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.

Weekend reading links

1. Robin Harding writes that AI advances may not help much in the development of humanoid robots.

The obstacles to making an economically viable robot that can cook dinner and clean the toilets are a matter of hardware, not just software, and AI does not in itself address, let alone resolve them. These physical challenges are many and difficult. For example, a human arm or leg is moved by muscles, whereas a robotic limb must be actuated by motors. Each axis of motion through which the limb must move requires more motors. All of this is doable, as the robotic arms in factories demonstrate, but the high-performance motors, gears and transmissions involved create bulk, cost, power requirements and multiple components that can and will break down. After creating the desired motion, there is the challenge of sensing and feedback. If you pick up a piece of fruit, for example, then the human nerves in your hand will tell you how soft it feels and how hard you can afford to squeeze it. 

You can taste whether food is cooked and smell whether it is burning. None of those senses is easy to provide for a robot, and to the extent they are possible, they add more cost. Machine vision and AI may compensate, by observing whether the fruit is squashed or the food in the pan has gone the right colour, but they are an imperfect substitute. Then there is the issue of power. Any autonomous machine needs its own energy source. The robot arms in factories are plugged into the mains. They cannot move around. A humanoid robot is most likely to use a battery, but then there are trade-offs with bulk, power, strength, flexibility, operating time, usable life and cost. These are just some of the problems.

2. Nvidia does not seem to agree as it bets on robotocs as its next big growth driver. 

Nvidia... is set to launch its latest generation of compact computers for humanoid robots — dubbed Jetson Thor — in the first half of 2025. Nvidia is positioning itself to be the leading platform for what the tech group believes is an imminent robotics revolution. The company sells a “full stack” solution, from the layers of software for training AI-powered robots to the chips that go into them... The push into robotics comes as Nvidia is experiencing more competition for its powerful AI chips from rival chipmakers such as AMD, as well as cloud computing groups such as Amazon, Microsoft and Google that are looking to reduce their dependence on the US semiconductor group... a shift in the robotics market is being driven by two technological breakthroughs: the explosion of generative AI models and the ability to train robots on these foundational models using simulated environments. The latter has been a particularly significant development as it helps solve what roboticists call the “Sim-to-Real gap”, ensuring robots trained in virtual environments can operate effectively in the real world, he said... Nvidia offers tools at three stages of robotics development: software for training foundational models, which comes from Nvidia’s “DGX” system; simulations of real-world environments in its “Omniverse” platform; and the hardware to go inside the robots as its “brain”.

3. Pakistan drastically reduces pension benefits of retired civil and armed forces personnel to reduce its growing pension bill, the fourth largest expenditure in the budget. 

The Ministry of Finance on Wednesday issued three separate notifications to discontinue multiple pensions, reducing both the first home take pension and also lowering the base for determining future increases in pensions... According to the Ministry of Finance’s notification, on the recommendations of the Pay and Pension Commission of 2020, “it has been decided that henceforth, in an event where a person becomes entitled to more than one pension, such person shall only be authorised to opt to draw one of the pensions”... Instead of taking a pension on the basis of the last drawn salary, the new pensioner will get a pension based on the average salary of the last two years... It also ended the annual compounding of the pension and any increase would be treated separately from the base pension, a concept that is similar to the ad-hoc salary increase that is not made part of the basic salary to avoid compounding. The changes will take effect from January 1 and will be applicable to both retired civil and military personnel. Many serving federal government employees, who are taking salary and pension, would also be affected by the changes. The finance ministry’s notifications stated that the changes in the pension rules have been made on the basis of recommendations given by a commission constituted by the government of former prime minister Imran Khan in 2020.

4. A good description of how Chinese exporters are responding to US tariffs.

In industry after industry, Chinese companies have found footholds abroad that allow them to bypass trade barriers with the United States. After the United States put hefty tariffs on Chinese solar panels, for example, many Chinese companies opened solar factories in Southeast Asia... U.S. efforts to block critical minerals and electric vehicle batteries from China from receiving government subsidies have also pushed Chinese companies to set up battery-making subsidiaries in Morocco and Singapore... In some cases, global companies have also used accounting and tax tricks to make it appear that their shipments from China are lower, and thus pay fewer tariffs, without making major changes to their supply chains... For example, an electronics company might move one important stage of its supply chain out of China and into Vietnam. That could allow the company to report to U.S. customs agents that the export came from Vietnam, even if the good is still finished in China and exported from China to the United States. Another lever companies could play with, Ms. Brown said, is valuation. They can officially lower the value of the import by stripping out certain “intangible” costs, like payments for intellectual property, royalties, brand or research and development, and recording those to other global subsidiaries. By lowering the value of the import, they then pay a lower tariff.

5. Important point about the origins of uncertainty and risks in the global order today.

According to John Ikenberry of Princeton University, a leading theorist of international relations, “a revisionist state has arrived on the scene to contest the liberal international order . . . it is the United States... Trump is poised to contest almost every element of the liberal international order — trade, alliances, migration, multilateralism, solidarity between democracies, human rights”. As a result, rather than supporting the international status quo, the US is poised to become the leading disrupter. “Every talk I’ve ever given on the geopolitical risks that we face in the world started with China and Russia,” says Ivo Daalder of the Chicago Council on Global Affairs. “But the biggest risk is us. It’s America.” America’s traditional allies are among the countries that feel most threatened by a change in the way that the US exercises its power. Middle-power democracies such as the UK, Japan, Canada, South Korea, Germany and the entire EU have got used to a world in which American markets are open — and the US provides a security guarantee against threatening authoritarian powers... The question of whether and how to respond to Trump tariffs is exercising diplomatic minds across the western world. Finding an answer is all the more difficult because Trump’s true intentions remain unclear.

6. Interesting inequality trends

So we have seen no increase in aggregate inequality. The story for the lowest-paid is unambiguously good but for the bulk of people who sit somewhere in the middle, it could be argued that the two divergent trends combine for a decidedly uncomfortable situation. If the middle class looks upwards, the rich are pulling further away. A top-tier life feels further out of reach than ever. But look down, and the floor is coming up fast. This simultaneous rise of resentment and precarity is a dangerous cocktail, and could certainly have fed into recent political undercurrents.

Professions once considered aspirational are at the sharp end. In Britain, doctors, nurses and police officers have all been slipping down the income rankings in recent years. In the US, the highest-paying jobs are increasingly shared among a handful of ultra-high-status occupations. Tech workers now account for one in six of the top 5 per cent of salaries, up from one in 20 in 1990... In the 1980s, 40 per cent of the highest-paying jobs in America didn’t require a degree. The upper reaches of the income scale included plenty of engineers and doctors, but also senior schoolteachers and the most skilled factory and construction workers. People from all sorts of backgrounds with all sorts of skillsets could dream of making it. Today, the upper part of the scale is dominated by highly skilled tech and healthcare workers. Almost half of the top jobs require an advanced degree. And a huge section of the population knows at a pretty early age they’re not on that path.

7. Some numbers of household savings in India.

Net household financial savings in India rose from 7.7 per cent of gross domestic product (GDP) in 2019-20 to 11.7 per cent in 2020-21, largely because of precautionary and forced savings during the pandemic, but moderated thereafter to a multi-decade low of 5.3 per cent in 2022-23... The share of low-cost current and savings accounts in total deposits has declined the past few years from a peak of 44-45 per cent in recent years to 38-39 per cent. In contrast, mutual funds, especially equity and hybrid schemes, have seen a surge in inflows and have delivered higher returns over the past few years. The share of mutual funds constituted around 6.1 per cent of household savings in 2022-23, with the number of mutual-fund folios jumping from 146 million at the end of 2022-23 to 178 million at the end of 2023-24.

8. Finally, after years of wrangling including several lawsuits, congestion pricing in busy hours goes live in mid-town Manhattan from the morning of 6th January.

Most passenger cars will now have to pay $9 to enter Manhattan south of 60th Street at peak hours, rather than the original $15. Small trucks will have to pay $14.40; large trucks, $21.60. Discounted rates will be offered overnight when there is less traffic. M.T.A. leaders expect the new tolls to help generate $15 billion through bond financing that will pay for a long list of transit repairs and improvements, including modernizing subway signals and stations and expanding the electric bus fleet... State officials said the original plan was expected to reduce the number of vehicles in the congestion zone by roughly 17 percent. They have not specified how the scaled-back program will compare except to say they expect it to cut traffic by at least 10 percent... The tolling plan also does not directly charge drivers and owners of for-hire vehicles, which have exploded on city streets since Uber’s arrival in 2011. Instead, a small per-trip fee — $1.50 for Ubers and Lyfts; 75 cents for taxis — will be added to each fare and paid by passengers... Within the congestion zone, the average travel speed has dropped to under 7 miles an hour for the first time since records were kept in the 1970s, he said. The slowest traffic crawls along at just 4.7 miles per hour in Midtown.

See also this.  

9. As Saudi Arabia wins the bid for the 2034 Football World Cup, FT writes on the country's ongoing boom in infrastructure investments.

Saudi Arabia has launched real estate and infrastructure projects worth $1.3tn since Vision 2030 was unveiled in 2016, according to estimates by consultancy Knight Frank. These projects, such as the Neom linear smart city, include adding more than 362,000 hotel rooms and 7.4mn square metres in retail space. Football has become one of Prince Mohammed’s prime targets for sporting investment. The country’s sovereign wealth fund acquired English Premier League side Newcastle United, while superstars such as Ronaldo and Neymar have been lured to play in the Saudi Pro League. Saudi Arabia’s bid said the 48-team World Cup would be played in 15 stadiums across five cities. Eight stadiums would be in or close to Riyadh, which is already undergoing a construction boom that includes an entertainment zone to the west and a major expansion to the capital’s airport.

10. Adam Tooze points to a UNTD report that highlights the large differences in the cost of debt between Western countries and low-income ones.

11. Doing business, Huawei style.

Huawei’s first business was importing telephone switches before building its own, cheaper versions, copying foreign designs in the process. It later benefited from a government policy to rip out foreign technology in China’s communications network. Huawei developed a reputation for generosity towards government officials and telecoms executives, paying for international travel and hosting lavish banquets at its campus. Dou portrays Ren as an expert networker, including sending birthday cakes to retired telecoms experts who had helped Huawei.

12. Divisions in the Trump coalition that will only grow.

The Maga crowd and the globalists disagree not only on immigration, but on defence, employment and free speech. This is a coalition whose most significant overlap was a desire to take down the previous government. Now that they have, I think it’s unlikely they’ll come together on anything else.

13. Stunning figures about the US economy from Ruchir Sharma

Following the pandemic, government spending rose sharply as a share of GDP. More than 20 per cent of new US jobs are now created by government, up from 1 per cent in the 2010s. Public transfers including Social Security account for more than a quarter of residents’ income in more than 50 per cent of US counties — up from just 10 per cent in 2000.

14. Corporate India's acute deficit of global brands

Many Indian brands have either disappeared or ceded space to foreign competition. Where Onida and Videocon once dominated the domestic market for TVs, washing machines, and household appliances, Japanese, Korean, and, increasingly, Chinese brands now rule the showrooms. In cars, the Premier Padmini and Ambassador vanished when Japan’s Suzuki set up its joint venture to launch the Maruti, an Indian brand only in name. Here, too, it is the Japanese, Koreans, Germans, and Chinese that offer consumer choices, with Tata and Mahindra & Mahindra being the only indigenous exceptions. In fast-moving consumer goods, brands such as Anchor, Nirma, Uncle Chipps, and Binny’s, which once gave multinational players a run for their money, have all vanished or receded to the margins of the market... The abdication of Indian brands to global competition — with many of them converting themselves into contract manufacturers — reflects the lack of long-term thinking and strategic imagination, which are critical to brand-building.

15. This is what US Treasury Secretary-nominee Scott Bessent thinks.

Bessent has also suggested that countries with military protection from America should be forced to buy more dollar debt, as a quid pro quo. “Is there some kind of statecraft to do where you go to [these countries] and say we have these 40- or 50-year military bonds [to buy]?” he said, citing Japan, Nato members and Saudi Arabia.

16. Finally, Tej Parikh presents some facts about European stocks that go against conventional wisdom. Excluding Nvidia, European stocks outperform S&P 500 since the latest bull market started in October 2022!

European stocks are undervalued compared to their American peers.

Tech accounts for around just 8 per cent of the Stoxx Europe 600. AI euphoria has mostly passed the continent by... The Granolas... covers a diverse group of international companies spanning the pharmaceutical, consumer and health sectors. Together, they account for about one-fifth of the Stoxx 600. Their performance against the Magnificent Seven has only recently diverged. The S&P 500 — which has around 70 per cent revenue exposure to the US — got a jolt following the election of Donald Trump... Small listed European businesses also tend to outperform their American counterparts. About 40 per cent of US small caps have negative earnings, compared with just over 10 per cent in Europe. The winner-takes-all dynamic may be stronger in the US, where tech behemoths suck capital and talent away from smaller companies... European corporates also rely more on relationship-based, illiquid funding, unlike in the US, where listed equity dominates. That may encourage longer-term corporate governance in Europe... Regarding the Trump tariff threat, it’s not all disaster for European companies either. Stoxx 600 groups derive only 40 per cent of their revenues from the continent... A stronger dollar would also boost the earnings of European companies with sizeable US sales.

Weekend reading links

1. Agriculture terms of trade facing Indian farmers

Such export controls and anti-market policies inflict a large “implicit tax” on farmers, despite significant budgetary support through fertiliser and other subsidies, including loan waivers. In this context, it is useful to look at the OECD’s producer support estimates (PSEs) that it generates for more than 50 major countries in the world. They adopt a common methodological framework to estimate the impact of various agricultural policies, mainly budgetary support and market price support. The comparative results may shock some policymakers in India. For the triennium ending 2023, OECD countries supported their agriculture to the tune of about 14 per cent of gross farm receipts (PSE 13.8 per cent). Interestingly, China also supports its agriculture to the tune of 14 per cent (PSE 14 per cent), while India’s PSE is negative (-) 15.5 per cent. That happens due to the negative market price support that results from export controls, dumping in the domestic market to push prices down, putting stocking limits on private trade, banning futures markets, and so on.

2. India's banking sector in 2024 

The gross non-performing assets (NPAs) of the banking system, which stood at 3.2 per cent in September 2023, dropped further to 2.8 per cent in March 2024. After provisioning, the net NPAs dropped from 0.8 per cent to 0.6 per cent during this period. The capital adequacy ratio, meanwhile, remained unchanged at 16.8 per cent. Meanwhile, the gross NPAs of the non-banking financial companies (NBFCs) dropped from 4.6 per cent to 4 per cent, and return on assets rose from 2.9 per cent to 3.3 per cent. There was a marginal drop in their capital adequacy ratio, from 27.6 per cent to 26.6 per cent.

3. Lego facts of the day

Over the past 20 years the company’s revenue has grown ten-fold, reaching DKr66bn ($9.7bn) in 2023. A decade ago it became the world’s largest toymaker by revenue. Today its sales are greater than those of its two biggest rivals—Mattel, creator of Barbie, and Hasbro, maker of Nerf guns—combined. In 2023 it opened 147 shops around the world, taking its total to 1,031, and built factories in America and Vietnam. Sales in the first half of 2024 were up by 13%, year on year, even as the global toy market shrank. In 2004 the company was loss-making; in 2023 its net profit was DKr13bn, implying an enviable margin of nearly 20%... A foundation owns a quarter of the firm; the Kristiansen family owns the rest.

4. PE investors who flocked into China faces their reckoning.

Among the 10 largest global private equity groups with operations in China, there is no record of any having listed a Chinese company this year or fully sold their stake through an M&A deal, figures from Dealogic show. It is the first year for at least a decade where this has been the case, though the pace of exits has been slow since Beijing introduced restrictions on Chinese companies’ ability to list in 2021. Buyout groups rely on being able to sell or list companies, typically within three to five years of buying them, in order to generate returns for the pension funds, insurance companies and others whose money they manage. The difficulties in doing so have in effect left those investors’ funds locked away, with future returns uncertain... Many private equity groups expanded their presence in the world’s second-biggest economy as it grew rapidly over the past two decades. Global pension funds and others ploughed capital into the country, hoping to gain exposure to its economic boom. The 10 firms invested $137bn over the past decade, but total exits amount to just $38bn, Dealogic data shows. New investment by those groups has collapsed to just $5bn since the start of 2022...

The data covers Blackstone, KKR, CVC, TPG, Warburg Pincus, Carlyle Group, Bain Capital, EQT, Advent International and Apollo, the 10 largest buyout groups by funds raised for private equity over the past decade... Foreign buyout groups used to rely on taking Chinese companies public in the US or other countries in order to exit their investments after a few years. But Beijing has introduced new restrictions on offshore listings since cracking down on the ride-hailing app DiDi, in the wake of its New York IPO in 2021. Listings have slowed significantly since. In total this year, there have been just $7bn of domestic IPOs in China as of late November, compared with $46bn last year, which was already the lowest total since 2019.

China's troubles come even as India emerged as the top market for IPO listing in the world in 2024 by numbers and the second highest (after the US) by value.

The NSE of India has emerged as the number one venue for primary listings by value, ahead of Nasdaq and HK SE. 

5. 2025 is expected to be an inflexion point for EVs in China, as it's estimated to overtake ICE cars in sales.

China is set to smash international forecasts and Beijing’s official targets with domestic EV sales — including pure battery and plug-in hybrids — growing about 20 per cent year on year to more than 12mn cars in 2025, according to the latest estimates supplied to the Financial Times by four investment banks and research groups. The figure would be more than double the 5.9mn sold in 2022. At the same time, sales of traditionally powered cars are expected to fall by more than 10 per cent next year to less than 11mn, reflecting a near 30 per cent plunge from 14.8mn in 2022. Meanwhile, EV sales growth has slowed in Europe and the US, reflecting the legacy car industry’s slow embrace of new technology, uncertainty over government subsidies and rising protectionism against imports from China... China's adoption of battery electric vehicles (BEVs) is projected to grow to 80% by 2035... HSBC estimated about 90 new car models had been planned for release by manufacturers in China in the fourth quarter of 2024 — about one a day — and nearly 90 per cent were EVs. 

This has important implications.

The forecasts suggest Beijing’s official target, set in 2020, for EVs to account for 50 per cent of car sales by 2035, will be achieved 10 years ahead of schedule. Norway leads the world in EV sales as a share of the market, with more than 90 per cent of new cars battery-powered... They imply that over the coming decade, factories set up in China to produce tens of millions of cars with traditional engines will have almost no domestic market to serve. They also highlight how the rapid rise of the Chinese EV industry now threatens the national manufacturing champions of Germany, Japan and the US. As China’s EV market tracked towards year-on-year growth of near 40 per cent in 2024, the market share of foreign-branded cars fell to a record low of 37 per cent — a sharp decline from 64 per cent in 2020, according to data from Automobility, a Shanghai-based consultancy. In this month alone, GM wrote down more than $5bn of its business value in China; the holding company behind Porsche warned of a writedown in its Volkswagen stake of up to €20bn; and arch rivals Nissan and Honda said they were responding to a “drastically changing business environment” with a merger.

6. The long-term performance of a UK local government pension fund that invests over half its portfolio in index funds raises more questions on the value created by the asset management industry. 

Quentin Marshall, chair of Kensington and Chelsea’s £1.9bn pension scheme, has delivered the best performance of any UK local authority fund over the past decade by parking half of its assets in a global equity index tracker. Marshall, who has chaired the fund since 2014, said individual stock or fund selection hinders rather than helps drive returns and he avoids tactical decision-making when his team meets to review its investments... “The whole asset management industry is built on the premise that they have value,” Marshall said. 

He is withering in particular about consultants who advise pension funds on investment decisions and “rely on backward looking data which is definitely shown to be completely and utterly useless as a source of prediction”. Over the past decade, the 51-year-old Conservative party councillor and banker has delivered average annual returns of 10.8 per cent for the pensions of workers at Kensington and Chelsea’s council, which provides services to both the wealthiest parts of the UK and neighbourhoods with significant deprivation. The performance, driven by a heavy equity exposure, outstrips other local authorities, according to shareholder advisory group PIRC. Marshall’s fund was the only local authority to achieve double digit annual returns over the past decade. The second best was Bromley council, which trailed him with 9.3 per cent... Marshall attributes his performance in part to making few decisions. His team meets formally to review its strategic asset allocation once a year but it has been “broadly unchanged for many years”. Half of the fund follows the BlackRock MSCI world index tracker...

His rejection of fund and stock selection makes him sceptical that the UK government’s decision to pool all of the assets of England and Wales’s £391bn local government pension scheme will help boost pension returns, although he supports the government’s attempts to professionalise the investment process. Last month Labour chancellor Rachel Reeves set out plans for a series of “megafunds” to run local council pension assets, a move the government hopes will drive billions of pounds of investment into British infrastructure and fast-growing companies. The reform programme was supported by her Tory predecessor Jeremy Hunt. But Marshall does not buy their argument that the reforms will lead to better pension returns for cash-strapped councils.

7. Good oped on the implications of the events in the Middle East over the year.

8. Junk food and children health in UK

While the price of healthy, whole foods — such as fish or staple vegetables such as carrots — has soared, unhealthy processed foods are more likely to be placed on enticing promotions and cost significantly less than fresh alternatives. Per calorie, healthy food is almost three times as expensive as unhealthy options, says the Food Foundation. The most deprived fifth of the population would need to spend half of their disposable income on food if they stuck to the government-recommended healthy diet, the charity found. This compares to just 11 per cent for the highest earners. To put together a children’s packed lunch that meets healthy eating guidelines, typically involving fresh fruit and vegetables, unsweetened yoghurt and brown bread, costs up to 45 per cent more than a lunchbox filled with chocolate, flavoured yoghurt and processed snacks marketed at children, according to the charity. The imbalance in grocery baskets between whole foods and junk foods has contributed to higher levels of obesity in lower-income groups, with poorer families becoming more reliant on less-healthy diets, data shows.

The trend has also been exacerbated by food inflation. Between 2021 and 2023, healthier foods increased in price by £1.76 per 1,000 calories compared with £0.76 for less healthy foods, according to the Food Foundation. Fruit and vegetables are the most expensive grocery category, costing an average of £11.79 per 1,000 calories, while food and drink high in fat and sugar costs £5.82... Children are constantly tempted by brightly coloured packaged food placed strategically in shops and advertised on TV and social media platforms. Young people are also influenced by what their friends are eating. Soft drinks, confectionery, snacks and desserts account for about a third of food and soft drink advertising spend, compared with just 1 per cent on fruits and vegetables, says the Food Foundation. Brand advertising, which accounts for about 40 per cent, also contributes to unhealthy eating as consumers tend to associate companies with their products, such as snacks, even if they are not directly promoted... Researchers have also found that some companies deliberately market junk food to deprived communities... According to research by Impact on Urban Health, which mapped food availability in London boroughs, unhealthy food outlets were significantly more concentrated in deprived neighbourhoods.

The same story is repeated across the world. 

9. About corporate churn rate. 

Just over 1 per cent of the 1,513 UK-listed companies in 1948 still existed 70 years later, according to an analysis by two Cambridge professors. Roughly half of US public companies traded for 10 years or fewer over the past century, says Morgan Stanley.

10. On industry concentration in banking in the US

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, the four largest US banks by deposits and assets, collectively reported about $88bn in profits in the first nine months of 2024, according to Financial Times calculations based on figures from industry tracker BankRegData. Together they account for 44 per cent of the US banking industry’s profits — the highest share for the first nine months of the year since 2015 — despite the pool taking in more than 4,000 of the country’s other banks. Including US Bank, PNC and Truist, the seven largest banks by deposits generated almost 56 per cent of all banking profits in the first nine months of the year, up from 48 per cent for the same period in 2023.

11. Finally, a snippet on structural transformation in the US, from an excellent oped by Martin Wolf.

In 1810, 81 per cent of the US labour force worked in agriculture, 3 per cent worked in manufacturing and 16 per cent worked in services. By 1950, the share of agriculture had fallen to 12 per cent, the share of manufacturing had peaked, at 24 per cent, and the share of services had reached 64 per cent. By 2020, the employment shares of these three sectors reached under 2 per cent, 8 per cent and 91 per cent, respectively. The evolution of these shares describes the employment pattern of modern economic growth.

He points to an important challenge in manufacturing

Initially, two positive forces — cheaper food and higher incomes — shift spending towards manufactures and drive up the share of manufacturing in employment. But two negative forces — the decline in prices of manufactures relative to services and the higher income elasticity of demand for the latter — do the reverse. Initially, the positive effects on manufacturing dominate, because the agricultural revolution is so huge. Yet there comes a time when agriculture is too small to provide a positive impulse to manufacturing. Then forces operating within manufacturing and the service sector dominate. Employment shares in manufacturing start to fall. In the US, these have been falling for seven decades. The idea that this process is reversible is ridiculous. Water flows downhill for a good reason.

Weekend reading links

1. Railways looks set to come the full circle back to government control in the UK. From an FT editorial last week

A bill set for a lightning third reading on Tuesday will return franchised passenger rail services to public hands when existing contracts end or reach a breakpoint — which at least means this renationalisation has little upfront cost. The government says it will produce a more centralised network, under the “directing mind” of a still-to-be-created arms-length body, Great British Railways. It touts the potential to cut costs by removing duplicative bureaucracy, and to simplify the unpopular maze of ticketing.

And this

The Labour government is set to launch legislation to nationalise the railways as a matter of priority, with takeovers of some of the UK’s busiest operators expected within months. Nearly three-quarters of train journeys in Britain are expected to be on nationalised rail services within a year under Labour’s plan... The legislation is intended to renationalise the rest of the railway after about 40 per cent of services were taken over by the previous Conservative administration as operators failed over the past decade... Under the bill, contracts to run train operators that are let to private companies will be permanently returned to the government as soon as they expire.

2. Jean Pisani Ferry has some wise words on green transition costs

The reality is that it’s a combination of supply and demand shocks. The demand shocks caused by the additional investment are obviously positive. The supply shocks are mostly negative, at least in the short term. And the reason for that is that one way or another, you’re basically paying for a resource — a stable climate — you used not to have to pay for. It is the same if the investment is triggered by regulations instead of the pricing of carbon: economic agents are compelled to spend significant amounts for capital expenditures that do not improve the efficiency of capital and labour... the overall magnitude is equivalent to the first oil shock of 1973-74. And the first oil shock isn’t remembered as something very positive...

So essentially, we are going to invest 2 to 3 per cent of GDP for 10, perhaps 25 years. Burning fossil fuels is significantly less capital intensive than investing in clean energy. And we’re substituting that with a system in which upfront investment is required to transform the energy system and to ensure it does not rely on fossil fuels. It means investment that’s normally devoted to improving overall efficiency, improving total factor productivity or saving labour, has to be diverted to saving on fossil fuels. And that’s not going to improve your economic performance. That is, unless — and it’s possible in the long term — the new technology proves to be much more efficient than the old technology. So that’s what makes me hopeful that in the long run, I mean at the 20- to 25-year horizon, it may be that the use of such technologies proves to be more efficient overall. But that does not eliminate the transition cost... job-neutral globally — which I don’t think it will be, because the labour intensity of an EV [electric vehicle] is much lower.

And he has a very good comparison

At the time of the Industrial Revolution, there were agrarian interests versus manufacturing interests: there was a fight between those two strands of capitalism. And I think it’s a bit the same. There is a green capitalism that has developed and has gained strength. It’s a war between two strands of capitalism — green and brown.

3. As the frequency, intensity, and damages from forest fires rise, state governments in the US are reviving an age-old practice of triggering small beneficial fires in an effort to prevent the accumulation of the fuel that sustains large fires. 

According to one study from researchers at Columbia and Stanford, low-intensity fires, a category that includes mild natural fires and prescribed burns, reduce wildfire risk by about 60 percent. Experts also say that prescribed burns have reduced the severity of previous wildfires, including in Yosemite National Park, where researchers found that they helped protect giant sequoias during the Washburn fire in 2022. Most of California’s ecosystems have evolved to adapt to or depend on fire, which can rejuvenate forests and help nutrients return to the soil. But federal and state land management agencies banned intentional burns for many decades, arguing that all fires were dangerous and could hurt the timber industry. This, along with aggressive efforts to suppress wildfires, allowed vegetation to accumulate, a condition that could supercharge blazes...

Federal and state agencies, as well as other groups that work with them, including private citizens and businesses, are setting fires that burn the dry grasses, small trees and other vegetation that could otherwise fuel an intense wildfire... Land managers in the state, including the California Department of Forestry and Fire Protection, and federal agencies have set a target of intentionally burning 400,000 acres annually by next year, an amount of land that when combined would be larger than the city of Los Angeles. The goal is to chip away at the 10 million to 30 million acres that officials estimate would benefit from some form of fuel reduction treatment. In 2022, the most recent year for which there is data publicly available, about 96,000 acres were burned by these land managers... Since then, intentional burn practices, including planned fires and cultural burning by Native American tribes, have been gradually reintroduced. Nowadays, these efforts are carried out by various entities across the state, including Cal Fire, the U.S. Forest Service, tribal organizations and private citizens...

In addition to the need for more funds... controlled burn programs face a number of other hurdles. Already limited in number, firefighters who would staff a prescribed fire are often called away to battle an active blaze. There are also only so many days in a year that conditions are right for a fire, and access is a challenge in some locations. And local communities may oppose a controlled burn... The U.S. Forest Service has said that over 99 percent of these fires go as planned, but mistakes can be destructive. In 2022, the agency lost control of two prescribed burns in New Mexico. The fires merged and grew to become the largest recorded fire in the state’s history, destroying hundreds of homes.

4. What has been driving Nvidia?

5. India R&D facts of the day

Notably, less than 5 per cent of Indian patent citations refer to other Indian patents, reflecting a low level of local knowledge creation and heavy reliance on foreign sources. By comparison, China and South Korea have local citation rates of 10 and 20 per cent, respectively. India also ranked 42nd out of 55 countries on the 2024 International Intellectual Property Index, with an overall score of 38.64 per cent, unchanged from the previous assessment... the ratio of big businesses to unicorns in India is just 0.1, compared to 0.9 in the US, 0.4 in China, 0.5 in Germany, 0.25 in Brazil, and 0.6 in South Korea.

6. Some numbers on ESIC and EPFO deductions

Take the example of Sarita, a (fictitious) new employee in Mumbai earning Rs 15,000 per month (Rs 1.80 lakh annually). She must pay a profession tax of Rs 2,500 annually... Next, Sarita (Rs 1,350) and her employer (Rs 5,850) must pay a total of Rs 7,200 annually to the Employees’ State Insurance Corporation (ESIC). However, getting claims from ESIC is notoriously difficult, effectively making it another tax. ESIC holds Rs 1,17,000 crore in reserves. The claims paid (Rs 14,000 crore) are 83 per cent of contributions (Rs 17,000 crore), and investment income (Rs 7,000 crore) is 41 per cent of contributions (Source: Accounts for year ended March 31, 2023). The numbers reveal a system where contributors have long given up hope of receiving claims. Then you have the Employees’ Provident Fund Organisation (EPFO) triplets. Sarita contributes Rs 1,800 monthly to her EPF, while her employer contributes Rs 600 to her account, plus Rs 75 in administrative charges. In addition, her employer contributes Rs 1,200 to her Employees’ Pension Scheme (EPS) account and Rs 900 for her life insurance (of Rs 7 lakh), under the Employees’ Deposit Linked Insurance (EDLI) scheme.

All these small deductions add up. Sarita pays Rs 25,450 per year (Rs 21,600 EPF + Rs 2,500 profession tax + Rs 1,350 ESIC), leaving her with Rs 1,54,550 from her salary of Rs 1,80,000. Meanwhile, her employer pays a total of Rs 39,250 (Rs 7,200 EPF, Rs 24,400 EPS, Rs 900 EDLI, Rs 900 administrative charges and Rs 5,850 ESI), making Sarita’s total cost to the employer Rs 2,19,250. The difference (Rs 64,700) between her employer’s cost and Sarita’s take-home pay is 42 per cent—coincidentally the same tax rate for individuals earning over Rs 5 crore annually. Effectively, the lowest-paid employees are taxed at the same rate as the highest earners.

7. Fascinating story of William Phillips, the famous economist of Phillips curve fame, who travelled from a farm in New Zealand to become the world famous economist at LSE who in 1949 demonstrated to an astounded audience of superstar economics professors "the first ever computer model of a country's economy", the Moniac. 

Phillips might have been expected to go to university — he passed every exam — but there was a problem. In 1929, a collapse in share prices... had set in motion the Great Depression. Its effects lasted for years, and reached as far as a dairy farm in Te Rehunga. Prices for agricultural commodities plummeted, and Harold and Edith simply couldn’t afford to send their son off to study. Phillips became an apprentice electrician at a hydroelectric power station instead... In 1935, the apprentice electrician left Te Rehunga to see the world. Steve Levitt, a co-author of Freakonomics, was once dubbed “the Indiana Jones of economics”, but if that swashbuckling label belongs to anyone, it’s Phillips. In between leaving New Zealand and his first brush with economics in 1946, Phillips worked in a gold mine, hunted crocodiles, busked with a violin, rode the Trans-Siberian railway and was arrested by the Japanese and accused of spying. He eventually pitched up in London and signed up for the LSE. Then the war started, and he joined the Royal Air Force, which promptly sent him back to the other side of the world. In the RAF, Phillips established himself as an outstanding engineer, working to upgrade the obsolete aeroplanes that were supposed to defend British-held Singapore from Japan. Days before Singapore surrendered, he found himself on the last convoy to flee the city, onboard the Empire Star. The cargo ship designed to carry 23 passengers had been packed with 2,000, many of them women and children. When the convoy was discovered and attacked by Japanese planes, Phillips found a new use for his talents as an engineer. He brought a machine gun up on deck and improvised a mounting for it. Then he stood there for hours, fending off the attackers as bombs fell around him. 

This extraordinary performance earned him the MBE medal, but didn’t spare him from spending more than three years in a Japanese prisoner-of-war camp. Conditions were bad. Phillips later said that the small men survived and the taller men starved. He was one of the small ones. By the end of the war, he weighed just seven stone (45kg). To keep everyone cheerful and up to date on news from the outside world, Phillips continued with his engineering improvisations. He built concealed radio sets, one of which was tiny enough to be hidden from the guards in the heel of his shoe. He would have been tortured and killed had it been discovered. He also designed and built little immersion heaters, which the inmates used every evening to make hundreds of morale-boosting cups of tea. The guards never worked out why the camp lights flickered and dimmed each evening... In the summer of 1945, he was one of thousands of men transferred to a death camp, where they watched their captors mount machine guns on the walls, pointing inwards, and were forced to dig their own mass graves... When Phillips returned to London at the war’s end, he resumed his studies at the LSE. He took up sociology, a degree that contained some basic economics modules, and became intrigued by the engineering-style mathematical equations that were becoming popular in the new subject of macroeconomics... The LSE’s establishment rushed to give Phillips a job. Within a decade, he had been made professor, then a rare honour in British academia. For a man with no honours degree and no economics qualifications of any kind, he hadn’t done so badly.

The Moniac, or Phillips machine, could solve differential equations using hydraulics and not differential calculus. It could solve nine differential equations simultaneously and within a few minutes. 

Even in the 1950s, economic models were worked out by rooms full of human “computers”, typically women armed with paper and calculators to provide the mathematical equivalent of a typing pool. It would be years before digital computers could support economic models as complex as the Moniac’s. Phillips made 14 machines in all, most Mark II Moniacs, expanded versions of the original machine. The original machine went to the University of Leeds. Others ended up at Cambridge, Harvard, Melbourne, Manchester and Istanbul. Some went to corporations or ambitious governments in developing countries, from the Ford Motor Company to the Central Bank of Guatemala... If the Moniac was the result of exquisite engineering skill, Phillips’s flash of inspiration — that hydraulics could be used to solve complex systems of equations — was close to genius...

Each equation quite literally had to be carved into the flow-control system of the Moniac, in small squares of Perspex set in a neat white frame, with a thermometer-like scale along the side. The equations themselves were slots, one in each piece of Perspex, each with a particular shape and angle, snugly holding a peg that ran smoothly on brass rails. Each peg was attached to a float and a sluice gate, so that as the water level in a tank rose, the peg would move up and — depending on the shape of the slot — would also move sideways, opening or closing the sluice gate. Phillips had calibrated his equations to what was then known about the British economy: how much income people tended to put aside as savings, for example, or the overall response of supply and demand to prices. To his surprise, he found that the machine was watertight enough to be accurate to within 2 per cent — a higher level of precision than was required given the quality of the economic statistics of the day. 

8. Some facts about housing in the US

Real prices in the US are currently 25 per cent above the pre-crisis peak in 2006... Astonishingly, the US is building no more new homes and 80 per cent fewer “entry level” homes than it was half a century ago — when the population was much smaller. And the time it takes to complete a new multi-unit dwelling has doubled, with most of that increase coming in the past two decades — as “NIMBY” resistance spread.

Since 2000, according to Zillow, the average household income has doubled but the average price for its listings has tripled to $360,000. Over that period, the time it takes to save for a 20 per cent down payment has risen by nearly half to eleven years. And the share of income that goes to mortgage and insurance payments has risen by more than a third to 35 per cent — into the unaffordable zone. Because developers are building homes much more slowly than Americans are forming new households, the shortage is growing by several hundred thousand residences a year... Housing takes up a greater and growing share.

9.  Interesting points about the need to map supply-chain risks.

Data from the US commerce department indicates that 57 per cent of industries in America would require six months to return to normal capacity if there was even a single week of transport disruption... there are unexpected areas of workforce and trade vulnerability that couldn’t have been predicted without burrowing deep into granular data down many levels of global supply chains... the department has developed the Scale Tool, a computational system which includes data from the entire American goods economy. This is identified and ranked across various industries, geographies and risk metrics (geopolitical, environmental, national security, public health, and so on). The aim is to create an extremely granular picture of where vulnerability and resiliency in the American economy actually lies. That has required Raimondo and her officials to become familiar with things as esoteric as, for example, the components that go into an AI data centre cooling system. While it’s been widely understood for some time that AI capacity was a potential point of vulnerability for the US, this was thought of mainly in terms of the large amounts of power required for data centres, and whether the grids supporting them were resilient.

10. The definitive graph that blares out China's disturbing hold on clean manufacturing technologies.

11. India textile industry fact of the day

Between 2016 and 2023 the value of Indian apparel exports fell by 15%, whereas Bangladesh’s increased by 63%.

12. Peru's spectacular rise as a blueberry exporter in a graphic.

Back in 2013 Peruvians earned about $17m exporting blueberries; by last year receipts had soared to $1.7bn. In 2019 Peru became the world’s single biggest exporter of fresh blueberries. Nowadays it sends more than twice as many berries abroad as its closest rivals... Peru’s blue revolution relies on newfangled “low chill” varieties, developed in the United States, that thrive on Peru’s coast. The International Blueberry Organisation, an industry group, says that in 2022 the yield of a typical Peruvian blueberry farm was nearly double the global average (which is nine tonnes per hectare)... it takes only about two years for a new farm in Peru to start turning a profit. In other places four years is more common... Blueberry farmers have also gained from trends that have boosted all manner of Peruvian produce. These include tax breaks and irrigation megaprojects that have opened up land along Peru’s desert coastline. Between 2000 and 2023, total annual Peruvian farm exports grew 16-fold to $10.5bn.

13. Japanese company valuations.

The price-to-book ratios of listed companies, a measure of their value relative to the worth of their assets, is a mere 1.5. By contrast, American companies are worth five times as much as the assets they hold. Japan’s non-financial firms now hold ¥372trn ($2.6trn) in cash and bank deposits, a figure that has risen by 82% in nominal terms since the end of 2012, suggesting that too many executives are resting on their laurels.

14. Developing country cities are growing upwards.

And this

This is a welcome development, most likely a reflection of having hit the limits to suburban sprawls. This process must be expedited. 

Weekend reading links

1. The Economist points to the troubles facing Chinese manufacturing companies. The percentage of loss-making industrial enterprises is now even beyond the level of 1998 when reforms to the SOEs started.

At least eight large makers of the cars have shut down or halted production since the start of 2023. The ripples are visible throughout the supply chain... Some 52,000 ev-related companies shut down in China last year, an increase of almost 90% on the year before, according to one estimate. China’s solar industry is also grappling with oversupply. This year the prices of most components of solar modules have fallen below their average production cost. Many companies in the industry are scaling back manufacturing. Others have scrapped plans to enter the market... A shakeout is occurring in the semiconductor industry, too. Local governments have focused their investments on low-end chip components in an effort to “easily win market share”, notes an industry insider. Those parts are now in great oversupply and many of the companies producing them are failing. In 2023 nearly 11,000 chip-related firms went out of business, roughly 30 a day, according to Qichacha, a company that collects corporate data.

2. Nice graphic that captures China's latest investment priorities - solar, EV, batteries, and semiconductor chips.

3. Unintended consequences of public policy actions - in Germany, carbon emissions from power generation rose sharply in 2022 as it shut down nuclear plants.

4. You can do such market micro-management actions only if you are China

China has adopted an unusual tactic to discourage banks from buying government bonds, as authorities try to halt an uncomfortable decline in yields and prevent a bubble forming: naming and shaming the buyers... While buying of their sovereign bonds may be welcomed by many countries, the People’s Bank of China has repeatedly warned that a bubble is forming in the sovereign bond market, with regulators saying that regional banks’ appetite for long-term government debt risks triggering a Silicon Valley Bank-style crisis if there is a sudden surge in yields. “The local PBoC branch called us and advised us not to buy bonds when state lenders are selling,” one bond trader at a local lender in Jiangsu province said this week. “They blamed a few rural banks in Suzhou for acquiring bonds sold by the state banks.” On Monday, large banks sold a net Rmb22bn of long-dated bonds, 10 times the daily average last week, according to BNP Paribas’ securities market data. The government is also trying to spur economic growth by pushing regional lenders away from parking their money in ultra-safe bonds and instead lending it out.

5. Some facts about the trends in low tech manufacturing and China.

Apparel, footwear and furniture accounted for 9 per cent of China’s exports in the first eight months of last year, according to a Bank of America Global Research report, down from 20 per cent in 2001. Car and machinery’s share of total exports increased to 33 per cent from 16 per cent over the same period. China’s share of global footwear and apparel sales has slipped in recent years, with its portion of overall supply for brands Nike and Adidas falling from 20-27 per cent in 2017 to 16-20 per cent in 2022, according to the BofA report. While it remains the world’s largest supplier, China’s share of global footwear exports has declined by more than 10 percentage points over the past decade, according to figures from the 2023 World Footwear Yearbook. Much of that capacity has shifted to south-east Asian countries, particularly Indonesia and Vietnam, the report added. Vietnam, now the world’s second-biggest exporter, has been the biggest beneficiary, with its share rising from 2 per cent to about 10 per cent.

6. About the UK's Teacher's Pension Scheme (TPS)

State schoolteachers (and some university academic staff) are automatically enrolled into the Teachers’ Pension Scheme. The TPS requires contributions of at least 7.4 per cent of gross salary but guarantees an inflation-protected retirement income linked to career-average salary. Like most public-sector schemes it is unfunded; current pensions are paid out of current contributions and if they are insufficient then taxpayers are on the hook. It is also expensive for employers, who currently make contributions of about 28 per cent of salary.

7. Nice Ed Conway X thread on the challenges with replacing existing materials and technologies.

Part of the problem here - one which crops up again and again throughout *Material World* - is that it turns out the suite of materials we tend to use these days are simply VERY good at doing what they do. Kerosene is really hard to beat as an aviation fuel. Methane is a brilliant source of the hydrogen for making, among other things, fertilisers. Concrete might not be the only strong building material, but it’s incredibly easy to lay and also phenomenally cheap... All these things create significant carbon emissions. But they are central to modern life. They are a large part of the explanation for how we've been able to urbanise and feed billions of people in recent decades. Finding low carbon replacements will be HARD.

8. Two good Ed Conway X threads, here and here, on how countries got locked into the single pipe system where the outflows from sewerage and storm water drainage flows through one pipe (instead of separate pipes).

9. Very good graphical article in NYT that shows how China has established nearly 50 new villages and expanded another 100 villages all along its south-western borders, some in areas claimed by India and Bhutan, in an effort to fortify its border claims. 

These villages are called "border guardians" and the villagers are paid to live there. 

Qionglin’s villagers are essentially sentries on the front line of China’s claim to Arunachal Pradesh, India’s easternmost state, which Beijing insists is part of Chinese-ruled Tibet. Many villages like Qionglin have sprung up. In China’s west, they give its sovereignty a new, undeniable permanence along boundaries contested by India, Bhutan and Nepal. In its north, the settlements bolster security and promote trade with Central Asia. In the south, they guard against the flow of drugs and crime from Southeast Asia. The buildup is the clearest sign that Mr. Xi is using civilian settlements to quietly solidify China’s control in far-flung frontiers, just as he has with fishing militias and islands in the disputed South China Sea... The mapping reveals that China has put at least one village near every accessible Himalayan pass that borders India, as well as on most of the passes bordering Bhutan and Nepal... The outposts are civilian in nature, but they also provide China’s military with roads, access to the internet and power, should it want to move troops quickly to the border. 

Villagers serve as eyes and ears in remote areas, discouraging intruders or runaways... in quietly building militarized villages in disputed borderlands, China is replicating on land an expansionist approach that it has used successfully in the South China Sea... To persuade residents to move there, Chinese Communist Party officials promised them their new homes would be cheap. They would receive annual subsidies and get paid extra if they took part in border patrols. Chinese propaganda outlets said the government would provide jobs and help promote local businesses and tourism. The villages would come with paved roads, internet connections, schools and clinics.

10. Livemint reports of declining fortunes of Kota, the coaching centre capital of India - the number of students declined from around 200,000 in 2022 to and estimated 70000-90000 this year.  

The primary reason for Kota’s decline today is coaching institutes opening centres in other cities in the last two years, which has had a cascading effect on local businesses. Allen Career Institute, for instance, now has centres in at least 60 cities across India, including Dibrugarh, Patna, Rohtak, Latur, Jodhpur and Durgapur. Unacademy’s website says it has 61 centres in 44 cities for offline preparation, including Ahmedabad, Bhopal, Bhubaneswar, Bengaluru, Dehradun and New Delhi. Physics Wallah has 124 centres in 105 cities, with its Kota centre opening in 2022. It has more than 200,000 students enrolled across these centres... The other reason for the drop in students in Kota is the image it has developed of being a “suicide and party" hub. According to a Hindustan Times report last month, at least 13 students preparing for NEET or the engineering Joint Entrance Examination (JEE) in Kota had taken their own lives as of July. Last year, 27 suicides were reported, which was the highest number since 2015, said officials.

11. Very interesting snippet in the context of Bharti Airtel's decision to invest £3.2bn and take a 24.5% stake in BT, India is the second largest FDI source for UK!

India is the country’s second-largest source of foreign direct investment: there are more than 950 companies with combined revenue of about $65bn operating in Britain — up from 900 in 2022, according to the UK India Business Council... Bharti Enterprises holds controlling stakes in satellite venture OneWeb and also owns prestigious hotel brands, including The Hoxton and the Gleneagles resort in Scotland, operated by a company founded by his son-in-law. Bharti’s Africa telecoms business is a member of the FTSE 100.

And the Empire strikes back again?

On a 1997 visit to Bengaluru, then-UK prime minister John Major hailed BT’s acquisition of a 21 per cent stake in a phone operator owned by Sunil Bharti Mittal as “an indication of the strength of our economy”. Now Indian politicians are cheering a dramatic reversal after Mittal’s Bharti Enterprises struck a deal to become the British former telecoms monopoly’s largest investor, agreeing to buy a 24.5 per cent, roughly $4bn stake from Franco-Israeli billionaire Patrick Drahi’s indebted Altice. Bharti Airtel, anchor of the 66-year-old Mittal’s conglomerate, has blossomed since its 1995 founding into one of the world’s biggest network providers and now dwarfs BT. With 550mn customers across 17 South Asian and African nations, the company commands a $100bn market value — more than five times that of the UK group, which has shed overseas assets in recent years.

12. Water desalination facts of the day

Christopher Gasson, publisher of Global Water Intelligence, which tracks the industry, figures that about 500 million people rely at least partly on purified salt or brackish water and that the number could rise sixfold to three billion by midcentury. Around the world, there are about 1,500 large plants — those that can produce about 2.6 million gallons a day — with roughly $14 billion being spent annually to operate the existing fleet and build new ones... Saudi Arabia is the largest market for these installations, followed by the United Arab Emirates... With nearly 100 big plants, Spain is the largest user of desalination in Europe and one of the world’s largest... the costs of operating the energy-intensive desalination technology — called reverse osmosis, which is standard at large plants including the one at Torrevieja — are being brought down by pairing water purification with cheap solar energy, encouraging the building of new plants.

13. It appears that Howard Schulz negotiated out several perks for himself from Starbucks that raise concerns about corporate governance and personal ethics.

In 2018, the man who built the Seattle coffee business into a global empire had negotiated an agreement to retain an chair emeritus role — for the rest of his life. The deal lets the 71-year-old attend and observe board meetings, according to Starbucks corporate filings... They range from Starbucks reimbursing Schultz when it uses his private jet for corporate purposes to him owning a stake in a business making extra virgin olive oil for one of the company’s coffee drinks... The deal — which can only be modified or waived if both parties agree... As Schultz was ending his third spell in charge, he was introduced while travelling in Sicily to the idea of eating a spoonful of olive oil every day. It inspired him to create Oleato, which Starbucks began rolling out to customers earlier this year. Corporate filings show that Schultz did not just originate the idea; he also owned 19 per cent of the family-controlled business from which Starbucks buys its oil. Starbucks paid the company, Partanna, about $26mn last year... Schultz’s air travel also remains intertwined with the coffee chain. He owns a jet used by Starbucks, according to filings, for which the company last year paid an entity he controlled about $1mn. He has also stored his plane in a Starbucks hangar, the filings show: in 2023, an entity controlled by Schultz paid Starbucks about $1.3mn to cover rent and other maintenance costs.

For those who scorn at public servants for their questionable integrity, imagine what would have been the case if the likes of much-worshipped Schulz were in the public sector!

14. US CPI inflation falls to 2.9%. Time to call an end to the war on inflation?

15. An emerging structural concern in the banking sector in India is the widening gap between the credit and deposit growth rates. 

In the last financial year, for instance, while credit expanded at about 20 per cent, deposit growth lagged at about 14 per cent. The gap was also highlighted in the RBI’s latest Financial Stability Report. This trend is reflected in the credit-deposit ratio, which has increased since September 2021. It peaked at 78.8 per cent in December 2023 before moderating to 76.8 per cent at the end of March 2024. The ratio is particularly high among private-sector banks.

Some thoughts here. One, the high ratio among private banks is reflective of the problems with efficiency maximisation pursuit of the private sector, and the need for regulation to bring in resilience to the banking system. Two, as the editorial alludes to, the sharp decline in household savings to a multi-decade low of 5.3% of GDP in 2022-23 may be a reason behind the lower deposit growth rate (apart from the emergence of alternative savings opportunities). Three, just as savers find alternative investment opportunities, the borrowers must also diversify away from banks to capital market avenues. 

16. Interesting snippets of Chinese trade data

While China’s share of US imports has slipped to 13.5 per cent today from 21.6 per cent in December 2017, its overall market share in global goods exports has risen from 12.8 to 14.4 per cent over the same period.

17. Tim Harford on luxury brands

The real trick that luxury brands have pulled off is that the two features of the brand — subtle excellence paired with conspicuous expense — reinforce each other. In its purest form, conspicuous consumption is crass and unattractive; it needs the cover story of excellence before it becomes appealing. Both excellence and expense are part of the brand promise, then, but the difference between them matters. If the brand is mostly about excellence, the purchaser of the fake is the obvious loser: they are getting shoddy goods masquerading as something much better. But if high-end brands are largely about expense for the sake of expense, then counterfeit brands are like counterfeit banknotes. Their ubiquity debauches the value of the once-exclusive brand and the suckers are not the people who buy the fakes, but the people who pay retail for the tarnished originals...

But is this inability to signal quality really a problem for luxury fashion brands? I doubt it. Those who walk into the Louis Vuitton shop down the street from Florence’s Duomo and pay €500 for a baseball cap will be confident that they are getting the real thing, and rightly so. Those who pay €12 in a Palermo street market are expecting a knock-off, and they are right too... The economist Karen Croxson, now at the Competition and Markets Authority, once published a theory of “promotional piracy”, in which companies would tolerate the copying of some products because it created demand for the real thing. Microsoft probably benefits if tens of millions of schoolkids familiarise themselves with pirated copies of PowerPoint and Excel. And while the possibility of counterfeit Gucci loafers seems unlikely to enhance the appeal of the real thing, maybe some brands might be happy to see influential young artists, musicians and trendsetters displaying their logos, fake or not. Or maybe the ubiquity of the imitations builds demand for the original? Over in the Uffizi, “The Birth of Venus” is so prized because it is so recognisable, and that is down to it having been duplicated, imitated and remixed so often. Perhaps this is as true for Versace as it is for Botticelli.