1) With Russia being partly blocked from the SWIFT international payments system.
All eyes (in the Chinese financial system) are on the Chinese clearing and settlement system CIPS.
A primer on what it is and potential implications for the future of dollar hegemony:
2) In a nutshell, CIPS is China's version of CHIPS and potentially SWIFT. It settles international claims in RMB, but was been using SWIFT as its communication system since 2016.
It was created as a domestic alternative to the CHIPS + SWIFT system to bypass US scrutiny
3) Backed by People's Bank of China (PBOC), CIPS was launched in 2015 to internationalise yuan use. It allows global banks to clear cross-border yuan transactions directly onshore, instead of through clearing banks in offshore yuan hubs.
4) It's far smaller than SWIFT.
As of Jan 2022, CIPS has 1,280 financial institutions in 103 countries / regions connected . CIPS processed around 80 trillion yuan ($12.68 trillion) in 2021.
SWIFT is used by 11,000 financial institutions across 200 countries or regions.
5) Not only is it smaller, but potentially may never become equal to SWIFT + CHIPs given that 40% of the world's international payments are in dollars, and only 3% are in yuan.
However, some Russian banks' lack of access to SWIFT might a big push for its adoption
6) China is Russia's biggest trade partner for both exports and imports. In 2020, 17.5% of the trade between the two countries were settled by yuan, an improvement from the 3.1% in 2014, according to CSC.
Recently more Russia banks have signed up to the CIPS
7) The bull case for CIPS is that it gets the messaging service up and running, and stops using SWIFT. Russia and other countries facing dollar hegemony heat signs up and Yuan (and esp e-CNY) gets a shot at becoming the next settlement currency in the world
8) However, the switch-over is going to be slow. CIPS only has 100 employees in Shanghai today and nowhere ready to take on an international institution in one bite.
Russia also has their own cross-border payment system called SPFS that was launched in 2014.
9) But the SWIFT sanctions are a definite wake-up call for countries. When payment systems are politicised, then you have to be sure you're on the right side of the leviathan at all times.
I write threads on Chinese tech and also a newsletter on the topic as well. Follow along if you'd like, thannnnks
1) Why is every sizable Chinese consumer app a super-app? Why are western tech giants like Facebook, Shopify and Google also following suit?
A theory on 'owning the funnel':
2) Every player is always working on owning the awareness-to-fulfilment funnel (or customer journey). This is a descriptive product strategy that builds on a foundational ethos of "owning the user".
Because there's one thing that matters in consumer internet: internet traffic
3) Relative to western consumer tech companies, which tend to focus on “serving a function” as their core mission, Chinese companies tend to focus on “owning the user” as their core mission (though the initial wedge into the consumer is always through a function.
1) Meituan co-founder Wang Huiwen was with Meituan from inception to IPO. He retired at age 41 a billionaire.
Wang thought deeply about creating a category winning company. I found his insights on how needs evolve and how that relates to markets to be one of the best framing:
2)
- The number of human needs that can be satisfied is fewer than needs that can't be satisfied
- Within the set of needs that can be satisfied under our current state of technology, ROI-positive conditions are far less than ROI-negative needs
3) - Needs that can support a commercial operation are far less than needs that can't
- Lastly, the number of needs that can allow a company to survive competitively is the smallest bucket
1) Let's talk about how to think about applying a successful Chinese tech trend to your tech ecosystem.
Let's deconstruct go through the following:
- What makes a trend take off in China
- What is easily replicable
- What isn't
2) A trend takes off in Chinese tech and stays relevant because it can get internet traffic and can make money.
Historically, only getting internet traffic mattered. But as new users dwindled, having a viable commercial model (with eventual break-even unit economics) matters.
3) But how things can make money also requires many Chinese tech ecosystems enabling factors that may not be present in your ecosystem.
So you have to understand whether it was only the Chinese context that meant it would make money.
1) Let's talk about Baidu's fall from grace - from being synonymous with Chinese tech in the form of BAT with a market cap of $110bn to now - a punchline for when a tech trend has ended.
Why did Baidu fall behind?
2) Baidu hustled hard in its early days, it was facing off Yahoo and Google who had first movers advantage in the Chinese market.
They did well in localising search and offering a suite of products such as music and forums to woo the information-hungry Chinese consumer
3) When Google fully pulled out of the Chinese market in 2009, Baidu was on top of the world. It went from owning 66% market share to 100% overnight in the biggest consumer market in the world.
Money basically printed itself through advertising. Everyone could just chill.
1) I was a SaaS-focused VC in Europe for ~5 years, and then left for China to explore the SaaS ecosystem here.
Initially, I was highly disappointed. But after 18 months I've coming out of the trough of disillusionment.
Here's why:
2) Answer: Chinese SaaS aka ToB ( To Business) lags behind that of the Western SaaS ecosystem by estimates of 5 to 10 years due to a combination of unwillingness to pay and high adoption barriers. However Cov-19, labour shortage and regulations have accelerated adoption.
3) In 2020 when I just got back, I took stock of the B2B ecosystem in China and found
- Chinese SMBs ( ~60% of GDP) used cheap labour rather than software
- SMBs don't have cash reserves to invest in upgrades
- Historical software piracy led to lack of desire to pay for software