Recommended Weekend Reads
July 12 - 14, 2024
Our apologies for the late delivery. We were traveling and had technical issues getting the Recommended Reads published. Here are our recommended reads from reports and articles we read last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.
China
Ahead of the Third Plenum, Diverging Visions for China’s Private Sector Christina Sadeler/Merics
At the Third Plenum, a major policy meeting taking place this coming week, the Chinese Communist Party (CCP) will set China’s economic program for the next five years. The struggling private economy is an issue of concern, given its relevance for economic growth, tax revenues, and job creation. Despite a series of policies and measures to support the private sector, steps taken so far have not been effective in rebuilding confidence. Economic experts have diverging views on what the best measures for sustained growth are: One side points to stronger state guidance and collaboration between private and state-owned enterprises. The other calls for structural reforms for fair competition and a more predictable political and legal framework to revitalize entrepreneurial spirit. Observers of the Plenum should pay close attention to what steps the party-state will take to rekindle trust in the private sector. The path ahead is crucial for China’s businesses and foreign companies doing business in and with China.
How Many People Are in China’s People's Liberation Army? War on the Rocks
The People’s Liberation Army is often described as “the largest military in the world.” But depending on who you ask and what you count, the details are murky and confusing. The deeper one dives into the numbers, the more complicated the picture gets, and the greater the differences between the Chinese and U.S. systems become. Though many recent reforms have surface aspects that appear to reflect U.S. structures, the new-look People’s Liberation Army does not mirror-image its American (or Russian) counterpart. Nor have its new organizations been tempered by combat.
China’s Self-Imposed Isolation Michael Shuman/The Atlantic
In late June, a Chinese man stabbed a woman from Japan and her child at a bus stop for a Japanese school in the eastern city of Suzhou. Two weeks earlier, four foreign teachers from a U.S. college were attacked by a knife-wielding local as they strolled through a park in the northeastern town of Jilin. In a country where violence against foreigners has been practically unheard of in recent years, the assaults have led to some uncomfortable soul-searching among a shocked Chinese public. Are hard economic times fueling a dangerous spike in nationalism? some ask in online debates. Has the Chinese school system, with its focus on patriotism, fed people bad ideas? they wonder. Occasionally, a bold voice risks angering China’s censors by posing an even more sensitive possibility: Could the government be to blame? That’s a salient question. Some dissonance has emerged in China’s mixed messaging and contradictory aims.
Post-Election France
The French Left’s Pyrrhic Victory Spiked
There is something more than a little Pyrrhic about this semi-victory in France over the populist right. For a start, the far-right National Rally (RN) has still massively increased the number of seats it holds – by over 50 percent. It is easily the largest single political party in the French assembly. By contrast, Jean-Luc Mélenchon’s France Unbowed (LFI), the biggest party within the New Popular Front (NFP), has just 78 seats. Given the fragile nature of the coalitions now within the assembly, whatever government emerges after this weekend – Macron’s prime minister, Gabriel Attal, has already offered to step down – will struggle for coherence. Furthermore, while the RN may have lost the election, its raw vote share will give it plenty of encouragement ahead of the presidential elections in 2027. According to the latest figures, the RN received 37 percent (10 million) of all votes cast. That far outstrips the NFP’s 26 percent (seven million) and Ensemble’s 25 percent (6.5 million).
How Le Pen’s Far Right Blew It Politico EU
Bad candidates, incompetence, and a fierce fightback by rivals denied the National R (RN) ally its election dream. The RN won’t come to power, its leader, Jordan Bardella, won’t be prime minister, and the party might not even end up as the main opposition in parliament. To cap it all, on Tuesday, Party chair Marine Le Pen was hit by a corruption investigation over allegations relating to her presidential campaign two years ago.
How Macron Broke the French Political System Philippe LeMoine/”Restoration” Substack
French President Emmanuel Macron probably thought that, by calling snap parliamentary elections after his party was soundly defeated at the European elections and giving the parties only three weeks to prepare, the left would not have time to put together an electoral alliance and force them to present multiple candidates in most districts, so that left-wing candidates would only have been able to qualify for the second round in a handful of them. But, ironically, this strategy produced exactly the opposite result, precisely because left-wing leaders knew that they had no time. Unless they managed to make a deal they would be wiped out, so they decided to effectively tie their own hands by publicly announcing the day after Macron called elections that they had made a deal, even though at that point they had not agreed on anything. Paradoxically, if Macron had given them more time, they would have tried to work out the details first and there is a good chance they would have failed to strike a deal.
Africa
Why Europe Needs Africa Carnegie Endowment for International Peace
In 2017, Africa’s population under twenty-five years old surpassed the total population of Europe. By 2050, Africa will have added 796 million people to the workforce, while Europe’s working-age population (aged sixteen to sixty-four) will decline by 156 million. Europe is aging while Africa’s youth population booms. This demographic transformation is perhaps the defining shift that could recast the fortunes of the two continents, which are separated, at the closest point between Morocco and Spain, by just 14 kilometers (less than 9 miles). Labor shortages and pension costs are already impacting the credit ratings of European countries,3 while the massive demand for employment in the African continent will have significant implications—positive and negative—in terms of migration, stability, future market potential, and economic dynamism.
Geoeconomics
Industrial Policy in the Global Semiconductor Sector Pinelopi Goldberg/Reka Juhasz/Nathan Lane/Giulia Lo Forto/Jeff Thurk, National Bureau of Economic Research
Abstract: The resurgence of subsidies and industrial policies has raised concerns about their potential inefficiency and alignment with multilateral principles. Critics warn that such policies may divert resources to less efficient firms and provoke retaliatory measures from other countries, leading to a wasteful "subsidy race." However, subsidies for sectors with inherent cross-border externalities can have positive global effects. This paper examines these issues within the semiconductor industry: a key driver of economic growth and innovation with potentially significant learning-by-doing and strategic importance due to its dual-use applications. Our study aims to (1) document and quantify recent industrial policies in the global semiconductor sector, (2) explore the rationale behind these policies, and (3) evaluate their economic impacts, particularly their cross-border effects and compatibility with multilateral principles. We employ historical analysis, natural language processing, and a model-based approach to measure government support and its impacts. Our findings indicate that government support has been vital for the industry's growth, with subsidies being the primary form of support. They also highlight the importance of cross-border technology transfers through FDI, business and research collaborations, and technology licensing. China, despite significant subsidies, does not stand out as an outlier compared to other countries, given its market size. Preliminary model estimates indicate that while learning-by-doing exists, it is smaller than commonly believed, with significant international spillovers. These spillovers likely reflect cross-country technology transfers and the role of fabless clients in disseminating knowledge globally through their interactions with foundries. Such cross-border spillovers are not merely accidental but result from deliberate actions by market participants that cannot be taken for granted. Firms may choose to share knowledge across borders or restrict access to frontier technology, thereby excluding certain countries. Future research will use model estimates to simulate the quantitative implications of subsidies and to explore the dynamics of a ``subsidy race'' in the semiconductor industry.
Does geopolitics now determine global trade? Stewart Paterson, Hinrich Foundation
The increasingly popular thesis that the world is fragmenting into geopolitically defined blocs potentially ignores the very real aspirations of regional powers and the fact that not all neighborhoods are composed of like-minded or politically aligned countries. While US-China rivalry has resulted in a rapid decoupling of their economic engagement, it is far from clear that geopolitics is the key determinant of trade patterns beyond that.
Partisan Politics and Annual Shareholder Meeting Formats Yuanzhi Li & David Yermack, National Bureau of Economic Research
Abstract: We study companies’ decisions about holding annual shareholder meetings online during the Covid pandemic and returning to classical in-person meetings post-pandemic. Among S&P 1500 companies, the frequency of virtual meetings shot up from less than 10 percent to more than 80 percent in the first year of the pandemic, with only gradual reversion to in-person meetings since then. Partisan politics has significant associations with these decisions. In-person meetings are more likely for companies that have Republican CEOs, and for companies with headquarters located in jurisdictions that vote Republican. Corporate democracy therefore seems to have been swept up by the tides of contemporary political feuds.