1. Graham Allison writes on China's dominance of the solar generation industry
China manufactures 80 per cent of all the solar panels produced globally. And, as the IEA notes, China’s dominance is even more pronounced when one examines the entire supply chain. It produces 85 per cent of the global supply of solar cells, 88 per cent of solar-grade polysilicon, and 97 per cent of the silicon ingots and wafers that form the core of solar cells. China’s rise to dominance in solar has been rapid. In 2005, Europeans led this race, with Germany accounting for a fifth of global solar manufacturing. By 2010, while Europe installed eight out of every 10 solar panels in the world, it produced only one. This year, China will make eight of every 10 solar panels produced worldwide and add five of those to its grid. In 2023 alone, China will install more new solar capacity than the US has deployed since Americans bought their first panels in the early 1970s.
It dominates poly silicon production
And the country's dominance in the market is the anti-thesis of free-market capitalism 101,
The factors driving China’s success in this arena are the same ones that have made it the uncontested manufacturing workshop of the world. These include low-cost capital, rapid regulatory approvals, protection from foreign competition, lower labour costs, an unparalleled network of suppliers, and fast-growing domestic demand.
Rana Faroohar points to a German Marshall Fund paper that points to China's dominance of the rare earths market
As the GMF report notes, China controls 61 per cent of global lithium refining, and 70 per cent of the global supply of cobalt for lithium ion batteries comes from mines in the Democratic Republic of Congo, many of which are owned by the Chinese. China controls 100 per cent of the processing of natural graphite used for battery anodes, and 80 per cent of the total rare earth production and processing.
2. This blog believes that the biggest obstacle to achieving green transition is the high cost of capital in developing countries. Martin Wolf has an article on the issue, that draws on Avinash Persaud's paper here.
In high-income countries, 81 per cent of green investment is funded by the private sector. In emerging and developing countries, the private share is a mere 14 per cent... for a similar solar farm, the average interest cost in leading emerging countries is a prohibitive 10.6 per cent per annum, against only 4 per cent in the EU... the cause of this huge spread is not project-specific risk. A solar farm, qua solar farm, is no riskier in India than Germany. More than all of the risk premium represents market estimates of macroeconomic (specifically, currency and default) risks. He also argues that these risks are not just exaggerated, but cyclically so: in “risk on” periods, overpayment for insurance is smaller than in “risk off” ones.
The paper calculates this by looking at the cost of hedging foreign currency risk. That is expressed in terms of the difference between the price of buying foreign currency with local currency in future (the forward rate) and today (the spot rate). This gap can then be turned into an annual percentage rate. The conclusion from the evidence is that markets are too risk averse: the risks are not as great as they fear. This is particularly true when the markets are at their most risk averse: on average, “overpayment” for hedges has been 2.2 percentage points when their cost is below the three-year moving average, but 4.7 percentage points when the cost is above its moving average.
The article has a good graphic illustrating the problem with the example of Indonesia, which shows that the cost of hedging the country's currency is closely linked to global conditions.
Persaud sees a free lunch here, in terms of lowering the risk premia to attract capital to developing countries.
As Persaud puts it, “private investors are leaving money on the table. But even more significant are the far greater social gains from . . . boosting green growth in developing countries that are being left alongside.” This is a “planet sized” market failure. His proposal then is for a joint agency of the multilateral development banks and the IMF to offer foreign currency guarantees and pool currency risks. Projects could come to the guarantee agency from the MDBs. The guarantee agency could then prioritise projects that have the most significant positive impact on the climate. To limit risks of loss, the agency would wait until hedging costs were above the three-year average and so until risks are deemed large.
3. Vietnam may be the biggest immediate winner from the new Cold War arising from China-US tensions. From a new working paper by Anh Phuoc Thien Nguyen and Sunghun Lim,
Leveraging the US-China trade war episode, we uncover Vietnam’s structural transformation amid a harbinger of the end of globalization. Using Vietnam’s firm census and labor force survey data, we find that regions that were more exposed to the trade war shifted from informal agriculture to formal manufacturing. The trade war also led to increased firm formality and skill upgrading, accompanied by demand for skilled labor, particularly among females. Additionally, the trade war accelerated Vietnam’s urbanization through labor reallocation.
4. China plans more spending programs to revive stalling economic growth and high youth unemployment rate. As earlier, and despite the harsh lessons from it, the policies prioritised are more infrastructure spending and those to encourage people to buy more houses. A WSJ report points out that Beijing is considering issuing $140 billion of special treasury bonds to help indebted local governments and boost business confidence. The bonds would be used to finance infrastructure projects. It's also proposed to scrap purchase restrictions on second homes in smaller cities to boost the property market. Interest rates have already been cut by the PBoC.
5. History of the United States over the last sixty years in two graphics. First about the rising profits and stagnant wages.
6. A feature of modern capitalism is how much of the agenda on what constitutes progress is being set by corporate interests. The latest is space travel.
Elon Musk, Jeff Bezos and Richard Branson are racing to establish a presence in space. But what rights and obligations come with that? It’s still not clear what the space laws are, even as the $460 billion industry is growing quickly.
7. Constraints on the electricity grid is becoming a big obstacle to the great transition. The scale is enormous.
One of the big issues... is there is “not enough grid” infrastructure to meet the needs of the changing energy system. BloombergNEF, a data provider, estimates that 80mn km of new grid is needed by 2050, more than enough to replace the entire global grid today... In much of the western world grids were developed after the second world war to serve big power stations burning a fossil fuel such as coal or gas... The green transition will require an overhaul of the current set-up. Several wind and solar farms are often needed to replace a large power plant, partly due to the intermittent nature of renewable energy; the wind doesn’t always blow. These farms all need grid connections, yet typically they are in remote areas or off coasts, where grids are patchier. “The grid is in the wrong place to deliver the power from [renewable energy] to economic centres,” says Peter Crossley, a professor of power systems at Exeter university.Alongside this obstacle, the rollout of solar panels on homes and businesses that feed into the grid — plus the shift towards electric vehicles and heat pumps — has increased the complexity of managing electricity networks. Grid operators face a tricky balancing act — they must keep the lights on and expand the network without ramping up costs for consumers, while increasingly considering their role in cutting greenhouse gas emissions... In the UK, Spain and Italy more than 150GW of wind and solar projects are stuck in grid connection queues in each country, according to figures from BloombergNEF...Despite countries setting out legal targets to cut emissions and increase renewable energy generation, operators and politicians have been slow to spend money to upgrade grids... Figures from the International Energy Agency show that rather than capital investment in grids globally increasing following the Paris agreement, it fell between 2017 to 2020 and only recovered to 2016 levels in 2022 at $330bn. Grid investments in Europe were stagnant between 2015 and 2020 at about $50bn per year, picking up only slightly in the past couple of years. In China, after falling between 2019 and 2021, investments in the country’s grids grew by 16 per cent to almost $83bn last year.
This about how California is struggling to overcome environmental and other regulations and build the electricity grid.
8. Michael Massing has an article that illustrates the elite capture and self-censorship that is pervasive at Harvard Kennedy School
The Kennedy School in general is not hospitable to misfits. Those who too sharply question the established ways or stray too far outside the accepted parameters of thought can find themselves pushed to the sidelines, marginalized, and denied tenure or influential posts. The school’s close ties to Washington and the heavy presence of generals and admirals, intelligence officers and geostrategists, diplomats and thought leaders, create a climate unsupportive of those who are too outspoken on human rights, the Israel-Palestinian issue, or US foreign policy.
This about Meghan O Sullivan is emblematic
On February 21, the Belfer Center for Science and International Affairs—the school’s main foreign policy hub—named a new director: Meghan O’Sullivan. The Jeane Kirkpatrick Professor of the Practice of International Affairs, O’Sullivan served as a special assistant to President George W. Bush from 2004 to 2007, including two years as the deputy national security adviser for Iraq and Afghanistan. She spent a year in Baghdad, becoming a top aide to Paul Bremer, the head of the Coalition Provisional Authority, whose policies helped plunge Iraq into years of sectarian violence... On her Kennedy School web page, she lists among her “outside professional activities” Capital Group (investment management), CEO Academy (training chief executives), Citigroup (banking), the Hess Corporation (oil), Linklaters (corporate law), Macro Advisory Partners (strategic consulting), McKinsey (management consulting), PIMCO (investment management), and Raytheon Technologies.Raytheon, on whose board O’Sullivan sits, is one of the five largest US defense contractors... From 2020 to 2022, O’Sullivan received more than $900,000 in compensation from Raytheon for her board service... In an editorial, the Crimson called her connection to Raytheon “a stain on our institution.” ... the Crimson said that by “continuing her involvement with Raytheon, O’Sullivan has demonstrated extraordinarily bad judgment at best and frank, dark immorality at worst,” and it urged her to resign.
See also this about Larry Summer's deeply questionable motivations.
9. Most of capitalism with Chinese characteristics is sensible. But not "business valuation with Chinese characteristics"!
Beijing’s bid to persuade investors to value its giant state-owned enterprises according to their socialist credentials, rather than by conventional western capitalist measures, has flopped after a rally in their shares fizzled this month. The stocks rose after officials in November called for the creation of a “valuation system with Chinese characteristics” that departed from traditional market methods by recognising the merits of “Communist party corporate governance”. To bolster the move, government-backed asset managers set up 16 mutual funds, nine of them index-linked, with a mandate to invest in state-owned listed companies.
10. Ruchir Sharma points to the rise of billionaire wealth. This shows the trends in wealth in emerging economies, where India dominates.
11. The ProPublica has an investigation which points to ethics violation and more by the US Supreme Court Judge, Samuel Alito,
In early July 2008, Samuel Alito... was on vacation at a luxury fishing lodge that charged more than $1,000 a day... Paul Singer, a hedge fund billionaire... flew Alito to Alaska on a private jet. If the justice chartered the plane himself, the cost could have exceeded $100,000 one way... In the years that followed, Singer’s hedge fund came before the court at least 10 times in cases where his role was often covered by the legal press and mainstream media. In 2014, the court agreed to resolve a key issue in a decade-long battle between Singer’s hedge fund and the nation of Argentina. Alito did not recuse himself from the case and voted with the 7-1 majority in Singer’s favor. The hedge fund was ultimately paid $2.4 billion. Alito did not report the 2008 fishing trip on his annual financial disclosures. By failing to disclose the private jet flight Singer provided, Alito appears to have violated a federal law that requires justices to disclose most gifts, according to ethics law experts...
This spring, ProPublica reported that Justice Clarence Thomas received decades of luxury travel from another Republican megadonor, Dallas real estate magnate Harlan Crow. In a statement, Thomas defended the undisclosed trips, saying unnamed colleagues advised him that he didn’t need to report such gifts to the public. Crow also gave Thomas money in an undisclosed real estate deal and paid private school tuition for his grandnephew, who Thomas was raising as a son. Thomas reported neither transaction on his disclosure forms...
Singer’s interest in the courts is more than ideological. His hedge fund, Elliott Management, is best known for making investments that promise handsome returns but could require bruising legal battles. Singer has said he’s drawn to positions where you “control your own destiny, not just riding up and down with the waves of financial markets.” That can mean pressuring corporate boards to fire a CEO, brawling with creditors over the remains of a bankrupt company and suing opponents.
This is another brief summary
In 2008, Justice Alito accepted a free flight to a luxury fishing resort in Alaska on a private jet owned by Paul Singer, the hugely wealthy hedge-fund owner and major conservative donor. When one of Mr. Singer’s companies later appeared before the court in a multibillion-dollar lawsuit against the Argentine government, it won its case, eventually netting $2.4 billion. Justice Alito voted in the majority. He neither recused himself from the case nor reported the free flight, which could have cost him up to $100,000 on the open market, and which appears to be a violation of a federal lawrequiring the disclosure of such gifts.
And this
Rather than try to square that circle and admit he’d been caught doing something ethically wrong and arguably illegal, Justice Alito went to laughable lengths to lawyer his way out. As far as he was aware, he wrote, the seat he occupied on his private-jet jaunt to Alaska “would have otherwise been vacant” — by which he presumably means to say the gift was valueless. Remind me to try that one out the next time I walk past an empty first-class seat on a Delta flight. Seriously, though: do these guys listen to themselves?
In an unprecedented move, Alito pre-empted the ProPublica expose by writing an oped in WSJ defending himself. And the defence, like that of Clarence Thomas earlier, gave the game away by pointing out that such practices were widespread within the US Supreme Court.
In his op-ed, Alito said that justices “commonly interpreted” the law’s exception for hospitality “to mean that accommodations and transportation for social events were not reportable gifts.”
I'm inclined to argue that such corruption is common among high public officials across countries, developed and developing.
12. Good article in the Times about how Russian oil exports have found their way into India.
The bulk of the crude that goes to India from Russia arrives at ports near Jamnagar in Gujarat State and is piped to nearby refineries. The Jamnagar Refinery, which is owned by Reliance Industries, is the largest in the world, with the capacity to process more than 1.2 million barrels per day... India’s second-largest refinery is less than 10 miles away: the Vadinar complex owned by Nayara Energy. Nayara is half-owned by Rosneft, Russia’s state oil company; a Russian investment group has a stake in the other half.
This trade has benefited Russia, India, and Europe. And has perhaps played an important role in keeping oil prices down and ensuring supply to Europe.
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