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Facing A Housing Hard-Landing, Chinese Propaganda Goes All-In: "Set Positive Agenda; Boost Market Confidence"

Tyler Durden's picture




 

Back in July of last year we showed why, when it comes to the illusion of prosperity and wealth among the broader population, any Chinese attempts to achieve this by stimulating and reflating a stock bubble will fail. The reason was simple: while in the US the vast majority of household wealth, some three quarter of it, is contained in the stock market in China this picture is inverted, and 75% of Chinese households have historically put their assets in housing.

 

As such any attempt to manipulate the Chinese sense of household net worth by boosting the stock market is doomed to fail, although that doesn't mean China won't try: as we showed recently, not only will China try to boost the stock bubble as an interim store of household assets until such time as housing returns to its rightful bubbly place, but it won't even be remotely subtle about it.  The chart below shows the ridiculous surge in Chinese margin debt, which as BNP explained previously is one of the main liquidity-driven pathways why the Shanghai Composite has gone vertical in recent weeks - a bubble in dire need of a pin prick.

 

The problem with the above is that the stock market bubble is constantly one millisecond away from an epic crash, as the "speechless" BNP also explained in "What Happens Next Is An Unknown-Unknown."

Which explains why China is now in an outright panic to herd all those who have over the past 6 months moved away from the housing bubble and back into housing, housing which as we further showed previously, is now crashing at a worse than "hard-landing" pace, and is plunging faster than what happened in the US in the aftermath of the Lehman crash.

 

So what is China doing?

Well, the same thing that the US has been doing over the past 7 years using such traditional propaganda pathways as mainstream media and Financial TV outlets such as CNBC, and scramble to boost confidence and faith in an aging Ponzi scheme.

However unlike in the US, where it is all about the stock market, in China it is once again all about housing and as can be seen below the local "Department of Truth" is urging China's population to drop everything and back up the truth with a brand new Chinese house... or two... or three. Because unless it succeeds to get the local population to jump right back on the housing bandwagon, a hard landing is inevitable.

Here, courtesy of Investing in Chinese Stocks, is how China is doing just that.

Manufacturing Hope: Propaganda Department Orders Positive Spin on Real Estate

 

The manufacturing sector is floating on hope and now the propaganda department is manufacturing hope:

 

All the nation's propaganda departments and news organizations...

 

 

Support the stable development of real estate and social stability...

 

On the suggestion of leadership, news organizations please focus on the stable real estate market policies, support the Housing and Urban Development and other departments to do a good job of guiding public opinion on the real estate market, to for a stable real estate market and healthy development, and to create a good atmosphere for public opinion. 

 

1. Strengthen the real estate market, positive publicity, efforts to boost confidence

 

Focus on public opinion, persist in positive agenda setting, objectively cover of the real estate market situation, accurate interpretation of the relevant policies and measures to correctly guide market expectations, boost market confidence. 

 

(1) Accurate interpretation of the relevant State Council departments propaganda interpret real estate market regulation policy measures, propaganda, the State Council attached great importance to residents of the housing problem, make full use of government regulation and market mechanisms are two means to take effective measures to promote the healthy development of the real estate market, ask the poor, the party central, State Department

The paper does not say to distort reality. Media is instructed to objectively report on the situation, but to be positive in the outlook, guide public opinion in a favorable direction. It's a confidence game now.

 

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Sun, 04/05/2015 - 13:04 | 5961046 Bro of the Sorr...
Bro of the Sorrowful Figure's picture

this shift in policy and propaganda campaign will work for a while. the chinese sheeple arent up to their eyeballs in debt like the american sheeple. they still have the cash to buy up more properties and they are still confident in the ability of their government to control the situation. i was in a meeting in beijing with a couple of RE fund guys and a big developer and when i asked them about the real estate bubble popping they looked at me and said, without flinching, that there was no bubble and that the govt in beijing had everything under control. as we've seen in japan and now the US, as long as there is confidence in the system it can be held together. 

Sun, 04/05/2015 - 13:15 | 5961056 Latina Lover
Latina Lover's picture

Yep, it seems that the Chinese have drank the same Koolaid as the American public.  Keynesian economics is popular among bureaucrats and ruling classes because it provides the pretext to micromanage the economy in their favor. This will not end well.

Sun, 04/05/2015 - 22:49 | 5962274 old naughty
old naughty's picture

"confidence game"

a reality, distorted.

 

Chimera !

Sun, 04/05/2015 - 13:16 | 5961061 Thirtyseven
Thirtyseven's picture

Average Chiner makes USD $7k/year.

Sustainable?

Sun, 04/05/2015 - 15:36 | 5961325 TheReplacement
TheReplacement's picture

That is a point most people probably won't grasp.  The average Chinese will be 300% in debt just buying a typical car, for example.  The typical American won't.  Throw in the doodads and things and they have a lot less room to move.  It should not take them nearly as long as it took us to go bust.

Mon, 04/06/2015 - 04:48 | 5962651 Laowei Gweilo
Laowei Gweilo's picture

if that average was relevant in any way no one could give shits for their real estate market or what their government said of it

Sun, 04/05/2015 - 13:43 | 5961110 pashley1411
pashley1411's picture

I don't know about that "up to their eyeballs in debt" thing.   Chinese are seriously into display consumption.    Display consumption is, by definition, pricey.

Sun, 04/05/2015 - 13:45 | 5961111 pashley1411
pashley1411's picture

dup dup dup.    my internet browser vs. 40+ ads on this page

Sun, 04/05/2015 - 13:52 | 5961128 i_call_you_my_base
i_call_you_my_base's picture

Yeah, we'll see about that. You fail to mention that the US housing market crashed.

Sun, 04/05/2015 - 15:33 | 5961317 TheReplacement
TheReplacement's picture

Chinese income is a lot lower than American income.  They cannot "sustain" the same amount of debt in real terms.  As a percentage of income yes.  As a hard $Y number no.

Sun, 04/05/2015 - 13:13 | 5961057 Skateboarder
Skateboarder's picture

Come on Tyler - the article states "75% of Chinese households have historically put their assets in housing." Right below, the bar graph (no sources, no sense of time) shows that real estate comprises 75% of household wealth in China, not that 75% of households invest in housing, historically. It would be most useful instead to show a graph of the wealth % w.r.t to housing w.r.t to population % over time.

Sun, 04/05/2015 - 14:05 | 5961174 laomei
laomei's picture

look now, that logic doesn't sell the story.

 

We all know in reality what those numbers mean is that on average, Chinese have seen some massive growth in their real estate holdings.  That's it.  They still have some crazy amounts of cash laying around.  And that real estate... it's not leveraged, it's not liar loaned, there is no bullshit MBS magic being used.  Bare minimum is 20% down on a first home.  And most will pay it off faster than the scheduled payments to cut the interest paid.  Most also tend to do more than 50% down... and a very good number pay it 100% in cash.  Housing dropping down for a while doesn't mean anything.

Sun, 04/05/2015 - 14:17 | 5961194 Never One Roach
Never One Roach's picture

True ... but ... I read somewhere China will start taxing property this year. It's not going to be so much fun owning 24 empty apartments anymore, esp when some are valued at $500k and up in those big cities.

Sun, 04/05/2015 - 14:42 | 5961241 laomei
laomei's picture

If you read into it, it's fairly toothless.

Property taxes were paid in advance for 50/70 years when you bought your place.  You do not own the land, you have a lease on the usage rights and that was paid in a lump sum at the beginning.  Property taxes only apply at present if you are using your property to generate revenue directly.  The proposed revision is to give a per capita deduction of floor space and then tax on the remainder.  50 and 70 year leases become permanent as long as taxes are paid.  However, those 50 and 70 year leases have already been paid in advance, so they are tax free until the lease terminates.  This is only applicable to new homes.

Sun, 04/05/2015 - 15:43 | 5961337 Never One Roach
Never One Roach's picture

Can you pls post a link for that? Thnx

 

 

Sun, 04/05/2015 - 22:43 | 5962254 Wild Theories
Wild Theories's picture

it's common knowledge, everyone in China knows this

Chinese housing ownership is a "right of use" to the property, not a "right of ownership" to the land.

Mon, 04/06/2015 - 03:21 | 5962614 Apostate2
Apostate2's picture

That is true and will not change anytime soon since the 'right' to private property is not in the Constitution. So, any changes to land-use and thus taxation is up to the central gov. Dictators like this state of affairs. Though at the local-level this breeds discontent. The peasants i.e. 'muppets' have pull and push factors to deal with. Many are digging in and objecting. That's why 90K (conservative est) protests occur each year.The article on this website about the Taxi drivers in Beijing happened whilst protests were going on in Guangzhou and elsewhere. All different reasons but at the heart is general dissatisfaction with the staus quo. Wait until the SOEs come under attack by Mr Xi. That will be more than just, henyou isi. 

Mon, 04/06/2015 - 03:09 | 5962612 Apostate2
Apostate2's picture

He can't. Because the new laws proposed will not come into effect until 2017, though stuff is happening now. No one is safe (from taxes). Presently, in some Mega-cities this applies to second homes (i.e. property speculation). You just have to search on Caixin or China Daily for the English language version. You will also find, multiple property owners selling because the taxes are coming and no one will have a dispensation.

Sun, 04/05/2015 - 14:37 | 5961231 Tyler Durden
Tyler Durden's picture

Here is the full article from August 2014:

Why China Couldn't Care Less About Its Stock Market

Following the latest liquidity injections by the PBOC (set to make 2014 the biggest credit creation year since Lehman), countless bailouts of insolvent companies by Beijing and local governments despite promises there would be no bailouts, and what some have dubbed is an actual Chinese QE, all making it quite clear that China was clearly not serious when it threatened to burst the housing bubble (it hoped it could do a "controlled landing"; it failed which means full steam ahead onto the inevitable NPL collapse), Chinese stocks have clearly responded by jumping higher with the Shanghai Composite spiking to its highest in 7 months.

This in turn has brought the permabullish Chinese penguins out of hiding, who, having been wrong on the Shanghai Composite for 6 years, now see a sudden resurgence in the Chinese stock market. Their thinking is predictable: like the US stock market is to the Fed's "wealth effect", so China's would be to the PBOC, right?

Wrong.

The reason: while in the US the bulk of America's $67 trillion in household wealth is in financial assets, read the S&P 500, with only 28% of wealth invested in real estate (according to the latest Flow of Funds reports), in China the wealth distribution is a mirror image, with a negligible amount of wealth invested in stocks and the bulk of household wealth invested in real estate. By bulk we mean a whopping 75%!

From Xinhua:

About one percent of Chinese households own one-third of the nation's wealth, raising concerns about income inequality in the world's most populous country, according to a study by Peking University.

 

Chinese households on average had a net worth of 439,000 yuan (about 71,000 U.S. dollars) in 2012, up 17 percent from the 2010 level, the university's Institute of Social Science Survey said Friday in its latest report on China's livelihood development.

 

However, income inequality rose rapidly during the period, the report said, as the top one percent of Chinese households held more than one-third of the nation's wealth, while 25 percent of households at the bottom owned only 10 percent of the country's property value.

 

The researchers based their main analysis on 2012 data from the China Family Panel Studies, a large-scale survey project conducted by the institute.

 

The report showed about 74.7 percent of Chinese household wealth came from owning real estate.

Which confirms what we have been saying for years namely that "to China housing is like the stock market to the US: both mission-critical bubbles designed to give a sense of comfort and boost the "wealth effect"."

The allocation of household wealth to real estate is shown in the chart below, but the message is clear: when it comes to chasing China's latest and greatest bubble reflation, focus on real estate; nobody cares about Chinese stocks.

Sun, 04/05/2015 - 13:17 | 5961062 Atomizer
Atomizer's picture

Ho Lee fuk. 

Sun, 04/05/2015 - 13:23 | 5961069 foodstampbarry
foodstampbarry's picture

cnbc has a woody.

Sun, 04/05/2015 - 13:33 | 5961083 Chuck DeBongo
Chuck DeBongo's picture

Let's not kid ourselves. EVERYONE is falling and we're all going to hit te ground. The difference is some of us have better parachutes than others and China does a pretty good one. they have (unofficial) good gold holdings, high foreign reserves and a lot of manufacturing capacity. Although they will hit the ground, they'll have a softer landing. But they also don't have to deploy their parachute. By selling off their trillion US dollar treasuries, they'd effectively use the United States as a mattress (that is if Japan don't try the same trick first).

 

I suppose what I'm trying to say is that we're all screwed. Because of globalisation, our fates have become intertwined. One goes down, we all come down. Is this a good thing or bad thing? That's a topic for another time. But the best we can do now is insulate ourselves as best we can. Pay off debt (though, if they have a mass debt forgiveness, it'll render this pointless, though, it's a big gamble), stock up on food, stack gold and silver and brace ourselves.

 

It's not going to be pretty, but it is going to happen....

 

P.S. On a slightly unrelated note, I believe that Australia is going to have a hard landing during the next crash. From the debt I see they have to the gutting of their manufacturing base, it seems like an inevitability. Are there any Aussies who could give me a presepctive from a native's point of view? Or indeed any Zero Hedger with some knowledge on this....? Cheers and best wishes from the UK. :O)

Mon, 04/06/2015 - 05:09 | 5962659 Ancestor
Ancestor's picture

Chuck,

I agree with the hard landing for Australia, but unfortunately that's not what one hears from the man on the street.

Our manufacturing base has indeed been hollowed out - for example automotive manufacturing (we once had GM/Holden, Ford, Toyota and Mitsubishi producing locally), previously a significant exporter, will wind down next year. The higher dollar due to the 'resources boom' pretty much crushed manufactured exports and so now we're left with digging up lower-priced iron/coal/bauxite and a dependency on services (international student education too).

There is a lot of froth still floating about from derivative impact of the China boom on a population less than 2% the size with a tight labour market. I still see teenage retail/hospitality workers living it up with 10 quid variaitons of eggs on toast for breakfast, and my hairdresser just spent the equivalent of £30,000 on a new car, so it is still the lucky country for now.

Where I think it will come unstuck is the unhealthy obsession the nation has with property speculation - just listening to the things that come out of auctioneer's mouths and trying to explain asset price cycles to youngsters has made me almost certain that the fall in this area will be particularly painful - due to house prices being leveraged to employment with two workers required to support most new mortgages, and because the marginal buyer of new property surprisingly often a wealthy Chinese 'investor' trying to defray capital.

One of our old Prime Minister's warned of Australia becoming a 'banana republic' and it may well happen, but a mitigating factor is a A$2 trillion odd pool of retirement savings which will help to cushion the blow, and that small matter whatever's left of in-situ resources after we've finished selling off land, mining leases and resources companies. Other side again is the unfunded liabilities and impact on work incentives arising from the 'National Disability Insurance Scheme' - that'll be the nail in the coffin in my opinion, but we'll just have to wait and see.

Ancestor.

 

Mon, 04/06/2015 - 21:06 | 5965337 Carpentermatt
Carpentermatt's picture

Here in Oz, it's all great! This is the same old peak/trough economic cycle that is the only thing we have know for our entire lives. We're riding that real estate high (prices in Sydney/Melboure at nosebleed levels) & there is precious little awareness of the global economic neutron bomb that hovers over the planet. There is a creeping stain of reality seeping into this narrative in the form of resource boom downturn & the repurcussions of cancelled projects/layoffs. In those states heavily invested in mining the effects are being felt, but I'm not sure this has broken through the habit pattern of expectation based on past experience. We'll need a lot more pain before competition for awareness gets focused on the stuff that matters, & even then it will be mainstream media agenda 101.

Nope, the reality of what is happening to us all is far too big for most to grasp given the unpleasant journey needed to dispel long held beliefs & shatter the normalcy bias. The effort required to understand this picture requires a basic knowledge of economics, the financial system/historical perspective & goepolitics all blended together. It's like learning a new language, & that takes time & effort, something most are not willing to do.

Sun, 04/05/2015 - 13:40 | 5961102 pashley1411
pashley1411's picture

At this point it might be useful to put in a plug for the two people who read this site who have not yet read 

  1. Extraordinary Popular Delusions and the Madness of Crowds Book by Charles Mackay

essential, classic

Sun, 04/05/2015 - 13:41 | 5961103 pashley1411
pashley1411's picture

dup

Sun, 04/05/2015 - 13:52 | 5961131 reader2010
reader2010's picture

When SHTF, China will go to war!

Sun, 04/05/2015 - 15:08 | 5961284 Charming Anarchist
Charming Anarchist's picture

Without firing a single shot. 

Sun, 04/05/2015 - 14:03 | 5961148 Son of Loki
Son of Loki's picture

Didn't zh have an article recently citing about 50% of "wealthy Chinese" want to get out?

 

I will say I have met some incedibly beautiful Chinese gals recently but I must admit they are quite finicky; first question out of thier mouths: 'How many houses do you own?" and "How much do you make?"

When I opine that I have my own [fully furnished] basement and even my own dehumifier down there, but they seem to get turned off a bit. However, I'm not one to give up easily so I'll keep trying since they are coming over in droves and fortunately for me, they don't wear those low rise jeans but if they did, it'd probably be ok since they have flat tummies.

Besides, I'm still waiting to hear form Emily over there in London.

 

Sun, 04/05/2015 - 15:03 | 5961276 iofera
iofera's picture

"When I opine that I have my own basement...."

That's not an opinion, Bob. It's a statement of fact. Either you've got the basement or you don't.

Sun, 04/05/2015 - 15:45 | 5961342 TheReplacement
TheReplacement's picture

The opinion is that it is actually his and not his parents'.

Sun, 04/05/2015 - 15:45 | 5961343 Never One Roach
Never One Roach's picture

Exactly what I was going to post. Maybe it's the Son's opinion that he has ownership of that basement but his parents "opine" differently; namely, that they own it, not him.

Sun, 04/05/2015 - 15:48 | 5961354 847328_3527
847328_3527's picture

Why do you call him "Bob?" Is that a 'fact' or just your 'opinion?'

Sun, 04/05/2015 - 14:10 | 5961185 iofera
iofera's picture

In a perfect world, the Chinese are so addled by the growing crisis that they spend down their foreign currency reserves trying to prop up their economy and have no funds left to squander on further Treasury purchases.

Let the Fed buy that crap.

Sun, 04/05/2015 - 14:25 | 5961211 Dragon HAwk
Dragon HAwk's picture

We sell you two houses for One.. with only 50% more in cost, you Likee we Sell.

Sun, 04/05/2015 - 18:37 | 5961678 JenkinsLane
JenkinsLane's picture

Ain't no margin debt party like a Chinese margin debt party.

Sun, 04/05/2015 - 22:24 | 5962195 Wild Theories
Wild Theories's picture

Wait a minute, it says support the central govt narrative with positive spin.

It does not say "spin real estate positively", it says "spin the central govt narrative on Real Estate positively".

 

You still need to check what the central government narrative on Real Estate development is.

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