How China is Building a New World Order

Morningstar's Lawrence Johnson spoke to Brian Byrne of Aviador & Associates at MICUK about the threats and opportunities of China's expansion, as well as the FAANGs

Morningstar 7 May, 2019 | 7:00AM
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Lawrence Johnson: Hello, and welcome to the Morningstar Investment Conference in London. I'm Lawrence Johnson and I am here with Brian Byrne, a Futurist and the President of Aviador and Associates.

So thank you for joining us.

Brian Byrne: Delighted to be here, Lawrence.

Johnson: So, we just heard from you that the Road and Belt strategy espoused by the Chinese government is extremely threatening to western democracies and economies and we should abide by those at our own peril. So, what are your thoughts about that?

Byrne: Well, it was interesting one of the questioners in the session came to that point and I think it's both the threat and an opportunity in war gaming terms. China is building a replica of the Marco Polo Silk Road combined with the Roman empires essentially and they're bringing on board a number of countries, a number of players that historically have been very important in terms of world trade. They're now talking to Italy which is quite interesting as that was the seat of the Roman Empire. So, yes, it's a threat because their Belt and Road map doesn't include North America interestingly, so it's where do we fit in the whole scheme? But they certainly have thought this through they've been working on it for six years now. They are recruiting other Southeast Asian nations to invest, take on debt to create this entire ecosystem, if you will, of a new world trade system. So, yes, it's important.

Johnson: So, let's talk about the FAANGs. The FAANGs have been kind of together, they've learned to cohabitate in certain shared spaces, they've learnt to compete with each other, but they're kind of losing steam now. The growth factors that they were showing in the last few years has slowed down, so what you will be expecting from the FAANGs over the next few years?

Byrne: So, Lawrence, I really believe the metric that's the most important to these FAANGs are monthly active users and daily active users. They need to keep those growing and they are starting to reach limits, it's called saturation – market saturation. Apple yesterday reported some fairly difficult results and it's because most of the people that want an iPhone, have it. So they've pivoted to other things like services, content and so on. That can be a good bridge for a short period of time, but the FAANGs need to transform themselves, they need to compete now more and more within the group, but also look at their Chinese twins as I call them Baidu, Alibaba, Tencent and Didi Chuxing and so on and think about how do they close their geographic gaps in China. All of them have problems because China basically booted them out. And so Google, for example, they would love to be in with Baidu and have a shared business model in China. That's kind of the next step for them if they want to be truly global and close all the gaps and keep growing. Growth is paramount.

Johnson: So, should we be expecting the FAANGs to move into financial services?

Byrne: I believe so. And I'll use the example of Amazon because Jeff Bezos came out of Wall Street, he was with D. E. Shaw, hedge fund of Wall Street and he knows a lot about financial services, he came out of that world and he has also been talking recently more and more about cryptocurrencies. So, I could see a payment system like Amazon Coin, I'm not saying it's going to happen, it could happen. I could see them learning from Ant Financial in China and maybe teaming up and doing something around the cashless platform.

I could see asset management and banking, the likes sort of Revolut. I'm a big admirer of Revolut, I think they've done a really good job. What if Amazon said, OK, we're going to buy Revolut the way that we bought Whole Foods or Twitch one of the other acquisitions and all of a sudden bang they'd be in financial services.

Johnson: Great. Brian, thank you for joining us.

Byrne: Thank you, Lawrence.

Johnson: Bye.

This article is part of Morningstar's special report on What the Experts Say

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