Name: CEO Initiative 2023: Business With China
Uploaded: 2023-10-04
Duration: 19 min 41 s

Dr. Richard Haass, President Emeritus, Council on Foreign Relations (appearing virtually) Jacob Helberg, Commissioner, U.S.-China Economic & Security Review Commission; Author, The Wires of War: Technology and the Global Struggle for Power (appearing virtually) Christopher Marquis, Sinyi Professor of Chinese Management, Judge Business School University of Cambridge Moderator: Polina Pompliano, Fortune

CEO Initiative 2023: Business With China

Conferences

Dr. Richard Haass, Council on Foreign Relations, Jacob Helberg, U.S.-China Economic & Security Review Commission; Christopher Marquis, Judge Business School University of Cambridge, Polina Pompliano, Fortune

Dr. Richard Haass, Council on Foreign Relations, Jacob Helberg, U.S.-China Economic & Security Review Commission, Christopher Marquis, Judge Business School University of Cambridge

The world's second largest economy is in the midst of a set of an unprecedented set of challenges after decades of GDP growth above 9% a year. China's economy is faltering due to factors that include a real estate crisis, deflation, declining consumer confidence, an aging population and the knock on effects of zero COVID policy add to that corporations pulling out of China due to concerns about new anti spying laws and rising geopolitical tensions. Like we heard earlier today, economists have long predicted that China will surpass the United States and become the world's leading economy. So is that assessment still a possibility or we troubles drag down the rest of the world and how should business leaders approach engagement with China right now? We're fortunate to have with us, a group of folks with decades of insights and experiences regarding China. This is going to be a fascinating panel. Richard Haass is President Emeritus of the independent nonpartisan membership organization, the Council on Foreign Relations. He's a veteran diplomat and a former White House Pentagon and State Department official, Jacob Helberg is a commissioner in the US China Economic and Security Review Commission which offers recommendations to Congress on the national security implications of the trade and economic relationship between the US. And China Jacob is also venture capital tech investor, author and former senior policy advisor at Google Chris Marquis is the senior Professor of Chinese Management at the University of Cambridge Judge Business School. He's an expert voice on entrepreneurship and market development in China. Ok. Quite the lineup. Please welcome them to the stage. Hi, everyone. So Richard, why don't we start with you? Can you give us an overview of the current state of China's economy and its post pandemic recovery and how it compares to the pre pandemic era? Sure, glad to there was a post pandemic sugar high like all sugar highs. That's, that's faded China. Now the economy is facing serious headwinds. You mentioned quite a few of them. What I would emphasize though, in addition to the specifics uh that, that you and others have pointed out is something that the Chinese leadership has emphasized political control much more than economic growth. In some ways, the headwinds are as much the the result of their own policies and their own priorities as anything else China would like the benefits of a free market economy without having one. It's a neat trick if you can pull it off in many ways, obviously, uh they can't. And the question is, what do they do going forward? Do they continue with the sort of economic policies they have now which they're paying a growth price for? Do they introduce greater reform that they've been reluctant to introduce? Do they possibly look to non economic policies to provide legitimacy and public support for the leadership and in particular a greater turn to nationalism? Those are the sorts of questions that China experts are debating and Richard follow up question for you. Um You said something really interesting in a podcast, you said I'm hard pressed to say there's any real difference between the Trump and Biden administration's policies on China. Why do you think that the different administrations have taken a similar approach in their relationship to China? Uh The reason is quite simple for several decades, the United States tried to engage China and really integrate China into the world, letting them into the World Trade Organization, for example, 22 decades ago and the goal was not simply access to this large and growing market, but there was a widespread view that engaging China integrating China economically would lead to a more open China politically, a more market oriented China economically and a more moderate China in terms of its foreign policy. What's happened over the last two decades in particular is that none of these hopes, none of these thoughts have been borne out. So what you see is a, is a bipartisan reaction, a kind of disillusionment with China. It's been exacerbated by the theft of intellectual property, the militarization of the South China Sea growing uh growing provocations if you will against uh Taiwan. So for it's a long list of things. So the Trump administration introduced something of a tougher policy and the Biden administration has kept most of it on including the uh the tariffs. It's continued if you will, the quote unquote, pivot to this part of the world, greater political military emphasis with presidents. The big difference between the two administrations is how they're going about it. The Trump administration tended to be more narrowly economic. The Biden administration has brought about much closer collaboration with America's partners and allies in this part of the world. In particular, Japan, Australia, Taiwan and South Korea, Jacob, you've said repeatedly that there is sort of a tech war between the US and China brewing. Adding that I thought this was fascinating. You said China has a system of civil military fusion while we have a system of civil military confusion. What do you mean by that? Yeah, so um first of all, thanks for having me. Um I just wanna second something that Richard said before I dive into your question and add that 83% of the American public has unfavorable views of China at this point according to Pew research, which I think is gonna cement, you know, a lot of bipartisan continuity across administrations including in Congress on in terms of having a very robust muscular foreign policy towards China, probably for years to come. Um On your question about civil military fusion. China has a system with a web of different national laws like the National Intelligence law and the raft of different laws that they passed just in the last year around the protection of domestic data, preventing foreigners from being able to conduct basic due diligence and so forth where they can basically command private companies to pursue political objectives, which is a very strong deviation from our basic conception of what a private company is in the US, in the US. Our conception of a private company is that their primary motive is a profit motive, a fiduciary responsibility to their shareholders in China. You have this very exotic system where companies can actually be used as instruments of the state and actually pursue political objectives. And the Chinese system can effectively blur the line and erase the line between the public and the private in the US because of our separation. If there is a a deep problematic disconnect between the private sector and the public sector on a lot of really big national security questions, particularly the tech sector. Um historically Silicon Valley has skewed very ideal, you know, um uh ideologically, you know, idealistic. Um it has long seen a world that is quite borderless, you know, as a reflection of the open free flow of information online. And in the last five or so years, it's awaken to a world that is actually gripped with real geopolitical realities and renewed geopolitical great power competition. I think Ukraine was a deep wake up call to a lot of people in Silicon Valley that actually the world is rife with real adversaries that don't share American values. And that fundamentally want to restructure the international system in profound ways that are actually antithetical to uh basic principles that American companies including tech companies rely on like the open free flow of information. So it's been a long road to getting the tech sector to collaborate with the US government. Um I have been quite involved in a forum called the Hill and Valley Forum to try to bring those two communities together to try to resolve what I described as civil military confusion. Um But you know, there's still a lot of work to do and, and what do you think is the outcome of this tech war? Well, right now, we're really seeing a two track race, particularly um in artificial intelligence, we're seeing a race for supply chain independence that's taking place. So obviously, on the US side, you know, there's a whole suite of different expert control rules. Um There is our new partnerships as Richard mentioned being formed with Japan, South Korea. You know, back in January, there is uh there is a collaborative effort with the Netherlands to try to uh broaden and internationalized export control rules to countries that are home to companies like a SNL in the Netherlands to export um to ban exports of uh high end semiconductor machinery to China. Um but China took a lot of people by surprise when it recently produced a seven nanometer chip semiconductor chip, which is actually far more advanced than what a lot of people you know, expected China to be able to produce. So the takeaway is both sides are racing to try to become semiconductor independent in some way. Um And in the US, our definition of semiconductor independence is not reliant on China. Um So the US government has encouraged companies like Apple to reso to places like India and Vietnam. But the chip act in the US was a really big push, you know, on, on our side for semiconductor in independent. And then the other track is really a race for A G I, it's the software side of the race. So both countries are racing towards A G I uh which a lot of people view as potentially one of the most disruptive technologies in 80 years in the realm of specialized A I. Um there is a big push being done in military A I, you know, and the, what the Chinese refer to as intelligent warfare. Um And so you're seeing, you know, uh these different efforts uh advance on all fronts and it's ultimately culminating to um a pretty, you know, a pretty different world uh in which warfare is gonna look very different. Yeah, if anybody has a question, please raise your hand, we'll get a mic too. Um, and I, I'll come back to you in a minute. But um Chris, I wanna ask you, is us businesses kind of explore ways to partner with China. What are the primary opportunities and potential risks that you see in this environment? Yeah, I don't, I don't see a lot of opportunities. I mean, it's a lot of risks. I think for many of the reasons that Richard and Ryan just mentioned, I mean, there's a situation where over these last number of years, the extent to which party control has taken emphasis over, you know, economic development is, I mean, it's just gone through the roof and it has situations where you know, the party is really putting the screws to private businesses. You know, these are Chinese private businesses as Ryan talked about, which are really, you know, very closely connected to the to the state and the party. But then also you have situations where a lot of the due diligence companies, information is being limited. Just recently, there was a one of the executives of Kroll had an exit ban was not able to leave China. There's, you know, a lot of instances of people being disappeared in the business sector. So I think it's a very risky and challenging situation and a lot of uncertainty, you know Xi Jinping and other leaders talk about, you know, China is open for business, but all the actions they take suggest that it's actually a very, very closed environment and clearly they'd love to have foreign direct investment, but actually what they're doing is significantly discouraging it. Do you have any questions? Yes. Right here. I guess I just make a comment from the, um, we've been in China since 1997 and we advise companies. Um, and we're getting increasingly, um, not only the clients who are Western are leaving. I don't mean the companies are leaving. I mean, if they're staying, they're putting local talent in place because of the fear of some of the things that we're hearing about. And I don't know if any of the, any of you want to comment on this idea that um you know, that, that people are being much more closely monitored. If they say anything negative about the regime, if you collect information in the wrong way, you're all vulnerable and that does have a chilling effect and people are also looking on their, what their China plus one strategy is. But if you talk about it in China, you're in trouble. Anybody wanna react to that, Richard. I could say something. Yeah, let me say something that I think a lot of that is true and one is working in a, a more restrictive environment and it's gonna have consequences for, for some individuals or firms. We're seeing that I actually think though the bigger, more fundamental issue for businesses doing business and doing work in China is the technology issue. And even now, uh one is operating in a much more restrictive environment in terms of the ability of Western technology to reach China. And Secretary Yellen talks about the high fence and the small yard, well, the fence is pretty high and the yard is getting bigger. So at a minimum, anyone operating in China has to assume that it's a much more restrictive environment, particularly if there's any technology involved in their economic or business relationship with China. And then there's an added element of uncertainty and I'm not predicting it, but it can't be dismissed as if there ever were a major crisis between the United States and China say over Taiwan, then the economic sanctions and problems would transcend technology and they would essentially nothing would be immune from it. So I think what we now have and a minimum is technology related, uncertainty, almost a premium there. And a more general one given the uncertain trajectory of us Chinese relations, all this obviously has to be weighed against the size and importance of China's market. All of this has to be weighed against the importance of China as a supplier for a lot of companies. But it's become a much more complicated calculation for any firm. Yeah. And one more so Mark Newman with commerce company we're in, in the chemical manufacturing, a lot of chemical intermedia come out of China today. And uh so in the China plus one strategy, you just look to see where you could get those in India, but you know that their infrastructure in terms of these intermediates are so far behind. So it's really not a viable near term strategy. So I'm I'm curious as to, you know, can we continue this in a way that keeps access to certain Chinese intermediates, you know, sort of on the table, what will be the price of that access over time? And then maybe a sort of a derivative question, we see a lot of Chinese manufacturing going into Mexico. And so one of the questions I have over time is, you know, what's the relationship between the US and Mexico because of that over time, Chris do you want to tackle? Sure. So I mean, I think, you know, this has been written about a lot for apple, I mean, you know, where you know, so much of their supply chain for iphones is actually in China, they're trying to move it out. But places like India Vietnam, like you mentioned, just the infrastructure is not there. I mean, I think this is something where you know, the whole US economy is understanding of the systemic risks, the fact that we the dependence on China and over slowly over time, you know, there'll be increasing capacity in those other countries. And I think, you know, for this reason, even though I'm pretty pessimistic and negative on, you know, the Chinese Communist Party and how China is run, you know, being engaged and engaging is so important because of things like you're talking about. I think on the human level two, as I'm a professor in the education space, it's just been totally shut off a lot of the student exchanges. And if we're going to be able to continue to cooper over time, we need that human connection exchange. And so, you know, I would continue working with those partners but try to figure out, you know, over time, an alternative. Um Jacob and I point um you know, for years, I think a lot of people in the business community have discounted a lot of the warnings that folks in the national security have tried to flag about the authoritarian nature of the Chinese government. The fact that the direction of travel of Chinese policies were not going in the right direction, things are getting more authoritarian, things are getting more oppressive, they're asserting more of their control over every aspect of every individual's life. Now they're using technology like artificial intelligence to create this, you know, panopticon surveillance state that can actually try to predict people's behavior. I mean, I would, you know, a lot of people are also as Richard mentioned, uh warning about the risk of the real nonzero risk of a potential serious escalation in Taiwan Strait. So I would urge folks in the audience who are part of the business community to heed the warnings coming out of the national security space that China is an authoritarian country. And that's just the reality. And in an authoritarian country, you don't have due process and you can get arrested and your property can get uh expropriated and, you know, it's, that's just how it works. And so I would really think closely before uh increasing your exposure to China, especially in a context when the leader is, has gave more than four speeches, the space of two months telling his military to prepare for war. He's opening defense mobilization offices across this country. He's doing a lot of different things saying that you know, changes, he's setting changes afoot, the likes of which the world hasn't seen in 100 years. He is exhibiting a pattern that is deeply troubling and that is uh bringing a lot of meat to the argument that he is potentially preparing for an armed conflict. And that should be really concerning to people that have exposure to the Chinese market. On that terrifying note. Thank you for all our panelists for joining us today.