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Good innovation can coexist with regulations, but not regulations of yesterday. We cannot manage an airport the way we manage a train station, nor can we manage the future the way we managed yesterday. (Jack Ma, Jack Ma’s speech at the Bund Summit 2020 in Shanghai," Apple News (11 August 2020)) (from Platform Government--The Emerging State of Contests for Control of Society From Jack Ma and China to Mark Zuckerberg and Australia)
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The Vice President of the United States serves a purpose; the difficulty normally is figuring out what that is. Mr. Vance has approached that challenge with gusto. That gusto seems directed, for the moment, at trying to describe, in his own way, what distinguishes the American liberal democratic path from that of Europe. None of what he articulates, in his own way, is startling, or new, or unknown by those in the business of understanding those things. It is now virtually common knowledge that the U.S. and Europe have moved noticeably apart on the matter of the theory about the optimum relationship between the State and the masses. The Europeans have come to more assertively embrace the idea that the masses require guidance and that this guidance is best managed through the State. Tied to that is the notion, also embraced with increasing vigor, the this guidance ought to be undertaken in ways that more clearly align private actions to State policy, increasingly through compliance oriented regulatory structures overseen by techno-bureaucracies that interlink public and private collectives. The Americans, and especially those currently holding high elective office, have taken a different view. They have become more impassioned about the value of markets driven behavior and the need for the State to manage markets but not people. The masses, according to this view, require protections against systemic corruption, but not protection against their own choices. What separates the two systems, beyond the levels of trust or distrust in the constitution and operation of large compliance driven techno-bureaucracies, is the fundamental attitude toward risk and personal autonomy. The Europeans have increasingly embraced fundamental principles of de-risking grounded in avoidance of actions that cause negative impacts as a function of policy goals. The Americans tend to cultivates greater tolerance for risk. Though these gross generalizations viel a tremendous amount of disagreement within each of these systems, and do not justice to the spectrum of variation in approaches within each of these systems, it is useful as a crude and grossly simplified way of thinking about what appears to divide European from American cognitive cages.
There are lots of ways of approaching these differences and acknowledging what the speaker might extract as consequences and perhaps even bridging programs. And there are lots of places where those differences and their policy consequences, might be discussed openly and honestly. Among all of these possibilities, and within the possibilities of emphasis among the huge variations that mark these different approaches, Mr Vance has chosen to make at least some of it in public fora, in ways that are, in some sense, with a nod to the rhetorical style of Mr. Trump. There is nothing wrong with that as far as it goes--but the choices of discursive style and the places where they are put out on display also have consequences. And the consequences can prove to be distracting from the issues they are meant to underscore and the interests, including common interests, they are meant to serve. All of this it is likely that Mr. Vance understands. And in his calculus--and perhaps given his own approach to risk--he has undertaken to engage with core allies of the United States in a particular way.
He is not the only one deploying these discursive forms. And likely also not the only one who will have to live with the consequences of the discursive choices made. The price, of course, is a function of Mr. Vance's objectives--is it to make a pint in a provocative but memorable way, or is it to advance an agenda and find common ground that satisfies those who would profit more from some sort of accommodation between them. But we cannot get nto Mr. Vance's head--we are left only with the footprints that he leaves in the rhetorical sands and its consequences that guide the actions of people who may not represent the power of the United States but are still an essential part of American interest. For all that, it appears that Mr. Vance might not have profited from the lesson of Jack Ma, with whom he shares a little bit the same approach to regulatory structures as a function of fostering innovation, growth, and wealth (see here). Both touch on the the deeper
problem of regulatory philosophy--that of Mr. Vance within liberal democracy, and that of Jack Ma within Marxist-Leninist operating
principles.
All of these strands came together with some dramatic flair when Mr. Vance addressed the persons assembled for the AI Summit in Paris on 11 February 2025. The text of the remarks follows below (with gratitude to the folks at the Spectator which first made them available and which may be accessed HERE).
Though the focus was on AI regulation, the fundamental issue touches on philosophies of regulation, the role of the state, and the relationship between innovation and state policy as fundamentally central driving forces shaping economic activity. Mr. Vance makes for deeply relational points, points that like those of the European side, make for great discourse but which are amalgams of words the meanings of which in context remains elusive.
Number one, this administration will ensure that American AI technology continues to be the gold standard worldwide, and we are the partner of choice for others, foreign countries, and certainly businesses as they expand their own use of AI. Number two, we believe that excessive regulation of the AI sector could kill a transformative industry just as it’s taking off, and we’ll make every effort to encourage pro-growth AI policies. And I like to see that deregulatory flavour making its way into a lot of the conversations this conference. Number three, we feel very strongly that AI must remain free from ideological bias and that American AI will not be co-opted into a tool for authoritarian censorship. And finally, number four, the Trump administration will maintain a pro-worker growth path for AI so it can be a potent tool for job creation in the United States. (Vance Remarks HERE).
The first speaks of the American version of the Chinese Belt & Road model. Effectively it is built around a core or hub apex state around which relationships are built as a function of the leadership of the hub state and arranged through the spokes of policy and production radiating out from the core through which outer rings can be arranged in relation to the hub. That merely conforms a suspicion that the Chinese and the Americans are aligning their organizational models, but with characteristics aligned with their respective political-economic models. But hubs tends to view competitor hubs as a threat and it tends to like to protect its spoke relationships. That might have been the point Mr. Vance further elaborated:
We will safeguard American AI and chip technologies from theft and misuse, work with our allies and partners to strengthen and extend these protections, and close pathways to adversaries attaining AI capabilities that threaten all of our people. And I would also remind our international friends here today that partnering with such regimes, it never pays off in the long term. From CCTV to 5G equipment, we’re all familiar with cheap tech in the marketplace that’s been heavily subsidised and exported by authoritarian regimes. But as I know, and I think some of this – some of us in this room have learned from experience, partnering with them means chaining your nation to an authoritarian master that seeks to infiltrate, dig in, and seize your information infrastructure. (Vance Remarks HERE).
The second articulates the American approach to regulatory governance. Nonetheless it leaves much to ambiguity. It speaks of excessive regulation but gives no sense of the means by which that is measured. Certainly under their model the Europeans are equally convinced that they have produced the "right amount" of regulation in the "appropriate " form. But not all European leaders. "French President Emmanuel Macron said Monday the Paris AI summit is “a wakeup call” for a European strategy to get competitive in a tech world now dominated by the U.S. and China. Macron also called on “simplifying” rules in France and the European Union to allow AI advances, citing sectors like healthcare, mobility, energy, and “resynchronize with the rest of the world.”" (as reported in Fortune, here) While Mr. Macron speaks the European language of regulatory simplification, Mr Vance appears to adopt the Chinese style discourse of The only hint of the measure appears to be a Chinese style emphasis on high quality production advancing development in palpable (and measurable) ways in the form of what was termed "an open regulatory environment."
The third speaks to stripping AI development of ideological bias. Ironically that position is also an expression of an ideological bias. The Trump administration has been particularly concerned about the curation of speech and speech acts by a master class of overseers (as they see it), and what they see as the corruption inherent in discursive tropes like mis-information ("but it is one thing to prevent a predator from preying on a child on the Internet, and it is something quite different to prevent a grown man or woman from accessing an opinion that the government thinks is misinformation."(Vance Remarks HERE)). For Mr. Vance, the AI revolution will never come to pass "if we allow AI to become dominated by massive players looking to use the tech to censor or control users’ thoughts. . . he Trump administration will ensure that AI systems developed in America are free from ideological bias and never restrict our citizens’ right to free speech. We can trust our people to think, to consume information, to develop their own ideas, and to debate with one another in the open marketplace of ideas." (Vance Remarks HERE). But of course that leaves open a host of derivative issues about which collective society has only begun to consider.
The last is fairly straightforward. If undertaken "correctly" AI is an industrial sector that can make its investors quite rich and also make money for an increasingly larger pool of workers. "Finally, this administration wants to be very clear about one last point. We will always centre American workers in our AI policy. We refuse to view AI as a purely disruptive technology that will inevitably automate away our labour force." (Vance Remarks HERE). In this sense, and ironically, an aversion to regulation also expresses a strong public policy that provides direction to AI productive forces.
Lamentably, Mr. Vance appears to focus on quantity; he might have also focused on regulatory quality. And, indeed, beyond the complexities of the European regulatory project and the fear that it amounts to a governmentalization of economic activity is the question of whether the regulatory structures adopted actually serve their purpose. They certainly add to the burdens of doing business, and they appear to have driven innovation elsewhere (the lament recently of President von der Leyen in Davos (Davos Discourse 3: Europe between Between Eagle, Bear, and Dragon and No Place to Go--Special Address by President von der Leyen at the World Economic Forum)). The difficulty arises because regulation of technology itself may be less useful than regulation of human interactions with that technology. And yet the focus of regulation was discussed, if only in a dismissive way. Mr. Vance rejected the idea that regulatory efforts ought to focus on a precautionary principle (at the core of the European regulatory project)--his preference was opportunity ("we’re developing an AI action plan that avoids an overly precautionary regulatory regime while ensuring that all Americans benefit from the technology and its transformative potential." (Vance Remarks HERE)). That also touched on ideology--and certainly the ideology of de-risking, of prevention, is one that Mr. Vance rejects.
And here is nicely distilled JD Vance's Jack Ma moment. Compare what might be the more elegant and nuanced version by Jack Ma:
I think there is another phenomenon. Many regulatory authorities around the world have become zero risk, their own departments have become zero risk, but the entire economy has become risky, the whole society has become risky. The competition of the future is a competition of innovation, not a competition of regulatory skills. Now, each country’s regulation is more ruthless than the next, all the development is a mirage, but by not allowing it, each cut is bloody. Based on my understanding, what President Xi said about “enhancing governing ability” means to maintain healthy and sustainable development under orderly regulation, not no development due to regulation. It is not difficult to regulate. What’s difficult is to deliver regulation that achieves the purpose of producing sustainable and healthy development. (Jack Ma Bund Finance Summit Speech supra)
Putting it all together Mr. Vance means this: "Now with the President’s recent executive order on AI, we’re developing an AI action plan that avoids an overly precautionary regulatory regime while ensuring that all Americans benefit from the technology and its transformative potential. Now we invite your countries to work with us and to follow that model if it makes sense for your nations." (Vance Remarks HERE). Along the way, Mr. Vance is somewhat highly critical and dismissive of the European approach--that is not a unique view given the more temperate version of this critique delivered by President von der Leyen at Davos in January and Mr. Macron at the Summit, but opposed to the Leninist variant of regulatory guidance (especially domestically but also on an inter-governmental basis that constitutes China's vision (Davos Discourse 4: The Chinese Path--Address by Vice-Premier Ding Xuexiang's at World Economic Forum Annual Meeting 2025 ).
The risk here is that Mr. Vance's performance may have satisfied him and the people to whim he looks for approval, but it might have been less effective on those onto whom that discourse was projected. Yet that also might have been the plan--to what ends remains to be seen. And yet it might have been most effective as a contrast to the Chinese rather than the European vision of AI regulation. And here again Mr. Vance's Jack Ma moment. What Mr. Ma could not convince the vanguard to consider in the construction of the internal Chinese tech regulatory structures Mr. Vance might have more success with the US's allies in Europe. And at a sufficiently high enough level of generality--both the United States and China now offer up two distinct ways of using regulation as a productive force for the nation: the Chinese view regulation and central guidance as the touchstone for proper approaches to development, innovation (new quality production) and global leadership; the Americans offer the same results with respect to innovation, and wealth creation, but under a quite different and markets managed regulatory model.
There is a lot here that is worth discussing. It would be a pity if the only consequence of these remarks is to make those conversations more unlikely. For comparison the text of Jack Ma's 2020 Bund remarks also follows below.
Vice President JD Vance told world leaders at yesterday’s AI summit in Paris that the ‘the AI future is not going to be won by hand-wringing about safety’. Here’s the full transcript.
Thank you for the kind introduction, and I want to start by thanking President Macron for hosting the event and, of course, for the lovely dinner last night. During the dinner, President Macron looked at me and asked if I would like to speak, and I said, ‘Mister President, I’m here for the good company and free wine, but I have to earn my keep today’. And I, of course, want to thank Prime Minister Modi for being here and for co-hosting the summit, for all of you for participating.
And I’m not here this morning to talk about AI safety, which was the title of the conference a couple of years ago. I’m here to talk about AI opportunity.
When conferences like this convene to discuss a cutting-edge technology, oftentimes, I think our response is to be too self-conscious, too risk-averse. But never have I encountered a breakthrough in tech that so clearly caused us to do precisely the opposite. Our administration, the Trump administration, believes that AI will have countless revolutionary applications in economic innovation, job creation, national security, health care, free expression, and beyond. And to restrict its development now would not only unfairly benefit incumbents in the space, it would mean paralysing one of the most promising technologies we have seen in generations.
And with that in mind, I’d like to make four main points today.
Number one, this administration will ensure that American AI technology continues to be the gold standard worldwide, and we are the partner of choice for others, foreign countries, and certainly businesses as they expand their own use of AI.
Number two, we believe that excessive regulation of the AI sector could kill a transformative industry just as it’s taking off, and we’ll make every effort to encourage pro-growth AI policies. And I like to see that deregulatory flavour making its way into a lot of the conversations this conference.
Number three, we feel very strongly that AI must remain free from ideological bias and that American AI will not be co-opted into a tool for authoritarian censorship.
And finally, number four, the Trump administration will maintain a pro-worker growth path for AI so it can be a potent tool for job creation in the United States
And I appreciate Prime Minister Modi’s point. AI, I really believe, will facilitate and make people more productive. It is not going to replace human beings. It will never replace human beings. And I think too many of the leaders in the AI industry, when they talk about this fear of replacing workers, I think they really missed the point.
AI, we believe, is going to make us more productive, more prosperous, and more free. The United States of America is the leader in AI, and our administration plans to keep it that way. The US possesses all components across the full AI stack, including advanced semiconductor design, frontier algorithms, and, of course, transformational applications. Now the computing power this stack requires is integral to advancing AI technology. And to safeguard America’s advantage, the Trump administration will ensure that the most powerful AI systems are built in the US with American designed and manufactured chips.
Now, just because we’re the leader doesn’t mean we want to or need to go it alone, of course. And let me be emphatic about this point. America wants to partner with all of you, and we want to embark on the AI revolution before us with the spirit of openness and collaboration. But to create that kind of trust, we need international regulatory regimes that foster the creation of AI technology rather than strangle it. And we need our European friends in particular to look to this new frontier with optimism rather than trepidation.
Now the development of cutting-edge AI in the US is no accident. By preserving an open regulatory environment, we’ve encouraged American innovators to experiment and to make unparalleled R&D investments. Of these $700 billion give or take that’s estimated to be spent on AI in 2028, over half of it will likely be invested in the United States of America. Now this administration will not be the one to snuff out the startups and the grad students producing some of the most groundbreaking applications of artificial intelligence. Instead, our laws will keep big tech, little tech, and all other developers on a level playing field.
Now with the President’s recent executive order on AI, we’re developing an AI action plan that avoids an overly precautionary regulatory regime while ensuring that all Americans benefit from the technology and its transformative potential. Now we invite your countries to work with us and to follow that model if it makes sense for your nations.
However, the Trump administration is troubled by reports that some foreign governments are considering tightening the screws on US tech companies with international footprints. Now America cannot and will not accept that, and we think it’s a terrible mistake, not just for the United States of America, but for your own countries.
The US innovators of all sizes already know what it’s like to deal with onerous international rules. Many of our most productive tech companies are forced to deal with the EU’s Digital Services Act and the massive regulations it created about taking down content and policing so-called misinformation . And, of course, we want to ensure the Internet is a safe place, but it is one thing to prevent a predator from preying on a child on the Internet, and it is something quite different to prevent a grown man or woman from accessing an opinion that the government thinks is misinformation. Meanwhile, for smaller firms, navigating the GDPR means paying endless legal compliance costs or otherwise risking massive fines. Now for some, the easiest way to avoid the dilemma has been to simply block EU users in the first place. Is this really the future that we want?
Ladies and gentlemen, I think the answer for all of us should be no. There’s no issue where we worry about more than regulation when it comes to energy. And, again, I appreciated the comments of so many at the conference because they recognise that we can’t – we stand now at the frontier of an AI industry that is hungry for reliable power and high-quality semiconductors. Yet too many of our friends are deindustrialising on the one hand and chasing reliable power out of their nations and off their grids with the other. The AI future is not going to be won by hand-wringing about safety.
It will be won by building from reliable power plants to the manufacturing facilities that can produce the chips of the future. At a personal level, what excites me most about AI is that it is grounded in the real and the physical economy. The success of the sector isn’t just a matter of smart people sitting in front of a computer screen and coding. It depends on those who work with their hands, even as robotics will change our factories. It will certainly make our health care providers better at treating diseases, but it will also depend on the data produced by those health care providers, by those doctors and nurses.
I believe it will help us create and store new modes of power in the future. But right now, AI cannot take off unless the world builds the energy infrastructure to support it. Now it’s my view that tech innovation over the last twenty years has often conjured images of smart people staring at computer screens, engineering in the world of bits. But the AI economy will primarily depend on and transform the world of atoms.
Now at this moment, we face the extraordinary prospect of a new industrial revolution, one on par with the invention of the steam engine or Bessemer steel, but it will never come to pass if overregulation deters innovators from taking the risks necessary to advance the ball, nor will it occur if we allow AI to become dominated by massive players looking to use the tech to censor or control users’ thoughts.
And I’d ask if you step back a moment and ask yourself, who is most aggressively demanding that we, meaning political leaders gathered here today, do the most aggressive regulation? It is very often the people who already have an incumbent advantage in the market. And when a massive incumbent comes to us asking us for safety regulations, we’d ought to ask whether that safety regulation is for the benefit of our people or whether it’s for the benefit of the incumbent.
Now over the last few years, we’ve watched as governments, businesses, and nonprofit organisations have advanced unpopular and, I believe, downright ahistorical social agendas through AI. In the US, we had AI image generators trying to tell us that George Washington was black or that America’s doughboys in world war one were in fact women.
Now we laugh at this now, and, of course, it was ridiculous, but we have to remember the lessons from that ridiculous moment. And what we take from it is that the Trump administration will ensure that AI systems developed in America are free from ideological bias and never restrict our citizens’ right to free speech. We can trust our people to think, to consume information, to develop their own ideas, and to debate with one another in the open marketplace of ideas.
Now we’ve also watched as hostile foreign adversaries have weaponised AI software to rewrite history, surveil users, and censor speech. This is hardly new, of course. As they do with other tech, some authoritarian regimes have stolen and used AI to strengthen their military intelligence and surveillance capabilities, capture foreign data, and create propaganda to undermine other nations’ national security. I want to be clear. This administration will block such efforts full stop. We will safeguard American AI and chip technologies from theft and misuse, work with our allies and partners to strengthen and extend these protections, and close pathways to adversaries attaining AI capabilities that threaten all of our people.
And I would also remind our international friends here today that partnering with such regimes, it never pays off in the long term. From CCTV to 5G equipment, we’re all familiar with cheap tech in the marketplace that’s been heavily subsidised and exported by authoritarian regimes. But as I know, and I think some of this – some of us in this room have learned from experience, partnering with them means chaining your nation to an authoritarian master that seeks to infiltrate, dig in, and seize your information infrastructure.
Should a deal seem too good to be true, just remember the old adage that we learned in Silicon Valley. If you aren’t paying for the product, you are the product.
Finally, this administration wants to be very clear about one last point. We will always centre American workers in our AI policy. We refuse to view AI as a purely disruptive technology that will inevitably automate away our labour force.
We believe and we will fight for policies that ensure that AI is going to make our workers more productive, and we expect that they will reap the rewards with higher wages, better benefits, and safer and more prosperous communities. From law to medicine, manufacturing, the most immediate applications of AI almost all involve supplementing, not replacing the work being done by Americans.
Now combined with this administration’s worker-first approach to immigration, we believe that the US labour force prepared to use AI to its fullest extent will instead attract the attention of businesses that have offshored some of these roles.
To accomplish this, the administration will make sure that America has the best trained workforce in the world. Our schools will teach students how to manage, how to supervise, and how to interact with AI-enabled tools as they become more and more part of our everyday lives. And as AI creates new jobs and industries, our government, businesses, and labor organisations have an obligation to work together to empower the workers, not just of the United States, but all over the country – all over the world. To that end, for all major AI policy decisions coming from the federal government, the Trump administration will guarantee American workers a seat at the table, and we’re very proud of that.
Now I’ve taken up enough of your time, so I’d like to close with just a quick story. This is a beautiful country, President Macron, and I know that you’re proud of it and should be. And yesterday, as I was touring Les Invalides with General Gravett with my three kids, he was kind enough to show me the sword that belonged to America’s dearest international friend from our own revolution, of course, the Marquis de Lafayette. He let me hold the sword, but, of course, he made me put on the white gloves beforehand. And it got me thinking of this country, France, and, of course, of my own country, and of the beautiful civilisation that we have built together with weapons like that sabre. Weapons that are dangerous in the wrong hands, but are incredible tools for liberty and prosperity in the right hands.
I couldn’t help but think of the conference today. If we choose the wrong approach on other things that could be conceived of as dangerous, things like AI, and choose to hold ourselves back, it will alter not only our GDP or the stock market, but the very future of the project that Lafayette and the American founders set off to create. Now this doesn’t mean, of course, that all concerns about safety go out the window, but focus matters, And we must focus now on the opportunity to catch lightning in a bottle, unleash our most brilliant innovators, and use AI to improve the well-being of our nations and their peoples. With great confidence, I can say it is an opportunity that the Trump administration will not squander, and we hope everyone convened here today feels exactly the same.
Thank you, and God bless you all.
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Jack Ma's Bund Finance Summit Speech
This post was originally published on Interconnected.blog on November 9, 2020.
Below is my unofficial translation of Jack Ma’s speech on October 24 at the Bund Finance Summit in Shanghai based on a Chinese transcript, with minor edits for clarity and speechifying. To read some of my deep dive analysis on the speech and its broader implications, please check out: "Jack Ma, P2P Lending, Responsibility, Legacy", "Alibaba and Antitrust with Chinese Characteristics", and "Google, Alibaba, Global Antitrust Standard."
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Thank you for inviting me to this Summit. I am delighted to have this opportunity to learn, discuss, and exchange ideas together with you. In 2013, also in Shanghai, I came to the Lujiazui Finance Summit and shared some “pie in the sky” views about Internet-powered finance. Seven years later, today I'm back in Shanghai as an unofficial non-professional person here at the Bund Finance Summit, hoping to share more ideas for you to ponder.
Actually, I was quite torn about whether to speak here today. But I think there is one thing that is incumbent upon this group of people, and that is the responsibility to think about the future, because although the world has left us many opportunities for development, there are really only one or two critical opportunities. This is a most critical moment.
So I come here to share some of my own thoughts and views, which are the result of our own practical experience in the last 16 years, plus discussions and research I have had with scholars, experts, and practitioners from all over the world, during the period when I was honored to be the co-chair of the UN High-Level Panel on Digital Cooperation and an advocate for the UN Sustainable Development Goals (SDGs).
I’m basically retired at this point, so I thought I'd speak freely at this unofficial forum and share the non-professional views of a non-professional person. Fortunately, I've discovered that many professionals no longer speak about their professions anymore.
I have three points of view for you to consider. They may be immature, incorrect, or laughable. Just give them a listen, if they make no sense, just forget about them.
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.
After World War II, the world needed to restore economic prosperity. The establishment of the Bretton Woods system was an enormous catalyst to the global economy. Later, after the Asian financial crisis occurred, the Basel Accords talked about risk control, which has been gaining more and more attention, to the point that it became an operational standard for risk control. Now the trend is, the world is talking more and more just about risk control, not development. Very few people talk about where the opportunities are for young people, for developing countries.
This, in fact, is the root cause of many of the world's problems today. We also see today that the Basel Accords have put great limitations on Europe’s ability to innovate as a whole, for example, in digital finance.
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.
They are like two completely different diseases, like Alzheimer's disease and polio. Both look similar at first glance but are two totally different illnesses. If a child takes Alzheimer's medication, he or she will not only get the old person’s disease, but a lot of other strange diseases as well.
The Basel Accords is designed to treat the diseases of the elderly with an aging system and over-complexity, and what we have to think about is what can we learn from the elderly? You must remember, older people and younger people care about different issues. Younger people care about whether there are schools, older people care about whether there are hospitals.
So, the way the world is changing this year is fascinating and very fast. Last night in Shanghai, we decided on the pricing of Ant’s IPO. This is the largest listing ever priced in the history of the entire human race, and the pricing happened in a place other than New York City. This was unthinkable five years ago, even three years ago, but miracles happen.
Second, innovation must come at a price, and our generation must take on that responsibility.
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. Oftentimes, managing risk down to zero is the biggest risk.
When the battle of Red Cliff was fought, I believe Cao Cao’s act of connecting all the ships together was the first instance of an aircraft carrier, in China and the world, but after a fire burned it all down, for a thousand years, the Chinese people didn't dare to think about it again. Once they thought about that fire, who still wanted to make a bigger ship, who could still have this kind of system-level thinking?
Seven or eight years ago, also in Shanghai, I mentioned this concept of Internet-powered finance. We have always emphasized that Internet-powered finance must have three core elements: first, it must have rich data; second, it must have risk control technology based on rich big data; and third, it must have a credit-based system built on big data.
Using these three criteria to evaluate, we can see that P2P is not Internet-powered finance at all, but 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. In fact, jian [editor's note: English word is “supervision”, the first character in the word for “regulation” in Chinese] and guan [editor's note: English word is “management”, the second character in the word for “regulation” in Chinese] are two different things. "Supervision" means watching you as you develop and paying attention to your development. “Management” means intervening when there is a problem or when there is a foreseeable problem.
We are very good at “management”, but our “supervision” ability is sorely lacking.
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”. Policy is institution-building to incentivize development. Today, the entire world and especially China needs more "policy experts", not “document experts.”
Policy making is a technocratic job to solve systematically complex problems. And I would like to share with you what we did at Taobao to solve systemically complex problems.
Seventeen years ago, we had no technology, no data, and an inaccurate judgment about what the future would be, so we made a lot of rules about this not being allowed and that not being allowed. But today, we are able to solve these systemic problems with technology. However, our young people today, like regulators, always like to produce all kinds of new policy documents that don’t allow this and don’t allow that. Later, I came up with a solution called "plus one, minus three": if you want to add a rule, you must subtract the previous three rules. This way, our document got shorter and shorter. If you don’t reduce the number of rules, then your rules and regulations will get thicker and thicker, which forces everyone to break a rule, to make a mistake, and we all get confused.
Theories and systems are also different, experts and scholars are also different. We, as a country, often conflate scholars and experts. An expert’s expertise comes from doing, he is very good at doing the work, but not necessarily good at summarizing.
Many scholars, they don’t do the actual work, but can summarize and form theories from the work of others. Only when experts and scholars are combined, only when theory and practice are combined, can we really innovate and solve the problems of today and tomorrow. I believe we need theories derived from practice, not practice based on theories that came from an office.
A lot of P2P is practice based on office theories. I think and firmly believe it's more important to properly learn the big lesson that P2P has taught us, and not deny the entire Internet technology, let alone repeat the practices of office theory.
I think there is another phenomenon. Many regulatory authorities around the world have become zero risk, their own departments have become zero risk, but the entire economy has become risky, the whole society has become risky. The competition of the future is a competition of innovation, not a competition of regulatory skills. Now, each country’s regulation is more ruthless than the next, all the development is a mirage, but by not allowing it, each cut is bloody.
Based on my understanding, what President Xi said about “enhancing governing ability” means to maintain healthy and sustainable development under orderly regulation, not no development due to regulation. It is not difficult to regulate. What’s difficult is to deliver regulation that achieves the purpose of producing sustainable and healthy development.
The third point: the essence of finance is credit management. We must change the pawnshop mentality of today's finance and rely on the development of a credit-based system.
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.
But the reliance on assets and collateral qualifications can be taken to the extremes. I am the chairman of the China Entrepreneur Club and also the president of the Zhejiang General Chamber of Commerce. I talk to many entrepreneurs. China's pawnshop mentality is severe, and it also affects many entrepreneurs, especially entrepreneurs who have collateralized all their assets. The pressure they bear is very high, and when the pressure is high, your action gets deformed.
There are also some people, who unscrupulously take out loans and constantly increase their leverage, taking on more and more debt. As we all know, borrow 100,000, you are afraid of the bank; borrow 10 million, both you and the bank become a bit panicked; borrow 1 billion, the bank is afraid of you. There is another habit, banks like to give loans to good companies, companies that don’t need money. They desperately want to loan these companies money. The result is lots of good businesses become bad businesses. They diversify their investments, even transferring this money out to do things that are completely unsuitable for them. Too much money can get you into a lot of trouble.
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.
Finally, I think the world today is desperately waiting for a new financial system that is truly designed for the future.
Today's financial system is a product of the Industrial Age, a comprehensive financial system designed to address the needs of industrialization and to fulfill the two-eight theory. What is the two-eight theory? It's about investing in the 20% to solve 80% of the problem. And the future of the financial system is about the eight-two theory, helping 80% of small businesses and young people to drive the other 20% of people. We must transition from the old way of people looking for money, businesses looking for money, to money looking for people and money looking for good businesses. The only standard to evaluate this system is whether something is universal, inclusive, green, and sustainable. The cutting-edge technologies backing this standard, like big data, cloud computing, and blockchain are already ready today to take on this huge responsibility.
Ladies and gentlemen, even after World War II, people at that time did not have a far enough vision to design a good financial system for the future and for future generations. We have the responsibility and thinking today to build a financial system that truly belongs to the future, belongs to the young people and the next generation, belongs to this era. Today, it’s not that we cannot do it, but we don't want to do it. Today, our technological development has empowered us to accomplish all of these things, but unfortunately, many people don’t want to do it.
The global financial system must be reformed today, otherwise it is not just a matter of lost opportunities, but of leaving the world potentially in more chaos. It is normal for innovation to be ahead of regulation, but when innovation is too far ahead of regulation, when innovation’s richness and depth is far beyond regulator’s imagination, it is no longer normal, and society and the world will be thrown into chaos.
Take digital currencies for example, if we apply a futuristic vision, it would be at the very core of building a financial system the world needs 30 years from now. It's true that today's finance doesn't need digital currencies, but it will need them tomorrow, it will need them in the future, thousands of developing countries and young people will need them, and we should ask ourselves, what real problems are digital currencies going to need to solve in the future?
The digital currency of ten years from now and the digital currency of today may not be the same thing at all, and we should not look for this digital currency from the past, from a regulatory point of view, from a research institution, but from the market, from demand, from the future. There is a lot at stake in this matter. Our research institutions should not be policy institutions, nor should policy institutions rely only on their own research institutions. Because the digital currency system is a technology problem, but not only a technology problem. It’s also a solution to future problems. Digital currencies may redefine money, although the main function of money is still there, but it will definitely redefine money, just like the iPhone redefined the mobile phone, making phone calls is only one of the functions. Today’s digital currency is far from maturity to compete for standards, it’s still creating value. It's time to think about how to build a new type of financial system through digital currency, to think about the future for the entire world, to think about how global trade will get done, and even more so to think about how the world can have a digital currency built on top of battle-tested technology. It's really about solving the problem of sustainable, green and inclusive world trade.
So I would like to conclude by saying that today’s human society has reached a most critical juncture. Never underestimate this pandemic. This pandemic is a force that is pushing back human progress, no less than World War II.
In terms of finance itself, the United States is continuing to inject cash to the rest of the world, and especially to Wall Street, and other countries are following suit. Have we all thought about the consequences that will happen next? The impact is far greater than all the technical aspects that we discussed today.
We cannot simply oppose many of the world’s international organizations today, but must rethink their value in today’s world together, whether it's the UN, the WTO, or the WHO. There are really a lot of problems with these organizations. I have dealt with, worked with, and collaborated with all of these organizations. Eliminating them is not the solution. We should think about how these organizations can face the future, evolve, and reposition themselves.
A new financial system is the way of the future. Whether we like it or not, it will be formed. Whether we do it or not, someone will do it. In the future, I believe, reform will require sacrifice, there will be a price to pay. Our generation has to do this kind of reform, but it may only be visible to the next generation. We may be the one who must carry this burden forward. This is a historical opportunity and a historical responsibility. Over the past 16 years, Ant Financials has centered around green, sustainable and inclusive development. If green, sustainable and inclusive finance is the wrong thing to do, we will continue to make this mistake, again and again.
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