# News & Current Events > World News & Affairs >  Charting China's Imminent Implosion

## Swordsmyth

Debt is money spent in the present and an obligation to be repaid in the future.  Given this, I thought I'd *contrast China's population of young versus their obligation to be repaid in the future.*
  The chart below shows the 0 to 24 year old Chinese population (green  line) versus Chinese debt (red line) and GDP (black line).  The 0 to 24  year old Chinese population swelled by over 300 million from 1950 to  it's ultimate peak in 1991. * Since that peak, the total  population of young in China has fallen by 176 million, or a 30% decline  in the number of children across China.*  Moving forward, the  UN medium estimate hopes the formal elimination of the one child policy  will simply slow the rate of decline in the population...but by no means  will China's fast declining childbearing population (those aged  15-44) nor disproportionately young male population potentially be  offset by a slightly less negative birth rate. * Contrast that with the quantity of debt being forcibly injected into a nation that faces a massive imminent population decline.*

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

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

  Massive overcapacity (thanks to over a decade of government mandated  mal-investment) versus a ever swifter declining base of consumption *does not add up to a burgeoning middle class or a happy ending.*
  *  *  *

More at: https://www.zerohedge.com/news/2018-...nent-implosion

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## Swordsmyth

_The Mandate of Heaven will be withdrawn, and the autocratic regime overthrown._
*The absolute confidence that China's political structure is  permanent and forever is reminiscent of the absolute confidence in the  1980s that the USSR's political structure was permanent and forever.* But  the social contract that undergirds the Communist Party's absolute  power in China is fast-eroding, and those who understand Chinese history  sense the winds of change have shifted and the next revolution in China  is already darkening the horizon.
*The story starts in the Song Dynasty, which reached its zenith in the mid-1200s.*
  I've been pondering the excellent 1964 history of the Southern Song Dynasty's capital of Hangzhou, Daily Life in China on the Eve of the Mongol Invasion, 1250-1276 by  Jacques Gernet, in light of the Chinese government's unprecedented  "Social Credit Score" system, which I wrote about in May 2018: Kafka's Nightmare Emerges: China's "Social Credit Score".
  The scope of this surveillance is so broad and pervasive that it borders on science fiction: Inside China’s Dystopian Dreams (NY Times)
China has turned Xinjiang into a police state like no other (The Economist)
  In the Song Dynasty, arguably China's high water mark in many ways  (before the Mongol conquest changed China's trajectory), social control  required very little force. The power of social control rested in the  cultural hierarchy of Confucian values: one obeyed the family's  patriarch, one's local rulers and ultimately, the Emperor.
*Author Edward Luttwak made the distinction between force and power in his fascinating book* The Grand Strategy of the Roman Empire: From the First Century CE to the Third: power is persuading people to cooperate, force is making them obey.
*Power is people choosing of their own accord to comply*, for reasons they find sound and that serves their self-interest; there is little need for the application of force.
*Power is highly leveraged*; a relatively small  police/military and judiciary is all that's needed. Force, in contrast,  doesn't scale: it's enormously costly in capital and labor to monitor an  entire populace and impose control and obedience.
  While the Song Dynasty had a police force, a judiciary and an army,  the populace generally managed itself via an internalized secular  religion that placed the father, civil authorities and the Imperial  state at the top of a natural order that enabled the harmony of Heaven  and Earth. To disobey would be to threaten the harmony that served  everyone.
  In the early days of the Communist revolution (1949 to 1965), the  majority of China's populace embraced the values and authority of the  Communist regime, despite the hardships and setbacks of the Great Leap  Forward (millions dying needlessly of starvation) and other centralized  incompetencies.
  But the Cultural Revolution that was launched with Mao's blessing in  1966 was only embraced by the youthful Red Guards. The rest of the  society had to be monitored and forced to comply with the mercurial  injustices and arbitrary nature of the Cultural Revolution, which  imprisoned millions of China's most accomplished citizens in various  forms of forced deprivation: house arrest (the most mild); forced  relocation to rural labor, re-education (i.e. torture) and imprisonment.  Many were killed without even the semblance of a judicial process.
*In broad brush, the Cultural Revolution broke the power of the Communist Party and the government.* Thereafter, the Party and the state only had force at their disposal.
  The rise of broadly distributed prosperity (Deng's "to get rich is  glorious") replaced the failed power of Communist ideology with a new  social contract: obey the party and the state and you'll become  prosperous.
*If this new contract was rock-solid, why would China's  government need the vast surveillance system they're putting in place  for fine-grained control of the populace?* Clearly, the  leadership (Xi and his cabal) are aware that the prosperity is not  permanent, nor is it being distributed evenly enough to harmonize Heaven  and Earth.
  Sensing their lack of social power, they are turning to technology to create a vast system of coercion (force).
*Force is not a substitute for power.* For this  reason, the "Social Credit Score" system smacks of desperation. Xi et  al. see the storm clouds on the horizon and are moving quickly to  install an autocratic system of _Total Information Awareness and Control_.
*But China's history is clear:* the culture and the  people prefer a system in which power is maintained through social  norms, not force. With Communist ideology a dead force, and prosperity  about to wither, what's left? A system of autocratic obedience backed by  Orwellian technology and gulags.
*The Mandate of Heaven will be withdrawn, and the autocratic regime overthrown.* Perhaps  the replacement social contract and political structure will still be  called "Communist," but it will be a very different social contract and  political structure than the current version.

More at: https://www.zerohedge.com/news/2018-...lution-horizon

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## Swordsmyth

For close to 30 years, we’ve been told that China is going to  overtake the US and the ‘West’ and become the largest and most powerful  economy on Earth. Supposedly, the best the West can hope for is to  ‘manage’ China’s rise and hope it liberalizes on the way to the top.

 It is clear why that sentiment continues to be so prevalent. China  has been the fastest growing large economy in the world for decades.  Since 2000, China’s economy has grown over 325%. That compares to 33% in the US and just 1% in Italy. Since 2008, China has been responsible for a stunning 54% of all global GDP growth  (pdf). China has become the second largest economy in the world,  roughly two-thirds the size of the US, the world’s largest manufacturer,  the largest consumer of industrial resources, and the largest exporter.  For decades, China has outgrown the US and the West in virtually every  economic metric one can think of.
    Accordingly, the mythos of the ‘Chinese Model’ has emerged: so called  ‘Capitalism with Chinese Characteristics.’ Yet no one can articulate  exactly what ‘Capitalism with Chinese Characteristics’ means beyond  platitudes about the ‘genius’ of China’s leaders and an even vaguer  sense of ‘long term’ planning and ‘wisdom.’
 In truth, the secret to China’s economic success is simple. It is  built on the largest and fastest growing debt bubble in modern history.  Today, the ratio of Chinese banking system assets to GDP (a measure of  financial system debt) is higher than it was in the EU on the eve of the  2011 European Sovereign Debt Crisis and nearly six times that in the US  before the 2008 Housing Crisis.


 Looking specifically at corporate and household sector debt, China is  reaching levels last seen in Spain before their financial crisis in  2011 or in Japan at the peak of their economic growth in the 1990s.

 What’s more, as we first explained here on The Sounding Line,  the Chinese government likely ran a bigger deficit than the US last  year when local government debt is included in the calculation. The  whole world critiques the US government (quite justifiably) for its  unsustainable spending, yet we hear very little about China’s similarly  large government spending problem.
 Considering that most of these figures exclude China’s massive $10 trillion shadow banking system, notoriously lax accounting rules, and penchant for completely making up economic statics to create the illusion of growth, China is likely in the midst of the largest debt bubble in modern history.
 Much of China’s debt has gone into massive infrastructure projects  throughout the country. Accordingly, China is now spending nearly 90% of  GDP to build infrastructure despite persistent overcapacity problems  and numerous ghost cities  that still remain essentially empty years after they were built.  Perhaps the most remarkable thing about China’s economy is that it is  ‘only’ growing at an official rate of 6.7% despite such massive over  construction and exaggerated economic numbers.



More at: http://thesoundingline.com/taps-coog...rose-in-china/

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## goldenequity

good thread. AAA+++

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## Swordsmyth

Edwards' argument revolves around the claim with China's policymakers  having had a very good crisis in 2008 (which was papered over only  thanks to trillions in new debt, as Kyle Bass' tweet above shows), "*since  then, naysayers, such as myself, have been consistently wrong in  projecting that policymakers would lose control and that a grotesque  credit bubble would burst and lay the economy low."*

  And yet, just like in late 2015, with the sharp swoon that followed  China's devaluation and the bursting of its stock bubble, once again  fears are growing about the Chinese economy slowing rapidly, even if few  fear a bust. Instead, Edwards contends that a*s President Trump  exerts mounting pressure on the Chinese economy via tariffs, "the worry  is that a Chinese policy response will send the global markets into a  tailspin, just as the August 2015 devaluation did."*
  Which, in turn, reminds the SocGen strategist that, as we reported back in August,  China just unveiled its first ever current account deficit, marking a  seachange in the direction of China's capital flows, and making Chinas  policymakers job even harder, once again bringing up the question: "Is  luck running out?"


  Of course, the current account is just a symptom of an greater malady  affecting China: namely a rapid slowdown in Chinese growth. Referencing  the recent work of SocGen China economist Wei Yao, Edwards notes that  the swing into current account deficit shown above is likely to be  permanent. The result will be increased fragility in the renminbi "at a  time when economic growth is slowing sharply, led by the industrial  (secondary) sector (see left-hand chart below).* And with export growth to the US only temporarily buoyed to avoid tariff hikes, this slowdown is likely to intensify.*"

  Even more troubling than China's brand new current account deficit is  that as Yao highlights, the Chinese economy has slowed to the point  that *employment has begun to fall, most visibly in the slump in the latest employment component of the PMIs* (both  official and Caixin). And while the decline in manufacturing jobs has  been apparent for a few years now (ie sub 50), but it is also the  services sector that is now also shedding labor, making China's economic  slowdown a "really serious" issue for policymakers.

  Meanwhile, the traditional response Beijing has activated in such  situations - namely blowing a massive credit bubble, no longer appears  to be an option as Chinese policy seems "to swing from feast to famine  as policymakers grapple with the increasing instability of the credit  bubble they have created."

  The main reason cited by the SocGen economists for the policymakers'  reluctance to blow yet another bubble is concerns about how it will  affect China housing market, where the issue is that Beijing's credit  policy swings about so violently it destabilizes a housing market that  is constantly prone to bubble tendencies (see chart below). This,  Edwards believes, is due to few alternative investment opportunities -  especially after the 2015 H2 equity market collapse.



  And here Edwards makes a bold assumption: "*after the  aggressively expansive monetary and fiscal policy of 2015/16, the  authorities remain determined not to reignite the credit bubble*."  Perhaps, or perhaps Beijing simply has not had a reason to pull out all  the debt stops just yet in the past 3 years, ever since the Shanghai  Accord of early 2016 unleashed another debt tsunami across China, whose  aftereffects have kept the economy afloat.
  Still, one can argue that Edwards is correct, especially when one  looks at the overall public sector deficit which is already at 2009  crisis levels of 11% of GDP, as creation of China's shadow credit - *the deus ex machina for the past decade* - continues to be "strangled."


  As a result of these trends, the SocGen strategists describe Chinese  policy easing in the face of the current sharp slowdown as only  "half-hearted" and demanding for more stimulus from Beijing to avoid a  sharp economic contraction. 

  Which in turn brings us back to the start of this post, and the  lesson from 1987, because whereas everyone is focusing on an entirely  different set of problems, Edwards cautions that *"no one expects a [Chinese] hard-landing"* and asks "*Why not?*"
  If he, and Kyle Bass are right, we'll get the answer to this question very soon.


More at: https://www.zerohedge.com/news/2018-...e-hard-landing

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## Swordsmyth

https://twitter.com/Jkylebass/status...56440353169408

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## goldenequity

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

prepare for a global slowdown.

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## Swordsmyth

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

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


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


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

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

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

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



More at: https://www.zerohedge.com/news/2018-...on-spring-2019

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## Swordsmyth

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

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

More at: https://www.zerohedge.com/news/2018-...ey-out-country

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## Swordsmyth

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

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


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

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

More at: https://www.zerohedge.com/news/2018-...nancial-crisis

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## Danke

http://www.ronpaulforums.com/showthr...ht=BcyYyyaPz84

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## Swordsmyth

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

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



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




More at: https://www.zerohedge.com/news/2018-...hinas-not-safe

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## Swordsmyth

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

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



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

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

Firstly, PBOC is looking into the possibility of promoting  equity financing for private firms. The central bank is working with  various financial institutions such as fund managers and brokerages on  this initiative.Secondly, PBOC will expand a recently launched scheme to promote  private firms’ bond issuance in collaboration with financial regulators.  Three companies have already raised 1.9 billion yuan of bonds with  over-subscription, and 30 more private enterprises are preparing for  bond issuance.Thirdly, PBOC will add a new metric in the MPA formula to encourage  lending to private companies. They will also increase the supply of  long term and reasonably priced funding for financial institutions  (further RRR cuts would fit this goal, in our view).
As Goldman notes, "*it is rare for a senior official to openly acknowledge previous policy missteps."* As  a result, this is likely in response to the recent meetings hosted by  President Xi, especially the one with entrepreneurs. That meeting was  unique in that it carried the highest political authority and at the  same time was very specific in terms of the measures to be taken.
  As such, it likely put the onus on senior officials who attended the  meeting to act in a timely manner. While the governor stated there is no  change in the overall monetary policy stance, which is described as  prudent, and more support for the real economy via more bond issuance  had been stated previously, *his comment on past policy missteps suggests a change in policy stance.*  Rather, the reiteration of the current policy stance should be read  more as an indication that the PBOC will be measured in terms of the  size of additional loosening. In terms of more tangible measures,  Goldman *now sees a higher probability that TSF growth will accelerate from now,* but  likely at a very measured pace. Worse, many of these new funds will end  up funding underperforming assets, resulting in a spike in  on-performing loans and more bad debt.


More at: https://www.zerohedge.com/news/2018-...stocks-reeling

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## Swordsmyth

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

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


More at: https://www.zerohedge.com/news/2018-...-defaults-soar

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## Swordsmyth

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

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




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


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

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

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

More at: https://www.zerohedge.com/news/2018-...cline-30-years

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## Swordsmyth

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



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

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



More at: https://www.zerohedge.com/news/2018-...e-freaking-out

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## Swordsmyth

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



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

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

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

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


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


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

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

  In other words, while China already has a record _50 million empty apartments,_ the  real number - when excluding the government's own stealthy purchases of  excess inventory - is likely significantly higher. It is this, and not  China's stock market, that has long been the biggest time bomb for  Beijing, and if Trump and Peter Navarro truly want to crush China in  their ongoing trade war, they should focus on destabilizing the housing  market: the Chinese stock market was, and remains just a distraction.

More at: https://www.zerohedge.com/news/2018-...ents-are-empty

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## Swordsmyth



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## goldenequity

think i'll put this here...



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

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

This is a pretty brutal analysis but worth reading.


I do hope... for a peaceful/decentralized (multi-lateral) world... but
as we head towards the maelstrom... it's clear that 'BRICS' is a nothing burger

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## Swordsmyth

> think i'll put this here...
> 
> 
> 
> Today it’s clear that fascist-turned Brazil is out – so we are at RICS. There is not much to argue about. 
> The world’s fifth largest economy, Brazil, has failed and betrayed the concept of the BRICS and the world at large.
> 
> *The BRICS are not what they intended to be, never really were.
> https://www.globalresearch.ca/brics-...-limbo/5659498*
> ...


Isn't the "S" S. Africa?

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

Despite globalresearch's leftist spin Bolsonaro was the least bad choice for Brazil and the end of BRICS is a good thing, a world dominated by Communist China would be a nightmare.

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## Swordsmyth

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

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


https://www.zerohedge.com/news/2018-...when-it-leaves

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## Intoxiklown

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




> LOL


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

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

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

and that segways into #2

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



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

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

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

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## Swordsmyth

> Depends on what their future economic plan is. China is at the beginning of their economic expansion and the early stages of becoming a super power. You can't compare it to our situation as a declining empire at the end of an economic cycle, even though that is the frame of reference that we know. - Devil21
> 
> 
> 
> While not completely right, he's not completely wrong either. This massive increase in debt is very much planned as Xi is hell bent on doubling China's economy in a 10 year period, which they began in 2010. It's the same mindset nations like the UK and the US use and their and China's debt to GDP ratio is actually in line with "developed" economic nations, but the concern is held in that China is still considered a middle income nation (purchasing-power-parity-adjusted GDP per capita) with around only 25% purchasing power when compared to those developed nations.
> 
> Your source regarding China's employment numbers makes a fundamental error though in understanding the data. It's not about a lack of jobs, it's about basically being a victim of their own success. China's middle class has grown to large numbers and they want better jobs, which causes two things:
> 
> 1) They want better jobs (both in working environment as well as pay) which is tied into China moving towards more tech industry work like the field of artificial intelligence. China has massive continuing education programs and is basically sending a $#@! ton of people back to school for degrees in things like IT, engineering, robotics, ect. So those people aren't unemployed....they are in school. 
> ...


I laugh because their centrally planned economy is in much worse shape than their false numbers indicate.

Time will tell who is right.

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## Zippyjuan

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

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




> *President Trump's Tariffs Will Hurt America More Than China*
> 
> Let’s stop pretending. An import tariff is nothing but a tax on consumers and businesses. Not in the exporting country, but the importing one. So the 10% tariff on $200bn of Chinese imports that President Trump has just imposed is in reality a new tax on Americans. And it will hurt America much more than China.
> 
> It is at present unclear exactly how this tax will bite, but we can expect it to have three broad effects on the U.S. economy.
> 
> 
> 
> 
> ...


more at link.

China has been working on trying to ween its economy off exports- and the tariff war is helping them to move faster in that direction.  And they are already seeking new market to replace the US.

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## Swordsmyth

> If you are using Zerohedge as your main source, I can see why you think China may be on the brink of collapse.  Their articles are always about immanent collapse- whether in the US or someplace else. Recession porn if you will. 
> 
> https://www.forbes.com/sites/frances.../#656734ef6276
> 
> 
> 
> more at link.
> 
> China has been working on trying to ween its economy off exports- and the tariff war is helping them to move faster in that direction.  And they are already seeking new market to replace the US.


LOL

----------


## Swordsmyth

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

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

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

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

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

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

More at:  https://www.zerohedge.com/news/2018-...17-why-matters

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## Swordsmyth

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

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

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

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

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

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

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


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

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


More at: https://www.zerohedge.com/news/2018-...-lowest-record

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## Swordsmyth

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

More at: https://www.zerohedge.com/news/2018-...al-possibility

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## Swordsmyth

> In related news:
> 
> *Brace for corporate defaults as Chinese firms with dollar debts are 'under increasing pressure'*
> 
> https://www.cnbc.com/2018/11/19/chin...-defaults.html


...

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## Swordsmyth

Bloomberg reports that debt cross-guarantees by Chinese firms have  left the world’s third-largest bond market prone to contagion risks,  which has made it "all the tougher for officials to follow through on  initiatives to sustain credit flows", i.e., the threat of growing threat  of unexpected cross- defaults is what is keeping China's credit  pipeline clogged up and has resulted in the collapse in new credit  creation.  The risk of cross-defaults is what also appears to be behind the  recent official directive for banks to boost lending to private  corporations.
  As Bloomberg explains, private companies have long had to be  innovative in getting financing in Communist-run China, where  state-owned enterprises have had preferential access to the banking  system. Extending guarantees to each other helped businesses boost some  lenders’ confidence enough to extend funding to them.
  While this was not a concern when times were good, now that China is  going through a record run of debt defaults, these often opaque and  hard-to-follow links pose the risk of "*a daisy chain of distress*" with price moves are reflecting that.
  Take, for example, tire-maker China Wanda Group which has seen the  yield on its bonds due in 2021 soar almost threefold, from 8% to over  20% since end-September, *thanks to having provided guarantees to  iron-wire maker Shandong SNTON Group Co., one of whose units failed to  repay a bank loan two months ago*.

*“Large cross-guarantees could set off a chain effect that could quickly spread from one firm to another*,”  said Clifford Kurz, a credit analyst from S&P Global Ratings in  Hong Kong, who probably rues the day he was tasked with figuring out  which company is linked to which other company in cross-default  obligations.
  And there's a lot of it: like pledged shares, where private companies  and executives pledged corporate shareholdings as collateral for bank  loans and which emerged as a major risk factor for China's financial  system in late October when a flood of margin calls sparked a "liquidity  crisis" and panic selling in Chinese stocks and prompted the regulators  and local authorities to demand that banks ease restrictions on pledged  shares, *cross guarantees are a Chinese phenomenon less familiar in global markets.* Last year, *cross-guarantees  in China amounted to nearly 4 trillion yuan ($575 billion), the China  Securities Journal reported in October 2017.*
  Which brings us back to China Wanda and Shandong SNTON, which are  both based in the eastern province of Shandong, which has an economy of  about $1 trillion and benefited from a dynamic private sector; however  that growth now appears to have ground to a halt, and according to Kurz,  slides in a number of corporate bonds across the province “*may  suggest that investors are seeking to avoid the risks posed by such  cross-guarantees -- regardless of the underlying performance of such  companies."*
  And with a record pace of 83.4 billion yuan of defaults this year,  both share pledging and cross guarantees have found themselves to topic  of intense scrutiny

  "Cross-guarantees were not built up overnight," said Li Guomao, head of financing at Shandong SNTON, *which  has seen its own bonds tumble 30% since October thanks to a lawsuit  over a guarantee to a subsidiary that failed to repay a loan. “*It is unlikely to solve this problem soon.”
  There is another way that the province of Shandong has emerged as the  potential epicenter for the next debt crisis: here, at least 20 private  firms provide guarantees that account for at least 10% of their total  net assets - a ratio surpassing all other regions, according to Lv Pin,  an analyst from CITIC Securities Co.

  "*Private firms in Shandong have been exposed to more risks as  they are caught up in the cross-guarantee trap, with bonds being dumped  on the secondary market,"* said Chen Su, bond portfolio manager at Qingdao Rural Commercial Bank Co.
  And, as noted above, local companies started suffering more financing  difficulties as banks cut lending to this region earlier this year, Su  said.
  What makes this particular problem especially vexing is that, like a  loose thread, once one company with cross-guarantees finds itself unable  to fund its debt obligations, a cross-guarantee cascade is sprung, and  dozens of other firms may end up unable to either satisfy their  "guaranteed" commitments to the original debtor, until - ultimately -  they are unable repay their own creditors.
  Bloomberg notes that cross-guarantee troubles have been cropping up for a while:
 When a disclosure last year showed that Shandong Yuhuang Chemical Co.  had guaranteed 1.35 billion yuan of obligations tied to Hongye Chemical  Group Holdings Co., yields on Yuhuang’s 2020 dollar note shot up more  than 2.30 percentage points in a week.
For now, there hasn't been a default serious enough to drag down numerous firms at the same time, although that may soon change.

More at: https://www.zerohedge.com/news/2018-...as-next-crisis

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## Swordsmyth



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## Swordsmyth

Back in August, when discussing the *"source of China's next debt crisis",*  namely the recent explosion in Chinese household debt which over the  past year has soared by over 40% even as credit growth across other debt  categories remained relatively stable...



  ... and which was on the verge of surpassing the nation's  corporations as the biggest source of credit demand, we highlighted the  one financial sector that has recently emerged as most at risk in  China's economy: *online peer-to-peer lenders* who collect money from retail investors and dispense small loans to consumers, *usually without collateral, putting the loans at risk of a default with zero recovery.* 
  We pointed out that outstanding loans on P2P platforms rose 50% just  last year to total Rmb1.49 trillion ($215 billion) - making the size of  China’s P2P industry far bigger than in the rest of the world combined -  and due to their lack of collateral, *interest rates often are as high as 37%, with additional charges for late payment.*
  P2P, in which platforms gather funds from retail investors and loan  the money to small corporate and individual borrowers, promising high  returns, started to flourish nearly unregulated in China in 2011. At its  peak in 2015, there were about 3,500 such businesses.
  But after Beijing launched a campaign several years ago to defuse  debt bubbles and reduce risks in the economy (a campaign which recently  reversed once the Trump trade war started getting hot), including the  country’s enormous non-bank lending sector, cracks began to appear as  investors pulled their funds.



  As a result, the peer-to-peer lending channel not only got clogged  up, but went in reverse with the WSJ reporting over the summer that a  string of Chinese internet lenders have already shut their doors in  recent weeks, *stranding investors as the economy slows and regulators tighten controls over an unruly side of the fintech sector.*
 Across China, more than 200 internet-based fund managers since late  June have either shut down, closed parts of their operations or are  reeling from cash crunches, missing executives and other problems,  according to industry tracker Wangdaizhijia.The tide began to turn even more forcefully against the sector ahead  of a late June deadline for new stringent registration regulations. With  a slowing economy making it difficult for some companies to pay back  loans, many lenders decided to simply shut down. Meanwhile, investors,  already souring on the sector, began pulling out funds, further pinching  the lending platforms, and as Reuters reports, since June, 243 online lending platforms have gone bust, according to wdzj.com, a P2P industry data provider. In that period, *the industry saw its first monthly net fund outflows since at least 2014.*

  And, as we further noted, it was only a matter of time before social  unrest spread as Chinese investors who had funded these usually small,  unregulated P2P operations, found they had lost all their money  demanding a bail out. That's precisely what happened... except for one  thing: Beijing was already one step ahead of the protesters which is why  when in our follow up article we wrote that "Social Unrest Breaks Out In China After "Panic" Bank Run On Peer-2-Peer Lenders",  the government was ready and quickly arrested all those who, having  lost money on P2P, took to the streets to demand a bailout.




By that point China  however, had had enough, and as Bloomberg writes, today, Beijing is  preparing to end its $176 billion experiment with peer-to-peer lending.
 *Alarmed by a surge in defaults, fraud and investor anger,  Chinese authorities are planning to wind down small- and medium-sized  P2P lending platforms nationwide*, people with knowledge of the  matter said. Regulators may also order the largest platforms to cap  outstanding loans at current levels and encourage them to reduce lending  over time, one of the people said, asking not to be identified  discussing private deliberations. Shares of P2P platform operators sank  in New York.The shakeout of the P2P industry, which expands on a _city-level purge_ in the P2P hub of Hangzhou, *is  the clearest sign yet that Chinese leaders want to dramatically shrink a  market that spawned the nation’s biggest Ponzi scheme, protests in  major cities, and life-altering losses for thousands of savers.* 

  The imminent crackdown on what was recently the most generous, if  expensive, source of credit suggests that Xi Jinping’s government isn’t  done *cracking down on China’s $9 trillion shadow banking  industry, despite concern that tougher rules have choked the flow of  credit to the world’s second-largest economy.*


  “Regulators are making it even more difficult for P2P platforms to  survive, especially the smaller ones, so that the public won’t suffer  more losses,” said Yu Baicheng, Shanghai-based head of research at  01Caijing, an independent internet finance researcher.
  Peer 2 Peer lending, especially its online version, has had a rocky  several years, starting off euphorically but subsequently suffering from  a surge in nonperforming loans as debtors found they had been less than  discriminating in who they granted loans.
  Marketed as an innovative way to match savers with small borrowers,  P2P platforms have had a rocky run globally. U.S.-based LendingClub  Corp., battered by a corporate a governance scandal and investor  withdrawals, has tumbled 77 percent since its 2014 listing in New York.
  Meanwhile in China, as discussed previously, P2P platforms have  comprise one of the riskiest and least regulated slices of the shadow  banking system. The lack of oversight has allowed for world-beating  growth, *with outstanding P2P loans ballooning from almost nothing in 2012 to 1.22 trillion yuan ($176 billion)*.
  And as the story so often goes, at first the platforms worked mostly  as intended with savers enjoying double-digit yields with few defaults,  while small companies secured cash to fund their growth. About 50  million investors signed up as P2P platforms opened at a rate of three a  day.
  However, some time in late 2016, problems started to emerge as  China’s economy slowed and liquidity conditions tightened. One of the  first big signs of trouble: the unraveling in early 2016 of a P2P platform described by authorities as a $7.6 billion Ponzi scheme Ezubao that defrauded 900,000 people.
  Not long after, Chinese policy makers started a campaign to clean up  the country’s shadow banking system. The clampdown further restricted  access to credit and fueled a wave of P2P platform closures. China  Banking and Insurance Regulatory Commission Chairman Guo Shuqing warned  savers in June that they should be prepared to lose all their money in  high-yield products, underscoring the government’s intention to avoid a  big rescue and the associated moral hazard.
  As a result, over the past 2 years, more than 80% of China’s 6,200  P2P platforms have now either closed or encountered serious  difficulties, due to factors ranging from take-the-money-and-run schemes  to poor investments, according to Shanghai-based researcher Yingcan  Group. The platforms had more than 1.5 million clients and 112 billion  yuan of outstanding loans.
  Meanwhile, having suffered dramatic losses, hundreds of affected P2P  investors organized protests in cities including Shanghai, only to be  turned back by police as we discussed in August.  At least one victim of P2P fraud, a 31-year-old woman from Zhejiang  province, reportedly committed suicide after losing almost $40,000.
  At this point Beijing launched a real crackdown, starting in  Hangzhou, the Chinese fintech hub that’s home to Jack Ma’s Alibaba Group  Holding, where regulators told some P2P platforms with less than 100  million yuan of outstanding loans to wind down and repay customers  within 12 months, Bloomberg reported earlier this month.
  And now, authorities plan to issue similar orders to platforms in other cities and provinces, including Shanghai and Beijing.
  Even the nation’s biggest P2P platform operators appear to be  anticipating tougher times ahead. CreditEase, the parent company of  Yirendai, China’s first listed P2P business, has begun distancing itself  from the industry.
 “We are today much more than a P2P,” Ning Tang, CreditEase’s founder  and chief executive officer said in a Bloomberg Television interview  this month. “When we started the company, we invented China’s  marketplace lending model. Today, we are a fintech company.”Ultimately, analysts expect virtually all of the industry to be shuttered or pivot to other activities:
 “Clearly, things have been messy,” said Tang Shengbo, a Hong Kong-based analyst at Nomura Securities Co. *who estimates that at least 80 percent of China’s remaining P2P platforms will eventually shut*. “The industry is heading for a massive consolidation.”As Bloomberg concludes, it’s unclear what will ultimately remain of  China’s P2P market after the clampdown, with only a few companies  expected to survive. Only 50 of today’s 1,200 platforms are likely to  get regulatory approval to keep operating, according to Citigroup. The  industry’s outstanding loans have already dropped by more than 30  percent from the peak.

  Meanwhile, as yet another key source of funding for many in China's  shadow economy closes, China's traditional sources of credit issuance  continue to dry up - with total social financing growth recently dropping to an all time low...



  ...forcing China's economy to slow even further until one day not  even Xi will be able to keep blaming the ongoing trade war with Trump  for the rising tide of troubles affecting his economy.

https://www.zerohedge.com/news/2018-...2p-loan-market

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## Swordsmyth

*Despite stepping up fiscal and monetary support in recent months,* China PMI tumbled to 50 in November - right at the cusp of economic contraction - the weakest prints since June 2016.
  Against expectations of an unchanged 50.2 print, China Manufacturing  PMI fell to 50.0 in November (and non-manufacturing PMI slipped to 53.4  from 53.9).

*This weakness comes following a string of measures including  personal tax cuts and plans to provide credit support for private firms  to obtain equity and bond financing,* and confirms early indicators signaling weakening on the external front.

More at: https://www.zerohedge.com/news/2018-...ic-contraction

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## Swordsmyth

China's leadership has prioritized employment as the country prepares to  enter a period of prolonged economic difficulty. On Dec. 5, the  country's top economic planner, the State Council, unveiled a slew of  policies designed to support employment in a paper that includes a plan  to refund 50 percent of unemployment insurance premiums — which  currently account for 2 percent of total payroll — to companies that  forgo layoffs or keep them to a minimum. Other measures include  offering subsidies and allowances to enterprises and individuals engaged  in professional training, with a special focus on people aged 16 to 24.  And to shore up confidence among private businesses, Beijing will work to increase access to government-guaranteed loans and subsidies for small businesses and entrepreneurs.

According to the South China Morning Post, the paper had been drafted  Nov. 16 and was passed on to local governments, which were instructed to  draft their own versions within 30 days. Notably, the export-oriented  Guangdong province released its plan a day early.

China has no reliable, nationwide data on overall unemployment. However,  several indexes and local surveys recently suggested that employment  levels are slipping, particularly in export regions and the private  sector. China's Institute for Employment Research, for example, has  reported that hiring demand in export industries fell by more than half  in the third quarter of 2018. Coastal regions that are dependent on  exports — such as Guangdong, Jiangsu, Shanghai and Fujian — are expected  to take further hits  even after bearing the brunt of the latest round of U.S. tariffs. And  large, private companies such as JD.com and Huawei are thought to have  considered layoffs. These developments have added to concerns over  growing stress on the private sector, which accounts for a large  majority of the country's employment.

More at: https://worldview.stratfor.com/artic...ment-trade-war

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## Swordsmyth

Since June 2018, China has been loosening monetary and fiscal  policies in an attempt to refloat the sinking red ponzi amid the shadow  banking system's deflation.

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

  It seems no matter what China throws at it, the economy (or the  market) won't behave as the text-books say it should. The crackdown on  the shadow-banking system is hard to overcome it seems with even the  most finely tuned hammer of monetary policy...


  As Goldman's Andrew Tilton (Chief Asia Economist) suggests:
 "...*two challenges brought us here.*
*Internally, policymakers’ efforts to constrain the growth of shadow banking and reduce financial risks worked almost too well.*  Financial regulations introduced in 2017 and early 2018 led to a  meaningful contraction in shadow banking, which slowed overall credit  growth and tightened credit conditions, particularly for private  companies.
*And externally, the escalation in US tariffs raised questions  about China’s export growth and damaged confidence in the economic  outlook.* As a result, our China Current Activity Indicator  (CAI) has fallen nearly two percentage points from its 1H2018 average of  over 7%."


More at: https://www.zerohedge.com/news/2018-...ng-policy-path

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## Swordsmyth

One day after China reported the worst trade data in  over half a year, with the trade war with Washington finally hitting  exports hard, which rose only 5% in November or half the Wall Street  forecast of 9.9%...


  ...while import growth tumbled to just 3%, far below the 14% Wall Street estimate *even  as Chinese imports from the US plunged  25% in November from a year  earlier, the single biggest monthly decline since January 2017* when  China's economy and capital markets were reeling in the aftermath of  the Yuan devaluation and Shanghai Composite bubble bursting...



  ... on Sunday the bad news continued, when Beijing reporting that *CPI inflation slowed to just 2.2% yoy in November*, below the 2.4% estimate and down from 2.5% in October, *while PPI inflation decelerated further to 2.7% yoy in November, from 3.3% in October.*

  In sequential terms, headline CPI prices declined 1.5% in November, down notably from an increase of 3.5% in October.
  Among major subcategories, inflation in fresh vegetables dropped to  1.5% yoy in November from 10.1% yoy in October, with a meaningful  sequential contraction. The decline in pork prices slowed slightly  further to -1.1% yoy in November from -2.3% yoy. Sequentially pork  prices increased for the sixth consecutive month, although the pace of  increase moderated slightly in November.
  At the same time, non-food CPI inflation also slowed to 2.1% yoy in  November from 2.4% yoy, primarily on what Goldman described as a high  base effect (non-food prices up 3.4% mom s.a. ann. in November 2017),  with prices down very slightly by 0.3% mom s.a. ann. Inflation in fuel  costs went down markedly to 12.6% yoy in November from 22.0% yoy in  October, while core inflation (headline CPI excluding food and energy)  was unchanged at 1.8% yoy November. Inflation in medicine and medical  care, which has been a major driver of the trend in core inflation in  recent months, stabilized at 2.6% yoy in November, with a halt to its  downward trend since September 2017.
  Meanwhile, *wholesale price PPI inflation moderated for the fifth consecutive month to 2.7% yoy in November, the lowest since November 2016* (headline PPI inflation turned positive in September 2016). *This implies an annual rate of -1.8% (s.a.) in November, the first sequential decline since June 2017*.  Inflation in the petroleum industry decelerated the most, and inflation  in ferrous/nonferrous metals and chemicals also moderated notably,  though somewhat offset by a pickup of inflation in coal mining industry.
  So what was behind the latest slowdown in consumer and producer prices?

  According to Goldman, CPI inflation pressure eased in November,  primarily on lower inflation in vegetable and energy prices. The  sequential momentum of vegetable prices has been weaker than the average  seasonal pattern in recent two months, but it appears to have been  normalizing in early December based on daily vegetable prices data. Pork  prices have been broadly consistent with our expectation, trending up  on hog cycle, although the net impact of the hog diseases in November  was negative due to the selloffs by producers of live pigs.

More at: https://www.zerohedge.com/news/2018-...west-two-years

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## Swordsmyth

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

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

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

----------


## Swordsmyth

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

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

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

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

More at: https://www.zerohedge.com/news/2018-...cline-30-years

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## Swordsmyth

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

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

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

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## Swordsmyth

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

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



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

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

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


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


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




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

More at: https://www.zerohedge.com/news/2018-...anic-next-week

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## Swordsmyth

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

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

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## Swordsmyth

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

More at: https://worldview.stratfor.com/situa...h-regional-pmi

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## Swordsmyth

There was much anticipation ahead of tonight speech by Chinese President Xi Jinping at the 40th Reforms Anniversary Event.

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

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

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

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



And early Yuan gains are leaking away...

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

More at: https://www.zerohedge.com/news/2018-...e-difficulties

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## r3volution 3.0

Every guess about China is quite wrong.

----------


## Swordsmyth

Back in 2017, we explained why the "fate of the world economy is in the hands of China's housing bubble."  The answer was simple: for the Chinese population, and growing middle  class, to keep spending vibrant and borrowing elevated, it had to feel  comfortable and confident that its wealth would keep rising. However,  unlike the US where the stock market is the ultimate barometer of the  confidence boosting "wealth effect", in China *it has always been about housing* as three quarters of Chinese household assets  are parked in real estate, compared to only 28% in the US, with the  remainder invested financial assets, which is also why it has  traditionally been Beijing's duty to make sure that home prices  appreciate year after year, even if the broader economy is doing poorly.
 
  Which is why a recent warning by a top Chinese banker that the days  of steady home price appreciation are now over, should come as the  latest flashing red alert of more turmoil to come first for the world's  most populous nation and eventually, the rest of the world.
  On Sunday, the chairman of a leading Chinese state bank *warned  Chinese investors not to buy property now because “there’s no money to  be made” due to high prices and alarming vacancy rates* (an ominous development we first discussed last month in "The "Nightmare Scenario" For Beijing: 50 Million Chinese Apartments Are Empty").
  Tian Guoli, the chairman of China Construction Bank, which provides  mortgage loans to millions of Chinese households, was quoted by China's  Sina.com portal that the room for further property price rises was  limited and it was unwise to buy at current rates.


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


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

  Meanwhile, the debt keeping China's housing bubble afloat keeps  rising, with the value of outstanding real estate loans – including  mortgage and development lending – reaching 38 trillion yuan (US$5.5  trillion) by the end of September 2018, or 28% of total lending,  according to government data, while just personal home mortgages in  China have exploded sevenfold from 3 trillion yuan ($430 billion) in  2008 to 22.9 trillion yuan in 2017, according to PBOC data.

  By the end of September, the value of outstanding home mortgages had  surged another 18% Y/Y to a record 24.9 trillion yuan, resulting in a  trend that as Caixin notes, *has turned many people into what are called “mortgage slaves."*



Meanwhile, the latest China household finance survey conducted by the  Southwest University of Finance and Economics, which was published last  week, found that the number of vacant urban homes in China has risen to  65 million units in 2017 from 42 million units in 2011, with the  vacancy ratio rising to 21.4 per cent from 18.4 per cent in the period.
  China’s small cities had more serious vacancy problems than bigger  ones, the research centre found, echoing Tian’s speech. Data from the  National Bureau of Statistics showed that the average living area of  Chinese urban residents already reached 36.6 square meters in 2016.
  * * *
  What is most troubling, and what may have spurred Tian's warning, is  that despite relatively stable home prices, the foundations behind the  housing market are cracking. As the WSJ recently reported,  in early December, a group of homeowners stormed the sales office of  their Shanghai complex, "Central Washington", whose developer, Shanghai  Zhaoping Real Estate Development, was advertising new apartments at a  fraction of the prices of the ones sold earlier in the year. One  apartment owner said the new prices suggested the value of the apartment  she bought from the developer in March had dropped by about 17.5%.
  “There are people who bought multiple homes who are now trying to  sell one to pay off the mortgage on another,” said Ran Yunjie, a  property agent. One of his clients bought an apartment last year for  about $230,000. *To find a buyer now, the client would have to drop the price by 60%,* according to Ran.


But the biggest surprise once the music finally stops may be that - as a fascinating WSJ report revealed one year ago - China's housing downturn is likely far, far worse than meets the eye, as under Beijing’s direction *more  than 200 cities across China for the last three years have been buying  surplus apartments from property developers and moving in families from  condemned city blocks and nearby villages*.China’s Housing Ministry, which is behind the purchases, *said it plans to continue the program through 2020.* The strategy, supported by central-government bank lending, has rescued housing developers and lifted the property market.

  In other words, while China already has a record _50 million empty apartments,_ the  real number - when excluding the government's own stealthy purchases of  excess inventory - is likely significantly higher. It is this, and not  China's stock market, that has long been the biggest time bomb for  Beijing, and if Trump and Peter Navarro truly want to crush China in  their ongoing trade war, they should focus on destabilizing the housing  market: the Chinese stock market was, and remains just a distraction.

More at: https://www.zerohedge.com/news/2018-...-more-money-be

----------


## Swordsmyth

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

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

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


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

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## Swordsmyth

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

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

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

More at: https://www.zerohedge.com/news/2018-...uarter-preview

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## Swordsmyth

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

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

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

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

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

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

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




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

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## Swordsmyth

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


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


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

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## Swordsmyth

People like to complain that China has abandoned its Communist values in favor of state-directed capitalism. *But  in at least one way, the rulers of the world's second-largest economy  are adhering to the prescriptions of Karl Marx - with a burdensome  progressive income tax.*
**
  And as the CPC has imposed new tax cuts  to try and pump more fiscal stimulus into the economy to help revive  its flagging growth. But wealthy Chinese are worried that the state will  expect them to cover the revenue shortfall (particularly as the trade  war threatens to sap the Chinese economy of badly needed FDI).
  In a country where personal wealth has swelled to $24 trillion since  the days of Deng Xiaoping - $1 trillion of which is held abroad - these  changes to China's tax regime could have a resounding impact on asset  markets around the world (Vancouver comes to mind).

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



https://www.zerohedge.com/news/2019-...round-tax-cuts

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## Swordsmyth

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

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

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

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

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

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


More at: https://www.zerohedge.com/news/2019-...unge-most-2011

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## Swordsmyth

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

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

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

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## Swordsmyth

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



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


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

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## Swordsmyth

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

* 
*

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

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

*Japan*

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

*South Korea*

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

*China*

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

*Childbearing vs. Elderly Populations*

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

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



More at: https://www.zerohedge.com/news/2019-...ng-populations

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## Swordsmyth

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

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

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

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## Swordsmyth

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

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

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

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

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

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



https://www.zerohedge.com/news/2019-...t-news-cryptos

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## Swordsmyth

A *dramatic and sudden slowdown in the rate at which numerous commodities are being shipped to China*  suggests slowing demand for raw materials in the world's second-largest  economy, and signals a wider economic slowdown globally looms.
 "Recent *shipping data has turned negative with charter rates across all sectors notably weaker* compared to late November levels," Morgan Stanley analysts Fotis Giannakoulis, Qianlei Fan, and Max Yaras wrote.
  "While such moves are common, the synchronized decline may be a *warning for Chinese commodity demand*."


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

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


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


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


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

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


https://www.zerohedge.com/news/2019-...rates-collapse

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## Swordsmyth

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

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

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

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

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


More at: https://www.zerohedge.com/news/2019-...eater-due-debt

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## Swordsmyth

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

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

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


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

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## Swordsmyth

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

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

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


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

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## Swordsmyth

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






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

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## Swordsmyth

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


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

More at: https://news.yahoo.com/china-apos-xi...103056500.html

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## Swordsmyth

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

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

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## Swordsmyth

In numbers (via DW):

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

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

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

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

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


More at: https://www.zerohedge.com/news/2019-...s-historic-low

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## Swordsmyth

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


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

The new tool works by giving primary dealers bills that can be  used as high-quality collateral in exchange for perpetual bonds  purchased from banksChina Banking and Insurance Regulatory Commission will also allow  Chinese insurance firms to invest in banks’ tier 2 capital debt and  capital bonds without fixed termsCapital charges will be applied on perpetual bond holdings on  Chinese banks’ balance sheet, even after they swap the securities for  central bank bills using a new PBOC tool.
Regarding the PBOC's measures, the duration of the central bank  bill swap was initially set at three years.  While the swapped central  bank bills cannot be directly converted into cash, and can only be used  as collateral for borrowing from the PBOC (e.g., via OMOs) or other  financial institutions, once said repo operation takes place, the  proceeds from the CBS are effectively the equivalent of cash as banks  face no further limitations on what to do with the funds received from  the perpetual bonds issuance. There are some modest limitations on  eligible collateral: the perpetual bonds that qualify for CBS need to be  issued by banks that meet some minimum prudential requirements (such as  CAR not lower than 8%) but generally this operation is meant to be  inclusive and allow as many banks as possible to participate. As Goldman  notes, more implementation details such as the risk weight of this new  tool are still not released yet.
  And just to make sure enough liquidity reaches the banks, *the  PBOC will also allow perpetual bonds that are rated AA or above to be  used as collateral for MLF, TMLF, SLF, and relending monetary operations*,  i.e., once the bank issues the PBOC-backstopped perpetuals - which  makes them the risk-equivalent of cash for downstream investors thanks  to their central bank backstop - it can use the proceeds for pretty much  anything.
  Of course, this is not full-blown QE because the announced move are not monetary measures _per se,_ in  that they do not involve creation of money; they do however involve the  central bank backstopping a bond-like instrument, which then has all  the functional equivalents of money. Meanwhile, as Goldman also notes,  the CBS "does not mean that the PBOC is indirectly providing capital to  banks, as the CBS is of limited duration", which while true, does  provide banks with virtually risk-free capital for a period of three  years, so the "limited duration" argument in a world where investors  only care about day to day liquidity is somewhat naive.
  * * *

More at: https://www.zerohedge.com/news/2019-...-scheme-afloat

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## Swordsmyth

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

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

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

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


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

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## Swordsmyth

Virtually everyone acknowledges that Chinese GDP numbers are fabricated. Not only do Chinese economic planners use various strategies to game GDP  calculation inputs in order to meet Communist Party growth targets,  even those exaggerated inputs are rolled up into overall numbers that literally don’t add up in the most obvious of ways. The phenomenon has been documented countless times by countless sources (here, here, here, here, here, here, etc…). Even the Chinese government has admitted to it in their own way.  While estimates of China’s real GDP growth rate vary widely, they are  typically at least a couple of percentage points lower than the official  Chinese number. 
    When the Chinese economy was growing at an official rate of over 14%  in 2007, arguing that it was really only growing at 11% was a waste of  time. It might have been true, but it missed the point that China’s  economy was growing very fast, several times faster than the US and  other developed countries. 
       Fast forward to today and China’s official GDP numbers show it growing at roughly 6.6%. With many major economic indicators slowing or in outright contraction (auto sales, PMI, consumer spending, rising unemployment…), estimates of China’s real GDP growth in 2018 have ranged from 5% to as little as 1.67%. 
    All of a sudden the difference between China’s official GDP number  and the real number matters a lot. Not only is there a world of  difference for China’s economy between 3% and 6% growth, the entire  narrative of China’s economic rise is predicated on it overtaking the  roughly 50% larger US economy. 
    The US economy grew at roughly 3% in 2018. For the first time in many decades, the US economy _may_  have grown roughly as fast as the Chinese economy, maybe even a bit  faster. The convergence didn’t happen due to a recession or some other  extenuating circumstance. It happened during a year that roughly  reflects expectations for the future. The convergence is not a fluke. 
    Meanwhile, Chinese non-financial debt-to-GDP overtook the US back in 2016. Since then it has only increased. 
    Even Chinese government borrowing is catching up to the US’s gargantuan government deficits. By our calculations,  total government borrowing in China (including local governments) was  roughly 5.7% of GDP in 2017, the most recent date for which relativity  complete data is available. However, due to the China’s rampant shadow  banking system and morass of government owned ‘zombie’ companies, the true increase in Chinese government debt is likely meaningfully higher than the reported figures. As the IMF has repeatedly warned:  “China’s official government accounts do not capture a large amount of  fiscal spending delivered through off-budget units.” The result is  potentially billions of dollars of spending and debt that don’t get  counted in China’s ‘official’ government debt figures. 
    Forecasts for total US government borrowing in 2019 (including state and local) point to 6.1% of GDP in 2019,  though the true number is always higher. Relative to GDP, China’s rate  of total government borrowing is only a bit behind the US.
    Keep in mind that with all of these debt-to-GDP comparisons, Chinese GDP is inflated and Chinese debt is understated.
    Whether or not China is outgrowing the US, and whether or not it is  more indebted than the US, is a debate that reasonable people can have  for the first time in decades. 
    If that doesn’t mark the end of the Chinese ‘economic miracle,’ I don’t know what would. 


http://thesoundingline.com/taps-coog...e-than-the-us/

----------


## Swordsmyth

China's year-on-year industrial profit growth slowed to 10.3 percent in  2018, down from 21 percent in 2017, the South China Morning Post  reported Jan. 28.

More at: https://worldview.stratfor.com/situa...alls-half-2018

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## Swordsmyth

With the first official data of 2019, China's Manufacturing PMI  printed below 50 - signaling a contraction - for the second month in a  row in January as *employment slumped to a multi-year low.*
_We note that January economic data may be subject to distortion  due to the Spring Festival holiday, which starts on Feb 5 this year, 11  days earlier than last year._
  Catching down to retail sales inglorious slowdown, China's official manufacturing PMI printed 49.5 in January... *near the lowest since Feb 2016*

  Employment contracted to multi-year lows, Purchase Quantities slipped  as did inventories and backlogs as it appears the record-breaking surge  in easing did nothing to rejuvenate a struggling manufacturing sector.
  Worse still, with Yuan surging to six-month highs, which will do nothing to prompt a renaissance in Chinese exports...



More at: https://www.zerohedge.com/news/2019-...ion-start-2019

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## Swordsmyth

Forget PIK: China's financial innovation has taken the concept of pay-in-kind bonds to a whole new level: _PIG._
  Regular readers of Zero Hedge are familiar with money-for-oil loans.  But, as we reported last November, one liquidity-challenged pork  producer implemented an absurd twist on that concept that has helped to  expose the financial dysfunction at many small- and medium-sized Chinese  companies.
  Instead of receiving cash, holders of local-currency bonds issued by  Zhengzhou-based pork producer Chuying Agro-Pastoral Group - which had  1.3 billion yuan in cash against a short-term debt load of 8.4 billion  yuan - *would be paid with the company's ham,* thanks to  an agreement reached between the company and its creditors. The  agreement was struck after the company failed to repay a 500 million  yuan bond that was due last Nov 5. The spread of African swine fever  caused pork demand in China to plummet, creating a cash-on-hand crisis  for pork producers.

  Well, if you thought that was absurd, _you will love what happened next,_ because  according to an announcement on the Shenzhen Stock Exchange, the aptly  misnamed Agro-Pastoral Group has run into a new problem: *after running low on cash, it is now running low on pigs.*

  The cash crunch that initially left the pork producer unable to  service its debt has now intensified to the point that it’s unable to  buy enough feed, which has contributed to the company's pigs’ death rate  being higher than expected.
  This, as Bloomberg notes,  was the latest twist for the small-cap company that’s been challenged  on multiple fronts, from the spread of African swine fever - which has  seen more than 900,000 hogs culled across the country - to an economic  slowdown to a deleveraging drive by policy makers that’s tightened  credit flows to weaker borrowers.
  As a result of the latest liquidity - and pork - shock, the central  China-based company revised its 2018 performance forecast to an even  greater net loss of 3.3 billion yuan, up from 2.9 billion yuan.
  However, missing loss expectations may be the least of the company's  worries, which has 2.3 billion yuan of bonds it needs to repay this  year, according to data compiled by Bloomberg. It is known the company  does not have the cash to make this payment; now it may not even have  the pigs to pay "in kind."
  Agro-Pastoral is hardly the first company to propose innovative terms  to its creditors: last year, a financing platform under troubled  conglomerate HNA Group offered investors air tickets rather than cash  for debt repayment. It also won't be the last: as we reported last year,  in 2018 China was hit by a record wave of onshore bond defaults.  These defaults have shaken the faith of the country's bondholders,  created anxieties among international investors, who have only recently  gained entree to the Chinese bond market, and forced the PBOC to reverse  some of its tight-money policies aimed at facilitating a deleveraging  in China's heavily indebted corporate sector.
  It has also prompted such arrangement as "_Payment In Ham._"



Incidentally, for those wondering, one gift package of Chuying  Agro-Pastoral's ham costs 8,999 yuan or about $1,300. Assuming it takes  one pig to make one such package, the company will have to remit just  over 255,000 pigs to its creditors in lieu of the upcoming bond  maturity, assuming of course that the credit hedge funds who are  invested in the pig farmer have space in their office of a few hundred  thousand pigs.

More at: https://www.zerohedge.com/news/2019-...nning-out-pigs

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## Swordsmyth

Alarm bells are ringing in China as Beijing continues its relentless crackdown on shadow banking.
  Hundredsof Chinese companies issued profit  warnings, telling their investors that earnings for the full year were  going to be below expectations, according to Bloomberg. No less than 440 zombie  companies disclosed the bad news on Wednesday, still one day before the  deadline for such disclosures. The companies cited the country's  economic slowdown (which is also catalyzing sales of Chinese-held U.S.  real estate), as well as recent accounting changes that followed a $2.3  trillion equity market selloff last year. 
  The change is stunning: *out of more than 2400 mainland listed  companies, 373 have said they're going to post a loss - and what's more  concerning, 86% of those companies were profitable in 2017.* 
  There may be more bad news on the way: Thursday is the official  deadline for companies to disclose whether or not they expect  "substantial changes" in their financial results, so expect even more  guidance cuts.

  Meanwhile, fears about China's economy, and corporate profitability  in a time of record bankruptcies now that the government is no longer  backstopping every corporation, has become a collective concern among  market participants.

  Lv Changshun, a money manager at Beijing Dajun Zhimeng Investment Management Co., told Bloomberg: "*Private companies are particularly vulnerable to the economic downturn*.  The deleveraging campaign and the deterioration of their corporate  health is normal for any economy that is shifting gears and slowing  down."
  Among those issuing the concerning guidance are companies like Ford's biggest partner in China, Changan which warned that *2018 profit was likely going to tumble 93%.* China Life, a massive insurer by market share in China, said its net income could be lower by 70%. 
  Beijing HualuBaina Film & TV Co., cloud-storage operator Gosun  Holding Co. and First Tractor Co. also all said they'd post billions of  yuan in losses for the year after having profitable 2017s. Anhui  Shengyun Environment Protection Group Co. and Anhui Ankai Automobile Co.  disclosed that their net losses would be twice as big as they were in  2017. Guangdong Homa Appliances Co. was halted limit down during  Wednesday trading after guiding for a loss in 2018 *after stating just months ago that they'd be profitable.*
  And since profit warnings in China - where companies notoriously  misrepresent the rosy state of their finances (recall that one week ago,  a Chinese company which filed for bankruptcy, reported that it "had" 15 times more cash than due debt yet  it couldn't meet its debt obligations) tend to be an early warning for  liquidity problems, or worse, insolvency, the bond market has also felt  aftershocks. The bonds of Chinese furniture maker Yihua Lifestyle  Technology Co.’s fell to less than half of par. Air conditioning  producer Zhejiang Dun’an Artificial Environment Co. has been put on a  negative watch Chinese credit agency China Lianhe Credit Rating Co. 

  One reason why China's companies are suddenly "coming clean" was  suggested by Qi He, a fund manager at Huatai Pinebridge Fund Management,  who said that "companies whose shares are already quite battered have  nothing to lose by lowering earnings forecasts or taking large  impairments for 2018. Many of these companies are actually ‘taking a  bath’ to begin anew in 2019."
  Meanwhile, others are understandably worried that it's only going to  get worse: Yu Dingheng, a fund manager at Shenzhen Flying Tiger  Investment & Management Ltd. said: "we’re only just seeing the  beginning of deterioration in corporate earnings as the economy slows  further. Things will continue to go downhill for firms seeing business  slowing and even as the macro-economy recovers, these individual firms  will never be what they were."


More at: https://www.zerohedge.com/news/2019-...rofit-warnings

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## Swordsmyth

One  day after China's official manufacturing PMI number printed in  contraction territory for the second month in a row, moments ago the Caixin/Markit China manufacturing PMI confirmed  that China's manufacturing sector is effectively in recession, when it  tumbled from 49.7 in December to 48.3 (from 51.5 a year ago), its second  consecutive month in contraction territory, and missing estimates of a  49.6 print. This was the lowest print in the series of the revised index  which came online in March of 2016.

  The 1.4 post slump may not sound like a lot, but it was the biggest drop in the series' 3 year history.

  Among the key indicators, output fell to 48.1 from 50.3 in Dec, the  lowest reading since June 2016 and reverses the recent expansion trend;  Meanwhile, new orders also fell vs prior month, sliding to the lowest  reading since Sept. 2015.
  In the monthly report, Caixin said that the latest survey data  signaled subdued overall operating conditions in the Chinese  manufacturing sector at the start of 2019. Production and total new work  were both slightly down at the start of the year, despite a renewed  increase in export orders. Relatively muted demand conditions  underpinned the first fall in purchasing activity for 20 months, while  firms also registered lower inventories of both purchased and finished  items.
  There was a silver lining in the employment and confidence  indicators: workforce numbers at manufacturing firms in China fell only  slightly in January. Furthermore, the rate of reduction was the slowest  seen for nine months. At the same time, companies reported a further  modest increase in the amount of outstanding orders. The softer fall in  employment was accompanied by a slight improvement in business  confidence. Notably, sentiment regarding the 12-month business outlook  was at its most positive since May 2018. Some firms anticipate new  products and planned company expansions to boost output over the next  year.
  That said there was no mistaking what was an almost uniformly  negative print, as manufacturers also adopted a cautious approach to  inventories, as firms reduced their holdings of both stocks of purchases  and finished items at the start of 2019. After broadly stabilizing at  the end of 2018, average suppliers’ delivery times also increased across  China’s manufacturing sector in January. 
  More concerning is that deflation appears to be re-emerging, because  in contrast to the marked increases seen through most of 2018, *average input costs faced by Chinese manufacturers fell for the second month running.  "*According  to panelists, lower cost burdens were due to reduced prices for raw  materials. At the same time, output charges also fell in January, amid  reports of a general drop in market prices."
  Commenting on the poor print, Zhengsheng Zhong said "The subindex for  new orders dipped further into contractionary territory, pointing to a  moderate contraction in demand across the manufacturing sector. Yet the  gauge for new export orders rose notably above the 50 level, the  dividing line that separates contraction from expansion, reaching its  highest point since March 2018, *showing that companies’ export orders have obviously rebounded since the truce in the China-U.S. trade war*."
  So some good news, perhaps? Well, not really, because as the report admitted, "on the whole, *countercyclical economic policy hasn’t had a significant effect.* While  domestic manufacturing demand shrank, external demand turned positive  and became a bright spot amid positive progress in Sino-U.S. trade  talks. As companies were more willing to reduce their inventories, *their output declined, indicating notable downward pressure on China’s economy."*
  The report's conclusion: "China is likely to launch more fiscal and monetary measures and speed up their implementation. *Yet  the stance of stabilizing leverage and strict regulation hasn’t  changed, which means the weakening trend of China’s economy will  continue.*"
  Following the report, the Yuan tumbled almost 300 pips, falling for  the first time in 8 days, and undoing much of the recent trade talk  optimism.



https://www.zerohedge.com/news/2019-...st-drop-record

----------


## Swordsmyth

*In theory, it is always so simple.* For China,  it was intended that RRR cuts are stimulus. By allowing banks to use  more of the reserves they’ve built up over the years it is meant to add  to overall interbank liquidity. From there, banks flush with RMB  supported by robust RMB money markets will lend and undertake more  direct economic transactions.
*Voila, stimulus.*
*The theory gets complicated by a very different kind of reality, one which pressures RMB markets from two sides.* The first is the direct result of the overriding issue.  The eurodollar market malfunctions, forcing China to deal with a  “dollar” shortage by having its central bank (and others) intervene out  of its own stockpile of FX reserves. Simple accounting, the PBOC’s asset side shrinks which must be met by the same on the money side.


  So, *RRR cuts already begin from inside a domestic monetary hole.* To  even get to the position of adding liquidity, banks have to mobilize  more of their reserves than the central bank has pulled back in its own.
  The second liquidity problem is just that: banks *have to mobilize* meaning  actually use more of their reserves. The Economics textbook simply says  that if given the opportunity no bank will refuse the license. Policy  says, bank books do. In theory.
  In practice, banks have to operate in the real world. If the PBOC is  in a situation already where it feels compelled to respond to  less-than-ideal effective conditions via an RRR cut perhaps it really  isn’t a conducive time for banks to be so generous? Reserve operations  of this type don’t usually happen unless things are already dicey, a  factor bank managers are going to be pretty well aware.
_Therefore, RRR cuts may not lead to the flood of  non-public liquidity the theory assigns. Chinese banks, especially the  biggest institutions, may opt to hoard that liquidity instead. If they  do, then RRR measures cannot be stimulus especially having begun at  first in the central bank hole._
  When Chinese banks hoard, obviously nothing good will result. The  illiquidity is not contained within China’s borders, either, as these  kinds of financial irregularities flow into the real Chinese economy and  are then transported to the rest of the world (further amplified by  more negative feedbacks in the eurodollar system).
*This was Euro$ #3’s devastating global downturn story of 2015 and early 2016.*

  We are on the lookout for evidence of China bank hoarding so as to  figure a possible repeat here well within Euro$ #4. From the very first  we see just that sort of difficulty in real-time market prices, in this  case SHIBOR and other RMB money rates. The correlation is ridiculously  obvious; RRR cuts have unleashed volatility and instability rather than  what would look like monetary stimulus.
  Chinese banking statistics back up the negative association – with an added wrinkle (more on that below).

  Since the first 2018 RRR cut back in April last year, the big banks  aren’t really lending more in the unsecured interbank markets. They are,  however, *borrowing* more from them; a lot more. The difference is almost surely the reason for harmful volatility in domestic money.

  The biggest banks are *draining* liquidity  (net) from unsecured RMB rather than contributing more to them. The  relationship with volatility in SHIBOR is established.
  The primary reason is equally evident: this is the same period in  which bank reserves have been declining. The PBOC’s eurodollar squeeze  leading to the systemic limit on its money (liability) side is being  echoed by the majority of the domestic banking sector.
*Without a liquidity cushion either in that money remainder  (growing bank reserves) or in terms of robust central bank RMB expansion  at its liquidity windows (such as MLF) there just isn’t any appetite  for banks to add anything to these crucial interbank spaces.*


The wrinkle in all this is repo. We know why the biggest  institutions are borrowing more unsecured – they are barely borrowing  (sources) in repo! Depending more and more on unsecured interbank  transactions instead of the repo market, you can start to appreciate why  these particular banks are perhaps more than a little skittish no  matter what policy the PBOC might undertake.
*If conditions worsen in China, more economic slowing and  therefore higher perceived overall risk, being reliant in greater  proportion on unsecured markets for so much marginal funding isn’t an ideal liquidity situation. To put it mildly.*

  The question is why they aren’t in repo. It may be that China’s  authorities told us last month when they began to really champion the  issuance of perpetual bonds to be used along with the central bank bill  swap. *It certainly seems to fall in line with what we see here;  if the big banks are in a collateral crunch, why not just create  collateral out of thin air (first the perpetual and then the swap into  usable repo instruments).*
  I wrote about this just a few days ago:
 To aid the situation on both counts, the PBOC last month hit upon a  two-part scheme. The central bank would encourage the use of perpetual  bonds that meet the definitions for being included as bank capital. Any  Chinese bank that issues these securities will be able to boost their  ratios, making it seem like it has more loss absorption capacity (which,  in theory, it would).
  The second part is this bill swap program. Perpetual bonds are illiquid therefore unacceptable in repo…
  To circumvent these technical deficiencies, the PBOC will allow banks  who issue perpetual bonds to swap them with its own holdings of central  government debt bills which they can then use either in private repo or  even in targeted MLF at that particular monetary policy window.This data can’t, unfortunately, tell us *why* a  collateral crunch seems to have developed. Such a negative outcome  would further explain the hoarding of liquidity along with the greater  desperation on the part of monetary authorities – escalating official  responses that don’t seem to get anywhere. *China’s money hole across a couple dimensions seems to be bigger than we already think.*

  It is, as Abraham Lincoln once said, the equivalent of shoveling  fleas across a barnyard; not half of them get there. “There” being RMB  liquidity. *This isn’t monetary stimulus indicated here, hoarding  is instead, a huge and growing monetary deficiency which seems to be  squeezing the Chinese economy. Again.*


https://www.zerohedge.com/news/2019-...-bank-hoarding

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## Swordsmyth

*Ever since Beijing allowed Chinese companies (even certain  state-owned enterprises) to officially fail for the first time in 2016,  and file for bankruptcy to restructure their unsustainable debt loads,  it’s been a one-way street of corporate bankruptcies, one which we  profiled last June in “Is It Time To Start Worrying About China’s Debt Default Avalanche“, and which culminated with a record number of  Chinese onshore bond defaults in 2018, as a liquidity crunch sparked a  record 119.6 billion yuan in defaults on local Chinese debt in 2018.*

And by the early look of things, 2019 won’t be any better after two large Chinese borrowers missed payment deadlines this month according to Bloomberg,  setting the scene for even more corporate defaults, and “underscoring  the risks piling up in a credit market that’s witnessing the most  company failures on record.”
The first one was China Minsheng  Investment Group, a private investment group with interests in renewable  energy and real estate, which failed to make a Feb. 1 bond payment to  creditors. The Shanghai-based financial conglomerate didn’t repay  investors in a 3 billion yuan bond that matured Jan. 29, then pledged to  give them their money back three days late, Bloomberg News reported  previously. But that didn’t happen.

_The firm, one of the largest private investment champions  in China, was backed by 59 non-state companies and obtained an operating  license in 2014, it said in a November bond prospectus. China  Minsheng Investment had 232 billion yuan in total debt and 310 billion  yuan of assets as of June 30, according to Shanghai Brilliance Credit  Rating & Investor Service Co._ 

The second name is familiar ever since its woes first emerged in  2018: Wintime Energy, which defaulted last year, also didn’t honor part  of a restructured debt repayment plan last week. 
What is notable about these two latest payment failures is that  both companies are “big borrowers” as Bloomberg put it, and their  problems accessing financing suggest that “government efforts to smooth  over cracks in the $11 trillion bond market aren’t benefiting all  firms.” 
In fact, when China Minsheng ends up defaulting, *it would  rank alongside Wintime Energy as one of China’s biggest failures, with  232 billion yuan ($34.3 billion) of debt as of June 30.* 
_“Chinese corporations’ expansion in the past few years has  often been fueled by debt issuance, usually short-term borrowings, but  their investment cycles are typically longer term,” said Shen Chen, a  partner at Shanghai Maoliang Investment Management LLP. “The recent  failures show that companies are still struggling to roll over their  debt despite the recent easing measures.”_ 
Making matters worse is that while that amount of corporate  defaults so far has been relatively small to China’s economy or  outstanding debt, it has sent “shockwaves” through a market where  inconsistent government appetite for bailouts and the prevalence of  shadow financing “can make it hard to tell who’s on the hook for  losses.” 

More at: https://www.infowars.com/china-rocke...-defaults-yet/

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## Swordsmyth

Downward  pressure on the economy will impact China’s job market, state officials  warned last month as data has shown gross domestic product expanded at  the slowest clip since 1990. And while rhe overall job market remains  stable, it faces a troubling deterioration: college graduates are  struggling to find jobs.

  Wang Xiangtong’s three-month internship with Hill & Knowlton  Strategies in Beijing will be terminated at the start of March, he told  the Financial Times.
  Wang graduated from Scotland’s Glasgow University in 2018 with  a masters degree in management, still considers his educational  achievement and a brief internship as rewarding. Many of the companies  he applied to in mainland China did not respond.
 “All of the positions I applied for are relevant to what I studied  and I fit their job descriptions so I thought I’d at least get a reply  from them. But many of them didn’t even give me an interview  opportunity,” he said. “There are more and more graduates with masters  degrees and the market is only so big. We’ll have to put up a bloody  fight [to get a job].”China's economic woes and trade tensions with the US have  sent exports and imports tumbling in December, while declining factory  orders warned of a further slowdown throughout the first half of 2019  and more job losses.

  The slowdown effect is now affecting graduates from top universities, said analysts. *These young  entrepreneurs are discovering that finance and tech companies across  the country are not hiring, but rather cutting workers.*
  Another graduate student at a prestigious Beijing University told the  Financial Times: "I feel the job market is increasingly narrow for  students like me, given that a historical number of us are graduating. I  also think employers have decreased or stopped hiring." She said  a state-owned company recruited ten students in her class last year but  this year is only taking one.

  Norman Zhou, head of recruitment process outsourcing for Korn Ferry  China, a hiring agency, said: "As China’s economy goes through a  transition and faces downward pressure, companies now operate in a more  uncertain environment and hire more conservatively from campus."

  As a result, Beijing is becoming increasingly worried that the economic slowdown is  triggering a glut of graduates who cannot find jobs. The communist  government recently introduced new policies to help this year’s  graduates find work. It also launched broad policies to thwart lay-offs  at companies.
  Earlier this month Beijing said it has introduced tax breaks for  small businesses operated by graduates, as the government desperately  injects fiscal stimulus to boost spending and offset an economic  downturn.
  Officials from the labor ministry told state media that there are  a “record number of graduates” — 8.34 million, or a 1.7% increase over  the previous year, who added to the “large employment pressure” the  country is facing.
  Graduates entering the job market in 2018 have been hit by not only  the trade war but also forced deleveraging in the financial sector,  which has dramatically decreased the number of jobs available.
  A new survey by China Market Research Group of around 40 graduate-hiring companies discovered that *80%  were not increasing headcount in 2018. More than half of the firms  decreased their opening, with the banking industry seen the brunt of the  hit.*
 “The banking sector was the one that hired the most people; now [the  banks have] been hit by regulations [governing the finance sector] since  last May, and they are automating more jobs,” said Cui Ernan, analyst  at research firm Gavekal Dragonomics. “The impact on graduates has been  big.”The contraction in tech and finance jobs is part of a much  longer-term cycle after years of exponential growth, analysts said,  which has now forced companies to be more conservative about hiring  additional staff.
 “The technology space, especially online delivery services, has grown  explosively in recent years but is now deteriorating because of a  consumption slowdown,” said Charles Yue, economist at investment bank  CICC. “There’s a lot of pressure in the high-end graduate market and on  the overall labour market.”The key risk is that if Beijing does not solve the employment  challenge newly minted graduates face, and with trade war likely to  escalate this is unlikely, it would upset the middle class potentially  resulting in a middle-class insurrection. 


https://www.zerohedge.com/news/2019-...lowing-economy

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## Swordsmyth

China overnight reported its latest credit aggregate data, and it was a doozy.  While the market's attention may have been focused on that "other"  news reported by China overnight, namely yet another disappointing month  of CPI and PPI, as China's CPI inflation eased further to 1.7% Y/Y in  January from 1.9% in December, while PPI inflation moderated further to  just barely above deflation territory, printing at 0.1% yoy in January,  the lowest since October 2016...

  ... the highlight of the overnight data had little to do with China's  lagging inflation indicators, and everything to do with China's latest  new loan data reported by the PBOC. What it showed was that, whether  alone or with others, Beijing has indeed decided to massively reflate  its (and the global) economy, in what may soon be dubbed the Shanghai  Accord 2.0
  Here's what happened in January: Chinese financial institutions made a  record 3.23 trillion yuan of new loans, versus a projected 3 trillion  yuan. *That was the most in any month back to 1992, when the data began,* and represented a whopping 13.4% yoy increase in January.

  But while the surge in new loans was impressive, it was nothing  compared to what China reported in its broader, all-encompassing  Aggregate Financing (until recently Total Social Financing),  which exploded nearly threefold from December's 1.59 trillion to an  unprecedented 4.64 trillion ($685 billion) in the month of January,  smashing expectations of 3.31 trillion, and printing far above the  highest forecast from 26 economists of 3.9 trillion. This was, as  several traders noted, *nothing short of a "gargantuan" credit injection, and an obvious greenlight to China's latest attempt to reflate its economy.*

  According to the PBOC, TSF stock growth was 10.4% yoy in January, vs  9.8% yoy in December. If we add all local government bond net issuance  to TSF flow data (excluding special bond issuance to avoid double  counting), adjusted TSF stock growth at 11.2% yoy in January, higher  than 10.5% in December. The implied month-on-month growth of adjusted  TSF was a whopping 17% SA ann, higher than 10.9% in December.
  The latest massive TSF injection brought the outstanding social aggregate financing to a record 205.1 trillion, *or an unprecedented $30 trillion in aggregate loans*, more than double China's entire GDP.
  Commenting on the surge, Goldman analyst Yu Song said that overall "*TSF surprised the market substantially to the upside in January despite headline RMB loans being fairly close to expectations"* noting that there were two main reasons for the surprise:

First, TSF data include RMB loans to the real economy, which  were 3.6tn – actually stronger than headline RMB loans of 3.3tn. The  latter figure includes loans between financial institutions, which by  implication actually contracted in January.Second, shadow banking components of TSF grew slightly. *Actual data in January suggest new trust, entrust and bank acceptance bills together were 343bn RMB*,  vs a contraction of 170bn RMB in December. In contrast, consensus  expectations imply that forecasters were likely expecting these  components to continue to shrink. Corporate bond issuance was strong -  net issuance climbed to RMB 499bn in January, vs 376bn in December – but  this could be tracked fairly closely in advance given the high  frequency data on bond issuance. Lower interbank rates in the month as  PBOC stepped up liquidity injection (through RRR cuts, TMLF etc) may  have contributed to the increase in non-loan components under TSF.
It's especially notable that a big part of the TSF surge was the  result of a fresh shadow banking expansion. Visualizing the bolded text  above, the chart below indicates that *Beijing may have thrown in the towel on its crackdown in Shadow Banking,* which after contracting for almost all of 2018, not only *rose  for the first time in 11 months, but soared the most in nearly two  years as Chinese regulators now appear focused on providing credit using  the very same channels they spent the past two years desperately trying  to block.*

  Speaking at a press conference, Ruan Jianhong, director of the PBOC’s  statistics and analysis department, surprisingly said that growth in  off-balance sheet financing will continue to decline but the pace will  decelerate, suggesting once again that Beijing's vendetta with shadow  banking is now on "pause" to use the parlance of the Fed.
  That said, Goldman does not go so far as to suggest a coordinated  global credit injection is taking place (which may be required for a new  "accord"), but instead believes that the stronger than expected TSF  growth was "mainly because of the administrative pressures the  government put on financial institutions. On the budget, fiscal policy  stance was largely neutral judging from the change in fiscal deposit  levels. *But the more broadly defined fiscal position was dovish  as the amount of special bond issuance was significantly larger than  usual and much of these are not captured by the budget.* "
  As a result of this massive attempt to trigger China's credit  impulse, which as we showed recently is arguably the only thing that  matters for the global economy...

  ... China's M2 rebounded from near record lows, rising 8.4% yoy in January, and up from December: 8.1% yoy.

  "China has been encouraging credit supply, and the effect of that is  showing in January," said Ding Shuang, chief economist at Standard  Chartered Ltd. for Greater China & North Asia, adding that the  seasonal lending increase at the start of the year also contributed.  "The authorities have been tackling the supply side of the credit, and  more proactive fiscal policies will help on the demand side."
  China's far more aggressive loosening stance is a response to the  widespread concerns that the economy would slow further going into the  beginning of 2019, and there is still a risk that the economy may show a  sharper decline after the Chinese New Year holiday, according to  Goldman. The bank explains that the risk of a post-holiday decline owes  to the fact that many labor contracts expire over the holiday, and also  because businesses that have closed during the holiday may not reopen  right away. Still, Goldman expects February TSF to remain strong, while  the massive surge in TSF and better than expected export data should  lower the risk of a downside scenario for the Chinese economy  significantly.
  The question is whether China has now overdone its credit injection,  and after keeping the economy subdued through minimized credit creation,  it has now careened in the other direction, and unleashed a powerful  inflationary impulse.
  We'll have to wait for the answer, but one thing we do know is that  this is just the start: as a reminder, China's government this week  announced new policies to help private and small companies get  financing, including further boosting lending, expediting stock listing  reviews and supporting bill financing. That’s the latest in a raft of  policies - including inventing new central bank policy tools - to  relieve the funding pressures faced by those businesses, which are  usually less able to access bank loans than bigger, state-owned  companies.


More at: https://www.zerohedge.com/news/2019-...njection-start

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## Swordsmyth

From China’s side, Friday’s PPI data said it is sliding into  deflation again - and borrowing for January was insane. I won’t describe  the numbers because they are so large it is meaningless. Yes, this is  one month, and Lunar New Year means we need to see the February/March  data too; but if the January pace is kept up China is already throwing  the whole kitchen at the economy. *It borrowed FIVE PERCENT OF GDP IN ONE MONTH*. *That’s 60% of GDP in a year. That’s a peak-WW2 level of borrowing.* Does it suggest a real trade deal is coming? Or that China is backing away from its state-led model? Try to understand *that.* (And be very nervous on CNY.)



More at: https://www.zerohedge.com/news/2019-...-gdp-one-month

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## Swordsmyth

Car sales in China continued their relentless descent in January, falling 17.7%, as we recently expected would happen  when discussing Europe's tumbling January auto sales. This follows the  country's first full year slump (2018) in more than two decades and it  puts further pressure on the state of the global automotive market. 
  The drop marked the eighth monthly retail sales decline in a row and was the biggest one-month drop in seven years. 

  Gu Yatao, a Beijing-based auto analyst with Roland Berger, confirmed to Bloomberg  that the "downward pressure is still there. The government isn’t  adopting stimulating policies to give the market a shot in the arm."
  The contraction in China comes at the same time that auto markets in  Europe and North America continue to shrink as a result of car sharing  services and slowing economies. As we have been reporting for months,  the slowdown in China continues to be a result of the country's slowing  economy, coupled with the lagging trade war with the United States. Even  discounts for the Chinese New Year, which traditionally can help spur  sales, weren't enough to keep consumers in showrooms early this year. 
  It's a "historic slump" for China: the wholesale decline in January,  to 2.02 million units, accelerated from December's 15.8% slump. For  2018, *the drop was 4.1%, marking the first decrease since the early 1990s.* 
  John Zeng, managing director of LMC Automotive Shanghai, told  Bloomberg he expects the first half of 2019 will "continue to see  downward pressure" as a result of a purchase tax cut from 2016 and 2017  that pulled vehicle sales forward. 

More at: https://www.zerohedge.com/news/2019-...ustry-meltdown

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## Swordsmyth

Pizhou, Fujian has a solution to falling home prices: ban them.  They're not alone in using this strategy. Other cities have told  developers to reverse price cuts and one went so far as to punish a  developer's creditors.

iFeng: 房企“恶意降价”被紧急叫停，房价到底能不能降
On the finite price, the price can not rise. And the  property market environment is so cold, the price of the house is not  good to sell. It is not easy to cut prices. After the new term "price  reduction attempt" was born, a new word appeared in Zhangzhou City,  Jiangsu Province, "malicious price cuts."

This is really an anecdote. *Developers who have such a big hatred, do you have to carry "malicious" to cut prices? Who is going to be malicious?*A developer was warned about cutting prices to move inventory:
At the beginning of February 2018, the Real Estate Chamber  of Commerce of Zhangzhou City, Jiangsu Province issued a "Circular on  the recent sales chaos in the real estate market in Zhangzhou", which  was circulated on the Internet. It has attracted many onlookers.

The announcement states:

*There are some properties in  Zhangzhou that have disrupted the market with low prices and unfair  competition. The sales price is seriously lower than the filing price.  The individual properties have dropped by 2,000 yuan/square meter. This  kind of behavior has seriously disrupted the order of the real estate  market.*

The Zhangzhou Real Estate Chamber of Commerce requires housing companies to sell according to the record price, and *must not provoke a price war.*Neither the public nor the developers are amused.
The price cut is to disrupt the market order. This wave of  operation not only makes the developers of price cuts a bit confusing,  but also makes the masses of people somewhat shocked. *When the  housing enterprises raised their prices, they never saw someone saying  "malicious price hikes" and "disturbing the market order." When the  house prices fell, the market order was disrupted.*

Coincidentally, just a few months before the “bad price cut” in Ganzhou,  the neighboring Anhui Province had a joke about the developer’s “price  reduction attempt”.

*In November 2018, a property in Hefei,  Anhui Province, reported a price reduction of 6,000 yuan / square meter,  the results did not take long, the local real estate director  personally went to the investigation, and the price back went up again.* *Immediately  after the price reduction of a real estate in Lushan, the local  government organized a symposium on “the attempt to reduce the price”,  suspended the pre-sale permit for the relevant real estate, and imposed  penalties on the four cooperative banks.*Propping up home prices isn't only a strategy for keeping the people  content. The main goal may be supporting land sales that fund local  governments. Cities are racing against the credit impulse though.

  If inflation arrives in time, nominal prices can rebound. If not,  developers are going to be stuck will immobile inventory as debt comes  due. And then it will be the bond market's problem.

https://www.zerohedge.com/news/2019-...ous-price-cuts

Tell me more about how China is a "free market" economy.

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## goldenequity



----------


## Swordsmyth

Chinese Premier Li promised yet more stimulus measures overnight from tax cuts to focused rate reductions (but, he admitted, not blanket liquidity provision).
  But, after over 60 different 'stimulus' measures in the last few months and last night's promises, nothing seems to be working as China's economic data continues to tumble.

  As Goldman's Andrew Tilton (Chief Asia Economist) suggested:
 "*There are reasons to be concerned [that easing is becoming less effective].*  Local government officials who typically implement infrastructure  spending and other forms of stimulus are facing conflicting pressures.  The emphasis in recent years on reducing off-balance-sheet borrowing,  selecting only higher-value projects, and eliminating corruption has  made local officials more cautious. But at the same time, the  authorities are now encouraging local officials to do more to support  growth, like accelerate infrastructure projects. President Xi himself  recently acknowledged the incentive problems and administrative burdens  facing local officials."And Nomura's Ting Lu has an explanation for why China stimulus i snot working...
*Chinese easing- / stimulus- escalation being a likely  requirement for any sort of “reflation” theme to work beyond a tactical  trade:* 
  yes, more RRR cuts are coming eventually (a better way for Chinese  banks to obtain liquidity vs borrowing from MLF or TMLF, bc it’s cheaper  and more stable)*...*
*...but that the timing of such a cut is primarily dependent on the Chinese stock market, as the  “re-bubbling” happening real-time in Chinese Equities (CSI 300 +26.8%  YTD; SHCOMP +24.4%; SZCOMP +34.0%)  likely then constrains the room and  pace of Beijing’s policy easing / stimulus*
  This “Chinese Equities rally effectively holding further RRR cuts  hostage” then could become a serious “fly in the ointment” for near-term  / tactical “reflation” (or bear-steepening) themes, as Q2 is on-pace to  see a significant liquidity shortage.
*Ting estimates the liquidity gap could reach ~ RMB 1.7T in Q2 due to the following factors*:

 _T__he size of the upcoming MLF maturities (est to be ~RMB 1.2T in Q2);_ _The size and pace of (both central and local) government bond issuance (Nomura ests a target of ~ RMB 1T for Q2);_ _Tax season effects; and_ _The shortage of money supply through the PBoC’s FX purchases_
*CHINA’S COMING Q2 LIQUIDITY-SHORTAGE:*


  So, simply put, *China is merely refilling a rapidly leaking bucket of liquidity*, as opposed to sloshing more into the bath of global risk - even if Chinese stocks were embracing it.


https://www.zerohedge.com/news/2019-...s-isnt-working

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## Swordsmyth

Whatever deal Washington and Beijing  reach over the trade war, President Trump has already scored a big  victory: Companies are rethinking their reliance on China. The two sides are nearing an agreement, with Mr. Trump saying on Thursday that an “epic” trade pact could be weeks away  and that he may soon meet with President Xi Jinping, China’s top  leader. But already, spurred by tariffs and trade tensions, global  companies are beginning to shift their supply chains away from China,  just as some Trump administration officials had wanted. 
The move, known as decoupling, is a major goal of those who believe the world has grown far too dependent on China as a manufacturing giant. As Beijing builds up its military and extends its geopolitical influence, some officials fear that America’s dependence on Chinese factories makes it strategically vulnerable. 
Now companies in a number of industries are reducing their exposure to China. GoPro, the mobile camera maker, and Universal Electronics, which makes  sensors and remote controls, are shifting some work to Mexico. Hasbro is  moving its toy making to the United States, Mexico, Vietnam and India.  Aten International, a Taiwanese computer equipment company, brought work  back to Taiwan. Danfoss, a Danish conglomerate, is changing the  production of heating and hydraulic equipment to the United States.


More at: https://www.nytimes.com/2019/04/05/b...gtype=Homepage

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## Swordsmyth

Car sales in China, the world's largest vehicle market, continue to  tumble, exposing an increasingly ugly picture for the global automotive  market. The data marks a dismal _and protracted_ reversal in a market that had done nothing but grow for decades, according to Bloomberg.  In March, retail sales of sedans, SUVs, minivans and multipurpose  vehicles dropped 12% to 1.78 million units, according to the China  Passenger Car Association. *This is after an 18.5% drop in February and a 4% drop in January.*


The country's slowing economy and continued trade tensions with the  United States are weighing on consumer sentiment among its 1.4 billion  people. Additionally, changes in tax policies and import tariffs have  also acted as a headwind for car demand. *Cars were the only consumer product category in China that shrank the first two months of 2019.*
  Cui Dongshu, secretary general of the CPCA, is among those calling  for more government intervention to spur buying: “There are only 200  million private vehicles in China, leaving huge room for growth.  Policies should be put in place to spur vehicle consumption in 2019.”  Because as we all know, the government manipulating the market to create  demand where there isn't any could never backfire, right? 
  Even better, despite the horrifying data, Cui still thinks that car  sales "may recover in April", helped by the country's planned tax  reductions. He stopped short of predicting sales gains, but PCA raised  its forecast for 2019 sales of new energy vehicles - battery, hybrid and  fuel cell cars - to 1.7 million from 1.6 million.


More at: https://www.zerohedge.com/news/2019-...lump-continues

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## Swordsmyth

One month ago, we asked if that was it for China's "Shanghai Accord 2.0"? Turns out the answer was a resounding "_no._"
  As we noted at the time,  one month after the PBOC injected a gargantuan 4.64 trillion yuan ($685  billion) into the economy - more than the GDP of Saudi Arabia - in the  month of January in the country's broadest credit measure, the  All-System Financing Aggregate a credit injection that was so massive it  even prompted the fury of China's prime minister Li Keqiang who lashed out at  the central bank for its unprecedented debt generosity in a time when  China was still pretending to be on a deleveraging path, in February the  PBOC again surprised China-watchers, this time to the downside, when  the Chinese central bank reported that aggregate financing increased by a  paltry 703 billion yuan, roughly half the expected 1.3 trillion, the  lowest print in the revised series history.

  However, to assuage fears that China was turning off the credit taps  just one month after the release of weak February TSF, PBOC governor Yi  commented in his press conference during the NPC that (although February  TSF data was weak) the data should be viewed in light of strong January  data. He also noted that even combined Jan-Feb data could be distorted  by the Chinese New Year, and one needed to wait for March data.
  Well, we got just that overnight (as reported previously)  and it was a monster: just after 4am ET, the S&P futures surged  above 2,900 when the PBOC reported that in March, new yuan loans jumped  by 1.69 trillion, far above 1.25 trillion estimate, *while total social financing in March soared higher 2.86t yuan, the highest March increase on record;* smashing the 1.85 trillion yuan estimate, and more than four times the February 703BN yuan increase.

  According to the PBOC, adjusted TSF growth (after adding local  government special bond issuance) was 10.7% yoy in March, vs 10.1% yoy  in February. If one adds all local government bond net issuance to TSF  flow data (excluding special bond issuance to avoid double counting),  Goldman estimates that *adjusted TSF stock growth at 11.6% yoy in  March, higher than 11.0% in February. The implied month-on-month growth  of adjusted TSF was 11.6% SA ann, higher than 11.3% in February.*
  Putting the staggering jump in China's All-System Financial Aggregate in context, *the March number was 80% higher than the year ago March print, and the YTD TSF cumulative total is 40% higher than a year ago!* Run-rated,  and assuming no further growth at any month in the rest of 2019,  China's TSF is set to close 2019 some 12% higher than a year ago, and  nearly twice as high as China's official GDP growth rate.
  Also worth noting: unlike most of 2018, when China shadow banking  creation was negative every month startin in March through December,  March shadow banking once again printed in the green, following  January's surprising jump (and following February's drop), suggesting  that China has once again eased the reins on its local shadow banking  creation in order to spark both the credit impulse and pad China's  economic rebound.


  Looking at some other monetary aggregates, in March M2 rose +8.6%  y/y; also stronger than the est. +8.2%, and well above the February +8%.  In other words, it once again appears that China is doing everything in  its power to flood the economy with new credit and reversing the  concerns we noted last month emerging from the sharp February TSF drop.  It also explains why futures surged above 2,900 once the number hit.



More at: https://www.zerohedge.com/news/2019-...it-month-march

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## Swordsmyth

China's  economy cooled further in the first quarter, according to an AFP survey  of analysts, as Beijing resorted to tried-and-tested measures to combat  tepid global demand and a bruising US trade war.
The  world's second largest economy expanded by 6.3 percent in the January  to March period, the poll of 13 economists found ahead of the official  release of gross domestic product figures on Wednesday.
It would mark the slowest pace of quarterly growth for almost three decades.

China's normally steady unemployment rate rose to 5.3 percent in  February, from 4.9 percent in December, while retail sales growth  remained near a 15-year low.

More at: https://news.yahoo.com/chinas-econom...--finance.html

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## Swordsmyth

On the surface, China's March data was surprisingly strong, largely  as a result of strong policy easing and in light of China's massive 40%  surge in Total Social Financing, even adjusting for the Chinese New Year  factor, the data indicated a recovery in economic momentum, if only for  the time being.

  As DB's Jim Reid recapped this morning, starting with China’s Q1 GDP,  the print came in one tenth above expectations at 6.4% yoy while all of  the March activity indicators surprised on the upside with industrial  production surging at +8.5% yoy (vs. +5.9% yoy expected) – the highest  since July 2014. Retail sales printed at +8.7% yoy (vs. +8.4% yoy  expected), YTD fixed assets ex rural came in line with consensus at  +6.3% yoy and the jobless rate fell one tenth to 5.2%.

  Among the other positive highlights, export momentum stabilized,  consumption looked to be bottoming out and investment remained supported  by the surprisingly resilient housing market. The outlook also seems  bit more secure, as credit growth embarked on an upward trend.
  That said, as SocGen's Wei Yao pointed out this morning, the  expenditure breakdown was not as positive. According to the NBS, net  exports were the only improving segment, while both consumption and  investment (including inventories) weakened notably in 1Q. Furthermore,  the pick-up in net exports had more to do with weak imports than better  exports. Consistently, overall fixed asset investment (FAI) growth  moderated from 7.2% in 4Q to 6.3% in 1Q, although in real terms. By  sector, infrastructure investment growth slowed from 6.0% to 4.2%, and  manufacturing investment growth continued to moderate, from 11.5% to  4.6%. However, property investment picked up again from 8.4% to 11.8%.

  However, *three pieces of data have prompted questions about  the consistency and veracity of the latest uptick in Chinese data: the  collapse in land sales, weak imports, and the unexpected decline in  electricity consumption*.
  First, overall housing activities did stage a come-back in March as  property sales recovered from -4% in the first two months of 2019 to 2%,  lifting the quarterly growth from -2% in 4Q to 0.9% in 1Q. Yet while  growth in new starts rebounded quite sharply in March to 18% from 6%,  this was not enough to stop the quarterly deceleration from 19% in 4Q to  12%. But the big question is regarding the outlook.  On the positive  front, housing policy seems to be easing more notably from less  stringent credit conditions for developers to relaxation in the 2nd-tier  cities’ Hukou policy. However, ominously, land sales revenue growth  collapsed to -33% in 1Q from 11.8% in 4Q18. This, as SocGen notes,  "clearly does not augur well for property investment in the coming  quarters."

  Second, whereas the all important net trade metrics appear to have  stabilizied, import growth slid further, from -0.3% in February  to  -1.8%, *tanking the quarterly growth rate from 9% in 4Q to 0% in 1Q, or 5% to -4% in USD terms. * By  destination, the deceleration in quarterly nominal growth was  broad-based, mainly driven by commodity-exporting countries (Russia and  Brazil), followed by the US and Korea. By product, import volume growth  of major goods such as crude oil and semiconductors all moderated in 1Q.  Metal import volumes also remained sluggish, with iron ore down from 1%  in 4Q to -4%, copper down from 5% to -4% and steel down from -3% to  16%.


  Last, but not least, was the latest energy consumption data, which  while not highlighted in yesterday's report, was certainly a concern  because in a quarter in which industrial production reportedly soared  higher, we also saw the first contraction in total energy consumption,  which shrank by 1%. That this took place when China's economy allegedly  grew by 6.4% certainly puts the veracity of China's data under the  microscope yet again.



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



Earlier today we presented three reasons to doubt the veracity of  China's unabashedly strong Q1 economic data: the collapse in land sales,  weak imports, and the unexpected decline in electricity consumption. We  can now add one more: according to Bloomberg, China is now preparing to  take even more stimulus steps to boost growth.
  According to the report, Chinese officials are drafting measures to  bolster sales of objects which have seen a surprising decline in  consumer demand, namely cars and electronics. Notably, the report  coincided with the latest GDP data showing a stronger than expected 6.4%  expansion in the first quarter. Yet that appears to be insufficient for  Beijing - which remains stuck in a protracted trade war with the US -  and Chinese leaders are "stepping up attempts to bolster consumption and  mitigate the threats posed by trade tensions with the U.S."
  As Bloomberg reports, "*the proposals include subsidies for  new-energy vehicles, smartphones and home appliances, and are at a  consultation stage with other government branches, with no guarantee  that they’ll be approved."*
  Among the other components of the proposal, via Bloomberg:

An increase in the number of automobile licensesA waiver on car-ownership quotas for families who don’t own vehiclesSubsidies for people who exchange vehicles that are as many as 10 years old for electric, hybrid or fuel-cell vehiclesNo limits or traffic controls for new-energy vehiclesEncouraging banks to increase auto loans in tier-3 cities or belowConsidering deducting auto purchases from personal income taxSubsidies of up to 13 percent for a home appliance purchase at a maximum of 800 yuan ($120) per purchaseExemption of value-added taxes for used-car transactions until the end of 2020
The target of the latest stimulus is clear: to boost flagging auto sales. As we reported last week,  dropped 12% to 1.78 million units, according to the China Passenger Car  Association. This is after an 18.5% drop in February and a 4% drop in  January, and follow the worst year for Chinese auto sales in decades.


  As Bloomberg adds, it’s notoriously difficult to own a car in major  Chinese cities because of quotas to tackle traffic congestion and air  pollution. In Beijing, the annual new vehicle quota dropped to 100,000  in 2018, and each licensed gasoline-fueled car has to be idle one day a  week. "That’s prompted the government to provide incentives for  motorists to drive new-energy vehicles -- including pure-battery  electrics, plug-in hybrids and fuel-cell cars."

More at: https://www.zerohedge.com/news/2019-...ance-purhcases

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## Swordsmyth

China's urban worker pension fund will be empty by the year 2035 due to a  shrinking workforce and insufficient contributions, according to  findings by the World Social Security Center at the Chinese Academy of  Social Sciences, Caixin reported April 15.

More at: https://worldview.stratfor.com/situa...35-study-finds

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## Swordsmyth

A new method for small business owners to gain the favor of bank  managers and obtain credit is emerging amid China’s push to support the  real economy: Studying Xi Jinping thought and promoting the Communist  Party.
Zhejiang  Taida Miniature Electrical Machinery Co., a producer of ventilating  fans, this year received a so-called “red impetus loan” of 3 million  yuan ($447,000), said chairman Qiu Rongquan at the company’s booth at  the bi-annual Canton Fair,  billed as the world’s largest trade forum. The loans are granted to  companies that have solid businesses after doing good work promoting the  Communist Party, he explained. 
                                    Huzhou city government, which oversees Deqing county where  the company is based, said in an April 11 statement that the loans are  guarantee and collateral free, with reduced interest rates to help  private companies develop. Qiu said his company received the loan at the  benchmark interest rate, whereas it would usually pay 20 to 30 percent  above the rate.

More at: https://www.bloomberg.com/news/artic...eap-bank-loans

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## Swordsmyth

Beijing has been flooding the market with credit, with total social  financing up 40 percent so far this year. Notably, the source of funds  is expanding beyond banks, indicating an uptick in shadow activity. Yet  fixed-asset investment is up only 6 percent from last year. That means  loans aren’t heading into areas that will boost the real economy.  Meanwhile, companies aren’t getting paid what they’re owed, and  account receivables are building up.
The  consumer side doesn’t look any better. Auto sales fell 11 percent in  the first quarter from an already tepid 2018. Mobile-phone shipments  slid 12 percent over the same period, compounding a 26 percent tumble a  year earlier. Households are clearly feeling the pinch: They’re ordering  less takeout from delivery apps and seeing fewer movies at the box  office. Shoppers are using their credit cards more, with balances up 23  percent in the fourth quarter from a year earlier. And while surveys  show household expenditure rose nearly 15 percent in 2018, there’s  little left over in the budget for any extras. That helps explain why  production of air conditioners is down 1 percent in the first two months  of the year, while washing machine output dipped 7 percent.

         Beijing has unveiled a standard buffet of fiscal stimulus,  credit growth, debt restructuring and consumer-focused tax breaks to  boost growth. It’s debatable whether any of that will work. Public  finance doesn’t play out in a vacuum: A tax-cut recipient has the option  of saving that money or spending it. Given high Chinese household debt  levels, it’s quite likely that windfall will have a much smaller impact  on consumption than hoped. The same thinking applies to firms and local  governments.
The more pressing question might be how much new  credit is flowing into financial markets given the rise in stocks and  commodities prices. A long history of credit binges is a reminder that  Beijing could end up spending a lot of money to accomplish very little.

More at: https://www.bloomberg.com/opinion/ar...nomic-downturn

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## Swordsmyth

Ever since Beijing allowed private Chinese companies (even certain  state-owned enterprises) to officially fail for the first time in 2016,  and file for bankruptcy to restructure their unsustainable debt loads,  it's been a one-way street of corporate bankruptcies, one which we  profiled last June in "Is It Time To Start Worrying About China's Debt Default Avalanche", and which culminated with a record number of  Chinese onshore bond defaults in 2018, as a liquidity crunch sparked a  record 119.6 billion yuan in defaults on local Chinese debt in 2018. 

  However, whereas for much of 2018 Chinese defaults affected largely  less meaningful companies with little to no systemic impact, in 2019 the  defaults started hitting dangerously close to the beating heart of  China's massive, $40 trillion financial system (roughly three times  China's GDP). As we reported back in February, a giant Chinese borrower  missed its payment deadline when Wintime Energy - which in 2018 became  the latest Chinese bond defaulter as the coal miner failed to pay  scheduled interest - didn’t honor part of a restructured debt repayment  plan, setting the scene for even more corporate defaults, and as Bloomberg put it, "underscoring the risks piling up in a credit market that’s witnessing the most company failures on record."
  Then, earlier this week, a unit of China's infamous conglomerate, HNA Group, defaulted on a loan*it took out just seven months ago,* the  latest in a string of missed payments that threaten to complicate the  embattled Chinese conglomerate’s restructuring. As Bloomberg reported,  lenders to CWT International Ltd., a Hong Kong-listed unit of HNA which  is still struggling to cope with its debt after embarking on more than  $25 billion of asset sales since 2018 unwinding the biggest global  acquisition binge in modern Chinese history, said they would seize most  of the company’s assets - including CWT’s stake in a logistics unit,  properties in the U.S. and U.K., and golf courses in China - unless CWT  makes good on payments tied to a HK$1.4 billion ($179 million) loan  taken out in September.
  Fast forward to today when China's default tsunami may be about to claim its biggest and most visible casualty yet.
  As Bloomberg reports, a debt crisis at one of China’s most well-known  private conglomerates entered a new stage Thursday, when the company  said cross-default clauses had been triggered on dollar bonds worth $800  million.
  The company in question, China Minsheng Investment Group, also dubbed "*China's JPMorgan*"  is one of the largest private investment conglomerates in China, and  had 232 billion yuan in total debt and 310 billion yuan of assets as of  June 2018, according to Shanghai Brilliance Credit Ratings.
  Minsheng first made the news in early February when it failed to make  a Feb. 1 bond payment to creditors after a 3 billion yuan note had  matured on Jan. 29. Since then its financial troubles have only  escalated, and this week it appears that the company is preparing for a  full-blown bankruptcy after it appointed Kirkland & Ellis as legal  adviser, according to a Hong Kong stock exchange filing,  which also noted that banks have set up a creditor’s committee to try  to stabilize the company, a traditional step that precedes a  debt-to-equity restructuring.
  The cross default comes after CMIG’s problems spread to its affiliate Yida China Holdings, *making  some of the developer’s debt immediately payable, and causing a chain  reaction back to the parent company’s own securities*.
  In many ways, Minsheng's growing troubles were easy to anticipate:  since its establishment in 2014, CMIG has spent more than $4 billion on  investments and amassed about $35 billion of liabilities as of  September.
  "*CMIG’s debt crisis will worsen as creditors will seek to freeze more assets if it defaults on onshore publicly offered notes,"* said Chen  Su, a bond portfolio manager at Qingdao Rural Commercial Bank Co. The  problems won’t be resolved unless CMIG finds more willing investors, he  said.
  And since "more willing investors" are unlikely to emerge, CMIG's  liquidity - and solvency - crisis will only get worse, as reflected in  the price of CMIG’s dollar bonds due in August, which last traded at  around 40 cents on the dollar.
  As it scrambles to shore up liquidity, CMIG said it has reached an  agreement with holders of a privately placed note to extend the payment  date to April 19, i.e. today, from April 8. Meanwhile, the company at  the center of the cross-default crisis, Yida China, saw its  credit  rating was cut to CCC from CCC+ at S&P late Thursday, *which said the company may face a liquidity crunch in the next 12 months, given the overhang of debt repayable on demand*.
  While it remains to be seen if CMIG can negotiate an out of court  deal with its creditors, a default would likely harm investor sentiment  toward future offerings from privately-held and unrated issuers,  according to Patrick Liu, chief executive officer of Admiralty Harbour  Capita. Still, given the relatively small amount of CMIG’s outstanding  dollar bonds, with some backed by letters of credit, there will be  limited impact on the offshore market, he added.


The default of CMIG notwithstanding, and despite Beijing's attempt to  stimulate and stabilize the economy once more (by injecting an  unprecedented amount of debt into the economy, which will likely result  in even greater defaults down the line), signs of corporate stress are  spreading. Citic Guoan Group, a state-linked conglomerate, was  downgraded on Wednesday after fresh asset seizures, helping trigger  a plunge in its listed unit’s shares. Tewoo Group earlier this  month sought support from lenders to extend its debt amid a credit  squeeze.
  Worst of all is what is coming down the line: here, as Bloomberg  notes, bonds from at least 44 Chinese companies totaling $43.7 billion  face imminent repayment pressure. Looking further out, it gets even  worse, as China's corporate bond maturity schedule is staggering with  trillions in bonds set to mature in coming quarter, assuring even more  defaults to come.

  The “market is clearly pricing in a lot of credit differentiation as  access to refinance remains firmly shut for certain issuers yet widely  open for others," JPMorgan's Anne Zhang said recently. "Defaults will  become more frequent yet more idiosyncratic."

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

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## Swordsmyth

China’s majestic and elegantly-stable GDP figures are best seen as an instrument of political combat.
  Donald Trump says “trade wars are good and easy to win” if your foes  depend on your market and you can break them under pressure.
  He proclaimed victory when the Shanghai equity index went into a swoon over the winter. This is Trumpian gamesmanship.
  It is in China’s urgent interest to puncture such claims as trade  talks come to a head. Xi Jinping had to beat expectations with a  crowd-pleaser in the first quarter.* The number was duly produced: 6.4 per cent. Let us all sing the March of the Volunteers.*
*“Could it really be true?”* asked Caixin magazine. This was a brave question in Uncle Xi’s evermore totalitarian regime.
*Of course it is not true.* Japan’s  manufacturing exports to China fell by 9.4 per cent in March (year on  year). Singapore’s shipments dropped by 8.7 per cent to China, 22 per  cent to Indonesia, and 27 per cent to Taiwan. Korea’s exports are down  8.2 per cent.
*The greater China sphere of east Asia is in the midst of an industrial recession.*  Nomura’s forward-looking index still points to a deepening downturn.  “Those expecting a strong rebound in Asian export growth in coming  months could be in for disappointment,” said the bank.
  China’s rebound is hard to square with its own internal data. Simon  Ward from Janus Henderson said nominal GDP growth – trickier to  manipulate – is still falling. It dropped to 7.4 per cent from 8.1 per  cent in the last quarter on 2018.
*Household demand deposits fell by 1.1 per cent last month.  This means that the growth rate of “true” M1 money is still at slump  levels.* It has ticked up a fraction but this is nothing like  previous episodes of Chinese stimulus. It points towards stagnation into  late 2019. “Hold the champagne,” he said. A paper last month by Wei  Chen and Chang-Tai Tsieh for the Brookings Institution – “A Forensic  Examination of China’s National Accounts” – concluded that *GDP growth has been overstated by 1.7 per cent a year on average since 2006*. They used satellite data to track night lights in manufacturing zones, railway cargo volume, and so forth.
*“Local officials are rewarded for meeting growth and investment targets,”* they said. *“Therefore, it is not surprising that local governments also have an incentive to skew the statistics.”*
  Liaoning – a Spain-sized province in the north – recently corrected  its figures after an anti-corruption crackdown exposed grotesque abuses.  Estimated GDP was cut by 22 per cent. You get the picture.
  Bear in mind that if China’s economy is a fifth or a quarter smaller  than claimed it implies that the total debt ratio is not 300 per cent of  GDP (IIF data) but closer to 400 per cent. If China’s growth rate is  1.7 per cent lower – and falling every year – the country is less able  to rely on nominal GDP expansion whittling away the liabilities.
  Debt dynamics take an ugly turn – just at a time when the working-age  population is contracting by two million a year. The International  Monetary Fund says China needs (true) growth of 5 per cent to prevent a  rising ratio of bad loans in the banking system.
  China bulls in the West do not dispute most of this. But they say  that what matters is the “direction” of the data, and this is looking  better. Stimulus is flowing through. It gained traction in March with an  8.5 per cent bounce in industrial output – though sceptics suspect that  VAT changes led to front-loading. Suddenly the words “green shoots” are  on everybody’s lips.
*The thinking is that China will rescue Europe. Optimists are  doubling down on another burst of global growth, clinched by the  capitulation of the US Federal Reserve. It will be a repeat of the  post-2016 recovery cycle.*
  Personally, I don’t believe this happy narrative. But what I do  respect after observing late-cycle psychology over four decades – and  having turned bearish too early during the dotcom boom – is that  investors latch onto good news with alacrity during the final phase of a  long expansion. A filtering bias creeps in.
  So sticking my neck out, let me hazard that heady optimism will lead  to a rally on asset markets until the economic damage below the  waterline becomes clear.
  Let us concede that Beijing has opened its fiscal floodgates to some  degree over recent weeks. Broad credit grew by $US430 billion ($601  billion) in March alone. Business tax cuts were another $US300 billion.  Bond issuance by local governments was pulled forward for extra impact.  But once you strip out the offsets, it is far from clear that the  picture for 2019 has changed.
*Nor is it clear what can be achieved with more credit.*  The IMF said in its Fiscal Monitor that the country now needs 4.1 yuan  of extra credit to generate one yuan of GDP growth, compared to 3.5 in  2015, and 2.5 in 2009. The “credit intensity ratio” has worsened  dramatically.

More at: https://www.zerohedge.com/news/2019-...ose-rest-world

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## Swordsmyth

Following the biggest quarterly credit injection in Chinese history,  it is safe to say that China's banks are flush with yuan loans.  However, when it comes to dollar-denominated assets, it's a different  story entirely. As the WSJ points out,  in the past few years, a funding problem has emerged for China’s  biggest commercial banks, one which is largely outside of Beijing’s  control: *they’re running low on US dollars so critical to fund operations both domestically and abroad.*
  As shown in the chart below, the combined dollar liabilities at  China's four biggest commercial banks exceeded their dollar assets at  the end of 2018, a sharp reversal from just a few years ago. Back in  2013, the four together had around $125 billion more dollar assets than  liabilities, but now they owe more dollars to creditors and customers  than are owed to them.

  The reversal is the result of just one bank: Bank of China, which for  many years held more net assets in dollars than any other Chinese  lender, ended 2018 owing $72 billion more in dollar liabilities than it  booked in dollar assets. The other "top 3" lenders finished the year  with more dollar assets than liabilities, even though their net dollar  surplus has shrunk substantially in the past five years.
  And yet, as everything else with China, there is more than meets the  eye: as the WSJ reports looking at Bank of China's annual report, the  bank's asset-liability *imbalance is more than addressed by  dollar funding that doesn’t sit on its balance sheet. Instruments like  currency swaps and forwards are accounted for elsewhere*.
  This is reminiscent of the shady operations discussed recently  involving Turkey's FX reserves, where the central bank has been  borrowing dollar assets from local banks via off balance sheet swaps,  which it then used to prop up and boost the lira at a time of aggressive  selling of the local currency. It is safe to assume that the PBOC has  been engaging in a similar operation.
  Additionally, as the WSJ observes, such off-balance-sheet lending  "can be flighty", and citing a recent BIS study, the vast majority of  currency derivatives mature in under one year, meaning they are up for  constant renewal and could evaporate during times of pressure.
  Of course, as we noted last week, the Turkish central bank got the  idea to manipulate its currency using swaps from China, where currency  swaps, meant to protect banks from liquidity crises when they lend in  currencies other than their own, have boomed in recent years.... even if  it still does not have "the most crucial of all" swap line - one with  the Federal Reserve.


The good news is that unlike Turkey, whose net foreign asset position  may be as low as just $10 billion, the imbalance at Bank of China is  small relative to its balance sheet, so it shouldn’t be seen as an  imminent threat. As a reminder, China has roughly $3.1 trillion in  foreign exchange reserves (gross of swaps), which remain a safety  backstop in case of a crunch or funding crisis, but as the WSJ notes, it  is unclear how bad things would have to get before Beijing would permit  its use by major commercial banks; meanwhile, in a worst case scenario,  "a heightened need to help the big four lenders also makes that hoard  of reserves seem somewhat less formidable."
 As for who is soaking up all the local bank's dollar assets, one  culprit is China's Belt-and-Road projects, which are overwhelmingly  financed in the U.S. currency, and are sending dollars overseas in the  form of Chinese loans. Additionally, Chinese property developers have a  rapacious demand, too.
  But at the heart of this funding mismatch there is a simple cause: as  the WSJ's Mike Bird notes, "Beijing would like to be a major financial  player overseas, but few borrowers have any interest in the yuan. Most  international trade is accounted for in dollars, the yuan is difficult  to convert and foreign owners of Chinese assets have at best an  uncertain relationship with the country’s legal system."
  Until that changes, expect to see the banks' net dollar funding position continue to turn increasingly negative.


https://www.zerohedge.com/news/2019-...ng-out-dollars

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## Swordsmyth

For the better part of the last 36 years, since Hong Kong pegged its  currency to the USD and ceded monetary policy to the Fed, Hong Kong has  been a financial and political oasis for investment into mainland China  and Southeast Asia. Today, newly emergent economic and political risks  threaten Hong Kong’s decades of stability. These risks are so large that  they merit immediate attention on both fronts. In this letter, we will  discuss the origins of Hong Kong’s impending crisis, a brief history of  Hong Kong, the economics of currency boards/pegs, the agreement that  governs the United States economic and political relationship with Hong  Kong, and how Xi Jinping’s China is forcing the Hong Kong Government to  violate the agreement that requires Hong Kong to maintain its autonomy  or lose most-favored-nation trading status and be treated as China  itself is treated.
*Economic Risk* 
*The Economics of Hong Kong Have Changed Dramatically Since the Global Financial Crisis* 
  Hong Kong was once vitally important to China’s economic position. At  its apex in 1993, Hong Kong’s economy represented more than 25% of  China’s GDP and was the most active port in the world.

  Since China’s ascension into the World Trade Organization (WTO) in  2001, China has spent heavily on its own port infrastructure and  therefore is much less economically reliant on Hong Kong today. As the  chart below shows, Hong Kong was once a large exporter of goods  (primarily settled in US dollars) with a significantly positive trade  and current account surpluses. Hong Kong was widely known as China’s  southern port. As China built out its own port infrastructure, Hong Kong  was forced to re-invent its economy into a service exporting economy.  Hong Kong transitioned from a major global exporter to *a net importer*  of goods while simultaneously becoming a services exporter primarily to  mainland China. In economic terms, this transformation has taken place  rather suddenly over the past decade.

*Hong Kong’s Golden Years (2008-2018)*
  As the global financial crisis metastasized throughout 2008, Hong  Kong became the world’s top beneficiary of the United States’ emergency  monetary policy. Since Hong Kong’s currency is pegged to the US dollar,  Hong Kong’s interest rates must move with its anchor currency’s rates.  Its currency peg to the USD forced Hong Kong to import US monetary  policy, while its largest trading partner (China) was preparing to grow  credit to the tune of half its economic output in a desperate effort to  stimulate GDP growth. Thus, in 2008, interest rates in Hong Kong  collapsed essentially to zero in lock-step with US interest rates, while  China began an aggressive credit expansion. It’s no wonder why Hong  Kong real estate became the most expensive (per square meter) in the  world. Free money in Hong Kong and double-digit credit growth in China  drove the greatest economic expansion Hong Kong will ever experience.  Its cup ran over. These ten years will prove to be the best decade in  Hong Kong’s existence.

  As a result of free money (Hong Kong’s overnight lending rate was  roughly 0.5% for 8 years), Hong Kong’s residents, banks, and companies  did what anyone would expect them to do: they borrowed, geared, and  levered. Hong Kong private sector leverage is now the highest of any  nation in the world. In 2010, Hong Kong grew its GDP 7% while its  interest rates stayed at emergency levels with the US at zero.

  Remember when Iceland, Ireland, and Cyprus fell like dominos on the  front-end of the European banking crisis? The primary determinant of the  sovereign’s failures in each case was the fact that each country had  allowed their banking sectors to grow to almost 1,000% of GDP. A small  bump in the economic road could cripple the sovereign, forcing it to  intervene and save bank depositors. Hong Kong is in as precarious a  situation as Iceland, Ireland, and Cyprus were leading up to the crisis.  In fact, Hong Kong’s banking system is one of the most levered in the  world at approximately 850% of GDP (with 280% of GDP being lent directly  into mainland China).
  To add insult to injury, two of the largest banks in Hong Kong are  orphaned subsidiaries of British financial institutions (Standard  Chartered and HSBC) that now lack any meaningful British depositors. If  and when they encounter serious difficulty, British taxpayers will not  come to their rescue. The Chinese government will most likely have to  step in to save Chinese and Hong Kong depositors, but may not bail out  foreign depositors. They will surely not bail out equity holders of  foreign banks operating in Hong Kong. The moral of the story for Hong  Kong depositors is to be extremely wary of which currency and which bank  they keep their savings in.

*The Elephant in the Room*
  Herein lies one of the key problems for the Hong Kong Monetary  Authority (HKMA). The highest leverage on record, mortgage loans that  float and reset monthly, and rising rates put the HKMA into a classic  prisoner’s dilemma. Today, the difference between Hibor and US Libor is a  staggering -80 basis points. In a large economy whose currency is  freely convertible, the natural flows of capital go from the lower  yielding currency to the higher yielding currency (depositors can freely  convert and immediately receive higher overnight deposit rates). If  this situation persists, the monetary authority will first exhaust the  excess reserves (or as the HKMA calls them the “aggregate balance”).  Once depleted, the pressure on the currency board will become untenable  and the peg will break. Below is a chart of Hong Kong’s aggregate  balance.
  The HKMA has spent 80% of their reserves over the past year or so. If  the aggregate balance goes to zero, we expect Hong Kong rates will  spike (as you see we are in the convex portion of the scatterplot today)  and their banking system could collapse. Hong Kong currently sits atop  one of the largest financial time bombs in history.



*The Economics Behind Currency Boards/Pegs*
  The harsh reality is that economic relationships between pegged  regimes must be harmonized or they are destined to fail. Norman Chan,  the soon-to-be-retired CEO of the HKMA, admitted this in 2017 when he  set the four conditions that need to be present for the Hong Kong Dollar  to be reset and re-pegged to the Chinese RMB.
  Business cycles and economies must be synchronized or stresses will  emerge in the fixed nature of a currency board or peg. If one of the  economies is growing while the other is contracting (one demands higher  interest rates while the other needs lower interest rates), the  resultant lack of synchronicity of pegged economies in a rigid exchange  regime builds pressure-cooker like imbalances over time. The economy  that has elected to peg (HK) to the anchor currency (USD) must import  (or mirror) the monetary policy (primarily interest rates) of that  country. This means that if overnight rates diverge between the two, the  divergence will cause large capital flows one way or the other, which  immediately puts pressure on the currency board/peg. On the strong side  of the peg (ie when outside capital is flowing into the pegged  currency), the central bank can easily flood the system with liquidity  (print local currency) to lower rates and discourage additional capital  flows into the pegged currency. On the weak side of the board/peg, the  pegged regime can spend available excess reserves (think rainy day  savings) to defend the peg. If currency boards were perfect, the  Argentinian Peso would be still be 1-to-1 to the US Dollar like it was  in 2001. Instead, today it takes 43 pesos to buy one dollar.

*The Inmate is Now Running the Asylum*
  Currency pegs and currency boards are rigid financial ideas that are  an attempt to bring confidence and fiscal discipline into an emerging  economy. Some say they are a substitute for a disciplined monetary  policy rule for undisciplined monetary policy. The funny thing about the  history of such relationships is that they _almost exclusively assume and rely on the discipline on the anchor’s side._  Historically, the anchor currency (predominantly the USD) has been the  regime with policy stability and relative fiscal discipline. The Global  Financial Crisis forced the United States to take interest rates to zero  for the first time in its history. All prior studies on currency  boards, inflation, and the relationships between the pegged economy and  the anchor economy need to be tabled for this discussion. The inmate  (the anchored currency) is now running the asylum.
  Currency boards have historically been implemented by small  developing economies like Brunei, Antigua, Barbuda, Djibouti, and the  Baltics. The exceptions to this rule have been only Argentina and Hong  Kong. We know how Argentina’s currency board played out at the turn of  the century and now Hong Kong’s imbalances are coming to a boil. The  HKMA’s decision to hold firm on the peg during the 1997-98 Asian  financial crisis cost them dearly. Back then, they had two choices: i)  maintain the peg by moving overnight rates up as high as 20% and accept  the resultant deflationary bust (which they experienced from 1997-2003  with their real estate markets falling approximately 70%) or ii)  free-float the currency and allow it to make the adjustment quickly  (e.g. Russia in 2015-2016).
  Given the lack of synchronicity between the United States and Hong  Kong, the pegged exchange rate doesn’t make economic sense any more. The  divergence between the economic cycles of the US, China, and Hong Kong  will ultimately tear the currency board apart. If you are currently a  saver with your savings or investments denominated in HKD, why on earth  would you not convert to USD and earn an extra return while also  avoiding a catastrophic currency devaluation? Investors must pay keen  attention to the balances and imbalances that matter and avoid listening  to “others” telling them that everything is going to be fine. One only  needs to look back at major dislocations in history to learn that the  architects and keepers of the sovereign have no incentive to warn  investors of the risks.
  In early 2015, European Commission President Jean-Claude Juncker  said, “There will be no default.” He was referring to Greece’s acute  debt management problems. When rumors of a secret meeting between Euro  area finance ministers were confirmed immediately after Juncker denied  the meeting even happened, he was quoted saying something profound for a  public official to admit to. When confronted by the same reporters he  had just lied to, he said, “when it becomes serious, you have to lie.”  Greece went on to default on its sovereign debt later in 2015. Private  sector bondholders lost 80% of their money. Neither central bank  presidents, monetary authority heads, currency board architects,  treasury officials, nor the IMF will ever explain the potential risks of  default or currency board/peg failure until it’s too late. Doing so is  antithetical to their mission to promote and maintain stability.
*Political Risk*
*China’s Massive Miscalculation in Hong Kong: Trouble with The United States - Hong Kong Policy Act of 1992*
  In September of 1991, Senator McConnell (R-KY) introduced the United  States-Hong Kong Policy Act (S.1731). The Act was designed to maintain  bilateral free-trade and to respect Hong Kong as its own separate  customs territory (as it was handed from the British to the Chinese in  1997) while treating it as its own sovereign nation as long as it  maintains its autonomy.
  As if the dire financial situation in Hong Kong wasn’t enough, Xi is  “proposing” – or, rather, requiring - the Hong Kong government to  overhaul its extradition laws by introducing legislation intended to  instruct Hong Kong to send “fugitives” to jurisdictions it doesn’t have  rendition agreements with (including mainland China). The administration  of Hong Kong Chief Executive Carrie Lam (handpicked by Xi) has devised a  cover story that stipulates, “the reason for the justification for the  extradition must be an act that is considered to be criminal in both  Hong Kong and China. The courts in Hong Kong will be the gatekeeper as  there will be a court procedure in deciding whether the extradition is  allowed.” The key problem with this perfunctory exhibition of “judicial  review” is the fact that China itself can drum up a charge that is  illegal in China and Hong Kong and immediately demand an extradition.  The presumption will be guilt if the alleged offense is a criminal  offense in both jurisdictions.
  US Congressman James McGovern (D-Mass) said in a statement this month  that “the people of Hong Kong and foreigners residing in Hong Kong –  including 85,000 Americans – must be protected from a criminal justice  system in mainland China that is regularly employed as a tool of  repression.” The Hong Kong autonomy issue is one of the rare places  where both sides of the United States political spectrum are in  agreement. The United States will not stand silent while this new  proposal becomes law. This has major implications for the 1992 Policy  Act continuing to stand and US-Hong Kong trading relations remaining  unobstructed.
*US Consul General Berated*
  US Consul General Kurt Tong gave a speech in February at The American  Club of Hong Kong that was critical of China’s overreach. In this  controversial speech he carefully said:
 Indeed, financial market transparency, open access to business and  government information, and a fair playing field are some of the key  foundations on which Hong Kong commerce is built. Hong Kong’s *fair and independent judiciary* reinforces that system. We all want this system to continue to prevail.
  I have been sometimes asked why, as America’s representative in Hong  Kong, I occasionally engage in dialogue with Mainland Central Government  officials in addition to my Hong Kong Government counterparts. For my  part, one purpose of such conversations is to point out to Mainland  policymakers the risks that *ongoing political tightening* poses for the realization of Beijing’s own goals for Hong Kong’s contribution to Chinese economic development.
  I let them know that, in my view, there needs to be consistency  between the political and economic institutions of the city in order to  sustain the confidence of the international business community, as well  as Hong Kong’s foreign government partners, in the city’s future. Absent  a strong international presence in Hong Kong’s economy, it is clear,  the city would offer much less value to the rest of China.Tong was attacked by the Chinese Communist Party and asked to  apologize for his speech that questioned Hong Kong’s autonomy from  Beijing. In fact, the Chinese Foreign Ministry Office called his remarks  “distortion and defamation”. Seeing how he handled his words above with  kid gloves, it’s interesting to observe how incredibly sensitive the  CCP is about the word “autonomy”. This March, a delegation of  pro-democracy Hong Kong politicians met with Speaker of the House, Nancy  Pelosi regarding the new proposals on extradition.
  Civic Party leader Dennis Kwok said, “Speaker Pelosi is fully aware  of developments in that area. She expressed concern – deep concern –  about the implications of such legislative amendments.” Under the one  country, two systems framework, Beijing agreed to give the Hong Kong  Special Administrative Region autonomy over its legislative, economic,  and judicial affairs. Both sides of the aisle and many in the US  Government are now realizing that China will be in *full breach* of this agreement by infringing on the autonomy of Hong Kong.
  Consequences of a material breach of this agreement are as follows:
 It Directs the President to report to the Congress whenever he  determines that: (1) Hong Kong is not legally competent to carry out its  obligations under an international agreement; or (2) the continuation  of such obligations is not appropriate under the circumstances.
  Authorizes the President, upon determining that Hong Kong is *not sufficiently autonomous* to justify treatment under a U.S. law different from that accorded China, to suspend such application of the law.*US State Department Weighs in on 1992 US-HK Policy Act (for the period covering May 2018 through March 2019)*
  One month ago, in annual report on Hong Kong that the US State Department sends to the President,  it is stated that, “[d]uring the period covered by this report, the  Chinese mainland central government implemented or instigated a number  of actions that appeared inconsistent with China's commitments in the  Basic Law, and in the Sino-British Joint Declaration of 1984, to allow  Hong Kong to exercise a high degree of autonomy.
  The tempo of mainland central government intervention in Hong Kong  affairs — and actions by the Hong Kong government consistent with  mainland direction - increased, accelerating negative trends seen in  previous periods.” While the language was aggressive, the report stopped  short of recommending a rescission of the 1992 US-HK Policy Act and  therefore justified continued special treatment by the United States for  bilateral agreements and programs per the Act.
  If the Chinese government is successful in moving the Hong Kong  legislation from proposal to law, it will become incredibly difficult  for the State Department to not recommend rescission. Today, President  Trump holds the keys to deciding whether or not the agreement will  stand. Despite the State Department’s recommendation, the President has  the sole power to make the decision.
*The UK Thinks One Country One System*
  The United Kingdom has also begun a significant push-back on Hong  Kong in a new report issued this month by the UK Foreign Affairs  Committee. The report titled “One Country, One and a Half Systems”  focuses on Hong Kong’s autonomy being at risk. Furthermore, it is said  that, “[w]e also believe that the Chinese government’s approach to Hong  Kong is moving closer to* “One Country, One System” than it is to maintaining its treaty commitments under the Joint Declaration.”*(Emphasis mine)
*The (HK) Buck Stops Here*
  On the financial front, the leveraged and vulnerable financial  structure of the Hong Kong economy is the polar opposite of the average  investor’s availability heuristic. Thirty-six years of relative  stability won’t beget another decade of stability if our analysis is  even partially correct. Meanwhile, China’s extradition overreach is  causing tectonic shifts in the fundamental agreements that govern the  economic relationships between the United States, the United Kingdom,  and Hong Kong.
  These shifts have just begun. Investors, Hong Kong depositors, and  policy makers alike need to pay strict attention to the outcome of this  legislative dance between China and Hong Kong. Hong Kong is currently  the center of China’s ability to raise US Dollars in Asia. China is  desperately short of US dollars and, therefore, needs Hong Kong to  remain a non-tariffed most-favored-nation trader with the United States  and the United Kingdom.
  Financial teetering coupled with political uncertainty could abruptly  change the complexion of the foundation of investments in Hong Kong and  throughout Asia. 

More at: https://www.zerohedge.com/news/2019-...litical-crisis

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## Swordsmyth

The last time we did a closer look at China's bad debt, a topic that  has been particularly sensitive for an economy whose financial sector is  now over $40 trillion, was in late 2015 when CLSA stumbled on what we then dubbed China's "neutron bomb": *Chinese  banks' bad debts ratio could be as high 8.1% a whopping 6 times higher  than the official 1.5% NPL level reported by China's banking regulator!*

  So if one very conservatively assumes that loans are about half of  China's total asset base of $35 trillion (realistically 60-70%), and  applies an 8% NPL to this number instead of the official 1.5% NPL  estimate, the capital shortfall is a staggering $1.1 trillion.
  Our conclusion back in 2015 was that "while China has been injecting  incremental liquidity into the system and stubbornly getting no results  for it leading experts everywhere to wonder just where all this money is  going, *the real reason for the lack of a credit impulse is that  banks have been quietly soaking up the funds not to lend them out, but  to plug a gargantuan, $1 trillion, solvency shortfall which amounts to  10% of China's GDP!"*
  Since then, China's bad debt fears took a back stage to even bigger  Chinese problems, including capital flight, a slowing economy, a sharp  decline in the country's FX reserves, and most recently, a bitter trade  war with the US which has crippled China's manufacturing sector.
  But, sadly, that did not mean that China's bad debt problem had gone away; to the contrary, as Bloomberg reports, *"China’s  biggest banks are seeing bad loans grow at the fastest pace since at  least 2017, as the country’s economic slowdown leaves its mark on the  financial sector.*"
  While reporting generally strong Q1 earnings, China's four largest lenders said in recent days that *non-performing loans hit fresh multi-year highs in the latest quarter,* reflecting risks to China’s banks as the government pushes them to lend more.
  ICBC reported a 5.2 billion yuan ($770 million) rise in  non-performing loans in the first three months, the biggest quarterly  increase in almost three years. Bank of China saw its bad loans rise by  6.1 billion yuan - the most in three years - to the highest level since  at least 2006. At Agricultural Bank of China Ltd., bad debt rose by 2.7  billion yuan, the biggest increase since the first quarter of  2017. China Construction Bank Corp.’s soured credit increased by 6.6  billion yuan, the most since 2016.



  Even more striking: the surge in bed debt comes just as China made  its biggest new credit injection ever in the first quarter, flooding the  economy with 40% more total credit in 2019 compared to a year ago, and  has once again saddled the local banks with even louder ticking  timebombs on their balance sheets.

  And while Bloomberg speculated that the increase in delinquent debt  may give policy makers pause, we doubt it: after all prevailing  consensus now is that China in coordinate with global central banks has  launched a *Second Shanghai Accord*, and will  not stop before the aggregate level of global inflation is comfortably  high to delay the inevitable next recession by at least a few more  quarters. Still, while China’s banks are seen as key to reinvigorating  the economy, especially by lending to traditionally riskier smaller and  private companies, some have expressed concerns that soured loans could  continue to rise.
  "Pressure to lend to small and micro-enterprises may gradually start  to appear in bank’s NPLs,” said Shujin Chen, CFO of Huatai Secuirites.  Weaker economic conditions will also impact bad loans though as a share  of total lending it may remain little changed, she said.
  The problem is only going to get worse: *45% of 202 bankers  surveyed by China Orient Asset Management, one of four state-owned  bad-debt managers, expect the nation’s bad-loan ratio to peak next year,  according to the annual survey published in April.*


More at: https://www.zerohedge.com/news/2019-...e-most-3-years

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## Swordsmyth

Nasdaq futures - already hammered by Google's results - legged lower along with Yuan after *China's PMI prints for April disappointed the green-shoot-believers,* slumping back towards contraction.
  After all the excitement sparked by the March PMI bounce, China's  April data is big disappointment with China's official manufacturing and  non-manufacturing prints both sliding back (from 50.5 to 50.1 and from  54.8 to 54.3 respectively) with the Caixin China manufacturing PMI  tumbling back to 50.2 from 50.8 (and 50.9 expected).

  Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:
 “The Caixin China General Manufacturing Purchasing Managers’ Index  eased to 50.2 in April, down from a recent high of 50.8 in the previous  month, indicating a slowing expansion in the manufacturing sector.
  1) *The subindex for new orders fell slightly* despite  remaining in expansionary territory. The gauge for new export orders  returned to contractionary territory, suggesting cooling overseas  demand.
  2) *The output subindex dropped.* The employment  subindex returned to negative territory after hitting a 74-month high in  March. According to data from the National Bureau of Statistics, the  surveyed urban unemployment rate remained at a relatively high level  despite edging down in March, suggesting that *pressure on the job market remained.*
  3) *While the subindex for stocks of purchased items returned  to contractionary territory, the measure for stocks of finished goods  fell more markedly.* The gauge for future output edged up,  pointing to manufacturers’ desire to produce and stable product demand.  The subindex for suppliers’ delivery times rose further despite staying  in negative territory, implying improvement in manufacturers’ capital  turnover.
  4) *Both gauges for output charges and input costs edged down*.  There were only small changes in upward pressure on industrial product  prices. We predict that April’s producer price index is likely to remain  basically unchanged from the previous month.
  “In general, China’s economy showed good resilience in April, yet it *stabilized on a weak foundation and is not coming to an upward turning point.*  The Politburo meeting signalled that in the first quarter of this year  China had adjusted its countercyclical policy marginally. *As  pressure on the economy remains in the second quarter, we expect that  there will be minor adjustments to the policy but not a turnaround.*”The reaction was a dip in yuan and leg lower in US futures...



https://www.zerohedge.com/news/2019-...een-shoots-dry

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## Swordsmyth

It looks like China's unstoppable default tsunami  is about to claim its latest corporate victim...and thanks to lax  oversight that allowed the company to get away with what appears to be a  staggering accounting fraud, thousands of unsuspecting investors might  be left holding the bag.
  According to Bloomberg, Kangmei Pharmaceutical Co., one of China’s largest listed drugmakers, revealed on Tuesday that it had *overstated its cash holdings by $4.4 billion*.  Unsurprisingly, the revelation, which immediately exposed the company  to be teetering on the brink of insolvency, sent its shares and bonds  tumbling. Its shares, which are a constituent of MSCI's global index, *plunged by the 10% daily limit. Its* 2.4 billion yuan ($356 million) notes due in 2022 dropped by as much as 60 yuan (about $9).

  It's just the latest example of why investors must be wary of Chinese  companies due to lax regulations, even as its equity and bond markets  are becoming increasingly internationalized. The company's revelation  came four months after it revealed that Chinese authorities had launched  an investigation into the company.
  One of BBG's sources said the restatement is 'unprecedented' in the history of Chinese security markets.
 The immense size of Kangmei’s restatement, described by one  securities lawyer as unprecedented for China, puts a spotlight on  disclosure practices in a country where companies are defaulting at a  record pace and several instances of questionable accounting have  emerged in recent months. The issue has become increasingly important  for global investors and securities firms as they gain unprecedented  access to China’s gargantuan stock and bond markets.
  "Investors have to be more careful about Chinese firms’ reporting,"  said Andrew Lam, a director at BDO, an international accounting firm. *"They will have to do real homework, examining closely companies' financial reporting for any potential irregularities."*
  The China Securities Regulatory Commission, which in recent years has  been pushing the nation’s stock exchanges to delist companies that  provide inaccurate disclosures, didn’t immediately reply to a faxed  request for comment. The Shanghai Composite Index rose 0.5 percent at  1:36 p.m. local time.Though the company could face de-listing over the fraud, it said it  will try and raise more capital to meet an upcoming bond obligation due  Sept. 3. All of this is happening after Beijing's decision to start  allowing companies to fail led to a record number of Chinese corporate defaults. 


But as one analyst points out, this isn't the first time a Chinese  company has displayed a high cash balance while selling bonds, then the  cash just disappeared.

Though BBG reported that this was the largest cash discrepancy on record, a bankruptcy from earlier this year suggests that this might not be true.
  Back in January, the bankruptcy of Jiangsu-based Kangde Xin Composite  Material Group, took investors by surprise when it failed to pay a 1  billion yuan ($148 million) local note due Jan. 15 due to a liquidity  crunch, according to the company. The shocking punchline? As research  analyst Tim Yup pointed out,  as of end-September *Kangde Xin  reported that it had 15.4 billion yuan in cash and equivalents, more  than double the total amount of its short-term debt, and more than 15  times the amount of debt that it just defaulted on.*


More at: https://www.zerohedge.com/news/2019-...counting-fraud

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## Swordsmyth

Cryptocurrencies have had a good run in recent weeks, as a sudden  renewed demand has lifted all boats and taken Bitcoin back near $6000  this morning...

*The catalyst has remained unclear* - anticipation of  an ETF? Growing institutional interest? Short-squeeze? Manipulation? Or,  just plain old safe-haven flows as various nations around the world  collapse into totalitarianism?
*We may have found one, rather large, answer - from China, where, as SCMP reports, authorities have quietly begun 'soft' capital controls on foreign currency withdrawals*
 Chinese banks have increased their scrutiny of foreign-currency  withdrawals and quietly reduced the amount of US dollars people are  allowed to withdraw, tightening the country’s capital controls as the  nearly year-long US-China trade war bites.
  The issue was thrust into the spotlight on Friday when a viral video  clip showed a bank cashier unable to answer a furious customer demanding  to know why she was not allowed to withdraw US$200 from her  dollar-denominated account, even though she was within her quota.
  The client was so incensed by the refusal that she filmed the  incident on her phone at the unidentified branch of China Merchants Bank  (CMB).
  She also asked why the bank insisted she could only withdraw her US  dollar savings by converting into yuan, the Chinese currency. The  cashier seemed caught off guard, unable to address the woman’s  questions.
  It later emerged the woman had been placed on a “watch list” of customers making frequent withdrawals.So, *either Chinese banks are running out of dollars* - scaring account holders into attempting to exit the country's financial system before a liquidity crisis; *or Chinese officials are actively tightening capital controls* - scaring the wealthy into various capital flight techniques; as the trade war tensions escalate.

_As we noted two weeks ago_, following the biggest quarterly credit injection in Chinese history,  it is safe to say that China's banks are flush with yuan loans.  However, when it comes to dollar-denominated assets, it's a different  story entirely. As the WSJ points out,  in the past few years, a funding problem has emerged for China’s  biggest commercial banks, one which is largely outside of Beijing’s  control: *they’re running low on US dollars so critical to fund operations both domestically and abroad.*


_As SCMP further details,_ the *capital controls appear to be tightening*.
  From late last year, *the “scrutiny benchmark” for US dollar withdrawals was quietly cut to US$3,000 from US$5,000,* according to an official at the Bank of Communications, who requested anonymity.
  Meanwhile, banks were required to keep a “watch list” monitoring  clients who made frequent foreign exchange withdrawals, said the  official.
 _“The reason banks are so nervous is that China wants to  closely monitor capital outflow against the backdrop of a prolonged  trade war,”_ said Iris Pang, ING’s Greater China economist.US bankers say, Chinese capital controls mean Shanghai is not a global financial hub.
 Restrictions  on the movement of capital in and out of China have scuppered ambitions  to become an international money market, with US bankers saying that it  is still another five to 10 years from regaining its pre-Communist era  status as the financial capital of the East.
  China’s  strict control of capital flows, heavy government intervention in  financial markets, and the limited use of the yuan in international  markets have restricted Shanghai’s role as a financial hub.
  The  presence of foreign money in China's stock market in Shanghai is also  tiny – less than 0.5 per cent of publicly traded stocks in Shanghai were  owned by foreign investors as of the end of March, according to data  from the Shanghai Stock Exchange.
  The government’s intervention in the stock market is seen as a key barrier to reaching the 2020 goal.As MishTalk's Mike Shedlock concludes,  the idea that the yuan will soon replace the dollar as the world's  reserve currency is absurd for currency reasons, political reasons, and  economic reasons.
  Anyone who suggests otherwise understands neither currencies nor global trade.

More at: https://www.zerohedge.com/news/2019-...ng-out-dollars

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## Swordsmyth

This year is shaping up to be the biggest by far for defaults in  China’s $13 trillion bond market, highlighting the widening fallout from  the government’s campaign to rein in leverage.
Companies defaulted on 39.2 billion yuan  ($5.8 billion) of domestic bonds in the first four months of the year,  some 3.4 times the total for the same period of 2018, according to data  compiled by Bloomberg. The pace is also more than triple that of 2016,  when defaults were more concentrated in the first half of the year,  unlike 2018. The trend is clear: unless something changes, 2019 will be  the new high.


More at: https://www.bloomberg.com/news/artic...is-triple-that

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## Swordsmyth

The nausea-inducing yoyo that is China's monthly credit creation  continued its wild swings in April, and after a record January, a  disastrous February, a sharp resurgence in March, the April numbers  released overnight showed that credit once again tumbled after the  Chinese new year in the latest disappointment out of Beijing.
  As we noted last month,  one month after Beijing in February shocked China-watchers with one of  the lowest total credit injections in recent history, which in turn  followed a record, blow-out January, the PBOC responded with a monster  flood of new credit when the PBOC reported that in March new yuan loans  jumped by 1.69 trillion, far above 1.25 trillion estimate, while total  social financing in March soared higher 2.86t yuan, the highest March  increase on record; smashing the 1.85 trillion yuan estimate, and more  than four times the February 703BN yuan increase.
  The surge prompted many to ask if Beijing is now willing to reflate  the economy at all costs, even if means trampling its previous vow to  engage in - at least symbolic - deleveraging.
  Unfortunately, with the release of the latest - April - numbers we  still don't have the answer, because in the latest disappointment, one  coming at a very sensitive time for the global economy which has become  almost exclusive reliant on China's credit creation engine, *the  PBOC reported that in April money and credit growth decelerated sharply  from the rebound in March, with new CNY loans and total social financing  below expectations*, just in time for Deputy Premier Liu He to arrive in Washington today to finalize trade negotiations.
  Here are the key numbers:
  New CNY loans dropped to 1,020BN yuan in April, down sharply from  1.69 trillion in March, and below consensus expectations of 1,200BN.  Outstanding CNY loan growth also dropped to 13.5% yoy in April from  March 13.7% yoy.

  The broadest, Total Social Financing aggregate, which also includes  shadow banking components, also tumbled to 1,360BN yuan, sliding below  the consensus estimate of 1,650BN and tumbling over 50% from 2,860BN in  March.
  According to the PBOC, TSF stock growth slowed again, and was 10.4%  yoy in April, vs. 10.7% yoy in March. According to Goldman, if one adds  all local government bond net issuance to TSF flow data, adjusted TSF  stock growth at 11.1% yoy in April, lower than 11.6% in March. The  implied month-on-month growth of adjusted TSF was 9.2% SA ann, lower  than 11.5% in March.

  In short, with the Lunar new year holidays in the rear view mirror,  and no longer distorting the data, there was another sharp slowdown,  just as the trade war between the US and China appears to be  restarting.  This is rather ominous for both China, and the rest of the  world, both of which are especially reliant on China's massive credit  injection machinery to keep growth humming.
  Also worth noting: like most of 2018, when China shadow banking  creation was negative every month starting in March through December,  April shadow banking once again declined, following the surprising jump  in both January and March, and suggesting that China is once again  trying to rein in its local shadow banking creation in order to at least  give the impression it is being fiscally prudent.

  Looking at some other monetary aggregates, in March M2 rose 8.5% yoy  in April, in line with the consensus estimate of 8.5% yoy, and slightly  lower than March's 8.6% yoy.

  In other words, if indeed China is once doing everything in its power  to flood the economy with new credit, as it represented in the first  three months of the year, then it is failing, and will have to try much  harder in the future. It also explains why futures surged above 2,900  once the number hit.
  * * *


More at: https://www.zerohedge.com/news/2019-...many-questions

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## Swordsmyth

Oracle lays off 900 employees in China, plans to shutter its R&D operations in China

----------


## Swordsmyth

No country has better exemplified the global automobile recession  than China. Sales for the world's largest auto market continue to  deteriorate, with the latest report confirming that passenger vehicle  sales in China tanked yet again – *this time dropping 16.6% year-over-year to 1.54 million units*, following a 12% decline in March and an 18.5% slide in February. In addition, April SUV sales fell 14.7% to 642,220 units.

  The last time retail auto sales were up in China was all the way back  in May 2018, meaning sales have declined for a record 11 months in a  row.



The country's slowing economy and continued trade tensions with the  United States are weighing on consumer sentiment among its 1.4 billion  people. Additionally, changes in tax policies and import tariffs have  also acted as a headwind for car demand. Cars were the only consumer  product category in China that shrank the first two months of 2019.

  “There’s little hope for us to see positive signs for the auto market  in the first half,” Cui Dongshu, secretary general of the industry  group, said. As regular readers may recall, this is the same, once  optimistic Cui who suggested in March that car sales "may recover in April". He predicted poorly.


The industry continues to hope for catalysts from the Chinese  government, betting on consumer incentives like tax cuts. Last month, we  noted  that retail sales of sedans, SUVs, minivans and multipurpose vehicles  dropped 12% to 1.78 million units, according to the China Passenger Car  Association. *This was after an 18.5% drop in February and a 4% drop in January.*

Chen Hong, chairman of SAIC Motor, China’s biggest automaker, had said last month:* "2019 will bring severe challenges."* Trying  to rally his employees in an internal worker memo, he called for his  company to "accelerate innovation and strive toward higher quality".  SAIC's sales fell 17% in the first two months of 2019.

More at: https://www.zerohedge.com/news/2019-...-11-months-row

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## Swordsmyth

Since January 2009, China’s M2 money supply has grown by over $133 trillion Chinese Yuan, or nearly $20 trillion.
    During the same period, China’s annual GDP grew by roughly $8.4 trillion. 
    Amid a historic torrent of financial accommodation and credit  creation, the amount of money in China’s economy has outgrown the goods  and services in China’s economy by roughly 2.4 fold, and outgrown US  money supply growth by over three fold.


Data Source: Federal Reserve    In a healthy economy, the economy itself grows faster than the money  supply. In an economy being pumped up by financial and monetary  stimulus, money supply tends to outgrow the economy. It is not a good  thing. When the supply of money grows faster than the supply of goods  and services in the economy, inflation and/or cross currency devaluation  typically loom on the horizon. China’s economy has been pumped with  unprecedented amounts of fiscal and monetary stimulus for a decade. In  fact, it has created nearly $14 trillion _more_ currency than the US in the last decade while growing its economy only $2.3 trillion more. 
    By many metrics, China is in the midst of one of the largest financial bubbles in modern history. It’s ratio of banking assets to GDP is higher that the US at the peak of the housing bubble and higher than the EU on the eve of it’s sovereign debt crisis.
     It’s fiscal deficit is now only slightly behind the notoriously large US deficits and its overall economy is more indebted than the US.
    China’s enormous size, closed capital system, pegged currency,  penchant for making up economic statistics, and state directed economic  model mean it can hide and delay economic problems for far longer than  virtually any other economy. The downside is that the extra time appears  to be allowing China’s problems to compound to historic levels. 

More at: https://thesoundingline.com/chinas-m...ld-since-2009/

----------


## Swordsmyth

> Ever since Beijing allowed private Chinese companies (even certain  state-owned enterprises) to officially fail for the first time in 2016,  and file for bankruptcy to restructure their unsustainable debt loads,  it's been a one-way street of corporate bankruptcies, one which we  profiled last June in "Is It Time To Start Worrying About China's Debt Default Avalanche", and which culminated with a record number of  Chinese onshore bond defaults in 2018, as a liquidity crunch sparked a  record 119.6 billion yuan in defaults on local Chinese debt in 2018. 
> 
>   However, whereas for much of 2018 Chinese defaults affected largely  less meaningful companies with little to no systemic impact, in 2019 the  defaults started hitting dangerously close to the beating heart of  China's massive, $40 trillion financial system (roughly three times  China's GDP). As we reported back in February, a giant Chinese borrower  missed its payment deadline when Wintime Energy - which in 2018 became  the latest Chinese bond defaulter as the coal miner failed to pay  scheduled interest - didn’t honor part of a restructured debt repayment  plan, setting the scene for even more corporate defaults, and as Bloomberg put it, "underscoring the risks piling up in a credit market that’s witnessing the most company failures on record."
>   Then, earlier this week, a unit of China's infamous conglomerate, HNA Group, defaulted on a loan*it took out just seven months ago,* the  latest in a string of missed payments that threaten to complicate the  embattled Chinese conglomerate’s restructuring. As Bloomberg reported,  lenders to CWT International Ltd., a Hong Kong-listed unit of HNA which  is still struggling to cope with its debt after embarking on more than  $25 billion of asset sales since 2018 unwinding the biggest global  acquisition binge in modern Chinese history, said they would seize most  of the company’s assets - including CWT’s stake in a logistics unit,  properties in the U.S. and U.K., and golf courses in China - unless CWT  makes good on payments tied to a HK$1.4 billion ($179 million) loan  taken out in September.
>   Fast forward to today when China's default tsunami may be about to claim its biggest and most visible casualty yet.
>   As Bloomberg reports, a debt crisis at one of China’s most well-known  private conglomerates entered a new stage Thursday, when the company  said cross-default clauses had been triggered on dollar bonds worth $800  million.
>   The company in question, China Minsheng Investment Group, also dubbed "*China's JPMorgan*"  is one of the largest private investment conglomerates in China, and  had 232 billion yuan in total debt and 310 billion yuan of assets as of  June 2018, according to Shanghai Brilliance Credit Ratings.
>   Minsheng first made the news in early February when it failed to make  a Feb. 1 bond payment to creditors after a 3 billion yuan note had  matured on Jan. 29. Since then its financial troubles have only  escalated, and this week it appears that the company is preparing for a  full-blown bankruptcy after it appointed Kirkland & Ellis as legal  adviser, according to a Hong Kong stock exchange filing,  which also noted that banks have set up a creditor’s committee to try  to stabilize the company, a traditional step that precedes a  debt-to-equity restructuring.
>   The cross default comes after CMIG’s problems spread to its affiliate Yida China Holdings, *making  some of the developer’s debt immediately payable, and causing a chain  reaction back to the parent company’s own securities*.
> ...


The company in question, China Minsheng Investment Group, was called "*China's JPMorgan*"  by Dong Wenbiao, known as the “godfather’’ of the nation’s private  sector. CMIG’s investments, spanning health care to aviation, were  predicated on funding obtained in part through shadow banking, and it’s  become a surprise casualty of China’s deleveraging drive; it is one of  the largest private investment conglomerates in China, and had 232  billion yuan in total debt and 310 billion yuan of assets as of June  2018, according to Shanghai Brilliance Credit Ratings.
  The Shanghai-based company shocked bondholders by missing a payment  in late January. While it was able to scrape enough cash together by  selling land interests to repay the note on Feb. 14, in April we reported that  its dollar bonds were put under default after an affiliate missed  payments. CMIG also defaulted on a domestic bond due late April although  it made good on the payment two days late.
  China Minsheng, which has become a case study in how China will  resolve potentially systematic defaults, reduced 43 billion yuan of  interest-bearing debt since the start of 2018 and it’s trying to resolve  its liquidity crisis via debt workout and business reorganization.
  And now, in the latest unorthodox "restructuring" attempt, Reuters reports that China Minsheng *is raising funds from its employees* as  it seeks to combat the liquidity squeeze that has sent the company to  the verge of bankruptcy. The Chinese equivalent of a GoFundMe campaign  for one of China's largest investment has been set up in the form of a  "funding pool" for the fundraising. To avoid the bankruptcy of their  employer, *all of CMIG’s employees in its headquarters can put  their own money into the pool and choose between buying CMIG’s debt or  equity, said the representative. * 
  As we reported last month, the debt-laden conglomerate - which was  founded in 2014, and was once among China’s most high-profile and  acquisitive private companies domestically and globally with businesses  that span leasing, new energy, airlines, construction and investment -  had missed payment and formed an emergency committee to deal with its  liquidity troubles, raising investors’ fears about financing pressures  on China’s overall private sector.
  According to Refinitiv data, CMIG has 12 outstanding yuan bonds worth  29.75 billion yuan ($4.37 billion). It has also issued bonds worth $800  million through Boom Up Investments Ltd, a subsidiary domiciled in the  British Virgin Islands; these traded down to 55 cents on the dollar late  April before posting a very modest rebound.

  Though it may come as a surprise to some, this is not the first time  for a Chinese private company to raise money from its employees.  Indebted conglomerate HNA Group, which two years ago fell from grace  with Beijing after a historic acquisition spree around the globe, also  sold investment products to staff but later missed some repayments under  financial pressure.
  Following the biggest-ever year for onshore defaults in 2018, Chinese  corporate issuers again face a wall of bond maturities and more  companies than ever are missing payments, raising risks for investors in  the world’s third-largest bond market. Bonds from at least 44 Chinese  companies totaling $43.7 billion face imminent repayment pressure.  Looking further out, it gets even worse, as China's corporate bond  maturity schedule is staggering with trillions in bonds set to mature in  coming quarters, assuring even more defaults to come.

  "Short bond tenors mean the companies need to refinance frequently,”  and weaker ones will likely have difficulty, analysts including Hong  Kong-based Nino Siu at Moody’s Investors Service wrote in a note last  month. “Banks are reluctant to lend to weaker companies. Additionally,  shadow banking, on which weaker Chinese companies rely, continues to  contract as the government tightens regulation,” she and her colleagues  wrote.
  Whether Minsheng employees' "_gofundme"_ campaign is  successful in averting bankruptcy remains to be seen, but one thing is  certain: Chinese issuers have already defaulted on bonds with a  principal amount of 40 billion yuan in just the first four months of  2019, *up 3.4 times the total for the same period of 2018.* The  trend is clear: unless something changes, 2019 will be the new high,  and sooner or later a company will default that will be the tipping  point for a debt tsunami that finally drags down China's gargantuan  financial sector.

More at: https://www.zerohedge.com/news/2019-...avoid-collapse

----------


## goldenequity

Trump warns China not to retaliate against US trade tariffs
https://nypost.com/2019/05/13/trump-...trade-tariffs/

China Hits U.S. With $60B in Tariffs, Says It Will ‘Never Surrender’
https://www.thedailybeast.com/china-...ever-surrender


----

Kudlow fired in 3-2-1....

----------


## Swordsmyth

> Why will the die and not us? Both get benefits from trade.


We do NOT benefit from trade with China, they benefit enormously from trading with us.

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## Zippyjuan

> We do NOT benefit from trade with China, they benefit enormously from trading with us.


So cheaper goods for consumers is not a benefit. They seem to think so.  Let's make things more expensive and everybody will be better off. More jobs as people can no longer afford to buy as much stuff.  Companies lay people off. Trade is not zero sum- only one side benefits- both can benefit. If both sides of an agreement to trade do not see a benefit, they will not engage in the deal.

----------


## ATruepatriot

> So if we stop trading with China, we die?


There are plenty of other countries who can supply us with anything China has. We just do business with them instead.

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## Zippyjuan

> There are plenty of other countries who can supply us with anything China has. We just do business with them instead.


You can buy things from other countries if you want to.

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## Swordsmyth

> So cheaper goods for consumers is not a benefit. They seem to think so.  Let's make things more expensive and everybody will be better off. More jobs as people can no longer afford to buy as much stuff.  Companies lay people off. Trade is not zero sum- only one side benefits- both can benefit. If both sides of an agreement to trade do not see a benefit, they will not engage in the deal.


China's manipulation of the trade causes damage to us that exceeds any benefits.

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## Zippyjuan

> China's manipulation of the trade causes damage to us that exceeds any benefits.


Cliche. A company will not trade with China unless they see a benefit.

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## ATruepatriot

> You can buy things from other countries if you want to.


And why not? Where does it say we absolutely have to buy from China or die? We are not going to die without them. lol

----------


## Swordsmyth

> Cliche. A company will not trade with China unless they see a benefit.


They may benefit as a company but the US takes damage.

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## Zippyjuan

> And why not? Where does it say we absolutely have to buy from China or die? We are not going to die without them. lol


Dying is Swordsmyth's claim.  Neither side would die.

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## Swordsmyth

> Dying is Swordsmyth's claim.  Neither side would die.


China will, try reading this thread.

----------


## ATruepatriot

*Biden, And The Leftist Media Are Lying To You About Who Pays For China Tariffs*

Donald Trump has been spot on regarding his comments on the China trade war. We have been running a half trillion dollar trade deficit with Beijing for years. It has to stop. Why is this you ask?

The reason is that China cheats. Unfortunately they were given membership in the World Trade Organization (WTO) by the globalist Bush administration and this gave them all the trade freebies they could ever ask for. At the same time, they have broken WTO rules by manipulating their currency, forcing technology transfer to Chinese companies, and outright blockage of markets to non-Chinese goods, all forbidden by international trade agreements. China was never held accountable for these violations of course.

If we continued down this path, we would be subservient to China eventually economically; it was only a matter of time.

So what is Trump doing? He is raising the costs of Chinese good entering the United States, making them no longer the low-cost producer, as a penalty for China’s unfair behavior towards American commerce.

But won’t the American consumer just have to pick up the cost? Well, maybe. If an American company continues to buy only Chinese goods, then most likely the cost will be passed on. However, that scenario exists only in a vacuum. In reality, American buyers will switch to another low-cost producer, like Mexico, Taiwan, or Vietnam. Other suppliers will move in on China’s turf.

The mercantile policy of China, to rip off others to make their nation stronger economically and militarily, is going down in flames. America is the largest global market. China cannot make up the slack by selling to others. This will have a direct impact on their ability to project power around the world, which is a very good thing for Uncle Sam, and the American worker. This is why the Trump administration is confident China will feel most of the pain, possibly leading to civil unrest and regime change.

But why does Joe Biden say China is not a threat, just a business partner? Could it be because China gave his son a $1.5 billion contract to make him rich? The Democrat Party, Hollywood, and parts of the corrupt media are fed by China. They have sold out America, and you and me, for money.

https://creativedestructionmedia.com...china-tariffs/

----------


## Zippyjuan

> We have been running a half trillion dollar trade deficit with Beijing for years.


Not accurate. 

We buy half a $trillion a year from China- the trade deficit is not $500 billion a year.  When Trump took office, the trade deficit with them was about $250 billion a year.  Now it is about $100 billion higher.

----------


## Swordsmyth

In FX, the big outlier was the offshore Chinese yuan, which fell to  its  lowest levels in more than four months at 6.90 to the dollar.



More at: https://www.zerohedge.com/news/2019-...ina-turns-ugly

As the Yuan plunges the burden of the tariffs falls on China more and  more and less and less on American consumers, it also makes it ever  harder for China's house of cards companies to pay their dollar  denominated debts.

Not to mention that Chinese companies lower their prices in an attempt to keep market share.

----------


## Superfluous Man

> We do NOT benefit from trade with China, they benefit enormously from trading with us.


Of course we benefit from it. If we didn't benefit from it, we'd voluntarily refrain from it.

In all voluntary exchange both parties benefit.

This zeros-sum game rhetoric that I constantly hear from both you and Trump is total nonsense.

----------


## Swordsmyth

> Of course we benefit from it. If we didn't benefit from it, we'd voluntarily refrain from it.
> 
> In all voluntary exchange both parties benefit.
> 
> This zeros-sum game rhetoric that I constantly hear from both you and Trump is total nonsense.


You are pretending that what takes place is free trade absent government interference when China interferes like mad.

----------


## ATruepatriot

> Not accurate. 
> 
> We buy half a $trillion a year from China- the trade deficit is not $500 billion a year.  When Trump took office, the trade deficit with them was about $250 billion a year.  Now it is about $100 billion higher.


Lol... Do you actually trust the source of that chart to not be biased in China's favor? lol

Incredible...

----------


## Zippyjuan

> Lol... Do you actually trust the source of that chart to not be biased in China's favor? lol
> 
> Incredible...


What sort of data do you have to disprove it?

----------


## ATruepatriot

> What sort of data do you have to disprove it?


Sources: Chinese Customs Administration. National Bureau of Statistics Propaganda of China.

Just saying what you always bring to the table is pro-communist.

----------


## Zippyjuan

> Sources: Chinese Customs Administration. National Bureau of Statistics Propaganda of China.
> 
> Just saying what you always bring to the table is pro-communist.


So you don't have anything to refute it. Well, thanks for doing your best.  It is all one can do.

----------


## Swordsmyth

> Sources: Chinese Customs Administration. National Bureau of Statistics Propaganda of China.
> 
> Just saying what you always bring to the table is pro-communist.


And the Chinese lie about everything.

----------


## Swordsmyth

> So you don't have anything to refute it. Well, thanks for doing your best.  It is all one can do.

----------


## ATruepatriot

> So you don't have anything to refute it. Well, thanks for doing your best.  It is all one can do.


Point is... did you really think bringing a chart sourced from Chinese data to the table would be a credible source in this debate? Why do you happen to have so much faith in their word when we all already know their word absolutely cannot be trusted?

----------


## Zippyjuan

> Point is... did you really think bringing a chart sourced from Chinese data to the table would be a credible source in this debate? Why do you happen to have so much faith in their word when we all already know their word absolutely cannot be trusted?


Since it bothers you so much and you were unable to find anything else, here is a chart from US data sources.  Still not "running half a $trillion for years" as your article claimed.

----------


## ATruepatriot

> Since it bothers you so much and you were unable to find anything else, here is a chart from US data sources.  Still not "running half a $trillion for years" as your article claimed.


And that ends 2.5 years ago. Here is the current data in detail.

https://www.census.gov/foreign-trade...lease/exh1.pdf

Here is an article from a leftist source showing the U.S. trade deficit with China was $419 billion in 2018.

https://www.thebalance.com/u-s-china...utions-3306277

----------


## Swordsmyth

China reported surprisingly weaker growth in retail sales and industrial  output for April on Wednesday, adding pressure on Beijing to roll out  more stimulus as the trade war with the United States escalates.  

Clothing sales fell for the first time since 2009, suggesting Chinese  consumers were growing more worried about the economy even before a  U.S. tariff hike on Friday heightened stress on the country’s struggling  exporters. 
Overall retail sales in April rose 7.2% from a year  earlier, the slowest pace since May 2003, data from the National Bureau  of Statistics (NBS) showed. That undershot March’s 8.7% and forecasts of  8.6%. 
The data suggested consumers were now beginning to cut  back spending on everyday products such as personal care and cosmetics,  while continuing to shun more expensive items such as cars.  
“Weak  retail sales partially stemmed from a deterioration in employment and  declining income of the middle-and-low income groups,” said Nie Wen, an  economist at Hwabao Trust.  
“In terms of future policies to keep  consumption as the stabilizer of the economy, China might roll out  targeted tax cuts or subsidies to the middle-and-low income groups.” 
As  a whole, Chinese data for April largely pointed to a loss of momentum,  after surprisingly upbeat March readings had raised hopes the economy  was slowly getting back onto firmer footing and would require less  policy support.  


Growth in industrial output slowed more than expected to 5.4% in  April on-year, pulling back from a 4-1/2-year high of 8.5% in March,  which some analysts had suspected was boosted by seasonal and temporary  factors.  
Analysts polled by Reuters had forecast output would grow 6.5%.     
Motor  vehicle production dropped nearly 16% as demand weakened, with sedan  output slumping 18.8%, the steepest decline since September 2015.  Industry data this week showed auto sales fell 14.6% in April, the 10th  consecutive month of decline.  
China’s exports also unexpectedly  shrank in April in the face of U.S. tariffs and weaker global demand,  while new factory orders from at home and abroad remained sluggish. 
“There  are still uncertainties haunting the performance of the economy.  Tensions between China and the U.S. have returned while concerns about  insufficient demand worldwide are on the rise,” Nie said.  
Nie  said China may need a more comprehensive cut in banks’ reserve  requirements in June before a G20 summit where Presidents Donald Trump  and Xi Jinping are expected to discuss trade. 
“The funding gap in  the market is relatively large,” Nie said, adding that smaller, more  targeted reductions in bank reserves may no longer be enough to spur  stronger growth. 


Adding to worries about domestic demand, Wednesday’s data also showed an unexpected stumble in investment.  
Fixed-asset  investment growth slowed to 6.1% in the first four months of this year,  dashing expectations for a slight rise to 6.4%. 
Growth in  infrastructure spending held steady at 4.4%, with a sharp slowdown in  cement production possibly reflecting a slower-than-expected payoff from  Beijing’s efforts to fast-track road and rail projects. 
China is  trying to engineer a construction boom even as it steps up efforts to  ease strains on smaller companies, ranging from tax cuts to financial  incentives for firms which do not shed staff. 
But private sector  fixed-asset investment slowed sharply to 5.5% growth from 6.4%,  suggesting the sector continues to face difficulties. The private sector  accounts for the majority of jobs in China and about 60% of overall  investment. 

More at: https://www.reuters.com/article/us-c...-idUSKCN1SL05J

----------


## Swordsmyth

Having been well-managed all week, amid various headlines (and extreme hopium in US equities), *something just snapped in the Chinese yuan...*



More at: https://www.zerohedge.com/news/2019-...e-chinese-yuan

----------


## Swordsmyth

*China doused hopes for a quick deal when its state media  signaled a lack of interest in resuming trade talks with the U.S. under  the current threat to escalate tariffs,* while the government said stimulus will be stepped up to buttress the domestic economy.

*China’s Shanghai Composite Index fell 2.5% after a front page commentary in  the Communist Party’s People’s Daily evoked the patriotic spirit of  past wars, saying the trade war would never bring China down.* *"The China state media commentaries fueled concerns that the U.S.-China trade disputes will prolong, deterring risk-taking,”* said  Koji Fukaya, CEO of Japan's FPG Securities. “This issue will probably  be one of the major market drivers for a while as U.S.-China trade war  influences global economic conditions.”
  In terms of how the trade conflict plays out, “the next fortnight  will be very, very important,” UniCredit strategist Kiran Kowshik said.  “Chinese counter-tariffs are due on June 1 and if those get effective, I  think markets will price in the risk of the U.S. imposing its  additional $300 billion of tariffs ahead of the G20 meeting (near the  end of June).”

As Bloomberg notes, "traders are reassessing prospects for a trade deal  after commentary on the blog Taoran Notes, which was carried by  state-run Xinhua News Agency and the People’s Daily, the Communist  Party’s mouthpiece, accused the U.S. of playing “*tricks to  disrupt the atmosphere.” Indications that the talks are paused will  focus attention on the next opportunity for Presidents Xi Jinping and  Donald Trump to meet -- at the Group of Twenty meeting in Japan next  month*."


In FX, the standout mover was the yuan, which was already trading at  five-month lows, and smashed support after stops were triggered once the  offshore Yuan tumbled below 6.92 yesterday, prompting Deutsche Bank to  suggest "_Stairway to Seven_" is in the cards.  The USDCNH hit a multi month high of 6.9491 even though Reuters reported  again that the PBOC would not allow the currency to drop below 7.00.



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

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## Swordsmyth

*Huawei Bonds Tumble Most On Record*

----------


## Swordsmyth

Another hit. It seems every day carries some news destined to make  U.S.-China trade negotiations more difficult, with the ban against  Huawei the latest example. The effects of the spat have started to show  on currency markets and could deliver collateral damage, and European  exporters could be big losers.
  The escalation of tensions has pushed China’s yuan to year-lows  against the dollar, near the 7.0 level seen as critical by several  strategists at JPMorgan and Nordea.



More at: https://www.zerohedge.com/news/2019-...d-create-havoc

----------


## Swordsmyth

_China faces a threat to its agriculture that  could do far more damage to her political stability and economy than the  escalating USA tariff war. In recent months cases of deadly African Swine Fever (ASF)  among the pig population of the world’s largest pig producer have  forced drastic killing off of the pig population since cases were first  detected last August. On top of that, more recently, Chinese grain  producers have been hit by what can only be called a plague of a  dangerous pest called “Fall Armyworms”, that devastates corn, rice and  other grain crops. The combination hitting China as its leaders are in  the midst of an escalating major trade war with the United States, could  affect the world geopolitical map in ways few can imagine._

 Officially, the Chinese government appears to be  responding with clear determination to take necessary measures to  eradicate the deadly *African Swine Fever (ASF) outbreak*.  Beijing authorities claim that more than 1 million pigs to date have  been killed. However, that has not prevented the pig contamination from  spreading to all provinces of China and even beyond. 
 In the Chinese diet today pork is the main source  of protein. China has the world’s largest pig population, over half, or  close to 700 million swine. The problem is that African Swine Fever is  highly deadly, almost 100% lethal to pigs, (though not, according to  evidence, to humans). The disease is highly infectious which is why  entire herds must be immediately destroyed and there is no medical cure  known for it. The virus can exist on surfaces or in meat for days, even  weeks.
 In an April report the US Department of  Agriculture predicted that China will have to kill 134 million pigs,  equal to the entire US pig production. That would be the worst drop  recorded since the USDA began monitoring in the mid-1970’s. 
 An April, 2019 research report by the Rabobank in  Holland, a major world agriculture lender, estimates that actual ASF  kills in China are significantly higher than the reported 1 million.  They estimate that since initial outbreak in August 2018, deadly ASF has  infected between 150 to 200 million of China’s pig population, some 100  times worse than the official numbers and has spread to every province  in mainland China. The report states, 
“In 2019, we expect Chinese pork  production losses of 25% to 35% in response to ASF. Reports of extreme  losses (over 50%) are limited to confined areas.” The report adds,  “These losses cannot easily be replaced by other proteins (chicken,  duck, seafood, beef, and sheepmeat), nor will larger imports be able to  fully offset the loss…this will result in a net supply gap of almost 10  million metric tons in the total 2019 animal protein supply.”That is far more than official data suggest and,  if true, will have drastic effect on not only animal prices, but could  devastate millions of small China farmers unable to survive the losses.  Accurate data are lacking as the Chinese pig production is dominated by  small farmers where health security measures are more lax and contagion  more likely.
 Unfortunately, in a clear effort to calm the  situation, the China Ministry of Agriculture issued a statement this  January that there was no “ASF epidemic,” and that the government was  taking adequate measures to bring the situation under control, this,  though the disease had then spread to 24 mainland provinces. The  suspicious timing of the reassuring statement was two weeks before the  Chinese Lunar New Year celebrations, the time of the largest pig  consumption of the year. Ironically this year is also the Year of the  Pig in China. 


The deadly pig disease has also spread to  neighboring Vietnam, a major pig producer where Rabobank expects at  least 10% of the herd will be destroyed, and to Cambodia. As well it has  spread to Hong Kong and to Taiwan and Mongolia. The  problem is that the risk of reinfection is large and experts estimate  that under best of conditions, it will take China years to rebuild its  pig herds.
*Then Fall Armyworm Plague* 
 At the same time as China’s pig production is in  its worst crisis in decades, its grain crops are being hit by another  devastating plague that is every bit as difficult to combat, spread of  what is called the “Fall Armyworm,” the common name for the larvae of  Spodoptera frugiperda species of moth.
 According to a recent report, prepared for the US  Department of Agriculture (USDA), the devastating pest, first discovered  in Yunnan Province January 29, entering from Myanmar, may have already  spread to a range of southern Chinese provinces including Yunnan,  Guangxi, Guangdong, Guizhou, Hunan and Hainan. The USDA estimates that  the Fall Armyworm, which can travel an astonishing 100 kilometers in a  single night, will spread across all of the country’s grain-producing area in the coming few months. A typical Fall  Armyworm moth will travel 500 kilometers in its lifespan, laying 1,000  to 1,500 eggs in total. The eggs hatch into larvae within a few days.
 Chinese agriculture exports report that the worm  has spread much faster than they expected. The worm is extremely  difficult to eradicate. The USDA notes that, 
“The Fall Armyworm has no natural  predators in China and its presence may result in lower production and  crop quality of corn, rice, wheat, sorghum, sugarcane, cotton, soybeans  and peanuts, among other cash crops.” The report adds that, “…most  farmers in China do not have the financial resources and training needed  to effectively manage Fall Armyworm. Even if a mitigation program is  employed, costly control measures (mainly chemical sprays) will drag  producer margins into negative territory for farmers of most crops that  could be affected.”China is the world’s second largest corn producer  after the USA, forecast to produce 257 million tons of corn in 2018-19,  according to the USDA. In the past three years, the Fall Armyworm,  endemic to North America, has caused extensive economic damage across  Africa, South Asia and Southeast Asia. In just two years the Fall  Armyworm colonized three-quarters of Africa, according to British-based Centre for Agriculture and Biosciences International (CABI).

 Meanwhile in response to US trade tariffs put in  place by the Trump administration, Beijing has restricted purchase of  American soybeans, making domestic soy and other grain crops  increasingly important for Chinese agriculture. And poor weather  conditions have impacted Chinese production of soybeans and corn due to  droughts and unusually cold weather.

 The double blows from African Swine Fever and the  Fall Armyworm, combined with the latest escalation of US tariffs on  Chinese imports, amid signs that China’s overall economy is slowing  significantly, create a potentially dangerous situation whereby hundreds  of thousands of Chinese small farmers are likely economically ruined  and Chinese domestic food price inflation rises sharply. That is  definitely what China does not need at this point.


https://www.globalresearch.ca/china-...de-war/5677967

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## Swordsmyth

Global investors are fleeing Chinese stocks as the trade war continues on

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## Swordsmyth

For years, China’s industrial heartland has been cloaked in smog, its  waterways choked with pollution pumped from enormous clusters of  factories churning out the mountains of cement and steel needed to build  the Chinese economy. 

Aiming to tackle what has become a huge public health problem, the  authorities have cracked down on polluting industries, targeting  provinces like Henan, which has a population of 100 million people and  hundreds of factory towns. 
According to interviews with factory  and business owners, and consumers and workers across Henan, that  crackdown - conducted with often heavy-handed local enforcement - is  crippling the economies of towns and cities that depend on polluting  industries. 
Manufacturers across Henan have been particularly  hard hit by the new environmental regulations, compounding the pressures  the province faces from China’s slowing economy and a grinding trade  war with the United States. 

More at: https://www.reuters.com/article/us-c...-idUSKCN1SU025

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## Swordsmyth

There was a time when in the years following the financial crisis,  every Friday the FDIC would report of one or more small and not small  banks failing, as their liabilities exceeded their assets, who were  taken over by larger peers with a taxpayer subsidy to cover the capital  shortfall. And while this weekly event, also known as "FDIC Failure  Friday" has faded from the US, for now, it has made a grand appearance  in China.
  China’s financial regulators said on Friday the country’s banking and  insurance regulator and the central bank, will take control of the  small, troubled inner Mongolia-based *Baoshang Bank* due  to the serious credit risks it poses. The regulator’s control of  Baoshang will last for a year starting on Friday, the People’s Bank of  China (PBOC) and China Banking and Insurance Regulatory Commission  (CBIRC) said on their websites.

  China Construction Bank (CCB) will be entrusted to handle the  business operations of the small lender, based in the industrial city of  Baotou, the statement said.
  Such a takeover by national authorities is extremely rare, and takes  place amid gathering concerns among regulators and financial analysts  about a renewed surge in bad debts...

  ... a record pace of corporate defaults,  amounting to 39.2 billion yuan of domestic bond defaults in the first  four months of the year, 3.4 times the total for the same period of  2018...

  ... and the deteriorating health of small-scale banks in rural areas  and small cities as China’s economy slows and enormous debts come due.
  “It’s a rare move for the Chinese central government to take over a bank,” said Shujin Chen, an analyst with Huatai Securities.
  Moody's analyst Yulia Wan told the WSJ that regulators likely decided  to take over Baoshang to limit any fallout to businesses in Inner  Mongolia. “The move is to reduce the risk of a shock to the local  economy,” said said, adding that the *Baoshang takeover appeared  to be the first time that national authorities seized control of a bank  since Chinese lenders started listing on stock markets in the 1990s*.  In the past when banks came under pressure, local authorities would  pull together funds from local state-owned firms and investors, or have  another bank stage a takeover.
  As Reuters adds, this extremely rare takeover - *the  first in nearly three decades - comes at a time when the PBOC has  aggressively eased financial standards and cut reserve ratios for  smaller banks to avoid just this outcome,* and highlights the  long struggle of some smaller regional lenders in China, which suffer  from deteriorating asset qualities, inadequate capital buffers, and poor  internal controls and corporate governance


Understandably, there is concern the Baosheng takeover "will add to  the vulnerability of country’s financial system amid the economic  slowdown." The reason: if one bank can fail, all can fail. And how long  before depositors jog, run or sprint to their own bank to yank whatever  deposits they have there, in the process beginning the terrifying bank  run domino sequence of events, that eventually collapses China's $40  trillion banking system (by comparison, the US banking system is about  $20 trillion).
  While it has been generally described as a "small" bank, *Baoshang  had a total of 156.5 billion yuan ($22.68 billion) of outstanding loans  by the end of 2016, a 65% jump from the end of 2014,* according  to the bank’s last filing on its assets and liabilities on its website.  What is absolutely bizarre, however, is that the bank's "official" *non-performing loan ratio then was only 1.68% as of December 2016.* That,  in itself, would never have been sufficient to force a takeover, and  suggests that not only was the bank's real bad debt ratio much higher,  but that China continues to chronically under-represent the true state  of its NPLs to avoid bank runs.
  The last time Baoshang disclosed financial data was in the third  quarter of 2017. Then it had 576 billion yuan in assets and 543 billion  yuan in liabilities, with a net profit of 3.2 billion yuan. Based on  those 2017 numbers, analyst Long Chen with consulting firm Gavekal  Dragonomics estimated *that Baoshang back then was ranked around the 50th largest bank in the nation.*
  Naturally, to avoid a panic bank run among other smaller, less  capitalized banks, the CBIRC said that principal and interest on  personal saving accounts in the bank will be fully guaranteed, and the  business operations of Baoshang bank will not be affected by the  takeover.

The question now is whether bank investors, having seen first hand for  the first time in nearly 30 years, that a Chinese bank can fail (and be  taken over by the state), will jog at a leisurely pace, or not so  leisurely, to their own local bank and pull out their deposits in a  cool, calm and collected manner... or not so cool, calm and collected.  If so, the trade with between the US and China will have a clear winner  in the very near future.

More at: https://www.zerohedge.com/news/2019-...insolvent-bank

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## Swordsmyth

*China has a problem.*
  Historically, when the PBOC wanted to exert a little influence on its FX market, it had *merely to suggest intervention,*  or prompt its bankers to bid the yuan to squeeze the shorts... and it  worked. In January 2017, when officials grew upset about the yuan’s  weakness, they choked cash supply in Hong Kong and sent the currency’s  deposit rates to record highs. That helped drive a rally in the offshore  yuan.
  And the last six months have seen numerous significant squeezes.

  But something has changed.

  After the recent plunge took the currency to the brink of the  critical 7 per dollar level, Guo Shuqing, head of China’s banking and  insurance regulator, warned in a speech last night that speculators "_shorting the yuan will inevitably suffer from a huge loss._"
  The reaction was as expected, Yuan started to accelerate higher as  the speech, delivered by a spokesman for the agency in Beijing, was run  on front-page articles among local media, as Guo attempted to placate  fears (and capital flight) *claiming that higher U.S. tariffs  will have a “very limited” impact on China’s economy even if it raises  levies to the maximum level*, and would hurt the U.S. about as much.
  However, the short-squeeze in yuan lasted around an hour, before sellers returned...

  Erasing all Guo's hard jawboning work.
  Perhaps it was his additional jab at recent chatter from Washington around currency manipulation as he exclaimed, how*  “ridiculous” it was that developed countries have long asked for more  currency flexibility, but when the yuan’s rate become more market  oriented, some of them showed fear.*
  Either way, it appears - outside of direct intervention - China's jawboning policy is beginning to lose its mojo.



https://www.zerohedge.com/news/2019-...orts-huge-loss

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## Swordsmyth

Late last Friday, we reported that  several hours after the market close, China's financial regulator and  central bank made a shocking announcement: for the first time in nearly  30 year, China would take control of a bank, in this case the troubled  inner Mongolia-based Baoshang Bank, due to the serious credit risks it  poses.

  The news which highlights the potential for increased stress at  regional lenders that piled into off-book financing in recent years, was  strategically timed to hit ahead of the weekend, and with the market  closed, it avoided an immediate panic selling waterfall. However, the  fact that in China banks are now fair game for failure, and will soon  join the record surge in Chinese corporate defaults...

  ... slammed the country’s financial sector on Monday, sending funding  costs sharply higher and underscoring the potential for increased  stress at regional lenders that piled into off-book financing in recent  years.
  Unfortunately for Beijing, Bloomberg writes overnight that despite  the strategically timed news, it wasn't enough to prevent turmoil from  sweep across the nation’s bond market, where funding costs for lenders  surged and yields on government debt jumped. The seven-day  repurchase rate jumped 30 basis points to 2.85%, the highest in a month,  as of late Monday in Shanghai, while the yield on 10Y sovereign bonds  climbed 5 bps to 3.35%.

  “Baoshang’s case is a big wake-up call,” said Becky Liu, head of  China macro strategy at Standard Chartered. "Participants in the  interbank market, who didn’t differentiate credit when lending to banks  on the belief that they will never go bankrupt, have now become more  cautious. That has helped drive up funding costs and thus sovereign  yields."
  Meanwhile, citing traders, Bloomberg also noted that the market is getting increasingly concerned that *smaller  banks may sell or refrain from buying government bonds because of  difficulty getting funding, pressuring sovereign debt further,* Liu said.
  While a full-blown bank run has yet to emerge, Baoshang Bank’s  negotiable certificates of deposits and other bonds were suspended from  trading Monday morning. Analysts said the takeover will hurt market  sentiment on debt and shares of smaller banks and their issuance of NCDs  could be harder from now on. The outstanding bonds of other city and  rural commercial banks in similar situations could be sold off, China  Merchants Bank said in a note.


Yet despite promises of recovery, with the Mongolian bank now  insolvent, China's Caixin reported that interbank creditors with  deposits above 50m yuan may get back 70% of principal payment and  corporate creditors may get no less than 80% at early stage. *More concerning is that depositors will also be burned:* while small, individual savings at the bank will be guaranteed by the government, *corporate deposits and interbank liabilities above 50 million yuan will be negotiated, the regulators said on Sunday.*
  Finally, the cost on China’s one-year interest-rate swaps, *a measure of traders’ expectations for liquidity conditions, surged 7 basis points to 2.82%. That’s largest increase in a month.*
  In short, what has just transpired is a bail-out with Chinese bail-in characteristics, and in other words, *this may well have been the first domino to fall in China's banking sector* which  earlier today reported a record 268.5 trillion yuan ($38.9 trillion) in  liabilities and 246.2 trillion yuan ($35.6 trillion) in assets, both up  roughly 8% Y/Y, *and well over double the size of the American banking sector.* 

  Perhaps the market is waking up that once the dominoes start falling,  It will be next to impossible for Beijing to prevent a crash in the  world's largest banking system. It's also why the debt sold offshore by  Chinese small banks to help meet capital requirements also fell, with  Bank of Chongqing’s $750 million Additional Tier 1 note was down 0.8  cents on the dollar, the biggest fall since March 20, to 94 cents.  Securities from Bank of Zhengzhou and Huishang Bank also dropped.
  If or rather when more banks suffer Baoshang's fate, the drops will be far greater.

More at: https://www.zerohedge.com/news/2019-...r-bank-failure

----------


## Swordsmyth

With China's bond market continues to be hammered in the aftermath of the government's surprise seizure of Baoshang  Bank (see "A Big Wake Up Call": Chinese Bond Market Roiled By First Ever Bank Failure"),  the PBOC - whose open market operations had been in dormancy for much  of 2019 - finally panicked and on Wednesday injected a whopping net 250  billion yuan ($36 billion) into the financial system via open-market  operations, as it fills what traders have dubbed a growing funding gap  following the Baoshang failure.

  The consequences of this liquidity flood were instant: China’s  overnight repurchase rate, a measure of interbank liquidity, tumbled the  most in three weeks, while the benchmark 7-day repo rate also declined.

  "The operations so far this week send a strong signal that the PBOC  is ready to ensure ample liquidity for the market, amid fragile  sentiment in the credit and bond market," said Westpac strategist  Frances Cheung. The central bank also set the daily yuan fixing at a  stronger-than-expected level to prevent even a hint of speculation that  China will be have no choice but to devalue the yuan as part of the  "reliquification" of the market.

  The PBOC's massive liquidity injection, which was the largest since  January when the S&P was still close to a bear market and started  the tremendous Chinese stock market rally, also helped the Shanghai  Composite be one of the few markets that closed in the green overnight.
  However, while the near-term reaction was favorable to Chinese risk,  the paradox is that this only became a viable option as a result of a  far greater problem: China's interbank funding market is starting to  freeze.
  As we reported on Tuesday, the bank has - or rather had - more than  60 billion yuan of negotiable certificates of deposit (NCDs) and 6.5  billion yuan of subordinated bonds outstanding. Trading in the the  company’s NCDs and other bonds was promptly suspended on Monday, with  traders fearing that a self-fulfillling prophecy would emerge as  contagion spreads to other troubled banks' NCDs and/or bonds.
  As noted previously, the contingent convertible/perpetual debt issued  by some of the more troubled banks such as Huishang, Bank of Zhengzhou  and China Zheshang Bank, was hammered over the past three days and has  yet to recover.

  As an aside, for those asking why NCD's matter, the answer is because as we explained as far back as two years ago,  numerous smaller banks had become acutely reliant on such shadow  banking funding mechanisms as Certificates of Deposit, which had become  the primary source of short-term funding for many of China's banks  mid-size and smaller banks.

  As Deutsche Bank further explained,  the banks most exposed to a shut down in this "shadow funding" pathway  are medium-sized and small banks, for whom wholesale funding made up 31%  and 23%, a number that has risen substantially in the interim period.

  The issue of NCD funding is especially troublesome, because as  Bloomberg reported overnight, in the aftermath of the Baoshang seizure, *some  Chinese banks and securities firms "tightened requirements for  negotiable certificates of deposits that are used as collateral for  funding."* In some cases, private NCDs were shunned altogether,  and some financial institutions now only accept NCDs sold by state-owned  and joint stock banks as collateral while some have refused to lend  money to investors pledging NCDs issued by lenders rated AA+ and below  for now.
  While the lock up in the NCD market is concerning, it is only partial  so far, even as yields on Chinese banks' NCDs spiked in the past 48  hours *after only 44% of the planned amount was issued.* Putting this in context, banks typically issue an average of 82% of the planned amount.
*"The Baoshang incident is pressuring short-term liquidity,*"  said a trader at a Chinese bank. "Along with month-end seasonal  factors, cash conditions are becoming tighter and pushing up the  near-date swap points higher. And that has led the swap curve moving  upward."
  Ji Tianhe, China rates and FX strategist at BNP Paribas in Beijing,  said that the takeover of Baoshang could be interpreted as a "*marginal targeted deleveraging" campaign, and could change the ecosystem of the interbank market.*
  "Smaller banks are supposed to serve the real economy, but some  turned out be very active in interbank trading in order to expand their  size. Now this latest move is pushing similar small lenders back to  their core business," Ji said according to Reuters.  He added that as small banks are not allowed to borrow in the exchange  market and have to largely rely on bigger banks for interbank funding, "*they are now facing a challenging funding situation*."
  This also explains why traders are casting concerned glances at  Chinese bonds, because as Jianghai Securities explained overnight, *China’s  government bonds may slide as banks sell them to make up a liquidity  shortfall from issuing fewer negotiable certificates of deposits*.
  Analysts at OCBC bank said in a note on Tuesday that the takeover had *sparked a sell-off in Chinese sovereign bonds on Monday* after  reports that corporate deposits and interbank liabilities over 50  million yuan could be subject to a haircut of 20%-30%, "due to concern  about the possible break of implicit guarantee."
  "This may cause interbank lenders to reassess their relationship with the smaller lenders," the analysts said.
  But a partial (or complete) freeze of the interbank funding market,  which many believe is what was the key catalyst behind the US financial  crisis as shadow funding conduits froze up in the aftermath of the  Lehman failure, is just one of China's major headaches. The far bigger  one is the risk of a bank run.
  And to address that, just around the time Baoshang was about to be  nationalized, the central bank set up a wholly-owned deposit insurance  fund with registration capital of 10 billion yuan on May 24, according  to registration record on a website run by State Administration for  Market Regulation. It's also why on May 26, the central bank said on May  26 that PBOC, CBIRC and Deposit Insurance Fund will guarantee some  Baoshang Bank debt repayment.
  The good news is that for now, there have been no reports of bank  runs, or even jogs, in China, although this is precisely the kind of  news that would be throttled and censored as much as possible by  Beijing, which can not afford a countrywide bank run, threatening the  collapse of China's massive $35 billion banking system.

  China’s central bank will face increasing challenges in the coming  weeks to balance liquidity injections and a depreciating yuan, Bank of  America Merrill Lynch says.
  The last item is that with the PBOC panicking, this may have major  implications on the global scene, where the last thing China can afford  is to be seen devaluing the yuan. Alas, as Bank of America notes, the  PBOC is now trapped as it needs to inject even more liquidity into the  system amid deteriorating data, signs of fund outflows, US-China trade  tensions and as 463 billion yuan of MLF matures on June 6. *The PBOC’s challenge lies in adding liquidity without letting the yuan depreciate too far, and as BofA's Claudio Piron notes,* "leaning  more on monetary easing rather than fiscal will cause yields to fall  and the yuan to depreciate against the greenback" which is why in  preempting this, PBOC has added the massive cash injection through OMO.  To be sure, while the PBOC will likely have to inject much more  liquidity, the likelihood of a cut in banks’ reserve requirement ratio  when the 463BN yuan of MLF expires in June is increasing.
  One thing that is certain: Baoshang is just the tip of the iceberg.  According to UBS analyst Jason Bedford, who in 2017 was the first to  highlight Baoshang’s troubles, *there are several other banks that have “identical leading risk indicators” to Baoshang.* Hengfeng Bank, Jinzhou Bank Co. and Chengdu Rural Commercial Bank *all  failed to publish their latest financial statements, have a large  portion of their balance sheets invested in “loan-like investment  assets” and are subject to negative local media coverage, he said in a  note to clients published Tuesday.*

  As Bloomberg reports,  Hangfeng said that it hasn’t completed auditing and reviewing its  financial statements. Officials at Jinzhou and Chengdu Rural didn’t  reply to requests for comment.
  In short expect more Chinese bank failures in the coming weeks.

More at: https://www.zerohedge.com/news/2019-...after-baoshang

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## Swordsmyth

China's debt-to-GDP ratio rose to an all-time high at the end of March,  hitting 248.83 percent and marking an annualized increase of 3.73  percentage points, the South China Morning Post reported May 30.

More at: https://worldview.stratfor.com/situa...-all-time-high

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## Swordsmyth

China's Official May Composite PMI printed modestly lower than  April's at 53.3, with Services at 54.3 (in line with last month and  goal-seeked expectations), while *Manufacturing (expected to decline into contraction at 49.9) was considerably worse than expected, printing 49.4.*
  This was below the lowest analyst estimate of 49.5.

  Under the hood of the manufacturing data, Output growth slowed, *New Orders tumbled into contraction (with export orders plunging)*, inventories rose, employment slipped, and input & output prices contracted. The most affected were Small Enterprises.
  The Services data also showed weaker new orders and employment with *selling prices slumping* into contraction
*The drop clearly reflects pressure on the production side of  the economy from the escalating trade war (following some pre-tariff  stocking-up).*
  None of this should be a big surprise as much of Asia's flash PMIs  were weak and after spiking on record credit injections in the early  part of the year, China's macro data has collapsed against renewed  optimistic expectations...



More at: https://www.zerohedge.com/news/2019-...ck-contraction

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## Swordsmyth

Almost four years ago, in September 2015 when bitcoin was trading at $200, we wrote "China Scrambles To Enforce Capital Controls (Which Is Great News For Bitcoin)"  in which we explained that with China aggressively cracking down on its  capital control "firewall", bitcoin was set to soar. Specifically, we  said that "if a few hundred million Chinese decide that the time has  come to use bitcoin as the capital controls bypassing currency of  choice, and decide to invest even a tiny fraction of the $22 _t_rillion  in Chinese deposits in bitcoin (whose total market cap at last check  was just over $3 billion), sit back and watch as we witness the second  coming of the bitcoin bubble, one which could make the previous all time  highs in the digital currency, seems like a low print as bitcoin soars  past $500, past $1,000 and rises as high as $10,000 or more."

  A little over two years later bitcoin had risen 100x, hitting $20,000  as a result of, you got it, a lot of Chinese scrambling to use bitcoin  as a capital controls evading mechanism (and not, as some financial  "experts" claimed at the time, a Russian ponzi scheme)  one which prompted Beijing to unleash draconian measures to curb  bitcoin use, and eventually succeeded to break the magnetic draw that  the cryptocurrency held for millions of Chinese money-launderers (and  momentum chasers).
  Fast forward to today when in just the past month bitcoin has soared  nearly 140%, and is back to $9,000 after tradiong as low as $3,000 in  December. The reason, no surprise, is yet another massive ramp up in  Chinese capital control which have recently surpassed all of Beijing's  prior attempts at managing the flow of outbound capital.
  But don't take our word for it -  none other than a former Chinese central bank adviser has admitted that *Beijing’s  capital account controls may be too “extreme” after personally being  blocked from sending US dollar funds abroad because he was too old*.



As the SCMP reports,  Yu Yongding, a former central banker at the PBOC and currently a senior  research fellow at the Chinese Academy of Social Sciences, a  state-owned think tank, told a financial forum in Beijing on Wednesday  that he recently tried to exchange yuan to the value of US$20,000 at a  bank and transfer the money out of China to pay for a trip to visit  relatives living abroad.

  And then: surprise - *the bank refused to provide the service  even though Yu, like all citizens under Chinese law, is allowed to make  foreign transfers of up to US$50,000 each year.* According to Yu, the bank refused to provide the service because he is over 65.
 “I always support capital account controls, and I always encourage  such measures. But sometimes we tend to be too extreme in doing things,”  Yu was quoted as saying by Chinese news portal Sina.com. “Legal foreign  exchange deals are being hindered.”While the former PBOC adviser confirmed the incident in a phone call  with the South China Morning Post, he declined to elaborate further,  declining to name the bank, and only stating that the implementation of  China’s foreign exchange controls were "too rigid."
  “There were heavy outflow pressures in 2015 and 2016, but I don’t see clear signs of outflows at the moment,” Yu said.
  Well, there wouldn't be if capital controls are "extreme" although  perhaps Yu was looking at the wrong place - if, as in 2016/2017 when  Bitcoin exploded, the former central banker was instead looking at the  price of cryptocurrencies he may observe some "clear signs" of outflows,  those taking place via cryptocurrency.




As the SCMP notes, *Yu’s case adds fresh evidence that China  is tightening controls of personal purchases of US dollars despite the  US$50,000 allowance.* The Post reported earlier this month that  some Chinese banks have increased scrutiny of foreign-currency  withdrawals and quietly reduced the amount of US dollars customers are  allowed to withdraw, fanning concerns that Beijing is cutting the supply  to individuals and companies.
  Why? Simple: because as part of China's defense of the Yuan from  sliding below 7.00 vs the dollar, a key psychological level that would  lead to an avalanche of yuan selling and sharply draining China's  currency reserve - SAFE has maintained that the country has ample  foreign exchange reserves, which stood at about US$3 trillion as of the  end of April - Beijing is doing everything in its power to pre-empt this  waterfall by making selling of the Yuan virtually impossible, in effect  fully isolating China from the the global FX system. As a result those  who are desperate to transfer their funds offshore are forced to find  creative alternatives.
*Such as buying bitcoin instead,* something will only  accelerate the longer China cracks down on enforcing capital controls,  which in turn will be a function of how long the trade war lasts.

More at: https://www.zerohedge.com/news/2019-...-banker-denied

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## goldenequity

Russian Market‏  @russian_marke
That very bearish moment when stocks don't react to desperate headlines from Pence saying that Trump is asking for a meeting with Xi at G-20.




=======

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## Swordsmyth

China will be forced to engage in even more aggressive stimulus -  Beijing's latest trade figures showed exports fell 1.3% in June from a  year ago and imports shrank a more-than-expected 7.3%.  
  Exports were in line with consensus expectations, with imports  slightly weaker. In sequential terms, exports were down by 1.0% mom sa  non-annualized in June, partly reversing a gain of 2.2% in May which was  boosted by the frontloading from exporters. Imports remained weak, down  by 0.6% mom sa non-annualized in June, albeit to a lesser extent (-6.1%  non-annualized in May). China's trade surplus increased to US$50.4bn in  June from US$41.7bn in May.
  The main culprit for the latest disappointin data? *Exports to the US contracted significantly by 7.8% yoy in June, down further from -4.1% yoy in May.* Exports  to the EU also decelerated to a decline of 3% yoy in June from +6.1%  yoy in May, and exports to Japan increased modestly by 2.4% yoy (v.s.  +0.5% yoy in May). In contrast, exports to ASEAN accelerated  significantly to +12.9% yoy in June from +3.5% yoy in May.
  Meanwhile, on the other side, imports of crude oil accelerated in  June, while imports of steel products remained weak. Imports of iron ore  continued to decline in volume terms, though increasing in value terms  on higher prices. In value terms, crude oil imports accelerated to +8.2%  yoy in June (vs. +5.5% yoy in May); steel products imports declined by  19.5% yoy in June (vs. -22.5% yoy in May); iron ore imports increased  +34.6% yoy in June (vs. +24.0% yoy in May). In volume terms, crude oil  imports were up by 15.2% yoy in June (vs. +3.0% yoy in May); steel  products imports remained weak at 9.1% yoy in June (vs. -13.4% yoy in  May); iron ore imports decreased by 9.7% yoy in June (vs. -11.0% yoy in  May).
  According to Goldman, "*weaker global demand, higher tariffs  from the US and smaller impacts from the frontloading (compared to May)  may have contributed to the slowdown in exports momentum in June, though  depreciation in RMB over the past several months may have been  supportive."* As a result Goldman believes that exports momentum  may remain modest in coming months, given moderate global economic  growth, and combined with weak private demand, will result in easier  domestic policy to maintain growth stability. The latest State Council  meeting also announced measures to support exports (e.g., improving  export tax rebate policies and lowering export insurance fees). 

More at: https://www.zerohedge.com/news/2019-...umbles-chinese

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## Swordsmyth

Something strange is happening in China: Beijing appears to be  steadily losing control of the economy, which by definition is  impossible for a centrally-planned, command economy such as China's, and  yet the latest signals are clear and ominous.
  Consider the following: on Friday, just after Beijing reported the latest disappointing trade data for the month of June which saw exports falling 1.3% in June from a year ago - *as exports to the US tumbled by 7.8%* - and imports shrank a more-than-expected 7.3% ...

  ... the PBOC published the latest monthly credit stats, which showed  that after several months of subdued credit growth, in June Total Social  Financing - the broadest credit aggregate - rose by a significant  2,260BN yuan in June, the most in three months and easily beating the  consensus print of 1900BN.

  This took place even as new CNY loans of RMB1,660 billion came  slightly below consensus at RMB1,700 billion, while China's Shadow  banking deleveraging continued for a third consecutive month and 14 of  the last 16.


And while China's M2 missed (8.5% YoY vs exp. 8.6%, skirting just above  the all time low of 8.0% which it hit one year ago, which is to be  expected considering China's record debt load requires ever more new  debt to make an upward impression)...

  ... the better-than-expected TSF print was mainly a reflection of  policy intentions: as a reminder, the government tried to loosen policy  in June, for the second time this year, *as after “taking the  foot off the accelerator” in April and May, the economy started to slow  meaningfully after 1Q and inflationary pressures were not as large as  expected,* the trade dispute posed a much bigger challenge than  expected and there were rising level of anxieties among market  participants following the Baoshang Bank takeover. As a result the  government pushed for a reacceleration of government bond issuance, and,  partially because of this and due to the lock up in the repo and  Negotiable Certificates of Deposit markets, sharply lowered the  level of interbank rates (overnight SHIBOR) despite normal seasonality  pressures to the upside, pushing the rate to the lowest level since the  financial crisis.

  On the other hand, and in light of the gargantuan January TSF  injection, knowing the amount of government bond issuance was  particularly large, and given there is no intention to be quite as  aggressive with policy loosening, the PBOC apparently did not push for a  very large amount of bank lending, which explains the modest miss in  the bank loan increase. Meanwhile, Goldman notes that apart from fiscal  and monetary policy measures, the government likely also took  administrative measures to accelerate the pace of construction  investment projects.
  And yet, despite all these actions, the effects on the economy  "remain unclear" according to Goldman; in reality, the effects have bee  negligible, and economic growth has continued to shrink, prompting many  to ask if Beijing isn't losing control of the situation and a dreaded  "hard-landing" is imminent? And while it is true that Beijing could - at  least in theory do more - there is also the question if it isn't  approaching the limit of its interventionist powers?
  Consider that Chinese local bond issuance - the most readily  available instrument at the province level to fine tune growth - has  been scorching in recent years, resulting in strong credit dynamics...

  ... and even so the latest Chinese manufacturing PMIs both slumped into contraction.

  It's not just soft surveys that continue to grind lower: June data  released so far including PMIs, trade, and inflation - in particular PPI  which is closely related to short-term demand growth...

  ... have not been encouraging, and as Bloomberg notes,  "China is grappling with a slowdown that will see output growth slide  to the weakest pace in almost three decades this year", as factors far  beyond the trade war with the U.S. weigh on the world’s second-largest  economy. And speaking of the trade war, it is becoming increasingly  clear that *Beijing desperately needs it to continue just to  allow president Xi to use it as a convenient scapegoat for all that is  wrong with China.* 
  Of which there is lots: GDP is forecast to grow at 6.2% in the second quarter, *the slowest since at least 1992,* with  data due for release on Monday set to show whether the downward forces  from external demand, deflationary factory prices and contracting  manufacturing can be offset by stabilizing investment, brighter consumer  sentiment and a rebounding property sector. In short, *whether the government has lost control of the economy.*


More at: https://www.zerohedge.com/news/2019-...ontrol-economy

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## Swordsmyth



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## Swordsmyth

As far back as 2013, *China's macro-economic data has been 'questionably' smoothed at best, and outright fake at worst*.
  Whether it is trade data ("never been faker" than in 2016) or aggregate production (2018's massive GDP distortions), as  economist* Nouriel Roubini once asserted, China just makes its numbers up.*
  This month was no exception...
*Following China GDP's dramatic slowing to just 6.2% YoY - the slowest since record began*  - there was a delightful surprise to appease those who are wondering  whether record credit injections and more easing measures than during  the financial crisis had any effect at all.
*China retail sales and industrial production rebounded handsomely* with the former spiking 9.8% YoY - the most since March 2018.

  There's just one thing though - the entire surge in retail sales (and industrial production) seems to have been triggered by an *almost unprecedented sudden surge in auto sales to large (state-owned) enterprises...*

*A 17.2% YoY explosion in sales to SEOs (up from just 2.1% in May)  - the most since August 2011*  - is almost too good to be believed (ok forget almost, it is too good  to believe and seems like pure top-down manipulation of the data -  whether sales were effectuated or not), echoing the kind of forced  buying rush that occurred in 2009.

  And that did not end well.
*However, absent considerably more liquidity, forced credit  injections, or a miracle, Auto sales are about to hit a wall as China's  credit impulse begins to slow...*



More at: https://www.zerohedge.com/news/2019-...ail-sales-data

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## Swordsmyth

China’s 2nd Quarter growth is the  slowest it has been in more than 27 years. The United States Tariffs are  having a major effect on companies wanting to leave China for  non-tariffed countries. Thousands of companies are leaving. This is why  China wants to make a deal....
 — Donald J. Trump (@realDonaldTrump) July 15, 2019  ....with the U.S., and wishes it  had not broken the original deal in the first place. In the meantime, we  are receiving Billions of Dollars in Tariffs from China, with possibly  much more to come. These Tariffs are paid for by China devaluing &  pumping, not by the U.S. taxpayer!
 — Donald J. Trump (@realDonaldTrump) July 15, 2019

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## Swordsmyth

One of the more confusing discrepancies in recent months was how,  despite the weakening in the yuan and the escalating trade war between  the US and China, there was virtually no drop in Chinese (official)  reserves and thus, no capital flight.
  Well, "confusion no more", because as Goldman points out, amid the  lingering trade tensions and continued depreciation of CNY in the first  half of June, the bank's preferred gauge of FX flows showed a dramatic  jump in June outflows to the tune of $20 billion compared to an _inflow_ of  $13 billion in May, while the exporters’ trade repatriation ratio fell  further in June. At the same time, the bond market saw a net inflow of  around $11BN, modestly lower than the $16BN in May.
  According to Goldman's calculation using the SAFE dataset of “onshore  FX settlement”, non-banks showed net FX outflows of around US$13bn (vs.  an inflow of US$19bn in May). *This was composed of US$23bn in  net outflow via outright spot transactions, and US$11bn in net inflow  via freshly entered and cancelled forward transactions.*  Meanwhile, another SAFE dataset on “cross-border RMB flows” shows that  on a net basis, the amount of RMB flow from onshore to offshore was  around US$7bn.
  As a result, *Goldman's usual "preferred" gauge (FX settlement  data mentioned above and the cross-border RMB flows) showed a net FX  outflow of around US$20bn in June, vs an inflow of US$13bn in May.* 



According to Goldman, "trade tensions lingered in June and CNY depreciated in the first half of the month, *contributing to the increased FX outflows*"  which of course were visible well prior thanks to the surge in cryptos  since April, a big part of which was due to Chinese capital flight,  which however failed to be documented in official data. Until now, that  is.
  Meanwhile, exporters and importers’ net trade repatriation ratio  continued to decline to 0.2 in June, from 0.4 in May and 0.9 in Q1 this  year, *implying exporters and importers having less incentives  than before to repatriate their trade proceeds back when facing  heightened trade uncertainties in June; this has an adverse impact on  net capital flows.*
  Finally, this data contradicts the data released by the PBOC earlier  in the month, which showed that FX reserves stood at $3,119 billion in  June, up $18bn from May. Based on Goldman's estimate, almost all the  increase could be attributed to FX valuation effect. After adjusting for  that, FX reserves were broadly unchanged in June. That is unlikely to  be the case for longer now that capital flight from China has once again  resumed in earnest.

More at: https://www.zerohedge.com/news/2019-...hest-10-months

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## Swordsmyth

As far back as 2013, China's macro-economic data has been 'questionably' smoothed at best, and outright fake at worst. Whether it is trade data ("never been faker" than in 2016) or aggregate production (2018's massive GDP distortions), as  economist Nouriel Roubini once asserted, China just makes its numbers up.
  And, as we pointed out earlier this week, this month was no  exception, when following China GDP's dramatic slowing to just 6.2% YoY *- the slowest since record began*  - there was a delightful surprise to appease those who are wondering  whether record credit injections and more easing measures than during  the financial crisis had any effect at all. To wit, China retail sales  and industrial production rebounded handsomely with the former spiking  9.8% YoY - the most since March 2018.
  There's just one thing though - the entire surge in retail sales (and  industrial production) seems to have been triggered by an almost  unprecedented sudden surge in auto sales to - who else - the government  itself, in the form large, state-owned enterprises.  Think Cash for Clunkers on steroids - if the clunkers belonged to the  Federal Government, and the new cars purchased were made by the  Government.

  Yet there was one critical data set in China's manipulated economic data spreadsheet, which failed to get the royal _goalseek_ treatment, one with dramatic implications for the broader market.
  According to Commodore Research, Chinese June data showed that  furniture sales in China totaled only 18.4 billion yuan last month. *This marks a year-on-year decline of 14% from the 21.3 billion yuan in sales* that was reported last year for June 2018’s furniture sales.

  This is puzzling in light of the official Chinese data according to  which the local housing market continues to hum along, firing on all  cylinders, with the average, 70-city primary market property price  rising 10.5% Y/Y in May.

  Alas, that does not seem feasible when one considers that *furniture sales in China have now contracted on a year-on-year basis for eighteen straight months.* 
  What does this mean? As Commodore Research concludes, "we continue to believe that *there  is a good chance that the ongoing plummet in furniture sales in China  is pointing to much greater weakness existing in the Chinese housing  market than is generally being recognized.*"


More at: https://www.zerohedge.com/news/2019-...bble-has-burst

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## Swordsmyth

Ever since the unexpected failure of China's Baoshang Bank in late May, which caused a freeze in  the interbank market among smaller, less credible (and government  backstopped) banks, and which sent rates on Negotiable Certificates of  Deposit (NCDs), various bank bonds and assorted report rates sharply  higher...

...  investors have fretted that China appears on the verge of a "Lehman  moment", where wholesale interbank liquidity and overnight funding  markets suddenly lock up. The reason for this, as we explained last month, is that China’s short-term lending market for banks and other financial institutions *has for years operated under the assumption that Beijing wouldn’t allow big losses in the event of defaults or insolvencies* (hence the reason why Baoshang's failure was a shock).  That confidence has been shaken by regulators’ unusual public takeover  of the troubled Chinese bank near Mongolia last month, and the even more  stunning public admission by the central bank that "not all of Baoshang  Bank’s liabilities would necessarily be guaranteed." “Bank  failure always causes greater concern given systemic fears," said Owen  Gallimore, head of credit strategy at Australia & New Zealand  Banking Group, suggesting greater pressure on the private sector ahead. Naturally,  with China growing at the slowest pace in recent history, beset by  shadow bank deleveraging, trade war, a shaky transition to a consumer  economy and China's first ever current account deficit, these stresses come at a very bad time for the normal functioning of the local economy.  Furthermore, nonbank borrowing through bond repos and interbank loans  skyrocketed since China’s central bank began easing monetary policy in  early 2018, hitting a net 74 trillion yuan ($10.7 trillion) in the first  quarter of 2019, according to Enodo Economics, and up nearly 50% from a  year earlier. As the WSJ redundantly warns, "funding troubles for  brokerages and other asset managers therefore pose big problems for both  financial stability and the real economy."
  Meanwhile, as we warned as far back as March 2017, *problems  would eventually migrate from the smallish market for negotiable  certificates of deposit, used mostly by small banks, into the vastly  greater bond repo market.* Here, while key one-day and seven-day  weighted average borrowing rates had remained low thanks to huge  central bank cash injections - such as the 250BN yuan we described back in May  - longer tenors such as the 1 month repo have marched sharply higher.

  As an aside, for those asking why NCD's matter, the answer is because as we first explained two years ago,  numerous smaller banks had become acutely reliant on such shadow  banking funding mechanisms as Certificates of Deposit, which had become  the primary source of short-term funding for many of China's banks  mid-size and smaller banks.

  As Deutsche Bank further explained,  the banks most exposed to a shut down in this "shadow funding" pathway  are medium-sized and small banks - such as Baoshang - for whom wholesale  funding made up 31% and 23%, a number that has risen substantially in  the interim period.

  Some more background: in China, the funding flow goes like this (per  Bloomberg): big national banks lend to smaller regional lenders, which  then provide financing to non-bank peers such as brokerages and funds.  They in turn use the money to invest in corporate bonds.
  “Smaller banks play a key role in this chain,” said Ming Ming, chief fixed-income analyst of Citic Securities Co. *Right  now investors are quite "risk averse and everyone wants to mitigate  counterparty risks. If things get worse, China’s financial market  liquidity could collapse,”* he added.
  In this context, troubles with NCD funding are troublesome, because  as Bloomberg reported recently, in the aftermath of the Baoshang  seizure, *some Chinese banks and securities firms "tightened  requirements for negotiable certificates of deposits that are used as  collateral for funding."* In some cases, private NCDs were  shunned altogether, and some financial institutions now only accept NCDs  sold by state-owned and joint stock banks as collateral while some have  refused to lend money to investors pledging NCDs issued by lenders  rated AA+ and below for now.
  Worse, as Bloomberg followed up last month, *the interbank market had started to also freeze up as a result of counterparty suspicions:* one  month after Baoshang, Chinese bond traders in China are "rethinking  counterparty risks as shock waves from a government takeover of a bank  ripple through the country’s financial markets."
  As a result, and in an ominous echo of what happened before, and  certainly after the Lehman failure, it suddenly got far harder for *corporate  bonds to be accepted as collateral for repo financing as lenders  increasingly demand top quality bonds such as Chinese sovereign bills  and policy bank notes as pledges,* with Bloomberg noting that  "traders are having second thoughts on taking even AAA rated short-term  bank debt as security in the wake of last month’s seizure of Baoshang  Bank"
  As a result, *funding among China’s financial institutions has become clogged*, *in some cases to the point of paralysis*,  which has already caused borrowing costs to spike for brokerages and  smaller banks. All this could mean even higher default rates one year after China reported the highest amount of bonds defaults in modern history.

  Meanwhile, in the aftermath of the Baoshang failure, one of the most opaque areas of China’s credit markets - *the practice of companies buying their own bonds* -  has been getting far tougher, and is further contributing to financing  difficulties that are already bedeviling the nation’s policy makers.
  As Bloomberg discussed last month,  at issue is a sharp increase in scrutiny by financial institutions of  the collateral that their counterparties offer up in the repurchase  market, a crucial channel for short-term funding. If the debt sold by  issuers that indirectly purchased a portion of their own bonds - which  could account for as much as 8% of China’s corporate bonds, according to  Citic Securities - is shunned, *that would squeeze liquidity for  a swathe of the nation’s businesses, a funding freeze that spreads  beyond China's banking sector and affects even the highest quality  corporations.*
  That's precisely what appeared to be happening over the past two  months when despite regulators’ best efforts to a potentially  catastrophic seizing up in the repo market and short-term collateralized  lending between banks, some institutions moved to avoid riskier  securities. The moves, as Bloomberg notes, "showcased the fragility of  confidence toward borrowers that lack state backing in a financial  system still dominated by state-sector banks."
  Conditions became especially challenging for firms that obtained  funding via unorthodox methods: one such practice is known as  "structured issuance", where *a company transfers cash to an asset manager to buy a slice of the bonds the company is itself selling.* The manoeuvre helps give the appearance of greater demand for its securities and stronger ability to obtain funding. *What  could make the practice untenable is if asset managers can no longer  use those securities held in custody as collateral for repos.*
 “Since some repo transactions have defaulted recently, it is unclear  whether companies can continue to borrow money from the structured  issuance method, said Meng Xiangjuan, chief fixed-income analyst at SWS  Research Co. in Shanghai. “If it stops, some issuers will certainly face  difficulties operating their business normally, and their  debt-repayment pressure will rise,” she said.It gets worse.
  As Bloomberg reported recently, while the practice of self-financing a  portion of bond issuance is well known among credit analysts and  ratings companies, "observers have been loath to name the firms  involved, making this a particularly murky part of China’s debt market."  Citic Securities, for its part, hazarded a total of about 1.5 trillion  yuan ($218 billion) worth of securities outstanding that were sold in  part via structured issuance.
  And so, in addition to the somewhat specialized NCD market, the one  place where China's creeping funding freeze has become apparent is in  the repo market, which is collateralized by bonds and other securities  which the market no longer accepts at fave value.
  This creeping "Ice Nining"  of China's banking system, and its closest encounter with the  proverbial "Lehman moment" yet, came overnight when, inexplicably, *the four-day repo rate on China’s government bonds* (i.e., the cost for investors to pledge their Chinese government bond holdings for short-term funding) *on the Shanghai exchange briefly spiked to 1,000% in afternoon trading*!

  It is unclear what may have snapped, because as of 3:30pm local time,  the repo rate had fallen back to 3.1%, which begs the question: did  some bank just have a sudden liquidity run/freeze and was willing to pay  anything for immediate access to funding? An exchange official had no  idea what had caused the massive spike, and an official told Bloomberg  that the Shanghai exchange needs to check details of the trade before it  can comment.


More at: https://www.zerohedge.com/news/2019-...1000-overnight

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## Swordsmyth

China’s official demographic figures, including the now-cliched “country of 1.4 billion people
”,  seriously misrepresent the country’s real population landscape. The  real size of China’s population could be 115 million fewer than the  official number, putting China behind India in terms of population.

This  massive error, equal to the combined populations of the United Kingdom  and Spain, is a product of China’s rigged population statistics system,  influenced by the vested interests of China’s family planning authority.

To  start with, the raw data of China’s population figures were “adjusted”.  China’s total fertility rate, or the number of kids per woman  throughout her life, dropped below the watershed level of 2.1 in 1991,  from which moment the population size of the next generation would be  smaller than the current one, and the average total fertility rate was  1.36 in 1994-2018, according to data from census and surveys. However,  the family planning authority in charge of the country’s population  control refused to believe the numbers and “adjusted” the rate to  1.6-1.8 and, accordingly, the official population size.





For  instance, the real total fertility rate in 2000 was 1.22, according to a  census result, but the government revised it to 1.8. Accordingly, the  country had 14.1 million new births in 2000, but the government revised  the figure by 26 per cent to 17.7 million. A census, which is conducted  every 10 years, should provide the truest picture of China’s demographic  situation. But for the 2000 census, the government was unhappy about  the original finding of 1.24 billion and revised it up to 1.27 billion.

The basis for these adjustments, according to the Chinese government, is  the size of primary school enrolment. For the official statisticians,  the primary school enrolment data should be reliable because public  education covers every Chinese child. They were wrong, however, because  primary school enrolment data in China is often inflated so that local  authorities can claim more education subsidies from Beijing.


In  2012, one school in Anhui was found over-reporting its student size by  42 per cent to claim subsidies, and another school in Hubei province was  discovered in the same year over-reporting student size by more than  300 per cent – and these two cases are the tip of an iceberg.

According  to a report by CCTV on January 7, 2012, the Jieshou city in Anhui  province reported 51,586 primary school students, when the actual number  was only 36,234, allowing them to extract an additional 10.63 million  yuan (about US$1.54 million) in state funding. On June 4, 2012, _China Youth Daily_ reported that a middle school in Yangxin county, Hubei province reported 3,000 students, while the actual number was only 700.

The  latest census in 2010 also shows the tendency of over-reporting. For  example, the original aggregated population of Fujian province was only  33.29 million, which was revised to 36.89 million. China’s government  claimed it found 1.34 billion people during the census, but there were  inconsistencies. For instance, government data showed that China had 366  million new births in 1991-2010, but the group aged 0-19 in 2010 census  was only 321 million.


The official number of births in 2011-2018 is also overestimated by 40 million. While  Beijing is overestimating new births, it is underreporting the other  end of population change – death. Some Chinese families have a tendency  of not reporting deaths to the government in order to keep receiving  social welfare.

Also,  according to UN data, there was a net international emigration of 8  million from China in 1991-2018. But Chinese officials ignored this  data.



*China’s population to peak in 2023, five years earlier than official estimates


*More at: https://www.scmp.com/comment/opinion...inflated-hide?

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## Swordsmyth

*Bank of Jinzhou has crawled in Baoshang's foosteps and is about to be seized by the government.*   According to Reuters and Bloomberg,  Bank of Jinzhou recently met financial institutions in its home  Liaoning province to discuss measures to deal with liquidity problems,  and in a parallel bailout to that of Baoshang, the bank was in talks to  "introduce strategic investors" after a report that China’s financial  regulators are seeking to resolve its liquidity problems sent its  dollar-denominated debt plunging.
  Officials including those from the People’s Bank of China and China  Banking and Insurance Regulatory Commission recently held a meeting with  financial institutions in Bank of Jinzhou’s home province of Liaoning  to discuss measures to resolve the lender’s liquidity issues, Reuters  reported Wednesday.
  In response to market fears the bank issued a statement on Thursday  that "currently, Bank of Jinzhou’s business operations are normal  overall,” which however did not refer to its liquidity situation. *"Recently,  the bank’s board of directors and some major shareholders have been in  talks with several institutions that wish to and have the ability to to  become strategic investors"* adding that talks have been “going smoothly.”
  By strategist investors it of course meant banks, backstopped by the  government, who would "absorb" the bank, effectively nationalizing it a  la what happened with Baoshang. The only question is whether  stakeholders would also be impaired.


Incidentally, back in early June when first reporting on the  resignation of the bank's auditors, we said that "the real question  facing Beijing now *is how quickly will Bank of Jinzhou collapse,  how will Beijing and the PBOC react, and what whether the other banks  on the list above now suffer a raging bank run,* on which will certainly not be confined just to China's small and medium banks."
  The answer: less than 2 months.
  Unfortunately for China, it won't stop there. As a reminder, China’s  smaller lenders have been under growing scrutiny since Baoshang Bank's  failure and takeover which led to a sharp repricing of risk for much of  China’s banking system which had long operated under an assumption that  policy makers would support firms in trouble.

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

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## Swordsmyth

Profits earned by China's industrial firms contracted in June after a  brief gain the previous month, fuelling concern that a slowdown in  manufacturing from a bruising trade war will drag on economic growth.China's  industrial profits have been softening since the second half of 2018 as  the economy slowed and the U.S.-China trade dispute escalated, with  many industrial firms putting off business decisions and scaling back  manufacturing investment.
Economic growth in the second quarter slowed to a near 30-year low.
Industrial  profits fell 3.1% in June from a year earlier to 601.9 billion yuan  ($87.5 billion), according to data released by the National Bureau of  Statistics (NBS) on Saturday, following a 1.1% gain in May.
In the  first six months, industrial firms earned profits of 2.98 trillion  yuan, down 2.4% from a year earlier, compared with a 2.3% drop in  January-May.
The drop in first-half profits was driven by  declining profits in the auto, oil processing and steel sectors, Zhu  Hong of the statistics bureau said in a statement accompanying the data.
Producer  price inflation, one gauge of industrial profitability, eased to zero  in June from a year earlier, rekindling worries about deflation, which  could prompt authorities to launch more aggressive stimulus measures.

June marked the first full month of higher U.S. tariffs on $200 billion  of Chinese goods, which the United States imposed after trade talks  broke down. Both exports and imports fell.

More at: https://news.yahoo.com/chinas-indust...021011645.html

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## Swordsmyth

Step aside Baoshang Bank, it's time for Chinese bank bailout #2.
  Last Thursday, when reporting on the imminent failure of yet another Chinese bank in  the inglorious aftermath of Baoshang Bank's late May state takeover, we  dusted off a list of deeply troubled Chinese financial institutions  that had delayed their 2018 annual reports...

  ... and noted that the #2 bank on this list, Bank of Jinzhou - with  some $105 billion in total assets - recently met financial institutions  in its home Liaoning province to discuss measures to deal with liquidity  problems, and in a parallel bailout to that of Baoshang, the bank was  in talks to "introduce strategic investors" after a report that China’s  financial regulators are seeking to resolve its liquidity problems sent  its dollar-denominated debt plunging.
  Fast forward just three days later, when said failure-cum-bailout is  now official: three months after Baoshang Bank was seized by the  government in a historic first, *Bank of Jinzhou was just bailed  out, winning government-backed "reinforcement" on Sunday as three  state-controlled financial institutions said they would take at least  17.3% in the troubled lender*, whose shares have been suspended since April.
  Industrial and Commercial Bank of China (ICBC), the country’s largest  lender by assets, China Cinda Asset Management and China Great Wall  Asset Management, two of China’s four largest distressed debt managers,  said on Sunday they would take stakes in Bank of Jinzhou, Reuters reports.


As part of the rescue package, ICBC’s ICBC Financial Asset Investment  unit signed an equity transfer agreement to invest up to 3 billion yuan  ($436 million) in a 10.82% stake of Bank of Jinzhou, it said in a  statement filed to the Shanghai Stock Exchange. Hours after the state  lender’s announcement, Cinda said in a statement to the Hong Kong Stock  Exchange that its wholly owned Cinda Investment Co would invest in a  6.49% stake in Bank of Jinzhou, though it didn’t give the value of the  deal.
  China Great Wall also said it would take a stake in Bank of Jinzhou,  according to a statement sent to Reuters. It did not elaborate on the  value of the deal or the size of the stake.
  The investments come as regulators scramble to diversify their  approach to supporting highly indebted smaller banks and contain  financial risks.
  On Friday, Reuters reported that China’s banking and insurance  regulator told the country’s biggest distressed debt managers to prepare  contingency plans to take over or invest in high-risk small and  medium-sized Chinese banks as fractures in the inter bank funding market emerged.
  “The investment is to serve country’s supply-side reform in the  financial sector and enhance the bank’s capability to serve the real  economy,” the ICBC said in its statement. The deal will be conducted  with the unit’s own funds, ICBC added.

More at: https://www.zerohedge.com/news/2019-...ets-bailed-out

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## Swordsmyth

For some unexplained reason, investors naively believe that in a  country where, by now everyone knows that all the official government  data is fake and manipulated and goalseeked to serve specific political  goals, the corporate data is somehow more accurate or credible.
  Hopefully that will now change, because as Shanghai's Yicai Global reports,  China's securities regulator has suspended 43 IPOs and refinancings  handled by the country's second-largest accounting firm, including IPOs  on the country's new Star Market "Nasdaq-style" trading venue, as the  company is probed for allegedly falsifying information.
  Ruihua Certified Public Accountants, *which audits almost a third of all listed companies in China,* has been implicated in a scandal involving the infamous chemical maker Kangde Xin Composite Material, which we profiled back in January when we noted that the *bankrupt company was reporting cash 15 times greater than due debt, up until the moment it defaulted.* 
  Specifically, the accounting firm is accused of inflating profits by  CNY11.9 billion (USD1.7 billion) from January 2015 to last December. As  the CPA responsible for the company's auditing all those years, Ruihua  is also under scrutiny, the China Securities Regulatory Commission said  in a statement on its website on July 26.
  The Zhangjiagang, Jiangsu province-based firm is also suspected of  bumping up its operating income through fictitious sales, exaggerated  operating costs and fictional expenses on research, development and  sales according to Yicai. If found guilty, the company and its  controllers will be issued with the maximum penalty and will be banned  for life from the stock market, the CSRC added.

More at: https://www.zerohedge.com/news/2019-...as-ipos-halted

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## Swordsmyth

The media has largely bought into Huawei’s  “strong” half-year results today, but there’s a major catch in the  report: the company’s quarter-by-quarter smartphone growth was zero.
The telecom equipment and smartphone giant announced  on Tuesday that its revenue grew 23.2% to reach 401.3 billion yuan  ($58.31 million) in the first half of 2019 despite all the trade  restrictions the U.S. slapped on it. Huawei’s smartphone shipments  recorded 118 million units in H1, up 24% year-over-year.
What about quarterly growth? Huawei didn’t say, but some quick math can uncover what it’s hiding. The company clocked a strong 39% in revenue growth in the first quarter, implying that its overall H1 momentum was dragged down by Q2 performance.
Huawei  said its H1 revenue is up 23.2% year-on-year — but when you consider  that Q1 revenue rose by 39%, Q2 must have been a real struggle…https://t.co/dFQo4gxEVbhttps://t.co/HABAQ6fmfK
— Jon Russell (@jonrussell) July 30, 2019The firm shipped 59 million smartphones  in the first quarter, which means the figure was also 59 million units  in the second quarter. As tech journalist Alex Barredo pointed out in a tweet, Huawei’s Q2 smartphone shipments were historically stronger than Q1.
Huawei smartphones Q2 sales were traditionally much more stronger than on Q1 (32.5% more on average).
This year after Trump's veto it is 0%. That's quite the effect pic.twitter.com/x3dQlOePDA
— Alex B  (@somospostpc) July 30, 2019And although Huawei sold more handset units in China during Q2 (37.3 million) than Q1  (29.9 million) according to data from market research firm Canalys, the  domestic increase was apparently not large enough to offset the decline  in international markets. Indeed, Huawei’s founder and chief executive  Ren Zhengfei himself predicted in June that the company’s overseas smartphone shipments would drop as much as 40%.


Consumer products are just one slice of the behemoth’s business.  Huawei’s enterprise segment is under attack, too, as small-town U.S.  carriers look to cut ties with Huawei. The Trump administration has also been lobbying its western allies to stop purchasing Huawei’s 5G networking equipment.
In  other words, being on the U.S.’s entity list — a ban that prevents  American companies from doing business with Huawei — is putting a real  squeeze on the Chinese firm. Washington has given Huawei a reprieve  that allows American entities to resume buying from and selling to  Huawei, but the damage has been done. Ren said last month that all told,  the U.S. ban would cost his company a staggering $30 billion loss in  revenue.

More at: https://techcrunch.com/2019/07/30/hu...uarterly-halt/

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## Swordsmyth

Despite record credit injections and endless easing, China's economic survey data goes from bad to worse.

 	While China Manufacturing PMI managed a de minimus gain from 49.4 to  49.7, it remains in contractionary territory for the 7th month in the  last 9. 	China Services PMI continued to slide, back to its lowest since 2018.
Confirming global weakness seen in Japanese and European PMIs.

  In a seemingly desperate reach, Bloomberg notes that the stronger result (49.4 to 49.7) signaled some *optimism* is emerging in the Chinese economy in spite of lingering uncertainty over trade talks and domestic demand.
 PMI data improves as_ “the government’s tax cuts have helped improve growth slightly,”_ Yao Shaohua, economist at ABCI Securities Co. in Hong KongUnder the hood things are less rosy with Manufacturing New Orders and Employment both contracting...

  And Non-Manufacturing Employment is contracting...

  We are less enthusiastic as July has more working days than June, *which could also have helped lift production.*


https://www.zerohedge.com/news/2019-...-hit-2019-lows

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## Swordsmyth

Hong Kong's gross domestic product (GDP) contracted by 0.3 percent in  the second quarter of 2019 compared to the previous quarter, Reuters  reported July 31. Although annualized GDP grew by 0.6 percent in the  second quarter, this remains well below the expected 1.6 percent.

More at: https://worldview.stratfor.com/situa...evious-quarter

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## Swordsmyth



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## Swordsmyth

*China's generation Z, not unlike millennials in the U.S., are developing an ugly addiction to debt.* This was highlighted in a recent Bloomberg piece that highlighted examples like one 23 year old Shanghai resident who found himself *$1,500 in debt to a smartphone app.* 
  His spending habits are made possible buy Huabei, a credit card  that's part of Alibaba's ecosystem. He routinely spent more than his  sole source of income, _which was his parents 8,000 yuan (~$1,200) monthly allowance._ When  fell under a pile of debt, he tried to borrow his way out of it and pay  in installments. It didn't work, and his parents had to bail him out.  Hubei charged him 0.05% per day, which is about 18.25% annualized. 

*His story is typical for China's Generation Z.* Born  between the mid 90's and early 2000's, this generation has little income  and "virtually no credit history". But that doesn't stop them from  having access to banks, fintech startups and peer to peer lenders (in  addition to other unregulated channels). 
*Formal household borrowing is now 54% of GDP in the first quarter, rising more than 4% in a year.*

Unsecured lending is up 20% a year in China since 2008. Services like  Hubei offer revolving lines of credit for between 500 and 50,000 yuan.  Balances can be repaid in monthly installments, as well. Alibaba rivals  like JD.com have similar products. 
  Regulators have tried to crack down on peer to peer lending and the  sector has shrunk to half of its peak size. Data showed that nearly 70%  of peer to peer lenders were younger than 40. 
  The worrying part is that loans on these platforms often _aren't counted in official data._ *And  one consulting firm says that the amount of consumer finance available  through the internet will more than double, to 19 trillion yuan, by  2021.* 


More at: https://www.zerohedge.com/news/2019-...essible-debt-0

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## Swordsmyth

China's offshore yuan just collapsed below 7/USD -- after the PBOC  fixed the onshore yuan below 6.90 for the first time in 2019 -- *the  currency plunging a stunning 12 handles to its weakest on record  against the dollar as countless stop losses were triggered and thousands  of traders were margined out.* 
 _“A break of 7 is quite shocking to the market, and close attention will be paid to how China would deal with this move,”_ says Tsutomu  Soma, general manager of the investment trust and fixed-income  securities at SBI Securities Co. in Tokyo in a phone interviewThis is the weakest offshore yuan has ever been against the dollar...

  Onshore Yuan also broke below 7.00...



Kyle Bass suggests the capital exodus has only just begun...
 GAMETIME - CNH collapsing...HKD won’t be far behind. Mass Exodus of capital out of CNH and HKD. This collapse has just begun. #china #hk #bankingandcurrencycollapse pic.twitter.com/MQ8jpnSeQb
 — Kyle Bass (@Jkylebass) August 5, 2019Gold in yuan is accelerating higher...

  Additionally, Bitcoin is well bid...


More at: https://www.zerohedge.com/news/2019-...usd-record-low

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## Swordsmyth

Following the plunge in the yuan overnight, The U.S. Treasury  Department on Monday designated China as currency manipulator, a  historic move that no White House had exercised since the Clinton  administration.
 _“Secretary Mnuchin, under the auspices of President Trump, has today determined that China is a Currency Manipulator,”_ the Treasury Department said in a release.
  “As a result of this determination, Secretary Mnuchin will engage  with the International Monetary Fund to eliminate the unfair competitive  advantage created by China’s latest actions.” "
*"This pattern of actions is also a violation of China’s G20 commitments to refrain from competitive devaluation."*Washington hasn’t labeled a major trade partner a currency manipulator since 1994.
  The Yuan tumbled further on the headline...



More at: https://www.zerohedge.com/news/2019-...cy-manipulator

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## Swordsmyth



----------


## Swordsmyth

https://twitter.com/Jkylebass/status...49412621529088

----------


## Swordsmyth

For the first time since March 2008, PBOC fixed the yuan weaker than 7 per USD.


  Offshore Yuan was leaking lower into the fix but rallied modestly on  the 7.0039 fix (slightly stronger than the expectation of 7.0205)

  This shift enables offshore yuan to weaken down to 7.1440...


  But, as Nomura notes, *it could be set to get worse.*
  If it turns out that actual economic momentum in China has flagged to  the extent suggested by the deterioration in Chinese equity sentiment,  past patterns suggest that there is *still scope for RMB to weaken further.* 

  The possibility remains that the yuan could depreciate even more  against JPY and EUR than against USD, judging by the relative shift  lower in the RMB Basket versus USDCNH, it seems that pressure is  starting.



More at: https://www.zerohedge.com/news/2019-...-over-11-years

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## Swordsmyth



----------


## Swordsmyth

As if China did not have its hands full with a trade war, a plunging  yuan and growing civil unrest in Hong Kong, which is fast becoming the  potential epicenter for the next global crisis (and which Steve "The Big Short" Eisman thinks  is the next black swan), it now also has deflation to worry about at a  time when its ability to boost liquidity in the system is severely  limited... or maybe it's surging inflation.

  On Friday, China's National Bureau of Statistics reported that  Producer Price Index, i.e. factory prices, fell 0.3% in July from a year  ago, missing the modest 0.1% decline expected by analysts. This was the  first annual decline in China's PPI in three years - since August 2016 -  and just like back then, was largely the result of tumbling commodity  prices which in turn depressed both manufacturing and raw material goods  prices. And with oil sliding, and iron ore especially plunging, not to  mention the whole trade war thing, it does not seems like a rebound here  is imminent at all. 
  Worse, since PPI is closely linked to corporate profitability, the  decline suggests that China is badly lagging in the credit impulse arena  despite having started off 2019 with a bang and some of the biggest  increases in Total Social Financing on record.
  So what's the big deal: China has always been able to boost  inflation, all it had to do was turn on the credit spigot and inject a  few trillion in new bank and shadow loans into the economy.
  Well, maybe in the past this was the case, but this time it will have  a big headache, because even as PPI declined for the first time in  three years, consumer prices jumped 2.8%, and coming in hotter than the  2.7% expected. This was tied for the highest annual headline inflation  since February 2018, and before that one would have to go all the way to  2013 to find a hotter CPI print.

  A continuation of recent trends, the bulk of the inflation was the  result of sharply higher food prices, which surged 9.1% Y/Y as China  continues to battle the rapid spread of "pig ebola"  which some expect will eradicate half of China's entire pig population, leading to even higher prices.
  Sure enough, pork prices soared 27% in July from a year ago, the  highest in three years, but that wasn't even the worst of it: the prices  of fresh fruit soared by 39%, the highest since 2006!



  This combination of lower factory gate prices and soaring consumer  prices is, needless to say, the worst possible outcome for Beijing,  whose firepower to stimulate the economy using conventional means is  severely limited; that this comes at a time when China is caught in an  ever escalating trade war with the US certainly doesn't help.

Who knows: a few more downward nudges to the Chinese economy, and Trump  may win the trade war against Beijing well before the 2020 presidential  election.

More at: https://www.zerohedge.com/news/2019-...nflation-soars

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## Swordsmyth

https://twitter.com/Jkylebass/status...45886279557125

----------


## Swordsmyth

Back in the days of the Fed's QE, much of thinking analyst world (the  non-thinking segment would merely accept everything that the Fed did  without question, after all their livelihood depended on it), was  focused on how massive, and shocking, the Fed's direct intervention in  capital markets had become. And while that was certainly true, what we  showed back in November 2013 in "Chart Of The Day: How China's Stunning $15 Trillion In New Liquidity Blew Bernanke's QE Out Of The Water"  is that whereas the Fed had injected some $2.5 trillion in liquidity in  the US banking system, China had blown the US central bank out of the  water, with no less than $15 trillion in increases to Chinese bank  assets, all at the behest of a juggernaut of new credit creation - be it  new yuan loans, shadow debt, corporate bonds, or any other form of debt  that makes up China's broad Total Social Financing aggregate.

  Now, almost six years later, others are starting to figure out what  we meant, and in an Op-Ed in the FT, Arthur Budaghyan, chief EM  strategist at BCA Research writes about this all important topic of  China's "helicopter" money - which far more than the Fed, ECB and BOJ -  has kept the world from sliding into a depression, and yet is blowing  the world's biggest asset bubble. 
  Budaghyan picks up where we left off, and notes that over the past decade, *Chinese  banks have been on a credit and money creation binge, and have created  RMB144Tn ($21Tn) of new money since 2009, more than twice the amount of  money supply created in the US, the eurozone and Japan combined over the  same period*. In total, China’s money supply stands at Rmb192tn, *equivalent to $28 TRILLION*.  Why does this matter? Because Chine money's supply is the size of broad  money supply in the US and the eurozone put together, yet China’s  nominal GDP is only two-thirds that of the US.
  This, as the BCA analyst explains, is a major problem.

More at: https://www.zerohedge.com/markets/re...then-double-us

----------


## Swordsmyth

When  China launched the expansion of the Shanghai free trade zone (FTZ)  recently and announced six new FTZs in July, officials touted the  efforts to attract foreign investment and deepen trade ties with  neighboring countries.Yet,  for many businesses the FTZs have simply failed to live up to their  hype, undermined in part by Beijing's capital controls as an escalating  trade war with the United States slows China's economic growth to  30-year lows.
Back  in Shanghai, in the first FTZ area, chairs lie overturned and desks sit  empty behind padlocked glass office doors. Food courts that once  overflowed with business diners have seen small eateries steadily shut  up shop this year, leaving used chopsticks and plastic packaging  scattered on the ground.
While  the Shanghai FTZ, opened in September 2013, has long struggled to live  up to its initial promise of free-flowing currency and easier  international trade, more businesses are increasingly deserting the  28.78 square kilometer Waigaoqiao zone.
China  Merchants Bank, now the country's fifth largest by assets and profits,  disbanded a 10-strong FTZ corporate business team at the end of last  year, said two people with knowledge of the situation, spreading the  staff among other branches after the lender found that the FTZ's  promised benefits were rendered useless as capital controls tightened.
Moreover,  according to several bankers, hundreds of specialized accounts lie  untouched across the FTZ as capital controls and regulatory scrutiny  make free movement of currency – the hot selling point of the zone –  untenable.
The people could not be named as they were not authorized to speak to the media.
CMB  did not respond to repeated requests for comment. A spokesperson for  the Shanghai government said the authority was not aware of the capital  control snags.
"The  FTZs have reduced opportunities for local government taxes and also  contradict Beijing's attempt to reduce capital flight," said Andrew  Collier, managing director of Orient Capital Research.
"There  are many conflicting desires in the FTZ – and they can't be as  effective ultimately as Beijing would hope," he said, adding that the  same issues will affect the new FTZs.


LESS TRADE ZONE?
The  idea in 2013 was that an onshore yuan account opened in a free trade  zone bank branch could be used as if it were already offshore, meaning  it could be exchanged, or used in payment free of domestic restrictions.
But  bankers found the reality far from the hype and as concerns over  capital flight led regulators to clamp down on yuan leaving the country  from 2015, usability deteriorated further.
Users  of an FTZ account "have to tick more than 40 boxes before they conduct  one transaction.  After all the due diligence, the FTZ account is no  longer convenient," said Ding Jianping, professor at Shanghai University  of Finance and Economics.
"Convenience, and the concept of auto transaction used to be the selling point," he added.
And  even though Beijing plans to expand the zones, capital controls will  remain strict for the foreseeable future, meaning the FTZ is unlikely to  improve for lenders.
There  are currently 119 finance firms in Shanghai with a registered office  including the words "free trade zone", according to a data grab on  Qichacha, an information provider that uses official company  registration sources.
Out of the 119 finance firms, only 3 currently have a Waigaoqiao area address.
Shanghai  Huarui Bank shut its Waigaoqiao branch back in 2015, only to open  another in a different part of the free trade zone when the government  expanded the pilot area. While the new branch is still handling FTZ  business, the prospect for growth is losing steam, said a person with  direct knowledge.
The  Bank of Ningbo currently has four branches in the FTZ, but while  they're still expanding, most of the work done is normal banking  business.
Each  transaction in connection with a free trade account needs to be  reported, and money inside cannot be transferred to an ordinary account,  "which makes the account useless," said a person who works at one of  the FTZ branches.
In  one of the four FTZ branches of the Bank of Ningbo, there are between  20 to 30 FTZ accounts and they are rarely used, she said.
Over at the Bank of Nanjing, management is not keen on expanding the FTZ business, said a person who works in the zone branch.
The  bank is unable to offer products that would really assist a client,  said the person, such as an offshore loan without onshore deposits due  to risk controls and regulatory hurdles.
The FTZ business is "to fulfil targets set by the government" and not because there is real opportunity, the person added.

More at: https://finance.yahoo.com/news/banke...010552309.html

----------


## Swordsmyth

U.S. President Donald Trump on Aug. 23 announced on Twitter a new round of raising tariffs  on $550 billion worth of Chinese goods, and telling U.S. companies to  move their operations out of China. China expert Frank Xie believes that  when the trade war has escalated to this level, it will bring  devastating consequences to China’s economy, but will not have a major  impact on the United States.

 In an interview with the Chinese-language edition of The Epoch Times,  Frank Xie, an associate professor at the University of South Carolina’s  School of Business Administration, said that when this latest tariff  increase is imposed, the United States and China will become completely  decoupled economically.
 “The Chinese communist regime has been trying to drag [the trade  talks] out to give itself more time, and the Trump administration is  fully aware of that. In addition, Beijing has broken its promises  several times. They promised to buy agricultural products, but later  changed their mind. At a certain point, they even promised to buy large  quantities of agricultural products, but they did not make any purchase  thereafter. They have certainly irritated the American people,” Xie  said.
 “President Trump doesn’t trust the Chinese communist regime anymore.  That is why he keeps increasing tariffs on Chinese goods,” he added.
 Xie believes the Chinese Communist Party (CCP) is eyeing the European market because it is losing the U.S. market.
 President Trump attended the G7 summit (held from Aug. 24 to Aug. 26  in France) where he sought to reach a consensus with European leaders.  The European Union is expected to demand the same terms from China as  the United States has obtained through the trade talks, Xie said.
 Based on Xie’s analysis, Japan and the UK will certainly take the  same stance as the United States. Italy is the only G7 country that has  participated in China’s “One Belt, One Road” (OBOR, also known as Belt  and Road) initiative. However, Italy is in the process of forming a new  government, which may very likely withdraw from the OBOR, Xie said.

 “In the European Union, the next battleground of the U.S.-China trade  war, the battle has just begun. I think the European Union will  eventually stand by the side of the United States,” Xie said.
 Xie pointed out that if the CCP loses the American, European and  Japanese markets, essentially the whole world is shutting the door to  China, and it will return to the “closed country” state.

 In Xie’s opinion, China has basically lost its last chance in the  trade talks, and the CCP has no other choice but to continue to fight  stubbornly and desperately and at the expense of Chinese consumers.
 “From the upper to the middle level of the CCP, they all know that no  matter how they try to procrastinate, there isn’t much time left before  the Chinese regime is hit hard by the trade war,” Xie said. “What we’ll  see next is capital flight, and many CCP officials will accelerate  their plans to leave China.”


According to Xie, the trade war will have little impact on the U.S.  economy. “This is because China’s retaliatory tariff increases are  mostly imposed on automobiles, auto parts, petroleum and agricultural  products. Actually, China won’t be able to restrict the imports of these  products because it has a high reliance and demand for them,” he said.
 However, the United States can easily replace Chinese imports with products from other countries.
 ”The key issue is whether there are options,” Xie said. “China cannot produce most of the imports from the United States.”
 “For China to impose tariffs on American imports, this would only  increase purchase prices for Chinese consumers; it’s a suicidal act,”  Xie said. “For the United States, consumer reliance on Chinese products  is essentially about a preference for bargains, and almost all Chinese  products can be replaced with imports from other countries. Therefore  the impact is completely manageable.”
 More importantly, the restructuring of the global supply chain, with  companies moving manufacturing out of China, is devastating to China’s  economy.
 Xie pointed out that it has become clear the trade war will be a  prolonged confrontation between the two countries, and the supply chain  will continue to shift from China to other countries. Most notably,  Taiwan, Vietnam, Bangladesh, South Korea and India are replacing China’s  role as the biggest global manufacturing hub. As a result, in the near  future, tens of millions of Chinese workers will be out of a job.
 In addition, the decline in China’s exports to the United States will  drastically reduce China’s trade surplus, which in turn will exhaust  China’s foreign exchange reserves. The Chinese regime’s ability to  intervene in the yuan exchange rate will also decrease as a result. It  will then trigger a new round of bubbles bursting, such as a housing  market crash, banks going bankrupt, and a credit crisis.

More at: https://www.theepochtimes.com/china-...s_3060481.html

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## Swordsmyth



----------


## Zippyjuan

> 


one quarter of one percent. wow.

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## Swordsmyth

> one quarter of one percent. wow.


Small things add up.

----------


## Swordsmyth

Two surveys of Chinese manufacturing show demand is weak amid a mounting tariff war with Washington over trade and technology.A  monthly purchasing managers' index released by a business magazine,  Caixin, rose to 50.4 from July's 49.9 on a 100-point scale on which  numbers above 50 show activity increasing.
That indicates "renewed improvement" but said a gauge of new orders fell to its lowest level this year, the magazine said.
A  separate survey released Saturday by an industry group, the China  Federation of Logistics & Purchasing, showed activity declining to  49.5 from July's 49.7. It said market demand was "relatively weak."
Chinese  exporters are struggling in the face of U.S. tariff hikes. Exports to  the United States, their biggest market, fell 6.5% in July.

More at: https://news.yahoo.com/surveys-show-...050356675.html

----------


## Swordsmyth

There's a lot working against China's most indebted property firm.  China Evergrande Group is sitting on $113.7 billion in debt and its core  profit fell 45% in the first half of the year. Real-estate growth is  slowing, with banks under orders to curb home loans. President Xi  Jinping’s refrain that houses are for living in, not speculation, has  been cropping up more frequently. Time to rein things in, right?  Not Evergrande. The company, whose portfolio already includes theme  parks and a football club, now wants to become the world’s biggest  electric-vehicle maker in the next three to five years. It’s burning  through precious cash – 160 billion yuan ($22 billion) – to build  factories in Guangzhou. 
Investors are voting on this folly with  their feet. The company’s shares have fallen 30% this year, making  Evergrande the worst performer among Hong Kong-listed Chinese  developers. The property firm’s borrowing costs are among the highest in  the offshore dollar market and its bonds are tumbling.  
For  anyone gawking at Evergrande’s improbably ballooning debt load, just  waiting for the doomsday clock to strike midnight, there’s a valuable  lesson: This firm is too big to fail. Evergrande is one of China’s  biggest developers – with projects in 226 cities – and its billionaire  founder, Hui Ka Yan, is the country’s third-richest man. With property  accounting for about a quarter of China’s gross domestic product, any  instability in the sector has proven too much for Beijing to stomach.  Time and again, the government has reluctantly reopened the credit  spigots to boost a flagging real-estate market. Just look at 2008, 2011  and 2014. 

More at: https://news.yahoo.com/china-most-in...000253380.html

----------


## Swordsmyth

US could use imperial Chinese debt to ‘simply default’ on Beijing’s $1 trillion of US bond holdings

----------


## Swordsmyth

South Korean exports to China fell 21.3 percent year over year in  August, while Japanese exports to China declined by 8.2 percent in the  first half of 2019 on an annualized basis, The Wall Street Journal  reported Sept. 2.

More at: https://worldview.stratfor.com/situa...amid-trade-war

----------


## Swordsmyth

If the nightly images of water cannons and molotov cocktails were not  enough to spark fears about the state of Hong Kong's economy, tonight's  almost unprecedented collapse in IHS Markit Hong Kong Purchasing Manager's Index should slap reality back to the top of mind.
  The whole economy PMI crashed to 40.8, the lowest reading since Feb 2009.

  Business activity fell at the steepest rate since the end of 2008,  reflecting a sharper decline in new order intakes. Pessimism spread to  more firms, with* business confidence slumping to its lowest on record.*
 "The rates of decline in output, new orders and export sales accelerated sharply in August, with *the  only other time that the PMI survey has recorded a steeper downturn, in  its more than two decades of history, been during the SARS epidemic in  2003 and the global financial crisis in 2008-2009*."Nearly half of survey respondents reported reduced Chinese demand,  citing the ongoing US-China trade dispute, a sharp depreciation in the  renminbi and large-scale protests as reasons.
  Commenting on the latest survey results, Bernard Aw, Principal Economist at IHS Markit, said:
 "The latest PMI data reveal a *Hong Kong economy flirting with  recession in the third quarter as business activity is increasingly  aggravated by protest-related paralysis.* 
  "The executive authorities of the Hong Kong SAR recently unveiled an  economic stimulus plan to support flagging growth momentum, but *any further economic weakness will mean policymakers are likely to consider larger stimulus measures.* Finally, Aw warns, *"the survey is now broadly indicative of the economy contracting at an annual rate of around 4.0-4.5%."*

  A bloodbath that we are sure China will be perfectly ok with.


https://www.zerohedge.com/news/2019-...hile-hong-kong

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## Swordsmyth

The Ministry of Industry and Trade is drafting a policy that will  define a product as "made in Vietnam" if it has a domestic  manufacturing added value of 30 percent of its price. Vietnam has not  had a clear standard on what locally made goods is, the ministry said  last month. 
 	The new policy will stop local manufacturers setting their own  standards on using the "made in Vietnam" label for their products.  Products made with imported material with slight changes will not  qualify to claim Vietnamese origin.  
 	Prime Minister Nguyen Xuan Phuc has already signed a decision to  prevent the circumvention of trade defense measures, and local  government bodies are implementing this order.
 	A representative of the Vietnam Directorate of Market Surveillance said  Friday that the agency is focusing on reviewing companies that have  posted a sudden rise in imports from China.

More at: https://ampe.vnexpress.net/news/busi...e-3965243.html

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## Swordsmyth

Economists are downgrading their forecasts for economic growth in  China  again, to below a level seen as necessary for the Communist Party  to  meet its own goals in time for its centenary in 2021.
Oxford Economics, Bank of America Merrill Lynch, and Bloomberg Economics   on Tuesday all cut their forecasts for gross domestic product growth  in  2020 to below 6% as a result of increasing risks from the tariff war   with the U.S. UBS Group AG also cut their estimate on Tuesday,  although  they’ve been estimating sub-6% expansion since mid-August. In  addition,  Bank of America’s Helen Qiao and others are warning that the   government’s current approach to stimulus is proving insufficient.
China  is refraining from cutting benchmark policy rates or pumping  large  volumes of cash into the economy even as growth slows to the  weakest in  almost three decades and the tariff escalation in August  adds further  headwinds. That’s endangering President Xi Jinping’s  ability to claim  China has reached a “moderately prosperous society” that has doubled 2010 GDP by next year, as a rate above 6% in 2019 and 2020 would be needed.


Demand for credit has been weak, and while targeted policy easing  since  late last year has helped moderate the slowdown, the impact has  been  small, according to a report by Louis Kuijs, chief Asia economist  at  Oxford Economics in Hong Kong. With all the issues facing China,  “more  policy easing is needed to convincingly stabilize economic  growth,”  Kuijs said.

         China’s economic growth will likely slow to 5.7% in the last   quarter of 2019 and remain broadly at that pace in 2020, Kuijs said.   Output growth softened to 6.2% in the second quarter from a year   earlier, close to the lower bound of the government’s full-year target   of between 6% and 6.5%. Earliest indicators compiled by Bloomberg showed the economy slowed further in August.


Bank of America’s chief Greater China economist Helen Qiao said their   2020 forecast has been cut to 5.7% from 6.0%, and warned of the risk   that policy makers are falling behind the curve on support to the   economy.
                  “The key reason for delayed policy response is policy   agencies are waiting for the instruction from top decision makers to   shift policy stance towards easing,” Qiao wrote in a note.

UBS Group AG   sees stimulus coming in the form of more monetary easing, but expects   policy makers to refrain from boosting the property market unless   there’s a significant downturn. Wang Tao, chief China economist, now   sees growth of 5.5% in 2020, after cutting the growth forecast on   Tuesday from 5.8%. That’s the second time they’ve lowered in less than a   month, down from 6.1% in early August.
How much leeway the  central bank has in terms of policy easing is  questionable, however, as  additional tariffs on import products and  domestic supply shocks will  fuel inflation pressure with the yuan  weakening 3.9% since August.  Analysts including Citic Securities Co.’s  Ming Ming said consumer price  growth could breach the government target  of 3% in the coming months.

More at: https://www.bloomberg.com/news/artic...economics-says

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## Swordsmyth

More Chinese companies are defaulting on private bonds this year as  the slowing economy weighs on weaker companies and firms seek to repay  publicly traded debt first.
The  nation’s issuers have missed repayments on a record 31.8 billion yuan  ($4.4 billion) of private bonds this year through August, compared with  26.7 billion yuan for all of 2017 and 2018 combined, according to data  by China Chengxin International Credit Rating Co., one of China’s  biggest rating firms.
                                    “Private bond issuers are not obliged to make public  disclosures, therefore companies may choose to repay public notes first  when they are under financial stress,” said Chen Su, a bond portfolio  manager at Qingdao Rural Commercial Bank Co. Borrowers may seek to  extend their private debt through secret negotiations, he said.
                  The outstanding amount of publicly-issued bonds is about  three times that of private notes, according Bloomberg-compiled data.  Still, the private placement market is a key source of funding for  China’s smaller non-state-owned companies and local government financing  vehicles as deals are struck with a small group of qualified  institutional investors, shielding firms from market volatility.

Total corporate bond defaults in China year-to-date were at 78.4 billion  yuan, up 51 % from the same period last year due to a slowing economy.


There are signs the defaults are weighing on demand for such notes.  Issuance of privately-placed corporate notes in China declined in the  four months through July, in the longest falling streak in over two  years, before rising to around 160 billion yuan in August, according to  bond issuance data compiled by Bloomberg.
                  Investors are also asking for higher risk premium on  privately issued notes. The average coupon difference between new sales  of private and public bonds was 154.2 basis points in January, the  spread rose to 179.5 basis points at end-August, according to data  compiled by Bloomberg.
“Investors will probably ask for even higher premium on private bonds of risky companies,” Chen said.
The  ratio of delinquency to total private notes outstanding was 0.63%, more  than double a proportion of 0.26% in the public bond market, according  to China Chengxin International Credit Rating data.

More at: https://www.bloomberg.com/news/artic...d=fixed-income

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## Swordsmyth

As had been widely previewed in China's official financial press in recent days, on Friday the PBOC announced it would *cut  the required reserve ratio (RRR) for all banks by 0.5% effective Sept.  16 (and by 1% for some city commercial banks, to take effect in two  steps on Oct. 15 and Nov. 15), releasing 900 billion yuan ($126 billion)  of liquidity* in the PBOC's first broad _and_ targeted RRR cut since 2015, helping to offset the tightening impact of upcoming tax payments.
  While today's rate cut - *which was expected following the State Council meeting and ahead of the Oct.1 National Day Chinese holiday* -  was more than the previous cuts in January and May, which released 800  billion yuan and 280 billion yuan, respectively, the PBOC stated that  “China won’t adopt flood-like monetary stimulus” and that they will  continue “prudent” monetary policy to “keep liquidity at (a) reasonably  ample level" and will "strengthen the counter-cyclical adjustment" which  is basically gibberish for it will do whatever it sees appropriate.

  With the Chinese economy slowing drastically in recent months, with  various economic indicators at multi-decade lows, the RRR cut was aimed  at supporting demand by funneling credit to small firms and echoes the  earlier cuts this year. Indeed, as Bloomberg notes, China’s economy  softened substantially in August after poor results in July, and will  likely deteriorate further in the remainder of the year. Trade tension  between China and the U.S. expanded onto the financial front recently  after China allowed the currency to decline below 7 a dollar, prompting  the U.S. to name it a currency manipulator.

More at: https://www.zerohedge.com/news/2019-...ty-yuan-surges

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## Swordsmyth

*Chinese monetary authorities announced yesterday what will be for some of its banks a seventh round of “stimulus.”*  For the largest institutions, it will “only” be their sixth and the  first one since January 2019. The PBOC has decided it is time for more  RRR cuts. Effective September 16, the ratio all banks are required to  hold of reserves will be reduced by 50 bps; applying to certain city  banks, the decrease will be 100 bps.
*It sounds like a flood of stimulus,* enabling China’s  beleaguered financial system to utilize more of its own stored up  monetary resources. A lower RRR means they can put more of these  reserves, more of their money to work in the Chinese economy. That’s how  these measures are universally characterized. As you’ll see in every  news report, the claim 50 bps RRR is equal to unlocking about RMB 900  billion “liquidity.”
  While that may be technically true, _it is still a lie of omission._  What’s left out of the story is vastly more important. You are left  with the misimpression that this is an effective surplus of funds which  will be thrown on top of an otherwise static and stable condition. A net  increase.
_What’s really happening, and why RRR’s are a warning  rather than stimulus, is that the 900 billion is meant to hopefully  partially fill in a much bigger and more dynamic  funding/liquidity gap that already exists._
  This is both how and why come September 16 there will have been six  rounds of such “stimulus” (7 for small and medium banks) and still there  is a clear need for it. If it is stimulus it isn’t very effective. And  the reason isn’t China’s trade spat with the US, it is the massive  dollar hole which the Chinese just announced to the world they expect to  get even bigger over the coming months.
  We knew this was coming. How? Nothing more than overnight SHIBOR. As I wrote just a few weeks ago,  China’s central bank was losing its grip on the all-important overdraft  market. The RRR announcement is effective confirmation of the clear but  unconfirmed SHIBOR peg (which may ultimately function more like a  ceiling).
 Again, there is no confirmation nor will there ever be. In my own  opinion and analysis, I see China’s central bank getting backed further  into a corner and having been left few appealing options it is just  rerunning the playbook it used last time – even though it didn’t work  out so well four years ago. For that reason alone you have to wonder  just how few choices the PBOC has available.
  To me, a pegged overnight SHIBOR rate represents another serious  escalation in the eurodollar/RMB nexus, the great monetary squeeze  beyond the influence of any central bank. Not much good followed August  2015. China seems to be replaying a lot of August 2015 right down to its  distracting trivia.
*What that shows is how RMB liquidity was drying up all over again.*
  The sideways track to SHIBOR meant an escalation in this liquidity  fight. Something had changed toward the end of July which had meant the  central bank had to actively supply (via OMO’s) what the market no  longer would – despite those previous RRR’s and trillions of previously  unlocked RMB reserves. If the PBOC didn’t add this supply, the overnight  rate in all likelihood would’ve skyrocketed.
*We can only conclude something changed. A much bigger hole.*
  What the RRR’s are intended to accomplish this time is to make up for  what the PBOC is now reluctantly supplying. They don’t want to peg (or  put a ceiling on) SHIBOR. But it’s also gone on long enough that  officials know without some other means they’re otherwise stuck doing  this.
*And that’s before factoring what will surely be an even larger dollar gap over the coming months.* As I wrote last October, just before the global eurodollar landmine:
 The RRR cut signals that the reserve problem therefore dollar problem  is anticipated to grow worse. The PBOC is actually telling us that they  expect in the months ahead the same or perhaps bigger commitment to  “stepped up support.” CNY doesn’t need support if there is no worsening  “capital outflow” situation of retreating eurodollar funding.Within a month of writing that, the ticking clocks began. What that means as far as RMB is concerned is further constraint, constraint, constraint.
  There is no mystery in any of this, merely layers of misconceptions  piled one on top of another for no other reason than unexamined myths  and short-hands. Starting with effective global dollar liquidity. We  know right where China’s problem originates because you can trace it  back to the source using nothing other than the PBOC’s very own balance sheet:

*I’ve written many, many times over the years since 2014 how  it is China’s central bank which may be, probably is, the most accurate  indication of eurodollar supply and condition there is. You want to know  about dollars, look to the PBOC; actions, not press releases.* 
  A big and persistent dollar shortage is in actual practice what the  mainstream today writes about the Fed’s QT in theory. Bigger dollar  shortage means less dollar assets on the central bank balance sheet  which has to be balanced by lower liabilities; in China’s case both  currency issued and far more so bank reserves.
  The RRR’s are supposed to offset that massive hole in bank reserves  which only gets bigger the longer this goes. What SHIBOR shows us is  despite mainstream claims to the contrary this *isn’t* an exact science. Far from it, it is a haphazard, _ad hoc_ desperation toss because that’s all they have left in their toolkit. Fingers crossed, not mechanical precision.

  This is exactly what you see in overnight SHIBOR: bigger dollar  funding gap, less bank reserves, more RRR’s and an overnight rate that  is all over the place. Or it was, before “someone” stepped in before  August. Not only does it explain a lot about China’s economy, it fits  the trend in dollar market indications (curve distortions), as well.
*The real danger has always been bank hoarding; the PBOC  counting on its domestic banking system to make up in RMB what the  central bank can no longer supply and the banking system saying back to  them, thanks but no thanks.*


More at: https://www.zerohedge.com/news/2019-...ey-are-warning

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## CaptainAmerica

China will not implode. China will go to war...China is already setting expanded military bases outward into the south china sea illegally..... you better believe it they are going to go harder than Japan

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## Swordsmyth

> China will not implode. China will go to war...China is already setting expanded military bases outward into the south china sea illegally..... you better believe it they are going to go harder than Japan


China is in worse shape than Japan was.

I think they will go to war but it will be a civil war.

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## Swordsmyth

China's exports unexpectedly fell in August while imports shrank for a  fourth month, pointing to further weakness in the world's  second-largest economy and underlining a pressing need for more stimulus  as the Sino-U.S. trade war escalates.Beijing is widely expected  to announce more support measures in coming weeks to avert the risk of a  sharper economic slowdown as the United States ratchets up trade  pressure, including the first cuts in some key lending rates in four  years.
On Friday, the central bank cut banks' reserve requirements  for the seventh time since early 2018 to free up more funds for  lending, days after a cabinet meeting signalled that more policy  loosening may be imminent.
August exports fell 1% from a year  earlier, the biggest fall since June, when it fell 1.3%, customs data  showed on Sunday. Analysts had expected a 2.0% rise in a Reuters poll  after July's 3.3% gain.
That's despite analyst expectations that  looming tariffs may have prompted some Chinese exporters to bring  forward or "front-load" U.S.-bound shipments into August, a trend seen  earlier in the trade dispute.
Many analysts expect export growth  to slow further in coming months, as evidenced by worsening export  orders in both official and private factory surveys. More U.S. tariff  measures will take effect on Oct. 1 and Dec. 15.
Sunday's data  also showed China's imports shrank for the fourth consecutive month  since April. Imports dropped 5.6% on-year in August, slightly less than  an expected 6.0% fall and unchanged from July's 5.6% decline.
Sluggish  domestic demand was likely the main factor in the decline, along with  softening global commodity prices. China's domestic consumption and  investment have remained weak despite more than a year of growth  boosting measures.
China reported a trade surplus of $34.84  billion last month, compared with a $45.06 billion surplus in July.  Analysts had forecast a surplus of $43 billion for August.

China's trade surplus with the United States stood at $26.95 billion in August, narrowing from July's $27.97 billion.

More at: https://news.yahoo.com/1-chinas-augu...043207595.html

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## Swordsmyth

As the protests in Hong Kong drag on into their fifteenth week, Bloomberg reports that the city's tourism industry has taken its biggest hit since the 2003 SARS outbreak.
  Tourist arrivals in the city declined almost 40% in August from a  year earlier, according to Financial Secretary Paul Chan, who published  the figures in a blog post published Sunday.

  That’s the biggest yoy decrease in visitor numbers since May 2003,  when arrivals sank almost 70% in the midst of the disease outbreak that  ultimately claimed hundreds of lives in the city, according to data  compiled by Bloomberg from the Hong Kong Tourism Board.
*"Social issues in the past few months, especially the  continued violent clashes and blockading of airport and roads, have  seriously impacted Hong Kong’s international image as a safe city,*" Chan said in his post, which was written in traditional Chinese.
*"The most worrying thing is that the situation is not likely to turn around in the near future."*
  The city’s tourism, retail and hotel industries have been seriously  hard hit, Chan said. The occupancy rates of hotels in some districts  declined by more than half, while nightly rates decreased 40% to 70%.
  Many meetings and business trips have been postponed or moved to other places, he said.

  The protests have already had a serious impact on Hong Kong's  economy. Retail sales by value dropped 11.4% in July, the first full  month impacted by the protests, while sentiment among small businesses  has hit record lows.
  Meanwhile, Hong Kong’s economy contracted 0.4% during Q2 from the previous period, raising the risk of a recession.
  Based on figures from August 2018, a 40% drop would mean the city  received about 3.5 million visitors, the lowest level in more than seven  years.

https://www.zerohedge.com/news/2019-...-sars-outbreak

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## Swordsmyth

Indian External Affairs Minister Subrahmanyam Jaishankar on Monday  criticized China for what he described as one-sided trade policies,  casting doubt over the progress of negotiations for a pan-Asian free  trade agreement.
Speaking during a panel discussion in Singapore,  the minister said India remained skeptical over “unfair” market access  and “Chinese protectionist policies” that have created a significant  trade deficit between the two nations. India’s trade deficit with China  was $53.6 billion in the fiscal year ended March 2019.
“The big  concerns of India are of course, one, its relationship with China  because we have an enormous trade deficit with China,” Jaishankar said  in response to a question regarding the ongoing negotiations for  Regional Comprehensive Economic Partnership, or RCEP.
Negotiators  have expressed hope that RCEP -- which includes all 10 of Southeast  Asia’s Asean countries, as well as Japan, South Korea, Australia, New  Zealand, India and China -- would be delivered by the end of the year.  While ministers from the 16 participating countries reaffirmed their  commitment to reaching a deal this year following negotiations in  Bangkok over the weekend, it is unclear whether such a goal will be met.
Jaishankar  said he was unsure what was discussed in the latest round of  negotiations, but noted that India’s involvement would hinge on a  mutually equitable, depoliticized arrangement.
“RCEP at the end of  the day is an economic negotiation. It has a strategic implication, but  the merits of the RCEP outcome have to be economic,” said Jaishankar.  “It has to be sold for its strength and I think if that was more  self-evident to Indians I think you would get clearly a much stronger  resonance.”

More at: https://news.yahoo.com/india-critici...052358482.html

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## Swordsmyth

The prices Chinese firms pay factories for their goods fell last  month at the fastest pace in three years, official data showed Tuesday,  as slackening demand and the bruising US trade war drag on the economy.Consumer  prices were also broadly subdued and only supported by a surge of  almost 50 percent in the price of pork caused by African swine fever  that has ravaged the country's pig industry.
The producer price  index (PPI) -- an important barometer of the industrial sector that  measures the cost of goods at the factory gate -- dropped 0.8 percent  on-year in August, following a 0.3 percent drop in July.
A  slowdown in factory gate inflation reflects sluggish demand, while a  turn to deflation could dent corporate profits and drag on the world's  number two economy, which in turn could lead to a drop in prices  globally.
While the figure from the National Bureau of Statistics  (NBS) marked the second consecutive month of decline, it was slightly  better than the 0.9 percent fall forecast in a Bloomberg News survey.
Last month was the first time the PPI had fallen into negative territory since August 2016.
Petroleum  and natural gas mining, and coal and other fuel-processing sectors led  the drop, NBS official Shen Yun said in a statement, indicating weakness  in manufacturing.
However, consumer price index (CPI) -- a gauge  of retail inflation -- rose 2.8 percent last month, stabilising from  July and beating forecasts.
But while meat and egg prices rose as  traditional Chinese mid-autumn festival approaches, pork was the key  driver, shooting up 46.7 percent on-year owing to a shortage in supply  of the staple, Shen said.

More at: https://news.yahoo.com/chinas-factor...--finance.html

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## Swordsmyth

*Chinese Auto Sales Crash For The 14th Time In 15 Months, Falling 9.9%*

----------


## Swordsmyth

China’s outstanding total social financing (TSF) was 214.13 trillion  yuan ($30.31 trillion) at the end of July, up 10.7% from a year earlier,  the central bank said on Monday.TSF includes off-balance sheet  forms of financing that exist outside the conventional bank lending  system, such as initial public offerings, loans from trust companies and  bond sales.

More at: https://www.cnbc.com/2019/08/12/reut...-end-july.html

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## Swordsmyth

As  the U.S.-China trade war intensifies, an insurance company run by the  Chinese government is stepping in to support Chinese exporters,  providing low cost coverage and chasing down U.S. importers unwilling or  unable to pay mounting tariffs.China  Export & Credit Insurance Corp, known as Sinosure, has aggressively  increased its insurance of Chinese exporters since last year, according  to company sources and public data.
The  government-led aid is being carefully watched by trade experts who say  the practice may run afoul of World Trade Organization (WTO) commitments  or be challenged by the administration of U.S. President Donald Trump,  who has railed against what he says are China's unfair trade practices.
Sinosure  has boosted the number of new clients by thousands since last August,  often relaxing its standards to do so, company data and two Sinosure  sources familiar with the standards say.
In some cases, local governments are even paying the premiums, the two sources say.
The  insurance policies help cushion companies from the risk of export deals  collapsing because of elevated duties on goods flowing between the  world's No.1 and No.2 economies.


Last  year, as the trade war started to bite, Sinosure's claim payouts surged  more than 40% to nearly $2 billion, according to data from the company,  which is owned by an investment company controlled by the finance  ministry.
Payouts are poised to climb further this year with tariffs rising, according the company's internal estimates.
The  payments stem from what one Sinosure official said was a growing number  of U.S. buyers of Chinese goods who were unwilling or unable to pay  higher prices for shipped goods. That has left some cargoes stranded at  U.S. ports, and Chinese exporters on the hook.
"We're  fulfilling our role as a policy insurer, not a for-profit commercial  institution," said the official who spoke on the condition of anonymity  because he was not authorised to talk to the media.
The Ministry of Finance, the ultimate parent of Sinosure, did not immediately respond to Reuters' requests for comments.


Dan  Harris, a lawyer who represents U.S. importers, said he has received  increasing requests for help dealing with Sinosure demands for payment  on behalf of Chinese exporters.
"Before  the trade war, I might go ... four, five months without getting a  Sinosure email, now I'm getting four or five a week," said Harris,  managing partner at international law firm Harris Bricken.
Sinosure  did not respond to Reuters' requests for information about its push to  support smaller exporters, but recent figures - some public and others  disclosed to Reuters - provide an insight.
In  2018, the total sum insured by Sinosure jumped 16.7% to a record $612  billion, the fastest annual pace in six years. Premium income rose just  6%, reflecting the non-commercial nature of many of Sinosure's insurance  policies.
Meanwhile,  claims payouts surged 41% to nearly $2 billion, the highest in  Sinosure's 18-year history, as loss recovery slumped 32% from the prior  year, company disclosures show.
As  a result, Sinosure saw its net profit tumble 42% last year to 359  million yuan ($50.5 million). That represents a return on equity of just  0.9%, according to Reuters calculations.
A  Sinosure source said the situation has deteriorated in 2019 as the  trade war escalates, with the United States by far the biggest source of  risk.


In  the first half of the year, non-payment cases involving U.S. buyers  surged 80% in Fujian, hitting the region's fishing, textile and garment  industries, said Sinosure. It has partnered with the local government to  offer free insurance for small businesses.

Other  cities and regions have also partnered with Sinosure subsidise or  refund premiums for smaller exporters exposed to the U.S. tariffs, a  Sinosure source said.
Sinosure  said it paid $25,000 compensation to a fish exporter in Fujian province  this year, after a U.S. buyer refused to pay the full bill for $89,000  worth of yellow croaker fish due to tariff hikes and complaints about  the fish quality.

More at: https://finance.yahoo.com/news/trade...070812892.html

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## Swordsmyth

The world's brief infatuation with the idea of green shoots, or that a  recession may be avoided, suffered a head on collision with reality  after the latest dismal China data dump which was nothing short of a  disaster for the econo-bulls.
  In retrospect, it was all too clear, because just hours after China's  premier Li warned that maintaining growth of 6% or more is "very  difficult", Beijing decided to demonstrated in practice what the premier  meant, and slam the currency in the process, because just after 10pm,  China's yuan extended its early losses, testing down to the fix after  the bulk of China's economic data for August disappointed across the  board:

Industrial Production rose just 5.6% YTD YoY (below the +5.7% exp and down from +5.8% prior)Retail Sales rose just 7.5% YoY (below the +7.9% exp and down from +7.6% prior)Fixed Asset Investments rose just 5.5% YTD YoY (below the +5.7% exp and down from +5.7% prior)Property Investment rose just 10.5% YTD YoY (down from +10.6% prior)
All of tonight's data missed expectations with only the unemployment rate improving very modestly (falling from 5.3% to 5.2%).



Which sent the yuan lower...



More at: https://www.zerohedge.com/economics/...ta-disappoints

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## Swordsmyth

At the behest of the Communist Party leadership, Chinese  conglomerates and investor groups have this year transformed from  sometimes overeager spree buyers of foreign companies, real estate, and  art, into net sellers of global assets for the first time since Chinese  companies became big-time players on the global stage about a decade  ago, the FT reports.
  The shift comes as the Communist Party tries to tamp down on capital outflows as China's economy weakens *with reports suggesting that Beijing could report economic growth below 6% for 2019 and 2020.*

  Chinese companies *have agreed to sell about $40 billion in overseas assets so far this year, up from $32 billion for the whole of last year,*  according to data from Dealogic. At the same time, Chinese groups have  bought just $35 billion of overseas assets this year, making the country  a global net seller.
 Divestments in the US, where Chinese corporate buyers are now viewed  with increased scrutiny, have soared to over $26 billion this year, up  from just $8 billion for all of 2018.
  The data from Dealogic goes back to 2015, when Chinese companies  bought about $100 billion in overseas assets while selling only $10  billion to foreign buyers. However, *an FT analysis of Dealogic’s data indicates that China has been a net buyer of overseas assets since at least 2009.*Many of the Chinese-owned assets hitting the market this year were  purchased in 2016, the peak of Chinese firms' off-shore shopping spree.  That year, Chinese companies struck more than $200 billion in overseas  deals, while taking on extremely high levels of debt.
 *"There was a crescendo of outbound Chinese deals - a few that lacked industrial logic,"* said Raghu Narain, Asia Pacific head of investment banking at Natixis.* "The deals that were either funded by too much debt, lacking logic or subsequent actual synergies are unwinding now."*Two of the most high-profile Chinese acquirers during the boom have  become the biggest sellers at the behest of their overlords in Beijing.
 *Airlines-to-finance group HNA, for example, which bought  multibillion-dollar stakes in Hilton and Deutsche Bank in 2016 and 2017,  has offloaded at least $20 billion in assets since late 2017 after  facing a liquidity crunch in China.* HNA sold Swiss air services company Gategroup to RRJ Capital for $1.4 billion earlier this year.
  [...]
  Serial acquirer Anbang Insurance, which was taken over by the  government in 2017, has sold off much of its global portfolio, including  a group of hotels sold last week to Korea’s Mirae Asset for $5.8  billion.The decision to divest foreign assets was handed down from the party  leadership a few years back as the PBOC and China's other economic  authorities scrambled to shore up their dollar reserves and lower  corporate debt. Now is a particularly precarious time for Beijing, which  recently recorded the first default of a local government financing  company, adding to concerns that the Chinese economy could crumble like a  house of cards as it pumps credit back into the economy.


https://www.zerohedge.com/geopolitic...t-time-decades

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## Swordsmyth

Several unnamed Chinese local bank officials have expressed concern  about the central government's push for their institutions to pump  credit into manufacturing operations after the reserve replacement ratio  rose, noting that such lending would lead to more nonperforming loans  due to the slowdown in manufacturing, Caixin reported Sept. 24.

More at: https://worldview.stratfor.com/situa...-manufacturers

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## Swordsmyth

Hong  Kong hotel operators have called on the government to waive rents and  even allow properties to offer empty rooms on long-term leases, or for  sale, as a way of survival amid a steep decline in occupancy and rates  brought on by 16 weeks of protests in the city.

At  a new low of HK$71 (US$9.06) a night, some hotels are now cheaper than  subdivided flats in the city. Winland 800 Hotel in protest-hit Tsing Yi,  is offering that rate on weekdays through the Wing On Travel website.  It represents a decline of 65.7 per cent from its lowest rate of HK$207 a  night in March 2018.


The  monthly rate at the three-star, 800-room hotel, which has sea views, at  HK$5,980 for 30 nights – breakfast and wireless internet included  according to an advertisement – is cheaper than many subdivided flats.  One subdivided flat of 100 sq ft in Causeway Bay, for instance, recently  commanded a rent of HK$8,500 a month. Mexan Limited, the hotel’s listed  parent company, did not immediately respond to a request for comment.

“Certainly,  this year has been far more challenging than any other time for any  industry,” said Girish Jhunjhnuwala, founder and chief executive of  Ovolo Group, who has called for help for the local hospitality industry  “given the current economic downturn”, which has hit been “felt across  all corners of the city”.

More at: https://www.scmp.com/property/hong-k...ates-touch-us9

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## Swordsmyth

New data compiled by Bloomberg, warns that 2020 could be the year of meltdowns in China's domestic bond market. 
  The report said, "a looming wall of dollar debt," issued by borrowers  who are experiencing rapid financial deterioration, might have extreme  difficulty in repaying $8.6 billion of offshore bonds coming due next  year that have 15% yields.

  This equates to 40% of the total outstanding corporate dollar bonds  from China's most distressed companies comes to maturity right before  the 2020 US presidential election, and also, at a time when the global  economy could be in a trade recession. 


Morgan Stanley, in anticipation of economic turbulence next year, has  cut their holdings of riskier companies. MS said Asian high-yield  credit funds experienced outflows in August.
  Bloomberg notes below several issuers with bonds coming due next year that have stressed-level premiums: 

*Yida China Holdings*_. Calls to the property developer in Shanghai seeking comment on its financing outlook went unanswered._*Tewoo Group Co.*_ Calls to the state-linked trading group based in Tianjin, southeast of Beijing, also went unanswered._*Peking University Founder Group.*_ A  spokesperson for the technology services firm in Beijing said the group  has an ample credit line with lenders, with 62.5 billion yuan ($8.8  billion) untapped as of June, and cash of 45.3 billion yuan._*Oceanwide Holdings.*_ The developer based in Beijing declined to comment when reached by phone._
Bloomberg also said half of the stressed companies are in property development.  
  MS research warned that China's high-yield dollar-debt issuers have higher default risks than peers in other countries. 
  Kelvin Pang, head of the MS' Asia credit strategy team in Hong Kong,  told clients last month that default risks are higher with these  companies "because of relatively short bond-maturity profiles -- at  close to 2.5 years."  
  Pang said high-yield issuers' loans maturities are very short in  duration, at one to three years. It means that "China corporates are  extremely sensitive to credit conditions," and with a global trade  recession expected to strike by the 2020s, all eyes are on China ahead  of a "looming wall of dollar debt" due next year. 

More at: https://www.zerohedge.com/markets/lo...ic-bond-market

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## Swordsmyth

In what appears to dismiss President Trump's claims that _a deal is a lot closer than you think_, Bloomberg reports that the White House is said to support a *review of investment limits for China*.
  Among the options the Trump administration is considering:

 *delisting Chinese companies from U.S. stock exchanges and* *limiting Americans’ exposure to the Chinese market through government pension funds.* 
Exact mechanisms for how to do so have not yet been worked out  and any plan is subject to approval by President Donald Trump, who has  given the green light to the discussion, according to one person close  to the deliberations.
  Bloomberg adds that there is reportedly *no timeline* for a Chinese capital restriction action.
  The market did not like that...

  Yuan is also tumbling...



Alibaba shares plunged...

  But there are others...



More at: https://www.zerohedge.com/geopolitic...io-flows-china

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## Swordsmyth

As the violence in Hong Kong escalates with every passing week,  culminating on Friday with what was effectively the passage of martial  law when the local government banned the wearing of masks at public assemblies,  a colonial-era law that is meant to give the authorities a green light  to finally crack down on protesters at will, one aspect of Hong Kong  life seemed to be surprisingly stable: no, not the local economy, as HK  retail sales just suffered their biggest drop on record as the continuing violent protests halt most if not all commerce:


  We are talking about the local banks, which have been remarkably  resilient in the face of the continued mass protests and the ever rising  threat of violent Chinese retaliation which could destroy Hong Kong's  status as the financial capital of the Pacific Rim in a heart beat, and  crush the local banking system. In short: despite the perfect conditions  for a bank run, the locals continued to behave as if they had not a  care in the world.
  Only that is now changing, because one day after a junior JPMorgan banker was beaten in broad daylight by the protest  mob, a SCMP report confirms that the social upheaval has finally  spilled over into the financial world: according to the HK publication,  the local central bank, the Hong Kong Monetary Authority, was forced to  issue a statement warning against a "malicious attempt to cause panic  among the public" after rumors were spread online about the possibility  of the government using emergency powers to impose foreign-exchange  controls.

  And while the de facto central bank stressed that the banking system  remained robust and well positioned to withstand any market volatility,  some of the statistics it provided gave a rather troubling impression:  the monetary authority said that not only were more than 10% of 3,300  ATMs damaged and could not function, *but that banks were negotiating with logistics firms to refill cash machines as 5% of them had run out of money,* adding that banknote delivery was affected by the closure of shopping malls and MTR stations.

  Will this be enough to prevent a bank run on the remaining ATMs? The  answer will largely depend on what happens in the next 24-48 hours in  Hong Kong, although the signs are grim.

More at: https://www.zerohedge.com/geopolitic...c-among-public

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## Swordsmyth

*China Hit by EU Tariffs as High as 66%*

----------


## Swordsmyth

China's exports in September fell 3.2% from a year earlier, customs  data showed on Monday, hurt by the intensifying Sino-U.S. trade war and  weakening global demand.Analysts polled by Reuters had expected exports would decline 3%, after a 1% drop in August.
Imports  in September fell 8.5% from a year earlier, more than a predicted drop  of 5.2% and compared with a 5.6% contraction in August.

More at: https://news.yahoo.com/china-sept-ex...030231239.html

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## Swordsmyth

China's producer prices deflated for the 3rd straight month, slumping  1.2% YoY - the biggest deflationary impulse since July 2016 - but,  thanks to the explosion in pork prices (as 'pig ebola' spreads), Chinese  consumers are facing the worst inflation since 2013.

 	China Sept CPI +3.0% YoY (2.9% exp and 2.9% prior) 	China Sept PPI -1.2% YoY (-1.2% exp and -0.8% prior)



 *“The return to PPI deflation since July is not only acting as  a drag on manufacturing investment, already under stress from  U.S.-China trade tensions and supply-chain relocation, but also poses a  major risk for onshore corporate debt refinancing,”* Bo Zhuang, chief China economist at research firm TS Lombard, said before the data.
  “Sustained PPI deflation, where the monthly rate remained below -2%  for more than three to six months, would be a likely catalyst for the  reversion to old-style credit stimulus.”The biggest driver of China's consumer price inflation was  food prices, which rose 11.2% (highest since Oct 2011), thanks to  pork prices surging 69.3% YoY - the biggest spike since 2007.



More at: https://www.zerohedge.com/economics/...lation-deepens

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## Swordsmyth

For months, pundits have been looking at China's official data - be  it the PBOC's reserve data or SAFE's monthly flow report - for  indication that capital flight is picking up again as it did in 2015 in  the aftermath of the first yuan devaluation, and so far the data has  refused to validate predictions that Chinese depositors are quietly  pulling their money from China's financial system.

  Does this mean that Beijing has been successful in implementing  draconian controls on outbound foreign investment and other capital  movements to lock the front door through which money used to leave  China.
  That's one possibility. However, as the WSJ notes,  instead of using the front door, Chinese capital is increasingly  "walking through the back door" following the recent sharp devaluation  in the yuan, which has slumped 6% against the dollar since late April,  and 10% since mid-2018; of course should the back door open any wider  Beijing will find itself again forced to sell down big parts of its  currency reserves to avoid a panic. Worries about cracks in currency  fortress China are another reason Beijing is likely to remain wary of  aggressive monetary stimulus.
  It's also why China - the country where economic data is anything but  what is represented by the government - has no qualms about fabricating  data to refute a worst case scenario that would unleash a  self-fulfilling prophecy leading to more devaluation and more capital  flight.
  And yet, despite Beijing's best efforts at misdirection - and  outright data fabrication - there is a relatively simple way to keep  track of what is really happening with China's fund flows behind the  scenes. As the WSJ notes, the relevant figure to track is *China’s "errors and omissions" line in its balance of payments.* 

  This number represents the residual of the main BOP accounts  registering trade and investment flows—in other words, capital that has  moved across China’s borders without being documented. An equation  "plug."

  Whereas in most countries this line item is relatively small, in  China, since 2014 when Beijing decided to stop appreciating the yuan  against the dollar, it has become persistently and mysteriously large  and negative" with analysts at Rhodium Group and others long suspecting  this item represents undocumented capital flight.
  And while this shadow capital flight moderated in 2018, the trend  recently became even more striking, as "errors and omissions" hit a  record first-half high of $131 billion in 2019, the WSJ notes citing  Gene Ma of the Institute of International Finance, much larger than the  first-half average of $80 billion during the last period of big capital  outflows in 2015 and 2016.
  On the surface, this suggests that _true_ capital  flight is now twice as large as what was observed after the 2015  devaluation, and indicated that while measures instituted a few years  ago to limit capital flight have appeared effective, China remains  vulnerable to rising outflows through unofficial channels. Furthermore,  the country has yet to report its third-quarter figures, following the  big yuan depreciation in early August, when it dipped below 7.00 against  the dollar for the first time in a decade.

More at: https://www.zerohedge.com/geopolitic...ws-are-soaring

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## Swordsmyth

Auto sales in China have fallen for the 15th month out of 16 months in September. *It's the "worst slump in a generation"*, according to Bloomberg, as the key Asian market continues to be the poster child for the global automotive recession. 

*The market fell 6.6% to 1.81 million total units*,  according to the China Passenger Car Association. The auto industry  continues to be weighed down by a slowing global economy, the trade war  and stricter emissions rules. The China Association of Automobile  Manufacturers is forecasting a drop in vehicle deliveries to dealers in  2019, despite China trying several types of stimulus to drum up demand.

  Both local manufacturers and global manufacturers have experienced these headwinds in China.
  General Motors said late last week that third quarter deliveries in  China were down 18% and local Chinese manufacturer BYD said sales were  lower in September by 15%. 
  Additional data from Marklines  shows that names like Mitsubishi, Mazda and Nissan continued mid-single  digit declines, while Toyota and Honda were able to (barely) buck the  trend. 



More at: https://www.zerohedge.com/personal-f...toric-collapse

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## Swordsmyth

Golden Week, a seven-day Chinese holiday, is *traditionally a peak period for home sales.* 
*This year, sales plummeted.*

  The South China Post reports ‘Golden Week’ Property Sales Plunge in Major Chinese Cities.
 Property sales in China’s major cities saw one of their worst “golden  week” holidays in years, as buyers held back amid a slowing economy and  tight restrictions on mortgage loans.
*Sales of new homes in Beijing dropped to their lowest level since 2014* during the week following the National Day holiday, according to data from the property information portal Zhuge.com.
*By area, sales of new homes in Shanghai plummeted 86 per cent  to 5,000 square metres, while the capital saw a 92 per cent plunge to  2,000 sq metre,* according to data from Centaline Property.
  Clement Luk, a director for east China at Centaline Property, said  the home-buying mood has been dampened by the tightening of mortgage  lending and the prolonged US-China trade war that discouraged spending.
  “People do not want to commit in big investment now, like purchasing  any homes, as market sentiment has cooled quickly since March,” he said.  “Most owners prefer travelling during golden week holiday instead.”
  “Deals are increasingly difficult to conclude unless owners are  willing to cut selling prices at big discounts,” said Guo Yi, chief  analyst at Beijing-based property consultancy Heshuo Institute.*Beijing Dilemma*  Beijing faces the dilemma of all  speculative markets: because most real estate buying is now driven by  expected price increases, when prices credibly stop rising, buyers  disappear and prices begin to fall. Price stability isn't a real option.https://t.co/quNKXtC8qX via @scmpnews
 — Michael Pettis (@michaelxpettis) October 8, 2019*When property speculation ends, property bloodbaths begin.*


https://www.zerohedge.com/markets/sh...86-golden-week

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## Swordsmyth

Retail rents in Hong Kong, among the most expensive in the world, fell  sharply in the third quarter, property consultancy CBRE said on Tuesday,  following anti-government protests that have pushed shop sales to a  record low.High  street retail rents fell by 10.5% in the July-Sept quarter compared to  the previous quarter, CBRE said, the sharpest quarterly decline since  the first quarter of 1998 at the time of the Asian financial crisis.
Overall high street rents are likely to decline by another 5-10% over the remainder of 2019, the consultancy said.


The  landlord of an 11,600 square foot (1,078 sq m), three-storey shop space  in Causeway Bay, a prime shopping district, has slashed rent by more  than 30 percent, according to realtor Midland IC&I.
The  space will be leased for a monthly HK$480,000 ($61,196) to a claw crane  arcade this month, down sharply from the HK$700,000 charged from the  home appliance chain Fortress before that lease expired last October.
The protests have taken a heavy toll on tourism and consumer spending.
"There's  very few rental transactions; people are not making offers, they're  pessimistic about the outlook and want to observe more," said Daniel  Wong, CEO of Midland IC&I.


A  Midland survey published last month showed vacancy rates in Hong Kong's  four core shopping districts rose only slightly to 6.5% in the third  quarter, up from 5.6% a year ago.
The  realtor expected rents for core district street shops to decline  10%-15% in the second half, and the vacancy rate to rise to up to 8%-9%  next year.
The  government said last week at least 100 restaurants have closed in the  past few months, and has repeatedly urged landlords and property  developers to offer rent subsidies to retailers and food and beverage  businesses. 

More at: https://finance.yahoo.com/news/hong-...071857405.html

----------


## Swordsmyth

It's that time of the month again... when China drops all its  heavy-hitting macro-economic data (goal-seeked or not - allegedly) with  expectations for slowing industrial production and overall economic  growth (but a bounce in retail sales).
  Recent aggregate macro data has been disappointing as China's credit impulse (despite every effort) has failed to inspire...



The *Chinese goalseek-o-tron* appears out-of-order tonight, when moments ago Beijing reported that China's Q3 GDP rose just *6.0% YoY,* below the 6.1% consensus had expected - and the *lowest since 'modern' records began 27 years ago* in 1992, dipping below even the financial crisis low of 6.4%.



More at: https://www.zerohedge.com/geopolitic...new-record-low

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## Swordsmyth

A darkening outlook for China's economy continues to materialize week by week.
  New data from commercial property group CBRE warns the country's  office vacancy rate has just surged to the highest since the financial  crisis of 2007–2008, first reported by Bloomberg.
  CBRE said the vacancy rate for commercial office space in 17 major  cities rose to 21.5% in 3Q19, a level not seen since the global economy  was melting down in 2008.
  Sam Xie, CBRE's head of research in China, said the recent "spike" in  vacancies is one of the worst since the last financial crisis.

  Catherine Chen, Cushman & Wakefield's head of research for Greater China, told Financial Times that soaring commercial office vacancies in China was mainly due to dwindling demand, but not oversupplied conditions.
 "Contributing factors included slower expansion of co-working  operators and financial services companies, and a general cost-saving  strategy adopted by most tenants given ongoing trade tensions and  economic growth slowdown," she added.Henry Chin, head of research for Asia Pacific at CBRE, told Financial  Times that macroeconomic headwinds relating to the trade war between  the US and China were also a significant factor in rising office  vacancies.
  As shown in the Bloomberg chart below, using CBRE data, Shanghai and  Shenzhen had the highest office vacancies than any other city, and both  had around 20% of office spaces dormant.



More at: https://www.zerohedge.com/economics/...onomic-turmoil

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## Swordsmyth

A new report from Centaline Property,  a research firm providing private data on the property market in Hong  Kong, has shown property prices are experiencing their worst downturns  since late last year during the global growth scare, which sent global  equity markets crashing.
  Centaline's report said property prices in the city have plunged for  eight straight weeks, mostly tied to an extreme economic deceleration in  the region as macroeconomic headwinds continue to increase.
  The Central Plains City Index (CCL) is a monthly leading index that  tracks property prices in Hong Kong. Regional investors use CCL to track  the changing trend of the Hong Kong property market.

  As a whole, the *CCL Leading Index* has tumbled to 180.32, -.36% w/w, -1.62% m/m, and has recorded the lowest level in 27-weeks.

  The *CCL Leading Index for Large-Scale* housing in Hong Kong printed at 181.44, -.32% w/w, -1.70% m/m, and now at a 28-week low.

  The *CCL Leading Index for Small and Medium-Sized Units* printed 180.26, -.37% w/w, -1.71% m/m, and now at the lowest levels in 27-weeks. 

  The three major leading indexes for Hong Kong property prices (above)  slid for eight consecutive weeks, falling -4.29 %, -4.70%, and -4.54%,  respectively.


More at: https://www.zerohedge.com/economics/...straight-weeks

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## Swordsmyth

The latest growth (and trade) figures suggest China's economy is slowing even more as we enter 4Q. In fact, according to Lipper Alpha Insight's China Momentum Indicator (CMI) 2.0, *the latest China GDP was likely at 4.2%, a third below the official print.*

  Lipper Alpha Insight told their clients that the slowdown in China's  economy isn't a "consequence of rebalancing; China abandoned its  half-hearted attempt to reform the economy in a bid to cushion the  slowdown last year. Recent measures of consumer appetite have reinforced  this message. Retail sales, bank lending to households and aviation  passenger numbers have all slowed since the end of 2017 (when our CMI  last peaked), despite being key indicators of a more consumer-led  economy." 

  Lipper Alpha Insight adds that while the "pursuit of growth at the  expense of reform is the wrong medicine; it will work for a time, but  allocative inefficiencies and diminishing returns mean that unless  something changes *China is destined for perennially lower economic growth*.  This idea is reflected in our forecast, with the path into the future  expected to be one that winds to and fro, with key events likely to  intensify China's prioritization of growth, regardless of the long-term  cost." 


With growth estimates in China missing the mark in 3Q, it's likely  slippage below 6% could be seen in 4Q, as there is no indication that  China, nor the global economy is turning up at the moment. There are  some positive factors when it comes to the recent trade truce, or at  least that's what the market believes. Still, as we have repeatedly  discussed, *the global slowdown didn't start because of the trade  war but due to residual problems within China's massively overlevered  economy,* so any resolution will likely only boost global growth for a brief period. 
  Bloomberg data shows China's full-year expansion for 2019 to come in around 6.2% and will slow to 5.9% in 2020.
  China can cut interest rates and unleash higher doses of monetary policy. But the problem China is running into today, as explained in our report Sunday night, is that monetary stimulus is becoming less effective than ever before. 
  As the world awaits the upcoming Politburo meeting for economic  clarity and a medium-term outlook from Chinese leaders, China's economy  is rapidly deteriorating and will likely fall underneath 6% in the  quarters ahead, and could even register full-year growth rates for 2020  under 6%. 

More at: https://www.zerohedge.com/economics/...wth-sub-6-2020

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## Swordsmyth

China’s $13 trillion economy is slowing and indicators showing that  range from freight shipments to factory power generation and from  employment to expenditures on entertainment. 

China releases gross domestic product data on Friday, a key indicator  for global growth since even small changes in China’s economic  performance can have ripple effects for other major economies. 
Economists  expect China’s growth has slowed to near its lowest since 1990 because  of the escalating trade conflict with the United States and weakening  domestic demand. That slowdown appears to be deepening despite a  weakening currency and steps by Beijing to provide stimulus, including  cuts in taxes and fees equivalent to about $282 billion. 













More at:  https://uk.reuters.com/article/us-ch...-idUKKBN1WW20Q

----------


## Swordsmyth

Bloomberg  outlines a significant problem. Since the Chinese overpaid for many  foreign companies in the last several years, volatile markets across the  world have made it impossible at the moment to sell for the right  price.
  Since the ability to offload some of these companies through public  markets has shut in 2019, one needs to look at the IPO implosion in the  US, as these companies are now trying to reduce their debt piles, which  is an acknowledgment that bad times are ahead.
  Ferretti SpA, an Italian superyacht maker, owned by China's  SHIG–Weichai Group, shelved its IPO last week. Ferretti blamed  macroeconomic headwinds for the dealy, as the IPO was seen as a way for  SHIG–Weichai Group's to cash out of its position in the company.


Since the trade war began a little over 15 months ago between the US  and China, the Chinese have been selling assets across the world to  build liquidity as domestic capital controls become tighter.
The global IPO and M&A markets are slowing,  something we recently highlighted, has made it much more difficult for  Chinese firms to sell foreign companies and assets in 2H19.
 "It's a big process of adjustment," Mark Webster, managing director  at BDA Partners in Shanghai, told Bloomberg in a phone interview. "Some  Chinese companies made overseas acquisitions at the top of the cycle and  ended up overpaying for assets that did not make a lot of strategic  sense. They are now finding it challenging to offload those businesses  at fair values."Another example of Chinese firms attempting to liquidate companies is  PizzaExpress Ltd., a UK casual dining chain acquired by Chinese private  equity firm Hony Capital in 2014.


Sources told Bloomberg that PizzaExpress had hired a financial  adviser to prepare debt talks with creditors. There's also a possibility  that advisors are preparing the company for a sale.
  China's HNA Group Co. recently attempted to dump its stake in Avolon  Holdings Ltd. for $8.5 billion, a deal that has yet to close.
  Data compiled by Bloomberg shows the volume of Chinese outbound deals  dropped to $59 billion so far this year, down 13% over last year, and  well off 2016 high.
  It's only a matter of time before Chinese firms become forced sellers  of Western companies, only to realize that there will be no buyers at  the valuations they paid several years ago, as forced selling will then  crush valuations.

https://www.zerohedge.com/markets/ne...tern-companies

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## Swordsmyth

The South China Morning Post reports China Doubles Value of Infrastructure Project Approvals to Stave Off Slowdown.
 The National Development and Reform Commission (NDRC) has approved 21  projects, worth at least 764.3 billion yuan (US$107.8 billion),  according to South China Morning Post calculations based on the state  planner’s approval statements released between January and October this  year.
  The amount is more than double the size of last year’s 374.3 billion  yuan (US$52.8 billion) in approvals recorded over the same period, which  included 11 projects such as railways, roads and airports.
  Local governments have been under increasing pressure from Beijing to  support the economy, but they have less budget room due to lower tax  revenues after the central government over the past year ordered  individual and business tax cuts.
  To fill the gap, Beijing has allowing local governments to sell more  special purpose bonds, whose proceeds can only be used to fund  infrastructure projects. At the beginning of this year, the Ministry of  Finance raised the quota for special bonds to 2.15 trillion (US$302  billion) from 1.35 trillion (US$190 billion) last year. And when local  governments came close to exhausting their annual quota set this autumn,  the central government brought forward a portion of their 2020 quota so  they could continue to raise funding for new projects.*Infrastructure Urgency*  Michael Pettis, Finance Professor, Peking University, and author of  the China Financial Markets website has an interesting take  infrastructure projects.

*Allocation of Money*  To fund the projects China Cuts Banks' Reserve Ratios, Frees up $126 Billion for Loans.
 Analysts had expected China to announce more policy easing measures  soon as the world’s second-largest economy comes under growing pressure  from escalating U.S. tariffs and sluggish domestic demand.
  The People’s Bank of China (PBOC) said it would cut the reserve  requirement ratio (RRR) by 50 basis points (bps) for all banks, with an  additional 100 bps cut for qualified city commercial banks. The RRR for  large banks will be lowered to 13.0%. The PBOC has now slashed the ratio  seven times since early 2018. The size of the latest move was at the  upper end of market expectations, and the amount of funds released will  be the largest so far in the current easing cycle.
  The broad-based cut, which will release 800 billion yuan in  liquidity, is effective Sept. 16. The additional targeted cut will  release 100 billion yuan, in two phases effective Oct. 15 and Nov. 15.*Real Growth*  With real growth at probably half  reported levels – which measure growth in activity, whether or not it is  wealth enhancing – lower-than-expected growth rates are not a bad  thing: they mean credit growth, while still too high, is slowing.https://t.co/s8aCyK2SOQ via @scmpnews
 — Michael Pettis (@michaelxpettis) October 20, 2019 World Bank has just cut its GDP  forecast for China to 6.1% in 2019, 5.9% in 2020, 5.8% in 2021. For this  to happen, debt-to-GDP ratios would have to rise by at least 12-15  percentage points, which I think is very unlikely. I'll bet 2021 growth  is below 5% (still way too high). https://t.co/1M5ljprfJW
 — Michael Pettis (@michaelxpettis) October 10, 2019

*Chinese Local Government Funds Run Out of Projects to Back*  On October 16, the Fiancial Times reported Chinese Local Government Funds Run Out of Projects to Back.
 “_There are not many economically viable projects for us to take on,” an official at Sichuan Development told the FT._ 
*“We have plenty of bridges and roads already.”*


More at: https://www.zerohedge.com/economics/...bitcoin-mining

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## Swordsmyth

Hong Kong has fallen into recession, hit by five months of  anti-government protests that erupted in flames at the weekend, and is  unlikely to achieve any growth this year, the city's Financial Secretary  said.Black-clad and masked demonstrators set fire to shops and  hurled petrol bombs at police on Sunday following a now-familiar  pattern, with police responding with tear gas, water cannon and rubber  bullets.
TV footage showed protesters, who streamed into the  Kowloon hotel and shopping artery of Nathan Road on Sunday, setting fire  to street barricades and squirting petrol from plastic bottles on to  fires at subway entrances amid running battles with police.
At one station, activists rolled a flaming metal barrel down a long staircase towards police below.
"The  blow (from the protests) to our economy is comprehensive," Paul Chan  said in a blog post, adding that a preliminary estimate for  third-quarter GDP on Thursday would show two successive quarters of  contraction - the technical definition of a recession.
He also said it would be "extremely difficult" to achieve the government's pre-protest forecast of 0-1 % annual economic growth.


Tourists numbers have plummeted, with visitor numbers down nearly 50 percent in October, a decline Chan called an "emergency".
Retail  operators, from prime shopping malls to family-run businesses, have  been forced to close for multiple days over the past few months.
While  authorities have announced measures to support local small and medium  seized enterprises, Chan said the measures could only "slightly reduce  the pressure".

More at: https://news.yahoo.com/1-hong-kong-e...071812163.html

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## Swordsmyth

Chinese oil and gas giant PetroChina reported  on Wednesday a 58-percent plunge in its third-quarter profit as lower  oil prices, fierce domestic fuel competition, and slowing gas demand  growth weighed on earnings.
PetroChina booked a net profit of  US$1.25 billion (8.83 billion Chinese yuan) in Q3, down by 58.4 percent  from the same period last year, missing analyst estimates.  Revenues in the third quarter were slightly up—1.8 percent— from a year  ago, but they were still below expectations, pushing the company's  stock price down by 4.33 percent.

More at: https://oilprice.com/Latest-Energy-N...gs-Report.html

----------


## Swordsmyth

According to Bloomberg, more than 2 trillion yuan ($283 billion) of local-government notes will mature in 2020, *a record and 58% more than this year’s level.* This  means fresh debt to refinance upcoming maturities will start hitting  the market soon, with a the southern province of Guangdong expected to  sell notes as early as November.

  This is happening as China's 10-year yield rose 3 basis points to  3.31%. the highest since late May, while the cost on 12-month interest  rate swaps jumped 5 basis points to 2.92%. The yield on China  Development Bank’s 3-year bonds due January 2022 rose 10 basis points to  3.25%.
  Despite trading in a narrow range, China’s government bonds have been  sliding for nearly two months, starting around the time a "growth  shock" hit US rates and sparked the infamous quantastrophe, with the  10-year yield hitting the highest since May as selling momentum  accelerated. Naturally, a flood of new supply will only exacerbate the  weakness, especially as real, inflation-adjusted yields are barely above zero, a rarity for emerging markets.

  “The large amount of supply that will be rolled over will weigh on  China’s sovereign bonds,” Ken Cheung, chief Asia FX strategist at Mizuho  Bank, told Bloomberg. The risk only grows when one considers the recent  surge in food inflation as a result of "pig Ebola", coupled with lower  expectations of central bank stimulus.
  To avoid a panic issuance scramble, Deputy Finance Minister Xu  Hongcai said in September that China will grant part of a special bonds  quota in advance to ensure that the funds raised can be used early in  the year, Bloomberg reported, noting that so-called "special bonds have  mostly been used for infrastructure spending, and the national limit  could be raised from 2.15 trillion yuan."
  Earlier, in June, the State Council expanded the sectors that funds  raised via the special bonds can be put toward. For 2020, they will  include transport, energy, agriculture and forestry, vocational  education and medical care. Overall fixed-asset investment has slowed  this year amid pressure from the U.S. trade war.
  Of course, there is only so much selling that the PBOC can take  before it has to intervene, which is why so many China watchers have  been stumped by the central bank's lack of willingness to intervene so  far.
  Beijing’s decision to avoid conducting aggressive stimulus measures -  even as China's growth engine sputters, and the economy grows at the  slowest pace since the early 1990s - has spooked bond investors. The  central bank has held off from adding liquidity this week, instead  allowing large short-term cash injections to mature. That’s effectively  drained 500 billion yuan from the financial system. Meanwhile, China's  credit impulse which previously pulled the entire world out of a  recessionary ditch, has barely pushed off the cycle lows.

  Some analysts said the central bank could instead use a targeted tool  to inject one-year cash, which it refrained from doing Wednesday. That  said, there is also a limit how aggressive the PBOC can get: soaring  consumer prices, fueled by the surging cost of pork, are seen capping  how much liquidity Beijing can provide without further stoking  inflation.
  Which means that very soon, the PBOC will be forced to choose: risk  runaway bond yields, tumbling risk prices and an even faster slowdown in  the economy, or stimulate the economy, and watch as the yuan tumbles as  inflation surges even more.

More at: https://www.zerohedge.com/markets/ch...aturity-deluge

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## Swordsmyth

Early on Thursday, China's National Bureau of Statistics reported  that in October, China's manufacturing PMI slumped deeper into  contraction, dropping from 49.8 to 49.3, not only below the 49.8  consensus estimate, but also below the lowest sellside estimate (the  range was 49.5-50.5). Worse, the Non-manufacturing PMI, which many had  ignored for months because it was so deeply into expansionary territory,  tumbled sharply, and after its biggest drop in almost a year, dipped to  52.8 from 53.6, and is now just shy of the lowest print since the  financial crisis.

  It gets even worse: whereas the contraction for large cap companies  was modest, at just 49.9, down from 50.8, mid cap companies were worse,  at 49.0, while small caps were dismal, at a paltry 47.9, down from 48.8.
  Broken down by components, almost every index posted a decline, with  the exception of the worst one, employment, which posted a modest  increase:

Production  50.8, down from 52.3New Orders 49.6, down from 50.5Employment 47.3, up from 47.0




More at: https://www.zerohedge.com/economics/...st-crisis-lows

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## Swordsmyth

The unraveling and coming debt crisis in China  will take a series of corporate debt defaults to spook investors, and  perhaps, the first series of defaults has already started. 
  The latest causality is Shandong-based steelmaker Xiwang Group Co.,  who defaulted on a $142 million bond last week, has sparked contagion  fear with other companies in the same region, reported Bloomberg.

  Then on Wednesday, Shandong Sanxing Group Co.'s 2021 dollar bond and  China Hongqiao Group Ltd.'s dollar bond due 2023 plummeted to their  lowest levels ever as contagion from Xiwang's default continued to  frighten investors. 
 "Xiwang's default onshore has raised concerns that other privately  owned enterprises in Shandong, particularly those from the same  locality, may have been associated with the firm," said Wu Qiong,  executive director at BOC International Holdings Ltd. in Hong Kong, who  spoke with Bloomberg. China's onshore credit markets continue to erupt with stress after 2019 defaulted bonds have already hit 2018 highs.

  Fitch Ratings said the default rate of all Chinese issuers in the  first three quarters of this year was 1.03%. By historical standards,  the default rate is much higher than last year. Most of the firms  skipping out on bond payments were private entities. 
  The cash crunch comes at a time when overleveraged companies in China  are reeling from a global synchronized slowdown and a controlled  deleveraging period by the government to create a soft bottom in the  economy. 
 "Defaults are likely to continue rising, as many medium- and  small-sized private firms are facing significant refinancing pressures,"  Zhang Shuncheng, associate director of corporate research at Fitch,  said in an interview. "Private companies suffer from many problems in  their own operations, not to mention the impact from the slowing economy  and tight credit environment."China's corporate sector downfall is overleverage, taken on during  the global synchronized recovery. Now, a synchronized decline, these  firms are starting to deleverage, adding to the downward pressure in the  economy. 

More at: https://www.zerohedge.com/markets/cr...ontagion-fears

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## Swordsmyth

First it was Baoshang Bank , then it was Bank of Jinzhou, then, two months ago, China's Heng Feng Bank with  1.4 trillion yuan in assets, quietly failed and was just as quietly  nationalized. Today, a fourth prominent Chinese bank was on the verge of  collapse under the weight of its bad loans, only this time the failure  was far less quiet, as depositors of the rural lender swarmed the bank's  retail outlets, demanding their money in an angry demonstration of what  Beijing is terrified of the most: *a bank run.* 
  Local business leaders, political cadres and banking executives  rallied Thursday at the main branch of Henan Yichuan Rural Commercial  Bank, just outside the central Chinese city of Luoyang, where they stood  one by one before a microphone to pledge their backing for the bank, as  smiling employees brandished wads of cash before television cameras to  demonstrate just how much cash, literally, the bank had.
  It was China's latest, and most desperate attempt yet to project  stability and reassure the public that all is well after rumors spread  that the bank’s chairman was in trouble and the bank was on the brink of  insolvency. However, as the WSJ reports,  it wasn’t enough for 31-year-old Li Xue, who showed up for the third  day Thursday to withdraw thousands of yuan of her mother’s life savings  after hearing from fellow villagers that Yichuan Bank - which is the  largest lender in Yichuan county by the number of branches and capital,  and it is also a member of PBOC’s deposit insurance system, according to  the local government - was going under.

Just like any self-respecting Ponzi scheme, the bank's branch  managers tried to persuade her to keep her money with them until March,  when her mother’s three-year deposits would mature, yielding more than  10,000 yuan in interest. And then, just like any Ponzi scheme, to  sweeten the offer, the bank managers also offered her even  higher-yielding products, plus supermarket gift cards, just to keep her  money there..
*"Our bank is state-backed, and your money is insured by deposit insurance,"* one female manager told her, but Ms. Li refused, her confidence in the state's lies crushed.
  “We really can’t afford to lose the money,” she said.
  The bank run at Yichuan Bank, located in China's landlocked province  of Henan, makes it at least the fourth bank that authorities have rushed  to rescue this year. It won't be the last.

More at: https://www.zerohedge.com/markets/ch...udden-bank-run

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## Swordsmyth

Despite China's surprise surge in Caixin Manufacturing PMI (to its  highest since Dec 2016), Services were expected to show a modest decline  which it did (down from 51.3 to 51.1).
*Note that the only one of the four PMIs to rise was the  government-sponsored manufacturing index - massively bucking the trend  of the rest...*



Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:
  “The Caixin China General Services Business Activity Index dipped to 51.1 in October from 51.3 in the previous month, *marking the slowest expansion in eight months amid subdued market conditions.* 
 1) Demand across the services sector grew at a reduced pace, with* the gauge for new business falling to the lowest level since February*. The measure for new export business picked up slightly.
  2) While the job market expanded at a weaker clip, with the  employment gauge falling from the previous month’s recent high, the  measure for outstanding business rose further into expansionary  territory. This implied a mismatch between labor supply and demand.
  3) *Both gauges for input costs and prices charged by service providers edged down,*  but they remained in positive territory, reflecting relatively high  pressure on costs, including those of workers, raw materials and fuel.
  4) *The measure for business expectations dropped to the lowest point in 15 months,* indicating depressed business confidence.Additionally, the Caixin China Composite Output Index inched up to 52  in October from 51.9 in the month before, amid an improvement in  manufacturing, but a softer service sector performance.



 "*The employment gauge dipped into contractionary territory, indicating renewed pressure on the labor market,*  which was likely due mainly to structural unemployment. The measure for  backlogs of work climbed to the highest level since early 2011,  highlighting* bottlenecks in production capacity and inventories due to weak business confidence.* 
  “China’s economy continued to recover in general in October, thanks  chiefly to the performance of the manufacturing sector. Domestic and  foreign demand both improved. However, *business confidence remained weak, constraining the release of production capacity.* Structural unemployment and rising raw material costs remained issues. *The foundation for economic growth to stabilize still needs to be consolidated.*”*But then again, it could be worse - it could be Hong Kong,*  which saw its PMI crash to 39.3 in October - the lowest since November  2008 with business activity crashing at the fastest pace in the survey's  21-year history. *So much for the bounce in August that everyone declared as the bottom...*

  Commenting on the latest survey results, Bernard Aw, Principal Economist at IHS Markit, said:
 "*Hong Kong's private sector remained mired in one of its worst downturns for the past two decades* during October, with the latest PMI survey signalling a deepening economic malaise.
  "*The ongoing political unrest and impact of trade tensions  saw business activity fall at the sharpest pace since the survey started  over 21 years ago.* Anecdotal evidence revealed that the retail and tourism sectors remained particularly affected.
  "As new orders continued to fall sharply, led by* a record decline in demand from mainland China*, firms were becoming increasingly pessimistic about the outlook."Which doesn't sound like a picture of 'recovery' or bottoming for the Chinese economy as a whole.


More at: https://www.zerohedge.com/economics/...es-most-record

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## Swordsmyth

The social-economic turmoil in Hong Kong is certainly unprecedented. 
  Retail sales have crashed, housing prices are rolling over, monetary  policy via the Hong Kong Monetary Authority is failing to stabilize the  economy, and now, new evidence suggests the financial industry is  starting to crack.
  Hong Kong Exchanges & Clearing Ltd., the world's third-largest  stock exchange (in terms of average daily trading volume), recorded its  worst profit in three years as investors fled regional stocks.
  Net income of the exchange plunged 10% to $282 million in Q3 YoY, Bloomberg reported Wednesday. This was one of the most significant drops since the global slowdown in 2016.

  Last week, Hong Kong crashed into a technical recession, the first time since the 2008/09 financial crisis. Hong Kong's economy plunged 3.2%  in Q3, government data showed last week, exceeding economists' lowest  estimates and confirming a technical recession has begun.

  Hong Kong Financial Secretary Paul Chan warned after more than half a  year of violent anti-government demonstrations, the end of October  marked the start of the recession. 
 "After seeing negative growth in the second quarter, the situation  continued in the third quarter, meaning our economy has entered  technical recession," Chan wrote in a blog post.
  "It seems it will be extremely difficult for us to reach full-year  economic growth of 0 to 1%. I would not rule out the possibility that  the full-year economic growth will be negative."With two consecutive quarters of negative growth and no end to the  protests in sight, Bloomberg has noted in a series of graphs that a  full-year economic contraction is likely for 2020.

  Since the protests became violent in early summer, Hong Kong Exchanges & Clearing shares have slipped 12%.

  As the crisis deepens in Hong Kong, it's likely the Hang Seng is setting up for another leg lower. 



https://www.zerohedge.com/markets/ho...ts-three-years

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## Swordsmyth

China has been spearheading the global recession in the automotive  industry and, as one more month has come to pass, there are still no  signs of the bleeding letting up.
  As the U.S. and China continue to grapple with solving "Phase 1" of the _allegedly_ upcoming  trade deal, pressure remains on the automobile industry globally. For  October, China retail passenger vehicle sales were lower by 6% year over  year to 1.87 million units, according to the Passenger Car  Association. October SUV retail sales also fell 0.7% y/y to 853,130  units.




More at: https://www.zerohedge.com/personal-f...-signs-slowing

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## Swordsmyth

China's producer prices fell the most in more than three years in  October, as the manufacturing sector weakened on declining demand and a  knock from the Sino-U.S. tariff war, reinforcing the case for Beijing to  keep the stimulus coming.The producer price index (PPI), seen as  a key indicator of corporate profitability, fell 1.6% in October from a  year earlier, marking the steepest decline since July 2016, National  Bureau of Statistics (NBS) data showed on Saturday. Analysts had tipped a  contraction of 1.5% for the PPI.
In contrast, China's consumer  prices rose at their fastest pace in almost eight years, driven mostly  by a surge in pork prices as African swine fever ravaged the country's  hog herds. Some analysts say the CPI rise could become a concern for  policymakers looking to introduce measures to prop up demand.


The factory deflation was punctuated by falling raw material prices,  including in the oil and gas extraction and ferrous metal smelting  industries. It aligns with other indicators showing shrinking  manufacturing activity in October, with the official Purchasing  Managers' Index (PMI) indicating contraction for a sixth straight month.
Zhao  Wei, a macro analyst with Wuhan-based Changjiang Securities, said the  drag from the real estate sector, which is suffering from a government  crackdown on sales speculation and policy tightening on financing for  developers, will also become more pronounced.
"Looking ahead,  while a low base from last year will provide some support in the next  few months, PPI deflation is likely to continue as overall demand is  still under pressure," said Zhao.
"The PPI may continue to be within a negative growth range."


To drive down funding costs and boost the economy, China for the  first time since 2016 cut the interest rate in its one-year medium  lending facility (MLF) loans. The Chinese authorities, though, have been  relatively restrained in providing stimulus measures and the cut was by  only 5 basis points.
But surging consumer inflation is adding to  the headaches of policymakers who are racing the calendar to meet  Beijing's annual growth target as the world's second largest economy  slows to the lower end of a 6%-6.5% range for 2019.
October's  consumer price index (CPI) rose 3.8% year-on-year, the most since  January 2012 and beating analysts' expectations for 3.3% rate.
The  rise was driven largely by a steep climb in pork prices and other meats  after African swine fever killed a large portion of China's pigs. Pork  prices more than doubled year-on-year in October, according to the stats  bureau, accounting for over 60% of the CPI increase.
Core CPI for  October remained benign at 1.5%. For the full year of 2019, China is  aiming for a CPI target of around 3%. It rose 2.6% in the  January-October period.
"Although we expect the People's Bank of  China (PBOC) to maintain its easing policy stance, we believe there is  elevated risk of a wage-price spiral amid surging pork prices and the  spillover effects to other food prices," analysts at Nomura wrote in a  note on Nov. 1.
"Thus the PBOC could potentially become more  reluctant to deliver high-profile policy stimulus in coming quarters to  avoid fuelling inflation expectations," the analysts said.

More at: https://news.yahoo.com/1-china-facto...032822418.html

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## Swordsmyth

China’s credit growth slowed far more than expected in October *to  the weakest pace since at least 2017 as a continued collapse in shadow  banking, weak corporate demand for credit and seasonal effects* all signaled that efforts to prop up the economy through bank lending still aren’t working.  The central bank reported that Aggregate Financing, China's revised  version of the old Total Social Financing, was a paltry 618.9 billion  yuan ($88 billion), missing the median conservative estimate of 950  billion yuan, *and down a whopping 72% from the 2.27 trillion yuan in September and 737.4 billion yuan in the same month of 2018.* Today's print was the lowest in the revised series history which goes back to the start of 2017, *and only a slightly lower print in the old series prevents today's total credit injection from being the lowest since 2016!*

  New CNY loans of 661.3 billion yuan also missed the consensus print  of 800 billion yuan, resulting in outstanding CNY loan growth of 11.9%  annualized in October, well below the September 13.3% annualized print.  As has been the case recently, two thirds of yuan-denominated bank loans  were borrowed by households in the month, *while the borrowing by non-financial companies was the least in amount since August 2016.*
  But it was China's shadow banking that was the main culprit for today's steep total credit drop, *which  tumbled by 234 billion in October, the second biggest one month drop of  the year, and the 7th drop in a row as well 18th of the past 20!* Specifically,  entrusted loans fell by 66.7 billion yuan, trust loans declined 62.4  billion yuan and undiscounted bankers acceptances fell 105.3 billion  yuan.

  While bank lending traditionally falls in October compared to the  previous month as the week-long National Day holiday affects business  activity, the continued collapse in shadow banking as well as the  completion of local government special-purpose debt sales has magnified  the downward trend, resulting in a far lower credit impulse to the  economy than China so desperately needs.
  Separately, China's all important M2 rose 8.4% yoy in October, in  line with expectations, and just shy of the all time low print.
  "The data itself is kind of expected in terms of the trend,”  Commerzbank analyst Zhou Hao said, nothing however that the market is  concerned about two things - that it hit another record low (for the  current series) and that this means that banks seem to have no place to  funnel money after lending to smaller and private firms earlier waned.  The deflationary omen also pushed China’s 10 year government bond yield  lower by 5 basis points to 3.22%.

Adding insult to injury, and limiting the central bank's ability to ease more, the *latest high frequency data indicate November CPI data may reach an even higher level on a year-on-year basis.* But  the weak TSF and expected weaker activity growth data will likely put  policy makers under more pressures to keep policy stance loose.

More at: https://www.zerohedge.com/economics/...-possible-time

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## Swordsmyth

The _Bussiness Confidence Survey 2019/20_ published  by the German Chamber of Commerce in China, in cooperation with KPMG in  Germany, finds that almost a quarter of German companies operating in  China are preparing to relocate production facilities. 
  The survey was conducted from late July through mid-September and had  526 member companies out of 2300 respond. Out of the 526 member  companies, 23% of the respondents said their factories will be  transferred out of China or are contemplating the move.
  Among the German companies leaving or actively planning to leave  China, about 71% blame increasing labor costs; 33% cited unfavorable  policy environment; 25% said the US-China trade war, and 22% said market  access barriers. 



More at: https://www.zerohedge.com/markets/gl...an-leave-china

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## Swordsmyth

Yesterday, shortly before China's data deluge, we reported that  a Beijing-based think tank became the first Chinese economic research  institute linked to the government to predict that China’s economic  growth rate will slow below 6.0% next year. Specifically, The National  Institution for Finance and Development (NIFD) on Wednesday said that  China’s economic growth rate will slow to 5.8% in 2020 from an estimated  6.1% this year, a number which is already quite ambitious, not to say  artificially goalseeked.
  “The economic slowdown is already a trend,” said former central bank  adviser Li Yang, who heads the institute that is affiliated to the  Chinese Academy of Social Sciences (CASS). “We must resort to deepened  supply-side structural reform to change it or smooth the slowdown,  rather than solely rely on monetary or fiscal stimulus.”
  The problem is that even a sub-6% number is wildly optimistic and  misrepresents the true state of China's economy considering that back in August, Fathom Consulting calculated that growth in the second largest economy had already shrunk to 4.6% and was declining.



Of course, shortly thereafter China released its latest retail sales,  fixed investment and industrial production data, all of which missed  badly and worse, the data showed the weakest retail sales growth since  2003 and weakest Fixed-Asset Investment growth since 1998.



However, while the slowdown in China's economy has been widely  telegraphed for years, a more ominous development is taking place in  China's financial system, which at roughly $40 trillion is not only  nearly double the size of that of the US, but is the world's biggest. It  is here, that one find not only an escalating loss of faith by the  market, but confirmation that China's all important credit channel is  increasingly clogged up, if not outright broken.
  Following the Q3 earnings releases from Chinese banks, Saxo Bank's  Peter Garnry has updated his market cap to total assets ratio for the  four largest commercial banks in China. What he found is that *the  ratio hit a new all-time low of 5.8% in Q3 as total assets grew an  annualized 8% in Q3 while market cap of the four banks declined.* 








More at: https://www.zerohedge.com/markets/fo...est-data-china

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## Swordsmyth

*Speculative loans in China are souring rapidly.* Ruzhou, a city of one million people provides examples.

  Struggling to keep its economy growing, the city of Ruzhou spent big,  but is now asking its health care workers for cash to stay afloat.

  Great piece. The problem isn't  incompetent officials: the problem is unrealistically high GDP growth  targets that clearly cannot be met except by borrowing and overbuilding  (and, of course, capitalizing investment losses that should be  expensed).https://t.co/cWAJ8ANqsG
 — Michael Pettis (@michaelxpettis) November 11, 2019*Begging Nurses for Money*  The New York Times asks How Bad Is China’s Debt?
 Ruzhou, a city of one million people in central China, urgently  needed a new hospital, their bosses said. To pay for it, the  administrators were asking health care workers for loans. _If employees didn’t have the money, they were pointed to banks where they could borrow it and then turn it over to the hospital_.
*Ruzhou is a city with a borrowing problem — and an emblem of the trillions of dollars in debt threatening the Chinese economy.*
  Local governments borrowed for years to create jobs and keep factories humming. *Now  China’s economy is slowing to its weakest pace in nearly three decades,  but Beijing has kept the lending spigots tight to quell its debt  problems.* Increasingly these deals are going sour, as they did  in Ruzhou, and the loans are going unpaid. Lenders have accused three of  Ruzhou’s hospitals and three investment funds tied to the city of not  paying back their debts.
*Local officials have long used big spending to keep the  economy growing. Ruzhou is home to a number of white-elephant projects,  including a stadium and sports complex turned e-commerce center, now  largely unused.* A shantytown redevelopment project, begun four  years ago to give rural residents new homes, has been slowed for lack of  money, locals said.
  Doctors and nurses at the traditional Chinese medicine hospital  complained to one local state-owned newspaper that they were being  ordered to give between $14,000 and $28,000. At Ruzhou Maternal and  Child Health Hospital, nurses and doctors were told they had to invest  between $8,500 and $14,000, according to government online forums and  state media.
  Ruzhou officials did not respond to repeated requests for comment.  Two employees of The New York Times who traveled to the city were  briefly held by the police and forced to leave.*Tip of the Iceberg*  Ruzhou has several hospitals in trouble, an unused sports stadium, a  cultural complex in shambles, and a failed shantytown project.
  Play this same scene throughout China.
  It's everywhere.
 Nobody is quite sure how big the problem might be. Beijing says the  total is about $2.5 trillion. Vincent Zhu, an analyst at Rhodium Group, a  research firm, puts the figure at more than $8 trillion.*Factor in the world's worst air pollution and water supplies you would have to be crazy to drink from.*
  Yet, US hyperinflationists think the dollar will collapse to nothing,  Chinese debt somehow doesn't matter, China will soon rule the world,  and the yuan will displace the dollar as the world's reserve currency.
  I suggest Forget the Yuan: King Dollar is Here to Stay for quite some time.
  The yuan is not even close to competing with the dollar for at least six reasons.
*Meanwhile, Chinese growth is hugely overstated and its massive debt problem little understood.*


https://www.zerohedge.com/economics/...ns-stay-afloat

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## Swordsmyth

*Hong Kong Shocked Into First Annual Recession Since Global Financial Crisis*

----------


## Swordsmyth

*Hong Kong Liquidity Crisis Near Decade Highs As Capital Flight Accelerates*

----------


## Swordsmyth

Late last week, we argued that one could ignore China's sinking retail sales, industrial production, capital expenditures, record low _and declining_ sub-6% GDP and even its fading monthly credit injections and impotent credit impulse, and instead what matters most for the world's _second_ biggest  economy with the world's biggest financial system (at around $40  trillion, roughly double that of the US) is the following chart showing  the market cap to total assets ratio for the four largest commercial  banks in China, which as Saxo Bank found,* hit a new all-time low of 5.8% in Q3 as total assets grew an annualized 8% in Q3 while market cap of the four banks declined.* 

  This means that Chinese investors - who happen to know best what is  truly going on behind the scenes - are not valuing these new assets as  high quality, and the dynamic in China right now is that *the current credit expansion is just offsetting the surge in bad loans*, whose real amount Beijing has been keeping under wraps ever since the great bank debt for equity swap of 1999, but which we know is far higher the propaganda number of  around 1.5% The net effect is zero credit transmission to the real  economy in China constraining economic growth, which in turn makes banks  especially vulnerable to failure as a result of even modest capital  outflows.
  Confirming that there is something fundamentally broken with China's  debt transmission mechanism and that, by implication, Chinese bad loans  are soaring, two weeks after we reported that  there was a bank run at Henan Yichuan Rural Commercial Bank which  brought the bank to the verge of collapse, the WSJ reported that Harbin  Bank, a politically-linked midsize Chinese lender based in the capital  of northeast Heilongjiang province, became the latest Chinese financial  institution to get a state bailout after its key private shareholders  were replaced by government investors.

 
  Harbin Bank, which is one of the biggest banks in China’s northeast with 622 billion yuan in assets as of June 30, 2019, and trades on Hong Kong’s stock exchange, *becomes the fifth bank - after Baoshang Bank , Bank of Jinzhou, Heng Feng Bank, and  Henan Yichuan Rural Commercial Bank  - to be bailed out* *by  the state, and will be 48%-controlled by two government entities after  six private shareholders shed their stakes, according to a bank  statement issued late on Friday.*
  Total consideration for the shares involved came to almost 15 billion yuan, or around $2.1 billion, the bank said, *though  it described the transactions as transfers rather than stock sales,  which is to be expected if the bank was being bailed out instead of  actually selling a viable stake.*
  As has been the customary case, the bank didn’t provide any reason  for the transactions in the statement, and Chinese bank regulators made  no comment on the action.
  And, as was the case with at least one previous bank "rescue", Harbin  Bank was connected to a former oligarch who disappeared not that long  ago amid allegations of massive fraud. Indeed, as the WSJ reports, the  bank is among a handful of financial businesses in China *linked  to once-powerful tycoon named Xiao Jianhua who in early 2017 disappeared  amid a wave of prosecutions of big private investors.* Businesses  owned by some of those people, including Wu Xiaohui’s Anbang Insurance  Group Co., have also since become government-owned.


Harbin Bank’s exiting shareholders are business entities owned by a  number of individuals, according to the company’s latest annual report.  The biggest holder among them, Heilongjiang Keruan Software Technologies  owned a 6.55% stake and is identified in the annual report as the  subsidiary of another business primarily owned by two individuals.
  Who are the bank's new owners?
  Under the transactions disclosed Friday, an entity controlled by  Harbin city’s financial bureau, Harbin Economic Development &  Investment, will control 29.63%, compared with 19.65% at the end of  June. A second, new shareholder will have a 18.55% stake: Heilongjiang  Financial Holdings Group Co., which was established in January by the  province of Heilongjiang. Combined, these state-owned enterprises would  own nearly 50% of the bailed out bank.
  Meanwhile, since the PBOC refuses to admit or acknowledge that it has an unprecedented bad loan problem, and thus _nothing can be done to address the underlying cause at the heart of China's failing bank problem,_ expect  more and ever bigger Chinese bank bailouts until eventually a bank  fails and its depositors are impacted, sparking a furious scramble by  Chinese depositors across the country to redeem their roughly $27  trillion (190 trillion yuan) in bank deposits, which as a reminder, is  more than double the total amount of US commercial bank deposits.

  They are in for an unpleasant surprise.

More at: https://www.zerohedge.com/economics/...her-major-bank

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## Swordsmyth

China's economy is quickly decelerating, and data last month shows GDP could slip under 6% in 2020.
  A structural decline, blended with a global synchronized slowdown,  and accelerated by trade tensions with the US, have been blamed for  China's deteriorating industrial sector.
  New evidence from research firm Antaike, via Reuters, shows China's  aluminum consumption is likely to decline for the first time in 30 years  as domestic demand plunges and exports slump.


  Antaike's senior analyst Shen Lingyan stated at a conference in  China's Qingdao city on Wednesday that consumption of aluminum in China  would be around 36.55 million tons this year, down 1.2% YoY.
 "The first reason is domestic consumption, which will decline by  0.9%. Exports will fall 3%," Shen said at the China Aluminium Week  conference.October export data of China's unwrought aluminum fell to 431,000 tons, the lowest levels since February.
  The output of aluminum in China this year has recorded the sharpest  decline on record, down 1.6% to 36 million tons, Shen told the  conference.
  Shen forecasts a 3% increase in aluminum output in 2020 to 37.2  million tons -- though there are currently no signs the global economy  is bottoming.
  Factory activity in China contracted for a sixth straight month in  October. It's likely that in the coming quarters, GDP will dive under 6%  as cooling in the manufacturing sector continues.

More at: https://www.zerohedge.com/commoditie...-time-30-years

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## Swordsmyth

Michael Pettis has some words of wisdom for those who believe China will soon overtake the US as the world leader.
 "_Having the smaller banks absorbed by the bigger ones, which seems to be Beijing's new strategy, will mean that China, like Japan in the 1990s, will be dominated by huge zombie banks,_" says Michael Pettis at China Financial Markets in a series of Tweets.
  The Tweets were in reference to the Wall Street Journal article Why China’s Smaller Banks Are Wobbling.
 China’s banks come in various flavors. There are a handful of giants,  and a few more medium-size banks that can also operate nationally.  Below that lies a bigger cohort of city commercial banks, and more than a  thousand tiny rural commercial lenders. Both city and rural banks have  their roots in local credit unions, and tend to have limited geographic  reach. Cracks are emerging at some small and midsize banks after years  of rapid growth.
  Smaller banks lent liberally to local governments and businesses, and  bad debts are rising as China’s economy sputters. Poor governance  probably created problems at some banks, too, such as Hengfeng Bank. In  late 2017, the official Xinhua News Agency, citing a company statement,  said Hengfeng Chairman Cai Guohua was being investigated for “alleged  serious violation of discipline and law.”
  Possible state intervention depends on how large and important a bank  is, and who is backing it. In May, national authorities seized Baoshang  Bank, a lender in the northern province of Inner Mongolia that was  linked to missing tycoon Xiao Jianhua, calling it a “severe credit  risk.” This was the first such takeover in more than two decades. In  contrast, a big bank and two bad-loan managers bought stakes in the  struggling Bank of Jinzhou from existing shareholders. Industry-watchers  expect capital injections to follow.
  Many banks aren’t profitable enough to boost capital through retained  earnings. And existing stockholders may be reluctant to buy new shares,  given questions over reporting and ownership.*Zombification Four Point Synopsis* 


More at: https://www.zerohedge.com/economics/...e-zombie-banks

----------


## Swordsmyth

*China’s True Growth Could Be Half What You Think*
  China’s GDP data release always generates great market excitement  despite rarely straying  more than 25bp below or above the government  target. This stability has led a number of analysts to propose their own  measures, typically based on a variety of Chinese proxy data but, in  the end, not that different from the official numbers. In this article I  argue that, based on the performance of countries comparable to China,  the latter’s GDP growth could be as low as half the official number and  that markets are likely overestimating China’s importance for the global  economy. That being said, China has one of the highest levels of  corporate debt in the world and slower growth implies greater risks of  financial instability.
*China’s Amazing (Supposed) Productivity Miracle*

  There is a strong relationship between a country’s level of  development and its growth: poorer countries grow faster; richer  countries grow more slowly (Chart 1). As countries get richer their  population growth slows and productivity gains become more difficult. In  the very early stages of development, productivity gains come primarily  through workers moving from the low productivity agricultural sector to  the higher productivity manufacturing sector. Once countries have  reached their ‘Lewis point’ (where the surplus rural labor has  disappeared), productivity gains slow. From that point onwards they  largely depend on a country’s ability to absorb technology – and that is  driven by the quality of its economic and political institutions.

  Past the Lewis point, most countries find it hard to continue  catching advanced economies and instead get caught in the (in)famous  middle-income trap. In 2018, only 24 countries (excluding oil economies)  with more than 1 million inhabitants had income per capita above 60% of  that of the US. Of these, only 6 had made it there from emerging market  status: Hong Kong, Singapore, Taiwan, Japan, Korea, and Israel.
*China stands out as having as having a growth rate much above that of comparable middle-income countries*.  Yet China’s demographic growth is low, at about 0.5% a year, against 1%  in countries in the same income range (Table 1). Most of China’s growth  advantage therefore comes from productivity growth, which is three  times as fast as its peers. China, however, crossed its Lewis point around 2010, making its official productivity growth truly extraordinary and somewhat difficult to take at face value.


*Has China Really Escaped the Middle Income Trap?*
  I base my skepticism over Chinese growth on three things primarily.  First, China’s government driven development model works well in the  early stages of development but much less well when economies become  more complex and growth becomes dependent on private sector innovations –  the stage China is currently at. For instance, China’s property rights  system, with its fluid delimitation of public and private spheres, is an impediment to the country’s integration into the global economic system.
  Second, studies of the middle income trap show  that countries tend to get stuck at lower levels of income per capita  when they have very high investment ratios because these tend to reflect  pervasive distortions. China’s investment share of GDP was 45% in 2018,  much higher than the 25% prevailing in comparable countries.
  Third, China’s share of global manufactured exports has been falling  or stagnant since 2015 and the country is struggling to rebuild it  (Chart 2). This is inconsistent with superior productivity growth. *China’s loss of global market share suggests productivity has failed to keep up with wage growth.*

*China’s True Growth Could be Much Lower*


So we can reasonably doubt China’s own figures. But what, then, is a  more likely growth rate?  Assuming that, thanks to Chinese  exceptionalism, the country’s productivity grows 1.5 times faster than  in comparable countries, yearly trend growth in China would be about  3.5%. This growth rate would be commensurate with that of Korea after  its financial crisis of the late 1990s.
  Countries that are on an unsustainable growth path typically move to a  lower and more sustainable trend following a shock, as Korea did after  its crisis. In China’s case, most of the transition to a slower trend  growth could have happened in the down phase of the 2014-15 debt  reflation. Chart 3 shows an example of an alternative growth trajectory  based on a 3.5% trend in effect from 2015 onwards. *Based on this  path, China’s 2018 growth would have been about 4% against 6.6%  officially, and global growth 3.1% instead of 3.6%.*

*Bottom Line*
  China’s lower trend growth has two key consequences going forward.  First, global growth is probably more resilient to a Chinese slowdown  than markets assume: most of China’s slowdown is likely behind us. In  addition, as manufacturing capacity migrates from China to other EMs,  those are likely to grow faster and make up for the Chinese slowdown.  Second, China will find it difficult to grow out of its high corporate  debt that, at 155% of official GDP, is one of the highest in the world.  China’s middle income trap could still bring about financial  instability.

https://www.zerohedge.com/crypto/why...ower-you-think

It's probably even lower than that.

----------


## Swordsmyth

In 2016, China admitted its economic data was fake, pointing out that "*some local statistics are falsified, and fraud and deception happen from time to time."*
In 2017,  China (again) admitted its economic data was fake, saying that a  nationwide audit found some local governments inflated revenue levels  and raised debt illegally, with some *local GDP data as much as 20% "over-cooked."*
In 2018, we exposed China's *"cooked" numbers in China's industrial profits* growth data.
And early in 2019,  a team of researchers from the Brookings Institute published a  carefully researched paper detailing the exact mechanism by which  authorities in Beijing inflate the country's GDP figures, while  estimating that *China's economy is roughly 12% smaller than the official figures would suggest*.

  And so here we are, nearing the end of 2019 and China's economic  growth is lagging badly - at or near the lowest since record began over  30 years ago (and expected to grow at less than 6.0% next year for the  first time) - we get new from China's National Nureau of Statistics that 2018's GDP data is to be adjusted...
*Can you guess which way the adjustment went?*
 Based on China's gross domestic product (GDP) accounting system and *the results of the fourth national economic census,* the National Bureau of Statistics revised the preliminary accounting figures for 2018. The main results are as follows:
*In 2018, the gross domestic product was 91.93 trillion yuan,  an increase of 1.8972 trillion yuan over the initial accounting, an  increase of 2.1%.*


The *revisions were almost entirely focused in the tertiary sector of the economy, whose growth was "adjusted" 4.29% higher* while the primary sector barely moved and the output of the secondary sector was actually adjusted 0.32% lower.

  We look forward to 2019's goal-seeked adjustments... to ensure China's growth remains above the 'mandated' 6%.


https://www.zerohedge.com/economics/...her-due-census

----------


## Swordsmyth

Investors typically concentrate on GDP growth, leading indicators,  and other forms of macro data to determine a turning point in the  economy, and or to determine when the window of vulnerability opens up  that could shock the economy into the next recession.
  For years, we've cited some fascinating alternative forms of data, such as the Skyscraper Index,  which was first elaborated by Andrew Lawrence in January 1999. The  index is simple; the world's tallest buildings are often constructed or  completed at economic turning points, right before or just as the  downturn gets underway.

  The Burj Khalifa in Dubai, which is the world's tallest building, was  completed in 2008. Shortly after, the global financial system crashed.

  Since the crisis, most of the world's tallest buildings have been constructed across Asia.
  The Financial Times  (FT) is reporting that a subsidiary of China's largest construction  company recently halted work on the nation's tallest skyscraper after  the developer defaulted on a payment.
  The default comes at a time when China's economy is decelerating as  Beijing conducts economic reforms to transition from an export-based  economy to a more domestic, consumer-driven economy. Also, trade  tensions and global debt saturation have been other leading causes for  China's slowdown.
  FT obtained a copy of a letter that specified China Construction  Third Engineering Bureau Co would halt construction on a 1,558 feet  skyscraper in the central city of Wuhan. Details within the letter  specified how Greenland Group, China's largest developer, had failed to  make a "significant" payment to fund the project.

 "Unfinished super tall skyscrapers, which cost a huge amount of funds  to build, are a typical sign of economic recession," said Yan Yuejin,  an analyst at Shanghai-based E-house China Research and Development  Institution. "They are financed by credit and will run into trouble when  lenders begin to scale back."As China's economic growth slumps to three-decade lows, credit for  property developers has been turned off. FT also learned that  construction of more than a dozen skyscrapers, some more than 900 feet  tall, have been postponed or behind schedule in 2019.

More at: https://www.zerohedge.com/markets/ch...eloper-default

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## Swordsmyth

Several weeks ago, the People's Bank of China (PBOC) said it would  "increase counter-cyclical adjustments" to prevent downward pressure on  the economy. Now the PBOC is warning that it might not be able to ward  off these downward pressures in the short term, reported Reuters.
  The PBOC's annual financial stability report said China would  continue to deploy fiscal and monetary policies to support the economy  but warned economic deceleration would continue through year-end. 
  Policy maneuvering by the PBOC will be limited as it will likely need  to cut rates and the amount of money banks put down as reserves to  promote credit growth.
  The PBOC recognizes the rapid deterioration in the economy, along with the limitations of monetary policy to revive growth. 

  Likely, credit creation via the PBOC won't be in magnitude seen in  the last ten years used to save the world from escaping several  deflationary crashes. 
  The government will likely stabilize its economy or at least create a  softer landing through tax cuts and infrastructure spending, the annual  report said. 

More at: https://www.zerohedge.com/economics/...omy-increasing

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## Swordsmyth

Three weeks ago we reported that China's Henan Yichuan Rural  Commercial Bank, just outside the central Chinese city of Luoyang, was  the latest small-to-medium Chinese bank to suffer a vicious bank run as  long lines of depositors filled out its branches demanding their money,  amid a rumor that the bank was going under. The bank was at least the  fourth to be on the verge of collapse after recent prior  nationalizations of Baoshang Bank ,Bank of Jinzhou, and most recently, China's Heng Feng Bank. 
  Now yet another Chinese bank has found itself scrambling to prevent a  collapse: Yingkou Coastal Bank was forced to stack bundles of yuan  notes high behind the counters of its branches earlier this month, as  the northeast China lender fought off a run on deposits while onsite  government officials battled rumors of a funding crunch.
  As Reuters reports,  Yingkou was the latest small bank to have its deposit-reliant funding  base undermined by a flash mob of "running" depositors, spooked by the  funding crunch that led to the shock state-led rescue of regional lender  Baoshang Bank first which in turn prompted a cascade of small bank  bailouts.
  To avoid an almost instant death, Yingkou had no choice but to engage  in what we have hence dubbed a self-destructive "doom loop: to help  repair the damage and to keep the deposits from being pulled, the bank  hiked its already high deposit interest rates to entice depositors. Alas  by doing so, the bank - which can not possibly find investing  opportunities to offset the higher deposit rates - has just accelerated  its eventual insolvency.

  The run on Yingkou came just as small banks' reliance on deposits for  funding shot up this year after Baoshang’s rescue sent interbank  interest rates spiking, raising borrowing costs and making it virtually  impossible for banks to fund themselves in the short-term funding market  as we discussed in June.

  To be sure, bank funding was already under pressure for most but the  biggest bank following government efforts to de-leverage the financial  system starting in 2016. Meanwhile, small but deadly cuts in key lending  rates since August to stimulate up a slowing economy have only  exacerbated the pressure on banks.
  With less income from lending and without the full suite of funding  options available to much larger peers, the interest rates that China’s  legion of small banks may have to offer to attract deposits could  further undermine their stability, analysts said. The irony is that to  preserve their critical deposit base, small banks have to hike deposit  rates even higher to stand out, in the process sapping their own  lifeblood and ensuring their self-destruction. Hence "doom loop."
  Dai Zhifeng, a banking analyst with Zhongtai Securities, told Reuters  the funding difficulties risked distorting small banks’ behavior,  making failure even more likely: "*Lacking core competitiveness, some of them have turned to high-risk, short-sighted operations,"* he said, adding that a liquidity crunch was possible at some institutions.
  Institutions such as Yingkou, where "untruthful rumors about the  bank’s deep financial crisis spread online", the city police said, *triggering a run on deposits on Nov. 6 when a Reuters witness saw piles of cash behind counters at six city-centre branches.*
  Just like at Yichuan Rural Bank,  the local government stepped in to allay concerns, placing officials at  Yingkou’s biggest branch to help calm depositors, and hanging notices  saying the bank had sufficient assets and that its operations and  management were in good standing.
  Why the panic to avoid outflows? Because as of June-end deposits made up 58% of Yingkou’s funding. In the wake of the run, *it  raised its rate for one-year time deposits to 4.4% from 4.2% and kept  the rate on its flagship three-month wealth management product above 5%. * By comparison, the popular money market fund Yu’ebao backed by  e-commerce giant Alibaba Group Holding Ltd offers a modest 2%  annualized rate, while China’s benchmark rate for a one-year time  deposit is 1.75%; this means that *the troubled bank has to offer interest rates more than double the prevailing ones just to keep depositors from fleeing.* 
  "I thought about the risks of smaller lenders, but an interest rate  of 4%-plus on deposits was too attractive for me," said Sun Wensheng, a  perfect example of the gullible depositors the bank is desperately in  need of, and a futures trader who deposited 420,000 yuan ($59,772.86)  with Yingkou just before the bank run. Sun is in for a big surprise when  in a few weeks that bank shuts down, this time for good, and his entire  deposit is gone... all gone.
  * * *
  Though small, problems at China’s more than 4,500 local banks matter  because of their close ties to larger lenders and huge base of  mom-and-pop savers; put enough banks under and suddenly you have a "Lehman moment", as the interbank market freezes.
  Yingkou was the second bank run in less than two weeks, following the previously discussed panic at Yichuan Rural Commercial Bank in  central Henan province amid a corruption investigation into a former  boss. But in contrast to the May rescue of Inner Mongolia lender  Baoshang Bank, when a takeover by the central government sent interbank  lending rates sharply higher, local governments took the lead in  managing both of the latest scares.


More at: https://www.zerohedge.com/markets/se...tive-doom-loop

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## Swordsmyth

China Industrial Enterprises total profits collapsed in October to  CNY427.5bn from CNY575.6bn in September - a 9.9% YoY plunge, the biggest  drop on record.
  In fact, China's Industrial sector has seen annual declines in its profits for 4 of the last 6 months.



What is perhaps even more disturbing is that seasonally, *this is a period where profits typically begin to accelerate*. This year, they are collapsing to the lowest since July 2013 (and lowest for an October on record)



Additionally, *Industrial firms' liabilities increased 4.9% from a year earlier to 66.74 trillion yuan at end-October*, compared with a 5.4% increase at end-September.

More at: https://www.zerohedge.com/economics/...se-most-record

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## Swordsmyth

In our latest look at the turmoil among China's small and medium banks, which included not only the recent bailouts and nationalizations of Baoshang Bank , Bank of Jinzhou, China's Heng Feng Bank,  but also the two very troubling bank runs at China's Henan Yichuan  Rural Commercial Bank at the start of the month, and then more recently  at Yingkou Coastal Bank. 
  As we further explained, the reason why so many (for now) smaller  Chinese banks have found themselves either getting bailed out or hit by  bank runs, is that in a time when China's interbank/repo rates have  surged amid growing counterparty concerns, increasingly more banks have  been forced to rely almost entirely on deposits to fund themselves,  forcing them to hike their deposit rates to keep their funding levels  stable.

  Meanwhile, cuts in key lending rates since August to stimulate up a  slowing economy have only exacerbated net interest margin pressures on  banks.

  In other words, with less income from lending and without the full  suite of funding options available to much larger peers, the interest  rates that China’s legion of small banks may have to offer to attract  deposits could further undermine their stability. The irony is that to  preserve their critical deposit base, small banks have to hike deposit  rates even higher to stand out, in the process sapping their own  lifeblood and ensuring their self-destruction, or as we dubbed it  earlier, China's own version of Europe's "doom loop."
  Dai Zhifeng, a banking analyst with Zhongtai Securities, told Reuters  the funding difficulties risked distorting small banks’ behavior,  making failure even more likely: "Lacking core competitiveness, some of  them have turned to high-risk, short-sighted operations," he said,  adding that a liquidity crunch was possible at some institutions.
  But for a nation with a $40 trillion financial system, double the  size of US banks, and well over 4,000 small, medium and massive,  state-owned banks, here please recall that the 4 largest banks in the  world are now Chinese:

ICBC: $4TNChina Construction: $3.4TNAgri Bank of China: $3.3TNBank of China: $3.1TN
... the question how many banks will fail in the near future, is  especially relevant not only for China but for the entire world.
  Luckily, we got an answer from none other than China's central bank,  which on Monday said that China’s banking sector is "showing signs of  strain", with *more than 13% of 4,379 lenders now considered “high risk” by the central bank.*

  In other words, *take the 5 banks listed above which either  suffered a bank run and/or were bailed out or nationalized, and add to  them over 500 which are about to suffer the same fate.*
  As Bloomberg reports,  in the PBOC's its 2019 China Financial Stability Report, the high risk  category contains 586 banks and financing firms, most of which are  smaller rural institutions. The report also comically noted that one  bank got a "D" grade this year, meaning it went bankrupt, was taken over  or lost its license. No banks were named in the report.
  And here is why the next global financial crisis will likely start in  some backward Chinese province best known for its massively polluting  coal plants, ghost cities and made up GDP data: while foreign and  private banks are seen as relatively safe, *more than one third of rural lenders were rated "high risk,"* or those which are near failure.
  Additionally, some medium- and small-sized financial institutions  received poor ratings because of the slowing economy, with small lenders  more sensitive to swings in the economy.
  What did the PBOC do with this doomsday list? As Bloomberg reports,  the central bank notified each bank of its rating, and required some to  increase capital, reduce bad loans, limit dividends and even change  management. In short, trillions in Chinese bank (non performing) assets  are about to mysteriously disappear off the books while hundreds of  local banks scramble to inject liquidity in their balance sheets,  effectively removing free liquidity from the interbank market.


Separately, the PBOC also stress tested 30 medium- and large-sized  banks in the first half of 2019. In the base-case scenario, assuming GDP  growth dropped to 5.3% - or well above where China's *real* GDP is now - *nine out of 30 major banks failed and saw their capital adequacy ratio drop to 13.47% from 14.43%.* In the worst-case scenario, assuming GDP growth of 4.15%, or less than 2% below the latest official GDP print, *more than half of China's banks, or 17 out of the 30 major banks failed the test.* So with the entire Chinese financial system roughly $40 trillion, *this suggests that China now has a rather insurmountable $20 trillion problem on its hands.*
  Separately, a liquidity stress test at 1,171 banks, representing  nearly three-quarters of China’s banking sector by assets, showed that  90 failed in the base-case and 159 in the worst-case scenario.
  * * *

More at: https://www.zerohedge.com/economics/...oc-stress-test

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## r3volution 3.0

Did I overestimate the mainland Chinese?

The island people want democracy, and they riot and destroy property for their glorious cause...

Maybe they should consider that the non-democratic arrangement has made them one of the richest places in the world.

Do they really want to sink into bolshevism like us?

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## Swordsmyth

> Maybe they should consider that the non-democratic arrangement has made them one of the richest places in the world.


LOL

----------


## r3volution 3.0

> LOL


roflmao

You would prefer that they revert to the early iron age?

Well, of course, foreigners and so forth.

----------


## Swordsmyth

> roflmao
> 
> You would prefer that they revert to the early iron age?
> 
> Well, of course, foreigners and so forth.


China is not one of the richest places on the planet.

It's the most debt laden and about to collapse place on the planet.
It is the ChiComs who are going to be responsible for a reversion to the early iron age, they allow almost no immigration so foreigners have nothing to do with their problems, they did it all to themselves.

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## r3volution 3.0

> China is not one of the richest places on the planet.


China is the richest place on the planet.

If you have chilluns, you might want to seriously consider expatriation. 

..words, other words




> It's the most debt laden and about to collapse place on the planet.


LOL, this doesn't remind you of anything?




> It is the ChiComs who are going to be responsible for a reversion to the early iron age, they allow almost no immigration so foreigners have nothing to do with their problems, they did it all to themselves.


Primitive, no immigration, dick about with a personality cult of a leader. 

Yea, nothing like our system...

lulz

----------


## Swordsmyth

> China is the richest place on the planet.
> 
> If you have chilluns, you might want to seriously consider expatriation. 
> 
> ..words, other words


China is the biggest bubble in the world and it's about to pop.
Did you move there perhaps?






> LOL, this doesn't remind you of anything?


We have problems but theirs are far worse, we will recover and be stronger, they will collapse.






> Primitive, no immigration, dick about with a personality cult of a leader. 
> 
> Yea, nothing like our system...
> 
> lulz

----------


## r3volution 3.0

> China is the biggest bubble in the world and it's about to pop.


China doesn't exist regarding exportation of inflation.

How long do you think a society can live on cheap money and low interest rates

...clowntime

----------


## Swordsmyth

Something is seriously starting to break in China's financial system.
  Three days after we described the *self-destructive doom loop that is tearing apart China's smaller banks, * where a _second bank run took place in just two weeks_ -  an unprecedented event for a country where until earlier this year not a  single bank was allowed to fail publicly and has now had no less than five bank  high  profile nationalizations/bailouts/runs so far this year - the Chinese  bond market is bracing itself for an unprecedented shock: *a  major, Fortune 500 Chinese commodity trader is poised to become the  biggest and highest profile state-owned enterprise to default in the  dollar bond market in over two decades.*
  In what Bloomberg dubbed the  latest sign that Beijing is more willing to allow failures in the  politically sensitive SOE sector - either that, or China is simply no  longer able to control the spillovers from its cracking $40 trillion  financial system - commodity trader Tewoo Group  -  the largest state-owned enterprise in China's Tianjin province - has  offered an "unprecedented" debt restructuring plan that entails deep  losses for investors or a swap for new bonds with significantly lower  returns.
  Tewoo Group is a SOE conglomerate, owned by the local government and  operates in a number of industries including infrastructure, logistics,  mining, autos and ports, according to its website. It also operates in  multiples countries including the U.S., Germany, Japan and Singapore. *The company ranked 132 in 2018’s Fortune Global 500 list, higher than many other Chinese conglomerates* including  service carrier China Telecommunications and financial titan Citic  Group. Even more notable are the company's financials: it had an annual  revenue of $66.6 billion, profits of about $122 million, assets worth  $38.3 billion, and more than 17,000 employees as of 2017, according to  Fortune’s website.

  The state-owned company is neither publicly listed nor rated by the  top three international ratings companies, although it does have  publicly traded bonds whose performance in recent months has been  nothing short of terrifying for anyone who thought purchasing a company  explicitly backed by Beijing can never fail.

  As one can deduce from the above chart, the first time Tewoo Group’s financial difficulties emerged *was  in April when it sought debt extension from its lenders on its  offshore, dollar bonds and sold copper below market rates amid a cash  crunch.* At that time, Fitch Ratings - the only rating agency to  appraise the company's credit standing - slashed the company’s credit  score first from BBB to BBB- on April 18, *and then by a whopping six notches, from BBB - to B- on April 29,* to reflect its weak liquidity and higher-than-expected leverage.
  According to Bloomberg the company has proposed an exchange/tender  offer on the three dollar bonds due to mature over the next three years,  as well as a perpetual note. What makes what would otherwise be a  mundane exchange offer in the US, *is that this is the first ever distressed plan of its kind from a state-owned Chinese firm.* 
  What is just as striking is that the Tewoo Group - with its $66  billion in revenues and $38 billion in assets - is likely to default on  its $300 million dollar bond due Dec. 16, a Bloomberg source said,  unless the exchange is consummated. This means that the company's  bondholders have just a few weeks to decide between either taking as  much as 64% in losses or accepting delayed repayment with sharply  reduced coupons on $1.25 billion of dollar bonds, something which the  rating agencies will describe as an _event of default._
  A _de facto_ default by Tewoo would be considered a  “landmark case,” said Cindy Huang, an analyst at S&P Global  Ratings. Central government support for SOEs is likely to be selective  in the future, while local government aid will be limited by the slowing  economy and weaker fiscal position, she said.
  The "distressed exchange offer" comes after Tewoo Group said last  week it would be unable to pay interest on a $500 million bond,  prompting Industrial & Commercial Bank of China to transfer $7.875  million to bondholders on its behalf. ICBC provided a standby letter of  credit on the note - a pledge to repay if the borrower can’t. However,  the firm’s remaining $1.6 billion of dollar bonds lack such protection.
  Worse, Tewoo Group is already in effective default after some of its  units previously missed local debt payments - in July, Tianjin Hopetone  missed a coupon payment on its 1.21 billion yuan note sending the  company's dollar bonds tumbling below 50 cents on the dollar, while  Tianjin Haoying Industry & Trade missed a loan interest payment due  in June. Also in July, rating agency Fitch - which somehow missed all of  this when it was rating the company investment grade - withdrew its  rating on Tewoo Group due to insufficient information to maintain the  ratings. It last rated the issuer at B-.
  And as furious bondholders scramble to demand an explanation how a  state-owned enterprise can default, Beijing is already bracing for the  inevitable next steps: earlier this month, Tianjin State-owned Capital  Investment and Management, an entity wholly-owned by the Tianjin  municipal government, was appointed to manage the company’s offshore  debt. For now, the entity has no plan to hold controlling stakes in  Tewoo Group, although that will likely change as soon as the company's  financial situation fails to improve. Meanwhile, Tewoo Group said it  plans to take a series of debt management measures, by which we assume  it means it will restructure its debt.
  The fact that a state owned enterprise such as Tewoo has just days before it defaults, in either a prepack or "freefall" form, *suggests that Beijing will no longer bail out troubled SOEs, let alone private firms*,  perhaps due to the strains imposed by the economy which is slowing the  most in three decades. It also raises concerns over Tianjin, where it’s  based, following a series of rating downgrades and financing  difficulties suffered by some of the city’s state-run firms. The  metropolis near Beijing also has the highest ratio of local government  financing vehicle bonds to GDP in China.
  In short, if there a glitch with Tewoo's default, the Chinese dominoes could start really falling.
  Since the first SOE bond default emerged in China’s domestic market  four years ago, 22 such firms have failed to make good on a combined  48.4 billion yuan ($6.9 billion) onshore bonds as of the end of October,  according to Guosheng Securities. However, as Bloomberg adds,  despite periodic scares such as late repayment, Chinese SOEs have yet  to suffer any high-profile default in the dollar bond market since the  collapse of Guangdong International Trust and Investment Corp. in 1998.
  Tewoo would be precisely that high-profile default.
  * * *

More at: https://www.zerohedge.com/economics/...ned-enterprise

----------


## Swordsmyth

When the Chinese economy is booming, Mainlanders head to Macau to  wager some of their disposable income at casinos. When the economy  decelerates, sort of like what's happening at the moment, gamblers stay  home because of economic pessimism. 
  New data from the Gaming Inspection & Coordination Bureau, first reported by Bloomberg, shows gross gaming revenue for Nov. was $2.8 billion, down 8.5% YoY. 
  Year to date, gross gaming revenue sagged 2.4%, comes at a time when  the Chinese government has told its citizens to embrace lower-economic  growth. 
  Macau's gross gaming revenue is expected to record its first yearly decline since 2016, as several headwinds have developed. 

  Several months ago, JP Morgan analyst DS Kim told Reuters that the  casino slump in Macau is due to "social unrest in Hong Kong, tough  year-on-year comparison, negative headlines around junkets, and macro  headwinds."
  Credit Suisse Group analyst Kenneth Fong said Visa policies to Macau  had been tightened ahead of President Xi Jinping's visit this month.  These restrictions, Fong said, are hurting visitation numbers into the  late year. 
  The Bloomberg Intelligence index of Macau casino operators slipped  3.4% in November. Though the index is still up for the year, it has  dropped 20% from a peak in Apr. 
  Wynn Macau Ltd.HK is down more than 42% since 2Q18 highs. 

  With no turn up in the China Momentum Indicator, there's a high probability that Macau's gaming industry will continue decelerating into 2020. 




More at: https://www.zerohedge.com/markets/ma...inese-slowdown

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## Swordsmyth

Hong Kong's retail industry crashed again in October, as the city  spirals lower into a recession that could lead to a collapse of the  economy, reported Reuters.
  Retail sales in October plunged 24.3% YoY, according to government  data published on Monday. This was by far the worst print on record as  the tourism industry in the last six months has evaporated. 

  Retail sales fell to $3.85 billion in October, a ninth consecutive  month of declines, following violent clashes between pro-democracy  protesters and police around shopping districts, malls, and eateries.  Many Mainlanders now view Hong Kong as far too dangerous for travel, one  of the main reasons why the retail industry has tanked.

  "The local social incidents with increasing violence depressed  consumption sentiment and severely disrupted tourism- and  consumption-related activities," a government spokesman said.Financial Secretary Paul Chan Mo-po said retail sales decline will continue to be “very enormous” heading into the new year. 
  Last month, it was confirmed that Hong Kong stumbled into a recession for the first time in a decade in 3Q.
  More than six months of protests and nearly 17 months of a trade war  between the US and China dampened economic activity in the city.  
  With no end in sight to neither the protests and trade war, Hong Kong's economy is expected to continue decelerating through 1Q20, will likely face a deeper slump than what was seen in the 2008 financial crisis. 
 "Domestic demand worsened significantly in the third quarter, as the  local social incidents took a heavy toll on consumption-related  activities and subdued economic prospects weighed on consumption and  investment sentiment," the government said last month. GDP data was revised lower for full-year growth to -1.3%. That marked the first annual decline since 2009. 

  Chinese Mainlanders and tourists from across the world have canceled  bookings, as retailers have been severely damaged from crashing sales,  and the stock market continues to trend lower, which has been compounded  by the ongoing trade war between the US and China. 
  Tourism numbers for October arrivals plunged 43.7% YoY to 3.31  million, according to the Hong Kong Tourism Board. September figures  showed a 34.2% drop. 
  We've noted that luxury retailers have been hit the hardest, also putting pressure on the global diamond industry. 

More at: https://www.zerohedge.com/markets/ho...rism-collapses

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## Swordsmyth

While China is bracing for what may be a historic D-Day event on December 9,  when the "unprecedented" default of state-owned, commodity-trading  conglomerate Tewoo with $38 billion in assets may take place, it has  already been a banner year for Chinese bankruptcies.
  According to Bloomberg data, China is set to hit another dismal  milestone in 2019 when a record amount of onshore bonds are set to  default, confirming that something is indeed cracking in China's  financial system and "testing the government’s ability to keep financial  markets stable as the economy slows and companies struggle to cope with  unprecedented levels of debt."
  After a brief lull in the third quarter, a burst of at least 15 new  defaults since the start of November have sent the year’s total to 120.4  billion yuan ($17.1 billion), and set to eclipse the 121.9 billion yuan  annual record in 2018.


  The good news is that this number still represents a tiny fraction of  China’s $4.4 trillion onshore corporate bond market; the bad news is  that the rapidly rising number is approaching a tipping point that could  unleash a default cascade, and in the process fueling concerns of  potential contagion as investors struggle to gauge which companies have  Beijing’s support. As Bloomberg notes, policy makers have been walking a  tightrope as they try to roll back the implicit guarantees that have  long distorted Chinese debt markets, without dragging down an economy  already weakened by the trade war and tepid global growth.
  "The authorities have found it hard to rescue all the companies,"  said Wang Ying, a Shanghai-based analyst at Fitch Ratings, perhaps  envisioning at least two banks that have experienced depositor runs in  the month of November in the aftermath of an unprecedented succession of bank failures earlier in the year.
  It's not just banks however: this year’s debt woes have spread to a  broad array of industries, from property developers and steelmakers to  new-energy firms and software makers. The types of borrowers facing  repayment difficulties has also expanded from private companies and  local state-run firms to business arms of universities, an obscure and  loosely regulated corner of China’s corporate world.
  China's two latest defaults involved just such a company; on Monday  Peking University Founder Group shocked investors after failing to repay  a 2 billion yuan bond. The same day, Tunghsu Optoelectronic Technology,  a maker of photoelectric display components, also failed to deliver  early repayment on both interest and principal for a 1.7 billion yuan  note.
  Meanwhile, as we reported last week,  the signs of stress have ominously spread to China’s offshore market,  which has so far been more insulated from defaults: next week, Tewoo  Group, a Fortune 500 company and major commodities trader from the  northern city of Tianjin, is set to become the most high profile  state-owned enterprise to default in the dollar bond market in more than  two decades.

  The company has recently offered a debt restructuring plan that  entails deep losses for investors or a swap for new bonds with  significantly lower returns, the first of its kind for an offshore SOE  issuer. On December 9, Tweoo bondholders need to decide if they accept a  distressed exchange offer on a $300 millionbond that is likely to  default on Dec. 16.


More at: https://www.zerohedge.com/economics/...-defaults-2019

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## Swordsmyth

On Wednesday, a Chinese IPO closed below its listing price for the  first time since 2012, signaling that the public's former unquestionable  love affair with risk and equities is fading as the economy continues to decelerate,.

*LUOYANG JALON MICRO-NANO NEW MATERIALS SAYS TRADING IN SHARES TO DEBUT ON DEC 4 IN SHANGHAI*
Luoyang Jianlong Micro-Nano New Materials shares debuted on the  Shanghai Stock Exchange on Wednesday. The stock immediately dropped 7%  in the first hour of trading, closing down 2% on the session.


  Luoyang Jianlong's disastrous IPO debut was the first time a mainland  Chinese stock closed below its listing price since 2012. The last time  this happened, Haixin Foods plunged 8% below its first day listing price  in 4Q12. 


For at least a decade, China's IPO market has been one of the  strongest in the world, with every newly public stock closing at or near  limit-up. Though now it seems large-cap IPOs are showing signs of  waning interest from investors as the economy continues to decelerate  through year-end, and likely to continue slowing into 1H20. To counter  the IPO market bust, China has tried to calm markets by increasing  domestic firms with more access to credit to keep equity markets humming  along. 
  State-run media outlets have published frontpage stories telling  investors not to worry about the IPO market, and enough liquidity will  be provided through 2020. 
  China's economy is growing at the weakest point in nearly three decades.

More at: https://www.zerohedge.com/markets/ch...lobal-ipo-bust

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## Swordsmyth

Capital investment by Chinese firms has ground to its slowest pace in  three years, as a weakening economy, tight credit and prolonged trade  war with the United States dent sales growth and cash reserves, a  Reuters analysis showed. 

Companies are also spending more days to turn inventory into sales  and eking out smaller profit gains, the analysis showed, in an economy  growing at its weakest pace in nearly three decades, with many analysts  expecting the slowdown to intensify. 
The outlook became even more  uncertain on Tuesday after U.S. President Donald Trump said a trade  deal with China might have to wait until after the U.S. presidential  election in November 2020. 
“Things will get much worse before  getting better,” economists at Macquarie said in a client note on  Monday. Even positive economic data from China recently is volatile and  vulnerable to one-off factors such as warm weather, they said. 


Chinese firms raised capital spending by 1.6% in the three months  through September versus the same period a year prior, the weakest  growth in three years, showed a Reuters analysis of about 2,900 firms  with market capitalization above $100 million. 
For a graphic on China capex growth, click here 

“The  weak appetite to invest is a problem in terms of generating a strong  recovery in the Chinese economy,” said senior China economist Julian  Evans-Pritchard at Capital Economics. 
“Overall  credit conditions are still quite tight and credit growth is actually  slowing ... because, in particular, the non-bank forms of credit access  have become much more restrictive in the shadow banking sector.” 
Though  the government has taken steps to encourage lending, bankers told  Reuters they have little appetite to lend to small firms due to the  trade war and uncertain economic outlook, as well as a years-long drive  to cut risk in the financial system. 
Cash reserves at surveyed  firms grew 5.6% on year in the September quarter, the weakest since the  first quarter of 2018. Moreover, the average number of days a company  holds inventory before sale was 108 in the first nine months of the  year, topping an annual average of 100 or less in the last four years. 
Revenue  grew 6.7%, the weakest in at least three years - the earliest period  for which data from a comparable number of firms is available - while  net profit rose 7.8% versus nearly 22% two years earlier. 
For a graphic on China sales and net profit growth, click here 

The  consumer discretionary and communications services sectors were among  the poorest performers, with revenue shrinking 1.4% and growing just 1%  respectively. 
Companies’ financial reports indicate consumers  have been cutting back spending on vacations and big-ticket items such  as cars and home appliances, while falling smartphone sales have capped  growth among telecommunications network providers. 

More at: https://www.reuters.com/article/us-c...-idUSKBN1Y809F

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## Swordsmyth

*Over the past two decades, fears about China’s rapid economic  and technological advancement have grown exponentially and culminated  in the recent trade war unleashed by President Trump.* 
But  only supporters of government intervention could think of China’s  market socialism as a redoubtable challenger to a market-oriented  economy. But that’s not how it works. Murray Rothbard, for example, has  clearly shown that government interventions result in more interventions  to deal with the unintended negative consequences of the first ones.1 Moreover,  interventions aimed at restoring initial market conditions further  disrupts the market process. The case of China illustrates very well  this cumulative nature of government interventions.
After very  high growth rates at the beginning of its transition to a market  economy, China’s economic dynamism waned toward the end of the 1990s.  Growth received renewed impetus only when China significantly lowered  barriers to foreign trade and investment as a condition to join the WTO  in 2001. An export-led economic boom followed, as exports of goods and  services surged from around 20% of GDP in the late 1990s to 36% of GDP  in 2006. Real GDP growth climbed to 14% y-o-y in 2007 (see graph 1).
Foreign direct investment (FDI) inflows increased  four-fold from about USD 40 billion in 2000 to USD 170 billion in 2008.  This meant domestic investment, capital accumulation, and productivity  took off at impressive growth rates (see graph 2). China truly became a  manufacturing workshop for the rest of the world helped by the global  economic boom in the early 2000s. 
Graph 1: Real GDP and Exports 

_Graph 2: Investment and Productivity_ 

China’s  trade liberalization was undermined by mercantilist policies designed  to hoard a large amount of forex reserves. In the early 2000s, China ran  a currency peg to the US dollar and the People’s Bank of China (PBoC)  was obliged to buy or sell foreign currency at a fixed exchange rate. By  purchasing forex inflows from growing FDI and surging exports, the PBC  accumulated almost USD 2 trillion in reserves (more than 40% of GDP)  until 2008 (see graph 3). Yet, simple exchange operations would not have  resulted automatically in such a large accumulation of reserves. The  equivalent amount of RMBs sold on the market would have increased the  domestic money supply and price level, increasing imports and capital  outflows. In turn, this would have drawn down the forex reserves and  rebalanced the current account surplus which peaked at 10% of GDP in  2007 and 2008. However, PBoC sterilized the increase in the domestic  money supply, initially via open market operations — sale of Central  Bank Bills and drawing of government deposits — and later by increasing  the banks’ reserve requirements from 6% in 2000 to 17.5% in 2008.2 It  thus kept the real exchange rate undervalued and the latter depreciated  by almost 20% from 2001 to 2004, instead of appreciating under the  pressure of hefty financial inflows (see graph 4). Subsidies to  state-owned enterprises boosted exports as well, in particular in  sectors such as steel and solar panels. Meanwhile, high tariffs  curtailed imports, especially for food and other consumer goods. At the  same time, capital controls limited financial outflows and kept the  foreign currency in the country. 
_Graph 3: Foreign Exchange Reserves_ 

_Graph 4: Exchange Rate Developments_ 

Mercantilist  policies, including currency devaluations, have significant negative  consequences, primarily in terms of welfare loss. According to Mises in _Human Action_ “…citizens  of the devaluating country are getting less for what they are selling  abroad and paying more for what they are buying abroad; concomitantly  they must restrict their consumption.” Indeed, private consumption  declined markedly from 47% of GDP in 2000 to a rather low level of 36%  of GDP in 2008. In addition, the households’ returns on their high  savings were deliberately repressed in the financial sector dominated by  state-owned banks and via strict controls of private investment in real  estate and overseas. 
In addition, China developed a structure of production aligned to  an artificially inflated external demand which collapsed when the  credit boom stopped in the rest of the world. China’s mercantilist  policy and the resulting very high current account surpluses would not  have been possible without the monetary expansion of major developed  economies. If imports are curtailed, exports should drop as well, unless  foreign buyers are willing to significantly reduce their foreign asset  balances. In China’s case, exports were largely purchased with money  printed abroad as the Chinese government amassed a large amount of US  Treasuries. It was hardly a safe or profitable investment and certainly  not worth curtailing private consumption or distorting private  investment. 
*After the Great Recession*When the  global recession hit, China doubled down on its interventions. It not  only continued piling up forex reserves which grew by another USD 1.9  trillion over 2008-2014, but also engaged in recurrent growth stimuli to  prop-up domestic demand as well. China has implemented growth stimuli  approximately every two years since the Great Recession*.* Each  time macroeconomic policies were tightened to reduce domestic  imbalances, growth slipped and the Chinese planners resorted to a new  round of easing. 
Growth stimuli targeted primarily infrastructure and real estate  projects, with a large part of the financing provided by local  governments, either directly via sales of land and special bonds or,  indirectly, via special financial vehicles (LGFVs). Although China’s  annual budget deficit seemed benign at an average of 2.5% of GDP over  2008–2018, the “augmented fiscal deficit” calculated by the IMF, which  includes off-budget spending, averaged an astounding 8.5% of GDP. At the  same time, aggressive monetary easing was carried out via cuts in both  policy rate and bank reserve requirements which dropped from 17.5% in  2008 to 10.5% in October 2019. While the bank credit multiplier (M2/M0)  increased moderately from 10 in 2001 to 13 in 2008, it almost doubled to  25 by end-2018. As a result, the stock of domestic private credit  surged to 210% of GDP by 2018 after being almost flat at about 120% of  GDP over 2002-2008 (see graph 5). As a result, total domestic debt  reached about 300% of GDP in 2018, one of the highest among developing  economies. 
_Graph 5: Credit and Total Debt-to-GDP_ 

_Graph 6: Money Stock Growth (Jan 2000=100)_ 

As  monetary expansion increased exponentially, it got out of sync with the  one in the US, in particular when the Fed started to normalize interest  rates (see graph 6). The RMB appreciated by almost 60% in real terms  from 2005 to 2015. After the announcement of a new stimulus round in  2015, hefty capital outflows to the tune of USD 1.3 trillion occurred,  as capital controls had been partially relaxed in the meantime.  Eventually the PBC spent about USD 830 billion in reserves during  2015–2016 to ease the depreciation of the RMB. 
In addition to the balance of payments crisis of 2015–2016, the  artificial credit expansion led to a considerable distortion in the  allocation of factors of production. More and more resources got  diverted into financial, real estate and construction activities, whose  share in GDP went up significantly to the detriment of manufacturing.  Overbuilding created the so-called “ghost cities”  where an estimated 80 million of dwelling units, more than 20% of the  total stock, are sitting empty. Such vacancy rates have been seen  elsewhere only after the collapse of construction booms, like the one in  Spain. In addition, surging mortgage credit inflated housing price  bubbles which slumped on several occasions, most recently in 2012 and  2015 (Graph 7). 
_Graph 7: Wages and Prices_ 

_Graph 8: Wages and Labor Productivity_ 

The  monetary expansion pushed up domestic prices and wages with the latter  advancing much faster than labor productivity, which had not been the  case prior to 2008 (see graphs 7 and 8). China’s price competitiveness  deteriorated visibly and FDI inflows dwindled significantly in recent  years (see graph 9). Moreover they were overtaken by FDI outflows since  2016, driven by the so-called _Belt and Road Initiative,_ a new  government strategy to diversify foreign assets away from US Treasuries.  In addition to being misallocated, investment growth slumped, in  particular in manufacturing, slowing labor productivity (see graph 2).  Exports declined from 35% of GDP in 2007 to 21% of GDP in 2008 and the  current account surplus nearly vanished by 2018 (Graph 10). Real GDP  growth rates almost halved from about 10% of GDP in 2010 to 6% in Q3  2019. When President Trump decided to go against China in 2018, the  latter’s economic prowess was already under siege from its own  misdirected government interventions. 
Graph 9: FDI Flows 

Graph 10: Current Account Balance 



More at: https://www.infowars.com/chinas-merc...or-stagnation/

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## Swordsmyth

If  China’s bad debts were written down, its economic growth rate would be  half the recorded number, a US economist at a prominent Chinese  university has warned.

In  a speech in Shanghai this week, Michael Pettis, professor of finance at  Peking University, warned that China’s debt is closely linked to the  government’s perceived overstatement of its gross domestic product  (GDP).

The  government is accused of perpetuating the existence of “zombie  companies”, by granting loss-making companies loans. Banks in turn treat  these companies as creditworthy, whereas in reality they should be  written off as bad debt, Pettis said.

“If  you believe there is bad debt that has not been sufficiently written  down, you must believe that China’s GDP is overstated, relative to what  it would be in any other country. That must be true,” Pettis said.





“If we are able to calculate GDP correctly, it would probably be half of the recorded number.”

Pettis is not alone seeing troubles with China’s official growth number.


In  December, Xiang Songzuo, an outspoken professor from the Renmin  University of China, who previously served as chief economist for  Agricultural Bank of China, cited unidentified internal reports as  saying that said China’s GDP growth for 2018 could be 1.67 per cent or  even negative, a far cry from the official figures.

Furthermore, a group of four economists published a paper this week
 arguing that China might have overstated its annual growth rate by 2 percentage points on average from 2008 to 2016.

China’s official statistics agency
 said the country’s economic growth rate was 6.6 per cent in 2018.

The  Chinese government said it would try to achieve an economic growth rate  between 6.0 to 6.5 per cent in 2019, a moderate slowdown from previous  years, but nevertheless a much faster rate compared with other major  economies.

Pettis  is a renowned expert on China’s economy. For decades, he has been  commenting on financial affairs in China and was among the early  observers of the imbalances in the Chinese economy.

He said in his speech on Wednesday that China’s growth will significantly decelerate as the country’s debt level rises.

More at: https://www.scmp.com/economy/china-e...number-says-us

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## Swordsmyth

China’s  People’s Liberation Army Navy takes many of its cues from the U.S. Navy  as it develops its carrier aviation branch. It is seeking similar  flat-deck carriers to its U.S. counterpart, and has developed airborne early warning planes and electronic attack jets comparable to American E-2D Hawkeyes and EA-18 Growlers.

 But that tendency may have backfired for once. That’s because the  U.S. Navy has been beset by major cost overruns and delays in deploying  its new generation Gerald Ford-class supercarriers due to persistent  flaws in their catapults, arresting gear, radars and weapons elevators.  You can read more about these many problems in an earlier article.
 Similar problems apparently are affecting China’s carrier program. On November 28, Minnie Chan of the South China Morning Post reported  that Beijing was scrapping plans for a fifth and sixth nuclear-powered  carrier, once it finished construction of two new steam-powered vessels.
 The reason? “Technical challenges and high costs,” including issues  particularly linked to development of the latter two vessel’s  electromagnetic launch systems—the same system bedeviling the U.S. Navy.

Beijing may also be having second thoughts on whether springing big  bucks for big carriers is the best use of its defense budget.  China’s  carriers greatest value may lie more in prestige, power projection  against weaker adversaries, and building experience for later capability  growth, rather than as deterrence against the U.S. Navy.

More at: https://nationalinterest.org/blog/bu...arriers-103187

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## Swordsmyth

The ongoing recession in the global auto market has undoubtedly been lead by China - *and if November's trends are any indication, the entire industry could be setting up for an ugly 2020.* 
  Sales of sedans in China fell 4.2% in November to 1.97 million units, according to the CPCA on Monday.

  This marks the 17th decline in the last 18 months and all but ensures  that China will see a second straight annual drop for its auto market,  according to Bloomberg. 

 
  Last year was the first time the market shrunk in decades, with  ripple effects extending to places like Europe, Latin America and the  rest of Asia. The industry has faced headwinds in the ongoing trade war,  in addition to an overstretched consumer and ride-hailing and  car-sharing services. 

  Areas outside of China's big cities suffered the most, as a slowing  economy kept consumers out of the showrooms that sold cheaper local  brands. Experts are predicting consolidation in the industry as a  result. Some brands, like Suzuki and PSA Group, have pulled out of China  (or are in the process of selling stakes). 
  Bigger names like Toyota and BMW have weathered the storm well due to  demand for hybrid cars - but this demand is anything but a guarantee  moving forward.

  EVs were once a reason for optimism, especially with Volkswagen  spending $4.4 billion next year to ramp up EV production in the country  and Tesla moving a new plant to Shanghai. 
*But last month, wholesales of NEVs fell a stunning 42% to 79,000 units. 
*

  Recall, as we reported days ago, it's looking like Beijing isn't so excited to help sustain the EV niche of the market anymore.
  We also noted that Beijing's ambivalence was starting to show up in  the numbers. EV sales fell off a cliff after June of this year, when the  government slashed purchase subsidies. From July to October, sales of  new energy cars were down 28% from the year prior. 

More at: https://www.zerohedge.com/economics/...-sales-drop-42

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## Swordsmyth

At a time when Beijing is bracing to reveal to the world that China's  economic growth has dipped below 6% for the first time in modern  history (and in reality is about half that), and the PBOC is desperate  to find ways to stimulate the economy without causing another mini debt  bubble, the world's most populous nation continues to face a major  hurdle: *pork hyperinflation.*
  As was revealed in the latest inflation data, China's CPI accelerated  further to 4.5% Y/Y in November, well above the 4.2% consensus  expectation, *and the highest annual increase since 2011*, *driven by higher inflation in fresh vegetable and hyperinflation pork prices*.  The silver lining: the surge in China's price basket may be easing as  on month-over-month terms headline CPI inflation moderated to +8.2%  (seasonally adjusted annual rate) in November from +9.1% in October.

  As has been the case for the past year, the culprit behind the headline CPI surge was food inflation, *which  accelerated further to a record +19.1% in November from +15.5% in  October, primarily on higher inflation in fresh vegetable and pork  prices.* 

 
  And as iw well-known by now, the driver for surging food inflation  remains China's history pork shortage which in November sent prices  surging further, rising to a mindblowing 110.2% yoy in November from  101.3% yoy in October, pushing up headline CPI inflation by around 0.2pp  relative to October (although the sequential increase slowed).

  A new development in November, this time it wasn't just pork prices  as inflation in fresh vegetable rebounded to +3.9% yoy from -10.2% yoy  in October, driving headline CPI inflation up by another 0.4%.
  The silver lining: non-food CPI inflation remained relatively low at 1.0% yoy.
  Looking at the other side of the ledger, the just as important for  China's companies PPI print printed negative again although the  deflation narrowed slightly to -1.4% in November, from -1.5% in October.  Deflation in the petroleum industry lessened the most, though partially  offset by lower inflation in coal mining.
  The reason why PPI is so important is because there is a direct  correlation between Chinese industrial profits and factory gate prices,  or in this case PPI deflation. And absent a rebound in PPI, China's  corporate sector - already loaded to the gills with debt - *will face growing bankruptcy pressures as declining cash flows will increasingly be unable to meet debt service payments.* 

  The problem: as long as CPI is soaring, the PBOC's hands are  generally tired in how much monetary stimulus it can inject. And as  Goldman notes this morning, "headline CPI inflation is likely to remain  elevated in the coming months" as high frequency data suggest *year-on-year inflation in pork prices has remained high in early December, though moderating somewhat.*  Prices in fresh vegetables have picked up further in early December in  year-on-year terms. Elevated inflation could be one factor that may  limit the room for front-end rates to decline in coming months.
  And as China's "stimulative" hands remain tied, the latest Chinese  credit growth data confirmed that Beijing can only do so much to spur  much needed inflation. And while credit data surprised modestly to the  upside in November after the record low October print, likely helped by  administrative push to lend in November, the Total Social Financing was  still a relatively modest, by historical standards, 1.750 trillion, even  as shadow banking shrank for the 8th consecutive month.
  Here are the details from Goldman:
*New CNY loans*: 1390BN yuan in November, higher than  consensus 1200 BN, representing outstanding CNY loan growth of 12.4% in  November, the same as October.
*Total social financing*: 1750BN yuan in November, also well above consensus 1485BN yuan, and more than double October's paltry 662BN yuan.

  According to the PBOC, TSF stock growth was 11.1% yoy in November,  the same as October. If we add all local government bond net issuance to  TSF flow data, Goldman estimates adjusted TSF stock growth edged up to  10.9% yoy in November from 10.8% in October. The implied month-on-month  growth of adjusted TSF accelerated to 10.3% (seasonally adjusted annual  rate) from 9.5% in October.


Finally, even though TSF posted a much needed rebound, one can't say  the same for the all important M2, which rose just 8.2% Y/Y in November,  missing Bloomberg consensus of 8.4%, and down from October's 8.4% Y/Y.

  So while credit data surprised modestly to the upside in November as  RMB loan growth momentum picked up and Banker's acceptance bill issuance  reversed the contraction in October and corporate bond issuance  accelerated, *the decline in trust and entrusted loans -i.e.,  shadow debt - continued to be a drag, and has been down for 19 of the  past 21 months.* 


More at: https://www.zerohedge.com/markets/ch...t-growth-check

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## Swordsmyth

A  household debt crisis may be brewing in China as the government tries  to boost sluggish consumption amid a domestic economic slowdown and  trade war with the United States.

China’s household debt
  had ballooned to 60.4 per cent of its gross domestic product (GDP) at  the end of 2018, the People’s Bank of China (PBOC) said in its annual  financial stability report last week.

And  for the first time, the household debt to income ratio hit 99.9 per  cent, meaning that total debt is now roughly equal to total household  income among the average Chinese household.

“[Household  debt growth] is a major concern for the central bank,” said Xia Le,  chief economist for Asia at Spanish banking group BBVA. “Looking at the  rate of growth of household debt or leverage, in just over two or three  years, it’s already grown to a level where you can’t say it’s  particularly safe or low. It may be becoming a financial risk.”


Signs  that people are struggling to repay their credit card debt are also  showing. Late payments on credit cards have been rising this year, while  there was also an increase in the number of credit card loans that had  soured at some banks during the first half of 2019, according to Fitch.

Disposable  income, on the other hand, has not kept pace with the surging household  debt. The inflation-adjusted year-on-year growth of per capita  disposable income in rural regions was 6.4 per cent between January and  September, compared with 5.4 per cent in urban areas, according to the  National Bureau of Statistics.

More at: https://www.scmp.com/economy/china-e...vernment-tries

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## Swordsmyth

Two weeks ago we previewed what  we said would soon be a D-Day for China's bond market, as a massive  commodities trader and Global 500 state-owned enterprise was set for an  "unprecedented" bond default.
  As of last week, this historic default is now in the history books  after Tewoo, the closely watched Chinese commodities trader, became the  biggest dollar bond defaulter among the nation’s state-owned companies  in two decades, in what Bloomberg called a *"moment of reckoning"* for  Beijing as China struggles to contain credit risk in a weakening  economy, as bond defaults hit an all time high and are set to keep  rising in the coming years.
  Last Wednesday, *Tewoo Group announced results of its  "unprecedented" debt restructuring, which saw a majority of its  investors accepting heavy losses, and which according to rating agencies  qualifies as an event of default.* As a result of the default,  until recently seen as virtually impossible for a state-owned company,  investors’ perceptions are undergoing a dramatic U-turn about  government-owned borrowers whose state-ownership had for years offered  an ironclad sense of security.
  No more: The fact that a state-owned enterprise such as Tewoo has now  defaulted on repaying its dollar bonds in full, confirms that Beijing  will no longer bail out troubled SOEs, let alone private firms, perhaps  due to the strains imposed by the economy which while growing at just  below 6%, is slowing the most in three decades. It also raises concerns  over the Chinese province of Tianjin, where Tewoo is based, following a  series of rating downgrades and financing difficulties suffered by some  of the city’s state-run firms. The metropolis near Beijing also has the  highest ratio of local government financing vehicle bonds to GDP in  China.

  As a reminder, Tewoo ranked 132 in 2018’s Fortune Global 500 list, *higher  than many other conglomerates including service carrier China  Telecommunications Corp. and financial titan Citic Group Corp.* It  had an annual revenue of $66.6 billion, profits of about $122 million,  assets worth $38.3 billion, and more than 17,000 employees as of 2017,  according to Fortune’s website. _Tewoo is owned by the Tianjin government_ and  operates in a number of industries including infrastructure, logistics,  mining, autos and ports, according to its website. It also has  footprints in countries including the U.S., Germany, Japan and  Singapore.
  Putting last week's "unprecedented" event in context, since the first  SOE bond default emerged in China’s domestic market four years ago, 22  such firms have failed to make good on a combined 48.4 billion yuan  ($6.9 billion) onshore bonds as of the end of October, according to  Guosheng Securities. However, despite periodic scares such as late  repayment, Chinese SOEs had yet to suffer any high-profile default in  the dollar bond market since the collapse of Guangdong International  Trust and Investment Corp. in 1998.
  Tewoo is precisely _that_ default.
  Furthermore, Tewoo's exchange offer, which has bondholders accepting a  major haircut on their bonds, is seen as a road-map for resolving  similar debt crises in the future as the prospect of more failures by  state-backed firms looms. 2019 has already seen over 20 billion in SOE  bond defaults, nearly triple 2018's total and the highest on record.

  Specifically, the former Fortune Global 500 company from the northern port city of Tianjin *said  dollar bond investors representing 57% of the the total $1.25 billion  have agreed to be paid just 37 to 67 cents on the dollar,* depending  on the maturity of the bonds. Additionally, bondholders representing  22.6% of these bonds voted to exchange their debt for new bonds with  sharply lower coupons to be issued by Tewoo’s offshore debt manager, a  state asset manager from Tianjin.
  "This is one form of default based on our definition," said Moody's  analyst Ivan Chung, pointing out that the debt restructuring has  resulted in losses for investors.
  The distressed exchange offer which concluded hastily last week  represents a "first of its kind" debt restructuring plan for the  relatively immature Chinese bond market and for a state-run enterprise  in the dollar bond market. It was rushed ahead of $300 million dollar  bond maturity on Dec. 16, one of the four notes covered by Tewoo’s debt  restructuring plan.
  To be sure, the market was not surprised: late last month, Tianjin  State-owned Capital Investment and Management, Tewoo's offshore debt  manager, said on an investor call that Tewoo is very likely to default  on this paper. That explains why Tewoo's bond prices were largely  unchanged after the exchange offer.

  Meanwhile, investors who turned down the company's forced exchanges  face even steeper losses; their dollar bonds will be grouped into a  comprehensive debt plan involving Tewoo’s onshore debt, according to  Tianjin State-owned Capital.
  Tewoo said settlement of the debt restructuring offers are expected to be on or about Dec. 17.
  As Bloomberg summarizes, "Tewoo’s failure in the dollar bond market,  the biggest for a Chinese SOE since the collapse of Guangdong  International Trust and Investment Corp. in 1998, is a sign that the  worst economic slowdown in three decades is limiting Beijing’s capacity  to bail out its weaker state firms. As a result, the authorities appear  increasingly willing to use a more market-oriented approach to clean up  the mess."
*"Tewoo’s default is a landmark case, and demonstrates a growing tolerance for defaults by distressed SOEs,”* Cindy Huang, an S&P Global Ratings credit analyst said in a note.
  Needless to say, Tewoo’s crisis comes as a wake-up call for  investors, many of whom had expected to never incur losses in China's  offshore (dollar) bond market where until now, moral hazard had been the  only game in town. Alas, that game is now changing.
  “This is a poor outcome for investors that bought the bonds at par.  That said, there is now some track record as to the severity of loss for  an SOE-related entity,” said Charles Macgregor, head of Asia at Lucror  Analytics. "Hopefully, these types of restructures will bring more  discipline to the market and result in investors properly pricing for  the apparent risk," he added hopefully, although with developed nation  central banks engaging in precisely the kind of moral hazard boosting  activity that China is now desperately seeking to distance itself from,  we doubt that any investors will learn any lessons, and if anything,  creditors will only demand even bigger bailouts in the future.
  * * *
  What is perhaps just as concerning is that as we noted last month,  the Tewoo default is a harbinger of the crisis facing China's insovent  local governments themselves. Tianjin “is not an exception” and other  local governments with deteriorating fiscal conditions might also see  eroding support for their less competitive SOEs, S&P warned.


* * *
  It gets worse: should Tewoo's default spread to provincial-backed  debt, an already ugly situation could quickly turn catastrophic as  Tianjin has the highest debt burden among mega-cities and provinces in  China according to S&P. Earlier this year, Fitch cut ratings on  several government-related entities from the city, which is reliant on  heavy industry and _commodities_ trading. As a result of having  the highest debt, Tianjin also has to slowest growth - Tianjin’s local  economy grew by just 3.6% last year, the slowest in China; at the end of  last year, Tianjin’s government had 407.9 billion yuan worth of debt  outstanding, or about 22% of the size of its economy, said the Chinese  credit risk assessor.
  And just in case the Tewoo default isn't troubling enough, *Moody's  said that it expected the number of Chinese defaults to jump further in  2020 as economic growth sputters and the government attempts to rein in  support to indebted companies.* Specifically, Moody's expects  40-50 new defaults in 2020, up from 35 this year, according to Ivan  Chung, which will make next year another all time high.

More at: https://www.zerohedge.com/markets/ch...st-dollar-bond

----------


## r3volution 3.0

Beijing just made Washington blink.

----------


## Swordsmyth

> Beijing just made Washington blink.


LOL

Not at all.

Trump is playing them like a fish.

----------


## r3volution 3.0

> LOL
> 
> Not at all.
> 
> Trump is playing them like a fish.


By halving tariffs in exchange for nothing?

----------


## Swordsmyth

> By halving tariffs in exchange for nothing?


Most of the tariffs are exactly as before and he got something.

----------


## r3volution 3.0

> Most of the tariffs are exactly as before and he got something.


He undid some of the tariffs that he previously implemented, which is good; these should never have been implemented in the first place.

But what did he get in exchange? A vague promise to buy some soybeans at some point in the future?

LOL

----------


## Swordsmyth

> He undid some of the tariffs that he previously implemented, which is good; these should never have been implemented in the first place.
> 
> But what did he get in exchange? A vague promise to buy some soybeans at some point in the future?
> 
> LOL


He got more than that:

U.S. Trade Representative Robert Lighthizer has released a two-page summary fact sheet [pdf link here]  outlining the “Phase-One” agreement in principal.  From research into  the material the principal agreement appears to be an 86-page document  covering nine chapters.  The fact sheet covers the top lines of seven chapters:

(Source pdf – and –  USTR Link)
More at: https://theconservativetreehouse.com...one-agreement/

And if they don't do what they promised he can and will add even more tariffs.

Meanwhile he gets to keep the tariffs as a new status quo for future negotiations and look "reasonable".

Trump is winning, China is losing.

----------


## r3volution 3.0

> He got more than that:
> 
> U.S. Trade Representative Robert Lighthizer has released a two-page summary fact sheet


That would be the PR release, designed to persuade the goobers that it was all worthwhile.

The reality is that this is total capitulation on the part of the United States. 

I'm shocked, actually; I thought the combination of Trumps' stubborn idiocy and the impending election would ensure that nothing happened. 

Someone who actually understands what's happening must have explained it to Trump with the right crayons. 




> And if they don't do what they promised he can and will add even more tariffs.
> 
> Meanwhile he gets to keep the tariffs as a new status quo for future negotiations and look "reasonable".
> 
> Trump is winning, China is losing.


lol, sure

----------


## Swordsmyth

> That would be the PR release, designed to persuade the goobers that it was all worthwhile.
> 
> The reality is that this is total capitulation on the part of the United States. 
> 
> I'm shocked, actually; I thought the combination of Trumps' stubborn idiocy and the impending election would ensure that nothing happened. 
> 
> Someone who actually understands what's happening must have explained it to Trump with the right crayons. 
> 
> 
> ...


Dream on.

----------


## r3volution 3.0

> Dream on.


We're Britain in the 1950s, delusional about our power in the world. 

China is a giant $#@!ing gorillla, like the US 70 years ago. 

The US just blinked in a major way (because the US is about to go into recession and can't afford this nonsense). 

Historians of the future will note that agreement as the highwater mark of the Pax Americana.

You wait.

----------


## Swordsmyth

> We're Britain in the 1950s, delusional about our power in the world. 
> 
> China is a giant $#@!ing gorillla, like the US 70 years ago. 
> 
> The US just blinked in a major way (because the US is about to go into recession and can't afford this nonsense). 
> 
> Historians of the future will note that agreement as the highwater mark of the Pax Americana.
> 
> You wait.


China is about to collapse and America is turning around.

Trump didn't blink, if he blinked all the tariffs would be gone.
Trump is playing China like a fish and balancing the rebuilding of America with the demolition of China and making Europe play fair.

----------


## r3volution 3.0

> China is about to collapse and America is turning around.


The whole world is heading into a devastating recession.

The difference between China and the US is that their political system can survive this, while our's cannot. 




> Trump didn't blink, if he blinked all the tariffs would be gone.


He undid his own tariffs in exchange for meaningless promises; he blinked. 




> Trump is playing China like a fish and balancing the rebuilding of America with the demolition of China and making Europe play fair.


LOL, right, there's Europe too. 

He's talking about a 100% tariff on Scotch (listen here George), olive oil, and a variety of other consumer goods. 

...he's flailing around like the retarded chimp that he is. 

The Europeans are going to tell the US to go get $#@!ed, and good luck dealing with China, alone.

Dig?

----------


## Swordsmyth

> The whole world is heading into a devastating recession.
> 
> The difference between China and the US is that their political system can survive this, while our's cannot.


You've got that backwards.






> He undid his own tariffs in exchange for meaningless promises; he blinked.


He reduced some tariffs as part of negotiations, he didn't blink, he set the Chinese up for even bigger tariffs than before if they don't come through.







> LOL, right, there's Europe too. 
> 
> He's talking about a 100% tariff on Scotch (listen here George), olive oil, and a variety of other consumer goods. 
> 
> ...he's flailing around like the retarded chimp that he is. 
> 
> The Europeans are going to tell the US to go get $#@!ed, and good luck dealing with China, alone.
> 
> Dig?


Europe needs us more than we need them and China is dependent on Europe 2nd to their dependence on us.

Trump is going to bring them both to heel or shatter both and leave the US as the last economy standing.

----------


## r3volution 3.0

> You've got that backwards.


Aren't you always talking about civil war in the US?

..and you're not even a psychotic. 




> He reduced some tariffs as part of negotiations, he didn't blink, he set the Chinese up for even bigger tariffs than before if they don't come through.


What, specifically, were the Chinese concessions?




> Europe needs us more than we need them and China is dependent on Europe 2nd to their dependence on us.
> 
> Trump is going to bring them both to heel or shatter both and leave the US as the last economy standing.


Europe can and will sit back, doing business with both the US and China, as the US exhausts itself.

That's what killing off NATO means.

The French and Germans, when you say you're hard pressed against the Chinese, tell you: "tough titty."

----------


## Swordsmyth

> Aren't you always talking about civil war in the US?
> 
> ..and you're not even a psychotic.


That will come eventually but it has nothing to do with the trade war, it will come because the left refuses to deal with the results of elections they lose or the limits on our government and is thereby making us more like China, the Chinese will collapse when their economy does because they can't resolve their problems electorally.






> What, specifically, were the Chinese concessions?


See post 368






> Europe can and will sit back, doing business with both the US and China, as the US exhausts itself.
> 
> That's what killing off NATO means.
> 
> The French and Germans, when you say you're hard pressed against the Chinese, tell you: "tough titty."


LOL

Europe is in deep trouble and BREXIT will make it much worse, they will come crawling on hands and knees begging for mercy soon.

----------


## r3volution 3.0

> That will come eventually but it has nothing to do with the trade war, it will come because the left refuses to deal with the results of elections they lose or the limits on our government and is thereby making us more like China, the Chinese will collapse when their economy does because they can't resolve their problems electorally.


I see much more potential for civil unrest in the US than China, even with Hong Kong. 




> Europe is in deep trouble and BREXIT will make it much worse, they will come crawling on hands and knees begging for mercy soon.


BREXIT is relatively unimportant. The UK (or England, as it will be after Scotland and N. Ireland secede) is a sad little island on the edge of civilization. It would have been better if they'd remained in the EU, but they've now become a nearly failed state, which should not qualify for EU membership if they were applying today, so let them go (or push them out), I say. As for Europe, the EU will survive, because there are still enough Germans and French who remember the last two wars and don't want to refight them.

----------


## Swordsmyth

> That would be the PR release, designed to persuade the goobers that it was all worthwhile.
> 
> The reality is that this is total capitulation on the part of the United States. 
> 
> I'm shocked, actually; I thought the combination of Trumps' stubborn idiocy and the impending election would ensure that nothing happened. 
> 
> Someone who actually understands what's happening must have explained it to Trump with the right crayons. 
> 
> 
> ...


https://twitter.com/zerohedge/status...64210947559425

----------


## Swordsmyth

Following a big, surprise jump in November, China’s official PMIs  were expected to fall back a little in December (but remain - handily -  above 50 and the 'expansion/contraction' divide), helped by an  improvement in industrial production and hopes after the 'phase one'  trade deal was (allegedly) completed.
  A mixed bag though with manufacturing PMI flat at 50.2 (better than  the expected 50.1) and non-manufacturing PMI lower at 53.5 (from 54.4)  and below expectations of 54.2.



New manufacturing orders picked up (the last time the reading was  above 50 was May 2018), but the improvement in manufacturing was  concentrated in large- and medium-sized enterprises with *small enterprises plunging deeper into contraction (at 47.2)*.
*New non-manufacturing orders slowed* as prices (selling and buying fell), pushing employment further into contraction (48.3).



We wonder how long this re-excitement of hope about Chinese economic  growth will last given the massive amount of stimulus has produced a  very meager credit impulse...



More at: https://www.zerohedge.com/economics/...ulti-year-lows

----------


## Swordsmyth

Just three days after China quietly cut rates by 20bps when it ordered banks to switch from the traditional Benchmark 1 year rate to the new Loan Prime Rate (aka China's LIBOR)  as the reference rate for new short-term loans, effectively lowering  the prevailing rate from 4.35% to 4.15% (in the process further  pressuring bank net interest margins), on the first day of the new 2020,  the PBOC unveiled widely expected another boost for the slowing Chinese  economy: the central bank announced that starting Jan 6, it will l*ower  the required reserve ratio (RRR) - or the amount of money banks are  required to have on hand - by 50bps for commercial lenders, in the  process releasing about 800 billion yuan ($115 billion) in liquidity  from the cash-strapped financial system.*

*Currently the required reserve ratio is 13% for large banks and 11% for small banks.* The cut, which is the first since September, will bring the blended reserve ratio for Chinese banks to *the lowest level since October 2007.* 
  The 50bps RRR cut is meant to help banks reduce their lending rate to businesses, the PBOC said in a separate statement,  which is ironic because while on one hand the PBOC pressures commercial  banks by ordering them to lower the amount of interest they can charge  customers by 20bps (with the benchmark rate recalibration), on the other  it boosts systemic liquidity to offset the adverse effects of its first  action, something we predicted would happen earlier this week, to wit:

  ... with more than half of China's banks failing a recent central  bank stress test, the only guaranteed outcome from this weekend's  effective rate cut is that, paradoxically, it will only accelerate the  rate of failure of China's already cash strapped, and in many cases  insolvent, banks. As such we expect that the PBOC will promptly follow  through with another RRR cut to offset the adverse side-effects of this  particular rate cut, by injecting more liquidity in the banking system.Of course, it wasn't just us predicting an imminent RRR reduction:  the cut was first signaled by Chinese premier Li Keqiang in December  2019. It’s also in line with market expectations that the PBOC will  increase funding to the financial system in January to ease a liquidity  crunch caused by rising local government debt sales and increasing cash  demand during the Spring Festival holidays.
  As a reminder, two weeks ago we warned that China is facing a potentially destabilizing "*liquidity hole" of 2.8 trillion yuan ($400 billion) in January* as  people across the nation will withdraw cash for the Lunar New Year  holiday, which this year falls on Jan 25. China’s most important annual  holiday is a time when companies and individuals typically need large  amounts of cash on hand to pay bonuses, clear debts and cover other  expenses. In addition to seasonal cash needs, China's bond market also  faces a major maturity deluge, as more than 2 trillion yuan in notes mature in early 2020, and fresh debt to refinance the borrowing thus shoring up economic growth will probably start hitting the market soon.

  Sure enough, in addition to offsetting the reduced net interest  margin, the PBOC said that the injection will be offset as banks provide  more cash to the public before the Spring Festival, and the overall  liquidity level at banks will be kept stable. "Prudent monetary policy  stance remains unchanged," it added.
  It was fears about an impending liquidity shortfall that sent China's  1Month SHIBOR to the highest level in one year, briefly touching 3% a  few days ago.

  However, now that China is engaged in a delicate balancing act, on  one hand reducing the amount of cash banks can earn by lending money to  customers, and on the other releasing systemic liquidity, the question  is whether the PBOC's latest efforts to stimulate the economy will  destabilize the banking sector further.

Addressing just this, the PBOC said the planned reduction will save  about 15 billion yuan in funding costs for banks in a year, indicating  that the benchmark loan prime rate will likely be lowered as banks  reduce their submissions for the rate’s calculation in late January,  which in turn will force the PBOC to cut the RRR further, resulting in  an even lower loan prime rates and so forth, which brings to mind a  recent striking op-ed published in the Global Times, which predicted that China would be the next major country to cut rates to zero. 

More at: https://www.zerohedge.com/markets/ch...liquidity-hole

----------


## Swordsmyth

Sources told Reuters  Thursday that China is blocking a proposed merger to connect the  Shanghai and London stock exchanges because of escalating political  tension. 
  The sources, which include government officials and people on the  transaction team working to solidify the Shanghai-London deal, said the  suspension via China was politically driven in response to Britain's  support of pro-democracy demonstrators in Hong Kong. 
  One source told Reuters that_ "It's not only a big blow to  the companies looking to broaden the investor base via listings in  London, but also to China's links with global markets."_ 



More at: https://www.zerohedge.com/markets/ch...hong-kong-rift

----------


## Swordsmyth

Offering yet another reminder that the city's economy has been  reduced to a mere shadow of its former glory, Hong Kong retail sales  have posted yet another double-digit drop as tourism continued to  decline in November even as the pro-democracy movement started to fade  from the front pages of Western periodicals.

*By value, retail sales retreated 23.6% in November from the  same period a year earlier, extending the city's record-breaking run of  declines to ten months.* By volume, sales contracted by 25.4%.  It's the latest indication that Hong Kong's economy is suffering from a  worsening recession with no end in sight.



Meanwhile,* overall visitors to HK plunged 56% YoY to 2.65 million during the month of November, the lowest reading since February 2011.* It was the biggest monthly drop on record, according to the SCMP, the biggest English-language newspaper in HK.
  That doesn't bode well for shares of luxury-goods giants like LVMH  (the new parent company of Tiffany & Co.), which have already been  battered by Hong Kong's troubles.
  Hong Kong Financial Secretary Paul Chan Mo-po has warned that the special autonomous region of the People's Republic of China *should  expect its economy to contract by 1.3% for the whole financial year  thanks to the fallout from the protests, as well as the US-China trade  war.* 


More at: https://www.zerohedge.com/markets/ho...ession-worsens

----------


## bv3

That word imminent--I don't think it means what you think it means.

----------


## Swordsmyth

> That word imminent--I don't think it means what you think it means.


Time is relative, we are discussing time on a historical scale.

You would have doubted the collapse of the USSR the year before it happened.

----------


## bv3



----------


## Swordsmyth

> 


China is headed for the recycle bin.

----------


## bv3



----------


## Madison320

> Debt is money spent in the present and an obligation to be repaid in the future.  Given this, I thought I'd *contrast China's population of young versus their obligation to be repaid in the future.*


I'm wondering if that debt number includes their assets. If you owe 10 trillion but someone else owes you 11 trillion, you're not really in debt. China holds a lot of foreign debt and their citizens have very little private debt from what I've heard. I'm not saying China doesn't have problems but compared to us I think their debt situation is tiny.

----------


## Swordsmyth

> I'm wondering if that debt number includes their assets. If you owe 10 trillion but someone else owes you 11 trillion, you're not really in debt. China holds a lot of foreign debt and their citizens have very little private debt from what I've heard. I'm not saying China doesn't have problems but compared to us I think their debt situation is tiny.


They have been wasting their assets and their public has been starting to go deep into debt.

If you read in this thread you will find the info about it.

----------


## SummersEve

China will never implode.

Why? Because they have mad skilz

----------


## Swordsmyth

Cause  and effect. Action, reaction. As China cracks down on shadow finance,  private companies and state giants alike are learning that the karmic  wheel of money can come to a screeching halt.In  April 2018, China unveiled far-reaching rules for its financial  industry as part of an effort to curb risk. Banks were asked to spin off  their wealth-management arms, which had helped funnel credit to an  overburdened private sector, and stick to traditional, boring (read:  low-yielding) loan books. They were given three years to adopt the new  rules, ending in December 2020. 
This  was a declaration of war on shadow financing. The industry shrank by  1.6 trillion yuan ($229.1 billion) in 2019, after contracting by 2.9  trillion yuan a year earlier. 

The policy  change has already inflicted some damage. Onshore bond defaults hit a  record high for two straight years. In 2019, most of them came  from private-sector borrowers struggling to refinance, while state-owned  enterprises emerged largely unscathed.
As we enter 2020, however, China’s draconian reforms could start to backfire on the state, too. 
For  starters, a shadow-banking crackdown has severely restricted Beijing’s  fiscal prowess. To boost infrastructure spending, officials have been  allowing local governments to issue special-purpose municipal bonds at a  record pace, even bringing forward the quota for 2020. Yet  infrastructure spending remains anemic, growing even slower than the  overall economy. 
Why  would this be? Since 2015, Beijing has been relying on public-private  partnerships to build roads and railways. But private money has  essentially evaporated after the new rules prevented wealth-management  products, typically short-term instruments, from investing in  longer-term projects. Meanwhile, China’s new municipal bond issues, at  roughly 2 trillion yuan a year, can’t meet the nation’s annual  infrastructure spending of 17 trillion yuan.
Beyond  a few hiccups, faith in China’s public-sector bond issuers remained  relatively unshaken in 2019. Every once in a while, a local government  financing vehicle would be a few days late in its coupon repayment, but  Beijing hasn't allowed these municipally run, off-balance-sheet shell  companies to default. Ever. 
This  may not be such a sure bet in 2020. LGFVs have amassed a huge pile of  debt over the past decade: 33 trillion yuan, according to S&P Global  Ratings. Of that, only about a quarter is in bonds; the rest comes in  the form of bank loans and non-standard credit. In other words, private  enterprises aren't the only ones dipping into the shadow-banking well.  Impoverished local governments are, too.
Many  of the 1,800-plus LGFVs have deep relations with shadow banks, data  compiled by Huatai Securities Co. show. In Guizhou province, for  example, these entities get 20% of their financing from non-standard  sources of credit. In Tongren, a city in the region, that figure is 72%.  This should come as no surprise: As providers of public services and  infrastructure, LGFVs often struggle to generate enough cash flow, and  even state-owned banks are holding back credit from the poorest areas.
As  we witnessed in 2018 and 2019, private enterprises have no choice but  to default when one of their key funding channels is cut off. Unless  China takes a policy U-turn, the same phenomenon may repeat with  municipals’ financing vehicles.
By  now, the realization that banks prefer state-linked entities has become  deeply ingrained in China’s business community. So how do private  businesses get cheap credit? By pretending to be affiliated with the  government. Already, quite a few “fakes” have blown up in investors’  faces.
China  Minsheng Investment Group Corp., for example, repeatedly tested  bondholders’ nerves last year. The company has managed to amass 232  billion yuan in debt in just four years, largely thanks to its status  as the brainchild of Premier Li Keqiang and its pledge to serve  “national strategy as its mission,” according to a 2016 bond prospectus.  Yet the company remains privately held.
Or  consider Peking University Founder Group, which surprised traders in  December with a late bond payment. Investors have long associated the  conglomerate — whose business spans finance, real estate and commodity  trading — with the Ministry of Education. As a legal tussle unfolds,  though, many are starting to question the strength of  Founder’s state  ties. The company could be one of the biggest corporate defaults in  China: It has 23 onshore notes outstanding, with two-thirds, or 24  billion yuan, due over the next year. 
Similar soap  operas will continue to play out because being a fake state-owned  enterprise is the only way to get good credit. And Beijing will have no  choice but to step in, or risk its own reputation. 
What’s  missing in all this is why China’s biggest state-owned banks aren’t  filling the void. One explanation is that they have little incentive.  These lenders have remained profitable, with the big four earning almost  1 trillion yuan in net profit in the last year. Lending to private  businesses requires grunt work, and credit officers simply aren't  interested. They’d rather write loans to state giants such as China  Mobile Ltd. and go back into hibernation.

More at: https://finance.yahoo.com/news/china...220037888.html

----------


## Swordsmyth

Weeks  after switching on the machines of a new production line near Bangkok,  veteran manufacturer Larry Sloven has a quip for the stream of companies  leaving China: “Elvis has left the building.”

After  three decades of building up manufacturing bases in China, Sloven  helped Capstone International Hong Kong, of which he is managing  director, wind one down. Costs were rising before the trade war
,  but a 25 per cent tariff on the lighting products the company exports  back to the United States helped accelerate a shift that was set in  motion 18 months ago – moving its production base to Thailand.

Now,  despite the fact that lead time to hit the shelves in US stores can  take up to 40 days from Thailand, almost twice as long as from China,  few retailers are willing to pay the premium price that needs to be  charged to keep production in Guangdong.

“Even  if the tariffs went away tomorrow, most people are not coming back,” he  said. “But I do not believe that most retailers in America understand  this process of what a supplier must go through. Nobody will pay the  price.”


This  is a situation playing out in boardrooms around the world, as  international companies accept the reality that the US-China phase one  trade deal will not materially improve the lay of the land for their  Chinese-based operations.

Rising  labour and environmental costs, a head-spinning regulatory environment,  the ever-looming threat of more and higher tariffs, along with a sharp  increase in the perception of risk associated with living and working in  China mean that the manufacturing exodus
 that began at the tail end of the last decade will continue well into this one.

There  is acceptance that the “Goldilocks Zone” provided by China’s industrial  heartlands for the last 30 years – in which the mixture of costs,  quality, human resources and infrastructure was just right – will not be  matched in India, Indonesia, Malaysia, Mexico, Thailand, Vietnam or  anywhere else.

“This  is the right stepping stone, just the start,” Sloven said of Thailand.  “I believe that Vietnam is already full, it's like having a ticket at a  bakery, you have to wait in line. Right now, there's no line in  Thailand, but it will get full.”

More at: https://www.scmp.com/economy/china-e...e-2020-despite

----------


## Swordsmyth

Passenger car vehicle sales in China fell yet again in December,  plunging 3.6% to 2.17 million units, according to the China Passenger  Car Association. 
  This marks the 18th drop in the past 19 months for the country, which  feels to be single-handedly spearheading a global recession in the  industry. *For the full year, sales in China declined 7.5%, marking the second straight annual decline.* 



  Automakers continue to struggle with a slowing economy and tariff  uncertainties, despite "Phase 1" of the U.S./China trade deal supposedly  being finished (even though it _still_ has not been signed), according to Bloomberg.
*GM said on Tuesday that its sales were down 15% in China* and said that pressure into 2020 would likely continue. 
  But, some analysts say there's reasons for optimism: namely, that *the pace of declines has slowed for four months in a row as comps have become easier.*  This will only hold true heading into 2020, where 2019's comps will be  much easier to catch than those of years prior, while the auto market  was booming. 

  The China Association of Auto Manufacturers predicts that vehicle  sales will drop 2% in 2020, marking a third straight annual decline.  Sales fell 7.5% in 2019 and 6% in 2018.
_Well, if that's what you want to call progress..._


More at: https://www.zerohedge.com/economics/...fall-19-months

----------


## Swordsmyth

China's  yuan weakened on Tuesday and the Japanese yen reversed earlier losses  after a report that the United States will keep tariffs on Chinese goods  through the U.S. election hurt risk sentiment.The news came a day before the signing of a preliminary U.S.-China trade agreement to ease an 18-month-old trade war.
Bloomberg  News reported that the United States will review and remove existing  tariffs no sooner than 10 months after the deal is signed.


The yen <JPY=> gained to 109.92 after rising to 110.2, the most yen per dollar since May 23.
The offshore yuan <CNH=> weakened to 6.89, after rising to 6.87 per dollar, the strongest since July 11.

More at: https://finance.yahoo.com/news/yen-s...005509954.html

----------


## Swordsmyth

China's growth outlook for the year is one of stabilization, with  growth expected to slip under the 6% mark. Still, there's a significant  risk that a disorderly unwinding of debt could slow the economy even further.
  Over the last decade, China has been responsible for 60% of the  world's debt creation – and with the country continuing to slow, that  doesn't bode well for a massive global recovery that equity markets have  already priced in.

  To get a better view of China's economy, we turn to Fathom Consulting,  who developed the China Momentum Indicator 3.0 (CMI 3.0) that includes  twelve measures of economic activity, including retail sales, unoccupied  housing, and net trade.
  Fathom has had a deep distrust for China's official GDP data and  created CMI 3.0 as an alternative measure of China's economic activity.
  CMI 3.0 prints around 4.7%, has stabilized since the middle of last  year. There's no indication that China's economy will significantly turn  up in early 2020, which means the global economy could continue to  stagnate.

  Slowing China has also weighed on crude oil prices.

  Auto production in China will continue to slow with a decelerating economy.



More at: https://www.zerohedge.com/markets/ch...assive-rebound

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## Swordsmyth

*China Growth Slows To 29 Year Low In 2019 Despite Q4 Rebound*

----------


## Swordsmyth

New birthrate figures show that China has so far failed to reverse  the effects of its longtime one-child policy — a change that  policymakers say is necessary to forestall the long-term economic  consequences of an aging and shrinking population.
   The National Bureau of Statistics of China  released the new data on Friday, the same day it announced that the  country's GDP growth has fallen to its lowest level in nearly 30 years.
   Last  year, there were 10.48 births per 1,000 people, the lowest birthrate  since 1949, the year the People's Republic of China was founded. The  number was down from 10.94 the year before.


Experts say that improved education and higher incomes in China have  led to delayed marriage and childbirth and that once-strict government  restrictions on births have made one-child households the norm.
   "China  should have stopped the policy 28 years ago. Now it's too late," Yi  Fuxian, a senior scientist at the University of Wisconsin, Madison and a  longtime critic of the country's family-planning policies, told The Guardian last year.


By 2050, a third of China's people will be 60 or older, according to  current projections, placing a significant burden on the government to  care for the elderly.
*Tariffs pinch economic growth*
   Meanwhile,  the world's second-largest economy cooled to its slowest pace in nearly  three decades, with China posting year-on-year growth of 6.1% last year  — a further sign that the protracted trade war with the U.S. has taken a  toll.
   The pace of growth in gross domestic product for 2019  was down from 6.6% the previous year and marked the smallest annual  increase since 1990.

More at: https://www.npr.org/2020/01/17/79723...early-30-years

----------


## Swordsmyth

So much can change in just 24 hours.
  It was just yesterday that China's top twitter troll and Beijing  propaganda voice to the west, Global Time Editor in Chief Hu Xijin was  downplaying the risk from the coronavirus outbreak, comparing it to the  SARS epidemic in 2003, and saying that "during SARS epidemic, even many  medical staff contracted virus and died of it. It doesn't look the same  this time."
 Chinese society is mobilizing to  deal with the new coronavirus. But its risks of human-to-human  transmission and fatality rate appear lower than SARS. During SARS  epidemic, even many medical staff contracted virus and died of it. It  doesn't look the same this time. https://t.co/k43u1R4d5c
 — Hu Xijin 胡锡进 (@HuXijin_GT) January 20, 2020
Oops, because just a few hours later, we got confirmation that at least 15 medical staff had in fact contracted the virus which now appears to be spreading _human-to-human, as_ six  people have died among 291 confirmed cases in China, eliminating any  attempts to further downplay the significance of the coronavirus  epidemic which has reportedly infected hundreds of people across China.
  So in a dramatic 180-degree reversal, the same twitter troll now had  an entirely different message to the word: not only is "the epidemic  expanding" and "concerns are mounting", but more importantly, "*It is inevitable that people will cut their trips during Spring Festival and holiday consumption will be hit.*"
 Coronavirus cases have been found  in other places out of Wuhan, Hubei Province, indicating the epidemic is  expanding. Concerns are mounting. It is inevitable that people will cut  their trips during Spring Festival and holiday consumption will be hit.
 — Hu Xijin 胡锡进 (@HuXijin_GT) January 21, 2020So what happened? It appears Beijing decided to not let a perfectly  good crisis go to waste, and just as "trade war" was used as a 2019  scapegoat on which to blame the slowdown in the economy, an economy  which is rapidly slowing down for vastly different reasons, it will now  blame the coronavirus epidemic on the ongoing slowdown of the Chinese  economy.
  The reason reason for the slowdown? China's ghastly debt load of over 300% of GDP...



More at: https://www.zerohedge.com/economics/...virus-epidemic

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## Swordsmyth

With phase-one talks signed last week,  China's GDP growth in 2019 plunged to a 29-year low amid massive credit  stimulus that has widely been ineffective to boost growth but has  somewhat stabilized the economy. 

  China's largest utility company State Grid has warned that the rate of economic growth in the country is expected to slide to 4% in the next four years.


  There was even a report on Tuesday showing China has already blamed the  2020 economic slowdown on the coronavirus epidemic that has already  killed nine with at least 440 people infected in the country and  spreading across the region, along with a new case in the U.S. 
  The Communist Party of China has been quick to blame the slowdown on  external factors, such as the trade war and other protectionist policies  of President Trump, rather than their failures of amassing more than  $40 trillion of debt, nearly 304% of GDP.
 Coronavirus cases have been found  in other places out of Wuhan, Hubei Province, indicating the epidemic is  expanding. Concerns are mounting. It is inevitable that people will cut  their trips during Spring Festival and holiday consumption will be hit.
 — Hu Xijin 胡锡进 (@HuXijin_GT) January 21, 2020Now we're starting to get more local data, on a provincial level,  that shows many regions and municipalities have cut their 2020 growth  targets over the prior year, reported Reuters.
  About 22 provinces have slashed growth targets this year, including Beijing, Guangdong, Zhejiang, Henan, Hainan, and Fujian. 
  Beijing, Shanghai, and Guangdong have all cut their target of 6.5% to  6% growth to about 6% in 2020, in line with the national goal of 6%.
  Local government data shows at least 11 provinces have missed their  2019 growth targets and are expected to underperform this year.


The northeastern province of Heilongjiang will range around 5% growth  for this year, with the Tibet Autonomous Region to see about 9%. 

More at: https://www.zerohedge.com/markets/ch...wdown-persists

----------


## Swordsmyth

As the numbers of infected and dead soar exponentially, China has  been forced to lock down cities and shutdown factories for the next  several weeks. The outbreak of the coronavirus will likely damage  first-quarter economic figures for the country, reported the Financial Times. 
  As of Monday, China's coronavirus outbreak has so far infected about 3,000 people, where the death toll has climbed to 80 - giving the virus a roughly 5% mortality rate. 

  China has ordered several manufacturing hubs and other centers of the industry to remain closed for the next one to two weeks. 

  One of those manufacturing hubs is Suzhou, a city west of Shanghai  has told millions of workers not to return for at least one week. The  industrial region is home to the world's largest factories, including  iPhone contractor Foxconn, Johnson & Johnson, and Samsung  Electronics. 

  The virus outbreak is occurring as an industrial slowdown has sparked  one of the slowest growth rates in nearly three decades. This will be a  significant challenge for President Xi Jinping amid fears of a hard  landing.
  Julian Evans-Pritchard, a senior China economist at Capital  Economics, has suggested that "coronavirus makes a pronounced slowdown  even more likely and if the disease is not brought under control  quickly, then even our downbeat forecasts may turn out to be too high." 
  Michael Pettis, a finance professor at Peking University and senior  fellow at Carnegie-Tsinghua Center, said the economic impact depends on  how coronavirus spreads throughout China. 
  Pettis said consumption is now under pressure as "people are not going out to restaurants and bars."

More at: https://www.zerohedge.com/markets/ch...virus-outbreak

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## Danke

I think a lot of those factories were already gonna shut down during the Chinese New Year.

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## Swordsmyth

> I think a lot of those factories were already gonna shut down during the Chinese New Year.


But they may stay shut down for much longer now.

----------


## Swordsmyth

China’s financial markets will remain shuttered until Feb. 3 due to Coronavirus fears, according to announcements from the Shanghai and Shenzhen exchanges. 

The move comes with the outbreak of the deadly Coronavirus claiming  more than 100 lives in China. Stocks tumbled as oil trade entered bear  market on Monday, leaving investors around the globe worried with many  fearing it may lead to a global recession. 
    The Chinese government is trying to delay panic selling until it can  get the massive outbreak under control. But this strategy is unlikely to  work because of the sheer impact the virus is already having on the  nation’s economy. Investors can expect to see a large correction in the  Chinese indices when (and if) trading resumes next Monday.

In response to the crisis, China has decided to extend the Lunar New  Year break on trading by four days. This looks to be an attempt to  prevent panic selling due to the outbreak. However, the Feb. 3rd date  for a resumption of trading may be delayed because Shanghai authorities  have separately advised companies not to resume work until at least Feb.  9th. The U.S listed China Large-Cap ETF (NYSEARCA:FXI) dropped 4% on  Monday.

More at: https://www.siasat.com/coronavirus-c...feb-3-1807717/

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## ghengis86

My suppliers say a minimum delay of one week after CNY ends. CNY has been extended to Feb 2 up to Feb 9, depending on the city/province. Freight shipments wont be affected per se; but if everyone is at home, or cant travel back from CNY holiday, no employees available to load boats or planes. 

The economic impact is potentially huge.

----------


## Swordsmyth

> My suppliers say a minimum delay of one week after CNY ends. CNY has been extended to Feb 2 up to Feb 9, depending on the city/province. Freight shipments won’t be affected per se; but if everyone is at home, or can’t travel back from CNY holiday, no employees available to load boats or planes. 
> 
> The economic impact is potentially huge.


And the duration could continue to grow since they have yet to get a handle on it.

----------


## Swordsmyth

The Chinese territory of Macau has become a near-ghost town during  what is typically the busiest time of year in the world's biggest casino  hub, after authorities announced a raft of measures to keep visitors  away and contain the new coronavirus.The local government late on  Tuesday said it would curb its individual visit scheme through which  visitors gain entry from mainland China, days after it suspended inbound  package tours. Since Friday, arrivals have dropped 69%, latest figures  showed.
The steps come as deaths from the coronavirus reached 132  in China on Wednesday with 1,500 new cases. The flu-like virus emerged  late last year in the eastern city of Wuhan and cases have since been  reported worldwide including seven in Macau.
The virus has added  to concerns in the former Portuguese colony over the impact of a slowing  Chinese economy and anti-government protests in neighbouring Hong Kong.
However,  the outbreak also coincides with the Lunar New Year holiday during  which Macau seasonally enjoys record visitation, prompting analysts to  forecast a decline in gaming revenue of at least 30% for as long as  visiting restrictions are in place.
Casino operators' share prices  plunged on Wednesday, by as much as 6% for MGM China Holdings Ltd  <2282.HK>, 5.7% for Sands China Ltd <1928.HK>, 4.8% for Wynn  Macau Ltd <1128.HK> and 4.7% for Galaxy Entertainment Group Ltd  <0027.HK>.
The special administrative region is China's only  location where casino gambling is legal, and over 90% visitors come  from Greater China.
Transport links with mainland China have been  curtailed, however, with dozens of flights and ferry services cancelled.  The local government has also extended the Lunar New Year break to the  end of the week, keeping banks and businesses closed.

More at: https://news.yahoo.com/china-virus-t...080739966.html

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## ghengis86

> And the duration could continue to grow since they have yet to get a handle on it.


I figure a few months. They seem to have a decent handle on it, insofar as measures to prevent the spread, quarantining 60 million people, travel bans, etc. in Wuhan/China in general.

The problem is it was done way to late. What they dont have a handle on is how truly Fd things could get when youve sent out millions of potential carriers out into the world, who are contagious without symptoms, and then essentially ban their return. Where else is it?  How do you know?  By the time bodies start dropping and more quarantines are put in place, its too late again. Barn door, horse, etc. 

Quarantine is really the only way to stop the spread. 

We probably wont see a disruption in supply chain for another 7-14 days as the material that is already moving makes its way through. But were already an extra week past the CNY, which is factored in every year. Things stay closed over there, well start to feel it here soon. 

Sidebar: weve already set up domestic replacements and should be good (unless $#@! goes pandemic and everyone panics all at once!)

----------


## Swordsmyth

The flow of oil traveling from Latin America to China has stopped in the  wake of the deadly outbreak of the coronavirus that has sunk oil prices  to three-month lows, with no oil making its way from Brazil or Colombia  to China since last week, according to Bloomberg. 

More at: https://oilprice.com/Latest-Energy-N...-To-China.html

----------


## Swordsmyth

Anxieties about the knock-on impact to the global economy from the  coronavirus outbreak, which appears on track to shave whole percentage  points off China's GDP, have pushed stock futures back into the red  Thursday morning.

  But during an interview with Maria Bartiromo that aired on Thursday,  Commerce Secretary Wilbur Ross argued that the North American economy  might benefit from the outbreak as companies "reevaluate their supply  chains" to factor in emergent outbreak risk.


  While Ross insisted that he didn't want to appear insensitive, it's  pretty clear to him that the outbreak could help "accelerate the return  of jobs to North America."

  "First of all, every American's heart has to go out to the victims of the coronavirus. *I  don't want to talk about a victory lap over a very unfortunate very  malignant disease. But the fact is, it does give business another thing  to consider when they go through their review of their supply chain.*  On top of all the other things - you had SARS, you had the African  swine virus there, now you have this - it's another risk factor that  people need to take into account."
  "I think it will help to accelerate the return of jobs to North America, some to the US and some to Mexico as well," Ross said.
  Watch the clip below:
 Secretary Wilbur Ross says  coronavirus will be good for [checks notes] American jobs: "I think it  will help to accelerate the return of jobs to North America." pic.twitter.com/Y4SbDIcTi4
 — Aaron Rupar (@atrupar) January 30, 2020Bartiromo conceded that Ross had made an interesting point.
*"Ah, that's a good point,"* Bartiromo responds.


More at: https://www.zerohedge.com/political/...s-back-america

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## Swordsmyth

Over most of January, the situation in China has gone from bad to  worse to worst-nightmare with factories and stores shuttered for weeks,  citizens in every province under martial-law lockdowns, and coronovirus  cases (and deaths) soaring at faster-than-prior-pandemic rates.

  So it should be no surprise then that China's Service Economy  expanded at an accelerating rate in January according to the latest  government-provided PMI data.
  Yes, you heard that right, against expectations of a slowdown (as  would be expected with most of the nation hunkering down in terror), the  National Bureau of Statistics reports that the non-manufacturing gauge  improved to 54.1, compared with 53.5 the previous month (and better than  the 53.0 expected).

 
  Reportedly, due to the Lunar New Year holiday, the surveys were  conducted between Jan. 15 and Jan. 20, rather than between the 20th and  25th of each month as normal.
  And you know how badly manipulated this survey is when the  China's National Bureau of Statistics issues an additional statement  admitting that *"the impact of coronavirus is not fully reflected in January's PMI survey," suggesting that "future trends need to be observed."*
  However, if that is the case then what is more problematic is the  fact the first official indicator of the Chinese manufacturing economy  in 2020 signaled *the nation’s factories were struggling even  before the country shut down for the Lunar New Year and the coronavirus  outbreak worsened*.
  We suspect, judging by the record collapse in (Dr.) Copper, that the  manipulated-ly perfect 50.0 - neither expanding or contracting - will  need to be adjusted for some sense of reality soon...

  However, while the overall manufacturing survey dipped, the *Steel industry PMI index surged to 47.1 from 43.1 in December.*
*So to sum up* - China's worst ever epidemic,  killing hundreds and putting 10s of thousands in hospital, shutting down  factories, stores, and all transportation across the entire nation at  one of its busiest most consumption-heavy times of year prompted a tiny  drop in Manufacturing, a rise in the Services industry, and a surge in  the Steel Industry!!!!


As a reminder, Nomura economists led by Lu Ting wrote in a recent report to clients that:
 *...the economic hit to China could exceed that seen during the SARS outbreak of 2003.*
  Gross domestic product growth could “materially drop” this quarter from the 6% pace at the end of 2019, *maybe even more than the 2 percentage point deceleration seen in the second quarter of 2003.*Just don't tell the survey respondents!!

More at: https://www.zerohedge.com/economics/...millions-under

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## Swordsmyth

*China reports outbreak of deadly bird flu among chickens in Hunan province*

----------


## Swordsmyth

*The epicenter of the outbreak is Wuhan, one of China’s largest manufacturing centers.*  Foxconn and Pegatron have operations there, as do memory manufacturers  such as XMC (nor flash) and Yangtze Memory Technologies Co.  (non-volatile memory).
  Auto producers, such as General Motors, Honda, Volkswagen, BMW and Daimler also populate the region.
 _The electronics industry is poised for a cascading  disruption that could change industry growth forecasts for the year.  Bill McLean, president of semiconductor research firm IC Insights, said  the virus has exacerbated the economic unease that has stalled  semiconductor capital investment._
_“Brexit, trade issues and now the coronavirus are causing  global uncertainty,” he said  at a Boston-based forum. “Uncertainty  causes [businesses and consumers] to freeze.” Worldwide, semiconductor  capital spending is forecast to decrease by roughly 6 percent this year,  from $103.5 billion in 2019 to roughly $97.6 billion._
_Zhang Ming, an economist at government-backed think-tank  the Chinese Academy of Social Sciences, warned that the virus could push  China’s economic growth below 5 per cent a year in the first quarter,  reported the Financial Times.  Economic consensus currently puts China’s GDP growth at 5.7 percent.  That average has steadily declined since 2018, according to McLean.  — EE Times_*More than 300 of the Global Top 500 companies have a presence in Wuhan*, including Microsoft and Siemens. Wuhan is located in the Hubei Province.
  Wuhan has 10 car factories, including those Honda, Renault, PSA and  General Motors. The car industry represents around 20 percent of the  city’s economy and employs 200,000 people directly and more than a  million indirectly.


More at: https://www.zerohedge.com/geopolitic...ck-coronavirus

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## Swordsmyth

China’s  official demographic data in 2019 has seriously overestimated the  country’s actual birth rate and population size, a grave mistake that  will lead to disastrous policymaking if leaders blindly take these  numbers as fact． 

My  estimates show that China’s actual population size should be 1.279  billion at the end of 2019, or 121 million fewer than the officially  stated 1.4 billion.  The actual number of births in China last year should be about 10  million instead of 14.65 million, as reported by the National Bureau of  Statistics.

It  doesn’t require rocket science to see the absurdity of China’s official  demographic data. For instance, the statistics bureau said China had  15.23 million births in 2018, but the Health Statistics Yearbook  compiled by China’s health care authority, which cover new births in all  hospitals, showed that there were only 13.62 million.

The  hospital delivery rate is 99.9 per cent in China, which may account for  some of the discrepancy of 1.61 million births. But this still doesn’t  account for the bulk of the 1.61 million “births”.


In  fact, the number of births released in the Health Statistics Yearbook  is overestimated. For example, the yearbook announced that there were  14.54 million births in 2015, but the micro-census showed that only 11  million people were actually born.

The  difference is because, firstly, the number of births is often inflated  so that individuals and hospitals can claim more medical subsidies.  Secondly, as more than 20 social benefits are tied to one’s place of  birth, under the _hukou_ household registration system, some parents buy additional birth certificates to provide a “dual citizenship” to their newborn.

According  to a 2016 report by the Democracy and Legal System Times, 4,000 blank  birth certificates at a hospital in Mengcheng county, Anhui province,  were stolen and sold. On April 30 last year, the official website of the  Commission for Discipline Inspection of Chenzhou city, Hunan province,  disclosed that the administrators of two township hospitals sold  hundreds of blank birth certificates.

One root problem of China’s population overstatement is the population  control policy. The more “excessive” China’s population size looks, the  more necessary this policy is. As such, the statistics bureau has been  constantly inflating China’s population data in the past three decades.  For example, census data showed that the fertility rates in 2000 and  2010 were only 1.22 and 1.18, but the statistics bureau revised them to 1.64 and 1.5 (based on the officially announced number of babies born).


Since  the first-order fertility rate accounts for 71 per cent of the total  fertility rate in 2000, if the total rate was 1.64, the first-order rate  should be as high as 1.16 births per woman, which means there was no  infertility, no DINK (double income, no kids) couples, or that many  women had twins. This shows how ridiculous the official demographic data  is.

China's  ethnic minorities do not implement the one-child policy, so there was  no need to hide births. The fertility rate of the 34 non-Muslim  minorities was 1.64 in 2000 and 1.41 in 2010. The level of social  development of the Han Chinese is higher than that of minorities, which  means that if China implemented the same fertility policy as minorities,  the fertility rates in 2000 and 2010 would only be 1.48 and 1.30; under  the one-child policy, how could the rates be 1.64 and 1.5?


The  2000 census showed that only 14.08 million were born in 2000, but the  statistics bureau revised it to 17.71 million. However, there were only  14.26 million secondary students in 2014, and 13.57 million people aged  15 in the 2015 micro-census.

The  statistics bureau boasts that the two-child policy has boosted  fertility, as the number of births in 2017 increased by 680,000 compared  to 2015, of which 76 per cent were in Shandong province. The number of  births in Shandong increased from 1.23 million in 2015 to 1.75 million  in 2017, which is unbelievable because sales of infant-related products  and the number of patients with pregnancy complications have not  increased significantly.

More at: https://www.scmp.com/comment/opinion...and-population

----------


## Swordsmyth

China’s central bank said it will inject 1.2 trillion yuan ($174  billion) worth of liquidity into the markets via reverse repo operations  on Monday as its stock markets prepare to reopen amid an outbreak of a  new coronavirus. 

Chinese authorities have pledged to use various monetary policy tools  to ensure liquidity remains reasonably ample and to support firms  affected by the virus epidemic, which has so far claimed 305 lives, all  but one in China. 
The People’s Bank of China made the  announcement in a statement on Sunday, adding the total liquidity in the  banking system will be 900 billion yuan higher than the same period in  2019 after the injection.  
According to Reuters calculations  based on official central bank data, 1.05 trillion yuan worth of reverse  repos are set to mature on Monday, meaning that 150 billion yuan in net  cash will be injected. 


To support firms affected by the epidemic, the CSRC said companies  that had expiring stock pledge agreements could apply for extensions  with securities firms, and it would urge corporate bond investors to  extend the maturity dates of debt.  
The CSRC is also considering  launching hedging tools for the A-share market to help alleviate market  panic and will suspend evening sessions of futures trading starting from  Monday, it said.

More at: https://www.reuters.com/article/us-c...-idUSKBN1ZW074

----------


## Swordsmyth

As previewed on Friday  and again earlier today when we noted the latest trades in China's A50 futures...

  ... China's reopening from the long Lunar New Year holiday was set to  be ugly, and sure enough with Chinese stocks resuming trade at 9am on  Monday, a wave of selling was unleashed culminating in nothing short of a  bloodbath with the Shanghai Composite crashing 9% at the open, down by  the most since the bursting of China's 2015 stock bubble, and *wiping out 12 months worth of gains in a corona moment.* 


  Not even the hilarious beat in China's Manufacturing PMI (this  time from Caixin), which somehow surpased expectations of a 51.0 print  by the smallest amount possible at 51.1 (down from 51.5) despite a major  portion of China's population under quarantine and the economy hitting a  brick wall, had any impact on stocks.

  What is odd is that this is happening even as China earlier in the day barred short selling, which only means the central bank made a huge oversight and should have also banned *all* selling altogether.
  As stocks collapse the flight to safety is predictably on with 10Y  Chinese bond tumbling in yield to 3%, matching the lowest yield since  late 2016...

  ... while spiking in price.

  The selloff wasn't limited just to stocks, however, with China’s  benchmark iron ore contract falling by its daily limit of 8%, with  copper, crude and palm oil also plunging by the maximum allowed. As  Bloomberg notes, _regions accounting for about 90% of copper  smelting, 60% of steel production, 65% of oil refining and 40% of coal  output have told firms to delay restarting operations_ until at least Feb. 10.
  This is bad news for anyone still holding on to dreams of a Chinese  economic renaissance, as the following correlation between China's macro  surprise index and copper demonstrates.

  China's bloodbath is taking place even as the PBOC scrambled earlier  in the day to inject a gross 1.2 trillion in liquidity which however as  we explained, was woefully inadequate because when netting off the 1  trillion in short-term reverse repo funds scheduled to mature on Monday,  the liquidity injection amounted to a far more modest 150BN yuan, or  just over $27BN.

  The lack of any notable impact from China's reverse repo injection  probably explains why shortly after the catastrophic open, the PBOC also  cut rates on both its 7 day and 14 day-reverse repo from 2.5% to 2.4%,  and from 2.65% to 2.55% respectively.



Then, as a result of the unexpected additional easing, the Yuan  promptly slumped back under 7.00, potentially risking the framework of  the US-China trade deal, and the reversal in the US Treasury's  designation of China as a currency manipulator.



More at: https://www.zerohedge.com/markets/ch...ervention-rate

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## Swordsmyth

*More than half of China extends shutdown over virus*

----------


## Swordsmyth

Macau said Tuesday it will temporarily close all casinos as the  gambling hub battles the deadly coronavirus, cutting off the lifeblood  of the city's economy.
The move came as the former Portuguese  colony confirmed its tenth case of the virus, which has killed more than  400 people in China, infected tens of thousands, and spread to more  than 20 countries.
Chief Executive Ho Iat-seng, a pro-Beijing  appointee who took office in December, said the gambling industry would  close for two weeks, but warned that could be extended if the virus  continues to spread.
"This is a difficult decision, but we have to do it for the health of our Macau residents," he told reporters.
He said he would meet gaming industry representatives on Tuesday afternoon and announce precise timings soon after.
Gaming  stocks plunged after the announcement, with Sands China down 2.4  percent, Galaxy Entertainment down four percent and Wynn Macau down 1.9  percent in afternoon trading.
The only other time Macau has closed its casinos was in 2018, when the city was hit directly by a typhoon.
On Tuesday, health authorities announced two fresh infections -- one a woman who worked in the gaming industry.
As the only place in China where gambling is allowed, Macau's casinos account for about 80 percent of government revenue.
Some  35 million people visited the densely crowded city of just 632,000  people last year -- the vast majority mainland Chinese heading to  casinos which rake in each week what Las Vegas takes in a month.
The virus has hammered the industry over what would usually be one of its busiest periods -- the Lunar New Year holidays.
The number of visitors plunged 80 percent in the past week.

More at: https://news.yahoo.com/macau-close-c...055758037.html

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## Swordsmyth

(Reuters) - U.S. stock index futures jumped 1% on Tuesday, signaling a  recovery for Wall Street from a sharp coronavirus-led pullback last  week, with fresh intervention by China’s central bank calming investor  nerves.

In a bid to cushion the economic blow of the epidemic, *China injected 1.7 trillion yuan ($242.74 billion) via reverse repos on Monday and Tuesday*, helping Chinese stocks reverse some losses and lifting the world equity index.
...
https://www.reuters.com/article/us-u...-idUSKBN1ZY1QG

----------


## Swordsmyth

Everything is wonderful Wednesday morning, because an unverified report from Chinese state television sparked a massive surge in equity futures as the Communist Party-controlled media intimated that the coronavirus might soon be cured.
  Cure or no cure, it's clear the Chinese are going all-in on  propaganda for the sake of preserving 'social cohesion'. It might sound  crazy, but it's beyond the grasp of algos to process the likelihood that  Beijing is simply trying to regain control of the narrative as they  struggle to get in front of the inevitable reckoning with the truth.
  Economists have been trying to gauge the blowback from the outbreak  as the virus begins to disrupt global supply chains, but as more  factories on the mainland announce extended shutdowns and delays, that's  getting increasingly difficult to do.
  Yesterday, we noted how  Hyundai Motor Co. and its sister Kia Motors Corp. suspended production  lines in South Korea after it was hit with a parts shortage from China  as the virus outbreak broadened. 

  Now there is a new report that could create huge problems for  America's most valuable company: Apple supplier Foxconn said Wednesday  that its facilities in China could take several weeks to resume full  production, or at least that's what one source with insider knowledge  told Reuters. 
  Foxconn is responsible for assembling Apple iPhones in China.


We noted Monday that Foxconn halted "almost all" of its production lines until Feb. 10.
  Any production delays after that could dramatically impact Apple's iPhone shipments abroad.
  Reuters' source said full resumption for production at the company's  factories might not arrive until late February or early March.

More at: https://www.zerohedge.com/markets/fo...-late-february

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## Swordsmyth

Copper traders in China, the world’s largest buyer of the metal, have  asked miners from Chile to Nigeria to cancel or delay shipments as the  deadly coronavirus outbreak hits demand.
 Multiple Chinese copper buyers said they had scrapped or postponed  overseas orders by declaring force majeure since the end of January,  when Beijing began to report a surge in coronavirus infections. 



 Copper, a barometer for the health of the global economy, is the latest commodity to fall victim to the epidemic. 
 China’s efforts to contain the virus, ranging from restricting  highway traffic to extending the lunar new year holiday, have affected  industrial activity and raised concerns about growth in the world’s  second-biggest economy. 
 Chinese buyers of liquefied natural gas  have also considered declaring force majeure, a clause that identifies  natural disasters or other unavoidable catastrophes as cause for not  fulfilling a contract.
 “Coronavirus has had a huge impact on copper demand as downstream  users [involved in processing raw copper] have stopped acquiring raw  material,” said a manager at Guangzhou Zhongshan Trade, a non-ferrous  metal trading firm in southern China that focuses on copper and  antimony. 
 Guangzhou Zhongshan this week asked suppliers in Chile and Somalia to  delay shipments of 500 tonnes of copper worth about Rmb25m ($3.57m) for  at least a week. It has also cancelled a preliminary contract with a  seller in Somalia and has stopped placing new orders.
 “The epidemic is not just a China issue, it is a global problem,” the  manager said, adding that its customers had not objected to its  decision.
 Business activity at Guangzhou’s port, one of the biggest in China  for commodities trading, has plunged with fewer than a third of workers  on duty, the manager added.
 In the coming weeks at least a dozen other Chinese copper buyers  could use force majeure to try to renegotiate copper import contracts,  said traders in the city. Guangzhou is about 1,000km south of Wuhan, the  outbreak’s centre.
 Copper users, ranging from car companies to home appliance makers,  face a sharp drop in sales if the outbreak continues to worsen. 
 Consultancy Wood Mackenzie said demand for copper-related products  could suffer “further disruptions” after more than a dozen provinces  imposed restrictions on people’s movements in an attempt to contain the  disease. 

More at: https://dnyuz.com/2020/02/07/chinese...force-majeure/

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## Swordsmyth

Apple's main iPhone  assembler Foxconn has told employees not to return to work at its  Shenzhen facility in China when the extended Lunar New Year break ends  on February 10, according to a memo obtained by _Bloomberg_. 

"To  safeguard everyone's health and safety and comply with government virus  prevention measures, we urge you not to return to Shenzhen," Foxconn  wrote in a text message sent to employees. "We'll update you on the  situation in the city. The company will protect everyone's work-related  rights and interests in the duration. As for the happy reunion date in  Shenzhen, please wait for further notice."Foxconn has reportedly halted  almost all of its production in China as the government and businesses  attempt to contain the coronavirus outbreak in the country, where more  than 31,000 cases have been reported so far. 

It's unclear  whether the Shenzhen policy extends to all employees or to Foxconn's  other facilities. Earlier this week, the *iPhone* manufacturer said it  planned to resume full-scale production by February 10.  Other Apple suppliers such as Quanta Computer, Inventec and LG Display  also said they would go back to work next week in China, but sticking to  that plan seems less certain by the day. 

More at: https://www.macrumors.com/2020/02/07...-from-shenzen/

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## Swordsmyth

For years, China has been the biggest buyer for farmers in Thailand, Myanmar and Vietnam, Nikkei  reports. Now, with the coronavirus closing down importers and weighing  on demand, farmers are being forced to instead sell their products in  local markets for a serious discount.
 *"The coronavirus has undoubtedly hurt business,"* said Maung Phyu, a 48-year-old farmer north of Yangon, in an interview with the Nikkei Asian Review. *"There aren't many things the [Myanmar] government can do for us in this situation."*
  Over the last decade, as China's population boomed, the county became  the biggest buyer of fruits and vegetables from its neighbors. Thailand  and Vietnam now export about 25% of their agricultural products to  China, while Myanmar sends more than 50% of its harvest according to  ASEANStats.

  In the poorest, most rural parts of these three countries, farming is critical: without it, local economies could collapse.
  One farmer said he sent dozens of truckloads of fruit to the border  with China's Yunnan Province every day during the harvest season. Now,  those shipments have stopped, while some have spoiled after being  unexpectedly held up at the border.
 Three years ago, Maung Phyu contracted with several Chinese traders  to supply watermelons and muskmelons. Almost every day during the  harvest season, he would send truckloads of fruit to Muse, *a border town in China's southernmost Yunnan Province. He sent 70 shipments in December followed by 120 in January.*
  But now all shipments have stopped, and even transporting goods to  the border is discouraged. "We were told not to send our produce to the  border, as there was nobody to buy it," said Maung Phyu.
  Fishery products like crabs and eels are also being held up, said a commerce ministry official in Muse.
*The situation has forced Maung Phyu to sell at domestic  markets in Yangon, where watermelons go for only 3,000 kyat to 5,000  kyat ($2.00 to $3.50) each, compared with 10,000 kyat on the export  market.* Muskmelons also only fetch 50% to 70%. "Many farmers  haven't harvested their crops, and when they do they'll have nowhere to  bring them," he said.Since millions of Chinese have been ordered not to leave their homes,  shopping for fresh fruit and vegetables has become far more difficult.
 He said the lockdowns in Chinese cities have disrupted logistics  while tighter border inspections have lengthened wait times, causing  fruit to spoil before it gets to market. *"Chinese have been ordered to stay home, and that means no shoppers,"* said Jira. "And if they manage to go out, they only buy necessities, not durian."Thailand's durian farmers, who recently expanded their operations  following a spike in demand for durian in China, are being left in the  lurch.

More at: https://www.zerohedge.com/geopolitic...ammers-farmers

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## Swordsmyth

Soon the only food that will be affordable in China, is coronabat stew.
  With over 400 million people across dozens of Chinese cities living  in lock down as a result of the Coronavirus pandemic, crippling global  supply chains and grinding China's economy to a halt, it is easy to  forget that China has been battling another major viral epidemic for the  past two years: namely the *African Swing Fever virus*,  aka "pig ebola" which killed off over half of China's pig population in  the past year, sending pork prices soaring, and unleashing a tidal wave  of inflation.
  Well, moments ago, the world got a stark reminder of this when China  reported that in January, its CPI jumped by whopping 5.4% Y/Y, the  highest print in nine years...


  ... driven by a surge in pork prices, which reversed a rare drop in  December when the slid by 5.6%, rising 8.5% in just ont month, and a  record 116% compared to a year ago.

  This unprecedented surge in pork CPI meant that China's food CPI rose  a record 20.6% in January, also the highest on record, as China's  population, now ordered to live under self-imposed quarantine, suddenly  finds it can no longer afford to buy food .

  Needless to say, this is suddenly a major problem for China, whose  central bank has in the past two weeks unleashed an unprecedented  liquidity tsunami, including the biggest ever reverse repo injection...

  ... in hopes of stabilizing the stock market. Well, oops, because  some of this liquidity now appears to be making its way into the broader  economy, and is making already scarce food (aside from bat stew of  course) even more unaffordable, and the already depressed and dejected  Chinese population even more hungry, and angry.


More at: https://www.zerohedge.com/economics/...d-central-bank

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## Swordsmyth

Bloomberg cited  a new report via China Merchants Securities (CMSC) that said new  apartment sales crashed 90% in the first week of February over the same  period last year. Sales of existing homes in 8 cities plunged 91% over  the same period.
  "The sector is bracing for a worse impact than the 2003 SARS  pandemic," said Bai Yanjun, an analyst at property-consulting firm China  Index Holdings Ltd. "In 2003, the home market was on a cyclical rise.  Now, it's already reeling from an adjustment."
  Long before the coronavirus outbreak, China's housing market has been  on shaky grounds amid declining demand, stricter mortgage requirements,  and price discounts.
  The latest shock: two-thirds of China's economy has come to a standstill, could generate enough pessimism to pop the country's massive housing bubble. 

  After all, coronavirus is a mass distraction from the overall domestic problems the Communist Party of China (CPC) faces.
  The CPC failed to stimulate the economy last year, with credit  impulse not turning up as expected. The virus outbreak has allowed the  CPC to scapegoat the slowdown and the inevitable crash.   
 "…China's ability to stimulate its economy is now virtually nil,  since China's record debt load has now made it virtually impossible to  push the country's credit impulse higher," we noted last week. 
  Real estate transactions have been forbidden in many cities. This  means fire sales could be seen once selling restrictions end.  
  E-House China Enterprise Holdings Ltd.'s research institute said four  units per day were being sold in Beijing last week, and this is down  from several hundred per day during the same period in the previous  year. 
  China International Capital Corp. analyst Eric Zhang said demand  could pick back up in April, assuming the virus outbreak is under  control. 


However, residents in major cities are frightened by the virus outbreak and how easily it spreads in apartment buildings. 


More at: https://www.zerohedge.com/markets/wo...-week-february

----------


## Bern

> OPEC has dramatically lowered its forecast for oil demand growth this year, citing China's coronavirus outbreak as the "major factor" behind its decision.
> 
> In a closely-watched monthly report published Wednesday, the Middle East-dominated producer group downwardly revised its outlook for global oil demand growth to 0.99 million barrels per day (bpd) in 2020. That's down by 0.23 million bpd from the previous month's estimate.
> ...


https://www.cnbc.com/2020/02/12/opec...h-in-2020.html

OPEC says oil demand is going to fall roughly 20% of baseline due to impacts of coronavirus on China (and the world).





> ...
> The coronavirus outbreak in China has generated economic waves that are rocking global commodities markets and disrupting the supply networks that act as the backbone of the global economy.
> 
> “We’re seeing a rippling out,” said Ed Morse, global head of commodities research at Citigroup in New York. “And we don’t see it stopping.”
> 
> Prices for key industrial raw materials such as copper, iron ore, nickel, aluminum and liquid natural gas have plummeted since the virus emerged. Currencies of countries that export these goods at high rates, including Brazil, South Africa and Australia, are near their lowest levels in recent memory. And manufacturers, mining companies and commodity producers of all stripes are weighing whether they will be forced to cut back on production for fear of adding to a growing inventory glut.
> 
> The woes of the commodities markets — arguably the worst-performing asset in financial markets this year — reflect the basic reality that China’s industry-heavy economy is the most important consumer of raw materials on earth.
> ...
> ...


https://www.nytimes.com/2020/02/11/b...mmodities.html

Industrial commodities are hardest hit from slowdowns in China's manufacturing.  




> Chinese President Xi Jinping warned top officials last week that efforts to contain the new coronavirus had gone too far, threatening the country’s economy, sources told Reuters, days before Beijing rolled out measures to soften the blow.
> 
> With growth at its slowest in nearly three decades, China’s leaders seem eager to strike a balance between protecting an already-slowing economy and stamping out an epidemic that has killed more than 1,000 people and infected more than 40,000.
> 
> After reviewing reports on the outbreak from the National Development and Reform Commission (NDRC) and other economic departments, Xi told local officials during a Feb 3 meeting of the Politburo’s Standing Committee that some of the actions taken to contain the virus are harming the economy, said two people familiar with the meeting, who declined to be named because of the sensitivity of the matter.
> 
> He urged them to refrain from “more restrictive measures”, the two people said. 
> ...


https://www.reuters.com/article/us-c...-idUSKBN2050JL

Turn those machines back on!

----------


## ghengis86

> Bloomberg cited  a new report via China Merchants Securities (CMSC) that said new  apartment sales crashed 90% in the first week of February over the same  period last year. Sales of existing homes in 8 cities plunged 91% over  the same period.
>   "The sector is bracing for a worse impact than the 2003 SARS  pandemic," said Bai Yanjun, an analyst at property-consulting firm China  Index Holdings Ltd. "In 2003, the home market was on a cyclical rise.  Now, it's already reeling from an adjustment."
>   Long before the coronavirus outbreak, China's housing market has been  on shaky grounds amid declining demand, stricter mortgage requirements,  and price discounts.
>   The latest shock: two-thirds of China's economy has come to a standstill, could generate enough pessimism to pop the country's massive housing bubble. 
> 
>   After all, coronavirus is a mass distraction from the overall domestic problems the Communist Party of China (CPC) faces.
>   The CPC failed to stimulate the economy last year, with credit  impulse not turning up as expected. The virus outbreak has allowed the  CPC to scapegoat the slowdown and the inevitable crash.   
>  "…China's ability to stimulate its economy is now virtually nil,  since China's record debt load has now made it virtually impossible to  push the country's credit impulse higher," we noted last week. 
>   Real estate transactions have been forbidden in many cities. This  means fire sales could be seen once selling restrictions end.  
> ...


I was perplexed when I first heard this route, but I read that the transmission through apartment pipes has a lot to do with the lack of S- and P-traps and proper venting of plumbing. Makes more sense now bc improper venting and use of traps can allow sewer gases (and any other airborne particles) to infiltrate the living space. I dont know the the plumbing codes in China/Asia and if this is true, but it would at least help explain the theory.

----------


## ghengis86

14+ plus new cases
240+ new deaths in Hubei alone

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## Swordsmyth

> 14+ plus new cases
> 240+ new deaths in Hubei alone


 One big reason China's #COVID19 new case numbers seem to be slowing down is testing has in places stopped:
"Huanggang  City has id'ed 10 instits to conduct testing, w/a daily testing  capacity of 900…The previous stocks were all tested on February 9."https://t.co/m1Bs3JuGsQ
 — Laurie Garrett (@Laurie_Garrett) February 12, 2020

Who knows what the real numbers are?

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## Swordsmyth

*China Auto Sales Plunge In January; And February Could Be Much, Much Worse*

----------


## Swordsmyth

In our ongoing attempts to glean some objective insight into what is  actually happening "on the ground" in the notoriously opaque China,  whose economy has been hammered by the Coronavirus epidemic, yesterday we showed several "alternative" economic indicators  such as real-time measurements of air pollution (a proxy for industrial  output), daily coal consumption (a proxy for electricity usage and  manufacturing) and traffic congestion levels (a proxy for commerce and  mobility), before concluding that China's economy appears to have ground  to a halt.
  That conclusion was cemented after looking at some other real-time  charts which suggest that there is a very high probability that China's  GDP in Q1 will not only flatline, but crater deep in the red for one  simple reason: *there is no economic activity taking place whatsoever.*
  We start with China's infrastructure and fixed asset investment,  which until recently accounted for the bulk of Chinese GDP. As Goldman  writes in an overnight report, in the Feb 7-13 week, steel apparent  demand is down a whopping 40%, but that's only because flat steel is  down "only" 12% Y/Y as some car plants have ordered their employee to  return to work (likely against their will as the epidemic still rages).


  However, it is the far more important - for China's GDP -  construction steel sector where apparent demand has literally hit the  bottom of the chart, *down an unprecedented 88% Y/Y* or as Goldman puts it, "*construction steel demand is approaching zero."*

  But wait, there's more.
  Courtesy of Capital Economics, which has compiled a handy breakdown of real-time China indicators,  we can see the full extent of just how pervasive the crash in China's  economy has been, starting with familiar indicator, the average road  congestion across 100 Chinese cities, which has collapsed into the New  Year and has since failed to rebound.

Parallel to this, daily passenger traffic has also flatlined since the New Year and has yet to post an even modest rebound.

And the biggest shocker: a total collapse in passenger traffic  (measured in person-km y/y % change), largely due to the quarantine that  has been imposed on hundreds of millions of Chinese citizens.

And while we already noted the plunge in coal consumption in power plants as Chinese electricity use has cratered...

...what is perhaps most striking, is the devastation facing the Chinese  real estate sector where property sales across 30 major cities have  basically frozen. 

Finally, and most ominously perhaps, as the economy craters and  internal supply chains fray, prices for everyday staples such as food  are soaring as China faces not only economic collapse, but also surging  prices for critical goods, such as food as shown in the wholesale food  price index chart below...

More at: https://www.zerohedge.com/economics/...proaching-zero

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## Swordsmyth

*Wuhan's Hastily-Constructed 1,000-Bed Coronavirus Hospital Is Already Falling Apart*

----------


## Swordsmyth

Last week we reminded readers that unless Beijing manages to contain  the coronavirus epidemic, China faces a fate far worse than just  reported its first ever 0% (or negative) GDP print in history. For those  who missed it, here it is again: back in November, we reported that as  part of a stress test conducted by China's central bank in the first  half of 2019, 30 medium- and large-sized banks were tested; In the  base-case scenario, *assuming GDP growth dropped to 5.3% - nine  out of 30 major banks failed and saw their capital adequacy ratio drop  to 13.47% from 14.43%. In the worst-case scenario, assuming GDP growth  dropped to 4.15%, some 2% below the latest official GDP print, more than  half of China's banks, or 17 out of the 30 major banks failed the test.  Needless* to say, the implications for a Chinese financial  system - whose size is roughly $41 trillion - having over $20 trillion  in "problematic" bank assets, would be dire.
  Well, with GDP set to print negative if Goldman is right (with risk  clearly to the downside as China's economy remains completely paralyzed)...

  ... every single Chinese bank is set to fail a "hypothetical" stress  test, and the immediate result is an exponential surge in bad debt. The  result, as we discussed in detail last week, is that the bad loan ratio  at the nation's 30 biggest banks would soar at least five-fold, and  potentially far, far more, flooding the country with trillions in  non-performing loans, and unleashing a tsunami of bank defaults.

  Of course, regular readers are well aware that China's banks are  already suffering record loan defaults as the economy last year expanded  at the slowest pace in three decades while bankruptcies soared. As  extensively covered here previously, the slump tore through the nation’s  $41 trillion banking system, forcing not only the first bank seizure in  two decades as Baoshang Bank was nationalized , but also bailouts at  Bank of Jinzhou, China's Heng Feng Bank,  as well as two very troubling bank runs at China's Henan Yichuan Rural  Commercial Bank at the start of the month, and then more recently at  Yingkou Coastal Bank.

  All that may be a walk in the park compared to what is coming next.
  "The banking industry is taking a big hit," You Chun, a Shanghai-based analyst at National Institution for Finance & Development told Bloomberg. "*The  outbreak has already damaged China’s most vibrant small businesses and  if it prolongs, many firms will go under and be unable to repay their  loans."*
  According to a recent Bloomberg report, S&P  estimates that a worst-case scenario (one which however saw GDP remain  well in positive territory) would cause bad debt to balloon by 5.6  trillion yuan ($800 billion), for an NPL ratio of about 6.3%, adding to  the already daunting 2.4 trillion yuan of non-performing loans China’s  banks are sitting on (a number which, like the details of the viral  epidemic, is largely massaged lower and the real number is far higher  according to even conservative skeptics).
  S&P also expects that banks with operations concentrated in Hubei  province and its capital city of Wuhan, the epicenter and the region  worst hit by the virus, will likely see the greatest increase in problem  loans. *The region had 4.6 trillion yuan of outstanding loans  held by 160 local and foreign banks at the end of 2018, with more than  half in Wuhan.* The five big state banks had 2.6 trillion yuan  of exposure in the region, followed by 78 local rural lenders, according  to official data.
  Meanwhile, exposing the plight of small bushiness, most of which are indebted to China's banks, *a  recent nationwide survey showed that about 30% said they expect to see  revenue plunge more than 50% this year because of the virus and 85% said  they are unable to maintain operations for more than three months with  cash currently available.* Perhaps they were exaggerating in  hopes of garnering enough sympathy from Beijing for a blanket bailout;  or perhaps they were just telling the truth.
  Finally, the market is increasingly worried that all this bad debt  will have a dire impact on bank assets: consider that the “big four”  state-owned lenders, which together control more than $14 trillion of  assets, currently trade at an average 0.6 times their forecast book  value, near a record low. *This also means that in the eyes of the market, as much as $6 trillion in bank assets are currently worthless.*
  All of this led us to conclude last week that "*nothing short  of a coronavirus cataclysm faces both China's banks and small businesses  if the coronavirus isn't contained in the coming weeks*."
  In retrospect, there is one thing we forgot to footnote, and that is  that China could buy some extra time if the central bank suspend  financial rules and moves the goalposts once again.
  And so, just three days after our first article on China's looming  bad debt catastrophe, that's precisely what the PBOC has opted to do,  because as Reuters writes, on Saturday *the PBOC said that the  country's lenders will tolerate higher levels of bad loans, part of  efforts to support firms hit by the coronavirus epidemic.*
  "We will support qualified firms so that they can resume work and  production as soon as possible, helping maintain stable operations of  the economy and minimizing the epidemic's impact," Fan Yifei, a vice  governor at the People's Bank of China, told a news conference.
  He added that the problem will be manageable as China has a relatively low bad loan ratio.
  What the PBOC really means is that China's zombie companies are about  to take zombification to a preciously unseen level, as neither the  central bank nor its SOE-commercial bank proxies will demand cash  payments amounting to billions if not trillions of dollars from debtors,  who will plead "_force majeure_" as part of their debt default  explanation. In other words, we may be about to see the biggest "under  the table" debt jubilee in history, as thousands of companies are  absolved from the consequences of having too much debt.


Separately, during the same briefing, Liang Tao, vice chairman of the  China Banking and Insurance Regulatory Commission, said that lending  for key investment projects will be sped up, while Xuan Changneng, vice  head of the country's foreign exchange regulator, said China was  expected to maintain a small current account surplus and keep a basic  balance in international payments. We wouldn't hold our breath for a  surplus if China is indeed producing nothing as real-time indicators  suggest.
  And just so the message that _debt will flow no matter what_ is  heard loud and clear, on Friday, said Liang Tao, vice-chairman of the  China Banking and Insurance Regulatory Commission said that financial  institutions in the banking sector had provided more than 537 billion  yuan ($77 billion) in credit to fight against the novel coronavirus  outbreak as of noon on Friday.
  "The regulator will soon launch more measures to give stronger credit  support to various industries," said Liang at a news conference held by  the State Council Information Office on Saturday. "It will continue to  lead banks' efforts on increasing loans to small and micro enterprises,  making loans accessible to a larger number of small businesses, and  further lowering their lending costs."
  Hilariously, Liang highlighted the importance for banks to take  accurate measures to renew loans for small businesses to reduce their  financial pressure. It wasn't clear just how burdening the small  businesses with even more debt they will never be able to repay reduces  financial pressure, but we can only assume that this is what is known as  financial strategy with Chinese characteristics.

More at: https://www.zerohedge.com/economics/...void-financial

----------


## Swordsmyth

Half of China, or 750 million people are under lockdown

----------


## Bern

> ...
> A comparison of the latest forecasts from the world’s three big oil agencies — the International Energy Agency, the U.S. Energy Information Administration and the Organization of Petroleum Exporting Countries — highlights the huge uncertainty that exists over the virus’s repercussions for oil demand. As may be expected for a body representing oil producers, OPEC sees the impact as minimal, having just cut its first-quarter forecast for global oil demand by only 400,000 barrels a day. That looks like wishful thinking. The IEA’s revision is three times as big, and if its forecast bears out, it’s deep enough to tip the world into its first year-on-year drop in demand in more than a decade.
> ...


More:  https://www.bloomberg.com/opinion/ar...d?srnd=opinion

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## Swordsmyth

A  growing number of China’s private companies have cut wages, delayed  paychecks or stopped paying staff completely, saying that the economic  toll of the coronavirus has left them unable to cover their labor costs.To  slow the spread of the virus that’s claimed more than 2,000 lives,  Chinese authorities and big employers have encouraged people to stay  home. Shopping malls and restaurants are empty; amusement parks and  theaters are closed; non-essential travel is all but forbidden.
What’s  good for containment has been lousy for business. With classes canceled  at a coding-and-robotics school in Hangzhou, employees will lose 30% to  50% of their wages. The Lionsgate Entertainment World theme park in  Zhuhai is closed, and workers have been told to use up their paid  vacation time and get ready for unpaid leave.“A week of unpaid leave is  very painful,” said Jason Lam, 32, who was furloughed from his job as a  chef in a high-end restaurant in Hong Kong’s Tsim Sha Tsui neighborhood.  “I don’t have enough income to cover my spending this month.”
Across  China, companies are telling workers that there’s no money for them --  or that they shouldn’t have to pay full salaries to quarantined  employees who don’t come to work. It’s too soon to say how many people  have lost wages as a result of the outbreak, but in a survey of more  than 9,500 workers by Chinese recruitment website Zhaopin, more than  one-third said they were aware it was a possibility.
The  salary freezes are further evidence of the economic hit to China’s  volatile private sector -- the fastest growing part of the world’s  second-biggest economy -- and among small firms especially. It also  suggests the stress will extend beyond the health risks to the financial  pain that comes with job cuts and salary instability.“The coronavirus  may hit Chinese consumption harder than SARS 17 years ago,” said Chang  Shu, Chief Asia Economist for Bloomberg Intelligence. “And SARS walloped  consumption.”
By  law, companies have to comply with a full pay cycle in February before  cutting wages to the minimum, said Edgar Choi, a Shenzhen-based lawyer  and author of “Commercial Law in a Minute.” For companies that aren’t  making enough to cover payroll, it’s permissible to delay salaries, as  long as staff get the money they’re owed eventually.Choi said he’s heard  from thousands of foreign workers who say their payments have been cut  in half this month or halted althogether. That, he said, is illegal. “A  lot of these employees are foreigners, they don’t know Chinese,” he  said. “Whatever their boss tells them, that’s it. It’s easy for them to  get bullied.”NIO Inc., an electric car-maker based in Shanghai, recently  delayed paychecks by a week. The company’s chairman William Li also  encouraged employees to accept restricted stock units in lieu of a cash  bonus.
At  Foxconn Technology Group’s Shenzhen factory, workers returning from the  Lunar New Year break are quarantined in the dorms before they can  return to work. They’re getting paid, but only about one-third of what  they’d earn if they were working.Without full, regular paychecks and few  places to spend them these days anyway, Chinese consumers could cut  spending in some categories to zero, said Bloomberg’s Shu. And it may  not bounce back: For example, she said, if you skip your daily latte for  two months, you’re not likely to make up for those missed drinks later  in the year.

More at: https://finance.yahoo.com/news/chine...020241284.html

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## Swordsmyth

There was a palpable sense of disappointment last night when instead  of cutting its benchmark overnight interest rates as some - notably  Goldman Sachs - had speculated might happen, the PBOC announced that it  would only lower its benchmark 1- and 5-year lending rates, i.e., Loan  Prime Rate, by 10bps to 4.05% and 5bps to 4.75% respectively, a move  that was widely anticipated.

  The underwhelming rate cuts left analysts asking for more as  consensus emerged that piecemeal lending rate cuts can only help the  Chinese economy so much, especially if China is indeed set to unleash  fiscal austerity as local Chinese media reported over the weekend:  “The ten basis point reduction will help companies weather the damage  from the coronavirus at the margins,” Julian Evans-Pritchard, senior  China economist at consultancy Capital Economics, wrote in a note after  PBOC published its latest loan prime rates. *“But even if the ...  cut is passed on to all borrowers, that would only decrease average  one-year bank lending rates from 5.44% to 5.34%.* The ability of firms to postpone loan repayments and access loans on preferential terms will matter more in the near-term."
  However the market's bitter taste from the underwhelming rate cut was  quickly reversed after the PBOC reported its latest monthly credit  data, which was a whopper, blowing out market expectations: total social  financing, the broadest credit aggregate, soared by over 5 trillion  yuan, the biggest one month injection on record, surprising the market  to the upside mainly on higher government bond issuance. According to  Goldman, "this mainly reflected the economic conditions and policy  stance as the economic impacts from the virus were still rising."

  Here is the summary from the January credit stats:

Total social financing: RMB 5070BN in January, vs. consensus: RMB 4200bn.New CNY loans: RMB 3340BN in January; consensus: RMB 3100BN.Outstanding CNY loan growth: 12.1% yoy in January vs December: 12.3% yoyM2: 8.4% yoy in January vs. consensus: 8.6% yoy, and above December's 8.2% yoy
Putting it in context, *the total credit injection of  more than 5 trillion yuan, or roughly $725 billion, in one month, was  the single biggest on record.*

  The surge in TSF was mostly the result of another solid month in new  yuan loan growth, which increased by 3.34BN, also the biggest monthly  increase on record.

  According to the PBOC, *TSF stock growth (after adding all government bonds) was 10.9% yoy in January, the same as December.*  The implied month-on-month growth of TSF stock accelerated to 12.6%  (seasonally adjusted annual rate) from 11.1% in December, largely due to  a burst in local government debt. If we exclude central government  bonds and general local government bonds from the TSF flows, the TSF  stock growth moderated marginally to 11.0% yoy in January from 11.1% in  December.
  Issuance of local government special bonds is one of the key tools of  fiscal policy. According to Wind statistics, local government special  bonds of RMB 63bn have been issued in the first 20 days of February and  another RMB 56bn of special bonds are in the pipeline as of Feb. 25  (Exhibit 3).

  That said, since the local government debt does eventually enter the  local economy, even if under the form of embezzlement and corruption,  there is no reason to exclude it, which means that January saw the  biggest credit injection in Chinese history.
  But the most notable change, was the first positive print in China's  shadow banking proxy since March 2019, which increased by CNY181BN, in  what according to Goldman was the "clearest policy signal" in the  month's data.



More at: https://www.zerohedge.com/markets/ch...economic-crash

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## Swordsmyth

Choked  off from suppliers, workers, and logistics networks, China’s  manufacturing base is facing a multitude of unprecedented challenges, as  coronavirus containment efforts hamper factories’ efforts to reopen.

Many  of those that have been granted permission to resume operations face  critical shortages of staff, with huge swathes of China still under  lockdown and some local workers afraid to leave their homes. Others  cannot access the materials needed to make their products, and even if  they could, the shutdown of shops and marketplaces around China means  demand has been sapped.

Those  who manage to assail the challenges, meanwhile, have found that  trucking, shipping and freight services are thin on the ground, as  China’s famed logistical machine also struggles to find workers
 and navigate provincial border checkpoints that have popped up across the country

“It  really is death by a thousand cuts,” said John Evans, managing director  of Tractus Asia, a company that has 20 years’ experience helping firms  move to China, but which over the past two has had more enquiries from  businesses looking to leave. “This is a black swan event and I don’t  think we’ve seen anything like it in recent history, in terms of the  economic and supply chain impact in China and across the globe.”


Australian  company B&R Enclosures, which makes units for protecting industrial  equipment, said the outbreak has cut it off from suppliers and delayed  the return of its migrant workers from their hometowns, following the  extended Lunar New Year break. Only 15 per cent have come back, B&R  China general manager Marko Dimitrijevic said.

“All supply chains are having trouble, it’s very serious,” he said. “Even if we declare _force majeure_  [to avoid paying hefty damages for late deliveries], we will not be  delivering and that means many of us will risk losing our customers. For  many companies, this could mean bankruptcy.”

Dimitrijevic said he had to charter special buses to transport his workers
  from other parts of China back to Suzhou, a city west of Shanghai. When  they returned, he had to book hotel rooms to house them for another 14  days in quarantine as their neighbours “will not let them go home”. He  was paying about 350 yuan (US$50) in accommodation for each employee.

“While  work has officially started last week, most employees were still  quarantined or just on their way back due to lack of transport,”  Dimitrijevic said. “It would be about a month in production delays by  the time we start next week, and by then we would not even be able to  run full operations.”


Based  on the Baidu Migration Index, analysts at Nomura estimated that only  25.6 per cent of migrant workers had returned to work across 15 sample  cities by February 19, compared to 101.3 per cent a year earlier.

Refing  Enterprise Group, one of China’s three largest producers of piping for  plumbing, drainage and gas fields, is facing severe losses across its  nationwide factories, which are all in various states of idleness.

Its plants in Hubei – the epicentre of the coronavirus outbreak
  – and Tianjin remain in total shutdown. A factory in the central  Chinese city of Xian is operating at roughly 40 per cent, as is a plant  in Foshan, part of China’s manufacturing heartland in Guangdong, said  operations and quality director Robin Yang.

“February  is usually boom season for us, where we take orders from many of our  customers,” said Yang, speaking from the company headquarters in Foshan.  “But this year we have only taken about 20 million yuan (US$2.85  million) worth of new orders versus 400 million yuan (US$57 million)  last year. We have to assume the demand is still there, but it is  delayed.”


There  have been reports of cargo ships being marooned at sea, with ports in  countries with strict coronavirus quarantine rules such as Australia,  Singapore and the United States not permitting shipping personnel to  enter their ports if they have been in China over the past 14 days.

Andy  Lane, Asia director at shipping analysis firm Sea Intelligence, said  that Australia had seized two ships from China, belonging to Singaporean  line PIL and Chinese line COSCO, with the crew now undergoing a 14-day  quarantine period before they can unload their cargo.

While  43 sailings from Chinese ports to the US West Coast were cancelled  before the Lunar New Year holiday in anticipation of the seasonal  slowdown, “ subsequent to the holidays starting and we would say  directly related to the virus, a further 19 sailings were cancelled”,  Lane said.

A  further two cargo sailings were cancelled from China to the US East  Coast, five from Asian ports to North Europe and five from Asia to  Mediterranean ports, he added.


A  survey by the American Chamber of Commerce in Shanghai released this  week found that almost 80 per cent of respondents in the manufacturing  sector were unable to staff their production lines.

An  overwhelming 92 per cent of the 100 Australian and global businesses  surveyed by the Australian Chamber of Commerce Shanghai last week,  meanwhile, said the outbreak would have a negative impact on their  revenue in the first quarter of this year, with more than half saying it  could dent their top-line earnings by more than 20 per cent.

These  results suggest that foreign companies might re-evaluate their  relationships with China. For many, the virus comes after two long years  dealing with trade war tariffs
 and has added to the sense of China fatigue. It is for some “the straw that broke the camel’s back”, said Evans, from Tractus.

More at: https://www.scmp.com/economy/china-e...-pummelled-all

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## Swordsmyth

China's chicken farmers had been looking forward to a bumper year.But  an unprecedented lockdown on people and goods to curb the coronavirus  outbreak has disrupted the short but intense poultry lifecycle,  threatening output of meat just as the world's most populous country  faces a massive pork shortfall.
China's  poultry production expanded by 12% last year to 22.39 million tonnes,  after farmers sought to plug the gap from the pork shortage caused by  African swine fever that ravaged the domestic hog herd.


About  half of China's chickens are raised by individual farmers involved in  only one or two steps of the chicken chain, rather than integrated  operations.
But  that has made them vulnerable to the restrictions on movement and  labour shortage resulting from Beijing's efforts to curb the spread of a  new coronavirus that has killed more than 2,200 people and infected  around 75,000.
Many  roads to villages across the country are still blocked, despite  government efforts to ease problems for vital industries like food,  hampering feed deliveries and movement of birds.
Some  feed mills and slaughterhouses are still shut, while others are only  starting to reopen after extended holidays and operating below capacity.
That  has upset the flow of a supply chain that starts with the sale of  day-old chicks by hatcheries to breeding farms, continues with  distribution of broiler chickens to growers, and ends in the slaughter  of fattened birds, all in less than a year.
"Every step needs to work at the same pace, otherwise there will be an imbalance," said Pan Chenjun, senior analyst at Rabobank.
Pan  Xingle, who raises chickens in Yi county in Hebei province for a  slaughterhouse under contract, is still waiting to slaughter 16,000  birds that are already more than 50 days old.
Broilers  used for cheap meat by fast-food chains and public canteens reach their  maximum weight of 2.6 kg (5.7 lb) in around 40 days.
But the slaughterhouse has only just reopened after an extended holiday and farmers are queuing to kill their chickens.
"I was told I'll need to wait for at least another 10 days," said Pan.
That  means Pan won't be restocking his farm with new chicks for a while  longer, hurting business for some of the 45 million breeders that raise  'parent stock' around China.


Prices  for the day-old-chicks sold by those breeders are currently below cost,  ranging from 1.4 yuan to 2.5 yuan (about 20 to 35 U.S. cents) per  chick. The average price last year was 6.8 yuan.
Zhang  Yanguang, manager of breeding farm Beijing Lvyan Poultry Centre located  in a village in the northwest of the capital, said even if he could  sell his chicks, roads to the village are still blocked, and trucks can  neither go in nor out.
Worse,  most of the slaughterhouses in the northeast and northwest of China are  still shut so he can't get rid of unwanted birds either.
"The whole market is closed down," he said, estimating slaughter capacity is currently only running at around 30%.
If  pressure on farms like Zhang's continues past this month, it could  force some out of business, said Pan, the analyst, hitting the  hatcheries further upstream that raise grandparent stock to produce the  breeders.
"Then the hatcheries will have to destroy day-old chicks or eggs," she said.


Similar challenges are facing egg farmers who are unable to get fresh eggs to market nor replace their old hens.
"We  are selling our chicks really cheap, as little as 1.5 yuan instead of 4  yuan, so we're losing money," said Wang Lianzeng, chairman of Huayu  Agricultural Science and Technology Co Ltd, one of the country's largest  hatcheries for laying hens.

More at: https://finance.yahoo.com/news/china...064330369.html

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## Swordsmyth

When we commented earlier that the coronavirus pandemic means that  the vast majority of Chinese small and medium enterprises (SMEs) have at  most 2-3 months of cash left, a potentially catastrophic outcome that  will not only crippled China's economy but its $40 trillion financial  system, we summarized the circular quandary in which Beijing finds  itself, to wit:
 ... unless China reboots its economy, it faces an economic shock the  likes of which it has never seen before in modern times. Yet it can't  reboot the economy unless it truly stops the viral pandemic, something  it will never be able to do if it lies to the population that the  pandemic is almost over in hopes of forcing people to get back to work. *Hence the most diabolic Catch 22 for China's social and economic system*,  because whereas until now China could easily lie its way out of any  problem, in this case lying will only make the underlying (viral  pandemic) problem worse as sick people return to work, only to infect  even more co-workers, forcing even more businesses to be quarantined.Shockingly (or perhaps not at all in light of China's tremendous  human rights record), Beijing has picked output over life expectancy,  and in a furious scramble to restart its economy, which as we showed  earlier remains flatlined...


  ... according to most high-frequency metrics, it has been "advising"  people to get back to work, even as new coronavirus cases are still  coming in, in the process threatening to blow out the current epidemic  with orders of magnitude more cases as places of employment become the  new hubs of viral distribution.
  As Bloomberg picked up late on Sunday, following what we said earlier namely  that "local governments around the country face a daunting question of  whether to focus on staving off the virus or encourage factory  reopenings" China's central and local governments are one again easing  the criteria for factories to resume operations "as they walk a  tightrope between containing a virus that has killed more than 2,400  people and preventing a slump in the world’s second-largest economy."  This schizophrenic dilemma for a government which faces two equally  terrible choices, was best summarized by the following two banners  observed in China:

Banner 1 says: “If you go out messing around now, expect grass on your grave to grow soon.“Banner 2 says, “Sitting at home eats up all your have, hurry up go out & find a job.”
Indeed, a perfectly schizophrenic message from the government to the people:
 Banner 1 says: “If you go out  messing around now, expect grass on your grave to grow soon.“ Banner 2  says, “Sitting at home eats up all your have, hurry up go out & find  a job.” The slogan changes as frequently as they change the criteria  for #COVID19 diagnosis. #coronavirus pic.twitter.com/2VnB5jZ0zz
 — 曾錚 Jennifer Zeng (@jenniferatntd) February 23, 2020And yet, even with both options equally terrible, Beijing also has no  choice but to pick one. As a result, as Bloomberg writes, "the rush to  restart has been propelled by China’s leader Xi Jinping and top leaders,  who are urging companies to resume production so the country can  continue to meet lofty goals for growth and economic development in  2020."

More at: https://www.zerohedge.com/economics/...ijings-demands

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## Swordsmyth

International banks are suspending credit lines for some independent  oil refiners worried about the growing risk of defaults across  industries because of the coronavirus epidemic, Reuters reports, citing industry sources.


  According to the sources, at least three private refiners, or  teapots, have had credit lines to the tune of $600 million suspended by  banks including French Natixis, Dutch ING, and Singapore DBS Group  Holdings.

  _“All our applications for new open-account credits are  frozen ... these clean credits are pivotal as we buy 6 to 8 million  barrels of oil each month,”_ one source told Reuters.Refiners, both private and state, have already reduced their run  rates in response to the slump in fuel demand resulting from the  outbreak, and now they have deepened these cuts, Bloomberg reported last week.

*The average as of last Thursday was about 10 million bpd, down by 25 percent on the same time last year,* when  the average run rates were at a record high of close to 13 million bpd.  Analysts expect the low run rates to continue at least until the end of  this month, but if it spills into March, some refiners - notably  independent refiners - will start experiencing a lack of storage space,  too, after earlier this month they took advantage of low prices to stock  up on crude.

Now, on top of that, the teapots that have accounted for a large portion  of China’s increased thirst for oil that was instrumental in oil price recovery after the crisis, are having financing trouble.

More at: https://www.zerohedge.com/energy/no-...rs-run-trouble

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## Swordsmyth

One week ago, ahead of today's Chinese data release which would for  the first time capture the devastation from the coronavirus pandemic, we wrote that "to those who have been following our series of high-frequency, daily indicators of China's economy, it will probably not come as a surprise that the world's second biggest economy has ground to a halt, its GDP set to post the first negative print in modern history. To everyone else who is just now catching up, *we have some news: it's going to be bad."*
  Specifically, we said that ahead of official Chinese economic data  which will soon start capturing the period when the coronavirus crippled  the country's economy, Nomura's Chief China economist Ting Lu pointed  out that China’s Emerging Industries PMI (EPMI), which gauges momentum  in the country’s high-tech industries and is closely correlated with  official manufacturing PMI, slumped to 29.9 in February (from 50.1 in  January!), its lowest-print on record, which was a "_pure reflection of the devastating impact of the COVID-19 outbreak._"

  What would this mean for the closely followed China manufacturing  PMI? As Nomura added, "even adjusting for seasonality and expected  progress in business resumption in the coming week, *we estimate the official manufacturing PMI could drop to a range of 30-40 in Feb."*

  In retrospect, it turns out that Nomura's dire forecast was _optimistic_,  because moments ago China's National Statistics Bureau reported the  latest, February PMIs and they were absolutely catastrophic:

*Manufacturing PMI crashed to 35.7 in Feb, far below the 45.0 consensus estimate, and sharply down from 50.0 in January. A record low.**Non-Manufacturing PMI plummets to 28.9, also far below the 50.5 consensus, estimate, and down nearly 50% from the 54.1 in Jan. This too was a record low.*



Putting these numbers in context, they are *far, far worse  than the prints for both series reported during the financial crisis,  when the mfg PMI dropped to "only" 38.8, while the non-manufacturing PMI  never even contracted.*
  What is even more ominous is that while China's non-mfg PMI has  traditionally been stronger, in February not only did it collapse into  deep contraction, but it plunged to 5 points below where the  manufacturing sector currently finds itself, a catastrophic 20-handle.  This means that China's service industries, long seen as the guiding  light to China's successful transition away from a manufacturing-led  economy, is now devastated.
  Commenting on the unprecedented number, Bloomberg's China economist Tom Orlik said that  "the first credible gauge of how China's economy is fairing under virus  lock down - the official PMI - is pointing to a brutal drop into  contraction." Well, no: anyone who read our recent series analyzing  "high-frequency", real-time Chinese data already was already aware of  the catastrophic collapse in China's economy.

China Has Ground To A Halt: "On The Ground" Indicators Confirm Worst-Case ScenarioChina Is Disintegrating: Steel Demand, Property Sales, Traffic All Approaching ZeroTerrifying Charts Show China's Economy Remains Completely Paralyzed
Of course, we are confident that as so often happens, the market  will take these numbers in stride, as they will be an indication that  China is "kitchen sinking" the collapse, and a V-shaped recovery will  follow. Alas, it won't because while not only has China's economy not  picked up even modestly, but it is only a matter of time before Beijing,  which has forced people to go to work against their will, succumbs to a  second wave of coronavirus infections, one which will result in a far  worse economic collapse than the current one, which incidentally has yet  to show any _actual_ recovery!

More at: https://www.zerohedge.com/economics/...sh-record-lows

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## Swordsmyth

While the media is doing its best to pin the upcoming coronavirus  epidemic in the US on a botched response by the Trump administration,  with TrumpVirus already starting to trend across social media,  the truth is that no matter how bad Trump's reaction to the pandemic  is, it is rocket science compared to the botched, catastrophic actions  undertaken by China, which also happens to be source of the deadliest  global pandemic in decades.
  Here is a quick recap of what has happened so far in China:

The deadly _Covid-19_, i.e., SARS-like coronavirus,  originated as a byproduct of banned "gain of function" genetic  engineering conducted at the Wuhan Institute of Virology. Contrary to  the conventionally accepted official narrative, it then spread,  presumably by accident, to a nearby food market, where it infected  patient zero and the rest is history (in the meantime, anyone who  reported that the virus was sourced at the Wuhan Level-4 biolab was  ostracized, shunned, threatened, arrested or simply ordered to retract  their statement or research).In the early days of the pandemic, *in hopes of avoiding a panic*,  Beijing actively rounded up any doctors who tried to sound the alarm on  the danger that the coronavirus posed. Only three weeks later, around  Jan 20, did China start reporting official numbers associated with the  disease.Just days after it "broke the seal" on the information blackout,  Beijing quarantined over 60 million people in major Chinese cities, *in hopes of avoiding a further panic,*  and preventing further spread of the virus. Ultimately, over 700  million people - half of China's population - was put on some form of  lock down. Panic had by now spread across the mainland, as virtually  nobody in China had any idea what the facts were aside from the  government's propaganda.As a result of the widespread quarantine, China's economy came to a  complete halt and for weeks after the Lunar new year, various  high-frequency indicators showed that the economy has failed to reboot.  Realizing that an economic paralysis could be just as devastating for  its primary objective of preserving social calm and stability, Beijing  had a change of heart.Faced with a catastrophic dilemma, and forced to choose between  either economic collapse due to mass quarantines, or economic collapse  due to a frozen economy - with the bulk of China's SMEs which are  responsible for 60% of China's GDP, facing insolvency in 2-3 months  unless things return to normal - Beijing reversed track and started to  openly manipulate the coronavirus data in mid-February *to contain the widespread panic*  and give the impression that it had the pandemic under control, even  though periodic reports demonstarting just how Beijing was lying about  the real numbers and occasional "changes in definition" which resulted  in a surge in "new cases" confirmed to the population how Beijing was  purposefully underreporting the full extent of the pandemic. *This only made the distrust worse, not helping to contain the rising panic.*Meanwhile, with social media reporting of mass arrests and still  showing sick Chinese citizens collapsing or outright dying out of the  blue, the population lost all faith in anything disclosed by central  government and virtually nobody went back to work  despite the politburo's strict orders to do so, correctly convinced  that Beijing is lying and the pandemic is far from contained. The panic  continued, as did China's economic devastation.
We know much of this, because as we first noted almost three weeks ago,  "alternative" trackers of China's output in near real time confirmed  that the economy had ground to a halt: pollution, traffic, congestion,  coal and electricity usage data, all showed that the country was paralyzed, its economy hibernating at the near-zero output level reached during the lunar new year...

 
  And while few believed just how catastrophic China's slowdown - which we profiled in "China Is Disintegrating: Steel Demand, Property Sales, Traffic All Approaching Zero"  was - it was all confirmed when the latest Chinese PMI data released  early on Saturday showed that China's economy was now in freefall, as  both the manufacturing and non-mfg PMI had cratered to record lows,  taking out even the financial crisis lows.

  And this is where the reflexivity of "everyone knowing that China  does nothing but lie" comes in, because Beijing was well-aware that it  couldn't print some overly cheerful PMIs prints - not only would that be  ridiculous in light of the complete halt in China's economy, but it  would further crash what little was left of Beijing's credibility.  Instead, China decided to kitchen sink February - after all that's when  the bulk of official corona cases and deaths was reported - and push for  an impressive rebound in the March economic data, with February marking  the bottom, or to loosely paraphrase Lester Burnham "*It's all uphill from here.*"
  There's just one snag: while Beijing may report any fabricated data  it wants - whether coronavirus-related or economic - in hopes of easing  the mistrust and social panic, China's population still has absolutely  no confidence in either Beijing, in Beijing's ability to contain the  coronavirus, or especially in Beijing's apparent willingnes to sacrifice  its population in order to reopen some mothballed factories to give the  impression that the economy is on the mend. And here Beijing's task has  become especially complicated, because the world's attention has now  focused on those alternative, high-frequency economic indicators which  we first laid out weeks ago; indicators which are far more difficult for  Beijing to forge than just GDP, or industrial production or retail  sales, which as everyone knows, represent just goalseeked numbers in an  excel spreadsheet and nothing else.
  And what's worse, with everyone closely following said alternative  indicators, it makes Beijing's task of staging a miraculous economic  rebound in March, April and onward from the February crash, virtually  impossible since as the following charts show, China is still *very* far away from normal output.

  At this point, Beijing had an idea: instead of goalseeking its GDP  number or retail sales print or fabricating a 50+ PMI report, which  nobody cares about now anyway, China's political elite would have to  focus on manipulating the high-frequency indicators that everyone (such  as Capital Economics) is closely following to determine if China was careening over the cliff - after all, as we explained last week,  Beijing now only has about 3 months before its companies run out of  cash and the economy implodes from mass defaults and bank failures  unless the economic situation is stabilized.
  Incidentally, this is what we said back on February 10, when we  warned that the "alternative" economic data sets would provide a far  more comprehensive and accurate view of economic activity in major  cities in China, "*at least until China decides to "adjust" the  high-frequency, real-time data too, making this latest "alternative"  indicator of China's economy also meaningless.*"
  Three weeks later that's precisely what has happened, because in  order to game these high-frequency data, of which coal and electricity  usage are the most important ones, we now learn that a "*Wenzhou-based  factory owner tells how district officials are telling him his closed  factory (he has no workers) must turn on the machines and consume  electricity or he’ll get “a visit”. "* 
 Argh. A Wenzhou-based factory owner  tells how district officials are telling him his closed factory (he has  no workers) must turn on the machines and consume electricity or he’ll  get “a visit”. Higher ups are watching the electricity numbers. The  anti-Li Keqiang indicator! https://t.co/PTEBARIDW6
 — 优述/You Shu (@You_Shu_China) February 28, 2020Why must the owner of the empty factory pretend the factory is  operating? Because "Higher ups are watching the electricity numbers."  And why are higher ups watching the electricity numbers? Because they  know that not only the rest of the world is also watching these numbers,  but so is China's population. And absent a rebound in electricity  usage, even if it is to power unused machines in empty factories, China  can't hold out hope to pretend that February was the kitchen sink month  as the level of economic activity simply will not rise for months*...  unless of course Beijing orders the local population to simply consume  for the sake of giving the outside world it is consuming as if things  were back to normal*.
  Only they aren't, and instead of Chinese ghost towns, we now have  Chinese ghost factories whose only purpose is to try to fool its  population and the world that the coronavirus pandemic, which is still  raging in China, is under control and the Chinese economy is back on  solid footing. Of course, neither is actually happening.

More at: https://www.zerohedge.com/economics/...my-back-normal

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## Swordsmyth

Gambling revenue in Macau plunged 87.8% in February year-on-year,  with casinos shuttered for two weeks in the world's biggest casino hub  as authorities imposed a raft of measures to keep visitors away to  contain the coronavirus outbreak.February's figure of 3.104 billion patacas ($386.74 million) was worse than analyst expectations of a drop of around 80%. 

More at: https://news.yahoo.com/macaus-gaming...051829922.html

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## Swordsmyth

China's yuan-denominated exports in January-February fell 15.9% from  the same period a year earlier, customs data showed on Saturday, while  imports slid 2.4% as a fast spreading coronavirus outbreak caused severe  disruptions to manufacturing activity.That left China with a  trade deficit of 42.59 billion yuan in the first two months of the year,  according to Reuters calculations based on customs data.

More at: https://news.yahoo.com/china-jan-feb...031019407.html

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## Swordsmyth

The coronavirus epidemic is accelerating a shakeout in China’s  property sector as a cash crunch forces distressed developers to throw  in the towel.
                                    With lockdowns  across the world’s most-populous nation entering their third month,  smaller home builders are being pushed to the brink because they can’t  get enough money from pre-sales of apartments to cover their costs. In  the first two months of this year, around 105 real estate firms issued  bankruptcy filing statements, after almost 500 collapses in 2019, data  compiled by Bloomberg show.
                  “A vast number of mid- to small-sized developers will face a  choice no one wants to make -- either sell their property assets and  start another business, or be bought out,” China Index Holdings Ltd.  Research Director Huang Yu said. “The shakeout is just beginning.”
Even before the new coronavirus, China’s housing market was under pressure. Home prices rose at the slowest pace  in almost two years in January and several developers, saddled with  debt they’re struggling to service, had begun to dial back on  construction. S&P Global Ratings said in a note Tuesday that as  Covid-19 spreads, the squeeze may be felt most acutely by Chinese banks and property firms.

         As a result, mergers and acquisitions among the nation’s  almost 100,000 real estate companies will ramp up again in 2020, Yu  said, declining to put a number on the expected deal value.

“Declining sales will hurt developers’ liquidity as the proceeds still  form the largest and most important funding source,” S&P credit  analyst Christopher Yip said, noting that with construction largely  paused, delivery schedules and revenue recognition are being pushed  further out. “Several companies already in the CCC category or with low  ratings with negative outlooks may face liquidity issues.”


According to S&P, new home sales in China will register their  first drop in 12 years this year, with transactions down as much as 15%.  That’s if the virus reaches a turning point this month. If the nadir  isn’t until April, sales could be down around 20%, akin to the hit taken  during the 2008 global financial crisis.
Fusheng Group Co.  is one of the first mid-sized developers to falter. The debt-laden  company, based in China’s southeastern Fujian province, was in talks to  sell a 70% stake to a consortium led by Shimao Property Holdings Ltd.,  people familiar with the matter said in December.
Local media reported  in January that a new joint venture has been established, with Fusheng  injecting its jettisoned property projects into the fresh vehicle.  Shimao is one of the nation’s biggest developers.
Representatives from Fusheng didn’t immediately respond to messages seeking comment.

         Cashflows  of less competent players have been sliding for years and the virus is  only making matters worse, according to Wu Rui, an executive director of  nonperforming assets at private equity firm CDH Investments Fund Management Co. Asset-management companies are teaming up with top developers and eyeing such businesses, he said.
In  Hubei alone, the epicenter of the virus, there are around 4,300  developers. Home prices in Hubei’s provincial city Wuhan rose at one of  the fastest paces in the world last year, Knight Frank LLC data show.
To  the north, in central Henan province, the general manager of one small  developer said the only target his company had set, in early February,  was to make all of its debt repayments over the next six months.
                  Another manager at a small developer based in Zhejiang, a  province in China’s east, said the firm was two months away from  bankruptcy. Its four projects under construction are halted because of  the virus, he said.

More at: https://www.bloomberg.com/news/artic...strains-deepen

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## Swordsmyth

While it may not be a surprise to too many people in the real world  that Chinese macro-economic data for February was a disaster, it appears  it was a massive shock to analysts and economists who forecast this  data.

 	Chinese *Retail Sales crashed 20.5%* YTD YoY - the* first annual drop* on record and four times worse than the -4.0% expectation 	Chinese *Industrial Production collapsed 13.5%* YTD YOY - the* first annual drop* on record and more than four times worse than the -3.0% expectation *Fixed Asset Investment plunged 24.5%* YTD YoY - the* first annual drop* and more than *twelve times worse than the expected 2.% contraction.*
And to go with those stunning numbers, Property Investment puked  16.3% YTD YoY and the Surveyed Jobless Rate exploded to a record 6.2%.


  The* retail collapse was across the board* - restaurants and catering down 43.1%, clothing down 30.9%, jewelry down 41.1% are some of the bigger drops.

  But... just wait for the recovery! *Oh wait, you mean this recovery?*


More at:https://www.zerohedge.com/economics/...-more-expected

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## oyarde

China appears to be toast .

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## Swordsmyth

Two cities, #Xiaogan and #Tianmen in #Hubei, locked down again after opening for only one day.#湖北 #孝感 #天门 两个大市，白天宣布解封，晚上马上再次封城。 
Click here for more 更多视频: https://t.co/fSwmxEsPYp#COVID2019 #Coronavirus #CoronavirusPandemic #coronaviruschina pic.twitter.com/1sG9qCidnd
 — Jennifer Zeng 曾錚 (@jenniferatntd) March 15, 2020

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## oyarde

> International banks are suspending credit lines for some independent  oil refiners worried about the growing risk of defaults across  industries because of the coronavirus epidemic, Reuters reports, citing industry sources.
> 
> 
>   According to the sources, at least three private refiners, or  teapots, have had credit lines to the tune of $600 million suspended by  banks including French Natixis, Dutch ING, and Singapore DBS Group  Holdings.
> 
>   _“All our applications for new open-account credits are  frozen ... these clean credits are pivotal as we buy 6 to 8 million  barrels of oil each month,”_ one source told Reuters.Refiners, both private and state, have already reduced their run  rates in response to the slump in fuel demand resulting from the  outbreak, and now they have deepened these cuts, Bloomberg reported last week.
> 
> *The average as of last Thursday was about 10 million bpd, down by 25 percent on the same time last year,* when  the average run rates were at a record high of close to 13 million bpd.  Analysts expect the low run rates to continue at least until the end of  this month, but if it spills into March, some refiners - notably  independent refiners - will start experiencing a lack of storage space,  too, after earlier this month they took advantage of low prices to stock  up on crude.
> 
> ...


I am looking at the week after April 15 before it starts to improve .

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