Cream cheese

“There are three rules that I live by: never get less than twelve hours sleep; never play cards with a guy who has the same first name as a city; and never get involved with a woman with a tattoo of a dagger on her body. Now you stick to that, and everything else is cream cheese”. So said the indomitable US basketball coach Bobby Finstock as he eschewed playing fast and loose.

The Chinese monetary authorities sleep well and heed sensible advice; they also know their semantics and what the opposite of “fast and loose” is. It should come as no surprise, then, that Xinhua News reports today that China will shift to a “prudent” monetary policy next year as the PBOC seeks to rein in liquidity, combat accelerating inflation and limit the risk of asset bubbles (it had previously described its stance as “moderately loose”). The Government “will (also) adopt proactive fiscal policies and prudent monetary policies” continues Xinhua referencing a meeting of the ruling Communist Party’s Politburo. Nonetheless, the latter is also reported as saying that China has a sound base for stable and fast growth next year even as difficulties and challenges remain. Here, Merrill Lynch has penciled in 9% GDP growth for next year.

The IMF also jumped on the band-wagon saying that China should raise interest rates further and impose a property tax to curb the risk of asset bubbles and a “disorderly fall” in home prices. Existing measures “at best only treat the symptoms of high residential real estate inflation and not the underlying structural causes”. Similarly, RBC says interest rate hikes are imminent, while Mizuho Securities adds that one may come today or next week at the Annual Economic Work Conference.

Elsewhere, Yuan Forwards also look set to have shown their largest weekly (+0.95%) gain in four and are pointing to +2.3% over the next 12 months from a spot of 6.6597 today.

More worrying, though, were two non-manufacturing PMI surveys which showed a nine month low (National Statistics/Federation of Logistics) and a two year low (HSBC) in October; with the former dropping from 60.5 to 53.2

In real estate, there was a push/pull of news flow with SouFun, the Nation’s largest real estate website owner, saying that home prices in 100 cities rose 0.8% in November despite higher interest rates for a full month (plus higher bank reserve requirements). What’s more, China Vanke, the number one developer, also became the first to hit Yuan 100 billion annual sales. This also meant that it had reached its 2014 target, four years early. It has done so too by targeting smaller cities, smaller units and cash buyers (total household deposits in China in September were Yuan 29.9 trillion or $4.5 trillion). Similarly, the IMF added that there is no sign of “a broad based and significant over-valuation” of residential property in China. Nonetheless, a sub-index of developers' share prices are off 27% this year in a stock market down 13%.

Finally, infrastructure spend marches on, as it must, with 25 new nuclear power plants being built (which is 50% of what it being built worldwide) – against 14 now. The Nation also plans to spend Yuan 2 trillion per annum on alternative energy and the like. Plus 16,000 kilometres of high speed passenger rail network races to a 2020 completion. This will give China as much track - even by 2012 - as the entire rest of the World. The very smart Jing Ulrich from JPMorgan adds, too, that this will alter “the landscape of consumer and property markets” in the same way that the bullet trains did in Japan in the 1970s and 1980s.

“Your dresses should be tight enough to show you're a woman and loose enough to show you're a lady” - Edith Head

Shanghai Composite:
Today: -0.04% to 2,842.43 at close
This week: -0.8%
Since 5 July: +20.2%
YTD: -13.3%

Hang Seng:
Today: -0.55% to 23,320.52 at close
This week: +1.9%
YTD: +6.6%

Oil futures: $87.79
Gold futures: $1393.60
(new ‘immediate delivery’ high of $1424.60 on 9 November)
Euro/$ spot: 1.3154

EQUITIES & MONEY

• Stocks decline
• China is changing to a “prudent” monetary policy, says Xinhua
• Yuan Forwards set for largest weekly gain (+0.95%) for a month; and point to further 2.3% gain over 12
• China is “scared” of US monetary policy
• Bill yields too low compared with inflation
• Nation must raise deposit rates to 12 year in order to protect savers, says Andy Xie
• Channel savers cash away from bank deposits into stocks, says PBOC adviser
• China should consider increasing gold reserves to boost trade in the Yuan

ECONOMY

• Non-manufacturing PMI falls to nine month low

REAL ESTATE

• Home prices rise 0.8% in November
• China Vanke is first domestic developer to record Yuan 100 billion of annual sales
• Property stocks have fallen 27% this year
• IMF says China should use property tax and interest rates to avert bubbles
• Rail boom which will do for China what the bullet trains did for Japan; especially real estate
• Shanghai's housing rents and hotel rates fall by up to 50% after Expo

DOMESTIC

• China may ease limits on industrial energy usage
• Country is set for a nuclear boom
• Alternative energy boom

INTERNATIONAL

• China’s refusal to condemn North Korea at UN narrows US and allied options
• India to overtake China as World’s fastest growing major economy by 2015

CLIMATE

• China turns negotiating tables on US in stalled climate talks