Weekend reading links

1. Global semiconductor industry facts of the day,

What makes the U.S. effort unique is the enormous one-time sum—roughly $77 billion in subsidies and tax credits—earmarked to boost American manufacturing of the ubiquitous tech component... China has prepared investments of more than $150 billion through 2030, according to one estimate. South Korea, with an aggressive array of incentives, aims to encourage roughly $260 billion in chip investments over the next five years. The European Union is pursuing more than $40 billion in public and private semiconductor investments. Japan is spending about $6 billion to double its domestic chip revenue by the end of the decade. Taiwan has around 150 government-sponsored projects for chip production over the past decade, with its leader pushing for more localized manufacturing of semiconductor equipment. Singapore landed a $5 billion chip factory earlier this year from United Microelectronics Corp...

Annual chip-industry revenues are expected to hit $1.35 trillion by 2030, more than doubling from $553 billion in 2021, according to International Business Strategies Inc., a chip consulting firm... About three-quarters of chip-making capacity is located in China, Taiwan, South Korea and Japan, according to the Semiconductor Industry Association, an industry trade group. The U.S. represents 13%... The semiconductor industry is already on a historic spending spree. It approved some $153 billion in capital expenditures in 2021—about 50% more than before the pandemic started and double the levels from five years earlier... The U.S. was expected to capture about 13% of global semiconductor capital investments through 2026, according to Gartner projections from July, with Asia forecast to account for more than three-quarters of the total spending.

2. Central Banks have acted in unison to slay inflation.

3. Thomas Edsall points to some stunning facts about the economic composition of the two political parties in the US

In 2018, according to ProximityOne, a website that analyzes the demographics of congressional districts, Democratic members of Congress represented 74 of the 100 most affluent districts, including 24 of the top 25. Conversely, Republican members of Congress represented 54 of the 100 districts with the lowest household income. The median household income in districts represented by Democrats was $66,829, which is $10,324 more than the median for districts represented by Republicans, at $56,505. The 2018 data stands in contrast to the income pattern a half-century ago. In 1973, Republicans held 63 of the 100 highest-income districts and Democrats held 73 of the 100 lowest-income districts.

He also points to this observation by Princeton political scientist Nolan McCarty,

Democrats are mostly the party of the master’s degree — modestly advantaged economically but not exactly elite. On the flip side, the Republicans are the party of the associate degree (a two-year college degree), less educated than the Democrats but not exactly the proletariat.

This from NYU Law Professor Richard Pildes

Since the New Deal in the United States and WWII in Western Europe, the base of the dominant parties of the left was less affluent, less highly educated voters; the dominant parties of the right drew their primary support from higher income, more highly educated voters... Democratic candidates received twenty-two points less support from voters in the top ten percent of the income bracket than from those in the bottom ninety percent. By 2012, that gap had dropped to only an eight-point difference and in 2016, voters in the top ten percent had become eight points more likely to vote for Democratic candidates. Similarly, in the 1940s, those with university degrees in the United States were twenty points less likely to vote for Democrats, while in 2000 there was no difference and by 2016, they were thirteen points more likely to vote for Democrats.

4. More on the problems at Byju's here. More one sees it (several articles in The Ken), Byjus appears similar to the infrastructure contractor who specialises in striking deals, cutting-corners, and massaging accounts, masquerading as a tech startup. It's also pertinent that nearly two-thirds of its revenues come from hardware, and looks likely to increase given its recent focus on physical tuition centres.   

5. Rahul Jacob writes that the US Stimulus programs were also a large Marshall Plan for Indian exporters. He argues that the country's spectacular export performance in 2021-22 was driven by US demand.

India’s strong export performance in 2021 benefitted from a once-in-a-century surge in US demand, a black swan outlier of the happy kind... merchandise exports to the US from India grew 43% in fiscal 2021-22. Our nominal exports of jewellery and leather products to the rest of the world actually declined in 2021, compared with the mostly pre-pandemic yea r of 2019. Exports of these products to the US, by contrast, surged by 50% and 20% respectively. In other words, the huge US stimulus packages in 2020 and 2021 turned out to be a Marshall Plan to revive Indian labour-intensive exporters, albeit unintentionally.

It'll be hard to replicate 2021-22, as we are already finding out. A reversion to the mean is most likely. 

6. Interesting graphic in an FT article shows the disproportionately high share of fuel imports in the India's import basket

The country's inflation is the second highest, after Thailand, among major Asian economies. More worrying is the similar position in terms of external balance.

7. FT has a report on immigration trends in UK which has a graphic highlighting the positive role played by immigration in keeping its population younger than most of Europe.

8. The year 2021 may well have been "peak-VC". From an FT report

Sample this stunning statistic,

According to Coatue, one of a new band of “crossover” investors that moved from the public markets into the VC world, $1.4tn found its way into promising growth companies globally last year, half of it in the form of venture capital and half through IPOs. That single-year surge, it calculated, was nearly $1tn more than the average of $425bn a year raised over the previous decade.

The age of FOMO is on the rearview mirror.

9. Jared Dillian on the strange nature of the current "recession"

Activity has contracted, as measured by the official gross domestic product calculations put out by the Commerce Department, but it doesn’t feel like a recession. The economy has added 2.74 million jobs this year through June. This earnings season has shown that many consumer-facing companies such as Starbucks Corp. and Uber Technologies Inc. are enjoying pricing power, and travel companies are experiencing booming demand, with Marriott International Inc. saying hotel occupancy has nearly returned to pre-pandemic levels. If you have taken a flight within the US recently, you have probably noticed that the plane is completely full and the airports are mobbed. Overall, members of the benchmark S&P 500 Index are on track to post record profits for the second quarter.

10. Shuli Ren has a very informative essay on the Chinese conglomerates, jituan, and their convoluted holding structures to raise capital. This opacity is becoming the Achilles heel as corporate defaults mount. 

The article points to the Korean chaebols which the Chinese are trying to imitate. The likes of Samsung have perfected the art of controlling massive businesses with small shareholding through multi-layered shareholding structures. 

The difference in case of China being the role of public finance, government ownership of some of these conglomerates, and their role as instruments of Chinese geo-political ambitions. Ren points to the example of Tsinghua Unigroup, "a Samsung wanna-be" and leading the Chinese semiconductor ambitions.

This seven layered structure which allowed Unigroup to both exercise control over the flash-memory chip maker YMTC and also mobilise large volumes of debt, has also proved its failing by reducing accountability and transparency.