Flow of funds for Q2/CY2010: continued expansion in the private sector’s financial surplus

- Flow of funds for Q2/CY2010: continued expansion in the private sector’s financial surplus
• "Amid the remaining uncertainty about the economic outlook, Japanese firms have continued to favour debt restructuring"
• "Importantly, their appetite for liquid financial assets, i.e. cash and deposits, has remained robust, constraining business fixed investment"
• "Foreign direct investments, such as direct and portfolio investment, have continued to increase and are now 11.5% of total financial assets, the highest level since 3Q08"
• "The financial surplus in the private sector, including households and depository financial institutions, amounted to 46.5 trillion yen (40 trillion yen in Q1/CY2010), well exceeding the government sector’s financial deficit of 34.7 trillion yen"

- Another drop in manufacturers’ capacity utilization
• "Capacity utilization rate among manufacturers dropped for the second consecutive month to the lowest level since last December"

- Demand for Funds Remains Weak
• "Bank lending continued to drop, falling 2.0%yoy in August, reflecting the weak demand for funds among the private corporate sector"

Spanish Banks: Deleveraging and the misallocation of capital

- "We are cutting our rating on SAN to Neutral from Outperform and reducing our target price to €11.75 from €12.25. While SAN has emerged as one of the main winners in the current financial crisis, we are concerned that it is now so big that structural growth is likely to decline and it may face marginally declining returns. We note Brazilian profitability might be slowerthan-expected."
- "We continue to have a cautious view on the Spanish economy and the domestic banks. An overleveraged private sector and structurally high unemployment are likely to affect banking results. We think the banking system is facing a significant deleverage process and the adjustment in the real estate sector is not yet complete which will likely translate into higher credit losses. We think the structural profitability of the banking system has been permanently impaired and we do not expect the domestic banks to meet their cost of capital in the next two years at least. Money illusion relating to negative real interest rates is partly responsible for the lack of recognition of certain credit losses and for unusually high (and unsustainable, in our view) net interest income relating to the carry trade."
- "The Cajas sector has started restructuring but this might be a long process. We think the market is underestimating the execution risk and costs associated with the integration process. We believe some institutions might lose money and require extra equity over time."
- "SAN is one of the leading banking franchises in Europe, in our opinion, but we believe that any excess capital generated is likely to be directed to increase size through non-organic growth; this strategy may not necessarily create value for shareholders in the long term. We believe it would be more difficult for the shares to continue to outperform."
- "Stock Calls: We maintain our Underperform rating on all the pure domestic Spanish banks we cover and our Outperform rating on BBVA."

Ireland: great complexity

- "Ireland’s issues remain large and complex. Its economic, fiscal and financial sector problems are interconnected and considerable. Irish GDP is more than 10% below its peak in real terms and closer to 20% in nominal terms; this year, the Irish core government deficit is likely to be 12% of GDP, general government debt has risen by 60% of GDP since 2007; in addition, the balance sheet of its troubled banking sector is almost five times the size of annual GDP."
- "Although the recent widening in Irish government bond spreads appears to be related to issues in the financial sector, it is worth remembering that Ireland’s financial, fiscal and economic problems are interrelated."
- "The process of transferring troubled assets from banks’ balance sheets to the NAMA bad bank has revealed that the quality of those assets is far worse than expected – haircuts have been around 50% compared to expectations of much smaller discounts when the scheme was announced. And the government’s actual and contingent liabilities from the banking sector are considerable."
- "A large government deficit, combined with capital injections into the banks, means Irish government debt is likely to peak above 100% of GDP. If the government guaranteed NAMA bonds were also counted as government debt – they’re backed by assets, so it’s doubtful as to whether they should – then that number would be closer to 130% of GDP."
- "So markets are right to be concerned about Ireland. But there are several positive points that shouldn’t be disregarded. The process of deficit consolidation is well on track: the deficit has already started to fall. And the government’s strong political determination to reduce the deficit should once again be apparent in the budget later this year."
- "Ireland is also in an extremely strong financing position. This year’s funding needs have almost all been met. We estimate next year’s financing needs to be a manageable €30bn (18% of GDP). That’s especially the case as we think the Irish government holds over €20bn in cash, providing a considerable buffer if market conditions become problematic."
- "And perhaps more importantly, recovery is underway. Ireland is particularly sensitive to trade outside the euro area, so the euro’s recent decline, boosted by falling prices in Ireland, has led to a sharp improvement in competitiveness. That’s having an effect – industrial production is already back above its pre-recession peak."
- "Ireland’s problems are considerable, and will likely remain so for some time. But, so far, the government and the economy seem to be doing reasonably well at coping with and addressing them."

Japan: Costs of currency market intervention from a fiscal perspective

- Costs of currency market intervention from a fiscal perspective
• "The government intervened in the currency market, buying USD and selling yen."
• "As well as discussing the outlook for intervention, it seems worthwhile revisiting the costs of sustained intervention and the resulting further expansion of the government’s Special Account of Foreign Reserves mainly from a fiscal perspective."
• "First, the need for the Account to set aside provisions for unrealized losses from foreign security investment should mount unless the yen weakens, affecting the availability of so-called hidden reserves to reduce the amount of deficit bond issuance by the government."
• "Second, government debt would continue to expand with the Financing Bills outstanding growing in a non-stop manner."
• "Third, the autonomy of monetary policy would be substantially limited as any small rise in the short-term interest rate would lead to a major increase in debt servicing of Financing Bills."

- Another drop in manufacturers’ capacity utilization
• "Capacity utilization rate among manufacturers dropped for the second consecutive month to the lowest level since last December"

- Demand for Funds Remains Weak
• "Bank lending continued to drop, falling 2.0%yoy in August, reflecting the weak demand for funds among the private corporate sector"

FOMC Preview: Commitment Issues

- "The main consideration facing the Federal Open Market Committee when it meets on September 21 is whether to commit to a program of Fed balance sheet expansion. Recent economic data have given the FOMC time to postpone a decision on additional quantitative easing measures."
- "Two other stimulus options on the table are modifying the wording of the funds rate guidance in the FOMC policy statement and lowering the 0.25% interest rate the Fed currently pays on bank reserves. We expect neither to be adopted."
- "One change we do expect in next week’s policy statement is a subtle upgrade in the FOMC’s characterization of domestic economic conditions. The complexion of the economic data over the past three weeks suggests that the recovery is no longer slowing but is proceeding at a new, more subdued, pace."
- "Not much new is expected next week, but we suspect further action is coming in the next quarter or two. Given the likelihood that unemployment will remain unacceptably high for the foreseeable future, more quantitative easing is looking more and more like an agenda item for the Fed, whether it actually works to stimulate job growth or not."

Japan: Limited room for capex to increase

- Limited room for capex to increase
• "Recent capex-related data suggests that corporate capital expenditure has finally bottomed out"
• "However, our analysis of the capital stock adjustment cycle suggests that there is limited likelihood of capex expansion in the foreseeable future"
• "Cyclically, we anticipate capex will reenter a soft patch towards the early 2011, with exports and domestic production likely to slow"

- Corporate and Consumer Sentiments Deteriorated Sharply
• "Corporate and consumer sentiments deteriorated sharply in August reflecting the recent sharp yen appreciation and a decline in stock prices as well as concerns about slump after the last-minute demand before the expiration of eco car subsidies"

- Demand for Funds Remains Weak
• "Bank lending continued to drop, falling 2.0%yoy in August, reflecting the weak demand for funds among the private corporate sector"

Reality rests between slowdown and speed-up scares

- "The slowdown scare of mid-2010 has passed. The sum of purchasing managers’ reports from around the world probably captures the environment best: growth has slowed, but not so immodestly as to sustain fears of the dreaded double-dip relapse into renewed recession."
- "In the near term, we continue to expect the global economy to muddle through the frequent slowdown scares, albeit expanding at a slightly slower pace than our July estimates. Our 2010 global GDP forecast remained unchanged at 4.6%, while the growth forecast for 2011 moved down by one tenth to 4.3%."
- "While such expectations are reassuring as far as they go, even if realized they would leave a huge amount of global GDP still missing relative to the pre-crisis path (Exhibit 1). The global economy would need to grow much faster to restore the recessionary loss of GDP that nearly seven billion people rely upon for their material well-being."
- "Inflation pressures remain subdued. We expect the slow recovery, especially in the First World, to keep inflation low, with deflation an unlikely but not implausible contingency."
- "Against this backdrop, we expect major central banks including the Fed, BOJ, ECB, and BOE to continue to keep rates “lower for longer.” We also expect central banks in commodity-intensive economies like Brazil, Canada, and Australia to move to the sidelines in their tightening cycles earlier than our prior expectation. In Non-Japan Asia, we continue to expect the pace of interest rate “normalisation” to be slow this year (with the exception of India)."
- "The “reach for yield” required by pension plans and other financial structures linked to the First World’s entitlement culture is likely to continue to be very frustrating. The flow of capital to the outperforming emerging market segment of the global economy could intensify. More generally, financial markets, having just begun to shake off their slowdown scare, may now be at the threshold of incorporating a speed-up scare into their valuation psychology."

China’s 12th Five-Year Plan: rewriting the social contract?

- "The Chinese government is scheduled to review and adopt the 12th Five-Year Plan (FYP) this October. We preview the key contents that will likely be included in the 12th FYP, and their impact on different sectors and stocks":
• "Structural adjustments taking centre stage: Three major topics will likely dominate the 12th FYP: 1) income distribution reforms, 2) urbanisation and provision of public services (public housing could be the key point), and 3) CO2 emission reduction and proposals for a greener economy."
• "Key themes for the next few years: 1) Consumption will take the lead to drive the economy; 2) industry relocation, urbanisation and the 'green drive' will keep investment growth reasonably strong; and 3) financial disintermediation."
• "15 stocks to play the structural trend: We believe the following stocks should provide relatively good returns with a three- to five-year view on the structural development of China: CCCC, China Life, China Merchants Bank, China Vanke, Citic Securities, CR Gas, Delta Electronics, Hengan, Sany Heavy, Sany International, Shangri-la, Synnex, Tencent, Weichai and Wilmar."

CreditSuisse China Market Strategy 20100901

Eurosclerosis, American-style

- "The cyclical outlook remains tenuous but tilted toward “plodding along” as opposed to “double-dip.” The financial environment is looking increasingly like Japan’s, while the economy’s structural path looks more like Europe’s."
- "We have long expected a second-half slowdown in 2010 GDP growth, but the recent evidence points to a slower trajectory than we previously forecast. Accordingly, we are trimming our 2010 second-half real GDP projections."
- "We now expect Q3 and Q4 real GDP growth at 2.0% and 2.2%, respectively (compared to our previous expectations for 2.5% and 3.2%, respectively). The unemployment rate is expected to finish 2010 at 9.6%, up from our prior end-ofyear projection of 9.2%. Our end-of-year 2011 forecast is 8.9%."
- "Additional quantitative easing is a 2010 agenda item for the Fed, given the likelihood that unemployment will remain unacceptably high for the foreseeable future, with inflation running below the Fed’s implicit “target” of nearer to 2%, and with inflation expectations on the decline – but almost assuredly not an agenda item for the next (September 21) FOMC meeting."
- "Real GDP growth at least in excess of 2.5% would be required to bring down unemployment on a sustainable basis, and even so, the unprecedented scale of long-term unemployment in America is looking increasingly like a structural rather than “merely” cyclical matter."

CreditSuisse US Economics Digest 20100903

Japan: A slowing economy and inventory adjustments

- A slowing economy and inventory adjustments
• "Inventory levels have started to creep higher in the manufacturing sector on the slowdown in shipment as post-crisis inventory restocking and economic stimulus effects have been largely played out."
• "While they remain relatively low for manufacturers as a whole, we believe that there should be little need for drastic inventory and output cuts at the macroeconomic level even if the global economic recovery does continue to lose momentum."
• "That said, some sectors – such as information & communication electronics equipment, electronic parts & devices, and transport equipment – have started to accumulate substantial inventories. These sectors may face a need for relatively deep inventory adjustments if demand does indeed turn out to be weaker than previously anticipated over the coming months."
- Momentum of recovery in production continues to slow down
• "Industrial production was stronger than the consensus forecast (-0.2%mom). However, as an indication of the momentum of the recovery, production dropped by 0.7% when compared with three months ago, the first decrease in 15 months."
- BoJ introduced an additional fund-supplying operation
• "BoJ decided to add ¥10tn in six-month fixed-rate fund supplying operations"

CreditSuisse Japan Economics Weekly 20100902

Japan: Uncertain on the economic policy front

- Uncertain on the economic policy front
• "With increasing concerns about the global economy and the recent sharp yen appreciation, the government and the Bank of Japan are facing growing calls to eploy additional fiscal and monetary stimulus."
• "On the monetary policy front, an expansion of the BoJ's new funds-supplying operation (introduced in December 2009) looks likely to be announced either at an emergency meeting (if financial markets remain volatile) or at the central bank's next scheduled Monetary Policy Meeting on 6-7 September."
• "Fiscal stimulus efforts appear likely to center around measures aimed at fueling demand and boosting employment levels. That said, much could change depending on the outcome of the DPJ's 14 September internal election for party president."
• "Recent media reports suggest that the package currently under consideration offers nothing new from a policy perspective and would in any case involve only a relatively small increase in fiscal spending."
- Slowdown in trades
• "Seasonally adjusted trade surplus rose for the second consecutive month in July. However, this was mainly due to a larger decline in imports than in exports."
- Demand for bank loans remains weak
• "Money stock in July indicates weak demand for funds and less risk appetite among investors"

CreditSuisse Japan Economics Weekly 20100826

Trouble in Paradise

- "With the natural splendor of the Grand Tetons as a backdrop, Fed Chairman Bernanke will deliver opening remarks this Friday at the Kansas City Federal Reserve’s Economic Symposium in Jackson Hole. His speech is entitled, "The Economic Outlook and the Federal Reserve's Policy Response.”"
- "This conference presents Bernanke with an opportunity to clarify the Fed’s monetary policy strategy in the face of a significant slowdown in the US recovery. The most recent economic data have been coming in below already modest expectations. This is of particular concern considering that the BEA estimate for Q2 GDP growth, originally reported at an annualized 2.4%, is likely to be cut in half upon revision Friday morning."
- "While we don’t expect the Chairman to brace the nation for a “double dip,” he may warn that near-term growth could be insufficient to promote a sustained reduction in the country’s 9.5% unemployment rate."
- "Turning to the Fed’s policy response, perhaps Bernanke will attempt to explain on Friday what the Fed hopes to achieve, in real economic terms, by targeting a stable level of asset holdings."

CreditSuisse US Economics Digest 20100825

How big is your balance sheet?

- "Central bank balance sheets have grown significantly throughout the financial crisis. The Fed’s has nearly tripled, while it more than doubled in the UK and almost doubled in the euro area. But discrepancies are emerging."
- "Whereas the Fed made a pro-active decision this month to effectively maintain the size of its balance sheet, the ECB’s balance sheet has shrunk recently. In large part that’s because the architecture of the ECB’s unconventional measures means that these shrink the balance sheet when they are allowed to run their course. And that’s exactly what happened when the 12-month LTRO rolled off a couple of months ago."
- "That reduction in the balance sheet has been associated with a small rise in short-term interest rates. So in effect the ECB is very marginally tightening inasmuch as it has not made a pro-active decision not to do so. Although the ECB is likely to maintain the current provision of liquidity into the new year, a gradual reversion back to variable-rate tenders in 2011, ahead of an increase in rates by the middle of the year, is possible."
- "In contrast to both the ECB and the Fed, the nature of the Bank of England’s quantitative easing programme means the MPC needs to make a conscious decision to reduce the size of its asset purchases and, consequently, its balance sheet. Such a decision still seems some way off."
- "But, one potential issue for the BoE’s balance sheet next year is the expiry of the Special Liquidity Scheme from April 2011, when over £200bn of assets will return to their originating banks (having been swapped for up to three years for Treasury bills). The SLS was an off-balance sheet operation for the BoE, but the Bank has already put in place the architecture to cope with greater demand for funding when the SLS expires. In particular, its new index-linked LTROs (for three and six months) can accept a broad range of collateral. Its
early operations suggest banks are prepared to pay up to refinance collateral that the market may still be unwilling to fund."

CreditSuisse European Economics 20100824

75 Years of Social Security – Happy Anniversary?

- "Social Security has provided at least some measure of economic security to those who pay into the system, much as President Roosevelt envisioned when he signed the Social Security Act into law 75 years ago."
- "At the time of Social Security’s inception in 1935, there existed very few public programs to provide Americans insurance against old age or disability. Only about 3% of the elderly were receiving benefits under state plans, and only about 5% were receiving company retirement pensions."
- "Social Security has always been a pay-as-you-go system – the US Treasury can’t tell the difference between a dollar of Social Security tax revenue and a dollar from any other tax. The accounting convention of a Trust Fund reflects the fact that Social Security tax revenues have exceeded contemporaneous benefit payments, with the excess funding other government spending."
- "This year, however, Social Security is expected to fall into deficit, and it is likely to remain in the red through 2011, mainly because of high unemployment curtailing tax inflows. The Social Security Administration then expects three years of renewed surpluses (i.e., it assumes significant renewed job growth)."
- "In a few years, the program goes into deficit for the foreseeable future, mainly because of the surge in benefit payments to retiring (but not shy) baby boomers."
- "To cover these structural shortfalls, higher payroll taxes, reduced benefits, increased retirement ages, or some combination will be required. And in the aftermath of the 2007-09 financial crisis, it is hard to envision a groundswell of support for the George W. Bush-era privatization option."

CreditSuisse US Economics Digest 20100819

Yes we can

- "We are again being asked whether, and for how long, Europe can continue to grow if the US is slowing. It’s a familiar question, albeit very different from the one that we were being asked until relatively recently, in which Europe was supposed to be the cause of whatever slowdown was going on rather than the victim of someone else’s. Never mind – it’s instructive that both concerns involve doubts about the recovery."
- "The starting point for the current concern is that the second quarter was the strongest in the recovery so far in the euro area and the UK with growth running at an annualised rate of 4% or more. Remarkably, it ran at more than twice that rate in Germany. Meanwhile, it was the weakest in the recovery so far in the US with, on our estimates, growth running at about half the rate seen in the euro area and the UK and about a quarter of the rate seen in Germany."
- "So, where do we go from here? Our analysis suggests that US slowdowns needn’t be associated with any change in European growth, but US recessions typically are. Trade exposures matter, but are not overwhelming. The higher correlations and larger multipliers are associated with financial shocks and common shocks. That is what causes US recessions and also what leads them to be associated with something similar elsewhere."
- "From our perspective, the key issue is to assess what sort of slowdown it is that the US seems to be experiencing. For now, it looks like the sort of slowdown that needn’t be associated with a large change in European growth. The multiplier could be closer to zero than one. It doesn’t help that other economies such as China also appear to be slowing and neither does it help that stock markets have been volatile. Those are the downside risks."
- "The upside risks have more to do with domestic demand. There is no breakdown of the second quarter numbers yet, but domestic demand is likely to have made a large contribution. For now, monetary policy remains exceptionally accommodating and sentiment and cash flow remain strong in some of the larger European economies. We continue to expect them to grow steadily over the coming year."

CreditSuisse European Economics 20100818

Impact of a stronger yen on Japanese exports

- Impact of a stronger yen on Japanese exports
• "Our statistical analysis found that the nominal USD/Yen exchange rate little matters for growth of real exports"
• "As the real effective yen exchange rate, a more relevant variable for real exports, has been relatively stable, we don’t think it necessary to alter the outlook for net exports going forward unless the forecast for global industrial production is revised meaningfully"
- Growth forecast revised technically after the release of Q2 GDP
• "While Q2 (Apr-Jun) 2010 GDP growth rose 0.4% qoq annualized for the fifth straight quarter of positive growth, this represented its lowest point in three quarters"
• "Upon the release of Q2 GDP data, we revised our annual growth forecasts; in the revised forecasts, we look for 2.6% and 0.8% for real GDP growth for CY2010 and CY2011, respectively (prior to the revision, 2.9% and 1.0%, respectively)"
• "Weaker than expected Q2 GDP results and the recent deterioration of leading indicators for production and consumption have been responsible for the downward revisions"
• "The momentum of the recovery in consumer sentiment is slowing down. The July Business Watcher Survey showed that outlook DI for household-related activity dropped for the third consecutive month. The Consumer Confidence Index also fell month-on-month in July for the first time in seven months."
- Demand for bank loans remains weak
• "Money stock in July indicates weak demand for funds and less risk appetite among investors"

CreditSuisse Japan Economics Weekly 20100819

Don’t blame claims - It’s more about hiring

- "Although loss of jobs, as reflected in initial jobless claims, remains at elevated levels, it is the other side of the labor market coin - the lack of hiring - that largely accounts for the “recession feeling” in the job market."
- "Initial claims peaked in March 2009 and have been trending down gradually since then. Compared to the experience following two earlier severe recessions (1973-75 and 1981-82), the current pace of decline has been near enough to the speed recorded in the 1973-75 recession, but moving much slower than that experienced in the 1981-82 recession. Compared to the two jobless recoveries in the early 1990s and 2000s, initial claims have declined at a faster pace."
- "This is further confirmed by the June Job Openings and Labor Turnover Survey released yesterday. Although the layoff and discharge rates edged up slightly in June, they are not that far from the pre-crisis levels. In contrast, the hires rate remains at depressed levels and is much lower than the average rate recorded in the expansion between December 2001 and December 2007 (4.4%)."
- "In short, businesses need to hire more boldly to make the recovery self-sustaining and to bring the jobless rate down at anything near a satisfactory pace."

CreditSuisse US Economics Digest 20100812

Wheat it

- "The rise in wheat prices in the last few weeks has raised concerns about renewed upward pressure on European inflation. In 2007-08, strong food price inflation, accompanied by sharp increases in energy prices, pushed euro area and UK inflation rates to extremely high levels. That high inflation almost certainly kept monetary policy tighter than it otherwise would have been and the pressure it put on real incomes probably contributed to the slide into recession."
- "So is there a risk this happens again? At present, we think that’s unlikely. The rise in wheat and soft commodity prices in the last few weeks is significant, but so far it is not as large, or as broad-based, as the rise seen in 2007-08. So, for now, the rise in wheat prices isn’t enough to suggest food price inflation rates of close to 10% as we saw then."
- "That said, in the past year or so food price inflation has subsided to very low levels in the euro area and is currently close to zero. It has also fallen in the UK and is currently running at around 2%. Some upwards drift in food price inflation from these levels was to be expected in the coming year, and the rise in wheat prices makes that even more likely."
- "Following on from the analysis done by our Emerging Market colleagues, we take a look at the potential impact of the rise in wheat prices on inflation in Europe. A modest rise in food price inflation – by around two percentage points or so – may well be on the cards. With a weight of roughly 10% in the CPI in the euro area and the UK, that could have a small but noticeable effect on headline inflation. We’ve raised our inflation forecasts accordingly. But, given its starting point and the behaviour of other components of inflation, such a rise may prove to be more problematic for the UK than for the euro area."

CreditSuisse European Economics 20100812

Analysing Chinese Grey Income: New study, new findings

- Almost Rmb10 tn in hidden income, or 30% of GDP. "Based on a creative survey technique focusing on the correlation between income and spending patterns, and with over 4,000 samples across 19 provinces in China, Prof. Wang estimates that the per-capita disposable income of urban Chinese households in 2008 should be Rmb32,154, 90% above the official data. Total hidden income could total Rmb9.3 tn, 30% of GDP, with about 63% of hidden income in the hands of the top 10% of urban households."
- The potential of China’s consumer market is even bigger than we expected. "Most investors are aware that Chinese income statistics are underestimated, but the exact amount is subject to much speculation. The size of grey income revealed by Prof. Wang is striking and could help investors to understand the rationale of the Chinese government’s recent strong push for faster wage growth and a more equitable income distribution pattern – which would also help boost overall consumption."
- Big ticket items are the biggest beneficiary. "While we think that the Chinese government will try to reduce this huge income disparity problem and the size of the grey income, this is not likely to change significantly in the near future. Chinese property, European luxury goods, high-end retailing and Macao gaming could be the biggest beneficiaries of the current income distribution pattern. In particular, we think BMW, Galaxy, Hang Lung Properties, Mengniu, Swatch and Vanke will benefit most."

CreditSuisse Expert Insights 20100806

China Property: Grey income-who benefits if the wealth gap narrows?

- "Based on the grey income research sponsored by Credit Suisse, we conclude that China will not only increase wages, but also optimise its tax system – developers that focus on mass market products and high asset turns, such as China Vanke, should stand to win."
- Grey income improved affordability, but only for the rich: "The wealth gap skews housing affordability more significantly than indicated by the official data."
- Wealth gap led to a housing mix mismatch in major cities – time to change: "In metropolitan areas such as Hong Kong, the widening wealth gap has created social issues. However, public housing took up around 45% of Hong Kong’s total housing stock, and only less than 6% in China. Therefore, we expect the government to use tax, among other things, to improve affordability, and continue to suppress investment-purpose housing demand."
- Asset turns will become more important for developers: "We expect that the pace of land price appreciation will slow in China, and that the prevailing business model of land hoarding for developers will no longer work. China Vanke, COLI, and KWG remain our top picks in the sector."

CreditSuisse China Property Policy Outlook 20100810