SCMP: Hongkongers’ sense of Chinese national pride and opinion on Beijing policy at an all time low, survey finds
Only 31 per cent of Hongkongers feel proud to be Chinese nationals, a 7 percentage point drop from last year, and a record low since the survey was first carried out in 1997, the year when the former British colony returned to Chinese rule.

The number of people who are not proud of their Chinese identity, meanwhile, jumped significantly from 56 per cent to 65 per cent.

In-depth analysis found that the younger generation tended to have less pride in being Chinese citizens.
It is a global trend towards identity and community.

PBoC Confirms Yuan Will Devalue to At Least 6.8 This Year

Xinhua: China won't devaluate yuan, long-term fall unlikely: PBOC
China has no intention of devaluating the yuan to gain an advantage in global trade and there is no basis for long-term depreciation, the central bank said Thursday.

..."The reports misled expectations and disrupted the market, encouraging speculative selling. We strongly condemn the behavior, which is irresponsible and against professional ethics," the PBOC said.

CREIS: New Home Prices Rise 1.3 pc in June

Prices rise 1.32 percent nationally, 1.52 percent in the 10 largest cities. While that makes for a nice gain, it is also the slowest in four months: new home prices increased 1.70 percent nationally in May, 1.45 percent in April and 1.90 percent in March.

The top 10 price increases were mostly in second-tier cities or those near first-tier cities. Nanjing led with a 3.82 percent increase in new home prices. Behind it was Xiamen, up 3.79 percent. Also in the top ten: Jiaxing, Wenzhou, Langfang, Foshan, Wuhan, Hefei, Kunshan and Lanzhou.
CREIS 100 City Survey 2016年6月百城价格指数
Google Translated: June 2016 100 City Index

More Rumors of Buying Restrictions in Beijing

iFeng: 北京商住限购风声再起 一年社保或是最终版
the last two days some developers received information from Beijing government, commercial housing restriction policy final version coming soon: Requires buyers must pay social security Beijing for one year, and own no home.

This is not the first time rumors spread. Earlier, June 6, due to the illegal access both commercial and residential projects and public water, public electricity hype, Mentougou Construction Committee will temporarily stop the network to sign commercial housing, ready for commercial housing area rectify this information is the media interpreted as "commercial housing restriction coming from Mentougou start."

Since then, the rumor extended to Daxing, Shunyi and other areas. June 14, an event already developed to a climax, that time, sales of many projects have told the media: "Beijing will be at 0:00 on June 15 onwards, a full cessation of commercial and residential projects in all regions of net signed." In the absence of a state government statement, is to avoid the purchase of psychology, many developers have all night to buy a house, even the sale of real estate developers will not all go to the personal name, which is also reflected in the statistics on the month.
According to an official at the meeting, the government will not announce buying restrictions on July 1 or the rest of 2016.

China SPR Near Capacity, Oil Demand Set to Drop

ZH: Oil Bulls Beware: Crude Demand Is About To Slide As China's SPR Is "Close To Capacity"
As Bloomberg says, citing a JPM report, "one of the pillars of oil’s recovery from the lowest price in 12 years may be on the verge of crumbling."

The reason: as many speculated, a big source of China's demand in the past 5 months was Beijing's decision to stockpile oil for its SPR. However, that is now over as China is likely close to filling its strategic petroleum reserves after doubling purchases for it this year as prices plunged. JPM estimates that China's SPR demand was equivalent to approximately 1mm bpd. More importantly, stopping shipments for the reserve would wipe out about 15 percent of the country’s imports, according to the bank.
At current import rates, China's SPR would be filled by September.
Based on our base case of assuming another high SPR builds through August and the following three assumptions listed below, our model suggests a 15% mom decline in China’s crude oil net imports in September, or a loss of 1.2mmbbl versus August and 0.8mmbbl less from the 12-month average. Although it’s difficult to have an accurate forecast of the specific timing of the drop, we think it’s worth noting this risk and previous accumulation looks high based on our assessment. We do not believe the 16% growth in oil imports ytd is sustainable despite a domestic oil production decline, as demand is weak (2% expansion in oil processing with gasoline an increased risk), if inventory capacity reaches the limit.
Barring some change in the Chinese or global economy, that is more supply for the market. A further drop in oil might also cause countries such as Venezuela to send more oil to China, since they'll be out of dollars.

Does 中国 Even Exist?

Interesting look at how China is viewed from the outside, and how it relates to the battle over the South China Sea.
What if it Wasn’t “One China” vs. “Two Chinas”? What If There Was “No China”?
In my opinion the CCP views NQH in the context of a trend, supported by Japanese revisionists, Western strategists, and Indian hawks to question the existence of “ 中国” and legitimize support for separatist movements (of which the "Republic of Goetsu" is probably the least of the PRC's worries).

Of course, the outsider insistence on defining “China”--in a way that would probably have Edward Said nodding his head in rueful recognition--probably colors PRC resistance to Western efforts to question and supersede its sovereignty over another non-Han holdings: the South China Sea. The claim to the SCS, in the CCP's eyes, is not much weaker--or stronger--than the PRC's claims to any of its territories. If one is repudiated, what's the case for asserting legitimate sovereignty over the rest?

It's not just an academic issue with unpleasant implications for current affairs.

Denying the legitimacy of “ 中国” is a convenient bookend to current efforts to characterize the PRC as an enemy of the liberal order i.e. a rogue state. Not only is the government a pariah, the nation it claims to govern doesn't even exist!

It looks like a way to deny PRC sovereignty over its territorial holdings, and open the door for opposition to the PRC as an illegitimate occupier on the grounds of--take your pick-- R2P (neo-liberal flavor), struggles of national determination (liberal flavor), failed commie state that needs a healthy push into its pre-dug grave (knuckledragger).

Revisionism is alive and well as the dominant Japanese political discourse, as is questioning the PRC's legitimacy as a geopolitical stratagem (remember the "struggle of the international liberal order against authoritarian revisionism", anybody?), and encouragement of separatism as a strategic lever for the PRC's many adversaries.

"One China" may not be on its deathbed, but it's not looking that great.

One China? How about "No China"?

China Set to Change Land Sale Regulations

China passed a National Land Use Plan 2006-2020 in the prior decade, with a target for land use. Now it is planning to adjust the law in the face of another real estate bubble, but perhaps only to adjust the targets upwards such that provincial and local governments don't find themselves violating the national policy targets and running out of land to sell.
2006 land targets envisaged standing next fifteen years to use, and how "science", I guess not much science. In this era of big changes, even a people may not remember in 2006 how he envisioned in 2016 life.

Not to say that those plans would be meaningless, but that in a timely manner to the cognitive errors and deviations, and then corrected in time, it is very necessary. Than hugs then set the death figures to interfere with development of the market is better. As previously artillery shelling measure will first launch bombs, according to then-site wind speed, placement into the hair out of trajectory correction, no one will believe the initial cannonball can hit.

The country's construction land adjust how much?

After the regulations, the 2006--2020 land use for construction was set at a target of 5,317,600 hectares, this has grown to 8,796,900 hectares in 2016, an increase of 65%! (10,000 ha = 100 km2)
The chart below shows land use targets in red, and the difference from the target in gold.
With this perspective, in fact, we have the opportunity to make a more detailed analysis: for example, why Hebei increase of as much as 188%? Why Gansu is negative adjustment? Why do so many less developed areas of Jiangsu and Guangdong Guangdong belong adjusted index? For example, housing prices stagnation region is not more difficult to get a new index? ......

However, current published data is the total construction land, includes both urban and rural contains both contain urbanization also contains mining, ports, roads and railway. For example, a large number of new construction land in Xinjiang, it is unlikely the local urban and rural construction of settlements, industrial facilities, and more importantly, is "New Silk Road" related to the transportation construction. Also difficult to make more in-depth interpretation.
iFeng: 最新土地规划调整解读:政策意图何在、对房价何影响

Real Estate Expected to Cool in 2H

Fast FT: Moody’s calls peak for China home sales growth
A new report from the company on Chinese real estate suggests nationwide home sales growth has peaked, predicting the rate of growth will moderate to a single-digit speed for the 12 months ending May 2017. That would be down from 32.2 per cent year-on-year for the 12 months ended May 2016 as a favourable basis for comparison drops out and stimulus measures prove less effective.

The report also forecast the recent rise in land prices would increase margin pressures and risk for mainland property developers.
More on the Moody's report from SCMP: Soaring land prices continue to shrink developers’ margins
“The unit land costs for a number of these purchases were also close to secondary market housing prices in surrounding areas, implying an increased risk of squeezed profit margins over the next two to three years if the growth in property prices falls below developers’ expectations, ” he wrote in a new research note.
Bloomberg: Sunac Suspends Land Buying in China Auctions as Prices Surge
“We’ve suspended all bidding recently and didn’t even sign up” for auctions by local governments, Sun said at a briefing in Hefei of eastern Anhui province on Tuesday. “I feel the risk is too high,” he said without giving a time frame for the suspension, according to a transcript provided by the company.
Related: Regulators to Developers: Take the High Ground, Stop Chasing Land Prices

Bloomberg: Headwinds Loom for Hong Kong Land Amid Rising Supply, Few Takers
Builders including Sun Hung Kai Properties Ltd., the city’s largest by market capitalization, Cheung Kong Property Holdings Ltd. and Henderson Land Development Co. have been absent from the list of winning bidders for the eight parcels of land tendered by the government in the first half, as average land prices fell. They’ve been reluctant to stock up as home prices have slumped and sales of existing projects have been sluggish.
SCMP: Hong Kong sticks to land sale targets, with supply for about 9,500 units on track in six-months to September

Chinese Govt Willing To Take Yuan to Red Line in 2016

Reuters: Exclusive: China to tolerate weaker yuan, wary of trade partners' reaction - sources
China's central bank is willing to let the yuan fall to 6.8 per dollar in 2016 to support the economy, which would mean the currency matching last year's record decline of 4.5 percent, policy sources said.

The yuan is already trading at its lowest level in more than five years, so the central bank will aim to ensure a gradual decline for fear of triggering capital outflows and criticism from trading partners such as the United States, said government economists and advisers involved in regular policy discussions.

Presumptive U.S. Republican Presidential nominee Donald Trump already has China in his sights, saying on Wednesday he would label China a currency manipulator if elected in November.
China missed it's chance to devalue. The world would be better off today had the yuan declined in 2008 and underpinned a stronger recovery without the need for so much debt. China should have let the yuan devalue as soon as pressure showed up in 2011. Instead, it waited until the political mood overseas had shifted. The political window for depreciation closed; now China may face political repercussions for its currency policy. It is ironic that they escaped punishment when they were running a hard peg, and may be punished for the decisions of the free market (or maybe not if you believe in karma). Either way, the cost are rising, and when USDCNY goes through 6.80, the odds of markets taking over rises substantially.

As I wrote in early 2014 in The Logic of Strategy: Yuan Devaluation and the Road to Trade War
The protectionists are ever so slowly gaining the upper hand thanks in part to negative social mood. 2008-2009 will probably mark the peak moment for Wall Street and the Treasury Department, even though there is as yet no sign of it in Washington. Changes can be seen in the form of issues such as immigration, which has turned the grassroots of the conservative movement against the Chamber of Commerce and large corporations (due to an attack initiated by the latter against the former). This has pushed the Overton window of acceptable debate among conservatives who can now take shots at big business. There is also the growing libertarian faction pulled together by Ron Paul that supports his son, Rand Paul, that consistently attacks the Federal Reserve and Wall Street. Put it together and it is not hard to envision an anti-Wall Street, pro-manufacturing political consensus emerging. This will cut across party lines, with manufacturing unions pulling in Democratic support if there are specific bills to vote on.

...With a growing economic case against free trade, a shift in social mood making anti-free trade opinion more popular, plus the loss of political support for the financial sector, free trade will become a centerpiece issue in American politics. The trigger will be one of two factors. One is economic. China's credit bubble isn't going to slowly ride off into the sunset. There will be pain, it is only a matter of where it lands. The path of least resistance is devaluation of the yuan, something I have been looking for here for several years now due to the growth in credit. A target of ¥8 to $1 is a reasonable ballpark figure, with ¥10 to 1 not unbelievable given the rise of the shadow banking sector. The actual number isn't as important as the size of the devaluation: it will likely be large and set off the anti-China arguments that have been growing in the United States. The left and right have their beef with China's economic policies and the right has provided the main rhetorical cover for business. When that goes, there will be a bipartisan push for policies that counteract China's "predatory" currency policies. A Chinese devaluation could be the trigger.

The second factor is geopolitical. Do take the time to read the lengthy review linked above, and/or watch the video. Luttwak's main point is that China cannot simultaneously build up its economy and influence at the same time it builds up its military, and not run into resistance from surrounding states. He cites the Chinese policy on the island disputes as the case in point: instead of increasing China's power in the region, it has pushed Vietnam, the Philippines, Japan and Indonesia into the arms of the United States. An anti-China coalition is building up due to each nation following the logic of China's inevitable rise in power along with the perception of an increasingly aggressive China. China has "tipped its hand" so to speak and these nations are moving preemptively. Due to the nuclear arsenal of the United States and China (to say nothing of Russia's interest in the region), there isn't going to be a major war for survival. This reduces the options for confrontation, with one of the most powerful being economic. If there is a minor military confrontation that is too large to be ignored, the most politically acceptable response will be economic.

Either the economic or the geopolitical event can happen first then, but in time, the two will be seen as inseparable. Once events move in this direction, the logic to continue down the path is compelling.
It doesn't matter who wins the presidential election. Logic and the inevitability of market forces are carrying events forward now.

Double Top or Cup in Search of Handle

6 of Top 8 Steel Provinces Increase Production in 2016

Bureau of Statistics data show that from January to May of steel production in the country over a thousand tons provinces, crude steel production in Hebei, Jiangsu, Shandong, Henan, Hubei and Anhui were 83,522,700 tons, 45,909,800 tons, 29,196,300 tons, 1218.21 tons, 12.28 million tons and 10.2367 million tons, compared with last year's average rose a certain extent.

..."Since last year, annual production capacity of nearly 100 million tons has been recovered, and most of the enterprises that shut down have resumed production."

He believes that the core is to rely on the market to regulate business losses and give no support, the enterprise will automatically cut production. "At present, the overall demand for steel has reached a saturation point. After steel production accelerated, market prices will fall. At that time, a lot of loss making business needs to be closed, especially zombie companies."
iFeng: 钢铁去产能有多难:八个产钢大省五个不降反升(名单)


Brexit Provides Cover for China?

FT: FT Confidential Research: For Li Keqiang, Brexit is both blessing and curse
FT Confidential Research previously argued that the government had to take action, but the economy’s longstanding problems continue to fester. In Zhejiang province, the traditional heart of China’s private sector economy, we found local government officials and local banks acting in collusion to forestall a brewing, province-wide debt problem.
This has been going on since at least 2014: Rumored Mass Death of Companies in Xiaoshan District of Hangzhou If Banks Collect on Debts; Government Tells Banks to Sit Tight or Leave
Earlier this month: How to Deal With Debt: Extend and Pretend

As for Brexit:
Temptation to bask in any Brexit-linked schadenfreude is tempered by the fact that prolonged uncertainty means volatile global markets and weaker global growth, and China will not be spared. The government’s newfound resolve to focus on supply-side reform and break the economy’s debt addiction will be sorely tested as the global environment is again destabilised.
Brexit is a sideshow to the global economy. Had Britain stayed, it would not have changed any targets, only perhaps the timing. The best it offers China is an excuse, to get some depreciation out of the way without taking blame for any fallout.

Chinese Investors Want Out

BLoomberg: China’s Cross-Border Investment Programs Show Funds’ Exodus
A program allowing some domestic and Hong Kong mutual funds to be sold on either side of the border has seen about 37 times more money leave China than enter so far this year. In addition, a link between the Shanghai and Hong Kong stock exchanges has to date enabled southbound outflows that are 39 percent more than the amount that’s moved north. In the first quarter, Chinese residents also poured a record HK$13.2 billion ($1.7 billion) into Hong Kong’s insurance products, a popular way to move funds offshore.

The Nationalization of the Yuan

The China Post: Yuan deposits fall for 4th consecutive month
Chinese yuan-denominated deposits held by Taiwan-based banks were down for the fourth consecutive month in May after banks cut their time deposit rates on the Chinese currency, according to the central bank.
Caution over the yuan's future direction also prompted investors to move their funds out of the yuan at a time when economic growth in China, the second largest economy in the world, has showed signs of moderating, the central bank said.

Yuan deposits, including negotiable certificates of deposit (NCDs), held by banks in Taiwan as of the end of May totaled 308.34 billion yuan (US$46.72 billion), down 2.483 billion yuan, or 0.8 percent, from a month earlier, according to central bank figures.

The end-of-May figure was the lowest since December 2014, when Taiwanese banks had yuan deposits of 302.27 billion yuan, the figures showed.
The trend is the same in Hong Kong, where time deposits are falling.

953 Companies Join New Third Board

EO: 953家企业入选创新层 新三板价值重塑开始

There are 7700 companies total on the Third Board, and 953 have been added to the new "Innovation" segment of the market, qualifying for more favorable regulatory treatment.

Herbal Tea Battle Continues

FINTS: China’s two herbal tea giants again in intellectual property proceedings
Ironically however, Jiaduobao’s herbal teas (continued to be packaged in red cans) has continued to be much more popular than Guangzhou Pharmaceutical Holdings’s Wanglaoji (packaged in green paper boxes). The former now accounts for 70.8% of China’s herbal tea industry and takes in a gross revenue of 22 billion yuan in 2015, almost three times that of the latter.

The Failed EU Project

The EU cannot punish the United Kingdom for its Brexit vote.

ZH: Scandal Erupts At Euro Summit Over Scotland, While Draghi Says In "No Rush" To Ease Policy
But even more notable, and confirming just how profound the chaos in Europe is in the post-Brexit world, was the mini scandal that just erupted at the EU summit, now sans Cameron, over the fate of Scotland. Here, in an attempt to anger the UK some more, EU commission president Jean-Claude Juncker, in comments to reporters, said that “Scotland won the right to be heard in Brussels." This takes place just hours before Scottish First Minister Nicola Sturgeon is due to meet with Juncker later Wednesday

But while Juncker's statement was meant to merely infuriate the UK even more, what he did instead is open a new Pandora's box, one which invites all secessionist movements in Europe to demand a comparable treatment.

And, sure enough, just moments later, Spain's PM Rajoy immediately said that he opposes any negotiation by Scotland with the EU adding that "If the UK leaves, Scotland leaves."

Why the abrupt response? Because Rajoy knows that is Scotland will be heard - and allowed to become independent - then Catalonia and the Basque Country are next.
The total breakup of the EU is coming, the euro will be a defunct currency. It was inevitable, all Britain did was give us a clear signal that the beginning has ended.

Beijing Existing Home Sales Halve in June

Beijing realtors say sales are off by 40 to 50 percent within the Third Ring, and worse beyond. Centaline reports sales of about 9500 homes through June 26, down more than 50 percent from this time in May, when more than 20,000 homes had been sold. The oft quoted Zhang Dawei of Centaline said although Beijing did not directly implement buying restrictions, the other cities such as Shenzhen did, and the sentiment shift spread to Beijing. As a result of slowing sales, home price increases are also slowing.

iFeng: 北京二手房成交量下跌 市场开始全面豪宅化

Pricing in President Trump

Bloomberg: China Is a Growing Threat to Global Competitors, Kroeber Says
Question: Is China becoming more mercantilist?

Answer: It’s fair to say that. And you can make this on objective grounds. If you just look at the size of the merchandise trade surplus and balance of payments, this has almost doubled from under 3 percent of GDP four to five years ago and it’s now back up to almost 6 percent of GDP. There’s no strong policy emphasis on managing down the trade surplus.
Then you look at the specifics of ‘Made in China 2025.’ It’s a whole set of numeric targets and, if you add them up, it’s very clear that the aggregate impact of that would be to increase China’s trade surplus. You have embedded in the policy directionality something that is a targeting of essentially an increase in the trade surplus.

Question: So is Donald Trump right about China?

Answer: You could say he’s right in a narrow sense, but OK, what do you do with that? China is clearly moving in a more mercantilist direction, but in a broader sense of how you deal with this I think his recipe is ludicrous and unrealistic. You have to recognize that pretty much every country as it develops spends a lot of time taking a mercantilist view of the world, with no exceptions. The United States was a prime offender for about 120 years up until after World War II. This is what most countries do. It’s also the case that if you compare China to most other emerging markets, India, Brazil, and many non-emerging markets such as Japan, they’re much more open to a larger array of foreign investments and activity than those other countries. By far.

Question: Are trade wars coming?

Answer: In the U.S. you have Donald Trump for example who in the Republican primaries was able to get a lot of support for ideas like a 45 percent across-the-board tariff on Chinese goods, which I don’t think is going to happen even if he gets elected. But what the success of the Trump and the Bernie Sanders campaigns have done is move the whole discussion in the U.S. much farther away from the question of how do we make trade and investment more open to how do we set up more protectionism.
What's the alternative to Trump or Sanders? There is none. Just as there was no opposition to immigration, which now has a string of shock victories.

Socionomics Alert: Shock Brexit Poll, UKIP Playbook Stolen
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.

2015: Immigration: The Key Political Issue
2014: UKIP Scores Big Win in Local Elections; Shockwaves Will Hit Europe and the U.S.

A low probability event, but one that would signal a watershed election is underway, would be a loss by Paul Ryan in the primary. Eric Cantor, the highest ranking sitting Congressmen ever to lose a primary, at the time GOP majority leader, was knocked out two years ago: The U.S. Swings Right: House Majority Leader Defeated in GOP Primary. At the time I wrote:
Cantor was very heavily funded by corporate interests. He was an otherwise very conservative candidate in a conservative district in Virginia, but voters rejected him due to his position on immigration, specifically amnesty.

This issue in the U.S. is almost exactly like the situation in the U.K. There is no major political party and no major politician discussing this issue. If any presidential candidate takes up immigration restriction as an issue, they will meet the same vitriolic resistance that faced UKIP, but the results at the ballot box will be the same.
Turning to Ryan: As Paul Nehlen Gains Traction, Globalist Paul Ryan Does Local Interviews
Ryan is being challenged by Wisconsin businessman Paul Nehlen, whose campaign centers upon the idea that Ryan “betrayed” Wisconsin voters by pushing open borders immigration policies and the fast tracking of President Obama’s Trans-Pacific Partnership (TPP) agreement.

In a Saturday media alert, Ryan’s office announced that “House Speaker Paul Ryan (R-WI) will appear on two Wisconsin radio stations in the coming days—WBEL’s The Daly Show on Sunday, June 26 at 9:00 a.m. ET/8:00 a.m. CT and WGTD’s The Morning Show with Greg Berg on Monday, June 27 at 9:10 a.m. ET/8:10 a.m. CT.”

The announcement and the interviews follow Nehlen’s launch of a new billboard campaign that takes aim at Ryan’s two-decade long history of pushing for open borders immigration policies.
There's little polling data so it is impossible to make predictions, but undoubtedly if there was a market, it would be mispricing the odds of a Ryan defeat.


Tilting at Windmills in China

Earlier: More Zombies: China Littered With Idle Wind Power

Bloomberg: Trouble in Renewable Energy Spotted in China’s Idled Wind Farms
The nation’s clean-energy investment binge has made it the world leader in wind, accounting for about one in every three turbines currently installed, according to the Global Wind Energy Council. In turn, Xinjiang Goldwind Science & Technology Co., which makes the machines, has pushed past its western rivals such as Vestas Wind Systems A/S and General Electric Co.

Yet even with double the wind capacity, China still produces less electricity from turbines when compared with the U.S. That’s because it’s installing lower-quality machines using less reliable breezes and doing so more quickly than the distribution grid can take in the flows.
Lots of reasons for why wind power isn't doing as well in China, despite the large installed base, but not the most obvious: the failure of central planning.

China Shopping Mall Flooded

H/T: Mingtiandi.

Summer Reading Recommendation

"The book Douglas Adams would have written if he had been a Peace Corps volunteer."
The Missionaries
The Missionaries is a story of the collision of three cultures. A brilliant tale of ineptitude, self-righteousness, and human folly, it combines the mordant wit of W. Somerset Maugham with a sense of humor reminiscent of P.G. Wodehouse.

When Dr. Sydney Prout is named the head of the United Nations mission to Elephant Island, he believes he is more than ready to meet the challenge of guiding its primitive inhabitants into the post-Colonial era, and eventually, full independence. But neither his many academic credentials nor the Journal of Race Relations have prepared Dr. Prout to reckon with the unrepentant bloody-mindedness of the natives, or anticipate the inventive ways their tribal philosophers will incorporate the most unlikely aspects of modern civilization into their religious lore and traditional way of life.

Author Owen Stanley is an Australian explorer, a philosopher, and a poet who speaks seven languages. He is at much at home in the remote jungles of the South Pacific as flying his Staudacher aerobatic plane, deep-sea diving, or translating the complete works of Charles Darwin into Tok Pisin.

Jia Kang: First Tier Home Prices Have Yet to Peak

iFeng: 贾康:一线城市房价还未到顶 只是涨势有所收敛
"Can not say that prices have peaked in the first-tier cities, but the rapid rise has lessened." He was very strict interpretation of the reporters, and said to analyze specific issues.

4 Land Mines for Housing Market in 2H

Zhang Hongwei of Tongce Consulting Research Center give 4 possible problems for housing in the second half of 2016.

1. Federal Reserve increases interest rates
2. After the "authoritative person" article, monetary policy has cooled
3. Banking system risk as restrictions launch in first- and second-tier cities
4. Most first- and second-tier cities will announce restrictions in Q3

Sina: 下半年楼市四大“黑天鹅”

When The Bailout Fails

Bloomberg: West China Cement Plunges by Record as $363 Million Wiped Out
West China Cement Ltd. tumbled by a record in Hong Kong in late trading amid speculation a planned acquisition by Anhui Conch Cement Ltd. will run into difficulty.

West China Cement dropped as much as 46 percent before paring its decline to 33 percent at the close, the most since the shares first traded in August 2010 and wiping out HK$2.8 billion ($363 million) of value. Volume was more than 11 times higher than average. The stock was little changed for most of the day before it start to tumble after 3:10 p.m.

Sentiment Change Favors Accelerated Outflows

The most important news item of the day.

China regulator denies reports of new FX purchase restrictions
The Shanghai branch of China's foreign exchange regulator on Tuesday said there have been no changes to rules on individuals purchasing foreign exchange in the city.

The comment was in response to unspecified reports of new foreign exchange purchase restrictions in Shanghai.
PBoC: 外汇局上海市分局:个人购汇政策没有任何变化

Wallst.cn: 外管局澄清:“叫停个人投资购汇”相关报道不实

If a rumor about a ban on FX trading is spreading, it means many Chinese are thinking of getting money out and worried about the door closing.

Sentiment has changed.

Bloomberg: Yuan Pressures Intensify as Brexit Deals Blow to PBOC Policy

Shenzhen and Hong Kong Test Link Up

FINTS: Shenzhen – Hong Kong Stock Connect testing settlement interface systems
The Shenzhen and Hong Kong stock link, Shenzhen – Hong Kong Stock Connect (SZHKC), started “end-to-end” tests of its settlement interface system on Monday.

Sources said that the SZHKC would have higher quotas than the current Shanghai – Hong Kong Stock Connect (SHHKC). According to another source, SHHKC’s quota is expected to be raised as the opening of SZHKC is formally announced.

For now, SHHKC’s northbound aggregate and daily quotas are respectively 300 billion yuan (166.1-billion-yuan left as of the pressing time) and 13 billion yuan, while those for southbound are 250 billion yuan (64-billion-yuan left as of the pressing time) and 10.5 billion yuan.

The market widely expects that the start of the SZHKC would be announced on July 1.

Guangdong Saves Real Estate Investment In May

Real estate investment increased 6.6 percent yoy in May, a slowdown from the earlier pace in 2016.

First the national growth chart again:

Now here's Guangzhou, which accounted for 9.7 percent of total investment in May. Guangdong saw real estate investment increase more than 40 percent in May. If that is cut in half, down to the rate of growth in April, national real estate investment growth in May falls to 4.7 percent.

A few of the provinces responsible for the drop in real estate investment after after the jump; mainly northeast provinces.

May Industrial Production in the Rust Belt


Homeschool or Die: Toxic Chinese Schools

Baiyun Elementary school in Beijing has a toxic track.

Caixin: Toxin Fears Trigger School Running Track Furor
ublic outrage over schools that expose children to hazardous chemicals is flaring again after playground running tracks were blamed for nose bleeds and rashes among primary school students in Beijing.

Parental protests outside a primary school in Beijing's Xicheng District in late May and a subsequent state television investigation focused national attention on the rubber-like outdoor tracks across the country.

Concerns on potentially toxic running tracks first surfaced after dozens of students at the Yuanhe Primary School in Suzhou of eastern Jiangsu Province came down with symptoms such as nose bleeds, dizziness and skin rashes three days into their new semester last September. Their parents blamed "the toxic running track" built in the school a month earlier.

Similar incidents were reported in at least 15 cities and provinces as of May, including Beijing, Jiangsu and Zhejiang, according to Xinhua News Agency.

Caixin: 【封面报道】“毒跑道”恐慌

June 22, 2016, a final inspection report to the Beijing Second Experimental Primary Baiyun Branch (hereinafter referred to Baiyun Road Elementary School) many anxious parents a definitive answer. More than a month, Baiyun primary school plastic track whether "toxic", the school became the parents of heart disease. Under questioning, the efforts of parents, eventually, under the more stringent than the national standard of "Shenzhen standard" to detect a done decision overturned a "qualified" conclusion, the test results show that the school playground indeed several pollutants exceeded. In addition to the plastic track final number of detected hazardous substances are not included in the national standard, air sampling Baiyun Elementary dozen classrooms also measured levels of formaldehyde, although the concentration will not cause acute poisoning, but the long-term effects can not be ignored.

"Poison Track" event occurred in China in recent years and more. In many cases, eager son some parents of children who show symptoms, and unexplained odor linked to the track. They are almost convinced that the child's nosebleeds, vomiting, rashes or other symptoms associated with the newly built plastic tracks. From Jiangsu, Guangdong, Zhejiang to Beijing, one similar case of intense urges parents gradually let the odor problems plastic track to get public attention

There is an info graphic at Caixin as well, some snips of it below.

Beijing Land Sales at Record Low

Although prices are high due to low supply, there were only seven residential land sales in Beijing in the first half of 2016. The implied housing supply of those land sales is about 3,000 homes, versus sales of 23,000 homes in the first half. All the land sales were outside of the 5th Ring. Most land sales also exceeded home prices, which will force developers to build high-end apartments if they want to earn a profit.

From the land transaction history, the first half of 2016, Beijing land market has created a number of historic lows, the number of transactions of land, an area are historically low, but the premium rate, the floor price set a record. The average floor price reached 16,435 yuan / square meter, an increase of 32.7%.

Centaline Dawei, chief analyst said the tight supply of residential land is only 7, but the actual last traded residential real estate land, housing residential area of ​​only 387,000 square meters, which means that part of the land to achieve future supply of residential real estate in general supply of about 3,000 units. If the reference to Beijing 2016 first six months of commercial housing turnover of about 23 000 units, which means Beijing land supply and demand ratio of about 1: 7.
iFeng: 京土地上半年成交量创历史最低 五环外成主流

Yuan and S&P 500 Divergence Closing

I posted this on June 2: Yuan and S&P 500 Divergence

I wasn't timing that gap, but the S&P 500 Index topped four days later.

Here we are today:

A shorter-term chart:

Battle for Vanke Heats Up

Reuters: Vanke says business under pressure after Baoneng move to oust board
A plan by China Vanke's largest shareholder bloc to oust the property developer's board has led banks to reconsider how they rate the company's credit, Vanke President Yu Liang told a shareholders' meeting on Monday.

Financial conglomerate Baoneng, which built up a big stake in Vanke last year, is now seeking to oust founder and chairman, Wang Shi and the rest of the board, and has called for an extraordinary general meeting, Vanke said in a statement late on Sunday.
WSJ: Heat Rises on China Vanke
Earlier this month, Vanke said it would issue new shares in an asset-swap deal that would make subway operator Shenzhen Metro Group its largest shareholder. Shenzhen is a metropolis in southern China.

The deal, which will be dilutive, will give Shenzhen Metro a 20.65% stake of the enlarged share capital and will displace Baoneng as Vanke’s largest shareholder. In exchange for the issued shares, Vanke would get land atop metro stations.

Baoneng, according to the exchange filing, is seeking to undermine Vanke’s strategy, which is widely seen as a poison pill. Companies threatened with unwelcome takeover offers often use tactics to make themselves unattractive to bidders.

Baoneng became Vanke’s top shareholder after buying a 24.29% stake through its subsidiaries, bypassing the previous incumbent, China Resources Group. China Resources also opposes the Shenzhen Metro asset-swap deal.
FT: China Vanke boardroom feud boils over
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Both the insult and the prospect of an unprecedented battle for control over one of China’s best-known companies captivated the country’s media. Adding to the drama was Mr Wang’s reputation as one of the country’s most admired and colourful entrepreneurs.

Mr Wang, also a mountaineer and adventurer, built Vanke into a successful developer but never sought to consolidate control over the company, trusting its largest shareholders to not interfere in management.
Trading in Vanke’s Shenzhen-listed shares has been suspended since December 18 pending a restructuring. Both Vanke and Baoneng are based in Shenzhen, the special economic zone bordering Hong Kong.
Shares are still trading in Hong Kong and have formed a head-and-shoulders pattern. If it completes, the downside target is HK$9 and change, a 42 percent decline.

Li Keqiang Says Big Tax Cuts Coming

CNBC: Chinese Premier Li Keqiang tells WEF digital is key to China's industrial revolution
Addressing the World Economic Forum (WEF) in Tianjin, also known as the "Summer Davos," Li focused the bulk of his speech on promoting entrepreneurship and highlighting policies catering to the sharing economy.
"We are embracing a new round of industrial revolution," he said. "We need to implement innovation-driven development."

The measures Li touted included pushing ahead with the Internet Plus initiative, a Chinese program aimed at boosting its mobile internet, e-commerce and cloud computing sectors in the international market. China would also ensure that the Internet of Things (ioT), cloud computing and other information technologies were applied to everyday life, Li said.
Chinese media focused on his tax comments.

iFeng: 李克强2016夏季达沃斯演讲全文
At the same time, we will further advance the massive tax cuts for enterprises, promote financial reform, to support the real economy; promote the reform of state-owned enterprises to fitness and health; relax market access for private enterprises, and further development of private enterprises to eliminate all the species barrier.

RRR Cut Odds Soar After Brexit and Expected Global CB Intervention

Netease: 对冲人民币贬值压力?央行降准概率陡增!
Hai Tong Securities macroeconomic analyst Jiang Chaodeng people believe that the RMB exchange rate short-term pressure, but the United States expected to raise interest rates in the second half have collapsed, the second half may improve the RMB exchange rate environment. In the large capital outflows, the economy continues to deteriorate, the central bank does not rule out the RRR to curb excess liquidity and stimulate the economy, expect the central bank's monetary policy may still prudence, while maintaining exchange rate stability, through MLF, SLF, open market operations hedging tool, but if the currency devaluation led to liquidity pressure, quasi upside down.
Shenwan Hong source research report published Interpretation of British off-European event that, in order to hedge capital outflows and downward pressure on the economy, the euro zone and Britain are expected to adopt a more accommodative monetary policy. Increased risk of global financial markets, the Fed's monetary policy will be more cautious. Prior to China's monetary policy more conventional means of liquidity management, reserves the right to drop quasi-rate cut. British off the impact of the EU will make the probability of drop quasi greatly increased. If desired, does not rule out the possibility of a rate cut.

CICC analyst Yu Xiangrong Liu and Liu Liang said that after the British off in Europe, China and the need to increase the space for monetary easing, many years down the probability of quasi-rate cut even increase; the Fed does not raise interest rates this year, the probability increases.

China Daily: PBOC pumps 100 billion yuan into market
China's central bank on Monday pumped 100 billion yuan ($15.12 billion) into the market to provide liquidity.

The People's Bank of China (PBOC) put 270 billion yuan into seven-day reverse repos, a process by which central banks purchase securities from banks with an agreement to sell them back in the future.

The reverse repo was priced to yield 2.25 percent, according to a PBOC statement.

Reverse repos worth 170 billion yuan mature on Monday, so the central bank has effectively injected 100 billion yuan into the market

A Tale of Two Tiers; Housing Inventory Divergence Gets Extreme

Here's a few stats showing the divergence in housing inventory among the haves (hot first- and second-tier cities) and the nots in a 25-city survey.

Inventory Growth: 15 cities. Wherein Taiyuan, Maoming and Jining three cities saw a greater increase in inventories, an yoy increase of 84.7%, 76.9% and 68.2% respectively.

Inventory decline: 20 cities. The yoy decline in Hefei, Nanjing and Suzhou are largest at 64.9%, 54.5% and 49.7%.

Inventory total: First- second- and third-tier cities, a total of 35 cities, new commercial housing stock was 30.71 million square meters, 175.4 million sqm, and 42.7 million sqm, a month-to-month increase of 0.8%, -0.8% and -1.3%, respectively, year on year increase of 15.0% , -3.9% and 1.0%.

New supply: 35 cities new residential monthly new supply of 23.05 million square meters, a decrease of 25.0% mtm, an increase of 24.7% yoy. 35 cities new supply last month was slightly less than the monthly sales, so May inventories declined.

Sales ratio: in May 2016, first-, second- and third-tier 35 cities new commercial housing sales ratio was 8.4,10.2 and 16.0 months. Compared to April 8.4,10.5 and 16.9 months, the first-tier cities basically unchanged, while the second and third tier cities the velocity has accelerated.
iFeng: 去库存半年 部分城市演绎出一场“库存危机”

Gold Hits 3-Year High in CNY

This chart does not factor in today's depreciation in CNY.

Disney In China

FT: When Walt went to China
Yet Disney’s journey to Shanghai has been long and fraught, underlining Beijing’s schizophrenic relationship with mass American culture. Western brands are a particular neurosis for China — Mark Zuckerberg, for example, is treated as a celebrity whenever he comes to China, but Facebook remains blocked. Luxury brands such as Gucci count China and Chinese tourists as their main market, but also their most prolific copier and counterfeiter. That China has not yet created a globally successful brand is a peculiar source of humiliation in Beijing amid soul searching as to why.

The Disney launch date had been set for the numerologically fortuitous 6/16/2016. Six is a revered number in China, a homonym for the word “liu”, meaning “smooth”. But bidding for the smoothest karma possible also placed the opening ceremony during Shanghai’s rainiest month.
Why does almost every Monkey King movie suck? The most popular adaptations are the 1980s low budget TV show, a mostly true to the book adaptation.

The Stephen Chow comedy version loosely based on Journey to the West.

And the 1964 cartoon:

Chinese cartoons, even by Wile E Coyote standards, are violent. Pleasant Goat was targeted by broadcast regulators for “excessive violence” in 2013, including boiling alive, assault with a frying pan, and electric shocks. But at Ritan Park, a small amusement park three metro stops from Tiananmen Square and two blocks from my home, these characters come alive, encapsulating the eccentric nuttiness of China’s cartoon world.
The show is a slightly toned down Itchy and Scratchy.

Global Economy: No Room for Any Volatility

There's no room for error, no room for volatility for a global economy on the knife's edge of crisis. While some degree of rescue may be coming, the equilibrium held since 2009 is on the verge of breaking. There's a lot of focus on the UK now as being in trouble, but as the first to exit from the EU and without the euro as its currency, with the pound at 30-year lows, the UK is actually ahead of the game.

WSJ: ‘Brexit’ Upends China’s Plans for Turmoil-Free Summer
A few days before Britons voted to leave the European Union, Chinese Premier Li Keqiang visited the central bank’s monetary-policy department to make a simple point: The yuan must be kept stable.

...China is on the receiving end of global market turbulence triggered by the “Brexit” shock. And no part of its financial system is more vulnerable than the yuan, already the subject of a precarious central-bank high-wire act.

With all major currencies except the dollar and yen plunging in the wake of the British vote, pressure grows on the People’s Bank of China to also let the yuan weaken. But if the gap with the dollar becomes too big, capital outflows could speed up again.
The gap will widen. Prepare accordingly.

Zhou Xiaochuan on Monetary Policy in China

Zhou Xiaochuan explains the PBoC's multiple objectives. Balance of payments discussion is below.

IMF: Michel Camdessus Central Banking Lecture, Managing Multi-Objective Monetary Policy: From the Perspective of Transitioning Chinese Economy
The single objective of maintaining price stability is an enviable arrangement, as it is simple, easy to measure and communicate. However, it is not yet realistic for China at this stage. For a long time, the annual objectives of the PBoC mandated by the Chinese government have been maintaining price stability, boosting economic growth, promoting employment, and broadly maintaining balance of payments. The feature of a transition economy also requires the PBoC to promote reform and opening up as well as financial market development. Reform and financial market development will help achieve financial stability and economic transition from a dynamic and medium-to-long term perspective, and transition will in turn support a more efficient and stable economy. The PBoC attaches high priority to price stability, which is an objective of most central banks. Boosting economic growth and promoting employment are broadly overlapping goals and some central banks also have similar objectives. However, the PBoC has some distinct roles, which include promoting reform and opening up, developing financial markets, and maintaining balance of payments, and the PBoC also works closely with other government agencies. Why does the PBoC have these objectives? Why the central bank, not the ministry of finance?

...Why does the PBoC pay attention to balance of payments? In fact, for all emerging market economies, balance of payments, capital flows, exchange rate and foreign exchange reserves are all key factors affecting macro economy and monetary policy. It is not surprising that central banks from emerging market economies pay close attention to balance of payments. The IMF knows better about this. In addition, transition economies have their own unique features. Most of them experienced the collapse of international trade and sharp deterioration in balance of payments due to severe distortions typically seen in price, trade and exchange rate polices under planned economy.

During transition to a market economy, China learned from the outward-looking development strategy of East Asian economies. This development strategy contributed to the reform and opening up in various sectors of the Chinese economy. It also increased China’s dependence on international trade and foreign capitals. As a result, balance of payments largely affected the central bank’s monetary policy, money supply and price stability objective. Therefore, the PBoC must pay attention to balance of payments, and needs to assume accordingly roles such as managing the exchange rate, foreign exchange market, foreign exchange reserves, gold reserves, and balance of payments statistics. The public finance was in an extremely difficult situation during the early and middle stage of the transition, as there were sizable explicit and implicit fiscal losses, and understandably did not actively take care of such issues as banking reform, exchange rate and balance of payments. China’s developments over the years have shown that both domestic and external demand has undergone adjustments in the right direction. China has also weathered the Asian financial crisis, indicating that it is right for the PBoC to pay attention to balance of payments.


Zhou: Use More SDR; RMB Internationalization A Natural Process

The first part of this Chinese article linked below is a speech by Zhou Xiaochuan, here. The second part is some question and answer time with Zhou and Christine Lagarde.
Question 3

Lagarde: You just mentioned the SDR, to promote the inclusion of the RMB in the SDR regard, we have very good cooperation. I know that you and your team support broader use of SDR. Therefore, you also remove obstacles SDR users to enter the RMB market. Can you give us a brief idea of ​​promoting the use of SDR terms, such as SDR bonds?

Zhou Xiaochuan: We would like to see more widespread use of SDR, the People's Bank began to use SDR as the reporting currency of some statements. You mentioned that we are about to eliminate market barriers for the yuan into the SDR . On the one hand, the central bank tried to help improve the degree of freedom of the renminbi may be used in trade, investment and financial markets and other areas. On the other hand, we will be seen as a way to promote China comprehensively deepen reforms. This engine is the same role as an early reform of China's exchange rate regime of export-oriented economic development strategy played.

But we also see more widespread use of the RMB is a natural process, to respect the choice of market participants. If the dollar exchange rate stability, ample liquidity, no abnormal capital flows, when people prefer dollars. Otherwise, people would like to see diverse currencies to better manage risk, we are happy to see this gradual process of development.

Expanding the use of the yuan, the central bank has taken a number of policy measures, we can also do much more in terms of convertibility of the RMB, including further development of the foreign exchange market and reduce unnecessary regulatory measures. We are particularly concerned about the field of the yuan can not be freely used, ensure that the standards reached RMB freely available. We know that the use of the yuan in financial transactions is still not broad enough. Although the deal size is gradually rising, but it will not be a linear process, affected by the global market fluctuations, spiral. Of course, the yuan is expected to be able to long-term in the global financial market is more widely used. In addition, we also emphasize the importance of macroeconomic stability and low inflation. If we are to achieve a stable macroeconomic growth and low inflation, market participants will naturally choose to use more yuan.
EO: 周小川对话拉加德谈汇改:人民币更广泛的使用是一个自然而然的过程(附全文)

Shanghai Daily: China to continue promoting more flexible exchange rate: China's Central Bank Chief
MF last year approved the inclusion of the Chinese currency, RMB, into its Special Drawing Rights (SDR) basket as a fifth currency, along with the U.S. dollar, the euro, theJapanese yen and the British pound, marking a milestone in the RMB global march.

Zhou said that China is expecting the wider use of SDR, and is taking measures to promote freer use of RMB in trade, investment and financial markets, in an effort to reduce barriers for SDR users.

In regard to Chinese firms' high leverage ratio, Zhou said that China is working to improve the economy's resources allocation, and to ensure more resources flowing to the private sector, high-tech companies and the service sector.

PBOC Q2 Surveys: Optimism Up, But Conditions Deteriorate

The PBOC's quarterly survey are out. The main consistency across the surveys was rising prices and price expectations, along with jump in macro economic confidence.

In the business survey, it showed increased optimism in the macro economy and prices thanks to the commodities bounce. However, business confidence, export orders, cash flow and receivables are all worse than in Q2 2015. The chart below shows the uptick in feelings about prices, the second shows the uptick in orders does not break with the ongoing trend.

PBOC Q2 Business Survey: 2016年第二季度企业家问卷调查报告

The banking survey shows rising confidence in the macro economy, but falling opinion of monetary policy and falling credit demand.

PBOC Q2 Bank Survey:

Similar to the business survey, the only thing that bounced significantly in the household survey was price expectations.

PBOC Q2 Household Survey:

ChiNext Analog

This is the current ChiNext and current exchange rate of 6.69 for USDCNY.

USDCNY Soars to 6.69 in Early Trading

Now less than 2 percent away from the 6.80 red line. Fix at 6.6375. Note the fix itself would have been a 52-week high for USDCNY.

This move was largely expected; no major follow on effects from this initial change in the exchange rate.

Li Keqiang Sends Reform Message, Steel Companies to Cut 45 M Tons

China Daily: Li gets reform message across on Tianjin visits
Premier Li Keqiang visited an old State-owned firm revitalized by innovation, talked to executives of a cloud computing startup and rode a "super smart bicycle" during a tour of the northern port city of Tianjin on Sunday afternoon.
The message he wanted to get through is clear: China should count on reform and innovation to replace old drivers of growth with new ones, and push ahead with industrial upgrading.
At the Tianjin Optical Electrical Group, the maker of China's first laser printer, Li said he was glad to learn that the State-owned company, which is more than 60 years old, is encouraging its innovators to launch new enterprises and turn their ideas into marketable products.

SCMP: China to cut steel capacity by 45 million tonnes this year: state planner
China plans to cut steel production capacity this year by 45 million tonnes and lower coal output capacity by 280 million tonnes, the head of the country’s top economic planner said ­yesterday.

Li Keqiang Warns of Butterfly Effect

iFeng: 李克强:地区不稳定“蝴蝶效应”冲击金融市场稳定
Li pointed out that in today's highly interdependent world economy, no country can manage alone. A country, a region of unstable and uncertain factors increased, may have a "butterfly effect" on the world economic recovery and financial market stability or impact shock, which requires parties to strengthen coordination and work together to deal with the difficult challenges and maintain peace stability and promoting reform and innovation, insist on open and inclusive, better realization of the world economy is strong, sustainable and balanced growth.
Yuan devaluation? Brexit? EU dissolution? UK breakup? The butterflies are hatching.

Wuhan Steel, Baosteel Announce Joint Restructuring

Reuters: China's Baosteel, Wuhan Steel announce plan to restructure
China's Baosteel Group and Wuhan Iron and Steel Group, two of the country's largest steelmakers, are together planning to restructure, their listed units said in separate stock exchange filings on Sunday.

Baosteel Group is China's second-largest steelmaker, and Wuhan Iron and Steel Group is the country's fourth-largest.

The companies did not specify what the restructuring would entail. Beijing has said that mergers would be a key way to consolidate the steel sector, aiming to cut overcapacity and increase the proportion of output from China's ten biggest mills.
The steel champion may have been decided. The only firm that can do a merger and end up with larger production is Hebei Iron & Steel.

Why Some Beijing Home Prices Soar

In Beijing, 160,000 students want to enter schools with a quota of 5,000, and requirements to qualify for Beijing schools are being tightened.

A set of data, "China Education Daily" has been released in 2015, Beijing has about 160,000 children in primary school enrollment information collection. Among them, Beijing registered students about 100,000, about 60,000 non-Beijing. But Dongcheng, Xicheng and Haidian District's 25 best primary schools only receive about 5,000 students.

Potential demand is 160,000, while supply is 5000 places, this is the main reason for surging prices in Beijing high school district housing market.

Moreover, with the release the two child policy, school demand will be further amplified. Several scholars from Beijing Normal University in a paper predicted that by 2015 -2025 Beijing primary school enrollments will increase year by year on the basis of the existing 170,000, and ultimately stabilize at 250,000-300,000 students.
Another big change this year, Beijing school district policy, the non-Beijing students enrolled membership of more and more strict. For example, Shijingshan District regulations, holders of "Beijing residence permit to work" (commonly known as "Beijing green card") of non-nationals in Beijing this year, Beijing will no longer enjoy the benefits of membership enrollment. As another example, the provisions of Fengtai District, Beijing Ji later for non-working parents of students and renters, the dynamic audit every year.
Location. Location. Location.
iFeng: 学区房暴涨之谜:16万人抢5000个入学名额

Rising Land Prices Pull Up Home Prices in Xiamen

Following a a new "land king" coronation in Xiamen,the winning developer hiked prices for new homes:
June 16, three thousand buildings in Tong'an Poly Real Estate, sales staff said that real estate in the second half of last year for the first time the opening price of 17,000 yuan / square meters, this year April 22, close to the commercial and residential real estate TP02 Lot after more than 200 auction rounds, eventually Poly won with a 5.426 billion yuan bid, the floor price traded as high as 25,838 yuan / square meter, become Xiamen island "land king". The Poly building then opened the next day, the average price jumped directly to 28,000 yuan / square meter, "pushed more than 300 sets, sold 90% of our current average price has risen to 32,000 yuan / square meters, is expected to end will be opened. "sales staff said, real estate prices soared nearly doubled mainly due to soil surrounding land shot last year, 17,000 yuan / square meter price, customers are mainly just need, but after prices this year is to improve the type and investments.
What happens if credit growth slows and the air comes out of the land sales bubble?

iFeng: 楼市疯狂又一样本:地王卖出后 楼盘涨价万元

Corporate Takeover, China Style

Caixin: Intensifying Battle over Who Controls Vanke
Two companies battling for control of the nation's leading homebuilder China Vanke Co. have teamed up to fight a controversial asset restructuring plan through which a Shenzhen government-owned company would become Vanke's largest shareholder.

Through two subsidiaries, developer Baoneng Group announced June 23 that it firmly opposes a proposed deal that would make Shenzhen Metro Group Co. the leading Vanke shareholder.

Currently, Baoneng is indirectly Vanke's largest shareholder, as its subsidiaries Shenzhen Jushenghua Co. and Foresea Life Insurance Co. control a combined 24.29 percent.

Shenzhen Metro wants to take the helm through a deal that would see Vanke issue 45.6 billion yuan worth of new company shares to buy its subsidiary Qianhai International.


More on Censured Accounting Firm

Caixin: Leading Chinese Accountant Censured For Obstructing Bond Default Probe
China's leading homegrown accounting firm has received stiff punishment from an industry body for obstructing a probe of one of its clients whose subsidiary defaulted on 2 billion yuan ($303 million) worth of bonds, amid a broader crackdown on financial shenanigans by big companies.

Ruihua Certified Public Accountants, LLP. was censured and ordered to suspend services related to bond issues for a year, according to a June 21 announcement by the National Association of Financial Market Institutional Investors (NAFMII), an industry body that helps the central bank regulate the 51 trillion yuan market.

Ruihua was punished for refusing to cooperate with NAFMII's probe of two projects related to Greenland Holdings Corp., whose subsidiary Shanghai Yunfeng Group Co., the company at the center of the default, has defied NAFMII investigators who have been examining the firm's bond defaults and apparent inconsistencies in key financial statements, according to several people close to the situation.

Average Beijing Home Price Clears 5.1 Million Yuan

Not only due to the general rise in prices, but due to the scarcity of land and growing high-end market, Beijing's average home transaction price in 2016 is 5.1 million yuan.

The average annual salary in Beijing is over 100,000 yuan for public employees, a dual income household might pull over 200,000 yuan a year, which makes the average price equivalent to 25 times a good middle class salary.

iFeng: 北京住宅平均成交总价达510万 或进入调整期

China's Middle Income Trap an Excuse to Cover Up Failed Central Planning

Sun Hao argues the growth of SOEs and government intervention are the main reason for China's slowing economy.

The biggest shiv:
Not eliminating defects at the institutional level, we may not fall into the middle-income trap like other countries, instead we may fall into the trap of failed states. The Northeast has seen economic growth collapse, all over the country there are also quite a number of collapse points.
Today, these large state-owned enterprises in the industry if you look at the debt structure they already went bankrupt, but they were sheltered by the government, like a dead person in the intensive care unit receiving excessive medical aid enduring as zombies. From borrowing new debt to pay old debt, not borrowing to pay interest, to swapping debt for equity, in their own slow death will absorbed all of the people's bank deposits. Could it be the next step is TARP-like recapitalization to boost bank capital? A few years ago I said if the reform doesn't happen, in seven or eight years time this will happen again.
He also slams SASAC as a reversal of reforms:
SASAC was established in 2003 (the establishment of a government agency using the taxpayers' money to set up a public agency as public service for some shareholders is of questionable legitimacy), this system can be regarded as a reversal.

中等收入陷阱只是挡箭牌 中国经济真正要害是什么?


Three Body Problem Movie Has a Problem

Caixin: Premiere of Film based on Acclaimed Sci-fi Novel 'The Three-Body Problem' Pushed Back until 2017
Author Liu Cixin sold the rights in 2009 to director Zhang for a big screen adaptation of his book, but the news upset some fans who were worried that Zhang, who had only directed three movies previously, was inexperienced.
Yoozoo's latest statement on the delayed premiere caused a stir among the book's fans again.

"It's like a Chihuahua trying to fight a Tibetan mastiff," an Internet user said on the Quora-like website Zhihu, referring to what he thought was an amateur director's attempts to take on a complex project.

"To turn a good novel into a good movie, there should be a developed film industry and a team that is good at every aspect from planning to distribution," another Net user said.

Yoozoo was established by an online game developer Youzu Interactive Co. Ltd. in November 2014. It has produced four movies to date. One of the films, The Crossing 1, had a 400 million yuan ($60.6 million) budget, but it bombed at the global box office, raking in only 260 million yuan, according to movie website Mtime.com, which offers reviews and tracks box office numbers.
Hollywood will do a remake.

Yuan Fix to Fall Into 6.60s

USDCNY climbed to 6.64 today and given the selling of foreign currencies and the fact that Yuan Follows Dollar Down, But Not Up, a fix in the 6.60s is likely coming up. For more on the yuan's tie to the weak dollar, but not strong dollar, see Calm Before the Dollar Storm.

Looking past the Brexit noise, this is the type of move that could have staying power given everything else going on in the markets.

USDCNY Breaks 6.60 Again

USDCNY drops to 6.61 on global currency turmoil.

Not much of a move, but another asset trading above/below a resistance/support line.

Remain Strongholds Report Over Next 2 Hours

Here's a chart showing the perfect moment to go short, after the euphoria following Nigel Farage's "concession." As I said before, it looked like a top even if Remain won, as the pound also spiked quite high for a moment.

The chart below shows the S&P 500 futures.

I have to say coming into the vote I thought Remain would pull it out, but if Leave wins it is not a surprise. I've been expecting this would happen eventually. At some point, the social mood was calling for this to happen, Socionomic theory predicted it. Now it's a matter of, are we looking at the end of a trend in the market or the beginning. Is US dollar bull market about to run again, or is this a blowoff move? Gold is at a 52-week high and headed for hit a new all-time high in Australian dollars before pulling back.

If this is a top then the market spends the next few months working off these losses. If not, this is the first shot of a much larger wave.


Brexit Results - Leave In The Lead

Turnout favors Remain, but some key cities such as Swansea, a Labour stronghold, voted Leave. Cities voting Leave are generally hitting turnout of 70-80%, but areas with Remain wins are roughly 70%. If the polls were correct about the race being a toss up, this turnout advantage will translate into a win for Leave.

The pound has dipped, but only back where it was on June 17. If markets are going to react, there's still plenty of time to pile into bearish bets. The best time to short was when the media reported Nigel Farage's "concession" and markets looked to have hit a final euphoria high. Even if Remain won, I would have expected a decline from those levels on Friday. Now, however, the pound is down 5 percent off its high for the day, leaving plenty of risk if Remain pulls it out.

EU referendum live results — tracker

May The EU Go Down in Flames

The people who run the EU come up with ideas like this: Europe's robots to become 'electronic persons' under draft plan
Europe's growing army of robot workers could be classed as "electronic persons" and their owners liable to paying social security for them if the European Union adopts a draft plan to address the realities of a new industrial revolution.
Europe beclowns itself.

The Dying Dollar System

Back in 2013 I summed up the position here on the dollar system: Death of the U.S. dollar greatly exaggerated; Historic U.S. dollar rally still likely
The U.S. dollar is the core of the global financial system and global powers, including China, will seek to preserve it as long as possible. As each nation passes through hyperinflation, however, they become freed from the global financial system via devaluation. At that point, the cost of launching a new financial system have been paid up front. As each nation goes through hyperinflation, it puts the U.S. dollar in a more untenable situation and makes a nation more likely to defect to a new system.
Now consider this article from Caijing, the headline says "U.S. dollar hegemony weakens, Oil producers don't hesitate to devalue, de-dollarize"

Caijing: 美元霸权松动:石油国家不惜货币崩盘 誓“去美元化
However, since the 2008 financial crisis, "de-dollarization" are growing. Honorary President of the National Development Research Institute of Peking University Lin has said dollar dominance is the root cause of the international financial and economic crisis. Today, the US dollar in global foreign exchange reserves in the proportion declining to abandon the fixed exchange rate has led to the collapse of the local currency as the representative of Nigeria's oil country, mustering strength you want to get rid of the shackles of the dollar; the US government out of the ticket price also let "de-dollarization" slogan popular in the European banking sector.
The dollar is the core of the problem because the dollar refuses to devalue. We are in the middle of a depression and the value of currency is rising, not falling, amidst a credit deflation. Countries aren't "solving" the problem because the countries that have solved it, such as Nigeria, watch their currencies collapse. Others that might want to try, such as Japan, are sternly warned by trading partners.
At the same time, the rapid rise of the yuan makes the world wonder. In recent years, China has actively accelerated and promoted the process of internationalization of the RMB, especially this year, October 1, the RMB will officially join the IMF SDR basket of currencies. From currency, denominated in the currency to the settlement currency and reserve currency, the yuan is increasingly being recognized worldwide.

"The dominance of the dollar in the short term is difficult to shake, but the dollar in the future can not dominate." Secretary-General of Shanghai Development Research Foundation, Joyce Germany had to accept the "First Financial Daily" reporters interview, said, or will be gradually replaced it is a multi-currency system, the yuan is one of the world's reserve currency may end up in around 2025.
Of course the yuan isn't becoming internationalized, but the opposite, precisely because the same force pulling the Nigeria naira down is the same force pulling the yuan lower. Christopher Balding discusses it here: Follow Up to BloombergView RMB Deinternationalization
Now the price and the flow issues combine to tell us very real information. If RMB needs to flow into the rest of the world to become an international currency, this means there will be downward pressure on the RMB. If Beijing relaxes its grip on the directionality allowing the RMB to internationalize, this will place long term downward pressure on the RMB reducing its value. There is another way to think of this: if Beijing wants to hold the value of the RMB higher, it will continue to deinternationalize the RMB. If Beijing is willing to let the RMB depreciate, the RMB will internationalize. The only way the RMB can internationalize and rise in value is if the demand for RMB assets significantly outstrips demand for foreign assets. There are two reasons this is unlikely. There is an asymmetric relationship in that foreign investors are much more able to hold RMB assets than Chinese holding foreign assets. In other words, there is a lot of pent up demand by RMB holders for non-RMB assets. Furthermore, given the law of large numbers, China would have to absorb such a vast amount of world savings and investment in the future to push the RMB higher on a strictly flow basis to render this all but impossible. In other words, this gives us the pre-conditions under which the RMB will internationalize and what we will see both with flows and with RMB.
There is a depression because there is a slowdown in U.S. dollar credit growth. The U.S. shadow banking system is in deflation. What the world wants is a cheap, liquid currency. It had that, and abused it, so today it has a huge short position (debt) against a shrinking pool of credit. The game of musical chairs is winding down an no bank is dumb enough to put another chair out and join the game. They are removing their chairs and quitting the game.

If China is thinking long-term, they would flood the world with yuan and steal market share from the U.S. dollar, but to do so would require allowing a greater role for the market in pricing the yuan.

Conversely, China can stop The Informational Power of the Offshore Yuan Exchange Rate by shutting down the offshore market. For all the talk of the renminbi as reserve currency, it is blatantly obvious China wants no such thing, at least not in 2016 or the near future. China is acting precisely opposite to how it would behave if it sought to become a reserve currency in the near future, despite depreciation being all but inevitable.

China can be patient though, because the U.S. dollar system will kill itself. Back to the Caijing article:
Common problems they face are, on the one hand the international oil prices, oil led the national economy has been hit hard; on the other hand, the Federal Reserve interest rate channel open up the dollar, oil and national currencies against the US dollar continues to depreciate, described as "worse."

Therefore, more and more oil countries to speed up the "de-dollarization" pace. Kazakhstan and Russia became the last two years committed to get rid of the shackles of the typical dollar.

...When he was governor of the French central bank Christina (Christian Noyer) of the United States warned the United States to use their rules limit BNP Paribas bank dollar transactions on a global scale, which will encourage (banks) "to dedollarization." "Trade between Europe and China does not necessarily require the use of US dollars may also use the euro or the yuan."
The world is de-dollarizing because there is a shortage of U.S. dollars. The amount of "real" U.S. dollars is vanishingly small compared to the total amount of credit and derivatives. The world economy is run on credit, and the banks that can make U.S. dollar credits backed by the Federal Reserve, that is banks who can back their short positions, are reducing credit. Deflation is the order of the day.
It is noteworthy that, in the June 7 end of the eighth round of Sino-US economic dialogue, the Chinese central bank vice governor Yi Gang said, shortly after was the establishment of an RMB clearing bank in the United States.

"This move also means that the RMB internationalization made an important breakthrough." HSBC director of currency research in emerging markets Paul Markel (Paul Mackel) "First Financial Daily" reporters, he said the dialogue is very important breakthrough in the United States establishing a policy framework to promote US trade and the RMB in the settlement, which is conducive to China were included in major international equity and bond market indices, while helping China to further reform of foreign exchange on the track.
China is building the infrastructure for an international currency, and eventually a reserve currency, but it's actions today are the exact opposite. Meanwhile, the dollar system dies a slow death with every instance of depegging and/or hyperinflation in foreign currencies. Credit, then fiat, burns from the periphery to the core.