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Xiaomi eyes a giant Chinese IPO

IN CHINA no company achieved $1bn in annual revenue as quickly as Xiaomi did, in the year following the launch of its first smartphone in 2011. Chinese media initially nicknamed Xiaomi the “Apple of the East” (its literal translation is “little rice”). That was a stretch, even in good times. But within another two years the affordable-handset-maker became the world’s most valuable startup, worth $46bn.

Analysts reckon that it now wants to raise up to $10bn in an initial public offering (IPO) on Hong Kong’s stock exchange which was announced on May 3rd. (Its filing documents disclose neither the valuation that it is seeking, nor a fundraising target.) That could afford it a very generous valuation of as much as $80bn—not far off the $91bn market capitalisation of Baidu, China’s biggest search engine and one of the country’s three “BAT” tech titans alongside Alibaba and Tencent.

Yet only 18 months ago such talk would have seemed outlandish. In 2016 Xiaomi’s sales...Continue reading

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Lessons to a columnist’s previous self

IN A British television show, “Doctor Who”, the titular character is able to travel anywhere in time and space in his Tardis police box. Given access to that technology, what useful message would this columnist impart to his previous self, nearly 12 years and 550 columns ago?

The first lesson would be to avoid confusing the economy with the financial markets. If you looked at share prices alone, you might assume the intervening period had been calm; the S&P 500 index is around double its level when this column began in September 2006. But though the markets have long since recovered their sangfroid after the crisis of 2008-09, the trend growth rate of developed economies has never regained its strength. That is a bitter irony given that the crisis originated within the financial sector, bringing to mind a teenager who crashes their parents’ car and leaves them with the bill.

In part, the market’s resilience was owing to the remarkable strength of corporate profits, something else that would not have been obvious 12 years ago. Back then American profits were only just reaching a post-war high, relative to GDP. When they plunged in 2009, it looked like a return to normal. But the pre-crisis levels were rapidly regained and, indeed, surpassed. Explanations for the strength of profits include less competition in some...Continue reading

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Two hackers have found how to break into hotel-room locks

WHEN a hacker gets hacked, hackers hack back. That is exactly what an attendee at a hacking conference in Berlin in 2003 did when the keycard-operated lock of his hotel room got hacked. On returning to his hotel room, he found that his laptop had been stolen, but there was no evidence of forced entry. So how did the thief get into the room? Two of his colleagues spent more than a decade trying to answer that question. Now they have succeeded—and in the process they have exposed a security vulnerability that leaves millions of hotel rooms susceptible to theft.

Tomi Tuominen and Timo Hirvonen of F-Secure, a cyber-security firm, devised a hack that they say allows them to create a master key that mimics the guest keycards produced by VingSecure, a manufacturer of hotel locks. According to F-Secure, the affected software is used in more than 40,000 hotel...Continue reading

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So long, farewell

IT IS an enormous privilege, and responsibility, to write for The Economist and capture a small sliver of readers’ attention. All told, there have been well over a thousand posts on this blog (the site history runs for 98 pages) as well as 546 print columns (the last will appear at the end of the week). The first post, back in February 2009, was written in the depths of the crisis and “was looking for signs of hope, although without any confidence it can call the bottom exactly.” In fact, the market bottom occurred only a few weeks later. There have been a few wobbles along the way but that bull run is still going. The irony would be that, just as the start of this blog heralded the upswing, the last post might signal the demise of the great bull market.

This blogger has been a bit gloomy during his tenure, too gloomy as it turns out. So as well as three signs of danger, I wanted to close with three signs of optimism. First, the...Continue reading

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Trade talks expose a chasm between China and America

START with the good news from the trade negotiations between China and America. After weeks of threatening tariffs and counter-tariffs, representatives from the world’s two biggest economies are at last talking. Over two days of meetings in Beijing, which ended on May 4th, Chinese and American officials laid out their grievances and their demands. That, unfortunately, is where the good news ends. The positions that both sides took were so extreme and contradictory that compromise appears a remote prospect. What, until now, has largely been a war of words could easily careen into a full-fledged trade war.

Publicly, the two countries put a positive gloss on the outcome. Xinhua, China’s official news agency, described the talks as candid and constructive. It noted that they had agreed on some issues and recognised their “considerable differences” on others. On the evening the talks closed, President Donald Trump tweeted a sentiment that, by his standards, was sympathetic: “it is...Continue reading

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A huge interest rate hike has arrested a run on the Argentine peso

THE message to markets could not have been clearer. On the morning of May 4th, following a run on the peso, Argentina’s central bank raised interest rates by 6.75 percentage points, its third hike in a week. The interest rate now stands at 40%, up from 27.25% on April 27th.

Across town Nicolás Dujovne, the treasury minister, told reporters that Argentina’s budget deficit, which was 3.9% in 2017, would be brought down to 2.7% this year, rather than the previously stated target of 3.2%. After the announcements the peso strengthened by nearly 5% against the dollar.

The combined measures slammed the brakes on what was looking like the start of an escalating crisis. Argentina’s peso had fallen by a fifth against the dollar since the beginning of the year, making it the worst-performing emerging-market currency. But the measures also harm the prospects of growth—and of Mauricio Macri, the president.

The problems began in January, following the central bank’s...Continue reading

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Why has Qatar Airways just launched flights to Wales?

WHEN the Gulf carriers trumpet a new route, it tends to be one that goes to a major city with an international reputation. The big three—Emirates of Dubai, Etihad of Abu Dhabi and Qatar Airways—usually put on a good show to celebrate new flights to places such as  London, New York or Beijing. And so many brows were furrowed when on May 1st Akbar al Baker, Qatar Airways’s chief executive, arrived with his jamboree in Cardiff to make noise about his airline’s first flights to Wales’s capital.

Those who know British geography well know that Cardiff is the very opposite of a great metropolis. Although it is the capital of Wales and its biggest city, with just 360,000 inhabitants it is overshadowed by London’s 9m 150 miles to the east. Last year its airport handled less than 1.5m passengers, a fraction of the 8m or so who went via Bristol Airport, its main rival just across the River Severn. Cardiff Airport has struggled commercially in recent years. In 2013 it was...Continue reading

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Trade wars threaten to disrupt American firms’ global supply chains

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“DON’T panic yet,” advises the sandwich king of Ohio. Robert Grote is chief executive of JE Grote Company, a family-run firm in Columbus that is a global manufacturer of pizza-preparation machines, bacon-slicers and automated sandwich-makers. Since about half of its $60m or so of annual sales comes from outside America and his firm buys speciality steel from Europe, he is closely following President Donald Trump’s recent efforts to upend the global trading order. Though European executives he knows are alarmed, he says his American peers believe Mr Trump’s threats are probably negotiating tactics and are willing to “let it play out”.

Mr Grote’s relaxed stance might seem reasonable. The Trump administration first caused shock waves on March 8th by unveiling a 25% tariff on imported steel and a 10% tariff on imported aluminium, but quickly granted temporary exemptions to countries responsible for most of America’s imports of those metals. These exemptions were due to expire...Continue reading

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Japan’s bloated retail banks need to downsize

SWEEP past the cash machines at the Sumitomo Mitsui bank in Tokyo’s Sangenjaya shopping district and instead enjoy the personal service. Uniformed concierges welcome every customer with a bow. A dozen tellers are watched over by a manager who leaps up to meet elderly patrons. Transactions are concluded with carved signature seals stamped on paper contracts, and another round of bows.

Japan’s high-street banks are not just overstaffed. They are also overbranched. According to the World Bank, high-income countries have on average 17.3 commercial-bank branches per 100,000 adults. Japan has 34.1. If you include branches of the post office, a popular place for people to save, the Bank of Japan (BoJ) reckons the country is the world’s most overbanked.

Retail banks across most rich countries struggled to make money after the financial crisis. But Japan has been close to or in deflation for most of the past two decades. The result, according to a report last year by the BoJ, is...Continue reading

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A bondholder finds a sneaky way to trigger insurance against default

IN 2013 Codere, a Spanish gaming firm, owed money it could not repay. Its bonds were trading at just over half face value. Blackstone, a private-equity firm, offered it a cheap $100m loan. But there was a catch. Blackstone had bought credit derivatives on Codere’s debt that would pay out about €14m ($19m) if Codere missed a bond payment. So Codere delayed a payment by a couple of days to prompt a “technical default”. Blackstone got its payout; Codere got its loan and stayed afloat.

On the satirical “Daily Show”, Jon Stewart, the then host, likened the scheme to the insurance fraud in “Goodfellas”, in which mobsters insure a restaurant before blowing it up. But that missed an important point. Blackstone did not blow Codere up—quite the opposite. As it said at the time, it “provided capital when no one else would, which allowed the company to live and fight another day”. The investors who sold Blackstone credit-derivative contracts had in effect bet that Codere would...Continue reading

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