I sat in on an interesting discussion on Clubhouse which opened the floor to address what many participants referred to as "Chinese tech myths." It was a thoughtful, unemotional exchange in English, led by two respected figures in the tech and business community in China and attracted a significant audience, many sharing their own stories in similar veins.
I’m merely reporting the key takeaways as I wrote them down, with no editorial comments. As one speaker noted, we have to be very careful relying on anecdotes alone in analyzing a country of 1.4 billion — at that scale one can find a comment to confirm pretty much any pre-conceived notion we have. Also, as I have found traveling across the globe in tech ecosystems, it can be a mistake and even blinding to put a western lens on what are simply often different markets with different needs and expectations.
If there is one bi-partisan issue here in the States today, it is deep concern over China’s rise. We bring a lot of our own history, narratives, experience and inexperience in trying to figure out how the world has shifted. I thought it worthwhile to simply listen to others’ evaluations. Here are eight responses to common views of China in the West today:
1) China has pushed its Digital RMB to replace the dollar and/or increase control for national security purposes.
When regarding Chinese policy at home or abroad, some element of poverty alleviation and need for financial inclusion is not far away — in fact, it started almost exclusively on these concerns. For all the progress of bringing people out of poverty in the last two decades, the problem remains significant especially in the rural areas, compounded by less access to resources for physical and mental health. The Digital RMB was started in part to build a stronger relationship with this population. Success in digital transactions by Alipay and WeChat pay has also underscored that much of the existing monetary system is not digitized, especially among these populations. Through better, more expansive access and collecting better data, there will be tools in the hands of policy makers to improve broader growth. In April of last year, China issued a policy paper of the five most important means of production for China’s economy: land, labor, capital, technology and data. It received little coverage, but Digital RMB here at home is a key aspect of the latter.
It is true that the government will press for greater global use of the currency over time. Belt and Road contracts have a digital RMB clause in it, for example. But this is not a focus on being against the US, but a much larger objective to take the Chinese and global economy to the next generation. There will be surveillance as a part of this, as governments seek anti-corruption and the use of money among bad actors. This could also bypass SWIFT, and thus over time will have impact on the US Dollar, though keep in mind the PBOC currently has a partnership with SWIFT and must have interoperability for trade and remittances. Keep in mind many not only in China but Europe and beyond have been unsettled by what they perceive as America weaponizing SWIFT access. Wanting an alternative is natural. Overall, replacing the dollar with an enormous economy like the United States is years away and is not the primarily reason China is focused on this.
Many major countries will have their own digital currencies, but this is not about the Digital Dollar versus the Digital Yen versus the Digital Euro. There will be some of this, but also new engagements and ways to find market opportunities. Recent news on BTC and increased adoption for exchange in goods and services outside of the monetary system confirms there will be new dynamics, likely multi-faceted. We should be thinking in terms of co-existence, not merely digital monetary competition.
2) ANT Financial’s IPO was pulled to hurt Xi’s rivals.
As we know, Ant was going to raise $35 bb and be the largest IPO in history valued at $400 bb. Jack Ma’s controversial speech previous to the offering was something of a tirade against risk taking in China and he made a mistake doing this. It is important to note that in America there are quiet periods and what he did would not have been appropriate in the States. More significantly Ant was lending money in addition to payments. It’s Alipay is now only 1/3 of its revenue, a significant shift in the last five years, as most revenue growth is in credit tech working with banks to lend money - services like credit card products and small personal loans. That is a 500 mm customer base with access to credit, and their average outstanding balance is roughly $300, the same of their average disposable income. There was concern among central regulators that Ant was extending leverage to people not yet credit worthy, and there were signs of 40X leverage in some cases. There was also a legitimate concern that there were oversight/gaps across multiple agencies who were happy to take credit for Ant’s success and cheer on the IPO but not slow it down for these concerns. This was a case of regulatory failure as many were not really looking to step up and analyze fully and take responsibility for the risks as the upside was so great. Who among the bureaucracy was willing to ask questions and stand in the way of the world’s largest IPO? Bluntly the Chinese government had to step in and slow things down, as this was beginning to feel like a train that could go off the rails and too many regulatory bodies and municipalities were not anticipating the potential damage.
The central government is aware that there was egg on the face of everyone involved, the process was ugly; and investors were concerned — but the key take away is the questions were legitimate and in future public offerings this will not happen again. This wasn’t some vengeful or arbitrary act. These are large bureaucracies, hard to align on very complex issues. The central government uncovered systemic problems and regulatory gaps that have to be fixed, and the they have committed to do so. They have also committed to upgrading talent and change incentives to regulate the rapid changes brought by technology. Until then, these are the real risks investors should keep in mind. When they will be addressed, time will tell.
3) Social credit is a Black Mirroresque dystopia.
This is simply false and doesn’t understand there is no central system in China, but a patchwork of efforts, city to federal. Keep in mind that most apps globally have ratings - like Airbnb ratings — it is very common in the West. But it was confused in China into a mess of something much worse. In the US one borrows money and they will have credit ratings. A test for this concern is to ask ordinary people in China about it and most don’t know about the social credit system - they appreciate, instead, a sense of trust and ability to safely accumulate credit and services. There have been no implementations nationally to crack down on anyone with this, though some local governments have. Mistakes are made, often from incompetence as much as any intent. So far the system is incomplete, inaccurate, and lots of complaints from a consumer perspective — but this is different than a Black Mirror system of every interaction is being reflected in her score.
4) China can only copy innovation, or can wildly lead innovation ahead of the world.
Neither extreme is accurate. China has had a history of copying and improvising and obviously there is truth to this in the tech worlds. But it is also innovating all the time. The West is copying some of China’s efforts also (lessons learned especially by Chinese experience in consumer services, eCommerce and Tik Tok as examples.) This is the nature of digital economy, why reinvent when one can build on, make more relevant and better the wheel. Similarly it isn’t fair to suggest, at the other end of the spectrum, that China is light years ahead. A better framework is that China is simply different. China’s AI hardware is still very reliant on the US and elsewhere. If anything the West should look at Chinese innovation in management - companies with 50,000 employees wrestling how to manage this scale, keep innovation moving, hire and keep high level talent needing to be motivating and not leave. This is where some of the most interesting things are happening in China tech now.
5) All Chinese tech companies are or will be agents of the Chinese government, and data is simply not safe or reliable.
Comparing side by side, Chinese data regs are strikingly similar to GDPR. Few people fully appreciate this. In recent years Tencent/Alibaba has pushed back regularly on government demands. It is impossible for Chinese government to simply order companies around. At one level they already have whatever access they need. Data is siloed in departments; Alibaba data is separate from Ant. Data doesn’t just flow at will at the corporate level, and data security is much more complicated than the West understands.
6) All Chinese people are brainwashed.
This is simply wrong and insulting, and even silly to believe that Chinese people can’t see what’s around them, and watch the news and decide on what government says is absurd. Many know what propaganda is; in fact, there is an assumption to be skeptical. Candidly, compare this to US with freedom of speech, but when politicians lie or simply declare “fake news” large swaths of the country are happy to believe them unquestioningly.
7) One simply cannot do business in China without Guanxi - need to know someone to do business.
Obviously connections aren’t hurtful, but doesn’t make a business. Most internet businesses have done well and once they do well first, powerful people go find them from investors to governments folks. They want to be associated with success, find out ways to help them more, be part of the face of success. Is knowing people so unfamiliar from New York City to Washington, DC to Silicon Valley?
8) China’s efforts to compete against the US are their number one priority.
In point of fact, China has much larger concerns and opportunity focused at home. The West seems to forget that China is a country with four times the population of the United States and over twenty times more history to manage. Not everything is about the US. Our internal challenges are the focus. That China is aggressively focused on its interests should come as no surprise and it is confusing why the West makes an obsession of this. Bluntly put, in most business and policy conferences today in China the US never comes up. The questions are always how to do well IN China, how to make more money at home or perhaps other rising markets with similar dynamics or have resources that China requires. China simply has massive issues to manage; those are the priority. China simply doesn’t get up in the morning thinking about what the US is concerned about — there is too much to do at home. In fact, while Chinese tech companies will sometimes look for expansion abroad, especially in rising markets, the fact is there is always as great opportunity within third, fourth and fifth cities at home. Expanding to rural users is another market. The next province is bigger than most foreign markets and easier to reach. ByteDance and Pinduoduo sky rocketed in this strategy to begin. In some ways there is less interest in going abroad today than at home than five years ago.