Urbanization Stall: Peasants Refuse to Give Up Land Rights

Another article asking why third- and fourth-tier prices have stalled comes to the same core conclusion: rural migrants refuse to give up their land and/or cannot monetize it.

JRJ.com: 三四线城市房价为何冰冻？

　Years of land reform, the ability of mortgage financing land farmers realized without the slightest break, which leads to large-scale land can not be monetized nor securitization, farmers watched the land can not be realized, the farmers formed directly into the city purchase of the fault, three or four lines of urban real estate so they had stuck. The recent practice of Anhui Province and the farmers on board feet practice was stopped many years ago, it is in fact within the framework of the current system to make land maneuvers only.

In an agricultural country like China for thousands of years, the land was excessive colored by political ideology, the land belongs to all the people, it is a collective, but not farmers, except for the land used by the Chinese government for urban expansion, and aside from the huge land finance, in fact, most of the land has not been monetized, has not been commodified, still in a state of the natural economy, and was frozen in some minds as "peasant social security." And in the current state of the economy, protect farmers' land is simply not, but self-reliant work.

A good system, mainly the release of the vitality of the assets, such as the flow of population, land flows and so on. China's agricultural land, especially homestead can not flow, can not enter the capital, farmers can not rely on the land mortgage financing, which part of the assets has been locked, it can not create value, stick to the formation of farmers in the rural situation. Third- or fourth-tier developers housing stock cannot cross the Himalayas, a serious impediment to the further modernization of the pace of urbanization, a more serious threat to China's economic and financial security.

Shenzhen Tightens Lending, Shanghai Prepares Buying Restrictions

Bloomberg: Shenzhen's Banks Asked to Tighten Mortgage Loan Standards

Mortgage leverage in Shenzhen has been far higher than in other first-tier cities since 2015, and has accumulated risks, according to the statement from the Financial Society of Shenzhen Special Economic Zone, a research unit under the local branch of the People’s Bank of China. Banks should “appropriately control” the total size of home loans and decide mortgage rates in a prudent manner, and shouldn’t cut them to compete for clients, according to the statement, which said the measures are effective March 28.

Residential home prices in first-tier cities including Beijing, Shanghai and Shenzhen have surged amid monetary stimulus from the central bank and a relaxation of housing curbs intended to boost real estate investment. The recovery in China’s property market accelerated last month, with prices rising in the most cities since March 2014, according to official data. Prices in Shenzhen have jumped more than 50 percent over the past year.

Caixin: Shanghai Said to Be Nearing Purchase Curbs for Warming Property Market

Shanghai's government will introduce measures to cool its housing market, including requiring bigger down payments for buyers of second homes, a person with knowledge of the matter says.

The government will announce the new rules in the next few days, the source said on March 23.

The changes would target people purchasing their second home, the person said. For example, second homes of 140 square meters or more would require down payments of 70 percent of the property's price. The ratio for homes smaller than that would be 50 percent.

Banks in Shanghai have been requiring homebuyers to come up with down payments of 40 percent of the property's price tag, no matter the size.

Cash Crunch Worsens as Liquidity Plentiful, Capital Not

Liquidity is everywhere, but Chinese businesses don't have a drop to drink.
CNBC: Corporate China grubbing for cash as liquidity tightens

Chinese companies, with ever more cash tied up in stocks and unpaid bills, are facing their tightest liquidity crunch in a decade, according to a Reuters analysis, forcing some into more costly and less secure borrowing to stay afloat.

The analysis of Chinese listed companies that have reported 2015 earnings shows it takes them almost 170 days to turn working capital - broadly the net amount tied up in stocks and bills payable and receivable - into cash.

For the 141 of the companies that have been around for at least a decade, the figure is 130 days, compared with roughly one month 10 years ago, and both the amount clients owe them and the amount they owe suppliers are at the highest level since at least 2006.

In other words, it is a slowdown that has yet to end.

Businesses are also increasingly resorting to selling their unpaid bills to a third party, suffering a discount on the face value of the debt but getting immediate access to cash.

Discounted bills now amount to 46 percent of the total, up from 20 percent at the end of 2013, according to research firm CreditSights - its highest level since monthly data began in 2011.

In other words, deflation.

$30 Billion in Outflows Lined Up for Chips

Bloomberg: Tsinghua's Zhao Touts $30 Billion Arsenal on Path to Chip Giant

Zhao Weiguo wants to create China’s first giant in the global semiconductor industry and has a $30 billion investment plan to do it.

The big issue is political: countries don't want to give up their chip industry.

Consumer Credit Forecast to hit 37 Trillion by 2019

EO: 混战消费金融

consumer credit market will usher in huge opportunities for development. Whether the central bank credit card, consumer finance companies, or to BAJ (Baidu, Ants Financial, Jingdong Finance) as the representative of Internet financial institutions are planning how to win a share of one trillion blue ocean market. 2016 government work report will undoubtedly aggravate the market competition.

"In the nationwide consumer finance company pilot, to encourage financial institutions to innovative consumer credit products." 2016 government work report the case statements. Market from banks is expected, by 2019 China will be the scale of consumer credit more than 37 trillion. However, market participants all, who better to win consumers?

Currency adjusted that might be more like a 50 trillion market.

First and Second Tier Madness! Seller Regrets Lost Million! Fed Worried! The End is Nigh

First- and second-tier housing markets are still in a frenzy. 我爱我家 said Beijing existing home sales increased 200% yoy last week. I've previously covered the long wait times and scaplers charging thousands of yuan for a reservation ticket cut in line at the registry in Beijing. The story is the same in Shanghai, Nanjing and other cities. Where reservations used to cost about 500 yuan, now the price is regularly 2,500 to 3,000 yuan (this is an increase of 25% to 50% from reports a week ago) and scalpers say they're selling 95% to 100% of the reservations.

In Jiangbei District of Nanjing, currently the hottest market in the city, a man waited in line from 1 PM in the afternoon, taking with him some fried rice and a sleeping bag. He spent the night sleeping in line and managed to get number 48 the next day. All told more than 1000 people showed up for 500 reservation numbers.

In Beijing, a home seller laments his decision to sell at the end of 2015. Had he waited two months, until after Spring Festival, he would have pocketed another 1 million yuan as prices soared to 60,000 yuan per square meter.

The oft quoted Zhang Dawei of Centaline says the run-up in prices is started to dull sales and there's emergent evidence of a slowdown in existing home sales. Shenzhen home prices and sales have fallen over the past two weeks.

iFeng: 一二线楼市疯狂卖房者：后悔！亏了100多万

Within Beijing's 5th ring there is low housing supply as prices cross over the 60,000 yuan per sqm threshold. According to Centaline, there's only around 10,000 homes for sale within the 5th ring presently, down from around 20,000 in years past. Inventory within the 5th ring accounts for only 15% of Beijing's housing supply. Zhang Dawei goes further and says some of the inventory is phantom. Since the start of 2015, there's only about 3000 homes for sale within the core of the city at any given time. In a normal year, sales within the 5th ring are about 5000 homes, so inventory is barely more than 7 months. Thanks to the tight supply, there are many properties selling for more than 100,000 yuan per sqm ($15,300), including 60 new projects inside the 5th ring, all selling/planned for more than 100,000 yuan.

iFeng: 京五环内住宅库存去化不足1年 开启6万+时代

Earlier I posted Evergrade Cuts Home Prices As Buying Restrictions Anticipated. Developers expect buying restrictions will be introduced and it appears Evergrande is rushing to clear its inventory.

Only a few months ago, Chinese governments were frantically trying to spur real estate sales. Now the Shenzhen market may already be cooling as a result of government efforts and more action is likely on the way from first-tier and top second-tier cities. This sudden change of heart is happening in the United States as well, where the Fed may already be changing its tune from last week's dovish policy statement.

ZeroHedge: When "Mother's Milk" Runs Dry

For the third time in six months, US equity markets have exuberantly decoupled from earnings expectations thanks, in large part, to jawboning and coordination from Central Banks. With stocks near record highs despite the earnings "mother's milk" expectations tumbling, one can't help but wonder, as CNBC's Bob Pisani did this morning, given the comments from Evans, Lockhart, and Bullard, "It's possible the Fed has seen the market reaction and become alarmed by the complacency."

The central bankers are powerless. They cannot print borrowers, only monetize the debt. While endless streams of liquidity are produced, they cannot print houses, or corporate equity shares, or real capital. Rapidly rising Chinese home prices in top tier cities, elevated equity and junk bond prices in the U.S., and a rising short position on real U.S. dollars as global trade and credit slowdown, all spell trouble for the interventionists.

The Fed is in bizarro world due in part to local housing issues, Chinese demand and the Affordable Care Act, which have anchored core inflation in the Fed's target zone. If the Fed signals any easing, oil prices rise and inflation becomes a serious concern. The Fed must tighten if only to save its credibility.

The more China eases credit, the faster top-tier home prices rise as housing becomes the outlet for hot money. Meanwhile, rising money supply in China exacerbates the shortage of U.S. dollars in the offshore market as Chinese moving cash abroad soak up dollars. The PBoC cannot stem the bleeding of USD.

In Japan, the 3 month bond yields less than the 8 year bond, and the 40-year bond yields less than the 30-year bond. Mish:

I frequently post the ChiNext analog. In the last post I wrote:

If the ChiNext doesn't correct in the next 30 trading days, the analog is busted. Ideally, a correction would commence in the next few days.

30 trading days from now is early May. Some traders have noticed the U.S. market is repeating the Aug-Nov 2015 sell-off and rally. If this analog continues to hold, it would also signal a sell-off in May.

I like the risk/reward of getting short at this juncture.

Li Keqiang Speech at Boao Forum

Straits Times: China premier Li Keqiang says govt will cut taxes and red tape, keep yuan stable

Li repeated previous statements that the country hopes to cut taxes by 500 billion yuan (S$105 billion) in 2016 and promote reforms to the value-added-tax (VAT) system.

He also reiterated that China would not devalue the yuan exchange rate to boost exports as it would not help Chinese firms become more competitive, adding that the government would continue to reduce overcapacity in steel, coal and other sectors while helping develop smaller private enterprises.

Full text in Chinese: 李克强博鳌亚洲论坛演讲：中国经济怎么看，怎么干

Some snips:

Second, jointly promote economic growth. Emerging economies and developing countries, 40% of the world's total economic output, the contribution of the past was once two-thirds of economic increment, in response to the 2008 financial crisis played a role in the backbone, but two have greater difficulty some of the country's economic growth fell sharply even negative growth. As Asia's emerging economies, most concentrated areas, the overall maintained a growth momentum. Last year, economic growth in developing countries in Asia, only reached 6.5%, the contribution to world economic growth rate of 44%. Therefore reasonable to boost confidence in Asia, but the need to stimulate vitality, power is formed, which can not only for himself in Asia, but also for the world economic recovery play a greater role. We also hope that the countries in the world to deepen cooperation and solidarity, to strengthen macroeconomic policy coordination, to jointly oppose trade protectionism in all its forms, especially the developed countries should adopt more growth-friendly policies, policy changes in some countries to avoid spillover benefits. China's positive initiatives to build the Asian financial [0.00%] Cooperative Association, is willing to improve cooperation with the parties to the construction of the Asian financial markets, to avoid large-scale joint regional financial turmoil again.

...I think, look at China Economy:

First, look at the whole. China last year although the growth rate slowed down, but on a 10 trillion dollar economy, it can achieve 6.9% growth rate, growth on a high base. And it is in the process of transformation and upgrading implemented. This year, the Chinese economy overall smooth start, but there is some positive changes. We launched a series of steady growth, adjusting structure, promoting reform measures, policy effects are emerging results are constantly accumulate.

Second, look at the trend. According to statistics, last year more than 1300 cities and towns million new jobs, and income growth exceeded GDP growth this year from January to February employment situation remains stable, 31 major cities around the survey unemployment rate remained at 5.1%, and last year the basic flat. In this process, accelerate the pace of industrial upgrading, services, equipment manufacturing and high-tech industry to maintain rapid growth. Continue to expand domestic demand, consumption is still double-digit growth. Consumption and services have become the main force driving China's economic growth. Meanwhile, the energy intensity and discharge of major pollutants continued to decline, which marks the quality of economic growth is improving.

The third is to look at the long term. Although China has become the world's second largest economy, but the per capita income is still in the world, the gap itself is also potential, especially the West there is a huge space and room for maneuver in China. China is still in the overall advance of industrialization and urbanization process, the domestic space, the development of toughness, there are innovative means. So, the long-term fundamentals are bullish on the Chinese economy has not changed.

...At the same time, we need to promote the financial and monetary system. For example, we are going to fully open the VAT sales tax reform, which is an important measure of structural reforms, this move is not only meant to give corporate tax cuts, preliminary estimates from the country this year to give businesses by 5000 billion yuan of tax, and policy orientation support services, especially in the development of the service industry. For them, the burden will be lighter. At the same time, this reform will also help unify the tax system, so that the financial and tax system more open and transparent, easy to social supervision. SMEs will derive more benefits. In the process, probably because experience problems, there will be some twists and turns, but in general, I am in the government work report has been talked about, all the industry is not only reduced the tax burden increase. While also reducing costs. Government to do so, is Fangshuiyangyu. In the revenue decline, we are still willing to use short-term revenue "minus" in exchange for the sustainable development of the potential of "increasing." This in itself shows that we are determined to create a dynamic invigorating, but also that we have a certain amount of fiscal space.

In the financial sector, we will also promote the full range of regulatory reform, is more conducive to multi-level capital market development, we are still exploring how to use market-based approach to debt, and gradually reduce leverage. Reform is open, we will focus on promoting the outside world, including the expansion of the orderly liberalization of services, finance and other fields, to further fight the Chinese broader, better environment, the best destination for foreign investment. I remember years ago I announced here before, in a timely fashion, "Shanghai-Hong Kong Stock Connect." This year I announced here this year to choose the launch, "Shenzhen-Hong Kong through." All these indicate that China's capital markets are constantly opening up.

RMB will remain at a reasonable and balanced level stable, China is a responsible big country, China's development of the fundamentals have not decided the yuan, there will not be a long-term possibility of devaluation. China will promote self-initiated, gradual and controllable principle of the exchange rate market, but will not use devaluation to stimulate exports, so it is not to stimulate high-quality products, not to infuse courage to competition, the courage vigor creation. We would like to launch the world's escalating, high-end products.

Evergrade Cuts Home Prices As Buying Restrictions Anticipated

Evergrande has cut prices on 300 properties by 13% in order to clear inventory. The cuts are national, with exceptions such as Qidong in Jiangsu and Shanghai. Last year, Evergrade launched a policy allowing homebuyers to return a home, no questions asked. The price cut comes on the 1-year anniversary of the policy. Industry insiders say they expect first- and second-tier cities roll out restrictions soon, in order to curb rapidly rising prices. Many developers are rushing to market and accelerating sales plans in order to grab sales ahead of new buying restrictions.

Netease: 恒大再次带头大降价 全国300个楼盘八七折出售

Another SOE Goes Bust: Guangxi Nonferrous Metals Group

Caixin: State-Owned Non-Ferrous Metals Firm Files for Bankruptcy

A state-owned nonferrous metals company that documents show has 14.51 billion yuan in liabilities says it filed for bankruptcy late last year.

Guangxi Nonferrous Metals Group Co., a state-owned enterprise in the southern region of Guangxi, said in a statement given to the Shanghai Clearing House, on February 22 that it filed an application for bankruptcy in Nanning Intermediate People's Court in December.

The Shanghai Clearing House is a state-backed financial institution for the interbank market.

Guangxi Nonferrous owed 14.51 billion yuan to 108 creditors, namely subsidiaries, financial institutions, suppliers, construction companies and private bondholders, according to documents one company executive showed Caixin.

More cash didn't help:

n June last year, Guangxi Nonferrous said it was having difficulty repaying its bonds, citing excess capacity and falling prices.

The problem was solved when China Development Bank agreed to help, a bank employee told Caixin. But Guangxi Nonferrous defaulted on two other bond payments that were due in November and February, he said.

Chinese Begin to Predict End of Housing Price Rise

Reuters: China Resources Land says top cities may take steps to steady housing market

State-backed property developer China Resources Land Ltd on Monday said local governments in the country's top-tier cities may introduce partial short-term tightening measures to tame an overheating housing market.

iFeng: 全国楼市“高烧”将退 暴涨城市房价或将回落

First-tier city home prices may fall

Cause I love my family group vice president Hu Jinghui analysis, in February the central fiscal policy, monetary policy, two-pronged approach, the continuous introduction of a number of favorable policies from many down payment, interest rate, deed tax, business tax and other property for the property market, especially second and third tier cities, effective stimulated the demand for property, boosted market confidence, so in February new home prices have more second and third tier cities turned up by the fall, the national new homes property market, the overall trend of recovery, while second-hand housing market is more mature and cities some second-tier cities in the second-hand housing prices are rising.

Hu Jinghui said that in February prices continued to rise at the same time, we should also see housing prices in Shenzhen vanguard of new and existing homes, home prices began to fall than rise, indicating that some time ago soaring prices of cities, especially in Shenzhen being taken curb speculative investment, curb housing prices move has been noticed. Expects the future with the further withdrawal of investors, the Shenzhen property market will be the first cool down, prices finished lower, or will, immediately after Shenzhen, housing prices in Shanghai, Beijing, Guangzhou and other first-tier and second-tier cities focus will gradually stabilize, and some pre-Rate regional soaring, housing prices may pullback.

SCMP: A chill descends over Shenzhen’s formerly red-hot housing market

Total transactions by area in the nation’s most expensive city decreased 24 per cent to 89,400 square metres last week over the prior week, and fell 10 per cent year on year, according to China Index Academy. That compares to at least 25 per cent year on year growth in three other first-tier cities of Beijing, Shanghai and Guangzhou.

Beijing Vice Mayor: Prices Up 11.3 pc So Far, Reasonable

The 11.3 percent price increase in Beijing homes to date is reasonable, says the Vice Mayor, because the rise is "not the highest."

When, according to China Securities Network News, Beijing Vice Mayor Li Shixiang 22 pm to accept an interview with Shanghai Securities News reporter at the Boao Asian Forum, said Beijing has been in the control housing prices, housing prices in a reasonable range, since the beginning of the year the rate of increase was 11.3%, "not the highest."

iFeng: 北京副市长：房价年初至今上涨11.3% 涨幅在合理区间

Social Security Funds to Enter Market

A trillion yuan in social security funds will begin to flow into investments this year, with 300 billion expected to hit the stock market.

Supporting policies and measures after According to "First Financial Daily" reported last August promulgated and implemented the "basic pension insurance fund investment management approach", the relevant departments have begun to develop the basic pension investment approach, the Department who has made ​​clear that, basically pension market operations will start within this year.

According to 2015 statistics bulletin pension insurance, the national pension fund last year, a total of 3.2 trillion total revenue, total expenditure 2.8 trillion, the cumulative balance of 3.98 trillion (including urban and rural residents and urban workers). Department who had said it expects the country may imputation for pension fund investments of about 2 trillion.

"First Financial Daily" correspondent from stakeholders at a Department who learned that due to the current pension overall level is not high, in fact, the basic pension insurance for urban workers, mainly in the prefecture-level cities, urban and rural residents in the basic old-age insurance fund major located in the county area. In the process of fund collection will be affected by many factors, this year is expected to imputation of funds for investment operations around more than one trillion yuan.

"Basic pension insurance fund investment management approach" investment, the upper limit of basic pension fund to invest in stocks was 30%, which means that within a year, which means that there will be a maximum of 300 billion pension into the stock market.

Target date for funds to start hitting the market is Q3:

For the industry concerned about the pension time to market, Yin Weimin said the pension investment operations will start this year. Market participants expect the fastest pensions will be fully open in the third quarter of this year, investment trust, and time to market may delegate investment starting point 3-6 months later.

iFeng: 媒体称养老金入市最快有望三季度启动委托投资

Shanghai Cuts Pension, Healthcare Contributions

Caixin: Shanghai Cuts Amounts Companies Have to Pay for Employee Benefits

Shanghai's government said on its official social media accounts on March 21 that firms in the city need to pay an amount equal to 20 percent of an employee's gross salary into pension accounts, down from 21 percent.
The amount for health insurance was cut from 11 percent to 10 percent, and contributions for unemployment insurance were cut from 1.5 percent to 1 percent of an employee's salary.

...Workers contribute from 10 percent to 12 percent of their gross salary each month for the benefits. Shanghai is keeping the rates for employees unchanged.

...The costs of the benefits, which commentators have criticized as among the highest in the world, have been under intense scrutiny in recent years as businesses, particularly small private firms, feel the pinch of a slowing economy.

China May Use Offshore Banking to Secure South China Seas

China considers killing two birds with one stone, turning Yongxing Island (Woody Island) into an offshore financial center. Aside from the economic benefits, it would secure China's political claim on the South China Sea.

21st CBH: 南海岛礁能成为百慕大式离岸注册地吗?

Two of the country this year, the South China Sea once again become the focus of the parties. NPC press conference, spokesman Fu Ying was asked three times to the South China Sea. There are also proposals for motions involving the South China Sea. Two of the most notable of the CPPCC National Committee, deputy director of the Foreign Affairs Committee, submitted Han Fangming "Yongxing Island will build a Bermuda registered offshore" proposal.

Registered offshore, through low-tax policy or tax-free, loose financial regulation and open management program, set up to attract foreign companies registered offshore companies. Proposal suggested that the central and Hainan through policy and legal support, allowing the Xisha Yongxing Island, the development of offshore financial services, and thus promote the development of the South China Sea and the central economic zone in the South China Sea strategic layout.

I believe that, and regardless of the specific content of proposals, one on its own logic - the economic development of the island as a means of distribution of the South China Sea should be able to provide new ideas for breaking the increasing complexity of the South China Sea game.

In fact, economic development has become the main means to safeguard the sovereignty of the South China Sea. From the initial joint development of South China Sea oil and fishery resources initiatives, to the exploration of deepwater oil and gas fields, economic instruments are to highlight its significance. The difference is that the role of fisheries and oil and gas development is mainly reflected in the sovereign sea waters especially controversial declaration, and the development of offshore financial sector would help to strengthen the management of the actual controlled islands.

Although China has already realized over the Paracel Islands and administrative development, its economic function has often been watered down. A real problem is that China's legitimate military and civilian deployment in these reefs, likely to cause unnecessary tension in neighboring countries, and become some of the United States, Japan and other countries outside the South China Sea issue of multilateral excuse. In this context, clearly some of the reefs controlled economic development function, can also be regarded as reducing misjudgment, an effective means of reducing external intervention.

I doubt outside parties will be mollified by China securing its interests, but it undoubtedly strengthens China's claims.

There are drawbacks though. Foreign investors will be wary of China's claim on the islands and China's legal system is unable to deal with offshore banking at this time:

Security Capital is also an important factor. The vast majority of offshore centers away from geopolitical disputes, and maintaining political stability through effective government. In contrast, the South China Sea tensions in the South China Sea islands and reefs will hinder the development of the financial industry has brought. This is why a lot of people are not optimistic about Yongxing Island Offshore Financial reasons development. Of course, this view underestimates the Chinese South China Sea as a "real master" determination to maintain peace and stability on the South China Sea. However, for Yongxing Island as an international financial capital registration, we also need to make some effort to highlight Yongxing Island demilitarization of use and so on.

In addition, the legal system, now known global offshore centers use the Law Department. This system was considered for a higher degree of financial innovation tolerance, and ease of integration with Western multinationals legal system. And China, as in civil law countries, the ability to "compatible" an offshore centers?

In short, the Yongxing Island, the reality limited by a variety of conditions, even if the island's offshore area can be entered substantive stage of development, it is difficult to attract transnational capital in the short term. However, we could have based on their own business, and then through a series of innovative laws, the financial system, reducing barriers on legal convergence.

Of course, both can develop from the Yongxing Island offshore financial business, the South China Sea policies are ultimately in order to safeguard China's sovereignty and territorial integrity. Under this theme, we might open my mind, bold innovation, and explore more effective path of development and rehabilitation of the South China Sea.

PBoC Weakens Balance Sheets to Ease Impact of Rising NPLs

Caixin: Gov't May Let Banks Hold Less Cash in Reserve for Sour Loans

The required provision coverage ratio, which compares the amount of cash banks have in reserve with that of non-performing loans, may be reduced to as low as 130 percent for three big lenders and 140 percent for another four, the sources said. The current floor for the ratio is 150 percent.

The banks that are eligible for the bigger cut include Agricultural Bank of China, China Construction Bank and Bank of China. Industrial and Commercial Bank of China, Bank of Communications, China Merchants Bank and Industrial Bank may see their ratio cut by 10 percentage points, the sources said.

...Several bank employees told Caixin earlier that their profits grew to a large extent because their banks reduced the amount of cash set aside for dealing with bad loans.

They said this was a common practice and banks often set more cash aside than necessary when incomes were good so they could use it during difficult times.

It is prudent for banks to be extra conservative during the good times and easier with credit in the bad times because the risk/reward favors lending during credit crunches. This smacks more of a move to expand lending heading into a period of impaired balance sheets, to offset the impact of rising NPLs on banks' ability to lend.

Private Equity Firms Chase Bad Debt in China

Reuters: As China opens bad debt market, private equity firms step in

Foreign distressed debt managers are building a presence in China, undeterred by an opaque legal system but equally encouraged by government steps to open up to specialised players and reduce a mountain of corporate bad debt.

New measures that include a pilot programme to securitise bad loans may only act to dent an estimated 4 trillion yuan ($620 billion) of distressed debt, but big foreign firms believe the economy's slowing growth is pressuring Beijing to allow alternative ways to reduce debt.

KKR & Co LP and Oaktree Capital Group LP, as well as niche players such as Clearwater Capital Partners and Shoreline Capital Management, have all staked out plans in China's distressed debt market.

Defaults Rising For Companies on China's Third Board

China's Third Board may be the most free stock market in the world. The listing requirements are thin and there's little to no market making. Sell shares, and if people want to trade them, shares trade. If not, they don't trade.

China Money Network: The Astonishing Mysteries Of China's New Third Board

A total of 5,129 companies with combined market capitalization of RMB2.46 trillion (US$374 billion) were listed on China' New Third Board as of the end of 2015, up 3.26 times and 4.35 times from 2014, respectively, says China's Xinhua News Agency.

A total of RMB121 billion (US$18.4 billion) were raised in 2015, over nine times that of 2014. Institutional and individual investor accounts grew to 22,700 and 198,600, up nearly five times and 4.5 times from the year before, respectively.

But behind the boom, there are some confusing and disturbing undercurrents. Over half of the listed companies have not completed any trading of their shares, becoming the so-called zombie listed companies, says Chinese official media reports.

In some extreme cases, investor interests and basic regulations have been completely ignored, hampering the development of the exchange.

"The New Third Board is a dumping ground for Chinese garbage companies," commented one Chinese netizen.

A not so astonishing mystery is that companies are going bust there too, unable to pay their debt.

STCN: 雷区扩至新三板　信用债频现违约

In the last year, followed the "mined" "mine" model, based on an event of default of the bond market to get together again. March 21 evening, three new board listed companies to Nova announced that the company issued 2012 SME private placement bonds ( "bonds into 12") can not pay in full and on schedule. At the same time, China's bond defaults this year also showed a tendency to push the tie. According to the reporter's incomplete statistics, over the past three months there have been more than 10 defaults, a total value of nearly a billion yuan payment event occurred. In response, industry experts believe that China's bond market should change their ideas supervision, strengthen and build the letter Phi intermediary services, including the full range of risk management system.

The total figure includes some companies listed on the main exchanges and the Third Board companies are smaller, but it could really become a minefield due to the lack of transparency.

ChiNext-Nasdaq Analog Test Underway

The current spike in the ChiNext lines up with a rally in the Nasdaq, almost day for day. The Nasdaq rally peaked on day 191 post-peak. The ChiNext rally may not be finished, but if it did peak, it peaked on day 193 (today is day 194).

The key remains the post-peak low, set on day 70, at 1797. The Nasdaq broke its low (set earlier on day 51) on day 150 and then broke down starting on day 175. ChiNext needs to drop 20% to break that low.

From day 191 to day 205, the Nasdaq fell 23% (from 3015 to 2291 between December 11, 2000 and January 2, 2001). Here's the logarithmic chart to make it clear how large losses still loom if the analog holds:

If the ChiNext doesn't correct in the next 30 trading days, the analog is busted. Ideally, a correction would commence in the next few days.

P2P Scapegoat: Downpayment Loans Are Nothing New

Down payment loans are nothing new in China. Previously, credit guarantee and microlenders would offer these lows to low income customers so they could buy a home.

　　Many industry insiders told reporters, in fact, down payment loans already exist, buyers can get a variety of channels down payment financial services. Launched a P2P platform down payment loan executives told the "China Economic Weekly" correspondent, launched in addition to the down payment loan P2P platform, real estate agent can be obtained through self funding ends and cooperation with P2P platforms down payment loans to their customers, small loans companies by large loans and other consumer credit products to address the demand for loans down payment, the bank launched the large credit card, consumer loans are also large down payment to meet the demand for loans.

Yes, people can make a down payment with a credit card.

What P2P lenders did was increase the turnover and visibility of down payment loans. What was done for years behind the scenes became known to everyone via the Internet.

A joint-stock bank account manager told reporters, banking regulations do not allow the customer to provide a down payment loans, but different for each client manager channels, buyers of customer resources and relevant experience Account Manager illegal operations are normal, sometimes look a large amount of money involved is not. For large credit cards, consumer loans whether it will involve large down payment loan business, the manager said that this is similar to one kind of walking a fine line, if the buyers by a similar product to obtain funds for a down payment, the bank is also known.

Banks, credit guarantee firms, consumer credit, black market lenders, family and friends, and on and on.

P2P lenders mainstreamed the practice, but they didn't invent it.

Sina: 首付贷早已存在 P2P成典型或因平台操作不规范

Buy A House With 50X Leverage in Shenzhen

iFeng: 房价若非理性上涨 将会导致几大严重后果

Moreover, with a capital leverage off together with soaring housing prices. For example, Shenzhen, buy a house for ten million yuan, 20 percent down payment is 5 times leverage, and take that 20 percent or 200 million, borrow off market yup to 180 million, that is to say, with 200,000 yuan leveraged to 10 million yuan is equal to 50 times leverage, far more than the US sub-prime leverage!

If, according to media reports, the financial part of the Internet company launched the "down payment loan" financial products, such products can provide several hundred thousand dollars for the purchase, unsecured credit loan funds discretionary. Obviously, this kind of financial model through the Internet "plus leverage" in the purchase of the way, and then the US "subprime" really exactly the same, which greatly increases the risk of real estate finance ......

Technically, with zero downpayment and negative amortization, there were cases of infinite leverage...but the point stands.

Even without leveraged to the hilt, the high price of homes will blow a hole in your disposable income:

For example, according to China's current high prices, the purchase of a 1.3 million yuan house, suppose you want a loan of 1 million yuan, the repayment period is 30 years, even at the low interest rate of 5% is calculated, the interest alone will come to 930,000 yuan, and the money does not include service fees, commissions and various other fees ......

It finishes with a warning from Holland:

In 1634, the Dutch East India Company merchant brought some beautiful and rare tulip bulbs, the whole country got a "tulip mania." To 1636, a value of $ guilders tulips can be exchanged eight pigs, four fat oxen, two tons of cream, one thousand lbs cheese, a silver cup, a bag of clothes, a mattress with beds plus a boat for the first time in recorded history of Western economic bubble, the final outcome, and all other types of foam, like history - burst, not another repeat.

History has witnessed, the overheated real estate and economic crisis go hand in hand, sustained high prices will lead to a financial crisis or economic crisis! As the real estate will rise to huge loans, the banking system will face a "debt write-downs," the risk. According to Fisher's theory of modern economics, the risk of deflation comes from debt, whether business or personal, in the face of rising debt on the occasion, will have to tighten consumer spending, reduce the ability for consumption, this is the severe consequences of raising debt levels!