Economist 7/13/16

  1. Mr Wang Shi,chairman of Vanke, one of China’s biggest property firms gained the upper hand in his battle against a corporate raider attempting to seize control of his listed company. Baoneng, a private Chinese conglomerate, fired the first salvo last year by raising its stake in Vanke to more than 24%. That made its holding bigger than the one held by China Resources, a state-owned enterprise which has long backed the firm’s leadership, and set the stage for a takeover bid.Declaring Yao Zhenhua, Baoneng’s boss, an unwelcome barbarian, Mr Wang asked for trading in Vanke’s shares to be suspended on December 18th and tried to organise an alternative investor to outflank Baoneng. In March he unveiled a convoluted plan to acquire properties held by Shenzhen Metro, a government entity.But China Resources, unhappy that its stake would also be diluted, opposed this plan.Whatever the outcome, the affair has revealed the sad state of corporate governance in China. Hostile takeovers are extremely rare on the mainland, especially of firms this large.
  2. Israel once christened the “startup nation” is losing steam.The main cause for the slowdown is a growing shortage of trained workers, according to a recent report by the chief economist of the ministry of finance.Until recently, the tech industry was helped by two trends: academics and employees of state-owned industries moving into the private sector and the arrival of tens of thousands of Jewish engineers emigrating from the former Soviet Union. Both these sources of fresh talent have now dried up, even as others remain obstructed. Two growing parts of the Israeli population are underrepresented in the job market: Israeli Arabs and the ultra-Orthodox, who together make up around 25% of the population. Israel’s universities are producing fewer engineers, too: the share of graduates with science degrees is down from 12% in 1998 to 9% in 2014.Moreover, the Israeli tech industry doesn’t make the best use of the talent available. Many workers want to start their own firm, rather than toiling at a big one, meaning that most firms are tiny with only a handful of employees.
  3. Kingfisher Airlines’s missing accounts—apparently stored on servers seized by a vendor who had gone unpaid—is an unwelcome complication for those who had hoped the Kingfisher saga might be inching towards some sort of resolution.Mr Mallya, who did in fact personally guarantee the loans, has claimed it was coincidence that he flew to Europe just as government agencies were closing in on him in March.Having insisted he cough up the entire 90 billion rupees ($1.3 billion) he owes, including overdue interest, there are now reports that some banks may be happy if they get little more than their principal back.That would still equate to a recovery rate of over 50 cents on the dollar, more than double the Indian average in such bankruptcy cases.
  4. Two things stand out about taxes in California. The first is their progressivity. The top rate of state income tax, levied on incomes greater than $1m, has been 13.3% since 2012, when voters approved a ballot measure raising it from an already steep 10.3%.Today the income-tax rate is the highest in the country. As inequality has increased over the past two decades, the state’s fondness for soaking the rich has proved lucrative.In 2014 the top 1% of earners paid 48% of all income tax, up from 36% in 1995.The second oddity is the set of strict constraints on local property taxes.Proposition 13, a ballot measure passed in 1978, caps these levies at 1% of a property’s value. It also stops the tax bill on a given property from rising by more than inflation unless the property changes hands, no matter how much its value increases. This benefits homeowners but also firms who, on selling a property, can use shell companies to avoid a technical change of ownership.Because incomes fluctuate more than property prices, these two features make the tax take highly volatile.
  5. This year the amount stashed away will reach $6.7 billion, or 5.6% of annual revenues. The goal is 10%, but even that may not be enough. In April Moody’s, a rating agency, ranked the 20 most-populous states by the solidity of their buffers against another recession. California came 19th; only Illinois looked less prepared.. One idea is to fix the state’s outdated sales tax. Currently, this applies only to goods, but Americans spend an ever-greater fraction of their income on services, in part because trade has kept goods cheap in recent decades. The fact that the federal government allows individuals to deduct either state income taxes or sales taxes from their taxable income, but not both, may have weakened the incentive for California to fix its sales tax.

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