Danger and Change: Can China Seize the Breakthrough Opportunity of the Digital Economy?

Text | Interstellar Agent-Agent of the Detective

China's role and opportunities in the century-long change have been accelerated due to the epidemic and the ensuing crisis. The United States and the world are inevitably in recession. Should we be pessimistic or lucky? During this period, will China have available historic opportunities, and how should it be seized? This article attempts to answer these questions, the logic is as follows:

The first part: through the risk analysis of the economic crisis, determine the inevitable cycle of the US and even the world economy in recession.

Part II: Learning from history is very tragic. We are trying to rely on emerging industries to cope with the economic crisis and try to form a big boosting recovery, but pulling the United States out of the Internet bubble is just a slogan of "everyone has their own house" in the real estate industry. Will it be different this time?

Part III: The concept of a century-long change, if it is not based on news facts, can only be regarded as the speculation of scholars and politicians. Today, this concept has become a living opportunity in the real world.

The fourth part: analysis of the difficulties in breaking the game. Whenever a revolutionary industry is bound to be the emergence of new business models and new forces, it is not optimistic that the current world is still an industry pattern and a cage of influence in the Internet era. How can we break the game?

01 Danger: Inevitable decline

We have no way of knowing how the Federal Reserve would formulate a bailout strategy under Paul Volcker, but it is certain that Volcker rules have preserved the US household sector and financial system, so that the US economy did not immediately erupt. This is very different from the situation in which the 2008 subprime mortgage crisis looted the US middle class and collapsed financial institutions across the board.

When he was chairman of the Federal Reserve, Volcker was the only one to adhere to the Grass-Steagall Act for more than three decades. The "Glass-Steagall Act" was born after the Great Depression triggered by the Great Crisis in 1929. The Act strictly separated investment banking from commercial banking. However, on May 1, 1987, the Federal Reserve Board, indirectly controlled by President Reagan, voted to approve the approval of the three holding banks Citigroup, Bankers Trust, and JP Morgan to underwrite specific bonds. This violated the Grass-Steagall Act passed in 1933, and Volcker resigned as chairman of the Federal Reserve.

After Greenspan took office, interest rates remained near zero for a long time and liquidity flooded. Commercial banks such as Citibank and JP Morgan Chase turned into universal banks and entered investment banking. American entities and families have allocated assets to financial assets, especially financial derivatives.

Everyone knows the later stories. In 2008, the subprime mortgage crisis broke out. At this time, the firewalls between commercial banks and investment banks, household assets and financial assets, and the real economy and financial markets had been removed, and the financial crisis was out of control.

After each crisis, the Fed and the White House will make corrections-the US macro leverage ratio gradually declined, and the internal structure of the financial industry improved. It is for this reason that the stock market crash did not directly trigger an economic crisis. However, the US macro leverage ratio has gradually recovered to its pre-financial crisis level. This is because finance and residents have deleveraged, and the government has increased leverage.

The Fed's balance sheet expanded to about 4.5 trillion U.S. dollars; the U.S. government deficit widened to 1.8 trillion, and the size of national debt to 22 trillion U.S. dollars. The cornerstone of U.S. financial credit today is large-scale national debt.

After the emergency interest rate cut on March 3, the Federal Reserve directly lowered the interest rate to zero on March 16 and simultaneously launched a quantitative easing of US $ 700 billion to purchase government bonds and mortgage securities.

This logic needs to be sorted out again: human society bid farewell to the gold standard and entered the era of credit currency. The Federal Reserve mainly issues US dollars by purchasing government bonds and real estate mortgage securities, and many other countries issue national currencies by purchasing US dollars.

Man-made sword, I am fish. This would be our most accurate description of the US crisis. US stocks melted four times in ten days in March. This is an extreme moment that can be recorded in the history of the world economy. The world is panic-stricken. But the Fed and White House politicians don't need to panic. They only need to open the gates of the machine to work overtime and print currency, and use unlimited quantitative easing to buy their own Treasury bonds to release liquidity to the market. Then, the world, especially the countries that held the US dollar as a reserve asset, and the countries that held a large amount of US Treasury bonds, became the fighters.

Today's world economic situation is that even without the epidemic stimulus, the US economic cycle has entered a fragile collapse—the US economic crisis has a cycle necessity. The team of Zhang Xiaoquan, deputy dean of the Chinese University of Hong Kong School of Business, used mathematical models to judge that the US stock market disaster signal appeared as early as January 2.

Where is the problem, is the whole world stupid? The problem lies in the issue model of US Treasury bonds-Treasury bonds had to be issued with national fiscal revenue as a guarantee, not currency (USD) as a guarantee.

America ’s tactics are clearly revealed. The sly capital market and quantitative investment identify the opportunities and risks in it-it can bet on contracts, the market can be short, and the country can't make money. The Fed ’s zero interest rate all-in move was even seen by the market as a signal of a liquidity shortage, exacerbating the panic mentality of selling assets that originally had hedge functions, including gold, US Treasuries and Bitcoin. This has exacerbated the magnitude of the ups and downs of the US economic cycle and the unexpected transition from a technical bear market to an economic crisis.

If the Federal Reserve is in the hands of Volcker, the federal government will not dare to issue government bonds. It can only work hard to promote economic development and collect more taxes before it can issue more government bonds, forming a virtuous circle, or it can avoid this recession and break The economic crisis is cyclical.

Unfortunately, on December 8, 2019, Volcker died at the age of 92.

02 Making the game: China and the technological revolution

In the financial crisis of 2008, Volcker and Obama highly agreed, and they hope to use the power of a new industry to fill the bubble brought by the real estate subprime mortgage crisis. Obama's staff finally proposed new energy. They called on everyone to invest in new energy. Obama called the most mainstream entrepreneurs at the time to speak together and said, "You can make money while saving the world." Google did invest.

At that time, the secret agent Jun interviewed Xie Guozhong (a former Morgan Stanley managing director and chief economist in the Asia-Pacific region) as an independent economist and director of Rosestone Consulting as a financial journalist. He said that you ca n’t expect a feed-in tariff. Industries with no market competitiveness to stimulate the economy, if it must be done, it can only be said that financial derivatives will be used to create a larger bubble to fill the previous bubble. History shows that the Internet bubble was filled with the real estate bubble in 2000.

At that time, Volcker was still alive. Obama invited Volcker to chair the US President's Economic Recovery Advisory Committee. The "Walker Rule" can be seen as a correction to Greenspan's abolition of the Grass-Steagall Law and excessive speculation in the financial industry. The new energy industry has not developed in the direction of financial derivatives. More than ten years later, not only in the United States, but the world's new energy is still on the way to survival. The photovoltaic industry, wind power industry, and grid-connected and corresponding infrastructure construction have experienced a short period of blast, quickly fell, and some companies closed down. The industry slowed down and did not release the power of the industrial revolution brought about by new technology.

Since mankind entered the third scientific and technological revolution, sporadic and explosive industrial revolutionary forces such as steam engines and electricity have been replaced by longer periods of secondaryness and complexity—it uses atomic energy, electronic computers, space technology, and biological engineering. Inventions and applications are the main symbols, and an information control technology revolution involving many fields such as information technology, new energy technology, new material technology, biotechnology, space technology and marine technology.

Almost at the same time as Obama's new energy strategy, China has launched a more ambitious strategic emerging industry. The seven areas are energy conservation and environmental protection, emerging information industry, biological industry, new energy, new energy vehicles, high-end equipment manufacturing and new materials. It covers almost all the cutting-edge technological directions of the third technological revolution. Similarly, these industries are being constructed in an orderly manner, but have failed to meet expectations.

Many people define the third scientific and technological revolution as the information technology revolution, which has a certain reason-at least for a long time in the past, what has driven the world economy forward is the power of the information technology industry revolution. The US economy, which is already on the verge of vulnerability, and the world economy that is about to slip into a global crisis, only a new technological revolution can unleash such a powerful force to get out of this cycle.

Back to reality-the United States and Europe, with the theme of consumption, are bound to be hit hard by the spread of the epidemic, and the US rescue measures must not be recognized by the market, and the Trump administration has not demonstrated the forward-looking strategy of economic change during the Obama era.

The Chinese government launched a 34 trillion yuan new infrastructure rescue plan, which has the traditional infrastructure investment effects represented by Tie Gong Ji and real estate. It will have an effect in hedging the economic downturn and mitigating short-term economic shocks. But even more significant is that this will be the moment when the third revolution in science and technology will erupt.

This may be the greatest opportunity given to China by the century-long change. The new infrastructure with smart cities and cloud computing as the core, not only covers the concepts of several major industries just like strategic emerging industries, but also takes smart cities and cloud computing as the core, and integrates 5G, artificial intelligence, Industrial Internet, Internet of Things, new energy, new materials, and big data are integrated.

The efforts and progress of each of the seven strategic emerging industries will use China's leading 5G network as the infrastructure, converge, interweave, and give out the greater power of the third technological revolution, and evolve towards the digital intelligent era.

03 Change: The Shake of American Order

The United States rose in the midst of tremendous changes in the world in the twentieth century. This great change was breathtaking in both breadth and depth. At first, Europe relied on the Industrial Revolution to become the center of change in the world, setting rules and order. However, due to changes in the European power structure, Britain's new order based on the "national standard" has not prevented Europe from having another war. During the two wars, Europe suffered heavy losses. The world led by the United States started the process of building a new order. The international system centered on the United Nations was established. The two major groups led by the United States and the Soviet Union formed a cold war and the rise of the national independence movement …

The world has entered a new order under the theme of peace and development. But the crisis lies in the system of American hegemony. The economic crisis of 1929 brought the entire European and American industrialized world into the Great Depression. Trade protectionism, financial mixed industry, dollar hegemony … In this process, the power of the industrial revolution and the subsequent third scientific and technological revolution over the economic development of the industry masked the emergence of the crisis and also cushioned the post-crisis United States. The fragility of the economy and finance, until the 21st century, the bubble of the US subprime mortgage crisis is comparable to the great crisis of 1929 (the reason analysis has been described in the first part).

There is a problem that must be mentioned: Although there are many global institutions that maintain the world's common order, such as the United Nations, but because the United States occupies a dominant position in most institutions, it often resists international rules with domestic rules to make the international order useless, which leads to the United States order. "Governance Dishonesty."

The arrival of a major event also has the inevitability behind it—the United States has been attacked by terrorists, which is a concentrated reflection of the hegemony of the United States and the international order out of control in the last world. At this point, the American-style world order has begun to disintegrate.

China's rise has caused the United States to face up to it. Sino-U.S. Relations are becoming the most important international strategy of the Trump administration. After Trump took office, he implemented the "U.S. Priority" strategy, taking China as its main strategic competitor, and comprehensively conducting China in terms of trade, technology, talent, and military. Curb pressure and slogan "The United States cannot lose."

Behind this is the shift of the focus of world power from Europe to the United States to groups of developing countries such as China and India. In terms of GDP, 4 of the 10 countries with the largest economic aggregates will be developing countries by 2030. The first three are China, the United States, and India; by 2050, five of the top 10 countries with the largest economic aggregates are developing countries, and the first three are still China, the United States, and India.

Regardless of whether there is a U.S. stock disaster caused by this outbreak, the cyclical crisis in the United States and the risk of global recession caused by the use of the US dollar to pass on to other countries are cyclical outbreaks-the United States may also accelerate the loss of international trust and further lose the world Order center process.

The transformative force brought about by the scientific and technological revolution is the only means to change all this. The invention and use of new science and technology will inevitably change the international situation.

In order to compete for the commanding heights of new technologies and gain advantages, the countries with the advantages will carry out technological monopoly or blockade of the latecomers. The US government has begun a technology monopoly or technology blockade. President Trump has vowed that the United States must always remain No. 1 for this purpose, to unscrupulously block technology in China and to completely block Huawei, a Chinese company with a leading edge in 5G.

04 Breaking: Hopes and Challenges

Opportunity is ahead. Does China have the ability to seize it? We have to go back to the three features of this scientific revolution: deep scientific, highly socialized, and industrialized systems. This corresponds to intelligence, and the carrier is intelligent networks and data.

Intelligent networks can be completed through new infrastructure. China's leadership in 5G networks has also increased the feasibility and even the possibility of leading the infrastructure. But how can data be industrialized and socialized?

The concept of the digital economy has already been explained about this-the core of the digital economy is big data, identification-selection-filtering-storage-use. Digital assets can be divided into digital assetization and asset digitization. A typical example of digital assetization is digital assets formed by data as a factor of production. The digitization of assets belongs to traditional financial logic, which refers to the mapping of real assets to the chain. Circulate.

Difficulties to be overcome in the era of the digital economy include the storage of massive data, data communication and interaction, data confirmation, data islands and privacy protection, how to identify the authenticity of data, data pricing and transactions … We can continue to upgrade through Information tools such as network infrastructure and intelligent hardware, and information technologies such as the Internet-cloud computing-blockchain-Internet of things, continue to enhance the ability to process the quantity, quality, and speed of big data, and can promote the transformation of human economic form from industrial economy to information economy — Knowledge Economy — Transformation of Smart Economy.

But the core is that the iteration of the economic and social relationships that humans have entered into the digital age cannot be solved by this. Here we introduce a concept-crypto economy. Cryptoeconomics began in the 1980s. Cryptoeconomics is not a branch of economics, but more like a cryptographic application that takes economic incentives and economic theory into account.

The economic incentives advocated by the crypto economy were disrupted by the speculative wave of bitcoin and blockchain, and also led to the blockade of ICOs across the board by some governments, including the decentralization of the blockchain and the crypto economy that was masked by bitcoin .

So far, wealth has been measured by a combination of debt instruments and valuable limited resources, because commodities are limited. But the deviation between the infinite nature of digital products and the limited nature of fiat money, they can repeatedly sell an infinitely reproducible product (user information related to advertisers), which violates the law of value exchange in the business era.

One phenomenon that has to be faced is that AI startups are facing difficulties due to data. They are keen to use cloud services, but this is a huge cost, and the startup companies spend on the cloud, which has contributed huge revenue to AWS and Microsoft. The data monopolized by the giants will inevitably affect the progress and efficiency of the intelligent network era.

The distributed computing of the blockchain arises in order to solve this problem. At present, the encryption and decryption technology of asymmetric passwords has been widely used in the fields of financial security and communication security, and it is already transforming the Internet economy. In the data world of the intelligent network, the stability and privacy of data, the order of data, the collaboration of data, and the contract of data-Blockchain is the best judge to resolve data relationships because of its decentralization, transparency, and traceability. Its smart contract system and its mathematical contract concept are all used here.

It corresponds to the need for an economic incentive scheme, which has been called a token economy since Bitcoin, but in fact it is covered in the crypto economy category born in the 1980s. With the popularity of 5G and AIoT technologies, big data has become the main reference for controlling and promoting user behavior decisions. The Token token economic model in blockchain technology is essentially a new set of economic relations and social governance models. Token can refine user data, combine the value generated by each step of the data with instant token rewards and punishments, thereby achieving fragmentation. Stimulated data makes the data visible and tangible, and each step generates value.

The power of various lines of the third scientific and technological revolution towards intelligent convergence requires a sufficient amount of transformative power in the corresponding economic relationship to break the monopoly of the giants of the Internet era on data. In other words, the commodity trading model for thousands of years and the joint-stock business organization model created in the capitalist era will face difficulties when humans enter the digital era.

One of the four gentlemen (Weng Yongxi, Wang Qishan, Huang Jiangnan, Zhu Jiaming) who once faced the "Lead Youth Dialogue" of the central leaders, Zhu Jiaming is concerned about the role and influence of the crypto economy in the macro economy. He believes that everyone basically maintains With the "dichotomy" in traditional economic theory, the monetary economy and the real economy are different economic categories. However, he believes that the crypto economy is having an impact on the macro economy and leading to the deconstruction and construction of the monetary economic system and even the macro economic structure.

In some countries and regions outside China, the order of the new world of the blockchain is under exploration and construction. In order to resolve the economic crisis, the concept of "digital dollars" proposed by members of the United States Congress has been hotly debated. Although this proposal was eventually deleted, this does not mean that "digital dollars" have disappeared. In September 2018, the New York State Financial Services Authority approved the issuance of a stablecoin USD anchored by two blockchain companies-Gemini Trust and Paxos Trust. This is seen as a move by the U.S. authorities to embrace the economic change of the blockchain world token, and the United States has also spawned a number of projects such as STEEM, Ripple, etc. that have used the token economic model to transform traditional industries and economic relations.

The good news is that the pace and pace of the Chinese central bank's DCEP is ahead of the digitalization of the US central bank's currency. Local governments such as China's Xiong'an are also implementing the blockchain governance of the government, and a group of Internet companies are also trying to use the blockchain to transform their industries. However, the transformation of economic relations with economic incentives as the core in the crypto economy is the most important element in embracing the technological revolution and leading humans into the digital economy era.

Interstellar is concerned about the progress of earth civilization, iterative technology, and documenting business changes.