Transcript: China Chat
Panel discussion on China, conducted by teleconference on June 20, 2005.
Sponsored by U.S.News and the Neil D. Levin Institute of Graduate of International Relations and Commerce at the State University of New York.
Participants:
Dr. Xiaobo Lu, director of the Weatherhead East Asian Institute, Columbia University, New York.
Professor Xue Lan, School of Public Policy at Tsinghua University, Beijing.
Professor William A. Fischer, International Institute for Management Development, Lausanne, Switzerland.
Michael Komesaroff, president of Urandaline Investments, Brisbane, Australia.
Dr. Denis Fred Simon, provost, Levin Institute
Professor Jon Sigurdson, director of the East Asia Science & Technology and Culture Program, European Institute of Japanese Studies, Stockholm.
Moderator: Garrick Utley, President, Levin Institute
For more biographical info, click here: www.usnews.com/china
Utley: Okay, it's just after 9 am and to give you sense, our office is located in the middle of Manhattan, looking out the window at the Empire State building on a beautiful, sunny June day and morning, we hope it's nice where you are. Let's go around and just give a brief introduction of the name and your position and particular field of expertise, so we can get to know each other.
We'll start in Beijing with Professor Xue.
Prof. Xue: Yes, this is Lan Xue a professor and Executive Associate Dean of the School of Public Policy and Management at Tsinghua University.
Utley: Thank you very much and Professor Xiaobo Lu.
Prof. Xiaobo Lu: Yes, this is Xiaobo Lu, I'm a Professor of Political Science at Barner College in Columbia University. I also am the director of Weatherhead East Asian Institute at Columbia University.
Utley: And Bill Fischer.
Bill Fischer: This is Bill Fischer. I'm at IMD the International Institute for Management Development in Luzern, Switzerland and I'm speaking from the beach near Genoa.
(Laughter)
Utley: And Professor Jon Sigurdson.
Prof. Sigurdson: Yes, I'm Professor Sigurdson at the European Institute of Japanese Studies. I started my China career at the Swedish Embassy back in 1964.
Utley: Those were interesting times out here. And Michael Komesaroff You are in Australia?
Komesaroff: Yes, I run a small consulting company where we specialize in China's capital intensive industry, mine being electricity, power, energy, mining and metals.
Utley: Okay. Thank you very much Michael. And Denis Simon.
Simon: Yes, I'm Dennis Simon, and I'm the Provost and Vice President for Academic Affairs here at the Levin Graduate Institute under the State University of New York.
Utley: We're going to try to structure our next 55 minutes in the following way: We've had a number of questions sent in from readers of the U.S. News & World Report Cover Special Report in this past week's edition on "The China Challenge". A special report as it states on the cover, "What The Awakening Giant Will Mean For America". This was aimed at an American audience but also, obviously, at a world-wide audience. The article is written and prepared by Richard Newman, Senior Writer for U.S. News & World Report and they've helped facilitate this as has Cisco. We want to thank Cisco for supporting us with their technical abilities and know-how.
One question theme that has come up again and again and each of you, the panelist, can address this from your particular perspective and field of expertise. And that is: The sustainability of China's dramatic growth of 8 or 9 percent. It's breathtaking, it is history making but is it sustainable both from an economic point of view and a political point of view. Let's start right now from the economic point of view and start–let's start in Beijing, first of all with Prof. Lan Xue, the School of Public Policy. You are sitting there in Beijing, when you get up in the morning or go to bed at night, do you worry about China's growth?
Xue: First of all, I would have to say that China, indeed, has had a high rate of growth for the last decade and last two decades actually. I would say, certainly, the growth rate itself I think is not the concern, but it's what this growth actually means in terms of environment, in terms of energy consumption and so on. I think both as an economists and also I think the national leaders have been really concerned about this, and so the government has began to try to advocate a so-called scientific approach to the economic growths and trying to bring the energy and environment issues into the development process.
Utley: Micheal Komesaroff in Brisbane Australia, your specialty has been energy, the question of how raw materials and resources for China's manufacturing sector, we know how it's consuming even vaster amounts of these raw materials, particularly oil. Do you see that this is being sustainable?
Komesaroff: No, I don't. And I agree with the previous speaker. I think the concern is with quality of the investment that's gone into China over the last decade. Too much of it has gone into energy and non-labor intensive industry, which are not areas that China has a natural or sustainable competitive advantage, so unless something changes, dramatically, it's not sustainable. A couple times recently, the railway system, despite the government's best wishes, has ground to a halt. Water is having to shape up as a big issue. But if the government can restructure to more labor-intensive, less energy intensive industry then the growth can be sustainable and it's better quality growth.
Utley: Well, Bill Fischer, speaking to us from Italy, but having vast experience in China, will you pick up on what Michael was saying there in terms of sustainability, can China go from heavy investments into more labor intensive activities to preserve the growth rate?
Fischer: I have to ask myself, why would the past not be a good predictor of the future? And my sense is that China has been able to overcome similar infrastructure bottlenecks. Now, as they integrate in the global economy, they become exposed to a lot more of the same concerns that we have–high oil prices, raw material prices, in fact, it's their growth that may be driving some of these prices up. But my sense is that the infrastructure problems are relaxable, they can relax them. My sense is that the real challenge is the sustainability comes from outside of the structural phenomenon and are more things like some of the rich/poor divide within the country, China's economy's ties to U.S. prosperity, the fear of yet another SARS, which is less containable, those are the things that I would look to as the interruptions in sustainability rather than the structural issues which I think can be overcome.
Utley: Let's turn to Professor Lu at Columbia for your take on this because you're studying political change and social change in China. Is this as large or perhaps a larger challenge to stability and growth as compared to raw materials?
Lu: It is because as we all know that China's approach to reforms has been one that, at least, economic reform first, and then political reform is supposed to follow. But so far, especially since 1989, on the political front, the leadership has been very cautious and timid in the sense of launching any broad scope of political reform, so I think the main problems are several: One is that as the economic reform depends as people benefits from the economic reforms–the obviously the social change is inevitable. You have already growing demands from different interest groups, previous speakers' mention about the disparity between the rich and the poor, and between the rural area and the city, and so you have already different kind of demands that are being faced by the regime and also you have a wide-spread problem of corruption. And so far, I think since late 1970s basically, the regime, which is basically still an authoritarian one, maintains the legitimacy by performance. And that is they ask the same question as, you know, Republicans in this country once asked, and that is, "It's the economy, stupid" are you better off than say 20 years ago. Obviously that kind of questions can be asked for a short time. In the long run, I think they cannot sustain it.
Utley: Professor Sigurdson, what are your concerns, or what are the questions you ask yourself about the sustain-ability and stability of the growth.
Sigurdson: As a couple of the colleagues have already pointed out, that there are political problems and structure problems in the rural and urban areas. Another thing is can China modernize rapidly before it becomes an aging population, and here repeat, and that is investment in the higher education system which means that China over the next 15 years will produce a very, very sizable number of highly educated people. They're formerly highly educated and they are also creative and are able to make the major contribution to the kind of structural changes for China necessary to do, this is still an open question.
Utley: And when does this age factor–when does China become an aging population?
Sigurdson: According to the United Nation's projection, it would start shortly after 2020. So, around 2020 China is definitely becoming an aging country.
Utley: Denis Simon?
Simon: Let me carry Jon's theme a little bit further and say that it's not only the question of education but it's also the question of the innovation system. And I think if China's going to restructure and change the basis of its growth it really does have to make its transition to a much more innovative society and that innovative society is going to have to based on a number of different norms. One is increasing pluralism, in terms of the discussion of public policy debates; and two is, much more attention to issues that are of concern to the foreign business community, in particular, such as intellectual property where China has not had a very good track record and I think it clearly is going to have to improve itself in terms of providing a much more coherent, stable regime for managing intellectual property concerns.
Utley: Well, let's follow up on this point because we've had a number of questions, too, about the absence in China, not just of adequate protection of intellectual property rights but also questions about the legal system, access of–particularly for foreign investors–the accounting system, whether it is adequately transparent or not, the banking systems which has going through a tremendous changes and stresses not to mention a social welfare system which western societies and industrialized societies have used have used for difficult times and transitions in their economies and which does not exist to that extent in China with the challenge of state industries being sold off or being privatized and mass unemployment. So, given the absence of these societal structures, legal structures, accounting structures, etc. To what extent is this a very serious danger, a challenge to stability and growth and to what extent do you see this questions, these fields being adequately addressed in China. Let's go back to Beijing and talk with Professor Zuay at Tsinghua University.
Xue: Yeah, I think I wouldn't call it absence of a legal system, or banking system or accounting system. I would have to say that the banking system and the accounting system have really undergone a dramatic change over the past two decades and in some areas, I think that progress is much faster and other areas are slower. And one of the things that I see in the banking system is, they've begun to reform some of the state banks which have been more serving as a policy instrument than sort of an independent, you know, financial institutions.
Utley: Bill Fischer first, your thoughts on this?
Fischer: I think what we forget when we talk about China is that it is still very much a developing country and the issues both on the previous question and the present question, about fiscal and social infrastructure deficiencies, those are problems that all developing countries have. So China's making its transition from a developing country to a more developed country and it's going to go through the normal struggles with trying to build social infrastructure, paper trails, accountants and all of that, like everyone else did. But the one that I would think is the most important, in the short term, is the social welfare system because as WTO accession, leaves an imprint on the Chinese market, we're going to see more and more Chinese workers imperiled by the loss of a social welfare system which has been traditional rooted in the enterprise rather than in the state. And so the race is really between China's ability to build a state welfare system as opposed to the present system.
Utley: Follow up with one question that was e-mailed to us was pointing out that China's economic system is an unusual hybrid right now. We've had command economies under communism, we have free market economies, we have continental Europe social market economies–one e-mailer described what China's doing is a kind of "Command Market" economy. That is the state plays a strong role in many aspects while allowing the free forces of the markets to go forth and push ahead. Michael in Australia, is this something that you see as unique and is it sustainable. Which really is leading to the question of the role of the Communist party and the state, not just in political control but in economic direction setting?
Komesaroff: I think you're right. It is something we've not seen before, nonetheless, it's an evolutionary process and it takes longer to develop. Environmental laws are often criticized but when you examine them, the laws themselves are quite modern and are comparable to those of any Western society. The problem comes about through their implementation. And implementation and administration of those laws are complicated in part because you've got a fiscal decentralization where administrative functions are being fed off to people in the provinces and lower levels of government whose objectives are very different to those of the central government. One of the things that people are trying to do is to compress this transition into too short a period of time.
Lu: I think the state is committed to transforming its bureaucracy and institutions into one that is able to manage the new–whatever, the hybrid economy–I think the ultimate goal is to transform itself into something called a socialist market economy–it's market economy anyway. I think in the past 20 some years, especially the last 10 years the state is actively retreating. By that I'm including, of course, the Party itself too, as from the economic and indeed, some social affairs. But the problem for China is, it's a learning process as many previous commentators said, so it's a long process and remember, we're only . . . we're talking only 20 some years, so you would compare this 20 some years with say, the semi-historical trajectory in the West. For the Western established market institution it took more than a century in some places. And so, I think for China, there is a unique problem, that is the state, or the government role has been tremendous, has been huge so that to reduce itself and transform itself from a player to referee, it's not an easy process
Sigurdson: In a way, China has not an integrated economy and one can see China as a large number of the economies, but to some extent, independently acting. And this relationship from market economy and economic economy is working out different in different parts of the country. At the same time this is an experiment for different parts of the country. I was recently traveling for four months in northeast China. You have great changes there, but it is changing in different ways than southeast China.
Simon: One of the major issues is, basic decision-making authority has moved down to the local level. Even if Beijing comes up with what they think might be good policy, the reality is that the local level seems to want to move in its own direction and sometimes that's not consistent with the major themes. We've seen some of that in areas such as intellectual property, we've seen it in terms of WTO implementation.
Utley: Following up on this point again, many questions on the subject of the political evolution in China and Professor Xue and Lu let's go back to you on this. Of course, in the Western world, the United States, we hear the Bush slogans that "the free markets and democracy have to go hand-in-hand". We see greater freedoms in China but still stark limitations on many of the basic of freedoms, certainly political. Is there a scenario that you or others in China see evolving? Does the Chinese Party as some have suggested, become something along the lines of a single dominant power akin to the PRI Party in Mexico, which dominates but is not ideological and still maintains a certain control for decades? What's the best scenario you can see on this and what's the worst?
Xue: Certainly I concede there are many social challenges to China's development. The government is trying to maneuver a way that it can keep the stability while at the same time being able to bring the change. We shouldn't forget that China is undergoing this tremendous change, both the economic structure from a planned economy to a market economy, but also I think the society is changing from a rural society to urban one. The scenario, changing from the one-party system to a multi-party system. I don't see that in the coming years. But within the political system, there will be more mechanisms for broader discussion in the public policy process. For example, some of the so-called public hearing system has been introduced in some policy-making processes and also the local people have representatives are becoming more vocal in expressing their concerns and interests. In coastal areas I think you can see those change so much faster. Inland and in the northern part, it's much slower.
Utley: There's a question or concern that appears on the cover of U.S. News. The title itself is "The China Challenge" not the "China Threat," but there are people and we're looking now at China from outside China, whether it might be Australia, or the United States or . . . particularly in Europe these days. Is China . . . should China be seen as a threat to jobs, to a way of life, to the middle-class in the industrialized nations. I'm open to any ideas. Who wants to start off? Bill Fischer.
Fischer: My sense is that it's both a challenge and a threat. China has entered the world market, has become a fully functioning member in the global community. In many ways, is a very good citizen in a variety of ways that it wasn't 30 years ago, 40 years ago. And part of the price that we pay for that benefit is that they also want to participate in the global economy and that means they want their people to have jobs that are exporting products to other markets, they want to move up the value chain in industries that they're a part of. I think we would all agree in principle that's a good thing. But where it becomes a challenge and a threat is to those businesses and individuals who, in fact, are going to lose through competition their jobs or their share of the market as China enters the market. It's kind of hard to believe that there isn't going to be some dislocation and as it inevitably the people who are dislocated by it see it more as a threat.
Utley: Michael, on the energy front, is China more than challenge, is it a threat in terms of what it's going to mean for prices of raw materials, particularly energy prices? That's something it cannot escape?
Komesaroff: There's no doubt that China's purchases of all raw material but energy in particular has driven prices up in the last 12 months, and in many cases to record highs. In past that was the result of supply, and this is more on the mineral side than the energy side, the supplies being unprepared for the spurt of growth. And not bringing capacity on now, and you'll find, for example, in the iron ore industry, everyone's struggling to expand capacity and you can't get an engineer or construction project manager for love nor money because they're all working on expansion projects as part of the Chinese market. That's one side of the question you asked before–the Chinese are flooding the market but they're also demanding a lot of goods in return which is creating capital investments in other countries.
Utley: Could we have the first question from the first caller, please? Please identify yourself.
Male voice: I am Fred Blackstone. It's hard to swallow that last statement that in the article that China, that communism no longer exists. Can that be justified?
Utley: All right. Thank you very much. There's still a communist party, is there still a communist ideology. Does communism still exist? How do we define communism?
Lu: It depends on how you look at it. The ideology is rapidly fading away. If you look at Chinese society today, what you see is a sort of a capitalism running amuck. If someone studies American economic history this recalls the late 19th century in America, more or less, so when you have a booming market economy but a lack of rule of law. Now if you're talking about communism as an organization, as a ruling party, yes, it's still there and it's still rules the country and it's still a one party rules so, it depends on how you look at it.
Xue: Certainly the communist party in China is very different from the communist party in say, people's mind, in the U.S. or in the Western world. The party itself has changed a great deal. It's changing to a much more practical and pragmatic sort of objectives for the society. And you know, so if you view those things that would be very different from the kind of communist party that one had in mind in say, like the party in Russia and so on.
Simon: The notion that the Chinese Communist party is simply made up of apparatchiks, I think that is really what's changing. There was a series of conferences recently held by the party, and in various comments, leaders indicated that the Party's talent base must bring in more qualified individuals with a science/technology/managerial backgrounds, that the Party can no longer simply have a unitary view about who its members are and what role in society it should play. It's going to be more pluralist. Clearly China's not on the road to becoming a democracy today. At the same time, we can now discern that the new people who are taking the reins of power do have a greater commitment to openness and pluralism.
Utley: We know China can manufacture all kinds of goods, and sell them at low cost around the world. But in today's world and tomorrow's world innovation, knowledge-level workers, high-end workers are going to be key. Does China have the innovation in its DNA that's going to be required to compete once it becomes an older population.
Fischer: China's an interesting economic player in that it will probably always be the lowest cost manufacturer in most industries because it has such a huge pool of untapped labor in the interior but at the same time, what we're beginning to see is because of the education system which is very, very good, and because of the ambitiousness of a lot of the young people because of the sophistication, some of the major metropolitan areas, I think we're going to see China increasingly become a major contributor to R&D and a variety of thought-leadership sorts of issues, popular music, entertainment, things of this nature. We're already seeing evidence that China is a major contributor in terms of intellectual strength as well as low-wage labor.
Simon: One area we're starting to see China make itself felt is in the area of technical standards. It think the Chinese recognize that over the last 20 plus years that they've had the open policy that they've been paying licensing fees or sometimes been accused of not paying licensing fees, but they clearly see that they have a role to participate in the setting of global technical standards in everything from Wi-Fi to new consumer electronics products. It's going to be an important period of time that we're now entering where we'll see whether or not the Chinese by virtue of the weight of the size of their market bring to bear their influence in helping to set those technical standards, and in particular, I think one of the interesting things we've started to see are discussions between Japan, Korea and China about using the influence of the three markets together as a way to help the Asia begin to influence Western technical standards in the future.
Utley: Professor Xue how do you view this, the creative side, the innovative side, of the Chinese work force looking in the years ahead, vis-a-vis the highly competitive manufacturing side?
Xue: We still have to wait some years for that potential to fully blossom. The major state-owned enterprises are still going through major reform, major transformation. so I think a lot of the innovative capabilities of those firms are still yet to be explored. And also I think a lot of the private firms are beginning to change the way they grow. Apparently they borrow the technology and basically just do the simple manufacturing, assembly and so on. But now they are beginning to invest in R&D and try to develop their own products. So I would say that in the coming decades I think those firms are going to be the real players in the market.
Utley: Many Chinese companies said, we have enough of a potential market in China to keep us busy for years if not decades to come. We're not knowledgeable about the global market environment so we're going to stay home. Others were saying "No" like Lenovo buying IBM's PC business, it's time to go global. Now obviously going global, if you look at the Japan story over the past several decades was key to Japan's post-World War II's recovery and prosperity. To what extent do you see China going global as businesses, as companies in a significant way over the next coming years, particularly their manufacturing industry?
Komesaroff: I would say certainly the mining of metals area and the energy area, there's no doubt that there is a strong thrust supported by the government to acquire offshore mining and metals companies. They finally need to secure raw materials. You've seen it with CNOOC and Sinopec acquiring stakes in oil fields around the world, so I think in those sort of industries that is very much the case, there's a desire to become global.
Fischer: We're seeing them in a variety of industries that are closer to manufacturing products. Hauwei, for example, in telecom systems. I was in Best Buy in New York last Friday night or Thursday night and many of the refrigerators there for sale were from Haier, a quasi state owned company/ I think TCL's purchase of the Alcatelhand set business and Shanghai Automotive's flirtation with Rover and MG, all illustrations of Chinese companies, who are very ambitious and I think who see international competition as a way of raising their own competitiveness
Komesaroff: Still, the decision-making process in China to make offshore investments is complicated. They don't have the benefit of the kereitsu system of the Japanese where they could make quick decisions. And one of the things that's locking China out is some of these offshore investments is the processes it needs to go through internally to get everyone to sign off to make acquisitions.
Utley: In the few minutes we have remaining I thought that what we might do is turn this discussion around 180 degrees. We've been talking about perceptions of China, what is happening in China. But how do the Chinese look at the rest of the world? Is the rest of the world maybe not addressed? But we have two experts here who can view, tell us about their views of the United States, of President Bush, of the European Union, of the reaction to the Chinese textile exports, etc. The talk of greater protectionist barriers in these industrialized parts of the world.
Xue: In general, the Chinese people are very interested in world affairs. If you look at Chinese news, the national news dominates. And recent events on textiles and so on have some of the Chinese public concerned about the so-called "China Threat." They feel that China is moving forward in integrating the world economy but at the same time they feelt that, we're being treated otherwise.
Lu: Looking from China out, from inside out, there is this growing self confidence among the Chinese, especially the young generation, who haven't really seen difficulties in life before. There is this sense that it's our time. Chinese read a lot more about world affairs and they see that in the world, that looking around, they see America talking to the Israels, trying to stop arms sales, talking to the European Union, trying to stop the embargo lifting, and talking to Japan about Taiwan and so on. They see America just looking after America. At an emotional level, there's a kind of uneasiness, maybe kind of a "victim" syndrome if you will, that it's time to grow and it's our time and then the West doesn't allow us. That is very dangerous and that's something we really have to think about.
Utley: Final thoughts?
Sigurdson: I would like to point out that perception in Europe is very different from here in the United States. Last month I participated in China/Europe high level science and technology forum and it was a kind of embrace that we want to celebrate. And I don't see that you have the sense of you want to collaborate with China in the United States. I think this is the missing point. Western thought actually points out that there's a great possibility to find a means of cooperation and I think that's damaging for United States.
Komesaroff: One idea we touched on earlier is whether communism is dead in China. There is a Communist Party but it's not a communist party as we in the West would normally understand it, or as the Chinese traditionally understand it. But the demise of the Party and the opening of the country to greater ideas has created an element of nationalism in China. One of the things that needs to be watched is nationalism as it replaces Communism, particularly as people need something to believe in.
Fischer: We have traditionally underestimated the ability of the Chinese people to overcome constraints put in their way. My sense is that there's no reason that that's going to change. So, my belief is that we'll see China move faster and more assertively in the world market, maybe in international politics than it has in the past, faster than we predict. And that it will be the biggest story in our children's lives.
Lu: China may not be necessarily a threat to the rest of the world. How to manage the rise of China is a huge challenge to the outside world and I think all of us living abroad, living overseas, should push for engagement with China, and not condemn it.
Xue: China actually has a lot of challenges internally in its process of development. So I say, understand China and engage China. That's the best strategy.
Simon: This question of a threat from China really needs to be turned around. I think that the real threat to the United States may be our inability to engage China. That is to have sufficient numbers of people who have language skills, cultural skills, etc. People who basically can work with the Chinese so that we can leverage the advances that they're making and they can interact with us so that whether it's in science and technology, economics, health care, whatever there needs to be ability to forge alliances and to forge more collaborative relationships. I think the world of the 21st century is going to be a world of two major powers, China and the United States. If we can't learn to live together and work together then we're headed for lots of conflict at every turn in the future. So we've got to be very cautious that we're very delicate but yet well prepared in order to engage China, in order to understand how far and how fast it's moving and where we can benefit from it.
Utley: Thank you very much all. I want to thank all of the panel members for being with us today. I want to thank Richard Newman and U.S. News & World Report and congratulate them on their excellent cover story. Thank you.
* The audioconference is sponsored by the Cisco MeetingPlace conferencing solution -Richard J. Newman