China Official PMI 50.1 in May, Caixin Sinks to 49.2

CNBC: China manufacturing and services PMI fall in May
Caixin: Factories Struggling as Caixin PMI Hits 49.2
Weighing on the headline index was a fresh decline for total new orders received by Chinese manufacturers in May. New export orders fell between April and May at the quickest pace in three months.

Manufacturers are continuing to shed workers, with the rate of reduction remaining close to the February figure, which was the highest since the 2008 global financial crisis.

Weak demand for manufactured goods underpinned reductions in purchasing activity and inventory holdings in May. Inflationary pressure appeared to cool slightly, however, with input costs and output prices both rising but more slowly compared to April's activity.

A Defense of Debt-for-Equity

Project Syndicate: Moving From Debt to Equity in China
For starters, China has a very high saving rate – above 45% over the last decade, much higher than in the advanced economies – which enables it to sustain higher debt levels. Moreover, China’s banking system remains the primary channel for the deployment of the household sector’s savings, meaning that those savings fund corporate investment through bank lending, rather than equity financing (which accounts for only about 5% of net investment). Indeed, the sharp acceleration in the debt-to-GDP ratio is partly attributable to the relative underdevelopment of China’s capital market.

...Giacomo Corneo of the Free University of Berlin has proposed that, in addition to taxing underused real estate, China should create a sovereign wealth fund to improve the management of public assets. Given that those assets amount to an estimated $18 trillion, a higher return on capital would boost GDP and reduce debt. China’s bank regulators have already permitted experiments in debt-equity swaps, which the International Monetary Fund says should be incorporated in a comprehensive strategy to accelerate reform of state-owned enterprises.

China has the savings to address its growing debt burden.

The Cash Crunch Is Baaack

Bloomberg: Double Blow for China Banks as Fed Worry Meets June Cash Crunch
Shanghai’s money market is braced for higher borrowing costs as a credit-fueled economic recovery coincides with the prospect of higher U.S. interest rates in June, a month that has historically seen funding crunches in China.

The overnight interbank lending rate averaged 1.99 percent in May, up from 1.18 percent a year ago, as Federal Reserve tightening weakened the yuan, spurring capital outflow pressures. That borrowing cost has climbed every June since 2011, as lenders hoard deposits ahead of quarter-end regulatory checks. The cost of fixing rates in the swap market is surging as data showed property leading a rebound in investment in the world’s second-biggest economy.

“The internal and external factors combined will certainly add pressure to the money market in June, driving interest rates higher,” said Liu Dongliang, a Shenzhen-based senior analyst at China Merchants Bank Co., the nation’s sixth-largest lender. “We’re not optimistic about the bond market in the short term.”
Bloomberg: China Futures Exchange Says Client’s Hedging Caused Flash Crash
Contracts on the CSI 300 Index due in June dropped by the 10 percent daily limit at 10:42 a.m. local time before recovering almost all of their losses in the same minute. The sudden drop was triggered by the unidentified trader’s order for 398 contracts at current market prices. They were filled consecutively, which prompted the broader selloff, the futures exchange said in a statement.

...“Liquidity in the market is really thin at the moment,” Fang Shisheng, Shanghai-based vice general manager at Orient Securities Futures Co., said by phone. “So the market will very likely see big swings if a big order comes in.”

CREIS: New Home Prices Soar 1.7 pc in May

New home prices climbed 1.70 percent in May (up from April's 1.45 percent increase, down from March's 1.90 percent) and are up 10.34 percent year on year. 74 out of 100 cities saw prices rise.

Xiamen topped this list with a 5.85 percent increase in new home prices. Nearly all of the top cities were second-tier or near first-tier cities seeing overflow, such as Langfang near Beijing, up 3.66 percent.

Although the first-tier slowed, prices still increased faster than the national average. The top 10 cities saw prices rise 1.93 percent in May.

One outlier: while existing home prices were also up by similar amounts, Shenzhen's existing homes fell 0.29 percent in May.

CREIS 100 City Survey: 2016年5月百城新建住宅价格指数
Google Translated: 100 Cities Survey

Fourth Generation War and The Collapse of the State

William Lind addresses the long-term threat to stability in the West, and calls for state unity in combating the 4GW threat. In a nutshell, the U.S., Russia and China should be carrying out joint military operations to wipe out non-state actors, and refrain from destroying functional states due to the risk they will collapse into a 4GW battleground.

Socionomics Alert: Shock Brexit Poll, UKIP Playbook Stolen

Until this weekend, Brexit polling had seen a persistent gap between phone and online polls. The gap is particularly odd because while younger voters skew Remain and older voters Leave, the online polls skew Leave and the phone polls Remain. In the U.S., older voters tend to respond to phone surveys more than younger voters; at least one pollster claimed the opposite was true in the UK, but I'm skeptical. In any event, taking the data as a whole it appeared the Remain side was in the lead because phone polls showed consistently large leads for Remain, while online polls sometimes showed small leads for Leave.

Now a dual poll from ICM has closed the polling gap in favor of Leave, as both the online and phone polls conducted over the weekend are in harmony.

Guardian: UK voters leaning towards Brexit, Guardian poll reveals
Public opinion has shifted towards the UK leaving the EU, two Guardian/ICM polls suggest as the referendum campaign picks up pace – with voters split 52% -48% in favour of Brexit, whether surveyed online or by phone.
I believe the vote rests in the hands of Tory voters, as this polling registered 53 percent support for Conservative and UKIP.
The Guardian data also shows:
Among skilled manual workers, known by pollsters as C2s, support for Brexit is running as high as 62%. Scotland is for remain, while voters in England and Wales would back Brexit.
Shades of Trump support in the U.S.

As the chart at the bottom shows, one polling data point does not change the trend that appears to favor Remain. The latest development in the campaign redounds to the benefit of Leave though: the UKIP playbook has been stolen. UKIP's raison d'être was a referendum on EU membership, but the party quickly shifted their rhetoric to immigration once they saw its impact. The party won a surprising victory in local elections as a result, and the current referendum on EU membership is itself one of the results. Now it seems the Leave camp is also turning to the immigration issue:

Daily Mail: Pound slumps after shock poll reveals a SEVEN point surge for Brexit as Leave campaign turns its fire on immigration
Last Thursday, official migration statistics revealed the numbers of people coming to Britain from inside the EU had matched the all time high of 184,000 and Brexit campaigners have warned the figures demonstrate the lack of control Britain has over its borders.

...Up to half a million refugees and their relatives could move to Britain after 2020 because of EU rules on the free movement of people, a major new report claimed today.

While Germany, Greece and Italy have borne the brunt of the refugee crisis arriving at Europe's borders, those granted asylum could settle in the UK in the coming years after they have acquired EU citizenship.

A report by Migration Watch, which campaigns for tighter border controls, said an analysis of EU figures show that hundreds of thousands of people could take this route into the UK.
Immigration restriction is the most popular orphan policy in the West. It was taken up by UKIP to a shock victory in local elections, it was taken up by Trump for a shock victory in the GOP primary. Merkel's decision to open the floodgates to migrants and open the door to Turkey was the exact wrong policy for the moment. In addition to pushing the German electorate to the right (This One Chart Explains the Next 10 Years of Political Change) she may have set the EU on its final course to dissolution. Consider her deal with Turkey, to swap "Syrian" migrants for Turkish ones. The German government is trying to contain the damage now.

DW: Turkey visa liberalization 'not a done deal'
"If the conditions for the introduction of visa liberalization (for Turkish citizens)
are not met, there will be no visa liberalization," Interior Minister Thomas de Maiziere told the Funke Mediengruppe newspaper chain in an interview published Saturday.

"One must not allow public threats to leave an impression when it comes to politics," de Maiziere said. "At least you must not lend credence to them by displaying too much concern."

Brussels has promised Turkish citizens visa-free travel into Europe in return for stopping the flow of illegal migrants to the bloc. And while Europe is desperate for the deal to work, it also insists Ankara meet 72 criteria, including narrowing the scope of its broad anti-terrorism laws to meet European standards.
Here is Turkey's president over the weekend: Turkey's Erdogan warns Muslims against birth control
"We will multiply our descendants," said Mr Erdogan, who became president in August 2014 after serving as prime minister for 12 years.

His AK Party has its roots in Islamism and many of its supporters are conservative Muslims.
Beyond the direct issue of rising migration, Germany's policy moves have also revived fear of German dominance. If blocking a dominant power remains British strategy, it can be achieved more easily from the outside today.
London Review of Books: Scenario for a Wonderful Tomorrow
What about Europe? And why dwell so long on the refugee crisis when I’m supposed to be discussing a book on the euro crisis? The answer is that Merkel’s immigration policy offers an object lesson in what other countries can expect from Germany acting European. Just as the United States sees the world as an extended playing field for its domestic political economy, Germany has come to consider the European Union as an extension of itself, where what is right for Germany is by definition right for all others. There is nothing particularly immoral about this; indeed Germans think it is supremely moral, as they identify their control of Europe with a post-nationalism understood as anti-nationalism, which in turn is understood as the quintessential lesson of German history. Very much like the US, German elites project what they collectively regard as self-evident, natural and reasonable onto their outside world, and are puzzled that anyone could possibly fail to see things the way they do. Perhaps the dissenters suffer from cognitive deficits and require education by Schäuble in the Eurogroup classroom?

One problem with hegemonic self-righteousness is that it prevents the self-righteous from seeing that what they consider morally self-evident is informed by self-interest. The self-interest of German export industries, for example, underlies Germany’s identification of the ‘European idea’ with the single European currency. The problem is exacerbated by the fact that the national interest that is mistakenly seen as identical to the interest of all reasonable human beings, in Europe and beyond, is necessarily shaped by the political interest of the government and its dominant social bloc in preserving their power. This puts peripheral countries at the mercy of the national power games and the moral and semantic ethnocentrisms of countries at the centre, which are hard to decipher for outsiders – especially with a postmodern leader like Merkel who, free from substantive commitments and constitutional constraints, has perfected the art of staying in power by means of unpredictable changes of course.

2015: Immigration: The Key Political Issue
2014: UKIP Scores Big Win in Local Elections; Shockwaves Will Hit Europe and the U.S.
H/T Sailer: The Growing Menace Posed by Lawless, Anti-democratic Autocracy in Central Europe

Currency Adjusted ChiNext Analog

China Vows to Further Open Service Industries

FINTS: China vows to push forward new round of opening up
“The new round of opening up will focus on the service industry, advancing the orderly opening of finance, education, culture, healthcare and other service fields, lifting restrictions to investments by foreign enterprises in a range of service industry sectors including child care, supporting the elderly, architectural design, accounting, auditing, logistics and e-commerce.” added Gao.

Apart from the above measures, national authorities including the Ministry of Commerce are also contemplating formulating a series of new policies to promote support for key exporting trades in service from financial and taxation departments, and to grant tax preference for high-tech and high-culture service industries.

Land King High Tide in 2007 and 2010 Preceded Downturns

The last peaks in "land king" activity (a record setting land price) occurred before downturns in the real estate market. The third tide is peaking in 2016.

iFeng: 地王潮高烧正热 报告称一线楼市调整马上来
Since 2004, the supply of land, "8.31" Doomsday so far, the domestic land market in general has experienced three waves of "king tide": the first time after 2007 years ago, the second time after 2010, the third time is 2016 year. This time, the national property market differentiation severe destocking battle just more than half, the king on some areas has shown a high fever trend.

By the end of May, the total number of this year's king has exceeded 100, "high total price, high list price, high premium," the land has become the most significant reflection of the first half of the real estate market. "Do not rush to participate in the risk out of food, at least you can grab future expectations." In the domestic housing prices in the top five of a third party who engaged in land investment work Shilin Meng (a pseudonym) told First Financial Correspondent .

However, history is always striking similarities, the two previous experience tells us: "king tide" always occurs in the property market volume and price go up, stocks fall under the background that ignited the severe macro-control, at last making the market cool.

...CRIC analyst Xie Yang said that the relationship between supply and demand is a direct impact on price movements, land is one of the driving factors in housing prices, higher than the floor price directly surrounding the price will make you feel house prices to rise, naturally, to go buy.

...The first report issued by the Ministry of Securities Research said the current king phenomenon is ample liquidity, financing channel flow situation one kind of panic gamble, this future expectations overdraft will not only affect the current supply and demand structure of the market, will also stock projects and new projects constitute Yamiaozhuzhang type of pressure, thus increasing systemic risk in the industry.
Goverment regulation is expected, but some analysts don't think the second- and third-tier recovery will continue without government support:
Among them, the first-tier cities in the event of strict restriction policy volume is still low levels; second-tier cities to expand the chain volume fell year on year increase narrowed and, in the absence of follow-up policy support, fever has become a major trend; three cities chain volume continued to shrink, an increase sharply narrowed.

Dongxing Securities estimates, more than half to the inventory process has no policy to continue to support the future volume of second and third tier cities will shrink further.
Guoxin sees the market turn at hand though:
May 29, Guoxin Securities said in a report, the current real estate has begun to adjust: First, there has been tightening policy tone, the degree of easy credit also weakened; Second, housing prices have a negative impact on purchasing power; Third, policies and monetary easing will be diminishing marginal effect; four first-tier cities of the property market has been the first signs of correction.

Guoxin Securities, he said, based on historical experience, the recent "frequent the king," or means "market peak adjustment" will appear in the near future.
The spike in land prices is not a market phenomena. In addition to flooding the economy with credit, local governments intentionally restricted land supply in 2015 in order to revive land finance. Even in cities such as Beijing, where nearly all of the prime land has been purchased, there were land supply reductions.

Related from 2015: Ministry of Land and Resources Sees Land Supply Rising in 2H
Beijing Cuts Housing Land Supply By 25%

Two Weeks to A-Share Inclusion Decision

FINTS: New rule removes another barrier to A-shares’ inclusion in MSCI
According to media reports, at the height of the stock market crash in mid-2015, more than 1,400 companies had halted trading, and some firms extended those halts for months on end to try and ride out the volatility.

When MSCI rejected including A-share to its emerging markets index in June 2015, it raised three major concerns, namely 1) process of QFII quota distribution, 2) restrictions on capital mobility, and 3) recognition of beneficiary ownership. Chinese regulators have since made concrete steps to address some of the obstacles identified in the MSCI review last year.

But such arbitrary trading halts by listed companies have become a new barrier, when MSCI consulted investors about including A-shares into its benchmark emerging markets index in April, Caixin reported earlier this month.
Also more on the Third Board: China releases tier management draft plan for New Third Board
China’s NTB became a nationwide trading platform three years ago. Designed to gather investment for companies which have not yet gone public, its listing requirements are set to allow smaller companies to participate in the financial market. However, in the past three years, the number of firms listed on the NTB has grown dramatically to 7,394, compared with less than 3,000 A-share listed companies in total. The conditions of these companies vary greatly because the threshold for the market is relatively lower than that of the A-share market. Some of the NTB-listed companies have either never been traded at all or have traded for a while before suddenly becoming empty shells.

In order to enhance liquidity of the NTB and facilitate capital allocation of investors, China’s regulator has decided to distinguish the best stocks from the average, and will divide the companies into two levels, namely the base level and the innovation level.

Companies hoping to be selected into the innovation level must meet one of three sets of criteria, namely 1) net profit and return on net assets ratio; 2) revenues, compound growth rate and capital stock; or 3) market value, shareholders’ equity and the number of market makers and qualified investors.

According to the current criteria, around 16% of the listed companies on the NTB will be selected into the innovation level.
A-shares are rallying ahead of MSCI's decision on June 14.


Market Jitters

Bloomberg: June Jitters Rouse Fund Managers to Cast Their Hedging Nets Wide
Money managers struggling to develop a clear market view beyond June say they’re turning to gold and the Japanese yen, which tend to benefit when investors become more conservative. Sovereign bonds from major economies are being used as a hedge even though yields are close to historic lows. They’ve slipped to below zero on $8.3 trillion of debt, or about one-third of the total, based on the Bloomberg Global Developed Sovereign Bond Index.
The cart in the article shows the premium for 1 month EURUSD volatility options rising to their highest level since February, amid peak volatility in 2016.

Chinese Capital Flowing Through Bitcoin

WSJ: China Buying Sparks Bitcoin Surge
“There’s a lot of hot money in China that has to go somewhere,” says Du Jin, chief marketing officer at Huobi. Huobi has seen a surge of new registrants in the past one month, he said.

Expectations that new supply of the virtual currency will decrease next month could also be behind the latest price surge. The creation of bitcoin via a complicated computing process called “mining” gets more challenging over time, thanks to a mechanism which cuts the number of bitcoin that can be created in half every four years in order to limit supply.
It's obviously Chinese demand because of the massive volume on CNY exchanges and the premium being paid in China.

Developers Piling Up Debt to Buy Overpriced Land

SCMP: Rapid recovery in China’s property market may not be sustainable as developers pile on debt
The latest record-breaking deal was seen in Hangzhou with a site sold for 12.32 billion yuan (HK$14.5 billion) on May 27, the highest lump sum figure paid for a site in the city. It is also the first site that has sold for more than 10 billion yuan in Hangzhou.

The site has a developable area of about 570,000 square metres, with the price paid being the equivalent of 21,576 yuan per square metre.

Developers have been competing for land amid a mainland Chinese property recovery, pushing up land prices to record high levels, especially in the first and second tier cities which face limited new supply.

NPL Risk Rising as Chinese Bank Loans Clear 100 Trilion Yuan

The Economic Times: China's bad loans rise: Banking Regulatory Commission

Chinese banks saw their bad loans rise in the first quarter due to the slowing down of the world's second largest economy, but the risks were "under control", the banking regulator said today.

Guo Ligen, vice chairman of China Banking Regulatory Commission (CBRC) told a financial forum that non-performing loans by banks have been rising as many sectors have felt the pains of the slowing economy.
EO: 警惕!中国银行业面临三大压力,不良资产正在急速暴露
Generally, the banking industry is a typical pro-cyclical, that is, when the economy is on the departure time, the banking industry will expand at a faster speed, for example, from 2003 to 2007, the period before the crisis, China banking assets expanded 2 times, while the average growth rate of China's economy close to 12%; and when the economy is in a downward phase, the banking industry for the purpose of repairing their balance sheets, it will shrink at a faster rate tables, such as crisis after banking in Europe and America and other countries.

However, since the crisis, China's banking sector is different from other countries, but still took a counter-cyclical expansion, as of the end of the first quarter of 2016, the total assets of China's banking system from 53 trillion at the end of 2007 to 203 trillion, in 8 years expanded nearly 4 times. But since 2015, the pre-expansion contrarian anti-banking crisis has gradually brought a lot of pressure of reality.
The article lists the warning signs on NPLs:
First, the rapid increase in bad pressure. CBRC bad data from the 2003 publication of commercial banks after 2010, also announced the overall bad situation. Bad data in accordance with the commercial bank credit data released by the People's Bank and the China Banking Regulatory Commission released its proportion of loans in the banking industry, the banking industry can be roughly estimated overall adverse circumstances, the estimated results are as follows:

1. Stock respect. By the end of the first quarter of 2016, China's banking sector non-performing loans of about 2.1 trillion non-performing loan ratio was 2.04%. Among them, the commercial bank non-performing loan balance of 1.39 trillion, non-performing loan ratio was 1.75%; the balance of non-performing loans of commercial banks outside the banking institutions 0.7 trillion non-performing loan ratio was 2.98%.

2. Incremental aspect. 2014 and 2015, the balance of non-performing loans of the banking sector increased by 257.2 billion and 551.4 billion, while the balance of loans to the banking sector increased by 11.2 trillion and 9.8 trillion in new non-performing loans accounted for new loans rose from 2.3 in 2014 % to 5.65%, whereas previously this ratio is less than 1%.

3. Potential negative aspects. If interest loans deemed possible adverse future, then, in 2014 the banking sector non-performing loans and total attention to the scale of 5 trillion by the end of the first quarter of 2016 has risen to 7 trillion, corresponding to loan ratio rose to 5.6% by the 6.7%.

These changes have shown that non-performing assets of China's banking industry has entered a stage of rapid exposure.
Banks have also been moving opposite to the central bank, which is tightening monetary policy. The result was rising financialization of the economy:
By 2015, the central bank began to disinflate, while the banking sector not only did not follow, but to accelerate the expansion of its asset size, but at the same time, the expansion of banking assets, they give the financing of non-financial sector accounted for the proportion of total assets did not rise, but dropped to 52% from 60%. A substantial increase in the business transactions between financial institutions share - from 10% to 25%. Since 2005, the scale of these assets has expanded more than 14 times, that the financial spin is very serious.
WMPs bring in higher profits, but also have higher costs structure for banks:
For example, as of the end of the first quarter of 2016, the banking financial funds have been more than 26 trillion, total liabilities of the banking sector accounted for the proportion of up to 16%, while bank financing the cost of capital substantially 2-3 percent higher deposit costs, virtually raised management costs for banks overall cost of debt and debt funds.
Finally, profits are coming down, indicating the turn has been made:
the same time according to data released by the CBRC, commercial banks net profit growth in 2014 was 9.7%, ending the double-digit growth in previous years, the in 2015 it was further reduced to 2.4%, indicating that the profitability of the banking industry inflection point of change has occurred.

Tianjin's Manhattan Still Empty

Channel News Asia: China's plans for financial district in Tianjin remain in question
China’s US$50 billion replica of Manhattan in the northern port city of Tianjin still lies mostly unfinished and empty nearly a decade after construction began.

Several reports have labelled the development in Yujiapu a ghost town. Others however argue that it could achieve its goals over time.

It is being billed as China’s version of the Big Apple. But 8 years after construction began, many of the buildings appear unfinished. Some construction sites have been abandoned, while the streets are deserted.
Prior coverage: Tianjin Rebuilds Manhattan in Binhai; Has 90% Empty Ghost City in Baodi


CNY Tumbles, 2016 Low Approaches, 6.80 Line in Sand Looms

Bloomberg: Yuan Extends Weekly Decline as PBOC Weakens Fixing to 2011 Low

10 days ago: Bear Market Rally Over, Yuan Set to Tumble as Fed Fuels Dollar Rally. The market thinks a July hike is coming, not June, as it seemed the Fed was telegraphing back then.

Elsewhere, FT: A weaker renminbi leaves investors unfazed — for now
If last August and January of this year showed how the world tends to catch a cold when China sneezes, this week’s muted reaction to Beijing pushing its currency lower suggests the market has been dosing itself up on antibiotics.
The market is calm because the market is calm. CNY is already near its 2016 low, it could set a new low by the close today. If there's any volatility, the yuan is going to have a 6.6 handle before it stats, and every tick down will be a new 5-year low. If the breakout from a saucer consolidation phase is similar to the move in late 2015 and into 2016, it could bring the first test of 6.80.

Chinese Developers Bet Life of Land Purchases, Govt Ready For Crackdown

With debt ratios climbing to an average of 96 percent in 2015, developers are said to be better their lives on land.
Housing Association reports that listed room rate falling profits, high debt. 2015 Housing prices listed average net profit 15.94 billion yuan, up 6.14 percent, but the return on equity and return on total assets average of two indicators continue to decline, since 2009 is still in the lowest point. In addition, the real estate industry in 2015 debt levels remain high. Average net debt ratio 96.09%, compared with 2014 increased by 7.23 percent, a new high.
Analysts wonder how developers will turn a profit when their land purchases have already priced in a 50 percent gain in home prices:
According to real estate industry sources, the Department of Housing and May 25 convened a veteran real estate sector, and heard one of the content, is king of the recent frequent impact on the future of the property market. Some analysts believe that the local government time to implement the new regulatory policy should be getting closer. "Some hot second-tier cities, such as the control tone Hefei, Suzhou, Nanjing, Xiamen and other cities will soon change." Property analysts believe that with the policy.

If suppress the second-tier property market policies, such as Dawei predict such price gains next year can not exceed 50 percent, how has got the king's companies will fill the cost? Market participants expressed concern about the risk of future housing prices.
iFeng: 上市房企去年负债率达96% 今年“赌命”争地王

Soaring second-tier land prices have caught the attention of high level government officials:
The hot second-tier property market is facing a turning point in the property market policies. This year has appeared 152 land kings, most of the hot spots in second-tier cities, Suzhou , Nanjing has land have introduced price-cap policy to curb the king. Recently, the Ministry of Housing listened to the real estate sector report on the status of the property market, focusing on hot spots of the city to the king. After the market came news of Hefei in June is expected to re-introduction of restriction policy, Suzhou there may be an alternate regulatory scheme.
Suzhou and Nanjing have already rolled out policies, and other cities are drafting rules:
Hefei is also hot property market reserve policy responses. It is understood that the purchase of policy Hefei nine regions has recently completed the drafting, execution or purchase transaction filing time prevail. Hefei aspect outgoing messages, particularly when the introduction of restriction, the last approved by the municipal government and other, and after the purchase of policies, is expected to limit the loan policy will be followed.
The central government is watching:
Second-tier cities housing prices overheating, has attracted the close attention of the central government. There are real estate industry sources, the Department of Housing and May 25 convened a meeting with veterans of the real estate sector, and the discussion included the recent frequent appearance of land kings and the impact on the future of the property market.

...Some analysts believe that the local government time to implement the new regulatory policy should be getting closer. "Some hot second-tier cities, such as the control tone Hefei, Suzhou, Nanjing, Xiamen and other cities will soon change."

iFeng: 地王引高层关注:住建部听取汇报 楼市政策或收紧

US-Sino Basketball Game Turns Into Brawl

Maybe nothing, or maybe social mood in action.

Video at link: 视频-中美男篮友谊赛爆发群殴 双方大打出手场面混乱

WMP Debt Bomb Grows as Products Cross Invest

Earlier today: China's Default Bombs Haven't Been Defused

Bloomberg: China Default Chain Reaction Threatens Products Worth 35% of GDP
The risk of a default chain reaction is looming over the $3.6 trillion market for wealth management products in China.

WMPs, which traditionally funneled money from Chinese individuals into assets from corporate bonds to stocks and derivatives, are now increasingly investing in each other. Such holdings may have swelled to as much as 2.6 trillion yuan ($396 billion) last year, based on estimates from Autonomous Research this month.

The trend has China watchers worried. For starters, it means that bad investments by one WMP could infect others, causing a loss of confidence in products that play an important role in bank funding. It also suggests WMPs are struggling to find enough good assets to meet their return targets. In the event of widespread losses, cross-ownership will create more uncertainty over who’s vulnerable -- a key source of panic in 2008 when soured U.S. mortgage securities triggered a global financial crisis.

...The outstanding value of WMPs rose to 23.5 trillion yuan, or 35 percent of China’s gross domestic product, at the end of 2015 from 7.1 trillion yuan three years earlier, according to China Central Depository & Clearing Co. An average 3,500 WMPs were issued every week last year, with some mid-tier banks, such as China Merchants Bank Co. and China Everbright Bank Co., especially dependent on the products for funding.

Nanjing Caps Land Prices

Reuters: China's Nanjing to introduce price cap in land auctions
China's eastern city of Nanjing said on Friday it will limit the highest bidding price developers can offer in land auctions, in an effort to control surging land costs that have been driving up home prices.

Nanjing's tightening measure came after another eastern city, Suzhou, imposed a similar cap earlier this week.

Residential land and home prices in some major second-tier cities have been posting significant rises since the beginning of the year, raising concerns that overheating is spreading outside the top-tier cities of Beijing, Shanghai, Shenzhen and Guangzhou.

China's New "First-Tier" Cities Attract Young Workers

China.org: Why they top China's new first-tier cities?
The new ranking, released by Shanghai-based media group CBN on Monday, lifted Chengdu and six other provincial capital cities, two municipalities and six coastal cities in the east as China's new first-tier cities.

The city of Chengdu, capital of southwest China's Sichuan Province, tops the list, which also includes Hangzhou, Wuhan, Tianjin, Nanjing, Chongqing, Xi'an, Changsha, Qingdao, Shenyang, Dalian, Xiamen, Suzhou, Ningbo and Wuxi.

Instead of GDP and population, the number of brand outlets, catering industry, cinemas and skyscrapers are emphasized more in the list. Chongqing, a municipality in southwest China, comes No. 2 in the amount of high-rises after Shanghai.

To compile the list, CBN emphasized a city's connectivity with the outside world, given its capability of delivering merchandise, cash, talents, lifestyle and even values to neighboring areas.

The use of smartphone apps in transport and online shopping, the availability of subway and the active number of LinkedIn users are also important to measure the vitality of urban residents. Hangzhou, capital city of east China's Zhejiang Province, tops the subindex among the 15 new first-tier cities.
Young people have been abandoning the first-tier of Beijing and Shanghai for awhile, but it is picking up pace and perhaps crossed the tipping point because of the disparity in home prices. In addition the the lower cost of living, there is also less air pollution in several of those cities.

An article on iFeng provides some anecdotes, such as one guy quit his 25,000 yuan a month in Shanghai for a 12,000 yuan a month job in Kunshan and because of lower housing costs, he's coming out ahead.

iFeng: 北上广深金领吃不消房价 降薪跳往二线城市
White shirt, trousers, Shoulin briefcase, Li Gang (a pseudonym) is currently in Shanghai when a company sales director, "Shanghai is an international metropolis, bustling city, indeed more opportunities, but I want to escape, want to skip Jiangsu . "29-year-old, he admitted that, despite five years of work in Shanghai, the monthly income of more than 20,000, but still can not afford a house," this year I'm going to jump to the Kunshan near Shanghai, first, because housing prices, and second, girlfriend in Kunshan. "

Yesterday when a recruiter introduced him to a private enterprise in Kunshan sales management positions, although salaries dropped, but he looks after, or readily accepted. "Dropped from a monthly salary of 20 005 10 002, although fallen by half, but the cost point of view, it's still cost-effective, home prices are low here."

Similarly, this year 37-year-old Xu quit her job in Shenzhen, "high prices is indeed one of the reasons, there is the home to take care of the family, my home is in Suzhou."
Related: Migrants Abandon First-Tier, Will Companies Follow?

China's Default Bombs Haven't Been Defused

Caixin: Why Property Financing Drew Blood in Nanyang
But a retired prosecutor who intentionally plowed his BYD SUV into a group of schoolchildren February 29 in Nanyang, in central China's Henan Province, has exposed a dark side of that city's private financing network.

Ma Gaochao, 60, reportedly lost 12 million yuan in a real estate financing scheme before venting his frustration by steering into the secondary school students at a campus gate. A 16-year-old girl died, and 11 students were injured, two of them seriously.

Ma fled but after being caught told police he had "intentionally" mowed down children to focus a public spotlight on the developer that drained his bank account, police officer Huang Shaofan told Caixin.

...Ma's request was more than well-received. In fact, in addition to probing Daxin, city authorities said that as of April they had launched 100 investigations into allegedly illegal fundraising involving tens of billions of yuan.
More than 100 investigations were launched in April, but the illegal fundraising market collapsed more than a year ago.

Nanyang was covered in depth in March of last year. Housing and Illegal Fundraising Schemes Collapse Across Henan Province
A team leader with the Public Security Bureau's illegal fundraising task force in Nanyang said, "This is only the beginning, I expect next year will be even more serious."

...A 40 year-old investor Li said he invested ¥2,490,000 with Nanyang Moyu Development. Since August, he's been unable to get his money. Everyday he does two things: demand repayment with other investors and fight with his wife. 38 year-old investor Song invested ¥1,700,000 with Moyu and said he quickly realized after investing that he had been duped. Investor Fang took his life savings and the savings of his family. He invested ¥1,000,000, hiding the fact even from his son, and now finds his money is stuck. The three stories are a sample of the more than 3000 investors who are victims of the latest real estate collapse in China.

Around Spring Festival, Moyu, Daxin and Yilin, three investment companies, went broke one after the other. All told more than 10,000 investors are estimated to have lost upwards of ¥1 billion in a still unfolding collapse that has crushed their dreams of striking it rich.
Government officials were supposedly on the ball, having themselves lost money:
The real estate market and private lending market collapsed in Nanyang, Henan. Since August of last year, the market has been in trouble, but in recent months, illegal fundraisers have gone down like a series of dominoes. One investor who lost his money said he estimates half the city participated in various fundraising schemes. One government official said many investors have already died, either by suicide or out of despair, and many government officials have also lost their money
Officials knew all about this problem last year, yet a year later, Mr. Ma drives his car into a group of schoolchildren because he doesn't think the government cares. In April hundreds of investigations are underway.

This is part of an emerging pattern in 2016: old bankruptcy risk and outright default cases are reappearing because they were never solved. Coal mines and steel mills were given loans and subsidies to prop up the local economy. Many local real estate developers used illegal financing and/or high risk financing, with losses concentrated in the local economy. People lose their savings, home values collapse, land sales halt, and GDP plummets if developers stop building, so the solution was whatever keeps the building going. Now in 2016, years of extend and pretend is starting to fray.


Weekend Reading

FT: China loan-for-bond swap programme speeds back up
Quartz: China’s angry investors leap the Great Firewall—and are shocked by what they learn of Beijing
Alhambra: Converting Into The (So Far) Broken Correlation
Quartz: Meet Sue Googe, the gun-toting, Trump-supporting Chinese immigrant running for US Congress
ZH: Forget Chinese Commodity Speculators, Meet North America's "Moms-and-Millennials" Oil Day-Traders
RT: ‘Greatest threat to peace & stability’: Beijing criticizes US meddling in South China Sea region
SCMP: Cultural Revolution-style concert was a well-laid trap for Xi Jinping
Yu Yongding: China’s Incomplete Growth Strategy (commies truly do love concrete)

Sex Tape Sends Furniture Stock Limit Up

Earlier it was Retail Investors Take Cue From TV Show. Now A-shares investors (more accurate to say traders) sent a furniture stock up 10 percent because its chair appeared in a viral sex tape.

LA Times: It may have been quickly censored, but a sex tape is the talk of China
The video appeared on social networking sites on Tuesday, and within a day, Web surfers had searched for it 280,000 times on Baidu, the country’s leading search engine. They identified the video’s setting as a room at a Four Seasons Hotel; they discovered that a sleek, white chair in the corner was manufactured by the Qumei Furniture Group, a company in Beijing.

On Wednesday, Qumei’s stock price soared by nearly 10%, perhaps buoyed by the publicity.


Third Board Reforms to Kill 95 pc of Companies?

China Daily: New Third Board confirms two-way division
The rules will divide the NEEQ market, better known as the New Third Board, into two segments-the innovative market and the basic market.

The China Securities Regulatory Commission issued a draft regulation in March to solicit public opinion.

The division will be based on a set of indicators of financial performance and shareholding structure of the listed companies, to ensure the relevant regulation is appropriately applied to them.

Analysts said the much-anticipated market division will allow the board to meet the different financing needs of companies, improve regulatory efficiency and reduce the cost of information collection for investors.
Reuters: China to allow qualified financial firms to list on New Third Board
China's securities regulator said on Friday it would resume listings by qualified financial institutions and private equity firms on the country's over-the-counter (OTC) New Third Board, part of efforts to fund innovation and stimulate growth.

The China Securities Regulatory Commission (CSRC) also said on its official microblog that hedge funds would be allowed to act as market makers on the board. Previously, only brokerages could act as market makers there.
This Chinese article asks if new reforms will kill 95 percent of listed firms on the Third Board.

iFeng: 新三板分层:大利好还是95%公司将被宣布死刑?
"Measures" clear stratification criteria, the following conditions are one of the listed companies to enter innovation layer: First, the last two years of continuous profitability, and the average annual net profit of less than 20 million yuan (around deducting non-recurring lower were calculated on the basis); the last two years the weighted average rate of return on average net assets of not less than 10% (calculated on the basis of the lower of deducting non-recurring gains and losses before and after).

Second, the continuous growth in recent years revenue and compound annual growth rate of not less than 50%; the last two years the average operating income of not less than 40 million yuan; the share capital of not less than 20 million shares.

Third, the recent deal-making transfer of 60-day average market capitalization not less than 600 million yuan; the most recent year end shareholders' equity of not less than 50 million yuan; market makers not less than 6 firms; not less than 50 qualified investors.

Third board stratification is a big plus or will 95 percent of the companies receive the death penalty?
Taking up the side that these changes are positive:
"Layered market system would provide useful information to improve the efficiency of resource allocation." Great Britain and the Securities Institute of Lida Xiao said. He believes that the system by a certain standard, the new three-panel business different levels of development, different sizes and different operating conditions to make screening for the implementation of differentiated institutional arrangements in preparation, will improve market efficiency of resource allocation.

Guotai Junan [0.00%] chief economist Lin Caiyi say, with respect to the rotation plate before difficult to achieve the target, the layer sprint innovation, better for the listed companies to establish a specific and detailed goal.

Implement tiered system for investors to reduce its screening, the cost of research investment targets. Stratified by listed companies will also understand their own conditions and other corporate equity background, carry out mergers and acquisitions or mergers of listed companies. For the market, will promote capital investment targets and reasonable match.

"At present, the ultimate goal of most of the listed companies are not IPO, but for efficient equity financing through such a platform." Financial Research Institute, Wuhan University, Dong Teng new view that the establishment of innovation level, began to regulate internal corporate governance, hierarchical The main purpose and meaning.

Financial Research Institute co-director Source Shenwan Hong Gui Haoming said that according to the current standard than the existing three new board to meet the requirements of the enterprise innovation level is probably more than 600, more than 10% of all enterprises in the new board.
Taking up the negative side is Hong Tai Fund Sheng Xitai:
Hong Tai Sheng Xitai Fund had published a long article, make a point: three new board simple layering, die!

Article ideas are as follows:

Engaged in the securities industry as a veteran of 20 years and a cross-border venture capital to early recruits, May 6 I saw the most reluctant to see a message: It is reported, the Commission has adopted May 4 the three new board stratification scheme will be implemented in May.

If the final report is confirmed, then history will remember this day - not because of the new board back to life, but because it was advanced morgue. I am sad that in the past 20 years, China's capital [0.00%] market and Internet entrepreneurs missed to connect the new board and the newly established China's venture capital market will be cut off, entrepreneurial era flood of export will also be blocked.

Why layering? The core issue is to solve the liquidity. Three new board does the most recent year in a liquidity panic. Although the number listed three new board is growing rapidly, as of May 6 have been 7033, an increase of nearly 2-fold, but the new three-panel market making index all the way down from the highest point in April 2015 of the 2673 points the past six months but it has been hovering around 1200 points. Over the past year, the daily turnover of 200 million yuan in long-term up and down. Throughout 2015, the Company had no transactions have 2895, accounting for more than 50%.

Three new board capital market as nothing more than two basic functions, is a Gaoqian is financing; second, the wealth effect, encourage entrepreneurs to gain wealth. There is no mobility, neither Gaoqian nor wealth accumulation, the core function of the capital market did not, which is the core issue.

Stratification can really solve the liquidity it? I am afraid that is a temporary solution, if only hierarchical, as a condition of several other major capital markets does not change - participants are still limited, is still the market maker system, it can not take the auction transaction, it is still not solve the problem. And hastily opened stratification may lead to a series of crisis, I am afraid many people do not realize.

Polarization, 95% of the company will be declared the death penalty

Program previously disclosed, the three new board layer and innovation into the base layer, may have access to only 5% of enterprise innovation layer. This means that 95% of the company because they can not enter innovations layer was sentenced to death. Liquidity is weak, if not hierarchical, most companies likely to die, may live, sustainable development will be a period of time might change for the better. Once stratified, equal to 5% to tell you is "good", while the remaining 95% of "junk."

Aging Migrants in China

A month ago I posted Urbanize This: Migrant Worker Population Ages, Growth Slows, Low Wages

Caixin has an infographic on the some of the date here: Graphics: Ageing Muscle

Regulators Regulate A Share Trading Halts In MSCI Inclusion Push

Bloomberg: China to Restrict Trading Halts in Boost to MSCI Inclusion Odds
China’s stock exchanges published rules restricting trading halts in a move that raises the odds of the country’s yuan-denominated stocks being included in MSCI Inc.’s global benchmark indexes.

The rules are aimed at curbing arbitrary suspensions in Chinese stocks, known as A shares, the Shanghai and Shenzhen stock exchanges said in separate statements on Friday. Halts will be capped at three months for major asset restructuring and one month during private placements. The bourses will have the right to reject trading-halt applications under extreme market circumstances in order to protect investors, the statements said.

China’s exchanges allowed trading suspensions that shut down half the stock market as officials struggled to stop a $5 trillion selloff last summer.

No Limits on Foreign Firms in Interbank Market

Reuters: China allows foreign investors in debt market to remit funds freely
Foreign institutions that have invested in China's interbank debt market will be allowed to remit their funds freely, the foreign exchange regulator said on Friday.

The central bank said in February it would allow all kinds of financial institutions that are registered outside China to buy bonds in the interbank market and would scrap quotas for medium- and long-term investors.

April Industrial Production in Rust Belt

April Real Estate Investment By Province

The month-on-month real estate growth was almost identical in March and April. What stands out in April is the huge increases in real estate investment which kept this growth rate steady, in provinces such as Guangdong, Henan and Shandong, which combine for20 percent of the total national investment year-to-date.

Football Forum in Shanghai Aims to Grow Sport in China

2016 Chinese Football Forum will be held in Shanghai grand May 26. By then, the English Premier League as well as representatives of Liverpool, Chelsea, Norwich City, Southampton and other four Premier League football club will be invited to participate. Followed by 1 June 2016 the International Conference of the football industry will be held in Shanghai, this will be an international football the world's only industry conference covering the whole industry chain of football, football is Asia's only all-industry business conference.

Thirteen Five period, China's sports development will enter a crucial period of reform. At present, the overall goal of reform and innovation in sports and sports power construction still incompatible, mechanism Sports and coordinated economic and social development needs to be further improved. Related plan, by 2020, strive to push the proportion of value added services sports to more than 30%, increase sports consumption to more than 2.5 percent of per capita disposable income. Brokerage analysts said that with the league to open themselves virtuous cycle of social attention for Chinese football improve, from the professional event to event basis, the commercial value is expected gradually.
Investors are looking for ways to profit:
Ping An Securities said that since 2015, China's football industry of reform and large outlet, into goal of the reform is to bid to host the World Cup, electric foot in the World Cup, the Olympic games. In accordance with the international sports industry accounted for 40% of the estimated football, Chinese football 2025 industry will more than 2 trillion yuan, a huge industry growth.
If you are interested in some plays:
Alto Electronics (002 587): The company recently signed with the China Football Association China Team LED service provider agreement in exchange for a way to get the stadium advertising rights, and actively explore the sports marketing business.

Lehman shares (300162): Super stadium advertising rights, involvement in a club business development, the Portuguese league title and enter the domestic training young players.

Hualu Baina (300 291): 2015 buyout China Team, Super League, FA Cup sponsor related interests, to benefit from the commercial value of Chinese football tournament promotion.

Michihiro shares (600 136): the establishment of "the world football industry alliance" roots football overseas resources.

Rhine Sports (000 558): Zhejiang Women project.

Interactive Entertainment (300 043): the acquisition of the Spanish La Liga club.
I looked up 600136. Here is the company's business description:
WUHAN DDMC CULTURE CO.,LTD, formerly Wuhan Double Co., Ltd, is principally engaged in the sports business and televsion dramas business. The Company is also involved in trading of phosphate ores, leasing, operation and management of student apartments, as well as the real estate development and commercial residential building agent distribution.


New Loan Estimate for May: 850 Billion Yuan

Individual credit is expected to remain hot, but overall credit growth will remain subdued according to estimates (which haven't been too accurate of late) as the Q1 hangover continues.

Ping An SecuritiesHe said the monthly credit supply contraction should not be read too much, it does not represent a shift of monetary policy. From the monthly data, volatility and infrastructure projects to serve local government debt will remain on the replacement schedule monthly data forming disturbances. Taking into account the May delivery infrastructure and local bonds may rebound replaced the negative impact of the weakening is expected to scale new credit will be 800 billion yuan to 900 billion.

iFeng: 5月新增信贷预计规模8500亿 依旧实体冷、个贷热

MOF: China Govt Can Add More Debt

Bloomberg: China Says It Has Room to Increase Debt to Boost Economic Growth
China’s government still has room to borrow more to finance the investment and construction that’s needed to shore up economic growth, the Ministry of Finance said.

Overall risks associated with government debt, which amounted to 26.66 trillion yuan ($4.1 trillion) at the end of last year, are under control, the ministry said in a statement on Thursday. The government can add leverage gradually because its debt ratio is still below international warning levels, it said.

While concerns over China’s debt have shaken investor confidence, the ratio of government borrowings to gross domestic product is low by global standards -- 39.4 percent, according to the finance ministry. The ratio just for the country’s cash-strapped local governments, meanwhile, was at 89.2 percent and China is accelerating debt-for-bond swaps for those administrations to ease the burden of repayments.
Once it gets to this point, total credit is the proper measure. The government has room to monetize debt, but if it adds a lot of credit fueled growth and total debt to GDP keeps rising, it's only setting up the economy for more pain later.

Balding Talks Sense on Chinese Debt

A good summary over at his site. Here's one key point that is often repeated in regards to Japan.

Why China Debt Bulls are Mostly Wrong
Myth #2: China does not owe foreign debt. Again, a mitigating factor for sure, but does not fundamentally alter the debt problems. The 1997 Asian financial crisis has programmed most to believe that foreign denominated debt or large foreign inflows is the driver. Financial crises can happen in the absence of a foreign driver. There are many examples of financial crises without major foreign influence. If firms cannot repay their debts, foreign or domestic, that only alters upon who the losses will be imposed and alters the probability for rapid outflows. If firms cannot repay their debts, they cannot repay their debts, and losses need to be imposed.

PBoC: No Better Way To Stabilize Markets

iFeng: 央行:为稳定市场放水属无奈 没有更好办法
Sixth, to take timely measures to maintain financial market stability, to avoid the outbreak of systemic financial risk. Since the mid-2015, China's capital market appears twice rapid decline. The first is the stock market fell sharply after mid-June, in order to prevent the outbreak of systemic financial risks, the People's Bank to take timely measures to cut interest rates and provide liquidity support, in June and July M2 growth rate jumped one and 1.5 percentage points. The second time was in January this year, the Shanghai and Shenzhen stock index fell sharply again 25-30%, in order to prevent panic, promote market stability and to increase liquidity put in, but also so that the M2 growth rate has accelerated to a certain extent. From a global point of view, passively injecting liquidity to stabilize the market proves to be without choice, but it seems there is no better way. Like former Federal Reserve Chairman Alan Greenspan said, monetary policy is difficult to accurately determine the asset bubble before, is nothing more than after the fact to provide some liquidity support from the financial stability point of view, in order to alleviate the economic consequences caused by the bubble burst.
The PBoC also says to watch the long-term M2 growth rate. Monetary emissions are short-term and create a high base, which causes the growth rate to fluctuate.
Accordingly, monetary and credit operation showed the following characteristics: First, the overall steady moderate growth of money and credit, there are some stages of rapid growth and seasonal fluctuations. In recent years we have been insisting neutral monetary policy steady and moderate, M2 and credit growth and no major mutations, M2 growth the past five years at around 13%, with an average of 13.3% this year, M2 target is 13% so, still robust arrangements. Before and after July 2015 and the first quarter of this year, credit growth has accelerated, mainly the monetary policy appropriately consider the counter-cyclical macro-control and financial stability. A quarter, particularly in January faster growth of money and credit, the Chinese New Year holidays and disturbance characteristics have a great relationship. Monthly monetary and credit data some fluctuations are normal, observe monetary policy soundness not just look at individual months, need to see months and a year on average, the overall situation in order to determine. With the elimination of the Spring Festival and the stock market gradually stabilized, monetary and credit growth will eventually come back. From the look in recent months, there have been gradual stabilization of the monetary and credit situation, April M2 growth of 12.8%, has dropped 1.2 percentage points from January, from January to April loans added 5.16 trillion yuan, up by more than by 777.9 billion yuan, are relatively normal. It should be noted that, due to respond to stock market volatility at the time of last year to make a substantial raise M2 base, so the next few months M2 growth may also have more significant decline, of course, this is also the main base year data interference effect, does not represent the real growth rate, with the gradual disappearance of the base effect, M2 growth will return to normal. Second, interest rates low for the financing costs decreased significantly. In April 2016, inter-bank borrowing and bond repurchase weighted average interest rate were 2.11%, down 1.38 percentage points from the end of 2014. In March 2016, non-financial companies and other sector loans weighted average interest rate was 5.30 percent, down 1.47 percentage points from the end of 2014.
Here's rolling 3-month M2, showing it is consistently inconsistent.

Chinese Factory Bets on Trump

Reuters: Manufacturing the Masks
Sales of the two expected presidential candidates are at about half a million each but the factory management believes Trump will eventually run out the winner.

"Even though the sales are more or less the same, I think in 2016 this mask will completely sell out," said factory manager Jacky Chen, indicating a Trump mask.

The firm was already beginning to stockpile the de facto Republican candidate's mask, he said.

More on Helan County Housing Excess

Ningxia Housing Inventory Woes
Today, there is 6.7 million square meters of inventory for 240,000 residents (28 square meters per resident). Prices are down 25% over the past three years and some existing homes are selling for less than 2000 yuan per square meter. There are "zero down payment" and even "zero rent" homes because there are so many empty properties.

Real estate was the source of the economy's prosperity:
More than 50 real estate companies came to Helan County, the new annual construction area for five consecutive years over 1.5 million square meters, Helan County now can be said is a very modern new city. Hot property market has attracted Shaanxi, Gansu, Inner Mongolia, home buyers, a time migrants in Helan County, more than half of the purchase.

"Bursting with popularity, every time I come back by train from his home, sitting in the car full of Helan County to work, business people. Here they have the confidence to feel just what a can make money." Helan County real estate sales in the nine years of Shanxi room Huafeng said. Although the first and second industry is not developed, but the real estate industry to Helan County brought considerable revenue to make Helan County, among the "Top 100 Western counties."
iFeng: 西部县城曝楼市隐患:人口24万小县库存670万平

Hebei Orders Steel Production Cuts, Mills Under 24 Hr Surveillance

Xinhua News Agency, Shijiazhuang, May 26 (Reporter Wang Min) - 26 meeting Hebei coal to steel production campaign of mobilization, the provincial government and relevant city departments, enterprises signed letters of responsibility, set a military order, this year's 17.26 million tons refining Yajian iron and steel production capacity of 14.22 million tons.
The government is serious this time because according to the article, a mill in Handan is under 24 hr surveillance to be sure it does not restart a shuttered blast furnace:
Currently, equipment with 1.18 million tons production capacity have been sealed for storage in Handan, under 24-hour strict supervision, resolutely put an end to the resurgence of production.
CSJ: 河北立下军令状:今年压减1726万吨炼铁、1422万吨炼钢产能

How to Exorcise a Ghost City

Ordos local government moved into its ghost city office space in the Kang Bashi district years ago, and with some schools in the area, some parents have bought homes and stabilized the home prices in parts of the city, but it's otherwise still very empty.
Despite the development of construction projects too hot, popularity did not keep up. From the entrance to the city hall Wulanmulun river artificial lake area, in this distribution of five squares, the central axis of the two parks, few people go through.

In order to boost popularity here, the local government to spare no effort. As early as 2003, the Ordos city government decided to move to the construction had not yet started Kang Bashi. After the 2006 municipal government officially moved, municipal authorities, the hospital gradually settled. By the end of 2015, Ordos City, the Third People's Congress twenty-third session, agreed to set up Kang Bashi district.

Affiliated with Beijing Normal University, the school settled, the city moved to a secondary school, a collection of 20 schools became Ordos Kang Bashi Education Center, which effectively attracts not let children lose at the starting line of the parents. Wu Qian (a pseudonym) daughter in a small city located Kangbashi school second grade, in order to allow the children to school, she bought a nearby school district room, open every day will have its own car more than 30 km road to the old city to work. Ranked among the best in Inner Mongolia Erdos City also led to a real estate market around the school, the school across the district has kept more than 8000 yuan per square meter prices.

For some older residents can Dongsheng is their habitual residence. Power Supply Bureau Yang retired workers living in their home located in Kang Bashi's daughter, he must return trip a week old home is located in the old city. Shen Xu also found that , the sales office where their every weekend becomes desolate, because people are back to the Old City.
iFeng: 探访中国最大鬼城:市政府迁入仍空空荡荡

Forbes: China's Largest Ghost City Is Now Almost Completely Full - But There's A Twist
What makes Ordos Kangbashi even more mysterious than being a completely new city built out in the middle of the desert is the fact that the place is yet to be recognized as an administrative entity in its own right. Although this new city currently has a vibrant downtown area full of shops and restaurants, along with a population approaching 100,000 people, in the view of Beijing it doesn’t exist. However, Kangbashi’s administration is attempting to change this by petitioning the capital for county-level city status, which, when granted, will formally put the place on the map.

The interesting thing is that Kangbashi’s application for official recognition conspicuously leaves out the area to the south of the Wulanmulun River. This, perhaps not coincidentally, happens to be where the majority of its empty housing is located. Essentially, by snipping off this area from Kangbashi proper, the place suddenly becomes almost completely inhabited, having just four or five under-occupied housing complexes. So much for that ghost city critique.

...But this may mean that those of us in media need to update our narrative: Kangbashi is no longer the ghost city, Yijinhuoluo is.

On the Road to Freegold: Rogoff Tells EM CBs To Buy

Kenneth Rogoff: Emerging economies should buy gold
No, I am just proposing that emerging markets shift a significant share of the trillions of dollars in foreign-currency reserves that they now hold (China alone has official reserves of $3.3 trillion) into gold. Even shifting, say, up to 10% of their reserves into gold would not bring them anywhere near the many rich countries that hold 60-70% of their (admittedly smaller) official reserves in gold.

...Emerging markets hold reserves because they do not have the luxury of being able to inflate their way out of a financial crunch or a government debt crisis. Simply put, they live in a world where a large fraction of international debt – and an even larger share of global trade – is still denominated in hard currency. So they hold reserves of such currencies as a backstop against fiscal and financial catastrophe. Yes, in principle, it would be a much better world if emerging markets could somehow pool their resources, perhaps through an International Monetary Fund facility; but the trust required to make such an arrangement work simply is not yet there.
The problem with EM central banks taking the lead is that the gold price is pro-cyclical. EMs accumulate USD as it falls in value and gold prices rise. They would be swapping a depreciating asset for an appreciating one, and then be holding a depreciating asset when the crisis hit. USD is the better asset for counter-cyclical protection because USD rises during a crisis and if debt is denominated in dollars, you need dollars to repay it.
Gold, despite being in nearly fixed supply, does not have this problem, because there is no limit on its price. Moreover, there is a case to be made that gold is an extremely low-risk asset with average real returns comparable to very short-term debt. And, because gold is a highly liquid asset – a key criterion for a reserve asset – central banks can afford to look past its short-term volatility to longer-run average returns.
Gold can be remonitized as follows: it is made the premier reserve asset, and all central banks are allowed to devalue against gold. Then the central bankers can have their permanent inflation. Instead of USD falling during the booms and soaring in the recession, all currencies would fall versus gold. It would be an orderly decline during the boom, and then a rapid decline during the devaluations after the build up of bad debts. Investors would sell gold during the booms for more rapidly appreciating assets, then buy gold during the busts.

Since gold isn't a medium of exchange or a currency, there will be no gold debts. Gold will serve only as a store of value, the ultimate cash asset. Central banks will monetize it and give it a consistent positive return because they will never stop devaluing against it.

Countries will still run into trouble because they will borrow more than they can repay. There will still be financial market crises, but countries would have a superior asset.

Of course, if countries decide to hold more gold as a reserve asset, the price will rise several times over.

Market Has Yet to Fully Price a July Rate Hike

With full knowledge that the above chart is an accurate description of Fed policy making, the Fed has also painted itself into a data driven corner.

On Tuesday of this week, we learned new homes sales spiked above 600,000 in April. New-home sales exploded in April: What it means for buyers, sellers

Today, it was reported pending home sales jumped too. Pending home sales up 5.1 pct, highest level in a decade

The Atlanta Fed's GDP Now model raised its Q2 GDP growth estimate to 2.9 percent. It is a volatile figure, but the estimate has been mainly moving higher, up from 1.7 percent a few weeks ago.

The Fed has only hiked one time when the futures were below 70 percent odds, back in 1994: The great bond massacre (Fortune, 1994)

June odds are at 30 percent today. July odds are at 57 percent.

Assuming the housing data isn't an anomaly, economic data stays on the current trajectory and markets don't tumble, the Fed is going to be penned in by its "data drive" rhetoric. The markets, based on those futures odds, are still not fully pricing in a rate hike.

Retail Investors Take Cue From TV Show

Remember that Chinese retail investors dominate the market.

SCMP: Why even a TV serial can cause a stock rally in China, and what it means for global investors
Life imitated art in Shanghai when prime-time drama Ode to Joy caused frenzied investors to drive up the shares of Guizhou Redstar Developing, a producer of inorganic chemicals. The serial, based on the story of five young office workers’ lives in Shanghai, became the talk of the town as it addressed thorny social issues. But stock punters read deeper into the storyline, taking their cue from an attempt by one of the protagonist’s employers to acquire a firm bearing the name of Redstar.

Shares of Guizhou Redstar surged to the 10 per cent daily upper limit on three consecutive trading days – Friday to Tuesday – closing at 12.33 yuan (HK$14.63). Trade in the chemical company has been suspended since Wednesday.

...The TV drama sparked speculation that Dalian Wanda, China’s largest commercial property developer, had targeted Redstar for a backdoor listing on the A-share market.

“Investors just don’t care whether the talks of such mergers are true,” said Ivan Li, a trade dealer at Everbright Securities. “They just see it as an opportunity to chase a rally, Redstar in this case.”
A-share mispricings galore.

Sign of the Bear in Low Volume, Delistings

Bull markets peak with a frenzy, and while a bear market will see peak volume days amid a crash, they end with a disinterested public and companies delisting.

SCMP: Hard landing: China brokerages look to cut bonuses, staff as markets snooze
Bye-bye fat red envelops. China’s securities brokerage companies are bracing for their very own hard landing as turnover on the stock markets plumbs depths not seen in more than one a half years.
“We now have a headcount freeze. The headquarters are cutting down on expenses, including overseas trips, to control costs. Things are becoming tight and there is no sign of any recovery,” said a senior executive at a China-based brokerage who did not want to be identified.
Many brokerages are delaying bonuses, which would run to several times the monthly pay in the go-go years.
SCMP: Peak Sport latest to consider leaving Hong Kong stock exchange amid low trading volumes
“The trading volume of Hong Kong stocks has been very low in the past month,” said Wong Chi-man, head of research at China Galaxy International Securities. “Many mid- and small-cap stocks only have some hundreds of thousands transactions a day. For them, Hong Kong has already lost its function as a financing platform.”

Peak’s price to earnings ratio (P/E) was only nine times before it announced the buyout plan.

That compares with an average 37 times for firms trading on the Shenzhen Stock Exchange, which is dominated by small- and medium-sized companies.

There are a rising number of companies feeling dissatisfied with their Hong Kong shares’ weak trade.

Billionaire Wang Jianlin is preparing to take his Hong Kong-listed Dalian Wanda Commercial Properties private as he believes it has been undervalued on the city’s market.

Brazil’s Vale S.A., the world’s biggest iron ore producer, is another company leaving Hong Kong. On Wednesday it said the Hong Kong stock exchange had approved the withdrawal of its HDRs (Hong Kong depositary receipts) after they had been listed for five years.

Commercial Banks Call Loans Ahead of Strategic Defaults and Restructurings

Caixin: Commercial Debt Dodgers Pressure China's Banks
Bankers nationwide are rushing to call loans issued to state-owned and private companies to avoid a rising tide of debt dodging that's not only legal but often supported by the government.

Some companies in the past year have frustrated creditors by declaring bankruptcy, while companies in the steel manufacturing and coal mining industries have used asset restructuring projects to avoid debt obligations.

"Many companies are using bankruptcy and asset restructuring as measures to skip out on bank loan repayments," said a source at a bank who asked not to be named.
The credit guarantee also pops up:
Privately owned companies are also riding the tide of debt dodging. In eastern Zhejiang Province, a hotbed for private entrepreneurship, state media last October reported that more than 700 companies had found ways to avoid repaying 11 billion yuan worth of debt.

Some companies dug out of a hole through legal loopholes or through "mutual guarantee" arrangements widely used for loan backing in Zhejiang.
When all else fails, there's jail:
A Jiangsu bank executive said some strained borrowers have gone so far as to turn themselves into police and confess to crimes such as loan application fraud, thus risking a possible prison term but forcing termination of all loans and loan guarantees, leaving banks holding the bag.

China Currency Control Effects: Less RMB

Or less trade?

Fast FT: Renminbi’s share of Swift payments dips in April
The Chinese currency’s use in international transactions via Swift’s global bank payment messaging network dipped to 1.82 per cent, down 0.06 percentage points from the previous month and down from 2.45 per cent at the start of the year.

The lower share of global payments is a setback for efforts to internationalise the renminbi, which appear to have taken a back seat to preventing greater capital outflows that could push the currency’s value below Beijing’s comfort zone.

Chinese Real Estate Has Entered the Greater Fool Stage

China's real estate market has entered the greater fool stage, be on alert for sudden drop says the headline.

Centaline is out with a new report showing what has been a hot topic of late, the appearance of "land kings" (winning bidders who pay the highest price on record for a city):
Centaline Property May 25 released the latest report, as of May 23, Chinese saw a total of 152 land kings, but only 95 last year. Of the 152 kings, of the top 50, second-tier cities become the absolute main force, accounting for 72%, in Nanjing alone 13 appeared, but only 14 in first-tier cities.
Nanjing prices are said to have "no rational explanation."
On the other hand, May 9 at the People's Daily published an authoritative article also revealed a high level view of real estate issues, pointing out that the overheated real estate to be alert to the lessons. But the reality is that in May the major second-tier cities frequent the king, prices are way high, while related regulatory policies are late yet.
Local governments are making hay while the Sun shines and hoping to see a bit of economic development:
E-House Real Estate Research Institute researcher Xie Jinlong pointed out that, according to the study report, the entire real estate tax accounted for more than 50% local tax, which is a big cake for local governments is difficult to give up. Not to mention the economic downward pressure, solid industry development downturn and stimulate the economy in several elements, can force the point is not much, even by the local real estate industry welcome.
Hot money is fueling the rise as deposits in local banks soar:
Liu Xiaobo pointed out that at the end of 2015, Nanjing finance this balance of deposits, namely the total amount of funds ranked No. 9, but now it may have leapt to fifth or sixth. This means that housing prices in the first quarter frenzy, a huge influx of hot money, like 2015 in Shenzhen, a steady flow into Nanjing.

According to official data, Nanjing Bureau of Nanjing in February of financial institutions and foreign currency deposits amounted to 2.908258 trillion yuan, an increase of 23.1%.

By 2016 only Nanjing Bureau of Statistics data released in February, with February data for comparison, the city in February of financial institutions and foreign currency deposits amounted to 1.176396 trillion yuan, an increase of 18%; Xiamen balance reached 907.605 billion yuan, an increase of 20%.

The first-tier cities, Shenzhen, Shanghai, Beijing February the total amount of funds were up 18.2%, 15.2%, 7.7%. Liu Xiaobo analysts said the rush of hot money come and go, when they gathered in a city, the city's housing prices there have soared.
If restrictions arrive, the final phase will be to clean out the second-tier:
For the above, Qi Junjie said that the property market has entered a significant greater fool phase, completely play capital. "If the second-tier cities to follow the first-tier cities restriction, that hot money will bypass, go to undeveloped second-tier cities, then to second-tier peripheral cites."
Slowing money supply, slowing sales and finally a real estate tax will end this party:
Liu Xiaobo believes that the authorities in the May 9 statement, to return to the house residence features add leverage to the inventory practices to be negative, while broad money M2 growth from a recent peak of 14% down to 12.8%, the central bank new loans and social financing growth both dropped significantly, monetary policy in the "step on the brake the car ."

He judge, on the whole Chinese real estate bull market this round of policy basically come to an end, despite the hot urban housing prices are still rising, but it will not last long, one to two quarters after the whole market will cool down again, and the next round of restriction the policy came back in a hot second-tier cities.

Qi Junjie also believe that cities will face no market price case, because there is no real estate holding costs, the price will not easily fall, but the market volume will gradually cooling trend.

In addition, he believes that the real estate tax to be implemented once launched, will become the last straw the breaks the camel's back.

"No matter how willing the government is trying to control it, investment will have a corresponding fluctuation cycle, like the stock market, often abruptly ending in a burst of applause."

iFeng: 中国房地产已进入博傻阶段 警惕大热后突然下跌


Ready For a Flood Of Chinese Diesel and Gasoline

Reuters: From hinterland to wonderland: China's 'teapot' refinery boomtowns
The teapots, who previously refined mostly low-margin fuel oil and whatever excess crude they might be able to pick up from the big state-owned players, have seen their profits soar.

The rise of the teapots, now able to refine imported crude in much greater quantities into high-value products such as gasoline, is reshaping the local economy in dilapidated rural parts of eastern Shandong province, where most are located.

At Boxing, a new Volkswagen dealership and freshly painted condos line a four-lane highway leading to the Chambroad refinery, where smoke-stacks rise above swathes of farmland.

Refinery workers in their 20s have driven up vehicle sales and home prices in this rural town of around 10,000 people.

"We are aiming to sell 400 cars this year, doubling last year's sales," a manager at the Volkswagen dealership said. He declined to give his name due to company policy.

"Young people from the refinery have a lot of savings but nowhere to spend. They bought cars so they can commute between their work place and the nearest city."
China is awash in crude oil at the moment, and soon it will be awash in refined products......

Wu Jinglian: Break the National Syndicate

Wu Jinglian has penned an article calling for reform to break the party's control of major corporations. I assume an English translation will be out, below is a bit of it Google translated:
I have said, reform is to break Lenin's "State Syndicate", in fact, the so-called "National Syndicate" The problem is not a problem of state-owned enterprises, but institutional issues.

Our system is the Leninist-Stalinist regime. Lenin called it the "National Syndicate", reformist economists in Eastern Europe with a more modern statement, called "party-state big companies."

China is now the development of Lenin in 1921, said special state capitalism. It features: on the one hand there is a market, on the other hand, countries in possession of all of the "commanding heights", "commanding heights" in Chinese translation is called the "lifeblood" of the things we want to change.

After several rounds of reform, to the last century, we announced the establishment of a socialist market economy. But this system actually has a very heavy legacy of the old system, especially in the beginning of this century, reform in many areas there is retrogression, such as "country back", so China is a semi-market economy countries, which should continue to develop, that is, crony capitalism.

Now there are two issues is not open around: First, the old growth model is not open around. Requires the transformation of economic growth mode has been fifteen or twenty years, the problem intensified.

From the shallow side, that is causing a shortage of resources and environmental damage; a deeper level, the resulting income workers to improve slowly. By Daihatsu money to support growth, resulting in a housing estate bubble formation.

Inflationary pressures are continuing to rise, we are soon to monetary aggregates of GDP 200 per cent, while the country more than 100 percent of the world are very small.

Second, after the authorities intervene in the economic sphere, rot b intensified, now deep bone marrow.

These two problems are not resolved, the Chinese economy is a big problem that may occur, Chinese society is also very big problem may occur. Therefore, the most recent year, more and more people believe that China is destined to happen without reform a big problem.

Social conflicts has reached a critical point, you must restart the reform.

I think the reform consensus has been formed, it is what I call consensus: social conflicts has reached a critical point, you must restart the reform. Some of my past statements online against people than in favor of people, 90% of people in favor of this, this is what I say consensus.
iFeng: 吴敬琏:改革要打破党国大公司