 This is Think Tech Hawaii. Community matters here. Yes, sir. We're back at 4 p.m. It's Think Tech Asia. And of course, it's with Russell Liu, an American lawyer practicing and teaching in China in Beijing, who joins us here today to talk about a very important subject, money. And money is a very important day-to-day subject today because we lost 1,100 points in the U.S. stock market, something to do with the emperor's new clothes. Okay, Russell, welcome to the show, Russell. I'm glad to back, Jay. And, you know, you're talking about money. It's really a big holiday period coming up in China. Next week, we're going to see floods of Chinese tourists going around the world. Money, okay. And one of the things we say is shenanigans. And as you know, out on the streets in Honolulu, we're getting more global. Bank of Hawaii has a big banner. Let's take a look at what it looks like. Let's see. Oh, yeah. What does it say? Xinyin Kuala Lumpur? A few minutes ago, our cameraman was out there, got this gray shot. It says, Xinyin Kuala, happy new year. So they're getting ready. They're getting ready because it's a time of holiday Chinese. It's always red. The colors, good luck. Because they pass these red envelopes called Hongbaos with money in it. But we're going to talk about this today, Jay, how it's a kind of cashless society. Everybody gets their red packets or Hongbao. So interesting. You know that the US, as a leader, starting, what, in the 50s with American Express, got into this whole notion of credit cards and then credit cards proliferated all over the world, ubiquitous, actually. But now, with technology, the Chinese and other countries in Asia are leapfrogging over all of that. And they're finding another way for you to make purchases without using a credit card, which is much more efficient. And you've been following this. I know how much you admire this system, Russell. So tell us how it works. Sure. You know, as you just said, Jay, Americans, we pioneered the credit card system. We pioneered a system that relies on gathering credit information, checking out to see, and it's really using money, foreign money. It's using against future earnings. But this way, the Chinese don't do it that way. It's a cashless society. We don't carry cash. Carl Maldon used to come on the television at advertisements with American Express. He used to say, don't leave American Express at home. Don't be without it. Carl Maldon, boy, that's a name out of the past. Street of San Francisco. That tells her age. Sure. But again, the Chinese say, now, don't leave your smartphone at home because it contains the apps. Wait for that. Don't lose it. And now, we pay. Don't lose it. But again, in China, we don't carry cash anymore. The typical person will carry maybe 100 renbi for the whole month in your wallet, and you carry a smartphone. You don't use it unless it's a backup. It's interesting because in China, 84% of the population uses no cash, a cashless society. Yeah. Well, OK. I mean, cashless society, it's interesting because you don't have to have a credit card. You can get along without any credit cards, at least in China right now. You have to. It's kind of like a debit card, this whole thing. And things is more than one of them, I think. And you can spend really any amount you want as long as you have it in your bank. And it's instantly transmitted, instantly. You get an instant credit for it. You buy anything you want using a QR code from your phone. So you shine the QR code at, say, a newspaper stand, am I right? That's right. And then you get a newspaper and the whole transaction is immediate. But it goes from there way beyond. Can I buy a car with a QR code? I'm sure you can. I'm not a rich Chinese. I can't take my car. I just don't have money to bank. You still have to have cash to bank. It may not be rich, but you're famous for us. Yes. But you know what's interesting? It's the Chinese who started the cash. 2,800 years ago, China invented the paper money. And now, full circle, now they're inventing a new form of money, a new platform, a new payment platform. It's a cashless society. So they've come full circle where they're innovative, but they're using technology. So now, within the past years, five years, the movement has been towards a cashless society. And this is very interesting because this cashless society means that everything that the Chinese will do, whether it's going to the supermarket, the fruit stand, you just flash a QR code, the vendor will scan it. Let's take a look and see what a QR code looked like. This is my QR code. We've all seen QR codes. There it is. There it is. This is a typical QR code on the WeChat system. And if you notice the QR code, Mr. P, that's my Identify Handler. That QR code also has information in my bank, okay, contact information. Now, it's interesting because that's your picture. That's my picture. So your picture is embedded in the QR code. Yes, it's embedded. And it's very interesting because in 2011, when Tencent, the big tech John in China, Aleksandran China, started this WeChat. They didn't envision it. Don't leave that on too long. Somebody's going to copy it and steal your identity. It'll be protected because that's what these Tencent started, WeChat. We would just flash your QR code. Somebody had just met us. We wouldn't pass cards around anymore. We don't pass out our mobile phone number. They would scan that QR code. And that QR code would go online into their system and then I could communicate with them. But fast forward. After 2011, they came up with the idea if we could use it something more meaningful. And that's because Alibaba came out with Alipay and both system work on the same idea. That you take your QR code, the vendor will scan it or the vendor will have their own QR code. And with their QR code, also on our smartphones through WeChat, we use a scanner. It'll scan that QR code and it will ask how much you want to pay. And we transfer the money to Tencent to the vendor. So that goes both ways. It goes both ways. It could be your QR code or his QR code. And it's very interesting because people ask, well, where did this technology come from? You know, it's interesting because this technology actually came out in the 90s by the Japanese automobile makers. What they would do was instead of using the traditional bar code, they developed this QR code system. Q and R, what does it mean? Quick response. And so that's how they keep track of the cards that slapped that QR code. And you know, that's the genesis of the QR code. Is this like the octopus card in Hong Kong? Yeah, well, the octopus part is from the subway. But in China, you go to Shanghai, you can use some, I believe now they're starting to use it, or the QR code, you can get on the subway. With the QR code. QR code. So it's just another thing you can buy with the QR code. And so what's really interesting is that this QR code can do many things. You can buy things, buy groceries, buy clothes. You can buy your train tickets. You can buy your movie tickets. You can use it to pay the taxi driver. Many, many things. Or you can use it to invest money. But you know, getting back to the new years for the Chinese. And this is an important occasion because we send money to our friends and family. Use your family to the old days. The red envelopes. I didn't bring it to that. I had one in my pocket. You can imagine what it looks like. You know, the reason why somebody gave me one and why we're still behind in the US, we have to give them out of the red packet. So in China, we would use our WeChat and we can actually send the money and it has a red envelope. So the red envelope is on the screen. It's on the screen. It's not a real red envelope. It's a red envelope and it'll have the Hongbao and we would put in the amount and we would just send it to our WeChat. So the other guy gets a red envelope on his screen. That's right. And he gets a payment into his account using WeChat. That's right, exactly. And so, you know, you could be in one part of China. You could be in your hometown or maybe some village. As long as you have a little smartphone, you know, and your son is out in Beijing. But this is so different than a credit card, really. Because in a credit card, you wind up, as you mentioned, it's a credit card. It's with credit and it catches up later. But with this kind of QR code and WeChat, the cashless society goes both ways. So you can put money into your account, take money out of your account and so forth. And theoretically, if you can balance it, you never actually have to put money in, cash money. There is no cash going in. It all happens inside that account. Well, what's a fascinating thing about it is, as Americans, you know, we look and say, well, the Chinese are very smart, because they realize that every time that money transfers from one account to the other, it's cash flow. It's moving the society. It's a robust economy. Sure, that's right, too. That's correct. And just every time, economics point of view, it's a multiply effect. And it becomes a very strong society. Yeah. Now, in a credit card, you have to pay credit card fees. I mean, America expressly charges you an annual fee, others too, sometimes. And of course, if you're late by just a few days, you wind up paying less than late. But if you don't pay immediately, you wind up paying interest at some really exorbitant rate. Even now, even when interest rates at the Fed are really low, you still pay a lot of interest on any credit card. But on the WeChat thing, on the QR code, on this cashless society, you already have the money in your account. That's right. So there is essentially, am I right? No charge in doing this. No charge. There is no charge. And it's fascinating because it's changing the world because a lot of developing countries where there's no credit rating system, it's too expensive to develop that, takes too long. And people won't have good access to credit anyway. They're starting to adapt what the Chinese are doing in China. Because it comes out of a bank account. So you spend what you have. And it's really interesting, Jay, because no Chapter 7 bankruptcies, no Chapter 13, you pay what you have. You don't pay against borrowed money, borrowed time. So it works as a functional practice of things because you know how much money you've got in the bank. You are it. And you are it. So what about I work for an employer, right? And I'm going to get some RMB at the end of the pay period. Do they pay me in my account? That same cashless account? Well, you know, I don't work for a Chinese employer, so I don't know. But I know that Chinese New Year, they send the red packets with money in there to employees. That's your bonus. Yeah. And it goes instantaneously to your account. And you know what strikes me is that- But what about compensation? I can do a contract, right? Yes. And he owes me a thousand RMB a week, okay? Is he going to put that RMB in my account or is he going to pay me by some other method? I'm sure that's been done through WeChat. I am positively short sending WeChat. And you know, because what happens is the employer will take the deductions out for the taxes every month, the income tax. And what happens is that the accountant will just simply use WeChat from the account and just pay the employee. Yeah, I mean, that would be the most sufficient thing of all. And it's great because, you know, the employee doesn't have to worry about going to the bank. It frees up the bank from long lines. And it also limits the possibility that people are going to steal your paycheck or you lose your paycheck. And it takes care of multiple problems. Remember, the Chinese are very practical. They're very pragmatic. So this is a great way where you just become efficient. I miss money. So if I have one of these accounts, these QR code or what do you call it, WeChat accounts, do I need to have a bank account also or is this for the average person, his only account? Well, let me say yes and no. Let me talk about the second half of program about how the impact of WeChat and foreigners. But for the Chinese, everybody has a bank account in China. So it's easy to link. But it's that account that you use the WeChat for. That's right. It's just one account. It's one account. And so I look, for example, I have a Chinese bank account and I simply link it to the WeChat account. Also, I link my passport, my photo, and it gets approved. And there's some tight security on it. So when I make the payment, they'll verify it because the vendor is not going to work because the money comes straight to them. And it's all there. Like you saw on the QR code, it has my picture also. But the interesting thing about it is that, how big is the society? Well, the other fact is not only transmitting money, but the fact is we would talk about cash flow. Cash and economy is turning over constantly. How big of it? Well, in 2015, talking about spending, e-commerce. E-commerce is the big thing in China. Amazon, we're starting to do that now. E-commerce, where Amazon actually sells more clothes than Macy's through the web page. So Alibaba is the Amazon of China. Can I order something on Alibaba with my QR code? Well, actually, for Alibaba, you simply, you can order it online. And I haven't done it in the Chinese, but you can actually pay through your phone. And that's how it's done. Is it a password or is it a QR code? Well, I believe most people that have an account with Alibaba, this is an account. They hit the password and they can make payments. But it's interesting because now Jeff Bezos, Amazon has set up a mechanism where you can actually, in China, I can order something from Amazon, the U.S., it comes on there. And you'll see in the articles is we ship to China. So they're shipping to China. And the foreign exchange curses the issues because I believe that Amazon has teamed up with either Alibaba or Tencent. They do a company that will do the foreign exchange simultaneously, the transactions. So it's interesting that that's being done. And I'm going to talk a little later in the show about what's going to happen, the impact of Chinese travelers going abroad. I'll tell you what WeChat's doing. Yeah, I want to ask you one question before we take a break. And that is, can you tell me the difference between Tencent and Alibaba and WeChat Pay and Alipay? Tencent is the founder of WeChat. And WeChat has WeChat Pay, which is part of WeChat. WeChat is a communication. It's sort of like the Facebook hyper on steroids, okay? And Alibaba runs Alipay. And there are two different types of payment systems. They're competing. They're competing. And it's interesting, but I'll tell you how big it is. Let's first look at the numbers. 2015, we had $1.5 trillion done. American dollars. American dollars through these payment systems. 2016, that more than Kodrupa, five times $5 trillion. 2017 from $5 trillion and went up to $15 trillion in the economy just in one year. Just in the... Now imagine what I'm talking about. I'm talking about cash flow and a robust economy. And this is only the everyday Chinese person. War money passes hands, that's how the economy is. And they predict that by 2021, they're going to hit the $45.5 trillion mark. Fantastic. It's fantastic to know that. You can have more than one account. Do people have more than one account? Do they have the WeChat Pay and the Alipay votes? They do. I have both. Do you? I do have both. Why? Well, I'll tell you why. It's interesting. The demographics are very different. They find out that Alipay are used more by the high wealth people. So I suppose that the products, maybe you can buy a car out of Alipay, are these people through Alipay. I think that Alipay has a greater percent, maybe 50% of the market. I believe WeChat has 40%. So close, they're close. Apple Pay is 1%. Yeah, how about Amazon Pay? I don't know. Jeff Bezos is making a move and he's going to team up with probably one, either Alipay or Chenson. That's going to be much more effective. You can see the size of this. It's 84% of the society is using its cash. We don't carry cash. After this break, I want to cover two things with you that are really worth discussing. Number one is how the Chinese government is expanding this whole notion to outside of China. And what is the purpose of that? What is the effect of that? And what is the future of that? The second thing I want to discuss as we come back is the dark side. The dark side is a dark side to WeChat Pay and Alipay. And if you want to know, you'll have to wait. We'll be right back. Don't do it in your team's house. Know your limits and plan ahead so that everyone can have a good time. And mother, what big eyes you have? She said, what are you doing? Research says reading from birth accelerates our baby's brain development. Push! Read aloud 15 minutes. Every child, every parent, every day. Living in this crazy world, so caught up in the confusion, nothing is making sense. Okay. And the second thing I was, you know, the second cliffhanger was the thing about the dark side. And Russell, let me be clear about it. What I meant by that is something that Richard Hornick talked about at the China seminar a few weeks ago. And he'll be on the program, talk about it again. And that is the way the Chinese government is collecting data on people and trying to do mind control, his term. And so my understanding is that everything you do in the economy, every time you exercise your QR code, every time you buy or sell something in this cashless society, it goes, it's available to the government. And the government rates you on just exactly where you are in life. And if you're a good guy, according to the government's standard, whatever that may be, then you get benefits. And if you're not such a good guy, you don't get benefits and you get barred from things. And so everybody has a little profile. And part of the profile is this account. So correct me, Russell, this is your chance. Well, here's where we look at it. You're looking through the sunglasses of an American talking about the political issues. I'm looking through the sunglasses of Chinese, which is clear. And I'll be honest, does Richard live in China full-time anymore? No. And I live in China full-time 15 years. I really don't care, because you know what? As long as I'm not doing anything illegal, why should I care? It helps me in the conveniences of life. And you know, through a different culture where you have 1.3 billion people, how do you keep order? And it's important because with this kind of system, people do things differently. For example, I go to the best spot. I leave my sunglasses next to a counter. I walk back. I forgot. Oops, run back. It's happened to me. You know, three, four minutes later, sunglasses are gone. Lost and found. Nobody turned it in. People don't turn in. In China, I've lost my wallet three times, but with the cameras watching around, people in society now, they don't take it. They've actually turned in three times, twice in the rail station. It's funny you should say that. I don't know if I ever told you. But my second trip to China, I left my wallet at the TSA security line coming into the country. And I left it there. My God, it's incredible. You arrive in a foreign country, you leave your wallet somewhere. Okay, this is a real horrendous thing. And I'm walking away. I'm hundreds of yards away down this big airport hallway. And there's a guy chasing me. One of the security guys is chasing me to give me my wallet back. Oh, my God. I was so relieved to get my wallet back. But I was also very impressed that they would chase me. And he said, be careful next time. Don't leave your wallet around. That really touched me, I tell you. Well, that's happened to me. Recently, I dropped my wallet and a girl, two girls came running after me, calling me, here's your wallet. And I found that it just created a lot of order in society. And we have to realize that China is, I'm against the country, and they will have to do what they have to do. But I've lived there 15 years. And I talk about it like this. China is like a 50 lane freeway. There's a lot of room you can go as long as you don't cross the edges and get into political things. Most people are in that situation. So who cares? You know, they have a national ID system, but maybe a lot of things work. You know, they have cameras on the street to watch cars causing traffic infringement, speeding. But we have cameras too now. We start to have cameras here. Again, all of these things, again, are different cultural and different foundational concepts. But, you know, I find that, again, maybe Richard Hornick, you know, I live there full time and it's easy to criticize on the outside. It really is, you know. But imagine now that you have WeChat. Sure, the laws are different. The cybersecurity laws, you know, the government has these laws where they want to watch for terrorism and so forth. They have a back door to the server. Yes, if you're a multinational doing business in China, you're worried about your IP being protected. But again, that's an issue that I'm not. OK, I appreciate that. And, you know, I want your view of it. And I agree with you that one thing China has established is the stability of this society. It is compared to other countries, quite stable and successful economically. But I wanted to go to one other point with you, and that is the spread of this whole cashless society thing. Whether and to what extent China has exported this kind of technology, this kind of, you know, transactional arrangement to other countries and why. Let's look at two formulas versus what impact does it have? Does it have their lessons that Americans can learn from? And let's go back to the Amazon Go store. Amazon Go, a few weeks ago, opened their first store in Seattle, which is unmanned. To get in, you have your Amazon account and you scan your QR code. That clicks to your account. And anything you take off the shelf clicks and charges your account. You pay for it that way. Artificial intelligence. That's artificial intelligence. And where did they get it from? Well, the Chinese have been using it, the scanner, the QR code. So that impact is making its way even into the U.S. We're going to see more of that. I predict more of that. The cost of doing business in the U.S., the brick and mortar, the labor cost, we're going to be more and more into a service economy. You won't have a lot of Macy's who sells people. Macy's has their artificial intelligence or some sort of model they're working on. And Walmart has something like that. So it's in the works. It's in the pipeline. So there is an effect on it, okay? Second of all, so is this model, this paid model, is it making an impact around the world? Yes, it is. Through Southeast Asia, Singapore is considering. India has, the government has just adopted this. They're moving towards a cash society. They're following the Chinese. Well, they're following the Chinese. It's not the Chinese system. It's not the Chinese system. I mean, I was speculating with you last time we talked about the Amazon store. I forget the title of it, the Amazon, the Amazon store, that the Amazon would try to export their technology to other places and sell it to a retailer in Yon. Is that what's happening in India? Is it the Chinese selling their technology in India? Or is it India emulating what the Chinese is doing? India is emulating it. However, let's look at MasterCard's thing. MasterCard has got agreement with China Unipay, and they're trying to create a universal system that is very similar to this. So they're going into Africa, again with the Kiorco. So that's a new industry standard being set. It's set up by a company called EMVCO. Is that a Chinese company? That's a group that's put together by MasterCard Visa and China Unipay. China Unipay. So it's going on board. It's a venture between the American MasterCard and global MasterCard companies and China. Right. So they have an Africa, the Kiorco system, and they were in Nigeria where they had some success. So we're seeing this making its way around the world. And why is it successful? It's because it's where most of the world is not like the US. Most of the world is developing. It seems more like the case every day, actually. But it's interesting because Visa and MasterCard, they can't operate in these worlds. So they've got to change their product. So they're adapting and they've got to work with the Chinese to come out with a product because if not, they're going to be extinct dinosaurs. Are you saying that although India right now is emulating China in this regard, because India is fully capable of developing its own technology. I mean, they've got a lot of technology in India, a lot of smart technology people. Are you saying though that over time, not only will people emulate China, but they will want to use and be networked on the Chinese system so that and China would like to see that happen? I know where you're getting at, Jay. Yeah. I know where you're getting at. Go ahead. You're a lawyer. Go ahead. So where you're getting at is now are these system merging? Are the China technologies being used out of China? Yes. WeChat, Tencent has recently has been working on a plan. And what that plan is it provides that you have to, we talked earlier in the first part of show, you've got WeChat on your phone, don't you? I do. Now what they're doing, they believe they're teaming up with a big MasterCard or one of them. And they're allowing the linkage in WeChat with your MasterCard or Visa so that you can use it and the transaction will automatically go to your card. Right. And the likelihood there is that it's going to go in the direction of the QR arrangement, the cashless society arrangement, the debit approach, rather than the credit card approach where you have all these other charges and where there are security issues that are ultimately charged to the consumer somehow. Yes. So what I suggest from what you said is that over time, we will have a global system that the Chinese will have a part of it, that the MasterCard Visa, you know, stands at American credit cards, may migrate in that direction. In fact, MasterCard has MasterPass which is a debit card. Yeah. So we're going to see that link with, for example, WeChat. Yeah, there won't be a card anymore. Well, that means it's going to change to retailers. They're going to, people aren't going to have a card. Right. It's going to be linked to that account. In the Amazon store, it's just a QR code when they walk in. They took it from the Chinese. I mean, that's the same thing. But now you can download WeChat and the Apple Store of Samsung, and now they are going to allow it. So it links to like your debit card MasterPass something. Okay. What about security? I mean, you know, we worry about credit card, you know, terrorism and credit card theft of identity and all that. So if we have the cashless society and a debit card basis, how safe are we? Are we safer than with credit cards? Well, that's because that hinges on government regulations of that industry, government regulations of WeChat and Apple. Can somebody knock off my QR code? Can somebody copy it and then take money out of my account, buy things out of my account? But I still believe that a lot of places now, you have a QR code, but now a lot of vendors will show you only their QR code and you scan their QR code. And you scan their QR code so your QR code doesn't go out. You see? Some vendors will scan your QR code. But in China, the standard more is, I see more is that more vendors will have their QR code on a sign and you just simply scan them. And so far, I haven't heard of any major theft from these retailers. You go to every store, large stores, small stores, everybody has their little QR code on the placards. Okay, so maybe with that kind of technology, the possibilities are limitless, really. We can minimize the security issues that we have now. We have plenty of security issues now. That gets another thing, Jay. You know, it's fascinating because, again, what WeChat is doing is they're letting foreigners to get on WeChat, link your account. You can buy things wherever you got the QR code. Second of all, that's the first step. The second step is they're working on agreements now where WeChat, the Chinese upon travelers, which is a huge industry, will be able to link their account to retailers in the U.S., where they travel, use the QR code. The retail industry is going to change and I'm certain it's going to change just by that. And it's going back to the question, where are we in Hawaii? Are we up to this? Do we know about it? You know, and it'll be a great boon because imagine going across borders instead of carrying 10,000, it carries smartphone. Well, clearly this is all leading to a global system. Yes. A global way of spending money, a global way of consuming and consumerism. It's a global way of doing business, really, on so many levels. And I guess the question, which we'll have to leave it at this question because we're out of time, the question is if you have a global system, a global payment system like this, whether it be emanating from China or elsewhere, whether it be the purely WeChat thing or some kind of hybrid, when you make a system like this global, do you increase the risk of some kind of global collapse, some kind of global meltdown, or is it safe? Is it safe, Russell? You don't have to answer that. Well, so far it's been safe. Well, I'm in China. There's a lot of government regulations in place in China. I feel very confident. And from what I've seen is that there are problems, yes, that they have to work out. Again, it's really going to be the government that's going to have to back it to make sure that you won't have a lot of these issues. Great, great discussion, Russell. Great, great important topic. Let's do this again in a couple of weeks. Great, great. Russell, I'll be back in China. Okay, we'll do it in China. We'll catch you by Zoom in China, yeah? Great. Xin yan kuai lai. Yes, Xin yan kuai lai.