China Housing Market (Boom or Bust)

[wow_happens28]

OOPS and I forgot to reply to you on this, just posted>>>

Xero-- I have been wondering how long we have posted together, six years ago here, and a little earlier at World Food Crisis. Anywhere else earlier? been good, you are a good head, glad to see you and Revolution and Economic Collapse. I am not paid anymore. I gave my $100 for the year last year and this to Feed My Starving children.

[wow_happens28]

xero-- I have been wondering how long we have posted together, six years ago here, and a little earlier at World Food Crisis. Anywhere else earlier? been good, you are a good head, glad to see you and Revolution and Economic Collapse. I am not paid anymore. I gave my $100 for the year last year and this to Feed My Starving children.

[wow_happens28]

It has cometh!

[xero90]

how's all this stuff look now?

[xero90]

well then the dollar sinks... better get PMs

[wow_happens28]

It looks like China is going to kick their housing bub down the road and create a bigger depression then? And the NY Times ignored the building the past 9 years, GEEZ.

http://www.nytimes.com/2013/07/14/world/asia/pitfalls-abound-in-chinas-push-from-farm-to-city.html?_r=0

http://enterprisechina.net/node/798

From December 2011>>>
http://www.telegraph.co.uk/finance/china-business/8957289/Chinas-epic-hangover-begins.html

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I'm not puzzled, China is a bubble that eventually will pop

Economists puzzled by state of economy

4 page story>>

http://www.chinadaily.com.cn/business/2013-06/17/content_16628416.htm

I think they call this "Pushing a string"

[wow_happens28]

The biggest housing bubble in the history of the world?

And they are buying out bonds?

I don't trust CBS, but this stuff is hard to make up, well worth the 15 minute listen>>>

http://www.cbsnews.com/video/watch/?id=50142079n

[xero90]

wow - EOM

[wow_happens28]

This ought to kill China

http://www.chinadaily.com.cn/business/2013-03/04/content_16274404.htm


Heavy tax to rein in housing speculation
2013-03-04 16:15
By (chinadaily.com.cn)

Several long queues have formed in front of the service counters at the Real Estate Exchange Center, Minhang District, Shanghai on Mar 3.

According to China Daily, in order to hold back rising housing prices in major cities, the State Council, or China's cabinet, on Friday ordered that a 20 percent individual income tax be levied on capital gains by home sellers.

Many second-hand home negotiators are quite anxious to finalize their deals before the policy is put into effect. As a result, several Real Estate Exchange Centers in Shanghai have become crowded.

[xero90]

Thanks 8th, I haven't looked at this for awhile. -xero

[wow_happens28]

For what it's worth

Mega homes project ready in Beijing

http://www.chinadaily.com.cn/business/2012-11/14/content_15926253.htm

The construction of Beijing's largest public rental housing project has been completed, and its first tenants will move in next month, authorities said on Tuesday.

The project, in Jingyuan Lu in Shijingshan district, has eight 28-story buildings containing 2,436 public rental housing units, according to Zou Jinsong, deputy director of Beijing's housing security office.

The project also has a kindergarten and a nursing home.

Journalists are invited by the media center of the 18th Party congress to visit Beijing's largest public rental housing community in Shijingshan district on Tuesday. FENG YONGBIN / CHINA DAILY

Zou told reporters from China and abroad on Tuesday that the final phase was to check the quality of every unit and make sure any problems are rectified.

Reporters were invited to the project by the media center of the 18th National Congress of the Communist Party of China.

Gao Kuiqing, a 50-year-old migrant worker from Henan province, said on Tuesday that the public rental housing policy was great because it helped low-income residents.

He started to work on the project site at the beginning of this year. Now his job is to check the quality of units with other workers.

A training room was set up on the construction site for migrant workers to receive skills training and to deal with safety issues and other regulations, said Wang Zhiming, a manager from Beijing Construction Engineering Group, which is responsible for the construction.

He said although the construction cost of public rental housing is low, it requires high standards of quality.

The process of equipment testing has been completed and now they are working hard to fix any problems to satisfy the checks from the government, Wang said.

During the 12th Five-Year Plan (2011-15) period, the Beijing government plans to build more than 1 million affordable houses, including these public rental units.

The project in Jingyuan Lu started on March 30 last year.

The project is a trial program which has done away with the stipulation that only residents of Shijingshan district may apply to live in the subsidized housing in that area. Eligible applicants from other districts or counties in Beijing are able to apply to rent the houses, said a publicity official of Beijing Municipal Bureau of Housing and Urban-Rural Development.

Low and middle-income earners, new employees and those who are not permanent residents but have worked in the city for a certain number of years, are eligible to apply for public rental housing in Beijing, according to a regulation that took effect in December 2011.

The rental price will be 40 yuan ($6.40) per square meter.

According to the current policy, the rent is slightly lower than that of neighboring housing, but tenants will get subsidies on rent on the basis of their income levels and housing size, with the maximum subsidy being up to 95 percent of the rent.

On Monday, Minister of Housing and Urban-Rural Development Jiang Weixin said the country will start the construction of about 6 million affordable housing units next year.

The minister said at a news conference during the 18th Party congress that the government will work on seeing affordable housing fairly distributed.

[xero90]

China Advising Their Individual Citizens to Buy Gold Says Matt Ferris on The George Jarkesy Show

http://news.yahoo.com/china-advising-individual-citizens-buy-gold-says-matt-080240998.html

Matt Ferris, chairman of the US Gold Bureau, joins The George Jarkesy Show to discuss buying gold.

Houston, TX (PRWEB) April 06, 2012

The George Jarkesy Show welcomed Matt Ferris of the United States Gold Bureau on March 29th, 2012 after the National Eagles and Angels luncheon held in Houston. Mr. Ferris discussed in depth the process of buying gold, whether through holding a gold bar or a gold coin, or even setting up an IRA to hold precious metals. Mr. Ferris also discussed gold purchases by two foreign governments, China and India. Ferris also reiterated Mr. Jarkesy’s assertion that holding gold is good for every portfolio stating,”Ten or fifteen percent in metals is never a bad place to be.”

Regarding China, Ferris stated, “In China, they’re advising their individual citizens to buy gold. You don’t hear the US government saying that too much because, of course, they want to remain in the fiat currency.” Mr. Ferris also discussed the role of platinum and that the commercial applications for platinum which give it intrinsic value. You can hear the entire episode relating to gold and other metals here.

You can find out more about The George Jarkesy Show by visiting http://www.georgejarkesy.com. On the site you can Listen Live from 4-5 PM EST Monday through Friday, listen to past shows, download shows on Apple iTunes, learn about upcoming events and guests, and help the individual investor stay up to date on the need to know news. Recent guests on the show have included experts on economics and finance such as Dr. Tomas Sowell, Tobin Smith and John Mauldin.

About Jarkesy & Company

George Jarkesy is a money manager and professional investor, respected financial and corporate advisor, and radio host of the nationally syndicated ‘The George Jarkesy Show’. He is a frequent market commentator and guest on FOX Business News, FOX & Friends, and CNBC. George started his career in the financial services industry with a New York Stock Exchange member. George also serves on the Finance Committee of the Republican National Committee and is an active member of the National Investment Banking Association, The Jarkesy Foundation, and Chairman of The National Eagles and Angels Association.

Jessica Elkin
The George Jarkesy Show
2812906655 204
Email Information

[xero90]

The world gold market and China's 'profound influence'.

Analysis of the Chinese gold market suggests not only that the country's gold production and consumption are both far higher than figures suggest, but also that this gold will not find its way back on to the global marketplace

Author: Jeffrey Nichols
Posted: Thursday , 05 Apr 2012

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=148872&sn=Detail&pid=102055

NEW YORK -

Having just returned from another visit to China, where I had the opportunity to talk with a number of "insiders" in the Chinese gold community, I am more convinced than ever that the country will continue to have a profound influence on the world market and future price for years to come.

Growth in aggregate demand from jewelry buyers, private investors, and the People's Bank of China will continue to outpace growth in total supply from mine production and secondary sources. With both domestic supply and demand relatively price inelastic, the market will require a growing stream of imports, imports that will be available only at higher prices.

Slower economic growth - even a "hard landing" with GDP growth well below the official target of 7.5 percent this year - would not likely dent private-sector gold demand. Instead, an economic slowdown much below the official target would raise unemployment, prompt unrest among job-seekers, depress equity prices, and cause anxious investors to buy more gold. In the unlikely event that China goes down this economic path, we should expect the central bank to respond quickly with more stimulative - and gold friendly - policies.

Visiting China, one has the feeling that they are doing a better job managing the macro economy - smoothing the business cycle and containing inflation - than are policymakers in the United States or any of the other older industrial nations.

Measures to lower food inflation, increase wages, curtail real estate investment, promote public works, manage gradual currency appreciation, and even encourage gold investment as an alternative to real estate or equities seem likely to produce a softer, shorter landing.

Moreover, China (unlike the United States, Western Europe, or Japan) is still in the early stages of a secular economic expansion that will soften the blow from the short-term cyclical downturn now unfolding.

Looking beyond the slow-growth scenario now unfolding, jewelry and investment demand will likely enjoy continued robust growth over the years ahead, reflecting the rising incomes, a growing middle class, and a wealthy elite with deep pockets and ostentatious spending habits.

Longer term, as it prospers and its share of global income and wealth continues to increase, China will demand a growing share of the world's above-ground stock of gold for jewelry, for investment, and for additions to central bank reserves.

CATCHING UP

Private gold investment was banned in China and the local market was tightly controlled for more than five decades following the Communist Party victory and ascension to power in 1949. Ever since the legalization of private gold investment and the gradual liberalization of the market beginning in 2002, China's appetite for gold has been growing steadily year after year - reflecting both pent-up demand and rising prosperity.

The government's continuing liberalization of the domestic market, its support for new channels of distribution, its orderly regulation of spot and futures markets, and its encouragement of private gold investment have contributed to the country's rise to prominence in the world of gold.

In recent years, China's central bank, the People's Bank of China, has also been a significant buyer. Three years ago - in April 2009 - the PBOC revealed it had bought some 454 tons of gold over the preceding six years, an average of about 75 tons per year.

Since then there has been no hard evidence of additional buying . . . but my guess is that the PBOC continues to buy regularly from domestic mine production and scrap refinery output - perhaps as much as 50 to 100 tons or more per year. For its part, the PBOC not long ago said it will "seek diversification in the management of reserve assets," possibly signaling their intention to accumulate gold without actually saying so.

As a result of China's sizable appetite for gold, it has become a powerful driving force in the world gold market - and its influence on the future price of gold is likely to grow in the next few years reflecting demographics, economic growth and rising personal incomes, episodes of worrisome inflation, the continuing development of the domestic gold-market infrastructure, and, importantly, continuing central bank reserve diversification.

CHINA'S GOLD STATISTICS

For several years now I have expressed the view that China's actual annual gold-mine production, jewelry consumption and investment, imports, and central bank accumulation have each been running considerably higher than generally believed or publicly acknowledged - see my December 2009 speech to the annual China Gold and Silver Summit.

To begin with, China's total gold supply from domestic mine production and other sources is probably much higher than reported or discussed by analysts and observers of the Chinese gold scene. Actual gold-mine production - and supplies from other sources - could easily be close to 400 tons and possibly much more. Here's why:

My understanding is that the mine-production numbers from the China Gold Association (CGA) include mine output by their members only - but not non-members such as many small, rudimentary, unofficial mines operating in the "underground economy."

The CGA data also excludes production from mines owned and operated by the military as well as by-product output from the country's copper, silver, and other metal-mining activities.

Also missing from the CGA reports are the very significant quantities of gold contained in copper and precious-metals bearing concentrates imported from abroad but processed by Chinese smelters and refiners.

In addition to these unreported sources of supply, many analysts and commentators seem to forget about secondary supply - that is metal returning to the market from the recycling of old jewelry, investment bars, and industrial scrap. This alone could easily contribute 30 to 40 tons - and quite possibly much more - to total annual supply in the Chinese gold market.

Next, what else can we say about China's gold imports? Western analysts estimate China's total gold imports last year were around 490 tons - but there is little mention of "illegal" imports - that is gold smuggled into China. We know smuggling is quite significant in some countries - Vietnam and India, for example. We can only imagine how many tons of gold in the form of tael bars, wafers, coins, investment-grade jewelry, etc. is carried into China each year by travelers and professional smugglers.

What about net central bank purchases and total official reserves held by the People's Bank of China? Don't expect an announcement of their buying program anytime soon. After all, an announcement could boost the yellow metal's price and raise the PBOC's acquisition costs.

Nevertheless, it is reasonable to conclude that the Chinese government may be squirreling away perhaps 50 to 100 tons a year into accounts that will eventually be included in the country's reported official reserve figures - and one day in the future we should not be surprised to see an announcement that actual official gold reserves are considerably higher.

WHAT GOES IN, WON'T COME OUT

Continuing Chinese gold accumulation has important long-term significance that is not generally acknowledged by many gold analysts and market pundits. Simply put, China's private- and official-sector gold purchases are unlikely to be sold back to the world market any time soon, certainly not for many years to come and not even at much higher prices.

Not only are gold exports from China illegal - but many, if not most, Chinese savers and investors buy gold with no intention of selling sometime in the future just because prices rise, inflation subsides, equity prices tumble, or any of the other drivers that might typically trigger sales by Western investors.

For the Chinese, these are long-term, quasi-permanent holdings - removed from available supply or what I call "free float" available to satisfy future physical demand in the world gold market.

Jeffrey Nichols is Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital. The above article appear also on Nichols' own website www.nicholsongold.com

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China's epic hangover begins


http://www.telegraph.co.uk/finance/china-business/8957289/Chinas-epic-hangover-begins.html

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2 stories from China affecting housing valuations

http://www.chinadaily.com.cn/business/2011-08/08/content_13070702.htm

http://www.chinadaily.com.cn/business/2011-08/08/content_13066774.htm

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China banks can withstand 50% property price drop

I don't know if I believe this article.

http://www.chinadaily.com.cn/business/2011-07/29/content_13013978.htm

[xero90]

China Economy: No Hard Landing Yet

3 comments | July 18, 2011 | includes: CHIA, CNY, CYB, FCHI, FXI, FXP

{see charts}
http://seekingalpha.com/article/279942-china-economy-no-hard-landing-yet

China just released its June numbers, with 3 separate official sources delivering banking and money stats, international trade stats, and the core economic data. The June GDP numbers were pretty strong in the scheme of things, and the rest of the data pointed to a high likelihood of persistence in economic strength, at least in the medium term. In this article we explore some of the key data points, and come to the conclusion that a hard landing/significant slow down is a not a 2011 story.
China GDP
China managed to show year-on-year GDP growth of 9.5% in the June quarter, which was slightly lower than the 9.7% it showed in the previous quarter and 10.3% in June 2010, and compares with a 10-year average of about 9.4%. So in the scheme of things GDP growth does not show a significant degree of slowing. However, if you redefined recession for China as passing below the long-term average growth rate - rather than descending into the negatives, then China could dip just below that line later this year. So, in spite of a succession of tightening moves, e.g. the PBOC raised interest rates earlier this month, growth has not yet taken a hit, and it makes sense because the dual forces of strong underlying fundamentals as well as strong sources of manufactured growth e.g. social housing, persist - so sorry folks, no slow down or hard landing in 2011.
China inflation
But one area that persists as a weak point or vulnerability surrounds surging inflation numbers. Inflation hit 6.4% in June (I was expecting about 6.5%), with most of that coming from food price inflation (14.4%), and non-food static around 3%. This remains a risk because if it gets out of control it poses stability risks, but more importantly, persistently high and rising inflation will put pressure on policy makers to tighten the screws further on monetary policy - that could slow things down a bit more, and certainly put some headwinds in front of Chinese equities. But I'm seeing signs that this could be the peak - there are a few people out there who have been forever calling the peak - things like a turn in the prices index part of the PMI, the tightening done to date, and market responses to high prices. The Yuan could be worked harder to achieve lower inflation outcomes, but it's no silver bullet either. I see inflation as a risk, but I can see a scenario where inflation starts to taper off.
PMI and Industrial Production
The industrial production figure was a slight surprise in that it broke from where the PMI suggested it should go. The figure came in at 15.1% year over year (Y/Y) , up from 13.3% in May, 13.7% in June 2010. The official PMI dropped to 50.9 for June, from 52 in the previous month - this is one of the main areas that people have been pointing to for signs of a slowdown, and fair enough - new orders have trailed off , but remain above the expansionary 50 point mark. So it's mixed signals from this one, July will tell if June was a quirk or a sign that the bottom has been hit on the slowing in industrial production growth - so watch this space.
International Trade
China reported another record month for exports, 162B for June, while imports trailed off some to 139.7B (high of 152B in March). So what are the messages from the trade results? First, net exports were positive for the quarter (about 47B vs 0 in the March quarter), so there was a decent positive GDP contribution from trade during June. So the upward trend in exports is a positive sign for China's economy, but also indicates a certain degree of strength in global demand. On the imports side, it almost sends a signal of lower import demand, some of this may be related to a tapering off in commodity prices, but it is something to keep an eye on.
New Loans
New loans in China have been the gasoline that has been fueling the heat in the property market, as well as wider influences such as inflation and general growth. There has been a range of moves designed to cap lending growth (including RRR hikes and tougher lending rules), but new loans are still going strong, YTD new loans are about 4 trillion yuan (about 5 trillion in H1 2010, and close to 8 trillion in H1 2009). It's no secret that this rapid expansion in lending is a risk area, and a lot of China bears have been pointing to this, as well as the local government debt issues. A lot of water needs to go under the bridge and a lot of info needs to come to light before the view of what's really going on in China's property and lending markets comes into full light, but for now, the still-elevated rate of loan growth remains stimulatory for both the economy and property prices (also note on property prices, real income per capita rose about 7.6% in June y/y, compared with property prices about 5-6% y/y).
Summary
So, as always it was interesting to digest all the info in the June economic data reports from China. The high level view is that China's economy is still going strong, it is strong in many areas, and appears to have broad fundamental strength. Aside from fundamental strength China's economy is also boosted by expansionary policies such as the 10 million unit social housing project for this year - which will be loaded mostly in H2 in terms of construction starts. But aside from stimulatory polices and broad strength, there are inevitably risk areas too, such as the overheating and inflation risks, the property market risks, and the local government debt risks. Evidence points to none of these coming squarely home to roost in 2011. If there's a slowdown coming in China, it's a 2012 or 2013 story - so, no hard landing yet folks!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

[xero90]

http://www.menafn.com/qn_news_story.asp?storyid={a23271e3-25dd-4801-9cd6-2f525b143f11}

[xero90]

China, Japan to deepen ties, housing risk overblown: expert

By TAKASHI KITAZUME
Staff writer
Monday, July 4, 2011

http://search.japantimes.co.jp/cgi-bin/nb20110704d1.html

Despite the short-term disruptions to bilateral trade caused by the Great East Japan Earthquake, economic relations between Japan and China are likely to deepen once again over the long term, according to an expert on the Chinese economy.

News photo
Kwan Chi Hung

After taking massive damage to their supply chains from the March 11 earthquake and tsunami, Japanese manufacturers will increasingly move to diversify their parts-supply networks overseas in the coming years, with China inevitably becoming their No. 1 choice, said Kwan Chi Hung, a senior fellow at the Nomura Institute of Capital Markets Research.

Kwan made the comments Tuesday at a seminar organized by the Keizai Koho Center on the prospects for the Chinese economy and their implications for Japan.

China relies a lot on Japanese parts and materials for production, and companies in China — particularly those affiliated with Japanese firms — suffered heavy damage after the natural disasters forced automobile and electronics parts makers in Tohoku to halt production, he said.

In April, China-bound exports from Japan — now the world's largest exporter to China — fell 6.8 percent from the previous year, forcing Chinese manufacturers to trim output. Toyota Motor Corp.'s production in China, for example, plunged by 30 to 50 percent of normal for six weeks starting in late April, Kwan said.

To reduce future exposure to such risks, Japanese firms are likely to accelerate moves to diversify their supply chains, which are concentrated in Japan, and China is expected to emerge as the logical choice for fresh investment, he said.

After Japan's political ties with China began unravelling in the mid-2000s, Japanese companies grew wary of putting all their eggs in China's basket, allowing combined investment in such emerging powers as India, Russia and Brazil to eclipse the level in China in recent years, Kwan said.

However, they are likely to turn once again to China, given its geographical advantage, developed industrial base and a growing economy that is outperforming all the other emerging powers, he said.

New investment is expected to focus on high technology rather than China's cheap, labor-intensive operations, and China sees this as a prime opportunity to help its industries advance into higher value-added segments of the global market, Kwan said.

And China will no longer simply wait for those investments to arrive. Its cash-rich firms will aggressively seek out mergers and acquisitions of Japanese companies to obtain their higher value-added operations, including research and development, key component technologies, marketing and brand power, he pointed out.

Chinese attempts to acquire or invest in struggling Japanese companies with excellent technologies and established names has been rising in recent years and is likely to grow even further, given the economic problems created by the March 11 disasters, Kwan observed.

As for the prospects for the Chinese economy, Kwan noted that GDP growth will continue to gradually decelerate into the latter half of this year, with second quarter growth likely to slow to around 9 percent from 9.7 percent in January-March.

Inflation, which statistically trails GDP growth trends by about three quarters, is nearing its peak and will start coming down perhaps as early as next year, paving the way for China to loosen monetary policy to again spur growth later in 2012, he said.

Kwan said it is unlikely that the Chinese real estate bubble will get out of control, given that the government has been taking action to tame the overheating market since last year and noting that it has already entered a correction phase.

While it is not clear whether the measures taken so far are having the desired effect, there is no doubt that the Chinese government is "quite serious" about taming the bubble and will take additional steps if current measures prove insufficient, Kwan said, adding that he does not foresee a further uncontrolled rise in housing prices.

One positive factor for Chinese growth next year, Kwan noted, is that the Communist Party's national convention is scheduled in the fall of 2012.

Over the three decades that have passed since economic reforms set in, Chinese growth in the year of the party's convention, which is held every five years, has been 1.2 points higher than the average growth rate of 11.3 percent. It has not been analytically proven why this happens, but the Communist Party's leadership, who can no longer rely on the ideology or charisma of past leaders like Mao Zedong and Deng Xiaoping, is apparently trying to use good economic performance as a way to justify their grip on power, he said.

And 2012 will be one of those rare years when China's five-year political-economic cycle coincides with the presidential race in the United States, where growth also tends to be higher than average in an election year.

This will in fact be the first time this has happened in 20 years, Kwan said.

[wow_happens28]

The Chinese Black Swan

Submitted by Vitaliy Katsenelson on 07/05/2011 14:48 -0400


Party rulers in China are trapped in a position that chess players deeply fear — zugzwang — where any move made puts you at disadvantage. In China, the potential cost of both action and inaction is economic collapse.

China is slowly starting to face the consequences of its actions — loans grew over 30% a year over the last few years — and inflation is rising fast. Inflation in developed countries is unpleasant, but it is tolerable. For a developing country — and China, despite its size, is still a developing country — it can be catastrophic. In developed countries, we spend two or three times less on food as a percentage of our income as do people in developing countries. Therefore, though food inflation is unpleasant, we have a much greater tolerance (margin of safety) for it. While food inflation the US can mean fewer trips to restaurants or no summer vacation, food inflation in China leads to hunger.

The Chinese government is desperately trying to put the brakes on the economy. It is shutting off lending to land developers and has raised bank reserve requirements five times this year. However, its success on the inflation front will likely lead to a slowdown of the economy and high unemployment. Ironically, those were the issues party planners tried to cure when they stimulated the hell out of the economy over the last few years.

China bulls are arguing that the almighty Chinese government will be able to soft-land the economy. Unlikely, I’d say. Forced lending was at the core of Chinese economic growth. Simply put, there is too much debt to go bad. According to Ernst and Young, one-third of the $700 billion in loans taken out by local governments may face repayment problems. The People’s Bank of China estimates that Chinese banks’ exposure to local government loans is 14 trillion yuan ($2.2 trillion), according to the June 17 South China Morning Post. Once lending is cut off, property prices will stop appreciating (and likely collapse — that is what usually happens in a Ponzi scheme). Also, the overcapacity in the industrial sector and commercial real estate will come to the surface. And suddenly everyone will discover that the venerable emperor has no clothes.

I often hear the argument that China will not have a real estate crisis of US proportions because home and condo owners have to put 30-40% down when they buy. So where do people get the money to buy a house that costs, on average, 8 times their annual income (a figure several times higher than in the US)? Some of it comes from savings, and some comes from borrowing from relatives.

Let’s pause for a second. In the 1990s, the Chinese banking system basically collapsed. To revive it, the Chinese government took bad loans from banks’ balance sheets and put them into off-balance-sheet vehicles (Enron would be proud of that financial ingenuity). Banks started to function as though nothing had happened. To finance the off-balance-sheet assets, the government set deposit interest rates at very low levels: 1% or so. In a country with a very high savings rate and 5% inflation, this resulted in a 4% annual loss of purchasing power.

Chinese consumers were punished severely over the last 10 years for the banking crisis of the late ’90s. And they’ll be punished even more soon. Keeping money in the bank didn’t make that much sense, and investment alternatives were limited. However, they could invest in an asset that supposedly never declines in price – a house or condo. So they did. As China slams the brakes on the economy and as housing prices fall, the banks will lose plenty of money. But more importantly, it is the people who bought tremendously overpriced houses, and their relatives who lent them money, who will lose. The wealth and hard work of more than one generation will be lost, and this kind of pain leads to political unrest. That is the Chinese Black Swan!

Also see presentation – China The Mother of All Grey Swans
Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email, click here or read his articles here.

Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy Katsenelson’s Active Value Investing (Wiley, 2007) book.

Copyright Vitaliy N. Katsenelson 2011. This article may be republished only in its entirety and without modifications.

http://www.zerohedge.com/article/chinese-black-swan

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China's finances not in the best shape????

http://news.yahoo.com/china-local-goverment-loans-issue-greater-thought-moodys-021748152.html

* Moody's warns China banks credit outlook may turn negative

* Moody's says Beijing may ask banks to manage problem loans

BEIJING (Reuters) - China's local government debt burden may be 3.5 trillion yuan ($540 billion) larger than auditors estimated, putting banks on the hook for deeper losses that could threaten their credit ratings, Moody's said on Tuesday.

Addressing the estimate by China's state auditor that its local governments have chalked up 10.7 trillion yuan of debt, Moody's said it found more potential loans after accounting for discrepencies in figures given by various Chinese authorities.

"The potential scale of the problem loans at Chinese banks may be closer to its stress case than its base case," Moody's said in a statement.

In view of that, the non-performing loan ratio for Chinese banks could be as high as 8-12 percent, compared with 5-8 percent in the base case and 10-18 percent in the stress case.

Unless China comes up with a "clear master plan" to clean up its pile of local government debt, the credit outlook for Chinese banks could turn negative, the ratings agency said.

In a bid to assuage investor worries about the potential souring of its massive local government debt, different Chinese authorities including the state auditor, the bank regulator and the central bank have tried to assess the situation.

But all three agencies have used different definitions and accounting methods to review the debt, resulting in a hodgepodge of official forecasts.

Moody's said it derived the additional 3.5 trillion yuan of debt after comparing the estimates of China's state auditor with that of the bank regulator's.

The ratings agency said the Chinese state auditor likely omitted the 3.5 trillion yuan of debt from its assessment because they were not considered as real claims on local governments.

"This indicates that these loans are most likely poorly documented and may pose the greatest risk of delinquency," said Yvonne Zhang, a Moody's analyst.

Moody's said it expects Beijing to "implement gradual discipline" over the stock of government debt, and that would involve the Chinese government leaving banks to manage a part of the problem loans on their own.

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By Sean Williams
updated 6/24/2011 5:44:55 AM ET

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The past decade has been kind to China, and investors have been privy to a country growing at breakneck speed. Year-over-year GDP growth has averaged 10.5% over the past 10 years, and in most instances it eclipsed the double-digit growth mark.

But what makes China so functional and able to weather worldwide downturns could also become its undoing.

Personal consumption black hole
It's no secret that China and its people have done an amazing job stimulating its economy by investing and attempting to drive the wealth machine, encouraging its citizens to save, save, save! From 1982 to 2007, China and its citizens jumped aboard the savings bandwagon as national savings as a percentage of gross domestic product jumped from approximately 34% to 54%. This period also witnessed one of the most precipitous drops in personal consumption ever witnessed. In 1982, personal consumption as a percentage of GDP stood at 52%; by 2007 this figure would drop to just 35%.

Under normal circumstances, in a healthy economy, we would expect the personal consumption to rise along with GDP, but we simply aren't seeing that with China. One reason could be that the wealth effect seen in China is simply artificial. Investment rather than consumption is what's driving growth, and this usually proves to be unsustainable in the long term. Real wealth appears to be tied up in the banking system and not with the general public. Personal consumption's disconnect with GDP is a major red flag that Chinese consumers may not be able to sustain this economy any longer.

History has a tendency to repeat
Running a consistent trade surplus does have its advantages. China recently became the world's largest creditor and now holds roughly 8% of all outstanding U.S. debt. The U.S. does bear an AAA credit rating at the moment, but let's be honest about this, China is still a novice when it comes to lending.

For all the smart moves China has made when it comes to investing, it has placed nearly all of its eggs in one basket -- a basket that, may I add, bears a AAA-rated country that's having a hard time controlling its spending. In addition, China has been actively purchasing Spanish debt despite fears that it may succumb to rising lending rates and sovereign debt worries.

As noted European bear and hedge-fund manager Hugh Hendry pointed out last year, there have only been two times in history where the largest creditor has also run large trade surpluses: the U.S. in the 1920s and Japan in the 1980s. Both countries unsurprisingly faltered shortly thereafter into their worst respective recessions/depressions in their history. Could China be next?
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Commodity inflation could kill
Prices for steel, copper, silver, aluminum -- practically any commodity you can name -- remain near multi-year highs largely because of demand from China. These higher-priced commodities are fueling China's growth, but they also have the potential to cut off its lifeline.

Recent data showed that China's consumer price index rose to a 34-month high of 5.5%. The CPI is a loose measure of inflation within China and shows that rising food, energy, and commodity prices are likely beginning to take a toll on lower- and middle-income citizens. The Chinese government has responded by raising lending rates four times since the financial crisis hit the rest of the world, and it's hardly made a dent, as the CPI suggests. Since businesses have ample cash, the wealth machine can motor higher, while on the other hand, China's citizens get shut out of the credit market as rates continue to rise.

Housing bubble?
Let the United States housing market serve as an example that nothing can go up forever.

Many analysts have been waiting for the shoe to drop in the Chinese housing market for years, and it just hasn't happened yet. Housing prices across China have risen by 140% over the past eight years, with Beijing's housing market being the poster child for opulence -- up roughly 800%.

Fueling this surge in prices is a mixture of government-led grants and bank-financed deals. Commercial business vacancy rates remain low and present the clearest reason why building demand is moving higher.

Unfortunately, as has been the case with nearly every point here, the Chinese citizen is still relatively poor. In a country where the typical worker makes the equivalent of $2 U.S. a day, it's becoming increasingly difficult for an average Chinese citizen to buy a home. Government-imposed restrictions -- such as raising the lending rate and boosting the amount of cash needed for a down payment -- have in effect priced the majority of China's citizens out of its own market. While China's overall vacancy rate remains tame, I have to agree with Moody's downgrade of China's housing market in April from stable to negative, assuming a primary reason was the continued construction of new housing with so many vacant units still on the market.

Investors losing trust
This one goes without saying and without argument: Investors are losing faith in Chinese investments.

Chinese firms have been listing on U.S. stock exchanges in droves over the past few years in the hopes of cashing in on their IPO. Lately, investors have been ringing the register as quickly as they can to escape Chinese equities before they come under the harsh scrutiny of the Securities and Exchange Commission. Just this year alone, we've seen accounting scandals from Rino International and China MediaExpress, while countless others are halted pending review, including Puda Coal and Longtop Financial Technologies. Even a company like Harbin Electricisn't immune, falling earlier this week to $6 despite a prior buyout offer by the CEO for $24 per share!

Foolish forecast
There's no denying that China's growth rate has been torrid, but denying these warning signs could be the difference between a good night's sleep and your portfolio's demise. History backs up the thesis that China's run is bound to fail sooner rather than later, so invest wisely, my friends.

Would you put your money to work in China right now? Share your thoughts in the comments section below and be sure to check out our 13 Steps to Investing Foolishly to see if you're doing everything you can to protect your investments.

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China commercial real estate Bubble?

http://www.chinadaily.com.cn/business/2011-05/30/content_12601947.htm

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Interview: U.S. expert positive about growth of China's commercial real estate market

Thursday, May 19, 2011 9:30 PM

http://www.istockanalyst.com/business/news/5167168/interview-u-s-expert-positive-about-growth-of-china-s-commercial-real-estate-market

Stay ahead of the market. Signup for our free newsletter!!!

CHICAGO, May 19, 2011 (Xinhua News Agency) -- The long-term growth and development of China's commercial real estate market will continue and not likely to be affected by the recent tightening policy of the Chinese government, said a real estate investment expert in Chicago on Wednesday.

"The tightening policy is expected to cool down the residential sales market and land transaction market, but could benefit commercial real estate sectors, such as office, retail, industrial, hotel, etc." said Elysia Tse, vice president of Real Estate Portfolio Management/Risk Analytics at Blackrock.

She was a panelist at the finance panel of the Kellogg Greater China Business Conference to share her views on the investment opportunities and trends in China.

"The recent tightening policies have been focused on the residential market rather than the commercial real estate market. The Chinese central government is taking measures to moderate rising home prices and preserve housing affordability, not necessarily to interfere with the growth and development of commercial real estate market," she told Xinhua in an exclusive interview.

As a seasoned expert in real estate investment, Tse has held critical positions with three of the world's leading real estate investment firms including LaSalle Investment Management, Inc., Citigroup (NYSE:C) Property Investors and BlackRock Realty Advisors.

Currently she is part of the BlackRock team in developing the global investment strategy and conducting real estate market and risk analyses.

"In my personal opinion, the impact of China's recent tightening is expected be a near term obstacle and most likely limited to the residential sector," said Tse.

"It is tougher for developers to get bank lending for residential projects, particularly higher-priced range housing developments. Some small/medium size developers are expected to have some liquidity issues in the near term."

However, she believes that China's recent regulation to allow insurance companies to invest in the commercial real estate sector is expected to lead to more demand for institutional investment grade real estate products in China.

"As China's insurance companies develop their professional management teams to invest in real estate, more high quality commercial projects are underway," Tse said.

According to Tse, Chinese insurance companies are allowed to invest up to 10 percent of their total assets in property and property-related financial products with a restriction on investment in residential development projects.

"According to a report from Jones Lang LaSalle (NYSE:JLL) , this means that at the end of last year, insurance companies could invest up to 77 billion U.S. dollars in commercial real estate, given that total insurance company assets in China was over 5 trillion RMB (770 billion U.S. dollars) at the time. Going forward purchasing capabilities will only grow further as total insurance company assets in China are growing by 25 percent per year."

Regarding the market outlook for insurance companies, Tse explained, "Insurance companies are long-term investors and real estate is an ideal asset class in which insurance companies can invest in the long term to match their long-term liabilities."

However, Tse sees missing links in China's commercial real estate market today.

"Institutional investors, such as insurance companies, prefer stabilized assets with strong credit tenants. However, there are simply not that many tradable commercial real estate assets available in china for institutional investors to purchase," she said.

"So far in China, a limited number of buildings in Beijing and Shanghai are considered truly institutional investment grade quality. As a result, we have now seen some assets traded a few times over the past 1-2 years leading to substantial cap rates compressed in these assets," Tse told Xinhua.

The real estate expert also predicted that in the long-run, professional asset management will be needed in order to maintain or add value to the buildings, particularly.

She further explained the reasons behind, "China has seen a plethora of construction over the past 10-15 years and as a result many commercial properties in the country are still very new. Many of these new properties are well functioning and are not in need of intense asset management and regular maintenance."

"The concept of professional asset management has not yet expanded to property owners outside of those institutional grade buildings," she added.

(Source: )
(Source: Quotemedia)

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China: Beijing May Launch Property Tax in 2nd Half 2011:Press

Thursday, May 19, 2011 - 20:37

http://imarketnews.com/?q=node/31081

BEIJING (MNI) - Beijing is likely to introduce a property tax as soon as the second half of this year, the official China Securities Journal reported Friday, citing an unidentified source.

The municipal party commission held a meeting with the city's top officials and asked for their support for the idea, the newspaper cited another unidentified official as saying.

China started property tax pilot programs in Shanghai and Chongqing at the end of January, part of the government's efforts to cool rapidly rising housing prices through the nation.

Property prices in Beijing rose 2.8% year-on-year last month, down from 4.9% in March, the National Bureau of Statistics reported Wednesday.

Overall Chinese property prices rose 3.3% y/y in April, down from March's 4.2% increase, according to a weighted average calculated by Market News International based on government price data from 35 cities around the country.

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Mainland China Buyers Shopping for Luxury Homes around the Globe

20 May 2011

http://en.21cbh.com/HTML/2011-5-20/wMMjUxXzIxMDIwMg.html

May 19, A growing number of home buyers from mainland China are rushing into property markets in Hong Kong and overseas to buy luxury units, indicating growing wealth and uncertainties over the domestic real estate market.

Last week, 28-year-old mainland buyer Li Jiamin became the owner of a HK$345 million luxury unit in the Arc de Triomphe building, the most expensive residential site in Kowloon, Hong Kong.

Hong Kong real estate agent Centaline Property categorizes any unit that costs HK$120 million or above “luxury”.

Li’s purchase, which was widely reported by Hong Kong and mainland media despite her low profile, points to a rising trend of cash-rich mainland Chinese buyers prepared to lavish vast sums to acquire luxury homes in the city.

Luxury Buying Spree

Mainland Chinese home buyers are not stopping at Hong Kong -- Canada, the U.S., Britain and Australia are all targets.

Mainland millionaires and billionaires are sparing no expense in snapping up Canadian luxury houses, as seen in a deal involving two luxury units recently bought by the same person, who claimed he has a dozen more houses in Shenzhen, according to local media reports.

According to a Guangzhou Daily report in April, a Fujian-based buyer, known as the Fujian version of Hong Kong tycoon Li Ka-shing, spent less than five minutes in a luxury unit in Vancouver before deciding to buy it for CA$22 million. The paper said the person had already purchased 10 luxury homes in Western Vancouver.

Similar stories are being reported in Australia, where mainlanders are eyeing investment opportunities in the local property market where housing prices are steadily going up.

Transactions priced at more than AU$10 million are mostly being made by Chinese buyers, including one unit that recently went for AU$32.4 million, according to local Australian media.

Growing Wealth

Wealthy mainlanders started buying up more property abroad last year after the central government began rolling out a long line of properly measures.

The New York Times reported last September that more and more mainland buyers were buying luxury units in London without inspecting the houses in person, the first time mainland speculators had outnumbered their Russian and Middle Eastern counterparts.

The strong demand for upscale real estate implies not only a growing trend for luxury home-buying, but also says something about the rising wealth of mainlanders, most of whom have to pay for their luxury units in cash due their difficulties in getting mortgages in overseas markets.

Sensing changes in the home market, these rich home buyers are choosing to put their investments in foreign homes that would otherwise be made in either property or stocks in the mainland.

Mainland Market Uncertainty

These investments may turn out to be more valuable than ones made back home, where anxious government officials, spooked by runaway prices and public unease about inflation in general, could introduce even stricter property measures that could freeze the real estate market.

Since January, the Chinese government has introduced a raft of property curbs, including home-buying restrictions, price growth controls, interest rate hikes, tightened bank lending and potentially more land auction reforms, to contain skyrocketing prices.

The situation has become so sensitive that senior government officials have publicly talked for the first time about the need and their determination to bring prices down to a “reasonable” level and to build more affordable houses, all of which could negatively impact the market.

Although some of those measures have been dismissed by critics as administrative tools that are not supposed to stay in place too long, some market watchers believe that the government will do more to control the market if prices don’t begin to stabilize.

Progress on that front appears to have been limited so far. In April, new commercial home prices rose in 56 of the 70 major cities monitored by the National Bureau of Statistics (NBS), up from 50 in March. But price growth slowed, with no city reporting a rise of more than 1% last month, the NBS said in a statement on May 18.

On a yearly basis, prices of new homes in Beijing rose 2.8% in April, easing from a 6.8% year-on year rise in January, while Shanghai, Tianjin and Chongqing all showed similar patterns of slowing price gains. Year-on-year price growth remained high in some southern cities, however.

Secondhand home prices in 41 of the 70 cities rose last month, compared with 44 in March. Nationwide sales by floor space in April fell 9.9% from a year earlier, the first decrease in nine months.

Some analysts have been saying that China’s home prices will eventually fall this year, citing some developers’ discounted offerings, a trend that may continue if their sales slow and cash flow issues mount.

Predicting the direction of the property market in the mainland is notoriously hard, but the uncertainty surrounding it means that many investors see overseas investments as safer, especially in mature markets, where the luxury real estate is typically less volatile.

Driving Prices Up

While luxury home sales have been growing thanks to mainlanders’ active buying, home prices in those markets are also surging in part due to bigger demand for luxury units. Housing prices in Vancouver are being pushed up by mainland buyers, and prices in Hong Kong are at risk from almost continuous increases.

Even though mainland buyers are spreading around the globe, Hong Kong remains a major target for high-end real estate investments. Prices of units of 100 square meters or more have grown 17% since 1997, when the Asian financial crisis hit the city.

According to Centaline Property, in the second half of 2010, mainland buyers accounted for 28.8% of the luxury home buying population in Hong Kong, compared to only 9.7% in 2007, an indication that buyers from north of the border are getting richer and home prices in mainland cities are becoming unacceptable.

Home prices in the city may continue to rise as developers attempt to build more upscale properties.

Three plots of land made available for residential use by the Hong Kong government to ease demand last week were snapped up by Sun Hung Kai Properties Ltd. (0016.HK), the world’s largest developer by market value, Cheung Kong (Holdings) Ltd. (0001.HK), controlled by Hong Kong’s richest man Li Ka-shing, and China Overseas Land & Investment Ltd. (0688.HK), all at a price above market estimates.

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Asset bubble main threat to China growth

Michael Sainsbury
From: The Australian
May 20, 2011 12:00AM

http://www.theaustralian.com.au/business/news/asset-bubble-main-threat-to-china-growth/story-e6frg90o-1226059244916

CHINA is capable of strong growth for another 30 years, but the re-mergence of a major asset bubble looms as the biggest short-term danger to its economy.

China's leaders have calmed the country's roaring property market as they try to slow growth and battle inflation, but economists, including Australia' new Treasury chief Martin Stephenson, have been warning about problems ahead for Australia biggest trading partner.

"If the government did nothing about it, if they allowed it to really bubble up, that is very dangerous," economist Fan Gang said on the sidelines of the Australian Institute of Company Directors conference in Beijing.

"Now, after two years it is stabilised, I would say. The hard landing is already avoided, but the danger is always there.

"It could bubble up in the next couple of years, given that there is a lot of money around.

Start of sidebar. Skip to end of sidebar.
Related Coverage

China afloat in uncharted waters The Australian, 22 Apr 2011
Cheap liquidity in US fuels inflation alarm The Australian, 28 Feb 2011
Fears of economic overheating in China The Australian, 20 Jan 2011
China's economy at crossroads The Australian, 14 Jan 2011
China puts the brake on inflation Adelaide Now, 2 Jan 2011

End of sidebar. Return to start of sidebar.

"If you look at the past 30 years, all the major crises in the world have been related to asset bubbles, particularly housing.

"The government takes this one on both sides - including the social side - so it's a big issue, very dangerous."

Dr Fan is an adviser to the People's Bank of China - the central bank - and heads a think tank, China National Economic Research Institute, and is secretary general of the China Reform Foundation. He is also a professor at Peking University and the China Academy of Social Sciences. His close links with the Chinese government have led to him being named several times in lists of the world's most influential people.

Dr Fan, who earned his PhD in economics at Harvard, said China could easily keep growing strongly for another 30 years, and downplayed fears that inflation would continue to be a major problem.

"It's not that serious compared to recent history," he said

"In 2007-08 it was 8.7 per cent, at its highest quarterly inflation, now it's at 5.4-5.3 per cent, so it's not that serious. Secondly, I do not see a very permanent problem with that.

"Last time, it was more permanent because of global food prices and China was in a peak of its cycle, so it had those two things together for 2 1/2years. Now inflation is much more diversified.

"I do not see a long-term factors like last time. Commodity prices are coming down and expectations of food prices are coming down, so you may have several months more but I don't think it will last too long."

He also backed Chinese government steps to counter inflation, which is seen as a particular threat because of the social instability it can unleash.

"Given global liquidity, and particularly the Chinese liquidity problem, it's quite serious what the Chinese central bank has done to wind back the liquidity, the reserve rate requirement is now 21 per cent."

Inflation may have peaked already, he said. "The second half will be better that the first half.

"Wages are increasing but in the agricultural sector the major problem is not wages - it was speculation, there is a wage increase but not that dramatic, not 50-70 per cent.

"Wages are an issue in the long run and a more general issue, but wage increases are partly because of inflation - an indexation process . . . so hopefully this round of wage adjusted can be calmed down as well when inflation is stabilised.

"CPI and asset inflation are going together, so people feel as though their money is losing value. You need to think about to these things together."

Dr Fan said another interest rate rise - widely tipped by China-watching economists - would be hard to justify.

"It is possible to have another interest rate hike, but given the current issues with the exchange rate and given that the US has still not moved on interest rates and the European Central Bank has only done a little, it is very difficult for the Chinese central bank to increase interest rates further.

"So the central bank relies mostly on the quantitative measure. If they do not do this, the banks have more money to lend and inflation will be higher, so it's effective.

"It does have an impact on the commercial banks' lending capacity, as well as central banks' bills and direct credit controls. On the other side, interest rates are not necessarily effective . . . some developers don't really care if interest rates go up 0.5 per cent.

"Quantitative policy is still the major part and it is difficult for another interest rate hike."

Still, some people, such as long-term China bear, hedge fund manager Jim Chanos, say efforts by Chinese authorities to cool its economy could go too far.

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New Home Prices Up in Most China Cities

MAY 18, 2011, 2:24 P.M. ET

By ESTHER FUNG

http://online.wsj.com/article/SB10001424052748703509104576330220020534218.html

SHANGHAI—More Chinese cities saw new home prices rise in April compared with the previous month, and price growth has risen a tad in some major cities despite a fall in transactions, underscoring challenges the central government faces in curbing prices.

View Full Image
Beijing
Agence France-Presse/Getty Images

A newly-built real estate project in Beijing
Beijing
Beijing

Faced with public anger over unaffordable housing prices, China's authorities have progressively implemented a series of measures to rein in speculation in the property market, including restrictions on property sales, stepped-up monitoring of prices and tighter monetary policies.

Analysts reckon the government will likely be unsatisfied with the price growth in certain cities but note that some property developers have started to cut home prices this month.
[CPROP]

Prices of newly built homes in 56 of the 70 large and medium-sized Chinese cities covered in a government survey rose in April from the previous month, up from 49 cities in March, the National Bureau of Statistics said in a statement Wednesday, indicating that prices are still holding up despite a fall in transaction volume.

On a year-to-year basis, growth in housing prices has shown a clearer trend of moderating. Prices of newly built homes in Beijing rose 2.8% in April, slower than the 4.9% and 6.8% rise recorded in March and February, respectively. In Shanghai, prices of newly built homes rose 1.3% last month, decelerating from the 1.7% and 2.3% recorded in March and February respectively.

Prices of newly built homes in 67 of the 70 cities covered by the survey rose in April from a year earlier, unchanged from the 67 recorded in March and lower than the 68 recorded in both January and February, the statement said.

"It could be embarrassing for the [Chinese] government if they cannot soften prices. Prices are high due to ample liquidity stemming from the country's macroeconomic policies, and I wouldn't rule out further administrative measures, such as an expansion of home purchase limits to more cities from the current 40 cities," said Oscar Choi, a property analyst from Citigroup.

Mr. Choi noted that some property developers, such as China Overseas Land & Investment, Country Garden Holdings Co. and Shimao Property Holdings, started to offer discounts to boost sales and cash flow this month.

Among the major cities, Beijing's prices of newly built homes rose 0.1% in April from March, when prices were unchanged from February, and slower than February's 0.4% month-to-month increase. Prices of new homes in Shanghai rose 0.3% in April from a month earlier, faster than March's 0.2% increase but slower than February's 0.9% month-to-month gain.

Prices of newly built homes in Shenzhen rose 0.7% in April from March, when prices were unchanged from February and slower than February's 1.0% month-to-month rise.

The price growth is still below the headline rate of inflation, said Danny Bao, an analyst at Daiwa Capital Markets, adding that he expects to see continued softening in home prices and transaction volume in the next two months.

China's inflation rate eased to 5.3% in April, from 5.4% in March.

"We're not going to see sharp price cuts. There's going to be gradual price declines in coastal cities, and for the inland cities, there could be more inflationary pressure on prices, perhaps 4%-5% on an annual basis," said Mr. Bao. "I don't think further tightening measures are imminent though, it has only been two to three months since the home purchase restrictions were implemented."

April is the fourth month for which China has released house price data for individual cities, after scrapping a monthly index of average property prices in 70 large and medium-sized cities.

China's April property sales registered their first decline since September in terms of floor space sold, falling 9.9% from a year earlier and 23.6% on-month, according to data from the bureau last week, following government tightening measures such as bans on second-home buying in some cities early this year.

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Investment from US declines 28%

Is this a red flag showing the party is over?

BEIJING - US investment in China dropped sharply by 28 percent, while foreign direct investment (FDI) maintained double-digit growth from January to April, the Ministry of Commerce said on Tuesday.

Economists said they believed the US investment decline is temporary, and the Chinese economy, over the long term, will provide US companies with increased investment opportunities.

US investment from January to April decreased to $1.03 billion and the number of US firms setting up in China also fell by 3.85 percent to 475.

In contrast, European Union investment rose by 23.42 percent to $2.64 billion. Investment from the Asia-Pacific region, including Japan, South Korea and Singapore, registered growth of 31.23 percent to $32.88 billion.

The ministry said that FDI for April rose by 15.21 percent, from a year earlier, to $8.46 billion, the fourth month that FDI witnessed double-digit growth this year.

"US investment could drop further over the short-term," Song Hong, head of the Department of International Trade at the Chinese Academy of Social Sciences, said.

Song attributed this to a decline in US manufacturing, a key component of US investment, following the global financial crisis. He also said that with the recovery in the US economy, businesses that had invested in China were returning to the US market.

But others cited rising labor costs as a reason.

"We cannot ignore the fact that investment into China from developed nations, including the US, is slowing thanks to China's rising labor costs," said Zhang Yansheng, director of the Institute for International Economic Research under the National Development and Reform Commission.

US investment in China in 2010 grew by 13.31 percent year-on-year, compared to 31 percent for its total overseas investment, according to the United Nations Conference on Trade and Development.

Yuan Gangming, a researcher at the Center for China in the World Economy at Tsinghua University, said "the US is much too reliant on China" for investment to drop over the long term.

But US investors "probably have complaints, such as barriers", he said.

In a survey of its member companies released last month the US Chamber of Commerce in China cited "bureaucracy, lack of management, ambiguous laws and infringement of intellectual property rights" as major challenges facing US firms here.

But the survey also pointed out that 80 percent of the companies recorded profits in 2010 and many have expansion plans.


http://www.chinadaily.com.cn/business/2011-05/18/content_12530121.htm

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Hong Kong's 'sandwich class' face housing woes
By Chris Hogg BBC News, Hong Kong

15 May 2011 Last updated at 12:39 ET

http://www.bbc.co.uk/news/business-13385794

Sign board with home sale posters Even small flats sell for millions in Hong Kong
Continue reading the main story
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They call them Hong Kong's "sandwich class", stuck between the very rich and the very poor.

Since Britain handed the territory back to China in 1997, more and more Hong Kong Chinese have seen their incomes improve as the economy has grown on the back of breakneck economic growth in mainland China.

Economists now describe Hong Kong as a "world city" on a par with London and New York.

It has always been an expensive place to live but rocketing property prices in recent months have left many in the sandwich class feeling more squeezed than ever.

Mid-Levels is the dormitory district on Hong Kong island - it's where the office workers live.

But you don't find much peace here at the moment.

All over the place new high-rise apartment blocks are under construction. They can't build them fast enough.
'Faster and Faster'

Hong Kong now has the most expensive property per square foot anywhere in the world, according to the real estate firm Savills.

Property prices are at a 13-year high. Even the bottom end of the market is 40% more expensive than it would be in London or New York.

It's frustrating for Jimmy Chue, a young professional who says people like him are being priced out of the market.
Apartment blocks under construction Even though prices are sky-high, more and more apartment blocks are under construction

"In Hong Kong island in Kowloon I think the market is not logical right now and there's a lot of speculation going on," he complains.

"There's a lot of money coming in from outside of Hong Kong which perhaps explains why the property prices are increasing more than people's incomes."

To a certain extent he's correct.

Experts estimate around 30% of the properties at the top end of the market are being bought by mainland Chinese.

But also interest rates are very low here and clearly there are speculators at work too.

Some flats that are sold go straight back on to the market with a 20% mark-up, despite recent efforts by the Hong Kong government to curb that speculation.
Continue reading the main story
“Start Quote

There's always the risk that there's going to be quite a sharp correction”

Nicole Wong CLSA Asia Pacific Markets

"People who have been living in a very low interest rate environment for too long, they don't realise you know how much risk there is," says Nicole Wong, a property analyst for CLSA Asia Pacific Markets.

"It's like drunken drivers on the road. They just keep driving faster and faster without really noticing it."

Some analysts warn that people desperate to get on to the housing ladder are overstretching themselves. House prices here rose 24% last year and 30% the year before that.

Nicole Wong doesn't believe there'll be another crash but "economically when prices are at such a high level there's always the risk that there's going to be quite a sharp correction", she says.

To a certain extent Hong Kong has become the victim of China's success.
Distorted markets

Property agent Angel Law is showing prospective buyers around a four-bedroom house that's on the market for around $36m (£22m).

It's not even that big but this is what buyers from the mainland are prepared to pay.

"It's all about the location," Ms Law says, "just 10 minutes from Central, but it has an amazing sea view."

For many potential buyers this kind of purchase is just an investment, they never have any intention to live here.
Angel Law property agent in Hong Kong Property agent Angel Law shows buyers around apartments that sell in the tens of millions

But Hong Kong's a small place. There isn't a lot of housing stock to spare.

Yolanda Barnes, the head of residential research for Savills, says much of the property here is now treated like a commodity rather than a place to live.

"This is in common with other global cities where real estate is used as a store of wealth," she explains.

"What global cities have in common is that there are very often additional sources of wealth coming from overseas, which means the city's markets become distorted and separated from the local economy."

For young professionals like Jimmy Chue, that means the only option may be to move out of the city further away into the suburbs if he wants to buy.

He says the situation's unfair for the people who keep this city going.

"They should be able to buy a flat if they're making average income. It shouldn't be a long commute to their office - it's very frustrating," he says.

But it's a complaint many young workers in London, New York or even other big cities across China would be familiar with.

As China's economy develops, its young people have opportunities their parents could never have dreamed of.

But they're also now facing the kind of problems we in the West know can come with that success. And they don't like it any better than we do.

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Chimerica’s slippery slope to stagflation
Commentary: U.S., China are heading to another double-dip scare

May 13, 2011, 12:35 a.m. EDT

By Andy Xie

BEIJING ( Caixin Online ) — The global economy is heading toward another double-dip scare, possibly in the third quarter, in what could be a repeat of summer 2010.

Financial markets may stumble in a few months, and that could prompt the U.S. Federal Reserve to introduce a third round of quantitative easing or an equivalent, which would be another step down the path toward stagflation. In this scenario, China’s current monetary-tightening policy would be difficult to sustain.
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A decline for the U.S. property market is accelerating. It could fall another 20% over the next 12 months.

China’s economy could slow substantially in the second half due to liquidity constraints for the property industry and local-government financing.

These factors contributing to a double-dip scare may push the U.S. Federal Reserve to launch another round of stimulus, although it may not be called QE 3. At the same time, the scare may cause oil prices to dip, easing inflation concerns.

The main aim of a QE 3 would be the same as QE 2 — to support U.S. stock and property markets. While it may succeed in reviving these asset markets, it would also yield surging oil prices and inflation.

A real double dip would occur if either the U.S. Treasury bond market crashes or appreciation expectations for China’s currency reverse on expectations of depreciation. The timing for this scenario could be fourth quarter 2012, possibly after the U.S. presidential election and the Chinese Communist Party’s 18th Congress.
Stagflation entrenches

This year’s first-quarter economic data points to a continuation of last year’s trend toward stagflation. The most important data were the U.S. annualized gross domestic product growth rate of 1.8% for the first three months of this year, compared to 3.1% in the fourth quarter 2010, and 3.8% inflation for personal-consumption expenditures (PCE), up from 1.7% for the previous three months.

The Fed pays closest attention to PCE in gauging inflation. Now, while economic growth seems to be stalling, inflation is spreading unambiguously.

Even Fed Chairman Ben Bernanke says the trade-offs for monetary policy aren’t appealing, i.e., the cost of inflation from additional monetary stimulus is probably higher than job-creation benefits.

Euro-zone inflation continued its march upward to 2.8% in April, the highest since October 2008, when oil prices rose above $140 a barrel. The European Union has upgraded the euro zone’s GDP growth rate to 1.6% for 2011. The first quarter was probably better, possibly showing a 2% annual rate.

Still, growth is not strong compared to the inflation level in Europe. Odds are that the euro zone’s inflation rate will be twice the growth rate in 2011, which fits the stagflation scenario.

The picture in China is a little different. The world’s second-largest economy reported a strong first-quarter growth rate of nearly 10%. Electricity consumption rose 12.7% from last year, obviously confirming strong growth.

Yet while trade value rose, the price effect probably dominated. China’s ports are experiencing hard times, indicating weak trade-volume growth. Global consumption data correlates a relatively subdued trade picture for China. Growth seems to depend on government spending, especially in central and western provinces.

Inflation is obviously worsening. The Chinese government’s attention has been shifting from one product price to another while trying to address inflation, the overall trend is quite worrisome. When prices do jump, they often jump high.

For example, while vegetable prices have eased a bit recently in China, fruit prices seem to have risen to extreme levels. The bottom line is that a massive stock of money in China, due to a decade of rapid growth, is in the process of turning into inflation. While money-supply growth in China has slowed, it is still 50% to 60% above China’s potential GDP growth rate. It is still stoking, not decreasing, inflationary pressure.
Tumbling growth

The global economy may slow sharply in the second half of 2011 for several reasons. Global financial markets could experience a setback that’s more serious than what occurred in the middle of 2010. The Fed rescued the markets then by launching QE 2, and may try QE 3 if markets fall again, although it would be less effective.

Most people think the U.S. housing market has already collapsed. But prices haven’t fallen sufficiently. Thus, the U.S. economy will turn downward again on falling property prices and rising oil prices.

U.S. residential property lost $6.3 trillion in value, or 28%, between 2006 and last year. The current value of $16.4 trillion is 110% of GDP, which is still much higher than its historical average. During the previous property burst, total value declined to below 80% of GDP. Thus, the U.S. property-market adjustment may be only half done.

Homeowners had hoped for the best after the Fed cut interest rates aggressively and the federal government introduced tax incentives for first-time home buyers. But the bear market remains. Now, homeowners with negative equity have no reason not to default. The U.S. housing market is beginning its second collapse.

Rising oil prices are outweighing the benefits of low interest rates. The U.S. economy consumes 23 million barrels of oil per day. For each $10 increase in the price per barrel, the additional cost to U.S. consumers is about $84 billion, directly or indirectly, or 1.3% of America’s GDP.

U.S. household debt is $13.3 trillion. Each 1% saved in interest expenses is $133 billion, or equivalent to the cost of a $16 oil-price increase. Considering how much oil prices have and could further rise, the cost of the Fed’s low-interest rate policy seems to be outweighing the benefits. This is why the Fed isn’t likely to ease more unless oil prices fall.

High oil prices are the most important factor behind the sharp slowdown for the U.S. economy and accelerating inflation in the first quarter. While there is widespread hope that the U.S. economy will bounce back in the second quarter, it is unlikely to happen without a major decline in oil prices. When the second quarter disappoints again, the fear of a double dip may resurface.

Meanwhile, China’s monetary tightening is causing a liquidity crunch among property developers and local governments. Their spending in the second half could decline significantly. Local-government spending and the property sector have been leading China’s growth since 2008. Their funding problem is surely to translate into less demand.

China’s electricity demand has been growing at above 13% per annum for the past eight years and was up 12.7% in the first quarter. It could slow substantially in the second half, possibly to below 10%.
Policy crunch

Weak growth alone may not prompt an easing by the Fed. But falling stock markets could. As the U.S. household sector suffers weak income growth, falling property values and high indebtedness, the stock market offers the only place where the economy can feel better. Fears of a stock market decline could become self-fulfilling, as it weakens consumption, which in turn weakens corporate earnings.

A weak stock market last summer prompted the Fed to pursue QE 2. Its direct impact was quite limited, as measured by its impact on Treasury yields. But it was the factor that powered a stock market rally in the fourth quarter, which contributed to the economic rebound. The impact reversed in the first quarter, partly due to QE 2’s impact on oil prices.

Bernanke is clearly worried about oil prices, especially that it reduces the household sector’s consumption power. Even though he doesn’t admit it, he must know that U.S. monetary policy is a major factor, probably the most important one, in supporting oil prices.

The trade-off is prompting him not to expand QE, even though economic growth, employment and the housing market are very weak.

Global stock market performance seems to affect oil prices. When stocks fall, the oil market is spooked by weakening demand and the price falls. If stock markets decline substantially in the third quarter, oil prices could fall significantly too, just as they did last summer.

That may create conditions for the Fed to ease again through a QE 3, in name or otherwise. Its short-term impact would be to revive stock markets, but oil prices would surge too. It would have less impact on growth but more on inflation than last year’s QE 2. This would be another step down stagflation’s slippery slope.

China’s monetary tightening is creating a liquidity crunch for the property industry and local governments. The economic impact is still limited because these groups are resorting to not paying suppliers — a strategy that only works so long. In the third quarter, the economy may slow significantly.

Would the government ease policy in response to a slowdown? I think not right away. Inflation is clearly causing social instability. The political cost seems too high at the moment. So the United States is more likely than China to ease first. When it does, China would have less room to ease, as surging oil prices would keep inflation pressure high.
Wrong medicine

Loose monetary policy is the cause of inflation, and its intended purpose is to stimulate growth. But when such policy is sustained despite inflation, it signals deeper problems. When stimulus fails to revive growth, it suggests structural problems.

In today’s world, deep structural problems are impeding economic growth. But most governments don’t have the political will or power to deal with them. Instead, they pursue easy solutions, such as printing money, which leads to stagflation.

The United States and China have structural problems that can’t be solved through monetary policy. The wrong medicine may push the global economy toward another crisis, possibly in the last quarter 2012.

The United States is obviously suffering legacy problems from the financial crisis, such as a collapsing construction industry and loss of household wealth. These make economic recovery more difficult and, when things get going again, slower. But its bigger problems are structural inefficiencies on the supply side and unsustainable social welfare on the expenditure side. The bubble initially hid these problems. It would be wrong to blame U.S. economic problems on the financial crisis per se.

Health care, the financial sector and the military-industrial complex account for about 30% of the U.S. economy — more than twice the levels found in other developed economies, or in the United States three decades ago. This suggests the United States is carrying a 15% extra cost to generate the same output. Of course, the economy should be slow.

But the U.S. government is trying to simulate the demand side to solve a supply-side problem. That doesn’t resolve the problem but instead creates a new one — inflation. No amount of monetary stimulus by the Fed can bring high growth back to the United States, in my view.

Ballooning health-care expenditures in the United States are a demand as well as a supply problem. The U.S. health-care system incentivizes the supply side to keep prices very high, while it does not discourage demand when prices rise. Unless this changes, the system will bankrupt the country.

China’s problem is the high and rising share of the state sector in the economy. My rough estimate is that state-sector spending is half of GDP. Two years ago, the state sector was big on the supply side. Now, it’s big on the demand side.

The inefficiencies associated with public-sector spending are easy to identify: Image projects across China have sprouted like spring bamboo shoots over the past three years. And this declining efficiency is the main reason for inflation.

The state sector has negative cash flow. Its magnitude grows with the size of state-sector spending. Hence, monetary supply needs to grow faster, ceteris paribus, with an expanding state sector.

This characteristic poses a unique challenge to China’s tightening policy. The policy’s impact on state-sector spending has been discontinuous, and implies the suspensions of many ongoing projects.

But if idle projects become waste, given that so many individual interests are involved, enormous political pressure will build until the projects resume. Thus, it remains to be seen how long China’s tightening policy can be maintained. Of course, if the government chooses loose monetary policy due to political pressure, inflation would surge. See this commentary at Caixin Online.

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China to double land for low cost housing

(AFP)

http://www.google.com/hostednews/afp/article/ALeqM5h7ztpzN6XQL_Iy9A5n7zziutBb8w?docId=CNG.f054e888a931a326850fb59d1ca285e8.311

BEIJING — China has vowed to more than double land supply for low-cost housing this year, an apparent effort to ease social tensions over high home prices and atone for missing a similar target in 2010.

The Ministry of Land and Resources plans to provide 77,400 hectares (191,200 acres) of land for government-subsidised housing this year, nearly 140 percent more land than actually used for such projects in 2010.

If the goal is met it will comprise 35 percent of the total land supply planned for residential development this year, Liao Yonglin, a senior official with the ministry, said in a statement published Thursday.

Last year, 32,400 hectares of land was used for low-income housing projects, far below the government target of 65,800 hectares for the year, according to government data.

The 2011 plan aimed to "continue the central government's real estate policies to curb overly fast rises of property prices," Liao said.

The government has been struggling to rein in soaring real estate prices, which are often far beyond what average income earners can afford.

It has introduced a number of measures to cool the market since late 2009, including bans on buying second homes in some cities and introducing trial property taxes in Shanghai and Chongqing.

Despite the policies, the average home price in 67 out of the 70 major Chinese cities continued to soar year-on-year in March, latest official figures showed.

Chinese media has reported that low-cost houses often end up in the hands of the wealthy who falsify application forms or engage in other corrupt practices.

According to the China Daily, nearly 300 applicants for low-income housing in the south China boom town of Shenzhen were this week found to be well-paid government employees who were unqualified for such homes.

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China's April inflation eases but still high
AP


In this photo taken Monday, May 2, 2011, customers eat at a restaurant in Beijing, China. China's surging inflation eased slightly in April as Beijing AP – In this photo taken Monday, May 2, 2011, customers eat at a restaurant in Beijing, China. China's surging …

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By JOE McDONALD, AP Business Writer – Wed May 11, 6:53 am ET

BEIJING – China's inflation eased slightly in April as repeated interest rate hikes and other controls began to cool an overheated economy.

Consumer prices rose 5.3 percent over a year earlier, driven by an 11.5 percent jump in food costs, data showed Wednesday. That was down from March's 32-month high of 5.4 percent but exceeded private sector forecasts and the government's 4 percent target for the year.

"Inflation has taken a bit of a step back in April but that doesn't signal the end of China's problems," said IHS Global Insight analyst Alistair Thornton.

The data came amid signs official efforts to steer economic growth that hit 9.7 percent in the first quarter to a more sustainable level might finally be taking effect. Earlier economic indicators showed April growth in imports and manufacturing both slowed.

Stubbornly high inflation has frustrated Chinese leaders who have tried to reassure the public by declaring taming prices their priority. Beijing has hiked interest rates four times since October and ordered companies to hold down prices, but inflation is expected to stay high in coming months.

The government says it will allow a faster rise in China's tightly controlled currency to cool prices by making oil and other imports cheaper. But analysts say any rise is likely to be too small to satisfy Washington and other critics who say an undervalued yuan swells China's trade surplus and hurts foreign companies.

Analysts blame the inflation on the dual pressures of rising consumer demand that is outstripping food supplies and a bank lending boom that was part of Beijing's response to the 2008 global crisis.

Inflation is politically dangerous for the Communist Party because it erodes economic gains that underpin the party's claim to power.

In mid-April, a rise in state-set fuel costs prompted a three-day protest in Shanghai by hundreds of truck drivers, disrupting cargo shipments in China's busiest port city.

Prices of farm goods eased in April and China's main index of manufacturing activity declined.

The manufacturing figures "suggest that the Chinese economy is stabilizing to a more moderate pace of growth, and that the government's suite of policies to combat inflation is likely taking effect," said Jing Ulrich, JP Morgan's chairwoman of Global Markets for China, in a report.

Still, analysts noted nonfood inflation crept up to 2.7 percent in April, the highest level since such data were first released seven years ago.

Price pressures "remain uncomfortably high," said a report by Matthew Circosta of Moody's Analytics.

"The government's tightening efforts are starting to slow inflation, but only ever so slightly," Circosta said.

The World Bank is forecasting full-year economic growth of 9.3 percent and inflation of 5 percent, above the government's target of 4 percent.

In a sign of a slowing economy, growth in China's industrial output eased in April, declining from March's 14.8 percent to a still-robust 13.4 percent, the National Bureau of Statistics reported.

The government reported Tuesday that import growth slumped to 21.8 percent from March's rapid 32.6 percent. That reflected weaker demand for iron ore and other goods as government curbs reduced investment and construction.

Producer price inflation fell from March's 7.3 percent to 6.8 percent, still suggesting retailers will face pressure to pass on higher costs to consumers. Growth in retail sales declined to 17.1 percent from March's 17.4 percent.

Food price inflation is especially sensitive in a society where poor families spend up to half their incomes to eat. Beijing is paying food subsidies to the poorest households and has told local leaders to assure adequate vegetable supplies in markets.

Last week, in an apparent warning to companies to hold down prices, consumer goods maker Unilever was fined 2 million yuan ($308,000) for talking to Chinese media about planned price hikes for soap. The government complained that disrupted "market order" and efforts to squelch expectations of further rises.

Premier Wen Jiabao, China's top economic official, said last month Beijing would "increase the flexibility of the yuan's exchange rate" to ease price pressures, though he gave no target level.

The yuan, also known as the renminbi or people's money, has risen by about 5 percent against the U.S. dollar since Beijing promised greater flexibility last June.

Some commentators suggest inflation will force China's exporters to demand higher prices from customers in the United States, Europe and elsewhere. But analysts say they have yet to see that impact.

"There has been no direct pass-through from inflation in China to the price paid by importers of Chinese goods, a sign that Chinese firms are still able to absorb rising costs," said Mark Williams of Capital Economics in a report this week.

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Silver Trading in Shanghai to Extend Surge on Inflation Demand
By Bloomberg News - May 13, 2011 1:03 AM ET

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Silver trading in Shanghai, which jumped 65 percent in terms of volume last month, will continue to increase on demand for a safe-haven investment, even as the government moves to curb volatility and speculation.

“Chinese investors have piled into silver as one of the investment choices to hedge against rising inflation,” Shi Heqing, silver analyst at Beijing Antaike Information Development Co., said today. The government’s move to increase margins in an effort to curb volatility won’t affect buying interest in physical material, Shi said.

Volume on the Shanghai Gold Exchange rose to 33,293 metric tons in April, up from 20,206 tons the previous month, according to data from the exchange, the main bourse in China for trading silver. The central bank raised reserve requirements a day after reports showed inflation and lending exceeded economists’ estimates in April, with consumer prices rising more than 5 percent.

“China’s physical demand for silver may remain high as industrial use from the electronics and solar energy sectors and demand for silver coins and bars will rise,” Shi said. China turned to a net importer of silver in 2010, a situation that has not changed this year, according to Antaike.

Prices in Shanghai have tumbled about 30 percent this month after the exchange adjusted daily trading limits and margins four times in the past week to control speculation. Last week, silver futures in New York plunged the most since at least 1983 after the Comex exchange boosted margin costs by 84 percent. On April 25, the metal reached $49.845, the highest since the Hunt Brothers tried to corner the market in 1980.
Individual Investors

Most of the silver trading in Shanghai is conducted by individual investors, while institutions remained the most active investors in gold and platinum trading, according to the exchange’s data.

Silver for immediate delivery slipped as much as 8.1 percent yesterday to $32.3125 an ounce, the lowest level since Feb. 25. It dropped 1.2 percent to $34.3225 at 1:00 p.m. Singapore time. The Shanghai contract dropped 0.2 percent to 7,646 yuan a kilogram.

The Shanghai exchange widened the trading band for silver contracts to 13 percent from 10 percent today and also raised the margin requirement to 19 percent from 18 percent.

--Feiwen Rong. Editors: Richard Dobson, Jake Lloyd-Smith

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at [phone] or [e-mail]

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Roundup of China's Major Economic Indicators for April
By Pang Lei

Published: 2011-05-11



The National Bureau of Statistics announced earlier today that China's consumer price index (CPI) rose 5.3 percent year-on-year in April, a fraction slower than the pace of growth registered in March.

According to NBS, the CPI, a main gauge of inflation, rose 5.2 percent in urban areas and 5.8 percent in rural areas. Food prices rose 11.5 percent when compared to the same period last year, but dropped by 0.4 percent on a month-on-month basis, with fresh vegetables prices down by 11.2 percent month-on-month.

The prices of consumer goods went up by 5.9 percent and the prices of services grew up by 3.9 percent.

According to the NBS, the cost of housing and health care also increased. Housing prices were up 6.1 percent while the price of health care and personal articles increased by 3.2 percent.

The producer price index (PPI), another measure of inflation at the wholesale level, rose 6.8 percent in April.

The NBS also released data on fixed-asset investment and industrial production that were calculated according to a new standard as announced by the bureau earlier this year.

According to the NBS, "in the first four months of 2011, the investment in fixed assets (excluding rural households) reached 6.27 trillion yuan, up by 25.4 percent year-on-year, it was 0.4 percentage point higher than that in the first three months of this year. Of this total, that in the state-owned and state holding enterprises reached 2.20 trillion yuan, a rise of 16.6 percent. The month-on-month growth was 3.08 percent in April."

The NBS also noted that "in April, the total value added of the industrial enterprises above designated size (which now applies to companies with core revenue of over 20 million yuan) was up 13.4 percent year-on-year, or 1.4 percentage points lower than that in March 2011. In the first four months of this year, it was up by 14.2 percent year-on-year, which was 0.2 percentage point lower than that in the first three months of the year."

Investment in real estate development increased rapidly, with investment in real estate development over the first 4 months totalling 1.33 trillion yuan, a year-on-year growth of 34.3 percent. Of this total, the investment in residential buildings reached 949.7 billion yuan, up by 38.6 percent.

The People's Bank of China also released financial data today revealing that 739.6 billion yuan worth of yuan-denominated loans were issued in April 2011, down 20.8 billion on the amount issued in April 2010.

The central bank also revealed details about money supply in the monthly report. By the end of April, broad money supply (M2) had reached 75.73 trillion yuan, up 15.3 percent on a year-on-year basis. This rate of annualised growth was 1.3 percentage points lower than the figure of 16.6 percent registered at the end of March and 6.2 percentage points lower than the rate of annualised growth measured in April last year.

M1, a narrower measure of money supply, climbed to 26.68 trillion yuan by the end of the first quarter, up 12.9 percent year-on-year. This rate of annualised growth was 2.1 percentage points lower than the figure of 15 percent registered at the end of March and 18.4 percentage points lower than the rate of annualised growth measured in April last year.

The Ministry of Finance also published details of the fiscal revenue and spending on its website earlier today

In April, the national government collected 1.01 trillion yuan in fiscal revenue, 215.64 billion yuan more than collected in April 2010 an increase of 27.2 percent.

Of this figure, central government revenue accounted for 521.41 billion yuan, up 24.8 percent on last year and local government revenue of 486.8 billion yuan, an increase of almost 30% year-on-year.

Over the first 4 months of this year, total government revenue of 3.62 trillion yuan has been collected, which is 31.4 percent or 865.5 billion more than had been collected over the same period last year.

Central government revenue accounted for 1.83 trillion yuan of this figure and local government revenue accounted for the other 1.79 trillion yuan, up 29.5 and 33.4 percent respectively.

Of the total figure, almost 3.3 trillion was collected as tax revenue, up 30.5 percent on last year, while the remaining 358 billion came from non-tax revenue, up 40.3 percent on last year.

The growth in fiscal revenue is expected to continue to decline and analysts say that growth in revenue peaked at the start of the year with customs excise on soaring imports helping to drive fiscal revenue up by 36% year-on-year over the first 2 months of the year.

The Ministry of Finance report also revealed details of government spending, noting that total government expenditure in April came to 730.4 billion yuan, up 31% or 172.9 billion yuan on the amount spent in April 2010.

Of this spending, 168.7 billion was spent by the central government and 561.7 billion by various local governments.

Over the January to April period, total government spending was over 2.54 trillion yuan, 545.3 billion yuan more than the corresponding period last year, a jump of 27.4 percent.

The central government accounted for 481.7 billion of this spending, while local government spent 2.05 trillion.

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China's property sales rose 13.3% in first four months
English.news.cn 2011-05-11 11:48:37 FeedbackPrintRSS

BEIJING, May 11 (Xinhua) -- The value of property sales in China during the first four months rose 13.3 percent year on year to reach 1.4078 trillion yuan (about 217 billion U.S. dollars), according to the nation's top statistics authority on Wednesday.

Sales of residential housing rose 11 percent, while office sales and that of business properties rose 23.8 percent, and 26.6 percent, respectively, according to figures released by the National Bureau of Statistics (NBS).

Meanwhile, floor space sold during the period reached 248.98 million square meters, up 6.3 percent compared to the same period last year.

Sold floor space of residential housing rose 5.8 percent, with that of offices and properties for commercial use rose 4.4 percent and 7.7 percent, respectively, the figures show.

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Property tax may be introduced nationwide
2011-05-07 09:29

THE potential introduction of a property tax nationwide is one of the biggest new factors affecting China's real estate market, Deloitte said yesterday in its latest industry analysis.

Despite the implementation of a series of austerity measures, there is still no obvious sign of a price correction in residential properties and this probably will trigger further policy changes this year, according to Deloitte's China Real Estate Investment Handbook 2011 Edition.

"There has been mounting pressure for the government to control property prices," said Nancy Sun Marsh, capital providers sector leader at Deloitte China. "More tax changes, including the potential introduction of property tax in China on a nationwide basis, might be prompted as the government readjusts its housing policy."

An annual blue paper released on Thursday by the Chinese Academy of Social Sciences also suggested more tightening measures could be launched this year to combat soaring house prices after earlier attempts failed. The implementation of a property tax would be one of the toughest policies to be introduced by the central government, the paper said.

Property tax trials currently being held in Shanghai and Chongqing should be expanded to more cities across the country at an accelerated pace over the next few years, the blue paper said. By levying such a tax, local governments will be able to get a more sustainable source of fiscal income, thus cutting their heavy reliance on land sales, which has been widely blamed for skyrocketing home prices across the country over the past decade.

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Land prices in China Down 13 Percent

BEIJING - The price of land in 120 cities in mainland China fell 13 percent in the first quarter of 2011. This indicates the Chinese government efforts to cool the property market began to feel its effects. Data China Real Estate Index System (CREIS) shows the average land price of 1609 yuan before 1914 Hong Kong dollars per square meter during the first three months of 2011 until March. The number of housing being sold through government auctions fell 21 percent to 4372 in 120 cities.

Apartments in Hangzhou, China. Photo taken early July 2010. The Chinese government states continue to tighten policy in property prices.“Developers are now carefully considering the acquisition of their land home sales declined following the central government’s policy of limiting the number of home purchase,” said Director CREIS, Jiang Yunfeng as quoted by South China Morning Post, published in Hong Kong. Jiang expects property prices will continue to be pressured amid a series of policies to curb demand and speculation. “The developers might adopt a low price strategy to market their new projects to maintain cash flow,” said Jiang. “Developers will be more selective filling of their land amid a sluggish market,” he said.

Last week, the Shenzhen Municipal Government was forced to withdraw a premium commercial sites from the auction after receiving tremendous response from potential buyers. At the start of the auction, this site has offered 650 million yuan or 24,000 yuan per square meter. This nine attract developers to join the auction, but nobody bid. In Guangzhou, the four regions with a total area of ??210,000 square meters have been sold at the opening auction.

Based on the observation CREIS to 35 cities in mainland China, home sales volume has decreased more than 40 percent between 4 April and 10 April, compared to the previous week. Residential sales transaction in Dalian fell 89 percent during that period, while Chongqing slumped 58 percent. Similarly, home sales in Beijing fell 40 percent.

In February, a local non-Beijing residents are required to have proof already paid taxes in the city for five years, before they are allowed to buy a house in the city. The number of non-local residents Beijing so far recorded 60 per cent.

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Pre-built homes prices fall 10% in Beijing
13:31, May 03, 2011
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Prices for homes purchased "off plan" have fallen 10 percent in Beijing since authorities unveiled policies to control the property market, according to an industry insider.

http://english.peopledaily.com.cn/90001/90778/90862/7368018.html

Homelink, one of China's largest real estate agencies, has released statistics that show the average cost of buying an apartment before construction is now 22,512 yuan per square meter, down from 24,954 yuan in March when the cooling measures came into force.

The reason for the decline is largely due to introduction of more low-price projects in the capital's suburbs last month, said the company's chief analyst, Zhang Yue. "There are very few new projects within the Fourth Ring Road, while most of those now being promoted are outside the Fifth Ring Road," she said.

More property developers have also delayed sale schedules in the hope of attracting higher prices once the market recovers. According to data from Yahao Real Estate Agency, only 10 of the 34 projects that had planned to start selling in April actually put properties on the market.

Figures from B.A. Consulting and 5i5j, a real estate service group, also show just 6,500 new homes were sold in April, a drop of 46.7 percent month-on-month.

The shrinking prices and trade volume have cooled many investors' interests.

"The real estate market in large cities, such as Beijing and Shanghai, has been developed for a decade. The land purchase costs more, and housing sale price makes smaller profit," said Chen Jun, vice-chairman of the Zhengjia Chamber of Commerce in Beijing. "The situation is much better in second- and third-tier cities."

Despite the slump in "off-plan" purchases, the market for secondhand homes has held strong. Homelink statistics show the average price is now 19,811 yuan per square meter, just 0.2 percent less than in March.

"Most owners and buyers are sticking to wait and see, which means the seesawing of secondhand homes prices will last for at least a couple of months," said Zhang.

Long Wen, a resident of Dongcheng district, said he and his fiancee spends almost every weekend looking for a two-bedroom apartment. "I feel so disappointed, as it's really hard to find an apartment that meets our demands and our budget," he told METRO.

The price control measures released in March, part of nationwide efforts to cool the overheating property market, will see the market stay "stable but with a slight decline", said city mayor Guo Jinlong.

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No Need to Fear a Property Bubble in China: Analyst

Published: Tuesday, 3 May 2011 | 1:56 AM ET
Text Size
By: Shaun Rein, CNBC Contributor
Founder & Managing Director, China Market Research Group

http://www.cnbc.com/id/42812098

"Hear that sound?" said Andy Xie while cupping his ear. "That’s the sound of China's real estate bubble bursting.”

In Shanghai, third home purchases are no longer allowed, and non-Beijing residents cannot easily buy homes in the capital now.

Xie, a former Morgan Stanley star economist and one of the more vocal China bears, was telling me that Armageddon had arrived. Housing prices were going to drop 50 percent, maybe even 90 percent. Xie and I were debating on CNBC last September in a China "Bull vs. Bear" showdown hosted by Bernie Lo. You can see the three segments here: Bull vs Bear: China property debate 1 / Will China's property bubble burst? / China's growth story

Xie dismissed my argument that moves to limit leverage – home buyers needed to put down 30 percent for their first home, 50 percent for their 2nd – made it unlikely that prices were going to drop anytime soon. He pointed to vacant units as proof that a hard landing was imminent for China, and that it would come from its real estate sector.

What has happened in the 8 months since the debate? Housing prices have risen 30 percent while sales volumes have dropped 70 percent. In other words, people buying homes can afford them. There is no panic selling like in the US or Dubai because rules in place for years have prevented the kind of speculation that was rampant in America, where people bought multiple homes with zero down.

Restrictions have actually gotten stricter and have kept buyers on the sidelines. In Shanghai, third home purchases are no longer allowed, and non-Beijing residents cannot easily buy homes in the capital now. There are reports of an annual property tax being implemented throughout the country.

Even if prices drop 20 percent (as they might) that won't cause the panic that hit the U.S. because mortgages won’t be underwater. Loans were not sliced up and packaged to be sold off as CDOs in a massive exercise in leveraging.

During our debate and in subsequent media appearances, Xie surprisingly made the mistake of equating empty units with a bubble. Instead, empty units indicate a misallocation of resources, not a bubble. There are far too many empty units being held by wealthy folks as investments while far too many live in abominable housing conditions.

The lack of affordable housing could cause social instability. Even the 10 million affordable units the government has pledged that will hit the market this year are not enough, as incomes for the majority are not rising as fast as the cost of decent homes. As the country urbanizes, the demand for housing will continue to spike.



Shaun Rein
Founder of the
China Market
Research Group

Moreover, on the commercial side, there have been too many poorly conceived retail centers. Too many developers don't seem to understand the market can only sustain so many luxury complexes housing Louis Vuitton and Gucci boutiques. Expect to see more wasteful commercial projects launched as more developers switch from residential to commercial because of laxer controls in that area. This is an area where the government will need to step in to absorb excess liquidity.

Still, even a steep drop in commercial is not going to seriously threaten China’s overall economy; analysts estimate that commercial accounts for just 20 percent of total real estate construction there. And the government can force state-owned banks to roll over loans rather than answer to quarterly calls and mark to market accounting like Citigroup and Bank of America have to.

In the short term, inflation is a far larger threat to China’s overall economy than the risk of a hard landing in real estate. Prices on food products like eggs and milk have risen 10 percent over the last few months. In response, the government has increased produce stocks, implemented price controls and pushed consumer product companies like Unilever and P&G not to raise prices.

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Last week truckers in Shanghai shut down ports for three days as they protested soaring oil prices. Low-income families and retirees have been hoarding out of fear of rising prices.

Price caps are not an effective long-term strategy, however, as we saw during the Soviet era. To stave of inflation, the government needs to move less through administrative means like price controls and more towards currency reform. Although it will be painful in the short term, the yuan needs to appreciate 3-5 percent in a one-off event to offset rising commodity prices.

Doing so might cause some pain ahead, notably for low-end manufacturers, but it must be done for the broader economy. The reality is that inflation is here to stay. This is due mainly to two main reasons: The first is rising labor costs as the government increases the minimum wage to push a shift away from exports to consumption. The second is global investors’ dislike of US Federal Reserve Chief Ben Bernanke’s monetary policies which are causing them to abandon the US dollar for commodities like oil and gold.

China is not immune from a hard landing, but if one comes it won’t be because of a supposed housing bubble, as economists like Xie have argued. Inflation imported from the US is the bigger danger, and China will need to adjust its currency to deal with it.

[xero90]

China Watch: Housing Inflation Slows, What’s Up with Renren?

May 3, 2011, 9:40 PM HKT

http://blogs.wsj.com/chinarealtime/2011/05/03/china-watch-housing-inflation-slows-whats-up-with-renren/

A daily list of the best of The Wall Street Journal’s China coverage and what the Journal’s reporters in China are reading and watching online. (NOTE: WSJ has not verified items in the ‘News Items’ section and does not vouch for their accuracy.)

WSJ Highlights:

China’s housing inflation, a persistent headache for leaders Beijing, slowed in April.
As companies line up to go public in Hong Kong, some prospective investors are starting to lose confidence.
Social network Renren, known as “China’s Facebook,” battles for the IPO spotlight with patent litigation specialists RPX.

News Items:

China says it plans to expand marine surveillance around disputed islands. (BBC)
Beijing reiterates calls for an “immediate” end to the conflict in Libya. (Reuters)
Another wedding, another food safety scandal: 200 sickened in Shanxi. (Xinhua)

Digging Deeper:

Green Economy: The Financial Times takes a spirited swing at China’s growing bevy of “illegal” golf courses.
Feeling Bubbly? Bloomberg examines why Chinese social network Renren is seeking a valuation more than double Facebook’s. Says one Chicago-based IPO investor: “You can say it’s overvalued, but people are going to buy it anyway.”
Covering bin Laden: The China Media Project assembles some of the more interesting Chinese newspaper front pages the day after the al Qaeda’s leader’s death was announced.

[xero90]

Peter Schiff Austrian Scholars Conference

2

3

4

[wow_happens28]

Jim Chanos on the China Housing Bubble

Jim was on CNBC today and said basically what is on the following 4 day old video. He is one of the best known Short Sellers. He bashed First Solar and it fell over 4% after hours. He is bearish on alternative energy.Not a bad video. Big focus on the Chian housing bubble at the 4 minute and on.

http://www.marketwatch.com/story/first-solar-shares-drop-after-chanos-comments-2011-05-03?link=MW_story_latest_news

GL ALL

[wow_happens28]

Are you better off now part 2

President Obama did promise change>>

After two years of Obama...Here's your change!


January 2009
TODAY
% chg
Source

Avg.. Retail price/gallon gas in U.S.
$1.83
$3.704
89.6%
1

Crude oil, European Brent (barrel)
$43..48
$105..02
167.7%
2

Crude oil, West TX Inter. (barrel)
$38..74
$107..38
178.9%
2

Gold: London (per troy oz.)
$853.25
$1,469.50
70.5%
2

Corn, No.2 yellow, Central IL
$3.56
$6.33
78.1%
2

Soybeans, No. 1 yellow, IL
$9.66
$13..75
42.3%
2

Sugar, cane, raw, world, lb. Fob
$13..37
$35..39
164.7%
2

Unemployment rate, non-farm, overall
7.6%
9.4%
23.7%
3

Unemployment rate, blacks
12.6%
15.8%
25.4%
3

Number of unemployed
11,616,000
14,485,000
24.7%
3

Number of fed. Employees, ex. Military (curr = 12/10 prelim)
2,779,000
2,840,000
2.2%
3

Real median household income (2008 v 2009)
$50,112
$49,777
-0.7%
4

Number of food stamp recipients (curr = 10/10)
31,983,716
43,200,878
35.1%
5

Number of unemployment benefit recipients (curr = 12/10)
7,526,598
9,193,838
22.2%
6

Number of long-term unemployed
2,600,000
6,400,000
146.2%
3

Poverty rate, individuals (2008 v 2009)
13.2%
14.3%
8.3%
4

People in poverty in U.S. (2008 v 2009)
39,800,000
43,600,000
9.5%
4

U.S.. Rank in Economic Freedom World Rankings
5
9
n/a
10

Present Situation Index (curr = 12/10)
29.9
23.5
-21.4%
11

Failed banks (curr = 2010 + 2011 to date)
140
164
17.1%
12

U.S.. Dollar versus Japanese yen exchange rate
89.76
82.03
-8.6%
2

U.S.. Money supply, M1, in billions (curr = 12/10 prelim)
1,575.1
1,865.7
18.4%
13

U.S.. Money supply, M2, in billions (curr = 12/10 prelim)
8,310.9
8,852.3
6.5%
13

National debt, in trillions
$10..627
$14..052
32.2%
14


Just take this last item: In the last two years we have accumulated national debt at a rate more than 27 times as fast as during the rest of our entire nation's history.. Over 27 times as fast. Metaphorically speaking, if you are driving in the right lane doing 65 MPH and a car rockets past you in the left lane. 27 times faster, it would be doing 7,555 MPH!

Sources:

(1) U.S. Energy Information Administration; (2) Wall Street Journal; (3) Bureau of Labor Statistics; (4) Census Bureau; (5) USDA; (6) U.S. Dept. Of Labor; (7) FHFA; (8) Standard & Poor's/Case-Shiller; (9) RealtyTrac; (10) Heritage Foundation and WSJ; (11) The Conference Board; (12) FDIC; (13) Federal Reserve; (14) U.S. Treasury

[xero90]

Are you better off now?
As 2012 nears, liabilities of the Obama administration keep piling up
Augusta Chronicle Editorial Staff
Monday, May 2, 2011

http://chronicle.augusta.com/opinion/editorials/2011-05-02/are-you-better-now

At least one world body predicts China will replace America as the world's leading economy by 2016.
Advertisement

What are we doing to prevent that?

Consider:

We've got a president who is presiding over chronically high unemployment; a growing energy conundrum and stifling high fuel prices that threaten to destroy the already-muted economic recovery; a historic buildup of a national debt that could bring down the dollar if not the country; unprecedented government takeovers of the auto, finance and health care industries; and a foreign policy that looks intentionally incoherent.

In addition to all the above, home prices in most major cities are still falling.

"The Standard & Poor's/Case-Shiller 20-city index shows price declines in 19 cities from January to February," said one news report. "The index fell for the seventh straight month."

The index indicates the housing market is "within a hair's breadth of a double dip" recession.

Quoting the S&P report, the South Florida Sun-Sentinel newspaper writes, "South Florida home prices fell 6.2 percent in February from a year ago and there remains 'very little, if any, good news about housing' ..."

And after being hailed as the first black president, what has he done for black America, other than lift its spirits?

"It's never easy to tell someone you like that he's a disappointment," writes African-American columnist DeWayne Wickham in a USA Today column headlined "Obama breaks vow with jobless blacks" -- noting that black unemployment is 15.5 percent, nearly double what it was before Obama's election.

Wickham writes that he doesn't blame Obama for the economy and the state of black America -- "But I do fault him for not doing more to fix this problem."

Indeed, since Mr. Obama has been in office, his priorities have been: government spending, which ultimately failed to turn the economy around; increasing government control over health care; ending the "Don't Ask, Don't Tell" policy for gays in the military; and now immigration reform.

Has he been consciously or negligently avoiding the black issues Wickham writes about?

Considering his ineffectiveness in other areas, maybe it's a blessing in disguise if he has.

Mr. Obama's campaign manager said this week they will have to have to "scratch and claw" to get him re-elected. Well, certainly that would be preferable to running on his record.

When you look at the Obama record -- chronic unemployment, staggering debt, degradation of the dollar, unprecedented growth of government and more -- you wonder why we'd even think of signing up for this again.

Or why we did the first time.

Our question isn't whether this president was born in America.

Our question is: When will he start acting like it?

[xero90]

2016 est

[wow_happens28]

Higher incomes lead to surging home prices
I think the below story simplifies the situation.
http://www.chinadaily.com.cn/business/2011-04/29/content_12423389.htm

[xero90]

China property: to burst, or not to burst?
April 28, 2011 8:28 am by Josh Noble

http://blogs.ft.com/beyond-brics/2011/04/28/china-property-to-burst-or-not-to-burst/

Among the captivating figures released in China’s 2010 census is a nifty little stat: Chinese urbanites went up from 36 per cent of the population in 2000, to a hair’s-breadth short of 50 per cent in 2010. It’s pretty safe to assume, then, that by the end 0f 2011 there will be more Chinese living in cities than in the countryside.

Neat timing, therefore, for a fresh report on whether China is experiencing a property bubble in its major cities.

Commerzbank’s Ashley Davies takes many of the China bubble arguments head on.

“There are too many empty houses” – no, he says. While estimates vary, a commonly used figure of 64m empty homes equates to 4.8 vacant homes per hundred people. In the US, that figure is 5.9 per 100.

“Chinese properties are expensive” – yes, he says, but not too expensive. House price to income ratios in some parts of China are dizzying – take Beijing, where Commerzbank says it’s 38 times average annual incomes. But in other cities, like Shenyang, the figure is still around 10 – i.e. somewhere in between Frankfurt (5) and New York (12), but less than Taipei (20) and Singapore (18). If wages rise quickly enough, some of these ratios will fall back to more comfortable levels.

More importantly, prices haven’t hit Japanese levels. In the 1980s, Tokyo office space went for as much as $250,000 a square metre. In Beijing, that figure is currently just $4,100 – a third that of Singapore. What’s more, people have been discussing a potential property bubble in China for years – in Japan nobody saw it coming. (Which raises the question – does a bubble only exist if you can’t see it?).

“There’s too much investment in residential construction” – not necessarily, he says. While housing investment as a percentage of GDP is 8 per cent – more than it was at the peak in Japan – there’s no historical evidence of how much is too much. China builds poor quality buildings that will need replacing relatively quickly. Combined with high urbanisation rates, this means a high level of residential investment can be sustained for a long time in China.

Davies admits that the finances of local governments – which have sold land in order to generate revenue – are a concern. They have relied heavily on the housing boom, and a turn in the market would damage their ability to meet payments.

The impending slowdown of the Chinese economy will also put the question of a property bubble - and what it means for the banking system – in sharper focus. Meanwhile the (mooted) opening of the Chinese capital account could result in huge outflows of capital as wealthy Chinese sell mainland assets to buy up property, stocks etc overseas.

In conclusion:

In our view the property market is guilty of exuberance but does not yet constitute a true bubble. Hence, the rationale policy response is to proceed with capital account liberalisation while keeping an iron grip on the property market. This seems to be exactly the approach being attempted by the authorities.

But one thing that sticks out is this chart, showing residential investment against fixed asset investment over the past 7 years.

It makes you wonder – while there may not be a housing investment bubble in China – might there be an investment bubble in something else? (Airports, train stations, shopping malls…)

[wow_happens28]

A great 10 page InfoGraphic of China

Many are conflicting housing info, and note the huge amount of government assistance for housing on page 10. A ponzi scheme in China, like QE1,2,3,4,5,6,7,8,9,100?

http://www.chinadaily.com.cn/business/infographic_10.html