WEBVTT - 65: Dear Donald, Some Advice on China. Sincerely, Jon Huntsman 0:00:00.240 --> 0:00:03.120 Brought to you by Bank of America Merrill Lynch seeing 0:00:03.120 --> 0:00:05.600 what others have seen, but uncovering what others may not. 0:00:06.000 --> 0:00:09.680 Global Research that helps you harness disruption voted top global 0:00:09.720 --> 0:00:13.000 research from five years running. Meryll Lynch, Pierce, Fenner and 0:00:13.080 --> 0:00:15.720 Smith Incorporated. But if I were to sit down with 0:00:15.760 --> 0:00:18.479 the President elect, I'd say, you have two ways to 0:00:18.480 --> 0:00:21.320 see China. You can see China through a fear of prism, 0:00:21.480 --> 0:00:24.279 and you can you can articulate the U. S. China 0:00:24.320 --> 0:00:27.640 relationship through fear to the American people, which I think 0:00:27.680 --> 0:00:31.479 does it a disservice, Or you can articulated through a 0:00:31.560 --> 0:00:35.120 prism of of opportunity, which I think there is a 0:00:35.159 --> 0:00:46.159 lot of on both sides. Hello, and welcome back to 0:00:46.200 --> 0:00:49.760 Bloomberg Benchmark, a show about the global economy. I'm Scott 0:00:49.800 --> 0:00:53.120 landman and economics editor with Bloomberg News in Washington, and 0:00:53.200 --> 0:00:56.960 I'm Danielmost, Executive editor for Global Economics at Bloomberg in 0:00:57.040 --> 0:00:59.920 New York. So, Dan, we heard a lot about China 0:01:00.040 --> 0:01:04.080 during the past year's election campaign. President elect Donald Trump 0:01:04.120 --> 0:01:07.360 spent a lot of time bashing China, talking about how 0:01:07.360 --> 0:01:11.680 it's manipulated its currency, taking jobs away from Americans. He's 0:01:11.680 --> 0:01:14.880 also pledged to pull out of a Pacific RIM trade accord, 0:01:14.920 --> 0:01:17.639 which gives China an opening to do its own big 0:01:17.680 --> 0:01:21.679 pan Asian trade deals. And while we're on transitions, China 0:01:21.840 --> 0:01:24.959 is going through one of its own. The ruling Communist 0:01:25.040 --> 0:01:28.720 Party is gearing up to elect their words it's new 0:01:28.840 --> 0:01:33.240 leadership team late next year. The speculation the President, Shi 0:01:33.360 --> 0:01:38.000 jing Ping, who took office as party secretary in could 0:01:38.040 --> 0:01:41.920 set himself up to lead the nation beyond tennees, which 0:01:41.920 --> 0:01:44.600 would break with race and practice and hawken back to 0:01:44.640 --> 0:01:47.440 the days of Chairman Mao. And in addition to a 0:01:47.520 --> 0:01:51.240 political transition, the country is also going through a profound 0:01:51.400 --> 0:01:56.040 economic transition. The China that Trump ranted and raved about 0:01:56.120 --> 0:01:59.840 during the campaign sounds like the low cost, low end 0:02:00.040 --> 0:02:04.240 sweatshop image stuck in the ninety nineties. But today it's 0:02:04.280 --> 0:02:07.920 not really about T shirts in Guangdong Province. It's about 0:02:07.960 --> 0:02:11.160 the Starbucks sprouting up all around the suburbs of Beijing 0:02:11.200 --> 0:02:13.959 and Shanghai. We have a distinguished guest today who can 0:02:14.040 --> 0:02:18.040 offer insight like few others on China's economy and politics. 0:02:18.400 --> 0:02:21.760 John Huntsman served as US Ambassador to China in the 0:02:21.800 --> 0:02:25.600 early years of the Obama administration and before that, elected 0:02:25.639 --> 0:02:29.880 twice as Republican governor of Utah. He's now co chairman 0:02:30.160 --> 0:02:33.520 with Joe Lieberman of No Labels, a group trying to 0:02:33.639 --> 0:02:37.639 push a nonpartisan economic agenda. He's also chairman of the 0:02:37.680 --> 0:02:41.239 Atlantic Council, I think tank in d C. And let's 0:02:41.240 --> 0:02:45.239 not forget briefly ran for President. John. We really appreciate 0:02:45.280 --> 0:02:47.520 you being here. Thank you Dan's guard. It's a pleasure 0:02:47.520 --> 0:02:50.600 to be with you. John. I just described Trump's image 0:02:50.600 --> 0:02:53.919 of China, one that probably looms large in the minds 0:02:53.919 --> 0:02:57.600 of many Americans. You were there for two years as ambassador, 0:02:57.760 --> 0:03:01.799 visited there many times. UH have deep connections there. How 0:03:01.880 --> 0:03:05.440 much of that picture that Trump described as true? And 0:03:05.919 --> 0:03:09.399 if you're briefing him on China, what would you tell him? Well, 0:03:09.560 --> 0:03:12.640 I think you have to see China. Uh. First of all, 0:03:12.720 --> 0:03:15.400 let's recognize where we are. We're in the political season. 0:03:15.400 --> 0:03:19.600 We're ending one aspect of political season. We're about to 0:03:19.639 --> 0:03:23.640 start the governing aspects of presidential politics. While at the 0:03:23.680 --> 0:03:28.600 same time in China, you've also got a political dynamic 0:03:28.639 --> 0:03:31.280 playing out in the run up to the nineteenth Party Congress, 0:03:31.320 --> 0:03:33.520 which will take place about a year from now. Party 0:03:33.520 --> 0:03:36.560 congresses they have every five years and have since the 0:03:36.600 --> 0:03:40.760 death of Mantzedong in nineteen six. So the peculiarity here 0:03:40.920 --> 0:03:43.520 is that you've got politics playing out in the United 0:03:43.560 --> 0:03:47.200 States and we're about to begin a political season in China, 0:03:47.280 --> 0:03:50.000 and they're almost running into each other in the form 0:03:50.040 --> 0:03:52.600 of a head on collision, which means on both sides, 0:03:52.640 --> 0:03:57.080 we're going to hear most more nativist talk, more nationalistic talk. 0:03:57.280 --> 0:04:00.240 We're going to talk about closing markets, not opening them. 0:04:00.280 --> 0:04:02.880 We're going to hear more about saber rattling as opposed 0:04:02.920 --> 0:04:05.800 to collaboration. I think this is to be expected, But 0:04:05.880 --> 0:04:07.880 if I were to sit down with the President elect, 0:04:08.480 --> 0:04:10.800 I'd say, you have two ways to see China. You 0:04:10.800 --> 0:04:12.960 can see China through a fear of prism and you 0:04:13.000 --> 0:04:16.520 can you can articulate the U. S. China relationship through 0:04:16.600 --> 0:04:19.160 fear to the American people, which I think does it 0:04:19.440 --> 0:04:23.400 a disservice, Or you can articulated through a prism of 0:04:23.400 --> 0:04:26.760 of opportunity, which I think there is a lot of 0:04:26.880 --> 0:04:29.479 on both sides. But you have to carefully balance the 0:04:29.520 --> 0:04:31.880 two to be sure. You have to recognize that we 0:04:31.960 --> 0:04:35.279 have some irreconcilable differences. You can spend a lot of 0:04:35.320 --> 0:04:37.080 time talking about them, but in the end there are 0:04:37.080 --> 0:04:40.800 no easy solutions. But as we talk about those, don't 0:04:40.800 --> 0:04:43.720 forget that we're we're wasting a lot of time by 0:04:43.760 --> 0:04:47.880 not talking about areas of commonality and collaboration. Uh. And 0:04:47.960 --> 0:04:53.080 they include economic opportunities both on trade and investment, on 0:04:53.160 --> 0:04:57.680 intellectual property protection, on the advancement of technology, opening markets 0:04:57.720 --> 0:05:00.880 where they are closed, helping China and make its transition 0:05:00.920 --> 0:05:03.400 from the old investment led export model to more of 0:05:03.440 --> 0:05:06.600 a consumption model, which is very good for US exports 0:05:06.600 --> 0:05:08.880 longer term. And there are a lot of areas of 0:05:08.920 --> 0:05:13.680 commonality on the security side, notwithstanding our friction in the 0:05:13.680 --> 0:05:17.039 South China Sea in the East China Sea, let's not 0:05:17.120 --> 0:05:20.400 forget we have a common cause as it relates to 0:05:20.480 --> 0:05:24.360 counter terrorism. We both want to calm down the Middle East. 0:05:24.800 --> 0:05:26.719 We want to make sure that the supply and the 0:05:26.760 --> 0:05:31.000 trade routes are are protected for purposes of prosperity, and 0:05:31.040 --> 0:05:34.760 we want to be prepared for disaster relief. When disaster strikes, 0:05:34.760 --> 0:05:37.520 how we can go to the aid of those affected countries. 0:05:37.720 --> 0:05:40.680 So there's a lot to be done on the on 0:05:40.760 --> 0:05:42.919 the positive side of the ledger, but we have to 0:05:42.960 --> 0:05:46.120 manage the downside friction as well, which is never an 0:05:46.120 --> 0:05:50.720 easy thing. So is the politics driving the economics at 0:05:50.760 --> 0:05:54.560 this moment or is the economics driving the politics? Well, 0:05:54.560 --> 0:05:57.120 that's that's a very very good question. I would say 0:05:57.279 --> 0:06:00.920 politics are driving much of the economy x because there 0:06:01.120 --> 0:06:04.320 is evidence that economics are driving some of the fear 0:06:04.800 --> 0:06:07.880 uh and anxiety that people feel here in the United States. 0:06:08.520 --> 0:06:12.560 Uh So, I suspect we're going to see some early 0:06:12.839 --> 0:06:17.560 clashes in the in the Trump administration. He has said 0:06:17.560 --> 0:06:21.039 that he would cite China as a currency manipulator. So 0:06:21.200 --> 0:06:23.599 let's just say that he does that on day one, 0:06:23.680 --> 0:06:26.120 which he said he would do. That takes us to 0:06:26.200 --> 0:06:31.600 January twenty or one. The Treasury Department, which manages these issues, 0:06:31.640 --> 0:06:36.080 has a semi annual report to Congress on currency manipulating countries. 0:06:36.680 --> 0:06:39.760 The next one up is in April. So if this 0:06:39.880 --> 0:06:43.520 just plays out as as it might, you could have 0:06:43.640 --> 0:06:47.080 China deemed a currency manipulator, which is in words only. 0:06:47.600 --> 0:06:50.719 But I suspect there may be some appetite on Capitol Hill, 0:06:50.839 --> 0:06:54.039 given that you've got a new balance of power on 0:06:54.080 --> 0:06:57.560 the Republican side in Congress that might want to stand 0:06:57.600 --> 0:07:01.480 behind Donald Trump because it does play well politically back home. 0:07:01.640 --> 0:07:04.840 And there are reasons that China is not playing by 0:07:05.279 --> 0:07:09.279 the playbook that everyone agreed to, at least under the 0:07:09.480 --> 0:07:11.960 w t O as session documents back back in two 0:07:11.960 --> 0:07:15.200 thousand one. UH. And if China were or if if 0:07:15.240 --> 0:07:19.240 the US Congress were to slap sanctions onto a currency 0:07:19.320 --> 0:07:24.760 manipulation bill, you could have some early days that that 0:07:25.000 --> 0:07:28.280 would include some some back and forth on the economic side, 0:07:28.280 --> 0:07:30.760 because China with then retaliate, of course in kind, and 0:07:30.760 --> 0:07:32.880 then you'd see a spiraling out of control of the 0:07:32.920 --> 0:07:36.680 bilateral trade and economic relationship until some equilibrium was found 0:07:37.080 --> 0:07:39.400 a little bit like the Tires case early on in 0:07:39.440 --> 0:07:43.160 the Obama administration. The great irony of this, though, is 0:07:43.200 --> 0:07:46.560 if China is manipulating the currency now, it's to prevent 0:07:46.640 --> 0:07:50.600 it from weakening. Why would Donald Trump want a week 0:07:50.920 --> 0:07:53.440 you want, Well, this is where you've got to sit 0:07:53.480 --> 0:07:55.520 down with the economists and you you have to you 0:07:55.560 --> 0:07:58.920 have to get the real story. So are they purposefully 0:07:59.040 --> 0:08:03.400 manipulating the running b or is it taken down as 0:08:03.400 --> 0:08:07.560 a result of an economy that is performing poorly? UH? 0:08:07.560 --> 0:08:10.480 And capital outflows are they you know, so they're protecting 0:08:10.480 --> 0:08:12.680 their currency to the tune of maybe sixty to a 0:08:12.760 --> 0:08:15.640 hundred billion dollars a month and have been for many months, 0:08:16.040 --> 0:08:18.720 which has taken their their foreign exchange reserves from four 0:08:18.800 --> 0:08:21.760 drillion maybe down to three point one where it sits today. 0:08:21.840 --> 0:08:24.880 So I think these are emergency measures that the Chinese 0:08:24.880 --> 0:08:28.880 are taken, just taking just to keep the currency afloat, uh, 0:08:29.360 --> 0:08:34.000 not manipulating for purposes of cheap chief exports. So once 0:08:34.080 --> 0:08:38.000 the facts are on the table, uh, And that rarely 0:08:38.120 --> 0:08:40.320 is the case when you're in the middle of a campaign, 0:08:40.400 --> 0:08:42.160 But once you're president, you've got to take a look 0:08:42.160 --> 0:08:44.200 at the facts and then and then based policy on 0:08:44.240 --> 0:08:47.280 that you might have you might have a different outcome. Well, 0:08:47.320 --> 0:08:51.200 you have a Democratic Senate leader, Chuck Schumer, who who 0:08:51.240 --> 0:08:54.440 has been uh, you know, leading this issue for many 0:08:54.520 --> 0:08:58.680 years to call China currency manipulator. He has a kindred spirit, 0:08:58.720 --> 0:09:02.880 it seems now in President elect Trump. Is there anything 0:09:03.200 --> 0:09:04.760 I mean you say that maybe when they see the 0:09:04.760 --> 0:09:07.880 facts on the ground, they might they might halt. Is 0:09:07.920 --> 0:09:10.120 there anything to to really stop them now? Or do 0:09:10.120 --> 0:09:12.440 you think you know, we're really on the verge of 0:09:12.440 --> 0:09:15.400 of going down that route. I suspect there will be 0:09:16.280 --> 0:09:19.880 a fulfillment of Trump's promise to cite them as a 0:09:19.920 --> 0:09:22.920 currency manipulator. I think the question will then become, are 0:09:23.000 --> 0:09:28.040 their punitive sanctions that back up those words from Congress? Uh? 0:09:28.080 --> 0:09:31.720 And if there are, I think we're in for uh, 0:09:31.880 --> 0:09:35.560 you know, a wild ride economically in the first six months. 0:09:36.160 --> 0:09:39.200 So this is an example of a president of fulfilling 0:09:39.240 --> 0:09:41.360 their campaign promise, and I think the Chinese, on the 0:09:41.400 --> 0:09:44.400 other side, are are fully prepared for that. The question 0:09:44.440 --> 0:09:47.640 will be how do they then retaliate and does that 0:09:47.760 --> 0:09:50.680 cause a counter retaliation and then a spiraling out of 0:09:50.679 --> 0:09:55.480 control of the economic relationship, which UH makes it more 0:09:55.520 --> 0:09:59.199 difficult to invest to trade. There's a loss in confidence 0:09:59.240 --> 0:10:02.040 overall that we we wipe out a year or two 0:10:02.160 --> 0:10:05.520 of productive economic engagement. I think the first few months 0:10:05.559 --> 0:10:08.400 will really be telling well. And to be fair, Donald 0:10:08.440 --> 0:10:13.080 Trump was not the first presidential candidate to bash China 0:10:13.160 --> 0:10:17.440 on the campaign trial Bill Clinton famously referred to the 0:10:17.520 --> 0:10:21.680 butchers of Beijing. Yet if anything, the economic relationship with 0:10:21.760 --> 0:10:25.680 China became far more intimate under his administration. How do 0:10:25.720 --> 0:10:28.280 you see this shaking out in reality? Well, you can 0:10:28.320 --> 0:10:30.240 go all the way back to Ronald Reagan. I remember 0:10:30.280 --> 0:10:32.280 because I worked for him when he talked about moving 0:10:32.280 --> 0:10:35.000 our ambassador out of Beijing. Remember we we we had 0:10:35.000 --> 0:10:37.800 the fulfillment of the Shanghai community in nineteen seventy nine 0:10:37.840 --> 0:10:41.080 under Jimmy Carter, our ambassador went from Taipei to Beijing. 0:10:41.559 --> 0:10:45.040 Ronald Reagan talked about bringing him back to Taibei uh 0:10:45.080 --> 0:10:47.200 and then made a famous trip. I was on that 0:10:47.240 --> 0:10:48.840 trip with him as part of the staff in the 0:10:48.840 --> 0:10:52.360 early nineteen eighties and spoke to a billion Chinese people 0:10:52.400 --> 0:10:56.679 on live television and had warm discussions with Dung Hiao 0:10:56.760 --> 0:10:58.480 Ping and some of the other early leaders where they 0:10:58.480 --> 0:11:01.040 talked about most favored nations, aid that they talked about 0:11:01.080 --> 0:11:03.760 non proliferation. You never would have guessed that in the 0:11:03.800 --> 0:11:07.079 heat of the nineteen eighty campaign, and the same U 0:11:07.160 --> 0:11:09.600 site with Bill Clinton, and the list goes on and 0:11:09.640 --> 0:11:12.199 on and on. So the governing aspects of the U. S. 0:11:12.320 --> 0:11:15.120 China relationship are are a lot different than the campaign 0:11:15.200 --> 0:11:18.640 aspects of the U. S. China relationship. So once in office, 0:11:18.679 --> 0:11:21.320 you have to look at your stakes, your equities UH 0:11:21.320 --> 0:11:23.880 and and how you can manage what clearly is the 0:11:23.880 --> 0:11:26.640 most important relationship of the twenty century. Now, now you 0:11:26.679 --> 0:11:29.320 might be a little biased on this question, but how 0:11:29.360 --> 0:11:32.760 much does it matter who President elect picks as his 0:11:32.840 --> 0:11:36.960 ambassador to China, And how important is the ambassador's role 0:11:37.040 --> 0:11:41.200 in managing that relationship compared with say the president or 0:11:41.240 --> 0:11:45.040 the Secretary of State or the Treasury secretary. I think 0:11:45.080 --> 0:11:47.800 the and I am a little bit biased having served 0:11:47.800 --> 0:11:52.080 in that position, I think the ambassador in Beijing is 0:11:52.200 --> 0:11:56.840 disproportionately important because the part of the role is to 0:11:56.920 --> 0:12:00.720 explain the U S system to Chinese leaders, to party 0:12:00.800 --> 0:12:05.800 leaders who oftentimes are very confused about how we do business. Uh. 0:12:05.840 --> 0:12:08.400 And then on the flip side, it's too explain to 0:12:08.480 --> 0:12:11.920 senior leaders in the US government how the Chinese side 0:12:11.960 --> 0:12:14.920 works and how through it all we can actually come 0:12:15.000 --> 0:12:18.719 up with with a strategy, bilateral strategy to get a 0:12:18.760 --> 0:12:21.800 few things done. Because the stakes are so high on 0:12:21.840 --> 0:12:24.719 both sides, and because both are members of the U 0:12:24.880 --> 0:12:27.720 N Security Council, both are nuclear armed, We've got the 0:12:27.800 --> 0:12:31.199 two largest economies on the face of the earth, growing 0:12:31.280 --> 0:12:35.160 numbers of disputes. It's ever important to have an ambassador 0:12:35.240 --> 0:12:39.280 who can carry messages back and forth. But in the end, 0:12:39.440 --> 0:12:43.360 let's face it, it really will depend on how much 0:12:43.960 --> 0:12:47.120 skin the president wants to put in the game. So 0:12:47.280 --> 0:12:49.360 if you want to just sort of manage the downside 0:12:50.080 --> 0:12:53.520 without any sense of building the upside capacity, you can 0:12:53.559 --> 0:12:56.840 do that. You can sort of manage downside friction and 0:12:56.920 --> 0:12:59.360 risks and all of that, but you lose the upside 0:12:59.360 --> 0:13:03.199 potential of the relationship. We haven't had in quite some time. 0:13:03.920 --> 0:13:06.120 Uh And I would say Richard Nixon tried to do 0:13:06.160 --> 0:13:12.000 this when he kicked off the relationship shortly after is 0:13:12.040 --> 0:13:16.000 managing a true strategic dialogue which takes a little bit 0:13:16.000 --> 0:13:18.560 of what the Chinese want and what the United States want. 0:13:19.559 --> 0:13:22.320 But it's sort of countercultural for us because we're short 0:13:22.440 --> 0:13:26.680 term thinkers, were more transactional. We negotiate in ways that 0:13:26.720 --> 0:13:30.000 achieve a certain defined outcome. The Chinese, on the other hand, 0:13:30.080 --> 0:13:33.440 want to think in terms of forty years. Uh. And 0:13:33.960 --> 0:13:36.600 we haven't been able to really strike a long term 0:13:36.640 --> 0:13:41.000 strategic relationship that spell out our goals over a long 0:13:41.080 --> 0:13:45.079 period of time. And I would advocate for any incoming 0:13:45.600 --> 0:13:49.360 president of the United States to build a strategy visa 0:13:49.360 --> 0:13:52.520 of Eachina that serves US interests, that brings on a 0:13:52.559 --> 0:13:57.520 bilateral basis problem solvers together in State Department, Treasury, Commerce, 0:13:57.880 --> 0:14:00.960 Defense Department in ways that do more than just talk 0:14:01.040 --> 0:14:03.640 about the tactical, but are able to engage in more 0:14:03.640 --> 0:14:06.240 of the strategic. Just going back to your time on 0:14:06.320 --> 0:14:09.720 White House staff in the eighties again, does this sound 0:14:09.800 --> 0:14:13.240 like the white people talked about the US Japan relationship 0:14:13.400 --> 0:14:16.840 back in the eighties in the early nineties in terms 0:14:16.920 --> 0:14:21.880 of economic mercantilism. Yes, because I was also in a 0:14:21.960 --> 0:14:26.480 trade position in the eighties which brought me in contact 0:14:26.960 --> 0:14:31.160 with Japan UH, and we had the structural impediments initiative, 0:14:31.680 --> 0:14:34.480 you know, we had all kinds of concerns about their 0:14:34.520 --> 0:14:39.720 mercantilistic behavior and activity, only to find and tremendous levels 0:14:39.720 --> 0:14:42.840 of investments coming in the United into the United States, 0:14:42.880 --> 0:14:46.240 buying a lot of trophy UH investments that are well 0:14:46.240 --> 0:14:49.160 known by by most of your listeners, H. And that 0:14:49.240 --> 0:14:51.920 all came to an end, and the structural efficiencies were 0:14:51.920 --> 0:14:56.480 never adequately addressed in Japanese policy making, and they still 0:14:56.480 --> 0:14:59.520 exist today. I would say in the case of China, 0:14:59.680 --> 0:15:05.080 it is a more resilient economy, it's mercantilistic today. One 0:15:05.080 --> 0:15:08.240 of the big problems is You've got state owned enterprises 0:15:08.280 --> 0:15:10.800 a hundred and fifty thousand of them that have not 0:15:10.920 --> 0:15:16.560 been touched, that have gone beyond being reformed. Some of 0:15:16.600 --> 0:15:18.600 them have been built up in recent years as a 0:15:18.640 --> 0:15:24.640 matter of fact, and they are backwaters of of inefficiencies. UH. 0:15:24.680 --> 0:15:30.440 Sweetheart contracts for princeling UH, princeling members of Chinese society. 0:15:30.480 --> 0:15:34.040 They get discounted capital, they get cheaper raw materials, and 0:15:34.080 --> 0:15:39.720 they basically engage in nationalistic business practices, and no one 0:15:39.720 --> 0:15:42.840 has had the political will to take them on UH. 0:15:42.880 --> 0:15:45.480 And I suspect that if if the third plan of 0:15:45.600 --> 0:15:49.600 reforms that Chi Jinping talked about after the last Party Congress, 0:15:49.680 --> 0:15:53.840 the eighteenth Party Congress, in if thet or if the 0:15:53.880 --> 0:15:56.640 third plan of reforms which were talked about in the 0:15:56.720 --> 0:15:59.640 end of twenty are to come to fruition which really 0:15:59.680 --> 0:16:02.520 get to the heart and soul of cleaning up the system, 0:16:02.560 --> 0:16:04.480 the state owned enterprises are going to have to be 0:16:05.160 --> 0:16:11.040 dealt with realistically, brought down, bankrupted, a new debt market 0:16:11.160 --> 0:16:14.320 established in order to accommodate some of the inefficiencies. If 0:16:14.440 --> 0:16:16.520 if that isn't done, I think the Chinese economy is 0:16:16.560 --> 0:16:20.160 in for long term serious problems. Japan never dealt with 0:16:20.200 --> 0:16:22.720 those inefficiencies, and we're seeing what what what that is 0:16:22.880 --> 0:16:25.360 brought about. I was there three years ago for those 0:16:25.560 --> 0:16:28.080 the announcement of those Third Plenum reforms, and we're still 0:16:28.160 --> 0:16:33.120 waiting for some of them to to be implemented. Let's 0:16:33.320 --> 0:16:35.720 leave that thought there and take a quick break for 0:16:35.760 --> 0:16:48.280 a word from our sponsor. Will be right back. Brought 0:16:48.320 --> 0:16:51.040 to you by Bank of America. Meryll Lynch. Seeing what 0:16:51.080 --> 0:16:54.200 others have seen, but uncovering what others may not. Global 0:16:54.240 --> 0:16:57.880 research that helps you harness disruption voted top global research 0:16:57.960 --> 0:17:01.920 from five years running. Mary Lynch, Pierce, Venner and Smith Incorporated. 0:17:10.160 --> 0:17:15.159 And we're back John. Let's turn to China's so called elections, 0:17:14.920 --> 0:17:17.399 that's the word they use. But at all levels the 0:17:17.480 --> 0:17:20.800 candidates are picked by the Communist Party, so anyone who 0:17:20.920 --> 0:17:24.400 votes doesn't actually have a choice of candidates. We don't 0:17:24.400 --> 0:17:26.760 get to see the kinds of deals and machinations that 0:17:26.840 --> 0:17:30.240 happened behind the scenes that they do to choose the 0:17:30.320 --> 0:17:33.000 leaders all the way up to the top level. And 0:17:33.080 --> 0:17:35.040 yet when you take a long view of it, this 0:17:35.160 --> 0:17:38.880 authoritarian system has lifted hundreds of millions of people out 0:17:38.920 --> 0:17:42.320 of poverty, kept the economy growing at a relatively rapid 0:17:42.400 --> 0:17:46.520 pace and made China into a global power. They like 0:17:46.640 --> 0:17:49.520 to criticize the way democracy works in the US and 0:17:49.600 --> 0:17:53.880 other Western nations. Is there any merit in their viewpoint? Well, 0:17:53.920 --> 0:17:56.560 I would also say they achieved that success through doing 0:17:56.600 --> 0:17:59.240 it the old fashioned way and the and the easy way, 0:17:59.440 --> 0:18:02.159 which is bad your currency, drawing on cheap labor, and 0:18:02.240 --> 0:18:05.160 exporting products to the major markets of the world while 0:18:05.240 --> 0:18:09.240 keeping your own domestic markets relatively locked up. Uh. And 0:18:09.280 --> 0:18:12.040 now they're hitting the middle income trap, which is causing 0:18:12.080 --> 0:18:14.600 a new reality for them. They have to transition into 0:18:14.640 --> 0:18:17.720 a consumption model in order for their economy to prosper 0:18:18.040 --> 0:18:20.680 longer term and for and for people to move more 0:18:20.720 --> 0:18:25.600 into the middle income categories into the middle class. So 0:18:25.880 --> 0:18:28.119 I see coming with that a lot of opportunities for 0:18:28.160 --> 0:18:31.879 the United States. I see more more purchasing power on 0:18:31.920 --> 0:18:34.840 the part of a consumer class. It will be hundreds 0:18:34.880 --> 0:18:37.440 of millions strong, which is great for US exports. The 0:18:37.520 --> 0:18:41.040 Chinese love to buy US products where they're available, and 0:18:41.040 --> 0:18:43.880 I think increasingly will find more and more opportunity there. 0:18:44.359 --> 0:18:46.480 And I think on the investment side, will see more 0:18:46.680 --> 0:18:48.960 in the way of Chinese investment here in the United 0:18:49.000 --> 0:18:52.040 States that will run more in parallel with US investment 0:18:52.119 --> 0:18:55.359 in China. We're already seeing evidence of that, and the 0:18:55.359 --> 0:18:59.320 political implications, of course, will be fairly profound domestically, as 0:18:59.560 --> 0:19:01.560 Jen Ping pries to keep hold of a one party 0:19:01.600 --> 0:19:03.840 system which doesn't want to be a one party system. 0:19:04.160 --> 0:19:07.360 Let's talk about that shift to consumption for a moment. 0:19:08.200 --> 0:19:13.240 Do you feel that, uh, the shift away from exports 0:19:13.240 --> 0:19:17.000 and fixed usset investment to service as a consumption. Do 0:19:17.040 --> 0:19:20.320 you think that is broadly understood in the United States? 0:19:20.880 --> 0:19:24.600 In otherwise it's not your grandfather's Chinese economy anymore. No, No, 0:19:25.200 --> 0:19:28.920 it isn't, um, and I don't think it's it's largely understood. 0:19:29.000 --> 0:19:31.600 I think we're we still see China through a prism 0:19:31.680 --> 0:19:34.960 that has maybe dated by twenty years. We're not looking 0:19:35.000 --> 0:19:38.880 at online purchases, which if you so, don't look at 0:19:39.200 --> 0:19:45.000 inventories of steel and coal and aluminum, which are off 0:19:45.040 --> 0:19:48.840 the charts high um that that's not a good leading 0:19:48.880 --> 0:19:51.680 indicator of where China's economy is going. It's where it's been. 0:19:52.840 --> 0:19:57.119 The leading indicators really are our online sales. Look at 0:19:57.160 --> 0:20:01.439 travel and tourism, look at airline seats, being purchased. UH. 0:20:01.640 --> 0:20:06.280 Look at outbound tourism. UH. Look at legal and architectural services, 0:20:06.359 --> 0:20:09.800 look at education and healthcare services. There's a lot going 0:20:09.840 --> 0:20:12.800 on behind the scenes. And what is exciting for me 0:20:12.920 --> 0:20:15.679 is the United States does extremely well in many of 0:20:15.680 --> 0:20:19.119 these service related areas. And once the markets are more 0:20:19.119 --> 0:20:22.000 and more open, UH, and we're able to define the 0:20:22.080 --> 0:20:24.440 China of the twenty century as opposed to the late 0:20:25.119 --> 0:20:27.480 twentieth century, I think we'll have more in the way 0:20:27.520 --> 0:20:30.320 of opportunities. So it would be ironic if we got 0:20:30.320 --> 0:20:33.600 into a trade wall with China based on a part 0:20:33.600 --> 0:20:37.920 of the Chinese economy that effectively is over. Anyway is 0:20:37.960 --> 0:20:41.959 effective is effectively over. As a matter of fact, you know, 0:20:42.040 --> 0:20:45.320 the bloom is off the rose from a manufacturing standpoint, 0:20:45.359 --> 0:20:50.560 that the golden days are are gone. China's labor rates 0:20:50.600 --> 0:20:53.520 are are are on the on the rise. You've got 0:20:53.520 --> 0:20:57.159 more people leaving the workforce than entering the workforce. By 0:20:57.240 --> 0:21:00.840 they could be deficit twenty million workers. UH. And who's 0:21:00.840 --> 0:21:04.800 picking it up. We'll take a look south into Vietnam, India, 0:21:05.119 --> 0:21:09.639 Bangladesh and beyond. Uh. So China is fundamentally entering a 0:21:09.680 --> 0:21:12.959 new playing field. From an economic standpoint, and we do 0:21:13.000 --> 0:21:16.760 ourselves a disservice by not identifying properly where they're going 0:21:16.840 --> 0:21:20.680 and what therefore the opportunities are for US investors and traders. 0:21:20.760 --> 0:21:26.280 Why isn't that breaking through? Well, remember Dan that we're 0:21:26.320 --> 0:21:28.679 still in a political season. And when you're in a 0:21:28.680 --> 0:21:32.280 political season, you don't talk by way of opportunities, you 0:21:32.320 --> 0:21:34.960 talk by way of fear. UH. And when you talk 0:21:35.040 --> 0:21:37.520 by way of fear, you talk about deficits, You talk 0:21:37.560 --> 0:21:41.119 about threats, you talk about foreign investment that is taking 0:21:41.119 --> 0:21:44.399 away jobs. You talk about UH saber rattling on the 0:21:44.440 --> 0:21:47.679 security side. So now that we're beyond that, it'll be 0:21:47.760 --> 0:21:50.960 very interesting to see if President elect Trump is able 0:21:50.960 --> 0:21:53.399 to take the U S. China relationship and sort it 0:21:53.480 --> 0:21:57.560 out into something that represents less fear and more opportunity 0:21:58.000 --> 0:22:01.600 for job creation here in the euided States, US export 0:22:01.640 --> 0:22:05.159 potential UH IN and overall economic relationship that of course 0:22:05.280 --> 0:22:09.000 is going to be UH riddled with challenges and problems, 0:22:09.080 --> 0:22:13.760 but also there will be plenty of opportunities. Talking about 0:22:13.800 --> 0:22:17.719 the current political situation in the United States and turning 0:22:18.080 --> 0:22:20.040 away from China, we can we can't let you go 0:22:20.119 --> 0:22:23.560 without asking a few questions about what's going on here 0:22:23.640 --> 0:22:27.000 right now. And one of the major stories in the 0:22:27.000 --> 0:22:32.040 news is whether Mr Trump will pick Romney, your fellow 0:22:32.119 --> 0:22:36.639 former Utah governor, as UH Secretary of State. How do 0:22:36.680 --> 0:22:39.359 you think Governor Romney would do as as a secretary 0:22:39.359 --> 0:22:42.639 of State. Well, it's not even worth my speculating on 0:22:42.680 --> 0:22:48.879 any potential candidates. I think President elect Trump has a 0:22:48.880 --> 0:22:51.199 pretty good sense of where he wants to take the world. 0:22:51.840 --> 0:22:54.160 I think it will be important to have people who 0:22:54.240 --> 0:22:58.200 are of common mind as they see where he wants 0:22:58.240 --> 0:23:03.080 to go. Clearly, were some international affairs foreign policy themes 0:23:03.119 --> 0:23:06.240 that came through in the campaign, and they included, Uh, 0:23:06.400 --> 0:23:08.919 the Middle East, We've been there too long, there's too 0:23:09.000 --> 0:23:11.680 much of an overhang, something that's got to be addressed. 0:23:12.359 --> 0:23:17.040 Trade was prominent, which is a big foreign policy issue, uh, 0:23:17.080 --> 0:23:19.560 And that was we've got to get trade agreements that 0:23:19.560 --> 0:23:23.159 are they're fair to American workers. And immigration was the 0:23:23.280 --> 0:23:26.520 third big area that is a foreign policy issue. So 0:23:26.920 --> 0:23:29.000 I suspect that if these three areas are going to 0:23:29.080 --> 0:23:32.760 be prominent in in the early days of a Trump administration, 0:23:32.800 --> 0:23:35.120 he's got to have people around him who were fluent 0:23:35.200 --> 0:23:38.320