Weekend reading links

1. Indian universities have come to dominate the global rankings for research paper retractions, following complaints of plagiarism, fake peer reviews, and other misdemeanours. According to the Retraction Watch database, India recorded 887 research paper retractions in 2025, form 21% of all retractions (second to China with 41%) despite contributing just 5% of all publications, and occupying six of the world's top 10 universities for retractions. 

2. Stunning statistic about the Algerian demographic dominance of the Les Blues, the French national soccer team.

Only two of France’s 26 players are of non-immigrant ancestry — 22 of them have African roots. Some, such as Mbappé, are deeply connected to their country of origin.

And this dynamic of reverse migration and migrant domination elsewhere.

Of England’s 26 players, eight have Caribbean forebears, 10 African, and 20 who were eligible to represent at least one other country because of their family heritage or birthplace. Belgium has players who trace their lineage to its former colonies — Congo, Burundi and Mali. The Portugal team has those of Cape Verdean, Angolan, and Guinean lineage. Those surplus to their requirements — players of African descent born and raised in Europe — in turn, populate most of the African teams. Ten of the 11 Senegalese players in the starting lineup against France in the opening game were born in France... Six of the players in the US national team are of Afro-Caribbean heritage... There are those from Nigeria, Ghana, and Jamaica. Three are from Hispanic backgrounds — Christian Roldan (Guatemala), Ricardo Pepi (Mexican-American) and Jesús Ferreira (Colombian-American). As many are from Europe, and three others have dual nationalities... For Australia's Socceroos, four players were born in refugee camps. The players represent 15 ethnic backgrounds and include a Malaysian with Sri Lankan roots. Eighteen other players have direct immigrant or refugee heritage. To contextualise, only one Black player (Sam Morris) and another of Caribbean descent (Andrew Symonds) have represented Australia in cricket.

This is a brilliant article by Sandip G about the magnificent quartet in the French team - Kylian Mbappe, Ousmane Dembele, Michael Olise and Desire Doue. 

3. The US military learns from Iran.

The US has, similarly, begun to build its production of drones. It used the Lucas, a one-way attack drone reverse-engineered by start-up SpektreWorks from an Iranian Shahed-136, for the first time in combat in February. The Pentagon is looking to begin mass-producing them, and has requested to triple its spending on drones and related technologies to over $74bn next year.

4. Shenzhen, with 400,000 taxi drivers licensed to provide services in 26 platforms, will permit robotaxis from July 1. The new rules will allow the Shenzhen government to promote the “orderly development” of robotaxi tests, demonstrations and commercial pilots either in select zones or citywide. 

5. Friedrich Merz's landmark pension reforms

Under proposals agreed by a bipartisan commission, a compulsory initial contribution of 0.5 per cent of employees’ pre-tax income, rising to 2 per cent by 2031, will go into a Swedish-style public pension fund managed centrally and invested in capital markets. Contributions are split 50/50 between employees and employers. The statutory minimum retirement age of 67 is set to rise in line with life expectancy; rights to early retirement for people with 45 years of contributions will be restricted.

Such measures have become vital to reduce the deficits of Germany’s unsustainable pay-as-you-go system. Some 16.5mn baby boomers will retire by 2036 with only 12.5mn new workers joining the workforce, according to some estimates. The government spent about a quarter of the total federal budget on plugging gaps in the system in 2024; economists say that could double to 50 per cent in two decades.

Linking the retirement age to life expectancy is projected to mean only a gradual increase — to 67.5 by 2041 and 70 by 2091. But economists say this is the only sound way to stabilise the system without spiralling payroll taxes or huge federal subsidies. Narrowing early retirement rights will address a drain of experienced workers amid acute skills shortages.

6. Important graphic that highlights the extent of renminbi depreciation since the beginning of 2022 and the surge in surplus.

7. China expands export restrictions on dual-use items against Japanese companies in the latest instance of weaponisation of its manufacturing dominance. 

The companies added to the export control list include subsidiaries of Mitsubishi Electric and Mitsubishi Heavy Industries. The restrictions will also apply to several Japanese government research organisations including the National Institute for Defense Studies. Chinese exporters are banned from selling to the entities on the restricted list, and foreign organisations or individuals are also prohibited from selling dual-use items that were built or originated in China. China last expanded the list to 40 companies in February. In parallel with the expanded export control list, China’s commerce ministry on Monday put 20 Japanese companies and organisations on its watchlist, meaning they will get closer scrutiny in any matters relating to potential dual-use technologies. The list includes subsidiaries of Fujitsu, Mitsui E&S, Hitachi, Komatsu and Terra Drone. Beijing’s targeting of Japanese companies is the latest example of China’s weaponisation of trade in recent years. The EU Chamber of Commerce in China in April has found that Beijing has nearly tripled its use of export controls in the past five years. While some instances have been in response to western measures, the researchers noted that Beijing’s controls have also frequently targeted trade chokepoints.

8. GST balance sheet.

Though average GST collections in absolute terms are almost 90 per cent higher than those in the pre-GST period, other parameters tell the real story. The average growth rate in tax collections and the tax-GDP ratio are lower under the GST regime compared to the pre-GST era. Collections were further marred by GST cuts starting September 22, 2025.

9. India's labour market challenge.

With high-skilled IT services under pressure, a financial sector with limited capacity to create low and medium skilled jobs and manufacturing struggling to gain traction, the one area where jobs are being created is low-end services. Delivery riders for Zepto, which has just filed its papers for an IPO, have gone up from 49,278 in 2024 to 2.21 lakh in 2026 — more than a four-fold increase. Zomato and Blinkit have almost doubled to 10 lakh riders in two years. Swiggy now has 6.1 lakh riders, while Uber, at 14 lakh active drivers, outstrips Indian Railways. The gig economy is emerging as an urban employment sink.

10. The Uniqlo-Toray partnership that underpins Fast Retailing's spectacular growth. 

In April 2000, Uniqlo founder Yanai paid a visit to the offices of Toray, a Tokyo-based chemicals and materials conglomerate he had read about in a magazine. It marked the start of a strategic collaboration that provided Uniqlo with arguably its most important advantage over rivals: access to high-tech, specialised fabrics. After testing 10,000 prototypes, Toray invented a material combining four types of synthetic yarn that absorbs moisture from the body and converts it to heat. Uniqlo branded it Heattech, and since 2003 has sold 1.5bn garments made from or containing it. Toray also helped develop the fabrics behind AIRism, used as a breathable base layer, and the Ultra Light Down ranges of packable jackets insulated with bird plumage... control over fibre shape and fineness, dubbed nanodesign, has helped to make highly water-repellent and durable $50 lightweight parkas, creating a far cheaper alternative to specialist outdoor brands such as Patagonia. The two sides are entering a fifth phase of collaboration that aims to combine synthetic fabrics with natural ones, such as introducing cashmere into Heattech products to make them softer. Okawa believes few other retailers have such deep relationships with their key suppliers.

11. Good FT long read about the Jamie Dimon succession struggle at JPMorgan. The things that stand out are the following: 

One, the appointment of someone to the top position in any organisation, public or private, is bound to be opaque and involve considerable discretion. The only disqualification would be the egregiously ineligible. For any others, there will always be ways to spin it as a fair process. This holds with greater effect as the stakes go up. 

Two, in the succession struggle, dominated as they are by a multiplicity of considerations, among those eligible or qualified, it is rare that the most professionally competent will emerge as the successor. 

Three strong leaders will always delay succession, and even when they choose to retire, will seek to retain enough levers to influence the decisions of their successors. Most often, it is about decisions involving the promotion of the interests of those in the organisation closest to them, their pet projects or initiatives, broader organisational strategic shifts, etc.

Weekend reading links

1. This captures the big problems with Chinese exports to Europe.

In the early 1970s workers at Dongfeng, or “East Wind”, imported American trucks to inform their early attempts at making off-road vehicles destined for the People’s Liberation Army. Nearly 60 years later Stellantis, the European owner of the Jeep brand, is partnering with Dongfeng to produce a new battery-powered version of the iconic American light utility vehicle for consumers in China, the Middle East and south-east Asia... International carmakers, struggling for survival amid an expensive transition to electric vehicles, are turning to China’s technologically advanced and cost-efficient factories as manufacturing bases for their global businesses. Foreign companies already account for around two-fifths of China’s car exports to Europe, when joint ventures with local groups are included, according to the Rhodium Group, a US consultancy... Indeed, Volkswagen, BMW, Nissan, Hyundai and others are increasing exports from Chinese factories with spare capacity to markets other than Europe and the US.

2. A new approach to making clean hydrogen. 

Most of the hydrogen the world uses today — mainly for fertilizer and refining — is produced using natural gas in a process that creates lots of emissions. In recent years, the United States and other countries have invested billions of dollars trying to make “green” hydrogen with wind and solar power, but it has proved difficult and expensive. Now a growing number of companies think a better answer could lie underground. Dozens of start-ups are trying to find large reservoirs of natural hydrogen thought to exist below the surface. Others, like Vema, are trying to stimulate the processes that generate that hydrogen, without any emissions. It’s a field often referred to as “geologic hydrogen.”...

Hydrogen is the most abundant element in the universe, and it gets made naturally in the Earth’s crust when certain iron-rich minerals react with water and rust. This process, known as serpentinization, often leaves behind rocks with a mottled green color. For a long time, many geologists believed that any natural hydrogen produced this way was unlikely to accumulate in large underground deposits because the tiny molecules would slip away through cracks in rocks. Lately, that conventional wisdom has been upended... By the 2020s, scientists were publishing papers estimating that natural hydrogen deposits underground could supply the world’s needs for hundreds of years. One promising location was North America’s Midcontinent Rift, an enormous formation of iron-rich basalt that stretches 1,200 miles from Kansas to Michigan... The Energy Department has estimated that geologic hydrogen could be produced for less than $1 per kilogram. That would be cheaper than hydrogen made from fossil fuels and one-sixth the current cost of making hydrogen from wind and solar power.

It has started attracting private capital.

Companies are racing to find the fuel. One of the best-funded start-ups, Koloma, has raised $400 million from investors including Amazon and United Airlines and has drilled exploratory wells in Iowa. HyTerra, an Australian firm, is searching for hydrogen and helium in Kansas and Nebraska. Not everyone thinks the best strategy is to search for natural deposits underground. A better idea, some say, is to create them. In Quebec, a startup called Vema Hydrogen plans to spend the rest of the year injecting water into its underground test wells to see if it can speed up the process of serpentinization that creates natural hydrogen underground... Vema has already raised $15 million and is working to raise more. There are ophiolites all over the Earth, including a ridge stretching from Costa Rica to Alaska, and the company is looking at sites in Oregon and California as well. Other start-ups, including one out of M.I.T. called GeoRedox, are developing their own approaches.

3.  Semiconductor chips are one area where China lags badly.

Chinese companies will most likely make just 2 percent as many A.I. chips as foreign firms do this year, said Tim Fist, a director at the Institute for Progress, a think tank in Washington. The production gap between Chinese and foreign manufacturers is especially big for memory chips, which are essential for the large calculations done by A.I. Companies outside China will make 70 times as much memory storage capacity this year as Chinese chip makers will, Mr. Fist said...The inability to get essential tools from ASML has been a major chokehold for Chinese chip makers. Since U.S. officials led an effort to lobby the Dutch government to block shipments to China, no Chinese company has been able to buy ASML’s most advanced tools. Instead, Chinese chip makers have recruited engineers with experience using those machines at TSMC, the world’s top chip maker. And now, Chinese start-ups are trying to make their own chip manufacturing equipment... China’s A.I. companies are trying to get the computing power they need by strapping together numerous less powerful chips. Huawei has taken such an approach... The chips Huawei does produce are prone to defects and use more electricity than cutting-edge foreign ones.

4. This is one of the greatest messages from a student to a teacher, Albert Camus to his elementary school teacher Louis Germain after he won the Nobel Prize.  

5. Japanification in demographics.

And this impact of smartphones is striking.

6. Soumaya Keynes has a good read on the history of export restrictions and their impact, and why trade wars will endure. 

7. Southeast Asian economies struggle on the face of rising inflation from the War.

Their currencies have weakened.

The Philippines and Indonesia have already raised interest rates. 

8. Good FT visual story on maritime chokepoints.

This is a good illustration of the extent of damage from the Strait of Hormuz closure.

In a sign of Bab el-Mandeb strait’s strategic importance, Djibouti – whose coastline runs along the waterway – is home to military bases of several major countries, including the US, Italy, France, Japan, and the sole People’s Liberation Army base outside China. The Bab el-Mandeb strait is among several trade chokepoints that, when blocked, require vessels to travel more than 8,000 miles. These also include the Strait of Gibraltar and the Suez and Panama Canals...

The knock-on effects of a blockage can be much more significant where there is no alternative route to fall back on, as with the Strait of Hormuz, the Øresund between Denmark and Sweden, and the Turkish straits, comprising the Dardanelles and the Bosphorus, which act as the gateway between the Black Sea and Mediterranean. With the Hormuz strait, says Jasper Verschuur, co-author of a study into the risks of the world’s 24 narrow straits, “there is no alternative for 80 per cent of the trade”.

This is India's exposure to various maritime routes

9. Sajjid Chinoy writes that India's economic problem is less of a current account and more a capital account problem, arising from the sharp decline in FDI and FPI inflows. In the circumstances, he argues that demand compression can be counterproductive by slowing growth. He suggests a combination of depreciation and augmentation measures for foreign capital inflows.

The objective must be to attract a large-enough quantum of near-term capital inflows across multiple avenues — even if it involves a subsidised swap — to change exporter, importer and investor behaviour, and prevent a destabilising overshooting of the Rupee.

I am not sure how this is at all possible precisely when capital is flowing the other direction.  

10. For all talk of private participations and efficiencies, the long-distance railway networks in continental Europe is largely state-owned - Deutsche Bahn (Germany), Ferrovie dello Stato (Italy), Renfe (Spain), SNCF (France), and SBB (Switzerland). The Economist writes about how Italo, the private high-speed rail operator co-founded by Luca Cordero di Montezemolo, is trying to disrupt the German network. 

11. Securitisation and deepening of financial intermediation in Europe. 

The securitisation market in Europe remains moribund, comprising around 0.3 per cent of GDP compared with 4 per cent in the US.

12. SpaceX's IPO prospectus takes the widest liberties with US securities law. 

13. K-shape in US economy.

And now in wage decline

14. Ukraine's drones are inflicting massive damage and casualties on Russia as the country forces its way into its most favourable situation since the war began.

Some intelligence reports indicate that a staggering 1.2mn Russian soldiers have been killed or wounded since February 2022, a casualty figure no major power has suffered in a single conflict since the second world war... Backed by some €90bn in EU loans, Kyiv is pouring resources into domestic arms production in a bid to reduce dependence on western weapons and the political constraints that often accompany them. It has moved at breakneck speed to scale up the manufacture of land, sea and air drones, artillery systems, electronic warfare equipment, and even ballistic and cruise missiles.

15. The consulting industry is threatened by AI.  

Few industries are debating AI’s implications more intensely than consulting, whose core work of research, summarising data and producing neatly designed PowerPoint presentations is highly automatable. Richard Susskind, co-author of The Future of the Professions, says consultants are more vulnerable than other mainstream professions in part because the work of junior staff “can now be taken on, with mild supervision, by increasingly capable AI systems”. The sector now has two new competitors, he adds: “the AI-empowered client and disruptive start-ups. Both challenge the conventional model.”... AI also threatens one of professional services’ foundational economic models: billing by time. When a bot can review thousands of contracts in minutes and draft complex documents in seconds, the relationship between hours worked and value delivered begins to break down. Increasingly, clients are demanding pricing linked to outcomes rather than labour inputs.

16.  

Weekend reading links

1. China's beggar-thy-neighbour trade policy, titanium dioxide edition.

LB Group produced titanium dioxide at $1,500 a tonne in China, including subsidies, nearly half the estimated $2,800 a tonne cost to produce in the UK... China became a net exporter of titanium dioxide after 2010, with exports rising from just 48,000 tonnes that year to more than 1.7mn tonnes in 2025, creating a global glut of excess production that coincided with a wave of factory closures outside China. Over that 15-year period, factories with a combined capacity of nearly 1.3mn tonnes were shut down in Asia, Europe and the US, according to data compiled by industry analyst Reg Adams, who has tracked titanium dioxide markets since 1993. Chinese capacity hit 5.7mn tonnes at the end 2025.

2. John Burn-Murdoch points to the aspiration gap among today's youth, or the gap between their actual incomes and their expectations. 

Even though today’s young adults, and graduates in particular, are over-represented in the top quartile of the earnings distribution, they are also far more likely to be at the bottom than the top for earnings relative to reasonable expectations. In both the UK and US, even though only 10 percent of graduates are in the lowest earnings quartile, one in three is in the bottom bracket for earnings relative to expectations.

The average thirty-something university graduate in the UK today sits at the same rank of the earnings ladder as the average high school graduate did in 1995 and the average high school graduate today sits at the same rank as someone who never completed school in 1995.

Are today’s twenty- and thirty-somethings earning more than their parents did at the same age? Yes. But their relative position in society is lower than their parents’ was, and their position relative to their peers and expectations is significantly lower. Since it’s the latter that drives satisfaction, young adult malaise should come as no surprise.

3. The US AI spending estimates pale in comparison to the money spent on railways in the late nineteenth century. 

By 1890 railway companies in the US alone had issued about $5bn worth of bonds. Adjusting for inflation that equates to about $180bn in today’s money. However, this understates the enormous scale of the undertaking, because the US economy was much smaller then. In 1890, $5bn was about one-third of America’s GDP, so the investment spree was arguably the equivalent of spending over $10tn today. It also resulted in an epic, generation-defining crash. In 1873, Jay Cooke & Co, the premier investment bank run by America’s dominant financier at the time, suddenly collapsed under the weight of unsold railway bonds. This caused a giant financial crisis and ushered in what was long known as the Great Depression, until the even larger one in the 1930s.

4. McKinsey Global Institute have identified 18 future arenas of growth.

Their performance over the 2022-25 period validates their prioritisation.

They added about $18 trillion in market capitalisation in the last three years.

5. The 2 hour mark in a marathon is broken as Sebastian Sawe of Kenya wins the London marathon.

Both Sawe and Assefa were wearing Adizero Pro Evo 3 shoes, which were only unveiled a few days before the race. Known as “supershoes”, such ultralight, high-tech trainers cost hundreds of dollars a pair, but are worn only once in competition races by elite runners. Since the release of the Nike Vaporfly, the first supershoe, in 2017, the number of men and women breaking new time barriers has risen sharply. Based on a UK size 8.5, the new shoes worn on Sunday by Sawe and Assefa weigh just 97 grams, according to Adidas, making them 30 per cent lighter than the German sportswear company’s previous design. They also cost $500 a pair.

Also this. 

6. Power subsidy facts of the week.

7. Ajay Shah points to an important opportunity in the Gulf as the post-war reconstruction starts.

The region of the Persian Gulf will have capital expenditure for massive construction and engineering projects, expanding to perhaps $150 billion annually. Simultaneously, the geopolitical environment dictates investment in military capability. Procuring new defence systems to protect against drone and missile attacks will require approximately $100 billion annually. We may then envision this combination of engineering and defence procurement as a new pathway for demand of $250 billion a year into the global economy from the GCC... A lot of the projects in West Asia will be done by global firms, using Indian workers. Remittances from Indian workers will do well. Renewables, drones and missiles, oil and gas engineering: These three areas are important in export markets. The domestic environment in these areas is relatively subdued. Indian firms will do well by trying to obtain revenues from the coming engineering boom in the West Asia, and from the global boom in renewables and defence.

8. So far Apple has ploughed back its massive cash surpluses to buyback more than 40% of its outstanding shares!

This is an important moat for Apple (its profit after tax is set to touch $125 bn this year!).

Around 40 per cent of Apple’s profits now come from services, led by App Store commissions and Apple’s cut of the revenue Google makes on its gadgets. This makes it look less like an innovative tech leader and more like a powerful gatekeeper able to extract tolls from those who want to reach the estimated 1.5bn people with iPhones... Apple’s shares are still close to their all-time highs, reflecting the market’s generally sanguine view that it doesn’t need to join the ruinously expensive AI race that is consuming much of the tech world. Instead it can just sit back and take a cut from distributing the AI services of others to its massive user base.

9. Xiaomi is trying to compete with Tesla et al in the European premium brand market. 

Just two years after building its first car, China’s largest smartphone maker has already delivered 650,000 electric vehicles — on par with the number of Tesla vehicles sold last year in the world’s largest automotive market. Xiaomi founder Lei Jun, who has earned comparisons with Steve Jobs, now aims to take on Elon Musk’s company in Europe with its premium EVs known for their breakneck acceleration and advanced features... Since Lei announced his plan to build a car in 2021, Xiaomi stunned the global car industry with the launch of its first model — the Speed Ultra 7 sports sedan — just three years later... After the SU7 became one of China’s best-selling cars, its second model, the $35,000 YU7 that rivals Tesla’s Model Y with designs resembling Ferrari’s Purosangue model, received 200,000 pre-orders in just three minutes at last year’s launch... 

Xiaomi established an EV research and development centre in Munich last year, hiring more than 75 engineers. Many Chinese brands have rapidly expanded into Europe with prices roughly double those in China, yet they remain affordable due to advanced software... At its only EV factory in China, Xiaomi has deployed its own manufacturing methods and materials to bring down production costs while strengthening the durability of its vehicles. The plant, which produces a car every 76 seconds, has a 91 per cent automation rate with hundreds of robotic arms to assemble the cars while “autonomous mobile robots” carry car parts around the factory.

10. Announced Vs actual Trump tariffs.

11. EV prices are falling and ranges are rising.

Prices for lithium-ion batteries, the primary type used for E.V.s, have fallen to around $100 per kilowatt-hour in 2025, from $1,000 in the early 2010s, according to BloombergNEF. Battery density has gone up too. As battery costs fell and manufacturers built more E.V.s, ranges rose and prices fell. Tesla’s cheapest Model 3 climbed to a range of 321 miles this year, up from 220 when it was launched in the late 2010s, while its inflation-adjusted price decreased. Or consider the Leaf, which debuted 15 years ago. By 2016, the cheapest Leaf had 84 miles of range and cost around $30,000, the equivalent of $40,000 today. Nissan’s $32,000 2026 Leaf has a range of more than 300 miles.

12. Facts about German rearmament.

After loosening its constitutional debt brake last year to unlock virtually unlimited spending on the sector, Berlin intends to allocate €779bn to defence between 2026 and 2030 — more than double the previous five years. By the end of the decade — more than five years ahead of the 2035 target date — the country would surpass Nato’s goal of spending 3.5 per cent of GDP on the military, with an annual budget reaching almost €190bn.

13. The Strait Hormuz is one of the biggest global trade chokepoints.

The loss of oil supply is the highest in history.

And it has impacted the prices of several commodities.

14. Microsoft, Meta, Alphabet and Amazon are set to invest $700 bn this year on AI infrastructure.

15. Nice illustration of the conflict of interest problem that bedevils health care.

Weekend reading links

1. Paul Krugman highlights that Trump tariffs are in practice, lower than the official rates. Tariffs on paper are the average tariff rate one would predict if we apply the announced tariff rates to what we were importing before the tariffs. The tariff rate in practice is the actual amount collected in tariff revenue divided by the value of imports. 

One illustration.

Imports from Canada are a case in point. Even under the Trump tariffs, most goods from Canada can enter duty-free if they’re “USMCA compliant” — that is, they qualified for zero tariffs under the free-trade agreement formerly known as NAFTA, rebranded but barely changed in practice during Trump’s first term. In 2024, only 38 percent of U.S. imports from Canada entered under the USMCA. That’s surprisingly low, but the main reason was probably paperwork: certifying that a good complies with the free trade rules requires a lot of documentation. For smaller exporters, in particular, that paperwork often wasn’t worth doing, because tariffs were low even for goods not certified as USMCA compliant. Now the tariffs are much higher, and there has been a rush to do the extra paperwork. In June 2025, 81 percent of imports from Canada entered duty free. Not incidentally, this points to a hidden cost of the tariffs: Companies are incurring significant administrative costs to deal with a vastly more complex tariff system.

2. Important point about Zohran Mamdani's victory in NYC.

More than 2mn New Yorkers cast ballots in the largest turnout in a mayoral race since 1969.

To put this in perspective, 1.1 million voters voted four years back! 

The Times has a very good account of this remarkable victory.

A backbench assemblyman who had immigrated to New York City at age 7, he had almost no citywide profile. Even fellow socialists thought his views on policing and Israel would put a hard ceiling on his support... Mr. Mamdani’s political rise may be remembered for what came first: the buoyant, flamboyant, rule-breaking primary run that united a new coalition of Brooklyn gentrifiers and Queens cabbies around the city’s growing affordability crisis and the birth of a megawatt talent... The arc of his success is nothing short of staggering. At the start of the year, Mr. Mamdani was polling at 1 percent, tied, as he likes to say, with the candidate known as “someone else.” Few New Yorkers recognized his name, and his own political team put the odds of winning as low as 3 percent. Now, at age 34, he will be New York City’s youngest leader in more than a century, amid a pile of historic firsts: the first Muslim mayor, the first South Asian and arguably the most influential democratic socialist in the country.

3. Nothing captures the essence of the first ten months of President Trump more than tariffs. The FT has a good graphic. 

The point to be noted is the difference between the notional tariff and the actual tariff.

4. European defence spending is on the rise, and is expected to be an important driver of economic growth and innovation. 

5. Japan's famed convenience stores, konbinis, are facing the consequences of the country's demographic problems.

FamilyMart, 7-Eleven and Lawson all rely on a franchise business model to operate stores, taking a cut of sales or gross profit as a royalty in return for store owners using their brand, products and supply chains. In 7-Eleven’s case, typically between 40 per cent to 70 per cent of gross profit — sales minus cost of goods sold — is paid to the company. 7-Eleven Japan does not recognise the Convenience Store Union because franchisees are not its employees... store owners were under pressure because they were struggling to hire more staff. They had little leeway to raise wages unless the companies share more of the profits... Japan’s big three convenience store chains are trying to introduce technology such as self-service tills, artificial intelligence-assisted ordering systems and cleaning robots to reduce the volume of work. If those efforts fall short, the companies could be forced to introduce new franchise contract terms in order to account for higher wages, said analysts. Or, if new franchisees cannot be found, they will have to close stores.

6. Venture capital fund returns

For many years, long-run venture capital returns reported by Cambridge Associates reflected the huge profits from the dotcom boom of the late 1990s, a time when the average VC fund returned more than 20 per cent a year. Last year, though, those funds finally faded into history. Cambridge’s 25-year view now only catches funds raised — and invested — as the 90s boom turned into a bubble. These showed an annualised return of only 8 per cent. For every other period measured by Cambridge since then, VC returns fall below returns from investing in companies trading on Nasdaq. These are averages, and the profits in VC have always been heavily skewed to a handful of successful firms, making it essential to get exposure to the right funds.

And the top VCs benefit from a Mathew Effect,

Startups struggling for attention are drawn to the investors with the best track records: winning the right financial backers acts as a strong signal for young companies with little else to validate their claims of future greatness. That means the most successful VC firms usually get first option on the smartest founders and the best deals.

7.  FT visual article on perhaps the grandest follies of our times, the Saudi Arabian futuristic city of Neom and its 170 km long 500 m tall mirror glass structure, The Line, conceived by Prince Mohammed Bin Salman.

The budget for The Line was $1.6tn, Neom executives were told in late 2021. But an updated internal estimate the following spring put the cost at around $4.5tn, according to a person familiar with the estimates. That is roughly the size of Germany’s annual economic output. Teams then began tackling the unprecedented design and engineering challenges raised: imagining what life would be like inside a 500 metre-high, 170km-long wall; sourcing the steel and cement that would consume much of global supply; and making water circulate in a manmade deepwater port with no current... Its staggering requirements for materials were enough to overwhelm both the capacity of its local infrastructure, and its pricing power... to make the concrete for the first 20 modules, the contractors would need a supply of cement every year that would be greater than France’s annual output. Each 800-metre module required, by design, about 3.5mn tonnes of structural steel, 5.5mn cubic metres of concrete and 3.5mn tonnes of reinforcement steel — the narrow steel bars twisted into cage forms to strengthen the reinforced concrete. “We were going to take something like 60 per cent of the global production of green steel [per year], which causes the price to go up,” said a senior design manager.

8. Ed Luce writes that peak Trump is over. He writes that the Democratic Party election victories owed significantly to their focus on rising prices, and that the deal with China postponing tariffs for one year may have won Trump some reprieve on the inflation front. 

Trump now has a strong incentive to declare similar wins on other trade wars. In that regard, Tuesday night was also a good one for Brazil, India, Canada and other targets of Trump’s ire. By a quirk of timing, the US Supreme Court on Wednesday held hearings on the legality of his tariff war. Was it coincidence that conservative justices sounded unusually bold in querying that? They too might possibly help Trump by striking the tariffs down.

9. John Burn-Murdoch points out that culture conflicts (and not economic differences) have been the drivers of political polarisation in the US.

In their pioneering paper The Business of the Culture War, published earlier this month, MIT and Harvard economists Shakked Noy and Aakaash Rao use second-by-second TV viewing data to show how the commercial incentives of cable news channels helped to sow discord not only among their viewers but across America more broadly.

Their key insights are that content relating to crime, immigration, race, gender and criticism of elites reliably increases viewing figures (while economics and healthcare cause people to switch away). This means there is a resulting shift in coverage towards more culture war issues and fewer socio-economic stories, which leads voters to rate these issues as more important. Politicians then respond by campaigning more on cultural hot button topics. All told, they estimate that the emergence and growth of cable news can account for fully one-third of the increase in US cultural conflict since 2000.

10. State capacity fact of the day, Competition Commission of India. 

It has exactly one active office. In New Delhi... CCI has no presence in Bengaluru, one small outpost in Navi Mumbai, and a “touch-and-go” office in Kolkata that lawyers say is barely functional. Markets regulator Sebi, by comparison, has 22 offices. The aviation regulator, DGCA, has around 20. When it conducts raids, it flies 25–30 officers to Mumbai. Every investigation means teams of lawyers and informants shuttling to Delhi for two years. “In India, such a large country, there is only one big agency for 28 states,” said Kumar. “Look at the US. There are competition agencies in all the states.” The costs add up. Filing a case itself can set a company back Rs 50,000 to Rs 6 lakh. Add multiple Delhi trips—three or four by the informant, three by lawyers, over a 2–2.5-year period—and justice becomes a luxury good... The Commission is still operating with roughly the same headcount it had in 2009. The Director-General’s office, sanctioned for around 20 officers, has seven. The merger-control team has six. Case disposals that once took three months now take six to eight—on a good day.

11. FT reports that the US has added "poison pill" termination clauses to recent trade deals with countries like Malaysia and Cambodia, which threaten to end the deals if either signs a rival pact that jeopardises "essential US interests" or "poses a material threat" to US security. This is a form of "loyalty test" for trade partners. 

Simon Evenett, professor of geopolitics and strategy at IMD business school in Lausanne, Switzerland, said the clauses were so broad that they handed the US unilateral powers to terminate the agreements, giving Washington fresh leverage across the region. The agreement with Malaysia also includes a provision requiring it to align with US sanctions and other economic restrictions. “Ultimately, poison pill provisions transform trade agreements from purely commercial instruments into tools for managing partner countries’ broader foreign economic policy orientation,” Evenett wrote in a paper this week. Although there is a partial legal precedent for poison pills in the 2020 US-Mexico-Canada Agreement, Evenett said the USMCA clause had legally defined triggers, in contrast to the broad conditions in the Malaysia and Cambodia pacts.

12. The rise and rise of US Government debt. 

Weekend reading links

1. As Zohran Mamdani charges to victory in New York mayoral elections, an FT long read looks at the rise of Democratic Socialists of America (DSA) and socialism in general in the US.

In 1910, Wisconsin elected the first Socialist member of the US House of Representatives. And in the same year, Milwaukee, the largest city in the state, returned a socialist as mayor. Socialists would run Milwaukee for a total of 38 of the next 50 years, earning it the reputation as one of the best-governed cities in the country. The press called the Milwaukee mayors “sewer socialists”, a label they adopted for themselves, as it drew attention to their preference for providing high-quality public goods and services over the pursuit of class struggle. The term made a comeback this year when Mamdani used it to describe his own vision for New York. “Sewer socialism,” he said, means “that we want to showcase our ideals, not by lecturing people about how correct we are, but rather by delivering and letting that delivery be the argument itself.” 

As the historian Joshua Freeman pointed out, New York had a sewer socialist of its own in the first half of the 20th century: Fiorello La Guardia, who was mayor from 1934 to 1946. Although nominally a Republican, La Guardia governed “like a socialist”, Freeman argued. During his tenure, the city’s physical infrastructure was transformed out of all recognition. And as well as building highways, swimming pools and playgrounds across all five boroughs, he established the New York City Housing Authority, the first such public body in the country, introduced rent controls, brought competing private subway lines under unified public control and kept transport fares low — priorities all echoed in Mamdani’s promises to “freeze the rent” for stabilised tenants and provide “fast and free buses”. “Zohran has definitely seen La Guardia as one of the mayors to emulate,” said Gustavo Gordillo, a co-chair of the New York DSA.

2. Good primer on the practice of borrowing against receivables. This practice has a long history, including Satyam Computers in India to Enron in the US. 

Receivables are difficult for auditors to scrutinise. Companies have lots of clients. Even when they are legitimate, it is hard to tell how much cash will eventually arrive from them. Shady practices such as “channel stuffing”, which involves sending customers more product than they have ordered and temporarily recognising the additional revenue, require a forensic eye to spot... Factoring, in which a supplier sells its receivables to another party at a discount to get hold of cash more quickly, has grown fast. According to FCI, a trade body, the field had a turnover of $4trn last year, up from just over $2trn in 2010... the cost of digging into the creditworthiness of a given company’s receivables can ruin the economics of lending money in such a manner, as margins are often thin. Some forms of credit, such as that secured against regular transactions, are among the most reliable in corporate lending, and thus offer modest returns. Others are riskier and mean borrowers must cough up to entice lenders. 

China’s local-government-financing vehicles, through which the country’s astounding infrastructure boom has been funded, might be the source of the next receivables blow-up. According to data collected by Goldman Sachs, a bank, the receivables of LGFVs for which financial information is available ran to 22.7trn yuan last year, equivalent to $3.2trn or 17% of China’s GDP, up from 13% in 2018. That is bad enough. Worse still, money is largely owed to the LGFVs by local governments themselves, many in perilous financial positions.

3. Important China fact of the day - Nobel Prize edition.

China, despite its vast scientific workforce, has won only one Nobel for research conducted on the mainland (although six Chinese-born laureates have won for research in America, and one for research in Britain).

4. Africa is returning to the era of long-serving dictators. 

 5. Advances in battery and e-bike technologies and dedicated bike lanes are powering a revolution in the use of bicycles across global cities. 

Montreal has become North America’s leading cycling city... Across the city more than a third of the population cycles at least once a week... In London cyclists now outnumber cars in the City, the financial district, by two to one. Paris, where they now outnumber motorists across the whole city, is catching up with Europe’s traditional bike capitals, Amsterdam and Copenhagen, though cycling is still growing in those cities, too. In Copenhagen, the Danish capital, bikes account for almost half of commuter journeys to work and school... Even in Beijing, just 30 years after most cyclists were pushed off the city’s roads to make way for cars, the number of cyclists is rising again.

6. The Government of India has approved a new scheme to promote the shipbuilding industry.

The Union Cabinet has just approved an outlay of nearly ₹70,000 crore to re-vitalise the shipbuilding industry. On the anvil are the establishment of a Shipbuilding Finance Scheme of about ₹25,000 crore to help domestic shipbuilders, a ₹25,000 crore Maritime Development Fund for low-cost financing that will be made available to shipbuilding and related industries, and a ₹20,000 crore fund for setting up shipbuilding development clusters where concentrated attention can be given to the requirements of shipbuilders. This will include expanding the existing capacity of maritime infrastructure and enhancing land connectivity. In addition, the state will establish an apex body to provide credit risk coverage and generally to enhance capability development.

But Michael Pinto urges a note of caution on one aspect of the scheme

This is the proposal to link disbursement of funds under the scheme to the use of at least 40 per cent of local content. It is difficult to see the logic of this proposal. The government must decide its priorities: Does it want to encourage shipbuilding in the country or does it want to encourage the use of local inputs? There could well be a contradiction between the two. If an entrepreneur is investing his money in shipbuilding, we must assume that he will use the best materials at the most competitive rates. If such materials are available locally, there is no way that anyone would go outside to source them. By insisting on a minimum local content will we not be compromising on quality issues and protecting local suppliers who have not taken the trouble to upgrade their production to international standards?

7. Putting in perspective, the importance of rare earths in the defence sector.

In the first week of the Iran-Israel conflict in June this year, approximately 800 missiles were exchanged. Each contained anywhere between two and 20 kilogrammes of rare earth elements, including two, dysprosium and terbium, now subject to Chinese export controls. Based on conservative estimates from the limited data, this means anywhere between 1.6 and 16 metric tonnes of rare earth elements were vaporised in that conflict in seven days. Ukraine’s extraordinary recent performance in its drone war against the Russian invasion is almost entirely dependent on electronics and magnets imported from China. Ukraine is now less concerned about whether European arms deliveries will arrive on time and more worried about the flow of tech imports from China. In the past 30 years, China has become the world leader in the processing of most of the 54 raw minerals that the US Geological Survey classifies as critical for US industry, including the defence sector. Currently the Chinese can process virtually any mineral 30 per cent more cheaply than its competitors.

8. This long read on the story of Patrick James, the founder of the collapsed auto-parts conglomerate, First Brands, is fascinating. With a string of business failures behind him, and finding formal asset-backed lenders cut off, he turned to the private credit industry, and his success in mobilising massive private debt is a testament to the problems of lax lending standards in the $2 trillion industry.  

The bankruptcy filing was only the beginning of a harrowing experience for the group’s lenders. It was soon revealed that First Brands, which last year made a loss of $12mn, had racked up close to $12bn in both conventional loans and off-balance sheet financing. That was billions of dollars more than many of its lenders had realised. Even worse, an investigation under way as part of the bankruptcy began to probe whether the invoices and inventory underpinning much of the group’s financing were pledged “more than once” or “commingled” between lenders. Department of Justice prosecutors are also examining how so much money disappeared so quickly... many of First Brands’ mainstream lenders were unaware that the group had also raised billions of dollars backed by its inventory through off-balance sheet “special purpose entities”...

Many lenders now fear they may have fallen prey to a shell game, involving hidden off-balance sheet entities and phantom collateral. One lawyer told a Texas courtroom this month that his client was as much a “victim” as a creditor. Another claims that more than $2bn extended by lenders “simply vanished”... Billions of dollars in losses have been collectively inflicted on titans and pioneers of private capital, such as Blackstone and CarVal, to little-known equipment leasing firms. Financial institutions from Zurich to Tokyo are facing reputational damage for their dealings with a company that was scarcely known outside the murkier corners of credit markets until a few weeks ago. Even insurance firms may now be on the hook after writing policies against the complex financial products that funded First Brands.

This description of loans made by Jeffries, one of the earliest private credit lenders to First Brands, is instructive. 

Jefferies, which does not take deposits, generally did not underwrite such loans. Instead, it passed on much of the risk outside the banking system to collateralised loan obligations, investment vehicles that transform risky loans into bonds with pristine credit ratings through the alchemy of securitisation. Several CLO managers told the FT that many of their peers were likely to have done only cursory checks on James’s business record in their haste to package his company’s debt up into tradeable securities. While Jefferies’ stock in trade was selling risky loans to investment funds, James also made heavy use of supply-chain financing — a controversial tool through which a bank pays a company’s suppliers, in an arrangement accountants do not class as debt. In addition, First Brands tapped other forms of borrowing tied to assets, inventory and invoices, although it consistently also took out traditional bank loans.

9. China's sweeping rare earth export control restrictions take a leaf out of the US playbook. 

The type of supply chain restriction that China is embarking on first came into play in 2020. Washington dusted off an obscure provision known as the foreign direct product rule to target the Chinese tech giant Huawei, which the U.S. government considered a national security threat. But instead of restricting American technology exports just to Huawei, the United States said any company anywhere in the world could not ship a product to Huawei if it contained U.S. parts or was made with U.S. equipment or software. Because of the United States’ key role in the global chipmaking industry, the rules basically encompassed all advanced technology. It was a broad exertion of U.S. economic power that became the basis of a series of global tech rules during the Biden administration. Although foreign governments chafed at being told what to do, many cooperated for fear of being cut off from U.S. technology.

10. In a reflection of how dependent the US economy has become on the AI-fuelled equity market boom, research by Mark Zandi at Moody’s shows that the top 10% of spenders account for half of all US personal spending, and a wealth effect of 5 cents (from every dollar Americans gain on the stock market, they spend a nickel).