The spread of deadly H7N9 bird flu may affect business at some eastern China's hotels and fun spots during the upcoming May Day holiday, according to a new research report by Hong Yuan Securities.
What bread... What circuses... JPMorgan Chase Faces Full-Court Press of Federal Investigations (NYT) European Regulators to Charge Banks Over Derivatives (WSJ) ... but forgive us if we don't hold our breath Cyprus readies capital controls to avert bank run (Reuters) Cyprus Capital Controls First in EU Could Last Years (BBG) Damage ripples through Cypriot economy (FT) G4S readies guards as Cypriot banks prepare to open (Reuters) Global pool of triple A status shrinks 60% (FT) Customers Flee Wal-Mart Empty Shelves for Target, Costco (BBG) BOE Says U.K. Banks Have Capital Shortfall of $38 Billion (BBG) U.K. Banks Facing Capital Shortfall (WSJ) Berkshire to Pay Nothing to Be Among Top Goldman Sachs Holders (BBG) Cyprus Details Bank Revamp (WSJ) Kazumasa Iwata Joins Kuroda Naysayers as BOJ to Meet (BBG) BRICS Nations Need More Time for New Bank, Russia Says (BBG) Foxconn Plant in Peanut Field Shows Labor Eroding China Edge (BBG) Overnight Media Digest WSJ * Leave it to Warren Buffett to find a way to get hold of 10 million Goldman Sachs Group Inc shares without handing over a penny. The billionaire chief executive of Berkshire Hathaway Inc accepted the stake in exchange for giving up his company's right to purchase a larger number of Goldman shares at a below-market price, according to terms of the deal announced on Tuesday. * Barrick Gold Corp co-chairman Peter Munk signaled he is looking to pass the scepter at the gold-mining giant he founded about 30 years ago. His call comes amid a shake-up in the top ranks of the mining industry, where a raft of high-profile leaders have stepped down, or been replaced, amid shareholder revolts over overpriced acquisitions and generally poor share-price performance. * CBS Corp acquired half of TV Guide Network and will enter a 50-50 partnership with Lions Gate Entertainment Corp for the entertainment channel and website. * DuPont Co agreed to pay Monsanto Co $1.75 billion as part of a series of licensing agreements for genetically modified seed technology that spell a truce in the rivals' bitter patent disputes. * Large global banks' legal tab is poised to soar beyond $100 billion as investors, insurers and municipalities pursue damages for actions tied to the mortgage meltdown, the financial crisis and the rate-rigging scandal. * Facebook Inc Chief Executive Mark Zuckerberg is in the process of co-organizing a political advocacy group made up of top technology leaders that would push federal legislative reform on issues ranging from immigration to education, said people familiar with the development. * Honda Motor Co Ltd expects its U.S. new-car sales to increase by 8 percent in March over a year ago, led by a surge in demand for its redesigned Accord sedan, a senior executive said on Tuesday. * Health-care companies are circling around the $7 billion market for injectable drugs that are widely used by hospitals to treat conditions from cancer to pain - but which have often been in short supply. * A highly productive informant has led U.S. federal prosecutors to another group of alleged insider traders, one that includes a hedge-fund analyst and the investment chief for Wyoming's retirement system. * Mediaset SpA, Italy's largest private broadcaster, posted its first net loss since going public in 1996, as the company's slow response to new competition and a plummeting ad market in Italy takes its toll. FT Start-up banks in Britain will not need as much capital as their established rivals starting from April, Britain's Financial Services Authority (FSA) said. The Federal Reserve has ordered Citigroup Inc to better police for the risk of money laundering. Warren Buffett agreed to become Goldman Sachs Group Inc's biggest shareholders by converting his warrants into shares. Deutsche Bank has provisioned for 500 million euros to cover possible fines for the alleged manipulation of Libor interest rates. Britain's Kingfisher Plc reported sharply lower profits as cash-strapped consumers cut back on home improvements in the economic downturn. T-Mobile USA will eliminate device subsidies and two-year service contracts that are favoured in the mobile industry to sell expensive handsets. NYT * In a previously undisclosed case, prosecutors are examining whether JPMorgan Chase & Co failed to fully alert authorities to suspicions about Bernard Madoff, according to several people with direct knowledge of the matter. * With time running out until Cyprus's devastated banks must reopen their doors to the public, Cypriot and European officials are scrambling to put in place a set of measures that would allow jittery depositors access to their savings while preventing many billions of euros from fleeing the country. * CBS Corp announced on Tuesday that it had completed a deal to buy a half-interest in TVGN, formerly the TV Guide Network, fulfilling a longstanding goal of adding a general entertainment basic cable network to the company's media portfolio. * American mobile carrier T-Mobile, which has struggled against rivals like AT&T and Verizon, will offer the iPhone 5 cheaper than the competition, and most important, customers would not have to sign a contract. * DuPont Co will pay Monsanto Co at least $1.75 billion over 10 years for the rights to technology for genetically engineered soybeans that are resistant to herbicides. * Gains in housing and manufacturing propelled the U.S. economy over the winter, according to reports released on Tuesday. Home prices rose 8.1 percent in January, the fastest annual rate since the peak of the housing boom in summer 2006. * A squabble between a group fighting spam and a Dutch company that hosts Web sites said to be sending spam has escalated into one of the largest computer attacks on the Internet, causing widespread congestion and jamming crucial infrastructure around the world. Canada THE GLOBE AND MAIL * More than a day after industrial waste water leaked from a Suncor Energy Inc site into the Athabasca River, the oil-sands giant and the province were still trying to determine which, if any, toxic materials were carried into the major Alberta waterway. Reports in the business section: * Suzuki Canada Inc will end its 30-year run of selling vehicles in Canada next year, the final withdrawal of Suzuki Motor Corp from markets it once thought so important that it manufactured vehicles here. * Canadian and South Korean officials are playing down Finance Minister Jim Flaherty's assertion that a free-trade deal between the countries is imminent. Flaherty, who is on a four-day trip to drum up business in Asia, said Monday after a speech in Hong Kong that Canada is "very close" to wrapping up an agreement with South Korea. NATIONAL POST * Canadians continue to pay more to fund a "gold plated" parliamentary pension plan that spending watchdogs say has taxpayers ultimately contributing more than C$25 for every dollar from MPs. The federal government announced last fall it is overhauling the parliamentary pension plan - including tripling MP contributions and increasing retirement age - after the next election. FINANCIAL POST * Target Canada president Tony Fisher addressed Tuesday the sticker shock gripping some consumers who expected the retailer's prices would be on par with its U.S. stores when it opened outlets across the country this month. China CHINA SECURITIES JOURNAL -- Net profits at 793 Shanghai- and Shenzhen-listed companies hit 1.05 trillion yuan ($169.05 billion) in 2012, according to data from Chinese firm Wind Information. -- Poly Real Estate will keep its annual growth at 20 percent over the next seven years, said chairman Song Guangju. Property tightening policies should not change the firm's plans for growth and expansion, he added. SHANGHAI SECURITIES NEWS -- New loans from China's big four banks in March are estimated to have increased against previous months, and new loans from all financial institutions could reach 850 billion yuan ($136.85 billion), according to the official Chinese daily. CHINA DAILY -- A week-long drought in northwest China has hit 4.35 million people in Gansu province. The dry spell, expected to last until the end of April, has left 650,000 people facing water shortage and affected 398,667 hectares of farmland, according to the provincial civil affairs department. PEOPLE'S DAILY -- China will subsidise a total of 170 billion yuan to support grain farmers in 2013, the finance ministry told the official Chinese paper. SHANGHAI DAILY -- Global tech giant Apple is heading to court this afternoon for a pre-hearing related to a patent dispute over the U.S.-based firm's Siri voice-activated software. The pre-hearing will be held at Shanghai's No.1 Intermediate People's Court. -- U.S. retailer Wal-Mart will close three stores in China in May to streamline its sales network. In a statement the firm said it would still continue to invest and open new stores in Shanghai, where it has over 20 currently. Fly On The Wall 7:00 AM Market Snapshot ANALYST RESEARCH Upgrades AOL (AOL) upgraded to Overweight from Equal Weight at BarclaysCapital Product (CPLP) upgraded to Neutral from Underperform at BofA/MerrillCliffs Natural (CLF) upgraded to Neutral from Sell at GoldmanDSW (DSW) upgraded to Buy from Neutral at CitigroupGenomic Health (GHDX) upgraded to Outperform from Market Perform at LeerinkGol Linhas (GOL) upgraded to Outperform from Market Perform at Raymond JamesMattress Firm (MFRM) upgraded to Outperform from Market Perform at Raymond JamesSykes Enterprises (SYKE) upgraded to Outperform from Market Perform at Wells FargoTrulia (TRLA) upgraded to Buy from Hold at Deutsche BankVMware (VMW) upgraded to Strong Buy from Buy at ISI GroupViroPharma (VPHM) upgraded to Overweight from Neutral at JPMorgan Downgrades Charles River Labs (CRL) downgraded to Market Perform from Outperform at Wells FargoCliffs Natural (CLF) downgraded to Underweight from Equal Weight at Morgan StanleyEnphase Energy (ENPH) downgraded to Underperform at Raymond JamesObagi Medical (OMPI) downgraded to Neutral from Buy at Roth CapitalSun Bancorp (SNBC) downgraded to Underperform from Neutral at Sterne AgeeWestern Alliance (WAL) downgraded to Market Perform at Keefe Bruyette Initiations Crimson Exploration (CXPO) initiated with a Hold at CanaccordFifth Street Finance (FSC) initiated with an Overweight at JPMorganMasTec (MTZ) initiated with a Buy at Lazard CapitalVascular Solutions (VASC) initiated with an Overweight at Piper JaffrayWeingarten Realty (WRI) initiated with an Equal Weight at EvercoreWestern Digital (WDC) initiated with an Outperform at RBC Capital HOT STOCKS The BOE says U.K. banks have around GBP25B capital shortfallCBS Corporation (CBS) and Lionsgate (LGF) entered into a 50/50 partnership for TVGN and the website TVGuide.com. The venture will combine CBS's programming, production and marketing assets with Lionsgate's resources in motion pictures, television and digitally delivered contentVenaxis (APPY) announced plans to accelerate European market development for its APPY1 appendicitis testLogMeIn (LOGM) announced that a federal jury in Eastern District of Virginia found that LogMeIn products do not infringe on U.S.Patent No. 6,928,479, as asserted by 01 CommuniqueShah Capital offered to acquire UTStarcom (UTSI) for $3.20 per share EARNINGS/GUIDANCE Companies that beat consensus earnings expectations last night and today include:Anthera Pharmaceuticals (ANTH), SAIC (SAI), Landec (LNDC), Envivio (ENVI) Companies that missed consensus earnings expectations include:Mattress Firm (MFRM), Metabolix (MBLX) NEWSPAPERS/WEBSITES European authorities may soon bring a case against some of the region's big banks alleging collusion in the $27T market for credit derivatives, the Wall Street Journal reports.Ericsson (ERIC) is in talks to buy Microsoft's (MSFT) IPTV business, Reuters reports. Wells Fargo (WFC) said its online banking website was experiencing an unusually high volume of traffic that it believes stems from a denial-of-service cyber attack, reports Reuters. J.C. Penney (JCP) CEO Ron Johnson has reportedly started to raise prices across the company's stores, the New York Post reports. According to sources, the hikes are "significant," with prices returning to previous levels before the "fair and square" initiative. SYNDICATE Access Midstream (ACMP) 9M share Spot Secondary being re-offered at $39.86BioMed Realty (BMR) files to sell 15M shares of common stockFrancesca's (FRAN) files to sell 7.4M shares of common stock for holdersGarrison Capital (GARS) 5.333M share IPO priced at $15.00NV5 Holdings (NVEE) 1.4M share IPO priced at $6.00Towerstream (TWER) files to sell 433,673 shares of common stock for holdersTumi (TUMI) files to sell 10.14M shares of common stock
This is a continuation of a series of article regarding China’s “miracle.” To read the first part, click here. Inflation has been and remains the single largest problem for the Chinese Government’s attempts to mollify the Chinese population. It is the one issue that can truly negate a rise in incomes or other economic growth: if inflation is 10%, a 10% raise doesn’t actually mean you’re better off. Please recall that it was high food inflation that resulted in the general Chinese population joining college students in the infamous Tiananmen Square protests. And today, with nearly 40% of Chinese living off of $2 a day or less, any spike in inflation quickly results in people taking to the streets and protesting. With that in mind, it’s critical to note that the wealth and power Chinese Government officials have accumulated has come primarily from a massive lending bubble at China’s banks… From the beginning of 2009 to the end of June this year, Chinese banks have issued roughly 35 trillion yuan ($5.4 trillion) in new loans, equal to 73 percent of China's GDP in 2011. About two-thirds of these loans were made in 2009 and 2010, as part of Beijing's stimulus package. Unlike deficit-financed stimulus packages in the West, China's colossal stimulus package of 2009 was funded mainly by bank credit (at least 60 percent, to be exact), not government borrowing. http://thediplomat.com/2012/09/10/are-chinese-banks-hiding-the-mother-of-all-debt-bombs/ If you’re looking for the reason China’s economy continues to explode, look no further. To put this data into perspective, the above bank expansion would be the equivalent of US banks lending over $10 trillion into the US economy from 2009 onwards. That is the equivalent of what China has done in the post-2008 Crash period. Mind you, the above statistic is only for China’s official lending numbers (the ones Chinese banks official reveal). Indeed, China’s non-regulated financial system, also called its shadow banking system, has expanded to over $18 TRILLION, more than twice the size of China’s economy. Just last year (2012) the Chinese shadow banking system expanded by $1.3 trillion (that’s the equivalent of 20% of China’s GDP). THIS is where China’s wealth and corruption and alleged economic “recovery” have come from: not real economic growth, but a massive credit fueled debt binge. And as anyone can tell you, there is a major consequence for this kind of financial expansion: INFLATION. Now, the official China data pegs inflation at 2%. This, like China’s GDP, is an absurd measure. If inflation were indeed just 2%, the People’s Republic wouldn’t be facing widespread civil unrest over wages (on average there are 30 strikes or more per month in China). Demands for wage arrears always spike in the weeks before the holiday as migrant workers, especially in construction, clamour for back pay. This year, with the rapid development of social media in China, the extent of the problem became very apparent with one online activist sometimes recording up to 100 protests a day. However, very few of these reports contained sufficient detail to be included on CLB’s strike map. Of the 71 strikes and protests that we did include during the month of January, 38 were in the service sector and 26 were in manufacturing. Of the service sector strikes, 15 involved taxi and bus drivers protesting administrative charges and rampant unlicensed cars. There was also an upsurge in teachers’ strikes last month as middle school teachers protested pay reform measures introduced by local governments. Most of the strikes and protests in factories meanwhile were related demands for pay increases. Continued improvements in the productivity and profitability of the manufacturing sector and indications that consumer prices are rising once again have pushed higher wage demands and also forced regional governments to increase the minimum wage. On 5 February, Guangdong announced it would increase the statutory minimum wage on 1 May to 1,550 yuan per month in the capital Guangzhou, and the following day, Shenzhen announced a 100 yuan increase in its minimum wage to 1,600 yuan per month to go into effect on 1 March. There were two successful strikes for higher pay at Foxconn factories in January; in Jiangxi on 11 January and in Beijing on 22 January. Workers at Jiangxi Foxconn reportedly got a 500 yuan increase in basic pay to 2,200 yuan per month, prompting a strike for higher pay at another Taiwanese-owned electronics plant in the same city of Fengcheng almost immediately. Foxconn later announced that it would broaden the participation of ordinary workers in its enterprise trade union. However, this announcement was prompted by suggestions from the Fair Labor Association following its audit of the company’s Shenzhen and Chengdu facilities and does not seem to be the result of demands from the workers themselves. One definite highlight of last month’s worker activism however was the strikes by sanitation workers in Guangzhou, which gained considerable public support and sympathy and eventually forced the city government to promise an increase in pay of around 400 yuan per month on average. However, this success was dampened somewhat when a few days later the government announced that the minimum wage in the city would be increased anyway. http://www.clb.org.hk/en/content/china-sees-upsurge-worker-protests-prior-lunar-new-year So, let’s lay to rest the assumption that China’s inflation is just 2%. Remember that nearly 40% of China’s population lives off of les than $2 per day. And China’s per capita income as a whole is just $6,200 (roughly $17 per day if you count weekends as working days). A South China Morning Post survey of some commonly bought grocery items found that a 500 gram loaf of bread that sells for HK$8.60 in Hong Kong and the equivalent of HK$9.93 in London, cost the equivalent of HK$13.52 in Beijing. Similarly, a 250 gram bag of Starbucks coffee beans cost HK$80 in Hong Kong and HK$50 in London, but HK$105 in Beijing. Across the board, imported and foreign brand items were often more expensive in Beijing, although locally produced items, such as eggs, were cheaper. Similar comparisons contrasting Beijing, Guangzhou, Shanghai and Shenzhen, with those in New York, London and Hong Kong have increasingly become fodder for debate in recent years . The latest annual cost of living survey by the compensation-consulting firm Mercer found Beijing and Shanghai to be pricier than New York and London. Shanghai was ranked 16th followed by Beijing at 17th, ahead of London (25th) and New York (32nd). http://www.scmp.com/news/china/article/1091651/cost-living-china Ignore the “official” data. The massive expansion of the Chinese banking system has unleashed a much higher cost of living in China. And your average Chinese civilian, struggling to meet these increased costs, is going to be none to please to find that the very banking expansion that was supposed to grant him or her a higher quality of life has: Benefitted corrupt Government officials much more than the Chinese population Resulted in the very same increased cost of living that is eating up his or her paycheck. This is precisely the formula that resulted in the Arab Spring in the Middle East: increased costs of living and a corrupt Government. Could China be heading for a similar development? It sure looks like it. This concludes this article. To help investors avoid some of the biggest pitfalls concerning inflation, we recently published a NEW FREE Special Report titled, The Inflation Secrets Your Broker Won’t Tell You and it outlines three HUGE secrets that 99% of the investment community don’t know about inflation. These include The surprising industry that suffers as prices soar, despite being considered "inflation proof" by many investors... Which investment Warren Buffett loves even more than gold... Why U.S. Treasury Inflation-Protected Securities (or TIPS) don't work — and what investment could be your best alternative. This Report is a $79 value, but we’re giving it away for free to investors today. To pick up your free copy, swing by: http://gainspainscapital.com/the-inflation-secrets-your-broker-wont-tell-you/ Best Regards, Graham Summers PS. We also On that note, feature a FREE report concerning the threat of a European Banking Collapse. It’s called What Europe’s Collapse Means For You and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it. This report is 100% FREE. You can pick up a copy today at: http://gainspainscapital.com/eu-report/
Outgoing premier says second largest economy faces mounting social problems and should prioritise citizens' wellbeingChina's outgoing premier Wen Jiabao has warned that the world's second largest economy faced mounting social problems and "unbalanced, unco-ordinated and unsustainable" growth as he said farewell after a decade in power.A new generation of leaders has already taken charge of the Communist party, the ultimate source of power in the world's second largest economy.This year's session of the National People's Congress will formally appoint Xi Jinping and Li Keqiang as president and premier respectively, as well as filling government jobs lower down the ranks.In his final work report to the annual session of the country's largely rubberstamp parliament, Wen said the overall growth target would remain at 7.5% – although the figure is largely symbolic and usually far outstripped by the real growth rate – with an inflation target of 3.5%.The 2013 budget issued alongside his speech highlighted hefty increases for areas including health and the military, resulting in a 10% overall rise in government spending to 13.8tn yuan (£1.4tn), boosted by a 50% increase in the fiscal deficit to 1.2tn yuan.The premier warned the almost 3,000 deputies gathered in Beijing for the opening session of the Congress that the global recovery remained uncertain."We should unswervingly take expanding domestic demand as our long-term strategy for economic development," he said, adding that people's ability and desire to consume needed to be boosted.But the administration has long vowed to rebalance the economy and his repetition of earlier warnings about its problematic development underscored how much work remains.Amid growing public dissatisfaction about the challenges the country faces after years of high-octane growth – from pollution and inequality to staggering levels of corruption – Wen urged: "We must make ensuring and improving people's wellbeing the starting point and goal of all the government's work, give entire priority to it and strive to strengthen social development."Among the measures to tackle that were a 27% boost to health spending, taking the total to 260bn yuan, and a 13.9% increase for social security and employment, to 655bn yuan. His speech stressed green issues – the budget promises an 18.8% boost for energy conservation and environmental protection, to 210bn yuan – and also touched on the need to address corruption."People are thirsty, but it does not solve the problems. He did not respond enough to the issues people expect, especially anti-corruption," said Chen Ziming, an independent Beijing-based scholar.Zhang Ming, a political scientist at Peking University, said the report was "not very satisfying", but that Wen was constrained by the system.In an indication of government anxieties about unrest, Wen stressed the need to improve the system for assessing the risks that major policy decisions might pose to social stability.The budget published on Tuesday also shows that China will spend more on domestic security than the military for a third year in a row, with an 8.7% funding increase to 769bn yuan."Even though the party has decided to limit the political clout of the security apparatus by excluding its leader from the politburo standing committee, the role of the police remains central in a political system based in part on suppression of dissent," said Nicholas Bequelin, senior Asia researcher at Human Rights Watch."The weight of the domestic security budget reflects the central role that the security apparatus plays in the eyes of the party as it braces for a predicted uptick in social protests in the coming years."Military expenditure will see another double-digit hike, but the 10.7% rise – to 740.6bn yuan – is below last year's increase, which was projected at 11.2% and ultimately came in at 18.5%.Territorial disputes with neighbours, and China's investment in equipment such as an aircraft carrier, a "carrier-killer" anti-ship missile and new jet fighters and submarines have raised concerns about its might among other countries. But its spending and technology remains far behind that of the US."It's not good news for the world that a country as large as China is unable to protect itself," NPC spokeswoman Fu Ying said on Monday.While there are complaints that China does not declare all defence-related spending, US academics Adam Liff and Andrew Erickson argue in a forthcoming paper: "Beijing's official defence budget increasingly captures actual PLA funding and the PLA's widely criticised opacity is improving gradually and is not exceptional among countries at its stage of development."The work report is a consensus-driven document that will have been developed in discussion with the new leaders.Jean-Pierre Cabestan, a political scientist at Hong Kong Baptist University, said China seemed to be "staying on the same lines, with new targets but very much expanding current policies".The congress will also approve a shakeup of ministries designed to curb excessive powers and increase efficiency."People say that's only rewiring the system, but if they could rewire it, that would be great. It's something we could legitimately hope for, but it's not everything," said David Kelly, research director for China policy and visiting professor at Peking University."What's needed more than new ministries is co-ordination and some way through the silo mentality."Wen JiabaoChinaAsia PacificTania Braniganguardian.co.uk © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds
Think Americans are the only people in the world toiling under a gargantuan, and unrepayable, debtload, which at last check was a massive $55.3 trillion, or about $175K per person? Think again. Meet Sherry Sheng, a 29-year-old Shanghai policewoman, who bought herself a 4,000 yuan ($642) black fur jacket, splurging for the last time before she starts paying off the mortgage on her first home. Sherry is what is known as a Chinese "housing slave." Bloomberg explains: Sheng is part of a generation of middle class that Chinese media has dubbed “fang nu,” or housing slaves, a reference to the lifetime of work needed to pay off their debts. They’re taking on mortgages even as the government maintains property curbs to damp prices that have almost tripled since China embarked in 1998 on a drive to increase private home ownership. “It’s a treat for myself because I could never afford such a luxury after I start repaying my housing loans next month,” said Sheng, who paid 1.1 million yuan for the one-bedroom apartment on the city’s western outskirts and will be using about 70 percent of her salary to service her mortgage. China’s growing middle class reaching for homeownership helped property prices rebound starting in the second half of last year. They rose 1 percent in January from December, the biggest gain in two years, according to real estate website SouFun Holdings Ltd. Home prices in Beijing and Shanghai each rose 2.3 percent from December. Average per-square-meter prices in 100 cities tracked by SouFun are five times average monthly disposable incomes. A 100- square-meter (1,076-square-foot) apartment today costs about 40 years’ annual income, according to SouFun and government data, even as salaries have more than quadrupled since 1998. Sheng was able to buy her 50-square-meter apartment after borrowing a combined 770,000 yuan through a 20-year mortgage from Agricultural Bank of China Ltd. and a 15-year loan from the local housing providence fund. Her parents helped with the 30 percent down payment. She will repay about 4,000 yuan a month for the home, a one-hour subway ride from central Shanghai’s historic Bund that cost 16 times her annual salary, based on the apartment price and her income. Chinese homebuyers typically use 30 percent to 50 percent of their monthly incomes to repay mortgages, said Wu Hao, a manager at the loan brokerage of Bacic & 5i5j Group, Beijing’s second-biggest realtor for existing homes. It advises clients to keep monthly repayments lower than one-third of their incomes. The “general guideline” among Chinese banks is that a borrower’s salary should be at least twice their monthly payment; otherwise they’ll be asked to submit proof of assets, such as property, cars, or insurance to show their ability to service the debt, Wu said. Using 70 percent of monthly income to pay the mortgage is “very rare,” she said. Why do we bring this up? Because the Chinese housing bubble is now the biggest it has ever been; according to some it is even bigger on a relative basis compared to the US housing bubble (either in 2007 or 2013). The property market has already “heated up,” while home prices in major cities may rise as much as 10 percent in the next three months, said Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research, in an interview. Loose monetary policy will drive housing prices and sales up in the near term, Hong Kong-based Jinsong Du, Credit Suisse Group AG’s head of property research, wrote in a report Feb. 18. The new government may introduce more property curbs when it takes power in March. China may tighten credit policies for people buying a second home or raise the tax on gains on transactions of existing homes in the most affluent, or so- called tier-one cities, the China Securities Journal reported Feb. 1, citing an unidentified person. Home sales in China’s 10 biggest cities almost quadrupled to 8.5 million square meters in the first five weeks from last year, property data and consulting firm China Real Estate Information Corp. said in an e-mailed statement Feb. 19. Once it was tulips. Now, it's houses. Chinese urban residents’ average disposable income rose 12.6 percent last year to 2,047 yuan a month, according to the statistics bureau. The average one-square-meter of new floor space cost 9,715 yuan in December, according to SouFun. The shift to private home ownership stems from reforms started in 1998, when then Premier Zhu Rongji privatized state- owned housing provided at low rents to urbanites, transferring home ownership from the government to the families occupying the dwellings. About 230 million people moved to cities in the 2000- 2011 period, the biggest urbanization in history, according to the Chinese Academy of Social Sciences. The idea of buying a property with borrowed money didn’t become popular until 2004 when home prices in major cities started rising fast enough to compensate for interest payments, enticing buyers to borrow to buy property, said Liu Yuan, a Shanghai-based researcher at Centaline Property Agency Ltd., China’s biggest real estate brokerage. Today about 50 percent to 70 percent of home buyers in the first-tier cities of Shanghai, Beijing and Guangzhou use mortgages, borrowing an average 50 percent of a home’s value, according to Centaline. Which is why, perhaps more even than the US, China is truly stuck between a rock and a hard place - on one hand it can not afford a real estate bubble pop as it would make the millions of debt slaves into millions of far poorer, deleveraging and in many cases, broke, debt slaves, and lead to the downfall of the financial system stuck holding mortgages that no longer generate cash flows. On the other hand, inflation is already resurgent, and as the recent halt to reverse repos shows, China is this close to a repeat of the spring of 2011, when it lost control of inflation, and had to demand that global central banks end their reflation effort for fears what hot money flows would do to its social stability. Worst of all, however, is that in the pursuit of the great Chinese dream, more and more housing slaves will emerge, beholden to a insolvent system reliant on constantly creating over $100 billion in new liabilities (i.e., deposits) per month. Anything more than that, and you have hyperinflation; anything below that and you have a housing crash. And since Goldilocks only works for so long, when the PBOC finally veers off course, it will be the "Sherries" in China left holding the bag. A very empty bag.
G-20 Signals Support for Japan Easing Without Yen Talk (BBG) - but how will Mrs Watanabe know to sell the JPY without nightly proddings? Obama Faces Risks in Pipeline Decision (NYT) White House Immigration Plan Leaked (WSJ) Reader’s Digest Is Bankrupt as Iconic Magazine Falters (BBG) Venezuela's Chavez in surprise return from Cuba (Reuters) German Recovery Hinges on Euro Zone (WSJ) Hong Kong’s Bankruptcy Requests Climb to Almost Two-Year High (BBG) China New Year Retail Sales Growth Slows on Frugal Drive (BBG) Debt Bubble Born of Easy Cash Prompts Swedish Rule Review (BBG) In Europe's tax race, it's the base, not the rate, that counts (Reuters) Ugliest Danish Banks Find No Buyers in Toxic Asset Trap (Bloomberg) Italian Undecided Voters Targeted in Campaign’s Last Week (BBG) Leader of Boeing engineers brings militant tone (Reuters) Russian Scientists Test Meteor Fragments After Chelyabinsk Blast (BBG) Overnight Media Digest WSJ * The G-20, the world's largest economies, will face the first test of their ability to present a united front on currency policy when foreign-exchange markets open in Asia on Monday. * German Economy Minister Philipp Rosler warned that the return to strong growth in Europe's largest economy later this year depends on stabilization of the euro zone. * The U.S. Treasury market's heyday of soaring prices is likely over, but some bond managers say there could be one more run. Treasury prices surged after the 2008 financial crisis, dragging yields to an all-time low of 1.4 percent at one point from more than 4 percent, as the Federal Reserve has bought trillions of dollars in Treasurys to help prop up the economy. * Officials from India will visit Italy this week as the country intensifies its investigations into bribery allegations regarding a helicopter deal worth almost 560 million euros ($747.62 million) with a division of Italian defense contractor Finmeccanica SpA. * The French investment bank Natixis disclosed a plan to simplify its structure even as it reported a plunge in fourth-quarter net profit. * South Korean President-elect Park Geun-hye nominated state think-tank chief Hyun Oh-seok as finance minister for her incoming government to steer Asia's fourth-largest economy - a move that isn't likely to see any significant change to current economic policies. * Europe's flagship effort to limit greenhouse-gas emissions faces an existential threat as the price of emissions has fallen dramatically, eroding an incentive for industries to pollute less and forcing policy makers to weigh environmental priorities against economic concerns FT Man Group's incoming Chief Executive Emmanuel Roman plans to nearly double the size of the hedge fund firm's executive committee as part of a management shake-up at the company. Vodafone Group Plc and BAE Systems have signed a five-year deal to work on cyber security with a focus on developing safeguards for mobile devices. China has given ConocoPhillips approval to restart production at an oilfield off the country's Northeastern coast after a 17-month shutdown prompted by a spill in 2011. A wave of small companies could demand a suspension of potentially mis-sold interest rate hedging products after a Treasury minister asked the Financial Services Authority to insist that banks should allow all potential victims to refrain from paying premiums until their cases were resolved. The EU is set to impose the most stringent curbs on bankers' pay since the 2008 financial crisis as talks on reforms to make banks safer enter a decisive week. BT is in talks to buy football rights from Walt Disney Co's ESPN as the channel explores an exit from the UK. A proposal being considered by global regulators could force some banks to sharply raise the capital they hold against trading assets, at least over the short term. NYT * President Obama faces a knotty decision in whether to approve the much-delayed Keystone oil pipeline: a choice between alienating environmental advocates who overwhelmingly supported his candidacy or causing a deep and perhaps lasting rift with Canada. * Publishers in France say they have struck an innovative agreement with Google Inc on the use of their content online. Their counterparts elsewhere in Europe, however, say the French gave in too easily to the Internet giant. * A chill between Hollywood and China remains almost a year after word leaked about an SEC investigation into possible corrupt practices. * With some states poised to clear the way for legal gambling on the Internet, Silicon Valley's traditional gaming companies are expanding to meet the expected deluge of players. * Business Insider, the online news franchise started by Henry Blodget nearly six years ago, is appointing an executive editor for the first time as it grapples with a good problem: growth. * Federal and state officials and consumer advocates have grown worried that companies with relatively young, healthy employees may opt out of the regular health insurance market to avoid the minimum coverage standards in President Obama's sweeping law, a move that could drive up costs for workers at other companies. * Rem Vyakhirev, who as chief executive of the huge Russian energy company Gazprom during the 1990s resisted efforts by reformers to break up and privatize it, only to end his tenure a billionaire owning valuable pieces of the company himself, died on Feb. 11. He was 78 China CHINA SECURITIES JOURNAL --Revenue in 116 large state-owned companies reached 22.5 trillion yuan ($3.61 trillion) in 2012, up 9.4 percent from a year earlier, according to data from State-owned Assets Supervision and Administration Commission of the State Council. --Sales volume in the retail and catering industry during the week-long Spring Festival reached 539 billion yuan this year, up 14.7 percent from 2012. SHANGHAI SECURITIES NEWS --China's State Council has issued a proposal to increase the use of energy-efficient internal combustion engines across the industrial sector to 60 percent. The move can reduce total fuel consumption by 6-10 percent, or around 20 million tonnes of fuel oil, and 10 percent of greenhouse gas emissions from 2010 levels. SHANGHAI DAILY --China's nonferrous metal output expanded at a slower pace of 9.3 percent to 36.91 million tonnes last year, down 1.3 percentage points from 2011. A total of 8,057 major non-ferrous metal producers tracked by the ministry cumulatively saw their profits fall 8.9 percent to 155.8 billion yuan.
By Grace Li HONG KONG (Reuters) - Hong Kong introduced measures on Friday to tackle a shortage of baby milk formula as food-safety-conscious mainland Chinese people flock to the city to stock up on supplies ahead of a Lunar New Year holiday. The Hong Kong government cut the luggage allowance on trains that connect the city to the mainland to 23 kg (50 lb) from 32 kg (70 lb) and limited the number of cans of milk powder a person can take back into the mainland to two per visit. It said it would also set up a hot line from Friday evening allowing Hong Kong mothers to place orders for seven brands of infant formula and ensure that orders placed by this weekend are delivered by the new year holiday, which starts on February 10 and runs for a week in China, when most shops are closed. A series of scandals involving food produced in China, including milk, has sapped the confidence of many mainland consumers, who have flocked to Hong Kong to shop, angering residents of the wealthy city who say the problem has led to shortages and pushed up prices. "The scandals here definitely have had an effect," said Kevin Der Arslanian, a business analyst at China Market Research Group in Shanghai. "People don't trust necessarily that the product they buy is real or the quality is good." High import taxes in China have also created a thriving grey market for traders who buy products tax-free in Hong Kong and take them on crowded trains across the border on trolleys, in suitcases or stuffed in their jackets, to resell for a profit. Hong Kong was guaranteed a degree of autonomy when it returned to China under a deal that ended British rule in 1997. The baby-milk shortage is the latest in a string of issues that have troubled ties between the capitalist city and communist mainland. Hong Kong people are so frustrated over the baby milk they have turned to U.S. President Barack Obama for help, launching a petition on a White House web site saying babies in the financial center faced malnutrition and their government is failing to solve the problem. As of Friday evening, the petition had attracted 13,422 signatures since it was launched on Tuesday. It needs to secure 100,000 by February 28 to draw a response from the U.S. government. Demand for Hong Kong's high quality and regulated infant formula brands shot up in 2008 when a melamine milk powder scandal made nearly 300,000 mainland Chinese children sick. Cans of infant formula Frisolac Gold 1 were on sale for HK$260 ($33.52) at a pharmacy in Hong Kong's Mongkok district on Friday. It sells for 261 yuan ($41.97) at 360buy.com, an online retailer in China. Pharmacy owner Charles Mui said he tried not to promote smuggling: "I only sell milk powder to customers who really use the products to feed their babies." Chinese visitors have also been snapping up milk powder products in Europe and Australia, while the former Portuguese territory of Macau, across the mouth of the Pearl River from Hong Kong, announced a plan on Monday to give city parents priority in buying baby formula. Recent fears over the quality of chicken in China hit sales at mainland branches of McDonald's and Yum's KFC, and further undermined consumer confidence. ($1 = 7.7555 Hong Kong dollars) ($1 = 6.2188 Chinese yuan) (Additional reporting by Venus Wu and Stefanie McIntyre; Editing by Anne Marie Roantree and Robert Birsel)
The Chairman of China Securities Regulatory Commission (similar to the US SEC) said that China can increase by 10-fold the size of the two main channels by which foreign investors buy mainland financial assets. It can, Guo Shuqing said, increase quotas under the Qualified Foreign Institutional Investors and the Renminbi Qualified Foreign Institutional Investors. The latter would make it easier for the yuan in Hong Kong (CNH) to be used to purchase Chinese securities. This hint helped lift China shares by over 3%, their largest gain in a month. The Shanghai Composite's 3% rise brings the gain to 19% off the multi-year low near 1949 (the year of China's Revolution) in early December. China has gradually eased some capital market access rules. At the end of last year, China removed a ceiling on sovereign wealth funds and central banks ownership of Chinese securities. It also indicated it will launch an experimental program that would make it easier for some to buy foreign stocks and bonds. Separately, China State Administration of Foreign Exchange (SAFE) indicated that it establish a new office that will channel some of the more than $3.3 trillion of reserves into supporting Chinese companies foreign direct investment. Data suggest Chinese companies are rapidly expanding their overseas presence. Direct investment rose by a quarter in the Jan-Nov 2012 period. These developments say nothing about the near term direction of the yuan. The dollar fell about 3% against the yuan in the second half of 2012 and has since consolidated mostly between CNY6.21 and CNY6.24, with a brief and shallow push through CNY6.25 in mid-December. We suspect, if risk comes off, the dollar can recover to re-test those mid-December highs. Some observers have suggested that through the yen's depreciation, it will export inflation to China. The higher inflation would be a reason that officials will angle for a stronger yuan. We are skeptical. The main factor behind the recent jump in Chinese inflation was vegetables and pork and is clearly more weather than currency related. Japan has not inflation to export. The persistence of deflation is one of the drivers behind the LDP push for a weaker yen. The macro-economic consideration of a weaker yen is about competitiveness. Just as Chinese officials do not want to see the US dollar decline, they do not want their regional rival (Chinese and Japanese fighter jets were shadowing each other in the region of the disputed islands) to gain a competitive advantage by depreciating the yen.
Back in September, when we provided the monthly observation on what has become a record year to date surge in Chinese imports of gold from Hong Kong, we reminded readers that "in December 2009, the China Youth Daily quoted State Council advisor Ji as saying that a team of experts from Beijing and Shanghai have set up a "task force" last year to consider growing China's gold reserves. "We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him. Has China managed to accumulated 6,000 tons yet? We won't know for sure until the official disclosure which will come when China is ready and not a moment earlier, but at the current run-rate of accumulation which is just shy of 1,000 tons per year, it is certainly within the realm of possibilities that China is now the second largest holder of gold in the world, surpassing Germany's 3,395 tons and second only to the US." Two days ago we showed that the relentless importing of gold in China continues, yet what has been missing is an update direct form the horse's mouth how China feels toward gold (because we certainly know how it feels toward US Treasury paper). Today, we finally got one straight from Beijing, and that during a very carefully supervised time when the 18th Communist Congress is still in session, and every word out of China has profoundly telegraphic implications. From Bloomberg: China needs to add to its gold reserves to ensure national economic and financial safety, promote yuan globalization and as a hedge against foreign- reserve risks, Gao Wei, an official from the Department of International Economic Affairs of Ministry of Foreign Affairs, writes in a commentary in the China Securities Journal today. While gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility, Gao writes in newspaper China’s gold reserve is “too small”, Gao says And there it is: while many have speculated that China, which has not given an update of its official holdings in nearly 4 years, is quietly building up its gold reserve holdings behind the scenes, there was no reason to worry. The time to worry would be when China was starting to give indications it is prepared to tell the world what its true gold holdings are (by now certainly well over 1000 tonnes). And the above piece from Wei is just that: because in saying very little, the Chinese official with a key political post has just given the first hint that China is preparing to give its official gold far greater focus. And from there, the time until China releases an IMF update on its official reserve holdings will be measured in days if not hours. Because all the gold will have long been accumulated. And once that happens it will be too late to buy any incremental gold. Or tungsten.