The management of my apartment development has my cellphone number. They either sold it or gave it to their friends who work in the real estate business, so I get a lot of “unsolicited” text messages, i.e. spam, from these monkeys. Text messaging is much more popular in Asia than in the US, I think. Spam text messages are a big problem, but they can be useful as indicators of the mass mood through both their tone and volume. Let me explain.

Six months ago I got a lot of text spam begging me to sell or rent our apartment. The agents had lots of desperate buyers and renters, and could I please please please consider selling or renting the apartment.

The tone of the text spam changed a couple months ago … there were still buyers but they didn’t sound as desperate. Now the worm has turned and I get lots of messages about distressed sellers who will do anything to get rid of their apartments. Not a word about buyers.

China Mobile, since they’re monitoring the content of messages anyway, should make up some real-time stock and real estate market indicators based on text spam content and volume. I’m serious! :)

Related posts which are darned interesting:
Comrades in ARMs
Sample Beijing Apartment Sale and Rental Prices
A Sense of Belonging
Beijing Property — Haves and Have-Nots
Guangzhou R&F Properties Co., Ltd.

Here’s the 2008 home loan repayment schedule for our apartment in Beijing. As I’ve mentioned before, there are no fixed-rate home loans available in China. You can see that we borrowed RMB1,550,000 from ICBC for 15 years in October 2005, originally paying interest at 5.814%. I believe the loan will reset in February 2008 to 6.65% (I’m eyeballing it), which means the monthly payment will jump by RMB464.52 ($64.43). Comrades in ARMs, I feel your pain. :)

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A rising middle class and the awakening of a sense of real citizenship

“… the coalescing of homeowners here around issues like property values, environmental safety, urban planning and how their tax money is spent is being seen as the strongest sign yet of rising resentment among China’s fast-growing middle class over a lack of say in government decision-making … what most distinguishes this wave of demonstrations from other recent protests is a new insistence that the government seek the public’s consent in decisions that directly affect people’s lives … With its tradition of top-down decision-making, secretive deliberations and little tolerance for dissent, the Chinese government has almost no practice of real popular consultation.”

See how a little bit of private property changes everything?

Leslie Norton writes in this week’s Barron’s about criticism of recent Chinese company IPOs in the US by an outfit called RateFinancials:

“Giant Interactive (GA), LDK Solar (LDK), China Nepstar Chain Drugstore (NPD), Yingli Green Energy (YGE), and Agria (GRO) were the five largest Chinese IPOs by deal size last year on the New York Stock Exchange.

… the companies’ filings reveal myriad shortcomings, including very short operating histories, multiple company-holding structures and concentrated ownership. The companies also have engaged in many related-party transactions. And they operate in regulatory environments like the Cayman Islands and China ‘that have historically had issues with law enforceability’ … The companies don’t have to file proxy statements because the SEC deems them foreign-private issuers, or ‘controlled companies’ … The majority of these companies’ stock is in very few hands …

RateFinancials found ‘evidence of quality of earnings weaknesses’ at all the companies, including big increases in receivables, negative operating and free-cash flows, significant amounts of deferred revenues, major prepayments and sizable long-term commitments to suppliers.”

Take the time to read the financial statements of practically any Chinese company, no matter where it’s listed, and all of these shortcomings are obvious. Caveat emptor.

Market Maker, by Gady Epstein

Good article on the shenanigans that pervade the Chinese stock markets. 内幕交易, 老鼠仓, and 股价操纵 are the terms to know.

“Regulators acknowledge front-running to be a widespread problem, but virtually nobody gets caught. The only exception in the last two years proves the rule. Shanghai fund manager Tang Jian, fired last May from China International Fund Management, a joint venture between JPMorgan Fleming and a Shanghai securities company, had raised just about every red flag possible to bring about his own downfall. According to state media reports, within months of taking over a stock fund in 2006, he complained about his salary in an e-mail at work, talked about front-running on firm-monitored telephone calls, opened a trading account with his father’s government identity card, bought an expensive home and a BMW, divorced his wife and ran off with an office intern on a quickie honeymoon to Brisbane, Australia.”

I estimate that around three out of four BMWs on the streets here have been acquired after their owners engaged in similar operations. Did the intern get to keep her (no doubt white) Beemer?

China Gold Futures Gain on Debut as World Price Soars

“Gold for June delivery, the most active contract, rose as much as 21 yuan, or 10 percent, to 230.99 yuan a gram, or the equivalent of $988 an ounce, in Shanghai. That’s almost $100 more than the $891.70 peak reached by the world gold price today.

Gold for June delivery in Shanghai settled at 224.74 yuan a gram ($962 an ounce). The world price of gold was at $889.47 an ounce at the same time. Bullion for June delivery on the Comex division of the New York Mercantile Exchange traded at $905.20.

Each gold futures contract traded in Shanghai will represent 1 kilogram of the metal, with the minimum margin requirement set at 9 percent, the exchange said Dec. 29. The contracts are allowed to fluctuate by 10 percent from the 209.99 yuan a gram reference price today. Maximum price fluctuations will be limited to 5 percent from the previous settlement price after the debut.”

Here’s a look at the intraday (5 min.) chart of the gold futures contract traded in Shanghai. That $100 premium doesn’t look like it lasted too long, did it? But some sort of premium will always exist, right?

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1 ounce = 28.3495231 grams
1 Chinese yuan = 0.13769 U.S. dollars (currently)

so

217.68 Chinese yuan (last price) = 29.9723592 U.S. dollars
29.9723592 U.S. dollars x 28.3495231 grams = US$849.70 per ounce

That precious subject line above and the excerpt below are both from this week’s interview with Scott Blasdell in Barron’s:

“When subprime troubles began looming, banks everywhere started to tighten their lending across all real-estate sectors. So where you could get 90% loan-to-value in 2006, later in 2007, it was closer to 65% — and the spreads are also wider. As a result, prices, which were driven up dramatically in the U.S. and also in Europe and Asia, look set to fall … if you’re thinking maximum downside in the U.S., I see a possible 15%-20% correction in property prices, which translates into a 30% correction in REIT prices. We’ve already experienced about a 20% correction in stock prices so far, so we are getting there.”

Note that among the total returns for selected Vanguard funds in calendar-year 2007, the REIT Index fund performed worst, down 16.46%.

(If you’re wondering how I’m able to read Barron’s without paying for it, read this post.)

China’s Olympic goal: Turn smoggy sky blue, by Jim Yardley

“For Beijing’s estimated 12 million residents, pollution is an inescapable health and quality of life issue … fine particle pollution has been exacerbated by a staggering citywide construction binge that shows no signs of letting up … the city will never be able to clean itself up if surrounding industrial provinces are not cleaned up, too … Beijing literally traps and attracts pollution. Surrounded by mountains on three sides, Beijing depends on strong winds to disperse pollution. Yet winds also draw pollution into the city.

Beijing now has more than three million vehicles and is adding roughly 400,000 new cars and trucks each year. Beijing’s reliance on cars and trucks leaves the city’s air with few reprieves. As in other cities, heavy trucks can only enter at nighttime. Diesel exhaust is so severe that Beijing’s levels of PM2.5, a tiny particulate deemed potentially harmful to health, is highest between midnight and 3 a.m. … Beijing’s problems are compounded because the city’s public transportation system was ignored for years.

On Aug. 5, environmental physiologist Jon Kolb measured a rating of fine particulate pollution, or PM10, at 200, roughly four times higher levels deemed safe by the World Health Organization … Beijing’s biggest problem is PM10 and other particulates, which are often the byproduct of construction, industry and cars.

Levels of PM10 remain well above both national and World Health Organization standards. In 2004, the concentration of airborne particulates in Beijing equaled that of New York, Los Angeles, Washington, Chicago and Atlanta combined, according to the United States Embassy in Beijing.”

Last week, or was it the week before last?, the air quality in Beijing was so bad that it shocked even a jaded old timer like me. From the 26th floor of my apartment building I couldn’t see a very brightly-lit building that stands about 100 yards away. I reflected on the situation and smoked a cigarette to clear out my lungs. :-)

*Apologies to Willie Nelson

Here’s the daily chart for the Chinese Yuan (spot) in 2007:

Click to enlarge

And here’s the daily chart for the 12-month non-deliverable forward contract for the Chinese Yuan in 2007:

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The CNY appreciated around 6.6% against the USD in 2007 and I expect it will appreciate at about the same rate in 2008. (NDF traders are expecting slightly more.)

A couple interesting things from Arjun Divecha in this week’s Barron’s. First, on the Chindia “misperception” –

“India has benefited hugely from this misperception of “Chindia.” By linking China and India together, people think that India is in the same league as China when, in fact, it is not. Let me give you a few numbers: In global zinc consumption, China consumed 29%, India consumed 3.8%; aluminum, China consumed 25%, India consumed 2.6%; oil, China consumed 9% of global oil, and India consumed 3% of global oil. These countries are not compatible. They are not even in the same league. India has got a whole lot of capital that it would not have gotten if people had thought of it separately. India is where China was 15 years ago in terms of per capita consumption. It is a great growth story, but equating it with China has meant a lot of global liquidity has flowed to it and helped India’s performance. It has made Indian stocks quite expensive, and that’s why it is our least favorite country. The economic story is terrific, the valuation story is not.”

Second, on the possibility (ha! why hedge?) of a bubble in China:

“China we don’t like, either. Although, I want to caution you on China because China could be in the beginning stages of a fairly large bubble. I’m not predicting it. I’m just saying it’s a possibility. There is a huge flood of money coming into the country as exports lead to massive amounts of capital inflows…so large the central government has not been able to sterilize them … The money supply has been growing at the 15% to 17%, about in line with GDP growth. But now it has suddenly stepped up to 25% or 30%, and in the last few months inflation has gone up to 6.9% in China.

That in and of itself could be a problem, but that is not what I’m focused on. I am focused on short-term interest rates at 3½%. If you are a saver in China, you are getting 3½% from the bank while inflation is at 6.9%. You can’t take money out of the country. So what are your options? Real estate and the stock market. That is why the stock market has gone up so much this year. This trend isn’t changing any time in a hurry.”

Related: Losing Less Money on Chinese Bank Deposits — Yippee!

(This is my last issue of Barron’s since I’ve canceled both it and wsj.com anticipating Rupert’s making them both free soon.)