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Speaker 1: This is Bloomberg Business Week from Bloomberg Radio. I'm Carol Master.

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Speaker 1: Welcome to the Bloomberg Business Week Extra. It's a weekly

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Speaker 1: podcast with a favorite conversation from the week, and this

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Speaker 1: week it was with Dan Blumenthal, director of Asian Studies

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Speaker 1: at the conservative think tank American Enterprise Institute, his former

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Speaker 1: senior director for China, Taiwan, and Mongolia at the Department

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Speaker 1: of Defense. He also served as a commissioner on the

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Speaker 1: congressionally mandated US China Economic and Security Review Commission. Well,

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Speaker 1: he's got a new book out. It's called The China Nightmare,

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Speaker 1: The Grand Ambitions of a Decaying State. Dan notes in

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Speaker 1: his books introduction that he wrote his book mainly to

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Speaker 1: accurately diagnose the exact nature of the challenge that China

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Speaker 1: poses to the US and its allies. Check it out.

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Speaker 1: There's no doubt that China has viewed US as its

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Speaker 1: main rival for global power for a very long time,

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Speaker 1: and we've we've just woken up to for that in

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Speaker 1: the last four or five years. Or I wanted to

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Speaker 1: put out this book to argue just exactly what kind

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Speaker 1: of libel it is. So it's it's not just defendant

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Speaker 1: and strong although it's very formidable, but it also has

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Speaker 1: it's beset by many weaknesses and frustrations, and because of that,

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Speaker 1: it's compensating for some of these internal weaknesses by lashing

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Speaker 1: out on the world stage in very dangerous ways. So

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Speaker 1: why do you call it the China nightmare? Then? Well,

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Speaker 1: the nightmare scenario is that's strong enough, which it is

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Speaker 1: right now, to cause lots of global instability to do

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Speaker 1: what it's doing, lashing out in Taiwan straight taking over

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Speaker 1: Hong Kong Australia. But it's also got a whole set

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Speaker 1: of weaknesses inside that is accelerating its path to lashing

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Speaker 1: out and trying to externalize insternal problems distract its population

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Speaker 1: from many of those internal problems. What's really fascinating to

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Speaker 1: me is that they are at this point right where

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Speaker 1: they want to play. It feels like more on the

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Speaker 1: global stage be thought of, not for being the manufacturer

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Speaker 1: to the world, but really developing those higher tech economies, industries, sectors,

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Speaker 1: if you will. At the same time, it does feel

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Speaker 1: like they're pushing back as well. That's right. There is

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Speaker 1: a contradiction there. On the one hand, they very much

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Speaker 1: need international cooperation, cooperation with the U s US businesses,

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Speaker 1: multinational businesses in order to move up the value chain

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Speaker 1: of technology or success to our markets and so forth.

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Speaker 1: But on the other hand, they've been acting in very

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Speaker 1: provocative ways that is causing not just US but our

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Speaker 1: allies in Europe and in Asia and Australia to say, uh,

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Speaker 1: you know, we've had enough. You've been also responsible on

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Speaker 1: on COVID nineteen and we wanted investigations. So there is

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Speaker 1: this big contradiction. So what's the role of government, spiess

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Speaker 1: excuse me, of government specifically in all of this. Obviously

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Speaker 1: we need to have a relationship China is you know

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Speaker 1: when it's interesting. We did the Bloomberg New Economy Form

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Speaker 1: and we talked about um finance and trade. We talked

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Speaker 1: about global cities, we talked about the climate, we talked

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Speaker 1: about global health. And a question came out up during

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Speaker 1: one of the many sessions, and it was like, well,

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Speaker 1: do we have to think about China? Do you have

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Speaker 1: to worry about China? And someone said, yeah, you've got

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Speaker 1: to think about China with everything that's going on in

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Speaker 1: this world. They matter. So how do we figure out

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Speaker 1: the right strategy, the right policy for a nation, a

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Speaker 1: government and economy that matters so much in our world,

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Speaker 1: but one that I think it's safe to say that

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Speaker 1: many disagree with. Yeah, that's that's the big challenge. So

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Speaker 1: we have areas where we absolutely do need to cooperate,

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Speaker 1: and that's in commercial relations. They're a big market for

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Speaker 1: so many of our own of our own goods, and

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Speaker 1: the technology relationship is interrelated. But I think we've started

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Speaker 1: and we can do a better job with this to

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Speaker 1: to craft policies that restrict our highest end technology. And

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Speaker 1: we have to do this in consert with our allies

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Speaker 1: from getting into the wrong hands of China. Uh. And

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Speaker 1: we'll see more of that under the Biden administration. But

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Speaker 1: but we also need to make sure that China knows,

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Speaker 1: through our presence throughout Asia, throughout Japan, and around China,

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Speaker 1: to our military presence and diplomatic presence, the China knows

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Speaker 1: that there's a high price to pay for throwing out

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Speaker 1: the order, the world order that has served it so well.

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Speaker 1: So it's it's extremely complicated. We have to we have

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Speaker 1: to move along to diplomatic track and find ways to

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Speaker 1: trade and and do commerce with China while at the

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Speaker 1: same time not allowing China to overturn uh the order

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Speaker 1: or bolio course countries into doing this bidding. So just

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Speaker 1: about forty seconds we're gonna do some news will come back.

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Speaker 1: So then for the incoming Biden administration, they need to

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Speaker 1: continue to some extent the strategy with China of the

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Speaker 1: past administration. The Trump administration, well, all all signals say

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Speaker 1: they will. In many domns, I think they want to

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Speaker 1: lower the tone of the relationship, But in terms of

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Speaker 1: the pushback against certain line behaviors, every indication is they

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Speaker 1: want to continue with that, and there's broad by partisan

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Speaker 1: political support from pushing back against various different kinds of malfeasance, Dan,

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Speaker 1: what worries you the most about China? What worries me

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Speaker 1: the most about China is a great miscalculation in terms

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Speaker 1: of it's it's pushing around Taiwan or or pushing around

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Speaker 1: a country going too far thinking that the United States

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Speaker 1: won't come to one of the allies or partners defense.

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Speaker 1: I think that miscalculation on China's part is really worrisome.

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Speaker 1: I'm not as worried as Henry Kissinger is about an

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Speaker 1: inevitable conflict, but there is so much military power being

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Speaker 1: brought to there around China's periphery by China UM that

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Speaker 1: I think China could miscalculate and that would be a catastrophe. Well,

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Speaker 1: it's you know, it is really interesting. I mean, we

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Speaker 1: obviously look at it from you know, China from a

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Speaker 1: lot of different perspectives here at Bloomberg, obviously the political

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Speaker 1: perspectives and the trade perspectives UM. But it was really

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Speaker 1: fascinating for us in the last few weeks to see

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Speaker 1: the pushback against someone like a Jack Ma of Ali Baba,

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Speaker 1: and of course the and financial I p O. Because

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Speaker 1: it's interesting, as we talked about at the top, this

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Speaker 1: contradiction that we kind of see from g and China

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Speaker 1: in that they want to be on the global stage.

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Speaker 1: They want to be perceived, you know, certainly as a

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Speaker 1: much more developed economy. They want to play in the

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Speaker 1: big industry certainly developed them domestically. And there you have,

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Speaker 1: you know, a star when it comes to um you

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Speaker 1: know kind of the world and certainly the online world.

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Speaker 1: And yet because of things that Ma said, you know,

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Speaker 1: he was really reined in and it really put kind

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Speaker 1: of a shutter over Chinese tech companies. Well, that's right,

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Speaker 1: and China under shi Jing Ping is going in the

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Speaker 1: wrong direction. There is no question that when Jack ma

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Speaker 1: was coming up as an entrepreneur, China allowed for much

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Speaker 1: more free market activity and entrepreneur activity. The state sector

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Speaker 1: and controlled by the party under shi jing Ping of

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Speaker 1: businesses has just grown. And it's it's a trend that's

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Speaker 1: going to hurt China. It's gonna trend that's gonna hurt

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Speaker 1: the global economy. But that's a perfect example. Jack you

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Speaker 1: would think is untouchable. He says the wrong thing about regulators,

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Speaker 1: and he's the real band, as he said by shi

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Speaker 1: jing Ping. You know, and I also do wonder you know,

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Speaker 1: what is one of the things that you think most

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Speaker 1: probably Americans are most people don't understand about China and

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Speaker 1: the mission it's on. I mean, I've always been kind

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Speaker 1: of amazed, in awe a little terrified about about these

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Speaker 1: ten year plans. But they do create a plan about

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Speaker 1: where they want to go. And yet we have an

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Speaker 1: economy here in the U S where it's often short sighted.

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Speaker 1: Right if your public you're thinking about the quarters, it's

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Speaker 1: really hard to make those big investments. Um, what is

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Speaker 1: it that you think that maybe some people are missing

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Speaker 1: about the Chinese story and they and they have to

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Speaker 1: make sure that they don't well. I think one big thing,

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Speaker 1: particularly if you're interested in the markets and the economy,

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Speaker 1: is that kind of had this big reform market reform

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Speaker 1: plan that it undertook from through through the accession to

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Speaker 1: the w t O, But they really reversed much of

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Speaker 1: that and in the latter parts of of let's say

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Speaker 1: two two thousand nine, and they started taking on enormous

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Speaker 1: amounts of debt. But they also started to change their

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Speaker 1: political system in ways that wouldn't support market with them.

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Speaker 1: That became extremely afraid of if they opened up too

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Speaker 1: much their free market too much, that other Russian influences

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Speaker 1: about political liberty would would seep into the system. So

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Speaker 1: they've clamped down. I don't think people know enough about that.

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Speaker 1: They started clamping down on this type of behavior free markets,

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Speaker 1: uh and and freeing of speech in two thousand and

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Speaker 1: two thousand nine. It's just been going downhill from there

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Speaker 1: with China pursuing these strategies and all these things that

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Speaker 1: you know, Dan, can they hit some of the growth

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Speaker 1: rates that they have been laying out at this point,

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Speaker 1: we know that recently Chinese President g so the economy

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Speaker 1: can double in size by and that the country can

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Speaker 1: reach high income status in the next five years. And

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Speaker 1: this has to do with the Communist Party's ambitious plans

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Speaker 1: for the nation's future. You know, can they get there,

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Speaker 1: especially when I see some of the and some of

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Speaker 1: the tactics that you're laying out right now in terms

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Speaker 1: of how they are clamping down, whether it's on human rights, uh,

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Speaker 1: when they're pushing back on some of their successful business folks, Um,

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Speaker 1: how do you see it? I don't think they can

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Speaker 1: get there unless they unless they return to the path

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Speaker 1: of of market reforms. So just from an economic efficiency

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Speaker 1: point of view, they're they're facing a lot of trouble. Also,

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Speaker 1: you know, many times countries in in China situation which

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Speaker 1: are um, you know, sort of trapped and you know

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Speaker 1: what they call a middle income trapped innovate their way

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Speaker 1: and innovate their way out of it. There's no question

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Speaker 1: that China is spending a lot on R and D

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Speaker 1: from from the state, you know, technology, and they'll have

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Speaker 1: some payoffs from that. But in terms of really setting

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Speaker 1: up the rule of law, efficient capital markets, protection of

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Speaker 1: intellectual property, letting entrepreneurs like Jack Mark continue to invent

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Speaker 1: and innovate, that's going in the wrong direction, so I

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Speaker 1: don't I don't see it. And then of course there's

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Speaker 1: this huge demographic lab where getting old so quickly, I mean,

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Speaker 1: they will have the same demographic pictures Europe. And that

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Speaker 1: wraps up our Bloomberg Business Week Extra podcast with Dan Bloomenthal,

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Speaker 1: director of Asian Studies at the conservative think tank American

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Speaker 1: Enterprise Institute, his new book, The China Nightmare, The Grand

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Speaker 1: Ambitions of a Decaying State. You've been listening to Bloomberg

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Speaker 1: Business Week Extra, be sure to listen to Bloomberg Business

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Speaker 1: Week Radio, airing live Monday through Friday at two pm

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Speaker 1: Wall Street Time on Bloomberg Radio. I'm Carol Masser, and

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Speaker 1: this is Bloomberg