notes from China

I have had an awesome run as far as tech is concerned in the last couple of months. Last month I was in San Fransico meeting all the tech firms and last week, I had a chance to be in China, meeting the tech firms there. I read somewhere that the startups try and get distribution before the big firms get innovation. It’s an interesting run. A tight fight where everyone is trying to outrun each other.

China is especially fun on the world circuit. It has a closed start up tech eco system as most the world biggies are not allowed to operate there. This is because the government wants data and insights into their citizen’s online behavior and the firms from the valley refuse to toe the line. So home grown startups that blatantly copy the startups from the west have sprung up and are dominating the ecosystem. But to simply paint them all with one brush is the wrong thing. Two of them are innovating and are leading the world in their own fields. One is the chat platform WeChat and the other is the ecommerce platform Alibaba. Both are now moving into fintech and are using data to understand consumers and then using it for lending operations. This is now very interesting and dangerous territory. WeChat through WePay wants to lead in the high frequency payment ecosystem like food, taxis, groceries etc. Alibaba counterpart is AliPay following everywhere and online. Both premises are simple – one pushes through the chat interface and allows for people to use chat for commerce and transactions. The other creates an ecommerce platform and sees where it can extend its wallet services to. The world is watching what the real deal will be. Will payments be won by chat or by ecom. Payments is the main stay of the new economy. Banks for long have dominated income and investments and used that as a data point to give credit. These wallet companies have side stepped this and said that people spend more than they invest. Day to day spending and online behavior may be a better indicator of propensity to repay credit than anything else. All sorts of data can now be used to understand the consumer better. Now big data starts playing a huge role.

Any and every data set will be used and leveraged for creating credit persona and score. This is very exciting. Both chat and ecommerce are sitting on a gold mine of data. Appreciably this data is lethal. A simple case can be that people who buy kiddie stuff or chat with other people with high credit scores are less likely to default than others. Alibaba also is understanding the merchandise sold by the merchants and their ability to sell their wares. This is creating a credit score on which Alibaba can offer credit to their merchants at a better rate and velocity than the banks. With high amount of data and online mode of delivery these new players can potentially disrupt the finance space at low operating costs and create a crazy disruption that traditional banks haven’t seen. And they are ahead of regulation. They innovate and regulation tries catching up with them. Alibaba started shifting money lying idle in the wallet to a money market mutual fund and overnight became one of the biggest mutual funds on the planet. They could now give 6% returns where previously the consumers were getting only .5% at their local bank. Huge monies shifted in till the government limited the amount of money you can keep in a wallet.

One big lesson that I learnt is that never underestimate the power of the old lender. I visited these places with my boss and his boss. Both of whom have built their lives giving loans in the credit business. At first we heard that the bad debts are only at 1%. Which is a phenomenal number. That’s lower than anything else. My only concern was that this belies the fact that the small amounts that these people lend, makes collections impossible. The cost of collection is still far higher than anything else. My boss had another point. He explained to me that in a fast growing credit market like China (this is a two year phenomena) bad debts will always be low. Because you are constantly giving away larger and large amounts of loans so your denominator is increasing like crazy. It takes a little time for the loans to go bad and in that time your fresh loans hit the book and the numerator which is the bad loan number looks bad. This is great till you are constantly growing. The denominator keeps looking bigger and the ratio looks good. But what we don’t see is two things – infant delinquency and bad debts via aging of the book. Infant delinquency is simple – how fast do the loans go bad. If loans go bad after a couple of years of good payments, then you can blame the macroeconomic environment. But if they are getting bad closer to the time you lent them, then you are talking about faulty process in credit appraisal. The other one is an extension of the first, it’s about understanding each month of credit. You have to analyze not the entire book but each month of loan given as they age. You will then get a sense of the looming danger. So at a book level 1% looks good, but most of that is from the start of the book then as time wears on, slowly the old book will also start defaulting and stress starts on the whole book.

This simple math helped me understand the credit business and the ability to look at credit from a different perspective. So while I went into China dazzled by their stupendous success in credit, I came back quite skeptical of the whole system. They have lent billions of dollars in easy credit and they just could be sitting on a bubble. Something amiss is happening in China and this could be just another subprime crisis of the east.

I have been critical of the startups in FinTech. They are started by a bunch of kids who haven’t seen credit cycles and believe that black swans don’t exist. All are looking for innovative ways to lose money faster. Yes data is now abundant and there is serious analytics that can be brought to the table but I always had a serious healthy respect for people who understand credit. I think the firm that I work in has built itself by precisely understanding this – risk. It understood that in finance, return of capital is far greater than return on capital. Credit follows cycles and when you outlive cycles you see growth and prosperity. Sometimes the simplest rule of growth is survival.

On another note, I had the chance to visit the Nanjing Massacre Memorial, while I had a couple of hours free. It was seriously the best designed memorial / museum that I had been to. As a marketer I see every ad and think – what was the brief, what was the desired consumer response, who is the ad meant for and what is the objective / problem to be addressed? When I saw the Memorial, I was in love with the architecture / design of the place. The entire memorial was designed to a specific brief (my reading) - “Bring alive the horrors inflicted on the Chinese race by a brutal aggressor, in a way that we will never forget.”

Bring alive is an important part of the brief. After their defeat the Japanese destroyed a large part of their war records so that it could never be sued against them. Many disputed that these massacres ever occurred and if at all, the Japanese dispute that the death toll was high as three hundred thousand.

The Architect was clear in his design. At first he designed the entire monument in black and grey. Outside the memorial are status designed to evoke a sense of empathy towards the horrors inflicted. They refer to the enemy as the devil which came, tortured the citizens, killed children, did not spare the old and raped the women. The word Devils is used again and again. The place has landscaping done in a desolate grey with stone pebbles used instead of grass for any landscaping. You fell the solemnness of the grey all over at the entrance. You enter the building and you go down – two floors. As you go down the first thing you see alongside the steps are the rows of folders marked with the alphabets. I don’t know for sure, but it felt like this was the catalogue of all the people who died at Nanjing. They had arranged it like a library with a ladder as well in case someone wanted to climb up and seek a particular folder from eth catalogue. Of course no one would cross over and pick up a book, but the recreation was thus. In many ways the first thing the curator wanted was to tell you, that is a work of research and not simple baseless propaganda. Once you understand that you are ready for the next exhibit.

All the while you go underground, light fades away and blackness takes over. The lights are dimed out and there are grey walls, black floors and ceiling. The lights are focused only where you want the audience to see and only enough to see the exhibit and nothing more. You enter into a large hall with the letters 300000 etched on a stone emphasizing that this large number is the victim count. On both sides of the door as you enter are color pictures of people who lived till the opening of the memorial from the Nanjing massacre. Eyewitnesses who lived to tell us of what transpired. Then the walls are filled with sepia photos of people who died and in the middle stone blocks taken from the scene of the massacres as a silent testimony of the truth that they could tell, if only!

Now that it is proved as a scholarly work and a number is etched in your brain, you are ready for the museum, which talks about the incident. Photos from Japan of the cabinet meetings where they discussed the invasion of China and the advance of the Japanese. They had exhibits of the Japanese uniform, extensive photos, articles etc. All beautifully arranged and explained in Chinese and English. They had the exhibits in audio video as well with movies played in loop with victims explaining in graphic detail how they were tortured, dismembered and what they saw. Every tool available is used well. They recreated the destroyed cities on a life scale. After a few halls that you pass through you are now ready for the big bang. I walked in a little more and saw that there was a gallery like structure created where you can lean on and see what was there under your feet. Like a massive open hole in the ground to show you the ground on which the memorial was built. There – numbered on the ground were skeletons exposed as they were stuck to the ground. It hits you that you were above a massive graveyard where the bodies were dumped after being massacred. Some were even dumped alive (as claimed).

Oh dear. That hits you. You are now suitably numb as the museum unfold for the next one to two hours and they keep at it. You exit from one building to be lead into another. You still see grey with some small smatterings of grass grown strategically in patches. Next build is an even larger uncovered dumping site with more exposed skeletons. They haven’t spared the dignity of the dead in order to show case the brutality. I don’t know how important it is to expose this in reality to the people visiting.

You at the end exit into sunlight with a small exhibition on peace and a massive white statue of a lady releasing dove in the open. One small gesture just to show that the objective of the memorial is peace and not to incite wounds. Bull shit. I am no Chinese but even I feel angry at the incidents and at the absolute horror inflicted by the Japanese. I release what the Chinese are meant to feel after they visit the museum. I realize now why at the start of the museum, there are flower and flag sellers. It is a monument to Nationalism. That a weak nation will be at the mercy of the brutality of a stronger nation. Fewer Japanese in number attacked and brought about misery to a larger population, something that was explained at the start of the memorial itself.

The memorial is not peace but for solidarity and for the promotion of a united front against a stronger adversary. I felt no peace after the end. I felt no feeling of the futility of war but a seething anger against a brutal oppressor. It was not a neutral version of history, devoid of emotion but a clear retelling of the Chinese side.

That is the magic of the architect and a curator sticking to a brief. A single minded brief - “Bring alive the horrors inflicted on the Chinese race by a brutal aggressor, in a way that we will never forget.”

I felt completely overwhelmed. Any design, architecture, advertising student must see this for themselves to understand how design can play with your emotions and feelings. This is propaganda at its best. The highest level. Propaganda is best when you don’t know you are being sold to but you are sucked inside by a vortex devoid of rhetoric.

And yes – the memorial doesn’t have an entry fee.