Jingle Mail Boom in Zhejiang and Jiangsu

Article summary: Home buyers are turning banks into landlords due to an inability to repay mortgages, along with a lack of confidence in the market that's causing investors to cut their losses. In several cities such as Hangzhou, Wuxi, Ningde and Xinyi, banks have been suing homeowners for failure to pay the mortgage. There isn't enough data to call this a widespread phenomena, but regulators are sounding the alarm.

In Nanjing, one state owned bank branch manager said he hadn't seen any similar situation in his city, but the past due rate and past due amount is rising. He said the bank will have a lot of pressure in the second half of the year. He went on to say that home owners are complaining after a small drop in prices, but the big drop hasn't come yet. Small companies that buy large and luxury properties are expected to be the greatest source of bad debt. Later in the article, a property agent explains that property investors want to get the pain over with and cut their losses.

A big reason for the increase in jingle mail is the price of the home falling below the mortgage. The house becomes negative equity and the desire to repay the mortgage declines. Banks also failed to enforce strict credit standards, often relying on income alone which could be easily faked. (So China has liar loans too...)

The article closes with a lawyer explaining that if it goes to court, the home will be auctioned. If the sale price exceeds the outstanding principal and interest, excess proceeds will go to the homeowner. If the auction price is exceeded by the debt, the court will go after the homeowner's other assets.


房价下跌银行“被房东” 苏杭惊现“弃房断供”

Property boom did not improve, there have been cities relaxation " restriction ", individual owners have begun to lose confidence in the" abandoned house off for. "

Recently, the 21st Century Business Herald exclusive that five or six at the end, Zhejiang, Hangzhou , Wuxi, Jiangsu, Fujian Ningde, Xinyi, Jiangsu and other places have owners for personal and mortgage loans overdue by banks prosecution cases. These cases, the owners are mostly claiming that "inability to pay."

There is no more data, "abandoned house off for" has become a common phenomenon in the country. However, the regulatory authorities have already made warning.

Some media reported that on May 12, central bank vice governor Liu Shiyu chaired a housing financial services symposium to discuss the current differential housing credit policy. Conference information revealed that, in order to prevent buyers because of falling house prices and foreclosures, the central bank requires banks to give priority to housing loans.

And two weeks ago, China Banking Regulatory Commission Chairman Shang Fulin in the first half of the banking supervision and management of the economic and financial situation analysis conference and meeting also said that "housing prices in some areas have emerged even breach the owners, some of the small room rate of capital chain tension, credit risk associated with the four-tier cities need attention. "

Hangzhou branch of a stock line who believes that one of the more serious phenomenon just abandoned house foreclosures, falling house prices have comments after the owners very much, some developers will be under pressure to give some compensation measures, such as grants parking or return of some renovation money.

Owners claiming "inability to pay"

21st Century Business Herald reporter learned that, headquartered in Hangzhou, a stock line in Guangdong West Branch recently sued three of the same real estate owners, there are individual housing mortgage loans in default. Their houses were purchased Hangzhou Kunlun Real Estate Development Co., Ltd. (hereinafter referred to as the Kunlun capital) developed a "mansion" named luxury real estate.

Verdict shows that in 2010 the bank to the owners of a certain chapter 3.1 million yuan in loans for the purchase of the house, 20-year loan term, loan interest rates go up 10% for the benchmark. To house the establishment of collateral, and require developers to guarantee the Kunlun bear joint responsibility of all.

After the loan, it fails to Chapter certain agreed period since September 21, 2013 to repay the principal amount, as of November 2013 the outstanding principal amount of 2.88 million yuan of bank loans, interest of $ 50,000. CHAPTER certain defaults, the bank will announce the loan early maturity, and taken to court. March 2014, Xihu District Court accepted the case.

The other two cases the bank sued the owners are Huang Moumou and Moumou. That is, at least in the real estate they purchased two more houses. Time buyers are prices higher in 2010, the amount of 3.23 million yuan loan term is 15 years, respectively, and 30 years. Owners will not have to repay since September 2013 and December.

Owners respondent said in court, "the fact that no objection to the borrower, the current inability to repay. Moumou has paid more than three years of interest, the bank then liquidated damages claim unreasonable hope Kunlun able to fulfill the responsibility to ensure the return to the bank loan, and then returned to the house purchased Kunlun are. "

Accusing him of a state-owned Nanjing is also a governor of the 21st Century Business Herald said frankly, "There has not been a similar situation in Nanjing, but the amount of overdue loans overdue rates and rising. pressure in the second half of our lot!"

The governor said, "There are real estate prices, some owners complained, but the crash has not yet. Small and micro business owners are buying the big house and villa estimated to be the main future adverse, but there are some business benefits not just need to lenders . "

People a stake in Hangzhou branch line but that one is just more serious phenomenon abandoned house foreclosures, falling house prices have comments after the owners very much, some developers will be under pressure to give some compensation measures, such as gift parking or return some renovation money.

Hangzhou is not the case.

As mentioned at the beginning of this article, there are multiple Xinyi City, Jiangsu Agricultural Bank [0.00% funding research report ] to prosecute clients mortgage default case, involving different real estate and developers. For example, ABC Xinyi City Branch in June 2010 loans 420,000 yuan to buy a couple Han Kang and a total price of 600,000 yuan of housing, including the down payment money for 160,000 yuan, the loan interest rate is 4.75%, loans period of 20 years. As of June 2014, the borrower has overdue 3, the outstanding principal amount of 3.86 billion yuan of bank loans, interest 23,000 yuan.

Earlier media reports have said that in a highly developed private finance Wenzhou, as of late July 2013, various kinds of "abandoned house" Case 595 cases, the adverse balance of mortgage loans 412,770,000 yuan. Which, due to personal housing mortgage loans off for a "abandoned house" 15 cases; due to operational difficulties can not repay the loan, while a mortgage "abandoned house" has 580.

The total price is lower than the loan principal and interest?

In these reports, such as for example in Huang Moumou, according to 2010 bank lending rates go up 10%, 30-year loan to calculate the total amount of 3.23 million yuan, the total amount of the loan principal and interest repaid to the lender needs to 7.545 million yuan, of which 4.315 million yuan of interest .

When the reporter asked the identity of buyers, an employee Hangzhou chain of family property, said, depending on the size and the floor above the current price of about 39,000 mansion / m, a 175-square-meter house, with a total price of about 6.88 million yuan. In other words, the current set of 175 square meters of houses, the market price is lower than the total four years ago, the principal and interest of 7.545 million yuan of bank loans.

And when reporters the identity of the owners prepare to sell, another store employee chain of family property, said the mansion, "the lowest closing price since the year 330 million yuan / square meters, the average price of 360 00-37000 yuan / square meters, open up a little after the purchase, listing price may also be a 42,000 yuan / square meters. "

Another agency official said, the location of the property is in Hangzhou, the traffic is relatively good, " luxury ", the minimum area has more than 170 square meters, there are more than 300 square meters large. The current price of about 42,000 yuan / square meters, August 2013 to March of this year, prices are 50,000 yuan / square meters or more.

When the reporter to call the buyers as developers are Kunlun, the company employee said prices did not fall sharply, the current price of about 37,000 yuan / square meters, compared to 2010 also did not fall.

There are real estate agencies said that Hangzhou second-hand house prices fell by less than Yishoufang, second-hand housing decline of about 1000-3000 yuan per square meter, while Yishoufang largest decline in 7000 yuan, the average also fell more than 5000 yuan.

Shanghai E-House Real Estate Institute data show that from January to June, the national real estate transaction price fell 0.8%, compared with 1-5 months increased 0.1 percent, the average transaction price of residential fell 1.5%. Even in the country horizontal comparison, Hangzhou also prices declines larger cities. Two quarters of this year the average transaction price of 15,389 yuan, compared to last year fell by 12.2%.

Experts believe that "abandoning room undesirable."

As for the above-mentioned real estate owners default "abandoned house" reasons, developers have Kunlun Ministry of Justice said, "We do not know, it should ask the owners themselves."

Aforementioned agency also said that "more than the purchase price of these luxury 600 million or more, a lot more than 10 million, many people purchase but also to invest now prices fell so much each month to repay the loan are a few million , the future still has a few million, so a lot of people think, long pain as short-term pain, even if the loss of some of the down payment and interest already paid, it is still throwing bank forget. "

The industry believes that, in addition to falling house prices, housing prices far below the individual holders continue to pay the price of mortgage loans, resulting in the housing into a "negative equity" appears initiative abandoned house, the more likely is the buyers own financial problems, or real estate group funding strand breaks and "off for."

Shanghai E-House Real Estate Institute researcher Yan Yuejin believe that mortgage delinquencies increase, for several reasons. The first part of the region does appear to housing price declines greater than the amount of mortgage loans, thus making the owners of such housing loan initiative decline.

Second, commercial banks had qualified homebuyers credit audit lax. From a practical perspective, a lot of banks to the buyers of the evaluation process, often face lax scoring to assess the value of water situation. The most typical is the buyers income, can actually be fake. This is often the ability to make mortgage loans to be false elevation, thus making the latter part of the repayment pressure.


Yan Yuejin believe that house prices, indeed breach will provide customers a reason to. "From the perspective of the contract entered into, the buyer and seller are in line with the principle of openness and fairness to sign the agreement. Since allowing housing prices brought about positive existence, will allow the existence of the risk of falling house prices only way is a fair trading mechanism So from this perspective, legal and moral constraints, abandoned room tide does not appear immediately, but you really want to be alert to this kind of pressure. "

But from a legal perspective, because of falling house prices and "abandoned house" refused bank loans also seem desirable.

Beijing lawyer Li Liu holy law firm also said that housing mortgage loans with real estate as collateral in general, the owners also overdue bank loans go to court, if the owners do not have other assets to repay the loan, the court will usually auctions of real estate. Auction proceeds fund the bank as mortgagee first priority for repayment. If enough to repay the bank loan principal and interest and liquidated damages, and the remaining will be returned to the owner. If the auction was not enough funds to repay bank loans, the court will pursue other assets to repay the owners

Chinese Media Still Asking How To Pay For Mini-Stimulus?

China's mini-stimulus has two parts. One is the acceleration of investment projects, pulling economic activity into the current quarters. The other part is increased investment. For the latter, the question asked by Chinese media is how to pay for it?

In July, I posted: Chinese Local Governments Have 10 Trillion in Stimulus Planned, But No Way to Pay For It

This latest unofficial count is at ￥6 trillion in stimulus, but with tighter controls on shadow banking, concern about local government debt levels and declining land sales, local governments find their finances constrained. If there's no way to pay for projects, there will be no stimulus.

From the article below:

Chinese Academy of Engineering Wang Meng-shu told reporters that this year's 800 billion yuan implementation is very slow, since the funds are not in place, part of the project construction speed is very slow.

There's ￥1 trillion for shantytowns, but other projects aren't as favored.

There are also rising costs to deal with:

"In 2011, the former Ministry of Railways submitted to the National Development and Reform Commission's project proposal is expected that the project be estimated 146.3 billion yuan investment. The end of July this year, the NDRC approved the feasibility study for the project, said the estimated total investment of 193 billion yuan this project. Due to rising raw material, labor costs, land acquisition and other costs, the project may eventually need 250 billion yuan. "Wang Meng-shu said.

It is overstating things to say the mini-stimulus is merely the wish list of provincial and city governments, but unless there's credit available, many projects considered part of the mini-stimulus are at least wait-listed. Growth was pulled forward into Q2, but governments cannot pull their budgets forward again once the money's gone. If credit growth doesn't increase and no alternative source of funding is available (muni markets? treasury bonds? foreign investors?), many of the the mini-stimulus projects will remain on the drawing board.

地方版微刺激投资额或超6万亿

In the face of economic reality of the downward pressure is still large, the central level around the "steady growth, structural adjustment, improve people" directed force of "micro-stimulus" policies are rolled out, the local government also introduced a number of supporting measures, introduced a number of key projects. Experts estimate that the provinces this year, the total investment in major projects planned or already up to 6 trillion yuan, due to the state of the shadow banking comprehensive monitoring, coupled with the prevention and control of local debt risk, how to ensure that the biggest challenge of funding the implementation of these projects.

Early March of this year, Sichuan raised the value of the investment plan, the launch of 500 key projects with a total investment amounted to 2.88 trillion yuan, 415.1 billion yuan annual investment. Since the focus of Guangdong have also introduced a list of items 3.67 trillion yuan, the annual investment of about 450 billion yuan, higher than 2013's 420 billion yuan. And Zhejiang, Henan goal is more ambitious, annual planned investment was 640 billion yuan and 1.2 trillion yuan. Heilongjiang, Hebei, Chongqing, Shanghai, Guangxi, Fujian and other provinces have also expanded investment steady growth. According to experts incomplete statistics, the total planned investment of major projects this year, the provinces have been up to 6 trillion yuan.

This round directional "micro-stimulus" measures covering tax, shantytowns and Midwest railway construction, stability as well as in the areas of trade, such as the introduction of a number of infrastructure to encourage social capital to participate in the projects. In line with the landing "micro-stimulus" policies, measures have been put around, introduce a number of key construction projects.

Transportation investment is an important aspect of the implementation of "micro-stimulus" policies. Transportation Research Institute of Finance and the Ministry of Transport Finance Research Institute胡方俊to the "Economic Information Daily ( microblogging ) , "told reporters, roads and general areas of national highways broken road bottleneck sections of national highway construction is the implementation of the national" micro-stimulation "of The key, bank support for such projects is relatively large, vehicle purchase subsidy has been tilted to these two roads, vehicle purchase arrangements this year grew 25%, reaching 277.9 billion yuan.

Place on railway construction enthusiastic. Early July, EJINA to Hami Railway, Beijing-Shenyang passenger line, Huangshan to Hangzhou railway, Harbin to Jiamusi Railway 14 railway projects have recently started construction. Reporters learned from the Guangzhou Railway Group, China's longest high-speed rail stuff to Shanghai-Kunming high-speed railway construction is progressing according to schedule, Shenmao railway has started construction, and is currently advancing according to plan, the financial aspect does not yet exist. But there are some projects faced funding problems, especially in the Midwest Railroad.

Chinese Academy of Engineering Wang Meng-shu told reporters that this year's 800 billion yuan to implement very slow, since the funds are not in place, part of the project construction speed is very slow.

Recently, the State Development and Reform Commission for the New West Inner Mongolia coal railway in central China to channel feasibility study report to approval. Investment of this project continues to rise, at full capacity when it can no timetable. "In 2011, the former Ministry of Railways submitted to the National Development and Reform Commission's project proposal is expected that the project be estimated 146.3 billion yuan investment. The end of July this year, the NDRC approved the feasibility study for the project, said the estimated total investment of 193 billion yuan this project. Due to rising raw material, labor costs, land acquisition and other costs, the project may eventually need 250 billion yuan. "Wang Meng-shu said.

Hufang Jun said that the transport sector to implement the national "micro-stimulus" policies, but also increased the national and provincial trunk of the building, but due to national and provincial trunk can not charge, in recent years, national and provincial trunk of planning, construction, form a raise on behalf of construction mode, facing financing difficulties.

Arrangements invest 800 billion yuan this year, railway, completed 199.6 billion yuan in the first half, completed a quarter of the annual amount insufficient. Arrange invest 1.47 trillion yuan highway, complete 587.2 billion yuan in the first half, completed less than 40 percent the amount of the year. Project implementation relations "micro-stimulus" effect, in some places pay close attention to project implementation, as proposed in the second half of Sichuan everything possible to promote the progress of construction projects to speed up construction, the government will carry out the implementation of investment projects to clean up inspection before the end of June 2014 has been arranged construction projects at the national and provincial financial resources, and strive all started before the end of September; overdue started, as the case may recover the funds have been disbursed.

Sources said that because of traffic projects with large investment, long cycle, low income, social capital to launch these transportation infrastructure projects, it is difficult to attract social capital to enter, the NDRC recently also pay close attention to all areas of recent investment in any new signs Which challenges, "micro-stimulus" how it works. Development and Reform Commission recently issued a document that is actively coordinate and promote Beijing's new airport, West Inner Mongolia to the Central Transport Corridor, from Lhasa to Nyingchi railway and other major transportation project preparatory work for the early construction.

Deputy director of the Department of Economics, National School of Administration Zhang Xiaode said that this round of "micro-stimulus" to boost the economy, there are two aspects, one is a direct investment in the sex industry have a direct role in boosting the economy, such as railways will use cement, steel and other materials . Second, the investment will have a multiplier effect, investment in railway, bringing the demand for cement, steel, and this will boost investment in the cement, iron and steel industry, investment in these industries will generate linkage effects, but these benefits may be linked will lag some.

"2008's 4 trillion leveraged investment has played a function, when the idea is that state investment to promote local investment, local investment has led direct and indirect financial investment, the total of more than ten trillion investment in irrigation type, some backward, polluting industries that control and let go of this. compared to 2008 to invest in, the investment is fixed, directed and controlled, limited, targeted investments. "Zhang Xiaode said.

Developers Play Chicken

Developers are keeping properties off the market in the hopes that prices will rise, but well funded developers are going to cut prices in September and grab as much of the depressed market as possible. On the off chance many developers decide to hold even longer, the pain will show up in much slower than expected real estate investment.

China Home Glut May Worsen as Developers Avoid Price Drop

In Nanjing, eastern China, nine housing projects originally planned for sale in the first half of 2014 were held for later this year, consulting firm Everyday Network Co. says. The number of homes added to the market in July in 21 major cities dropped 25 percent from June, according to Centaline Group, parent of China’s biggest real-estate brokerage.

“The completed apartments will be in the marketplace sooner or later, and potential buyers will continue to expect prices to fall,” said Hua Changchun, China economist at Nomura Holdings Inc. in Hong Kong. “The property-market weakness hasn’t changed, despite the policy adjustments.”

......The delays mean lower cash-flow for developers. Smaller ones face “massive” debt-repayment pressures, as cash and equivalents at 137 mainland China-listed real estate companies, excluding four of the largest, were sufficient to cover just 74 percent of their short-term liabilities in the first quarter, according to Shenzhen World Union. That’s less than half the average ratio of the other four, including China Vanke Co. (2202)

Trust Companies Keeping Up Appearances

Trust companies have ￥10 billion in reserve funds. They are required to place 5% of after tax profit in reserves, but can stop once the fund reaches 20% of registered capital. The funds industry wide have grown solidly thanks to profitable years for the trust industry, but despite recent payment difficulties, no one has touched their reserve funds because to do so would be to admit a default.

近百亿信托赔偿准备金 至今仍在沉睡

Trust products continues to detonate payment event, did not evoke trust compensation reserve attention. Recently, Credit Trust "sincerity to open the 2nd Gold Trust Scheme" announced the extension, investors from many of the activists onto the road. Previously, the "sincerity to open on the 1st Gold Trust Plan" solution is a rigid payment.

Securities Times reporter noted, whether the product is a rigid payment on the 1st, or the 2nd product extension tactics are never mentioned Trust compensation reserve. And Shaanxi International Trust had to solve two problems at the trust products, are using their own funds to advance, nor the use of trusts compensation reserve.

Trust a total of nearly ten billion compensation reserve

According to "trust management approach", trust companies should extract 5% annual after-tax profit from them as trustee compensation reserve, but the cumulative total compensation reserve reaches 20% of the registered capital, can no longer extract.

As a precautionary trust business risk compensation reserve, date of birth lying asleep on the accounts. New China Trust Industry Association released data show that as of the end of 2013, provision for trust industry reached 9.06 billion yuan compensation reserve, growth of 24%.

According to relevant regulations, "compensation reserve should be kept in sound business, domestic commercial banks with a certain strength, or for the purchase of bonds and other low-risk, high liquidity securities species."

A large trust company executives said, "You could say the yield of these funds is very low, but because there are relevant provisions of the Trust generally can not just spend."

It has been observed in recent years, the entire trust industry significantly in improving compensation reserve. "One reason is that the trust's net profit increase, partly because a lot of trust to improve risk awareness, rainy day." Wang Kai Yuan Peng, director of the wealth of investment analysis said.

Experts governing China Trust Industry Association, said the author had previously Zhou Xiaoming, trust asset quality to date, the overall performance is quite good, can not happen systemic risk, the so-called systemic risk is clearly exaggerated. By the end of 2013, industry-wide compensation reserve provision of trust has reached 9.06 billion yuan, covering 45.30% issue 20 billion yuan of assets.

Why trust reluctant to spend

Although the past two years, many products have been exposed to honor the trust risk, but combing Securities Times reporter found that the information is not yet spent any trust over compensation reserve be honored.

According to "Financial Accounting System," provides that "engaged in the business of financial trust and investment companies should achieve this year as a percentage of net profit Trust compensation reserve, used to cover losses, and not for dividends, increase capital," and provides for specific purposes, "is engaged in trust business, so that the beneficiary or the company suffered losses, belong purpose trust breach of trust, breach of administrative duties, improper management of trust affairs loss of trust assets to the trust compensation reserve for compensation."

In other words, once the trust to use compensation reserve, it means recognizing their purpose breach of trust, breach of duty or management of trust management improper transactions. Since the responsibility for defining and easy, because of the need to consider other factors reputation, trust companies they use alternative methods to ease payment crisis.

"How to identify responsibility? First, look at the jurisprudence of the Court, the second is the trust's own admission. On the current situation, China has yet to determine the need for compensation trust because defaulting cases, trust is not likely to admit that they did not conscientious." a trust company executives concede that the central region.

The idea that compensation reserve ratio of trust provision is too low, these executives said, "can cover risk assets depends on how to use the current situation, even if increased to 10%, but also on things does not help. "

So Long SouFun

Last week I wrote:

For myself, I'm looking at puts on SFUN.

The trade is getting crowded.

SouFun Holdings Target of Unusually High Options Trading

SouFun Holdings (NASDAQ:SFUN) was the target of unusually large options trading on Wednesday. Investors acquired 8,543 put options on the stock, American Banking News.com reports. This is an increase of 156% compared to the typical volume of 3,343 put options.

SFUN has a bearish price pattern on its chart, so it may be shorts. Or maybe it is news driven?

SouFun No Fun? Chinese Property Agencies Boycott Online Apartment Listings

At a Tuesday press conference in Shanghai, representatives from 13 local property agencies outlined their grievances against SouFun while sitting in a row below a red banner that read: “Calling for honesty, Resist SouFun” in yellow characters.

The 13 agencies said in a press statement that SouFun is unfairly using its market power to raise prices. The property portal, which is listed on the New York Stock Exchange and has listings covering more than 330 Chinese cities, has fostered an atmosphere of “unhealthy competition” among brokerages that disrupts the market, they said.

......In Shanghai, the impact on SouFun’s listings has been significant, with the combined listings of the 13 brokerages boycotting the site comprising around 30-40% of the portal’s local listings, the SouFun spokeswoman said.

This is a new development in the fight between property agents and SouFun. I covered it previously in: Why Shares of SouFun Are Sinking and SouFun Update.

Relevant parts from each:

On May 28, nine real estate agencies in Hangzhou pulled all their listings from SouFun's website, and this quickly spread to other cities including Beijing. A person from an agency in Beijing said firms have been in discussion with SouFun about cutting prices since the end of the year; the Hangzhou news was these negotiations breaking out into the open.

我爱我家 said it is built its own website to get around costs of ￥500-600 per user, which came to more than ￥100 million per year for the firm.

And later:

Soufun announced today it will offer 40% discount on subscription fees nationwide from June to its secondary listing customers (~25% of revs), which we believe is a major downside surprise for the market apart from e-commerce competition.

This is all housing slowdown related. Property agencies are looking to cut costs. This article reports SouFun's listings fell 30% on Tuesday as a result of the boycott: 端口费之争不妥协 搜房网房源数锐减超三成

Real Estate Slowdown Ongoing in Second and Third Tier Cities

FT Alphaville reports on a Standard Charter survey of 30 mostly small developers from Hangzhou, Lanzhou, Baoding, Foshan, Huangshi, Nanchong. Hangzhou is the epicenter for the current housing slowdown, so that may skew the numbers a little towards the pessimistic side, although if the recent news reports reflect sentiment, Hangzhou remains relatively optimistic.

China’s ever more precarious towers

Echoing this, 11 of our surveyed developers reported offering price cuts of up to 10% in the past quarter, and three offered bigger discounts. However, the price outlook is stable. 14 of the 30 developers expect flat prices in the next quarter, while seven expect continued mild price moderation. None expect a material price correction (Figure 2). Most believe a reversal of market sentiment is more important than discounts in turning the market. A number of our developers argued that it does not matter how much they cut prices, buyers are still very cautious.

There won't be major price cuts until it is clear that sentiment won't change. Until then, developers are going to hang on and hope for a sentiment shift.

Private Bond Market Goes Bust

I have been covering the ongoing defaults in the private bond market, most recently here: Who Broke China Bond Market's No Default Streak? Mutual Credit Guarantees

Bloomberg has picked up the story.

China Default Storm Seen as Record Private Bonds Mature

Tianjin Tianlian Binhai Composite Materials Co., which makes polymeric composite materials, couldn’t pay back principal and interest on its notes when investors exercised their option to sell back the securities July 28, Caixin Online reported July 31, without saying where it got the information. Tianjin Tianlian’s 50 million yuan of bonds are due on Jan. 29, 2015, according to China International Capital Corp. Three calls to the manufacturer went unanswered.

Huzhou Jintai Science and Technology Co. failed to repay the principal and interest on 30 million yuan of its debentures when investors tried to sell them back on July 10, according to a CICC report released on July 25. The report said Zheshang Securities Co., the notes’ lead underwriter, informed the Shanghai Stock Exchange on July 18. Two calls to Huzhou Jintai went unanswered.

A local court accepted an application for bankruptcy by Zhejiang Walters Polymer Technology Co. on March 12, according to a statement on Anji County People’s Court’s website. Investors could sell back 60 million yuan of the company’s bonds on July 23, according to CICC. An official who wouldn’t disclose her name declined to comment on the repayment status yesterday.

......“The government has a high tolerance for defaults in the private bond market because the investors are institutional investors who can tolerate higher risks than individuals,” Shanghai-based Li said. “The government can’t save every single company.”

Two points not covered in the Bloomberg article. Huzhou Jintai, as mentioned in the blog post linked above, isn't having operational difficulties. They have gone bust due to making credit guarantees for other companies that went bankrupt. For each of these bankruptcy cases, there could be several, a dozen, or dozens of firms involved.

In Credit Guarantee Firms Continue to Implode, Private Bonds Default, an analysts in one article was quoted saying he expected the default in Tianjin to raise regional borrowing costs by 50 basis points. That's a ballpark figure, but the key point is that these credit markets are local. What looks like a small credit event is much larger than it appears.

China's credit risk is systematic, it spreads via mutual guarantees between companies, and risk is localized. That puts great pressure on local governments that may be having their own financial problems due to the slowdown in land sales, so bailouts are unlikely. It also means risk is hidden——companies with seemingly no risk may in fact be at great risk due to mutual guarantees.

Cities Turn to Easy Credit, Tax Subsidies and Cash Giveaways to Stoke Housing Market

The cancellation of buying restrictions had little effect on most markets, so cities are following up with credit easing. Borrowers must make a larger downpayment and generally pay higher interest rates for a mortgage on a second home, but Guangxi plans to ease these credit restrictions.

The article also mentions the bailout plan for Baotou, Inner Mongolia. From September 6 through 10, to coincide with a real estate expo, the city will subsidize the real estate deed tax. First time home buyers will receive a 100% subsidy. Second home buyers or buyers who won't live in the home will get a subsidy of 50%. Buyers will also receive ￥2000 per home purchased.

地方政府放松限购后又松绑限贷 加大楼市刺激

The 5th, Guangxi announced that it will be appropriate to relax two suites lending policies, and vigorously promote housing consumption. This is following the Shaoxing, a second pair of differential housing credit adjustments areas. Recently, with the purchase of local deregulation in some areas, there has been focus on short-term net signed volume rose to give the "Indian summer", but with the bulk of digestion and relax the restriction did not bring a greater impact on the local property market. Therefore, some local buyers turn to relax a great impact on the credit limit.

In this regard, the industry said, from the current market, because of the economic slowdown or local government reliance on real estate increased significantly. In this context, local government intervention propulsion power increase over the bailout enthusiasm will continue to rise. Under the loan is expected to loose, showing part of the property or to pick up, but this approach or cause other cities to follow suit.

Guangxi, said it will implement differentiated housing credit policy, the introduction of specific measures. Will be appropriate to relax the two suites lending policies, timely, reasonable adjustments individual housing provident fund loans to the maximum amount to vigorously promote housing consumption.

It is worth noting that, in Guangxi is not the first one to relax credit limit areas. Recently, Shaoxing City, Zhejiang Province of Housing and Urban-Rural Construction Bureau has issued "on the promotion of urban real estate market is stable and healthy development of opinions", not only for the local purchase policy adjustments, stop execution Shaoxing household purchase restrictions on non-residents. Also on the real estate mortgage loan provisions, which must adjust --- Second Suite "Housing does not recognize loan", that is the number of houses to be used as home buyers actually have that standard, without regard to the number of home loans, down payment down Zhisi Cheng , became the first pair of differentiated credit adjustments city.

Shaoxing City building housing the Bureau said from January to June this year, Shaoxing City real estate market volume decline, sales area can continue to increase market supply and demand relationship has changed, individual real estate development enterprises have emerged capital chain tension, a substantial markdowns and other issues . To promote the healthy development of the real estate market, guard against market risks, local and therefore be adjusted.

It is worth noting that in place while loosening real estate loans, tax relief, subsidies, improve the provident fund loans and other support policies turns on stage.

The 5th, Baotou municipal government announced that the government decided to host the 2014 Housing Fair on September 6 to 10, to buy the first set of new commodity housing period, giving the Fibonacci 100% tax subsidies; give 50% more than buying two sets subsidies; purchase of non-residential, giving 50% subsidy. Purchase of new housing, to 2000 yuan / sets of financial subsidies. Housing provident fund loans increased by half a guarantee fee, assessment fee. Fujian said it would give priority to employees provident fund deposit with the Fund for the first time home buyers to purchase ordinary housing for five years, second-hand sales tax-free transfer.

Guangxi, the extract also relaxed the remote purchase restrictions, allowing no room for family housing provident fund deposit extraction workers to purchase a home and a job domicile outside the city to support loan demand deposit employees to purchase ordinary housing in principle, timely reasonable adjustments individual housing provident fund loans to the maximum amount.

Shaoxing also fund policy has been adjusted. Shaoxing introduced policies since 2011 to suspend its urban secondary loan fund policy lapse three years after the recovery again. And clearly has purchased commodity housing with housing provident fund loans and pay off the loan, up to 600,000 yuan can working parents, single workers up to 50 million credit second application housing provident fund loans to buy housing.

Centaline Dawei, director of market believes that the recent local government is eager to boost market confidence in the transaction, declined to relax after the purchase of real estate is still the main reason to promote local upgrading bailout.

Vice president of Shanghai E-House Real Estate Research Yanghongxu [microblogging] also said, a place to relax credit limit, under the loose lending, stimulate the market effect is greater than the relaxed restriction, or cause other cities to follow suit.

China Index Research Institute [microblogging] believes that additional measures to encourage financial institutions to support the first mortgage, the next stage will be the governments around one of the important means of promoting the real estate market rebound. But note that the mandatory administrative measures contrary to the interest rate market-oriented financial reform, Shaoxing effect of this adjustment remains to be seen. To other cities, how to encourage financial institutions to tilt to the loan business, will be the key to solving the problem. In addition, since the previous three-year restriction demand for improved resistance caused a certain degree of injury, has been strictly enforced "Housing has identified loans," Second Suite that standard principles or will be relaxed in some cities.

"In the local policies frequently while relaxing we also see that the central differentiated credit continues to adhere to the principles, and has repeatedly stressed its importance for the protection of self-occupied reasonable demand, speculative investment demand will be sustained suppression, general relaxation No loan may be more suites. "The agency pointed out.

Anti-Corruption Probe in the Home Stretch

It's always hard to tell what is going on behind the scenes, but the "stalemate" referenced by Xi is hopefully the anti-corruption campaign's last hurdle.

Xi's 'shockingly harsh' Politburo speech signals tensions over anti-graft crackdown

”[I] had left life and death, as well as my personal reputation, out of consideration in the combat against corruption,” Xi said, according to Changbaishan city’s party chief, Li Wei.

Li said the top leadership’s remarks emphasised a sense of crisis, and some of the words were “shockingly” sharp and harsh. However, he did not provide more details.

"We have to take the responsibility since the party and the country had put their fate in our hands,” the president was reported to have said.

Xi said “the two armies of corruption and anti-corruption are in confrontation, and are in a stalemate”, according to Li, adding that the leadership vowed to see the anti-graft campaign to the very end.

.....The president also rebuked the “school of thought” that the relentless drive against errant officials would only plunge the country in chaos and that Xi, in the end, would “eat humble pie”.

This is why the mini-stimulus was launched. Economic weakness hardens the opposition.

China Cracks Down on Foreign Automakers as Protectionism Takes Off

China is forcing foreign automakers to cut prices.
Mercedes' office in China raided by antitrust regulators

Automakers are the latest foreign companies to be targeted by Chinese regulators, who have ramped up anti-monopoly investigations in industries ranging from pharmaceuticals to electronics.

Regulators officially named U.S. chipmaker Qualcomm a monopoly last month and are widely expected to levy a heavy fine. Last week, agency investigators raided Microsoft's offices in four Chinese cities as part of an ongoing probe.

China is stepping up efforts to bring companies into compliance with an anti-monopoly law enacted in 2008, having in recent years targeted industries as varied as milk powder and jewellery.

The Chinese government says Chinese are being exploited, but the ones doing the exploitation are the ones who pass high tariffs on imports and luxury goods. It is possible to buy Chinese made goods in the United States for not much more than they sell at the store in China.

China Using Antimonopoly Law to Pressure Foreign Businesses

Some foreign companies cite rising costs for property as the reason for higher pricing. Some goods are slapped with import and luxury taxes.

Officials "feel Chinese consumers are being exploited," said Marc Waha, a Hong Kong-based partner at law firm Norton Rose.

The rising scrutiny, particularly during the past year, stems in part from the increasing number of Chinese who go abroad and see what people pay elsewhere.

Protectionism Shifts Into High Gear

The trend towards protectionism that began in the prior decade has not slowed in this decade. Socionomics predicts that protectionism will accompany falling social mood and while the stock market may be at new highs, many signals that cannot be adjusted with money printing show social mood remains in a negative transition.

The latest are the US, EU and Russia trading sanctions. Moscow blocks Polish fruit, veg imports, mulls EU ban

More ominous is the increasing futility of the WTO. It is membership in the WTO that keeps nations from enacting overtly protectionist policies such as broad tariffs and quotas. A failure of the WTO would allow all nations to enact protectionist policies without fear of punishment by the WTO. For many nations, especially trade deficit nations such as the United States and Spain, tariffs would be very beneficial to the economy in the short-run almost no matter how they were constructed, while they could also be beneficial in the long-run if constructed with economic growth in mind. Without fear of punishment, all of the nations that can gain through protectionist measures will defect, and the citizens in other nations will scream for retaliation, even in nations that see a large benefit from trade, such as China.

WTO Dying a Slow Death

What was yesterday’s lifesaver to bring about trade between countries and to bring down the barriers is today’s thorn in the side of the world. The WTO is dying a slow and painful death and has neared the end of its life today. As the global agreement collapses amidst the Indian demand to be able to stockpile food for itself and for countries that are developing around the world, the WTO cannot live much longer. It will be dead within a short while.

RRR Cut Boost Liquidity in Q2, But Bad Loans Up As Well

A few related stories out in the past few days. First, the PBOC issued its Q2 monetary report. It is signaling credit growth was high in Q2, causing analysts to curb their RRR cut forecasts going forward.

China Central Bank Signals No Broad Monetary Easing

The People’s Bank of China warned that the country’s credit and money supply have increased rapidly and indicated that it will refrain from broader monetary easing to support growth.

“The total debt level has been rising relatively quickly,” the PBOC said in its second-quarter monetary policy report on Aug. 1. “Our existing money supply and credit are already relatively large and their growth is also high.”

Nomura Reverses Prediction On PBoC's Universal RRR Cut

The PBoC plans to continue its examination of commercial bank loans to small and micro-enterprises and the agricultural sector, and will look to adjust banks' reserve requirement ratios (RRRs) as it feels appropriate.

However, the report did say that "monetary policy is the aggregate policy and the structural adjustment function is only supplemental. Targeted RRR cuts, if implemented over a longer time frame, will also cause problems".

Overall, we feel the monetary policy stance is being adjusted slightly more towards neutral – as the accumulation of policy easing measures has been significant and growth is picking up – but it remains loose.

We no longer expect an across-the-board RRR cut in the third quarter, but expect the government to lower total financing costs through targeted measures and reforms in the third quarter.

One reason why those cuts may not materialize is that they didn't work as planned in Q2. Small and medium businesses did see more credit, but only a portion of the credit that was supposed to go to SMEs actually got there. One reason why credit didn't flow as full speed: banks are worried about credit risk.

降准2000亿仅部分投小微 钱都去哪了 (Only A Portion of the ￥200 RRR Cut Went to Small Business, Where Did the Rest Go?)

"If this area of ​​risk is higher, the rate of bad debts soared how to do? That the bank will reduce the capital invested in this area."

Speaking of bad loans:

上半年银行不良继续扩散 山东浙江“吃紧” (First Half Bad Loans Continue Spreading, Shandong and Zhejiang are Hard Pressed)

Data CBRC released at the end of July, as of the end of June, the balance of non-performing loans at commercial banks amounted to 694.4 billion yuan, an increase of 102.4 billion yuan over the start of the year and up 11 consecutive quarters; NPL ratio was 1.08%, up 0.08 percentage points from the beginning of the year.

Zhejiang and Shandong lead the way in terms of credit deterioration.

According to CBRC data, Zhejiang regional commercial bank non-performing loans and non-performing loan ratio in 2012 and 2013 annual ranking first in the country. Banking Bureau, Zhejiang latest data show that as of the end of June 2014, the province's non-performing loans and foreign currency banking financial institutions 135.6 billion yuan, an increase of 15.67 billion yuan over the beginning; NPL ratio 1.96%, up 0.13 percentage points from the beginning of the year.

In the first half of this year, Zhejiang Province bad loans continued the upward trend last year. The end of 2013, Zhejiang Province, banking institutions and foreign currency non-performing loan balance of 119.97 billion yuan, an increase of 24.82 billion yuan over the beginning; NPL ratio 1.84%, up 0.24 percentage points from the beginning of the year.

On Shandong, the first half of this year, the bad Shandong province banking financial institutions loans 81.537 billion yuan, an increase of 16.731 billion yuan over the beginning of the NPL ratio 1.57%, up 0.22 percentage points from the beginning of the year.

Contrast in the first half of last year, the first half of this year, Shandong Province bad new loans nearly five times last year.

CBRC Vice Chairman Yan Qingmin also warned that some industry risk is showing, mutual guarantee problems are serious, accelerating the spreading of risk. Additionally, steel trading debt problems are still emerging.

CBRC Vice Chairman Yan Qingmin recently wrote that part of the industry exposures, mutual interconnection between corporate financing problem is serious, accelerated risk spread. Affected by events such as the Yangtze River Delta region of steel trade, as the industry continued to lengthen the time the state of downturn, the Pearl River Delta and other regions of the steel trade enterprise credit risk starting to show.

Yan Qingmin said that real estate risk is caused mainly due to rising bad loans, non-performing loans would severely restrict banks to support the real economy, effectiveness and sustainability, to accelerate the write-off of bad loans.

Soybean Highway

What do you do if you're a local government in Jiansu and you've built a highway without approval from the higher ups? Cover it in dirt and say it is a soybean field. Except what about the bridge?

江苏泗洪夜半盖路种黄豆 被指应付检查

Prepare For Clogged Chinese Courts

Chinese courts are going to be clogged for years thanks to recent fraud cases and this is only the beginning.

After China port fraud probe, messy legal fight chills metal trade

As global banks and trading houses fire off lawsuits over their estimated $900 million exposure to a suspected metal financing fraud in China, the tangled legal battle to recoup losses is set to drag on for years and hinder a swift recovery in metal trade.

Earlier this year, there were reports of the steel trading fraud cases which emerged well over a year ago, but only started clogging the courts in 2014.

Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee

According to an insider at the court, this year's cases have some new characteristics. The first is the concentrated debt, such as the case of Xiao Jiashou, the Shanghai Steel Trading King, which involved seizing assets of ￥460 million. Second are larger and larger cases in general, with cases above ￥10 million in debt more frequent. Third, the service rate is down (service of process) because the defendants have fled.

Last year the assets in these cases were better, and people were willing to mediate. This year asset quality has deteriorated and so defendants don't care.

The case load is putting pressure on the court system in Pudong. The work load is heavy for each case: there's an average of 15 defendants. There's the lending contract, loan certificate, guarantee contract, mortgage contract, warehouse agreement, plus third parties involved in the steel trade. (And based on the evidence below, many of the guarantor firms themselves may be other steel trading firms also in default. This is the interconnected finance situation seen also in Xiaoshan and in fact all over China.) One case has 20 boxes of files. More cases come as parties file claims with credit insurance companies, who then come to the court seeking compensation.

In 2013, banks had lent about ￥200 billion to the steel trading industry. About ￥70 billion of it is in default, another big chunk of it is not due until next year, but is expected to default.

The fraud in Qingdao will likely develop into a similar mess. The credit guarantee bankruptcies are as bad in terms of the number of counter parties. Should the real estate market weaken enough to push more developers into bankruptcy or default, the courts will be busy for the rest of the decade.

Creditors Demand Local Govts Repay Debt

Here is an article about local government debt problems due in part to slowing land sales. There's one line in the story about creditors in some unnamed city, blocking low level government officials in a conference room and demanding repayment. That sounds like an interesting story, creditors demanding the government repay them like any other debtor, but there's nothing else besides mentioning it happened.

2.4万亿地方债风险加剧 基层官员被堵会议室讨债

Beijing Residential Land Auction Fails

In addition to easing buying restrictions on homes in many cities, now analysts are predicting land sale restrictions will ease, due to sales falling by as much as two-thirds in July from year ago figures.

Local government revenue takes a hit as land sales drop

On Tuesday, auctions for two plots of residential land in Beijing closed without any winning bidder as the reserve price was not met. Only four deals for residential land put up for sale in the Chinese capital went through in July.

Land sales are also slowing down in other first-tier cities, including Shanghai and Guangzhou. So far, most of the land in Shanghai has been sold at a premium rate of less than 30% and half of the property sites were sold for their reserve prices.

On a single day in June in Guangzhou, auctions for four pieces of residential land and one piece of industrial land were closed without winning bidders as the reserve prices were not met.

Signs of a slowdown are more obvious in second and third-tier cities.

The failed auction was the first since 2011.

Chinese coverage of the Beijing land sales focused on price: developers do not want to be caught overpaying for land in a cooling market. Beijing has been stepping up the pace of land sales and the reserve price of the recent auctions was simply too high for developers. One developer even called the price "outrageous." A plot in Chaoyang was priced at ￥7.7 billion yuan and even if it went for the minimum, it would have been the most expensive land sale (by total value) in Beijing history. An employee from the related government office said developers are holding their capital more tightly, something the government did not anticipate.

北京准地王定价太离谱把房企吓跑 中粮地王被套牢

China's Hukou Reform

China Lays Out Details of Hukou Reform

China set out more details of its plans to reform the household registration or hukou system, which determines where internal migrants can access benefits like schooling and healthcare.

The government said in November it would relax residence restrictions for all but the largest cities, but until now there have been few signs of when or how this plan might be implemented.

In a statement posted online Wednesday, the State Council laid out more details, sticking to the government's strategy of liberalizing requirements in the smallest cities first.

Long-term residents of all county-level towns, as well as their families, will now be allowed to apply for residence permits, the statement said.

In medium-sized cities -- defined as those with populations of 500,000 to 1 million -- long-term residents with stable employment (and their families) will be eligible to apply for residence permits as long as they have been paying into the local social insurance system for a minimum time. Individual cities will be able to choose that minimum, but it must be no longer than three years.

Hukou System Reform May Not Spell Big Difference For Chinese Migrants

Unfortunately, the new regulations do not give migrant workers the same permanent residence benefits that people in bigger Chinese cities receive. Cities with a population range of 3 million to five million will grant hukou appropriately, but those with a population of over 5 million will impose a strict limit on hukou registrations.

Based on the announcement, the government will implement a points system to give the best and most brilliant Chinese citizens the chance to become permanent residents in Beijing, Shanghai, and other mega-cities in China.

Sounds like Canada's immigration system.

The Environmental Left Joins the Right In Growing Anti-Immigration Movement

Today was Eric Cantor's last day in Congress. I don't know if he's still trying to figure out what went wrong, but most of the professional political class in Washington, D.C. picks any reason except the two most obvious: immigration and crony capitalism.

I have predicted the U.S. would follow in the wake of the UK and immigration would suddenly turn into a major issue. Now it appears it could become the number one issue. The right is halfway there, with voters having tossed out the majority leader in the House of Representatives in the intraparty primary and brewing anger at the border situation. Now the left is waking up to the issue and it is from the left that the idea of restricting legal immigration is being put on the table. If this continues, immigration restriction will be a major issue by the time of the 2016 election. Should the economy weaken before now and then, the debate will push further into restrictionist policy.

80% of U.S. population growth is from immigrants, resources being sucked dry

A group dedicated to saving the planet by cutting runaway population increases is raising a new and shocking issue in Washington’s bitter fight over immigration reform: Most of the nation’s population growth is from immigrants, and they are consuming resources dangerously fast.

According to Negative Population Growth Inc., 80 percent of the growth in U.S. population comes from immigration, legal, illegal and among American-born children of immigrants.

“With increased population, we see a direct increase in the problems our nation faces on a daily basis: pollution, over-consumption, traffic gridlock, crowded schools and hospitals, overburdened social services, unemployment, crumbling infrastructure, urban sprawl, over-development, threatened or extinct animal and plant species, and dwindling natural resources,” said said Tracy Canada, the group’s deputy director.

She added, “Immigrants to the U.S. are also found to greatly increase their consumption — and their resulting footprints — upon settling here, which furthers our nation’s environmental impact.”

The California drought is a case in point; the large growth in California's population is due to immigration alone——natives have been fleeing the state.

Socionomics predicts anti-immigration sentiment during periods of negative social mood. Of all the policy issues, this was the most extremely out of sync with voters. Many American politicians are still pushing a policy that is extreme for peak social mood, while the public has shifted far, far away as social mood headed lower. Environmental groups in the United States used to oppose immigration because they recognized that increased population is one of the greatest threats to the environment, since more people consume more resources, need more land, etc. They changed their tune in the 1990s as political correctness climbed to a peak along with social mood.

Immigration vs. Environmentalism

The Sierra Club, logically declared in 1989 that its goal of zero population growth required that "Immigration to the U.S. should be no greater than that which will permit achievement of population stabilization in the U.S." Native-born Americans have indeed done their part in achieving the Sierra Club's goal, reducing their birth rate to the replacement level. But continued massive immigration has lead the Census Bureau to forecast that the U.S. population will more than double from 275 million in 2000 to 571 million in 2100, even though the global population is now widely expected to drop in the second half of the 21st century.

......Despite the mathematical inevitability of high immigration increasing America's population, in 1996 the Sierra Club leadership, hoping to outreach to minorities, discarded its immigration reform plank and decided to "take no position on immigration levels". While neutral-sounding, this policy has functioned as a gag order. For example, the Sierra Club recently shut down two of its email lists that discuss population issues on the Orwellian grounds that immigration reformers were using it for "dissension" rather than the "open communication ... for which they were created." Apparently, some communications are more open than others.

Dissident Sierra Club members forced a referendum in 1998, and garnered endorsements of immigration reform from superstar environmentalists like retired Senator Gaylord Nelson, founder of Earth Day; World Watch co-founder Lester Brown; novelist Farley Mowatt, author of Never Cry Wolf; photographer Galen Rowell, whose magnificent pictures have sold millions of Sierra Club calendars; and famed sociobiologist Edward O. Wilson, the brains behind the "biodiversity" movement.

Although the immigration realists merely wanted to go back to the 1989 Sierra Club policy that "The Sierra Club will lend its voice to the congressional debate on legal immigration issues when appropriate, and then only on the issue of the number of immigrants - not where they come from or their category," they were of course demonized as racists by the organization's management.

Shades of UKIP in the UK, being called racist in the recent election. This charge lost its impact in the UK and its likely to fail in the U.S. soon as well, certainly as it relates to issues such as immigration.

Who Broke China Bond Market's No Default Streak? Mutual Credit Guarantees

First an article on why more private bond defaults are coming, which asks who broke the the no default streak, followed by another textbook case of mutual credit guarantees destroying a healthy company. Only this time the firm had issued private bonds, so the impact is wider.

Article: 是谁打破了中国债市零违约？

My rough and selected translation: China's no default streak is history. Chaori ignited a flame that has spread to the private bond market, short-term financing, and eventually the debt market's 刚性兑付 (where trust companies or financial institutions buy back a product headed for default and try to work out the debt or eat the loss, protecting investors from taking a loss) streak will break. There's no suspense, only waiting to see who is the lotto winner.

What has people puzzled is, why don't the credit guarantees work? Everybody knows debt issuers will find a credit guarantee company to give investors a tranquilizer, and guaranteed credit is smoothly issued. Normal credit guarantees are irrevocable, joint liability, meaning when a debt issuer can't repay at maturity, it at least can count on the credit guarantee third party to pay cash.

However, domestic credit guarantee firms are a mixture of good and bad, roughly divided into two groups: the first is the group guarantee or mutual guarantee; the second is the specialty credit organization. The problem today is that credit guarantee firms are helpless, unable to repay debt. The specialized credit firm, even though it earns a high profit, doesn't have a lot of capital and one bad result can lead to a cash crunch. The mutual guarantees only need a single capital chain to break and it gets scary.

Currently the greatest risk of default is in the private bond market, this is where the risk is greatest of a payment failure. There are about 30 bonds coming due worth ￥5 billion and the credit guarantee situation is not optimistic. For example, "13中森债" (13 Zhong Sen Zhai) credit guarantee is from Sino-Capital Guaranty (中海信达), a firm that has already broken promises several times. Another, credit guarantor for "12金泰债" (12 Jintai) has so much debt its guarantee is worthless.

Facing this difficulty, if you hope the government will rescue, you're wrong. Leaving aside that local governments are also in debt, everyone knows there will be defaults and the governments ability to help is shrinking by the day. So don't naively think you will be able to avoid loss of principal and interest. Of course, investors can take the legal route and sue the debt issuer, credit guarantee firm and underwriter. Bond investors must be prudent, make sure the guarantee has force and the ratings are fair.

是谁打破了中国债市零违约？

While translating this I looked up the "12金泰债" situation. This is an interesting case and answers the question above. Mutual credit guarantees broke the market.

起底12金泰债：祸起联保 未来或申请破产保护

The headline is roughly, "Disaster Guarantee Could Result In Seeking Bankruptcy Protection." Right off the bat, the intro to the article says that the company in question could be headed for bankruptcy not due to any operational trouble, but because of the firms many mutual guarantees. This bond, "12金泰债" is on the verge of default.

From the article, Google Translated:

　July 21, "Investor News" reporter rushed to the center of the swirl of events - Huzhou in Zhejiang Jintai technology for on-site interviews. After multi-party investigative reporter found that the parties behind the conflicting interests of the bond is extremely complex.

"In fact, the crisis is not poor management at Jintai technology mainly due to the large number of affiliates and non-affiliated mutual guarantees, the source is Maoxing Zhejiang Chemical Fiber Co., Ltd. (hereinafter referred to as 'maoxing fiber') Recombinant failure caused a chain reaction. "Informed sources told reporters.

A chemical firm goes down and the daisy chain of mutual guarantee turns into a daisy cutter.

Also:

As of now, "12 Jintai debt" SME private debt market has become the only case of a material breach occurred.

I covered the topic, focusing on another private bond possibly headed for default, a couple days ago here: Credit Guarantee Firms Continue to Implode, Private Bonds Default

The article is long and complex, but you can get the sense of complexity and general mess of a situation from the Google translation 起底12金泰债：祸起联保 未来或申请破产保护

SMEs in the country's first private debt default "12 Jintai debt", opened a tip of the iceberg of private debt payment crisis. After the reporter field survey found that the payment of the crisis did not originate from bad company, but from the companies involved in multiple mutual UNPROFOR. Because companies involved extensive surface, once the local government involved.


　　Kim Tae future technology will be how to resolve debt default crisis of? Multiple stakeholders disagree behind the events. Informed sources, as the government and banks Kim Tae Technology major creditors, the company might prefer to go for bankruptcy protection programs.

　　"Investor News" reporter Wang Yang

　　Recently, the first case of breach of SME private debt - "12 Jintai debt" brought to the cusp.

　　"12 Jintai debt" includes two products, namely "12 Kim Tae-01", "12 Kim Tae-02" (hereinafter collectively referred to as "12 Jintai debt"), by Huzhou Jintai Co., Ltd. (hereinafter referred to as "Kim Tae Technology") in 2012 On July 10 issue, underwriters for the Zhejiang Securities. Two years later, July 10, 2014, "12 Jintai debt" failed to timely and full payment of principal and interest (total 33 million yuan), became the first single-material breach of the private bond market debt.

　　July 21, "Investor News" reporter rushed to the center of the swirl of events - Huzhou in Zhejiang Jintai technology for on-site interviews. After multi-party investigative reporter found that the parties behind the conflicting interests of the bond is extremely complex.

　　"In fact, the crisis is not the technology itself Jintai mismanagement, mainly due to the large number of affiliates and non-affiliated mutual insurance companies UNPROFOR, the source is Maoxing Zhejiang Chemical Fiber Co., Ltd. (hereinafter referred to as 'maoxing fiber') Recombinant failure caused a chain reaction. "Informed sources told reporters.

　　In addition, the reporter learned from other interested parties, before and after the "12 Jintai debt" incident, the local government has to intervene, Zhejiang Securities has said that "the issue of private creditors if the pressure given by the local government for Kim Tae Technology." The current focus of the parties to the dispute focused on debt repayment to the relevant agencies when and whether the alleged violations of information disclosure.

　　It is reported that, "12 Jintai debt" two products held by institutions, including Zhejiang Hankin Investment Management Ltd., Zhejiang Jinhaitang Investment Management Limited, Northern International( 14.65 , 0.05 , 0.34% ) Group Tianjin Investment and Development Co., Ltd. ((hereinafter referred to as the "Northern Investment Company"), the National Union Securities, Zhejiang futures, etc. which is a wholly owned subsidiary of Zhejiang futures Zhejiang Securities, the current positions 6.5 million yuan.

　　"At present, the basic track Kim Tae Technology Operations, is actively discussing with creditors solution." Employee Miss Shi Tae Kim Tae Technology Chairman and technology assistant Miss Zhao told reporters, although a debt default, but the operational status of all Kim Tae Technology normal.

　　Reporters then on "12 Jintai debt" issues related to the original call Kim Tae Technology actual control of Pan Jianhua, he told reporters that "the current inconvenient interview." It broke the news to provide information, the actual control or Kim Tae Technology has changed. October 2013, after Kim Tae Technology debt crisis, the company's second largest shareholder in the Energy Conservation Industry Development Co., Ltd. (hereinafter referred to as "energy") management committee composed of other PE Pan Jianhua fact instead of taking over the company.

　　Kim Tae future technology will be how to resolve debt default crisis of? Multiple stakeholders disagree behind the events. Informed sources on the "Investor News" reporter revealed that the PE as Kim Tae Technology Shareholders and major creditors - the government and banks, companies may prefer to go for bankruptcy protection programs.

　　Woe from UNPROFOR mutual

　　According to the company's official website reports, Kim Tae Technology is a metal and non-metallic material surface treatment technology research and development, production and sales-oriented high-tech enterprises. The company's main businesses include auto parts, plastic products, aluminum wheel plating, plastic plating, metal plating and so on. It had to be in 2009 to the Commission [microblogging] apply for IPO and listed on the Shenzhen SME board, but did not make the trip.

　　Informed sources told reporters that the crisis is mainly due to Kim Tae Technology UNPROFOR mutual. Fiber source is maoxing reorganization fails. Local government involvement is also due to face events involved too broad.

　　For maoxing chemical causes and consequences of the reorganization fails, a person broke the news to the "Investor News" reporter sent data show that in 2012, Huzhou City, the financial regulators had outflows in the thematic exchange meeting entitled "About enterprise funds strand breaks analysis of the situation of the "document. The documents show that Maoxing chemical was founded in November 2007, with a total investment of $ 25 million. But mainly rely on credit funds and private lending maoxing fiber during construction, due to the high financial cost, the profit can not cover the high interest, Maoxing fiber on February 28, 2012 cut-off. Meanwhile, Huzhou Xichang CNC Industries Ltd. (hereinafter referred to as "Xichang NC"), Kim Tae Technology, Yaohua Stainless Steel Pipe Co., Ltd. is a new chemical maoxing mutual UNPROFOR units, Maoxing fiber strand breaks resulted in a capital series of chain traceability and bank guarantee liability pressure loan issues, making these companies are facing cut risk.

　　At that time, under the command of the Pan Jianhua, Kim Tae Technology is not only chemical maoxing mutual UNPROFOR units, while the Thai gold under his control group, but also with local businesses Huzhou Bao trade Limited (hereinafter referred to as the "great treasure trade") have loan Guarantee relationship.

　　Xichang NC and large treasure trade belong to "Xichang line" actual controller for 丁林德, including large shareholders Xichang NC treasure trade, accounting for 4% of the shares. Because affected maoxing chemical incident, "Xichang system" guarantees its four companies retroactive liability so that the four companies have been affected to cease the brink.

　　Since the Thai group worked great treasure of gold trade in Bank of Communications( 4.47 , -0.13 , -2.83% ) Huzhou Branch and CITIC Bank( 4.45 , -0.09 , -1.98% ) were secured loan Huzhou branch, due to large treasure trade bankrupt insolvent, Thai Gold Group's total generation in March 2012 Bao trade 40 million yuan to repay the loan, which is partially funded by a loan from the bank, the loan by Kim Tae Technology and Pan Jianhua were secured.

　　Finally, because the situation can not repay the loan mutual insurance companies spate of UNPROFOR, leading Kim Tae Technology funding chain problems, and ultimately led to the "12 Jintai debt" can not be cashed situation.

　　Deeply involved in local government

　　Maoxing chemical chain reaction triggered by the case due to the huge amount of money involved in this process, the local government began to actively intervene, and before and after "12 Jintai debt" issue played a crucial role.

　　According to the aforementioned insider, "Kim Tae Technology IPO was a quasi-local companies, to make Kim Tae Technology successfully listed, the local government has participated in its dealings with the debt crisis, the debt Jintai '12 'event behind the figure of the local government also . "

　　Kim Tae Technology before July 2012 issue of private debt has introduced a number of PE stake, in order to ensure the smooth introduction of PE funds, local government plays an important role. In early March 2012, Shenzhen Fuhai Yintao Asset Management Limited (Kim Tae Technology introduced one PE, hereinafter referred to as "Fuhai Yintao") during the due diligence of Kim Tae Technology, found Maoxing fiber and Kim Tae Technology, Thai gold Mutual relations between groups and find out Maoxing chemical chain disruptions due to funding does not have the guarantee qualification. After Wuxing Township Central People's Government shall issue a letter Nagisa commitment "to located the company (Kim Tae Technology) south of the 105 acres of land as collateral, after the company as a bank loan collateral." This makes Kim Tae Technology the successful introduction of a number of PE.

　　Kim Tae Technology appeared in the capital chain problem, Kim Tae Technology on behalf of the local government who has to pay 20 million yuan loan (back Huaxia Bank( 8.77 , -0.03 , -0.34% ) ), Pan Jianhua to Kim Tae Technology 6,000,000 shares held as collateral .

　　The source told reporters: "Until the financial crisis erupted Kim Tae Technology, Zhejiang Securities project staff with Kim Tae Technology minority shareholders, private bondholders on many occasions and meetings, the vice president of the Zhejiang Securities, wind control department staff, down to the project managers have been emphasized, 'had taken over the project, as Kim Tae Technology releases the pressure of private creditors if the local government to give as a political task to undertake down'. "

　　In addition, Huzhou City guard against financial risks to maintain a stable business leadership team had 16 April 2012 convened Bank of China( 2.71 , 0.00 , 0.00% ) , Agricultural Bank of China( 2.52 , 0.00 , 0.00% ) , Bank of Communications, China Merchants Bank( 11.02 , -0.05 , -0.45% ) , Huaxia Bank, Huzhou banks, rural cooperative banks Wu, nanxun bank officials and business executives in charge of convening the Kim Tae Technology, Hetejintai, Thailand Golden Group (subject to Pan Jianhua control) three corporate loans restructuring negotiations will.

　　The meeting clearly "Kim Tae Technology companies should ensure the normal operation of the production, its name has been a sum of 10 million yuan China Merchants Bank overdue loans, the company promptly raise funds to repay the 20th month, on this basis, please continue to work with China Merchants Bank strengthen provincial branch communication, before the end of the credit scale to give Kim Tae Technology support 10 million yuan of; and requested the relevant banks to maintain Kim Tae Technology, the existing loan size Hetejintai and Thai Gold Group, do not smoke loan, the loan is not pressed, the related loan maturity turnover, you can use the city emergency working capital. Municipal Finance Office in consultation with the Municipal Finance Bureau to support the company's introduction of relevant policies. " Kim Tae local government support of science and technology is evident.

　　Zhejiang Securities suspected of concealing the truth

　　Throughout "12 Jintai debt" event, in addition to "12 Jintai debt" default is not on time payment, the creditor even more outraged that the disclosure of information is extremely relevant agencies are not in place. Broke the previous person told reporters: "the relevant agencies suspected of concealing important information, constitute fraudulent sales." In addition, Kim Tae Technology also work bond underwriters Zhejiang Securities expressed dissatisfaction.

　　Artificial reporter broke the news agency cited several examples of allegedly concealing important information.

　　First, the "12 Jintai debt" issue, the subsequent occurrence of overdue bank loans, the CBRC notification, etc., Zhejiang Securities project staff knows this, but did not disclose the information to bondholders.

　　Second, within the "12 Jintai debt" bonds for six months, the staff Zhejiang Securities Shi Jian, Lu Min, Zhou Liang, Hua Jia have repeatedly went to Kim Tae Technology survey, Pan Jianhua, Zhao's former secretaries and former Chief Financial Officer Ru a reception, Kim Tae Technology external guarantee liabilities of such persons are aware of the serious situation, but not until March 2014 were not disclosed and communicated to the bondholders.

　　Third, in December 2012 the strategic investors into the bank Zhejiang Jintai technology accounts 36 million yuan investment funds in the process of pumping revolving loan loan. Staff Zhejiang Securities Skinner went to the bank for more details Zhejiang, Zhejiang Governor of the Bank confirmed this, but did not timely disclosure of Zhejiang Securities and notification to bondholders.

　　These circumstances bondholders until March 2014 before it knows.

　　For the above cases, the interim head of Zhejiang Securities "12 Jintai debt" external information disclosure Dai Xiang told reporters: "Kim Tae Technology private debt was recommended by the local government project, we had to go to banks and companies to do the investigation and did not find the current time Investors reflect these circumstances, these cases we also later learned from the investor at, but we have to wait for its authenticity reply to the relevant regulatory authorities. "

　　In addition, according to the reporter Pan Jianhua get a personal credit report, Pan Jianhua personal credit report has been repeatedly during downshift inquiry before issuing bonds and bonds, the vast majority of searchers banks, including "Huzhou City Commercial Bank "" China Minsheng Bank( 6.57 , -0.08 , -1.20% ) Hangzhou Branch "," Zhejiang Wu rural cooperative banks "," Zhejiang Huzhou bank branches "," branch of the Agricultural Bank of China Huzhou Wu "," Bank of East Asia (China ) Co., Ltd. Nanjing Branch "and so on, because the query is more than a" loan management, "" guarantee qualification "," loan approval. " For these cases, a creditor Ning (a pseudonym) said: "Zhejiang Securities does not tell creditors a similar situation."

　　Ning told reporters the information provided, the Pan Jianhua actual control of Kim Tae Technology, Hetejintai, Thai Gold Group, the three companies before issuing bonds and bonds occur during liabilities pan (such as for maoxing fiber, Tai Po and trade and other corporate guarantees, shifted to the debtor is insolvent when the secured party) majority is repaid by the Thai Gold Group, while the translation by Kim Tae Technology and Hetejintai and Pan Jianhua and other guarantees, since the Thai Gold Group insolvent, ultimately translate to the Kim Tae Technology.

　　Ning told reporters: "According to Kim Tae Technology PE shareholders Fuhai Yintao chairman Wu Jie Si private bondholders convened briefing held this year on April 13 (Zhejiang futures representatives also participated in the meeting) on ​​publicly available materials, Pan Jianhua from 2008 began to financial fraud, to issue bonds before, fictitious revenues and profits 30 million yuan or more. "

　　In addition to the underwriters, responsible for auditing CPAs also questioned the creditor is not responsible. In this regard, Wang Ning told reporters: "A lot of critical information we later learned in Tianjian audit report did not reflect, we are also considering to pursue Tianjian responsibility."

　　In addition, local banks are also involved, another person familiar with Mr Chong told reporters: "Zhejiang Securities had told us on the loan card Jintai technology to provide mutual UNPROFOR did not have information, according to the central bank [microblogging] provisions This information must be entered, this is probably intentional local banks, the water is too deep behind. "

　　Kim Tae Technology or filed for bankruptcy protection

　　As the relevant creditor agency is not considered as a cause of their buying in the case of asymmetric information, therefore, the parties to the debt arising from either way divergence, fear has become the current impasse.

　　Reporter (a pseudonym) Department learned from a private creditor debt Li Wei, the former "12 Jintai debt" breach of contract, Kim Tae Technology's current Shareholders have raised amortization program, specifically for principal and interest payments from the beginning of 2015, over four years pay an annual payment of principal of a quarter, interest rates according to the original agreement executed. However, because the time is too long and there is no guarantee the program has not been relevant creditors accepted.

　　In addition, creditors have tried to find a third party to access disk. Mr Chong aforementioned insider told reporters, "In March this year, Kim Tae Technology can not find redemption, the Zhejiang Securities tried to find Cinda Asset Management Company as a third party to accept the relevant creditor claims, but later because the condition is not Tanlong cause not below. After the relevant creditors had taken the initiative to find a third party to take over, but due to third-party companies to find the requirements to provide a certain amount of advance deposit and give up. "

　　However, as one of the creditors northern state-owned investment company with the background, the "12 Jintai debt" breach involving the loss of state assets, a source close to the northern capital firm who told reporters, "If the matter is not properly resolved, Northern Investment The company's legal department goalkeeper intervention legal liability related personnel. "

　　Although there is no ability to repay debt, but Kim Tae Technology's current operations began to turn good. Reporters and staff from the company Miss Dong Mizhao Miss Shi Department learned that Kim Tae Technology a few years ago because of funding chain problems indeed lead to business operations are affected, but the company is currently operating in the slowly improving.

　　In addition, the reporter from "12 Jintai debt" creditors Wei also confirmed the information learned at this point. Wei told reporters: "At present, the PE side has taken to us to convey the message that companies currently operating normally no problem, according to the current operating conditions, the future of science and technology is the ability to Jintai reimbursement." In fact, the actual control of Kim Tae Technology People change has occurred. Wei said that "management committee composed of energy-saving and other PE fact escrow company."

　　Kim Tae future technology will go from here? "Private debt creditors do not want to go bankrupt liquidation Kim Tae Technology if bankruptcy liquidation, creditors get the compensation will be extremely limited. Currently chairman of the shareholders of Fortune silver Tao Wu Jie Si Tae technology is very good bankruptcy reorganization, if there is no feasible solution , the future does not rule out bankruptcy procedures go. "Mr Chong told reporters," but, due to the more than two-thirds of unsecured creditors matter for the local government and banks, therefore, the initiative is not in the hands of private debt creditors. Comprehensive more likely Kim Tae Technology's current operations, Kim Tae Technology PE Shareholders and local governments and banks to Jintai technology for bankruptcy protection. "

　　The so-called liquidation, is the liquidation of assets, closing debt. The bankruptcy protection is similar to the "airbag" when the accident occurred, may play a role in buffering. During the bankruptcy, the creditor can not enforce the debt, the debtor can still operate as usual.

　　Concern is that before the financial crisis has exposed Kim Tae Technology, Zhejiang futures in March last year to 6.5 million yuan will be held by the scale of "12 Kim Tae-01" by the Shanghai Stock Exchange [microblogging] sold to another brokerage platform for sale - National League securities (Note: A total of 13 million yuan holdings "12 Jintai debt" Before Zhejiang futures sold). According to sources close to the League of Nations Securities, told reporters, "president of the League of Nations and the Securities president of Zhejiang Securities is the relationship between students."

　　Reporter Contact Zhejiang Securities is responsible for "12 Jintai debt," the project leader Zhang Hui, Zhang Hui told reporters that "the company is discussing solutions, not convenient to disclose details."

　　SMEs welcome private debt payment peak

　　In fact, "12 Jintai debt" breach may just tip of the iceberg, as the representative of SMEs in its private debt is caught in a collective payment storm.

　　May 22, 2012, both the Shanghai and Shenzhen Stock Exchange issued a "SME private debt business pilot approach" (hereinafter referred to as "" pilot approach ""), known as the "Chinese version of junk bonds," the official launch of the SME private debt . According to private debt common period of 2 years, in 2012 the first issue of private debt about to come due, the first wave of cashing peak has arrived.

　　With the payment of the peak season, a variety of payment crises have also surfaced. Since March there have been "13 sen debt" payment crisis, "12 Walters" in honor uncertain prospects, "13 Huatong Bridge CP001" current payment crisis and other reports, but has not been reported in the newspapers of the "12 Jintai debt" but became the first case of small and medium private debt default cases. The evening of 21 July, the Central Depository Trust & Clearing Co., Ltd. (hereinafter referred to as "debt Gordon") announced that, effective immediately, the suspension of the "12 Kim Tae-01" and "12 Jintai 02" These two bond valuations. Gordon said in debt, private debt information disclosure in view of SMEs opaque and the issuer's financial and rating information were unable to obtain from public sources, has been unable to grasp the latest developments of the event, so the suspension of two bond valuations.

　　As of now, "12 Jintai debt" SME private debt market has become the only case of a material breach occurred. This year in April, "13 in Tucson debt" has appeared cashing storm, after the adoption of the guarantor Hisense fulfill guarantee obligations to investors; March since "12 Waters" event of the issuer bankruptcy reorganization have not yet turned the corner, had been closely watched Watertown Road and Bridge Group's short margin (13 Watertown Road Bridge CP001) principal and interest payment crisis turnaround in the afternoon of July 23, or pay all principal and interest.

Initial Home Price Data From July: Price Declines Still Accelerating

Initial data from private sources is good for reading trends, before we get the government data mid-month. Here's a list of home prices in 100 cities. The China Index Academy has released its 100-city data. The results: price declines are accelerating. Prices fell an average of 0.8% in July, up from a 0.5% average decline in June. The June number was slightly better than government numbers. The report is here.

The first list is 100 cities, month on month price changes, followed by avg and median price per sqm. Below are the 10 largest cities broken out along with existing home price changes.

All of the 10 largest cities saw new home prices decline in July; only Chongqing saw an increase in existing home prices.

Quanzhuo in Fujian province led the 100 cities with a 1.66% increase in new home prices, followed by Qinhuangdao (a city with excess inventory) and Shijiazhuang, the latter two both in Hebei province. In total, 24 out of 100 cities saw price increases.

At the other end, Jilin in Jilin province and Heze in Shandong province led the losers with losses of more than 3% mom.

Several of the cities in Zhejiang province, hoem to several housing bubbles, had some of the smallest losses. Hangzhou was down 1.5%, but Ningbo and Wenzhuo both saw price increases. Maybe this is a bump due to this area being the home province of many housing speculators and buying restrictions being eased. And could the market in Wenzhou be turning after nearly 3 years of continual losses? One month isn't a trend, but the gain, if it shows up in the official numbers later this month, will break a 30+ month chain of losses.