Weekend reading links

1. FT long read on how senator Deborah O'Neill, as chair of the Parliamentary joint committee on corporations and financial services, has single-mindedly exposed and brought the knees the Big Four auditing and consulting firms in Australia. 

Deborah O’Neill has led the charge against KPMG in Australia over a client confidentiality scandal that prompted the departure of the firm’s chair, chief executive, chief operating officer, audit leader and a senior partner over the past month... comes on the heels of a similar implosion at PwC. The rival Big Four firm came unstuck when a data leak led to the exit of senior management... An EY employee was charged with accessing the bank details of Prime Minister Anthony Albanese while working on contract at Australia’s biggest bank. Meanwhile, Deloitte partially refunded the Australian government after admitting that it used AI to compile a report...

In 2023, the Labor senator forced the publication of emails that implicated PwC partners in the tax leaks scandal. PwC partners were caught sharing secret government tax plans that one of them had obtained from his work on an advisory board in Canberra, in the hopes of winning business in the US. This year O’Neill used parliamentary privilege to air allegations made by a KPMG whistleblower that had been inadequately investigated by the firm. KPMG has now been exposed as having used confidential information from existing audit clients to try to win new business from rivals — some from PwC as its audit customers looked to switch in the wake of that firm’s woes...

She entered parliament in 2010 having spent her career in education. O’Neill soon discovered that some Big Four consultants acted like some of her former pupils — copying the answers from the back of the book and then marking their own work, as she puts it — and used her role to put the leaders of the firms under pressure.

2. Soumaya Keynes points to a fascinating study by Rebecca Diamond of Harvard University of the use of GLP drugs that appears to show increased confidence and employment rates among women in the US. The study finds, using data gathered between 2021 and 2023, that the poorest third of women in the US suffered an obesity rate 14 percentage points higher than the richest third, whereas the gap was negligible for men. 

The study's main findings:

After 18 months, women using GLP-1 drugs who start off without a job enjoy employment rates 27 percentage points higher than otherwise similar non-users. Women who start off with a job see their employment rate fall slightly, and although the data is too noisy to pick out effects on their earnings, it looks like their household income rises by 10 per cent. That second effect is a bit surprising, and possibly explained by parallel developments in these women’s love lives. Diamond estimates that GLP-1 drugs give single women a dramatic 29 percentage point increase in their chances of coupling up. On average, their new partners are richer than them, giving their household income a bump. Which could explain why a few of the women losing weight then feel able to drop out of work.

The study also points to a more disturbing consequence.

So far at least, GLP-1 drugs are disproportionately used by the rich. In Diamond’s study two-fifths of the women paid for the drugs out of pocket, at a median cost of $275 a month. Research based on Voy prescriptions shows how, adjusting for relative obesity rates, uptake is skewed towards more affluent areas. If obesity becomes an even stronger signal of economic disadvantage, the stigma attached could grow.

3. The rise of London's King's Cross area as perhaps Europe's AI capital.

Two decades ago, King’s Cross was central London’s most neglected district. Today, it is home to the main foreign outposts for several of the world’s wealthiest companies, from Big Tech giants Google and Meta to their richly funded AI challengers including OpenAI, Anthropic and Jeff Bezos’ Prometheus. AI researchers and entrepreneurs are packing out the area’s canal-side cafés so densely that venture capitalists prowling for their next deal are struggling to prevent their coffee meetings from being overheard by rivals.

For many, this resurgence can be traced back to one individual: Sir Demis Hassabis, the DeepMind co-founder and Nobel laureate who stayed in London to build his AI lab following its sale to Google in 2014 for £400mn. “Demis keeping DeepMind in London and resisting the gravitational pull of [America’s] West Coast is the most important thing that has ever happened to the London tech ecosystem,” says Tom Hulme, a tech investor at Alphabet’s GV venture capital unit... Just as PayPal helped launch the careers of a generation of Silicon Valley founders and investors including Elon Musk and Peter Thiel, a “DeepMind mafia” in London is pulling in billions of dollars to AI start-ups founded by Hassabis’s former lieutenants, including David Silver’s Ineffable Intelligence and Tim Rocktäschel at Recursive Superintelligence...

It was Hassabis’s pursuit of an “artificial general intelligence” capable of scientific research and a wide range of human tasks that in many ways kick-started the current AI boom. DeepMind’s sale to Google prompted Elon Musk to set up a research lab to counterbalance the internet group’s dominance of AI; that lab was OpenAI. DeepMind went on to make a series of AI breakthroughs including AlphaGo, which in 2016 beat the board game Go’s world champion Lee Sedol, and AlphaFold, which used deep learning to predict protein structures with superhuman speed.

King's Cross has emerged as the Canary Wharf of tech in UK, and this description is apt and underlines the continuing importance of personal interactions and connections. 

The density of AI talent in King’s Cross was why the government’s scientific research agency Aria took a “very conscious decision” to base itself there rather than Whitehall, says Pippy James, its deputy chief executive. “We were definitely inspired by Kendall Square in Boston,” she says, referring to the area surrounding MIT where Google, Microsoft and Amazon, as well as biotech companies Moderna and Novartis, have offices. “Value creation comes from those serendipitous collisions.” In recent weeks there has been a steady stream of American AI companies announcing moves into the area. OpenAI and Anthropic have signed leases for tens of thousands of square feet in King’s Cross. Others moving in include Bezos’s “physical AI” company Prometheus, Cursor, the AI coding company that recently agreed a $60bn sale to SpaceX, AI agent group Perplexity and open model developer Reflection. Google, which already has many researchers and engineers in the area, plans to start moving staff into its vast new “Platform 37” office this summer after almost a decade in development.

4. This is a striking factoid about the importance of chips now. 

With SpaceX going public, the list of the 10 most valuable US public companies is entirely made up of tech companies for the first time. Of those, three are semiconductor specialists. But with chips a key ingredient in AI, the other seven are also now all designing their own chips.

Some stats about the global chip squeeze.

... Elon Musk’s xAI to rent out spare capacity in its data centres. In recent weeks, Anthropic, Google and start-up Reflection AI have agreed to pay a total of around $2.3bn a month — or $28bn a year. This looks like a big return on Musk’s data centre investments. As of March this year, xAI’s total capital spending over its lifetime totalled $26.5bn... this surge in demand has already prompted a huge increase in supply, both of planned chipmaking capacity and newly minted chip stocks. One sign is the $600bn that memory chipmakers Samsung and SK Hynix said this week they plan to invest in Korea. Another is the $29bn that SK Hynix hopes to raise when its American depositary receipts begin trading in the US next week... TSMC has said it will boost its capital spending by as much as 37 per cent this year, as it did in 2025. But those increases follow two years of retrenchment and would leave 2026 capex only around 50 per cent higher than 2022. Contrast that with the biggest buyers of AI chips. Seven of the largest data centre operators are planning to spend an astounding $848bn this year, at least five times what they spent in 2022, according to a calculation by the newsletter Exponential View.

5. On the new bonds issued by SpaceX.

The bonds enjoyed very robust demand at the point of issuance, but some see that as a problem in itself. Allianz’s chief investment officer has described the market’s willingness to hand money over to Musk as a clear sign that we have moved from “a healthy boom, a stretched boom . . . into bubble territory”. Ominously, the bonds have weakened since they launched.

6. The AI LLMs scorecard. 

Where will Sarvam stand?

Also national scorecard.

7. The low-margin business of mobile phone assembly. Amber Industries which makes air conditioners for eight of the top 10 brands and more than a quarter of all ACs made in the country, now proposes to assemble smartphones for Oppo. 

Now, the company plans to sub-lease a part of Oppo India’s factory in Noida, set up SMT lines, and start assembling phones there... But smartphone assembly is one of the toughest businesses in electronics manufacturing... The target is to eventually assemble about a fifth of Oppo India’s volumes, scaling from roughly 8 million handsets in the first year to nearly 15 million in the second... Amber expects Ebitda margins of 1.5–2%, excluding benefits from the government’s production-linked incentive (PLI) scheme. That’s well below the 8.8% Ebitda margin generated by its broader electronics business in FY26, and the 7.1% operating margin recorded by its AC-heavy consumer-durables segment... Take Dixon, for instance. The company already accounts for nearly one-fifth of India’s smartphone output. Even at that scale, smartphone assembly, aided by PLI incentives, generates Ebitda margins of only about 3%.

8. AI boom compared with historical episodes.

9. On the rise of non-compete clauses in OECD countries and their adverse impact on productivity.

About 30 per cent of employers surveyed by the OECD said they had increased their use of the clauses in the past five years... It estimates that a 10 percentage-point increase in the prevalence of non-compete clauses in an industry was associated with a 1.9 per cent decline in the level of labour productivity, with workers stuck in sub-optimal jobs and firms less able to gain new skills. In many countries, non-competes have spread into parts of the labour market where the original justification of protecting sensitive information and firm-specific information is “weak or absent”, the research found, pointing to their use among entry-level fast-food staff in the US, manual workers in Italy and childcare workers or yoga instructors in Australia.

10. The market concentration in DRAM chips.

A market in which a monopolist owns 100 per cent gets an HHI of 10,000, a duopoly scores above 5,000, and a perfectly competitive market approaches zero... The US DoJ considers anything between 1,000 and 1,800 points to be “moderately concentrated”. Per Counterpoint Research, as of the first quarter of 2026 the memory market is 38 per cent Samsung (South Korea), 29 per cent SK Hynix (South Korea), 22 per cent Micron (US), 8 per cent CXMT (China), 2 per cent Nanya (Taiwan), and 1 per cent everyone else. This gives us an HHI of 2,838... Both Samsung and SK are two of Korea’s largest conglomerates (the so-called chaebols) which benefit from cosy relations with the state, so viewing them as fierce competitors in the same memory market might be wrong-minded in this case... And if the two companies function as a single economic entity in the global DRAM market, we should probably count them together for HHI purposes. And doing this we get a much higher HHI reading of 5,042. That’s above 5,000 —the HHI of a perfect duopoly.

11. China’s excess capacity in manufacturing requires something similar to what was done by the former Prime Minister Zhu Rongji. 

In the late 1990s and early 2000s… under Zhu’s slogan of “zhua da, fang xiao” or “grasp the large, let go of the small”, Beijing retained its grip on key strategic industries while relinquishing control of a vast sea of smaller companies and factories…Thousands of mines, steel mills and other industrial sites were shut for good. An estimated 30mn to 40mn workers lost their jobs. The process was deemed painful but necessary: not only in setting up China’s accession to the World Trade Organization in 2001, but in freeing Beijing from supporting uneconomic industries… 

Over the past 15 years, as China’s share of global manufacturing surged to around one-third, the share of lossmaking industrial businesses jumped from about 10 per cent in 2010 to nearly 25 per cent last year, according to the MERICS China Overcapacities Monitor. This dynamic exists across everything from steel and cement to cars, computer chips and robots. Take the automotive sector for example. Domestic car sales last year totalled 23.9mn against estimated production capacity of 45mn to 50mn. Sales are highly concentrated among a clutch of leading companies. According to HSBC, more than 70 per cent of EV sales — including plug-in hybrids — are being soaked up by 10 brands, leaving 47 others jostling for the remainder. In the shrinking market for petrol and diesel cars, 10 brands have about 70 per cent of sales and 73 others compete for the rest.

12. South Korean capitalism and windfall profits sharing - SK Hynix and Samsung edition.

Soaring global demand for high-bandwidth memory chips used in AI systems has propelled SK Hynix and Samsung Electronics to record earnings. This week Samsung announced quarterly operating profit of Won89.4tn ($59.7bn). The windfall is being shared with employees. Last September, SK Hynix agreed to pay workers 10 per cent of annual operating profits for a period of 10 years. Samsung followed with a similar arrangement in May after its union threatened strike action. With both firms expected to earn hundreds of billions of dollars this year, average bonus payouts per memory chip worker could reach about Won600mn ($400,000) at Samsung and even more at SK Hynix. Such amounts are staggering in a country where the average worker earns Won50.6mn per year, according to Korea Enterprises Federation data. 

The Bank of Korea has warned of potential inflationary pressure as a result, and towns where many semiconductor workers live are undergoing property price jumps. Competition is intensifying for places at universities offering semiconductor “contract” programmes that guarantee jobs at Samsung Electronics or SK Hynix upon graduation. Admission scores required for some such courses now exceed the average for natural sciences at Seoul National University, the country’s top-ranked university, and are just below those needed for medicine... The boom is also reshaping Korea’s marriage market. Matchmaking agencies, which are known for using meticulously harsh metrics to rank clients, are now giving higher points to chip workers.

13. Data centres are consuming massive amounts of power and water.

Data hubs already devour more electricity globally than all but 10 countries. About 448 terawatt hours last year if you’re interested. The AI boom means that amount is on track to roughly double within four years... By 2030, they could be using enough water to meet the basic needs of all 1.3bn sub-Saharan Africans for a year, UN researchers estimate.

And it is provoking backlashes. Sample this from the US.

An unprecedented 75 US data centre projects worth around $130bn were blocked or delayed in the first three months of this year, nearly as many as in the whole of 2025, says the Data Center Watch research group. It reckons active opposition group numbers have grown from 396 at the end of 2025 to 833 by the end of March.

14. The Strait of Hormuz squeeze was not as bad as earlier episodes. 

15. Transformers are at the heart of power transmission, distribution, and use. Thanks to the AI and data centre boom, transformer prices have gone over the roof.

Specialist electrical steel — essential for transformer cores — is produced by only a handful of global suppliers, many of whom are struggling to keep up with the surge in demand. Market growth, price volatility and limited mining capacity have also strained supplies of copper, crucial to the conductivity of windingsaround a device’s core. But one of the most acute bottlenecks is the shortage of skilled workers needed to carry out complex, labour-intensive manufacturing tasks...

With up to 80,000 different designs, most transformers still have to be built largely to order, taking three to six months to make. The most demanding stage is the windings, when copper wire is applied around a transformer’s core — a “beautiful” process, according to Bruno Melles, an engineer now leading Hitachi’s global transformer business. Each winding is unique and is “still a human manual activity that we’re very proud of”, he says. The number and pattern of these windings dictate voltage — fewer turns lead to lower voltage while higher-voltage devices can have multiple windings stretching hundreds of kilometres. Once complete, the assembly is placed in a protective outer metal shell, where oil acts to insulate and cool the device...

The world’s biggest transformer manufacturers have reported tens of billions of dollars in backlogs in the first quarter of 2026... US developers are turning to imports. The EU, Mexico, South Korea and Brazil are the biggest suppliers of power transformers to the US, together accounting for more than three-quarters of imports by value last year.

Into this mix come innovations in the form of modular solid-state transformers that use modern power electronics and respond dynamically to changing power needs, enabling real-time monitoring and control (which legacy transformers with their steel and copper cannot do). 

Weekend reading links

1. Crony capitalism in America.

The Saudi Crown Prince Mohammed bin Salman, for example, is engaging in sensitive national security conversations with President Donald Trump, even as the Trump family real estate business is in talks with the Saudis about a big construction project. Trump’s artificial intelligence and crypto tsar, David Sacks, has hundreds of tech investments poised to benefit from policies Trump is pushing... While the Trump family’s tentacles have worked their way into many industries, from finance and technology to real estate and defence, digital assets are perhaps the most obvious place to look for conflicts of interest that could infect the larger economy. Consider one complicated example involving the stablecoin of the Trump family crypto venture World Liberty Financial, which was used by Abu Dhabi’s MGX in a $2bn transaction linked to Binance. That company was co-founded by Changpeng Zhao, who received a presidential pardon in late October, after previously pleading guilty to a criminal charge relating to lax money laundering controls. Then there are Trump supporters like the Winklevoss brothers, whose Gemini platform was charged with the unregistered sale of assets during the Biden administration, only to settle with the Securities and Exchange Commission this year. The Winklevoss twins are big Republican donors (they’ve even chipped in for the construction of a new White House ballroom) and, not surprisingly, their platform is embedding itself deeper and more quickly into the US crypto infrastructure than many competitors. This autumn, Gemini announced a Nasdaq partnership.

2. As President Trump fights a weak economy, the largest share of Americans in more than 50 years is saying that the government is mishandling the economy. 

The signature economic achievement of Trump 2.0, the One Big Beautiful Bill, is contributing to the emerging K-shaped economic growth trends. 

3. America's K-shaped economy in a graph showing the divergence between the S&P 500 and the University of Michigan Consumer Survey trends. (HT: Adam Tooze)

A K shaped economy describes a post-crisis recovery where different parts of the economy and society are performing at sharply diverging rates, forming the two arms of the letter “K.”:

• The upper arm (going up): Sectors, companies, assets, and people that benefit from the recovery and, in many cases, are wealthier than before the pandemic. This includes investors in technology stocks, big tech companies, the luxury sectors, high-income professionals, and asset owners.
• The lower arm (going down): Sectors, small businesses, and people that continue to decline or stagnate even as the overall economy appears to improve. Examples include: the hospitality and travel industries, many lower-priced retail outlets, low-wage service workers, small businesses, and many middle-class and lower-income households.

4. China's trade surplus hits $1 trillion in just 11 months.

 

5. Important point about the Indigo fiasco.

In operational terms, the new flight duty time limitation (FDTL) rules were the most consequential development for any domestic airline heading into 2025. Yet, as The Indian Express has reported, the airline’s Annual Reports for 2023-24 and 2024-25 did not mention the new rules at all, nor did they figure in the airline’s Risk Management Report. This implies that the airline’s management did not anticipate operational challenges arising from these new rules and did not prepare for them adequately, which raises questions about its basic executive capabilities.

6. Indian equity market facts

India has been the worst-performing major equity market in the world. Flat in US dollar (USD) terms, we have been left behind by global emerging-market (EM) indices, which are up 29 per cent in USD as of end-November 2025. This is the worst relative performance for India since 1993. India has now dropped to third place in terms of EM weighting and is just about half the weight of China... India has also been shunned by foreigners, with foreign portfolio investors (FPIs) selling over $18 billion in 2025 year-to-date, marking five years of zero flows. The saving grace has been domestic flows, which continue to power ahead, with $80 billion invested by domestic institutional investors to date and the number of investors crossing 135 million... Despite 15 months of no returns, mutual fund retail flows continue to track about $3 billion per month.

7. Mexico imposes tariffs of up to 50% on about 1400 goods imported from China and other Asian countries with which Mexico has no trade deal. Chinese cars will be the hardest hit. Mexican imports from China have ballooned by 75% since 2020 to $130 bn in 2024. 

8. Oren Cass writes that the Trump administration's greatest challenge is Trump himself.

Is China an adversary or a partner? Sometimes, US policy prohibits the sale of AI chips to China and pushes allies to keep China out of their markets. Other times, Trump promotes the sale of more powerful chips, or muses about Chinese firms setting up shop stateside. Are cheap foreign workers good for the US economy or bad? Sometimes the administration is forcing them out, other times trying to bring more in. Trump’s repeated suggestion to admit 600,000 Chinese students to the same US higher education system he has attacked is a particular head-scratcher. Is industrial policy to rebuild critical domestic production capacity wise? Sometimes the president trashes the Chips Act, other times he celebrates its results and goes even further in his market interventions.

This graphic shows how all the bluster on China, its exports are now on similar tariff lines compared with those from other countries (HT: Adam Tooze). 

9. Striking graphic that is a pointer to why the US leads globally in innovation (HT: Adam Tooze)

10. Important example of how preemptive anti-trust actions have valuable innovation effects.

When Nvidia attempted to acquire Arm in 2020 — a deal that would have locked down the fundamental architecture of chips used for AI — the FTC sued to block it and the deal was abandoned. Because Arm remained independent, Google is now able to compete with Nvidia in the production of AI chips, using Arm’s technology to build its own processors.

11. Electrification in South Asia is a true development success to be celebrated, just as its failure in Africa is one to be deeply disturbed. 

12. Sobering tale of how BP and Shell terribly misread their industry trajectory and ended up betting prematurely on renewables. Both owed their positions to leadership, Bernard Looney and Ben Van Burden. The article charts how the former, assisted by McKinsey, forced through changes at BP.

The green revolution at BP began on February 12 2020, in Bernard Looney’s second week as chief executive. Looney, a charismatic BP lifer who had run the company’s oil and gas operations, embraced the energy transition with the zeal of a convert... Two former executives claim Looney had been working with consultants from McKinsey for months but had not shared the plan with the other 11 members of BP’s executive team before unveiling it. “It was a big bang approach,” one of them says... 

To consolidate control and prepare BP for disruption, Looney and McKinsey dismantled the company’s traditional “upstream” and “downstream” divisions, which explored and produced oil and gas and then refined, traded and sold it. Instead, there were 11 new business units, some of which left staff baffled. One new team was called “Cities and Regions” and its job was to imagine how urbanisation would change energy use and consult with cities on what opportunities there might be for BP to play a role. “It looked like a consulting job on a piece of paper rather than something that was really going to fly,” admits one former BP executive. Last year, BP reorganised again to get rid of the Cities and Regions unit and “reduce duplication”.

“You could see the mis-steps happening live. The degrees of change were just too fast,” says another. “Changing the CEO is one degree of change. Then the CEO changes the strategy overnight. Then he decimates anybody in divisions that he didn’t think were important.” Later in 2020, Looney set out more details. BP went beyond Shell, and any other oil company, in pledging to actually reduce the oil and gas it produced, with an initial target of a 40 per cent cut by 2030. “No other company followed, so either you are a prophet and others did not get it, or you are the lonely guy on top of a mountain,” observes the second executive. With McKinsey teams embedded across the organisation to offer rebuttals, and amid the chaos of the reorganisation, insiders say it was hard to speak out against the plan. “You could not have a dialogue about this being the wrong thing. If the numbers did not work, you would fit them,” the executive adds.

This is the reversal

Both companies increased their spending on green technology rapidly, to a peak in 2022 of nearly a third of overall investment, or $4.9bn, for BP, and nearly a fifth, or $4.3bn, for Shell. BP promised to spend a further $55bn to $65bn between 2023 and 2030... Today, Shell and BP have retreated to be more in line with their US rivals, though still with targets to have net zero emissions by 2050. The grand narrative of transformation has been discarded for renewed focus on shareholder returns. While the world continues to electrify, and to grow the share of solar and wind power generation, the two companies are now focusing on other parts of the transition, such as moving from heavy fuels with high emissions to gas and eventually biofuels and hydrogen. In the first nine months of this year, BP cut its spending on clean energy by 80 per cent compared with last year, to just $332mn. Shell says it is now “focused on disciplined capital allocation in our areas of competitive strength while driving improved returns”.

Weekend reading links

1. The Swiss Central Bank has lowered interest rates to zero in its sixth consecutive rate cut, after consumer prices fell 0.1% in May from a year earlier. Switzerland has had negative rates from 2015-22, with the lowest being minus 0.75%.

2. Hybrids are making a comeback.

In the first three months of this year, hybrids — including cars that can and cannot be plugged in — made up about 14 percent of all light vehicles sold in the United States, according to the Department of Energy. That was around twice the market share of fully electric vehicles in that period. Republican legislation working its way through Congress could further lift sales of hybrids. In May, the House passed a policy bill backed by President Trump that would eliminate a $7,500 tax credit available to people who bought or leased electric vehicles. That legislation would also impose an annual tax of $250 on electric cars and $100 on hybrids to finance road projects. The Senate version of the bill introduced this week would do away with the tax credit, too, but does not include the annual tax.

A few large automakers dominate the sale of hybrids. Nearly half the cars and trucks that Toyota and its luxury brand, Lexus, sold in the first five months of the year were hybrids — and sales of those vehicles were up about 40 percent from a year earlier. Ford Motor’s hybrid sales rose 31 percent in the same period. Honda is on track this year for its highest hybrid sales ever, and the hybrid versions of its Accord sedan and CR-V sport utility vehicle now outsell the gasoline-only models. Hybrids are typically powered by a small gasoline engine that is paired with an electric motor driven by a battery that is much smaller and, thus, less expensive than the batteries in fully electric vehicles. These batteries are charged primarily by regenerative brakes and gasoline engines. Plug-in hybrids, which account for a small share of hybrids, have bigger batteries than regular hybrids and can also be charged from power outlets at home or at charging stations. Some plug-ins can go around 50 miles on battery power alone before the gas engine kicks in.

3. The changing nature of business lines and revenues of Reliance Industries.

Rahul Malhotra, director at Bernstein, calculates that Reliance now generates more than half its annual earnings before interest, taxes, depreciation and amortisation from consumer-facing businesses, compared with less than 10 per cent a decade ago.

4. Smartphone assembly has been the PLI's standout success.

5. Trends with India's FDI.

Manufacturing's share of FDI has continued to decline.

6. Why Chinese consumers took to EVs?

XPeng's Mona Max, which has just gone on sale in China for around $20,000. For this price you get self-driving capability, voice activation, lie-flat beds, film and music streaming. Young Chinese graduates, we're told, see all these as standard features for a first car purchase... a huge amount of government spending goes towards making EVs financially attractive, according to the CSIS study. Members of the public receive subsidies for trading in their non-electric car for an EV as well as tax exemptions and subsidised rates at public charging stations. These perks drove Mr Lu to go electric two years ago. He used to pay 200 yuan ($27.84; £20.72) to fill up his car for 400km (248 miles) of driving. It now costs him a quarter of that. People in China also normally pay thousands for their vehicle registration plate - sometimes more than the cost of the car itself - as part of government efforts to limit congestion and pollution. Mr Lu now gets his green one for free... Another proud EV owner in Shanghai... says that rather than charge her vehicle at a station, she changes her car's battery at one of the city's many automated swapping stations provided by EV maker Nio. In under three minutes, machines replace her flat battery with a fully charged one. It's state of the art technology for less than the price of a tank of fuel.

7. Some statistics on government spending on public sector units.

The government’s total receipts from disinvestment and dividend from PSUs over this period of 10 years fell from 0.45 per cent to 0.25 per cent of GDP... In contrast, the government has been increasing its capital allocations for PSUs through equity and loans in the last 10 years, from about 0.54 per cent in 2014-15 to about 1.66 per cent of GDP in 2024-25... In 2014-15, total equity and loans to PSUs were estimated at ₹67,512 crore, accounting for just about 34 per cent of the Modi government’s total capex of ₹1.96 trillion. By the end of 2024-25, that share rose to 54 per cent, as PSU equity and loans were estimated at ₹5.48 trillion, out of a total capex of ₹10.2 trillion.

8. State capability, airline industry graphic of the day.

9. Brazilian Supreme Court rules that social media platforms can be held legally responsible for users' posts, forcing them to proactively demove material like hate speech, incitement to violence, etc., even without a prior judicial takedown order. This follows rising concerns in Brazil about harmful digital content, especially on children and youth. 

10. The balance sheet of AI spending and benefits is not looking good.

On the cost side, the effects of AI mania are all too apparent. The four tech companies leading the charge — Alphabet, Amazon, Meta and Microsoft — increased their capital spending by nearly two-thirds, or $95bn, in 2024. As this year got under way, they were planning to boost capex by another $75bn... Bank of America Securities predicts that for the tech industry as a whole, spending on data centres will jump from $333bn last year to about $1tn in 2030. By the end of the period, 83 per cent of the money will go into AI-related investments. 

On the revenue side of the equation, meanwhile, some of the AI leaders are starting to notch up big percentage increases in business — but the extra revenue is counted in the tens of billions rather than the hundreds. Early this year, Microsoft said its annualised revenue rate from AI had climbed 175 per cent to reach $13bn. That is still only about 5 per cent of the total revenue it is expected to produce this year. OpenAI’s revenue run-rate from subscriptions, its main source of income, just topped $10bn, doubling from the end of last year. The rates of increase are notable, but the absolute figures still pale in comparison to the capex.

Weekend reading links

1. Globalised nature of supply chains is captured in the form of the supply chain of the Chevrolet Silverado.

The high-margin General Motors model, which costs roughly $40,000-$70,000, relies on one of the most complex, international and interconnected automotive supply chains, making it particularly vulnerable to the US president’s threat to impose 25 per cent tariffs on Canada and Mexico. Of the 673,000 Silverados produced last year, 31 per cent were built at GM’s factory in the Mexican city of Silao and 20 per cent at its plant in Oshawa, Canada. But even for the roughly half manufactured at three US plants in Michigan and Indiana, it is likely that the power steering and door trim panels were built in Mexico; the rear lighting in Canada; the airbag module in Germany; and the centre stack display in Japan, according to S&P Global Mobility data... Data compiled by Export Genius shows that key components in Silverados are heavily dependent on parts imported from Mexico. The country’s exports of parts for the vehicle were worth almost $30bn last year, with braking systems alone accounting for $4.3bn.

2. Russia was the biggest beneficiary of the increased natural gas price from its invasion of Ukraine. The other beneficiary was Norway!

In 2022 and 2023 (until European gas-importing countries were able to build LNG import terminals) Norway received excess natural gas export revenues of €109bn, according to estimates by the Norwegian Ministry of Finance. Norway’s 78 per cent marginal tax on profits in the oil and gas sector, along with returns on the government’s direct investments in oil and gasfields, and dividends from its ownership share in its parastatal oil company Equinor, ensured that the lion’s share of this windfall went into the country’s coffers while a much smaller share was retained by the companies that produced the gas. Oil and gas companies operating in Norway responded to the rise in prices by increasing production. Markets did their job of allocating scarce gas supplies to their most efficient use, in many cases mitigated by energy subsidies... But Norway’s government has not recognised its windfall as profits from the war. This year it allocated a measly €3bn to support Ukraine’s desperate war effort... The value of Norway’s war windfall is almost equivalent to all US military and civilian support for Ukraine to date... Any increase in Norway’s support for Ukraine, they argue, should be subject to the national spending rule that stipulates no more than 3 per cent of the value of its sovereign wealth fund can be spent each year.

3. Steve Bannon and Donald Trump are not being whimsical when seeking closer ties with Russia, but are merely following the attitudes of their electoral base. 

Similarly, a large share of Republican voters support ending aid to Ukraine.

4.  Excellent tribute by Tim Harford to the late Donald Shoup, the father of "parking" economics. Some insights

Shoup reckoned that in a small Los Angeles neighbourhood — just 15 blocks — drivers collectively drove an extra million miles a year in their hunt for a good spot. “Shoup concluded that nearly one-third of all the cars in parking-scarce neighbourhoods were looking for a place to park,” writes Grabar... An apartment parking lot would be vacant during the day, while the office and retail would be empty at night. Regulatory parking minimums did not allow for sensible ideas such as the idea that an apartment building might share parking with a neighbouring mall... given that each new parking space cost thousands of dollars to provide, and given that there were at least three spaces per vehicle, the value of all the parking spaces in the US exceeded the value of all the cars... Shoup suggested solutions: abolish regulatory parking minimums, introduce parking meters and set the prices sufficiently high that people don’t have to waste time looking for a space — although they may instead walk, cycle, switch to public transport or drive at a less busy time. But the game-changing idea was to propose that parking revenue from kerbside meters should be invested in local improvements to the streetscape such as litter collection, tree-planting or pleasantly paved sidewalks. This, says M Nolan Gray, one of Shoup’s many acolytes, was his “greatest contribution”. Locals stopped opposing parking meters, and started demanding them.

5. Stanley Druckenmiller, founder of Duquesne Capital Management hedge fund and formerly George Soros's right hand man, may be the most influential Wall Street personality in the Trump administration through his two proteges - Scott Bessant, Treasury Secretary, and Kevin Warsh, the most likely successor to Jay Powell.

7. Amidst the extreme polarisation in US politics, the one area where the Republicans and Democrats may be converging is in anti-trust. This is borne out by the bipartisan consensus on the nomination of Oxford-educated and business concentration wary Gail Slater to succeed Jonathan Kanter and head the Justice Department's anti-trust division. 

Slater embodies the unlikely alignment of progressives who support tough antitrust enforcement and a new generation of populist conservatives helmed by vice-president JD Vance, who has called for the break-up of Google. While the motivation of the two groups differ — progressives look to curb anti-competitive behaviour and corporate power while Maga populists also aim to clamp down on platforms and companies they accuse of censoring conservative voices — the unlikely bipartisanship has spooked Wall Street.

6. As tariffs rise, here's a summary of the trade-weighted tariffs of major countries.

The trade-weighted US tariff of 2.2 per cent is lower than that of any of its trading partners, except Japan at 1.7 per cent. The European Union’s stands at 2.7 per cent, China at 3 per cent, Canada at 3.4 per cent, Mexico at 3.9 per cent, Vietnam at 5 per cent, Brazil at 6.7 per cent, South Korea at 8.4 per cent, and India—labelled by Trump as the “tariff king”—at 12 per cent.

7. Maurice Obstfeld makes some important points.

The trade balance equals what an economy produces minus total spending on consumption and investment. It is therefore linked to manufacturing output and employment. This is not because importing more lowers GDP. Rather, when demand rises beyond output in an economy close to full employment, as in the US today, part of that higher demand is for non-tradeable goods. As supply expands to meet demand, production inputs including labour are drawn away from tradeable sectors like manufacturing. Demand for tradeable goods is thus satisfied by imports — the trade deficit grows and manufacturing shrinks. Tariffs do not necessarily push the balance between income and spending in one direction or the other, which is why they don’t improve the trade balance or manufacturing employment. Tariffs will cause the currency to strengthen... This both raises imports and harms exports. Tariffs also hurt exports by raising the prices of critical intermediate goods... Tariff talk distracts us from the appropriate economic policies to help America. Better targeted policies could include a more redistributive tax system, limits to corporate market power, further healthcare reform, and workforce development. The Trump administration is offering none of these.

8. American corruption fact of the day  

Mr. Trump’s post-election fund-raising... inaugural committee, which is a separate entity, brought in more than $170 million in private donations as of early January, a record... Among them are the technology companies Amazon, Meta, Google and Microsoft, each of which donated $1 million. Kraken, a cryptocurrency exchange that was sued by the Securities and Exchange Commission in 2023, put in $1 million as well. On Monday, the S.E.C. said it was dropping the case voluntarily. Last week, it dismissed a suit against another cryptocurrency exchange, Coinbase, which also donated $1 million to Mr. Trump’s inauguration.

9. DOGE takes the chainsaw to consulting firms working with US federal government agencies. 

10. Indonesia's middle class is shrinking, even as the new President, Probowo Subianto, seeks to turn Indonesia to a developed country by 2045 with an annual growth rate of 8%.

The number of Indonesians in the middle class had fallen to 47.9mn by March 2024, down from a peak of about 60mn in 2018, according to the most recent government data. Indonesia defines its middle class as those who spend Rp2mn-Rp9.9mn ($122-$605) a month. In the four years to 2018, the middle class grew by 21mn. The middle class accounted for 17 per cent of the population last year, down from as much as 23 per cent in 2018. Indonesia has also seen an increase in the number of people in the “aspiring middle class” and “vulnerable” categories, indicating a reversal in economic progress, said analysts. At the same time, employment in the informal sector — typically poorly paid and insecure — has risen to 59 per cent in 2023 from 57 per cent in 2018, according to government data...

“The culprit for this is the inability to produce jobs in the formal sector,” said Chatib Basri, a former finance minister who is now advising the government on the economy. “From 2019, most of the jobs created were basically in the informal sector.” Such growth results in weaker consumer spending and lowers tax collection, said Eko Listiyanto, vice-director of the Institute for Development of Economics and Finance. Manufacturing, a mainstay of middle-class jobs, as a contributor to GDP has dropped steadily over the past two decades. Instead, resource-rich Indonesia has focused on developing its commodities sector.

11. FT reports that Chinese competition and high electricity prices annihilated the US aluminium industry. President Trump has raised tariffs on aluminium imports from 10% to 25%.

The downturn in the US industry is being driven above all by high energy costs. And they show no sign of abating... “For aluminium, everything comes down to electricity,” said Annie Sartor of Industrious Labs, a non-profit focused on the decarbonisation of heavy industry. “There’s a phrase that aluminium is electricity in solid form.” New Madrid is no exception. “This smelter uses more electricity in 24 hours than the whole city of Springfield, Missouri,” said Lester. That is why the recent rise in power prices has been so painful for producers. The average cost of electricity for US smelters is expected to rise to $36 per megawatt hour in 2025, up from $33/MWh in 2024, according to CRU Group, a commodity data company. An industry veteran, Lester has had a ringside seat at the decline of American aluminium. When he started out, the US had 34 smelters — now it has four. It produced 30 per cent of the world’s aluminium in 1980 — now it accounts for just 1 per cent.

12. Aid facts of the day.

Rich countries spent $256bn (or 0.4% of GDP) on foreign aid last year—enough to provide sub-Saharan African governments with a sum as large as their total tax revenues. Only a sliver of the spending will have gone to cultural causes, funding the sort of pro-democracy charities and independent newspapers that maga types despise. Around a quarter will have been humanitarian aid (covering disaster relief and refugees) and health funding (such as hiv treatment, vaccines and so on)... Development spending accounts for almost three-quarters of all aid. It most often subsidises favoured industries, frequently funds infrastructure construction and sometimes pays the salaries of teachers. The average Malawian has had more money spent on them by international agencies than by their own government every year since the country gained independence from Britain in 1964... 

In 2004 William Easterly of New York University and co-authors found that, from 1970 to 1997, aid was just as likely to shrink the world’s poorest economies as to help them grow. A year later the World Bank produced a post mortem on two decades of development aid, poring over the history of its recipients. The researchers concluded that its grants and loans did not move the needle on growth. In 2019 the IMF reached a similar conclusion. As Charles Kenny of the Centre for Global Development, a think-tank, notes: “There is no country that has really grown from aid.”... In 2005 David Dollar and Jakob Svensson, both then of the World Bank, and Dani Rodrik of Harvard University, looked at disbursals tied to political reforms—and could not find a country where they had produced better policy... In 2015 Axel Dreher of Heidelberg University and Steffen Lohmann, then at the University of Göttingen, looked at local economic activity after the building of schools, social housing and other projects in a range of locations, and found no increase in the amount of electric light, their proxy for economic growth... And instead of strengthening recipient countries’ ability to provide public services, aid often weakens it. The IMF has found that more development spending tends to result in lower taxes. Last year Avi Ahuja of New York University concluded that it produces less competitive political systems, as incumbents wield the cash to win votes.

And more here

In 2023, the latest year for which there are comparable data, rich Western countries spent $60bn on aid in Africa, which is 27% of global aid spending by these countries. For the median African country aid accounts for about 4% of gross national income (gni), though it ranges from less than 0.5% in fairly rich countries like South Africa to 27% in very poor ones such as Central African Republic (see map).

A study published in 2023 by academics at Lund University in Sweden found that aid led to weaker fiscal capacity in African democracies, suggesting it got in the way of social contracts between the taxed and the taxer. “In effect, aid-dependent democracies become more autocratic,” say the authors.

Also Martin Wolf on aid.  

13. Livemint points to the differences between tariffs imposed by India and US. At the aggregate level, weighted average tariff gap has declined sharply from 22.9 percentage points in 2000 to just 2.5 percentage points in 2022.

At the broad sectoral level.

And at the product level.

14. Fascinating long read about the complex financial structure of the Canadian PE firm Brookfield Corporation, especially on its related party transactions where it's both the buyer and seller. The article describes the sale of One Liberty Plaza in Manhattan. 

A rare transaction in a moribund market for office towers, it received little publicity because the building’s ultimate owner, Canada’s Brookfield Corporation, was both the buyer and the seller. One of the world’s largest and most complex financial conglomerates, Brookfield sold property to itself like this dozens of times in 2024, using $1.4bn from its insurance arm to finance transactions that supported its “distributable earnings” — a non-standard measure of profit that underpins the corporation’s $90bn stock market valuation. These earnings were then recycled back into the portfolio in a circular flow of cash that is attracting scrutiny of both the relative opacity of Brookfield’s accounting practices and how it juggles its vast global portfolio of real estate...

Such trades support an expansive but lossmaking portfolio of more than 200 malls and offices dotting skylines around the world, including London’s Canary Wharf, One Manhattan West and the Las Vegas Fashion Show mall. The transactions pose questions about the quality of Brookfield Corporation’s earnings, and the valuation of assets held to pay annuity policies at the Brookfield-owned insurance businesses that trade with other parts of the conglomerate. They also raise the question of whether Brookfield and chief executive Bruce Flatt are presenting a sufficiently transparent picture of the organisation — a labyrinth containing thousands of entities, the interconnected funds, partnerships, trusts and companies that control $1tn of assets. Flatt, an accountant by training, owns a third of the Bermuda trust that appoints half the board of Brookfield Corporation in Toronto, the topmost of six listed companies operating in real estate, private equity, infrastructure, green energy, insurance and asset management. Brookfield also exercises control over a wide range of businesses and investment funds even though it often owns only a small part of them... Brookfield is a fiduciary that manages assets and money for public sector and union pension funds, annuity holders and investment funds. It runs critical infrastructure, is responsible for huge sums in long-term liabilities, and operates regulated businesses in many jurisdictions.

15. The size of the US Treasury market has doubled in the last decade!

16. High multiplier of government R&D spending.

In a comprehensive study, Andrew Fieldhouse and Karel Mertens classify major changes in non-defence R&D funding by the DoE, Nasa, NIH and NSF over the postwar period. They estimate implied returns of as much as 200 per cent — raising US economic output by $2 per dollar of funding. This is substantially higher than recent estimates of returns to private R&D. According to the Congressional Budget Office, the high returns to public funding are more than 10 times that on public investment in infrastructure. With the higher tax revenue generated from additional GDP, an increase in R&D funding more than pays for itself. In aggregate, productivity gains from federal R&D funding are substantial. Indeed, Fieldhouse and Mertens estimate that government-funded R&D amounts to about one-fifth of productivity growth (measured as output growth less all input growth) in the US since the second world war.

17. Business Standard points to a new study by ICAR-National Institute of Agricultural Economics and Policy Research which finds limited outreach of MSP operations. 

The findings indicate that only 15 per cent of paddy and 9.6 per cent of wheat farmers engage with the procurement system. Moreover, it remains confined to mostly large farmers. Small and marginal farmers, despite producing 53.6 per cent of paddy and 45 per cent of wheat, have low participation in public procurement. The direct relationship between participation in the MSP-backed procurement system and farm size arises because small and marginal farmers are likely to have low awareness about the procurement system, and are often constrained by their limited scale of production.