WEBVTT - Businessweek Extra-Dan Blumenthal

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<v Speaker 1>This is Bloomberg Business Week from Bloomberg Radio. I'm Carol Master.

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<v Speaker 1>Welcome to the Bloomberg Business Week Extra. It's a weekly

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<v Speaker 1>podcast with a favorite conversation from the week, and this

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<v Speaker 1>week it was with Dan Blumenthal, director of Asian Studies

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<v Speaker 1>at the conservative think tank American Enterprise Institute, his former

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<v Speaker 1>senior director for China, Taiwan, and Mongolia at the Department

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<v Speaker 1>of Defense. He also served as a commissioner on the

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<v Speaker 1>congressionally mandated US China Economic and Security Review Commission. Well,

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

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<v Speaker 1>The Grand Ambitions of a Decaying State. Dan notes in

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<v Speaker 1>his books introduction that he wrote his book mainly to

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<v Speaker 1>accurately diagnose the exact nature of the challenge that China

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<v Speaker 1>poses to the US and its allies. Check it out.

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<v Speaker 1>There's no doubt that China has viewed US as its

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<v Speaker 1>main rival for global power for a very long time,

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<v Speaker 1>and we've we've just woken up to for that in

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<v Speaker 1>the last four or five years. Or I wanted to

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<v Speaker 1>put out this book to argue just exactly what kind

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<v Speaker 1>of libel it is. So it's it's not just defendant

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<v Speaker 1>and strong although it's very formidable, but it also has

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<v Speaker 1>it's beset by many weaknesses and frustrations, and because of that,

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<v Speaker 1>it's compensating for some of these internal weaknesses by lashing

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<v Speaker 1>out on the world stage in very dangerous ways. So

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<v Speaker 1>why do you call it the China nightmare? Then? Well,

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<v Speaker 1>the nightmare scenario is that's strong enough, which it is

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<v Speaker 1>right now, to cause lots of global instability to do

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<v Speaker 1>what it's doing, lashing out in Taiwan straight taking over

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<v Speaker 1>Hong Kong Australia. But it's also got a whole set

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<v Speaker 1>of weaknesses inside that is accelerating its path to lashing

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<v Speaker 1>out and trying to externalize insternal problems distract its population

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<v Speaker 1>from many of those internal problems. What's really fascinating to

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<v Speaker 1>me is that they are at this point right where

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<v Speaker 1>they want to play. It feels like more on the

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<v Speaker 1>global stage be thought of, not for being the manufacturer

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<v Speaker 1>to the world, but really developing those higher tech economies, industries, sectors,

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<v Speaker 1>if you will. At the same time, it does feel

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

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<v Speaker 1>a contradiction there. On the one hand, they very much

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<v Speaker 1>need international cooperation, cooperation with the U s US businesses,

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<v Speaker 1>multinational businesses in order to move up the value chain

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<v Speaker 1>of technology or success to our markets and so forth.

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<v Speaker 1>But on the other hand, they've been acting in very

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<v Speaker 1>provocative ways that is causing not just US but our

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<v Speaker 1>allies in Europe and in Asia and Australia to say, uh,

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

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<v Speaker 1>on COVID nineteen and we wanted investigations. So there is

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

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<v Speaker 1>excuse me, of government specifically in all of this. Obviously

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<v Speaker 1>we need to have a relationship China is you know

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<v Speaker 1>when it's interesting. We did the Bloomberg New Economy Form

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<v Speaker 1>and we talked about um finance and trade. We talked

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<v Speaker 1>about global cities, we talked about the climate, we talked

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<v Speaker 1>about global health. And a question came out up during

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<v Speaker 1>one of the many sessions, and it was like, well,

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<v Speaker 1>do we have to think about China? Do you have

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

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<v Speaker 1>to think about China with everything that's going on in

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<v Speaker 1>this world. They matter. So how do we figure out

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<v Speaker 1>the right strategy, the right policy for a nation, a

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<v Speaker 1>government and economy that matters so much in our world,

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<v Speaker 1>but one that I think it's safe to say that

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<v Speaker 1>many disagree with. Yeah, that's that's the big challenge. So

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<v Speaker 1>we have areas where we absolutely do need to cooperate,

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

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<v Speaker 1>so many of our own of our own goods, and

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<v Speaker 1>the technology relationship is interrelated. But I think we've started

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<v Speaker 1>and we can do a better job with this to

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<v Speaker 1>to craft policies that restrict our highest end technology. And

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<v Speaker 1>we have to do this in consert with our allies

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<v Speaker 1>from getting into the wrong hands of China. Uh. And

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<v Speaker 1>we'll see more of that under the Biden administration. But

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<v Speaker 1>but we also need to make sure that China knows,

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<v Speaker 1>through our presence throughout Asia, throughout Japan, and around China,

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<v Speaker 1>to our military presence and diplomatic presence, the China knows

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<v Speaker 1>that there's a high price to pay for throwing out

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<v Speaker 1>the order, the world order that has served it so well.

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<v Speaker 1>So it's it's extremely complicated. We have to we have

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<v Speaker 1>to move along to diplomatic track and find ways to

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<v Speaker 1>trade and and do commerce with China while at the

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<v Speaker 1>same time not allowing China to overturn uh the order

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<v Speaker 1>or bolio course countries into doing this bidding. So just

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

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<v Speaker 1>So then for the incoming Biden administration, they need to

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<v Speaker 1>continue to some extent the strategy with China of the

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<v Speaker 1>past administration. The Trump administration, well, all all signals say

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<v Speaker 1>they will. In many domns, I think they want to

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<v Speaker 1>lower the tone of the relationship, But in terms of

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<v Speaker 1>the pushback against certain line behaviors, every indication is they

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<v Speaker 1>want to continue with that, and there's broad by partisan

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<v Speaker 1>political support from pushing back against various different kinds of malfeasance, Dan,

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<v Speaker 1>what worries you the most about China? What worries me

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<v Speaker 1>the most about China is a great miscalculation in terms

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<v Speaker 1>of it's it's pushing around Taiwan or or pushing around

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<v Speaker 1>a country going too far thinking that the United States

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<v Speaker 1>won't come to one of the allies or partners defense.

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<v Speaker 1>I think that miscalculation on China's part is really worrisome.

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<v Speaker 1>I'm not as worried as Henry Kissinger is about an

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<v Speaker 1>inevitable conflict, but there is so much military power being

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<v Speaker 1>brought to there around China's periphery by China UM that

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

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<v Speaker 1>it's you know, it is really interesting. I mean, we

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<v Speaker 1>obviously look at it from you know, China from a

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<v Speaker 1>lot of different perspectives here at Bloomberg, obviously the political

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<v Speaker 1>perspectives and the trade perspectives UM. But it was really

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<v Speaker 1>fascinating for us in the last few weeks to see

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<v Speaker 1>the pushback against someone like a Jack Ma of Ali Baba,

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<v Speaker 1>and of course the and financial I p O. Because

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<v Speaker 1>it's interesting, as we talked about at the top, this

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<v Speaker 1>contradiction that we kind of see from g and China

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<v Speaker 1>in that they want to be on the global stage.

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<v Speaker 1>They want to be perceived, you know, certainly as a

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<v Speaker 1>much more developed economy. They want to play in the

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<v Speaker 1>big industry certainly developed them domestically. And there you have,

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<v Speaker 1>you know, a star when it comes to um you

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<v Speaker 1>know kind of the world and certainly the online world.

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<v Speaker 1>And yet because of things that Ma said, you know,

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<v Speaker 1>he was really reined in and it really put kind

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

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<v Speaker 1>and China under shi Jing Ping is going in the

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<v Speaker 1>wrong direction. There is no question that when Jack ma

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<v Speaker 1>was coming up as an entrepreneur, China allowed for much

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<v Speaker 1>more free market activity and entrepreneur activity. The state sector

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<v Speaker 1>and controlled by the party under shi jing Ping of

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<v Speaker 1>businesses has just grown. And it's it's a trend that's

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<v Speaker 1>going to hurt China. It's gonna trend that's gonna hurt

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<v Speaker 1>the global economy. But that's a perfect example. Jack you

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<v Speaker 1>would think is untouchable. He says the wrong thing about regulators,

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<v Speaker 1>and he's the real band, as he said by shi

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<v Speaker 1>jing Ping. You know, and I also do wonder you know,

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<v Speaker 1>what is one of the things that you think most

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<v Speaker 1>probably Americans are most people don't understand about China and

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

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<v Speaker 1>of amazed, in awe a little terrified about about these

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<v Speaker 1>ten year plans. But they do create a plan about

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<v Speaker 1>where they want to go. And yet we have an

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

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

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<v Speaker 1>really hard to make those big investments. Um, what is

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<v Speaker 1>it that you think that maybe some people are missing

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<v Speaker 1>about the Chinese story and they and they have to

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

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<v Speaker 1>particularly if you're interested in the markets and the economy,

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<v Speaker 1>is that kind of had this big reform market reform

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<v Speaker 1>plan that it undertook from through through the accession to

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<v Speaker 1>the w t O, But they really reversed much of

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<v Speaker 1>that and in the latter parts of of let's say

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<v Speaker 1>two two thousand nine, and they started taking on enormous

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<v Speaker 1>amounts of debt. But they also started to change their

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<v Speaker 1>political system in ways that wouldn't support market with them.

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<v Speaker 1>That became extremely afraid of if they opened up too

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<v Speaker 1>much their free market too much, that other Russian influences

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<v Speaker 1>about political liberty would would seep into the system. So

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

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<v Speaker 1>They started clamping down on this type of behavior free markets,

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<v Speaker 1>uh and and freeing of speech in two thousand and

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<v Speaker 1>two thousand nine. It's just been going downhill from there

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<v Speaker 1>with China pursuing these strategies and all these things that

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<v Speaker 1>you know, Dan, can they hit some of the growth

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<v Speaker 1>rates that they have been laying out at this point,

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<v Speaker 1>we know that recently Chinese President g so the economy

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<v Speaker 1>can double in size by and that the country can

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<v Speaker 1>reach high income status in the next five years. And

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<v Speaker 1>this has to do with the Communist Party's ambitious plans

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

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<v Speaker 1>especially when I see some of the and some of

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<v Speaker 1>the tactics that you're laying out right now in terms

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

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

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<v Speaker 1>how do you see it? I don't think they can

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<v Speaker 1>get there unless they unless they return to the path

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<v Speaker 1>of of market reforms. So just from an economic efficiency

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<v Speaker 1>point of view, they're they're facing a lot of trouble. Also,

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<v Speaker 1>you know, many times countries in in China situation which

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<v Speaker 1>are um, you know, sort of trapped and you know

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<v Speaker 1>what they call a middle income trapped innovate their way

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<v Speaker 1>and innovate their way out of it. There's no question

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<v Speaker 1>that China is spending a lot on R and D

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<v Speaker 1>from from the state, you know, technology, and they'll have

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<v Speaker 1>some payoffs from that. But in terms of really setting

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<v Speaker 1>up the rule of law, efficient capital markets, protection of

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<v Speaker 1>intellectual property, letting entrepreneurs like Jack Mark continue to invent

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<v Speaker 1>and innovate, that's going in the wrong direction, so I

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<v Speaker 1>don't I don't see it. And then of course there's

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<v Speaker 1>this huge demographic lab where getting old so quickly, I mean,

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<v Speaker 1>they will have the same demographic pictures Europe. And that

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<v Speaker 1>wraps up our Bloomberg Business Week Extra podcast with Dan Bloomenthal,

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<v Speaker 1>director of Asian Studies at the conservative think tank American

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<v Speaker 1>Enterprise Institute, his new book, The China Nightmare, The Grand

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<v Speaker 1>Ambitions of a Decaying State. You've been listening to Bloomberg

0:11:19.400 --> 0:11:21.960
<v Speaker 1>Business Week Extra, be sure to listen to Bloomberg Business

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<v Speaker 1>Week Radio, airing live Monday through Friday at two pm

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

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<v Speaker 1>this is Bloomberg