China Economy Megathread

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namaste friends: Sep 18, 2004; by Smythe

What & Why

From wikipedia:
The�socialist market economy[17]�of�China�is the�world's second largest economy�by�nominal GDP�and by�purchasing power parity�after theUnited States.[2]�It is the world's�fastest-growing major economy, with�growth rates averaging 10%�over the past 30 years.[18]
China is also the largest�exporter�and second largest�importer�of goods in the world. China is the largest manufacturing economy in the world,[19]�outpacing its world rival in this category, the�service-driven economy�of the United States of America.�ASEAN�China Free Trade Area�came into effect on 1 January 2010. China-Switzerland FTA�[20]�is China's first FTA with a major European economy. The�economy of China�is the fastest growing consumer market in the world.

From <http://en.wikipedia.org/wiki/Economy_of_China>

How

Debt:
Chinese banks added 89 trillion yuan of assets, mostly through loans, in the past five years, equivalent to the entire U.S. banking industry�s, CBRC data show. By comparison, U.S. commercial banks held $14.6 trillion of assets at the end of September, according to the�Federal Deposit Insurance Corp.

From <http://www.bloomberg.com/news/2014-02-14/china-banks-bad-loans-rise-to-highest-since-financial-crisis.html>

Economic Growth:

Gross domestic product (GDP) grew at an annual rate of 7.7% in the October-to-December period, down from 7.8% in the previous quarter.
But it was still higher than the government's target rate of 7.5%.
China is trying to maintain strong growth while rebalancing its economy.
China has said it wants to move away from an investment-led growth model to one driven by domestic consumption.

From <http://www.bbc.com/news/business-25805227>

Shadow Banking:

http://www.bbc.com/news/business-26335304

quote:

The shadowy threat from China�s lenders

Wenzhou juts out from China's eastern coast in Zhejiang province. Its wide, tree-lined streets, dominated by huge modern buildings, give no hint of the turmoil that has gripped its economy in the past couple of years.

Wenzhou has been at the forefront of China's experiments with private industry since reforms began over 30 years ago. As a result, its average income is double that of China.

But now it has gone wrong. Thousands in unofficial lending suddenly went unpaid. The Chinese central bank reports that 89% of households and 57% of firms have borrowed money, but not from banks.
A whole network of people and organisations threatened to come crashing down. There was a quiet rescue by the local government.
The source of this crisis was China's shadow banking system. Shadow banking is the slightly sinister name for trusts, leasing and insurance companies - or any other non-bank financial institution - which perform banking functions without a banking licence.
Every country has unofficial lenders, but China's are in a league of their own. Individuals, companies - even local governments - who can't get loans from state-controlled banks have been on a borrowing binge from unofficial sources for years.
Now the concern is that the whole unstable pyramid is about to come crashing down, bringing the Chinese and perhaps even the global economy with it.

'Efficient but high rates'

For firms like Zhejiang Brothers Printing Company that operates a factory that prints decks of cards, borrowing from shadow banks is the only way that they can grow.

Zhou Feng, the 30-year-old boss, told me that without the high-interest loans from shadow banks he couldn't take on large orders. He usually pays 24-30% for these loans, which in his case are usually for just three to five days, and give him much-needed cash.
Zhou told me: "We still prefer to use shadow banking as a channel to get money to solve business problems as it's efficient and quick, though the rate is much higher than the banks� If the money can't arrive on time, we may have trouble."
He admitted that it would be better to borrow from the bank, but added that up to half of the companies in Wenzhou were in the same position as his.

Following the crisis a short while ago, the government is now piloting a programme to get shadow loans registered. I was there on the first day of this amnesty for shadow bankers and borrowers. Unsurprisingly, no-one turned up.
Still, Zhou Dewen, the local official in charge was convinced, and willing to admit, that shadow banking can be regulated, although it poses a significant risk.

"Shadow banking has reached a very high level. Without any law and supervision, such huge amounts of loans will pose a big threat," he said. "It's so risky and also has caused many crises."

Shadow banking for savers

So how big a problem are China's shadow banks?
This won't be reassuring, but the answer is no-one really knows. The shadow banking sector in China is largely unregulated by the banking authority, so although there are figures from the National Audit Office, they are likely to be less than precise.
Shadow loans are estimated to make up 20% of all loans. The Wenzhou official puts the figure at 3.7 trillion yuan ($604bn; �362bn) for the country. What is evident though is that if there were a banking crisis, there would undoubtedly be a massive impact on the economy, since debt is estimated to be more than 200% of GDP.

And it's not just loans. Savers are also affected by shadow banking.

These shadow banks and some not-so-shadowy banks also sell so-called wealth management products (WMPs), which offer returns that far outstrip the official deposit interest rate of 3%. But these are riskier and reminiscent of some of the horrifyingly complicated products sold in the US and Europe before the global financial crisis that started in 2007. How many are high-risk is unknown.
We spoke to one shadow banker who asked not to be identified. He told me that he charged interest rates of up to 100% and lent on average 6m yuan per month, which is just under �600,000.
"[The government] can never get rid of the borrowing in the society. So shadow banking will exist forever," he said. "They can only ban the very high-rate loans but can't ban all shadow banking. It's like gambling. Though gambling is banned in China, many people play cards or mahjong to gamble."

Worried victims

Sometimes, though, the authorities do crack down.

One of China's most notorious shadow bankers,�Wu Ying, is now serving a life sentence in prison�(a death sentence had been mooted). I met her father in his one-room bedsit. Outside, a group of victims gathered and shouted at him to return their money.
In another town, I met a victim who lost everything that her mother had saved to retire on. She lent the money to her boss to earn more interest than the meagre rate offered by the bank. His shadow banking operation collapsed and he later killed himself.
She told me: "I am more worried about what would happen to my mum if she finds out that she lost all her money and she can't accept that. She is too old and also has high blood pressure. She can't handle this kind of news."
The personal impact is huge - as are the consequences for the country.
The problem originates with the state-owned sector. The big four state-owned commercial banks and other mainly state-controlled banks account for nearly all official lending. Their customers tend to be state-owned firms. It means that there has been little scope for private banks - foreign banks account for less than 3% of total assets in the banking sector.
To address this, informal lending, which has existed for a long time in China, has grown rapidly in the past five years, because - extraordinarily enough - local governments also began to borrow from the shadow banking system.

During the midst of the global financial crisis the central government launched a spending programme of 4tn yuan to prevent a recession. However, rather than provide funding for this centrally, it left it to local governments to find the finance for these projects.

Bigger than Lehman?

If China were to have a banking crash, then the issue will be if the government can afford to rescue the banks without crashing the system.

If it can, then it is still a disaster since the cost to growth will be severe. If it can't, then China would be in crisis and the global consequences would be dire.

In some ways since every saver is affected in the world's most populous country, it could even have a bigger effect than the collapse of Lehman Brothers in 2008.

Either way, it's a troubling outcome.

From <http://www.bbc.com/news/business-26335304?print=true>

Talk of a Chinese shadow banking crisis is on the rise, leaving many investors in the U.S. and elsewhere wondering: What exactly does that mean?
Shadow banking is unregulated, high-yield lending that largely takes place off banks' balance sheets. China's central bank wants to restrain risks related shadow banking in that country, but has shown little interest in shutting it down entirely.
Fears about China's banking system have flared recently because of a financial product known as a wealth management product, or WMP, that was widely expected to default this week until an�11th-hour agreement resolved the situation. This particular WMP has a three-year maturity and was supposed to bring a return of between 9.5 percent and 11 percent�far above the 3 percent deposit rate banks are paying. The initial principal investment was roughly $500 million.
WMPs are pervasive in China, and many are seen as being at risk of going bust. They are often invested in risky assets such as pawn shops, or in infrastructure projects that have no revenue. And sometimes they aren't invested but are just rollovers of WMPs that have matured.
It's feared that investors will abandon WMPs, which despite their risk provide credit to small and midsize businesses. That would lead to tighter credit and an economic slowdown. It could also lead to a run on the banks if investors fear they're too exposed.
Some China experts are less concerned, for two reasons.
First, the nation has a lot of money to recapitalize any bank it wants to. Second, it has a "closed capital account." That means money does not flow freely across its borders but moves only if the Chinese government says it can move. The implication is that the government can shut down, or almost wall off, the banking system. It's debatable whether that's a good thing, but in the short term, it means that China can control or stop money from leaving the country or even leaving the banks.
WMPs are widely believed in China to be guaranteed by the government, but it's not clear if that's true. That leads to a different fear of many market watchers: If the Chinese government bails out investors in a WMP, it could make the risks associated with them much higher and avoid short-term problems in exchange for much bigger ones down the road.

From <http://www.cnbc.com/id/101370538>

But:
With small and medium-sized enterprises - by far the economy's most important growth engine - unable to acquire sufficient funding from the formal financial sector, they have been forced to turn to informal channels. As shadow banking has become the primary source of finance for SMEs - which tend to be higher-risk borrowers - the financial risks in China's economy have grown exponentially.
Exacerbating matters, the central bank's repeated efforts to tighten the money supply raises the cost of capital. Last June, the annualised interbank lending rate surged to more than 10 per cent - a level that it almost matched in December. SMEs ultimately shoulder these costs, diminishing their ability to contribute to overall economic growth.

From <http://www.scmp.com/comment/insight-opinion/article/1444591/shadow-banking-biggest-threat-chinas-economy>

The question is, when?

China�s premier has warned that future defaults on bonds and other financial products are �unavoidable� underlining concerns that a wave of bad debts threatens to derail growth in the world�s second-largest economy.
Li Keqiang said on Thursday that�China�was likely to see a series of defaults as the government accelerates financial deregulation, although he added the government would take steps to ensure they do not pose a threat to the wider financial system.
In the past, the government has always stepped in to bail out companies but Mr Li has decided to allow several small, mostly privately owned, companies to default on their debts in order to address the problem of �moral hazard� in the economy, according to people familiar with the government�s thinking.
Some analysts have warned that by doing so, Beijing could trigger investor panic and prompt a �Lehman moment� in China�s increasingly debt-dependent economy.
Beijing�s challenge is laid bare by the failure of Haixin Steel, a privately owned mill in the heart of China�s coal country, to repay loans that came due last week. The default, disclosed to the Financial Times by steel traders, could send shockwaves through the local banking and shadow banking sectors.

From <http://www.ft.com/intl/cms/s/0/27f9f4aa-aa82-11e3-9fd6-00144feab7de.html>

Contrarian Views:
It looks like a colossal accident waiting to happen:�China�s first true bond default�has laid bare the country�s financial risks just as $400bn in debt comes due this year for cash-strapped local governments.
But a curious thing has happened in recent days. Far from triggering a wave of defaults, the concerns about the Chinese bond market have instead nudged local governments closer to financial safety.
Bonds issued by local government financing companies � long seen as one of the big problems hanging over the Chinese economy � have found favour among domestic investors and brokerages. Credit costs for provinces and cities have declined as a result, making it easier for them to obtain the cash to pay off their maturing debts.
When Chaori, a struggling solar cell maker, missed an interest payment this month � the first real domestic default in the modern era of China�s bond market � it was seen as a sign that the government would finally allow companies to fail. Analysts predicted that investors would start to pick between borrowers in the bond market, flocking to safe, lower-yielding paper and demanding higher rates from riskier companies.
Yet such predictions failed to grasp the political realities of�China�s financial system. And those are that Beijing will draw a line between weak private companies and weak government-backed companies; it will let the former default but not the latter.

From <http://www.ft.com/intl/cms/s/0/bf2e2834-add2-11e3-9ddc-00144feab7de.html>

A�Texas sharpshooter�and a�China analyst walk�into a bar�
Last week�s default of little Chaori 11, China�s first onshore corporate default, brought with it some analyst hyperbole which has been�rightly called out. Leaving aside for a moment this was BofAML�s second Bear Stearns call this year, their point was that Chaori 11 would be the moment that the market started to seriously re-assess financial risk in China. So far, not so much.
From�the FT:
Some have expressed fears that the Chaori default could create a domino effect where investors quit the bond market altogether, sparking a liquidity squeeze or a credit crunch.
However, the domestic bond markets have so far treated the default as a non-event. Average yields on investment grade debt have fallen this year, while the spread between highly-rated and low-rated credit has been widening steadily for the past six months � an indication that investors had already begun re-pricing risk.
Everybody knew the bond was in trouble, Choari has just 1,500 employees, is privately owned, and falls under the supervision of the Shanghai government, which is seen as one of the more progressive local authorities. A perfect trial balloon then, but whether its default�can really��result in a revelation of risk exposure and correction across the board� is�almost�as debatable as whether it will start a chain reaction that leads to Lehman. It obviously does pay to keep in mind how�panic can�spread when information is suppressed but calling�this one in advance�is� difficult.

From <http://ftalphaville.ft.com/2014/03/10/1793302/barely-stearns-in-china/>

China Megathread:
http://forums.somethingawful.com/showthread.php?threadid=3466532

:china:

BBC Documentary - How China Fooled the World

https://www.youtube.com/watch?v=HUSjMnmS5lI

namaste friends fucked around with this message at 03:48 on Mar 18, 2014

# ¿ Mar 18, 2014 03:39

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# ¿ Apr 28, 2024 08:31

namaste friends: Sep 18, 2004; by Smythe

From the Canada Housing Bubble Megathread:
http://forums.somethingawful.com/showthread.php?threadid=3533827&userid=0&perpage=40&pagenumber=83#post427000564

EoRaptor posted:

Don't ignore that this has happened in other countries. GM started offering financing for their cars, and eventually they became a financing company that happened to make cars. They grew into other types of lending, got huge, and then imploded (and got bailed out).

This type of thing happens when buying power drops below the capital cost of a good or service (industry or consumer). Nominally, banks are supposed to step in here and use their financial expertise to turn future revenue into current credit, allowing the transaction to proceed. Banks eventually became unable to overcome their own risk model, as they could no longer muster the internal expertise needed to evaluate a given purchase correctly. As a response, manufacturers borrowed from the banks against their own output, and lent that to their own purchasers based on the information their had about their business relationship.

The only risk in this model is the supplier 'pumping up' prices and loans to try to make more money, or financial diversification outside their core market where they are unable to properly asses risk. Other risks, such as payment defaults and industry downturn, exist in pretty much any model, and are accounted for.

Haixin seems to have gone for financial diversification strategy. This lead to a bunch of poorly evaluated decisions, and the end result is they are no longer able to pay back their underwriters. The only thing unique is that the government has chosen to let them implode rather than recapitalizing them.

I actually doubt this will have the desired effect. Instead, investment is going to concentrate in larger firms that have 'too big to fail' status, and the economy is going to slow while the financial sector consolidates its wealth. Rich will get richer, and whatever existed of the middle class will vanish.

# ¿ Mar 18, 2014 03:46

namaste friends: Sep 18, 2004; by Smythe

Sources:

The Economist - http://economist.com
Financial Times - http://ft.com
FT Alphaville - http://ftalphaville.ft.com
South China Morning Post - http://scmp.com

Not really focused on the economy but: http://danwei.com

zerohedge has a lot of lovely disaster porn. Good for a laugh but i refuse to link those loving idiots.

# ¿ Mar 18, 2014 03:51

namaste friends: Sep 18, 2004; by Smythe

So I started this megathread because of my interest in Canada's housing bubble. I used to live in Vancouver which is arguably the most expensive place to live in North America. The funny thing is, there's really no reason for it to be so other than the appearance of a lot of mainland chinese immigration and investment, almost all of which is in real estate.

The other reason is that I find it really hard to find good information on what's going on with China's economy. At least at a level I can easily understand. I can't read chinese and I find technical articles like those found on the FT and FTalphaville sites difficult to understand.

Hopefully other find this topic interesting and will be able to share greater insight into wtf is happening.

# ¿ Mar 18, 2014 03:58

namaste friends: Sep 18, 2004; by Smythe

http://www.4-traders.com/INDUSTRIAL...-Loan-18111947/

quote:

Du Ronghai received an urgent phone call from his private banker at Industrial & Commercial Bank of China Ltd. about an investment opportunity promising a 10 percent annual return. Only for the privileged few, he was told.

Du, who owns an apparel manufacturer in southern China, said he hopped on a plane the next morning for a four-hour flight from his home city of Harbin. That afternoon, at an ICBC office in Guangzhou, he looked at the sales contract he was required to read in person and invested 3 million yuan ($488,000), his first foray into the high-yield world of shadow banking. The employee kept telling him the product, called a trust, was so good that bank staff were pooling money to buy it, he said.

"I knew nothing about it, but the return was very, very tantalizing, and the way they presented it was like if I don't buy it now, someone else will grab it in seconds," said Du, who at the time, about two years ago, had almost 30 million yuan parked at Beijing-based ICBC in deposits earning less than 3 percent annual interest. "I was thinking, if I can't trust ICBC, who else can I trust?"

More than 700 ICBC clients including Du invested 3 billion yuan in what was known as Credit Equals Gold No. 1. The product was issued by one of 67 companies with license to act as intermediaries between banks and borrowers in providing shadow financing. In January, it almost became the nation's biggest trust default in at least a decade, jolting global markets until an 11th-hour bailout.

Mixing Funds

The drama highlighted the risks of shadow banking, which over the past three years has evolved from underground lending among individuals and small companies into a complex and interconnected web, estimated by JPMorgan Chase & Co. to be valued at $7.7 trillion, involving the nation's biggest banks, state-owned firms, local governments and millions of households.

The mixing of funds makes it more difficult for the government to rein in the nation's credit supply and to shield its state-controlled banks from rising defaults as the economy cools. Banks had an estimated 6.6 trillion yuan of off-balance- sheet loans channeled mostly through trusts to risky corporate and local-government borrowers, according to Mike Werner, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

That figure is equal to more than 80 percent of banks' shareholder capital and has increased 65 percent annually for the past three years, Werner wrote in a Jan. 22 note.

'Chain Reaction'

As China's top legislators start their annual meeting in Beijing tomorrow to set economic targets, efforts by policy makers to crack down on unregulated lending threaten to undermine financial stability.

"The failure of one product could lead to defaults of many others in a chain reaction," said Christine Kuo, a Hong Kong- based analyst at Moody's "The fall of shadow banking, starting with trusts, will spill over to the whole financial system, trapping banks and other stakeholders. That's why the government is extremely cautious for fear that any misstep may trigger a systemic crisis."

At stake is what the an industry trade group, estimates are $1.8 trillion of products developed by trust companies. Lenders also created $1.6 trillion of high- yield wealth-management investments, up 40 percent in the nine months through Sept. 30, according to JPMorgan.

Channeling Capital

Banks have more than their reputations on the line. They have channeled their own capital as well as clients' money through trusts to risky borrowers they're normally prohibited from lending to, such as coal mines and property developers, according to the Trustee Association.

Provided by Syndigate.info, an Albawaba.com company

(c) 2014 All rights reserved. Albawaba.com

# ¿ Mar 18, 2014 04:19

namaste friends: Sep 18, 2004; by Smythe

enraged_camel posted:

Hahaha, what? I take it you have never lived in San Francisco or Manhattan.

Maybe you meant "the most expensive place to live in Canada"?

Sorry I wasn't very clear.

http://www.cbc.ca/news/canada/british-columbia/vancouver-s-housing-2nd-least-affordable-in-world-1.2505524

Median house price/median income.

# ¿ Mar 18, 2014 04:22

namaste friends: Sep 18, 2004; by Smythe

Another good post:

FrozenVent posted:

An important thing to remember when discussing china is that the government will go to great length to keep people employed - people with jobs don't have as much time to revolt.

The Chinese government basically hosed the worldwide tanker market last year because their shipyards were slowing down and starting to layoff people. China's gonna delay the crash as long as they can artificially, but when it does go down... It's going to be a disaster of epic proportion.

# ¿ Mar 18, 2014 04:28

namaste friends: Sep 18, 2004; by Smythe

Before you guys go all Bill Ackman and poo poo, like China is some Herbalife whale, I strongly urge you to read Kalenn Istarion's post on shorting here:

http://forums.somethingawful.com/showthread.php?threadid=3569987&userid=0&perpage=40&pagenumber=22#post424850697

Do not gently caress around with short selling unless you know what you're doing. John Paulson lost hundreds of millions before he struck it rich shorting the US housing collapse.

In fact, read everything on this page: http://forums.somethingawful.com/showthread.php?threadid=3569987&userid=0&perpage=40&pagenumber=22

# ¿ Mar 18, 2014 06:00

namaste friends: Sep 18, 2004; by Smythe

Helsing posted:

Can anyone think of any economy in the last thirty years that has grown rapidly without relying in part on asset bubbles or the presence of a valuable commodity like oil?

That's why I find this topic fascinating. China's gone from an agrarian medieval society to 21st century economic titan in the span of 60 years.

How long did it take America?

# ¿ Mar 18, 2014 16:54

namaste friends: Sep 18, 2004; by Smythe

http://www.ft.com/intl/fastft

quote:

ALLUSEUROZONEUKASIAECONOMYCOMPANIES

SEARCH

VIEW LATEST POSTS

MARKETS

Onshore renminbi breaches "red line"

An hour ago

The closely-watched renminbi has just breached the 6.20 exchange rate - a levelconsidered a "red line" that could cause losses on billions of dollars worth of derivative products.

The onshore renminbi depreciated 0.1 per cent to 6.20 - its weakest since April 9, 2013.

It's the offshore rate, or CNH, that complex hedging products are tied to, however - and CNH isn't quite there. CNH fell 0.27 per cent to 6.1944. Either way, it's still in a range Morgan Stanley analysts call a "danger zone."

As already reported, many Chinese companies have been involved in buying target redemption forwards, or TRFs - structured products that gain value as the currency appreciates.

The currency's abrupt decline since mid February, engineered by the central bank, has the potential to cause big losses.

"A move of the CNH towards or past 6.20 would have major repercussions for the CNY [onshore currency] market and Chinese businesses," warned Credit Agricole Dariusz Kowalczyk on Tuesday.

# ¿ Mar 19, 2014 07:44

namaste friends: Sep 18, 2004; by Smythe

Hong Kong luxury real estate sell off:
http://mobile.reuters.com/article/idUSL3N0MG1B220140319?irpc=932

# ¿ Mar 20, 2014 21:20

namaste friends: Sep 18, 2004; by Smythe

Hermes doing fine despite crack down on corruption and gifts in China. Louis vuitton and Gucci not so much.

http://m.theglobeandmail.com/report...1&click=dlvr.it

# ¿ Mar 20, 2014 21:23

namaste friends: Sep 18, 2004; by Smythe

http://www.ft.com/intl/cms/s/0/a701...iteedition=intl

quote:

China bears face investment challenge
By Josh Noble in Hong Kong, Ralph Atkins and Delphine Strauss in London

Like their furry namesakes, China bears often go into hibernation � whether due to improving economic data, government stimulus measures, a rising currency, or bulging foreign exchange reserves.

But as spring arrives, the bears are back out in force. China has recently witnessed its first bond default of modern times, its biggest currency sell-off in years, a fresh slide in its equity markets, and multiple downgrades to growth forecasts. Investors have rarely been so universally negative on the world�s second-largest economy.

The challenges in expressing bearish views on China are the same as those facing the bulls. China�s domestic equity markets remain almost entirely closed to foreign funds, dominated by retail investors and driven by liquidity, not data.

Those who do get in, through an arduous investment licensing process, have little ability to short stocks or take negative bets through futures. The domestic bond market, while vast, is even more restricted and less transparent, with most trading done between banks.

China�s currency market poses similar problems. Though the renminbi has emerged as a possible way to play China after the authorities signalled an end to the currency�s label as a one-way bet, it is far from straightforward. The renminbi remains in the hands of the central bank, restricted by the daily trading band it sets. In spite of the recent weakness, few truly believe the currency has already peaked.

Global money can tap Chinese assets offshore in the Hong Kong market, where many of China�s largest state-owned companies have dual listings. Shorting stock is relatively simple to do, although thin liquidity is often a concern.
Using this market to short Chinese banks, property developers and construction companies � all sectors closely tied to the flow of money through the shadow banking system � has long been a popular trade for hedge funds.

That has already pushed valuations on many stocks to near record lows. Most listed lenders in Hong Kong � including China Construction Bank and ICBC � already trade at less than 5 times price to earnings.

As the sector with the biggest weighting in the most followed index, financials have dragged the market down to near two-year lows � although still some way off the troughs of the financial crisis in 2008. That helps explain why China-tracking exchange traded funds (ETFs) saw their largest weekly outflow on record this week, with $1.3bn being taken out.

Many investors looking to express bearish views on China have turned to nearby proxies � many of them imperfect and subject to local factors.

Australia is the most popular avenue � thanks to its reliance on Chinese demand for its natural resources, such as copper and iron ore. Being short on the Australian dollar has been a common ploy. But it has been a choppy trade, with local employment data and central bank minutes both still playing their part in guiding the currency.
Mining stocks listed in Sydney have also seen their fortunes ebb and flow with economic data from China. In the past month, as concerns have surfaced over the extent to which copper has been imported for use in financing deals rather than construction, miners have suffered badly. Rio Tinto has fallen 13 per cent, BHP Billiton is down 10 per cent, while Fortescue Metals has lost almost a fifth.

The link between Chinese growth and mining stretches far beyond Australia, and into developing countries across Africa, central Asia and Latin America. The impact of slower Chinese growth on other emerging markets �will be determined by what, rather than how much, they export to China�, says Neil Shearing, chief emerging markets economist at Capital Economics.

Exporters of industrial commodities � mainly in Latin America and Africa � �look particularly vulnerable to a slowdown in investment spending�, he adds.

Another popular move is simply to short the commodities themselves, such as copper or zinc, through futures contracts. Some investors have also targeted luxury goods companies, which now rely heavily on China for sales of all things from watches to wine.

Those shorting China also need something to buy. Within Asia, many have rotated in and out of southeast Asia as an alternative to the mainland. While Taiwan, South Korea and Japan are all closely tied to export demand from China, southeast Asian countries � notably Indonesia and the Philippines � are driven more by domestic demand. India too has benefited from its perceived insulation from the Chinese slowdown. Stocks there have risen to a record high this week as election optimism builds.

But there are opportunities in many parts of the world, says Didier Saint-Georges, investment committee member at Carmignac.

�China has lost a lot of cost competitiveness. A way to hedge against it slowing is to buy those countries that have benefited from that � countries that have gained relative competitiveness. Mexico is a good example,� says Mr Saint-Georges.

�China has to make the transition from a labour-intensive economic model to much more of a capital-intensive model. You could profit by buying into robot technology makers, which you find in Japan, Switzerland and Germany. They are the ones who are going to help fix China.�

Additional reporting by Miles Johnson in London

# ¿ Mar 23, 2014 08:31

namaste friends: Sep 18, 2004; by Smythe

http://blogs.ft.com/the-a-list/2014...ed%2F%2Fproduct

quote:

Let us not miss the point on Chinese defaults
Whenever there is a sign of possible weakness in China�s financial armour there are voices that cry out that a crisis is brewing. The latest example is the recent default on a bond payment by Shanghai�s Chaori Solar Energy Science and Technology. This quickly prompted questions about whether this was China�s �Bear Stearns or Lehman moment�. Less alarmist views welcomed the default as a signal that the government wanted to instil a sense of prudent risk-taking.

Interpretations of Premier Li Keqiang�s statement that future defaults may be unavoidable also depended on one�s sentiments, with some seeing it as a sign of imminent problems and others dismissing it as an acknowledgment that defaults are part of every economy.

All this, however, may be missing the point.

Although Chaori is a landmark as the first onshore bond default, it tells us little about China�s financial risks. After all, the problems of Chaori, and the solar sector more generally, are well known and their implications have long been factored into market expectations. No one in China�s financial markets is surprised that Chaori could not pay: it was always a question of whether it would be bailed out.

But the decision not to bail Chaori out is not a true test of Beijing�s commitment to allow the �market to play a decisive role� in resource allocation as announced last year in the third plenum. Chaori was an easy target as a relatively small private company in a major city that is not dependent on it for revenues or employment. Its bonds are held by retail investors with little clout. It is also in an industry with excess capacity that officials have earmarked for downsizing and consolidation.

Contrast this with the pre-third plenum case of LDK Solar, a large private company that employed 20,000 workers and accounted for 12 per cent of the taxes for the city of Xinyu in Jiangxi province, central China. Like Chaori and other solar businesses, LDK had financial difficulties. But given its importance to Xinyu, the municipal authorities passed a resolution guaranteeing repayments of Rmb500m in loans. In that case being private was not a barrier to a bailout as the firm was too big to fail. Chaori does not tell us whether that has changed since the third plenum.

In short, Chaori tells us nothing about the prospects of an impending financial crisis (which is unlikely) or whether market risks will now be more appropriately priced. But even if it had told us how Beijing chooses to deal with private firms, the much deeper issue is whether the party is willing to allow defaults by state-owned enterprises. Creative destruction is the heart of a thriving market economy, with bankruptcy and defaults creating opportunities for new entrants driving change � SOEs must not be exempted from that pressure.

More than a decade ago China launched a policy to reform SOEs by cutting back on direct subsidies and closing or privatising the poor performers under the slogan of �grasp the big, release the small�. The total number of SOEs fell from 260,000 in 1998 to about 145,000 in 2003. The creation of the State-Owned Assets Supervision and Administration Commission (Sasac) in 2003, with the mandate to represent state interests in the SOEs, slowed down exits, with the steep decline in the numbers of SOEs coming to a halt with about 115,000 by 2008.

But the SOE reform initiative had already made its mark by the time the global financial crisis hit. Returns on assets of industrial SOEs rose from 1 per cent in 1998 to more than 6 per cent by 2008, nearly closing the gap with private companies. But with the flood of financial support from the 2008 stimulus program, which was largely targeted at the state sector, incentives for more efficient SOE performance were seriously weakened.

The result has been a decline in returns on assets to about 4 per cent, while returns for private companies have continued to rise to roughly 11 per cent. This gap between the returns of private and public companies explains a significant part of the recent decline in China�s economic growth.

Financially, the discipline-weakening impact of the stimulus program and Sasac�s unwillingness to pressurise poor-performing SOEs to exit the scene have also taken their toll. Thus while overall, China�s industrial sector is not under unusual financial stress, the SOEs as a class are much more highly leveraged than private firms. At the end of 2012, SOE debt was 4.6 times their earnings compared with just 2.8 times for private businesses. The debt to profit ratio of private listed companies is 5 per cent lower than in 2008, before the crisis, compared with a 33 per cent rise for listed SOEs. Private businesses have 60 cents in operating cash flow for each dollar of current liabilities, while centrally owned SOEs have just 30 cents. Thus the more important candidates for defaults and restructuring, especially if implicit subsidies are factored in, lie in the state sector.

Will Beijing address seriously the need to encourage poorly performing SOEs � big or small � and not just the odd private firm, to exit? November�s third plenum decision does call for creating a �market exit mechanism�. If so, defaults will be taken much more seriously as credible evidence of the new government�s strategic objectives.

# ¿ Mar 23, 2014 08:34

namaste friends: Sep 18, 2004; by Smythe

Arglebargle III posted:

So by what date should I get my money out of China?

If anyone had a definitive answer to that, they'd be richer than god.

Anyhoo...check 'dis out

https://twitter.com/TheStalwart/status/447913184716787712

# ¿ Mar 24, 2014 04:41

namaste friends: Sep 18, 2004; by Smythe

That is the worst loving anecdotal financial advice I have ever loving read. Even worse than the tripe a loving realtor would tweet.

# ¿ Mar 24, 2014 05:22

namaste friends: Sep 18, 2004; by Smythe

Look at China getting all socialist and poo poo.

http://www.ft.com/intl/cms/s/0/2038...iteedition=intl

quote:

Official China union raises stakes in Walmart closure programme
By Tom Mitchell in Beijing and Barney Jopson in Washington
A woman walks past a Walmart sign in the Shekou district of Shenzhen, China, on December 19 2013�Bloomberg

A restructuring of Walmart�s China business is being challenged by the country�s normally reticent official union, which is involved in at least one of three protests that have erupted at stores slated for closure this month.

A unit of the government-sanctioned All China Federation of Trade Unions has been leading the protests outside a Walmart store in Changde, Hunan province that closed last week. The ACFTU�s involvement in an industrial action, which is extremely rare, could increase official scrutiny of the closures.

�The fact that the union president has come forward in Changde has given the workers great confidence,� said Wang Jiangsong, a labour expert who has been advising the workers in Changde and at two other Walmart stores in Maanshan, Anhui province.

The protests highlight Chinese workers� growing willingness to demand higher compensation during corporate acquisitions and restructurings, in addition to agitating for higher pay adjustments every year. A historic demographic shift in 2012, when China�s working-age population declined for the first time, has given workers greater bargaining power.

China has proved to be a difficult market for Walmart. It opened its first stores in the country in 1996 and now has about 400, but it has struggled to get a satisfactory return on investment and in the past two years has admitted to making mistakes in its haste to expand.

While China�s ACFTU was instrumental in establishing branches at Walmart�s Chinese stores in 2006 and 2007, many labour activists say that it is more interested in collecting lucrative payroll fees than fighting for workers� rights. ACFTU officials played no part in a recent strike that affected an IBM factory in southern China and have also been silent on two other labour protests in which workers were charged with disrupting public order.

China Labour Bulletin, a Hong Kong-based rights group, has described the situation in Changde as �historic�.

�It�s a very unusual and encouraging sign that a store union chairman would take the initiative and take such a strong stand in defence of his members� interests,� said Geoffrey Crothall at CLB.

Chinese workers have been picketing the stores in Changde and Maanshan since it was announced that they would be closed. They are demanding twice the compensation offered by Walmart to workers who will lose their jobs, and also rental and other subsidies for those who transfer to stores in other cities.
FT Video Archive

China still key to Walmart growth

December 2013: Walmart�s expansion of its Sam�s Club chain, which targets increasingly affluent Chinese customers in the country�s largest cities, is a key part of the retailer�s strategy to boost flagging international sales.

The more than 140 workers at Walmart�s Changde store have been offered positions in the city of Yiyang, a three-hour bus ride away. �Workers cannot survive elsewhere on their low wages,� said the store�s union head, Huang Xingguo. �Walmart�s offer is an empty cheque. Our families are in Changde. It would cost more to rent new homes in Yiyang.�

Mr Huang has vowed to continue the Changde protest even after police forcibly detained workers at the weekend.

Walmart has denied claims that its workers in Changde and Maanshan were given inadequate notice about the closures and says that it consults closely with local governments, the ACFTU and affected workers. �The nearest store [to Changde] is Yiyang, which unfortunately is about 100km away,� said Ray Bracy, a senior vice-president with Walmart�s China operations. �That makes it really difficult for the associates to transfer.�

Mr Bracy said Walmart was closing about 20 stores as part of a wider restructuring of its China business, but also has plans to open another 110 new stores and hire 19,000 more workers over the next three years. �Those stores [that are closing] are not acceptable from a dollars and cents standpoint,� he added. �In the cases where we�re closing it�s a decision of last resort.�

# ¿ Mar 24, 2014 05:33

namaste friends: Sep 18, 2004; by Smythe

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10722032/Moodys-warns-of-Hong-Kong-risk-to-Chinese-banks.html

quote:

The growth in lending at the Hong Kong subsidiaries of China�s largest banks has led to Moody�s warning about the increased risks they pose to their parents as they increase their exposure to the mainland economy.

Moody�s issued a �negative� outlook on three of the five Hong Kong subsidiaries of Chinese lenders, including those of China Construction Bank and Industrial Commercial Bank of China, over concerns at the rapid growth in loans.

Lending in Hong Kong has been driven by a combination of overseas expansion by mainland companies, domestic loan quotas, lower funding costs outside of China, and the appreciation of the renminbi.

The balance sheet of Wing Lung Bank, which is owned by China Merchants Bank, grew 99pc between 2010 and the middle of last year, while its exposure to mainland China rose from 8pc of its total loans at the end of 2010 to 40pc by June 2013.

Though still well above the regulatory minimum, Wing Lung�s growth has depleted its capital �steadily� and Moody�s said its negative outlook in part reflected the lender�s weaker loss buffer.

Though less extreme than Wing Lung, Moody�s said it had also kept a negative outlook on the debt of China CITIC Bank International, which is owned by China CITIC Bank and Spanish lender BBVA.

�These banks� future performance will be increasingly influenced by developments in the Mainland economy and health of its corporate sector,� said Moody�s.

Much of the lending by the Hong Kong subsidiaries is backed by credit guarantees provided by their mainland parents, but Moody�s warned that these arrangements had yet to be put through a proper crisis.

�The use of these guarantees means that, in theory, the credit risk of these loans has been transferred back to mainland banks, though it should be noted that the enforceability of these structures have not been truly tested due to rare occurrences of default in recent times,� said the ratings agency.

Sonny Hsu, a senior analyst at Moody�s, said: �The impact of such loan growth and increasing mainland exposures leads us to maintain negative outlooks on three of the five banks� stand-alone credit assessments.�

The warning from Moody�s echoes the concerns of many analysts over the increased exposure of Hong Kong-based banks to problems in the financial system of mainland China.

Credit Suisse last week downgraded the shares of HSBC, one of the Swiss bank�s corporate broking clients, to �sell� in part over worries at developments in Hong Kong.

In particular, Credit Suisse pointed to the potential unwinding of the increasingly popular renminbi carry trade, whereby many Chinese companies and banks have borrowed money offshore at a lower interest rate, normally in dollars, to invest back in China at a much higher rate.

While HSBC has been directly involved in this trade, the use of Hong Kong, where it has major operations, to facilitate the effective speculation on a rising renminbi has led to fears about the impact if the trade were to unwind.

�To the extent that loans are converted into renminbi for onshore use in China, they also present risks of currency mismatches for the borrowers and exposes the banks and the borrowers to potential changes in government policy,� said Moody�s.

Additionally, the Hong Kong subsidiaries of the major Chinese banks have also had a distorting impact on the province�s savings rates as the lenders have offer higher rates to attract deposits to fuel their continued offshore growth.

# ¿ Mar 25, 2014 19:48

namaste friends: Sep 18, 2004; by Smythe

http://www.minyanville.com/sectors/global-markets/articles/will-China-Debt-Bomb-Trigger-US/3/26/2014/id/54329

quote:

On Wednesday night I had a long Twitter conversation with Larry McDonald over his latest article concerning China. You can read his piece here, but the gist of it is that

based on the spreads of their respective credit default swaps (CDSs), the credit risk of several Chinese / China-sensitive financial institutions is now higher than the credit risk of US financials;

The underperformance of Chinese credit risk is a telltale sign of credit problems that will transmit to equities; and

He concludes with the following paragraph: "We think the situation becomes disorderly and leads to a massive contraction of available credit in what was the fastest-growing economy in the world. Sell US stocks."
I won't dare to suggest that China's credit issues won't become disorderly and the world won't suffer from it. There is little doubt that China has wasted trillions of dollars to build empty cities, and that its shadow financial system (and even the non-shadow one) is about as transparent as mud. On the other hand, one must also consider that China sits on almost $4 trillion of foreign reserves. That's as much as the Fed has printed to intervene in the $17 trillion US economy, and the Chinese economy is half that. So he "may be right, I may be crazy," and only time will tell.

# ¿ Mar 27, 2014 15:17

namaste friends: Sep 18, 2004; by Smythe

So real estate is taking a turn.

http://m.scmp.com/comment/blogs/article/1464831/hk470-million-hong-kong-apartment-just-wont-sell

quote:

It probably seemed like a good idea at the time. If you have trouble finding a buyer for the most expensive apartment ever listed in Hong Kong (on a square foot basis), best not worry, just hang on. One will eventually come along - probably from the mainland. Just give it some time.

Or at least that’s how Swire Properties’ management likely sized up the situation back in December when they decided to withdraw from sale an upper floor unit of its luxury Opus apartment tower after bids fell short of its HK$470 million reserve price. The tower, a marvel of fluid lines by architect Frank Gehry, offers some stunning views from its perch up on the peak.

Its price, however, is enough to make even billionaires cringe. Consider that media mogul Rupert Murdoch in February paid US$57.25 million for a New York apartment following his split from Wendy Deng. Murdoch’s new bachelor pad spans 10,000 square feet spread over the top four floors of a 60-storey tower on Manhattan’s East 23rd street. The 11th floor unit that went on tender at the Opus is 5,400 sq ft.

It’s a prime asset, we’re not so concerned about when we sell it

SWIRE PROPERTIES CHIEF EXECUTIVE MARTIN CUBBON

For another point of reference, consider that Swire Properties’ net profit for the recently-ended financial year was HK$6.348 billion. At asking price, that single Opus unit is equivalent to 7.4% of the group’s profit.

Swire Properties Chief Executive Martin Cubbon said he was happy to hold the apartment as finished inventory. He indicated that it could be rented out, as the company has done with other units that it owns in the building. Seven of 12 units in the development are tenanted.

“It’s a prime asset, we’re not so concerned about when we sell it,” Cubbon said recently. He acknowledged there had been bids by the December 12 deadline, but that they “weren’t quite enough” to trigger a sale.

Sales at the development just a few months earlier had been more successful. A ninth-floor apartment sold for HK$455 million in October, setting a record at the time as the most expensive in Asia on a per square foot basis.

Still, one has to wonder whether there’s a sense of regret now settling in among senior Swire management that they should have been more aggressive in liquidating inventory when they had the chance.

It doesn't appear wealthy mainlanders will be hunting for trophy properties in Hong Kong anytime soon, even as there’s few signs yet of a major slowdown in spending by cross-border visitors.

But data coming out of China in recent weeks isn’t comforting.

Take the nationwide housing data released last week.

Average home prices fell 3.8% in the first two months of the year, marking the first year-on-year drop since February 2012.

The figures were compiled by Nomura using CEIC data to create what they say is a more accurate snapshot of what’s going on inside China’s housing market. In compiling and plotting the data, they gave more weight to China’s third and fourth tier cities, which account for 67% of the housing under construction. Nomura calls the 70-city price index which shows average prices as still rising “misleading” because it overlooks smaller urban areas.

Check out this chart on what’s really going on, courtesy of Nomura.

Nomura

In a blunt assessment, Nomura’s Hong Kong-based analysts sum up the situation: “We believe China’s property market may have passed a critical turning point and will go into a downward cycle as the oversupply problem worsens.”

Exterior of Opus Hong Kong at 53 Stubbs Road, The Peak, by Swire Properties. Photo: SCMPInvestment in property will likely slow in coming months, Nomura’s analysts said, creating a drag on the economy that runs the risk of spiraling into a self-reinforcing slowdown.

Keep in mind that what’s really important here is the shifting market psychology. It may take many months to play out, but a gradual erosion of confidence is underway. Things are likely to come unglued, prompting the PBOC to loosen lending standards. Nomura thinks such steps are inevitable, initially in the form of a cut to banks’ reserves requirements, probably by July.

Here’s some other warning signs that not all is well.

Corporate bond defaults. Beijing’s decision to allow the domestically-issued corporate bonds of a solar cell maker to default earlier this month, the first by an onshore Chinese company in 17 years, was initially cheered by analysts who said it would help instill market discipline. Meanwhile, revelations last week that Chinese property developer, Xingrun Properties, had collapsed after it wasn’t able to service its debt, didn't garner quite the same praise from economists. Clearly the weaker developers are losing access to credit.

Widened trading band for the yuan. The PBOC’s official explanation earlier this month to widen the yuan daily band to 2% is to introduce greater two-way volatility in the currency. Daiwa analysts, however, argue that what’s been a “free lunch” for China has come to an end as the Fed winds downs its QE. They see a new era where policy normalization in the U.S. means shrinking liquidity in China. To combat the squeeze, the PBOC will have to print more yuan, which means a gradual depreciation.

Judging by the looks of things, it might be a long wait before the next half-billion Hong Kong dollar flat buyer arrives from across the border.

# ¿ Apr 4, 2014 13:08

namaste friends: Sep 18, 2004; by Smythe

http://ftalphaville.ft.com/2014/04/07/1820562/both-a-lender-and-a-borrower-be-china-property-edition/

Chinese developers are investing in Chinese banks whom they borrow from. They're deeply in debt with them so they're.... Well who knows why.

# ¿ Apr 7, 2014 13:41

namaste friends: Sep 18, 2004; by Smythe

http://www.forbes.com/sites/gordonchang/2014/04/13/china-property-collapse-has-begun/

quote:

China Property Collapse Has Begun
Comment Now Follow Comments
Nothing is going right for Hangzhou at this moment. Walmart will be closing its Zhaohui store in that city on April 23 as a part of its overall plan to dump marginal locations�about 9% of the total�in China.

Thanks to the world�s largest retailer, another large block of space in Hangzhou, the capital of Zhejiang province, will go on the market at a time when there is generally too much supply. The problem is especially pronounced in the city�s premium office market. Hangzhou�s Grade A office buildings at the end of 2013 had, according to Jones Lang LaSalle, an average occupancy rate of 30%.

The real weakness, however, is Hangzhou�s residential sector. The cause is simple: massive overbuilding. Sara Hsu of the State University of New York at New Paltz writes that Hangzhou faces �burgeoning swaths of empty apartment units.�

Hangzhou�s market has not yet collapsed. There are still secondary sales, for instance. Singapore�s Straits Times reports Allen Zhao, a businessman, has been looking to sell his two-bedroom flat in Hangzhou for 2 million yuan. His neighbor just let go a similar unit for 1.7 million. If Zhao also sells for that amount, he will make a profit, but he will be disappointed. �That is not much more than the price I paid in 2012,� Zhao told the paper. �Now I�m regretting not selling earlier�more bad news about the property market keeps coming in every day.�

New homes also face price pressure. Developers in Hangzhou are now offering deep discounts, and investors and owners are noticing. And not just in that city. �It seems that the 30% price cut in Hangzhou really changed the way Chinese people think about real estate,� writes Anne Stevenson-Yang of J Capital Research, �and I doubt there is any turning back from here.�

Not every developer is offering such deep discounts, but as Stevenson-Yang tells us the city has become the symbol of a market in distress. China Central Television on the first of this month devoted a segment to the problems of the �unstoppable price decrease� in Hangzhou property in its Economic 30 Minutes show, and discounts in that city, the Wall Street Journal notes, could be �a signal of broader market weakness ahead.�

The real estate market in Hangzhou looks like it has just passed an inflection point. It is not so much that fundamentals have deteriorated�they have been weak for some time�as that people�s mentality has changed.

As state-run China Central Television explained, the problems in Hangzhou, once the world�s largest city, began on February 18. Then, the North Sea Park development began offering deep discounts. Rumors that the developer had cash problems started a chain reaction across the city. It did not matter that North Sea Park issued denials. Other developers began offering either deep discounts or large incentives, but the tactics did not work. By then, there were almost no buyers.

Now, the problem of no buyers is spreading across the country. Sara Hsu notes China�s residential markets are becoming inelastic. �Once consumers stop buying,� she writes, �deep discounts are ineffective in drawing them back.� People aren�t buying because they believe prices will decline further.

According to the National Bureau of Statistics, new home prices across the country are still going up, but percentage increases have now declined for three consecutive months, signaling a peaking.

Official statistics do not seem consistent with the general trend of reports, but in any event severe problems are evidently ahead. The secondary property market has tumbled, with sales falling by more than half in Q1 2014 from the same quarter in 2013. Speculators have either left the domestic market or have sold off holdings. Rich Chinese, now interested in foreign holdings, are also shunning their home market. Foreigners, who own only an infinitesimal portion of China�s property but who are a bellwether nonetheless, are investing at the slowest pace in at least a decade. Middle class Chinese are also largely out of the market.

And that�s not all. China property trust sales plunged 49.1% in Q1 2014 from the previous quarter, from 99.7 billion yuan in Q4 2013 to 50.7 billion yuan. The precipitous fall was due in part to the failure last month of developer Zhejiang Xingrun Real Estate, which had 3.5 billion yuan of indebtedness.

Moreover, just about everyone expects more developers to close their doors. For one thing, the central bank is not injecting liquidity as fast as it once did. And interest rates are increasing, the reason why a Finance Ministry one-year bond auction failed on Friday. Many private developers had gambled that property prices would rise faster than interest rates, but that now looks like a losing bet. Zhejiang Xingrun, for one, became insolvent after it had borrowed at ultra high rates.

China is at the point where problems are feeding on themselves. Pessimism about property, which accounts for about 15% of China�s gross domestic product, is beginning to affect the broader economy. Declining property values look scary, despite cheery statements from government officials who assure us the property bubble is �not big� or analysts who say that the problems are not �systemic.� But the Chinese don�t look like they are buying either of those views. �If this continues, it will have immense impact on the whole Chinese economy,� says an unidentified Hangzhou real estate salesman on Economic 30 Minutes. �Without question, everyone thinks there is a bubble.�

The People�s Republic in the �reform era� has not suffered a nationwide property crash. Analysts say the problems in Hangzhou are �regional,� but now fundamentals and market sentiment either are or will be pushing markets down across the People�s Republic.

�The banking system and the shadow banking system are becoming concerned about exposure,� says David Cui of Bank of America BAC -2.17%. �Once people refuse to provide credit to developers, their balance sheets will be under pressure, forcing them to cut prices. Once enough of them cut prices, fewer people would buy because most people buy property only when they think the price is going up. If this persists, it will turn into a vicious loop.�

Premier Li Keqiang has a few tools at his disposal, but they look insufficient to stop a general collapse of property prices across the country. The problems, deferred from late 2008 with massive state spending, have simply become too large. And we must remember that he works inside a complex, collective political system that is generally unable to meet challenges swiftly.

But that does not matter. There is little any leader can do. Collapses occur when people lose confidence. That is now happening in China.

Follow me on Twitter @GordonGChang and on Forbes

# ¿ Apr 14, 2014 02:18

namaste friends: Sep 18, 2004; by Smythe

Paper Mac posted:

I just noticed that he says "Hangzhou, once the world's largest city".. what, in the Song dynasty? Never change, Gordon.

Lololol

# ¿ Apr 14, 2014 03:03

namaste friends: Sep 18, 2004; by Smythe

http://m.us.wsj.com/articles/BL-CJB-21574

quote:

China’s smaller cities are now the scene of a housing glut, which could undermine China’s growth. What are the possible consequences? How are developers reacting? Is the government doing anything about it?

Below WSJ reporters Esther Fung and Bob Davis answer those and other questions.

Why are the recent price cuts so bad? Isn’t this just the market at work—less demand, ergo lower prices?

The same could have been said for the U.S. in 2007. Falling prices in Las Vegas, Bakersfield, Miami were just the market at work. The problem is that if prices fall too far, they don’t invite more people to invest in property. Just the opposite. Would-be buyers keep their wallets closed, fearing that the value of a home will go down in value.

That’s particularly a problem in China, where people have thought for 20 years that real estate prices can only go up in value. If that psychology switches, it’s a huge problem.

There was concern that the property bubble had burst in 2011. What’s different now?

In 2011, the big worry was escalating prices in China’s major cities putting apartments out of the reach of all but the rich. The central government implemented property curbs, such as limits on multiple home purchases, to rein in speculation and frothy prices. After two tough years for developers, prices started heading up again smartly last year.

What makes the current problem different is that a) the problem is more widespread, hitting lots of small and medium-sized cities, b) the issue is a glut rather than rising prices, and c) China’s finances are tied ever more tightly to real estate.

Since 2008, debt in China has grown at a pace similar to the U.S, Europe, Japan and South Korea before they fell into deep recessions. One big reason for the run-up in debt is lending to real estate developers. If developers can’t afford to make payments on their loans because they can’t sell enough apartments, China has a big problem.

Speaking of which, how are developers paying their bills?

Many construction companies are getting paid in apartments as developers become more and more cash-strapped, according to Zhou Liping, a property consultant at Jiangsu Lianmeng Property Consultancy. “It’s quite common,” he said, adding that some of these construction companies then use the apartments as collateral when they take on bank loans.

Are there signs of construction workers losing their jobs?

Certainly it’s a danger. Unfortunately, unemployment data is unreliable in China and it isn’t counted by occupation. So far, there is no sign of widespread job loss. There are still more jobs than workers seeking jobs, largely as a result of demographic changes that are reducing the size of the Chinese workforce.

What are some signs that the growing glut is having economic ripples?

Copper prices have been falling since 2010, with analysts blaming slack demand in China as one reason. Copper is used in roofs, gutters and building expansion joints. Meanwhile, ArcelorMittal, the world’s largest steelmaker, has forecast slower growth in Chinese steel demand this year due to more muted construction demand growth.

Retail sales growth has also slowed recently, due in part to falling growth in sales of appliances and furniture, both linked tightly to apartment purchases.

What is the government doing about it?

The central government has indicated that it would allow local governments to adopt their own market regulations rather than implement a one-size-fits-all policy.

In some areas, local governments are trying help out. In Fenghua, government officials are trying to stave off a default by a local developer. In Changzhou, the government has been trying to keep discounts to a minimum to prop up the housing market. In Yingkou, the government has reduced fees and taxes for new purchases and made it easy for new buyers to get the residence permits necessary to obtain social welfare benefits, including public education for their children. So far, these measures have had only a limited impact on boosting sales.

Does this mean developers will finally start to cut back on their headlong, hell-for-leather building?

Some of China’s largest developers are now trying to focus again on China’s biggest cities, where demand is stronger. But why do developers keep building in problem cities despite obvious lack of demand? Why did U.S. developers do the same thing? Developers are optimists and salesmen by nature. Each thinks that its project will thrive even as others don’t.

According to Nomura, profits for a group of 142 listed property developers in China rose 581% between 2006 and 2012 and never fell during any of those years. Other non-financial companies saw profits rise 64% during that same period and profits sometimes fell year-to-year for that group.

“China’s real estate developers are behaving like internet start-ups,” says Mark Williams, a China economist at the Capital Economics in London. “They’re focusing on grabbing market share in a growing market, but the smaller and medium-sized cities they are in aren’t growing rapidly.”

# ¿ Apr 15, 2014 13:25

namaste friends: Sep 18, 2004; by Smythe

# ¿ Apr 16, 2014 04:35

namaste friends: Sep 18, 2004; by Smythe

http://www.worldaffairsjournal.org/blog/gordon-g-chang/mysterious-suicides-chinas-leadership

quote:

A spate of suicides among officials in China has caught the country�s attention. Beijing�s censors have quickly moved to end speculation about the deaths, indicating the Communist Party�s sensitivity, but everyday people remain suspicious.

The body of Xu Yean, 58, of the State Bureau for Letters and Calls, was discovered on April 8th in his Beijing office. He was the fourth high-ranking official to take his own life in recent months.

The week before, Zhou Yu, a police official in Chongqing, was found hanged, in a hotel. Said to be suffering from depression, he was involved in the high-profile investigation of the now-imprisoned Bo Xilai, the former boss of that metropolis. In January, Bai Zhongren, a former president of the heavily indebted China Railway Group, killed himself. State Council Information Officer Deputy Director Li Wufeng, considered China�s top internet cop, jumped to his death from the sixth floor of an office building on March 24th.

Minor officials have also been taking their lives. All told, there have been at least 54 �unnatural deaths� of Chinese officials since January of last year. Of these, 23 are listed as suicides. Drinking and accidents contributed another nine deaths.

It is not clear whether the 23 acknowledged suicides exceed the average for the Chinese population as a whole, but it is apparent that Beijing is concerned about the high-profile deaths. The Central Propaganda Department issued media instructions to not report without authorization the �accidental death� of Li Wufeng, and news of Xu Yean�s demise was scrubbed.

Beijing�s strategy is to deny such deaths are suicides, suppress news, or when all else fails blame �depression.� Most Chinese, it appears, are not buying the official explanations. As one poster on Sina Weibo, the microblogging service, explained, �A new rule for officials who have committed suicide: Every single one must be depressed, every single one must be unhealthy.�

What is unhealthy is the Communist Party�s increasingly corrupt political system. Take Xu Yean, for instance. His bureau, according to Yu Jianrong of the Chinese Academy of Social Sciences, is one of the most venal in Beijing, extorting bribes from officials across China. The office is supposed to give ordinary citizens a means to complain about local tyrants, but it has become a moneymaking machine for central officials, who bury complaints in return for large payments. One of Xu�s senior colleagues, Xu Jie, was relieved of responsibilities last November and placed under investigation for �serious violations� of party discipline, code for corruption.

Most reports state Xu Yean was not publicly named as the subject of a probe, but the South China Morning Post cites a source �close to the CCDI��the party�s Central Commission for Discipline Investigation�indicating he was a target nonetheless. �Everybody is in the same boat,� said thesource. �Someone in Xu�s position is not immune.�

Chinese leader Xi Jinping in fact says no one is immune from his corruption probes and that he is going after both �tigers� and �flies,� party lingo for officials high and low. Few in China actually believe that Xi is trying to rid China of that evil, however. After all, the Communist Party has become completely infested, and the president appears to be targeting only political adversaries, such as the infamous Zhou Yongkang, the former security czar, using �corruption� as an excuse.

Yet Xi�s purges are wide-ranging, touching hundreds of officials, and they have gone so far that former leaders Jiang Zemin and Hu Jintao are now asking him to slow the effort, in part because he is threatening their extensive patronage networks and also because his investigations could shake the foundations of the party itself.

At this moment, it looks like fear pervades Chinese officialdom, and that some officials are choosing the easy way out by taking their own lives. As the purges continue, we can expect more unnatural deaths�and perhaps even political instability.

If only politicians in the West were as penitent.

# ¿ Apr 18, 2014 05:15

namaste friends: Sep 18, 2004; by Smythe

http://www.ft.com/intl/cms/s/0/b4bb...l#axzz2zCyDJZKb

quote:

In a steel and coal-mining region of 5m people in the Chinese heartland, signs of economic slowdown are everywhere.
Forests of newly built but nearly abandoned apartment complexes with names such as Fortune Plaza and Golden Riverside ring central Yuncheng while, on the outskirts of town, the district�s largest steel mill has gone bust, leaving mountains of unpaid debt and nearly 10,000 idle workers.
More

�I used to bring lots of investors and steel people out here to visit the plant,� says Zhang Pu, a taxi driver waiting outside an empty hotel next to the headquarters of Highsee Group, the troubled steelmaker. �These days the only people who want to come here are local peasant farmers or debt collectors.�
China�s economy expanded 7.4 per cent in the first quarter of the year from the same period a year earlier, a sharp slowdown from 7.7 per cent growth in the fourth quarter of 2013.
That is still an enviable rate by the standard of most countries but in Yuncheng and other cities across China, the headline figure masks a multitude of growing problems.
The main reason for the slowdown is a slump in fixed asset investment, the biggest driver of the Chinese economy.
In the first three months of the year, investment grew 17.6 per cent from the same period a year earlier, the slowest pace since late 2002.
The slide was largely owing to declining real estate investment, which also experienced its weakest growth in more than a decade. The situation is certain to get worse in the coming months as new housing floor space under construction contracted 27.2 per cent in the first quarter.
That was largely a reaction to declining sales, which fell 5.7 per cent in terms of floor space in the first quarter from a year earlier, with the fall especially pronounced in smaller inland cities such as Yuncheng.
�Our surveys show clear divergence in price trends with first-tier major cities experiencing mildly rising housing prices,� Sheng Laiyun, spokesman for China�s National Bureau of Statistics, said on Wednesday at a press conference to announce first-quarter GDP. �In some second-tier cities prices are shaky and in third and fourth-tier cities, especially those with ample supply, prices have come down.�
The fate of China�s overheated real estate market is absolutely critical to the health of the overall economy.
Real estate construction directly accounted for 16 per cent of GDP in 2013, according to estimates from Nomura.
At that level China is approaching a dependence on property last seen in Ireland and Spain before the bursting of their bubbles.
Many of the industries already suffering from severe overcapacity in China, such as steel, cement and glass, are heavily indebted and reliant on continued rapid growth in property construction for their survival.
Land sales and property-related taxes accounted for 38 per cent of total government revenue in 2013 and heavily indebted local governments have used highly priced land as collateral for the vast majority of their loans.
A property crash would not only lead to collapsing growth in the world�s second-largest economy and largest commodity consumer but would also have a huge impact on Chinese households, which have an estimated two-thirds of their assets tied up in real estate.
In numerous places such as Yuncheng, the crash has already begun.
�Prices are falling and sales are really terrible because too many apartments have been built and so many of them are empty,� said a sales manager at a property development on the outskirts of Yuncheng who would only give his surname, Guo. �Even in a situation like this they are still building new housing complexes, it�s completely crazy!�
Mr Guo said that in the district where the Highsee steel mill has gone out of business, the local government approved 800,000 square meters of new construction last year even though the district�s total population is only 300,000.
As night falls in the neighbourhoods of Yuncheng, the dilemma facing the Chinese government is dramatically illustrated by the very few lights blinking on in newly constructed apartment towers.
In the past, and particularly after the 2008 global financial crisis, Beijing has turned to credit-fuelled property construction as the quickest and easiest way to boost flagging growth.
But with so many freshly built apartment towers already standing empty across the country, another round of manic, state-sanctioned real estate construction would amount to �yin zhen zhi ke� � �drinking poison to quench one�s thirst�.
�It is the lack of final demand, existence of excess capacities and barriers to private investment that have curbed China�s corporate investment and overall growth,� said Wang Tao, an economist at UBS. �Against this background, stronger credit growth will not lead to sustained stronger corporate investment growth, but would likely lead to a continued build-up of unsustainable leverage levels in China�s problematic local government debt and property sectors.�

# ¿ Apr 18, 2014 05:20

namaste friends: Sep 18, 2004; by Smythe

Well, if you account for all those empty cities that China built, I can totally believe that their GDP exceeds that of the US.

# ¿ May 1, 2014 04:30

namaste friends: Sep 18, 2004; by Smythe

WSJ via zerohedge. Just ignore the zh article.

http://www.zerohedge.com/news/2014-05-04/beijings-tepid-efforts-slow-credit-boom-are-springing-giant-leaks
http://online.wsj.com/news/articles/SB10001424052702304163604579531383712290244?mod=WSJ_hp_LEFTWhatsNewsCollection&mg=reno64-wsj

quote:

BEIJING�With credit tight in China, companies in industries beset by overcapacity are turning to an unconventional source for cash�other companies�in a new rising risk for the country�s financial system.

These company-to-company loans, known as entrusted lending, have emerged as the fastest-growing part of China�s shadow-banking system, which provides credit outside of formal banking channels. Net outstanding entrusted loans increased by 715.3 billion yuan ($115.4 billion) in the first three months of 2014 from a year earlier, according to the most recent data from China�s central bank.

The increase in entrusted loans last year was equivalent to nearly 30% of local-currency loans issued by banks�almost double the portion in 2012. The jump is all the more pronounced since China�s total social financing, a broad measure of overall new credit, shrank 561.2 billion yuan over the same period, largely because other forms of shadow credit declined as Beijing sought to rein in runaway debt growth.

The growing popularity of such company-to-company lending offers a fresh�and to regulators, troubling�look at the rapid buildup of debt in China. In its latest report on the country�s financial stability, issued Tuesday, the central bank singled out entrusted lending as a problem, saying it is being used by banks to evade regulatory restrictions on lending. Banks, while generally not risking their own capital directly, act as middlemen in these transactions.

China�s debt levels have climbed in recent years at a pace similar to increases in the U.S., euro zone and South Korea before those economies fell into their most recent recessions. The concern among some economists and analysts is that debt will continue to balloon in China, exposing the country to greater financial risks as its economy slows down.

Officials at the People�s Bank of China, the central bank, have warned that much of the intercompany lending is flowing to sectors where the regulators have urged banks to reduce lending: the property market, infrastructure and other areas burdened by excess capacity. In central Shanxi province, 56% of entrusted loans in the past few years have gone to power producers, coking companies and steelmakers, among others, according to a recent paper byYan Jingwen, an economist at the PBOC.

Access to entrusted loans allows struggling companies to hang on longer than they otherwise could, delaying the consolidation that the government and some economists say is needed in a swath of industries.

Big publicly traded companies with access to credit�such as the shipbuilder Sainty Marine Corp., China Shipbuilder and specialty-chemicals producer Zhejiang Longsheng Group �are among the most active providers of entrusted loans. These companies, instead of investing in their core businesses, lend funds at hand to cash-strapped businesses at several times the official interest rate.

Companies provide funds to make the entrusted loans. To get around an official ban on direct lending to other companies, they need to use an intermediary�typically a bank�to lend the money out.

Banks, which in theory shouldn�t use any of their own funds in the process, make money by charging fees to both the lending company and the borrower, and they don�t have to record the loans on their balance sheets. However, in practice, some banks have disguised loans made with their own capital as entrusted loans, thereby helping them skirt regulatory limits on lending, according to officials at China�s central bank. That has helped banks hide �credit risks,� the PBOC said in the Tuesday report��

# ¿ May 5, 2014 00:19

namaste friends: Sep 18, 2004; by Smythe

http://ftalphaville.ft.com/2014/05/06/1843272/chinas-leaning-towers/

quote:

Apparently every property market leading indicator at the national level turned down in Q1, and for most monthly indicators the rate of decline accelerated through the quarter. That, says Nomura, means the question is no longer “if” or “when”, but rather “how much” China’s structurally oversupplied property market will correct.

The problem at root is monetary policy tightening since mid-2013 which has severely limited the supply of hot money available to property developers from the banking system.

# ¿ May 6, 2014 17:58

namaste friends: Sep 18, 2004; by Smythe

http://www.forbes.com/sites/gordonchang/2014/05/07/chinas-vessels-ram-vietnamese-craft-in-south-china-sea/

quote:

China's Vessels Ram Vietnamese Craft In South China Sea
Comment Now Follow Comments
On Wednesday, Vietnamese officials announced that one of China�s ships intentionally rammed two of their Sea Guard vessels. The incidents took place on Sunday, the 4th. Six were injured, according to Hanoi.

�Chinese ships, with air support, sought to intimidate Vietnamese vessels,� said Tran Duy Hai of the Foreign Ministry at a news conference. Other officials said six other Vietnamese craft were hit.

The incidents occurred after China National Offshore Oil Corp., better known as CNOOC , had on May 2 towed a deep-water rig, the size of several football fields, to an area that Hanoi claims is within its exclusive economic zone, near the Paracel Islands. Beijing, with its infamous nine-dashed line on its maps, claims about 90% of the international waters of the South China Sea as an internal Chinese lake. The expansive�and largely indefensible�claim overlaps the coastal waters of Taiwan, the Philippines, Malaysia, Brunei, and Indonesia as well as Vietnam.

Beijing brought a fleet of about 80 vessels to keep the Vietnamese from stopping the oil rig, designated HD-981. CNOOC called HD-981 a �strategic weapon� at its launch in 2012.

And it is clear that the company was using the rig at Beijing�s behest. �This reflected the will of the central government and is also related to the U.S. strategy on Asia,� said a Chinese oil official, speaking anonymously to Reuters, about drilling in Vietnam�s waters. �It is not commercially driven. It is also not like CNOOC has set a big exploration blueprint for the region.�

It did not take long for Chinese leaders to test President Obama�s general commitment to maintain regional security after his eight-day, four-nation �reassurance� visit there at the end of last month. With this expedition against Vietnam, Beijing crossed two important lines. This is the first time China has drilled in Vietnamese waters. Moreover, this is the first time Beijing openly used its �gray hulls��navy ships�in close support of �white hulls��civilian maritime craft�while enforcing a territorial claim, according to the Nelson Report, the Washington insider newsletter. There are seven Chinese naval ships in the vicinity of the rig.

Beijing could be trying to take advantage of a distracted Washington�s involvement in the Ukrainian crisis, showing its disrespect for Obama, or just lashing out against another small nation. Yet whatever China is doing, it is extraordinarily dangerous.

The Vietnamese do not have a history of backing down, even in the face of provocative behavior from big neighbor China. The two countries have tangled with each other over the course of decades. Sometimes the Chinese win and sometimes the Vietnamese prevail, but it�s clear Hanoi is not afraid of its neighbor. It is unlikely proud Vietnam will let Beijing drill in waters close to its shore unimpeded this time.

The Chinese want the territory and waters of surrounding countries. They will not stop until they are stopped. And it may just be the Vietnamese who stop them.

After all, in their last major encounter�in 1979�Hanoi humiliated the Chinese army.

What the gently caress is going on

# ¿ May 8, 2014 03:23

namaste friends: Sep 18, 2004; by Smythe

I'm confused. Are you guys suggesting that this proposed HSR is going to carry freight? There isn't an HSR in the world that carries freight. This would be revolutionary and I sure as hell wouldn't want to be on it. As well, HSR track maintenance cycles are crazy frequent compared to conventional rail.

As an example, Taiwan's High Speed Rail has major problems during typhoon season with landslides and just general debris. The track is inspected every night before it's given the ok and allowed to hurtle through at 300km/h.

# ¿ May 12, 2014 04:01

namaste friends: Sep 18, 2004; by Smythe

Install Windows posted:

You do understand that you can run slower trains on the same lines? Even in the fantasy world where China manages to build this minimum 6000 mile system between major Chinese cities and the lower 48, you're still not going to have hourly departures for your 2 day passenger service.

I'm not aware of any HSR in the world that does this but it sounds like it'd be quite an engineering feat. The next time I see my dad, I'll ask him. He used to be the director of safety and maintenance of an HSR.

# ¿ May 12, 2014 05:16

namaste friends: Sep 18, 2004; by Smythe

FrozenVent posted:

You'd need a second siding just for the HSR trains, or have the HSR slaloming between the freight trains.

Or you schedule your freight trains so the HSR has a clear shot through the line, but then your utilization is going to be atrocious.

So one of the really cool things about an HSR is that the tolerances for the sinking of a section of track are incredibly small. Building an HSR in a seismically active area is a nightmare. So much so that sections of track are built so that they can be literally jacked up if they've sunk too much. I'm no civil engineer, much less a geotech or an expert in rail transportation, but I have a feeling it'd be really expensive to engineer a rail line that can deal with multiple types of payloads.

e: maybe popular science can figure it out for us

# ¿ May 12, 2014 05:29

namaste friends: Sep 18, 2004; by Smythe

http://www.ft.com/intl/cms/s/0/4f74...t#axzz31f36SKYh

quote:

China�s economy is sputtering as evidence mounts that a nationwide property bubble is on the point of bursting.
Virtually every indicator for economic growth in China turned down in April as the all-important real estate market saw sales fall 7.8 per cent in renminbi terms in the first four months from the same period a year earlier.

Investment in real estate is the single most important driver of the Chinese economy and a crucial factor in global commodity demand and pricing.

But in the first four months newly started construction projects fell 22.1 per cent compared with a year earlier, according to government figures released on Tuesday.

The sustainability of the Chinese real estate market has become a concern for policy makers everywhere as they start to worry that a property crash in the world�s second-largest economy could ripple round the globe.

The scale of China�s building boom and the country�s reliance on infrastructure investment for growth is unprecedented.
In just two years, from 2011 to 2012, China produced more cement than the US did in the entire 20th century, according to historical data from the US Geological Survey and China�s National Bureau of Statistics.

In an indication of just how exposed China�s economy is to a property downturn, Moody�s Analytics estimates that the building, sale and outfitting of apartments accounted for 23 per cent of Chinese gross domestic product last year.
That is higher than in the US, Spain or Ireland at the peaks of their housing bubbles.

Trouble in Chinese property also has implications for the financial system, in particular the shadow banking sector, which has lent huge amounts to developers and relies on highly priced land for collateral.

�Self-fulfilling expectations of falling house prices, financial difficulties among developers on the back of a highly leveraged economy with huge local government debt, and a fragile financial system with a large shadow banking sector, suggest the risks of a disorderly adjustment [in the Chinese economy] are real and rising,� said Barclays� chief China economist, Jian Chang.

Partly as a result of slumping real estate investment, growth in China�s industrial production, a measure that correlates closely with gross domestic product, slowed marginally to 8.7 per cent from a year earlier in April.
Retail sales growth also slowed from 12.2 per cent expansion in March to 11.9 per cent in April.

In a worrying sign for western luxury brands that have become more reliant on Chinese demand in recent years, gold, silver and jewellery sales plummeted 30 per cent in April from a year earlier.

Electricity production, a closely watched proxy for economic activity in China, grew at its slowest pace in nearly a year in April, up 4.4 per cent from a year earlier, compared with 6.2 per cent growth in March.

In spite of much discussion of a �mini-stimulus� for China�s economy, Beijing has so far been reluctant to take strong actions to prop up growth.

# ¿ May 14, 2014 05:41

namaste friends: Sep 18, 2004; by Smythe

Here's another one from the FT China twitter feed:

http://www.ft.com/intl/cms/s/0/0993...t#axzz31f36SKYh

quote:

When New Century Real Estate cut its housing prices by 15 per cent two months ago, the Chinese developer, far from panicking, was in a triumphant mood. It believed the discount was a deft move to get ahead of the market and sell its unsold backlog of apartments.

Chinese property companies have reduced prices on only the rarest of occasions over the past decade, during which time average property values have more than doubled. New Century calculated that its cut � at the Mingjun residential complex in the eastern city of Hangzhou � would attract a flood of interest. It was right, at first.

The number of people viewing properties quintupled overnight, according to Luo Chengwu, an operations manager. Media from state broadcaster China Central Television to the local press covered the news � attention that New Century lavished in, trumpeting the reports on its website. �One-time only, rush to buy now!� its advertisements screamed.
Yet by the first week of May, the initial excitement had subsided. Other developers around the city of Hangzhou had also lowered their asking prices and New Century�s offer was no longer so unique.

�Yes, we attracted a lot of customers when we made the announcement. But since then, it�s just been OK, not crazy. We�ve not been able to sell everything out,� said a saleswoman in the Mingjun showroom, pointing to the dozens of homes still available in a model of the 14-tower complex.

Mingjun is located on the margins of Hangzhou in its distant suburbs, but its fate is a central concern for the Chinese economy.

For several months it has been clear that housing markets in smaller, less-developed cities were beginning to suffer downturns. However, the government and analysts long believed that bigger, wealthier cities were better insulated from the pressures.

Hangzhou has shaken that belief. Capital of Zhejiang province, it has a population of nearly 9m and is one of China�s richest cities. If its property market is in trouble, it is an ominous sign for the country as a whole.
�Not long ago, some looked at Hangzhou as a top-tier property market. Now, oversupply is apparent even there,� said Du Jinsong, an analyst with Credit Suisse, who has taken investors on tours of the city in recent months to survey its challenges.

In the first four months of the year property sales across the country fell 7.8 per cent in value terms from the same period a year earlier, according to the latest government figures, which were released on Tuesday. That has already hurt sentiment among property developers, who cut investment in new projects, pushing newly started floor space in China down by 22.1 per cent in the first four months, compared with a year earlier.

Property investment directly accounts for nearly a fifth of Chinese gross domestic product, so if bulging inventories lead to slower construction, as they should, the consequences for economic growth will be unpleasant.

Observers could be forgiven for thinking that China has been here before. The housing market briefly wobbled in 2008 and 2011, only to rebound with great vigour. But on both those occasions, the slowdowns occurred because the government had deployed a battery of tightening measures to try to rein in runaway prices. This time, it is market forces leading the way. �This downturn is almost entirely because of the oversupply,� Mr Du says.

At the current pace of home sales in Hangzhou, it will take buyers about 25 months to digest the existing supply of property in the city, according to data from China Real Estate Index System. That is well above the average 10-month inventory of recent years.

A similar pattern is playing out across China. The worst laggards are still what are often referred to as third and fourth-tier cities, which have populations of roughly 1m-3m people. Their housing inventories have climbed to more than 30 months� worth of sales from 25 at the start of 2012, according to UBS.

The question is no longer if or when, but rather how much China�s structurally oversupplied property market will correct
- Zhang Zhiwei, Nomura

However, the headwinds are now also reaching China�s biggest cities. Housing sales in the country�s four massive metropolises � Beijing, Shanghai, Shenzhen and Guangzhou � fell 20 per cent on average in April from a month earlier, a steeper decline than in most smaller cities.

�The question is no longer if or when, but rather how much China�s structurally oversupplied property market will correct,� Zhang Zhiwei, an economist with Nomura, wrote in a note last week.

In Hangzhou, local media have reported that the municipal government wants to help developers by capping the upfront payments required to buy new land, a move that would ease their cash flow pressures. But it is also a measure that is designed to encourage them to buy more land � a critical source of fiscal revenues for the government � and therefore to build yet more homes.

In the fields next to New Century�s Mingjun complex, Mr Wu, an old man in a straw hat and rolled-up trousers, tends his corn. In spite of New Century�s struggles, he says the land that he is working is already zoned for development and it is only a matter of time before bulldozers roll in.

�The government should have limited the land for housing according to the size of the population, but they didn�t,� he said. �They have done lots of zoning. But that�s not the same as planning.�

# ¿ May 14, 2014 05:46

namaste friends: Sep 18, 2004; by Smythe

Wow, the Chinese central bank went and told mortgage lenders to hurry up with approvals.

http://on.ft.com/1mWh9EN

quote:

Asian investors are waiting for corporate earnings, after a subdued session on Wall Street offered little direction, while China's property developers see demand after comments from the central bank. .

Tokyo's Nikkei 255: -0.4%
Hong Kong's Hang Seng: +0.2%
Hang Seng China Enterprises: +0.4%
Shanghai Composite: -0.1%
Within the modest moves, the Shanghai Stock Exchange Property Index rose 0.3 per cent, after the People's Bank of China told 15 banks to "give timely approval" to qualified buyers of property.

China policymakers are concerned that that property boom could turn to bust, leading to a downturn in the economy.

Analysts at Barclays suggest a 5 per cent decline in Chinese property investment growth could shave half a point off of China's GDP growth.

The key question on the Chinese property market is bursting or merely deflating, they wrote on Tuesday.

Self-fulfilling expectations of falling house prices, developers rising financial difficulties, on the back of a highly leveraged economy with huge local government debt, and a fragile financial system with a large shadow banking sector, suggest the risks of a disorderly adjustment are rising.
The PBoC's recent stress tests found that banks could withstand bad loans quintupling. Investors have questioned the results, but nonethelees support from the central bank could help stave off the sort of downturn envisaged in the Barclays report.

Among Wednesday's gainers are Tianjin Reality Development Group, up 4 per cent, and Poly Real Estate Group, up 2.3 per cent.

More broadly, a clearer direction in Asian stocks could be found late in the day, once earnings come out from Sony and three mega banks in Japan: Sumitomo Mitsui, Mizuho and Mitsubishi UFJ.

# ¿ May 14, 2014 05:53

namaste friends: Sep 18, 2004; by Smythe

http://blogs.wsj.com/chinarealtime/2014/05/26/tycoon-sees-titanic-moment-for-chinas-housing-market/

quote:

China�s once buoyant property market is facing some rough sailing. In fact, according to one tycoon � Soho China Ltd0410.HK -0.32%�s chief Pan Shiyi � the real estate market is looking more like the Titanic headed in the direction of an iceberg.

Mr. Pan, the co-founder and chairman of Soho China Ltd., is taking a very bearish view on the housing market, which has struggled this year. In the first four months of the year, home sales were down 9.9% from the same period a year ago in value terms, official data shows. New construction starts � as calculated by area � were down almost 25% year over year in the same period.

As if that�s not bad enough, demand is also weakening in an expanding number of cities as banks tighten mortgage lending and sales are dampened by widespread expectations of price cuts.

�I think China�s property market is like the Titanic and it will soon hit an iceberg in front of it,� Mr. Pan told a financial forum on Friday, according to the China Business News.

�After hitting the iceberg, the risks will not only be in the real estate sector. The bigger risk will be in the financial sector,� he added.

He said serious problems lie with financial products like trust and wealth management products, as well as entrusted loans that charge higher interest rates than banks and are key financing vehicles for the property sector.

�When housing prices fall 20% to 30%, these problems will be all exposed,� he was quoted as saying.

Soho China declined to comment about Mr. Pan�s remarks. But in a post on his verified Weibo account Monday, Mr. Pan said that during the forum�s question and answer session, he had first asked whether there were any journalists present before replying to a question about the housing market. Only upon being told there were no reporters present, he said, did he proceed to answer.

�I didn�t expect there are countless reporters hiding [in the audience],� he said.

Soho has been putting at least some of its money where Mr. Pan�s mouth is � that is, by taking it out of the local property market.

In February, Soho China, run by Mr. Pan and his wife Zhang Xin, announced plans to sell all of their interest in Soho Hailun Plaza and Soho Jing�an Plaza in Shanghai for about 5.23 billion yuan ($853 million) to Financial Street Holdings, a Shenzhen-listed property developer.

It isn�t all bad news though for China�s property market, and help may be on the way.

The central bank has instructed commercial banks to make mortgage lending a priority. Likewise, some local governments have taken steps to ease their curbs on home purchases, which were put in place when prices seemed to be soaring out of reach for most of China�s 1.3 billion people. They�ve also eased restrictions on residency requirements and in some cases have rolled back curbs on buying a second or third home.

But these measures have been relatively modest so far and Beijing has not given the market a clear signal it can go back to its old speculative ways.

Though Mr. Pan didn�t comment on the government�s moves to soften property curbs, he did say he believes many forces � including plans for a nationwide property registry, an expanded use of the property tax and more land for development as a result of rural land reform � will help drive the market lower.

�I am not optimistic about China�s property prices,� he said.

If a property specialist like Mr. Pan thinks the market is close to a Titantic moment, perhaps it�s a good idea for buyers to stay close to the life boats.

# ¿ May 26, 2014 16:42

namaste friends: Sep 18, 2004; by Smythe

http://www.ft.com/intl/cms/s/0/cf5e...l#axzz32n7JGMqG

quote:

China�s slowing economy, a crackdown on corruption, and the rise of online shopping are increasingly eating into earnings for the country�s traditional retailers � hitting sales at bricks and mortar stores such as shoe shops and supermarkets.
Footwear chain Belle International and supermarket operator China Resources Enterprise both blamed weak consumer sentiment and a drop-off in economic growth as they reported sluggish earnings this week.

�With the economy continuing its structural rebalancing and slower growth becoming the new normal, consumer confidence has been low and consumer sentiment weak�, Belle said in a statement to the Hong Kong stock exchange.
The company, which has more than 20,000 outlets across China, is a key distributor for western sports brands such as Nike, Adidas and Puma. Revenues at its footwear business grew 5 per cent in the 14 months through February, which the company said was �significantly lower than prior years�.

China Resources Enterprise, which has agreed to fold Tesco�s Chinese retail operations into a joint venture, also highlighted a crackdown on lavish spending by the central government in its first-quarter earnings report.
�During the period under review, China�s retail market recorded slower growth due to continuous pressure from the slowdown in domestic macroeconomic growth,� the company said. �The central government strictly enforced frugality that affected the sales of certain high-value commodities.� Profit at the group�s retail business dropped more than 10 per cent year-on-year to HK$471m.

Shares in Belle fell 1.6 per cent to HK$8.11 while CRE was down 2.2 per cent at HK$22.45 midday on Tuesday in Hong Kong.

China�s economic slowdown and government-directed austerity drive have weighed on corporate earnings across the globe. Earlier this year, drinks makers Pernod Ricard, Remy Cointreau and Diageo all pointed to falling sales in China as they reported disappointing earnings.

China�s drive to cut lavish spending by government officials also prompted some five-star hotels to seek a rating downgrade in order to skirt new rules on where civil servants could stay while on trips.
�The anti-corruption campaign has significantly affected the order flows for consumption goods from the state-owned enterprises and government bodies,� Dong Tao, analyst at Credit Suisse, wrote in a recent report on weak sales over the Chinese New Year holiday.

Shaun Rein, head of China Market Research, said: �From a consumer confidence point of view, this is the worst I have seen it in my 17 years in China. Consumers are concerned about wage growth and rising housing prices so they are cutting back on spending. They are moving away from shoes and apparel but spending it on experiences, such as tourism and movies.�

Beijing is seeking to rebalance its economy away from a long-held reliance on investment spending and property in favour of more consumption-led growth. However, the initial impact has been to crimp appetite from consumers to spend.

�The macroeconomic outlook for the next two years is not optimistic. The consumer retail market is expected to be under continued pressure due to weak consumer sentiment,� Belle said. �A �new normal� state of lower growth is here to stay.�

I find it hilarious that anti-corruption crack downs are affecting negative growth.

# ¿ May 27, 2014 06:08

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# ¿ Apr 28, 2024 08:31

namaste friends: Sep 18, 2004; by Smythe

http://www.forbes.com/sites/gordonchang/2014/06/01/china-in-deflationary-spiral-new-stimulus-looks-ineffective/

quote:

The latest price data for China shows the economy has entered a period of deflation, a situation sharply at odds with the official claim of growth in the high single digits. Robust growth, especially over long periods of time, is almost always associated with high inflation.

The National Bureau of Statistics announced that the consumer price index for April increased by 1.8% year-on-year, well below the target of 3.5%, while the producer price index, measuring factory gate prices, declined 2.0%.

China is clearly in a period of falling prices. Not only is the decline in the PPI in excess of the increase in the CPI, the increasing CPI measures a much smaller portion of the economy�consumption is about 35% to 36% of gross domestic product�than the declining PPI�manufacturing was pegged at 44.9% of GDP in Q1.

Beijing�s consumer price data has often been criticized as underestimating inflation, but that does not appear to be the case now. The real �tell� is the import number. In April, imports were up an anemic 0.8% from the same month in 2013. The number would have been negative had there not been significant stockpiling of oil, copper, and other commodities. Because consumption was weak, it is unlikely that Beijing�s CPI increase for April was understated to any significant degree.

And what are the prospects for the future? Capital Economics says the fall in vegetable inflation �is likely to be short-lived� and suggests we need not worry about weak prices, but weak prices may be reflective of long-term trends. As Anne Stevenson-Yang of J Capital Research in Beijing pointed out in an April 28 note, food consumption in China last year was flat to negative in almost all categories.

Since then, growth has evidently slowed, and this suggests food consumption will not push prices upward. Moreover, residential property price declines, evident throughout the country except the big coastal cities, are bound to depress the CPI for some time. In short, there will be little or no upward push on the CPI.

As for manufacturing, April was the 26th-consecutive month of falling factory gate prices. Capital Economics says the declining PPI is the result of �weakness in global commodity prices rather than industry-wide overcapacity.� That could be true, but the fall in commodity prices is largely the result of the weakness in China.

Manufacturing is obviously going through a bad patch. May will probably end up as the fifth-straight month of contraction in the HSBC Purchasing Managers� Index. That�s not a good sign because factories are normally running at full tilt during the month. This year, the economy is showing no great bounce after the country�s long Lunar New Year break. The skid in construction starts in the first four months of this year, for instance, will eventually take its toll on output as builders need substantially less cement, steel, and wallboard. Therefore, in coming months we should not expect upward price pull from busy factories.

So what are Beijing�s planners doing to prevent a period of soft prices from becoming a deflationary death spiral? At the moment, they have evidently abandoned any plans they had for structural reform because reform of that sort would substantially depress economic output. Now, they have evidently opted for another round of Chinese-style pump-priming, this time along the lines of the �mini-stimulus� announced by Premier Li Keqiang on April 2.

Now, stimulative measures are being put in place in piecemeal fashion without fanfare. Most notable is the May 28 order of the Finance Ministry to local governments to accelerate spending, including a directive to frontload payments. Localities that don�t disburse fast enough risk losing funds already budgeted for this year.

On top of this, the People�s Bank of China is about to inject 400 billion yuan to fund infrastructure by engaging in its own version of quantitative easing, buying government bonds. On Friday, the State Council announced it would continue the easing of monetary policy by cutting reserve requirements for banks lending to the agricultural and small-business sectors. This move is in addition to a similar cut in the reserve requirement, announced in April, for rural banks.

Some analysts believe Premier Li�s April measures are already having an effect, and they could be right. After all, the Flash HSBC PMI for May shows that manufacturing contracted at a slower pace last month. The preliminary indicator zoomed up to 49.7 from April�s final reading of 48.1. Moreover, today the National Bureau of Statistics announced that the official manufacturing PMI for last month rose to 50.8 from April�s 50.4, indicating an accelerated recovery.

Premier Li should be smiling that not all the preliminary indicators for May are pointing down because his options are now severely limited. He may have the cash to fund a super-sized stimulus, but he cannot spend it without aggravating the already dangerous condition of the banks and without making the impending debt crisis larger still. There are only so many more �ghost cities� and �high-speed rail lines to nowhere� his government can build. The most Li can do, as a practical matter, is to continue implementing a raft of small measures and hope for the best. Small measures, however, do not appear adequate in the face of the forces driving down growth this decade.

If his small measures do not in fact work, we will inevitably see both the CPI and PPI continue to deteriorate. Deflation kills economies, and China looks like it has entered a period of continuously sliding prices.

# ¿ Jun 1, 2014 20:31

The Something Awful Forums > Discussion > Debate & Discussion > China Economy Megathread

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