Moral hazard. Because it’s not debt, so there is really no way to recoup losses if the borrowers just decide to be bad and run away. Given low-trust business culture in China, such thing is not hard to imagine. Ultimately it comes down to MC team’s risk management and operational skills, especially on how to prevent massive fraud schemes specifically targeting them, which is the scariest. Another layer of moral hazard is if MC becomes really popular, there might be emergence of fraudulent copycats, that exist only to scam investor money, which in turn will lead government to crackdown, during which time may hurt MC inadvertently. Apart from these, I don’t think any major points in Mr. Song’s attack is meaningful at all.
Stumbled on this newsletter from your article on Li Auto from earlier this year. Great insights and look forward to learn more.
Thank you so much
Thanks, thought-provoking post. You mentioned Micro Connect’s potential but also problems - briefly, what do you think those problems are?
Moral hazard. Because it’s not debt, so there is really no way to recoup losses if the borrowers just decide to be bad and run away. Given low-trust business culture in China, such thing is not hard to imagine. Ultimately it comes down to MC team’s risk management and operational skills, especially on how to prevent massive fraud schemes specifically targeting them, which is the scariest. Another layer of moral hazard is if MC becomes really popular, there might be emergence of fraudulent copycats, that exist only to scam investor money, which in turn will lead government to crackdown, during which time may hurt MC inadvertently. Apart from these, I don’t think any major points in Mr. Song’s attack is meaningful at all.
Looking forward to seeing future issues of your newsletter.