Japanese firms accelerating exit from China

Two of the hottest words in Japan are "China risk" and "shed Sinicization" as Japanese firms shift their manufacturing base from China to Southeast Asia. Japanese firms are looking to Malaysia for rare earths and Myanmar as a potential market. Some firms are also moving production of value-added products back to Japan.

The impact for China should be limited unless the Japanese help start a trend. This wouldn't be the doing of the Japanese, rather economic weakness and other factors would make investors wary about China. Having seen the Japanese rapidly pull out and open new operations in neighboring countries, other foreign investors would have less of a psychological hurdle once they started thinking about such a move.

日本企业加紧“脱中国化” 制造基地向东南亚转移

Spooked by China, Japanese companies looking to Cambodia

China's 3000 wealthiest households lost nearly $100 billion

China's wealthiest 3000 households lost roughly $93 billion in wealth in the past year, with much of the losses blamed on falling stock prices. Most of the list is made up of Internet and real estate company founders.

The top table is the 2012 top 10 wealth figures, with 2011 on the bottom. The first category is their name, the second is their company, the third the percentage of wealth in equities and the last their total wealth. For 2012, I calculated the percentage decline in wealth for those who stayed on the list. Some of the companies on both lists are Sany, Baidu, Suning, Evergrande and Tencent.

Professor Lang goes viral; China is in recession, banking system broke

Last week, a friend of mine sent me the YouTube audio of his speech from October 22 in Shenyang. I've been busy and did not have time to listen to the 250 minute (!) speech. However, the Epoch Times, which seems to exist only as an anti-Communist party mouthpiece for the persecuted Falun Gong, has reported on the newsworthy items. Chinese TV Host Says Regime Nearly Bankrupt

Despite Lang’s polished appearance on his high-profile TV shows, he said: “Don’t think that we are living in a peaceful time now. Actually the media cannot report anything at all. Those of us who do TV shows are so miserable and frustrated, because we cannot do any programs. As long as something is related to the government, we cannot report about it.” He said that the regime doesn’t listen to experts, and that Party officials are insufferably arrogant. “If you don’t agree with him, he thinks you are against him,” he said.

Lang’s assessment that the regime is bankrupt was based on five conjectures.

Hat tip to Mish Shedlock, where I first saw the article. Mish's response is similar to mine, "so what else is news?" However, let's look at it from a social mood perspective. His speech is incredibly negative, delivered to a mainland audience (Lang is a professor in Hong Kong) and other Chinese have "jumped the wall" to listen to it on YouTube, which is how I found out about it. Part of Lang's popularity is due to his use of over-the-top language and hyperbole, something that Liu Junluo is fond of and one can find no shortage of on U.S.-centric blogs such as ZeroHedge. The only difference is the Americans think their leaders are bozos and the Chinese are wise technocrats, while Chinese believe their leaders are bozos and the Americans are led by wily masters of realpolitik. Perhaps the former is true in both cases......either way, social mood in China is low and declining.

China developer "price cut wave"; price declines reach third tier cities

New apartment prices are being cut 30% in Shanghai. Prices are also falling in Beijing, with industry leader Vanke (万科) cutting some prices by just under 20%. There's talk that Vanke's price cuts could lead to a wave of selling, but it looks like the wave is already forming.

Below are some Chinese articles, with a roughly translated headline and my summary/comments.

万科再降价：楼市价格拐点已经发生? (Vanke cuts prices again: has the real estate prices already turned?)

1926亿存货压顶 万科全线降价？！ (192.6 billion in inventory Vanke cuts everything?!) This article discusses Vanke moving quick to offload property. The firm does a high turnover and with sales slowing, lower prices will move units. If a major slowdown in commencing, this also allows the firm to sell ahead of the competition, though the article doesn't explore this angle.

开发商“储粮过冬” 不缺钱也降价自保 (Real estate developer's "winter grain", not short on cash but cutting prices to protect themselves) This one is interesting because one of the developers (Fantasia; 1777.HK) discusses how the action of the individual firms to protect themselves can lead to a self-fulfilling deflationary cycle as developer cash is pulled out of the real estate market. The bubble is both a demand and supply driven phenomena, for example developers bid up land prices at auction.

I'm keeping my eye on prices in cities other than Shanghai and Beijing, including the smaller third tier cities. These areas can still grow and their development lags the rest of the country. Price declines should be concentrated in the most expensive and overbuilt cities, but if this turns into a major crisis, the smaller cities will also be impacted.

楼市速递大话武汉“降价潮”将在11月来临 （Wuhan price cuts coming in November)

As real estate policy control continues, first and second tier cities have all seen different degrees of discounts, after Shanghai's 30% discount emerged, Beijing, Shenzhen, Guangzhou, Hangzhou, etc. price cuts have continuously grown in number. Wuhan's real estate deals were down in October, following the 34% drop in September. Real estate insiders believe the price cutting wave is coming in November.

在房地政策的不断调控下，一二线城市各大楼盘都出现了不同程度的打折现象，上海涌现出的“7折降价军团”后，北京、深圳、广州、杭州等地降价楼盘不断增多。武汉楼市成交量继9月下跌34%后，10月持续低迷。业内人士认为，武汉楼市“降价潮”将在11月来临。

青岛10月成交量创近三年最低 (Qingdao October contracts hit three-year low)

Here's news from Hebei, a province that surrounds Beijing, but that isn't nearly as wealthy. 河北多市房价跌幅加深，唐山市房价趋于下行 (Hebei multi-city price declines deepen; Tangshan trend is down) In October, price declines reached 1.6% in Langfang, a city that borders Beijing; prices in Tangshan fell 1.3%, while a sample of 7 cities in Hebei saw prices down 0.3%. Prices were flat in several large cities. (These are average prices in each city, not the price for new homes, which are also seeing similar double digit drops.)

地产龙头降声不断廊坊跌幅全国第一 This article says Langfang was the first city to see price declines in China, with prices now below July levels. This article also notes that the price declines are about 1% or less in most cities, but many cities are still seeing price increases including, of all places, the famous "ghost city" of Ordos. However, the article notes that only 40 cities saw rising prices in October, down 14 from September.

银十消逝 保定楼市提前入冬 (Silver October fades, Baoding market enters early winter) This article mentions a phenomena we saw in the U.S. just past the peak: discounts and special deals.

开发商：优惠+打折=真金白银

金九结束，不甘心的开发商纷纷绞尽脑汁在银十创新出形形色色的优惠活动，如力推“特价房”、“买房送家电”、“买房送旅游”、“买房送Ipad”、“买房抽大奖”或不时搞一些演艺活动等噱头纷纷出现，根据新浪乐居保定站统计，10月份，保定市内所有楼盘都推出了优惠活动，而绿城小镇、万和城等楼盘推出了降价幅度不小特价房，最高每平米降价500元

Developers: Deals + Discounts = Real Money

At the close of Gold September, developers racked their brains in Silver October and brought forth all manner of deals such as "Specially Price Homes", "Buy a House, Get Home Appliances", "Buy a House, Get a Vacation", "Buy a House, Get an iPad", "Buy a House, Win a Grand Prize", they also had artistic performances and comedy shows, [the developers] also cut prices, the highest was 500 yuan per square meter.

Baoding has much lower prices than Beijing, but that cut is at least 5% and could be 10% or more depending on the area. Overall, the national average price changes were mixed in October, but prices have declined in smaller cities. The government has said it would keep real estate regulation tight at least until the end of the year. In the next couple of months, we'll see whether this trend turns into a serious real estate crisis, or just another growth hiccup for China. Below is a chart of Guggenheim China Real Estate (TAO).

Andy Xie says yuan is overvalued

In an article about China's problems with the real estate sector, Andy Xie says an undervalued currency is not one of China's problems. In fact, the renminbi may be overvalued.

泡沫破后中国部分房价会跌去九成

中国有很多问题。但低估汇率不是问题。我反而认为人民币可能被高估了。存在升值压力是因为市场猜测美国可能会对中国采取何种措施。近十年内，中国的货币供应量增加了4.5倍。在经过长时间和大规模的货币扩张之后，从来没有任何经济体的货币会不贬值。如果人民币升值预期逆转，资本会巨额外流。这才是对中国的考验，而不是今天的升值压力。

China has many problems, but an undervalued exchange rate isn’t one of them: The renminbi may even be overvalued. The pressure to appreciate comes from market speculation about what the U.S. may do to China. China’s money supply has increased four and half times in a decade. I don’t recall any economy that, after such prolonged and massive monetary expansion, didn’t suffer devaluation. When we see a reverse in the expectation that the renminbi will appreciate, the capital outflow could be massive. That will be China’s true test — not today’s pressure to appreciate.

English link.

The English link translates some of the Chinese, but it is mostly about currency, where as the Chinese article is about globalization and a real estate bubble. Here Andy Xie has the trend right, but since he's not looking at social mood, his timing may be a bit optimistic. Below is the sloppy Google translation along with the Chinese:

While the trade war is unlikely now, the next few years, Sino-US trade frictions may increase. A commodity-specific protective measures will proliferate. Chinese enterprises will become increasingly difficult for independent development in the United States sell their products. In essence, the Sino-US trade will become increasingly concentrated in the United States multinationals. Obviously, this is not good news for Chinese companies because these companies eager to establish their own brand, or establish their own distribution channels in the United States. China might react to restrict U.S. multinationals in China business. Although the bilateral trade will continue to develop, but growth will slow sharply. I suspect that in the next decade, the pace of development of bilateral trade may be less than half of the past.

　　Sino-US trade friction signs that global trade will slow down. This may be a good thing. Over the past 20 years, as multinational companies will shift production to developing countries, global trade growth rate is the world's economic growth rate of 2 times. Most of the production have been completed to transfer the transfer. The remaining production is difficult due to the transfer of political interference. Future global trade in goods may be synchronized with the global economic growth.

　　For a long time, globalization has both the developed and developing countries is a win-win. But we have no such feeling. Developed over the years to enjoy cheap goods, since the unemployment, the income of the developed countries face the problem of suffering. Developed countries, the future looks worse.

虽然眼下不太可能出现贸易战，未来几年，中美贸易摩擦可能加剧。专门针对某种商品的保护措施会激增。中国企业会越来越难以在美国销售它们自主开发的产品。从本质上讲，中美贸易会越来越集中在美国跨国公司中。显然，这对中国公司来说不是好消息，因为这些公司渴望树立自己的品牌，或者建立它们自己在美国的分销渠道。中国可能会作出反应，限制美国跨国公司在中国的业务。虽然两国贸易将继续发展，但是，增长率将大幅度减缓。我怀疑，在未来十年内，双边贸易发展的速度可能还不及过去的一半。

　　中美贸易摩擦的迹象表明，全球贸易将会放缓。这可能是好事。过去20年来，由于跨国公司将生产转移到发展中国家，全球贸易增长速度是全球经济增长速度的2倍。大部分可以转移的生产都已完成转移。其余的生产由于受政治干扰而难以转移。未来全球货物贸易可能与全球经济同步增长。

　　长期以来，全球化无论对发达国家，还是发展中国家都是共赢的。但现在已经没有这种感觉了。发达国家多年来享受廉价商品，现在由于失业，发达国家面临痛苦的收入问题。发达国家的未来看起来更糟。

With regards to real estate, Xie sees a collapse in real estate prices, by as much as 70-90%. China will have to raise interest rates soon, he says, but if property prices decline, the hot money will flow out of the property sector. Although Xie doesn't represent the thinking of the Chinese government and regulators (though there are some similarities), he does offer a China-centric view of the Chinese economy. The U.S. press, including Nobel Prize winning economist Paul Krugman, tend to look at China as if it was just a manufacturing hub.

Also interesting is how all this plays into the views of Liu Jun Luo and Song Hongbing, of the U.S. using its currency (along with other tools) to retain its position as the number one economy. Liu has predicted that the renminbi could collapse, along with all the other currencies of the world, to as low as 20 to $1.

v形反弹？謝國忠

新的谢国忠到了。 全都很好但是我想摘抄一下：

这个泡沫的生命很短：

我们现在看到的，是在全球经济中堆积的纯粹的流动性泡沫。它体现在几个资产类别上，最突出的是大宗商品、股票和政府债券。支撑泡沫的理由是，刺 激将导致经济快速复苏，而且，产出缺口能够保持低通货膨胀率，因而中央银行可以把利率数年内维持在较低水平。根据这个描述，投资者可以同时期待强劲的企业 盈利和较低的利率水平，也就是股市所谓的“金发姑娘”（语出Robert Southey的童话，此处“金发姑娘”形容上世纪90年代中后期的美国经济，即一个“稳步增长，通胀温和”、处于童话般的美好状态，但“三只熊”回来， 一切就结束了）。

　　中国二季度和美国三季度发生的事情，似乎可以支持上述观点。我认为，市场被误导了。目前反弹的驱动力量，是库存周期和政府刺激。企业资本支出和 消费的跟进，被结构性挑战严重制约着。这些挑战都源于资源分配不当导致的泡沫。泡沫破裂后，供应和需求之间的不匹配，限制了刺激或泡沫创造需求的效力。

改变储蓄和消费，即社会情绪经济(socionomics)因素模式:

有人认为，如果低利率使房地产市场再度 复苏，美国家庭可能会再次变得愿意借钱消费了。这种情况是可能的，但希望不大。未来，要么会出现经济正常恢复，要么就是由泡沫激发的经济繁荣，结局取决于 美国家庭储蓄率的前景。除非美国家庭部门愿意再次借钱来花，否则，新兴经济体无法重返出口带动增长的模式。

忠告中国，除了分发公有公司的股份（最重要的一个策略之一，因为它可以减少贫富差距）:

其次，中国可以通过结构性改革，大幅降低储蓄率。在中国储蓄总量中，一半来自公共部门。政府和国有企业应该减少其不断升高的留存收益，并增加投 融资的贷款比例。例如，中国较高的资产价格，就是源于地方政府有增加财政收入以支持投资的需要。如果中国的资产价格削减三分之一，国民储蓄率可能会降低2 个－3个百分点。

四季度的预计：

应该用W型代替V型复苏。尽管明年的下滑在统计上可能不深，却将传递出影响深远的心理冲击。金融市场现在很活跃，因为其仍相信政府。第二波下滑将显示政府力量有限。这波下滑或会使资产价格下跌，并保持很长一段时间

我认为他写得很对.去年四季的恐慌很厉害,可是人民有希望.大众以为政府和中央银行很厉害,能控制经济的路径.其实,大众控制经济的路径,是社会从众行为. 而且社会经济有很严肃的不平衡的发展. 总统和央行行长不会做什么,就是让资产价格下降很快和经济调整.

社会情绪经济