4/4/22 Colin Huang Flashback: Inverting Capitalism AKA C2M
View this email in your browser
Insider Digest 4/4/22: Colin Huang Flashback: Inverting Capitalism AKA C2M
Housekeeping / Announcements / Fun:
Hope you had a peaceful Tomb Sweeping Day (4/4) for those who observe this tradition.
Working on the third deal for the TBC Syndicate! Really excited to partner with long-time friend Huashan Capital. Again, open to accredited investors only, so make sure you qualify.
4/4/22 Colin Huang Flashback: Inverting Capitalism AKA C2M
The below is a translation of a blog from Pinduoduo founder Colin Huang. As you may remember, he wrote very few posts before stopping altogether in 2017, and this one was the last. However, due to his status (once upon a time) China’s Second Richest, all of his writings are widely read and often quoted, so you can say it was a high ROI endeavor. He had hoped that each one of them would withstand the test of time and be as thoughtful as the shareholder letters from his hero, Warren Buffett. I can’t say he’s accomplished that, but as you know, I’ve been puzzling over why Pinduoduo has gone relatively unscathed despite also being a “platform company” with some incredible questionable tactics, and while I don’t have an answer, you can’t tell me that the below blog doesn’t make it seem like Pinduoduo’s aspirational business logic of C2M (which we covered on Episode 77, and which PDD does accomplish, to a limited degree) isn’t “inverting capitalism” in favor of the poor. It’s pretty clever how he’s made this argument, actually, and how he links it to a system where the poor are able to profit from the rich, and the rich no longer get richer, the poor poorer. It is a super simple abstraction and not reflective of reality, but you see where Colin is trying to go with the narrative. And in Pinduoduo’s favor, as much as I think it engages in many misleading / shady customer acquisition and retention tactics, it does almost always rules in favor of the “poor customer” in disputes. So you can't really say that it doesn't, in its own weird way, try to help the "poor."
This post is best paired with Colin’s other post that I’ve translated on “supply side reform” in ecommerce, also C2M, but less granular and may I say less grand of an idea than “inverting capitalism.”
Inverting Capitalism - Colin Huang, 9/25/2017
Buffett is an admirable capitalist and he is a pure capitalist. His entire career can be described as the tireless, dedicated, rational allocation of money to enjoy the fruits of compound interest. I love to read his letters to shareholders, where he repeats the same simple and difficult, purist ideas, for decades. In his empire, he holds insurance in one hand, and investment in his other hand. With one hand he is selling protection against risk, and collects money, while in the other hand he puts the money into a moat, where it can compound and he can collect its fruits.
Originally, when I opened this WeChat Official Account, I had wanted to write an article about insurance, with the tentative title "Insurance, the ultimate form of capitalism." Basically what I want to say is that insurance is very interesting, and it is also a great reflection of capitalism. Rich people have capital and more money, so they can better protect themselves against risks; whereas poor people with less money are much less able to protect themselves. So the poor need to buy this protection from the rich. And although insurance is indeed what many people need, it does also give the poor a more stable life, or at least a more stable mental state. In the end, however, insurance is just a product that further promotes the transfer of wealth from the poor to the rich. It is said that it is the ultimate capitalism because it further magnifies the power of capital. Soft concepts like "richer = safer" are also exemplified by insurance. Thus, if the market is highly efficient and undisturbed, and the law guarantees the legitimacy of capital and compound interest, then it is very likely that the rich will get richer and the poor get poorer.
The reason why Buffett is admirable and can even be labeled as great is that he is not all a very talented capitalist who can play the game of capital to the extreme; he knows that money is not the end. On the one hand, he enjoyed the happiness brought by the capital game, and on the other hand, he wisely donated most of the money to Bill Gates, who was younger than him, and let Gates complete the redistribution of wealth due to it. At the same time, he is not afraid of criticizing and advocating that other rich people donate their money too, and that he advocates that the country raise taxes on the rich and carry out a greater redistribution of wealth from a mechanism. (Interestingly, Buffett's father was a Republican congressman, and none of what Buffett is now advocating looks like a Republican proposition.)
A magical Warren Buffett was born in the capitalist United States. He took pleasure in the game of insurance and compound interest on capital, and gently handed the burden of money to Bill Gates. This is very wise, and this is probably the easiest way for a capitalist to be happy in a capitalist environment. Money is accumulated first and then distributed. In this cycle, Buffett mainly focuses on the first half. In a "post-capitalist" era, it is assumed that efficient redistribution of money is as important as accumulation. I can't help but wonder, is it possible to use the same insurance and compound interest, or inverse insurance and compound interest, to distribute wealth more evenly? Is there some mechanism that allows the poor to sell "insurance" to the rich, and the poor to sell some of their "soft power", their purchase intentions, and their ability to resist risks to the rich, so as to achieve a more refined, shorter cycle of money, but flowing back from the rich to the poor?
For example, there are a thousand people in summer who want to buy a certain kind of down jacket in winter, they write a collective order together to give to a manufacturer, and they are willing to pay 10% of last year's price in deposit. In this case, it is very likely that the factory is willing to give them a 30% discount, because the factory gained the certainty of demand from their collective order that it did not have previously. This certainty can translate into the convenience of taking advantage of the troughs in production planning, or the assurance when purchasing raw materials. The factory can even further sell this certainty to its upstream and supporting manufacturers in exchange for further reductions in factory costs. As a transaction, this is like a group of people who spend 1 yuan each to buy 3 yuan of time-limited coupons, and then the factory can use the proceeds from these coupons to go further upstream and buy similar limited-time coupons, for example, spending 1,000 yuan to buy 3,000 yuan’s worth. If these thousand people have a certain credit history and place a collective order together, when they express their willingness to buy but do not pay the deposit, will the factory be willing to give them a discount? I think probably yes, but maybe not 30%, but 8%? This is like a factory using a limited-time discount coupon issued by itself to buy insurance from ordinary consumers that guarantees future purchases. If you think about it further, there are actually many forms that can allow for ordinary people's desires and the certainty of ordinary people's future needs to be marketized, productized, and monetized. Assuming that the system gives each person a ticket to express their willingness to buy cotton clothes, that’s the same as giving each person an “intent coupon” for cotton clothes (one can exchange for this coupon if one has good credit), then is this coupon valuable to factory owners? How about to the capitalist? How do we set prices here, and what restrictions should there be in this bilateral transaction?
The essence here is that everyone (both the rich and the poor) tend to know more about their own wishes, their needs and plans for the future than anyone else. Moreover, each person's plans and intentions, as well as that individual's certainty about their own behavior, are often valuable to the supply side that meets the demand. It can reduce the uncertainty of organized production and help to achieve a more efficient allocation of resources and capital. For this reason, I guess that capitalists and rich people will be willing to buy this kind of reverse insurance from ordinary people and poor people. This kind of reverse insurance can realize the credit and will of every ordinary person. This kind of reverse insurance is no longer the poor’s accumulation of credit and money to borrow money from the rich to pay interest (because the poor have borrowed money, they will have to pay interest, and therefore the things he buys are actually more expensive than those of the rich), or he spends money to buy a life of certainty from the rich. On the contrary, in this new method, the rich and capitalists pay the common people and the poor to buy the certainty of their production capital allocation. In previous insurance and financial lending products, money flows from the poor to the rich, while in this reverse insurance system money flows from the rich to the poor. There is a qualitative difference here.
The next question is how to productize the certainty that everyone (rich or poor) has about their own behavior; how to make it standardized and circulate it like a coupon; how to create a format to express intention to buy; how to create a product that achieves this deterministic transfer; and how to financialize and monetize it. In addition, we should consider decentralizing the productization process of this certainty transfer (because it has too many scenarios and too many situations), and at the same time make sure that in the process of circulating this relatively decentralized deterministic product, fraud is avoided, and there is a continuous improvement. I don’t know if the blockchain was born just for this kind of “reverse insurance”…
(I’m done writing, but just want to note that it is really interesting to think about this inverted capitalism :)
What are your thoughts?
Reply here on the Circle forum.
What You Missed on the TBCI Discord
I link the CSRC press conf here and draft policies here (both English)
For those who’ve been following the Discord, people I consider credible had asserted this was to be the solution two weeks ago, and it was also reported by Bloomberg as rumor last week
TBC Insiders then have a long conversation about likelihood of true resolution, and I suggest you read entire conversation, but TLDR, conclusion might be:
PCAOB will request the accounting partnerships to provide audit working papers for a sample size of US-listed Chinese companies. PCAOB is not gonna audit all companies and for all years. The ones that the auditors can't provide due to "sensitive data" will continue to be on the HFCAA list and will eventually need to delist. Those companies will probably voluntarily delist before then anyway.
What are your views? Jump in!
Reuters missed the massive $9.6Bn Huawei dividend until I tweeted about it!
It was trending in China for several days already … and I argue with some people about it on Twitter. But here is the Reuters link
If you hadn’t gotten enough of CGB yet, here’s an unpaywalled version of Caixin’s deep dive into the sector (Sixth Tone)
There are some errors in the article though, such as confusing PDD user count with Duoduo Maicai
If you missed the Bain Semiconductor Shortage session, Michael took some screenshots and comments
TLDR: car chip shortage will hopefully be alleviated by end of this year but bleeding edge (10nm and down) will still face shortages until 2025 as the new fabs from TSMC/Samsung/Intel won't be ready until then
In addition, the surge for bleeding edge chips during COVID as everyone rushed to upgrade their WFH setup seems to have dissipated
Have any comments or questions? See you on the Discord server!
Copyright (C) *|CURRENT_YEAR|* *|LIST:COMPANY|*. All rights reserved.
*|IFNOT:ARCHIVE_PAGE|**|LIST:DESCRIPTION|**|END:IF|*
*|IFNOT:ARCHIVE_PAGE|**|HTML:LIST_ADDRESS_HTML|**|END:IF|*
Update Preferences | Unsubscribe
*|IF:REWARDS|* *|HTML:REWARDS|* *|END:IF|*