Arvind’s Newsletter -Weekend edition

As mentioned in last few issues of this newletter I will be travelling over next 3 weeks and this newsletter will come intermittently and not daily as usual .

1.The G20 summit opens on Friday at New Delhi.

With the Russian and Chinese leaders absent, the president of USA Joe Biden hopes to get others to align with him on a variety of matters, including Ukraine and curbing Beijing’s assertiveness in the Indo-Pacific, reports the New York Times.

The meeting also casts a spotlight on India, which has sought to present itself as a rising global power with a fast-growing economy and rapidly expanding technological capacity. “It is one thing to hear about India’s demography, democracy, diversity and development from someone else,” Prime Minister Narendra Modi wrote in The Indian Express. “It is totally different to experience them first hand.””This is our soft power’: Narendra Modi hopes G20 summit will mark India’s ascent reported the Financial Times.

2.After Reliance, Tata Group set to announce AI partnership with NVIDIA

There were two major news reports spotlighting Reliance. The first (speculative) that it was also exploring a chip making foray in partnership with foreign player and the second (announced) that it was partnering with chip maker NVIDIA in AI.

The partnership is being done to boost India's artificial intelligence and semiconductor chip ambitions. Apart from this, the partnership will help develop an indigenous foundation large language model trained on the nation's diverse languages and tailored for generative Al applications.

A later news report by Reuters, mentioned that the Tata group will also announce soon a partnership with NVIDIA.

3.A widening Chinese ban on the use of iPhones by government officials drove U.S. tech stocks lower as investors worried over the growing fallout of tensions between Beijing and Washington.

China is looking to expand a ban on the use of iPhones in sensitive departments, government-backed agencies and state companies, reported Bloomberg. In addition, Beijing intends to extend that restriction far more broadly to state-owned enterprises and other government-controlled organizations. If Beijing goes ahead, the unprecedented blockade will be the culmination of a yearslong effort to root out foreign technology use in sensitive environments.

4.Middle Eastern Sovereign Wealth Funds become the world's ATM, reported the Wall Street Journal.

Flush with cash from an energy boom, Saudi Arabia and other Gulf monarchies eager for global influence are having their moment on the world’s financial stage.

Five years ago, Saudi officials watched a wave of American finance executives pull out of a free investment confab in Riyadh after the murder of a dissident journalist made the kingdom a toxic place to do business.

This year, the conference, nicknamed “Davos in the Desert," is expecting so much demand it is charging executives $15,000 a person.

Middle East monarchies eager for global influence are having a moment on the world’s financial stage. They are flush with cash from an energy boom at the very time traditional Western financiers—hampered by rising interest rates—have retreated from deal making and private investing.

The region’s sovereign-wealth funds have become the en vogue ATM for private equity, venture capital and real-estate funds struggling to raise money elsewhere.

The market for marquee mergers and acquisitions has seen a surge of interest from the region. Recently announced deals include an Abu Dhabi fund’s purchase of investment manager Fortress for more than $2 billion and a Saudi fund’s $700 million purchase of global lender Standard Chartered’s aviation unit.

5.”It’s no longer a given that China will become the world’s largest economy” opines FT columnist Muhamad El-ERIAN

Economists and Wall Street analysts have been disappointed in China’s economic performance, holding out hope that this might prompt the government into a stimulus effort similar to the one seen in 2008. This, in turn, would reinvigorate domestic growth and restore China as a key engine of global expansion. However, the more likely scenario is continued weak growth.

The primary policy question now is how quickly the government will shift away from stimulus measures to a faster fundamental overhaul of its growth strategy. China’s underwhelming economic performance so far in 2023 can be attributed to two major factors: a lacklustre recovery following the easing of stringent zero-Covid restrictions, and more persistent and structural growth challenges. The latter is the result of an economic strategy that has historically over-relied on real estate, high local debt, inefficient state-owned enterprises, lower-end manufacturing, and domestic consumer internet platforms.

This problem has been exacerbated by several factors, including regulatory over-reach, ongoing geopolitical tensions and lower foreign direct investment inflows. There have also been concerns about a potential Japan-style deflationary trap, especially in light of declining consumer and producer prices. Some foreign investors have asked whether “China is investible”.

The Chinese authorities have announced over recent weeks a series of small monetary, fiscal, and regulatory measures to boost the economy and markets. These measures have thus far been perceived correctly as piecemeal and lacking conviction. Yet many still believe they will eventually accumulate into an impactful critical mass. There are problems, however, with this view. China faces not only growth challenges but also significant financial issues, including pockets of high indebtedness that could easily transform into systemic risks. This limits the scope for old-fashioned stimulus. The heightened sensitivity surrounding the struggling property sector, in particular, makes households more cautious on spending, further diminishing a growth driver.

Concerns about youth unemployment persist, and are not been helped by the government’s decision to halt the release of relevant data. The external trade and investment outlook is equally problematic. There is a growing realisation that the economic and financial decoupling between China and the US is likely to continue. This could reduce the contribution of exports to growth, disrupt the importation of crucial industrial inputs, undermine foreign direct investment, and make portfolio investors even more skittish. The willingness of the authorities is also in question. A careful analysis of the leadership’s statements points to worries that heavy reliance on traditional stimulus measures would jeopardise

China’s ability to escape the common development trap of getting stuck in middle-income levels. This pitfall has already hindered many developing countries in their quest to join the ranks of advanced economies. A big-bang stimulus would also increase the risk of corruption.

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