Death and taxes.....

.....are life’s only two guarantees. Fatalistic and sardonic? Yes. True? Also yes. There is a third sure thing in life, too, but propriety prevents from mentioning it here. In terms of who said it, there is something of a debate and the list includes Daniel Defoe (author of ‘Robinson Crusoe’ in 1719), Benjamin Franklin (1706-90) and Margaret Mitchell in ‘Gone With the Wind’ (1936).

In China, the real estate market is not dead; in fact it is in rude health (and was the World’s number one again last year with 34% of global transactions). But it is going to be taxed (finally) and the Government, from yesterday, has implemented a trial property levy on some houses in Shanghai and Chongqing. In the Capital, the charge will be 0.6% for all taxable residential properties (reduced to 0.4% for some cheaper units), while in Chongqing (the World’s largest City with some 32 million souls) only homes bought at more than twice the average price will be taxed (with units purchased at more than four times the average taxed at 1.2%). Property tax revenue, however, will be used to build more low income housing.

In fact it has been a busy week for real estate legislation as on Wednesday the Government announced that it will raise the minimum down-payment for second home purchases (from 50 to 60%) and ask local authorities to set price targets for new properties based on regional economic growth and disposable incomes. The Cabinet also asked local governments to boost land supply.

Reactions have been mixed, with developers shares prices up, down, up and then down again. Similarly, if you are Goldman Sachs you welcome it: “given the limited scope and moderate tax rate, we expect this new policy to have limited incremental impact on transaction volume and price”; and “the policy uncertainties are now substantially lowered”. Conversely, Credit Suisse’s view is that the sooner-than-expected implementation of the property tax trials will further weaken market sentiment and reduce transaction volume. Similarly, Housing Ministry officials have apparently told CS that more cities may implement the tax soon. Meantime, Citigroup called the measures “harsh”, while Deutsche was somewhere in the middle.

In my view it is good news for the plans to be both promulgated and implemented i.e. any policy over-hang is gone. The levy itself, too, is minimal – especially when compared with the China Business TV’s 4.0% story earlier this week. Similarly, as JLL has commented, Government policies are intended to prevent prices from rising too quickly rather than driving prices down. Finally, more supply of both land and units is good news all the way around. My only slight concern is just how the setting of prices by local authorities will work in practice.

In the broader market, the repo rate has increased 84 basis points this week to reach a very sporty 8.14% ahead of the New Year vacation (and at one stage was 8.30%). High School economics tells you that if demand for something is high, and supply constrained, then the price of that good or service will rise. For example, lending through 24 January is reported (by China Business News) to have reached Yuan 1.2 trillion ($182 billion) which compares with Yuan 481 billion for the whole month of December. Similarly, the Yuan (6.5852 this morning) continues to trade near a 17 year high and Yuan Forwards point to +2% over the next 12 months.

In the rarified air of Davos - and the World Economic Forum - there have been mixed-to-positive views so far. For example, the IMF has increased its forecast for World economic growth from 4.2 to 4.5% this year (the 4.5% for 2012 remains unchanged); okay it comes with a raft of health warnings. Also in Davos, Li Daokui, an academic advisor to the PBOC, said that he did not expect a “hard landing” in China and that growth will be about 9.5% this year.

Equities, meantime remain moribund (-2% YTD) but off their worst (+2.8%) for January, albeit Citic Securities says we are at a “valuation bottom” akin to that of 2008 (when the Shanghai Composite was 1700). That said, a Bloomberg poll of 1000 of its customers found that 45% of them expect a financial crisis within five years; and a majority (53%) think the Nation is in a bubble.

In defence of China and its - long term consumer - though, Apple’s four stores in China generate higher revenue than anywhere else (even Fifth Avenue) and Morgan Stanley says the Company will triple sales this year in China to $9.4 billion. In the same vein Prada is to launch a $10 billion IPO in Hong Kong on the back of luxury Chinese demand which is set to rise 20 to 25% over the next 10 years. Plus, McDonald’s (‘Hamburger’) University in China is harder to get into than Harvard.

And finally, plaudits go to Li Na, the first Chinese player to reach a Grand Slam tennis singles final, in Melbourne.

“Life is like a game of tennis; the player who serves well seldom loses” – Anon

Shanghai Composite:
Today: +0.13% to 2,752.75 at close
This week: +1.4%
Since 5 July: +16.5%
Since 8 Nov: -12.9%
December: -0.4%
2010: -14.3%
YTD: -2.0%

Hang Seng:
Today: -0.68% to 23,617.02 at close
This week: -1.1%
Since 25 May: +24.4%
Since 8 Nov: -5.4%
December: +0.1%
2010: +5.3%
YTD: +2.5%

Oil futures: $85.41
Gold futures: $1314.90
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3684

REAL ESTATE

• China approves property tax trials in Shanghai and Chongqing
• China increase down payments on second homes (up from 50 to 60%) and outlines plans to boost land supply and set new property price targets
• China is World number one on real estate transactions, for second year running, with $197 billion worth in 2010 and a 23% increase year-on-year
• Xinyuan to Seek private investors in absence of bank loans

MONEY

• Money market rates rise ahead of New Year vacation
• Yuan trades near 17 year high
• Domestic lending to real estate hit Yuan 2 trillion in 2010; plus Yuan 80 billion borrowed from foreign sources
• Bank rates rise up to 1.45 times the benchmark, says Securities Journal

EQUITIES & ECONOMY

• China will face crisis within five Years, say 45% of investors
• IMF's Zhu warns US and China in global imbalances
• Stocks are at a “valuation bottom”, says Citic Securities
• China will let foreign funds use index futures

DOMESTIC

• China's electricity demand growth may slow to 9% in 2011, says NEA Reduction in import taxes from 20 to 10% on personal computers and digital cameras
• Apple stores in China outsell all others including Fifth Avenue

INTERNATIONAL

• IMF raises global 2011 GDP estimates on stronger US growth
• South Korea proposes first talks, on 11 February, with North since the island shelling incident
• China is leading in the ‘green economy race’ says UN

HONG KONG

• Hong Kong is World's most expensive housing market
• Prada plans Hong Kong IPO on back of rising China luxury demand which will rise 20-25% over 10 years

IRON & STEEL

• Steel futures in Shanghai rise to new record level on price of iron ore
• China’s list steel prices may rise after the holidays, says CISA; as spot prices continue to rise daily
• China top 10 steelmakers increase market share in 2010
• Kumba has request for Sishen Mine rights rejected by the South African Government
• ArcelorMittal and Nunavut waive minimum yendor condition on bid for Baffinland
• Glencore is to target raising some $2.5 billion in Hong Kong and London IPO
• Zijin Mining may convert Glencore bonds into IPO stock