Still Lots Govt Can Do to Cool Housing Market

First, Hangzhou, Shanghai and Beijing all pass more buying restrictions at the end of April. Hangzhou is requiring developers who keep property must rent it out, and cannot sell or transfer it. Shanghai tightened land use regulations as did Beijing. Beijing also added provisions that allow the city to retake land from developers who violate regulations.

iFeng: 一季度地价大幅上涨 京沪杭三地一周连出土地新政

There are lots more regulations that could be unleashed if the housing market doesn't respond.

iFeng: 消息人士:政府只要下定决心调控楼市 储备手段有的是
Held on April 25, the CPC Central Committee Political Bureau meeting clearly gave the real estate industry a new signal, that is, the property market regulation and control policies are more ruthless big strokes will continue to come out of the oven.

...Prior to this, the National Development and Reform Commission, deputy director of Ning Ji Zhe has revealed that the regional real estate, structural contradictions to the macro-control put forward higher requirements, the relevant departments are in full swing to develop long-term sustainable and healthy development of long-term Mechanism, will be hot on the city housing prices may bring bubbles to prevent and control, while insisting on the three or four lines of the city to the inventory policy.

Despite the introduction of the "9.30" New Deal in 2016, it did not prevent prices from triumphantly spreading to 2017. Until March 17 this year, Beijing to further upgrade the property market regulation and control policies, the implementation of "recognition and approval of loans." Beijing has introduced the most stringent control policy has also set off a nationwide follow-up, according to incomplete statistics, the country has more than 20 cities to implement the "recognition of the room and credit."

In the current round of regulation and control of the biggest bright spot in the supply side of the "restricted sales", although Beijing's "sale" that the purchase of commercial housing business again listed transactions, to be 3 years and above, only stay in the enterprise level, but its Opened in 2017 the property market regulation "restricted sales" window, and then follow the city is further "limited sales" extended to the individual level, such as Xiamen, Hangzhou, Fuzhou, Guangzhou, more than 10 cities.

Yiyou Research Institute think tank research center director Yan Yuejin explained that after buying a house for a certain period of time to sell, which means that the time cost of holding a substantial increase in real estate, and the possibility of short-term cash transfer plummeted. This is equivalent to a certain period of time, the freezing of the real estate liquidity, is conducive to combat speculators speculation mood.

In addition, this round of control in addition to the above measures, but also continue to improve the down payment ratio, the full cancellation of mortgage concessions, shorten the loan years, to combat the irrigated housing prices and other illegal intermediaries.

The details of this regulation is that the property market is not hot, facing the task of inventory and even state-level poor counties have also influx, such as Tianshui, Ganzhou, Chuzhou and other cities, the face of inventory pressure, also have to buy. While the state-level poverty-stricken counties in Anhui Linquan County, emergency restrictions on housing prices, in this regulation also caused controversy.

From the purchase to the limited loan to the limit to sell, the property market regulation continue to overweight, this from the hot spots of a second-tier cities spread to three or four lines and even poor counties and cities in the regulation of the storm, is slowly highlighting the power.

...Associate Securities Managing Director Li Qilin, Associated Securities Research Institute Macro Group Zhang Deli believes that the content of long-term mechanism may include people to hook, dynamically adjust the land supply, shed reform monetization. Yidan, a senior researcher at the Bank Financial Research Center, pointed out that the content of the mechanism or the real estate tax, 70 years of property rights, the positioning of the purchase policy, the development of the leasing market, the supply rules of the land market

Chain home research institute president Yang is now that the long-term mechanism is the most important mechanism is to revitalize the stock, more play the role of the stock market, the property of different property rights to the largest degree of circulation or use, especially non-commercial housing circulation ; The recycling of old homes, from a wider range of channels to release more supply, this is the most fundamental long-term mechanism.

For the stock room market, Zuo Hui, chairman of the chain group, according to the market value of 2016 to estimate the stock of Chinese housing a total of about 220 million units, a conservative estimate, the market value of more than 200 trillion yuan, but today the stock of the property flow rate is only 2%, the prospects for the development of China's real estate should be more dependent on the stock how to make an inventory.

"In the case of such a large stock, China should promote the reform of the entire real estate tax as soon as possible, through the holding tax to allow China's assets flow, so that we do not speculation house, let the house return to the property.

Unprecedented Deleveraging in China

A very long article in iFeng discussing tighter financial regulation, it's impact on the A-share market, a new economic growth cycle and the possibility that leverage and financial controls will finally make value investing a profitable strategy, as opposed to short-term trading amid rapidly inflating asset bubbles.

iFeng: 金融去杠杆力度空前 A股新周期来了
The unprecedented financial deleveraging is expected to change China's financial system a lot of money in the financial institutions between the idle ills. And now, the signs of recovery show the new economic cycle approaching, and the "nineteenth" the arrival of this political node, all this is the birth of a new cycle of China's capital market arrival. This will be a different period from the past, pointing to the new position.

...Financial regulatory authorities introduced the relevant policy is normal, but his party will be at the same time "heavy attack" is relatively rare, unprecedented supervision can be seen. Regulators of this series of boxing fist force, penetrating regulatory financial regulatory system ready to come out.

During the "two sessions" this year, representatives and members of the "three sessions" and some financial officials have already started to talk about the urgency of penetrating supervision. This also reflects that regulators have reached a consensus on strengthening financial supervision.

...But it is clear that the short-term pattern of A-share market will still be directly affected by financial leverage. However, it is more noteworthy that there are many indications that, along with the progress of the financial deleveraging process, coupled with signs of economic recovery, "nineteen" this new political cycle and other factors close to the impact of superposition, China A new cycle of capital markets is looming.

Founder Securities chief economist Ren Zeping's view is that from a macroeconomic point of view, now has stood on the starting point of the new cycle. He believes that a large number of macro micro-evidence shows that China's economy into the growth rate of "economic L-type" of a horizontal, is standing on the "new cycle" on the starting point. Since 2016, China's industrial enterprises capacity utilization is gradually bottomed out, some of the traditional industry capacity to clear the actual situation than the statistical data show more fully.

...Although there is a lot of debate about the new economic cycle, there is a consensus that at least the opening of the Chinese economy from a new economic cycle is at least getting closer and closer, creating a time window for the current financial leverage. And the more important consensus is that, as we all know, "nineteen" as scheduled, for Chinese society, a new political cycle is coming.

..."China's stock market, the pattern may be really changed." Beijing, a broker who read the latest market. In the past, chasing and selling, short-term trading, speculation and other speculative behavior in the last year quickly failed, over the past 20 years, these have been more effective on the market to make money strategy; by contrast, has always been only " Mouth talk about it "only the value of investment this year to time-tested, in the past tepid Guizhou Maotai, Gree Electric began to soar.

Chinese Model Denied U.S. Entry on Suspicion of Prostitution

A Chinese woman was denied entry into the United States on suspicion of prostitution, due to her appearance and suitcase full of "sexy clothing."
Sina: 中国女子因穿着性感被疑卖淫 到美国机场即遭遣返
In early April this year, Ms. Zhong from Shanghai because of looks so good, coupled with fashionable avant-garde, arrived at the airport by the US Customs immediately repatriated.

Can the Central Bank Boost Social Mood?

The stock market is an excellent social mood signal because traders and investors make millions of real-time transactions. Social media theoretically allows for even faster and more accurate feedback, but for now the stock market remains a great signal.

The stock market says social mood has never been higher. In contrast, many events point to 2000 as a peak in social mood, with the last successful round of free trade and the launch of the euro among the most prominent events. In the ensuing years, approval of EU membership was voted down at times, immigration policies began to be restricted, and after 2008 these trends accelerated amid rising nationalism.
Credit growth confirms a peak around 2008.

Why might the stock market be at a new all-time high when other indicators tend to suggest the top was put in a decade or two earlier?

Perhaps the stock market is not only a mood indicator, but also serves as feedback for the general public. Whether they public believes it consciously or not (many in the financial markets consider it an indicator), the stock market serves as a barometer of confidence. It is theoretically possible to jam the market signal by artificially supporting the market. Anyone who is in the market would feel a boost of optimism that speads into the wider society. In contrast, buying a home or investing in a business are less sensitive to emotions. They aren't immune to them, but outside of the housing bubble, home prices do not behave like stock prices.

Will the good times last?

NY Mag: A Classic Psychology Study on Why Winning the Lottery Won’t Make You Happier

In 1978, a trio of researchers at Northwestern University and the University of Massachusetts attempted to answer this by asking two very disparate groups about the happiness in their lives: recent winners of the Illinois State Lottery — whose prizes ranged from $50,000 to $1 million — and recent victims of catastrophic accidents, who were now paraplegic or quadriplegic. In interviews with the experimenters, the two groups were asked, among other things, to rate the amount of pleasure they got from everyday activities: small but enjoyable things like chatting with a friend, watching TV, eating breakfast, laughing at a joke, or receiving a compliment. When the researchers analyzed their results, they found that the recent accident victims reported gaining more happiness from these everyday pleasures than the lottery winners.

This is how the study is usually written about, in a "gee whiz, ain’t that counterintuitive?" kind of tone. But what’s really striking when you look at the results reported by the researchers is how close their answers actually are: On average, the winners’ ratings of everyday happiness were 3.33 out of 5, and the accident victims’ averaged answers were 3.48. The lottery winners did report more present happiness than the accident victims (an average of 4 out of 5, as compared to the victims’ 2.96), but as the authors note, “the paraplegic rating of present happiness is still above the midpoint of the scale and … the accident victims did not appear nearly as unhappy as might have been expected.”

This is partially because of what’s become known as the hedonic treadmill, or hedonic adaptation, that annoying tendency humans have to get used to the things that once made them happy.
Other studies have since found that there is some long-term improvement from winning the lottery (having money means better medical care, for example), but not to long-term happiness.

If the stock market has benefited the most from central bank support, the next market downturn could be extra brutal as prices revert to not only a valuation mean, but the wider society's social mood.

This is a pressing question because the market is approaching an intermediate- or long-term peak.

Hussman: Exhaustion Gaps and the Fear of Missing Out


North Korea Rhetoric and Reality

The South Korean stock market looks like it is about to explode to the upside. It made a new closing high in April. The intraday high from 2011 is 2231.47. A 1 percent gain will take out that high. EWY is also near its all-time high, showing that the advance in the KOSPI is not due to currency devaluation.

If any market should be nervous about a war on the Korean Peninsula, it would be the South Korean stock market. Seoul is within range of North Korean artillery. As the economic, cultural and population center of South Korea, it is a prime target for a North Korean attack. Even if South Korea wins a total victory in a war, Seoul could still suffer substantial damage. The South Koreans do not appear worried though.


Bank Credit for RE Development "Frozen"

iFeng: 银行全线收紧开发贷 房地产融资迎“冰封”时刻
"In recent years, various banks have received intensive checks from the regulatory authorities, and in the field of credit risk, the development of loans is the focus of the inspection." The banking industry told China Securities Journal reporter that the regulatory authorities on the bank financial management funds into the real estate also found special tight. China Banking Regulatory Commission recently issued a document on the banking risk prevention and control, and carry out a series of special rectification, real estate risk has become the focus of investigation areas. A number of banks on the public credit business executives said that the current development of the loan business is not stagnant, but the overall contraction of the momentum is quite clear.

...A number of local banking regulators said that as a local banking regulatory authorities, for some national banks to issue financial products, the underlying assets can not be completely "penetrate", many funds through financial management, management products "around the" Real estate, this year this will be the focus of regulatory investigation.

...People close to the central bank of China Securities Journal reporter said that the proportion of real estate loans will become the central bank to assess MPA one of the important parameters.

...Of course, the bank on the development of loans is not completely "blocked", but to follow the national policy-oriented, there is pressure. Bank of Communications, a local branch, said: "The current policy for the development of credit control is very tight, but for the protection of housing is still strongly supported in the first quarter of our branch of the real estate loans are basically used in the protection of housing projects." CBRC latest statistics show , As of the end of March, affordable housing project loan balance of 3.5 trillion yuan, an increase of 52.2%, an increase of 339.2 billion yuan over the beginning, up by 31.3 billion yuan.

PPI About to Go Negative

The increase in the Chinese PPI has been decelerating in 2017, but in the first twenty days of April steel prices are down 8 to 12 percent. With oil prices slipping at the end of April, the year-on-year boost from energy will also be gone.
EO: 经济上行、钢价下跌,PPI来到了岔路口?

20 days ago, from the Qian'an in Hebei cargo owner Zhang hesitated two months later, and finally the hand of 1,000 tons of iron ore powder sold out. That time, iron ore powder price is 860 yuan per ton. 20 days of time, the price has dropped to 600 yuan per ton. If not shot in time, he will directly lose 260,000 yuan.

...At this point, the news from the East Coast is that China's iron ore stocks at ports is 130 million tons. In fact, in early March, China's iron ore port inventory already reached the figure, while China's imports of iron ore were 95.56 million tons.

...At present, the prevailing view of the market is that changes in supply and demand have led to a reversal of prices. According to data released by the National Bureau of Statistics on April 17, the national crude steel, pig iron and steel production in March were 72 million tons, 62 million tons and 96.76 million tons, up 1.8 percent year on year, up 1.3 percent and 0.7 percent respectively; Among them, the average daily production of crude steel reached 232.26 million tons, an increase of 6.42%, a record high. The first quarter of this year, China's crude steel production was 201.1 million tons, an increase of 4.6%.

LA Residents Sense Tension

ZH: Poll Reveals Los Angeles Residents Fear Major Riots Are On The Horizon
For the first time since the riots, there is an uptick in the number of Angelenos who fear that another civil disturbance is likely, according to a Loyola Marymount University poll that has been surveying Los Angeles residents every five years since the 1992 disturbances.

Nearly 6 out of 10 Angelenos think another riot is likely in the next five years, increasing for the first time after two decades of steady decline. That’s higher than in any year except for 1997, the first year the survey was conducted, and more than a 10-point jump compared with the 2012 survey.
The piece ends with a nod towards social mood:
There’s something to be said for the idea that there’s a collective unconscious. When that many people feel that violent civil unrest is a real possibility, one should take notice. These people know what their city is capable of, so I can’t help but fear that their concerns are justified.

Minsheng Fake WMP Invested in Real Estate, Jewelry, Relics

The Minsheng fake WMP won't exceed the 3 billion yuan headline figure and Minsheng currently says the amount is 1.65 billion yuan.
iFeng: 民生银行:假理财涉案16.5亿 部分资金投向房产文物
In today's Minsheng Bank 2017 first quarter investor exchange meeting, Minsheng Bank Vice President Shi Jie introduced the bank Beijing Bay Bridge branch case related situation. According to its disclosure, as of now, by the Minsheng Bank Working Group by the client with the registration and verification, involving the amount of about 1.65 billion yuan , the initial estimate of the amount involved will not exceed the number reported by the media , involving about 150 customers, in addition to Zhang Ying, Another individual branch staff is receiving a public security investigation. Prior to the media coverage of the amount involved to 3 billion.

According to the Minsheng Bank disclosure, according to the current preliminary grasp of the clues, the case of Zhang Ying by controlling other accounts as a capital account, fabricated false investment and financial products and financial transfer products, their own or instruct the individual employees to find the target customers, illegal recruitment Customer funds for personal control, part of the investment for real estate, cultural relics, jewelry and other fields, the funds raised did not enter the Minsheng Bank account system.

Wreck Your Credit and No House For You!

Beijing residents who wreck their credit (including social credit) could lose the right to buy a home, as well as be airline and high-speed tickets, among other measures.

iFeng: 北京出台信用奖惩实施意见 严重失信将限制买房
Beijing Municipal Government recently introduced "on the establishment of a sound credit joint rewards and punishments to speed up the implementation of the views of the implementation of good faith" (hereinafter referred to as "opinions"), the performance of the capacity but refused to perform a serious disqualification of the main implementation of restrictions on exit, purchase of real estate, , Take high-level train and seats and other measures. People 's governments at all levels and civil servants in the course of their duties, due to illegal, dishonesty by judicial decision, administrative punishment, disciplinary action, accountability and other information will be included in the government lost record.

"Opinions" proposed that the people 's governments at all levels and civil servants in the course of their duties, due to illegal, breach of contract by judicial decision, administrative punishment, disciplinary action, accountability and other information into the government lost the record. Increase the government and civil servants at all levels of dishonesty and exposure to the intensity, and constantly improve the integrity of the performance and integrity of the executive level, to the integrity of government to lead the integrity of society.

Motivation for integrity will be strengthened, including administrative, market and social incentives. "Opinions" pointed out that the integrity of the typical and three consecutive years without bad credit records of the administrative counterparts, according to the actual situation of the implementation of "green channel" and "capacity acceptance" and other convenient service measures. Support the relevant departments and units to develop "tax easy to loan", "letter-loan", "letter-debt" and other trustworthy products, so that the trustworthy access to more opportunities and benefits.

Ren Zeping: Buying Restrictions Through First Half of 2018

Caijing: 任泽平:预计本轮房价上涨近尾声 调整到2018上半年
Hot cities will increase limits on home purchases and home loans, the CBRC is strictly prohibited mortgage inflows into the real estate sector, we expect this round of housing price rises is near the end, may be adjusted to the first half of 2018. Long-term population to the metropolitan area inflow trend unchanged, medium-sized metropolitan area land supply is not ideal, short-term financial tightening, so the future real estate adjustment is mainly short-term adjustment.


March Was the Top: Beijing Home Sellers Cutting Prices as Sales Plummet

One Beijing real estate broker has seen transactions fall 70 percent in the wake of the March 17 buying restrictions.

iFeng: 部分一线城市二手房卖方主动降价 成交量大减
Here is the Chaoyang District, Beijing real estate registration business center. In Beijing, every one of the four existing home sales is completed here. According to the annual total of about 270,000 sets of existing housing, existing housing transactions to measure it, last year, where the volume of transactions in the 70000 or so (269223 * 0.26 = 69998).

This means: here every day there are 270 sets of existing-homes complete the transfer transaction. In the most hot market transactions, where people are coming and going every day, bustling, bustling. But we have also entered the hall which has seen a significant decline in traffic has been.

Trading floor near the residents: trading volume fell a lot, and last year and the first half (March) than the decline too much.

An intermediary store official told reporters: their stores cover the surrounding three district, a total of about 7000 sets of housing. Since March 17, they have only signed five sets, of which there were three sales negotiated before the 317 policy.

Lianjia real estate chief marketing officer Song Qi: 317 after the New Deal, the Beijing chain of single trading volume, probably less than 1,000 sets, and that before the New Deal compared to it, in fact, down 73%.
Prices are also coming down, from a peak of 5.3 to 5.35 million down to 5.2 million. The city of Beijing is also recording a drop in sales:
Beijing Municipal Construction Committee data: April first half (April 1 - April 15), Beijing existing housing a total of 8096 sets signed, compared with the second half of March fell 51.4%, year-on-year from April 2016 fell 37.4% in the first half.
Industry insiders say the home price increase in March was an echo effect from February:
In the reporter's survey, we can easily find: existing housing turnover has been a significant decline, many sellers have begun to take the initiative to cut prices, but according to the National Bureau of Statistics released last week, 70 cities in the price data: Beijing home prices rose 2.2%. What is the reason for this? Future existing housing transaction price trend will be how?

In this regard, the industry said: Due to the existence of time lag, the March house price data is mainly reflected in February since the actual transaction reached. March 17 since the vast majority of market transactions will be reflected in the transaction data since April.

Politburo Signals New Real Estate Policy Implementation

The Politburo shifted language from research to implementation of long-term real estate market stabilization:
The central economic work conference held at the end of last year: to speed up the study of the establishment of the system in line with national conditions, to adapt to the laws of the basic system and long-term mechanism.

This year's government work report: speed up the establishment and improvement of the real estate market to promote the steady and healthy development of long-term mechanism.

From "to speed up the establishment of research" to "speed up the establishment", and then to "accelerate the formation", which is the rhythm, you should know it!
What does this mean exactly? Aligning short-term lending policy with long-term policy goals (tighter credit) and aligning home prices with the needs of homeowners, not short-term speculators:
Capital University of Economics and Trade Land Resources and Real Estate Management Department Director Zhao Xiucui:

The establishment of long-term mechanism to stabilize the real estate market, to achieve "the house is used to live, not used for flipping" positioning is essential. Long-term mechanism is necessary to meet the national conditions, but also to adapt to the laws of the market, its content should include: two-way regulation of supply and demand to achieve balance between supply and demand; according to different housing needs to take different policies, there is pressure to meet the basic housing needs at the same time, Demand for the development of the rental market, the establishment of rent and housing system; for urbanization to provide in line with the needs of marketable diversified land and real estate; the implementation of local government responsibility, the city policy to develop real estate control policies.

Director of Research Center, Yi Ju Research Center, Yan Jujin:

The changes in the wording suggest that in the establishment of long-term mechanisms, it has not been in the research stage, but to continue to form the operability and executable text of the time.

At present, the idea of ​​long-term mechanism is more mature, the text is more clear, some of the details of the content is also in the process of continuous improvement. It is expected that similar real estate tax, 70 year property rights, the restriction of the purchase policy, the development of the leasing market, the supply rules of the land market and so on may be written into the real estate market long-term mechanism of the content.

Bank of Finance Research Center senior researcher Xia Dan:

From the establishment of research to speed up the establishment and formation of the top of the property market to further accelerate the design requirements, reflecting the urgency of establishing long-term mechanism. At present, real estate control measures are mostly short-term fast fire, part of the means is not suitable for long-term use, real estate tax, land supply and other medium and long-term smooth property market means still can not be absent.

Wrote here, Xiao Bian and then look at the expert point of view, the establishment of the real estate market, the basic system and long-term mechanism, policy involves four major areas:

First, the housing finance, policy housing finance will be an important content; Second, the tax field, the real estate tax is very loud, but still looking for a suitable time to launch; Third, the land area, for example, how to get through collective construction land and state-owned construction land, to achieve accurate land control; Fourth, the field of affordable housing, a noteworthy aspect is how to establish affordable housing for new city residents.
iFeng: 政治局会议透露重大信号:房地产调控要出狠招了!

The Politburo is also targeting financial system risk:
Bloomberg: China Ups the Ante in Bid to Quash Financial Risk: QuickTake Q&A
Now that it has the politburo’s backing, the campaign to reduce financial risk will probably be stepped up. Financial News, a publication run by the central bank, said in a front-page commentary April 24 that more de-leveraging measures are likely to be introduced. Such a campaign, particularly if it’s not well coordinated, could trigger credit events, sudden periods of tight liquidity and an uptick in volatility in the short term, UBS Group AG economists said in an April 26 note. The market correction may have further to run, with China’s economic recovery giving authorities confidence to ramp up de-leveraging, says Ken Peng, an investment strategist at Citigroup Global Markets Asia. That said, the government will want some level of market stability ahead of a twice-a-decade Communist Party leadership reshuffle later this year.

2 Reasons Third and Fourth-Tier Home Prices Rise

iFeng: 三四线楼市​房价为什么会涨 背后的两大因素
One is the local government to reduce land supply, resulting in scarcity of property resources; the other is, loose monetary policy cycle, the market too much money, resulting in strong investment demand.

In short supply situation, the house, especially some of the key cities of the house, has become the market competition for each other's goals, prices will be fried higher.

...In the long-term perspective, the three-four-tier cities still have a problem attracting population, local residents purchasing power, industry and other public resources, home buyers are more sensitive to price changes, I think the third or fourth-tiers of the city's property market can boom one to two years, will never appear super prosperous, want in the three or four lines, especially not close to the central city, no significant population increase in the third or fourth-tier Buy a house to invest must be careful to be careful, the property market investment is not short-term flipping, there's also a lot of risk with many buying restrictions.
So what's the strategy? Wait for tighter policy to make prices fall, and then quickly buy before the government loosens policy again:
Can say so this time the property market's strict control, is just the best chance. However, no one knows when the price of the end, so you need to establish a bottom line (such as down 10% or 15%), you can spend 2-5 months to observe the market and the election, once Found to reach the bottom line of the emergence of the time, quickly shot. Rather than follow the policy to go, until the policy is loose, the price will go up again.


Bloomberg Notices Credit Guarantees Could Blow Up

No surprise to long-time readers here. Credit guarantees have been the major risk in the Chinese financial system and remain that way today. Newer readers might also want to flash back to 2012: Sinopec Sichuan sales office: King of the loan sharks? Usury scandal may be the tip of the iceberg. Sinopec's sales office was a conduit for taking out low interest loans as part of the 2008 credit gusher and making extremely high-interest loans to property developers.

The risk of credit guarantees has always been a major default, such as what led to the 2015 implosion of HFIG, the state-owned credit guarantee giant in Hebei. The government has always stepped in to prevent a systemic crisis, as it did in Xiaoshan, Hanghzhou in 2014: Rumored Mass Death of Companies in Xiaoshan District of Hangzhou If Banks Collect on Debts; Government Tells Banks to Sit Tight or Leave

Bloomberg: China's Hidden Debt Stirs Investor Angst as Defaults Rise
Small firms that can’t get loans by themselves have been winning banks over by getting other companies to guarantee their borrowings. The companies making those pledges exclude them from their balance sheets, leaving creditors in the dark. Borrowers often extend the guarantees for each other, raising the risk that failures could ricochet, at a time when increasing borrowing costs have already added to strains.

China’s banking regulator has ordered checks of such cross-guaranteed loans, Caixin reported Friday. Scrutiny is mounting after a corn oil producer in the eastern province of Shandong said last month it had guaranteed debt of a neighboring aluminum product manufacturer which is now stuck in a cash crunch. Just days before that, a local government financing vehicle in China’s southwest had to repay an auto parts maker’s loans it had guaranteed after the latter defaulted.

“Disclosure of such guarantees isn’t timely,” said Qiu Xinhong, a Shenzhen-based money manager at First State Cinda Fund Management Co. “Sometimes, it’s like a buried mine and you don’t know when the risks will explode.”
And Chinese businesses are geographically clustered. Local and provincial politics makes for very tight local networks:
“If companies in the same region offer a huge amount of guarantees for each other’s debt, it would form a guarantee web and deepen interconnections among the companies,” said Gang Meng, director of rating at Golden Credit Rating International Co. in Beijing. “If one company has to repay debt for its guaranteed company, risks would quickly ripple to other companies in the web, which will result in a butterfly effect.”
This post has a lot of links to other credit guarantee stories: The Credit Dominoes Are Falling Again; Northeast Faces Deflationary Collapse Without Bailout

Some other big stories covered on the blog:

In 2017: Shandong Bad Debt Daisy Chains Exploding, Loanshark City Falls on Hard Times

In 2014: Who Broke China Bond Market's No Default Streak? Mutual Credit Guarantees

Also in 2014: Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee

There is nothing new in the latest news. The question, as always, has been: when does the music stop? At that time, the government will have the choice of allowing a deflationary depression or printing money. Every time to this point has resulted extend-and-pretend in money printing. Hence the view here that when push comes to shove, the cost of bad debt will show up in the devalued renminbi.

Establishment Media Can't Figure Out Internet

Here's an article that tries to explain the media bubble by explaining it away with geography. Which would be a good argument if the bias didn't go back decades.

Politico: The Media Bubble Is Worse Than You Think
What went so wrong? What’s still wrong? To some conservatives, Trump’s surprise win on November 8 simply bore out what they had suspected, that the Democrat-infested press was knowingly in the tank for Clinton all along. The media, in this view, was guilty not just of confirmation bias but of complicity. But the knowing-bias charge never added up: No news organization ignored the Clinton emails story, and everybody feasted on the damaging John Podesta email cache that WikiLeaks served up buffet-style. Practically speaking, you’re not pushing Clinton to victory if you’re pantsing her and her party to voters almost daily.
There are two types of bias. One is explicit bias: you have two roughly equal stories about Clinton and Trump in terms of their positive or negative, but you pick which one to emphasize because you prefer one candidate over the other. The deeper bias is that you don't know which story is more important because you are ignorant of reality and live in a bubble created by narrative. An example of the former bias was Fox News in 2015. Fox did not talk much about immigration prior to Donald Trump running for President. There was an editorial decision to push ISIS atrocities over illegal immigration. An example of the deeper bias is the almost year long attention to the Michael Brown shooting in Ferguson, MO. It was a local crime story inflated (by the media) into race riots and violence against police because it fit a narrative about racist cops. The establishment media doesn't think their belief in racist cops is biased, even if evidence shows the opposite. Cops are more likely to shoot a white suspect and when cops were forced to wear body cameras, cop shootings of civilians went up. This makes perfect sense if there's media-fueled outrage at cop shootings of black suspects and police try to avoid shooting a black suspect in borderline situations because they fear becoming a year-long object of hate for the NYTimes. When body cams are mandatory and cops have video evidence, they are more willing to use deadly force when justified. In reality, the media is an engine of racial hatred, not fanning but actually creating the fires of racial conflict in the United States, because they believe it to be true. They know not what they do.
The results read like a revelation. The national media really does work in a bubble, something that wasn’t true as recently as 2008. And the bubble is growing more extreme. Concentrated heavily along the coasts, the bubble is both geographic and political. If you’re a working journalist, odds aren’t just that you work in a pro-Clinton county—odds are that you reside in one of the nation’s most pro-Clinton counties. And you’ve got company: If you’re a typical reader of Politico, chances are you’re a citizen of bubbleville, too.

The “media bubble” trope might feel overused by critics of journalism who want to sneer at reporters who live in Brooklyn or California and don’t get the “real America” of southern Ohio or rural Kansas. But these numbers suggest it’s no exaggeration: Not only is the bubble real, but it’s more extreme than you might realize. And it’s driven by deep industry trends.
It's not driven by industry trends. It's driven by the Internet and social mood. For the first time in history, people can form communities that cross oceans. An individual living apart from the community has no need to assimilate with local culture, they can maintain a permanent connection through the Internet. People also no longer need to rely on a few sources for information as they did even 30 years ago. There is alternative media for different racial and ethnic groups, in different languages, and for different political persuasions. There is nothing wrong with the establishment media's bias and bubble (if truth isn't a standard), except for the fact that it thinks it is the most important, the agenda setting media. This business model will eventually collapse because it is targeting an audience that no longer exists.
The online media, liberated from printing presses and local ad bases, has been free to form clusters, piggyback-style, on the industries and government that it covers. New York is home to most business coverage because of the size of the business and banking community there. Likewise, national political reporting has concentrated in Washington and grown apace with the federal government. Entertainment and cultural reporting has bunched in New York and Los Angeles, where those businesses are strong.

The result? If you look at the maps on the next page, you don’t need to be a Republican campaign strategist to grasp just how far the “media bubble” has drifted from the average American experience. Newspaper jobs are far more evenly scattered across the country, including the deep red parts. But as those vanish, it’s internet jobs that are driving whatever growth there is in media—and those fall almost entirely in places that are dense, blue and right in the bubble.

...Resist—if you can—the conservative reflex to absorb this data and conclude that the media deliberately twists the news in favor of Democrats. Instead, take it the way a social scientist would take it: The people who report, edit, produce and publish news can’t help being affected—deeply affected—by the environment around them. Former New York Times public editor Daniel Okrent got at this when he analyzed the decidedly liberal bent of his newspaper’s staff in a 2004 column that rewards rereading today. The “heart, mind, and habits” of the Times, he wrote, cannot be divorced from the ethos of the cosmopolitan city where it is produced. On such subjects as abortion, gay rights, gun control and environmental regulation, the Times’ news reporting is a pretty good reflection of its region’s dominant predisposition. And yes, a Times-ian ethos flourishes in all of internet publishing’s major cities—Los Angeles, New York, Boston, Seattle, San Francisco and Washington. The Times thinks of itself as a centrist national newspaper, but it’s more accurate to say its politics are perfectly centered on the slices of America that look and think the most like Manhattan.
The charge was always that the media is biased because it lives and breathes deep inside a bubble. The establishment media is as biased in favor of progressivism as Univision is biased in favor of Spanish, as the NRA is biased in favor of gun rights and the NAACP is biased in favor of African-Americans.
Can media myopia be cured? Unlike other industries, the national media has a directive beyond just staying in business: Many newsrooms really do feel a commitment to reflecting America fairly. Sometimes, correcting for liberal bias can be smart business as well. For instance, by rightly guessing that there was a big national broadcast audience that didn’t see their worldviews represented in the mainstream networks, the Fox News Channel came to dominate cable TV ratings. Adopting Fox’s anti-mainstream media message to his political needs, Trump ended up running on a Foxesque platform, making a vote for him into a vote against the elite media—his trash talk was always directed at the national press, not the local. Similarly, Breitbart has seen huge success sticking it to liberals, implicitly taking the side of the “real America” against the coastal bubbles. Breitbart now attracts more than 15 million visitors a month, according to comScore, which isn’t far behind more established outlets like the Hill’s 24 million and Politico’s 25 million.
"Didn’t see their worldviews represented" as in the news would create strawman arguments based on left-wing talking points. If you watch Fox News' news programming, they'll show a Republican and a Democrat making their point on an issue and essentially let both sides present their case in their own words. When NBC and other mainstream outlets do the same thing, they push more narrative into the news. They will show a Republican and a Democrat, but instead of going back to a Republican rebuttal, the reporter will describe their position in Democrat terms, and then hand it over for the Democrat to put in the kill shot. It's subtle and its good propaganda, but it's why Fox News news programming has been found to be more fair and balanced. Fox News programming, such as the first 30 minutes of the 6PM Fox Report, is probably the most objective reporting among major media outlets. It is viewed as biased because Fox allows both sides to speak. One of the big complains these days from the far-left is that some ideas should be "deplatformed," some ideas are so "dangerous" that they should not be heard. Sometimes even violent riots are necessary to stop people from speaking. To be neutral and objective is to have a right-wing bias in the mind of the modern left.

And speaking of Fox, it appears that the network might become a mainstream media outlet as Rupert Murdoch's left-leaning son takes over the business. In what world does a successful media outlet that built itself as an alternative to biased media decide to abandon its raison d'etre and become the same thing as the competition? Not a profits driven one. It can only be explained by looking at the business through a political lens.

Hollywood Reporter: Michael Wolff: It's James Murdoch's Fox News Now
But, likewise, it would be hard to imagine how James could have been regarded with more contempt by many of the people at Fox News. James was rather exhibit No. 1 of the liberal elite entitlement that Fox had so profitably programmed against. “Fox [News] is an important brand, but it needs to develop, and, to some extent, be reformed,” James said when I interviewed him 10 years ago in his office as the chief executive of the Murdoch-controlled Sky TV in Britain, whose significantly less-partisan news operation he extolled as a ratings and journalistic model.

He seized his first opportunity for reform in July when, over his father Rupert's protests and his brother and co-executive Lachlan’s ambivalence, he pushed for the ouster of Ailes, the network’s founder and almost all-powerful executive. When the O’Reilly story hit the Times, he overrode his father and brother again — and, by the same method he had used with Ailes, hiring a Democratic-associated law firm, Paul Weiss, to perform a rubber-stamp investigation. (In neither the Ailes nor O’Reilly investigations were the targets of the investigation interviewed.)

It was, he proudly told friends, a right decision rather than a business decision. The billionaire scion was aligning himself, profits be damned, with a new generation of corporate responsibility. That put him quite directly at odds with his father. It would be quite inconceivable to imagine Rupert sacrificing sure profits for greater good or a better image; indeed, his company had always been a pirate company.
Corporate responsibility is code for progressivism.

The conclusion of the Politico piece:
Journalism tends toward the autobiographical unless reporters and editors make a determined effort to separate themselves from the frame of their own experiences. The best medicine for journalistic myopia isn’t reeducation camps or a splurge of diversity hiring, though tiny doses of those two remedies wouldn’t hurt. Journalists respond to their failings best when their vanity is punctured with proof that they blew a story that was right in front of them. If the burning humiliation of missing the biggest political story in a generation won’t change newsrooms, nothing will. More than anything, journalists hate getting beat.
The media will be completely destroyed by the Internet because there's no way to win with this model. I do not believe a market for objective journalism exists anymore, and really it never did. There was a brief moment when media consolidated into a handful of major voices during the peak of the Industrial Age, when NBC, ABC and CBS dominated television news. Before and after, there was a fractured media environment. Many newspapers retain the name "Democrat" or "Republican" in their name because in another time, they were literally mouthpieces for the local party. This is the way of the future: serving a niche market of like-minded consumers. Objective media outlets might survive as suppliers, such as AP or AFP. The news outlet will then spin the story for its audience, frame the story in the audience's desired narrative.

Trying to please a general audience will end up turning off more viewers, as even core supporters will opt for more explicitly biased media. Trying to please everyone is a no-win situation when there are lots of biased alternatives and negative social mood accelerates the fracturing of the market. The mass media market is dying and there's no saving it.


First Time in Nearly 20 Years: China Runs First Quarter National Deficit

The first quarter of this year, China has a rare 155 billion yuan deficit. "In general, the fiscal deficit in the second half, but the first quarter of this year there is a fiscal deficit, which is not nearly a decade or two, which shows that fiscal policy efforts than before." Shanghai University of Finance and Economics Institute Assistant researcher Wu Huabin told the first financial reporter.

Another number of experts interviewed by the first financial interview that the first quarter of this year, mainly due to financial deficits in the fiscal deficit significantly accelerated, and this year to be scheduled to set a record high budget deficit.

However, positive fiscal policy is not just reflected in the fiscal expenditure overweight. Since April this year, more than 5800 billion yuan tax reduction policies are being implemented, to reduce the burden on enterprises to release economic vitality is also a major point of active fiscal policy. Positive fiscal policy also through the PPP model (government and social capital cooperation), industrial funds, leveraging the trillion social capital, stimulate market vitality, thus stabilizing economic growth.
iFeng: 一季度罕见财政赤字1551亿元 近20年罕见

Opening China's Auto Market

The Salt Lake Tribune: China carmakers may be ‘destroyed’ if foreign caps lifted
Chinese state-owned auto giants such as SAIC Motor Corp. and Dongfeng Motor Group Co. may see billions of dollars in profits evaporate if the government lifts protectionist measures and lets foreign companies operate without a local partner.

China requires overseas carmakers such as General Motors, Toyota and Volkswagen to form joint ventures with locals in order to sell their brands in the world's biggest market.

The policy enacted two decades ago capped foreign investment at 50 percent, helping local brands develop manufacturing expertise while still profiting from sales of foreign marques.

Those alliances seem to be working for domestic automakers, which earned 67 billion yuan ($9.7 billion) with their partners in 2014, according to the latest China Association of Automobile Manufacturers statistics. Yet the government may relax the restriction as it tries to make state-run businesses more efficient and to respond to changes in trade policy being pushed by U.S. President Donald Trump.

China Threatens Trade Retaliation

China Daily: Move to protect US steelmakers is against norms of world trade
It is clear that national security is only an excuse to justify the real aim of blocking foreign products to benefit the domestic steel industry. The probe, which will be led by Ross, could result in recommendations on curbing steel imports that will affect the interests of a number of the US' major trade partners, including China.

Yet reducing imports of foreign steel products will not alter the weak competitiveness of US steelmakers. Instead, if the US does take protectionist measures, then other countries are likely to take justifiable retaliatory actions against US companies that have an advantage over those countries in fields such as finance and high-tech, leading to a tit-for-tat trade war that benefits no one.
China is not tailoring its response to the American people, but to the American elites. This will usually work, but now populism is rising. During a period of negative social mood, a large segment of the population on both sides of the political aisle would consider it a bonus if Wall Street and some high tech companies such as Apple or Google are collateral damage in a trade war.

Steel Crackdown Continues

Reuters: China clamps down on excess steel as Japan decries Trump 'protectionism'
China's Ministry of Industry and Information Technology released a list on Monday of 29 firms that will be removed from its official register of steel enterprises. Most have already stopped producing steel, but some had illegally expanded production or violated state closure orders.

"It's all enveloped in this strategy to improve the financial condition of the industry which has been weighed down by excess capacity for some time, partly as a result of inefficient operations," said Daniel Hynes, commodity strategist at ANZ.

China is aiming to shed between 100 million to 150 million tonnes of excess capacity over the 2016-2020 period. It also plans to shut around 100 million tonnes of low-grade steel production by the end of June.

On Monday, another 40 steel firms have been asked to make changes in areas such as environmental protection and safety.

ChiNext Approaches Post-Peak Low

Bloomberg: China Stocks Sink Most in Four Months Amid Leverage Crackdown
China’s authorities are taking advantage of a strengthening economy to reduce financial-system risk by tightening the screws on leverage. The banking regulator said late Friday it will strengthen a crackdown on irregularities in the financial sector, echoing comments by the securities watchdog just days earlier, while the top insurance official is being investigated on suspicion of “severe” disciplinary violations. The Shanghai Composite has slumped almost 5 percent since closing at a 15-month high on April 11, the biggest loss among global gauges.


Will Anti-Money Laundering Rules Finally Break Housing Market?

New housing rules require "know your customer" regulations be fully implemented and all money flowing through official bank channels. This piece argues buying a house will expose home buyers to a detailed investigation of their finances, risking exposure of tax evasion or money laundering, ending the illicit demand that helped fuel home flipping.
iFeng: 楼市这项政策将带来巨变 很多人却没有看懂!
In the future, the property market regulation can also require each homebuyer to provide the first payment source, when the time can check your money from wages or bonuses, or parents to provide assistance, or from the down payment or private lending. You suddenly deposited into their account of large amounts of cash, when the time must account for the source, or even check you have no tax.

When the bank is serious, through the way through the supervision of "know the customer", you are basically placed under the microscope. By then, buying a house is a very risky thing. Well, the Inland Revenue Department will know that you are tax evasion, the central bank know you money laundering, the Commission for Discipline Inspection know you bribe, the bank know you use the first mortgage.

Buy a house before you need to first reflect on three days to see if their money is clean or not, is there a loophole. At that time, if you hate who, to persuade him to buy a house, to the eyes!

To that time, if your funds have the slightest flaws, do you dare to buy it? As for the real estate, it is even more clearly seen.

When the government really want to control the price the real estate speculators have no way to escape!


Excess Inventory Resolved by 2018

iFeng: 高善文:大量中小城市楼市去库存将2018年基本完成
China's small and medium-sized cities real estate inventory reduction will be completed in 2018, this transition marks the basic normalization of economic operation, and will have a significant impact on the large class of asset markets.

...In 2016 due to the impact of stimulus policies and demand overdraft, real estate inventory consumption is undoubtedly very fast, and unsustainable. But if the inventory reduction maintains the pace of 2015, then by the first half of 2018, the third- and fourth-tier level of "unsatisfactory" inventory will drop to near zero.

...A topic worthy of discussion is that many people believe that since 2016 the focus of the city's real estate market is re-bubble. If the price from the point of view, the situation is undoubtedly the case. However, from the start of the new changes to see the problem, these cities so far there is no rapid accumulation of inventory, which is very worthy of vigilance.

Summary In the late 1980s, after the United States in 2005, and China since 2010, a key feature of the real estate bubble was the rapid expansion of real estate investment and the subsequent accumulation of large inventories. In fact, it is precisely because of the rapid accumulation of inventory and difficult to deal with, in the housing bubble burst, only the formation of a serious bank bad debts, excess capacity and price adjustment.

From this point of view, since the beginning of 2016 in some second-tier cities, housing prices rose rapidly at the same time, the rapid expansion of supply and inventory accumulation is not obvious so far, rising house prices mainly reflects a serious imbalance between supply and demand.

With the start of demand regulation, this imbalance is expected to ease in the short term, but the long-term correction of this imbalance will undoubtedly require a more robust response from the supply level, or a fundamental reversal of the trend of population movements.

S&P 500 Best Case 4pc Ann Return Through 2021

John Hussman puts out this chart of stock valuation (as a percentage of gross value added) and the subsequent 12-year return for stocks. Currently, it forecasts a 12-year return of near 0 percent. If I extrapolate off the 2009 low, I get the S&P 500 at 2750 in 2021, an annualized gain of 4 percent for the next four years. That is the best case scenario. On his chart, the red line would defy history and float sideways and higher until it meets the 2009 peak figure, avoiding a correction or bear market in the interim.

Hussman: The Value of Dry Powder

Yi Gang Says RMB Internationalization Making Steady Progress

As the media more, the guests can not answer all the questions one by one. But referred to as the country's long-term strategy of the RMB internationalization process, the original plan to leave the venue of the easy to turn on the Phoenix Finance reporter said, "steady progress", and increased tone twice reiterated the key words. Around the participants heard also kept echoing, "steady progress" these four words suddenly let the atmosphere relaxed and active.

The internationalization of the RMB "steady progress"
It is understood that the promotion of the internationalization of the renminbi as a national strategy, and is a long-term behavior, so "push" is imperative; how to understand "steady" Advancing the process of facing some short-term need to balance the interests, such as maintaining the stability of exports. Therefore, the key of the four words, the focus is to promote, how to promote it? Not radical but steady. But also to show the attitude of the Chinese exchange rate policy is responsible for the country is also responsible for the world, but also to seek and the dollar a coordination and balance.

The biggest resistance in the internationalization of RMB
In addition, the process of internationalization of the RMB is indeed facing some challenges and risks: the dollar is currently strong, because the US economy into a rising cycle, the strong dollar position in the next period of time will be maintained. And promote the process of internationalization of the RMB, the biggest resistance is the strength of the dollar and the dollar hegemony. As the dollar as the world's most powerful currency, then the yuan will certainly promote the hegemony of the dollar challenge. From a different perspective, the Fed will hinder the internationalization of the RMB process.


Frexit or Status Quo? France Heads to the Polls

Below is the CAC 40, the iShares MSCI France (EWQ), and EWQ divided by SPDR Gold Shares (GLD). Things were worse for France at the last election and voters changed course, choosing Hollande over Sarkozy. If the euro is a better measure of the mood at the moment, then perhaps anything really is possible on Sunday. As for the odds, Le Pen looks expensive at 32 cents (PredictIt). Brexit broke the mold of voters getting cold feet at the last moment. No Western European continental country has broken with the established political order yet.

I watched one of the debates, but otherwise haven't paid close attention to the race. Macron strikes me as the French version of Matteo Renzi, the only attraction he has is his youth. A status-quo agenda in a new suit. Markets are betting he wins. If round two is Le Pen/Melenchon or Fillon/Melenchon, the euro could be in trouble. The risk to financial markets is much larger than from Brexit because the UK was not in the Eurozone.

Lou Jiwei: Household Debt Near 50pc

iFeng: 楼继伟:中国家庭杠杆率已经升至接近50%
Social Security Fund Council Chairman Lou Jiwei April 21 at the annual meeting of the Finance said that China's family leverage has risen to close to 50%, the deleveraging process should not be too fast, some local government debt has been default The Chinese economy will continue to grow, and the Chinese economy's Lewis inflection point has not yet arrived. With the change of the population, the Chinese economy will follow the L-shaped growth trajectory in the long run, and the Chinese economy will follow the L-shaped growth trajectory. The

Chinese government debt ratio to consider non-standard PPP projects and government guidance funds.

When the Fed starts to reduce its balance sheet, the global financial system will face a real stress test.

Chinese Farmers Cut Chicken Growth Time in Half

Baidu: 鸡肉价格大跌背后:白羽鸡生长周期缩短近半 (by way of The Sinocism China Newsletter)
This year, broiler prices continued to fall, the leading profit margins listed companies, many chickens produceres have fallen into a loss.

In fact, over the past decade or so, the relative prices of broilers have been in the doldrums compared to other meat products. And this is behind the role of antibiotics and other reasons, the growth cycle of broilers has been reduced by nearly half; broiler production has long been highly industrialized.
Also, attention KFC and McDonald's, you are headed for another public relations disaster:
Against the use of antibiotics in the world continued to heat up. According to Reuters, KFC plans to limit the supply of antibiotic broilers and plans to completely ban human antibiotics by the end of 2018. As early as August 2016, McDonald's announced that from 2017 onwards, the US market McDonald's will only purchase non-human antibiotics using chicken products.

But Kentucky Fried Chicken and McDonald's policy only in the United States, does not include China. McDonald's previously responded that the use of antibiotics in the course of animal treatment is a must. McDonald's requires Chinese suppliers to use antibiotics in strict compliance with national laws and regulations.
Far be it from me to tell them how to run their business (and I don't know the cost differential, maybe it is high), but Chinese are more health conscious and still expect better from foreign brands. Fast food can't always make a claim to better health, but selling China's "first antibiotic free chickens" at restaurants across China would be great marketing.


Small and Medium Bank Bankruptcies Possible

I had to pull up the cached version of this article because it no longer comes up on iFeng's site. The headline reads: Dongbei Securities: Banking Industry in Crisis, These Banks Could Go Bankrupt. The full version is below in case the link stops working.
iFeng: 东北宏观:银行业危险了 这些银行将会破产
There is also a the same story at JRJ.com, currently working: 东北宏观:银行业危险了 这些银行将会破产

The report is an interview with Liu Chengran:
Shanghai Legal Information Financial Services Limited partner, vice president of Financial Supervision Research Institute. He has worked in the People's Bank of China, the banking supervision system, has up to 15 years of experience in supervision, focusing on banking regulatory statistics and legal compliance research, participated in various types of bank good standards and regulatory statistical inspection more than 30 times.
Q1: What additional regulatory documents should we pay attention to during the year?

Liu: may introduce a series of regulatory documents, we believe that the core of the management of credit management methods, off-balance sheet business management regulations, financial management approach (guidance has been released first, this approach is already waiting for the introduction of new financial management in the same The new regulations on the floor to come out), the rest is the central bank to lead the management of the guidance, regulate the financial industry Document No. 127 will be revised version of the text. Promote the class of documents, one is the Trust Company Ordinance, one is the commercial bank bankruptcy regulations should pay attention.
Q2: Will banks go bankrupt?

Liu: In the past we think that the probability of bankruptcy is small, but the deposit insurance after three years of efforts, allowing small banks to bankruptcy (the largest risk is agricultural banks), the possible outbreak of regional financial risks, do not rule out this phenomenon. The next three to five years the probability of bankruptcy of commercial banks is very large, in fact, there are already micro-bankruptcy, such as the use of absorption merger.
Discussing why WMP have such high yields, but shouldn't, Liu says it is a risk and maturity mismatch:
If there is no active management of the bank capacity, it will not have a high yield, so theoretically financial management should not have a high yield. But why is there now? Because the docking non-standard, which became a financial deposit, become just against, because the bank to eat poor, do not want to give excess returns, it is not the same as the public offering of funds as the nature of the commission. But the docking of non-standard will be mismatched, including the mismatch of the period, the risk of mismatch, and the bank on the "off-balance sheet" did not mention the risk of provision, that is, the ability to take risks.
Q4: 30 trillion in WMP will go where? Just do not grow or shrink? Will it be old and new? What kind of model will the future WMP use?

Liu: WMPs will shrink. Old and new cut is there, but will give the rectification period, not always indefinitely old and new cut off, but it will not suddenly back, otherwise the capital gap is difficult to make up, will slowly back to the table, such as matured do not renew, and then slowly back, so be sure to shrink.

The future of bank finance is likely to fund, such as the formation of financial subsidiaries in the form of strict information disclosure, to net worth, the buyer at their own risk.
Q6: Does the central bank and the CBRC agree? Before the 19th NPC Why do not you want to do so before dragging it? Is there a target for deleveraging?

Liu: now do not check will lead to 19th after the more unstable, because it can not drag down. There is no quantitative indicators, now is the risk of exposure, lack of capital to supplement the capital. The central bank's perspective is to ensure that every quarter end there is not a big liquidity risk, the central bank will not consider bond risk too much. Now is to do stress tests, the banking system can return to the loan.
And the final question:
Q7: Which banks are relatively more dangerous and more safe?

Liu: state-owned big line is relatively more secure, because the operation has been relatively stable, the business is relatively more standardized, and large but not down. In addition, the big banks have begun to clean up and rectify, especially the underlying assets of the screening. Small and medium-sized banks, especially the risk of agricultural firms, do not rule out the phenomenon of individual bankruptcy.

Finally: New Homes Sales Fall 20pc or More in 50 Cities

In the first half of April, new home sales are tumbling in as many as 50 cities according to recent data:
In April the country part of the city property market regulation effect is obvious. Yesterday, the latest report shows that April 1 - 15, 50 typical cities of new commercial housing turnover of 12.86 million square meters, down 4% mtm, down 22% yoy. An industry insider expects the second half of April will continue to decline, the monthly sales volume of 50 cities or will fall nearly 10% mtm.
Declines are happening in all tiers:
April 1 - 15, first-,second-, third-tier 50 typical cities of new commercial housing transaction area growth rate of -12%, -2% and -4% mtm respectively. Three types of cities have appeared in varying degrees of the chain fell, one of the first tier cities fell more, and the Guangzhou market began to have a great relationship between the cooling. While the second-tier cities and third-tier cities there is a clear phenomenon of market differentiation, some market transactions in the rise, some began to decline.
Price follows volume. Also, as I have mentioned, there was panic buying in late March, which will make the mtm drop appear larger in the second half of April
Yan Yue Jin that the second half of March (March 16 - March 31) sales definitely saw some panic, the volume was greater than the first half.
iFeng: 4月上半场50典型城市新房成交同比下滑超2成

Liquidity Squeeze for Stocks?

Bloomberg: China Sage Tips 'Destruction' of Leverage Trades as Stocks Slide
Tightening in the money markets as China seeks to reduce leverage saw the bond market sell off at the end of last year. Now it’s equities’ turn. After barely moving for most of March as traders chased gains in Hong Kong, mainland-traded shares have slumped this week as a regulatory crackdown spooks investors. The ChiNext small-cap index, seen as a barometer for Chinese stock-market sentiment, has fallen to near a 19-month low.

“For now, it pays to stay cautious -- I don’t think the bearish trend will stop here,” Hong said. “We’re going to see the destruction of trades that rely on very high leverage.”

Beijing Real Estate Tightens Again

In order to close loopholes, the Beijing government is further restricting existing home sales transactions.
Second, the real estate development enterprises in the sale of housing, real estate brokerage institutions in the provision of second - hand housing transactions brokerage services, the parties should be asked to buy housing transactions in the form of bank transfer to pay, and must use the seller and the buyer 's bank account, Sale funds, stock exchange transaction funds to monitor the special account for funds to pay ; if a refund occurs, should be the original payment method, the funds returned to the seller and the buyer's bank account.

...Third, the real estate development enterprises, real estate brokerage agencies in the sale of housing, providing brokerage services, have to bear the obligation to identify suspicious transactions and responsibilities. The suspicious transaction shall be reported to the administrative department of anti - money laundering or the public security organ.
iFeng: 北京住建委:二手房购房款应以银行转账方式支付

Real estate agent fees on existing home sales are also falling in Beijing as the market cools and competition for business picks up:
Since the "3.17" since the New Deal, Beijing second - hand housing market transactions quickly frozen, intermediary fees began to loose. Recently, the public Ms. Lee told the Beijing Chinese Commercial News reporter, she was prepared to love my house to buy the house, the agency fee only 1%, the reason is that I love my family and chain customers compete for customers, given a surprisingly low commission. The industry believes that 2.7% of the current market default interface fee standards, but with rising house prices, this standard is not suitable for the current status of the industry. Therefore, the intermediary fee should be adjusted on the voice has been continuous, which intermediary fees a price of the highest voice, but in accordance with the total price of housing sub-file charges are relatively reasonable.
iFeng: 北京二手房中介费松动 由默认2.7%跳水至1%

How Globalization Ends in the West

The developed world cannot absorb the number of people and the amount of capital that wants to enter. If they do not have restrictions on the movement of people and capital, their own citizens are priced out as their nation turns into a resort for wealthy foreigners. Population controls are already starting, but immigration into the West may become near impossible within a generation and many foreigners currently living in the West may even be deported if they fail to assimilate.

More surprising is how the West is adopting policies seen in many smaller countries and investment/tourism hot spots, such as rules against foreigners owning property. The West has about 12 percent of global population today and that share is falling as Africa's population is expected to quadruple this century, from 1 to 4 billion. Meanwhile, 2.5 billion Indians and Chinese will eventually be able to compete with Europeans and Americans for their homes and schools.

Buying restrictions in cities such as Vancouver and Toronto is caused by 1X buying power. As China becomes a middle income country and India's development accelerates, this will grow to 10X or more. Maybe in the short-term pressure will alleviate because China's housing bubble will burst, either via home prices or a currency collapse. A similar issue with Japan existed in the 1980s, but the Japanese housing bubble did burst and Japan's population peaked at a fraction of the West's. Japan's impact also came when it reached economic parity with the West. Even if China suffers a massive financial crisis, China and India will eventually exert economic power that is at least 10 and possibly 20 times more powerful than Japan in the 1980s.

ZeroHedge: Ontario Finally Cracks Down On Toronto Housing Bubble: Launches 15% Foreign Buyer Tax
Almost a year after Vancouver, ground zero of Canada's housing bubble inflated with Chinese "hot money", implemented a foreign buyer tax, and just weeks after Toronto's housing bubble officially went nuts as prices soared 33% Y/Y, prompting economists such as David Rosenberg to demand a government intervention, Ontario's Liberal government has finally cracked down on foreign buyers and according to CBC will join Vancouver in slapping a 15% tax on home purchases by non-resident foreigners, while expanding the province's existing rent control system to cover all tenants.
Up next will be cultural controls. France is probably a good example of the types of policy environment that will develop across the West in the coming decades.


More on the 3 Billion Yuan Fake WMP

Following up on yesterday's 3 Billion Yuan Fake WMP at Beijing Branch of Minsheng Bank

Global Times: China Minsheng Bank says it will assist in fraud probe
Material provided by the investors showed the products were "issued by China Minsheng Bank," and carried the branch bank's official deposit stamp. However, the bank previously told one investor that it was a personal act of Zhang.

The bank should shoulder legal accountability for these investors despite doubts about the authenticity of the stamp, as investors do not have the obligation to examine the stamp, Wang Fu, a lawyer with Beijing Zhenbang Law Firm, told the Global Times, adding that the case reflects negligence in management.

Wang said it is common for employees of Chinese banks to illegally cooperate with other private financial institutions, in order to sell WMPs to the bank's customers.
Shanghai Daily: Minsheng exec in fake bank bills probe
Minsheng Banking Corp finds itself involved in a 3 billion yuan (US$436 million) fraud case as a branch chief of the lender in Beijing allegedly issued false bank acceptance bills and later secure funds from individual investors to cover up the misdeed.

...Zhang allegedly helped a corporate client disguise commercial acceptance bills as bank acceptance bills by using a false seal of the bank. The bills were issued by the client to a number of companies, which later discovered the bills were fake, Caixin said.

In order to cover up the fact that the fake bills were not able to be cashed by the bank, Zhang later sold 3 billion yuan of unauthorized wealth-management products to the bank’s private customers to get funds for the client to repay the bills.

China Eases Capital Controls

The easing of capital controls is said to follow a boost in confidence, but more likely the currency controls were eased because they were hurting confidence. Whether they work or not, capital controls are a sign of weakness, not strength.

Reuters: China relaxes some cross-border capital curbs as yuan steadies: sources
With less incentive for capital flight and the economy on steadier footing, China's foreign exchange reserves have clawed back above the closely watched $3 trillion level.

Premier Li Keqiang said on Tuesday that market confidence in the yuan has significantly improved, Xinhua news agency reported.

As of last week, the People's Bank of China (PBOC) is no longer demanding that banks match outflows with equal inflows, the sources said.

..."This particular move won't help on real M&A deals...It's like the brakes aren't totally locked up any more, but the foot is still on the brake pedal pretty hard," said Burch.
iFeng: 媒体:央行适当放松跨境资金管理 收付限制不严格执行
A foreign-line trader believes that regulation may also be due to the implementation of the challenges or business complaints, because the foreign exchange situation is still quite tight, capital outflow control is still very strict.
SCMP: China eases yuan outflow controls in sign of recovered confidence
The People’s Bank of China in early January required commercial banks to stop processing cross-border yuan payments unless the banks could show at the end of every month that the amount of outbound yuan matched the sum that came in, but that restriction was scrapped from last Wednesday, said mainland banking sources who were briefed on the policy change.

After the policy relaxation, banks can now freely process outbound yuan payment and remittance requests from their corporate and individual clients, a move that is expected to help boost liquidity in offshore yuan markets, especially Hong Kong.


Fixed Asset Investment Rises in March

The year-on-year March increase in fixed asset investment was 9.5 percent. Private FAI climbed 8.6 percent.

NBS: 2017年1-3月份全国固定资产投资(不含农户)增长9.2%
NBS: 2017年1-3月份民间固定资产投资增长7.7%

Real Estate Investment Rises 9.4pc in March

This chart from the NBS report says everything. Real estate sector optimism is at its highest in a year.

NBS: 2017年1-3月份全国房地产开发投资和销售情况

Chinese Home Price Rise Accelerates in March

NBS reports home prices increased 0.7 percent in the month of March, an acceleration from prior months. The first-tier and 12 hot cities I have followed in the past have slowed and only accounted for 14 percent of the increase. Last year the two sometimes accounted for well over 50 percent of the national increase.

Existing prices rose even faster, at a 0.8 percent pace. Some wide divergences were seen as restrictions hit new housing much harder than existing housing. In Beijing, new home prices rose 0.4 percent, existing homes up 2.2 percent. Xiamen new homes 1.8 percent, existing up 4.4 percent.

NBS: 2017年3月份70个大中城市住宅销售价格变动情况

3 Billion Yuan Fake WMP at Beijing Branch of Minsheng Bank

As long as credit is expanding, fraudulent lending activities can be papered over. Once the credit cycle peaks and reverses, high-risk, highly-leveraged, and fraudulent activities are revealed. The latest is in Beijing, where a 3 billion yuan fake WMP was supposedly sold at the Hangtian Qiao branch of Minsheng bank. Investors came to collect their funds after the WMP matured, but the bank refused to pay. A few hours later, the bank was filled with investors looking for their money and the branch shut for the day. Police are investigating and investors have formed an investors' rights group. It is believed the bank (or rather employees at the bank misdirecting bank capital) may have tapped private banking customers to cover a funding shortage created by their activities. The bank official(s) may have forged bank seals to make unapproved loans.

The investors are all VIP customers and most are members of the Jingzuan Golf Club. This club may be created by the bank or has a very close relationship because a year ago they hosted a golf tournament with this group. See this story from Leshi sports April 2016: 2016民生银行航天桥支行鲸钻高尔夫俱乐部开杆赛

Regarding the fake WMP:
In response to the above risk events, Minsheng Bank has set up a working group to assist the public security departments to investigate and strive to find out the facts as soon as possible, to maximize the protection of funds, to properly resolve the demands of all parties and bear the relevant responsibilities. In addition, Minsheng Bank said the daily operation of the Hangtian Qiao branch is normal.
Caixin speculates management of the branch may have used the 3 billion yuan to cover an off-balance sheet shortfall as part of aggressive lending schemes. This would make it similar to fraud cases that exploded in late 2016.

Bloomberg: China’s Newest Problem With Fakes Threatens Bond Market Pain
Forged seals, fake letters, and counterfeit documents. They’re all part of China’s recent spate of fraud coming to light in the country’s $3 trillion corporate debt market amid a rout that has analysts predicting a record number of defaults in 2017.

As it becomes harder for Chinese companies to issue new notes to repay maturing debt, expect more scandals to come -- and to worsen the bond market’s already-precipitous downturn.

“We expect to see more of this type of behavior given the increasingly problematic environment for refinancing in the domestic bond market," said Charles Macgregor, head of emerging markets at Lucror Analytics in Singapore. "Unfortunately, these frauds may be difficult to detect, as documentation and seals may appear authentic given collusion between various parties.”

...Within two weeks in December, two fraud cases emerged that shook the bond market by threatening to undermine confidence in the ability to collect on the enormous amount of credit that’s built up in the nation. China Guangfa Bank Co. said documents and seals in its name had been forged for use on a letter to guarantee bond payments. Separately, Sealand Securities Co. said former employees conducted as much as 16.5 billion yuan ($2.4 billion) of bond trading with a forged official seal, or chop.

The alleged forged stamps at Sealand, which it has said are being investigated by the police, were on so-called entrusted holdings, a widely used tool to boost leverage in China’s debt market. Under such structures, investors legally skirt rules by entrusting their note holdings to a third party and agreeing to buy them back later. That frees up funds on their books that they can use to purchase more bonds.
Caixin describes this as an internal bank control "black hole." Sealand Securities fraud case invovled 20 financial institutions at the end of 2016.
The case involves a number of rediscount banks, one at the end of hundreds of private banking customers, although the case, but exposed a major bank internal control black hole.

...At the end of 2016, Guocheng Securities and more than 20 financial institutions, the Agricultural Bank Henan Branch and Ping An Trust, Jiangyin Bank and Hengfeng Bank, Guangdong Development Bank and Fortune, Zhejiang property insurance, etc., are "fake seals" Disputes, triggering market shocks.
Police in the Minsheng case have one branch executive in custody:
Financial reporter from a number of close to the Minsheng Bank and regulators confirmed that the suspect, Minsheng Bank Hangtian Qiao branch Zhang Ying has been the Beijing Haidian District Public Security Economic Investigation Department control, his home and office were searched by police; Hangtian Qiao branch vice president Xiao Ye "lost", has not been brought to justice. It is not clear whether Minsheng Bank has dealt with higher-level people internally.
How many more fraud cases exist in China's 30 trillion yuan WMP market? With the CBRC targeting fraudulent activities and the PBoC working to restrain credit growth, we may soon find out.

iFeng: 民生银行爆30亿理财大案 私银用户上门讨说法(多图)
Caixin: 独家∣民生银行30亿理财“飞单”案发 竟涉票据“萝卜章”