WEBVTT - China's Fast-Track to Financial Domination

0:00:00.160 --> 0:00:04.160
<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Bloomberg

0:00:04.240 --> 0:00:08.760
<v Speaker 1>Quick Takes Tim Stinovic on Bloomberg Radio. Consumers overall use

0:00:08.920 --> 0:00:11.840
<v Speaker 1>of cash, certainly the US has declined steadily in recent

0:00:11.920 --> 0:00:14.360
<v Speaker 1>years of digital options like Venmo and Apple Pay compete

0:00:14.400 --> 0:00:17.599
<v Speaker 1>with credit cards and now offer contact less payment. Look

0:00:17.640 --> 0:00:19.520
<v Speaker 1>around the globe to a place like China, and that

0:00:19.640 --> 0:00:21.919
<v Speaker 1>is especially the case and has been for a long time. Yeah,

0:00:22.000 --> 0:00:24.320
<v Speaker 1>very pleased to have with us this afternoon. Martin Towards Zampa,

0:00:24.400 --> 0:00:27.400
<v Speaker 1>Senior Fellow at the Peterson Institute for International Economics, also

0:00:27.440 --> 0:00:29.480
<v Speaker 1>the author of the new book The cash Less Revolution,

0:00:29.800 --> 0:00:32.800
<v Speaker 1>China's reinvention of Money in the end of America's domination

0:00:32.840 --> 0:00:35.800
<v Speaker 1>of finance and technology. I want to start with a

0:00:35.840 --> 0:00:38.000
<v Speaker 1>little anecdote from a trip that I had to China

0:00:38.040 --> 0:00:42.000
<v Speaker 1>back in Carol and Martin. I remember I was there

0:00:42.000 --> 0:00:45.519
<v Speaker 1>with classmates from graduate school, and there were some classmates

0:00:45.520 --> 0:00:48.159
<v Speaker 1>who had trouble buying something because they didn't actually have

0:00:48.320 --> 0:00:50.840
<v Speaker 1>the whechat app and the store that they were going

0:00:50.880 --> 0:00:53.680
<v Speaker 1>to in the mall didn't accept credit cards and didn't

0:00:53.680 --> 0:00:57.520
<v Speaker 1>accept cash. Martin, and I'm talking here this is five

0:00:57.600 --> 0:00:59.840
<v Speaker 1>years ago. They were already cash less in this and

0:01:00.000 --> 0:01:05.240
<v Speaker 1>fire mall in Shanghai. Yeah, the this, this has really

0:01:05.319 --> 0:01:09.240
<v Speaker 1>occurred in an incredibly fast way in China. I moved

0:01:09.280 --> 0:01:13.360
<v Speaker 1>to China to live in Beijing and research its financial system,

0:01:13.400 --> 0:01:16.200
<v Speaker 1>and everything back then was quite backwards. You had to

0:01:16.200 --> 0:01:19.040
<v Speaker 1>go through this state owned banks, there were limited investment options,

0:01:19.160 --> 0:01:22.360
<v Speaker 1>very limited capability to get loans. And then once the

0:01:22.360 --> 0:01:26.240
<v Speaker 1>big tech companies were invited into disrupt payments, this whole

0:01:26.360 --> 0:01:29.839
<v Speaker 1>edifice of financial repression and backwardness went away and almost

0:01:29.840 --> 0:01:31.960
<v Speaker 1>a blink of an eye, and I was really there

0:01:32.000 --> 0:01:34.840
<v Speaker 1>on the ground watching how it transformed daily life in

0:01:34.920 --> 0:01:38.280
<v Speaker 1>China as cash pretty much disappeared and foreigners used to

0:01:38.319 --> 0:01:40.760
<v Speaker 1>cards were essentially second class citizens if you didn't have

0:01:40.959 --> 0:01:45.640
<v Speaker 1>these apps. But also elderly people, the poor can be

0:01:45.720 --> 0:01:49.040
<v Speaker 1>left behind when you when cash just disappears so quickly

0:01:49.120 --> 0:01:51.880
<v Speaker 1>and you move into this convenience, you forget that there

0:01:51.920 --> 0:01:54.640
<v Speaker 1>are drawbacks too. Why was it was China so right

0:01:54.800 --> 0:01:58.559
<v Speaker 1>for them to become a cash of society. Well, the

0:01:58.600 --> 0:02:03.000
<v Speaker 1>financial repression that exists did up until around meant that

0:02:03.040 --> 0:02:06.040
<v Speaker 1>everything was so backward that digital payments were a massive

0:02:06.040 --> 0:02:08.160
<v Speaker 1>improvement on it. And if you compare that to the

0:02:08.200 --> 0:02:11.480
<v Speaker 1>United States. Generally credit cards work for the vast majority

0:02:11.520 --> 0:02:15.240
<v Speaker 1>of people, and that's already really a digital payments method already,

0:02:15.520 --> 0:02:17.680
<v Speaker 1>So it was just right for a revolution. The only

0:02:17.720 --> 0:02:20.440
<v Speaker 1>thing that was missing was a political opening that would

0:02:20.480 --> 0:02:24.040
<v Speaker 1>allow brave entrepreneurs to take a real risk and to

0:02:24.160 --> 0:02:28.200
<v Speaker 1>disrupt the system. And that's what occurred around the Party

0:02:28.240 --> 0:02:32.200
<v Speaker 1>recognized that ordering the banks to modernize was not going

0:02:32.240 --> 0:02:34.560
<v Speaker 1>to get them what they needed. Instead, they needed to

0:02:34.600 --> 0:02:37.519
<v Speaker 1>bring in big tech companies that could use technology in

0:02:37.560 --> 0:02:40.959
<v Speaker 1>a new way to update their financial system and hopefully

0:02:40.960 --> 0:02:43.400
<v Speaker 1>provide an engine for growth for them going into the future.

0:02:43.960 --> 0:02:46.360
<v Speaker 1>So I'm wondering how the US looks to this, And

0:02:46.360 --> 0:02:49.160
<v Speaker 1>again I go back years ago Martin and the idea

0:02:49.280 --> 0:02:52.240
<v Speaker 1>of UM when when Facebook Messenger was spun off of

0:02:52.400 --> 0:02:56.120
<v Speaker 1>Facebook's main app, the guy who ran at David Marcus,

0:02:56.639 --> 0:02:59.119
<v Speaker 1>was coming from PayPal and he said, what I want

0:02:59.120 --> 0:03:02.120
<v Speaker 1>to create here is the you know US version of

0:03:02.200 --> 0:03:05.440
<v Speaker 1>we chat. U is the US close at all to

0:03:05.560 --> 0:03:08.240
<v Speaker 1>what China is doing when it comes to revolutionizing payments

0:03:08.240 --> 0:03:11.120
<v Speaker 1>because that didn't turn out for Messenger and markets by

0:03:11.160 --> 0:03:14.960
<v Speaker 1>the way, is no longer at Facebook or metal platforms. Yeah,

0:03:15.000 --> 0:03:18.360
<v Speaker 1>so so what's really interesting in this in this book

0:03:18.520 --> 0:03:23.440
<v Speaker 1>is that you can see the flow of ideas reversing. Initially,

0:03:23.480 --> 0:03:28.440
<v Speaker 1>these companies in China are copying PayPal, they're copying eBay

0:03:28.480 --> 0:03:31.320
<v Speaker 1>and other players in the US market. And then what

0:03:31.440 --> 0:03:35.680
<v Speaker 1>happens around fourteen is that there's real frontier innovation going

0:03:35.720 --> 0:03:38.440
<v Speaker 1>on in China that is not happening here. You would

0:03:38.520 --> 0:03:41.720
<v Speaker 1>need dozens of apps in the United States to approximate

0:03:41.720 --> 0:03:44.360
<v Speaker 1>what you can do with one of the super apps

0:03:44.360 --> 0:03:49.160
<v Speaker 1>in China. Think borrowing money, booking travel, paying for something,

0:03:49.440 --> 0:03:53.280
<v Speaker 1>buying things online, getting a taxi. Just about anything you

0:03:53.280 --> 0:03:55.760
<v Speaker 1>could want to do in your daily life you can

0:03:55.800 --> 0:03:59.440
<v Speaker 1>do on these apps. And really Silicon Valley has not

0:03:59.560 --> 0:04:02.600
<v Speaker 1>discovered were the killer app that's allowed them to create

0:04:02.640 --> 0:04:05.760
<v Speaker 1>this kind of fundamental innovation. And we essentially pay the

0:04:05.840 --> 0:04:08.120
<v Speaker 1>same way that we always have, and even if we

0:04:08.160 --> 0:04:10.800
<v Speaker 1>pay with phones, a lot of the underlying infrastructure behind

0:04:10.880 --> 0:04:13.320
<v Speaker 1>that is the same card infrastructure that we've been using

0:04:13.680 --> 0:04:16.640
<v Speaker 1>for a long time. All right, so what does this mean?

0:04:17.040 --> 0:04:18.880
<v Speaker 1>You know, it's interesting how we talked so much about

0:04:18.880 --> 0:04:20.920
<v Speaker 1>the US dollar, the dominance, the strength of it, what

0:04:21.040 --> 0:04:23.200
<v Speaker 1>it's been, you know, the impact on the global world

0:04:23.600 --> 0:04:25.960
<v Speaker 1>in this current macro environment, how does something like the

0:04:26.000 --> 0:04:30.480
<v Speaker 1>cashless revolution maybe diminish the respect that the US dollar

0:04:30.560 --> 0:04:35.360
<v Speaker 1>has garnered for for so long. What's really interesting is

0:04:35.400 --> 0:04:40.280
<v Speaker 1>that despite the incredible strength and revolutionary capability that china

0:04:40.400 --> 0:04:44.599
<v Speaker 1>sintech firms have had in China, they've had relatively limited

0:04:44.640 --> 0:04:48.920
<v Speaker 1>sex sex abroad at disrupting the current dominance of US

0:04:48.960 --> 0:04:52.120
<v Speaker 1>financial firms. So just about anywhere in the world. I

0:04:52.240 --> 0:04:56.600
<v Speaker 1>was in a pharmacy earlier today and in Washington, d C.

0:04:56.880 --> 0:05:00.280
<v Speaker 1>And they accept Ali pay um even though a few

0:05:00.360 --> 0:05:04.120
<v Speaker 1>Chinese people are visiting these days, but very few foreigners

0:05:04.160 --> 0:05:07.560
<v Speaker 1>actually use Ali pay That includes Americans, that includes braziliance.

0:05:07.640 --> 0:05:11.200
<v Speaker 1>Everywhere that this has been tried, it hasn't really succeeded yet.

0:05:11.960 --> 0:05:14.360
<v Speaker 1>And that means that the US still retains a lot

0:05:14.400 --> 0:05:18.120
<v Speaker 1>of dominance because the pipes that carry the dollars advantages

0:05:18.520 --> 0:05:22.560
<v Speaker 1>tend to be bigger bank based systems that China's has

0:05:22.560 --> 0:05:27.120
<v Speaker 1>a difficult time disrupting um. And and at the same time,

0:05:27.960 --> 0:05:30.720
<v Speaker 1>my message for the US is that you really can't

0:05:30.760 --> 0:05:33.960
<v Speaker 1>be complacent. We have to keep making sure that you

0:05:34.040 --> 0:05:37.520
<v Speaker 1>know cross border payments, especially where the dollar dominates become

0:05:37.520 --> 0:05:40.719
<v Speaker 1>a lot more convenient, easier, because right now there are

0:05:40.720 --> 0:05:43.080
<v Speaker 1>a lot of problems in that space and improvement it's

0:05:43.120 --> 0:05:46.280
<v Speaker 1>not really going very quickly, and that opens an opportunity

0:05:46.440 --> 0:05:50.120
<v Speaker 1>for China to disrupt us in the way that fintech

0:05:50.160 --> 0:05:54.200
<v Speaker 1>companies have disrupted the state banks in China could actually

0:05:54.279 --> 0:05:58.520
<v Speaker 1>happen given the reticence around a company like bite Dance,

0:05:58.560 --> 0:06:00.520
<v Speaker 1>the parent company of TikTok, and even the way that

0:06:00.560 --> 0:06:03.640
<v Speaker 1>it's just garnered. So many lawmakers attention over concerns about

0:06:03.680 --> 0:06:06.760
<v Speaker 1>Chinese control, like would would lawmakers ever allow that to

0:06:06.800 --> 0:06:08.920
<v Speaker 1>happen when it comes to the financial sector here in

0:06:08.960 --> 0:06:13.160
<v Speaker 1>the US. I don't think they would, and that's why

0:06:13.400 --> 0:06:16.320
<v Speaker 1>the disruption is unlikely to come in for a battle

0:06:16.360 --> 0:06:18.920
<v Speaker 1>for your wallet in the United States because the US

0:06:18.920 --> 0:06:21.680
<v Speaker 1>would ban it. But the ideas of the Chinese syntech

0:06:21.839 --> 0:06:24.600
<v Speaker 1>revolution are spreading around the world, and a lot of

0:06:24.640 --> 0:06:28.560
<v Speaker 1>countries that are not the US are open to more

0:06:28.640 --> 0:06:31.400
<v Speaker 1>ways of paying and really don't like necessarily the way

0:06:31.400 --> 0:06:34.359
<v Speaker 1>that the US has a stranglehold on the global financial

0:06:34.400 --> 0:06:37.440
<v Speaker 1>system through the dollar. They might like an alternative, even

0:06:37.440 --> 0:06:40.960
<v Speaker 1>if it has some more controls on it. Because China

0:06:41.040 --> 0:06:43.160
<v Speaker 1>doesn't allow the RIM and B to be freely usable,

0:06:43.440 --> 0:06:45.880
<v Speaker 1>even if there's some sort of programmability. You know, if

0:06:45.960 --> 0:06:49.440
<v Speaker 1>China launches a central bank digital currency, and you know

0:06:49.520 --> 0:06:52.760
<v Speaker 1>this is a tall order, but if it interacts better

0:06:53.080 --> 0:06:55.640
<v Speaker 1>with new digital currencies that other countries and around the

0:06:55.680 --> 0:06:58.719
<v Speaker 1>world launch, then the US could potentially be in a

0:06:58.800 --> 0:07:02.760
<v Speaker 1>situation where where you know, we're analog in a sense,

0:07:03.000 --> 0:07:04.720
<v Speaker 1>and the rest of the world is operating on some

0:07:04.800 --> 0:07:07.640
<v Speaker 1>new kind of system, and that research allows trying to

0:07:07.640 --> 0:07:10.560
<v Speaker 1>to come in and shape standards in that space in

0:07:10.560 --> 0:07:12.320
<v Speaker 1>a way that we might not be ready for well.

0:07:12.320 --> 0:07:13.720
<v Speaker 1>And it is interesting when you look at like the

0:07:13.760 --> 0:07:17.600
<v Speaker 1>emerging markets overall, um, you know how they have been

0:07:17.600 --> 0:07:22.720
<v Speaker 1>adopting in many ways financial innovation UM much more quickly

0:07:23.000 --> 0:07:26.160
<v Speaker 1>and more readily because they don't have the financial infrastructure

0:07:26.240 --> 0:07:30.320
<v Speaker 1>that the developed world has. UM. So some really interesting

0:07:30.320 --> 0:07:33.960
<v Speaker 1>food for thought, UM, Martin, thank you really appreciated Martin Trezempa.

0:07:34.040 --> 0:07:37.080
<v Speaker 1>He's senior fellow at the Peterson Institute for International Economics.

0:07:37.160 --> 0:07:40.280
<v Speaker 1>His book The Cashless Revolution, China's reinvention of Money and

0:07:40.360 --> 0:07:43.600
<v Speaker 1>the End of America's domination of finance and technology