2014-12-31

Happy New Year!





Soft Power Swallows Hong Kong

Everything in South East Asia will become a colony of China eventually (and South Korea is already a colony). All China has to do is grow its economy and wait. China runs into trouble if issues of identity and sovereignty take precedence over economics, which is why Taiwan is becoming a thorny issue. The young people of Taiwan are independence minded and reproducing their ideas to children via the history textbook, as China has whipped up anti-Japanese sentiment among the people. Hong Kong is far too close, and far too commercial, to resist China.

The mainland's colonization of the Hong Kong economy
One of the most telling signs of change is the space mainland Chinese companies lease in Central district, the heart of Hong Kong’s financial center. These firms now account for over 50 per cent of new leases signed for offices there, according to a September report from Hong Kong-based brokerage CLSA. That’s up from 20 percent in 2012, the report said.

The trend is the same in all major business districts. Mainland occupancy of 25 key Grade A office buildings, or prime office space, in the districts of Central, Admiralty, Sheung Wan and Wan Chai increased from 13 percent in 2008 to 21 percent earlier this year, according to commercial real estate services firm CBRE.

2014-12-29

Caixin Explains The New Deposit Rule

Caixin Explains: New Rules for Bank Deposits
Will the policy encourage banks to increase their lending?
Theoretically, yes. Banks are required by law to cap their lending at 75 percent of client deposits, excluding interbank deposits. Some analysts have argued that if the restriction were eased, banks would have more money to lend. Although the policy does not change this restriction, it will effectively cut the ratios for banks by 5 percentage points on average, according to Haitong Securities.

Critics have noted, however, that the biggest problem standing in the way of more bank lending is on the demand side. Many companies currently are having trouble borrowing from banks because they can't meet loan requirements, they argue. And easing lending restrictions on banks is not expected to offer much help.

The Chinese banking system is not efficient at capital allocation. The rebalancing is away from the companies who can easily borrow from banks and towards those who cannot. This is the impetus for financial reform, and also why these types of easing moves will have limited effects so long as they remain restrained.

DJIA versus 30-Year Treasury Bond

Place your bets.

The Cash Crunch Returns: WMP Edition

Here's the last WMP Interest Rate Index from 金牛。

Prior coverage: Cash Crunch Hits China As SHIBOR, WMP and Discounted Bill Rates Jump; PBOC Is Boxed In

First and Second Tier Prices Will Fall in 2015, Half of Developers Will Disappear

A new CASS report projects home prices will continue to slide at the start of 2015 and developers will exit the market, but conditions for a crash do not exist.

Home Prices to Decline, Purchase Limits to End
Home prices are set to decline further next year and cities that still restrict multiple-home purchasing are expected to scrap the policy, a report by an institute under the Chinese Academy of Social Sciences said on Friday.

Property downturn since the beginning of the year had prompted most of the cities in which there were restrictions on home purchases to ease them. There are only five cities where the curbs are still in place - Beijing, Shanghai, Guangzhou, Shenzhen and Sanya.

"The first- and second-tier cities have entered a relatively oversupply period. Home prices would continue to drop and restrictions are expected to be eased completely," said Zou Linhua, a researcher with the National Academy of Economic Strategy, under the CASS.

More in Chinese: 报告:一二线城市房价还会降 限购或全面放开

2014-12-28

Missing the Demographic Shift

There has been a lot of discussion about demographics driving a boost in employment growth in the United States. This blog post is one of the better ones on the subject, CNBC and the "Job Surge of 2015" and Demographics, but it still misses the shift in racial and ethnic demographics. Labor force participation and unemployment rates are different for various ethnic and racial groups.

Also, home ownership data from the Census:
For the racial categories shown below, the homeownership rate for the third quarter 2014 for non-Hispanic White householders reporting a single race was highest at 72.6 percent. The rate for All Other Races householders was second at 54.2 percent and Black Alone householders was lowest at 42.9 percent.

Different average ages of each racial group make this data less than useful, but differences in home ownership rates tend to be observable in the data across age cohorts. Simplistic comparisons to old data will have a higher than expected error rate unless they adjust for the current population demographics.

16 Real Estate Stories of 2014

1. Easing of Buying Restrictions Stoked Demand - a fail at the top. Buying restrictions failed in nearly every city; it was the PBOC's change to mortgage rules at the end of September that started a rebound in sales.

2. Mortgage rules change and interest rate cuts changed expectations for the better

3. Property registration and taxation impacted the existing home market

4. Sales fell nationally for three consecutive months and hit a new low

5. Affordable housing hit the market and quickly went from a highly sought to a cold potato

6. Real estate in/around new city centers and airports saw rising demand

7. New housing standards implemented in Beijing and Shanghai

8. Stock market bull induced selling property to buy shares

9. Public housing funds allowed to be spent in any city

10. Change in school admission policy eased demand for housing in some areas

11. Crowd sourced home buying a new investment model

12. Anti-smog high-tech housing becomes popular

13. Local govt took to the papers to promote home buying

14. Alibaba started listing real estate

15. Overseas property buying surged

16. Experts — various commentary, bullish and bearish, from real estate analysts and moguls

iFeng:今年影响房地产16件大事 2015年房价走势稳

2014-12-27

PBOC Rumored Easing Plan

The PBOC is rumored to be mulling a change to how deposits are classified, a move that would be equivalent to a 1.5% drop in the reserve ratio requirement (RRR), triple the initial 0.5% drop that was reported.

21st CBH: 传非银同业存款不缴准 相当降准1.5百分点

PBOC mulls plan to ease liquidity requirements
The banking sector sources said the PBOC, during a meeting with domestic financial institutions, revealed it is planning to include savings held by banks for non-deposit-taking financial institutions into banks' deposits, which will expand the base for calculating LDRs.

Under the current rules, Chinese banks are allowed to lend up to 75 per cent of their deposits.

According to the sources, 24 major financial institutions were told at the meeting that even if interbank deposits are included in the base, they may not need to set aside additional reserves, leaving more liquidity available for lending and investment.

The move is seen as another attempt to reinvigorate productive business investment without resorting to an across-the-board cut to reserve requirement ratios (RRR).

A 50-basis-point cut to the RRR is estimated to pour 2.4 trillion yuan ($386.65 billion) into the system after taking into account the money-multiplying effect of fresh lending on the net money supply.

A potential $1 trillion (7.2 trillion yuan) boost in credit for 2015. Assuming a healthy credit cycle......

2014-12-26

Scramble To Hedge Dollar Bull Will Fuel Rally in 2015, Yuan Bear Market Is Fissile Material

The next phase of the dollar bull market will come when unhedged U.S. dollar debtors realize they need to hedge.

UBS Raises Flag on China’s $1 Trillion Overseas Debt Pile
Daiwa Capital Markets has a $1 trillion estimate for carry-trade inflows since 2008, bets on the difference between yields in China and overseas.

...“This could get very uncomfortable very quickly,” he said in a Dec. 12 interview. “I boil it down to its basics. You’ve borrowed unhedged and leveraged: you’re at risk.”

Andrews says the mechanics of what’s happening are this: mainland companies deposit 20 percent to get a letter of credit from an onshore lender. They take that document to get a low-interest dollar loan from a Hong Kong bank, which treats it like a no-risk check fully backed by the guarantor.

The companies flip those dollars back to the mainland, where they use them as collateral to get even more letters of credit, leveraging even further, said Andrews. That money is then used to invest in China’s high-yield and often risky trust products or in the booming stock market. The profits are then used to pay off dollar borrowings.
A credit bubble based on the "guaranteed" appreciation of the yuan versus the U.S. dollar is a recipe for disaster. Borrowers are short the U.S. dollar and even if their loans aren't called, they may decide to hedge against losses in the currency market.

If the Fed increases interest rates, there will be a flow out of yuan and into dollars. Exporters will hoard dollars and we could see a replay of what happened in 2012 when the PBOC couldn't buy a buck.

Here is a quote from 2012 from the post Chinese Hoard Dollars:
China's largest privately run shoemaker, Aokang, exports 40 million pairs of shoes to the United States and Europe each year. Previously, the firm would swap U.S. dollars for yuan on the same day they were received, but now, "[We] keep as much as possible, we even wish we could keep all of it."
Imagine the explosive bull market in Chinese stocks this year being replayed in the currency market in 2015.

Andrews says the similarities between pre-Asian financial crisis Thailand and China today are limited. The amount involved is still small relative to China’s $9.2 trillion gross domestic product. The nation’s overall loan to deposit ratio is healthy and China has foreign-exchange reserves that peaked at $4 trillion in June, he said.

Chen Long, Beijing-based China economist at research consultancy Gavekal Dragonomics, said China’s overseas debt has been growing in line with the economy and banks are healthy enough to absorb any changes in interest rates or currencies.

“The renminbi is controlled by the People’s Bank of China and no one has enough resources to bet against the PBOC’s foreign-exchange reserves,” he said.
This thinking is why I'm worried that the risk is even greater than in 1997. Not for China, but for the global financial system. A currency/financial crisis can erupt when too many people are on one side of the trade. While no "one" has the resources to bet against the PBOC's FX reserves, 1.4 billion Chinese have the ability to deplete China's FX reserves several times over because money creation has far exceeded the accumulation of reserves. All renminbi in circulation has a claim on China's dollar reserves and if claims start to be called, the reserves will decline. Each time reserves have declined (or failed to grow) the yuan has weakened. A weaker yuan can quickly change market perceptions in China. The drop in late 2011 and early 2012 caused exporters to say of U.S. dollars, "[We] keep as much as possible, we even wish we could keep all of it."

If the psychology in the yuan market tips to bearish, watch out.

2014-12-24

People's Daily Warns 3rd and 4th Tier Home Prices Will Fall in 2015

The People's Daily is warning that home prices will decline again in 2015 for cities with overstuffed inventory.

Even though first tier cities have seen stabilization in prices and a bounce in rebound, there's no real rebound taking place due to high inventory, says the head researcher at Shanghai E-House Real Estate. The oft quoted Zhang Dawei of Centaline sees sales potentially stabilizing in Q4, but prices may not bottom out until Q1 in 2015.
Along with a rebound in first tier prices, differentiation in the national property market will become increasingly clear.
From October: Local Officials Want A Third Bailout as Mortgage Easing Impact Muted and earlier this month: A Tale of Two Tiers
Back to the People's Daily article:
"The market differentiation phenomenon is obvious, it reflects the real estate market becoming more rational." Academy of Social Sciences Research Associate Chen Fei explains: on the one hand it's due to housing price fluctuations reflecting the differences in different levels of urban, economic and social development, and quality of public services, which reflects the consumer being more rational; on the other hand, the national real estate policy of promoting stability is gradually squeezing speculation out of third- and fourth-tier cities.

In sum, first-tier cities and the upper crust of second-tier cities appear to be in good shape, but for many of the second-, third- and fourth-tier cities, price increases are unlikely in 2015.

Source: 人民日报预测房价:三四线房价下跌概率大 (People's Daily: Probability of Third- & Fourth-Tier Home Price Decline High)

2014-12-23

Real Estate Taxes Are Coming to China

iFeng: 房地产税真的要来了 购房者慌了还买房吗?

A hot topic in China is how real estate taxes will impact housing, even though widespread real estate taxes aren't due for at least a couple of years. My take is it will have zero affect on a rising market, but it could have an impact if home prices remain flat or decline. The transmission mechanism may come from sales, but more likely rental units. Investors who own several investment properties, currently sitting empty, will have a strong incentive to generate positive cash flow once their home becomes a cash flow negative asset.

China's property registration helps clear market
The new registration system could pave the way for property tax.

Zhang Dawei, an analyst at Centaline Property, a real estate agency, told Xinhua that some Chinese cities are seeing more luxury apartments for sale as the registration system moves forward. Speculative investment in the property sector might flow into other sectors on expectation of a property tax raising the costs of holding property assets.

As land becomes more scarce, traditional revenue through land sales by local governments will become difficult to sustain. "In such circumstances, a property tax will become inevitable, but only after a unified registration system is in place," said Hu Jinghui, vice president of China's major real estate agency 5i5j.com.

"The data collected through the system will allow new taxes, such as a property tax and an inheritance tax," Hu said.

Discount Mortgages Back in Beijing

Major banks are offering 10% discounts off prime for credit qualified borrowers.

iFeng: 年末北京首套房贷利率优惠放宽 9折渐成主流

What A U.S. Dollar Bull Market Looks Like

The U.S. dollar has rallied when stocks dropped in the past several years, including 2008 and 2011. This year, the stock market has enjoyed a good rally since the summer, but the U.S. dollar has done even better.

This is not a reaction move in the U.S. dollar, a flight to cash due to a "risk-off" environment. It is a U.S. dollar bull market, right on schedule.

2014-12-22

Business and Banking Confidence Slump in Q4

The PBOC's survey of business conditions is out. Pessimism is high in both the banking and business surveys. The bright spot in the business survey is that respondents have been consistent in their opinion of profitability, despite pessimism over the economy.

Business survey: 2014 年第 4 季度企业家问卷调查报告

Banking survey: 2014 年第 4 季度银行家问卷调查报告

Depositor Survey: 2014 年第 4 季度城镇储户问卷调查报告

Here's the banking survey results:

China Housing Update for December Shows Market Differentiation

Generally, sales have stabilized and rebounded in first-tier cities, while price declines have narrowed. 央行降息满月:楼市现止跌企稳 一线城市房价企稳反弹

More ghost cities emerge in third and fourth tier cities due to large inventory. One issue discussed in this article is the death of the demographic dividend. Most young people today "own" a house in a third- or fourth-tier city because their parents home will pass to them, but this is not an incentive to leave a second-tier city, and in fact the flow of population is going into second-tier cities. Many industries only exist in first- and second-tier cities. So these are potentially new ghost cities as the older population dies off and the young population leaves, something that can be seen across the Rust Belt and Northeast region of the U.S. 三四线再曝鬼城:房子积压太多 还在疯狂盖

Nanjing housing market is hot and cold as market differentiation takes hold. Recently, cheap and expensive housing have both come to market. A high end property quickly sold 90% of its units, while a low-end property struggled to even sell 10% of its units. 南京楼市冰火两重天 专家:市场分化明年将持续

Guangzhou is the exact opposite of Nanjing. November sales were up in the cheaper segments and down in the more expensive ones. The general situation has cooled a bit in December, with the market dominated by those with current housing demand. 楼市寒冬持续 广州小户型二手房成交量同比下滑

The PBOC's Q4 survey of business and banking conditions is out and nearly 60% of Chinese still believe home prices are too expensive. 央行:近60%居民认为目前房价高

Foreign Banks To Receive Equal Treatment in 2015 or Not

Two views on China's shift in its regulatory stance concerning foreign banks. The Chinese view in the 21st CBH article below says this gives foreign banks equal treatment and is evidence that China's financial opening is picking up speed. The FT article argues that nothing fundamental has changed.

外资行准入门槛再降市场份额能上去吗?
China eases rules for foreign banks

Social Mood Still Sinking, Political Authorities Divide The Public

In Europe, extremist immigration policies from the era of peak social mood continues to create conflict. The elites still fail to hear the message though, branding opponents of extremist immigration policies as xenophobic. We are now well into the mood cycle and many mainstream parties still have not changed their immigration policies.
Xenophobia mushrooms in shadow of Berlin tower blocks
As Germany confronts a rise in far-right populism, with "anti-Islamisation" marches drawing thousands in the eastern city of Dresden, this bland corner of the sprawling capital, a district home to almost 300,000 people, has become another flashpoint of resentment and xenophobia.

"I have nothing against foreigners, I've been around them all my life," said Fritz Siebke, 91, enjoying a Christmas season banquet of meat rolls, potato dumplings and gravy with fellow German pensioners at a district community centre.

"But since we've accepted refugees into Marzahn-Hellersdorf, things have changed in the neighbourhood. My gardening tools were stolen from right outside my house. In the past, that wouldn't have happened."

Christa Timm -- a fellow retiree who has lived here "for half a century," since the days when a Marxist-Leninist regime was in charge -- grumbled that "it would have been good if the authorities had informed us properly."

In Sweden:
Anti-immigrant sentiment is part of the story, though Swedish public opinion has become much more favorable toward immigration since the early 1990s. For some, immigration has become a symbol of a society gone astray. For others, the number of immigrants over the last few years has simply been too high.
In fact, the numbers are high – not in comparison with a country like Turkey, but certainly relative to other European Union countries. Sweden and Germany receive the largest inflows of immigrants by far – and Germany is nearly ten times the size of Sweden.

...In the new century, refugees have come increasingly from the Middle East and the Horn of Africa. One percent of Sweden’s population today is from Iran, and almost 2% are from Iraq. Indeed, after the Iraq war, the small town of Södertälje took in more Iraqi refugees than the United States did.

Given the numbers, immigration in Sweden has worked much better than expected. But there are problems. The Swedish labor market’s sometimes rather strict systems and stable structures have impeded integration relative to many other countries.
No mention of the rapes. Here is a chart of Sweden's rising immigration population along with the rising number of rapes. This increase is in distinct contrast to most crime rates in the West, which are generally falling as the native population ages.

The key issue here isn't the behavior of immigrants, it is the elite response. The political establishment doesn't just ignore the issue, it attacks those who even bring it up as racist and xenophobic. As the German woman stated, "it would have been good if the authorities had informed us properly." Authorities aren't informing the public, they're actively covering up incidents, such as the systematic rape of children in Rotherham. The public is angry that these things happen, but the authorities respond by attacking the people, which ratchets up the anger and leads to populist movements. The political establishment could defuse right-wing populism tomorrow by shifting their policies, but instead they are pushing even harder in the opposite direction. It does not take a genius to predict political victory for whichever party opposes mass immigration.

The typical elite opinion can be seen in this FT editorial on the Sweden Democrats victory: Rightwing populists in Europe make mischief
However, the priority now must be to expose the Sweden Democrats as a party with a reckless approach and an array of intolerant, socially divisive policies wholly out of keeping with Swedish political culture. The main parties need not be scared by the Sweden Democrats’ threat to make the election campaign “a referendum for or against increased immigration”.

The Sweden Democrats abandoned their neo-Nazi doctrines more than 10 years ago, making it inaccurate to label them a far-right party, but most Swedes correctly regard the party’s aggressive line on immigration as unpalatable. The more intensely the party dwells on immigration, the more remote its chances of making an electoral breakthrough. Come March, Swedish voters can show the world that the tide of rightwing European populism is anything but unstoppable.
There is a massive chasm between the voters and the political establishment. Instead of making mischief, the far-right is on its way to making policy because they have a near total monopoly on the hottest political issue for the rest of this decade.

Leaving aside the immigration issue, there's negative social mood. Is the west clinically depressed?
To some people, the future will always be behind them. Rarely, however, has such gloom covered most of the western world at the same time. Even during those brief moments — the stagflation of the 1970s, for example — it faded with the crisis.

Today’s pessimism is more troubling in two ways. First, economics does not fully explain it.
Socionomics argues that negative social mood created the weak economy.
What then, is the matter with the west? The answer is beguilingly simple. We are growing older. In economic terms that means secular stagnation.
Aging may play some role, but it doesn't explain all of it. The article notes how stagnation leads to more conflict as people fight over fewer resources. The elite solution of importing more foreigners to fight over dwindling resources is a recipe for political disaster.

The U.S. is also seeing major negative mood as the society fragments. Only a little more than a week ago: AL SHARPTON LEADS MARCH IN DC AS NYC PROTESTERS CHANT: ‘WHAT DO WE WANT? DEAD COPS!’

This weekend, the call was answered. Progressives and the Police
‘What do we want? Dead cops!” So chanted marchers at one of the protests organized in the last month against the failure of grand juries to indict white officers in the death of black crime suspects Michael Brown and Eric Garner. On Saturday they got their wish, as a black assailant citing revenge for Brown and Garner traveled from Maryland to murder two cops sitting in their patrol car in Brooklyn.

Bratton: Tensions in NYC like 1970s
“Many issues of the 1970s are now revisiting us once again. And once again at the forefront of dealing with those will be America’s police forces,” Bratton said at a police promotion ceremony on Friday at NYPD headquarters, according to Capital New York.

Many Americans share Bratton’s alarm, according to a handful of recent polls.
Just Friday, a Gallup poll said the number of Americans citing race relations or racism as the most important problem in the country jumped to 13 percent, the highest since 1992 — in the midst of the Rodney King verdict — and up from 1 percent only one month previous in November.

Similarly, in an NBC News/Wall Street Journal poll also released last week, a majority of 57 percent of Americans said race relations are “bad” with an additional 23 percent who said they’re “very bad.” A pair of polls from Quinnipiac University showed New York City voters disapprove of Mayor Bill de Blasio’s handling of relations between police and the community — with approval numbers dropping even further among minorities.
The difference with the 1970s is that the U.S. was still mainly dominated by a single ethnic group, so political debate was mainly ideological. Now politics is identity driven, with no dominant group able to set policy. President Obama's main political agenda are things such as the "War on Women" and drumming up local news into national news, such as the Trayvon Martin and Michael Brown shootings. Divide and conquer is now the operating agenda of America's political establishment. Exactly the policy agenda one would expect in a time of negative social mood.

Xi‘an Credit Guarantee Firms Go Bust

Several non-financial credit guarantee firms (non-financial refers to firms that have not obtained a license to operate as a financial company) collapsed in Xi'an recently and their bosses have fled.

The non-financial guarantee industry in Xi’an is a desolate scene. Funding strands break, the bosses of five of the companies fled, and many investors suffered heavy losses, causing anxiety among people and drawing the attention of authorities. At least ten firms are involved in a payment crisis and at least 300 million yuan is at stake, with as much as 100 million lost.

Many firms hold negative views of the situation. For example, one boss of a guarantee company went to police, admitted that there was a crisis of confidence, a payment crisis, and asked to close his company. Investors money is with other firms and he can do nothing. But the police refused his request and said that the police cannot get involved if there is no case report.

One of the insiders told the reporter that companies are responding to the crisis differently: some are raising money to ward off a payment crisis; other firms published an announcement stating the investment funds will be gradually repaid, but the firm is shutting other operations; others still to believe that there is a narrow chance of a government bailout.

Many firms operating in Xi'an came from Henan province in recent years and were engaged in illegal fundraising, using high interest rates as bait. Older Xi'an credit guarantee firms have a license to operate as a financial company and mostly did traditional business such as guarantees on mortgages and car loans. The Henan companies were mainly raising cash from private investors and making high interest loans to private parties. Police are now investigating the situation and new licenses for non-financial firms have been suspended until the matter is sorted out.

The main reason for the present situation in Xi'an is that most of the money went into the real estate industry. This year's downturn in home prices has developers struggling and defaulting on debt. Also, some bosses fled simply because they're crooks who squandered investors money. If history is any guide, losses may end up being less than expected, but the number of firms it touches may climb in the coming weeks and months.

Sources:
East Money: 西安担保业严冬 多家非融资性担保公司崩盘
Guhantai: 陕西投资担保企业连续崩盘 数以干计投资人受损

Prior coverage of credit guarantee crises.

2014-12-19

November Home Price Decline Slows Again

New home prices fell 0.56% in November, a reduction from the 0.76% decline in October. Year-on-year prices are now down an average of 3.6%. New home prices in only 2 of the 70 cities are not down yoy.

March: 4 cities saw declines in price mom, 10 cities were flat, 56 were up.
April: 8 cities saw declines in price mom, 18 cities were flat, 44 were up.
May: 35 cities saw declines in price mom, 20 cities were flat, 15 were up.
June: 55 cities saw declines in price mom, 7 cities were flat, 8 were up.
July: 64 cities saw declines in price mom, 4 cities were flat, 2 were up.
August: 68 cities saw declines in price mom, 1 city was flat, 1 was up.
September: 69 cities saw declines in price mom, 1 city was flat, 0 were up.
October: 69 cities saw declines in price mom, 1 city was flat, 0 were up.
November: 67 cities saw declines in price mom, 3 cities were flat, 0 were up.

Existing home prices firmed even more than new homes. The decline in November shrank to 0.38%, up from a 0.84% decline in October.

70 city new home price changes by market segment: below 90 sqm prices fell 0.5% mom; 90-144 sqm prices fell 0.6%; above 144 sqm prices fell 0.7%.

70 city existing home price changes by market segment: below 90 sqm prices fell 0.4% mom; 90-144 sqm prices fell 0.4%; above 144 sqm prices fell 0.5%.

Below is the data from the housing report, but adjusted to show the change. I sorted it by the change since 2010. It shows how wide the gap is from the hot markets to the cold.

The NBS report is here: 2014年11月份70个大中城市住宅销售价格变动情况


MoM YoY Since 2010

Last Month = 100 Last Year = 100 2010 = 100
Wenzhou -0.5 -5.5 -22.2
Hangzhou -0.4 -9.5 -7.4
Ningbo -0.4 -4.4 -5
Jinhua -0.2 -4.3 -0.7
Haikou -0.3 -3.7 -0.5
Tangshan -0.1 -2.8 0.1
Quanzhou -1.2 -4.7 2.4
Bengbu -0.7 -5.3 2.7
Sanya -0.6 -3.2 2.7
Wuxi -0.6 -3.7 2.9
Anqing -0.9 -5 3.7
Qingdao -1 -4.8 3.9
Dali -0.6 -2.4 4.3
Jiujiang -0.3 -3.5 5.4
Shaoguan -0.7 -7.3 5.9
Yangzhou -0.4 -4.2 6.2
Nanchong -0.7 -3.9 6.9
Luzhou -0.4 -4.6 7
Beihai -1 -3.5 7.2
Baotou -0.7 -4.5 7.3
Yantai -0.9 -3.6 7.4
Nanning -0.3 -3.3 7.8
Ganzhou -0.6 -5.2 8
Chongqing -0.5 -4.8 8.3
Chengdu -0.6 -4.2 8.3
Huizhou -0.5 -4 8.7
Tianjin -0.3 -2.3 8.8
Jinan -0.4 -3.2 8.9
Xuzhou -0.6 -3.6 8.9
Changde -0.3 -2.5 8.9
Changchun -0.6 -2.9 9.5
Hohhot -0.9 -3.7 9.9
Kunming -0.6 -2.8 9.9
Xiangyang -0.7 -4.3 9.9
Qinhuangdao -0.5 -4.1 10
Jining -0.4 -2.5 10
Yichang -0.9 -3.9 10
Zunyi -0.5 -2.6 10
Jinzhou -0.9 -5 10.1
Harbin -0.4 -3.2 10.3
Jilin -0.3 -3.5 10.5
Pingdingshan -0.7 -3 10.5
Nanjing 0 -1.5 10.7
Guiyang -0.4 -2 10.8
Mudanjiang -0.2 -1.7 10.9
Guilin -1.3 -6 10.9
Taiyuan -0.4 -3 11
Hefei 0 -0.6 11
Yinchuan -0.9 -2.3 11.1
Dandong -1.3 -4.9 11.1
Wuhan -0.3 -3.6 11.2
Dalian -1.4 -4.7 11.3
Shenyang -1.2 -6.7 11.5
Luoyang -0.4 -3.1 12
Yueyang -0.5 -1.8 12
Xi'an -0.7 -2.4 12.2
Nanchang -0.4 -4.4 12.3
Zhangjiang -1 -4.1 12.6
Lanzhou -0.3 -2.6 12.7
Fuzhou -0.4 -4.7 13.1
Changsha -0.9 -5.7 14.5
Shijiazhuang -0.2 -2.8 16.1
Shanghai -0.4 -2.9 16.1
Beijing -0.2 -2.1 17.9
Xining -0.4 -1.3 18
Urumqi -0.7 -2.7 19.7
Zhengzhou -0.2 0.4 20.2
Shenzhen 0 -1.9 22
Guangzhou -0.4 -3.8 22.3
Xiamen -0.4 2.9 27

Why Is Oil Down? China's "Open Secret" Slowdown

Wondering why oil is down? Demand is down. Saudi Arabia Says Hard for OPEC to Give Up Market Share
Global oil markets are experiencing “temporary” instability caused mainly by a slowdown in the world economy, Oil Minister Ali Al-Naimi said, according to comments published yesterday by the Saudi Press Agency. He reiterated the country’s intention to maintain output amid plunging prices.

China's slowdown is an open secret: for all the government is blamed for massaging the data, it puts out a lot of data that shows sharp slowdowns in various sectors and geographic regions. The charts below are cherry picked to show where the economy is slowing. The slowdown/recession is still concentrated in the northeast and real estate related sectors, although the drop in electricity production and autos hints at a widening slowdown.

Auto production is down.
Related: Massive Volume "Panic Selling" Cuts Warren Buffett's Chinese Car Maker BYD In Half Overnight
The reason - perhaps unsurprising - given by some is worries over Mainland China IPOs "caused a liquidity squeeze," as the recent rally in mainland shares is led by leverage financing leading to major margin-calls on modest drops. Is it any wonder the PBOC is trying to tamp down the speculation.
I don't think so, since earlier this month a CASS researcher explained how smart money is buying when there are liquidity freezes. Also, BYD trades in HK, not only the Mainland, but the drop was larger in the market without a liquidity freeze......ZeroHedge links to a story with the real reason (reason not in headline): China Stocks Fall From 4-Year High on IPO Concern as BYD Slumps
BYD, the automaker partially owned by Warren Buffett’s Berkshire Hathaway Inc., slumped as much as 47 percent in Hong Kong and plunged by the daily limit in Shenzhen.

......The shares slid 10 percent in Shenzhen. Investors are speculating on BYD’s outlook after Geely Automobile Holdings forecast a plunge in profits on the slumping ruble, said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc.
The contagion begins? BYD addressed 6 rumors today: 比亚迪紧急会议澄清六大传言:王传福没“出事”
1. Russia is not the presence of large amounts of foreign exchange losses, BYD sales to Russia a year only a few hundred thousand dollars ; 2. electric cars are all running correctly; 3. battery factory normal operation; 4. for the reduction of major investors rumors, investors and members through communication, nor understand; 5. the possibility of Buffett's holdings of small, recently did a communication; 6. Wang no "trouble", he still presided over the shareholders' meeting yesterday, today also met with the staff.

Electricity production:

Cement production:

Industrial production in China's industrial heartland. Hebei technically isn't in the northeast, but has many steel mills. Beijing and national rate in for comparison.

Real estate investment in Liaoning province, Heilongjiang and Jilin.

2014-12-18

Cash Crunch Hits China As SHIBOR, WMP and Discounted Bill Rates Jump; PBOC Is Boxed In

Interest rates are moving up across the board now (SHIBOR, WMPs, deposit rates...) and 21st Century Business Herald asks, is the PBOC going to pour liquidity into the market or cut the reserve ratio? Unstated is the expectation that something has to be done. (21st CBH infographic at bottom.)

The charts are as follows: SHIBOR, discount rate in Yangtze River Delta region, WMP interest rates, central bank repos, and central bank interventions (repos in orange, liquidity injections in purple and blue). It shows the PBOC stopped repos in November.

China experienced a serious cash crunch in June 2013 and the situation has only grown worse in terms of the economic fundamentals. The central bank stepped in at prior quarter ends to avoid a repeat of the cash crunch, but rising bad loans and tighter credit in the economy only make the conditions tougher on the banks.

Chinese coverage here: 年底钱紧央行降准预期加大 银行间拆放利率飙升 (cleaned up Google Translated portions below)
Banks are short of money at year-end again.

...calls grow louder for the central bank to add liquidity or drop reserve ratios

...In fact, the negative factors facing the financial side of this week's performance in several ways. First, the start of the 18th batch of the seventh IPO subscription amount is expected to freeze the funds or continue record year peak . According to Guotai Junan estimates, including Guoxin Securities , the mineral resources of 12 new shares is expected to issue 1.56 billion shares IPO is expected to freeze the funds over 2.2 trillion, the largest in history. Secondly, the recent depreciation of the RMB spot exchange rate to accelerate, or increase outflows, November new foreign exchange malaise. The central bank data show November financial institutions foreign exchange increased by only 2.2 billion yuan, down sharply from October's increase of 66.1 billion yuan.
The last point is typical of every significant yuan depreciation in the past 5 years: dollars dry up fast. The yuan is now down to 6.22 versus the USD in HK.

The PBOC is boxed in because it can't ease monetary policy with capital flowing out of the banking system and into the stock market, or overseas. A move to cut rates will boost the stock market and depreciate the yuan.
"Based on the current exchange rate to fall, the stock market fiery and hot money outflows, the central bank will not easily use an open, substantial liquidity tool. But with the gradual increase in financial pressure, the greater the probability of reverse repurchase and adjust the deposit reserve ratio. " Haitong Securities analyst told Economic Herald reporters that the introduction of a limited scale, temporary and targeted delivery tools, such as expectations continued to do more to determine the MLF.

English coverage: China money rates rise sharply as mini-crunch anniversary approaches
China's money rates surged Thursday afternoon, with the weighted average for the benchmark seven-day repo contract quoted at up to 8.5 percent, the highest level since January.

The rise follows another week of relative passivity by the People's Bank of China in the interbank market, where the bank neither drained nor injected funds. It has sat on the sidelines during biweekly open market operations for seven straight sessions.

21st CBH infographic: 年末流动性再趋紧 央行公开市场放量or全面降准?

2014-12-17

Long Crude, Short Oil Stocks

Flexible Yuan Goes Down, Not Up

Compare these two parts of the article:

China Warms to a More Flexible Yuan
The shift comes as the People’s Bank of China grapples with what some within the central bank call “unprecedented” downward pressure on the yuan, thanks to a strengthening U.S. dollar and a slowing Chinese economy. The yuan has fallen more than 2% against the dollar since the beginning of this year, putting it on track for its first annual decline in five years. On Wednesday, it was down 2.3% against the dollar for the year.

But the PBOC is unlikely to permit the yuan to slide more than 3% against the dollar, the officials and advisers to the central bank say. Big yuan depreciation could cause money to flow out of the country just when China needs funds to spur economic growth.

The yuan is down 2.3% this year and a decline of more than 3% will cause capital outflows.

Jim Rickards has described a change in the market as a "phase transition." It is a jump from one equilibrium to a new equilibrium. Today, people believe the yuan is a stable currency with a bias towards appreciation. They expect very little volatility, and almost none on the downside.

The PBOC and China generally have the illusion of control because of their past success. Even the most competent can lose control by believing they control the market. China's leaders appear competent because they are willing to cede control of the economy to the market as it grows in size and complexity. If Chinese leaders suffer from the Fatal Conceit, the yuan will fall. If they open the economy, the yuan is a better bet, but it could also fall due to volatility in the market. The risk today is on the downside, and if its cheap to bet on a move outside of expectations in 2015, I'd take it.

2014-12-16

Yes Virginia,There Is A Market

Bloomberg noticed that interest rates went up in China.

How China’s Interest-Rate Cut Raised Borrowing Costs
What if a central bank cut interest rates and borrowing costs rose?

Since the People’s Bank of China surprised markets with the first benchmark rate reduction in two years on Nov. 21, the five-year sovereign bond yield climbed 15 basis points, that for similar AAA corporate notes surged 37 and AA debt yields jumped 76.

In the past four weeks, I've posted: Deposit Rates Go Up in China
Reality in China: Banks May Eliminate Rate Cuts
Deposit Competition Begins: Some Chinese Banks Hike Long Term Deposit Rates

Rates went up immediately due to the increased role of the market in setting interest rates. Nominal interest rates are much higher in the private Chinese economy. Ignoring current economic trends, if the Chinese economy opens up and allows a greater role for private companies (as is happening), interest rates would rise without an offsetting inflow of capital, artificial or real. Since foreign investment is falling.....

Moreover, China's push for a bull market rally had consequences too. Also Bloomberg: China’s Stocks Sink Most Since 2009 as Turnover Jumps to Record
The nation’s clearing agency for exchanges has stopped accepting new applications for repurchase agreements that involve bonds rated below AAA or sold by issuers graded lower than AA, according to a statement yesterday. The move will help remove riskier debt from the repo market before China requires local government financing vehicles to clarify next month which bonds are backed by the state, according to Guotai Junan Securities Co.

The yield on Kashi Urban Construction Investment Group Co.’s 800 million yuan of debt due November 2019 climbed 75 basis points to 7.17 percent, the biggest jump since July, exchange data show. Kashi Urban Construction is an LGFV.

One-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, jumped as much as 29 basis points to 3.67 percent, the highest since August.

It also doesn't help that China still tries to manipulate the market. As ZeroHedge noted: When Central-Planning Fails: "Stimulative" Chinese Rate Cuts Spark Surge In Borrowing Costs
The reason is simple - the leveraged-speculative surge into Chinese stocks triggered by the "easy" rate-cuts sparked a major rotation from bonds into stocks - which forced the PBOC to stymie leveraged-trading and implicitly tighten financial conditions dramatically for the stressed corporate bond market.

China's rate cut does not signal good news for the market; it signals the central bank is finally coming around to the reality of economic weakness. Credit is tight and the push for a bull market, while it can alleviate some funding needs for financial firms, has unintended consequences for the bond market. Policy makers are constrained by the market and there's no painless way out.

2014-12-15

Lanxiang Vocational School

On the lighter side:
Lanxiang Vocational School Promo Video, Netizen Reactions
he Shandong Lanxiang Vocational School gained international attention four years ago when it was singled out by The New York Times as one of the schools responsible for the hacking and cyber attacks against Google and other US companies and government agencies. As a result, Lanxiang has become somewhat of a joke among Chinese netizens where “hacker school” seems hardly fitting for a school better known for teaching people how to drive excavators.

With Lanxiang back in the headlines following a recent campus brawl and then a scandal involving its president, Chinese netizens took the opportunity to poke fun at Lanxiang Vocational School’s over-the-top promotional videos detailing its courses in auto repair, cooking, hairstyling, computer, welding, machine tools, and of course… excavators.

2014-12-14

Industrial Production and Fixed Asset Investment Slows

I covered November monetary data here: Lending Spikes in November
November real estate investment here: November Real Estate Growth Slowest in 2014, Land Sales Growth Shrinks

Fixed asset investment was down slightly in November. Private fixed asset investment is in yellow; total fixed asset investment in blue. Private investment was 64.6% of total investment in November.

Digging into the numbers reveals the same trend in the other data sets. November data is the second weakest for the year after September. The October spike is a bounce, not a trend yet. Private fixed asset investment slowed to 14.9% in November; it was 11.7% in September. Below trend growth is the story of 2014 and 2015 will likely open with a big drop in growth that will "surprise" anyone watching the year-to-date cumulative figures.

Industrial production continues to slow. Looking at the breakdown of data from the report, the real estate slowdown is still having a big impact. Cement production fell 4% in November; plate glass contracted 6.3%. More concerning for the broader economy is the 4.5% drop in auto production, as well as the 0.6% growth in electricity production, which is now only up 3.9% ytd in 2014.

The drop in oil prices has further to go if the Chinese economy continues to slow.

Crude Crash Set To Continue After Arab Emirates Hint $40 Oil Coming Next
“We are not going to change our minds because the prices went to $60 or to $40,” Mazrouei told Bloomberg at a conference in Dubai. “We’re not targeting a price; the market will stabilize itself.” He said current conditions don’t justify an extraordinary OPEC meeting. “We need to wait for at least a quarter” to consider an urgent session, he said.

And with OPEC’s 12 members pumped 30.56 million barrels a day in November, exceeding their collective target for a sixth straight month, according to data compiled by Bloomberg. Saudi Arabia, Iraq and Kuwait this month deepened discounts on shipments to Asia, feeding speculation that they’re fighting for market share amid a glut fed by surging U.S. shale production.

The above only focuses on the (unchanged) supply side of the equation - and since the entire world is rolling over into yet another round of global recession, following not only a Chinese slowdown to a record low growth rate, but also a recession in both Japan and Europe, the just as important issue is where demand will be in the coming year.

Japan's election could throw some logs on the fire.

Ruling coalition secures 2/3 majority
The Liberal Democratic Party led by Prime Minister Shinzo Abe and its coalition partner, Komeito, garnered 325 seats, one more than a two-thirds majority, in the 475-seat Lower House.

A two-thirds majority in the chamber will allow the re-enactment of bills rejected by the Upper House. A two-thirds majority in the Lower House also makes it possible to propose amending the Constitution.

Prime Minister Abe told NHK that he will give top priority to the economy and pursue economic diplomacy to heighten Japan's status. He said he will enact legislation regarding security in the next Diet session to protect the people's lives.
Remilitarization and yen devaluation.

2014-12-13

Lending Spikes in November

M2 money supply increased 11.98% in November, the slowest growth since September. The big growth area was bank loans, which appears to have been the result of central bank internvention. Without the spike in bank loans, the decline in total social financing (TSF) would have been right on trend.

Chinese banks increase lending faster than seen
Chinese banks increased lending faster than expected in November amid signs that the central bank's bid to expand credit to a slowing economy was working.

The People's Bank of China last month continued to rein in lightly regulated shadow-bank lending even as it routed credit to the real economy, economists said Friday. But some added that it was too early to tell whether the monthly new loan expansion represented a sustained credit boost or a temporary blip at a time of weakness in the nation's manufacturing, real estate and trade sectors.

China tells banks to step up lending to lift flagging growth
China has told its banks to lend more in the final months of 2014 and relaxed enforcement of loan-to-deposit ratios to expand credit, sources told Reuters, as Beijing prepares to release data that could confirm the relentless slowing of its economy.

...Two sources with knowledge of the matter said China's central bank increased the annual new loan target to 10 trillion yuan ($1.62 trillion) for 2014, up from what Chinese media have said was a previous target of 9.5 trillion yuan.

Banks have disbursed 8.23 trillion yuan of loans between January and October, so they will have to quicken the pace in the last two months if they are to meet the new target.
Charts below the break.

2014-12-12

November Real Estate Growth Slowest in 2014, Land Sales Growth Shrinks

Real estate investment slowed again in November, this time to 7.59% year-on-year growth. This is the worst monthly growth total since September's 8.63% growth, and going back in time, these numbers are worse than only a couple of months in 2009, at the depth of the financial crisis. I show the one month, yoy change in the last chart, which shows investment running below trend.

The drop in land sales was no doubt led by smaller cities, as covered earlier this week in A Tale of Two Tiers.

Charts after the break.

Full NBS report in Chinese here.

Mobius a China Bull

Mobius Says China’s Bull Market Is Just Getting Started
“We are buying more in China because we think this is the beginning of a longer-term bull run”

Andy Xie Says Hong Kong in Recession

Hong Kong is in a recession, says China expert Andy Xie
Xie believes that plunging retail sales and declining real estate transactions are indications that Hong Kong is in the middle of a recession.

2014-12-11

Currency War: Battle of Hong Kong

PBOC, Traders Tussle Over Yuan (Alternate link)
A battle in China's currency market has emerged in recent days: Traders are pushing the yuan weaker, while the People's Bank of China has been attempting to guide the tightly-controlled foreign-exchange rate stronger.

..."China doesn't want to join the currency wars and that explains the fix movement," said Ju Wang, a currency strategist at HSBC Holdings PLC in Hong Kong, referring to some countries' efforts to push their currencies lower so that their exporters remain competitive. "But markets see it as China will eventually be dragged into the currency war or just fundamentally, growth and exports will weaken so much that will trigger the markets' demand for the U.S. dollar."
The PBOC stood aside on Monday and traders took the yuan down fast, then followed it up on Tuesday. By Wednesday they had enough and tried putting the squeeze on.

This may finally be the end of the road for China's currency policy. What the market is saying is that there are now consequences for monetary policy. Lower interest rates and the currency will weaken. Everyone knows there's no more one-way appreciation, as Chinese officials have made clear, but the Chinese central bank has moved on to battling volatility.

It's a good time to review The Informational Power of the Offshore Yuan Exchange Rate. The crux of it:
The crucial thing to understand about the offshore market is that the yuan floats freely and doesn't fluctuate within a tight band like in the onshore market, and is free of Beijing's control in that regard. This allows for different prices on a single currency and creates those arbitrage opportunities that the PBoC is now trying to squelch.

Since 2008, the yuan has weakened when foreign reserve growth slowed to near zero or declined. China created yuan far more rapidly than it took in U.S. dollars—an undervalued currency is an inflating currency. A lot of yuan are floating around with claims on a limited supply of U.S. dollars. Chinese have ways of keeping dollars offshore if they want to speculate. China's treasury holdings are more likely to be sold into a dollar bull market, instead of the other way around as many dollar doomsayers predict. Growing levels of U.S. dollar denominated debt is an outstanding bid on the dollar and put on the yuan. The big risk to China isn't yuan sellers in HK, it's dollar buyers/hoarders in China. The offshore yuan can cause trouble through its "informational power."

Why Do Foreign Companies Break Bad in China?

Foreign companies have a bad track record in China. Many foreign brands are popular because Chinese consumers associate them with higher quality. Yet all manner of foreign companies tarnished their brand names by adhering to local quality standards. This is acute in the food industry, where firms such as KFC have been hit several times and even Starbucks ran into trouble for an ingredient in its cakes. Usually the issue isn't serious, but the damage to the brand is not worth "going local" to save money.

Now even Wal-Mart has "gone local" in a bad way.

From ZeroHedge:How Wal-Mart Fabricated And Lied About Its "Strong" Chinese Sales For Years
“There is a general flexibility on ethics” in China, Lin said in an interview. “There was a huge desire to perform. In this market, they believe if they’re hitting the numbers, then they’re doing the right thing.”
As ZH asks, do you think Wal-Mart is the only company fabricating results?

Why Chinese Crooks Want to Come to America

ZeroHedge has a good story on the EB-5 immigration visa: Pimping Passports For Chinese Capital: America's Ingenious Ploy To Raise CapEx From China's Oligrachs

I have no issue with entrepreneurs and businessmen using the program, but the program is easy to game because it only requires a large investment, not actual business acumen. Why America needs more corruption is a mystery.

Corrupt Chinese officials want to move to America, or Canada, or Australia, because it takes capital punishment off the table. I can't find the story, but Canada handed over a Chinese fugitive after receiving a guarantee that capital punishment would not be administered. Even if you're caught, getting caught in the U.S., Canada or other Western nations may save your life.

China Daily: Australia to help in returning fugitives
"Judicial authorities in those countries have been reluctant to hand over Chinese fugitives because of their concerns over unfair prosecutions and misunderstandings about China's judicial system and procedures," he said.
In other words, capital punishment.

Understanding China's Bull Market In One Picture

iFeng has posted a chart that shows the big moves in China's last bull market. Most moves were huge in percentage terms and occurred over the course of a few months, similar to this latest surge. The last chart shows the latest surge in prices and asks, which stage?

The blue underneath each stage gives the following info:
Time
Point Move
Percentage Gain
Average Daily Volume in ¥100M
上证50 = Shanghai 50; 沪深300 = CSI 300; 中小板= SME Index;

in the last box, A股平均仅上涨7% = the average A share stock only increased 7%. Which signaled the end of the bull market as the rally narrowed.

The picture won't post in full size on blogger, but it's visible at iFeng.


2014-12-10

SouFun Gets Dumped Again

SouFun stock has been taking a beating. It sank again as cooperation with Century 21 China was terminated.

SouFun Announces Termination of The Strategic Cooperation Agreements with Century 21 China

Back in September, Century 21 started selling houses on Taobao after a dispute with Soufun.

Prior coverage: So Long, SouFun

More here: SFUN

Here's the Chinese coverage, questioning the sustainability of the O2O business model: 搜房网再遭中介抛弃 房产电商主导O2O模式恐搁浅

O2O stands for "Online to Offline," a confusing acronym for online businesses that intermediate between an offline business and a consumer. Group buying movie tickets, for example, is O2O.

The main issue with SouFun, as I see it, is cost and a contracting real estate industry. There's less money to go around and cuts have to made somewhere.

If you bought puts, congratulations.

OPEC Falls Apart

When even cartels can't maintain unity, you know there's negative social mood. Cartel members will secretly cheat and it's widely known that OPEC members exceed their production quotes, but an outright breakup of the group is suddenly a possibility as member nations pursue different agendas.

Iran: Fall in oil prices is 'treachery'

Housing Bear, Stock Bull

My recommendation for several years has been buy stocks, not houses, if you're a long-term investor in China who already owns a home. Now this type of comparison is making it onto the pages of the real estate section on sites such as iFeng. Developers looking to sell speculative properties may have a tougher time in 2015 if Chinese speculators move on to equities.

A股大涨扰乱买房族心绪 专家解读:该买股还是买房

China New Stock Accounts Surge in December

Beijing Housing Inventory Climbs As Buyers Evaporate in First Week of December

Beijing housing inventory is at 32 months, a new high, and buyers are moving back to the sidelines. iFeng: 北京楼市库存创32个月新高 购房者依然观望

New properties have been coming to market in large numbers, so new supply is outstripping new demand. Inventory reached 93,000 units, exceeding the March 2012 high of 91,000.

Week to week data is very volatile, but the sales in the first week of December sank 45% and area sold fell 46% from the week before.

2014-12-09

More Signs of Warming in First Tier Cities

Buyers have stopped "wait and see" and are actively entering the market. Sales in cities such as Beijing and Guangzhou were at 2014 highs in November.

iFeng: 一线楼市明显升温 购房者停止观望积极入市

PBOC Steps In, Shanghai Composite Gives up 3 Days of Gains

Early Tuesday the story was the PBOC stood by on Monday and let the market take the yuan lower. On Tuesday, the PBOC and regulators chipped in, with the PBOC following the market lower and weakening the yuan.

China bond yields spike after corporate debt market crackdown
China Development Bank bond yields rose nearly 30 basis points at market open on Tuesday, traders said, as the market reacted to new corporate bond market restrictions announced on Monday afternoon.

The benchmark government bond future contract also reacted, sliding over 1 percent in morning trade.

China's official bond clearing house surprised traders when it clamped down on the corporate bond market on Monday, excluding about 500 billion yuan ($81 billion) worth of corporate bonds from being used for bond repurchase agreements.

China Stocks, Currency and Corporate Bonds Fall
The selloff started in the bond market, as traders rushed to sell and raise cash after a regulator banned investors from using low-grade corporate debt as collateral to borrow cash. The turmoil then spread to the yuan, which recorded its biggest two-day tumble ever. Later, the benchmark Shanghai index slumped 5.4% to record its biggest fall since 2009.

....According to estimates from Shenyin Wanguo Securities, the total value of corporate bonds disqualified as repo collateral under the new rule exceeds 1.25 trillion yuan, or 60% of all outstanding corporate bonds listed on China’s two stock exchanges.

I like this line:
The sudden moves serve as a reminder to global investors about the country’s shaky finances, just as China opens up its capital markets more to overseas cash.
Does it remind you of China's shaky finances, or does it remind you that China's regulators sometimes do their jobs?

The biggest plunge in the Shanghai Composite since 2009 erased a whole 3 days of trading. The index closed at levels above its December 3 close. Have the regulators shaken the "mad cow" out the market?

Realtor Price War in Beijing

Although the market is heating up, realtors are engaged in a price war that looks set to escalate.

Sales commissions are down from 2.7% to 1.5%, and rental commissions have been halved. Since prices have risen in recent years, the effect isn't crushing for firms, but it also means growth relies on rising sales as long as prices stagnate.

iFeng: 北京二手房佣金2.7%被打破 价格战一触即发
Industry price war imminent

It is understood that, for the expansion of the chain of home real estate commission to improve the news agency ranked second in Beijing I love my family launched the "full ownership" of the Golden Key program solicitation agent to join.

This year, the Beijing second-hand housing transactions bleak, annual turnover is likely less than 10 million units, the lowest, the industry since 2009 highlights the contradiction. From the beginning of the intermediary live off Union boycott, SouFun, to terminate cooperation with Homelink comprehensive SouFun, then no stores intermediary Q Housing Network proposed commission of up to 85% this year, is undergoing dramatic changes in the traditional intermediaries, for this transformation, Yang Hao that the next period of time, the intermediary industry will face a very tough competition, small intermediary broker Homelink will be poached, while small companies will go bankrupt because of dwindling business a lot, store model will be unsustainable, each agency faces challenge.

An industry source on condition of anonymity, said the practice is actually the source of the price war to seize the market, and the future, depending on the service, a wide range of prices will be the trend. And now is the confrontation of each agency strategy, competitive situation possible to clear next year.