The first “4.0%” is the amount proposed by the City of Shanghai as its property tax based on new homes comprising more than 60 square metres (646 square feet) per person. If true, this is way above preliminary estimates of 0.6 or 0.8%. Okay, we only have China Business News Television’s word for it; and any proposal will have to be approved by the Ministry of Finance. Nonetheless, a rational man would conclude that this is the direction it is going. Indeed, Shanghai’s Mayor, Han Zheng, is particularly hawkish: “high prices severely distorted the living function of homes”. The same goes for Premier Wen who said earlier this month that the Government will “resolutely” implement controls on the real estate market in Q1.
With the other hand, though, Mayor Han says his City will offer 5 million square metres of affordable housing (80,000 units) and a further 2 million square metres (40,000 units) of public rental residences. Jones Lang Lasalle said “the Mayor is reflecting the view of central government, which is to suppress demand and increase supply. It’s policies are intended to prevent prices from rising too quickly rather than driving prices down”.
The second numerical reference is actually “4.7%” (which is pretty much 5%). In any event, 4.7% is how far the Shanghai Composite has fallen in 2011 to date. And you know why i.e. something along the lines of speculation that further policy tightening will crimp demand for commodities - and smaller companies, in particular, will fall further because they are ‘overvalued’. Similarly, demand for prospective IPOs is said to be dwindling.
In reality, too, any of the money market rates supports the imminent realisation of an interest rate rise hat trick in China. In particular, the benchmark, six month deposit rate which commercial banks pay to borrow from the PBOC has increased by the most in three years from 5.4 to 5.9%. In addition, the repo rate (seven day repurchase rate) soared 2.85% today to a three year high of 7.65%. And, finally, the wonderfully named SHIBOR (Shanghai Interbank Offered Rate) was fixed 20 basis points higher today at 5.25%. Rational man (as above) sees this as sufficient evidence for the next fast ball to be bowled.
That said, the bond market tells us that it has confidence in China’s leaders - relative to the other BRICs (or BRIs) - to sustain the fastest economic growth in the group together with the slowest inflation. For example, 10 year Government of China bonds currently yield 4.01% versus 12.6% in Brazil, 5.91% in Russia and 8.18% in India.
The third number, actually “3.3%” and conveniently rounded down to 3%, is how much the Hang Seng has risen so far this year. Reputedly, this is driven by raw material suppliers, in particular, on optimism in Hong Kong that demand in China (and Europe) will continue to increase. Go figure!
In other news, China continues to (neo) 'colonise' - with the luxury of setting its own pace and choices - and ICBC has taken it first majority stake in a US based business (Bank of Asia’s American unit). Plus, CIC has opened its first international representative office (in Toronto, Canada). In the same vein, Citigroup says that “the Chinese have taken a page out of the Japanese playbook” by building a regional US manufacturing presence; and Hu’s trip last week has galavnised this strategy (which is also more important than what is said on Capitol Hill). Finally, over the last two years (and not many people know this) China has lent more money - i.e. $110 billion in total - to developing countries than the World Bank.
Closer to home, SOEs (State-owned Enterprises) saw net income rise collectively by 36% to Yuan 562.2 billion last year on revenue of Yuan 16.7 trillion (+32%); which also meant margins inched ahead to 3.4%.
Finally, the up-coming Chinese New Year vacation (from 2 February) is blurring economic clarity right now, just as the snow is impeding travel; although the Government is committed to keeping the first clear and the second totally functional.
“Only he that has travelled the road knows where the holes are deep” - Chinese proverb
Shanghai Composite:
Today: -0.68% to 2,677.43 at close
This week: -1.4%
Since 5 July: +13.3%
Since 8 Nov: -15.3%
December: -0.4%
2010: -14.3%
YTD: -4.7%
Hang Seng:
Today: -0.05% to 23,788.83 at close
This week: -0.3%
Since 25 May: +25.3%
Since 8 Nov: -4.7%
December: +0.1%
2010: +5.3%
YTD: +3.3%
Oil futures: $87.65
Gold futures: $1330.30
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3642
EQUITIES & BONDS
- China’s mutual funds boost share of equity holdings to near record high; which points to a further stock market decline
- Equity market falls will be limited, says CICC
- Aberdeen Asset Management likes China’s macro story, but prefers non-domestic stocks with businesses in China
- Chinese corporate bond sales have reached a new record in 2011, to date, of Yuan 100 billion; and may reach Yuan 1 trillion for year as a whole
- China's Government has the lowest 10 year yields among the BRIC nations; and there is optimism that the PBOC will win the battle of the fastest growth/lowest inflation
MONEY
- China's banks pay record deposit rate for Government cash; and the SHIBOR climbs
- Yuan continues to trade near a 17 year high (6.5808); its strength may help with controlling inflation
- PBOC halts bill sales for a second week
REAL ESTATE
- Shanghai plans a 4% property tax, its is reported by China Business News Television
INTERNATIONAL
- Hu's trip to the US may be precursor to Japanese-style investment push by China
- ICBC buys a majority stake in Bank of East Asia's US business; the first such majority stake ever
- CIC opens first foreign representative office in Toronto
- China has lend more to developing countries in past two years than World Bank
- China announces anti-dumping tax on X-ray scanners from European supppliers
DOMESTIC
- SOE’s net income rise 36% in 2010, as margins inch forward to 3.4% (vs 3.3%)
- Wenzhou suspends programme for individuals to invest internationally
- China pledges to keep road and rail links open as snow disrupts journeys home for New Year
HONG KONG
- New home sales may reach 26 month low, says Centaline
IRON & STEEL
- Steel price rise is forecast to rise by an average 32% this year, according to FT industry panel; with the bulls on twice that amount
- Global steel volumes to rise 6.2% this year, says FT panel; with China at 5.2%
- Iron ore stocks in China rise to a four-and-a-half year high on concerns about supplies
- Iron ore prices fall for first time in China this week since 30 December - to $185
- India may ban more iron ore exports
- India’s largest iron ore exporter, Sesa Goa, see net profit rise 29% in December quarter on higher prices
- Coking coal contract price may rise as much 78% after floods in Australia, says Merrill Lynch
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