Today's PRC Pt III: Building a Creative Economy

♠ Posted by Emmanuel in , at 5/03/2016 06:49:00 PM
Yes, Kung Fu Panda 3 qualifies as a PRC production.
The current Chinese leadership's plans to make a transition from a manufacturing- and export-oriented economy to a services- and domestic-oriented one are well-known by now. Encouragingly, the so-called "creative economy" may be coming online just when the old-style economy appears to be faltering. So the creative economy's scale is nowhere near that of manufacture-for-export yet, but China does have to start from somewhere:
The new engines of China’s economy are humming as social media, movie theaters, karaoke bars and art galleries shrug off the nation’s slowdown, according to a new report from the nation’s statistics authority.

First-quarter revenue from cultural industry companies rose 8.6 percent in the from a year earlier to 1.67 trillion yuan ($258 billion), the National Bureau of Statistics said Friday. The report based on surveys of 47,000 companies is the first such quarterly tally and comes as the agency strives to improve coverage of the "new economy."

Revenue from "cultural information transmission services," which include Internet companies and some satellite and telecommunication providers, surged 27.8 percent from the first quarter of 2015. Firms in "cultural, leisure and entertainment services" including travel agencies, parks and karaoke bars, saw sales jump 25 percent.
In some ways, the contributions from marketing culture are still understated in China. Remember, China ranks fourth worldwide in the number of tourists it attracts. It is also mentioned in the article above that the Kung Fu Panda 3 movie became the highest-grossing film in China recently. This outcome is likely due to the extensive partnership its producer had with PRC-based firms:
The record is an important milestone for [Jeffrey] Katzenberg and DreamWorks Animation. Kung Fu Panda 3 is the first film from the studio's burgeoning Shanghai-based venture, Oriental DreamWorks, which was established in 2012 in partnership with two state-backed Chinese companies with a combined investment of $350 million in cash and intellectual capital.
If it helps with China's transition, then I don't see any harm in it.

Today's PRC Pt II: Letting SOEs Fail

♠ Posted by Emmanuel in , at 4/30/2016 08:45:00 PM
No longer a novelty: a Chinese SOE that goes belly up.
Warren Buffett had a memorable turn of phrase when he said that we can identify who's naked when the tide rolls out. With the recent slowdown of China, we are seeing a similar phenomenon. Many--myself included--believed that the PRC would extend unconditional help to distressed state-owned enterprises (SOEs) when push came to shove. As any number of these SOEs are coming under distress, we are finding that there is no "blanket" coverage for these firms as quite a few have been left waiting for a state rescue that may never come:
China’s state-backed companies no longer have the ironclad support of the government -- and that’s bad news for the equity bull market in Hong Kong, says UBS Group AG.

Three of the seven Chinese companies that defaulted on debt repayments this year are partly owned by the state, including Baoding Tianwei Group Co. [also see here] The end of implicit government support will drive up funding costs and undermine foreign investor confidence in the 20 percent rebound by the Hang Seng China Enterprises Index, said Lu Wenjie, a Shanghai-based equity strategist at UBS.

"People are realizing national SOEs can default, local government-owned enterprises can default -- anything can default," Lu said. "H-share investors, especially foreign investors [Hong Kong-listed shares of stock of PRC-headquartered firms], haven’t paid much attention to this yet, so the risk isn’t priced in."
Is it the end of implicit guarantees? If so, the risk factor may not be adequately "priced in" as of yet:
Defaults are a relatively new phenomenon in China, which had its first such case only in 2014. The rising number of payment failures is reverberating across the nation’s $3 trillion credit market, with onshore junk debt heading for its biggest monthly selloff since 2014, issuers canceling bond sales and Standard & Poor’s cutting its assessment of Chinese firms at the fastest pace since 2003.

The widening of credit spreads from eight-year lows also threatens an incipient economic recovery, which has been mainly supported by a surge in cheap lending.
It's the [Western] notion of "moral hazard" being realized: Instead of the PRC bailing out nationally-owned firms in the event of trouble, it appear as though it's becoming more selective. What remains to be seen, though, is what happens if and when the really large Chinese firms run into trouble which have systemic importance like, say, its four big banks. I believe the "too big to fail" phenomenon will be observed since the recent bankruptcies were all of (relatively) smaller firms.

Today's PRC Pt I: Michael Jordan Takes On "Qiaodan"

♠ Posted by Emmanuel in , at 4/26/2016 03:36:00 PM
Just sue it: Michael Jordan takes on the fakers "Qiaodan"
."The image of China as the Wild, Wild East of intellectual property protection is, in many instances, well-deserved. After all, if you allow copying entire Apple Stores or Land Rover automobiles, then IP protection is probably not one of your priorities. But, that may become a thing of the past as the American basketball legend Michael Jordan has reached China's Supreme People's Court in a case against PRC-based "Qiaodan." Despite the knock-off being around since, oh, 1984, let's just say that it took this long to get around to meaningful legal action:
In the appeal hearing that started on Tuesday, Jordan’s lawyers argued that Qiaodan Sports Co. Ltd., a family-owned business with about 6,000 shops selling shoes and sportswear throughout China, has damaged the basketball star’s legal rights to his name, asking that the company’s trademark registrations be revoked. Qiaodan, pronounced "Chee-ow dahn", is a Mandarin transliteration of Jordan that was registered by the Chinese company more than a decade ago. Jordan first sued the company in 2012 and lower courts have ruled on behalf of the Chinese company.
It appears a flagrant violation, yet the wheels of Chinese justice take a while to turn:
Qiaodan, one of the country’s top sports apparel makers founded in 1984, legally registered the Pinyin "Qiaodan" and Chinese characters of the name. Jordan’s lawyers say the company uses his basketball jersey number "23" to sell products, as well as created a similar basketball replica of Jordan’s iconic "Jumpman" logo that Nike Inc. uses for its Air Jordan brand. Jordan’s team argues that under China’s law, the company’s trademarks have damaged his legal rights and is asking the court to invalidate more than 60 trademarks used by the company.

"Qiaodan is a name that is well known to every household in China and refers to Michael Jordan," Qi Fang, a lawyer with Fangda Partners representing Jordan, told the court on Tuesday. Lawyers for the Chinese company succeeded last July in arguing that Jordan is a very common English last name. Jordan’s lawyers appealed that case and the decision by the Supreme People’s Court will be final.
With China aiming to become a consumer-driven market, the outcome of this trial matters insofar as it will send a signal to other foreign brands whether their IP will be protected better:
The case illustrates the challenges of Chinese intellectual property law for some foreign companies in the world’s fastest-growing consumer market. The case could set an important legal precedent for trademark rights in China, and some legal scholars say the case offers the nation’s Supreme People’s Court an opportunity to present a positive image of the Chinese legal system.

"It’s an extremely influential case, and the final verdict from China’s top court would play a leading role in future similar cases," said Li Shunde, a Chinese Academy of Social Sciences research specialist in intellectual-property law. "China has been consolidating IP over the past years and apparently the authorities want to use this case to show that the country takes the IP issues very seriously and is devoting resources to protect the rights of foreign businesses."

Volkswagen's State Capture of Germany

♠ Posted by Emmanuel in , at 4/24/2016 07:59:00 PM
Chancellor Merkel and ex-VW honcho Martin Winterkorn in happier times.
The Financial Times has a very interesting article on the extent of German automakers' influence on the German state. You would think that the Germans of all people are not as prone to the pitfalls of excessively close state-firm ties, but the Volkswagen emissions scandal raised all sorts of pointed questions about the matter. Just recently, the giant automaker set aside $18 billion to cover costs associated with its emissions-cheating violations. As it turns out, Chancellor Merkel has been lobbying on behalf of Germany's automakers all these years for less stringent emissions regulations throughout the world:
The ties between Ms Merkel’s government and big carmakers have come under increasing scrutiny since September, when US regulators revealed that Volkswagen’s diesel vehicles were fitted with special software enabling them to cheat in emissions tests. The scandal, the worst in VW’s history, has tarnished Germany’s reputation for quality in manufacturing and left many wondering whether the German authorities’ closeness to VW, Mercedes-Benz and BMW blinded them to the potential for wrongdoing in the industry.

“When you know that you have a very large part of the political class in your pocket — and that was clearly the case with VW — then you feel safe,” says Philippe Lamberts, the Belgian co-chair of the Green group in the European Parliament. “That inevitably leads to complacency; that whatever you do, you have the German government fully lined up behind you.”
It has happened too at the EU level:
The closeness between Germany’s car industry and its government has been reflected in a number of ways since Ms Merkel became chancellor in 2005.

Officials intervened in Brussels to water down curbs on pollutants, abandoned stringent independent tests of car emissions and ignored repeated warnings from research groups about suspicious readings from tests on diesel cars. Now Ms Merkel’s government stands accused of wrapping its own inquiry into the VW scandal in a shroud of secrecy, which even seasoned MPs are finding hard to penetrate. 
To grasp her actions, consider the importance of the activity for Germany:
Yet Ms Merkel’s lobbying efforts are in many ways understandable. Carmaking is Germany’s largest industry, employing 792,500 people and recording turnover of €404bn in 2015 — a fifth of the country’s industrial revenue. The jobs of one in 20 Germans depend on the motor sector.

Ms Merkel has suggested that the carmakers are synonymous with Germany. Addressing VW employees in 2008, she called the company a “great piece of Germany”, and a “symbol of [our] development from the second world war until today”. VW’s history exemplified the reconstruction of the postwar years. “The German government stands by VW,” she said.
It's too bad that "state capture" is now part of Germany's industrial lexicon as well. You would never have expected it of the Germans, no?

$315B: Forex Reserves Vaporized by Oil Crash

♠ Posted by Emmanuel in , at 4/20/2016 06:30:00 PM

The Doha meeting of oil producers was such a non-event that I did not even bother posting about it despite its obvious political economy connections. In the run-up to that event, Bloomberg presented data on just how much oil exporters had used from their rainy-day funds as the price of oil fell earlier this year to nearly a third of what it was in 2013. True, prices have recovered somewhat these past few weeks, but not to the level necessary to stabilize any number of marginal petro-states.

In the meantime, those forex reserves are disappearing faster than sane people at a Donald Trump rally:
The world’s top oil exporters are burning through their petrodollar assets at an accelerating pace, increasing the pressure to reach a deal to freeze production to bolster prices. The 18 nations set to gather in Doha on Sunday to discuss a production freeze have spent $315 billion of their foreign-exchange reserves -- about a fifth of their total -- since the oil slump started in November 2014, according to data compiled by Bloomberg. In the last three months of 2015, reserves fell nearly $54 billion, the largest quarterly drop since the crisis started.

The petrodollar burn has consequences beyond the oil nations, affecting international fund managers like Aberdeen Asset Management Plc and global currencies markets. Oil nations have traditionally held their reserves in U.S. Treasuries and other liquid securities. Nonetheless, the impact in credit markets has been muted as central banks continue to buy debt.
The bulk of these reserves have been used by Saudi Arabia:
Saudi Arabia accounts for nearly half of the decline in foreign-exchange reserves among oil producers, with $138 billion -- or 23 percent of its total -- followed by Russia, Algeria, Libya and Nigeria. In the final three months of last year, Saudi Arabia burned through $38.1 billion, the biggest quarterly reduction in data going back to 1962.
 
The oil slump started in November 2014 when the Organization of Petroleum Exporting Countries, led by the Saudis, decided to fight for market share -- and bury U.S. producers -- rather than cut production to support prices as it had done in the past. The policy sent Brent crude, the global oil benchmark, down from an annual average of $111 a barrel in 2013 to an average of just $35 so far this year. The plunge forced producers to tap their rainy day funds.
It is said that rivalry with Shia Iran is what caused Sunni Saudi Arabia to scotch the Doha oil meeting where no agreement was reached due to its insistence that Iran sign on to the pledge to freeze production. This begs the question of why Saudi Arabia agreed to participate in this meeting when it knew that it would leave others empty-handed anyway since Iran had indicated it wouldn't participate early on. The real question going forward is how much more reserves Saudi Arabia can go through before it finally cries "uncle," regardless of what the Iranians do. 

EU Footballers: Would Brexit Ruin Premier League?

♠ Posted by Emmanuel in , at 4/18/2016 10:32:00 AM
Coach Wenger [hearts] the EU: Like his European players, he would find it much harder to work in the UK if it left the EU.
I am likely preaching to the converted here, but consider this somewhat surprising voice in favor of the UK remaining in the EU. While many different people, places and things have waxed and waned in terms of popularity in the UK, you can pretty much be certain that football remains at the forefront of its people's attentions. As IPE types ponder more economically relevant questions such as the effects of Brexit on UK trade with the single market, longtime French Arsenal FC coach Arsene Wenger now questions the effects of Brexit on Premier League football.

You see, many (continental) European stars playing for English teams would lose their freedoms of movement to the UK as part of the EU should the UK vote to leave. Hence, they would need to get work permits just like all other players from outside the EU at the current time. This uncertainty is  factoring into club decisions on whom to recruit for the upcoming season as Wenger describes:
Wenger’s transfer policy could potentially be further influenced by the UK’s vote on leaving the European Union, with the implications Brexit would have on football still unclear. “It raises many questions,” he said. “Will the European players be considered as they are now? For example, if England votes for Brexit, will the French be considered like South Americans players [who require work permits]? That would completely re-question the influx of foreign players.

“Will England go that way? If they did, that would leave the Premier League with some questions.”
The pro-EU brigade has taken that statement as a vote in favor of remaining. Can you imagine a Premier League--by some measures the world's most difficult--hindering the influx of the world's best players? Many may instead choose to work on the continent.
West Ham chief executive Karren Brady, a Britain Stronger In Europe board member, has previously warned that exiting the EU risks leaving clubs without "emerging talents" on their books. James McGrory, chief campaign spokesman for Stronger In, said: "Arsene Wenger has been at the forefront of bringing the best players from around Europe to play in Premier League, which has helped to make it the envy of the rest of the world.

"Our stadiums are packed every week with fans who want to watch the likes of Dimitri Payet, N'Golo Kante and Arsenal's own Hector Bellerin. As Wenger says, leaving the EU risks supporters missing out on seeing emerging talents from Europe coming to play at their clubs. "Leading figures in football are clear - leaving the EU would disfigure the beautiful game in this country."
Of course, Brexit wouldn't mean that (continental) European players cannot play in the Premier League. It's just that the hassles associated with dealing with immigration regimes non-Europeans face would represent a huge change for them. Even Arsene Wenger's' work status would likely be at stake here as a Frenchman working in the UK for, what, two decades already? After all, he is, at the end of the day, an EU resident plying his trade in the UK.

Brexit Scenario: Stockholm as London's Replacement

♠ Posted by Emmanuel in at 4/15/2016 10:33:00 AM
MNCs decamping from London to Stockholm after Brexit: a fanciful or plausible scenario?
Can Scandinavian social democracy beat English laissez-faire after all in the big-money arena of European global business? The Swedes are now thinking of what seemed unthinkable--or, indeed still sounds implausible: How about Sweden being the replacement for London for any number of European multinationals if the UK referendum results in it leaving the European Union? It would be a turtle-and-hare story of unimaginable proportions. Consider that while London is the world's top financial center, Stockholm ranks a very distant 32nd. Then again, Stockholm may not necessarily be eyeing financial services but rather other industries that would benefit from remaining domiciled in an EU country:
Swedish businesses are preparing for a British exit from the European Union, hoping a so-called Brexit will help Stockholm lure more companies and build its status as a global business hub. While a Brexit “would be devastating on many levels,” both for the U.K. and countries like Sweden, the Stockholm Chamber of Commerce said it also sees opportunities should such an event play out.

“We are convinced that companies with headquarters in the U.K. would have an interest in reviewing where they locate their operations in case the referendum leads the country away from the EU,” Chief Executive Officer Maria Rankka and chief economist Andreas Hatzigeorgiou said in an e-mailed statement. “Sweden and Stockholm would then be an attractive alternative to the U.K. and London.”
While there are a number of world-class companies in Stockholm, it is not exactly yet on terms with London:
According to the Stockholm Chamber of Commerce, the Swedish capital is currently home to the headquarters of nine global businesses, ranking it eighth worldwide. The U.K. hosts 21 global headquarters.

To climb the ladder, Stockholm will probably need to fix its housing shortage. In addition to building more homes, especially rental apartments, the Spotify founders urged Sweden to improve its education system to focus more on programming and to relax corporate ownership rules for employees.
I am not entirely sure if Stockholm can even begin to replace London even outside of financial services firms. There are several other considerations for creating a business capital such as: level of cosmopolitanism, level of internationalization, amount of international travel, amount of trade, the home language (English is certainly an advantage), level of taxation (social democracy is generally more expensive to maintain), size of the national economy and so forth. On these counts, Sweden is an interesting exercise in the social-democratic variant of political economy, but not (yet) the main show.

OTOH, do see the argument of Stockholm's supporters that it is #2 in the emerging "financial technology" area.

Also, see the CEO of the Stockholm Chamber of Commerce, Maria Rankka, writing about this topic.

Malaysian PM Razak and the $4.2B Missing From 1MDB

♠ Posted by Emmanuel in at 4/12/2016 07:42:00 PM
80,000 protesters and Razak is still there: can the international financial community oust him, though?
A few months ago, I wrote about the goings-on in Malaysia with Prime Minister Najib Razak's controversial 1MDB fund, which styles itself as a "strategic development company"  instead of a sovereign wealth fund. Razak's critics, including former PM Mahathir, would instead classify it as a personal slush fund for Razak. Earlier this year, Malaysian courts cleared 1MDB and, by extension, Razak of wrongdoing in supposedly diverting $681 million into his personal coffers.

If only authorities in other countries would play along. Unfortunately for Razak, Switzerland's authorities have alerted their counterparts in other financial centers about 1MDB. So, while the ruckus may have silenced somewhat at home, it's full throttle abroad still:
Swiss prosecutors widened their criminal probe into allegations of bribery and corruption at 1Malaysia Development Bhd., and have asked Luxembourg and Singapore authorities for help with an investigation into the government fund.

The Swiss Attorney General is investigating two former public officials from the United Arab Emirates on charges of fraud, criminal mismanagement, bribery and money laundering, according to a statement Tuesday from the Bern-based prosecutor’s office. The pair handled Abu Dhabi sovereign wealth funds that guaranteed bonds issued to finance 1MDB’s investment in power plants, Swiss authorities said.
The dragnet has gone global, and there's little Malaysian officialdom can do to, ah, massage the situation abroad like it does at home:
The allegations include that “the amounts paid in connection with this guarantee were not returned to the Abu Dhabi sovereign fund that supported the commercial risk,” the statement reads. “To the contrary, these funds would have benefited others, particularly two public officials concerned as well as a company related to the motion picture industry.”

1MDB is at the heart of a growing number of investigations both at home as well as in Switzerland, the U.S., Singapore, Hong Kong and Luxembourg over allegations the development fund was used to funnel money to individuals including Malaysian Prime Minister Najib Razak, who heads the fund’s advisory board. The Swiss estimate that about $4 billion may have been misappropriated while a Malaysian parliamentary committee identified at least $4.2 billion of irregular transactions, according to a report published last week.
Also see the Bloomberg explainer of what is happening with the global dragnet on 1MDB. The real question is if the rest of the world can force Razak from power given Malaysian leaders' customary insulation--see Mahathir before him, for instance.

US Kills $150B Pfizer-Allergan Tax Avoidance Merger

♠ Posted by Emmanuel in , at 4/06/2016 06:11:00 PM
Not gonna happen thanks to Uncle Sam's intervention.
A few weeks ago, I had written about the impending pharmaceutical mega-merger of Pfizer and Allergan. Although Pfizer is much larger than Allergan, the deal would have domiciled the combined corporation in Allergan's headquarters, Ireland, where tax rates have been historically low to attract foreign investment, among other things. A 12.5% tax rate looks none too shabby, right? They call this process "tax inversion." Meanwhile, there has been a massive outcry in the United States over this deal that is in large part meant to avoid taxation at higher US rates.

Two days ago, the US Treasury seemingly passed new regulations specifically designed to stop this merger:
---------
Today, Treasury is taking action to:
·     Limit inversions by disregarding foreign parent stock attributable to recent inversions or acquisitions of U.S. companies. This will prevent a foreign company (including a recent inverter) that acquires multiple American companies in stock-based transactions from using the resulting increase in size to avoid the current inversion thresholds for a subsequent U.S. acquisition. 
·     Address earnings stripping by:
o   Targeting transactions that generate large interest deductions by simply increasing related-party debt without financing new investment in the United States.
o   Allowing the IRS on audit to divide debt instruments into part debt and part equity, rather than the current system that generally treats them as wholly one or the other. 
o   Facilitating improved due diligence and compliance by requiring certain large corporations to do up-front due diligence and documentation with respect to the characterization of related-party financial instruments as debt.  If these requirements are not met, instruments will be treated as equity for tax purposes.
·     Formalize Treasury’s two previous actions in September 2014 and November 2015.
Treasury will continue to explore additional ways to address inversions. 
---------

With such obstacles in the way--namely the combined might of the United States government--Pfizer and Allergan had no choice but to back out:
Allergan plc (NYSE:AGN) announced that its merger agreement with Pfizer (NYSE: PFE) has been terminated by mutual agreement, effective today. In connection with the termination of the merger agreement, Pfizer has agreed to pay Allergan $150 million for reimbursement of expenses associated with the transaction...
"While we are disappointed that the Pfizer transaction will no longer move forward, Allergan is poised to deliver strong, sustainable growth built on a set of powerful attributes. Leading therapeutic franchises with strong brands across seven therapeutic areas provide the foundation for continued strong growth in 2016 and beyond. Our pipeline is one of the strongest in the industry, loaded with 70 mid-to-late stage programs including 14 expected approvals and 16 regulatory submissions in 2016 alone," said Brent Saunders, CEO and President.  
Blame it on the US government coming up with special rules?
Allergan CEO Brent Saunders told CNBC on Wednesday the U.S. government had targeted his company's failed $160 billion deal with Pfizer. "It really looked like they did a very fine job of constructing a rule here — a temporary rule — to stop this deal, and obviously it was successful," he told CNBC's "Squawk on the Street."
Saunders was referring to new regulations issued Monday by the U.S. Treasury that will prevent so-called inversion deals — under which a U.S. company moves its base to a country with a more favorable taxation environment. The regulation removed the tax benefits New York-based Pfizer had hoped to gain from the deal with Ireland's Allergan. 
The reality is that, ever since the global financial crisis, revenue-starved Western governments like the US have not exactly been forgiving of foregone taxation in whatever form, be it offshore accounts of their citizens or corporations "moving" to low-tax locales. It was bound to get to this point, and a $150B mega-merger has, apparently been the last straw. 

Inverters beware!

Would You Link to China's Global Power Grid?

♠ Posted by Emmanuel in , at 4/04/2016 01:08:00 PM
The future? Linking not to a national grid but an international one.
Adam Minter over at Bloomberg has an interesting article on how China's State Grid Corporation, the world's largest electricity supplier, is busy buying up energy assets all over the world. Apparently, it's all part of CEO Liu Zehnya's plans to eventually establish--get this--a global power grid. From an environmental standpoint, what's interesting is that it's designed to link producers of renewables to faraway customers in a way that has not been possible before when nearly all energy grids were, well, national:
China’s State Grid Corporation, the world’s biggest power company, is on an impressive buying binge. As Bloomberg News reports, the company is “actively in bidding” for power assets in Australia, hoping to add them to a portfolio of Italian, Brazilian, and Filipino companies. The goal isn’t simply to invest, however. State Grid's Chairman Liu Zhenya has a plan that he believes will stall global warming, put millions of people to work and bring about world peace by 2050.

The idea is to connect these and other power grids to a global grid that will draw electricity from windmills at the North Pole and vast solar arrays in Africa’s deserts, and then distribute the power to all corners of the world. Among other benefits, according to Liu, the system will produce “a community of common destiny for all mankind with blue skies and green land.”

It’s a crazy idea, of course. And if this so-called Global Energy Interconnection had been proposed by anyone other than the chairman of the world’s wealthiest power company, it wouldn’t deserve much consideration. But the $50 billion in cash generated by State Grid last year gives the company the deep pockets and political standing to put its priorities on the international energy agenda.

Last September, no less than Chinese President Xi Jinping publicly called for talks on establishing a global grid, while leading research organizations -- including the Argonne National Laboratory and the Edison Electrical Institute -- have participated in conferences looking at what would be needed to establish one. And whether or not it’s ever built, the technologies that underlie Liu's big idea are already changing how power will be generated and transmitted in coming decades.
Things get tricky with the geopolitics, however. Nothing suggests that China would necessarily be a more reliable energy supplier than, say, Russia. Ask the Europeans about Russian "consistency" in the midst of various spats when energy is used as a weapon. There is also the sheer cost of the whole infrastructure, which China alone cannot pay:
Technically, the vision is plausible. Power is transmitted today further than ever before, and smart grid technology is improving rapidly. But Liu’s vision faces considerable geopolitical hurdles, including laws (in Japan, for example) that prohibit importation of power from foreign countries. Likewise, it seems unlikely that China will be able to convince the nations who control the Arctic to open the region to Chinese energy investments.

Then there’s the matter of cost. State Grid estimates it would cost $50 trillion to develop a truly global grid. That would require international buy-in over a period of decades. At a time when short-termism and nationalism are rising worldwide, such a possibility seems remote.