On 24th October 2020 Jack Ma gave a speech which seems to have catalysed a Chinese government crackdown on that country’s super-successful internet businesses. Whilst there has been lots said of what exactly Jack Ma said that day and why that led to Ant Financial’s IPO being jammed by the regulator and then the broader crackdown on Chinese internet businesses, the speech itself is worth reading in its entirety. Kevin Xu has very helpfully provided an English translation for non-Chinese speakers like us. Ma’s speech is full of iconoclastic – some would say hubristic – insight and telling anecdotes as he lays out his vision of how the world of Finance and lending can be changed for the better.
Firstly, he asks his audience to stop benchmarking themselves with the West and start benchmarking themselves with the future: “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.”
Related to the above point, he laments that the Chinese regulator has – unwisely in Jack’s view – used Western prudential regulation frameworks to shackle the underdeveloped Chinese financial system: “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.”
Then, whilst exhorting his audience to take more risks with innovative business models in the lending sector, Jack launches into a stinging tirade against Chinese regulators basically saying that they are out of touch with how technology changes Finance: “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….
…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.
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”….Today, the entire world and especially China needs more “policy experts”, not “document experts.””
Jack’s third point is that the lending models of the current day are outdated as they arise from the world pawnshops: “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….
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.”

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