Thank you, organizers of this summit, for this invitation. What a pleasure to have this opportunity to learn, exchange views and explore some issues with you all. It was in 2013, also in this city, that I gave a speech on internet finance, presenting views that were described as “flights of fancy” at the Lujiazui finance summit in Shanghai. Seven years have passed, and today, as a non-professional not carrying any official titles, I am back in Shanghai on this occasion – the Bund Summit – with some other views that I hope can give food for thought to you all.
To be frank, I had misgivings about whether to come here and give this speech today. But I thought people like me do have an inescapable responsibility to think about the future. This world has provided us with a lot of opportunities, but only one or two of them are crucial. Now we have come to the most crucial juncture.
Which is why I have come here to share my views. They are some conclusions drawn from 16 years' practical experience of ours. Furthermore, I have had the good fortune of co-chairing the United Nations High-Level Panel on Digital Cooperation and working as an advocate on the UN’s panel of Sustainable Development Goals, which has allowed me to explore and investigate issues with scholars, experts and people who have put ideas into practice from all around the world.
What I think is that I, as a somewhat retired man, can speak my mind freely and unrestrained at this unofficial forum, sharing some non-professional views of a non-professional. Luckily, I have come to find that many professionals do not talk about professional issues anymore.
Here I have three points of view for you all to think about. They might be immature, inaccurate or even laughable. You can listen to them without taking them seriously and forget all about them if you think they are not correct.
My first view is that we have got stuck in some habitual ways of thinking. For example, we always feel that in order to get in line with international standards, it is necessary for our country to achieve what the developed nations in Europe and America have achieved. We see what we do not have as gaps that must be filled. We treat the filling of these gaps as our goals.
It has been my view that, given the situation of this year, such talk of “filling the gaps” is problematic. It is not the case that everything available in Europe or America is advanced and presents an area where we must fill the gap. Indeed, in this day and age, we should not be talking about getting in line with this or that, meeting the standards of this or that country, or filing this or that gap. What we have to think about is how to get connected with the future, how to meet the standards of the future, and how to fill the gaps of the future. We have to be clear about what the future will be and what we want to do actually. Then we look at how other people are doing it. If we are repeating the language of others perpetually and discuss the topics chosen by others, not only will we be lost in the present, but we will also lose the future.
After the Second World War, the task for the world was to restore economic prosperity. The creation of the Bretton Woods system was a major driving force behind global economic growth. After the Asian Financial Crisis, the focus became increasingly on risk control, the very objective of the Basel Accords. The accords became the gold standard of risk control. Now, all around the world, there is a trend towards an increased focus on risk control, but not on development. Very few people talk about opportunities for the younger generation or where the opportunities are in developing countries.
In fact, that was the origin of the many problems we are facing nowadays. Today we can see that the Basel Accords have very much restricted innovation as a whole in Europe in areas such as digital finance.
The Basel Accords are somewhat like a club of old people. Its aim is to solve the problems of aging financial systems that have been in place for decades. These European systems are extremely complex. But China is facing the opposite problem. It is not systemic financial risks, because there is not a financial system in China actually. In reality, what China is facing is the risk of “the lack of a financial system”.
China’s finance is like those of other fledgling developing countries. We are the young, as it were, when it comes to the financial industry. We do not have a fully-fledged, completely functioning ecosystem. There are many large banks in China, which are like big rivers or blood-carrying arteries. But today we have a greater need for lakes, reservoirs, small streams and rivers, and all kinds of marshes and swamps. Without these components of an ecosystem, we drown in times of flooding and die of thirst in times of drought. In other words, our country is facing a risk posed by the lack of a sound financial system – and we do need to build a sound financial system – but not system financial risks.
These two kinds of risks are like two completely different diseases. Take, for example, Alzheimer’s disease and poliomyelitis. They look the same but are completely different. A child who has taken medication for treating Alzheimer’s disease will suffer from not only an old people’s disease, but also many strange conditions.
The Basel Accords tackle the problems of aging systems, i.e. the overly complex issues of old people. We have to think about what to learn from the elderly. We must understand that the old and the young have different concerns. Young people are concerned about whether there are schools in a city. For old people, it is hospitals that matter.
This year, our world has witnessed some very magical and rapid changes. Last night in Shanghai, we decided on Ant Group’s IPO price. The price was set for the biggest IPO in human history. Furthermore, for the first time ever, it was set in a city other than New York. No one could have dared to imagine such a scenario five – or even three – years ago. But a miracle has happened in such a way.
Second, innovation comes at a cost, and our generation must show commitment.
President Xi once said, “success does not have to hinge on me”. I understand this saying as describing a kind of responsibility. It is about shouldering the responsibility for the future, tomorrow and the next generation. Many problems in the world – including those in China – can only be solved through innovation. However, real innovation must be trailblazing and undertaken by those with commitment. For innovation must entail mistakes. The question is not what to do to avoid mistakes; it is whether we can improve and perfect ourselves and insist on innovation after making one. To innovate without taking risks is to strangle innovation. There is no such thing as riskless innovation in the world. Very often, an attempt to minimize risk to zero is the biggest risk itself.
Back in the Battle of Red Cliffs, Cao Cao chained all his warships from stem to stem. This, in my opinion, was the first conception of an aircraft carrier in China as well as in the entire world. For a thousand years after the fleet was reduced to ashes, no one in China dared give it another thought. Whenever that inferno sprung to mind, who could have the courage to think about building a bigger boat, or to think in systems?
Seven or eight years ago, I proposed the idea of internet finance when I was also in Shanghai. We emphasized three necessary core components of internet finance. First, an abundance of information. Second, a risk control technique based on an abundance of big data. Third, a credit system based on an abundance of big data.
By these criteria, P2P is absolutely not internet finance. However, we cannot negate internet technology’s role of innovation in finance simply because of P2P. In fact, let us think about this: how could thousands of internet finance companies have cropped up in a matter of several years in China? Shouldn’t we inspect the reasons behind the birth of thousands of internet finance companies, the so-called P2P companies? Oversight is very difficult indeed nowadays; it is very difficult in any part of the world.
Innovation mainly comes from the market, the grassroots, and young people. Regulations are facing greater and greater challenges. But in fact, regulations can be divided into two parts, namely monitoring and controlling, and they are entirely different matters. Monitoring is about watching and paying attention to your development, while controlling is performed only when something goes awry or is predicted to go awry. However, we now have a situation in which the controlling force is very strong, while the monitoring force is obviously inept.
Good innovation can coexist with regulations, but not regulations of yesterday. We cannot manage an airport the way we manage a train station, nor can we manage the future the way we managed yesterday.
“Monitoring” and “controlling” are different, just as policies are not the same as documents. The myriads of things outlawed today have to do with documents. Policies are the building of mechanisms; their goal is to promote development. Today the world – especially China – needs a lot of “experts in policies”, not experts in documents.
Policy formulation is a skill. In fact, when it comes to solving the problem of systemic complexity, I think I can share with you how we did it at Taobao.
17 years ago, neither technology nor information was available to us. Our predictions about the future were not accurate, and we came up with lots of rules banning this or that. Now we have solved this through technology. We are now able to solve such systemic problems. However, many young people nowadays like to issue all kinds of new regulatory documents saying no to this or that – just like the regulatory bodies. Then I came up with a solution called “one-in-three-out”. When you added one rule, you had to take away three rules. Hence our documents became shorter and shorter. If we had not taken away some rules, our rulebook would have become thicker and thicker. That would have been no different from forcing everyone to break the rules and muddling everyone.
A theory is different from a system. An expert is different from a scholar. In our country, we confuse many scholars with experts. People become experts through practice. They are good at getting things done, but not necessarily at summing up their experience.
Many scholars are not in the arena themselves, but they are able to sum up the experience of those who are and come up with theories. Only by bringing experts and scholars together can we integrate theories with practice and innovate in the real sense to solve the problems of today and tomorrow. In my opinion, we need theories that come from practice, not practice summed up by armchair theorists.
In many ways, P2P originated from practice summed up by armchair theorists. I think we should understand the big lessons we have learned from P2P correctly. We do not negate internet technology. Even more importantly, we should not give practice from armchair theorists another try.
I have noticed another phenomenon. While many regulatory departments around the world have become risk-free themselves, the whole economy – as well as society as a whole – has become risky. The race tomorrow will be a race of innovation, not regulatory capabilities. Today all countries are vying to be the most ruthless regulator, and all developments are empty talk. But the rules outlawing this or that are all as sharp as razors.
As far as I know, the “improvement of the ability to govern”, as mentioned by President Xi, is about maintaining healthy and sustainable development under orderly regulations. It is not about having no development under regulations. Regulations are not difficult in themselves. What is difficult is achieving regulations that are aimed at maintaining sustainable and healthy development. Regulations should be aimed at achieving healthy development.
Third, finance is credit management in nature. We must do away with the “pawnshop” mentality of today’s finance. We must rely on the development of a credit system.
Banks today are still a continuation of the pawnshop mentality. A pawnshop is about pledges and collaterals. In the old days, a pawnshop was an advanced idea. Had it not been for innovations such as pledges and collaterals, there would be no financial institutions today, and the Chinese economy would not have developed over the past 40 years to such a point now.
However, given the nature of assets and collaterals, they can take us to an extreme if we rely on them. As chairman of both the China Entrepreneur Club and the General Association of Zhejiang Entrepreneurs, I have exchanged views with a lot of entrepreneurs. I have found that a pawnshop mentality is a serious problem in China and has affected a lot of entrepreneurs. This is especially the case when entrepreneurs have to pledge the entirety of their assets. They are under immense pressure, and what they do becomes distorted.
There are also people who borrow with careless abandon and keep cranking up their financial leverage. We all know that when you borrow 100,000 yuan, you become terrified of the bank. When you borrow 10 million yuan, both you and your bank are a bit terrified. When you borrow 1 billion yuan, your bank is terrified of you. Banks also have a habit of lending to good corporations and those not in need of loans. They try as hard as they can to lend. As a result, many corporations become bad ones, and the loans become all sorts of investments. In some cases, the money is even spent on things completely at odds with what these corporations are. Too much money can invite a lot of troubles.
It is impossible for the pawnshop mentality of collaterals to support what global development demands of finance over the next 30 years. We must leverage our technological capabilities today and build a credit system based on big data in place of the pawnshop mentality. This credit system should not be based on conventional IT infrastructure or acquaintance societies. It should be based on big data to ensure that credit truly equals wealth. Even a beggar needs to have good credit. Without good credit, it is impossible even to beg for food. I think every beggar does need to have good credit.
A new financial system in which innovation and regulations are in harmony
Lastly, I think today’s world is in keen anticipation of a new financial system that is designed for the future.
Today’s financial system is a product of the industrial era. It was created to address industrialization and satisfy the 20/80 rule. What is the 20/80 rule? It means making a 20% investment to solve 80% of problems. The future financial system must support the 80/20 theory to help 80% of small corporations and young people so as to enable 20% of people. The past practice of people and corporations looking for money must be transformed and replaced by the new practice of money looking for people and corporations (the good corporations). The only criterion for assessing this new system is whether it is inclusive, tolerant, green and sustainable. Big data, cloud computing and blockchain, the technologies at the forefront which support the new system, have shouldered enormous responsibilities today.
Even after the second world war, people did not have the vision to design a good financial system for the next generation and for the future. Today we have the responsibility to think and build a financial system that truly belongs to the future, young people, the next generation and that era. It is not that we cannot do that. It is that we have not done that. Technological development today completely enables us to do that. What is regrettable is that many people are unwilling to do that.
Today’s financial system must be reformed. If we fail to do so, not only will we lose opportunities, but the world could also be plunged into even more chaos. It is normal for innovation to be ahead of regulations. However, when innovation is very much ahead of regulations and when the richness and depth of innovation are far beyond the imagination of regulations, the situation is abnormal, and society and the world will be in chaos.
Take, for example, digital currencies. If we are to build a financial system needed by the world 30 years later with vision, digital currencies can be a very important core component. True, digital currencies are not necessary in today’s finance. But they will be necessary tomorrow and in the future. Tens of millions of people in developing countries and young people will need them. We should ask ourselves: what are the practical problems in the future that will have to be solved by digital currencies?
The digital currencies ten years later might be fundamentally different from those we see today. We should not try to look for such new digital currencies from history, from the perspective of regulations, or from research institutions. We should look for them from the markets, from the demand side, and from the future. This is a matter of great importance. Our research institutes should not be policy institutes. Nor should policy institutes rely merely on their own research institutes. Digital currencies could redefine currencies. Though the main functions of currencies might live on, digital currencies will definitely redefine currencies in the way iPhones have redefined phones, so much so that making a call is merely one of the functions now. A time when the standard is set by digital currencies is still very far away. Now is the time for digital currencies to create value and for us to think about how to create a new financial system through digital currencies. We have to think about the future on behalf of the whole world. We have to think about how global trade should be done. More importantly, we have to think about digital currencies based on technologies that stand the test of the world. It is necessary to solve the problems concerning sustainability, environmental friendliness and financial inclusion in global trade.
This is why I want to say that human society has reached the most critical juncture today. We must not underestimate the pandemic. As a force, it has prompted social progress, and as such, it is no less important than the Second World War.
From a financial point of view, judging from the fact the US has kept pumping money into different countries in the world and Wall Street, and that every country has followed suit, have we ever thought about the consequences? The immense consequences far exceed the technical level of the questions we have discussed today.
When it comes to the many organizations in the world, we should not simply oppose them. Instead, we should think about their value today. True, from the United Nations, the WTO to the WHO, these organizations are problematic. I have dealt with, worked at and cooperated with all of them. However, eliminating these organizations will not solve the problem. We should consider how they can face the future, reform themselves and reposition themselves.
A new financial system will be the way to go. It will arise no matter whether we are happy about it or not. It will be built no matter whether we build it or not. In the future, I believe reform will come with sacrifices. It will come at a cost. Our generation must undertake such reform. Perhaps the results will only be seen by the next generation. Our generation will be those marching ahead, our shoulders bent under the weight of responsibility. This is an opportunity presented by history and responsibility given by history. Over the past 16 years, Ants Group’s development has revolved around environmental friendliness, sustainability and financial inclusion. If finance that is environmentally-friendly, sustainable and inclusive were a mistake, we would repeat that mistake till the end.
(This is a transcript of Jack Ma’s speech at last month’s Bund Summit in Shanghai. It was transcribed by a reporter covering the summit.)
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