If you were only to read one thing…
FT – Why millennials are driving cashless revolution in China – Yuan Yang 7/16
- “The mobile payments revolution in China has happened with breathtaking speed and scale. In only five years it has transformed daily life in Chinese cities and also laid the foundations for the country’s mammoth financial tech industry, which last year generated revenues of Rmb654bn ($98bn), according to iResearch. Last year, the value of mobile payments in China overtook the worldwide totals of both Visa and Mastercard.”
- “Almost half the world’s digital payments in 2017 were made in China, through apps such as Alipay (owned by Ant Financial, an affiliate of e-commerce juggernaut Alibaba) and WeChat (owned by Tencent), according to PwC research. Alipay and Tencent have now also outstripped PayPal, the US’s biggest online payments operator. They each handled more payments in one month this year than Paypal’s $451bn for the whole of 2017, according to market research firm Analysys.”
- “This transformation has been spearheaded by millennials, who were the early adopters of mobile payments, but it has rapidly spread across generations…A survey by research company Ipsos, commissioned by Tencent, shows that the average person born in the 1990s now carries Rmb172 of cash ($26) compared with Rmb557 by those born in the 1960s.”
- “China’s mobile payments revolution was partly spurred by the inconvenience felt by many of using traditional banks, from having to travel long distances for rural customers to having to queue in branches in the cities. But it was the unique formula offered by China’s tech giants that generated the explosion: by blending social, e-commerce and payment functions into single apps, customers could manage their finances at the same time as managing their social lives.”
- “The revolution was enabled by the dominance of Tencent and Alibaba, along with the latter’s sister fintech company Ant Financial (recently valued at more than $150bn). Together they have created an interlocking network, or ‘ecosystem’, of services that complement each other and can be accessed via a few ‘killer apps’. These have become the natural playground of millennials. Imagine Facebook bolted on to email with a built-in payment platform for splitting bills among friends: that is Tencent’s WeChat. Or Amazon, with its own payment system that lets you send money to friends using only their phone number: that is Ant Financial’s Alipay. The network effect of such platforms is vast; if all your friends are using them, it is difficult to opt out.”
- “’The way Beijing is developing, living without a smartphone will be difficult because of all the places that are starting not to take cash,’ says Chauncey Zhang, a 23-year-old tech company employee. In large cities some stores, markets and food stalls now only accept mobile payments.”
- “Not only is a smartphone necessary for shopping, it has also become indispensable for hailing and paying for taxis. Beijingers joke that it is now more important to carry a phone charger than a physical wallet.”
- “Familiarity with mobile payments has also made customers more comfortable with other new fintech innovations, in areas such as peer-to-peer lending, investing in money market funds, and consumer loans.”
- “On the surface, China looks an unlikely place for this to happen. Saving, rather than borrowing, is what Chinese people typically do to afford big purchases. The country has one of the highest household savings rates in the world. When it comes to investment, property is viewed as the safest asset.”
- “However, many citizens and small businesses are still under-served by traditional banks, and fintech companies have seen the opportunity for mobile platforms to leapfrog the old lenders.”
- “Feidee, a company that makes personal financial management apps, says that 93% of its users are young customers born after the 1980s, and 42% of these were born after the 1990s.”
- “China’s government has become worried by this surge in access to credit. Regulators as well as companies are now cracking down on opportunistic lending and high-interest rate loans. Policymakers are particularly concerned about young people falling prey to bad lenders, and last year launched a push to stop such companies advertising scams on university campuses dressed up as ‘entrepreneur loans’, ‘trainee loans’ and ‘jobseeker loans’.”
- “Investment, too, has been normalized by being bundled up with Alipay and Tencent’s apps: in a couple of taps a user can deposit leftover money from their mobile wallet balance into a fixed-term investment. As a result, Ant Financial’s Yu’E Bao, meaning ‘leftover treasure’, became the world’s biggest money market fund just four years after launch.”
- “The rapid uptake of fintech in China means customers, investors and entrepreneurs are asking whether the same tools can succeed abroad. ‘When I leave China, I feel I’ve gone back 10 years . . . Tencent, why don’t you launch [WeChat Pay] here?’ complained a young French man in a video that went viral in China.”
- “Tencent and Ant Financial have expanded internationally by following the surge of Chinese tourists travelling abroad, and are considering how best to serve local customers. WeChat Pay is starting to expand partnerships with shopping malls in Paris and Japan’s Hokkaido. The company applied for a third-party payments license in Malaysia ‘but when we got it, we found basic infrastructure was lacking,’ says Mr Ma. It took Ant Financial and Tencent years to build the links with hundreds of Chinese banks that makes their services possible.”
- “China’s revolution leaves one great question unresolved. How will data regulators across the globe respond to the rise of fintech companies that could, as they already do in China, track every commercial decision in a person’s life?”
Worthy Insights / Opinion Pieces / Advice
Bloomberg – Four Reasons Taxpayers Should Never Subsidize Stadiums – Barry Ritholtz 7/16
- “Elected officials have been played by team owners and sports leagues.”
Bloomberg – Warnings of Market Complacency Are Growing Louder – Liz McCormick and Lu Wang 7/16
Economist – American democracy built-in bias towards rural Republicans – Leaders 7/12
Economist – Mini-grids may be the best way to illuminate the “bottom billion” – Leaders 7/12
NYT – I Was a White House Stenographer. Trump Wasn’t a Fan. – Beck Dorey-Stein 7/17
WSJ – How an Economic Boom Can Run Out the Clock – James Glynn 7/15
- “Australia’s 27-year stretch of growth offers lessons for U.S. policy makers.”
WSJ – Why Tapping the U.S. Oil Reserve Is an Awful Idea – Spencer Jakab 7/16
- “Using the reserve to curb summer pump prices at a time the economy is booming and midterm elections loom would be a strategic blunder, leaving the country exposed in the event of an actual oil shortage.”
Markets / Economy
- “Put into practice, tariffs are a complex economic weapon that can ricochet through an economy in ways even proponents don’t expect. That’s what happened with washing machines, which were among the first consumer products targeted by the Trump administration.”
- “In the months since washing machine tariffs took effect in February, LG and Samsung have pressed on with investments in the U.S., given that they now face the higher cost of shipping goods in from abroad. The overseas companies and Whirlpool have also increased hiring in the U.S. But appliance prices have risen for consumers, and there are signs of waning demand.”
- “Last year, Whirlpool sought protection from South Korean competition under a provision known as the safeguard law, which required the company to establish it suffered serious injury from surging imports. The law, or section 201 of the 1974 trade act, was previously invoked in 2002 when then-President George W. Bush moved to protect steelmakers.”
- “The resulting tariffs apply a 20% duty on the first 1.2 million washing machines brought into the country each year, and a 50% duty on quantities above that threshold. The barriers are expected to remain in place for at least three years.”
- “The U.S. imported 4.2 million large residential washers in 2017, for a monthly average of 350,000, according to Christopher Rogers, an analyst at Panjiva, a firm that tracks global trade data. This year, imports have fallen to an average of 161,000 each month through April.”
- “Washer and dryer prices climbed 20% in the three months through June, the steepest rise in at least 12 years, according to Labor Department estimates.”
- “Washer shipments, a proxy for sales, to U.S. dealers dropped 18% in May compared with the previous year, the steepest monthly decline since March 2012, according to data compiled by the Association of Home Appliance Manufacturers, a trade group. Analysts said shipments likely dropped because dealers had stocked up on washers before prices rose. LG blamed post-tariff price increases, too, a spokesman for the manufacturer said.”
WSJ – GE Still Wrestles With a Big Problem – Thomas Gryta 7/17
- “Lending unit GE Capital nearly toppled whole company as the source of ‘nasty surprises’.”
Energy
WSJ – Daily Shot: Princeton Energy Advisors – US Shale Oil Production 7/17
Finance
FT – PE firms raise money at fastest pace since 2006 – Javier Espinoza 7/16
- “Private equity groups are raising money at the fastest rate in more than a decade. Buyout executives are rushing to tap investor demand just as fears grow of a market correction.”
- “The average time PE funds, including those investing in infrastructure and real estate, are taking to raise money has fallen to 12 months — from almost two years in 2010 — the quickest pace since at least 2006, according to an analysis by Pitchbook, a data provider.”
- “But the figures also show there are fewer funds raising cash from investors in the US — from 328 in 2014 to 271 last year and 111 by the end of June this year.”
- “Last year was still marginally up from a decade ago, but large institutional investors have been concentrating their allocations to larger and more established managers, which is partly driving the decline in funds looking to raise money.”
- “PE funds have been one of the winners of the era of low interest rates, as investors such as pension funds chase higher returns.”
- “However, with the PE industry already having an estimated $3tn in cash to invest, there is concern that buyout funds may end up overpaying for assets and eroding the potential returns for their investors.”
Canada
Bloomberg – Vancouver’s One-Two Punch Is Expensive Homes and Low Wages – Natalie Obiko Pearson 7/13
- “Want to pay San Francisco housing prices on a Columbus, Ohio income? Move to Vancouver.”
South America
Economist – Venezuelan cash is almost worthless, but also scarce 7/12
- “The worthlessness of Venezuela’s currency is the result of inflation, 46,000% a year, which in turn is largely caused by the printing of money to finance the government’s deficit of 30% of GDP. But there is also a shortage of banknotes. In the looking-glass world of Venezuela’s economy, cash itself trades at a premium to its face value, making it slightly less worthless than bolívares in other forms.”
Economist – Daniel Ortega is causing a bloodbath in Nicaragua 7/12
Other Interesting Links
WSJ – Daily Shot: Cresset Wealth Advisors – Money and Baseball 7/17
