Weekend reading links

1. India R&D facts of the week

According to World Bank data, the share of R&D in GDP in India was 0.64 per cent in 1996, rose to 0.86 per cent by 2008, and has steadily fallen since, reaching 0.65 per cent in 2020. The same database shows a steady rise in China —from 0.56 per cent of GDP in 1996 to 2.56 per cent in 2022... In 2020-21, corporate sector accounted for 36.4 per cent of the total R&D expenditure. If one includes the public sector corporations, the share goes up to 40.8 per cent... Corporations in India do not appear to treat R&D as a major factor in their advancement. A detailed 2024 study on R&D by the 1,000 largest listed companies, conducted by the Office of the Principal Scientific Adviser to the Government, offers revealing insights. According to this report, in 2022–23, R&D spending amounted to over 6 per cent of turnover in defence and pharmaceutical companies, around 3–4 per cent in automobiles and healthcare, marginally over 1 per cent in auto-components and heavy electrical equipment, and well below 1 per cent in the remaining 24 sectors covered in the study.

2. Public funded research laid the foundation for Ozempic and Wegovy.

Today, millions of Americans take Ozempic, Wegovy, Mounjaro or one of the other new blockbuster diabetes and weight-loss drugs. Thank Uncle Sam — and a slow, venomous lizard that can survive on just a few meals a year. In 1980, Dr. Jean-Pierre Raufman, a researcher studying insect and reptile venoms at the National Institutes of Health, discovered that venom from the Gila monster had a pronounced effect on the pancreas, prompting it to release a digestive enzyme. This piqued the interest of Dr. John Eng, an endocrinologist at the Veterans Affairs Medical Center in the Bronx, who worked with Dr. Raufman to isolate and identify a novel compound, exendin-4, in the lizard’s venom. A synthetic version of the compound, which stimulates insulin production and slows stomach emptying, was approved for the treatment of diabetes in 2005. It was the first drug in the now booming class of medications known as GLP-1 receptor agonists, which are being studied for their potential to treat a wide range of conditions, including kidney disease, Alzheimer’s and alcohol use disorder.

The article has eight other examples of public funded innovations that have transformed our lives today. 

3. Are Chinese brands now going global?

From Stockholm to Sydney, the electric car gliding silently by is increasingly likely to be Chinese. Mixue, a purveyor of ice-cream and cold drinks, has dethroned McDonald’s as the world’s largest fast-food chain by number of outlets. It is expanding in South America, as is Meituan, a Beijing-based delivery app. Chagee, a chain of tea shops, is on track to have at least 1,300 stores outside China by the end of 2027, mainly in South-East Asia; a few years ago it had barely any. And Pop Mart, a Chinese toymaker, has created a buzz worthy of Disney around its strange grinning (or are they grimacing?) nine-toothed dolls, called Labubus. Fans include Rihanna, a pop star, and Sir David Beckham, a retired footballer.

4. Ruchir Sharma points to three ways in which the US stock market run may be stopped.

There are however three ways this buoyancy might break: the AI narrative shifts again, given that companies are investing hundreds of billions of dollars in AI infrastructure, without quite knowing who will profit, or when. Economists prove uncharacteristically more right than the market about the threat of lower growth and higher inflation from tariffs. Or investors come to realise that the apparent strength of US consumers and corporations is a mirage — the flip side of the massive and rising US government deficit.

5. Martin Sandbu points to the return of financial repression, or the process of steering financial flows to where the government (and not the market) wants them to flow.

Rumours of a “Mar-a-Lago accord”, which would manage the dollar’s value down while forcing global investors to discount and lock in lending to Washington, has produced shocked disbelief by other countries. But it is not just Mar-a-Lago: several policy proposals have surfaced recently that can fairly be grouped together as measures of financial nationalism. These include a tax on remittances, levies on foreign investment stakes by nations with policies Washington disapproves of, and the promotion of dollar-denominated stablecoins and looser bank leverage regulations... China... has retained a non-convertible currency and manages its exchange rate. It uses a network of state-controlled or state-influenced banks, corporations and subnational governments to steer the flow of credit to outlets indicated by various economic development doctrines favoured by Beijing over the years... 

The influential reports of former Italian prime ministers Enrico Letta and Mario Draghi have emphasised that the EU sends several hundred billion euros abroad every year when there are huge domestic funding gaps. This invites policymakers to adopt measures to redirect financial flows. So does the agenda to unify national financial markets. The aim of making the euro a more attractive reserve and investment currency has also been invigorated by Trump’s seeming disdain of the dollar’s role. A big EU-level borrowing programme suddenly looks at least conceivable, and an official digital euro is on the way. In parallel, the UK is trying to coax pension funds to put more savings in the hands of British businesses.

6. Tamal Bandopadhyay charts the impressive 70 years of State Bank of India.

On June 30, 1955, the last day of the Imperial Bank, it had ₹210.94 crore of deposits and ₹116.24 crore credit. The size of the Indian economy at the time was ₹10,977 crore. By March 2025, India’s GDP has risen 3,000 times – ₹330.68 trillion. During this period, SBI’s deposit portfolio has grown 25,000 times, to ₹53.82 trillion, and advances, 35,800 times, to ₹41.63 trillion. In the past 70 years, the bank’s income has risen from ₹8.50 crore to ₹5.24 trillion, and profit, from ₹1.36 crore to ₹70,901 crore. In 1955, it had paid ₹90 lakh as dividend; for FY25, the figure is ₹14,190 crore. The number of employees, too, has risen – from 14,388 to 236,226; profit per employee has grown from ₹90,000 to ₹29,91,000, and branches from 469 to 22,397... 

The SBI has the largest mutual fund under its belt; boasts the second-largest credit card portfolio; and its life insurance arm is among the largest in the private sector. Two of its 18 subsidiaries are listed. On an investment of ₹6,200 crore, the current valuation of the subsidiaries is at least ₹3.5 trillion. Its share in bank deposits is 22.5 per cent and credit, 19.5 per cent. In different business segments, such as retail loans, home loans, et al, its market share varies between 20 and 30 per cent. And, its share in the Pradhan Mantri Jan Dhan Yojana, the world’s largest financial inclusion scheme, is around 30 per cent... with a ₹15.06 trillion retail book, it has at least 25 per cent market share. Ditto for home loans. While it entered the mortgage business late, with a ₹8.3 trillion mortgage book, it is now breathing down the neck of HDFC Bank Ltd, which holds the portfolio of HDFC Ltd following the merger of the home lender with it.

7. Amidst all its industrial prowess, China has lagged behind in high quality industrial products which require precision and engineering excellence, like ball bearings and carbon fibre. 

High-end ball bearings are crucial for reducing friction in everything from high-speed trains and tunnel boring machines to electric vehicles, humanoid robots and drones... for machinery like offshore wind turbines — which are now being built close to 200-metres tall and need to last for around 25 years — bearing manufacturers face “incredible reliability requirements” as their products must withstand “huge” amounts of weight and pressure. While China is by far the biggest single ball bearing market in the world, the $53bn global bearing industry is dominated by Sweden’s SKF along with Germany’s Schaeffler, US group Timken and Japanese companies NSK, NTN and JTEKT... carbon fibre composite cascades, which are used in an engine’s casing to help aircraft land safely. Japanese group Nikkiso has a market share of 90 per cent.

8. Ravaged by the uncertainties induced by Trump policies, the dollar has had its worst first half year since 1973!

9. Another Trump legacy, NSF grants have declined by 51% on a ten-year average, falling below a billion dollars in the first half of the year.

10. Adam Tooze links to this important graphic, about the falling employment in America's biggest companies over the years.

11. Luis Garciano has a great tweet thread (HT: Marginal Revolution) that points to possible limitations of AI in creating very high incremental growth.

The more successful a technology becomes, the less it matters economically. Revolutionary technologies shrink their own importance precisely through their success... Consider history's greatest productivity miracle: artificial light. In 1800, one hour of reading light cost more than a day's wages. By the 1990s, we produced the same light using 1/3,000th the energy. The price fell 40,000x. Modern homes flood with light that would seem miraculous to anyone from 1800. We leave lights burning carelessly, illuminate entire cities all night. Yet lighting is now a trivial fraction of the economy. Total victory made it economically irrelevant. When productivity crushes prices, quantity must rise proportionally to maintain economic weight. But we don't use 40,000x more light than in 1800. Maybe 100x. Human demand has limits. griculture tells the same story. In 1900: 38% of workers, 15% of GDP. Today: 1% of workers, under 1% of GDP. We produce far more food with 98% fewer workers. But we don't eat proportionally more just because food is cheap.

This reveals AI's first constraint: demand inelasticity. When AI makes something essentially free, we don't suddenly want infinite amounts. There's only so much text to generate, images to create, routine tasks worth automating. Second constraint: Baumol's Cost Disease. As AI makes some tasks hyperproductive, wages rise everywhere. But nursing, teaching, therapy, plumbing can't be automated. These sectors must match rising wages without productivity gains. They grow expensive and dominate the economy. Third: O-Ring (named after Challenger). Modern services depend on weakest human link. A restaurant with AI-optimized everything fails if the waiter is terrible. An AI-designed building collapses if contractors mess up. Humans remain the bottleneck.

This explains why technologists and economists can't agree. Epoch sees engineering problems to solve with better AI. Economists see structural forces. You can't engineer away the limits of human demand or the need for human judgment in critical roles. The question isn't "Can AI substitute for humans?" It's "What happens when it does?" History's answer: Automated tasks become economically trivial while the economy reorganizes around what remains human. Growth is constrained by what's hard to improve, not what we do well.

Like electric light, AI will generate massive consumer surplus - the gap between what we'd pay and what we actually pay. But consumer surplus doesn't show up in GDP. The lighting revolution transformed civilization yet its economic footprint nearly vanished. Steam, electricity, computers delivered enormous benefits while their economic importance shrank through success. AI will transform society profoundly. But 20% GDP growth? History says no.

Garciano has a full post here.

12. The impact of the Big Beautiful Bill in the US.

It imposes steep cuts on Medicaid for America’s poorest to partly fund tax cuts for its wealthiest. Between 11mn and 16mn would lose health insurance. Millions more would lose food assistance. The bottom 10th of Americans would sacrifice $1,600 a year while the top 10th would gain $12,000... Depending on the estimate, Trump will be adding between $3tn and $4tn to the US national debt over the next decade... His budget robs tomorrow to help the rich today.

On the definitive event of the week, the passage of the Big Beautiful Bill (BBB) in the US. Its impact.

 

13. Luring manufacturing back to the US is facing a labour market problem.

The pool of blue-collar workers who are able and willing to perform tasks on a factory floor in the United States is shrinking... About 400,000 manufacturing jobs are currently unfilled, according to the Bureau of Labor Statistics... Difficulty attracting and retaining a quality work force has been consistently cited as a “top primary challenge” by American manufacturers since 2017... Many Americans aren’t interested in factory jobs because they often do not pay enough to lure workers away from service jobs that may have more flexible schedules or more comfortable working environments... Attracting motivated young people to manufacturing careers is also a challenge when high school guidance counselors are still judged by how many students go on to college. College graduates, on the other hand, often do not have the right skills to be successful on a factory floor. The country is flooded with college graduates who can’t find jobs that match their education, Mr. Hetrick said, and there are not enough skilled blue-collar workers to fill the positions that currently exist, let alone the jobs that will be created if more factories are built in the United States... the number of young people going to vocational schools and community colleges... is dropping, not growing.

14. More on China's weaponisation of its manufacturing prowess.

In a setback to Apple’s India expansion plans, Foxconn Technology Group has been sending hundreds of its Chinese engineers and technicians back home from its iPhone factories in India, it is learnt... According to sources in the electronics industry, the Foxconn move may have been prompted by the Chinese government’s focus on strengthening its supply chain. They also point out that some Chinese equipment makers, which had identified land for smartphone plants in the country, have shelved their plans. There’s signalling from the Chinese side that technology for making machines for new products should remain within their country. Also, there are reports of the Chinese Customs indefinitely holding key machines, which are required to be retrofitted on the assembly lines to make iPhone 17 in India.

15. An important sub-plot in the US-Vietnam trade deal which imposes 20% tariffs on Vietnamese imports and double that on those transshipped from there. 

Tran Quang, an executive at a home fragrance company that exports nearly all of its products to the United States said that he supported the steeper duty on transshipment because it could help Vietnamese businesses facing unfair competition from Chinese companies that have invested in Vietnam to escape tariffs. “There are a lot of small Chinese guys who come to Vietnam just to relabel their products before exporting to the U.S.,” he said. Trade and investment from Chinese companies have helped bolster economic growth in Vietnam and the region, but Southeast Asia is struggling to beat back the torrent of goods from China that are putting domestic companies out of business...

The lack of information so far released about the Vietnam deal makes it impossible to fully gauge its impact, experts said. Transshipment could refer to products that originate in China. It could also include things that are made in Vietnam but have a certain percentage of Chinese parts. But if the limits on Chinese components end up being strict, American companies could move their production out of Vietnam, said Matt Priest, chief executive of the Footwear Distributors and Retailers of America, a trade group. “If it’s too onerous or difficult to comply, companies won’t use the opportunity to grow sourcing in Vietnam,” he said. “They may even head back to China if it’s price competitive.” ... The restrictions on the amount of Chinese content in exported products also place a burden on local customs officials who have never been asked to scrutinize exports so closely, raising questions about how effective they will be. Some countries have even discussed setting up entirely different supply chains for the United States.

16. Finally, declining reading levels across countries.

Research published in June by the UK’s National Literacy Trust (NLT) shows that children’s reading enjoyment has sunk to its “lowest point in two decades”. While 62.7 per cent of children aged 5 to eight said they enjoy reading, only 32.7 per cent of children between eight and 18 said they gained “very much” or “quite a lot” of pleasure from it. This is 18.7 percentage points lower than 20 years ago and 1.9 percentage points down from 2024. The decline in the UK is emblematic of a global trend seen across the western world. In the US, according to the National Assessment of Educational Progress, 14 per cent of children reported reading for fun almost every day in 2023, down 3 percentage points from 2020 and 13 from 2012.

Weekend reading links

1. A reality check on who owns agricultural land in South Africa.

White farmers still own roughly half of the country’s land although only 7 per cent of citizens are white.

2. Tej Parikh has a very good graphical summary of America's healthcare market.

The US spends more than $4.5tn annually on healthcare — and is projected to soon account for one-fifth of its economy. Even on a per capita basis, other large, rich nations spend about half as much as America. Healthcare is the largest component of US consumer spending on services (well above expenditure on recreation, eating out and hotels)… The economy has created 3.9mn private sector jobs since the start of 2023. More than half have come from healthcare and social assistance… studies have estimated that approximately 25 to 30 per cent of health spending could be considered waste.

Healthcare is such a major contributor to growth that any reduction will automatically impact job creation and economic growth. 

3. ExxonMobil, Occidental Petroleum, Equinor, and others are piloting a new drilling technique for lithium, direct lithium extraction (DLE), in the Smackover Formation area of the Southern US that has a massive brine aquifer. 

Underground brine reservoirs flowing across Arkansas and neighbouring states contain high concentrations of the silvery-white metal; a US Geological Survey study published in October estimated the total resource in south-west Arkansas alone at up to 19mn tonnes... “DLE could do for the US lithium industry and economy what fracking did for the US oil industry almost 20 years ago,” says Andy Robinson, a geoscientist and co-founder of Standard Lithium, which is seeking to develop a $1.5bn project near El Dorado in partnership with Norwegian energy group, Equinor.

Proponents say DLE offers a faster and less environmentally damaging alternative to existing extraction methods. For oil companies, which have extensive skills in drilling, pumping and processing fluids, it represents a useful way to diversify their businesses... But experts warn that US lithium pioneers must prove the new technology can be commercially successful at scale and compete with both existing extraction technologies and rival DLE projects in lower-cost countries...

Between 2020 and 2024 global demand for lithium tripled to around 1.2mn tonnes, according to energy research group Wood Mackenzie, which is forecasting lithium consumption will reach 5.8mn tonnes by 2050. To meet demand, producers have over the past decade expanded hard rock mining in Australia and China and lithium brine extraction in Latin America, giving these three regions control of more than 80 per cent of the extraction industry. Hard rock mining of lithium is much like any other metal production process; ores such as spodumene are excavated from open pit mines, crushed and chemically processed to separate the lithium. Brine extraction involves pumping lithium-rich brines into large ponds, typically in regions with a hot, dry climate. The water gradually evaporates, leaving behind concentrated lithium salts that can be processed...

Until recently, US-based lithium miners have struggled. They face higher costs, tougher mining regulations and less favourable geological and climatic conditions than in the “lithium triangle” in Chile, Argentina and Bolivia. The development of direct lithium extraction, which usually involves using solvents or ceramic materials to separate lithium from the brines, has changed all that. DLE takes a matter of hours to separate lithium from brines, while evaporation ponds can take as long as 18 months. Recovery rates are around 70 to 90 per cent, according to Wood Mackenzie, compared to 40 to 60 per cent for evaporation ponds, and DLE also uses less land and less water. Combined with the discovery of high concentrations of lithium in oilfield brines within the so-called Smackover Formation, which extends across Arkansas, Louisiana, Texas, Alabama, Mississippi and Florida, DLE has opened up an opportunity. Existing oil and chemical infrastructure in the formation also makes these resources more accessible than greenfield sites.

4. Great primer in NYT that has the list of all items Americans import from China. Goods that Americans import mostly from China.

The highest value of goods imported from China.

And America's biggest exports to China.

5. Tata Electronics bets big on iPhone manufacturing. But it comes with exacting standards on quality and productivity.

The company’s ambition to become an iPhone-manufacturing hub collides with the reality of high attrition, relentless production targets, and the ever-present pressure of Apple’s quality control. Inside the factory, each worker undergoes two to three weeks of intensive training before stepping onto the assembly line. Once there, their tasks are highly compartmentalised—a deliberate strategy to protect Apple’s intellectual property. Most workers only know how to assemble a specific section of the phone, with little visibility into the broader production process... An iPhone must pass through at least 600 quality checkpoints before it leaves the factory. A single defect can jeopardise an entire batch, sending costs skyrocketing and potentially damaging the supplier relationship. This is why Tata has invested heavily in automated equipment from suppliers like Delta Electronics, aiming to reduce defect rates and increase efficiency... the workers... shifts are standard eight-hour stints—6 am to 2 pm, 2 pm to 10 pm, or 10 pm to 6 am... That compartmentalised operation is about efficiency but also about Apple’s intellectual property. Keeping workers focused on their slice of the process helps prevent any accidental leaks of trade secrets.

6. Starlink compared to other telecom companies.

Also this article on Business Standard.

7. China tries to increase its soft power. The one area it appears to be having some success is gaming. 

Four of the ten highest-grossing mobile games of 2024 were made in China. One such is Genshin Impact, a role-playing adventure which rakes in over $1bn a year. Last year a Chinese firm released Black Myth Wukong, the country’s first blockbuster video game. Featuring the mischievous Monkey King, it is steeped in Chinese folklore. Some 30% of its 25m players are said to be outside the country.

8. One of the genuine successes of the Indian state, the taming of the Naxalite movement, which is perhaps in its end stages.  

9. Global Capability Centres (GCCs) are driving a boom in Grade A real estate in India that are ESG-compliant, and equipped with smart technology systems. 

Between 2022 and the first half of 2024, GCCs have leased 53 million square feet (msf) of office space. In 2024, they accounted for 36 per cent of total leasing activity, occupying 27.7 msf of the 77.2 msf transacted... The momentum has continued into Q1 CY25. Colliers reported that GCCs absorbed 6.5 msf of Grade-A office space in the quarter — constituting 41 per cent of overall office space demand across the top seven cities in India... In Q1CY25, GCCs leased 88 per cent of the total office space in green buildings as part of their broader commitment to achieving carbon neutrality...

According to Vestian’s sustainability report, green-certified office buildings commanded an average rental premium of 12–14 per cent over non-certified buildings. GCC-occupied office space in Bengaluru has been leased at a 50 per cent premium compared to non-GCC-occupied office space in FY25. The premium is 13 per cent in NCR and 9 per cent in Hyderabad... office rentals across the top Indian cities have grown between 9 to 28 per cent from 2022 to 2025, mainly driven by GCCs... real estate costs for the GCCs are not more than 6-7 per cent of their total cost of a GCC setup, which does not deter them from going for high-quality locations... According to Nasscom-KPMG report, the GCC market size in India tripled from $19.6 billion in FY15 to $64.6 billion in FY24. It is further anticipated to touch $110 billion by 2030, despite ongoing trade tensions and geopolitical frictions.

10. US-India pre-Trump merchandise trade tariffs.

11. Bola Tinubu's shock therapy appears to be working for the Nigerian economy.

On day one Tinubu removed a ruinously expensive fuel subsidy. More important still, the central bank has restored monetary policy orthodoxy after a shambolic era in which only cronies with access to cheap dollars benefited. After a dangerous overshoot, the naira has stabilised, with the gap between the official and black market rate shrinking to almost nothing. The central bank has stopped printing money to pay for government profligacy. Politicians still spend too much, often on fripperies like an extravagant presidential jet, but at least the government has begun to increase tax receipts. Investors do not live in constant fear of a devaluation and can readily access dollars. That may eventually help Nigeria to diversify, but shorter term it is positive that oil production has recovered from a nadir of 1mn barrels a day to nearly 1.5mn last month. Oil theft has been reduced and local companies are squeezing more out of marginal fields.

12. The decline of net FDI into India.

In 2020-21 and 2021-22, gross FDI inflows were adversely impacted by repatriation and outward investments to the tune of 46 per cent and 54 per cent, respectively. The extent of this impact rose sharply in the following three years — to 61 per cent in 2022–23, 86 per cent in 2023–24, and 99 per cent in 2024–25... the amount of repatriation and disinvestment in 2019-20 was about $18 billion, or about 25 per cent of gross FDI inflows. But the following two Covid years saw repatriation and disinvestment rising to account for a 33-34 per cent share of gross FDI inflows. In 2023-24, this trend became alarming, with the share of repatriation and disinvestment in gross FDI inflows jumping to 62 per cent. In 2024–25, the share inched up further to 63 per cent.

What this implied was pretty serious. Foreign investors in Indian companies were showing a marked preference for ploughing back their gains from here to reinvest in other markets elsewhere. Note that this trend has continued for the last two years... Indeed, reinvested earnings by existing foreign investors have stayed at well below a third of gross FDI inflows in these years. Nor has there been a marked desire on their part to increase reinvested earnings... Contributing to such gloomy prospects on the net FDI inflows front is last year’s data that shows how Indian companies are raising their outward FDI in a big way. Indian companies have stepped up their outward FDI during the post-Covid years — from $14 billion in 2022-23 to $16.6 billion in 2023-24, and to $29 billion in 2024-25.

In 2024-25, while India attracted $81 bn in FDI, foreign firms repatriated over $51 bn, and Indian firms' outward investment was $29.2 bn, leaving the net FDI inflows at only $0.35 bn. 

13. In a bid to overturn a system that the government believes is biased against it, Mexico goes to polls on June 1 to elect judges!

In elections on June 1, Mexico will replace almost 900 judges at the federal level and hundreds more across 19 state-level jurisdictions in a voting process never tried elsewhere that was implemented in just eight months... A random lottery decided which half of federal judges would be replaced on Sunday, and which in 2027. Most candidates for the vote were chosen by the ruling party and were not allowed any public or private funding. Some are openly associated with the ruling Morena party... The electoral institute expects turnout of about 8 to 15 per cent, compared with more than 60 per cent in last year’s presidential election... “Less than 1 per cent understand what they are voting for,” Jorge Sepúlveda, vice-president of the Mexican Bar Association. “Those that’ll vote will mostly be people propelled by the government.”... In Mexico City, voters must fill out nine ballots, choosing about 50 names from a choice of almost 300. Specialist judges were assigned to certain districts, meaning voters in parts of the capital will choose all the country’s competition and telecoms judges... An all-powerful disciplinary tribunal will be able to remove judges. Of 38 candidates for that, at least 10 have ties to the ruling party, including two who worked directly for López Obrador... One anti-corruption group identified 17 “high risk” candidates in judicial elections, including one who had worked for the Sinaloa Cartel’s leader and another who had worked for the leader of the Los Zetas criminal group. Saúl López, professor at Tecnológico de Monterrey’s school of government, said that the new system would offer “the maximum degree of capture, not just by organised crime but other economic powers”.

14. The disturbing monopoly in cloud computing.

Unlike traditional utilities, the dominant cloud providers Amazon, Google and Microsoft — which together control two-thirds of the global market — operate with minimal transparency or public oversight. This leaves governments, businesses and citizens vulnerable to systemic risks, while giving these corporations immense power to shape the digital economy to their advantage. It is no accident that the same behemoths that dominate ecommerce, digital advertising and operating systems also control the cloud computing infrastructure that underpins these services. Cloud is an extraordinarily capital-intensive business, with high barriers to entry and significant network effects. The data, technological capabilities and financial reserves controlled by these behemoths secured them advantages that smaller, independent rivals simply couldn’t match when cloud computing began to take off. But the companies haven’t just benefited from structural advantages; they’ve also engaged in anti-competitive practices, as documented by competition authorities across Europe, the US, Australia and Japan. These include opaque and discriminatory pricing, technical barriers to switching provider, excessive fees for data transfers and bundling cloud services with other products...

The dependence of many nations on a small number of US cloud giants is a geopolitical threat. Several existing US laws — including the Cloud Act — require providers to hand data to the American government when asked, even if stored on foreign soil... Big Tech’s cloud oligopoly undermines innovation. In artificial intelligence, for example, tech giants have been accused of trading cut-price access to cloud resources for intellectual property rights, equity stakes and strategic influence over leading start-ups, reinforcing their dominance across the sector.

Possible responses to this monopoly

Fortunately, most of the tools we need to address these problems already exist. Established frameworks — including utility regulation, competition policy and public procurement — can be drawn on to restructure and govern cloud infrastructure in the public interest. For instance, regulators should mandate fair and non-discriminatory access to cloud services, mirroring rules already applied to telecoms. This should include transparent, consistent pricing and a ban on unfair contract terms. Providers should be required to implement robust processes to ensure the stability and security of their infrastructure, with regular audits and stress tests. Governments should also rethink their procurement practices. Public institutions should not reinforce monopoly power by defaulting to the dominant providers. Finally — and most ambitiously — governments should consider structural separation. Requiring Amazon, Google and Microsoft to spin off their cloud divisions would eliminate their ability to use this critical infrastructure to extend their dominance into new markets.

15. With high tariffs comes trade crime.

In April, for example, Chinese exports to the United States fell 21 percent from a year earlier, but Chinese exports to Southeast Asian countries rose by the same percentage... An analysis by Exiger, a data analytics firm, found that more than 3,000 companies in Mexico depended on Chinese shipments for 75 percent or more of their supply chain. Many of these companies are subsidiaries of Chinese state-owned enterprises, and most sell products to the United States, the report said.

16. As PSG faces Inter Milan in this weekend's Champion League final, Simon Kuper writes that Paris has become global football's biggest talent pool.

Paris finally acquired a serious football club in 1970, when little Paris FC and Stade saint-germanois merged into PSG. (Paris FC soon walked out again.) At the time, the city’s growing suburbs, the banlieues, were filling with kids who had few entertainments besides football. In new towns short on markers of belonging, millions grew up supporting PSG as a way to feel Parisian. The popular claim that it’s a fake club with money but no fans is nonsense. The French state funded accredited coaches and artificial pitches in the banlieues. Soon, Greater Paris was producing more top footballers than certain continents. French teams packed with Parisians have reached four of the seven World Cup finals since 1998, winning two, and losing two only on penalty shoot-outs. The previous time PSG reached the Champions League final, against Bayern Munich in 2020, they lost to a goal by Bayern’s Parisian exile Kingsley Coman, but Parisian talent goes a long way down... PSG’s rise began in 2011, when the French president Nicolas Sarkozy, a fan, encouraged a wing of Qatar’s state to buy the club for a piffling €70mn or so. Sarkozy rooted out the hooligans, and Qatar bought superstar players. Two years ago, PSG’s front three were Kylian Mbappé, Neymar and Leo Messi. Yet PSG fans (I have two in my apartment) prefer today’s younger, harder-working, less-spoilt side.

17. Manish Sabharwal has a good compilation of "regulatory cholesterol"

Can women in India work the same jobs and the same way as men? No, they are banned from 32 operations and 200 sub-processes, including pottery manufacturing, cashew-nut processing, and glass manufacturing. Can employers think about hiring men and women for night shifts similarly? No: Women attract 59 special conditions for employers across states. Can factories use all their land? No: Fifty per cent of an industrial plot is lost to just three standards; micro and small factories lose the most land to standards more stringent than those of countries 10 times richer. Can workers work the hours they want? No: A factory worker loses 270 plus hours of annual earnings to working hour restrictions, and these limits force workers to give 156 to 416 fewer hours in a quarter than in Japan. Is building one 300-worker factory cheaper than two 150-worker factories in India? No: One 300-worker factory needs 40-80 per cent more land than two 150-worker factories. Do India and Singapore require the same number of floors to build a hotel with the same number of rooms? No: The same number of rooms requires three floors in Singapore and seven in Noida. Can all of rural India industrialise? No: Fifty per cent of rural areas cannot be industrialised due to minimum road width norms.

Weekend reading links

1. Fascinating tweet thread by Ed Conway about the Bretton Woods System that pegged the exchange rates of 44 countries with the IMF entrusted the responsibility of managing it. This graphic illustrates the remarkable currency stability among these countries in the 29 years of its existence.

This currency stability combined with a few other things resulted in a period of remarkable economic prosperity. This is a striking graphic about productivity and compensation in the US.

2. Good article that evaluates the semiconductor chips making in India, specifically the partnership between Tata Electronics and PSMC, one of the smaller Taiwanese chip manufacturing companies.

This is unlike the venture the other big player, Taiwan SemiconductorManufacturing Company (TSMC), is undertaking abroad – the company’s new fab in the Japanese city of Kumamoto, two $40 billion facilities in Phoenix, Arizona, and a commitment to invest nearly $4 billion to build a fab in Dresden, Germany. In these new fabs, apart from significant equity investment, TSMC, the ninth-most valuable business in the world, is an equity partner, and has invested in the ecosystem; it has taken along its key vendor base of some 25-30 companies to each of these locations, and is also undertaking large-scale training of manpower on the nuances of chip fabrication, a high tech-intensive job. In the Tata-PSMC venture, much of the heavy lifting is done by the Tatas, who have no real experience in chip manufacturing so far... The fact is, for TSMC to be successful outside Taiwan, it takes more than just its expertise. It takes its suppliers along so that an ecosystem develops locally for the construction expertise, material supplies, and equipment deliveries. For instance, TSMC has moved around 40 Taiwanese companies to Japan (for the new plant in Kumamoto), and taken around 30 of them to Arizona for the new plants.

3. NYT has an interview with Robert Putnam.

We looked at long-run trends in connectedness, trends in loneliness, that sort of thing, over the last 125 years. And the short version is, it’s an upside-down U curve. We were socially isolated and distrustful in the early 1900s, but then there was a turning point, and then we had a long upswing from roughly 1900 or 1910 till roughly 1965, and that was the peak of our social capital. People were more trusting then, they were more connected then, they were more likely to be married then, they were more likely to join clubs then, etc. And then for the next 50 years, that trend turned around...

That trend in political depolarization follows the same pattern exactly that the trends in social connectedness follow: low in the beginning of the 20th century, high in the ’60s and then plunging to where we are now. So now we have a very politically polarized country, just as we did 125 years ago. The next dimension is inequality. America was very unequal in what was called the Gilded Age, in the 1890s and 1900s, but then that turned around, and the level of equality in America went up until the middle ’60s. In the middle ’60s, America was more equal economically than socialist Sweden! And then beginning in 1965, that turns around and we plunge and now we’re back down to where we were. We’re in a second Gilded Age. And the third variable that we look at is harder to discuss and measure, but it’s sort of culture. To what extent do we think that we’re all in this together, or it’s every man for himself, or every man or woman? And that has exactly the same trend.

He makes the distinction between bonding and bridging social capital.

Ties that link you to people like yourself are called bonding social capital. So, my ties to other elderly, male, white, Jewish professors — that’s my bonding social capital. And bridging social capital is your ties to people unlike yourself. So my ties to people of a different generation or a different gender or a different religion or a different politic or whatever, that’s my bridging social capital. I’m not saying “bridging good, bonding bad,” because if you get sick, the people who bring you chicken soup are likely to reflect your bonding social capital. But I am saying that in a diverse society like ours, we need a lot of bridging social capital. And some forms of bonding social capital are really awful. The K.K.K. is pure social capital — bonding social capital can be very useful, but it can also be extremely dangerous. So far, so good, except that bridging social capital is harder to build than bonding social capital. That’s the challenge, as I see it, of America today.

4. In an interesting reversal of fortunes, developing countries have become more fiscally prudent compared to their developed counterparts, and central banks across developing countries are exhibiting greater responsibility and independence. Sample this from Gavekal.

Across the emerging markets, political leaders with populist leanings are calling for looser fiscal policy. Many are also berating local central banks for failing to do more to support growth, and leaning on them to loosen monetary policy. For the most part, central bankers, jealous of their independence, are pushing back and keeping monetary conditions relatively tight to counter inflation. This raises the prospect of loose fiscal, tight monetary policy settings in a number of key emerging markets, argues Udith Sikand. It also throws the contrast between emerging and developed market central banks into sharp relief. Arguably, developed market central banks have caved in to fiscal dominance, keeping real rates for the most part low or negative over recent years to prevent public debt burdens from becoming unsustainable. By contrast, emerging market central banks are likely to maintain positive real rates in order to attract funding to cover growing fiscal deficits. The bottom line is that this sets up conditions for a potential triple merit scenario in emerging markets over the coming years, with local risk assets and currencies rising strongly.

5. India's long tail of corporate tax distribution

A total of 353 companies earning above Rs 500 crore accounted for 55.7 per cent of the Rs 14.7 trillion in gross total income recorded by all companies in 2018-19. A total of 842 companies made more than Rs 500 crore in 2023-24 and accounted for 62 per cent of the Rs 34.6 trillion in gross total income recorded by all companies.

6. India's textile industry facts of the day

India's textile industry, valued at USD 250 billion, provides jobs to 50 million people. The sector is divided into three broad categories - Textiles (fibre, yarn, and fabrics); Garments and; Made-ups (Bed sheets, curtains etc.). India is present across all parts of the value chain. In 2023, China exported USD 114 billion worth of garments, followed by the EU (USD 94.4 billion), Vietnam (USD 81.6 billion), Bangladesh (USD 43.8 billion), and India with just USD 14.5 billion. From 2013 to 2023, Bangladesh's garment exports grew by 69.6 per cent, Vietnam's by 81.6 per cent, and India's by only 4.6 per cent. "As a result, India's global market share in garment trade has declined from 2015 to 2022. The share of knitted apparel dropped from 3.85 per cent to 3.10 per cent, and the share of non-knitted apparel decreased from 4.6 per cent to 3.7 per cent," GTRI founder Ajay Srivastava said. He said that the garment imports too surged by 47.90 per cent, from USD 1.06 billion in 2018 to USD 1.56 billion in 2023. Textile imports also saw a notable increase of 20.86 per cent, from USD 5.77 billion to USD 6.97 billion. 

7.  A new NBER working paper points to more evidence of price markups in the US economy. It uses data on price data from more than 100 distinct product categories in the US in the 2008-19 period. 

We estimate demand with flexible consumer preferences and recover time-varying markups for individual products under the assumption of profit maximization. Our results indicate that markups increased by about 30 percent during our sample period. This reflects within-product changes and is primarily due to reductions in marginal costs, rather than increases in (real) prices. Changes in marginal costs, along with declining consumer price sensitivity, account for the vast majority of the time series variation in aggregate markup changes between 2006 and 2019. Our model indicates that consumer surplus has increased despite rising markups, though the increases are concentrated among higher-income consumers.

8. Interesting snippet about the Bill and Melinda Gates Foundation

Between 2006 and 2023, Mr. Buffett had given more than $39 billion to the Gates Foundation. By comparison, Mr. Gates and Ms. French Gates gave $39 billion between 1994 and 2022, including $22 billion to get the foundation going in 2000. In some years, the former couple gave less than half a billion. In 2021, they pledged $15 billion to the foundation’s endowment, and the following year, they transferred that money, as well as another $5 billion Mr. Gates had contributed.

9. Important point made by Richard Rorty (HT: Rana Faroohar)

National pride is to countries what self-respect is to individuals: a necessary condition for self-improvement. Too much national pride can produce bellicosity and imperi­alism, just as excessive self-respect can produce arrogance. But just as too little self-respect makes it difficult for a person to display moral courage, so insufficient national pride makes energetic and effective debate about national policy unlikely.

10. An important trend to be kept in mind as we follow China, the sharply increasing Chinese emmigration.

The number of Chinese citizens living in Malaysia has almost doubled over the past three years, driven by a jump in students and new investors, according to government officials, academics, schools, and business and community associations... China’s slowing economic growth as well as a more heavy-handed approach to business have driven more of its citizens to seek new lives abroad. Wealthy Chinese citizens have flocked to destinations such as Singapore and Malta where they have acquired citizenship through investment, and they make up the largest source of golden visa applicants in Portugal and Greece. Chinese citizens also form one of the largest groups of illegal migrants attempting to enter the US from Latin America...

Malaysia... is home to a centuries-old Chinese diaspora that makes up about 23 per cent of its 34mn citizens. Most new Chinese arrivals are middle-class families who see south-east Asia as a more affordable destination, or students shying away from anti-China sentiment in the west, making Chinese people the largest group of foreign students and long-stay residents in Malaysia. Universities and international schools in Malaysia are reporting soaring demand. The nation’s higher education institutions had 44,043 Chinese students enrolled last year, up 35 per cent from 2021, according to the education ministry... the number of Chinese pupils in international schools more than doubled in the same timeframe from 2021 to 2023. More than 56,000 Chinese immigrants now hold Malaysia My Second Home long-stay visas, more than double last year’s number. Chinese investors are also contributing to the boom in expatriate numbers. There are about 45,000 owners, managers and workers of Chinese companies in Malaysia, up from an estimated 10,000 in 2021, according to a Chinese trade official... The rise in Chinese residents mirrors an earlier trend in Thailand. Sivarin Lertpusit at Thammasat University in Bangkok said the number of new Chinese immigrants in Thailand was “rapidly increasing”, reaching 110,000-130,000 living in the country in 2022, most of them entrepreneurs, employees, students and their family members as well as lifestyle migrants.

11. The week saw a US federal judge ruling on a DoJ suit that Google spent billions of dollars on exclusive deals to maintain an illegal monopoly on search, a sector where it handles more than 90% of online queries. The judge, Amit Mehta, of the US District Court for the District of Columbia, said, "Google is a monopolist, and it has acted as one to maintain its monopoly."

The DoJ argued the search giant paid tens of billions of dollars a year for anti-competitive deals with wireless carriers, browser developers and device manufacturers — and in particular Apple. These payments, which cemented Google as the default search engine, totalled more than $26bn in 2021, according to the decision... The proceedings will now enter a second phase in which the court will determine what remedies Google needs to take. The DoJ has not yet indicated what penalties it would seek, but it may focus on curbing Google’s ability to strike the deals at issue in the case. The decision is the biggest win against Big Tech by US antitrust enforcers in decades... the DoJ’s antitrust division, led by Kanter, has sued Apple and has a second case pending against Google, accusing it of allegedly exercising monopolistic control of the digital advertising market. The second Google trial is set to begin next month. The Federal Trade Commission, chaired by Big Tech critic Lina Khan, has also filed lawsuits against Amazon and Meta. 

Google’s years-long agreement with Apple to make it the default search engine on the iPhone’s Safari browser has long drawn scrutiny. Unsealed court documents showed that Google paid Apple $20bn in 2022 alone. This would amount to a substantial portion of Apple’s $85bn-a-year services business, which includes its App Store and Apple Pay... Also at issue in the case were contracts the tech giant reached over the years with browser developer Mozilla, Android smartphone makers Samsung, Motorola and Sony, and wireless carriers AT&T, Verizon and T-Mobile... The ruling strikes at the heart of Google’s most prominent business. The company made $175bn in revenue from its search-based advertising last year, more than half its $307bn of total revenue... Google’s “distribution agreements foreclose a substantial portion of the general search services market and impair rivals’ opportunities to compete”, Mehta said in the ruling. “Google has not offered valid pro-competitive justifications for those agreements.” The deals deny competitors “scale”, he said, which is “the essential raw material for building, improving, and sustaining” a general search engine. Google benefits from a “feedback loop” in which parties “routinely renew” exclusive distribution deals with the company, Mehta added. “That is the antithesis of a competitive market.”

Judge Mehta pointed to three ways in which Google distorted competition

The company’s grip over 90 per cent of the search market enabled it to make super-profits from advertisers. Its business model, based on surveillance advertising, compromised user privacy, which rival search engines might otherwise prioritise. And its massive payments to Apple, and other tech companies, for default distribution of Google search on their devices and services in effect buy off potential competitors, stifling innovation.

This about the extent of Google's dominance

According to Mehta’s decision, nearly 90 per cent of US search queries flowed through Google in 2020, and 95 per cent for mobile. It has no serious rivals — the next closest, Microsoft’s Bing, accounted for just 6 per cent. The advertising business Google has built around its search business generates enormous revenue: $175bn last year, more than half its $307bn total. It has spent lavishly to protect its cash cow: Google’s total payments to the likes of Apple and Mozilla to make it their default search engine reached more than $26bn in 2021 alone, Mehta said.

This is a summary of the cases against the other Big Tech companies. 

12. This blog has long held that India's objective should be to grow at 6% for the next 30 years, and use the occasional tailwinds to opportunistically engage for episodes of slightly higher rates. TT Rammohan points to the WDR 2024 and makes this important point.

The WDR 2024 report complements the findings of a study carried out by the World Bank in 2008 under the leadership of Nobel Laureate Michael Spence. That study showed that growth of over 7 per cent for over 25 years from any starting point, not just from a MIC starting point, is a tall order — only 13 economies had been able to do so. Of these, nearly half were small economies. The economies that had grown rapidly had had the benefit of a post-World War II world environment that was substantially open to free trade.

M Govinda Rao points to the accounting challenges with India's growth aspirations

According to the World Bank’s definition, a developed country in fiscal 2025 has a per capita gross national income (GNI) of $14,005. India’s GNI is estimated at $2,600, implying that to leapfrog into the developed country club, India must multiply its per capita GNI by 5.3 times. This translates into an average annual growth of about 7.5 per cent in per capita GNI or about 9 per cent per year in overall GNI for the next 23 years... Accelerating growth requires the economy to enhance both investments and productivity. At the present incremental capital-output ratio of 5, the investment rate must increase to 40 per cent of gross domestic product (GDP) from the prevailing 34 per cent. Any shortfall will have to be compensated by increasing productivity.

13. Some striking numbers about the role of state in today's capitalist society.

Sovereign Wealth Funds (SWFs) controlled more than $11.8 trillion in 2023, beating hedge funds and private equity firms combined, up from $1 trillion in 2000. State-owned enterprises (SOEs) had assets worth $45 trillion in 2020, the equivalent of half of global gross domestic product, up from $13 trillion in 2000. The Organization for Economic Cooperation and Development calculates that half of the world’s 10 biggest companies and 132 of its 500 biggest are SOEs...

For the most part, these SOEs are different from the state-owned bureaucracies of old. The state acts as a passive shareholder (sometimes with a majority but often with a minority share) rather than as a hands-on owner. The chief executives tend to have MBAs from fashionable schools and, in many cases, experience in the private sector. And the companies participate fully in global markets rather than, like old fashioned state-owned companies, hiding behind national walls... Big European SOEs have been buying up smaller private companies across Europe: France’s SNCF and Deutsche Bahn AG have purchased British railway companies, creating the oddity of foreign state companies running Britain’s privatized railways, while Spain’s Telefonica SA has expanded across Europe and the Americas. The Norwegian sovereign wealth fund is so big, controlling more than $1.7 trillion in assets, that it owns almost 1.5 per cent of the shares in all the world’s listed companies.

14. Some interesting snippets about China's priortisation of science education and applied research in areas close to the country's strategic priorities. 

A majority of undergraduates in China major in math, science, engineering or agriculture, according to the Education Ministry. And three-quarters of China’s doctoral students do so. By comparison, only a fifth of American undergraduates and half of doctoral students are in these categories, although American data defines these majors a little more narrowly... China’s lead is particularly wide in batteries. According to the Australian Strategic Policy Institute, 65.5 percent of widely cited technical papers on battery technology come from researchers in China, compared with 12 percent from the United States. Both of the world’s two largest makers of electric car batteries, CATL and BYD, are Chinese. China has close to 50 graduate programs that focus on either battery chemistry or the closely related subject of battery metallurgy. By contrast, only a handful of professors in the United States are working on batteries...

The roots of China’s battery successes are visible at Central South University in Changsha, a city in south-central China and a longtime hub of China’s chemicals industry. Central South University has nearly 60,000 undergraduate and graduate students on an extensive, modern campus. Its chemistry department, once in a small brick building, has moved to a six-story concrete building with labyrinths of labs and classrooms. In one lab, which is filled with glowing red lights, hundreds of batteries with new chemistries are tested at the same time. Electron microscopes and other advanced equipment occupy other rooms... Peng Wenjie, a professor, has set up a battery research company nearby that employs more than 100 recent doctoral and master’s program graduates and over 200 assistants. The assistants work in relays for each researcher so that the testing of new chemistries and designs continues 24 hours a day... Building and equipping an electric-car battery factory in the United States costs six times as much as in China, said Robin Zeng, the chairman and founder of CATL. The work is also slow — “three times longer,” he said in an interview.

It would be useful to go back and check on similar articles that compared the scientific research focus in the Soviet Union and its comparison with the US. The Communist Party recognised the importance of higher education and research, and the USSR was a leader in basic sciences education and in applied research, competing on level terms in many of the cutting-edge areas of technology. We now know that it didn't go much far. 

Not saying that the same fate awaits China. But it's useful to keep history in mind and judge such trends with some perspective, and not in any absolute terms. 

Weekend reading links

1. The bull case for Japanese stocks as the country's economy breaks free of the deflationary grip.

There is background excitement around the introduction, in January, of an expanded tax-protected investment scheme (structured much like a UK Isa and known as Nisa) and its capacity to draw into the Tokyo stock market some of the $7tn that Japanese households currently hold in cash. The so-called “Mrs Watanabes” — a moniker given to stereotypical keepers of the family purse strings — are generally conservative, but deflation has made them more so... That hoard of cash and deposits represents more than half of the households’ total financial assets, and is a far higher ratio than their peers in the US, UK and Europe, and than the worldwide average of 28.6 per cent. For a country that has accumulated such vast household financial assets — ¥2.1 quadrillion at the end of June 2023 — it is remarkable how little has flowed into the stock market...

Inflation is back... wage increases in 2024 have been the largest in 33 years and the prospect of them rising even higher are guaranteed by the fact that every single industrial sector in Japan is now short of labour... Japanese investment trusts, pension funds and insurance companies, said Smith, hold respectively 26.9 per cent, 9.1 per cent and 6.1 per cent of their portfolios in equity. That compares with 61 per cent, 28.1 per cent and 11.1 per cent by their US equivalents. Over the past decades, the 12-month forward earnings per share of Topix stocks have (in local currency) outperformed peers in the US, Germany, China and the MSCI Emerging Market index. The profits of corporate Japan, Smith showed, are overwhelmingly correlated with global industrial production and world trade, rather than with US 10-year Treasury yields, the dollar-yen exchange rate or Japanese industrial production, as many imagine.

2. Germany and Canada are the only two triple A rated economies among G-7.

3. Infrastructure assets long gestation period fact of the day.

Eurostar launched with just two core routes linking London to Paris and Brussels. It took 15 years to become consistently profitable, and 24 years for direct services between London and Amsterdam to launch. But industry executives believe several factors have combined to make starting new services more viable.

Interesting fact that Eurostar has enjoyed monopoly over the trains linking UK and Europe since its first service started in 1994. Now five companies have evinced interest in offering competing service. 

4. FT Alphaville has some stunning factoids about the private equity industry.

Private capital firms have taken more money from investors than they’ve distributed back to them in gains for six straight years, for a total gap of $1.56tn over that period. And this isn’t just about the recent glut of capital raised, lagged returns and private equity exit blockages either. Even if you include the big returns of 2013-2017, private capital funds have now called $821bn more than they’ve returned over the 14 years that Preqin’s data series stretches over.

But this has not stopped PE executive compensation from hitting the roof

Alphaville has a telling conclusion.

The fact that private equity alone is sitting on a record backlog of 28,000 companies worth an estimated $3tn at a time when most equity markets are at or near record highs doesn’t fill one with confidence. There’s a reason why PE and VC fund stakes are being sold at often steep discounts. There just seems to be too big a mismatch between what private equity and venture capital have paid for a lot of assets, the returns their investors expect, and what public markets or other potential buyers are willing to pay.

5. UAE is outcompeting China to emerge as the largest foreign investor, atleast in terms of intentions to invest, in Africa.

In 2022 and 2023, the UAE pledged $97bn in new African investments across renewable energy, ports, mining, real estate, communications, agriculture and manufacturing — three times more than China, according to fDi Markets, an FT-owned company tracking cross-border greenfield projects... A UAE official tells the FT that its total investments into Africa amount to $110bn... While many of these investments will not materialise... the Emirates has consistently been a top-four investor on the continent over the past decade. Companies from the UAE have embraced projects in Africa that more risk-averse investors have avoided... This wall of money is allowing the UAE to help shape not only their countries’ economic destinies, but in some cases the political fortunes of some African leaders... African companies are choosing to base themselves in Dubai to trade with the rest of the world... The number of African companies registered in Dubai has increased dramatically in the past decade, reaching 26,420 by 2022, according to the Dubai Chamber of Commerce. “Dubai is New York for Africans now,” says Ricardo Soares de Oliveira, a professor of international politics at Oxford university who has studied Africa-UAE links... UAE’s engagement in places like Sudan is partly motivated by its desire to counter Islamist extremism. But, he says, it has also seized the chance to diversify its economy with investments in food security, critical minerals and renewable energy... some see the UAE’s inroads into Africa as part of a larger vision to wield more power on the world stage... Dubai has become an attractive jurisdiction for Africans to trade, do business and park offshore money.

Like the Chinese, the UAE's investments have generally been in the old-economy industries.

Over the past decade, Masdar, Abu Dhabi’s renewable energy investor, has built infrastructure including five wind farms in South Africa, a battery energy storage system in Senegal and solar power facilities in Mauritania. Masdar is leading UAE plans to invest $10bn to increase sub-Saharan Africa’s electricity-generation capacity by 10GW. But UAE companies are also investing in fossil fuels. In May, the Abu Dhabi National Oil Company bought a 10 per cent stake in Mozambique’s Rovuma gas basin, acquiring it from Portuguese energy company Galp for around $650mn. In real estate, Dubai Investments, a listed conglomerate whose biggest shareholder is Dubai’s sovereign wealth fund, this year announced it would start work on a 2,000-hectare property development in Angola. The Abu Dhabi-based telecoms company formerly know as Etisalat... operates in 12 countries across Africa. UAE companies have begun to make a splash in mining too. International Resources Holding, a unit of International Holding Company, the $240bn Abu Dhabi conglomerate chaired by UAE national security adviser Sheikh Tahnoon bin Zayed al-Nahyan, last year paid $1.1bn for a majority stake in Mopani, a Zambian copper mine previously owned by Glencore. IHR has also expressed interest in investing in mines in Angola, Kenya and Tanzania. Last year, Primera, an Abu Dhabi-based gold trader, was granted a 25-year monopoly by the government of the Democratic Republic of Congo for all small-scale “artisanal” gold supplies in the country. Much African gold, both legal and smuggled, passes through Dubai, according to experts and African government officials... DP World is present in nearly a dozen African countries after pouring some $3bn into the continent. It now operates ports from Mozambique on the Indian Ocean in the south to Algeria on the Mediterranean in the north and Angola on the Atlantic, virtually encircling the continent.

The UAE's rising role in these industries is welcomed by Washington which sees it as a diversification away from the excessive role that China has been playing in these strategic industries in Africa for several years. And this is an interesting political economy consequence of the emergence of Dubai

Many of the 26,000-plus African companies registered in Dubai are “letterbox companies”, says Soares de Oliveira. “That allows Africans to keep dollars away from African economies. You pay suppliers in Dubai and the money never comes back.” Wealthy Africans, including politically exposed persons, also find a safe harbour in Dubai where they can buy property and enjoy a world-class lifestyle. Other high-profile residents include Isabel dos Santos, the billionaire daughter of Angola’s former president, who moved to the city in 2020 days after the new Angolan government froze her assets.

6. Fascinating portrait of Elvira Nabuillina, the head of the Russian Central Bank for the last 11 years, and widely respected in the markets and credited with steering the Russian Rouble and war economy during the difficult times. This is interesting.

Nabuillina’s friends say she is one of the few advisers granted leeway to speak candidly to Putin, which he appreciates... Today the bank has a degree of autonomy few other Russian institutions enjoy, with a mandate both to set interest rates and to regulate banks... After taking over the central bank in 2013 Nabiullina set about turning it into a workplace capable of attracting the best economists. She assembled a young, highly qualified team; many – such as her deputy, Ksenia Yudaeva, who helped introduce modern practices for data collection and analysis – were trained in the West. A lot of “smart, talented people” at the bank came to feel strong personal loyalty towards Nabiullina, said Alexandra Prokopenko, a colleague who left the bank shortly after the start of the Ukraine war.

A feature of Nabuillina's tenure has been her willingness to embrace orthodoxy on currency management. 

Previous governors of the bank of Russia had protected the rouble, keeping its exchange-rate value artificially high: Nabiullina announced plans to let it float. She resisted pressure from the oligarchs to keep cheap credit flowing, instead maintaining high interest rates. She also closed 300 banks in four years, many for “questionable transactions” – in other words, money-laundering. It was an ambitious agenda, guaranteed to upset people along the way, especially in the banking sector. But Putin was happy with the macroeconomic stability she was giving him. “Her enemies know he has her back,” said one observer... In 2014, the year Nabiullina had planned to fully float the rouble, Putin annexed Crimea. Europe and America imposed sanctions that made it harder for Russia’s major banking, energy and defence firms to get credit. On top of that, world oil prices dropped, and the rouble began to weaken; Russians saw their savings losing value fast. It would have been easy for Nabiullina to spend the bank’s reserves to shore up the rouble and impose capital controls to stop Russians from buying hard currency. But that would have shaken confidence in the kind of economy she was trying to develop. She stuck to her plan and allowed the rouble to float. Predictably, it sank. Establishment economists called her foolhardy. Right-wing nationalists denounced the bank’s “us State Department” staff. But her calculated gamble paid off, and by the autumn of 2016 the rouble had regained value. Inflation, meanwhile, was falling towards her target of 4%.

And break from orthodoxy when required.

In the days following the invasion, the eu froze Russian central bank assets worth over €200bn ($217bn) and Western nations slapped wide-reaching sanctions on Moscow’s banking, energy and defence sectors. On the morning of Monday February 28th, Russians queued to withdraw savings as the rouble lost nearly 30% against the dollar. Nabiullina had to impose extraordinary measures to calm the situation, far from her slick 2014 playbook. First she raised interest rates to 20% – such a bold move that one employee recalls her personal security detail being increased afterwards. Then she and Putin set capital controls, one of her personal red lines, obliging big energy firms to buy roubles with their dollars and banning most transfers out of Russia. She even froze Russian deposit-holders’ access to their funds for a while... Most of these measures were eventually reversed, and a kind of stability was achieved.

7. Exiting a stock market position is hard.

Last year Mr Imas and colleagues published a paper on the buying and selling choices of 783 institutional portfolios with an average value of $573m. Their managers were good at buying: the average purchase, a year later, had beaten the broader market by 1.2 percentage points. But they would have been better off throwing darts at the wall to select which positions to exit. After a year, sales led to an average of 0.8 percentage points of forgone profit compared with a counterfactual in which the fund selected a random asset to sell instead.

8. The Economist has a good survey on cross-border capital flows. This about the trends in FDI flows and their realignments in recent years. 

All types fell after the financial crisis of 2007-09, and have not recovered since. But the drop in FDI became more pronounced after the onset of America’s trade war with China during Donald Trump’s presidency. A study by economists at the IMF published in April 2023 found that, as a share of global GDP, gross global FDI had fallen from an average of 3.3% in the 2000s to just 1.3% between 2018 and 2022... To assess whether FDI has also been redirected over time, the IMF researchers analysed data on 300,000 new (or “greenfield”) cross-border investments carried out between 2003 and 2022. They found a rapid drop in flows to China after trade tensions ratcheted up in 2018. Between then and the end of 2022, China-bound FDI in sectors which policymakers deemed “strategic” fell by more than 50%. Strategic FDI flows to Europe and the rest of Asia fell, too, but by much less; those to America stayed relatively stable. FDI for China’s chip sector plunged by a factor of four, even as FDI for chip firms rose sharply in the rest of Asia and America.

The IMF researchers then compared investments in different regions completed between 2015 and 2020 with those completed between 2020 and 2022. From one time period to the next, average FDI flows declined by 20%. But the decline was extremely uneven across different regions. America and countries in Europe, especially its emerging economies, came out as relative winners. FDI to China and the rest of Asia fell by much more than the aggregate decline. The roster of relative winners—rich America and its closest allies—suggests that geopolitical alignment has played a part in diverting capital flows. Sure enough, it has become more important than ever. Measuring such alignment through UN voting patterns, the IMF researchers calculated the share of FDI flowing between pairs of countries that are geopolitically close. They found that this share has risen significantly over the past decade, and that geopolitical proximity is more important than the geographical sort. The same correlation with geopolitical alignment is present for cross-border bank lending and portfolio flows, though to a lesser extent.

This is on the cross-border capital flows and its impact on the economies. 

Yet in spite of the vast scale of financial globalisation over the past three decades, with gross cross-border positions rising from 115% of world GDP in 1990 to 374% in 2022, gains have proved elusive to measure. That does not mean there have been no gains. But at the same time there is clear evidence that sudden inflows of foreign capital can cause financial crises. A paper published in 2016 by Atish Ghosh, Jonathan Ostry and Mahvash Qureshi, then all of the IMF, identified 152 “surge” episodes of unusually large capital inflows across 53 emerging-market countries between 1980 and 2014. Around 20% ended in banking crises within two years of the surge ending, including 6% that resulted in twin banking-currency crises (far higher than baseline). Crashes tended to be synchronised, clustered around global financial convulsions. But the link between sudden floods of foreign capital and subsequent credit growth, currency overvaluation and economic overheating is hard to dismiss.

This is a good summary of the latest restrictions on capital flows of all kinds that have come into being following the rise of US-China tensions. While the article unsurprisingly bemoans these restrictions, I'm inclined to feel that they might be just about the right corrective to a trend on easing cross-border capital flows that might have gone too far. 

9. On China's renewables industrial policy 

In 2022, Beijing accounted for 85 percent of all clean-energy manufacturing investment in the world, according to the International Energy Agency. Now the United States, Europe and other wealthy nations are trying frantically to catch up... Last year, the energy agency said, China’s share of new clean-energy factory investment fell to 75 percent. The problem for the West, though, is that China’s industrial dominance is underpinned by decades of experience using the power of a one-party state to pull all the levers of government and banking, while encouraging frenetic competition among private companies.

China’s unrivaled production of solar panels and electric vehicles is built on an earlier cultivation of the chemical, steel, battery and electronics industries, as well as large investments in rail lines, ports and highways. From 2017 to 2019, it spent an extraordinary 1.7 percent of its gross domestic product on industrial support, more than twice the percentage of any other country, according to an analysis from the Center for Strategic and International Studies. That spending included low-cost loans from state-controlled banks and cheap land from provincial governments, with little expectation that the companies they were aiding would turn immediate profits... It all combined to help put China in the position today to flood rival countries with low-cost electric cars, solar cells and lithium batteries, as consumers across the wealthy world are increasingly turning to green tech. China now controls over 80 percent of worldwide production of every step of solar panel manufacturing, for example.

The difference between the industrial policies of China and the US is that the former was focused on sending low-cost (now clean tech) exports to global markets and preventing foreign firms from dominating China's domestic markets, whereas the latter is now intent on keeping out Chinese imports and denying it access to critical advanced technologies in strategically important sectors. 

10. From a Sanford Bernstein report (via Ken), the graphic below shows the sprawling empire of Reliance Industries' retail presence.

Of the over 18,000 stores Reliance Retail operated as of March 2022, roughly 8,500 were stores selling Jio SIM cards, handsets, and accessories. But there were 5,500 lifestyle outlets and 3,500 grocery stores too. That’s the kind of scale no one will have in the near future. In grocery, the only other player of note is Dmart, and its footprint is one-tenth of Reliance’s. Reliance is the largest in fashion and electronics too. The Tata Group is a worthy competitor in both (Westside and Zudio in fashion and Croma in electronics) but not one that Reliance would lose sleep over.

11. Facts about widening inequality even among the top echelons of the US society.

Not only have the biggest American companies grown spectacularly relative to the rest, they are also growing more entrenched, as are their owners. Wealth is rising fastest not for the 1 per cent but for the top tycoons, all of whom are — not coincidentally — in Big Tech... By last year, political economist Blair Fix has shown, the wealth of the richest American was 50 times the median for the top 400 billionaires, up from 10 times in 1983. And even among billionaires, inequality begets immobility: top-50 billionaires are now roughly 40 per cent more likely to hold their place on the Forbes list from one year to the next than they were in the 1980s.