Weekend reading links

1. More on China's EV market stranglehold. This dominance extends to the vehicles sales itself. 

The International Energy Agency forecasts that this year 10.1mn EVs will be sold in China, 3.4mn in Europe, 1.7mn in the US. Fewer than 1.5mn EVs will be sold everywhere else in the world. Yet the agency has forecast that the global EV fleet will grow eight-fold to about 240mn in 2030. This implies annual global EV sales of 20mn cars in 2025 and 40mn in 2030, or 30 per cent of all car sales. Moreover, an increasingly large share of that expansion is likely to come from new markets.

Most of China's new FDI in EVs is in battery production.

In some important developing economies, Chinese companies are investing in both production and processing raw materials. Nowhere is this more striking than China’s involvement in the EV ecosystem in Indonesia, home to the world’s largest reserves of nickel, a key component of EV batteries. Last year alone companies domiciled in China and Hong Kong invested $13.9bn in Indonesia, most of which is believed to have been in the metals and mining industry. Chinese companies account for more than 90 per cent of the nickel smelters in the country. Chinese banks have also been keen to provide financing for nickel plants when others have been hesitant, says Alexander Barus, chief executive of the Indonesia Morowali Industrial Park — the country’s largest nickel processing site, which was built by Tsingshan, a Chinese nickel producer, and a local partner... Having secured access to Indonesia’s key resources, Chinese companies have also been the first movers in setting up EV manufacturing plants, even as Indonesia — and President Joko Widodo personally — have courted other big names such as Tesla to set up EV manufacturing. BYD said early this year that it would invest $1.3bn in an EV factory in Indonesia. The story is similar in Brazil where BYD and compatriot group Great Wall Motor are about to commence local manufacturing that could also serve for exports to the wider region. Great Wall is investing about $1.9bn in Latin America’s largest economy with production expected to start this year at a former Mercedes-Benz factory in Iracemápolis, São Paulo state. As well as its investment in auto production at Camaçari, BYD is also on the lookout for lithium mining assets in Brazil, which is ramping up extraction of the key metal for EV batteries.

2. China's trade surplus touches a record $82.6 bn in May, up 25.6% from a year earlier, largest ever for May, and one of the highest for any month (except during the pandemic).

China is rapidly building new factories and expanding existing ones as part of a national strategy. But spending is weak by Chinese households, because of a long and increasingly steep slide in prices for their apartments. Much of the extra factory production is being exported. With fewer Chinese families buying new apartments, fewer household appliances are sold domestically, for example. The government said that the value of exports of appliances climbed 18.3 percent in May compared with the same month a year earlier. And because demand is so weak in China, appliance prices have tumbled. The actual number of appliances exported last month rose 27.8 percent...

China’s trade surplus has tended to be fairly low in May and much higher later in the year, when its exporters supply goods for the Christmas season. The quantity of many exports, not just household appliances, has been rising faster than their value. So many containers full of goods are leaving China, as fewer come back with imports, that shipping lines have been running short of containers in China... Increased tariffs do not appear to have done much harm yet to China’s exports, and might even help in the short term. Some Chinese companies have rushed to send goods to emerging markets in Latin America and elsewhere before tariffs can take effect. In the past year, China has stepped up exports to Vietnam and Mexico, where goods can be reprocessed and then shipped on to the United States or Europe with low or no tariffs. These more complicated trade routes, coupled with weakness in China’s currency exchange rate, may reduce tariffs’ effectiveness, said Capital Economics, a research firm.

3. Interesting snippet on the contrast between India and China on social welfare spending.

China’s development strategy has always prized jobs and infrastructure investment over handouts and social spending, especially when its poverty rate was over 10%. Its rural poverty plan in 2011 included “self-reliance and hard work” as one of its basic principles... Until 2013 its explicit anti-poverty policies were aimed predominantly at poor places, not people. Its plan in 1994 focused on 592 counties, many of them in the mountains. It then drilled down to about 148,000 villages after 2001. It did introduce dibao cash payments for the urban poor in 1997 and their counterparts in the countryside in 2007. But coverage was limited. One study found that it missed over 80% of the rural poor in 2013. Adding together cash transfers, in-kind transfers and fee waivers, China spent just 0.76% of its gdp on social-safety nets in 2014, according to a World Bank study. 

How does that compare with India’s welfare programmes? The same study reckons India spent over 1.5% of its gdp on them at that time, including public-works projects and school feeding schemes, as well as transfers and waivers. A more recent estimate puts India’s welfare spending at 1.8% of gdp, including direct cash payments to farmers and others, facilitated by the spread of no-frills bank accounts under one of Mr Modi’s signature schemes.

4. Janan Ganesh has an excellent article where he argues that a spell in power has the likelihood of both taming the populists and also reducing their credibility before the electorate. 

The last best hope against populism in Europe is to expose it to government. The pressure of office might force anti-establishment parties to moderate, as Giorgia Meloni has done somewhat in Italy. Or it might reveal their incompetence and turpitude, as happened to Boris Johnson in Britain. Sometimes, of course, it will do neither: power will neither tame nor shame. (See Viktor Orbán.)... Time spent in government is time spent alienating voters with tangible decisions. Right now, in much of Europe, populists have a goldilocks level of success: enough to foul the atmosphere, to spread the idea that simple answers to big problems exist if governments would but enact them, but not enough to have to prove this in office. The establishment has a record, and all records are flawed. Its enemies get to travel lighter. The contest between the two sides is, in Pentagon argot, asymmetric. 

Note how many of the hard right’s relative underperformers in the European parliament elections are incumbents at home (Orbán’s Fidesz) or proppers-up of governments (the Sweden Democrats). This is the gravitational force that drags mainstream politicians down. Government brings round-the-clock attention, not just the curated broadcast rounds at which Nigel Farage excels. Above all, it brings the burden of making decisions that cost voters money. I could cite tax rises here, to fund lavish promises. Or higher interest rates from overborrowing. But few things would harm the populist cause more than having to manage immigration. Their plausible-sounding alternative to foreign labour in low-wage sectors — pay domestic workers more — would be tested against the public’s price-sensitivity. Even if voters don’t balk at higher social care or retail costs, the trade-off would become apparent at last. Never having to be tested, populist ideas have a spurious credibility. Only a spell in government would change that...

A notion dear to the west is that progress is made, and the truth arrived at, through argument. (Socrates has a lot to answer for.) This underestimates the role of practical demonstration. The west didn’t experience a human lifetime of moderate politics after 1945 because it was talked into it. What counted was the folk memory, now almost extinct, of what happened when nations last voted for parties that defined themselves against the system. There might be no safe way of giving voters a controlled dose. But the status quo, in which populists are on television, on stage, but not on the hook for much, isn’t tenable.

5. EV industry job losses fact of the day

In Europe, a 2021 study for a supplier trade body by PwC estimated that a switch to EV production only in the region by 2035 would lead to the loss of some 500,000 jobs in power-train production for cars with internal combustion engines. This would be offset by 226,000 new jobs related to EV power-train production but there still would be less employment.

6. Some disturbing evidence about sample surveys globally

In a recent article published in the Journal of Development Economics, Dahyeon Jeong and co-authors found that in a long survey of consumption expenditure, there is a reduction in item nonresponse by 10 to 64 per cent. However, they also found that “an extra hour of survey time lowers (reported) food expenditures by 25 per cent”... In a paper published in the journal Review of Income and Wealth, Espen Beer Prydz and co-authors compiled a dataset of 2,095 household survey means from 166 countries, which they then matched with the means from national accounts aggregates. They found that across countries, the estimate of average per consumption from household surveys is 20 per cent lower than that in national accounts. The gross domestic product per capita was higher by 50 per cent.

7. The rise of the far-right in the elections to the European Parliament was also accompanied by losses to the Greens. It's a sobering reminder about the challenges with the Green Transition, especially when its costs start to become evident and when it competes with other social concerns. 

Five years after the euphoria the Greens experienced in 2019, when they increased their seats from 52 to 74, they slipped back to 53... The Greens’ performance in 2019 may prove a high-water mark. In the more benign, pre-pandemic and prewar economic environment, mass rallies inspired by green groups and activists such as Greta Thunberg helped to make climate concerns a central electoral issue... Unfortunately, voters began to feel the impact of green policies on their wallets and lifestyles just as post-pandemic inflation and the energy shock from the Ukraine war kicked in... Hard-right parties elsewhere made political capital out of promises to slow the transition, and centre-right parties adopted watered-down versions of the same rhetoric... green parties performed worst in France and Germany, where the far right did best. Greens fared better in Sweden, where the far right did not surge, and advanced in Denmark — while the Labour/Green alliance in the Netherlands narrowly overtook Geert Wilders’ far-right party. Where hard-right parties did well, polling suggests concern about migration — or its effects on, say, housing costs — was a bigger factor than the “greenlash”... Policymakers committed to the green transition need to learn lessons. They must be finely attuned to the impact on consumers, and ensure policies are well designed and communicated, with help for those most heavily affected. More targeted tax incentives to reduce the upfront costs of, say, installing solar panels or switching to electric vehicles could accelerate adoption by businesses and households alike.