Download and listen to the audio file of this conversation: Dr. Yukon Huang, Mr. He Weiwen and Helena Cobban, October 31, 2020

Transcript of the video:

Helena Cobban (00:00:04):

Hello, everybody. Today in the U.S.-China public dialogue series, we'll be discussing economic aspects of the China-U.S. relationship with two great experts. From here in Washington, DC, we'll have Dr. Yukon Huang. He's currently a senior fellow with the Carnegie Endowment for International Peace, but in years gone by, he was the World Bank's country director for China. And from Beijing, actually from Shanghai. We'll have Mr. He Weiwen, who's a senior fellow with the Chongyang Institute for Financial Studies at Renmin University in Beijing. And he's also the vice chairman of the Global Alliance of Small and Medium Enterprises. Both these men have extensive experience and have written a lot of great articles and books on China-U.S. economic relations. And I'm Helena Cobban. I'm the president of Just World Educational, a small non-profit headquartered in Virginia, currently working from Washington, DC.

Helena Cobban (00:01:33):

Today's conversation is the second session in the 2020 U.S.-China public dialogue project that Just World Educational is presenting in collaboration with the Chongyang Institute for Financial Studies. Our partners at the Chongyang Institute will be releasing a Chinese-language subtitled version of today's dialogue for audiences in China and worldwide, while we are releasing this English-language version for audiences here in the United States and worldwide.

And from our end, we're also archiving the English language version of these dialogue sessions in video, audio, and text formats on our website and then making available these records and a lot of related materials via a handy resource page on our website, www.justworldeducational.org. So do please check it out. We're also happy that the global No Cold War coalition is supporting this public dialogue effort.

So now it's my pleasure to introduce my two guests, Dr. Yukon Huang. It's good to have you with us.

Dr. Yukon Huang (00:02:27):

It's a pleasure to be here.

Helena Cobban (00:02:31):

And our second guest from Shanghai is Mr. He Heiwen. I'm so glad you can be with us too.

Mr. He Weiwen (00:02:41):

Thank you so much to be here.

Helena Cobban (00:02:44):

So today we'll be discussing five questions. For each question, I'll first give each guest a chance to provide a quick reply. Then as time permits, I'll engage both of them in a short discussion before we move on to the next question.

So the first question is: China and its economy has evidently started recovering from the effects of the COVID interruption while the U.S. economy, the world's largest, still seems mired in those effects. The IMF’s latest World Economic Outlook forecast predicts that the U.S. economy will contract by 4.3% in 2020, that China's will grow by 1.9%, but the economies of all or most other countries will see a significant contraction. In 2020, this will hit low-income countries the hardest. What can the U.S. and China do to help the low-income countries? So Dr. Yukon Huang, I'll turn to you first.

Dr. Yukon Huang (00:03:51):

Thank you, Helena.  Lower-income countries are affected primarily through their trade and foreign investment links with major powers. So when the world is in recession, this has a very negative effect on the low income countries. What can the U.S., what can China do? It is dependent in part upon the nature of the recovery in these two countries. China's recovery, which is V-shaped, very, very strong, is largely driven by industrial exports, but its consumption response has been relatively slow.

The U.S. and, for that matter, Europe, their response has been driven largely by consumption financed largely by government programs, social health programs, unemployment insurance, but their manufacturing response has been relatively slow. So, one hand you have an industrial export response. On the other hand, you have a consumption response. What can China do? China needs to actually support consumption because that's been lagging behind.

And the only way that China can actually do this is, frankly, through more government support for social programs and large amounts of this might be targeted toward what I would call the tens of millions of migrant workers in China, who actually don't have unemployment insurance, and who have suffered a lot, but if consumption in China can rebound, imports can rebound, then this will help the lower-income, the less developed countries.

What can the U.S. do? And the major influence that the U.S. has is on world trade. And I think this is a very good time for America, for example, to basically put off the, what I call the punitive tariffs, which were launched during the trade war. Those tariffs have actually hurt everybody. They even hurt U.S. manufacturers. And if you actually reduced those tariffs or got rid of them, it would facilitate world trade. And this would benefit the low-income countries. China's response is already benefiting many low-income countries in terms of increasing commodity prices, because many of these countries depend upon commodity prices.

The last thing I would mention is about debt relief. Many low income countries cannot afford to import more than they need to stimulate their own economies. There's a generalized debt relief program going on, which China's participating in. And I think that trying to help facilitate debt relief, that would benefit low income countries a lot. So let me stop there.

Helena Cobban (00:06:20):

Well, those are some great suggestions. Mr. He, what could you suggest that the U.S. and China could do to help the low-income countries?

Mr. He Weiwen (00:06:29):

Well, thank you. First of all, I would like to imagine a little bit about the economic recovery in both China and the United States. There has been a clear time lag in recovery between the two countries because China was hit first by COVID-19. So we saw a huge fall in the economy during the first quarter of this year, with the GDP falling by 6.8% year on year. If we analyze that, that would be 27% year on year. If we make it quarter to quarter, you will see over 30%, just as serious at that in the United States in the second quarter. After that, both China and the United States have been picking up their economy. However, China has also faced difficulties. So, not as good as the years before COVID-19. So regarding the low income economies, if we look at, I may have, at the World Economic Outlook, the GDP for your low income economies will not be that serious.

It is forecast that total GDP for low-income countries will fall by only 1.2% in 2020, but will pick up quickly by 4.9%. So if we just say that it's okay, low-income economies will be okay, that will be misleading. We should pay more attention to these four points. First, both China and the United States would work together to research and develop the vaccines to control the virus. So that's very important, because the-low income people in low-income countries don't have enough financial resources and cannot afford to buy the vaccine. So we should help develop the vaccines and make them public goods.

Second, both China and the United States should lower tariffs for those countries and encourage imports from them. Thirdly, we should also consider seriously about food aid if needed, because according to the United Nations’ Food Development Program, the people with hunger will be added. There will be another 130 million people added to those in hunger. So food aid should be ready in case of need. The fourth link, we should seriously join to work for debt relief, and including exemptions and debt rescheduling for those low income countries. Thank you.

Helena Cobban (00:09:28):

Well, I am really pleased to have heard so many things similar. You know, both of you are actually advocating ending tariffs or lowering tariffs and ramping up debt relief. So it strikes me, there's a lot of things that you, if it was just up to the two of you, then things could really move and get a lot better for the low-income countries. I'm going to move on to question two now, I'm sorry, we have to just keep moving along.

Washington has, for many decades, tried to shepherd global economic growth via the Bretton Woods institutions, the World Bank, the IMF, and so on. Now, China has founded what looks like a rival institution, the Asian Infrastructure Investment Bank. Can these two sets of institutions work together? Are they doomed to compete, or might they in some way divide up the world between them? So now this time, I'll go to Mr. He first.

Mr. He Weiwen (00:10:33):

Thank you. I think Dr. Huang is more in a position to comment on this issue, because he is a chief economist at the World Bank. To my understanding, first, what is the Bretton Woods system? It’s the core system of the world monetary system, is the gold exchange standard. The dollar is backed to gold and other currencies backed to the dollar, but later the dollar was delinked with gold. So they changed. So I think then that, above that, there's an IMF as an umbrella to keep a stable world monetary system, that's the Bretton Woods system. And then it's a World Bank for Reconstruction after World War II for the world. And then two years later, that's all happening, in 1944 and came to be in 1945 -- then two years later, GATT was reached, so that again was added to the system. So three pillars: IMF, World Bank and GATT, later the WTO today.

So regarding AIIB, I think AIIB and World Bank are complementary, instead of being a rival, because we say that the purpose and objectives of the World Bank is not only for infrastructure. It’s for -- they have four objectives, but since the late 1990s, they are most focused on debt, on poverty reduction. They cover seven different areas, including infrastructure, and in the investment in infrastructure, especially in Asia, the loan amount, it was limited. And the World Bank plus Asian Development Bank loans for infrastructure investment, per year were about $20 or $30 billion per year. Dr. Huang, please correct me if my number is incorrect. But the potential need for Asia to develop the infrastructure is about $800 billion per year, according to the estimate from the OECD.

So we need a supplemental investor. So the Asian Infrastructure Investment Bank was formed to supplement that. And they can certainly cooperate, because AIIB follows the World Bank standards and cooperates with the World Bank. I remember that one a half years ago on March 21st, 2019, the two presidents of AIIB and Asian Development Bank, Mr. Jin Liqun and Mr. Takehiko Nakao, had a meeting on cooperation, they discussed about the cooperation and both banks have a joint financial impact project. So I think they are complementary instead of rivals. Thank you.

Helena Cobban (00:13:53)

Great. Well, thank you. Now, Dr. Huang, this is sort of your life's work practically. So, love to hear your view on it.

Dr. Yukon Huang (00:14:00):

Well, let me go back a couple of years when the AIIB was created. And we have to look at what the global situation is regarding these international financial institutions. You have the IMF and it is generally run by a European. The World Bank is basically headed by a U.S. official as president. You have the Asian Development Bank whose president is generally Japanese. So I think the interesting point that China wanted to make was that as the second-largest economy, they would like to have an international agency where the president was Chinese.

As Mr. He indicated there was a need for infrastructure financing in Asia, and not enough projects could be financed by either the Asian Development Bank or the World Bank. But the concern at that time was whether or not a so-called AIIB would be a Chinese bank, that it would not follow what I call global rules and precedents. But that was, in fact, a concern which was unfounded because when the AIIB was created, many of the advisors, the people who designed the bank, they essentially came from the U.S., they came from Europe.

Dr. Yukon Huang (00:15:14):

They were on loan from the World Bank and Asian Development Bank. So the rules and regulations of AIIB are actually quite similar to the rules and regulations of the World Bank and the Asian Development Bank. And it began in terms of financing by co-financing with the World Bank and the ADB. So they would share in terms of the financing and the design, and this ensured that there was collaboration between the AIIB and these other institutions. So I don't think this concern about splitting the world or creating two factions is realistic.

There's one aspect of the AIIB that it is not that well known. I think it's quite interesting. Today, there's more than a hundred countries who are members of AIIB. The only two major economies which are not members, are the U.S. and Japan. Now, let me talk a little bit about the structure, the governance structure, which is interesting. The governance structure of the World Bank, the IMF and the Asian Development Bank are such that the major shareholders have a voting, veto-proof power.

So America is guaranteed to be able to hold the chair as the president of the World Bank, similar for the IMF. The AIIB was actually created differently. It assumed that if everyone joined, including the U.S. and Japan, China does not have a veto share. So AIIB is actually the only bank, which in theory, if America joined it, the president of AIIB would not have to be Chinese, and that's not true for the others. So rather than splitting the world apart, I think the AIIB offers an alternative model to say that these banks, they don't have to have a president who is a national of what I would call the leading member of that particular bank. And I think that's an interesting feature of the AIIB.

Helena Cobban (00:17:22):

I did not know that. So that is really interesting, and it would be even more interesting if the U.S. and Japan should join, and join the effort to put the resources into developing Asian infrastructure. So now I'm going to come on to, I think maybe what for me is the biggest question on our agenda today. And that is about decoupling, regarding bilateral U.S.-China relations. To what extent do each of you see a possibility of a substantial completion of the decoupling that has already been underway in recent years between our two economies?

If you could address this at the levels of both trade and technology, the latter in light of the Huawei situation and similar situations. So this time, Dr. Huang, could you go first?

Dr. Yukon Huang (00:18:21):

Thanks, Helena. Let's go back a year or so to the beginning of the U.S.-China trade war. The U.S.-China trade war is actually misnamed, because it's really not about trade, it's really about technology transfer. It's actually about decoupling, as you mentioned. Trade is not really an issue. Global trade benefits both sides.

The levying of punitive tariffs by the United States has led to higher prices for consumers and producers, both in America and abroad. So no one actually benefits from the tariffs. And we should actually be trying to promote trade, not to restrict it. But there is a concern. That concern is about foreign investment and a concern that China has a lot of restrictive practices, which actually makes foreigners, when they operate in China, they don't have what I call a level playing field. And I think that is a valid concern.

Dr. Yukon Huang (00:19:20):

China has been addressing this, I say, gradually over the last four or five years. They've been loosening up the restrictions to entry. They've been improving their courts, dealing with intellectual property rights violations. They’d been pledging that they would not force transfer of technology from foreign companies to Chinese companies. So I think there's a fair amount of progress, but it's going very slowly.

So you need to address this in some way, but meanwhile, what's happening in the United States is that there is an impatience and there's what I call an increasing security concern. That security concern is that China is rapidly becoming more innovative. It's a threat to America's standing as the dominant global innovative power, high-tech power. And this concerns that many products, many products are dual use. They have both a commercial use, but there's also concerned that they could have a security concern.

And Huawei is the primary example. So Huawei is producing 5G communication systems. It’s a very good system. It's cheaper, but there's a concern that this could be used for security concerns, and it could not be regulated. So America has banned use of Huawei domestically. America is basically encouraging other countries not to use Huawei, and Huawei is also being penalized by having reduced access to chips and other high-tech components produced in the United States.

So let me focus upon Huawei as an example. Huawei's products incorporate a huge variety of components, which come from all, from many countries, and many of these products, particularly chips, come from the United States. They also rely upon European products, Japanese products, products from Taiwan, Korea globally. So when you actually restrict Huawei’s access to these components, which America has been doing, this really jeopardizes Huawei’s potential to expand or even to exist.

Dr. Yukon Huang (00:21:22):

So this is, I think, a major concern. And this is an example of the decoupling, but what is the impact of decoupling on the United States? Now, there are probably, I would say, 15 to 20 major high-tech American companies who earn, who basically earn 20 to 50% of their revenues from their exports to China. So when you cut off China as a market, you reduce the profitability of a wide range of U.S. companies. In fact, these are America's most innovative companies, the most high-tech sophisticated companies.

So what is the consequence? Well obviously for Huawei, there's a negative consequence, and there are other companies being affected in China, but what people actually miss is the negative impact upon the U.S. So the IMF did a study a year ago on the impact of decoupling on China and on America. And it showed that China's growth rate could potentially decline by 1% or 2% because of this loss of high-tech components and inability to actually produce many of these goods, but America's economy would also be affected.

In fact, America's economic growth could be cut in half because America depends upon innovation to prosper. So decoupling has a consequence, a negative consequence, for both sides. It's also affecting scholarly exchanges, information or research, even simple things like visas and tourism. I think the ultimate consequence is the reduction in transfer of knowledge across borders.

The world grows because knowledge is shared, and that's true domestically when we share it. It's true when we share it with other countries. So once you start to restrict the sharing of knowledge, you're reducing growth around the world, and we have a really serious problem.

So how do you deal with this security issue? I think there's only one way to deal with this because you actually can't satisfy the issue of security. It's not an economic concern. My view would be you have to basically construct international global agreements to deal with these security concerns. You have to partner with each other. You have to have international regulatory agencies, which can provide assurances to both sides that somehow these security concerns are being mitigated. So global collaboration in my view is the only way in the long term to solve what I call the security concerns which are driving decoupling.

Helena Cobban (00:24:08):

Well, that is fascinating. And now maybe, if there's time, I'll come back on that, but first we need to let Mr. He give his answer to the question about decoupling.

Mr. He Weiwen (00:24:18):

Well, thank you. I quite agree with Dr. Huang on the main points. I would like to add a few more. I think regarding decoupling, we should and can classify three different categories. First, the military products and technologies are always decoupled, have always been decoupled, as guided by the Paris and also other arrangements.

And the second category is goods for general use for consumption and production. They have never been decoupled or I mean, did reduce a little bit, but not substantial. For instance, we saw a pause, in the first nine months of this year, according to China's customs data, China's exports to the U.S. were 3% higher than the same period of 2017, three years ago, before the trade war started. And if we just look at the computer, electronics and electrical equipment, and for this, we saw that we're seeing that for the year 2019, China was by far the largest supplier to the U.S. in computers and electronics: China currently reports 37.6% of total U.S. imports, larger than number two, number three, and number four, combined, namely Mexico, Malaysia, and the Chinese Taiwan. And regarding the electrical equipment and components and operators, China accounted last year for 31.6% of total U.S. imports that equal that of the number two, number three, and number four combined, namely Mexico, Japan and Germany.

Mr. He Weiwen (00:26:11):

So that will not change fundamentally. And the third category is high-tech sensitive, high-tech dual use. And for the concern of U.S. national security, namely Huawei has had virtually banned now semiconductors’ export to China, not only to Huawei, but to China in general. So what would that mean? We go to the need. Let's say that the world semiconductor market was about $480 billion in 2018, and the United States applied 48%. Not the final product, but the source. And China accounted for 18%.

If there is a total ban of U.S. supply to China of semiconductors, then the U.S. global share will be reduced from 48 to 30%. And according to the Boston consultants, then later in a few years, maybe Korea or China will become the largest supplier of the world’s semiconductors and the United States will be the second. So that will be bad for the U.S., and also  we see that the top 10 U.S. semiconductor producers all have a large dependent share on the China market.

The Skyworks Solution had 80% dependence, and Qualcomm had 63%, and Broadcomm had 52%. Even Intel has 23%. So if the China market is lost, this will cut seriously to their revenue and to the input in research and development. That will be crucial for them because the key for them to lead the world in cutting-edge technology is a huge input in R&D. So if that is lost, America will suffer seriously.

So I think the important thing is, China and the United States should talk. Because the United States has no strategic confidence and trust in China, nor does China have in the U.S. So we have to talk, and then not only the bilateral talks, we have to come into some agreement to avoid that worry. And also we should enter into multilateral agreements, because there is also some arrangement to guard against the possible security concerns. And this should be one of the topics for the reform of WTO, and we should work together towards that instead of decoupling, decoupling. Thank you.

Helena Cobban (00:29:00):

I was really interested to hear both of you again echoing many of the similar themes, namely, the idea that the tariffs hurt everybody. I mean, as a consumer here in the United States, I know they hurt me. But they hurt a lot of people, at all sections of the market. But what I was really interested in was this idea that you need some form of a global regulatory agency to deal with the potential security concerns over dual-use items.

And I mean, my background is much more in security studies than economic studies, but it strikes me that there's a sort of a parallel here with the International Atomic Energy Authority, the IAEA, which was set up precisely to provide a sort of UN-based regulatory framework in which countries could develop their nuclear capabilities, their nuclear power capabilities, nuclear medicine, all the many uses, pacific uses that there are for nuclear research and production, with some form of supervising and monitoring and verification that these are not being diverted to military use.

So it's not an exact parallel, but I think it is a worthwhile parallel to have out there that you could have, as both of you mentioned, some form of an international regulatory framework for the security concerns around the development of technologies, which let's face it -- I would love to have 5G, you know, here in Washington, DC, it would be wonderful! And we, people around the world, need these technologies, but there are these security concerns.

So anyway, thanks to both of you for contributing to that discussion. So well, we're going to have to move on to question four. And this is just about Chinese holdings of U.S. debt mainly. Professor Xi Junyang of the Shanghai University of Finance and Economics has recently said that China will decrease its holdings of U.S. debt, but it might sell all of its U.S. bonds in an extreme case, like a military conflict. How realistic is each of these apparent threats? So this time it's Mr. He first.

Mr. He Weiwen (00:31:42):

Okay. Thank you. It's an interesting question. I think this is only personal comments. The understanding of the professor is not an official position. I would like to make a few comments on China's holdings of the American Treasury bills. We saw that for the past six months, there has been a net selling of U.S. securities by many countries, not China only, according to the Treasury Department’s data up to the month, August, from the year in the past six months, the six months ending in August.

That means on a basis compared with February, before the COVID-19 appeared. So the total world holdings of the U.S. government official Treasuries, the securities, fell by $142.8 billion. And out of the total, China accounted for $24.3 billion, 17% of the total.

And Japan also was cutting down $1.5 billion, not much, but in the month alone, August alone, Japan sold, reduced $114.6 billion, very large, and China is just one of them. In February, China accounted for 15.1% of total foreign holdings of U.S. securities. And in August China's share remained 15.1%. So this also, China's selling was almost, has been almost the same tempo as other countries. So it is not particularly that China is selling for some political purpose. No, I don't see that.

The real reason is the concern for the mounting U.S. government debt, with the total debt is $26 trillion, more than, much higher than total GDP. And that's raised the concern for possible sovereign debt default, although there has been no such record since World War II. However, people have to be concerned about that. That's a cause, and also there's a decrease in yields of the U.S. Treasury bills. So people would have to shift some of the reserves to some other financial products for better yields. That's normal.

So whether China will sell all the securities in time of a military conflict, I don't know. For the time being, I think -- not for the time being, for forever, our two countries should avoid any war. We should talk. We should handle our differences, no matter how great it is. Thank you.

Helena Cobban (00:34:52):

Well, I think I really welcomed that last comment of yours. But I suppose we should think it's a possibility, but let's work to avoid it. So now, Dr. Huang, what do you think about China's holding of U.S. debt and the risks involved?

Dr. Yukon Huang (00:35:10):

Let me distinguish between two objectives. Why does China have U.S. securities? Well, it comes from the fact that when you run a trade surplus, you have to hold your reserves in foreign currencies. It's either going to be in dollars, Euro, yen, gold, or other forms. And then you basically hold less or more, in part to diversify. And today there's also additional concern because many people are forecasting that the value of the dollar is going to be declining in the coming years, because America's budget deficits are now so large that its trade surplus in the U.S. is going -- trade deficit, excuse me -- for America, it's going to increase. And therefore many people forecast a declining value of the dollar, and you can already see it. The renminbi has appreciated by 7% in the last three or four or five months, and it's likely to continue to do so.

So therefore you basically decide the dollar is going to decline. You might hold more Euros and more yen, whatever, or more gold. That's one issue. But what I think the professor in Shanghai is referring to is what I call the “nuclear option” in terms of a trade war. That suppose America goes fully for decoupling and even worse, suppose it bans or forbids China from trading and making use of the dollar in financing transactions. And that would, of course, cripple China’s economy because it's so trade-oriented. So what could try to do in a response if there was a sanction? I'm talking about sanctions, which America has levied on North Korea, Iran, Iraq, basically saying, I forbid you to actually have access to America's foreign federal reserve system. And therefore, your trade relations are going to basically fall apart. That's the concern, and then the issue you have then is what can China do about it.

Dr. Yukon Huang (00:37:14):

So China then says, well, if that's the case, I'm going to withdraw my money from the U.S. I'm going to sell all my bonds that I've purchased. And the issue then is, is this potentially feasible? What is the consequence of that?

And the answer is, it’s bad for both sides, because what if China decides to sell all its U.S. bonds, it would drive down the value of the dollar, it would drive down the value of its holdings. So China would lose a large share of the value of its reserves, which are held in America. So what about on the U.S. side, if China is no longer willing to buy U.S. bonds, what's the consequence for America? And the consequence is interest rates in the U.S. would soar because the government here in America is running huge deficits. It finances it by selling bills and bonds.

If there's nobody willing to buy it, then the U.S. government, instead of borrowing at 1% or half a percent, ends up paying 4 or 5%, essentially because it’s financially impossible for America to fund its government deficits. So again, this is what I would call the nuclear option in terms of financial retaliation, that both sides would suffer a lot. And therefore, most people, when they look at this, feel that this is not a likely or reasonable possibility,

Helena Cobban (00:38:40):

I see why you call it a nuclear option. And yet again, we have a parallel here. It's sort of mutually assured economic, financial destruction, it sounds like. So again, something definitely to be avoided. So that brings us to the fifth question today. What steps, immediate and then long-term, do you think both countries’ governments should take at the economic level to return to a more cooperative and mutually beneficial economic relationship? If possible, please look at steps your own country might take as well as the other country. So this time it’s Dr. Huang’s turn to go first.

Dr. Yukon Huang (00:39:29):

Thank you. We have a problem in terms of U.S.-China relations because there's confusion in terms of how each side looks at the other side. And if I were sitting in Beijing, which I often am, because I write a lot about China and look at America's position regarding China, and I ask, what is it that Washington wants from China? And why is it so difficult to answer this question? Because they're actually what I call three constituencies in the U.S. There's the White House. President Trump; he's really fixated upon trade deficits. That's why he proposes these tariffs. He wants to try to buy more. And that's what he's really concerned about. There's a second group. These are what I call the U.S. business community. They want better access to China's market. They want to China to reform and liberalize. They want to actually invest more in China.

So let me just point out that there's a contradiction here, because if China actually liberalizes and reforms and more American companies go to China, this could actually lead to higher deficits. Because those companies produce more and they export back to the United States. So China has a bigger surplus, America has a bigger deficit. So this first constituency, the White House, American businesses, their goals are actually not necessarily complementary. Then you have what I call the third group. These are the foreign policy security people, and we just talked about them. They favor decoupling. They worry about China being a rising, innovative power. They want to separate the two economies.

Let's think about this group. Their views are the exact opposite of the U.S. business community. The U.S. business community actually wants to invest more in China. They want to integrate the two economies, but the security group wants to decouple the two economies.

So you have a problem because these three groups represent U.S. interests. At any moment in time, their views may differ. And then China is difficult also. China wants to basically move up, become a more innovative economy. It wants to actually grow, and it has to have to deal with this U.S.-China trade war.

So in a practical sense, we have an election next week. If Biden wins, how will he be different? The Democratic Party is also quite negative in terms of its views of of China. So there's actually not much difference between the Republicans and Democrats, but Biden, if he wins, would probably approach the issue differently because Biden favors forming alliances and having discussions to deal with these concerns. And I think that it's a lot more productive than what I would call the chaotic decoupling approach of the White House today. So I think that potential Democratic taking over the White House could lead to more negotiations.

What would be a good vehicle for beginning those negotiations on these issues that we've been discussing? And in fact, there is one, it's what I would call a bilateral investment treaty. It's not this U.S.-China trade war, the trade truce. It's a bilateral investment treaty, which would address many of these concerns of the U.S. business communities, others who feel like the two economies could actually get along, but there are policy issues that need to be addressed.

And under President Obama, agreement on a bilateral investment treaty was actually quite close. But when President Trump came into office, he actually put it to the side. Now this process can be facilitated globally, because Europe has exactly the same situation. They are currently negotiating a bilateral investment treaty between Europe and United States. Now these treaties, they actually address exactly many of these concerns that we've been talking about.

And I think China is actually prepared to be responsive, but you need to have a dialogue and means for discussing this. So I would say a kind of collaborative discussion between Europe, U.S., China on some of these investment, foreign technology, decoupling kinds of issues is probably the best means of actually getting the relationship back on track. Let me stop here. Thank you.

Helena Cobban (00:44:07):

Thank you. And, Mr. He, what do you think?

Mr. He Weiwen (00:44:14):

Thank you. I think certainly we should -- both China and United States should -- lose no efforts to try to keep the economic cooperation going and even to improve it. However, without sound, stable, political relations, it is a difficult to have sound economic relations. So now China and the United States, in a very tense situation, maybe we, our two governments can never agree on a number of fundamental issues. So what's to be done?

So, first of all, I highly recommend that China and the United States seek peaceful coexistence. We just coexist peacefully. That's a UN charter, sovereignty, equality of sovereignty. That means first, mutual respect of sovereignty and territorial integrity. That means, we say that Hong Kong, both Hong Kong and Taiwan are part of China's territory. So you should respect that.

Then second, non-aggression on each other. So neither the United States, nor China should launch any military conflict, we should maintain to seek for differences, a solution through peaceful means.

Third, non-interference of internal affairs. There are many internal affairs in China, but for the United States to say, this is bad and that is bad, that's internal affairs. So, because they say that's - the system is bad. China, the leader of the Communist Party of China, is bad to the United States. They said this and that. However, this is China's internal affairs.

We don't, we never care whether, we cannot interfere whether the Democrats or Republicans get power, in the elections or getting to the White House. And there are a number of the countries with a monarchy system. So we don't care – that’s their internal affairs. So if we just based our relations on non-interference in internal affairs, that will be much better in the spaces that we can seek cooperation or mutual benefit.

Mr. He Weiwen (00:46:38):

Then on the economic, the economic front, I think there are also two fronts. First local, and the business aspect, the cooperation at this level has been going on fundamentally uninterrupted. For instance, during the first seven months of this year, the U.S. business investment in China set up 860 new enterprises in China, over the seven months of this year, although the White House has been pressing hard on decoupling. However, the businesses are doing just the opposite.

And on the government front, we should seek, I quite agree with Dr. Huang that we should seek dialogue instead of confrontation. Because China and the United States, our two governments, they had very mature dialogue mechanisms in the past years. We had over 70 different groups for dialogue, managing differences, and it's the cooperation, which will resume that. And regarding the technology transfer and a concern about security, we should talk about the focus on that first.

So we make clear the opposite goals. The important way is we seek for conclusion of a bilateral investment treaty or agreement that will formulate the basic principles or guidelines and the measures regarding all of these issues. And as far as trade is concerned, I highly recommend that United States call off additional tariffs on China. And then China will call off the tariffs on the U.S. products, because we see that during the past three years, tariffs actually have not been that effective in checking Chinese exports to the U.S. However, the U.S. importers and taxpayers paid the money, that would be, not the government.

And then on the Chinese side, we should work hard to open the market to welcome the U.S. investors, to open the financial sector and to make sure that all the players be it SOEs, private or foreign, play on equal - on the level field - and they enjoy the same national treatment, that has to provide a fair environment. So that will encourage cooperation between the two countries.

Helena Cobban  (00:49:23):

Thank you. I think I just have one little question, supplementary on that one, for each of you. For Dr. Huang, when you were discussing the different interest groups here in the United States, perhaps from a Chinese perspective, you didn't actually mention organized labor, which has its own concerns about trade with China, and which may be, you know, if Biden does get elected, maybe stronger. What can you say about the role of organized labor as an interest group in this country?

Dr. Yukon Huang (00:50:03):

Helena, I think you you've mentioned a very important issue, because there is a general perception in the U.S. that the relationship with China has not been good for American workers, that their incomes have not been increasing, that unemployment is one of the ways dependent workers in America suffered. And that China's growing rapidly and generating trade surplus is part of the cause of this. I have basically two - several observations as an economist, that is that the decline in manufacturing jobs in the U.S. has been going on for 50 years, long before China became a major economic power, and it will continue. So now we have in the U.S., 90% of the U.S. workers are in services. Only 9% are in manufacturing. Okay? So this concept of dependency upon manufacturing in relationship to China is actually not really relevant anymore. The major impact upon the decline of manufacturing workers in the U.S. is from innovation, not from trade with China.

And we see this happening also in China, China today is more dependent on services than manufacturing. China is actually losing more manufacturing jobs every year than the U.S. is, because Chinese workers are moving into services. And that's the same situation. As economies get richer, their workers go into services, they leave manufacturing. So we have a view in the U.S. of industrial jobs, particularly in the Midwest, we see potentially China as the cause.

It's not actually the cause at all. The cause is, as you get richer, manufacturing jobs pay less. You go into services. You ask our people when they get out of college, do they want to work in a factory? Or they even, do they want to be an engineer actually anymore? No, they want to be in finance. They want to be lawyers. They want to be accountants. They want to be in an entertainment, social, journalism.

They don't want to be in manufacturing. That's the way it is. Why? Part of the reason is that they don’t pay very well. So what can the U.S. do about this actually? And the answer of course is, you have to have basically social programs that cushion this. This is not a China issue. It's an American issue, but nevertheless, there's the association of this.

Let me just also end by saying, at one point, the argument was that how can American workers compete with Chinese workers and their pay was so much lower. And the point that I would also then make is: Chinese wages have gone up 700% in the last 10 years. They're no longer actually cheap, okay? It's those so-called labor-intensive jobs, which America is losing. They're not actually going to China. They're going to India, they're going to Vietnam. They're going to Mexico, actually. So this is a broader issue, but it's increasingly not a China issue. It's a different kind of concern. And for here in the United States, it's talking about retraining, it's talking about cushioning. It's also trying to move people into better jobs, rather than thinking and saying it's a China issue. It really increasingly is not a China issue.

Helena Cobban (00:53:36):

Thank you so much for that clarification. I thought that was really helpful. Mr. He, you were talking in your answer there about calling off tariffs, were you talking about what we would say canceling the tariffs or reducing them? What do you think should happen with tariffs?

Mr. He Weiwen (00:53:59):

I think first of all, in principle, the additional tariffs imposed by the Trump administration unilaterally should be removed because it's against the WTO rules. Although the USTR just launched a suit to the appellate body at the WTO just recently, we await and we'll continue to work on that. That would be not good.

But in the actual process, we should do it step by step. So United States should promise to call off all the duties and the tariffs, and then China would respond to the concerns of the U.S. business companies and of government. We should do it step-by-step, and the phase one is one step in this direction. However, phase one did not solve that much because all the tariffs already in place were not removed. So we should work towards that direction, which should work out that without additional tariffs, can we find a better solution benefitting both our businesses? I'm certain we can.

Helena Cobban (00:55:18):

Well, thank you both very much. It's been such a pleasure to be with you here in Washington, DC. It's the late evening and in China, it's tomorrow morning. But it's been a great experience for me being with you both for this rich and timely discussion. I want to thank you both for sharing your insights. I'm afraid that this wraps up the second session of our U.S.-China public dialogue.

My board colleagues at Just World Educational and I are delighted that through this joint project, we can demonstrate to publics in the United States, China and elsewhere that reasoned discussion of tricky issues in the China-U.S. relationship is still very possible. And also to contribute perhaps through our discussions to laying out some fruitful pathways for further cooperation over the months ahead.

Please remember that you can find out the latest news of what's happening with our project at the U.S.-China resource page on our website, www.justworldeducational.org. So now I want to thank our two guests for the wonderful contributions you both made to today's globe-girdling discussion. Mr.  He Weiwen, thank you so much for being with us.

Mr. He Weiwen (00:56:36):

My pleasure. Thank you.

Helena Cobban (00:56:38):

Please thank your colleagues at the Chongyang Institute for the great cooperation that they've shown working with us on this. And now Dr. Yukon Huang from here in Washington, DC, across town, I guess. Thank you for being with us.

Dr. Yukon Huang (00:56:56):

My pleasure. I enjoyed this immensely.

Helena Cobban (00:57:00):

I would also like to say a big thank you to all of our viewers and listeners. For Just World Educational here in Washington, DC, this is me, Helena Cobban, saying goodbye and see you again soon. Keep checking back at our website for details of our upcoming programs.