Interviewed By The Asian Banker Live
Emmanuel Daniel, in a speech to the Guangzhou Academy of Social Sciences(GZASS) and the Guangzhou Urban Strategy Institute(GZUSI) on 18 November 2018 said that the railway and road infrastructure that brings Pearl River Delta together is like bringing New York and San Francisco together. He spoke of the 4 areas of people, information, capital and trade to make the megalopolis a success. He also outlined how there was a potential for a deeper financial market which is not based on Hong Kong's capital market alone, but on deeper liquidity serving small businesses. Also that some of the opportunities come almost by accident. He encouraged Guangdong to embrace diversity and capture the imagination of the world in making the belt and road initiative a success.
Here is the transcript:
Emmanuel: So, I'm going to be talking to you a little bit on the accidental financial center. And you'll be probably wondering what I'm going to be able to say. Today, we had a number of speakers who reinforced that the idea of the megalopolis is that it brings together many different dimensions of society. I recently took a train from Hong Kong to Guangzhou. And it traveled at 300 kilometers an hour. And it immediately shrank an entire region. And on that train, I was thinking about what the implications of this were to human society.
When you stop to think about the other megalopolises around the world, you find that many of them are divided. In the U.S., for example, you have New York on the eastern seaboard and you have San Francisco on the western seaboard. You go to Japan; all the government people are in Tokyo and all the crazy people are in Osaka. And that's where all the ideas get formed; all the innovations in technology take place in Japan today. If you go to a country like India, the banks are in Mumbai and the people who don't want to be ruled by regulation and want to innovate are in a city called Bangalore.
And like that you can go around the world and come across that there is a big dichotomy between capital and innovation in many societies as we know it to be today. The interesting thing about the Pearl River Delta is that for many, many years, if you lived in Hong Kong, you know that it was the huge capital market of the world. But you could not start an innovation of any kind in any meaningful way in Hong Kong because big money dominated. And for a long time, Shenzhen, and Guangzhou, and Guangdong were just cheap manufacturing outlets for the trade infrastructure that existed in Hong Kong.
But what the megalopolis brings together is the world's first collaboration or the world's first unity between capital markets and centers for innovation. This morning, we had a few speakers who spoke to us and told us about how this whole region can be a region for both money as well as for talent and skill. Something that we need to come to mind – to be mindful of is that when we talk about skill, about innovation today, we're not talking about large companies in big cities anymore. If you think about some of the innovations taking place in technology in areas such as open platforms, for example, you'd be surprised how many of the innovations in technology – in bitcoin, in Linux as an operating system – takes place in people's houses, not in big companies.
And so, you want a megalopolis which is conducive not just for people who are looking for jobs, but for people who just want to live their own life wherever they want. And in taking that train from Hong Kong to Guangzhou, I saw the opportunity to define your life in any way you want. If you wanted to live in Guangzhou and eat very good food, you can live in Guangzhou. If you wanted to live in Hong Kong and be part of the whole trading community, you can live in Hong Kong. But in between, there are small towns. There are small villages where you could just live whatever life you wanted. And from there, you find innovation and breakthroughs in thinking. And it gives the individual the opportunity to express himself.
At the same time, if you wanted to then travel to any part of the world, you just get onto a... and go to the nearest airport. And you will be wherever you want to be. The amazing thing about the Pearl River Delta is that it now positions this entire region at the same level as the major megalopolises of the world. If you add up just these four regions – Hong Kong, Guangzhou, Shenzhen, Zhuhai, and I'm sure that there are another nine regions, I'm told. But if we added them together, the cumulative GDP is in the trillions of dollars. And that puts you in the same league as Tokyo, as New York, and so on.
The anatomy of a megalopolis is essentially made up of four very simple elements: people, information, capital, and trade. When we say, "people" what we mean is that it is defined by a core set of people who are from that megalopolis. But it also invites people from outside to participate in that megalopolis. And so, diversity is a very important component of the people dimension of the creativity, and the opportunities, and the connections that are created in a megalopolis. Information at the very basic level of course, it's data. And the population size of this megalopolis exceeds that of all of the other megalopolises individually and in some cases collectively.
In other words, you have the critical population size to create data, meaningful data that you can use in areas such as artificial intelligence and analytics. But from data comes knowledge. And for knowledge to come out of data, it's the education in that environment that dictates it. Education that helps people create meaning from the data that evolve. And from that knowledge, culture, and a way of living, and a way of integrating information and making that available. We always like to think of Hong Kong as the capital market of this region. That's true for securities, for the equities market. But capital market is also about how small businesses raise capital from their cashflow. How they sell their invoices to larger businesses who then sell that on to other derivative players in the marketplace.
That dimension of the capital market today has not yet been created in the greater Pearl Delta region. It doesn't exist in Hong Kong in any meaningful way and that field is still open in order for the Pearl River Delta small businesses to be able to plug into the capital required for them to grow. Trade, that's an area that you've excelled in. Because today, because of Alibaba, and Tianzhen, and so on, this region is connected to the rest of the world. But something very interesting is happening today that is going to define the future. It is very important not to define the megalopolis of the greater Pearl River Delta in old terms. We need to define it in future terms. And what are the future terms? It's like this.
There is a researcher that I respect a lot. In the 1990's, David Ronfeldt of the RAND Corporation, he described it this way. "Human society moves through four phases of evolution. Initially, all of us are tribal. We belong to our families. We belong to our clans. We belong to our respective societies. We are small. We are insular. We are protective. We are defensive. And then we then evolve into an institutional form where we go to the same schools. We have similar religions. We go to – we belong to the same countries." And China has evolved that way. Because what were essentially different dialect groups today has been all washed away because you feel one as a country because you go to the same schools and so on.
The UK is probably the country or the civilization that helped us institutionalize many of the structures that are available today that enable us to function as societies. The rule of law, certainty of trade, and so on. In the last 600 years, they helped us all to develop some of these institutions. And then we developed markets. And in markets, we trade with each other. And the large cities like Hong Kong, and Singapore, and the large trading cities anywhere in the world – Istanbul, Dubai, Frankfurt, London, and so on – started to relate to each other. Now, we are now entering a new dimension. And it's called the network dimension. And the network dimension will have different rules from the market economy.
And so, you cannot look at all the things that you've achieved so far as a successful city like Guangzhou or Shenzhen in the markets economy and think that it's going to be the same rules in the network phase. In the network phase – this is a slide from another presentation that I've done. And I will be very happy to talk to you about it. In the network phase, several important trends will take place. The first trend is that the economy is no longer going to be driven by large companies in large cities. The large corporation is going to be dismantled by the energy of the individual. You know this already.
That technology is being put into your own hands through the mobile device. And little children are learning to do coding. And the ability to build large software is not being done by any one institution, but by thousands of people sharing something like Linux and open platforms like that. So, the large institution is increasingly dependent on the individual. The network economy is also going to be defined by the externalization of an economy. In other words, it's not about what you do in Guangzhou or in the greater Pearl River Delta, but how you interact with other economies and how you make yourself attractive to other economies. And from that, the personalization of the economy. In other words, the individual becomes more important than the corporation.
And all of these have to be reflected in any strategy that you design for the greater Pearl River Delta. We all talk about Belt and Road. The original Belt and Road was in the 8th century A.D. And the original Belt and Road was not defined by the Chinese, but it was actually defined by the Muslim traders. And there is something that we can all learn from how the Muslim traders mastered or evolved the routes that we now use today. It's called a Silk Road because they made a transition deep into China because China had something that the world needed, which was silk, and porcelain, and some of the things that you were very good at even in that period.
The Muslim civilization came about 700 years before or after all of the other major religions had been formed. Like Christianity, which I am from, and also from Taoism, Buddhism – all of which were formed just about the same period, about 200 years, 300 years before B.C. basically. Before the year of Jesus Christ. Now, there's one feature about why the Muslim civilization was able to propagate so quickly compared to all of the other civilizations at that time. And that is because it was a simple civilization. It is a civilization that could be carried on horseback.
In order to be a Muslim, you only needed to believe five or adhere to five simple rules. And when you adhere to those five simple rules, you could greet another Muslim down the trade route. And so, if you were traveling from Italy, for example, you pass on your trade to the Turks, to the Turks to the Persians, the Persians to the Uzbeks, the Uzbeks to maybe the Ugahs, and then down to China. And you did not even need to be literate in order to be a Muslim. And the single most important contribution of that phase of evolution is that the religion, that religion captured the imagination of all the people in that route.
Today, when China is trying to recreate the trade routes the other direction, you started with capital and excess capacity. When China goes to some of these countries, what you're offering them is Chinese energy, Chinese capital, Chinese innovation in order to create railway tracks, buildings, roads, and all sorts of infrastructure. But the real challenge to make the Chinese defined Belt and Road is to capture the imagination of other people. So, for example, in here in Guangzhou, I heard that universities here – at least one of them – have people from 150 countries. That's very, very good. Because you're helping others to imagine the Chinese dream. You're helping others to share the Chinese view of the world. And that's what needs to be exported to the rest of the world.
So, I come to my last point, which is this whole point about the accidental financial center. The interesting thing about the financial centers of the world is that they weren't necessarily all build on planning, on meetings like this. They were accidental causes in history. New York became a financial center because it was the place from which the northern states in the U.S. raised capital to fund the war, the Civil War with the South. And the born issue in culture of government started from New York. And then later, New York was also the receiving city of the huge masses of highly talented migrants from Europe who were fleeing all sorts of wars in Europe and who then provided their expertise to New York.
And if you look at Zurich, it kept itself as a neutral state even as Europe was going to war. And then it became the financial center for Europe. London was the big beneficiary of the Russian Revolution. Nothing to do with the UK. But at the beginning of the end of the Czarist regime, many of the wealthy in Russia moved their wealth to London. In fact, if you go to areas like Kensington in London, many of the properties there are owned by Russian immigrants. Interesting thing was that Tokyo used to be the FX center of Asia. And it was the FX center of Asia for one very simple reason. Because English speaking people from other parts of the world liked going to Tokyo and living in Tokyo. And they found the small cohort of traders who mastered the art of FX, of foreign exchange.
Guess what happened. These people wanted to live on in Tokyo, but the Japanese government did not have a mechanism for them to become more permanent residents in Tokyo. And these traders, they get married. They have children. They have family and so on. And they want greater certainty. And many of them move to Singapore. And that is why today Singapore is Asia's largest FX trading center and one of the largest FX trading centers in the world. So, these are some of the tactical reasons why financial centers get created.
And so, it is in the megalopolis creation phase. Leave a little bit of your strategy for imagination. And leave a little bit of your strategy for accidents of history that you will benefit from. Thank you.