April 2, 2014

In The Past, Money Would Pour Into Your Pocket

Xinhua reports from China. “Puzzled Chinese property developers have a string of questions. No specific control or fine-tuning policies were mentioned in the government work report, which outlined this year’s reform priorities at the just-concluded annual parliamentary session. But the sweeping agenda touched upon financial, taxation and land reforms, all of which are set to impact the real estate market. ‘In the past decade, you just invested, built houses and the money would pour into your pocket. But now I feel pressure, not sure of the prospects,’ a property developer from southwest China’s Chongqing Municipality said.”

Want China Times. “After last year’s frenzy, China’s realty market is undergoing a period of consolidation. A conspicuous high-risk zone is the city of Changzhou in eastern China’s Jiangsu province, which has seen large amount of completed but unoccupied residences in the last two years that has seen the city attain the unwanted label as one of 12 major ‘ghost cities’ in the country. The developer of one housing project in Changzhou is pushing its houses at a 40% discount, to the great discontent of those who bought properties earlier at full price.”

The Australian Financial Review. “On a recent trip to China, an Australian fund manager said his biggest insight was gleaned from two photographs he had stored on his mobile phone. They were taken from his hotel room in the western city of Kunming. In the first photograph, a sea of apartment blocks can be seen surrounding the hotel. The second is the same view taken at night but the buildings are hard to make out because there are barely any lights on.”

“Chinese officials are said to be frantically selling off their mansions and holiday homes at low prices following the government’s declaration of plans to build a national housing information network, reports the Chinese-language Beijing Morning Post. A real estate agent in Beijing’s Haidian district told the Beijing Morning Post that since the announcement there has been an influx of officials looking to “dump” their properties at several million yuan below market value. ‘Some corrupt officials fear that once their property ownership is made public they will come to the attention of anti-graft authorities and be forced to explain the source of their immense wealth,’ said Ren Jianming, a professor at the School of Public Administration at the Beijing University of Aeronautics and Astronautics.”

“An agent told the paper that an exclusive luxury housing development in Guangzhou had sold for just 2,000 yuan (US$320) per square meter about 10 years ago to government officials with ’special connections.’ The value of the properties have since risen to more than 40,000 yuan (US$6,400) per square meter.”

From NTD TV. “Days ago, several Chinese major state-owned banks found “a new trick” to handle their bad loans. They are selling distressed debts to their subsidiary investment banks. By doing this, those banks not only make their accounting books look better, but also reduce their losses significantly. Xie Tian, Professor at University of South Carolina Aiken School of Business commented that, now that the Chinese Communist Party’s banks are still deceiving Chinese investors by selling bad debts to investment units, China’s financial problems are visibly worse. However, no matter what strategy the party uses, it can hardly escape the bursting of all its assets in the end.”

“Xie Tian: ‘On one hand, distressed debts may result from economic decline, overcapacity and shrinking markets. On the other hand, many bad debts are largely due to corrupt officials. If the Chinese Communist Party simply tries to fill the hole without solving that problem, the hole can only become even bigger. More money will be embezzled, and essentially the situation is the same as always: the party’s interest groups plunder money from all Chinese civilians in disguised forms.’”

From Money Week. “For anyone new to the China story, here’s a quick summary of the state of play. When the global financial crisis hit in 2008, global trade dried up. That could have scuppered China’s economy, which relied on selling cheap stuff to the rest of the world. With demand drying up, banks were ordered to lend money hand over fist. Infrastructure deals and property projects were funded left, right and centre, with no real care for whether they could pay for themselves or not. The country is now dealing with the fallout from that.”

“The FT this morning looks at China’s banking system, and the threat from falling property prices in particular. The most insightful line in the piece comes from a ‘prominent Hong Kong credit investor’. He highlights one key fact: yes, the government might have the capacity to bail everyone out. But will it necessarily want to? ‘We have become too accustomed to bailouts. Everyone focuses on the government’s ability, not its willingness, for bailouts. We are all too complacent.’”

“What I like about this line is that he’s summed up not just China’s problem, but the whole world’s problem.”

Bits Bucket for April 2, 2014

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