The conventional narrative amongst global investors is that investors might now want to stop looking at China and focus instead on other emerging markets – a narrative which I, by and large, agree with in the short term.

One element of this caution is that investors are beginning to get spooked, again, about China’s mounting debt issues. Especially as some local issuers have started defaulting again.

The excellent Sinocism blog ran its weekly open thread on this topic and many of its comments were powerful. You can read the threads section (for subscribers) HERE.

One of the most interesting insights came from one observer which is that in reality, Chinese real interest rates are close to recent highs. The chart below is from one recent tweet which shows that those real rates are now back at close to 3%, last seen in 2013.

In these circumstances, it’s no surprise that many corporates are defaulting, which could in turn suggest more pump-priming in 2021 once the Chinese government feels more secure in mapping out, what we all hope ill be, the global recovery.

But maybe the cynics have got China wrong – perhaps the recovery is strong enough without more pump-priming from the PBoC?

SocGen’s analysts reckon that recent data points to a more robust recovery than we all think – “ We expect China’s industrial production to have accelerated further from 6.9% in September to 7.2% in October, which would be the quickest in 19 months. A notably positive base was helpful, while high-frequency and survey data continued to indicate a solid recovery momentum. The production index in the official manufacturing PMI report eased only very slightly to a still strong level of 53.9 and the new-orders index was unchanged at a two-year high. October export data released earlier again beat street’s high expectation …”

Ant Financial and Blockchain

Last but by no means least, I’d recommend reading an excellent China Tech blog – on substack – by US-based Venture Capitalist Lillian Li. She’s just published her second in-depth analysis of Ant Financial which is available HERE. It’s an excellent read, but one insight really stands out.

Ant is embracing blockchain at warp speed!

Here is Lillian Li’s take on how China is moving fast on the rise of decentralized finance (defi)..

“For Chinese consumers, trust in the products they buy remains the biggest concern. Scars from the numerous food scandals, including the infamous infant milk powder scandal in 2008 have left Chinese consumers with low trust for domestic goods.

So what does Ant do to solve this? What would any respectable financial institution do in 2020? Blockchains of course. 

Simply put, a blockchain is a database. More technically, it’s a distributed database that allows every participant to share and synchronise information. There are specific rules about the way data is inputted into the database, which makes it consistent, immutable, ownable, canonical and decentralised. Data is maintained in chained records called “blocks” and not owned by any single authority. The decentralised design enables it to be transparent and tamper-resistant. Modifications by one party need to be verified by all others. We can delve into the weeds and talk about why that is good, but it doesn’t alter the basics. It’s a really safe and secure database.

Ant has been working on blockchain technology since 2015 (Jack Ma made it very public that he was bullish on blockchain technology) and currently holds the most patents for blockchain in China. 

Source: (It says it in the picture)

The prospectus does not mince words:

We believe that the development of blockchain technologies will revolutionise the way that the world interacts, transacts, and conducts business. – Ant Group prospectus

Ant has made substantial progress on creating usable blockchain products. Since 2018, they have launched cross-border remittance services, Blockchain-as-a-Service (BaaS) open platform, AntChain (which is a more off-shelf BaaS offering), a blockchain-backed smart contract platform called Trusple and many others.

What does this mean though? It seems like Ant is positioning the solution as a general-purpose immutable system of records and asset management service for retailers, manufacturers, governments and researchers. Here’s some practical case studies:

Glass crystal seller on Alibaba whose customers are predominantly abroad. Before blockchain, payments were paid out in parts upon receipt of wares. With Trusple, the software generates a smart contract once a buyer and a seller upload a trading order on the platform. As the retailer executes the order, the smart contract is automatically updated with crucial information, such as order placements, logistics, and tax refund options. The seller no longer has to confirm invoices, remittances or banks details. Everything is handled automatically on the blockchain. 

Tea producers have digitised the tracking of their entire tea production process (from picking the tea to shipping it) through IoT sensors and blockchain platforms. It created end-to-end traceability from the farmer to the purchaser. The many steps in the tea’s preparation from picking, processing to shipping each represents a hash value and can not be altered on the blockchain. Consumers can get a full overview of the supply chain and what stage their tea is by scanning a QR code in the Alipay app. Tea on the blockchain.

I’ll be honest; if Ant’s blockchain offerings does what it says it does (vaporware is far too common in any software firm, big or small), then I’m incredibly impressed. Since 2017 I have run a mile in the other direction every time someone mentions blockchain in a pitch. With the standard blockchain set-up, you trade-off speed and ease of maintenance for security and transparency. It seems like Ant has worked out these kinks, the most significant hurdle being the ability to process high volumes of transactions securely. AntChain reportedly allows 25k Transactions Per Second (TPS), ahead of the industry average of 1k TPS and way ahead of Bitcoin’s 5 TPS. It’s also compatible with other mainstream open-source blockchain technologies like Hyperledger Fabric and Enterprise Ethereum – Quorum.”