It is a beautiful day in HK. I’m at lunch, well, waiting for my bff at a wonderful Italian place called Cantina (next door was our wedding reception 5 yrs ago) & opened up my fav pink paper & the FT Big Read was Ursula choking Europe with regulations (she also chairs a paper that also supposed give her more money to deregulate). There lies the rub. Can u let the person who has led Europe down this rabbit hole be the person to lead it out of it? Some pics from my walk from home to lunch. Hong Kong 🇭🇰 is lovely, best time to visit is October, November & December.


“Inflexible EU rules set Europe’s car 🚗 industry for failure” says critics according to the paper.

“Conservatives & far-right lawmakers accuse the bloc’s ambitious green & digital agendas of punishing citizens & businesses.”

Interesting the definition of conservative & far-right. But irrespective, you can see the results.

She & Draghi chaired a report that says the EU is uncompetitive & too regulated & strangled. Behind.

Okay, but who has been in charge?

The RBI just cut the cash rate by 50bps and kept the policy rate on hold at 6.5% as slowing government spending and a weakening manufacturing sector is dragging down GDP growth.

This is my short thread on examining the India-Japan investment and trade relationship & why they haven't changed much in 10 years despite India being a big domestic demand market that Japan needs.

I argue that this is symptomatic of what is happening to Indian firms themselves. They find it hard to scale and leverage the labor endowments the country has.

How do we change this? Well, by changing the norms of thinking that the government needs to micro manage everything. It should set framework but let Indian private sector flourish.

Let's go. First, what is the India Japan relationship? Well, it's getting better but remains SMALL relative to the ASEAN Japan (Vietnam Japan for example). Japan investment to India despite India being a huge domestic demand market that is super complementary to Japan weak demographic trends is at 4% of total. Look at ASEAN. Yes, at peak around 28% and settling about 24% of total.

India is a ginormous market. So why growing just from 2 to 4% of total???

I'm going to Delhi this Thursday for the India Japan Conference. Excited to go. The key thing I will emphasize while India is how much India needs manufacturing.

The contraction of manufacturing in Q3 2024 led to sharp slowdown of GDP to 5.4%YoY.

India needs manufacturing not just for cyclical growth but social stability. There is no way you can absorb that many people from the rural sector without manufacturing.

The government needs to put all its effort behind this. Manufacturing is the future. It is an essential ingredient to growth.

Why? Because we still live in a material world. How do I know? India has about USD100bn deficit with China in manufactured goods. Shared my views in this documentary:

Guys,

Are you ready for a Trump tariff thread and what this means? This is going to be a bit of a technical one but I'll make it easy & fun & we'll go through literature & analysis.

Let's go.

https://twitter.com/Trinhnomics/status/1014791235452588032

We start with the basics. How does tariff work? First, as you know, the US is a big free trader. Still is despite tons of tariffs on China. So goods in the US generally are tariff free to import & hence proliferation of foreign goods in the US.

But that being said, it does impose tariffs & duties. Sometimes overtly targeting a specific product to protect domestic sector due to lobbying. Anti-dumping duties is an example. A country that is not a market economy is an easy target (China, Vietnam) as u can say those countries have subsidized excessive production & hence duties.

But comes Trump. He has been consistent since the 1980s about the US trade deficit which he has railed against in public interviews and what does he do.

He started a US-China trade-war on washing machine duties.

Before we talk about what has Trump 1.0 (=first term 2017 to 2020) & Biden (2020 to 2024) done in terms of tariffs, I want to talk about the practicality of WHO PAYS FOR TARIFFS.

Two days after the elections & as Trump team prepares their team, let's talk about economic impact. This morning, I will read with you a few papers that have analyzed what he said as literal policy translation.

https://twitter.com/Trinhnomics/status/1854326137713025037

First, Trump 2.0 will not be as messy as Trump 1.0. Why? Well, dude is gonna prolly get enough people to approve his thousands of people that will be appointed so DC.

This is what you get when you have total power (likely House, Senate).

Second, he has done it already so got a few people in the bags to choose from and the troops in the GOP have rallied behind him.

What does that mean? Trumponomics is going to be pretty forceful, whatever that may be.

Prabonomics Wish List: Higher Tax Revenue, More Social Welfare and Rapid GDP Growth.

A thread on Indonesia's 8th President who will lead Southeast Asia's largest economy & fourth most populous in the world in the next five years. Let's go! 🇮🇩

https://twitter.com/Trinhnomics/status/1755422312718045482

First, what is Prabonomics? Well, we don't know yet but he won on the promise of continuity of Jokonomics that comprised of infra capex, fiscal prudence, and downstreaming of metals (nickel).

Still, let's talk about his objectives. On the economy, he wants:

GDP to rise by 8% in the next 2-3 years (Jokowi only managed 4.1% on average in 10yrs and excluding Covid years then 5.1%) so that is raising GDP growth by 3-4% higher than its current batting average.

Here is a short thread on why China fiscal policy, specifically central government support, is sorely needed & monetary support so far is not enough. First, China got triple D problems - deflation, debt, demographic. All going badly.

Regarding deflation, it reflects an imbalanced economy where supply-side support for a long time has led to too much supply relative to demand domestically.

The easiest way to see it? China's producer price index. It's -2.8%YoY for September 2024. Meaning, producers get less money for the same stuff they make vs last year.

Okay, how is this bad? Margin compression. Your revenue is lower if you are a producer. Or DECLINING INDUSTRIAL PROFITS.

Great story about India rice policy. What I find interesting about this is of course the agriculture gets the most subsidy in the budget & one can say that India gives so much more to farmers and the sector than any sector by a wide margin.

That is a distortion that favors them as they are a powerful vote bank. But at the same time, the government also banned the exporting of rice when rice surged and that meant farmers couldn't make more money.

What India does with farming is very interesting. As it is a country with food surplus and the budget gives most weight to farming while most farmers remain very poor and more than 75% work for sub minimum wage. India's central government expenditure budget. Rural development + agriculture gets so much.

There is a lot of talk about production linked incentives but it really just got 1.5bn in FY25. So that means this budget is just mostly agrarian.

Meanwhile, farmers were blocked from exporting rice, causing rice to rot. This is a policy to prevent rice price from rising, causing CPI to spike.

This is a sector worth paying attention to as most Indians live in rural areas & they matter even if farming is only 16% of GDP.

The best research on India is written by the @RBI and it's called the RBI Bulletin (very similar to BOE bulletin) & it's amazing. Go to the state of the economy for charts/details on what's going on in India & then they always have essays on specific issues.

Central banks are consistently the best place to get information on a particular country. I also like the RBA website as well. Enjoy!

We can read some of these together in case you find it intimidating reading central bank language.

rbidocs.rbi.org.in/rdocs/Bulletin… Some charts of interest from my reading.

India annual installed capacity of solar + wind + other renewables > coal, oil and gas since 2017.

Germany is in structural decline & the path for that was waved by Angela Merkel who:
a) Allowed for mass irregular migration since 2015 that paved ways for Brexit, the far right rise in Germany and Europe
b) Appeasing Russia after its annexation of Crimea and expansion dependency on Russian gas
c) Phasing out nuclear energy.

As a result, Germany today deals with HIGHER input costs (energy is obvs) & also the political fallout of irregular migration.

Sholz of course is a worse politician than Angela Merkel but the path of its demise is paved by her. The fact that China has pursued:
a) Expansion of coal, solar, wind, and nuclear to REDUCE INPUT COSTS
b) Subsidies in high-tech
c) Allowed for it to be competitive despite higher tariffs in Europe.

Meanwhile, Sholz asleep at the wheels. This is his reaciton: “Our country cannot and must not get used to this,” he went on. “The AfD is damaging Germany. It is weakening the economy, dividing society and ruining the country’s reputation.”

Statistics versus anecdotes. What do you believe? Well, if you study a Stat 101, the first thing they teach you is HOW the data is compiled & then you learn HOW to read it.

Fact: People feel that crimes are up because they know someone who is personally attacked or themselves;

Also fact: Crime stats show that crimes are down.

Can both be true? Yes, because crime stats can be manipulated by the source of crime but not including crime.

sfchronicle.com/crime/article/… Are the Democrats the party of crime and punishment? Or are they the party of having low crime by REDEFINING what a crime is? Or even counting and prosecuting it?

The reality is that it is hard to know if the statistics are misleading because the beauty of statistics is to be impartial & to be able to aggregate and quantify your perceived reality, which is MICRO, and stats are supposed to help with MACRO & relative past/present/future.

Pig Butchering Scam. Do you know what it is? I didn't until this Bloomberg Feature Story. USD75bn has been stolen from victims around the world & routed through crypto exchanges.

Before I go on about the story, I want to talk about this idea of Pig Butchering Scam. Basically, it works like this, usually via crypto.

You befriend a victim via social media & gain their trust & get them to invest in crypto & allow them to get "fat" or gain & finally "butcher" them by taking a larger sum and disappear.

bloomberg.com/features/2024-… Scams are an industry. According to this Bloomberg story, there's an entire economic zone dedicated to it with an airport, casinos, resorts, basically soft & hard infrastructure.

A man called Zhao built it & gives the Laos government a 20% cut for a 99-year lease. He then leases out the infra to criminals that run online scams & also drug trafficking.

There's an entire supply chain w/ incentives, including the perpetrators, who are also victims of human trafficking.

bloomberg.com/features/2024-…

India unveiled its FY25 budget yesterday (btw, they have another one in 6 months) & it was very much a fiscal consolidation, jobs, and responding to people's beef about the woeful labor market (Modi lost seats in Uttar Pradesh).

Before I talk about the Budget, let's talk about India labor supply & demand. Ready? As you know, India is the most populous country in the world today & will be even more so in the future.

Let me put it a different way, by 2040, one out of 5 people will be Indian.

So what happens to India matters because it's a fifth of the world population by 2040.

As a follow up to that podcast, Bloomberg had a story that just came out that blew my mind. I knew it but they really dug deep.

This is a story about economics, resources, comparative advantage & the choices we make.

Nickel. What do you know about it?

bloomberg.com/features/2024-… First, nickel is a material that has to be DUG out of the earth & process. Some easier (colder nickel in Russia) & some harder like wet & warm places like Indonesia where you have plenty of it but it's the processing that's difficult.

Here comes China.

China new home sales fall further & while some may say that the real estate is now not so important for China, it remains a key driver of wealth effects & that is negative. Meaning, the data dump that we will get in 10 mins will likely show a further misaligned economy where consumption falters while supply rises. This will add to further tensions with the West & even the South as China will need to export that excess supply, driven by policy to rise in the value chain, or to vertically integrate its supply chain, to the rest of the world.

Chinese corporates will increasingly have to do it via tariff arbitrage, as in third country export or building factories where they want to sell.

I just listened to this & took some notes. Allow me to share it in a thread. Worth for all interested in EV, Indonesia, Nickel, China etc.

https://twitter.com/TheStalwart/status/1801173513614581858

Indonesia now has 55% of global nickel production & home to the world's largest reserves.

Why does this matter? First, what is nickel used for?

Good morning Asia!

Instead of a landslide, we got earthquakes, Modi & the BJP got the most seats but much less than they benchmarked (400) & less than 2019 (303) at 240. To govern, they need to work with fickle allies to operate a coalition government.

This will require a much more consensus driven governance. That may be positive or negative depending who u are. Meaning, in the short-term, forming a government takes priority over long-standing reforms that are already politically difficult when they had the government. We may have more fiscal welfares & so if we continue with the same capex, fiscal deficit may widen. Or we may have less capex than before. Irrespective, this area will be watched carefully. Under Modi, grain & fertiliser subsidies remain large & was promised to be in place.

Note that India fiscal deficit has consolidated as of late but remains large. What has changed is the quality - higher tax rev ratios & more capex & less subsidies as share of GDP

This article in the FT doesn't make any sense. The author argues that Modi fails to create job for low-skilled people, esp labor-intensive manufacturing. It also faults Modi for its high-end growth (services, high-tech, infra, etc)

But then it ends with saying, well, don't bother to even develop manufacturing and just work on service exports.

Wait a minute. How is India going to generate jobs? ft.com/content/c4631d… Btw, all the critiques of India makes sense. The issue I have with Rajan and also Congress is their solutions.

They don't have one. Literally. Rajan tells India to forget about trying to do manufacturing & focuses on services.

India exports a lot of services. Manufacturing is the weak spot, not services!!! And if u want a lot of jobs, u need labor-intensive manufacturing.

Who likes higher fuel prices in Asia??? Well, no one except Indonesia and Malaysia and by that I mean exporters.

The biggest deficit as a share of GDP goes to Thailand but mostly in LNG. Second is South Korea.

Obvs this is as a share of GDP. Higher fuel costs = higher import costs = someone has to pay for it & eg higher inflation or higher fiscal costs. Who likes higher food prices? Well, a few - Thailand, Malaysia, Indonesia, Vietnam and India. Obvs this is EXPORTERS only who gain. EM has high food as a share of consumption basket. But net food exporters have levers to pull. They can BAN exporting of food.

Who is most vulnerable? The Philippines. South Korea imports a lot too.

Good morning,

Did you know that South Korea exports more to the US now than it does to China?

Actually, it isn't alone. A lot of Asian countries, due to supply chain reshuffling and also geopolitics and industrial policies, are exporting now more to US than China.

Why is South Korea doing more trade with a country far away than a country next door? First, growth of exports to the US is faster than exports to China. In fact, China hasn't been importing much more and it is Korea that has been importing more from China for goods such as intermediate goods etc.

This has raised a big concern in Korea that China is a competitor & it's hard for SK to compete with its industrial policy and subsidies.

Happy International Women's Day! First, I think we should celebrate women everyday (& men). Anyway, here is a thread about women and the labor force participation with a focus on India. Ready? Let's go!

India's Womenomics? Modi’s Decade of Formalisation of Jobs Marches Forward👈 By 2030 or roughly the end of Modi's 3rd term should he win, 1 out of 5 working age people will be Indian on earth.

To transform that demographic change into dividend, we need a lot of jobs. For India to grow >7% sustainably, we need to do to have more jobs. Let's talk about it