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Ethiopia splits, Ma fumbles, EU toughens and the Week in Review

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Ethiopia splits, Ma fumbles, EU toughens and the Week in Review

Happy Friday, y’all. We are typing this up on Thursday afternoon. It is not clear who won the U.S. election yet. The current trends in outstanding votes seem to give Biden a slight edge, and it is possible that by the time we hit send on this e-mail, Pennsylvania will have gone for Biden and that will be a wrap. Rather than bloviate unnecessarily or invent insight out of uncertainty, we’ll just say that we don’t have much useful to add at this point, so instead and as usual we’ll spend our time focusing on the important things happening in the world you probably missed whilst glued to wherever you get your news. In the meantime, we do highly recommend checking out our latest podcast episode by clicking here.  Our guest this week was Dr. Lindsay Chervinsky, a U.S. historian who just wrote a book about George Washington’s first cabinet. If you’re feeling really generous, channel your nervous election energy into leaving the podcast a rating or a review on iTunes or wherever you regularly tune in. It’d help us a bunch. Cheers, stay safe, wear your masks, and godspeed vote counters. PUT US OUT OF OUR MISERY.

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Civil war brewing in Ethiopia. The Tigray People’s Liberation Front Liberation Front (TPLF) released a statement describing Ethiopia’s federal government withholding the Tigray region’s budget subsidy as “tantamount to a declaration of war.” The TPLF also rejected the installation of Brigadier General Jamal Mohammed as the new deputy head of the Northern Command of the Ethiopian Defense Force, which is based in Mekelle, the capital of the Tigray region. Ethiopian Prime Minister Abiy Ahmed subsequently said that “the red line is crossed” and charged the Ethiopian National Defense Forces with “saving the country.” Separatist Tigray rebels reportedly took control of a federal military base and Abiy ordered a military offensive against Tigray forces to reclaim the base and pacify the entire state. The Tigray regional government accused Ethiopian fighter jets of bombing locations in Mekele.

What it means: The most ominous indicator of all is that Ethiopia has severed all internet and phone service to the Tigray region and blocked journalists from entering or reporting on the conflict. That means we do not have reliable information about what is actually happening on the ground in Tigray past roughly Wednesday evening, and no way of knowing whether this is going to be a minor skirmish or if the TPLF will succeed in rallying at least some of the Northern Command of the Ethiopian Defense Force to its side.

Abiy was a darling of the West during his first few years in office, even winning a Nobel Peace Prize in 2019 for his role in securing peace with Eritrea. (Maybe we should just stop giving that prize out, y’all.) In the last year, however, Abiy’s dreams of a “greater Ethiopia,” one bound by shared national identity rather than regional affiliations, has justified uncomfortable means, like indefinitely postponing Ethiopian elections due to COVID-19. (A new date for elections has still not been selected.)

That is what set off his most recent fight in the first place: the Tigray region went ahead with elections anyway and the Ethiopian government has rejected the legitimacy of those polls. Ethiopia has a population of over 100 million and is a potential regional power in East Africa, not to mention a strategic location near important global trading routes through the Gulf of Aden. Tigray Region, by comparison, has roughly 4.5 million people, and Abiy apparently believes enough in his dream of what Ethiopia should be that he is willing to sacrifice what Ethiopia is.

Jack Ma’s “mistake.” The Shanghai Stock Exchange suspended Ant Group Co.’s initial public offering on Tuesday. The move came a day after the China Banking and Insurance Regulatory Commission and the People’s Bank of China published “Interim Measures for the Administration of Online Microfinance Business,” which imposed new rules of online micro-lending, and after officials from at least four Chinese financial regulators “conducted regulatory talks” with Jack Ma and other executives of Ant. The sudden collapse of the IPO comes a few weeks after Ma gave a speech on October 24th in which he criticized Chinese state-owned banks for operating with a “pawnshop mentality.”

What it means: To hear English-speaking media tell the story, Jack Ma decided to let loose at the worst possible time and now the Chinese government is punishing him for his defiance. That’s an awfully simplistic narrative, and even if there is a kernel of truth to it, we think the way this story is being reported is obscuring what’s really going on here, namely, a closer relationship between Chinese companies and the Chinese government out of geopolitical necessity.

In part due to the U.S.-China trade war, and in part due to straight-up intellectual laziness, Chinese companies like Alibaba, Huawei, Bytedance, and Tencent are often seen as synonymous with the Chinese Communist Party (CPC). This is simply not true. Indeed, these companies achieved their level of success in part because they were expert at figuring out the ways to get around the Chinese government. To a certain extent, these Chinese companies have more in common with Facebook, Microsoft, Google, and Ericsson than they do with the CPC. These companies and their leaders want to be truly global, and they have managed to create environments where truly creative and world-class entrepreneurial spirit exists within a political system whose first instincts are control and harmony.

We don’t think it is a coincidence that Jack Ma did not attend an important Xi Jinping speech this past July on the importance of Chinese entrepreneurs that they needed to focus more on domestic opportunities. (We wrote a bit about that here.) Nor did representatives from many other important Chinese companies. As big as the Chinese market is, these executives have bigger appetites and their interests did not line perfectly with Xi’s vision. Unfortunately for those appetites, a lot has happened since. The two most important developments are 1) the intensification of the U.S. attempt to destroy Huawei and 2) the thuggish behavior of the U.S. government to try and essentially acquire a bribe from Bytedance (which we wrote a bit about here).

The result of this heavy-handed foreign policy was not actually to cripple Huawei or steal Bytedance. It was to force Chinese companies to realize the U.S. and its allies view China as an existential threat and that many do not differentiate between China and Chinese companies. Hence, Jack Ma’s interests, and those of other Chinese entrepreneurs, are tied more deeply to the CPC than ever before during Xi’s rule. China is a huge country with a massive bureaucracy. The long-term import of what has happened with Ant Group Co. is not Jack Ma getting put in his place or China crushing entrepreneurship. Instead, the importance lies in how Chinese companies and the CPC have realized how much they both need each other. Ant Group Co will be back for its IPO eventually and it’ll be legitimized after meeting whatever new regulations the CPC requires of it. Our advice? Put down the newspaper on this one and drop us a line if you need some help thinking through these issues.

The EU toughens up. The European Parliament and the European Council have reportedly agreed to a compromise that will establish a new mechanism whereby the European Council can suspend budget payments to a member state violating the rule of law or EU values after a qualified majority by the European Commission is approved.

What it means: We don’t have the full text of the compromise yet, so we will refrain from diving in too deeply. Still, what this means for the EU is that it is developing the capability to deny EU budget funds to any country that is breaking EU rules pertaining to the rule of law or EU values based on a qualified majority vote. That’s a pretty big deal, and it’s why one Hungarian official was upset enough at the news to describe the compromise to the Financial Times as “reckless and mistaken.” The EU has to develop the ability and will to deal with member states that are flouting EU rules if it is to survive as anything more than a glorified free trade agreement, and while this compromise is hardly a silver bullet, it is an important step forward on one of the issues we think is going to be most important this decade.

Honorable mention

A whale sculpture rescued a runaway Dutch train.

A Russian meat magnate dubbed the “Sausage King” was murdered with a crossbow in his outdoor sauna hut. (And you thought you were having a bad day.)

The U.S. granted Indonesia Generalized System of Preferences status, which will eliminate thousands of tariffs currently applied to trade between the two countries.

China is planning to ban imports of Australian copper and sugar this week. Coal might be next.

A Canadian judge said that Huawei executive Meng Wanzhou’s assertion that the U.S. had misrepresented evidence of fraud has “an air of reality” but declined to dismiss the case entirely, instead offering Meng’s lawyer opportunities to introduce additional evidence into the case-record.

Brazil kept interest rates steady because recent inflation in food and oil prices and reais weakness are “temporary.”

Pakistan will give “provisional provincial status” to Gilgit-Baltistan.

The Kurdistan Regional Government (KRG) announced that a “terrorist attack” had suspended oil exports from the KRG for about a week.

Puerto Rico voted by a 52 to 48 percent margin for U.S. statehood.

Peru’s Congress voted for a second time in as many months for impeachment proceedings into President Martín Vizcarra for “moral incapacity.”

Russia renewed calls for an Azerbaijan-Armenia ceasefire and said it was considering a proposal from Iran on potential conditions and terms for a more durable ceasefire than has previously been achieved.

The Laptev Sea in Russia’s Arctic region has not frozen yet this year – the longest it has stayed unfrozen in recorded history. It’s almost like global temperatures seem to be rising.

Protesters in the disputed Western Sahara region blocked Morocco’s trade route to West Africa.

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