I am always intrigued by developments in China, but this piece felt like the disturbing facts have moved closer home in India, especially in the context of what has happened in Jammu and Kashmir in the last few days (I blogged about this here). Imagine being tracked down by the government down to every step you take or intercepted at every corner of the world you drive to? The court-approved Deadbeat Map does worse to Chinese people, and in that country, such things apparently have stopped bothering people. The Deadbeat app tracks people blacklisted by the Chinese government for creditworthiness or payment of fines and also allows the dissemination of this utterly private information on social media by complete strangers, to alert authorities! I haven’t heard of a more bizarre government-public partnership at work, enabled by technology! But, imagine this being very, very popular with people in China, and it is.
Adam Minter, in the Bloomberg piece, writes:
Depicted outside of China as a creepy digital panopticon, this network of so-called social-credit systems is seen within China as a means to generate something the country sorely lacks: trust. For that, perpetual surveillance and the loss of privacy are a small price to pay.
Rather than generating outrage, these digital debtor prisons have proven extremely popular. A 2018 survey of more than 2,200 Chinese citizens found that 80 percent had joined a commercial social-credit system (Sesame Credit, which requires users to opt-in, was the most popular service), although only 7 percent were aware of that they’d been included within a government system. More surprisingly, 80 percent of respondents either somewhat or strongly approved of social-credit systems, with the strongest support coming from older, educated and more affluent urbanites — a demographic generally associated with more “liberal” values such as the sanctity of privacy.
On social media, at least, China revels in seeing individuals land on social credit-related blacklists. In 2016, when the National Tourism Administration published the names of people banned from plane travel, the news generated thousands of “likes” and repostings on the Sina Weibo social media site.
Hmmm. Read more here.
This Cambridge University Press research also illustrates how, compared to other countries, average public concern in China, especially about issues such as climate change, is relatively low, and concern varies greatly among Chinese citizens, across different provinces and between coastal and inland areas.
Another super interesting piece in The Economist tracked the shift of global banking and finance to India in spite of the constraints it poses to business, thanks to the large churn out of engineers graduating from the country’s university system. Interestingly, unlike manufacturing, global finance firms in India are managing to overcome the typical challenges: a labyrinthine maze of permissions, taxes and red tape, business-unfriendly labour laws, and struggling transport and communications networks.
India has long received other countries’ outsourced jobs. Some of those are unsophisticated, such as answering phones or processing forms. Many, however, rely on Indian universities’ remarkable ability to turn out engineers in great numbers, and computing firms’ ability to use them to solve complex problems. Such tasks may be dismissed as “back-office”. But they are at the heart of modern finance.
In recent years banks have become global networks that link apps on smartphones, workstations used for sales, and sophisticated programs used to manage compliance and allocate capital. Systems that once merely updated balances now determine financial-product marketing—whom to send offers to, when to increase credit limits and when to adjust charges. For banks all over the world, many such tasks are now done in India.
…. bankers say they have been startled by how fast India, notwithstanding its local challenges, has become an intellectual force that is now shaping their global futures.
In EPW, a smart curation of articles to understand inequality in India is enlightening and keeps you updated on the latest in this area. Mainly, the themes here focus on the question of inequality and whether economic growth alone can mitigate it, how inequality is measured and if at all it’s being correctly measured in India, the areas of concentration of wealth, rise in inequality in the post-reform period and long term trends in inequality in India. Another EPW curation of important reads on the growth of Hindu nationalism might be useful too.
A critical McKinsey report released earlier this month on the future of Asia and ways in which the continent will lead the world economy offers an overview of Asia’s role in international trade, corporations in Asia, technology, and the Asian consumer, drawing a comprehensive picture of how the continent is growing and what this could mean for the world.
One of the most dramatic developments of the past 30 years has been emerging Asia’s soaring consumption and its integration into global flows of trade, capital, talent, and innovation. In the decades ahead, Asia’s economies will go from participating in these flows to determining their shape and direction. Indeed, in many areas—from the internet to trade and luxury goods—they already are. The question is no longer how quickly Asia will rise; it is how Asia will lead.
The McKinsey report on International Trade:
Because of its diversity and geographic sweep, Asia is not and likely will never be the same kind of tightly integrated trade entity as the European Union or NAFTA. Although it is a looser constellation of countries, trade ties and cooperation are deepening across the region. Today 52 percent of Asian trade is intra-regional, compared to just 41 percent in North America. This points toward a new trend of firms building self-contained regional supply chains to serve Asian markets. It also indicates deepening trade ties among Asian countries themselves—with much more room to grow. The Regional Comprehensive Economic Partnership (RCEP) is a new free trade agreement that includes 16 countries across the region, including China, Japan, India, and Vietnam.
While trade in goods has flattened, service flows have become the real connective tissue of the global economy. In fact, services trade is growing 60 percent faster than trade in goods—and Asia’s services trade is growing 1.7 times faster than the rest of the world’s. While India and the Philippines are among the biggest exporters of back-office business services, trade in knowledge-intensive services is still in its infancy across most Asian countries and represents an important gap to be filled.
Asian firms have become global market leaders not only in industrial and automotive sectors but in areas like technology, finance, and logistics. Over the past 20 years, as these economies have evolved, the industry mix of the region’s largest firms has shifted. Manufacturing of capital goods is now a smaller share of the region’s economy, while infrastructure and financial services have grown significantly.
The ownership structures, growth strategies, and operating styles of Asian corporate giants differ from those of publicly owned Western multinationals. About two-thirds of the 110 Chinese companies in the Fortune 500 are state owned. The region also has a number of large conglomerates. South Korea’s top five family-controlled chaebols together account for roughly half of the value in the country’s stock market. Japan’s “big six” keiretsu similarly have outsize weight in the country’s equity market; each one owns dozens of companies spanning several industries. All major Japanese car manufacturers, for example, can be tied back to a keiretsu. India’s top six conglomerates alone employ more than two million people.
Whether they are digital leaders or laggards, the next stage of the journey for countries across the region is to go beyond consumer use and encourage wider adoption of digital tools in traditional sectors, from agriculture to retail and logistics. Similarly, the public and social sectors can continue deploying digital systems to make government services and healthcare more efficient. The ultimate goal is harnessing the latest technology tools to boost productivity in a meaningful way.
Innovation hubs are starting to take root. As of April 2019, Asia was home to more than one-third of the world’s “unicorns” (start-ups valued at more than $1 billion). Ninety-one of these companies are in China, followed by India with 13, South Korea with six, and Indonesia at four.
On Asian consumer:
The growing Asian middle class will soon be three billion strong. Southeast Asia alone had some 80 million households in the consuming class just a few years ago. Now that number is on track to double to 163 million households by 2030, with Indonesia, in particular, generating tens of millions of newly prosperous consumers.
Do read the full report here.
Pro-democracy protests in Hong Kong have raged on for more than two months now. This Economist piece succinctly sums up China’s continued interest in this Asian commerce hub and how it has a lot to do with China’s closed economy.
Key points below:
The paradox is that the more autocratic the mainland gets the more it needs Hong Kong commercially. Had China reformed its financial and legal system, the territory would be irrelevant to its global business. Instead the opposite has happened: China has grown fast and globalised, but not opened up.
As a result, Hong Kong’s economy is disproportionately useful to China. It has a status within a body of international law and rules that gives it seamless access to Western markets. The status is multifaceted. It includes: a higher credit rating; lower risk-weights for bank and counterparty exposures; the ability to clear dollars easily; independent membership of the wto; “equivalence” status for its stock exchange with those in America, Europe and Japan; recognition as a “developed” stockmarket by index firms and co-operation agreements with other securities regulators.
Cross-border bank lending booked in Hong Kong has roughly doubled in the past decade, much of it Chinese companies borrowing dollars intermediated through the territory. Hong Kong’s stock market is now the world’s fourth-largest, behind Tokyo’s but ahead of London’s. About 70% of the capital raised on it is for Chinese firms, but strikingly the mix has shifted from state enterprises to tech firms such as Tencent, Meituan and Xiaomi. These firms have specifically chosen not to do mainland listings because the markets there are too immature and closed off from Western investors. Alibaba, an e-commerce conglomerate, is also in the process of doing a Hong Kong listing (at present it is only listed in New York). Most Chinese foreign direct investment flows through Hong Kong. The stock domiciled in the territory has roughly doubled in the last decade, to $2trn. Hong Kong’s share of total fdi flowing into mainland China has remained fairly constant, at 60%. Although the amount of multinational money flowing into and out of China has soared, most firms still prefer to have Hong Kong’s legal stamp.
Meanwhile, the number of multinationals with their regional headquarters in the territory has increased by two-thirds since 1997, to around 1,500. Hong Kong hosts the most valuable life insurer in the world, excluding mainland China, aia, while a global firm with a big Asian arm, Prudential, is about to shift its regulatory domicile to Hong Kong.
This all means that how turmoil in Hong Kong is resolved matters to more than just to its own people. Already boards of multinationals are debating over whether to move their regional domicile to Singapore. Indeed, one existing weak spot for Hong Kong is that major American tech firms, such as Google, Amazon and Facebook, have set up their regional headquarters in Singapore, perhaps because of cyber-worries. An executive with a biotech startup says the company is moving money out of the territory and considering an American listing instead.
China will not take action in Hong Kong lightly: it knows how much is at stake economically and how much its biggest firms depend on the territory, quite apart from the reputational risk. Yet it also sees the situation spiraling into a threat to the Communist Party itself—one that America, it believes, is trying to exploit.
My favorite BJP leader Sushma Swaraj passed away last week. Here is Jaya Jaitley’s beautiful tribute to her.
On Indian economy’s current slowdown, a Business Standard op-ed that debunks the argument that the slowdown is cyclical, and another that takes a hard look at the growth figures, yet again.
Another brilliant piece by my former Mint colleague Remya Nair on how the Modi government has used the Food Corporation of India to keep fiscal deficit artificially low – by transferring its liabilities to the FCI via NSSF loans and keeping the actual food subsidy in the budget low.
I conclude this post two beautiful pieces of writing. First is this post by Adam O’Fallon Price in The Paris Review on his obsessive-compulsive disorder and writing:
Controlling a sentence—controlling this sentence, as I type—is for me the best, most pleasurable work there is. I build the paragraph, tagged by its thematic first word: control. In crafting this sentence, this paragraph, this essay, I get to be both architect and construction worker, and both jobs offer equally pleasing aspects of control. The former involves creative design and abstract thought; the latter brings the visceral, simultaneously logical and intuitive pleasure of finding the right word, moving it around, putting it in just the right place. Having written that sentence, I know I must reverse myself and concede that the idea of there being “just the right place” is illusory—that even this work is, in its essence, as arbitrary as anything else. This is true, but nonetheless as I write, I shut out the world, other responsibilities, Twitter, the news, everything.
Second and last is this touching, forever relevant The Newyorker piece by Toni Morrison who also passed away last week. The sentences that resonated with me:
I have never considered the level of labor to be the measure of myself, and I have never placed the security of a job above the value of home.