Xiang Shuai's 2023 China Wealth Forecast

 Xiang Shuai’s 2023 Wealth Forecast[1]
 
Introduction and Translation by David Ownby
 
Introduction
 
Xiang Shuai 香帅is the pen name for Tang Ya 唐涯, a scholar, author, and frequent media commentator on China’s economy, with particular focus on monetary and financial issues.  Xiang was educated largely in Canada – M.A. at UBC, Ph.D. at McGill – but then taught at Beijing University’s School of Management between 2010 and 2018, at which point she decided to leave the university and become an entrepreneur and a media figure.  She has had considerable success, having published several books as well as penning frequent articles in all of the important economic and financial venues in China (see her bio, in Chinese, here).
 
It is not hard to understand the temptation for someone like Xiang Shuai to leave academics and become an entrepreneur, particularly if they are studying entrepreneurs and money and they have the gift of gab and the right contacts.  There is lots of money to be made – through books, online courses, lectures, consulting gigs, etc. – and it is surely tremendously exciting to take the plunge and actually do the thing you have been studying. 
 
In addition, media figures have far more influence in China than academics, so if you have a message you want to deliver, your voice will carry more weight and have more impact outside the university world than within.  The text translated here is the only work of Xiang’s that I have read, and I have no idea to what extent it is representative of her larger concerns.  But this text clearly belongs to the world of Chinese liberals who believe fervently in markets and think that China is powerful among other things because the Chinese people are good at making money.  It is telling that in a 70-page text on China’s wealth expectations for 2023, Xiang mentions neither socialism, Xi Jinping, nor the central government, at least not directly.
 
Xiang Shuai’s presentation is meant to be a major statement on the state of China’s economy, where it is and where it is going, delivered by an expert to an audience who knows what she is talking about without themselves being experts.  Xiang’s talk is available here on YouTube for those who prefer an oral version, with visuals.  It is more than three hours long, and had I known that before I started, I probably would not have translated the text – which I discovered because Shi Zhan, a scholar whose work I admire, published the transcript of Xiang’s talk on his WeChat feed. 

For some reason, I had clicked “web version” as a preference on Word while working on the translation, which does not show the number of pages, so I could not really tell what I was dealing with, although I was frustrated that even after several days of work, I was still not finished.  It turns out that the final English version is some 70 pages long, some 20,000 words.  A lot to read, a lot to translate. That said, I am glad I sacrificed my Labor Day holiday to this text, which is informative in many ways. 
 
First, Xiang’s discussion of the Chinese economy is quite different from what we generally read in the Western media, where the Chinese economy is generally described as dead or dying.  Understandably, the focus is on the major problems the Chinese economy is facing:  the bursting real estate bubble, government attacks on the wealthy and entrepreneurship, youth unemployment, falling growth rates, Xi Jinping’s attempts to reestablish state control of parts of the economy.  The general tone of the narrative is not only that China has fallen on hard times, but that China has peaked, the China moment is over, the “China model” is no more.  It is hard not to hear in these repeated stories at least a whisper of the Cold War hope that China will finally collapse like the Soviet Union, because command economies always collapse, which would solve a certain number of pressing problems for the United States.       
 
Xiang Shuai could not of course give a “China has peaked” talk even if she wanted to.  It’s not good entrepreneurship, people would not buy tickets to her talk, censors might intervene.  But to her credit, she admits openly that the four forces that have fueled China’s rise over the past few decades are spent:  industrialization, urbanization, globalization, and Internet digitization.  So the wind is at least no longer in China’s sails, and if the fleet is to keep moving forward, new energy is necessary.  The task Xiang sets herself is that of finding a “new narrative” to replace the one that has kept China focused and happy since reform and opening.  Of course, finding a narrative to replace industrialization, urbanization, globalization, and Internet digitalization is no small task, but Xiao gives it her best.
 
She pins a great deal of her hope on AI, which makes sense, in China and elsewhere, and the most interesting parts of her talk are based on her research visits with Chinese entrepreneurs in various fields.  My guess is that Chinese business schools use the case study model as do American ones, and a strong point of Xiang’s work is thus the case studies she has put together. 

She goes to Foshan, for example, to talk with CIOs (Chief Information Officers) about the digitalization of production and makes a good case that market pressures are already pushing the best of Chinese industries in that direction.  She visits car companies and optical companies to explore how providing service and experience is replacing selling a mere product.  She talks about how Luckin, a successful competitor to Starbucks in China, uses AI to create viral products to keep customers excited and willing to spend money for a new “beverage experience.”   “Starbucks is selling coffee” she opines, while “Luckin is selling algorithms.”
 
The new narrative Xiang develops is YOLO, “you only live once,” and has to do with changing expectations.  The idea, not unique to China, is a kind of devil-may-care approach to life.  AI is exploding the world as we know it, meaning that a good education may not get me the job I want, or any job at all, so I need to change my expectations, focus on the present moment, and live for now.  She finds some evidence that this is indeed happening in China, particularly among Chinese young people.  Her discussion of “special forces tourism” is both amusing and instructive, for example. 

She also tries very hard to find stories of individuals who have combined talent, pluck, and AI to make it in the new YOLO world – many of whom are Internet celebrities - but these stories are not as convincing as those of Foshan’s digitalization or Luckin’s exploitation of algorithms to produce yet another viral tea latte.  Can Chinese parents really tell their children to grow up to be Internet influencers?  What kind of bedtime story is that?
 
To her credit, I think Xiang Shuai finally acknowledges that AI plus individual talent and creativity do not constitute a fully convincing new narrative for everyone, particularly at the individual level, even if she says that she is swearing off being a helicopter mother (easier said than done, in China and elsewhere).  The final two parts of her essay thus go in quite different directions. 
 
First, there is a discussion of the anti-model of Japan and the thirty years Japan lost to deflation.  Without dropping her generally cheery tone, Xiang lets us know that China is very worried that her very own thirty lost years might well be just around the corner, which is scary for a country that is on the verge of becoming middle class and has ambitions for much more.  Her case study tells her that Japan did not have to take that route, that policy interventions could have happened much earlier, meaning that the problem was not that t the property market bubble burst, but that the Japanese government did not have the political will to change people’s expectations by creating inflation. 

Here, of course, Xiang Shuai the market liberal is speaking directly to the central government, and her message is that YOLO for central bankers means keeping the economy – and the real estate market – alive.  I might note in passing that Xiang says very little about real estate in her three-hour talk on the Chinese economy.
 
The final case study in Xiang’s talk involves the daughter of woman Xiang has followed in her work, a typical example of a woman from a small town who left school early to work in the big cities and has since bounced back and forth between work in the cities and life in the village.  This woman’s daughter had just taken the college entrance exam and scored in the low 300s, which meant that her options were limited to technical/vocational schools.  The mother asked Xiang whether her daughter should apply to vocational school or just abandon education and get a job.  Xiang immediately said, “get a job,” and the woman told her daughter to pack a bag for Beijing.
 
A member of Xiang’s team got word of this and intervened before the daughter could leave.  This team member is a woman is from a fourth-tier city with a different perspective from Xiang’s.  She immediately called the mother and told her to get her daughter into school.  Why?  Because credentials still matter, because the daughter will be proud to be able to say “I am a university student,” and because as a marriage market, vocational schools are better than the workplace. 
 
Xiang acknowledged her mistake and apologized, which, in the context of the talk, is quite powerful.  Here her message is directed both at her audience and at the Chinese state:  AI may be destroying an old world and creating a new one, but equality of opportunity still matters at the individual level, and we do not have it.  So to individuals, Xiang Shuai’s message is: hedge your bets.  Yes, you might become an Internet celebrity and make a fortune by following your dream, but you might not, in which case diplomas still matter.  To the Chinese state, Xiang Shuai is saying “there is still work to do, and you have to do it.”
 
Ultimately, I find Xiang Shuai’s text quite poignant.  She vividly conveys the energy and complexity of China’s economy at all levels, in ways that clearly reveal the agency of economic actors, something that is often ignored in Western journalism on the Chinese economy.  At the same time, without saying it directly, she calls on the state to take action to preserve the miracle of China’s economic growth in a new era.  And I like the detail Xiang Shuai’s text provides.  I have no idea if her examples and arguments are right or wrong, but they are grist for the larger mill.
 
A word on the translation, which was somewhat challenging.  In addition to its length, the text is full of business-speak and entrepreneurial buzzwords, not a language I am familiar with in English or Chinese.  In addition, it is meant to be entertaining – people presumably paid to listen to it – and Xiang Shuai is very witty.  I did my best to convey this, but surely fell short on occasion, and there are no doubt references and inside jokes that I missed.  Here and there I summarized the text rather than translating directly, because a direct translation would not have been funny or entertaining.  For the same reason, I omitted a few sentences where I felt Xiang Shuai had gone a bit too deep in the weeds, or at least too deep in the weeds for me to render her accurately.  As always, a link to the Chinese version of the text is available in footnote 1 for anyone who wants to check and suggest corrections.
 
Finally, the subtitle to Xiang’s talk is gongchaocheng/共潮生, which I don’t quite know how to translate.  It comes from the first line of a well-known Tang dynasty poem, “The Moon Over the River on a Spring Night 春江花月夜,” by Zhang Ruoxu 张若虚 (660-720).  One translation of the first two lines is: 
 
“The spring river rises and falls, blending in with the ocean
A bright moon peaks out, surging with the waves
Waves shimmer under the moonlight, stretching into the distance
The moon and the spring river accompany each other.”
 
The idea of gongchaocheng is that of the moon appearing on the horizon at the same moment that the surging river pours into the sea, the two blending together and appearing as if one.  Commentary on the poem, or at least on this part of the poem, emphasizes the aesthetic uniqueness of the moon’s meeting the water, and one can understand that this might well be a stunning visual moment. 

​The rest of the poem seems to be about separation or loss, the moon representing the possibility of reunion, as it often does in Chinese poetry, so the initial image seems to be holding out the possibility of a glorious reunion, somewhere, somehow.  It is probably obvious to Chinese readers why Xiang Shuai chose this image, but I confess that it is not obvious to me.  My best guess is that it is an image of the best possible outcome in a difficult, fractured situation, the same thing Xiang is hoping to produce with her new narrative.  But I am not much closer to being able to translate it.  Again, suggestions welcome.
 
Translation


2023 -  Say Goodbye and Walk Away
 
Expectations
 
Let’s start with the word “expectations.”  My Ph.D. advisor at McGill University was Professor Susan Christofferson, who is now the Dean of the University of Toronto Business School.  When I first started studying with her in 2006, I complained that studying finance was too hard and that it would take years off of my life. She reassured me, saying: "Once you master finance, you'll know everything, you’ll have a happy marriage, and live to a ripe old age."  “Why,” I asked?  “Because you will know how to deal with expectations.”  At the time, I was too young, and took it as a joke. This year, I suddenly realized that my mentor was not giving me a finance lesson, but rather a life lesson.
 
How to deal with expectations is probably the most important thing in life. Trying to understand this, I discovered that the answers to many of life’s questions are to be found in a financial model.  Take for example the famous CAPM (Capital Asset Pricing Model).  In layman’s language, what it says is that the return on any one asset can be broken down into two parts – one part comes from the market assessment, called Beta, and the rest is called excess return, or Alpha, in the model. 
 
Think about it:  for individuals, what is the most important market consideration when we are talking about any of our “long term assets?”  It's the era we live in. There’s no doubt about it; the pluses and minuses that come with an era are our biggest Beta.  Following this insight, I thought carefully about all the people around me, and realized that the ups and downs of our lives in the past forty years are the result of several huge waves - industrialization, urbanization, globalization, and Internet digitization.  So the ruptures and pain we feel today are also almost all closely related to the changes in these waves.
 
Industrialization came to an end in roughly 2012, and in the future will be mainly dependent on technological progress and industrial upgrading. A recent McKinsey report said that manufacturing will be the industry most affected by AI, which will replace 64% of manufacturing activities. This leaves you feeling the same way you do when your roof leaks all night long in a rainstorm. 
 
Urbanization is closely linked to the wealth of most of our families. In 2022, China's population for the first time showed negative growth, so the simple, massive, population-driven urbanization dividend is gone, and what’s left are but bones to gnaw on.
 
There’s also the Internet, which grew like crazy for so many years.  In 2021, the year that platform governance began, China's Internet access rate and per capita Internet usage rate both declined for the first time, meaning that the Internet wealth creation model with which we are familiar also has come to an end.
 
You surely feel that everything is changing.
 
Times have Changed
 
Talking about change makes me think of someone.  That person is Zhou Qunfei 周群飞, the world's largest supplier of Apple's cell phone screens, the founder of Lance Technologies.  Her personal history combines almost all the core elements of the past forty years.  
 
Zhou grew up as a girl in a remote town in rural Hunan.  She did not graduate from secondary school, and instead went south to look for work in Shenzhen as a teenager.  She became a grassroots entrepreneur and set up factories to manufacture screens for cell phones, and then became one of Apple’s earliest suppliers.  This was her break, and then in 2015, after the successful listing of Lance Technologies, the market value of the firm leapt to 200 billion RBM (approx. $27.4 billion USD).
 
But times have changed.
 
The market value of Lance Technologies has shrunk by 65% over the past two years. In fact, Lance Technologies is doing okay if we note that the market value of 25 of China's A-share Apple suppliers has shrunk by an average of 70%.
 
So I’ll say it again:  the profits an era brings or the shock it delivers are our biggest Beta. Who is not at the mercy of fate?
 
In fact, this is the biggest Beta the era is throwing at us at the present moment:  globalization is falling apart, producing “islandization.”   I made up the word “islandization” for last year’s talk, and I remember saying at the time that globalization implies a big, flat market where all kinds of factors flow freely, while islandization means that this market is separated by various factors such as politics and ideology, while remaining inextricably linked in terms of economy, industry, trade and finance, so that any blow to one part affects the whole.  I remember saying that the era of islandization was destined to be one of great suffering.
 
This time last year, islandization was still an abstract concept, but now, a year later, many people are starting to feel it.  The other day, a group of economists met to discuss what counter-cyclical policies should be adopted to prevent the economy from going too far south, which naturally led to the topic of whether or not inflation would come down in the United States, which in turn prompted someone to say: "Jesus, the cycles of the world's two largest economies haven't been so out of sync for a long time.” 
 
But is it just economic cycles?  Recently, someone was planning a trip from Shanghai to Boston, only to learn that an economy class, round-trip ticket cost 20,000 RMB (approx. $2700 USD) and took 40 hours. Four years ago the same ticket was 4,000 RMB (approx. $550 USD) and took 20 hours.  In 2022, the number of categories where China accounted for more than 40% of U.S. imports was 9. Five years ago that number was 19.
 
Change is everywhere.  This is what I see in 2023:  Industrialization, urbanization, globalization, Internet digitization, these huge waves that have lifted our lives, one after another, are either disappearing or turning into wild, turbulent currents.  No one can escape.  If you think about it, all the various shocks we are experiencing, in housing prices, investment, employment, exports, the stock market, exchange rates, etc., all of them are just reactions to these waves of change. And the higher we were lifted by these waves, the deeper the pain we feel in the present moment. 
 
Take the real estate industry, for example. In June of this year, I read a Goldman Sachs report that said China's real estate market is expecting an "L-shaped recovery."  By “L,” they mean that expectations were very high, and have fallen completely flat.
 
Human expectations are a product of history. Just like in financial modeling, expected returns are based on estimates from historical data, but once there is a structural change in the market, the model fails.
 
Which reminds me of a famous story from the world of finance.  John Meriweather, Mellon Shores, and Robert Merton once ran a firm called Long-Term Capital Management.  One of the trio was a Wall Street bigwig and the other two were Nobel Prize winners.  Some people said that this firm had the highest IQ density in the world, and that its returns on investment exceeded 40% a year between 1994 and 1997. The Economist wrote that Long-Term Capital Management had finally turned risk control from a mystery into a science.
 
But it turned out that something big happened in the market in 1998 – the Russian Prime Minister suddenly announced that the ruble had been devalued and trading in treasury bonds suspended. In other words, a major country publicly defaulted.  There was no precedent for this in modern financial markets, and the probability of its happening was about "six to seven Sigma outliers" - the equivalent of saying that the entire universe wouldn't last long enough for this to happen.  Long Term Capital Management was holding a lot of rubles and Russian treasury bonds and was highly leveraged. 
 
But it happened.  So within about four weeks, Long Term Capital Management found itself on the brink of bankruptcy. In other words, a "structural change" made a joke of the expectations of a group of geniuses.
 
So, when I think of the "joke" my teacher told me - "Once you master finance, you'll know everything, and live to a ripe old age because you know how to manage expectations" - it suddenly dawned on me that she was telling me that long-term capital management was a joke.
 
Suddenly, I realized that she was telling me that once you master finance, you will understand that expectations are all about adjustments.  The premise for the idea of “stable expectations” is that "the market structure is steady," but once there is a structural change in the market, your expectations will fail.
 
So, this is what we see right now:  when the era experiences a structural change, expectations based on history become a burden.
 
This is Where We are Now
 
Earlier this summer, a couple of friends and I were strolling around West Lake at night, discussing the future prospects of the economy. 
 
I asked whether the downturn would continue, and one of my friends laughed and said “when you ask that question, you already have a benchmark in mind, whether it’s 1992 or 2001.  The thing is, though,” he said, pointing toward the water lapping at the lakeshore, “this is where we are.  In the future, 2023 will be somebody’s new baseline.”
 
When he said that, a bolt of lightning went through my mind, illuminating any number of little things I had seen or heard about over the past year:
 
- Big real estate bosses saying that they are now personally involved in deals of merely a few million RMB.
 
- Analysts looking at companies and prioritizing risk resistance, followed shortly by short-term profitability.
 
- People putting still more money into savings, and young people paying off their mortgages early.
 
All these little things came together in head, and I thought:  the body is always more reliable than the mind, and we are already muddling our way toward changing our expectations through our behavior, even if no new consensus has taken shape. On other words, the historical Beta of the past forty years has undergone structural changes, and we need a new model to formulate new expectations.  This is why I decided that the theme of this year’s talk is “say goodbye and walk away.”  Say goodbye to the historical Beta and turn around to look for the Beta of the new era.
 
Speaking of goodbyes and turnarounds, I had a conversation with my mother in 2018.  This was when I was about to leave my job at Peking University, at the urging of many people, including famous senior economists in academic circles.   I said to my mother “This is still Peking University, and I am still a woman, and what’s more I just had a baby…Should I think about it some more?”  Then I added: “Mom, people say that Wuming Lake [on the Peking University campus] is an ocean [in other words, Peking University is a world, and I have succeeded in that world].”  She looked at me and answered: “Then how do you know you’re not a bird?”  And sure enough, it took me five years to change from a fish in that lake into the bird I am today.
 
My mother is in the audience today.  You were right, Mom, by leaving sea level I took flight, and found my own horizon. 
 
Psych blogs tell us that the best way to say goodbye to an old relationship is to start a new one; shouldn’t the same thing be true for human society? 
 
In 2023, it's time to say goodbye to sea level.
 
So tonight, let's all turn around and see what kind of new narrative we can shape if we use the sky as our new benchmark.  Let me welcome you again to the Xiang Shuai’s 2023 Wealth Forecast.
 
AI’s Creation and Destruction
 
Artificial Intelligence
 
When it comes to the new narrative for 2023, surely the least controversial thing would be artificial intelligence.  The first time AI sort of made me flinch was when I saw the number of employees at Midjourney.  Midjourney is the hottest AI drawing tool in the world right now, with 16 million users worldwide and over $100 million USD in revenue in just over one year.  Guess how many people there are in a company like this?  Eleven. Compare this to the world's largest traditional commercial photo library, Getty Images, with $926 million USD in revenue and 1,700 employees.  Simply put, the comparative ratio of output per person is 17:1.  This comparison gave me the vague impression that what AI brings is not "efficiency improvement" but "productivity improvement." So I told my team that we had to start learning about the AI tools available to us.
 
Then two weeks before this talk, something happened.
 
The pictures you see on the screen are from a loot bag we wanted to offer to people who were coming to the talk, which includes a badge, a bookmark, and a ticket to Treasure Island worth 365 RMB (approx. $50 USD), among other things. Where did they come from? Two weeks ago, when we did our little retreat to get the talk ready, everyone was chatting about what new things we wanted to include in the loot bag this year. I mentioned that I liked the look of the Chinese silk found at Mawangdui, a very high-end aesthetic. I felt stupid for saying this, but wild ideas like these kept popping into my head, even if I thought there was no way for us to produce them.
 
First I thought, you would surely have to know something about art or design to get started, and at least master some basic tools, like PS, AI, 3DMax, as well as computer-assisted design. But in primary school, I almost didn’t get my “three-good student” badge because I couldn’t draw, to say nothing about the materials and craftsmanship involved. So I thought these ideas were dead in the water.
 
However, some of my team members thought AI could help. The chief administrative assistant of our team is Wang Jiawen 王佳雯, a woman with a liberal arts background, who majored in journalism. One of our computer guys, Ma Cheng 马骋, majored in civil engineering, and knows a lot about ChatGPT. This pair of rookies invested their spare time in ChatGPT and Midjourney for a few days, put together a mock-up of the things we wanted for the loot bag, and then contacted a factory to manufacture the things you see on the screen. Did you notice that the "specializations" of these two rookies are what are called “dead-end” majors in 2023?   Civil engineering and journalism?
 
Whatever the loot bag is worth, they surely proved one thing: specializations aren't that important, right?  Many of you may think this is no big deal, but what it says to me is that specializations are being redefined by AI.  Why? Because AI can provide human beings with whatever “specialized ability” they might need.
 
So it might not hurt to think about where “specializations” came from. 
 
Following the Industrial Revolution, the division of labor in society has been consistently refined, as were the skills required of workers. The modern system of specialized education is a product of such requirements.  The advantages of this are obvious, in that you can become a "professional worker" in a certain field with a few years of training – a mechanic, an engineer, an accountant, etc. The reason why Germany had a strong industrial economy at the time was because of this.  Germany's industrialized economy was the product of specialized education, so everyone was eager to follow suit, and after reaching a certain level of economic development, the idea of a "specialized society" became mainstream in the industrial age.
 
So specialists like us are in fact the product of industrial society, but as the division of labor became ever more refined, we note the emergence of pyramids within specializations and pyramids in university education.  Shi Zhan 施展 has a graphic description of this refinement of the division of labor in one of his books.  He says that specialization is like digging a well, in the sense that the more you study, the deeper you dig.  The deeper the well, the greater the accumulation and improvement of knowledge and skills for society as a whole. 
 
But this approach also comes with a problem, which is that people looking at the well from above cannot see what is at the bottom, which is what we call a "professional threshold."  Each well also produced its own specialized language, understood only within the particular field.  The purpose of such insider language is to improve the efficiency of communication within the field, but at the same time, it also sets up barriers to those attempting to understand the field from outside.
 
If everything is in a stable state, then this is no problem, but in the last decade or two, as technology has changed, many new wells were drilled and old wells were deserted. So a world in which specialists are remaining in their own deep wells is becoming less and less responsive to the needs of the day.  So I understood why, when I was recording my course for Dedao 得到,[2] founder Luo Zhenyu 罗振宇and CEO Li Tianming 李天田  kept telling me not to use specialized language, because I was dealing with high-level outsiders.  In fact, what they want to do is to scoop out the water from this deep well and serve it to everyone, which is equivalent of demystifying my specialization.
 
I've also recently realized that the act of demystifying specializations essentially constitutes a reflection on our traditional society of specializations, and perhaps on the future evolution of this society.  So do you get it?  This thing, AI, has changed the fate of tons of people inside and outside the wells we have known for so long.  Which is perhaps one reason we are here tonight.
 
Long Live Skills!
 
If we say that Dedao is one path toward the AI future, then the AI tools that came along this year, represented by ChatGPT, took a big step forward pushing toward creating the AI era.  And this not only demystifies specializations, but also deconstructs them, so that more and more "professional abilities" are included in your standard AI configuration package.
 
But the flip side of creation is always destruction, meaning that the barriers to the professions we once prided ourselves on are being torn down, and more and more wells are being abandoned. To tell the truth, the specialized society as we have come to know it is about to change dramatically.
 
Speaking of which, I remember a hot Internet topic from June this year, when the influencer Zhang Xuefeng 张雪峰 advised young people "not to major in journalism even if someone beat them to death."  Zhang understood the problem clearly enough but did not explain the logic correctly.
 
What he got right is that the journalism specialization has really changed a lot in the past 20 years.  In a sense, there is no longer any threshold to becoming a professional journalist.  It’s not like 20 years ago, when only graduates with a degree in journalism could get into CCTV and major newspapers. Now, almost everyone can speak out on social media, publish posts online, and make short videos.  What Zhang got wrong is:  is there really no future for journalism majors?
 
Some of audience members might well want to argue with Zhang Xuefeng.  I see in the audience Luo Ming 罗明from CCTV and Zhang Wei 张玮from the Liberation Daily, and a lot of people involved in the media marketing industry.  In fact, in the past few years, a lot of people who have done well in self-media or have had notable successes online have professional media backgrounds, people like Wu Xiaobo 吴晓波, the founder of the video platform Yitiao ergeng 一条二更, as well as Wang Xiaolei 王晓磊 and Zhang Wei’s wife, the mysterious Shi Liupo 石榴婆.[3]
 
Why? Because in the era of AI, specializations fade away, while skills live forever.
 
Last year, we released a "China Occupational Skills Development Database," which listed the risk factor of being replaced by AI for over 400 jobs, and then noted the three skills that AI has difficulty replacing: creativity, social intelligence, and craftsmanship.  These skills have one thing in common: they are difficult to standardize or are what we call "non-codable."  This year, however, as AI has expanded, many skills that were previously considered non-codable, such as drawing, design, and arranging music…many of the intermediate steps involved have in fact become codable.
 
What does this mean? It means that what we now think of as "good professions" may not be good professions much longer.  Especially after 2023, you may find that change comes faster and faster, as people abandon the old to embrace the new.  This is because the logic of what is a good or a bad profession is based on the logic of industrial society and specialized education, and the "professional society" this produced is now being taken apart and restructured by AI. 
 
Do Not Be a Helicopter Parent[4]
 
Seriously, the whole idea that professional society is being deconstructed has made me take another look at myself.  I’m a mother of a five-year old, and your basic Haidian mother,[5] you know.  But I feel a lot better after understanding this year that the era of AI is upon us.  I happened to see a video by Elon Musk the other day that enlightened me and reconciled me to the times.  Musk believes that traditional education in the United States focuses on specialized knowledge but does not teach children how to solve problems, which is a fundamental mistake. So he just built a new school, Ad Astra, the goal is to create the Tesla or SpaceX of the educational world, and the school’s method is to focus on general education, not worrying about ages or grades, allowing students to choose their own courses, with an emphasis on math, science, humanities, and ethics.  So it’s very "first principles."
 
I'm not Elon Musk, so of course I can't be this high-handed and freewheeling. But this reflection made me realize that that I should not be a helicopter mother.
 
In fact, I have always wondered why we Chinese are particularly good at test-based education.  Education has two attributes:  value attributes, which tell us how to become a better person, which correspond to idealism; and instrumental attributes, which teach us to master a skill that can make us a living, which correspond to pragmatism.  Pragmatism is highly compatible with traditional Chinese mentalities, and we’re very good at it.  Whichever profession allows us to get ahead, we make a beeline for it. 
 
You remember Eileen Gu, right?  The Chinese American Olympic champion?  Skiing is very difficult and costly, but once we learned that it could be a path into the Ivies, it was embraced by Bay Area Chinese parents in a flash, and recently, helicopter parents in the Bay Area are taking aim at this noble sport, and will shortly succeed, unless I miss my guess.
 
So what am I worried about as a Haidian mom?  Even from a pragmatic perspective, it looks like the lifespan of all tools is getting shorter and shorter with the onslaught of expanded AI.  All I really know about the future is that I don’t really know what it will be.  So I’ve decided not to be a helicopter parent or to guide my son.  Because the future he will face is a whole new world, with new games and new rules. The anxiety I feel now is not worth thinking about.  As a result, his father and I have reached two agreements on my son's education:
 
1. Completely discard all expectations regarding his grades.
 
2. Encourage his logical thinking, his interest in learning, and his desire to express himself.
 
I think this is my biggest takeaway from this year, that the future of education can be less pragmatic and more idealistic when it comes to choosing a major.  Why? Because the advent of AI will make today's practicality impractical in the future. Similarly, the development of AI tools will also mean that those who want to follow their heart may be able to do so. 
 
The new era is here. This era may be philosophically different from the industrial era in which our generation has been brought up, and there is no telling at what point existing experiences will be discarded.  Therefore, my sole expectation is that my son can become a member of the original tribe of the AI era, a tribe member with the ability to survive. Because the competition he will face in the future will be brutal.

Become Yourself
 
Many things have sent shockwaves through the specialized world in the last few years.
 
In 2020, the Massachusetts Institute of Technology (MIT) announced the discovery of a new antibiotic using AI. In the last 100 years, mankind has discovered just over one hundred antibiotics, each of which took an average of 10 years and cost a billion dollars.  How long did this antibiotic take? After the model was determined, a few days. Talk about efficiency!
 
I also saw a news item a couple weeks ago that Harvard's computer science department uses AI as a tutor. Harvard faculty are at the top of the pyramid of the society of specialization I talked about before, but that bastion has been breached.
 
There are many more examples.  Best-selling novels sold on Amazon's are written by AI, AI has solved outstanding problems in mathematics, and you can bet that this is just getting started.  Nothing is safe from the assault of this new technology.
 
It’s worth asking why AI seems so powerful. The answer is that AI learns in a completely different way than humans do.  Humans start from scratch each time, so the depth and breadth of knowledge accumulation is very slow.  AI is more like compound interest, in that each generation of AI is the next iteration of the previous generation.
 
So what’s coming is the terrifying "era of compound interest knowledge.”  The problem is that the knowledge that is compounding is AI knowledge.
 
Given our physical hardware, humans will not be able to compete with AI in terms of absorbing and memorizing existing information.  So how are we going to compete with AI? That's what I've been thinking about, for myself and for my son. 
 
The answer of course is creativity, although it still seems a little abstract, and I’ve never been able to find the right way to talk about it.  Or not until a couple of months ago, when I ran across a quote by Naval Ravikant, an Indian American entrepreneur.  He said:  “There is no one better than you at becoming yourself.”  What this quote means is that true creativity is only possible by being yourself.
 
Can you guess who came to my mind when I saw this quote?
 
The Hong Kong celebrity Teresa Cheung 章小蕙, who has been one of the biggest draws on Little Red Book, China’s e-shopping platform, this year. With her artistic sensibility, she can sell 600 million RMB (approx. $82 million USD) of merch overnight. As a celebrity, she just loves to shop and is good at shopping and buying things.  Who would have thought that knowing how to shop and loving to buy things could also be a huge asset?  Her example instantly made me realize that becoming yourself is finding those things that you are comfortable doing and that easily create positive feedback. Then you amp that effect with media and code.
 
All of us have something we are good at, right?  It could be reading books, taking exams, coordinating and communicating, integrating resources…But there are a lot of people who are not good at such things, and who love to play checkers or cards, dance or cook, or chat with people, or gossip about celebrities, or tell fortunes with tarot cards or astrolabes…This is what gets them excited.
 
So now you’re already thinking about a ton of people, right? Uncle Kai the storyteller, Tao Baibai Sensei who reads the stars, and all those bloggers who gossip about the entertainment industry......
 
I do sometimes think that we have to believe in the magic of creation.  All of us eventually discover something that we don’t have to force ourselves to do, something that is easy to stick to, easy to feel excited about, easy to produce dopamine, and this is what stimulates our creativity, so that we can do something better than other people, something better than what we have now.  This is creativity.  Creativity is the part that algorithms can't figure out because it doesn’t yet exist.  I find that particularly exciting because it means that in terms of creativity, we are all pretty much at the same starting line.
 
But someone told me about another possibility, which is that AI will destroy faster than it creates, meaning that before the palace is even built everything will be in ruins.  I gave this some thought, and it seems to me that the AI we’re talking about today did not fall from the sky but evolved from big data and cloud computing.  When did big data really start? Apple’s iPhone came out in 2007, and Android launched in 2008, so that the smart phone became the largest "data collection station," and human data suddenly exploded.  Then on top of that, cloud computing started to skyrocket, and then came the breakthroughs of AI.
 
What does this tell us? 
 
Artificial intelligence was not created by aliens; its development was a gradual process, and every progressive breakthrough in this process has had a huge impact on consumption and production.  Think about it, how much our lives, business models, and organizational structures have changed since 2007.  Isn't today’s talk a tiny product of this era? In fact, it's only been 15 years.
 
I don't know why, but when the topic of AI comes up, this background music plays automatically plays in my head:
 
"Push open the door to the world.
You're the one standing outside, afraid of being late.”
 
Don't you think this particularly appropriate for us, the future immigrants to this new age?
 
So, how far is the future, after we push open the door to the world?  Not tomorrow, but not that far:  15 years or about 5,000 days. This is the judgment of the famous futurist and founder of Wired magazine, Kevin Kelly.  He said that from the emergence of the Internet in 1991 to its popularization in 2006, it took about 5,000 days, or 15 years. And after about 5,000 days or 15 years between 2007 and 2022, social media appeared.  So the next 5,000 days will see continuous iteration and popularization of AI, changing every aspect of the world yet again.  If we take the introduction of ChatGPT 4.0 as the starting point for the new future - come on, do the math, how many days do we have left?  5,000 minus 136 equals 4864, divided by 365, equals a bit more than 13 years.
 
Let's go, let’s push open the door to the world.
 
China Chief Information Officers
 
Intelligently Made in China[6]
 
On the other side of the door is artificial intelligence, and on this side of the door there is a huge manufacturing industry, and how "Made in China" can transform itself into “intelligently made in China” is the $64,000 question of the day.
 
In the past couple of years, my feeling has been that there have been too many buzzwords floating around this question, such as full-flow data connectivity, full value chain business synergy, digital twins, and the industrial Internet…But how to learn this, how to move up, how to become this, was not clear to me.
 
In March this year, someone in my enterprise WeChat group recommended that I go visit a company in Foshan, saying that digitalization was well underway there.  The name of enterprise he mentioned is Rifeng 日丰.  What does it make?  Pipes, like the ones in your kitchen, bathroom, or for heating or gas, those pipes.  Sounds like no big deal, right? Its annual output value is more than 8 billion RMB (approx. $1.1 billion USD), which is not nothing.
 
The first time I went, I met Yin Lang 尹浪, the CIO of Rifeng.  I asked him how they had handled the digital transformation, and the first sentence of his answer struck me:  “We didn’t ‘do’ digital transformation.  Digital transformation is the word we use to describe something that happened to us.”  Why? Because businesses have to keep solving problems in order to survive, so:  "From a business perspective, digital transformation is about solving problems at different stages using different tools."
 
He gave me an example: a few years ago, in order to solve the problem of illegal copying and selling in the market, each piece of pipe was given a QR code, which meant that the product was now online.  Then something interesting happened.
 
In Shandong, a plumber was repairing leaky pipes in a client’s home, and wondered whether an entire batch of pipes might have problems, so he emailed the engineers, who went right over and found out that he was right.  Headquarters then decided to recall this batch everywhere in the world.  I’ve heard of cars being recalled before, but this was the first time I’d heard about it for pipes.
 
Another thing:  pipes are not the same size, which posed the problem of how to load them efficiently onto the trucks.  This used to be left to experience of the loaders, but now all the information was online, so they could use an algorithm, which wound up saving almost 15% of the loading space.  Transportation costs rose a lot during the pandemic, so this translated into big cost savings.
 
After listening to him, I immediately thought of a term I had seen over and over - digital full life cycle product management – and began to grasp what it meant.  For the first time, there was a concrete scenario in my mind for the "digitization of China's manufacturing industry," which until then had been just empty words.
 
The CIO told me that they are not the exception, and that many companies in Foshan are going through the same thing. I told him that I would like to meet with them and talk about what the reality of manufacturing digitization is really like.  Yin Lang then set me up with a group of CIOs, including some in traditional fields like household appliances and bathroom supplies, as well as newer things like photovoltaics and semiconductors.  The companies were of different sizes, some listed and some not, the smaller with revenues of 3 billion RMB (approx. $410 million USD$) and the largest with 80 billion RMB (approx. $11 billion USD). 
 
Some people may feel like 3 billion RMB in annual revenues is no big deal, but in the context of China's total of more than 3 million manufacturing enterprises, those with annual revenues of 3 billion probably rank close to the top, meaning that, if we ignore a few giant firms, those of this size are the crème de la crème.  We might say that they represent the brightest examples of digitization in Chinese industry. The pain they have experienced and are experiencing tell us where the rest of the industry is headed.  Let me tell you two stories that left a deep impression on me.
 
The CIO of a building materials company said that he joined the company because the boss thought that the two of them were "especially compatible [lit., our “eight characters really lined up” – the Chinese version of “we have the same sign”]" - an odd reason, but also very Chinese, right?  When he started six or seven years ago, the company was already quite large, but there was only a bookkeeping system and an IT team of about 20 people, who worked mainly on maintaining production equipment or the few computers they had.  And guess what was the biggest headache for him? To rack his brain and figure out how to convince his boss and the other executives that they needed to buy computers and software.
 
Doesn’t that sound like a joke? Not at all!  In those days, real estate was booming, so if you had building materials to sell, you sold them.  Who cared about “data,” a pure waste of money.  This may sound like a bit of black humor, but something like this happens every day to some manufacturing industry in China.   The problems are always more concrete and more unexpected than you imagined.
 
(Points to the screen) What do you think these things are called?  Screws? Galvanized screws?
 
Congratulations, that’s exactly right. How many of these things are on a gas water heater? Probably a couple dozen, and with all sorts of names.  So the first problem the CIO runs into is to standardize the names of materials in the internal information system.  Why does he need to standardize them? Because if the names are different, they’ll have different codes, communication between departments will suffer, procurement orders will be all over the place, which weakens the company’s bargaining power, and inventory management will also be chaotic.  He told me that this is called "material standardization," and this is the foundation and starting point, because without this, digitization is meaningless.  It seems really trivial, right?  You’re right, at one level it is trivial.
 
I asked the CIOs , isn’t this the most basic IT work?
 
The CIOs all laughed, and said “Right”:
 
The first step was equipment automation; then different departments started to digitize on their own, using different systems, such as OA, ERP, and OMS; then they brought things together, moving toward a single system where the data could flow back and forth; then they collected device data through the communication interface; finally, the data circulated throughout the enterprise, and then fed back to  production, sales, and management. This process, coupled with higher-end technical capabilities, is what everyone understands as enterprise digitization.
 
Every step of the way, it's very trivial. But that’s what life in a company is.  But a forest of steles is built out of bits and pieces.  So my first impression of digitization in Foshan is that it was gradual.
 
The second impression had to do with "stimulus." What do I mean by that?
 
Most of the consumer electronics industry is a multi-tier dealer system. There are distributors below the agents, and stores below the distributors. Prior to digitization, enterprises usually managed only the important agents because they couldn't manage the rest. Therefore, orders went from the stores to the distributors, then to the agents, and then finally to the enterprise, which arranged production.  As you can imagine, if there are a lot of orders, the cycle from orders to production would be relatively long; production scheduling, procurement, logistics, everything would follow this "low-frequency/large-order" rhythm.  With digital tools, everyone is linked together, and orders go directly from the stores to the factories.  This is called “marketing digitization,” and this is where the stimulus begins. 
 
The CIO of a company that makes water heaters told me that in the old days, there were 200 agents, who placed an order once a month for a few thousand units; now there more than 6,000 stores sending in weekly orders for 8 to 10 units.
 
What do you do? First, you streamline your catalogue, and get rid of models that don’t sell or that are obsolete.  Then you optimize the algorithm, arranging things so that the same models on similar delivery cycles are produced first, which reduces the time necessary to change molds and production lines, and at the same time gradually improve the rapid response capabilities of production scheduling, procurement, and logistics, so that even small orders are produced quickly.
 
This achievement stimulates enterprises to do their own upstream and downstream supply chain digital integration, because if the upstream and downstream cannot keep up, the chain falls apart. If any of these fail in the task, you have to let them go and find another partner.
 
The CIO of a company that makes aluminum parts said they were “stimulated” into digitalization.  Why? Because they make parts for some new energy vehicles, and these new energy vehicle companies had relatively high level of digitalization, and some of their customers proposed to link up with their systems, digitizing part of the supply chain.
 
So this CIO’s question was whether to do the same thing or not.  If you don't do it, you might lose the customer, and if you lose a few big customers, the company might be at risk. But if you decide to do it, you’ll have to make the necessary improvements.  So here, digitalization was the result of the stimulus, because not advancing means retreating.  Whether you are rowing against the current or getting out of the rapids, enterprises always have to make a choice. 
 
This stimulus has created a kind of digital ripple spillover in Foshan.
 
I understood this because of a question I asked. I noticed that many of the Foshan CIOs were from the Midea Group.  In one meeting of more than 300 CIOs, more than 100 were from Midea, or 30% plus. I asked why. They said Midea got its start in the 1980s with township enterprises and by the 1990s was already quite large.  Once an enterprise gets big, it has to invest in information management and develop a system, otherwise it cannot keep up. So they invested the money and did the work.  And as Midea kept growing, they upgraded their internal information systems. 
 
What do I mean by upgrade? It means keeping up with the advanced technology and tools available on the market, so as to slowly develop the enterprise's own digital capabilities, including technology, systems, and personnel.  And it produces results.  As I just said, if you want to do business with Midea then you have to digitize or you’re out.  And where do the enterprises who are trying to digitize to keep up with Midea get their personnel?  From Midea.  And when these enterprises who had been “stimulated” into digitizing grew and expanded, what they had done began to spread to their upstream and downstream partners, like a stone dropped in a pond, rippling out. 
 
There is an intelligent flat-panel enterprise that used to be a customer of Midea, and Midea (Midea Cloud Intelligent Digital) helped it digitize its finance and supply chains. This enterprise gradually grew into an industry leader, and feeling that their suppliers’ efficiency was low, and their own quality management requirements high, paid out of their own pocket for a set of production data collection and quality management system for more than 30 of their suppliers.
 
Complex Networks
 
Since I first visited the Rifeng factory in March, I have returned to Foshan many times, as if I was being pulled by some kind of interior force that seemed to have something to do with digitization and something to do with manufacturing – but there was something else as well.  I couldn’t put my finger on it, but it seemed to be a deeper feeling or thought that kept escaping. I talked to a lot of friends looking for the answer, but nothing clicked until I heard Professor Xu Yuan 徐远[7] say the words "complex network."
 
When most people think of Foshan, their first thought is the martial arts hero Huang Feihong 黄飞鸿and the lion dance team. But in fact, Foshan is one of the most densely populated manufacturing areas in China.
 
There are two hundred billion dollar giants, Midea and Country Garden, in Beijiao town, Shunde.  In addition, there are more than 100,000 large and small manufacturing enterprises, producing electrical appliances, ceramics, equipment manufacturing, food and beverage equipment, there are new industries, old industries…Everything you think of related to “made in China,” you can find here.
 
Adding this picture to what I learned on my trips to Foshan, I understood one thing:
 
Industry is essentially a complex network system; upstream and downstream supply chains, and even competitors, are a part of this network. They interact, collaborate, and compete.  Like a rainforest, the more complex it is, the stronger it is.  When have you ever seen a big, lonely tree? It's the weeds, moss, and anthills on the underside of the tree, the bugs on the trunk, the birds' nests in the branches and leaves, and even the poisonous snakes that give the tree its life.
 
What is the largest complex network? The market economy. Because what links all different forms or business, are complex network relations.  For example, the platform and the manufacturing industries are inextricably linked; the network linking real estate with its upstream and downstream supply chains and banks is even denser, so that pulling one thread makes the whole body react.
 
Therefore, in the market economy, the notion that “a whale falls and life begins anew” is not something we say, because no one can be alone in the market system.  What is the greatest characteristic of the network created by a market economy? Autonomy.  Gradual stimulus and ripple diffusion is what autonomy means.  Foshan’s large and small enterprises, are not hot-house plants, fertilized, watered, and pruned by a third party.  Instead they are the fruits of the earth, that change their survival strategies with the seasons and adapt to the environment to create a true ecology.
 
There are many such ecologies in China:  the Foshan CIOs, the manufacturing industry and Midea, the communication equipment industry and Huawei, e-commerce services and Ali ...... These are all examples.  Autonomy means being more vulnerable but also more resilient.
 
Before I went to Foshan, I had the feeling that manufacturing digitization was a bit nebulous. Having spent time in Foshan, my conclusion is: "It's hard work, but it’s not frivolous."  In a place like Foshan, if a company is to survive, digital transformation is a must, meaning constantly applying new technologies and upgrades to the existing manufacturing base.  There is no “lying flat,”[8] because if you lie flat, you’re out.  This means that China's manufacturing industry is much closer to the digital era than we think.
 
I understood how these companies are struggling with today’s difficulties, getting ever closer to the new era, but I understood all the more the force of the idea of the "market," and how tenaciously and continuously it supports China's manufacturing industry and China's economy.

The “Virtual” Economy and the “Real” Economy
 
One of the things I've struggled with over the past two years in my research on digitization is how to separate the "virtual" and "real" parts of the economy.  Everyone says that manufacturing is real and platforms are virtual. But for me, one of the keys to the digital economy is that the boundary between the real and the virtual is dissolving.  Still, I had been unable to find a concise logic to make this idea clear. I figured it out this year.
 
The first thing is that when I met with the CIOs, I discovered that there were a lot of digital service providers in addition to manufacturing companies, including big players like Ali, Tencent, Byte, and Huawei. I understood that, in fact, a large part of the digitization of manufacturing enterprises has made use of the capabilities and tools of the platforms.
 
The second thing is a chat I had with a friend, Zheng Zeyu 郑泽宇, of Zhiyi Tech.  Like me, Zeyu is from Changsha.  He was a brilliant student, an Olympic athlete, and a young patriarch of China's artificial intelligence industry, and has always worked with platforms like Google and Byte.  But a few years ago, he started a company with another friend of mine, Feng Min 冯敏, who also a platform player in e-commerce.  What they are manufacturing is data for the clothing industry.
 
For example, where does digitization end for a piece of clothing, no matter which platform you sell it on?  For Feng Min, the answer is “the finished product.” No matter what type of e-commerce we are talking about, no matter how many kinds of SKUs are involved, what is digitized is the product itself. And what about the "finished product process?" Is this not what we call the industrial Internet? Isn't the digitalization of manufacturing an integral part of this concept?
 
A downward penetration, an upward growth.
 
Suddenly, I thought of a sentence I had written before - "A digital platform is not only an enterprise organization, but also an economic form." My abstract thinking had finally taken on a concrete form. In the static, dichotomous world, we are used to black and white distinctions, where platforms are virtual, and manufacturing is real. So it is taken for granted that if manufacturing is to develop, the platform needs to be minimized in some way. In the dynamic, actual world, what we see is this – the two are constantly approaching one another in their respective evolution. Platforms and the manufacturing industry are finally meeting up, which should win over countless people in the world.
 
A recent bestseller is called Why Greatness Cannot Be Planned: The Myth of the Objective, by Kenneth Stanley and Joel Lehman.  I think the digitization of Foshan's manufacturing industry has already answered the question.
 
YOLO: I Want It, and I Want It Now
 
You Only Live Once
 
Here's this year's May Day travel spending data:  compared to 2019, the number of trips is up 19%, but money spent on travel is up only 1%. The intuitive explanation is that we are seeing a downgrade in consumption since everyone is  spending less money. But sometimes things look different from a different perspective.
 
I traveled to Shanghai on May 1 this year, and talked to a friend about getting a driver, only to learn his driver had asked for time off and went on a trip.  This is a middle-aged man in his forties who hasn’t gone anywhere in ten years but who suddenly gets the urge to roam.  In fact, he and his wife took separate trips.  He took the car to Zibo with his buddies to eat barbeque and drink beer, and she went to Changsha with her bestie to check it out.  I put two and two together and decided that what the data showed was that there were 19% of people who, before the pandemic, never traveled, have now decided to give themselves a treat. Even if they’re not rich and not scrimping and saving, they still want to hit the road and experience life. After all, life is short and you only live once.
 
YOLO (You Only Live Once) is an expression that has become particularly popular over the past few years. It sounds like a mood, doesn't it? “Life is short, get out of my way.”[9]  It's not. It is a new kind of value.
 
A value is a trend of thought that has a profound impact on all aspects of society. What is the core YOLO value? Living in the moment. Why do you want to live in the moment? In the past couple of years, academics have worked a lot on this, and put together specialized models that show that YOLO means that the discount rate on the future has increased.  So if future pleasures are less attractive, then why not enjoy ourselves a bit more today. Remember the saying, "You never know which comes first, tomorrow or the unexpected?" National affairs, climate worries, all those viruses – these are all things beyond the control of us miniscule human beings.  So for those things you can’t understand or control, forget about them, set them aside, and focus on the now.
 
This expression also reminds me of another term - delayed gratification. Why is it possible to delay gratification? Because there is a definite expectation of the future that you can put off. But what if putting it off means you don’t get the gratification? In that case, I want it now, because – again - you only live once.
 
At present, the YOLO values are having a big impact on American society. The Economist wrote an in-depth piece on it which describes a young man, Nate Moseley, 29 years old, a buyer for one of the major clothing retailers in the United States.[10] He had been wanting to quit his old job for a long time, but hesitated, because he was making good money, $130,000 USD a year.
 
This year he put together a spreadsheet called “Mid-Twenties Crisis” and listed possible options for his next move: take a coding class, mine bitcoin, run for political office, move to the Caribbean, start a travel company…Then, on June 1, 2022, he made his move. Why?  Because after the pandemic he felt that the idea of going back to the way things had been was no longer appealing, "Time is a one-way street.  You only live once, so if not now, when?" It's YOLO, American style, and more and more people are choosing to throw their lives in the air, give up their comfortable and stable jobs, and embark on new adventures. 
 
The Economist magazine said that professional white-collar workers and gold-collar workers also began to adopt a "life is short, get out of my way" attitude. Many economists agree that such values are accelerating innovation in the United States. For example, in the hippie culture of the 1960s, many bigwigs in Silicon Valley were hippies, including Apple founder Steve Jobs.
 
Middle-aged and elderly people are also starting to wake up to YOLO. After 2020, many such people with savings suddenly began wondering why they had been working so hard.  They had always dreamed of going fishing in the Caribbean after they retired, or trekking the Sahara, or just soaking up the sun in their back yard. So, just like Wei Xiaobao 韦小宝 in Jin Yong’s The Deer and the Cauldron 鹿鼎记, they said “the old guy is hanging it up.”[11]
 
Subsequently, the US labor force participation rate for people past the age 55 fell by 2 percentage points, equivalent to 1.5 million workers permanently leaving the labor force.  What does this mean for the macro economy?  Inflation.   Labor supply tightens, (nominal) wages increase, which in turn pushes up prices across the boards. This is already the consensus in American economic circles. Ben Bernanke, former chairman of the Federal Reserve and winner of the 2022 Nobel Prize in Economics, said: "The US labor market participation rate has declined, and insufficient labor supply is the main factor that creating inflation."
 
YOLO in the United States is mainly reflected in the job market, while China's YOLO is a little different. There is a hot word in China this year – “special forces tourism 特种兵式旅游.” I downloaded a picture of Nan Duoduo 柟多多, a young coder in Chengdu, who blew up on the Internet because he visited China’s five sacred mountains in five days. This young man is a travel enthusiast, and this year he suddenly had the crazy idea to use five days of vacation to climb the five sacred mountains.  Which is what he did.  He got off work on April 28, and immediately left for his first stop, Hengshan, in Hunan province.  He got to the top by noon, climbed back down, and immediately left for his next stop, Songshan in Henan province.  He climbed to the top, checked it off his list, climbed back down, and left for his next stop, Taishan, in Shandong province.  Then Hengshan in Shanxi province and Huashan in Shaanxi province. Five days, five cities, glimpses of five mountain tops.
 
I didn’t really get it at first, but then I took my son to Shenyang for a special forces trip on May Day. Economy class seats on a 6 a.m. flight.  We did the Industry Museum and had some street food. Then we did Beiling Park and even worked in a couple of arcades, and then took an 11 p.m. flight back to Beijing.   It was great, a feeling of living a concentrated life.
 
Then I thought about Nan Duoduo again, and I suddenly understood—isn’t life just movement? We all know the expression "once you’ve seen the five sacred mountains, you’ll never look at another.”  So think about it:  five days, 120 hours, you’ve crammed into one long weekend an experience of mountains and rivers that most people take half a lifetime to achieve.  How can this not be exciting?  And most important, it’s affordable. Therefore, Chinese-style YOLO will be reflected in the consumer market:  on the one hand, because household balance sheets are not in great shape, people will watch what they spend. On the other hand, they really feel that life is too short, and they want to experience more. So we will find many strange paradoxes in consumer behavior, which will look like downgrading, without being exactly that. I call this Chinese-style YOLO = low cost, rich experience.

Maple Leaf Auto
 
I was talking to the founder of Maple Leaf Auto about this a couple months ago, and he immediately agreed with me. "Designing products that reflect the values of the times and providing services that reflect the values of the times is exactly the trajectory of our company." For example, he said, why should we cut into the high-end car rental market because of the weak economy? At first, we were thinking along the lines of "consumer upgrade vs. consumer downgrade." But think about it.  If you bought a Passat 10 years ago, how much did you pay for it?  About 200,000 RMB (approx. $28,000 USD), right?  Well now, that’s about what the BMW 3-series costs, so it’s hard to define what’s an upgrade or what’s a downgrade. But the user's pursuit of quality is consistent, so from the outset Maple Leaf decided to allow customers to "enjoy more high-end quality for less money."
 
Then they discovered that for younger customers, the difference between owning a car and using a car is less and less clear.  For older people, a car is a symbol of status and wealth, but for young people, it’s just a way to get around. What young people seek is how they can have a better driving experience and have different kinds of fun by experiencing different products. So another starting point for Maple Leaf came to be, to let customers "have more experiences for the same amount of money.” 
 
Given this, foregrounding the high-end car rental scene seemed like the natural thing to do. What was especially interesting is that they discovered that customers who go in for high-end rentals are ten years younger than the company had initially imagined. So they began to look more into the value orientations of young people, for whom cars are now less an asset than a toy.  Consumer behavior has changed, and the sales model has to change with it.  The key word is “experience.”
 
So they started to think:  why can't we create an experience for customers with more frequent changes built in? For example, young people would like to drive cars like Porsches, Mercedes-Benz, BMWs, Volvos, and Teslas, but they are too expensive, especially the new models.  So Maple Leaf is launching a new service called “car subscription.”  Car subscription is similar to long-term rental, but long-term rental means that you drive one particular car for a certain period of time. Subscription means that when you get tired of the car you’re driving you can swap it for another in your subscription pool.  Their conclusion is that the difference between leasing and subscribing is that subscribing is a solution to a mobility problem.   For this to work, of course, it has to be in line with changing social values, which in the case of Chinese young people and their views of cars and the car experience, turns out to be YOLO.
 
The Maple Leaf case also reaffirms my belief that YOLO in the Chinese market will take the form of "cost-effective, high-frequency, rich experience" consumption. Following this idea, many consumer possibilities make sense. For example, in the small home appliance industry, there are endless new models of tea kettles, egg cookers and air fryers; and in the tea and beverage industry, we see a concentrated push of co-branded products trying to break into the market. ...... Behind all this hustle and bustle are the YOLO values of speed and experience, the idea of penetrating something quicker, and for less money.

Life is like a Summer Flower
 
I have a deep feeling about YOLO because I am from Changsha. Changsha is a city with a particularly strong spirit of YOLO. In the past couple of years, everyone I met has told me how much they love Changsha.  Why is that? I think it is the YOLO temperament of the city, which happens to fit the spirit of the era.
 
I went back to Changsha last month, and walked around the parts of town that are popular online, the Tianxin District and Jiefang West Road, and saw a bunch of familiar stores and brands that started out in my hometown. Many of these brands were social media darlings; I did some research and found that there have been 86 internet celebrity brands in Changsha in the past few years, one wave after another. Some of them of course crashed and burned, but that’s what Internet popularity is. 
 
Some scholars who are into “brands that last” are quite critical of these products that only “bloom once,” but I think it’s normal. I was watching Warren Buffett's live broadcast the other day, and I saw that he still drinks Coca-Cola. I suddenly realized that a brand story like Coca-Cola would not happen in a YOLO era, not because the product is not good, but because supply is more abundant, tastes are more open, and information flow is faster - you can reach more customers in a shorter period and occupy a larger market. 
 
So what does that mean? Being popular for one year now may be the same as being popular for ten years in the past. So for products and brands, you are facing a broader but more fleeting market. In a YOLO era, “life is like a summer flower” may be the norm.
 
This year, I have given serious thought to the words "life is like a summer flower."  In the past, time was like a deep pool, months turned into years, changes occurred slowly. Today, time is like a torrent, reaching a climax in an instant, to be swept away in the next.   But is there not value in having bloomed, existed, been seen?   Take Zibo, for example.  Many people say that this is non-market behavior, a bubble, nothing but hype.  And it’s true that the buzz for Zibo barbeque is fading.  But let’s look at it from another perspective. The lives of many small businesses in Zibo have changed in just these two months of crazy popularity:
 
- A young fellow named Yi Yang who sells duck heads made a million in sales in an overnight broadcast.
 
- The profit of local cookie shops used ballooned to one million in April and May, and has now fallen "precipitously" to 100,000, but it is still much higher than before.
 
From a personal point of view, I can think of many examples where one month became one year, or even ten years. From the perspective of the city, Zibo is now on the map.  Forget about the vast amounts of data generated by Zibo over the last little while, even economists are talking about the place, which is surely unprecedented? I think this value is probably greater than the pamphlets cities hand out listing their projects.  Having been seen is also a kind of luck.
 
These things keep me thinking about "time" and "space." As information creatures, the two dimensions of time and space are what we human beings have. Since Apple created the era of the mobile Internet, data has gushed out. What does this mean? It means that our “information space” has been infinitely expanded, and the speed of information flow is continually accelerating. The "time" we feel is consequently compressed, shortened. We may experience something as a mere overnight hit, but in a more philosophical sense, this has to do with the relativity of time, because under today's technological conditions, time as experienced by all of life has become faster.

The acceleration of time changes things; brands, influence, and values are products of human consensus, and when time is condensed, the time required to create or destroy consensus will be accelerated. This means that YOLO is also a product of the relativity of time. Human space expands while time shrinks. In the age of YOLO, brands come and go, influence rises and falls, values fluctuate. For a brand, a person, or a city, it may be a pity to live like a summer flower, but does it not also mean that, in this same short period of time, everyone, every brand, every product, and every city, has the chance to be seen?
 
We are all creatures of technology. Looking back, humanity as a “creature” changed the day the iPhone came out. The emergence of general-use AI this year is just a step forward in this change. As an immigrant to this "future," I realize that the existing concepts and values will undergo or are already undergoing major changes, and if existing experiences are to go by the wayside, then there is nothing wrong with living in the present.
 
This is not being short-sighted, or being solely focused on pleasure, but is about the relatively of time. I think of the kid who ran out on the pitch and hugged Lionel Messi. I remember his upturned head and his fearless smile.  That’s the deal, you only live once, but I know that I have been seen and that I have changed and that’s enough. A long time ago, I asked myself if I wanted to be in the limelight forever, or if blooming just once is enough.  The answer is that it doesn’t matter whether you remember some future moment, whether it’s tomorrow or next year.  If we only live once, then you have to remember tonight, this night, and that’s enough.
 
Service Industry Industrialization 2.0

Digital Capabilities
 
As I just said, in the YOLO era, everyone, every brand, and every city has the opportunity to be seen—and this is not some “chicken soup for the soul” message, I’m talking about the realization of China's industrial capacity, not industrial manufacturing, but service industrialization. 
 
Let me talk first about what "industrialization" is. Everyone knows the famous Ford assembly line. Before the invention of the assembly line, it took 728 hours to put together a car, meaning they produced 12 per year, and it was a typical rich man's toy. With the assembly line, the time to build a car shrunk to twelve hours, and Ford produced 250,000 cars a year. Over the next decade or so, cars became standard equipment for American families. This is industrialization, which continually reduces costs through standardization and scale. Cars, refrigerators, TVs, mobile phones...they all came into the family life of ordinary people in this way.
 
The same goes for the service industry. Starbucks is a product of the industrialization of the service industry. Does anyone know how to make an Americano? I specifically went to a store to ask, and they said “I get to the store in the morning, turn on the coffee machine and pour in the beans.  Expresso comes out.  You want medium sized?  Press 1 and then add hot water.  The beans?  The amounts are pre-determined.  The roasting? It is an automatic program.” Doesn’t this sort of feel like the Ford assembly line? Everything is standardized and streamlined and can be quickly copied and pasted. It is just this set of industrialized assembly lines that has assured Starbucks’ world coffee dominance for years.
 
This is the power of the industrialization of the service industry—localized small-scale operations that, given standardization and scale, can become giants. The United States has always been the benchmark for the industrialization of the service industry: KFC, Burger King, Pizza Hut, Wal-Mart, Home Depot, CVS... But such power can be challenged, as we see in the case of Luckin Coffee 瑞幸咖啡:
 
- In 2022, Starbucks' revenue in China fell by 19%, while Luckin's grew by 53%.
 
- In 2023, the number of Luckin stores will exceed 10,000, after being in business for six years, while the number of Starbucks stores in China only just passed 6,000 after 23 years in business.
 
People say this is because of Luckin’s digital smarts. I kept wondering what the heck this meant until I looked at the two brands’ viral blockbusters.
 
- Starbucks' latest success is the Frappuccino, launched in the 1990s.
 
- Luckin's latest blockbusters are the Iced Raw Coconut Latte in April 2023, the Biluochun [a kind of tea] Latte in March 2023, and the Mascarpone Cheese Latte in October 2022.
 
In the past two years, Luckin has launched about ten products that went viral. I’ll bet their names are familiar to you -  Raw Coconut Latte, Coconut Cloud Latte, Iced Raw Coconut Latte, it sounds like one big coconut family. Then there’s the Biluochun Latte the Jasmine Fragrance Latte, and the Apricot Blossom Oolong Latte, so clearly now we’re in the tea family. Looking at it this way, I finally understood what it means when they say that "Luckin's research and development is data driven."   It means that if Starbucks is selling coffee, then Luckin is selling algorithms.
 
Luckin is not all that worried about “coffee,” as such.  In their view, any product is a combination of several “ingredients”, including milk, coffee, fruit juice, syrup, tea powder, coconut milk, spices, etc.  For Luckin, the point of research and development is to make an "optimal arrangement" of ingredients based on various market information and in-store orders, and then calculate which ones may be popular.  Whether this is “coffee” or not does not make a whit of difference.   Once a product goes viral, they immediately analyze the data to see which other ingredients can be combined with the main raw materials of this blockbuster, and then a new product comes out, and the cycle continues. So if you look at a list of viral products you see a certain "kinship" relation, because each popular model is likely to be the product of disassembly and reassembly of previous popular models.
 
One sells coffee and the other sells algorithms. The higher the degree of standardization, the faster the scale can grow. Where does this standardization come from?  Digital capabilities. In addition to the research and development that produces the viral products, Luckin also integrated their digital capabilities into store site selection, production, and marketing.
 
-They use location-based service technology and point of information big data to select store locations; they use the Internet of Things and cloud computing to remotely manage their coffee machines.
 
-They use WeChat Business for precise marketing, and push coupons in a targeted manner according to customer preferences.
 
Many new things that have been released in the Chinese market in the past few years are essentially based on existing conditions. If the conditions in which Starbucks grew were called service industry 1.0, then the conditions in which Luckin grew are service industry 2.0. Digital capability is the biggest difference between the two.
 
We might think of “conditions” as “soil and environment,” because when these change, new species can grow.   There are many Chinese companies like Luckin, with over 10,000 stores. Recently, Good Me 古茗, Chabaidao 茶百道, and Auntea Jenny 沪上阿姨have all approached the 10,000 store mark, and they have been around for less than 15 years. This is not hard to understand:  digital capabilities make them more standardized and more efficient, so they can scale up really quickly. More importantly, with this digital capability, brands or enterprises can easily evolve. Tools like WeChat Business are actually the proper soil for the digital evolution of brands and enterprises.
 
A few days ago, I was chatting with the owners of several retail chains, who are very anxious. One reason is that the retail industry is not booming, and over the past few years, the growth rate in the industry has been lower than GDP growth rate. In addition, urbanization has slowed, and the population has declined, which means that the previous traffic-driven profit model has run into problems.  So they are wondering what the future holds and what they should do.
 
My view is that there are two obvious trends in future retail consumption. First is the problem of the zero-sum game. Because the population of small cities continues to decrease, and the population of large cities continues to concentrate in the core areas, many stores will wind up in unpopular areas. Moving online is problematic as well , because the growth rate of e-commerce has already fallen by 4%, and traffic has peaked. Second, the growth of service consumption will be far greater than that of commodity consumption. Keynes said that after the social economy develops to a certain level, consumers look for the “benefits” a purchase will bring instead of the product’s “usefulness,” and they prefer to pay for experiences rather than paying for actual goods. Comparing the first half of this year with the beginning of the year, consumer prices fell by 0.5%, commodity consumption fell by 1.4%, while service consumption still rose by 0.8%. What is to be done?  My answer is: exploit existing digital capabilities and move from selling goods to selling experience and services.
 
Selling Services
 
Baodao Optical 宝岛眼镜a good case. It started out “selling glasses,” entering the mainland market from Taiwan in 1997 when the big wave of urbanization was starting and opening some 1,000 stores in just a couple of decades. Later, they encountered the same problems as everyone else: the challenge of online commerce, the economic slowdown, supply getting more and more expensive.  So they were looking for a solution, a way out.  How to do this ? Sell services. So now, Baodao Optical is doing a comprehensive business upgrade, so that it will no longer be a chain of stores selling glasses, but instead a chain of "professional visual health service centers."  What, you may ask, is a "professional visual health service center?"
 
- From the moment a customer enters the Baodao Optical store, they will be surrounded by the latest professional optical equipment, as well as professional optometrists and opticians who will perform a thorough evaluation of the customer and establish a personal digital file.
 
- After the glasses are fitted, every customer will have a designated Baodao employee who will remind them when their glasses and ready, when it’s time for a checkup. For example, teenagers’ eyesight can change in a matter of months, so frequent checkups are necessary. At Baodao Optical, a special person will send a WeChat reminder, and will be more careful and thoughtful than parents.
 
Having gone through this comprehensive makeover, during the summer vacation of 2022, the number of young Baodao Optical customers visiting the store for a re-examination increased by 7 times year-on-year, and 49% of customers made family purchases during the store visit. While the teenager had their eyes checked, other family members had time on their hands, so mom might try on some sunglasses, or grandpa might buy another pair of reading glasses, so the buyer retention rate went up, as well as the associated purchase rate.  Once Baodao became a “family experience,” it was easy to grow the customer base, and word of mouth spread throughout the community. 
 
But there was a problem. It is very expensive to provide this "service". In the old days when they did an eye exam, they had to do everything manually, and keep customer data in folders. Every time the customer came back, they had to pull out his file and look through the papers. The only way to contact these old customers was by telephoning, which is often taken as a kind of harassment, and most people simply don’t answer these kinds of calls.  They had thousands of phone numbers, but no one knew who was who, so reminding them to come back for a checkup was difficult as well.  In the language of economics, this kind of high-frequency service has high costs and uncertain benefits.
 
How to lower the cost of non-standard individual services and make them more efficient, so as to scale up "visual health services?" They found that WeChat Business was a good tool. In the past, when they telephoned customers, they would not answer; now with WeChat, they can send messages in a non-intrusive way, and customers can read them when they have time, which makes them feel cared for.  As already mentioned, teenagers' vision can change very quickly, and frequent checkups are important. Baodao Optical contacts the parents in advance automatically through WeChat Business, ensuring that the customers receive the reminders on time.
 
What's more, the marginal cost for this sort of customer retention and customer growth is very low - in theory, once the digital tools and service processes are in place, the cost is more or less the same if you serve one customer, or 1,000, or 100,000… In other words, Baodao Optical has controlled costs through WeChat Business and now has the ability to provide high-frequency accurate service at scale. Over the next few years, Baodao Optical will attempt to get some 9 million clients onto WeChat Business, bringing little bit closer to its goal – to be a "professional visual health service center".
 
And it’s not only Baodao.  With the help of digital tools like WeChat Business, many industries can establish closer connections to customers, serve their customers at low cost, and start the transformation from selling goods to selling services.
 
- The high-end clothing industry has moved from sitting and waiting for customers, to taking the clothes to the customers’ homes for them to try on, and this service is generating a higher added value.
 
- The customized home furnishing industry has moved from selling cabinets to long-term home maintenance, so that service becomes the hook for customers to buy more merchandise.
 
- The automobile industry is moving from selling cars through 4S stores [sales, service, spare parts, and surveys (customer feedback)] to serving consumers directly across dealerships, service becoming their competitive advantage.
 
Whether it's Luckin Coffee or Baodao Optical, everything has a bit of a "digital new species" flavor.
 
There’s another new species in this picture - the Village Super Soccer League from Guizhou. Its full name is "Rongjiang (Sanbao Tongzhai) Hemei Village Soccer Super League 榕江（三宝桐寨）和美乡村足球超级联赛," a rural community sports event organized by the private sector in Rongjiang County, Guizhou. For example, there is the Yuezhai Village soccer team, Liubaitang Village soccer team, in all, some 20 village-based soccer teams, and the players are not professionals but have ordinary jobs...What do they win? The winners get cattle; the runners-up, pigs; third place, lambs; fourth place, geese... Looking at this lineup, it is definitely the magical reality version of "Shaolin Soccer."  I suspect that the organizers of the league are big fans of Stephen Chow, as am I.[12]  Let me show you a couple of data points:
 
- The Village Premier League had 50,000 live viewers; by way of comparison, the English Premier League just exceeded 40,000 in this latest season.
 
- Rongjiang realized a total tourism revenue of $444 million RMB (approx. $60.7 million USD) over the three days of the Dragon Boat Festival in 2023; as a comparison, Rongjiang County's fiscal revenue in 2022 was $305 million (approx. $57.7 million USD).
 
Pretty cool numbers, but governments, entrepreneurs, economists, and managers, might ask - how did a small county in the southwest with a population of less than 300,000 manage to put together something this big this fast? The same question can be asked about Zibo. The answer is: freight logistics, map navigation, trip booking, personnel scheduling and matching, new media communication ...... For me, this is the soil in which the industrialization of services 2.0 will grow.
 
In the past, everyone was always talking about "digital infrastructure," but I felt like we weren’t ready, and this year I finally figured out why I felt that way. It is not just "digital capabilities" - this soil includes the industrial chain, manufacturing capabilities, and service industry industrialization capabilities formed in the past 30 years of industrialization, superimposed on the digital capabilities developed in the past 20 years, mutually influencing and strengthening one another.  China's Service Industry Industrialization 2.0 = Service Industry Industrialization 1.0 x China's Digital Capabilities.
 
Because it's soil, it can grow all kinds of new species -
 
- It can grow into digital coffee, digital milk tea.
 
- It can evolve into an "Atour" hotel-style urban experience service.
 
- It can also turn a city viral.
 
Not only that, but this soil also provides the ability to scale services and can transform individual talent into individual products.
 
This girl’s name is Xiaowen 小文 (pointing at the screen). She was born in 1995 and studied art in a second-tier teaching college. There were no jobs when she graduated, so she studied for graduate school for a year, but when that didn’t work out, she got a job in the government system in a small county town in Shanxi, where she’s from. The work was very boring, serving tea and coffee and printing things for the boss. But by chance, the unit organized a competition to produce a patriotic handbill, and Xiaowen, the art student, took first place.
 
In the next round of competition, the woman next to her said, "I don’t know how to draw.  I’ll give you 200 RMB (approx. $27 USD) if you help me." Xiaowen had done some micro-business in school, and immediately realized this might be a latent demand, so she sent out a message on social media saying that she was offering a one-stop service for people needing to prepare handbills, to design things for school, or to draw anything.  Her first batch of customers showed up right away, dozens of people saying that their children had to draw things, and Xiaowen earned a few thousand RMB.
 
Xiao Wen soon found that, in addition to handbills, she could also do watercolors, oil paintings, hand-drawn illustrations.  She reached out on social media, but did not capture that many fans, only 1787. But there was a real demand for landscape decorative paintings for new houses, or cartoon drawing of wedding ceremonies…
 
Then she decided that to scale up, which meant she had to standardize - so she started to make standardized templates for Valentine's Day, the Qixi Festival, Christmas, and other such important holidays, to which she added the clients’ particular details afterward.  She posted a sample on Little Red Book, and it worked like magic, drawing clients from as far as Tibet. This year, Yiwu, a company doing children's coloring books saw her work online, thought her work fit the company’s needs, and paid tens of thousands of RMB to buy out the copyright.
 
After I heard this this story, a picture suddenly popped into my head - Tencent in Shenzhen, Little Red Book in Shanghai, micro bloggers in Beijing, customers in Tibet and in Yiwu, Zhejiang ...... China's factories, China's highways, China's networks, China's platforms, China's digital tools ...... All this constitutes China's service industrialization capability 2.0, which allowed Xiao Wen to evolve into a very different person.
 
Industrialization 2.0 of the service industry is a soil where non-standardized talents can realize large-scale services, and a soil where personalized skills can survive.
 
The Square and the Tower
 
Last month, I went to give a lecture at Cainao 菜鸟, and Han Shuai 韩帅, vice president of the Cainao Group, offered me another perspective, which deepened my understanding of the issue. We talked about the threat of artificial intelligence to the job market, and he said that in the process of Cainiao’s internationalization and digitization, he discovered a particularly interesting phenomenon:  he had always wanted to build an artificial intelligence warehouse, but found that it was impossible, because people didn’t need it.
 
The reason is very simple - after so many years of "digital survival," pretty much anyone in China, even junior high school graduates, can master mobile payments, map navigation, live broadcasting, online orders, and other digital tools. I understood what he meant right away. There is actually a high cost of learning to be "proficient in using digital tools." But the development of digital platforms in China over the years has slowly worn down these costs, and I told Mr. Han that we might call this the "digital workforce dividend." For me, the digital workforce dividend is also an important part of the "industrialization of the service industry 2.0."
 
Having thought this far, I reread a book, Niall Ferguson's The Square and the Tower, and understood it more deeply. This book is about the changes that digitization has brought to the fabric of society. He says that before, society was like a tower, with tiers. Life was like climbing a narrow ladder, so we desperately wanted to get to a good university, and then get a good job, and then to climb to the top within the organization, because you can see more and better scenery at the top, but at each tier, there are fewer players, so this is a game of “exclusion.”  Capitalism and the market economy were breakthroughs, and the digital economy of the last 20 years or so has been an even bigger breakthrough. The tower is still there, but beyond it, the structure of the square is emerging.
 
The square is not a narrow road, and you can set up stalls, sell art, sing a duet, whatever. The square is a network, the rules of the game are not exclusive, but inclusive, interactive. There is a saying on the Internet, "We all have a bright future," which comes from an example sentence from the Xinhua Dictionary of the 1990s: "Zhang Hua got into to Beijing University, Li Ping will attend a secondary technical school, and I am working as a salesman in a department store.  We all have a bright future." The punchline is easy to get, right?
 
But today, I’m outside the tower, and I see a square that is still growing. In June, the unemployment rate for young people aged 16-24 reached 21.3%, another record high. Every day in the media you read about young people burning incense and praying to the gods, because education is no longer a way out, which means that if you’re born poor you will stay poor. I understand that these are real concerns. However, I also think that perhaps at times like these, it becomes more important for us to understand the matter of the soil in which the industrialization of the service sector 2.0 is growing. So allow me, once again, to abuse my right obnoxious middle-aged right to preach, okay?
 
You, young people, what are you afraid of?  Go” Run away like Nora,[13] go out into to the real world, get in touch with this vibrant soil, be the master of your own destiny.
 
Crossing the River by Feeling the Stones[14]
 
The Lost Thirty Years?
 
About 12 days ago, I was chatting with Luo Ming online and told him that my favorite of his talks was still the one from 2015.  He said, "At that time, there was still an upward momentum in society, and I echoed that sentiment in my remarks." "When you express yourself, have to echo the mood of society, otherwise your words lose value."
 
What exactly does it mean to “express the public mood?”
 
At noon that same day, I had lunch with Liang Yi 梁怿of Maple Leaf Auto, and we were talking about this, I said that I suddenly felt that the tone of my talk to this point was too much about me, and that it did not "echo the mood of society." Liang Yi said, "You have misunderstood the meaning of the word ‘echo.’ Echoing social sentiments is not the same as catering to social sentiments. Echoing means paying attention, facing up to the emotions, and providing insights.” Coincidentally, in the afternoon, Zhang Zhiqing 张志清 from Yicai said to me, "Remember, online exchange shapes values.”
 
That day was quite important to me, and I think that everything I am saying today grew out of those reflections. Overnight, I deleted the material I was going to include about "safe asset allocation” and decided that this last part of today’s talk should echo the present.
 
What is the present? To borrow the words of Professor Huang Yiping 黄益平,[15] a scholar I like and respect - "In the process of economic transition between the old and the new, policies should avoid destroying the old too quickly when the new has not yet risen, because breaking up the old and establishing the new is painful."
 
This year, this pain has been concretized by "Japan," and we are all worried that we are going to “lose thirty years” like Japan did.   I think of a Japanese man I once met, born in 1970, so he’s now 53 years old. For the sake of privacy, let's call him Kenjiro Takahashi, who joined the workforce in 1992, 30 years ago. This year, 2023, was the first time he ever got a raise,  from 5 million to 5.6 million yen (approx. $33,800 to 37,900 USD). I asked him what it’s like to not get a raise for 30 years, and he replied that he was used to it.  In any event, he’s not married and has no children so he’s not particularly glum.   Prices in Japan haven't risen in the past few years. The rent on his apartment in Tokyo's Shinjuku district stayed at its 1992 level until the year before last (2021). A bag of Star brand ramen at the supermarket cost 140 yen in 1992 and still costs the same now. Then he adds that things actually got a lot better in 2012 when Prime Minister Abe came to power. I asked him why.
 
Two reasons.
 
First, stocks went up. Starting in October 2012, the Nikkei 225 stock index went up 60% in six months, and since then it has been going up steadily, reaching more than 270% by the end of June this year, or more than 10% per year on average.
 
Second, real income has gone up. Takahashi majored in finance and accounting at the University of Tokyo and works as a personal finance manager at the Sumitomo Mitsui Banking Corporation. He said that after 2013, the company made more money. In order to avoid "wage-stickiness" (the idea that once wages go up, it is difficult to adjust them downward), Mitsui Bank did not increase worker salaries, but paid more months as a bonus, generally 14 to 16 months, instead of 12.
 
I asked which years were the hardest. Takahashi thought about it and said that the entire period from 1998 through 2012 was difficult. But the hardest were the years after right after 1998 and 2008, the crisis years. “What affected me the most was that at the time, everyone was going bankrupt, and nobody came to the bank for loans, so every day I thought I would lose my job."
 
I asked him how he explains what went wrong in Japan.  Takahashi didn't even hesitate, and said it was a failure of government policy.  “It wasn't the bursting of the real estate bubble?” I asked. Takahashi shook his head, saying, that’s what we all thought, but there was a real estate crisis in the US in 2008 and the U.S. started recovering in 2009. The biggest thing was that after 2020, we worried that the nightmare of 1998 and 2008 would repeat itself, creating long-term deflation, because at that time we thought that crisis was even bigger than the crisis of the bank failure. Who knew that the Japanese government was really committed to quantitative easing this time. And it worked. Wages went up, housing prices went up, the stock market went up, and suddenly I felt "rich".
 
I asked him if he wasn’t worried with inflation at 3.3%. Takahashi shook his head, saying how people were now lining up for things in Tokyo, which quite moved him.  “I never thought I would see Tokyo so lively when I was in my 50s.  Rising prices and people buying things makes me feel alive.”
 
Changing Expectations
 
I don't know how you feel about Takahashi's story. My feeling is that inflation is not necessarily bad, and that deflation is more painful than inflation. As long as the policy direction remains strong, Japan’s 20 years of deflation may be over.
 
I told Takahashi's story to Professor Zhang Bin 张斌, at the Academy of Social Sciences, asking him whether Takahashi’s remark about the mistake the Japanese government made at the outset was right.   Zhang Bin said that Takahashi's basic insight is correct, that Japan did have a chance to avoid deflation, including after the 1998 crisis. In fact, in 1992 when Japan's real estate bubble burst, the central bank was particularly decisive, making nine consecutive interest rate cuts, getting almost to zero. In fact, Japan's economy improved in 1995 and 1996, but in 1997, the Asian financial crisis hit, which was another blow and pushed Japan back into deflation.  At the time, Japanese interest rates were already at zero, so there was nothing to cut, but deflation continued, so what was to be done?
 
Paul Krugman (Nobel Prize winner), and Ben Bernanke, who later became Federal Reserve Chairman, as well as Japan's own economist Takatoshi Ito, all offered their advice, which was essentially to change expectations. How? Well, for example, at the time Japan's inflation 0.1%, so they said that the Japanese government should clearly set an inflation target of 2% or 3%, and then support the goal by a policy of quantitative easing. This move looks to be irresponsible, the central bank taking the initiative to create expectations of inflation. In other words, the Japanese government was saying to the people that if you don’t spend your money, I’m going to flood the economy with mine, which will make yours worthless.  
 
Doesn’t sound so good, right? But that's pretty much the move Abe made when he came to power in 2012. That Japan, a profoundly conservative government and country, dug in their heels and made such a big change, had a lot to do with the Fed’s quantitative easing policy of 2008 in the US. So many people think that “Japan crossed the river by touching the United States’ stones.” After the introduction of the Abe government's very aggressive monetary policy, Japanese stock prices rose immediately, and deflation disappeared, succeeding in pulling Japan out of a long period of stagnation.
 
Why did such a bad move work? It's really all about expectations. By changing expectations, you change behavior, leading to changes in outcomes. Let's think about this issue from another perspective:  if no one spends money, no one makes money, and if no one makes money, no one spends money, and the cycle continues, leading the economy down the toilet, just like Japan back then. But when the Bank of Japan made its move, some people began to spend money, to consume, to invest, and then began to make money. When you make money, you naturally want to spend it, which is the natural remedy.
 
So, you see, an unreliable move led to a reliable result. Paul Krugman had a saying back in the day, something about an “irresponsible central bank being responsible.” Pretty paradoxical, isn't it? And it’s hard for people to agree with. The Governor of the Bank of Japan thought these guys were crazy, and that the responsibility of the central bank should be to control inflation, so he flatly refused.  But history has proven time and again that this is the right path. Especially in 2020, many big central banks used the "expectations" weapon to the fullest:
 
- European Central Bank President Mario Draghi said, "we must save the economy at all costs."
 
- Haruhiko Kuroda of the Bank of Japan said, "we must end deflation as soon as possible whatever the means."
 
- After the Fed rate dropped to 0%, Fed Chairman Powell said, "There is still policy room.”
 
They are all saying the same thing.
 
As we all know, the author and Nobel Prize winner Mo Yan 莫言once wrote: "It is never reason that convinces a man, but hardship 能说服一个人的，从来不是道理，而是南墙." However, Japan snuggled up to hardship for a bit too long. Therefore, for those who propose "crossing the river by touching Japanese stones," we have to be sure to touch the right stones. For example, we often talk about the inefficiencies of Japan's domestic sector, its non-performing assets, its aging society, its real estate bubble, and other structural problems, but rarely realize that despite these problems, Japan did not have to pay the price of long-term deflation and economic stagnation. More important is that many of these costs can be avoided through proper monetary policy. So Zhang Bin’s final conclusion is that if we are going to cross the river by feeling the Japanese stones, the most important thing is to break through the cocoon of “common sense” monetary thinking.
 
Complex China
 
But others disagree. Professor Xu Yuan of Peking University says that crossing the river by feeling Japan’s stones is not an option. He showed me a chart with four circles of different sizes, representing regions of China at different levels of economic development.
 
- One circle has cities with a per capita GDP of more than $20,000 USD, a total of 25, with a population of some 200 million people. This group more or less corresponds to Japan, South Korea, and Spain.
 
- Another has some 111 cities with GDP per capita of $10,000-20,000 USD, with a population of 520 million, so roughly corresponding to Poland and Russia.
 
- The third a circle with 133 cities with a GDP per capita of $5,000-10,000 USD, with a population of some 540 million people. These 500 million people roughly correspond to Brazil and Thailand.
 
- The final circle contains cities with GDP of less than $5,000 USD per capita, 64 in total, making up some 140 million people, corresponding to Vietnam and the Philippines.
 
This means that the concept of "China" encompasses a great deal: it is Japan and South Korea, it is Vietnam and the Philippines, it is also Brazil, Thailand, Poland and Russia.
 
Given this complexity, any mechanical country-to-country comparison risks being overly simplistic. To Professsor Xu, this chart shows a complex China, but this complexity itself is an opportunity.
 
Of the 25 cities with a GDP per capita of more than $20,000 USD, there is one city that many people are not familiar with:  Yichang in Hubei province. Yichang had a growth rate of 16.8% in 2021.   Why? In 2021, the battery manufacturing company CATL invested more than 30 billion RMB (approx. $5.7 billion USD) in Yichang. This is only one place where CATL is making an impact; here’s a map (pointing to the screen) that shows the distribution of CATL’s impact on industrialization in Qinghai, Sichuan, Guizhou, Jiangxi…
 
This is China’s complexity, the soil out of which China’s new era is growing, just like the manufacturing industry in Foshan, and the platform-based service industry industrialization 2.0. A complex economics tells us that there is a great deal of interaction between individuals in a system, and the greater the differences between the individuals, the more interaction there is. Every transaction, every strategy engaged in by each individual changes the environments of other individuals, which changes the economic system itself. This means that individuals and the system are evolving together.
 
Looking at his chart, Professor Xu continued:  “I see a huge amount of space for this ‘evolution.’  For example, for the 200 million people making $20,000 USD, we might ask, ‘Is urbanization really over? Have those working parents who have left their homes and children really been ‘urbanized?’ Or do we still have a chance to evolve from a low level of shanty-town urbanization to a more equitable ‘civic urbanization?’” 
 
I thought of another example.  Is industrialization really over? As outlined above, perhaps we can industrialize the service sector.   Or in the vast plains or northern and northeastern China, can the power of industrialization continue to expand in agriculture?  This, then, is China, a complex China, the parts of which can evolve together.
 
Gongchaosheng
 
Epilogue
 
I am coming to the end of today’s speech. As I tend to do, I will end with a little story. It's a bit long, so I’ll have to ask for your patience.
 
The story is about a girl named Zhong Xiaohua 钟小华, and those of you who know my work may have read about her in my books. She was born in 1985 in Queshan County, Henan Province. Like most rural girls of that era, she dropped out of school in her teens, worked in Guangzhou and Beijing, and then returned to her hometown at the age of 20 to get married and have a baby. When the child was two or three years old, she left it with her parents and went back out looking for work.  I met her in 2018, when she was 33 and a mother of two.
 
When she got her first paycheck, she did not have a bank account. From the time she started working, she sent home every penny she earned, and when she got married, her paycheck went into her husband’s account. This shocked me. I immediately asked my assistant to take her to the bank next door to open an account. So in the future, all her salary and bonuses would go into this account, so that she could save some money and make some investments.
 
Luckily, there have been a lot of opportunities in the market over the past few years, and she now has a few assets. She has changed, becoming more confident and open. When her family argues about this or that, she can ignore it, saying "It’s no big deal, I can support my son and daughter by myself if I have to, I can go back to the county town and set up a business.”
 
The story doesn't end here. This year, her daughter took the college entrance examination and scored in the low 300s, which meant that she couldn’t go to university, and would have to settle for a vocational school. The mother was very disappointed and asked me if the daughter should go to school or should just start working and learn a trade. I did not hesitate for a minute, and told her to get a job, because as I see it, it’s about the same – you can learn a skill while you study for a self-examination undergraduate degree no matter what your current degree status.  She took my advice, and immediately prepared to let her daughter go to Beijing to look for work. But a member of my team, a young woman from a fourth-tier city, heard about this and immediately called the mother and told her she should absolutely not follow my advice.
 
Why? Because when you’re looking for work, she said, vocational school is an important marker, a credential, and the difference between having gone and not having gone is huge.  Moreover, if you still hope to go to university, vocational school is better than a high school diploma.  And another thing, a more down-to-earth concern, the boys you will meet at vocational school are not the same as those you will meet at work.   Also, for a girl coming from a small place, even a vocational school is a window to a bigger world, and it has a psychological effect – you can say “I'm a college student.” Xiang Shuai doesn’t understand all this.  Don't listen to her.
 
That day was July 6th, the last day to send in applications for school.  The two spoke on the phone at 8 a.m. and the application deadline was 6 p.m.  The mother rushed her daughter to fill out the application for vocational school, finishing at the last minute.
 
The woman on my team who intervened didn’t have time to tell me about it until later than evening.  She said: "I called Auntie Zhong directly and told her to help her daughter with the applications right away.  I know about these things because my family has been through the same thing.” 
 
Can you imagine how I felt? I was ashamed. I admitted my mistake and accepted the logic of her explanation.
 
I thought about this incident for a long time.  I have always prided myself on understanding the concept of "complex China," but in this instance I blew it big time. Complexity means difference and ecological diversity, but it should also mean opportunity.
 
What did I see in Zhong Xiaohua and her daughter?  Growth.  What else do they need? Opportunity.  If we believe that every individual in a complex economic system is co-evolving with the system, then complex China has the opportunity to create opportunities for every member of this complex ecology.
 
Goodbye, friends, see you next time.
 
Notes

[1]“香帅年度财富展望2023,” presented as a talk on July 29, 2023, transcript published on Shi Zhan’s WeChat platform on July 31, 2023.
 
[2]Translator’s note:  Dedao is a widely used educational application in China.  Professors like Xiang Shuai and Shi Zhan record their courses on Dedao and make them available to the public for a fee.
 
[3]Translator’s note:  For some reason, Xiang refers to many of these people by nicknames, which surely makes sense in context, but sounds needlessly exotic in translation.  I have used their birth names when possible.

[4]Translator’s note:  The Chinese term for “helicopter parent” is jiwa/鸡娃 – “chicken blood” -  and refers to the legend that parents will "inject their children with chicken blood" in the hopes that they will be outstanding and successful, like a rooster, a practice that is no longer followed, if it ever was.  The expression “Tiger mom” has been adopted recently, but this came from outside of China.
 
[5]Translator’s note:  Haidian is the region in Beijing where most of China’s best universities are concentrated, so a “Haidian mother” is one who is extremely concerned about her children’s education.
 
[6]Translator’s note:  This is a play on words.  In Chinese, “made in China” is Zhongguo zhizao 中国制造.  Xiao replaces one of the characters with another which is pronounced exactly the same way, but which means “intelligent manufacture” - 中国智造.
 
[7]Translator’s note:  Xu Yuan is a professor at Beijing University’s National School of Development and is Xiang Shuai’s husband.
 
[8]Translator’s note:  Lying flat, tangping/躺平 in Chinese, is a term widely used to describe young people who are “checking out” of China’s brutally competitive society because they fear they are merely running in place.
 
[9]Translator’s note:  This is the title of an online novel published in China, 生死看淡不服就干.
 
[10]Translator’s note:  The article Xiang is referring to appeared not in The Economist, as far as I can tell, but in the New York Times.
 
[11]Translator’s note:  Translator’s note:  A plot summary, highlighting the role of Wei Xiaobao, is available here.
 
[12]Translator’s note:  Translator’s note:  Shaolin Soccer is a popular movie, directed by Stephen Chow.
 
[13]Translator’s note:  Translator’s note:  “Nora” is a reference to Henrik Ibsen’s play, “A Doll’s House,” and as well of course to Lu Xun’s “What Happens after Nora Leaves Home.”
 
[14]Translator’s note:  This is Deng Xiaoping’s famous advice to China as to how to navigate the passage from a command economy to a market economy.
 
[15]Translator’s note:  Huang Yiping is professor of economics at the National School of Development at Peking University.