The Economist – September, 2017

Health care with Chinese characteristics

Xi Jinping urges practitioners of traditional Chinese medicine (TCM) to “push for TCM to step onto the world stage”.

If only there were a Chinese company that owned lots of health and beauty retail shops and drug stores around the world like Kruidvat in the Netherlands and Belgium, Rossmann in Germany, Superdrug in the UK, and Watsons in Asia and beyond.  Oh, wait, CK Hutchison Holdings owns all of those – never mind…

Meatless meat meets fishy fishless fish food

In 2013, David MacLennan became CEO of Cargill, America’s largest private company with revenues of roughly $110 billion.  About that same time, the world saw the end of a China-led commodities super cycle.  In 2015, Cargill bought EWOS, a Norwegian fish-food company, for $1.5 billion.  It is also a co-investor in a factory that aims to produce fish food from bacteria fed on methane.  In August, it took a share in Memphis Meats, which produces animal meat products from the cells of living animals rather than carcasses.

The value of Africa’s most valuable company is made in China

Naspers is Africa’s most valuable company.  Why?  In 2001, the South African company invested $32 million in a Chinese technology firm called Tencent.  Today its 33% stake is worth $130 billion.

Wayne Lotter was killed on August 16th, 2017

Tanzania is a world hotspot for ivory poaching.  Between 2009 and 2014, it lost 60% of its elephants.  Wayne Lotter was a co-founder of Protected Area Management Solutions (PAMS) Foundation, an organization dedicated to slowing down the loss of elephants.  He helped get several kingpins arrested, including Yang Fenglan (“The Queen of Ivory”) and Boniface Methew Malyango, known as Shetani (“The Devil has no Mercy”).  On August 16th, a gunman forced his taxi door and shot him on the outskirts of Dar es Salaam.  Ivory that poachers get 5 euros a kilo for in Africa sells for 2,000 euros in China.

Facial recognition and the reading of faces: Nowhere to hide

the ability to record, store and analyse images of faces cheaply, quickly and on a vast scale promises one day to bring about fundamental changes to notions of privacy, fairness and trust…

anyone with a phone can take a picture for facial-recognition programs to use…

photographs of half of America’s adult population are stored in databases that can be used by the FBI…

artificial intelligence can reconstruct the facial structures of people in disguise…

Amazon, IBM, and Microsoft provide face recognition as a cloud-computing service.  It is central Facebook’s plans.  Governments want it.  Change is coming.

Recognizing those engaged in facial recognition

Megvii is a Chinese company established in 2011.  More than 300,000 companies and individuals around the world use its face-recognition technology called Face++.  Other companies working on facial recognition include China’s SenseTime and Russia’s NTechLab.

Megvii and SenseTime “have access to the Chinese government’s image database of 700 million citizens”.

More and more of China’s “hundreds of millions of surveillance cameras will soon recognize faces”.

In Shenzhen facial recognition is used to identify jaywalkers 

Xiaomi, a chain of convenience stores, has said it will use facial scans when people enter its stores

JetBlue and other American airlines have taken initial steps to match passengers’ faces to passport photos, aiming to eliminate boarding passes.

Because Facebook’s members tag friends on photos, the firm’s algorithms can, in other pictures, recognize those that have been tagged.

Reading faces

Researchers Michael Kosinski and Yilun Wang have developed software that can infer sexual orientation by analysing people’s faces.

With the right data sets, Dr. Kosinski suggests similar AI systems might be trained to spot other traits, like IQ or political views.

Making faces

Craig Venter, boss of Human Longevity, and some colleagues have developed an algorithm that generates images of people based on their genes.

Using such techniques, it might be possible to reconstruct a person’s face from any genetic material of the person that one might have.

China & the rise and fall of commodity prices

China “produces nearly as much coal and steel as the rest of the world combined, and even more aluminum and cement”.

Last year the government ordered coal mines “to cap their production at 276 days”.  By 2020, China’s government plans to reduce the country’s annual capacity for coal production by 25%, its annual capacity for steel production by nearly 20%, and its annual capacity for aluminum production in big production areas by 30%.

At the same time that China has closed steel mills and halted work at coal mines, demand has strengthened, thanks to a property-market rally and government spending on infrastructure.

Perhaps unsurprisingly, coal and steel prices have more than doubled since the start of 2016.

This year, the government let coal mines increase their production to 330 days.  In recent weeks, there also seems to be evidence of a slowdown in the property market.

Are commodity prices due for a fall given the increases in supply and tempering of demand?

North Korea’s missile program is advancing much faster than expected

Do engines for North Korea’s intermediate range missiles come from the Ukraine?

Why are investors so relaxed about North Korea?

North Korea has tested a possible hydrogen bomb and sent a missile over the territory of a neighbor, yet South Korea’s stock exchange is still up on the year.

Perhaps geopolitical events are unimportant to the market value of firms?

Maybe they do matter, but investors don’t think the likelihood of something happening on the Korean peninsula is very high?

Alternatively, maybe geopolitical events do matter, and something could happen on the Korean peninsula, but markets are just not very good at assessing political risk?

Or perhaps something else is going on?

The virtues of budget deficits

Forgetting stagflation, the Economist advocates for government budget deficits and provides further evidence that the magazine isn’t what it once was.

Fishy fish food problem. Peanut butter solution?

The mucky sediment below fish farms usually teems with antibiotic-resistant bacteria.

Could be because fish farmers give their fish antibiotics.  Could also be because of the heavy antibiotics in the fish whose parts are ground up into fishmeal and fed to the fish.

If traditional fish food may be a source of antibiotic- resistant genes migrating into oceanic bacteria, perhaps there is a fishless fish food that could minimize such issues.  Cue the trumpets – FeedKind to the rescue?

Macau: few in former Portuguese colony demand greater democracy

Pro-government legislators hold 29 of the local assembly’s 33 seats.  12 go to labour unions and other interest groups.  7 are appointed by the chief executive.  14 are filled by direct elections.

Unlike Hong Kong, Macau never became a haven for Chinese fleeing communism, and in the 1960s, the Chinese Communist Party gained strength in the territory when the Cultural Revolution spilled over from the mainland, triggering pro-Communist riots.

Electric cars in China

On September 9th, Xin Guobin, vice minister of industry and information technology, told an audience in Tianjin, that the Chinese government is developing a plan to phase out fossil-fuel powered cars.

The electrification of transport could give Chinese carmakers and suppliers a chance to change from also-rans into champions.

Freight gain: new rail routes between China and Europe

Between 2013 and 2016, cargo traveling by rail between China and Europe quintupled in weight.

In Kazakhstan, a $250 million dryport at the border with China – the Khorgos Gateway – lifts containers from Chinese trains onto Kazakh ones to overcome a change in track width.

KTZ, Kazakhstan’s national rail company, says it will be able to handle 1.7 million containers a year between Europe and China by 2020.  A full modernization of the existing three rail routes from China to Europe could enable a capacity of 3 million containers a year.

Last year, 180,000 tonnes of cargo traveled on trains from China to western Europe.  700,000 tonnes came by air.  52 million tonnes came by sea.

U.S. Federal Reserve prepares to shrink its balance sheet

… and the Economist voices skepticism regarding the laws of supply and demand…

Between the fall of 2008 and 2015, Fed assets ballooned from $905 billion to $4.5 trillion.  Starting this fall, it is expected that the Fed will stop reinvesting all the proceeds of its maturing securities in new issues, thereby shrinking the size of its overall balance sheet.

The consensus is that the Fed’s asset purchases brought down long-term interest rates.  With the Fed planning to reduce its holdings of Treasury bonds and mortgage backed securities, one therefore might expect interest rates to rise.

According to the Economist, however, there are reasons to doubt this…

Equifax: compromising the personal information of 143 million people

On September 7th, Equifax admitted that hackers had gained access to the personal information of roughly 143 million people, most of them American.

Data the hackers may have gotten their hands on include Social Security numbers, dates of birth, and driving-license numbers (and for 209,000 people, possibly their credit-card numbers as well).

Does China play fair?

Chinese competition: illegal (hacking, theft of intellectual property), intense (low prices, good products, vast reserves of personal data unprotected by privacy rules), unfair (insisting on technology transfers for market access, prohibiting the entry of foreign firms into certain sectors, the targeting of foreign firms for rules violations, cheap financing for local firms)

Economist’s answer to greater international competition?  Bigger government, more government programs…

Chinese demographics

Overall fertility rate in China is 1.2 (according to the 2010 census).  In Guangxi, it is 1.79.  In Beijing, it is 0.71.  Without immigration, a country’s population will, in the long run, shrink if the fertility rate is less than 2.1.  Despite low fertility rates, Beijing, Shanghai, and Tianjin are China’s fastest growing provincial-level entities, due to internal migration within China.

Slouching towards a “soft Brexit”?

Real-time insurance

Flock, a London startup, will offer insurance for commercial drones on a flight-by-flight basis.  Root, a car insurer, offers drivers insurance based on their minute-to-minute behavior behind the wheel and gives a discount to Tesla drivers if their car spends plenty of time in autonomous mode.  Slice, a San Francisco startup, lets its customers insure their houses and cars for the time they are used on services such as Uber and Airbnb.

As an ever-growing number of sensors – in phones or watches, drones or cars – gather ever-greater volumes of data, more and more activities can be assessed for real-time risk…

on-demand insurance seems bound to grow…

Americana: A 400-Year History of American Capitalism

Digital devices are challenging the nature of ownership

Is there a right to tinker?  A right to repair?  What data are products accumulating after being purchased?  Who controls the use of that data?

Rivigo: The Indian pony express

In setting up a network of 70 “pitstops” in India, each around 200-300km down the road from each other, Rivigo has organized a pan-India relay system, where drivers ply a four to five hour journey from their “home” station to the next, then drive back to their home station in another vehicle.

By keeping a truck constantly on the road, loads get where they need to go more quickly.  In addition, drivers are now home most nights and can be paid less, as they tend to live in cheaper rural areas near pitstops between cities.

Seems like a good example of how a clever use of information can change the way an industry operates.

Technological disruption without profit destruction

Schumpeter is turning in his grave?  No, just writing interesting essays…

Over the next decade, [tech titans] say conventional industries will face an onslaught from tech competitors wielding vast financial resources, new technologies and massive reserves of data. 

However:

…hardly any American companies are valued by investors as if their profits will fall… Only about 40 companies in the S&P 500 have a price-earnings ratio of less than 12…

Amazing what low interest rates will do…

The Bank of Japan

In 2012, the Bank of Japan held around 10% of all Japanese government bonds.  Today, the BOJ holds 40% of all Japanese government bonds and 71% of exchange-traded funds.  In four and a half years, the BOJ’s balance sheet has tripled and is now roughly the size of the U.S. Federal Reserve’s.  It has also become the largest shareholder in several companies.

…nobody… can see when the BOJ will start to reduce its asset purchases, let alone trim its balance-sheet.  Perhaps never.  For all the problems its easy-money policy brings, many think it more costly to ditch it than to keep on digging.