After COVID-19: China's Role in the World and U.S.-China Relations

HAASS: Well, good morning to one and all. This is Richard Haass from New York. We’ve got a(n) important and what I am confident will be really interesting and useful conversation about China and U.S.-Chinese relations in the context of the COVID-19 pandemic.

The three people who are going to lead us through it are three of the Council’s own. We’ve got Elizabeth Economy, who is one of the country’s leading authorities on China; and her writings, her books on it, have really helped frame the debate. We’ve got Brad Setser, who worked in Treasury and has been with the Council for a number of years now, and again is one of the country’s leading authorities on China’s economy. And last but not least we have Bob Blackwill, a career Foreign Service officer who originally worked in any number of administrations and is also the Kissinger senior fellow here at the Council, and has recently written a paper about the U.S.-Chinese relationship. So I want to thank all three of them for what they’ve been doing day in, day out. I want to thank them for joining me this morning.

The way it’s going to work is I’m going to have some questions for each of them, and we’ll probably have a little bit of group discussion, and then I will open it up to you, our members, around the halfway point and we’ll get in as many questions and responses as we—as we can.

So let me begin with Liz Economy. Liz, why don’t you just set the stage. I kind of find in all these calls it’s useful to begin with a little bit of a scene-setter. Where is China right now in terms of to what extent has it, quote/unquote, “returned to normal”? To what extent is the country still very much defined by the COVID-19—Brad will highlight the economic side. I’m just sort of curious about the day-to-day. Let me just also ask people that they put their phones on mute if they’re not talking, and that way we’ll minimize the background noise.

ECONOMY: Thanks, Richard. So I don’t think China has by any stretch of the imagination returned to normal. I think it is in the very early stages of figuring out how to reopen its economy and society. I think this is one of the probably most important things on Xi Jinping’s agenda right this minute. It really is the first country to try to move past, you know, a massive quarantine effort. And you know, if they get it wrong—(laughs)—and there’s a resurgence of cases, then I think this makes Xi’s position more tenuous because, of course, the Chinese leadership has been proclaiming its success in managing the virus and its spread, and sort of is already offering its wisdom to others.

But you can see right now, you know, on the ground that different provinces, different cities, even, you know, different parts of different cities are all operating under very different rules and regulations. And there are some similarities. You know, local governments are adopting these apps provided by various tech companies that will signal whether a person is, you know, green, yellow, or red, which will allow them sort of freedom of travel or a seven-day quarantine or a fourteen-day quarantine. Some schools have reopened; others have not. You see the same kind of thing. (Laughs.) Parents are, you know, requesting, you know, refunds for some of the private schools because they say online education does not equate with, you know, in-person education.

You know, there’s, I think, a big effort underway with state-owned enterprises and larger companies to ensure that they don’t lay off people. Xi Jinping has said there are not going to be any massive layoffs. But at the same time you’re seeing many, many small-scale protests among small and medium enterprises, private entrepreneurs, et cetera. People who aren’t part of the social, you know, welfare system aren’t getting unemployment and don’t have any recourse. So it’s a—it’s a story right now, I think, of figuring out how they’re going to reopen the country without, in fact, you know, sort of encouraging a resurgence of cases.

HAASS: Well, that’s the same challenge, I think, that every society is facing right now, including our own.

Let me ask the question, because there’s something of a debate going on in foreign affairs about this: To what extent has Xi Jinping emerged stronger or weaker domestically as a result of these, what, now three-and-a-half months of his—(inaudible)—of the country during this crisis?

ECONOMY: Yeah, I think that is a story that is still evolving and still unfolding. I think it’s going to depend on a couple of different factors.

You know, first is what happens with the Chinese economy. And I won’t go into that—Brad’s going to talk about it—but I think, you know, it’s worth remembering that the economy was slowing. It was in a bit of a, you know, sort of doldrums before the crisis. This is only going to exacerbate it. So I think that’s going to be one determinant.

I think a second is going to be sort of the COVID-19 narrative and how well the Chinese government narrative holds up. Who knew what, when? And I think as the stories come out—you know, the most recent one with these internal documents about Chinese leaders knowing much more, you know, and not sort of doing anything about it, or certainly not alerting the public for six or seven days, I think that is—you know, if it doesn’t align with Beijing’s narrative, which that doesn’t—(laughs)—if this kind of narrative gains traction inside China, that’s going to be a big problem for Xi’s legitimacy and reputation.

And I think certainly, you know, what should have been a major success for Beijing—its mask diplomacy—you know, really has become a story of how Beijing has, you know, snatched defeat from the jaws of victory. You know, this is—you know, the demanding of public gratitude globally for, you know, Beijing, you know, sometimes donating and oftentimes selling PPE; the substandard PPE; the treatment of foreigners, you know, inside China, most egregiously I think what we’ve seen happen to Africans but also just other foreigners not being allowed into their offices, et cetera, getting very different treatment from Chinese citizens no matter whether they’re, you know, sick or not. I think the disinformation campaigns about the origin of the virus; the fake videos of, you know, Italians singing “thank you, China” to the tune of the Chinese national anthem when it was really Italians sort of thanking their own health-care workers; I think all of these things play, you know, very badly for Xi Jinping and for the Chinese leadership at a time when really could have developed quite a positive narrative.

And then I think there’s the issue of Taiwan. And it’s going to be very interesting to see what kind of pressure that brings to bear on Xi because I think that is an issue—you know, Taiwan’s received a lot of international accolades for the way that it’s managed the virus. It’s doing its own mask diplomacy. It’s raised serious questions about China, the WHO. It’s sort of opened up a whole set of new questions about China and Taiwan. I think that’s another issue that Xi’s going to have to deal with.

So I think it’s a story that’s still playing out. We’ll have to wait to see. But right now I would say is a more challenging than not period for sort of where Xi Jinping stands, certainly internationally. At home, maybe some of the nationalistic efforts, you know, by the Chinese government are having more success.

HAASS: Let me ask you a question, because it’s a story that doesn’t go away, which is the possibility that this virus didn’t emerge in the wet markets of Wuhan but emerged in this laboratory in Wuhan. Imagine—I’m not saying that’s the case—but if it were to come out that that was the case, that this did come accidentally out of a—it was a leak from a government laboratory and that Xi Jinping and the leadership knew about this and covered it up—what would you—what do you see as the consequences internally and internationally if that—if that story was to be proven true?

ECONOMY: Well, again, I think certainly it would be another nail in the coffin of Xi’s personal reputation and the CCPs reputation on the global stage. Whether Xi Jinping and the Chinese Communist Party could manage it at home, I think there’s a bigger question about that. You know, they have a pretty effective censoring apparatus in place. We saw that with the death of Dr. Li, other truth-tellers that have been out there, and journalists who’ve been arrested and detained. You know, could they spin it where they said, listen, we learned about this, you know, later in the game. It actually doesn’t really matter, you know, that this originated in a lab, or, you know, whether it originated in the wet market, except for maybe some of the steps that are taken. And by the way, we’ve actually already cleaned up this lab and have put in place many other important, you know, changes to our procedures.

So I don’t know. I think globally it would—it would certainly be very harmful. Domestically I think it would probably reinforce, you know, people’s impressions who are already distrustful of the regime, which I think those numbers are definitely increased as a result of COVID-19. But I don’t know that it leads to, you know, a massive challenge to Xi Jinping, you know, internally. Because I would guess there would have been buy-in for that kind of narrative from a broader segment of the Chinese leadership. So all their reputations, all of their political futures would rest on some—developing some kind of counter-narrative.

HAASS: One last question before I turn to Brad. If there was an index of measuring the depth or intensity of authoritarianism in China over the last three and a half months, to what extent would that index have moved? What—has China—to put it bluntly—has an authoritarian China become a more authoritarian China in the course of this? And if so, is that likely to endure? Will that become—is it your sense that that will become the new normal?

ECONOMY: I don’t know that it’s become more authoritarian. I think what perhaps has changed is the sort of various tools that were at China’s disposal, whether it’s, you know, neighborhood committees who were responsible for—during this COVID-19 crisis—for, you know, checking gates and, you know, detaining people who weren’t doing the right thing. The level of technology that’s now been deployed to, you know, track and, you know, quarantine people. All of that stuff’s already existed and I think was, in some respects, already in play as we were beginning to see the social credit system come into force.

So in some respects this is—it maybe was an intensification where you just had a slight increase in the adoption of some of these methods, but I don’t think it reflects anything very different, frankly, from what we had been seeing in the runup to COVID-19. So I think this was already the trend within China. You were already seeing that marriage of very traditional methods of social repression coming into play, mixed with technology. And I think this was just another example of how we can expect that it will be utilized.

HAASS: Thank you.

Let me turn to Brad. Brad, let’s just, again, the baseline. Imagine we are having this call in early December. Just say what the Chinese economy looked like before COVID-19 broke out.

SETSER: I would say, you know, in early December it looked like China had started a slight acceleration for the doldrums which it had been in in most of 2019. Obviously the biggest topic of discussion in late 2019 would have been the settlement to the trade war and the phase one deal. But I think there’s a decent amount of evidence that suggested that China had weathered the tariff shock. It hadn’t performed well, but the tariffs hadn’t knocked China out by any means. It had been able to make up reduced sales to the United States with ongoing growth in exports to the rest of the world. And some measures of domestic activity had been slightly picking up heading into this year.

HAASS: OK. So with that as a backdrop, as a scene setter, we’ve now had three and a half months, give or take, of this crisis disrupting China’s economy. If one were to take a snapshot of it now, I mean, the IMF, for example, said the other day that global growth had gone from plus—just over 3 percent to now a minus 3 percent. China was, what, at roughly technically 6 or so percent? I don’t know what the reality was six months ago. What do you sense the reality is now? Is it still in positive territory? Might it even be negative?

SETSER: Well, the IMF’s forecast for the whole year is still positive growth for China. I think that’s an optimistic forecast. China will release its first quarter GDP data tomorrow, so that’ll give us the first estimate of what—at least what China is willing to indicate about how deep the contraction was. I think the consensus is that that data will show a contraction of 5 percent or more year over year. Remember that China’s economy was up a bit in December. And so if you look at that 5 percent contraction in the way U.S. GDP is typically reported—so the U.S. usually annualizes the quarter on quarter change—that would correspond, using the U.S. system, with a 30 percent Q-over-Q annualized fall in output. So quite large deceleration in China’s economy.

Most indicators actually point to a slightly larger fall in the first quarter. So exports in industrial production are probably the best of the measured data. They’re down 10 to 15 percent. Retail sales—again, this is through January and February, we don’t have March—down 20 percent. Fixed-asset investment down by more than that. So this clearly was an enormous contraction in the first quarter. I think the real question is how big a contraction China will want to show. And I think the available data for April does indicate a recovery. And China’s ahead of the world in a recovery. But it would also point to activity that remains well below normal.

HAASS: Do we have any knowledge yet about whether they’ve had to reverse? And by that I mean they allowed people to go back to work in certain parts of the country, or certain firms. And then you had new outbreaks of the disease. And essentially they’ve had to put that on hold or reverse it. Do we have any reading on that?

SETSER: So far there’s been no evidence that the so-called return to work has led to a new outbreak. I think that’s one of the critical questions. And it, you know, comes down to, you know, the overarching question of how much you trust the Chinese data. But so far there’s been no evidence of renewed outbreaks.

HAASS: OK. Does this crisis change the conversation or the trajectory of China in terms of reform? Basically, coming out of this, could state-owned enterprises and the government role be, if anything, even larger than it was, say, a year or two ago?

SETSER: Absolutely. I think, you know, it’s an uncomfortable thing to say but a state-run banking system that can finance the enterprise provides some advantages for stabilizing employment and output during this kind of shock. The state banks are quite—are notoriously willing to defer payment when needed and to exercise forbearance. And that’s kind of what you need to do during this kind of shock. You don’t want the banking system calling in loans. In some sense, you want the banking system to make low-interest loans that may or may not be repaid in order to stabilize employment and output. So I think it almost certainly will reinforce the large role of the state in China’s economy. I’m not actually convinced there was a significant plan in place to reduce the state’s role. But if there was, I think the pressures are now going the other way.

HAASS: From several conversations I’ve had, it seems pretty—and indeed, Liz Economy was quoted to this effect in today’s paper, New York Times, I think it was—that Western societies, including the United States, are going to at a minimum move in the direction of supply chain diversification and redundancy, and more likely introduce a greater degree of domestic production and stockpiling, introduce a greater degree of self-sufficiency. And that has the obvious impact or it’ll contribute further to this sense of decoupling, becoming less dependent or reliant on any single source provider but China in particular. Are the Chinese expecting that? Are they geared for that? How might that affect them?

SETSER: Well, I think if any country knows a little bit about reducing industrial dependence on the rest of the world through conscious policy choices, that country would be China. I mean, China’s had a(n) industrial self-sufficiency policy called China 2025 in place for several years, and I think it has already had an effect on China’s economy. China is less export dependent now than it was five years ago or ten years ago.

So, in many ways, other countries will be moving, in some sense, towards a more Chinese approach to national industrial self-sufficiency. But that movement, clearly, poses some long-run challenges to China’s economy. While China is less dependent on export—to manufactured exports than it was at the time of the global financial crisis, China still runs by far the largest manufacturing surplus in the world, roughly, a trillion dollars.

And so any move towards supply chain diversification effective means a move, at a minimum, away from China and it puts more pressure on China to make up for the loss of external markets with steps to support its own economy.

HAASS: Thank you, sir.

Let me turn now to Bob Blackwill. Bob, consistent with how I began the other two conversations, let’s set the scene. Let’s talk a little bit about the state and trajectory of U.S.-China relations, say, over the last few years and where we were before COVID-19 emerged.

BLACKWILL: Good, Richard. Thank you.

Let me just, briefly, enumerate what I think the trends were. First, there was an ongoing crisis of American global leadership. China’s power projection in Asia was growing. The balance of power was shifting in Asia. U.S. power projection relative to China was diminishing. The U.S. alliance systems were weakening. U.S. politics and society were deeply divided, domestically preoccupied. The U.S. Congress was almost unanimously anti-China, active regarding China but almost entirely indictments of China with no policy prescriptions of how one might get out of a permanent confrontation with China.

There was virtually no diplomacy between the United States and China, only public accusations. Thus, the bilateral U.S.-China relationship was in steady decline, perhaps heading toward permanent confrontation. A daunting list.

When the virus is contained, these trends will still be in place. But I want to stress my view that there’s no inevitability that these trends after the virus will continue or even accelerate. It is the most important strategic challenge, in my view, for the United States and for its diplomacy is to try to avoid a permanent confrontation between the United States and China, which would be bad for the U.S., bad for China, and bad for the world, and that will depend on the quality of American leadership and policies in the period ahead regarding China and the policies that Beijing pursues.

If I could just conclude on this and say that’s, of course, an extremely negative list of trends before the virus hit us. I try to keep reminding myself when I think about this of Winston Churchill’s comment, quote, “For myself, I am an optimist. It does not seem to be of much use being anything else.”

HAASS: (Laughter.) OK. Can’t go wrong in a crisis with Winston.

It seems to me, though, looking at some of the initial congressional response this—that the pandemic has the possibility for further complicating or even worsening the relationship. I see a lot of talk about sanctioning China over its handling of the outbreak. If it were ever to come out again—I’m not predicting it, but if it were to come out that this did come out of a Chinese government lab I would think that would only be intensified.

What I raised with Brad, the idea of a strategic decoupling it seems to me gains momentum coming out of this with, if you will, an additional rationale of sort of national sufficiency. Is there—so I guess—if I could as the question two ways. One, am I wrong to think that this crisis puts greater pressure on the relationship, or just the opposite? Am I missing some silver lining in the cloud?

BLACKWILL: I can’t see a silver lining. I’ve looked hard for one and I haven’t been able to find one, particularly with respect to the reactions by the Congress, which I think you’ve accurately described. The issue then for the president and the administration, this one or the next one, will be what do they want to do about that, and I think that there are opportunities now to try to redress some of these problems in the relationship. But that will take, prescriptively, a change in the way the last two and perhaps more American administrations have reacted in the face of the challenge, the strategic challenge, from China.

HAASS: Bob, do you see any evidence that China, as it begins—might be ahead of on the recovery track—ahead of where other countries are, including the United States? Do you see any evidence or do you think you might come to see evidence that China might try to exploit this situation of what you might call American strategic distraction? Do you see anything with the South China Sea, with Taiwan, with North Korea, or anybody else where China might be interested in fomenting something or allowing something, if only to distract attention at home also?

BLACKWILL: Right, and as Liz said earlier, there is even a louder drumbeat of nationalism, if not xenophobia, in China, stimulated by the Chinese government. What you’ve asked could happen. Could happen. They’re, certainly, discussing it in the Chinese leadership of whether America’s confused and incompetent reaction at the federal level to the virus gives them an opportunity. I have not seen that yet. But it, surely, is being discussed.

But that does lead me to say one other thing, Richard, which came up earlier. I notice in the media there’s the wish the father of the thought that China will change on the basis of its people the way it’s governed, or to put it differently, there’ll be a revolution in China, stimulated by the Chinese government’s inadequate response to the crisis. I notice that there are more analysts of revolution and more revolutionaries than there are revolutions. (Laughter.)

So I doubt that China, the premier surveillance security state in the history of the world, will have a revolution anytime soon. I think we’re going to have to live with the Communist Party of China running China for the foreseeable future and my guess is we’re going to have to live with Xi Jinping running China for the foreseeable future, given the system he has set up.

HAASS: That would be good for Liz’s book sales. I will point that out.

Bob, let me ask you a prescriptive question, and if others want to join in on this. You’ve talked about the state of the relationship, the stakes, the direction, and you basically said it’s a real challenge for statecraft and diplomacy and foreign policy regardless of who’s sitting at 1600 Pennsylvania Avenue. So whether you’re—forget about whether you would be listened to, but if you were going to advocate for something now in terms of trying to change this momentum, given, again, the stakes, what is it you think would prove helpful if one wanted to begin the process of moving U.S.-Chinese relations in a more productive or constructive direction? What might you recommend?

BLACKWILL: Let me just give five, Richard. There are twenty-two sets of prescriptions in the report I did for the Council. It was published a few months ago, which you mentioned, which is on the website. If people are so damaged by their sequestration they need to have some outlet, it’s on the website.

Let me just give five. The first is, obviously, to strengthen the United States domestically. That is the basis for our power projection into the world. It’s the basis for dealing with China over the long term. So that’s the first one.

The second is to make U.S. foreign policy consistent and coherent, which it is not now, in my judgment. And again, it will affect every dimension of our relationship with China and with the rest of the world.

The third is strengthen America’s alliances, which are now weakening. And that’s particularly pertinent here because I think the United States will have a very difficult time dealing with China effectively without its alliances and without alliance solidarity. And that’s difficult, as we know, for a variety of reasons to create that solidarity, but that’s getting worse; so strengthening our alliances.

Fourth is to reinvigorate U.S. diplomacy with China. I am quite struck by how infrequently, below the level of the president, who does talk to Xi fairly frequently, how little actual diplomacy is being conducted with China, especially on the question—which is the central question, it seems to me—how can the two countries avoid making the current disagreements permanent, producing a permanent confrontation, which, of course, would be extremely dangerous for the world.

And then the last point, the fifth one, perhaps one of the more controversial ones in the report I did, is—has to do with Russia. I am myself an advocate of energizing our diplomacy with Russia as well. We know that Russia and China are becoming more strategically entwined, including on the military side. And we know that has some degree of an unnatural act for Russia, given its geopolitical situation. And I—even knowing Vladimir Putin’s systemic wish to weaken the United States, I would at least try to start a conversation with him now to try to see if there’s any opening to lessen this strategic alliance between Russia and China.

HAASS: Thank you.

Liz, let me ask you a version of that question. Could you imagine something in the health space—and Brad, I’d ask you the same thing—in the global economic space where there’s an area, an untapped area, that’s realistic for some degree of U.S.-Chinese cooperation or collaboration?

ECONOMY: So I would say I think there already is cooperation in the health space, as there is with climate change, if you’re looking at the level of civil society and scientific cooperation and states, actually. So I think it does exist. What’s missing is what Bob is talking about, which is at the government-to-government level.

And I think there absolutely is room, you know, for the United States and China to, you know, establish a working relationship, a working group, to talk through, you know, the challenges of today and tomorrow, the global challenges. I think everybody would agree that cooperation on these kinds of issues is important and essential. And so, you know, is there room for that? Absolutely.

I’m not sure that the Trump administration to date has demonstrated much interest in cooperation, frankly, even in these kinds of areas. And so it might require a new administration. But I think there’s absolutely, you know, room for that. And, you know, it absolutely should happen.

HAASS: Thanks.

Brad, what about—like, could there be some joint U.S.-Chinese effort as part of the, say, G-20 or any other grouping—an ad hoc group, for example—to help countries, particularly in Africa, the Middle East, South Asia, Latin America, deal with the enormous debt that they’re facing or could face as a result of this?

SETSER: I think there already are some initiatives that the G-20 finance ministers—and China is very much a part of that—have agreed to defer debt payments owed to them, so bilateral debts through the end of the year. You could extend that for longer. You could write off the interest payments due over this period of time. So I think, you know, there’s—there is scope to at least not make the problem worse by pulling money, by requiring that countries pay off their debt when they don’t have the resources. And that seems—that modest form of cooperation seems to be in place.

I think there’s actually probably scope to go beyond that. This might not be a bad time for the U.S. to try to join the Asia Infrastructure and Investment Bank, which is a Chinese initiative. And now it’d be seen as a symbolically important gesture. And conversely, the U.S. clearly should be doing, at least in my view, a lot more to mobilize other multilateral institutions to provide largescale financing. And hopefully the Chinese would fully support that. I think the barrier to some degree right now has been the U.S.’s relatively reluctant position towards expanding the IMF’s resources.

And if you want to get more radical, you could certainly imagine that in a world where all countries are moving towards greater emphasis on supply-chain resilience, that, you know, you could cooperate in a sense to reach agreement on what is allowed and what isn’t allowed in those efforts. And part of that would be a recognition in some sense that as other countries emulate China 2020—sorry—China 2025 in, say, the medical sector, that China gets a little bit more free rein there too.

HAASS: Thank you, sir. Thank you all.

OK, Ryan (sp), why don’t we now transition to where we open up the conversation to questions from our membership?

OPERATOR: Thank you. At this time we will open the floor for questions.

(Gives queueing instructions.)

We’ll take our first question, and it is from Carlos Pascual with IHS Markit. Please go ahead.

Q: Hi. Thank you very much for this conversation; really enlightening.

A question for Liz and Brad: If you can comment on lessons, good and bad, on the process, pace and impact in China of going back to work.

HAASS: Which one shall—which one—

ECONOMY: OK. Well, I’ll—

HAASS: Go ahead.

ECONOMY: I guess I’ll start and then—and then Brad.

So I think what we’ve seen is that it’s hard to know the reality of the situation on the ground, right. So manufacturing is up. We’ve seen that coal consumption is up and air pollution are all up. So that indicates that, in fact, you know, the economy is, you know, moving forward and people are going back to work.

There have also been stories of companies, you know, turning on computers and leaving lights on to simulate work, because some workers are afraid, actually, to go back. There are problems for migrant workers not being able to go back. Still there are limits. For example, in Beijing, if you’re coming from another place within China, you can be put on a two-week quarantine before you can sort of go and, you know, be engaged within Beijing. So I think it’s somewhat hard to know exactly what’s going on.

In terms of what lessons we can learn from what they’re doing, look, I think they’ve done a lot of important things; you know, temperature checks at subways. You know, they are doing a good job with social distancing. Of course, you know, they’re using neighborhood committees to enforce it physically. So we might not be, you know, open to that exactly; again, the sort of apps that are being used. Now, some of them are faulty, apparently, so some people are flickering between yellow and green, and those have very different implications for whether you’re, you know, able to go, you know, into your workplace or elsewhere. So they have to be done right. But I think that combination of technology, the adoption of technology, of the tracing—a lot of these things are things that would require some pretty significant shifts for us in the United States, much more intrusive, you know, surveillance of our behavior that we have now. So that would require some—you know, a big difference in the way that we do business moving forward.

You know, they have norm now of wearing masks when they’re outside. So I think there’s a lot that they’re doing that’s smart and good. And it’s also being done elsewhere. It’s not just China. It’s Taiwan. It’s South Korea too that I think we can learn from. But it would require a shift in the mentality, I think, among Americans about our individual civil liberties, et cetera, and how that would be moving forward.

SETSER: So this is Brad. I’ll put in three quick thoughts on this. The first is that measures of travel and movement within Chinese cities have increased and returned to not quite normal but something more close to normal. Travel between cities remains very depressed. And so I think that probably offers some indication of how the reopening in the U.S. might proceed. The second observation is—and this draws on work that Imperial College in London has done—is that the reopening, if you believe the Chinese data, and I think understanding whether this data is accurate or not is actually quite globally important—but if you believe the Chinese data the reopening didn’t lead to new COVID-19 outbreaks. And then the third observation is even with relatively low levels of new cases, judging by the reported data, activity has in no way come close to returning to normal. And the discretionary component of consumer retail spending remains very depressed. And so I think all in all, that kind of outlines a lot of what you might expect to see as other countries move in towards the phased reopening period.

HAASS: Thank you. Ryan, next question.

OPERATOR: Thank you. We’ll take our next question. And that is from James Keith with Nordvann Institute.

Q: Thank you.

So, Richard, you’ve talked about the public-health crisis accelerating the drift, as you characterized it in your book, A World in Disarray. Along with that, those trends, you see that our president—(inaudible)—demand is not going to help—(inaudible)—economic growth, but rather we’re moving in the direction of global depression. (Inaudible)—to comment on the likelihood of China turning inward and starting to cut some of its ties in ways that would affect both the bilateral as well as our broader sense of North American and European engagement with the Chinese economy?

HAASS: Brad, why don’t you take a crack at the question at the end of that?

SETSER: Look, my view is very clear, that China had already been turning inward over the past ten years. You see that in the fall in manufactured imports relative to China’s overall output, and the fact that those imports are really quite small. You see that in the ongoing effort to displace imported semiconductors from the Chinese electronics supply chain. You see that in the less-successful efforts to displace imported aircraft manufacturers.

What I hope is that China recognizes what right now is a clear commercial opportunity, which is that its capacity to supply personal protective equipment to meet global needs is enormous. And it, the world, desperately needs China to be outward-looking and outward-producing in the near term. But I think in the long run it’s less a question of whether China turns more inward and more a question of whether China’s trading partners turn more inward and become more reluctant to rely on China as a sole-source supplier of certain types of equipment.

BLACKWILL: Richard, perhaps I can chime in here. It’s Bob. And say, it is perhaps worth nothing that while China has been turning inward economically, it’s been turning outward strategically.

HAASS: Bob, you shut off there.

BLACKWILL: Sorry. It is—try it again. It may be worth noting that while China has been turning inward economically, as was described, it has been turning outwards strategically.

HAASS: Got it. Thank you.

ECONOMY: Sorry. Richard, can I just make one quick point on this actually? Just a caveat to Brad’s point, which is that I think there’s one thing about China turning inward, but it wants to turn inward on its own timeline too. So Made in China 2025 has been moving forward. But at the same time, it doesn’t want an accelerated, you know, move on the part of the international community away from manufacturing in China until its ready. We’ve also seen some openings, right, in the Chinese economy in certain sectors—in insurance, in financial services.

And I’ll just note that over the past week or so China has said, not that I believe it necessarily—(laughs)—but it has issued a new document saying that it’s going to move forward aggressively with economic reform, in terms of land, and labor, and lean toward—you know, saying it was going to do back at the Third Plenum of the 18^th Party Congress. So we’ll have to wait to see whether any of that comes to pass, but there are definitely some forces in China, I would say, that are trying to take advantage of this moment and say: We need to move forward with economic reform. Whether it happens or not, I don’t know. But I just want to say that that debate is certainly playing out again.

HAASS: Thank you for that.

Ryan.

OPERATOR: We will take our next question or comment. And that is from Nick Schifrin with PBS NewsHour. Please go ahead.

Q: Hey, you guys. Thank you so much. Hope you can hear me.

Richard and Liz, you guys were talking about a theory that I want to take head on, because people are in the administration beginning to say it’s more than a theory; it’s actually what happened. So can you engage with the idea of what some members of the administration are saying right now, which is that this was accidentally released by lab workers and it has nothing to do with the wet market? And perhaps engage with the fact that the intelligence community has not concluded that, despite the fact that some administration members are saying that it is what happened.

And then a larger question for the whole group is there’s obviously tensions over what you were just talking about, which is the exporting of PPE. There have been delays in those—in that PPE being exported since China got criticized by Europe for the quality. Do you believe that those delays are purposeful, and that China is holding PPE over the rest of the world, or these are just, you know, red tape problems that China actually wants to fix? Thanks.

HAASS: Liz, do you want to take the—

ECONOMY: OK, sure. I mean, I don’t think I have much more to say on the debate over whether this came from a lab or not. I will note that, you know, it was tweeted by another senior fellow at CFR who is an expert on this issue of China and health very early on, just noting before this was any part of the debate, back in January—noting that this lab existed. (Laughs.) Right? In Wuhan. And without making a claim that, you know, it was—the virus was released from there. He certainly wanted to put it out there in a sort of indefinitive way—(laughs)—non-definitive way, that this was a possibility. I don’t have any inside information as to whether it was—to where the truth is.

In terms of the PPE export, you know, I think at this point in time it’s reasonable to assume that China has put into place now this entirely new certification process. We know enough about the way that China works to say that it’s entirely possible that these delays are indeed due to, you know, just trying to figure out the certification process and, you know, different parts of China are doing things differently. And so I think it’s entirely reasonable. I think if it goes on much longer or if there’s differentiation among countries, right? So if certain countries don’t seem to be experiencing delays in PPE imports from China, while others, like United States, are, then I think there’s reason to raise an eyebrow or two about what’s going on. But I think we have to give them, you know, at least a week to sort this all out before we start accusing them of, you know, malign intent.

HAASS: Nick, let me just say two things about the “theory,” quote/unquote, that this emanated from the lab in Wuhan. One is I’ve not seen any intelligence surface to supporting that contention. And if there is such intelligence, it’s the sort of thing I would think that would be difficult to keep under wraps. It’s not conclusive, just a point. Second of all—and this goes way beyond my expertise; I’m just repeating what I’ve heard from others—is that the genetic composition of the virus is not consistent—according, again, to experts, of which I am not—with the sort of thing you would expect if this had come out of the laboratory, if this had been engineered there, and that it’s more consistent with the, if you will, public explanation that it came out of a wet market and animal-to-human transmission. I don’t think either of those are dispositive, and you never know what you don’t know, but I’m just putting those two things out there.

And again, I think the interesting question is not that it would—if it were to be proven true that it did come out of the lab, it wouldn’t change where we are in terms of the health crisis. I think the interesting questions are what it would mean for China’s domestic political balance, what it would mean for China’s standing in the world, and also—and it’s something we haven’t touched on in this call—what it would mean for international health governance. It reinforces the sense that our health governance is inadequate to the task and at a minimum it didn’t require, or it couldn’t compel China, rather, to be more forthcoming and more transparent early on in this crisis. And again, if it turns out this did come out of a lab, it raises all sorts of questions about what sort of activities are allowed to be carried out with what sort of national or (international ?) supervision. And I’ve now told you more than I know about that situation.

Ryan (sp), why don’t we—

BLACKWILL: Richard? Richard?

HAASS: Sure.

BLACKWILL: Richard, can I just reinforce that? And I, too, am not an expert, but I try to read the media, the press, carefully, and I’m not aware of any evidence in the public domain that this virus came from a laboratory. And I don’t want to be picky, picky about this, but if there’s no evidence for that at least so far, that matters.

HAASS: I agree. Thank you, Bob.

Ryan (sp)?

OPERATOR: We’ll take our next question or comment, and that is from Joe Nye with Harvard University. Please go ahead.

Q: I have a question for Liz about what’s really going on on the ground in terms of U.S.-China medical and scientific relations. To what extent has the propaganda war cut off those ties? Like a number of others, I signed a(n) open letter a couple of weeks ago saying we ought to be careful not to break those ties. And we know from the 1918 pandemic that the second wave killed more people than the first, and there’s good reason to believe there may be second and third waves of coronavirus pandemic. In that case, we have a lot to learn from cooperating closely with the Chinese in our self-interest. They know a lot about the early stages that we don’t know. To what extent are there CDC teams that are going back and forth? To what extent is there university groups that are talking to each other about this? Or have the propaganda wars basically cut all that off?

ECONOMY: Thanks, Joe. So as far as I know there is still scientific cooperation that—(inaudible)—on. And I don’t know—we had still a few CDC representatives on the ground in China, but I believe the numbers had been cut fairly significantly over the past several years in the Trump administration. So I think our, like, on-the-ground access was more limited than it otherwise might have been. But I think there’s still—the cooperation is ongoing.

I do think there’s another issue in addition to the propaganda war, and that is that, you know, China has recently passed a law that all scientific papers that deal with COVID-19 have to go under—have to be vetted and approved by the Ministry of Science and Technology. And so I think that introduces another whole layer of sort of political oversight into this that I think will be, you know, unwelcome from, you know, a scientific perspective.

But as far as I know there are still scientists who are working together and, you know—and working, you know, in tandem, too. So different universities in the U.S. are working on one part of the problem while, you know, partner universities in China are working on another. So I think it’s still ongoing, but that’s just my—you know, my most recent reading of the situation.

HAASS: Thank you, Liz. Thank you, Professor Nye.

Ryan (sp), we’ve got time for one last question.

OPERATOR: Thank you. We’ll take our next question, and that is from Astrid Williams with PepsiCo. Please go ahead.

Q: Hi. Good afternoon.

I was just wondering—it’s also on a health-related note—to the—the announcement this week of the freeze in funding for the WHO from the U.S. I wonder where you think that that fits within the question of the overall U.S.-China relations.

And a related question on that. I sit—as you can probably hear, I sit outside of the U.S. I’m wondering where there has been some surprise at the—at the backlash that, you know, typical U.S. allies have conveyed to the U.S. over that move, and whether you think there are implications for sort of multilateralism around that.

And then a sort of final question. You know, how relevant is the U.S.-China relationship in the WHO equation? I mean, if one did want, on the part of the—of the U.S. administration, to kind of go back into a more normal role within the WHO, you know, does that require face-saving around the U.S.-China relationship or the WHO-China relationship? And if so, what does that look like?

HAASS: Well, let me just sort of say—Liz, I’ll ask if you to say something—we’re going to do a separate call in the near future on the WHO and global health governance where we will drill down on this with some of our experts on both global governance and on global health-care issues. So, Liz, I don’t know if you wanted to take a crack at any part of that or not.

ECONOMY: Sure. Let me—I’ll try to be brief.

I think there’s—definitely the WHO-China connection is at least in part responsible for the Trump administration decision to freeze the funding. I think the president said as much. There’s a lot of concern about whether or not China was able to control the narrative in harmful ways because of its close relationship with the head of the WHO.

I think the issue of Taiwan clearly fits into the World Health Organization. There are a lot of people in this administration who—and in Congress—who are very strong supporters of Taiwan, and the fact that Taiwan is not able to participate in WHO discussions directly is something that rankles and I think they’d like to see changed.

Having said that, it’s also clear that this administration is not deeply supportive of the United Nations and its organizations, at least the president. So—(laughs)—you know, freezing funding, I think, for him was not a difficult decision personally.

I think there’s a lot of support as far as I can tell globally for a deeper look into that relationship between the WHO and China, and very little support, obviously, for the president’s decision to freeze funding in the middle of a pandemic.

So I think can the U.S. get back in? Yes. I mean, we are sitting with an empty executive—seat on the executive board of the WHO. We haven’t even filled it. So I think—I think we can get back in the game. I think it’s going to require a new administration.

HAASS: Like I said, we’ll do a call on global health governance. I think there are a lot of questions out there about the inadequacy of if, the fact that there’s been standards on the books now for roughly fifteen years that in dozens and dozens of countries have not been met. Where the standards have been met, the behavior—in this case, in the case of China—did not meet the standards of the World Health Organization, which then was not only fairly generous towards China but had no mechanism for responding. So I think this is a big issue. And I think, again, it’s part of this larger issue of the gap between global arrangements and global challenges and what is the best way to try to narrow that gap.

Let me just say two things. One is I want to thank our three speakers—Liz Economy, Brad Setser, and Bob Blackwill—for joining us today and for their regular contributions to the public debate about these and other issues.

I want to thank you all for joining the call. Just want to remind you that we are putting on any number of calls every week and that will continue for the duration. I recommend also you spend some time on CFR.org, where you see the written output of the Council but also others. We curate what we think is the best information available on subjects, including global health. If you haven’t been to the Think Global Health part of the website I strongly recommend it. It’s as good a venue for this debate as you will find anywhere. ForeignAffairs.com has been producing an enormous amount of high-quality material on a daily basis. And then on top of that there’s the new—the new issue of Foreign Affairs, which has—the current issue has a cluster of articles on a problem that may not be in the forefront, but by all means has not gone away, which is climate change. And there are some interesting overlaps between some of the governance issues in the field of global health and the field of climate change that need to be reckoned with.

Again, though, let me thank you all for joining us today, thank our three speakers, and wishing that everyone manages to stay well and stay safe. Thank you very much.

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