Why China owns the 21st Century, it’s the Data

The People’s Republic of China will be the 21st Century’s dominant power because it has the most data. Data is now the world’s most important resource and China has the largest supply of it.

“Data is the oil; some say the gold of the 21st century, the raw material that our economies, societies and democracies are increasingly being built on,” Siemens CEO Jaoe Kaesar told a Stockholm audience last year. The Economic Times reports that Kaesar thinks data is the basis of the Fourth Industrial Revolution.

 “The Fourth Industrial Revolution changes practically every human activity: the way we communicate and interact with each other, the way we learn, the way we make things, the way we work, the way we use our planet’s resources,” Kaesar says. “While the winner takes it all, the losers of the digital transformation face their personal Waterloo.”

Waterloo was the last battle fought by Napoleon I and the end of France’s bid for European hegemony. After Waterloo, France became a second-rate power and a client state to the British Empire. One basis of British power was control of the 19th Century’s most important resource: coal.

China Controls the Oil of the 21st Century

Today the basis of China’s power is data, the most important resource in our world. China has so much data that author, data scientist, and venture capitalist Kai-Fu Lee labels the People’s Republic: “The Saudi Arabia of Data.”

Lee’s hypothesis is that China produces far more data than any other country; therefore China is the world’s richest country. To elaborate, China produces far more data because its digital platforms have more users than those in other nations. Lee’s quote and  hypothesis from his book AI Super-Powers: China, Silicon Valley, and the New World Order.

One reason why China produces vast amounts of data is that modern Chinese society is a data harvester’s dream. In a recent MIT Technology Review article writers observe;  “Chinese entrepreneurs have masses of data at their disposal to train and refine their algorithms. The population is vast, people’s views on data privacy are much more lax than in the West (especially if they can get coveted benefits like academic performance in return).”

Chinese governments and citizens actively collaborate with data collectors. For instance, the Chinese government and Big Data are collaborating to create a social credit score to make it easy to collect data about citizens, Time reports. German political scientist Sebastian Heilmann calls current Chinese efforts to capitalize on “data Digital Leninism,” The South China Morning Post reports.

Ironically, Heilmann thinks the Chinese can make money from Digital Leninism. He writes, “Commercial interest will drive this development globally, as China exports its increasingly powerful security and surveillance technology.” This quote is taken from Heilmann’s book Red Swan: How Unorthodox Policy-Making Facilitated China’s Rise.

Note: in Heilmann’s thesis Leninism refers to the political structure V.I. Lenin created in the old Soviet Union not Communism.

The European Union, in contrast, made data collection far harder with the General Data Protection Regulations in 2018. The regulations require companies to get permission before harvesting your data, for instance.

Hence, Europe is restricting data production when the Chinese are increasing data production dramatically. Consequently, China could get richer; because data is money, while Europe gets poorer.

China has Four Times more Financial Data than the United States

Some data, including mobile payment usage, supports Lee’s hypothesis. Chinese payment apps dwarf their American competitors for instance.

The mountain of financial data China’s mobile payments platforms are gathering includes:

  • WeChat Pay with 1.1 billion active users in March 2019, PYMNTS.com estimates. In addition, WeChat Pay, owned by Tencent Holdings, had one billion daily users in 2019.
  • Tencent Holdings claims 823 million people sent cash gifts for Chinese New Years 2019, Zdnet.com claims.
  • Alipay, with over billion users in January 2019, Technode estimates. Tecchnode estimates that Alipay’s owner Ant Financial, was the most valuable financial company in the world in January 2019.
  • Alipay, with over billion users in January 2019, Technode estimates. Tecchnode estimates that Alipay’s owner Ant Financial, was the most valuable financial company in the world in January 2019.
  • In addition, China’s third-party mobile payment market had a trade volume of $7.01 trillion in 4th Quarter 2018, Technode estimates. In contrast, Statista projects revenues from the entire global payment market for 2019 at $1.08 trillion.

In contrast, the largest US mobile payment platform; PayPal Holdings (NASDAQ: PYPL) had 286 million registered user accounts in 2nd Quarter 2019, Statista estimates.

The second largest American mobile payment platform; Apple Pay, had 253 million users worldwide in 2nd Quarter 2019, Statista estimates.

Based on these numbers, I estimate the two largest Chinese mobile payment platforms are generating nearly four times as much data as their largest American competitors. Hence, China could have four times more financial data than the United States.

Why China Could Dominate Finance in the 21st Century

Thus, Chinese banks and fintech companies could theoretically know four times more about individual financial data than their American rivals. Hence, Chinese companies could dominate the fast-growing mobile payment app market.

For example, Ant Financial could be four times more likely to anticipate customer needs than PayPal. Therefore, Ant Financial could theoretically be four times better at customer service than PayPal.

In addition, Ant Financial has four times more data about customer behavior to feed into any artificial intelligence it builds than PayPal. Hence, Ant Financial’s artificial intelligence could be four times smarter than PayPal or Goldman Sachs’ (NYSE: GS), AI.

Therefore, China could dominate global finance in the 21st Century the way America dominated global finance in the 20th Century and Britain dominated global finance in the 19th Century. Notably, the British Empire was the most powerful polity in the 19th Century and the United States the dominant power in the 20th Century.

If money is power, China could dominate the world in a few short years. Hence, America could have lost the data wars without realizing it.

Can America Survive the Data Wars?

America has some advantages in the data wars. For instance, Statista estimates the largest U.S. payment provider; Visa (NYSE: V) had 1.24 billion credit cards in circulation in 3rd Quarter 2019.

Thus, Visa’s payment platform is probably still larger than WeChat owner Ant Financial’s networks. However, Visa relies on old-fashioned technology – plastic cards. Similarly, MasterCard (NYSE: MA) had 1.138 billion credit cards in circulation in 2nd Quarter 2019, Statista estimates.

What should frighten Americans is the age of Alipay and WeChat. In fact, Alibaba (NYSE: BABA) launched Alipay on 8 December 2004. In contrast, Visa began life as Bank Americard in September 1958.

Hence, Alipay is under 15 years old while Visa is 61 years old. Thus it took Visa 61 years to get 1.138 billion accounts and Alipay 15 years to reach the same goal.

Likewise, they launched MasterCard on 16 December 1966 as MasterCharge. Incredibly, Tencent Holdings launched WeChat Pay on 21 January 2011. Therefore, MasterCard is nearly 53 years old and WeChat Pay is nine years old. Astonishingly, it took WeChat nine years to attract almost as many customers as MasterCard.

China’s Social Media Offensive

By 2018, you could use WeChat Pay in 49 countries, Medici claims. Moreover, you could pay in currencies with WeChat Pay. Medici calls WeChat Pay, “Tencent’s beachhead” in foreign markets.

Consequently, Tencent Holdings can now deploy its data collection capabilities in 49 countries via WeChat Pay. Moreover, WeChat itself can follow and dominate social media and internet usage.

Kai-Fu Lee calls WeChat a “digital Swiss Army knife” that has some capabilities of Google, Twitter, Amazon, Instagram, Pixia, Venmo, PayPal, Uber, YouTube, and even TurboTax. Medici reports WeChat’s features include:

  • Messaging
  • Voice Messaging
  • Voice & Video phone calls
  • Mini programs, Android Apps or DApps (decentralized applications)
  • Photo sharing
  • News subscriptions
  • Ride Hailing
  • Money transfers
  • Bill Payment
  • Banking
  • Digital currency
  • Wealth Management products
  • Peer-to-peer (P2P) cash payments
  • Access to government documents such as driving records and Visa applications
  • Weather and heat information
  • Access to shopping and food deliveries

Tencent’s Beachhead in America WeChat Pay and Walmart

Now WeChat is here in America and 48 other countries. One way WeChat gets in is having WeChat Pay used by Chinese travelers or Big Retail. Significantly, Walmart (NYSE: WMT) America’s largest retailer dropped Alipay in favor of WeChat Pay for its Chinese stores, Reuters reports.

Moreover, Walmart offers its own payment app similar to WeChat Pay; Walmart Pay, through its US stores. Market Madhouse estimates 6% to 7% of US mobile phone users were using Walmart Pay in November 2017. Pymnts.com estimates that 6% of US smartphone users use Walmart Pay.

If Pymnts.com is correct, there could be 15.964 million Walmart Pay users in the United States. To explain, Statista estimates there were 265.9 million smartphone users in the USA in 2019, and 6% of 265.9 million is 15.964 million. Hence, each of Walmart’s 5,358 stores in the United States could theoretically accept WeChat Pay.

Notably, Walmart Pay and WeChat Pay use the same method of communicating with cash registers Quick Read (QR) code. Unlike Apple Pay and Google Pay, QR code apps initiate a transaction by scanning a bar code a point of sale (POS) system generates.

However, fear field communication (NFC) apps like Apple Pay send a radio signal to the POS device. Interestingly, Walmart refuses to accept NFC payment solutions such as Google Pay in its stores.

Thus, WeChat could have a huge beachhead in the United States at Walmart that almost nobody in Silicon Valley will notice. In fact, I suspect a large percentage of Silicon Valley engineers do not realize Walmart is still in business.

Has America Lost the Data Wars?

The resource conflicts of the 20th Century show how the data wars could develop. Britain, in particular, spent the 20th Century trying to counter America’s dominance in oil.

Winston S. Churchill pushed parliament to bail out Anglo-Persian Oil, now British Petroleum (BP) the company that controlled Iran’s oil in 1914, for example. To clarify, Churchill was in charge of the Royal Navy as First Lord of the Admiralty. The Royal Navy needed the oil to power its warships.

Furthermore, during World War II the British concentrated their military efforts in the Middle East to protect their oil supply from the Nazis. In 1956, the British tried to seize the Suez Canal with French and Israeli help to keep control of Middle Eastern oil.

However, U.S. President Dwight D. Eisenhower (R-Kansas) pulled the plug on the British Empire by backing Egyptian President Gamal Abel Nasser in the Suez Crisis. Without Middle Eastern oil; which was controlled by American client states like Saudi Arabia, Britain became a second-rate power and American client state.

Today, America faces a situation like Britain did in 1914, with an aggressive rival slowly gaining dominance over the world’s most valuable resource. The difference is today’s resource is data, and the rival is China.

Can Facebook Win the Data Wars for America?

America still has a huge advantage in one important front of the data wars: social media.

The four largest social media networks in the world; Facebook, YouTube, WhatsApp, and Facebook messenger are American. Meanwhile, WeChat is the fifth largest social network in the world.

In July 2019, Statista estimates Facebook had 2.375 billion users, YouTube had two billion users, WhatsApp had 1.6 billion users, Facebook Messenger had 1.3 million users and WeChat had 1.112 billion users. Thus, America is winning the Social Media wars for now.

Moreover, one US company Facebook (NASDAQ: FB); owns three of  the five largest social media brands and the sixth largest social media outlet. In detail, Facebook owns Facebook, Facebook Messenger, WhatsApp and Instagram, which had one billion users in July 2019.

I estimate Mark Zuckerberg’s social media empire had had 6.275 billion users in July 2019. Thus Facebook’s social media is six times the size of Tencent’s and unlike Tencent, Facebook is global operating in almost every country. Importantly, the vast majority of Facebook’s users are outside the U.S.

Facebook’s Payments Offensive

However, Facebook is still largely social media but Zuckerberg is working hard to change that.

In addition, Facebook will launch WhatsApp Pay, a WeChat Pay clone, in India where it has 400 million users this year, CNET reports. In the United States, France, and the UK, Facebook Messenger includes a P2P payments feature similar to WeChat Pay, The Balance reports. However, Facebook is still behind Tencent in payments

To change that, Zuckeberg launched a global cryptocurrency initiative he calls Project Libra. Importantly, Visa, MasterCard, and PayPal are members of the Libra Association the organization building Libra.

To clarify, you could theoretically pay with cryptocurrency anywhere on Earth using a blockchain platform. However, blockchain will need to overcome many limitations to reach a mass market. The blockchain scalability problem for instance.

Is Mark Zuckerberg an American Churchill?

Hence, we can think of Mark Zuckerberg as an American Churchill trying to prepare his nation for the new realities of the 21st Century. Remember, Churchill took the risks to ensure Britain’s oil supply by taking over Anglo-Persian Petroleum.

Similarly, Zuckerburg bought WhatsApp; a text messaging app similar to WeChat, for $19 billion in 2014 to compete with Tencent. Notably, WhatsApp was losing money when Zuckerberug bought and it was still losing money in 2018, MarketWatch notes. Predictably, Wall Street and the investment media mocked Zuckerberg for the purchase.

Famously, Zuckerberg is a history buff, like Churchill. So Mark, unlike, most of his peers in Silicon Valley understands the history. In addition, Zuckerberg has personal connections to China his wife; Priscillia Chan, is of Chinese decent. Similarly, Churchill’s mother Lady Jenny Randolph Churchill was an American.

Zuckerberg faces many challenges; including a government hostile to cryptocurrency, and growing hostility to social media and Facebook in the United States. Bizarrely, the American Left and much of the media blames Facebook for Donald J. Trump’s (R-New York) surprise victory in the 2106 presidential election.

Zuckerberg is assembling the resources that could ensure American data dominance. Unfortunately, Mark is nearly alone in battle but his resources are great. Only history will tell who wins the data wars but China could have the advantage now.

Companies to Invest in for the Data War

Intriguingly, there are some very stocks you can invest in to cash in on both sides of the data war. Those stocks include:

  • Tencent Holding OTCMKTS: (TCEHY) the owner of WeChat and WeChat Pay is also a major player in digital gaming. For example, Tencent owns Riot Games the company behind the hugely popular, massive multi-player contest League of Legends. Currently, Tencent and Riot Games are developing a mobile version of League of Legends, Reuters reports.
  • Facebook (NASDAQ: FB)
  • Alphabet (NASDAQ: GOOG and NASDAQ: GOOGL). The parent company of the second most popular social media YouTube. Alphabet owns the data collecting machine known as Google and the self-driving vehicle developer and transportation data collector Waymo. I think Waymo could become a major player in transportation with all the driving data it is accumulating.
  • Alibaba (NYSE: BABA). Ant Financial’s parent is China’s onlline commerce king. Importantly, Alibaba created Alipay. However, Ant Financial is a separately held private held company.
  • Amazon (NASDAQ: AMZN) The e-commerce Goliath is accumulating vast amounts of consumer data through its 105 million American Prime members. In addition, Amazon owns Amazon Web Services (AWS) the world’s premier data storage infrastructure provider. CNBC estimates AWS’s cloud business grew at a rate of 37% in 2nd Quarter 2019.
  • Didi Chuxing (OTCMKTS: DIDI). China’s answer to Uber (NASDAQ: UBER) was collecting data from 550 million users and 31 million drivers in 2018, The South China Morning Post estimates. In addition, Didi Chuxing users travelled 48.8 billion kilometers in 2019. Hence, Didi Chuxing has an incredible stockpile of travel data in its possession.
  • Lyft (NYSE: LYFT) The second-largest American ridesharing service has a strategic partnership with Didi Chuxing. Notably, Didi Chuxing shut down its US experiment in 2017, and told American riders to use Lyft instead, Technode reports.
  • VISA (NYSE: V) – Has access to financial data from 1.24 billion credit card accounts.
  • MasterCard (NYSE: MA) – Has access to financial data about 1.138 billion credit cards.
  • Walmart (NYSE: WMT) – The world’s largest brick and mortar retailer claims to have 265 million customers and over 11,200 stores in 27 countries. Thus Walmart collects data from 265 customers and 11,200 stores. In addition, Walmart is a major player in e-commerce and financial technology.
  • Goldman Sachs (NYSE: GS). The investment banking legend could be a data player because computer engineers compose one fourth of its workforce. In addition, Goldman Sachs is offering a virtual Visa card through Apple Pay and a variety of digital banking services through Marcus.
  • JPMorgan Chase (NYSE: JPM) America’s largest bank claims its branches will reach 93% of the US population by 2019, CNBC retorts. Chase currently gathers data about depositors at 5,053 US branches, transactions at over 16,000 ATMs, and $1.606 trillion in deposits, US Bank Locations estimates. Hence, Chase has a vast store of data to apply to experiments like cryptocurrency and its Chase Pay mobile payment app.

Data is the oil of the 21st Century and America and China are battling to control it. Only history will tell us the winner of that battle. However smart investors can make money from the Data Wars.