Weekend reading links

1. FT reports that Beijing is considering introducing property tax,

China has expanded trials for a property tax, a decision that pitches President Xi Jinping against deeply entrenched vested interests across an economy fuelled for decades by real estate development. The state council, China’s cabinet, will expand pilot schemes to tax residential and commercial property in cities, according to an announcement by the National People’s Congress — the rubber-stamp legislature — on Saturday. The locations were not disclosed but rural households will be excluded... Proposals to introduce a property tax have been discussed for almost 20 years. The tax is envisaged as an annual levy on home ownership and would be set and collected by local governments... Many tax specialists and economists believe it will also help wean local governments off their chronic dependence on selling and leasing public land to developers. This relationship has contributed to widespread property speculation and pushed land and house prices higher in a cycle that many experts believe is unsustainable.

In keeping with its "crossing the river by feeling the stones" approach, it plans to pilot it experimentally in a few places. 

See also this.

2. Tamal Bandopadhyay makes the point about low penalties imposed by RBI on banks for various regulatory violations. 

One way of tackling this could be linking the penalty to the profits of the entities, depending on the gravity of the violation. Also, to make it more effective and force the penalised entity to care for its reputation, the RBI can think of making the full contour of the violations public instead of issuing a sanitised press release. The market regulator makes full text of such orders public. Penalty must act as a deterrent. If it is too low, it could encourage the regulated entities to lap up penalty instead of complying with the norms.

3. Tesla's share price has risen five fold since July 2020 and the company is now worth more than the next nine most valuable carmakers combined.

John Thornhill has more on Tesla,

Tesla is a very different type of car manufacturer, integrating hardware and software and allowing it to charge a gross margin of about 30 per cent on each car sold, matched only by the likes of Ferrari... Tesla does not just bash metal, however elegantly. It also generates income from software services, charging, maintenance and insurance as well as sales of powertrains, batteries and carbon credits to other manufacturers. All this means Tesla enjoys far higher barriers to entry than most other carmakers.

4. From Bloomberg,

There’s a good reason we use ships to ship stuff rather than planes, though: They can carry SO much more. Take Ever Given, for example. When it’s not hanging out in the Suez Canal, it’s capable of shipping about 20,000 twenty-foot equivalent units, with a net tonnage of 99,155. The world’s biggest container ship, the Ever Ace, can ship 23,992 TEUs. In comparison, the world’s biggest-ever cargo plane can only carry a measly 250 tons. It’d need to make about 397 journeys (not including the return journeys to reload) to ship everything Ever Given could in one go, costing a bundle in fuel costs and taking way more time.

5. Useful Indian coal production facts,

In the decade between 1980-81 and 1990-91, the coal production grew by 6.5% per year on average. This fell to 3.5% per year between 1990-91 and 2000-01. Between 2000-01 and 2010-11, it stood at 4.9% per year. In the decade between 2010-11 and 2020-21, it has fallen to an all-time low of 3.3% per year... the growth in coal production for the ten-year period ending 2019-20... stands at 3.4% per year on average... The point here is that the production of Coal India typically tends to grow by 3-4% per year on average. The demand for coal on the other hand in the last ten years has grown by around 4.8% per year. 

So why is Coal India not able to expand coal production fast enough? The answer lies in the fact that the firm is not able to start new coal mines fast enough. The annual report of 2020-21 points out: “114 coal projects with a sanctioned capacity of 836.5 million tonnes and a sanctioned capital of ₹1.2 trillion are in different stages of implementation, out of which 75 projects are on schedule and 39 projects are delayed". The delay is attributed to delay in forest clearances, possession of land from which coal has to be mined and rehabilitation and resettlement of people living on that land. The firm also had to contend with encroachment and an appreciation in land prices. Simply put, Coal India runs into the major systemic challenges encountered by any entrepreneur in India...

In 1993, the government decided to allocate coal blocks to both private sector and public sector companies for captive consumption... By 2013-14, 218 coal blocks with a geological reserve of around 50 billion tonnes had been allocated. In September 2014, the Supreme Court cancelled allocation of 204 out of these 218 coal blocks... the fact is that captive blocks never really produced a significant amount of coal in the first place. In 2012-13, the total production of captive coal blocks stood at 37 million tonnes. This formed around 6.7% of the total coal production during that year. In 2020-21, net production from captive coal blocks was 66.4 million tonnes or around 9.3% of the total production.

6. Business Standard reports that Indian companies in the top 500 global companies in terms of market capitalisation are the most expensive. 

The Indian companies that are part of the top 500 are Reliance Industries, Tata Consultancy Services, Infosys, HDFC Bank, ICICI Bank, Hindustan Unilever, HDFC, Bajaj Finance, State Bank of India, Kotak Mahindra Bank, Bharti Airtel, Wipro, HCL Tech.

7. KP Krishnan has a good article on the overlapping regulatory jurisdictions in areas like audit services, competition in banking, data protection etc. 

8. Simon Kuper proposes a four-day work week in developed countries,

So to stop climate change, we need to get poorer, and the safest way to do that is to work less. This would continue a long trend of improving life by cutting working hours. In 1870, the average worker in industrialised countries put in more than 3,000 hours a year, or 60 to 70 hours a week for 50 weeks, calculate economic historians Michael Huberman and Chris Minns. By 2019, that total had dropped to 1,383 hours in Germany, and 1,777 in the US, before slumping during lockdowns... The four-day week is being piloted in various countries, discussed even in Japan, and is already common in Iceland.

9. Richard Waters wonders how much big is too big as he describes Google as devouring the global advertisement industry

Magna Global estimates that global adverting will reach $657bn this year. With around $200bn of ad revenue flowing through its systems, that suggests Google will handle around 30 per cent of all global advertising (after handing back some of this to partners in the form of traffic acquisition costs, it will keep around one-quarter of the global ads cake for itself). And it is still growing at more than twice the rate of the overall industry... Next year, Wall Street analysts are forecasting what might seem more modest growth for Alphabet of 17 per cent. When you get to this size, though, there is nothing modest about it. The extra $40bn in sales projected for Google in 2022 represents about as much as Comcast, Disney, WarnerMedia and ViacomCBS generated between them last year.

The scale of market capitalisation growth is mind-boggling,

A day after reporting earnings this week, Microsoft and Google put on nearly $200bn in stock market value between them. Google’s latest advance put its market cap within a whisker of $2tn. Big Tech’s stock market advance has come in lurches. Last year the big gainers were Apple (which added $970bn on hopes for an iPhone “supercycle”) and Amazon (which gained $700bn from the swing to ecommerce caused by Covid-19). This year it has been the turn of Google and Microsoft, which have put on around $800bn of market cap each on a belief that the pandemic-induced shift to cloud computing and digital advertising will prove lasting.

10. Vivek Kaul makes a case that inflation in India may be much higher than what's captured in the official CPI numbers. As against the official retail inflation of 4.35%, he offers some disaggregated rates,

If inflation in key commodities like palm oil…was about 100 in 2020-2021, we are now talking about 1.6 to 1.8X... A report by ICICI Securities published on 14 October points out that the price of titanium dioxide in September 2021 was up 44% from September 2020. Further, tinplate prices have risen 148% in comparison to last year, ICICI Securities points out. Tinplate is used to make the metal cans in which paint is packed. Given this, Syngle of Asian Paints said the following: “We have never seen… in the last about 3-4 decades, inflation which is so strong… Overall inflation is closer to about 18-20% levels when we see from a perspective of Q3 [October to December] of last year.”... If we look at the detailed CPI, the petrol and diesel prices in the last one year have gone up by 22.26% and 22.44%, respectively... And recreation and amusement prices have gone up 7.58% in the last one year... Taxi and autorickshaw fares are up 6.76% in the last one year... Airfares are up 32%. Domestic cooking gas prices are up 41%... 

Health inflation has been at 7.74%. Further, clothing and footwear prices have gone up by 7.16% in the last one year. Even under food prices, different things need to be considered. Cereal prices have been kind of flat in the last one year. The prices of eggs, fish and meat are up 7.91%. Edible oil and fat prices have been on fire, going up 34% in the past year. Prices of pulses are up 8.75%. But vegetable prices are down 22.47%... Within inflation of manufactured products, textiles inflation was 16.81%, chemical and chemical products inflation was 13.09%, and basic metals inflation was 26.71%. So, those who have been asking why inflation hasn’t been showing up in data have been looking at the wrong kind of inflation. Some of this inflation has seeped into retail inflation, but the extent to which you have been impacted by it depends on your consumption basket or what exactly you consume. Take a look at the price increases of fast-moving consumer goods. The price of toilet soap is up 7.86%. Toothpaste prices are up 4.84%. Shaving blades are up 6.07%. And shampoo and hair oil prices are up 5.04%.

I don't know where these numbers are from and how credible they are. But the general evidence points to a much higher inflation than is captured in the CPI.

11. The Economist points to the return of the big state in UK

According to forecasts by the Office for Budget Responsibility (obr), a watchdog, spending will grow from 39.8% of gdp before the pandemic to 41.6% by 2026-27, the highest sustained share since the 1970s. Tax will rise from 33.5% of gdp to 36.2%, a level not seen since the early 1950s.

12. Is Mongolia one of the worst exhibits of the natural resource curse? The country, despite benefiting from the commodity up-cycle, appears to have frittered away its resource revenues in populist handouts and corruption. 

Beginning last year... the country's new president, Khurelsukh Ukhnaa... paid off 695 billion tugrik ($244 million) worth of pensioners' debts by selling bonds backed by state-owned silver deposits. Then, a month before the election, the cabinet, under the control of Khurelsukh's party, transferred 216 billion tugrik to debt-free pensioners. Again the money came from bonds backed by state silver deposits. Patronage politics have become routine in Mongolia, where elections have turned into cash giveaways and the country has very little to show for the fire hose of wealth that has been largely consumed by political handouts and corruption... Andrei Mikhnev, country manager at the World Bank, cites the bank's estimate that for every dollar of mineral wealth that has been generated during the past 20 years, Mongolia has consumed 99 cents and saved a mere 1 cent. Buying elections wholesale began in 2008, when the MPP made a campaign promise to pay $700 to each citizen from mining revenues. The following day, its opponents, the Democratic Party, pledged $1,000. The amount would have totaled 60% of the country's entire GDP at the time.

(HT: Ananth)