The United States, Japan, and the Rise of China

U.S.-Japan Symposium: The United States, Japan, and the Rise of China

Elizabeth C. Economy

C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations

Shiraishi Takashi

President, National Graduate Institute for Policy Studies (GRIPS); President, Institute of Developing Economies-JETRO

Sheila A. Smith

Senior Fellow for Japan Studies, Council on Foreign Relations


Experts discuss the rise of China and the U.S.-Japan alliance.

This symposium is held in collaboration with CFR’s Japan Studies program.


SMITH: So welcome, ladies and gentlemen, to the second panel in our day-long discussion of the U.S. and Japan in Asia. I am delighted to preside over this panel with two experts that you know well.

To my immediate left is Professor Shiraishi Takashi. He is the president of the National Graduate Institute for Policy Studies in Tokyo and also the president of the Institute for Developing Economies, sponsored by JETRO. To his left, you all know well, is Elizabeth Economy. Liz is the C.V. Starr Senior Fellow and director for Asia Studies here at the Council on Foreign Relations.

I want to remind our audience that this is on the record, that we are live-streaming this event, so it is not a not-for-attribution meeting but it is, in fact, being broadcast around the globe to members not only in the United States but in other parts of the world. So welcome.

This is a conversation that we’re going to have about Japan and the United States and Asia. We labeled it “Japan, the United States and a Rising China,” but I think we all know that this is not just a conversation about China; it’s really a conversation about how the region is adjusting to this transformation of power—economic, military power—in the region, but also just how the United States and Japan are going to position themselves in this emerging Asia.

I just returned—as I said in the introduction, I’ve just returned from a trip to Beijing and Tokyo, and I was—in some senses I was delighted to see that the Japan-China relationship is better than it was this time last year. There has been numerous meetings between Xi Jinping and Prime Minister Abe. In the government-to-government relationship now there is more traction.

There is a discussion on risk reduction mechanisms in the East China Sea, and business leaders—Japanese business leaders have spent—invested some time going to China, re-opening conversations about their role in the Chinese economy. At the end of this month I think you’ll see a large delegation of Keidanren and Japanese Shokokai—so the Japanese Industrial Association leaders—going to China.

So it’s an interesting time for Japan. And so I thought maybe, Takashi, we’d start with you. If you could give us a sense of where the Japan-China relationship is at the moment.

SHIRAISHI: I think you put it very right. I mean, probably the worst is over, especially since Mr. Abe met with President Xi Jinping in Indonesia in late April this year. People, especially as the operational level, are meeting.

And let me give you one anecdote. I mean, my university has—used to have an MOU with Central Party School. And of course, you know, I mean, I don’t see the president, who is Xi Jinping, but rather vice president regularly. But in 2013, MOU expired and I got in touch with my counterpart and asked, you know, what to do. He told me we should wait, and then they came back to me right after Xi Jinping met with Mr. Abe in April. And so we have started to discuss MOU again.

So, I mean, this clearly shows that Chinese counterparts are also very happy in waiting for this sign to come out. And so getting better but I wouldn’t say that it will be wonderful.

SMITH: Not there yet. (Laughter.)

You and I were talking before the panel about this is the year of history in Asia. Of course, this was the 70th anniversary of the end of World War II, and there were commemorations, and August 15th of course Prime Minister Abe made his statement. And then early September—

SHIRAISHI: Fourteenth.

SMITH: —on the 14th but for the 15th. And then in early September of course Xi Jinping held his commemoration, accompanied by a military parade. Do you think we’re over a little bit of the hump of this history, kind of dueling narratives on history by Japan and China, or how would you assess that as part of the relationship?

SHIRAISHI: Probably it will stay. I mean, the history question will stay for many, many years to come, but at least China’s reaction to Mr. Abe’s statement in August was, I would say, muted. I mean, actually until shortly after that Mr. Abe himself wondered whether he should attend—I mean visit China and see Xi Jinping either before—right after the celebration.

So, I mean, to that extent, I mean, they have started to talk with each other. I mean, for now if some of the Japanese politicians, especially from Mr. Abe’s inner circle, make—if they don’t make any stupid mistakes, hopefully, you know, this will be sort of muted for quite some time.

SMITH: Yeah. When do you expect them to meet next?

SHIRAISHI: I think in—I mean, actually they have agreed to meet in Korea in early November, and then they will meet again over ASEAN Plus—I mean East Asia Summit and so on. So at least they will see the—I mean, each other twice in November.

SMITH: So, Liz, speaking of summitry, we just had a visit from Xi Jinping in Washington. I was sitting in Washington. And then it got slightly overshadowed by the pope, but it was a pretty significant meeting. How do you analyze that particular meeting and in the larger context of U.S.-PRC relations?

ECONOMY: I would say here in New York it was completely overshadowed by the pope. (Laughter.) Nobody paid any attention. Xi Jinping could have, you know, just as well not have visited at all.

You know, I think, to put a positive spin on it I would say that the visit was better than expected. I think, given the political atmosphere at the time that Xi Jinping came—you know, if you remember, we were in the midst of talking about sanctioning China for, you know, the cyber, you know, economic espionage. China was in the midst of its reef reclamations in the South China Sea. We were concerned about that.

There was, you know, uncertainty about the direction of Chinese economic reform given what had just happened with the stock market and the devaluation. You know, and of course there was the draft NGO issue as well, the NGO law that China’s in the midst of considering that would really hamper people-to-people exchanges, right, the ability of civil society organizations on both sides to work together to collaborate.

So there was a lot of sort of negative tension, I think, in the political atmosphere here. On the Chinese side—I happened to be in Beijing over Labor Day weekend for a meeting. There was a completely different set of expectations. You know, there people were asking, you know, what can we do to make this visit as good as the visit of Deng Xiaoping to the United States? And the American side was like, oh yeah, do you have any idea what the discourse is like in the United States? That is simply not going to happen.

But they came with an idea of really selling Xi Jinping, a sort of kinder, gentler version of Xi Jinping. And I think he did a reasonable job out in Seattle. But, you know, we now have three years of Xi Jinping as general secretary of the Communist Party, and so he’s on his track record. I don’t think there’s an ability of him to sort of change the way he’s perceived simply by making some nice cultural references in the middle of a speech.

But, you know, on the positive side, I think we did sign an agreement on the cyber economic espionage issue, not that apparently it’s sticking since already I guess there are seven cases now that have been tracked since the agreement was signed. We’ve agreed to work together in Africa on joint development issues. The climate change pledge by China, you know, on paper is significant. We’ll have to wait to see whether it comes to fruition. So I think, you know, again there are some positive—positives out the meeting.

SMITH: I’m going to ask both of you about the longer-term trajectory of both countries’ relationships with China, but let’s get the maritime and South China Sea issue out first.

So the United States—I was in Tokyo, and even in the meeting, which was a trilateral meeting of Japanese, Chinese and Americans in Beijing, there was a lot of—the Japanese team was pretty critical of the United States for not doing freedom of navigation operations earlier, and that was the prevalent opinion that I’ve been hearing from Tokyo for a long time.

So, Liz, we did it. Do you think it matters? Why does it matter? What’s going to happen next? What do you think about it in terms of the Chinese reaction?

ECONOMY: Well, of course it matters. Better late than never, right, so let’s start from that point.

And, look, one of the, you know, essential elements of our pivot or rebalance to Asia, you know, was our pledge to shift 60 percent of our, you know, naval and Air Force assets to the region and to be a presence—to be a forward presence in terms of freedom of navigation.

So, you know, we have to make that point, I think, to the Chinese. And, you know, we hadn’t done it, you know, whether simply hadn’t focused on it or didn’t want to irritate the Chinese, I think, but it was clear that the Chinese really began to believe that if there’s no push back they’re simply going to keep extending and expanding their sort of—you know, moving from what you might call staking their claims in the South China Sea to actually realizing them. So I think it was absolutely important that we do this.

I think it’s important that we also, you know, start sailing within the 12 nautical mile zone of other countries, like Vietnam and the Philippines, that have also undertaken this kind of reef reclamation activity, and that we, you know, consider doing it jointly with other countries.

And, you know, I think one of the great things that’s emerged over the past few years within the South China Sea is that it’s not all about the United States and China, that you now have Japan, you know, having relations with India and Vietnam and Australia, and all these countries starting to form their own if not formal defense alliances at least having very serious discussions, undertaking some military exercises.

And I think that’s an important way to change the dynamic and to reduce—in some ways to reduce the tension between the United States and China and to take away from China that narrative that this is all about the U.S. and the U.S. is causing this by its pivot and rebalance. It’s emboldening the other, you know, powers in the region. So I think that this was an important first step but it needs to be followed up by similar actions.

SMITH: Takashi, when I was in Tokyo I was—somebody said to me—one of your senior government leaders said to me, what the United States and Japan need to do is remove the opportunities for China, and we have to be very careful in thinking about how we do that together; in other words, opportunities for China to push at us. We just have to close doors and close opportunities the best we can. Is that how you see the situation in the South China Sea or do you see—

SHIRAISHI: Well, not exactly. I mean, actually I don’t expect the Chinese government to back down from building islands as well as, you know, building airfields and so on. But at the same time, we very much welcome American action, recent, in freedom of navigation. But what we are looking at is the next step China might take, I mean, especially whether they are going to build—I mean, build a new island, so to speak, in Scarborough area, and build airfields and so on.

And so if they go into that, I mean, operation, then, you know, the tension will heighten once again. But if China refrains from doing that, then I expect the kind of, you know, I mean, American operation becoming kind of a ritual, just like Chinese, you know, sending ships to Senkaku Islands. And they regularly send to islands, and Japanese coast guard also, you know, I mean, counters their move, but that is already ritualized. And they try to make sure nothing untoward would happen. And so the best probably we can expect for now is this what I will call ritualization, but it very much depends on what Chinese government is going to do in Scarborough area.

SMITH: Yeah. Let me ask you, since you raised the East China Sea, that there does seem to be an acknowledgment that—the ritualized behavior, and there’s some predictability in it. But the balance of forces, looking forward, are going to shift a little bit. China is deploying a lot more coast guard vessels.

SHIRAISHI: Oh, yeah, yeah.

SMITH: It has that big, very fancy—almost looks like a destroyer coast guard vessel that’s now out and about. Do you think—how is Japan going to respond to that, or how should Japan respond to that?

SHIRAISHI: I think the Japanese government has to build more coast guard ships, obviously. (Laughter.)

SMITH: Yeah.

SHIRAISHI: Also, I mean—I mean, actually we fully understand the East Asia—East China Sea and South China Sea are, in many different ways, connected. And therefore, I mean, probably one thing the United States and Japan can do is provide more sort of surveillance capability to ASEAN countries, as well as hopefully to provide technical support for building bigger patrol ships, for example Vietnam, Philippines and so on. There are certain things we can do together.

SMITH: Right. Japan’s also relaxed it defense technology exports, right?

SHIRAISHI: Yeah, yeah, yeah.

SMITH: And we are going to watch and see, for example, the conversation with Australia ongoing for the purchase of Japanese submarines.


SMITH: But there’s other things in the pipeline that may also be a little bit more of a military nature in terms of the Southeast Asian states’ desire—

SHIRAISHI: Yeah, yeah, yeah.

SMITH: —for interaction with Japan. So it’s still an open—

SHIRAISHI: Yeah, yeah.

SMITH: —an open area for the Japanese to move forward.

Liz, just to move out of the maritime issue for just a second and think about the broader trajectory of U.S.-China relations, when you look ahead—not just summit to summit or next month or the month after—what do you see as our biggest challenges and where do you see the opportunity for us to either work with Japan or work with others in the region to manage these challenges?

ECONOMY: I think, you know, the U.S.-China bilateral relationship has sort of moved into three buckets of issues, as I see it, and the first has to do with, I think, the uncertain trajectory of what’s taken place within China, right? And so, you know, what’s happening in terms of its domestic political reform and its economic reform, and what opportunities and challenges, you know, does this process, you know, present for the U.S. and for others, I think.

And so I’m perhaps not as sanguine as the first panel about the future of Chinese economic reform. I don’t think they have it all sort of managed well. And I think the issue, you know, again, with the stock market crash but also, you know, SOE, the state-owned enterprise reform guidelines that came out were not nearly as significant, I think, as many people here hoped. A lot of regulations have been coming out of the pipeline from this Chinese government that seem to hinder, right, or to constrain the sort of level of competition that the Chinese government seems willing to entertain for Chinese business for multinationals.

So on the economic reform front, I think even more than just thinking about whether it’s going to be a 6.5 percent growth rate or a 5 percent growth rate, it’s really about how committed is Xi Jinping to that phrase, you know, market is the decisive, you know, force within the Chinese economy? I think that’s an open question. It has yet to be resolved.

I think on the political front, two things have been moving in a negative direction in terms of the U.S.-China relationship. And I think, again, going back to the draft NGO law, sort of the idea that everything is related to hostile foreign forces, that somehow everything that takes place in the country has to do with the U.S. or others trying to cause problems for China. I think these, again, are—this makes a difficult sort of bilateral relationship, I think, in the Asia-Pacific, again, challenges.

You know, I’ll be upfront and think that—and say that I think that China is really trying to supplant the United States as the regional hegemon. Not everybody agrees with me, but I see this as very much, you know, looking at China first developing, you know, new institutions, some of which were discussed again in the first panel, like the AIIB, but others, talking about a security architecture that would not involve the United States.

One Belt, One Road, you know, is a very massive plan, right, for infrastructure development and financial integration which would link, you know, China to the rest of Asia through the Middle East and Europe, again in some respects excluding the United States—not that I think that’s the sole purpose, but I think that effectively it may act to do that.

And then finally, again, in the security realm, right, China, you know, moving within the South China Sea, the East China Sea. And there even have been Chinese scholars who say that one element of the new relationship among major powers, right—this is supposed to be the great proposal from the Chinese government of a new era of amity between the United States and China, but talking about how that depends on, in fact, the United States basically ceding a sphere of influence to China within the Asia-Pacific. So I see the Asia-Pacific as an area where there’s going to continue to be a lot of tensions.

And then finally, on the positive note I will say the third bucket really is the area of global challenges. And here I think we’ve had some success. I think there’s the opportunity to leverage what I see as Xi Jinping’s ambition, both for himself and for the country, to be a global leader, to be a—you know, a player on the global stage in a way that was not true for Hu Jintao or previous Chinese leaders.

And, you know, China stepped up to the plate on climate change, on Ebola, with a little bit of urging from the United States. They moved from a pretty small level of assistance to a pretty significant one, again thinking about this development effort in Africa. So I think, you know, China is a norm-setter. It has a lot of potential. There will be some conflict but there is some potential for cooperation.

SMITH: All right, thank you.

Takashi, I wonder—sometimes when I sit in meetings with Japanese and American experts on China we have a very slightly different lens through which we evaluate China’s future. So Liz began with some of the domestic challenges that China faces. How do you see China’s future and how would you suggest that that links it—how does that link to the Japan-China relationship? Do you see a fragile China? Do you see a strong, concerted China? Do you see a mix of both or—

SHIRAISHI: Well, I mean, of course—before responding directly to your question I will say of course distance matters.

SMITH: Yeah.

SHIRAISHI: I mean, China is just in front of us, in a sense, and that makes perception of many people about China quite different from American perception. Having said that, I mean, I would say that Xi Jinping has consolidated his power, and probably two years down the road when the new leadership is elected probably there are more people who are Xi Jinping allies than three years—I mean than we thought three years ago.

So in that sense Xi Jinping is strong and probably will remain pretty strong for the coming seven years. But at the same time, his talk about his China dream makes us a bit nervous because certainly China dream is different from American dream. I mean, we can share American dream as Japanese dream, but China dreams there is no space for—

SMITH: Yeah.

SHIRAISHI: —for example, Japan, and that actually makes it very difficult. And therefore, on the one hand, we certainly understand the need to engage China and find areas in which we collaborate with Chinese. I mean, for example, environment and so on. Certainly there are a lot we can do. At the same time, we want to make sure that they wouldn’t be in the position replacing Americans and, you know, I mean, calling the shots in the region.

SMITH: What do you think the impact is on multilateralism in the region? You’ve written quite a bit about ASEAN-based multilateralism and how Asia—the Asia-Pacific multilateralism has developed. It seems to me that this new China puts a significant weight on existing multilateral institutions in the region. Do you agree with—

SHIRAISHI: Yeah, I mean—well, in a sense, I mean, if we look at, for example, the South China Sea again, I mean, what China is doing is, in a sense, imposing its own domestic law onto its neighbors, right? And so in that sense, you know, the way of—their way of doing rulemaking is quite in peril.

And while, you know—I mean, for example TPP, it’s multilateral, you know. So in a sense what is at issue is how to make a rule in the region. I mean, that is an issue. And probably we need Chinese—I mean, we need to make sure Chinese understand that the way they are trying to impose order is not something acceptable. That is number one.

Number two, if you look at, again, I mean, ASEAN, I mean, in 2012, I mean, ASEAN basically persuaded, or purchased, Cambodian government, you know, to make sure that the foreign minister’s statement wouldn’t be issued on South China Sea.

SMITH: You mean China—

SHIRAISHI: Yeah, yeah, and therefore, I mean, sort of undermined ASEAN unity and so on. And long term, I think, you know, it is not the right move because ASEAN Plus processes are quite useful for region building, not only for, you know, United States and Japan but also for China. So I think, you know, they are a bit short-sighted about this issue.

SMITH: Do you think Japan can counterbalance that tendency somewhat in step with ASEAN or—

SHIRAISHI: Yeah. I mean, actually Japanese government policy is basically to support ASEAN unity as well as promote ASEAN integration. There is no question about that. But at the same time, if you look at ASEAN countries there is a kind of sort of bifurcation in their grand strategy moves. I mean, Thailand, Laos, Cambodia and maybe Myanmar—

SMITH: Yeah.

SHIRAISHI: —I mean, they are, you know, I mean, quite comfortable with China and they don’t have any territorial issues with China, which Vietnam, the Philippines, Malaysia, Indonesia and the Philippines go a different way. So in a sense, you know, ASEAN is now sort of at a very critical moment themselves.

SMITH: Yeah.

So, finally, before we open to the audience, I thought maybe we should talk a little bit about what each of you think the U.S. and Japan can do together and what our priorities should be. And can we calibrate our priorities, or should we just independently just discuss where our priorities lie and make sure that we’re complementary? How do you see the future of the U.S. and Japan, Takashi, on China?

SHIRAISHI: Well, actually I would say that TPP—I mean, concluding the TPP was a big, important step.

SMITH: Yeah.

SHIRAISHI: And in a sense that underlined American commitment to rebalancing, not only in military sphere—I mean security sphere but also in economic. And that is very much welcome for us. And I only hope that, you know, TPP will be ratified in due course, and Americans remain committed in the region. And actually, then there are a number of things we can do together. I mean, certainly it is very important to make sure that Japan and United States understand what we are doing vis-à-vis China, both engagement and hedging.

But at the same time, you know, I mean, China is not the only country that matters. There are many other countries. And sometimes there might be differences in the way in which we engage these countries between Japan and the United States. For example, one good example is Thailand. I mean, Japan, I mean, finds Thailand very important because that is the center of—I mean, heart of mainland Southeast Asia but Americans tend to, you know, sort of dismiss Thailand and be quite harsh on the current junta.

SMITH: Yeah.

SHIRAISHI: I mean, I certainly, you know, do not agree with the way, you know, they changed the government, but at the same time it is strategically located.

SMITH: Right.

SHIRAISHI: So there are certain areas in which we might defer in their policy, but on China certainly we need to be—coordinate our activities.

SMITH: Great. Thank you.


ECONOMY: You know, I’ve been thinking that there’s not enough coordination between the United States and Japan perhaps on some of the political capacity building efforts underway within Southeast Asia, right?

And to some extent, you know, the U.S. plays the lead role on the security front, and Japan, frankly, is—you know, it was interesting to me when I was doing some research a number of years ago to discover that Japan is the second-largest investor in Southeast Asia after the EU, and then China is a very distant third, and then the United States. And I don’t know how many people necessarily appreciate the fact that Japan—

SMITH: Yeah.

ECONOMY: —you know, plays such a greater role in investment. And it seems to me that there is an opportunity perhaps for Japan to raise its political profile at this point in time as well within Southeast Asia and to partner with the United States, you know, more closely.

SMITH: Right.


ECONOMY: I know there is some of that going on—

SMITH: Yeah.

ECONOMY: —but, you know, the “womenomics,” a lot of what I think Prime Minister Abe has been talking about, seems to lend itself to a more proactive Japan.

SHIRAISHI: Yeah, I agree.

ECONOMY: And I think that would be a great natural partnership.

SHIRAISHI: I mean, certainly, you know—

SMITH: Please go ahead.

SHIRAISHI: I mean, I agree. I mean, especially, you know, for example, in South China Sea sort of, you know, cooperation is already happening, I mean, basically Americans providing capacity building for the navy and Japan providing capacity building for the coast guard.

SMITH: Coast guards, right.

SHIRAISHI: But the same thing, you know—I mean, for example, infrastructure development, probably Japan-U.S. cooperation in sort of—a very sophisticated infrastructure development might be very welcome in Southeast Asia, or even South Asian and so on.

SMITH: Great. Anything else or—

ECONOMY: No, I was just thinking—

SMITH: No? That was—

ECONOMY: I mean, it just—it occurred to me that I thought there were some new opportunities. And I guess, you know, I could make a very provocative offer, a very provocative thought, which is, you know, we have not had a particularly clear response to China with its proposal for a new relationship among major powers.

SMITH: Right.

ECONOMY: And at first it seemed that China was proposing a bilateral new relationship, and then it included Russia and the EU at some later point. So I think they either got confused themselves or maybe our failure to respond clearly then made them broaden—it’s not quite clear to me how—but, you know, again, Japan is the third-largest economy in the world. It doesn’t really make sense to have a new relationship among major powers that doesn’t include Japan.

And so one response to a Chinese proposal for a new relationship among major powers might be we are, in fact, interested, but let’s talk about who those major powers might be, and Japan should certainly be one of them. So that was just another—

SMITH: You’ll be heartened to hear that that was largely—that was some of the commentary at the trilateral we had in Beijing, which was, you know, most of our China experts on that in the—American-China experts were telling Chinese colleagues that the relationship between Japan and China would underpin the future stability of the Asia-Pacific even more so than the China-U.S. relationship.

And so I think, you know, there have been waves of advocacy on the trilateral Japan-China-U.S. relationship. I think there’s a real reason now to think about either formalizing it or at least investing in a lot deeper track 1.5 kinds of conversations on that trilateral, because it balances out. You know, it doesn’t allow Beijing in some ways to talk to us but not talk to Tokyo, or the other way around, right? And I think that frustration in Tokyo has been very, very high in the last couple of years when the tensions were so high between the two countries.

So it’s time for the audience to join the conversation. We have until noon but I’m going to end very sharply at noon. There will be a mic and a person coming to talk to you. Please identify yourself. There’s a gentleman right there in the back row ready to go.

Q: Hello, Matthew Hurlock. I’m a lawyer.

My question would be China understands power, military power. For Japan to be meaningful to China in that regard there has to be Japanese military power. I understand the history and all the caveats around that. How does Japan think about that looking forward, because that has to be a key part of any meaningful discussion?

SMITH: Thank you. Takashi, do you want to take a stab at that first?

SHIRAISHI: Well, I mean, given the current Japanese budget crisis there’s no way for the Japanese government to expand its defense forces substantially. But at the same time, if you look at the past 70 years, the cornerstone of Japanese security policy is U.S.-Japan alliance.

And therefore, what Mr. Abe has been doing to strengthen the alliance, and that alone—and that actually requires Japanese government doing its own part. So I fully understand that we need to have more military muscle. At the same time, under the current circumstances probably what we are doing is at the most we can do.

SMITH: Just to take that one step further, I think it’s very important, especially in Washington, to understand that Japan is not going to have an independent military capability unless the region vastly changes, right?

SHIRAISHI: Yeah, yeah.

SMITH: So the alliance is Japan’s statement of its intent, right? And I think our ability to make sure that the alliance—the deterrent continues to be strong but that we also work with Japan in expanding some of the ways we work together in the Asia-Pacific sends the same kind of signals to Beijing as, for example, simple military power would. So I think it’s the alliance. I would agree with Takashi it’s the alliance.

There’s a gentleman right back there and then I’ll come to the front right there.

Q: Marshall Bouton—Marshall Bouton, Asia Society.

I’d like to ask you both, or all three of you for that matter, about the basic motivations, if you will, of Xi Jinping’s behavior in all the spheres you’ve been talking about, particularly internal dissidents and corruption, and of course the surprising assertiveness, externally particularly, in the region.

Some people say that this a really kind of battening down the hatches anticipating domestic problems due to economic slowdown. Others say that actually he brings to the job a very statist view of China’s past, present and future, and he is reasserting that, despite what Adam told us this morning about the importance of markets. I’d like to know what the two of you think. What’s really going on here?

SMITH: Thank you.

Liz, do you want to start that one?

ECONOMY: Well, I’d probably end up closer to the second than the first, Marshall. I think if you look at, you know, when Xi Jinping first took power, I mean, the minute he stepped on stage as general secretary before he even became president he said, you know, corruption could be the death of the party and perhaps even the death of the Chinese state. And so I think his number-one priority from the get-go has been the re-legitimation, right, and the strengthening of the Chinese Communist Party.

And so what has fallen out within the political sphere, I think, has been derived basically from that as a primary objective, right? So the anti-corruption campaign, you know, an effort to some extent on the positive front to address some social issues like the one child policy, like the hukou system, like the environment. These are areas where there’s a lot of social unrest, right, around some of these issues, certainly a lot of social unhappiness. So I think that was the second part of the domestic strategy.

But then as you mentioned, the crackdown, right, and the tightening, and what I mentioned earlier, the, you know, sort of activity against the hostile foreign forces, you know, Westerners saying: You can’t teach Western liberal values in our universities. We’re going to check all our textbooks. We’re going to develop a blacklist of foreign scholars that are critical of China and bar them from coming into the country. Well, he didn’t say that but that’s a recommendation from some others in the think tank world there.

So I think that, you know, number one was reasserting the primacy; you know, cleaning up and asserting the primacy of the Chinese Communist Party, and I don’t see that changing at all. I think, you know, he’s someone—it took him, what, eight or 10 times to become a member of the Communist Party before he was finally accepted, and I think it matters to him a lot.

And then I think in the assertiveness—again, if you look back to his Chinese dream, right, what was it? It was a robust Chinese Communist Party at the forefront of the political system. It was a strong Chinese economy to achieve a moderately prosperous, you know, society. And then it was a strong Chinese military capable of fighting and winning wars, right, a much more—it’s a rejuvenation of the Chinese nation, right? That is the Chinese dream. And so I think he’s pushed for it on all fronts in a way that he feels is going to achieve what is his vision of a Chinese dream.

SMITH: Just as a footnote on that, too, Liz, if you went back and looked at his speech on September 3rd, he clearly was signaling to his own population that the work is not yet done, right, and that the resurgence of China is incomplete and that younger generations needs to continue the work. So it’s an interesting—it’s not as if he’s seeing it just being all about his tenure or his generation. It’s a continuation, I think.

SHIRAISHI: Yeah, I mean, I agree. I mean, I think—I mean, anticorruption campaign is a way to restore legitimacy for the party state itself. At the same time I would say that the given fact—given the fact that Xi Jinping and his allies are basically the second generation of party founders and leaders. I mean, long term—I mean, I would say five or 10 years Chinese people might start asking, you know, who owns this party and state? I mean, it’s not exactly the public but rather a very teeny group of the second generation of former party founders and leaders. So, I mean, this question of party legitimacy still remains.

ECONOMY: Right, and I think—exactly, and it’s probably important to recognize that within China today there is criticism, right, of the anti-corruption campaign because it’s not transparent, because it’s not rooted in the rule of law. And so, you know, even as it’s being prosecuted, you know, it itself, you know, falls prey to that same kind of cronyism, in some respects, that he’s supposedly attacking.

So I think that there’s an element, you know, within the Chinese population that is somewhat—well, while it’s popular overall, it’s still somewhat distrustful about the way that it’s being pursued. And there is a really interesting study by a professor up at Harvard that hasn’t been published yet but shows that at the vice ministerial level and above, if you look at the people that have been detained or arrested, nearly half of them are tied to Xi Jinping’s personal political enemies.

So it’s just a—it’s a, I think, sort of important sort of, you know, effort to show some of what we thought was that political targeting actually is taking place.

SMITH: Thank you.

Earl, you’re next.

Q: Thank you. Earl Carr, representing Momentum Advisors. A question to each of you.

Takashi, in terms of the Yasukuni Shrine issue, where do you see that possibly derailing or impacting Sino-Japanese relations?

And then for Liz, you talked about the overshadowing of Xi Jinping’s visit here in the U.S. How did that compare in contrast to the kind of rock star or royal treatment that he was given when he visited London? If you could talk about the perceptions and how that visit was viewed, thank you.

SHIRAISHI: I mean, I don’t think Mr. Abe is going to visit Yasukuni Shrine again while he is—he is serving as prime minister. He already visited once and did his, you know, sort of his payback to his right-wing constituency, and I think that is it. But at the same time discussion remains, and mainly because there are war criminals enshrined there. And even though I know that several prime ministers tried to persuade the Yasukuni Shrine priests to sort of separate these, you know—I mean, whatever—from the rest, they are not doing that.

And so what is really—what has happened now—I mean, what happened, I mean, probably in the 1960s and remains until now is, in fact, you know, very right-wing Yasukuni Shrine priests have taken custody of the war dead, you know, and then tried to impose their right-wing ideology on the Japanese public. And the constitution itself protects the separation of the Yasukuni Shrine because in the constitution defines a separation of religion and state. So in a sense, you know, I mean, all the prime ministers cannot do much about this issue, and as long as Yasukuni is there, I mean, this issue remains.

ECONOMY: So I wrote a pretty critical post about the way that Britain handled the Xi Jinping visit, but let me say that, you know, it seems to me they’re basically, you know, betting on, you know, the Chinese economy, right, as basically driving for the British economy. I’m not sure how that happens except if, you know, Britain becomes like a country in Africa, right, or a developing country in Southeast Asia in terms of looking for infrastructure development and assistance, like this nuclear power plant, or what about—whatever else that it’s looking for, you know, is Britain making products that the Chinese want to buy? That has to do with what, you know, the Brits are doing, you know, on the home front.

I think it is shameful that they were so willing to trade out human rights and other political considerations in their meetings with Xi Jinping. I think there is some disquiet, discontent within other parts of the British bureaucracy about the way that the visit was conducted. And, you know, I think they can look to Germany, right, or to the United States and they can see that it’s possible to have a robust trade and investment relationship with China and not sacrifice entirely your principles.

So, yes, they gave him rock star status. They said they want to be China’s best friend in the West. And I think we’ll see how that pans out for them. I think from our perspective it could be somewhat concerning, right? What does this mean in terms of British willingness to stand with the United States in the United Nations? You know, is this going to have a broader set of foreign policy ramifications and security ramifications?

You know, supposedly Cameron was invited to speak in Singapore on regional defense issues and he declined, ostensibly because he was concerned about saying something that might offend the Chinese. So, you know, I think that that kind—if this turns into something bigger than simply, you know, a bet on the Chinese economy and what it can do for Britain, I think that that’s a problem.

SMITH: Thank you both.

There’s a lovely group over here. I just want to make sure nobody’s over here waiting to get my attention.

ECONOMY: You have to ask Karen (sp), Sheila.

SMITH: I know. Karen (sp) is next.

ECONOMY: She’s been waiting a long time.

SMITH: I know.

You’ve been very patient and I apologize. I just wanted to be—make sure I wasn’t focused completely on this side of the room.

Q: Thank you. Thank you.

Speaking of uneasy friendships, I’m curious to hear your views on the role of Russia in this dynamic; Russia looking at China as a potential customer, though dubious in light of China’s investment in Central Asia—which I can’t see accruing positively to Russia in any way over the long term—and the territorial conflict with Japan. How will they likely emerge as a disrupter within the region, and what is your view on how both the U.S. and Japan should act in light of that?

SMITH: Takashi, do you want to go first?

SHIRAISHI: Well, I mean, certainly Mr. Abe, I mean, has been trying to sort of establish personal rapport with Putin and also hopefully make some improvement in the—in Japan’s relationship with Russia and so on. But personally, I just don’t think that it’s worth it. I mean, we have had a series of unhappy sort of developments with Russia over so many years, and I don’t think there is any real sort of trust between the two countries.

So even though—I mean, in a sense, you know, Russia for Japan is like China for Britain, right? It’s far away. And Ukraine is, you know, quite far away so it’s more so to European problems than Japanese problems, and therefore probably some leaders in Japan see some opportunity in making deals with Russia. But at the end of the day they wouldn’t get any. I mean, that’s the sense. And as far as Asia-Pacific is concerned, I mean, Russia is not a major player, and I don’t think they will.


ECONOMY: I think you pointed out that there are both, you know, areas of complementarity and areas—some areas still of competition between the two. And I think it’s important to remember that Russia and China have, you know, worked together often within the U.N. Security Council for many, many years. And so this sort of newer-seeming relationship between President Putin and President Xi, I think they have ratcheted it up to some extent but there has been a sort of longstanding relationship there, and I think continues to be some concern in Russia over China’s Central Asia play, definitely. They have their own ideas about how they want their economic influence to spread throughout the region. So it will be interesting to see how that continues to play out.

Nonetheless, you know, their defense relationship I think is, you know, increasing their undertaking: naval exercises together. China has been, you know, tacitly—by its silence, I guess, it has tacitly supported Russia in Ukraine and Crimea. So it could have gone either way and it chose to go to the side of Russia. So I think it’s something that we have to watch carefully, you know, looking forward in the Arctic, you know, what’s going to happen there with Russia, China. China is making a play, I think, to be a much more active participant, you know, moving—I think it wants to move from observer status to somehow becoming a member of the Arctic Council. How is all of that going to play out?

I think there are a lot of different parts in play, but certainly for the moment I think they find common cause, you know, in their sort of political spheres, right, to some extent the way that they are looking at the United States, but still some underlying competition.

SMITH: Just to add onto that, Mr. Abe was just in Central Asia visiting five countries and very obviously giving a little bit of—you know, a little bit of play there for Japanese ability to invest in infrastructure and to really be part of the conversation in Central Asia. I think the prime minister’s goal—although I don’t—I’ve never spoken to him directly about it, but is to continue to engage with Moscow as an option so that we don’t just sort of give the Russia-China relationship a lot of—a lot of play by itself.

I don’t know that the territorial dispute between the two countries will ever be resolved, quite frankly. I don’t think I’m very optimistic, especially when the Russians are putting added military power on the islands at the same time that they claim to have a diplomatic dialogue with Japan. But I think from Mr. Abe it is just one more card potentially in a number of cards that he’s trying to create for Japan.

We’ve moved to that side of—there you go, sir. Yes?

Q: Michael Oppenheimer at NYU.

We’re pretty close to our presidential election here. And despite this miscellaneous group of potential candidates—or potential presidents, I think a general consensus that the administration—this administration has punched below its weight in Asia and in Europe and in the Middle East. Would any of you care to speculate about what a more assertive American strategy in Asia might mean for U.S.-Japan relations in particular?

SMITH: Everybody is looking at me, so—

ECONOMY: Yeah, I’m going to let you talk on this. But I will say, Michael, I probably don’t agree with you that we’ve punched below our weight in Asia. I’ll put that out there. But go ahead, Sheila. This is kind of your area.

SMITH: So I will agree that I don’t think we’ve punched below our weight. I think some of what we’ve tried to tackle—TPP being the most obvious—has been a hard and tortured process. I think to a large degree, though, the United States and Japan have found common ground in TPP. And, frankly, if Japan hadn’t committed to joining TPP we wouldn’t be where we are today. So I agree with Adam Posen on the previous panel; this is as much about U.S.-Japan leadership of the process as it is about ours.

But I think, you know, to be fair to the Obama administration, I think they’ve accomplished a lot that doesn’t get a lot of attention. And I think what does get attention is, are we going to do freedom of navigation in South China Sea. That had a critical moment: Where are you? And it’s easy, I think, for people on the other side of the fence to criticize the president for being measured and to try to play the diplomatic side and to work through the conversation with Xi Jinping.

I think the Obama administration is very well aware of the complexities of this moment and the expectations, particularly of allies like Tokyo, of the United States. But we’re in this awkward spot at the moment where Tokyo actually wants us to be much more assertive with China than Tokyo is really willing to be itself at times—(laughter)—to be quite fair.

And that’s OK, but I think we should recognize that we are in a situation now where the expectations of us are much, much more complex. It’s not just, OK, let’s go out there and have 60 percent or 80 percent of our military in the region. We’re going to have to be much more sophisticated in terms of how we develop opportunities for collective action in the region, not just with allies but with countries around Southeast Asia; how we’re not going to make those allies—those countries nervous that we’re over-playing our hand and inviting Chinese response.

So I think it’s a much more sophisticated game, and whoever comes in next it’s not just going to be OK to say we have to be assertive. We’re going to have to figure out where and when and how we convince the Chinese that the stability of the Asia-Pacific is really in their interests as much as it is in ours.

So I would just say that, yes, the Obama administration has had some challenges. Some of them, you know, maybe they could have played it slightly different, in hindsight, but I’m not sure that the next president is going to have it any easier, whichever party it is or whichever candidate wins the election. It’s just a complicated game out there and I think Tokyo and Washington are going to have to be very careful that we’re on the right side of making our choices and we’re informing each other about the import of those choices for our own domestic publics as well.

I don’t know, Takashi, do you want to—please feel free to jump in—the American election and how you evaluate where we are today and what we could do better, I think that might be—

SHIRAISHI: Well, to be honest, I mean, there is a general sort of view in Japan that whoever becomes the president, his or her position on China will be tougher, and that is welcome for us. But at the same time, it is important for any American president to engage the larger sort of region-making, especially how to engage ASEAN Plus processes. And also, actually we understand the importance of sort of the American-centered hub-and-spoke security system being made into a kind of network.

SMITH: Yeah.

SHIRAISHI: And that is also very important. So on these two scores, I mean, Japan and the United States can cooperate very closely.

SMITH: I will say, just as a funny anecdote about expectations of us, of course already in Tokyo everybody is trying to figure out which candidate is coming and who their Japan advisers might be, or who their Asia policy advisers might be. So it’s a very busy time right now in Tokyo. And when they’re thinking about Trump or Carson—(laughter)—it’s a very difficult thing to try to imagine who the Asia policy advisers could be for the future. But anyway—

AUDIENCE MEMBER: It’s hard for us. (Laughter.)

SMITH: Yeah, I was going to say it’s hard for all of us too, I betcha.

Jim Gannon, I think you were next.

Q: I’m sorry. Jim Gannon with JCIE. I had an actually similar question there, and you brought up Ukraine and Syria and the U.S. response to that, or how the U.S. is perceived to be responding, but also with domestic politics making U.S. leadership so hard in foreign affairs. What are perceptions of U.S. credibility in terms of U.S. deterrence in Japan and China right now? And tie that into the presidential election as well, please. Thanks.

SHIRAISHI: Well, I think, I mean, American rebalancing or pivot will stay. And in a sense, I mean, TPP is a big plus for, I mean, understanding—I mean Americans assuring that they will stay in Asia. So in that sense, you know, I mean, actually TPP has done a great deal to the American credibility in the region, including Japan.

SMITH: If we could just get it passed, right?

We’re going to have time for one more question. This gentleman right here has been sitting there very patient, so the floor is yours.

Q: Thank you very much. Just a very brief question. The stock market issue that occurred in the summer, to what extent do you see that as a learning experience for how to manage the economy, and how important is it for the rise of Chinese that it learns that markets have animal spirits that you cannot control? They like to control everything but this is one thing they will have to learn that they cannot.

ECONOMY: Yeah. You know, I think we’re going to have to wait to see how much they’ve learned from it. I mean, we can look at it and think, OK, clearly they have learned from it.

You know, I think the issue with the stock market and how they managed it was not simply that they went in at the end to support it but that they were also very responsible for boosting it on the way up, right, and so that, you know, they boosted it, then they rescued it, then they went after all sorts of people that they thought were somehow responsible for causing the problem to begin with. And so it’s a—you know, they were as far from being an impartial regulator of the system as one could possibly imagine.

And I think, again, it goes back to the issue that I raised earlier. I think we are right to wonder about Xi Jinping’s personal commitment to market. And I think his advisers are committed, right, that people like Liu He and others are committed. I’m not sure that he is as committed. If you look back at what he would write when he was party secretary in Zhejiang, he talked about the need for the state, you know, to work with the market—hand of the state and the hand of the market—but if you look at the list of things that he had that the state hand was supposed to manage, it was a lot longer than the ones that the market part was supposed to manage. (Laughter.)

And so I think that there’s an issue there about his willingness. And for somebody who is—has consolidated control, who sits on top of all of these different central leading group committees, who was cracking down on the political sphere, that is somebody who wants to be in control, right?

And so, you know, not to get too deeply into psychoanalyzing President Xi, but I do think that there is something about not only probably his way of viewing the economy but also his personal desire to be able to control what’s going on in the country. That probably means there are going to be more lessons like the stock market lesson before the lesson is actually learned. That would be my prediction anyway.

SMITH: Takashi, there was a lot of talk here in the United States about the kind of eye-opening moment of this summer, right? Then there was some questioning about the competencies of Chinese economic management. In Tokyo, did you and others really read the situation the same way? How did you see the summer events in terms of what it means about the Chinese management of their—

SHIRAISHI: Well, actually, probably we more or less saw the stock market episode as Americans did. But at the same time, there is a kind of, you know, observation, for example, among IDE China watchers whether China might actually let, you know, Chinese yuan to depreciate not just, you know, 2 (percent) or 3 percent but rather—

SMITH: Yeah.

SHIRAISHI: —probably in the coming one year 10 percent or something. And so they are worried about, you know, the sort of impact of that on Japanese economy as well as Southeast Asia.

Another thing actually is, given the fact that Mr. Xi Jinping is now serving as head of so many small decision-making groups—I mean, still he only has 24 hours a day—(laughter)—and he may actually make, you know, mistakes—


SHIRAISHI: —in many different areas. I mean, that actually worries us.

SMITH: Yeah.

Well, I hate to call a close to this because I think we could continue the conversation for some time, but I want to reiterate what I—what I said at the beginning of the day, which is the U.S. and Japan in many ways have a lot of common goals in terms of how we would like to see the Asia-Pacific evolve and emerge and the kinds of roles that we would like to play in the region. We’ve talked a lot about China and we’ve used the shorthand of China’s rise as a very adaptive process, but I think we need to be very conscious that we’re both trying to adjust and adapt as we pursue those goals together.

So these kinds of meetings and these kinds of conversations are very, very valuable for all of us. Thank you so much for joining us. (Applause.)

SHIRAISHI: Thank you.

SMITH: Thank you both.


This is an uncorrected transcript.

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