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Thread: Charting China's Imminent Implosion

  1. #31
    Global Shipping Rates Sink As Trade Runs Aground
    https://www.zerohedge.com/news/2018-...e-runs-aground


    prepare for a global slowdown.



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  3. #32
    China's senior leadership has just signaled for more stimulus, as its economy and stock market prepares for a possible economic collision in early 2019 from the trade war with the United States.

    The Communist Party’s Politburo, a group of 25 people who oversee the Communist Party of China headed by President Xi Jinping, finally admitted on Wednesday that there was "growing downward pressure" on the economy with "profound changes" in the economic environment, Xinhua news agency reported.


    This statement from the communist party was a massive shift from three months ago when the Politburo said there had been “noticeable” changes in the economic environment, reported the South China Morning Post.
    It is the first time the leadership has shown public concern about China's rapidly slowing economy since the trade war began earlier this year.


    Calls for more stimulus came after disappointing economic data showed the country is headed for turmoil next year. The purchasing manager report showed widespread deterioration across the country could spill over into the rest of the world.
    The Politburo said there were “a lot of difficulties with certain enterprises and the emergence of risks accumulated over long periods of time.”
    “We need to attach great importance to this situation and be more forward-looking to respond in a timely manner,” the statement said.
    “We have to enhance reform and opening up to focus on core problems with targeted solutions ... We must get our own things done and firmly seek high-quality growth."
    Officials have already tried a handful accommodative policies, ranging from tax cuts to regulatory support, rather than loading up the ole' fiscal cannon as seen in prior slowdowns. Bloomberg notes that investors seem unpersuaded by the drip-feed approach with the yuan near decade lows and regional stock markets in correction territories to soon bear markets.

    "Accepting slower growth has long been a challenge for Beijing, but now the rate of slowdown is firmly out of the comfort zone," Katrina Ell, an economist at Moody's Analytics in Sydney, told Bloomberg. "In recent years the balancing act has been addressing risks in the financial system against pressure to stabilize economic growth. It appears the latter is again more of a priority."
    "Manufacturing growth slowed to the lowest level in more than two years, and while economists had seen further tax cuts coming, few had predicted bigger stimulus for now. An export sub-gauge fell deeper into contraction territory, suggesting that an earlier export rush to beat US tariff deadlines will fade sharply.
    The US is preparing to announce by early December tariffs on all remaining imports from China if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade war. An increase in the tariffs already in effect on US$200 billion of Chinese imports scheduled for January would provide a stiff test to many exporters and could quicken the shifting of global supply chains," reported Bloomberg.
    In the overnight session on Tuesday, a series of trade data releases suggested that the global economy was headed for economic turbulence in the coming months. Industrial output for September in South Korea and Japan missed estimates, as did third-quarter output in Taiwan.
    "The spring of 2019 will be the real difficult time for China as multiple factors such as trade tension, slower sales of durable goods and the end of a property boom in lower-tier cities weigh on growth," Lu Ting, chief China economist at Nomura International Ltd. in Hong Kong, said after the announcement. "It'll be a test if China can sustain growth of around 6.5%. Policymakers are likely to further cut taxes and ease property purchase controls in bigger cities to lift the economy."

    The government and central bank have introduced several stabilizing measures, adding to steps to boost liquidity in the financial system, tax deductions for households and targeted measures aimed at helping exporter. However, those countercyclical buffers have yet to have much effect.

    George Magnus, an economist at Oxford University's China Cent, told Bloomberg if the new stimulus measures accelerate China's debt load, then the communist party could face backlash and have unintended consequences so late in the cycle.
    "It was always the case that the acid test of the government's resolve to deleverage would be its nerve if the economy started to falter," he said. "Which it is."



    More at: https://www.zerohedge.com/news/2018-...on-spring-2019
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

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    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

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    Those who fail to learn from the past are condemned to repeat it.
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  5. #33
    The Chinese middle class is again taking substantial risks to move their money out of China. As a result, Chinese investors are blowing up foreign real estate markets while risking getting ripped off at the same time.
    The South China Morning Post recently highlighted one such example, profiling several Chinese citizens who purchased property in Australia to safeguard their wealth, only to see the well-known Australia-based property agent suddenly shutter its doors in August, leaving behind about $50 million in missing deposits and failed settlements.
    This kind of "unexpected" event is just one example of the risks that Chinese mainlanders face while trying to protect themselves by moving assets overseas, especially in light of Beijing's strict capital controls on outbound capital. Many Chinese citizens even seek out citizenship or visas in nearby friendly foreign countries to diversify away from investment options at home.
    And in China, this isn't just some basic diversification strategy like it is elsewhere around the globe. Instead, it is a direct response to growing fear that the Chinese quality of life is deteriorating. It's also a result of growing frustration that there are so few opportunities to invest at home. And the government isn’t making it easy: China severely restricts capital flows out of its country, stating that it wants the cash to stay domestic for productivity and development purposes.
    It also means that those who accrued their wealth through the country’s real estate "boom" really don’t have a way to feel financially secure, as their proceeds must stay within the country, subject to several additional growing bubbles inevitably waiting to pop in China. And it isn’t just for economic reasons - Chinese citizens are also starting to look abroad as a result of the country's authoritarian political climate, heavy pollution and national food safety and vaccine scandals.

    Faced with increasingly draconian capital controls, China's citizens are growing desperate to move their money offshore and doing silly things to achieve it. Take Raymond Zhang who was in his early 40s when he paid to join a real estate investment tour of Australia. He was thinking he would diversify his finances to safeguard them.
    “It had been arranged for us to visit a dozen property projects in Melbourne, Sydney and Brisbane, including flats, villas and houses with land packages. I loved Australia as soon as I landed there. The [prices of the] properties and living costs were quite affordable for us, not to mention the good air, legal system and education system for my family,” he told the SCMP.
    The company that took them overseas asked for a $29,000 deposit, to be returned to 35 days after the investors returned back to China. Zhang says the money was never returned.
    Meanwhile, the door to get money out of the country is closing as Beijing has dramatically increased the way it polices efforts to skirt capital controls and even "names and shames" people involved in this effort in order to warn the country's middle class. The State Administration of Foreign Exchange, or SAFE, told the SCMP that at the end of August, there were 23 such cases outstanding. Five of them involved Chinese individuals trying to buy property overseas, others were using "underground banks" to buy property and move large chunks of money out of the country.
    To limit capital flight, Beijing grants every individual a mere $50,000 foreign exchange quota, and buying beyond that amount requires special approval from SAFE. In addition to an annual cap on foreign exchange purchases, Beijing also limits individuals’ overseas withdrawals using a Chinese bank card at 100,000 yuan (US$14,400) per year.
    * * *

    More at: https://www.zerohedge.com/news/2018-...ey-out-country
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  6. #34
    Ever since China's shadow banking sector peaked two years ago, one of Beijing's biggest financial and social stability concerns was of widespread, out-of-control bank runs which if left unchecked, could cripple China's massive, $35+ trillion financial sector, and which prompted the authorities to launch an aggressive deleveraging campaign targeting China's shadow banks.

    And while China has had its close encounters with the occasional bank jog, it always succeeded in intercepting them just in time, or threatening a crackdown if such "behavior" persisted; as a result financial stability was preserved.
    That may be about to changed: in what the Epoch Times warns could be the "sign of an impending financial crisis", a small local bank in the southwestern Chinese city of Zigong just suffered a bank run.
    Shareholders of Bank of Zigong in Sichuan Province absconded with 40 billion yuan ($5.78 billion), through loans issued to shell companies that they had created, according to a Nov. 2 post in a Chinese social-media account, and a report by Da Zhong, a state-run news website. The loans were long overdue, resulting in huge losses for the bank.
    Even though the post was deleted within 20 minutes by internet censors, the news spread like wildfire and scores of bank customers rushed to dozens of bank branches in Zigong City to retrieve their deposits, while long lines of people could be seen from photos of the scene and uploaded by netizens.


    Shortly after, the Zigong City branch of the national bank regulator, China Banking Regulatory Commission, sent out an emergency notice seeking to calm customers. The notice indicated that the Bank of Zigong, which was founded in 2001 and has 32 branches in the city of 1.2 million people, is running normally and has sufficient cash flow for reserve funds.
    While the local police also announced the arrest of the person who spread the "online rumors", that didn’t stop customers from rushing to the bank. Though the rumors were unconfirmed, the resulting bank run by panicked customers could spell serious trouble. As more customers try to withdraw funds, Bank of Zigong may eventually default.
    That would have broader repercussions for the Chinese economy, as the Bank of Zigong exemplifies a common situation in many regions across China. Like many economic hubs in China, municipal authorities in Zigong have borrowed large sums from the Bank of Zigong to finance local infrastructure projects. The bank explicitly explains on its website that the institution supports initiatives by the city’s Communist Party committee and government authorities such as building projects, city redevelopment, state-owned enterprises reform, and more, according to the Epoch Times.
    Zigong City, as with many other municipal governments, has set up local investment firms as a popular option to borrow money. But that has led to enormous debt that governments couldn’t repay. The Chinese regime recently published rules that allow these investment firms to file for bankruptcy if they don’t have the funds to repay their debts—highlighting the severity of the situation.
    Economists - at least those outside of China - have warned that when the city investment firms go bankrupt, the domino effect on banks that loaned money to them, as well as the private individuals and companies that invested in them, would be detrimental.
    “When city investment firms have no way to repay their debts, the Bank of Zigong will be in a crisis,” said Zhao Pei, a current affairs commentator at NTD Television, part of the Epoch Media Group.
    More ominously, Twitter user Cao Ji, a former professor in Shanghai, who now does academic research in Taiwan said that "if there is a bank run at the Bank of Zigong, this means a financial crisis in China will begin from these local small banks."
    Meanwhile, there are also clues that what was said in the initial social-media post that sparked panic may be true. The post listed three companies as the bank’s majority shareholders: a real estate company; a conglomerate with portfolios in residential development, commercial real estate, and manufacturing equipment; and China Western Power, a firm that manufactures and distributes boilers.
    China Finance Information, a financial data portal, released a public announcement stating that after China Western Power invested in Bank of Zigong, it became the bank’s largest shareholder, with a 20% stake.

    However, according to an Oct. 8 report by the Changjiang Times newspaper, China Western Power is currently in financial distress, due to - what else - high levels of debt. As of the end of June, the company’s debt-to-asset ratio reached 77.52%, an increase of 10% from the end of 2015. The company also needs to repay 1.01 billion yuan (about $146 million) in loans by year’s end, and may be unable to meet its obligations.
    The company’s shares have continually fallen since May, and such financial straits would match the claims in the initial social-media post.

    More at: https://www.zerohedge.com/news/2018-...nancial-crisis
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  7. #35
    Quote Originally Posted by Zippyjuan View Post
    Ron Paul know some weird people...



    Quiz: Test Your "Income" Tax IQ!


    Short Income Tax Video

    The Income Tax Is An Excise, And Excise Taxes Are Privilege Taxes

    The Federalist Papers, No. 15:

    Except as to the rule of appointment, the United States have an indefinite discretion to make requisitions for men and money; but they have no authority to raise either by regulations extending to the individual citizens of America.

  8. #36
    In another sign of repeating 2015, the Chinese are beginning to mobilize their “reserves” again. Three years ago, in a futile attempt to staunch CNY’s stubborn “devaluation” various government authorities blew through just about $1 trillion. It didn’t work. You would think that everyone could learn from this episode.

    I think the Chinese did, which is why in 2017 they engineered the bypass through Hong Kong in order to hide the continued peril; capital outflows in the mistaken parlance of the mainstream. All that changed, unsurprisingly, in January.
    At first, unlike 2015, it was a trickle. Only small balances were deployed scattershot suggesting that officials weren’t going to repeat their mistake. Western Economists may still view foreign reserves as insurance against this kind of thing, but eurodollar squeeze #3 proved conclusively the absurdity of being so monetarily ignorant.
    If you can’t steady your currency with $1 trillion, no one can. Period.
    To chuck that mind-boggling amount into the ether and get nothing to show for it is about as conclusive a demonstration. The PBOC and others’ reluctance to do the same thing in 2018 is therefore understandable. They let CNY go mostly unaddressed (apart from some clandestine operations here or there) because what else were they going to do?
    This, I believe, explains why CNY plummeted in 2018 compared to the “ticking clock” stairstep decline two and three years ago. That’s another aspect monetary officials may now appreciate, how in the end the mobilization of reserves tends to make things worse.



    All that may be changing, however. I have to assume with great reluctance, pretty much they don’t know what else to do. Foreign reserves are flowing out of the government’s various pockets all over again. China’s State Administration of Foreign Exchange (SAFE) reported that in September 2018 total foreign reserves fell by $22.69 billion. It was the most since January, that prior month a one-off fix.
    Today, SAFE estimates that in October China shed another $33.93 billion. This was the largest monthly usage since the last ticking clock in 2016. On a 2-month basis, it is pretty clear things are getting serious in China with CNY hanging just on the other side of 7.0.




    More at: https://www.zerohedge.com/news/2018-...hinas-not-safe
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  9. #37
    On November 8, China shocked markets with its latest targeted stimulus in the form of an "unprecedented" lending directive ordering large banks to issue loans to private companies to at least one-third of new corporate lending, said Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission. The announcement sparked a new round of investor concerns about what is being unsaid about China's opaque, private enterprises, raising prospects of a fresh spike in bad assets.

    Guo’s comments were the latest attempt by authorities to try to improve funding access for China’s non-state companies, which have been struggling to get bank loans in the aftermath of China's crackdown on shadow lending. More importantly, it was the first time financial regulators had given targets on private lending, confirmation that earlier efforts hadn't sparked the necessary credit activity.
    More importantly, this is the first time China set formal goals for private lending, a step it refrained from even during the financial crisis of 2008 according to Bloomberg. The stimulus package it implemented at the time swelled bad debt levels, which now threaten to swallow any new money poured into private companies. Non-state firms defaulted on 67.4 billion yuan ($9.7 billion) of local bonds this year, 4.2 times that of 2017, while the overall Chinese market is headed for a year of record defaults in 2018.



    According to commentators, the new policy was prompted by the need to ensure that China’s private firms, already challenged by China's state-owned behemoths, survive amid a plunging stock market, record corporate defaults and a cooling economy. At the same time, the target for small and medium-sized banks is higher, at two-thirds of new corporate loans, with Guo adding that he wants to see loans to private companies account for at least half of total new corporate loans in three years.
    But most importantly, this targeted lending will increase market concern on banks’ "civic duty" with Huatai Securities predicting a new sharp spike in NPL ratio amid the accelerating economic slowdown, which would prove negative for short-term sentiment.

    “There is desperation among regulators, and sometimes muddled polices are difficult to avoid under this kind of pressure,” said Jiang Liangqing, a Beijing-based fund manager at Ruisen Capital Management. “Investors are voting with their feet.”
    * * *
    Also this week, PBOC Governor Yi announced a policy combination of “3 arrows” to support additional liquidity to the private sector, including bank loans, debt and equity financing. The arrows, per Goldman, were the following:

    • Firstly, PBOC is looking into the possibility of promoting equity financing for private firms. The central bank is working with various financial institutions such as fund managers and brokerages on this initiative.
    • Secondly, PBOC will expand a recently launched scheme to promote private firms’ bond issuance in collaboration with financial regulators. Three companies have already raised 1.9 billion yuan of bonds with over-subscription, and 30 more private enterprises are preparing for bond issuance.
    • Thirdly, PBOC will add a new metric in the MPA formula to encourage lending to private companies. They will also increase the supply of long term and reasonably priced funding for financial institutions (further RRR cuts would fit this goal, in our view).

    As Goldman notes, "it is rare for a senior official to openly acknowledge previous policy missteps." As a result, this is likely in response to the recent meetings hosted by President Xi, especially the one with entrepreneurs. That meeting was unique in that it carried the highest political authority and at the same time was very specific in terms of the measures to be taken.
    As such, it likely put the onus on senior officials who attended the meeting to act in a timely manner. While the governor stated there is no change in the overall monetary policy stance, which is described as prudent, and more support for the real economy via more bond issuance had been stated previously, his comment on past policy missteps suggests a change in policy stance. Rather, the reiteration of the current policy stance should be read more as an indication that the PBOC will be measured in terms of the size of additional loosening. In terms of more tangible measures, Goldman now sees a higher probability that TSF growth will accelerate from now, but likely at a very measured pace. Worse, many of these new funds will end up funding underperforming assets, resulting in a spike in on-performing loans and more bad debt.


    More at: https://www.zerohedge.com/news/2018-...stocks-reeling
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  10. #38
    Regular readers of Zero Hedge are probably familiar with money-for-oil loans. But one liquidity-challenged pork producer is pushing an absurd twist on that concept that has helped to expose the financial dysfunction at many small- and medium-sized Chinese companies.
    Instead of receiving cash, holders of local-currency bonds issued by Zhengzhou-based pork producer Chuying Agro-Pastoral Group Co will be paid with the company's ham, thanks to an agreement reached between the company and its creditors. Assuming the agreement, which was revealed in a security filing on the Shenzen Stock Exchange, holds, the "in kind" payments will only apply to the interest on the bonds, according to the South China Morning Post.

    The agreement was struck after the company failed to repay a 500 million yuan bond that was due on Nov 5. The spread of African swine fever has caused pork demand in China to plummet, creating a cash-on-hand crisis for pork producers. As of Sept 30, the company had 1.3 billion yuan in cash against a short-term debt load of 8.4 billion yuan, according to data from Bloomberg.


    More at: https://www.zerohedge.com/news/2018-...-defaults-soar
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  11. #39
    China was supposed to be the saving grace of the global auto market, pitched by auto makers and analysts as an endless area of opportunity and growth. Instead, China's October auto sales numbers have been another disaster, a harbinger for an accelerating global slowdown for the industry. Automobile sales were down 12% y/y in October, sliding to 2.38 million, according to the Wall Street Journal. And with this dreadful annual comp, 2018 has now turned negative for overall Chinese auto market.

    A quick breakdown: passenger car sales fell 13% in the month to 2.05 million, down 8% for the third quarter. Passenger car sales were off 1% for the first 10 months of the year.That puts them down 1% for the first 10 months of the year, on course for their first yearly decline in nearly three decades.




    This 12% drop for China follows a similar drop in September and a 4% decline in both July and August. It was the steepest drop since late 2012, which also marked the fourth consecutive month of declines at the time.
    Yao Jie, vice secretary general of CAAM (the China Association of Automobile Manufacturers) commented at a press conference in Beijing: “Maintaining positive growth to the end of the year won’t be easy. There could be negative growth." As noted above, if that happens, it would be the first time since at least the early 1990s that annual car sales in China have contracted.
    CAAM had originally forecast a 3% rise for the year, in line with last year’s growth, though sharply down from a 13.7% gain in 2016.


    Further weighing on the auto industry is the ongoing stubborn bear market in Chinese stock prices leaving citizens with less disposable income.

    China could wind up a huge (and somewhat unexpected) contributor to a major global pull back in the automotive sector because it has widely been seen over the last decade as an opportunistic spot for growth by auto makers. For instance, companies like Tesla (of course) have recently cited China as a way to gain a bigger slice of the global auto market. Auto sales in the United States and Europe have already started to plateau or fall, but China was widely seen as a remaining area for opportunity. Obviously, that changes now.

    When we last looked at the Chinese auto sector last month we quoted Bloomberg Intelligence analyst Steve Man who said that "the slump may be the biggest that auto manufacturers have ever experienced in China." And just like in the US, weaker brands will be hit disproportionately, forcing price cuts to boost sales, Man said. Some carmakers may also be forced to shutter factories to reduce inventories and lower costs. The end result could be another deflationary wave coupled with China's biggest nightmare: mass layoffs.

    More at: https://www.zerohedge.com/news/2018-...cline-30-years
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  12. #40
    China’s economy isn’t right now collapsing but that isn’t the problem. Again, what the numbers suggest is we’ve seen the best there is and it isn’t (ever) going to get any better. And it isn’t near enough growth. There just isn’t sufficient economic momentum anywhere in the world to overcome eurodollar tightening. In fact, the two go hand in hand; lack of momentum leads to monetary caution, spurning further growth creating more monetary tightening. The result is growing desperation in China, as elsewhere, about where things might be going just on the other side of the horizon.
    These warning signs accumulate and escalate.
    The latest statistics for trade and prices are all consistent with either the low ceiling or the impending rolling over. Chinese exports rose 15.6% year-over-year in October 2018, with imports up more than 21%. As usual, these sound terrific outside of any context. Inside, they suggest what commodity prices are starting to see – if this is the best it can be for China, it’s not nearly enough for either China or the world.



    Internally, outside of bottlenecks in food, inflation remains subdued because monetary growth continues to be constrained. Even input and producer prices are coming back down because the (mini)cycle is turning. Reflation #3 was given a fair shot especially in commodity markets, and it just didn’t pan out. The screeching, emotional pleas for globally synchronized growth were never really based in honest analysis.
    China’s CPI missed the government’s mandate for the 59th consecutive month. At 2.5% in October 2018, it was the same as September with food prices (including tobacco) still rising near 3%. The Producer Price Index was up just 3.3%, the second lowest gain since 2016.

    The economy is stuck, which means markets and financial agents are going to realize that, if this is as good as it gets, the “stimulus” panic in early 2016 didn’t actually create the economy everyone was looking for – and underwriting debt in anticipation of. Thus, not only is the economy trapped, what can authorities really do to get everyone out of it? Nothing. And now everyone knows it.



    More at: https://www.zerohedge.com/news/2018-...e-freaking-out
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment



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  14. #41
    Back in 2017, we explained why the "fate of the world economy is in the hands of China's housing bubble." The answer was simple: for the Chinese population, and growing middle class, to keep spending vibrant and borrowing elevated, it had to feel comfortable and confident that its wealth would keep rising. However, unlike the US where the stock market is the ultimate barometer of the confidence boosting "wealth effect", in China it has always been about housing as three quarters of Chinese household assets are parked in real estate, compared to only 28% in the US, with the remainder invested financial assets.



    Beijing knows this, of course, which is why China periodically and consistently reflates its housing bubble, hoping that the popping of the bubble, which happened in late 2011 and again in 2014, will be a controlled, "smooth landing" process. For now, Beijing has been successful in maintaining price stability at least according to official data, allowing the air out of the "Tier 1" home price bubble which peaked in early 2016, while preserving modest home price appreciation in secondary markets.

    How long China will be able to avoid a sharp price decline remains to be seen, but in the meantime another problem faces China's housing market: in addition to being the primary source of household net worth - and therefore stable and growing consumption - it has also been a key driver behind China's economic growth, with infrastructure spending and capital investment long among the biggest components of the country's goalseeked GDP. One result has been China's infamous ghost cities, built only for the sake of Keynesian spending to hit a predetermined GDP number that would make Beijing happy.
    Meanwhile, in the process of reflating the latest housing bubble, another dire byproduct of this artificial housing "market" has emerged: tens of millions of apartments and houses standing empty across the country.
    According to Bloomberg, soon-to-be-published research will show that roughly 22% of China’s urban housing stock is unoccupied, according to Professor Gan Li, who runs the main nationwide study. That amounts to more than 50 million empty homes.

    The reason for the massive empty inventory glut: to keep supply low and prices artificially elevated by taking out as much inventory off the market as possible. This, however, works both ways, and while it helps boost prices on the way up as the economy grow and speculators flood the housing market with easy money, the moment the trend flips the spike in supply as empty units are offloaded will lead to a panic liquidation of homes, resulting in what may be the biggest housing market crash ever observed, and putting the US home bubble of 2006 to shame.
    Indeed, as Bloomberg notes, the "nightmare scenario" for Chinese authorities is that owners of unoccupied dwellings rush to sell when cracks start appearing in the property market, causing a self-reinforcing downward price spiral.

    Worse, the latest data, from a survey in 2017, also suggests Beijing’s efforts to curb property speculation - which alongside shadow banking and the persistent threat of sudden bank runs (like the one discussed last week) is considered by Beijing a key threat to financial and social stability - have failed.
    "There’s no other single country with such a high vacancy rate,” said Gan, of Chengdu’s Southwestern University of Finance and Economics. “Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood.”


    There is another economic cost to this speculative frenzy: the drop in supply puts upward pressure on prices and crowds young buyers out of the market, according to Kaiji Chen, who co-authored a Fed paper called “The Great Housing Boom of China."
    And, as Americans so fondly recall, the result of chasing unaffordable homes for the purpose of price speculation has resulted in yet another unprecedented debt bubble: according to Caixin, outstanding personal home mortgages in China have exploded sevenfold from 3 trillion yuan ($430 billion) in 2008 to 22.9 trillion yuan in 2017, according to PBOC data


    By the end of September, the value of outstanding home mortgages had surged another 18% Y/Y to a record 24.9 trillion yuan, resulting in a trend that as Caixin notes, has turned many people into what are called “mortgage slaves."
    It has also resulted in yet another housing bubble: home mortgage debt now makes up more than half of total household debt in China. As of the third quarter, it accounted for 53% of the 46.2 trillion yuan in outstanding household debt.
    For now, few are losing sleep over what will be the next massive housing bubble to burst. An example of a vacant home is a villa on the outskirts of Shanghai that 27-year-old Natalie Feng’s parents bought for her. The two-story residence was meant to be a weekend escape for the family of three. In reality, it’s empty most of the time, and Feng says it’s too much trouble to rent it out.
    "For every weekend we spend there, we need to drive for an hour first, and clean up for half a day," Feng said. She joked that she sometimes wishes her parents hadn’t bought it for her in the first place. That’s because any apartment she buys now would count as a second home, which means she’d have to make a bigger down payment.

    * * *
    What is troubling is that despite relatively stable home prices, the foundations behind the housing market are cracking. As the WSJ recently reported, in early December, a group of homeowners stormed the sales office of their Shanghai complex, "Central Washington", whose developer, Shanghai Zhaoping Real Estate Development, was advertising new apartments at a fraction of the prices of the ones sold earlier in the year. One apartment owner said the new prices suggested the value of the apartment she bought from the developer in March had dropped by about 17.5%.
    “There are people who bought multiple homes who are now trying to sell one to pay off the mortgage on another,” said Ran Yunjie, a property agent. One of his clients bought an apartment last year for about $230,000. To find a buyer now, the client would have to drop the price by 60%, according to Ran.
    Meanwhile, in a truly concerning demonstration of what will happen when the bubble finally bursts, last month we reported that angry homeowners who paid full price for units at the Xinzhou Mansion residential project in Shangrao attacked the Country Garden sales office in eastern Jiangxi province last week, after finding out it had offered discounts to new buyers of up to 30%.
    Country Garden cut the selling price at one of its residential developments by 1/3. Those who paid full price smashed the sales office. Similar incidents had happened before, and will again. It’s impossible to remove “the guarantee of principal”(刚性兑付)in China. pic.twitter.com/UxHFODYxmc
    — Hao Hong 洪灝, CFA (@HAOHONG_CFA) October 6, 2018
    "Property accounts for roughly 70 per cent of urban Chinese families’ total assets – a home is both wealth and status. People don’t want prices to increase too fast, but they don’t want them to fall too quickly either,” said Shao Yu, chief economist at Oriental Securities. "People are so used to rising prices that it never occurred to them that they can fall too. We shouldn’t add to this illusion," Shao added, echoing Ben Bernanke circa 2005.
    But the biggest surprise once the music finally stops may be that - as a fascinating WSJ report revealed one year ago - China's housing downturn is likely far, far worse than meets the eye, as under Beijing’s direction more than 200 cities across China for the last three years have been buying surplus apartments from property developers and moving in families from condemned city blocks and nearby villages.China’s Housing Ministry, which is behind the purchases, said it plans to continue the program through 2020. The strategy, supported by central-government bank lending, has rescued housing developers and lifted the property market.

    In other words, while China already has a record 50 million empty apartments, the real number - when excluding the government's own stealthy purchases of excess inventory - is likely significantly higher. It is this, and not China's stock market, that has long been the biggest time bomb for Beijing, and if Trump and Peter Navarro truly want to crush China in their ongoing trade war, they should focus on destabilizing the housing market: the Chinese stock market was, and remains just a distraction.

    More at: https://www.zerohedge.com/news/2018-...ents-are-empty
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

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    Those who fail to learn from the past are condemned to repeat it.
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    A Zero Hedge comment

  15. #42
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  16. #43
    think i'll put this here...



    Today it’s clear that fascist-turned Brazil is out – so we are at RICS. There is not much to argue about.
    The world’s fifth largest economy, Brazil, has failed and betrayed the concept of the BRICS and the world at large.

    The BRICS are not what they intended to be, never really were.
    https://www.globalresearch.ca/brics-...-limbo/5659498


    This is a pretty brutal analysis but worth reading.


    I do hope... for a peaceful/decentralized (multi-lateral) world... but
    as we head towards the maelstrom... it's clear that 'BRICS' is a nothing burger
    Last edited by goldenequity; 11-11-2018 at 05:47 AM.

  17. #44
    Quote Originally Posted by goldenequity View Post
    think i'll put this here...



    Today it’s clear that fascist-turned Brazil is out – so we are at RICS. There is not much to argue about.
    The world’s fifth largest economy, Brazil, has failed and betrayed the concept of the BRICS and the world at large.

    The BRICS are not what they intended to be, never really were.
    https://www.globalresearch.ca/brics-...-limbo/5659498


    This is a pretty brutal analysis but worth reading.


    I do hope... for a peaceful/decentralized (multi-lateral) world... but
    as we head towards the maelstrom... it's clear that 'BRICS' is a nothing burger
    Isn't the "S" S. Africa?

    They are headed for a collapse, that will make it just RIC, then when China collapses it will be just RI, if either Russia or India gets destroyed in the fallout from China it will be all over.

    Despite globalresearch's leftist spin Bolsonaro was the least bad choice for Brazil and the end of BRICS is a good thing, a world dominated by Communist China would be a nightmare.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  18. #45


    “I think China’s manipulating their currency, absolutely,” President Trump said back in August. Yet the People’s Bank of China (PBoC) was, and has been, intervening to keep the RMB up, and not to push it down, as Trump was alleging. And we believe such interventions are about to get much larger. Here is why.
    Over the past two years, as our left-hand figure above shows, foreign portfolio investors have piled prodigiously into Chinese assets, helping to support the RMB. But history suggests this trend is about to reverse. While inflows have been rising, Chinese stocks have been tumbling—they are down over 20 percent from their January peak. Dreadful performance like this typically drives funds out of emerging markets. We may be seeing the beginning of such outflows in China.
    Repatriation of liquid foreign capital will make it far more challenging for China to keep its currency up. Of course, China could change course and let it fall, but that risks exacerbating the foreign-debt burden of its highly leveraged corporates. It could raise interest rates, but that would further slow a slowing economy. It could, to keep capital at home, demand higher returns on its foreign lending, but that would mean sacrificing its efforts to subsidize its companies operating abroad, as well those aimed at putting dollars to the service of geostrategic objectives—like Belt and Road.
    In short, then, there is every reason to expect that the PBoC will boost its support for the RMB by selling dollar reserves. This is what it did back in 2015, when a plunging stock market scared away foreign capital.
    So in spite of President’s Trump’s repeated charges that China is manipulating its currency for competitive advantage in trade, all evidence suggests that it will continue to do the opposite. But if China were to sell reserves at the same pace as in 2015, its reserve levels would, by mid-2020, actually fall below the safety threshold implied by the IMF’s framework for reserve adequacy—as shown in the right-hand figure above.

    The prospect of a balance-of-payments crisis, in which China would struggle to pay for imports and service foreign debt (a prospect considered outlandish a decade ago), highlights the urgency with which China must begin addressing the problem of high and rising corporate and local-government debt levels. The PBoC has no easy fix for these problems.


    https://www.zerohedge.com/news/2018-...when-it-leaves
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  19. #46
    Depends on what their future economic plan is. China is at the beginning of their economic expansion and the early stages of becoming a super power. You can't compare it to our situation as a declining empire at the end of an economic cycle, even though that is the frame of reference that we know. - Devil21

    Quote Originally Posted by Swordsmyth View Post
    LOL
    While not completely right, he's not completely wrong either. This massive increase in debt is very much planned as Xi is hell bent on doubling China's economy in a 10 year period, which they began in 2010. It's the same mindset nations like the UK and the US use and their and China's debt to GDP ratio is actually in line with "developed" economic nations, but the concern is held in that China is still considered a middle income nation (purchasing-power-parity-adjusted GDP per capita) with around only 25% purchasing power when compared to those developed nations.

    Your source regarding China's employment numbers makes a fundamental error though in understanding the data. It's not about a lack of jobs, it's about basically being a victim of their own success. China's middle class has grown to large numbers and they want better jobs, which causes two things:

    1) They want better jobs (both in working environment as well as pay) which is tied into China moving towards more tech industry work like the field of artificial intelligence. China has massive continuing education programs and is basically sending a $#@! ton of people back to school for degrees in things like IT, engineering, robotics, ect. So those people aren't unemployed....they are in school.

    and that segways into #2

    2) China is beating the US out with major investments into South Africa (I think I may have made mention of this in response to a thread of yours' a few months back?) as to secure a location to produce goods at laughably cheap production costs. Basically, As China has been to the US....China wants to establish South Africa to it. And I hate to admit it, but China's "management by involvement" (I use the MBI term purely in their negotiations approach with Africa and am in no way talking about their political structure) of offering to build infrastructure, manufacturing facilities, along with training has proven to be a lot more enticing to the South African's than the US's standard model.



    So one thing to understand about China's debt is that by and large it is planned as they are on the tail end of massive investment into a lot of different things. The proof in that planning (besides Xi openly announcing his decade plan back in 2010) is how China has leveraged that debt. Their housing market is actually only lightly leveraged as is their actual government debt.....rather, it's mainly on corporate balance sheets. The thing that has people concerned of a "hard landing" is how easily deleveraging those entities can go sideways as deleveraging or even simply limiting leveraging by it's virtue require slower loan growth, which leads to markets dropping and growth slowing, which leads to higher higher yields on that nation's 10 year yield.

    Basically, China is exactly where the US is in that both are incurring massive debt and calling that debt accumulation "growth" which is where I start to take issue when people say the US economy is "booming" as I've never heard of a booming economy that is begging the Fed to maintain accomodative policy. But that's neither here nor there....back to topic, and to close...

    I have to admit I find it a bit baffling as to why you'd laugh at the notion that China is very much on it's way to becoming the next economic superpower. They have major advantages over the US in production ability, both in production costs and more importantly proximity to materials which further lowers their cost of business. That proximity along with their work in South Africa will continue their dominance in manufacturing. And the gains they've seen financially that's given rise to their middle class means they are very much transitioning to a consumer based economy as the US is, only they have 1.4 billion consumers as opposed to our 350 million...which is why companies will (and have) eat whatever $#@! sandwich they have to that facilitates them getting into those markets.
    "Self conquest is the greatest of all victories." - Plato

  20. #47
    Quote Originally Posted by Intoxiklown View Post
    Depends on what their future economic plan is. China is at the beginning of their economic expansion and the early stages of becoming a super power. You can't compare it to our situation as a declining empire at the end of an economic cycle, even though that is the frame of reference that we know. - Devil21



    While not completely right, he's not completely wrong either. This massive increase in debt is very much planned as Xi is hell bent on doubling China's economy in a 10 year period, which they began in 2010. It's the same mindset nations like the UK and the US use and their and China's debt to GDP ratio is actually in line with "developed" economic nations, but the concern is held in that China is still considered a middle income nation (purchasing-power-parity-adjusted GDP per capita) with around only 25% purchasing power when compared to those developed nations.

    Your source regarding China's employment numbers makes a fundamental error though in understanding the data. It's not about a lack of jobs, it's about basically being a victim of their own success. China's middle class has grown to large numbers and they want better jobs, which causes two things:

    1) They want better jobs (both in working environment as well as pay) which is tied into China moving towards more tech industry work like the field of artificial intelligence. China has massive continuing education programs and is basically sending a $#@! ton of people back to school for degrees in things like IT, engineering, robotics, ect. So those people aren't unemployed....they are in school.

    and that segways into #2

    2) China is beating the US out with major investments into South Africa (I think I may have made mention of this in response to a thread of yours' a few months back?) as to secure a location to produce goods at laughably cheap production costs. Basically, As China has been to the US....China wants to establish South Africa to it. And I hate to admit it, but China's "management by involvement" (I use the MBI term purely in their negotiations approach with Africa and am in no way talking about their political structure) of offering to build infrastructure, manufacturing facilities, along with training has proven to be a lot more enticing to the South African's than the US's standard model.



    So one thing to understand about China's debt is that by and large it is planned as they are on the tail end of massive investment into a lot of different things. The proof in that planning (besides Xi openly announcing his decade plan back in 2010) is how China has leveraged that debt. Their housing market is actually only lightly leveraged as is their actual government debt.....rather, it's mainly on corporate balance sheets. The thing that has people concerned of a "hard landing" is how easily deleveraging those entities can go sideways as deleveraging or even simply limiting leveraging by it's virtue require slower loan growth, which leads to markets dropping and growth slowing, which leads to higher higher yields on that nation's 10 year yield.

    Basically, China is exactly where the US is in that both are incurring massive debt and calling that debt accumulation "growth" which is where I start to take issue when people say the US economy is "booming" as I've never heard of a booming economy that is begging the Fed to maintain accomodative policy. But that's neither here nor there....back to topic, and to close...

    I have to admit I find it a bit baffling as to why you'd laugh at the notion that China is very much on it's way to becoming the next economic superpower. They have major advantages over the US in production ability, both in production costs and more importantly proximity to materials which further lowers their cost of business. That proximity along with their work in South Africa will continue their dominance in manufacturing. And the gains they've seen financially that's given rise to their middle class means they are very much transitioning to a consumer based economy as the US is, only they have 1.4 billion consumers as opposed to our 350 million...which is why companies will (and have) eat whatever $#@! sandwich they have to that facilitates them getting into those markets.
    I laugh because their centrally planned economy is in much worse shape than their false numbers indicate.

    Time will tell who is right.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  21. #48
    If you are using Zerohedge as your main source, I can see why you think China may be on the brink of collapse. Their articles are always about immanent collapse- whether in the US or someplace else. Recession porn if you will.

    https://www.forbes.com/sites/frances.../#656734ef6276

    President Trump's Tariffs Will Hurt America More Than China

    Let’s stop pretending. An import tariff is nothing but a tax on consumers and businesses. Not in the exporting country, but the importing one. So the 10% tariff on $200bn of Chinese imports that President Trump has just imposed is in reality a new tax on Americans. And it will hurt America much more than China.

    It is at present unclear exactly how this tax will bite, but we can expect it to have three broad effects on the U.S. economy.
    The tax will raise input prices for American businesses, increasing their operational costs and putting pressure on profit margins.This is likely to feed through into weaker wage and employment growth, leading to poorer retail sales and declining economic growth. The Trump boom is already fading: this tax seems likely to hasten its end.

    The tax will raise headline CPI inflation. How much inflation will rise depends on the extent to which producers are able and willing to absorb higher costs rather than passing them on to customers.The Fed might respond to rising cost-push inflation by increasing the pace of interest rate rises. This would dampen consumer demand at a time when it was already under pressure because of the wage and employment effects of the tax. Fed interest rate policy has previously accelerated consumer demand slumps, most recently in 2006-7, when the Fed continued to raise interest rates despite rising unemployment, falling house prices and weakening consumer demand. I suppose we might hope that the Fed would act more responsibly this time, but the “mood music” from the Fed these days is increasingly hawkish. I am therefore doubtful that this time would be different.

    The tax will strengthen the U.S. dollar’s exchange rate. At the time of writing, the U.S. dollar was already up 10% versus the (offshore) Chinese renminbi. If China allows the onshore renminbi to depreciate, this would largely negate the impact of the tax on Chinese exporters while making life more difficult for U.S. exporters
    Of course, although the tax falls primarily on American consumers and businesses, there will be a knock-on effect to Chinese producers through reduced exports. But in their snap response to the tariff announcement, CLSA (via FT Alphaville) estimated that the impact on China’s exporters might amount to little more than a flea bite:

    Based on our previous scenario analysis of 10% tariffs on US$200bn Chinese imports alongside 25% tariffs on US$50bn Chinese goods, we expect that the negative impact on China’s export growth may range from -3.4% to -2.0%, while on nominal GDP growth it is -0.5% to -0.3%.
    That’s export growth, not total exports. So if China’s exports would have grown by 10% in the next year, they will now grow at somewhere between 9.6% and 9.8%. In trade estimates, that’s little more than a rounding error.
    more at link.

    China has been working on trying to ween its economy off exports- and the tariff war is helping them to move faster in that direction. And they are already seeking new market to replace the US.
    Last edited by Zippyjuan; 11-12-2018 at 03:06 PM.
    Donald Trump: 'What you're seeing and what you're reading is not what's happening'

    "Truth isn't truth"- Rudy Giuliani

    "China has total respect for Donald Trump and for Donald Trump's very, very large brain," - Donald Trump.

    I am Zippy and I approve of this post. But you don't have to.



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  23. #49
    Quote Originally Posted by Zippyjuan View Post
    If you are using Zerohedge as your main source, I can see why you think China may be on the brink of collapse. Their articles are always about immanent collapse- whether in the US or someplace else. Recession porn if you will.

    https://www.forbes.com/sites/frances.../#656734ef6276



    more at link.

    China has been working on trying to ween its economy off exports- and the tariff war is helping them to move faster in that direction. And they are already seeking new market to replace the US.
    LOL
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  24. #50
    Whether due to China's weaker currency, or the collapsing premium of Chinese over U.S. interest rates, foreign holdings of yuan-denominated, domestically traded bonds in China rose by just 250 million yuan ($35.9 million), or 0.02%, to 1.44 trillion yuan in October, according to the WSJ citing data provider Wind. As shown in the chart below, the rate of growth has been decelerating since June, when it peaked at 8.9% month on month, the fastest in 21 months.
    Even more troubling, after adjusting for valuation effects, ChinaBond calculated that foreign investors actually reduced their holdings of Chinese bonds. While this reduction was modest, JPMorgan noted that it nonetheless represents the first outflow since February 2017, highlighting the risk of continued currency depreciation exacerbating the capital outflow picture.

    Meanwhile, as Bank of America notes, China's weakening economy has led Chinese bond prices to rally sharply in the past year, pushing yields down, even as rising interest rates send U.S. bonds in the other direction. That means Chinese sovereign debt now offers a much thinner premium over U.S. Treasurys. Yields on benchmark 10-year Chinese securities fell to 0.24 percentage point above Treasurys late last week, the narrowest gap since July 2010.

    It's not just the collapsing yield differential that confirms the economic slowdown and is a threat to Chinese capital inflows: in addition to the near contracting Chinese PMI, as the chart below shows the Korean KOSPI, Macau-exposed WYNN, Caterpillar and Chinese property giant China Evergrande, have all slumped this year.

    So why does Chinese bond flows matters? As the WSJ explains, foreign institutions, such as central banks and pension funds, own just 1.7% of China’s overall $12 trillion bond market, the world’s third largest behind the U.S. and Japan. Still, they have already become influential players in the narrower field for central government debt, where they own 8.1% of what is a roughly $2 trillion market.
    Still, a reversal in bond flows is the last thing China's economy, whose current account surplus is now virtually non-existent, can afford. According to Peter Ru, Shanghai-based chief investment officer of China fixed income at Neuberger Berman, foreign investors slowed their purchases of Chinese bonds mostly because of the yuan’s fast depreciation: "Given the uncertainties over the trade war, nobody can be sure how much more the yuan may weaken."
    He is right: foreign investors have decided to sit on the sidelines as they await potential initiatives from Beijing, such as further monetary easing, said Jason Pang, Hong Kong-based China government bond portfolio manager at J.P. Morgan Asset Management. And yet, such easing would result in even further depreciation, making the choice whether to resume buying Chinese bonds a complex one: on one hand, one would need to hedge bond exposure (which is virtually impossible as anyone who has shorted the offshore Yuan knows the central bank's tendency to periodically "murder" speculators), and absent that there would have to be an expectation of currency stability, something which the central bank increasingly is unable to provide; as such not even a most generous stimulus can offset the risks of rapid currency devaluation, ensuring that foreign investors will stay on the sidelines for the foreseeable future.
    There is one alternative: Pang said he sees Chinese government bonds as a “trade war hedge.” Their prices have rallied as Beijing has taken measures such as loosening lending conditions to offset the impact of worsening trade frictions, he said. "If you believe that the trade war will escalate, there’s all the more reason that you should own some Chinese government bonds," Pang added.

    Of course, bond prices may simply be rallying because investors expect a sharp, disinflationary slowdown in the economy; and should China itself fall into a deflationary liquidity trap, then all bets are truly off and the last thing bond investors will want to do is allocate capital to a country which is about to have a debt crisis during deflation.

    In any case, the PBOC now finds itself trapped, on one hand facing the end of China's current account days, and on the other facing the danger that Beijing's increasingly ad hoc response to the US trade war which includes continue yuan devaluation, will scar foreign bond investors, leaving Beijing with no source of outside capital. And since the only offset to these two developments would be a surge in domestic saving - and collapse in domestic Chinese consumption - the result for China should foreign investors indeed pull their money, would be nothing short of a recession or worse.

    More at: https://www.zerohedge.com/news/2018-...17-why-matters
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  25. #51
    In recent months, China has been desperate to inject more credit into its financial system and failing that, to at least give the impression it is doing that. Recall that last month the PBoC adjusted its definition of aggregate financing (or Total Social Financing) by including net financing through local government special bond issuance, which in turn took place just two months after it added asset-backed securities (ABS) and non-performing loan write-offs into this measure.
    Why did China revise its TSF yet again? Simple: the purpose was to "pump up" the credit numbers and telegraph to the market and consumers that Chinese credit is growing faster, and thus represent a stronger economy, than it is in reality. And indeed, the September jump in TSF was driven mainly by a faster local government bond issuance, while based on the previous definition, it fell to a weaker-than-expected RMB1,467bn from RMB1,518bn and below the RMB1,554 consensus, weighed upon by continued contraction of shadow banking financing and a decline in net corporate bond financing.
    Fast forward to today when overnight the PBOC reported its latest money and credit data, and even under the latest and broadest definition, October money and credit data surprised sharply on the downside, mainly due to the ripple effects of the initially over-zealous deleveraging programme and despite pressure by regulators on banks to help keep cash-starved companies afloat, pointing to further weakening in the economy in coming months.
    And while October is typically a slow month for Chinese credit, growth in key gauges such as total social financing and money supply fell to record lows, reinforcing views that policymakers will need to step up efforts to revive flagging investment.
    According to the PBOC, new RMB loans dropped in half to RMB697bn in October from RMB1,380bn in September, with new loans to the corporate sector tumbling to RMB150bn from RMB677bn in September, in which new medium- to long-term loans eased to RMB143bn from RMB380bn, and new short-term loans fell to -RMB113bn from an increase of RMB110bn. New loans to the household sector also eased, to RMB564bn from RMB754bn in September, and its long-term loan component was down to RMB373bn from RMB431bn. New loans to non-bank financial institutions were -RMB27bn from RMB60bn in September.

    Household loans accounted for 80.9% of total new loans in October, versus 54.7% in the preceding month.
    One reason for the sharp drop in new loan growth: Chinese banks have become wary of a fresh spike in bad loans after years of pressure from regulators to reduce riskier lending. Last Friday, Chinese bank shares tumbled on fears they will be saddled with more non-performing loans following an unprecedented regulatory directive to allocate one-third of new loans to private companies.
    In its financial stability report earlier this month, the central bank highlighted the sharp rise in household debt in recent years, noting it needed to be monitored, which is bizarre coming just as Beijing is hoping to flood the system with even more cheap credit. Analysts have warned the jump could undermine Beijing’s efforts to spur consumer spending.
    Outstanding short-term consumer loans rose 37.9 on-year in 2017 and the total household debt to GDP ratio was at 49 percent at the end of last year, the central bank said in the report.
    Meanwhile, the far broader aggregate financing index tumbled to RMB729BN from RMB2,168BN in September...

    ... mainly weighed on by a sharp fall in local government special bond (LGSB) financing (RMB87bn from RMB739bn in September) and continued shadow banking shrinkage.
    In fact, China’s outstanding total social financing (TSF) slowed to 10.2 percent from a year earlier, another all-time low suggesting the increased lending barely compensates for shrinking “shadow” loans.

    The amount of newly increased broad TSF (non seasonally adjusted) was the lowest since October 2014.
    As noted above, headline aggregate financing slumped to RMB729bn in October (Consensus: RMB1,300bn) from RMB2,168bn in September. Growth in outstanding aggregate financing slowed further by 0.4% points (pp) to 10.2% Y/Y in October. If central and local government bond financing is included, growth in the aggregate financing measure fell to 10.7% Y/Y to 11.2%.
    By category, new entrusted loans and trust loans combined were -RMB222bn in October from -RMB234bn in September, indicating that shadow banking activity continued to contract. Net corporate bond financing rose to RMB138bn from RMB49bn in September, but was still some way off the average October level in 2015-17 of RMB233bn. Net equity financing remained sluggish, at RMB18bn from RMB27bn in September (average October level: RMB62bn).

    One key reason for the decline was that local governments had maxed out their bond quotas after a rush of debt issuance in the third quarter, Capital Economics said. After a lengthy clampdown, Beijing has been pushing local governments to spend on infrastructure projects again as part of its growth boosting measures. China will release investment data on Wednesday along with industrial output and retail sales.
    Meanwhile, looking at traditional outstanding loan growth eased to 13.1% y-o-y from 13.2% in September (Figure 1), while money supply growth was also markedly weak, in further evidence that companies are reluctant to make fresh investments as U.S. tariffs on Chinese goods add to uncertainties about the demand outlook at home. Broad M2 money supply grew 8.0 percent in October from a year earlier - a record low, and far below the consensus estimates of 8.4%, edging up from September.

    Including central and local government bond issuance, growth of the augmented aggregate financing measure dropped to 10.7% y-o-y in October from 11.2% in September. Both posted the lowest growth on record.

    The weaker trend also suggested overall credit conditions in China tightened last month despite recent easing in monetary policy, including moves by the central bank to bring down market interest rates and four cuts in banks’ reserve requirements so far this year. Indeed, one likely explanation for the shockingly poor new credit numbers is that according to the PBoC’s Q3 monetary policy report last week, weighted average lending rates for general loans and mortgage loans rose to 6.19% pa and 5.72% in Q3, respectively, from 6.08% and 5.60% in Q2, although those for corporate bill financing fell. Rising financing costs signal further downside pressures on investment and property sales, and as a result, Nomura believes that the economy has not yet bottomed.
    In its China credit growth commentary, Bloomberg said that the "shockingly" weak new loans number, which was worse than any surveyed economist expected, "explains why policy makers have projected a sense of urgency lately to support growth. It suggests that the credit market is clogged as the government cracks down on shadow banking while lending to private firms has more or less frozen."
    Looking ahead, headwinds to growth remain, especially from weakening domestic demand, rising credit defaults, the cooling property market and escalating China-US trade tensions. Although headline activity numbers may have held relatively well in recent months (benefiting from a front-loading of exports and a significant easing of the anti-pollution campaign this winter), Nomura expects a more visible growth slowdown starting from the spring next year.


    The question, of course, is what happens if China's credit remains clogged up: that could be a major problem for China, which as discussed over the weekend, already has over 50 million vacant apartments. What is strange is that unlike in 2009, 2012 and 2015 Beijing has shown little appetite for housing-led stimulus - the type that would also bolster the broader emerging markets - as shown see in this chart comparing China's credit impulse and the number of cities with rising home prices.

    This means that infrastructure-led stimulus has far less bang for the buck, according to UBS. And if the new credit injections are unable to make their way into the economy, it's only a matter of time before home prices follow China's credit impulse deep in the red, potentially unleashing the biggest housing-led Chinese recession observed in over a generation, one which may or may not be accompanied by a working class insurrection.


    More at: https://www.zerohedge.com/news/2018-...-lowest-record
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  26. #52
    China’s debt productivity dropped 42.9% between 2007 and 2017. That was the worst among major economies, but others lost ground, too.

    More at: https://www.zerohedge.com/news/2018-...al-possibility
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  27. #53
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

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