2018-08-18

America Will Be Lucky To Escape 2020s and 2030s In Peace

Turchin: The Ginkgo Model of Societal Crisis
What I found remarkable as we have lived through the past two years (indeed, the past eight years since I made my prediction of the impending crisis), is how precisely we today are following the trajectory into crisis that my colleagues and I saw in the historical societies we have studied. The explanation, probably, is that the three major mechanisms driving up social pressure for crisis in the SDT work in a mutually reinforcing way. The fundamental drive (a kind of a “pump” that drives up social pressure) is the oversupply of labor, which developed after the 1970s as a result of multiple interacting factors, and more recently was made acute by technological change driving automation and robotization. Oversupply of labor is the root cause for both popular immiseration and elite over-production/intra-elite competition. Both of those factors, then, contribute to the fiscal crisis of the state, because immiserated population can’t pay taxes, while the elites work to reduce the taxes on themselves.

We saw all those mechanisms operating in our current crisis. Immiseration of large swaths of the American population was what fueled the successful campaign of a counter-elite presidential candidate, Donald Trump. Intra-elite conflict has reached unprecedented heights (since the First American Civil War), as the established elites are using various means at their disposal to get rid of the counter-elite chief of state. At the same time, a weird coalition of Trump and the established elites (remember, laws must be approved by the Congress) legislates deep cuts into the taxes the elites will pay, bringing the fiscal crisis of the state much sooner. Political violence has also reached new heights, although thankfully mostly demonstrators and counter-demonstrators are beaten up, not killed (a major exception was Charlottesville a year ago).

Until last year I thought that we collectively have a decent chance of avoiding the crisis, but I now have abandoned this hope. A major reason for my pessimism is the resolute refusal by our ruling class (including its both Liberal and Conservative wings) to see the real causes of the crisis. They are internal, not external. As a result, the mid-term elections will be completely free of (largely mythical) Russian influence, but no attempt is made to address the deep structural-demographic causes. All these pressures continue to increase.

However, unlike in the Ginkgo leaf analogy, the fan of probabilities of emerging from a crisis is heavily lopsided—and unfortunately in favor of really negative outcomes. Over the years I have studied about thirty cases of historical societies going into crisis, and emerging from it, ranging from Rome and China to France, Russia, and the United States. I scored the crisis severity in each by such parameters as the effect on the population (none, mild decline, catastrophic decrease), on the established elites (from mild downward social mobility to dispossession or even extermination), and on the state (territorial fragmentation, external conquest). Adding together these indicators, here’s the result:
Click through to see the impending risks.

Central Planning 101: Blood-Sucking Realtors! The Rent Is Too Damn High!

iFeng: 房租暴涨正在惩罚不买房的人?资本抬租抢房? 监管部门出手了
What does the average monthly rent of nearly 5,000 yuan mean? You should know that in the first-tier cities, the starting salary of college graduates last year was an average of 5,000 yuan. According to the "2018 China University Graduates Salary Rankings" data, even the top graduates of such top universities as Tsinghua University and Peking University have an average monthly salary of 9,000. According to this calculation, renting a house in Beijing alone will cost a large part of their salary.
The article has a table showing average salaries from 20 universities. Even graduates from 2013 must pay 40 percent of their salary for rent.
There are bizarre stories of rents rising like home prices during the housing bubble:
Recently, in the Shuimu community, a landlord posted that the 120-square-meter three-bedroom home of Tiantongyuan should be rented. The psychological price is expected to be 7,500 yuan/month. After asking about the two housing rental companies, they will compete for each other. Give the price of 10,800 yuan / month, pay 11 months.
Surprisingly, because of a post on the forum, long-rental apartment operators are considered to be the driving force behind the increase in rents and encounter a major public opinion crisis. Not only did it alarm Beijing's various administrative departments, the People's Daily also commented that it should strictly control the bad mediation of bad intermediaries, but long-term apartment operators also feel wronged.
The landlord who posted the post said that the agency of a company said at the time that no matter how much the other company produced, it would add 300 yuan. According to the China Times, Mr. Chen, the landlord who posted the post, said that he rented a house when he was young. He felt that young people were not easy, so he wanted to expose this matter.

In the reply to this post, many netizens shared the same experience.

The netizen named the answer, replying on August 3rd:

Around my home, the normal 7500 to 7800 a month, the intermediary is now 9500 × 11 months of large-scale collection.

The netizen named Leonardo replied on August 2nd:

I discovered this routine 2 years ago. Last year, the neighbor's two-bedroom rental market price was 5k-5.5k. I might be willing to go out for 5k when I started talking about it. The result was that the agent directly rented 8k for 3 years. He was forced to rent it to him. A week later, I saw his house in the circle of friends in the intermediary. The living room was partitioned and rented as 3 dwells. The whole rent was 9.5k.

Posts on the forum have quickly become network hotspots after being reported by the media. Long-term rental apartment operators have also been labeled as “malicious competition, raising the rent” and “sucking the blood of young people”.
Rental companies are hitting back. They say the above story and others like it are nonsense:
The People’s Daily published a comment on Weibo on the evening of August 17th:

Rents are up and down, and if it fits the market logic, it is not necessary. However, unscrupulous intermediaries make waves and maliciously promoted, not only disturbing the rental order, increasing the cost of living for tenants, but also affecting the livability of the city and harming the image of the city. Strictly prevent "specialized rents", and once the relevant behaviors are verified, they will be severely punished and jointly punished. Supervised by law, and also lease the market to be healthy.

However, long-term rental apartment operators are also aggrieved.

According to the 21st Century Business Herald, the eggshell said, "The incident mentioned in this post, we have conducted internal investigations and found that there is no such owner and property, it is false information, which is a typical rumor and disruption of market behavior. We have not We have a price war with our friends, and there is no vicious competition. At present, we are conducting investigation and evidence collection and notarization, and we will resolutely resort to legal means to protect our legitimate rights and interests."
The government concurred:
Freely, an official response was issued on August 17th, saying that the incident was a false rumor, there was no evidence, and the rent of the region was never higher than the market price.
Realtors are driving up rents, however, by upgrading properties:
However, from the perspective of the industry, long-rent rental housing is indeed an important factor in the rise in rents.

Zhang Dawei, chief analyst of Zhongyuan Real Estate, said: "Many leasing companies, especially long-term rental apartment operators, hoard low-end and low-end properties at low prices, and upgrade them. After the renovation, they rent the houses at high prices and earn rent. The difference brought by the rise."

On August 17, I loved my vice president Hu Jinghui to tell the media in the conference call that when the capital entered the long-term rental apartment, it actually pushed the rent up. Hu Jinghui directly named the free, long-rent apartment operators such as eggshells to close the market at a price 20% to 40% higher, which led to a direct increase in the cost of selling houses, which seriously violated the market rules.
Developed cities such as Beijing are also hitting a natural supply limit, in addition to the government crackdown on real estate:
Zhang Dawei believes that capital has flooded into the long-term rental apartment market, but the rental market is not much new supply. The long-rent apartment occupancy behavior has magnified the tension between supply and demand, which is equivalent to adding a barrier to earn the rent difference.
Obviously, using only "capital robbing houses" does not fully explain the current situation of rising rents.

Compared with the impact of long-term rental apartments on the rental market, experts said that the shortage of supply is an important reason for the increase in rents.

According to data released by the Shell Research Institute, Beijing has 8 million renters. The current number of leased houses is about 3.5 million, facing a rental gap of more than 4 million. Supply shortages are still the main contradiction in the current Beijing housing rental market. In fact, not only Beijing, but also major supply problems in China's major first-tier cities.
One other factor that isn't mentioned at all: recent government policies to promote renting. As is the case with every government policy shift, speculators and smart money front run the move.

The two cities with the highest increase in rental prices are Beijing and Shenzhen. Only two months ago, there was news that China was promoting lending for long-term rentals. One of the first moving cities was Shenzhen.

The Final Stage: China Copies U.S. Housing Bubble Policies
Liu Feng, a 28-year-old product manager, was one of the first to take out a rental loan from CCB for his 90 square meter (970 square feet) three-room apartment in Shenzhen.

He said his monthly payments under the plan - including interest - came to about 6,000 yuan, less than if he paid for it himself, meaning the bank was effectively subsidizing his rent.

“The property developer leased the apartment to CCB, and CCB leased it to me,” said Liu.
There's no mention of the government's rental promotion scheme, but credit-backed rental agreements goes a long way to explaining how prices could suddenly rise as they did during housing bubbles when overall consumer prices and wages are stable.

To recap, the government is cracking down on new home construction and home sales. Real estate companies are shifting into rentals. The government has a pilot program of giving "mortgages" to renters. Rental companies are renovating housing and increasing rents. There's a great imbalance between rental units and rental population in some cities. Rents are soaring.

Looks like the market is functioning perfectly, producing the output (prices) that one would expect given these conditions.

2018-08-17

Trump Looking for Pre-Election Deal or Knockout Punch

Given how events have played out to this point, I'm starting to lean away from expecting a pre-election deal and towards escalation with China. Putting odds on that is difficult because negotiating before the election makes sense either way. If Trump wants some type of pre-election deal to boost his poll numbers and stock prices, he has to do it soon. He doesn't have to give up everything on trade, maybe it's only a small deal, a "first step," but it has to happen soon because voters start early voting by late September and early October. It's also the best time to hit China hard because they likely believe he wants a pre-election deal. They might think they can take advantage of the U.S. election cycle. It is the perfect time to show how much cost he's willing to bear for the deal he wants.

The Guardian: China to send delegation for US talks to avert trade war
A Chinese trade delegation will visit the US this month to kick off a new round of talks, the first since negotiations broke down two months ago.

China’s ministry of commerce said the US had invited a delegation, led by vice-commerce minister Wang Shouwen, to meet a group led by US Treasury undersecretary, David Malpass.

Updated: Chinese Scholar Lights Up Social Media With Maternity Fund Idea

Update: An article with more detail on the policy proposal is posted at the bottom.

A Chinese scholar has come up with a fertility enhancing policy. Force everyone to have a savings account for children, but it can only be unlocked if you have a second child.

iFeng: 央视严批倡设生育基金“砖家”:少打群众的歪主意!
Original title: "Establishing a maternity fund system" is a ridiculous suggestion
What is ridiculous is family leave. Who pays for it? The company pays for it because the government simply mandates time off for workers. Do companies pay the full cost? No. They adjust their hiring practices to reduce the risk of paying family leave: hire fewer women of child bearing age. Family leave policies penalize the people they're trying to help.

Family leave is a perfect example of voters (in democratic countries) wanting something for free. Neo-Socialism is built around the idea of mandating actions, but not paying for it. Obamacare is an example of Neo-Socialism, albeit an extremely ineffective one that was instead designed to loot middle class Americans. Force everyone to buy insurance. The cost falls on the individual, not government. Family leave is another one. Force companies to bear the cost of the policy. Forcing everyone to have a savings account to finance family leave puts skin in the game.
Recently, some media published a signed article on "Improving Fertility: A New Task for China's Population Development in the New Era." Among them, the "establishment of a maternity fund system" triggered a strong rebound in public opinion, and social media was slamming.

First look at the expert's specific recommendations: the establishment of a maternity fund system, try to achieve the self-operation of the two-child birth subsidy. It is stipulated that citizens under the age of 40, regardless of gender, must pay a maternity fund at a certain percentage of their salary each year and enter their personal accounts.

The expert further pointed out that when a child has a second child or more, he or she can apply for a maternity fund and receive a maternity allowance to compensate women and their families for short-term income losses caused by the interruption of labor during the reproductive period. If the citizen has not given birth to two children, the account funds will be taken out when they are retired. The maternity fund adopts the pay-as-you-go system, that is, the maternity fund that has been paid by the individual but has not been taken out, and can be used for the government to pay the maternity subsidy to other families, and the insufficient part is subsidized by the state.
It would be more effective to confiscate the accounts after age 40 and use the funds to pay for the maternity leave. [Update: see below, this is in the proposal.] The state could see how behavior changes and could set the tax much lower assuming most people still only have one child. That's how China should carry it if it wants to maximize fertility because nudging works. Neo-socialism is often effective at changing behavior (even if it creates more problems down the road). Leaving the money in the account makes sense because people with fewer or no children need it for retirement, but as long as the state is providing pensions, confiscating it and making it a pure tax will lead to higher fertility.
These so-called suggestions give people a feeling of "suddenly separated from the world". If it is not in black and white, it can't be believed, even though we have seen many experts in these years.

First of all, fertility is the basic right of human beings. It is the freedom of individuals and families to live or not. We can encourage fertility through propaganda, or we can formulate incentives to guide fertility, but we cannot punish those who are not born or have fewer families in the name of “establishing a maternity fund”. This kind of suggestion is unfounded, unreasonable, and inconsistent. It is contrary to common sense and exposes the lack of professionalism of researchers.
Anyone who uses a system such as Social Security and doesn't have children is effectively taxing families. A person with children must pay for their own children, plus retired people. Social Security is a ponzi scheme based on rising population. If you do not have children, you are "stealing" from the fund. That's not hyperbole. There's no savings in the fund. Your retirement is paid by younger workers. If you don't add new workers to the pool, you're "stealing" from the fund.

This is how things work in socialist systems. Personal responsibility and incentives get lost in the complexity and the rearranging of social relationship. If there's no social security, then people understand the incentive to have children for old age. If they don't want or can't have children, they know to save all that money they would have spent on children for retirement, to pay someone else's children to take care of them. Social security creates free riders who do not have children and do not pay into the system.
Secondly, if you don’t want to beat the masses, don’t move. In recent years, with the rapid economic growth, the people's living standards have improved significantly, but at the same time we have to see that the burden on housing, education, medical care, etc. is still very heavy, and the level of Chinese household debt has remained high for a long time. According to a report just released by the Institute, as of 2017, the ratio of household debt to disposable income in China is as high as 107.2%, which has exceeded the current level of the United States.

The reason why China's current fertility rate is not high, in addition to economic and social development, women's labor participation and other objective reasons, the sharp rise in the cost of raising children is an important reason, this is the consensus of the community. Some young people want to have children, but they are really under pressure. The cure for the right medicine is to solve the reality and worries of people's births through a series of effective preferential fertility policies and public investment in real money, rather than the opposite. In fact, the wool from the people, it seems to be a national worry, but it is a high-level black. This is also the key to why such a proposal will be unanimously criticized by public opinion.
People always want free stuff.
Moreover, China's economy is in a critical period of transformation. Faced with the uncertainty of foreign trade and the diminishing marginal effect of investment, the role of domestic demand in economic development has become more apparent. We must do everything possible to reduce the taxation, reduce fees, improve social security and other policy measures, enhance the momentum of domestic demand, and promote the transformation and upgrading of consumption, rather than the so-called "fertility fund" to increase the burden on the masses. Therefore, whether it is from the improvement of people's lives or from the long-term consideration of healthy economic development, we should try our best to let the masses' wallets bulge, instead of squatting.
The critics are right about the tight finances of Chinese consumers. People don't have spare capacity to be paying into a maternity fund. It's also true that lowering home prices would be a more effective policy. Where family formation is affordable, people have more children. (A big reason why mass migration costs are under estimated is the pressure it puts on real estate prices. Migration policies are annihilating living standards in many Western countries. China's urbanization policy is driving its GDP and also crushing its fertility.) However, China struggles with lowering real estate prices and instead comes up with policies to correct the problems caused by planning, or more fundamentally from having an atheist-materialist value system at the core of the CCP.

The best policy is do nothing. Don't create socialist systems that destroy civilization from the ground up and people will deal with the problems in organic, sustainable ways. A maternity fund only looks like a bad idea because the family leave and social security are very stupid ideas that create massive unintended/unseen costs. Institutionalized stupidity is expensive and socialism is a low intelligence system down to its dysgenic effect on fertility. Stupid people also don't understand how socialism inevitably leads to totalitarian systems or collapse because they don't work. Government increasingly becomes involved with healthcare, education, even fertility, because its own policies creating massive contradictions in the society.

When it comes to fertility, it's not only socialism destroying the society. It's also capitalism. As some have put it, the cities are "IQ shredders" that maximize current GDP, but will eventually collapse future GDP because the people producing high levels of GDP leave few to no heirs. An extreme example of eating your seed corn. Until policymakers understand the fundamental flaws of their systems, unlikely because they are ideologically and even morally opposed, the countries they "manage" are headed for extreme downward adjustments. They have a massive turkey problem that is playing out on multi-generational time scales. The benefits are collected by those living today and the costs will be borne by future generations.

Update: In the post, I said the proposed fertility-boosting policy would work better as a tax. The article I read didn't fully explain how it would work. It turns out, the scholar did propose it as a pay-as-you-go system where the money would be taxed from people with one or fewer children, to pay for maternal leave of people with two (or more?) children. The money would be replaced when they are in retirement, in a roundabout way by the children the policy is designed to help.

提高生育率: 新时代中国人口发展的新任务
Establish a maternity fund system and try to achieve the self-operation of the two-child birth subsidy. It is stipulated that citizens under the age of 40, regardless of gender, must pay a maternity fund at a certain percentage of their salary each year and enter their personal accounts. When the family has a second child or above, they can apply for the withdrawal of the maternity fund and receive a maternity allowance to compensate the short-term income loss caused by the interruption of labor during the growing period of women and their families. If the citizen has not given birth to two children, the account funds will be taken out when they are retired. The maternity fund adopts the pay-as-you-go system, that is, the maternity fund that has been paid by the individual but has not been taken out, and can be used for the government to pay the maternity subsidy to other families, and the insufficient part is subsidized by the state.

2018-08-16

Biggest QT Week Yet, $29.1 B Reduction, Only $12.5 B in Treasuries

The Fed reduced its balance sheet by $29.1 billion this past week. It was the biggest $QT week thus far, but only $12.5 B in Treasuries, less than I anticipated. The S&P 500 lost 39 points.

While the S&P 500 is relatively correlated on a weekly basis, it hasn't tracked the Fed balance sheet over the longer-term, though it looks like a headwind. The Chinese yuan has tracked more closely.

Central Planning Goes Haywire: Beijing Rents Soaring

Cities leading the way in cracking down on home price increases, such as Shenzhen and Beijing, are now experiencing soaring rents. Speculators are blamed for moving into rentals and buying up properties to control the market. Intermediaries are also blamed for helping. The work of the central planner never ends because the harder they work, the worse things get.

The headline of the second article highlights the potential PR disaster if prices aren't stabilized: Rising home prices are an economic problem, rising rents are a societal problem.

iFeng: 上涨15.5%!停不下来的北京房租
Zhongxin Jingwei client August 15 (Luo Huanlin) Before entering the Beijing Film Academy officially, the graduate student Qi Ming needs to find the house first.

In mid-August 2017, at this time last year, he and his friends shared a 60-square-meter two-bedroom house in Jiandemen. The house is the landlord who is contacted by the intermediary, and the monthly rent is 6,500 yuan.

In mid-August of 2018, You Qiming finally succeeded in finding a new residence, which is also a 60-square-meter two-bedroom, this time also 6500 yuan per month. But the difference is that he originally went to Beijing Film Academy and only needed to ride 3 kilometers, which took less than 15 minutes. Now it takes at least 1 hour to get to the school by subway. The small two houses around BFA have generally risen to 7500 per month. Above that, he can't afford it.
Beijing rents top in the country

The excuse of You Qiming is not an example. According to a report compiled by the Shell Research Institute from the Real Data database, Beijing has taken the lead in a number of housing rental data. In the first half of 2018, the absolute value of rent in Beijing reached 76.1 yuan per square meter per month, while the second place in Shenzhen was only 68.8 yuan per square meter per month.

Beijing's rental income ratio reached 29.81%, and the total rent was as high as 137.63 billion yuan. Compared with this, although Hangzhou surpasses Beijing in the per capita annual rent to reach 16,375 yuan, the total rent is only 38.67 billion yuan. The Beijing housing leasing market is huge and the price is high, basically forming other cities in the country. "The situation."
Similarly, Yu Qiming issued a sigh of "prices all the way" and there is data to support it. According to a report compiled by the Shell Research Institute from the Real Data database, the average rent for rents from August 6 to 12, 2018 was sampled, and the average rent for rent in Beijing increased by 15.5% year-on-year. In the rental market Beijing and Shenzhen are leading the way.

And specific to individual communities, there is a greater increase. For example, Tiantongyuan [In Changping, North Beijing], which was dubbed by the netizens as “the largest community in Asia”, rented two houses in the East 2nd district for 4,300 yuan per month in the same period of last year. It has been rising since the end of last year and has risen to 6,000 yuan per month as of July 30. The increase is nearly 40%.
The first table below shows rising rents in Tiantongyuan. The second shows Beijing and Shenzhen leading the country with average rent increases of 15.5 and 16.1 percent.

Zhaopin: China White-collar Average Salary Dips in the First Quarter of 2018
First-quarter of 2018 China white-collar labor market highlights:

The average monthly salary for white-collar workers fell to RMB7,629 in the first quarter of 2018, down 2.1% over the fourth quarter of 2017.

Beijing continued to be the city with the highest pay in the first quarter of 2018, with an average monthly salary of RMB10,197, slightly below RMB10,310 in the fourth quarter 2017.
Back to the iFeng article:
Qian Gang is a “free housekeeper” who rents a room freely. He told the Zhongxin Jingwei client (WeChat public number: jwview): “The media reported that the Beijing rent increase of 10% in July is not new, in fact, Beijing. The rent has already risen for half a year.” He said that since Beijing’s efforts to regulate the housing rental market at the end of 2017, “Beijing’s rent from south to north has suddenly risen.”

Qian Gang observed the housing data of the area he was responsible for. He believed that the rent increase from last year to this year was “very fierce. Many houses were originally priced at 5,000 yuan. It is difficult to find a house below 5,500 yuan.
A couple of white collar workers would have a household income of about 15,500. If they keep housing costs to one-third of salary, they could only afford a 58 to 68 sqm apartment based on Beijing's average rental (going by the two different numbers above). Fertility crushed.

A crackdown, justified or not, may be coming as some blame the rental agencies for driving up rent:
According to industry analysts, the current free-to-market, eggshell and other rental mediation platforms have begun to form a monopoly. Zhang Dawei also analyzed that more than half of the current rental market has been monopolized by various leasing agencies, and the largest leasing institution has controlled hundreds of thousands of suites. It is true that the fundamental contradiction is the tight supply and demand structure in the leasing market. In particular, some suburban housing units have been strictly regulated in the past year and cannot be rented out. In addition, the rental-to-sale ratio is too low, and there is a general expectation of rising rents. Fundamentally, there is nothing wrong with the intermediary.

"Intermediaries can't create panic, but they can amplify panic and use panic to make more money." Zhang Dawei said that from the perspective of capital, intermediaries are now generally engaged in investment business, generally locking in the 3-5 year lease period and earning the difference. In this case, the rising space for future rents is the intermediary's profit. From the perspective of the listing itself, the low-end and mid-range listings were packaged into medium-to-high-end rental listings, which also significantly increased the rent.
iFeng: 北京房租上涨背后的资本逻辑:房价是经济问题 房租是社会问题
Each group has different needs for leasing. High-income groups, although they have the ability to buy a house, need to rent a house nearby because of changing jobs or going to school. The middle-income group is mainly composed of new graduates such as fresh graduates, freelancers, and migrant workers. It is the main demand group in the leasing market, with the largest base and increment. Low-income groups with housing difficulties are in desperate need of the most basic housing security.

These three groups have a common appeal, that is, the lease period is stable and the rent is reasonable.

House prices are an economic issue and rent is a social issue. The rise in housing prices affects economic stability, and the rise in rents is quietly damaging, damaging people's quality of life and willingness to consume, and laying a hidden danger to the competitiveness of a city. Rents are more scary than house prices.

Why is Beijing rent rising? On the surface, the supply is reduced, the simple houses with safety hazards are removed, and the group rent is forbidden; the demand has increased. Every year, new employment groups in Beijing want to rent houses, and a large number of young people with “Beijing Dream” come to the city. . The gap between supply and demand leads to rising rents, which is a concise economic logic.

But this time the rent has risen, there are still differences.

Driven by the policy enthusiasm, the participants of long-term rental apartments have a strong impulse to seize the track and market share. At present, many long-term rental apartments operate as “two-host mode”. Under the pressure of huge housing competition, aggressively expand housing and seize the market. The founder of an apartment once said that the company is about to complete a new round of financing, and that the money will be used for the company's nationwide expansion, even at no cost. Such radical listings will inevitably push up the market rent. The various parties in order to compete brand market share, high probability will select "financing - Get project - refinancing - and then get the project," added leverage development model to scale-oriented. Large-scale financing, aggressively grab the housing, seize market share at all costs, and strive for the pricing power of rent. Capital is eager to move from a money-burning model to a money-making model, and rising rents are an inevitable result.

And this is the capital-driven logic of this Beijing rent increase.

"Once the capital is selected, it will only continue to raise on it in the future. If the latecomer does not have a way to live, he will not be able to get the money." One founder once felt so. “burning money” burned out industry barriers and burned out the pricing power of the industry. Companies with insufficient capital strength could not enter the market or they could only stand by.

Along with the competition for housing and the rise in rents, it is the operational risk of the operating agencies. In the case of hoarding during the aggressive expansion period, the base rent may be too high, and the price of flour and bread may be upside down. Under the pressure of huge housing competition, there may even be some operating agencies, which are not perfect in preparation in the early stage. Long-term leases have houses with property rights. After entering the operation, they will face the change of property rights and the change of leases, and benefit the tenants. Caused great losses. From the perspective of externalities, the operational risks of an organization are also transmitted to competitors, and their operational risks are transmitted to the same institutions. Leasing institutions with poor management and high financing costs are likely to have insufficient cash flow to cover costs and constitute a substantial default. Eventually leave a local feather in the rental market.

Under the guidance of "the house is used for living, not for speculation," it is necessary not only to prevent speculation in the house, but also to avoid speculation in rentals. The regulation of the leasing market requires legal and institutional norms, and it requires more strong supervision. It must be bound by capital, and the policy orientation is people's livelihood. Rather than being in the jungle of capital, capital is king, and markets are sometimes out of order in the field of public goods supply.

Cities Ramp Up Real Estate Regulations Following July Price Rise

Althoguh they weren't at the heart of the problem last month, Shenzhen and Suzhou announced a renewed attack on speculators and vowed to clean up the housing market. Ten and nine government departments, respectively, issued a joint statement in those cities. Last week, the central government said it will hold cities accountable if they fail to control real estate prices.

Caijing: 深圳十部门联合出击整顿楼市 严禁投机炒房等行为
On the afternoon of August 14, Leju got a joint report issued by the Shenzhen Ministry of Land and Resources, the Municipal Supervisory Committee, the Housing Bureau, the Public Security Bureau, and the Taxation Bureau, jointly launched the fight against the violation of the interests of the masses and the violation of laws and regulations to control the real estate market chaos. The Special Action Work Plan has severely cracked down on the chaos in the property market.
Suzhou issued a similar statement and outlined all the illegal activity it will target.

Caijing: 苏州九部门联合发文:开展规范房地产市场秩序专项行动
In addition, according to the summary of Suzhou Housing Construction, there are 31 illegal activities in this special action focused on rectification.

Among them, there are 8 speculative real estate speculations, including bundled sales in the form of marketing channels, starting prices, monopolizing housing, and manipulating housing prices; after entering the sales chain, reluctant to sell or disguised hoarding housing; through newspapers, radio, television, websites, New media and other means to fabricate and disseminate real estate virtual information.

There are 10 illegal and illegal acts of brokerage institutions, including “Yin and Yang Contracts”, and the provision of false materials to defraud the purchase of housing.

There are 7 violations of laws and regulations of real estate development enterprises, including the purchase, approval, reservation, numbering, sale of cards, bank deposit funds, etc., before the acquisition of the pre-sale permit for commercial housing, or the deposit of the deposit, disbursement, In good faith and other acts.

There are 6 advertisements for publishing false real estate advertisements, including the publication of false and homophonic advertising terms, such as: × city pursuit, "up" sound, confusion, consumption and other behaviors.

Sweden Democrats Should Surprise in September Election

Sweden Democrats have been polling between 17 and 25 percent, but this story below makes it sounds like there could be shy SD supporters who will show up at the ballot box.

ZH: "I'm Not A Racist, But I'm A Nationalist": Why Sweden Faces A Historic Election Upset
“Trains and hospitals don’t work, but immigration continues,” Roger Mathson, a retired vegetable oil factory worker in Sweden, told Bloomberg on the same day as the violent, coordinated rampage by masked gangs of youths across five Swedish cities.

...“I’m not a racist, but I’m a nationalist,” Mathson said. “I don’t like seeing the town square full of Niqab-clad ladies and people fighting with each other.”
Trump voters didn't want to tell pollsters they supported Trump because they thought it was socially unacceptable to some degree. It is far worse in Sweden for SD supporters. I suspect the polling underestimates their support, but we'll see.

Additionally, voters who want to send a signal to the establishment have one option: Sweden Democrats. It's the only opposition party because it's the only party that has been rejected as a coalition partner by every other party. Mainly on migration, but if a voter considers migration important enough to vote on, then they are also more likely to vote SD. The only vote that will "make them listen" is one for SD.

Look for SD to surprise on the upside.

Spray and Pray Faster: 1 Trillion Yuan Infrastructure Bonds in August

SCMP: China’s finance ministry goes back to old playbook with move to spur bond sales
The move also indicates a return to Beijing’s old playbook of relying on debt-fuelled state investment to keep economic growth on track at a time when the leadership is worried about dangers beyond its control, though it has refrained from an all-out stimulus strategy, analysts said.

The Ministry of Finance issued the order on Tuesday, after Beijing decided to prioritise maintaining growth over cutting debt due to headwinds from a trade war with Washington and decelerating investment at home.

The cabinet had already said it would allow local governments to issue 1.35 trillion yuan (US$195.12 billion) of “special purpose” bonds for infrastructure investments. But the finance ministry took it a step further, telling local governments to sell at least 80 per cent of those newly approved special purpose bonds before the end of September. Most local government bonds are sold to the country’s financial institutions and a surge in their supply will in turn put pressure on the People’s Bank of China to loosen its monetary policy.

...Local governments have been quick to take advantage of the new opportunity to raise funds.

In Guangdong, the provincial authorities released three bond sale prospectuses on Tuesday, aiming to raise a total of 44 billion yuan for urban development, affordable housing and water treatment projects in the Pearl River Delta region. The bond issues were described as “extremely urgent” by the Guangdong government in the official documents.

Local government bond sales could raise more than 1 trillion yuan this month, official newspaper the China Securities Journal reported.
A couple of days ago it was supposed to take 4 months. Spray and Pray: Work Round the Clock to Issue Local Govt Debt, 1 Trillion in 4 Months

2018-08-15

Rush to Buy New Homes Pushes Prices Up 1.2pc Nationally in July

It looks like Chinese homebuyers rushed to buy in July with new home prices rising 1.2 percent. Larger gains were seen mainly in lower-tier cities.

Reuters: China's new home price growth hits two-year high as small cities boom
Outside the recent boom periods of 2016 and early 2013, monthly price gains of more than 1 percent have been rare in China's official home price data.

China Squeezing Local Govts

Fixed asset investment from state entities tumbled 5.8 percent in July. I haven't seen as much shock about that number as I expected. Granted, the government wants the private economy to grow faster (at least it says that). Local governments and SOEs are the biggest threat to the private economy because they'll get first drink at the credit tap. China also doesn't want another real estate bubble. It says it doesn't want speculative credit in housing. The PBoC and CBIRC say they'll support lending. Maybe the private economy is getting a headstart, first dibs at new credit and in a few months, local governments and SOEs will by unleashed. If not, it is hard to imagine the private economy sans real estate absorbing enough credit to keep the economy going.

The Chinese government is also using carrots and sticks with local governments. On the one hand, its rushing 1 trillion in special-purpose bonds over the next four months.

On the other...

SCMP: Low-hanging fruit and a mountain of debt – how China’s credit binge is playing out

Now, the vineyard sits at the centre of a “new town” covering an area of 27 sq km (10.4 square miles). A 3.3 billion yuan (US$481.8 million) hospital has just opened there, an imposing city hall will follow, and on a recent visit by the South China Morning Post, workers were installing curtain walls on two high-rise buildings that will be the headquarters of the city government’s biggest fundraising vehicle, Changde Caixin Financial Holding Group.

“This is totally beyond my imagination – the whole area developed very quickly after several new main roads were built,” said Ma, a 44-year-old father of two. “But construction of many government projects has really slowed down recently. It seems they’re suddenly running out of money.”

...It is one of hundreds, if not thousands, of Chinese cities trying to take a bigger place in the country’s economic landscape. But like many others, its ambitious development blueprints and countless infrastructure projects go well beyond what the government can afford. Changde’s fiscal income of 16 billion yuan last year covered just a quarter of its spending – the rest came from Beijing and Changsha.

...The mid-sized city made headlines in June when a memo from a meeting between government officials and local bank branches was leaked. According to the memo dated June 22, the Changde officials asked the banks to roll over all loans to financing vehicles to the local government and its affiliated vehicles from July, and to lower their interest rate to the benchmark of 4.35 per cent a year.
See: History Repeats: Chinese City Tells Banks to Lend To City LGFV or Else

Back to the SCMP story:
A local private equity professional who is involved in raising money to fund government projects said “Changde did nothing different from hundreds of other Chinese cities” through its borrowing.

The financing vehicles did a pretty good job of shoring up the local economy, improving urban infrastructure and controlling debt,” said the person, who declined to be named.

...In Changde, it was clear by April that the authorities were under huge pressure to start repaying debts. City officials called a meeting of more than 30 financial institutions, telling them the government guarantee for local financing vehicles would be withdrawn in line with Beijing’s orders.

One banker who was in the room said it was not taken seriously by the lenders at the time because that “tacit guarantee” had always been there and all local governments were part of the centralised apparatus, backed by Beijing.

But the banks have become worried since it became apparent that the central government may let some local vehicles go bust.

...One of the first to start offloading assets is Changde Economic Development and Investment Group, which has instructed agents to sell properties including stores at two tourism sites – Hejie, or River Street, and “Little Hanover”, a new area inspired by the German city.
Lots of China bulls think Chinese officials are smarter than their Western counterparts. Let's assume its true. They know QE is failed policy. Stimulating the economy and blowing bigger credit bubbles will put them right back into a larger crisis in 3 years. The smart thing to do is break the cycle. Stop borrowing. Stop building simply for the sake of GDP. Let debts default. Have a recession. It's the only way to shake excesses out of the system.

I still believe China will err on the side of inflation and currency depreciation because that's the lesser evil from a political standpoint. Yet whether by inflation or deflation, the impact on the global economy and emerging markets will be bearish.

China and Spain

2018-08-14

Spray and Pray: Work Round the Clock to Issue Local Govt Debt, 1 Trillion in 4 Months

Local governments only repaid 17 percent of debt in the first half of the year, rolling the rest over. In the second-half of the year, maturing debt will more than quadruple. Governments are also behind on issues

State Council: China accelerates special-purpose bond issuance to stabilize investment
China’s Ministry of Finance (MOF) unveiled a guideline on Aug 14 to accelerate the issuance of special-purpose bonds by local governments to stabilize investment, expand domestic demand, and strengthen areas of weakness.

The ministry has urged local authorities to speed up preparations for the issuance in August and September so as to complete at least 80 percent of the annual quota by the end of next month, while the majority of the remaining 20 percent is expected to be accomplished in October.

iFeng: 财政部发文催“赶工”:4个月里要发近万亿地方专项债
According to the data given by Peng Zhiyuan researcher Wu Zhiwu, the repayment of local government bonds in the first half of 2018 was 160.059 billion yuan, and "borrow new to pay old" scale was 134.516 billion yuan, and the actual repayment rate was 16.62%. In the second half of the year, the local government bond repayment amount is 678.302 billion yuan. If calculated according to the actual repayment rate in the first half of the year, the borrow new to pay old scale will be 565.315 billion yuan in the second half of the year.

In addition to publicly available explicit debts, local governments still have a lot of hidden debts. A research report by a third-party agency said that the debt ratio of many Chinese local governments may have exceeded the international debt risk warning line.
The problem is the economy is slowing and local governments are expected to grow:
But the dilemma. The local debt narrative, B side, is that in the "troika", the rapid pull of "export" and "consumption" is hard to count now. So only investment.

Of course, according to the Ministry of Finance, the role of issuing local debt (specialized bonds) is to "stable investment, expand domestic demand, and make up shortcomings."
Governments are "rushing" debt to market:
In July, the scale of local bond issuance has reached a new high of monthly circulation this year, reaching 756.954 billion yuan. (But there is also a sentence that says it will be a little higher last year.)

Take a look at the special debts. Last Thursday, "Finding Finance and Economics" in the article about the new debts of local government special debts, predicted that the rhythm of special debts will be rushed in the next few months. Sure enough.
- The amount of local government special bonds arranged by the State Council this year was 1.35 trillion yuan (an increase of 550 billion yuan over the previous year), but only 367.3 billion yuan was completed in the first half of the year.

- According to industry sources, in July, 19 provinces and municipalities re-issued nearly 200 billion special bonds, that is, more than 500 billion yuan in the first seven months.

- The Ministry of Finance's "Opinions" require that the cumulative completion of new issuance by the end of September should not be less than 80%. In other words, in August and September, all localities have to “catch up” and reissue special bonds of about 500 billion yuan.

- The Ministry of Finance's "Opinions" require that the remaining issuance quota should be mainly issued in October. In other words, there will be another 270 billion in October.

This means that nearly 1 trillion yuan of local government special bonds will be concentrated in the four months from July to October.

Can't Escape the Dollar Cycle

iFeng: 逃不掉的美元周期,历史上的三轮新兴市场危机
ntroduction: Since the 1970s, emerging markets (EM) have experienced three large-scale exchange rate depreciation - the 1980s; the late 1990s; 2015-2016. And each round of emerging market currency depreciation corresponds to a strong dollar background, and eventually led to serious stagflation in some emerging economies, resulting in economic and financial crisis.

Combined with the previous article, we believe that each of the emerging crises driven by the strong dollar is the background of the appreciation of the US dollar. The fastest-growing emerging markets in the current period suddenly have liquidity, the financing conditions are suddenly braking, and the leverage ratio has risen sharply. The exchange rate devaluation is not only the appearance of this process, but also a negative feedback loop with the imbalance of emerging market economies.

Source: GF macro Author: GF macroeconomic research team

After some discussion of Turkey, the article moves on to the resource exporters and manufacturing countries:
For resource-based emerging markets. Resource-based EM countries include Brazil, South Africa, and Russia. Under the dollar-denominated monetary system, the natural seesaw relationship will lead to a decline in the implicit dollar value of resource products, weaken the global competitiveness of resource countries, and promote the depreciation of the exchange rate of resource countries. The sharp depreciation of the local currency will inevitably lead to imported inflation. Therefore, in a strong dollar environment, resource-based countries tend to have high inflation or even hyperinflation, and the economy is in a period of stagflation. Corporate profitability has weakened and domestic financing costs have risen sharply. The weak dollar cycle is logically opposite: the hidden value of the dollar in the resource product rebounds, the global competitiveness of the resource country increases, the corporate profit improves, the exchange rate appreciation reduces the input inflation risk, and the internal financing cost falls back.
Learn from Chile.
For production emerging markets. Production type EM includes Korea, China, and the like. In South Korea, for example, the strong dollar background has depressed the price of resource products, and producer countries have low input inflation. However, monetary policy tends to lag behind economic growth and inflation. Therefore, a strong dollar often leads to a country with a downward trend in inflation and a rebound in real interest rates. The willingness to invest in the sector is weak. On the contrary, in the weak dollar environment, inflation in the producer countries rebounded, real interest rates fell, and private sector investment will increase.
What's notable is how little China is mentioned in this research piece.

Mortgage Rates Still Rising, Loan Growth Slowing

Caijing: 房贷利率本轮上涨或接近尾声 居民购房杠杆率连续五个季度下降
In addition, the data showed that the average interest rate of the second home loan in July was 6.03%, up 0.3% from the previous month, and the overall increase was down. Among the key banks that have been monitored by 360, only 21 banks are charging 10% above benchmark for second home loans, down 1 from the previous month; 28 banks and 243 banks are charging 15% and 20% above benchmark, respectively, down 7 and 16 respectively; banks with mortgages higher than 20% above benchmark reached 213, an increase of 22 from last month.

At the same time, 4.13% of banks have stopped lending. For example, among the 30 banks monitored in Beijing, one bank has stopped lending; among the 26 banks monitored in Shenzhen, 7 have stopped lending.

Li, the analyst of 360 Data Research Institute, said that the central bank’s release of water has not cooled down the mortgage interest rate as expected by the industry. The mortgage interest rate is still rising. It is expected that there will be no large-scale interest rate cuts in the country in the short term. .

"But the growth rate of mortgage interest rate may slow down." Li said that from July 2017 to July 2018, the interest rate of first home loan and second home loan increased by 2.47% from the previous month, and increased by 1.27% to 0.45. %nearby. According to this trend, in the next two to three months, the ring value will approach 0, and the mortgage interest rate will remain slightly up to stable.
The leverage ratio of residents buying houses continues to decelerate

Under the background of the increase in mortgage interest rates and the tightening of real estate policies, residents' leverage ratio has continued to decline. Yiju Real Estate Research Institute released the "Research on the Leverage of Household Residents in the Second Quarter of 2018" report. In the first quarter of 2017, the personal housing loan balance increased by 35.5% year-on-year, and this growth fell to 18.6% in the second quarter of 2018. At the same time, the leverage ratio of domestic residents' home purchases fell back to 31.9%, down 1.1 percentage points from the previous month and down 8.6 percentage points year-on-year. It has narrowed for five consecutive quarters.

Shen Yi, a researcher at the Yiju Research Institute, said that since the third quarter of 2015, the leverage of residents' home purchases has risen rapidly, reaching the highest level of 44.1% since 2010 in the fourth quarter of 2016. In the first quarter of 2017, the indicator fell slightly to 43.8%, and continued to decline for the next five quarters.

However, Shen Wei also pointed out that although the growth rate of personal mortgage balance has slowed down, overall, there is still room for personal de-leverage. In the second quarter of 2018, the balance of personal housing loans increased by 980 billion yuan, down 2% year-on-year. However, from the absolute value of the new mortgage balance, it is still at a historical high.

SOE Fixed Asset Investment Plunges 5.8pc in July

Fixed asset investment increased 2.2 percent yoy in July, lowering the YTD cumulative growth rate to 5.5 percent.

The spike in real estate investment helped lift private fixed asset investment 10.8 percent in July and raised the cumulative growth rate to 8.8 percent.

SOE investment tumbled 5.8 percent in July. It is only up a cumulative 1.5 percent YTD through July.

2018-08-13

Real Estate Investment Grows 13.2pc in July

Getting investment in before the government crackdown? Real estate investment climbed 13.2 percent yoy in July, lifting the YTD growth rate to 10.2 percent.

The Coinpocalypse

There might be another stick save for the cryptocurrency market because every time it seems like Bitcoin will make the final backbreaking drop, someone steps in to prop it up. That said, with Bitcoin losing $6000 again and many charts already turning ugly, it looks like the "shitcoin" apocalypse is underway. Previously, many alt-coins would also hold above key support levels, but this time some alt-coins are in full collapse (I don't think it is a coincidence this is happening the same time as the Turkish lira is tumbling). The coins below are a mix of coins I know little to nothing about, as well as some that have strong networks or development teams, and some that I think will survive. I'm putting them all together because the market was blown up by speculators and the dumb money doesn't know the difference, as evidenced by the same chart patterns over and over. Consolidation will take place as some coins gain developers and others lose them, but the charts will all look the same for awhile during the panic phase of the bear market because speculators flee everything.

Sentiment is turning, as it always does. Reddit: HODL is dumb as rocks.

The horizontal I have drawn on Bitcoin is at $5968. Cryptos are so volatile that the lines are more like guidelines. What's interesting to me is Bitcoin could easily slip into the rising channel that started in 2015. Current range is $3500 to $6500. If it manages to hold in that channel, that is still an extremely bullish trend and should be celebrated as a huge victory for Bitcoin long-term. The run-up to $20,000 in the meantime means many people have suffered large losses and the sentiment shift is extreme, but Bitcoin is still far from being a failure. If you're an optimist that's a great way of looking at it. If you think it's all a scam, then that leaves plenty of room for even more losses.
Some of the charts are already starting to retrace their breakouts, such as Ripple and OmiseGo. Some are still well above support such as Decred. Some have businesses behind them, such as Golem (though I haven't checked on it recently) and the BAT is part of the Brave browser.
Many people think technical analysis doesn't work, but it's based on human psychology. It works well with cryptocurrency because it's a market filled with amateurs. The more emotional the market, the better it works. Also, there may have been manipulation by people who understood TA. Whatever the reason, the charts are already breaking down or on the cusp of the last line of support for many coins.

I usually don't include the volume, but it helps illustrate why TA can be effective. Many of the alt-coins have sharp run-ups on low volume. Those HODLs, if they're still HODLing have a profit. Litecoin might be the best example given its size and popularity. There's an area of support around $40 to $50, from July to November 2017. Volume is higher and there could be many HODLers in that area. If Litecoin stays above $40 many may hold. If they sell, then there are very few HODLers left. That's why the price could waterfall decline and retrace the April to July 2017 run up. Then it may stabilize in the single-digits assuming it is a survivor.

Finally, this is a classic collapse of a speculative bubble. It might benefit stocks in the near-term, but it strikes me as bearish, and not only because the stock market was tracking with cryptocurrencies earlier this year. Consider a stock such as Nvidia (NVDA) that sold the GPUs used by cryptocurrency miners...

Updated Extend: 12-Mo TSF Flow Down 12.9 pc, But Stock Jumps 11.6pc in July

Update: The PBOC updated its TSF calculations, mainly affecting stock. The jump was a product of my not having updated the prior data. As the new chart shows, TSF outstanding grew faster than reported last year and that growth is still decelerating.
Reuters: China July total social financing drops to 1.04 trln yuan

Data from PBoC.

Cities Begin Tightening Public Housing Funds

Three years ago rules were loosening. Now they're tightening again.

iFeng: 异地购房不能用公积金 公积金购房迎三大变化
Recently, Guangdong, Hangzhou, Tianjin, Inner Mongolia Autonomous Region and other places have gradually tightened the housing provident fund withdrawal policy.

Guangdong proposed that it is not allowed to withdraw housing provident fund for speculation in real estate speculation.

forIf you purchase a house in a different place, especially if you are not paying a house in a non-resident place, a non-spouse or a non-intimate relative purchases a house to purchase a housing provident fund, the localities may stop implementing the type of withdrawal policy in combination with their actual situation.

Hangzhou is more powerful.

According to the "Notice on Standardizing the Policy for Improving the Housing Provident Fund Extraction" issued by the Hangzhou Housing Provident Fund Management Center, employees who purchase houses in non-local and non-hukou places and repay the principal and interest of the housing loans shall not withdraw the housing accumulation fund.

Tianjin proposes that if employees apply to transfer the housing accumulation fund paid outside the administrative area of ​​this Municipality to the city, they should open a housing provident fund account for more than half a year before the transfer, and continue to deposit the housing accumulation fund for six months.

Multiple divorce and repurchase will be subject to "special care"

The act of defrauding the purchase of homes and loans through false marriages (including fake marriages and false divorces) will also be strictly sealed and subject to “special care” during the review of the provident fund withdrawal.

Guangdong Province stipulates that it is not allowed to apply for the withdrawal of housing provident fund for the same person who has changed the marriage relationship and purchased multiple houses frequently.

Tianjin and Hangzhou both proposed:

If the same person repeatedly changes the marriage relationship to purchase a house, and many people frequently buy and sell the same set of houses, non-spouse or non-immediate relatives to purchase housing provident fund, etc., it is necessary to strictly review the authenticity of the housing consumption behavior and the certification materials.

Retirement withdrawal fund will also be restricted

Guangdong proposed to strictly implement the housing provident fundThe transfer of relevant policies from different places must, in principle, pass the country.The transfer of individual housing provident fund by the transfer platform in different places shall not be selected by means of separation of withdrawal.

Hangzhou clearly stipulates that if the employee of the city does not pay or terminate the labor relationship with the employee, the individual account will be sealed first. During account storage, atIf you open a housing provident fund account in a different place and keep it for more than half a year, handle it.Transfer from another place ; not inIf the deposit continues in different places , it can be withdrawn after half a year of storage.

The consequences of illegal withdrawal of the provident fund are very serious!

Hangzhou clearly stipulates that employees who fail to collect housing accumulation funds in violation of regulations must record their records of loss of trust, strengthen supervision over trust, and implement joint punishment. They must not apply for housing provident fund withdrawal and loans within 3 years.

Guangdong proposed to establish a personal credit file for depositing employees. For those employees who have illegally withdrawn the housing provident fund, they must record their record of untrustworthiness and transfer the record with the transfer of funds.

Tianjin proposed to increase law enforcement and implement joint disciplinary punishment. If the employee withdraws the stored balance in the housing provident fund account by deception, the municipal housing provident fund management center shall order the refund of the illegal withdrawal amount within a time limit.

June 2015: More Than 30 Cities and Provinces Relax Public Housing Fund Rules

Land Market Frozen, Local Govts Have One Mission: Control Home Prices

Nobody can jawbone like the Chinese government.

In recent months, the central government invited local government officials "for tea" to discuss their real estate markets. In June, this escalated to a multi-ministry meeting and a propaganda blitz. By early July, the "official" line was Housing Chaos in 30 Cities, Crackdown Coming in Second-Half. The message was clear: shut down housing speculation and get prices under control. In mid-July, one city went directly to price controls. This weekend, CCTV had on guests who discussed the end of the real estate growth model (a partial transcript of the show was a top finance article). Even positive efforts by local governments such as the "war for talent" are attracting government scrutiny.

The more free-flowing financial media has also run negative articles on the government's stimulus efforts. In early August, one critic called it a failed strategy and more than one article discussed the positive impact loose monetary policy will have on home prices.

The government could struggle to get a handle on prices for a few simple reasons. First, monetary/credit policy is the most important factor for home prices. Two, it's now confirmed the government will promote lending. Three, the government has never succeeded in stopping the flow of credit to real estate and has also failed to direct lending into the private economy. Even if lending gets to the right borrowers, it's unknown if they'll repeat history and misuse loan proceeds for real estate speculation.

One thing is clear today though: the government's jawboning scared real estate developers out of the land market. That's good news for the central planners who want home prices suppressed. It's not such good news for local government officials who rely on land sales to finance their GDP-producing infrastructure investments.

iFeng: 土地市场变盘!大型土拍零成交,开发商不敢激进拿地
The era of "Flour is more expensive than bread" ends!

The land auction market is transformed from summer to autumn, and the heat is cool, almost overnight.

On August 10th, cities such as Hangzhou, Nanjing and Taiyuan carried out land auctions. From the auction process and results, the land auction market has cooled significantly, and some of them have failed auctions. Some even if the transaction is completed, the land price has dropped a lot.
In Taiyuan, the government held an "epic" land sale on August 10. The 8 plots offered were dubbed "gold" for their desirability. Taiyuan hasn't offered this many plots before and seldom offers such quality locations. Real estate insiders expected it would generate a frenzy and even result in the crowning of a new land king. The city hoped to raise at least 13 billion yuan. Result: a failed auction. Zero sales.
Taiyuan 13 billion yuan failed auction

On August 10th, Taiyuan City held a large-scale local auction called "Epic", which took out 8 gold plots (a total area of ​​about 827,100 square meters) in the hot spot for auction. 130.82 billion yuan. However, the results were unexpectedly unexpected, and all 8 plots of land failed to sell.

The eight plots are located in a better area with convenient transportation and complete facilities. The starting price of the plot is at least 1.171 billion yuan, up to 1.963 billion yuan.

Due to the fact that there are few hot spots in the history of land auctions in Taiyuan City, and eight public auctions were offered at the same time, according to the past practice of “every shots must be taken” in Taiyuan, industry insiders expected that this auction may bring the highest land prices of the year. The highest floor price, and a new land king.

But the results have surprised many people. Of the 8 gold plots, only one of the two plots has a housing company to sign up, and the remaining six plots are unattended. There are 2 plots registered by the real estate enterprises. Since the bid price has not reached the auction reserve price, no transaction has been successful.

Local industry insiders told reporters that the land price is higher than the expected value of the real estate market price, which is the main reason for the auction. The auction price of the 8 plots of the auction was high, and the housing enterprises worried that the future sales price would not go up after taking the land, thus affecting their profits.

It is understood that from 2011 to 2016, Taiyuan house prices have been hovering around 8,000 yuan / square meter, but starting from 2017, house prices rose linearly, breaking through 10,000 yuan in a short period of time, an increase of more than 30%. At present, the average price of brand developers is around 14,000 yuan / square meter.
Three plots in Hangzhou

In the first half of this year, Hangzhou was ranked first in the country in terms of land transfer fees. On August 10, a total of 3 home plots and 1 commercial site auction were auctioned. The total land sales area was 95,100 square meters, and the total construction area was 187,000 square meters. 1.564 billion yuan.

In the auction, Songdu Shares, Good Home and Xuhui's Hangzhou Linsheng Real Estate Co., Ltd. won the corresponding homesteads with a reserve price of 788 million yuan, 509 million yuan and 219 million yuan respectively. The corresponding floor prices were 9800 yuan respectively. / square meter, 9700 yuan / square meter, 9400 yuan / square meter.

In the second half of the year, the Hangzhou soil auction market has shown a cooling trend.
Nanjing land prices have fallen sharply

On August 10th, Nanjing sold two homesteads in Jiangbei New District. Although many housing companies were involved, the competition was fierce, but the final transaction price dropped by nearly 3,000 yuan/square meter compared with the previous “land king” price.

These two plots are the last shot of Nanjing under the rule of “Exceeding the maximum price limit for the affordable housing area”. After that, the “competition area” will be fully implemented.

The two plots are located in the core area of ​​Jiangbei New District, with a total area of ​​nearly 270,000 square meters. Among them, the starting price of G06 plot was 4.84 billion yuan, and after 81 rounds of bidding, it was won by China Overseas Real Estate for 5.64 billion yuan. The G07 plot has been auctioned for 71 rounds and was won by Chongqing Yiyi, a subsidiary of Hong Kong Land, for a premium of 700 million yuan.

According to industry insiders, although the above two sites are fiercely contested, the highest price is obviously limited. The highest floor price calculated is about 20,000 yuan/square meter, compared to the surrounding area prices of 23,000 yuan/square meter, it was reduced by about 3,000 yuan / square meter.

In fact, in the second half of the year, the Nanjing land auction market has been cooling down. On August 1st, Nanjing concentrated on the transfer of 6 plots, of which 3 were sold at the end price, and the other 3 bids were not more than 10 rounds.
The sudden cooldown follows a month where land sales were strong in third- and fourth-tier cities.

Caijing: 土地市场“退烧” 前7个月流标796宗
In stark contrast to the fiery situation in the land market in the past two years, this year, the land market in the hotspots of the country has changed from the past to the past, not only has the transaction become more differentiated, the premium rate has continued to decline, and the number of land flow targets has increased sharply.

According to data provided by the China Index Academy, in July, among the 300 cities monitored by the country, the total amount of land transfer fees was 395.8 billion yuan, a year-on-year increase of 9%. Although a total of 2,087 land transactions were made, an increase of 5% from the previous month and an increase of 7% from the same period of last year, the differentiation trend became more apparent. That is to say, land transactions in first-tier cities fell year-on-year and month-on-month, while second-tier cities saw a slight increase from the same period last year, while third-tier cities rose year-on-year and quarter-on-quarter.

Zhang Bo, chief analyst of 58 Housing Research Institute, said in an interview with Securities Daily that the land market is often a “barometer” of the real estate market. In July, the land market showed a cold and three-line hot situation, which undoubtedly showed The future of housing enterprises is “cautious” for different cities. From the perspective of first-tier cities, the low land transaction is directly related to the current market cooling. On the one hand, the prices of new homes and second-hand houses in first-tier cities continue to fall, leading to more cautious expectations for future enterprises; on the other hand, they are affected by the price-limiting policy, and the profit-taking space of housing enterprises has narrowed. The psychological pressure of the ground is greater.

iFeng: 未来地方政府的工作是“坚决遏制房价上涨”
If we don't want the house price to rise, we must focus on two aspects: First, the land price should not rise again, and second, resolutely curb real estate speculation.
Limiting land prices can be effective, but it cuts off a source of government revenue:
On the issue of housing prices, the central government has also changed from the original "to curb the excessive rise in housing prices" to "resolutely curb the rise in housing prices." In other words, the problem of excessive housing price increases has been resolved, and the next step is to solve the problem of rising housing prices. According to this requirement, the next price must at least not rise. As a result, the requirements for the place have also been upgraded. In the past, the idea that as long as the increase was not higher than elsewhere, it would be useless, and it must be ensured that house prices no longer rise. If the house price does not rise, we must focus on two aspects: First, the land price should not rise again, and second, resolutely curb real estate speculation. Not letting land prices rise is equivalent to cutting off local sources of land revenue. Obviously, solving the local government reliance on land revenue is part of the solution.
AFter rising land prices, continually rising house prices are closely related to real estate speculation. It is precisely because of the existence of real estate speculation that demand has become more vigorous and has become a false prosperity. Therefore, curbing real estate speculation is very effective and effective in curbing housing price increases. It is also very important.

Grasping these two key points is equivalent to grasping the lifeline of rising house prices. Not only will market behavior become more standardized, but the market order will become better and better. Market behavior has been regulated, the market order has become better, and housing prices will naturally be attributed to rationality. Buyers do not need to purchase housing through overdraft future and overdraft.
China has scored an early success with jawboning. Land auctions are public and everyone will know which developers are bucking the central government. What's unknown is whether smaller developers and speculators will follow their lead. While house-flipping is near impossible under strict regulations, there's still great incentive to buy homes at suppressed prices because when controls eventually lift following a wave of credit expansion, prices will resume their rise.

The government's limited success is not without costs though. It has now transferred the cost of deleveraging and real estate control onto local governments. Back in 2014, falling land sales slowed local government infrastructure investment and even raised the potential for local government defaults. As the current real estate crackdown was taking shape, local governments have already begun showing signs of financial stress.

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Since the real debt data is in the hands of local governments, it is not disclosed. At present, there is a lack of complete, accurate and persuasive statistics on the scale of local debts. However, the scale of local debt has become a consensus. Some scholars estimate that the size of implicit debt of local governments is about 2-3 times that of explicit debt.
Local governments may have borrowed as much as 60 percent of GDP in one conservative estimate and closer to 100 percent of GDP if the skeptics are correct about the scale of off-balance sheet borrowing. Without land sales or another source of revenue, deeply indebted local governments will have to ramp up borrowing to pay existing bills. Then borrow some more if they're expected to help boost GDP.