Guest writer for Glacier Think Tank | Guan Buyu

I recently read a strange article, which was published on a Hong Kong media website on October 16 and was signed by the author "Tan Xinqiang" Article "Ants Should Win the Nobel Prize in Economics". It can be seen that Teacher Tan, like many Chinese, has a strong attachment to the Nobel Prize. This topic also has some practical significance.

An article signed by "Tan Xinqiang" - "Ants Should Win the Nobel Prize in Economics"

In recent years, Ant Technology's success in the field of inclusive finance has attracted much attention. They all provide financial services to disadvantaged groups, and are inevitably compared with the Grameen model of the poor bank of Bangladeshi entrepreneur Yunus, winner of the Nobel Prize in Economics in 2005. Last year's Nobel Prize in Economics was awarded to a three-person team of Indian-born scholar Abhijit Banerjee for their "experimental approaches to alleviating global poverty."

What has China done right in the fight against poverty? Which representative figures and institutions have formed economic theories worthy of a Nobel Prize are indeed worthy of analysis and study.

However, Teacher Tan’s strange and rich essay makes people feel a little disappointed. Exaggerated expressions are suspected of flattery, and awkward praise is not as refreshing as free criticism. What is more important than the style of writing is the difference in opinions, and many misunderstandings are regrettable.

At the end of Tan Xinqiang’s article, he emphasized that “Central Assets owns the financial interests of Alibaba, Tencent, JD.com, Apple, PayPal, and Mastercard”

Online information shows that Tan Xinqiang is the founder of Hong Kong Central Asset Investment, CEO. At the end of the article, it is also specifically reminded that "Zhonghuan Asset owns the financial rights and interests of Alibaba, Tencent, JD.com, Apple, PayPal, and Mastercard." Although professional investors are qualified, many of the opinions in the article are so inappropriate.

Teacher Tan claims that his interest in the Nobel Prize in Economics stems from "the absurd mystery of China's economic development." Who knows where does the word "ridiculous" come from? As a professional investor who is interested in economic theory, you should be familiar with the various explanations of China's economic development in the academic world. Economics experts such as Coase, Zhang Wuchang, and Lin Yifu all have wonderful theoretical insights. Clearly, these economists don't find it absurd or mysterious. These famous works are widely circulated. Teacher Tan may wish to pay attention to them.

As for the "materialism as the core value" that Teacher Tan imagined in the article, it seems to be clumsily imitating some ideological discourse. If Teacher Tan proposed a new ideological theory about China's economic development out of personal interest, that would be fine. In this regard, you can refer to Hu Angang. His theories are mainly posted on Weibo and are easy to find.

In short, China is neither a mystery nor absurd. Every modern country that has successfully entered industrialization has experienced a period of high growth with a GDP of more than 8 for decades. Britain, Germany, and Japan have all experienced this. This stage, and the respective periods of rapid growth, were also achieved under different ideologies and social and political conditions.

The most common thing is to complete industrialization under market-oriented conditions, of which the contribution of the market economy is the most critical, and China is no exception. This is very common sense when the government and the private sector summarize the achievements of reform and opening up. Therefore, explaining China’s economic development is not a theoretical innovation worthy of a Nobel Prize.

Perhaps there is some misunderstanding of China's economic trends, which caused Teacher Tan to look at the fog and misunderstandings about the protagonist Ant Technology in the article, and many of his judgments were biased.

Since Teacher Tan’s Zhonghuan Asset Investment holds financial interests in many large Chinese technology companies, including Alibaba, it should also have a better understanding of the Chinese technology companies it invests in to avoid misunderstandings. affect investment judgments.

Ant Group (Photo/Tu Chong Creative)

As far as Ant Technology, a subsidiary of Alibaba, Mr. Tan seems to simply and crudely understand the inclusive financial business of Ant Technology as "Competing for jobs" with the traditional banking industry would be a loss of professional standards.

Teacher Tan believes that “China’s banking system is inefficient and fails to provide satisfactory services to small businesses and individuals. Against this cultural and substantive background, Ant Technology was born in an epoch-making way!” This is a reflection on Ant Technology There was a serious misunderstanding at the beginning. The inclusive finance field that Ant is engaged in was proposed by the United Nations in 2005. It is obviously not aimed at "the low efficiency of China's banks", but at the expectations for the development of the global financial industry.

Tan Xinqiang believes in the article that "China's banking system is inefficient and fails to provide satisfactory services to small businesses and individuals."

Vulnerable groups cannot obtain services under the traditional commercial banking model. It is a global phenomenon. Take financial services for individuals as an example. Before the Internet era, commercial banks always expanded their service scope after entering a wealthy society.

For example, credit card business is the main way for commercial banks to provide popular personal financial services. This business emerged after the 1950s and followed the pace of prosperity and affluence into new countries. It is still impossible to carry out credit card business on a large scale among poor areas and disadvantaged populations. This is not because commercial banks around the world are "inefficient", nor is it because disadvantaged groups are "dissatisfied" with commercial bank services, but is determined by the operating model of traditional commercial banks. .

Picture/Picture Creativity

A series of mechanisms such as business costs, risk control, and credit assessment of traditional commercial banks are good at providing large-scale and relatively mature economic units. Services, small and micro enterprises, and poor people are not its areas of expertise. Commercial banks are not omnipotent, and no financial institution is omnipotent. They have their strengths and weaknesses. It is just a market division of labor corresponding to market stratification.

If we follow Teacher Tan’s logic, investment banks specialize in high-risk, high-return areas, such as investing in start-ups. Could it be that they were born because commercial banks are inefficient? Are you taking jobs from commercial banks? This is obviously against common sense, and the same goes for inclusive finance that serves disadvantaged groups, but it just appeared later.

Before the birth of inclusive finance, disadvantaged groups were always the “blind spots” of formal financial institutions. Vulnerable groups can only rely on private lending to obtain financial services with high interest rates and very unstable conditions, which is very detrimental to the disadvantaged groups in improving their economic situation. With the development of society, this problem has become more and more prominent and has attracted more and more attention. This is because the financial services provided to the rich and large enterprises are becoming more and more high-quality and efficient, while the financial services for disadvantaged groups are still in their most primitive state. Inequality in financial services has become an important factor in the widening gap between rich and poor.

This is the real problem that inclusive finance wants to solve.

Ant Technology’s achievements in the field of inclusive finance are remarkable, which Teacher Tan also highly affirmed. As he said, the payment business is no longer Ant’s largest business, and income from personal and small business loans already accounts for 40% of Ant’s revenue.

However, Teacher Tan “knew it but didn’t know why.” He only saw the scale growth of Ant Technology in inclusive finance, but did not understand the real reason for Ant Technology’s success in inclusive finance. .

Ant Technology’s success is first due to China’s huge market. Whether it is payment business or inclusive finance, without a huge market, companies cannot achieve rapid growth no matter how high their technical level is or how advanced their hardware is. Ant’s success is first due to the fact that China is the world’s largest Internet application market.

Picture/Picture Creativity

China has a huge population. The most populous country in the world, this is the beginning of everything, no need to explain.

China has strong economic vitality and the economic strength to become a large market.

However, with a huge population but still in a pre-modern society of slash-and-burn farming and small-scale peasant economy, it will not become a qualified large market.

Also, thanks to its late-mover advantage, China’s Internet penetration is very high. China has 940 million Internet users, while India, which has a population close to China's, has only 470 million Internet users. This determines that there is a huge demand for Internet applications in China.

At present, there are not many countries and regions in the world that can meet these three conditions at the same time, so the development advantages of China's Internet industry are obvious. Therefore, although the ant is small, it stands on the shoulders of giants, which is the basis of its success.

Just because the market conditions are favorable does not mean that a company can simply win. As Teacher Tan pointed out, Ant Technology has always faced strong competitors. Its success does not rely on monopoly, let alone luck, but on solving the ultimate obstacle to inclusive finance: the credit problem.

In 2006, the second year after the United Nations proposed inclusive finance, Yunus, a Bangladeshi financial entrepreneur and founder and president of Grameen Bank, won the Nobel Prize in Economics. This is the only time the award is given to an entrepreneur, as Yunus runs an unusual business.

Yunus (Photo/CCTV News)

Yunus started the small loan business in 1974. Grameen Bank, founded in 1986, has always been committed to providing financial services to the helpless. Small loans were given to poor people who obtained loans from commercial banks. Yunus was born into one of Bangladesh's top economic tycoons, and he is well versed in business. He also knows that "boys who spread wealth" by relying solely on charity cannot fundamentally solve the problem of poverty.

Grameen Bank’s goal is to form a sustainable financial model to serve the poor as much as possible. Yunus designed a complete system for this purpose, many of which have become standard features of inclusive finance.

The most classic is the loan business model designed for the affordability of the poor. Mainly small-amount short-term loans, which are more acceptable to the poor and require zero repayment.

Loan customers of the local Grameen Bank in Bangladesh (Photo/Tu Chong Creative)

In terms of risk management, Grameen adopts an internal supervision mechanism of a five-member team co-guaranteeing , collect group funds and compulsory savings as risk funds according to a certain proportion of the loan amount, and at the same time supervise the use of funds through group meetings and central meetings.

Under the technical conditions of the time, Yunus’ design had achieved the ultimate in all aspects of the Bank for the Poor. However, the goal of sustainable management has never been achieved. Until 2011, when Yunus was asked to resign immediately by the Bangladeshi government on the grounds of age, Grameen Bank's operations had always relied on subsidies from charitable donations from NGOs.

Yunus’ resignation has triggered a lot of conjecture and controversy. There are malicious comments accusing him of misappropriating charity funds, and some conspiracy theorists believe that his career is so successful that he has achieved an “extremely high repayment rate.” "It offended the international capital forces.

None of these comments are correct. Yunus's personal character is impeccable. With his family background and the economic characteristics of South Asian countries, he doesn't have to take risks and work hard to become a bank for the poor in order to make money. However, the so-called "extremely high repayment rate" and the "black hands" of international capital are also nonsense.

Calculated since Yunus started operating microfinance in 1974, the total scale is only 10 billion U.S. dollars, which is not even a drop in the huge volume of trillions of U.S. dollars in international finance every year. Why did it arouse the hostility of international financial giants? The nominal repayment rate of this US$10 billion is around 80, which indeed exceeds expectations.

However, Yunus is stretched thin by controlling the interest rate below the red line of 10% and maintaining its huge and decentralized operating system. Grameen Bank has never achieved profitability and its operating conditions are extremely fragile. Without the charitable support of NGOs, Grameen Bank would have been unsustainable as early as the 1998 Bangladesh floods.

Bangladeshi residents obtain housing loans from Grameen Bank (Photo/Tu Chong Creative)

Precisely because of the limitations of the Grameen Bank model in terms of operating capabilities, this model is difficult to copy .

Yunus’ career has suffered even more obvious setbacks in India. Charitable support cannot withstand the pressure of India’s huge poor population. The Indian version of Grameen Bank can only break the red line of interest rates and move toward “loan sharking.” . Even so, it has reached the brink of the subprime mortgage crisis.

Yunus’ sad resignation in 2011 is regrettable. But what is even more regrettable is that the Grameen model has actually failed. The boundary between corporate operations and philanthropy is never clear, and it is unsustainable without external blood transfusion. Around 2014, Yunus launched his career again in China with the help of JD.com, which made a sensation, but ended without success.

The reason is that the Grameen model fails to solve the most fundamental problem of finance - credit. The credit information of the rich and large enterprises is overflowing. Financial institutions can easily obtain their assets, income and expenditures, financial records over the years and other credit information, so as to make clear and accurate credit assessments and judgments.

The credit status of the poor and small and micro enterprises is discrete and fuzzy, far away from the recording system of the financial system. It is difficult for traditional financial institutions to screen and judge their credit status, so they can only use higher interest rates to offset systemic risks. High interest rates increase the risk of borrowers, making the credit foundation of this group more fragile.

This is an endless cycle that will inevitably lead to business stagnation.

Grameen has not actually gotten out of this endless loop. This is not because Yunus’ design is deficient, but because traditional technical means cannot achieve his design intentions. Credit barriers are the end of Yunus and the beginning of ants.

When Yunus won the Nobel Prize in 2006, Alipay had only been established for two years. In 2013, a year before Yunus came to China, Alipay officially began to transform into a small and micro financial services company. The coincidence in time is not purely accidental. There is a subtle link between Ant and Grameen - that is, the application of Internet technology has promoted the generational change of inclusive finance.

Using information technology to break through financial barriers is the continuation of Yunus’ career.

Alipay (Picture/Tu Chong Creative)

The essence of credit is information. The lender must release its own credit information, and the lender must collect this credit information and make an evaluation. , analysis and judgment, every credit transaction is based on the matching of credit information. Therefore, the accuracy and convenience of credit information determine the final financial transaction cost. This is a realistic version of Coase's "transaction cost theory" by another Nobel Prize winner.

Ant’s success in the field of inclusive finance surpasses its predecessors’ achievements precisely because it has significantly reduced the information costs necessary for financial transactions, and this starts with Taobao’s e-commerce platform business.

The e-commerce platform not only provides technical support to all participants in commercial activities, but also forms a set of transaction systems with strong execution capabilities. Technology and systems work together to reduce the cost of commercial transactions on the platform. , and the reduction of commercial transaction costs will inevitably extend to financial transactions, because in the Internet environment, credit information generated in commercial activities can be collected and integrated at very low cost, becoming effective information that financial institutions can apply. The integration of a large amount of scattered transaction information naturally forms a low-cost credit market, which leads to the financial side. It is a natural market process.

This process is so natural that it is difficult for the transaction parties to detect it. When buyers review and rate a store, they rarely realize that they are providing a credit evaluation for the store. Before the "never forget" Internet technology was applied to commercial transactions, customers' praise or complaints could not be accurately recorded and collected as credit information, let alone used as a credit basis to obtain financial credit services. This loss of information harms vulnerable groups more significantly.

Vulnerable groups have no records of large transactions or proof of high-value assets. The only credit information they have is the fragmented information on their daily business activities.

E-commerce platforms like Taobao have inadvertently completed the credit cultivation and information collection of disadvantaged groups. This is the first step for disadvantaged groups to approach financial resources. Ant Technology uses electronic payment services to allow the financial industry and Vulnerable groups "held the little hand" and finally broke through the barriers to inclusive finance.

How many young people from small towns who have just entered big cities have obtained their first credit loan from Huabei? The money is not much and you have to pay interest, but the value of this trust is beyond what money can measure. How many small and micro enterprises that have been rejected by banks are holding small loans from Ant and running their own small businesses on Taobao? This is the value of inclusive finance.

Tu/Tu Chong Creativity

Using technology as a tool, reducing transaction costs as a means, and providing disadvantaged groups with access to financial services as the purpose of technological services are the core business logic of Ant Technology . Teacher Tan may have confused the nature of the difference between technology services and the arbitrage model of traditional financial loans. Although he also noticed some signs, he did not make a correct interpretation.

As Teacher Tan pointed out, "98% of Ant's loans are handed over to banks, and Ant only charges a small service fee." Teacher Tan has many doubts about Ant not bearing loan risks. In fact, the difficulty of inclusive finance has never been funds, nor is it that banks are not willing to lend, but that the transaction costs caused by credit problems are too high to bear - either banks dare not lend, or Private loan sharks cannot afford loans. This time it is a real problem that Ant wants to solve through technology. Ant uses technological means to significantly reduce transaction costs for both parties to the transaction. Shouldn't it charge a service fee?

In this way, there is naturally no soul torture of "taking loan risks". Teacher Tan misunderstood the nature of Ant's business. How could a company whose main income is service fees be a "Fintech (financial technology) company" that mainly focuses on arbitrage?

Teacher Tan also confused the difference between platform business and self-operated business, and misjudged the nature of Ant’s business expansion. This is not a mistake that a professional investor should make. The fact that major financial institutions conduct business on Ant's platform does not mean that Ant has merged with them. For example, if Moutai is sold on Taobao, has Taobao become the largest liquor company in China?

If you observe the business growth of Ant in various fields from the perspective of platform business, you will not be surprised. A technology service company will not and does not have to compete with customers for jobs. Ants are not pythons and have no ambition to swallow elephants.

Ali, who is famous for his famous sayings, has a famous saying: "I hope there will be no difficult business in the world." This is most vividly reflected in Ant's inclusive finance career. Ant aims to make the financial industry for disadvantaged groups no longer a difficult business, making it affordable for the poor and financial institutions to dare to lend. Together they are a win-win situation. This is not far away from the "copper smell" of aloofness, but it is a down-to-earth atmosphere of sustainable operation and affordable cost.

As for the Nobel Prize in Economics, that’s Teacher Tan’s overthinking. The honor should be given to great scholars like Coase, idealists and pioneers like Yunus, and companies just need a little more goodwill. understanding, less malicious speculation or flattery. This is particularly important for Chinese companies today.

If Mr. Tan has any expectations for China’s future, he should be happy to see this fast-paced little ant working hard on the track to overcome poverty.