• Source: Economist: 24 Mar 18 "Goblin metals"         

    cobalt rushNote on the article title: cobalt derives from the Germanic "kobold" meaning a type of goblin. A similar story for "nickel". EV (electric vehicle) btteries typically require about 10 kilograms of cobalt. More than half the world's cobalt reserves are in the war-torn and chaotic country, the Democratic Republic of Congo.In 2017, 9,000 tons of cobalt were mined for EV batteries. That amount could increase to 107,000 tons by 2026.

    The company Glencore does most of the mining in Congo and currently, Chinese companies control one-third of Glencore's output. China is in position to control 95% (!) of the world's cobalt chemical market.

    EV batteries can be based on nickel-manganese-cobalt (NMC) or based on nickel-cobalt-aluminum (NCA). Reduce the amount of cobalt in either and bad things can happen (overheating, fires or short charge life).

    Nickel has not had anything like cobalt’s price rise. Nor do the Chinese appear to covet it. Oliver Ramsbottom of McKinsey, a consultancy, says the reason for this relative indifference dates back to the commodities supercycle in 2000-12, when Indonesia and the Philippines ramped up production of class-2 nickel—in particular nickel pig iron, a lower-cost ingredient of stainless steel—until the bubble burst. The subsequent excess capacity and stock build-up caused nickel prices to plummet from $29,000 a tonne in 2011 to below $10,000 a tonne last year. As yet, the demand for high-quality nickel suitable for EVs has not boosted production. Output of Class-1 nickel for EVs was only 35,000 tonnes last year, out of total nickel production of 2.1m tonnes. But by 2025 McKinsey expects EV-related nickel demand to rise 16-fold to 550,000 tonnes.

    In theory, the best way to ensure sufficient supplies of both nickel and cobalt would be for prices to rise enough to make mining them together more profitable. But that would mean more expensive batteries, and thus electric vehicles. Only a goblin would relish such a conundrum.

  • Source - Economist, Nov 03, 2018: "Latin lessons"     

    China, not the United States is the dominant economic power in South America.

    From the article: "China is the region’s second-largest trade partner after America, and the number one trade partner for Brazil, Chile and Peru, notably buying soybeans, iron ore, oil, copper and meat. Its loans are often at high interest rates and are tied to contracts for Chinese firms. They fund both useful projects and vanity ones for local despots." China's loans are based primarily on ROI not ideology.

    "China stands out for its willingness to invest in risky or corrupt places with few alternative sources of capital or of cheap, robust technology. Its approach might be called sub-prime globalization. At best, sub-prime lenders are non-judgmental sources of second chances. At worst, they are see-no-evil profiteers, and vulnerable to backlashes. China is a bit of both."

    "China’s restraint, tolerating Bolsonarian bluster while ignoring Venezuelan sycophancy, does not signal impotence. Its clout has grown astonishingly, notably in the region’s south. Five years ago, for South Americans, the leading outside power was the United States, says Argentina’s ambassador to Beijing, Diego Ramiro Guelar. “Today it is China. Not as a projection into the future. Now.”

  • Article: "Our Bulldozers - Our Rules  

    The article looks at China’s plan to build a new “Silk Road” connecting Europe to Asia overland and to southeast Asia and east Africa by sea. The official policy is known as “OBOR” for “One Belt, One Road” (confusingly the Belt refers to the overland part and the Road refers to the ocean-going part). China is committing itself to $4 trillion in infrastructure projects in OBOR (over an indefinite time frame). But right now, officials say there are 900 deals underway worth $900 billion.

    OBOR matters because it is a challenge to the United States and its traditional way of thinking about world trade. In that view, there are two main trading blocs, the trans-Atlantic one and the trans-Pacific one, with Europe in the first, Asia in the second and America the focal point of each. Two proposed regional trade deals, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, embody this approach. But OBOR treats Asia and Europe as a single space, and China, not the United States, is its focal point.”

  • Sources: "Financial assets, made in China"

    After years of having very little connection to the wider world of financial markets, Chinese stocks and binds are being included in global indices, meaning that events in the Chinese economy will be felt around the world. Or put another way, a Chinese recession in the future will have a greater impact on the world economy than it does today.

    From the article: "One kind of Chinese good few abroad dare touch: its financial assets. Outsiders own less than 2% of its shares and bonds, far below the levels of foreign ownership seen in other markets. Capital barriers and financial risks have put investors off. This, however, is changing. The globalisation of China’s capital markets is slowly gathering steam, as symbolised by the inclusion of Chinese stocks and bonds in global indices. MSCI, a company that designs stockmarket indices, announced on June 20th that it will bring Chinese equities into two of its benchmarks: one that covers emerging markets; and another that follows stocks around the world. To begin, it will include a small number of shares, just 222 of the more than 3,000 listed in China. But its decision matters to asset managers who track their performance against MSCI’s indices or who invest in exchange-traded funds linked to them. They will in effect be forced to allocate capital to China’s stockmarkets, many for the first time. Because MSCI is giving Chinese stocks a limited weighting (0.73% of its emerging-markets index), the resulting cash inflows could add up to only about $10bn next year, equivalent to less than one hour of trading in China’s frenetic markets. Yet the weighting is likely to increase in the coming years."

  • Source: "The bad earth"  

    The World Health Organization estimates that smog in China contains ten times more pollution than what would be considered safe. Air pollution is visible but soil pollution, although less visible, is more of a problem. A 2014 soil survey conducted by the Chinese government (and kept secret for years) indicates that almost 20% of all farmland in China is contaminated with heavy metals like cadmium or arsenic, due to unregulated pollution from heavy industry. This is an area the size of all the arable land in Mexico. And this is a problem as soil can remain toxic for decades or even centuries and take years to clean up (it took the US over 20 years to clean up the relatively small Love Canal site in New York State). This is a further problem as China already has 18% of the world's population but only 9% of its arable land.

    Human impacts of soil pollution include China's "cancer villages" - these are 450 locations where there are unusually high levels of liver and digestive tract cancers amongst the inhabitants. There is also "cadmium rice" - a recent test conducted in the southern Chinese city of Guangzhou found that half the rice tested had high levels of the toxic metal cadmium. 

  • Source - Economist, November 17, 2018: "Seizing the laurels"     

    China sent its best students abroad beginning in the 1970's and now those PhD's are coming home to China where generous incentives reward them for publishing. China is poised to become a world leader in academia in the next decade.

    Papers published

    All from the article: Tsinghua University is a major source of Chinese pride as it contends for accolades for research in science, technology, engineering and maths (stem). In 2013-16 it produced more of the top 1% most highly cited papers in maths and computing, and more of the 10% most highly cited papers in stem, than any other university in the world. The Massachusetts Institute of Technology (MIT) still leads in the top 1% of stem papers, but Tsinghua is on track to be “number one in five years or less”.

    Tsinghua and Peking University are modelled on Western research universities. The two are also neighbours and rivals, China’s Oxford and Cambridge. Tsinghua is the conventional, practical one—the alma mater of many of the country’s leaders, including the current one, Xi Jinping, and Hu Jintao, his predecessor. Peking University is the home of poets, philosophers and rebels; Mao Zedong worked in the library, and the university was at the forefront of the Tiananmen Square protests of 1989.

    Since 1995 the central government has mounted a series of efforts, involving billions of dollars in spending, to turn China’s best universities into world-class ones. Money is the lever. The funding system motivates universities to produce top-class research. Universities, in turn, give their academics an incentive to do so. A study by three Chinese researchers, published last year, noted that payments for getting a paper published had risen steadily from the $25 that was offered nearly 30 years ago. Now such bonuses range up to $165,000—20 times the annual salary of an average academic—for a paper in Nature. The system has responded. China’s share of STEM papers in Scopus, the world’s biggest catalogue of abstracts and citations, rose from 4% in 2000 to 19% in 2016, more than America’s contribution.

    The most important moment in the development of Tsinghua” was in 1978, when Deng Xiaoping said China would send larger numbers of students abroad. “We need to send tens of thousands,” Deng said. “This is one of the key ways of…improving our level of scientific education.” Officials worried that few of them would return, but Deng insisted that enough would. He was right. Forty years on, Tsinghua and the country’s other top universities are reaping the rewards. The return flow of highly trained people is gathering pace. The government has provided extra resources to attract them. Tsinghua cannot match the best American packages, but it can offer six-figure dollar salaries—and the opportunity for young parents to bring up their children in their own culture.  

    And while China’s universities forge ahead in the hard-science league table, they seem less likely to triumph in the social sciences. One problem is language. All the world’s leading journals are published in English. That matters less for hard scientists, who communicate mostly in symbols, than for social scientists, who use many more words. An academic in Tsinghua’s education department says Chinese social scientists complain that their best ideas are difficult to translate. “Writing papers for English-language journals is like competing in an exam that is set by the West,” she quotes them as lamenting.

  • Source - Economist, Nov 10, 2018: "Trade blockage"     

    The Trump administration is trying to break an international system that has kept tariffs low and trade free since the end of WW 2. The average tariff rate between Europe, the US and Japan was 22% in 1947. It has been averaging about 3% since 2000, thanks to the WTO. The WTO has 164 member nations and accounts for 98% of all world trade. To be a member means you agree to keep your tariffs low and apply them to "most-favored nations" equally. Ex: China must put the same (low) tariff on cars imported from the US as it does on cars imported from the EU. The tradeoff: a member nation can't protect its own industries through high tariffs - but it doesn't have to worry about them on its own exports.  Trump would like to leave the WTO and be free to increase or renegotiate tariffs as he sees fit. Leaving the WTO would require Congressional approval (not likely).  

    Summer of 2018: the Trump administration has enacted new tariffs affecting $90 billion worth of imports (one-third of which comes from China) and has plans to impose an additional $200 billion in tariffs on Chinese goods alone. These new tariffs are generating disputes normally heard by WTO judges - but Trump is blocking confirmation of new judges. There are 7 WTO judges who must be unanimously confirmed. 3 are assigned to hear disputes. The Trump administration has refused to confirm new judges, meaning by December 2019, the WTO will no longer have enough judges to hear new cases. 

    Robert Lighthizer is the US Trade Representative. He believes in the advantages of the WTO but thinks China cheats. Chinese firms often appear to be independent but in fact receive large subsidizes from the Chinese government, meaning that privately owned companies cannot compete. China also requires other firms in joint ventures with Chinese companies to hand over proprietary technology, which is then pirated. The Obama administration sought to tempt China to the negotiating table by trying to enter into deeper trade partnerships in the Pacific Rim (the Trans-Pacific Partnership) and with the EU. The idea being that China would have to change its ways if it wanted a similar beneficial relationship with the US. The Trump approach is to use threats and tariffs to force the Chinese to change their ways. The Reagan administration did this to a certain extent with Japan back in the 1980's - but Japan's economy was only 40% of the US, China's GDP should be 90% of the US by 2023. 

  • Source: "War games - U.S.and China trade"  

    US SuicideThe US under Trump wants to reduce the US-China balance of trade, now titled about $300 billion a year in favor of China. Also, Trump is citing intellectual property theft as a concern. " pressing American companies to hand over their technology when they form partnerships with Chinese ones (this is often a condition of operating in China), and by making it hard to enforce intellectual-property rights once a technology-related contract ends, the Chinese state has rigged the system against American companies."

    Blocking Chinese investment in US companies would reduce the threat of intellectual property theft. One action..."would be tighter rules on investment between the two countries. The details are unclear. The president can already block investment on national-security grounds, using the Committee on Foreign Investment in the United States (CFIUS)."

    Regarding the trade imbalance, it is caused by multiple factors. In fact,a high imbalance is a sign of a prosperous economy on our end. From the article: "Another risk stems from Mr Trump’s obsession with the bilateral trade deficit. No deal can guarantee to bring it down. Whatever the two sides agree to, the fact is that trade is devilishly difficult to manage. Factors beyond China’s control could easily overwhelm the impact of any deal on the bilateral trade deficit. Mr Trump’s cuts to income and corporate taxes mean that America’s economy is about to receive a large stimulus. All else equal, this will suck in imported goods."

    "As for Chinese investment in America, the CFIUS committee was already toughening its oversight. According to Rhodium Group, a research firm, this was part of the reason Chinese investment in America fell by 35% from 2016 to 2017 (a Chinese clampdown on outbound capital was the main factor). New rules that give wide discretion to the president, or block investment on economic rather than national-security grounds, could easily be abused."