Weekend reading links

1. The semiconductor market facts of the week.

In the early 2000s some 25 firms could make the most advanced processors. Today four can, and tsmc makes nearly all of the high-end ones. Memory chips, which are also vital for ai, have gone the same way. More than 20 firms made advanced memory chips in 1990. Now only three—Samsung, sk Hynix and Micron—make almost all of them. China has produced new entrants in both processors and memory chips, but without access to the most advanced chipmaking tools, they remain behind the frontier...

TSMC's capital expenditure is expected to hit roughly $62bn this year, more than one and a half times as much as in 2025. Next year analysts expect it to be around $76bn... their outlays are modest in comparison with the windfall from AI. As a share of revenue, TSMC's capital spending is expected to fall from 44% in 2023 to 36% this year. Moreover, investments are being paid for from the cash that chipmakers are generating, rather than borrowing. This year TSMC's capacity expansions will use up a little more than half of its operating cashflow, and Samsung’s barely a fifth. The debts of these chipmakers look modest next to their swelling cash piles.

Manufacturers are enjoying a “very good pricing environment”, according to Bill Wiseman of McKinsey, a consultancy, and have every reason to pace their expansion to preserve it. DRAM, a type of memory used in nearly all electronics, costs about six times what it did in early 2023. TSMC has not cut the price of its three-nanometre manufacturing process, which it launched in late 2022, even though a process normally gets cheaper after a couple of years...

Consolidation has also given chipmakers more bargaining power, shifting who will bear the burden of any slowdown. Until recently, memory was sold mostly on the spot market or through short-term contracts. When demand slackened, customers were not obliged to keep buying and prices therefore collapsed. Now, with capacity scarce and only a few suppliers to choose from, buyers are signing up years in advance, and on the sellers’ terms. Nvidia has committed more than $250bn to securing supply and components until January 2029. In September Micron said that “take-or-pay” agreements, under which customers must buy the agreed volumes or pay anyway, had locked in 35% of its revenue through to 2030, with $32bn-worth of commitments, most of which involve cash deposits. Such prepayments help fund new factories. They also shift at least part of the risk of a bust onto buyers.

2. Corporate tax revenues fall in the US even as profits rise, a divergence arising after the tax breaks that allow firms to make larger deductions in the year they make investments.  

Revenue from the corporate income tax, which applies to the profits made by the largest and most sophisticated companies in the United States, fell roughly 15 percent, to $381 billion, in the fiscal year that ended on Oct. 1, according to data released on Friday by the Treasury Department. The roughly $70 billion drop followed a similar decline the previous year. Corporate tax revenue is down more than quarter from 2024, the last full fiscal year of the Biden administration.

3. Thailand is experiencing its version of China shock from the Chinese EV imports. 

For decades, Japanese automakers dominated Thailand. They arrived in the 1960s, built supply chains and transformed the country into the “Detroit of the East.” Then the Chinese automakers arrived. Today, they control about 85 percent of Thailand’s electric vehicle market, up from almost zero four years ago... Electric vehicles made up a third of new car sales in the first seven months of 2026... Japanese automakers, slow to embrace the technology, have struggled. In 2024 and 2025, Subaru and Suzuki shut down their Thai plants, while Nissan and Honda have scaled back production. Several Thai auto-parts suppliers that depended on Japanese manufacturers went bankrupt, threatening a supply chain that employs about 700,000 workers... 

Thailand is a cautionary tale about the unintended consequences of opening the door to China’s electric vehicle manufacturers... In the first seven months of this year, about two-thirds of electric vehicles sold in Thailand were imported, primarily from China. The government is trying to curb the flood. Last month, it unveiled a three-tier tax system that imposes the highest rates on automakers importing vehicles with no plans for local production and the lowest on those that source a large share of their parts locally... Ruth Banomyong, a professor of supply chain management at Thammasat University in Thailand, and his colleagues have estimated that 300,000 jobs could disappear within five years if electric vehicles dominate Thailand’s auto market... 

In 2022, Thailand’s prime minister at the time, Prayuth Chan-ocha, declared electric vehicles crucial to the country’s economic future and its fight against pollution. He set a target for zero-emission vehicles to account for 30 percent of the country’s vehicle production by 2030... Then the government rolled out tax cuts and subsidies and allowed electric vehicles to be imported for two years before automakers had to meet local manufacturing requirements. A free-trade agreement between China and the Association of Southeast Asian Nations meant the vehicles faced no customs duty. Within months, Chinese brands like Changan, GAC Aion, Neta and Chery were driving on Thai roads.

4. Good description of the semiconductor manufacturing supply chain.

5. Gideon Rachman worries that the world may be sleepwalking into World War III.

The Russia-Ukraine war has now been going on longer than the USSR’s war against Nazi Germany. The British government says that Russia has sustained 1.5mn casualties — killed or wounded — since the invasion began. Ukrainian casualties are less publicised but will run into the hundreds of thousands. The war in Gaza is estimated to have led to 70,000 Palestinian deaths, as well as 2,000 Israelis — in addition to the 1,200 who died as a result of the Hamas attack of October 7 2023... the International Crisis Group recently counted 65 ongoing conflicts around the world — the highest number since the end of the second world war. The conflict in Sudan, fuelled by outside powers, is particularly bloody — punctuated by massacres of civilians and the displacement of more than 14mn people.

6. Shyam Saran is spot on.

It is somewhat perverse to have a government policy that seeks to export its professional and skilled personnel abroad. In trade negotiations, India wants to be able to find opportunities for its educated and professional citizens in foreign countries. This is an admission of a continuing failure to find meaningful employment for them at home. The ugly truth is that highly educated young Indians prefer to seek their future abroad should the opportunity arise. We are investing in educating our young but the fruits of the investment are taken advantage of elsewhere. This is not good economics. In the past, one recalls that there was at least an awareness of a “brain drain” from India and that this was a loss to the country. Now the brain drain has been turned into a virtue. Rather than formulate policies to offer meaningful opportunities to our young professionals in the country itself, we are allowing the best and the brightest to seek their future abroad. This is an admission of a glaring policy failure.

7. Exports are keeping the Chinese economy afloat. In the three months to September, GDP growth was 4.5%, up from 4.3% in the previous quarter. 

The actual GDP growth rate may be much lower.

8. London by the numbers.

London has six airports. There are also more than 80 Michelin-starred restaurants and, by Cvent’s count, 200 museums, 270 theatres, 857 art galleries and four Unesco World Heritage sites. If you are wondering, they are the Tower of London, the Palace (and Abbey) of Westminster, Kew Gardens and maritime Greenwich.

9. Impact of data centres in the US on electricity prices.

An August Centre for Economic Policy Research discussion paper that examined data centre expansion across US utility territories estimated that an increase of 10 data centres in a particular territory raises household electricity prices by 13 per cent, and a single large facility can raise household prices by 4 per cent.

10. As the satellite telephony market hots up, four of Europe's largest telecom groups - Deutsche Telekom, Orange, Telefonica, and Vodafone - have announced the signing of a letter of intent to explore a potential joint bid for radio wave spectrum that would enable them to provide "direct-to-device" satellite mobile services in Europe. 

In May, the European Commission proposed reserving the part of its spectrum band that allows smartphones to connect directly to satellites for European players. The so-called 2 GHz frequency band is currently used by two American companies, Viasat and EchoStar, whose licences expire next year... The initiative would mean the companies establishing the necessary ground infrastructure, or base stations, needed for satellite connectivity. However, instead of developing their own satellite constellation, they would partner with an existing provider, which is yet to be selected.

11. More reasons to be cautious about Elon Musk's Starlink.

Ukrainian troops have been caught off guard by restrictions on Elon Musk’s Starlink satellite internet systems that disrupted frontline operations, while Kyiv received no warning from its partners of a Russian missile attack on its energy facilities for the second day running, according to Ukrainian officials. Starlink terminals used by Ukrainian drone units began experiencing signal failures at speeds above 160kph, disrupting several missions early on Wednesday morning, according to military personnel and senior Ukrainian officials.

12. The rising US interest rates comes at a time when China's exposure to dollar assets is declining, thereby squeezing the offshore dollar liquidity, the weakening of other currencies, and increased rates for foreign borrowers.

The internationalisation of the renminbi is a big priority for Beijing, which is pushing the use of its currency — instead of dollar — for overseas lending and investment. Chinese banks have expanded their overseas lending denominated in renminbi. It has increased from less than 15 per cent of total overseas lending to more than half in the past four years, according to a Reserve Bank of Australia study. Given the lower interest rates on renminbi debt compared with dollar borrowing, this is supporting appetite for borrowing in reminbi, particularly in the global south. Furthermore, China’s capital outflows tend to be parked in Hong Kong, using the special instruments that Beijing has introduced that support this process, such as the Southbound Bond and Stock Connect. These allow mainland Chinese investors to trade and invest in bonds and equities in Hong Kong. 

A clear sign of the excess liquidity parked in the territory is the much lower cost of funding in the Hong Kong dollar versus financing in the dollar. Given the territory’s currency is pegged to its US counterpart, the two costs should be close. But the one-month HIBOR rate for interbank lending in Hong Kong dollars is about 2.7 per cent compared with about 3.9 per cent for the dollar-denominated US Secured Overnight Financing Rate (Sofr) over the equivalent time... In other words, less of China’s trade surplus is being recycled in New York or London when there were more US listings.

13. Africa is urbanising rapidly, but with a difference that is not for the good.

Until relatively recently, Africa was predominantly rural. In 1950, nearly 90 per cent of Africans lived in the countryside and the continent had only two cities — Cairo and Alexandria — with more than 1mn people. Today nearly three-quarters of Africans live in either an urban or semiurban setting, according to new UN methodology that applies a consistent global definition. Some 42 per cent live in cities. There are 88 African cities with more than 1mn people, according to the UN, 17 in Nigeria alone. In 1950, there were 228mn people living in Africa, with about 33mn in cities. Today there are 1.6bn Africans, 19 per cent of the world’s total, of whom 670mn live in cities. Almost unnoticed, Africa has become an urban story... Africa’s rapid urbanisation bears some similarities to the world-shaking growth of Chinese cities after Deng Xiaoping launched market reforms in 1979. But it is happening even faster. When China’s urban growth peaked in the 1990s, its cities were adding roughly 14mn people a year, according to the UN’s The World Cities in 2025 report. African cities expanded by 15mn people annually in the past few years and are expected to grow by 19mn annually by 2050. That’s almost two Londons a year, or more than 50,000 new African city dwellers every day. 

Yet the growth in Africa’s cities is not following a familiar path. “In China, and before that in Europe, industrialisation and job creation pulled people from the countryside,” says Jeffrey Paller of Sweden’s Uppsala University, one of the world’s foremost experts on African urbanisation. “That’s not what’s driving urbanisation in African cities.” With great variations, Africa is urbanising with a nominal average income per capita of around $2,000. Many city dwellers have to hustle for a living, carrying goods, shining shoes, cooking street food, cleaning and washing. In World Bank speak, a person hawking soft drinks to passing cars is a “micro-entrepreneur”. But in economic terms, they are shut out from a system of mass production and specialisation that characterises successful capitalist economies...

Academics call this kind of urbanisation “fast, late and poor”. With a few exceptions, most of Africa’s cities are unplanned sprawls. They lack public transport, reliable power and — especially in poorer neighbourhoods — basic services such as sewerage, rubbish collection or even a land registry. More than half of the continent’s urban residents live in informal settlements or slums... The unplanned nature squanders the efficiencies — and ultimately wealth creation — that occur in densely packed, well-planned, well-connected conurbations... “What you see in [places like these] is a kind of transfer of rural life into urban areas,” says Ken Opalo, associate professor at Georgetown University. City planners, he argues, must avoid “rurification” which deprives cities of the economic and social impetus offered by well-organised conurbations. “Many cities still have the same fertility rates as rural areas, the same levels of education, people still do farming,” he says. “We can’t just sit back and hope that urbanisation will do what it did elsewhere.”... Most African cities lack the tax base, investment and institutional capacity that enabled cities in China and elsewhere in Asia to turn large concentrations of people into a productivity surge.

Amidst the above, this is promising.

Kigali, the manicured capital of Rwanda, is practising what Kampeta Sayinzoga, former chief executive of the Development Bank of Rwanda, calls “aggressive urbanisation” by encouraging people to move to cities and forcing developers to build taller buildings to encourage density. Kigali has recently introduced bus lanes and has restricted the import of non-electric vehicles. 

14.  Europe enters an election cycle over the next twelve months that could define the continent's path for sometime to come. Four of the five most populous EU members as well as four small others go to polls. 

There is a broad electoral shift to the right and a growing readiness among centre-right parties to share power with far-right rivals, spelling the end of so-called firewall policies of non-co-operation. The far right has itself radicalised with the arrival of new upstart parties such as National Future in Italy and the Confederation of the Polish Crown (KKP). At the same time, more established ones such as Alternative for Germany (AfD) are becoming more extreme or refusing to moderate the closer they get to power. Nathalie Tocci, professor at the European campus of Johns Hopkins School of Advanced International Studies in Bologna, says that if the nationalist right held power in Spain, France, Poland and Italy all at once, “I don’t think it’s hyperbolic to say it’s the end of the European Union as we’ve known it.”

Spain will kick off the process (Bulgarians vote for their president on October 25 but the role has limited powers) and Italy could theoretically close it with elections due by December next year, although they are likely to come earlier. In between, there are presidential and parliamentary elections in France — potentially the most consequential of them all — and legislative elections in Poland. Estonia, Finland, Greece and Slovakia will hold parliamentary votes next year. One could even include Germany in this cycle. There are no national elections in the country this year. But three regional ones in April could spell the end for Chancellor Friedrich Merz, who appears to be living on borrowed time after his Christian Democratic Union took a hammering in regional elections in eastern Germany last month.

This is an important change in the landscape of European politics.

Long-term demographic and social trends have eroded party loyalty. Party systems have fragmented. Opinion is polarised. France, for example, could end up with a presidential run-off between a far-right and far-left candidate. Perceptions of politics have been made far more negative, in part by social media and the demise of curated news sources. As a result, Europe is now experiencing unprecedented electoral volatility. More and more people do not vote for the same party in subsequent elections. Voters, especially younger ones, increasingly act as critical consumers, de Vries says. It is a market for votes made for political entrepreneurs with attractively simple messages...

Europe’s nationalist populist and far-right parties share a similar critique of the failures of liberalism and globalisation and they combine it with “crisis entrepreneurship”, reshaping themselves for the crisis of the moment. Germany’s AfD started off as a movement opposing bailouts for Greece and other southern EU members during the Eurozone debt crisis, became an anti-immigration party during the 2015-16 migrant influx, latched on to anti-vaccination sentiment during the pandemic and now uses the energy price shock to campaign against the green transition and in favour of a rapprochement with Russia. Such parties also all target those who do not feel the benefits of globalisation, especially less-educated working-class voters. In addition, the core of their policy prescription is the reassertion of national culture and control, translating into a policy of favouring, for example, French citizens for welfare, jobs or public contracts over foreign nationals, even those with residency. Finally, they are all digital-native parties, well attuned to an algorithmic information space where provocation gets views.

12. Brilliant oped from Janan Ganesh questioning the wisdom of the adults in the room in moderating erratic and extremist leaders. 

13. This graphic captures the extent of advances made by China in innovation and at the technology frontier. 

The business of discovering new drugs, securing the intellectual property and exporting them globally — which is the real prize in the pharma world — used to be dominated US and European companies. But in recent years, Chinese pharma groups have been developing drugs that global pharma giants want to license and export.

14. What is the impact of AI on inflation?

Earlier this month, economists at Goldman Sachs took a more systematic approach, totting up estimates of AI’s effects on different components of spending in the US, both direct and indirect. They counted four: on components and software directly relevant to AI; on electronics competing for those components; on electricity; and on the construction materials that go into making data centres. Overall, they estimated that AI-related price pressures were adding around 0.5 percentage points to annual headline inflation. That fell to around 0.3 percentage points after they stripped out some mismeasurement related to the way different spending categories were being combined in the official statistics. That’s meaningful, but not massive. And the analysts noted that since they couldn’t remove all tariff effects, the true effect could be lower.

And more on the AI investment boom.

Stijn Van Nieuwerburgh of Brookings estimates the AI infrastructure boom will cost the equivalent of 3.6 per cent of US GDP a year over the eight-year period to the end of 2032 — equalling the annual spending on the railroad boom of the late 19th century, plus the interstate highway projects of the mid-20th century, plus about two-thirds of the electrification spending of the early 20th century. Total bill: $10.3tn, an estimate including only tangible expenditures, not intangibles such as software... Alphabet, Amazon, Microsoft, Meta, Oracle and SpaceX are expected to generate $760bn in cash flow this year. All of this and more will be invested, meaning “free cash flow” will be negative, a situation Wall Street expects to persist for several years, even as profits at the companies are projected to grow at a breakneck 30 per cent a year.

15. The changing face of Chinese investments in Africa.

Data from Rhodium Group, a US research firm that monitors Chinese investment worldwide, shows that in the early 2010s, Chinese funding in Africa concentrated on projects tied to natural resource extraction. Last year, however, investment in manufacturing and processing reached $7.7bn, exceeding the $4.8bn invested in extraction.

16.  The combination of persistent deflation, weakening economy, dismal consumer sentiments, rising public and pivate debt, and ageing population means that China is staring at Japanification. 

According to Goldman Sachs, an updated version of the Japanisation index — a gauge originally devised by the late economist Takatoshi Ito — shows that for the past five years, China has been consistently more “Japanised” than Japan itself. Looming over all of this is what economists describe as the iron law of demographics. Japan’s population started to shrink in 2009; China’s decline began in 2022 and is on track to be steeper, worsening the country’s economic prospects... In another echo of Japan’s post 1990s-slump, the IMF warned last week of growing numbers of “zombie” companies across Asia, kept alive only by lenient banks. This is now evident across China’s heavily subsidised manufacturing economy. Outside favoured sectors, companies are increasingly refusing to invest while households hoard cash instead of spending... Consumers are deleveraging, with bank lending to households as of August this year declining outright for the first time in history... China’s weakening economic conditions meant that up to 10.6 per cent of the adult population had overdue loans last year, compared with about 7.8 per cent a year earlier, according to a report by Gavekal Dragonomics analyst Xiaoxi Zhang... 

Phrases coined in 1990s Japan, such as “job hunting ice age” and “price destruction”, are creeping into China’s vernacular... economists can see the signals of Japanification in the data... Restaurants across China are competing to offer meals for under Rmb10 ($1.50). This too is redolent of Japan, where restaurants entered a margin-crushing price war to attract an ever-shrinking pool of consumer spending as deflation took hold. The price of a basic bowl of rice and beef at the nation’s leading gyudon chain hit a high of ¥400 ($2.50 at current exchange rates) at the end of 1990 before falling. It only reached ¥400 again in 2021... The “expectation channel”, where households and businesses saw no prospect of longer-term growth, created a vicious circle of reduced consumption and investment in Japan which in turn lowered expectations...

China’s real estate bubble was the largest in history, outpacing even Japan’s speculative frenzy of the late 1980s and at its peak accounting for a third of the country’s economy. The contraction since it burst in 2021 has been dramatic, with new housing starts down 78 per cent from their peak, according to Macquarie. That compares with a 73 per cent fall in the US between 2005 and 2009 and Japan’s 65 per cent drop between 1996 and 2025. The collapse of the property market has set off what Richard Koo, the Nomura Research Institute’s chief economist, calls a “balance sheet recession” — a term he originally coined in the 1990s to describe the tendency of Japanese companies and individuals to pay down debt rather than borrow to invest or spend. Weaker demand and deflation then worsen the debt burden, leading to a vicious cycle. Investment opportunities decline, the labour market calcifies and salaries stagnate... The ultimate sign of China’s weak credit demand is the 1.7 per cent yield on 10-year government bonds, which Nomura’s Koo describes as “absolutely ridiculous”... 

One reason for Beijing’s reluctance to resort to domestic stimulus, economists believe, is China’s strong export performance. The trade surplus hit $1.2tn last year — the biggest recorded by any country, ever — and may meet or exceed that level this year. Policymakers in Beijing think the country’s export performance will buy China time while it waits for the property market to stabilise. In the meantime, they are pursuing investment in areas such as chipmaking and AI as the country competes with the US for geopolitical dominance... Gross fixed capital formation — the acquisition of assets for the production of goods and services — was 40 per cent of GDP in 2024 against Japan’s 28 per cent and the OECD average of 22 per cent, fuelled by an augmented fiscal deficit that Goldman Sachs forecasts will hit 11 per cent of GDP this year. No one knows when this debt will become unsustainable.

17. On the RBI's defence of the rupee.

The central bank since June has already used about $90bn of the more than $140bn it raised from India’s diaspora to prop up the rupee, including through sales to the spot market and currency swaps to absorb surplus liquidity... The rupee is one of Asia’s worst-performing currencies this year, having fallen 5 per cent against the dollar... As the currency neared new lows this month, the RBI took unexpected steps to curb volatility. They included opening a special window to absorb state oil companies’ dollar purchases away from the spot market; cutting the threshold for rupee-linked derivative transactions without proof of underlying exposure; and requiring dealers to maintain a 20 per cent cash reserve on forward contracts with the central bank. Those moves, which came on top of earlier measures such as curbing short positions against the rupee and courting deposits from Indians living abroad, have helped bolster the currency... But bankers and economists said the RBI could not keep spending down its foreign exchange reserves at its current pace. The central bank’s reserves have fallen by about $60bn from an early September peak of $785bn. Its net forward dollar liabilities — dollars which it will have to pay in the future — ballooned to $200bn in August from about $137bn in July, according to official data.

18. Aliko Dangote's plans for Africa.

Dangote plans to double the capacity of the Lagos refinery — which made revenue of $22.5bn in the first nine months of this year — and to build another 700,000 b/d refinery in Kenya to serve east Africa. He is also constructing a $4bn fertiliser and petrochemicals complex in Ethiopia that will help quadruple the group’s fertiliser capacity to 12mn tonnes.

19. Finally, very good account of the TSMC's Arizona facility which is now fully operational and is ground zero for the US's reshoring of industrial capacity.  

In July, TSMC announced its intention to invest a total of more than a quarter of a trillion dollarsfor 10 chip production plants, two packaging facilities and a research and development site, all in Arizona. TSMC now employs over 3,500 people in the state, including skilled Taiwanese engineers on temporary visas... TSMC Arizona is rebuilding America’s manufacturing backbone by teaching Americans the skills that they have lost... Thousands of teachers of these skills, in the form of Taiwanese engineers, have moved to north Phoenix. Many bring their families in tow... New immigrants from Taiwan more closely resemble corporate shock troops on a mission to build chips fast... TSMC sends engineers to Arizona on contracts of up to three years, which means that the first wave of families to move to the United States are returning home... TSMC Arizona’s first plant has been producing chips for two years, and its rate of output in Phoenix is comparable to that in Taiwan... the second and third factories are being built ahead of schedule. TSMC’s announcement in July that it would raise its total investment to $265 billion is an obvious sign of confidence in Arizona’s operations... TSMC is grafting a Taiwanese engineering community onto the American economy.