China

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China’s new home sales growth slowed in October from a year earlier, suggesting the push by policy makers to rein in runaway prices is getting traction. The value of homes sold rose 38 percent to 941 billion yuan ($138 billion) last month from a year earlier, according to Bloomberg calculations based on data the National Bureau of Statistics released Monday. The increase compares with a 61 percent gain the previous month.

China Home Sales Value Rose 38% in October From Year Earlier - Bloomberg

China’s economy held ground last month following new measures to cool property markets in almost two dozen big cities. Industrial production rose 6.1 percent from a year earlier in October, compared with a median estimate of 6.2 percent in a Bloomberg economist survey and 6.1 percent in September. Retail sales slowed to 10 percent growth last month, while fixed-asset investment increased 8.3 percent in the first ten months of the year.

China’s Economy Holds Ground as Housing Curbs Start to Bite - Bloomberg

Chinese buyers keen to continue 2016’s rapid dealmaking under a Donald Trump presidency are being given one piece of advice: Wait and see. Bankers and lawyers are already counseling some Chinese clients to hit the pause button until Trump clarifies his stance on cross-border deals for U.S. targets, according to three advisers to Chinese clients, who asked not to be identified because the discussions are private.  Acquisitive Chinese companies have led a blockbuster year of dealmaking in 2016, accounting for about $225 billion of overseas purchases this year, according to data compiled by Bloomberg. That’s more than triple the level of the same period a year earlier -- and the biggest chunk of the money has been spent in the U.S. If Trump follows through on his campaign rhetoric, however, their enthusiasm could be short-lived.

China Pumps the Brakes on U.S. Dealmaking After Trump Win - Bloomberg

Credit booms often end badly – and China is in the grip of a major one. On the face of it, the warnings flashing from a key credit gauge back the bearish views of people like hedge fund manager Kyle Bass, who predicts a spectacular Chinese bust, requiring a rescue of the financial system. China's reading is the nation's highest on record in the gauge released by the Bank for International Settlements. It's the single most reliable indicator of looming financial crises, according to the BIS, which found in a 2011 analysis of 36 countries that a majority of banking crises followed readings higher than 10 percent.

Will China's Financial Bust Ever Come?

Donald Trump has said a lot of things he will do to punish China as President, some more likely to happen than others. The most likely policy to pass is the defeat of the Trans Pacific Partnership, and if that happens Trump would be handing China a massive gift. In fact, there are few things China wants from America more.

Trump is about to hand China a lovely present - Business Insider

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Tyler Cowen recently did a post with this title: Why has it taken so long for a China crash to arrive? Wrong question! Here are some good questions: Why hasn't China had a deep slump? (i.e. a depression, or at least Great Recession) Why hasn't China had a financial crisis? Why hasn't China had an asset price collapse? I hope this doesn't sound too pedantic, but I'm honestly not sure what "crash" means (except when I hit another car).

Why No China Crash? Wrong Question - iShares China Large-Cap ETF (NYSEARCA:FXI) | Seeking Alpha

President-elect Donald Trump has proposed spending up to $1 trillion over a decade to make America's infrastructure "second to none."  Except for China that is.  The world's second-largest economy has already topped that this year alone, with $1.2 trillion splurged on roads, railways, bridges, telecom networks and other infrastructure in the nine months through September. A fresh reading for the January-October period is due Monday. Trump's plan for an "America's Infrastructure First" policy mirrors China's build-it-and-they-will-come model, except on a much smaller scale. China has spent about $11 trillion on infrastructure in the last decade -- more than 10 times what Trump is proposing. Some economists reckon it needs to spend about $2 trillion a year going forward to keep economic growth humming at today's level.

China Trumps Trump When It Comes to Infrastructure - Bloomberg

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In addition, the average hourly labor cost—defined as wages plus benefits—of $14.60 in China’s coastal manufacturing heartland has more than doubled as a percentage of U.S. manufacturing wages, from roughly 30% in 2000 to 64% in 2015, according to Boston Consulting Group, making the country less competitive as a destination for manufacturers..

China’s Factories Count on Robots as Workforce Shrinks - WSJ

For one thing, as I have tried to show many times before, rebalancing is an intensely political process and almost by definition it must undermine the so-called "vested interests" who were previously the great beneficiaries of decades of unbalanced growth. For this reason it must be driven by the constant give-and-take of the political process. For another thing, there continues to be a lot of confusion about just what it is that Beijing must do, and there are still far too many economists who believe that certain types of reforms will allow Beijing to sidestep some of the politically difficult decisions involved in rebalancing...

there continues to be a lot of confusion about just what it is that Beijing must do, and there are still far too many economists who believe that certain types of reforms will allow Beijing to sidestep some of the politically difficult decisions involved in rebalancing. For example many economists still argue that the right combination of interest rate reforms and reforms to financial-sector corporate governance can transform the Chinese banking system quickly enough and radically enough that Beijing can allow investment growth to remain high without a commensurate growth in the country's debt burden. This is almost absurd. Many countries under easier circumstances - in which interest-rate distortions were less extreme, for example, as was moral hazard, or the links between parts of the banking system and the political distribution of power - have tried to do just that, and none has succeeded nearly quickly enough, if it has succeeded at all, to matter.

China: Choosing More Debt, More Unemployment, Or Transfers - iShares China Large-Cap ETF (NYSEARCA:FXI) | Seeking Alpha

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Winter has come to Beijing, but the Chinese industrial sector is getting warmer—and less indebted. Much of the improvement, however, is tied to the rise in commodity prices, which is relieving pressure on benighted coal and steel producers. If the rally falters next year along with the housing market, financial problems are likely to re-emerge... Yet industry as a whole showed scant progress on deleveraging. Liabilities as a portion of assets were down just 0.2 percentage point from September and 0.7 point from a year earlier, to 56.1%. So the good news is that corporate China’s balance sheet has improved. The bad news is that much of this improvement is tied to the credit-fueled housing and commodity price rally, which will run out of steam before too long.

China’s Debt-Laden Companies Take a Load Off—for Now - WSJ

International credit-rating agencies have been warning about the danger of a Chinese banking crisis for quite some time. Recently, Fitch Ratings warned that China’s bad loans in the banking system might be 10 times the official estimates of 1.8% of total assets. S&P also warned that the growing piles of local government debt and corporate debt would add to China’s fiscal vulnerability and cost the banks dearly. That China’s banking system has a non-performing loan (NPL) problem is nothing new. The predictions of a Chinese banking crisis have been proven wrong for more than three decades because pessimists treat China as an open-market driven system with a liberalised capital market and an open capital account, which is clearly not the case. This is not to deny China’s financial risk. But the concerns should lie somewhere else in the system rather than in a systemic blow-up.

China’s Debt Bubble: Why the Bears Are Wrong - Barron's

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Deutsche Bank‘s China economist Zhiwei Zhang is a long-time China bear, but he makes interesting points. The leading economist warned of further inflation of China’s property bubble in the second-half of next year, elevating risks to the economy in 2018. He also forecasts the yuan will fall  17% by 2018 as China’s foreign exchange reserves are expected to dip below $2.5 trillion versus $3.1 trillion now. China has tightened home buying and mortgage lending rules in top-tier cities to slow down the rapid rise in home prices, but Beijing is likely to reverse its stance and loosen credit growth again by the second-half of 2017.

China: Deutsche Sees Property Bubble, 17% Yuan Devaluation - Asia Stocks to Watch - Barrons.com

Profit at industrial companies in China accelerated last month as prices recovered. Industrial profits rose 9.8 percent in October from a year earlier to 616.1 billion yuan ($89 billion), the National Bureau of Statistics said Sunday. That was faster than the 7.7 percent increase in September. Earnings in the first 10 months climbed 8.6 percent to 5.26 trillion yuan.

China Industrial Profits Accelerate as Factory Prices Increase - Bloomberg

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The yuan has dropped 4 percent this year against the dollar, the most in Asia, and the prospect of further depreciation has driven Chinese investors to buy assets denominated in the U.S. currency. The size of Chinese funds that invest in bonds overseas through the nation’s Qualified Domestic Institutional Investors program more than quadrupled this year to 17.4 billion yuan ($2.6 billion) as of Sept. 30, according to research firm Z-Ben Advisors.

Chinese Investors Are in Love With U.S. Dollar Debt - Bloomberg

RBC estimates Chinese companies’ outstanding dollar borrowings have now been trimmed to $430 billion, while Daiwa Capital Markets says as much as $3 trillion was borrowed to plow into the higher-yielding yuan, including by individuals and foreign companies. A rush to repay risks accelerating capital outflows and yuan weakness amid China’s slowest economic growth in 25 years.

China Inc. Misses Best Shot to Repay $430 Billion as Yuan Drops - Bloomberg

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Donald Trump vowed to get tough with China over trade. The U.S. President-elect’s own economic agenda may add to frustrations as it helps lift the dollar. A stronger greenback, rallying in anticipation of Trump’s plans to boost fiscal and infrastructure spending, already is helping buoy China’s exports to U.S. shores. Shipments surged 8.1 percent last month from a year earlier, snapping seven months of declines.

Trump Agenda Could Be Good News for China Exports - Bloomberg

China’s factory-gate inflation rose to the highest since late 2011, helping to sustain prices around the world. Consumer prices picked up on rising food costs. The producer-price index jumped 3.3 percent in November from a year earlier, exceeding all 47 estimates in a Bloomberg survey and the 1.2 percent gain in October. The consumer-price index rose 2.3 percent, versus a 2.2 percent increase forecast by analysts. The factory to the world may be poised to export inflation again, as prices boosted by rallying commodities and stronger demand would ripple through supply chain across Asia. Still, uncertainties remain on U.S. President-elect Donald Trump’s fiscal stimulus plan and policy making in China, where authorities are working to curb financial risks.

China Factory Prices Jump, Boosting Global Inflation Outlook - Bloomberg

China's foreign exchange reserves fell yet again in November, thanks to the unrelenting upward march of the US dollar and the yuan's continued slide down. Gross reserves decreased $69.1 billion, the largest drop in 10 months, falling to $3.05 trillion in November, the People's Bank of China said on Wednesday. That's down from a peak of $4 trillion in 2014.

Chinese foreign reserves slide as yuan falls - Business Insider

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On November 14, MIIT tabled a 25-page document that explored proposals to restructure the country’s steel industry and aid its evolution as China now faces “absolute overcapacity,” it said. The aim of the program, which spanned the years 2016- 2020, is to reduce China’s steel capacity nationwide to within 1 billion mt/y. China removed approximately 95 million mt/y of steel capacity over 2011-2015. At the same time, MIIT advocates raising the industry’s operating rate to 80% of the total capacity by 2020 from 2015’s 70%.

Ministry tables 5-year view for China steel industry | Metals | Platts

China’s steel output rebounded in August as prices rallied, delivering an early warning to world leaders who earlier this month pledged to tackle the global glut of the metal. Production of crude steel in the world’s biggest supplier rose to 68.57 million metric tons in August, up 3 percent from a year earlier and 2.6 percent higher than in July, according to the country’s National Statistics Bureau on Tuesday. For the first eight months, output of 536.32 million tons was just 0.1 percent shy of last year’s pace.

Top Steel Producer China Revs Up Output Again on Higher Prices - Bloomberg

China’s steel exports are poised to shrink for the first year since 2009, defying earlier forecasts, as mills in the world’s biggest producer sell more at home amid a surge in prices. Outbound shipments fell 1 percent to 100.7 million metric tons in the first 11 months, customs data showed Thursday. That means there’s little chance of exports catching last year’s record 112.4 million tons in the full 12 months. Sales in November slumped 15 percent to 8.1 million tons from a year earlier.

China’s Steel Exports Set to Contract for First Year Since 2009 - Bloomberg

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At the dawn of 2016, the dwindling of China's massive hoard of foreign reserves sparked turmoil on global financial markets. Now, signs of accelerating capital outflows inspire little more than a yawn. Figures published Wednesday showed the value of the People's Bank of China's foreign exchange reserves fell by $69.1 billion to $3.05 trillion in November, the largest drop since January. S&P 500 futures, however, showed no immediate reaction and benchmark U.S. indexes then rallied to all-time highs, a stark contrast to 10 months prior, when a similar drawdown was cited as the proximate cause of carnage in global equities... In other words, as traders have priced in a more volatile and weaker yuan relative to the U.S. dollar via the forward and derivatives markets, this also raises the bar for roiling the market through any surprise uptick in outflows.

Why Markets Stopped Worrying About China's Dwindling Foreign Cash Pile - Bloomberg

China’s Banks Are Hiding More Than $2 Trillion in Loans Accounting sleight of hand means banks don’t have to set aside capital for potential losses, sowing fears of a crisis; new apartments with no residents

China’s Banks Are Hiding More Than $2 Trillion in Loans - WSJ

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But the fall was actually a bit smaller than what I was expecting. Valuation changes on their own knocked $30 billion or so off reserves (easy math—$1 trillion in euro, yen and similar assets, with an average fall of 3 percent in November). It isn’t quite clear how China books mark-to-market changes in the value of its bond (and equity portfolio). My rough estimate would suggest mark to market losses on China’s holdings of Treasuries and Agencies of about 1.5 percent, or $20 billion (Counting the agency portfolio and Belgian custodial book, per my usual adjustment). Bunds and OATs (French government bonds) also fell in value—but SAFE likely has a couple hundred billion in equities too, and their value rose. But it isn’t clear that all of China’s assets are marked to market monthly, so there is a bit of uncertainty here not just about the overall performance of the portfolio, but also how the portfolio’s value is reported. Sum it all up and it is possible valuation knocked somewhere between $30 and $50 billion off China’s headline reserves.

Follow the Money » The November Fall in China’s Reserves and Rise in China’s Real Exports