1. FT writes about a Chinese proposal to reinvent the architecture of the internet. It proposes a move away from the current unregulated Internet where power is concentrated in a handful of large US companies to self-regulate, towards one where there would be centralised rule enforcement.
It describes the Chinese proposal being spearheaded by Huawei before the International Telecommunications Union,
The New IP presentation paints a picture of a digital world in 2030 where virtual reality, holographic communication and remote surgery are ubiquitous — and for which our current network is unfit. Traditional IP protocol is described as “unstable” and “vastly insufficient”, with “lots of security, reliability and configuration problems”. The documents suggest a new network should instead have a “top-to-bottom design” and promote data-sharing schemes across governments “thereby serving AI, Big Data and all kinds of other applications”. Many experts fear that under New IP, internet service providers, usually state-owned, would have control and oversight of every device connected to the network and be able to monitor and gate individual access... Experts now debate whether China’s vision of its internet governance may be shifting from a defensive one, in which the government wished to be left alone to impose authoritarian internet controls at home, to a more assertive approach, in which the country is openly advocating for others to follow its lead.
Shoshana Zuboff of Harvard University posits the choice facing the world,
Right now we have two versions of the internet — a market-led capitalist version based on surveillance, which is exploitative; and an authoritarian version also based on surveillance. The question is: will Europe and North America pull together to construct the legal and technological frameworks for a democratic alternative?
2. On the same vein, Hal Brands writes about how China has been expanding its influence within multilateral organisations and using it to promote its interests. Since the turn of the millennium, the US had promoted China's entry into multilateral organisations in the hope that it would become a "responsible stakeholder" and engage constructively in the global order constructed by the US.
Beijing came to see its role in these institutions as one of protecting and projecting: Protecting the dominance of the Chinese Communist Party at home, while projecting the party’s influence and values abroad... The purpose of participating in global governance is to “create a favorable environment” for the rise of a “great modern socialist country.”... As Beijing has raised its participation in, and contributions to, WHO, it has also wielded it as a diplomatic lever against Taiwan... China has employed its sway within the International Civil Aviation Organization, including the presence of Chinese nationals in key leadership positions, to marginalize Taiwan by denying it permission to attend meetings. After a former Chinese official was elected secretary-general of the U.N. International Telecommunications Union in 2014, that body became far friendlier to Beijing's Digital Silk Road project... as well as its efforts to turn make the internet more conducive to authoritarian control.
Within the UN Human Rights Council, Chinese representatives have sought to shield Beijing from scrutiny of its own abuses, while also promoting alternative concepts of human rights that stress state sovereignty, social harmony and other characteristics more suitable to autocracy than liberty... a Chinese head of the U.N. Department of Economic and Social Affairs used his position to discriminate against people and organizations drawing attention to Beijing's repression of the Uighur ethnic group in the far western region of Xinjiang. The Chinese government has also sought... to position Chinese nationals at the head of Interpol, the World Intellectual Property Organization and other obscure but important bodies that quietly exercise influence in global affairs. The Chinese regime... has... the tendency to see nearly all interactions as part of a fierce contest for power. Its goal has been to position itself near the center of these important international networks, not so much to strengthen global governance as to strengthen its own ability to shape global norms. Beijing realizes that this competition in rulemaking and norm-shaping will be a central front in the struggle for global leadership in the 21st century.
3. More on China. The country's little too brazen display of motivated generosity by way of supplying testing kits and protective gear to countries fighting the Covid 19 outbreak may be back-firing. The publicity associated with the help, especially during a Pandemic triggered, at least partly, by information suppression in China, appears not to be going down well in the West.
Incidentally some other countries have been doing their bit silently,
Other countries that have delivered badly needed supplies include Russia, which, despite tensions with the West, sent 14 military aircraft with experts and medical supplies to Italy. Russia’s top envoy in Washington also said the country was ready to help the US combat the virus. Cuba – hit by decades of US sanctions – made headlines when it sent an emergency contingent of doctors and nurses to Italy. It also sent medical teams to Venezuela, Nicaragua, Suriname, Jamaica and Grenada. South Korea donated more than 15,000 test kits to the Philippines, while Taiwan – a self-ruled island that Beijing regards as part of its own territory – said it would send 100,000 protective face masks to the US every week. Taiwanese officials also pledged to donate 1 million face masks to Paraguay, one of Taipei’s few allies in South America, after Beijing made the same offer.
4. The Economist has a very informative briefing on unicorns. In particular two contributors to vastly overstating valuations are interesting,
The first has to do with ownership structure. A private firm’s headline valuation is the product of the number of shares and the price per share at the last funding round. But shares issued in later rounds often have downside protections such as seniority over other investors and IPO return guarantees. These lower the value of common equity issued in previous rounds. In 2018 Ilya Strebulaev of the Stanford Graduate School of Business examined the legal terms of 135 unicorns’ various share classes and found that firms were overstating their valuations by 48% on average.
The second issue is one of governance. Recent years have seen frequent use of “inside rounds”, in which existing backers stump up more money. These can be a vote of confidence from people who know a business well. But they are also a way for VC firms to mark up their portfolios, generating higher internal rates of return that are more attractive to institutional investors (and form the basis on which many partners get paid). According to Mike Cagney, co-founder of three fintech unicorns, SoFi, Provenance and Figure, an unwritten VC rule advises against a firm which led one investment round in a startup leading the next. That inside rounds have become more common in recent years creates a credibility issue for Silicon Valley, he says. As a result of such finagling, of the roughly 200 American unicorns probably only half merit the moniker.
The plates are both broken and not broken until you open the door.
5. Fascinating account of the Taiwan's successful attempt at leveraging its machine tools manufacturing expertise to mass produce face masks,
The small group of engineers and executives who met in a deserted warehouse in northern Taiwan on Feb. 10... were starting a stretch of 15-hour days and fitful sleep were not experts in making masks; most knew little about any aspect of medical equipment. Instead, they were from a clutch of machine tool companies -- making the machines that help Taiwan's industrial wheels turn... In less than a week the team had grown to about 40 people, turned the warehouse into a temporary manufacturing plant and harvested the first fruit of their labor: a mask-making machine, built from scratch... the volunteers quickly arranged more than 40 workstations to erect and test each part of a mask machine. They identified and labeled each of the hundreds of components needed and drafted a workflow chart and a timeline to deliver each machine... they had formulated a plan to build around 90 more machines in less than a month. True to the plan, those machines are now up and running... On Feb. 16, a Sunday, a team of engineers delivered the machine to Sumeasy Enterprise, a small mask-maker 40 km away in the port city of Keelung... "We did not have any reference designs for the mask machine and we did not know what exact parts we needed. We just had to try to figure it out one by one. ..." Winston Dai, the general manager of Taiwan Takisawa Technology, a leading listed precision machinery maker, and the onsite project leader, told the Nikkei Asian Review... As a result, within a month Taiwan went from producing fewer than 1.9 million masks a day to making nearly 10 times that number. From being reliant on China, Taiwan is now able to donate millions of masks to the U.S., U.K. and EU to help combat the coronavirus.
There is something about a deep engineering expertise which is critical to pulling out such successes. This is important,
Much has been written about Germany's so-called "hidden champions" -- a phrase coined to describe the swath of little-known family-owned outfits, often in niche engineering segments, that form the economic backbone of Europe's export powerhouse. But whereas Germany's engineering story is well-known, Taiwan's machine tool makers may be the real hidden champions. The trade-reliant island is proud of having chip and electronics manufacturing giants like Taiwan Semiconductor Manufacturing Co. and Foxconn, vital links in the global tech supply chain. Less noticed is that Taiwan is also a machine tool powerhouse ranked as the world's fifth-largest exporter.
6. Irudaya Rajan writes about trends and challenges with immigration from Kerala, especially to the Gulf countries.
8. The Bank of Japan is extending its extraordinary quantitative easing policies,
The Bank of Japan’s efforts to ensure liquidity for businesses and suppress yields in the corporate debt market could soon leave it owning almost half the country’s outstanding commercial paper and about one-sixth of its corporate bonds. Under the BoJ’s plans, announced on Monday, the central bank will increase its existing holdings of commercial paper and corporate bonds from around ¥5tn ($46bn) to as much as ¥20tn. The move is designed to complement easing policies that have seen the central bank build its holdings of Japanese government bonds (JGBs) to about 50 per cent of the entire market. It forms part of a controversial 10-year programme in which the BoJ has accumulated a roughly ¥30tn stash of equities through buying exchange traded funds... In an additional display of intent, the BoJ said it would lengthen the maturity of corporate bonds it can hold to as much as five years. It will also raise its maximum ownership of a single issuer’s CP or corporate bonds to 50 per cent and 30 per cent, respectively.
9. Encouraging news from Africa so far,
One way to judge whether coronavirus deaths might be being under-reported was to search overall fatality statistics for deaths in excess of normal levels. In South Africa, deaths in the year up to April 14 were “generally within the bounds of expectation”, according to the country’s Medical Research Council, suggesting few hidden coronavirus deaths. In Egypt, a country of 100m people that has recorded 4,782 infections and 337 deaths, one epidemiologist said the data released by the health ministry was insufficient to predict the course of the disease. But he doubted that the official statistics were wildly inaccurate: “If infections were drastically higher, we would see hospitals being overwhelmed, which is not happening. But it could still happen.”
And this collateral benefit of lockdown,
10. Jon Gray, President of Blackstone, defends the importance of private capital in Covid 19 rescue efforts. For sure, private capital has a role to play. But is this one of the channels?
Blackstone has announced a $2bn royalty, debt and equity collaboration with Alnylam, a leading biopharmaceutical company focused on medicines that use RNA to interfere with gene expression to treat diseases.
For an industry already suffering from excessive financialisation with very damaging impact on health care costs, I am not sure whether this is the right kind of capital required.
11. Informative article on migrant labour in India,
In 2018, the construction sector contributed 7.9 percent to India’s GDP, and employed more than 51 million people. About 87.4 percent of its workers were categorised as casual labour. The sector, therefore, employs a majority of the informal workers in the country. Data from the central government indicates that there are 3.5 crore registered construction workers (under the Building and Other Construction Workers Act 1996).
This is a very good report on the sad plight of migrants returning home walking long distances on foot ("with just biscuits and water").
12. John Plender summarises the problems with the share buyback capitalism of recent times,
Ostensibly this is good for shareholders since it puts money into their pockets. Yet the opportunity cost may be high, especially when executives are buying back shares when the market is overvalued. Interestingly, very little buying took place when the markets were low in 2008-09 while buybacks proliferated in the peak years of 2018 and 2019. Such expensive buying can be explained by another principal-agent problem. Since so many bonuses and incentive structures are related to earnings and share prices executives have an incentive to shrink the equity to bump up earnings per share. But they do so at the cost of systematically weakening the balance sheet of the corporate sector. Some of the most enthusiastic buyers have been in precisely the sectors such as airlines and hotels that have been worst hit by coronavirus. Mass corporate defaults are now in prospect. The IMF estimated last October that debt owed by firms unable to cover interest expenses with earnings — “zombie” companies — could rise to $19tn in a scenario half as severe as the financial crisis... As the defaults accelerate, asset owners and managers should be asking themselves why they adopted such a permissive stance over buybacks and how their stewardship agenda should address the issue of balance sheet resilience in future.
13. Finally, Madhya Pradesh government announces a series of reforms on the agriculture marketing side,
Farmers can now directly sell the produce to private traders from their homes and are not required to go to the market (Mandi). Apart from this, they will also have the option of going to the market to sell their produce at support price... the traders will be able to visit the farmers in their houses or buy their crops from the farm by taking a license. A single license will enable traders to buy produce from anywhere in the state... The government has also introduced "Sauda Patrak" system through which traders can purchase produce from farmers from their homes. About 80 percent of the procurement of mandis or vegetable market has been done through Sauda Patraks...
Seven new provisions have been added to the Mandi Act including provision for the establishment of Mandis in private sector. Godowns, silo cold storage etc can also be declared as private mandis. Food processors, exporters, wholesale sellers and end users to directly purchase from the farmers at village level outside the mandi. Mandi committees will have no interference in the work of private mandis. Provision has been made to separate regulatory powers from the Managing Director Mandi Board and give it to Director Marketing. Traders can now engage in trade in the entire state with a single license.
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