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Modi’s reform drive infuriates India’s farmers

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In the dusty expanse where New Delhi’s urban sprawl meets the vast Indian hinterland, thousands of farmers have been massed for over a month in one of the biggest challenges facing Narendra Modi in his six years as prime minister.

Nestled between brightly coloured trucks, the new arrivals of this makeshift city gather around fires to ward off the winter chill. Horses chomp on roughage while volunteers distribute food, medicines and books.

Over the past month, farmers travelled hundreds of miles, mostly from the north-western states Punjab and Haryana, to protest a trio of sweeping new laws intended to open up India’s agricultural markets to greater private competition.

They fear the reforms are an attempt to dismantle the state-backed safeguards on which they depend, with catastrophic consequences for often precarious livelihoods.

The government sought to reconcile with protesters, meeting for rounds of negotiation over the laws to little avail. Authorities have invited the farmers for more talks on Wednesday.

“We’ve been suffering since 1947 [India’s independence]. The government has ignored us and our problems,” said Morha Singh, a 34-year-old rice and wheat farmer. “We’ve cultivated the land and now they’re trying to give it to corporates.”

Mr Singh said he would not leave until Mr Modi and his ruling Bharatiya Janata party backed down, putting the prime minister — who vowed to overhaul outdated regulation and turbocharge economic growth — in a deadlock.

“Modi can’t stop us,” Mr Singh said. “They have to surrender in front of farmers. They have to withdraw and repeal the bills.”

A demonstrator sleeps near a road blocked by police. Farmers have been protesting for the past month © AFP via Getty Images

Reforming agriculture, which supports more than half of India’s largely rural 1.4bn population directly or indirectly, is a perennial demand of politicians, economists and even farmers. In much of the country, productivity remains low, farmers lack options for trade and produce rots before it reaches consumers owing to broken supply chains.

The new laws aim to allow private trade outside state-regulated market yards and open up contract farming between producers and companies. The reforms “will ultimately lead to a better life and enhancement of their incomes,” Narendra Singh Tomar, the agriculture minister told reporters last week.

Yet the BJP’s handling of the process has alienated even potential supporters. It rammed the laws through a compressed parliament in September, when India’s coronavirus crisis was at its peak. Critics say its tactics undermined democratic norms and failed to build consensus with farmer groups.

“The process to bring the reforms was completely unacceptable,” said Kapil Shah, a farmer-rights activist in Gujarat. “Reforms are required, but not in this way and not of this kind.”

Domestic allies, including a party in Mr Modi’s ruling coalition, broke with him over the measures. Economists who believe more reforms are needed — such as to labour or banking laws — fear the backlash will ultimately reduce the prime minister’s desire to pick further fights, hindering long-term growth.

Morha Singh, centre, said: ‘We’ve been suffering since 1947. The government has ignored us and our problems. We’ve cultivated the land and now they’re trying to give it to corporates.’ © Benjamin Parkin

“This is going to make the government more averse to reforms,” said Shumita Deveshwar, a senior director at research firm TS Lombard. “It’s a vicious cycle.”

Many of India’s agricultural policies were shaped by the need to ensure food security for its enormous population after independence. In states such as Punjab, for example, farmers grow wheat and rice to sell in government market yards at guaranteed prices.

This model, critics say, curtails crop diversity, depletes water resources and allows wealthy farmers to thrive over others. Many economists believe allowing competitive, private channels for trade, which already flourish in some Indian states, will boost productivity and diversify output.

Others say the new laws fail to offer adequate protections for a fragmented farm sector weakened by years of stagnation, even if farmers in Punjab earn higher incomes relative to other states. They argue small farmers would struggle to get good deals with agribusinesses without more bargaining power.

The farmers’ ultimate fear is that the reforms signal the beginning of the end for the guaranteed price system — something the government denies.

“Farmers are reacting to years of under-investment,” said Mekhala Krishnamurthy, an anthropologist who studies Indian agricultural markets at Ashoka University. “If you want to pursue a strategy which is more market based, you have to do a lot more work before farmers see this as a credible strategy.”

The coronavirus pandemic and ensuing lockdown, which prompted a mass migration out of cities to rural areas, highlighted how even a dysfunctional farming system was the only safety net for hundreds of millions of Indians.

“If I were a farmer, I would be nervous too,” said Avinash Kishore, an economist at the International Food Policy Research Institute.

Mr Tomar said the government has been a victim of its own success. “There was talk of various political parties all the time to undertake these reforms,” said Mr Tomar. “Because we were able to execute these reforms in a big way . . . the real opposition has started.”

But the tone of the debate was poisoned early on. Many of the protesters are from India’s Sikh religious minority and members of the BJP sought to discredit the farmers by accusing them of being Sikh separatists, echoing the demonisation of Muslim protesters after the government passed a contentious religion-based citizen law last year.

Farmers marching on New Delhi last month were met with water cannons and tear gas.

One of those taking part in the protests is Harshdeep Panaich, a 23-year-old farmer with a handlebar moustache, who is hopeful their action will force New Delhi to listen to them.

“Sikhs never bow in front of anyone. If anything is wrong they always speak up,” he said. Mr Modi “meets Bollywood actors but not us. You’re our prime minister, you have to face people.”



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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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