Weekend reading links

 1. US equity market exceptionalism may have peaked, says Ruchir Sharma. 

A weakening dollar helped the rest of the world outperform the US in 2025, reducing the country’s share of the global stock market index from a high point of 66 per cent at the end of 2024 to 64 per cent now. While “American exceptionalism” may have peaked, this shift has ample room left to run given the still wide disconnect between America’s market cap and its 26 per cent share of the global economy.

I agree with this assessment of the Chinese economy. 

China’s domestic economy is hardly growing, weighed down by a busted property market, too much debt and a shrinking population. But strength defines the export sector, which is expanding its share of global markets and propping up the overall economy. Without the export surge, nominal GDP growth would be barely 3 per cent, significantly lower than the officially reported rate of about 4 per cent. Wall Street analysts and economists keep urging China to unleash new stimulus, but their Keynesian bias is blinding them to the underlying problems. China’s total debt including households and corporations is already above 300 per cent of GDP; its augmented fiscal deficit (which includes its influential local governments) is above 11 per cent of GDP. Lacking the money for stimulus, Beijing will be hard pressed to spend more, and the domestic economy will keep disappointing... For the last two years, China has engineered a dramatic increase in its export volumes by slashing prices and holding down the value of the renminbi. As a result, China continues to gain global market share at the expense of rival exporters.

2. Adam Tooze points to an important consequence of Trump's Venezuela invasion: the stabilisation of Guyana's oil market. 

3. This about the invasion of Venezuela and the kidnapping of Nicolas Maduro, and the emerging Donroe Doctrine generally is important. 

Competition with China over resources in America’s “backyard” will only get fiercer, predicts Stephanie Junger-Moat, chief executive of Karcsi Global, a corporate consulting firm focused on Latin America. Chinese companies have extensive interests in both oil and mining in Latin America. They have invested in the “Lithium Triangle” of Argentina, Chile and Bolivia to supply their battery industry and have significant stakes in Chilean copper and Peruvian iron ore. Junger-Moat says competition could intensify if Trump moves to exert more control over the Panama Canal, which handles 5 per cent of maritime trade, and puts pressure on Latin American countries to limit Chinese trade and investment. “The clear short-term losers would be the countries stuck in the middle of this that are resource rich but with little negotiating power,” she says.

Given China's significant investments in mineral extraction in Latin American countries, the US invasion raises the prospects of a face-off between the two countries in America's backyard.

China has gone from doing nearly no business in the region two decades ago to bilateral trade worth more than $500 billion in 2024. Chinese mining companies extract copper from Peru and lithium from Argentina. China’s agricultural conglomerates import lifeline commodities like soybeans from Brazil. Chinese utilities power entire cities. China controls much of the shipping infrastructure and the ports that transit goods across the Pacific. Latin America’s 670 million consumers are also buying Chinese brands. In Mexico, dealerships sell gasoline-powered Chery cars and MG sedans. In Brazil, the fast-food chain Mixue sells ice cream, the e-commerce platform Meituan delivers food and the ride-hailing service Didi ferries people around. In Peru, Xiaomi smartphones are popular...

China’s pursuit of deeper ties in Latin America began two decades ago. At the time, Chinese companies were scouring the world to secure copper, oil and iron ore to power China’s breathtaking economic growth. Chinese banks extended ever-larger loans to countries across Latin America in exchange for oil and critical minerals, and along the way China began building railways and highways and selling its goods. Since then, China has economically displaced the United States in 10 of 12 countries in South America alone, according to research by Francisco Urdinez, an associate professor of political science at the Pontifical Catholic University of Chile. China now engages in more trade, investment and development financing than the United States in most of the region, including Central America. China is Latin America’s largest official source of aid and credit, offering an estimated $303 billion in financing across the region between 2000 and 2023, according to AidData, a research institute at the College of William and Mary in Williamsburg, Va. Between 2014 and 2023, for every $1 lent or given in aid by the United States in Latin America and the Caribbean, China provided $3, said Brad Parks, the executive director of AidData. These investments in many cases have left the countries saddled with debt and obligations to fulfill contracts for commodities like oil.

Venezuela itself may well become the first flash point. 

China is still owed, by one estimate, about $10 billion that Venezuela is paying off through oil shipments. In 2024, more than half of its crude exports — or 768,000 barrels — went to China, according to Kpler, a global oil monitoring service.

4. Some facts about India's Electronics Manufacturing Service (EMS) providers.

Dixon, a 30-year-old company, is on track to produce around 40 million smartphones in FY26, capturing over 50% of India’s mobile outsourcing market. Yet, it spends less than 1% of its revenue on R&D, according to its annual reports. In contrast, Chinese ODM Huaqin Technology, which also started off as a contract manufacturer, spends around 5% of its revenue on R&D... India’s largest listed EMS players with foreign-partner JVs—the likes of Dixon, Syrma SGS, and Amber Enterprises—spend 0.2–0.9% of their revenue on R&D. Their patents reflect this: Dixon’s are valued at a mere Rs 2 crore, while Syrma’s intangible assets, valued at over Rs 1.5 crore in FY25, grew through acquisitions rather than internal R&D.

They have also not been able to capitalise on their JVs with foreign design companies (ODMs). 

Indian EMS players have chased this be-all-end-all through joint ventures (JV) with Chinese, American, and Taiwanese original design manufacturers (ODM). They’ve brought home some of the biggest ODMs through JVs such as Dixon-Longcheer, Bhagwati-Huaqin, and Syrma SGS-Shinhyup Electronic... On the face of it, Dixon and its ilk’s JVs with foreign partners seem a win-win Indian companies learn to manufacture complex products such as smartphones and TVs, and foreign players get access to one of the largest consumer-electronics markets in the world. But there’s often an implicit power imbalance in the way they’re structured. 

“Such partnerships transfer process discipline, quality systems, and operational know-how, but core design authority and roadmap ownership usually stay with the foreign partner,” says Sanchit Vir Gogia, an analyst at tech-research-and-advisory firm Greyhound Research. Another executive at an EMS firm put it more directly. “Even if they tell us how a certain printed circuit board is made, it’s limited to supporting its manufacturing in our factories. We never know what future technologies foreign companies are working on back home,” he says. The result: partnerships meant to facilitate tech-transfer from one partner to another don’t actually end up doing so. The little design that is getting localised in India is that which is tweaking pre-existing products for local use cases... Foreign partners carefully control what—and how much—knowledge flows to their Indian counterparts, which creates a hierarchical power dynamic within the partnership.

On top of it all, the integration of design and manufacturing ecosystems remains broken. “India has research institutions and it has manufacturing lines. What it lacks are applied industrial labs tied directly to clusters—places where engineers solve production problems, test reliability, and feed learning back into design,” says Gogia. Without this shared infrastructure, firms face a beguiling choice: over-invest individually or under-invest collectively. Most end up choosing the latter. Most EMS firms operate on razor-thin margins. “Where capital costs are already high, long-horizon R&D stops being a strategic bet and starts looking like a threat to liquidity,” says Gogia. The only thing that makes it viable is scale.

5. In a reflection of ageing and weak infrastructure, parts of Berlin suffers a power outage that stretches from Saturday to Wednesday, in Germany's longest outage since the Second World War!

6. India's declining tax to GDP ratio

And tax buoyancy

I'll blog more on this separately. But this is intriguing. 

7. On India's public e-bus systems.

Under India’s electric bus programme, cities don’t buy e-buses directly. Procurement runs through central agencies earlier under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, and now under PM-ebus sewa. These agencies aggregate demand, float tenders, and sign long-term contracts with manufacturers and operators. The goal is scale and cost control. It also shifts control away from cities. Central government agencies such as CESL and NVVN act as buyers of record. They sign contracts with OEMs and hold warranties. Payments flow through them. Meanwhile, state transport undertakings (STUs) operate the buses. They schedule routes, deploy drivers, and handle breakdowns on the ground—paying a per-kilometre fee which goes to the OEMs. “This structure wasn’t accidental,” said a former NVVN official. “The electric bus push came from the Centre, and the subsidy came from the Centre. So control also stayed central. That’s very different from how states normally buy buses.”

... The model works when buses run as expected. When they do not, authority fragments. STUs can log faults and track downtime. They cannot escalate repeated failures directly to manufacturers or demand design fixes. Those decisions sit higher up the chain and move through contract clauses and payment cycles... The state transport units can track downtime and flag violations, but the actual fines are processed by the contract owner—the central aggregator agencies in this case. What follows is less a punishment than a reconciliation exercise. Numbers are logged. Penalties are calculated. And eventually, amounts are just adjusted against future payments, often weeks later... More importantly, those deductions are capped by design. Under the gross cost contracts used for electric buses, penalties apply only after fleet availability falls below a defined threshold, usually around 85–90%. Contracts also set a maximum amount that can be deducted in a day and another cap for the entire month. Once those caps are reached, deductions stop, even if the buses continue to remain idle. Effectively, a bus that breaks down briefly and one that is out of service for several days can end up facing similar financial penalties.

8. Elon Musk tweeted in response to Nvidia's launch of its own autonomous driving software. 

What they will find is that it’s easy to get to 99% and then super hard to solve the long tail of the distribution.

This is the challenge for AI applications

Musk is right that it is the edge cases that have made fully autonomous driving so hard. The real world is way messier than any computer simulation. A good example occurred in San Francisco in December when a power outage knocked out scores of traffic lights, causing problems for the robotaxis operated by Waymo, owned by Alphabet. In spite of its fleet clocking up more than 100mn miles of autonomous driving, Waymo’s cars froze when the lights went dark, clogging the city’s streets. In such unexpected circumstances, remote human interventions are still needed to instruct the cars how to respond. Waymo uses an app called Honk to summon human gig workers to solve other problems too, such as shutting car doors after passengers have left them open.

9. China's EV manufacturing is increasingly dependent on exports for survival.

The China Passenger Car Association, an industry group based in Beijing, has forecast the country’s auto exports will rise by 20 per cent this year, driven by EV sales from Tesla rival BYD... Mexico, Middle East, Russia and parts of Europe are among the top export markets, according to Chinese data. Chinese carmakers are rapidly setting up factories and sales networks around the world to circumvent rising tariffs, except in the US, where they are limited by levies and security controls. Overseas sales, which include exports and cars made by Chinese companies in markets outside China, account for about 20 per cent of the Chinese industry revenue and close to half its earnings, according to UBS. Seven of China’s biggest auto groups — BYD, Great Wall Motor, Chery, SAIC, Changan, GAC and Geely — have 31 factories overseas. Shenzhen-based BYD, UBS analysts noted, was “the most aggressive” with plans to double the number of its European stores from about 1,000 to 2,000 by the end of 2026. The domestic outlook in China remains tough as Beijing scales back tax breaks and subsidies for electric cars. This will put financial pressure on a crowded EV market where more than 100 companies face wafer-thin margins and a regulatory crackdown on unsustainable discounting practices. Goldman Sachs analysts said profits this year would be further diminished with “aggressive” EV competition, with the release of 119 new models — roughly one every three days — and slowing volume growth.

This is an excellent graphic on technology disruption: in the Chinese automobile market.

As China’s economy boomed and car ownership soared, annual ICE sales rose from 3.9mn in 2005 to peak at 23.9mn in 2017, according to data from the China Association of Automobile Manufacturers, another local industry group. Now, having retreated to about 14.5mn in 2025, ICE sales in China are set to sink to below 5mn by 2030, their lowest level in about 25 years, UBS has forecast.

10. Labour market skills in the age of AI

An alternative telling of the boom in software employment and salaries is a boom in demand for people who — while certainly mathematically skilled — are primarily distinguished by their aptitude in using these skills to work closely with others in finding creative solutions to complex and multi-faceted problems. Contra the narrow focus of policymakers on Stem subjects or coding, now more than ever our economy rewards broad skillsets: team players, problem solvers, good communicators and creative thinkers.

And this.

Even within tech and other deeply quantitative fields, roles combining strong coding skills with creativity and collaboration are the ones in which people have thrived. People in mathematical jobs with the lowest emphasis on social skills (actuaries and mathematicians among others) have fared markedly worse both in terms of employment and earnings than those for whom collaboration, creativity and interpersonal interaction play a larger role (software developers among them).

11. Finally, the job market for economists in the US is bleak.

Weekend reading links

1. The rise of zero-sum politics in the West.

In the US, UK, France and Germany zero-sum beliefs on the left (eg people only get rich by making others poor) and the right (eg immigrants succeed at the expense of the native-born) are related expressions of the same underlying worldview. Namely that there is only so much to go around and we must therefore use restrictions, exactions and preferential treatment to redress the balance between winners and losers.

2. Primer on how the Labour Codes will contribute to the formalisation of the economy. 

3. Tim Wu contrasts America's all-in bet on proprietary AI-led innovation with China's diversified bet on renewables and green technologies coupled with applications of AI through open-source models. The article has this graphic which shows how Chinese exports to developing countries has taken off exponentially.

Last year, 70 per cent of the world’s EVs were manufactured in China. China also accounts for roughly 80-85 per cent of global solar photovoltaic manufacturing, and more than 75 per cent of all global battery production.

4. Data centre construction in the US is now on par with office construction!

And this on their power demand.

Across America, data centres represent a combined capacity of about 51GW. Running at their maximum, this equates to 5 per cent of the country’s peak demand. By 2028, an estimated 44GW of additional capacity will be required by new data centres, according to S&P Global Energy. Given constraints to grid infrastructure, power capacity coming online in the next three years will only be able to provide about 25GW for these data centres. That leaves a gap of 19GW — just over 40 per cent of the power needed... After more than two decades of flat or anaemic growth, US power demand is now surging. Electricity usage is projected to rise by an average of 5.7 per cent a year to 2030, based on forecasts from utility companies... more than half of the expected increase stems from the rapid build-out of AI data centres, according to consultancy Grid Strategies.

And the constraints to power capacity expansion.

Boosting the US power grid is an enormous and time-consuming task due to a complex web of regulatory, financial and supply chain challenges. Interconnection queues — backlogs of projects waiting to plug into the network — have become a major chokepoint, slowing the rollout of new power capacity and leaving data centres facing lengthy delays... The average time from filing an interconnection request to achieving commercial operation now exceeds eight years, according to energy think-tank RMI... On average, federal permitting for a new US transmission line takes about four years, according to the Department of Energy. State processes add further delays to grid build-out. Last year, almost 900 miles of new high-voltage transmission lines were completed, according to lobby group Americans for a Clean Energy Grid. This is the most since 2020, but still far short of the 5,000 miles a year the group estimates is needed to support grid reliability and growth.

5. Like in China, India's solar manufacturing capacity is entering a glut and is also due for consolidation. 

Edinburgh-based energy consultant Wood Mackenzie estimates the country’s solar module manufacturing capacity will exceed 125GW by 2025, which is more than three times its domestic demand of around 40GW. Nomura projects capacity additions of 100-110GW in the next three years, further raising the risk of oversupply and painful consolidation.

This is an interesting comparison with China, pointing to future pain.

In China, half of the six major solar IPOs of the past two decades now trade below their issue price. In the US, SunPower has filed for bankruptcy. Even today, China’s JA Solar, with nearly 85GW each of ingot-wafer and cell capacity, is valued on par with India’s Waaree Energies, which has only a fraction of that scale... Some distress from oversupply is already visible in the supply chain. While the large, cash-rich players, including Adani, Waaree and Premier Energies, are tightening their hold on the sector by backward-integrating their supply chain and protecting their future margins, the smaller players are struggling to keep their plants running.

Worsening matters further is the lack of demand for solar power among discoms. 

India’s solar energy capacity currently totals 130GW, according to the ministry of new and renewable energy... As of September, around 44GW of tendered clean energy capacity, out of 93GW since fiscal year 2024 (FY24), remains without buyers... The ministry said in early November that it may look to cancel these projects on a case-by-case basis. One of the primary reasons for unsigned agreements is that state utilities expect solar prices to fall further. 

This capacity explosion has been facilitated by industrial policy.

In 2022, India imposed 40% tariffs on solar modules and 25% tariffs on solar cells to discourage imports from China. Last year, the country dictated that Indian solar power producers must purchase from an approved list of domestic solar-module makers—there are 93 companies in the approved list so far. Similar rules for solar cells will come into effect next year. Further restrictions on imports of ingots and wafers that are building blocks of modules and cells are expected in the coming years.

But industrial policy does not appear to be able to bridge competitiveness. 

Under new domestic content requirements, an entirely ‘Made in India’ module would cost more than double Chinese-manufactured modules, making it uncompetitive without substantial government policy support.

While India's solar manufacturing capacity is now largely at the level of modules, the government is pushing hard to integrate backwards into cells, ingots, wafers, and polycrystalline. But that's challenging. 

Owing to the complexities involved, the cell is the most capex-intensive segment. According to Nomura, capital expenditure per GW of cells can total ₹6,500 crore versus ₹2,000 crore for modules. Ingots and wafers need up to ₹4,500 to build 1GW capacity. As the supply glut in modules deepens, large integrated players such as Reliance Industries, Adani Enterprises, Waaree, Premier and Tata Power, which are investing across the value chain, are better positioned to survive... All large and listed players have announced plans to backward integrate, expecting that impending import restrictions further down the value chain will keep profits coming. According to Nomura, 70-80GW of cell capacity additions will come online over the next three years. It is 18.5GW right now.

Solar energy has the lowest tariff rate.

6. As developed countries grapple with high and rising debt burdens, some pointers.

While the ratio of debt to GDP in the world’s biggest economy shrank from 106 per cent in 1946 to 21.6 per cent in 1990-91, it has since lurched back up to almost 100 per cent thanks to, among other things, the financial crisis and Covid-19... The postwar experience of the UK provides a case study of how these factors interact. The country’s debt-to-GDP ratio went from more than 250 per cent in 1946 to just 42 per cent three decades later. In a seminal piece of research, Barry Eichengreen and Rui Esteves show that for most of the 1946 to 1955 debt consolidation episode, the UK ran consistent, large primary budget surpluses despite the Labour government’s huge expansion of the welfare state. Yet the largest contribution to debt reduction came from inflation, which was responsible for more than 80 per cent of the debt consolidation over the period. That said, from 1955, fiscal discipline and economic growth did most of the work — surprisingly given Britain’s record at the time for economic incompetence — because the contribution of consumer price inflation, which peaked at 24 per cent in 1975, was neutralised by rocketing interest rates.

7. K-shaped income gain + K-shaped wealth gain = K-shaped economy. Rana Faroohar writes about the K-shaped economy in the US.  

Consider income growth, which was higher for low-income households right before and during the pandemic — in large part because of support from the Biden administration — but has diverged since. Wage growth for low-income workers is now lower than for middle- and high-income workers. This is partly explained by the artificial intelligence boom that is showing up in higher unemployment figures for young college graduates as more entry-level white-collar work is done by technology. Asset growth is K-shaped too, with higher-income households seeing lots of paper wealth from stocks at still near-record highs and rising home prices. According to investment group Apollo, the cash flow received in fixed income, including private credit, is nearing levels not seen in decades. That wealth effect has propelled the existing K-shaped trend in consumer spending. The percentage of overall spending done by the top 10 per cent of the socio-economic spectrum has risen from 36 per cent to nearly half since 1989, according to Moody’s analytics.

8. Daron Acemoglu points to the breakdown of the liberal democratic politics.

Liberal democracy was made by its pledges. It plunged into crisis because of their undoing. A lot of this volte-face was about the eclipse of the industrial compact and the rise of a post-industrial society, dominated by digital technologies and the college-educated professionals that these empowered. Digital technologies severed the link between economic growth and shared prosperity. With the widespread automation enabled by digital tools, companies could expand without hiring more employees and paying workers more, and the skill bias of these technologies gave a boost to the earnings of highly educated and managerial workers. The result was a staggering increase in inequality in the US, with the inflation-adjusted wages of low-education men falling most years between 1980 and 2014 — even as the aggregate economy and the urban, globalised professionals were flourishing.

That the computer age was leaving behind the working class, which used to typically support left-leaning parties, was unnoticed by the college-educated, who were becoming politically and socially ascendant in the environment digital technologies created. That they had started living separately, socialising separately, marrying separately, and holding very different views from the less educated undergirded this omission. There was also a major sin of commission on the part of left liberals. As they abandoned classic working-class or social democratic issues, they started focusing on cultural politics — in part because cultural divides had become more pronounced and in some ways more intractable in an age defined by shifting mores, globalisation and increasing immigration flows from countries with dissimilar traditions.

But the cultural divide that emerged between different education groups and ideologies did not have a simple solution. Even as norms were changing on important issues such as gay marriage, new rifts were opening related to the assimilation of new immigrants, transgender rights and cosmopolitan versus local priorities. The college-educated, fatefully, turned to social engineering efforts, trying to accelerate cultural change — in universities, schools, the entertainment industry and even workplaces. These efforts, though often well meaning, were nonetheless perceived by many working-class communities as the imposition of the priorities of college-educated values on the rest of society. The scene was set for a crisis of liberalism and of liberal democracy.

9. Importance of Samarium, a rare earth mineral, and how the US gave up its leadership.

Most rare-earth magnets are made of neodymium, which is used in everyday applications such as cellphones, auto parts and electronics. But the defense industry requires samarium-cobalt magnets, which can withstand extreme heat... Unless new sources of samarium or a substitute material can be found, American manufacturers won’t be able to build fighter jets or precision-guided missiles. They may be forced to sacrifice precision if they can’t get the right magnets... 

Although samarium-cobalt magnets were invented in an Air Force research lab in Ohio in the 1960s, the industry moved to China in the 1980s, partly because of rich rare-earth deposits there. Today, China mines, processes, sells and consumes such large volumes of rare-earth metals that it can drop the price below the cost of production when foreign competitors come online. American and European companies have struggled to stay afloat. Many either declared bankruptcy or opened factories in China.

And the difficulty of reshoring, even with good policy intent, without a crisis hitting.

In recent years, American policymakers have tried to build a domestic supply. The National Defense Authorization Act of 2023 and 2024 gradually tightened restrictions on the use of rare-earth metals from China in weapons systems, and stipulated that all such materials must be China-free by Jan. 1, 2027. But such mandates have been inconsistently enforced, partly because alternatives are not available. In 2023 and 2024, when magnets were supposed to be made of metal that was created outside China, Lockheed Martin notified the Pentagon that its F-35 Joint Strike Fighter had Chinese-made magnets. The military paused production of the jet for months but eventually issued a waiver allowing the parts.

10. The Bank of Japan raises its benchmark interest rates to a 30 year high.

Alongside, yields on 10 year government bonds have touched 2% for the first time since 1999. 

11. Assessment of the Insolvency and Bankruptcy Code implementation.

The data from the Insolvency and Bankruptcy Board of India (IBBI) shows that by September, 8,659 corporate insolvency resolution processes (CIRPs) had been admitted. Of those 1,898 cases were ongoing. More tellingly, about 1,300 CIRPs that resulted in resolution plans took an average of 603 days, while 2,896 cases that ended in liquidation took 518 days, far exceeding the statutory outer limit of 330 days prescribed under the IBC... Despite procedural delays, the IBC has had a meaningful impact on India’s banking system and credit culture. Resolved cases have delivered 32.44 per cent recovery of admitted claims, translating into more than 170 per cent of liquidation value, and have helped rescue about 1,300 firms. Equally important, the threat of losing control has altered borrower behaviour, improving repayment discipline and encouraging early settlement.

12. US corporate profits are at all time highs.

13. America's K-shaped economy.

14. Financial engineering is never far away in boom times. FT reports how Big Tech firms are shifting debts assumed to finance AI spending out of their balance sheets through project financed SPVs. 

Financial institutions including Pimco, BlackRock, Apollo, Blue Owl Capital and US banks such as JPMorgan have supplied at least $120bn in debt and equity for these tech groups’ computing infrastructure, according to a Financial Times analysis. That money is channelled through special purpose holding companies known as SPVs. The rush of financings, which do not show up on the tech companies’ balance sheets, may be obscuring the risks that these groups are running — and who will be on the hook if AI demand disappoints... 

Tapping private capital funding through off-balance sheet structures protects companies’ credit ratings and flatters their financial metrics. Meta in October completed the largest private credit data centre deal, a $30bn agreement for its proposed Hyperion facility in Louisiana that created an SPV called Beignet Investor with New York financing firm Blue Owl Capital. The SPV raised $30bn, including about $27bn of loans from Pimco, BlackRock, Apollo and others, as well as $3bn in equity from Blue Owl. The deal meant Meta could in effect borrow $30bn without any of the debt appearing on its balance sheet. This made it easier to raise a further $30bn in the corporate bond market a few weeks later.

15. Demystifying Adam Smith's invisible hand

The popular understanding of the “invisible hand” is even further off the mark. Smith borrows the phrase from Macbeth, who talks about a “bloody and invisible hand” shortly before murdering Banquo. In all his works, the economist mentions the phrase just three times, in three different contexts—and never in reference to the price mechanism... In fact, he often favoured the visible hand of government. He urged the state to provide education. He favoured legal caps on interest rates. Today, almost all free-market economists despise America’s Jones Act, which requires that shipping between American ports be conducted on vessels that are built, owned and largely crewed domestically. Smith, by contrast, favoured the Navigation Acts, a similar British law. 

Smith acknowledged the benefits of markets, but also their costs. Consider his famous pin factory. The division of labour within it allowed workers to produce thousands more pins than if they were working alone. Countries that perfected the art of dividing labour, Smith argued, would grow rich. Yet he also worried that a life spent on a few simple operations would make a labourer “as stupid and ignorant as it is possible for a human...to become”. Did Smith think the costs outweighed the benefits? It is hard to be sure.

16. VC failure rates

Sequoia’s best-ever US fund had half its investments fail.

17. Cross-border payments company Aspora is disrupting US-India remittance transfers. 

Fintechs Wise and Remitly do that by partnering with a local bank, with which they park funds worth two to three days of remittance volume as a lien. This fund lies as a security, untouched. Now, when a person in the US sends money to somebody in India, the fintech pings its Indian banking partner, which uses its own funds to make a local transfer to the recipient’s account. This reduces the speed of transfer from days to minutes. The fintech then reimburses the banking partner for all the transfers via a bulk cross-border transfer.

... 30–40% of the $135 billion remittances to India are locked in as liens to banks. Aspora does about $300 million worth of remittances a month. So, to maintain two days’ worth of remittance volumes with its local banking partners, like Yes Bank, the startup needs to park away at least $20 million of capital... In 2024, Aspora chose to route nearly a third of its cross-border remittances through stablecoins. These digital currencies operate with little legal oversight and take away the need to have so much capital as a lien... In using stablecoins, all that a fintech like Aspora had to do was partner with a cryptoexchange in the originating and receiving countries. And in the process, it can simply swap the US dollar for a stablecoin like Tether. That gets swapped out for the rupee by another exchange in India. This swapping involves a fee of 20 basis points in all, said the crypto-exchange executive, as the exchanges also take care of compliance, conversion, and the payout. That’s much less than maintaining liquidity, which can add up to 1% of the total cost...

When a fintech uses stablecoins to process remittances, the recipients are in a fix. For one, Indians have to pay a 1% tax on the money they receive. Two, the instruction that comes along with the remittance would only show that the money came from an exchange, not the sender... In fact, in some cases, when users sent money to their own accounts in India, local banks, unable to see the sender, saw it as suspicious activity and blocked their accounts.

The big risk Aspora faces is regulatory. Though not banned in India, RBI does not recognise Stablecoins or cryptocurrencies generally. Only about 1% of the $135 bn annual remittances use Stablecoins for now. 

The article also has an interesting graphic about the changes in sources of remittances into India. Declining share of Gulf remittances (except Qatar) and increasing shares from the US, UK, Australia, and Singapore. 

 18. For all talk of China's AI surge, it has few listed companies in the sector.

And the US and Europe dominate the higher end of the supply-chain. 

19. The world economy's China problem in one graphic.

20. Huawei triples local sourcing ratio in smartphones from 19% in 2020 to 57% in 2024!

Huawei increased the proportion of Chinese-made components in the Mate 70 Pro to 57%. The estimated total component cost of the Pura 80 Pro is $380, with the Chinese-made component ratio steady at 57%... For the Pura 80 Pro's system-on-a-chip, which integrates multiple semiconductors, the company used the Kirin 9020 chipset designed by subsidiary HiSilicon... For DRAM, which handles short-term memory, Huawei switched from imported products to those made by ChangXin Memory Technologies. For long-term NAND flash memory, it switched to products made by Yangtze Memory Technologies. Huawei switched to products from BOE Technology Group for the organic light-emitting diode display, which is estimated to cost over $64 per unit.

21. China is not leaving even caviar!

But in recent years Chinese companies have also entered the sphere with state support, led by Kaluga Queen, a farm on Lake Qingdao. And they have dived in with such stunning efficiency and focus — echoing what has happened with, say, solar panels — that Kaluga is now the biggest caviar producer in the world. Indeed, China accounts for between half and two-thirds of global production... And Chinese officials now want their entrepreneurs to expand into other gourmet foods like smoked salmon, Wagyu beef and truffles. That is creating waves: at a recent meeting of the North Atlantic Seafood Forum, a Nordic luminary flourished a 7kg Chinese-farmed salmon on stage — and declared it to be tasty, and cheap because of Beijing’s subsidies. Meanwhile, the Japanese government has restricted exports of Wagyu genetics to China to protect its beef farmers, and some Italian and French caviar houses are complaining about the pricing threat from Chinese rivals. American caviar makers are reportedly lobbying the White House for protection, too.

22. Finally, in celebration of racial integration, the Springbok rugby team.

The one thing that unites South Africans of all colours is the Springboks rugby team... South African rugby has been so “transformed” — a word the African National Congress uses to mean overcoming the grim legacy of apartheid — that affirmative action is no longer necessary. A squad, picked purely on merit, is automatically multiracial. The Springboks’ most celebrated players include Siya Kolisi, the inspirational captain, who is Black and from an impoverished township in the Eastern Cape. Sacha Feinberg-Mngomezulu, the brilliant fly-half, has a Zulu mother and a father of Jewish heritage. The 50-plus member squad named this year by Johan “Rassie” Erasmus, the Afrikaner head coach who has led the team to successive World Cup victories, contains players from South Africa’s Black, white and so-called Coloured communities. The Springboks are a case study of what successful Black empowerment looks like. Where once players were selected from among 4.5mn white people, today they are drawn from the entirety of South Africa’s 65mn population.

Weekend reading links

1. For all talk of AI focus, it does not appear to be showing up in Infosys's personnel hiring over the last six months. 

Amidst all the investment frenzy in the US and elsewhere over AI, Infosys is spending Rs 18,000 Cr buying back its shares, on top of spending Rs 95,000 Cr on buybacks and dividends over the last five years. 

2. China's dominance of the wind turbines market increased sharply since 2020! (HT: Adam Tooze)

As recently as 2020 the global wind turbine market was still a two-horse race with the US not out of the running. Today, China produces more than double the turbines built by the US and Europe put together.

3. It must remain a matter of big concern that even as the world economy has financialised, the cost of sending hard-earned and pitifully small amount of remittances remains elevated at an astronomically high 7.9% for Sub-Saharan Africa (HT: Adam Tooze). 

Additionally, the cost of sending remittances to Africa remains the highest in the world, which dampens the benefits from migration that accrue to Africa. Remittances are one of the most tangible ways for countries of origin to realize the development benefits of migration. Despite the technological advancements in recent decades, the cost of sending remittances remained at 6.2 percent globally in the second quarter of 2023, more than twice the Sustainable Development Goal target of 3 percent. This is largely due to the fees and foreign exchange margins that migrants and their families must pay in origin and destination countries. SubSaharan Africa was the region with the highest cost of remittances in 2023, at 7.9 percent, whereas South Asia had the lowest cost, at 4.3 percent. Figure 3.3 shows that in 18 of Africa’s 29 core countries and seven of Africa’s nine periphery countries for which data are available, the cost of sending remittances is higher than the global average.

The low rate for South Asia is one of the less discussed successes of India's financial market evolution. 

4. France's public debt has risen alarmingly since the GFC.

5. Adam Tooze points to the scale of Friedrich Merz's fiscal stimulus (via TS Lombard). 

Clearly, Germany is stimulating its economy with vengeance, and it appears to have enough space to do so.

6. Unit economics of AI solutions in India is not very attractive.

Netflix, a video-streaming service, costs as little as $1.69 a month in India, compared with $7.99 in America. For cloud services with a low marginal cost, this is no great sacrifice. But running AI queries is expensive. Processing costs for typical users currently hover at around $0.07 per million “tokens” (the units of data processed by AI models) and the response to a single query can run to hundreds or thousands of tokens. That expense is the same whether the user is in Bangalore or the Bay Area.

7. This sums up the challenge with making money in India.

While India’s large population offers scale, it is a difficult market to monetise. According to digital market researcher Sensor Tower, Indians led the world in 2024, downloading 24.3bn apps and spending 1.13tn hours on them. However, their spending was not even in the top 20, at less than $1bn.

8. Palestine is rapidly disappearing.

9. The Economist has an issue focusing on gig workers, who number 200 million in China (40% of urban workforce) of whom about 84 million rely on platform-based employment (delivering parcels and food, and driving bikes and cars) and another 40 million are freelance factory workers. There are some emerging trends in gig work in China.

Lately gig work in China has spread to its vaunted manufacturing sector. The regimented proletariat is gradually being replaced by millions of casual workers who fill jobs “on-demand”, flitting from one factory floor to another at the direction of giant recruitment platforms. The jobs often require no skills beyond a knowledge of the Roman alphabet. The workers may stick with them for no more than a few weeks or even days. Researchers put their number at perhaps 40m, a third of China’s manufacturing workforce—and more than three times the size of America’s.

One reason for the rise of this gig army is that firms want flexibility. Employers prize the freedom to scale their business up or down, responding to seasonal demand, the vagaries of the market and the shifting winds of geopolitics. Technology has played a role, too. Smartphone apps help match customers’ orders with available delivery drivers; in manufacturing, technology has automated away many tricky tasks that used to need experience. Even as this has created jobs for highly skilled engineers, it has left gaps in assembly, packaging and inspection that any warm body can fill. Flexible employment of all kinds suits many workers. Those who are adept at navigating the platform economy can earn more by job-hopping than they could from a single employer.

This is an important snippet about the gig workers.

The average age of factory gig workers is 26. About 80% are male; 75-80% are single and childless. In manufacturing hubs increasing numbers of young workers sleep in parks and under overpasses.

10. FT reports of failures by subprime auto lender Tricolor Holdings and car parts supplier First Brands Group that raise questions about lending and gatekeeping standards. 

Tricolor had won pristine triple-A ratings as it borrowed in credit markets, while First Brands may have amassed as much as $10bn in debt and off-balance sheet financing and was close to raising even more last month... Both companies made use of asset-backed debt, with Tricolor bundling up subprime car loans into bonds and First Brands tapping specialist funds to provide credit against its invoices. At its core, asset-backed finance is the ability to lend against a specific asset or loan, including consumer credit card balances, leases on railcars and solar panels, aircraft and music royalties...

US investment firms have in recent years pushed deeper into asset-backed debt, often pitching it as a safer product than the loans to junk-rated companies that are their bread and butter. But Tricolor is now being probed over fraud allegations by the US Department of Justice, while some investors have long had questions around First Brands’ financial reporting and use of invoice factoring, with lenders now concerned that they lacked visibility about the scale of off-balance sheet financing... Several large banks have also been caught up in the collapse, including JPMorgan Chase and Fifth Third, which are exposed to losses on hundreds of millions of dollars' worth of auto loans. A second investor who has since sold their position in packaged-up Tricolor loans said they had no idea how potential financial irregularities went unnoticed by JPMorgan Chase, one of the banks that underwrote debt offerings.

These kinds of news are now a recurrent staple of financial markets.

11. Michael Moritz comes out all guns blazing at the decision to levy $100,000 fees for H-1B visas.

Every day the Oval Office seems closer to becoming the equivalent of what the sidewalk outside Satriale’s Pork Store used to be for Tony Soprano: a place where a dubious cast of characters spawns brutish extortion schemes and hit jobs... As usual with the Trump administration, the announcement was chaotic and half-baked... Set aside the drama, the announcement demonstrated yet again the fragile grasp the president and his acolytes have about why the US — especially its technology sector — has worked so well. The large tech companies hire foreign nationals because they possess particular skills. They also retain them to perform tasks in areas where the US has labour shortages.

12. New Zealand appoints Anna Bremen, a Swedish economist who has been the first deputy governor of the Sveriges Riksbank since 2019, to head its central bank, the Reserve Bank of New Zealand. 

13. Akash Prakash has some striking numbers about the AI boom in equity markets in the US.

The Magnificent Seven (Mag-7) holds a 32 per cent weight in the S&P 500. In January 2023, just after ChatGPT was launched, this number was only 18 per cent. Nvidia, with an 8 per cent weight in the S&P 500, now has the largest single-stock weight in the history of the index. Its current market capitalisation is equivalent to 15 per cent of US gross domestic product... If we look at the top 10 companies in the S&P 500 (basically the Mag-7, Broadcom, Berkshire and JPMorgan), they account for a record 40 per cent share of the index and 25 per cent share of corporate earnings. We have never seen such concentration of company size and earnings... Since January 2021, 55 per cent of the entire gain in the S&P 500 was accounted for by the top 10 stocks... In 2023 and 2024, the Mag-7 saw earnings growth of about 35 per cent within the S&P 500, while earnings for the remaining 493 stocks grew only 3 per cent...

The Mag-7 and Oracle account for over 35 per cent of total S&P 500 capex. US hyperscalers (the major tech companies) have doubled their share of private domestic investment since 2023. For these hyperscalers, capex has now crossed 20 per cent of sales, compared with under 10 per cent previously. Even on operating cash flow, they are using over 65 per cent to fund data centre buildouts. To put this in perspective, their capex-to-sales ratio is 20 per cent, and research & development-to-sales is 15 per cent, meaning 35 per cent of sales is being reinvested into growth. Truly unprecedented numbers... At their peak in 2000, telecom companies’ capital expenditure accounted for 0.8 per cent of US gross domestic product. Today, hyperscalers’ capex is already at 1.2 per cent of US gross domestic product (GDP), with the current projection being that this number will cross 1.4 per cent by 2028.

14. Countries that have managed to increase their tax to GDP ratio significantly between 2000 and 2022.

15. Very interesting snippet about the impact of superstitions.

In 1966 — a hinoeuma, or “fire horse”, year under an astrological superstition — the fear of giving birth to a wild, destructive and unmarriageable daughter induced a nationwide collapse in pregnancies... The number of babies born in Japan in 1966 plummeted by 463,000 from the previous year, representing a 25 per cent drop. To reduce opportunity risk, marriages also tumbled by 10 per cent. By the end of 1967, with the threat lifted, births had rebounded by an astounding 42 per cent. On historic charts, the spasmodic V-shape makes 1966 look like a colossal data error... Hinoeuma years, which combine the animals of the Chinese zodiac with 10 celestial signs, come around on a 60-year cycle. The next one is 2026.

16. The Magnificent Seven now make up a third of the US stock market capitalisation. 

Nvidia's $4.3 trillion capitalisation exceeds the $3 trillion value of UK FTSE 100.

17. A China Labour Watch (CLW) report has found that more than half the factory staff assembling iPhones at Foxconn's largest factory at Zhengzhou were seasonal staff known as "dispatch workers", despite Chinese law capping their use at 10% of companys workforce. 

US-based CLW also found that dispatch workers faced staggered payment schedules that withhold part of their wages to deter them from quitting during peak production. These staff were not entitled to the same benefits as full-time employees, such as paid sick leave, paid holiday and social insurance that includes medical coverage and pension contributions. CLW also claimed that there is systematic discrimination in hiring certain ethnic minorities and pregnant women... Foxconn uses the flexibility afforded by temporary contracts to adjust to fluctuating demand cycles and, in recent years, to respond to Apple’s shifting requirements about where iPhones should be made... Dispatch workers get a base salary of Rmb2,100 per month, the minimum wage in Henan, but the bonuses make their salaries competitive in the manufacturing sector. These bonuses are typically paid out after three to four months to ensure retention. Many workers preferred the flexibility of short-term contracts and higher hourly wages. However, many said that they had to work a lot of overtime to bolster their hourly wages, which can be as low as Rmb12 for some workers, but range between Rmb25 and Rmb28 for most, depending on experience levels and hiring cycles. CLW found that many staff work 60 hours per week and others up to 75 hours.

18. Stunning graphic that shows the scale of Nvidia stock's performance.  

Weekend reading links

1. Emaar, the Dubai property developer whose major shareholder is Dubai Investment Corporation, is considering expanding outside UAE. And an interesting possibility in India.

Emaar already has a sizeable presence overseas, owning more than 175mn sq ft of land outside the UAE at the end of 2024, excluding a 1.1bn sq ft “economic city” project in Saudi Arabia. Alabbar said Emaar’s current total land bank — an industry term referring to land owned by developers and reserved for future use — was at 1.87bn sq ft, including the UAE. India, where Emaar owned 122mn sq ft of land at the end of 2024, could provide a testing ground for Emaar’s overseas strategy and its subsidiary there was discussing a potential joint venture with local developers, including the Adani Group, Alabbar said. Alabbar dismissed reports that Emaar had been discussing the sale of its business in India to Adani. “We’re not selling,” he said. “We actually were looking for local partners to do a local [joint venture].” Adani did not respond to a request for comment.

2. An illustration of how worsening demographics are going to hit Japan's logistics industry.

3. Private equity funds face declining exits and are resorting to the likes of continuation funds. 

In the first half of this year, private equity firms sold companies they owned back to themselves at a record-setting pace, providing a way out of (or back into, whichever you prefer) some $41bn of investments in the first six months of 2025, according to investment bank Jefferies. That is close to a fifth of all sales in the industry, and is 60 per cent above the level last year, and it comes as private equity groups find themselves sitting on $3tn worth of assets that they are unable to get out of, either by selling to another company or by listing them... Torsten Sløk at private markets group Apollo, noted this week that on top of the steady flow of companies delisting from public stock markets, those companies that do opt for an IPO “are getting older and older”. (Sigh, aren’t we all?) “In 1999, the median age of IPOs was five years,” he wrote. “In 2022, it was eight years, and today, the median age of IPOs has increased to 14 years.”

4. France is facing a pensions crisis. However, the political economy of reform is perilous. 

Not only do French pensioners receive larger cheques from the government than their counterparts anywhere else in the west, they start getting them several years earlier. The result is a situation in which over-65s now have higher average incomes than the working age population — unique both internationally and in France’s own history. Even the rumour of threats to this arrangement is met with mass public outrage and opposition from left and right. Macron’s proposal to nudge the retirement age up towards the lower end of western norms was met with nationwide protests. Barnier’s suggestion of a six-month delay to the latest scheduled increase in pension payments led to the first of two collapsed governments in the past 10 months. Bayrou’s refusal to scrap the same pledges brought about the second. In a particularly stunning statistic highlighted by French political analyst François Valentin, pensions play such an outsized role in the country’s public finances that they accounted for one-sixth of the ministry of defence budget last year, and without them France would not meet Nato’s 2 per cent target for military spending.

5. The latest ASI data show that the share of contract labour in India's organised manufacturing sector workers has reached 42% in 2023-24, up by 8 percentage points in the last ten years. Such contract labour have lower wages and no benefits (paid leave, social security benefits, longer tenure), and are typically hired through third-party agencies. 

Global studies have shown varying levels of contract employment in different countries. A 2023 study pegged it at 10.8 per cent in the US. Latin American countries like Brazil and Argentina have seen numbers ranging from under 10 per cent to 20 per cent at various times, according to a 2016 study, which pegged the number in Europe at 12.3 per cent.

6. Problems with GDP estimations in India. 

7. As Pakistan and Saudi Arabia sign a landmark mutual defence pact, this is an important insight.

Since the 1960s, Pakistan has received more aid from Saudi Arabia than from any nation outside the Arab world, the Brookings Institution estimated. The funding — which was never directly for support of Islamabad’s covert nuclear programme — included direct aid to the government as well as financing for schools, mosques and other Islamist charitable programmes.

8. Trump finally imposes a $100,000 fee for H1B visa applications for skilled foreign workers, the main pathway through which Silicon Valley firms hire engineers and IT professionals. The current visa charge is $215 to register for a H-1B visa lottery and an additional $780 for employers that sponsor visa applicants. Abut 400,000 such visa applications were approved last year, with the majority for those renewing their visas and 75% in 2023 being from India. 

Between October 2022 and September 2023, 72 per cent of the nearly 4 lakh visas issued under the H-1B programme went to Indian nationals. During the same period, top four Indian IT majors with a presence in the US — Infosys, TCS, HCL, and Wipro — obtained approval for around 20,000 employees to work on H-1B visas, as per the latest US Citizenship and Immigration Services (USCIS) data. The share of IT workers in the H-1B program grew from 32% in 2003 to an average of over 65% in the last five fiscal years.  Given the average salary of the H1-B visa holder is $66,000, the fee is certain to almost finish the use of these visas. 

Goes to the point I have been making on Trump's completely transactional policy making. It's important that India keeps this in mind as it navigates a modus vivendi with the US under DJT. Unlike China or Russia, India is not big enough either economically or militarily to deter Trump from acting on his core agenda. Besides, India falls in the firing line on many of those core areas. We should not be surprised if GCCs are the next. 

9. One of the definitive legacies of the Russia-Ukraine war will be the emergence of drones as an important weapon. This is a good summary of how the war evolved in terms of what weapons were being used.

Back in 2022, when Russia started its full-scale invasion, Kyiv had to use its existing Soviet-style kit plus Javelin shoulder-fired anti-tank missiles. Then came western donations of weaponry like Abrams tanks and Himars (high mobility artillery rocket systems). Next, Ukraine’s army of software engineers started using hobby drones, made by Chinese companies such as DJI, first for surveillance, then attacks and defence. Now they are innovating to dramatically extend drone flight range, increase attack capabilities, “swarm” and avoid electronic jamming by using fibre optic cables, balloons and (most crucially) AI. The Russians are doing the same. And that has transformed the nature of war: a world where cheap drones can destroy ultra-expensive ships and planes changes the power dynamics and economics of combat...

Equally startling, while China has been responsible for 80 per cent of global drone production, Ukraine is now racing to become “China free”... Last year it produced more than 2mn drones. It could go above 10mn next year, if it has the funds. That means over half of Ukraine’s drones are now domestically sourced — and China is no longer the only global drone king. This is critical for Ukraine’s defence, and might generate badly needed future export revenues too. Indeed, Ukraine is already considering exporting underwater drones, which it has used to push Russian ships out of the Black Sea so successfully... Nato officials now want to collaborate with Ukraine via partnerships, licensing and private capital investments. They are particularly keen to access the treasure trove of data collected by its drones to train future AI models.

10. A rare example of an infrastructure project completed on time and without much cost overrun is the Thames Tideway Tunnel, a 25 km sewage tunnel passing under Thames. It took nine years of construction and cost £5 billion, and used an innovative financial model, where a surcharge on customer bills will fund the construction cost over 50 years. 

Tideway was project managed by US group Jacobs, while each of the three geographical sections was overseen by a different engineering consultancy. Each employed “hundreds and hundreds” of contractors and subcontractors supplying the labour. All 25,000 people working on the project were fully employed and paid the London living wage as a minimum, in contrast with much of the industry, where staff are employed on zero-hour contracts or by the day. Workers were also kitted out in full Tideway uniform and protective equipment and given training and holidays... Juliano Denicol, director of the Megaproject Delivery Centre at UCL, said Tideway would be studied for decades as an “exemplar case of ‘how’ to deliver multibillion infrastructure programmes”...

Tideway, which as a company was able to lure investors including Allianz, Dalmore Capital and Amber Infrastructure after the government offered guarantees against any cost overruns. The 16mn households served by Thames Water have paid £617mn towards the project since construction began nine years ago, more than the £510mn in equity injected by Tideway shareholders in 2015. The shareholders also loaned the company £764mn at an interest rate of 8 per cent, which has grown to £972.6mn, while the company’s total debts have risen to £4.6bn, with the remaining borrowings held by third-party lenders. Although construction is complete, Thames Water’s households will continue to pay for the project through a surcharge on their bills — now £26 a year — potentially for the 120-year lifespan of the tunnel. The cost — drawn up under a modified version of the Regulated Asset Base model — piles pressure on customers, who are already faced with steep bill increases from the UK’s largest water company, which could yet be renationalised.