Economic mission to China : 22-28 April 2018

  1. Day 1: Seminar ‘Fintech in China – Outlook 2018’ @ Regal Hotel in Shanghai 
  2. Day 2: Visit to Alibaba in Hangzhou 
  3. Day 3: China Belgium Fintech Matchmaking Seminar @ Ritz-Carlton Hotel in Shenzhen 
  4. Visit to WeBank in Shenzhen 
  5. Day 4: Visit to Baidu Finance in Beijing  
  6. China-Belgium Fintech Forum @ Internet Finance Center in Beijing 
  7. Visit of InsurTech Incubator JadeValue in Beijing 
  8. Day 5: Global Mobile Internet Conference @ China National Convention Center in Beijing 
  9. Goodbye Dinner with Fintech experts @ Residence of the Ambassador in Beijing 

Macroeconomic environment

  • ‘Single and global' market (1 main language - 1 single regulatory framework) of 1.4 billion people, including 700 m people with 'significant purchasing power/city dwellers' and 700 m people with 'low purchasing power/rurals'.
  • The concept of "inclusive finance": lifting part of the 700 m of people living in rural areas out of poverty by giving them access to credit. There is a strong centralized political will to achieve this objective (returned in each of the presentations). WeBank, China's first "online only" bank and the first private commercial bank, was launched in January 2015 by the Tencent conglomerate encouraged by the government: thanks to AI applied to data collected on tens of millions of people, WeBank grants credit to individuals on the simple analysis of their online behaviour.
  • Long term policy in all matters within the five-year plan
  • Planned economy in all subjects and probably even "assisted" vis-à-vis start-ups (with the objective to rise very quickly to 3,000 people within a few years, which several meetings have confirmed – something unthinkable in Europe)
  • Rather flexible regulator in terms of open data
  • Large budget allocated by the authorities to innovation
  • Quality of infrastructures very well maintained
  • FAANG vs. BAT (Baidu - Google Alphabet type, Alibaba - Amazon type, Tencent We Chat - What'sApp) and now the J of JingDong ("JD"), Alibaba's serious competitor giving stronger guarantees on delivery.

Generates transactions from its merchant ecosystems
  • B2B : (sales of $3,000 billion after 16 years while Walmart took 54 years).
  • B2C :
  • C2C :

Alibaba financial services offer through 2 channels:
  1. Ali Finance
    • Internet loan service
    • Internet insurance service
  2. Ant Financial (My Bank)
    • o AliPay : payment system
    • o Yu'e Bao : refinancing of loans granted
    • o Sesame credit: loan issuer

Collection of all transaction details stored on Aliyun (Alibaba cloud).
Big data is really very central by capturing a maximum of information, without any respect for data privacy, in a country where intelligence is an instrument of power.
This offer is far from unique, all the major players offering a range of financial tools.
Alibaba motto: "Customers first, employees second and shareholders third".

Market size

'Scale does matter' : Example of financial actors and volumes :
  • ICBC (China only): $40 billion net profit
  • BNP Paribas (worldwide): $6 billion net profit

The same applies to balance sheet items. All European banks have a very fragmented market share of only max 1%. Same in the insurance world.

Mobile-centric market

  • China: 73% of phones are smartphones (up from 8% in 2010)
  • Worldwide: 66% of phones are smartphones (up from 6% in 2010)
Given the size of the territory and the desire to connect people as quickly as possible, Mobile is at the heart of technological progress.

In the Western platforms, the growth of 100% mobile is slowed down by older solutions (terminal based) and omnipotent players (e.g. Banksys / Worldline). China has gone from paper to mobile without 40 years of digital solutions.

The Chinese have a very strong capacity of invention on the hardware level (Huawei, Foxconn, ZTE, ...) in Shenzhen. Most mobile infrastructures (3-4-5G) in Europe come from these major brands. (Goodbye Alcatel, Ericsson, Nokia, Marconi, Siemens, etc. and Europe's mobile leadership). These major infrastructure brands have launched themselves into B2C with smartphones almost as powerful as Apple or Samsung but at unbeatable prices...

The Chinese invent little in terms of software, deploying massively non-Chinese technologies (mainly US) that they improve by integrating them into much larger platforms (e.g. marketplaces >> merchant sites >> payments >> investments >> loans) what the size and homogeneity of the single market (language / regulatory) allow.

The 2 major standards in mobile payments are AliPay and TenPay / WeChat Pay (Tencent), based on QRC technology.

The mobile payment market has cost Chinese credit/debit card banks $30 billion in lost commissions, demonstrating the power of disintermediation.

Customer links

Ultra-simplification of front-end applications to facilitate and accelerate the subscription and use of services. Example: Alipay's '310' principle for subscription by the general public:
  • 3 minutes registration
  • 1 second approval (by AI)
  • 0 manual labor

QR Codes are omni-present in all applications, for a very fast input of information.

  • Bicycle connection: Flash QRC by the customer >> instant padlock code received on smartphone and off you go, everything else being perfectly known (location of the bike, customer id and pricing conditions, previous customers,...)
  • Bicycle return: activate the padlock (which generates a random code by the server for the next rental), that's all (you don't have to pass a card back to a station >> saving time consumers but especially useless to install a recording station)

Much simpler than our apps like Villo, Velib, .... >> we need to rethink our customer applications to make them even faster for our customers and thus promote service subscription ('just one QRC away').

The political and social system

Although it has evolved strongly towards greater freedom, the regime does not correspond exactly to our notion of democracy. For example, privacy is much less respected than here.

The cities are full of cameras that scan all passers-by. In Beijing (30 m inhabitants - surface = half of Belgium), a person can be found in less than one hour, due to visual traceability...

Facial recognition can also be a valuable service: a child who was stolen at the age of 5 was found 30 years later thanks to a picture. Baidu's systems use the parents' pictures to identify with a high degree of accuracy who their child is in a class picture.

It is possible to surf the Internet and watch certain international news programmes on television (CNN,...) but these can be interrupted at any time if the content is deemed subversive.

Birth policy has been relaxed and today couples can have more than one child.... But a large proportion of families still have only one child: the parents themselves being an only child, they do not feel the need to have a large family. Moreover, it costs money to have several children: only the upper classes can afford it...

At the entrances to large cities, clusters of identical residential towers can be seen: the government can cause population movements from the hinterland to growing regions. In some cases, couples may even receive free housing.

The Chinese accept this strong power because :
  1. They trust their leaders;
  2. It works: in a few decades, hundreds of millions of people have left poverty;
  3. There is probably no other way to manage such a large population.

Ecosystem and platform concept

All major players ("BATs") embrace their customers in an "end-to-end" financial ecosystem according to the platform concept: once registered, a person can use various applications without having to re-register.
>> Marketplace + retail on web + payment + financial services (loans as well as investment / wealth management).

The fact that the major players of the BAT(J) are from the Internet era gives them a mass of data (KYC, transactions, type of products,…) and allows them to qualify customers by means of AI (Artificial Intelligence) with impressive risk rating qualities. The government seems to stimulate very strongly "inclusive" micro-credits and, for a certain number of credits, the actors seem to be less concerned about the risk...

Given the specificities of the Chinese market (size, 1 language, 1 single regulatory framework, freedom to use data outside any framework), this integrated approach is quite obvious (much less in our highly regulated European context).

For example, Baidu offers a portfolio of 19 applications, each of which has more than 100 m users with a total customer base of 800 m users.

The pillars of these apps are:
  • behavioural recognition/consumption profile
  • individual recognition (vocal and facial)
  • geolocation
  • NLP techniques (Neuro-Linguistic Programming)

which make it possible to define a consumption profile with up to 89% acuracy.

Baidu has developed a robot (similar to AlphaGo from the Google Deepmind Labs) which has been able to beat the go game champion 3 times: he then played a million games against himself.... which allowed him to be even stronger at this game the next day.


Comes back permanently in all presentations.
The Blockchain for Dummies can be explained as an 'Excel file shared via Dropbox'.

More explicitly, the blockchain is summarized as a platform allowing exchanges in all confidence, each aggregating "tokens" that can have very diversified origins (ex. the note of sending of a carrier with a contract for the sale of a real estate property), guaranteeing the identity of the party and the integrity of the contents of the transaction (either a smart contract, a crypto currency or a value of exchange with its rules related to the status of the transaction in question).

Blockchain technology is based on principles of:
  • “liquid democracy", a self-regulated model of collective decision-making without going through a central regulator;
  • the "futarchy" which does not replace democracy but adds the following principle: when a prediction market clearly believes that the proposed decision will improve national wealth, the proposal becomes law. The market therefore defines the means, the end being determined by traditional democratic systems.

Blockchain, based on a distributed model, is constantly evoked as being a game-changer (not yet demonstrated) of the limits of the regulated and centralized systems of the democracies that have existed for one century, notably in the Western world (Europe and US).

It is surprising that a hyper-regulated and centralised country promotes (certainly with the blessing of the authorities) a technology with an ‘anarchist connotation'.

A few examples of Blockchain
  • Hollywood movie studio in terms of :
    • production of a film through all phases of the producer's project, which is built up over time and includes all information relating to the production (costs of actors, studio, etc...)
    • distribution by sharing the IP directly with the exhibitors and bypassing the distributor to improve the producer's margin
  • Neo - OnChain (Dr Da Hongfei) are 2 companies that promote the use of a blockchain platform with stakeholders (companies, governments). OnChain offers consulting services for large companies seeking to appropriate this technology in order to offer more efficient and disruptive services.... of course implemented on their blockchain platform.

How should the exchanges take place:
  • Token economics: economy based on the creation of a reliable 'token' (with crypto-technology underlying the blockchain, or in contactless payments from MasterCard/Visa/Apple) representing smart contracts.
  • ICO (Initial Coin Offering): may be financed by ICO, which would give the virtues of "crowdfunding" in the sense of the validation of an offer by a large number of people (in principle...)
  • Promoting decentralized exchanges
  • Incentivized on chain governance: concepts of liquid democracy and futarchy as mentioned above.

The blockchain is always limited to 2 poles:
  • smart contracts >> production part in the above example
  • digital assets (IP) >> rights distribution part in the example above

We must already think of the interoperability of block-chained networks, for example
  • Digital asset management
  • Settlement of commercial relations
  • Blockchain for the identification of the actors

For information, Neo's platform offers Blockchain technology allowing transactions to be validated much faster. Moreover, it is interoperable with other Blockchain platforms.

Possibly, three different blockchain technologies / platforms will interconnect as the blockchain movement develops.

The current problem of miners' performance is being resolved as blockchain transactions are developed (from 1,000 transactions per second today to 100,000 TPS by 2020) by third party HPB (High Performance Blockchain) services that will invest heavily. For instance, Trinity offers a specific combination of hardware platform dedicated to the running of blockchain applications and software optimization.

For technology stakeholders, the algorithm used by Neo to achieve consensus on a faster decentralized network is called “dBFT”( for delegated Byzantine Fault Tolerance). As a reminder, the two most popular algorithms at the moment are :
  • POW for “Proof of Work” which is used by Bitcoin ;
  • POS for “Proof of Stake”, or proof of possession, which will soon be implemented on Ethereum (even if some call it PoW as well...)

For more information:

Many blockchain platforms (such as Neo) are developed to be in the race for further consolidation and hope to impose themselves commercially and technically. So it seems to be difficult to select the blockchain platform on which to plug.

These platforms address the following features of:
  • the digital economy to secure the identification transactions of contracting persons, IoTs, assets and crypto currencies
  • the programmable economy: smart contracts that are transparent between the parties and objectived
  • the economy of confidence, disintermediated

Crypto currencies

They have recently been banned in China because they are distributed and unregulated currencies, not compatible with a centralizing and regulating power. Nevertheless, there are initiatives of crypto currencies as a tool of loyalty programs remunerations.

Native digital currency that rewards community members (i.e for material contributions to community growth and management, content creation and peer support. Members will also monetize their attention and personal data directly through incentivized engagement with 3rd party advertisers/ brands/commerce. (a dedicated marketplace). Digital currency earnings will be used to purchase digital and physical goods, services and premium content offered by peers, platform and 3rd parties within the community marketplace. Currency supply is limited, value will appreciate with growth in network, quantity of use-cases and individual markets within community. 

The individual reward and redemption marketplaces that are being built in the community include advertising, personal data and content, p2p trade, freelance services, virtual goods and collectibles, charity, 3rd party goods, services and content. Community will help members earn online, spend more time at home and peg their new wealth to the growth of the community economy - through direct economic stake holding via tokens

Once a native currency achieves wide adoption by the advertisers/vendors within the platform, it will become an effective universal engagement platform - at that point it is expected the currency to be used by 3rd parties to incentivize community members on their own channels and platforms outside the community.

Doing business in China

When negotiating a contract with Chinese, one licenses one's IP for a few years (5 to 10 years for example) and then usually abandons it (e.g. Airbus A320 and Comac C919):  this is the price to pay to access this huge market.

IP protection is very expensive: due diligence, competition analysis, market conditions.
There different levels of protection: Copyright - Patent - Trademark
The highest reactivity is required : Speed, speed, speed

The success criteria of Chinese business:
  • The traction market
  • Strong ownership of the shareholder
  • Financial resources
  • HR resources to develop the project

This is the basis to make a plan that will be in permanent readjustment mode.

Unlike the Dutch, Swiss or Luxembourgers, few Belgians dare to venture into China :
  • the manager is satisfied with his level of comfort in Europe
  • the shareholder does not see the upside of a market which he does not control or which he fears not to succeed in penetrating and sees only the risks of it

Continuation of the Fintech experiment recommended by Marc Vinck, the Belgian ambassador in Beijing: the 5 " c " :
  • Continuity >> rapid commitment
  • Be very concrete
  • Positive communication that does not squeak the Chinese sensibility
  • Creativity >> an innovative way to develop the business
  • Build credible cases

High availability of the Embassy's services: possibility of having the residence for a meeting!

Importance of the field work of Belgian diplomacy and regional agencies that give access to a high level in Chinese companies. Ex : Visit to Alibaba as made possible by a contact in Davos between King Philippe and Jack Ma, the founder of Alibaba.