A special guest article from my co-author Randal Moss.
The People’s Bank of China just put a full force strangle hold on innovation and with its bone crushing grip on nontraditional funding mechanisms it is choking off the lifeblood out of a potential major growth engine. Even worse, it’s actions are creating a chilling effect on the entire start-up/garage-brew culture. culture that very well could be on the brink of creating the next Alibaba, Mogujie or better. Regretfully many of these concepts may never make it out to prototype.
Ni Hao Regulation, So Long Crowdfunding
Imagine if the activity on our favorite crowdfunding sites ground to a halt because of new regulations set forth by the US Federal Reserve Bank. Gofundme, Indiegogo, Kickstarter, Crowdrise all newly regulated and more difficult to us. Now think of this at scale to the tune of nearly 4,000 P2P platforms in China with outstanding loans worth around $90 billion.
It’s More Than Money, It’s Culture
More damaging than the funding spigot being turned off to budding entrepreneurs is the chilling effect this will have on startup culture. It will discourage those working on their dreams and tamp down the entrepreneurial spirit that is beginning to evolve the Chinese economy from the bottom up, outside of Politburo planning. Whether or not the $25,000 crowdfunded engagement turns into a $1B business is besides the point – the fact that there is opportunity and funding available is what matters.
We are looking at the death of The Long Tail. We are looking at the potential excision of the right hand side of the Pareto Curve. Curtailing the 10% of total startup money that going into the 90% of the new ideas is a big deal when you have so many invested and excited individuals. You are potentially squashing
Oh — You’re Crowdsourcing Your Mortgage? That’s Different.
There is always another piece of the story, and in China government is actually concerned about the use of micro loans to finance real estate down payments. Specifically the use of microloans from unsavvy would-be investors that worries the central government most. The plot lines of this story sound eerily familiar to the movie The Big Short; slowing economy, unregulated terms, borrowers purchasing beyond their means, and unsavvy investors making fundamentally unsound loans. A protectionist move is warranted, but I’m not sure that anyone can justify innovation being acceptable collateral damage.
It is an unenviable position to be in, but the Chinese must find a way to support low level cultural excitement about innovation. They have to make it personal and find ways to encourage these kinds of activities. Through the lense of a massive organization, China has to involve and engage its people on a massive scale. If they can create a critical mass of engagement around innovation they have the potential to invigorate their economy once again and drive their growth rates back into double digits. Because Innovation is a strategy for growth!
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