Introduction: This article interprets the confrontation and game between “new money” and “old money”.
Poker Guide
After the release of the third quarter data, Morgan Stanley released a report raising its forecast for China’s economic growth in 2016 from 6.4% to 6.7%. Stephen Roach, a senior researcher at Yale University, said that if China’s economy grows by 6.7% this year, its contribution to world economic growth will reach 39%.
In April 2015, the Asian Infrastructure Investment Bank (AIIB) initiated by China identified 57 intended founding members, including Western countries such as the UK, France, Italy, and Germany, as well as emerging economies such as South Korea, Russia, Pakistan, and Australia, covering almost all major economies except for the US, Canada, and Japan.
The world order is changing, and cultural symbols are also changing. The magnificent opening ceremony of the 2008 Beijing Olympics left a great exclamation mark on the world.
In 2015, the number of domestic and outbound tourists in China, as well as domestic and overseas tourism consumption, ranked first in the world. The per capita consumption of outbound tourists was as high as 11625 yuan.
The slowdown in the growth of China’s luxury goods market has become the biggest concern for luxury goods giants. If China sneezes, the global market will catch the flu, but this statement obviously applies not only to the luxury goods industry.
Looking back at the new century, the full 15 years have passed, and the experiences of many people, big or small, have all passed by. If there are any few things that have touched the nerves of billions of people both domestically and internationally, it is none other than those few things.
Two economic crises, one terrorist attack, and China’s accession to the WTO.
The 15 year period records and depicts various paths of industrial upgrading and transformation, witnessing the staggered replacement of new and old money, and unraveling the causal relationships behind them, which in turn leads the flow of capital to a certain extent.
In 2001, the aftereffect of the Internet foam burst was still fermenting. The impact of the 9.11 incident not only made the weak economy worse, but also gradually dragged the United States into the quagmire of the “anti-terrorism” war. On this side of the Pacific, in December 2001, after years of negotiations and efforts, China finally knocked on the door of the World Trade Organization and became its 143rd member. These three are interrelated, directly leading to the official start of a major reshuffle in the world order.
As the editor in chief of Time magazine said, the most important event that affected the world in the first decade of the 21st century was neither 9/11 nor the wars in Afghanistan and Iraq, but rather the rise of China. Even if the timeline is extended to 15 years, I believe no one will raise objections to the important event of “China’s rise”. The financial crisis that began to plague the world in 2009 even strengthened this central term to some extent.
Behind these turbulent waves that stir up global storms, wave after wave of changes and trends are emerging and lurking, working together to shape today’s world and today’s China. What the new wealth and readers witness and participate in together is the gradual tilt of the global balance of power from west to east.
Years have passed, and the world is no longer what it was yesterday.
Tilted balance
For 15 years, the world of old money has been restless.
After a short repair period, the US economy, which had finally crawled out of the bottom of the Internet foam, ran into a more powerful and far-reaching subprime crisis. Now it seems that the US economy has not yet recovered from the post crisis weakness, and it is even uncertain whether it can recover to its original state. Economists led by former US Treasury Secretary Larry Summers have been proposing a sobering theory that the US may be mired in what is known as “long-term stagnation” – weak economic growth coupled with low interest rates.
The debt crisis that began in Greece almost shook the century old foundation of the European continent, and finally saw some signs of recovery. Aunt Mo’s “homebody kindness” opened up an unprecedented wave of refugees. It’s not an exaggeration to say that perhaps the best times in Europe are gone forever.
Today’s France may be a microcosm of future Europe. When you have the opportunity to witness the arrival of the Chatelet les Halles train in Paris, each door corresponds to a young worker. An unemployment rate of over 10% is no longer just a pale figure, let alone the looming racial conflict.
I forgot, there is also the year of the monkey and the month of the horse in the Chinese lunar calendar, and the incredibly large ‘black swan’ that flew out of the world – Brexit. The exchange rate of the pound against the renminbi has almost halved compared to its historical high, and it is no wonder that the editorial board of the Financial Times has written: ‘A country known for its conservatism and political stability has plunged into darkness.’. Just a few months later, the situation reversed again. After a lawsuit, the real right to decide whether to leave the EU is in the hands of over 600 lawmakers.
However, the world of new money is not just about scenery. Indeed, in the global financial crisis that swept across the world in 2008, China became the “true winner”, and the “BRICS” countries, which were seen as representatives of emerging economies, also shone brightly for a while. However, subsequent events dimmed this brilliance. After the loosening of the first “BRICS” in India, it is now Brazil and Russia’s turn; Even China, which was once said by the father of the BRICS countries that ‘if the concept can be changed, only one country will remain’, has experienced a significant slowdown in economic growth and downward pressure is closely following.
But let’s take a look at a simple math problem. At the beginning of this century, the net wealth of the United States was 9 times that of China, but in 2015 it was less than 4 times (Table 1). In 2001, China was the sixth largest economy in the world; Promoted to third place in 2008; According to the 2010 Gross Domestic Product, China surpassed Japan to become the world’s second-largest economy after the United States. Although the flow of funds between the East and the West has temporarily reversed with the collective weakening of emerging economies, the fact that China’s GDP has grown fivefold in the past 15 years is a certainty, which is enough to attract the attention of all countries (Figure 1).
The latest statistical data shows that in the first three quarters of 2016, a series of key indicators including corporate profits, industrial production, investment growth, leading index, and confidence index turned positive. The highlights in China’s third quarter economic report have injected new impetus into the weak and tortuous global economic recovery.
After the release of the third quarter data, Morgan Stanley released a report raising its forecast for China’s economic growth in 2016 from 6.4% to 6.7%. Stephen Roach, a senior researcher at Yale University, said that if China’s economy grows by 6.7% this year, its contribution to world economic growth will reach 39%.
At the same time, the rising China is also striving to build a new international financial system. In April 2015, the Asian Infrastructure Investment Bank (AIIB) initiated by China identified 57 intended founding members, including Western countries such as the UK, France, Italy, and Germany, as well as emerging economies such as South Korea, Russia, Pakistan, and Australia, covering almost all major economies except for the US, Canada, and Japan. Although the task is arduous and the road ahead is long, the steps have already been taken, and the page of developed countries’ dominant financial discourse is being rewritten.
The world order is changing, and cultural symbols are also changing. The magnificent opening ceremony of the 2008 Beijing Olympics left a great exclamation mark on the world, and Chinese actors and elements are increasingly appearing in Hollywood blockbusters, with co productions coming one after another. There is only one reason, hoping to attract more Chinese consumers to willingly open their wallets. The Sino US co production “Kung Fu Panda” produced three films in 8 years, with Chinese box office revenue ranging from 150 million yuan for the first film in 2008 to 608 million yuan for the second film in 2011, and over 1 billion yuan in 2016. Although it still uses the shell of Chinese culture to package the core of American values, it is clearly a perfect achievement in terms of arousing foreign interest in Chinese culture.
Starting from a series of films represented by “Kung Fu Panda” and even earlier “Mulan”, with the rise of national strength, the image of Chinese people in Hollywood movies has gradually changed from initially negative, singular, and symbolic to increasingly positive and diverse. In the popular 2015 film “The Martian,” China, which owns the “Sun God” spacecraft, has already appeared in Hollywood commercial blockbusters as a technological powerhouse; The officials of China’s National Space Administration demonstrate both respect for life and responsibility towards the world. It is entirely reasonable to consider the status of the world’s second largest economy and the improvement of a country’s image as an important manifestation of soft power.
What is even more shocking to the world is that with confidence, Chinese people who have quickly become wealthy have begun to use their primitive power to “buy and buy” everywhere. From brands, resources, technology, and leading enterprises to daily necessities such as milk powder, they have all become targets for overseas purchases. Especially for Chinese consumers who have been ignited with desire and enthusiasm, they can no longer be satisfied with the high tax rates in the domestic market. They are increasingly rushing out of the country and sweeping the globe, stirring up flagship stores and boutique department stores in various countries. This has not only made Chinese guides a standard in department stores around the world, but also forced some businesses to “restrict” Chinese tourists, while saving the sluggish retail industry in many countries from dire straits.
Public data shows that in 2015, the number of domestic and outbound tourists in China, as well as domestic and overseas tourism consumption, ranked first in the world. The per capita consumption of outbound tourists was as high as 11625 yuan. At present, the slowdown in the growth of China’s luxury goods market has become the most worrying concern for luxury goods giants. If China sneezes, the global market will catch the flu, and this statement obviously applies not only to the luxury goods industry.
Conversion of kinetic energy
The rise of NEW MONEY not only brings about the restructuring of the wealth map, but also means a shift in wealth momentum.
In the process of “buying, buying”, China’s own development momentum is also undergoing a fundamental reversal. In the traditional “three carriages”, the role of exports in driving the economy has significantly weakened, investment still has room but the driving force has declined, and consumption is struggling to fill some gaps.
According to the National Bureau of Statistics, the proportion of Chinese residents’ consumption to GDP has been increasing since 2010, rising from 35% to 44.5% in 2014. The consumption demand of Chinese people has already surpassed basic necessities, and the upgrading of consumption to improve the quality of life is like a big wave. About five or six years ago, BMW’s sales in the Chinese market exceeded those in the United States, and today Mercedes Benz and Cadillac are both doing the same, with the latter even having 60% of its market in China.
In 2015, the contribution rate of consumption to economic growth reached 60.9%, ranking first among the “three pillars”. Despite the decline in GDP growth, the market did not cool down during the 2016 Spring Festival. During the Spring Festival, domestic tourism revenue was 13.79 billion yuan, a year-on-year increase of 14.2%; Retail and catering enterprises nationwide achieved sales of approximately 754 billion yuan, an increase of 11.2% compared to the 2015 Spring Festival Golden Week; From the first to the sixth day of the Chinese New Year, the total box office of movies in China reached 3 billion yuan, a year-on-year increase of 67%, becoming the “strongest Spring Festival box office in history”. The result of the combined effect of this series of data is that in October 2016, the spokesperson of the Ministry of Commerce pointed out that the contribution rate of consumption to economic growth in the first half of the year reached 73.4%, further enhancing the fundamental role of consumption in driving economic growth.
In fact, in fashionable terms, by the end of 2015, apart from the real estate market, the Chinese economy had entered a new normal. In this process, the impact of technological, lifestyle, and consumer mindset changes on consumption trends, as well as the emergence of new industries, formats, and business models that drive growth, have released tremendous vitality. New Fortune first launched the “most promising business model” in 2009. Four of the 10 selected enterprises are Internet enterprises, and the proportion of Internet enterprises in the last three years has exceeded 90%. In general, among the enterprises that have won the title of “the most promising business model” in the past eight years, the Internet industry accounts for up to 65%, which undoubtedly represents a certain development direction.
Driven by Internet technology, the national online retail sales in 2015 reached 3877.3 billion yuan, an increase of 33.3% over the previous year. Among them, the online retail sales of physical goods reached 324.24 billion yuan, an increase of 31.6%, accounting for 10.8% of the total retail sales of consumer goods in society. The most prominent example is the “Double 11” shopping festival held by Alibaba since 2009, which showed explosive growth in transaction volume (Figure 2). There is no doubt that the “Double 11” in 2016 will reach a new high, but everyone is curious about how much higher it can be.
This trend is also reflected in the New Fortune 500 list, comparing the number of people and average wealth in the real estate industry, which is a major contributor to wealth creation, and the changes in power at a glance.
In the past 15 years, under the background of urbanization, China’s economy has shown a remarkable performance in the new Fortune 500 list of over matched real estate. Since the beginning of the “New Fortune 500 Rich List” in 2003, there have been a total of 1696 wealthy people on the list, but only 3% of “familiar faces” have appeared on the list for 14 consecutive years. These 54 wealthy people belong to industries such as real estate, automobile manufacturing, consumer goods, energy and resources, and finance, with the real estate industry leading the way with 16 votes. The absolute advantage of the real estate industry in the rich list reached its peak in 2013, when 109 wealthy people on the 500 rich list were directly related to real estate. That is to say, one in every five top wealthy people in China comes from real estate.
Since 2003, except for Chen Tianqiao from Shanda Network who topped the New Fortune 500 list with 15 billion yuan in 2005, the richest people in other years have all come from traditional industries, with half of them coming from the real estate industry. However, if we observe the top ten rich people on the annual rich list, the number of real estate rich people is gradually declining. In 2007, the real estate rich stood out as a group of seven. In the following years, they occupied four seats every year. From 2014, only two real estate tycoons were able to stand firmly in the top ten. Since then, the three giants of BAT, Ma Huateng, Robin Lee and Ma Yun, have gathered in the top ten.
2016 became a more important turning point year. Among the top ten rich people, two of the best players in the real estate industry are Wang Jianlin, who has reached the top three times, and Xu Jiayin, who is from Evergrande Real Estate. In addition to the three “old people” of BAT, the Internet industry has joined Lei Jun of Xiaomi and Ding Lei of NetEase. More importantly, this is also the first time since the launch of the new Fortune 500 list that the champion of the real estate industry has been taken away by the TMT industry, with 64 and 76 wealthy people respectively on the list. Longitudinal comparison shows that since 2013, the number of people on the TMT industry’s list has steadily increased along the fifth, third, second, and first positions, highlighting the continuous improvement of the TMT industry’s wealth creation ability representing the new economy.
However, such growth and decline still occurred in the era when the hard foam of housing prices had not been broken. Especially in the past two years, although it is widely known that trees do not grow to the sky, before July 2016, housing prices were like a wild horse out of control. Although there were occasional slight corrections, the general direction was to climb the peak. As a result, the sum of land prices in cities such as Beijing, Shanghai, Guangzhou, and Shenzhen could already buy the entire United States. If an economy can fold and flip like the Beijing city depicted by Hao Jingfang, real estate will inevitably belong to the first space that can occupy all advantages. Not to mention wealthy people who rely on it to get rich, for ordinary people, buying a house seems to have become the best path for entrepreneurship and financial freedom in Chinese society many years before the “mass entrepreneurship”.
At this moment, with the introduction of various policies, the situation of the real estate industry seems to have begun to change. At present, the “rental yield” of real estate in first tier cities is lower than the yield of Yu’ebao, which means that real estate has already left the “value investment range” and entered the “zero sum game” stage. It is highly likely that more TMT rich people will emerge on the 2017 New Rich List, and more real estate rich people will also fade out. Since 2016 or earlier, Internet enterprises holding high the banner of innovation have begun to play an increasingly important role in China and even the world economy, becoming the most symbolic new force in NEW MONEY.
The Chinese story of the Internet
In the magnificent ups and downs of the world economy and the Chinese economy in the past 15 years, Alibaba (BABA. NYSE), Tencent（ http://00700.HK ）Baidu, Baidu (BIDU. NSDQ), Xiaomi, JD. NSDQ, as the representatives of Chinese Internet enterprises, have sprung up and become the most distinctive and prominent chapter, fully enjoying the dividends of China as the largest Internet market and the largest mobile Internet market.
Compared with many industries in China, there is still a big gap between Europe and the United States. In the Internet field, China has formed a pattern of dual hegemony with the United States. Such a power contrast is not only unpredictable 20 years ago when China accessed the Internet, but also unimaginable in the peak period before the advent of the Internet foam in the new millennium. In horizontal comparison, compared with Chinese enterprises in other industries that went to sea first, Chinese Internet enterprises seem to have found a unique feeling in the landscape and become the most eye-catching wave of “new money” in the market. They rampaged in the Internet world full of acceleration, as if they had taken all the glory of “old money”, and were in the limelight. The term ‘new’ here represents not only new industry trends and business models, but also a new economic landscape.
On October 17, 2016, Weibo (WB. NSDQ) surpassed Twitter (TWTR. NYSE) with a market value of $11.35 billion, becoming the world’s most valuable social media platform. Although it was immediately overtaken by Twitter, Weibo has proven itself with outstanding stock prices and financial statements, thanks to the achievements of its imitators at that time.
The stock price of Weibo has continued to rise since February 2016, with its market value increasing by more than three times, which is in stark contrast to Twitter’s recent sluggish stock price. What supports this situation is that unlike Twitter, which emphasizes social attributes more, Weibo has chosen a more media oriented development direction, and its products are more diversified, including multi image publishing, long text publishing, and live video broadcasting, which has consolidated the status of the Internet hot topic platform. Public information shows that since Weibo’s listing, its active users have maintained a growth rate of over 30% for nine consecutive quarters, and the continuous increase in active users directly corresponds to the rising advertising value.
Of course, this is not an isolated case. Forbes website published an article titled “Can China’s E-commerce Save the Retail Industry” in mid October, in which the author pointed out that Alibaba and its brothers Tencent and JD.com have become at the forefront of international peers in how to use mobile e-commerce, social e-commerce, and O2O to promote e-commerce.
Five years, over 100 countries, and more than 800 million users, these numbers explain the momentum of WeChat’s global expansion. The first billion users in 14 months, the second billion users in 6 months, and the third billion users in 4 months accelerated their accumulation, which enabled WeChat to play an alternative “Made in China” charm all over the world, while having the strength to share the global mobile Internet application market. As the first Chinese Internet product widely recognized overseas in recent years, WeChat ranked first among the innovative products worth learning in China mentioned by the US media Buzzfeed.
With Alibaba’s high-profile listing in the United States in September 2014, a series of eye-catching performances of Chinese Internet companies forced the chairman of Sequoia Capital to lament that “the balance of power in the technology world is shifting from the United States to China”.
In June 2016, Mary Meeker, partner of KPCB, known as the “Internet Queen”, released the report “Internet Trends 2016”. In her 21st annual report, she clearly pointed out that in many aspects, China has become a global Internet leader; And different from the traditional giants represented by Wal Mart and CVS in the U.S. retail industry, the seven major retail companies in China are dominated by e-commerce, led by Alibaba and JD. More importantly, in her list of the top 20 global Internet companies, there are 4 Chinese companies in the top 10 and 7 in the top 20 (Figure 2).
It is also worth mentioning Xiaomi. Although it sells mobile phones, bracelets, and air purifiers, everything is tangible, and its products are different from Internet enterprises in the general sense, thanks to it, Internet thinking has become a common vocabulary in the business world. Since its establishment in 2010, Xiaomi has achieved a valuation of $40 billion in just four years. It is the beginning of Xiaomi’s Internet thinking to highlight the enterprise value with high valuation, trigger butterfly effect communication, and leverage capital to leverage traditional supplier barriers in the industry.
Following the era dividend of upgrading smartphones from functional to intelligent, Xiaomi surpassed Apple in sales in the Chinese market in 2013, thus achieving an almost idol like position in the world’s largest smartphone market; In February 2014, Xiaomi was selected as one of the top 50 most innovative companies in the world by the American business magazine Fast Company for “reshaping the business model of smartphones in the world’s largest mobile phone market”, following only Google and Bloomberg Philanthropy Foundation; In February 2015, Xiaomi’s MIUI operating system surpassed 100 million globally connected users.
The first half of the Xiaomi story can be considered a myth about Chinese manufacturing. However, in the latter half of the story, the myth abruptly came to an end. In the second quarter of 2016, the overall growth rate of China’s smartphone market was 4.6%, but Xiaomi’s sales plummeted by 38%, and its valuation was only 1/10 compared to a year ago. The ace that once attracted users, ‘cost-effectiveness’, is no longer present and is considered one of the culprits. On October 25th, Xiaomi announced its flagship hyperbolic business phone, the Xiaomi Note 2, at a new product launch event, starting at 2799 yuan, and also invited Tony Leung Chiu wai as its spokesperson.
Whether it can reverse the decline or not, what cannot be erased is that Xiaomi has not only started the way of selling mobile phones through the Internet and led the Internet thinking, but also changed many people’s views on domestic mobile phones, to a certain extent, shaking the dominant position of overseas brand mobile phones in the domestic market. After it, Huawei, OPPO and VIVO quickly followed, nibbling at the market share of overseas brands (Table 2).
More than that, the “myth” of “Internet plus smartphone” created by Xiaomi has made people deeply appreciate the power of “Internet plus” before the concept of “Internet plus” was written into the government report in 2015.
The manufacturing industry, which was once the biggest beneficiary of China’s accession to the WTO, has fallen in love with it after becoming an object that needs to be upgraded; As the lifeline of the national economy, the financial industry is using all its tricks to approach it; Created countless wealthy, joyful and worrying real estate industries, and made small attempts to connect; The traditional media like New Fortune, which started from paper media, is fully embracing the Internet, transitioning from the 1.0 paper media era to the 2.0 integrated marketing era, which relies on rankings and activities, and is upgrading to the 3.0 capital service platform era.
The Internet seems to be omnipotent and pervasive, but it can not replace the physical products and services. People will also enjoy delicious food in restaurants. They still need to rely on cars, trains, and planes to move between different cities. Even for the media industry with more obvious impact, high-quality content is still the king, just spreading influence through new channels. For traditional industries, the Internet is more like an upgrade tool than a competitor.
The so-called “Internet plus” does not mean that the real economy needs to be symbolized by the Internet, but that the Internet must go deep into the real economy. It is the panoramic penetration and digital economy guidance after Internet instrumentalization. Of course, this is a long process, but in addition to bringing changes and subversion to traditional industries, the Internet will also bring more new opportunities.
In the past 15 years, the transition from the real economy to the virtual economy has been an irreversible trend. Fifteen years ago, the top 10 enterprises in the world by market value mainly came from traditional industries such as energy and finance. Now, Apple, Google, Amazon, Google and other high-tech and Internet enterprises account for almost half of the country. In addition to Internet companies themselves, it is easier to achieve rapid growth, the growth of these super large market capitalization companies largely depends on the improvement of valuation and the promotion of capital – “new money” is naturally the first to bear the brunt.
This is fundamentally different from the irregular circulation of global capital flows like ocean currents. In the past 15 years, global capital has shown two major characteristics: flowing from the United States to the European continent and from developed countries to emerging market countries. After the outbreak of the financial crisis in 2009, this characteristic became even more apparent. However, it seems that overnight, the flow of funds has reversed. The rapid spread of the European debt crisis has led European capital to turn to the United States for safe haven, while the collapse of asset prices in emerging market countries has also caused capital to flee these markets. Compared to the “new money” that values survival over time and relies solely on speed, the “old money” obviously places more emphasis on ensuring income during droughts and floods.
At the 2012 China Economic Person of the Year Awards ceremony, Jack Ma and Wang Jianlin made a bold bet of 100 million yuan. As of 2022, e-commerce accounts for less than 50% of the retail market share in China. Jack Ma gave Wang Jianlin 100 million yuan, while Wang Jianlin gave Jack Ma 100 million yuan. No one can be certain that the “100 million bet” between Jack Ma and Wang Jianlin will be whoever wins, after all, there are still 10 years left. Going back 10 years, the e-commerce model is out of the question. In the next 10 years, the only thing we can be certain of is the alternating rise and fall of e-commerce and industry, with continuous integration and mutual benefit between online and offline. And big data may become the next trend, because without data, intelligence cannot be discussed. The core of facial recognition and industrial manufacturing 4.0 we are talking about today revolves around data.
Big data, cloud computing, artificial intelligence, virtual reality, unmanned technology, 3D technology, new materials, new energy, robots, medical services. Each of these fields is at the forefront of technological innovation and a direction for both “new money” and “old money” to seize opportunities in the future. However, “new money” will obviously be much more radical than “old money” – whether “new money” can grow into a new generation of “old money” depends not only on ability, but also on opportunities.
Finally, in this wave of confrontation and game between “new money” and “old money”, it is not clear whether Tencent, Ali and other Chinese Internet enterprises can rely on their control over end users to form an ecosystem covering global users, which can then influence and dominate from the bottom up, and even integrate the global industrial chain of some sub industries. However, it is certain that in the Internet world, Chinese enterprises will get the opportunity of real globalization. As Ma Yun said in Nanchang not long ago, “China will become the responsibility of the world in the next 30 years. The era is more open, more transparent, more fair, and more understanding of the spirit of sharing, which belongs to the Internet era”.