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Thread: Charting China's Imminent Implosion

  1. #61
    Worsening costs, taxation, tech transfer and regulation prompt foreign-owned businesses to throw in the towel
    By James T. Areddy
    Dec. 7, 2018 10:37 a.m. ET
    SHANGHAI—Fifteen years ago in California, a tall technology geek named Steve Mushero started writing a book that predicted the American dream might soon “be found only in China.” Before long, Mr. Mushero moved himself to Shanghai and launched a firm that Amazon.com Inc. and Alibaba Group Holding Ltd. certified as a partner to serve the world’s biggest internet market.
    These days, the tech pioneer has hit a wall. He’s heading back to Silicon Valley where he sees deeper demand for his know-how in cloud computing. “The future’s not here,” said the 52-year-old.
    For years, American entrepreneurs saw a place in which they would start tech businesses, build restaurant chains and manage factories, making potentially vast sums in an exciting, newly dynamic economy. Many mastered Mandarin, hired and trained thousands in China, bought houses, met their spouses and raised bilingual children.
    Now disillusion has set in, fed by soaring costs, creeping taxation, tightening political control and capricious regulation that makes it ever tougher to maneuver the market and fend off new domestic competitors. All these signal to expat business owners their best days were in the past.
    The Trump administration is making a hard-nosed challenge to China using trade tariffs, investment controls and prosecution of technology thieves, and many in American business are cheering, if silently, having soured on the market after years of trying.
    At a curry luncheon hosted a few times a year by Steven Bourne, a law professor and 13-year resident of Shanghai from Massachusetts, guests these days chew over shrimp samosas and exit plans. On a recent Friday, a Swedish maker of beauty products said he would move his family to Hong Kong, where regulations are clearer and taxes are lower. An American art dealer who suffered when his rich clients got pinched by currency controls was headed to California.
    Another, Jack Tung, a 47-year-old who grew up near Philadelphia and had the costumes made for Hollywood movies like “The Painted Veil” and “The Great Wall,” said absorbing a sixfold rise in tailoring rates since 2003 changed China into a high-cost, low-profit, stressful hardship. He lost the feeling “it’s all happening” in Shanghai and will try Thailand.
    Expats always ebb and flow, said Mr. Bourne, but for entrepreneurs “it’s harder for them to live here now.”
    Relocations firm Santa Fe Group A/S said it moves more families out of China than into it these days. Enrollment at Shanghai American School—where annual tuition tops $30,000—is nearly 17% off its peak five years ago. The American Chamber of Commerce in China said 75% of its members are feeling less welcome. Its Shanghai chapter lost over 600 members in recent years, while a poll of U.S. businesses by the organization in manufacturing-heavy Guangdong found 70% may delay China investment or shift it overseas.
    “How can it be that those who know China best, work there, do business there, make money there, and have advocated for productive relations in the past, are among those now arguing for more confrontation?” former U.S. Treasury Secretary Henry Paulson asked at a November conference in Singapore.
    Many mark a turn in the climate for foreign businesses at around 2012. China was reckoning with how boom times had weighed it down with debt and overcapacity plus widespread corruption and appalling pollution. When Xi Jinping became Communist Party leader, he used the power of the state to shore up employment and living standards. Government-owned companies shielded from daily business hassles were in favor.
    Authorities stepped up scrutiny of visas and actively enforced pollution controls. A new social security law lifted local wages and made it tough to fire workers, so much that some employers called the policy a modern “iron rice bowl.” Mr. Xi reinforced China’s Great Firewall of internet controls; big domestic tech firms thrived while laws excluded foreign rivals or pressured them to share technology.

    More at: https://www.wsj.com/articles/america...d=hp_lead_pos5

    Also here: https://www.reddit.com/r/China/comme..._to_china_are/
    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

    Alexis de Torqueville

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  3. #62
    The automobile industry in China has been crippled, partly as a result of this trade war, partly due to the ongoing domestic economic slowdown in the mainland, and absent major subsidies - which don't appear to be coming - the outlook for the rest of 2018 and 2019 is not promising. The collapse has been historic and according to new data, continued through November.

    November data confirmed a continuation of the ugly trends that we discussed last month. For instance, passenger vehicle wholesales were down 16.1% on the year, according to the China Association of Automobile Manufacturers. This data includes sedans, SUVs and crossover utility vehicles.

    November vehicle wholesales were also down well into the double digits, dropping 13.9% to 2.55 million units year-over-year. Total retail passenger vehicles fell 18% on the year and SUV sales fell 20.6% year-over-year to 854,289 units, according to the Passenger Car Association.
    As a result, CICC now expects China's full year production and sales to drop more than 5% year-over-year for 2018. This would be the first annual decline in Chinese car sales in nearly three decades.
    They also predicted that inventory levels at dealerships across the country will likely continue to rise as automakers "stuff channels" in hopes of fooling investors that sales are stronger than they are. The sales data for November suggested "much weaker demand in lower end segments and fears [of] competition in the SUV market" according to the CICC note.
    They association concluded that a turnaround for the sector is only likely after Spring Festival, which occurs in the beginning of February. CICC found that domestic brands are becoming more competitive in new energy vehicles and SUV’s, while Japanese carmakers still have the advantage in sedans.

    To be sure, this should not come as a surprise to regular readers as we have been reporting on the anemic numbers coming out of China in both October and November, although the severity of the slowdown has caught even the optimists by surprise.

    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

  4. #63
    China will more than triple its capacity for production of ethanol in little over a year. According to a Dou Kejun, a researcher at the China National Renewable Energy Centre, the nation is already constructing or seeking approval to construct new ethanol plants with a total production capacity of over 6.6 million tonnes of the mostly corn- and cassava-based biofuel each year.6.6 million tonnes is an especially stunning figure when you consider that China’s entire ethanol production in 2017 was just 2.8 million tonnes. Feng Wensheng, a manager at Henan Tianguan Group Co Ltd., a major Chinese producer, estimates that current capacity has already risen to about 3.38 million tonnes, including some plants that are still under construction after very recent approval. A major factor in this massive uptick is the government’s announcement last year that they would now be requiring gasoline supplies nationwide to be blended with ethanol by just 2020. This requirement alone will require about 15 million tonnes of ethanol per year.
    Unlike ethanol in the United States, the vast majority of which is corn-based, less than half of China’s current ethanol production is derived from corn, a larger portion (1.7 million tonnes) being sourced from cassava. Other sources of Chinese biofuels include wheat, sorghum and rice.
    China’s newly soaring demand for ethanol has garnered quite a lot of attention from the international biofuels industry, as most believe it’s highly unlikely that China will be able to produce enough ethanol on domestic soil to meet the nation’s soaring thirst. Contrary to the predominant belief within the industry, researcher Dou reported to Reuters that China’s planned growth in production capacity would take the country “quite close” to the volumes necessary to meet its 2020 objective. He hedged this statement by saying the process is not set, but dynamic and subject to change. Meanwhile, many industry insiders predict that China will need to import large volumes of ethanol from other major international producers of the biofuel such as the United States and Brazil, the world’s first and second biggest ethanol producers, respectively.

    This dynamic is muddied considerably, however, by the ongoing trade war between China and the United States. After Chinese President Xi Jinping imposed tariffs on U.S. ethanol imports and the U.S. takes a step back from overall trade in China, a surprising player has stepped up to fill China’s unflagging demand. Over the course of just two months, Malaysia--a nation with negligible levels of use or production of ethanol--has shocked the industry by displacing the United States and China’s biggest ethanol supplier.
    Where is Malaysia getting all of this ethanol? From the very same nation they displaced. Far from becoming an ethanol producer the size of the United States or Brazil, Malaysia is just playing go-between between the quarreling superpowers, as the Southeast Asian nation has simultaneously ramped up their imports of U.S. ethanol to record quantities. Malaysia serves to fill a loophole in the complicated trade relations between the U.S. and China, as shipments from Malaysia to China are tax-free.

    More at: https://oilprice.com/Alternative-Ene...roduction.html
    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

  5. #64
    The English language headline for China’s National Bureau of Statistics’ press release on November 2018’s Big 3 was, National Economy Maintained Stable and Sound Momentum of Development in November. For those who, as noted yesterday, are wishing China’s economy bad news so as to lead to the supposed good news of a coordinated “stimulus” response this was itself a bad news/good news situation.

    If the Communist State Council is to be flustered into action, the title of the release might suggest maybe not. Then again, there isn’t a month that goes by where the NBS writers don’t write pretty much the same thing. In a Communist country, any wording less than “sound momentum” is surely frowned upon especially when there is no momentum.
    Underneath, the figures were all bad. Were they bad enough? I don’t believe anything short of full-fledged collapse will be, but this is attempting to game and analyze a political factor whose proportions are never going to be fully known.
    What we are left with is pure ugly. The last time Industrial Production grew at a 5.4% annual rate, as it did last month, it was February 2016 and the worst of times for modern, industrial China. It was also the same month the last “stimulus” was uncorked.
    It doesn’t get any lower than the 2015-16 downturn so for Chinese industry to already be at that depth with “this one” just getting started, it all tells us that perhaps there is a lot of downside left to come and that officials are keenly aware of the possibility.



    If this was somehow unexpected and unapproved, so to speak, they wouldn’t have waited for 5.4% to reappear. That goes double for consumer spending, or retail sales in this case. Chinese retail activity grew by just 8.1% in November. You have to go back fifteen years to find something less.

    What should really stand out especially for the stimulus whisperers is when China’s latest economic inflection transpired. It wasn’t Trump and trade, it was in the middle of last year for both IP as well as RS.

    Why mid-2017? That was when authorities began to realize the full extent of their predicament. They had done the “stimulus” stuff in a rush to begin 2016 and it didn’t get anywhere. There are often heavy costs to doing these kinds of things, so to pay out a lot and receive very little in return from it is a big counterpoint to thinking about doing it again.


    China simply has, as we’ve been writing and speaking about for half a decade (and more, less specifically about China), no monetary room with which to get any kind of internal growth started. That point was driven home last year. The global economy despite all officials protestations everywhere has never once picked up toward recovery.
    Therefore, the Chinese government is left between the rock (external malaise) and the hard place (no internal monetary space). Only a few months after June 2017, Communist officials convened at the 19th Party Congress and “elected” to move authoritarian. This, I don’t believe, is mere coincidence.


    The only mild positive so far in 2018 is how Fixed Asset Investment (FAI) has stabilized albeit at extremely low levels. Private FAI, in particular, is growing at around a 9% rate (8.8% in November) which is better than late last year.




    The flipside of that is how Private FAI seems to have hit a ceiling around 9%, nowhere near the 25% rate that for a few years kept China out of trouble. Even with officials at lower levels (almost certainly on orders from the central government) in the provinces no longer clamping down on the waste of State-owned FAI, it hasn’t stabilized China’s economy because it can’t.
    On an accumulated basis, Public FAI rose 2.3% in November (meaning YTD) while on a monthly basis it was less than 7% (annual rate) for the second straight month. Like Private FAI, better than before but not really meaningfully so. It seems more like messaging than meaning.
    To me, this adds up to the same thing – an attempt at managing the decline rather than intentions to turn it around as expectations for globally synchronized growth would have required.

    More at: https://www.zerohedge.com/news/2018-...anic-next-week
    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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  7. #65
    In the heart of an impoverished village in southern China, a life-sized statue of Mao Zedong sits on a platform adorned with intricate stonework, flanked by a diorama of Red Army soldiers and traditional brick-and-tile homes with curved roofs.Officials have spent a small fortune on the project that has transformed the village of Shazhou, in Hunan province, into an open-air museum dedicated to the Chinese Communist Party. But few tourists have come to peer at the inscription at the foot of Mao's statue, or take selfies in front of the heroes of the revolution.
    The "red tourism" project was the brainchild of the former Communist Party chief of the local county, Rucheng, and cost 300 million yuan ($44 million). But it has yet to produce a profit, just like the string of public gardens, town squares and office buildings that the county has built in recent years.
    Now the clock is ticking as Rucheng, among China's poorest counties, and with a population of just 420,400 people, is under pressure to resolve $1 billion in debt, following a decade of credit-fuelled vanity projects, three local officials told Reuters. They requested anonymity due to the sensitivity of the matter.
    To raise funds and conserve cash, Rucheng - which doesn't have a train station or an airport - has been slashing public investment in infrastructure projects and increasing government land sales to generate revenue, the officials said.
    Rucheng is not alone - hundreds of other indebted counties in China are in the same boat. In a recent financial stability report, the central bank said that much of China's hidden debt risk is held at lower-tier levels, meaning prefectures and counties like Rucheng.
    As China prepares this month to celebrate the 40th anniversary of the economic reforms that transformed it into the world's second-largest economy, fears over local government debt are growing.
    China's local governments had 18.4 trillion yuan of outstanding debt at the end of October, and were estimated by S&P Global Ratings to have up to 40 trillion yuan in off-budget borrowing.
    Of particular concern to the authorities as they tackle risks in the financial system are those governments with tiny revenue streams relative to their debt. Their over-reliance on income from land sales is also driving asset bubbles in China.
    Rucheng's free-spending ways came onto Beijing's radar this year when visiting anti-corruption inspectors were shocked by the contrast between the county's newly built but deserted municipal district and cramped older areas where residents drink polluted water from aging pipes.
    When the inspectors were in town, numerous anonymous complaints arrived in the mail.
    Since 2008, Rucheng has spent billions on 10 office buildings, 11 public gardens and squares and 26 urban roads, the anti-corruption inspectors found. But less than 6 percent of government spending went on investing in industry.
    Vanity investments helped drive Rucheng's debt ratio - or borrowing relative to fiscal revenue - to 336 percent last year from 286 percent in 2016, and 274 percent in 2015.

    More at: https://news.yahoo.com/deep-red-chin...9--sector.html
    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

  8. #66
    The Chinese government has reportedly ordered Guangdong province to stop producing a regional Purchasing Managers’ Index (PMI) for the manufacturing sector, the South China Morning Post reported Dec. 17.

    More at: https://worldview.stratfor.com/situa...h-regional-pmi
    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. #67
    There was much anticipation ahead of tonight speech by Chinese President Xi Jinping at the 40th Reforms Anniversary Event.

    Hope was high for Xi to highlight potential new reform measures, growth initiatives, and - what the markets want most - moar stimulus.
    He instead offered none of the above, choosing a propaganda-heavy discourse on the Communist Party's contributions to the success of China.

    Main highlights include Xi pointing out that 1978 marked major turning point of far reaching significance and "China's stability makes it one of the safest nations in the world..." (except if you're a Canadian businessman)
    China's had an average +9.5% growth for the past 40 years.

    But warned that:
    "China may face unimaginable difficulties ahead"
    The speech was dominated by role of the party in developing modern China
    Says the party has led China on a "soul stirring journey"
    “China has demonstrated the vitality of scientific socialism with indisputable facts.”
    There was no concrete message from Xi's speech either on the trade friction with the U.S. or growth prospects for 2019.
    "No one is in a position to dictate to the Chinese people what should or should not be done,"
    Xi likens China's current stage of development to swimming midstream in a river or climbing half way up a mountain:
    "There is no turning back."
    On reforms, Xi warned:
    "The road of reform and opening are becoming more steep, but we must go forward with conviction, commitment and confidence."
    On globalization, Xi talked about a "new form of international relations."
    There should be no "bullying" and there should be respect for different development models.
    China "will never seek hegemony," Xi says, but we note that China is expanding influence, however, in regions such as the South China Sea, where it has built islands and put military emplacements on them.
    “We will resolutely fight an uphill battle to prevent and defuse major risks, lift people out of poverty, and prevent and control pollution,”
    Xi closed on the same heavy Communist and Marxist evangelism theme, by saying that China is in the process of:

    • Standing up
    • Getting rich
    • Growing strong

    And remember, China is "standing tall and firm in the East."
    But that was not what the market wanted to hear and investors are disappointed for now as Xi provided no new initiatives...



    And early Yuan gains are leaking away...

    And for now, no new measures and the old stimulus measures aren't working...

    More at: https://www.zerohedge.com/news/2018-...e-difficulties
    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. #68
    Every guess about China is quite wrong.
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken

  11. #69
    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, which is also why it has traditionally been Beijing's duty to make sure that home prices appreciate year after year, even if the broader economy is doing poorly.

    Which is why a recent warning by a top Chinese banker that the days of steady home price appreciation are now over, should come as the latest flashing red alert of more turmoil to come first for the world's most populous nation and eventually, the rest of the world.
    On Sunday, the chairman of a leading Chinese state bank warned Chinese investors not to buy property now because “there’s no money to be made” due to high prices and alarming vacancy rates (an ominous development we first discussed last month in "The "Nightmare Scenario" For Beijing: 50 Million Chinese Apartments Are Empty").
    Tian Guoli, the chairman of China Construction Bank, which provides mortgage loans to millions of Chinese households, was quoted by China's Sina.com portal that the room for further property price rises was limited and it was unwise to buy at current rates.


    Offering some surprisingly blunt advice which would appear counterproductive to his business model - after all Guoli is incentivized to make as many mortgages as possible - Tian said that "there’s no money to be made if you buy a flat nowadays. If you insist on buying a home, aren’t you trapped at the high price level?" The CCB Chairman was speaking at a forum organixed by Peking University’s Guanghua school of management.
    As the SCMP reports, the warning by Tian, who is an alternate member of the Communist Party Central Committee, came at a time when the country is in heated debate about the role of the property market – whether it will lead to an bust or whether it can help shore up the economy.
    At the recently concluded Central Economic Work Conference, which disappointed markets without providing any concrete additional stimulus measures, the top leadership promised to build a long-term mechanism for the property market, on the basis that "property is for living, not for speculation", adding that regulations would vary from city to city.


    To be sure, China's fascination with housing is understandable: over the past two decades property has proved to be one of the best investments in China, and is the reason why unlike the stock market the bulk of China's household wealth is invested in housing. It is also why, despite occasional government intervention – from purchase restrictions and sales limits to mortgage loan constraints – the average price has soared, making property in Beijing and Shanghai as expensive as London or Tokyo.
    However, amid reports of massive housing vacancies as Chinese builders overextended in recent years to prop up GDP resulting in over 50 million empty apartments, there has also been increasing concern that a downturn in the housing market would hit households, banks and developers hard – and this in turn would be a serious threat to China’s state banks and local governments, whose revenues are tied to the property market. Meanwhile, even the smallest turbulence in the market could unleash a furious firesale as builders seek to dump vacant properties: in China, some 22% of the total housing stock is unoccupied, roughly double that of other developed economies.

    Meanwhile, the debt keeping China's housing bubble afloat keeps rising, with the value of outstanding real estate loans – including mortgage and development lending – reaching 38 trillion yuan (US$5.5 trillion) by the end of September 2018, or 28% of total lending, according to government data, while just 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."



    Meanwhile, the latest China household finance survey conducted by the Southwest University of Finance and Economics, which was published last week, found that the number of vacant urban homes in China has risen to 65 million units in 2017 from 42 million units in 2011, with the vacancy ratio rising to 21.4 per cent from 18.4 per cent in the period.
    China’s small cities had more serious vacancy problems than bigger ones, the research centre found, echoing Tian’s speech. Data from the National Bureau of Statistics showed that the average living area of Chinese urban residents already reached 36.6 square meters in 2016.
    * * *
    What is most troubling, and what may have spurred Tian's warning, 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.


    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-...-more-money-be
    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. #70
    For the first time in almost three years, the profits of Chinese industrial companies tumbled in November, highlighting the effects of slowing economic growth, falling prices, and the trade war with the US.
    "Slowdown in sales growth and factory gate inflation, combined with rising costs, led to the decline of industrial profits in November," the NBS said in the statement on its website.
    Profits contracted 1.8% year-on-year in November, vs. an expansion of 3.6% yoy in October. This is the first year-over-year contraction in industrial profits since 2015. In month-on-month terms, profits fell meaningfully after seasonal adjustment by around 7.2% (non-annualized), vs. a contraction of 0.1% in October. In absolute level terms, profits in November were the lowest of the year.
    Among major sectors, profit growth turned negative in computer manufacturing, ferrous metal smelting and pressing, and chemical product manufacturing, but improved in general equipment manufacturing, electrical machinery manufacturing and automobile manufacturing.

    As Goldman Sachs notes, compared with November 2017, profit margins (total profits divided by revenues from principal business) were materially lower by around 0.6pp, contributing to the fall in headline profit year-over-year growth. On a 12-month rolling average basis, both upstream and downstream industries' margins narrowed. Revenue growth decelerated in November, with PPI inflation modestly lower in November vs. October, and the implied real industrial sales growth slowed in November, to around 4.5% yoy based on our estimate, vs. 5% yoy in October.
    However, flashing red flags everywhere, Bloomberg notes that the official year-on-year growth rate for profits began diverging from the growth rate calculated from the nominal profit figures in 2017, and that continued to be an issue in November’s release.

    This discrepancy has led many to question the veracity of the official data.


    More at: https://www.zerohedge.com/news/2018-...ber-set-worsen
    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

  13. #71
    Just about every economic measure is trending down in China, and not surprisingly, deflation fears are mounting. The China Beige Book (CBB) fourth-quarter preview, released Dec. 27, reported that sales volumes, output, domestic and export orders, investment, and hiring all fell on a year-over-year and quarter-over-quarter basis.
    A much-weaker 2019 appears to be in the offing for China, but it’s not solely due to trade tensions with the United States. The domestic economy was already on weak footing and the CBB argues that government support is unlikely.
    The CBB is a research service that speaks to thousands of companies and bankers on the ground in China every quarter. It contends that deflation is the bigger threat compared to inflation.
    “Because of China’s structural problems, deflation has very clearly emerged as the bigger threat in a slowing economy than inflation. Consumer demand has weakened, and you see that reflected in retail and services prices,” said Shehzad Qazi, CBB managing director, in an interview.

    While lower prices look good for consumers, policy-makers don’t like deflation for a number of reasons. With prices falling, companies produce less, often lay off workers, and reduce investment, leading to a vicious circle of sorts. While the trade war hurts export-sensitive regions, local orders have now weakened for two straight quarters.
    Hiring fell for the first time since early 2016. Worse still, the fall was concentrated in services and retail, two sectors being counted upon to pick up the slack left by manufacturing’s woes.
    Also, debt—of which China has plenty—becomes more problematic under deflation, as its value adjusted for inflation rises.
    And it’s an issue for central bankers, who typically target 2 percent inflation for price stability. Rate cuts to spur the economy and inflation are less effective, since the real interest rates are higher when accounting for deflation.
    China is an aging, leveraged country, with excess industrial capacity. Appearances by inflation should be cheered,” according to the CBB Q4 preview. “They are also rare.”
    Qazi says that the only inflation is in agriculture commodities, which is not what Beijing wants.
    The early signs of deflation are broad-based. Wages, sale prices, and input costs are all trending lower, according to CBB surveys. The November reading on Chinese inflation showed a drop of 0.3 percent. The statistic showed four months of deflation earlier this year before turning positive again.
    China’s 10-year government bond yield has been trending lower since the start of the year, partially reflecting the market’s anticipation of deflation worsening and the economy slowing.

    Two metals symbolic of global growth—copper and aluminum—are languishing. The CBB reports that the net share of copper firms raising production capacity fell to 30 percent from 60 percent two quarters prior, while aluminum firms raising capacity fell to 18 percent, which is half the Q3 figure.
    “Dr. Copper” is not far from its lowest level in a year. Aluminum prices are at their lowest in 18 months.

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

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  14. #72
    Following Apple's warning over quarterly revenue guidance due to "lower than anticipated iPhone revenue, primarily in Greater China," all eyes are now on the USA's largest trading partner.
    And as the Wall Street Journal notes, the current economic slowdown in China is different than previous downturns "because this time Chinese consumers are taking a hit."
    A less-certain economic outlook, the trade fight with the U.S., rising living costs and expectations of slower income growth are weighing on household spending. Meanwhile, slowing sales, rising costs and trade-related uncertainties are squeezing businesses’ profit margins, from retailers to manufacturers. -WSJ
    To that end, here are seven China charts that should keep investors up at night.
    Retail-sales growth cratered to its lowest level in 15 years in November, as Beijing's efforts to slash personal income tax failed to lift spending.

    Property Sales have also moderated significantly in the last three years, which may lead local governments to ease restrictions on home purchases in 2019 according to analysts.

    Chinese auto makers have also been feeling the heat from sagging sales, seeing their largest drop in almost seven years during November - marking the fifth straight monthly decline. The industry is on track for its first annual sales drop in nearly 30 years.

    Consumption tax revenue cratered in October to the tune of 61.6% year-over-year, only to drop 71.2% in November. The indicator of cojnsumer spending is a tax imposed on luxury goods such as jewelry and high-end cosmetics, or items deemed to be environmentally unfriendly such as cars and gasoline.

    Industrial profits have been cooling since May of last year after hitting double-digit growth in 2017, as subdued factory price gains and slower sales took their toll.

    The Purchasing Managers Index (PMI) contracted in december following nearly two years of expansion. "The downbeat PMI readings suggest China’s economic growth likely decelerated further in the final quarter of 2018 and the slowdown is expected to continue this year," according to the Journal.

    Lastly, China's GDP has slowed to its weakest pace in almost 10 years during the third quarter, and is expected to slow further over 2019. GDP is expected to fall to 6.4% in the fourth quarter, down a smidge from third quarter growth of 6.5%.




    https://www.zerohedge.com/news/2019-...-china-warning
    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

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    Those who fail to learn from the past are condemned to repeat it.
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  16. #73
    Stirring up unpleasant echoes of the market chaos that swept the world in the opening days of 2016, Apple's decision to cut its quarterly revenue guidance for the first time in 16 years - citing slowing iPhone sales in China as the primary culprit - reinforced concerns about slowing growth in the world's second-largest economy that could have wide-ranging repercussions for global markets.
    This wasn't the only factor prompting fears over slowing Chinese economic growth: a batch of soft economic data including consumption, manufacturing surveys and retail sales indicators has undoubtedly helped contribute to the paranoia. As we argued on Friday, when prognosticating the direction of global markets in 2019,all eyes will be on the USA's largest trading partner.
    For the first time since it overtook Japan as the world's second-largest economy back in 2011, China has displayed surprisingly weak economic data that have somehow obscured the widely held, if rarely discussed in public belief that these data, which are compiled by the Chinese state, are largely suspect. Contributing to its goal of maintaining order and stability at home, the Communist Party is widely believed to doctor and goalseek its data to present a rosier picture. Apparently, the notion that this is probably happening has become so widely accepted that investors often lose sight of it.


    But in an well-timed reminder, the Financial Times has published a story citing a presentation by a controversial yet widely recognizable Chinese economist and others who argue that China's GDP growth could be much weaker than the official data - which showed the Chinese economy grew at an annualized rate of 6.7% through the third quarter - reflect.
    To the consternation of Chinese censors, a presentation delivered by an economics professor at Renmin University in Beijing sparked a controversy last month when the professor claimed that a secret government research group had estimated China’s growth in gross domestic product could be as low as 1.67% in 2018, far below the official rate.


    More at: https://www.zerohedge.com/news/2019-...growth-below-2
    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

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  17. #74
    People like to complain that China has abandoned its Communist values in favor of state-directed capitalism. But in at least one way, the rulers of the world's second-largest economy are adhering to the prescriptions of Karl Marx - with a burdensome progressive income tax.

    And as the CPC has imposed new tax cuts to try and pump more fiscal stimulus into the economy to help revive its flagging growth. But wealthy Chinese are worried that the state will expect them to cover the revenue shortfall (particularly as the trade war threatens to sap the Chinese economy of badly needed FDI).
    In a country where personal wealth has swelled to $24 trillion since the days of Deng Xiaoping - $1 trillion of which is held abroad - these changes to China's tax regime could have a resounding impact on asset markets around the world (Vancouver comes to mind).

    The changes, which took effect on Jan. 1, have already prompted wealthy Chinese to look into creating overseas trusts that could help them protect their wealth from the state, as China's decision to embrace the Common Reporting Standard, an international data-sharing agreement that allows governments to more easily track the overseas wealth of their citizens.
    Here's a rundown of how China's new tax rules might impact wealthy Chinese, and how that in turn might reverberate around the world (text courtesy of Bloomberg):
    Crackdown on Havens
    Under the new rules, owners of offshore companies will not only pay taxes on dividends they receive but will also face levies of as much as 20 percent on corporate profits, from as low as zero previously. This has triggered a flood of rich families seeking refuge via trusts, which often shield wealthy owners from having to pay taxes unless the trusts hand out dividends. Overseas buildings or shell companies are also becoming easier to track for authorities as China embraces an international data-sharing agreement known as the Common Reporting Standard, or CRS.
    It’s not clear how the government will utilize CRS data, especially in early 2019, but authorities may grant amnesty for a certain period for a stable transition or focus on penalizing the biggest offenders, according to Jason Mi, a partner at Ernst & Young in Beijing.
    Closing Loopholes
    In the past, the rich could avoid paying taxes on overseas earnings by acquiring a foreign passport or green card, while keeping their Chinese citizenship. But this won’t work starting in January as the government will tax global income from all holders of "hukou" household registrations - the most encompassing way of identifying a Chinese national - regardless of whether they have any additional nationalities.
    That’s prompted many people to give up their Chinese citizenship in 2018 by surrendering their "hukou" to avoid paying taxes on foreign income from Jan. 1, according to Peter Ni, a Shanghai-based partner and tax specialist at Zhong Lun Law Firm. Starting in 2019, people surrendering Chinese citizenship will need to be audited by tax authorities first and possibly explain all their sources of income, according to Ni.
    Reining in Gifts
    Tycoons transferring assets to relatives or third parties could be subject to taxation in the new year, depending on how strictly China enforces rules on gifts, according to Ni at Zhong Lun. The levies could reach as much as 20 percent of the asset’s appreciated value, according to Ni.
    For example, if a tycoon were to transfer overseas shares worth $1 million to his son for free, and if those shares originally cost the tycoon $100,000, the tycoon could be taxed 20 percent of the $900,000 increase in the value of those shares, or $180,000.
    The risk of getting taxed will be higher if the recipient is a foreigner because their assets may be beyond Chinese officials’ reach, according to Ni.
    Tougher Taxman
    Tax authorities will sharpen their scrutiny of high-net-worth individuals thanks to more modern tools at their disposal, according to Ni. One is the Golden Tax System Phase III platform that’s being increasingly used to chase down people’s entire source of income. The system allows authorities to view various tax-related data, which had been scattered across various government departments, in one consolidated platform. The new system also beefs up the identification process by preventing individuals from divvying up their income across multiple sources or ID numbers to pay lower taxes.
    But it’s not just the rich that may face a stricter tax environment. China lowered the threshold for blocking citizens with overdue taxes from leaving the country to 100,000 yuan ($14,600) from the previous threshold of 1 million yuan, according to the official Xinhua news agency.
    Eyes on Property
    Further down the road, China is preparing to introduce a property tax law that could go into effect as soon as 2020. Though the tax rate and the details remain unclear, the prospects of the tax has caused people with multiple apartments to worry and made properties a less desirable investment tool, EY’s Mi said.



    https://www.zerohedge.com/news/2019-...round-tax-cuts
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

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    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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  18. #75
    Will "bad news" be "good news" for China's markets? Or does this confirm what 'censored' economist Zhang Songzhou warned - that China's real (as in not made-up) economic growth is dramatically lower than the official data?
    To the consternation of Chinese censors, a presentation delivered by an economics professor at Renmin University in Beijing sparked a controversy last month when the professor claimed that a secret government research group had estimated China’s growth in gross domestic product could be as low as 1.67% in 2018, far below the official rate.
    Unpossible, right?
    Well given tonight's almost unprecedented drop (and miss) in China's inflation prints, maybe not.
    China’s factory inflation slowed sharply in December, continuing the slowdown for a sixth straight month to the weakest level since late 2016 on softening demand and lower commodity prices.

    China Producer Princes rose just 0.9% YoY - plunging from +2.7% YoY in November (and almost half the expected +1.6% YoY). This is the biggest MoM drop in PPI YoY since 2010...

    As Bloomberg reports, the sharply decelerating pace brings back fears of a return of the deflation which ravaged corporate profits in 2012-2016. A return of slow or falling factory prices in China would squeeze corporate profitability and put pressure on global inflation, as export prices usually follow those at factory gate.
    "Deflationary pressures are on the rise in China, driven by weakening domestic and export demand," China International Capital Corp. economists Eva Yi and Liang Hong wrote in a note ahead of the data.
    "Inflation tends to fall following an extended period of softening demand growth, which was in turn led by slower expansion of the broadly-defined credit cycle."
    Of course, in the new normal, this may be seen as 'good' news as it opens the door for PBOC to unleash some more serious monetary malarkey - because as we showed recently, stimulus efforts over the last six months have utterly failed...
    Since June 2018, China has been loosening monetary and fiscal policies in an attempt to refloat the sinking red ponzi amid the shadow banking system's deflation.

    As the following chart from Goldman Sachs shows, it is not working as the Current Activity Indicator continues to slump...

    It seems no matter what China throws at it, the economy (or the market) won't behave as the text-books say it should.
    "[Beijing] will soon have no choice but to launch massive stimulus,” says Alicia GarcŪa Herrero, chief Asia Pacific economist at Natixis in Hong Kong. “They do not want to give away their credibility because they said they wouldn’t do it, but there is no time to be cautious any more. Not having growth is ultimately the worst outcome of all.”
    He's right, although as we discussed last night, a further complication for Beijing arises from the fact that China's economy is in the middle of a "tectonic transition" as its formerly massive current account surplus is about to turn negative...

    ... which in turn is creating serious disruptions in capital flows that could portend weakness beyond China's borders, assuming the trade war continues to impede the foreign investments that China's increasingly consumption-based economy needs to expand.


    More at: https://www.zerohedge.com/news/2019-...unge-most-2011
    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. #76
    After we previously reported that UK car registrations just fell at their sharpest rate since the financial crisis, the sharp plunge of auto sales in China has also continued: retail sales of passenger vehicles - which include sedans, MPVs, mini-vans and SUVs - in China fell a whopping 19% in 2018 to 2.26 million units.

    In addition, SUV retail sales also fell 18.9% year over year to 965,772 units.
    China is spearheading what is shaping up as a painfully anemic year for the industry around the world. The automobile industry in China has been crippled, partly as a result of this trade war, partly due to the ongoing domestic economic slowdown in the mainland, and absent major subsidies - which don't appear to be coming - the outlook for 2019 is not promising.
    We wrote back in early December, after reviewing November's data, that the country was set for its first decline in decades. In November, passenger vehicle wholesales were down 16.1% on the year, according to the China Association of Automobile Manufacturers. November vehicle wholesales were also down well into the double digits, dropping 13.9% to 2.55 million units year-over-year. Total retail passenger vehicles fell 18% on the year and SUV sales fell 20.6% year-over-year to 854,289 units, according to the Passenger Car Association.

    More at: https://www.zerohedge.com/news/2019-...-over-20-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

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  20. #77
    In December, China’s Manufacturing PMI came in below 50, signaling a contraction is underway.
    This is a massive deal because this was an OFFICIAL data point, meaning one that China had heavily massaged to look better than reality.
    Let me explain…
    Over the last 30 years China’s economic data has ALWAYS overstated growth. The reason for this is very simple: if you are an economic minister/ government employee who lives in a regime in which leadership will have you jailed or executed for missing your numbers, the numbers are ALWAYS great.
    Indeed, this is an open secret in China, to the degree that former First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALLChinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.”
    With that in mind, we have to ask… how horrific is the situation in China’s financial system that even the heavily massaged data is showing a contraction is underway?
    Think “systemic risk” bad.
    I’ve already outlined how China is sitting atop 15% of all junk debt in the global financial system, resulting in the country’s “bad debt” to GDP ratio exceeding 80% (a first in history).
    However, it now appears that even that assessment was too rosy.
    Last Friday, China’s Central Bank, called the People’s Bank of China, or PBOC, released its Financial Stability Report for 2018. Nestled amidst the various accounting gimmicks was the following:



    What you are looking at is a table in which China’s Central Bank admits that China has added $50 TRILLION in new financial assets to its financial system in the last FOUR years.
    Bear in mind, China’s entire economy is only $12 trillion… so you are talking about it adding over 400% of its GDP in financial assets… in less than FIVE years. From 2013-2017, China added $25 in new financial assets for every $1 in GDP.
    Never in history has a country done this. NEVER.
    Oh and nearly all of this (78%) was in SHADOW financial assets… or assets that are completely unregulated with the WORST underwriting standards.
    To put this into perspective, imagine if the US Federal Reserve revealed in 2007 that the banking industry had created $56 TRILLION in subprime mortgagesfrom 2003-2007.
    THAT is the equivalent of what China has done.
    As I have maintained time and again, China is one gigantic financial fraud fueled by garbage debt. It is the #1 risk to the global financial system today. And by the look of things it’s about to Collapse.
    The market knows it too. Take a look at the below chart:


    More at: https://www.zerohedge.com/news/2019-...-talk-about-it
    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

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  21. #78
    The chart below details the 44% fall in births since the double peaks seen in East Asia in '67 and '89. This is an ongoing birth dearth of over 14 million fewer annually, since 1995. Now this birth dearth will be compounded by the rapidly falling childbearing population of 15 to 39yr/olds, represented by the red line below (I exclude the 40+yr/olds because they simply have so few children as to simply create distraction). By 2035, the East Asia child bearing population will decline by 30% or -202 million (no estimation, this population is already born and will just shift forward). Absent some seismic shift (or turning away from the inflationary urbanization underway?), births will continue to tumble and national populations will ultimately likewise crumble.




    Noteworthy above is the low water mark of just 15 million births in 1996...and the muted L shaped aftermath.
    Those born in 1996 will be 23 years old in 2019, or generally entering adulthood. On an annual basis, this is a relatively sudden 50%+ decline in new adults, new potential employees, new potential parents, new potential consumers entering the economy...and this is just the start of the "new normal". Every year, from here forward, a 50% decline (relative to just five years ago) in potential demand and potential employees will leave the regions economies reeling. All the economic overcapacity, housing overcapacity, and bad debt will be left "swimming naked" among the ongoing collapsing demand.
    The situation, nation by nation, is detailed below...showing both annual births (blue columns) and childbearing populations (maroon line).
    Taiwan

    • Annual Births: 58% decline or -250 thousand births annually from 1980 peak
    • Child bearing population: -37% or -3.5 million by 2035 from 1995 peak


    Japan

    • Annual births: 62% decline or -1.5 million births annually from 1950 peak
    • Childbearing population: -40% or -18 million by 2035 from 1974 peak


    South Korea

    • Annual births: 69% decline or -730k births annually from 1960 peak
    • Child bearing population: -31% or -8.3 million by 2035 from 1995 peak


    China

    • Annual births: 45% decline (as of 2018) or -13.7 million births annually from 1989 peak
    • Child bearing population: -31% or -177 million by 2035 from 2005 peak


    Childbearing vs. Elderly Populations

    East Asia working age population (15-59yr/olds) vs. 60+yr/old population, chart below. Surging elderly against falling working age population.

    Below, the decade over decade change basis, working age versus elderly. The 2020 through 2030 decade will be demographic hell. 60+ year olds will increase by 122 million against a decline in the working age population of nearly 80 million. This will break all the bad promises made in the good times and bring an economic / financial firestorm.



    More at: https://www.zerohedge.com/news/2019-...ng-populations
    Last edited by Swordsmyth; 01-12-2019 at 07:42 PM.
    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.
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  22. #79
    Early on Monday, China reported dismal trade data with exports unexpectedly falling the most since 2016 in December, while imports also contracted, pointing to further weakness in the world’s second-largest economy in 2019 and deteriorating global demand. Specifically, China December exports tumbled Fall -4.4% Y/y in Dollar Terms, the weakest year-on-year reading since January 2017, and down from +3.9% in November; far below the 2.0% consensus increase, while imports plunged -7.6% from +2.9% in Nov, badly missing the 4.5% expected increase, ironically resulting in the biggest trade surplus on record of $57.1BN. In month-on-month terms, the contraction of exports and imports accelerated further in December. In sequential terms, exports contracted 6.2% mom sa non-annualized, down further from a decrease of 3.4% in November

    Today’s data reflect an end to export front-loading and the start of payback effects, while the global slowdown could also weigh on China’s exports,” Nomura economists wrote in a note, referring to a surge in shipments to the U.S. over much of last year as companies rushed to beat further tariffs.
    The large contraction in Chinese imports was broadly consistent with a significant decrease of exports in December from Korea and Taiwan to China. Exports growth has been weaker than expected over the past two months, and sequential momentum has slowed significantly to a contraction since November from a strong rebound in September, which has been probably due to the fading impact from front-loading ahead of 10% tariffs levied on $200bn Chinese goods starting in late September (and ahead of the potential—and so far delayed—increase of tariffs on these goods to 25%). According to Goldman, exports growth is likely to remain soft in the near future, given moderation in global growth momentum suggested by GS Leading Current Activity Indicator, even though a faster-than-expected waning of impact from front-loading could potentially pose less downward pressure for exports in the coming months. Adding to policymakers’ worries, data on Monday also showed China posted its biggest trade surplus with the United States on record in 2018, which could prompt President Donald Trump to turn up the heat on Beijing in their bitter trade dispute.
    The dismal December trade readings suggest China’s economy may have cooled faster than expected late in the year, despite a slew of growth-boosting measures in recent months ranging from higher infrastructure spending to tax cuts. Some analysts had already speculated that Beijing may have to speed up and intensify its policy easing and stimulus measures this year after factory activity shrank in December.

    More at: https://www.zerohedge.com/news/2019-...ese-trade-data
    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

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  23. #80
    Officially, China has maintained quasi capital controls for years: on paper no individual is allowed to move more than $50,000 out of the country in any given year while Chinese companies can exchange yuan for foreign currencies only for approved purposes.
    Unofficially, China's capital controls had been skirted for years, leading to massive capital outflow from the nation over the past decade, leading to such aberrations as massive luxury housing bubbles in places such as Vancouver, London, New York and San Francisco, and seemingly middle-class Chinese politicians and oligarchs sporting Swiss bank accounts funded in the hundreds of millions (or billions).
    In fact, as we detailed in 2017, Beijing has an interesting way of dealing with capital outflows. While they closely monitor many methods, they don’t actively pursue shutting them down. They often watch from afar, and if capital reserves aren’t impacted, or their reputation isn’t damaged, they allow them to continue. The PBoC announced in 2017 they were going to deploy a massive anti-money laundering framework, designed to further halt capital outflows.As we said at the time, we’ll have to see if they were serious, or if this was just to win reputation points with international countries.

    Well, two years later, we may have the answer. After an apparent lull in outflows, potentially driven by the reforms cracking down on capital flight, there are signs that China is facing an exodus of cash once again...
    Amid all the headlines about China's surplus with US and the ongoing trade tensions, there was a message hidden in China's trade data...
    It is that capital outflow probably accelerated significantly last month. It's a reminder of why the PBOC would probably be reluctant to let the yuan decline significantly. That would encourage even further outflows and risk a vicious circle.
    While China's total imports fell 7.6% in dollar terms from a year earlier, its purchases from Hong Kong surged 106%.

    Critically, Elsa Lignos, global head of FX Strategy at RBC in London, notes that this outlier resembles the jump in 2015-2016 when mainland companies used inflated invoices to take money out of the country.
    The timing of the sudden shift is telling as it coincides with a lagged reaction to a sudden devaluation - just as we saw in 2015/2016...

    The logistics of the over-invoicing scam are extraordinarily simple - Mainland Chinese will 'overpay' for goods or services delivered from a Hong Kong merchant with a pre-agreement that the Hong Kong-based 'exporter' will - for a fee - allow the mainland Chinese 'importer' to have access to his cash but now outside of China's government-imposed firewall controlling capital flight.
    And the last time this occurred at this kind of scale, it sent Bitcoin from $200 to $20,000...

    While some have argued that Bitcoin is not the most efficient method of funds transfer or storage once the mainland Chinese cash has reached Hong Kong (claiming hot money brokers reportedly cheaper), we suspect the ease of use may well mean the cryptocurrency sphere is facing an 18-month period of excess demand from Chinese capital desperate for its freedom.
    So, in summary, recent 'odd' strength in the yuan is perhaps a signal that China is doing everything in its power to not give the impression that it is panicking...

    The truth is that it is one viral capital outflow report away from an outright scramble to enforce the most draconian capital controls in its history, which - as every Cypriot and Greek knows by now - is a self-defeating exercise and assures an ever accelerating decline in the currency, which authorities are trying to both keep stable while also devaluing at a pace of their choosing. Said pace never quite works out.



    https://www.zerohedge.com/news/2019-...t-news-cryptos
    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.
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  25. #81
    A dramatic and sudden slowdown in the rate at which numerous commodities are being shipped to China suggests slowing demand for raw materials in the world's second-largest economy, and signals a wider economic slowdown globally looms.
    "Recent shipping data has turned negative with charter rates across all sectors notably weaker compared to late November levels," Morgan Stanley analysts Fotis Giannakoulis, Qianlei Fan, and Max Yaras wrote.
    "While such moves are common, the synchronized decline may be a warning for Chinese commodity demand."



    During the last six weeks almost all shipping sectors have seen charter rates move lower, raising concerns about the health of underlying demand.

    • The Baltic Dry Index is down 17% since mid-December (Exhibit 6) with all vessel types earning lower rates compared to a year ago despite the sharp drop in dry bulk supply growth.



    • Meanwhile, data from China Customs show that iron ore imports shrunk by 3.2% in the last three months through November (Exhibit 7), while steel margins have recently turned negative.



    • On the crude side, VLCC rates to Asia have also seen a notable decline, falling from $60 in November down to $30k currently (Exhibit 8) with crude flows to China showing signs of decelerating momentum. According to ClipperData, in 2018 crude flows to China remained strong, growing by 7.6%, but below the 10.1% growth rate seen in 2017. Over the last four weeks data shows further declines, although this is mostly attributed to the slowdown in supply due to the OPEC+ cuts, as well as delays at Chinese ports.



    • On the gas side, spot LNG charter rates have also been weaker, dropping from $190k in November to $80k currently (Exhibit 10). While in percentage terms the drop in LNG shipping rates seems dramatic, the chartering market remains relatively tight with vessels still earning above mid-cycle levels.


    Of course, this data is just the latest in a long line of worrying news for the Chinese economy, but might just be the straw that breaks the 'hope' camels' back.


    https://www.zerohedge.com/news/2019-...rates-collapse
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  26. #82
    That China has had a problem with rising defaults is not news: as we reported back in October, 2018 was already set to be a record year for Chinese bankruptcies. Things only got worse in November and December when defaults spiked to 20.4 billion yuan ($3 billion) confirming that the supportive policies from the People’s Bank of China announced more than a month ago have yet to yield the intended effect.
    “Defaults will stay elevated [in 2019] because the Chinese economy is expected to slow and off-balance-sheet lending has been shrinking,” said Yang Hao, analyst at Nanjing Securities. The funding environment has yet to improve significantly for certain corporations, he added.

    Predictably, just like in the US, Chinese investors have shunned lower-rated notes, and only relatively stronger firms were able to access the local bond market in recent months. Non-finance companies rated below AA publicly sold 1.27 trillion yuan of notes for the first 11 months of 2018, the lowest in four years. In contrast, companies with above AA+ ratings sold almost 3.28 trillion yuan bonds, up about 40 percent from last year.
    None of this is news.
    What is surprising however, is what happened when the latest Chinese corporate default took place on Tuesday: that's when Jiangsu-based Kangde Xin Composite Material Group, failed to pay a 1 billion yuan ($148 million) local note due Jan. 15 due to a liquidity crunch, according to the company. The shocking punchline: as research analyst Tim Yup caught earlier this week, as of end-September the company reported that it "had" 15.4 billion yuan in cash and equivalents, more than double the total amount of its short-term debt, and more than 15 times the amount of debt that it just defaulted on!
    $002450.SZ Kangde Xin just announced it has trouble repaying onshore RMB 1Bn bond maturing tomorrow, despite "having" RMB 15Bn cash on balance sheet in 3Q18.

    It has a USD bond "listed in @HKEXGroup ", Moody's & Fitch initiated Ba3 and BB not even 2 years ago. Quote at 40 now
    — Tim Yip (@timdayipper) January 14, 2019
    As so often happens in China (recall the Hanergy fiasco) the latest default was until recently one of the most beloved names by local hedge funds, with Kangde Xin's stock soaring until late 2017 as not a single investor appeared to do any due diligence on their investment, and then it all came crashing down when its largest shareholder's pledged stock loans blew up in early 2018.

    Meanwhile, its bond were trading around par until mid-2018, when questions started to emerge about the company liquidity before collapsing to 35 cents currently.

    Yet while the company's collapse is a classic case of yet another overleveraged Chinese company keeling over once the money ran out, with the insolvency catalyst in this case being the massive stock loans taken out by management - a 5 trillion yuan "ticking time bomb" which we discussed previously - the latest default raises far more troubling questions about the quality of financial reports from Kangde Xin, and Chinese companies in general, and also highlights risks of investing in junk-rated bonds from the country.
    The consequence according to Manulife Asset Management, is that investors will tend to shun risky issuers even more, or simply demand a higher premium just when Chinese cash-strapped firms need funding the most. As noted above, liquidity crunch in China already sparked record local bond failures in 2018.
    "There have been too many companies with poor credit quality tapping the bond market in recent years,” said Jimond Wong, senior portfolio manager for Asia fixed income at Manulife Asset Management.
    And the bigger issue: “Very often, their problems are not easily captured by financial statements," especially when companies openly fabricate their numbers while local auditors fail to (or are paid not to) notice any glaring misrepresentations.
    Like pretending that you have 15 billion yuan in cash and being unable to pay a 1 billion debt maturity.


    More at: https://www.zerohedge.com/news/2019-...eater-due-debt
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  27. #83
    Earlier this month, when we reported that in the latest warning about China's housing sector, the Communist Party’s People’s Daily warned that China’s regional economies need to reduce their reliance on the property market for growth and instead focus on sustainable longer-term development, we wondered if "something was afoot with China's housing sector."
    The story is familiar: in recent year, hundreds of cities across China have seen upswings in their local property markets under a long-term plan by Beijing to further urbanize the country. The process of building new homes and revamping old ones has only accelerated in the last few years, backed by local governments keen to boost land sales and meet red-hot property demand. Indeed, the total sales of China’s top 100 real estate developers soared 35% last year. But repeating a now familiar warning that the party is over, Beijing has once again expressed concern that some cities, looking for rapid expansion, have grown their property markets too quickly and at the expense of new industry development, adding potential froth to real estate prices.
    Two weeks later, our concern that something is not quite well with China's housing sector was validated by the market overnight when shares in Jiayuan International, a prominent Chinese property developer, imploded in late trading in Hong Kong on Thursday, its stock collapsing 81% due to investor unease over a sector that is staggering under vast debts just as the world’s second-biggest economy slows.

    According to analysts, all of whom were dumbfounded by today's move, said that the stock, which flash crashed after a chaotic day’s trading that wiped more than $3 billion from its market capitalisation with the selling promptly spilling over to many of its peers...

    ... was engulfed by concern that Jiayuan would default on a $350 million bond that matures this week.
    As we reported earlier this morning, the panic liquidation over Jiayuan also ensnared rival property company Sunshine 100 China Holdings, whose shares plunged 65% moments after Jiayuan's collapse when traders realized that the two companies share a director.
    "Some of these companies might have cross-shareholdings in each other and when one of those starts to tumble, it brings down other related stocks," said Bocom strategist Hao Hong. "It’s likely more similar stock crashes could happen this year. A lot of share pledges in Hong Kong are underwater, and as soon as the positions are liquidated it triggers an avalanche."
    The property development sector has become especially vulnerable to sharp selloffs as it has accumulated large amounts of dollar debt, while the flagging Chinese economy has boosted fears about future prospects for China's housing sector in what may end up being the country's first hard landing in decades.
    But the biggest problem is the upcoming debt cliff, which will force the sector to refinance at the worst possible time: according to the Financial Times, Chinese developers have about $55 billion of maturing onshore debt in 2019, which as discussed this morning accentuates concern over potential defaults.
    The sector is under pressure because of "potential concern over bond defaults, as [the companies] have offshore funding coming due," said Morningstar analyst Phillip Zhong. As a result "the cost of refinancing is quite expensive.”
    In hopes of reversing the market panic, the company published a statement on its website after the Hong Kong stock market closed on Thursday, in which Jiayuan said that it had repaid the $350 million bond, adding that "its current financial situation is healthy and business operations is normal."
    Clearly the market did not agree, although what exactly caused the stock to lose 80% of its value in one day remains a mystery, because while traders blamed everything from massive leverage, to stock pledges, to some variation of cross-asset holdings and interlinked collateral for the latest flash crash, the reality is that nobody really knows what happened as Castor Pang, head of research at Core Pacific-Yamaichi confirmed: "No one really knows what’s going on here. For common investors, it’s a very surprising and tough situation as there was no time to get out."
    * * *
    The bigger problem, beside the "avalanche" of overnight Hong Kong flash crashes is that after a boom in recent years, China’s property market is cooling, with developers forced to announce sharp price to move inventory, in the process leading to public anger over a sharp drop in prevailing prices. As we reported in October, this led to homeowners protesting in the streets last year in several large cities to demand refunds after developers cut prices to stimulate sales.
    And then there is the issue of the $55 billion in coming property developer debt maturities which risks to blow up the local debt market as rates gradually rise. Refinancing maturing debt "has always been a concern for lower-rated companies” in the property business, and will be particularly urgent this year given the scale of the debt maturing, said Mr Zhong.
    Quoted by the FT, Nicole Wong, an analyst at CLSA, noted that recent stimulus measures by the central bank are “aimed at only the very big [developers]”.


    More at: https://www.zerohedge.com/news/2019-...-flash-crashed
    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

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  28. #84
    After notching its longest streak of declining prices since at least 2016, what was formerly the world's hottest housing market has officially entered correction territory, as a single interest rate hike by monetary authorities (which prompted HSBC, one of the most active banks in the region, to raise its prime lending rate) has gone a long way toward offering some badly needed relief for prospective homebuyers in the city's middle class.

    According to Bloomberg, secondary home prices in Hong Kong have shed 9.8% from their August peak to hit their lowest level since February 2018.

    Though one broker quoted by Bloomberg carefully insisted that, while "correction" was an appropriate word to describe what is happening in the market, calling it a "collapse" would be a bridge too far.
    "You can say it’s a correction with a 10 percent drop in prices, though it’s not a collapse," said Patrick Wong, a real estate analyst with Bloomberg Intelligence.
    Particularly because a looming vacancy tax trade-war related volatility suggest that the market still has another 5% to 10% to go until it bottoms out (then again, considering that Hong Kong is the world's most expensive housing market, a chasm between bids and asks could push it even lower, particularly as anxious government officials actively try to pull the rug out from under robust prices.


    More at: https://www.zerohedge.com/news/2019-...tion-territory
    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

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  29. #85
    China's annual GDP growth in 2018 was +6.6% - that is the weakest annual GDP growth since 1990...






    More at: https://www.zerohedge.com/news/2019-01-20/china
    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

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  30. #86
    President Xi Jinping stressed the need to maintain political stability in an unusual meeting of China’s top leaders -- a fresh sign the ruling party is growing concerned about the social implications of the slowing economy.Xi told a “seminar” of top provincial leaders and ministers in Beijing on Monday that the Communist Party needed greater efforts “to prevent and resolve major risks,” the official Xinhua News Agency said. He said areas of concern facing the leadership ranged from politics and ideology to the economy, environment and external situation.
    “The party is facing long-term and complex tests in terms of maintaining long-term rule, reform and opening-up, a market-driven economy, and within the external environment,” Xi said, according to Xinhua. “The party is facing sharp and serious dangers of a slackness in spirit, lack of ability, distance from the people, and being passive and corrupt. This is an overall judgment based on the actual situation.”
    Although Xi has issued similar warnings, including in February 2018, Monday’s statements contained signs of greater urgency. The mention of the “serious” threats to the party’s “long-standing rule” appeared new. A full transcript of his remarks to the closed-door gathering wasn’t immediately available.


    While Xi has occasionally assembled the party’s more than 200-member Central Committee to “study” pressing issues, this was the first such seminar held without convening a full meeting of the body. A Central Committee meeting known as a plenum was expected late last year -- a point in the political cycle when the party usually tackles economic policies -- but has yet to be announced.
    Communist leaders are facing a year rich with sensitive dates, including the 70th anniversary of the country’s founding on Oct. 1 and the 30th anniversary of the party’s crackdown on democracy activists in Tiananmen Square on June 4. Such occasions have sometimes helped coalesce criticism of the regime, and China often rounds up dissidents in advance.
    “That’s a cocktail that could be explosive as people realize the CCP is no longer delivering the goods on the social contract,” said Dennis Wilder, a professor at Georgetown University and former senior director for Asia on the National Security Council. “The slowdown of the economy to rates not experienced in the reform area is uncharted territory for this generation of leaders of the Communist Party.”

    More at: https://news.yahoo.com/china-apos-xi...103056500.html
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

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  31. #87
    China's population grew at a slower rate last year despite the abolition of the one-child policy, official data showed Monday, raising fears an ageing society will pile further pressure on an already slowing economy.
    There were 15.23 million live births in 2018, a drop of two million from the year before, data from the National Bureau of Statistics (NBS) showed.
    With 9.93 million deaths, this led to a growth rate of 3.81 per thousand in 2018, a dip from 5.32 per thousand the previous year.

    More at: https://news.yahoo.com/china-populat...084332311.html
    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

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    Alexis de Torqueville

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  32. #88
    In numbers (via DW):

    • The birth rate in 2018 dropped to 10.94 per thousand, down from 12.43 the previous year.
    • The number of babies born in 2018 dropped by 2 million compared to the previous year to 15.23 million.
    • The birth rate is the lowest since 1949.
    • China's population is nearly 1.4 billion.


    Commenting on China's demographic collapse, Wang Feng, a sociology professor at the University of California, Irving, said: "Decades of social and economic transformations have prepared an entirely new generation in China, for whom marriage and childbearing no longer have the importance they once did for their parents' generation."
    Cited by DW, Beijing officer worker Mina Cai said: "Many of us grew up as only children and we're a little selfish about putting our own satisfaction above having kids."
    Independent Chinese demographer He Yahu echoed these concerns when he said: "The low birth rate has led to a seriously ageing population. On one hand, families are getting smaller, reducing support for the elderly; on the other hand, the elderly population to workforce is growing, which increases the burden on the working population."
    As we reported at the time, China surprised the world three years ago when it announced the end of its one-child policy, which limited many families from having more than one child. The policy was criticized for giving rise to forced abortions and sterilizations, for encouraging couples to try to have boys rather than girls and for catalyzing China's sharp decline in births.
    China's new civil code is set to be unveiled in 2020, with all mentions of "family planning" removed from the text, according to media reports. Observers suggest it could mean Beijing will be lifting limitations on family sizes introduced in 1979 to control population growth.
    Besides demographics, China's transformation into the next Japan has major, and potentially dire, consequences for the local economy.
    As we reported back in October via Econimica, the 0-to-24 year old Chinese population swelled by over 300 million from 1950 to it's ultimate peak in 1991. Since that peak, the total population of young in China has fallen by 176 million, or a 30% decline in the number of children across China. Moving forward, the UN has expressed hopes the formal elimination of the one child policy would simply slow the rate of decline in the population...but by no means will China's fast declining childbearing population (those aged 15-44) nor disproportionately young male population potentially be offset by a slightly less negative birth rate. Contrast that with the quantity of debt being forcibly injected into a nation that faces a massive imminent population decline.

    To put that debt into perspective, the chart below shows that total debt and annual GDP each divided by the 0 to 24 year old Chinese population. As of 2018, every child and young adult in China under the age of 25 is presently responsible for over $100 thousand dollars in debt while the annual economic activity (GDP) created by all this debt continues to lag ever faster.
    And the coming decade only worsens as the young population continues its unabated fall and debt creation (absent concomitant economic growth) continues soaring... building more capacity all for a population that is set to collapse.

    China's predicament and reaction to it are not particularly unique...but given China's size, the ultimate global impact of China's slow motion train wreck will be unprecedented... particularly as their 15 to 64 year old population is now in indefinite decline. Chart below shows annual change in Chinese 15 to 64 year old population, in both millions (green columns) and percentage (blue line).

    Simply said, without a dramatic rebound in China's birth rate, massive overcapacity (thanks to over a decade of government mandated malinvestment) versus an ever swifter declining base of consumption does not add up to a burgeoning middle class or a happy ending.


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

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  34. #89
    On Thursday, to little fanfare, China's central bank announced its latest liquidity injection scheme, which many analysts saw as a quasi Quantitative Easing program and a potential precursor to full-blown QE.
    Just like QE in the US, where financial system liquidity was boosted by the Fed injecting reserves into banks in exchange for sales of Treasurys and MBS, which fungible liquidity was then used for a variety of purposes including directly investing in risk assets as the JPM London Whale fiasco demonstrated, the PBOC announced that it will allow China's primary dealers to swap their holdings of perpetual bonds for central bank bills, and directly use those bonds as collateral to access certain PBOC liquidity operations.
    By directly intermediating in the market, and effectively backstopping securities issued by local banks, this measure will increase the appeal of perpetual bonds to be issued by banks making them riskless for all intents and purposes, which can then be used to bolster capital cushions and thereby help relax a key current constraint on credit supply.
    In other words, the PBOC just unveiled a roundabout way of injecting even more "risk-free" liquidity directly into the system, or as Rabobank's Michael Every (more below) writes "Chinese banks, desperate for cash to keep the Ponzi scheme afloat, can issue perpetuals that nobody in their right mind would want to hold; and the PBOC will swap them for its bills."
    * * *


    First, some background: In December, China's financial authorities permitted banks to issue perpetual bonds as a way to bolster their capital base, and on Thursday Bank of China, the country's fourth largest lender, launched the first ever batch of perpetual bonds - which are the functional equivalent of preferred equity as they never have to be repaid - issued by Chinese banks, with an officially approved quota at 40 billion yuan and yielding 4.5%. These bonds count toward banks' (non-core) tier 1 capital, thereby boosting the bank's capital cushion and allowing the bank to issue more loans into China's increasingly cash-starved system.
    Why did Beijing take this aggressive step? Because as Goldman explains, banks' increased consideration of their capital cushion had weighed on monetary policy transmission and loan extension. So, by adding to the banking system's capital buffer, the issuance of perpetual bonds should in turn help ease a main current constraint on credit supply.
    But that wasn't enough, and just to make sure there is sufficient demand for "perpetual bonds" issued by banks, the PBOC launched the Central Bank Bill Swap (CBS), which just like QE, is an asset swap where the central bank injects high powered liquidity to backstop bank balance sheets, enabling them to pursue riskier credit transformation operations, in this particular case, issue more loans with the intention of reflating the system.
    Below we summarize some of the key features of these Bill Swaps:

    • The new tool works by giving primary dealers bills that can be used as high-quality collateral in exchange for perpetual bonds purchased from banks
    • China Banking and Insurance Regulatory Commission will also allow Chinese insurance firms to invest in banks’ tier 2 capital debt and capital bonds without fixed terms
    • Capital charges will be applied on perpetual bond holdings on Chinese banks’ balance sheet, even after they swap the securities for central bank bills using a new PBOC tool.

    Regarding the PBOC's measures, the duration of the central bank bill swap was initially set at three years. While the swapped central bank bills cannot be directly converted into cash, and can only be used as collateral for borrowing from the PBOC (e.g., via OMOs) or other financial institutions, once said repo operation takes place, the proceeds from the CBS are effectively the equivalent of cash as banks face no further limitations on what to do with the funds received from the perpetual bonds issuance. There are some modest limitations on eligible collateral: the perpetual bonds that qualify for CBS need to be issued by banks that meet some minimum prudential requirements (such as CAR not lower than 8%) but generally this operation is meant to be inclusive and allow as many banks as possible to participate. As Goldman notes, more implementation details such as the risk weight of this new tool are still not released yet.
    And just to make sure enough liquidity reaches the banks, the PBOC will also allow perpetual bonds that are rated AA or above to be used as collateral for MLF, TMLF, SLF, and relending monetary operations, i.e., once the bank issues the PBOC-backstopped perpetuals - which makes them the risk-equivalent of cash for downstream investors thanks to their central bank backstop - it can use the proceeds for pretty much anything.
    Of course, this is not full-blown QE because the announced move are not monetary measures per se, in that they do not involve creation of money; they do however involve the central bank backstopping a bond-like instrument, which then has all the functional equivalents of money. Meanwhile, as Goldman also notes, the CBS "does not mean that the PBOC is indirectly providing capital to banks, as the CBS is of limited duration", which while true, does provide banks with virtually risk-free capital for a period of three years, so the "limited duration" argument in a world where investors only care about day to day liquidity is somewhat naive.
    * * *

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

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

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    I love mankindÖitís people I canít stand.

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    You cannot have liberty without morality and morality without faith

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  35. #90
    Officially, China has maintained quasi capital controls for years: on paper no individual is allowed to move more than $50,000 out of the country in any given year while Chinese companies can exchange yuan for foreign currencies only for approved purposes.
    Unofficially, China's capital controls had been skirted for years, leading to massive capital outflow from the nation over the past decade, leading to such aberrations as massive luxury housing bubbles in places such as Vancouver, London, New York and San Francisco, and seemingly middle-class Chinese politicians and oligarchs sporting Swiss bank accounts funded in the hundreds of millions (or billions).
    In fact, as we detailed in 2017, Beijing has an interesting way of dealing with capital outflows. While they closely monitor many methods, they don’t actively pursue shutting them down. They often watch from afar, and if capital reserves aren’t impacted, or their reputation isn’t damaged, they allow them to continue. The PBoC announced in 2017 they were going to deploy a massive anti-money laundering framework, designed to further halt capital outflows.As we said at the time, we’ll have to see if they were serious, or if this was just to win reputation points with international countries.
    Well, two years later, we may have the answer. After an apparent lull in outflows, potentially driven by the reforms cracking down on capital flight, there are signs that China is facing an exodus of cash once again.
    As we first reported two weeks ago, amid all the headlines about China's surplus with US and the ongoing trade tensions, there was a message hidden in China's trade data, namely that capital outflow probably accelerated significantly last month. It's a reminder of why the PBOC would probably be reluctant to let the yuan decline significantly. That would encourage even further outflows and risk a vicious circle. While China's total imports plunged 7.6% in dollar terms from a year earlier, its purchases from Hong Kong surged 106%.

    Only... they didn't, as this has traditionally been the way to "book-keep" China's capital outflows, meaning there isn't really a surge in Hong Kong exports but rather just Chinese importers laundering money by pretending to overpay for Hong Kong exports.
    Elsa Lignos, global head of FX Strategy at RBC in London, wrote recently that this outlier resembles the jump in 2015-2016 when mainland companies used inflated invoices to take money out of the country. The timing of the sudden shift is telling as it coincides with a lagged reaction to a sudden devaluation - just as we saw in 2015/2016.

    Now two weeks later, with more detailed information available, we know just how this massive Chinese capital flight is taking place: the answer: precious stones.
    As noted China skeptic Kyle Bass noted yesterday, "wealthy Chinese are running again - precious stones — diamonds, sapphires, etc were 53% China’s total imports from Hong Kong in Nov(up from 2.9% early 2018)." Yet at the same time, the actual sales of jewelry(watches, clocks, and gifts) were down 3.9% in HK same period, or as Bass notes, just like in the period before the 2015 devaluation.
    Wealthy Chinese are running again - precious stones — diamonds, sapphires, etc were 53% China’s total imports from Hong Kong in Nov(up from 2.9% early 2018). But sales of jewelry(watches, clocks, and gifts) were down 3.9% in HK same period. Same as pre-deval 2015 and 2016#china
    — Kyle Bass (@Jkylebass) January 24, 2019
    Bass is referring to a follow up report by the abovementioned RBS fx strategist, Elsa Lignos, who not only noted the recent surge in Chinese "imports" from Hong Kong, but more importantly, pointed out a surge in Chinese imports of precious stones from Hong Kong.
    "In November, for example, precious stones — diamonds, sapphires, opals and the like — accounted for 53 per cent of China’s total imports from Hong Kong, up from a low of just 2.9 per cent last February", she noted according to the FT. Yet at the same time, as Kyle Bass pointed out above, analysts at Jefferies noted that sales of jewellery, watches, clocks and valuable gifts were down 3.9 per cent in Hong Kong in November. That was led by “slower consumption of big-ticket gem-set jewellery” in a market where mainland customers account for about three-quarters of sales.

    As the FT concludes, correctly, "if some mainlanders are again using the notoriously opaque gem trade to evade capital controls and transfer assets out of China" - which they are - "this may be an ominous sign for the direction of the Chinese currency, and by extension, the economy."
    The flipside is that at least we know China's depositors are not using Bitcoin to transfer their money offshore... yet.


    More at: https://www.zerohedge.com/news/2019-...ow-we-know-how
    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

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