Consistently inefficient

When I read the following in FT, I could hardly suppress a smile:

Chinese economy gets a shot China’s central bank injected a record Rmb570bn ($84bn) into the country’s banking system on Wednesday in the latest effort to boost liquidity and promote increased lending. Global markets responded favourably. (FT)

Stock markets react positively whenever major economies boost liquidity. It is not that stock markets reacted negatively much when the bad news out of China was pouring out. Perhaps, other central banks were pushing liquidity then!

But, they are into lazy investing. Low interest rates and liquidity are what they care about. If you are in doubt, read this interesting article published in New York Times on 10th January and download the original paper too. Investors just do not read annual reports even if they contain information (hints) of bad or good tidings to come. They react only when the actual news breaks out months later. So much for the market’s informational efficiency. 

It is breathtaking that someone got a Nobel Prize for calling the stock markets efficient populated as they are by humans who are anything but. May be, the efficiency of the Swedish Riksbank’s selection committee has to be questioned!

70% top marginal tax rate and other links for the weekend

Alexandria Ocasio-Cortez favours 70% marginal top tax rate to pay for climate change. Something to think about?

When Wall Street firms behave in this fashion, Alexandira Ocasio-Cortez’ proposal does not seem so outlandish or outrageous. The story is about Goldman Sachs with 1MdB in Malaysia and Credit Suisse in Mozambique:

According to the International Monetary Fund, the loans Credit Suisse and others arranged effectively doubled the cost of servicing the country’s debt. …

Mozambique defaulted and then restructured its debt. Last year, the country’s economy was due to grow at the slowest rate in 18 years — a burden that its citizens will be left to bear. 

Whatever the outcome of these cases — no doubt, risk controls will be tightened and new standards set — the bitter taste of these experiments with market capitalism will linger. [Link]

On climate change, these lines should strike fear in Indian hearts. It is about Yemen:

“The civil war in Yemen seems to be a politically-motivated competition for power among many actors with varying motives,” he wrote in his paper. “But underlying all other motives is the ongoing need by all parties to secure access to the diminishing water supply.” [Link]

Staying in the desert, let us read Noah Smith’s article on Saudi Arabia. The drastic fall in the fertility rate in the country is remarkable.

This FT article on how investors are pushing companies to look at all stakeholders’ welfare rather than maximise profits as Milton Friedman advised in 1970 was not impressive because it did not have any other name than Larry Fink, as the investor doing it. In other words, institutional investors are not exactly forcing companies to look at a bigger picture than shareholders, much as the FT writer would like to believe or have us believe.

But, it was good to see that the now-departed chairman and founder of Southwest Airlines walked his talk on profits and employee welfare too. Remarkable story, written well by Joe Nocera.

“Should a self-driving car kill the baby or the grandma? Depends on where you’re from.” That is the header of an article in MIT Technology Review. The article presents results of a voluntary survey in which millions participated from different countries. Responses varied from country to country.

This is a re-statement of the old trolley problem (I did not know about it although I had seen variants of it) in the era of artificial intelligence and self-driving cars.

Greg Ip begins the New Year with an optimistic take on how the world is getting relentlessly better. It is true but it is also true that it is a partial analysis.

Greg Ip has a more penetrating take on the US-China trade dispute. The observations by Senator Dan Sullivan, cited in the article, are pertinent:

Dan Sullivan, a Republican senator from Alaska, personifies these broader forces reshaping the U.S. approach to the world. Mr. Sullivan has followed the rise of China for decades—as a Marine sent to the Taiwan Strait in 1996 in a response to Chinese provocations; as an official in George W. Bush’s National Security Council and State Department; and for a time as Alaska’s commissioner of natural resources.

As companies moving goods from China to the U.S. face heftier tariffs, some have developed creative techniques to avoid paying them. The WSJ’s Steven Russolillo takes to the field to explain how some businesses sidestep import duties.

When Mr. Xi visited the U.S. in 2015, Mr. Sullivan urged his colleagues to pay more attention to China’s rise. On the Senate floor, he quoted the political scientist Graham Allison: “War between the U.S. and China is more likely than recognized at the moment.”

Last spring, Mr. Sullivan went to China and met officials including Vice President Wang Qishan. They seemed to think tensions with the U.S. will fade after Mr. Trump leaves the scene, Mr. Sullivan recalled.

“I just said, ‘You are completely misreading this.’” The mistrust, he told them, is bipartisan, and will outlast Mr. Trump.

The Guardian has an unsurprisingly condescending piece on the new Brazilian President. I think he is interesting and India needs to build its ties with him closely before China does.

This NYT profile article on Bob Lightheizer is a good one. More strength to him.

A colleague of mine pointed to this CATO Institute policy analysis titled, ‘Nostalgia and the Liberal Order’. Yet to read it. I like the sound of it, though. It was published in June 2018.

Roach and I agree

I have often found myself in disagreement with Stephen Roach in his cheer-leading of China. After I read Martin Pillsbury’s ‘100-year marathon’, I am all the more convinced that, as a Sinophile, Roach got China wrong. Never mind. I hope he is right on the Federal Reserve and he is right about this too:

The subtext of normalization is that economic fundamentals, not market-friendly monetary policy, will finally determine asset values. [Link]

Similarly, I have had plenty to disagree with Martin Wolf too. On this one, especially with the header, he is right. The future might not belong to China. In fact, while I liked Martin Pillsbury’s book, I must concede that James Kynge gave us an excellent psychoanalysis of China (without really intending to do so) that accords with what Martin Pillsbury wrote some nine years later. Kynge’s ‘China shakes the world’ (published in 2006, I think) showed us clearly that we are not dealing with a normal nation.

For them, cheating, hacking, stealing technology secrets, redrawing boundaries unilaterally, accessing markets around the world but keeping theirs closed are all part of the statecraft and fair game. The only way to deal with them is to play the game ‘by their rules’.

That is why, this piece by Raghuram Rajan in FT, published nearly a month ago gets it somewhat muddled and wrong. The last paragraph begins correctly saying that America’s tough negotiating tactics brought China to the table. Then, why should America sound conciliatory now? What does it have to show for its toughness in terms of a more open China market?

Finally, I understand that Jeff Bezos and Bill Gates do dishes in their homes. As long as I lived in America and in Europe, I did them too. But, I did not become a billionnaire. Looks like doing dishes is neither a necessary nor a sufficient condition for becoming a billionnaire. H..mmm. What to do? I tried.

China watchers now recommend watching and other links

Visited John Pomfret twitter handle after a long time. Good harvest. Some of the harvest shared here:

China watchers recommend vigilance now. WaPo story; summary of the report here and the full original report is here.

Cornell halts China university ties over curbs on academic freedom [Link]. An important observation in the story:

Chinese regulators closed down more than a fifth of partnerships between local and foreign universities this year.

The tweet says it all:

China is loosening environmental regulations facing a weaker economy. The new policy allows a much higher PM2.5 level in northern China than announced a year ago, and heavy-polluting factories can operate again in the winter. [Link]


China shutters one of its truly independent think-tanks [Link]


Recent China links

From the story in FT on how fracking in China is leading to polluted water:

Earlier this year, a resident was detained and was still living under de facto house arrest because of his involvement in collecting evidence of pollution and sending water samples to Beijing, according to township residents.

From the story in New York Times on the internet conference in China:

The company has also started working with the authorities in Xinjiang, Mr. Wang said. The goal? To have a database of the irises of all Xinjiang residents within two years, he said.

Chinese banks don’t quite lend to private companies but things must be getting dire and difficult for the economy:

China aims to boost large banks’ loans to private companies to at least one-third of new corporate lending [Link]

Wow! Xi Jinping calls for a level playing field for the private sector! [Link]

‘Game of Chickens’ in the South China Sea:

The American concerns about Beijing’s naval modernization are reflected in a fictional account titled “How We Lost the Great Pacific War,” written by the director of intelligence and information operations of the Pacific Fleet, Dale C. Rielage, and published in a Navy journal.

The article portrays a possibly dark outcome for the American Navy in the Pacific.

Written in the form of a military dispatch from the year 2025, the author laments how the Navy had to “cannibalize aircraft, parts and people” and wonders if it will be able to “claw” its way back in the Western Pacific.

At the heart of this bleak prognosis is an assumption that the United States did not act aggressively enough in challenging China when it still could.

The article describes how an admiral, at the start of his term as chief of naval operations, saw that the Americans’ margin of victory in high-end naval combat had become razor thin — and would continue shrinking. “At the time, he assessed that the margin, though thin, remained ‘decisive.’ In the years following, however, the margin shifted imperceptibly to favor the other side.”

The article never names “the other side,” but makes clear: it is China. [Link]

Peter Nevarro warns Wall Street not to interfere in China-USA trade matters. Quite:

“The game that China has played — and they played people in the Bush administration like a violin — is to do the tap dance of economic dialogue,” Navarro said. “That’s all they want to do. They want to get us to the bargaining table, sound reasonable and talk their way while they keep having their way with us.” [Link]

Then, this incredible story in FT on how China is minding its financial stability risks and that the United States is not! To me, these two lines take the cake:

To counter the economic drag that trade war-related fears were creating, China has loosened its monetary policy in recent months. Its earlier belt-tightening gave it some wriggle room to do so. [Link]

Must read Mike Pence

It is hard for me to pick out the important parts of the speech of Mike Pence, America’s Vice-President, on China, delivered nearly a month ago. It is a MUST READ. I agree that it could be as significant as the speech by Churchill calling the Soviet Union as the country behind a ‘Iron Curtain’.

Brahma Chellaney says that Sierra Leone is the next country to pull out of the Belt and Road Initiative and that India is right to have stayed out of it.

America expresses concern over China’s attempts to take over Taiwan by non-peaceful means. Fair enough.

China’s manufacturing PMI and export data were weak [Link]

Today’s news links

The re-election problems of PM Modi [Link]

Suzuki commits to ‘Make in India’ with electric vehicles [Link]

Suzuki will test run its first electric cars in India in October! This news is from September. I do not know if it happened [Link]. If it did not, then we know how to read the previous link, though.

Japan is still struggling to come to terms with its relaxed foreign worker visa policies. The resolution passed but after a lot of doubts and scepticism were expressed [Link]

Philippines compromises (or, attempts to) with China on South China Sea [Link]

Two well-known Chinese economists-critics of China’s economic growth model actually blame China for the trade dispute with the United States. [Link]

A story in FT on how Mauritius still makes its revenues through assisting tax evasion although the African state confirms that it is compliant with all tax-evasion international laws and treaties. Indeed! India has scrapped its double-taxation treaty with Mauritius. Full capital gains tax will apply on capital gains earned by Mauritius-registered entities from 1st April 2019. Let us see.

China allows share buybacks to boost stock market – when in doubt, ape the West and yet claim superiority to Western model of economics and finance!

American college undergraduate students are now ambivalent on capitalism. Wall Street Journal is alarmed! While most of the points made by James Freeman are valid, he would have been more correct had he also exhorted capitalists to introspect on why things have come to such a pass.