China's Crisis of Success: Book Talk with Dr. William Overholt

good afternoon I'm Scott Kennedy I'm senior advisor here in the Freeman chair in China Studies and it's exciting to invite you to today's talk you may have gotten some misinformation there will be no McDonald's Burger King or anything like that provided here today but there will be much other better food for thoughts so but I appreciate that hopefully you won't feel like we've tricked you in any way the topic of today's talk is on Bill's book China's crisis of success now you've all you've all heard about the coming collapse idea the trap transition capitalism with Chinese characteristics the Beijing consensus and bill differs from all of them perhaps some of his ideas share some themes with Roy and Walter's idea of growing pains a book that came out in 2010 but he has a much much broader agenda I want to introduce Bill and i'ma turn the floor over to him and then we're gonna have a conversation between us and then with all of you but just just I want to introduce his spirit before I introduce the person because this is a really brash book and if you go through it carefully the way I did you'll see that he has a real intellectual chip on his shoulder he has an axe to grind you might even say scores to settle but he lets the data do the talking he's against fads he's against ideology he's against lazy thinking and he's deeply comparative and I share a deep respect for that desire to compare it and this is so this is a book that's about China but it's really not about China relative to theory but about China relative to its neighbors and others in the world this books also it's not a dissertation but it represents the collective legacy of a life's work bills more than are in the right to write this kind book he's a senior fellow at Harvard's Asia center but that doesn't begin to explain why this book is so important and why we all ought to be reading it he's one of America's true Asia experts as an analyst and advisor and a scholar his input is sought by investors in governments around the world he spent three decades in the investment community at Bankers Trust Bank Boston and Nomura he's an intrepid traveler he is the Owen Lattimore of the 21st century who travelled for debt couple decades around western China bills travelled a little further but he had the help of planes he's worked at Rand and directed their Center for Asia Pacific policy he was president of the fun Global Institute he's the author of at least seven books among them the rise of China how economic reform is creating a new superpower which came out in 1993 and America and Asia the coming transformation of Asian geopolitics which came out from Rand in 2007 he's often called a panda hugger but he just calls it as he sees it not as he wants to see it and today he's going to continue with that tradition but tell a complex story I'm sure that will pique your attention today and hopefully will lead you to look at the book and learn a lot so as I said we're going to have him make his presentation we'll have a conversation including all of you please join me in welcoming bill over hope [Applause] thanks Scott I will try to live up to at least a quarter of that I want to thank CSIS for sponsoring this presentation no institution contributes more to our understanding of China and other Asian issues than CSIS I also want to thank Donald Trump for ensuring that nobody in the city has anything better to do than attend China lectures see if I can get this to work okay so I'm here to peddle the book but more importantly I'm peddling a way of understanding China China is the late comer in a group of Asian miracle economies and seeing China through the lens of the earlier Asian miracles often leads to very different conclusions from a specialist looking just at China in the 1980s I saw that Deng Xiaoping was basically just copying the lessons of miracle development in South Korea Taiwan and a couple others and based on that I argued that throughout the 80s that China would become a new superpower and that led to my book that's got mentioned the rise of China how economic reform is creating a new superpower 26 years ago that view was not popular at the time the leading review in London said mister / Holt's Bank must have paid him a lot of money to write such nonsense there were a lot of reviews like that I became known as the ultimate China bull in the new century it was very clear that who Jintao's the government was not following the the new playbook [Music] okay that's the first one and I wrote an article for Washington quarterly called reassessing China Thank You CSAs and then it became clear that although China is not following the PlayBook of the earlier Asian miracles it faces the same kind of developmental issues that they faced at the end of the 1970s and through the 1980s the earlier Asian miracles were very simple economies and very simple polities that's what made the system work the economies are basically landlords and peasants and some road builders and some cheap Sox manufacturers and that the economy that was simple enough that even a government could understand it politics was simplified by intense fears you'll notice that all the Asian economic miracles were countries that were incredibly tough traumatized it was Japan after World War two South Korea after the Korean War Taiwan after the Chinese Civil War Singapore after a very traumatic separation from Malaya and China after a really bad hair century a fear of social collapsed changes politics leaders know that they have to do really big things and take really big risks to avoid collapse and the people accept extraordinarily stressful policies because they fear civil war and they fear their children starving with the right economic politics policies Leninist politics can actually work message to fearful Washington policymakers the model works only under extremely constrictive circumstances it is not a model you can spread everywhere and Chinese leaders understand that China's early reformers took extraordinary risks to save their country in a population of peasants communists political power was ensured by detailed control of the life of every peasant through a system of communes those communions gave the party control over everybody's income how they spent their day who they married where they were located even what they wore and what their haircuts were but then the farmers in Anhui province started taking the land back from the communes and dunks helping noticed that the economy started to improve and people were happier and so he took an extraordinary risk he gave up the principal communist leader of political control and the hope the economic improvement would lead people to give stronger support to the Communist Party when we look back at that through an economic lens it looks like an obvious thing to do but if you were dung helping looking forward it was an incredible risk and later Jurong Jian Jung Simon did the same things with urban industry they shed the most important controls over workers lives they took a risk that instead of having all the revenues of all enterprises come directly into the government that the economy would grow and these companies would pay taxes and the taxes would somehow pay for these things again looking back it looks obvious looking forward it was an incredible risk and that kind of behavior taking great risks in the belief that improving society will ultimately enhance support for the party it's what a vanguard party does and I'm going to come back to that concept of a vanguard party at the end of this talk because it's attenuation is the core of what's changing China today so if you look back at the other Asian miracles each one of them comes to a crisis of success now what's a crisis of success think of an entrepreneur in Silicon Valley who invents a really cool new widget and the business just takes off and it's run for quite a while as the personal enter entourage of that entrepreneur and then things get complicated suddenly to get enough capital they need to list on the stock exchange and they need real professional accounting and real professional human resources management and a Board of Directors in a public rulebook and they either make it through that Elon Musk moment or they don't and that's that's a crisis of success simplicity and success become complexity the Asian crisis is success share certain characteristics the country finds itself over leveraged threatened by debt bubbles inflation bankruptcies second the big companies find themselves in difficulty all of almost all of South Korea's table eventually went bust the gloaming dong in Taiwan had 40 big conglomerates that owned by the party and by night in 1990 they all went into intensive care China's China is in exactly the situation the economy is over leveraged as McClarty who's sitting here has taught us china's state enterprises can turn back their cost of capital and the state finds itself facing tens of thousands a couple hundred thousand demonstrations a year which didn't happen before the curve is like this and it's chalant it's policy control is challenged by extraordinarily powerful interest groups what do I mean by interest groups well let me give you an example the petroleum faction control the flow of energy resources through China's over time those trillions of dollars of resources it was an official price and a market price and they arbitrage that and pocket much of the difference and that interest group was run by one of the nine members of the Politburo Standing Committee who are the people who run China and the individual Politburo Standing Committee member happened to be joy Yong Kong who was China's chief of security now that's a powerful interest group it makes the NRA look like a puppy dog China's interest groups are the size of European countries and it's about as difficult to manage them as it is to manage the EU so they get into this crisis of success it's got an economic aspect and a political aspect and at this point leadership counts in Taiwan the leader was a very tough character the Jiang jingo the son of John keshiki he was a member of the Soviet Communist Party he was Taiwan's toughest security chief unlike the soft folks on the mainland who take dissidents and send them to jail and let them rot there under jung jin who a lot of people were taken out to Green Island and shot so this is a tough unsympathetic character but he was close to his society and he understood that changes were coming that he was going to have to accommodate so he engineered a very gradual economic and political transition South Korea was the polar opposite Park changyi was this old general who who engineered the the saving of his country but he didn't get it economically or politically so the tribal mostly went bust in a huge debacle and in October of 79 students planned a great demonstration and the Korean CIA which was close to the society and understood the changes said you're going to have to accommodate you're going to have to liberalize pucks bodyguards said no stationed sharpshooters on the tops of tall buildings and shoot the student leaders and puck went with the bodyguards so the Korean CIA chief invited puck out to dinner with two pretty girls and in Korea they call him singsong girls and shot him in the head that's a difficult transition how has China's let's see if we get this to move saying next maybe I need to point it at the right thing sorry yeah that's what I'm doing how did China's crisis of success emerge well go back to Jurong ji 1994 to 2003 that you run she was the ultimate market reformer he laid off 45 million manufacturing workers by the way he found almost all of them jobs in the services economy which is what our politicians don't do much more sensible about that but remember what it did to our politics when three million manufacturing workers lost their jobs in ten years and Zhu said about cutting the Chinese government in half can you imagine what the reaction would have been if Ronald Reagan had stood up and said I'm going to cut the US government and half would have been outraged it's much more difficult to cut the Chinese government in half it has a much more important role in society it's just much bigger but he mostly did it at the top and people accepted that stress because they were afraid of the place collapsing the banking system was teetering and everybody knew that but by the end of his term they were stressed out as I went around China in 2001-2002 people expressed hatred for Jurong gee he's back to being a hero now which is the right assessment of him but Chinese people had had it so we got a new leader who Jintao who comes in and promises a harmonious society and harmonious society had all sorts of deep philosophical roots but in practical terms that meant no more Junjie market reforms not going to have that stress anymore and moreover the government who was a very sluggish government who Gentile was crippled by severe diabetes by the time he became the top leader he came across almost like a robot the Politburo Standing Committee had nine people who made decisions by majority vote we have an institution in this country that works that way called the Supreme Court and a very judicious and not terribly fast things were sluggish plus the old guys junk Simmons crew kept interfering and blocking what who what who Jintao wanted to do so after a few years people started saying we're getting behind the curve on market reforms and all these political things are happening the ministries aren't listening to the prime minister the provinces aren't listening to the central government the military is doing all sorts of things it's not supposed to do we have to get ahead of the curve and we have to get on top of things this is China's crisis of success the leaders had to get economic reform going again and had to get the politics under control on the economic side they worked with Nobel Prize winners with the World Bank put out probably the most carefully thought through economic plan in world history and it's all starts with the concept of market allocation of resources and derives about 300 reform policies from that principle made a lot of sense on the political side is that we got to get things under control we have to undertake a drastic centralisation so they changed the Politburo Standing Committee from nine nine guys to seven all guys and they eliminated the extreme positions a moderately Democratic reformers like Wang Yao the quasi Maoist types like Bose Eli and they created a new National Security Council they never had a coordinator and all sorts of what they call smaller leading groups in charge of economic reform financial reform Taiwan policy and they put these all under one guy and they decided to give that guy immediate control of the military whereas who Jintao had to wait two years these were consensus decisions and this is very important they were separate from the decision that si Jinping should be that leader so market allocation of resources centralization immediately the problems began market allocation of resources imply to squeeze on the state enterprises state enterprises didn't like that and the banks didn't like that because the state enterprises can only pay back the banks based on their special privileges and if the market was making decisions and party groups and government groups weren't making those decisions the the most severe squeeze was on local provincial and city level officials and si Jinping wanted to also reform the military so he took on every power group in Chinese society at the same time there's no more dangerous strategy that a leader can pursue than taking on every power group in society at the same time other examples the Shah of Iran in the late 70s the Polish government around the same time but he had a hammer to get these groups under control and that was the anti-corruption policy and he said about using that hammer the first big tiger he went after was Jo Yong Kong the head of the petroleum faction and then he went after top military leaders and so on at this point there are hundreds of thousands of these leaders many of them very senior in jail but that creates another problem the anti-corruption campaign is also taking on every major power group in Chinese society at the same time so he's doubling down on a very dangerous strategy so where the sleeve his administration well they came in thinking that they might be in the midst of a planned coup and with all this struggle with all these groups one absolutely top tremendously successful executive that I quote in the book said to me bill the atmosphere in Beijing is you die or I die very different from the image you see on TV of the perfectly coughed totally confident leader with all the people sitting behind him all with the same black suit in the same white shirt the same red tie same black hair so very very dangerous contentious situation so they decide the first term we're going to have to spend consolidating power and boy did he do a good job of that he eliminated all the rivals in the second term and we're about a year into as for reform to actually implement the policies and I got to thinking we're making an awful lot of people angry maybe after si Jinping second term somebody's going to come in and reverse all those policies like what Trump is doing to Obama and maybe there's gonna be retribution maybe we won't be safe so they figure they better provide for a third term how they done so now we're under the period of implementing actual policies have they done on that well in every area see Jinping's administration has refused to make fundamental choices on the economy they had a choice we can have fast growth and slow reform we have fast reform and slow growth si Jinping said we're going to have both and a relation between the economics and the politics we're going to we're going to marketize the state enterprises but we're going to strengthen the party committee in every enterprise private and public to make sure that there was a politician who has final say on any strategic business decision and we're going to resources allocated on a market basis but innovation and success are going to come from a couple trillion dollars worth of subsidies to these big state enterprises and we're going to have the rule of law but we're gonna strengthen the party commission that actually take tell us the courts what to decide this is not mounts a tongue or dung so paying or Zhu Rongji making decisions this is Teresa may but there's also a pattern to the indecision wherever there is a tension between market allocation and political control the choice is always in favor of political control the period of Mao was a period or the slogan was politics in command the period of Deng Xiaoping and Johnson Men was economics in command we're now into a period of mostly politics in command and that is ominous for the economy and all of this it's important to define the position of Xi Jinping because what our media and many of our scholars tell us is this is the omnipotent dictator for life and yes he defeated all his adversaries and he's got this long list of titles and he's in the Constitution and he's got the possibility of a third term that's pretty impressive he's even telling us that China's success there's a whole movie about this is not due to dunk something it's it's due to him and his just see Jinping and his father all-powerful leader the test of a leader is whether he can implement his policies and there see Jinping has not done so well they have not implemented effectively in most areas economic or market allocation of resources there are a few successes military reform seems to be one of them but he faces universal pushback and very limited success we're told the SI Jinping is China's Putin this is almost exactly the opposite of reality si Jinping is a creature of the Communist Party Putin Putin's party is a creature of Putin Putin's party is there to make Putin richer and more powerful si Jinping is an executive hired and given a job to do he's accountable to the party and he's not getting that job done very well so you have to take another look at this image the reality is that top exec it is who have a problem implementing their policies you can slowly get into difficulties think of Jeff Immelt at GE it took a while for thee for the problems to come home to roost China's bigger and more complicated so it takes longer think about that accumulation of titles if you're running a big company do you make yourself director of every every subsidiary of every unit the confident competent executives don't do that you stay on top they delegate dunks helping govern China for years as honorary chairman of the Chinese bridge player society that's Authority dong shall paint would go down to Shenzhen and give a speech 1992 in the lives of 1.3 billion people who would change that's power a key lesson of the early Asian miracles is that the pressures of political complexity are inexorable the current Chinese administration has chosen the puck chun-hee strategy of sitting on the lid of the boiling kettle the result is a circle of repression push back repression or push back more repression this can't go on forever and the tides of opinion are shifting five years ago China was one of the only developing countries in modern history where academics and students supported the government I said yeah there's some repression that we don't like but but look at what this party has done for the people of China we can put up with a good many problems in return for bringing China into the modern world for ending hunger and ending a lack of education and many other things no more all the groups of China's professionals the leading edge of society have shifted their views and today they express a kind of helpless but emphatic alienation decisive importance is the business community the state enterprise executives have lost about half of their income they don't like it but that's not the important thing the important thing is the private sector the private sector provides almost all of the growth in China's economy it provides almost all of the new jobs it provides almost all of the innovation of the party secretary is still the arbiter of social justice and so he can quite legitimately call up an entrepreneur and say I got a new project downtown and be very good for our city I need a million dollars contribution from you by next Tuesday unspoken if I don't get it by next Tuesday you're shut down I've been personally involved in situations where companies were shut down for being a little bit slow in the contributions as the central government tries to deleverage this creates a terrible squeeze on that local party secretary because the baseline is that China's localities have most of the social responsibilities but a very limited flow of revenue and now there don't being told you you have to be a lot less innovative in your financing there's gonna be a lot less money coming your way and so what are they gonna do they're going to call up and say but I've got three projects downtown and this creates real issues so you can just feel the tide changing this doesn't mean that China's headed for a great collapse and understand why it's not you have to throw out an awful lot of Western social science let me start with the Economist the great economist development economist our day here of our day our ASIMO glue and Robinson and they have shown quite persuasively that if you're going to develop an economy for the long run you have to have an inclusive society and they're constantly derogating china because it's not a democracy therefore it's not an inclusive economy well that link between political inclusiveness and economic inclusiveness is all ideology not evidence so let me tell you how the Asian miracle economies create an inclusive economy they start you start with an economy of peasants and the resource is land so you spread the land around in a great land reform everybody gets a piece of the action and then you give everybody an education by the way democracies can't do land reforms and democracies have been consistently India for instance and consistently incapable of providing universal education you give everybody a shot by providing basic education and then you build great infrastructure so that companies that make textiles and assemble computers all want to come and exploit this wonderful situation in India and the other democracies at this level of development typically can't do that China typically builds about as many good roads in six months as India has built since independence in 1947 think about that and then you try to give everybody a home you don't see this mention much in congressional Commission reports here but China has the world's highest rate of homeownership about 85% of the people own homes it's it's about 64% here in our country and we're we're a country that's big on home homeownership so everybody gets a piece of the action again and and then they all have a great property price inflation you remember what happened in Japan it happened in South Korea and happened in Taiwan so this home however humble suddenly is worth a heck of a lot more now I mentioned just one other aspect of the inclusiveness these in labor-intensive industries that provide everybody with a job what do they want they want women in traditional agriculture family survival may depend on a margin of muscle power slam I just want boys the textile factories computer assemble factories they want women typical company that I used to visit 11 Taiwanese bosses and 8,000 Chinese women that's still unfair that the bosses are 11 Taiwanese guys but the people getting the jobs in the modern economy are women they will go 500 miles a thousand miles 1,500 miles to get these jobs gets them out from under the thumbs of their fathers and brothers the freedom but in all the volumes of interviews that are real that's what they love and they're they're the ones who learn how the modern world works and they're the ones who accumulate a little nest egg so that if they go back to the village they're the one who have a down payment on the house a result of this is a very fundamental shift in favor of inclusiveness and I'll give you one measure of how powerful that is traditionally a woman had to bring a dowry now the man better bring an apartment or she's not going to date you that's a male dowry China has these extraordinary economic strengths and we should never forget them but it's got some very serious emerging weaknesses season bings government is starving and cannibalizing the private sector which is where all the good stuff comes from the Stadion it's not only that this private sector doesn't have the funding it needs it's the state enterprises are eating up the private sector and the thought behind this is that and this is traditional socialist thought they'll have more political control if they own these big enterprises the history is so actual socialism so the opposite is the case the big companies always end up owning the government and that's how you get the kind of stagnation that's happened in Japan it's not an issue whether its private or or state it's an issue of whether you've got companies that are in a position to control the politicians and above all we've got this return to politics in command this is going to have all - effects for the economy and that evolution toward protected big state enterprises which leads to a kind of relative stagnation is what si Jinping was hired to avoid it's not going to happen I apologize and keep doing the same thing and it keeps maybe if I go up and click on that okay good mm-hmm above all China faces a very fundamental political problem I began struck by remarking on the courage displayed by Deng Xiaoping and to Rongji as they jeopardized the most powerful levers of political control in order to look to deliver benefits to the population that is what made China successful that is why people venerate the party as a vanguard the counterparts today would be decision to step back from direct control of the state enterprises to step back from direct control of the courts and there would be many benefits both strictly economic and in terms of confidence and security and a sense of justice but instead what we're seeing is a party that is grasping for air every little lever of political control everything we're not going to get up and a lever of control this is turning the party into an interest group that evolution from Vanguard party into an interest group is what destroyed that goman Dongs dominant position in Taiwan politics this is a much greater threat to the long-term future of the party than corruption much greater threat than a decline and economic performance it takes a long time I'll just close with the thought this is China's most important problem this is our most important problem we have a more complicated international situation because in both sides of the Pacific we have countries governed by parties and so bipartisan remark that are basically abandoned their their social challenge and focus for narrow partisan interest group advantage let me stop there thank you well thank you so much fantastic presentation and we have a few copies of the book outside bill will be available after to sign a few of them we probably will run out of books on hand but we will still be able to arrange copies to be sent to anyone who wants them today I'm going to try we to do my best imitation of David Rubenstein who has a program on Bloomberg - the few billion dollars that he has to ask a few initially just a few brief questions to get the ball rolling and then I'm going to ask one longer question which you could still give a short answer to and then I'll open it up to the audience so because you've traveled around Asia and been working on the region for so long I was just curious what's the most interesting city in Asia that you've been that's a tough choice I'd say for probably Beijing overall the combination of politics and culture and history is is unique and you're the smartest political leader in the region that you've gotten to meet a Jew Ranji I never met dung shopping I think if I hadn't met him he used to come to our our bank project closings but but I was a analytic and strategist type not the deal closer type so I didn't get to build those meetings but I did have time with Zhu Rongji and he was this marvelous decisive brilliant guy he evaluated my thesis about watching the smaller countries city he knew more about Al puckering he had made decisions and why than any Western scholar of Korea I've ever met he was a tough decisive leader but his confidence made him extraordinarily open I asked him one time they they had to close the Guangdong International trust investment company which is the largest borrower foreign exchange in China and incredible to have them close and bankrupt a huge company I said didn't that to cause you some political problems he said yeah they're trying to get rid of me again but I think I'll be here a while longer and it was also a good politician I I gave him a copy of this book the rise of China at one point and he said ah I've got to copy this I've read it and keep it on the shelf beside my desk but I'll keep this one too it's more valuable since it's got your signature you know it didn't matter whether it was true or not he had the tough decisive skills of an authoritarian leader and he had the the political savvy which not all his colleagues shared of real politicians III I'm a big fan of Chiron G I can tell I can tell and if you look at Xi Jinping's National Day speech or New Year's Day speech the books behind him he had different types of books on the shelf behind him maybe I ought to send him a copy of your book last quick question scariest moment in Asia or in China or challenging scariest moment that's easy I was in charge of personal security for Cory Aquino in the Philippine Revolution and Marcos hired an assassin and tried to incarcerate her or kill her in a couple of other ways and I was in charge of stopping that and and I did with in general veromarcos to stop general had was reputed to be the best assassination team in Asia they chased me in three countries and I had to run really fast that was the scariest moment yeah I'm glad you're a good runner okay let me ask about what happens if China doesn't follow your advice and change direction not in terms of what the consequences specifically are for China but this focus compared of lenss that you use what's the other country out there that is China's future if China doesn't make the right choices is it Brazil South Korea Indonesia where well what are they looking at on the economic side their future is the stagnation of Japan after starting in the late 1970s almost all Western analysts gave Japan's lost decades to the financial crash of 1990 if you look at the growth curves it was the end of the 70s and now that's when the big companies took control of Japanese politics the retail banking agriculture construction and property they even divided the legislature into tribes valley on who was owned by those and they defended themselves against local competition and foreign competition and the economy stagnated that's that's where this kind of system heads and it's worth reminding some of our political leaders that we were terrified of that system with all these big companies being supported by the government those industrial policy that intended to reinvent the East greater agency Asia co-prosperity sphere and their undervaluing their currency they had all the foreign exchange in the world and they were buying all our best golf courses and all the hotels in Los Angeles oh they're just gonna take us over that's not the way it works politically the one the only thing you can predict is things are not gonna remain the same either it's gonna get a lot worse the cycle of repression pushback or repression is just gonna go on and on it's gonna get really really nasty or they're gonna find some way to liberalize I don't mean necessarily copying Westminster or Washington DC but they need some analog of market allocation resources in the in the political arena some relatively automatic way of making contentious decisions and aggregating interests that's considered legitimate by the population we do that through elections in the rule of law I think I think we ought to phrase it that way to give them the space to come up with modern political management with Chinese characteristics but it's going to go one way or the other it's it's and there's a generational change in China is faster than anywhere else in the world and there will be a new generation coming along and they will demand power and they will demand the right to construct to to cope with the mistakes of their predecessors things will change I really want to keep asking questions but I have a whole room of good friends and people who want to ask questions too so I'm going to defer to them so if you'd like to ask question please raise your hand this is live online so we're let a microphone come to you and then if you'd identify yourself and ask the question there's a gentleman and the blue coat here in the third row thank you I'm Wayne Morrison with CRS um just a quick question about the current administration's approach to China which appears to be a lot more confrontational than what we've seen in the past for example the use of the section 301 increased tariffs and the demand that China make structural reforms to its economy I'm just curious is viewing what the US is doing my great concern is that instead of getting China to reform its economy we're sort of pushing them in a corner where they might force leaders to become even more interventionist in order to keep the economy growing so I'm wondering like how would the Chinese viewing these US demands on their economic structure what do you think this is all going to end up well let me first disaggregate our demands following at imposing that they're our necessary demands there are exaggerated demands and they're crazy demands it is absolutely necessary for it to address the issues of intellectual property theft forced intellectual property transfer access to the services sector and unfair rules like like in fact that competition policy applies to our companies but not to their state enterprises we have to do something about that and that's on the agenda then there the exaggerated things focus on a five percent Chinese tariffs on cars now China saved our car industry the GM was headed for bankruptcy absolutely unsalvageable when they started making a lot of money in the giant market and driving in China you're always in sight of two or three Buicks if you go to Japan or South Korea you're ever in sight of any American cars it's it's once an hour let's see one maybe China some much more open economy than Japan there's no comparison it's open to our trade it's open to our direct investment it's a more open market for corporate control and foreigners have about twice the share of bank assets in China that they have in Japan though we have a deputy US DRI goes around saying how China is the most protectionist economy in the world I could start with North Korea but let's look at your ban the stuff is nonsense and and the issues of industrial policy of subsidies are ones we have dealt with in the past very successfully with other countries like Japan and like South Korea and we have dealt with much more difficult issues in connection with China's WTO remember these these are things that China is going to fix anyway and and there we have a long history of negotiating these without declaring them in enemy hands I mean you've got to change your whole economic structure and then there's a completely crazy one the trade deficit everybody who's taken the first month of economics knows that the trade deficit or surplus is how much we invest and spend - how much we save the Chinese have no leverage over that we can move it from from China to Vietnam and validation but we can't reduce it by declaring war on China so how their Chinese respond well at the overall level the Chinese elite loves Trump and one professor said to me two weeks ago and the United States the elite paid strim and the masses love him they say in China the the elite loves Trump and the masses hate him for for nationalistic reasons they like him because because he's pushing on Xi Jinping and on a policy level they started off just being completely confused Liu who came here is it what do you want to give me a lesson we said well we don't have a list we don't just look we just don't like you and then we gave them a list you know you got to transform your economy and do one that looks like ours the Chinese are going to try to do the things they were going to do anyway and working on intellectual property issues liberalizing trade liberalizing access to the services go there planning a lot of that anyway and Trump they have this tremendous push back at home and Trump has just added to that push back but it will happen and on the larger structural issues the crazy stuff and the totally exaggerated stuff they're just going to they're just going to have to dig in their heels their system analyzes these things and addresses and very rationally I've got a long section in my book about the Chinese meritocracy it's another one these are areas where there's a whole US academic literature that says no there they're not a meritocracy it's all ideology and methodological finishes they are very good at thinking these kinds of things through and so that that will be their approach the larger problem is the the pent speech that basically says we want a new Cold War and the Chinese reaction was well we don't want a new Cold War but that sounds like Winston Churchill's iron curtain speech I guess we have to accept what the US wants and it's going to take a long long time to fix that all right I'm gonna need a lot of David Rubenstein imitators here and I think what we're gonna do is we're going to collect several questions let you pick and choose the ones you like the most and then and then wrap things up just coming on time so we go to the back of the room and then we're gonna come here to the front and then this leg here so we're gonna take those three and it's a nice actual triangle very straight line sorry anta Hey thank you I wanted ask something about how you see the policy process going on at the governmental level Xi Jinping's level right now you said sort of two slightly different things in your presentation one was that he did a very good job of consolidating power in his first term and of reducing the size of the Standing Committee but at the same time he said he's had a very difficult time actually getting his policies implemented and I wonder if part of this points to the rise of outside interest groups that you've reconnected at like the private sector and the ability to have effective veto overrides over central policy control interest groups question first will come here thank you whom Tran formerly iaf you mentioned the market allocation of resources as one of the key challenge for China Lee Chi Fuu who wrote the book the AI revolution in China and I think who spoke here a week or two weeks ago content that the market for private equity capital for high tech and a in particular is the most cutthroat competition competitive that he has seen so my question is do you think that kind of competition for AI and high tech in China according to leak i fou can attack again traction and can it be replicated and spread throughout the economy and therefore solve the problem that you posed there is one more right here yes thank you I'm Chen Leo from China's new high news agency and in your presentation you've just mentioned about the political and economic a witness a witness of China so from your observation that what could be the most eminent and the most serious challenge that you think China is facing and I've got a follow-up for the previous question from that gentleman ISM there are talking's about nowadays the US and the US economy is decoupling from the Chinese economy so do you think that's the case that's what the US government is heading to and do you worry about that Thanks okay I'm not sure I understood the interest-group question so let me deal with the the the others first on artificial intelligence there are certain areas where China is taking leadership we saw this with Japan there were certain areas where despite is the structure Japan despite the fact that most most sectors I wasn't working you get a few singapore airlines kinds of state enterprises and and and and initiatives they're successful and China has big advantages where those advantages come from huge subsidies and denying others access and so on I think we have to push back and use some combination of sanctions and keeping them out of our our market until until they agree to play fair and I think Huawei is a situation like that always about to take over 5g for the world I trynna would never let us have that kind of access to the Chinese economy so are we gonna there are areas where we need to push back and there are areas for China will be fabulously successful know the the Japanese were very good at cars we all drive better cars because the Japanese were good at cars it hasn't killed us people probably kill us at the time but knowing about driving better cars and strategic areas where China is taking a is being very successful by totally unfair means we have to push back the other thing is we've got to get our act together most of our great economic innovative successes started with the US government places like DARPA the National Institutes of Health and we're destroying those today and if we destroy through some kind of anti-government ideology the roots of our own success we deserve our fate but we need to address the problem here and the most important area of that it's not high-tech at all that's our workers our workers are being to put this place six out of seven manufacturing job losses are because of technology and their jobs opening they're almost an equal number of jobs opening up in the services economy China held us very well they took these people and move them into the services economy our system now militates against that when they on agriculture was declining because of efficiency we built the national railroads we built a national road system against congressional Republican resistance but we built them and and people moved to the cities and we ended up happy now the same thing is happening in manufacturing you have to move people into the services economy but Democrats are dependent on the manufacturing unit so you're not allowed to talk about anything about except getting manufacturing jobs back and so we don't do what society needs and on the Republican side there's a problem because all the research shows that when the factory town loses its factory people just sit around helpless you have to not just retrain them you have to tell them where the jobs are and help them move and if you do that the transition is smooth and everybody ends up richer but we've got kind of a bipartisan agreement not to deal with the issue and instead to blame it on China and that's causing us both the most severe domestic problems and the biggest international problem with God so decoupling we need to stop China from stealing our intellectual property and buying our most sensitive companies that's an imperative but the word decoupling has such vast implications what we need is targeted policies some of which are being implemented to deal with those problems in a technocratic calculated way the the coupling of the United States in China has lifted much of the world out of poverty it's moved us into a world of a services economy the Chinese economy is now considerably more than half services you don't have to do back-breaking labor anymore you sit at your computer it's a lot better there's enormous security benefits to us from this growth a place like Bangladesh should be a giant jungle Somalia everybody knew when Bangladesh was created at the beginning of the 70s that it was hopeless but the sino-american economy as this would be the greatest source of terrorism on earth but instead the sino-american economic collaboration had the the textile industry slop over Excel industry moves out of China into Bangladesh but the u.s. is the biggest investor in Bangladesh and suddenly you don't have 90 million people contributing to terrorism Ethiopia when I worked there was this horrible horrible place recently it's been the world's fastest growing country because because the coupling of the United States and China has made it were Africa used to grow between zero and two percent for a while i was doing six unbelievable that's because there's a sino-american coupling we need more of that coupling and we need to decouple and push back in limited calculated ways we need to do it very decisively and toughly where it's needed and we don't need to sort of declare a new Cold War these problems are manageable fantastic bill you're a real tour de force not just your books clear-headed thinking is what jumps out at me smart courageous you're you're asking a lot of leaders but it's it's what's needed that's what leadership is supposed to be your early book on the rise of China heralded a success your new book heralds the crisis of that success and the challenge that they face that we all face you've provoked a lot of thinking you've also put forward good ideas pass forward I hope people are listening they need to and we need to keep talking about your ideas until they do everyone please do I may in thanking bill Oklahoma [Applause] [Music]

Channel: Center for Strategic & International Studies

Views: 10,121

Rating: 4.5 out of 5

Keywords: Tags, go, here!

Id: 1UsZBwSAZbQ

Length: 76min 29sec (4589 seconds)

Published: Tue Jan 15 2019