New Approaches to Understanding Chinese State Capitalism

[Music] foreign welcome to csis online the way we bring you events is changing but we'll still present live analysis and award-winning digital media from our drakopolis ideas lab all on your time live or on demand this is csis online well good morning everyone and thank you for joining us my name is jude blanchett and i'm the freeman chair in china studies here at csis and this morning we're really delighted to be hosting jason artebern from the center for advanced defense studies more popularly known by its great acronyms c4 ads this morning we're here to for jason to launch their newest excellent excellent report entitled party capital a blueprint for national security due diligence on china and as jason will explore party capital is not referring to gainesville florida or or any other uh party capital around the united states but in fact this incredibly important phenomenon of china's evolving political economy or what we might call state capitalism in china which jason and a number of other researchers around the world are are beginning to hone in on the role of the communist party and how it is increasingly integrated into overseeing and channeling uh capital in ways that are strategic and significant in terms of their impact on market economies around the world not least of which the united states is a is a an important example i think other scholars have been grappling with this critical question of even if or even as we diagnose that china's economic and political system is evolving into a more hybrid state party capitalist system what do we do about it for those who want to keep the united states economy integrated with china in important ways coming up with mechanisms by which we can protect national security and our own economic interests will become of critical importance so jason has researched and written i think a really compelling document that pushes us in in an important new direction about the tools that we can forge and fashion using open source information so that we begin taking this step towards a more proactive approach of protecting our own interests while remaining integrated in important ways with china we only have 45 minutes today so i'd like to get right into the conversation i'm going to turn it over in a minute to jason who will walk us through the top line takeaways from the report as well as get into some of the the methodological approaches as well as some of the recommendations that jason and his comrades over at c480s have as a reminder this is a participatory mass democracy event so folks are encouraged to send in questions um you can do so by going to csis.org and then on the event page or in the events page you will see a listing for this event and click the box and please send your question at any time i will try to integrate these after jason makes his opening remarks so with that jason let me turn it over to you and and thanks again for joining us this morning great all right well thanks jude for inviting me to speak today and thanks to the rest of the crew at csis for putting on this great event it's privileged to be here um so today as jude mentioned i'd really like to discuss an area of vital importance to national security and one that i believe that with the right approaches we could be much better prepared to address and that is how the chinese party state interacts with the commercial sector and how we can use new forms of data to make sense of it now at c480s today as jude noted we released a new report on this topic called party capital i'd encourage everyone to go to our website and give it a look but it really reflects the work that we've been doing on this topic over several years and where we hope to take it forward in the years to come now in the very recent past there's been a significant amount of research on the key companies universities institutions and government offices that are driving changes in china's state capitalist system and on how the chinese party state has used those enterprises to deliberately pursue national security interests around the world in my report and in the discussion today i'd like to complement this work about what we know about china's political economy with what we know about the data that is available in the open source my goal here is to outline and draw attention to the ways that china's party-state apparatus leaves a data footprint in its interactions with the economy and on how the united states and allies can use that data footprint to their advantage so specifically i'd like to focus my remarks today on two key points the first point is that china's economy is complex diversified and politicized which makes it hard but not impossible to contextualize the relationship of any given company to the chinese state the second point is that there is so much publicly available information out there today that can help us to do so and it should be a central component of our approach to meeting the challenge of chinese state capitalized capitalism now to emphasize that point there is a tremendous and growing amount of data in the unclassified space that serves a really banal commercial purpose whether it's helping businesses pay taxes investors to analyze market trends or ships to avoid collisions in the open ocean but that data has a national security valence too and because it can be collected cheaply at scale and without classification restrictions it can do a lot to help coordinate the growing range of stakeholders who are looking to identify and mitigate risk so let's start with my first point china's economy is complex diversified and politicized and as a result it's difficult to understand the relationship of any given company to the party state now as many may already be familiar because china has weak formal market institutions chinese companies have relied on special deals with local governments in order to survive compete and grow in the domestic market scholars have described the special deal system as such so local governments who seek political achievements compete with other local governments to attract businesses to their region to do so they create preferential and protectionist policies to provide access to capital a private enterprises accept special deals with local governments because they provide market protections that don't otherwise exist as as companies grow and pursue access in other regions they create new deals with other local governments now over three decades this special deal system of public and private collusion has been one of the main driving forces behind china's growth but as chinese companies pursue globalization it creates two serious national security consequences for the united states and for other liberal democracies with similar market-oriented economies the first china's special deal system has given rise to massive sprawling networks of companies with complex relationships to the state at many different levels of governance in fact according to one study the average size of the largest 100 conglomerates in china has increased from 500 companies in 1995 to more than 15 000 companies in 2015. and as a result it is now difficult through equity ownership analysis alone to determine who ultimately controls a company or to understand how different companies relate to each other within these massive conglomerates those conglomerates may also operate in a broad range of industries my favorite example china poly group is it's a state on enterprise whose subsidiary poly technologies is on the commerce department's entity list for weapons proliferation now china poly group also has another subsidiary uh polyculture that trades in art and antiquities uh and maintains one of the largest art auction houses in the world so if that doesn't give you a sense for the diversity of operations of these companies i there are many other fun examples out there to consider now the second national security consequence is that private enterprises in china face financial incentives to work closely with state owners and investors which may lead to political exposure or entanglements whose national security implications are really difficult to assess so using corporate registration data researchers at the university of chicago assess that while privately held capital china has grown significantly as a proportion of china's economy over the last two decades it has only done so for private investors who are approximate to the state in their commercial ventures so these findings suggest that while the party state may not directly control private investors successful private investors may have varying degrees of political exposure which may or may not ultimately pose a national security risk as a result of these political features meg rithmeier at harvard business school has described chinese business systems as mafia-like in part because chinese businesses can ensure growth and survival only through relations of mutual endangerment with political elites and by manipulating the financial system in their favor so in this complex diversified and politicized commercial environment we really face two key challenges in our effort to understand and mitigate national security risk and the first is diagnostic mainly in how we define the threat we need to determine how exactly the party state relates to commercial enterprises or research institutes and under what conditions the party state can and cannot instrumentalize those enterprises to pursue its national security objectives the second is prescriptive or in how we develop a policy response if we are indeed able to determine how a commercial enterprise relates to the party state we need to be able to determine what policy response is most appropriate given the nature of risk on a case-by-case basis so let's first start with that diagnostic challenge of putting a firm's relationship to the stated context in my report i described the party states interactions in the economy in five somewhat crude buckets so the first is commercial using state-owned enterprises and their vast networks of subsidiaries to advance desired policy objectives at home and abroad we're using regulators with broad authorities to tilt the commercial environment toward favored enterprises the second is financial keeping access to capital through state-owned financial institutions government-guided investment funds or strict capital controls now a lot of this is pretty similar to fiscal policy mechanisms in the united states or elsewhere but it's a really important level in the party state's tool kit for economic statecraft now the third on the academic front uh encouraging universities to use massive investment vehicles or other financial inducements to attract talent acquire technology and commercialize it domestically including pumping significant amounts of revenue into professors ventures and helping them get quickly to ipo and fourth on the social side conferring prestige to business elites through membership and former political institutions that incentivize alignment with party state priorities these are things like the cppcc or china's people's political consultative conference which has a national body and um analog to the provincial levels which were supported at the united front work department and intended to capture elites across various segments of society and fifth uh political mobilizing political committees and industrial associations is extra legal mechanisms for corporate governments and governance and oversight and using expansive laws to threaten and compel the party state's policy line through the legal system now understanding these mechanisms and party states toolkit for economic engagement is useful because it gives us clues where to look for the party state's data footprint so i'll say that differently this background about how the party state engages the economy gives us a sense for where we can find the information we need to understand a company's relationship to the state along all of these different lines that are formal and informal so let's let's unpack that a bit on the commercial side we can use corporate registry filings to map state-owned enterprises their subsidiaries their shareholders and directors and other affiliated companies in our report and the beta phase of our ongoing project we've identified more than 34 000 companies and around 8 000 affiliated shareholders and directors within several degrees of the the central managing authority for the central national center enterprises this data exists in the public domain to help the chinese economy function uh investors need to know about a company its financial solvency and its officers if they were ever to be expected to put money into it uh but those corporate filings can then also be useful for our interest as well now on the financial side we can use corporate registry filings and private equity data to identify government-guided investment funds publicly traded companies state-owned financial institutions and even more niche and informal financial brokers like casinos and junket operators who are licensed to do a pretty sensitive business in china and abroad so this data can give us a sense for how state money or party capital if you will is moving across the economy and how different state fiscal mechanisms may be directing their resources in a coordinated fashion whether that's as into investments in strategic sectors or perhaps in more illicit money laundering activities on the academic side we use bibliographic information from academic research papers uh patent data and other forms of research related products to understand research activity and quality in key technological areas of interest whether that's domestically or internationally we can similarly use corporate data to map expansive corporate networks of universities and their holding companies which direct significant amount of significant amounts of capital into joint ventures with statewide enterprises and under professor startups to commercialize technology now we already know broadly what technology china's leaders want to develop and commercialize but these data sources can tell us which specific players they're counting on to actually make it happen now on the social front you can use official government resume data judicial records academic research and news reporting to build a data set on the political bodies that chinese government uses to capture influential elites from different segments of society we can also use mandarin language reporting and third party aggregators like dow jones or refinitive to enrich this information with relatives and close associates that may be used on corporate filings to hide a company's association to politically exposed persons and finally on the political front we can use similar disclosure documents and news reporting to build data sets of civil society organizations that are registered to keep political bodies of interest after this laundry list you're probably thinking all right jason i get it you've collected a whole lot of data why do i care and from from my perspective the key point here is that when you collect data at high scale in a way that is not indiscriminate but rather informed by how we know the party state interacts with the economy you can start to make more proactive data-driven risk assessments and in turn make more proactive risk mitigation measures and policy so to put that in more concrete terms let's take the example of ponziano and china's quantum science ambitions so ponzian wei is one of china's leading quantum scientists based university of science and technology of china and he has been called the father of quantum for his work now some of you may be familiar with him because he came on the radar for many china watchers after he developed the first international quantum communications network through collaboration with the university of austria and then again last summer when a company that he helped start called quantum ctec uh got had seed funding originally from the state but then last summer had a big ipo on shanghai's star market uh and now in recent years some have reported how his lab drew heavily on talent trained overseas and on international partnerships in order to help china make this big leap in the quantum space but one question should come to mind for us and that is could we have known about this lab sooner particularly outside of the quantum research community that surely knows about a prominent researcher but may not be thinking as much about the national security implications and similarly do we know who the next ponzian way of semiconductors or biotechnology is and do we know which one of her ventures will be the next state-preferred firm that goes public and enriches researchers in the process and starts redirecting that capital towards soes that we may already care about and be concerned about so to answer that question let's see what we could have known from public records related to ponzi and way in his research well before the company went public so first we know from university websites government news releases and corporate registry documents the pontian way and several co-founders of quantum ctec are affiliates of prominent defense labs and inter university consortia involved in the research and development of quantum technology those programs were founded on the back of national policy decisions related to investments in technology in some cases nearly a decade ago second we know that their company's earliest investors were the university's holding company which provided seed funding and a chinese sovereign wealth fund affiliated with the chinese academy of sciences which provided initial funding until the company became profitable those two companies still hold some of the most significant stakes in quantum ctec after its ipo last summer which also did a lot to enrich the professors who founded it to give you a sense from what that meant for those professors ponzian way's stake in the company reportedly rose to 34 million u.s dollars after the company went public third we know again from government news releases and corporate records that pan and several co-founders who hold concurrent positions as professors at universities have received significant state recognition hold direct equity stakes in the now public company and i've also held those stakes as early as 2009 when the company was founded fourth we know that some of the researchers with equity stakes work at other universities with explicit defense ties like baihong university which is one of the seven sons of national defense and also with other lesser-known research centers in some cases we also know that the company's directors and shareholders work at technology transfer centers at their universities um and finally we know that quantum ctec now redirects its significant capital to many joint ventures that operates with state-owned enterprises and other research centers including those that have been designated as national security threats by the u.s government whether that's department of treasury or the federal communications commission so clearly publicly available information can do a lot to tell us pretty granular information about the networks of people companies universities and state infrastructure that are assisting china's national security interests if we get better at using that publicly available information we can move to a more proactive posture and how we diagnose risk in the commercial sector and how we prescribe policy to mitigate that risk now in some cases that policy might be punitive and outwardly focused like the use of government designations to prohibit u.s entities from providing certain goods and services to military end users and the like i think that many in the national security space are already thinking quite a lot about those measures but in other cases those policies might be defensive and inwardly focused like making sure our forthcoming national beneficial ownership registry gives us the information we need to do appropriate due diligence on companies that are china domiciled or that we ask the right questions and disclosure documents to fill gaps in information that we can't already know for ourselves from what's out there so if we get this right we can start to produce more actionable reporting that is unclassified and can therefore be shared more easily with stakeholders like university administrators or state and local governments who are really on the front lines of exposure to these issues and therefore central to any strategy we have to mitigate their risks now while this report demonstrates the significant potential of using open source information to respond from death from china i'd be remiss not to acknowledge the potential for its perils as well perhaps best illustrated by the recent trial of dr aminghu a former university of tennessee at knoxville professor who faced trial uh in juneau this year for being accused of being a spy in the course of his trial federal agents admitted to falsely accusing who of being a chinese spy based on a rough translation of a mandarin language flyer identified in a google search which began a multi-year economic espionage probe now these charges have since been dropped but the professor's life has been significantly affected as a result of these charges based on uh basic open source information which highlights that there are many complexities to consider when using open source in the intelligence enterprise that i'd like to explicitly call out so the first is that while open source information may be low cost and easy to access the methods for its use and exploitation are not necessarily straightforward any broader adoption of open source information must be accompanied by rigorous analytic and ethical standards many of which may be unaddressed by compliance frameworks designed primarily for classified information the second is that investigations on threats from china require subject matter expertise which includes both the discernment and linguistic skills to not only find relevant data but also to set it in appropriate context now the data used in this report is predominantly for mannered language sources and while new technology platforms dramatically reduce the technical threshold required for subject matter experts to access and exploit data they must understand the proper context for the data that they're using in order to create an analytically rigorous product the third and final implication is that the long-term success of efforts to counter national security threats from china requires credibility and confidence in the process and approach as government efforts to counter threats from china are increasingly subject to public scrutiny a more effective use of unclassified sources can be a powerful tool to build confidence and facilitate collaboration between the diverse range of stakeholders especially non-traditional ones that are necessary for protecting and advancing the national interest now in any case as china's economy continues to grow and globalize policymakers and regulators in the united states and allied countries will continue to face challenges not only in appraising or the potential cost of engagement with chinese business systems may outweigh the benefits but also in responding to an ever broadening range of commercial activities that prompt national security concerns whether that's technology transfers that erode u.s economic and military advantages illicit financial flows that undermine nonproliferation efforts the deployment of fishing vessels and sand directors to assert territorial claims or international exposure to china's grievous human rights abuses in xinjiang and around the world now fundamentally these risks boil down to whether or not the party state can successfully make a commercial actor university or civil society organization do its bidding in the the 2020 china deep dive report the house permanent select committee on intelligence found that absent a significant realignment of resources the us government intelligence community will fail to achieve the outcomes required to enable continued u.s competition with china and i hope that this work is only the start of a broader conversation about how we can move in that direction thank you jason that was fantastic um and and a lot to a lot to chew on there and um really appreciate that we've already got questions coming in but if i can take moderator's prerogative here um i wanted to ask a a question about given you know having read the report and heard your remarks and i'm curious if there is a way given the complexity as you say and the politicization of china's economy would it be possible for a a private chinese firm to to demonstratively prove it's private in other words we there's a growing discussion about requiring companies to essentially prove their distance from the state but in a negative sense could they do that and what would that look like yeah i mean that's a really interesting question um i think you know my initial response is that given the nature of china's political economy who really cares at the end of the day if it's private or if it's state-owned um i think the question we need to be asking of companies is what are the set of national security risks that this company could pose in its commercial behavior that it's pursuing whether that's an investment or a trade partnership or an academic collaboration and what types of uh or how can we take steps to mitigate that risk proactively i think we've seen you know over the last year with tech companies or education tech companies um private companies may still end up subject to extreme regulatory pressures that completely change uh you know the risk that they they expose to international uh partners and investors and um so i think focusing having a laser focus on state-owned versus private i think misses maybe the more important question about how what are sort of the set of ways in which a company if it were ultimately to end up under the scrutiny of the party state might end up exposing us to risk and what can we do to mitigate it um so i think you know in my report i go through some indicators that i think are important and considering these whether you know across across the board no matter what issue you care about most so certain things are like a goal compatibility that a company might have in its commercial activities are the commercial activities it's pursuing abroad consistent with what the party state wants to achieve uh which may inform how it relates to the party state a relationship of enablement versus one of more coercive or regulatory measures another one might be market structure to what extent is a company dependent on access to the chinese market and therefore regulatory blessing in order to maintain its business which may give you a sense for how a company whether it's private or state owned might be willing to comply with regulatory pressure in order to remain solvent another might be the sensitivity of the industry which can give you a sense for the customers on which it's dependent and also the extent to which party state regulators are focused with specific goals um on the industry so i'll point people to the report i think to consider some of those factors but um i think if we focus too much on trying to definitionally or onto logically you know consider as a company private or state-owned uh we'll sort of throw out the baby with the bath water in terms of you know focusing on risk in a more broad sense uh and the steps we can take to mitigate it the the i guess related to that and i understand the point you're making of um of how and again curtis milhoff and others have done some work on the kind of beyond ownership idea of looking simply at formal ownership to determine whether there's a state linkage or not um uh misses as you say mrs misses the bow i wonder just functionally speaking though um the the process you're outlining now my first thought is the amount of almost resource burden this places on market economy governments to be doing the vetting of this and so i wanted to get your sense on what is the functional open source data vetting look like and and because if this is now if we're moving to a position where we're moving away from thinking that private sector companies are of lower risk because they're not direct proxies of the state and we're now you know you're suggesting that we move into a a an approach where it it doesn't matter the formal ownership structure we're treating a state owner private as a potential proxy for the state based on some of the the you know buckets that you've outlined that effectively means that all inbound investment um would be seen as a as a potential risk thinking about how much strain is already on the kind of cipheous firma process now is there a way to scale up analysis on chinese firms using this publicly available data that doesn't just essentially add an another extraordinary data burden uh or resource crunch on on market economies um sure yeah well so you know i think it will inevitably require a shift of resources but i think that's consistent with what national security priorities are today and i think by using publicly available information you can do it in the most low-cost and effective way um so chinese corporate registry documents to give some context here those are free to access now you need to be able to figure out a chinese captcha that will put a chinese idiom in there they got to click through the website will crash a bunch and that's truly a pain um but that's a technical issue more than is really a cost or access issue and once you get those those resources you can identify information about shareholders directors previous changes to those companies and those data sources are also much more easily accessible through other third-party aggregators and can be collected at scale for very low cost certainly significantly lower cost than um the the use of you know more exquisite intelligence resources um so you know i think in terms if we think of the potential costs as well of what we're missing by falling through the cracks right now i think you know there's a clear benefit to directing resources to the really basic and low-hanging fruit of getting those corporate registry documents as one example that are available and then give us information about who is putting money where and quickly how they relate to known party state enterprises like seven sons of national defense for research or political institutions and in our in our report i think we go through some really evocative examples where you know prominent organized crime figures that appear on joint ventures with state-owned enterprises or you know prominent chinese businessmen who have significant investments in the military-industrial complex who are on public political institutions are in the united states lobbying in the course of elections they seem like really low hanging fruit that if we can just connect the dots with stuff that's free on the internet uh we can make significant gains that will shore up our democratic values and our national interests and it's an investment worth making and significantly less than um you know what we're already spending on on more exquisite uh technical resources but i think to your more immediate question it will certainly require investment um and i think you know that's it's an investment worth making um going to get to some of the questions coming in in a second and and i noticed a few of these are about the the local protectionism um and and i the the work that jason referenced um and to to save peop to save jason the time of summarizing a really fantastic and long paper uh the the the ur paper to look at here is called special deals with chinese characteristics um which is a it can be found on the the mber the national bureau of economic research website the the three co-authors are bai cheong at ching hua university michael song who who i think is at chinese university of hong kong and chang tashia who's at university of chicago but it's just really a mind-bending uh mind-bending paper um and uh i'm going to have changtai on my podcast in a few weeks to talk about it um just a really a lot of fantastic work in that so recommend folks folks check that out let me um let me go to some of the questions um coming in jason um so um any any view on how state capitalism is connected to any of the current sort of ideological policy campaigns coming out of out of beijing i think the view is you know things like common prosperity um do you think this is one where you know companies will now be bent to uh help implement some of these broader you know policy campaigns coming out of beijing or what precisely is the ways in which companies work on on on beijing's behalf sure yeah no i i i certainly do think you know um that as we've seen over the last summer particularly in the tech sector um the chinese government has been very willing to use its regulatory muscle to bend companies including really high flying formerly sort of you know state preferred type ventures that have transformed the domestic economy into its will based on its current priorities but i think what's worth keeping in mind especially when we're thinking about these national security questions is the chinese government has a whole host of incentives and priorities that may have nothing to do with the united states but because the economy is globalized may still expose us to the collateral damage or the externalities of those interventions in the domestic economy so i think you know the example of some of these the the antitrusts movements in the tech industry in particular um how those mo refract those may refract with investments overseas um well that's politically or in how um certain investments decisions are made are important to keep in mind um and you know the question from my point of view about uh or that we take in our paper is less about trying to parse out specifically you know whether or not a companies are controlled or not by the party state because i think it's a question that's in some ways unanswerable um but instead trying to figure out the conditions under which the party state can really do a lot to coercively move a company in its preferred direction and then also to understand uh where that there might be significant international exposure that's worth mitigating um and so i'll just sort of cite william norris at the university of texas uh he's the one that really i think came up with and pushed forward this idea of national security externalities for um you know otherwise you know chinese normal chinese and government involvement in the domestic economic system and that's sort of where the attention we should focus our attention um a couple of really good questions have come in on the issue of data reliability and in a forward-looking sense the consistency and sustainability of um of this data being available and i should just say in my own from my own perch i found that consistent and reliable to access to some of this open source information some of this is qualitative sort of articles on databases like cnki is getting pretty touchy and you know some of the the corporate corporate records um you've you've mentioned how those databases crash and that's an understatement i find my my success ratio is is pretty low um once the once folks really start to scale up and in hoovering up this data in ways that work against china's own interest what's not to keep china from essentially corrupting the data blocking data's access one of the things i found is even now using a vpn it's getting harder and harder or it's just less reliable to get access to this so is setting up a strategy based on access to open source information sowing the seeds of that open source information becoming harder to find as beijing reacts to it yeah no i think that's a great question so um you know on the first level there are certain forms of data that are put in the public domain that china needs in order for its economy to function so things like corporate registry documents or investment disclosures the chinese government also wants that information out there for a to know what's happening in its own economy um but then b so that investors can confidently you know direct their capital help the economy grow um so i think that's a really interesting set of questions in terms of which types of data sets are maybe more resistant to that type of regulatory capture or closure than others and how that maybe informs what we prioritize for collection in a more sort of you know open way or versus a more a more sensitive way that you know tries to keep it from being exposed and ultimately shut down um the second thing though that would can't be denied is that china is clearly very capable at controlling uh the data that comes out and is making a very concerted effort to make sure that it doesn't and that includes everything from as you said i think probably intentionally making certain sites more difficult to access but also really raising the stakes for uh those who might bring data overseas so we've seen move in that direction from a policy point of view in the last many months which i know for us as users you know the the number or things that were much easier to access there's now all sorts of hoops we have to jump through if we can still get it at all um and when we compare that to maybe other countries like russia or iran um you know there's not as many data brokers out there who are willing to take the risk of reselling stuff that they might have so it's certainly something to consider i think related to that though is how we approach open source information it doesn't necessarily need to be one organization to go and get it all there will always be different government entities or civil society organizations or you know partners across our allies who have different pieces of that puzzle and so i think a fundamental component of thinking about open source is not only the amount of data that's out there in the public domain but also how it broadens the community of stakeholders who you can engage to put that puzzle together uh and so even as some of those trend lines might make certain data sets come offline and you know give rise to new ones over time uh we can be thinking in a more sort of coordinated fashion about how we collectively can put those pieces together to get the outcomes that we're trying to achieve especially uh because these threats are transnational it's not necessarily just a china thing you have networks that will span into you know into canada before the investment comes into the us and so we can also leverage data domestically in a way that forces some transparency and disclosure that we need to fill gaps that may arise from changes in chinese data environment another question that came in is just trying to understand how much insight beijing has into china's state capitalist system i think the the eye-popping statistic which i always quote you did as well because it captures a lot of this is the the enduring nature of the conglomerate model um in east asian capitalism but certainly in in china's case so the statistic about the number of companies you know subsidiaries under the top 100 groups moving from 500 to now 15 000. um one of the reasons that um the u.s moved away from a conglomerate model is that for you know central headquarters um it was very difficult to keep track of everything that was going on when you have this sprawling empire so i think a question is if we're positioning this as these enterprises potentially have connectivities into beijing is it reasonable to assume that beijing knows what's going on if if we're thinking about you know if we were to just take then the average number of subsidiaries in the top 100 companies is 15 000 15 000 times 100 is 1.5 million um how could beijing know what's going on and actually i think a related question is just take a central holding company for a you know big soe like costco or you know you mentioned polygroup does even that company does the holding company have any idea what's going on so does this information dilemma complicate the idea that beijing is really directing or controlling uh these entities given that it you know she i don't know what xi jinping's sort of um you know what his uh man cave looks like but does he have the ability to see all of these firms and kind of move them around the roof move them around the global map yeah no i i think there's absolutely limits to how much they know and could know given the complexity and the depth um and i you know that's one of the the reasons on that i think that things like the corporate registry information are going to be enduring to a certain extent because it's the only way that china itself can get a handle on you know how all of this stuff is going on and so um i would also agree with you entirely that i think that given this complexity and that information gap is a key reason why you know these assertions that every company is a ccp instrument or anything close to that really take it too far but i think what's also important to keep in mind with that is that there's an extent to which that doesn't necessarily matter in a system where there are there's such a lack of informal market protections where if you know the government whether that's beijing or maybe a provincial government who knows really wants to intervene for whatever any number of reasons it can have a disruptive effect um and you know maybe that was contained locally within chinese domestic economy many decades ago but as we're increasingly integrated internationally uh we have to be able to parse through that and prepare for the ways in which we might be exposed to national security risk even in the absence of directed ccp operations because there's any other any other number of you know political economic reasons why uh regulatory intervention or legal intervention could inevitably create a national security risk in the united states um i think you know as we what i've been a frustrated bit and it was a key motivation for writing this report as well is some of the discourse i think around national security risk in china's commercial sector overstating the involvement of the ccp and getting too focused on to go back to an earlier question about the distinction between state-owned versus private as if that would clear a company from the you know being a potential national security problem and i guess fundamentally to this question that you're you're describing now about information gap but also you know to what extent that might not matter in a system that has such a prominent set of extra legal mechanisms through which uh governance and um you know the economy is organized um you've done now you've been spending a lot of time looking at the kind of functional realities of china's political economy including you know integration of party sales industrial policy i'm curious there's a discussion now bubbling up here about our own version of industrial policy is there anything you think we can learn from how china how china operates i mean we think of this as a pure negative but i'm curious you know china seems to be on the balls of its feet in terms of innovating on industrial policy you mentioned government guidance funds um you know which are our kind of channeled markets um anything that you've looked at that you thought is something we should consider ourselves um that's a really interesting question when i've not spent as much time thinking about as i know many have so i will defer to their esteemed opinions but maybe i'll point to some interesting things i have seen in the course of this research that maybe weren't on people's radars um so one of the many ways in which the chinese government has sought to incentivize academics to commercialize technology domestically is by creating a whole bunch of financial inducements so for those who don't know china has an obscene amount of patents globally but really struggles to bring stuff out of the lab if it gets you know overseas to the lab how does it get to market that's where it kind of breaks down and so it's really important to get professors to start these ventures and and really work on that um one of those mechanisms has in addition to you know sovereign wealth funds and holding companies injecting capital into startups is also the ability for professors to secure equity in startups by surrendering rights of the patents that they've created um and as we've seen in the case of ponzi and wayne some of these quantum startups those can ultimately become extremely valuable um especially if that state preferred firm through any number of you know protectionist type policies gets it to ipo on some of these domestic stock exchanges and so you know the use of patents and other sort of uh academic uh traditionally sort of you know academic and research based uh items to secure some of this this equity stakes is an interesting one that we've seen in more i think all the research further um but anyway on the much bigger question of what we can learn from industrial policy to implement ourselves um you know i i will defer to uh the folks who have thought significantly more about that and how i'm able to apply it well i thought you were going to say we need republican party sales um operating in in u.s companies to make sure we're uh we're implementing policy um we're we're right at time um and so jason want to thank you this has been a great discussion and can't recommend enough um the report that you did and what i also really appreciate the report as folks can tell from jason's presentation is it's drawing on the the current academic research out there by folks like meg rithmeyer at harvard business school or chiang tai shia at university of chicago there's just some really interesting work going on in helping us understand the current evolutions of of state capitalism or party state capitalism or party capital or whatever whatever label we're going to finally arrive at so appreciate you incorporating that and also just appreciate how you've really i think set the standard and moved if i'll mix my metaphor set the standard and move the ball forward um in what really good strategic granular thinking looks like that's that's policy relevant so i highly recommend folks go over to the c4ads website and download the report and jason just want to thank you again uh for for the report and for your time this morning well thanks so much for having me jude great thank you everyone have a great day [Music] you

Channel: Center for Strategic & International Studies

Views: 1,945

Rating: 4.4576273 out of 5

Keywords: Center for Strategic and International Studies, CSIS, bipartisan, policy, foreign relations, national security, think tank, politics, China, state

Id: 0u0Rlh9kYp0

Length: 47min 15sec (2835 seconds)

Published: Thu Sep 16 2021