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Voter suppression: US election generates avalanche of litigation

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The 2020 elections have generated an avalanche of litigation in states across the US.

With the coronavirus pandemic driving the use of mail-in voting to unprecedented levels, Republicans and Democrats have battled in court over the precise rules of how those ballots will be handled.

President Donald Trump has denounced mail-in ballots as fraudulent and his party and campaign have fought to secure tighter restrictions on their use. His challenger Joe Biden and the Democrats believe they are more likely to win if it is easier to vote.

Here are some of the key issues and cases that could affect the outcome of the election.

Ballot deadlines in Pennsylvania and Wisconsin

Pennsylvania and Wisconsin are crucial battleground states that Mr Trump carried by about 44,000 and 23,000 votes, respectively, in 2016. Success for either candidate could rest on whether voters’ mail-in ballots arrive in time to be counted.

In Pennsylvania, the local Democratic party earlier this year sued for a sweep of changes to election procedures that would maximise the number of mail-in votes that could be counted. Republicans and the Trump campaign opposed the lawsuit.

These changes included an extension of the deadline for mail-in votes that ordinarily requires all ballots to arrive by the evening of election day.

In Wisconsin, Democrats and liberal groups also sued to obtain an extension to mail-in ballot deadlines.

Larry Schwartztol, counsel at Protect Democracy, one of the liberal groups involved in the Wisconsin litigation, noted that “the share of people participating through absentee ballots is probably going to be unprecedented”.

“It’s very possible that 100,000 or more votes may be at stake in the question of when the ballot receipt deadline is going to be set,” he said.

The litigation in Pennsylvania is awaiting a decision by the US Supreme Court. After state courts extended the ballot deadline by three days, Republicans asked the high court for a stay on the change; the Supreme Court is yet to rule.

In the Wisconsin litigation, Democrats obtained a ruling that would mean ballots postmarked November 3 that arrive by November 9 would be valid. The 7th Circuit Court of Appeals has stayed the changes pending resolution of an appeal by Republican officials.

The Postal Service and drop boxes

As Americans vote by mail in huge numbers, it has fallen to the US Postal Service to deliver and return ballot applications and the ballots themselves — all within a relatively short window.

Swamp notes

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“The capacity of the Postal Service to manage all that efficiently is a key component of the election this year,” said Richard Pildes, an electoral law expert and professor at New York University.

As a result, the USPS has also been a target of litigation.

Louis DeJoy, a Trump donor installed as the Postal Service’s chief executive this year, immediately implemented sweeping changes that he said would increase efficiency but that also causes significant backlogs of mail in parts of the US. Democrats accused him of seeking to hobble the service to aid Mr Trump’s re-election hopes, a charge he denied.

Though he agreed to pause the overhaul under political pressure, several Democratic state attorneys-general sued to prevent any further changes. A judge last month ruled in their favour and issued a nationwide order blocking the Postal Service from making any changes to its normal operations before the election.

Election officials across the country are providing drop boxes where voters can place their completed ballots instead of posting them © Bloomberg

Election officials across the country are also providing drop boxes where voters can place their completed ballots instead of posting them. These too have become contested in the courts.

In Ohio and Texas, where a Biden victory would point to a landslide, Republican state officials have limited the number of drop boxes to just one per county. This means a rural county with few residents would have the same number of drop off points as a densely-populated urban county.

Frank LaRose, the Republican Ohio secretary of state, in August barred multiple drop box locations, leading the local Democratic party to sue. After an initial win for Democrats, an appeals court on Friday stayed the lower court ruling that ordered multiple drop boxes per county.

In Texas, Republican governor Greg Abbott this month also restricted the number of drop boxes to one per county. After a lower court decision against Mr Abbott, three Trump-appointed appeals court judges on Monday sided with the governor.

Ballot signature requirements and ‘naked ballots’

A handful of states require voters to not just sign their own names, but also have a witness signature. Some ballots have already been thrown out because this witness requirement has tripped up voters.

The issue has played out in Wisconsin, where the district judge rejected Democratic efforts to have the requirement removed, and in Arizona, Michigan, North Carolina and South Carolina.

Bar chart showing mail in ballots cast and requested

In South Carolina, a red state that could be competitive for Democrats given Joe Biden’s lead in the polls, a federal judge in September had removed the witness signature requirement and voters had begun to cast ballots without that rule in place.

The US Supreme Court this week reinstated the measure as it granted a stay sought by Republicans in the state. There was no dissent noted in the decision.

However, the Supreme Court did not throw out ballots already cast when the signature requirement was suspended. 

Line chart showing how Trump and Biden are doing in the US national polls

Separately, some states, including the battleground state of Pennsylvania, require voters to use two envelopes when they send in ballots: one to enclose their ballot, and a second “secrecy envelope” on top of that.

Ballots that only have the first envelope — known as “naked ballots” — are thrown out.

Democrats had sought the removal of this requirement in their litigation over the state’s voting procedures. They argued that discarding naked ballots violated the right to have one’s vote counted. The state Supreme Court kept the secrecy envelope requirement in place. 

The Florida felons’ voting rights case

In a 2018 referendum, Florida granted people convicted of a crime the right to vote by a 65-35 per cent margin. The move enfranchised 1.4m former felons in a state that Mr Trump carried in 2016 by about 100,000 votes.

But Republicans have successfully undone much of the impact of the voting rights expansion. In 2019, the Republican-controlled state legislature passed a law requiring ex-convicts to pay off any debts before they could vote.

Since then, Republican-appointed judges have upheld the requirement, even though the Florida government has no central record of the amount actually owed by ex-felons from convictions that may be decades old.

In September, the 11th Circuit Court of Appeals ruled against felons in a 6-4 decision. Five of the judges that made up the majority were appointed by Mr Trump.



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Analysis

Investors rethink China strategy after regulatory shocks

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After four days of heavy selling in Chinese stocks, regulators in Beijing decided it was time to offer some reassurance to Wall Street. But some investors have still been left figuring out whether to double down or flee.

In a hastily arranged call on Wednesday evening, Chinese regulators told a dozen or so executives from global investors, heavy-hitting banks and Chinese financial groups not to fret about the shock overhaul of the country’s $100bn private tutoring industry. Investors should not worry about intervention to curtail profitmaking in other companies, they said. Rather, China remained committed to allowing companies to access capital markets. 

The message did not stick. Tech stocks in the country have wrapped up their worst month since the financial crisis of 2008. “Clearly there will be more [regulatory intervention] to come,” said one person briefed on the call. “That much was obvious to everyone.” 

Now, foreign investors in China have been left nursing huge losses, and anxious over where, after education, regulators might turn their attention next. They must decide whether the drop in stocks is an opportunity to double down on a fast-growing economy or a sign that unpredictable political risk outweighs potentially lucrative returns.

“The political risk factors of investing in China have grown exponentially in the past 18 months,” said Dominic Armstrong, chief executive of Horatius Capital, which runs a geopolitical investment fund. “People learned the hard way in Russia and they’re learning the hard way in China.” 

Line chart of Stock index performance year to date (%) showing China's tech crackdown hits foreign listings harder

Tough lesson

Following a leaked memo just over a week ago suggesting Beijing was planning to clamp down on education companies, the market sell-off was sharp.

It was led by a drop in education stocks that, according to one Gavekal analyst, made for “some of the most traumatic viewing since the charts of Lehman’s bonds”. TAL Education, Gaotu Techedu and New Oriental Education, which are listed in New York, all fell close to 60 per cent in the first hour of trading on July 23.

Further jitters came on Tuesday when Tencent, one of China’s biggest tech groups, announced its flagship WeChat social network had suspended user registrations as it upgraded security technology “to align with all relevant laws and regulations”. 

Nerves have pummelled Chinese tech groups listed in New York, taking the Nasdaq Golden Dragon China index down more than 20 per cent in July — the worst month since the global financial crisis. 

In Hong Kong, the Hang Seng Tech index fell almost 15 per cent, dragging the broader Hang Seng benchmark almost 9 per cent lower as Chinese internet giants Tencent and Alibaba fell 18 and 14 per cent, respectively. 

Big institutional investors have driven the selling, according to strategists at JPMorgan Chase. Meanwhile Ark Invest star manager Cathie Wood has also been slashing her China holdings. The $22.4bn Ark Innovation exchange-traded fund, which held an 8 per cent allocation to China shares in February, has now almost completely exited Chinese stocks, according to the company’s website.

But some have stepped in for a potential bargain. “We have been net buyers,” said a fund manager at a $15bn Asia-based asset manager. “It is unheard of to see these types of moves . . . You’ve got to buy them, unless you think the entire world is going to crash and burn.”

The new rules will ban companies that teach school curriculum subjects from accepting foreign investment © Costfoto/Barcroft Media via Getty

National objectives

The crackdown on education marks part of the Chinese Communist party’s attempts to address falling birth rates by removing some of the perceived financial obstacles to having children. The rules will ban companies that teach school curriculum subjects from making profits, raising capital or listing on stock exchanges worldwide, and from accepting foreign investment.

This sector is dominated by three large US-listed groups — TAL Education, New Oriental Education and Gaotu Techedu — which have enjoyed soaring valuations in recent years and drawn billions of dollars of backing from some of the world’s top investment firms such as BlackRock and Baillie Gifford.

Private rivals like Yuanfudao and Zuoyebang, which have held multibillion-dollar funding rounds in recent years, are backed by groups including Tencent, Sequoia, SoftBank’s Vision Fund and Jack Ma’s Yunfeng Capital.

The government intervention came shortly after anti-monopoly and data security measures against some of China’s largest tech companies. Last November the $37bn blockbuster initial public offering of Chinese payments group Ant was torpedoed by Beijing regulators, and its controlling shareholder — Alibaba founder Ma — disappeared from public view for several months.

In the past few months Beijing has also been expanding its influence in to the domestic online sector. In April it fined ecommerce group Alibaba $2.8bn for abusing its market dominance, and opened an antitrust investigation into Meituan, the takeaway delivery and lifestyle services platform. 

And earlier in July, Chinese regulators announced an investigation into possible data security breaches at Didi Chuxing, less than a month after the ride-hailing app raised more than $4bn in a New York listing. Its shares have dropped two-fifths since then.

Line chart of Performance of American depository receipts showing Once high-flying Chinese education stocks tumble back  to Earth

Baillie Gifford, the Edinburgh-based fund manager with £352bn in assets under management, is the second-largest shareholder in US-listed TAL and has made big bets on China’s tech sector.

“It’s not saying we like the geopolitics or the national politics or anything like that,” Baillie Gifford fund manager James Anderson told the Financial Times in June, referring to its decision to add exposure to China in recent years.

But potential gains are too compelling to ignore, he added, pointing to “the excitement we see around businesses, the ambition levels among Chinese entrepreneurs, and the relationships we can build with the individual companies”. 

Baillie Gifford declined to comment this week on the latest developments in China.

The new restrictions for private tutoring companies prohibit them from accepting foreign capital through “variable interest entity” structures — the model that many big Chinese tech firms have used to list abroad for two decades. The VIE structure, which allows global investors to get around controls on foreign ownership in some Chinese industries, has never been legally recognised in China, despite underpinning about $2tn of investments in companies like Alibaba and Pinduoduo on US markets. 

In response to Beijing’s restrictions on China-based companies raising capital offshore, on Friday the US Securities and Exchange Commission announced that China-based companies will have to disclose more about their structure and contacts with the Chinese government before listing in the US. 

“I worry that average investors may not realise that they hold stock in a shell company rather than a China-based operating company,” SEC chair Gary Gensler said in a statement.

Beijing has opened an antitrust investigation into Meituan, the takeaway delivery and lifestyle services platform © Yan Cong/Bloomberg

Widening crackdown?

The education crackdown sparked fears the VIE ban could be extended to other sectors.

Revoking the rights of Chinese companies to use VIEs is seen as China’s nuclear option. On Wednesday, Beijing regulators sought to reassure investors that it would not target VIEs more widely. But one Wall Street executive briefed on this week’s call with regulators said “it was more about what they didn’t say, there were questions about the VIE structure they didn’t address”.

The consequences of restricting VIEs in sectors outside of education would be so severe that some are confident Beijing would not eradicate them completely.

“The government will allow the VIE structure to survive, but one thing is clear: if a company wants to use the VIE structure to circumvent certain regulations then that is not going to work,” said Min Chen, head of China at $8bn emerging markets specialist Somerset Capital Management.

Rather than selling out of China altogether, some investors say they are focusing on trying to select stocks that are in line with the government’s strategic priorities. 

“Companies such as taxi-hailing groups or community group buying businesses, where their model is to use their competitive pricing advantage to squeeze out smaller players are likely to find themselves vulnerable to more regulation,” said Chen. “There is also the potential for winners in this environment, such as domestic leaders in the tech space and semiconductor producers . . . as well as companies that are exposed to mass consumption.” 

Alice Wang, a London-based fund manager at €2.7bn Quaero Capital, agreed that investors will need to switch to betting on sectors that are “important to China’s long-term economic future . . . areas like renewables and industrial automation companies that drive the ‘Made in China’ narrative.”

David Older, head of equities at €41bn asset manager Carmignac, echoed these sentiments and said he likes sectors such as semiconductors, software, renewable energy, healthcare and electric vehicles. He is overweight China and has been adding to his positions this week: “It’s a great buying signal when you see strategists saying that China is uninvestable.”

Trying to align yourself with the government’s strategic objectives “is the only way you can sleep at night”, said Horatius Capital’s Armstrong.

Chinese government intervention is about addressing its “demographic time bomb,” he said. “This is a Chinese problem and there will be a Chinese solution. You can come along and be a passenger if you want, but the ride is not going to be smooth.”

International asset managers rush to tap ‘huge’ China wealth opportunity

Some of the world’s biggest investors are pushing into China with wealth management joint ventures to create investment products for the country’s vast and growing pools of savers. A report from Boston Consulting Group and China Everbright Bank showed that China’s wider wealth market was worth Rmb121.6tn ($18.9tn) in 2020, up 10 per cent from a year earlier. 

While China’s wealth management sector is still dominated by banks, early overseas movers include Europe’s Amundi and Schroders, and BlackRock, JPMorgan Asset Management and Goldman Sachs Asset Management from the US, lured by the country’s liberalisation of its financial markets.

“There’s a fast-growing middle class in China that has huge [asset management] needs for savings and retirement,” said Valérie Baudson, chief executive of €1.8tn group Amundi, which recently launched a wealth management subsidiary with the Bank of China. This year the joint venture has launched over 50 funds to sell to the Chinese bank’s network of clients, and raised €3.4bn in assets. 

Executives downplayed the political risk of these initiatives, pointing to the importance of partnering with domestic Chinese institutions. “It’s not a risk that keeps me up at night. For us it’s about a long-term investment,” said Peter Harrison, chief executive of £700bn asset manager Schroders, which gained approval in February for a wealth management subsidiary with China’s Bank of Communications. Bringing Schroders’ long-term investment approach to China, “is very much for the benefit of long-term Chinese savers,” he added.

The value of Amundi has been updated since first publication.

Additional reporting by Eric Platt in New York



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Analysis

Can plant-based milk beat conventional dairy?

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Plant-based milk brands are churning up the global dairy business, with a surge in sales, investment, and new products coming to market. The plant derived dairy trade is now worth an estimated $17bn worldwide.

Growing consumer demand has boosted investment. According to data firm Dealroom, venture capital funding across the plant-based dairy and egg sector has skyrocketed, from $64m in 2015 to $1.6bn in 2020.

The world’s biggest food company, Nestle, recently launched its first international plant-based dairy brand, a cow’s milk substitute made from yellow peas. Wonder will come in a variety of flavours, competing with established brands like Oatly oat-based milk. Founded in Sweden in the 1990s, that company is now valued at around $15bn. Demand for alternatives to soya, which once dominated the dairy free market, continues to escalate.

In the west, sales for other plant-based milks, including oat, cashew, coconut, hemp, and other seeds overtook soya back in 2014. Since then, they’ve raced ahead to be worth almost three times as much as soya products, with a combined projected value of more than $5bn in sales by 2022.

Advocates argue that plant-based production emits less greenhouse gas than cattle, making it the way forward to help feed the world and curb global warming. But dairy groups are fighting back with their own sustainability campaigns. And cow’s milk is hard to beat when it comes to naturally occurring nutrients, like protein, vitamins and minerals.

The average 100 millilitre glass of cow’s milk contains three grammes of protein, compared to 2.2 grammes in pea milk and just one gramme in oat-based substitutes.

Dairy producers have also won a legal bid, preventing vegan competitors in the EU from calling their products milk and yoghurt. Despite their growing popularity, plant-based brands are a long way from displacing conventional milk products. Their current $17bn turnover is still a drop in the pail, compared with the traditional cattle-based dairy trade, which is worth an estimated $650bn worldwide.



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'It’s more than sport – every day we are fighting for our rights to be equal’

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French pro basketball player and podcaster Diandra Tchatchouang on her role beyond the court



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