China’s visionary has met China’s central bank in a most public showdown that has the world shocked at the capricious, abrupt, unaccountable, last minute way of China’s authoritarian rule.
Their star entrepreneur was slapped reportedly after giving what to us sounds like the greatest speech of this decade with Ant’s mega IPO derailed.
“Today’s financial system is a product of the industrial age,” Ma said according to a rough translation in front of bureaucrats at the Shanghai Bund Summit last month, adding:
“It is a comprehensive financial system set up to solve industrialization. It is the 28 theory. What is the 28 theory? Invest 20% to solve 80% of the problems.
The future financial system is to solve the 82 theory and help 80% of small businesses and young people to drive 20% of the people.
From the past’s ‘people looking for money’ and ‘business looking for money,’ to ‘money looking for people,’ ‘money looking for companies,’ and ‘money looking for good companies.'”
China’s billionaire Jack Ma called the Basel Accord by the Bank for International Settlement (BIS) an “old boy’s club,” stating:
“What it wants to solve is the problem of the aging financial system that has been in operation for decades…
This Basel Agreement is about treating the diseases of the elderly aging and overly complex systems. What we have to think about is what we should learn from the elderly?
The elderly and young people are not the same. The elderly care about whether there is a hospital, and the young people care about whether there is a school district. It is a completely different system of thinking.”
Chastising bureaucrats for focusing too much on risk, he said they are killing innovation.
“Many problems in the world today, including China, can only be solved by innovation; but true innovation must be led by no one and must be undertaken by someone, because innovation must make mistakes.
The problem is not how to avoid making mistakes, but to make mistakes. After making mistakes, can you correct them and insist on innovation?
To do risk-free innovation is to stifle innovation. There is no risk-free innovation in this world. In many cases, controlling the risk to zero is the biggest risk.”
Banks are pawnshops, Ma said, stuck in the old thinking of requiring collateral for everything which ends up with lending to only companies that don’t need to borrow. “As a result, many good companies turn into bad companies and diversified investments are formed. Too much money can cause a lot of trouble,” he said.
In a speech as relevant to the world as to China, Ma warned of chaos if the financial system is not reformed:
“Today’s global financial system must be reformed, otherwise it is not just a matter of losing opportunities, but also causing the world to fall into more chaos, because it is normal for innovation to be ahead of regulation, but when innovation is far ahead of regulation, when the richness and depth of innovation far exceed regulatory imagination, it becomes abnormal, and society and the world will fall into chaos.”
Then Ma talks about this space, and says in the only country on earth where cryptos are oppressed:
“If the financial system the world needs 30 years later is built with a future vision, digital currency may be a very important core. Today’s finance does not need digital currency, but it will be needed tomorrow, in the future, and thousands of developing countries and young people will need it.”
Bitcoin is legal in China but the People’s Bank of China (PBoC), their central bank, has issued a diktat that prohibits banks from processing bitcoin related transactions.
PBoC thus has in effect banned what the Chinese parliament and/or government has not banned. So making law without any authority to make the law.
It has in fact gone so far as to close crypto exchanges there, and PBoC has done it not the Chinese government, which has kneeled to the central bank.
That same government cowers today in front of the central bank which once more makes a laughing stock out of China.
As we predicted three years ago when they slapped this space unexpectedly, unannouncengly, and without even a hint, a day would come when they would do the same to a vastly bigger and far more important economic operator.
That day is here as the entire world looks shiveringly and wonders how on earth they can do business in China.
“Today we have to think about how to integrate with the future, how to adapt to future standards, and how to make up for the gaps in the future.
Think about what the future is like and what you want to do, and then look at what others do. If you always repeat other people’s language and discuss topics set by others, we will not only lose the present, but also the future,” Ma said.
That battle for the future has been raging for years now with China the very front lines where entrepreneurs and some of their very best have wrangled with the bureaucrats of the gone age that continue vainly to stand in the way of progress.
The cryptonians need to continue doing so in China, because the west is free in that area, but where Ma is concerned and his vision, he should come to the west if China does not want him because it is in the west where what he speaks of may be more necessary.
“Mortgage pawnshop thinking cannot support the financial needs of world development in the next 30 years. We must use today’s technological capabilities to replace pawnshop thinking with a credit system based on big data. This credit system is not based on IT, not on the basis of acquaintance society, but on the basis of big data. In order to truly make credit equal to wealth. In fact, those who beg for food must also have credit. If there is no credit, they will not even have food.”
To translate it, if someone pays $600 to rent a room and seems able to afford doing so, then he should not be withheld a mortgage that has monthly installments of $600 because he does not know the banker’s friend and therefore is stuck with arbitrary rules of 4x one’s yearly income.
That’s China’s bureaucrats would slap someone for trying to improve the archaic banking system to fit the needs of a digital age speaks plenty to why China was a peasant land until the west came in.
But some say this was Xi. That Xi slapped Ma. We don’t think this was Xi. Instead we think Xi is too cowardly to confront his central bank which he has let run amok for years now to the point they stand in the way of fundamental innovation.
So much the better as it buys time for western entrepreneurs to set up these tech based credit systems that evaluate affordability far better than analogue BIS.
However, China risks making that big mistake of going too far to the point they collectivize the peasant land. Or in this case, to the point the state or the central bank runs private companies.
It was that big mistake which led a booming start for communism to turn into starvation. Here too starvation might not be very far if every company that operates in China must think they are a state company run by the diktats of corrupt bureaucrats.
Jack Ma’s Speech at Shanghai Bund Summit in Full (according to a rough translation)
Dear Chairman Chen Yuan, leaders, friends in the financial industry, good morning.
Thank you for the invitation to the conference. I am very happy to have this opportunity to learn, communicate and discuss with everyone.
In 2013, also in Shanghai, I went to the Finance Summit in Lujiazui, Shanghai and delivered a whimsical view of Internet finance. Seven years have passed, and today I, an unofficial unprofessional in finance, is very happy to come to this unofficial forum to share my views.
Whether or not to talk about it today, frankly I am also very entangled. But I think there is one thing among us people that is incumbent on it, that is, the responsibility to think about the future, because although the world has left us with many opportunities for development, there are only one or two key opportunities, and now is the most critical one.
So I think I still want to talk about some of my own ideas. These ideas are based on our own 16 years of practical experience, plus the honor of being the co-chair of the United Nations Digital Cooperation High-level Group and the United Nations Sustainable Development Goals Advocate. The results of discussions and exchanges with scholars, experts and practitioners all over the world. I think I have retired anyway.
In an unofficial forum, I can speak freely and share the professional views of a layman, a non-professional person for your reference. It may be immature, wrong, and laughable, but everyone may just listen:
First, we have always had some inertia in our thinking. For example, we always felt that in order to be in line with international standards, we must be developed countries in Europe and the United States, and the so-called gaps that we do not have, we have to fill the gaps in our country. Regarding filling the domestic gaps as the goal pursued.
I have always felt that under today’s situation, there is a problem with filling in the blanks. It is not because Europe and the United States are advanced, or we are going to fill it. In fact, today we should not deliberately or blindly integrate with which thing, adapt to which country’s standards, and fill in which gaps. Today we have to think about how to integrate with the future, how to adapt to future standards, and how to make up for the gaps in the future. Think about what the future is like and what you want to do, and then look at what others do. If you always repeat other people’s language and discuss topics set by others, we will not only lose the present, but also the future.
After World War II, the world needs to restore economic prosperity. The Bredon Woods system was established, which greatly promoted the global economy. Later, when the Asian financial turmoil occurred, the risk control of the Basel Accord became more and more important, the operating standard of risk control.
The current trend is more and more like that the whole world has become only about risk control, not development, and seldom think about the opportunities for young people and developing countries. This is actually leading to the world today The root of many of the problems. We also see today that the Basel Agreement itself has greatly restricted the overall innovation in Europe, such as in financial digitalization.
The Basel Accord is more like a club for the elderly. What it wants to solve is the problem of the aging financial system that has been in operation for decades and the problem of system complexity. But China’s problem is just the opposite. China is not a financial systemic risk. China’s finance is basically without risk, but lacks a systemic risk.
China’s finance is the same as other developing countries that have just grown up. In the financial industry, it’s a youth, without a mature ecosystem, and not fully flowing. Big banks are more like big rivers and arteries of blood, but we need lakes, ponds, streams and rivers, and all kinds of swamps.
Without these ecosystems, we will die in floods and droughts in droughts. So today our country lacks health. The risks of the financial system, what we want to build is a healthy financial system. Just like Alzheimer’s disease and polio, the symptoms look very similar. These are two completely different diseases.
If a child takes Alzheimer’s medicine, it will not only get the elderly’s disease, but also many inexplicable diseases. This Basel Agreement is about treating the diseases of the elderly with aging and overly complex systems. What we have to think about is what we should learn from the elderly? The elderly and young people are not the same. The elderly care about whether there is a hospital, and the young people care about whether there is a school district. It is a completely different system of thinking.
Today, I am proud to announce that the price of Ant’s listing was confirmed last night. This is the first time that a major technology company has set a price outside of New York. It was impossible to even think about it three years ago, but it happened today. The changes in the world are magical.
Second, innovation must pay a price, and our generation must take responsibility.
President Xi Jinping said that “success does not have to be with me.” I understand that this sentence is about a kind of responsibility, and it is about taking responsibility for the future, tomorrow, and the next generation.
Many problems in the world today, including China, can only be solved by innovation; but true innovation must be led by no one and must be undertaken by someone, because innovation must make mistakes. The problem is not how to avoid making mistakes, but to make mistakes. After making mistakes, can you correct them and insist on innovation? To do risk-free innovation is to stifle innovation. There is no risk-free innovation in this world. In many cases, controlling the risk to zero is the biggest risk.
In the Battle of Chibi that year, Cao Cao’s thinking about connecting ships was the earliest thinking of aircraft carriers, but a fire made no one dare to think about “aircraft carrier” strategy for a thousand years. Once they thought of this fire, who would dare to go? Innovation, this is a mistake that wipes out an era of innovation.
Seven or eight years ago, I proposed Internet finance, but we have always emphasized that Internet finance must have three core elements: one is rich data; the other is risk control technology based on big data; the third is based on big data credit system.
Measured by these three standards, you will see that P2P is not Internet finance at all, but today it is not possible to deny the entire Internet technology’s financial innovation because of P2P. In fact, we have to think about it, how could China appear several thousand in a few years An internet finance company? What causes thousands of P2P?
Our supervision today is really difficult. Innovation comes from the market, from the grassroots, from young people, and the challenge to regulation is increasing. In fact, supervision and management are two things. Supervision is to watch your development, pay attention to your development, and only manage when there are problems.
However, our current management ability is very strong and the supervision ability is not enough. Good innovation is not afraid of supervision. But we are afraid of monitoring in the way of yesterday. We cannot manage the airport the same way as the railway station, and we cannot manage the future with the way of yesterday.
Supervision and management are different, and policies and documents are different. Today, there are too many documents that are not allowed or that are not allowed. The policy is to build mechanisms and encourage development. Today we need “policy experts”, not “document experts”.
Policy formulation is a technical task. In fact, to solve the problem of system complexity, I can provide Taobao’s experience as a reference. 17 years ago, we formulated many policies that were not allowed. At that time, Taobao’s policies were very complicated and merchants could not understand them. Later, we proposed to add one and subtract three. If you want to add one policy, you have to subtract the first three. We now have more and more files, which makes it possible for anyone to do something.
Theories and systems are not the same. Experts and scholars are different. Experts work hard, but they don’t necessarily summarize. Many scholars don’t work specifically, but they can form theories from the practice of others. Only when experts and scholars are combined, and only when theory and practice are combined, can we truly innovate to solve the problems of today and tomorrow.
We need theories from practice, not from the practice of office theory. There are many P2P, but from the practice of office theory. Correctly understand the huge lessons that P2P has taught us, not to deny Internet technology, let alone repeat the practice of office theory.
I think there is a phenomenon. After the supervision of many regulatory agencies around the world, they have no risks for themselves and their own departments, but the entire economy has risks and the entire economy does not develop. The future competition is an innovative competition, not just a competition of supervisory skills. In my understanding, the improvement of the governing ability mentioned by President Xi refers to healthy and sustainable development under orderly supervision, rather than lack of development under supervision.
Third, the essence of finance is credit management. We must get rid of financial pawnshop thinking and rely on the credit system.
Today’s banks continue to be pawnshops, and mortgages and guarantees are pawnshops. This was a very powerful idea 100 years ago. Without mortgages and guarantees for these innovations, there would be no financial institutions today, and the Chinese economy would not have developed to this day in 40 years.
However, the system of relying on assets and mortgages will go to extremes. In the past few years, I have communicated with many entrepreneurs. China’s financial pawnshops have the most serious thoughts. Either the assets are fully pledged, the pressure is huge, and the action is deformed after the pressure; or the unscrupulous loan and continuous Increase the leverage and the debt will be huge.
Everyone knows: if you borrow 100,000 yuan from the bank, you are a little panicked; if you borrow 10 million yuan, both you and the bank are a little panicked; if you borrow 1 billion yuan, you don’t have to panic at all, the bank will panic. There is also a habit. Banks like to lend to good companies and companies that don’t need money. As a result, many good companies turn into bad companies and diversified investments are formed. Too much money can cause a lot of trouble.
Mortgage pawnshop thinking cannot support the financial needs of world development in the next 30 years. We must use today’s technological capabilities to replace pawnshop thinking with a credit system based on big data. This credit system is not based on IT, not on the basis of acquaintance society, but on the basis of big data. In order to truly make credit equal to wealth. In fact, those who beg for food must also have credit. If there is no credit, they will not even have food.
——Today’s world is looking forward to a brand new financial system that truly thinks about the future.
Today’s financial system is a product of the industrial age. It is a comprehensive financial system set up to solve industrialization. It is the “28 theory”. What is the “28 theory”? In order to invest 20% to solve 80% of the problems. The future financial system is to solve the “82 theory” and help 80% of small businesses and young people to drive 20% of the people. From the past “people looking for money” and “business looking for money” to “money looking for people,” “money looking for companies,” and “money looking for good companies.”
The only criterion for evaluating this system is whether it is inclusive, inclusive, green, and sustainable. The big data, cloud computing, and blockchain behind the front-end technologies can shoulder great responsibilities today.
Everyone, if after World War II, people at that time had such a vision and designed a good financial system for future generations and for the future, we have this responsibility and thinking today to build a truly belonging to the future, to the young and the next generation, belongs to the financial system of this era.
Today we are not unable to do it, but not to do it. Today, our technological development allows us to do all this. Unfortunately, many people are unwilling to do it. Today’s global financial system must be reformed, otherwise it is not just a matter of losing opportunities, but also causing the world to fall into more chaos, because it is normal for innovation to be ahead of regulation, but when innovation is far ahead of regulation When the richness and depth of innovation far exceed regulatory imagination, it becomes abnormal, and society and the world will fall into chaos.
Take digital currency as an example. If the financial system the world needs 30 years later is built with a future vision, digital currency may be a very important core. Today’s finance does not need digital currency, but it will be needed tomorrow, in the future, and thousands of developing countries and young people will need it.
We should ask ourselves, what practical problems should digital currency solve in the future? The digital currency ten years later and today’s digital currency may not be the same thing at all. This digital currency is not found from history, and should not be found from a regulatory perspective. It should not be found from research institutions, but from the market. To find from demand, to find from the future. This matter is of great importance.
Our research institutions should not be policy institutions, and policy institutions should not rely solely on their own research institutions. Because the digital currency system is a technical problem, it is not only a technical problem, but also a solution to future problems. Digital currency may redefine currency. Although the main function of currency is still there, it will definitely redefine currency.
Just like the Apple mobile phone has redefined the mobile phone, making a call is just a function. When digital currency is far from reaching the standard, it is to create value. It is necessary to think about how to build a new financial system through digital currency, think about the future for the world, think about how to do global trade, and think about how the world should use it. A digital currency built on the basis of proven technology. Really solve the problems of sustainable, green and inclusive world trade.
Finally, I want to say that today human society has reached the most critical moment. Don’t underestimate this epidemic. This epidemic is a force that forces the progress of human society, no less than World War II. From the perspective of finance itself, the United States continues to inject large amounts of cash into the Wall Street stock market from the United States, especially the United States, and all countries are following. Everyone has thought about the future results.
The huge impact it brings far exceeds the technical issues discussed by many of us today. To many organizations in the world today, we are not simply opposing it, but rethinking their value today. Whether it is the United Nations, WTO, or WHO, these organizations do have many problems. Eliminating these organizations does not solve the problems. However, how these organizations should face the future and how they should reform must be rethinked.
The new financial system is the direction of the future. No matter whether we are happy or not, it will definitely rise. No matter whether we do it or not, someone will do it. In the future, I believe that reform is a sacrifice and a price.
Our generation will have to make such reforms, and the next generation may only see that we may be a person who is going forward with a heavy burden. This is a historical opportunity and also The responsibility of history. For the past 16 years, Ant Financial has been centering on green, sustainable and inclusive development. If green, sustainable, inclusive and inclusive finance is wrong, we will make mistakes again and again. Thank you!