Credit Check: Some Beijing Banks Pumping Out Home Loans in 7 Days

Some Beijing banks are processing mortgages in as little as 7 days.

Beijing will be able to mortgage lenders fastest 7 days

Societe Generale Securities recently released bank mortgage market tracking periodic report, the third week of August, Beijing first set of home loan rates below the benchmark rate there is 29, one higher than the benchmark interest rate; wherein the lowest Shanghai Pudong Development Bank and HSBC, 0.8 times the benchmark interest rate, Minsheng Bank quality customers may be given 83% discount, up to Huaxia Bank, 1.1 times the benchmark interest rate, the average is 0.86 times the benchmark rate. Compared to the second week of August, Beijing has raised interest rates four banks, two banks lowered interest rates, banks generally processing time of 5-10 days, the shortest of just two days, lenders time is generally 15-40 days, the shortest only takes seven days.
No need to spend a long time checking credit since there's low risk:
Since the individual mortgage NPL ratio has been very low, so in the eyes of the bank, the risk of individual housing loans is not significant. In the current second-tier cities housing prices soared, buyers enthusiasm of the moment, some industry insiders believe that the need to guard against systemic risk mortgages.

"Individual risk mortgage is small, the overall default rate of China's banking sector loans, non-performing rate relatively low. However, if the economy continues downward, the emergence of the real estate market collapse, that is, systemic risk." Merchants Bank Vice President Liu Jianjun in the recently held 2016 interim results thematic investor exchanges said.
China News: 北京房贷最快7天就能放款 买房人贷款可以挑肥拣瘦

Related: Chinese Banks Increase Mortgage Lending Amid Rising Leverage and NPLs

Major Banks First Half 2016 NPLs By Region

Sina: 银行不良观察:区域风险加速暴露 招行63%增量集中西部
 In addition, some of the listed banks, the NPL increment western region more risk from the coastal regions to show trends in the spread of the Midwest.

  For example, the end of the reporting period, CITIC Bank non-performing loans are mainly concentrated in the Bohai Sea, Yangtze River Delta and the central region, non-performing loans totaled 25.9 billion yuan, accounting for 67.25%. From the NPL increment, the largest increase in the central region, 34.33 million and the NPL ratio increased by 0.83 percentage points; followed by the western region increased by 1.268 billion yuan, non-performing loan ratio rose by 0.27 percentage points.

  CITIC Bank analyzed the central and western regions increased NPLs main reasons: First, the industrial structure is relatively backward western regions, industry overcapacity concentrated, to productivity, to inventory and other supply-side structural reform policies accelerated the credit risk exposure ; the second is the risk of spread from coastal areas to central and western regions, central and western regions weak anti-risk ability of small and medium enterprises, credit risk increased during the economic downturn.

CREIS: Home Prices Soar in August

CREIS isn't recording a slowdown in housing yet. The 100-city survey recorded a 2.17 percent month-on-month increase in new home prices.

Cities leading the charge: Wuxi, up 6.76 percent and Zhuhai up 6.40 percent. Up more than 5 percent: Kunshan and Langfang. Foshan climbed 4.86 percent. Shanghai (perhaps driven by the divorce and buying restriction rumors) advanced 3.87 percent. Ten other cities saw new home prices increase more than 3 percent, including Nanjing. Hefei and Xiamen new home prices rose more than 2 percent, putting them in the second decile for the month.

CREIS 100 City Survey 2016年8月百城价格指数
Google Translated: August 2016 100 City Index

Wuhan Raises Second Home Down Payment to 40pc

Downpayment on second home up to 40 percent, still a ban loans for third homes and up.
"Notice" that has housing units in Wuhan City households to apply for individual housing loan again to purchase commercial housing, the minimum down payment loans ratio was 40%. In Wuhan City has two sets and more housing has been settled and the corresponding purchase loan or have one set of housing loans outstanding of households to apply for individual housing loans to buy commodity housing again, the minimum down payment loans ratio was 40%. In Wuhan City has set and the housing 2 with 2 sets of outstanding housing loans of households to apply for individual housing loans to buy commodity housing, continue to suspend payment of the corresponding housing loan again.
iFeng: 武汉9月1日起实行限贷 二套房首付比例提高至4成

China's Mystery Oil Demand

Nobody knows how much oil storage China's government has or how long they will continue filling stockpiles.

Bloomberg: Mystery of Oil Held on Chinese Islands Puzzles Crude Markets
The government also said at the time it has leased space in commercial sites, signaling it could buy additional oil while more of its own tanks are constructed. Nobody replied to a fax sent to the press office of the National Energy Administration asking for details about the SPR.

“SPR has been a China mystery due to the lack of government data disclosure,” said Ying Wang, a Hong Kong-based analyst at JPMorgan. The bank estimates the amount of crude China is putting into stockpiles by calculating how much more oil the country is buying and producing than it’s using.

Chinese Banks Increase Mortgage Lending Amid Rising Leverage and NPLs

WSJ: Why Chinese Banks Are Moving Deeper Into Property
Take the latest batch of earnings from China’s big state lenders. They show a substantial shift in lending toward the property market and away from companies. China Construction Bank this week reported residential mortgage lending rose almost 30% in the first half of this year compared with the same period last year. Meanwhile corporate lending fell 2%. At Bank of China, mortgages rose by more than a quarter.

On the face of it, banks are moving away from risky lending. That helps their capital cushions because for every loan extended to a company, banks assign a 100% risk-weight. For residential mortgages, banks only have to set aside half that.
Lending into a housing bubble is risky when leverage is soaring. Recall: China Mortgage Lending Grows 32.2pc in 1H 2016, Leverage Soars
Haitong Securities says easy money, higher prices and strong sales are helping to drive credit growth, along with rising leverage. In 2011, the average ratio of new loans to sales was 17.3 percent. In 2015, this increased to 36.7 percent. In 2016, it has hit 56.5 percent, a new all-time high. At the peak of the U.S. housing bubble in 2007, this ratio was 52.6 percent.
Back to the WSJ article, the outlook isn't good when mortgages are already going bad:
Lending into the property market would make more sense if the mortgage loans weren’t going bad so fast. At CCB, while mortgage nonperforming loans accounted for only 6% of total NPLs, they rose 67% on the year compared with 26% for all loans. And that’s with prices rising nationally, and rising sharply in the biggest cities.
China Construction Bank and Agricultural Bank led the way with 62 percent and 64 percent of new loans going to individual residential mortgages, fThe big four banks increased their mortgage lending 56 percent overall, and already have loaned 80 percent of the 2015 full year total.

Minsheng stands out for new loan growth relative to its outstanding mortgages. The bank lent 80.5 billion yuan in the first half, lifting its outstanding mortgages to 195 billion yuan.
Sohu: 四大行上半年过半新增贷款放给个人买房

Depression: Hanjin Goes Bankrupt

Reuters: Hanjin Shipping files for receivership, as ports turn away its vessels
South Korea's Hanjin Shipping Co Ltd (117930.KS) filed for court receivership on Wednesday after losing the support of its banks, setting the stage for its assets to be frozen as ports from China to Spain denied access to its vessels.

Banks led by state-run Korea Development Bank (KDB) withdrew backing for the world's seventh-largest container carrier on Tuesday, saying a funding plan by its parent group was inadequate to tackle debt that stood at 5.6 trillion won ($5 billion) at the end of 2015.

Hanjin Shipping, South Korea's biggest shipping firm, announced the filing for receivership and a request to the court to freeze its assets, which the Seoul Central District Court planned to grant, a judge told Reuters, declining to be named.

World Bank Sells SDR Bond in Shanghai

Reuters: World Bk sells landmark SDR bonds at lower-end of guidance, challenges loom
The World Bank sold its first batch of Special Drawing Right (SDR) bonds in China at a yield well below those for similar Chinese bonds, highlighting Beijing's challenge in getting global recognition for its yuan currency and SDR assets.

The three-year bonds were sold at 0.49 percent, two sources with direct knowledge of the deal told IFR, a publication of Thomson Reuters, at the lower end of the World Bank guidance at 0.4-0.7 percent and below the three-year Chinese government bond yield at 2.434/2.387 percent.

A statement from the People's Bank of China said the 500 million SDRs ($700 million) issue, which was settled in yuan, was 2.47 times oversubscribed, and that interested buyers numbered around 50.

Strict Xiamen Buying Restrictions Start September 5

Xiamen will limit home buying starting September 5. Residents with 2 or more homes and non-residents with 1 or more homes will not be allowed to purchase a home smaller than 144 square meters. Purchasers much also show they have paid income taxes for at least one year or social insurance.

Caijing: 厦门9月5日起重启限购 拥有2套及以上住房市民将受限

Shanghai Property Sales Still Climbing

Shanghai sales of new homes climbed above 2000 yesterday, the seventh straight day of sales above 1000 units. It marks a massive increase over the prior week:
 Shanghai chain market research data show, August 22 to August 28 week, Shanghai commercial housing turnover is 555,700 square meters, up 93.02% week-on-week; average transaction price was 43,571 yuan / square meter, up 5.60%.
Rumors of tighter credit and new divorce rules have fueled sales.
Preceding the recent unrest is closely related to the emergence of Shanghai "New Deal credit purchase rumors." To date, the network spread several versions, including a conditional raise the proportion of down payment, even including the "divorce less than a year, the purchase and loan policies in accordance with the family situation before the divorce process," and referred to the Executive after September 1.

Rumors spread more in the future, houses single-day volume of about 1,700. This figure rose sharply compared with the daily average volume of new homes on weekdays 300-400 sets, two days after the "325 New Deal".
Caixin: 上海一手房成交量连续七日过千套

The Australian: Shanghai couples rush to divorce for cheaper homes
Spouses were scrambling to cut ties, at least on paper, amid rumours that the city might soon shut a loophole that families often use to buy more property: divorce. The surge is a response to concerns about rising property prices and government efforts to slow the increase.

Under current rules, a family buying a second home is required to put a down payment of up to 70 per cent while a first-time buyer needs to put up only 30 per cent. Widespread rumours — denied by housing authorities — say the penalty would be extended to those recently divorced for one year.

Dozens of couples packed into Shanghai’s Xuhui District Divorce Registration Office to register divorces eager to break up. One woman, who gave her surname as Gu but declined to give her full name, said she was there to help her parents divorce after 35 years of marriage. The idea is to buy an apartment for the older couple that has an elevator, said Ms Gu, and the divorce can help the “buyer” save on the down payment.

“We don’t have much money, so there’s no other way. The property price is so high that it’s unbearable for us,” Ms Gu said. The divorce, she said, wouldn’t destroy her family, because her parents have a stable relationship.

Bet on Defense

Good timing on the part of Chinese securities companies: China Stock Traders Bet $305 Million on Rising Military Tension
China’s stock investors are making a $305 million bet on the nation’s military complex.

That’s the total that Guotai Asset Management Co., GF Fund Management Co. and Fortune SG Fund Management Co. raised since July from selling the nation’s first exchange-traded funds following defense shares. The funds track the CSI National Defense Industry Index, which was up 18 percent from its May low as of Monday, outpacing the Shanghai Composite Index’s 9.4 percent rebound.

The ETF creators are seeking to capitalize on escalating geopolitical tensions, with an international tribunal ruling in July that China’s efforts to assert control over the South China Sea exceeded the law and South Korea agreeing to allow the U.S. to deploy an anti-ballistic missile system on the peninsula. China is expected to upgrade its military equipment and let more weapon-making units access the capital market, according to GF Fund Management.


Shenzhen-HK Connect Slated for November

SCMP: CSRC’s official says Shenzhen-Hong Kong Connect will start in late November
China’s securities regulator will implement the much-anticipated Shenzhen-Hong Kong Stock Connect programme by the middle or final week of November, allowing overseas investors to own yuan-denominated shares on the Shenzhen bourse, and letting more Chinese own Hong Kong shares.

CASS: Sharp Housing Correction Coming in September, Concentrated in Hot Cities

Ni Pengfei of CASS says a deep correction will begin in September and last into the first half of 2017. The correction may be concentrated in the hot second-tier cities that have seen the largest increase in price and sales, and the the impact on the broader economy will be larger because the decline will also influence third and fourth-tier cities. The rising inventory which has plagued third- and fourth-tier cities will expand into second- and third-tier cities as the correction unfolds.

JRJ: 社科院专家:中国楼市将现短期调整
This year in September to the first half of next year, the property market in general will be a short-term adjustment, adjust the depth of the city is more concentrated. The dimension of time, the real estate sales prices and sales volume was down trend growth or the growth rate or the volatility of real estate investment. Adjustment may be slightly late, but not absent. Spatial dimension, and a second-tier cities will focus depth adjustment, is expected to increase urban housing stock continues to spread from the following four-tier cities to second and third tier. Compared with the previous, this cycle is the market more time to start, but the concentration of market overheating unprecedented time and space, depth adjustment cities are relatively concentrated. Although the four-tier cities and the following adjustment flexibility of small, but because of a second-tier cities are not only the country's total hot large market share, and strong wind vane significance, therefore, this country's housing market correction and its impact on the macroeconomic impact would be more significant.
As has been discussed here in several posts, the slowing credit market will end the rally in home prices:
First, the decision to change the fundamentals, the market is cyclical adjustment is inevitable. Decline in real estate for the last round of macroeconomic and downstream, from the second half of 2014, the central government began to turn positive and regulation continue to overweight, but not until mid-2015, the property market (volume and price) began to accelerate into the slow path, but the entire 2015 investment swooping decline in confidence in this major financial institutions, leading financial institutions for credit mortgages and development loans disgust. In early 2016 a large number of serving and monetary policy to the inventory, completely changed the expectations of financial institutions, mortgage loans continued to grow more than 50% at the same time, delay the development of the enterprise funds in place gradually increase to 1 - More than 15 per cent in July. The future, the overall monetary policy will tend to be neutral, to obtain the release of the stage in the past year even after the overdraft, the stock of urban population will slow down consumer demand. Credit crunch and market Qudan, resulting in volume and price drop will result in investment slowed. From mid-2015 to the end of 2016, the rise of the market will reach one and a half.
He sees some counteracting forces such as recent reforms designed to aid rural families, which will increase demand for urban housing. On the downside, he sees some cities being hard hit by the sudden exit of speculators, causing a blow to market confidence across the nation:
Some potentially valuable city continue to be discovered and turns to speculation that some four-tier cities will be affected by the radiation, infection and impact. Later it will cause central importance, and instructed the relevant city government has introduced more stringent financial, taxation or administrative policies to curb speculation, which led to substantial investment will quickly disappear or teleport. Hot and overdraft potential of the city after the sharp adjustment in the downturn. The national property market confidence will be negatively affected.
He suggests governments prepare contingency plans now.

And some of the hot cities have only begun rolling out buying restrictions in July and August......

Yen and Gold Rally Over?

What is your forecast for gold?

Slowdown in Private Investment a Long-Term Trend

Bloomberg: No Need to Be Alarmed by China Private Investment Crash, Say Analysts
Investment numbers this year aren’t completely comparable with 2015 because they include firms that recently migrated from the private to the state sector, says Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington. Research firm Rhodium Group and economist Louis Kuijs at Oxford Economics Ltd. have spotted the same discrepancy.

“Policy makers and the market should not worry unnecessarily about misleading data purportedly implying a scary sudden divergence in 2016 between private and non-private investment,” Kuijs said in a report last week.
Even if you wave away the increase in SOEs as a statistical blip not caused by government stimulus efforts, you still have the long-term trend. Total FAI was growing at 20 percent in July 2013, 16 percent in July 2014, 10 percent in July 2015, 4 percent in July 2016. All trends come to an end, but right now this one says July 2017 FAI growth will be below zero.

The slowdown in Chinese investment matches the persistent deterioration in global economic data. Here's U.S. total vehicle sales, monthly, year-on-year change. The slowdown and trend looks very much like the China and global commodities slowdown.
Retail sales are one of the bright spots in the U.S. economy:

The argument from the bulls is that the collapse isn't accelerating, but they have yet to say when the now 5-year slowdown will end.

Shanghai Rumor Fuels Homebuying

Rumors are always useful for detecting sentiment.

Global Times: Rumor fuels home purchases in Shanghai
More than 1,600 new homes were purchased in Shanghai on Monday, the third day that the city's daily house trading volumes exceed 1,000, official data showed.

The sudden real estate boom was caused by recent rumors that the municipal government would soon roll out measures that would increase the cost of home purchases, industry insiders told the Global Times on Monday.
The government refuted the rumor, but the trend points to restrictive policies in most first- and second-tier cities. The surge in buying, however, indicates there's still investment demand for property.

Slowing Credit Growth in China

Bloomberg: China’s Credit Party Winds Down in Headwind for GDP Growth
Chinese companies’ borrowing costs have never been so low. That’s little consolation to firms cutting debt rather than investing amid a slowing economy.

The amount of local yuan bond sales minus maturities fell 39 percent in August from a year earlier for non-financial firms to 124 billion yuan ($18.6 billion), data compiled by Bloomberg show. Net issuance since March 31 has slowed to 496 billion yuan after a record 810 billion yuan in the first quarter of 2016. Yields on AA+ and AA rated five-year securities dropped to record lows this month.

The decline in bond financing and the lowest fixed-asset investment growth since 1999 suggest central bank monetary easing will have trouble reviving growth that’s forecast to slow through next year.
As goes credit growth, so goes the economy.

11 Provinces Reduce Wage Growth Targets

From top to bottom: Beijing, Tianjin, Hebei, Shandong, Inner Mongolia, Shanxi, Sichuan, Yunnan, Shaanxi, Jiangxi, Xinjiang
21st Century Business Herald reporter learned that, cut around the enterprise wage guidelines reflects the multiple signals. First, the new normal macroeconomic synchronization by business efficiency and profit impact of wages has entered a slowdown phase; secondly, doing a larger proportion in the overall costs of the enterprise, the reasonable control of wage growth will help reduce the burden on enterprises.

But Guangdong Academy of Social Sciences, director of forest enterprise extraordinary noted down enterprise wage guidelines on the objective of easing the burden on help, but avoid this as "cost reduction" means upside down, supply-side structure " reduce costs "is still needed from the government taxes, institutional transaction costs, financing costs, etc. have more.

...It is noteworthy that, after a time the cut, the 11 provinces and municipalities of the enterprise wage guidelines "baseline", but also all reduced to less than 10%, and also means that there will be more people wage growth into the "bits number of "Time, bid farewell to the high growth rate of the past.

iFeng: 地方经济“晴雨表”:11省市企业工资指导线均下调

Chinese Land Finance Rises 100 Times in 20 Years

China's land transfers raised 42 billion yuan in 1995 and more than 4 trillion yuan in 2015. This year is again expected to see a total above 4 trillion with second half land sales expected to outpace the first half.
1995 National Land transfer income is 42 billion yuan in 2014 land sales reached a record of 4.29 trillion yuan.

If local governments have seen a business, then the viability of this enterprise looks quite strong.

...The latest data show that the first half of the national land area of ​​91,500 hectares in 2016, an increase of 0.1%. Land transfer contracted cost of 1.32 trillion yuan, an increase of 24.8%.

On this basis, the national income per hectare of land transfer is about 14.42 million yuan, compared to 3.553 million yuan in 2005, per hectare, the former is four times the latter.

In general, the second half of the land revenue would be twice in the first half, with the current real estate market situation, the author expects this year's revenue is expected to land again over 4 trillion yuan.

Looking back, this is a kind of land-era.


Sinking Beijing

Market Calm Reflected in Google Trends

Cinda Spends 35 B Yuan for 6 Land King Buys

King maker - Cinda real estate (600657.SH) operation, there are some problems. "Several financial indicators are not pretty, or even hard to see." A consulting firm say. This home has a central rate of descent of real estate companies in the first half net profit fell 45%, the debt ratio rose to 85.6%.

Although the number of indicators is regrettable, but the large-scale expansion of investment in land, so that the size of the harvest Cinda real estate asset growth. To the first half of this year, Cinda real estate assets reached 59.631 billion yuan, while the beginning of last year, real estate assets Cinda only 37.7 billion yuan. This means that a period of six months, Cinda real estate assets doubled to about 1.6 times.
With sales soaring in the first half, analysts are asking, where'd all the money go? A growing chorus is looking at falling cash flow and sees the land grab as the culprit:
More puzzling is that the sharp drop in cash flow in stark contrast, the letter of real estate sales increased significantly. Semi-annual report, the letter of the contract of sale of real estate in the first half amounted to 6.231 billion yuan, an increase of 32.4%, the return of funds 5.42 billion yuan, an increase of 42.1%.

Selling the house money gone? This would seem contradictory situation, analysts believe Cinda may be a lot of money to put in on the land auction to cover the high cost of land.
iFeng: “地王制造机”卖房的钱去哪了 信达砸352亿拿6块地王

Earlier: Land King Fallout Begins, MOF Owned Cinda Swings to Loss

Global Liquidity: ICBC Funds Treasury Arbitrage Fund

Bloomberg: Using Chinese Money, a Hedge-Fund Startup Bets Big in Treasuries
The outfit goes by the somewhat unwieldy name of CCSZF Management. The firm is backed by a Citic Group unit, which supplied the seed money, while Industrial & Commercial Bank of China Ltd. was brought in to provide financing in return for a cut of the profits. The key man behind it all is Stephen Siu, who spent two decades helping to pioneer arbitrage strategies for Treasuries on the proprietary trading desk at Greenwich Capital Markets, which later became part of Royal Bank of Scotland Group Plc. Former colleagues describe Siu as one of the savviest traders around, with a keen eye for exploiting minuscule price gaps between the bond and futures markets.

...CCSZF’s business model underscores two particular changes, which have created greater arbitrage opportunities in Treasuries, while at the same time limiting the number of traders who can pursue them. The first is the rise of futures trading as bouts of bond-market illiquidity increase. The second has to do with access to financing and the fact that fewer banks are providing it.

...But because the price discrepancies traders seek to arbitrage are so small, perhaps only 1/10th of a percentage point, firms like CCSZF typically try to juice returns by borrowing money through repurchase agreements -- with sums reaching $60 for each dollar of invested capital in some cases. For CCSZF, that type of leverage would boost its assets under management to $3 billion.

If you can get financing, it’s easier to “step in and pick up some of these coins you find on the sidewalk,” said Stuart Sparks, an interest-rate strategist at Deutsche Bank AG.

...“Everybody uses” ICBC for repo financing now, said Will Heins, an independent consultant and former interest-rate derivatives broker at Javelin Capital Markets. “They’re cheaper than everybody else.”
This sounds like a recipe for reflexivity trouble.


14-Day Repos A Quiet Deleveraging Push

Central bank finally shot! "A financial institution bond trader marvel. His first reaction was: going to bond the lever!

This is due August 23 China's central bank demand early consultation on the amount of reverse repurchase of 14 days. Sure enough, the next 24, 25, 26, the central bank for three consecutive days for 14 days of reverse repurchase transaction volume, respectively 50 billion, 80 billion, 50 billion, the successful rate of 2.4%. This is the first time in half a year, 14 days of operating tools are re-enabled, meaning that the central bank is expanding its short-term liquidity management efforts.

However, the market is no longer "calm." Shanghai Interbank Offered Rate (Shibor) overnight and 7-day products appear higher, August 25, overnight Shibor rose 0.001 percentage point to 2.044%; 7-day Shibor rose 0.002 percentage points to 2.364 percent.
The tightness in the market is seen as an intended result of PBoC policy, following the minutes of the Politburo meeting which included discussion of curbing bubbles:
At Guotai Junan Securities chief economist Lin Caiyi opinion, since the past six months, due to the pessimistic macroeconomic expectations, the market risk appetite, financial market assets again shortage, the market interest rate debt funds sought investment products, more and more capital inflows the bond market, bond market activity unprecedented leverage ratio has been unceasingly rising; data show that the currently overnight lending transactions accounted for more than 90%, resulting in excess liquidity the central bank worried about the bond market bubble, and thus resorted to 14 days as a reverse repurchase liquidity management tool.

It is worth mentioning that the recent Politburo meeting rare that "curb asset price bubbles," including the Commission began to tighten cross-border mergers and acquisitions, financial supervision CBRC promulgated new regulations, the CIRC to strengthen the insurance company investigation risk, etc., are all tight buckle decision-making "bubble suppression," the guide.

Perhaps a moderate deleveraging is being quietly pushed into the market.

But there are also voices that say the central bank's increase in term reverse repurchase operations is likely to make the market more stable, the bond market is not bad.

Great, really great! Said bond trader puts it, "the central bank's strategy is very clever!"

The trader explained that the first elongated cost of capital, forcing the formation of capital markets to the long term cost structure of the expected translation. This can be expected to automatically bring the market because of cost reduction initiative leveraged; moreover, the central mother did not pull away from the capital market, the market will not cause shortage of money.

The central bank to restart the 14 days reverse repo, "To be blunt, this is a relatively safe way of regulation, played a reverse intended purpose. Today, because of this bond yields rebounded sharply." There is also such a bond trader lamented.

EO: 央行突然放大招 债券市场“去杠杆”静悄悄

China Daily: Central bank continues longer-tenor cash injection
Despite a cash strain in the overnight inter-bank market, the central bank refrained from a large-scale injection, but extended the tenor of reverse repurchases instead, reducing market expectations for monetary loosening, CIB Research said in a note.

The move will lead to higher financing costs for banking institutions as the short-term money strain remains unaddressed, it said.

Tight Credit Conditions for Small Business

SCMP: Access to finance for China’s smaller enterprises continues to deteriorate
“Credit conditions for SMEs turned less favourable in August as financing costs continued to rise and bank loans became more difficult to obtain,” said a research note from Standard Chartered economists, led by Lan Shen.
“Medium-sized companies enjoy better credit conditions than smaller ones,” Lan added.

...Because of the difficulty of raising capital from banks, SMEs have tended to look towards the unofficial banking sector – or shadow banks – for their funding needs. In many cases, this resulted in higher borrowing costs.

In addition, this year, policymakers have launched a number of crackdowns on the shadow banking sector, with the aim of reducing the risk in the system following the collapse of peer-to-peer (P2P) lender Ezubao.
Efforts to increase credit access and lower costs have failed, and the latest stimulus efforts have focused on funneling cash into large SOEs for land buys which can then finance local government infrastructure spending.

2014: Li Keqiang Blasts the Banks for Not Lending to Small Business
2015: Li Keqiang Losing War on Financing Costs; 70% of SMEs Have Seen Financing Costs Rise in 2015
2016: Rumor: Li Sidelined, Xi Takes Over Economic Policy

Land King Fallout: Developer Revenue Up, Profit Down as Construction Costs Soar

With real estate activity shifting into the higher-tier cities, construction costs are soaring.

For example, the phenomenon of rising sales does not increase profits, from 2015 or even earlier, a number of large housing developers' rising revenue does not increase profits phenomenon has occurred. Even in the first half of this year, sales and prices increased, a lot of developers' profit actually fell, for example, a large listed developer net profit of 5.351 billion yuan, an increase of 10.42 percent, the real estate business gross margin was 17.55 percent, a 3.49 percentage point decrease over the same period in 2015.

An important cause of increased sales does not increase profits, is related to developers continuously rising costs, in addition to labor costs, land prices led to rising costs has intensified. Centaline Property Research Center statistics show that: As of August 22, during the year to grab the most active developers to get to a total of 734.94 billion yuan in land, the total construction area of ​​113.1 million square meters, has an average cost of 6498 yuan per square meter. In the same period in 2015, to take the average cost of only 4261 yuan per square meter. That is to say, land grabbing developers average cost increase reached 52.5 percent.
iFeng: 火爆、新高、售罄 楼市高歌猛进下的隐忧

And if the real estate market has already turned and sales fall along with prices....

75pc of Chinese Firms Not Complying With Social Security

Jinghua Times News (Reporter Zhao Peng) reporter learned yesterday, "Chinese enterprises Social Security White Paper 2016" released in Beijing, research shows that there are currently 74.89% of the base unit to pay social security non-compliance, against the interests of workers. Meanwhile, there are about 20% of the units according to the specified time for the employees insured.
iFeng: 七成企业社保缴费不合规 部分单位视领导安排办理

Pension Funds Shrinking in 21 Provinces, Some County Govts Not Even Paying Wages, Borrowing To Meet Pension Obligations
China's Pension Bust: Number of Localities in Deficit Doubles, Surpluses Quickly Drained

Bond Stimulus Halted

Caixin: China's Stimulus Bond Program Faces Effectiveness Test
China's top economic planner appears to have temporarily halted a program that has channeled nearly 2 trillion yuan to government-backed infrastructure projects amid concerns that banks have shown little interest in participating.

...The government has wanted more investors to chip in, by purchasing the bonds or making loans directly to projects funded by the program, according to the bank executive. Lending from other investors is important because investment from the bond program often accounts for only 10 to 15 percent of the capital a project needs, he said.

But the response from many banks has been disappointing. One reason is that the bond fund usually supports projects conducted by the financing platforms owned by low-level authorities, such as county governments, to which big banks are often reluctant to make loans, according to several bank employees who have worked on related projects.

Add Luxury U.S. Homes to List of Things Foreigners Buying Less Of

ZH: “I’ve Never Seen Anything Like This Before" - The Housing Markets In The Hamptons, Aspen And Miami Are All Crashing
We concluded this is just the beginning, and sure enough, several weeks later a similar collapse in the luxury housing segment was reported in a different part of the country. As the Denver Post reported recently, high-end sales that fuel Aspen’s $2 billion-a-year real estate market are evaporating, pushing Pitkin County’s sales volume down more than 42 percent to $546.45 million for the first half of the year from $939.91 million in the same period of 2015.

The collapse in transactions means that Aspen’s high-end real estate market "one of the most robust in the country, with dozens of options for buyers ready to spend more than $10 million" finds itself in its first-ever sustained nosedive, despite "dense summer crowds, soaring sales tax revenues and high lodging occupancy."

Like in the Hamptons, the question everyone is asking is "why"?

...As noted here over the years, In the case of Miami, like in other most other coastal markets such as New York and Los Angeles, the housing boom was heavily boosted by foreign buyers, who used US luxury real estate as their new form of anonymous "offshore bank accounts" courtesy of the NAR's exemption from Anti-Money Laundering Provisions. However, after the recent drops in commodity prices and the spike in the USD, they have scaled back their purchases.

“The international component is not as intense,” Mr. Miller said.

Depsite the slowdown deals are still being done, with cash the preferred form of payment of foreign buyers in the U.S., - some 43% of all sales in Miami in July were closed in cash, however down from 48.1% the same month last year, according to the latest figures.

Other potential buyers are also stepping back: cash sales for townhouses and condominiums, an indicator of investor activity, hit their lowest level in a year last month: 633 transactions, representing a 30.4% year-over-year decline, according to the report.


1 Trillion for Highways in Second Half

China is planning to spend 1.8 trillion yuan for highways (1.65 trillion) and waterways in 2016, but only spent about 800 billion in the first half, leaving 1 trillion.

Rural roads receive about 600,000 yuan in subsidies per kilometer, with the rest coming from local government:
Funding rural roads, too, Yuyao City, Zhejiang Province new rural road construction management office Xuzhe Feng Master to the Economic Observer reported that the construction of one kilometer of rural roads, funding from all levels of financial subsidies of up to 600,000, and the rest by the town since chips.
Road construction is helping to prop up fixed asset investment growth:
This year from January to July waterway road fixed asset investment amount of more than 960 billion yuan, compared to the same period last year higher by 8.2%, in which highway construction investment was more than 800 billion yuan, an increase of 7%. The National Bureau of Statistics data released earlier in January-July growth rate of fixed investment forms a contrast, according to data from the National Bureau of Statistics show that from January to July investment in fixed assets (excluding rural households) reached 31.1694 trillion yuan, up nominal increase of 8.1% growth compared to January-June fell 0.9 percentage points.

General road investment has become the main force of the current highway investment.
Increasing fiscal burdens on local governments are taking a toll though:
Wang Libin to the Economic Observer newspaper said that local finance bears a greater proportion of the expenditure for highway construction.

According to Wang Libin introduction, an important impetus for China's transportation infrastructure that the vehicle purchase tax and fuel tax, and two special funds "road loans, repayment charge" mode of financing. And ordinary roads and highways is different, generally not ordinary road toll, which means it is difficult to attract social capital and through the use of loans financing the construction. Whether it is relying solely on fiscal spending or PPP mode, the lack of participation in social capital, whether ordinary roads investment boom can be sustained remains to be seen.

"If you increase the powers of local responsibility, property rights and the need to provide financial support by way of taxes and transfer payments." Yang Zhiyong said.
EO: 公路投资下半年要放1万亿 新“铁公基”助推中国经济

Mortgage Interest Deduction Coming to China, But Only 2pc May Benefit

"This reform is a good thing, local financial pressure decreases, tax reforms have more space." Recently, a taxation system told the "China Times" reporter. In this context, the main power another tax - the personal income tax reform or will accelerate.

...Although deductible items is very rich, but the most talked about is residential mortgage loan interest deduction, in a nutshell, is the mortgage loan interest buyers who may be deducted from tax as items. Effect a tax deductible mortgage policy is not directly reflected in the mortgage, but the loan's income. This policy for the purchase of high-end residential and high wages of the population burden effect is more obvious.

"Mortgage interest deduction tax has confirmed, and may determine that the program will be across the country." Institute of Fiscal Science, said Jia Kang, director of the original.

...However, according to Jia Kang said, as the two sessions in 2015, to pay a tax of only 28 million people, accounting for less than 2% of the entire population. Thus, a tax deductible benefits are not widely available.
iFeng: 房贷利息抵扣个税已确认 将在全国推广

Second-Tier Cities Try to Reduce Prices With Supply

Suzhou, Shenzhen and Xiamen are rushing to sell land.

For this year's "King" frequent momentum, a number of cities, local government actions to control, but the method adopted very different. Shanghai three short-term suspension of the land transfer, and Shenzhen, Suzhou, Xiamen is a rare focus on the introduction of large-scale land supply.
The approach of these cities and Shanghai is contrasted:
Also, Xiamen government in conditions of residential house area, bidding qualifications, performance bonds and land transfer payment deadlines also be restricted. 4 plots clearly requires a building area of ​​90 sq m apartment should account for over 70% of the residential area; land transaction requires five working days became due all the land transfer payments and performance bonds; completion time context, calls for pay from the start date to one year to complete the project within three years of the start date of construction. Meanwhile, the city planning, construction, administrative law enforcement departments to strengthen the linkage, the implementation of the whole process of real estate development project strict supervision.

"The government did so in order to spread the land demand around, so that more developers get to acquire land, but for some of the money is not bad, especially state-owned large enterprises, the central enterprises, then the money you can only take a piece of land. It also reduces the room rate financing leverage. "surging housing prices News quoted Xiamen, a person in charge as saying.

And Shanghai is the opposite approach - just a week concentrated suspension of the land transfer time, involving a total of four residential sites. 24, the Shanghai Putuo District, a block transfer activity is suspended; 22, the Shanghai Pudong New Area, New Town Lot Tangzhen aborted transfer; 18, Pudong New Area, Shanghai International Medical Zone 20-10,21-10 land transfer activities It is also suspended.
Shanghai is limited by supply, whereas these other cities are not. Increasing supply is the best way to lower prices while maximizing short-term revenue.

Caijing: 打击地王!苏州、深圳、厦门罕见集中大规模推地

When The Bank Sees Its Shadow

Bloomberg: China's Best Bank Called 'Mirage' of Shadow Lending
The best-performing bank in China is in a struggling city in the northeast where weeds sprout alongside the concrete skeletons of high rises in an industrial zone that mostly looks like a ghost town.

Steel plants have laid off tens of thousands of workers. Cranes stand idle on construction sites. Wipe away a spiderweb on a dirty glass door at an empty complex with smashed windows and there’s a notice from the local government demanding rent unpaid since November 2014.

Yet the Bank of Tangshan’s financial statements hardly reflect these realities. Instead, this small lender reports the fastest growth of 156 Chinese financial institutions and the lowest level of bad loans, a mere 0.06 percent. Its profit jumped 436 percent in two years and assets soared almost 400 percent since the start of 2014 to 177.9 billion yuan ($26.7 billion).

It’s largely driven by shadow lending.
The bank has little concern of being forced into bankruptcy:
Located in Hebei, one of China’s five worst-performing provincial economies, the Bank of Tangshan has been increasingly concentrating lending in Caofeidian, the site of an almost deserted industrial zone. The zone sits on more than 200 square kilometers (77 square miles) of land reclaimed from the sea, about an hour’s drive south of the center of Tangshan city and sharing the coast of the Bohai Sea with Tianjin.

As of the end of last year, 59 percent of the bank’s on- and off-book lending was there, according to its annual report. Four of the firm’s 10 largest shareholders are government-backed companies in Caofeidian.
Loans are the deposits, but the shadow banks don't even need to worry about creating deposits. The loan is its own asset. The credit limit is theoretically infinity, but in reality constrained by the borrowers. When the limit is finally reached, deflationary collapse begins. Or the central bank monetizes outstanding credit and increases base money to support the system.


New Chinese City: Los Angeles

LA Times: They built towering new cities in China. Now they're trying it in downtown L.A.
Chinese developers such as Greenland, Oceanwide and Shenzhen Hazens are pouring billions into the neighborhood, adding thousands of new residential units in soaring skyscrapers that will fundamentally change the city’s skyline. Since 2014, Chinese developers have been involved in at least seven of 18 land deals downtown in excess of $19 million, according to real estate firm Transwestern.

“When all these megaprojects are finished, they’re going to have to reshoot the postcard picture of downtown L.A.,” said Mark Tarczynski, executive vice president for Colliers International’s L.A. office.

By investing in Los Angeles, the builders are staking downtown’s revival closer to the Chinese economy. A sizable share of home buyers for the new downtown developments are expected to come from China, where many in the middle and upper class are looking to the perceived safety of foreign real estate to diversify their wealth. That trend has been exacerbated by the uncertainty of China’s slowing economy.

The building boom is something of a showcase for Chinese real estate companies, which are willing to pay a premium to establish themselves as global brands. The foray overseas has also demonstrated the many differences between building in both countries — an experience both sides will need to learn from if the U.S. is to remain a prime destination for Chinese capital.
Both China and possibly the United States (with immigration restrictions given the way the winds are blowing) could stand in the way of profitability:
Some Chinese developers in L.A. are expecting Chinese buyers to constitute up to 40% of their clients. As a result, they could be beholden to the whims of Chinese regulators who are currently making it harder to get cash out of China — a move prompted by a steep decline in the country’s foreign exchange reserves. That has led to the first drop in Chinese home-buying activity in the U.S. this year since 2011, according to the National Assn. of Realtors.

Central Banks Slowing Gold Buying Too

Recently, there was discussion of the drop in foreign purchases of U.S. treasuries. This is due to global deflation, with some central banks are selling their holdings. It is typical behavior at this stage in the global economic (dollar) cycle.

Another sign of this is falling gold purchases by central banks.

BI: Gold's biggest buyers aren't buying like they used to
The world's central banks are still net buyers of gold, but they may be slowing down those purchases.

Central banks bought an estimated 166 tonnes of gold and sold 22 tonnes in the first half of 2016, according to Macquarie analysts, making a net purchase of 144 tonnes.

This was not much changed from the net purchases they made in 2013 and 2014, but it was less than the 179 tonnes they bought at the same time last year, Matthew Turner and his team wrote in a note this week.

"There is still no appetite for sales, but outside of Russia and China few purchasers either," Turner wrote. "The outlook is for lower but still substantive net purchases."
iFeng: 全球央行停止买黄金了 只剩俄罗斯和中国还在买买买

Shenzhen Apartments 100K Per SQM, Offices 60K

Shenzhen housing prices went through several rounds of inflation, the number of institutional investors found an interesting phenomenon: Many Shenzhen housing prices are now more than 100,000 yuan / square meter, the average price of office space was less than 60,000 yuan / square meters.
Home prices are the highest in China, but office space sells at a one-third discount to Beijing:
Market data show that last year the average new home prices in Shenzhen over half, but the average price of office space rose only one percent more; although prices ranks first in the country, Shenzhen Grade A office rents levels were only 65 percent of Beijing and Shanghai, and 69 percent.

Jones Lang LaSalle director, general manager of Shenzhen Xia Chunyi believe Shenzhen office market has a strong potential to fundamentals, high rents and asset appreciation, therefore, following Beijing, Shanghai, Shenzhen domestic large sums of money pouring into the office market.

EO: 深圳房价已涨至10万/平,均价不到6万的写字楼该不该投资?

Private Developers Overtake SOEs in Land Purchases

SOEs hunting for "good" asses and without a care for profitability are being replaced by private developers in the land market, resulting in a return to profit motive and rational prices.
"Before all state-owned enterprises to take the high ground, recently turned into a private" Housing prices listed a responsible person to the 21st Century Business Herald said that overall, the state-owned enterprises to private financial strength, to get to their behavior often with state-owned assets of the "nature" has a certain nature of the case. Private behavior is often represents the judgment of the market, having a general reference value.

...This may be true. Earlier this year had frequently get to Cinda, Gezhouba and other central enterprises, the recent action has slowed down significantly. To include new blood "Lord" Rongxin winner included, private enterprises have become the protagonist of the land market.
iFeng: 全国楼市收紧政策“箭在弦上” 这几城已有强烈预期


Runaway Bosses Are Back

SCMP: China’s runaway bosses a symptom of economic woes
Wanted posters for fugitive debtors, not commercials, are the main images that flash up on a big electronic screen in downtown Yixing, in the heart of the faltering Chinese industrial powerhouse that is the Yangtze River Delta.

The posters, from the local courts, show the identity card numbers and pictures of dozens of people who have fled unpaid debts. Rewards ranging from 20,000 yuan (HK$23,000) to 330,000 yuan are offered to anyone reporting their whereabouts.
Says one entrepreneur facing problems:
“I found I had stepped into a nightmare – most of my buyers are state-owned enterprises (SOEs),” he said. “Asking them to pay for what they’ve bought just seems like a tough battle.”

...“I’m not sure if my [state-owned] buyers have financial troubles,” Qian said. “It’s just hard to get a penny from them. Taking that as a lesson, I will shy away from any industry where buyers are SOEs.”
Prior coverage:
Wenzhou factory owners run away from debt
228 bosses have fled
Round 2: Wenzhou Bosses Flee Again, This Time From Bad Real Estate Bets
Bosses Are Running Again; High Interest Lending Beats Firework

PBoC Further Expands Influence into Securities Regulation

SCMP: China’s central bank expands influence at stock watchdog ahead of major shake-up
Another senior People’s Bank of China (PBOC) official has joined the top leadership at the country’s securities watchdog, signalling deepening central bank influence ahead of a shake-up of China’s widely criticised financial supervision regime.

Xuan Changneng, the chief of the central bank’s Financial Stability Bureau, has reportedly been appointed as an assistant chairman at the China Securities Regulatory Commission (CSRC). Xuan, who has a doctoral degree from the University of Texas at Austin and has worked for JP Morgan, would be the third senior official with experience at the PBOC to assume a top position at the CSRC since last year, as Beijing reshuffles the watchdog after a stock market rout last summer.

UBS Lays Out 3 Things to Break China Calm, 2 of 3 Underway

ZH: These Are The Three Things That Will Break The "China Calm" According To UBS
1. Property developers have lagged on investment in new real estate projects despite the rebound in sales of existing properties. Many believe the lack of new investment is a sign that property developers see a slow down in 2H16. Despite the strong double-digit growth prints in YTD sales (26%y/y) and new starts (14%y/y), YTD construction and investment have expanded only by around 5%, with little sign of more pipeline momentum to come. Soft property developer sentiment and caution over the longevity of the sales rebound is partly to blame, as is a still sizeable inventory overhang and sharp land price rally so far this year.
From Chinese Real Estate Sector Has Turned, Economy to Follow:
real estate investment as a share of GDP, falling and then picking up. In 2015, real estate investment slowed to 1 percent and in 2016, it is slowing a again, down to 5.3 percent YTD. Real estate investment grew faster than GDP at the start of 2016 though, to reach its highest share of GDP since 2013. This propped up Chinese GDP in the first half, but a downturn is already underway.
Real estate investment growth in each of the past four months through July: 9.7 percent, 6.6 percent, 3.5 percent, 1.4 percent. The money supply boomlet is over and a slip into contraction looks inevitable right now.

Next up:
2. While noting that China has been able to manage a modest RMB depreciation while stabilizing FX reserves in recent months UBS points out there is risk of greater market pressures on capital outflows and the currency – due to sudden expectation shifts on US Fed moves or USD strength, and/or concerns for China's domestic economy or asset markets. Such pressures may lead to higher global investor risk aversion, a revival of China macro concerns and further FX reserve losses, which could negatively impact China's capital markets before the end of 2016.
I've maintained the U.S. dollar is driving the yuan market. If the U.S. dollar rallies, the yuan goes down. If the dollar slides or holds steady, USDCNY will be steady too.

3. Third, UBS points out that credit spreads have recovered since the April selloff and primary issuance has rebounded but sees further upside in bonds capped by current money market rates while fundamental downside risks remain relative to China's continued restructuring of SOEs. A sudden liquidity squeeze or temporary credit crunch could be triggered by an unexpected rise in defaults, or a sudden tightening of regulations. The former could arise from the further worsening of issuer asset quality, or SOE restructuring and excess capacity reduction events.
This is always possible and probable. See China Worries About Tight Money and China Tightens More Credit: P2P Lending Cap and Adios Easy Money, China Slowdown Coming

Shanghai Suspends 4 Land Sales to Stop Price Rise

Shanghai suspended four land sales amid soaring land prices this past week, part of the government effort to slow the market.

Caijing: 上海7天中止4宗宅地出让 严防地王成热点城市要务
August 24, the Shanghai land market public announcement and suspend Putuo District a block transfer activities. Which is nearly seven days, and the third land land market in Shanghai to suspend the transfer notice issued, involving a total of four residential sites.

August 22, Pudong New Area, Shanghai Tang Town, New Town Lot aborted transfer; 18, Pudong New Area, Shanghai International Medical Zone 20-10,21-10 land transfer activities have been suspended. The industry believes that four consecutive residential land was stopped, the reason behind that is the urgent regulation of Shanghai hot land market pathogenic fire.

Reporters learned that the land market in Shanghai with 17 days to sell the Jing'an District, Baoshan District, Qingpu District, three plots, one-day total of 18.4 billion yuan of land transfer income, land prices have hit three regional price king record. Among them, the Jingan District Lot to 11.01 billion yuan of the total amount sold, the floor price of more than 100,000 yuan / square meter, the premium rate of 139%, setting a national record of historical unit to the king.

No Yuan Weakness Expected Ahead of Hangzhou G20

Assuming Yellen doesn't say something hawkish on Friday.

Caixin: G20杭州峰会有哪些值得期待的看点
The summit will reaffirm avoid competitive devaluation. In the previous G20 finance ministers and central bank governors meeting, policymakers repeatedly promised to avoid competitive devaluations, not for competitive purposes peg. We expect the leaders will reaffirm this commitment, and this will significantly reduce the likelihood of Japanese foreign exchange intervention, possibly even against the euro and sterling downside is a certain limit. Despite the Fed rate hike expectations, China will not be the first to let go devaluation. We believe that the probability of the RMB exchange rate before and after the summit, sharp correction is unlikely.

The summit will support the expansion of the use of SDR, which will boost the internationalization of the RMB. China will be included in discussions about the G20 agenda SDR, it began to publish data to the SDR-denominated foreign exchange reserves, and was recently approved by the World Bank issued the first batch of SDR bonds in China's interbank bond market. These efforts will be recognized by the leaders, and is considered part of the international monetary system reform. RMB added SDR basket will come into effect in October. Development of SDR market has important strategic significance for the internationalization of the RMB.

Nominal GDP Growth Up, Yuan Down

Bloomberg: Forget Real GDP, Nominal Expansion Is Key for China
While China’s real growth has edged down 0.2 percentage point since the third quarter of last year, nominal expansion has accelerated 1.3 percentage points, explaining why policy makers are holding back from a big stimulus push, said Harrison Hu, chief Greater China economist at Royal Bank of Scotland Plc in Singapore.

"Nominal growth does a better job than real growth in capturing cyclical swings," he said in a telephone interview. "Real growth is more likely to be smoothed."
If they push harder, the yuan nosedives. The yuan will fall anyway, but they want to slow or delay the decline as long as possible.


Central Bankers Want You Confused, So You Won't Choose the Form of the Destruktor

Bloomberg: PBOC Money-Market Tactic Has Traders Trying to Decode Signal
The lack of clarity from China’s central bank is at odds with a recent drive to boost market communication. The PBOC has issued a relative flurry of statements this month, saying on Aug. 15 that investors mustn’t focus too much on short-term concerns. Days earlier, after data showed the weakest increase in credit in two years, PBOC research bureau chief economist Ma Jun said the slump hasn’t hurt growth.

“Investors are waiting for further signals from the central bank,” said Shen Bifan, an analyst at First Capital Securities Co.’s fixed-income department. “It seems the PBOC wants to warn investors not to get excessively leveraged, but on the other hand, it wants to keep the measure moderate to avoid panicking the market.”
Other central banks failing to communicate clearly include the Federal Reserve, Bank of Japan and European Central Bank. Panic is guaranteed as the monetary singularity approaches because the odds of extreme outcomes are rising. So central banks opt for confusion.

China Tightens More Credit: P2P Lending Cap

Slowing money supply growth, slowing real estate, now a cap on P2P lending. Leaving aside whether the rules are good are bad, the effect in the short-run is negative for credit growth.

SCMP: China imposes cap on peer-to-peer loans to rein in runaway ‘shadow banking’ scams
China’s banking regulator has imposed a cap on the country’s peer-to-peer loans, in a long-awaited move to rein in runaway lending by so-called shadow banks and defuse their potential threat to the financial system.
Under the rules, individuals are allowed to borrow a maximum of 200,000 yuan (HK$233,010) each from any one P2P platform, with the total loans per person capped at 1 million yuan.
For companies, the cap is set at 1 million yuan per platform, with a total limit of 5 million yuan per borrower, said Li Junfeng, the China Banking Regulatory Commission’s director of inclusive financing.

Land King Fallout Begins, MOF Owned Cinda Swings to Loss

From June: Ministry of Finance Owned Cinda Real Estate Becomes Land King. In addition to an example of the trend covered in SOEs and Financial Companies Push Private Developers Out With Insane Land Grab, the story provided an important anecdote to explain the rush into land.
Cinda real estate so "crazy" wins the king, regardless of whether they make money in the end, it has completed the parent company China Cinda asset allocation needs, to some extent, it is more important than pure profit.
The land grab of 2016 is partially an asset allocation story , as SOEs and financial companies looked for "good" assets. That sentence from June proved prophetic though, as profits tumbled.

Reuters: Cinda Real Estate's H1 net profit down, plans bond issue
* Says it plans to issue up to 11 billion yuan ($1.65 billion)bonds

* Says H1 contract sales up 32.4 percent y/y at 6.2 billion yuan

* Says H1 net profit down 44.7 percent y/y at 130.4 million yuan
The headline from this article says Land Costs Soar 200%, Cinda's Main Business Sees Rare Loss
NBD: 抢地王致财务成本剧增200% 信达地产主业曝罕见亏损
n the first half, Cinda Real Estate operating income of about 3.07 billion yuan, an increase of 41.8%; net profit attributable to shareholders of listed companies 130 million yuan, down 44.66 percent. This is not all, excluding non-recurring items, Cinda Real Estate lost more than 70 million yuan, down 131%.
Financing land purchases helped crush earnings:
"Daily News" reporter found that the study of history data, since this is the letter of the backdoor listing of real estate by the end of 2008 the main business rare "loss" phenomenon, which with its frequency during the reporting period to grab the land king, higher financing costs swallowed operating profit and other risks seem inseparable.
The market is worried:
The outside world is more concerned that, in the current market environment and policy context of increasing uncertainty, how will these high lad king prices emerge in the secondary market?
From the introductory material, the estate is known as China Cinda Cinda's real estate development operation platform, the company is actually controlled by the Ministry of Finance, the prominent background is evident, but its operating results can hardly be called beautiful.
The land grab drove up financing costs by 200 percent:
"Because the land deal is more concentrated, the financial costs of financing generated during the reporting period, an increase of 193.26 percent." Cinda Real Estate Center Daily News said the case statements.
Cinda Real Estate's losses come amid a strong real estate market in the first half, the strongest in at least three years and better than what will unfold in the second half of the year.

Retuers: Cinda Real Estate's unit wins land auctions for 12.3 bln yuan in Hangzhou
SCMP: What Cinda’s financing model means for the property sector
When little-known mainland developer Cinda Real Estate snapped up a plot of land in suburban Shanghai in June for four times the starting bid price, it highlighted a new normal in the real-estate business — state-owned enterprises using their financial muscle to amass land as an asset, rather for its development potential.

The growing number of examples is now causing serious concern among traditional developers, who fear they will continue to lose out to deeper-pocketed state rivals who have access to cheap funding, and who do not necessarily need to show a quick return on their investment.

Land Price Bubble Driven By Local Govt Revenue, Growth Needs

Land finance is a core funding mechanism for local governments, supplying about one-third of revenues. The funds are used for infrastructure investment. Without land finance, there's little funding for investment. Developers don't want to build apartment buildings in corn fields if the government isn't building hospitals, schools and subways. Local governments have a strong incentive to drive up land prices and real estate development.

Land finance is at the heart of local government. 2014 without considering land finance, land finance contributed 35.63 percent of local revenue. 2015 state-owned land use right transfer income reached 4.26 trillion, 2003--2015 years than the land transfer payments and local general budget revenue an average of 49.74%. 2014 Tax and land, real estate association representing local general budget revenue is close to 28%. 2015 total local debt 18.4 trillion in land financing 3.68 trillion.

Objective understanding of the positive role of land finance in mobilizing local initiatives to promote economic growth, improve the urban public infrastructure. Local government through low-cost collection of agricultural land, the low price of the transfer of industrial land, high prices to sell commercial, residential land, while stimulating investment, on the other hand to obtain high land finance to make up the financial gap. A huge amount of land transfer income used for land acquisition and relocation compensation, land development, urban construction, infrastructure construction, has become an endogenous logic of China's economic development.
The economic slowdown in 2014-2015 was a transition away from this development model, and the rebound over the past year was a step back for the Chinese economy. Now another step forward is at hand.

iFeng: 地王之迷:来自地方土地财政视角的解释

China Health Insurance Market Expected to Quintuple by 2020

China News: 报告:到2020年中国商业医疗保险市场规模将飙升四倍
Boston Consulting Group (BCG) and Munich Reinsurance Company August 24 jointly issued in Beijing, "the advent of commercial health insurance, insurance firms need to establish six ability" that the middle class in and rich people to actively seek alternatives to public health care, driven by 2020, the scale of China's commercial health insurance market will grow nearly fourfold, from 241 billion yuan in 2015 increased to 1.1 trillion yuan.

Summary: Private Health Insurance in China Will Surge Fivefold to RMB 1.1 Trillion by 2020, Study Finds

Report: Opportunities Open Up in Chinese Private Health Insurance

Related: Chinese Insurance Companies Salivating At Chance to Implement US Healthcare System

Anti-Corruption Campaign Didn't Work

The Economist: Xi’s day at the beach
Mr Xi has also been engaged in a fierce campaign against corruption, which has spread fear throughout the bureaucracy; his rivals have been among its most prominent victims (the most recent, Ling Jihua, who once served as Mr Hu’s aide, was sentenced to life imprisonment in July). In all, 177 people with deputy-ministerial rank or above have been investigated as part of the crackdown since Mr Xi took over in 2012. He has had over 50 generals arrested for graft and promoted his own men in their place, says Cheng Li of the Brookings Institution, a think-tank in Washington, DC.

Even so, Mr Xi’s authority remains hemmed in. True, his position at the highest level looks secure. But among the next layer of the elite, he has surprisingly few backers. Victor Shih of the University of California, San Diego, has tracked the various job-related and personal connections between the 205 full members of the party’s Central Committee, which embodies the broader elite. The body rubber-stamps Mr Xi’s decisions (there have been no recent rumours of open dissent within it). But the president needs enthusiastic support, as well as just a show of hands, to get his policies—such as badly needed economic reforms—implemented. According to Mr Shih, the president’s faction accounts for just 6% of the group. That does not help.

...Next year the party will appoint a new Central Committee at its regular five-yearly congress, which will probably take place in October. This time not only will Mr Xi be in charge of the process, he will also have more places than usual to fill. Normally 40-60 full members retire every five years when they reach the committee’s retirement age of 65 (the age for the Politburo is 68). Assuming the retirement ages do not change, 85 committee members will leave in 2017. Seven more have been purged for corruption, bringing to 92 the total number of places Mr Xi will have available to fill. At Beidaihe this summer, the elite is thought to have had its first look at the new line-up.
The reform effort stalled because Xi and Li weren't authoritarian enough. From 2014:
According to mainland media reports, Li chaired at least two cabinet meetings over the past two weeks to focus on ways to streamline and delegate government regulatory powers.

At one meeting, on May 30, Li reportedly pounded the table as he blasted local officials for inertia in carrying out central government directives.

He accused departments of micromanaging the economy and wasting time and resources examining and approving projects and deals that were entirely commercial matters unrelated to national security or strategic industries.

Li vowed to do whatever it took to keep his promise to remove and delegate more than 200 administrative approval procedures by year's end.

......The ambitious reform drive, trumpeted by President Xi Jinping and Premier Li, is now entering a stalemate even before the real battle against vested interests and state-sector monopolies has barely begun.
Maybe things will change in the next couple of years, with many retirements at the provincial level as well.


One Default Averted: China Railway Materials Makes 6.8 B Yuan in Payments

Back in April, Bloomberg: China Railway Materials Seeks Debt Restructuring Amid Bond Halt
China Railway Materials said in a Monday filing that it had suspended trading on its 16.8 billion yuan ($2.6 billion) of outstanding notes as it studies debt repayment issues. The firm had interest-bearing debt of 34.2 billion yuan and its debt-to-asset ratio was 87.8 percent at the end of September 2015, according to its filings.
See also SCMP: China Railway Materials hits bond brake as company sputters in slowing economy

The company has been paying maturing debt on time thus far.

Sina: 国资委:中国铁物按时兑付年内到期68亿元债券
As of August 13, 6.8 billion yuan bonds maturing during the year have been paid on schedule, effective maintenance of the central corporate credit markets and investors confidence.
Still leaves 10 billion to go.

China Worries About Tight Money

Caixin: Reform's Response to the Money Supply Warning
Warning lights are flashing in the context of a widening gap in growth rates for two key measures of money supply – M1 and M2 – and fears that policymaker efforts to boost the real economy are falling flat.

China must now heed the warning by putting into practice long-discussed but largely unimplemented structural reforms. Indeed, the divergence between M1 and M2 highlights an urgent need for reform measures that lift the policy restraints now holding back the Chinese economy.

M1, which includes cash and short-term bank deposits, and M2, which includes long-term deposits, have been growing at different rates since last October. The gap indicates that a People's Bank of China effort to expand the money supply hasn't effectively benefitted the real economy.

M1 grew 25.4 percent in July compared to the same period last year, underscoring a central bank effort to pump liquidity into the market as a way to bolster the slowing economy. The year-on-year rate was only 6.6 percent in July 2015.
Credit money systems only grow when there are willing borrowers. When peak debt is reached, as it was in the developed world and China, credit deflation begins. The PBoC can pump away, but it ends up flowing into temporary asset bubbles. The latest, which did generate some credit growth, was housing. It peaked in July with residential mortgages making up more than 100 percent of bank lending, as credit to the rest of the economy contracted. With real estate slowing, the next target is....:
Meanwhile, speculators are moving in. The property market in the first half of this year was flooded with cash from companies, especially SOEs, and household savings that pushed up real estate prices in many cities.

After several city governments responded to the mini-boom for real estate by tightening property investment controls, investors started diverting capital into the bond market. But that move triggered concerns about a bond bubble and excessive leverage, prompting analysts to predict that the stock market might become the next favorite investment target.
Your bubble recap: real estate, stocks, bonds, real estate, bonds and now possibly stocks. All the while, China's real economy is slowing. This could go on for years as investors are distracted by the shiny bubbles.

Related: Chinese Real Estate Sector Has Turned, Economy to Follow
Adios Easy Money, China Slowdown Coming

Bubble Bursts on Middlesex Water

Adios Easy Money, China Slowdown Coming

Earlier today in Chinese Real Estate Sector Has Turned, Economy to Follow, I looked at the cyclical turn in real estate. The main factor driving real estate growth was credit growth and in July, residential mortgages were more than 100 percent of bank lending. Credit growth has slowed over the past few months though, and the PBoC Pre-Announced M2 Growth for August and September in order to calm the market. As I explained in that post, very slow monthly growth figures roll off over the next three-months, such that the PBoC could effectively slow money supply growth while reporting a rise in the 12-month growth rate. I wrote:
In order to achieve 12% growth by September, M2 would have to grow at 1 percent mom for the next two months. Whether a boost in growth is coming, or the PBoC plans to baffle the market with BS remains to be seen. Year-on-year comparisons will raise the growth figure, but a growing flow is needed to maintain GDP, not simply a more favorable year-on-year comparison.
Now it seems the PBoC is indeed jawboning, but the market isn't buying it.

Reuters: China c.bank surveys demand for 14-day reverse repos for first time since Feb
China's central bank queried domestic financial institutions for their demand for 14-day reverse bond repurchase agreements on Tuesday, traders told Reuters, the first query for such a tenor since February.
The market reaction was swift, interpreting the survey as indicative of tight money, of no interest rate or RRR cuts on the horizon.
Reuters: UPDATE 2-China treasury futures tumble as cbank eyes adding short-term liquidity
China bond futures posted their sharpest fall in three months on Tuesday as the prospect of more liquidity injections by the central bank into the financial system reduced expectations of more aggressive policy easing.

Traders said the People's Bank of China (PBOC) asked banks about demand for 14-day reverse bond repurchase agreements for the first time since February, suggesting it may be expanding its strategy of using targeted, short-term injections rather than cutting interest rates or banks' reserve requirements (RRR).
ZH: China Has Its First Taste Of "VaR Shock" As PBOC 14 Day Repo Sparks Treasury Dump
As a result, and confirming once again that fundamentals are dead even in China where only liquidity injections matter just like across the entire "developed" market, the price of Chinese 10- Y treasury futures tumlbed 0.38%. This was also China's first glimpse of what a VaR shock in government bonds will look like once yields spike from recent record lows.
A senior trader at a major Chinese state-owned bank in Shanghai, cited by Reuters, said that "the market interprets the move as another sign that the central bank won't cut interest rates and RRR for now as it injects more short-term money into the banking system." He added that the PBOC announcement "is likely to set a floor for the fall of the yields of government bond futures, and thus investors sold the futures on the news."
Slowing investment, falling home prices and then slowing GDP growth to follow.

Chinese Real Estate Sector Has Turned, Economy to Follow

An article from the China Finance 40 Forum covering China's real estate market has lots of good charts. The second one below is the most important. It shows real estate investment as a share of GDP, falling and then picking up. In 2015, real estate investment slowed to 1 percent and in 2016, it is slowing a again, down to 5.3 percent YTD. Real estate investment grew faster than GDP at the start of 2016 though, to reach its highest share of GDP since 2013. This propped up Chinese GDP in the first half, but a downturn is already underway.
This next chart shows the turn in sales growth and then price (dotted line, NBS 70-city survey) clearly. The second shows real estate area under construction and prices (dotted line, NBS 70-city survey).
This chart shows the Chinese real estate cycle. A decline in prices should begin in the next month or two, followed by a drop in investment. Real estate investment fell to 1.4 percent growth in July 2016 and the slowdown hasn't even really begun yet.
And former three different cycles, 2015 to start sales and housing prices do not rise quickly bring new construction area. Until the end of 2015, new construction area is still negative growth year on year, real estate development and investment amount are at historic lows.

This is partly due to the country's overall housing stock market is still in the accumulation of business prospects for the real estate industry to determine differences, on the other hand is due to lack of developer's own investment capacity.

By the end of 2015 the real estate industry, the average asset-liability ratio of 70%, far higher than other industries. Excessive leverage at developers make operating conditions more difficult in the market downturn. The real estate industry average ROE of 8% in 2010 fell to 5% in 2015, interest coverage fell from 4 to 2.5 times. Even after sales picked up in 2015, Days sales outstanding also largely used to repay debt rather than invest further.

Until the end of 2015, real estate companies listed on the current ratio and quick ratio have rebounded, showing short-term debt burden eased. 2016 first quarter real estate development funds grew 15%, ending two consecutive years of single-digit growth in real estate investment rebound quickly, the performance of new construction area in April cumulative increase of 21.4%, real estate development and investment in the amount of the cumulative increase of 7.2%.
Speaking of the relationship between credit and real estate:
As the real estate investment plays an important role in GDP growth, while real estate prices and rental costs will be passed to end enterprise thus affecting the overall price , thus creating a mutual feedback effects (Figure 7 between the real estate cycle and interest rates in the credit cycle shown). When monetary policy easing, buyers get a boost demand for new loans and rising sales area, within a few months of real estate investment and housing prices rose, led directly to GDP and is conducted to the overall price.

According to experience, the CPI within six months after the formation of the inflection point of monetary policy began to shift, interest rates (or interest rates) cycle lasts several months to a year (Figure 8). When the CPI upward for some time, monetary policy tightening, the incremental credit contraction, real estate sales and prices, real estate investment decline put pressure on economic growth, price slowdown (or even deflation), then trigger another round of currency policy easing. Overall, since 2006 behind the wheel of the real estate cycle is the credit cycle.
The message is a stark warning for China:
Summary and Outlook

After the export-led economic growth mode is terminated, the role of real estate investment in China's GDP growth in the increasingly prominent. The real estate cycle is driven by credit policy since 2008, including the total amount of the monetary policy and macro-prudential policies for the real estate. Although the short term do not see the CPI and monetary policy shift upward signs, but the downside is the interest rate has also been limited. Considering the skyrocketing housing prices in some cities and residents purchase loans surge, macro-prudential policy for the real estate market has clearly turned.

In the medium term, to the economic downturn and expected future revenue growth slowdown does not support a substantial increase in the household sector continued to leverage, which means increased demand for home loans is likely to have peaked.

Whether from the policy level or demand perspective, the real estate market turning point has come, the last two quarters of promoting economic stability factors will soon disappear. Real estate investment growth will slow or even negative growth in the fourth quarter and bring downward pressure on the economy next year.
iFeng: 机构:房地产市场拐点已经到来 投资增速或负增长

This was exactly the warning sent by Liaoning in 2014. It relied on real estate investment to drive economic growth following the commodities slowdown (which began in 2011), but once that market slowed too, it was game over. Liaoning Shows Path to Chinese Recession, Global Depression
There's nothing particularly special about Liaoning beyond its reliance on basic industries. Instead of a slowdown spread out nationally, it is concentrated in a few provinces. Yet in its use of real estate and government-led fixed asset investment, Liaoning is like most provinces. The same strategy is deployed all over China, it simply wasn't enough in Liaoning because the slowdown in the "real" economy was so great and so long, now running into its 5th year.

If I am wrong, then Liaoning is a special case of a long-term concentrated slowdown. Other provinces will not see a similar economic depression and will be able to paper over their recessions with real estate and fixed investment for a few years, by which time the economy will have recovered.

If I am correct and the slowdown works through the rest of the economy, many provinces will end up in a situation similar to Liaoning because fixed asset and real estate investment was the only play in the stimulus playbook since 2008. Provinces with more diversified economies can manage for a time, but eventually they too will see the core economy weaken and investment collapse.
We are months away from seeing the effects of the latest real estate slowdown and Liaoning sends a stark warning for any province relying on real estate to make up for real economic shortfalls. Once real estate investment declines, the bottom drops out:
The world is in the middle of a slow motion depression unfolding over years instead of months. There's no evidence any of the current trends are reversing. China's national real estate investment will eventually follow Liaoning and move into contraction, followed by fixed asset investment, followed by GDP. It could take another couple of years to unfold if the markets continue discounting the decline in global economic activity, but eventually the moment of realization arrives. The central bank created fog will lift, revealing the global economic depression.

Related posts on Liaoning.