Here’s 28 of China’s 31 provincial and municipal governments adjusting to reality:
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This is FT Alphaville’s look at what degree of control China has over the shenanigans occurring in its interbank markets. Is this an exercise in domination by the PBoC or a demonstration of just how little sway it actually has?
Here’s 28 of China’s 31 provincial and municipal governments adjusting to reality:
Remember Roubini going off about the art market in Davos? About how “Whether we like it or not, art is used for tax avoidance and evasion” and “While art looks as if it is all about beauty, as a business it is full of shady stuff”?
Well here are two bits of related Chinese art market shenanigans for you.
The thing about a “pervasive implicit state guarantee” is that it’s pretty pervasive. It gets everywhere. Well, just about everywhere. Everywhere that an implicit state guarantee can get.
Futhermore, it’s hard to get rid of once it spreads. (We’ll spare you an analogy) Read more
Pretty obviously — with ECB QE, a presumed resultant euro funded carry trade, and all sorts of central banks rushing to cut rates — there’s some sort of renewed currency war movement going on.
Like 97th percentile fast.
From Goldman, do click to enlarge: Read more
Chinese real estate companies raised $5.3bn in dollar bond markets during the first three weeks of 2013 and $4.9bn over the same period in 2014.
This year, not a single deal has been completed…
“You don’t want to go hat in hand to investors when they feel they’re catching a falling knife,” said the head of debt capital markets at one investment bank.
As Goldman flagged this morning, December has brought with it $19bn of FX outflows from China. That’s the biggest move since 2007 (with our emphasis):
The position of FX purchases for the entire banking system (the PBOC plus commercial banks) decreased by about $19bn in December (vs. essentially flat in November)…
The FX outflow in December underlined the weakness in demand for the CNY, despite a strong trade balance of close to $50bn. The FX outflow size is the largest since December 2007 (and this earlier data point was skewed by the MOF’s FX injection in China’s sovereign wealth fund). The PBOC has been setting the daily USDCNY fix on the strong side of the spot rate since late November to counteract depreciation expectations. Today’s data suggest that besides displaying such a bias in fix setting, the central bank might have gone further in supporting the currency by buying CNY in the market. But we await PBOC balance sheet data, due out in the coming weeks, to confirm if it is indeed the case. The FX outflow also partly explains the slow M2 growth in December.
The thing about the relationship between monetary stimulus and inflation in China is that — much like like a Wookie, an 8ft tall Wookie, living on the planet Endor with a bunch of 2ft tall Ewoks — it does not make sense. At least not if you approach it with a conventional eye.
So says China maven Michael Pettis, who emailed us over the last few days to say we must, at minimum, consider the possibility that there is a reason rapid credit growth in China has failed to do what it’s “supposed” to do. And, by extension, why deflationary pressures in China indicate the probable need for monetary tightening, not loosening. Read more
From the FT:
Local governments in some of China’s smallest cities are snapping up an increasing amount of their own land at auctions, in a destructive cycle designed to prop up property prices but which is ravaging their own finances.
Local government financing vehicles in at least one wealthy province, Jiangsu, which borders Shanghai, accounted for more land purchases than property developers did in 2013 — the last year for which data were available — according to research collated by Deutsche Bank…
Here’s what 33 months of negative Producer Price Index inflation in China look like:
Of course, we’re now at 34 months, following December’s print. This clocked a 3.3 per cent year on year fall in the index — the biggest annual fall in more than two years.
Dramatic. But the question is, should we care? Read more
Sentences to warm the New Year heart, from Deutsche:
This year, China will likely face the worst fiscal challenge since 1981. We believe this is the most important risk to the economy and one that is not well recognized in the market.
Assuming the second bit is true… Read more
You’ve read about the scope for a dynastic bull market in the Economist… now read the report. If you can read Mandarin, like P/E ratios and have a good feel for Chinese imperial history that is.
Do click through the below for the pdf from Cinda. Joseph Cotterill, our resident Mandarin translator, assures us that it’s a chart of the last two millennia of order and chaos in China… which is nice: Read more
Updated with final figures: Shanghai Composite fell 5.4% today; turnover was 8bn, about 7x the 2014 average. pic.twitter.com/yw9jxOTBU7
— Patrick McGee (@PatrickMcGee_) December 9, 2014
Shanghai + Shenzhen turnover over 1 trillion yuan today.. markets not even closed yet
— Jacky Wong (@jackycwong) December 5, 2014
And in the Shanghai Composite, from Fast, “as of 2:34pm in Hong Kong, turnover today is already $91.4bn, a record high according to Bloomberg data going back to 2005.”
Blame retail, blame leverage but don’t, as already mentioned, put too much weight on the Shanghai-Hong Kong Stock Connect scheme — uptake has been light and the timing is off. It’s up to you how much weight you put on that rate cut in late November. YEAH the equity rally got off the ground well before the rate cut with the Shanghai Composite up by 23 per cent between the start of June and 21st November, more than any other major equity market. BUT shares have also gone up 17.5 per cent since the rate cut so it’s obviously part of the story.
But to get back to the more important retail, leverage stuff…. Read more
More on that Friday PBoC rate cut — and just as China goes ahead and cuts its 14-day repo operation rate by another 20bp to 3.20 per cent too. That move on Tuesday, according to Nomura, suggests that the PBoC will continue to ease monetary policy… which would be true to form.
As Barc note, “the policy rate cut suggests that China is once again following the typical sequence in a monetary easing cycle – the pace of CNY appreciation is often slowed in advanced, followed later by the same directional moves in the policy rate and banks’ required reserve ratio.” Read more
This man is in charge of China. Like, really in charge:
And he wants to make sure everyone he’s in charge of remains nice and calm. So he’d like them kept busy. That, for the most part, means they should be working — call it a social compact or call it a security measure, it doesn’t really matter. Read more
With a h/t to Marginal Revolution, here’s Larry Summers and Lant Pritchett on why — for the same reason the USSR didn’t overtake the US, and Shinzo Abe has a tough job on his hands — “excessive extrapolation of performance in the recent past and treating a country’s growth rate as a permanent characteristic rather than a transient condition” is a bad idea.
Most particularly where China is concerned. Read more
Via Reuters on Monday (H/T Marc Ostwald):
BEIJING, May 12 (Reuters) – A capital account deficit would be a good thing for China, the head of the central bank’s research unit said on Monday, because it could be used to offset the current account surplus and China would not need to accumulate foreign reserves continuously. Jin Zhongxia, director of the Finance Research Institute of the People’s Bank of China, made the comments during a business forum in Beijing. The previous day, Premier Li Keqiang had said China’s war chest of foreign currency reserves had become a headache as its continued rise could stoke inflation in the long term.
We are now fairly sure there is a serious mismatch between the supply of and demand for charts about China property — more are being produced than will ever be seen. That said, here are a few worth paying attention to:
Via the WSJ:
Alibaba Group Holding Ltd.’s online-payment affiliate is set to roll out its first wealth management product Friday, as Chinese Internet companies move deeper into financial services.
The affiliate, Alipay, this week began allowing users of its Yu’E Bao investment service the right to put their money into the wealth management product when it launches. In China, wealth management products are deposit-like investments offering higher returns for a fixed period than banks offer on a typical savings account.
Lombard Street’s Charles Dumas charts the overvaluation of the Chinese currency:
The PBOC conducted a 255 bn yuan ($42 bn) liquidity operation on Tuesday, causing money market rates — which had been running very high — to drop significantly.
As Bloomberg noted:
The seven-day repurchase rate, a gauge of interbank funding availability, dropped 88 basis points to 5.44 percent in Shanghai, according to a daily fixing compiled by the National Interbank Funding Center. It surged 153 basis points yesterday, the most in seven months. The Shanghai Composite Index climbed 0.9 percent today, after closing below 2,000 yesterday for the first time since July.
Here’s the structure you placed your trust in…
(Chart from Barclays. Do click to beat the image size cap we’ve illiberally imposed on our home page) Read more
This is from Reuters and makes a nice little moral hazard gauge for China. The story involves a trust product, called “2010 China Credit / Credit Equals Gold #1 Collective Trust Product” which just screams “buy me” but maybe not “stand behind me when I go bad”:
Industrial and Commercial Bank of China, the world’s largest bank by assets, said on Thursday that it has no plans to use its own money to repay investors in a troubled off-balance-sheet investment product that it helped to market.
Remember when we wrote, in relation to the seemingly forgiving attitude to shadow banking on display in draft regulations, that “This begs the question, what was the PBoC trying to achieve with the cash squeeze? The guess is that it was using market forces to do what administrative diktat has been unable to.”?
Well, this is worth a moment of your time — it’s a report from the WSJ into the infighting between Chinese regulators which hopes to explain the PBoC’s credit squeeze and the watering down of regulations relating to China’s shadow banks. Read more