Weekend reading links

1. Shyam Saran points to two aspects of China's foreign policy of relevance to India.

The readout on the BRICS summit by the Indian and Chinese sides respectively point to sharp differences in their world views. While both countries talk about promoting multipolarity in the international order, India has reiterated that multipolarity in Asia must go hand in hand with global multipolarity. The Chinese readout omits that reference. This goes to the heart of the political dissonance between them. China has a hierarchical view of power and envisages an Asian order dominated by it. India does not accept this and is unlikely to do so in future. 

Mr Xi said that “development is currently the greatest common denominator between China and India.” This implies that economic and commercial relations between them should outweigh all other aspects of their relationship. Implicit in this is the expectation that the restrictive Indian approach to China trade and investment must give way to positive encouragement instead. Mr Xi has cleverly tapped into a strain of thinking among India’s leading corporate entities and some sections of the government’s economic establishment, that see limits on China trade and investment as inimical to India’s own development trajectory. There is a demand for a re-look at Press Note 3, which subjects China-related investment proposals to strict scrutiny, particularly from the security angle. With China one cannot divorce the political and security dimensions from the economic and commercial relationship. China consciously follows a strategy of asymmetric interdependence. Mr Xi has explicitly declared that China should make its economic partners more dependent on itself, while progressively reducing its own dependence on them. This is already apparent in India-China relations despite the limits imposed by the Indian government. Our industry depends on Chinese intermediates for the manufacture of pharmaceuticals. Chinese components have become indispensable for our electronics industry. For major infrastructure projects, such as ports, our companies wish to source cheaper Chinese equipment.

2. Nice profile of Frederic Vasseur, Scuderia Ferrari's Formula 1 team principal, who is trying to get the legendary team get back to winning ways. 

After finishing first and second at the US Grand Prix in Texas last weekend, Ferrari drivers Charles Leclerc and Carlos Sainz are pushing to catch Red Bull Racing and leaders McLaren Racing. The team’s resurgence has fuelled a three-way title race with just five races to go, confounding expectations of another year of Red Bull dominance, providing the legions of new fans attracted through social media and Netflix series Drive to Survive with a gripping end to the season.

3. I agree with Rana Faroohar in arguing that President Joe Biden's administration leaves a legacy that's far richer than that of several recent two-term administrations (notably that of Obama). 

Joe Biden may be a one-term president, but his administration has changed the global political economy in ways that will continue to resonate long after he is gone. In particular, his trade policy put an end to the era of laissez-faire globalisation, which tended to favour the unfettered interests of the largest corporations and state actors, and ushered in a post-neoliberal era in which labour, natural resources and the market-distorting effects of concentrated power are once again major concerns for policymakers... The great triumph of the Biden administration is that it has reawakened America and to a great extent the world to an understanding that power exists in the political economy, and all of the challenges of the day — from Chinese steel and aluminium dumping to Big Tech monopoly power to recurring financial crises, supply chain disruption and the evolution of AI — will require an approach that puts power, not just price, at the centre of market-making.

The one big negative is the government budget balance, which fell deeply into the red during the last four years. The most egregious example of government spending largesse was the $814 bn in stimulus cheques sent out in 2020 and 2021. 

4. Nice graphic on the bursting of China's real estate bubble, starting from 2016 before stabilising and again crashing in 2021.

Local governments in particular are increasingly struggling to pay their bills amid the property crisis, which deprived them of much-needed land sales. To recover the loss of their largest source of revenue, they have begun fining and taxing entrepreneurs.

5. Interesting snippet about Department stores (Neiman Marcus, Nordstorm, Macy's, Primark, TJMaxx etc) in the US

Back in the year 2000, US department store revenue was about $230bn a year. By the eve of the pandemic, the figure was $132bn... The industry... is growing weaker every passing year, as online retail and discounters such as TJ Maxx (no outpost at the King) take the low end and branded boutiques take the high. The department store is going the way of the small-town main street; it’s not totally clear what it is there for any more.

In the article Robert Armstrong point to four home truths about the paradox about the US economy - low unemployment and rising wages co-existing with widespread discontent about the economy. 

I’d bet that no one who works at the King of Prussia mall, or anywhere else, thinks they have their job because of a strong economy. Less so do they think that government policy got them their gig. An American’s job, when they have one, is a product of their own skill and initiative... Americans tend to associate deficit spending with the inefficiency of the public sector, not the productivity of the private sector. But, as it turns out, high government deficits and high corporate profits are often the very same thing. And corporate profits are strong right now... Which suggests a tidy, if not fully convincing, theory of why Americans think the economy is bad. They suspect that the prosperity they are experiencing is fake. At some point, global investors will refuse to buy expensive bonds from an increasingly indebted country, deficits will become impossible to maintain and the federal shopping spree will end... 

People just despise inflation. Pointing out that price increases are now close to a historically normal rate (which they are) is no good. Pointing out that wages rose right alongside inflation so buying power was maintained (which it was) is no good. Prices are a quarter higher, more or less, than they were five years ago. Any time anyone buys anything they are reminded of that fact, and that makes the world seem hostile and crazy every single time... Brands have even more power than we imagined. In the face of a frightening pandemic, shocking inflation, spiralling government deficits, Americans may have been unhappy, but they were not going to change their buying patterns. It isn’t just clothes. Mondelez, which makes Oreos — our national cookie, if not edged out by chocolate chip — raised US prices by one-quarter between 2021 and 2024. Did shocked consumers switch to cheaper alternatives? Of course not. Mondelez’s US sales held steady.

6. Peak population?

The UN’s latest central estimate forecasts that the global population will peak at 10.3bn in 2084. The IIASA puts the peak at 10.1bn in 2080, and IHME at 9.7bn in 2064.

The article points to the consistently lower actual birth rates than estimated across countries.

And the trend is same in parts of Middle East and Africa too.

Jesús Fernández-Villaverde, professor of economics at the University of Pennsylvania puts the true global peak at around 9bn in 2054, 30 years earlier than in the headline forecast.

Interesting that Mexico today has a lower birth rate than the US!

7. Toby Nangle has a very good primer on bonds. 

8. Concerns about India's economic growth.

In the auto sector, for instance, post-Covid, while the demand for passenger vehicles has recovered, sales of two-wheelers, often seen as an indicator of mass consumption and rural demand, have been sluggish. The number of two-wheelers sold in 2023-24 was about 15 per cent lower than the sales in 2018-19. The number of vehicles sold last financial year was also lower than that in 2018-19. 

Another concerning reading is the increase in the agricultural workforce. The basic understanding of development suggests that this number should go down as the economy grows and develops. The share of the workforce engaged in the agriculture sector has increased from 42.5 per cent in 2018-19 to 46.1 per cent in 2023-24. One explanation for these disconnects could be that recovery from the pandemic has largely been profit-driven, possibly with greater formalisation. Improvement in corporate profits has been reflected in the stock market rally over the past few years, though it may now be losing steam.

Also signs that urban demand has now become the problem in the place of the hitherto anemic rural demand. 

9. RBI's impossible challenge?

A bigger question is how far can the RBI really tame inflation, especially when it is driven by food, and within that, largely by vegetables. Vegetable inflation is 36 per cent and their overall contribution to CPI inflation is 42.8 per cent. The top 10 commodities that contributed most to CPI inflation in September are all vegetables. No wonder, vegetables have put RBI in a bind...

The outsize influence of CFPI on overall CPI inflation boils down to the outdated weights assigned to food and beverages in the CPI basket. Currently, they account for 45.9 per cent of the CPI, with food alone making up 39 per cent, based on a 2011-12 consumption survey. It is high time these weights are updated, based on the 2022-23 consumption survey... the greater the proportion of food in overall CPI, the harder it becomes for monetary policy alone to control inflation. So, replacing old food weights in CPI with new ones, which are likely to be about 5-6 percentage points less, should be a priority to reflect the reality better.

10. Indonesia bans the sale of iPhone 16 in the country because Apple failed to meet the country's 40% local content requirement in handsets and tablets. In 2019, Indonesia banned all nickel ore exports to boost domestic smelting and processing. Though the ban was in violation of WTO regulations, the country stuck to it, and it has now become an acclaimed example of successful industrial policy. Indonesia is now looking to downstream other such minerals. In the 2000s, Indonesia had also introduced a minimum export price for coal. 

11. Two interesting graphics that highlight the extent of political polarisation in the US. The first on climate change, note the degree of scepticism among Republicans.

Similarly on rule of law.

12. Good comparison of Samsung in Vietnam and Apple in India. 

Samsung has cumulatively invested a staggering over $22.4 billion in Vietnam... Samsung announced in May this year that it would invest $1 billion every year from now on in Vietnam. And to back up their manufacturing hub, they are setting up their largest R&D centre outside of South Korea with an investment of $220 million in Hanoi. The total investment that Apple’s three vendors had to commit for assembling phones in India under the PLI scheme was a mere Rs 3,000 crore... ICEA (India Cellular and Electronics Association) executives say that the three vendors have already put in more than Rs 10,000 crore. And if the ecosystem, which includes the Tata investment in mechanics and a brand new iPhone plant, is taken into consideration, the aggregate would be over Rs 25,000 crore ($2.97 billion)... Apple vendors have 15 factories to support them while Samsung has 28 factories of its own in Vietnam... the incentives of 4-6 per cent under the PLI scheme does not neutralize the cost disadvantage of making phones in India vis-a-vis Vietnam, which still remain 7-9 per cent. 

And one key reason is high tariffs on imported electronic components. The FTA weighted average tariffs of Vietnam is a mere 0.7 per cent compared to 6.2 per cent in India. And mind you, 80 per cent of Vietnam’s electronic imports are from countries with which it has an FTA compared to 25 per cent of India, according to an ICEA study for the government. Most firms that work in both countries point out that the ease of doing business in Vietnam is at a different level... Samsung’s other big success has been to integrate Vietnamese firms in their global supply chain. That clearly helps in improving efficiency, ensuring quality, saving costs, and increasing local value addition. For instance, the Koreans have been able to bring on board over 306 Vietnamese Tier-I and Tier-II suppliers and make them part of their global suppliers list. The number was 25 in 2014, and the increase has been 12-fold. And, according to estimates, there are now 52 Tier-I suppliers in the list compared to 4 in 2014. In contrast, Apple's global suppliers’ list has only 13 companies in India. Of them, only one is an Indian company — Tata Electronics — and six to seven are Chinese players, which, if the current FDI policy continues, will not be able to expand capacity... Bulk of the global suppliers for Apple are Chinese players that offer far attractive price and quality compared to other competing country sources. Yet, this road is not available to Apple in India. Apple has had to take the more difficult route... take time and build Indian vendors, or go for non-Chinese partners.

13. Big Tech companies' capital spending is set to surpass $200 bn this year and rise further in 2025, though there's little evidence of the returns driven by these AI-related investments. Capex at the four big companies - Microsoft, Meta, Amazon, and Alphabet - grew more than 62% and is expected to hit $209 bn, up 42% from 2023, with data centres accounting for about 80% of this total. 

14. India is the fifth best performing economy since the turn of the millennium!

15. John Burn-Murdoch on whether the rise of populism is here to stay or not.

Political scientists Matt Grossman and David Hopkins set out how the realignment of the political divide from class to education has formed strong new alliances that are likely to survive changes in political personnel. While arts and entertainment elites have long leaned leftward, academia has veered further to the left of the general population over recent decades. Conservatives have become a rare breed in journalism, and corporate bosses are increasingly aligned with the left...

Pockets of the business world remain bastions of conservatism but, as a general rule, the highest earners, the most influential individuals, and those who shape what is seen as cool vs uncool or correct vs incorrect now hold predominantly progressive views. This ties the right to anti-establishment politics in a way it never has been before... Portuguese researcher Vicente Valentim... argues that the rise of the populist right has been too rapid to have been caused by changes in people’s beliefs and values, and is better explained by the activation of reactionary views that were already beneath the surface.

The increasingly fragmented media landscape and rise of social platforms have probably played a part, both by showing individuals who have views previously seen as unpalatable that they are in good company, and by making it harder for elites to keep public discourse within certain guardrails. In a self-reinforcing loop, politicians now know there is a constituency for reactionary politics, and this part of the electorate knows its concerns have entered the “Overton window” of acceptability. Given the momentum behind these shifts, it is hard to see how the populist-right genie could be put back in the bottle.