Founder of Temu parent company envisioned wealth redistribution through reverse insurance
How gratifying for once to know that those above will serve those down below!
Born in 1980, 黄峥 Colin Huang studied computer science at Zhejiang University and earned a master's degree from the University of Wisconsin in 2004. He founded Pinduoduo, an e-commerce platform company in 2015. In 2018, when Pinduoduo became publicly traded in the U.S., Huang became China's youngest self-made billionaire with a net worth of USD 9.89 billion. Huang stepped down as chief executive in 2020 and as chairman in 2021 but remains a major shareholder of Pinduoduo.
Pinduoduo launched the budget shopping site Temu in September 2022. Then in February 2023, the Shanghai-based e-commerce company rebranded as PDD Holdings, a year in which it generated revenue of 248 billion yuan (USD 35 billion). Currently, Huang is the third richest individual in China after Zhong Shanshan of Nongfu Spring and Zhang Yiming of ByteDance.
Colin Huang's personal WeChat blog was launched in February 2016 but ceased updates in September 2017, after only nine posts. Although his original blog is no longer available, its contents are widely reposted on the Chinese internet. Personal in style, these articles discuss Huang's early life and his ideas about the world. His final WeChat blog entry, titled "Reversing Capitalism,'" explored the concept of "反向保险 reverse insurance." The East is Read features this last article today.
Huang believes that in the traditional capitalist model, insurance monetizes the poor's need for risk management, facilitating a transfer of wealth from the poor to the rich. Reverse insurance which he proposes flips this model; instead of the poor paying premiums or interest to the rich, they collectively express future needs (e.g., buying winter coats in summer). Manufacturers can then use this guaranteed demand to plan production efficiently and offer discounts. This certainty is monetized, allowing wealth to flow from capitalists to ordinary people by leveraging their collective intent as a valuable commodity.
The ideas in this article might explain the business strategy and the success of PDD and Temu. According to an opinionmaker's tweet that has been widely read, PDD's underlying logic is simple: the lowest price attracts the most consumers. This contrasts with the old model where the highest bidder received the best traffic. While some may compare this to traditional group buying, PDD's approach is distinct due to the relatively fixed marginal costs in retail; sellers typically resist altering their pricing system unless they need to clear inventory.
Huang's business model for PDD redefines e-commerce by circumventing traditional credit checks and utilizing traffic allocation to build credibility with suppliers. This aggressive price-cutting strategy presents a significant challenge to brands that depend on premium pricing to differentiate themselves. As brands are forced to compete on price, their established market positions are undermined. In contrast, unbranded products, which are not reliant on premium pricing, find it easier to succeed on PDD's platform.
把资本主义倒过来
Reversing Capitalism
Warren Buffett is an admirable capitalist, a pure capitalist through and through. His entire career can be described as a relentless, focused, and rational effort to move money around to enjoy the fruits of compounding interest.
I enjoy reading his letters to shareholders. For decades, he has repeated the same simple, yet difficult purity.
One end of his empire is built on insurance, and the other is on investment. One end sells risk management and collects money, while the other end puts that money into moated orchards that can generate compounding interest.
Initially, when I started writing a WeChat blog, I wanted to write an article about insurance titled "Insurance: The Pinnacle of Capitalism." The main point was to highlight how interesting insurance is and how well it embodies capitalism. "Rich people" have capital and a lot of money, so they have strong risk resistance; "poor people" have little money and weak risk resistance.
Thus, "poor people" need to buy this risk resistance from "rich people." While insurance is indeed something many people need, providing them with a more stable life or at least a more stable state of mind, it ultimately promotes the transfer of wealth from the poor to the rich. I call it the pinnacle of capitalism because it further amplifies the power of capital.
The soft, intangible idea of "money equals greater safety" is also monetized through insurance.
If the market is highly efficient and undisturbed, and the law guarantees the legitimacy of capital and its compounding, it's highly likely that the rich will get richer, and the poor will get poorer.
Buffett is admirable or even great because he is not just a highly talented capitalist who has mastered the game of capital; he is also a lovable person who clearly understands that money is not the ultimate goal.
On the one hand, he enjoys the happiness that the game of capital brings him, and on the other hand, he wisely donates the vast majority of his money to the younger Bill Gates, trusting Gates to complete the redistribution of wealth.
At the same time, he advocates for other wealthy individuals to donate their money and for the government to increase taxes on the rich, promoting greater wealth redistribution through mechanisms. And he is unafraid of the criticism these views attract. (Interestingly, Buffett's father was a Republican Congressman, and the ideas Buffett now advocates for do not seem to align with typical Republican views.)
In capitalist America, a remarkable Buffett was born. He finds joy in the game of insurance and compounding capital, yet lightly hands over the burden of money to Bill Gates. This is so wise; perhaps it's the simplest and most effortless way for a capitalist to find happiness in a capitalist environment.
Money is first accumulated and then redistributed. In this cycle, Buffett mainly focuses on the first half. However, in a "post-capitalist" era, effective redistribution of wealth is as important as its accumulation.
I can't help but wonder:
Is it possible to use insurance and compound interest, or rather the reverse, to make wealth distribution more equitable?
Could mechanisms be developed to allow the poor to "sell" insurance to the rich? Could the poor sell some of their "soft power," such as their purchase intent and risk resistance, to the rich, thereby creating a more refined feedback loop that shortens the cycle for wealth to flow back from the rich to the poor?
For example, imagine a thousand people foresee needing a specific type of winter coat in the summer. They collectively place a bulk order with a manufacturer and agree to pay a 10% deposit at last year’s price.
In this scenario, the manufacturer would likely offer them a 30% discount because the collective order provides a certainty of demand that the manufacturer didn’t previously have.
This certainty can be converted into the convenience of utilizing production downtimes or into confidence when purchasing raw materials. The manufacturer could even sell this certainty further up the supply chain to their suppliers, reducing their own costs.
In terms of the transaction, it’s like a group of people each spending $1 to buy a $3 time-limited voucher. The manufacturer, having sold these vouchers, could then go upstream and buy similar time-limited vouchers from suppliers, for example, spending $1,000 to get $3,000 worth of vouchers.
If these people have a certain credit record and place a bulk order expressing their purchase intent without paying a deposit, would the manufacturer still offer them a discount? Probably, though maybe not 30%, but perhaps 8%. This would be like the manufacturer using its time-limited discount vouchers to "buy" an insurance policy guaranteeing future purchases from ordinary consumers.
Taking a step further, there are many ways to market, productize, and monetize the intents of ordinary people and their certainty about their future needs.
Imagine a system where each person has only one chance to express their desire to buy a winter coat, akin to receiving a winter coat intent voucher (obtained by accumulated credit). Would this voucher be valuable to the capitalists who run the factories? How would the price be determined, and what limitations should exist on this bilateral transaction?
The essence is that each person, whether rich or poor, often has a clearer understanding of their own intents and future needs than others.
Moreover, individual plans and intents, along with the certainty each person has about their future actions, are valuable to suppliers. This can reduce uncertainty in production organization and help achieve a more efficient allocation of resources and capital.
Thus, I presume that capitalists and the wealthy would be willing to buy this reverse insurance from ordinary people and the poor.
This reverse insurance allows every ordinary person's credit and intentions to be monetized. It turns the usual situation on its head: instead of the poor accumulating credit and money to borrow from the rich and paying interest (making their purchases more expensive than those of the rich), or paying the rich for life's certainties, it is the rich and capitalists who pay ordinary people and the poor for the certainty of their production capital allocation.
In traditional insurance and financial loan products, money flows from the poor to the rich. In this reverse insurance, money flows from the rich to the poor, representing a fundamental difference.
Next, the questions are how to productize individual certainty about personal intents and actions; how to standardize these certainties for circulation, akin to discount vouchers; how to explore innovative methods for expressing intents; how to develop products that effectively convey this certainty; and how to productize and monetize the transmission of this certainty.
Additionally, it is essential to consider decentralizing the process of productizing certainty transmission (due to its varied scenarios and diverse applications) and prevent fraud in this relatively decentralized production and circulation of "certainty products." The aim is to create a positive cycle where "good money drives out bad." Blockchain technology might be particularly well-suited for this "reverse insurance" approach.