Most of Africa’s data are currently stored elsewhere, zipping down undersea cables that often make landfall in the French city of Marseille….An upheaval is overdue. Africa has more internet users than America, but only as much data-center space as Switzerland. The boom is partly driven by regulation. Two dozen African countries have passed data-protection laws, or are planning to do so. They often require certain data, such as personal information, to be kept in the country. Another boost comes from competition, says Jan Hnizdo of Teraco, a leading data center in South Africa, where liberalization of the telecoms industry created space for such firms to flourish.
Capital is pouring in. Teraco is building Africa’s largest stand-alone data center in Johannesburg, with backing from foreign funds. Actis, a private-equity firm, is putting $250m into the industry, starting with a majority stake in a Nigerian company, Rack Centre. American investors founded Raxio with an eye on less fashionable markets, from Uganda to Mozambique.
Data centers need power, and lots of it. Keeping their equipment cool consumes almost as much energy as running it, which is why centers are usually in chilly places such as Scandinavia or America’s Pacific north-west. Most of Africa is hot and has a lot of power cuts…To keep servers running, many centers use polluting and expensive diesel generators. Yet the potential gains from offering better connectivity and faster internet services in Africa outweigh the difficulties. Microsoft and Amazon are bringing their cloud services to the region, and have opened data centres of their own in South Africa. Huawei has helped build one for the government of Senegal. Google and Facebook are both involved in projects to lay new cables around Africa’s coasts.
Excerpts from Seeding the cloud: Data centers are Taking root in Africa, Economist, Dec. 4, 2021
Classified American intelligence reports suggest China intends to establish its first permanent military presence on the Atlantic Ocean in the tiny Central African country of Equatorial Guinea. The officials…said the reports raise the prospect that Chinese warships would be able to rearm and refit opposite the East Coast of the U.S.—a threat that is setting off alarm bells at the White House and Pentagon. Principal deputy U.S. national security adviser Jon Finer visited Equatorial Guinea in October 2021 on a mission to persuade President Teodoro Obiang Nguema Mbasogo and his son and heir apparent, Vice President Teodoro “Teodorin” Nguema Obiang Mangue, to reject China’s overtures…
In Equatorial Guinea, the Chinese likely have an eye on Bata, according to a U.S. official. Bata already has a Chinese-built deep-water commercial port on the Gulf of Guinea, and excellent highways link the city to Gabon and the interior of Central Africa….
Equatorial Guinea, a former Spanish colony with a population of 1.4 million, secured independence in 1968. The capital, Malabo, is on the island of Bioko, while Bata is the largest city on the mainland section of the country, which is wedged between Gabon and Cameroon. Mr. Obiang has ruled the country since 1979. The discovery of huge offshore gas and oil reserves in 1996 allegedly allowed members of his family to spend lavishly on exotic cars, mansions and other luxuries…The State Department has accused the Obiang regime of extrajudicial killings, forced disappearances, torture and other abuses. A U.S. Senate committee issued a report in 2004 criticizing Washington-based Riggs Bank for turning “a blind eye to evidence suggesting the bank was handling the proceeds of foreign corruption” in accepting hundreds of millions of dollars in deposits controlled by Mr. Obiang, his wife and other relatives……
Equatorial Guinea relies on American oil companies to extract offshore resources that have made the country the richest on the sub-Saharan mainland, as measured by per capita annual gross domestic product….Chinese state-owned companies have built 100 commercial ports around Africa in the past two decades, according to Chinese government data….
The State Department recently raised Equatorial Guinea’s ranking in the annual assessment of how diligently countries combat human trafficking. The upgrade could allow the Biden administration to offer maritime-security assistance to help win Equatorial Guinea’s cooperation.
Excerpts from MICHAEL M. PHILLIPS, China Seeks First Military Base on Africa’s Atlantic Coast, U.S. Intelligence Finds, WSJ, Dec. 5, 2021
In 2020 tourism in Belized dried up, growth contracted sharply and public debt jumped from just under 100% GDO in 2019 to over 125%. That forced Belize, into a debt restructuring…As part of the deal, concluded on November 5th, 2021 Belize bought back its only international bond, a $553m, at 55 cents on the dollar. It funded that with $364m of fresh money, arranged by The Nature Conservancy, an NGO, which is insured by the International Development Finance Corp, an American agency. The transaction is backed by the proceeds of a “blue bond” arranged by Credit Suisse, a bank. The payback is due over 19 years. It is called a blue bond because Belize has pledged to invest a large chunk of the savings into looking after the ocean. That includes funding a $23m endowment to support future marine-conservation projects and promising to protect 30% of its waters by 2026…
Debt-for-nature swaps are nothing new. Lenders have been offering highly indebted countries concessions in return for environmental commitments for decades. But these transactions have historically involved debt owed to rich countries, not commercial bondholders. As Lee Buchheit, a lawyer who specialises in sovereign-debt restructurings, points out, they were “negligible in size”. In total, the value of debt-for-climate and nature-swap agreements between 1985 and 2015 came to just $2.6bn, according to the United Nations Development Programme. Of the 39 debtor nations that benefited from the swaps, only 12 negotiated debts of over $30m. “It was really an exercise in public relations,” Mr Buchheit says….
Other poor countries are trying to move in the same direction. At the COP26 climate summit in Glasgow Ecuador’s president Guillermo Lasso proposed enlarging the country’s Galapagos nature reserve through a debt-for-nature swap…Yet no amount of creative dealmaking can distract from the grim truth: many emerging markets still suffer from crushing debts.
China will finance the construction of an outpost for a special forces unit of Tajikistan’s police near the Tajik-Afghan border. The post will be located in Tajikistan’s eastern Gorno-Badakhshan Autonomous Province in the Pamir mountains, which border China’s Xinjiang province as well as the northeastern Afghan province of Badakhshan. No Chinese troops will be stationed at the facility.
The plan to build the post comes amid tension between the Dushanbe government and Afghanistan’s new Taliban rulers. Tajik President Emomali Rakhmon has refused to recognise the Taliban government, calling for a broader representation of Afghanistan’s ethnic groups – of which Tajiks are the second-biggest. Kabul, in turn, has warned Dushanbe against meddling in its domestic affairs. According to Russian media, the Taliban have struck an alliance with an ethnic Tajik militant group based in northern Afghanistan which seeks to overthrow Tajikistan’s current government.
China is a major investor in Tajikistan and Beijing has also acted as a donor on several occasions, handing over, for example, a new parliament building free of charge.
Excerpts from China to build outpost for Tajikistan special forces near Afghan border, Reuters, Oct. 28, 2021
Owing to climate change…the share of boreal land that can support farming could increase from 8% to 41% in Sweden. It could increase from 51% to 83% in Finland. Efforts to farm these areas will alarm people who value boreal forests for their own sake. And cutting down such forests and ploughing up the soils that lie beneath them will release carbon. But the climatic effects are not as simple as they might seem. Northern forests absorb more heat from the sun than open farmland does, because snow-covered farmland reflects light back into space…
The fact that felling boreal forests may not worsen climate change, though, says nothing about the degree to which it could affect biodiversity, ecosystem services or the lives of forest dwellers, particularly indigenous ones.
Some governments are already keen to capitalize on climate change. Russia’s has long talked of higher temperatures as a boon. President Vladimir Putin once boasted that they would enable Russians to spend less money on fur coats and grow more grain. In 2020 a “national action plan” on climate change outlined ways in which the country could “use the advantages” of it, including expanding farming. Since 2015 Russia has become the world’s largest producer of wheat, chiefly because of higher temperatures.
Russia’s government has started leasing thousands of square kilometers of land in the country’s far east to Chinese, South Korean and Japanese investors. Much of the land, which was once unproductive, is now used to grow soybeans. Most are imported by China, helping the country reduce its reliance on imports from America. Sergey Levin, Russia’s deputy minister of agriculture, has predicted that soya exports from its far-eastern farmlands may reach $600m by 2024. That would be nearly five times what they were in 2017. The government of Newfoundland and Labrador, a province on the north-eastern tip of Canada, is also trying to promote the expansion of agriculture into lands covered by forests…
All told, the northern expansion of farmland will only go some way towards mitigating the damage climate change may do to agriculture. The societies that will benefit from it are mostly already wealthy. Poor places, which rely much more heavily on income from exporting agricultural produce, will suffer.
Excerpts from Farming’s New Frontiers: Agriculture, Economist, August 28, 2021
The Interuniversity Microelectronics Centre (IMEC) located in Leuven, Belgium, does not design chips (like America’s Intel), manufacture them (like TSMC of Taiwan) or make any of the complicated gear (like ASML, a Dutch firm). Instead, it creates knowledge used by everyone in the $550bn chip business. Given chips’ centrality to the modern economy and increasingly to modern geopolitics, too, that makes it one of the most essential industrial research-and-development (R&D) center on the planet. Luc Van den hove, IMEC’s boss, calls it the “Switzerland of semiconductors”.
IMEC was founded in 1984 by a group of electronics engineers from the Catholic University of Leuven who wanted to focus on microprocessor research. In the early days it was bankrolled by the local Flemish government. Today IMEC maintains its neutrality thanks to a financial model in which no single firm or state controls a big share of its budget. The largest chunk comes from the Belgian government, which chips in some 16%. The top corporate contributors provide no more than 4% each. Keeping revenue sources diverse (partners span the length and breadth of the chip industry) and finite (its standard research contracts last three to five years) gives IMEC the incentive to focus on ideas that help advance chipmaking as a whole rather than any firm in particular.
A case in point is the development of extreme ultraviolet lithography (EUV)…It took 20 years of R&D to turn the idea into manufacturing reality. IMEC acted as a conduit in that process… Advanced toolmakers want a way to circulate their intellectual property (IP) without the large companies gaining sway over it. The large companies, meanwhile, do not want to place all their bets on any one experimental idea that is expensive (as chipmaking processes are) and could become obsolete.
IMEC’s neutrality allows both sides to get around this problem. It collects all the necessary gear in one place, allowing producers to develop their technology in tandem with others. And everyone gets rights to the IP the institute generates. Mr Van den hove says that progress in the chip industry has been driven by the free exchange of knowledge, with IMEC acting as a “funnel” for ideas from all over the world…IMEC’s revenues, which come from the research contracts and from prototyping and design services, doubled between 2010 and 2020, to €678m ($773m).
The deepening rift between America, home to some of the industry’s biggest firms, and China, which imported $378bn-worth of chips last year, threatens IMEC’s spirit of global comity. China’s chip industry is increasingly shielded by an overbearing Communist Party striving for self-sufficiency, and ever more ostracized by outsiders as a result of American and European export controls. All this limits the extent to which IMEC can work with Chinese semiconductor companies…IMEC would not comment on individual partnerships but says it has “a few engagements with Chinese companies, however not on the most sensitive technologies, and always fully compliant with current European and US export regulations and directives”.
Excerpts from Neutral but not idle: IMEC offers neutral ground amid chip rivalries, Economist, Sept. 25, 2021
Four small modular reactors (SMRs) will power the huge Baimskaya copper and gold mining development in the Russian Arctic, according to an agreement signed by Rosatom subsidiary Atomflot…Baimskaya is one of the world’s largest mineral deposits and is very rich in copper and gold. However, development of the remote site in Russia’s eastern Chukotka region demands a complex multi-partner plan involving the Russian government, the regional government and developers…
Nuclear power already plays a role in Baimskaya’s development as early facilities there are powered by the Akademik Lomonosov floating nuclear power plant at Pevek. KAZ Minerals said the plant will supply up to 20 MWe of nuclear power to the mine during its construction phase….Based on the agreement, two additional floating power plants will provided, each with two RITM-200M reactors. The first two should be in operation at Cape Nagloynyn by the beginning of 2027, the third in 2028 and the final one at the start of 2031….
Excerpts from SMRs to power Arctic development, World Nuclear News, Sept. 3, 2021
Facebook said it would back two new underwater cable projects—one in Africa and another in Asia in collaboration with Alphabet — that aim to give the Silicon Valley giants greater control of the global internet infrastructure that their businesses rely on.
The 2Africa project, a partnership between Facebook and several international telecom operators, said that it would add four new branches: the Seychelles, Comoro Islands, Angola and Nigeria. The project’s overall plan calls for 35 landings in 26 countries, with the goal of building an underwater ring of fiber-optic cables around Africa. It aims to begin operating in 2023… Separately, Facebook that it would participate in a 7,500-mile-long underwater cable system in Asia, called Apricot, that would connect Japan, Taiwan, Guam, the Philippines, Indonesia and Singapore. Google said that it would also join the initiative, which is scheduled to go live in 2024.
Driving the investments are costs and control. More than 400 commercially operated underwater cables, also known as submarine cables, carry almost all international voice and data traffic, making them critical for the economies and national security of most countries…Telecom companies own and operate many of these cables, charging fees to businesses that use them to ferry data. Facebook and Google used so much bandwidth that they decided about a decade ago that it would make sense to cut out the middleman and own some infrastructure directly.
Excerpts from Stu Woo, Facebook Backs Underwater Cable Projects to Boost Internet Connectivity, WSJ, Aug. 17, 2021
Solar panel installations are surging in the U.S. and Europe as Western countries seek to cut their reliance on fossil fuels. But the West faces a conundrum…: Most of them are produced with energy from carbon-dioxide-belching, coal-burning plants in China.
Concerns are mounting in the U.S. and Europe that the solar industry’s reliance on Chinese coal will create a big increase in emissions in the coming years as manufacturers rapidly scale up production of solar panels to meet demand. That would make the solar industry one of the world’s most prolific polluters, analysts say, undermining some of the emissions reductions achieved from widespread adoption. For years, China’s low-cost, coal-fired electricity has given the country’s solar-panel manufacturers a competitive advantage, allowing them to dominate global markets.
Chinese factories supply more than three-quarters of the world’s polysilicon, an essential component in most solar panels, according to industry analyst Johannes Bernreuter…Producing a solar panel in China creates around twice as much carbon dioxide as making it in Europe, said Fengqi You, professor of energy systems engineering at Cornell University.
Some Western governments and corporations are attempting to shift the solar industry away from coal…These policies would also help rebuild the West’s solar industry, which has withered under competition from higher-polluting Chinese producers, Western executives say…China has pushed down the price of panels so sharply that solar power is now less expensive than electricity generated from fossil fuels in many markets around the world. Imports of the solar cells that make up the panels are also flooding into the U.S. and Europe. Those shipments are either coming directly from China or contain key components made in China. “If China didn’t have access to coal, then solar power wouldn’t be cheap now,” said Robbie Andrew, a senior researcher at the Center for International Climate Research in Oslo. “Is it OK that we’ve had this huge bulge of carbon emissions from China because it allowed them to develop all these technologies really cheaply? We might not know that for another 30 to 40 years.”
Excerpts from Matthew Dalton, Behind the Rise of U.S. Solar Power, a Mountain of Chinese Coal, July 31, 2021
In Saudi Arabial party-goers prefer Captagon pills (to alcohol), nowadays the Gulf’s favorite drug, at $25 a pop. Part of the amphetamine family, it can have a similar effect to Viagra—and conquers sleep. “With one pill,” says a raver, “we can dance all weekend.”
For Syria’s president, Bashar al-Assad, the drug has become a boon—at least in the short run. His country has become the world’s prime pusher of Captagon. As the formal economy collapses under the burden of war, sanctions and the predatory rule of the Assads, the drug has become Syria’s main export and source of hard currency. The Centre for Operational Analysis and Research (COAR), a Cyprus-based consultancy, reckons that last year authorities elsewhere seized Syrian drugs with a street value of no less than $3.4bn. That compares with Syria’s largest legal export, olive oil, which is worth some $122m a year. The drug is financing the central government, says Ian Larson, who wrote a recent report on the subject for COAR…
Chemical plants in the cities of Aleppo and Homs have been converted into pill factories. In the Gulf the mark-up for pills can be 50 times their cost in Syria. Smugglers hide them in shipments of paper rolls, parquet flooring and even pomegranates. Saudi princes use private jets to bring the stuff in…
For the Syrians left behind, drugs may destroy what remains of society after a decade of civil war. “Young men who haven’t been killed, exiled or jailed are addicts,” says a social worker in Sweida, a city held by the Assads in the south.
Excerpt from Pop a pill, save a dictator: Syria has become a narco-state, Economist, July 19, 2021
Using messenger RNA to make vaccines was an unproven idea. But if it worked, the technique would revolutionize medicine, not least by providing protection against infectious diseases and biological weapons. So in 2013 America’s Defense Advanced Research Projects Agency (DARPA) gambled. It awarded a small, new firm called Moderna $25m to develop the idea. Eight years, and more than 175m doses later, Moderna’s covid-19 vaccine sits alongside weather satellites, GPS, drones, stealth technology, voice interfaces, the personal computer and the internet on the list of innovations for which DARPA can claim at least partial credit.
It is the agency that shaped the modern world, and this success has spurred imitators. In America there are ARPAS for homeland security, intelligence and energy, as well as the original defense one…Germany has recently established two such agencies: one civilian (the Federal Agency for Disruptive Innovation, or SPRIN-d) and another military (the Cybersecurity Innovation Agency). Japan’s interpretation is called Moonshot R&D.
As governments across the rich world begin, after a four-decade lull, to spend more on research and development, the idea of an agency to invent the future (and, in so doing, generate vast industries) is alluring and, the success of DARPA suggests, no mere fantasy. In many countries there is displeasure with the web of bureaucracy that entangles funding systems, and hope that the DARPA model can provide a way of getting around it. But as some have discovered, and others soon will, copying DARPA requires more than just copying the name. It also needs commitment to the principles which made the original agency so successful—principles that are often uncomfortable for politicians.
On paper, the approach is straightforward. Take enormous, reckless gambles on things so beneficial that only a handful need work to make the whole venture a success. As Arun Majumdar, founding director of ARPA-e, America’s energy agency, puts it: “If every project is succeeding, you’re not trying hard enough.” Current (unclassified) DAROA projects include mimicking insects’ nervous systems in order to reduce the computation required for artificial intelligence and working out how to protect soldiers from the enemy’s use of genome-editing technologies.
The result is a mirror image of normal R&D agencies. Whereas most focus on basic research, DARPA builds things. Whereas most use peer review and carefully selected measurements of progress, DARPA strips bureaucracy to the bones (the conversation in 1965 which led the agency to give out $1m for the first cross-country computer network, a forerunner to the internet, took just 15 minutes). All work is contracted out. DARPA has a boss, a small number of office directors and fewer than 100 program managers, hired on fixed short-term contracts, who act in a manner akin to venture capitalists, albeit with the aim of generating specific outcomes rather than private returns.
Excerpt from Inventing the future: A growing number of governments hope to clone America’s DARPA, Economist, June 5, 2021
Taiwan Semiconductor Manufacturing Co (TSMC) has emerged over the past several years as the world’s most important semiconductor company, with enormous influence over the global economy. With a market cap of around $550 billion, it ranks as the world’s 11th most valuable company. Its dominance leaves the world in a vulnerable position, however. As more technologies require chips of mind-boggling complexity, more are coming from this one company, on an island that’s a focal point of tensions between the U.S. and China, which claims Taiwan as its own.
The situation is similar in some ways to the world’s past reliance on Middle Eastern oil, with any instability on the island threatening to echo across industries….Being dependent on Taiwanese chips “poses a threat to the global economy,” research firm Capital Economics recently wrote. Its technology is so advanced, Capital Economics said, that it now makes around 92% of the world’s most sophisticated chips, which have transistors that are less than one-thousandth the width of a human hair. Samsung Electronics Co. makes the rest.
The U.S., Europe and China are scrambling to cut their reliance on Taiwanese chips. While the U.S. still leads the world in chip design and intellectual property with homegrown giants like Intel Corp. , Nvidia Corp. and Qualcomm, it now accounts for only 12% of the world’s chip manufacturing, down from 37% in 1990, according to Boston Consulting Group. President Biden’s infrastructure plan includes $50 billion to help boost domestic chip production. China has made semiconductor independence a major tenet of its national strategic plan. The European Union aims to produce at least 20% of the world’s next-generation chips in 2030 as part of a $150 billion digital industries scheme.
The Taiwanese maker has also faced calls from the U.S. and Germany to expand supply due to factory closures and lost revenues in the auto industry, which was the first to get hit by the current chip shortage.
Semiconductors have become so complex and capital-intensive that once a producer falls behind, it’s hard to catch up. Companies can spend billions of dollars and years trying, only to see the technological horizon recede further. A single semiconductor factory can cost as much as $20 billion. One key manufacturing tool for advanced chip-making that imprints intricate circuit patterns on silicon costs upward of $100 million, requiring multiple planes to deliver…
Taiwanese leaders refer to the local chip industry as Taiwan’s “silicon shield,” helping protect it from such conflict. Taiwan’s government has showered subsidies on the local chip industry over the years, analysts say.
Excerpts from Yang Jie et al., The World Relies on One Chip Maker in Taiwan, Leaving Everyone Vulnerable, WSJ, June 19, 2021
China is tightening its grip on the global supply of processed manganese, rattling a range of companies world-wide that depend on the versatile metal—including the planet’s biggest electric-vehicle makers.
China produces more than 90% of the world’s manganese products, ranging from steel-strengthening additives to battery-grade compounds. Since October 2020, dozens of Chinese manganese processors accounting for most of global capacity have joined a state-backed campaign to establish a “manganese innovation alliance,” led by Ningxia Tianyuan Manganese Industry Group, setting out in planning documents goals and moves that others in the industry say are akin to a production cartel. They include centralizing control over supply of key products, coordinating prices, stockpiling and networks for mutual financial assistance.
The squeeze sent prices soaring in metal markets world-wide, snagging steelmakers and sharpening concern among car makers. China’s metal industries already dominate the global processing of most raw materials for rechargeable batteries, including cobalt and nickel. Three-quarters of the world’s lithium-ion batteries and half of its electric vehicles are made in China. High-purity forms of manganese have increasingly become crucial for battery-powered automobiles, touted by Volkswagen AG and Tesla Inc. in recent months as a viable replacement for other, more-expensive battery ingredients….
While manganese ore is relatively abundant around the world, it is almost solely refined in China. Battery-grade manganese is traded mostly privately, and pricing can be opaque. Miners say a metric ton of the purified metal could cost up to $4,000—barely a 10th of the cost of cobalt, a widely used battery metal. By replacing cobalt, manganese could help auto makers produce 30% more cars with the same amount of nickel, analysts say.
Rival manganese projects outside China view the cartel-like activities as an opportunity to gain momentum for their own battery-grade developments…Still, analysts say such projects outside China might take years to start and heavy cost investments to develop. Viable bases of manganese ore are often located in remote regions, which require expensive infrastructure to ferry and process extracted ores.
Excerpt from Chuin-Wei Yap, China Hones Control Over Manganese, a Rising Star in Battery Metals, WSH, May 21, 2021
Environmentalists…fret about how much energy bitcoin uses. In a paper in Nature Communications, a group of academics…examine bitcoin’s energy use in China. They conclude that, in the absence of legal curbs, bitcoin could by 2024 become a “non-negligible” barrier to China’s efforts to decarbonize its economy.
Bitcoin’s hunger for energy stems from its design. It forgoes centralised record-keeping in favour of a “blockchain”, a transaction database that is distributed among users. The blockchain is maintained by “miners”, who validate transactions by competing to crack mathematical puzzles with solutions that are hard to find but easy to check. Each successfully mined block of transactions generates a reward, currently 6.25 bitcoins ($357,000).
The system varies the difficulty of the puzzles to ensure that one new block is created, on average, every ten minutes. High bitcoin prices make it worthwhile to spend more computing power—and therefore electricity—chasing mining rewards…
Despite the currency’s democratic ambitions, mining is concentrated among a handful of professional operators. About 70% takes place in China. Scientists have concluded that, without regulation, Chinese bitcoin mining could consume around as much energy as Italy or Saudi Arabia by 2024. Annual carbon emissions, at 130m tonnes, would approach those of Nigeria. Such numbers should be taken with a good deal of salt. Bitcoin’s energy use depends crucially on its price, which swings wildly…
But the general picture—that bitcoin is a dirty business—fits with other research. One oft-cited model, which uses publicly available blockchain data, reckons its global energy consumption is already equal to that of Kazakhstan, and that its carbon footprint matches Hong Kong’s.
Excerpts from The dirty truth: Totting up bitcoin’s environmental costs, Economist, Apr. 10, 2021
On April 16, 2021 Adar Poonawalla, head of the world’s biggest vaccine-maker, the Serum Institute of India (SII), begged President Joe Biden, in a tweet, to ‘lift the embargo of raw material exports out of the us.’… because it would affect the manufacturing of vaccines: AstraZeneca’s, of which SII makes 100m doses a month, and Novavax’s, of which it expects to make 60m-70m doses a month.
That was shortly after the Biden administration announced, on February 5, 2021, plans to use the Defense Production Act (DPA)—a law dating from the 1950s that grants the president broad industrial-mobilization powers—to bolster US vaccine-making. This legislation…has helped American pharmaceutical companies to secure a variety of special materials and equipment, including plastic tubing, raw goods, filters and even paper, that are needed for vaccine production. But firms which export such products point out that the DPA hinders their ability to sell them abroad. They must seek permission before exporting these goods. That requires time and paperwork. And if the government decides it needs the goods in question to remain in the country, the firms concerned may be barred from exporting them at all…
To be used in vaccine manufacturing, products have to be approved by regulators. So finding substitutes quickly can be impossible. SII is not alone in its concern. On March 24, 2021 Micheal Martin, Ireland’s prime minister, warned that export bans (and not just from America) would harm global vaccine production. He noted that the Pfizer vaccine involves 280 components from 86 suppliers in 19 countries. Indeed, American export controls particularly harm European vaccine companies, which need special bags from America in which to make their products. At a vaccine supply-chain meeting in March, one such firm complained of 66-week delivery times for the supply of these bags.
Excerpts from A Vaxxing Problem: Covid 19 and the Defense Production Act, Economist, Apr. 24, 2021
Elon Musk’s internet satellite venture has spawned an unlikely alliance of competitors, regulators and experts who say the billionaire is building a near-monopoly that is threatening space safety and the environment. The Starlink project, owned by Mr. Musk’s Space Exploration Technologies Corp. or SpaceX, is authorized to send some 12,000 satellites into orbit to beam superfast internet to every corner of the Earth. It has sought permission for another 30,000.
Now, rival companies such as Viasat, OneWeb, Hughes Network Systems and Boeing Co. are challenging Starlink’s space race in front of regulators in the U.S. and Europe. Some complain that Mr. Musk’s satellites are blocking their own devices’ signals and have physically endangered their fleets. Mr. Musk’s endeavor is still in beta testing but it has already disrupted the industry, and even spurred the European Union to develop a rival space-based internet project to be unveiled by the end of the year.
The critics’ main argument is that Mr. Musk’s launch-first, upgrade-later principle, which made his Tesla Inc. TSLA electric car company a pioneer, gives priority to speed over quality, filling Earth’s already crowded orbit with satellites that may need fixing after they launch.
“SpaceX has a gung-ho approach to space,” said Chris McLaughlin, government affairs chief for rival OneWeb. “Every one of our satellites is like a Ford Focus—it does the same thing, it gets tested, it works—while Starlink satellites are like Teslas: They launch them and then they have to upgrade and fix them, or even replace them altogether,” Mr. McLaughlin said. Around 5% of the first batch of Starlink satellites failed, SpaceX said in 2019….
Orbital space is finite, and the current lack of universal regulation means companies can place satellites on a first-come, first-served basis. And Mr. Musk is on track to stake a claim for most of the free orbital real estate, largely because, unlike competitors, he owns his own rockets.
Excerpts from Bojan Pancevski, Elon Musk’s Satellite Internet Project Is Too Risky, Rivals Say, April 19, 2021
The joint announcement by China and Russia in March 20211 on their collaboration to explore the moon has the potential to scramble the geopolitics of space exploration, once again setting up competing programs and goals for the scientific and, potentially, commercial exploitation of the moon. This time, though, the main players will be the United States and China, with Russia as a supporting player.
In recent years, China has made huge advances in space exploration, putting its own astronauts in orbit and sending probes to the moon and to Mars. It has effectively drafted Russia as a partner in missions that it has already planned, outpacing a Russian program that has stalled in recent years. In December 2020, China’s Chang’e-5 mission brought back samples from the moon’s surface, which have gone on display with great fanfare in Beijing. That made China only the third nation, after the United States and the Soviet Union, to accomplish the feat. In the coming months, it is expected to send a lander and rover to the Martian surface, hard on the heels of NASA’s Perseverance, which arrived there in February 2021..
According to a statement by the China National Space Administration, they agreed to “use their accumulated experience in space science research and development and use of space equipment and space technology to jointly formulate a route map for the construction of an international lunar scientific research station.”
After the Soviet Union’s collapse, Russia became an important partner in the development of the International Space Station. With NASA having retired the space shuttle in 2011, Russia’s Soyuz rockets were the only way to get to the International Space Station until SpaceX, a private company founded by the billionaire Elon Musk, sent astronauts into orbit on its own rocket last year. China, by contrast, was never invited to the International Space Station, as American law prohibits NASA from cooperating with Beijing.
China pledged to keep the joint project with Russia “open to all interested countries and international partners,” as the statement put it, but it seemed all but certain to exclude the United States and its allies in space exploration. The United States has its own plans to revisit the moon by 2024 through an international program called Artemis. With Russia by its side, China could now draw in other countries across Asia, Africa and Latin America, establishing parallel programs for lunar development….
Excerpts from China and Russia Agree to Explore the Moon Together, NYT, Mar. 10, 2021
You might think the death of liberalism in Asia’s financial center, Hong Kong, which hosts $10trn of cross-border investments, would trigger panic, capital flight and a business exodus. Instead Hong Kong is enjoying a financial boom. Share offerings have soared as China’s leading companies list there. Western firms are in the thick of it: the top underwriters are Morgan Stanley and Goldman Sachs. In 2020, the value of us dollar payments cleared in Hong Kong, a hub for the world’s reserve currency, hit a record $11trn.
The same pattern of political oppression and commercial effervescence is to be found on the mainland…Yet when they talk to shareholders about China, global firms gloss over this brutal reality: “Very happy,” says Siemens; “Phenomenal,” reckons Apple; and “Remarkable,” says Starbucks…Tougher policing does not affect Westerners, says a mainland financier. His foreign clients in Hong Kong laugh about the anxious memos they receive from bosses at home, asking about political developments. “It doesn’t really affect their life, right? They’re not going on the street to try to demonstrate against the government.”
Mainland China attracted $163bn of fresh multinational investment in 2020, more than any other country. It is opening the mainland capital markets to foreigners, who have invested $900bn, in a landmark shift for global finance.
Moreover, the pull China exerts is no longer just a matter of size—although, with 18% of world GDP, it has that too. The country is also where firms discover consumer trends and innovations. It is increasingly where commodity prices and the cost of capital are set, and is becoming a source of regulations. Business is betting that, in Hong Kong and the mainland, China’s… government is capable of self-restraint in the commercial sphere, providing contractual certainty, despite the lack of fully independent courts and free speech. Though China’s best-known tycoon, Jack Ma, has fallen from political favor, foreign investors’ stakes in his empire are still worth over $500bn.
Excerpts from Dealing with China, The Way its Going to Be, Economist, Mar 20, 2021
Lithuania’s government on Feb. 17 prohibited Chinese security-scanner maker Nuctech Co. from supplying equipment to the country’s two airports, saying a proposed deal was “not in line with national-security interests.” State-controlled Nuctech, which the U.S. government in December 2020 listed among Chinese entities banned from certain transactions with U.S. parties, had won a tender launched a year ago by state-owned Lithuanian Airports.
Canada last year also abandoned a plan to buy Nuctech scanners for its embassies following controversy around the announced deal. Norway, Croatia and an EU directorate in recent months have also stopped scanner tenders involving Nuctech, although none publicly linked the cancellations to security, as Lithuania did. Lithuania banned China’s Nuctech from supplying security-scanning equipment to its two airports.
“We are choosing the Western technosphere. We are not choosing the Chinese technosphere,” said Laurynas Kasciunas, chairman of the Lithuanian parliament’s national-security and defense committee, which oversees a national-security review board that had recommended banning Nuctech. Such policy reversals remain a minority amid extensive Chinese business activity across the EU.
Excerpt from Daniel Michaels and Valentina Pop, China Faces European Obstacles as Some Countries Heed U.S. Pressure, WSJ, Feb. 23, 2021
Although designing chips for electronic devices is now easier than ever, making them has never been harder requiring spending vast—and growing—sums on factories (called fabs) stuffed with ultra-advanced equipment.
At the turn of the millennium, a cutting-edge factory might have cost $1bn… More recently, a TSMC factory that produces 3 nm (nanometer) chips, completed in 2020, in southern Taiwan, cost $19.5bn. The firm is already pondering another for factory for 2nm chips, which will almost certainly be more. ..Asia’s nanoscale manufacturing duopoly remains fiercely competitive, as Samsung and TSMC keep each other on their toes… At some point, one company, in all likelihood TSMC, could be the last advanced fab standing. For years, says an industry veteran, tech bosses mostly ignored the problem in the hope it would go away. It has not…
The other big industry rupture is taking place in China. As America has lost ground in making chips, it has sought to ensure that China lags behind, too. The American tech embargo began as a narrow effort against Huawei over national security, but bans and restrictions now affect at least 60 firms, including many involved in chips. SMIC, China’s chip champion, has just been put on a blacklist, as has Xiaomi, a smartphone firm.
Excerpts from Betting All Chips, Economist, Jan. 23, 2021 and Semiconductors: A New Architecture, Economist, Jan. 23, 2021
Rosatom joined the Arctic Economic Council*in February 2021. Rosatom is a Russian state-owned corporation supplying about 20% of the country’s electricity. The corporation mainly holds assets in nuclear power and machine engineering and construction. In 2018, the Russian government appointed Rosatom to manage the Northern Sea Route (NSR). The NSR grants direct access to the Arctic, a region of increasing importance for Russia due to its abundance of fossil fuels. Moreover, due to climate changes, the extraction of natural resources, oil and gas are easier than ever before.
Since Russia’s handover of NSR’s management, Rosatom’s emphasis on the use of nuclear power for shipping, infrastructure development and fossil fuel extraction is likely to become more prevalent in the Arctic region. Rosatom already operate the world’s first floating nuclear power plant in the Siberian port of Pevek and is the only company in the world operating a fleet of civilian nuclear-powered icebreakers…The company has numerous plans up its sleeves, among them to expand the fleet of heavy-duty nuclear icebreakers to a minimum of nine by 2035.
A 20% rise in the price of cobalt since the beginning of 2021 shows how the rush to build more electric vehicles is stressing global supply chains.
A majority of the world’s cobalt is mined in the Democratic Republic of the Congo in central Africa. It typically is carried overland to South Africa, shipped out from the port of Durban, South Africa, and processed in China before the material goes to battery makers—meaning the supply chain has several choke points that make it vulnerable to disruption…
Car and battery makers have been looking for more control over their cobalt supply and ways to avoid the metal altogether. Honda Motor Co. last year formed an alliance with a leading Chinese car-battery maker, Contemporary Amperex Technology Ltd. , hoping that CATL’s supply-chain clout would help stabilize Honda’s battery supply..
Meanwhile, China plays a critical role even though it doesn’t have significant reserves of cobalt itself. Chinese companies control more than 40% of Congo’s cobalt-mining capacity, according to an estimate by Roskill, the London research firm…China’s ambassador to Congo was quoted in state media last year as saying more than 80 Chinese enterprises have invested in Congo and created nearly 50,000 local jobs…
To break China’s stronghold, auto makers and suppliers are trying to recycle more cobalt from old batteries and exploring other nations for alternative supplies of the material. Another reason to look for alternatives is instability in Congo and continuing ethical concerns about miners working in sometimes-harsh conditions with rudimentary tools and no safety equipment.
Excerpt from Yang Jie, EV Surge Sends Cobalt Prices Soaring, WSJ, Jan. 23, 2021
In 2020, 132bn watts of new solar generating capacity were installed around the world; in many places solar panels are now by far the cheapest way to produce electricity. This transformation… was the result of a decisive shift in German government policy happening to coincide with China becoming the dominant force in global manufacturing.
By 2012 Germany had paid out more than €200bn in subsidies for solar energy production. It had also changed the world. Between 2004 and 2010 the global market for solar panels grew 30-fold as investors in Germany and the other countries which followed its lead piled in… By 2012 the price of a panel was a sixth what it had been in 2004, and it has gone on falling ever since… In sunny places new solar-power installations are significantly cheaper than generating electricity from fossil fuels. Installed capacity is now 776gw, more than 100 times what it was in 2004.
That does not mean Germany got exactly what it wanted. Solar power is not the decentralised, communal source of self-sufficient energy the Greens dreamed of; its provision is dominated by large industrial installations. And the panels on those installations are not made by the German companies the Social Democrats wanted to support: Chinese manufacturers trounced them…But they do provide the world with a zero-carbon energy source cheaper than fossil fuels, and there is room for many more of them…
The industry boasts no giants comparable to those in aircraft manufacture or pharmaceuticals, let alone computing; no solar company has a market capitalization of more than $10bn, and no solar CEO is in danger of being recognized on the street. It is a commodity business in which the commodity’s price moves in only one direction and everyone works on very thin margins. Good for the planet—but hardly a gold mine.
Excerpt from How governments spurred the rise of solar power, Economist Technology Quarterly, Jan 9, 2021
Greenland is rich in rare-earth minerals, and the superpowers want them…These 17 elements are used in all things electronic. The renewable-energy revolution will also rely on them for power storage and transmission. On the darker side, weapons—including nuclear ones—need them too.
A new open-pit mine at the top of Kuannersuit, a cloud-rimmed mountain near the settlement of Narsaq in the south of Greenland may be rich in rare earth. So believes Greenland Minerals, an Australia-based company, which has been angling for the excavation rights for the past decade.
Greenland’s environment ministry has given a tentative go-ahead. A majority of parliamentarians have already declared themselves in favor of digging. In early February 2020, the townsfolk of Narsaq will hear representations from the island’s government. In Greenland, Urani Naamik (“No to Uranium”), a community lobby, has strong support. Nobody wants (mildly) radioactive dust, an inevitable by-product of mining. Many worry about the waste—a sludge of chemicals and discarded rock fragments—that mining would leave on top of the mountain.
The bigger long-term issue is who gets the mine’s spoils. Shenghe, a Chinese conglomerate, is the largest shareholder in Greenland Minerals. The Danish government, in a frenzy of Atlanticism, earlier managed to stop Chinese companies from investing in the expansion of two airports on the island. Will it preserve Greenland’s rare earths for NATO?
Cloud mining: In search of Greenland’s rare earths, Economist, Jan. 16, 2021, at 41
Kabwe, in Zambia, sprung up around a mine founded in 1904 by the Rhodesian Broken Hill Development Company, a British colonial firm. For decades miners crushed and burnt ore to extract lead. That metal made Kabwe but it also devastated it. To this day lead particles blow across town, making their way into houses and bloodstreams.
Scientists generally consider soil hazardous if it has more than 400mg of lead per kilogram. In three townships near the old mine the soil contains six, eight and 15 times that amount, according to analysis in 2014 by Pure Earth, an environmental ngo. “Kabwe is the most toxic place I’ve ever been to,” says Richard Fuller, its president…
The pollution in Kabwe is a scandal. Yet responsibility for it has long been contested, and that is set to continue. In October 2020, Mbuyisa Moleele Attorneys, a South African law firm, with help from Leigh Day, a British one, announced a class-action lawsuit against a subsidiary of Anglo American on behalf of potentially more than 100,000 children and women of reproductive age in Kabwe. It is targeting Anglo because it was affiliated to the mine from the 1920s until shortly after Zambia’s mines were nationalised in 1970. The suit claims that most of the pollution stems from the period when the mine was under the de facto control of Anglo, which allegedly did not do enough to stop the harm. Anglo rejects the claims, arguing that its involvement ended five decades ago and that, before then, it was neither the operator nor a majority shareholder in the mine and thus not responsible.
The case may take years. The lawyers for the plaintiffs must first convince a South African court to take it on. Only then may it proceed to a trial. Meanwhile children in Kabwe will keep on playing in the dust.
The World Bank included Kabwe in a broader project it funded to clean up Zambian mines. The scheme, which ran from 2003-2011, had some successes. It dredged a toxic canal and buried some contaminated soil. But it did not treat the main source of the dust—the former mine and dumps—and it left roads unpaved and most houses untreated…Another clean-up funded by the bank was started in December 2016. But it, too, is struggling. Some children have been tested and have received therapy to reduce blood lead levels. But since little has been done about the lead in the environment there is a risk their levels will rise again.
Excerpt from Mining’s Toxic Legacy: Lead Astray, Economist, Dec. 12, 2020
Xi Jinping, China’s leader, has described the creation of fully domestic supply chains as a matter of national security. The question is how to build them. Chinese officials know that they cannot turn their backs on the world. Exports are still an important source of revenue for many firms. And China must attract technology and investment from abroad. Pushing too transparently for “indigenous innovation”, a term once bandied about by the government, only makes foreigners wary. Striking the right balance is tough.
Enter the newest of China’s big economic policies: the “dual-circulation” strategy. At its most basic it refers to keeping China open to the world (the “great international circulation”), while reinforcing its own market (the “great domestic circulation”). If that sounds rather vague, it is: the government has not spelled out the details. In May 2020, at a meeting of the Politburo, Mr Xi described dual circulation as the framework for economic policy… More recent comments by Mr Xi on the economy have been less about promoting consumption and more about bolstering China’s defences. China needs “self-developed, controllable” supply chains, with at least one alternative source for vital products, he said in a speech published on October 3, 2020.
Even more striking was his inversion of the idea of international circulation. Instead of talking about it in terms of the economic benefits China reaps from globalisation, he emphasized only the strategic purpose of opening China’s doors to foreign firms, ie that making them more dependent on the Chinese market would deter foreign powers from putting pressure on the country.
Excerpts from Economic Policy: Circling Back, Economist, Nov. 7, 2020
About 60% of the world’s cobalt is found in Congo, scattered across the copperbelt that stretches east into Zambia. The people of Kawama, Gongo grumble that too much land has been sold to mining firms. “We used to dig freely,” says Gerard Kaumba, a miner. “But now the government has sold all the hills.” There are still some sites where miners can turn up and dig, but they have to sell to whoever owns the concession. A sweltering day’s work might earn you $7. Many people have found they can make more at night, pilfering cobalt from industrial mines.
Glencore, a commodities giant with two mines in Congo, reckons that some 2,000 people sneak into its pits every day. Other companies have even more robbers to contend with. In 2019 Congolese soldiers chased thieves out of a mine owned by China Molybdenum where, it was reckoned, 10,000-odd people were then illegally digging. Sneaking into Glencore’s mines is hardest, says a Kawaman, as its guards do not collude with thieves—and often chase them away with dogs.
Congo’s industrial miners are not all angels. Gécamines, the state-owned company, has enriched crooked politicians for half a century. Global Witness, a watchdog based in London, says Congo’s treasury lost $750m of mining revenues to graft between 2013 and 2015. ENRC, which has mines in Congo, has faced allegations of corruption and an investigation by Britain’s Serious Fraud Office (it denies wrongdoing). So has Glencore, which has worked with Dan Gertler, an Israeli billionaire. Mr Gertler, a close friend of a former Congolese president, Joseph Kabila, is under American sanctions…
While big firms rake in millions, many of the little guys languish in jail. The prison in Kolwezi, the largest city in the mining region, is crammed with men caught stealing copper and cobalt. More than a hundred inmates occupy one stinking room, sitting in rows on the ground, each wedged between another’s legs. Prissoners are allowed to use the toilet only once a day, so they often urinate in their clothes
Excerpt from Cobalt blues: In Congo the little guys are jailed for stealing minerals. Economist, Oct. 17, 2020
Animal diseases, the US-China trade war and covid-19 have all disrupted, or threatened to disrupt, industrial chicken supplies and supply chains…The unsentimental logic of high-performance poultry-rearing is easy to grasp. “White-feather meat chickens”, as they are known in China, grow to 2.5kg in 40 days. Homegrown varieties of “yellow-feather chicken”, descended from backyard fowl, take twice as long to mature and will only ever weigh half as much…
Half a century ago meat in China was a rare luxury. Now, many see it as a daily necessity. In the meantime, the country’s supplies of farmland and clean water have not grown. Agriculture remains blighted by food-safety scandals, the rampant use of fake or illegal animal medicines, and disease outbreaks. Small surprise, then, that Chinese leaders give frequent speeches about food security. A puzzle lurks, though. Leaders also call for self-reliance in key technologies. And in the case of broiler chickens, those two ambitions—rearing meat efficiently and avoiding dependence on imports—are in tension.
The chicken imported into China are the fifth-generation descendants of pedigree birds whose bloodlines represent 80 years of selection for such traits as efficient food-to-meat conversion, rapid growth, strong leg bones and disease resistance. After waves of consolidation, the industry is dominated by two firms, Aviagen (based in Alabama and owned by the ew Group of Germany) and Cobb (owned by Tyson, an American poultry giant).
The most valuable pedigree birds never leave maximum-security farms in America and Britain: a single pedigree hen may generate 4m direct descendants. Their second-generation offspring are flown to breeding sites dispersed between such places as Brazil, Britain and New Zealand, in part to hedge against supply shocks when avian influenzas and other diseases close borders. Day-old third-generation chicks are air-freighted to Jinghai Poultry, a company in China, and other places, which spend six months growing them and breeding them in climate-controlled, artificially lit indoor facilities. In all, China imports 1.6m third-generation white-feather chicks a year.
Jinghai Poultry hatches 8m fourth-generation, “parent stock” chickens annually. The company sells some to other agri-businesses. It breeds from the rest to produce fifth-generation chicks. These are “meat chickens”, consumed in fast-food outlets, schools and factory canteens, or as chicken parts sold in supermarkets. Yellow-feather chickens, deemed tastier by Chinese cooks, account for most whole birds sold in markets.
Chinese breeders have long tried to create local varieties with bloodlines available in-country… In September 2019, the State Council, China’s cabinet, issued a paper on livestock-rearing that set self-sufficiency in poultry as a goal, calling meat-chicken breeding a priority. Big foreign firms have resisted appeals from officials to send second-generation stock to China….Dependence on foreign bloodlines does carry risks. For several months recently New Zealand was one of the only countries able to send third-generation chicks to China, after other exporters suffered bird-flu outbreaks.
Li Jinghui, president of the China Broiler Alliance, an industry association, calls conditions ripe for China’s “brilliant” scientists to develop local birds… But to develop a domestic breed from scratch would take years, and if it does not meet market needs, a firm could spend a fortune “without much to show for it”…Without a stronger animal-health system and environmental controls, biotechnology alone cannot help China to develop world-class agriculture. Moreover, a long-standing Chinese strategy—bullying foreign firms to hand over intellectual property—is counter-productive now.
Excerpts from High-tech chickens are a case study of why self-reliance is so hard, Economist, Oct. 31, 2020
The US Secretary of Defense stated in September 2020 that America’s air, space and cyber warriors “will be at the forefront of tomorrow’s high-end fight.” That means confronting near-peer competitors China and Russia. That means shifting the focus from defeating violent extremist groups to deterring great power competitors. It means fighting a high-intensity battle that combines all domains of warfare. “In this era of great power competition, we cannot take for granted the United States’ long-held advantages,” Esper said.
The last time an enemy force dropped a bomb on American troops was in the Korean War. “China and Russia, seek to erode our longstanding dominance in air power through long-range fires, anti-access/area-denial systems and other asymmetric capabilities designed to counter our strengths,” he said. “Meanwhile, in space, Moscow and Beijing have turned a once peaceful arena into a warfighting domain.” China and Russia have placed weapons on satellites and are developing directed energy weapons to exploit U.S. systems “and chip away at our military advantage,” he said.
Russia, China, North Korea, Iran and some violent extremist groups also look to exploit cyberspace to undermine U.S. security without confronting American conventional overmatch. “They do this all in an increasingly ‘gray zone’ of engagement that keeps us in a perpetual state of competition,’ the secretary said…The fiscal 2020 Defense Department research and development budget is the largest in history, he said, and it concentrates on critical technologies such as hypersonic weapons, directed energy and autonomous systems.
“In the Air Force, specifically, we are modernizing our force for the 21st century with aircraft such as the B-21, the X-37 and the Next Generation Air Dominance platform,” Esper said. “Equally important, we are transforming the way we fight through the implementation of novel concepts such as Dynamic Force Employment, which provides scalable options to employ the joint force while preserving our capabilities for major combat.”
To realize the full potential of new concepts the department must be able to exchange and synchronize information across systems, services and platforms, seamlessly across all domains, he said. “The Department of the Air Force is leading on this front with the advancement of Joint All-Domain Command and Control,” Esper said. This concept is part of the development of a Joint Warfighting concept that will drive transition to all-domain operations, he said. “
For these breakthroughs to succeed in any future conflict … we must maintain superiority in the ultimate high ground — space,” Esper said…In collaboration with academia and industry, the Air Force’s AI Accelerator program is able to rapidly prototype cutting-edge innovation,” Esper said. One example of this was the AI technology used to speed-up the development of F-15EX.
Excerpts from Esper: Air Force, Space Force Leading Charge to New Technologies, DOD News, Sept. 16, 2020
The Defense Advanced Research Projects Agency launched its Electronic Resurgence Initiative (ERI) to help reboot a domestic chip industry that has been moving steadily offshore for decades…. Program officials and chip industry executives foresee the emergence of a “5th generation of computing” based on current cloud infrastructure while combining AI, the Internet of Things (IoT) and 5G wireless networks to deliver big data.
“The U.S. microelectronics industry is at an inflection point,” Ellen Lord, undersecretary of defense for acquisition and sustainment, told the virtual ERI summit. After decades of offshoring of chip fabrication, packaging and testing capabilities, “How do we reverse this trend?” The Defense Department is expanding its technology base efforts by implementing a “step-by-step process for reconstituting the microelectronics supply chain,” focusing on various segments of the semiconductor ecosystem, including memory devices, logic, ICs and advanced packaging along with testing and assembly.
“While DoD does not drive the electronics market,” constituting only about 1 percent of demand, “we can drive significant R&D,” ERI is advancing public-private partnerships that provide a framework for commercial innovation. The result would be “pathfinder projects” geared toward a renewal of U.S. chip manufacturing. As trade frictions with China grow, ERI is placing greater focus on ensuring the pedigree of U.S. electronics supply chain. “We need to find a path to domestic sources,” said Lord.
While nurturing government-industry partnerships as part of an emerging next-generation U.S. industrial policy, this year’s DARPA summit also emphasized chip standards and processes for securing fabs, foundry services, devices and foundational microelectronics. In that vein, U.S. officials stressed new chips metrics like “quantifiable assurance” to secure dual-use devices that could end up in weapons or an IoT device.
“Our interests to protect both the confidentiality and the integrity of our supply chain are aligned with commercial interests, and we will continue to work across government and industry to develop and implement our quantitative assurance strategy based on zero trust,” said Nicole Petta, principal director of DoD’s microelectronics office. The “zero trust” approach assumes no device is safe, and that all microelectronics components must be validated before deployment. The framework marks a philosophical departure from DoD’s “trusted foundry” approach instituted in the 1990s, largely because “perimeter defenses” failed to account for insider threats…
Algeria needs the price of Brent crude, an international benchmark for oil, to rise to $157 dollars a barrel. Oman needs it to hit $87. No Arab oil producer, save tiny Qatar, can balance its books at the current price, around $40 (summer 2020)….The world’s economies are moving away from fossil fuels. Oversupply and the increasing competitiveness of cleaner energy sources mean that oil may stay cheap for the foreseeable future.
Arab leaders knew that sky-high oil prices would not last for ever. Four years ago Muhammad bin Salman, the de facto ruler of Saudi Arabia, produced a plan called “Vision 2030” that aimed to wean his economy off oil. Many of his neighbours have their own versions. But “2030 has become 2020…”
Still, some see an upside to the upheaval in oil-producing states. The countries of the Gulf produce the world’s cheapest oil, so they stand to gain market share if prices remain low. As expats flee, locals could take their jobs…
Remittances from energy-rich states are a lifeline for the entire region. More than 2.5m Egyptians, equal to almost 3% of that country’s population, work in Arab countries that export a lot of oil. Numbers are larger still for other countries: 5% from Lebanon and Jordan, 9% from the Palestinian territories. The money they send back makes up a sizeable chunk of the economies of their homelands. As oil revenue falls, so too will remittances. There will be fewer jobs for foreigners and smaller pay packets for those who do find work. This will upend the social contract in states that have relied on emigration to soak up jobless citizens….With fewer opportunities in the oil-producing states, many graduates may no longer emigrate. But their home countries cannot provide a good life. Doctors in Egypt earn as little as 3,000 pounds ($185) a month, a fraction of what they make in Saudi Arabia or Kuwait. A glut of unemployed graduates is a recipe for social unrest…
For four decades America has followed the “Carter Doctrine”, which held that it would use military force to maintain the free flow of oil through the Persian Gulf. Under President Donald Trump, though, the doctrine has started to fray. When Iranian-made cruise missiles and drones slammed into Saudi oil facilities in September 2019, America barely blinked. The Patriot missile-defence batteries it deployed to the kingdom weeks later have already been withdrawn. Outside the Gulf Mr Trump has been even less engaged, all but ignoring the chaos in Libya, where Russia, Turkey and the UAE (to name but a few) are vying for control.
A Middle East less central to the world’s energy supplies will be a Middle East less important to America. ..As Arab states become poorer, the nature of their relationship with China may change. This is already happening in Iran, where American sanctions have choked off oil revenue. Officials are discussing a long-term investment deal that could see Chinese firms develop everything from ports to telecoms… Falling oil revenue could force this model on Arab states—and perhaps complicate what remains of their relations with America.
Excerpts from The Arab World: Twilight of the Petrostates, Economist, July 18, 2020
Since March 2020, record amounts of gold dug from artisanal mines in the conflict zones of Eastern Congo have been smuggled across the porous border with Uganda, where it is being stamped with fake certifications before being shipped to international markets in Dubai, Mumbai and Antwerp, according to Ugandan security officials, smugglers and traders. Much of the gold is reaching these overseas markets using cargo planes returning from Uganda after delivering Covid-19 aid and other essential supplies, according to plane manifests seen by The Wall Street Journal.
The trade in conflict gold isn’t new, but it has perhaps never been more lucrative: Gold prices at illegal and unregulated Congolese mines, where supply chains have been disrupted by coronavirus shutdowns and renewed violence between militant groups, have dropped over 40% since April 2020, according to local traders, while on global markets, prices are up by almost a third…Activists and U.N. investigators have long accused Uganda and several of Congo’s neighbors of being complicit in the plunder of Congolese gold…The calls to end the illicit trade grew louder last year after Uganda’s gold exports overtook coffee to become the leading export commodity for the first time—despite the country producing very little bullion.
U.N. investigators estimate that each month between 2 tons and 3 tons of Congo’s conflict gold—with a market value of over $100 million—is crossing the Ugandan frontier, passing border crossings patrolled by heavily armed guards, with metal fencing and razor wire erected to reduce the flow of people due to coronavirus fears…
Smugglers and police say the gold is secreted in trucks that are allowed to bypass coronavirus restrictions to deliver “essential goods” from fuel to food supplies. The yellow bars, weighing between 5 to 20 kilograms, are stuffed underneath truck cabins, inside battery compartments and emptied gasoline tankers. Once inside Uganda, the truckers sell the bars to traders who purchase forged documents in Kampala that disguise the gold’s origin.
The scramble is fueling violence in the eastern Congolese province of Ituri…Fresh spasms of violence have left more than 1,300 civilians dead since March 2020, in what the U.N. says may amount to war crimes. Some six million people are displaced. Armed groups are carrying out predatory raids on mines in search of gold.
In the meantime on Wall Street, on July 24, 2020, gold futures were priced at $1,897.50 a troy ounce eclipsing their August 2011 peak of $1,891.90. The coronavirus has ignited a global gold rush, with physical traders around the world trying to get their hands on more metal and individuals around the world ordering bars and coins.
Excerpts from Nicholas Bariyo and Joe Parkinson, Under Cover of Coronavirus Lockdown, a Booming Trade in Conflict Gold, WSJ, July 9, 2020, Gold Climbs to a High, Topping Its 2011 Record, WSJ, July 24, 2020
“It’s no secret…China is by far the largest bilateral creditor to African governments,” said Mike Pompeo, America’s secretary of state, in June 2020, blaming it for creating an unsustainable debt burden. The World Bank disclosed ib July 2020, how much governments owe to China (and other lenders). The World Bank report revealed that developing countries owed $104 billion to China at the end of 2018. The total includes soft loans from China’s government, semi-soft loans from “policy banks”, such as China Development Bank, and profit-seeking loans from state-owned commercial lenders. The same countries owed $106bn to the World Bank and $60bn to bondholders…
The new figures confirm Mr Pompeo’s observation that China is by far the biggest bilateral creditor to Africa, and in many poor countries elsewhere. It accounts for about 20% of the total foreign debt owed by the 73 governments eligible for the G-20 moratorium on debt payments due to the COVID-19 pandemic (the Debt Service Suspension Initiative (DSSI)). That is more than all of the Paris Club lenders, including America, Britain and Japan, combined.
Excerpts from Public Finance: The Debt Toll, Economist, July 4, 2020
Sahel: West Africa’s most populous countries, along the Atlantic coast, have become vulnerable to the predations of jihadists spilling out of failing states farther north in the Sahel on the borders of the Sahara desert. Jihadists seized control of chunks of Mali in 2012 and were stopped from overrunning Bamako, its capital, only after thousands of French troops were hurriedly flown in. The insurgents have since pushed across the border into Niger and Burkina Faso. In those three countries alone, 4,800 people lost their lives in the conflict last year. Fully 1.7m people have been forced to flee their homes. Now the war is beginning to jump borders again, putting at risk some of Africa’s fastest-growing economies, including Benin, Ghana and Ivory Coast.
This war in the Sahel has been growing rapidly. Ten times more people were killed last year than in 2014 (excluding deaths in north-eastern Nigeria, which faces its own jihadist insurgents). Two main jihadist groups are behind most of the fighting: the Islamic State in the Greater Sahara (ISGS) and Jama’at Nasr al-Islam wal Muslimin (JNIM), which is linked to al-Qaeda. These groups have extended their reach, even though thousands of international peacekeepers and local and Western soldiers have been deployed to stop them. France has sent some 5,100 troops to the Sahel, while the United States has provided another 1,200. In addition, the un has 15,000 blue helmets there, including about 350 Germans, plus 250 British soldiers who are soon to arrive. With American forces leaving Afghanistan, the Sahel will soon be the West’s biggest combat zone.
Worse, the jihadists are expanding in three directions at once. To the south they threaten Benin, Ghana, Ivory Coast and Togo. To the west there has been a spate of attacks in Mali close to its border with Senegal; and to the east with Nigeria’s insurgent groups. The jihadists already have a “de facto safe haven in northern Mali”, says General Dagvin Anderson, in charge of America’s commandos in Africa. He frets that as they expand they will have more scope to plan attacks on American soil.
The weakness of governments and the feebleness of their public services are helping the jihadists. In the neglected hinterlands of the Sahel the rebels offer themselves as an alternate state, serving up sharia and medical aid. Moreover, the jihadists have been adept at exploiting ethnic faultlines, for instance between largely Muslim and seminomadic Fulani herders and more settled farming communities, which have their own armed groups of traditional hunters known as Dozos. =
Trade and commerce also provide an incentive for the jihadists to expand their reach. The migration corridor between Burkina Faso and Ivory Coast is the busiest in Africa. Jihadists cash in by taxing traders and smuggling stolen livestock, drugs and guns. The gold mines in Burkina Faso have become a target. Much of the gold is smuggled out through Togo, which officially exported seven tonnes of the metal to the United Arab Emirates in 2018, despite mining very little itself. Gold is also pulling jihadists towards Senegal…
But in 2020, more civilians in the Sahel have been killed by government soldiers than by jihadists, says José Luengo-Cabrera of the International Crisis Group (icg), a Brussels-based ngo. “When soldiers kill the head of the family, they almost throw his sons and nephews into the arms of bearded men in shorts hiding in the bush,” one villager told Human Rights Watch, a global monitor. It says in the town of Djibo alone, in Burkina Faso, evidence suggests government forces have murdered 180 men—many of them were blindfolded and had their hands bound before they were shot. In Burkina Faso… citizens may feel safer living among terrorists than with their own country’s security forces.
Governments in the region and some Western forces have made matters worse by supporting militias. In 2018 the French army allied itself with Tuareg militias from Mali to fight against ISGS. They clobbered the jihadists but also killed scores of civilians, aggravating ethnic tensions and fuelling recruitment by the insurgents….Above all, governments need to regain legitimacy by providing services and holding themselves to account. “It is not possible to win the war if there is not trust from the population,” says Niagale Bagayoko of the African Security Sector Network…But good governance and decent services in the region are scarce. At a meeting of Sahelian leaders with Mr hard. In Burkina Faso alone, the jihadists have forced about 2,500 schools to close.
Excerpts from Jihad in the Sahel: Fighting a Spreading Insurgency, Economist, July 11, 2020
Germany is struggling to pick sides in the escalating dispute between the U.S. and China over issues including trade and human rights, amid mounting American pressure and Beijing’s authoritarian drift. Of all advanced economies outside Asia, Germany has the deepest economic ties in both camps and would have the most to lose from a Cold War between Washington and Beijing.
Berlin’s snaking trade links with China and the U.S. have served Germany well in the past two decades, providing it with steady growth, near full employment and full public coffers that have allowed the deployment of more than €1 trillion ($1.13 trillion) in measures to support its economy during the pandemic. Now, Germany’s reluctance to take sides is diluting Europe’s broader efforts to present a united front to China, undermining the bloc’s power to shape a new global architecture…
Germany’s export-oriented economic model means it can’t really choose at all. It needs both the US and China. China is Germany’s largest trading partner; the U.S. its biggest export market. And they stand neck-and-neck: Last year, Germany exported €119 billion of goods to the U.S. and €96 billion to China….Around 28% of jobs in Germany are directly or indirectly linked to exports, and in manufacturing that figure is 56%, according to the German Ministry for Economic Affairs. Germany exports nearly as much as the U.S. despite having only one-quarter the population.
Germany’s world-beating engineering companies supplied the factory equipment and the infrastructure that powered China’s transformation into the world’s top manufacturer. Harnessed to the fast-growing giant, Germany rebounded strongly after the financial crisis and weathered the eurozone debt crisis…
“I can’t imagine Volkswagen without China,” said Ferdinand Dudenhoeffer, director of the Center Automotive Research at the University of Duisburg-Essen. Volkswagen CEO Herbert Diess, who refers to China as his company’s “second home,” has recently praised China’s handling of the coronavirus pandemic. The company in May said it would pour $2 billion into China’s electric-car market….
Excerpts from Tom Fairless et al., U.S.-China Tensions Leave Germany Squirming in the Middle, WSJ, June 24, 2020
Since the cost of renewable energy can now be competitive with fossil fuels. Government, corporate and consumer interests finally seem to be aligning. The stock market has noticed. After years of underperformance, indexes that track clean-energy stocks bottomed out in late 2018. The S&P Global Clean Energy index, which covers 30 big utilities and green-technology stocks, is now up 37% over two years, including dividends, compared with 18% for the S&P 500.
This year’s Covid crisis will delay some renewable projects, but could speed up the energy transition in other ways. Alternative-energy spending has held up much better than spending on oil and gas. Globally, clean-energy investment is now expected to account for half of total investment in the entire energy sector this year, according to UBS. Moreover, the crisis has pushed governments to spend money, including on renewable technologies. The massive stimulus plan announced by the European Union last month is decidedly green. The German government increased electric-car subsidies as part of its pandemic-related stimulus package rather than rolling out a 2009-style “cash-for-clunkers” program. China’s plans include clean-energy incentives, too.
Solar and wind are now mature technologies that provide predictable long-term returns. Big lithium-ion batteries, such as those that power Teslas, are industrializing rapidly. More speculatively, hydrogen is a promising green fuel for hard-to-decarbonize sectors such as long-haul transport, aviation, steel and cement. Many big companies—the likes of Royal Dutch Shell, Air Liquide and Toyota —have green initiatives worth many hundreds of millions of dollars. They are, however, a relatively small part of these large businesses, some of whose other assets may be rendered obsolete by the energy transition… Early-stage electric-truck maker Nikola jumped on its market debut this month to a valuation at one point exceeding that of Ford.
Investors might be better off looking at the established specialists in between. Vestas is the world’s leading manufacturer of wind turbines. Orsted, another Danish company, has made the transition from oil-and-gas producer to wind-energy supplier and aspires to be the first green-energy supermajor. More speculatively, Canadian company Ballard has three decades of experience making hydrogen fuel cells.
Rochelle Toplensky, Green Energy Is Finally Going Mainstream, WSJ, June 24, 2020
On June 29, 2020 the US Department of Health and Human Services (HHS) announced an agreement to secure large supplies of the drug remdesivir for the United States from Gilead Sciences through September, allowing American hospitals to purchase the drug in amounts allocated by HHS and state health departments….HHS has secured more than 500,000 treatment courses of the drug for American hospitals through September. This represents 100% of Gilead’s projected production for July (94,200 treatment courses), 90% of production in August (174,900 treatment courses), and 90% of production in September (232,800 treatment courses), in addition to an allocation for clinical trials. A treatment course of remdesivir is, on average, 6.25 vials.
Hospitals will receive the product shipped by AmerisourceBergen and will pay no more than Gilead’s Wholesale Acquisition Price (WAC), which amounts to approximately $3,200 per treatment course.
Excerpts from Trump Administration Secures New Supplies of Remdesivir for the United States, June 29, 2020
More than two dozen financial institutions around the world are demanding the Brazilian government rein in surging deforestation, which they said has created “widespread uncertainty about the conditions for investing in or providing financial services to Brazil”. The call for action, delivered in a letter to the Brazilian government on June 23, 2020, comes as concerns grow that investors may begin to divest from Latin America’s largest economy if Jair Bolsonaro’s administration fails to curb environmental destruction. “As financial institutions, who have a fiduciary duty to act in the best long-term interests of our beneficiaries, we recognise the crucial role that tropical forests play in tackling climate change, protecting biodiversity and ensuring ecosystem services,” said the letter, signed by 29 financial institutions managing more than $3.7tn in total assets.
“Considering increasing deforestation rates in Brazil, we are concerned thatcompanies exposed to potential deforestation in their Brazilian operations and supply chains will face increasing difficulty accessing international markets. Brazilian sovereign bonds are also likely to be deemed high risk if deforestation continues.” Deforestation in the Amazon rainforest has surged in Brazil since the election of Mr Bolsonaro, a rightwing former army captain, who supports opening the protected lands to commercial activity. In the first four months of 2020, an area twice the size of New York City was razed as illegal loggers and wildcat gold miners
Investors said they are particularly concerned about Brazil’s meatpacking industry, which risks being shut out of international markets over its alleged role in deforestation. Brazil’s JBS has been repeatedly accused by environmentalists of buying cows from deforested lands in the Amazon. In May 2020 more than 40 European companies, including Tesco and Marks and Spencer, warned they would boycott Brazilian products if the government did not act on deforestation.
Excerpts from Investors warn Brazil to stop Amazon destruction, FT, June 23, 2020
The East African Court of Justice delivered in June 2020 a temporary injunction order to the country’s Minister for Justice, the Greater Pioneer Operating Company (GPOC), and the Dar Petroleum Operating Company. The Court approved the application by Hope for Humanity Africa (H4HA), a non-governmental organization (NGO), which sought to highlight the environmental damage caused by oil spills… The NGO contends that: “Over 47,249 of the local population in Upper Nile State and 60,000 in Unity State are at risk of being exposed to the oil pollution this is because the local population depends on the wild foods for survival, the contaminated swamps, streams and rivers waters for cooking, drinking, washing, bathing and fishing.”…
The H4HA is looking for an injunction to stop multiple companies from exporting oil from the region, including CNPC of China, Petronas of Malaysia, and Oil & Natural Gas Corp. of India (ONGC)
In 2014-16, the OPEC waged a failed price war to wipe out American frackers. Since then the cartel and its partners, led by Russia, have propped up oil prices enough to sustain shale, but not enough to support many members’ domestic budgets. In March 2020 Saudi Arabia urged Russia to slash output; Russia refused, loth to let Americans free-ride on OPEC-supported prices. The ensuing price war was spectacularly ill-timed, as it coincided with the biggest drop in oil demand on record. The desire to chasten American frackers remains, though. OPEC controls about 70% of the world’s oil reserves, more than its 40% market share would suggest… If the world’s appetite for oil shrinks due to changing habits, cleaner technology or greener regulations, countries with vast reserves risk having to leave oil below ground.
Excerpts from Crude Oil: After the Fall, Economist, June, 13, 2020
China and America have begun the fraught business of disentangling their financial systems. Chinese firms with shares listed in New York have rushed to float in Hong Kong, too, after the White House signalled they are not welcome on Wall Street….But now Hong Kong itself, the world’s third-biggest international financial centre, has become a geopolitical flashpoint. Its unique role as the conduit between global capital markets and China’s inward-looking financial system means that both sides must tread carefully.
On May 28, 2020 China said it would enact a new national-security law for Hong Kong, undermining the formulation of “one country, two systems” in place since 1997, under which the territory is supposed to be governed until 2047. In response, America has said it may downgrade the legal privileges it grants Hong Kong, which treat it as autonomous from China.
Hong Kong’s place in the world depends on having the rule of law, a trusted reputation and seamless access to Western financial markets. Other Chinese cities have big stock exchanges: shares listed in Shanghai and Shenzhen are together worth a lot more than those in Hong Kong. But neither has fair courts, an independent central bank, free movement of capital or a mix of Western and Chinese firms. These foundations are the basis for $9.7trn of cross-border financial claims, such as loans, that are booked in the territory. Hong Kong is also where mainland Chinese firms and banks go to deal in the dollar, the world’s dominant currency. Some $10trn of dollar transactions flowed through Hong Kong’s bank-to-bank payments system last year.
Until recently, conventional wisdom held that Hong Kong’s position would be assured for 20-30 years, because it would take that long for China either to upgrade its markets to Western standards or to become so powerful that it could impose mainland practices, and the yuan, on the rest of the world. But the trade war, a year of street protests and China’s iron-fisted response to them raise new questions about Hong Kong’s durability. Bullying from Beijing erodes the sense that it is autonomous. And there is an outside chance that America could impose sanctions or other restrictions that would stop some Hong Kong officials, firms or banks from using dollars….. America’s might bring into question whether money parked in Hong Kong is still fully fungible with money in the global financial system. If these worries spread, they could destabilise Hong Kong and cause a financial shock in China and well beyond it.
The good news is that so far there is no sign of capital flight. Hong Kong’s vast deposit base has been stable in recent weeks, say its bankers. Investors are reassured by its $440bn or so mountain of foreign reserves and a long record of capable financial management. The rush of Chinese listings will bring in new cash and drum up business in the city….Nonetheless, for China the prudent policy is to try to speed up the development of the mainland’s financial capabilities so that it is less exposed to potential American punishment…Italso means another big push to boost the global role of the yuan and reduce China’s dependence on the dollar…
Excerpts from Hong Kong: Conduit’s End, Economist, June 6, 2020
The Trump administration’s increasingly aggressive effort to cripple China’s Huawei has presented Ericsson the opportunity to lead the rollout of 5G technology around the world. The Swedish company is emerging as the steadiest player in the $80-billion-a-year cellular-equipment industry, telecommunications executives and analysts say, because it makes a technically advanced product that one rival, Nokia,was late to develop and that Huawei may not be able to make in the future because of recent U.S. measures.
The Trump administration last month stepped up efforts to hamper Huawei by imposing export restrictions that make it harder for the company to buy computer chips that are produced using U.S.-designed equipment —a move that could prevent it from manufacturing advanced 5G hardware. The U.S. has also sought to boost Huawei’s rivals by providing loans to wireless carriers in developing countries so they can buy equipment from non-Chinese suppliers, among other moves.
U.S. Attorney General William Barr in February suggested that the U.S. government take a financial stake in Ericsson or Nokia, or both, to “make it a more formidable competitor and eliminate concerns over its staying power.”
The White House quickly backed away from the idea….Ericsson provides equipment for all three major U.S. carriers: AT&T Inc., Verizon Communications Inc. and T-Mobile US Inc….
Ericsson struggled in the cellular-equipment industry against China’s Huawei and ZTE Corp., which sold comparable products, often at lower prices. Among Ericsson’s key innovations are cellular antennas. Ericsson’s use a new technology, called massive multiple-input multiple-output, or massive MIMO, that sends wireless signals in strong jets to different devices. Typical cellular antennas, which sit on steel towers or rooftops, send wireless signals in a wide cone, similar to the way a garden hose sprays water.
Wireless carriers want Ericsson’s concentrated wireless technology because it enables fast connections and allows them to serve more customers using existing cellular towers. Building new towers is unattractive because it is a bureaucratic process that can cost tens of thousands of dollars….Ericsson notched a victory the spring of 2020 when it joined Huawei in winning 5G contracts to supply all three major wireless carriers in China, the world’s second-biggest telecom-equipment market
The big question for wireless carriers and equipment makers is whether Huawei can continue making massive MIMO 5G equipment with the quality that wireless carriers have come to expect. The technology requires supplies from the world’s top semiconductor companies, but the Trump administration’s recent actions may mean even foreign chip suppliers must seek Washington’s approval to sell to Huawei. For now, Ericsson is assuming China has advanced its own semiconductor industry enough to continue supplying Huawei.
Excerpts from Stu Woo, Ericsson Emerges as 5G Leader After U.S. Bruises Huawei, WSJ, June 2, 2020
But the act doesn’t cover the far more extensive role Hong Kong plays as China’s main point of access to global finance. As of 2019, mainland Chinese banks held 8,816 trillion Hong Kong dollars ($1.137 trillion) in assets in the semiautonomous city, an amount that has risen 373% in the last decade…. China’s banks do much of their international business, mostly conducted in U.S. dollars, from Hong Kong. With Shanghai inside China’s walled garden of capital controls, there is no obvious replacement.
While the U.S. doesn’t directly control Hong Kong’s status as a financial center, Washington has demonstrated its extensive reach over the dollar system, with penalties against Korean, French and Lebanese financiers for dealing with sanctioned parties. The U.S. recently threatened Iraq’s access to the New York Federal Reserve, demonstrating a growing willingness to use financial infrastructure as a tool of foreign policy. Even though the U.S. can’t legislate Hong Kong’s ability to support Chinese banks out of existence, the role of an international funding hub is greatly reduced if your counterparties are too fearful to do business with you.
Putting the ability of Chinese banks to conduct dollar-denominated activities at risk would be deleterious to China’s ability to operate financially overseas, posing a challenge for the largely dollar-denominated Belt and Road global infrastructure initiative. It would also put the more financially fragile parts of the country, like its debt-laden property developers, under strain. China’s hope to develop yuan into an influential currency also centers on Hong Kong’s remaining a viable global financial center—more than 70% of international trade in the yuan is done in the city.
The US electricity production from nuclear plants hit at an all-time high in 2019… generating more than 809 billion kilowatt-hours of electricity, which is enough to power more than 66 million homes. Yet, despite operating the largest fleet of reactors in the world at the highest level in the industry, US ability to produce domestic nuclear fuel is on the verge of a collapse.
Uranium miners are eager for work, the United States’s only uranium conversion plant is idle due to poor market conditions, and its inability to compete with foreign state-owned enterprises (most notably from China and Russia) is not only threatening US energy security but weakening the ability to influence the peaceful uses of nuclear around the world. Restoring America’s Competitive Nuclear Energy Advantage was recently released by the U.S. Department of Energy (DOE) to preserve and grow the entire U.S. nuclear enterprise…. The first immediate step in this plan calls for DOE to establish a uranium reserve. Under the Uranium Reserve program, the DOE Office of Nuclear Energy (NE) would buy uranium directly from domestic mines and contract for uranium conversion services. The new stockpile is expected to support the operation of at least two US uranium mines, reestablish active conversion capabilities, and ensure a backup supply of uranium for nuclear power operators in the event of a market disruption [such as that caused the COVID-19 pandemic].
NE will initiate a competitive procurement process for establishing the Uranium Reserve program within 2021. Uranium production in the United States has been on a steady decline since the early 1980s as U.S. nuclear power plant operators replaced domestic uranium production with less expensive imports. State-owned foreign competitors, operating in different economic and regulatory environments, have also undercut prices, making it virtually impossible for U.S. producers to compete on a level-playing field. As a result, 90% of the uranium fuel used today in U.S. reactors is produced by foreign countries.
Establishing the Uranium Reserve program is exactly what United States needs at this crucial time to de-risk its nuclear fuel supply. It will create jobs that support the U.S. economy and strengthen domestic mining and conversion services….The next 5-7 years will be a whirlwind of nuclear innovation as new fuels and reactors will be deployed across the United States.
In the coronavirus pandemic’s financial fallout, Saudi Arabia’s $300 billion sovereign-wealth fund has emerged as one of the world’s biggest bargain hunters, taking minority stakes worth billions of dollars in American corporations. Saudi Arabia’s Public Investment Fund (PIF) in the first quarter of 2020 bought shares valued at about half a billion dollars each in Facebook, Walt Disney, Marriott International, and Cisco Systems. The fund bought financial stocks, investing $522 million in Citigroup, and $488 million in Bank of America while also spending $714 million on a stake in Boeing…Crown Prince Mohammed bin Salman, the kingdom’s day-to-day ruler, tasked the sovereign-wealth fund in 2015 with diversifying the country’s economy away from oil by investing in companies and industries untethered to hydrocarbons.
PIF’s recent buying spree highlights a bold strategy of piling into global stocks even as the novel coronavirus and a crash in oil prices mean that Saudi Arabia’s financial position is now the most precarious in a decade. The Saudi government in May 2020 tripled its value-added tax rate and cut subsidies to state employees as it contends with lower oil revenue and an economy weakening under coronavirus lockdown.
Many of the stocks that PIF has targeted are trading at historic lows, bruised by the fallout from the coronavirus and rock-bottom oil prices that have battered stocks of energy companies in 2020. Teh PIF bought in 2020 undisclosed stakes in a bevy of energy companies, including Equinor (Norway), Royal Dutch Shell, Total (France) and Eni (France). The PIF invested $484 million in Shell, $222 million in Total and previously unreported stakes of $828 million in BP $481 million in Suncor Energy and $408 million in Canadian Natural Resources.
It also purchased shares valued at roughly $80 million each in: Warren Buffett’s Berkshire Hathaway; chipmakers Broadcom and Qualcom ; IBM; drugmaker Pfizer; Starbucks; railroad company Union Pacific; outsourcer Automatic Data Processing; and Booking.com….On top of the stakes in public companies, PIF is also awaiting regulatory approval for a roughly £300 million ($363 million) buyout of U.K. Premier League soccer team Newcastle United.
Excerpts from Rory Jones and Summer Said, Saudi Sovereign-Wealth Fund Buys Stakes in Facebook, Boeing, Cisco Systems, WSJ, May 18, 2020
The elite US special operations forces are ill-equipped for high-tech warfare with China and Russia, experts warn, as the Trump administration pivots from the “war on terror” to a struggle with geopolitical rivals. Special operations, known for kicking down doors and eliminating high-value targets, number 70,000 personnel, cost $13bn a year and have carried much of the burden of the war on terror. But it is unclear what role they will play as the Pentagon moves to redeploy troops from Afghanistan to the Indo-Pacific to counter China’s regional ambitions.
General Richard Clarke, commander of special operations command (Socom), told an industry conference this week that the US needed to develop new capabilities to “compete and win” with Russia and China. He added that Socom must develop cyber skills and focus on influence campaigns rather than “the kill-capture missions” that characterised his own time in Afghanistan after the September 11 2001 attacks. Socom’s fighters include US Navy Seals, Army Green Berets and Marine Corps Raiders. Defence officials say China has raised military spending and research with the aim of exploiting American vulnerabilities, while Russia has tested out new technology during combat in Syria. “Maybe we are further behind than we know,” Colonel Michael McGuire told the annual Special Operations Industry Conference
McGuire highlighted US vulnerabilities in cyber security, and soft-power tactics by America’s enemies that could “drive fissures through some of our alliances”. He proposed shifting focus to defence over attack. “You could have hundreds and thousands of engagements every single day in a fight against China. We are just not fast enough, dynamic enough or scaleable enough to handle that challenge,” said Chris Brose, chief strategy officer at Anduril…. He added “Most of the US-China competition is not going to be fighting world war three,” he said. “It’s going to be kicking each other under the table.”….
US special operators have for years had the run of the battlefield. But they face very different conditions in any fight against China, which has developed an arsenal of missiles, fighter jets, spy planes and other eavesdropping and jamming techniques that would make it hard for America to conceal troops, transport and communications. Special operations forces are not ready for operations against a near-peer foe, such as China, in a direct engagement… He called for a return to their cold war roots. “Vintage special operations forces is about stealth, cunning and being able to blend in — they were triathletes rather than muscle-bound infantrymen with tattoos,” said the former officer.
David Maxwell, a former Green Beret and military analyst, is among those who favour a shift towards political warfare.One such idea of his would involve a popular writer being commissioned to pen fictionalised war stories based in Taiwan intended to discourage Beijing from invading the self-governing island. He told a gathering of Pacific special forces operators in February 2020 that fictional losses could “tell the stories of the demise of Chinese soldiers who are the end of their parents’ bloodline”. He argued that Beijing’s former one-child policy could be weaponised to convince China that war would be too costly. But Mr Maxwell said such ideas have yet to catch on. He added that psyops officers lamented to him that it was “easier to get permission to put a hellfire missile on the forehead of a terrorist than it is to get permission to put an idea between his ears”.
Excerpts from Katrina Manson , US elite forces ill-equipped for cold war with China, FT, May 16, 2020
As they walk through the valley of the shadow of death brought by COVID-19 chief executives and corporate strategists are beginning to look to the post-covid world to come. What they think they see, for good or ill, is an acceleration. Three existing trends—the deglobalisation unpicking the business world that grew up in the 2000s; the infusion of data-enabled services into ever more aspects of life; a consolidation of economic power into the hands of giant corporations—look likely to proceed at a faster rate than before, and perhaps to go further, too…
China’s government may encourage its state-owned firms to go global by buying distressed car companies in Europe. The share price of Daimler is less than half what it was when Geely, a Chinese carmaker, bought a 10% stake in 2018. Car companies may also see offers from technology giants keen to improve co-operation between metal bashers and the engineers of autonomy—currently wary at best. The healthier airlines, such as Qantas and IAG, owner of British Airways, will snap up airport slots from their bankrupt rivals and may try to acquire others only just staying aloft. Private-equity firms, which have mountains of committed investor cash, may start buying up fundamentally sound but impecunious suppliers in various industries, aware that when demand returns such companies will see its first fruits…
In 2019 many global firms sought to reduce their dependency on China. One of their favoured strategies was to put more business into factories elsewhere in Asia. But the acute stage of China’s covid-19 crisis made it clear how essential China remains as a provider of inputs to such factories elsewhere in Asia and around the world. “What people thought was a global supply chain was a Chinese supply chain,”…
Joerg Wuttke, president of the EU Chamber of Commerce in China, says that if there is one lesson people are drawing from the pandemic in this regard it is that “single source is out and diversification is in.” In other words, companies do not just need suppliers outside China. They need to build out their choice of suppliers, even if doing so raises costs and reduces efficiency.
Excerpts from Sinking, Swimming and Surfing, Economist, Apr. 11, 2020, at 13
United States officials granted Google permission to turn on a high-speed internet link to Taiwan but not to the Chinese territory of Hong Kong, citing national-security concerns in a ruling that underscores fraying ties between Washington and Beijing.“There is a significant risk that the grant of a direct cable connection between the United States and Hong Kong would “pose an unacceptable risk to the national security and law enforcement interests of the United States,” the U.S. Department of Justice said in its decision, which was backed by the departments of Homeland Security and Defense. The agencies instead urged the Federal Communications Commission to grant Google owner Alphabet permission to start using the portion of its 8,000-mile underwater Pacific Light cable that connects California to Taiwan. .
The decision threatens to end Hong Kong’s dominance as a top destination for U.S. internet cables and puts at risk several ongoing projects, including a Facebook backed fiber-optic line linking Los Angeles to Hong Kong and a Google-backed project linking Hong Kong to the U.S. territory of Guam.
Washington is turning to the self-ruling island of Taiwan, which the U.S. supports with arms sales and unofficial political ties despite Beijing’s claims that it is part of China. U.S. officials are also considering alternatives such as Indonesia, Philippines, Thailand, and Vietnam.
Google and Facebook originally teamed up to build Pacific Light to Hong Kong in 2016, continuing the Silicon Valley giants’ long-term strategy to take more control of the network pipes that connect their data centers. The web companies and their Chinese investment partners kept building the cable even as U.S. authorities withheld the regulatory approvals they needed to start using it.
Major international data projects are subject to review by Team Telecom, a coalition of federal agencies with national-security oversight. The panel has taken a hard line against China in recent years. Team Telecom in 2018 recommended for the first time the denial of a Chinese application—that of China Mobile —to provide telecom services through U.S. networks, citing national-security and law-enforcement concerns.
President Trump on April 4 2020 signed an executive order that puts the attorney general in charge of overseeing Team Telecom and gives the panel direct authority to review existing licenses to provide such services, including those issued earlier to Chinese state-owned operators China Telecom and China Unicom.
Excerpts from Drew FitzGerald and Kate O’Keeffe, U.S. Allows Google Internet Project to Advance Only if Hong Kong Is Cut Out, WSJ, Apr. 9, 2020
From Europe to South America, U.S. allies are complaining about the superpower’s “Wild West” tactics in outbidding or blocking shipments to buyers who have already signed deals for vital medical supplies. …”Money is irrelevant. They pay any price because they are desperate,” one high-level official in German Chancellor Angela Merkel’s ruling CDU/CSU group told Reuters….In April 5, 2020, US President Trump said he was signing a directive to stop the export of N95 respirator masks, which provide essential protection for health-care workers, and other U.S. medical equipment. Furthermore, 3M, a US company, said that the White House had ordered it to stop all shipments to Canada and Latin America of respirators that it manufactures in the U.S., despite what 3M called “significant humanitarian implications.”
In another case, an order of 200,000 masks bound for Germany was diverted to the U.S….Germany’s Secretary of Interior Andreas Geisel called it an “act of modern piracy.” He stated that: “even in times of global crisis, you shouldn’t use Wild West methods.”
U.S. allies complain of ‘Wild West’ tactics in race for medical supplies, Reuters, April 56, 2020
Jeff Kosseff’s “The Twenty-Six Words That Created the Internet” (2019) explains how the internet was created. The 26 words are these: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” They form Section 230 of the Communications Decency Act, itself a part of the Telecommunications Act of 1996. Section 230 shields online platforms from legal liability for content generated by third-party users. Put simply: If you’re harassed by a Facebook user, or if your business is defamed by a Yelp reviewer, you might be able to sue the harasser or the reviewer, assuming you know his or her identity, but don’t bother suing Facebook or Yelp. They’re probably immune. That immunity is what enabled American tech firms to become far more than producers of content (the online versions of newspapers, say, or company websites) and to harness the energy and creativity of hundreds of millions of individual users. The most popular sites on the web—YouTube, Twitter, Facebook, eBay, Reddit, Wikipedia, Amazon—depend in part or in whole on user-generated content…
Because of section 230, the U.S. was able to cultivate online companies in ways that other countries—even countries in the developed world—could not….American law’s “internet exceptionalism,” as it’s known, is the source of mind-blowing technological innovation, unprecedented economic opportunity and, a great deal of human pain. The book chronicles the plights of several people who found themselves targeted or terrorized by mostly anonymous users… Each of them sued the internet service providers or websites that facilitated these acts of malice and failed to do anything about them when alerted. And each lost—thanks to the immunity afforded to providers by Section 230.
Has the time come to delete the section?
Excerpt from Barton Swaim, ‘The Twenty-Six Words That Created the Internet’ Review: Protecting the Providers, WSJ, Aug. 19, 2019
In December 2019, Royal Dutch Shell voluntarily published its revenue, profit, taxes and other business details in each of 98 countries. The disclosure aligns with a drive by the energy company, which often attracts criticism from environmental activists, to present itself as forward-thinking, transparent and socially-minded. That didn’t stop the information feeding a predictable host of headlines in the U.K., where the company is partly based, that it didn’t pay taxes in the country (because of losses carried forward and tax refunds). In the U.S., Shell accrued $137 million of tax—a rate of 8%. This kind of detailed reporting is required by tax authorities in about 100 countries including the U.S. since 2017, based on rules agreed by the Organisation for Economic Cooperation and Development, but it is rarely made public.
Companies that don’t jump may soon be pushed. Economy ministers from European Union countries are considering a proposal that would require all large companies with total revenue of more than €750 million ($834 million) operating in the bloc to publish the information annually. The Global Reporting Initiative, an organization that establishes sustainability standards, recently agreed to include a similar requirement. Greater transparency could also spur reform efforts and reduce incentives for complex tax arrangements. Companies, investors and states all agree that it is best to find a global solution to the problem of aggressive tax planning.
Excerpts from Rochelle Toplensky, Beginning of the End of Tax Secrecy, WSJ, Dec. 20, 2019
The Simandou mine is a large iron mine located in the Simandou mountain range of southern Guinea, Simandou represents one of the largest iron ore reserves in Guinea and in the world, having estimated reserves of 2.4 billion tonnes of ore grading 65% iron meta. Since November 2019, Simandou is owned by a Chinese consortium: SMB, a joint-venture which includes Winning Shipping, a Singaporean maritime firm, UMS, a Guinean-French logistics company, and Shandong Weiqiao, a big Chinese aluminium producer. The entity, in which Guinea’s government holds a 10% stake, will pay $15bn to develop the site, build a new deepwater port and a 650km railway to link the two.
The successful bid is a coup for SMB, which is barely known outside the west African nation. The private joint-venture keeps its finances close to its chest but Bob Adam, an expert on mining in Guinea, reckons that after taxes, royalties and operating costs smb is making about $800m profit a year. “They are now the most significant economic enterprise in Guinea,” he says—and the only one among the world’s biggest bauxite producers with a direct link to China.
A shift into iron ore presents challenges. Building a port and a railway through the country’s malaria-infested forest will take years and could cost much more than the estimated $10bn. Also, the Boké region has been plagued by riots. Many local residents are angered by lack of access to clean water or health care. But China is keen on Simandou’s high-grade iron ore, which emits less pollution when processed.It also wants to lock in supply
Galvanised: SMB Winning pays $15bn for rights to Guinea’s iron mountain, Economist, Dec. 7, 2019
Burkina Faso is struggling to contain a fast-growing jihadist insurgency. Along with Mali and Niger, it has become the main front line against terrorists in the Sahel, a dry strip of land that runs along the edge of the Sahara. This year alone the conflict has killed more than 1,600 people and forced half a million from their homes in Burkina Faso….A worrying new trend is a battle by jihadists and other armed groups to take control of the region’s gold rush.
Although gold has long been mined in the region…it has boomed in recent years with the discovery of shallow deposits that stretch from Sudan to Mauritania. International mining companies have invested as much as $5bn in west African production over the past decade, but the rush has also lured hundreds of thousands of unsophisticated “artisanal” miners. The International Crisis Group (ICG), an NGO, reckons that more than 2m people are involved in small-scale mining in Burkina Faso, Mali and Niger. In total they dig up 40-95 tonnes of gold a year, worth some $1.9bn-4.5bn.
This rush—in a region where states are already weak and unable to provide security—has sucked in a variety of armed groups and jihadists, including the likes of Ansar Dine and Islamic State in the Greater Sahara…The jihadists probably have direct control of fewer than ten mines…But they have influence over many more. In some areas artisanal miners are forced to pay “taxes” to the jihadists. In others, such as Burkina Faso’s Soum province, the miners hire jihadists to provide security… Other armed groups such as ethnic militias are also in on the bonanza and collect cash to guard mines. International mining firms may also be funding the jihadists by paying ransoms for abducted employees or “protection” money to keep mining, according to a study published by the OECD, a club of mostly rich countries.
For the moment much of Burkina Faso’s artisanal production is sneaked into Togo… Togo does not produce much gold domestically but it sent more than 12 tonnes of gold to Dubai in 2016. Gold is also taken out of the Sahel through major airports in hand luggage.
The resource curse: How west Africa’s gold rush is funding jihadists, Economist, Nov. 16, 2019
The EU wants to revolutionise the world of green finance. Brussels officials, MEPs and member states are currently trying to thrash out plans for a gold standard in green investment they hope will unleash tens of millions of euros of private money to fund the transition to a more sustainable world. The project has a classically boring Brussels name — the “taxonomy” for sustainable activities — but the implications are potentially transformative. The EU wants to become the first supranational regulator to write rules that banks and funds will have to comply with when they claim to launch “green” products or investments. As it stands, there is no global benchmark to judge just how green a financial product is. Funds and banks can sell and label sustainable finance products without an independent arbiter checking if reality meets the hype. The point of the EU’s work is to stamp out this so-called “greenwashing”…
Perhaps the most sensitive issue of all is how to handle nuclear energy. France — which has big nuclear business interests — doesn’t want the taxonomy to stigmatise nuclear as a “brown” technology. Other member states, led by Germany, want it excluded from being green, as do the MEPs.
Excerpts from Mehreen Khan, The Green Gold Standard, FT, Nov. 11, 2019
Malaysia, Singapore’s biggest source for sea sand, has banned the export of the commodity, according to officials in Kuala Lumpur, a move that traders said could complicate the island-state’s ambitious expansion plans on reclaimed land. Those plans include the development of the Tuas mega port, slated to be the world’s biggest container terminal. Singapore has increased its land area by a quarter since independence in 1965, mostly by using sand to reclaim coastal areas.
Malaysian Prime Minister Mohamad Mahathir, who came to power in a shock election last year, imposed a ban on all sea sand exports on October 3, 2018… Endie Shazlie Akbar, Mahathir’s press secretary, confirmed that the government had put a stop to sand exports last year. However, he denied that it was aimed at curbing Singapore’s expansion plans, saying it was a move to clamp down on illegal sand smuggling….Two traders importing sand to Singapore, who both asked not to be named, said the commodity is becoming scarcer and driving Singapore to source sand from as far as India, which would push up costs. Shipping is the biggest single cost in acquiring sand.The traders added Singapore has been stockpiling sand in recent years which could provide a buffer against any immediate bottleneck in supplies.
The sand industry is opaque with no international price index, making it difficult to gauge the financial impact of a ban by Malaysia. Sea sand is mostly used for land reclamation, while river sand is a core component in constructions materials like cement.
Singapore imported 59 million tonnes of sand from Malaysia in 2018, at a cost of $347 million, according to United Nations Comtrade data, which is based on information provided by individual countries’ customs offices. That accounted for 97% of Singapore’s total sand imports in the year by volume, and 95% of Malaysia’s global sand sales.The data does not distinguish between types of sand. When Indonesia banned exports to Singapore in 2007, citing environmental concerns, it caused a “sand crisis” in the city-state that saw building activity almost come to a halt. Singapore has since bolstered its stockpiles.
Unsustainable sand dredging disrupts sediment flows and fishing grounds, destroying livelihoods and polluting water sources in some of the poorest communities in Asia. But Singapore criticized Indonesia for allegedly using the ban as leverage in negotiations over an extradition treaty and border delineation.
Excerpts from Fathin Ungku, Rozanna Latiff , Exclusive: In blow to Singapore’s expansion, Malaysia bans sea sand exports, Reuters, July 2, 2019
Functional splintering [of the internet] is already happening. When tech companies build “walled gardens”, they decide the rules for what happens inside the walls, and users outside the network are excluded…
Governments are playing catch-up but they will eventually reclaim the regulatory power that has slipped from their grasp. Dictatorships such as China retained control from the start; others, including Russia, are following Beijing. With democracies, too, asserting their jurisdiction over the digital economy, a fragmentation of the internet along national lines is more likely. …The prospect of a “splinternet” has not been lost on governments. To avoid it, Japan’s G20 presidency has pushed for a shared approach to internet governance. In January 2019, prime minister Shinzo Abe called for “data free flow with trust”. The 2019 Osaka summit pledged international co-operation to “encourage the interoperability of different frameworks”.
But Europe is most in the crosshairs of those who warn against fragmentation…US tech giants have not appreciated EU authorities challenging their business model through privacy laws or competition rulings. But more objective commentators, too, fear the EU may cut itself off from the global digital economy. The critics fail to recognise that fragmentation can be the best outcome if values and tastes fundamentally differ…
If Europeans collectively do not want micro-targeted advertising, or artificial intelligence-powered behaviour manipulation, or excessive data collection, then the absence on a European internet of services using such techniques is a gain, not a loss. The price could be to miss out on some services available elsewhere… More probably, non-EU providers will eventually find a way to charge EU users in lieu of monetising their data…Some fear EU rules make it hard to collect the big data sets needed for AI training. But the same point applies. EU consumers may not want AI trained to do intrusive things. In any case, Europe is a big enough market to generate stripped, non-personal data needed for dumber but more tolerable AI, though this may require more harmonised within-EU digital governance. Indeed, even if stricter EU rules splinter the global internet, they also create incentives for more investment into EU-tailored digital products. In the absence of global regulatory agreements, that is a good second best for Europe to aim for.
Excerpts from Martin Sandbu, Europe Should Not be Afraid of Splinternet, FT, July 2, 2019
A competition for the North Pole heated up in May 2019, as Canada became the third country to claim—based on extensive scientific data—that it should have sovereignty over a large swath of the Arctic Ocean, including the pole. Canada’s bid, submitted to the United Nations’s Commission on the Limits of the Continental Shelf (CLCS), joins competing claims from Russia and Denmark. Like theirs, it is motivated by the prospect of mineral riches: the large oil reserves believed to lie under the Arctic Ocean, which will become more accessible as the polar ice retreats. And all three claims, along with dozens of similar claims in other oceans, rest on extensive seafloor mapping, which has proved to be a boon to science…
Coastal nations have sovereign rights over an exclusive economic zone (EEZ), extending by definition 200 nautical miles (370 kilometers) out from their coastline. But the 1982 United Nations Convention on the Law of the Sea opened up the possibility of expanding that zone if a country can convince CLCS that its continental shelf extends beyond the EEZ’s limits…..Most of the 84 submissions so far were driven by the prospect of oil and gas, although advances in deep-sea mining technology have added new reasons to apply. Brazil, for example, filed an application in December 2018 that included the Rio Grande Rise, a deep-ocean mountain range 1500 kilometers southeast of Rio De Janeiro that’s covered in cobalt-rich ferromanganese crusts.
To make a claim, a country has to submit detailed data on the shape of the sea floor and on its sediment, which is thicker on the shelf than in the deep ocean. …CLCS, composed of 21 scientists in fields such as geology and hydrography who are elected by member states, has accepted 24 of the 28 claims it has finished evaluating, some partially or with caveats; in several cases, it has asked for follow-up submissions with more data. Australia was the first country to succeed, adding 2.5 million square kilometers to its territory in 2008. New Zealand gained undersea territory six times larger than its terrestrial area. But CLCS only judges the merit of each individual scientific claim; it has no authority to decide boundaries when claims overlap. To do that, countries have to turn to diplomatic channels once the science is settled.
The three claims on the North Pole revolve around the Lomonosov Ridge, an underwater mountain system that runs from Ellesmere Island in Canada’s Qikiqtaaluk region to the New Siberian Islands of Russia, passing the North Pole. Both countries claim the ridge is geologically connected to their continent, whereas Denmark says it is also tied to Greenland, a Danish territory. As the ridge is thought to be continental crust, the territorial extensions could be extensive)
Tensions flared when Russia planted a titanium flag on the sea floor beneath the North Pole in 2007, after CLCS rejected its first claim, saying more data were needed. The Canadian foreign minister at the time likened the move to the land grabs of early European colonizers. Not that the North Pole has any material value: “The oil potential there is zip,” says geologist Henry Dick of the Woods Hole Oceanographic Institution in Massachusetts. “The real fight is over the Amerasian Basin” where large amounts of oil are thought to be locked up…
There’s also a proposal to makethe North Pole international, like Antarctica (South Pole), as a sign of peace, says Oran Young, a political scientist at the University of California, Santa Barbara. “It seems a very sensible idea.”
Richard Kemeny, Fight for the Arctic Ocean is a boon for science, June 21, 2019
America is no fan of Huawei. Its officials have spent months warning that the Chinese giant’s smartphones and networking gear could be Trojan horses for Chinese spies (something Huawei has repeatedly denied). They have threatened to withhold intelligence from any ally that allows the firm in.
On May 15th, 2019 they raised the stakes. President Donald Trump barred American firms from using telecoms equipment made by firms posing a “risk to national security”. His order named no names. But its target was plain. More significant was the announcement by the Commerce Department, on the same day, that it was adding Huawei to a list of firms with which American companies cannot do business without official permission. That amounts to a prohibition on exports of American technology to Huawei. It is a seismic decision, for no technology firm is an island. Supply chains are highly specialised and globally connected. Cutting them off—“weaponising interdependence”, in the jargon—can cause serious disruption. When ZTE, another Chinese technology company, received the same treatment in 2018 for violating American sanctions on Iran, it was brought to the brink of ruin. It survived only because Mr Trump intervened, claiming it was a favour to Xi Jinping, China’s president.
By May 20th, 2019 the impact of the ban was becoming clear. Google said it had stopped supplying the proprietary components of its Android mobile operating system to Huawei. A string of American chipmakers, including Intel, Qualcomm and Micron, have also ceased sales. Later that day the Commerce Department softened its line slightly, saying that firms could continue to supply Huawei for 90 days, but for existing products—for instance, with software updates for Huawei phones already in use. New sales, on which Huawei’s future revenue depends, remain banned…
Without Google’s co-operation, new Huawei phones will lack the latest versions of Android, and popular apps such as Gmail or Maps. That may not matter in China, where Google’s apps are forbidden. But it could be crippling in Europe, Huawei’s second-biggest market. Its telecoms business needs beefy server chips from Intel. The supply of software to manage those networks could dry up too. Huawei is developing replacements for all three, but they are far from ready….Accrording to Paul Triolo of Eurasia Group, the Huawei ban as “the logical end-game of the US campaign to take down Huawei”. A long-lasting ban would force the firm to look for alternative chips and software that Chinese suppliers would struggle to provide.
The second question concerns the reach of American power. The tangled nature of chip-industry supply chains means that many non-American companies make use of American parts or intellectual property. They may therefore consider themselves covered, wholly or partially, by the ban. Take Arm, a Britain-based firm whose technology powers chips in virtually every phone in the world, including those made by HiSilicon. Arm says that it will comply with the Commerce Department’s rules. That suggests that Arm will not grant Huawei new licences. It is unclear if Arm will offer support for existing licences, however. As Arm’s technology advances, Huawei risks being left behind.
Other non-American companies are as important. One industry insider with contacts in Taiwan says that American officials are pressing Taiwan Semiconductor Manufacturing Company (tsmc), a big and cutting-edge chipmaker, to drop Huawei, which is its third-biggest customer. That would be a crushing blow, for Chinese chip factories are not up to the task of manufacturing HiSilicon’s sophisticated designs. tsmc’s only peer is Samsung—and South Korea is another of America’s allies. tsmc said on May 23rd that it would continue supplying Huawei for now.
Even if the optimists are right, and the ban is lifted in exchange for trade concessions, a return to business as usual seems unlikely. America has twice demonstrated a willingness to throttle big Chinese companies. Trust in American technology firms has been eroded, says Mr Triolo. China has already committed billions of dollars to efforts to boost its domestic capabilities in chipmaking and technology. For its rulers, America’s bans highlight the urgency of that policy. Catching up will not be easy, believes Mr Ernst, for chips and software are the most complicated products that humans make. But, he says, if you talk to people in China’s tech industry they all say the same thing: “We no longer have any other option.”
Excerpts from Huawei has been cut off from American technology, Economist, May 25, 2019.
In 2018 America imposed sanctions on about 1,500 people, firms, vessels and other entities, nearly triple the number in 2016. The past six months of 2019 have been particularly eventful. America began imposing sanctions on Iran in November, and in January on Venezuela, another big oil exporter. On May 9th 2019, for the first time, it seized a ship accused of transporting banned North Korean coal.
Second, blackballed countries and unscrupulous middlemen are getting better at evasion. In March 2019advisers to the un, relying in part on Windward data, and American Treasury officials published separate reports that described common ways of doing it. Boats turn off their transmissions systems to avoid detection. Oil is transferred from one ship to another in the middle of the ocean—ships trading on behalf of North Korea find each other in the East China Sea using WeChat, a popular Chinese messaging service. Captains disguise a ship’s identity by manipulating transponder data to transmit false locations and identity numbers of different vessels.
Such methods have helped Iran and Russia transport oil to Syria, American officials say. In 2018 North Korea managed to import refined petroleum far in excess of the level allowed by multilateral sanctions. The situation in Venezuela is different—technically, America’s sanctions still allow foreigners to do business with the country. But fear that sanctions will expand mean that traditional trading partners are scarce. Nicolás Maduro’s regime this month found a shipowner to transport crude to India, according to a shipbroker familiar with the deal, but Venezuela had to pay twice the going rate.
Businesses keen to understand such shenanigans can be roughly divided into two categories. The first includes those who can profit from grasping sanctions’ impact on energy markets, such as hedge funds, analysts and traders. A squadron of firms is ready to assist them, combing through ship transmission data, commercial satellite imagery and other public and semi-public information. They do not specialise in sanctions, but sanctions are boosting demand for their tracking and data-crunching expertise.
A main determinant of Venezuela’s output, for instance, is access to the diluent it needs to blend with its heavy crude. A firm called Clipper Data has noted Russian ships delivering diluent to vessels near Malta, which then transport it to Venezuela. Kpler, a French rival, uses satellite images of shadows on lids of storage tanks to help estimate the volume of oil inside. Using transmissions data, images, port records and more, Kpler produces estimates of Iran’s exports for customers such as the International Energy Agency and Bernstein, a research firm—including a recent uptick in Iranian exports without a specific destination (see chart).
The second category of companies are wary of violating sanctions themselves. They need assistance of a different sort. Latham & Watkins, a firm that advised the chairman of EN+, which controls a Russian aluminium giant, as he successfully removed the company from America’s sanctions list this year, has seen a surge in sanctions-related business. Refinitiv, a data company, offers software which permits clients to screen partners and customers against lists of embargoed entities. Windward uses machine learning to pore over data such as ships’ travel patterns, transmissions gaps (some of which may be legitimate) and name changes to help firms identify suspicious activity. Kharon, founded last year by former United States Treasury officials, offers detailed analysis of anyone or anything on sanctions lists.
HIde and Seek: Sanctions Inc, Economist, May 18, 2019
A new front has opened in the battle between the U.S. and China over control of global networks that deliver the internet. This one is beneath the ocean. While the U.S. wages a high-profile campaign to exclude China’s Huawei Technologies Co. from next-generation mobile networks over fears of espionage, the company is embedding itself into undersea cable networks that ferry nearly all of the world’s internet data.
About 380 active submarine cables—bundles of fiber-optic lines that travel oceans on the seabed—carry about 95% of intercontinental voice and data traffic, making them critical for the economies and national security of most countries.
The Huawei Marine’s Undersea Cable Network majority owned by Huawei Technologies, has worked on some 90 projects to build or upgrade submarine cables around the world…US o fficials say the company’s knowledge of and access to undersea cables could allow China to attach devices that divert or monitor data traffic—or, in a conflict, to sever links to entire nations. Such interference could be done remotely, via Huawei network management software and other equipment at coastal landing stations, where submarine cables join land-based networks, these officials say.
Huawei Marine said in an email that no customer, industry player or government has directly raised security concerns about its products and operations.Joe Kelly, a Huawei spokesman, said the company is privately owned and has never been asked by any government to do anything that would jeopardize its customers or business. “If asked to do so,” he said, “we would refuse.”
The U.S. has sought to block Huawei from its own telecom infrastructure, including undersea cables, since at least 2012. American concerns about subsea links have since deepened—and spread to allies—as China moves to erode U.S. dominance of the world’s internet infrastructure…..Undersea cables are owned mainly by telecom operators and, in recent years, by such content providers as Facebook and Google. Smaller players rent bandwidth.Most users can’t control which cable systems carry their data between continents. A handful of switches typically route traffic along the path considered best, based on available capacity and agreements between cable operators.
In June 2017, Nick Warner, then head of Australia’s Secret Intelligence Service, traveled to the Solomon Islands, a strategically located South Pacific archipelago. His mission, according to people familiar with the visit, was to block a 2016 deal with Huawei Marine to build a 2,500-mile cable connecting Sydney to the Solomons. Mr. Warner told the Solomons’ prime minister the deal would give China a connection to Australia’s internet grid through a Sydney landing point, creating a cyber risk, these people said. Australia later announced it would finance the cable link and steered the contract to an Australian company. In another recent clash, the U.S., Australia and Japan tried unsuccessfully in September 2018 to quash an undersea-cable deal between Huawei Marine and Papua New Guinea.
U.S. and allied officials point to China’s record of cyber intrusions, growing Communist Party influence inside Chinese firms and a recent Chinese law requiring companies to assist intelligence operations. Landing stations are more exposed in poorer countries where cyber defenses tend to be weakest, U.S. and allied officials said. And network management systems are generally operated using computer servers at risk of cyber intrusion. Undersea cables are vulnerable, officials said, because large segments lie in international waters, where physical tampering can go undetected. At least one U.S. submarine can hack into seabed cables, defense experts said. In 2013, former National Security Agency contractor Edward Snowden alleged that Britain and the U.S. monitored submarine cable data. The U.S. and its allies now fear such tactics could be used against them. American and British military commanders warned recently that Russian submarines were operating near undersea cables. In 2018, the U.S. sanctioned a Russian company for supplying Russian spies with diving equipment to help tap seabed cables.
China seeks to build a Digital Silk Road, including undersea cables, terrestrial and satellite links, as part of its Belt and Road plan to finance a new global infrastructure network. Chinese government strategy papers on the Digital Silk Road cite the importance of undersea cables, as well as Huawei’s role in them. A research institute attached to China’s Ministry of Industry and Information Technology, in a paper published in September, praised Huawei’s technical prowess in undersea cable transmission and said China was poised to become “one of the world’s most important international submarine cable communication centers within a decade or two.” China’s foreign and technology ministries didn’t respond to requests for comment…
Bjarni Thorvardarson, then chief executive of the cable’s Ireland-based operator, said U.S. authorities raised no objections until 2012, when a congressional report declared Huawei Technologies a national security threat. Mr. Thorvardarson wasn’t convinced. “It was camouflaged as a security risk, but it was mostly about a preference for using U.S. technology,” he said. Under pressure, Mr. Thorvardarson dropped Huawei Marine from Project Express in 2013. The older cable network continued to use Huawei equipment.
The company is now the fourth-biggest player in an industry long dominated by U.S.-based SubCom and Finnish-owned Alcatel Submarine Networks. Japan’s NEC Corp is in third place.Huawei Marine is expected to complete 28 cables between 2015 and 2020—nearly a quarter of all those built globally—and it has upgraded many more, according to TeleGeography, a research company.
Excerpts from America’s Undersea Battle With China for Control of the Global Internet Grid , WSJ, Mar. 12, 2019
At least two tankers have ferried Iranian fuel oil to Asia in February 2019 despite U.S. sanctions against such shipments, according to a Reuters analysis of ship-tracking data and port information, as well as interviews with brokers and traders. The shipments were loaded onto tankers with documents showing the fuel oil was Iraqi. But three Iraqi oil industry sources and Prakash Vakkayil, a manager at United Arab Emirates (UAE) shipping services firm Yacht International Co, said the papers were forged. The people said they did not know who forged the documents, nor when.
“Some buyers…will want Iranian oil regardless of U.S. strategic objectives to deny Tehran oil revenue, and Iran will find a way to keep some volumes flowing,” said Peter Kiernan, lead energy analyst at the Economist Intelligence Unit. While the United States has granted eight countries temporary waivers allowing limited purchases of Iranian crude oil, these exemptions do not cover products refined from crude, including fuel oil, mainly used to power the engines of large ships. Documents forwarded to Reuters by ship owners say a 300,000 tonne-supertanker, the Grace 1, took on fuel oil at Basra, Iraq, between Dec. 10 and 12, 2018. But Basra port loading schedules reviewed by Reuters do not list the Grace 1 as being in port during those dates. One Iraqi industry source with knowledge of the port’s operations confirmed there were no records of the Grace 1 at Basra during this period.
Reuters examined data from four ship-tracking information providers – Refinitiv, Kpler, IHS Markit and Vessel Finder – to locate the Grace 1 during that time. All four showed that the Grace 1 had its Automatic Identification System (AIS), or transponder, switched off between Nov. 30 and Dec. 14, 2018, meaning its location could not be tracked. The Grace 1 then re-appeared in waters near Iran’s port of Bandar Assaluyeh, fully loaded, data showed. The cargo was transferred onto two smaller ships in UAE waters in January, from where one ship delivered fuel oil to Singapore in February 2019. Shipping documents showed about 284,000 tonnes of fuel oil were transferred in the cargoes tracked by Reuters, worth about $120 million at current prices…
One of those vessels, the 130,000 tonne-capacity Kriti Island, offloaded fuel oil into a storage terminal in Singapore around Feb. 5 to 7. Reuters was unable to determine who purchased the fuel oil for storage in Singapore. The Kriti Island is managed by Greece’s Avin International SA… Avin International’s Chief Executive Officer George Mylonas told Reuters. Mylonas confirmed the Kriti Island took on fuel oil from the Grace 1.There is no indication that Avin International knowingly shipped Iranian fuel oil. Mylonas said his firm had conducted all necessary due diligence to ensure the cargo’s legitimate origin….
Excerpts from Roslan Khasawneh et al, Exclusive: How Iran fuel oil exports beat U.S. sanctions in tanker odyssey to Asia, Reuters, Mar. 20, 2019
“Name any country in Africa, and I could have found a world-class firm there a decade ago,” says John Page of the Brookings Institution, a think tank, the co-author of a forthcoming book on African manufacturing. “The problem is, two years later, I’d go back and still find just the one firm. In Cambodia or Vietnam, I would go back and find 50 new ones.”
To be sure, many countries deindustrialise as they grow richer (growth in service-based parts of the economy, such as entertainment, helps shrink manufacturing’s slice of the total). But many African countries are deindustrialising while they are still poor, raising the worrying prospectthat they will miss out on the chance to grow rich by shifting workers from farms to higher-paying factory jobs.
Thi is not just happening in Africa—other developing countries are also seeing the growth of factories slowing, partly because technology is reducing the demand for low-skilled workers. “Manufacturing has become less labour intensive across the board,” says Margaret McMillan of Tufts University. That means that it is hard, and getting harder, for African firms to create jobs in the same numbers that Asian ones did from the 1970s onwards.
Yet deindustrialisation appears to be hitting African countries particularly hard. This is partly because weak infrastructure drives up the costs of making things. The African Development Bank found in 2010 that electricity, a large cost for most manufacturers, costs three times more on average in Africa than it does even in South Asia. Poor roads and congested ports also drive up the cost of moving raw materials about and shipping out finished goods.
Africa’s second disadvantage is, perversely, its bounty of natural riches. Booming commodity prices over the past decade brought with them the “Dutch disease”: economies benefiting from increased exports of oil and the like tend to see their exchange rates driven up, which then makes it cheaper to import goods such as cars and fridges, and harder to produce and export locally manufactured goods.
Excerpt from Industrialisation in Africa: More a marathon than a sprint, Economist, Nov. 7, 2015, at 41
[A] tanker chartered by Cheniere Energy, an American company, left a Louisiana port this week with the first major exports of U.S. liquefied natural gas, or LNG. This shipment isn’t going to Europe, but others are expected to arrive by spring. “Like shale gas was a game changer in the U.S., American gas exports could be a game changer for Europe,” said Maros Sefcovic, the European Union’s energy chief.
Many in Europe see U.S. entry into the market as part of a broader effort to challenge Russian domination of energy supplies and prices in this part of the world. Moscow has for years used its giant energy reserves as a strategic tool to influence former satellite countries, including Lithuania, one of the countries on the fringes of Russia that now see a chance to break away.
Some are building the capacity to handle seaborne LNG, including Poland, which opened its first import terminal in 2015. In Bulgaria, which buys about 90% of its gas from Russia, Prime Minister Boyko Borissov said last month that supplies of U.S. gas could arrive via Greek LNG facilities, “God willing.”… Deutsche Bank estimates the U.S. could catch up with Russia as Europe’s biggest gas supplier within a decade, with each nation controlling around a fifth of the market. Russia supplies about a third of Europe’s gas via pipeline….The U.S. will compete with Russia, Norway, U.K., Australia and others in Europe’s gas market. Germany, for example, gets half its gas and Italy a third from Russia.Low prices also mean natural gas could compete with coal and help Europe achieve its commitment to reducing greenhouse gas emissions .In Lithuania, officials have accused Moscow of engaging in a campaign of espionage and cyberwarfare to keep its share of the lucrative energy market….
Bulgarian officials allege Russia bankrolled a wave of street protests in 2012 that forced the government to impose a moratorium on shale gas exploration. In 2014, Anders Fogh Rasmussen, then-head of NATO, told reporters that Russia was covertly funding European environmental organizations to campaign against shale gas to help maintain dependence on Russian gas.
Until 2014, Gazprom owned 37% of Lithuania’s national gas company, Lietuvos Dujos, and dominated its boardroom, said current and former officials.“There was no negotiation about gas prices,” said Jaroslav Neverovic, Lithuania’s energy minister from 2012 to 2014. He said Gazprom would send Lietuvos Dujos a list of gas prices, which the board automatically approved.. In 2015, [though] Lithuania began receiving Norwegian LNG, reducing Gazprom’s gas monopoly to a market share of less than 80%. In the months before the terminal opened, Gazprom lowered Lithuanian gas prices by 23% and it remained cheaper than Norwegian gas. Still, Lithuania plans to increase its purchase of Norwegian gas this year. The U.S. is next….
Klaipeda’s mayor, Mr. Grubliauskas, said during a recent interview at his office, decorated with photographs of U.S. naval drills in the port: “U.S. LNG is more than just about gas. It’s about freedom.”
Excerpts With U.S. Gas, Europe Seeks Escape From Russia’s Energy Grip, WSJ, Feb. 26, 2016
The United States leads the world in punishing corruption, money-laundering and sanctions violations. In the past decade it has increasingly punished foreign firms for misconduct that happens outside America. Scores of banks have paid tens of billions of dollars in fines. In the past 12 months several multinationals, including Glencore and ZTE, have been put through the legal wringer. The diplomatic row over Huawei, a Chinese telecoms-equipment firm, centres on the legitimacy of America’s extraterritorial reach.
America has taken it upon itself to become the business world’s policeman, judge and jury. It can do this because of its privileged role in the world economy. Companies that refuse to yield to its global jurisdiction can find themselves shut out of its giant domestic market, or cut off from using the dollar payments system and by extension from using mainstream banks. For most big companies that would be suicidal.
But as the full extent of extraterritorial legal activity has become clearer, so have three glaring problems. First, the process is disturbingly improvised and opaque. Cases rarely go to court and, when they are settled instead, executives are hit with gagging orders. Facing little scrutiny, prosecutors have applied ever more expansive interpretations of what counts as the sort of link to America that makes an alleged crime punishable there; indirect contact with foreign banks with branches in America, or using Gmail, now seems to be enough. Imagine if China fined Amazon $5bn and jailed its executives for conducting business in Africa that did not break American law, but did offend Chinese rules and was discussed on WeChat.
Second, the punishments can be disproportionate. In 2014 bnp Paribas, a French bank, was hit with a sanctions-related fine of $8.9bn, enough to threaten its stability. In April ZTE, a Chinese tech firm with 80,000 employees, was banned by the Trump administration from dealing with American firms; it almost went out of business. The ban has since been reversed, underlining the impression that the rules are being applied on the hoof.
Third, America’s legal actions can often become intertwined with its commercial interests. As our investigation this week explains, a protracted bribery probe into Alstom, a French champion, helped push it into the arms of General Electric, an American industrial icon. American banks have picked up business from European rivals left punch-drunk by fines. Sometimes American firms are in the line of fire—Goldman Sachs is being investigated by the doj for its role in the 1mdb scandal in Malaysia. But many foreign executives suspect that American firms get special treatment and are wilier about navigating the rules.
America has much to be proud of as a corruption-fighter. But, for its own good as well as that of others, it needs to find an approach that is more transparent, more proportionate and more respectful of borders. If it does not, its escalating use of extraterritorial legal actions will ultimately backfire. It will discourage foreign firms from tapping American capital markets. It will encourage China and Europe to promote their currencies as rivals to the dollar and to develop global payments systems that bypass Uncle Sam…. Far from expressing geopolitical might, America’s legal overreach would then end up diminishing American power.
Excerpts from Tackling Corruption: Judge Dread, Economist, Jan. 19, 2019
According to the acting director, Andrew Kigundu, of Uganda’s National Agricultural Research Organisation (NARO): “The idea of work on genetically engineered bananas is a result of many years of testing of Banana production.” The experiments started in 2005 and work is still ongoing to improve on the content of the fruit and resistance to parasites….The East African country is the first African country to turn toward GM to improve its production of bananas. An option which should make the country remain the first producer in the world .
The adoption of restrictive policies across Africa has been pursued under the pretext of protecting the environment and human health. So far there has been little evidence to support draconian biosafety rules. It is important that the risks of new products be assessed. But the restrictions should proportionate and consistent with needs of different countries.
Africa’s needs are different from those of the EU. There are certain uniquely African problems where GM should be considered as an option. The Xanthomonas banana wilt bacterial disease causes early ripening and discoloration of bananas, a staple crop for Uganda. This costs the Great Lakes region nearly US $500m annually in losses. There is no treatment for the disease, which continues to undermine food security. Ugandan scientists at Kawanda Agricultural Research Institute have developed a GM approach but their efforts to further their research in the technology are hampered by opposition to it. Those opposed to the technology advocate the adoption of an EU biosafety approach that would effectively stall the adoption of the technology. In fact, some of opponents using scare tactics against the technology are EU-based non-governmental organizations.
Genetically modified bananas solve Uganda’s productivity problems, AllAfricanews, May 24, 2016; See also Excerpt From “How the EU starves Africa into submission,” by Calestous Juma, a professor of the practice of international development at the Harvard Kennedy School of Government: “EU policy undermines African agricultural innovation …in the field of genetically modified (GM) crops. The EU exercises its right not to cultivate transgenic crops but only to import them as animal feed. However, its export of restrictive policies on GM crops has negatively affected Africa.”
Rarely has a manifesto been so wrong. “A Declaration of the Independence of Cyberspace”, written 20 years ago by John Perry Barlow, a digital civil-libertarian, begins thus: “Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather.”
At the turn of the century, it seemed as though this techno-Utopian vision of the world could indeed be a reality. It didn’t last… Autocratic governments around the world…have invested in online-surveillance gear. Filtering systems restrict access: to porn in Britain, to Facebook and Google in China, to dissent in Russia.
Competing operating systems and networks offer inducements to keep their users within the fold, consolidating their power. Their algorithms personalise the web so that no two people get the same search results or social media feeds, betraying the idea of a digital commons. Five companies account for nearly two-thirds of revenue from advertising, the dominant business model of the web.
The open internet accounts for barely 20% of the entire web. The rest of it is hidden away in unsearchable “walled gardens” such as Facebook, whose algorithms are opaque, or on the “dark web”, a shady parallel world wide web. Data gathered from the activities of internet users are being concentrated in fewer hands. And big hands they are too. BCG, a consultancy, reckons that the internet will account for 5.3% of GDP of the world’s 20 big economies this year, or $4.2 trillion.
How did this come to pass? The simple reply is that the free, open, democratic internet dreamed up by the optimists of Silicon Valley was never more than a brief interlude. The more nuanced answer is that the open internet never really existed.
[T]e internet, it was developed “by the US military to serve US military purposes”… The decentralised, packet-based system of communication that forms the basis of the internet originated in America’s need to withstand a massive attack on its soil. Even the much-ballyhooed Silicon Valley model of venture capital as a way to place bets on risky new businesses has military origins.
In the 1980s the American military began to lose interest in the internet…. The time had come for the hackers and geeks who had been experimenting with early computers and phone lines. Today they are the giants. Google, Apple, Facebook, Amazon and Microsoft—together with some telecoms operators—help set policy in Europe and America on everything from privacy rights and copyright law to child protection and national security. As these companies grow more powerful, the state is pushing back…
The other big risk is that the tension between states and companies resolves into a symbiotic relationship. A leaked e-mail shows a Google executive communicating with Hillary Clinton’s state department about an online tool that would be “important in encouraging more [Syrians] to defect and giving confidence to the opposition.”+++ If technology firms with global reach quietly promote the foreign-policy interests of one country, that can only increase suspicion and accelerate the fracturing of the web into regional internets….
Mr Malcomson describes the internet as a “global private marketplace built on a government platform, not unlike the global airport system”.
Excerpts from Evolution of the internet: Growing up, Economist, Mar. 26, 2016
Data breaches at Facebook and Google—and along with Amazon, those firms’ online dominance—crest a growing wave of anxiety around the internet’s evolving structure and its impact on humanity…The runaway success of a few startups has created new, proprietized one-stop platforms. Many people are not really using the web at all, but rather flitting among a small handful of totalizing apps like Facebook and Google. And those application-layer providers have dabbled in providing physical-layer internet access. Facebook’s Free Basics program has been one of several experiments that use broadband data cap exceptions to promote some sites and services over others.
What to do? Columbia University law professor Tim Wu has called upon regulators to break up giants like Facebook, but more subtle interventions should be tried first…Firms that do leverage users’ data should be “information fiduciaries,” obliged to use what they learn in ways that reflect a loyalty to users’ interests…The internet was designed to be resilient and flexible, without need for drastic intervention. But its trends toward centralization, and exploitation of its users, call for action
Excerpts from Jonathan Zittrain, Fixing the internet, Science, Nov. 23, 2018
Warren Buffett, the 21st century’s best-known investor, extols firms that have a “moat” around them—a barrier that offers stability and pricing power.One way American firms have improved their moats in recent times is through creeping consolidation. The Economist has divided the economy into 900-odd sectors covered by America’s five-yearly economic census. Two-thirds of them became more concentrated between 1997 and 2012 (see charts 2 and 3). The weighted average share of the top four firms in each sector has risen from 26% to 32%…
These data make it possible to distinguish between sectors of the economy that are fragmented, concentrated or oligopolistic, and to look at how revenues have fared in each case. Revenues in fragmented industries—those in which the biggest four firms together control less than a third of the market—dropped from 72% of the total in 1997 to 58% in 2012. Concentrated industries, in which the top four firms control between a third and two-thirds of the market, have seen their share of revenues rise from 24% to 33%. And just under a tenth of the activity takes place in industries in which the top four firms control two-thirds or more of sales. This oligopolistic corner of the economy includes niche concerns—dog food, batteries and coffins—but also telecoms, pharmacies and credit cards.
The ability of big firms to influence and navigate an ever-expanding rule book may explain why the rate of small-company creation in America is close to its lowest mark since the 1970s … Small firms normally lack both the working capital needed to deal with red tape and long court cases, and the lobbying power that would bend rules to their purposes….
Another factor that may have made profits stickier is the growing clout of giant institutional shareholders such as BlackRock, State Street and Capital Group. Together they own 10-20% of most American companies, including ones that compete with each other. Claims that they rig things seem far-fetched, particularly since many of these funds are index trackers; their decisions as to what to buy and sell are made for them. But they may well set the tone, for example by demanding that chief executives remain disciplined about pricing and restraining investment in new capacity. The overall effect could mute competition.
The cable television industry has become more tightly controlled, and many Americans rely on a monopoly provider;prices have risen at twice the rate of inflation over the past five years. Consolidation in one of Mr Buffett’s favourite industries, railroads, has seen freight prices rise by 40% in real terms and returns on capital almost double since 2004. The proposed merger of Dow Chemical and DuPont, announced last December, illustrates the trend to concentration. //
Roughly another quarter of abnormal profits comes from the health-care industry, where a cohort of pharmaceutical and medical-equipment firms make aggregate returns on capital of 20-50%. The industry is riddled with special interests and is governed by patent rules that allow firms temporary monopolies on innovative new drugs and inventions. Much of health-care purchasing in America is ultimately controlled by insurance firms. Four of the largest, Anthem, Cigna, Aetna and Humana, are planning to merge into two larger firms.
The rest of the abnormal profits are to be found in the technology sector, where firms such as Google and Facebook enjoy market shares of 40% or more
But many of these arguments can be spun the other way. Alphabet, Facebook and Amazon are not being valued by investors as if they are high risk, but as if their market shares are sustainable and their network effects and accumulation of data will eventually allow them to reap monopoly-style profits. (Alphabet is now among the biggest lobbyists of any firm, spending $17m last year.)…
Perhaps antitrust regulators will act, forcing profits down. The relevant responsibilities are mostly divided between the Department of Justice (DoJ) and the Federal Trade Commission (FTC), although some …[But]Lots of important subjects are beyond their purview. They cannot consider whether the length and security of patents is excessive in an age when intellectual property is so important. They may not dwell deeply on whether the business model of large technology platforms such as Google has a long-term dependence on the monopoly rents that could come from its vast and irreproducible stash of data.They can only touch upon whether outlandishly large institutional shareholders with positions in almost all firms can implicitly guide them not to compete head on; or on why small firms seem to be struggling. Their purpose is to police illegal conduct, not reimagine the world. They lack scope.
Nowhere has the alternative approach been articulated. It would aim to unleash a burst of competition to shake up the comfortable incumbents of America Inc. It would involve a serious effort to remove the red tape and occupational-licensing schemes that strangle small businesses and deter new entrants. It would examine a loosening of the rules that give too much protection to some intellectual-property rights. It would involve more active, albeit cruder, antitrust actions. It would start a more serious conversation about whether it makes sense to have most of the country’s data in the hands of a few very large firms. It would revisit the entire issue of corporate lobbying, which has become a key mechanism by which incumbent firms protect themselves.
Excerpts from Too Much of a Good Thing, Economist, Mar. 26, 2016, at 23
The steps by Europe’s most powerful countries are part of their campaign to salvage the 2015 Iran nuclear deal after President Trump withdrew the U.S. in May. Their goal is to help European companies continue some business activity with Iran despite sweeping new U.S. sanctions on the country and any company that does business with it.
France or Germany will host the corporation that would handle the payments channel, the diplomats said. If France hosts it, a German official will head the corporation and vice versa. Both countries will help fund the corporation. The payments channel, known as a special purpose vehicle, or SPV, would use a system of credits to facilitate compensation for goods traded between Iran and Europe—allowing some trade to proceed without the need for European commercial banks to make or receive payments to Iran.
U.S. pressure on Austria and Luxembourg recently prompted those countries to reject European Union requests to host it, raising the prospect that the initiative might collapse, the diplomats said. The company would be owned directly by participating European governments—an arrangement intended to dissuade the U.S. from directly targeting it with sanctions, diplomats said.
Laurence Norman , France and Germany Step In to Circumvent Iran Sanctions, WSJ, Nov. 26, 2018
Australia said it would establish a development fund and offer Pacific island nations more than $2 billion for infrastructure projects while bolstering military cooperation, as U.S. allies take a more assertive stance against China in the region. Also Thursday, Australia said it would open new diplomatic posts across the Pacific, while New Zealand announced new funding to boost cultural engagement with small Pacific states.
The U.S. and its allies are increasingly coordinating to counter what officials in Washington and elsewhere see as Beijing’s attempts to gain influence over smaller nations through infrastructure loans under its Belt and Road initiative. Last month President Trump signed the Build Act, which expands American development financing for private companies to up to $60 billion….
Beijing, which says its goal is to help Pacific countries achieve peace, stability and prosperity, has urged other countries to “discard the Cold War mentality” and view its relations with Pacific states in an objective way.But old Western allies are concerned about its intentions toward impoverished island nations whose strategic value outstrips their size and wealth. The U.K. recently announced three new diplomatic posts in the Pacific, while France gained a de facto seat in a key regional group—the Pacific Islands Forum—when its Pacific territories joined…
In September 2018, a senior U.S. official said the U.S., along with Japan and Australia, is vying to build an internet network in Papua New Guinea to block a Chinese telecom company.
Exceprts from U.S. Allies Vie With China to Make Pacific Island Friends, WSJ, Nov. 8, 2018 Continue reading →
Deep in the Swiss Alps, next to an old airstrip suitable for landing Gulfstream and Falcon jets, is a vast bunker that holds what may be one of the world’s largest stashes of gold. The entrance, protected by a guard in a bulletproof vest, is a small metal door set into a granite mountain face at the end of a narrow country lane. Behind two farther doors sits a 3.5-ton metal portal that opens only after a code is entered and an iris scan and a facial-recognition screen are performed. A maze of tunnels once used by Swiss armed forces lies within.
The owner of this gold vault wants to remain anonymous for fear of compromising security, and he worries that even disclosing the name of his company might lead thieves his way…
Demand for gold storage has risen since the 2008 financial crisis. Many of the wealthy see owning gold as a hedge against the insecurity of banks and a reasonable investment at a time when markets are volatile and bank accounts and low-risk bonds pay almost no yield. It may also be a way to avoid the increasing scrutiny of tax authorities. In high-profile cases, U.S., French, and German prosecutors have gone after citizens of those countries with undeclared Swiss bank accounts.
Swiss storage operations such as these don’t have the same obligation that Swiss banks do to report suspicious transactions to federal regulators. Americans aren’t required under the U.S. Foreign Account Tax Compliance Act to declare gold stored outside financial institutions. Of the roughly 1,000 former military bunkers still in existence across Switzerland, a few hundred have been sold in recent years, and about 10 are now storage sites holding gold as well as computer data, according to the Swiss defense department.
Few match the opulence of the airstrip setup, whose owner claims to run the largest store of gold for private clients—and the seventh-largest gold vault in the world. Near the runway sits the VIP lounge and a pair of luxurious apartments for clients. The walls of the apartments are lined with aged wood from Polish barns. South African quartzite was chosen for the floors to match the faded gray timber, and the amenities—bathroom mirror, TV screens—can retract into the ceiling, counter, or wall. The owner offers a place for clients to sleep and eat, because “many do not want to leave a paper trail of credit card receipts and passports” at hotels and restaurants…
Some miles away, Dolf Wipfli, the founder and chief executive officer of a different company, Swiss Data Safe, is one of the few operators willing to be interviewed about his business. The gold Swiss Data Safe stores for clients is kept in a mountainside bunker outside the hamlet of Amsteg.
Excerpts from Secret Alpine Gold Vaults Are the New Swiss Bank Accounts, Bloomberg, Sept. 30, 2016
America’s interest in the Congo—and, specifically, in the resource-rich south-eastern province of Katanga—was one of the best-kept secrets of the second world war. Beneath its verdant soil lay a prize that the Americans believed held the key to victory…The Germans, they feared, might be after it, too: uranium. Congo was by far the richest source of it in the world. As the architects of America’s nuclear programme (the “Manhattan Project”) knew, uranium was the atom bomb’s essential ingredient. But almost everybody else was kept entirely in the dark, including the spies sent to Africa to find out if the heavy metal was being smuggled out of the Congo into Nazi Germany.
The men—and one woman—charged with protecting America’s monopoly of Congolese uranium worked for the Office of Strategic Services (OSS), an organisation set up by President Franklin Roosevelt as the wartime intelligence agency, and the precursor to what in peacetime became the Central Intelligence Agency (CIA).
Shortly after the war ended the focus of America’s nuclear rivalry shifted. In 1949 the Soviet Union tested its own nuclear bomb, launching a new era for America, Congo and the rest of the African continent. Huge sums were pumped into Katanga to facilitate uranium export and to prop up Belgian defences. After Congo became independent in 1960 the CIA lingered there for decades to keep uranium and, later, other minerals out of Russian hands. Much of Congo’s tragic late-20th-century history is attributable to these machinations…. A little-known story, but one with a terribly familiar ring—and ultimately devastating consequences.
Excerpt from Congo’s uranium: Rich pickings, Economist, Aug. 27, 2016 (Book review of
Spies in the Congo: America’s Atomic Mission in World War II. By Susan Williams, 2017)
A port being developed in the southern Iranian city of Chabahar underscores some of the dilemmas U.S. policy makers face in implementing sanctions against Tehran. Strategically located on the Gulf of Oman and named for an Iranian revolutionary war hero, the Shahid Beheshti Port is exactly the sort of Iranian economic development the Trump administration wants to stop with sanctions that kick in on Nov. 5, 2018…
Once completed, the port—a small part of which started initial operations in December—could help Iran by strengthening economic ties with South and Central Asia, providing an export point for its oil beyond the Persian Gulf and functioning as a strategic military asset. But it could also be a critical economic lifeline for Afghanistan, where the U.S. has tried for 16 years to strengthen and stabilize the government so thousands of U.S. troops can come home.
The port also could be a big boon to India, an increasingly close partner of the U.S. in Asia. India wants Chabahar port activities exempted from sanctions. Indian companies are mostly equipping and operating the facility. If the port is completed, they are expected to be among the biggest users of the port in order to participate in the reconstruction of Afghanistan—something the Trump administration has asked India to get more involved in—and establish a stronger economic presence in Central Asia.
The Chabahar port has long been seen as a potential way around Pakistan, a sworn enemy of India that believes holding sway over Afghanistan is critical to its own security. Pakistan has squelched trade between India and Afghanistan across its territory. It wants Afghanistan to eventually transport goods through a competing Pakistani port on the Gulf of Oman that is being developed with China…
“If you stop Chabahar, you make Afghanistan permanently dependent on Pakistan,” said Barnett Rubin, a New York University expert on South Asia who has advised Western governments on policy in Afghanistan and the surrounding region.
Exceprts from Iranian Port Project Poses a Dilemma for U.S., WSJ, Oct. 29, 2018
Niger, a poverty-stricken nation perched on the southern belt of the Sahara, is rapidly being transformed into one of the world’s most strategic security hubs….“This place is a nest of spies,” said one contractor … “Below the radar, it’s become a key country for the West.” A surge in financial assistance from European nations seeking to stem the flow of African migrants has made Niger the world’s largest per capita recipient of European Union aid…Western military forces operate from at least nine bases in Niger, government officials said…. The U.S. is finishing a large air base in Agadez, while the Central Intelligence Agency has begun flying armed drones from an airstrip outside the northern town of Dirkou, Nigerien officials said.
U.S. and European policy makers praise the government as a good partner that has welcomed foreign military personnel and slashed the migrant flow by almost 90% from 2015 highs. …Locals, nongovernmental organizations and opposition activists say the government is using international backing to neutralize dissent and embezzle millions of dollars in aid, charges the government denies. The opposition—backed by rights group Amnesty International—says President Mahamadou Idriss Issoufou, in power since 2011, is arbitrarily jailing activists and spending Western aid on bolstering his elite Presidential Guard…
Swaths of the nation’s centuries-old transportation economy—the movement of people and goods from West Africa through the Sahara—has essentially been criminalized by the EU crackdown on migration. Some of the desert-dwelling Tuareg people, who have transported goods for centuries, are now smuggling weapons, men and money for cash-rich jihadist insurgencies. Migrants are dying in the desert in failed attempts to find new routes.
“The West is pleased because Niger’s government is a willing partner,but as Niger’s security chief, Mohammed Bazoum, says “We have become a hinge country, a geostrategic hub, but it is a disaster for us. We are known as a land of terrorism and migrant traffic.”
Across Niger’s western border with Mali, jihadist groups including Islamic State and al Qaeda franchises control stretches of territory around the northern city of Gao. Along the southern frontier with Nigeria, a rejuvenated Boko Haram is mounting intensifying attacks against security forces, including around the city of Diffa, where the U.S. has dozens of troops stationed. To the north lies Libya, which has become a hotbed of instability, weapons and radicalization.
The European Development Fund last year awarded $1 billion to Niger through 2020, and unusually for a country governance watchdogs deem chronically corrupt, 75% is now infused directly into the Nigerien budget instead of through nongovernmental organizations.The money funds hundreds of off-road vehicles, motorcycles and satellite phones for Nigerien security forces as well as new infrastructure and technology along the borders and countrywide development programs.
In Niamey’s central Plateau district, tall black screens block the soaring new U.S. Embassy headquarters, which will be one of the largest in West Africa. Saudi Arabia has broken ground on its own huge mission, while buildings belonging to EU agencies occupy whole city blocks. Hotels and conference centers are rising in tandem, reconfiguring the economic and political landscape of a nation ranked the world’s second-poorest behind the Central African Republic.
The government says the building boom is creating jobs. Locals say it has stoked runaway inflation and priced them out of their neighborhoods. In the past year, the cost of a kilogram of rice has risen 29%, sending shock waves through homes where the average wage is $2.66 a day.
“The cost to live here rises with each new European coming,” lamented Abdulraham Mamoudou, repairing his motor scooter on a dusty corner near the expanding U.S. Embassy compound.
A similar pattern is playing out further north in the smuggling hub of Agadez, where the EU-coordinated migration crackdown has transformed a boomtown into a simmering bust. The city’s jails are bursting with men who have been convicted of smuggling. Vast depots on the town’s outskirts house hundreds of trucks confiscated by authorities…“This place is now for the Americans and French,” said Sadiq, a former migrant smuggler who evaded arrest and is now unemployed. “They took our livelihood and don’t give us anything in return.”
Excerpts from ‘A Nest of Spies’: Niger’s Deserts Become Front Line of Fight Against Jihadis, Wall Street Journal, Sept. 12, 2018
The nuclear power industry, which had been in the doldrums since the 1980s, suffered a devastating blow in 2011 when a tsunami engulfed the Fukushima power plant in Japan, ultimately causing a meltdown. The amount of electricity generated by nuclear power worldwide plunged 11% in two years, and has not recovered since. Within this declining industry, one country now dominates the market for design and export of nuclear plants: Russia.
Rosatom, Russia’s state-owned nuclear-power company, is focused on what some call the “great grand middle”: countries that are close allies of neither the United States nor Russia. In April Russia started building Turkey’s first nuclear plant, worth $20bn. Its first reactor is due for completion in 2023. Rosatom says it has 33 new plants on its order book, worth some $130bn. A dozen are under construction, including in Bangladesh, India and Hungary…. Once completed the plants offer an obvious diplomatic lever in the form of sway over a large portion of a country’s electricty generation… The relationship betweeen exporter and customer is particularly close in a nuclear plant’s early years, when local employees are still being trained and the exporting country is direclty involved in the plant’s operation….
Russia’s nuclear programme has endured for two main reasons. Its designs are cheap, and Rosatom enjoys the backing of the state, which helps it absorb hard-to-insure risks like nuclear meltdowns. Its competitors trail hopelessly: France’s Areva (now Orano) has started building only two plants in the past ten years, in Finland and China; both are delayed and over budget. KEPCO, South Korea’s energy company, is facing a domestic backlash against nuclear power, while Westinghouse, in America, is only now emerging from bankruptcy.
Russia’s only real competitor is China..Yet although China will surely catch up, for now Russia has no serious rivals in the export of nuclear technology. In a world that needs to generate much more electricity from nuclear power if it is to take decarbonisation seriously, that is a sobering though
Excerpts from Atoms for Peace: Russia and Nuclear Power, Economist, Aug. 4, 2018, at 43
At the height of activity in 1980, U.S. companies produced nearly 44 million pounds of uranium concentrate and provided most of the supplies purchased by nuclear power plants. In 2017, American miners produced 2.4 million pounds and supplied just 7 percent of the uranium bought by domestic plants. The industry, which once supported nearly 22,000 jobs, now employs just a few hundred people each year…
In July 2018, the U.S. Commerce Department opened an investigation to determine whether the nation’s growing dependence on foreign uranium supplies poses a risk to national security….The two miners that petitioned Commerce to conduct the review, Energy Fuels and UR-Energy, want the United States to take steps to ensure U.S. producers control 25 percent of the market. They say they can’t compete with subsidized supplies from places like Russia, Kazakhstan and Uzbekistan.
To be sure, nearly half of the uranium used in the United States comes from allies like Canada and Australia. From the moment they lost trade protections, U.S. miners had trouble competing with these foreign supplies.
“It’s been government-sponsored, government-subsidized just since the beginning. Trying to sort that out and find where there’s a free market in uranium — I find that very questionable.”-Luke Danielson, Sustainable Development Strategies Group president
The U.S. uranium mining industry is relatively young. It went through a brief golden age between about 1955 and 1980, beginning when the United States offered generous incentives to shore up its stockpiles of the nuclear weapons fuel during the Cold War….By the 1960s, the program had packed U.S. storehouses so full of uranium stockpiles that the government stopped paying the incentives. However, it left in place rules barring the use of foreign uranium until 1975, when it began to allow a growing percentage of overseas supplies into the market. That opened the door to high-quality, low-cost supplies from Canada and Australia. By 1987, the United States was importing nearly 15 million pounds of uranium, and domestic output fell by about a third to roughly 13 million pounds.
While competition weighed on U.S. uranium production, the excitement around nuclear energy in the 1970s kept mines busy. However, the American love affair with atomic power proved short-lived. The 1979 meltdown of a reactor at Three Mile Island in Pennsylvania sparked fierce backlash against nuclear energy. Seven years later, the Chernobyl nuclear disaster turned a Ukrainian city into a ghost town…
By the early 2000s, U.S. uranium production was at its lowest in a half century. Around that time, the former Soviet state Kazakhstan was ramping up uranium mining. In just a few short years, it would become the world’s top uranium producer and the second biggest supplier to the United States.
The Central Asian nation accomplished that feat in large part by exploiting a process called “in situ leaching” (ISL) or in situ recovery (ISR)*** increasingly being used to extract uranium. Along with countries like Niger, Mali and Mongolia, Kazakhstan has an advantage: lax regulations that allow it to process uranium cheaply from in situ leaching, which involves pumping chemicals into uranium reserves and carries serious risks to the environment if it’s not carried out responsibly…
And then in 2011, the Fukushima nuclear disaster in Japan created a backlash unlike anything seen since Three Mile Island and Chernobyl. In the aftermath, Japan shut down all of its nuclear reactors, and Germany decided to phase out nuclear energy by 2022. The U.S. nuclear renaissance has also fizzled as flagship projects have turned into costly boondoggles. The venerable Westinghouse Electric Company filed for bankruptcy last year under the weight of billions of dollars in losses tied to its troubled nuclear power plant projects in Georgia and South Carolina. “There’s such a glut of inventory in the market that it’s just not profitable for some of the mines to produce, so the price has just really plummeted as a result of that,” said Sean Davis, a research analyst at IHS Markit who tracks the chemicals used in uranium mining.
Since their peak in 2007, uranium prices have crashed from nearly $140 per pound to $20-$25.
Excerpts from Nuclear wasteland: The explosive boom and long, painful bust of American uranium mining, CNBC, Aug. 4, 2018
The Economist magazine has considered four measures of Chinese corporate unfairness, using data from Morgan Stanley and Bloomberg. The first is the weight of China in the foreign sales that American firms bring in. It stands at 15%; if it was in line with China’s share of world GDP, it would be 20%. This shortfall amounts to a small 1% of American firms’ global sales (both foreign and domestic). America Inc is similarly underweight in the rest of Asia, but there is much less fighting talk about South Korea or Japan.
The second test is whether there is parity in the commercial relationship. Firms based in China make sales to America almost exclusively through goods exports, which were worth $506bn last year. American companies make their sales to China both through exports and through their subsidiaries there, which together delivered about $450bn-500bn in revenue. Again, there is not much of a gap. American firms’ aggregate market share in China, of 6%, is almost double Chinese firms’ share in America, based on the sales of all listed firms.
The third yardstick is whether American firms underperform other multinationals and local firms. In some cases failure is not China-specific. Walmart has had a tough time in China, but has also struggled in Brazil and Britain. Uber sold out to a competitor in China, but has done the same in South-East Asia. American consumer and industrial blue chips are typically of a similar scale in China to their nearest rivals. Thus the sales of Boeing and Airbus, Nike and Adidas, and General Electric and Siemens are all broadly in line with each other. Where America has a comparative advantage—tech—it leads (Facebook, Amazon, Netflix, Google (FANG)). Over half of USA Inc’s sales in China are from tech firms, led by Apple, Intel and Qualcomm. Overall, American firms outperform. For the top 50 that reveal data, sales in China have risen at a compound annual rate of 12% since 2012. That is higher than local firms (9%) and European ones (5%).
The final measure is whether American firms are shut out of some sectors. This is important as China shifts towards services and as the smartphone market, a goldmine, matures. The answer is clearly “yes”. Alphabet, Facebook and Netflix are nowhere, and Wall Street firms are all but excluded from the mainland. Chinese firms, however, can make a similar complaint. The market share of all foreign firms (incuding China’s Baidu, Alibaba,Tencent and Xiaomi popularly called BATX) in Silicon Valley’s software and internet activities, and on Wall Street, is probably below 20%. America’s national-security rules, thickets of regulation, lobbying culture and political climate make it inconceivable that a Chinese firm could play a big role in the internet or in finance there.
Far-sighted bosses know their stance on China must reflect a balanced assessment, not a delusional vision of globalisation in which anything less than a triumph is considered a travesty. But their voices are being drowned out. The shift of the business establishment to hawkishness on China has probably emboldened the White House and also led the Treasury and Department of Commerce to be more combative. Most big firms are blasé about tariffs; they can pass on the cost to clients. Few export lots to China. But soon China will run out of American imports to subject to retaliatory tariffs; in a tit-for-tar war, beating up American firms’ Chinese subsidiaries is a logical next step. USA Inc’s Sino-strop would then end up enabling the opposite of what it wants.
Excerpts from Raging Against Beijing, Economist, June 30, 2018, at 58