Fourth Chinese Bank on Brink After Rumor Spurs Depositor Exodus

ZH: Chinese Bank On Verge Of Collapse After Sudden Bank Run
"Our bank is state-backed, and your money is insured by deposit insurance," one female manager told her, but Ms. Li refused, her confidence in the state's lies crushed.

“We really can’t afford to lose the money,” she said.

The bank run at Yichuan Bank, located in China's landlocked province of Henan, makes it at least the fourth bank that authorities have rushed to rescue this year. It won't be the last.
Sina: 河南一银行储户集中提款 央行分支机构紧急澄
In county-level cities, rural commercial banks (formerly rural credit cooperatives) are the most widely distributed financial institutions, which are crucial to the production and life of local people.

  On October 29th, the Yichuan Rural Commercial Bank in Luoyang, Henan Province, experienced incidents in which depositors concentrated their business. According to the Beijing News, a queue of tickets for personal business on the Internet shows that a man took a photo with a single number. The platoon number is displayed, its number is 1490, and there are 419 people queued in front. There are many people waiting in line at the bank.

The Chinese article says a woman started a rumor that the bank would go bust:
On the 30th, Yichuan Rural Commercial Bank announced that it was originally a woman who wanted to go bankrupt. Soon after, the police informed that the rumored woman was detained for five days in accordance with the law.

At the same time, the official also announced that the former party secretary and chairman of Yichuan Rural Commercial Bank Kang Fengli (Li) was investigated.

Because of a rumor, savers concentrate on business
However, even after coming in with cash and putting out the message about rumors, depositors were still taking their cash home:
Surprisingly, it did not work in China, as people continued to show up, adamant about withdrawing their funds; the bank run was accelerating, and nothing officials did could halt, or reverse it.

Zhang Yanting, a 51-year-old farmer, decided after several days of trying to pull his money out of the bank that he would keep his account open to collect the few dollars in grain subsidies he receives each year from the government. But Zhang still wanted most of his 13,000 yuan in deposits back.

After hours in line Thursday, the bank cashier handed him a wad of cash, which he happily stuffed into his bag. Zhang was unmoved by the promise of gifts, save for a bottle of water that he sipped from while waiting.

“I’ve been with the bank for 10 years and have never seen service this good,” he said.

Banks, Run!

If rate hikes are done, banks are in trouble.

Return to Buffet

Follow up to this post.

Software Still Looking Weak


Is the Bubble Back? Shenzhen Homebuyers Pledge 5M Yuan to Wait in Line, Only 2 Min to Select Property

iFeng: 深圳楼盘火爆“打新”:1508万起步 排队1小时选房2分钟
million yuan sincerity gold, 15.08 million yuan admission fee, Shenzhen high-end real estate project "Shenye Midtown", which has received much attention due to high prices, officially opened this morning.

Shenye Zhongcheng has 2,794 sincere registrants, but today only the top 500 singer can enter the house to choose a room, and the time for selecting a house cannot exceed 2 minutes.

This means that Shenye Zhongcheng will usher in a fierce scene of 500 people competing for 192 listings.

The China Securities Journal reporter came to the opening scene early in the morning and found that at 9:30 in the morning, there were customers who rushed to the scene to "occupy the place" and the materials for holding the documents were waiting.
A frenzied housing lottery in June 2018 did not herald a turn in the market, but Shenzhen real estate was an early indicator (summer 2015) of the prior cycle's turn.


China's Giant Ball of Money

Deep Throat: Repo-Acalypse Now....
5.) Most importantly, again for emphasis, the Global USD increase over the last two years was primarily attributable to domiciles outside the United States (88%), with only 12% of the USD increase attributable to US Cross-Border Bank Liabilities/Deposits. In other words, the Global inventory of "newly printed" USDs is rapidly being absorbed by foreign ownership.
Not from the same list:
7.) When we examine the M3 Chart above we also see that China (RED) is the outlier, more than doubling their domestic money supply when compared to the US, Europe and Japan. The PBOC has been able to accomplish this "say so" exchange rate since the RMB, again, like so many things Chinese, is a fake currency with a pegged value which has nothing to do with economic reality. The second largest economy in the world has a closed, inflated currency which nobody uses. Yup....that's a fantastic idea. As you historians might recall, the Reichsbank tried the same thing in 1920. But they didn't have computers/wires/SWIFT so it was easier to spot. The reason the Mark failed was that they actually tried to use this currency to pay their international bills (WWI Reparations) and the Allies caught on.
Where's the Money Lebowski?

After decades of $500 Billion (plus/minus) annual global trade surpluses you'd suspect that the Chinese must own not only a significant amount of US Dollar deposits scattered all over the world, but significant financial assets (Stocks, Bonds, Real Estate, etc.) as well, and you'd be correct. Over the last two decades the West has transferred roughly $11.266 Trillion (in Dollars, Euros, Yen, Sterling, etc.) as a result of these trade surpluses.

Through the miracle of compounding interest, we can estimate that the value of Western Assets (including the Chinese portion of the above described bank deposits) controlled and direct-able by Chinese Communist Party, members and agents is roughly $27.321 Trillion (give or take) if invested at the S&P Total Return as described in the table below. Again, we know this with certainty, since there are no material RMB deposits or RMB denominated financial assets in any non-Chinese Banking systems anywhere in the world. This $27.321 Trillion can move freely around the globe between US Dollars, Euros, Sterling, Yen, Hong Kong Dollars, Canadian & Aussie Dollars, Rupees, Pesos, etc. etc. etc., but it's never been converted to RMB.

This approximately $27.321 Trillion, Chinese money/assets is still lurking in the Western Financial System somewhere.

(Note: The figure could be much greater since the Chinese, as large depositors, have had unlimited access to excellent financial advisers, and leverage, provided gleefully by our friendly US Investment Bankers. The CPC has most likely beaten the S&P Returns with consistency)

China Says Foreign Concern on Slowdown "Baseless"

Don't make too much of this, but the top headline in the finance section today is the CCP rebutting pandas.

iFeng: 外媒称中国经济“严重放缓” 发改委:无任何依据
On October 21st, Chinanews.com responded to China’s economic data by individual foreign media and believed that China’s economy was “seriously slowing down”. Yuan Da, director of the Policy Research Office of the National Development and Reform Commission, spoke on the 21st, saying, “This is no Any factual basis, untenable."
Xinhua: Skepticism about China's economic growth "groundless": spokesperson
"There is no basis for such skepticism," the spokesperson Yuan Da told a press conference, citing a series of robust economic indicators.

Over 500 million people hit the road during the seven-day National Day holiday. China's power use rose 4.4 percent in the first nine months, while cargo volumes increased 5.9 percent during the period.

"The indicators were the most direct reflections of economic growth, which prove that the national economy maintained overall stability," Yuan said.
If China's economy were growing fast enough, they would have already agreed to a small trade deal. They could afford to give Trump a face-saving short-term win that left them on a strong long-term footing. The trade conflict is a big deal for China because they can't handle a deterioration in trade at this moment.

Reuters: China more than doubles Sept approval for fixed-asset investment projects
China’s state planner in September more than doubled its approval for fixed-asset investment projects, as Beijing looks to step up support for an economy expanding at the slowest pace in nearly three decades.

...The National Development and Reform Commission approved 177.8 billion yuan ($25.15 billion) of investment in 14 fixed-asset projects in September, a commission spokesman Yuan Da told reporters in a briefing on Monday, adding that the investments were mainly in the transportation sector.

That compared with its August approval for 68.9 billion yuan worth of projects.

On Friday, China reported third quarter gross domestic product growth of 6.0%, marking a further loss of momentum for the economy from the second quarter and hitting the lower end of the government target of between 6.0% to 6.5% for the full year.

The September value was also the highest since at least April, official data showed.
“As China’s economy shifts from a high-speed growth stage to a high-quality stage, as long as the employment expands, income increases and environment quality improves and economic efficiency increases, it is acceptable for the economic growth to be a tad lower or higher,” Yuan said.
This is on par with the Federal Reserve (or any central bank) claiming it knows the proper level of interest rates. Moreover, like the Fed's intervention plainly rebutting it's own rhetoric, the increase in fixed-asset investment that will be backed by more debt is exactly the type of low-quality "growth" that is causing China's economic slowdown.


Beijing Has Stricter Residency Requirements for Chinese than USA Does for Foreigners

Caixin: Chart of the Day: Beijing Points System Mints 6,007 New Residents
Out-of-towners looking to land a coveted Beijing residence permit might think of taking up jobs as technicians in banks, internet firms or state-owned enterprises.

That’s one of the main messages in the second year of a new program allowing non-Beijing residents to apply for residency in the Chinese capital using a system that awards points for things like one’s education level, stable living situation and how many years they’ve paid local taxes.

...Beijing first rolled out its points-based residency application system in 2017, and made its first awards last year. This year 6,007 people made the cut, or about 5% of the more than 100,000 people who applied, according to data released this week by the Beijing Municipal Human Resources and Social Security Bureau. Of those, the oldest person was 60, while the youngest was 32. The numbers are still a tiny fraction of Beijing’s population of nearly 22 million, only about 60% of whom have official residency.
Beijing's system is unfair, but very beneficial for its members. The United States is so fair that it is almost a negative to become a member, because the obligations outweigh the benefits.


Pork Prices Keep Rising, CPI up 0.9pc in September

China's CPI is starting to breakout to the upside as the pork crisis escalates. Previous reports predicted a spike in pork prices in the second half of the year, but the continued collapse in swine herds has been a surprise.

Reuters: China's pork, beef imports surge in September
The deadly African swine fever has reduced the world’s top pig herd by almost 40%, according to official data, after spreading unchecked throughout the country and leaving many farmers unwilling to replenish their farms.

The slump in the herd has pushed retail pork prices up by 84% year-on-year to 43.4 yuan ($6.14) per kg while the country’s food price index is at its highest since January 2012.
NBS: 2019年9月份居民消费价格同比上涨3.0%
Producer prices were up 0.1 percent in September. NBS: 2019年9月份工业生产者出厂价格同比下降1.2%

Money Supply Growth Still Slowing

Although the year-on-year comparables were positive, lifting yoy M2 growth from 8.2 percent to 8.4 percent. The rolling 3-month growth rate shows the most recent quarter is slower than last year at 6.6 percent versus 7.3 percent one year ago.
Total social financing increased 11 percent. Closer to 10 percent or below is where the economy runs into trouble.

Reuters: China September new bank loans beat expectations, more easing seen
Official reserves were steady in September., as they have been for months.


Local Govts Start Subsidizing Home Buying Again

iFeng: 贷款额度提升、买房补贴现金…楼市要“闹哪样”?
Phenomenon I, Yangzhou: The accumulation of provident fund loans from 350,000 to 500,000

There is not enough cash, the loan is coming together, the amount is too low, and you can only give up.

A similar situation is common to buyers, but it is really a hero.

This time, Yangzhou acts!

On October 8, Yangzhou issued a document and decided to restore the maximum amount of housing provident fund loans from 350,000 yuan to 500,000 yuan from October 15, 2019.

From 350,000 to 500,000, this range is not small. For the just-needed group whose money is not plentiful, it is undoubtedly good news.
Suzhou, once a "hot" city subject to strict controls, is handing out cash subsidies:
Phenomenon 2, Suzhou: the first suite to subsidize 20,000 yuan

Buying a house for cash subsidies? Yes, you didn't get it wrong! At present, there is already a place to do this.

On October 8th, the Housing and Urban-Rural Development Bureau of Suzhou City, Anhui Province issued the "A Letter on Promoting the Popularization of Agricultural Population to the People of the City", proposing that the agricultural transfer population purchase the first set of commodity housing in the main city and handle the real estate registration certificate. And settled in, and gave full financial subsidies to the deed tax paid.

In addition, the laborer signed a one-year and above labor contract and continuously paid social insurance for half a year or more, in line with the corresponding conditions, and purchased the first set of commercial housing in Suzhou City and settled the certificate, and granted a subsidy of 20,000 yuan for housing purchase.

Although the subsidy of 20,000 yuan is not too much, don't forget that compared with some hot cities, the price of Suzhou is not high. Moreover, compared with other cities, high-education people are required to purchase housing subsidies, and Suzhou workers are included in the scope of subsidies!
The article states this is not a general easing, that housing policy is still "one city, on policy" where local conditions play the largest role.
First of all, the strength of the property market regulation has not been reduced. Statistics show that in September, the number of national real estate regulation and control policies was published up to 48 times. In the first nine months, the total number of real estate regulation and control was 415 times, and the intensity reached a new historical record. From these figures of regulation, there is no sign of the relaxation of the property market.

Secondly, the general direction of protecting those who just need to buy a home has not changed. Whether it is the change in the amount of the provident fund loan in Yangzhou or the cash subsidy for the first home purchase in Suzhou, it is actually protecting the interests of the newly purchased houses, rather than stimulating the real estate market. This kind of thinking is the general direction of the property market regulation. It has not changed in the past. It has not changed now, and the future will not change.

Once again, the idea of ​​"one city, one policy" has been insisting. Under the positioning of housing and not speculation, the real estate market is constantly stabilizing, and all parties are expected to mature and rational. While some cities have fine-tuned their regulatory policies, some cities are also over-regulating. On September 30th, Hohhot issued a series of control and combination boxing, including raising the proportion of down payment for the second suite, implementing the melting mechanism of land transactions, and setting up a price validation team.


Proctor & Gamble Wedgie

Maybe nothing

Turkey is Toast 2019 Edition

I identified Turkey as a potential geopolitical hotspot given a bearish chart pattern several years ago. Things have not been going well for Turkey or its currency in the interim. I speculated that a completion of the bearish pattern would point to extreme events, either currency collapse or possibly Turkey being ejected from NATO. The latter is now openly discussed in Washington, DC.

NI: Sorry, Lindsey Graham: America Can't Kick Turkey Out of NATO Unilaterally
TAC: Time to Kick the Islamizing Turkey Out of NATO


Groundwork for Yuan Devaluation

I expect currency devaluation is the end game for nearly all countries, but the first to go will be emerging markets, not core economies since a Plaza Accord 2.0 seems impossible. The key currency for the "emerging market" complex is the Chinese yuan. Although it may be currencies such as the South Korean won that depreciate first, the yuan will eventually be the big mover that shakes the "EM" complex, followed by spillover into the euro and yen, then finally the dollar.

Before devaluing and floating the yuan, there will be much discussion in the press, such as this article. Zhang Bin of CASS has put out an opinion piece arguing a floating currency isn't to be feared, but is in fact a tool of economic stabilization.

财新:浮动汇率不可怕 是经济自动稳定器

As I've been saying here for many years, I expect China will implement a large one off devaluation that undervalues the yuan and then allow the yuan to float. Capital outflows occur because investors expect the currency will lose value. By slashing the yuan and allowing it to float, the market will bid CNY up as foreign and domestic investors repatriate funds and buy undervalued assets. Zhang Bin says much the same thing in this article.
There is a general concern that currency depreciation can lead to instability of confidence and capital outflows. This is a misunderstanding that does not distinguish between depreciation and depreciation expectations.

  Under the intervention of the monetary authorities, if the market-driven demand-driven currency depreciation is not realized or fully realized, the currency depreciation is expected to exist. The purchase of foreign currency financial assets will receive an additional expected premium, and the repayment of foreign currency liabilities will receive additional expected subsidies. Incentive capital outflows and reduced capital inflows, net capital outflows increase. This is a depreciation expectation, not a depreciation itself, driving a net outflow of capital. If sufficient depreciation is achieved in accordance with market supply and demand, in the absence of further depreciation, capital outflows have no additional expected returns, capital inflows have no additional expected subsidies, and net capital outflows are more stable.
He argues the yuan will not depreciate excessively:
Another concern about the introduction of floating exchange rates is that the RMB exchange rate under market supply and demand decisions will depreciate excessively. Based on international experience, the probability of this happening is very low.

  We define a total depreciation of more than 15% a year as a large depreciation. We have compiled large depreciation cases in the IMF database since the Bretton Woods system was disintegrated. In the nearly 40-year history, 157 large devaluations occurred in all 52 sample countries. Among the above 157 cases of large devaluation, there are high inflation or trade deficits behind the 148 major devaluations, or both. Only nine major devaluations occurred in the context of low inflation and trade surpluses.

  These nine major devaluations can be divided into several categories: 1. Exogenous economies face severe external crises: South Korea (2008-2009), Malta (1993); 2. Greatly loosening monetary conditions and actively guiding currency depreciation: Sweden (2009) Japan (2013); 3. Monetary system reform: Denmark (2000), Switzerland (997); 4. Pre-existing currency overvalued: Japan (1996) Netherlands (1997); 5. Excessive credit and excessive foreign debt: Indonesia (2001).

  These international experiences show that the foreign exchange market is not as ineffective as many people worry. China's economy is currently in a medium-to-high-speed growth, low inflation, trade surplus, no serious external economic crisis, overall controllable risks in the domestic financial system, and external debt has fallen to a lower level. From the international experience, the probability of a large depreciation of the currency in this context is very low.