Distinguished Secretary Li Qiang, Chairman Chen Yuan, Governor Zhou Xiaochuan, leaders, and friends from the financial community, good morning.
Thank you for inviting me. I am delighted to have this opportunity to learn, discuss, and exchange ideas with all of you.
In 2013, also here in Shanghai, I shared some fanciful ideas about internet finance. Seven years have passed, and today this outsider to finance has returned.
To be honest, I struggled with whether I should speak today. But I believe that people of our generation have an inescapable responsibility to think about the future. Although the world offers us many opportunities for development, there are only one or two truly decisive opportunities, and we have now reached the most critical moment.
So I still want to share some of my thoughts. They come from sixteen years of our own practical experience, as well as serious discussions with scholars, experts, and practitioners around the world while I served as co-chair of the United Nations High-level Panel on Digital Cooperation and as an advocate for the UN Sustainable Development Goals.
Since I am retired, I will speak freely and share three views for your consideration. They may not be mature, and what I say may be wrong or invite ridicule, so please take them simply as ideas to consider.
First, we have long been guided by habitual ways of thinking. We often assume that, to align ourselves with international practice, we must fill supposed domestic gaps by creating whatever developed European and American countries have that we do not. Filling gaps has become an objective in itself.
I have always believed there is something wrong with the phrase “filling gaps.” Something is not necessarily advanced, or a gap we must fill, merely because Europe or America has it. Today we should not be asking what system to align with, which country's standards to adopt, or which present gap to fill. We should think about how to align with the future, adapt to future standards, and fill the gaps of the future. We must understand what the future will look like and what kind of system we ourselves want to build, and only then examine how others do things. If we keep repeating other people's language and discussing subjects set by others, we will not only lose sight of the present but also miss the future.
After the Second World War, the world needed to restore economic prosperity, and the Bretton Woods system made an enormous contribution to the global economy. Later, following the Asian financial crisis, the Basel Accords placed increasing emphasis on risk control and eventually became an operational standard for it. The trend today is for the entire world to discuss risk control but not development, with little thought given to opportunities for young people or developing countries. This is one root of many of today's global problems. We can also see that the Basel framework has constrained innovation across Europe, particularly in the digitalization of finance.
Basel is rather like a club for old people. It addresses the aging and complexity of financial systems that have operated for decades. China's problem is precisely the opposite: it is not systemic financial risk, but the risk created by the absence of a complete financial ecosystem.
Like other developing countries that have only recently grown, China's financial sector is still young. It does not yet have a mature, fully circulating ecosystem. Large banks are like great rivers or the major arteries of the bloodstream, but we also need lakes, ponds, streams, and all kinds of wetlands. Without this ecosystem, floods overwhelm us in wet times and drought destroys us in dry times. Our country therefore faces the risk of lacking a financial system, rather than systemic financial risk. These are completely different illnesses. They may look similar, like dementia and polio, but they are fundamentally different. If a child takes medicine intended for dementia, the child will not only acquire the ailments of the elderly but may develop illnesses no one has ever seen. The Basel Accords were designed to treat the ailments of an aging and excessively complex system. We must ask what young people should learn from following the elderly. Older people care about living near a hospital; young people care about access to good schools. These are entirely different systems of thought.
Second, innovation inevitably carries a price, and our generation must accept responsibility for it.
President Xi has said that success does not have to be achieved in one's own tenure. I understand this as a statement of responsibility: responsibility for the future, for tomorrow, and for the next generation. Many of the world's problems, including China's, can be solved only through innovation. But genuine innovation has no guide and requires someone to take responsibility, because innovation inevitably produces mistakes. The issue is not how never to make a mistake, but whether we can improve, correct, and persist with innovation after mistakes occur. Innovation without risk is the strangling of innovation; often, reducing risk to zero is itself the greatest risk.
At the Battle of Red Cliffs, Cao Cao's idea of linking ships together was the earliest form of thinking behind an aircraft carrier. But one fire kept people in China from daring to think about aircraft carriers for a thousand years. One mistake destroyed an innovation.
Seven or eight years ago I proposed internet finance, but we always emphasized that it must have three core elements: abundant data, risk-control technology based on big data, and a credit system based on big data. Judged by these standards, P2P lending was never internet finance. Yet we cannot reject all financial innovation based on internet technology because of P2P. We should ask whether thousands of P2P firms across the country were able to commit the errors of financial companies because something else in our system went wrong. How could thousands of internet-finance companies emerge in China within only a few years? This showed a complete lack of respect for technology. P2P operators were swindlers who used the banner of internet finance while holding legal licenses.
Regulation is indeed difficult today. Innovation comes from the market, the grassroots, and young people, creating ever greater challenges for regulators.
Supervision and administration are two different things. Supervision means watching development, while administration means intervening when a problem arises. Today our ability to administer is strong, but our ability to supervise is clearly inadequate. Good innovation does not fear regulation; it fears yesterday's regulation. We cannot manage an airport with methods designed for a railway station, or govern the future with yesterday's methods.
Supervision differs from administration, just as policy differs from official documents. Today we have too many documents saying what may not be done, and too few genuine policies. We need policy experts, not section-chief-style experts in drafting documents. Policymaking is a technical craft. To address systemic complexity, I can offer Taobao's experience. Its rules once became so complicated that merchants could not understand them. We later adopted a “one added, three removed” principle: adding one rule required removing three earlier ones. Our policies are now multiplying to the point where nobody can accomplish anything and anyone who acts may run into trouble.
Theory is not the same as a system, and an expert is not the same as a scholar. Experts develop their ability through practice and may be highly capable without knowing how to summarize their experience. Many scholars do not engage in concrete practice but can formulate theories. Only by combining experts with scholars, and theory with practice, can we genuinely innovate to solve the problems of today and tomorrow. We need theory that comes from practice, not practice imposed by office-based theory. P2P was practice derived from office-based theory. Its lesson is not that we should reject the internet, but that we should stop repeating practice invented in offices.
I have observed that some officials regulate until they themselves and their departments bear no risk, while the entire economy bears the risk of stagnation. The competition of the future will be a competition in innovation, not merely in regulatory technique. I understand President Xi's call to improve governing capacity as meaning development that is achieved and regulated in an orderly way, not regulation that prevents development.
Third, the essence of finance is credit management. We must abandon the pawnshop mentality in finance and rely on a credit system.
Today's banks still perpetuate a pawnshop mentality: collateral and guarantees are its purest expression. In their time, these were powerful innovations. Without collateral and guarantees, today's financial institutions would not exist, and the Chinese economy could not have developed as it has over the past forty years.
But a system based on assets and collateral moves toward two extremes. From my conversations with many entrepreneurs in recent years, China's pawnshop mentality in finance is especially severe. Some pledge all their assets and face enormous pressure; others borrow recklessly, continually increase leverage, and accumulate huge debts. You may know the joke: borrow 100,000 yuan from a bank and you feel nervous; borrow ten million and both you and the bank feel nervous; borrow one billion and you no longer need to worry, because the bank will be very worried.
A collateral-based pawnshop mentality cannot support the world's financial needs over the next thirty years. We must use today's technological capabilities to replace that mentality with a credit system founded on big data. This credit system cannot rest merely on IT or on a society of personal acquaintances; it must be built on big data so that credit can truly become wealth. Even a beggar needs credibility—without it, one cannot even obtain food.
—The world expects a genuinely new financial system designed with the future in mind.
If people after the Second World War had the foresight and responsibility to build a new financial system for the future and for young people, then we today have the same responsibility to consider the financial system of the future. It must move from helping twenty percent of people to serving eighty percent of small businesses and young people. Instead of people and companies searching for money, money should find people, companies, and good companies. The sole measure of this system should be whether it is inclusive, green, and sustainable, with advanced technologies such as big data, cloud computing, and blockchain playing a decisive role behind it.
It is not that we cannot do this today; we choose not to. Technology has already made it entirely possible, yet regrettably many people are unwilling to act. The global financial system must be reformed. Otherwise the problem will not merely be lost opportunities—the world may fall into disorder. It is normal for innovation to move ahead of regulation, but when innovation moves far beyond regulation and its richness greatly exceeds regulators' imagination, the situation becomes abnormal and the world risks disorder.
Consider digital currency. If we look ahead and build the financial system the world will need in thirty years, digital currency may become a crucial core component. Finance may not need digital currency today, but it will need it tomorrow and in the future, and millions of people will need it. We should ask what practical future problem digital currency is meant to solve. The digital currency of ten years from now may be very different from today's. It cannot be discovered by looking to history, regulation, or research institutes; it must be found in the market, in demand, and in the future.
This is a matter of great importance. Research institutes should not become policymaking bodies, and policymaking bodies should not rely solely on their own research institutes. A digital-currency system is a technical issue, but it is not merely technical; it is a proposal for solving future problems. Digital currency may redefine money. Although money's principal functions will remain, the concept may be redefined just as the iPhone redefined the mobile phone rather than merely serving as a telephone.
It is far too early to compete over digital-currency standards. The task is to create value and solve problems of sustainability, green development, and inclusion in the world economy and trade.
Finally, humanity has reached an exceptionally critical moment. We must not underestimate this pandemic. It is a force compelling human society to progress, no less consequential than the Second World War. We should not simply oppose many of today's global organizations, but join together to reconsider their present value. We need the United Nations, the WTO, and the WHO, but we must rethink how these organizations should face the future and how they should reform.
New finance is the direction of the future. Whether we welcome it or not, it will emerge; whether we act or not, someone will. Future standards must be inclusive, green, and sustainable. Ant has continued exploring these goals for the past sixteen years. If inclusion, green development, and sustainability are a mistake, then we are willing to keep making that mistake to the end.
Reform requires sacrifice and carries a price. Our generation may undertake the reform while only the next generation sees the results. We may be among those who bear the burden and move forward, but this is both the opportunity and the responsibility history has given us. That is what I wanted to discuss with you. These thoughts are not necessarily correct, but they are all the product of my serious reflection.
Thank you.