Robert Reilly: David Goldman is not only an
economist with a lot of experience on Wall Street, he’s a music critic and a music
theoretician who has taught on that subject. Of course he’s best known not as David Goldman
but as Spengler through his years and years of extraordinary articles and columns in the
Asia Times, which I have followed [and] which I’m sure many of you did as wel always wondering
who could this man be who knows Islam so well, knows the Middle East so well, Turkey, who
knows of course the Asian War affect, the- who knows everything and so finally he’s
been exposed as indeed David Goldman who’s going to talk to us tonight on, “Will China
Overtake the US as the World’s Leading Superpower?” question mark. I just want to share with you
because it’s such a delicious quote and there are a number of you in the audience
tonight who have worked in the intelligence world, the quote about our speaker by the
former CIA National Intelligence Council vice chairman Herbert E Meyer. Quote, “Ask anyone
in the intelligence business to name the world’s most brilliant intelligence service and we’ll
all give the same answer: Spengler. David Goldman’s Spengler columns provide more
insight than the CIA, mi6, and the Mossad combined.” Please join me in welcoming David
Goldman. David Goldman: I’m humbled to be invited
to such a distinguished group in the presence ofso many people as work I’ve admired for
many years, including Bob Reilly’s. Bob’s work on music by the way is some of the most
interesting and important I’ve read. His book in 20th century music I think should
be the standard on the subject so I throw that in as a free advertisement. The good
the simple answer to the question, “will China try to overtake the United States as
leading world as a new superpower?” is yes unless we change the course. The hour is late
and it’s time to be alarmed. I’ll explain the point of my title, “Geeks in a new Roman
Empire in a moment. How you measure the Chinese economy… the Chinese economy is either 20
percent larger than ours or 20 percent smaller, what the world bank calls purchasing power
parity, that’s the actual cost to do business. So for example if you want to create a research
lab and develop a new hypervelocity missile inside of the costs of the engineering personnel
will be considerably less so the GDP of China that respect to be upgraded a bit if you calculate
it in ordinary U.S. dollar terms they’re still somewhat behind us but even so given
the growth rate of the Chinese economy sometime in the early 2020s it is very likely that
China over it will overtake us in nominal dollar terms and however we measure it it
will be roughly our size given that China is growing at six or seven percent a year
which is a doubling every ten or twelve years not very long from now the Chinese threat
that we have now will double we’re like hercules wrestling the giant and TAS the daughter
of gaia ‘the the earth goddess who every time he touches the ground doubles in strength.
Hercules finally had to strangle him in midair and the problems that we now face are going
to be much greater in the future and if we don’t address them we’ll be dealing with
a power that will in many ways swamp us I’ll try to explain what those ways are first I’d
like to say something about what China is China is a civilization that has been with
us for five thousand years does much more much older than us it has had periods of extreme
decline and chaos followed by periods of reconstruction but overall it’s certainly one of the world’s
few truly successful civilizations according to the linguists not quite a hundred and fifty
thousand languages have been spoken on planet earth since the dawn of man of those perhaps
five thousand is still spoken but if you eliminate the languages spoken by a few hundred people
in the New Guinea Highlands and the ones that are likely to survive another 100 years you
get into the hundreds so of this enormous pool of languages and cultures Chinese culture
has been one of the very few successes coming from a younger and also reasonably successful
culture which is the Jewish culture I look at the Chinese in all they should never be
underestimated what makes China China what is it how does it understand itself until
the Jesuits turned up in the 16th century matera Ricci and his colleagues China simply
understood itself as civilization China was a civilizing principle it was a means of unifying
different ethnicities on the basis of very different principle than Rome or Alexander
or the Holy Roman Empire or any entity in the West or its antecedents and I think that’s
best illustrated by what it’s like to be a Chinese child Chinese children but I was
very bumptious and sort of have a free happy-go-lucky kind of existence until they’re about six
at which point they’re given a pen and the pot of ink and a piece of paper and they’re
told now you’re going to learn the characters and for the next six or seven years they’ll
spend four hours a day learning the characters. China managed to combine roughly 70 major
language groups by having a unified written language and entirely diverse spoken languages
it’s not until very recently with the advent of telecommunications and the centralizing
influence the Mandarin dialect the old Beijing imperial court dialect that China has said
anything like the unifying culture in the sense that we understand culture know what
Chinese mother for thousands of years sang a lullaby to a child in Chinese Chinese was
what you wrote this duality lies at the heart of Chinese strength and Chinese fragility
China has never quite been unified it’s like a bag full of operas Lee charge magnets
held together by super glue. China’s trying to spend a hundred years until the Communist
revolution the so-called century of humiliation disunited dominated by warlords with civil
wars that may have cost up to a hundred million lives in the middle of the 19th century the
Taiping rebellion for example this is still a living memory there are people who remember
this in the 1930s and 1940s so China’s paranoia about a rebel province Taiwan breaking away
or a Tibet is deeply rooted in the fragility of Chinese history but at the same time the
process of acculturation of Chinese citizens is so intense and so deep requiring so much
effort and felt hood that the unifying characteristics have a kind of have a different kind of strength
which no supranational entity in the West has ever achieved important to remember that
China had by some estimates 30 percent literacy 2,000 years ago when literacy in the West
was a tiny fraction of that now China essentially grew from the tiny area to notify the Shang
Dynasty 3,500 years ago by making its neighbors an offer they couldn’t refuse. The offer
was you become Chinese which is you learn the characters you adopt Chinese dress, Chinese
customs, and you pay taxes to the Emperor who will be the arbiter of conflicts among
various ethnicities and so forth. That’s a option one. Option two is we kill you all
and it won’t well effectively fine a basically reached its current geographical boundaries
which were natural the Gobi Desert that million mountains and the oceans by the year 700 they
haven’t changed substantially since then nor are they likely to change this is not
Rome or Alexander or the British Empire or the Comintern which wants to conquer masses
of territory China wishes to project influence but it does not look it is not in thirteen
hundred years fourteen hundred years look for territorial expansion the differences
between China and the West are deeply set the most important thing we’ll notices in
China is that there are no subsidiary institutions to use the terminology from Catholic social
theory there’s no Football League no Church bingo game no Board of Education that is or
that’s organized outside the imperial struck which is run by the Communist Party which
tolerates no competition the fundamental unit in China’s society was never a subsidiary
organization like New England churches that elected their own clergy and didn’t like
Anglican bishops telling them what to do it’s nested dolls the fundamental unit was the
extended family form in which the head of the form was admitted for Emperor and many
forms formed a clan which had a head who was another slightly less miniature Emperor going
up to a provincial governor going up to the Emperor it was a structure that reproduced
itself down to the capillary level of society that in a deeply oversimplified summary is
what Confucianism is my friend Francesco see she came from a writer for ancient times points
out that the Chinese conception of law rights and obligations is radically different from
the West starting with the Romans and certainly ancient Israel elsewhere the state was an
entity to which one had obligations and from which one derived rights and privileges in
Rome he paid her taxes he served in the army you could demand certain things of the state
you had certain economic benefits as it is in you’d deserve protection and so forth
it was a very well defined quid pro quo engraved in common law shana you do what the emperor
feels like at the moment and you hope you get a reward there’s no sense of rights
and privileges. China is radically different than Japan. Japanese love their emperor. The
Chinese have never loved their emperor. The emperor is a necessary evil. Chinese will
tell you today we’ve always had a temper. Why should we change now? When we didn’t
have a strong Emperor we killed each other. Look at the century of humiliation so we don’t
like the common party we don’t like any of these people they’re tax collectors they’re
brutal and they’re arbitrary but without them we would all kill each other close this
part of it with an anecdote I I worked for several years for an investment banking boutique
in Hong Kong Chinese owned we took a number of tech companies public and got a good view
of some of the more interesting things happen in the Chinese economy at once and I wrote
a research report and included the name of young Chinese colleague otic he said why did
you do that I said well I’m trying to give your career a little help it’s what you
do he said no one in China does that I said really you said in China no one has any friends
at age six you look around yourself in primary school and try to figure out whom you’re
going to walk over to get ahead that is not a lack of altruism it’s the way the system
is gamed because in parallel to this arbitrary Imperial structure China said it for 3,000
years of form of meritocracy which has been on many occasions highly effective that’s
the Mandarin system you passed the Mandarin exams your family becomes rich so a vast number
of people spend their families will find one talented boy invest all the resources to try
to get him to pass the matter of exam so it can elevate the entire family China has no
header hitter had hereditary aristocracy unlike the west no Dukes counts princes and so forth.
There are no aristocratic families but they tend to last two or three hundred years. They
keep turning over because talent from the base is allowed it’s a cold-hearted and
merciless meritocracy but it still works the one thing she Jinping cannot do is to get
one of his children into Peking University or Shema university you have to pass the exam
and get the right score of course there are people who hire professional exam passers
and with fake fingerprints to get to the security there’s a whole industry and cheated on
exams but the principle is nonetheless there that’s one of the great difficulties we
have in communication with Chinese if you meet any Chinese public official of any significant
rank you’re guaranteed that he or she has an IQ of over 150 it’s as if we had a government
entirely composed of National Merit Scholars not semi-finalists because out of the vast
population you select out the brightest by competitive exam systems and those are the
people who manage the government the difficulty the Chinese have is understanding that democracies
frequently advance stupid people you’re talking to people who since the age of 12
have never met a stupid person and they’re completely unable to believe that some of
the things we do are not conspiratorial subterfuges but simply incompetence and
dynasties have always fallen in China because they become soft and corrupt of it and then
get invaded or because they’re successful and the population expands faster than the
arable land China’s cursed with a very small portion of arable terrible territory so lack
of arable land has always produced peasant rebellions chronically the current dynasty
has had a very simple solution decimate the peasants and there won’t be a rebellion
that’s the reason for the one-child policy it’s a social control mechanism overpopulation
overthrew other dynasties okay we get rid of the population you’ve always been plenty
of side it’s one of the cruelest policies that any government in history has ever adopted
really ruthless but that’s the motivation second thing of course is since peasants tend
to be fractious as Mao Zedong observed famously in his report on Hunan in the 1930s eliminate
the peasantry moved them to the cities put them into a polygon block of urban residents
with people who come from other provinces can’t even talk to each other and of course
keep trying to prosperous maintain the mandate of heavy and make China impregnable so what
is fine is problem China’s problem is the same as that of every other country in the
world and I’d like to step back and mention a bit of wisdom from Robert Mundell the grandfather
of supply-side economics, 1999 Nobel Prize winner in economics who observed that chronic
current account deficits are the result of aging all capital markets are as young people
borrowing from old people old people need to retire young people need to raise families
start businesses old people of savings and they lend money to young people what happens
if you have a country with lots of old people who need to lend money to retire on but they
don’t have a lot of young people well you find another country which has young people
and you lend the money to them how do you get the money you sell the more Goods than
they sell to you that’s what national savings is it turns into a current account surplus
so there’s a relationship and a loose relationship between the percent of population over 65
and the current account balance as a percentage of GDP this is what Mandela predicts now of
course it’s a loose relationship and how far you are from the regression line is an
important data point so I’ve labeled the one the countries who have more of a current
account balance then their position and age would indicate it’s the ants and the ones
below it as the grasshoppers the ants are saving the grasshopper it’s a district because
I’m try that is way above the line we’re way below the line now since the whole world
the whole world doesn’t appear to be age if you look at the UN population tables it
appears static but that’s deceptive because most of the young people are in Africa or
South Asia and it’s very difficult to invest Western capital in a politically safe product
productive fashion in countries with low educational infrastructure poor political governance and
so forth so actually there’s a race on to control those markets which are investable
and that’s the decisive race in the world today Chinese have a rapidly aging population
the question for every population of the world is will you get rich before you get old in
the past I’ve drawn attention to the extraordinary fact that Iran will without any doubt be the
first country that gets very old without getting rich and all this is because of the extraordinary
fact that the Iranians running around today in their 30s 40s childbearing age come from
families with an average of seven children they’re having one and a half to two children
1.6 1.7 never in the history of the world has there been such a radical and sudden shock
to fertility behavior that means in 20 years from now there will be only one and a half
Iranians of working age to support every elderly Iranian so grandma’s going to be left to
starve in a garret and the society will break down Iran is the Walking Dead you can now
China is age not as fast as Iran but it’s aging as a result of the one-child policy
that’s been rescinded it’s our – child policy it’s yet to be seen whether it having
been muscled into a certain kind of fertility behavior that findings population will change
but China’s problem is they need to save massively in order to meet their their future
obligations to an age and generation Germans will tell you exactly the same thing so China
is proposing to take over Eurasia and make it a greater age greater a ragin co-prosperity
sphere or in their language one belt one road this is a trillion-dollar investment program
three years ago this looked like one more propaganda exercise by Chinese leadership
that couldn’t find its way to the sanitary facility it was launched with great fanfare
publicity nothing seemed to be happening but now a great deal is happening there are now
two rail lines going from China to Iran which cut the cost and time of shipment to Iran
in half there’s a fast train from Beijing to Istanbul it goes through a Caspian Sea
ferry to Baku and Arzo bajean then on to the blue sea and Georgia and then two cops in
eastern Turkey and then to Istanbul it also cuts the time in half we wonder looking at
Turkey why Turkey seems to be impervious to threats menaces bribes or whatever we try
to offer them to keep them in the Western alliance turkey now is profile itself as the
Western economic province of China and among other things you can see they’re behaving
on the matter of the weekers which was a sore point between Turkey Chinese for quite some
time the other thing that the Chinese are doing a Turkey which is a good segue into
another aspect of Chinese plans is transforming the Turkish broadband system mobile broadband
is having a transformational effect politically and economically that very few people anticipated
until very recently for my sins in the past I did some develop a economics I did some
work in place like Mexico Nicaragua Peru Russia after the fall of Communism the main thing
one notices about so-called developing countries is that most people sit around doing very
little most of the day you work this persistence plot you sit in a market stall swat flies
and wait for someone to come along and buy a liter of cooking oil you don’t pay taxes
you work off the books you scrape out a living 30 or 40 percent of economic life is the so-called
informal economy official labor participation rates are abysmal people are lost in a cycle
of poverty what mobile broadband has done is to reach into the capillaries of emerging
economies and locate the intrapreneurs the talent give them access to a world market
platform and increasingly give them access to microfinance and the entrepreneurial genius
who created this model in China where it’s most advances of course Jack Ma of Alibaba
now as big as Amazon Jack Ma is joined-at-the-hip bees the Siamese twin of Xi Jinping there
are two sides there’s a bright side and a dark side to what Big Data and mobile broadband
do you know the turn villages in China which are working for one person who figured out
how to make a product and sell it on the Alibaba platform and you’d have something called
ant finance and a number of other microfinance platforms which are making small loans to
businessman all over China something the banking system state banking system doesn’t do state
banking system is based a bucket full of cash with a shovel which is used when a state of
an enterprise comes by and this is transforming the capillary level of China the most important
thing that China has managed to do that no other so-called emerging economy has done
in the past while Korea has done it becoming it has emerged is to mobilize the human capital
of its citizens make the whole world available to them but because the Chinese have successfully
protected their intranet the Great Wall of China there’s a dark side to this as well
all the data that Alibaba and 10 cent and the other great internet organizations in
China collect is of course at the disposal of the Ministry of State Security the greatest
telecom communications equipment provider in the world is now Huawei founded by a former
officer in the Chinese Signal Corps a couple of years ago as an anecdote I wanted to get
a tour of Huawei headquarters and to do that I had to find some unsuspecting Latin American
ambassador to take the tour so I could tag along as the escort and we were shown the
Huawei exhibition hall which is a three-hour extravaganza it looks like two wings of the
Smithsonian we came to a wall at Norma’s wall and as several times the size of that
screen which the city of Guangdong map with lots of points of light they said very proudly
every one of those is every smartphone in the city and we can correlate the location
of the smartphone and its movement with online searches online shopping Facebook about Facebook
WeChat postings and so forth so they know where everybody is who they’re with and
what they’ve done and what they’ve said at a little times plus they’ve got cameras
everyone meters or so which do very effective faithful recognition so if you happen to be
holding someone else’s smartphone they’ll figure that out quickly enough which gives
the Chinese Communist Party without any doubt the cruelest dictatorship in modern history
to Tollett Aryan social control capabilities that the likes of a Hitler or Stalin could
not have dreamed of overthrowing this entity is not an easy proposition I don’t know
where we begin and I wouldn’t undertake the task we’re dealing with an entity which
is not going to be cowed politically we’re a few Op-eds about dissidents or human rights
are going to have much of an effect this is not Poland with a subsidiary Catholic Church
or Hungary it’s a very different entity it’s a society with no subsidiary hollowed
out except for the Catholic Church except except for the Communist Party I just spoke
for a second there is a Catholic Church in China it’s tiny it’s split into a Catholic
patriotic Association controlled by the state and a very small underground Catholic Church
you do have perhaps a hundred billion Chinese who consider themselves in one way or another
to be Christian and they’re tolerated as long as they meet in homes and form no visible
organizations so they tend to be very low-profile for that reason it’s extremely difficult
to gain an overall profile of what the content of Chinese religious life is you have any
people who identify as Christians who’ve never had a Bible and many who are deeply
learning and profound but we only have anecdotal evidence about that that might be over the
very long term of soft underbelly of Chinese culture but it’s something we can only speculate
about and in the horizon of any viable strategy I don’t believe will be a factor so this
chart shows the percentage of population owning a smartphone Turkey and China are right there
around 50 percent China has become a cashless society effectively no a few years ago the
Apple store in Hong Kong had the calf counting machines that drug dealers use and people
have come from the mainland with suitcases full of cash and they go down the cash counter
machine and walk out with a hundred iPads taken back to the mainland and sell them not
anymore Ali pay and other electronic payment systems have largely eliminated cash this
is the core of the anti-corruption campaign which is enormously successful because it’s
technology driven the government can track every transaction because they’re electronic
the most important appointment that came out of the Chinese Party Congress in the view
of our China editor days at times Jeff Tao was the elevation of yeah who was the reforms
are under under Xi Jinping the author of the famous dot now famous document called a proposal
for supply-side structural reforms in the Chinese economy what are these reforms law
in the case of Turkey Turkcell is now in a joint venture with one way to help the Finance
Ministry eliminate cash payments by 2023 broadband and physical transport or hard wiring turkey
into the Chinese economy that’s why the West has lost leverage and Turkey Iran with
its two rail lines going to China they’ve always believed in dependent on the Chinese
economy for many years that’s also a problematic consideration what kind of pressure would
sanctions effect on Iran given their dependence on China Russia has quadrupled or quick toppled
it’s oil exports to China over the last four or five years mainly the expense of Saudi
Arabia Russia will be bankrupt without the Chinese favoring oil imports from Russia Russia’s
incredibly important adjunct to China one of the things China doesn’t have a culture
hasn’t favored it is a foreign intelligence services speaker for a diplomatic service
in China if you meet somebody in the Diplomatic Service who’s lived abroad speaks four languages
at ease of Western culture you know for sure he’s the near to well brother-in-law of
some party official who didn’t think it was worth putting them up the fast-track of
the peoples of the race and arming of the regional party organizations it’s a dumping
ground for people who aren’t that important so the Ruffins with their great expertise
in Turkey in the Caucasus and Persia and so forth they’re excellent intelligence service
language capabilities are critical adjunct very fine now is trying to kind of go bankrupt
I’ve been reading articles about China’s debt and debt problem and so forth I think
many of the reports we’ve had have been a quick first cut and superficial I’m a
banker and the question bankers wanted it was what’s the collateral if there’s a
loan what’s behind it the debt to the laboratories of a company is less important than its underlying
carrying capacity so our team at age of x broke down the balance sheets of the 300 top
companies in the shinjin 300 index that’s the closest thing China has to an S&P 500
index and we discovered that two-thirds the total debt is attached to infrastructure companies
biggest is petrified the others are real companies and metal companies power development nuclear
power take out the fine and not putting me including the financials a couple of airports
this is theme this is China’s infrastructure which is includes now close to thirty thousand
kilometers of high-speed rail which is an enormous productivity booster now there’s
a lot of inefficiency obviously but it’s not the same thing as the great American bubble
of 1998 to 2008 where foreign money bought American mortgages American mortgages finest
house speculation by households how speculation was used to artificially boost consumption
so the problem we had was financial distress in the population itself this is debt backed
by infrastructure which has a productivity-enhancing effect why did this happen this way well one
of the oddities I don’t want to go through the details of this if I’ve got some data
I’d be glad just and send you if you talk to me afterwards but if you look at the debt
ratios in China versus almost any other country in the world you see this huge corporate debt
component very small government and household debt components compared to everyone else
China until very recently had effectively no taxes there’s no personal income tax
they had what’s called the corporate tax which is just a top-line tax recently they
adopted value-added tax being introduced that’s being corrected but in the meantime if you
wanted to build the infrastructure oh and they didn’t have a domestic bond market
to speak up so in the U.S. you issue bonds and you raise tax revenues down to tax revenues
you borrow money against tax revenues those mechanisms simply didn’t exist in shock
they’re now being built rapidly so to get the infrastructure built the Chinese government
simply told the state banks we’re printing money give that money to state companies so
it shows up as a ballooning of corporate debt that’s an inefficiency in the structure
the Chinese economy which is one of the many things that the Xi Jinping regime will address
in the course of the reforms but it’s not a financial crisis the hedge fund community
is littered with corpses of people who shorted China believing it was a crisis there’s
a before I get to the the Rd stuff famed just as a quick aside China lost a trillion dollars
worth of reserves 2015-2016 and the papers were full of reports saying there’s a massive
run out of Chinese assets Chinese are panicking China’s going to go backward what the papers
did not report but the Bank for International Settlements Economics staff documented a great
detail is that while the Chinese government was losing a trillion dollars of reserves
Chinese companies mostly state-owned companies were paying down a trillion dollars worth
of foreign debt it was simply an internal bookkeeping transaction and it was undertaken
because the Chinese had let their currency appreciate for years so it was the advantage
of corporation to borrow in dollars use the proceeds in RMB and then pay the dollars back
and a more favorable exchange rate in the future but the Chinese were the very fast
drives of the dollar 2015 Chinese had to turn that around so you had to turn around the
super tank of a balance sheet or replace the dollar debt with local currency gain and so
anyway a lot of very poor superficial analysis has been done on the Chinese economy but also
some really excellent work for example as I mentioned by the Bank for International
Settlements the data and the analysis are out there if you look for them unfortunately
the gullible and lazy reporters of the mainstream media who give us most of our daily feed don’t
bother to do their so China’s now has R&D at 2% of GDP what does that go into well I’ve
got the fastest supercomputers in the world they have a functioning quantum satellite
in other words a quantum a quantum link between satellite earth means that if there’s any
attempt to interfere with a signal for example to eavesdrop on it it immediately destroys
the signal itself liquidates Chinese scientists had a conversation over the satellite link
with the French counterpart massive investments in supercomputer also investments and things
like services to ship missiles which may or may not be able to take down an American carrier
we probably don’t want to find out diesel-electric submarines of the kinds of Germans that for
a long time that can lurk on the bottom and batteries and at this point are virtually
undetectable hypersonic missiles designed to defeat not only fat or Patriot or other
systems that we currently have but systems that we might develop in the future satellite
killer missiles and a range of things to make themselves and pregnant now one important
caveat about Chinese military spending is shown by the difference between how they equipped
a ground soldier and how they equip their space forces and missile forces the United
States spends last I checked something over a hundred thousand dollars maybe one hundred
ten hundred twenty thousand dollars to equip a single infantryman Chinese spend about fifteen
hundred dollars twelve hundred fifteen hundred dollars that’s basically a Kalashnikov rifle
pair of boots couple spare uniforms and that’s it Chinese have no grab attack aircraft nothing
like the warthog nothing like the Russian frog but simply not in the inventory Chinese
are not preparing for a land war the only land where they could conceivably fight might
be with India or Vietnam that really doesn’t fit into their objectives but they want to
absolutely dominate the South China Sea make Taiwan entirely dependent on and control everything
around them one of the companies that we took public at when I was at reorient group in
Hong Kong kwangji science run by a bunch of materials PhD is from Duke I walked into the
office of the chairman that he had his iPhone out and he said I want to show you something
they showed me a little map of the South China Sea with lots of triangles so that’s cool
what are those triangles so that is the location speed direction and condition of a motor of
every ship in the South China Sea so we can distinguish a fishing trawler from a destroyer
how do you do that it said balloons they have some very strong materials they develop so
they put a pie out to balloons all over the place with coaxial cables they can monitor
the South China Sea if God forbid we had a wall of China and we each take out of each
other satellites the US military is blind Chinese have a much more primitive but robust
technology covering their entire Coast so roughly six or seven percent of undergraduates
major in engineering in China it is 33% Chinese produce twice as many stem PhDs as we do now
and four times as many stem undergraduates now granted the saw the quality of the Chinese
educational system is spotted remember that the Cultural Revolution leveled the universities
they had to be rebuilt from scratch but in the view of many the better schools are as
good as ours then you have some crappy diploma mills at the bottom of the pile but I urge
you to go on the internet and simply look at the equivalent of New York regions test
for graduating high school seniors in China I know a little math and it made me sweat
I guarantee that if that were the standard test for Americans you know 1/10 of 1% competency
right now in America there’s a lot of warranty plenty of people doing R&D to try to find
a better breakfast cereal but federal R&D is a good proxy for hard science long-range
R&D and that was in the Reagan administration of blessed memory roughly you know close to
about 0.8 percent of GDP and it’s fallen by half to about 0.4 percent of GDP remember
in the 1980s we had corporate laboratories we had GE RCA IBM Bell Labs none of them exists
anymore they’ve all been shut down the National Labs are you know shadow of themselves we’ve
got plenty of people at universities doing things but we don’t have the kind of concentrated
industry science relationship which holds these things together and is related to do
this in productivity which I don’t want to go into the case where’s the money going
in the U.S. well there’s tons of money going into software this is a venture capital commitments
but nothing going into computers peripherals semiconductors telecom networking why don’t
we invest in capital intensive high-tech manufacturing because every venture capitalists out there
is scared witless of the agents who subsidize this stuff they’re afraid they’ve got
Christ so we invest it apps capital white stuff we’ve got a trillion dollar valuation
on an app to search for used cars we’ve got 120 different dating sites we are geeks
in a new roman empire now what do we do about we’re gonna have to do subsidies I’m a-free
marketer. I’m a supply-side I’m a free trader this is war war you do things differently
where you put the subsidies you put them in the hard science hard Rd let businesses take
the risk but the Defense Department may have to do direct investments in some industries
we start with inherent Dr. Henry Cassell and I proposals in the World Street Journal just
after the election start with the rule sense of defense goods have to be made in the U.S.
under secure conditions period that’s a gazillion percent tariff how do you like them
apples I don’t care about tariffs on steel or aluminum the Chinese want to get rid of
that stuff anyway Chinese would love us to be Brazil let agriculture energy of semi-finished
goods and of course politically a steel plant has more workers to give a speech in front
of then semiconductor fab plant does not quite a sexy so politically it may not fit the profile
quite as smoothly as some other things but if we don’t do this we’re going to lose
this one belt one road thing well lots of people hate the Chinese they’re horrible
they’re aggressive they’re nasty they in debt countries they bully them well what
if we could to get together with the Japanese who’ve got more foreign assets than the
Chinese and the Indians and compete with them the Chinese and sorry the Indians of Japanese
ordered of something already have something called the Asian growth car which is supposed
to be but it’s tiny if we got behind that in a three-way effort we could offer the Chinese
a serious competition and then stop Intel and other companies from getting access to
the Chinese market by giving away the store a lot of companies won’t like that because
it’s good for their stock price in the short run a lot of people are getting rich on the
decline of the West but there are some things more important than Intel stock price a lot
of people don’t like it but it’s got to come down to the top my conclusion ladies
and gentlemen thank you for your patience is that we have done this before we did it
in World War II we did it with a Kennedy moonshot we did it with Reagan and the military buildup
in the SDI we know how to do it a lot of the people who did it are still around it’s
not that we can’t do we just have to determine that we want to do it and get it done otherwise
we’re going to live in a world that none of us are going to be really pleased with.
Thank you very much for you. I have a lot of neighbors who are Chinese Americans and
they’re on WeChat here so two questions one is there any way that the Chinese government
can be America and to word about from lack of time I think North Korea is a case of the
Chinese wanted play arsonist and Fire Brigade at the same time they’ve encouraged the
Chinese they’ve encouraged the North Koreans and given them some covert help and then you
know President Trump will go to China and tell the Chinese we need your help to deal
with these nutcases Xi Jinping will say well we can help little cost you now that’s a
dangerous game to play because I say the Japanese decide to develop nuclear weapons I can tell
you the Chinese won’t like that they’re very afraid of the Japanese so it could backfire
on them it’s a delicate game but that is an example of the Chinese using well their
play play go you surround the opponent with your pieces you don’t do obvious dramatic
moves you play for the very long-term very patient very strategic whereas we are impatient
and tactical they’re playing go we’re playing Monopoly Brendan thank you for your
time honored but my real question is the Russian Far East and Chinese Leeson the far-east is
kind of a quasi-vassal state how do we get well Chinese look at everybody and think protein
source reference included but now the Russians simply don’t have a population to dominate
the Far East so the Chinese it’s not worth their fighting over it because long term it’ll
fall into Chinese hands the Chinese won’t fall over it because long term it will be
theirs just due to Russia’s population at riffin how do you get the Russians to understand
that well I think there are a lot of things we could do with the Ruffins that’s a whole
other presentation I think we’ve mishandled it I think you need a very big stick and a
very juicy carrot at the same time we won the Cold War in large part because Henry Kissinger
god bless him helped split and Nixon helped split China from Russia and get in the back
together again cannot possibly be in our interests but given in China’s the fact that China
dominates the raw materials demand side and Russia depends on raw materials there’s
very little we can do in the short term to change that dependency that Russia has on
China so although in principle I agree with you tactically that’s a much longer term
kind of consideration that’s just the way the cards are dealt then you should be writing
four times I’m delighted to meet you in person my pleasure – yeah two questions
one with China’s economic penetration in the de Central Asia as far as Iran and Turkey
what impact do you think this might have along the instability and chaos in the Middle East
well that’s one second the US has turned its back on the TPP how serious of blunder
do you think that is well I don’t think the TPP is going to help us at this point
I think it’s much more a matter of fighting economic war with the Chinese they’ve got
there greater co-prosperity sphere we want to set up competition so I think you should
just sort of move on and adopt a different policy as far as instability it’s very hard
to know it is possible that the Chinese will exercise a moderating influence on the irradiance
the Chinese want to get rich want it but powerful and they want everyone to behave and pay them
tribute they don’t want the meijer tribes to war with each other and they have a 3,000
4,000 year history of exterminating unruly barbarians so they would certainly encourage
the Iranians to cool it with the Israelis they like the Israelis they get you know they
get along they want is really technology they don’t want a war between Iran and Israel
for example on the other hand all of this may variable embolden an Iranian regime which
is increasingly desperate and strident and Chinese are very poor at managing relation
so they may have quite different effects very hard to know the worlds being transformed
so quickly that it’s very hard to make a blank judgment it’s a great question I wish
I could be are using their gene-splicing to be able to look at embryos and try to determine
which are smarter so parents can create a bunch of fertilized embryos and then decide
which to plant later in the womb and create the smartest kids in the world how effective
they will be I have no idea but this is not an urban legend. This is real. They are doing
it and that’s how they think as I said it’s a very cruel society. It’s an absolutely
ruthless meritocracy and which does not give any mercy to the hindmost parties consistently
well I think China wants Russia to be its cat’s paw in a number of strategic operations
it wants to make the Shanghai Cooperation Organization a successful competitor NATO
wants to harness all of Russian military technology to Chinese ends and China has some significant
gaps in their military profile which the Russians have historically filled for example Chinese
still can’t make a good jet engine their metallicky is behind the Russian so they use
Russian jet engines they only just got the s400 which is important because with a range
of several hundred kilometers it can control the skies over Taiwan from land bases on the
mainland that probably want the s500 so they won thrushes to do their bidding at effectively
be their vassal state at a hundred year horizon roughest population will have shrunk it’s
even though Russian fertility has actually recovered a good deal the pool of women of
childbearing age fell so quickly that a decline is inevitable and that means that it’ll
be the marginal areas like Siberia that lose the most population so it’ll fall into Chinese
hands the Chinese set up to fight for it they’re going to get it anyway you swear well circle
for me while while seeing paradox they all have the most strategic nation out there right
now but at the same time you correctly demonstrated that they don’t know how to before intelligence
they’re rubbish at the close why is that there’s a lack of capital empathy how can
they be uber strategic with the one belt one Road at the same time the further eight intelligence
and all Chinese culture has been to push inward to take peach to take the periphery and force
it inward and homogenize it with the with the single written language with the ideograms
because china had no interest in getting through the getting to the rest of all that reached
natural natural borders by about 700 with the Tang dynasty they really didn’t have
pressure to do so China’s economic basis has always been agriculture never been a colonial
power like the British the Emperor had an annual ceremony where he put his hand on the
plow which say the son of heaven himself is symbolically a plough it’s deeply embedded
in Chinese history when you spend your entire childhood I mean after the age of 11 or 12
if you know working four hours a day you can read 2,000 characters perhaps that right mm
maybe 1,500 to 2,000 and ames 11 means you can read a newspaper to get to 10,000 characters
which is high literate you do everything else the ability to learn languages phonetically
that we have in the West is something that has never been developed as part of Chinese
culture that Roman polyglot or Greek polyglot capacity was simply never part of the culture
the Chinese feel so drawn centripetal to their own culture that they simply don’t like
living anywhere else when they go to other countries they bring their own war teams their
own wheelbarrows their own cooks their own food that open next to the locals because
they feel out of sorts on the other hand Chinese who as individuals emigrate er some of those
adaptable people in the world from the Chinese diaspora has been remarkably adaptable both
culturally and economically so it is it is a it is a difficult contradiction to shyness Turkish relations were at a low
two or three years ago because the Chinese believed with some justification that the
Turks were supporting wigglers who were moving in large numbers Syria fighting in Syria getting
trained as terrorists a lot of them there was a route that went from China to Southeast
Asia at the Yunnan Province they go to Turkish consulates they present themselves as Chinese
Turks get Turkish passports Chinese officials locally the Turks had fifty thousand blank
passports and their consulates to serve us the weavers whether that’s true or not I
don’t know but I think the Chinese actually believed that they were very afraid of weaker
terrorism since then Erewhon has started behaving himself he cracked out of the weavers in Syria
and Turkey he’s not letting them travel back and forth without any fanfare there been
a very few reports in the media dothis air Dhawan has completely exceeded two Chinese
demands so air the ones national interest his desire to gain independence from the West
has trumped his ethnic solidarity with his weaker cousins when our people thank you very
much for that comment I deeply share your concern and if it weren’t
for the fact that we’ve lost our moral compass we wouldn’t be having these concerns at
all to begin with but I do I certainly want trying to do the prosperous and to be a piece
and to be secure I don’t think the United States should attempt to break Taiwan or from
China I think the one policy one China policy simply is a banner of realism I don’t like
it particularly but I think that’s the way the cards are dealt I don’t think we’re
going to get any worth to bet so I don’t want to mess with that I’m all for China
being secured at U.S. borders however it’s like steel in 1870 very European country they
don’t have high quality steel mills you can’t make cannon you’re dead militarily
if we lose our semiconductor industry our edge in semiconductors militarily we become
a second-rate power and that has all kinds of terrible consequences which are almost
impossible to predict apart from the fact will be a great deal poorer as well so I’m
all for China being prosperous but I’ve I deeply want America to have a technological
edge that’s tangible and keeps everyone afraid of us I very much believe if you want
peace you prepare for war relatively little reserves of energy great day little cold not
very much else 25 million cars that are produced there now running this is the imported fuel
well they’re turning coal into methanol well they do have a huge potential for fracking
probably as large as the United States Romney takes a lot of water in one hears stories
that water is our premium and processes just get a Ford there’s definitely true what
do you hear about any plans actual investment going into it’s not my field that’s a
gray it’s an excellent question I wish I knew more about it from what I’ve heard
you’d have to construct a pipeline from the sea to bring in seawater because the air
is where the shale deposits located or mountainous and extremely dry so there isn’t any water
source ready to have that would be an enormous expense and the Chinese have to weigh that
against for example building pipelines interruption well a natural gas which they’re doing and
creating the pipelines to through Pakistan to the Indian Ocean which would give him better
access to Iranian and and belayed and Iraqi crude without going without the vulnerability
of going through the Straits of Malacca so I think the Chinese tension is much more an
energy security replacing the existing routes and increasing their supply from Russia that
on fracking they also of course if announced that they’re going to eliminate the internal
combustion engine entirely in China but what 2030 I wouldn’t take that too seriously
but it is an important effort they’re building nuclear power plants as fast as they can several
a year that will not have a huge effect on their total energy output for several years
to come but at a 15 year horizon it will make a very big difference further alarming they
have a plan is beyond the one belt one road to build a grave it connects the entire world
including us is but which way do you pay the tolls thank you for that thank you good for
whom Xi Jinping is a very capable leader and his Chinese patriot is doing what he’s thinking
thinks is best for his country in ways that in many cases I found repugnant in the extreme
but I don’t propose to criticize and the Chinese are going to have to work out their
own problems I think Trump trap is being set for the United States which is will make a
fuss about aluminum tariffs and steel tariffs and dumping and various other things Chinese
will kick and scream and negotiate and finally they’ll give in and trumple of a great victory
we saved the American aluminum industry from Chinese dumping we saved steel Chinese officials
told me why does Trump want to save all the industries who want to get rid of China is
happy for us to be Brazil semi-finished goods and raw materials so I think that’s what
the habitus ocean is going to go and I think the first thing I would tell if I were trumpet
here’s what I would tell Xi Jinping for the last 30 years you and the Russians have
told us it would be unacceptable for us to develop and implement a space-based anti-missile
system because he’d consider that a tenable change in balance of power like to acknowledge
the presence here the distinguished political scientist Angela Kota Villa one of the world’s
experts on this may want to say something more about it I would say see we understand
your concerns but you loused up you let the North Koreans get out of control everybody
was relying on you and look what a mess you made of it that leaves us no choice so as
soon as I come back I’m going to announce the American people to the American people
a Manhattan Project to develop a space-based anti-missile system to make the United States
impregnable and if you don’t like it go jump on
the belief system to sustain is that in China I know she is working hard to promote the
per diem ideology and is thinking how vulnerable is it to a change such as that since it’s
been said for so many years that is the great question Bob and the riddle wrapped in an
enigma is the status of Chinese Christianity if ever a country were ripe for Christianity
that would be China look at the late Roman Empire with tribes migrating disappearing
losing their national identity losing confidence in their preworld gods well China’s a nation
of my currency 600 million people have moved from countryside to the city it’s spiritually
empty human beings do not do well in a spiritual vacuum but because the movement has been so
subtle and so located it’s been a house church movement not an organized movement
it’s extremely difficult to gather data on it there’s a recent book on Christianity
in China a good book but entirely Anto almost impossible to get real data on this so that
certainly could be a game-changer is not the right word for it that could be the transformational
change that would that would make China an entirely different place but I’ve got no
means to evaluate it I’ve been trying to learn about it for years and you only hear
anecdotes because with very good reason Chinese Christians are keeping their heads down.
