Symposium

Hauser Symposium: China’s Domestic Evolution

Wednesday, March 23, 2022
Guests speak at CFR event

CFR scholars and experts from think tanks and academia examined China’s domestic transformation and how the country’s demographic trends, COVID policies, and economic prowess have affected its rise and sustainability as a global power. 

This event was made possible by the generous support of the Hauser Foundation.

Demography as Fate—China's Aging Population and Declining Birth Rate

LINDSAY: Greetings, everyone. I am James Lindsay, senior vice president here at the Council. It is my great pleasure on behalf of Richard Haass, the president of the Council on Foreign Relations, to welcome you to this CFR event in the opening session of the Annual Hauser Symposium. Our topic this year is “China’s Domestic Evolution.” We are delighted to be able to host the conference in person, and I want to welcome everybody who is in the room today as well as people who are joining us virtually.

I also would like to thank Rita Hauser, who is with us here today. Rita has supported the Council for many years. (Applause.) And this symposium has been made possible by the generous support and backing of the Hauser Foundation.

We’re going to be having three sessions today. They’re going to look at China’s domestic transformation and how the country’s demographic trends, COVID policies, and economic development are affecting the country’s rise and sustainability as a global power. I’m sure you’ll agree with me these are critical issues today.

What I’d like you to do now is to join me in welcoming the panelists for our first session. Its title is “Demography as Fate—China’s Aging Population and Declining Birth Rate.”

Our presider for this session is CFR member Nicholas Eberstadt. Nick is the Henry Wendt Chair in Political Economy at the American Enterprise Institute and a man who knows a lot about demography. You’re in great hands. Nick, over to you.

EBERSTADT: Thank you, Jim.

And welcome, ladies and gentlemen, to the CFR Hauser Symposium. It’s almost like the before times, isn’t it? Back together again. It’s wonderful to be back at the headquarters and it’s great to be here for this session. And welcome, also, to our virtual audience.

As Jim said, our assigned topic this morning is “Demography as Fate—China’s Aging Population and Declining Birth Rate.” I’ll leave it to the metaphysicians among us to tell us whether demography is destiny or not, but we do know that slowly but quite unforgivingly population change has impacts on the realm of the possible—in the social realm, economic realm, and even in the political and national security realm. And we have three experts with us who I think are going to shed a great deal of light on the constraints, opportunities, and prospects for the People’s Republic of China, but also for Taiwan and other countries in the East Asian area. Not to give away the show, but since the end of the one-child policy the People’s Republic of China has seen a tremendous slump in birth levels, a continuing one that began before the COVID crisis, and this is accentuating some of the trends that we’ll have to be talking about today.

With us here today we have, I think, one of the persons who would be on anybody’s shortlist of best living student of China’s population, Professor Wang Feng. Coming from Taiwan by the magic of telecommunications, we have a rising star from Academia Sinica, Alice Cheng, one of the experts on Taiwan and South Korea and other East Asian areas’ super-low fertility, their determinants, and implications. And right here from CFR Resident Fellow and Fordham Law Professor Carl Minzner, who’s written widely and wisely on law and policy in the People’s Republic of China and the rest of East Asia.

So let’s start in right away. Wang Feng, you actually have written a number of books on this, so I won’t say you could write a book on the question I’m going to ask you. But let’s say, in a(n) elevator version, what are the things that we should know about China’s population trends in the recent past? What are the big problems that they pose? What are the questions they pose for the future?

WANG: Thank you, Nick. I have five minutes to do this, so I won’t be able to get through every part.

But demography, as Nick was saying, is a slow-moving train. But for China, I think last year or this year is another milestone. The milestone is that China effectively has ceased population growth. So we saw the early report this year last year China added less than half-a-million people. So, in a country of 1.4 billion plus, that is a rounding error.

That came as a surprise because the United Nations, their projection is for China to peak its population size fifteen years from now. In our own research with my colleagues, we thought this would come in 2025. So it even surprised ourselves, doing our own projections.

Demographically, there are three reasons for this. One is there is a(n) echo effect. That is, China has entered in the last number of years—five, ten years—a(n) era of smaller and smaller cohorts of young people of childbearing age of marriage age. To give you a sense of magnitude, at the peak of China’s birth—number of birth back in the late 1980s, China was having 25 million birth a year. So by the beginning of the 2000s, that number dropped to about 15 million. So the people born in the ’90s, ’80s, and even 2000s are now entering not just labor force age, but also marriage and childbearing age. So the number is getting smaller, and that’s a(n) echo effect of demography.

And the second one is more—I think more interesting, is—Alice, I think, is going to enlighten us more, looking at Taiwan—is the sharp decrease in marriage or sharp increase in marriage age and fast postponement of the proportion of women or men who get married. To give you one number—we don’t have the 2020 census number yet, but you’re just looking at 2015, the mini-census—between 1990 and 2015, the share of women in urban China who were single back in 1990 was less than 5 percent. 2015, just in twenty-five years, it was close to 30 percent. OK. So that’s how fast this is moving.

And looking at Taiwan, looking at South Korea, looking at Japan, China is moving exactly that direction. So in Japan, 30 percent of men and close to 30 percent of women are still single, never married, at thirty-five to thirty-nine. That means they are never going to have children, right.

So if China is moving in that direction—this is urban China only. So that is another demographic force. But there are a lot of interpretations why this is happening, right.

The third one is, really, even for married couples—we talk a lot—that is those who did get married—they are not having many birth(s). Again, there are many reasons for why people—young people—are not having more than one child.

So, anyway, so those are the three demographic reasons for the, I would say, crashing low birth numbers in the recent years.

OK. So I should end there and then we can come back to how we look at it.

EBERSTADT: Thank you. Thank you, Wang Feng.

Alice, Taiwan is a prosperous, affluent country. Its birth levels seem eye-poppingly low and have been for a while. Tell us about the Taiwan experience and what we should know about that if we want to put it into an East Asian perspective also.

CHENG: Well, I think the—one key issues leading to this very few person—their extremely low fertility rate is that there’s still a very tight linkage between marriage and childbearing. So, as Dr. Wang just mentioned, marriage rates is plunging, and so no marriages, no kids. Nonmarital births is still not very tolerated all over East Asia and, of course, it has something to do with the patriarchal culture that really emphasize female chastity and then, you know, the face of the family. It’s considered very disgraceful to a family if there’s a nonmarital birth.

So what we’re seeing with plunging birth rates and declining measure is the rise of bridal pregnancies, so young couples rushing to marriage after they’ve found—find out that they’re pregnant. And others, of course, aborted the kids and they’re—you know, abortion is actually a black number that we really don’t know how many children are—have been aborted. So that’s one thing, this close linkage between marriage and childbirth.

Another thing is this rapid transition in terms of women’s educational and occupational development, and so it’s not—the entire social milieu or parental generations is too slow to adapt to this rapid rise of women’s status. And so when these younger generations of well-educated, economically independent women want to enter an intimate relationship, what they consider as ideal relationship is really different from a lot of men’s perspective or parental generation’s perspective and this, really, created some kind of conflict when they put that into their calculation and whether this, quote/unquote, “marriage package” is really worthwhile pursuing and the kind of opportunity costs they will have to face if they want to also have some kind of career development.

So I think these are another two points, I think, I should point out, and it’s common all across East Asia.

EBERSTADT: Thank you, Alice.

Carl, what are the policy challenges that population change is posing to Beijing, to Taipei, to other governments? How well are they dealing with these?

MINZNER: Sure. A great question, and it’s an honor to be on the same panel with Alice and with Wang Feng.

So I’m just going to mention one or two things about the policies that Chinese authorities have adopted and the first is Chinese authorities themselves, I sense, are in somewhat of a panic. The results of the 2020 census, as Professor Wang Feng mentioned, seem to have caught them significantly by surprise and they are now rapidly sort of readjusting what their projections are for China’s population, going forward.

And it’s much faster. As Professor Wang Feng—Professor Wang mentioned, you know, the things that they’ve been thinking would happen ten or fifteen years down the road are now happening now, and that, I think, is precisely beside the—behind the decision last summer to, basically, wipe out the entire private tutoring industry in China precisely because they perceive the educational arms race as a disincentive to young families considering having children, and that just took place within a span of a couple of weeks.

And, more broadly, as Japan, Taiwan, and South Korea have all gone through their aging process, there comes a moment where authorities in each state start to think that the decline in births is a problem and you begin to see them adopt a pro-natalist strategy. This occurred in Japan in the early nineties. It took place in Taiwan and South Korea in the early 2000s. China is now in the process of beginning to work through what that might look like.

So you’re starting—the first steps have been relaxing the curbs on births. So in 2016, the one-child policy was relaxed to a two-child policy. 2021, it was changed to a three-child policy, and at the most recent national meeting of the national legislature, the calls are to remove that entirely. That, as Professor Wang mentioned, isn’t really having an effect and you’re starting to see Chinese local governments beginning to experiment with other things—baby bonuses, loans for young parents seeking to have children, extending maternity or paternity—particularly, maternity leave, to larger numbers.

I don’t think any of that is going to have an effect on the underlining demographics for precisely the reasons that Professor Cheng mentioned, which is to say they can’t shift the highly-gendered social norms that are the blockage which are preventing people from having children, from getting—and from getting married. And so I don’t think that the existing policies they’re beginning to grapple to are going to work.

What worries me in the longer term is that the short-term—twofold—the short-term focus on trying to raise fertility targets is going to eat up a lot of time and Chinese authorities aren’t going to take measures to address latent systematic issues—pension reform, labor practices, which—aging itself isn’t a problem if you shift your society. But the problem is I don’t think Chinese authorities are taking steps on those more—on those deeper, system wide issues. That’s the first thing and that sets them up for a more rocky transition later.

The second problem, I think, they’re going to run into is under Xi Jinping the Chinese state is shifting to a more patriarchal neo-traditionalist authoritarian model and I think that has real implications for gender relations and, particularly, set them up to have a very rough and intrusive pro-natalist campaign. Divorce applications in China are plunging. It used to be, like, 60 percent approval rate. Now it’s 40 percent. That’s just in the span of a couple years. I think it’s a turn against divorce and a turn in the direction that’s going to have significant implications for women and that will exacerbate some of the underlying problems.

I’ll stop there and I can follow up with my—

EBERSTADT: Thank you.

I know we’ve got time for one more round of questions for our panel here. We’ll see if we’ve got time for any fielder’s choices after that.

Wang Feng, the one-child policy—we’ve all heard of it. It had, in the views of many, notorious human rights abuses. What about its demographic impact? Do we have any sense on what the actual impact on China’s birth trends were? How different would China’s population be today if nothing like this had ever been implemented? What’s your sense on this? I know it’s impossible exactly to answer but what’s your perspective?

WANG: Well, I think this is one of the half knowns and half unknowns. I mean, there are certain knowns about what we know about China’s demography. The full effect of the one-child policy it’s not shown up yet, and I’ll explain why. But, first, go back to what would have happened had there not been the one-child policy. If you look, one thing for sure is that fertility would have continued to decline and we saw that after what happened with the one-child policy being lifted. Birth rates still goes down. And we saw what happened in other countries around China and including not just Japan, South Korea, but also Thailand, which had almost exact the same fertility decline trajectory, and China now has a much higher per capita income than Thailand, right. And Iran, right.

So you can see many other cases. So China, in a way, I think, leadership, instead of pressing their feet or foot on the brakes they pushed their foot on the gas pedal when fertility was going down and then the policy dragged for so long. Well, then talk about COVID. What do you see? The way that COVID is being handled resembles a lot of what China did with the one-child policy—with population control.

So we don’t know. What we do know is that over—remember, it’s over thirty-five years, a long time, and there are over probably a hundred million families with only one child. So it has some effect on the population size and age structure. So aging is faster. But, predominantly, the reason—what we don’t know is what’s going to happen when the one-child parent—generation’s parents grow not in their sixties or seventies, but when they become eighty or even older?

So there’s going to be tremendous strain on both sides for the very old parents and also for the young—I mean, for their children, right. And that is also, perhaps—we don’t know the exact fact—why a lot of the young only-child generation they’re not having two children. You know, some would think, you know, if they were growing up as only one child they would want their child to have a sibling and that’s not quite the case because of the many other concerns, right—labor market, education, housing, career, but also caring for their aging parents. So that cost is not easily calculable in terms of economics, and so we’re going to see what’s going to happen. Yeah.

EBERSTADT: Alice, given the enormous difference in scale between Taiwan and the PRC, immigration has at least the possibility of being a compensatory factor for Taiwan. Import from abroad, so to speak.

What’s been Taiwan’s experience with immigration, with multicultural families? What do you evaluate the opportunities of immigration to be for Taiwan?

CHENG: I think it’s not just Taiwan but the entire East Asia. The so-called replacement migration that has been adopted by many European countries is really not on the table. For one thing, the entire region is pretty xenophobic. I’m very sorry to have to say that. So what we’re seeing now is that, especially in Taiwan, the lower SES men—also in Japan and Korea—they’re trying to look for brides or women who can help them continue their family lineage to bear children for them from nearby southeast or southern Asian countries such as Vietnam, Indonesia. And for Taiwan, because of the language and cultural similarity, men are also looking for a wife from mainland China. But these are, largely, lower SES men.

So when these migrant women marry into these socially disadvantaged families their sort of aspirations, you know, moving to a more developed, potentially, more gender egalitarian society becomes clear to them that it’s not the case that they—it’s not really what they expected because these are actually the kind of families that tend to be more patriarchal because of their social status.

So what we’re seeing is that the complete fertility rates of these foreign brides in Taiwan and also in Japan and Korea are actually lower than local women with similar education, and if you control for the spousal age gap, it’s still the—you know, the foreign brides did not bear more children than local women.

So is it really a solution to this low fertility dilemma in Taiwan? I don’t think so. But with all these foreign brides who would only have even fewer babies, that’s what I can say at this point.

So I think this is something that’s very difficult, and in terms of the outcome of these second-generation new Taiwanese kids, they are growing up in lower—families in lower class and also they’re facing some discriminatory treatment due to their mothers’ lower education and also because of the community they grow up is not so much—so advantaged compared to other Taiwanese children. So how they’re adapting to the entire situation remains to be better studied and we don’t have good research yet.

EBERSTADT: Thank you. Thank you, Alice.

Carl, family in East Asia—in China and the rest of East Asia, it’s been—the extended family has been the social safety net when times are bad. It’s been the springboard for opportunity when times are good. That extended family system is withering before our eyes everywhere. In China, in particular, to what degree can rule of law, strengthening of legal institutions, compensate for what we’re seeing, and any thoughts you have about the rest of the area?

MINZNER: Just on that question of, like, what supplements or what—as the extended family declines what takes its place, I’m going to build on something that Alice just brought up, which is to say the population flows from overseas and, first, talk about South Korea, Japan, and Taiwan.

So as Alice mentioned—Professor Cheng—one of the key things that’s happened in all three of those countries as societies have aged is you’ve seen an influx of people from overseas. There’s been a small number of people who have married in, and it’s—as Professor Cheng mentioned, one source is, you know, it’s—the local Korean government is giving government money for elderly Korean men in rural areas to go to Vietnam to find brides. That’s one flow.

But there’s another flow as well, which is short-term—the short-term and sometimes it’s a year or two years—but people who are coming on contract work. These are Vietnamese construction workers who are helping—who are working on construction projects in Taiwan. It’s Indonesian and Filipino nannies who are coming to Taiwan, but also South Korea and Japan, to help take care of the elderly.

And so that’s a core element of this as a population. You can call it immigration, whatever. I mean, but it’s people who are moving, and the number is not small. It’s about—in Taiwan and South Korea, that’s about—could be 3 (percent) to 5 percent of the population right now is composed of those individuals in addition to the people who are married in.

One of the questions for China, going forward, as it goes into the very rapid aging is what happens and, particularly, you know, who takes care of the elderly. In my own research that I’m working on that’s a big question that I have because it’s—of course, right now in China, nothing like that exists. You don’t even see—no. Particularly with the COVID policies, but even beforehand. It’s almost nonexistent. And so that, I think, is an important thing to watch is those flows of population.

EBERSTADT: I think I have time for just one more question for the group. But I’d like to get lightning round responses, if I could, from you. I’d be fired as the moderator if I didn’t ask this. What is going on in East Asia with these crazy low birth rates? Much—I mean, we’re talking about almost 50 percent below replacement in places like South Korea, in places like Taiwan, heading down towards those levels in many parts of mainland China.

This is much lower than sub-replacement fertility in West Europe. And there was this guy called Confucius, I think, who had this idea about how the harmonious continuation of society had to do with continuing the family lineage through the male issue.

So why are we seeing this, of all places in the world, in East Asia? I’d like to ask you first, Alice, for our lightning round Rorschach test response.

CHENG: OK. You mean why so few babies and marriage?

EBERSTADT: Why is fertility so especially low in Taiwan, South Korea, now in China, much lower than in West Europe, North America, other areas?

CHENG: Well, from my own observation, there’s, basically, something going on in the marriage market. So everyone’s postponing marriage to much later ages. But with this strong idea of continuing the family lineage, women’s age becomes an issue once they enter into their mid-thirties and that’s when quite a bit of women start thinking, oh, my career has stabled and I have—you know, it’s a good time to start looking for a marriage partner.

But then men, on the other hand, they’re thinking, oh, I should—you know, at the same range—age range—they are thinking: I need to find a lady who is more “fecund,” quote/unquote, because, you know, these public health and medical doctors keep telling you the golden age is having babies between twenty and thirty-four. But nobody’s marrying at that age in Taiwan. You know, the never-married percentage for 25- to 29-year-old is 96 percent. For thirty to thirty-four, there are still 62 or 65 percent not marrying, of men, and 58 (percent) for women.

So what are you talking about? You’re telling half of the marriage—people at marriageable age that, oh, you are—especially women—are approaching the end of your reproductive career. But the really paradoxical thing is that in the age of very low fertility, we actually enter also into a period of the highest number of mothers, forty-plus—you know, age forty-plus. So back in 1975, when total fertility rate was really high, you know, there are fewer than one thousand mothers who had their children when they were more than forty years old. But, you know, in 2021, there are more than ten thousand. Yet, TFR is only, you know, 0.99 in Taiwan.

So it’s this thing that, you know, people are postponing it to later ages, but the society—the social value, and everything is—you know, remain, you know, unchanged for, like, three decades. And still telling you, oh, the proper age to do so-and-so is at this age. But it’s—so there’s a disjuncture between reality and expectation. And I think that’s something that is not discussed enough, this, you know, marital age preference. Yeah.

EBERSTADT: Thank you. Thank you.

FENG: Can I add—

EBERSTADT: Yes, I was going to ask the gentlemen if they have any quick additions.

FENG: Well, the gentlemen would go after the other gentleman—the name you brought up, Confucius. There are three regions in the world with very, very low fertility. East Asia is one of them, but not the only one. The other two are East Europe and South Europe. Now, there is something in common between—well, leaving Eastern Europe aside. With all that’s happening right now, that could be a reason. Both for Southern Europe and Eastern Asia, they share one common not quite value, but one cultural inclination. That’s big families, right? So you see in big family areas they have low fertility. Now, there are other cultural traditions for Southern Europe. For East Asia, it is Confucius. That is, the parents need to be responsible for your children. It's not just you have many children. You have to raise the children. Many Chinese parents want their children to have better live than themselves. So Chinese parents, as taught by Confucius, love their children too much. The way you love your children is not have them.

MINZNER: I’m just going to—

EBERSTADT: Can you top that?

MINZNER: I’m going to follow and echo. Everything I’m about to say are just things when I was in Taiwan talking to Professor Cheng. And like—so, also, Confucius is a Confucius man. And there’s another key element, which is what’s the responsibility of the women? The women, it’s to take care of the children and the women to take care of the—you know, the elderly in-laws. And so that—you’re having large numbers of Chinese women who are basically—or, Taiwanese women—saying, you know, basically I’m—this is not—you know, this is not what I want to do.

Moreover, just as Professor Cheng had mentioned, you got to also understand that there’s no outlet of what—if I don’t want to get married, what’s the ability to have—can I still have children? In Iceland, I think, the statistics, Professor Cheng, you’d given was, you know, 80 percent of all births take place out of marriage. In the United States, it’s 40 percent. In Taiwan, it’s, like, 1 percent.

CHENG: Three-point-eight. No, no, no, 3.8, 4 percent. (Laughs.)

MINZNER: Three-point-eight, in Taiwan. And then—but in Japan and South Korea it’s—

CHENG: Two percent.

MINZNER: Two percent, right. So it’s basically this is just—you know, those gender norms—and, you know, the other statistic was in Japan—in Japan and Sweden both have the best childcare policies in the world. Paternity leave, 80 or 90 percent of Swedish fathers take it. Only 7 percent of Japanese fathers do. So there is—there are gendered stuff that’s going on that are leading to women to not get married and not have children. And you address those or you don’t solve the problem.

EBERSTADT: Thank you. Well, at this time I’d like to invite members to join our conversations with their questions. Please remember this is in the record.

Yes, let’s start with the lady here. Please—

FENG: Joan Kaufman.

EBERSTADT: Yes. (Laughter.)

Q: Thank you. I’m Joan Kaufman from the Schwartzman Scholars Program.

And my question really is, you know, invoking Confucius again and the male lineage. What impact of the, you know, male preference—son preference, the sex-selective abortion and all the missing women on, you know, exacerbating the low fertility problem in China, the—you know, the less babies? Because if you have less women having babies, you’re just going to have less kids altogether, right? So could you comment on that? I know I brought this up before, Wang Feng, but I’m really curious to hear whether you think that’s a real impact.

FENG: Well, we—because of the—largely because of the one-child policy, China had abnormal sex ratio or elevated sex ratio for two and a half decades. You know, normal sex ratio is about 105 boys to one hundred girls. And China had a sex ratio as high as 122, 124 in the early 2000s. So depending on the estimate, because a lot of the girls were hidden, not reported. But the number could be 20 to 40 million or so-called missing girls, mostly through sex-selective abortion. So that, of course, is going to have some effect. But demographically, because this really runs through thirty-some years. So it’s not like China has 40 or 30 million young men who are all in their reproductive age. It’s spreading out to a broad age range.

So it would have some real effect, but I actually want to bring this up, which is when we talk about migration. This is not migration. This is trafficking and taking hostage of women. While Winter Olympics was going on in Beijing, the social media was more focused on this woman who was basically bought and sold and chained, and had eight children, right? So the Chinese social media have explosive discussion of this. Not about the husband, not about the woman, but about the responsibilities of various levels of government and the Chinese birth control policy. So again, I think for people here who report on China, you never know what is the fuse that’s going to lead to this discussion. Anyways, I just wanted to, you know, bring that up. It’s a—you know, not important from—there’s a lot of actually border marriages in China as well. But this particular case is really internal, right?

EBERSTADT: Thank you. We have a question from our virtual audience.

OPERATOR: Our first virtual question will be from George Breslauer.

Q: Thank you very much. This has been a very interesting discussion.

I have a question about the economic implications of this demographic profile. In the United States, when we talk about self-driving trucks we talk about three to four million truck drivers prospectively being unemployed. To what extent can technology compensate for a declining workforce in East Asia?

MINZNER: I’ll take a crack at that. I mean, I think that’s a really good question. That’s one that I’m kind of working out in my mind as well. And my reference point is really to look at what’s happening already in South Korea, Japan, and Taiwan.

So, you know, these are societies—you know, I think: Japan, robots. And that’s totally—that certainly is one response, is to begin to require—begin to rely more heavily on mechanization to sort of take the place of certain types of—certain types of jobs. That does not fully solve the issue in any of these societies. So, like I said, the statistics in Taiwan and South Korea, just off the top of my head, but it’s about 4 to 5 percent of the population consists of people who were sort of not born in those areas. And that includes people who were married in, but the larger proportion is people who are working on these short-term labor contracts.

And some of it is blue collar jobs. It’s heavy construction and the like. But another component is actually—it’s elder care. And so it is Indonesian and Filipino nannies who are taking care not anymore of children, but of 80- or 90-year-olds. That strikes me as a very difficult thing to rely on any sort of technology to address. And so that’s the type of—that’s a particular segment within China that I’m trying to figure out, how do you address that. Particularly the answer in Shanghai or Beijing is, of course, you will have people moving from rural areas to urban areas. But the question is, what happens in rural areas? And in Taiwan, even in rural areas, you can find foreign labor who is helping to take care of the elderly grandparent. I don’t know what happens in China.

EBERSTADT: Yes, ma’am.

Q: Hi. Michelle Caruso-Cabrera.

Could you explain a little bit more about why the elimination of private tutors should lead to more babies?

MINZNER: Oh, that’s a theory—that’s the government’s—the thinking is the high education costs arms race—so kind of like people in New York. You know, think of the amount of money that flows into—what’s the burden involved in educating a child? And from the standpoint of the Chinese government, what Xi Jinping was thinking is: If we can sort of begin to eradicate those barriers—make it cheaper, make the whole concept that it’s not such a burden to have a child. If we’re able to sort of take down the cost of education, that will encourage more young people to have babies. That’s the theory, at least.

EBERSTADT: Yes, in the back, please.

Q: Mark Rosen.

I would be interested to hear the panel’s view on whether they think a lower birthrate, particularly for China, is positive or negative. There are some economists, Adair Turner, for example, wrote not so long ago a piece where he actually strongly argued that, in fact, it was positive for China that there should be a declining birthrate. I think the other countries, it’s more difficult to argue that. For South Korea, Taiwan, et cetera, who’ve got much smaller populations. But for China, it seems to me, that it’s not necessarily a bad thing. But I’d be interested to hear what the panel’s views are.

EBERSTADT: Can I ask all of our panelists, if they wish to respond to this? Maybe—

FENG: Yeah, I can start it. Well, let’s put this into perspective. That population growth and decline is not something that we actually can do a lot about. Now, for many people in this room, myself included, we remember the time when controlling population, birth control, was the global agenda, as climate change right now—fifty years ago, forty years ago. Fifty years ago, the world was growing—population was growing at 2 percent per year. At that rate, the world population would double ever thirty-some years, right? Last year the growth rate was 1 percent. Fifty years from now, the growth rate will be zero.

So you are going to have this growth and decline, just as we did not expect the world population would have such explosion. It was largely driven by mortality decline, improvement in well-being, life expectancy. Good things happened. And now we did not expect the world would go into such, you know, a fertility decline, birthrate decline, population decline. So these are forces I think that are really beyond my, you know, comprehension, per se. So but one thing to—that’s important to point out is that the pollution, the resources used, and, you know, all those kind of environmental issues, they are more caused by way of life, by our behavior, not by just number percent.

So that was argument used in China thirty or forty years ago for the one-child policy. Now we’ve seen population is declining in China. I mean, the birthrate is declining in China. Birthrate number is going down. But the pollution went way, way, way up. And we all know that’s not caused by a number. It’s caused by the way of living, right? So that’s—

EBERSTADT: Alice and Carl, anything to add?

CHENG: I’ll have a very short one-sentence response to that. The positive side I see for low fertility is that if we think about the past traditional high fertility is sustained by sacrificing women’s education and—education rights and career prospects. And I think low fertility is probably not a bad thing, because now women get to be more autonomous, to pursue their own life as they wish.

MINZNER: I’ll also give a one sentence—one short thing. I’ll say, you know, population aging or decline is not, in itself, a problem. It’s whether or not you address all of the issues that are associated with it, such as changing your pension practices, say figuring out what you’re going to do in terms of elder care. The key isn’t the aging itself or the decline in the birthrate. It’s how do you address the effects that come naturally with that?

EBERSTADT: Thank you. We have a question from our virtual audience.

OPERATOR: Our next virtual question will be from Herman Cohen.

Q: Thank you for a very interesting discussion.

I’m a retired U.S. diplomat who specialized in Africa. And I’m seeing over the last twenty years a growing number of Chinese people settling in Africa through the Belt and Road Initiative, and that sort of thing. So the question is, is there significant emigration from China these days?

MINZNER: I’ll take that. I mean, there is—that trend that you noticed, yes. And in fact, I’m not a specialist on Africa, but, yes, I believe there are about one to two million Chinese who are in Africa, some with large state-owned projects, some also people who’ve just decided I’m going to make my future in Gambia opening a store. So that is an interesting side of population that we don’t think about. I’ll flag one other element as well, which is those same population trends happened, for example, with respect to Taiwan in Southeast Asia, which is, you know, when Taiwanese industry went to Southeast Asia and went to China as well, you also saw those population flows.

One of the things that also happened was that also created the backflow, which is to say those people sometimes married folks from Southeast Asia, or were working with people who then ended up coming back into the home country—Korea, Japan, Taiwan—for work. One thing I think it’s worth watching is does China start to experience that? Average age in Africa is nineteen—sub-Saharan Africa. Average age in China is closing in on forty. So if you’re thinking about elder care, if you’re thinking about where does young people come from, there’s one big one in my mind that I’m thinking of. And that starts to create some really interesting questions politically about Chinese identity and the ability of people to enter.

EBERSTADT: Questions. Yes, sir. Yes.

Q: Professor Wang mentioned with one of the studies—Ed Cox, excuse me. Patterson Belknap.

You mentioned “in urban areas.” Which raises the issue of the two populations in China, separated by a registration system. Is there—all the issues we’re discussing, is it different in rural areas than it is in urban areas in China?

FENG: Well, we have Scott here, Rozelle, this afternoon, and he will address this. The one area I did not get into is China not only faces a population challenge, but more seriously is this urban/rural—urbanization challenge. China still has 260 million people, as of last census, who are in cities but without local household registration. Now, China has relaxed over time the Hukou, the household registration, restriction. But still, for very large cities, for five million and more, you still cannot just get a household registration to enjoy the local benefits.

And those—you know, China has nineteen cities with five million or more. And they account for 210 million—210 million—migrants without benefits. So how will China deal with this when the economy is slowing down, government revenue increase is slowing down, and you still have so many Chinese migrants in the cities, and who do not have the local benefits. So that is just one of the issues that, you know, demographically related to migration, urbanization. But it’s going to be one of the huge challenges China will face.

EBERSTADT: We have another virtual question.

OPERATOR: Our next virtual question will be from Paul Vandenbrook (sp).

Q: Thanks. Hi. My name is Paul Vandenbrook (sp). I’m a new advisor and also the World Demographic and Aging Forum.

Quick question related to—given the demographic changes that you have described, what specific changes, if any, would there be in healthcare policy priorities for the government to deal with this from a—both from priorities for the younger part of the population as well as, then, the over sixty-five.

EBERSTADT: Well, all of our speakers may have something to say on that. Alice, would you want to begin?

(Cross talk.)

WANG: Speak louder.

EBERSTADT: Alice, I think all of our speakers may have something to say about this. Would you like to start?

CHENG: Well, because of this population aging process and phenomenon, I think at least the government of Taiwan’s thinking about that we need to really allocate more resources to this long-term care for the elderly population. And I think that’s a main concern for all these aging East Asian countries. In terms of younger population, I don’t see anything particular.

Another thing is assisted reproductive technology has recently been opened up to all married couples. In the past, before July last year, it was only available fully subsidized by the government to low-income couples. And then, you know, policymakers and a lot of scholars are pushing and really saying that this is just is not—is not reasonable, so it opened up to all married couple. But you see married couple, so there is a very strong, you know, value put there that, you know, only married people are eligible to use that.

Yeah. That’s my quick comment.

EBERSTADT: Thank you.

Carl?

MINZNER: Well, just on that point, that’s an issue in China too. I mean, so both sort of—and this is an interesting question for—I think for Xi, for Xi Jinping. On the one hand, if you’re—if you’re interested in sort of bumping up your—so IVF, right, so limited, not available to single—to single women, and there are lots of debates online about this. But yes, I mean, if you have a highly heteronormative patriarchal system, do you want to start opening up IVF practices to single women? And you can almost think from the standpoint of the CCP—the Chinese Communist Party—it could go a couple of different ways. I just have the feeling that fundamentally this starts to challenge the direction that Xi Jinping wants to take the country, so I’m sort of betting that it doesn’t open up. It’s going to be within the same rubric that Professor Cheng mentioned, that it’ll be—it’s only for married couples.

EBERSTADT: Wang Feng, any comments?

WANG: Well, it’s a very—it’s another—the most complicated story and challenge of the Chinese health-care sector. There are two sectors in China that are probably the most entrenched still in the planned economy mode. One is education, and that’s how they were able to get rid of the tutoring system. The minister of education was behind this. They really worried about losing their power, losing their good teachers to these private-tutoring businesses. So they’ve been pushing this for the longest time. And now, with low fertility, they came out and then somehow allowed the government just to ban this overnight, and resulting in canceled meetings, young people’s unemployment.

The other, I can say the same thing for the health sector. The Chinese health sector has—reform has been very slow. And it’s the—in terms of equal access, cost, quality, I would say all three areas are failing. Here we have experts. Yeah—(inaudible)—Dr. Hwang (sp) here. And so, again, I think that’s also a challenge China is going to have to deal with in the years to come.

Just to give you this number, per capita income doubled, I think, in the decades of the 2000s, and the per capita health cost increased at twice that much. So, with aging population, you can expect that continue to go up.

Associated with the segmented society, you have health care that is highly unequal among different segments of the population. So that’s associated with urbanization—unfinished urbanization.

So those kind of issues, I think, with health care, because it’s driven by aging, clearly, so that’s going to be another, I mean, issue I think this afternoon people can, you know, talk more about.

EBERSTADT: We’re getting towards the witching hour, but, let’s see, I think we have time for certainly one more question. Ambassador Hauser.

Q: What a fascinating discussion.

I want to ask perhaps an absurd question. But China used great coercion in the one-family policy. They used coercion in the lockdown. Is it conceivable that they would concoct a coercion to have children? That happened in Nazi Germany. It wasn’t wildly successful, but it had some measure of producing more Aryan-type children. Is that something that you think might be on the horizon?

MINZNER: I can—

EBERSTADT: Carl?

WANG: Go ahead. Go ahead, Carl.

EBERSTADT: I can try to take a crack at this.

I mean, I—so if I think this is—I have—I am sort of thinking about this. My nightmare scenarios don’t yet involve, like, breeding centers or anything like that. I mean, what I really start to imagine is fertility and marriage targets start getting baked into cadre evaluation systems used to evaluate local party officials in exactly the same way they were under the one-child policy, but the numbers are just reversed. During the ’80s and ’90s you would have—you wanted to keep the birthrates low, so you would evaluate local officials on whether or not you had hit your target for X number of—and that led to a whole range of coercive practices: some forced abortion, also just high use of coercive fines to push people in particular directions.

If I—if I really worry about what might happen, my image is that it gets flipped. And of course, what that means in practice could be if you’re told that we should have a total fertility rate of X within our jurisdiction, it could lead different people to do different things. Some it’s like, we’re going to organize, like, lots of marriage—you know, lots of, you know, dating stuff for young singles. But other people might say, well, in order to make target before I try to—try to get boosted up to, like, you know, provincial or, you know, county head, I’m going to—I’m going to sort of drop abortion availability within my jurisdiction so that I produce a bump in numbers, or maybe I’m going to—you know, I don’t know. But that’s—and then you do start to worry about coercing, because what about just putting the arm on the courts to sort of not grant divorces or to overlook domestic violence as a reason for divorce? You could end up with—you know, even without the whole breeding camp idea, you could just end up with a whole bunch of bad stuff happening and it would be extremely detrimental for women and for Chinese society.

WANG: Well, anything could be possible, we learned, but this is one thing that I think is highly unlikely. And if I were to advise the Chinese leadership, I would say do not touch this bomb because they—by announcing the three-child policy, they already made themselves a laughingstock. You know, you saw blogging, people are saying, oh, I got a quota for a Maserati but I’m not using it. So if the government is going down further along this line, they’re really going to, I think, get a(n) unexpected revolution, and that revolution comes from young, educated Chinese women. And that—we already saw that earlier this year with this—you know, this kidnapped and chained woman. So I would tell the Chinese leadership don’t touch this.

EBERSTADT: Alice, Wang Feng, Carl, a single parting thought you’d like to leave with our audience. We have just two minutes left.

WANG: Let’s start with Alice.

EBERSTADT: Any thought—Alice, would you—would you begin by offering us a single parting thought you’d like the audience to hear or think about?

CHENG: I think everyone here should really think about the future of China. It’s a big population, and the future of it is not just the future of the Chinese people; it will shape and change world order, economy, and everything. So it’s very important that we pay close attention to its development.

EBERSTADT: Thank you.

Carl?

MINZNER: I’d reiterate what Alice said. I think this is the single most important thing for China going forward. It really should learn from the experiences of Taiwan, Japan, and South Korea, and rather than undertake some sort of military intervention along the lines of what sort of, you know, Russia is doing, realize that sort of addressing this particular issue is far more important to the future peace and prosperity of China than anything else.

EBERSTADT: Wang Feng?

WANG: Well, I think China needs to start getting people psychologically ready to accept the fact that China is going to have continued population decline, and then within five years it’s going to be smaller than India. And that’s not important demographically, but I think psychologically. It’s something that is going to happen.

EBERSTADT: Thank you.

In terms of housekeeping, please join us for Session 2 starting in fifteen minutes: “The Forever Lockdown—COVID-19 and the Closing of China.” But I’d like you to thank our panelists for their splendid presentation, especially Alice, who is joining us from the middle of the night from Taiwan. (Applause.) So thank you all, ladies and gentlemen. (Applause.)

(END)

This is an uncorrected transcript.

 

The Forever Lockdown—COVID-19 and the Closing of China

LIPKIN: OK. Shall we start? Well, welcome back. I’ve been a member of the Council for all of two weeks—(laughter)—and I’m already pressed into service. And because I’ve not done this before, I’m going to be referring to my notes.

So, first of all, I’m supposed to tell you that everything is on the record. We’re going to try to alternate questions between the panelists and the—and the audience, and our virtual audience as well.

Now, I’ve never met Rita Hauser, but I have to say that you had a great question. It was a question that I wanted to raise, but I couldn’t get, you know, recognized. So I’m glad you did.

So, first of all, let me tell you a little bit about her because I didn’t mention any of this. I hope I don’t embarrass you. So she’s a graduate of Hunter College, but she was a Fulbright Scholar. University of Strasbourg, Harvard, University of Paris, and New York Law schools. As many of you know, she was a delegate to the U.N. Human Rights Commission and a retired senior partner at Stroock Stroock & Lavan, member of the board of CFR, and well-recognized for substantive continuous leadership to global security. I really appreciate—once I saw what you’d done, I had a completely different appreciation for this symposium. Thank you.

Q: Let’s get on with the COVID thing. (Laughter.)

LIPKIN: All right.

I also want to say that I’m delighted not to be talking about the origins of COVID. If anybody’s really interested in talking about lab leaks and wildlife markets, we can do that later. OK.

So my friend Huang Yanzhong, I’m trying to figure out whether I’m going to use Chinese or American pronunciations. Yanzhong is here immediately to my left. He’s a senior fellow and director of the Global Health Governance Roundtable here, a professor and director of global studies at Seton (Hall) University. International relations studied—he got his B.A. at Fudan, got his Ph.D. at the University of Chicago. The founding editor of Global Health Governance. And I love this: He’s among the “20 Brainiest People in New Jersey” in 2012. (Laughter.) And I asked him about that, and apparently he’s been in decline thereafter. (Laughter.) OK.

Dan Mattingly, an assistant professor of political science at Yale. He got his B.A. there and his Ph.D. at Cal. And the author of The Art of Political Control in China, one of the best books of 2020 according to Foreign Affairs.

And joining us virtually, Sun Yun in Washington, D.C., senior fellow and co-director of the East Asia Program, director of the China Program of the Stimson Center. A B.A. in Foreign Affairs College in Beijing, master’s in Asian-Pacific studies, and then George Washington.

So we have a series of questions which I’m going to try to pose collectively and independently. Let me begin with the first one, and this really reflects on my own time in China in 2003, where I saw the way people responded, and have done so thereafter again in 2019 and 2020 when I was again in China. And Yanzhong, this is for you. How were the responses to SARS and COVID different or similar?

HUANG: Well, thank you, Ian. Well, you probably are more qualified to answer that question than I. You are well known as a virus hunter in China—(laughs)—and so yours is a big name. (Laughs.)

I think in terms of the Chinese response to SARS and then COVID, you can see where there’s a strong parallel, right, in terms of the response. You know, first, certainly there’s a lack of transparency, right? When the—for SARS, as it emerged in December/November 2002, right, but you know, they didn’t announce that a dangerous pathogen was spreading, you know, until like a couple months later, right? And there’s this problem of inaction, right, for SARS, right, that the—you know, from November/December 2002 to April 2003—mid-April 2003—essentially a couple of months elapsed, right, before the government took decisive action.

But then, once the government realized there was a problem, right, they started to mobilize resources/capacity in coping with the problem, the crisis, right? So you saw, right, in SARS, right, that the—beginning mid-April, you know, both the Chinese leaders—right, Wen Xiabao and Hu Jintao—you know, they became serious about the problem. You know, they are—and mobilized the country’s health-care capacities and resources to tackle the problem. You know, essentially by May, right, so the virus was—(inaudible)—right?

So—but SARS we know is not a pandemic. You know, we are here talking about—when you talk about COVID-19, so it’s a global pandemic. But in the beginning, again, right, officially when the first confirmed case was identified in December 2019, but the WHO learn about, right, the spread, you know, from the website, right, and then, you know, asked the Chinese National Health Commission, right—and then this got—it was confirmed that something unusual occurring. You know, but inaction again, well, this is a problem. You know, local government essentially, right, you know, didn’t take any decisive action, right, until, right, January ’20, right, when, right, China confirmed there’s a human-to-human transmitted virus. You know, that started, right, that the—this, you know, nationwide, right, this crusade against the virus. You know, that campaign continued, right, until actually even today. You know, there’s certainly decisive action, right, through that so-called zero-COVID strategy. You know, basically, even one single case would trigger, right, the mass testing, right, extensive aggressive contact tracing, and quarantine, and if necessary lockdown measures, you know.

So if you talk about differences, this time the government responded more quickly, right, and more decisively. They were also quick to identify the ecological agent, right? In the case of SARS, it took—Ian, you know better than I—took them—first, they identify as chlamydia, right, as a bacteria. It became a laughingstock, you know. But this time, you know, they identified the ecological agent, right, as early as early January, and they shared with the international society.

But you know, there’s also certain developments that set the response different from that of SARS, is that the politicization of the origins, right? In SARS, this is never—(laughs)—a major concern, right? Nobody was talking about holding China accountable for being the origin point of the outbreak. China, you know—after, you know, the WHO, you know, chastised China for not being very transparent, you know, they changed their practices. They became cooperative, right? And the Chinese scientists were able to identify the bats, you know, as the natural reservoir for causing the SARS thirteen years later. But this time, you know, we have, right, essentially that origins probe is now in an impasse, right, while the time—you know, the window, right, in terms of biological feasibility of conducting a probe—is quickly closing. And even though we have now—this past two weeks there seems to be new studies coming out suggesting that the animal spillover, right, seems to be the cause of the outbreak.

And in the meantime, ideology has entered, right, this pandemic response, right? How you respond to the pandemic is now framed as a competition between democracy and authoritarianism, right? The Chinese leaders used its relatively especially early success in pandemic response, you know, as example of the superiority of its political system. You know, so that also has implications for international cooperation on responding to the pandemic.

So I’m going to stop there.

LIPKIN: Before we go on to the next question, I just want to highlight the fact that the infrastructure for infectious diseases has changed dramatically since 2003.

HUANG: Absolutely, right? That’s when I went there. You know, so, you know, the provincial CDC, the new—the buildings were brand new, all built after the 2003 SARS. So the—

LIPKIN: So there were—

HUANG: Yeah.

LIPKIN: There were no high-level bio-containment laboratories. Molecular biology was not well-developed. And when I was invited there in 2003, it was to help develop that infrastructure, which I think now is world class.

But coming back to some of the other issues of how they addressed these various things, Dan, what can you tell us about how the response was managed locally and centrally?

MATTINGLY: Well, thanks, Ian. And thanks for having me here. It’s an honor to be on this panel with a bunch of scholars whose work I admire.

I think the way to think about how this pandemic was managed—the COVID pandemic was managed, and to a certain extent the SARS pandemic earlier, was it kind of moved from being an information problem—which is something that I think the Chinese government and one-party authoritarian states in general are sort of bad in managing, being—having transparent information and making sure that information flows between levels of government—to a mobilization problem, which is right in the wheelhouse of the Chinese state. So I think in the early days, for local governments—you know, imagine if you’re a local official in—you know, in this case in Wuhan, but in any other locality where there is an outbreak of disease. Carl was talking about the cadre responsibility system, which is the system through which local officials are managed and promoted. If you have certain performance targets for things like, you know, most famously economic growth, and there is an outbreak of a virus in your city pre-COVID, you might not—you might have had pretty weak incentives to try to report this up the system. So despite the sort of sparkling infrastructure of, you know, China’s CDC—which has these great, you know, provincial laboratories; there’s this sort of really beautiful high-tech campus outside of—outside of Beijing, right; there are these great doctors in the system—but in order to actually get information flowing through this system, you have to have the cooperation of local authorities. And these local authorities have an incentive to put political pressure on—even on doctors at the local level, right, to sort of reclassify diseases in order to ensure that you don’t have something like a lockdown that impacts economic growth, especially at a—at a politically sensitive time.

You know, from the perspective of the central government—you know, if you’re a member of the Politburo or, for that member maybe if you’re in China’s CDC in Beijing—you want to get this information, but it’s hard to extract—to extract this from officials at the local level. So I think in the early days that was the kind of dynamic between the central and local government that we saw playing out, which is, as Yanzhong points out, a lot like the dynamic in the early days of the SARS—the SARS outbreak in 2002/2003.

In later days, though, I think that as this became a global pandemic, as it spread throughout China, it turned from an information problem to a mobilization problem, where the problem for the government was less, you know, how do we extract information from localities. Once the system was able to eventually, you know, reset priorities and incentives for local officials to focus on combating disease rather than things like economic growth, you know, much more coordination between localities and the center. And importantly, the central government is then able to do things to try to mobilize society in a broad way. That is something that historically the Chinese Communist Party has been very good at, right, going all the way back to when I think about the Great Leap Forward and backyard furnaces, or the Cultural Revolution, or even economic growth in the ’80s. It’s right in the kind of wheelhouse of an economic—of a Leninist state like China under the Chinese Communist Party to do things like count and figure out where people are, try to mobilize or control their movements, and you know, get resources to individual localities.

So I think that’s how that sort of shifted over time. I think the kind of bottom line is it shifted from an information problem, which was something that authoritarian states are pretty—not very good at solving, to a mobilization problem, which I think is in the wheelhouse of the Chinese Communist Party.

LIPKIN: Yun, how has the—

SUN: Yes, Ian. Thank you.

LIPKIN: So how has the COVID crisis reshaped the relationship between the state and the population? Has it led to more repression and surveillance?

SUN: Well, I think it depends on who you ask, because for the general public in China their perception about the government approach to COVID has been heavily shaped by the government narrative, right? So in the Chinese media and on the Chinese social media, what you are seeing constantly is how the government is portraying the rest of the world has fallen into the inferno of COVID while China is standing as the only country that has come out relatively OK or relatively safe. So I think that single narrative has played a huge role in the general public’s opinion or their perception about the government approach. And in fact, a lot of Chinese general public would say that, well, Chinese government has done a pretty good job protecting Chinese people from this—from this disease because the cause is relatively invisible for average people until they become quarantined or they lose their job and lose their—lose their livelihood. But the consequence or the effect is quite immediate, because they know that the number of COVID cases in China for the past two years have been under relatively good control. So I think in this case the government propaganda machine and the heavily, heavily influenced or heavily shaped government narrative has played a big role to shape a positive reception among the Chinese people about the government approach to COVID.

Thank you.

LIPKIN: So the irony there, Yun, is that because the vaccine that was pushed was a killed-virus vaccine, which has very low efficacy—that’s been shown quite clearly—and you dampen the number of outbreaks, there’s now this huge susceptible population there. So many of my colleagues and I feel that that is one area of the world that is probably at highest risk for severe disease.

SUN: I agree. And I think—

LIPKIN: So we’ll see how—we’ll see how that evolves over the next few months.

SUN: We’ll see how it evolves, yeah. I think for the Chinese policy wonks the discussion today is, oops, what do we do from here? They see from the case in Hong Kong that this policy that China has been implementing is not going to be sustainable. And once China opens up, their population is going to be particularly vulnerable at this point. So how is the government going to juggle that question I think now is a big issue for the—for Beijing.

And there’s also the question as for when and how China is going to allow the mRNA vaccine to be made available in a—in a more massive scale to the Chinese general public. That gets into the industry issues, which I’m sure that Yanzhong and Dan know much better than I do.

Thank you.

LIPKIN: OK. The next question—this is for anyone who wants to tackle it—is a zero-COVID strategy feasible? And what would that entail? Who’d like to tackle that? (Laughs.)

HUANG: Be happy to. Well, I think—well, the simple answer is no. I’m sure that, Yun, you would agree, right? This is—fundamentally, this is an approach that does not accept even low risks. And in China, if you can accept, right, the presence of seasonal influenza which kills 88,000 people each year, why can’t you accept COVID, right, now has fatality rate even lower than the seasonal influenza. We see some inconsistency here, right?

Until, right, the emergence, the spread of the more-transmissible Delta variant and later the Omicron variant, that approach seems to work pretty well, right, despite implementation problems, you know, like the problem of, you know, vaccine—mass vaccination had failed to prioritize the elderly people. You know, that created a sort of also false sense of security in part because of success of that strategy. You know, people who feel safe, why bother to get vaccinated, right? But after Delta, then Omicron, this, you know, increasingly exhibit, right, this diminishing returns problem, right? You know, the cost, you know, rises significantly.

You know, and we talk about economic cost. You know, we don’t have the direct data to correlate, right, the COVID-19, this response to economic performance. But you know, there’s—you know, there’s the data like the number of foreclosure of house in China. That increased, you know, threefold, you know, from half a million in 2019 to 1.68 million in 2021, you know, just to get a sense, right, since—because people can’t afford to pay the mortgage anymore. There’s also several millions of small businesses, right, shut down, right, in part also because of these stringent zero-COVID policies, right?

And nowadays, what President Xi asked for, like, you know, sort of fine-tuning of that approach, right? They’re talking about, you know, like more scientific, targeted interventions, you know, with minimal cost. But again, this seems to be a mission impossible because you haven’t changed the local government officials’ incentive structure. Because if you’re still telling the local government officials, saying, well, when you are affected by COVID you should make it a number-one priority—and for those local government officials, right, this is what we call implementation bias. Well, they have no choice but actually to focus all the energy, mobilize all the resources to tackle and to curb transmission in a very short period of time. And so that actually encourage the use of more heavy-handed, right, unnecessary, you know, sometimes unscientific and excessive, you know, measures in order to get things done and to get things done quickly, right? So that actually works against, right, President Xi’s directive, using minimum cost, right, to achieve the objective.

You know, so, and finally, that approach does not eradicate the virus. So you see, like, Shenzhen maybe after lockdown they declare victory—you know, we bring the situation under control—but that doesn’t mean the end of the story. You just wait for the next wave attack, right? So you repeat, right, the same process again. This is what I would call China’s Sisyphus moment.

LIPKIN: Dan, anything to add to that before I move—I have another question for you, but you look like you’ve got some thoughts.

MATTINGLY: Well, I don’t know if it’s fair to do, but I’d love to turn the tables on the epidemiologist who’s leading the panel to ask about—(laughter)—what you think the prospects are from an epidemiological standpoint of—

LIPKIN: Well, the virus is never going away. Six months or so ago I wrote an article with three of my friends in Foreign Affairs where we called it “The Forever Virus.” And we still think that that’s the case, but that doesn’t mean that we will be forever in the—you know, in the throes of a pandemic.

I think where China really could shine now would be if they coupled this lockdown with massive vaccination campaigns, but with effective vaccines. And I have to say that I’ve been pushing back on the kill vaccines for months.

But this is really your panel, so let me—(laughter)—let me throw this back to you. So how has COVID shaped China’s relationship with the outside world? And when is it likely to open up? Because I personally would love to go and I’ve been told there’s a three-week quarantine.

MATTINGLY: There is a—there is a three-week quarantine, right, that twenty-one-day quarantine.

So I think—so it has—it has—in the big picture, I think it has reshaped China’s relationship with the outside world, partly through a deepening, I think, of trends that have already been in place but also notably through things like the quarantine period, which has really restricted the flow of people in a way that is hopefully temporary, but is of course unlikely anything that happened before the vaccine, at least going back to the late ’70s/early ’80s.

So I think that—so one of the trends already in place, I can think of—I can think of three in terms of, you know, it’s deepening how the COVID pandemic has shaped China’s relationship with the outside world.

You know, the first is it has really stopped the flow of people into China, right? I mean, it’s still possible to get a visa to go to China under certain circumstances. You know, it’s harder, but it’s possible. But you have to sort of deal with this twenty-one-day quarantine period, which makes it effectively inaccessible, I think, to a lot of people, all but those who are considering moving there for studying. And even those who are moving to China to study, it’s really circumscribed. And I think that has—the fact that you don’t have people going into China and coming out of China really has, I think, a really deleterious effect on understanding, especially between the United States and China. If you don’t have the same set of exchanges in informal conversations that you used to be able to have in person—you can have these things over Zoom, you can have these things over WeChat, but it’s not the same. It’s not the same for a number of reasons. First, you know, as we all know, just things over Zoom are different, and there is the ever-present kind of security concern.

Second, I think it has accelerated a rift that was already in place between China and the United States. This was already, of course, underway, starting with the Trump administration, maybe going back to the Obama administration. I think one of the most significant things it’s done is it’s reshaped the Chinese public views—the Chinese public’s view of the United States and of—and of the West. So you see a real deterioration starting in, you know, March 2020 of Chinese views of the United States, of the American political system, of the effectiveness of the American political system, of the desirability of traveling to the United States, and of the effectiveness of the Chinese political system relative to the United States. And I think this decline in public views of the United States certainly places less pressure on the CCP to continue to have a kind of open, friendly relationships with the United States, maybe to a certain degree also eases some pressure for domestic political moderation.

I think that also the COVID—the ongoing COVID pandemic, thirdly, I think also weakens the incentives of the PRC to throw open its doors. And you know, as the West has, you know, to a certain degree, as Ian mentioned, realized that we’re going to be living with COVID for quite some time, even if it’s not a pandemic, it does pose challenges. If China wants to open to the West, given vaccination levels and the strength of the Chinese public health system and the health-care system, it would pose challenges for China to sort of immediately throw open its doors—its doors to the West.

So I think, you know, overall the COVID pandemic has deepened trends that are already in place by restricting the flow of people and sort of closing doors. I think it’s just sort of helped—it’s made it harder to—as these two kind of continents are drifting further apart, made it harder and harder to build bridges.

LIPKIN: I have a question for you, Yun, about wildlife markets. So whether there was an intermediate step through a lab or not, wildlife markets are clearly a risk. They were back in 2002 in Guangdong and they probably were in Wuhan. And I was assured by both the Ministry of Health and the Ministry of Science and Technology that they were shut in 2005, but we’ve all seen the pictures, all the wildlife markets and all the reservoir animals. Is this going to finally shut that down?

SUN: I’m personally not positive because in the Chinese culture wildlife is regarded as a delicacy for Chinese cuisine. And that mentality, I’m afraid, has always been in the—in the Chinese culinary culture, that if you perceive things like snake or things like some of the—some of the animals that we have seen on the wildlife market, I think there’s still a deep affinity towards these type of—these type of elements for culinary arts. So, based on—based on the Chinese culture and also the longstanding history of this—of this almost tradition, I’m personally not optimistic that this phenomena will be completely—will be completely removed.

And also, what Dan just said about China’s relationship with the outside world, I just want to make an addition. I fully agree with Dan that the relationship with the United States has been under a lot of stress and the COVID certainly has not been good news. We saw the freefall of U.S.-China relations in 2020 and things really have not improved from there. But on the other hand, I think in terms of China’s relationship with the developing countries, especially with Global South,

I think the impact of COVID still needs a lot of deliberation because China was able to use its vaccine diplomacy to strengthen ties or consolidate friendship with developing countries that at least during the first several waves of vaccine availability that they were not high up on the list in terms of Western companies’ mRNA vaccine. So China definitely had gained some goodwill in that—in that aspect.

And there’s also the aspect of the—what Yanzhong mentioned as the Chinese authoritarian model of disease control that at least for the—for the first year it was regarded as a success. And it has created this inspirational power among developing countries that may see this as a—as a good model to follow.

So this is just to say that, yes, in terms of China’s relationship with the U.S., the COVID has amplified a trend that was already in place. But in terms of China’s relationship with the rest of the world, I think the picture is much more mixed. Thank you.

LIPKIN: So, Yun, I have to agree with you on the wildlife markets. As I was—first time I was in Guangzhou, people said to me: We eat everything on four legs except the table. (Laughter.) And that seems still to be the case. But if that’s not somehow monitored, we will see more epidemics, probably every ten years, as a function of that sort of risk. So I hope that we’re both wrong.

I think we’re now at the point where we start taking questions from the virtual and real audience. Please.

Q: Carl Minzner. Thank you very much for the presentation. I’ll ask about the Omicron variant. (Comes on mic.) Thanks so much. Carl Minzner of Fordham Law School and Council on Foreign Relations.

Ask about the Omicron variant. So, first, numbers are going up: five thousand new asymptomatic/symptomatic cases today and the Chinese authorities have instructed the construction of temporary isolation facilities in each province. Have they lost control of Omicron? What would that mean in terms of the low vaccination rate? Are we going to see the pictures from Hong Kong replicate in China?

And then with respect to what Yun and Dan had mentioned, Yun, you’d mentioned politically Chinese authorities have been saying, you know—you know, it’s the inferno outside our borders. What happens politically in China, even if it’s a low-risk variant that doesn’t—but what happens if you start seeing those case numbers go up? What’s the political impact of that in China itself?

LIPKIN: I think the first question is a viral epidemiology question about Omicron. I don’t see any way in which you can contain it. It spreads extraordinarily rapidly. And shy of going into another lockdown, we’re going to see more and more Omicron in China. We’ll see more and more Omicron worldwide.

The reason that we’ve done so well, if you want to look at it in those terms, is because people were vaccinated. And given that the vaccine—and I would—you know, I would say the vaccine diplomacy seemed good initially, but we did a lot of work, for example, in Mongolia, and I will tell you that we did head-to-head comparisons of Pfizer, Sputnik, Sinopharm, Sinovac, all of these, and the worst performers were the two Chinese vaccines. Now, those are killed-virus vaccines, so they don’t induce the kind of immune response that you’re seeking. There is a license to the Pfizer vaccine, the BioNTech vaccine in China, and when I talked to Chen Zhou (sp) about this he told me that they were going to be pushing hard to implement it. But they have to get a lot of doses out, and I don’t know how rapidly they’ll be able to do that. So I think the losses there are going to be primarily in people who are immunosuppressed and older, but they’re going to have a lot of losses related to Omicron despite the fact that it is a milder variant than some of the predecessors.

The other questions are beyond me, so I’ll throw those back to Dan and Yun and Yanzhong.

HUANG: Well, I totally agree, right, that that’s the—well, I think for the Chinese leaders the main, now, concern is this large elderly population that is not vaccinated. According to the official—right, the National Health Commission, right, they admitted 52 million people aged over sixty are not vaccinated, and half of them aged over eighty, right?

So you saw this—again, this parallel between mainland China and Hong Kong, right, because in Hong Kong most of those death occurred among the elderly people who are not vaccinated, right? So the reason that China, like they said, they want to sustain that zero-COVID strategy is because they want to protect, right, the elderly getting infected, you know, by COVID. Although, you know, I have to say, right, I think the worst-case scenario that is portrayed sort of overestimated the danger posed by Omicron, not just because the virus becoming milder but I think they used different criteria in calculating or estimating that COVID caused a death. You know, they were estimating if they adopted, right, the approach, you know, undertaken by other countries in dealing with the virus, you know, China is going to have, like, more than 1 million people die of COVID. But when they—(laughs)—they define that COVID caused death they use the criteria in the West, not the criteria used in China, which is much stricter, you know, Because the same criteria they use to—for example, similar criteria they use to calculate, you know, that flue caused a death.

In 2020, there were—2019/2020, there were, like, seventy flu-caused death in a country of 1.4 billion people, right? Even though according to a Lancet study conducted by the Chinese scientists, there were actually annual 80,000 death, right—flu-caused death in the country, right? So they were using the Western criteria to estimate, you know, how many people are going to die from—(laughs)—the COVID. But when they were actually calculating the COVID-caused death, they used very the strict Chinese criteria. And if you also take into account the fact that the case fatality rate of COVID is now lower than the seasonable influenza but used, like—even used 0.1 percent case fatality rate—I think that the death caused by COVID probably will be no more than 160,000.

LIPKIN: Yanzhong, before we go on other questions, I just want to talk about those mortality rates because I find them difficult to believe. So in this country we have 30(,000) to 40,000 flu deaths annually and our population is so much smaller. Seems to be very unlikely that the flu deaths are as low as they’re projected to be even in that Lancet article.

The other point is that these different variants have very different mortality rates. This is true of all of these different coronavirus infections. So SARS in 2002/2003 was about 25 percent, MERS in the Middle East with about 65 percent, and we initially thought this was around 2 percent. But this was against this whole context—had people been vaccinated or had been infected by previous waves of disease and the milder versions like Omicron, which is more transmissible because it doesn’t really go as deep. It says, really, in the upper airways so that it’s more easily expressed. So it’s a—it’s a very complicated process to understand.

Anyway, Dan—

SUN: Could I—

LIPKIN: —did you want to say something on this?

MATTINGLY: Well, I’ll just jump in really—

LIPKIN: Oh, I’m sorry.

MATTINGLY: Oh. Go ahead.

LIPKIN: Yun is ready to go, so.

SUN: So I just want to add to what Yanzhong just said about what is China going to do from here.

The first one is I think the Chinese government is already massaging the message. It’s already massaging the general public about the eventual scenario where China will have to coexist with COVID. And when this idea about COVID coexistence was first raised six months ago by Zhang Wenhong, who is like the leading expert from Shanghai in China, he was severely criticized. Six months later we have another expert, Zhang Guo (ph), who raised the same theory, and this time the government seems to be much more open-minded about the eventual scenario. So you can visibly see the government is preparing its people about the eventuality that we need to coexist with COVID. So I think the work is being done there.

But how soon this will be done or how soon China will eventually open up, I think it depends on two factors. The first one is, well, Ian talked about the production of mRNA vaccine in China, but this touches a huge COVID economy that has been created since the beginning of this pandemic. If you look at Sinovac—I was looking at the annual report of Sinovac last week—the total—the total profit of the company in 2021, it was as high as 14 billion U.S. dollars for that one company. And that means it’s a huge market that has been dominated by Sinovac, and Sinovac basically form—you can see these Chinese companies forming these interest groups that are still arguing that, well, maybe there needs to be a booster shot in order to increase the vaccine’s efficacy, regardless of what the data says. So how to defeat these interest groups, now, basically, in my view, have become a(n) entrenched obstacle in terms of embracing mRNA vaccine from Western countries is really a tricky question.

The second factor is the timing. We know that China’s going to have the 20th Party Congress in this fall, most likely November, also possibly in late October. What this means is that the government is very unlikely to allow for the COVID to spread in China and to take the risk of opening up the country, so anything that could happen will have to wait till after 20th Party Congress, until after Xi Jinping confirms and inks his third term, so there is a domestic political calculation there.

Thank you.

LIPKIN: Thank you, Yun.

We have a question from the virtual membership.

OPERATOR: We’ll take the question from Tao Tan.

Q: Thank you very much. Thanks for being here. Ian, so good to see you again and congratulations on your election.

So my question is this: The zero-COVID approach thus far has been done by a combination of extreme high-tech—facial recognition, drones that yell at people, cellphone apps, so on and so forth—and the extreme low-tech, so these, you know, extensive social controls and force that the—(speaks in Chinese)—or the neighborhood committee level where you stop people from going to stores, you know, on a regular basis. So going forward, as we head into a world where, you know—Ian, as you put it—a forever virus, where the zero-COVID approach is no longer sustainable, how do you see these methods of social control evolving in China?

HUANG: Well, I would take the crack—Dan, please. (Laughs.)

OK, I think what—you’re right. Exactly. There are two types of social monitoring here, right? one is through this high-tech means—big data, cellphones, right—that control people’s movements. You need to have the health code, the itinerary code to go anywhere. (Laughs.) You know, that—it’s reality in China, you know, that if you don’t have it you can’t go anywhere. There’s like this story talking about the criminal at large, you know, turning himself—turning him in because there’s nowhere he can go. (Laughs.) So, you know, but there’s another aspect in social control: this mutual monitoring, right, through the—(speaks in Chinese)—by the street neighborhood committees. You have the people monitoring each other, the movements, so this, you know, just reinforced this social control—allow the state, right, to effectively implement that zero-COVID strategy and of course expanded the public space, right, in terms of, you know, controlling people’s movements, right.

And that—(laughs)—you know, what does that mean for the future, right, this state-society relationship? I think that provide sort of a proof of—you know, of concept for post-pandemic control over the society. You know, that—you know, that’s something that I’m really concerned, right, that could fundamentally change the relationship between the state and society, where you could have the state use both, right, high-tech means and low-tech means to control every aspect of the people’s lives, you know, including, right, how many kids you can have. You know, like, Rita raised that question, right, the way that Chinese is going to do the same coercive means, right, to force people to have kids. You know, Professor Wang—(laughs)—said that seems to be unlikely given that people might, you know, rebel against it. But you know, if the state is able to project its will, right, in the bedrooms, right, over the—in the first twenty—in the decades, right, of implementing population control, I won’t be too surprised if they try to use this—you know, the high-tech or even low-tech means to accomplish a pro-natalist objective.

LIPKIN: Dan, you had something to add.

MATTINGLY: Right. I’ll play a similar tune but a slight variation on it, which is—and this question from Tao Tan I think really gets to the heart of how authoritarian states in the present day attempt to implement policy and control populations and limit protests, which is this mix of high-tech, you know, digital authoritarianism, which is what gets a lot of headlines, and this kind of old-fashioned analog authoritarianism that relies on people-to-people contact and people-to-people pressure. So in the case, you know, sort of in the bigger picture here, you have with, you know, the COVID epidemic, things like neighborhood committees being used to mobilize people to, you know, check in on their neighbors and ensure that people are complying with quarantine policies.

You can move even further back and think about how these neighborhood committees but also party cells—in rural China there are things called villager small groups—are all used as these sort of mutual monitoring mechanisms that are kind of interlocking and that go from the very top of society all the way down that, arguably, you know, has its roots even in the imperial era in the system called the baojia system. So this is something that has a long history, and I think that, as we, you know, think about not just China but authoritarian regimes in general, as they’re investing in some of these digital technologies to surveil and control their populations, well, what good is this technology if there aren’t people at the other end of it implementing and enforcing policy? So I think when it comes to COVID in particular and the introduction of some of these, you know, apps that are used to monitor people and there’s a lot of information that’s flowing into these apps, in my understanding, from everything from where people move to their shopping habits, right? You’ve, you know, probably read some stories about people going and buying cold medicine at a pharmacy and then all of a sudden their app, which had been green, which allows you to go anywhere, all of a sudden turns, you know, yellow or red and stops you from doing that.

So the question, I guess, is, is that a qualitative change in the ability of the state to surveil and monitor their populations? Maybe. Maybe. Yeah, I’m not sure. I think you still need that human element, at the end of the day, in order to actually implement these policies, but it’s certainly troublesome from a normative perspective.

LIPKIN: Please. I didn’t know—I’m trying to call on you but I’m not having a lot of success with pointing.

Q: Thank you.

LIPKIN: Thank you.

Q: Joan Kaufman.

So I’m puzzled by one thing, which is, you know, in China when there’s a will, it just happens, right; you can build SARS hospitals all over the country, you can lock down Wuhan, and all that. What is the—what’s holding back the—inoculating the population with mRNA vaccines, which clearly is the way forward for China? I agree with you, Ian. I agree, you know, that even if Sinovac have made $14 billion last year, you know, it didn’t stop the government from going after Alibaba or other big companies or Tencent. The Chinese are very pragmatic in terms of sort of health interventions, and I can’t understand—you know, what is the real obstacle to moving forward with the mRNA vaccines, which is clearly going to be the way forward for China to get beyond the zero-COVID policy and have a—you know, live with the virus? So that’s my question for any and all of you.

LIPKIN: Well, before we turn to the experts on policy, I think the adeno vaccines are excellent. It’s really a question of the way the payload is delivered from the inside of the cell, the outside of the cell. So the alternative—the RNA vaccine is the one that we’ve focused on. It’s extraordinary because it allows us to make large amounts very, very quickly and we can adapt. But the adeno work quite well too and there are other vaccines that are given to the respiratory tract which can interrupt transmission as well as prevent disease. But your point’s well taken; there are better vaccines that could be manufactured in China. So what is holding us back? Let me throw this to Yun.

SUN: Thank you, Ian. And that’s a terrific question. I’ve been thinking about this. I think there are a couple of factors. The first one—I think there is an industry interest here that we’re talking about. Since the Chinese producers—they can produce their own vaccine; why let the Westerners into this huge market? And I think the profit level that we saw from Sinovac last year is the leading proof of this strong industry lobby against, basically, mRNA vaccine. Secondly, I think there is a U.S.-China relations factor, that if China allows the Western vaccines to come in, will that be a de facto recognition that the Western vaccine is superior to the Chinese vaccine? Does that mean that China is inferior to the United States? And does that mean that from now on China will have to continue to seek U.S. cooperation, a whole long list of issues, where the Chinese government at the current moment is not really in the mood for? And certainly there’s also this very weird but cultural factor that I think for a lot of Chinese population, there’s a lack of knowledge as for what mRNA vaccine does and there is a view that it changes your DNA, it changes your physical modality to uncertain and unknowing eventuality.

So this—I’ve seen this in Singapore because in Singapore, the vaccines are made available—different types of vaccines are made available for the local population, but for the more traditional Chinese populations, asking Chinese, they opted to have the Chinese vaccine instead of the mRNA vaccine, and the fear for this DNA change, this alteration, is one of the primary concerns for the local Chinese population in Singapore. And I would assume that the same factor also plays a role in China, whether it is true or not.

Thank you.

LIPKIN: Yun, before you leave, on that point, the branding for these vaccines may be important. So we don’t call it the U.S. vaccine. The Russians call theirs Sputnik and the Chinese call them Sinovac and Sinopharm. Could they simply rebrand it as Sino-RNA? Would that make a difference?

SUN: (Laughs.) I think that is going—

LIPKIN: No, I’m being serious.

SUN: No, I think that is going to make a difference, as long as the branding projects an image that this vaccine is made in China, is from China, and it carries the Chinese branding to it. But I’m afraid—what I’m afraid is the scenario where people will ask, so where did this technology come from, and what does that mean? Does that mean that China is handing over its technological, basically, choke point to Western companies and is that good for China’s national security? So that’s the scenario that I’m afraid of, the political interference in basically a public health decision.

LIPKIN: OK, so let me go to Ian because he’s got the same first name. (Laughter.)

Q: Real quick question. One of these questions is hard—Ian Johnson from the Council on Foreign Relations.

It’s almost impossible to answer but whenever there’s sort of a crisis or something in China, people think this is a turning point, that people are getting really upset, but one has noticed with the outbreak in Shanghai that there’s been a lot of social media chatter on people who can’t buy vegetables, which surprised me because I thought after the problems in Xi’an last year they would have fixed that, and then people kind of climb over their fences to get out of their compounds. There’s a viral video yesterday on WeChat and so on and so forth. I wonder, are people really feeling the pain a little bit more now than they were, say, six months or a year ago, and does that matter?

HUANG: OK, I’ll take the crack. Thank you, Ian. You’re absolutely right. I think the public support for the zero-COVID strategy is in decline, especially so in large cities and among the well-informed and more open-minded population that has access to the information on the nature of the virus, right, the policy response in other countries. But I think—overall, I think the public support for that policy remains strong, especially in the smaller cities in the countryside where people—you know, basically you have only this one-dimensional limited information access, you know, so, you know, that disinformation is a huge problem. Just the other day my high school classmates, you know, like spread this news on the U.S. making biological weapons, you know, in Ukraine and also Moderna is making COVID-19. You know, I said, where did you get that? From a U.K. website. They condemn the U.S., you know, for being so evil, you know, that—(laughs)—you know, all those things. You know, so this is just a how, you know, does the—I think the government information control, you know, remains strong and remains effective in terms of securing public support for their policy, I think.

LIPKIN: Please.

Q: I was listening to Jeremy Farrar, who is the director of the Wellcome Trust, yesterday and his view on the COVID situation in China is that China is headed for a very, very serious crisis over the next nine to twelve months and there’s very little that can be done to avoid it. He agreed the mRNA vaccines obviously are critical to bring in, given the relatively low efficacy rate of the Chinese vaccines, but there’s also low vaccination amongst the elderly, et cetera. So he described it as sort of a train wreck about to happen. And I was really wanting to ask you, Ian: Do you think he is exaggerating that risk or do you think he’s got it about right that we’re in for a major crisis in China relating to COVID?

LIPKIN: No, I typically agree with Jeremy on most things, and I agree on this one as well. I thought I tried to say that earlier. I don’t think that it’s a fait accompli. I think that you could use a wide range of vaccines—adenovirus vaccines, mRNA vaccines. There are others as well. If they really put their mind to it, they could vaccinate the entire population. It’s feasible to do it. I don’t know that they will.

So I was in Beijing and in Guangzhou in January of 2020 and I met with senior leadership, including the premier, and we talked about what needed to be done and we talked about vaccines, but we said, you know, this stopgap, the finger in the dike, would be the killed vaccines and that we would follow that with others. That’s not been the case and I’m afraid that, you know, Yun may be correct in saying that the major driver toward the killed-virus vaccines is that there are people who were formerly members of various complexes, including the military, that are pushing the killed-virus vaccines. And as I said, when we looked in Mongolia at big outbreaks there, the efficacy of the Sinopharm and the Sinovac was less than 10 percent that of, you know, of the RNA-based vaccines or the one, the AstraZeneca vaccine that was produced, you know, with technology out of Oxford. I don’t think it makes any difference how you brand it in terms of the scientists. They have their own RNA vaccines; they don’t need to use the Pfizer vaccine. But the advantage there is that it’s been proven and we have efficacy data and safety data, so it would make sense to do that.

What many people don’t recognize is, going all the way back to the eradication of smallpox—we’re here now with the fortieth anniversary of the eradication of smallpox—is that that was an effort that was built out of the U.S. and the former Soviet Union of bifurcated needles that made it possible to vaccinate people, were developed in the Soviet Union and we worked hand in hand to solve this problem. That has not occurred during the course of the COVID-19 pandemic and I think we have to lay some of the blame on, you know, our own administration at the time, but all of it because they initiated the Warp Speed campaign. So, many things went wrong. There’s still a chance to make it right. The good news, at least in Africa, Sub-Saharan Africa, is that it hasn’t taken off the way many of us projected, presumably because there were related coronaviruses that were already spread through the population that were giving some immunity in preventing disease. China, on the other hand, because of the lockdown policy and because of the failures of the vaccine policy, as Jeremy has said, is a timebomb and it’s very frightening.

Dan.

MATTINGLY: So I just want to jump in to—I don’t know the epidemiology but I do want to maybe sound a slight note of optimism here that there are pressures, I think, to get this right over the coming months, and you and Yanzhong already mentioned, I think, the two key pressures. You know, one key pressure is public opinion. So the party does spend a lot of time monitoring social media and surveying people, and, you know, as the party has, you know, tacked—Xi Jinping talking about wanting, you know, maximum effect for minimum cost—I think that’s partly a response to the party trying to understand public opinion. So I think that will be one driver to maybe, one hopes, push to, say, do something like roll out more mRNA vaccines. The other political pressure is elite political pressure, and Yun already talked about this, which is the Party Congress that’s coming up. There’s going to be tremendous pressure, I think, on the party to keep this under control through the fall, and the timing of that means that I think that there is—there will be some elite pressure to do everything possible to make sure that this isn’t a train wreck, you know, despite the countervailing pressures that Yun and others have talked about.

LIPKIN: OK, apparently we’re out of time, so I just want to thank Yun and Dan and Yanzhong, who I haven’t seen in a long time. And hello, Tao. I hope you’re still on. Good to see you, at least auditorily.

Thank you very, very much. (Applause.)

(END)

This is an uncorrected transcript.

China's Economic Rise—End of the Road?

FOROOHAR: Wow. We’re back. Yay. (Laughs.) Oh, this is great.

Well, welcome to the third session, I believe—yes, third session—in today’s CFR Hauser Symposium. This is called “China’s Economic Rise—End of the Road?” which sounds extremely final but I don’t think it will be. (Laughs.) We’ve got some really terrific presenters here.

I’m Rana Foroohar. I’m the global business columnist and associate editor at the Financial Times, also a CFR member, and I’m going to be presiding over today’s panel. I just want to quickly remind you this is on the record. And I’m going to introduce our panelists and then we’re going to have about twenty-five minutes of discussion here amongst ourselves and then we’re going to open it up to the floor as usual, both in person and also virtually. I’ll be cued. So, definitely, if you’re out there listening virtually send in all your questions.

So I’ll just start here from my left. We’ve got Scott Rozelle, who is the Helen F. Farnsworth Senior Fellow and coordinator of Stanford Center on China’s Economy and Institutions, author of Invisible China: How the Urban-Rural Divide Threatens China’s Rise, many other things. You’ve got his bio. Thanks for being with us.

Virtually, we have—and I think that you can see her over to my left—Yuen Yuen Ang, who is the associate professor of political science at the University of Michigan and also the author of How China Escaped the Poverty Trap and China’s Gilded Age. Thanks so much for being here with us virtually, and I love your background. (Laughs.)

And then all the way over here to my left we have Ian Johnson, who’s the Stephen A. Schwarzman Senior Fellow for China studies at CFR.

Thanks to all of you.

Let’s start, actually, Ian, with you. You made some interesting points as we were speaking earlier about something that, I think, many of us know, which is that China has a growth agenda but it also has a control agenda—a security agenda—and it has to go back and forth between those things within the context of its own model.

So maybe you can talk a little bit about what those are and where we are in that balancing act right now.

JOHNSON: Yeah. So I think the Party began to realize, especially when it started to launch economic reforms, that it was better to have, you know, 51 percent control of a lot of something rather than a hundred percent of control of a poor country, and so they loosened up and allowed the economy to grow and have presided over this record—this huge economic boom and they are—they still have a very ambitious agenda, and if you look at their goals for 2020 to 2035, they want to double the size of GDP, which implies a growth rate of about 4.7 (percent), 4.8 percent per year, which would mean that it has to be growing faster than 5 percent now and probably slow down as the economy gets bigger, which is, perhaps, doable because China has done things like this in the past. But for an economy the size of China it’s pretty big.

And it wants to go to carbon neutral by 2030 or 2035 and then—and this would also be—rely on getting rid of one of the pillars of Chinese growth, which has been cheap energy, especially coal, and the way they want to do this, basically, is not by loosening up on the economy but by sort of doubling down on the control that we’ve had under Xi Jinping and that’s to push kind of state-led venture capitalism, which is that the state is going to pick winners in high-tech industries, and going back to our earlier panel on public health, for example, this is probably why they’re holding out for the Chinese companies to develop the mRNA vaccine because they want to have national winners in this high-tech area. They want Chinese chip makers to be tops in the world, et cetera, et cetera. So they want to push this and this will allow them to solve some of the other problems that they have facing them.

And this is, of course, a huge gamble. But this is what the Party is planning to do. That’s how they’re trying to square this circle.

FOROOHAR: Let me ask you one just follow-up question. These two agendas—what does the war in Ukraine, sanctions against Russia, and China’s response mean for those agendas? How do you see that balance shifting now?

JOHNSON: Yeah. I think this is—obviously, as we all know, China’s in a really difficult situation or has put itself in a very difficult situation. In terms of the economy, I don’t see them rushing to save Russia because they realize that if the sanctions were to be turned on China, China would be very vulnerable in a couple of key areas, especially microchips and aviation. If there were really full-blown sanctions against China, its aviation industry—they want to create national champions again. They’ve been trying for a long time but they have not succeeded.

About ten years ago, a very good book by James Fallows came out called China Airborne, which used this as a microcosm for China’s high-tech ambitions and this is—China wanted to build its own commercial-viable, you know, aircraft carrier like the 737, and he predicted they wouldn’t be able to do it in the next decade. A number of friends of mine say, no, China will definitely be able to do this. No problem.

But ten years later they still haven’t, and these—it’s harder to make that final step and it’s sort of never been done under this kind of model before. Getting to where China is now has been done before by other countries around the world. The next step is so much harder and probably extremely challenging if they want to do it this way.

FOROOHAR: Scott, I know you have thoughts on that. I’m going to come back to you in a minute.

But, Yuen Yuen, I want to bring you in on this. I’m going to guess that you think “End of the Road” is probably way too pessimistic a topic for a panel on China’s growth. I know you’ve been more optimistic. Tell me where you stand right now. How do you see the next five years, and also if you can weave in the events of the last few weeks and how that plays to your view.

ANG: Sure. First of all, thank you very much for having me. It’s a real honor to be on this panel with Ian and with Scott.

I would say that my view on the Chinese economy is neither optimistic nor pessimistic. It’s a mixed picture, and I would say that it’s too quick to conclude that the rise of the Chinese economy has come to an end because if you look at the long-term prospects of the Chinese economy it still is the world’s largest emerging markets and there are still many promising signs in the economy. For example, private consumption is still expected to grow or more than double in the next ten years.

However, the real risk facing the Chinese economy are political in nature and I would highlight three levels of political risk. The first is geopolitics, which we now see playing out in the war in Ukraine, and the second is national politics at the highest level, and the third is at the policy level—confusing and unpredictable policies.

So all of these risks are political in nature and they’re not because something is fundamentally wrong with the Chinese economy. I think it’s helpful to step back and look at where the Chinese economy is now from a broader historical and comparative perspective. If we judge the economy on the basis of news headlines I think we’ll have a mental breakdown because on March 14 Chinese shares had the biggest plunge since 2008 and then the next day they had the biggest surge since 2008.

I think the big picture is that China is now at a stage of development that is similar to the American Gilded Age in the late nineteenth century, and what the Xi government is trying to do is to summon China into the CCP version of a progressive era that would deliver, in principle, more equitable and sustainable growth.

I think the problem with the administration is that they haven’t yet figured out exactly how they can reach this progressive era. So what we saw during the summer of 2001 is an attempt by the Xi administration to order away the problems of capitalism. So they tried a whole slew of top-down commands and then they learned a few months later that they’ve gone too far and backfired, and now they’re making course corrections.

So you can see the president reflecting on his own mistakes in—by the end of 2021, and this year the state council has taken a very conservative approach.

FOROOHAR: Interesting. Gosh, there’s a lot I want to dig into there.

But, Scott, I want to bring you in. What would you say about common prosperity, about whether this is some—you know, really something that the Xi government is interested in putting forward to correct the imbalances, or is it window dressing? How does the security environment of the moment make it possible to move forward or not with that? Jump in.

ROZELLE: Right. Yeah, it’s a big, big question. I always think common prosperity, right, has two parts to it. It’s can China continue to prosper, and that’s what Ian and Yuen Yuen have just been talking about, and then second part is can the common man have the benefit of that. And if you know my work, the common man in China, because it’s still 60 percent of the whole economy is the rural—is the rural population, can they be, you know, drawn up into this and enjoy it. And I think, you know, we’ve heard the challenges of growth—(laughs)—right here, and I’m a development economist, not a macro economist.

But I do watch this and, I think, number one is I don’t think you can plan a modern, high-tech, high-income, high-skilled economy and that’s what China has tried to do. Now, if Yuen Yuen’s right that they’re going to back off that and let reform and markets continue, you know, I haven’t seen that. I don’t pay enough attention to that.

But that’s what they’re going to need to do. Otherwise, we’re going to have, you know, Soviet Union II or Japan II, right, and it’s not Japan II because, you know, China has 20 percent of the income of Japan and three times the inequality.

The other thing is, you know, what I’ve really been working on is if you’re trying to move into a high income economy and prosper, China has the lowest educated labor force in the entire middle income world. They’re number one. They’re the low. Seventy percent of their labor force has never been to one day of high school. So they have no math skills, no computer skills, no science skills, no language skills, and what do you do in a high income economy, you know, with that at a country that’s fifteen thousand dollars per capita?

So I think that there’s the growth part of the problem. The common prosperity part is we got to get these—(laughs)—we got to get these people educated and that’s a forty-year job, right. (Laughs.)

FOROOHAR: Sure. Sure.

ROZELLE: And I think that, you know, that’s why I don’t think they’re doing anything on it because I think Xi—does China know that they have a big human capital problem? I think they do. But then he looks at it and says, you know, if I invest heavily, heavily, heavily in this now it’s not going to be until 2045 that we’re going to see any return to this. And so I just don’t—you know, I see the end of the upward road. But, hopefully, we’re going to be able to—(laughs)—

FOROOHAR: I want to come back to, Yuen Yuen, your point about the Gilded Age. But I want to first ask Ian because you mentioned, Yuen Yuen, that you’re taking from 2021 onwards some positive signals. Xi is learning. There is a conversation happening about policy.

Ian, do you agree with that? I mean, you seem to feel that things have been a little darker over the last couple of years.

JOHNSON: Well, for sure they haven’t emphasized common prosperity as much, if you view that as a positive sign or a negative sign, perhaps, because it scared a lot of entrepreneurs. You know, everything has been, of course, warped by the COVID—the pandemic—so it’s hard to know exactly what the government’s policy would be otherwise.

But I think Xi is a micromanager and I don’t think he’s got great instincts for economics or development. He’s more of a political animal, and he doesn’t surround himself by people except for maybe Liu He, who seems to be the one person that people focus in on as a sort of economic czar. But he doesn’t have a strong premier like other general secretaries have had in the past who could really get things done. I mean, Jiang Zemin had Zhu Rongji, who was a real economics whiz, and Hu Jintao had Wen Jiabao, who was also quite knowledgeable.

Li Keqiang is sort of like this shadow premier. He shows up at disasters and stuff like that and does a few token things like that. But he isn’t sort of a person who seems to have the authority to push through a lot of reforms. And so I kind of think that the instincts of the government might be to loosen up a little bit. But, overall, the focus is going to be on trying to make this a top-down project.

FOROOHAR: Interesting. Yuen Yuen, I want to go back to this fascinating comparison to the Gilded Era in the U.S., and picking up on something Scott said, I can see some parallels. I mean, if you look at that period in the U.S. there was a labor force that was going to need to make massive changes to a new model. There was a lot of corporate concentration, definitely more of a top-down approach, and there were policy shifts that addressed all that—major reform in education, trust busting, et cetera, et cetera.

How is China going to deal with its gilded age? Break that down for us. What does that look like and, particularly, in the context of something that is at least conventional wisdom in U.S. media circles, which is that China is a surveillance state. Bigger is better, in some ways, for AI development. You know, help us square this circle a little bit. What are we missing or misunderstanding?

ANG: Sure. And I would add that in addition to the similarities that you’ve just pointed out between China today and the American Gilded Age of the past, another point of similarity is that they both have serious corruption problems, right.

FOROOHAR: Right. Great point. Yeah.

ANG: And so we see that as soon as Xi came to office his two signature policies, number one, was anti-corruption and number two was fighting poverty. So the economic and the political policies are interconnected. They’re not separate, and they’re all part of his campaign, you could say that, to address the excesses of the gilded age.

But what is very different between China today and America in the past is that if we look at American history the progressive era involved a great deal of bottom-up reforms. You have political activism, muckraking journalism who exposed corruption, independent prosecutors, political reforms that broke up electoral machines, and no doubt afterward the scale of the government expanded through welfare reforms.

But it was a set of democratically-driven reforms in the progressive era. I think what the Xi government hopes to do is that they can pull off a progressive era without political reforms. They don’t want to go to the route of having a more vibrant civil society to monitor government, for instance, and instead he wants to try to use the strong arm of the state, using commands and campaigns to order away the problems of capitalism, which is quite a curious experiment because, I think, we have never before in human history seen a communist country trying to order away the problems of capitalism—(laughter)—and that is precisely what he tried to do in the summer of 2021 and he quickly learned that, oops, you know, if you do that investors will be alarmed, right. They will flee the markets. You are going to wipe off trillions of dollars from the most valuable companies in China. So he backed off. And so now I think they are at a point where they are reevaluating what is the right way to address the ills of capitalism.

FOROOHAR: Scott, I want to ask you to jump in on this. Is China so different, in your mind? Are there any similarities that we can look at out there with other countries’ development? What are some lessons that we might apply?

ROZELLE: Well, just to—one other thing about the differences in the Gilded Age and today—

FOROOHAR: Yeah. Sure.

ROZELLE: —the America from before and today is we’re in an age of globalization and in an age of automation that had nothing—that we didn’t have that, you know, back then. And so this has this enormous ability to increase productivity but to lay off labor, to create polarization. And, you know, I think that that’s what—you know, we’re just publishing a paper now called “The Advent of Polarization in China.”

For forty years, I would say—Yuen Yuen, I would say that it’s really Zhao Ziyang, Zhu Rongji, and Wen Jiabao got rid of six hundred and eighty million people out of poverty and Xi Jinping got twenty million out and—but he got the last one out, right, and—right, but, you know, now we’re in this—you know, basically, in an age where, you know, as we move forward, right, with, you know, economic development, how do you balance those things off and how do you—to get there.

And so, I’m—you know, does China look more—is China going to look more like the Philippines in 2035 or like Tokyo—like Japan—right, in 2035? And, you know, I think that—Mexico in 1980s was called the next Taiwan, and they hit 1990 and they haven’t grown since, right. And when I was in—when I was in college, right, the Soviet Union—we were studying communism and socialism because we thought planning was going to take over. That was the way to run an economy and, of course, by, you know, the late eighties, you know, it collapsed, and I think that it has that very real possibility of, you know, peaking and then stalling and, you know, that’s—

FOROOHAR: Yeah. OK. Let me—before we open it up in about five minutes or so to the floor and to our virtual audience, let me ask you one more question and kind of bring together some of the threads we’ve been talking about.

I think most people that follow China knew that even if we hadn’t have had the last four years of disruptions to the global trading system, you know, conflict now with Russia, Ukraine, we hope not a larger war but we don’t know, a kind of a decoupling of a bipolar if not a tripolar world, China’s development path from here on out was going to be difficult and complicated. So that’s baseline. Now you add in all these other complications. What is the play here and to what extent are the thoughtful folks in Beijing able to maneuver at a time when the security state would, presumably, be, you know, having some more power?

Yuen Yuen, maybe you want to start with that.

ANG: Oh, that is a big question. (Laughter.) Well, the way I think about it is that the policy environment within China is a subset of national politics and national politics is situated within geopolitics. So whatever is happening in Ukraine and the choices that China makes will profoundly affect the future of geopolitics, which will then trickle down and affect national politics and the policy approaches to a variety of issues, including on common prosperity, redistribution, technology, and so forth.

I think the point that’s worthy to point out is that within the Chinese Communist Party there is a left-right ideological divide and left usually means more authoritarian status and nationalists, and this—and the Chinese leaders have sort of always been shifting left and right even under Xi himself. He isn’t always on one point. He’s moving back and forth.

I think the danger of what’s happening in Ukraine is that if the dividing line in the world becomes such that China and Russia is on one side and America and NATO is on the other side, that kind of an old Cold War style of divide will create the geopolitical environment for China to become even more leftist than before and that will trickle down to everything—national politics and policy approaches.

FOROOHAR: OK. Sobering. Ian, what do you think?

JOHNSON: Yeah. I think the rational thing to do in the current geopolitical environment would be to try to distance oneself as quickly as possible from Russia and realize that China wants to play in the big leagues, that it really doesn’t want its allies to be countries like North Korea and Myanmar and, you know, and Russia, and that it really is trying to compete with the West, who needs—still needs the technology transfer. I mean, something like two-thirds of China’s high-tech exports are—use foreign components. You know, so it can’t export a lot of its stuff. Its manufacturing—its chip manufacturing is still something like six years behind the top level chip manufacturing, which is a big gap in the chip world.

And so, I mean, China has—needs to be pivoting and making sure it’s clearly in this other camp, not in the Russia camp. But I see a kind of—and we saw this in the last discussion also on the vaccine diplomacy and all that, that there’s a sort of paralysis and almost like nothing can happen until the Twentieth Party Congress in the autumn. And this—you know, the logical thing would be, as some of the questioners pointed out in the last panel, just adopt the mRNA vaccine, get everybody vaccinated, and then you can slowly open up the economy. But it doesn’t seem like they’re able to do this for political reasons, and I think Xi has also tied himself so closely to Putin makes it hard for him to create this separation and put China back on a—and, you know, I think by the same token, there’s a lack of initiative coming out of Washington, new thinking on China. There’s a sort of lockstep view on China as the next, you know, evil empire and this makes it hard for Washington to reach out.

So I think this is not a favorable situation for China’s reform efforts or the next, you know, step.

FOROOHAR: Yeah. Yeah. Fair enough. Scott?

ROZELLE: You know, I don’t have a whole lot to add, you know, on the macro level. I think that—and it’s—I want to go back to something Ian said, and we see that so clearly, and I study health policy. I study education policy and, you know, early childhood development, and there’s no—it’s not only this—he’s separated himself from the economic policymakers; he’s separated himself from scholars and from academics who can contribute to that.

I’ve been working on China for forty years. For thirty-five years if my group had, like, research-based understanding of a problem in China and maybe a possible solution, you write a four-page policy brief and, literally, until the mid-nineties you’d put it in an envelope in a box on the back of Zhongnanhai and within two weeks the premier would respond to you—

FOROOHAR: Wow.

ROZELLE: —and say, you know, we read this and here’s what—you know, here’s—

FOROOHAR: (Inaudible.)

ROZELLE: Oh, it’s of interest. That means they didn’t like it. (Laughter.) Or on the way. That box has been on the back of Zhongnanhai since the Emperor Qianlong in the Qing Dynasty. It’s gone now. And he’s insulated himself from this whole, you know, apparatus that has ideas like, let’s go—(audio break)—problems. You know, let’s launch early childhood development like every other country in the middle income, South—Latin America, South Africa, Turkey has done. But that doesn’t even get to him.

And so I think that there’s a big part of the problem. Now, whether he’ll loosen up and change that environment that’s what we sort of have to see.

FOROOHAR: Wow. What a wonderfully interesting and telling example.

OK. So it’s a little after 3:00. We’re going to open it up to the floor here, and virtually. Let’s start, Keith, with you, in front.

Q: Keith Abell, LevelN4XT.

I read recently U.S. News and World Report rankings. Seventeen of the top thirty computer science universities in the world are in China, somehow. Not everything is Beijing University. University of Wuhan, University of Heilongjiang. Like, I don’t know how that happened. And, you know, despite the fact that so many of the Chinese population may have poor education, aren’t there enough highly educated people backed by industrial policy determined to break the middle income gap and elevate China in high-tech industries, backed by a massive domestic market and an increasingly sophisticated financial market to finance it?

I mean, how badly can the Communist Party screw this up?

FOROOHAR: (Laughs.) What a great question. Yuen Yuen, do you want to give that a go?

ANG: I can try to share some perspective from my own research on Chinese industrial policies. So in the context of producing patents, for example, the central government has given explicit targets for local governments to increase the number of patents and that was coupled with subsidies, grants, policies, all kinds of support, as you’ve described.

What I find in this research with my co-authors is that Chinese industrial policies are highly effective in terms of producing large numbers but much less so in terms of quality. They tend to be highly wasteful so much of their efforts are actually wasted or bogus. And what they rely upon is the hope that there would be a small number of hits that would really make a difference to the whole economy.

So that’s why it’s always hard to tell exactly how effective and powerful the Chinese government is because it’s very powerful in creating results at scale, much less so in creating results in quality.

FOROOHAR: Interesting. Do we have any online? Go ahead.

OPERATOR: We’ll take our next question from Tara Hariharan.

Q: Thank you so much. My name is Tara Hariharan and I work at a hedge fund in New York called NWI.

Drawing on the threads of the discussion so far regarding common prosperity, the possibility of decoupling from the U.S., self-sufficiency in technology, my question is does the panel think it’s feasible for China to be able to move to a growth model that is consumption based rather than the current trade- and investment-based model that has been, at least so far, working? And is it possible that this is going to be an outcome that lowers growth in the longer term or actually raises growth if China is, indeed, able to achieve self-sufficiency in various technology aspects?

Thank you.

FOROOHAR: Great. Thanks for that.

Scott?

ROZELLE: Yeah. Like the last question this is a huge question and getting at the heart of it, and has a little to do with your part of the question about rising consumption. I often—one of my very good colleagues, Terry Sicular, wrote a paper recently about the rise of the middle class in China and she says the good news is, right, is, like, 24 percent of China’s population is in the middle income. I mean, that’s three hundred and fifty million people who are middle income. One percent is high income. These are using international standards, OK, and that’s—I mean, it’s gone from 5 percent middle income to 25 percent and it’s driven this rise in the growth.

So there’s two problems with that. One is what’s the—sort of the marginal rate that that consumption can continue and that’s going to depend on two things. It’s the continued growth and willing to spend that income of that middle income class and then how many of these low-income people can graduate into the middle income class. That’s what’s going to really do it.

And we know the problem of—(audio break)—classes spending money is they have to save money for housing. Well, housing prices may come down. So that might help. But—(laughs)—and cause a whole lot of other problems. For retirement, for getting their son married, et cetera, et cetera.

And so, you know, the marginal rate of consumption has never been high, and unless something is really done on that, that’s not going to happen. And, you know what, you know, my view on—you just can’t—Li Keqiang himself said six hundred million people, you know, live on less than a thousand yuan per month of income level. And so what are they trying to do to make this part of the new dual circulation or consumption-driven economy? They decided that they want to increase urbanization. Got it. That’s a great policy.

But the way they’re going to urbanize is they’re going to take the two thousand fourth and fifth tier cities—so think of them as county seats, right—and they’re going to make them two hundred (thousand) to three hundred thousand people each. So we’re going to create two thousand Fresnos or two thousand Cincinnatis, right, and then what are we going to do? We’re going to populate them totally with low-income people, right. So there’s no manufacturing out there. There’s no construction for a while, but construction—so it’s going to be—but you’re all low income. So low-income people don’t consume services.

So what—see, I don’t—that’s where I see the breakdown of this policy happening. And so I think that that’s not how they’re going to prosper commonly.

FOROOHAR: Interesting. Let’s go to the back there.

Q: Thank you. Paul Podolsky. I’m a writer and an investor.

The question for the experts is how much has what’s recently happened in Russia changed your thesis about the risk of higher risk outcomes in China in the following sense? Russia, like China, has a system where person number one, ultimately, is unconstrained. Many of the policymakers—some of them have come out recently in Russia—are, clearly, against what’s going on and there’s a lot of incredibly thoughtful policymakers in the China economic apparatus across a lot of ministries that probably, in the terminology described, are more right—pro-capitalist, pro-open, pro-globalization.

But they might not matter that much or nearly as much as they have over the last forty years for the next five years, and Russia seems like an incredibly chilling potential warning. But you all have been studying like this for decades. What are your thoughts?

FOROOHAR: Who wants to grab that one? Ian, do you have strong views?

JOHNSON: Well, I mean, no, I agree. This is the problem. You have strong views on a lot of stuff. (Laughs.)

But no, on this one—no, I mean, clearly, Pope XI—I mean, Xi Jinping, is first among equal and he doesn’t—you can see the lack of discussion. You can see the lack of debate even in the economic sphere.

It used to be interesting to read Chinese economic journals. You’d see a debate about different topics, and they’re not that interesting, really, to read anymore. You see a focus much more on the political, on nostalgia for—you know, and when you read the newspapers and stuff like that there aren’t these interesting debates.

So I kind of would agree that there’s a lack of—and as Scott was saying, a lack of information and debate circulating in China. But one thing, I think, it’s worth just as a caveat to all of that—and I think Yuen Yuen was kind of making that point maybe at the very beginning and I want to sort of second it—is that it’s easy to draw up a worst case scenario for China. The Chinese state is still quite effective. It can get a lot of things done. It still has amazing entrepreneurs. It still has well-educated people. Not enough of them, but it’s still got well-educated people. So, you know, for the next five or ten years you can see the Chinese economy moving forward. It’s sort of after that that you begin to wonder where it goes.

FOROOHAR: And then after. There’s a lot of vectors in play during that time.

JOHNSON: Right, which you can’t foresee.

FOROOHAR: Let’s take another virtual question.

OPERATOR: We’ll take our next question from Mikki Canton.

Q: Hello. Thank you so much for this amazing very, very informative discussion. Again, thank you for the Council on Foreign Relations and all of you.

My question is a very quick one. In light of everything you’ve mentioned as far as the economic situation and what we may expect or not from China, has President Xi bitten off more than he can chew with his very ambitious Belt and Road Initiative And what are your thoughts on that? Is it too much too soon too quickly?

FOROOHAR: Great question. Yuen Yuen, I’m going to throw this to you.

ANG: Great question. I would think about the Belt and Road Initiative as part of—a key part of Xi’s ambitious foreign policy platform, right. So he has rejected Deng Xiaoping’s advice that China must always keep a low profile, and upon taking office, along with his anti-corruption and poverty eradication campaign, the third pillar of his policy is that China is going to go outward, be a leader, and have the Belt and Road Initiative.

I think that if he had done the initiative in a much more modest and pragmatic scale then it could have served the purposes of expanding trade links between China and other countries. However, I think, because of the way it’s framed so ambitiously, he gave the strong impression that Beijing is trying to build a China-led global order and that immediately had tremendous geopolitical repercussions because the U.S. woke up in alarm and that, I think, was one of the beginnings of the breakdown in U.S.-China relations. So that’s the bigger picture that I see.

FOROOHAR: That’s fascinating. I agree with that.

A question here.

Q: Jerry Ostriker from Princeton.

To an outside naïve observer it looks like Chinese economic policy oscillates back and forth, over the—from the government control over the markets to moving towards free enterprise and back and back and back. What phrase do you think the—phase of this do you think they’re in now?

FOROOHAR: Ian, do you want to take that?

JOHNSON: Yeah. Well, I think, very clearly, they’re in a control phase. There was that theory of Chinese politics that there’s this contraction, relax, and show—(inaudible). And so I think it’s, clearly, in a contraction phase and the government is going—and, again, trying to square the circle by saying we can make these—we can solve these problems through state-led venture capitalism, as a friend of mine in the Economist, Arthur Kroeber, puts it, Leninist venture capitalism—that you can sort of choose the winners and losers. You just throw a lot of money at a lot of different companies kind of like a venture capital company does and you’ll pick a few—you’ll get a few winners. And that’s sort of the way for China to solve problems such as its carbon problem. They’re already investing a lot in green energy and in other areas as well. But that’s a huge gamble, I think.

FOROOHAR: Scott, jump in.

ROZELLE: Yeah. Yeah. And it’s not only they throw money at the industries. They pick the industries, and I think this is the main problem. So I have some friends who are investors in China and they spent, like, three years—one was a digital media company and another was some other type of company—and they spent, you know, two or three years to get ready to go public, and then they’re told, all of a sudden, we aren’t going to invest in that area. We’re going to invest in silicon chips or in high-tech or AI, and then they take all their money and throw it in there, right.

And maybe they can do the Japanese thing of creating the greatest car industry in the world and chemical industry and electronic industry. But you got ninety-two industries out there and that’s the problem, right, is that, you know, that a government—if you look at the matrix, a government can’t run ninety-two industries and all the interactions between them. That’s what the market is for and that’s what they’re taking away, you know, out there.

Now, whether it’s a contraction back and, you know, they’re going to—that will go up to another—the second reform era, I mean, we’ll see. And like I say, I mean, I think Yuen Yuen started to say that there’s voices being heard now that maybe suggests there’s concern.

FOROOHAR: Yeah. Go ahead—

JOHNSON: No, I was going to say we shouldn’t underestimate the ability of the system to self-correct. I mean, there could be a correction mechanism. It doesn’t have to be deposing Xi Jinping or waiting for him to die in office or whatever happens. It could be that things head south and people finally get his ear and say, listen, we need to go back to a little bit of this other thing, and they relax and change the policy mix. I just think the current policy mix is flawed, right. It doesn’t mean they couldn’t change the policy mix.

FOROOHAR: OK. Another virtual question.

OPERATOR: We’ll take our next question from Joseph Nye.

Q: I’d like to—this is a very good panel. Joe Nye of Harvard.

I’d like to relate this back to this morning’s discussion of demography. We learned that pro-natalist policies aren’t going to solve the problem. We also know that China’s labor force peaked in 2015. We also know that there’s still a large pool of rural manpower, though inadequately educated.

How do you put those together and project how much of a demographic drag there will be on Chinese growth?

FOROOHAR: Scott, do you want to grab that?

ROZELLE: (Laughs.) That’s putting Ian, Yuen Yuen, and I all together. We should link hands and—

FOROOHAR: Yeah. Sure. No, everybody can—everybody can weigh in.

ROZELLE: But, no, I think that it’s—you know, it is the question out there and the problem is, is when you have an under educated labor force and a rapidly changing economy, right, especially one where skills are going higher and higher, you know, how do you address that?

Well, for 2045 you better start investing in zero to three, four to six, and get your education system involved, and that has to be done and that’s not being done now and—but number two is how—but you got, you know, five hundred million people already in the labor force that are under educated and need—are going to be shifting jobs.

You have to get—I think that this is where you really have to focus on getting a better social insurance—unemployment insurance system under them and then really target, start experimenting with sort of retraining programs and—oh, and, you know, retraining programs don’t work. Already going to tell you nowhere in the world but let’s try to make them work and they have to be under grid by, you know, a really, really good set of social services that can protect. Otherwise—you know, Mexico was the safest country in the world—one of the safest countries in the 1980s, and by the 2000s, look at what happened. That’s what happened when a quarter of their labor force became un- or underemployed, and those things that happened in Mexico were invented in China over the last five thousand years.

So I think that that’s why you have to take this seriously. And one more thing. I often say what’s the probability of that happening? Five percent? Ten percent ? I mean, buy insurance against that and even if you don’t need it to continue that growth.

FOROOHAR: Yuen Yuen, you want to weigh in?

ANG: Sure. On labor economics, I defer to Scott. But I think it’s also worth pointing out that although slowing birth is a drag on the Chinese economy, it also creates new growth opportunities. So health care is a booming industry in China. China spends only 5 percent of its GDP on health care compared to the U.S., which is 17 percent. So many investors see health care as the next booming sector in China.

My overall takeaway is that I’m usually not too worried about any particular drag on the Chinese economy except the political ones. The political ones are the ones that are really hard to solve—the geopolitics, the national politics, and Xi’s own policy predilections.

I wanted to echo Ian’s point about self-correcting mechanisms, which I completely agree with. The problem with Xi is that he only learns when things get very bad and he’s also contradictory. He’s a leader who gives contradictory instructions quite often. So it’s hard for the bureaucracy to know what he really wants and then correct the errors.

FOROOHAR: Ian, any thoughts?

JOHNSON: Just a quick note on the demography. I mean, one thing that they could do that would be a stopgap solution would be to raise the retirement age because right now the average retirement age in China is fifty-four, and blue collar female workers retire at forty-five, male blue collar at fifty—no, females—a female blue collar at fifty, a male blue collar at fifty-five, female white collar at fifty-five, male white collar at sixty. So but the average overall is fifty-four. It’s very low, and it could be raised. Of course, it would be difficult politically, and I think part of it is just sort of a social compact in China where a lot of people in blue collar jobs, especially, expect to retire early.

But that could be something they could change and that would help mitigate this demographic problem.

FOROOHAR: OK. Question here. Actually, let’s get one over here.

Q: Hi. My name is Claire Cousineau. I’m with Stanford Center on China’s Economy and Institutions.

I was wondering if you would talk a little bit more about the course corrections that you’ve discussed, especially in light of the contradictory statements that Xi, like Yuen Yuen just said, has been rather known for.

FOROOHAR: Scott?

ROZELLE: Well, I mean, the biggest course corrections that you would hope they would do is, you know, is turn around the summer of 2021, right, where we squish Alibaba, we squish Huawei, all the education companies. We go out and, you know, we just—we tear up, you know, a DoorDash China, Meituan and Tencent, right, in the—you know, in the—I mean, these are companies that have created, you know, tens of millions of jobs, right, and it’s not only that because now, just through friends of friends, you say, what are your investment plans, they go, we aren’t going to do anything else.

So, you know, I mean, so Tencent used to—you know, find the—it’s like Silicon Valley, right. We find the up and coming companies, we buy them, and then expand them, right, and it creates employment and GDP, and they just don’t want to do that.

So that’s the big course correction, I think, that needs to be made first is backing off and saying, you know, we’re going to, you know, continue to let the market operate and, you know, let private entrepreneurs, you know, thrive. Yes, we might tax them a little and as you do more philanthropy—give more philanthropy to us. (Laughs.) That’s good. No, but, you know, you’re free to go and—but that’s one of the basic course corrections that need to happen first.

FOROOHAR: OK. I want to get just a couple more questions in, one virtual and then we’ll come back to the floor.

OPERATOR: We’ll take our next question from Donald Daniel.

Q: Yes. I’m Donald Daniel from Georgetown University.

I know there are no experts, I believe, here on military policy. But when you listen to what you have to—what you’ve said and you think about the trajectories of what you’ve said, you know, it strikes me that the image that’s recreated a lot among some people in the U.S. and in the West, in general, about this rising military power in China and that we have to kind of really concentrate on how we’re going to be checking that military power, do you think that that’s the right image that we ought to have of China, particularly, now in light of China seeing also what’s happened in Ukraine and the impact of the world on that?

Thank you.

FOROOHAR: It’s a great question. Yuen Yuen, do you want to start and maybe Ian weigh in, too?

ANG: Sure. I think, in response to your question, the right thing to do is to have a realistic assessment of China, to know what its strengths are as well as what are its weaknesses. I think the danger is to blow up China’s strengths and create this ten-feet-tall straw man and which then causes the U.S. to overreact. So having a realistic understanding of this—these are the parts where China is really good at but these are the risk and weaknesses that they have—is essential.

I would also add that the U.S. tends to forget or not realize that its antagonistic actions and rhetoric are one of the biggest sources of support for autocratic and leftist forces in China. The U.S. doesn’t come anywhere close to appreciating this fact, that whenever China is in a situation of intense rivalry with the U.S. that creates an environment where the pragmatists and the moderates are drowned out and the loud nationalists get to dominate the conversation in China.

So that’s, I think, it’s something very important to keep in mind.

FOROOHAR: That’s wise words.

Ian, do you want to throw in one more thought?

JOHNSON: I was just—recently gave a talk to our military fellows and one of the things I was—one of the points I made is that, despite these challenges, China is still going to have a big and growing military budget and it doesn’t necessarily preclude China from being—from attacking Taiwan or doing various other things.

You know, on the contrary, one could construct a scenario where these economic problems lead to the regime relying more and more on nationalism and miscalculating and getting into a military conflict, similar to what Putin has done.

So I don’t think that these—yes, in some ways, these economic problems can weaken China’s growth into being a true superpower. But in the narrow area, let’s say, if we think of the military as one particular kind of force projection, it doesn’t stop China from building aircraft carriers and doing things like that.

FOROOHAR: OK. We have time for one final burning question. I see a very high hand up back there. (Laughs.)

Q: Rana, we’ve all read your columns over the many years with great interest, and I was noticing you wrote a column back at the end of December on the China common prosperity message where you actually made quite a defense of China’s policies in this area and what they’ve done to regulate technology and to create more of a common prosperity.

Could you talk a little bit about—I mean, you’ve heard what the panel has said. That’s quite different from what we’ve heard today. But I’d be interested to hear what your views are.

FOROOHAR: Well, that’s very flattering. Thank you so much. I won’t presume to know as much as any of our three experts here. But I will say that I wrote that defense after writing a number of critical pieces, actually, about China over the last couple of years and its model and, particularly, Xi’s China.

But I do think that, to me, when I look both at the trajectory of the U.S. and the Chinese economy, it seems to me that the winner will be whoever can curb the elites best and curb the sense that there is a system that is not serving the larger population well. And in that, it seems to me that certain elements of the common prosperity policy are vectorally correct.

Now, whether or not—going to Yuen Yuen’s point, that whether or not they’re going to be instituted properly politically, you know, I think that that’s a huge risk. These are very complicated things to do. I’m not advising that the U.S. follow this model per se, but when I look out at both countries I see a lot of, actually, quite similar problems in the sense that there’s a lot of corruption. There’s a sense that—amongst broad swaths of the population, not possibly so much in China but in the U.S.—that the system isn’t working well for them and that this leads to more nationalistic, strongman views that are going to be bad for everyone.

So maybe that’s a good place to—(laughs)—end this panel. Thank you so much. Thanks to all the wonderful comments from our panelists. (Applause.)

Just want to remind everyone that this will be—this videotape is going to be available on the CFR website and I want to thank Rita Hauser and the foundation for all the support. Thanks for everything. (Applause.)

(END)

This is an uncorrected transcript.

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