Weekend reading links

1. The Economist points to a quiet energy transformation happening in the North Sea region involving large wind farms, hydrogen storage banks, CO2 capture and storage, and LNG terminals.

In 2022 North Sea countries auctioned off 25 gigawatts (GW) in wind-power capacity, making it the busiest year by far. Nearly 30 GW-worth of tenders have already been scheduled for the next three years... At a meeting in Esbjerg in May the European Commission and four North Sea countries agreed to install 150 GW by 2050, five times Europe’s and three times the world’s current total. In September this group and another five countries raised the number to 260 GW, equivalent to 24,000 of today’s largest turbines. This ambition is made possible by wind’s version of Moore’s law, which described the exponential rise in computing power. Three decades ago the world’s first offshore wind farm—Vindeby in Denmark, comprising 11 turbines—had a total capacity of five MW. Today a single turbine can generate 14 MW, and one farm may contain more than 100 of them. More robust cables and transformers at sea to convert wind power from alternating into direct current, which can travel over long distances without big losses, enable more electricity to be generated farther away... Economies of scale are driving down costs, making offshore wind competitive with other sources of power. In July Britain awarded contracts to five projects, including Dogger Bank, at a price of £37 ($44) per megawatt-hour—less than a sixth of the British wholesale electricity price in December...

With average wind speeds of ten metres per second, the North Sea basin is one of the gustiest in the world... The North Sea floor is mostly soft, which makes it easier to fix turbines to the seabed (the floating kind have yet to be deployed at scale anywhere in the world). It is also typically no more than 90 metres deep, which allows wind farms to be placed farther away from the coast, where winds are more consistent... offshore turbines work at up to 60% of capacity, compared with the 30-40% that is typical onshore.

2. As Union Budget nears, The Ken has an article on India's complex capital gains taxation system.  

Capital gains vary across asset categories based on tenure of holding, indexation, exemptions, and tax rates. 

3. Fascinating profile of Robert Habeck, the former leader of German Greens and the current Economy Minister. Amidst the Russian invasion of Ukraine and related supply disruptions, Habeck has had to preside over several decisions that Greens strongly oppose. They include the establishment of Germany's first LNG terminals; reopening of some closed coal power stations; deal with RWE allowing it to bulldoze Lutzerath, an abandoned Rhineland village, to make way for an opencast coal mine so that it could operationalise two thermal plants; allow Germany's three remaining nuclear plants stay operational till April 2023; and reversal of German position to not send troops abroad. 

Habeck's pragmatism runs the risk of diluting the Greens' ideological strength. 

4. Ruchir Sharma on Xi Jinping's apparent reversal,

Aiming to revive the economy after the congress, Xi’s government started sounding less Maoist. It has dropped the “three red lines” on borrowing by developers, and announced that the “rectification” campaign against fintech firms is nearly complete. After tightening state control for years, it is sending out messages of support to the private sector, even offering details of its new global data market that suggest respect for private data ownership... within weeks, Xi’s government has reversed its efforts to control Covid-19, Big Tech companies, the property market and more. It has shown signs of reduced support for Russia’s war in Ukraine while easing tensions with the US and in its territorial disputes in the South China Sea.

5. Interesting transformation quietly happening in Singapore,

... a transformation of Singapore that is becoming a proxy for the way in which one segment of China is dealing with geopolitical tension and decoupling. Chinese individuals, their families, their companies and their advisers, according to a wide range of bankers, lawyers, accountants, investors interviewed by the Financial Times, now see Singapore as the vessel that can navigate them through a series of expected storms. At the same time, they add, it is becoming an increasingly vital place for outposts of Wall Street and the global financial industry to interact with them. For many years, Singapore has liked to sell itself as the Switzerland of Asia. The new cold war, says one former top official, is finally turning that pitch into a reality. The big question, though, is how far Singapore will tolerate being Switzerland with Chinese characteristics...

The change on the ground in Singapore is palpable. Property deals by mainland buyers are the dominant transaction, the international schools are bursting at the seams, with hundreds of Chinese applicants for a vanishingly small number of places. Chinese Michelin-starred restaurants might — just — be able to find diners an available dinner booking next April. Singapore’s status as an Asian financial hub has been doubly enhanced by the Chinese influx. The number of Chinese family funds in Singapore has soared from a handful a few years ago to an estimated 600 today. At the same time, some 500 Chinese businesses have registered in the city in the past year, preparing to use their Singapore-based status to venture more boldly into India and other jurisdictions where they face obstacles... he cost of living has soared in Singapore, angering locals who see danger and division in the soaring rents, the bursting schools and the growing number of Rolls-Royces. Meanwhile, the inflow of so much capital so quickly also exposes Singapore to the potential for bad actors using it as a spot to hide money... Roughly three-quarters of Singapore’s 3.5mn citizens are ethnically Chinese, making it culturally an easy fit for the newest arrivals.

The biggest loser in this transformation, Hong Kong.

6. Good article in The Economist examining the reasons behind the slowdown or reversal of globalisation and rise of protectionism. 

In a speech in September America’s national security adviser, Jake Sullivan, spelled out the basic tenets of this beggar-thy-neighbour approach. Merely retaining a technological lead over China and other rivals was no longer enough, he argued. Instead, he said, America had to pursue “as large of a lead as possible” in chipmaking, quantum computing, artificial intelligence, biotechnology and clean energy... Mr Sullivan described two main ways to ensure American supremacy: using subsidies and other forms of industrial policy to shift supply chains away from geopolitical rivals, and stricter investment screening and export controls to keep advanced technology out of unfriendly hands. As America, once the world’s loudest advocate of free trade and open economies, adopts and reinforces such policies, other countries are mimicking its approach. The result is a proliferation of obstacles to international trade and investment at a time when both were already stagnating.

7. The fascinating story behind the origin of European foods,

... trdelnik is no local snack at all. Nobody in Prague recalls seeing this supposed Czech staple for sale until about a decade ago. Even today, trdelnik scent blankets the touristy bits of Prague like a smog, but is hard to find anywhere else. Food sleuths place trdelnik as a delicacy from Romania or Slovakia... Take ciabatta. Italy’s now-ubiquitous bread is paraded as a timeless Italian classic, perhaps once baked in the earthen ovens of ancient Rome. In fact the elongated loaf was devised in 1982 by Italian bakers trying to fend off the French baguette. Belgian beers top global league tables, known for their alcohol content, which can exceed that of wine. Is that distinctive feature the outcome of brewing traditions devised by the various monks and friars featured on the beers’ labels? Pish. The strength of low-country beer is a modern regulatory dodge. In 1919 Belgian taverns were banned from selling spirits, a prohibition that lasted until 1983. Drunks in search of an efficient tipple nudged breweries towards making dubbel-strength beers. Tripels followed soon enough.

The dairy lobby is a keen fabricator of heritage. It is largely down to Big Cheese’s Swiss arm, the Schweizerische Käseunion, that fondue has emerged as Switzerland’s national dish. Facing a glut of Gruyère and Emmentaler in the 1930s as exports melted, cheese-peddlers proclaimed the Alpine virtues of a dish consisting overwhelmingly of cheese. British farm labourers of yesteryear were unfussy about their mid-day meals. Nevertheless in the 1960s the Milk Marketing Board revived the idea of a cheese-laden Ploughman’s Lunch, now a pub staple. As skimmed milk gained popularity in Ireland in the 1970s, a new way to use surplus cream was needed. Thus Bailey’s Irish Cream (a sickly mix of whiskey, cream and cocoa extract) was born. An Irish meadow on its label suggests centuries of heritage; in fact it is younger than Liam Gallagher.

Governments trying to nudge the populace towards new foods are nothing new. The potato went from South American curio to European favourite thanks in part to 18th-century French efforts to diversify away from wheat. Antoine-Augustin Parmentier, its keenest promoter, stationed armed guards around a potato patch to make it seem valuable and removed them at night so that peasants would steal and plant the tubers. Polish authorities in the 1940s started peddling carp—a bottom-feeding fish that tastes like muddy pond—in the absence of more flavourful fish. “A carp on every Christmas table” was advised; the fish (previously mostly a Jewish delicacy) was handed out to workers as festive bonuses. It has endured as a holiday staple. An even more ambitious fish-peddling scheme was later devised by Norway. In the 1980s supply of salmon exceeded domestic demand. Japan seemed an obvious market, but only tuna and sea bream were considered acceptable to eat as sushi and sashimi: at the time, the Japanese were as likely to eat raw salmon as an Italian to dip his spaghetti in mayonnaise. One marketing blitz (and a few discounted consignments of Norwegian salmon) later, a new tradition of orange sushi was born.

8. Sweden discovers rare earth deposits of more than 1 million tonnes. 

9. A new paper by Alexander Dyck, Adair Morse and Luigi Zingales has found that corporate fraud in the US is more pervasive than thought, with only one-third actually being detected. 

We estimate that on average 10% of large publicly traded firms are committing securities fraud every year, with a 95% confidence interval of 7%-14%. Combining fraud pervasiveness with existing estimates of the costs of detected and undetected fraud, we estimate that corporate fraud destroys 1.6% of equity value each year, equal to $830 billion in 2021... We find that two out of three corporate frauds go undetected, implying that, pre Sox, 41% of large public firms were misreporting their financial accounts in a material way and 10% of the firms were committing securities fraud, imposing an annual cost of $254 billion on investors.

See also this. 

10. MGI graphic informs that only 59-72 tomatoes grown in developed countries reach the retailer. 

In fact, 19-27 are lost/left in the field at harvest itself. 

11. On the issue central bank's role in climate change policy making, Jerome Powell feels they should stick to their knitting,

Today, some analysts ask whether incorporating into bank supervision the perceived risks associated with climate change is appropriate, wise, and consistent with our existing mandates. Addressing climate change seems likely to require policies that would have significant distributional and other effects on companies, industries, regions, and nations. Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections. 

At the same time, in my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change. But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a “climate policymaker.”

12. Finally, Martin Wolf points to a new McKinsey report on global flows