China home sales decline

If the results from Vanke (A Chinese property developer) are indicative of the entire nation, home sales are declining rapidly.   The property developers can hold on for a while but eventually their pipeline of developments are going to cause some 'indigestion' and they will be forced to cut prices, reduce the pace of new home construction, or a mixture of both.  This bears watching in the future.

From China Daily:

China Vanke Co, the country's largest property developer by market value, announced on Sunday that its sales revenue in May decreased 20.2 percent from a year earlier amid the government's tightening moves.

Mexican police crack union skulls at Cananea Mine. More copper supply by end of year.

Reuters reports today that Mexican federal police broke up the cordon around the Cananea mine.

Grupo Mexico retook control of Mexico's biggest copper mine after hundreds of federal police dislodged protesting workers on strike for nearly three years, the government and the company said on Monday.  Hundreds of police backed by helicopters arrived Sunday evening, surprising miners guarding the entrance. A company source said the Cananea mine, which once produced 40 percent of Mexico's copper but has been closed since July 2007, could be running again as soon as the end of this year.

Grupo Mexico hopes to get the mine back up to full production (estimated at 160k tons) by the end of the year.

Keynesians start to discover the power of excessive debt

Just a little clip from one of my favorite sci fi movies The Fifth Element.  Replace the unknown evil sphere with excessive debt.




Greece, Hungary, California, New York, etc.  I wonder who is next to realize what happens when you borrow too much money.  China perhaps?

Another China data dump

Been a bit busy this last month with various stuff so the posts have been a bit light.

Here's a dump of China information from the last month. Something for you to chew on while I ready the next wave of postings.

I posted some video a while ago about the empty city of Ordos China. Someone recently went there and took some pictures.  Time magazine no less. Go over to Randomroger and get all the details.

Intelligent speculator has some more video on Chanos and how and where to invest in China, both up and down.  Please notice the name of the web site. Be careful investing in China whether bullish or bearish.

In a previous post I mentioned the idea of a property tax had been floated by the local officials in Shanghai.  The Chinese Feds came in and squashed the idea, stating it was a federal matter. Looks like the back and forth will continue.  From Caixin online on 05/18/2010:

(Beijing) - China's tax agency said that the authority to levy property taxes lies in the central government rather than local governments.

Niu Xinwen, the spokesperson for the State Administration of Taxation, said that local governments have no right to interpret property tax policy, either.
The Shanghai government was quoted by Xinhua as saying that it was determined to curb housing prices with "harsh measures." However, the scope of taxable residential properties has yet to be determined.
Individually-owned, non-business real estate is taxed in Provisional Regulations on Property Taxes issued in 1986. In order to curb surging housing prices, local governments are considering a residential property tax in order to tamp down demand.

Then again 4 days earlier a pilot project for property taxes was announced.  From Caixin online (05/14/2010)

(Beijing) - Living a life of ease in an upscale Chongqing villa soon may cost a lot more.In April, the Chongqing municipal government announced a plan to tax high-end apartment owners as part of a nationwide push to curb surging housing prices. Under the municipality's pilot proposal, the owner of a villa worth around 3 million yuan would pay about 10,000 yuan in property taxes every year. Chongqing Mayor Huang Qifan unveiled the plan on a government website just three days after the central government's cabinet, the State Council, announced April 17 new measures designed to cool real estate sales.

The preferred method of stimulus in China appears to be ordering the banks to LEND.  The banks then ask 'how much'  This may not work again if the Chinese deem another boost is needed.  The banks have run out of excess capital.  Don't be suprised if you see some serious secondary offerings from Chinese banks soon. From Caixin online -- 04/29/10

(Beijing) - First quarter reports by five joint-stock banks, the second rung of China's bank industry ladder after the five biggest state-owned banks, have revealed that behind the rapid growth in net profits, capital adequacy ratios have fallen. Some banks have dipped below the regulatory capital requirement.

Just a few days ago Shanghai announced stricter measures to cut down on home 'speculation'  From Chinadaily 05/29/2010

"Shanghai will take more strict measures in line with the central government policy," Chen said, adding that more efforts will be made in building economically affordable houses and cracking down on speculative house purchasing.

The Economist jumps into the fray with their own opinion of the Chinese property market.  They are of the opinion China will survive the upcoming property bust.  From The Economist 05/27/2010

If mortgages did turn sour, how badly would China’s banks suffer? China Merchants Bank’s mortgage book grew by 70% in 2009. But mortgages still amounted to only 23% of its total loans. In China’s other big banks, the share is less than 20%. Loans to property developers account for another 8% or so, according to Mr Rothman.

Local governments may be more exposed. They suffer from a chronic shortfall of tax revenues, which they partly fill by expropriating land from farmers and selling it to developers at a hefty markup. Their dependence on property for income is often overstated, however. They are counting on land sales and property taxes for less than 17% of their revenues this year, according to Vincent Chan of Credit Suisse, once fiscal transfers from the central government are taken into account.

You know it's serious when officials sitting on the equivalent of the Federal Reserve board acknowledges the problem.  From Naked Capitalism 06/01/10

“The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,” he said in an interview. “It is more than [just] a bubble problem.”…

Mr Li said the high cost of housing could hamper future growth by slowing urbanisation. Rising prices were also a potential political flashpoint, especially among younger people who felt locked out of the property market.
“When prices go up, many people, especially young people, become very anxious,” he said. “It is a social problem.”

Money Money + Money -- Money supply update

Money supply figures supplied by the Federal Reserve (as of 2010-05-27) continue to decline.  The data shown is the sum of M2 and Institutional Money Market Funds (the only subset of M3 still reported)  As you can see money supply tends to drop during / after recessions and recovers as economic activity increases.  We are in uncharted territory as this data set has not shown negative growth for the entire data series.

Considering the growth rate is decidedly negative and shows no inclination of slowing down this is worrisome for future economic growth. 

Bank lending update

It has been a while since I last discussed the decline in bank lending.  Total loans and leases continues to decline while bank's holdings of US Treasury securities continues to climb (Source: Federal Reserve, 2010-05-24)

You may notice the spike in loans and leases but don't get excited, this is due to FASB 166 & 167 requiring banks to bring off balance sheet items back into the sunlight.  This will screw up the year over year data for a while but even after this 'increase', lending is down year over year.  Annaly's blog has the details

Austerity in Europe, it's so fashionable right now!

As I mentioned recently the austerity would be coming with the bailout packages.  It didn't take even a week and the cutbacks have already started.

Today - Telegraph

Premier Jose Luis Zapatero told a stunned nation that public sector pay will be reduced by 5pc this year and frozen in 2011. "We must make an extraordinary effort," he said.

Pension rises will be shelved. The country’s €2,500 baby bonus will be cancelled. Aid to the regions will be slashed and infrastructure projects will be put on ice. Mr Zapatero’s own monthly pay will fall 15pc to €6,515.

more from the Telegraph today in another article

Jose Luis Rodriguez Zapatero, the prime minister, on Wednesday outlined a series of measures that will include a suspension in automatic increases to retirement pensions, a drop in overseas aid and a reduction in government investment.
He said 13,000 civil service jobs would be cut in 2010, with public sector wages frozen in 2011.

Spanish citizens will not be too happy about this and the austerity packages will tilt yet another country towards recession.