Private equity with Chinese characteristics

Elsewhere, I intend to reflect on my pet theme that China is reinventing – and indeed single-handedly resurrecting – equity as an asset class. In my opinion, this reflects an underlying self-confidence and correlates with the emergence of other equity cultures such as the Netherlands in the 18th century, England / Britain in the 19th and America in the 20th century, in contrast to the contemporary Japans, Koreas and Taiwans of this world.

In the meantime, developments in Chinese private equity are also worth noting. For a start, when we talk about private equity in Asia ex-Japan, we are effectively talking about just one country: the PE market in Greater China reached US$222bn in 2016, whereas SE Asia combined only managed US$37bn. The ASEAN region has not yet emerged as a market of material scale.

However the prevailing orthodoxies of PE in China are also showing that the market will not come to simply resemble OECD behavior. As many observers will know, Chinese funds operate in a grey area between classic private equity and venture capital, and sometimes throw in an element of special situations or even hedge funds to boot. This comes through in the types of deals that are done – whereas conventional buyouts still account for almost 80% of the N American market, in China this is just 20%. Instead, growth capital and PIPEs account for a much larger chunk, itself revealing that PE funds typically take smaller stakes in Chinese targets and rarely buy the whole company.

Asian private equity deals by type (2012 – 2016)

PE by type

Source: AVCJ and Prequin via Bain Asia Pacific Private Equity Report 2017

Why is this? There are a number of reasons which play a part:

  1. Stage of development – the simple point that in a high growth market, sellers may be younger and in any case desire to have a greater piece of the future upside that a company might yet deliver. It also means that there is less appetite for use of debt in the transaction.
  2. Exit liquidity – by far the biggest problem PE funds have had in emerging markets is a clear pathway to exit. Recent turmoil in the Chinese stock markets for instance cause a lower risk appetite for funds, who may find it easier to sell a stake than to shepherd the company to IPO.
  3. Control issues – perhaps the most important matter, PE funds do not always have the confidence to take a company over completely since they will be susceptible to the vagaries of China country risk. A partner of some sort often seems necessary to keep a company functioning the way it has been historically.
  4. LP involvement – this leads neatly to the preponderance of strategic investors who exist in the market, and who it is better to work with than against. LP involvement in deals stands at 29% in APAC and an enormous 57% of deals over US$1bn, compared to a global average of just 17%.

LP involvement in transactions

LP involvement

Source: Bain Asia Pacific Private Equity Report 2017

So where does all this leave us? In my mind, there are a range of different players in the Chinese PE market, and they fulfill a range of roles. On the one hand, there are the classic international players, but often these are not capable of realistically doing a deal on their own without some sort of local partner angle. On the other end of the scale, you have the very Chinese funds who retain many of the classic characteristics of Chinese business ambiguity in their dealings – at times almost seemingly linked to the state. In between you have the good stuff – the international firms who have really localized and look and smell like Chinese funds; and the few local funds who have really made an effort to westernize in their business practices, if not their focus.

Here, purely subjectively based on my own experience, is an overview of the landscape of funds in and around China:

Chinese PE.png

This will cause many an argument, I am sure. But I have tried think about ways of reflecting the degree of “localisation” too. The best I could come up with involving an excel spreadsheet was to analyse where these funds were keeping their staff – the more onshore, the more localised they might be supposed. The results were interesting if not conclusive:

PE by office.png

Source: company websites

Warburg Pincus and Blackstone represent good counterpoints. Warburg is by common consensus one of the most successful foreign funds in China, and its staffing reflects this since more than half of the Asia employees are based in Beijing and Shanghai. This reflects the 26 Greater China deals they have done against the 4 in ASEAN. Blackstone on the other hand, prefer to hub-and-spoke out of Hong Kong (a business model which has had its day, as I have written before). Their deal count is correspondingly lower. It need not be added that sheer numbers of staff can help, but only if they are the right staff in the right places.

The lesson of all this is simple: China will be a very large, profitable private equity market, but it will do so on its own terms. As with much else, assuming that China will develop along the lines of its OECD counterparts is a recipe for disaster. Whilst it has some of the framework for creating a functioning market, the behavior will be totally different. Foreign participants will have a role, but they will have to adapt. This will be, as Deng Xiaoping said, private equity “with Chinese characteristics”; but perhaps we can also add, it does not matter if it is a local cat or a foreign cat, as long as it catches deals?

Why Simplified Chinese does not mean simplistic

Far from being an act of vandalism, the Simplification process should be recognised as an intellectual achievement rivaling Johnson’s dictionary


The most extraordinary aspect of perusing the National Museum in Taipei is not just the artifacts on display, but the story it tells about Chinese history. Among the other unparalleled treasures, there is a room of printed texts from throughout the ages and it is almost incomprehensible to those of us schooled in the West that upon seeing some writings which look completely recognizable and fresh in terms of style and font, to look down at the label and discover it is in fact an original from the Song, the Tang or, in some cases, the late Han dynasty. In English, we could barely make out Chaucer in its original form, let alone Beowulf; yet an educated Chinese person could visually (if not intellectually) make out every word from these texts.

Purely as a numbers game, it seems inevitable that Simplified Chinese characters, as established by China in various rounds of reform from 1956 onwards, will win out in representing the Chinese language. By every measure, Simplified outstrips Traditional complex characters in usage and the education of new learners whether ethnically Chinese or foreign. Yet if one examines the rhetoric that still emanates from Greater China and in particular Taiwan, it becomes clear that although this is known, the declining world of Traditional Chinese still grips the moral high ground. But the common, non-academic proponents of Traditional labor under two common misconceptions.

The first and most obvious fallacy is that simplified writing reform was undertaken as random vandalism. It is frequently cited that learners of both languages often arrive at the conclusion that much of the shortening has been the work of Communist progressivism, purposefully disregarding the features of an ancient civilization. Yet this is far from the case. Only a small portion of the simplification process involved wholesale substitution of components or, in extreme cases, hatcheting of words. On the contrary, many of the new forms reached back into various strains of traditional Chinese including ancient alternative and vulgar forms, commonly used short hand and caoshu (cursive) print representations. The thousands of delegates meeting in 1956 searched far and wide for forms which could be best reconciled sympathetically with the language which already existed, and in many cases did so quite elegantly. The fact is that the simplification process, for all its imperfections, remains a monumental intellectual achievement which stands alongside Johnson’s first dictionary.

The second mistake is to ignore the fact that impetus for language reform has been long-standing, and natural. Simplification  had been discussed throughout the 19th century and a lesser version had even been implemented (albeit only for six months) in China under the Kuomintang in 1935. Lu Xun, China’s most prominent writer of the 20th century, had gone as far as to say that “if Chinese characters are not destroyed, then China will die”. Yet this is not the only evidence of natural evolution – Japan simplified its version of Chinese (kanji) in 1946 and the introduction of shinjitai was itself a form of linguistic reform. Likewise have the Koreans and Vietnamese slowly changed the usage of their hanzi (mostly for local terms) to the extent that both, like Japanese, have characters unique to their own language. And of course, controversial reordering of language is not just limited to logographic languages, as the much-debated 1996 German reform demonstrated. Of course, the timing and extent of the jiantizi was very much a choice of the Communist Party but they were only tapping into what was an ongoing debate about how the language should move forward. For sure, reform was not just a Communist conspiracy.

The question should therefore really center on whether the process has been executed well, and it is here that the communities in Taiwan and overseas have been particularly vocal. Without going into the details here, the reality is that there were good and poor simplifications in the process. Some of the less controversial changes might include the word meaning “to learn,” changing 學 [xué] to 学 for instance, since the original does rather evoke the over-burdening of a child’s head with the excesses of Traditional stroke counts. Likewise the adjustments of the word for “energy,” as 氣 [qì] to 气, or “to be” as 為 [wèi] becoming 为, which are both so “elemental” that not much is lost. Indeed the adoption of 台 [tái] (from 臺) even in Taiwan, is indicative of the necessity of some changes.

Against this are the changes whose aesthetics are so difficult to swallow, such as the change from 廣 [guǎng] to 广; the unsatisfactory merging of words based on phonetics such as both 髮 [fā] and 發 [fā] become 发; and those changes which are perceived as being purely political such as the conversion of 華 [huá] to 华, and the so-called “国-phenomenon” as identified by Zhao and Balduff in Planning Chinese Characters (2007). The most prominent rallying cry of all for the Traditional Chinese community is of course was the heartless [pun intended] extraction of 心 [xīn] out of 愛 to give us the word for love as 爱 [ài]. Without doubt, these could have been done more sensitively.

The balance sheet is mixed, and Simplified Chinese is not to be defended in and of itself per se. However (and leaving aside the arguments over literacy which – very broadly – support Simplified), the reforms have one important anthropological argument in their favor: they recognize constant evolutionary change. On the Mainland, there have been effectively five rounds of reform in 1956, 1964, 1977, 1986 and 2009; in Taiwan the written language has remained ossified, with a commensurate impact on its viability. The problem across the Strait and elsewhere in the Traditional Chinese world is that the social, intellectual and political opposition to Simplified script leads to the ultimate fallacy: that Traditional as we know it today is, effectively, “perfect.” It has been done, the process has finished and there is nothing left to fix. This can be neither logically or empirically true.

The truth is that, had the Communists never won the war, and had Mao and others not pushed the reform agenda strongly, Chinese written script would have changed at some point. Around the margins, evolutionary use would have materialized; and it is quite possible that a centralized standardization of some sort may have been instituted. Modern Chinese would therefore be something in between today’s Traditional and Simplified. It is probably time for the Traditional school to recognize that, even if they do not agree with everything that has been done, the cause was more natural and noble than has been given credit for.

This piece was originally published in Caixin Online in April 2015.

The three things Tottenham really need

Battle of Stamford Bridge

Usually my football postings try at least nominally to make the link with economics. But with the transfer deadline approaching, I feel like offering up a more qualitative analysis of where Pochettino needs to improve the squad. These are not specifics, but rather some broad principles.

So what is it that Spurs need?

1. A first XV (not a first XI)

I find it staggering the number of commentators who still get caught up on the idea that it is difficult for us to recruit because we cannot improve much on our supposed “first team”. As I have written before, whatever the level of your club and corresponding objectives, there is a basic threshold for quality. In our case, as potential title challengers, that is of the very highest level. Once that level has been determined, any squad will need at least 15 or so players who are of the required standard. They must all be “first team” players, even though only 11 play on the day. This is so basic that I just do not understand why it is still discussed.

For Tottenham in their current tactical style, this means:

  • 2 strikers
  • 3-4 attacking midfielders
  • 3 central / defensive midfielders
  • 3-4 central defenders

Only the goalkeeper can be expected to be a single regular and an understudy. Full-backs and wing-backs (the latter becoming one of the most high profile and specialized role across Europe) are perhaps also forgiven due to their relatively specialist nature, though the Kyle Walker / Kieran Trippier combination was really the very least we needed in terms of quality.

Some flexibility helps alleviate this, for instance Eric Dier’s switching between midfield and defence. But if you add it all up, we are talking about a “first team” of between 14 – 16 players, ideally a few more. I would say that we currently have about 11, excluding Davies and Trippier but including Son and Lamela. That is not enough for a title challenge.

2. Game changers

In the two recent defeats against Chelsea, much was made of the strength of the respective squads, which is true as far as it goes. But I have noticed that Poch also does not really have players who can really change things against the run of play “out of nothing”. Dele is the possible exception, Eriksen inconsistent. The point is that these players can all play well – but only if the team plays well. A game changer is a player who, like Hazard or the much-underestimated Willian at Chelsea, can pull things out when the team is playing poorly.

Our lack of this ability is why we seem to win relatively few games when we are not playing well – Crystal Palace away was one of the few occasions last season that I can remember. But the problem is: game changers are typically not great team players. The whole point is that they are egotistical prima donnas who pull something out of the bag precisely because at that moment, they are ignoring their team mates’ performances and just doing what they want. If the team is functioning, that’s wasteful selfishness; if the team is not functioning, it can be a life-saver. But game-changers are not Poch players.

3. Bastards

Lastly, we have the ongoing issue of our relative naivety at controlling matches (something which has reared its head this season against Burnley and arguably against Chelsea too). There is a valid accusation that Poch demonstrates a lack of stylistic flexibility, namely sticking at all times to the pressing style, but at this point last season he was also accused of tactical rigidity and ended up coming up with the 3-4-2-1 as a “Plan B”, so perhaps he just needs time to work on a more Mourinho-esque counter-attacking style.

But what he lacks in the squad are real bastards. People with experience and the skills to wind opponents up in big games. Chelsea is once again a great example of a squad almost any of whom would be bottled round the back of the pub just because they are annoying. Spurs, on the other hand, are not only too naïve, but too “nice”. There are glimpses of something more edgy from Rose and Dembele on occasion, and Dele is beginning to learn how to wind people up. But really, we have not had a really aggressive little bastard since Edgar Davids – it is the very definition of our historic “soft underbelly”.

Again, though, I suspect that bastards really are not considered suitable for Poch’s teams. One reason our squad is so nice is that they are so young, and have been growing up as Poch’s children effectively. How do you generate a Roy Keane or John Terry in that situation? Almost all the great “nearly” sides, from Newcastle in 1995 to Liverpool in 2013 have shown this weakness. We look set to join them.


So with two days left, what are some answers? Well strengthening the wing-backs will be crucial – Aurier and possibly Sessignon would be good news (or eventually a Rose for Shaw swap). Adding more creative firepower would be great. But really we also need a gritty central man who has a bit of a temper. I have said it before and will say it again: perhaps it is time to reinvent Sissoko as that man. He showed a great elbow last year at Bournemouth!

Why Barcelona are still not learning their lesson

Messi sad

Ousmane Dembele has just arrived at Barcelona for a “club record fee” of €105m plus add-ons which could take the total paid to around €140m, far eclipsing even the official updated €86m paid for Neymar that the club had to admit to two years afterwards (although the real cost may still be somewhat higher, and we may never know). Whether Dembele can emulate his predecessor in footballing terms is anyone’s guess; but more intriguing is the fact that he may emulate the superstar as a future exit – curiously, Barcelona seem not to have learned their lesson and set a buyout clause of only €400m.

€400m may seem a lot, but this summer has shown that numbers we could barely believe have a habit of becoming reality; if TV revenues increase, the figure will not seem excessive. But in any case, and more importantly, it is already not very high in the world of preventative buyout clauses. If any proof be needed that Real Madrid are better run than Barça at the moment, it can be seen in the buyout clauses currently in place. Not only is Dembele’s price, their newest signing, still way below the sums set by their arch-rivals, but so are all the rest of the squad – by some distance, too. Eight of Real’s stars have clauses higher than Lionel Messi, the best player in the world. Suarez and Busquets look at snip at just €200m.

Real Barca transfers

Source: Gab Marcotti via, updated for Asensio, Isco and Dembele

Why have Barça been so remiss and what explains this imbalance? Well first, to be fair, the Barça squad is just that much worse than Real’s. Other than the MSN, most of the others have passed their Pique (lol) and their clauses were signed in another era. Having said that, Cristiano Ronaldo’s €1bn clause was set as long ago as 2015, a full year before Neymar (Barcelona’s youngest and most marketable star) was set at only €200m rising to €250m over three years. Is it perhaps that Barcelona do not have the pull to get players to agree to prohibitive buyout numbers? Or is the board still arrogant enough to believe that players go to Barcelona for its “philosophy”? Either way, it is a failing of their fiduciary duties which would be prosecutable under UK company law.

Furthermore, Barcelona really have encountered a perfect storm. The inflation in this year’s transfer window has hit them just as an irreplaceable star has gone. To be clear, buyout clauses work very differently from normal transfer fees in terms of distorting the market. This is because a normal fee is, these days, usually paid out over a number of years; so that a transfer fee of €222m might only be about €55m per year. The rest of the market (though not the idiot fans) will “know” that the extra money available to the club who has just sold their star asset is only €55m at that point. But with a buyout, the money arrives instantly, meaning that the market is aware of both an entire €222m overhang, as well as the necessity to frantically spend most of it on a replacement. Furthermore, buyout clauses are by their very nature “supernormal”, higher than market valuations. This means that in turn they are causing inflation above normal market values when the money is spent in turn. In other words, it is not just usual “football inflation” (see my previous) but a buyout-driven super inflation. Barcelona this summer have become a footballing version of Mansa Musa I.

Of course in today’s world, only a few clubs are true “buyers”: Real Madrid, who do so from their own resources, and then PSG and Man City, who do not. Barcelona have ultimately been left on the heap as just another “selling club”, the dreadful epithet that even Man Utd had to understand when they lost Ronaldo to Real all those years ago. Barça just have not learned their lesson.

Are transfer fees really exploding?


With Neymar’s transfer to PSG, the football media has moved from just excitable to the swooning and fainting associated with young Victorian debutantes laying eyes on returning officers of the Household Cavalry. The “world record” (we will get to this in a moment) has seen the football experts go into overdrive in trying to explain how it is that so much has been paid, and how it can be justified.

Among the more interesting commentators were the crew on last week’s Guardian Football podcast, specifically award-winning Jonathan Wilson who made a couple of insightful points. The first was the likening of the football transfer market not to the clichéd and overused Dutch tulipmania of the 17th century, but to a more subtle historical event that I had not heard of before, the Indian horse market of the same period. Although Wilson does not spell it out, the point here is not that best-in-class assets become expensive (Neymar for €222m is comprehensible); it is rather what Mourinho has been warning about, that mediocre asset prices get dragged up too and that is where things become unsustainable. In other words, the Man Utd’s of this world will always spend top dollar; the real danger is when Middlesbrough are doing the same.

The second intriguing point surrounds the role of Qatar in the Neymar move. Barcelona have for many years irritated a majority of neutral fans with their holier-than-thou attitude about all matters football. It does not take a hard-core royalist like myself to be sickened by the constant nonsense about being “mes que un club”, or the self-indulgent refusal to have a shirt sponsor for so many years. But recently, the club have taken to criticizing Qatar over the forthcoming World Cup – the very people they finally took their blood money from when the caved into for money. Was this criticism a result of failing to agree a new sponsorship deal? Was PSG’s bid for Neymar driven by a Qatari government keen to demonstrate they still had retaliatory power? Both, it seems, may be a firm “yes”. Well, it couldn’t have happened to nicer people …

But really, how big a transfer fee is Neymar, anyway? Clearly a direct comparison of nominal fees is useless; so is a basic use of inflation to recalculate them. Only one analysis I have seen attempts to bring fees into historical perspective, the excellent Paul Tomkins’ blog. For the purposes of analyzing which transfers have had what impact, Tomkins and his team have used a form of “football inflation” based on average transfer prices from year to year, and inflating the nominal figures this way. Since football inflation has far outstripped CPI, this produces a top ten looking something like this:

Tomkins table


Now, I like this approach. It has much to recommend it. However I believe it understates the impact of TV money on the psyche of football clubs – Tomkins’ analysis looks at correlation between the two but does not integrate them. I believe that – for the Premier League at least – another interesting way of looking at transfer prices is rebasing nominal transfer fees against the growth in TV deals. In my model, “inflation” is based entirely on the growth of TV deals struck over time (which have grown at an impressive 17.2% CAGR since 1992). In particular, I think this better reflects the thinking behind those headline-grabbing, record transfer deals as opposed to the median ones. The thesis being, that record transfers experience inflation different to normal transfers.

When this principle is applied – the Pang Index – the following numbers are generated:

Transfer records re-based to Premier League TV deal sizes

Football transfers

The blue bars represent record transfer fees paid by English clubs since the Premier League came into effect in today’s money. The grey bars were record transfers out of England (as it happens, all to Real Madrid). In this context, I have thrown in the Neymar transfer for fun. Of course this is not a perfect comparison – European clubs have very different TV deal structures and have not earned as much as English clubs have anyway; moreover the likes of PSG are barely “commercial” clubs at all these days, throwing the numbers out. Nonetheless, it makes some sense: Neymar’s fee is probably the same as a proportion of the kinds of TV money sloshing around as Veron’s transfer to Man Utd was all those years ago. No-one old enough to remember, can really be in doubt that Shearer’s £15m fee shocked us rather more than Neymar’s (let’s perhaps forget Stan Collymore for a moment).

The basic lesson is: money is here to stay; it is growing at a pace; but it makes surprises more and more difficult. Already this summer, there have been several moves rumoured to be in the same ballpark (£131m for a 31-year old Ronaldo, for instance). Actually, for the bigger clubs, it seems superstars are getting cheaper, not more expensive.

Why Chinese firms have a succession problem

Chinese society has long produced family business empires. A quick glance at any list of Asian tycoon families show them to be omnipresent, whether in Hong Kong and Taiwan or the further flung diaspora in SE Asia – including in Thailand and Indonesia where Chinese surnames have become so mutated as to be almost unrecognizable. It is not just Kwoks, Kweks and Lees, but the Hartonos and the Chearavanonts who are furthering traditional Chinese family values.

Everywhere that is, except China. It is fascinating to consider what is likely to happen on the Mainland over the next two decades, when the first generation of post-Deng businessmen finally start to retire. Many have noted the succession crisis facing these companies for some time; empirically, I have yet to meet a single 富二代 who has any intention at all of managing their parents’ business after their retirement. It is not just personal experience, either: a recent PwC survey showed some startling numbers contrasting modern China with its overseas counterparts.


Source: PwC Family Business Survey (2016)

Fewer than one in five Chinese entrepreneurs surveyed indicated that they intended to pass down the business. This compares with somewhat higher numbers in Singapore, higher again in Malaysia and Hong Kong (c. 40%) and far less than in the most directly comparable jurisdiction, Taiwan. Here, almost three fifths of families want their children to take over – and indeed, they have already gone through one or more generational handover.

Why is this? The obvious point to make is that, as with so many other aspects, China will not be following any known development paths. But there are probably a few more specific reasons too.

First, there is the entire structure of the economy and the perceived pathway towards exit. Speaking to SMEs, many will tell you that their end game is to list the company, which is true as far as it goes. But the more important point is that they see the government as the likely ultimate inheritors of any important business, either officially or unofficially. In this sense, the incentive for dynasticism is limited and becomes less relevant the more successful a venture becomes. Instead, monetization remains the key aspiration.

Secondly, there is the creeping issue of inheritance laws. Again, we have yet to see the first real fortunes and large scale asset inheritances being tested in the Chinese legal system and anecdotally, it is notable that increasingly numbers of the Chinese middle classes have ceased to give birth abroad, fearing what the implications might be when largely domestic legacies come to be divided up under Chinese law. For companies which have now been successfully “domesticated” through policies such as a stringent foreign exchange regime, this becomes the same question writ large.

Most intriguingly of all though is the prospect of meaningful cultural change. Overseas Chinese families have an unbending sense of filial piety even today, with many younger generations taking over family businesses despite not wanting to. Modern China, post the Cultural Revolution and factoring in the One Child Policy, much less so. Furthermore, children educated in western business schools clash with their parents over management style. And for many, the rapid change in the Chinese economy means that their parents’ businesses are just too damned unsexy, as one observer notes:

The transition is particularly evident in the manufacturing industry; many children who are educated abroad shun the manufacturing sector and prefer to seek opportunities in finance and other ‘cool’ areas. Fortune Generation estimates more than 65 per cent of children whose parents own manufacturing businesses don’t want to be involved in the industry.

Why put the hours in, when you could use your parents money for funding the latest absurd tech startup?

However whilst this is all bad news for champions of Chinese traditions and parents who want to see more of their children, this does mean an impending surge of opportunities for  investors. It seems those PE funds really ought to be speaking first and foremost to the sprawling private wealth arms of the investment banks, rather than their corporate finance people.

A squad of two halves – the drag from Tottenham’s wage structure

Tottenham NY Post

Frustrations are beginning to appear around my beloved Tottenham Hotspur. Obviously, we have yet to make any new signings, even as all around us in the top six have done so – including from us with Kyle Walker’s move to Man City. It is well known that we have a shortage of money compared with our rivals – the subject of a neat video produced by Joe Devine last year. But, there has also been much commentary about how Tottenham are struggling to find the right kind of players to fit into the squad – especially as “understudies” to key players like Harry Kane and Dele.

The reality is that Tottenham faces structural problems of its own making. First, the wage cap in place is enforcing a concept of a First XI vs secondary players. Most clubs have some sort of wage structure in place, of course, but rarely at the top level is such a fuss made about it or is it so well known. A look at the figures as last season commenced (below) demonstrate this clearly: Lloris and Kane were the top earners but the whole first team plateau out before a sudden drop off as one reaches Trippier and Davies (both now ironically effectively first team players).

Tottenham wages

Source: (

Compare this with the three biggest paying clubs in the Premier League and the contrast is stark. It is not just the absolute amounts that are different; it is the distribution, and with it an entire philosophy of creating star players with a large pool of players below them. A new arrival at Spurs would question how inelastic the first team appears to be; a new arrival at Man Utd may know he won’t oust Paul Pogba, but the rest is up for grabs. Tottenham have allowed themselves to create too rigid a playing structure.

This leads onto the second structural point: no other team has quite such a disparity between the quality of our First XI and the bench. Title winning teams do not have a set first team; asking “who is willing to sit on the bench?” is to ask the wrong question altogether. The real measure is the quality of the first team squad – the 18 or so players who should be interchangeable in quality terms. This is more difficult for the striker position, since there is only one match day position available. But for the attacking midfield positions, where we play at least two (in the 3-4-2-1 formation) or three (in the 4-2-3-1), we should have at least n + 2 players of comparable quality competing.

So what is the answer? Well, one or two rumours have emerged which are of real interest: Iheanacho from Man City for instance, or Kovacic from Real Madrid (incidentally Ross Barkley is not the answer). But it seems like under the financial constraints we have, and under the wage structure we enforce, Pochettino is going to have to further rely on coaching youth players. It’s not a bad way to do it – Josh Onomah has had an excellent summer with the England U-20s, as has Kyle Walker-Peters; Harry Winks and Cameron Carter-Vickers already made their appearances last season too. I also believe that some players can be reinvented – Moussa Sissoko into a deep-lying central midfielder for instance.

Ultimately though, Spurs are going to have to rejig the way they pay their team even if they do not raise the total amounts being spent, and even to keep existing squad members happy. The current system reflects something static, sacrificing flexibility on the altar of stability. It might serve for another season, but what happens when our ambitions expand?

The Handover Hangover – Britain and Hong Kong in the age of the New Normal

HK handover

The British media, between the endless coverage of the debacle that is Brexit, the May government and the spectre of Jeremy Corbyn, recently managed to find a little time for soul-searching over Hong Kong, on the twentieth anniversary of the 1997 handover. The hand-wringing tone over whether Britain had let the people of Hong Kong led the Guardian for instance to note that:

“Theresa May’s government faces a choice between upholding legal principle and democratic values, and its chronic post-Brexit need for Chinese trade and business at any price. No prizes, or yellow umbrellas, for predicting which way May and Johnson will jump.”

The torturous link to contemporary politics aside, these op-eds convey a tone of unfulfilled potential. Chris Patten weighed in with his own personal laments over what has slowly occurred since , self-flagellating over Chinese encroachment of the former colony.

Yet much of this seems rooted in misconceptions that still seem to pervade the British establishment. For a start, the very act of suggesting that Britain should “do something” about still hints, however much denied, that she is in a position to do so. This is unrealistic not only because of the relative imbalance but also the distance and relevance of the two countries, notwithstanding the occasional bravura peeks through, wishfully claiming that “China needs Britain more than Britain needs China“. This mismatch is true politically, culturally, socially and above all, economically.

In cold economic terms, it is not only the the imbalance that demonstrates relative strength – China incurred a US$37.6bn trade surplus in 2016 for instance – but also mutual insignificance. According to data, Britain is only China’s 9th largest trading partner, accounting for just 2.7% of Chinese exports, far from enough to move the psychological needle. Compare this with Germany, for whom the UK constitutes 7.1% of exports, or even the US at 3.8%. Britain and China are simply not that relevant to each other. China matters slightly more to the UK than vice versa, accounting for 4.4% of her exports (and arguably Chinese consumption of British goods such as high end cars is less easily replicable than in the other direction), but it is still not much of a basis for negotiations or threats.

Moreover, there appears to be a parochial misunderstanding about Hong Kong’s destiny as “just another Chinese city”. Critics will say that social and political life are not the same as economic life; to that I would say one necessarily follows the other. Consider a recent piece in the Financial Times about how the Hong Kong has changed since 1997. Two visuals stand out:

Hong Kong is increasingly no longer a regional hub but more of a China port. Yet this is not just a function of being on China’s doorstep, or even of China’s desire to integrate Hong Kong as some might imagine; it is rather a consequence of the fact that the old colonial entrepot model of corporate imperialism in Asia is gone. China is a self-sustaining economy of critical mass. The days of being able to “do” China from offshore, are as absurd as believing one can cover the US from London or Toronto. This is beginning to apply to other countries too, particularly Indonesia but also Thailand and increasingly, Malaysia. The concept of largely expat financiers and traders sitting in the comfort of the Victoria harbourfront whilst servicing these jurisdictions is faintly ridiculous; and this is a global emerging markets trend.

Asia has changed. The era when its leadership still had links with their former colonial rulers, such as the Cambridge-educated Lee Kwan Yew to Britain, is over. A telling moment was the closing in 2009 of the much-loved Far Eastern Economic Review, a deeply socio-political publication inhabiting a world where Asian leaders and western discourse still understood each other. Today, nothing could be further from the truth – as countries like China pass the “peak export” phase of their development cycle, their economies and leadership are inevitably more introspective. Each country must be engaged from a truly domestic perspective and cities like Hong Kong, and to an extent Singapore, are less relevant. There is nothing Britain can or should do about this.

At least Hong Kong, despite its comparative decline, still has a future bound up with a single large power. Singapore will soon come to find that its position as a safe haven for Indonesian and Malaysian investment and private wealth is under a more serious threat – which has led to their driving ambition behind ASEAN. London, in the end, will probably feel these winds of change too.


Après moi, le déluge – the political genius of David Cameron in retrospect

Cameron photo.bmp

I do not intend my first piece since the election to join the superabundance of post-mortems offered up from May’s failure (more of that later). Instead I want to take a moment to think, in retrospect, about the spectacular but underappreciated political genius of her predecessor.

David Cameron’s election victory in 2015 remains the most extraordinary and understated political achievements in my active political life, and almost my entire memory (I will categorise 1992 as mere childhood). Even his most diehard critics will, I am sure, now concede how much happier they were then than now, because David Cameron actually took the message of Conservatism to the country and won.

Consider that this is a man who campaigned for austerity in 2010; failed to win a majority; and then persisted with a message of austerity again five years later to finally win an outright majority. Can we think of anyone in the current government who would be so unrelentingly on message, and who at the same time could win over the suburban liberal vote, however thin a sliver?

Coming from Twickenham, I unapologetically use it as a benchmark: seats like this, or Kingston or Richmond Park, are critical and they are the very future of the party. I got this year’s election result wrong. But I always maintained, even at the height of May-mania and the twenty point polling leads, that whilst the Tories would win a bigger majority, they would have done so on a harsher, harder and narrower basis than Cameron did, and it would come back to bite them. 2015 was a slender win, but it was far more expansive, generous and sustainable.

Cameron built a clever and delicate coalition that was a thing of genius; it could look forward to the future as a plausible long-term force, the fruits of his decontamination efforts since winning the leadership in 2005. By contrast, even with a 100+ seat majority, Theresa May was only looking backwards – in this case to Brexit – and would have had to completely reinvent herself by 2022. There was nothing futuristic about even the best case this year.

Gay marriage is a case in point. I am not a strong moral supporter of the policy per se, and it certainly does not excite me. Yet it was a stroke of political brilliance for one very simple reason: it allowed Tory-haters to move on to other issues. No doubt it convinced very few people directly to vote for the party – indeed amongst those who really cared, there may even have been a net loss of support. But what it gained was enormous, a vast swathe of people who really did not care, but for whom it checked the box of demonstrating that the party was in tune with contemporary society. This allowed the party to move onto areas where it felt stronger and direct a campaign towards an electorate that would be more open-minded.

Furthermore, Cameron understood the value of UKIP. Although some people will recall only the trouble the gadflies briefly caused the Tory Party through threatened defections, in retrospect it seems pretty clear that sometimes, it is actually better to have people outside the tent pissing in than the reverse. UKIP acted as a lightning rod for all the most undesirable (albeit necessary) aspects of Tory policy – they were an attack dog not just on Europe, but on immigration, law and order and various other themes. All the while, they could not win a seat. Whatever they cost us in some marginals which we did not win, they won us a lot more in terms of hearts and minds in marginal we did win. In addition, they proved themselves able to win votes in Labour heartlands that the Tories have since proven unable to emulate, despite all the high hopes and despite Brexit. UKIP were a great “fire ship”, and we should lament their demise.

Guardian 2015

Of course no one can ignore the calamity of his political gamble on Europe, or the fact that he lost it. Yet for me, some of the underlying questions on Europe did have to be asked sooner or later so I do not begrudge him that. I just wish he had been less complacent, campaigned better and won. But Europe is in any case a macro theme, not an issue of domestic political minutiae. David Cameron will, in coming years, be seen as one of the Tory Party’s greatest politicians, and he will be missed. The rise of Cameron was the rise of a new, winning coalition which made a lot of sense in its time and place; his demise, as we have seen, has been the corresponding demise of the Party.

Telegraph 2015

Labour’s unique “peacetime deficits” and why they really do always run out of other people’s money

Lots gets said on the campaign trail of course, much of which never surfaces again. Amongst the most pernicious claims by Labour recently are the implication that the police would be safer under Jeremy Corbyn – a man who almost certainly spent his youth referring to them as “pigs” and for all we know, throwing bricks at them – than a Tory administration. That one doesn’t really pass the smell test, though the Tories seem to have had a tough time batting it away.

However another meme has featured of late, attempting to reverse the traditional narrative of Labour being poor managers of the country’s finances  – or as Thatcher famously put it, that “they always run out of other people’s money“. Corbyn himself took aim at the the Tories’ admittedly poor record during this last Parliament on fiscal hawkishness; and meanwhile social media has been awash with this pair of pieces, claiming that “the Conservatives have been the biggest borrowers over the last 70 years“, a feisty assertion indeed.

But let us examine what is actually being said here. In his post, Richard Murphy concludes his analysis with these two lessons:

First, Labour invariably borrows less than the Conservatives. The data always shows that. And second, Labour has always repaid debt more often than the Conservatives, and has always repaid more debt, on average. The trend does not vary however you do the data.

Or, to put it another way, the Conservatives are the party of high UK borrowing and low debt repayment contrary to all popular belief, including that of most radio presenters. Which means that the next time I am presented with that nonsense I will be very firmly rebutting it.

This is technically true, looking at his figures. What it does not tell us however, is the real narrative, which is that once we strip aside natural deficits which were ramped up to obviously combat recession, the story is one of clear Labour profligacy. Below, I have charted GDP growth vs the budget deficit as a % of GDP at the time to demonstrate what the real macro-economic picture is.


Far from Tom Kibasi’s recent claim that “the Conservatives remain stubbornly allergic to – or ignorant of – Keynesian macroeconomics“, the Tories have in fact been very mainstream in their use of the a cyclical deficit to offset the worst excesses of a downturn. These we might call “war deficits”. The most obvious case of this has been the deficits and increased debt incurred in the wake of the global financial crisis.

On the hand, Labour have had no problem with running up a deficit even when the economy is doing fine – in other words, refusing to make hay when the sun is shining. In particular, Gordon Brown’s second term as Chancellor saw a unique explosion of what we might call a “peacetime deficits”. This electoral extravagance was unprecedented in scale and duration, compared with previous dalliances with the same. And sure enough, when the crash came, the deficit left us with less room to manouvre than we might otherwise have had.

As an aside, Brown’s deficits also went on to limit the ability of the first Cameron administration to reduce the deficit as rapidly as they would have liked. Austerity is, after all, not merely a petty ideological point but a practical one – since the dry powder had been used up, the Coalition government could not borrow the amounts needed whilst preserving a reasonable credit rating. The whole sorry mess has been drawn out for much longer than anyone wanted or envisaged.

To be sure, the Conservative’s track record since 2010 has been nothing to write home about; but as with police funding, however bad you might think they are, it is difficult to imagine Corbyn’s to be anything other than significantly worse.