W43 - Financial Innovation Seen from Jack Ma's Bund Summit Speech

This weekend, Mr. Ma's speech at the Second Bund Financial Summit went viral — even in 'retirement' he still stirs the waters.

Mr. Ma's pithy lines were as provocative as ever; young people listened with rising passion and instinctively stood to applaud. I'll quote a few to capture the tone.

China's financial system has no systemic risk, because there is no system!

True innovation always lacks a guide; treating risk control as zero is the greatest risk!

Today we need 'policy experts', not bureau-chief-style 'document experts'!

Some of our bureau chiefs, after years of supervision, end up with no risk for themselves, no risk in their departments, but risks for the whole economy and the risk that the entire economy won't develop!

Chinese banks still operate with a pawnshop mindset, which has harmed many entrepreneurs. The dry die of thirst, the wet drown in flood!

For the past 16 years, Ant has persisted in exploration. If inclusive, green, and sustainable finance are mistakes, then we're willing to be wrong to the end!

To summarize, Mr. Ma expressed three main points.

First, he criticized the inertia in our risk-control thinking— that is, path dependence. Dependent on what? Dependent on Europe and the U.S. Regulatory and institutional design is not oriented toward the future and the market, but toward Europe and the U.S. He basically denied the Basel Accord's applicability to China. He said Basel is a club for the elderly, while we are a young economy and cannot use old methods to solve new problems.

Second, he said innovation must pay a price, and our generation must shoulder responsibility.Doing innovation without risk is killing innovation; often making risk zero is the greatest risk. He cited P2P as an example: you can't use P2P to negate the internet's technological innovations in finance. He also implied that fintech companies shouldn't shoulder all the blame for P2P's failures.

Third, he said the essence of finance is credit, and we must abandon the pawnshop mindset and rely on a credit system.This reminded me of a speech by Wang Mingfu of Hejun Group I saw some years ago; the views are similar. China's financial market is big banks with little capital, so it's bank-centered, and banks are collateral-based, with collateral largely in real estate. From this, a clear and harsh conclusion can be drawn by any observer.

The whole piece directly targeted regulation and risk. Of course, the vice finance minister fired back at Mr. Ma's 'frivolity' in a speech that day.

Below are some brief thoughts of my own.

First, on important topics in formal settings, China increasingly has the same 'direct confrontation' atmosphere seen in foreign parliaments. That's a visible social progress, though whether it's sustainable is another matter. After all, there's only one richest person.

Second, as a current frontier of financial innovation, the article mentioned digital currency repeatedly. I recently read some related material — not deeply — so I'll cite a few viewpoints that inspired me; they come from people who can influence the industry's future. One is somewhat to the right, the other somewhat to the left.

The first viewpoint comes from Mu Changchun, the current director of the Digital Currency Research Institute; his view leans right. I studied his digital currency course on Dedao, which is at a popular-science level. In the final lecture he discussed the distinction between finance and the internet: the methods in the two fields differ. Internet people designing products ask first, what's the model? Can it make money? Financial people often ask first, is there risk? He argued that in finance, internet entrepreneurs — even large companies like Facebook — lack adequate risk awareness. He cited examples like P2P and Xianghubao, and said internet '310' lending models may look good now but haven't been tested across a full financial cycle and thus carry hidden risks. Therefore, he believes national digital currencies, including Libra, should be subject to strict regulation.

The second viewpoint comes from a book I recently started reading, Digital Currency: The Continuity and Innovation from Ledger Economies to the Digital Economy, published in April and written by Long Baitao. A quick check shows he completed computer science degrees (B/M/PhD) at Tsinghua, held executive roles at Accenture and IBM, is a serial entrepreneur, and now works as an independent researcher on blockchain and the digital economy. I decided to continue reading after seeing Wang Wei's preface for the book.

I'll quote a passage that struck me: 'To established mainstream scholars, thinkers like Long Baitao seem disorganized in thought and logic, shallow amateurs, and aggressively confrontational; they are even dismissed. These scholars remain stuck at the cognitive level of their student days decades ago, no longer paying attention to new monetary ideas on emerging online media, content to repeatedly reinforce their authoritative status in classrooms, on TV, and at forums while jealously guarding their reputation.'

Know that Wang Wei is considered an insider; his willingness to write this for the book suggests it's worth reading. I recommend it. I suspect the book's stance will align more with Mr. Ma's views.