Branches of Beijing Muni Govt Ramp Up Real Estate Controls

The Beijing municipal government is ratcheting up real estate controls.

The tax bureau now requires 60 consecutive months of income tax payments.

Covered earlier today, the c Beijing Municipal Commission of Housing and Urban-Rural Development is cracking down on partitioning of homes in sought after school districts.

Beijing Development and Reform Commission reiterates spreading of false or misleading prices, trying to pump up prices with false information, is forbidden.

Construction committee shut down 11 real estate agency offices for violating rules.

Beijing Internet Information Office told Leju (LEJU) it was illegally reporting news with no license, and its journalists also do not have approval. The government dubbed it a serious violation of Article V of the Provisions for the Administration of Internet News Information Services (English translation). Leju was told to immediately cease activity and rectify the situation within a time limit. It is hard to say if this news if being factored into LEJU's stock price given it was already breaking down.

iFeng: 北京整治房地产市场 一天之内5部门重拳出击

More on the Cash Crunch in China's Interbank Market

Yesterday, reports of a cash crunch were reported in the Chinese media. See: Cash Crunch Returns: Trading Defaults Force PBoC to Flood Market With Liquidity

More details have emerged in the past 24 hours.

ZH: PBOC Injects Hundreds Of Billions Into Chinese Banks After Sudden Defaults In Interbank Payments
According to a brief note by Bloomberg, Tuesday’s injections followed missed interbank payments on Monday, anonymous sources said; the matter is not made public over concerns of bank deposit flight risk. The institutions that missed payments included rural commercial banks. One of Bloomberg's trader sources said a borrower failed to repay an overnight repo of less than 50 million yuan ($7.3 million). China’s smaller lenders have been squeezed by a rise in money market rates this week, with the benchmark seven-day repurchase rate jumping to the highest level since April 2015 on Tuesday.

...While the tightening of liquidity reflects factors including quarter-end regulatory checks and a wall of maturing certificates of deposit, BBVA said the People’s Bank of China may also be sending a message to over-leveraged firms to rein in borrowing.

“The PBOC wants to warn the smaller lenders not to play the leverage game excessively,” said Xia Le, chief economist at BBVA in Hong Kong. “It’s a tug of war between the central bank and the financial institutions.”

And while some smaller banks were on the verge of failure, overnight virtually everyone felt the surge in the 7-day repo fixing to the highest since 2014, driven by China's liquidity squeeze amid policy tightening and continued high leverage

As Goldman's MK Tan explains, China's 7-day repo fixing interest rate rose to 5.5% on Tuesday, the highest level since late 2014. This followed PBOC’s statement last Thursday signaling a deviation from the previous framework of regarding interbank rates as de facto “policy rates”. Reflecting the prospective quarter-end MPA (macro-prudential assessment) examination and continued tightening bias from the PBOC, interbank rates may remain fairly volatile in the coming days, although most analysts do not expect such elevated rates to be sustained, especially since the PBOC will promptly have to bail out any banks suffering a liquidity squeeze.
The Chinese bank employee quoted in the article posted yesterday said liquidity has been tight all year. The MPA is having an effect on liquidity, but conditions have been persistently tight since before the end of 2016. The defaults and spike in interest rates is a symptom of underlying deflationary (disinflationary) conditions.

Beijing to Deal With School-Related Home Price Increases

Caixin: Beijing Cracks Down on School-Area Housing Bubble
Beijing will tighten rules covering the partitioning of houses for sale from next month in its latest bid to close loopholes exploited by property owners selling residences near elite schools, amid mounting public uproar over skyrocketing home prices.

The approval of applications for real estate deeds by owners rebuilding or renovating single-story houses or seeking to change to multiple ownership will require site measurements recognized by the government from April 10, the Beijing Municipal Commission of Housing and Urban-Rural Development announced Monday.

Applications will be vetted strictly according to original floor plans, and corridors will be labeled clearly in official property registration documents to prevent them from being sold independently, according to the new rules.

The policy will discourage owners of residences that meet the enrollment criteria of schools dubbed as “xuequ fang”, or “school-district houses” from partitioning one property into small, unlivable cabins and selling them to different buyers, said Chen Zhi, secretary general of the Beijing Property Association.
Not very different from how it works in the United States, but demand is much higher due to population density.

2017-03-21

Watching the Dollar Analog

The U.S. Dollar Index was hit by selling on Tuesday, but right on schedule as far as the analog is concerned.

Henan Looks to CDS For Debt Relief

Caixin: Henan Considers Credit Default Swaps as Debts Mount
The government of Henan is planning to set up a financial institution to sell credit default swap (CDS) contracts in a bid to offer credit enhancement services to SOEs, including the largest coal producers and steel makers in the province, including Zhengzhou Coal Industry Group Co. Ltd., and Anyang Iron & Steel Group Co. Ltd., to lower their financing costs, according to a document posted on the official website of the Henan provincial government.

In the annual government work report delivered by Premier Li Keqiang earlier this month, the central government stressed that bond defaults are a major risk facing financial markets.

Henan is the second province to try the tool, following in the footsteps of Shanxi province, China’s top coal producing region, which established a company to sell CDS contracts in September.

PBoC Issues Urgent Request for Mortgage Controls

Caixin: 央行加急发文 敦促银行合理控制房贷比
Recently, the central bank expedited the issue of "good credit policy work," a paper, which for the mortgage policy, the document clearly requires: the People's Bank branches to strengthen the guidance of commercial banks, urging them to optimize the credit structure, reasonable control of the mortgage ratio and Growth rate.

Specifically, the branches of the People's Bank of China to the housing credit policy as a part of the policy to control the real estate package, with a reasonable use of the minimum down payment ratio, loan interest rate concessions and long-term loans and other housing credit policy, in strict accordance with the relevant procedures in a timely manner On the area of ​​housing credit policy to make appropriate adjustments.

Second, to strengthen the window of the commercial bank guidance, urging the optimization of its credit structure, reasonable control of the proportion of mortgage and growth, do a good job of regional distribution of mortgage resources to support the three or four lines to the city inventory, effective prevention and control of credit risks, and actively with the local Banking sector, will be differentiated housing credit policy strictly implemented.

In addition, but also to increase the down payment of funds and proof of authenticity of income.

Hai Tong Securities chief economist Jiang Chao quoted media reports, said a central bank official said the new loans accounted for from 45% to 30%. But according to the new financial reporter learned from the central bank, Beijing is difficult to achieve the exact proportion of control, but indeed from various efforts to suppress the new loans in the proportion of individual loans.

The close to the central bank said that the mortgage accounted for two indicators, one is the balance of the proportion of a new share. Short-term main control is a new proportion. He pointed out that last year, especially in the second half of last year, some cities in the new loans, 80% are mortgages.
The high water mark was last July, when mortgages were 102 percent of new bank lending.

The central banks wants to control money creation, but if too much money flows into the real estate sector the real economy will be starved. Add in the central government's desire to prevent a housing bubble, and it's recipe for heavy-handed central planning once again. The fruits of which we're already starting to see with Monday's cash crunch in the financial market.

The English version is out: Central Bank Moves Again to Curb Property Lending

PBoC Quarterly Survey Shows Optimism

Chinese optimism rises and falls with liquidity. While consumers and bankers are generally more optimistic, businesses turned pessimistic about profits and domestic orders in Q1. The first chart shows companies seeing better liquidity, while the second shows the dip in profit expectations.
Bankers are more optimistic as well, in line with rising liquidity. Bankers are getting nervous about monetary policy though.
The depositor survey showed inflation concerns are rising. Those saying they spend more on consumption was 23.8 percent, up 0.7 percentage points from the last survey. Those saying they invest more was 33.9 percent, and save more was 42.3 percent.

Bloomberg: China's Bankers Are More Confident in Economy, PBOC Survey Shows
A gauge of banker confidence in the economy rose to 64.9 in the first three months of this year, according to the quarterly People’s Bank of China survey of about 3,200 banks and 5,000 enterprises nationwide. That was the highest reading in three years. Confidence among entrepreneurs climbed to 61.5, a two-and-a-half year high. Anything above 50 suggests respondents are optimistic.

The good vibes come after the economy accelerated in the fourth quarter of last year as a credit-fueled rally in smokestack industries gained momentum. Outstanding credit at year-end was equal to about 258 percent of gross domestic product, up from 160 percent in 2008, Bloomberg Intelligence estimates. The stronger economic performance is giving policy makers more maneuvering room as they try to rein in leverage and bubbles without derailing growth.

In a third survey tracking urban households, 52.2 percent said property prices are too high, down a fraction from the past three quarterly readings. The share who said they plan to buy a house in the next quarter rose to 22.9 percent from 13.6 percent a year earlier.

Source: (links open PDFs)

2017年第一季度企业家问卷调查报告
2017 年第一季度银行家问卷调查报告
2017 年第一季度城镇储户问卷调查报告

Internet and Social Media Not Driving Polarization

Another point for socionomics: evidence suggests social media is not driving polarization. One theory says people are becoming more divided because they see opposing points of view in social media, and people are less civil online, resulting in increased polarization. However, I don't find that to be the case and know people who never became uncivil, yet defriended people or were defriended over politics.

Bloomberg: Don't Blame Your Social Media Feed for the Growing Political Divide
First of all, it's worth noting that the divide is real. In 1960, only 5 percent of Republicans and Democrats would have been displeased if their son our daughter married outside of their party, but in 2010 that rose to half of Republicans and almost a third of Democrats. The worst of the strife is coming from senior citizens: Americans older than 75 have shown a bigger increase in polarization than their younger counterparts, based on their responses to the American National Election Study. That's relevant because they're much less likely to go online to communicate, with less than one in every five people older than 75 using social media in 2012 versus 80 percent of the 18-39 group.

The finding "rules out what seem like the most straightforward accounts linking the growth in polarization to the internet,'' though "young adults polarized through social media might in turn affect the views of older adults or might indirectly influence older adults through channels like the selection of politicians or the endogenous positioning of traditional media."
Socionomic theory says social media and financial markets alike are expressions of social mood, but not the cause.

Cash Crunch Returns: Trading Defaults Force PBoC to Flood Market With Liquidity

Some institutions and traders were begging for capital after 4:30 PM on Monday, unable to meet financing obligations. One ag trader said, "Today we borrowed from morning to night, until after 5 PM, there were a lot of small institutions that failed to meet their obligations, I thought the interbank market would delay closing."

21st Century Herald reports several large banks were borrowing in the interbank market, including Bank of China, Construction Bank and Postal Savings. "National banks didn't give much money, Postal Savings actually [lent] out some money," said the trader.

"Of course, the end of quarter MPA assessment has some bearing, but I think there is a greater relationship with the central bank deleveraging policy." A Huadong Rural Commercial Bank financial market employee told 21st Century: "late last year is also very tight money, everyone said the past year is good, but in fact into this year capital is still tight. Traders believe they can wait until four o'clock and money will naturally be released from the big banks, but today there is none."

The central bank began to inject liquidity through open market operations. Today, the central bank injected 30 billion, yesterday it injected 40 billion.

iFeng: 媒体称央行向市场注入数千亿元流动性

Is China going to be able to inject enough money at all the right moments to avoid a wave of defaults? And if they can do it, how much money are we talking about when a minor funding gap in the market triggers a 70 billion yuan release of capital? The numbers start adding up if this is a permanent fixture of "neutral" monetary policy and deleveraging.

Related: China's money rates surge on concerns about PBOC risk checks
SHANGHAI, March 21 Short-term interest rates in China surged on Tuesday as cash conditions tightened on worries the central bank's quarterly risk assessment at the end of this month would restrict lending in the interbank market.

The benchmark seven-day repo rate traded in the interbank market, considered a key indicator of general liquidity in China, opened at 2.45 percent and jumped to a high of 9.0 percent in morning trade, its highest since January 2014.

By midday, the volume-weighted average rate was standing at 2.6939 percent, around 23 basis points lower than the previous close but still near the near two-year high of 2.9298 percent hit last Friday.

Traders and analysts say liquidity tightness is driven by worries the People's Bank of China's quarterly Macro Prudential Assessment (MPA) at the end of this month could sway big banks away from lending cash to smaller ones.

"The last two weeks of March should be a period of intense volatility with both the MPA and quarter-end cash demand," Guotai Junan Securities wrote in a note.
The cash crunch is back.

2017-03-20

Lou Jiwei Warns Policy Space Shrinking as Reform Delayed

Former Finance Minister Lou Jiwei warned that China's policy space is shrinking. The use of monetary and fiscal policy, plus leverage is raising risk, shrinking policymakers room to act.
Coping with the financial crisis should be appropriate to increase leverage, and indeed all countries are in the appropriate plus leverage, including monetary policy and fiscal policy plus leverage, the general increase in aggregate demand, to prevent the rapid spread of the crisis, and make good use of this breathing time, Including improvements in financial regulation and structural reforms. To improve total factor productivity, that is, TFP. This will improve the overall supply capacity, promote structural reform, both the short-term crisis and the establishment of long-term benign growth mechanism, so that fiscal and monetary policy can gradually leverage, the economy into the recovery and sustainable growth.

However, monetary and fiscal policy plus leverage gives the illusion of economic stability, an illusion, do not want to endure the pain of reform, economic recovery is not routine. Monetary policy and fiscal policy to buy the time if the waste of the policy space will be smaller and smaller, and ultimately need to tight monetary, tight financial conditions under the reform, the pain will be more intense, it is more difficult to cohesion consensus, easy to slide to the left Or right-wing populism. The reality of the situation, from a global perspective, high leverage, and TFP stagnation or decline, the proliferation of populism, in this difficult time need more key politicians to play and wisdom, both to gather the people and can take the correct policy order to promote reform, Improve supply. This is my first point.
iFeng:
楼继伟警告:财政和货币政策加杠杆造成经济稳定幻象

2017-03-19

Chinese Home Prices Rise 0.3pc Nationally

Chinese home prices increased 0.33 percent nationally. Existing home prices rose faster than new homes with a 0.37 percent increase.

NBS: 2017年2月份70个大中城市住宅销售价格变动情况
iFeng: 70城二手房价涨幅超新房 你家的房子涨了吗?

Zhou Xiaochuan: Financial System Healthy

PBOC chief Zhou Xiaochuan says the financial system is healthy, but there are risks in the debt and housing market. AKA the Chinese financial system.

iFeng: 周小川:中国金融体系总体健康 但也存在债市房市风险等
In addition, China will continue to implement a proactive fiscal policy, monetary policy emphasizes "stable neutrality". With the domestic economic situation to further improve the pre-stable market expectations of the initial effect of the policy and the international market views on the dollar in the context of differences, China's cross-border capital two-way flow, the RMB exchange rate two-way floating, tends to balance. China's financial system as a whole is healthy, but there are risks such as high overall leverage, debt and housing risks and cross border shadow banking, etc.

2017-03-17

Central Govt: More Buying Restrictions As Needed

SCMP: China adds national pledge to curb housing prices in government work report
“Containing excessive home price rises in hot ­cities” is listed as one of the key tasks this year, according to the finalised document released by Xinhua on Thursday. The document will serve as a guideline for the central government this year.

...Han Wenxiu, deputy director of the State Council Research Office who helped draft the report, said on Friday that local governments in areas with surging property prices should adopt financial, fiscal and taxation policies to prevent prices rising too quickly.

Other options included increasing land supply or regulating agents and transactions. “Generally speaking, we should reduce high inventory but also stabilise property prices,” Han said.
Han Wenxiu's comments were also the top story at iFeng Finance: 韩文秀:个别城市房价明显上涨 会进一步采取措施

America's Breakup

We already know the fault lines of an American breakup because regional economic and social activities are distinct.
Student Voices: US Social Fragmentation
As individuals travel for personal or business reasons, they show us which areas are connected socially. Studying the network of connections is a powerful way to determine separation into groups and the natural breakpoints between them [1]. Figure 1 shows A) the density of Twitter activity that is centered in cities, B) areas that are the domains of individual cities extended into the suburban and rural areas that are linked to them and C) larger areas of the US that are separated by boundaries that have less travel across them. While these urban areas have been identified previously [2], the larger domains between the urban and national scale may be the important domains of social fragmentation.

There are 20 such areas (Figure 1 C). Similar patterns have been detected by analyzing mobile phone calls [3]. Some areas represent single states, like Florida, Texas or Michigan. Other areas comprise multiple states. New England is mostly a single area, and so are the Carolinas or Georgia and Alabama.

...Our analysis suggests that the US fragmentation should not be viewed as just forming two groups, often called red/blue aligning with right and Republican versus left and Democratic [4]. Instead there appear to be approximately 20 groups reflecting the selectiveness of social interactions.
Looking at this alone you would not predict a breakup of America. Regionalism exists all over the world. However, this is not the cause of breakup, rather a picture of potential fault lines. Instead, the first question is social mood. Will American social mood rise or fall in the coming decades? IF it falls, secessionist tendencies will grow. This doesn't necessarily lead to a full breakup, but it might lead to states ignoring federal mandates. There could be a slow collapse in central power rather than an official breakup. The official language in California might be Spanish, Alabama might ban abortion. Racial segregation could become law again, and federal court mandates to overturn it ignored or even approved. Racial segregation is growing in popularity on college campuses and what's popular on campus often becomes mainstream 20 years down the road.

Leaving mood aside, there is history and precedent for a breakup or an end to democracy, because multi-ethnic nations do not survive. They break down into their component parts, especially in a land mass as large as the United States.

Der Spiegel: "It's Stupid to be Afraid"
Why should I be against democracy? The British came here, never gave me democracy, except when they were about to leave. But I cannot run my system based on their rules. I have to amend it to fit my people's position. In multiracial societies, you don't vote in accordance with your economic interests and social interests, you vote in accordance with race and religion. Supposing I'd run their system here, Malays would vote for Muslims, Indians would vote for Indians, Chinese would vote for Chinese. I would have a constant clash in my Parliament which cannot be resolved because the Chinese majority would always overrule them. So I found a formula that changes that...

SPIEGEL: ... and that turned Singapore de facto into a one party state. Critics say that Singapore resembles a Lee Family Enterprise. Your son is the Prime Minister, your daughter-in-law heads the powerful Development Agency...

Mr. Lee: ... and my other son is CEO of Singapore Telecoms, my daughter is head of the National Institute for Neurology. This is a very small community of 4 million people. We run a meritocracy. If the Lee Family set an example of nepotism, that system would collapse. If I were not the prime minister, my son could have become Prime Minister several years earlier. It is against my interest to allow any family member who's incompetent to hold an important job because that would be a disaster for Singapore and my legacy. That cannot be allowed.
A breakdown in democracy or a political breakup, or both, is coming to the multi-ethnic, multi-racial, multi-religion United States. It has never not happened in world history. If social mood rebounds, America will increase immigration and increase political fragmentation, such that the next great decline in social mood will break the nation apart or end democracy.

Beijing Banks Raising Mortgage Rates, Slow Lending, Downpayment Hiked to 80pc

Although discounts for first-time homebuyers with good credit are still available, many Beijing banks have hiked mortgage rates to the benchmark. Second-home mortgages and those with bad credit may have to pay a 10 percent premium. Banks have also slowed their lending process.

Caijing: 部分银行首套房贷回到基准利率
Beijing News reporter learned yesterday from a number of banks, as real estate credit line by the control and decline, part of the bank's first mortgage interest rate is still discounted 10%, but some banks have canceled the first-home interest rate discount, returning to the benchmark interest rate, and even 10% higher.

...In this regard, Everbright Bank, Agricultural Bank of China, Bank of China, Industrial and Commercial Bank, Minsheng Bank, Shanghai Pudong Development Bank, CITIC Bank yesterday reported that the new Beijing reported that the current bank business is normal, did not stop the mortgage. Beijing News reporter visited eight bank outlets also found that the current major banks mortgage normal, but the lending rate significantly slowed down.

"Yesterday, one of the five branches of the line of a clerk clerk said that the current major bank mortgage lending rate is generally changing the number of loans, but the loan is not available, currently lending has slowed down.

A joint-stock bank loan department staff said the mortgage approval rate has not slowed down, only affected by the relevant processes, lending time has increased.
Beijing also hiked the second-home downpayment to 60 percent.

iFeng: 北京楼市调控“认房又认贷” 二套房首付比例提至60%
Residents of the family name in the city already has a set of housing, as well as in the city without housing but commercial housing loan records or provident fund housing loan records, the purchase of ordinary self-housing down payment ratio of not less than 60%, the purchase of non-ordinary housing down payment ratio of not less than 80%.
SCMP notes that a non-ordinary buyer covers a lot of the market: Beijing rolls out harshest ever home buyer down payment levels
Beijing municipal government imposed the harshest down payment requirements in history on Friday, after previous property cooling measures failed to prevent an ongoing and frenetic home-buying spree.

Down payments for second-time “ordinary home” buyers was raised to a minimum 60 per cent, from 50 per cent before, while second-time “non-ordinary home” buyers will have to pay a minimum of 80 per cent, up from 70 per cent, according to the city’s housing and banking authorities.

The capital’s authorities introduced the distinction between “ordinary” and “non-ordinary” home on September 30. Homes larger than 144 square metres, or with a price 20 per cent higher than government-set guidelines, are defined as “non-ordinary”, and are subject to higher down payment requirement.

Most of the city’s flats developed by the private sector would be considered “non-ordinary – which covers most trade-up buyers – the minimum payment has been raised to 80 per cent, the highest in Beijing history and the highest of all mainland cities.
China's homebuying restrictions aren't working because of the liquidity pumped in 2016 and the lag in effect. Chinese cities are tightening in response to the lagged effects even as liquidity is turning the corner. The groundwork for an overshoot has been laid. Prepare for housing downturn panic in 2H 2017 or early 2018.