Thank you for inviting me to this Summit. I am delighted to have this opportunity to learn, discuss, and exchange ideas together with you. In 2013, also in Shanghai, I came to the Lujiazui Finance Summit and shared some “pie in the sky” views about Internet-powered finance. Seven years later, today I'm back in Shanghai as an unofficial non-professional person here at the Bund Finance Summit, hoping to share more ideas for you to ponder.
Actually, I was quite torn about whether to speak here today. But I think there is one thing that is incumbent upon this group of people, and that is the responsibility to think about the future, because although the world has left us many opportunities for development, there are really only one or two critical opportunities. This is a most critical moment.
So I come here to share some of my own thoughts and views, which are the result of our own practical experience in the last 16 years, plus discussions and research I have had with scholars, experts, and practitioners from all over the world, during the period when I was honored to be the co-chair of the UN High-Level Panel on Digital Cooperation and an advocate for the UN Sustainable Development Goals (SDGs).
I’m basically retired at this point, so I thought I'd speak freely at this unofficial forum and share the non-professional views of a non-professional person. Fortunately, I've discovered that many professionals no longer speak about their professions anymore.
I have three points of view for you to consider. They may be immature, incorrect, or laughable. Just give them a listen, if they make no sense, just forget about them.
The first point of view is we have some inertia in our thinking, like we always feel that in order to keep pace with international standards, we must do what developed countries like Europe and the United States have done. If we don’t have something they have, the so-called “blank spot”, we must fill those blank spots domestically. Filling these spots has become the goal to pursue.
I have always felt that, given this year's situation, the phrase to “fill the blank spot” is problematic. Just because Europe and the United States have something does not mean that thing is always advanced and worth having ourselves. In fact, today, we should not be concerned about what things to align with, which country's standard to adapt to, what blank spots to fill. Today, we have to think about how to align with the future, how to adapt to the future’s standard, how to fill the future’s blank spots. We have to figure out what the future will be, and what we really want to do, and then look at how others do it. If we always repeat the language of others, discuss topics defined by others, we will not only be lost in the present, but also miss the future.
After World War II, the world needed to restore economic prosperity. The establishment of the Bretton Woods system was an enormous catalyst to the global economy. Later, after the Asian financial crisis occurred, the Basel Accords talked about risk control, which has been gaining more and more attention, to the point that it became an operational standard for risk control. Now the trend is, the world is talking more and more just about risk control, not development. Very few people talk about where the opportunities are for young people, for developing countries.
This, in fact, is the root cause of many of the world's problems today. We also see today that the Basel Accords have put great limitations on Europe’s ability to innovate as a whole, for example, in digital finance.
Basel, more like a seniors club, is about solving the problem of an aging financial system that has been operating for decades, and Europe’s aging system is extremely complex. But the problem in China is the opposite: it is not a problem of systemic financial risk, because China's financial sector basically doesn’t have a system. Its risk is actually a "lack of financial system."
China's financial sector, like other developing countries that have just grown up, is a young industry that does not have a mature ecosystem and is not fully moving. China has many big banks. They are more like big rivers or arteries in our body’s circulatory system, but today we need more lakes, ponds, streams and tributaries, all kinds of swamps. Without these parts of the ecosystem, we will die when we are flooded, and die when we are in a drought. So, today we are a country that bears the risk of lacking a healthy financial system, and we need to build a healthy financial system, not worry about financial systemic risks.
They are like two completely different diseases, like Alzheimer's disease and polio. Both look similar at first glance but are two totally different illnesses. If a child takes Alzheimer's medication, he or she will not only get the old person’s disease, but a lot of other strange diseases as well.
The Basel Accords is designed to treat the diseases of the elderly with an aging system and over-complexity, and what we have to think about is what can we learn from the elderly? You must remember, older people and younger people care about different issues. Younger people care about whether there are schools, older people care about whether there are hospitals.
So, the way the world is changing this year is fascinating and very fast. Last night in Shanghai, we decided on the pricing of Ant’s IPO. This is the largest listing ever priced in the history of the entire human race, and the pricing happened in a place other than New York City. This was unthinkable five years ago, even three years ago, but miracles happen.
Second, innovation must come at a price, and our generation must take on that responsibility.
President Xi once said, "success does not have to come from me." I understand this phrase to be about a sense of responsibility. It’s about taking responsibility for the future, for tomorrow, for the next generation. Many of the world's problems today, including China's, can only be solved by innovation. However, for real innovation to happen, no one will show you the way, and someone must shoulder that responsibility, because innovation is bound to make mistakes. But the question is not how not to make mistakes, but whether we can perfect and correct them after making mistakes and persistently innovate. To make risk-free innovation is to stifle innovation, and there is no risk-free innovation in this world. Oftentimes, managing risk down to zero is the biggest risk.
When the battle of Red Cliff was fought, I believe Cao Cao’s act of connecting all the ships together was the first instance of an aircraft carrier, in China and the world, but after a fire burned it all down, for a thousand years, the Chinese people didn't dare to think about it again. Once they thought about that fire, who still wanted to make a bigger ship, who could still have this kind of system-level thinking?
Seven or eight years ago, also in Shanghai, I mentioned this concept of Internet-powered finance. We have always emphasized that Internet-powered finance must have three core elements: first, it must have rich data; second, it must have risk control technology based on rich big data; and third, it must have a credit-based system built on big data.
Using these three criteria to evaluate, we can see that P2P is not Internet-powered finance at all, but today we cannot negate the innovation that the Internet has brought to finance just because of P2P. In fact, let's think about it, how can there be thousands of Internet-powered finance companies in China within a few years? Shouldn't we examine what gave birth to thousands of “Internet-powered finance”, the so-called P2P companies?
Today, it's really difficult to regulate ourselves; it's hard to conduct regulation everywhere around the globe. Innovation mainly comes from the marketplace, innovation comes from the grassroots, innovation comes from young people. Regulatory challenges are getting bigger and bigger. In fact, jian [editor's note: English word is “supervision”, the first character in the word for “regulation” in Chinese] and guan [editor's note: English word is “management”, the second character in the word for “regulation” in Chinese] are two different things. "Supervision" means watching you as you develop and paying attention to your development. “Management” means intervening when there is a problem or when there is a foreseeable problem.
We are very good at “management”, but our “supervision” ability is sorely lacking.
Good innovation is not afraid of regulation, but is afraid of being subjected to yesterday's way to regulate. We cannot use the way to manage a railway station to manage an airport. We cannot use yesterday's way to manage the future.
"Supervision" and "management" are not the same, “policies” and “documents” are also not the same. This isn’t allowed, that isn’t allowed, those are all called “documents”. Policy is institution-building to incentivize development. Today, the entire world and especially China needs more "policy experts", not “document experts.”
Policy making is a technocratic job to solve systematically complex problems. And I would like to share with you what we did at Taobao to solve systemically complex problems.
Seventeen years ago, we had no technology, no data, and an inaccurate judgment about what the future would be, so we made a lot of rules about this not being allowed and that not being allowed. But today, we are able to solve these systemic problems with technology. However, our young people today, like regulators, always like to produce all kinds of new policy documents that don’t allow this and don’t allow that. Later, I came up with a solution called "plus one, minus three": if you want to add a rule, you must subtract the previous three rules. This way, our document got shorter and shorter. If you don’t reduce the number of rules, then your rules and regulations will get thicker and thicker, which forces everyone to break a rule, to make a mistake, and we all get confused.
Theories and systems are also different, experts and scholars are also different. We, as a country, often conflate scholars and experts. An expert’s expertise comes from doing, he is very good at doing the work, but not necessarily good at summarizing.
Many scholars, they don’t do the actual work, but can summarize and form theories from the work of others. Only when experts and scholars are combined, only when theory and practice are combined, can we really innovate and solve the problems of today and tomorrow. I believe we need theories derived from practice, not practice based on theories that came from an office.
A lot of P2P is practice based on office theories. I think and firmly believe it's more important to properly learn the big lesson that P2P has taught us, and not deny the entire Internet technology, let alone repeat the practices of office theory.
I think there is another phenomenon. Many regulatory authorities around the world have become zero risk, their own departments have become zero risk, but the entire economy has become risky, the whole society has become risky. The competition of the future is a competition of innovation, not a competition of regulatory skills. Now, each country’s regulation is more ruthless than the next, all the development is a mirage, but by not allowing it, each cut is bloody.
Based on my understanding, what President Xi said about “enhancing governing ability” means to maintain healthy and sustainable development under orderly regulation, not no development due to regulation. It is not difficult to regulate. What’s difficult is to deliver regulation that achieves the purpose of producing sustainable and healthy development.
The third point: the essence of finance is credit management. We must change the pawnshop mentality of today's finance and rely on the development of a credit-based system.
Today's banks continue to have a pawnshop mentality. Collaterals and warranties are pawnshops. This was very advanced once upon a time. Without innovations like collaterals and warranties, there would be no today's financial institutions, and the development of the Chinese economy over the past 40 years could not have continued until now.
But the reliance on assets and collateral qualifications can be taken to the extremes. I am the chairman of the China Entrepreneur Club and also the president of the Zhejiang General Chamber of Commerce. I talk to many entrepreneurs. China's pawnshop mentality is severe, and it also affects many entrepreneurs, especially entrepreneurs who have collateralized all their assets. The pressure they bear is very high, and when the pressure is high, your action gets deformed.
There are also some people, who unscrupulously take out loans and constantly increase their leverage, taking on more and more debt. As we all know, borrow 100,000, you are afraid of the bank; borrow 10 million, both you and the bank become a bit panicked; borrow 1 billion, the bank is afraid of you. There is another habit, banks like to give loans to good companies, companies that don’t need money. They desperately want to loan these companies money. The result is lots of good businesses become bad businesses. They diversify their investments, even transferring this money out to do things that are completely unsuitable for them. Too much money can get you into a lot of trouble.
Collateralization with a pawnshop mentality is not going to support the financial needs of the world's development over the next 30 years. We must replace this pawnshop mentality with a credit-based system rooted in big data using today's technological capabilities. This credit-based system is not built on traditional IT, not based on a personal relationship-driven society, but must be built on big data, in order to truly make credit equal wealth. Even the beggar must have some credit, without credit, you can't even beg for food. I think every beggar is (can be) creditworthy.
Finally, I think the world today is desperately waiting for a new financial system that is truly designed for the future.
Today's financial system is a product of the Industrial Age, a comprehensive financial system designed to address the needs of industrialization and to fulfill the two-eight theory. What is the two-eight theory? It's about investing in the 20% to solve 80% of the problem. And the future of the financial system is about the eight-two theory, helping 80% of small businesses and young people to drive the other 20% of people. We must transition from the old way of people looking for money, businesses looking for money, to money looking for people and money looking for good businesses. The only standard to evaluate this system is whether something is universal, inclusive, green, and sustainable. The cutting-edge technologies backing this standard, like big data, cloud computing, and blockchain are already ready today to take on this huge responsibility.
Ladies and gentlemen, even after World War II, people at that time did not have a far enough vision to design a good financial system for the future and for future generations. We have the responsibility and thinking today to build a financial system that truly belongs to the future, belongs to the young people and the next generation, belongs to this era. Today, it’s not that we cannot do it, but we don't want to do it. Today, our technological development has empowered us to accomplish all of these things, but unfortunately, many people don’t want to do it.
The global financial system must be reformed today, otherwise it is not just a matter of lost opportunities, but of leaving the world potentially in more chaos. It is normal for innovation to be ahead of regulation, but when innovation is too far ahead of regulation, when innovation’s richness and depth is far beyond regulator’s imagination, it is no longer normal, and society and the world will be thrown into chaos.
Take digital currencies for example, if we apply a futuristic vision, it would be at the very core of building a financial system the world needs 30 years from now. It's true that today's finance doesn't need digital currencies, but it will need them tomorrow, it will need them in the future, thousands of developing countries and young people will need them, and we should ask ourselves, what real problems are digital currencies going to need to solve in the future?
The digital currency of ten years from now and the digital currency of today may not be the same thing at all, and we should not look for this digital currency from the past, from a regulatory point of view, from a research institution, but from the market, from demand, from the future. There is a lot at stake in this matter. Our research institutions should not be policy institutions, nor should policy institutions rely only on their own research institutions. Because the digital currency system is a technology problem, but not only a technology problem. It’s also a solution to future problems. Digital currencies may redefine money, although the main function of money is still there, but it will definitely redefine money, just like the iPhone redefined the mobile phone, making phone calls is only one of the functions. Today’s digital currency is far from maturity to compete for standards, it’s still creating value. It's time to think about how to build a new type of financial system through digital currency, to think about the future for the entire world, to think about how global trade will get done, and even more so to think about how the world can have a digital currency built on top of battle-tested technology. It's really about solving the problem of sustainable, green and inclusive world trade.
So I would like to conclude by saying that today’s human society has reached a most critical juncture. Never underestimate this pandemic. This pandemic is a force that is pushing back human progress, no less than World War II.
In terms of finance itself, the United States is continuing to inject cash to the rest of the world, and especially to Wall Street, and other countries are following suit. Have we all thought about the consequences that will happen next? The impact is far greater than all the technical aspects that we discussed today.
We cannot simply oppose many of the world’s international organizations today, but must rethink their value in today’s world together, whether it's the UN, the WTO, or the WHO. There are really a lot of problems with these organizations. I have dealt with, worked with, and collaborated with all of these organizations. Eliminating them is not the solution. We should think about how these organizations can face the future, evolve, and reposition themselves.
A new financial system is the way of the future. Whether we like it or not, it will be formed. Whether we do it or not, someone will do it. In the future, I believe, reform will require sacrifice, there will be a price to pay. Our generation has to do this kind of reform, but it may only be visible to the next generation. We may be the one who must carry this burden forward. This is a historical opportunity and a historical responsibility. Over the past 16 years, Ant Financials has centered around green, sustainable and inclusive development. If green, sustainable and inclusive finance is the wrong thing to do, we will continue to make this mistake, again and again.