Speculators Take Over Chinese Housing Market

China's housing market may have already entered a blow-off phase with the government and speculators locked in a self-reinforcing cycle where new housing regulation triggers increased speculative behavior and the government in turn ratchets up controls to crush speculative demand, only to spur it even more.

Data on the Chinese housing market went from bad to worse with CHFS showing investment responsible for 50 percent of new demand. Now there's anecdotal evidence to match it as data shows companies are responsible for a rising share of real estate investment.

The story starts with seemingly bad enough news: listed companies in China (A-shares) are heavily involved in real estate speculation. Data from June shows 46 percent of listed companies hold nearly 1 trillion yuan in real estate assets, up nearly 20 percent in the past year. Companies buy properties and sit on them, treating them like a bank account that can be tapped during hard times to boost their profitability. However, their activity only represents the tip of the speculative iceberg.

iFeng: 超千家上市公司“炒房”近万亿 成刺激房价重要推手
The trend of various companies pushing to buy a house is obvious

The Audit Commission recently released a 2017 work report showing that a number of financial institutions and companies are involved in the idleness of real estate assets. According to wind data, as of June 26, among the 3,852 A-share listed companies, a total of 1,656 listed companies held investment properties, accounting for 46.23%, holding a total market value of 990.46 billion yuan, a year-on-year increase of nearly 20%.

The idleness of real estate waiting for appreciation has become a practice for some listed companies to increase profits in recent years. From 2016 to 2017, a number of companies chose to sell their properties to increase their performance. Lu Peng, secretary-general of Jiangsu Riying Electronics Co., Ltd., said that the phenomenon of listed companies buying and holding investment real estate is indeed more common.
Listed companies often open new subsidiaries in unrelated industries, but opening a real estate division would attract government scrutiny these days. Private companies have a far easier time entering real estate. Moreover, as the economy slows and profitability shrinks, businesses will turn to real estate speculation for growth and profit.
Real estate speculation in listed companies is only the tip of the iceberg of the company's real estate speculation. The scale of real estate speculation in non-listed companies is much larger than that of listed companies . “Real estate appreciation is fast, and corporate mergers and acquisitions or other financial investment channels are relatively narrow. Investment in real estate is a good channel for asset appreciation, especially when the company’s main business is in a bottleneck or the profit decline is obvious.” Lu Peng said.
Companies are increasingly playing a role in real estate, hitting 55 percent of participants in a Shanghai housing lottery.
Recently, as some cities' real estate market has become increasingly hot, the trend of various companies to buy houses has become more obvious. Taking Shanghai as an example, the well-respected old mansion Cuihu Tiandi opened 118 suites on April 10th. According to the information released by Shanghai Notary Network, a total of 385 customers participated in the above-mentioned real estate lottery, and the list of company customers reached 214 groups, accounting for 55.6%, more than half of the total number of subscriptions.

According to Shenzhen Zhongyuan Real Estate Data, the Shenzhen real estate market has traded about 122 transactions in 2015, amounting to 30.6 billion yuan, and rapidly increased to 183 transactions in 2017, amounting to about 51.4 billion yuan, while Vanke Shennan Road and COFCO Tianyue Apartment products such as nicknames have been packaged and sold in whole or in part to the company.
Housing lotteries have ignited a new fever in the housing market, bringing back fake divorces and all the rest. See: Housing Lottery Frenzy in Shenzhen. Individuals are able to get around housing market regulations in some cities using a shell company. One man in Hangzhou was able to win 5 homes in a lottery by registering several companies and entering all of them in the lottery. See: Hangzhou Housing Lottery Results: One Man Wins 5 Homes

We can also see the impact in the housing investment data collected by CHFS and discussed in Fever: Chinese Housing Investment Soars Past 50pc of Total Demand
The company's real estate speculation has increased the imbalance between supply and demand, and has become an important driver of housing prices.

Some industry insiders believe that the company's real estate speculation has aggravated the tight supply and demand relationship in the property market. Some large companies involved in real estate speculation have become an important promoter of rising house prices.
Some believe the "upside down" housing market is being caused by companies speculating in the market.
At present, there are “scissors difference” in the price of second-hand houses in new houses in many cities. This is also a reason why companies are keen on short-term real estate profits.

The company's real estate speculation not only squeezed the space for the purchase of the newly-purchased family, but also became a big push for the soaring housing prices. "There are some enterprises, especially small and medium-sized enterprises or private enterprises. Because the boss does not have the qualification to buy a house, he uses the enterprise to buy a house or real estate. As the housing prices continue to rise, the real estate market continues to be hot, and the company's real estate speculation will cause short-term market demand. Within the big rise, it is necessary to fill in the policy loopholes in a timely manner," said Gu Yunchang, deputy director of the Housing Policy Expert Committee of the Ministry of Housing and Urban-Rural Development.
Looking at the data from CHFS and factoring in the potential size of speculation through shell companies, it appears Chinese regulators may be chasing the speculative tail in the market.
Zhang Dawei, chief analyst of Zhongyuan Real Estate, believes that the purchase of commercial housing in the name of enterprises is a common phenomenon. This is a common way to avoid purchase restrictions. In the cities where the number is restricted, the proportion of enterprises buying houses continues to increase.
When housing speculation is outlawed, only outlaws will speculate in housing. Government restrictions have squeezed all but the most nimble and creative speculators out of the housing market, including the very group of people the government is trying to protect (home buyers). That, or the non-speculative buyers have retreated for economic reasons and the government's escalating war on speculation is a futile battle in the waning days of the war. The housing market has already turned, the music has already stopped, but the government and real estate speculators haven't realized it yet.

In China's Housing Mess: Govts Stimulating Demand and Curbing Supply, Fever Rising, I looked at how the government's latest efforts, such as housing lotteries and distorted supply (through mandatory affordable housing requirements on new developments) were causing an increase in speculative behavior. Housing lotteries are literally speculative endeavors. Everyone has an incentive to enter into a housing lottery. Someone watching the market would see an increase in housing demand. Tight regulations and supply distortion funnels market demand into smaller slices of the market, causing larger price increases. Speculators also view regulations as a bullish signal. They increase investment when real estate restrictions are added because every tightening cycle has been followed by an easing cycle. The best time to buy is when restrictions are at their peak because the easing cycle is close at hand. As the government intensifies its war on speculators, it increases speculative activity.
He Qianru, director of the Midland Realty Research Center, believes that some people have broken through the restrictions on purchases through the purchase of the company, and used the policy loopholes to earn the difference in a short period of time, which has brought adverse effects to the society.

“Although listed companies have proper investment real estate, it is understandable that if a large number of non-real estate development companies hold investment real estate, they need attention.” Dai Yiyi, a professor at Xiamen University School of Management, believes that, first of all, the use of listed companies is from the public. The funds raised participate in commercial real estate or residential market competition, and have an advantage in capital and identity, which is unfair to individual buyers. Secondly, the wealth effect of real estate appreciation and rapid realisation has attracted more listed companies to enter the market. The concept of “dry industry is not as good as real estate speculation” has boosted social speculation and is not conducive to the development of the real economy; once again, real estate speculation and mortuary of listed companies are a waste of capital. The purpose of developing the capital market is to allocate financial resources efficiently. The real estate speculators and mortuaries of listed companies waste a limited amount of financial resources, just as good steel does not use the blade.
Of course, another government crackdown is coming.
Strictly control the "real estate speculation" of enterprises, the industry calls for "fine containment" of speculation

Blocking the company's real estate speculation and other property market regulation loopholes is imminent. On June 26, the Hangzhou Housing Security and Housing Authority announced that Hangzhou has suspended the sale of housing (including commercial housing and second-hand housing) to enterprises, institutions and other institutions within the scope of housing purchase restrictions. This is the third hot spot in the near future. The city has explicitly suspended the purchase of houses by enterprises and institutions. On June 24, the Xi'an Housing Security and Housing Administration issued a notice to suspend the purchase of commercial housing in the restricted purchase area. On June 25, the Changsha Municipal Government Office issued a notice on further strengthening the regulation of the real estate market. Similarly, the sale of commercial housing and second-hand housing to enterprises was suspended.

The industry believes that Xi'an, Changsha, and Hangzhou have carried out regulation and control over time, and they have banned enterprises from buying houses. In fact, they are still controlling at the demand side. The control ideas are the same as the previous restrictions, and the demand for speculation is suppressed. In the future, the regulatory authorities should introduce more stringent measures to restrict the real estate franchise of enterprises and listed companies, especially those listed companies that have a large proportion of investment real estate.

He Qianru said that if you want to block the company's real estate speculation, you can first limit the number of houses purchased in the name of the company, followed by the number of years to limit the sale of the property, and then increase the transaction tax on the purchase of the company. In addition, it is necessary to check whether there are executives. By this way, the practice of buying a house by bypassing the purchase restriction policy.

Some insiders suggested that for the behavior of real estate speculators in listed companies, one should start from the perspective of supervision and require listed companies to proactively issue a letter of commitment not to participate in the purchase and holding of investment real estate in the IPO and refinancing links, and this behavior Incorporate into the scope of daily supervision. Once the promise is violated, the supervision department will issue warnings, interviews, fines, etc.; second, in the indirect financing stage of the bank, strengthen the supervision of the flow of commercial bank loans, and purchase the investment real estate with commercial bank loans. The responsible person implements the main responsibility and will be held accountable once it is identified.

“It is precisely because of the need to join the group between the crowd and the housing, which has led to distortions in the implementation of the country’s real estate control policy.” Wang Azhong, director of the Fuzhou University Real Estate Research Center, suggested that the overheated city’s real estate market regulation In order to develop in depth, the regulation of some places needs to be more refined and adjusted, and the limited housing must be accurately connected to the just-needed people. "The current situation of tight supply and demand in the real estate industry is not simply a shortage of supply. It is recommended to establish a housing tracking system, standardize the housing purchase process, and provide convenience for the just-needed people from a series of links such as lottery, credit, and taxation."
The government has already described the housing market as chaotic and warned a crackdown was coming. Now the Politburo has turned its eye towards real estate and in many cities, Chinese Officials Fear Stimulus Will Ignite the Housing Market. They're right to be worried because speculators sre the most adept at diverting credit into unapproved real estate investments.

Politburo Targets Real Estate Market

iFeng: 政治局会议:下决心解决好房地产市场问题 坚决遏制房价上涨
The Political Bureau of the Central Committee said that it is determined to solve the problem of the real estate market, adhere to the policy of the city, promote the balance between supply and demand, reasonably guide the expectations, rectify the market order, and resolutely curb the rise in housing prices. Accelerate the establishment of a long-term mechanism to promote the stable and healthy development of the real estate market.

...The meeting emphasized that all localities and departments must earnestly strengthen the "four awarenesses" and strengthen the "four self-confidences", unswervingly implement the various strategic arrangements made by the party's 19th National Congress, and do their best to ensure that all work is done and ensure the mission of economic and social development.

...The meeting pointed out that socialism with Chinese characteristics has entered a new era, and the party must have new atmosphere and new conduct, and must rely on strict discipline to guarantee.
On real estate:
The meeting demanded that, first, maintain a stable and healthy economic development, adhere to the implementation of a proactive fiscal policy and a prudent monetary policy, and improve the forward-looking, flexible, and effective policies. Fiscal policy should play a greater role in expanding domestic demand and structural adjustment. We must supply good money to the general gate and keep the liquidity reasonable and sufficient. We must do a good job in stabilizing employment, stabilizing finance, stabilizing foreign trade, stabilizing foreign investment, stabilizing investment, and stabilizing expectations. Protect the legitimate rights and interests of foreign-funded enterprises in China. Second, the shortcomings will be used as the key task of deepening the structural reform of the supply side, increasing the strength of the infrastructure sector to complement the shortcomings, enhancing innovation, developing new kinetic energy, opening up institutional barriers to capacity reduction, and reducing corporate costs. We must implement a good rural revitalization strategy. Third, better combine the prevention and mitigation of financial risks and the service of the real economy, firmly do the work of deleveraging, grasp the strength and rhythm, and coordinate the timing of various policies. It is necessary to improve the ability and willingness of financial services to the real economy through institutional innovation. Fourth, promote reform and opening up, and continue to study and launch a number of major reform measures that will be effective. It is necessary to implement major measures to expand opening up and substantially relax market access, promote the development of the “Belt and Road” and develop the first China International Import Expo. Fifth, we are determined to solve the problem of the real estate market, adhere to the policy of the city, promote the balance between supply and demand, reasonably guide the expectations, rectify the market order, and resolutely curb the rise in housing prices. Accelerate the establishment of a long-term mechanism to promote the stable and healthy development of the real estate market. Sixth, do a good job in people's livelihood security and social stability, put stable employment in a more prominent position, ensure basic wages, education, social security and other people's livelihood expenditures, strengthen poverty-stricken areas in poverty-stricken areas, and do a good job in deepening social stability.


Now Beijing Has Upside Down Mortgages, Second Cheaper Than First

Caijing: 个别银行网点首套房上浮30%
Recently, the "International Finance News" reporter visited a number of bank outlets in Beijing found that the first and second home loan interest rates were upside down: the first home loan interest rate mainstream is the benchmark interest rate plus 10%, while some individual banks are at 30%; The second home mortgage interest rate is still 20% higher than the benchmark interest rate.


Fourth Time the Charm? Chinese Stimulus Losing Efficacy as Leverage, Home Prices Soar

iFeng: 这些年,我们放过的三次水!
The first round of water discharge began in 08-09. At that time, we happened to encounter the US subprime mortgage crisis. The subprime mortgage crisis triggered the global economic crisis. Of course, it is necessary to release water when the economy is not good. Therefore, since September 2008, interest rate cuts have been lowered. In one round, we cut interest rates five times and lowered the standard three times. The deposit interest rate was lowered by 1.64%, and the statutory deposit reserve ratio was lowered by 1.5%.

The second release of water began in 11-12 years. The US economy is better. The European economy has been affected by debt problems. We are affected again. The economy is not good. It can be understood after releasing water. In that round, we cut interest rates by 2 times and lowered the benchmark deposit rate by 0.5%, and the statutory deposit reserve ratio by 1.5%.

The third release of water began in 14-15 years. This time, the European and American economies are all good, but our own economy is not very good. We have encountered three phases of superposition, including economic growth shift, structural adjustment pain, and pre-digestive period. Stimulating policies, so many pressures have led to a decline in economic growth. The regulatory policy says that “no flooding” is to engage in “sprinkler irrigation”. The result is a five-time rate cut of five times and a 1.5% cut in the benchmark deposit rate. The statutory deposit reserve ratio was lowered by 3%.

This year is 18 years. Since the beginning of the year, the central bank has lowered the target three times. The statutory deposit reserve ratio has been lowered by 1.5%. However, the interest rate has not yet been cut, but the monetary policy has turned to actual easing.
The outlook for the fourth stimulus isn't good.
The economic rebound is getting weaker

However, although each release of water is based on steady growth or growth, the effect of the economic rebound is weaker and weaker, and even ineffective in the long run.

First, from the perspective of quarterly economic growth, during the first round of water release, China's economic growth rate rebounded from 6.4% to 12.2%, and the rebound rate nearly doubled. During the second round of water release, China's economic growth rate was the highest from 7.5%. The rebound to 8.1%, the rebound is about 10%; and during the third round of water release, China's economic growth rate rebounded from 6.7% to 6.9%, and the rebound was almost negligible.

Secondly, the economic rebound after each round of water release is not long. It is only valid for about one year. After one year, the economic growth rate begins to turn down again.

Finally, from the perspective of annual growth rate, the release of water has not changed the long-term downward trend of China's economic growth. During the first round of water release, China's economic growth rate fell from 9.7% in 2008 to 9.5% in 11 years; during the second round of water release, China's economic growth rate fell from 9.5% in 11 years to 7.3% in 14 years; During the three rounds of water release, China's economic growth rate fell from 7.3% in 14 years to 6.9% in 17 years.

Therefore, in one year, the release of water is effective in the short term, but the effect is getting weaker and weaker; when the time is more than one year, the release of water will be ineffective.
The yuan is being inflated at incredible rates.
More and more money

After three rounds of water release, the most direct impact is that China's currency is increasing.

In 2008, China's total M2 was only 47 trillion yuan. By the end of 17 years, China's total M2 had grown to 168 trillion, and the growth rate in 9 years was 257%, with an average annual growth rate of 15.2%.

But if you only look at M2, its main growth is in 2008-11, the cumulative increase of M2 in the first round of water is 80%, and in the second and third rounds of water release, the average increase of M2 is about 40%, looks like The last two releases did not have that much.

In fact, it is not the case, because a large part of the water released later is carried out through the shadow bank, so the currency is more concealed and not reflected in the M2.

The currency represented by M2 is a deposit, which is actually only a part of the liability of commercial banks. If we look at the total debt expansion of commercial banks, the debt scale at the end of 2008 was 64 trillion, and increased to 250 trillion by the end of 17 years. The cumulative increase in 9 years is close to 300%. In the first round of water release, the commercial bank's debt expanded by 80%. During the second and third rounds of water discharge, the debt expanded by an average of 50%, that is, the recent two rounds of currency expansion were not small.
Leverage is rising during each stimulus round.
The debt ratio is getting higher and higher

On the opposite side of the surge in money, the accumulation of debt in the Chinese economy is getting higher and higher.

According to our estimates, the overall debt ratio of the Chinese economy at the end of 2008 was 129%, rising to 166% by the end of 2011, rising to 204% by the end of the 2014 and rising to 241% by the end of 2017. Calculated, the increase in China's debt ratio during the past three rounds of water release was 37%, 38%, and 37%, respectively.

The first round of water discharge was mainly caused by residents and enterprises. After the second round of water release, residents, enterprises and the government were all borrowing money, while the third round of water discharge was mainly caused by residents and the government.

By the end of 2017, the debt of China's corporate sector has reached 153% of GDP, which is at the peak of history and far higher than that of other countries in the world. Under the high debt, the enterprise sector has lost the ability to borrow further, which is reflected in the continuous decline of the financing growth of the corporate sector.

At the end of 2017, the debt of the resident sector has reached 55% of GDP, which is also at the peak of history. Although there is still a gap between the level of 80-100% in developed countries, considering the low proportion of residents in our GDP allocation, it is measured by resident debt/resident income. The debt ratio of the resident sector has exceeded 90%, which is basically the same as that of the United States. In fact, there is not much room for debt. The growth rate of debt growth in the residential sector has continued to decline since this year.

Only the government sector's 34% debt ratio seems to have room for improvement, but this debt rate only includes government bonds and local government bonds. In fact, in the past few years, local governments have adopted shed reform loans, platform loans, city investment bonds, PPP, Financial leasing and other methods have formed a large number of implicit debts. We estimate that this part of the government has a hidden liability of 30 trillion yuan. The government debt ratio after the inclusion of hidden liabilities is close to 70%, which is actually higher than the international warning line!
I think their debt-to-GDP calculation is low, but another 37 percentage point increase in China's debt-to-equity ratio takes it to 278 percent.

A-shares aren't a good investment because they aren't favored by investors or the government. Instead, real estate wins from additional stimulus. The rise in home prices has been incredible, masked by the shift in new home locations in built out cities such as Beijing and Shanghai. If the same homes are compared, Haitong sees prices tripling over these three rounds of stimulus. Which is almost the exact same price rise of the S&P 500 Index off the Satanic low in March 2009.
The stock market has been in a long-term downturn

The debt is getting heavier and heavier, which means that the return of the claim is getting higher and higher. On the contrary, the return of the equity will be lower and lower, which is reflected in the long-term downturn in the Chinese stock market.

Although the release of water can also bring a short-term rebound in the stock market, for example, after the release of water in 2008, the Shanghai Composite Index once rose from 1664 to 3478 points. After the release of water in 14 and 15 years, the Shanghai Composite Index once rose to 5178 points, but the current Shanghai Composite Index is less than 2900 points, compared with the previous round of highs, the decline has been close to half.

If the central bank cuts interest rates for the first time on September 15, 2008, after a decade of water release, the cumulative increase of the Shanghai Composite Index is only 38%, and the annualized growth rate is only 3.3%, which is similar to the bank deposit interest rate in the same period.

House prices are getting higher and higher

On the other hand, real estate has become the biggest beneficiary due to the increasing amount of money.

From the perspective of housing prices, the average price of new home sales announced by the National Bureau of Statistics was only 3,900 yuan / square meter in 2008, and has now risen to 8,700 yuan / square meter, more than doubled in 10 years.

But this price is incomparable, because the new house is farther and farther away. For example, the new houses sold in Shanghai 10 years ago are in the inner ring, and now almost all in the outer ring. According to the comparable price, almost all the first- and second-tier cities have seen their prices rise more than three times, and the annualized increase is more than 15%.
Forex reserves are going bye-bye.
Foreign exchange reserves have turned from rising to falling

At the end of 2008, China’s foreign exchange reserves stood at 1.9 trillion US dollars. In the first round of water release, foreign exchange reserves increased to 3.3 trillion US dollars at the end of 11 years. This round of the renminbi remained strong and rose from 6.8 to 6.3 against the US dollar.

After the second round of water release, foreign exchange reserves remained at 3.3 trillion US dollars at the end of the 14th year. This round of RMB remained stable and rose slightly to 6.2 against the US dollar.

After the third round of water release, foreign exchange reserves fell from 3.3 trillion US dollars at the end of 14 years to 3.1 trillion US dollars at the end of 17 years, while the exchange rate of RMB against the US dollar fell from 6.2 to 6.5, and reached 6.8 in July 18th.

The first two times of China's water release did not lead to foreign exchange reserves and exchange rate pressure. An important background is that the world is in a monetary easing environment. In 2008 and 11 years, the United States and Europe experienced a debt crisis. However, since the beginning of 15 years, the United States has officially transferred to the interest rate hike cycle, so the third Chinese water release began to lead to the loss of foreign reserves and the pressure of exchange rate depreciation.

Coupled with the intensified trade war between China and the United States, the United States, Japan and Europe, the main export partners of China, have a tendency to start a free trade zone. Then China’s exports and foreign trade surplus will be subject to a trend of shrinking, thus giving foreign exchange and the RMB exchange rate. Come to greater pressure.
Haitong concludes with a warning about the cost of stimulus.
Water release is to drink and quench thirst, short-term effective long-term toxic!

Therefore, based on the experience of the past three rounds of water release, we can draw the following conclusions:

The release of money can bring about a short-term rebound in the economy for about one year, but it cannot change the long-term decline in economic growth. At the same time, it will lead to more and more currencies and higher debt ratios. The release of water has led to a short-term bear market in the stock market, which has spawned a long-term real estate bubble, which has intensified the depreciation pressure on the exchange rate.

Some people may say that it seems that it is not so difficult to accept water. Is it not a small rebound in the economy? It’s better than the economy has always been falling back! Moreover, if the debt ratio is high, it can be higher. If the stock market does not rise, everyone will go to buy a house. Isn’t that the past ten years? Habits are just fine!

However, although history is strikingly similar, it is definitely not a simple repetition. If we go back to the water, we will encounter new challenges like never before:

The first challenge comes from foreign reserves and exchange rates. At the beginning, we were releasing water with Europe and the United States. Therefore, our water release only led to the domestic asset bubble. The external situation is still very harmonious, and the foreign reserves and exchange rates are very stable. But now the United States has begun to tighten monetary policy in a trend. If we continue to release water, then it will not only be a problem of domestic asset bubbles, but also pressure on foreign trade and exchange rates.

And for the potential pressure behind the exchange rate, we can make a simple comparison: in 1998, China's broad money M2 was less than half of the United States, while the current M2 is double that of the United States, and the exchange rate of the RMB against the US dollar at that time was 8.3. Now, only 6.8. If there is no support from foreign exchange reserves, our currency has been sent so much more than others. What is the value of the renminbi now worth more than in 1998?

The second challenge comes from the real estate bubble itself. The past three times of water release, each time can not be separated from the start of the real estate market. From the perspective of real estate sales, the national real estate sales area in 2008 was only 620 million square meters, with a contract of 7 million sets, and the national real estate sales area in 17 years was 1.7 billion square meters, equivalent to 19 million sets.

But after ten years have passed, our demographic dividend has long since ended. In 2008, China’s working-age population aged 15-59 increased by 5.18 million, while in 17 years it was a net decrease of 5.48 million. Compared with a decade ago, we have now reduced the net new working-age population by more than 10 million each year, but the new real estate sales are more than 10 million sets.

In the past 20 years, it should be said that China’s 70s and 80s are the main buyers. After 70 years, the total population is 220 million, and the total population after 80 is 222 million. Now 90 has entered the 20-30 age stage. The future of home purchase will become 90 or even after 00, while the total population after 90 is 177 million, only 159 million after 00, after 90 and 00 total is 100 million less than 70 plus 80, which shows that from the population Look, there are not many players in the real estate bubble.

The biggest challenge comes from the heart. We believe that under the model of debt development, we are actually encouraging debt speculation and fighting hard work. Those who work hard can only earn some wages, and the money deposited in the bank is low. Those who work hard to speculate, as long as they dare to find a bank to borrow money to buy a house, due to currency depreciation, they are getting more and more money. If you go on like this, who is willing to work hard, who is not willing to go to debt speculation?

But if everyone wants to take shortcuts, real estate companies are responsible for covering the house for a few months, financial companies are responsible for lending money for a few months, vaccine companies would rather spend money on marketing, not willing to engage in research and development, technology companies are only willing to copy, not Willing to innovate, then our economic aggregate is getting bigger and bigger, but are these production things meaningful in the long run?

In fact, Dario has a very simple analogy for the economic development model of water and debt development. This is like holding a credit card to buy bread. Although it can be eaten in a short period of time, the credit card money is If you want to pay back, you will have a hard time once you pay back the money. Therefore, the development of debt is the overdraft of the future. The greater the intensity of water debts, the greater the pressure on the economy when debts are repaid in the future.

Of course, the development of debt is not entirely wrong. If the project of borrowing investment can create cash flow, it will be able to pay back the money in the future. In fact, there is no big problem. However, if the project of borrowing investment cannot create cash flow, for example, a road or railway with no flow of people or traffic, or a PPP project without benefits, only if the real estate does not have a shed for industrial support, then what should I do if I have to pay back later? Is it a new round of debt?

Past experience guide for the future! I sincerely hope that we can learn from the lessons of flooding in the past, and not to go to the old road of real estate bubble development. We should increase reform and opening up and vigorously reduce taxes to encourage innovation. Otherwise, according to historical experience, we will not be able to live for one year. Face the test of pain!
The risk of a yuan blow-up in this round is very high. Much higher than in 2014-2016. Not only because the stimulus is starting with USDCNY at 6.8 instead of 6.0, but because the risk of a housing market blow-up and much weaker overall stimulus will combine with weaker currency performance amid the final leg of the U.S. dollar "bull" market.

Chinese Officials Fear Stimulus Will Ignite Housing Market

Although most analysts think government home buying restrictions will finally work, there were signs of rising buying interest as soon as the government announced fiscal stimulus and monetary easing.

21st Century: 7月调控次数创新高,严防楼市预期“燥热”
On July 27, Zhang Bo, chief analyst of the 58th Housing Research Institute, said in an interview with the 21st Century Business Herald that the property market has not warmed since the central bank’s continuous public release in July. From the online performance of Anjuke, from July 23rd to July 26th compared with July 16th to July 22nd, the proportion of cities with decreasing daily user browsing is relatively higher, and the number of users browsing is increasing. The cities include Zhengzhou, which rose by 3.23%, Suzhou, which rose by 3.53%, and Changchun, which rose by 5.53%. The cities with more obvious declines include Chengdu, which fell by 5.29%, Chongqing, which fell by 3.13%, and Xi'an, by 4.71%.

However, Zhang Bo believes that the operation of the central bank in July did not directly affect the buyers. The cooling of the hotspots is still continuing, but the impact on the housing enterprises cannot be ignored. In the second half of the year, the overall economy will be “de-leveraged”. Under the background of “stable leverage”, the gates of monetary policy have begun to adjust, and the “thirst” of housing firms is expected to be alleviated.
Regulators are striking hard and striking early to prevent renewed speculative bubbles. Which, to the speculator, makes buying real estate all the more attractive. Price controls in Ningde will only stoke demand as credit eases.
Whether the fine-tuning monetary policy will once again trigger a new round of hotspots in the real estate industry is not known, but real estate regulation has pioneered a new round of "strike hard" mode. Up to now, more than 40 cities have issued various real estate regulation and upgrading policies in July, with a cumulative total of more than 40 times. The number of such adjustments has refreshed the record of the property market regulation in the past two years. According to the incomplete statistics of the 21st Century Business Herald reporters, the regulatory policies introduced by various cities since July involve many aspects. This includes further standardizing the behavior of enterprises purchasing commodity housing, standardizing the order of commercial housing sales, comprehensively rectifying Internet real estate agents, combating the phenomenon of “yin and yang contracts” and “high evaluation of high loans” in the second-hand housing market, combating illegal crimes in real estate and suspending individuals Real estate mortgage business and so on.

The 21st Century Business Herald reporter noted that individual cities have even set a ceiling for the increase in the proportion of regulated housing prices. On July 10th, Fujian Ningde City issued a notice that the average price of new commercial housing in the central city is on the basis of the degree of January 2018 (8882 yuan / square meter), the annual increase is controlled within 6%, ordinary high-rise residential (blank) pre- The average price of the sale is subject to the maximum price, and the maximum control is within 11,000 yuan / square meter. It is worth noting that in the regulatory policies introduced in July, the third- and fourth-tier cities including Ningde, Linyi, Zaozhuang, Dali, Chengmai and Xishuangbanna seem to occupy the mainstream.
Officials best bet may be a bubble somewhere else, such as the A-share market. Otherwise, speculators, investors and homebuyers alike will find ways to leverage up and buy homes at artificially suppressed prices.
Ouyang Jie said that fixed assets investment and real estate investment must be stable under the trend of a large decline in the probability of export and consumption growth. Policy regulation and control should mainly be used to make up the nails and finely adjust. It is necessary to avoid the risk of foam caused by partial overheating in the property market, and to prevent the excessive pressure from causing the expected collapse.

Due to the fine-tuning of macro policies, the industry has also begun to show optimism. "There are still many new opportunities, such as the demand for home purchases is still relatively strong, which is also likely to bring about a rise in the price of the property market." Yan Yuejin said.

The 21st Century Business Herald reporter noted that under severe control, the illegality of the real estate market is still growing. Some properties are still trying to break through the restrictions in some ways. This shows that macroeconomic regulation and control with administrative regulation as the main feature still cannot be relaxed.


PBoC Scrutinizes Cross-Border Transactions, Says Banks Increasingly Using SWIFT

Originally posted on July 28, updated with English coverage below.

The PBoC is strengthening supervision of cross-border financial transactions as yuan depreciation expectations pick-up and as monetary and fiscal stimulus policies are about to hit the economy, potentially attracting hot money from overseas. The announcement says domestic financial institutions are making greater use of the SWIFT system, not China's CIPS alternative, for cross-border transactions.

The full announcement can be seen here: 央行重磅发布!关于加强跨境金融网络与信息服务管理的通知!
As China's financial industry continues to deepen its opening up, Chinese banking financial institutions (hereinafter referred to as domestic users) are increasingly using overseas institutions such as the Global Banking Financial Telecommunications Association (SWIFT) (hereinafter collectively referred to as overseas providers). Cross-border financial networks and information services. In order to maintain cross-border financial networks and information security, and comprehensively implement financial market infrastructure supervision to effectively prevent systemic financial risks, the notice on strengthening cross-border financial networks and information service management will be notified as follows......
Zaobao summarizes the announcement: 中国央行加强跨境金融网络与信息服务管理
The People's Bank of China issued a notice on strengthening the management of cross-border financial networks and information services on Friday. The central bank, based on the macro-prudential management needs, conducts an assessment of the matters reported by overseas providers and the reporting of domestic users.

According to Reuters, the notice stated that overseas providers should not build special financial networks in China to provide financial information transmission and other services. An offshore provider may authorize an institution established in China to perform relevant reporting obligations.

The notice requires that overseas providers and domestic users should join the China Payment and Clearing Association and accept industry self-discipline management. The China Payment and Clearing Association shall, in accordance with the requirements of this Notice, formulate and improve the self-regulation of cross-border financial networks and information service industries, establish cross-border financial networks and information services risk protection and self-discipline and disciplinary mechanisms, and effectively safeguard member institutions in cross-border networks and information services. Legal rights.

The cross-border financial network and information services referred to in this notice refer to overseas providers providing services such as cross-border financial information for domestic users through special financial networks and using specific message standards. Domestic users and overseas providers shall abide by the laws, administrative regulations and relevant regulatory provisions of the People's Republic of China, and jointly defend against cyber attacks and maintain cross-border financial networks and information services in accordance with the service agreements signed by the two parties.
Here's an "unrelated" article discussing how Chinese SOEs have begun relying on overseas financing channels.

JRJ: 中央企业跨境融资政策运用分析与实践
Changes in cross-border capital flows have driven the capital account convertibility process, and the capital account convertibility process has created new opportunities for cross-border financing. “No. 9 Document” allows non-financial enterprises to establish a financing relationship directly with overseas financial institutions by using the net capital as the upper limit of the calculation, so that the overseas financing costs of enterprises are more transparent, and the funds are allowed to be transferred back to the territory and used for settlement within a reasonable use. The supplement of working capital opens up new channels.

Comparing and analyzing the comparable costs of the same currency and the same-term financing in the domestic and overseas financing markets since 2011, it can be divided into three stages.

Before 2014, "there was a clear distinction between the two." Integrated cross-border financing costs (including interest rates, exchange rates locked and withholding taxes) relative to the same period the territory of RMB financing cost advantage is obvious, but as mentioned earlier, quite a long time prior to 2014, our country in order to "control the inflow" for the Foreign Exchange Management The main tone, cross-border financing inflows and capital account convertibility are limited, funds cannot be repatriated, and domestic and overseas financing is still in isolation.

In 2014, “inflows into reforms and gradually became in line”. The domestic interest rate decline in the renminbi is obvious. After the renminbi continues to appreciate, the swap point gradually rises. At the same time, the reform of foreign exchange inflows has entered the fast lane, and the inflow of reforms has pushed domestic and foreign financings closer together, and domestic and foreign financing rates have gradually tended to converge.

After 2015, “both in parallel, seeking a window”. From 2015 to 2017, the cross-border financing window appeared in stages, and its causes were relatively complicated, but it provided an operational window for enterprises to reduce financial expenses through cross-border financing.

...The swap process is for the enterprise to transfer the foreign currency principal to the domestic bank on the transaction start date and obtain the RMB principal. Subsequently, the RMB interest and principal are repaid to the domestic bank on schedule, which is equivalent to the ordinary RMB interest-bearing loan. After the domestic bank obtains the foreign currency principal on the transaction start date, it will pay the foreign currency interest and principal to the enterprise on schedule according to the agreement, and the enterprise will immediately transfer it to the overseas bank to complete the foreign currency loan interest payment.

...In the transaction, the interest rate and exchange rate risk of foreign currency loans have been circumvented, but during the duration of cross-border financing, exchange gains and losses in accounting still exist.

The general principle of valuation accounting is to repay the foreign currency debt at the current market conditions and prices and to close the cross-currency interest rate swap transaction at the time of the statement. The company will use the cost or income obtained as the measurement standard. Foreign currency floating rate debts are measured at amortized cost and converted at current exchange rates to form exchange gains and losses. For the measurement of cross-currency interest rate swaps, the valuation is included in derivative financial instruments and gains and losses from changes in fair value. The fair value of the cross-currency interest rate swap is calculated by discounting the subsequent principal and interest cash flows.

To sum up, with the support of the full-caliber cross-border financing macro-prudential management policy, enterprises can comprehensively select commercial banks with strong domestic and overseas coordination capabilities, capital costs and transaction costs to establish credit cooperation, and choose overseas based on market window. Financing is a useful complement to the company's funding needs.
China has implemented strict capital controls and tight credit regulations. Use of the SWIFT system is rising. Occam's razor says Chinese have found a way around those regulations.


Yicai: PBOC Demands ID Check for Over USD1,000 Overseas Transfers to Stop Money Laundering
China’s central bank is tightening up capital controls to verify transfers that exceed USD1,000 to stop money laundering and has already fined firms failing to comply with the new rules.

The People’s Bank of China released four policies to stop criminally inclined capital outflows on July 26, after which it has fined some of China's securities firms, insurers and third-party payment platforms such as Alibaba's Alipay and Tencent's Tenpay for related wrongdoings.

The scope of the four notices included identity verification, the scale of cross-border payment transactions, management of high-risk businesses susceptible to money laundering or terrorist financing, as well as safekeeping of transaction records. In addition to financial institutions, also real estate developers and accounting firms must report to the central bank.

Regarding cross-border payments worth more than CNY10,000 (USD1,470) or USD1,000, or alternatively an equivalent amount in another foreign currency, the PBOC requires institutions to record the payers’ ID credentials and verify their personal information.

PBOC fined Alipay and Tenpay CNY600,000 (USD87,900) each on July 24 for processing cross-border payment transactions beyond the approved business scope, incorrect filings of these payments, and failures to report risks.

Harbin "Mistakenly" Says Pension Payments Delayed, Provincial Pension Fund Exhausted

The Harbin government announced a delay in pension payments this week and then claimed it was a mistake. Payments were made on time according to current reports. This sparked widespread discussion online, not only because netizens wonder how such a mistake could be made, but also because Heilongjiang's pension fund is exhausted and has shifted into permanent deficit, currently at 23 billion yuan.

The economy of northeast China has grown slower than the rest of China in recent years. China's population is aging rapidly and the northeast is no exception, but it is also losing youth who leave for better economic opportunities in other provinces. This has caused a collapse in the dependency ratio from 2.4 to 1.3 in a little more than a decade.

This isn't a new concern. Back in 2016, the pensions were in deficit: China's Pension Bust: Number of Localities in Deficit Doubles, Surpluses Quickly Drained

In 2015: Local Government Revenues Slide, Govts Use Fees to Cover Pension Deficits

This first article asks how the Harbin government could make a mistake that causes a loss of confidence in the pension system.

Guangming: 养老金发放压力大,信息发布更不能乱
In response to the “Harbin Social Insurance Administration Bureau sent a “Description on Postponing the Disbursement of Pensions” to a local bank, the Heilongjiang Provincial Social Insurance Administration Bureau responded on July 25, saying that due to the work mistakes of the Harbin Municipal Social Security Bureau The wrong information has led to misunderstandings by the masses and is now corrected. According to the Heilongjiang Provincial Social Insurance Administration, at present, the pension has entered the normal issuance state, and the increase is stipulated and the pension should be issued in the same month.

According to pictures circulating on the Internet, the document entitled “Delay of Postponement of Pensions” (hereinafter referred to as “Description”) was issued by the Harbin Social Insurance Administration to the Harbin Field Sub-branch of the Industrial and Commercial Bank of China. . According to the "Description": According to the work arrangement of the Heilongjiang Provincial Social Insurance Administration, the pension was postponed in July 2018, and stressed that "this description cannot be posted. If the depositor consults, please explain it orally."

Although there may not be a truth in the picture, this black and white text has documents that are stamped and stamped with official seals. It is hard to see that there are flaws and it is hard not to be taken seriously. According to the relevant person in charge of the Heilongjiang Social Security Bureau, the "Description" was indeed issued by the Harbin Social Security Bureau, but "due to the work mistakes of the Harbin Social Security Bureau, the misinformation caused the masses to misunderstand and is now corrected."

Although the local social security department said that the current pension has entered the normal state of distribution, there seems to be no "deferred payment", but the content of the document and the subsequent response are still skeptical. On the one hand, why is it wrong? It stands to reason that such documents have strict issuance procedures, the possibility of wrong transmission is very small, the relevant wording is also clear, and emphasizes "unpostable". Then, in the end, which link has gone wrong, the relevant local departments should give more specific explanations; on the other hand, the Heilongjiang Provincial Social Security Bureau said that it is “the work mistakes of the Harbin Social Security Bureau”. What exactly is the “mistakes” here? Is the information of "postponed issuance" wrong, or is it a "mistake" to disclose this document? To put it another way, if the document is not made public, it does not cause public concern, can the pension in July be released normally?

Similar red-headed documents were accidentally exposed, and eventually the parties responded to news that was caused by "wrong" and "mistakes", which happened from time to time. One of the core focuses here is that some red-headed documents were not intended to be public, but they were exposed because of "accidents." However, as far as many documents are concerned, this is something that should have been made available to the public. Taking this incident as an example, if pensions really have to be postponed, why can't they explain them to the general public and become "only verbal explanations"? After a similar incident, it is even more intriguing to use the information to send a mistake to explain. Accurate information release is only the basic work of the public sector. If there is a "mistake", it is necessary to find out the truth and seriously blame it, otherwise how to prevent the next "mistakes".

Of course, the reason for this incident has attracted attention. In addition to the reason that the information is “wrong”, it is even more ridiculous. The more important thing is that the problem of pensioning the pension touches the core concerns of the society. Especially in the specific circumstances of Heilongjiang Province, it has touched the sensitive nerves of the people. Last year, some media disclosed that the “China Social Insurance Development Annual Report 2016” issued by the Social Insurance Business Management Center of the Ministry of Human Resources and Social Security showed that Heilongjiang became the first province in the country where the pension balance was spent, and “debt” was 23.2 billion yuan. Therefore, whether the pension can be paid in full or not on time is naturally of concern. The more such circumstances, the more the local government should do the relevant information release work, and avoid amplifying the public's anxiety about pensions.

Whether the pension can be paid in full and on time is not only related to the immediate rights and interests of the retired people, but also corresponds to the credibility of the social security system. The disclosure of relevant information should be timely and transparent to prevent unnecessary suspicion. In particular, in areas where some pensioners are under pressure, in addition to raising funds from multiple sources, docking central adjustments, it is necessary to address the actual balance of pensions and make timely contributions to the society. Say, it is likely to be counterproductive.
This article explains the financial situation as the dependency ratio skyrockets in a region rapidly aging and losing youth to other parts of China.

US China Press: 网传哈尔滨推迟养老金入不敷出 事实真相是……
Chinanews.com reported that social security has always been a sensitive topic. The population of the Northeast has been declining for many years and it has become an indisputable fact. According to statistics, as of the end of 2016, the population of China over 60 years old has reached 230 million, accounting for 16.7% of the total population, and the population over 65 years old has reached 150 million, accounting for 10.8%.

The delay in the payment of Heilongjiang pensions has caused public concern, or the pension crisis that has been repeatedly reported in Heilongjiang in recent years. Due to the deepening of aging, in 2005, Heilongjiang's dependency ratio was 2.44:1, and in 2016 it fell to 1.3:1, which means that on average less than one and a half of the employees need to support a pension for a retired employee.

Although the Heilongjiang government has taken many measures to alleviate the pressure on pensions, it is difficult to alleviate the shortage of funds. According to Shanghai Minsheng News, the income of employee pensions in the province in 2016 was 89 billion yuan (RMB, the same below), and expenditure was 121 billion yuan. The current balance of income and expenditure was a deficit of 32 billion yuan. As of 2015, the historical balance of pensions was a surplus of 8.8 billion yuan. After offsetting the balance of payments, there was still a gap of 23.2 billion yuan, making it the first province without pension accumulation.
An opinion article links old-age insurance scams with the Heilongjiang news. Chinese are concerned about their pensions and the pension system's solvency.

QQ: 黑龙江成全国首个养老金结余花光的省份 “负债”232亿元
In Huixian County, Henan Province, the police successfully detected more than 20 series of fraud cases based on retirement pension insurance, involving nearly 2 million yuan. After investigation, I learned that Hao Mou claimed to work in the sanitation department of Xinxiang City. He has indicators to run pension insurance. He can do it as long as he can pay the money. After he has finished, he can receive 1,500 yuan a month. Many people have handed over their savings for many years to Hao, ranging from 25,000 yuan to 100,000 yuan per person. After receiving the money, Hao Mou did not move, and constantly searched for various excuses. After the masses found that they were deceived, they called the police. Most of the victims were older, unemployed people. The savings accumulated over the years were deceived and their emotions were very exciting.

In Harbin, Heilongjiang, the Municipal Social Insurance Administration issued a notice saying that according to the work arrangement of the Heilongjiang Provincial Social Insurance Bureau, the pension in July 2018 will be postponed. Later, the Heilongjiang Provincial Social Insurance Administration responded that due to the work mistakes of the Harbin Municipal Social Security Bureau, the misinformation caused the masses to misunderstand and is now corrected. At present, the pension has entered the normal issuance state, and the increase and the pension for the current month should be adjusted. Also issued in place.

At first glance, it seems that they are all point-like social news, carefully combed, and have inherently consistent logic. The victim of the fraud case in Huixian County, Henan Province, it is reasonable to say that when there is a new type of rural social endowment insurance or basic old-age insurance for urban and rural residents, why do you still need to find a door to “care for the elderly”? What is the coverage and distribution of local pension insurance? In what context, is it possible to deliver the savings that have accumulated over the years?

The news of Harbin in Heilongjiang seems to be an accident. However, in the eyes of public opinion, it is soon linked to the background of the pension balance in the Northeast: "China Social Insurance Development Year released by the Social Insurance Business Management Center of the Ministry of Human Resources and Social Security" The report 2016 shows that Heilongjiang has become the first province in the country where the pension balance has been spent, and the “debt” is 23.2 billion yuan, which extends the meaningful interpretation and is also reasonable.

It is not difficult to see that the elderly in Huixian County of Henan Province and the extensive public opinion are filled with an old-age anxiety. Pensions should be the most basic part of social security. It is an institutional arrangement that is unavoidable and taken for granted. In the current public opinion field, this topic can easily harvest a lot of attention and become a common topic throughout the age group.

This anxiety stems from the public's intuitive feedback on the current state of pensions. Pensions, as the most fundamental guarantee for maintaining the state of life in the stage of life, is an important basis for constructing people's behavioral patterns and psychological states. If it is expected that there may be problems in the pension, the individual's economic behavior tends to shrink, and it will focus on saving, restraining consumption, and tending to help each other in the early decades; people's enthusiasm for the future will inevitably shrink, leading to social psychology, Anxious state.

From the reality, for the issue of pensions, measures at the national level continue. Not long ago, the central adjustment system for the basic endowment insurance fund for enterprise employees was officially implemented, marking an important step in the national overall planning of China's pension insurance. It also means that pensions will also be adjusted between provinces to ensure that the local pensions are paid in full and on time. .

When it is clear that alleviating the anxiety of old-age care requires a coping solution, it is also necessary to carefully sort out the key points of governance. Whether many social security, including pensions, is in place is in fact an important criterion for self-definition in modern society. It is also an important topic in relation to administrative ethics: living in a modern society, basic guarantees should be enjoyed without any doubt. When the basic guarantees are shaken, it will inevitably affect the individual's stable expectations of the state of life and the confidence in the social state in which they live. The stability of the human heart is also an indispensable psychological support for a mature society.

Anxiety for the elderly requires systematic measures to relieve the burden of the people's livelihood-based value


Fed Reduced Balance Sheet $13.9 B Last Week

The Fed's balance sheet contracted $13.9 billion. None of it was treasuries. The Fed now has $24 billion left to reduce in July with only the final week remaining. All of the reduction should be U.S. treasuries next week assuming the Fed doesn't get a jump on August's $40 billion. On July 31, $28.5 billion in treasuries matures. Assuming the Fed stays on schedule, next week should be the largest single week of balance sheet reduction since the policy started in October. The largest reduction to date was $23.2 billion rolled off in the week ended February 21.

The S&P 500 Index gained 1.1 percent over the past week.

Existing Home Sales Slow 20pc in 20 Cities

In light of the prior post, ortgage Rates Soar as 36 Trillion Yuan Credit Wave Expected, here's some evidence regulators may have achieved some success. Volume typically leads price.

iFeng: 20城二手房成交降两成一线城市交易降温
“After hitting a half-year high in May, the second-hand residential market in Beijing has cooled down in June and July.” I love Hu Jiahui, dean of our family group research institute, said that after July, Beijing’s second-hand residential single-day contract is basically at 800. Set below.

Not only the transaction volume of the existing housing market in Beijing has been difficult to return to the same period of last year. From the overall transaction situation of the second-hand housing market in first-tier cities and 20 typical cities, the first half of the year was in a downturn.

According to the research report of Shanghai Yiju Real Estate Research Institute, in the first half of 2018, the cumulative turnover of existing houses in 20 cities was about 635,000 sets, down 20% year-on-year, and the decline was 3 percentage points lower than the previous five months. From the perspective of volumetric energy, the first-tier cities are the least fascinated, and three of the four first-tier cities have negative energy levels.

Mortgage Rates Soar as 36 Trillion Yuan Credit Wave Expected

Two days a go we wondered, with Stimulus Coming: Will China Lose Control of Real Estate Market?

Now there are fresh concerns after one securities firm estimated lending capacity could explode in the second half of 2018, to the tune of 36 trillion yuan or roughly $5 trillion.

Banks are already hiking interest rates (40 percent above benchmark in Beijing) and down payments (70 percent for second homes in Shenzhen) because credit demand is high, but lending capacity constrained. What happens when capacity rises?

iFeng: 媒体:楼市调控还是银行钱紧? 36万亿信贷在路上
It has become a hot topic in recent days for commercial banks across the country to raise the interest rate of first home mortgages. The first home loan interest rate has generally risen by 15%, and some regions have even raised the down payment for second-hand houses to more than 50%. What's more, there are individual banks in Beijing, and the first home loan interest rate is raised by 40%.

From the perspective of bank supervision, the core reason is that the bank has no rice. Due to the constraint of capital adequacy ratio, there is an upper limit on the generalized credit growth rate of commercial banks in theory.
In theory. Modern banking is not based on fractional reserves, but on the desire to borrow. Borrowers increase money supply and lending creates its own reserves. The central bank steps in during cyclical downturns that threaten to bankrupt the system, it "monetizes" by turning credit into fiat (but these days its only a higher form of credit), and the system resumes growth. After the 2008 crisis, lending growth did not resume in many developed countries. In the U.S., total credit market debt outstanding is growing at rates slower than in every recession of the past 60 years.

China solves the problem of lending growth with hard limits (lending quotas). As a result, there have been numerous lending violations. In the wake of the 2008 crisis, state-owned enterprises with no business in real estate created real estate divisions. They had far easier access to capital and real estate was growing much faster than their core businesses. In other cases, the SOEs became loan sharks, taking out huge loans and then re-lending at higher rates to real estate developers. See this 2012 post: Sinopec Sichuan sales office: King of the loan sharks? Usury scandal may be the tip of the iceberg. By 2014, the steel trading credits were exploding. Steel traders were taking out excess loans to lend at high interest or to speculate in real estate. See: Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee. Then came the copper lending scandals. Borrowers rehypothecated copper collateral for loans from multiple banks, but the bigger story was Chinese borrowers were stockpiling copper because it was good collateral. Proceeds from a copper-backed loan could be lent at high interest or used to speculate in real estate.

In the wake of all this, China allowed the shadow banking sector to take over and it largely supplied the market's credit needs. Then late last year, following the leadership transition in October, the government finally started following its deleveraging talk with action. Shadow banking is contracting and lending is moving on-balance sheet. But banks are credit constrained.
However, with the recent implementation by the central bank of adjusting the MPA parameters and appropriately relaxing the capital adequacy assessment requirements, bank credit will be released in the second half of the year. According to Huachuang Securities' calculation, if the structural parameters and credit-cycled contribution parameters are relaxed, the bank's general credit growth rate can reach the upper limit, and an additional 36.73 trillion credit line can be released.

Although the additional 36 trillion credit scale is only a simple theoretical measure, considering that real estate loans are still the most important part of the current new loans. Of the new loans in the first half of 2018, 39.2% came from real estate. Obviously, after relaxing the capital adequacy ratio, credit funds will be preferred in the real estate industry, and the tension in housing will be greatly eased. In any case, real estate is still the key to steady growth!
Theoretically, banks could substantially increase their rate of credit growth, double or even tripling it if the maxed out their ability to lend.
What's happening on the ground? Interest rate increases and higher down payments are becoming more extreme as credit demand meets tight capacity. Real estate regulations are also failing. Some cities are experiencing "upside down" housing markets because most restrictions are on new housing, not existing homes. In more than a few cities, lower quality existing housing sells at a premium to new housing right beside it. In response, Hefei raised the down payment on a first-home mortgage to 50 percent if it is for an existing home. Except these stories to multiply in the second half as rising credit meets central planner's intensifying home price suppression efforts.
1. Beijing's individual bank first-home loan interest rate rises by 40%

Recently, the first-home loan interest rate of some outlets in Beijing has risen by 40% on the basis of the benchmark interest rate, and some of the bank's first-home mortgage interest rates have risen by 30%. However, the first mainstream is still based on the benchmark interest rate, which is 10% higher. The second-home mortgage interest rate is still 20% higher than the benchmark interest rate.

2, Hefei Construction Bank existing-home down payment increased to 50%

Yesterday, in Hefei City, Anhui Province, the local construction bank existing housing down payment increased to 50%. At present, the interest rates of the first home loans of Shanghai Pudong Development Bank, Bank of Communications and China Everbright Bank have also risen to 20%. And the threshold for buying existing housing is getting higher and higher. At present, the Construction Bank has made it clear that the down payment for existing housing has been raised to 50%. However, other banks have not followed up. Now only the existing housing of CCB has increased.

3, Fuzhou first home loan interest rate rose 15%

In the past few days, a number of banks in Fuzhou issued notices of an increase in mortgage interest rates. Some bank loans for the first home loan rate rose 15%, and the second suite rose 20%. Among them, the Bank of China's first home loan interest rate increased from the benchmark interest rate of 10% to 15%, the second home loan interest rate increased from the benchmark interest rate of 15% to 20%. The first home loan of Guangfa Bank rose 15% from the benchmark interest rate, and the second home loan rose 20% to 25% from the benchmark interest rate. Everbright Bank also raised the first-home loan by 30% from the benchmark interest rate, and the second-home loan rose by 35% from the benchmark interest rate.

4, Shenzhen first suite interest rate all rose 15%

At present, the first home loan interest rate of Shenzhen Commercial Bank has generally risen by 15%, and Everbright Bank has the most upswing, reaching 30%, and currently it is basically not taking orders. At the same time, many banks are in a tight position and lending is slow. Among them, the first suite interest rate of the construction bank Shenzhen Branch's housing loan was adjusted from the benchmark interest rate by 10% to 15%, and the second suite to 20%. At this point, the interest rates of the first suites of the four major state-owned banks, China Merchants Bank, and CITIC Bank in the Shenzhen mortgage market have all risen by 15%, and the second suites have risen by 20%.
All signs point to ample credit demand in the market, which leaves bank balance sheet capacity as the main restraint.
Capital adequacy ratio is an important factor limiting bank mortgage

Obviously, in July, banks across the country have already raised the first home loan interest rate to more than 15%. From the perspective of bank supervision, the core reason is that the bank has no rice. Due to the constraint of capital adequacy ratio, there is an upper limit on the generalized credit growth rate of commercial banks in theory. A series of new regulatory policies, such as the MPA assessment, have made it necessary for banks to conduct business and have more on-balance sheet capital, which has increased the demand for capital.
According to the transition period of the new regulations of the China Banking Regulatory Commission, by the end of 2018, the capital adequacy ratio, the tier 1 capital adequacy ratio and the core tier 1 capital adequacy ratio of systemically important banks shall not be lower than 11.5%, 9.5% and 8.5% respectively. On the basis of each one less than one percentage point.

According to the disclosure of China Banking Industry Development Report (2018), the capital adequacy ratio of state-owned big banks is basically flat, such indicators of small and medium-sized banks generally decline, and the capital adequacy ratio of individual non-listed banks is not even up to standard. This is also an important background for the recent advancement of IPOs in banking stocks.

At present, there are 19 banking stocks listed in the queue, 8 of which are rural commercial banks. Together with the rural commercial banks that are preparing to start IPOs, the number of rural commercial banks preparing to return to A shares will reach about 20. Judging from the data in the first half of the year, there are currently 28 banks issuing more than 80 billion yuan of secondary capital bonds, an increase of nearly 20 billion yuan over the same period of last year, and most of them are still dominated by agricultural business.
What do regulators do in response? Ease capital adequacy requirements.
The central bank is already reducing capital adequacy assessment
Yesterday, brokerage Chinese reporters verified from several sources that some central bank branches have been implementing the requirements for adjusting MPA parameters to appropriately relax the assessment requirements and promote banks to increase credit supply. The indicator of relaxation is mainly to reduce the partial parameters of the capital adequacy assessment to a certain extent. As of now, it is not known whether the relaxation of the MPA assessment is open to all banking financial institutions.

The adjustment of the structural parameter α is reduced to 0.5, but the standards of different regions and different financial institutions are not the same. In addition to the structural parameter α adjustment, the credit-periodic contribution parameter β will also be adjusted to varying degrees. This parameter is also for the macro-prudential capital adequacy ratio C* formula.

The research of Huachuang Securities shows that according to the current capital adequacy ratio evaluation standard in the MPA assessment system, it is not the absolute level of capital adequacy ratio of commercial banks, but the actual capital adequacy ratio (C) and macro-prudential capital adequacy ratio of commercial banks. The difference between (C*). The so-called macro-prudential capital adequacy ratio C* is a new evaluation index of the central bank in the MPA assessment system. The calculation formula is: macro prudential capital adequacy ratio C*=structural parameter α× (minimum capital adequacy requirement + system importance addition) Capital + reserve capital + countercyclical capital buffer).

It can be seen that the structural parameter α and the credit-period contribution parameter β are important parameters in the capital adequacy assessment criteria, and the reduction of both will cause the calculation result of the macro-prudential capital adequacy ratio of commercial banks to decrease, resulting in The requirements for the assessment of capital adequacy ratio of commercial banks are reduced.
One securities firm estimates lending could increase 36 trillion yuan under the new regulations.
Adjusting MPA is expected to release an additional 36 trillion credit line

According to the calculation of the fixed income department of Huachuang Securities, it is expected to release an additional 36.73 trillion credit line.

Huachuang Securities estimates:

If the value of β is lowered from the current 0.4 to 0.8 to 0.3, more than half of the banks' general credit growth rate can reach the upper limit, releasing huge credit space.

If the value of the structural parameter α is adjusted from the current 1~1.1 to 0.5 in the previous media report, it means that whether it is a systemically important institution or a general institution, the generalized credit growth rate can reach the upper limit, and the current Compared with the requirements of regulatory indicators, it can also release a large amount of credit supply.

To put it simply, since the general credit growth rate of commercial banks has generally fallen below 10%, if the structural parameters and credit cycle contribution parameters are relaxed, the bank's general credit growth rate can reach the upper limit (systemically important institutions 28%, 30%) 33% of ordinary institutions, from the perspective of broad-based credit (excluding off-balance sheet financing), can release an additional 36.73 trillion credit line (based on a simple estimate of general credit in June 2018).
The Chinese government wants lending to flow to productive businesses, it wants increased lending to small and medium enterprises. It has wanted this for a decade and hasn't gotten it. Will this time be different? Even before this announced monetary easing and fiscal stimulus, Chinese officials and official media were sounding the alarm. See: Housing Chaos in 30 Cities, Crackdown Coming in Second-Half. Officials seem to have stoked demand with housing lotteries. Some have already thrown in the towel on regulatory creativity and gone straight to price controls.

Officially, China says it doesn't want to flood the market with liquidity. Unofficially, it sure looks like a significant easing. Either way, Chinese investors are taking it as a signal that real estate (and I suspect A-shares to follow) is about to take off.

As for the yuan, the wildcard remains the U.S. dollar. Pumping more credit into the economy exacerbates the ongoing dwindling of reserves relative to implicit claims of credit and fiat yuan. At some point, Chinese savers may begin pulling assets out of banks and putting the cash into A-shares, more housing, gold, or they'll find a new loophole for capital outflows. Everyone is looking outside of China for currency risk, lately focusing on the trade war and retaliatory currency devaluation (which hasn't happened yet). The real risk is onshore.


Stimulus Coming: Will China Lose Control of Real Estate Market?

Chinese media is asking if home prices will take off in the wake of stimulus. Certainly if credit growth is about to pick up, speculating in homes and A-shares is a good idea. This is even before considering currency risks.

First up is Shenzhen's hike in mortgage rates posted earlier today. This is seen as a pre-emptive strike against real estate speculation.
iFeng: 信号!全面宽松确认后房价要蠢蠢欲动?
Don't worry, Shenzhen has taken the lead in further raising the interest rate of the first home loan. Although it is a "euphemism" statement on the regulation of the property market, it is obviously a clear signal to the real estate market. It will continue to maintain the high interest rate of the property market and freeze the credit of the property market. Scale expansion.

The brokerage Chinese reporter verified from many parties that the first house rate of the construction bank Shenzhen Branch housing loan today (July 25) was adjusted from the benchmark interest rate by 10% to 15%, and the second suite to 20%. The news came out and exclaimed.
Fuzhou and other cities are also hiking mortgage interest rates:
The cities that are raised are Fuzhou and so on. In addition to individual banks, Fuzhou's first home loan interest rate has generally risen 15% from the benchmark interest rate.

Similarly, including Bank of Communications, Bank of China, etc., the first-home loan interest rate was adjusted from the benchmark interest rate by 10% to 15% of the benchmark interest rate; the second-home loan interest rate was adjusted from the benchmark interest rate of 15% to the benchmark interest rate of 20%. According to media reports, Guangfa Bank currently has a 15% increase in the first home loan from the benchmark interest rate, and a second home loan from the benchmark interest rate by 20% to 25%. Everbright Bank also raised the first-home loan by 30% from the benchmark interest rate, and the second-home loan rose by 35% from the benchmark interest rate.
Shanghai will continue restricting home purchases and home loans:
Shanghai Mayor Ying Yong said today that it is necessary to adhere to the "double limit" policy of restricting purchases and loans, and will continue to strengthen the regulation of the real estate market.
Limiting credit flows is the key:
In fact, from the perspective of policy intentions, under the direction of comprehensive easing, the active fiscal policy is more active, the monetary policy must guarantee reasonable financing needs, and the supply of funds will continue to be plentiful. However, these steady growth of excess loan funds must ensure that the flow to the real economy, rather than continue to flow to real estate.
Capital controls may have worked for the capital account. There's little evidence that capital controls have worked domestically, particularly when credit growth is rising.
The current round of real estate rise has been up to 37 months. According to past experience, the effect of regulation and control should have already appeared, and house prices should have been firmly controlled. However, local governments are still stepping up their efforts to introduce new policies, new ideas, and stabilize housing prices.
Real estate controls haven't eased because credit growth hasn't slowed enough to impact the housing market. For years on end, China has failed to stem the flow of capital into real estate, only by stemming the growth of credit has it triggered cyclical downturns in real estate.
For example, Pan Shiyi, chairman of SOHO China, publicly stated in recent days that simply talking about housing prices can never be clearly seen in the real estate market, and housing prices depend only on how much the central bank sends. "It does not depend on the Ministry of Land and Resources, nor on the Ministry of Housing and Construction. It depends only on how much money the People's Bank sends. The amount of money sent by the central bank will naturally rise."

At present, financial and monetary leverage, such as mortgage interest rates, is still an important barrier to the entry of excess credit funds into the property market. Once the local government has made some relaxation in terms of purchase restrictions and price limits, the mortgage interest rate can be used as the last threshold, which is better than nothing.
Mortgage rates will hold housing in check if rates are higher than the rate of home price appreciation. If mortgage rates are below the rate of appreciation, speculators will have every incentive to find ways of diverting other forms of credit into the housing market.

Real Estate Roundup

Nanjing will eliminate its "buy a home, get a hukou" policy on August 1.

iFeng: 8月1日起南京“购房落户”政策将彻底废止
If you meet the above conditions and intend to settle in Nanjing, quickly seize the last chance, hold the relevant application materials such as real estate license or real estate license, and apply to the public security office registration window where the housing is located. From August 1st, 2018, the “purchase of households” policy in Nanjing will be completely abolished.
Shenzhen banks are hiking mortgage rates.

iFeng: 深圳房贷利率全线上调:首套房上浮至15% 二套房上浮至20%
On July 25, the 21st Century Business Herald reporter learned that the interest rate of the first suite of the construction bank's Shenzhen branch housing loan was adjusted from the benchmark interest rate by 10% to 15%, and the second suite to 20%. In addition, for the past two years, loans (including credit cards) that were overdue for two to five times, up 25%.

At this point, the interest rates of the first suites of the four major state-owned banks, China Merchants Bank, and CITIC Bank in the Shenzhen mortgage market have all risen by 15%, and the second suites have risen by 20%.

A real estate lender said that in the Shenzhen mortgage market, the four major banks and China Merchants Bank have a large market share.

A credit officer from a large Shenzhen bank said that the current mortgage is mainly for the first home, and second home mortgages are very few because the down payment is 70 percent. At present, the first quotation of the first suite of the bank is still 10% above benchmark, but due to limited lending quotas and strong demand, some branches have already hiked to 15%.
Meanwhile in Xiamen, a story of consumption and fertility crushing home prices.

Reuters: In China's debt-laden Xiamen, real estate boom chokes consumption
Yang Xiaodao, a 26-year-old civil servant in the Chinese city of Xiamen, says taking out a 30-year-mortgage on a two-bedroom apartment with her husband was the most regrettable decision of her life.

Although their parents covered the 1.5 million yuan (£172,285) down payment on the 2.9 million yuan flat, mortgage payments eat up more than 70 percent of the couple’s combined income of about 10,000 yuan a month - average for the city.

“Our spending power has plummeted,” Yang said. “We do not dare to have a kid. We do not dare to buy a car. We do not dare to travel.”
Inventory in the top 100 cities is down, with lower-tier city inventory at 10-year lows.

iFeng: 百城住宅库存连跌35个月,三四线库存创10年新低
It is worth mentioning that in the 100 cities, the inventory of 74 cities showed a year-on-year decline, with Dalian, Hangzhou and Jinhua falling by a large margin, with the declines of 56%, 48% and 46% respectively. In general, the number of cities with a year-on-year decline in inventories has also led to a decline in the size of the 100-city inventory.

...More importantly, the ratio of deposits to sales in third- and fourth-tier cities is more obvious. The current value is the lowest monthly value since 2009, that is, in the last 10 years, the de-chemical cycle of the third- and fourth-tier cities reached the lowest value. Of the 24 cities where the ratio of deposits to sales is less than 6 months, 17 cities are third- and fourth-tier cities.

Specifically, among the 100 cities, 19 cities have a ratio of deposits to sales of more than 16 months. The destocking pressure of such cities is still relatively large; 21 cities have a ratio of 12 to 16 months. In this case, the destocking cycle of such cities is relatively moderate; 60 cities have a ratio of deposits to sales of less than 12 months, and the destocking period of such cities is relatively small.


Return to 2014

China will pull demand forward as it did in 2014, but thus far the effort is smaller than in 2014 despite risks being higher.

SCMP: China to speed up US$199 billion of domestic spending to protect growth during US trade war
The State Council, the state cabinet, said on Monday that it would adopt a “more proactive fiscal policy” and would speed up raising and spending 1.35 trillion yuan (about US$199 billion) for local government, designated to be spent on infrastructure.
Back in 2014 I wrote: One More Time: No Stimulus
The Chinese leadership has been extremely consistent in saying there will be no stimulus. I can understand if investors think there will be a stimulus once there are obviously problems in the economy, but the leadership has said it will not repeat 2008.

If there is a crisis in 2014 or 2015, it will be worse than 2008 because by nearly every measure (except the stock market) is at an elevated level: more debt, more real estate supply, higher home prices, greater inventory, etc. If the government is saying it won't repeat 2008, then I take them at their word and assume they will not launch a massive stimulus program to save the economy until it is too late, and even then, they may decide it is too late and decide instead to see a real recession through to the end.

In the People's Daily Overseas Edition, the point about no stimulus was driven home yet again and it specifically addresses the investment banks that are saying China will cut the reserve requirement ratio (RRR) or make other adjustments to aid the economy. Short of banging them on the head with the latest 5-year plan, I'm not sure what else it will take for people to get the message.
There was no crisis because officials changed their tune slowly, in mid-2015 and then with full force in February 2016. They also blew a stock market bubble from late 2015 to mid-2015. Still, data such as real estate and fixed asset investment did hit new lows. Real estate investment went negative for five straight months (single-month year-on-year, the cumulative YTD growth never went negative) in late 2015.

While it said no large stimulus was coming, Chinese leadership did launch a mini-stimulus. It was similar to what it is doing today, but larger in scale. From June 2014: Chinese Official Admits There Is A Mini Stimulus; Long-Term Reform Favored Over Short-Term Stimulus
Shen Jianguang of Mizuho said, "We won't see a repeat of the 2008 stimulus plan. In fact, the mini stimulus is this government's response to the hard landing risk, they are inclined to use reform and unleash market forces, such as through decentralization, speeding up approvals, to nurture and develop new growth and long-term competitiveness." He also says that if the RRR isn't cut, then the various stimulus policies will have limited effect. He also gives three reasons why a RRR hasn't come yet: the government wants to force reform; the government is waiting for a signal to cut; or the government is optimistic about the economy.

Another similarity to today is that local governments were impaired.
In July 2014: Chinese Local Governments Have 10 Trillion in Stimulus Planned, But No Way to Pay For It
An unofficial and informal count by Chinese media puts recently added mini-stimulus projects at ¥10 trillion. Now if only they could sell some land or borrow to pay for it.

Data puts local government investment projects at ¥14.7 trillion through May, an increase of 17.6% yoy, the slowest growth rate since 2002. Sichuan increased its planned projects by 40% in March to nearly ¥3 trillion. Guangdong, Tianjin, Hainan and 5 other municipalities and provinces announced ¥7 trillion in projects. Analysts say "mini-stimulus" is now an all-year round effort by local governments.

However, Stephen Green of Standard Chartered says "local governments dream big, but what they can do is limited." Lin Jiang, professor of Public Finance and Taxation at Lingnan University, says that unless the central government decides to do a "strong" stimulus, the mini-stimulus will stay mini.
The government was doing a lot more in 2014 and it wasn't enough to avert what unfolded in 2014 and 2015. A lot of that stimulus relied on borrowing, but that was slowing.

In August 2014: Chinese Media Still Asking How To Pay For Mini-Stimulus?
China's mini-stimulus has two parts. One is the acceleration of investment projects, pulling economic activity into the current quarters. The other part is increased investment. For the latter, the question asked by Chinese media is how to pay for it?

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

This latest unofficial count is at ¥6 trillion in stimulus, but with tighter controls on shadow banking, concern about local government debt levels and declining land sales, local governments find their finances constrained. If there's no way to pay for projects, there will be no stimulus.
In some ways 2018 is also a mirror of 2014. Back then the shantytown renovation policy was getting started and the PBoC provided credit to the China Development Bank through the newly created Pledged Supplementary Lending (PSL) channel. See: China central bank gives CDB 1 trillion yuan

Today, China reduced the shanytown lending because local governments are already deeply indebted and there's worry about defaults...

The Shanghai Composite was more attractive heading into the 2015 bubble run. The Chinext had also been in a bull market going back to 2012.
China's government may do more, but so far it is doing far less than in 2014. The more energetic efforts of 2014 failed to stop a significant slowdown. Market disruption didn't completely end until late 2016 when forex reserves stabilized.

In 2018, the scale of everything has increased. Coming into 2014, China had a debt-to-GDP ratio of about 270 percent. Coming into this year it was closer to 320 percent. Some figures go higher, some lower. Suffice to say that if China slowed credit growth to 1 percent below nominal GDP growth of 10 percent (official), its expected real growth rate in 2018 would barely miss hitting 0 percent. China has an extremely narrow window in which it can pull off a deleveraging effort and it cannot avoid a significant slowdown absent some positive shock. If external factors such as a rising U.S. dollar add pressure, it will become more difficult.