That Makes 5: Chinese Yuan a Part of IMF SDR

♠ Posted by Emmanuel in ,, at 11/30/2015 07:07:00 PM
Here's another step towards the Chinese currency becoming a globally important one. Everyone sort of expected this, but for the Chinese, it's a major achievement nonetheless. While the inclusion of the yuan in the basket of currencies the IMF uses as reference will not result in a massive surge in RMB holdings there, the symbolism matters quite a lot. As in, China becomes the first developing country to have its currency included in the SDR. From the IMF blurb:
The Executive Board of the International Monetary Fund (IMF) today completed the regular five-yearly review of the basket of currencies that make up the Special Drawing Right (SDR). A key focus of the Board review was whether the Chinese renminbi (RMB) met the existing criteria to be included in the basket. The Board today decided that the RMB met all existing criteria and, effective October 1, 2016 the RMB is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the euro, the Japanese yen and the British pound. Launching the new SDR basket on October 1, 2016 will provide sufficient lead time for the Fund, its members and other SDR users to adjust to these changes.

At the conclusion of the meeting, Ms. Christine Lagarde, Managing Director of the IMF, stated: “The Executive Board's decision to include the RMB in the SDR basket is an important milestone in the integration of the Chinese economy into the global financial system. It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems. The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”

The value of the SDR will be based on a weighted average of the values of the basket of currencies comprising the U.S. dollar, euro, the Chinese renminbi, Japanese yen, and British pound. The inclusion of the RMB will enhance the attractiveness of the SDR by diversifying the basket and making it more representative of the world’s major currencies. The SDR interest rate will continue to be determined as a weighted average of the interest rates on short-term financial instruments in the markets of the currencies in the SDR basket. Authorities of all currencies represented in the SDR basket, which now includes the Chinese authorities, are expected to maintain a policy framework that facilitates operations for the IMF, its membership and other SDR users in their currencies. The paper presented to the Board will be released soon.
What weight will the yuan have in the SDR basket? Bloomberg suggests a bit over 10%. It may not sound like a lot, but it will immediately leapfrog the yen and the pound:
The addition will take effect Oct. 1, 2016, the IMF said. The fund said the yuan would have a 10.92 percent weighting in the basket. Weightings will be 41.73 percent for the dollar, 30.93 percent for the euro, 8.33 percent for the yen and 8.09 percent for the British pound. The dollar currently accounts for 41.9 percent of the basket, while the euro accounts for 37.4 percent, the pound 11.3 percent and the yen 9.4 percent.
There is talk that China has been cautious about devaluing its yuan again after the tumult caused by events in August so that its currency could achieve this very event of SDR inclusion. With that out of the way, I hope PRC authorities avoid any sudden moves.

Fortress Europe: Trade Costs of Re-Establishing Border Controls

♠ Posted by Emmanuel in , at 11/29/2015 04:45:00 PM
"Welcome to the EU!" [not]. Yes, Hungary is part of the Schengen area...for now.
With lurid scare stories about the endless flows of migrants emanating from the Middle East--especially jihadist/terrorist-affiliated elements--Europe's days as a largely border control-free area are supposedly limited. It's a long story, but do note that not all countries in the EU are part of the Schengen area which has abolished passport and border controls. Examples include Ireland and the UK. (There are newer accession countries like Croatia that are expected to join the Schengen area in the future.) Conversely, there are Schengen area members not in the EU like Norway and Switzerland.

At any rate, increasing hostility to migrants may not only result in the re-establishment of border controls among Schengen area members, but also increase the transaction costs for doing trade as collateral damage. First, we begin with the politicization of migration:
This tightening of borders is part of an urgent struggle to preserve freedom of movement for citizens between European countries. That freedom was ushered in by the 1985 Schengen agreement, whose relaxing of intra-European border controls has become part of both European identity, and, with the Euro itself, a pillar of European economic integration.

But public anxiety linking this year’s influx of Syrian refugees with last week’s attacks are putting Schengen under unprecedented pressure. Far-right voices, including that of French politician Marine Le Pen, are calling with increased passion for the reversal of the agreement. Even before the attacks, several nations had temporarily suspended portions of Schengen to better deal with the refugee crisis. Meanwhile, even as he issued a stark declaration of war against ISIS, French President François Hollande emphasized the importance of controlling access at Europe’s outer borders, rather than those between member states.
Next, we move to the potentially crippling economic costs of each nation trying to enact its own version of "Fortress Europe":
Because, however awful the human cost of last week’s attacks, the economic impacts of restricting trade lanes would be at least as far-reaching. According to the procurement agency Beroe, 75% of E.U. freight trade moves by road. Checking immigration documents for truckers, potentially at multiple borders per day, would be extremely costly.

Even before Friday’s meeting, there was already evidence of the effects of tighter border security on European trade. Refugees attempting to reach Britain aboard trucks and trains at the French port of Calais through the early parts of 2015 caused accidents and delays costing the British freight industry more than one million euros daily. When Germany and Austria set up temporary border controls in September, massive traffic jams were reported. According to a spokesperson for the Dutch transportation industry in September, a one-hour delay at each national border would cost Dutch shippers alone more than 600 million euros annually.

But the indirect costs of tightened borders would be even greater. In a 2014 study, researchers found that a 1% increase in migration between two Schengen signatory nations resulted in a nearly equal increase in interstate trade. Curtailing that trade would have a particular impact on Europe’s automotive and agricultural sectors, which rely on speedy delivery.
With European economic growth still being moribund at best--especially post-global financial crisis--the continent hardly looks set to benefit from further de-integration.

UPDATE: Plans are being mooted by current EU rotating chair Luxembourg to temporarily suspend the Schengen area by allowing the re-imposition of border controls:
EU ministers will on Friday discuss suspending the Schengen passport-free travel zone for two years, on the basis that the migrant crisis has exposed “serious deficiencies” at the Greek border that endanger the overall area. This resort to the most drastic emergency measure available in Schengen’s rule book underlines how the 20 year-old integration project has been gravely threatened by the political pressures of at least 1.2m irregular migrants entering the bloc this year.

The option of invoking “Article 26” is proposed in a leaked discussion paper for EU home affairs ministers prepared by Luxembourg, which holds the rotating presidency of the EU. If ministers support the proposal the European Commission would be able to recommend closing one or more internal borders within Schengen for up to two years. In effect, this would see the temporary border checks introduced this summer between countries such as Austria and Germany become a long-term fixture, fracturing the passport-free zone.

Like Clockwork, Russia Cuts Gas to Ukraine in Winter

♠ Posted by Emmanuel in ,, at 11/27/2015 01:30:00 AM
There are certainties in life that mark the turn of seasons: Cherry blossom season begins in Japan as March gives way to April. Oktoberfest begins in mid-September in Germany. Meanwhile, in Eastern Europe, the Russians will cut gas off to Ukraine as the coldest winter months begin over delayed payments. It was ever thus: even before the Russians commenced military adventures there, Ukraine always felt the brunt of gas being cut during winter. Ho-ho-ho, merry Christmas.

You don't have to be a cynic to wonder why Russia never cuts off or slows the gas supply to Ukraine during, say, the summer months. For what it's worth, the same thing is happening again without or with Western sanctions now:
Russia's state-controlled gas company is halting supplies to Ukraine, its chief executive said Wednesday, less than two months after the two countries struck an EU-sponsored deal. Gazprom's CEO Alexei Miller said Russia sent the last shipment to Ukraine at 10 a.m. local time on Wednesday and send no more because Ukraine has not paid in advance for future supplies.

Russia resumed gas shipments to Ukraine less than two months ago after the two countries signed an EU-brokered deal ensuring supplies through March. The Gazprom chief said Ukraine had been buying up gas to store for the coming winter in the past two months but said it was not enough to get it through the winter. Past gas disputes between Russia and Ukraine have led to cutoffs. One standoff in 2009 caused serious disruptions in shipments EU countries in the dead of winter. Temperatures in Ukraine where most homes rely on piped gas for central heating were below freezing Wednesday morning. 
In response, the Ukrainians are closing off their airspace to Russian airlines on top of preventing them from flying to Ukraine's airports:
Yatsenyuk also banned Russian airlines from using Ukrainian airspace, saying the move was “an issue of the national security as well as a response to Russia’s aggressive actions”. Ukraine had already banned Russian airlines from flying to Ukrainian airports, a move that Russia quickly reciprocated, meaning there are no direct flights between the two countries. However, initially, Ukraine still allowed Russian planes to fly over its territory. 
Same old, same old? Actually, the story is slightly more complicated than that. Ukraine's PM claims Gazprom is not refusing to sell gas to Ukraine. Instead, Ukraine simply does not need to buy more gas from the Russian firm since it will be buying gas from Western Europe on better terms. It's a great story and everything if it weren't for the fact that the West obtains most of its gas from Russia.
Russia’s Gazprom said it would not ship any gas to Ukraine until it received prepayment. Later on Wednesday, Ukraine’s prime minister, Arseniy Yatsenyuk, claimed that he had ordered the state gas company to stop purchasing Russian gas. “It is not that they are not delivering us gas, it is that we are not buying any,” he said.

Yatsenyuk said Kiev had been offered a better price by other European countries, who import gas from Russia but could then send it back to Ukraine. Earlier this week, Ukraine’s energy minister said the country had enough gas in reserve to last through winter.
So let me get this straight: Ukraine is boycotting the purchase of supplies from instead buying Russian gas from Western European countries? Somehow, I don't think this "punishment" is all that punitive for Russia.

Re: Russian Jet, Tell Turkey Trade Brings Peace

♠ Posted by Emmanuel in , at 11/24/2015 12:03:00 PM
Does shooting down your second-largest trading partner's jet affect trade? I guess we'll find out soon.
There's a longstanding idea among proponents of capitalism that commerce between nations has civilizing effects. (Albert Hirschman called it the "doux-commerce thesis.") Instead of having to resort to military confrontation to obtain what you want, you can instead get it through comparatively peaceful trade. Or so the theory goes. Sometimes real-world events have the habit of making a mockery of such truisms. Witness Turkey and Russia just a few moments ago.

We have news that Turkey recently shot down a Russian jet assumed to be making a Syria-related mission over what Turkey claims was its airspace. From a security standpoint, this incident may be unexceptional since countries do have a right to patrol their airspace. However, the interesting things here are that (a) the Turks likely knew it was a Russian fighter but (b) they shot it down anyway. This despite (c) Russia being Turkey's second-biggest trading partner:
Russian stocks fell the most worldwide and government bonds slid as Turkey said it shot down a Russian fighter jet close to the Syrian border, threatening trade relations amid an escalation of regional tensions. The dollar-denominated RTS Index fell 2.6 percent to 873.94 by 1:35 p.m. in Moscow as Turkey said it repeatedly warned the pilots that they were violating the nation’s airspace.

The declines were led by Gazprom PJSC, which relies on Turkey for 17 percent of its natural-gas exports outside of the Commonwealth of Independent States, according to BCS Financial Group. Government bonds declined and credit risk rose. “A break in the relationship between the countries will have a direct economic impact,” said Joseph Dayan, the head of markets at BCS in London. “The two sides do not have an interest to completely break down relationships. The probability of military confrontation or a freeze in trade relations is highly unlikely.”

The developments are unravelling a rally in Russian assets last week that was spurred by a rapprochement between President Vladimir Putin and the West as their interests aligned to fight Islamic State terrorists in Syria in the wake of the Paris attacks. Any deterioration in relations between Turkey and its second-biggest trading partner, Russia, threatens to undermine economic ties and growth prospects for companies.
Aside from Turkey not exactly representing "the West," this incident is an interesting one in terms of its implications. Would you so knowingly shoot down the jet of a trespasser--even if it was that of your second-largest trade partner? The important question now is how both countries will react. If they both acknowledge it was the result of a "miscommunication," then things will go on just as they were. However, if Russia makes a big thing out of it, then trade may indeed be affected as a result.

UPDATE 1: For now there's been a lot more bark than bite of the "either you're with us or the terrorists" variety. Another consideration though that I did not think of earlier is the fate of the significant numbers of Turkish migrants living in Russia who have now been singled out in Russia media:
The Russian president clearly feels that Recep Tayyip Erdogan has personally betrayed him. “Today’s loss is a result of a stab in the back delivered by accomplices of terrorists. There is no other way I can qualify what happened today,” he stated. It’s not only Putin who feels double-crossed. For hours, #УдарВСпину, the Russian approximation for ‘stab in the back’ trended on Twitter. Russian people have long regarded Turkey as a friendly country. Millions of them holiday there and there is barely a large Russian city without a Turkish migrant worker presence, with over 20,000 in Rostov alone. That goodwill probably died on Tuesday.
UPDATE 2: Russia has now suspended visa-free travel for Turkish citizens to Russia:
Russia is suspending its visa-free regime with Turkey from January 1, 2016, Foreign Minister Sergey Lavrov said. The announcement comes in response to the downing of a Russian warplane by the Turkish Air Force earlier this week.

“We have decided to suspend the visa-free regime between Russia and Turkey. This decision will come into force on January 1,” Lavrov said on Thursday, after a meeting in Moscow with his Syrian counterpart Walid Muallem. Lavrov also called the suspension of visa-free travel between Russia and Turkey “not an empty threat but a real warning.”

Pfizer-Allergan Merger: Tax Avoidance Mothership

♠ Posted by Emmanuel in , at 11/23/2015 03:48:00 PM
It'd be more appropriate if they depicted two accountants shaking hands.
In trying to be impartial by covering the entire ideological spectrum of IPE, my link list at the bottom includes the Tax Justice Network and Tax Research UK. These folks are frothing at the mouth all the time about persons and corporations (literally, corporate persons) not paying what is due by engaging in all sorts of fiscal tomfoolery. Large multinational corporations are prone to reporting most of their earnings in low-tax locations such as Ireland for obvious reasons. Needless to say, many nation-states are unhappy about their corporations not paying their fair share. Just recently, the US Treasury published guidelines about "tax inversion" to avoid American firms from relocating in the aforesaid low tax locations:
The Treasury Department has unveiled new regulations aimed at reeling in tax-dodging U.S. corporations trying to take advantage of friendly international tax codes. But the guidelines – which were designed to address an issue recognized as problematic by both the right and the left of the political spectrum, from GOP front-runner Donald Trump to President Barack Obama – are merely a bandage over a much deeper problem that will require congressional action to patch up...

It's interesting Obama referenced Ireland specifically, considering U.S.-based Pfizer pharmaceutical corporation is currently in the process of negotiating a merger deal with Dublin-based Allergan. Pfizer last year was sitting on a $74 billion chunk of change that had yet to be funneled back into the U.S. The company has said these earnings "are intended to be indefinitely reinvested overseas," and a deal with Allergan could potentially allow the pharmaceutical giant to avoid its U.S. tax obligations and instead face Dublin's more forgiving 12.5 percent corporate tax rate. If the deal goes through and Pfizer indeed moves its corporate residence overseas, it will become one of the largest companies in history to dodge U.S. taxation via inversion.
Ah yes, Pfizer. Guess what: despite politicians of all stripes including President Obama decrying Pfizer's tax avoidance gambit, its planned mega-merger is going ahead anyway. Just to show you how far this issue has gone in the US public eye, this excerpt is from USA Today:
U.S. pharmaceutical giant Pfizer(PFE) and Irish rival Allergan(AGN) Monday announced a record-breaking $160-billion merger, the largest in health-care industry history and the biggest yet using a controversial tax-saving strategy.

In a transaction expected to create the world's largest drugmaker, the companies said Allergan shareholders would receive 11.3 shares of the newly combined company for each of their existing shares, while Pfizer investors will get one share of the new company for each of their shares. The stock transaction is currently valued at $363.63 per Allergan share, for a total enterprise value of roughly $160 billion based on the $32.18 per share closing price of Pfizer stock on Nov. 20, the companies said.
The rather transparent ploy that they're using is making it appear as though the smaller Allergan is "acquiring" Pfizer, but nobody is being fooled here...not even USA Today:
U.S. pharmaceutical giant Pfizer(PFE) and Irish rival Allergan(AGN) Monday announced a record-breaking $160-billion merger, the largest in health-care industry history and the biggest yet using a controversial tax-saving strategy.In a transaction expected to create the world's largest drugmaker, the companies said Allergan shareholders would receive 11.3 shares of the newly combined company for each of their existing shares, while Pfizer investors will get one share of the new company for each of their shares. The stock transaction is currently valued at $363.63 per Allergan share, for a total enterprise value of roughly $160 billion based on the $32.18 per share closing price of Pfizer stock on Nov. 20, the companies said.

The deal terms call for the companies to combine under Allergan plc, which will be renamed Pfizer plc and trade on the New York Stock Exchange under the PFE ticker. The new combination would retain Allergan's legal and tax domicile in Ireland. Pfizer would have its global operational headquarters in New York and its principal executive offices in Ireland. The agreement is expected to face substantial regulatory scrutiny before its expected closing in the second half of 2016...
However, the new rules are not expected to have any immediate impact on the deal because the transaction is technically structured to have Dublin-based Allergan, with a market cap of roughly $122 billion, acquire New York-headquartered Pfizer, which has a market cap of approximately $200 billion.
Remember that Allergan itself is the result of a previous tax inversion:

Somehow, I doubt whether "When Irish Eyes are Smiling" and "Danny Boy" are playing at the White House or the Treasury Department right now--or at the Tax Justice Network or Tax Research UK [!]. Political scrutiny of this merger Stateside will be massive, and I for one would not bet on it being scuppered as a result. Watch this space.

China Gangstas II: Smuggling Cash Out of the PRC

♠ Posted by Emmanuel in , at 11/20/2015 02:13:00 PM
Any which way but lose [sic]: Time to get the @#$% out of Dalian.
Here's another no-win situation China confronts: Until a few years ago, people used to try and evade the PRC's capital controls on inflows since the rise in the yuan's value was more or less guaranteed due to external pressures to revalue and the upward trajectory of Chinese growth. Nowadays, you still have the capital controls, but expectations for the currency are different--competitive devaluation as its economy slows down resulting in massive capital outflows.

What to do? PRC citizens are now engaged in a cat-and-mouse game with officialdom on how to best smuggle money out of the country. After all, why hold your cash in yuan when it's a surefire money loser so to speak? With limits to how much yuan you can convert in the mainland, the only way is out if you want to preserve value. Just recently, authorities busted an underground bank that illustrates the scale of these activities: try $64B worth of foreign exchange transactions. That's pretty big even by PRC standards:
China said it cracked the nation’s biggest “underground bank,” which handled 410 billion yuan ($64 billion) of illegal foreign-exchange transactions, as the authorities try to combat corruption and rein in capital outflows that have hit records this year.

More than 370 people have been arrested or face lawsuits or other punishment in the case centered in eastern Zhejiang province, the official People’s Daily reported on Friday, citing police officials. The case brought the total for underground banking and money-laundering activities to 800 billion yuan since April, the newspaper said.

The probe began in September last year and the police took almost a year to sort through more than 1.3 million suspicious transactions, the state-run Xinhua News Agency reported separately. The authorities froze more than 3,000 bank accounts, Xinhua said.
Let's just say the regulators don't have the upper hand here:
The case highlights the nation’s struggle to control capital outflows that have helped to send real-estate prices soaring from Vancouver to Sydney -- even when Chinese citizens are officially limited to converting $50,000 of yuan per year. Some people may be moving the proceeds of corruption, while others may be concerned about the outlook for the economy and the potential for the yuan to weaken.

“The government wants to stem outflows and stabilize the yuan’s exchange rate, but the outflows cannot be stopped unless people change their expectation on yuan depreciation,” said Xi Junyang, a finance professor at Shanghai University of Finance & Economics. Besides illegal banking operations, “a lot of money is leaving the country by legal means,” Xi said.

China’s capital outflows may have climbed to a record $194 billion in September before cooling to $62 billion in October, according to a Bloomberg gauge which also takes into account decisions by exporters and direct investment recipients to hold funds in dollars.
Like in drug smuggling, mainlanders are also using many small transactions to move cash around:
The tactics used by Chinese citizens to defeat the controls include so-called smurfing, where large sums are moved by breaking them down into a series of smaller transfers using the bank accounts and foreign-exchange quotas of a range of individuals.

In the Zhejiang case, a suspect identified as Zhao Mouyi used a different method, setting up more than 10 companies in Hong Kong from 2013 and transferring more than 100 billion yuan through so-called non-resident accounts, which are used by offshore companies in China when they are transferring money abroad, according to the newspaper’s report.

Taking advantage of a “loophole” relating to non-resident accounts -- which has since been filled by banks -- Zhao circumvented the capital controls by directly transferring yuan overseas and then exchanged the money into foreign currencies at banks including HSBC Holdings Plc in Hong Kong, the People’s Daily said. Zhao then allegedly transferred it to his clients’ accounts, the report said, citing the local police.
Times have changed, dear. Instead of foreigners trying all sorts of ways to get money into China, nowadays residents are trying all sorts of ways to get money out of China.

China Gangstas I: Cigarettes & Hong Kong Syndicates

♠ Posted by Emmanuel in , at 11/20/2015 11:21:00 AM
Hong Kong's roaring trade in illicit cigarettes is largely of its own making.
As far as I can remember, the violent, crime-ridden mean streets of Hong Kong portrayed in Bruce Lee movies (or even the Sleeping Dogs video game) have never really existed. During British rule, the excellent police force was able to keep gang members in line and confined to activities that posed minimal physical threat to citizens. During Chinese rule, things have remained largely the same. However, things have taken a turn towards Bruce Lee movieland in recent years. With the Hong Kong government taxing the bejesus out of cigarettes, its smokers have turned more and more to illicit sources. An industry-sponsored study (with the caveats that entails) points out that a quarter of all cigarettes now sold there are considered contraband goods:
One in every four cigarettes smoked in Hong Kong last year was illicit, costing the government HK$2.5 billion lost in tax revenues, according to study released on Wednesday. The “Asia-16” study, conducted by UK-based Oxford Economics and funded by tobacco giant Philip Morris, shows 1.3 billion, or 28 per cent, of cigarettes consumed were illicit. Despite a 5.6 per cent point drop compared to 2013, Hong Kong ranks fourth in illicit cigarette trading out of 16 Asia-Pacific markets studied, behind Brunei, Macau, and Malaysia.

Adrian Cooper, chief executive officer of Oxford Economics, said the city had a “significant problem” with illicit cigarettes. “[It’s] driven in part by the substantial retail price gaps with neighbouring countries that were exacerbated by tax rises in 2009 and 2011,” he said, adding that the price difference created a huge incentive for cross-border trade of cigarettes.

According to the report, the price of the most-sold brand in Hong Kong last year was US$7.1 per pack of 20, significantly higher than US$1.1 in China, US$3.8 in Macau, and US$3.0 in Taiwan. In 2014, excise taxes were raised by 11.7 per cent, which brought up the retail price of the most-sold brand by 10 per cent. 
$7.1 per pack! Is it any wonder that gangs are thriving in such an environment. It's not quite Al Capone during the prohibition since cigarettes are still being sold--albeit at an exorbitant price--but you can see the parallels for black markets to operate:
Concern groups called for stronger action against organised smuggling gangs and syndicates. “Hong Kong’s serious illicit tobacco problem is dominated by cross-border organised crime groups that use the proceeds to finance other criminal activities,” said Jeff Herbert, adviser to the advocacy organisation Hong Kong United Against Illicit Trade (HKUAIT) and a former senior superintendent with the Hong Kong police force. “[The government] needs to get a lot tougher with such organised crime syndicates.”

Herbert suggested three main solutions: use the Organised and Serious Crimes Ordinance as an effective means to seek heavier penalties, freeze assets of organised criminals, and confiscate their crime proceeds; run more public education campaigns; and introduce a balanced excise policy with regular but moderate tax increases in pace with inflation. Herbert also warned against excessive tax increases as he believed that would only push more smokers to consume illicit cigarettes.
Hong Kong is not a "closed" economy wherein the government can tax smokers as much as it wishes. There will be other, illegal sources for those looking for a cheaper nicotine fix. In this case, there is a balance to be struck between public health and crime control that the territory isn't quite finding yet.

If Egypt Hates Foreigners, Why Not Tourists Too?

♠ Posted by Emmanuel in ,, at 11/19/2015 02:36:00 PM
It's all part of a vast conspiracy to defame Egypt's leaders according to, er, Egypt's leaders.
One thing that usually unites all conspiracy theories is that they lack logical coherence. At the broadest level, it is doubtful that so many entities would be conspiring to be against you specifically Similarly, it is often doubtful whether others would go to such extreme lengths to put you down. It is unfortunate that both are operational in modern-day Egypt after the downing of a Russian aircraft. Yes, it's apparently being called a Western plot to defame Egypt's leadership. While even Russian authorities have now concluded that the plane was brought down by a bomb, Egyptian ones are still in denial:
Instead, Mr. Sisi and his supporters have shut down any discussion of possible terrorism, and rallied patriotic passions against the idea, portraying Western alarms as a plot against Egypt. “Of course we are talking about a conspiracy,” Dr. Alaa Abdel Wahab, an adviser to the minister of tourism, said Thursday in a telephone call to a morning talk show. Dr. Wahab argued that Western governments were trying to harm Egypt because they resented “the popular support for President Sisi.”
This sort of pattern has a long history:
Egyptian officials have invoked similar themes for decades in response to crises, from Egypt’s defeat in the Arab-Israeli War in 1967, blamed on the United States and Britain, to the deadly floods this fall in Alexandria, blamed on the plugging of sewers in the city by Islamists.

But with so many jobs at stake — and so many other countries watching the investigation — some say the government’s response to the crash may be testing the limits of Egyptians’ willingness to suspend their criticism and to unite against an ambiguous foreign threat. After Mr. Sisi’s bellicose talk of going without food, “people are just making fun of him,” said Hisham Kassem, a veteran Egyptian journalist sympathetic to the president. “I am disappointed.”

The government has approached every crisis as a shadow war against foreign enemies, Mr. Kassem said, perhaps reflecting Mr. Sisi’s years in military intelligence before he led the ouster of President Mohamed Morsi of the Muslim Brotherhood two years ago. “The president and all of his advisers are from the security services,” Mr. Kassem said, but “if you are going to handle a P.R. crisis using the security services, you are going to bungle.”
If you devote even a smidgen of thought to the matter, it is easy to poke holes in this conspiracy. The most basic one is: if Egyptian leaders hate vile, conspiring Westerners so much, then why do they lament the loss of Western tourists? Theirs is Eddie Murphy logic all over again: kill the white people / but buy my record first. Except here it's...screw the white people / but visit my tourist traps first.

Should you really hate Europeans and all the rest, well, perhaps you shouldn't attempt make a living catering to their tourists to begin with.

PS: Also see Rob Brotherton's new book on the Psychology of Conspiracy Theories that is rather more forgiving of their logical inadequacies as a byproduct of cognitive limitations.

Shaming Israel: EU Labels Goods from Occupied Territories

♠ Posted by Emmanuel in , at 11/15/2015 02:28:00 PM
From the occupied territories--not Israel--to dinner tables in Europe.
Are product labels entirely innocuous things simply meant to disclose factual information about the product? Make no mistake that there is a political economy behind product labeling. In the EU, foodstuffs containing genetically modified organisms must be labeled as such. Today, though, we have concerns not about the contents of products but where they're manufactured. Recently, the EU made a move to label products made in Israel's occupied territories as such:
The European Union published new guidelines on Wednesday for labeling products made in Israeli settlements, a move Brussels said was technical but Israel branded "discriminatory" and damaging to peace efforts with the Palestinians.

Drawn up over three years by the European Commission, the guidelines mean Israeli producers must explicitly label farm goods and other products that come from settlements built on land occupied by Israel if they are sold in the European Union.
As you would expect, the EU and Israel are proffering different explanations of what's going on with the labeling. The EU says it's merely stating where the goods come from out of "technical" interest, whereas the Israeli authorities say it's a "political" move:
Israeli officials, briefed that the decision was coming, were quick to denounce it. The foreign ministry said it was a political move designed to pressure Israel over its settlements policy. It summoned the EU ambassador to Israel and said it would suspend diplomatic dialogue in the coming weeks.

Prime Minister Benjamin Netanyahu, who was in Washington on an official visit, called the decision "hypocritical and a double standard", saying the EU was not taking similar steps in hundreds of territorial conflicts elsewhere in the world. "The European Union should be ashamed of itself," he said. "We do not accept the fact that Europe is labeling the side being attacked by terrorist acts."
To be sure, the EU has never recognized Israel's occupation of these lands:
The EU's position is that the lands Israel has occupied since the 1967 Middle East war - including the West Bank, East Jerusalem and the Golan Heights - are not part of the internationally recognized borders of Israel. As such, goods from there cannot be labeled "Made in Israel" and should be labeled as coming from settlements, which the EU considers illegal under international law.
Ironically, while I do not support Israel's complaints about the unfairness of it all, I am in total agreement that it's a "political" act. Like with the aforementioned GMOs, labeling is not just a "technical" exercise since the act of doing so often has political-economic consequences. Europeans in particular can be finicky about such things, and I think that Israeli leaders recognize this above the symbolism of the entire exercise. 

Korea, 1st Sovereign Issuer of PRC 'Panda' Bonds

♠ Posted by Emmanuel in ,, at 11/13/2015 11:37:00 AM
In East Asia, China and South Korea have generally gotten along better than either of them with Japan due to the latter's WWII-era imperialism. Nor does China have any major territorial dispute with South Korea--they only have minor tiffs over some rock. It should come as no surprise then that the Koreans are becoming financial innovators in a sense. You see, they will be the first sovereign issuers of yuan-denominated bonds in the mainland. Yes, of course there are already RMB bond issuances by offshore entities--the Asian Development Bank and the (World Bank's) International Finance Corporation come to mind.

But issuance by a sovereign entity? South Korea will be the first:
Korea is poised to become the first sovereign to sell yuan-denominated debt in China, setting a benchmark for companies seeking to expand in the nation’s biggest export market. The need for yuan funding is rising as Korean corporations boost investment in China, Song In Chang, the Finance Ministry’s director general, said in Seoul on Tuesday. The panda bonds will also allow Korea to diversify its foreign-currency issuance, he said.

China wants to increase the yuan’s global use and win its inclusion in the International Monetary Fund’s basket of reserve currencies. It agreed at an Oct. 31 meeting in Seoul between Korean Finance Minister Choi Kyung-hwan and Xu Shaoshi, chairman of the National Development and Reform Commission of China, to back the bond plan as well as direct trading in yuan- won in Shanghai. The Canadian province of British Columbia also said last month it’s in discussions to sell panda debt on the Chinese mainland as it seeks closer business ties with the world’s second-largest economy.

“Local investors have been interested in yuan-denominated bonds, but there were no credible benchmarks,” said Lee Jae-hyung, a fixed-income strategist at Yuanta Securities Korea, in Seoul. A sale by Korea’s government “will be a catalyst for issuance by local companies,” he said.
In effect, it's a trial balloon that, if all goes well, anticipates Korean multinationals also issuing panda bonds to fund their PRC-based operations.

Chinese-Canadian Miss World, Falun Gong & PRC Persecution

♠ Posted by Emmanuel in at 11/11/2015 02:44:00 PM
"Dem commies are evil!" Miss World - Canada Anastasia Lin with Chris Smith [R-NJ].
The Chinese Communist Party has long since banned the Falun Gong--which initially started as a movement doing stretching exercises but then committed the mortal sin of moving into politics--from the mainland. Outside China, the Falun Gong [AKA Falun Dafa] has outposts nearly everywhere you'll find the Chinese diaspora as well as an active press service, The Epoch Times, which is perhaps the most stridently anti-Communist Party media outlet there is. Like any other potential "threat" to single-party rule, most notably Catholicism, the nominally atheist CCP has suppressed the Falun Gong as much as possible. By now you're probably thinking, "What does this have to do with IPE"? Well, read on.

The reigning 2015 Miss World - Canada is none other than Anastasia Lin, a Falun Gong follower [!] who is outspoken about China's human rights abuses [!!] and has testified before the US Congressional-Executive Commission on China regarding this very matter [!!!] Before Marco Rubio and the rest, she had this to say:
When I was crowned Miss World Canada, my father was so proud of me. He received hundreds of congratulatory messages. But within a couple days, my father’s tone changed. He told me nervously that I must stop my advocacy for human rights in China, or else he would have no choice but to sever contact with me. I understand my father was visited by Chinese security agents, who forced him to apply pressure on me in this way. Over the past several years, I have taken on roles in several independent film and television programs that depict human rights abuses in China. My job requires me to be intimately familiar with the stories of those who have suffered unspeakable horrors, including a number of Falun Gong practitioners who were imprisoned and tortured for their beliefs.
You see, unfortunately for the beautiful Ms. Lin, the 2015 Miss World competition on December 19 is going to be held in, er, mainland China. Not exactly pleased with her coming to back to the PRC having tried to sully its reputation at every opportunity, there is a brewing diplomatic row between China and Canada over her attendance at the said beauty pageant. These events are actually big-money events, so it's a political battle set to run till year end:
Canada's China-born Miss World contestant said on Tuesday her visa to travel to the beauty pageant at a Chinese resort has been delayed and her father has been harassed by Chinese officials because she has spoken out about human rights abuses in the communist country. Anastasia Lin, an actress crowned Miss World Canada in May, said her determination to speak out about Chinese abuse of human rights may have cost her a chance to attend the Dec. 19 contest final in Sanya, China.

Lin testified at a U.S. Congressional hearing on religious persecution in China in July. In her testimony, she said she wanted to "speak for those in China that are beaten, burned and electrocuted for holding to their beliefs," according to the full text of her statement on the Congressional-Executive Commission on China's website. "I was interested in human rights way before I even thought of beauty pageants," Lin, 25, told Reuters on Tuesday.

Lin said finalists from other countries have received their invitation from the Chinese host venue that allows them to apply for a visa to attend the finals, but she has received no letter and believes China is trying to block her from the event. Reuters was not able to independently confirm whether other finalists had received their invitation letters. "I don't think this is an administrative issue. It is not. I think this is a matter of principle," said Lin, who also is a practitioner of Falun Gong, a religious group that says it is repressed in China.
My personal belief is that while Falun Gong has indeed been singled out by the CCP, the abuses the Falun Gong claims are beyond what the PRC normally does. If Falun Gong has a sworn enemy, the Communist Party is definitely it, so there is every incentive for creative interpretation here. This story will definitely be one to watch since, without Canadian pressure, I am 100% convinced that she would not be allowed to represent Canada at the year-end pageant.

At the rate these stories are coming out, I'll probably be able to turn this site into the "IPE of Beauty Pageants Zone" in no time ;-)

The Lameness of Western Banks' PRC Joint Ventures

♠ Posted by Emmanuel in , at 11/10/2015 10:28:00 AM
Mainland PRC, where even the mighty barely roam.
It's 2015. Do you know how well international banks' joint ventures in China have done? The perhaps surprising answer is: not well at all. These banks have had to take joint ventures since wholly-owned foreign subsidiaries remain disallowed. With the notion that one cannot be left behind by not having a China presence, most Western majors have piled in at one point or another. Now, HSBC is taking another stab at it, with the advantage of potentially being allowed a majority stake for the first time as a Hong Kong-based entity. That said, the history of these JVs isn't all that promising:
So far, two decades of joint ventures in various forms have produced very limited tangible benefits for the overseas banks involved. Not only have they been limited to minority ownership, but the joint ventures enjoy only so-so profitability and their rankings in banking league tables are unimpressive for top-flight global institutions. 
The most damning evidence of international banks' futility in China is that, despite recent rule changes allowing them to up their stakes in their PRC operations from 33 to 49%, no one has taken up the option. Actually, observers believe that most are instead interested in finding an opportunity to exit their mainland JV operations altogether:
Firms set up variously by Credit Suisse, Royal Bank of Scotland, Deutsche Bank, Citigroup, JPMorgan Chase and Morgan Stanley (again, after it sold its CICC stake) have been allowed to underwrite primary equity and debt issuance but so far have been excluded from the far more lucrative secondary trading markets. All claim publicly to work well but rumours swirl constantly that one or other bank is looking for an exit. Gossip aside, it is worth noting that none of the western banks has as yet taken up the opportunity, since a rule change in 2012, to raise its stake from 33 per cent to 49 per cent.
In all fairness, the Communist Party restricts the profitability of these Western JVs. By limiting their activities to underwriting debt and equity issues--an already-crowded area for financial services instead of the more lucrative secondary market--money-making prospects are hurt:
 To be fair, judging success is not straightforward. JVs that are restricted to primary markets are competitive in the equity and debt issuance league tables but far down the rankings by profit. Most mainland securities houses make their money in trading, not underwriting, where intense competition has squashed fees to levels unimaginable on Wall Street. Many of the ventures have faced culture clashes that have made it hard to implement international practices, according to bankers involved. Some of the overseas banks also privately admit they picked partners who turned out to be weaker than they realised.
The logic of "having to be in China" despite limitations to what you can do has long since lost its luster. HSBC aims to buck the trend, though, and you wish them well even if things haven't gone swimmingly for its peers in the past.

Climate Change, Lies & ExxonMobil

♠ Posted by Emmanuel in ,, at 11/08/2015 01:40:00 PM
So evil that prospective investors should be warned: "OWNING XOM SHARES IS HAZARDOUS TO YOUR SOUL"?
There is an interesting legal wrangle underway concerning the energy giant ExxonMobil--I can recommend Steve Coll's book Private Empire: ExxonMobil and American Power if you need further information on the company's globe-spanning reach. Unsurprisingly as one of the world's biggest energy companies, ExxonMobil has long been a bogeyman for environmentalists. The latest investigation involves these corporate evildoers failing to disclose fuel-burning's effects on climate change when it supposedly knew of them long ago:
Oil giant Exxon Mobil is being investigated for misleading the public about the impact of climate change. The New York attorney general has sent a request for emails and financial records to the company. Allegations surfaced last month that the company's own scientists raised concerns about global warming decades ago and that Exxon had worked to suppress that information.
From the environmentalists' standpoint, it is similar to the tobacco industry not disclosing that its products literally caused people to die (from lung cancer and other smoking-linked diseases). However, as Matt Levine points out at Bloomberg, this analogy has limitations.
Ah, but of course misleading people about climate change isn't just political. It's also, plausibly, a business decision. People might not have bought gas if they knew the full risks of climate change, but if Exxon covered up those risks, then people would have been fraudulently induced to buy more gas, and harmed by that fraud in the form of climate change. This is to a large extent the theory of previous investigations of tobacco companies, and "some experts see the potential for a legal assault on fossil fuel companies similar to the lawsuits against tobacco companies in recent decades, which cost those companies tens of billions of dollars in penalties."

The analogy strikes me as a bit strained, though. The harm of misleading smokers is just so direct, as is the commercial benefit of doing it. If you sell people cigarettes that kill them, those same people are obviously harmed. And if you lie about whether cigarettes will kill people, people will probably buy more cigarettes. But who is defrauded by an oil company that funds climate-change deniers? There is no particular reason to think that the people most harmed by climate change and the people who buy a lot of crude oil products are the same set of people, whereas to a first approximation the people most harmed by smoking are smokers. If you stop smoking, your risk of lung cancer goes way down. If you stop putting gas in your car, your risk of ending up underwater when the ice caps melt does not go down by any measurable amount. 
There is also the questionable assumption at work that shareholders are being harmed by the deception ExxonMobil allegedly wrought all those years ago. The claim of "securities fraud" doesn't seem to register IMHO:
But Americans don't just vote and drive. They also own stocks. And Schneiderman's probe isn't just about lying to the voting public, or the oil-consuming public. It's also about lying to the investing public:
Whether Exxon Mobil began disclosing the business risks of climate change as soon as it understood them is likely to be a major focus of the New York case. The people with knowledge of the case said the attorney general’s investigators were poring through the company’s disclosure filings made since the 1970s, but were focusing in particular on recent statements to investors. Exxon Mobil has been disclosing such risks in recent years, but whether those disclosures were sufficient has been a matter of public debate.
This is in certain ways the weirdest theory. For one thing, if you actually think that Exxon Mobil is engaged in a diabolical conspiracy to suppress climate science to wring extra profits out of an earth-destroying business, the last people you should be worried about are Exxon's shareholders. They're the ones profiting from all that destruction! For another thing, if you are concerned about those shareholders, the last thing you should do is fine Exxon a lot of money. They're the ones who will ultimately have to pay that money! "This is not good news for Exxon Mobil or Exxon Mobil shareholders," says an analyst.
It's a weird case all around, and one that would not get all that far outside a politically-charged climate.

$45B in PRC Freebies Ain't Enough: Venezuela Hits IMF

♠ Posted by Emmanuel in ,, at 11/07/2015 02:44:00 PM
So broke he can't even spend the night: Venezuela's President Maduro.
We all have wastrel friends and relatives of no particular achievements, distinction or talents who get by through begging, borrowing or stealing money. Such is the nature of life, unfortunately. In the international community, there is a country which embodies such turpitude: It's called Venezuela. To put its senseless wastefulness into perspective, consider that it's already received $45B from China, most of which I guarantee you has already been poured down some rathole.

How do I know this? Well, unbeknownst to many, it's also been taking out its special drawing rights (SDRs) from the IMF absent any significant sources of foreign exchange these days when oil prices are comparatively low. From Agence France-Presse:
With its cash reserves in sharp decline, Venezuela withdrew $460 million from the International Monetary Fund last month in its third such operation this year. he IMF website showed Friday that Venezuela exchanged part of its Special Drawing Rights -- an international reserve asset created by the IMF -- account at the Fund for greenbacks. Some countries often buy SDRs to comply with their obligations at the IMF, and in other cases sell them for hard currency to raise their reserve level at home, the Fund said.

Venezuela depends almost exclusively on oil exports and has taken a big hit from a drop in crude prices. Its hard currency reserves have fallen 25 percent over the past year to $15.4 billion. Venezuela's three SDR-selling transactions this year at the IMF have netted it more than $2.3 billion. Until this year, Venezuela had not withdrawn assets from the IMF since 2006.
Venezuela's so broke that they have to hit up the American imperialist's lackey organization, the IMF. Pathetic...but not particularly surprising. When cash is running short, you will grab it from "friends" and "foes" alike. At this rate, the "treason" of a full-blown IMF bailout may not be too far behind.

Me Too! Do S Korea & Indonesia Want to Join TPP?

♠ Posted by Emmanuel in ,,, at 11/05/2015 12:10:00 PM
Indonesia and S Korea apparently seek a seat at this table now.
It appears as though the United States is gaining the upper hand in signing FTAs in the Asia-Pacific after the TPP enlargement. With China's pan-Pacific equivalent not gaining any traction, the undecideds--countries that sat out the TPP negotiations to see how matters progress--appear to be more favorably disposed now to the American effort. Chalk this one up to the "bandwagon" effect: non-participants in the TPP negotiations fear being left out will cause their exports to be less competitive as those within the FTA benefit from lower tariffs. Make no mistake that the US swaying Japan greatly involved the former playing up the latter's fears about China:
[Former US trade negotiatior Ira Shapiro] believes that it was the rise of China that ultimately convinced Japanese Prime Minister Shinzo Abe to pursue TPP. If the TPP becomes reality, "China will have a choice of either making the changes necessary to join TPP or intensify its leadership of competing arrangements, as we've seen with the Asian Infrastructure Investment Bank," he said. "For the U.S. and Japan, it is important to set a model."
Let's begin with South Korea. Like Japan, it has traditionally been very careful about the terms of FTAs given the mandate not to offend domestic agricultural interests. However, with Japan making such concessions already with TPP, the Koreans are now more willing to do the same--at least slightly. In particular, the Japanese seek more automobile exports to Korea. In a manner of speaking, Japan got a head start over Korea and can now help dictate the terms for the latter's entry to its advantage:
South Korea's effort to be welcomed into the Trans-Pacific Partnership trade pact will provide Japan with an opportunity to regain lost ground in that country's automobile market. South Korean President Park Geun-hye expressed hopes that Japan will cooperate on this matter during her meeting with Japanese Prime Minister Shinzo Abe on Monday.

By cooperation, she is presumed to have meant Japan's quick approval, since all 12 TPP members need to agree to the entry of new members. Japan's stance is that it welcomes South Korea, since Abe has said before that he hopes to broaden the TPP's reach in Asia as a high-level trade pact. Japan had to promise that it will open up its market to the U.S. before joining the TPP.

Likewise, "South Korea will need to promise to drop tariffs on Japanese industrial products in exchange for approval of its participation," said a Japanese TPP negotiator. Currently, South Korea levies a tariff of 8% on Japanese autos and around 6.5% on Japanese chemical products.
Meanwhile, Indonesia's new President Joko Widodo is also in a semi-rush to get in after the conclusion of the aforementioned deal:
On his first official visit to Washington, however, Widodo pulled a surprise out of his hat. "Indonesia is an open economy," he was quoted as telling U.S. President Barack Obama. "We are the largest economy in Southeast Asia, and Indonesia intends to join the TPP..."

Indonesia, which has the world's fourth-largest population, has long been wary of free trade. This is largely because natural resources are its only major exports. When it comes to big multilateral deals, Jakarta has favored the Regional Comprehensive Economic Partnership -- a proposed agreement involving the Association of Southeast Asian Nations, China and India -- over the TPP due to its lower degree of trade liberalization.

But Widodo, recognizing the global liberalization momentum, appears concerned that staying out of the TPP would put Indonesia at a disadvantage. When he travels abroad, Widodo urges foreign businesses to invest in Indonesia as an export base. The TPP, though, will increase the appeal of member countries by reducing or eliminating tariffs on goods, provided a certain ratio of parts are made within the zone.
Nuff said: advantage America. China, what's your counter-proposal?

Does Pakistan Really Have "Record" Forex Reserves?

♠ Posted by Emmanuel in , at 11/03/2015 03:38:00 PM
Pakistan's aid donors help bolster its reserves--not financial inflows for the most part.
It is sad that accumulating $20B in reserves--this in a country with a population of 182 million--is considered as a "record." However, that is the case for Pakistan and its recent report on foreign exchange reserves. As chronicled in this blog [1, 2], Pakistan is a habitual borrower from the IMF--a dubious distinction if there ever was one that even the IMF would prefer avoiding. Unfortunately, Pakistan's bolstered reserves, low as they are in ultimate terms--China has over a whopping 175 times more by my estimates--are mostly the result of the IMF juicing up the coffers:
Pakistan’s record foreign-exchange reserves are masking economic weaknesses that risk pushing the nation toward more aid from the International Monetary Fund. At least half of the country’s $20 billion stockpile comprises debt and grants, almost all of which have flowed in since Prime Minister Nawaz Sharif took office in May 2013. That money could leave quickly as Pakistan begins repaying the IMF in 2016 or if oil prices surge, leading to another balance-of-payments crisis.
"This is borrowed money and not a reflection of a stable economy," said Yawar uz Zaman, vice president for research at Karachi-based Shajar Capital Pakistan Pvt. "Finance costs will continue to grow in the years to come, which will mean we will go for another loan from an international lender."
Sharif won a $6.6 billion loan from the IMF soon after taking charge, triggering a stock market rally that has put Pakistan among the world’s best performers. Since then, however, he’s struggled to attract more stable inflows as a shaky global economic recovery damps demand and makes investors wary.
The rest comes with a little help from Pakistan's [self-styled] friends. Other contributions are from non-financial and more political- or security-related sources in the form of the Saudis chipping in another $1.5B and the American-led coalition another $2.8B. In other words, the inflows are not from financially sustainable sources like foreign investment or export proceeds.

People of goodwill wish Pakistan well, but the truth is that it hasn't really done anything to make itself attract more financial inflows outside of charity. Pakistan remains, in the words of Anatol Lieven, a hard country.

Did Uber Kill London Cabbies' Need for "Knowledge"?

♠ Posted by Emmanuel in , at 11/02/2015 11:57:00 AM
London black cab drivers must famously have memorized the streets of central London by acquiring "The Knowledge." Without it, they cannot acquire a license to drive a taxi in that world-famous city. Unless you've been hiding under a cave, the emergence of Uber--the ride-sharing service--has dented the business of licensed taxi drivers the world over. After all, why spend so much time (3-5 years), effort and expense to acquire a license when some joker with a smartphone and Uber can do exactly the same sort of thing?

As it so happens, the largest cabbie school in London is closing its doors--mostly due to the Uber phenomenon:
Malcolm Linskey expects tears. The 70-year-old will retire soon, an event hastened by falling demand for the business he started 30 years ago, Knowledge Point, a training school for London black cab drivers. “It’s crazy, we’re going to be brushed aside,” he says. The cabby school, London’s largest, is to close its doors in December on the building it has occupied for 26 years in Islington, north London, blaming the twin pressures of Uber and increased property prices. 
Time moves on:
Mr Linskey says it will continue to produce and sell taxi driver training materials in print and online supplemented by training sessions in church halls and community centres. Uber, the cut-price taxi app that started in San Francisco, has sparked protests of unfair competition from cab drivers across the world. In May, parts of London were in gridlock following a demonstration by taxi drivers who felt the lack of regulation favoured such “e-hailing” apps.

London cabbies must study “the Knowledge”, learning their way round 25,000 streets as well as all the twists and turns of dead-ends and one-way roads. Before obtaining the green badge, which will license them to pick up fares in London, they will be tested on routes, for example from Manor House to Gibson Square. The school helps aspiring drivers reduce the time — on average about three and a half years — it takes to learn the various routes. 
Is this progress? It's true that many taxi drivers around the world are incompetent and unprofessional, but those in London are less likely to be so. Regardless, they too are as vulnerable to the winds of "creative destruction" as their peers elsewhere.