Yes Virginia...It's a Bubble...

[GRG55]

Re: Yes Virginia...It's a Bubble...

And a very well reasoned presentation by Hilliard McBeth. He mentions the tulip bubble as having no trigger other than everyone waking up one day and realizing it's a massive bubble. As a side note, I know of no Americans who can be this pleasant while telling an entire country, you're screwed.

https://www.youtube.com/watch?v=s04XgHyrM24

Ten Reasons Why There Can't Be a Housing Bust in Canada:

1. The Bank of Canada says there's no housing bubble, ergo nothing to bust.
2. CMHC still has room on its balance sheet for more 100% taxpayer backed high-ratio mortgages - nothing to worry about up here.
3. There's still One Billion Chinese people across the Pacific that haven't yet bought a condo in Vancouver.
4. Unlike California, Las Vegas, Phoenix or Florida, it's too cold in Canada to live in a tent in a park, so Canadians HAVE to buy homes.
5. Canadians aren't seen to have reached true adulthood until they've: 1) had their first Molson, 2) lost their virginity and 3) borrowed money from their parents for a property down payment.
6. Our Communist government "won't let" house prices drop.
7. Land is scarce in Canada - after all "they aren't making any more of it".
8. We have "free health care" up here, which means more of our disposable income can go towards inflating house prices.
9. We respect our elders who counsel: home ownership is "an investment", renting is "throwing away money" and "if we don't help little Freddie with the down payment he'll never move out of the basement".
10. A $400,000 mortgage is a Canadian birthright - after all our national anthem is titled "Owe Canada".

[santafe2]

Re: Yes Virginia...It's a Bubble...

And a very well reasoned presentation by Hilliard McBeth. He mentions the tulip bubble as having no trigger other than everyone waking up one day and realizing it's a massive bubble. As a side note, I know of no Americans who can be this pleasant while telling an entire country, you're screwed.

https://www.youtube.com/watch?v=s04XgHyrM24

[santafe2]

Re: Yes Virginia...It's a Bubble...

I just found this article on Motley Fool. Top 10 reasons, it's a bubble. So what will the trigger be for the RE meltdown in Canada? I'm not asking if, just when and by what means. I feel bad for my northern friends, I saw what this did to many people in the US.

http://www.fool.ca/2014/12/02/10-jaw...tate-market-2/

No doubt, Canada’s housing boom has reshaped the country’s economy. It doesn’t matter what your view is on real estate. The nation’s two decade long property boom has produced some truly remarkable statistics. Here’re ten jaw-dropping numbers from Canada’s real estate market.

1. $419,619: The average price of a Canadian home hit almost $420,000 in October, up by more than 7% over the same month a year ago. Today, the average house in Canada is more than 50% greater than the average price for a house in the United States.

2. 27x rent: It has never been more affordable to rent relative to owning. According to The Economist, housing prices have risen 53% faster than rents since 1975. Today, Canadian real estate is priced at 27 times annual rental income, a record high.

3. 9x income: According to numbers compiled by billionaire investor Kyle Bass, Canadians now pay nine times their median income for a new house. Historically, they paid between three and four times their median annual income.

4. $20,800 gap: A house is considered affordable if your monthly mortgage, heating costs, and property taxes account for no more than 32% of your gross household income. The annual gross income needed to afford the average house in Canada based on a five-year fixed mortgage and a 5% down payment: $89,500. The estimated median family income in 2014: $68,700. That’s a $20,800 shortfall.

5. 163%: Why have housing prices outpaced incomes? Debt. According to Statistics Canada, household liabilities rose to 163.6% of disposable income in the second quarter, approaching the record 164.1% last year. The rise has been fueled mostly by mortgage debt.

6. 49% of sales: Who’s buying all of these homes? Millennials. A stunning 49% of all sales are going to first-time buyers. In the U.S. only 29% of sales are to first-time homebuyers, down from an historic average of 40%.

7. 52% of incomes: This is worrying because younger millennials have never seen an interest rate shock. According to calculations by DBRS, debt payments would cost 52% of income for people holding mortgages insured by the government if loan rates rise by 2%. That compares to debt payments eating up 45% of incomes during the first quarter this year.

8. 27.4% of mortgages: The loan-to-value ratio is simply the mortgage amount dividend by the appraised value of the property. The higher the loan-to-value ratio, the riskier the loan. According to Morningstar, 27.4% of mortgage loans in Canada have a loan-to-value ratio above 80%, which is usually considered high-risk. In fact, the Canadian banks’ percentage of loans with loan-to-value ratios greater than 80% is now higher than for U.S. banks in 2007, just before the housing bubble burst.

9. 50% losses: This leverage could put the banking system at risk. According to Morningstar analyst Dan Werner, “In a worst-case scenario, if all of the uninsured loans were losses and residential prices fell 30%, we think nearly half of most banks’ tangible equity would be affected.” Largely domestic firms such as the Canadian Imperial Bank of Commerce and the National Bank of Canada would be the most affected.

10. 4.1% yield: Cheap money is pushing up asset prices for other real estate assets, too. Today, the yields on RioCan Real Estate Investment Trust (TSX: REI.UN) and H&R Real Estate Investment Trust (TSX: HR.UN), the nation’s two largest landlords, are nearing record lows between 4% and 5% respectively. Historically, these two firms have yielded between 7% and 8%. A real estate bust would be bad news for these two investments.

Is Canada's housing market a bubble?
We can't predict the next move in Canada's housing market. However, the numbers suggest that things are starting to look bubbly (and the fallout could be ugly).

[GRG55]

Re: Yes Virginia...It's a Bubble...

...Misallocation of capital? In China? Perish the thought...

UBS Raises Flag on China’s $1 Trillion Overseas Debt Pile

Dec 23, 2014 7:34 PM MT

UBS Group AG is flagging risks from China’s $1 trillion worth of unhedged foreign debt as forecasters see bets against the greenback unwinding in 2015.

The world’s second-largest economy is exposed to shifts in currency and interest rates as never before because of expanding international trade and easing foreign-exchange regulations, said Stephen Andrews, head of Asia banks research in Hong Kong at UBS.

Daiwa Capital Markets has a $1 trillion estimate for carry-trade inflows since 2008, bets on the difference between yields in China and overseas. It sees a 5.7 percent drop in the yuan next year...

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

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

The companies flip those dollars back to the mainland, where they use them as collateral to get even more letters of credit, leveraging even further, said Andrews. That money is then used to invest in China’s high-yield and often risky trust products or in the booming stock market. The profits are then used to pay off dollar borrowings...

...“There were too many cheap dollars in the market for everyone to borrow,” Kevin Lai, an economist at Daiwa in Hong Kong, said Dec. 16. “If you just put the money in China, the carry plus appreciation is about 5 percent, so why not, right?”

Lai estimates $1 trillion of carry-trade inflows since the first round of U.S. quantitative easing in 2008, of which $380 billion entered China disguised as commerce flows...

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

...The yuan has dropped to 6.2280 a dollar as of 10:11 a.m. in Shanghai today, its first annual loss since 2009, as monetary policies in the world’s two largest economies diverge...

...While China had a trade surplus of $57.47 billion in November, export growth slowed to 4.7 percent due to a government crackdown on fake invoicing. Shipments to Hong Kong grew 1 percent, compared with surges of 24 percent and 34 percent in October and September. Currency reserves declined to $3.89 trillion at the end of the third quarter.

“For many years China offered high yields, absorbing a lot of dollar liquidity,” Daiwa’s Lai said. “Much of the supposedly healthy trade surplus is fake, just short-term speculative carry-trade inflows. When the money leaves, the impact may be huge.”...

[Southernguy]

Re: Yes Virginia...It's a Bubble...

China is Planning to Purge Foreign Technology and Replace With Homegrown Suppliers

By Bloomberg News Dec 18, 2014 7:13 AM GMT-0200 Photographer: Brent Lewin/Bloomberg

A laborer inspects a Huawei Technologies Co. base unit on a pole in the financial... Read More

China is aiming to purge most foreign technology from banks, the military, state-owned enterprises and key government agencies by 2020, stepping up efforts to shift to Chinese suppliers, according to people familiar with the effort.
The push comes after a test of domestic alternatives in the northeastern city of Siping that was deemed a success, said the people, who asked not to be named because the details aren’t public. Workers there replaced Microsoft Corp.’s (MSFT) Windows with a homegrown operating system called NeoKylin and swapped foreign servers for ones made by China’s Inspur Group Ltd., they said.
The plan for changes in four segments of the economy is driven by national security concerns and marks an increasingly determined move away from foreign suppliers under President Xi Jinping, the people said. The campaign could have lasting consequences for U.S. companies including Cisco Systems Inc. (CSCO), International Business Machines Corp. (IBM), Intel Corp. (INTC) and Hewlett-Packard Co.
“The shift is real,” said Charlie Dai, a Beijing-based analyst for Forrester Research Inc. “We have seen emerging cases of replacing foreign products at all layers from application, middleware down to the infrastructure software and hardware.”

Photographer: Tim Rue/Bloomberg

The plan for changes in four segments of the economy is driven by national security... Read More

Security Panel

China is moving to bolster its technology sector after Edward Snowden revealed widespread spying by the U.S. National Security Agency and accused the intelligence service of hacking into the computers of Tsinghua University, one of the China’s top research centers. In February, Xi called for faster development of the industry at the first meeting of his Internet security panel.
Foreign suppliers may be able to avoid replacement if they share their core technology or give China’s security inspectors access to their products, the people said. The technology may then be seen as safe and controllable, they said.
China ranks second behind the U.S. in technology spending, with outlays rising 8.1 percent to $182 billion last year, according to research firm IDC. The U.S. spent $656 billion, a 4.2 percent increase over 2012.
The push to develop local suppliers comes as Chinese regulators have pursued anti-trust probes against western companies, including Microsoft and Qualcomm Inc. (QCOM) Recent months have seen Microsoft’s China offices raided, Windows 8 banned from government computers and Apple Inc. (AAPL) iPads excluded from procurement lists.
Trade War

“I see a trade war happening. This could get ugly fast, and it has,” said Ray Mota, chief executive officer of Gilbert, Arizona-based ACG Research, who expects the issue to result in direct talks between the U.S. and China. “It’s not going to be a technology discussion. It’s going to be a political discussion.”
In September, the China Banking Regulatory Commission ordered banks and finance agencies to ensure that at least 75 percent of their computer systems used safe technology by 2019. The regulator called on financial institutions to dedicate at least 5 percent of their IT budgets towards the goal.
While the CBRC policy doesn’t make a distinction between foreign and domestic products, it says banks must favor companies who share their “core knowledge and key technology.” It also cautions banks from relying too heavily on one supplier.
Chinese firms, like Huawei Technologies Co. and ZTE Corp. (000063), have already begun to gain local market share at foreign rivals’ expense.
Inspur Group’s Inspur Electronic Information Industry Co. (000977) rose as much as 2.6 percent in Shenzhen before closing 1.5 percent higher at 39.54 yuan.
Beijing Orient National Communication Science & Technology Co. (300166), a provider of software products to phone companies and financial institutions, climbed 9.9 percent to the highest since its January 2011 listing. Sinodata Co. (002657), which provides technology services to the banking sector, added 9.8 percent.
Military Order

About 80 percent of banks’ core servers and systems are made by foreign brands, Yan Qingmin, a CBRC vice chairman, said Nov. 27 at a conference in Beijing sponsored by the news magazine Caijing.
“Most of China’s financial IT systems are from foreign countries,” Yan said. “From the perspective of national security, it poses potential threats to us.”
The CBRC may start accounting for banks’ use of Chinese technology in its regulatory reviews, the Shanghai Securities News reported Dec. 4.
Xi’s Central Military Commission issued a similar, although less detailed, order in October, according to a report in the party-run People’s Liberation Army Daily. That document described information security as key to winning battles.
Intel, Microsoft, HP, Cisco and Qualcomm declined to comment. IBM said it isn’t aware of any Chinese government policy against using its servers in the banking industry.
Industrial & Commercial Bank of China, the country’s biggest bank, deployed a new IBM mainframe in August, the two companies said.
Jilin Trials

Chinese companies have faced similar pressure overseas. A 2012 U.S. Congressional report said Huawei and ZTE, the country’s largest phone-equipment makers, provide opportunities for Chinese spies to tamper with U.S. communications networks. Huawei has since been shut out from several U.S. deals.
In May, the U.S. Department of Justice accused five men in the People’s Liberation Army of allegedly hacking into the computer systems of U.S. companies to steal information. The Chinese government called the charges “absurd.”
The orders from Chinese banking and military commissions coincided with the trial of domestic computer systems in Siping, a city of 3.4 million people in Jilin province. Other cities and agencies in Jilin will now begin testing whether NeoKylin, a Linux-based operating system from China Standard Software Co., can substitute for Windows and servers made by Inspur can replace IBM’s, the two people familiar with the plan said. The trial will then expand across the country, they said.
Domestic Software

Similar efforts were confirmed by one provincial-level worker and two local government workers in Jilin’s capital of Changchun, who asked not to be named while discussing internal matters. The two local government workers said some specialized software was swapped for domestic versions, including a tax program designed by the Harbin Institute of Technology.
China faces obstacles in replacing foreign software and hardware on a national scale. Almost three decades after paramount leader Deng Xiaoping approved his State Hi-Tech Development Plan, Chinese companies hold a fraction of global market share. They’re still unable to match the most advanced products, such as high-end bank servers.
“A key government motivation is to bring China up from low-end manufacturing to the high end,” said Kitty Fok, China managing director for IDC.
National security provides China a powerful rallying cry, particularly within its sprawling state sector. China National Petroleum Corp., the country’s largest energy producer, announced Nov. 26 -- during China’s first Cybersecurity Week -- that it had replaced its Microsoft e-mail with the homegrown eYou program to improve security.
“The technology gap is closing,” said Mota, who advises Cisco and HP, as well as Huawei and ZTE. “In China, they have the patience to figure it out.”
To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net; Keith Zhai in Beijing at qzhai4@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net
To contact the editors responsible for this story: Nicholas Wadhams at nwadhams@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net Suresh Seshadri

[Southernguy]

Re: Yes Virginia...It's a Bubble...

China is Planning to Purge Foreign Technology and Replace With Homegrown Suppliers

By Bloomberg News Dec 18, 2014 7:13 AM GMT-0200 Photographer: Brent Lewin/Bloomberg

A laborer inspects a Huawei Technologies Co. base unit on a pole in the financial... Read More

China is aiming to purge most foreign technology from banks, the military, state-owned enterprises and key government agencies by 2020, stepping up efforts to shift to Chinese suppliers, according to people familiar with the effort.
The push comes after a test of domestic alternatives in the northeastern city of Siping that was deemed a success, said the people, who asked not to be named because the details aren’t public. Workers there replaced Microsoft Corp.’s (MSFT) Windows with a homegrown operating system called NeoKylin and swapped foreign servers for ones made by China’s Inspur Group Ltd., they said.
The plan for changes in four segments of the economy is driven by national security concerns and marks an increasingly determined move away from foreign suppliers under President Xi Jinping, the people said. The campaign could have lasting consequences for U.S. companies including Cisco Systems Inc. (CSCO), International Business Machines Corp. (IBM), Intel Corp. (INTC) and Hewlett-Packard Co.
“The shift is real,” said Charlie Dai, a Beijing-based analyst for Forrester Research Inc. “We have seen emerging cases of replacing foreign products at all layers from application, middleware down to the infrastructure software and hardware.”

Photographer: Tim Rue/Bloomberg

The plan for changes in four segments of the economy is driven by national security... Read More

Security Panel

China is moving to bolster its technology sector after Edward Snowden revealed widespread spying by the U.S. National Security Agency and accused the intelligence service of hacking into the computers of Tsinghua University, one of the China’s top research centers. In February, Xi called for faster development of the industry at the first meeting of his Internet security panel.
Foreign suppliers may be able to avoid replacement if they share their core technology or give China’s security inspectors access to their products, the people said. The technology may then be seen as safe and controllable, they said.
China ranks second behind the U.S. in technology spending, with outlays rising 8.1 percent to $182 billion last year, according to research firm IDC. The U.S. spent $656 billion, a 4.2 percent increase over 2012.
The push to develop local suppliers comes as Chinese regulators have pursued anti-trust probes against western companies, including Microsoft and Qualcomm Inc. (QCOM) Recent months have seen Microsoft’s China offices raided, Windows 8 banned from government computers and Apple Inc. (AAPL) iPads excluded from procurement lists.
Trade War

“I see a trade war happening. This could get ugly fast, and it has,” said Ray Mota, chief executive officer of Gilbert, Arizona-based ACG Research, who expects the issue to result in direct talks between the U.S. and China. “It’s not going to be a technology discussion. It’s going to be a political discussion.”
In September, the China Banking Regulatory Commission ordered banks and finance agencies to ensure that at least 75 percent of their computer systems used safe technology by 2019. The regulator called on financial institutions to dedicate at least 5 percent of their IT budgets towards the goal.
While the CBRC policy doesn’t make a distinction between foreign and domestic products, it says banks must favor companies who share their “core knowledge and key technology.” It also cautions banks from relying too heavily on one supplier.
Chinese firms, like Huawei Technologies Co. and ZTE Corp. (000063), have already begun to gain local market share at foreign rivals’ expense.
Inspur Group’s Inspur Electronic Information Industry Co. (000977) rose as much as 2.6 percent in Shenzhen before closing 1.5 percent higher at 39.54 yuan.
Beijing Orient National Communication Science & Technology Co. (300166), a provider of software products to phone companies and financial institutions, climbed 9.9 percent to the highest since its January 2011 listing. Sinodata Co. (002657), which provides technology services to the banking sector, added 9.8 percent.
Military Order

About 80 percent of banks’ core servers and systems are made by foreign brands, Yan Qingmin, a CBRC vice chairman, said Nov. 27 at a conference in Beijing sponsored by the news magazine Caijing.
“Most of China’s financial IT systems are from foreign countries,” Yan said. “From the perspective of national security, it poses potential threats to us.”
The CBRC may start accounting for banks’ use of Chinese technology in its regulatory reviews, the Shanghai Securities News reported Dec. 4.
Xi’s Central Military Commission issued a similar, although less detailed, order in October, according to a report in the party-run People’s Liberation Army Daily. That document described information security as key to winning battles.
Intel, Microsoft, HP, Cisco and Qualcomm declined to comment. IBM said it isn’t aware of any Chinese government policy against using its servers in the banking industry.
Industrial & Commercial Bank of China, the country’s biggest bank, deployed a new IBM mainframe in August, the two companies said.
Jilin Trials

Chinese companies have faced similar pressure overseas. A 2012 U.S. Congressional report said Huawei and ZTE, the country’s largest phone-equipment makers, provide opportunities for Chinese spies to tamper with U.S. communications networks. Huawei has since been shut out from several U.S. deals.
In May, the U.S. Department of Justice accused five men in the People’s Liberation Army of allegedly hacking into the computer systems of U.S. companies to steal information. The Chinese government called the charges “absurd.”
The orders from Chinese banking and military commissions coincided with the trial of domestic computer systems in Siping, a city of 3.4 million people in Jilin province. Other cities and agencies in Jilin will now begin testing whether NeoKylin, a Linux-based operating system from China Standard Software Co., can substitute for Windows and servers made by Inspur can replace IBM’s, the two people familiar with the plan said. The trial will then expand across the country, they said.
Domestic Software

Similar efforts were confirmed by one provincial-level worker and two local government workers in Jilin’s capital of Changchun, who asked not to be named while discussing internal matters. The two local government workers said some specialized software was swapped for domestic versions, including a tax program designed by the Harbin Institute of Technology.
China faces obstacles in replacing foreign software and hardware on a national scale. Almost three decades after paramount leader Deng Xiaoping approved his State Hi-Tech Development Plan, Chinese companies hold a fraction of global market share. They’re still unable to match the most advanced products, such as high-end bank servers.
“A key government motivation is to bring China up from low-end manufacturing to the high end,” said Kitty Fok, China managing director for IDC.
National security provides China a powerful rallying cry, particularly within its sprawling state sector. China National Petroleum Corp., the country’s largest energy producer, announced Nov. 26 -- during China’s first Cybersecurity Week -- that it had replaced its Microsoft e-mail with the homegrown eYou program to improve security.
“The technology gap is closing,” said Mota, who advises Cisco and HP, as well as Huawei and ZTE. “In China, they have the patience to figure it out.”
To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net; Keith Zhai in Beijing at qzhai4@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net
To contact the editors responsible for this story: Nicholas Wadhams at nwadhams@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net Suresh Seshadri

[GRG55]

Re: Yes Virginia...It's a Bubble...

I read your post earlier jk, and noted the 2012 date reference, which is consistent with Xie's various interviews and writings for the past couple of months at least.

However, I listened to the roughly nine minute Bloomberg HK interview [available on AOL Video here] and he does say that property developers could "get trapped" this year. Summary of the interview:

• Liquidity still plentiful so China will still see reasonable growth in 2010, but perhaps not as quick as last year;
• Domestic investment is overheating, particularly in property, despite the fact that the overall economy with its large export sector cannot grow very fast [due to employment situation in the USA];
• Monetary policy needs to be tightened before the domestic investment bubble gets out of hand;
• In the wake of the US Budget and deficit announcement yesterday, expects US Treasury yields should rise significantly this year. Expects that China will continue to buy US Treasuries, but will need a higher yield to buy the same or more "There is a price for everything";
• Situation in China driven mainly by the property market and local government investment, both of which were "blown up" by excessive bank lending. Chinese government now in a dilemma as cutting back lending too fast will halt this growth, but doing nothing will create a bigger bubble and inevitable crash;
• Xie estimates that new property sales in China in 2009 rose to 14% of GDP, which he called "unprecedented", rental yields are 2% to 3% and described the amount of sold but vacant property as "humongous". Said "There is a bubble and property prices may be 100% overvalued";
• Property bubble in China differs from the bubbles in the USA and Japan as it involves new property, not existing property. Possibly half of local government revenues come from property sales and this is why land sales at record prices continue as revenue raising activity despite efforts by Beijing to cool things off.
• Lending conditions for buyers of second and third flats have been tightened considerably. This market is dominated by speculators. Difficult to see this demand continuing this year. Developers paying record prices could get trapped this year. After 7 years of rising prices [up 10 to 20 times depending on location] developers believe that land prices only go up, and that may not be the case this year, and some could "lose big money";
• Thinks the resource sector story will be much more long lasting than other stories, like the "economic recovery story" or the "property story". China has a "huge resource shortage" and "huge foreign exchange reserves" so a significant amount of money will be put into the resource sector. "It's not just a 2010 story...it will last for the next few years. This is the only story I have faith in"

Are Chinese authorities finally about to end "the dilemma"? Will they stay the course and replace ballooning off-balance-sheet debt with structured municipal bonds? Or will they once again get cold feet in the face of a potential drop in property markets and reverse course "temporarily"? Only time will tell.

China Tightening Curbs on Opaque Local Debt Spurs Market Tumble

Dec 9, 2014 6:46 AM MT

Bloomberg News


China stepped up efforts to curb the expansion of opaque local-government debt, sparking a tumble in riskier bonds and fueling the stock market’s biggest retreat in five years.

Bonds rated below AAA or sold by issuers graded lower than AA are no longer allowed for use as collateral in short-term loans obtained through repurchase agreements, the nation’s clearing agency for exchanges said yesterday. Notes issued by local government financing vehicles paced losses in lower-rated debt today, while the nation’s benchmark stock index sank 5.4 percent as some investors sold liquid assets as an alternative source of cash.

While the change caught traders off guard, authorities in the world’s second-largest economy are trying to rein in the use of lightly-regulated LGFVs as they promote the development of a more transparent municipal bond market. Fitch Ratings Ltd. estimates local government liabilities have climbed to about 30 percent of gross domestic product as cities and provinces take on debt to sustain growth amid the nation’s weakest annual expansion since 1990.

Investors had “under-priced the credit and liquidity risks,” said Ken Hu, the Hong Kong-based chief investment officer for Asia-Pacific fixed income at Invesco Ltd...

...Such debt has boomed in China in recent years as an indirect method for provinces and cities to fund infrastructure and construction projects. A law initially passed in 1994 had banned local governments from selling bonds, forcing them to set up thousands of LGFVs. That law was revised in August, laying the legal framework to let regional authorities raise funds directly.

Premier Li Keqiang is allowing local governments to sell debt themselves after the last state audit showed 17.9 trillion yuan ($2.9 trillion) of regional liabilities in June last year, up 67 percent from the end of 2010. China experienced the first default in its onshore bond market in March...

...The Ministry of Finance started to allow the cities of Shanghai and Shenzhen as well as Zhejiang and Guangdong provinces to sell municipal bonds in 2011 as part of a trial program. It added Shandong and Jiangsu provinces in 2013.

This year, the trial expanded to Jiangxi province, Ningxia region, and the cities of Beijing and Qingdao, as the ministry started to require disclosure of basic financial information and credit ratings. The development of China’s municipal bond market is vital in reducing risks from local government use of off-balance-sheet debt,Standard & Poor’s said in a May report.

“Local governments may seek new channels to raise funds,” said Zhang Li, a bond analyst at Guotai Junan Securities Co., the nation’s third-biggest brokerage. “China may expand its municipal bond trial, allowing more local governments to issue debt on their own next year.”...

...LGFVs sold 125.8 billion yuan of bonds in November, the least since January, according to data compiled by Bloomberg. Issuance has totaled 1.5 trillion yuan this year versus 903.7 billion yuan in 2013, the most since Bloomberg started tracking the data in 1999.

“Because low-rated bonds can’t be used for repurchases on the exchange, this will force many financial institutions to deleverage,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. “When there’s a liquidity issue, all bonds are sold off.”

[GRG55]

Re: Yes Virginia...It's a Bubble...

So much for that home grown consumer society strategy

Is China temporarily reverting to what it used to be? A market of a Billion people. Most with no disposable income.

Unilever Posts Slowest Quarterly Sales Growth Since 2009

Oct 23, 2014 3:42 AM MT

Unilever (UNA), the maker of Surf and Rin laundry detergents, reported the slowest third-quarter revenue growth in five years as its main growth engine, personal care, sputtered amid a sharp drop-off in China...

7 December 2014Last updated at 23:08 ET

China trade data well below expectations

Trade data from the world's second largest economy, China, came in well below expectations on Monday, heightening fears of a sharper slowdown.

China's exports rose 4.7% in November from a year ago, compared to market forecasts of a 8.2% jump.

Imports fell 6.7% in the same period against predictions of a 3.9% rise.

The surprise slump in imports led the trade surplus to hit a record $54.5bn (£35bn), the highest in 14 years.

While the trade surplus, which is up 61% compared to last year, will add to economic growth in the fourth quarter, it does suggest the government needs to step in to stimulate growth, said Dariusz Kowalczyk, economist at Credit Agricole.

"[Imports fall] is partly a reflection of lower commodity prices and base effects, but these two factors cannot fully explain the weak import number and we have to assume that poor domestic demand has played a part," he said.

"We expect a reserve requirement ratio cut in December, introduction of reverse repos this week, and another rate cut in the first quarter."...

[GRG55]

Re: Yes Virginia...It's a Bubble...

So much for that home grown consumer society strategy

Is China temporarily reverting to what it used to be? A market of a Billion people. Most with no disposable income.

Unilever Posts Slowest Quarterly Sales Growth Since 2009

Oct 23, 2014 3:42 AM MT

Unilever (UNA), the maker of Surf and Rin laundry detergents, reported the slowest third-quarter revenue growth in five years as its main growth engine, personal care, sputtered amid a sharp drop-off in China...

...Sales in China plummeted 20 percent as big retailers in that market ran down inventories of Unilever products worth 100 million euros ($126 million), finance chief Jean-Marc Huet said. China’s deceleration weighed onemerging markets, which account for about 57 percent of the company’s revenue...

...China’s difficulties lowered underlying sales at the maker of Dove body wash by as much as 0.8 percentage point, Huet said...

...The inventory backlog in China will continue in the fourth quarter and be “largely complete” by the end of the year, Unilever said in its statement, though James Allison, head of investor relations, told analysts that it’s “very difficult to be absolutely sure of that because our visibility across China is not that great.”...

...Nestle SA (NESN), the world’s biggest food company, said last week it saw a “pulling back” of inventory in China. Other countries aren’t experiencing this so-called destocking, Huet said: “It’s China and China only.”...

[GRG55]

Re: Yes Virginia...It's a Bubble...

Chinese home prices fall for fifth month in Sept, year's gains lost

Fri Oct 24, 2014 1:42am EDT

Sept home prices fell for 1st time y/y in nearly two years

* Prices down 1.0 pct on month, fifth straight fall
* New home prices fell m/m in record 69 cities
* Sales improved on easier mortgages


BEIJING/HONG KONG, Oct 24 (Reuters) - Chinese home prices fell for a fifth straight month in September, wiping out gains scored in the past year and raising expectations the government will have to implement more economic support measures to cushion the blow.

The monthly falls left average home prices in 70 major Chinese cities down 1.3 percent in September from a year earlier, the first such drop since November 2012.

New home prices fell month-on-month in a record 69 of the 70 major cities, up from 68 in August. Only the southern city of Xiamen saw stable prices last month, National Bureau of Statistics (NBS) data showed.

The worst performance was in the eastern city of Hangzhou, where prices sagged 7.6 percent in September from a year before.

The decelerating property market, which accounts for about 15 percent of China's economy, has crimped demand in 40 sectors ranging from steel to cement and furniture.

"The property downturn is still the main drag on the economy," Wang Tao, an economist at UBS in Hong Kong, said in a note...

[For anyone here that remains under the delusion that "China is different", what follows should sound hauntingly familiar ]

In late September, China cut mortgage rates and downpayment levels for some home buyers for the first time since the 2008/09 global financial crisis, its boldest step yet to energise an economy increasingly threatened by a sagging housing market...

...And even if prices do stabilise, developers will remain reluctant to start new projects until a glut of unsold homes is worked off, depressing demand for raw materials and keeping pressure on labour markets...

...Meanwhile, Chinese developers are turning to offbeat marketing gimmicks and give-aways as they battle to shift their massive inventory, including resort stays for buyers.

[GRG55]

Re: Yes Virginia...It's a Bubble...

China's growth slowest since global crisis, annual target at risk

BY JAKE SPRING AND XIAOYI SHAO
BEIJING Tue Oct 21, 2014 3:14pm EDT

(Reuters) - China grew at its slowest pace since the global financial crisis in the September quarter and risks missing its official target for the first time in 15 years, adding to concerns the world's second-largest economy is becoming a drag on global growth...

...China's gross domestic product grew 7.3 percent in the third quarter from a year earlier, official data showed on Tuesday, the weakest rate since the first quarter of 2009.

That was slightly above the 7.2 percent forecast by analysts but slower than 7.5 percent in the second quarter, and even then some economists were surprised.

"It's hard to square the GDP print with the industrial production numbers for the quarter," said Andrew Polk, economist at the Conference Board in Beijing, one of the more pessimistic research houses on the Chinese economy.

"There are confusing things going on. You have credit growing at the slowest pace since 2002. You have real estate investment slowing on a monthly basis and you have industrial production averaging slightly above 8 percent on a quarterly basis, slightly down from Q2. With that being the most reliable component of GDP on a quarterly basis, 7.3 percent seems a bit high to me."...

[Polish_Silver]

Coal Australia vs China

Capital misallocation? Too much inefficient, high cost capacity? Nah. That couldn't happen in China, could it?
Imagine all that cheap labour, lax environmental rules and cheap capital, and still not able to compete with the bloody Aussies

. . .

China to again levy coal import tariffs after nearly a decade

I suspect that direct labor is a small part of the total price of coal. I suspect the real difference is that Australia has much better coal fields.

It's a good point that Australia remains competitive in this area, even with higher labor and environmental costs.

But I don't hear that apple is making Ipads in Australia or New Zealand.

I am also wondering if highly capital intensive projects run a sort of "kleptocracy risk" in china. I don't think there's much market for hot electronics manufacturing equipment. But for heavy equipment, there just might be.

[jk]

Re: Yes Virginia...It's a Bubble...

in another 3 months, this thread will celebrate its 5th anniversary. it's amazing how long these things can go on.

[GRG55]

Re: Yes Virginia...It's a Bubble...

Capital misallocation? Too much inefficient, high cost capacity? Nah. That couldn't happen in China, could it?
Imagine all that cheap labour, lax environmental rules and cheap capital, and still not able to compete with the bloody Aussies

And so much for that budding "special relationship" with Russia designed to smack the Yanks. Make no mistake about it, when it comes to resource deals China is going to screw over Russia just like it was one of those illiterate west African kleptocracies.

China to again levy coal import tariffs after nearly a decade


SHANGHAI, Oct 9 (Reuters) - China, the world's top coalimporter, will levy import tariffs on the commodity after nearly a decade, in its latest bid to prop up ailing domestic miners who have been buffeted by rising costs and tumbling prices.

The sudden move by China to levy import tariffs of between 3 percent and 6 percent from October 15 is set to hit miners inAustralia and Russia - among the top coal exporters into the country...


China Coal Tariffs Add to Pressure on Producers in Australia


Oct 10, 2014 12:01 AM MT

China will reintroduce import tariffs in its latest effort to support money-losing domestic miners, according to a statement published yesterday on the Finance Ministry website. This follows the government’s move last month to ban the import of lower-quality coal and an announcement asking power utilities to reduce coal imports...

...About 13 steelmaking coal mines in Australia are producing at a loss, putting them at risk of closing, though most producers, including larger ones such as BHP’s venture with Mitsubishi, are profitable, Wood Mackenzie Ltd. estimated.

More than 70 percent of China’s miners are unprofitable, and half are delaying or cutting wage payments after domestic power-station coal prices fell amid overcapacity and sluggish demand, the China Coal Industry Association said in July.

[touchring]

Re: Yes Virginia...It's a Bubble...

I suspect that part of this belief is due to the fact that many people in Asia have experienced currency destructions in their lifetimes caused either by war or due to incompetent management of the currency.

One belief is that governments won't allow real estate to crash as government officials are personally vested and are the biggest players. Instead, they will just keep inflating away. This maybe true in the short to medium term, but there are events that governments can't control, e.g. another Tangshan style earthquake, Middle east oil crisis, etc.

Another belief is that China's economy is going to take over the world and the non-stop propaganda (by both local and even foreign media.

If there is a housing crash in China, I would think that Chinese money initially will fly back into China to buy the corrections and thus temporarily lessen the amount of money going to the UK, US, Canada, Australia, etc. real estate markets.

We might be able to learn what happened in Singapore during the Asian financial crisis in 1997 when buyers of properties in Malaysia and Indonesia liquidated their Singapore property for emergency back home, e.g. free their husbands in debt jail, etc.

I believe that the same will happen with Chinese investors in Western markets if they are as leveraged in their businesses as we have read in the news.

It's good to study what happened to the Singapore and Hong Kong real estate markets in the aftermath of the AFC as there are great similarities to what is happening today.