Visiting Professor of International and Public Affairs, Columbia University School of International and Public Affairs; Former U.S. Secretary of the Treasury (2013–2017); Task Force Co-Chair
Robert and Marion Oster Distinguished Military Fellow, Hoover Institution, Stanford University; Former U.S. Chief of Naval Operations (2007–2011); Admiral, U.S. Navy (Retired); Task Force Co-Chair
Director, Independent Task Force Program, Council on Foreign Relations
SCHMEMANN: Thank you and good afternoon. I'm Anya Schmemann, director of the Independent Task Force program at the Council. I am pleased to present our latest task force report on China's Belt and Road Initiative. We launched this project more than a year ago but then paused our work when the pandemic hit in order to take account of how COVID-19 and its aftermath would affect China's ambitions and the global economy. We also went through some staff transitions as our initial project director, former fellow, Mira Rapp-Hooper, left CFR to join the transition and now the Biden administration. We thank her for getting us off to a strong start.
CFR fellows Jennifer Hillman and David Sacks very ably brought us over the finish line, and we're grateful to them for that. Throughout our endeavors we were guided by the steady leadership of our cochairs, Secretary Jack Lew and Admiral Gary Roughead, and we thank them for their guidance and wisdom. We are grateful to all our task force members and observers who convened several times for deliberations and reviewed numerous drafts of the report. Many of them have tuned in today, and this report would not have been possible without them.
Task force reports are consensus documents. Although we don't expect members to agree with every single finding or recommendation, the fact that this group was able to reach consensus with no dissenting views on China's Belt and Road is meaningful. Producing a big report like this is a Council-wide effort, and many individuals and departments were involved. I'd like to single out my taskforce colleagues, Chelie Setzer and Sara Shah, for their tireless work on this.
I also invite you all to peruse the report online at CFR.org where you'll find additional infographics, blog posts, and supporting materials. Today's topic is China, but I want to pause to acknowledge and condemn the rise in violence and hateful language directed at Asian Americans—this is simply unacceptable. Now we turn to our discussion, and I am pleased to turn things over to our presider, Elise Hu. Thank you.
HU: Thank you, Anya, and thank you to all of you who are joining us today. I can see this was a very popular event. We are going to open up to questions about forty-five minutes from now, so please have your questions ready. The panelists are excited to hear from you. We have a lot to get to, nor no shortage of headlines on the U.S.-China relationship right now. And again, I'm really excited to be presiding over this because this is the first comprehensive analysis of BRI in a COVID and post-COVID world and I think that's really significant. So I'll start with you, Secretary Lew. Why did the Belt and Road Initiative merit this kind of deep dive and especially now, why now?
LEW: Thanks so much, Elise. Let me just begin by acknowledging my cochair, Gary Roughead, all the members of the task force who did so much work on this, and David, Jennifer, Anya, and the rest of the CFR staff. I thank Richard Haass and CFR for offering this forum to bring together an independent bipartisan group of experts, which gave us the ability to analyze specific issues that the Belt and Road Initiative raises and grapple with the overarching strategic implications. We convened the task force with the goal of trying to better understand BRI, what it reveals about China's international ambitions, and importantly, what it means for U.S. interests.
We sought to identify the role that BRI is playing as part of China's broader efforts to expand its geopolitical influence, to reshape trade and financial flows, and to shift international standards to its benefits while also assessing the implications to the United States in terms of our security and economic interests. The result is a very comprehensive report that reflects the full breadth and scope of BRI, and we've tried to keep it up to date in a rapidly developing situation, including the impact of COVID-19, which has slowed lending and construction across BRI. It tightened the immediacy of debt burdens and host nations and marked a shift from infrastructure in favor of more technology and health-based projects.
LEW: One of the things we found is that BRI success comes from filling the void left by the United States and our allies and conclude that despite its potential to meet long-standing developing country needs in important ways, BRI presents risks for the United States and the rest of the world that outweigh its benefits. While undermining global macroeconomic stability through unsustainable debt practices, China's also spreading Chinese technology and standards, building dirty coal infrastructure, and increasing China's political leverage. And it's boosting China's ability to project its power across the region in the world.
We meet today more than a year into a global pandemic and at a moment when bilateral relations between the U.S. and China are highly stressed. The pandemic revealed the underlying economic fragility of many projects and catalyzed a shift, as I said, towards technology-driven investments. This deepens concerns over Chinese surveillance capabilities and influence in host countries. The health crisis promises to accelerate debt crises in many countries who have borrowed heavily from China to finance Belt and Road projects. Just a week ago, just last week, Secretary Blinken and National Security Adviser Sullivan met with their Chinese counterparts for the first time to discuss a wide array of issues, including some that we'll explore today.
And while these meetings were marked by tough rhetoric, there will be a need for the United States to work with like-minded countries to address some of the risks that BRI either created or heightened. U.S. policymakers face an urgent need to offer an alternative to BRI where we can to lead other nations by offering alternatives and setting standards and rules and to push back where we must. Our conversation today could not be more timely. I'm proud of the thorough research and analysis that the task force conducted and this, I think, is in fact the most comprehensive study of BRI that I've seen. I look forward to the discussion to follow.
HU: Fantastic. Thank you, Secretary Lew. Admiral Roughead, over to you. What really struck you in the final report that you deserve that our audience should really pay attention to?
ROUGHEAD: First, I'd like to echo Jack's compliments to the team, particularly to the task force members. I think it is notable that this report was produced and there were no dissenting views, which is not always the case that people can come together, different disciplines, different perspectives, and really see in a uniform way what some of the challenges are that we're going to confront. So I think what really struck me as the report came together and what I hope those who read it take away is that you have to look at the Belt and Road Initiative and the aggregate. We tend to focus perhaps on a particular port that's being built or that we'll hear of a country that has become heavily, heavily indebted because of participation in certain projects that China has put in place.
But I think what the report does is it brings it all together. It is, in fact, a signature initiative of China and it's a signature initiative particularly of Xi Jinping. And that is likely to remain front and center as long as he is in power, which looks to be for some time to come. So as you look at the report, what I would encourage people to do is to see how the physical infrastructure, how the digital infrastructure, how China's strategy with regard to its Health Silk Road all come together and in that way that they come together. It's really a projection of power that is really quite unique. As Jack mentioned, China saw a need, there's a burning need within the developing world for modern infrastructure, new methods of transportation and China filled that void.
But with it came penetration into their society's changing of standards either through the volume of, you know, for example, digital systems that are being put in place, port facilities that kind of wed that major port to Chinese infrastructure and Chinese systems, and then if you look at how the periphery of those facilities kind of add to that. So to me, I really do believe—I've been following the Belt and Road since it was first announced. I've been following it very closely. And I think this report is the first one that I have seen that brings it all together, that talks about the means and the methods and the impacts that are so important for recipient countries to understand, but also for us and how we choose to move forward in a world that's changing rapidly.
HU: Admiral Roughead mentioned that he's been following this from the beginning. Jennifer, why don't I go to you and just for a little level setting, for those who might just need a reminder, when we talk about the Belt and Road, you know, what is one belt? What is one road? Why did this come about in the first place?
HILLMAN: Well, first, thank you. It's really a pleasure and an honor to be here. But for me, again, stepping back from it, what struck me is, again, how vast this project is. So again, it started, in essence, as a recreation of the Maritime Silk Road and the ancient roads going from China into Europe, and then again, coming through the sea, coming around, and again, coming through those parts of Asia and moving over. That's what it started out as. What again I think comes out very clearly in this report is how big it has become and how much it has moved away from that original idea of recreating the ancient maritime and ancient Silk Roads that connected China, if you will, through to Europe, because it has gone very much digital. So again, a huge amount of what is there now is Chinese investments in technology, in financial technology, again, in health-care technology. It has moved in that sense in terms of the scope, but it's also moved geographically.
You now see if you look and, again, I would urge people to look at the maps that are part of this report and how much of BRI is now in Africa, how much of it is now in Latin America, how much of it is now, again, throughout the Middle East. It's moved well beyond sort of China's neighborhood. So that, again, is one of the things that to me is very striking. And with this shift, again, does go back to a lot of what both Secretary Lew and Admiral Roughead were talking about, which is the degree to which this enhances China's sense of power.
And that is another thing that is just very striking that when you survey these countries that are part of BRI and ask them who is the strongest economic power in Africa, who is the most significant economic power in Southeast Asia, even though American companies have much more foreign direct investment in both of those regions, the answer that comes back is China. China is more powerful. And why? It's because of BRI. I mean, throughout these countries, they point to BRI as the reason that China is perceived to be a greater economic power in those places.
HU: Such a big part of this report focuses on the digital infrastructure that's now being set up in so many BRI countries. David, I want to ask you is the cow kind of out of the barn on this because once technology infrastructure like broadband is set up, a lot of protocols and standards are set up, it's very hard to sort of reverse. So is it too late now to formulate a response in some of these tech infrastructure areas?
SACKS: Well, I think you're exactly right that China has really jumped out in front of the pack here, especially on 5G. And just a step back. Digital Silk Road was introduced in 2015 and is really a more focused undertaking than BRI. It really does target a handful of industries and technologies that the state wants Chinese companies to export and promote along Belt and Road. The one that's really gained the most attention has been Huawei and 5G. Why it's significant for us is because there's a significant first-mover advantage here with telecom.
The United States was really the leader in 4G LTE, and that enabled our companies to build the applications and the services and then export those around the world and we became the global leaders. Now no U.S. company offers the full stack of 5G. So when the country wants to move to the next generation, they really have just four options—Huawei, Samsung Ericsson, and Nokia. Again, no American company. So, you know, one amazing statistic that we have in the report is Huawei’s share of the global telecom equipment market has increased by 40 percent since BRI.
I think that shows you how BRI really allows Huawei to penetrate these markets. Is it too late? I don't think so. There was some success in the last administration in pushing countries to find alternatives to Huawei, but one of the main recommendations and one of the takeaways of our report is that you can't be something with nothing. We can't just tell countries, “Don't use Huawei, but we don't have an alternative for you.” So we have some creative ideas for how we can promote alternatives to Huawei and what we can do domestically to ensure that this doesn't happen with 6G for instance.
HU: Secretary Lew, before we get to responses and policy ideas for how the U.S. should counter BRI, can you identify for us what you believe are the most significant risks that this report points out?
LEW: I think the risks fall into a number of baskets. You know, there's the macro risk that heavily indebted countries are now facing the need to either restructure debt or face financial crises in many of the BRI-recipient countries. You know, it does a lot to destabilize the outlook unless the United States and the rest of the world come in and help those countries as they're dealing with some combination of COVID crisis and indebtedness. That's a lot harder to do if China is a commercial lender and debt restructuring is resolving sovereign loans.
China's going to need to participate with other advanced countries in the debt workouts or else we could end up with a very unpleasant prospect of the United States and our allies bailing out Chinese loans. Now, I think the answer to that is China needs to come in and participate as a member of the Paris Club or use comparable tools. So I see it as an opportunity to try to pull China in, but that won't just happen. That will only happen if the United States is playing a leadership role with a lot of other countries making it so that in order to be part of the club of great nations, that's what China has to do.
On a bilateral basis, there's a risk that, you know, China has built up a lot of excess capacity. And in fairness to China, some of the excess capacity was built up in the aftermath of the financial crisis when they were investing a great deal as part of a global plan to bring the economy back. After the recovery, China was looking for a new market and instead of retiring excess capacity, old facilities, they continued to look for new markets using subsidies that come from having the ability to price things because you have excess capacity with state subsidies. So we've lost a competitive edge because of some unfair practices.
And you know, the third I put in the kind of strategic bilateral basket, which is the introduction of Chinese technology and China's ability to gather information. It creates risks that we just need to be aware of and manage in a different way than before. I think the health issues are kind of—it's still in our power to respond in a way where we don't lose the edge on that. I think responding to COVID-19 is a moment the United States to step in and play its traditional leadership role or else China will use health diplomacy as a way to gain further political advantage.
HU: Well, then the obvious follow up, Secretary Lew, is do you believe that the United States has done enough in terms of health diplomacy in, sort of, responding to COVID-19 in the developing world?
LEW: I think we're just beginning to. I think the United States should never have withdrawn from the global conversation. We should have been part of it. We should have been leading. Rejoining the WHO and being part of the global conversation is the necessary first step. I think as one of the countries capable of producing vaccines, we have multiple reasons for wanting to be very much engaged in health support.
First of all, you can't stop a global pandemic, which is a transnational problem, if it's raging in parts of the world. So it's in our interest not to have variants hit our shores. But more to the point of responding to BRI, the United States for the last seventy-five years has been the country that the world has looked to be part of the solution in a situation like this. As part of our leadership, that's part of why people follow us and I think we need to be in that position again.
HU: One of the big parts of this report is the idea that the United States should focus on areas where it can really offer a clear and genuine alternative to BRI rather than try and match China everywhere. Admiral Roughead, where are those areas?
ROUGHEAD: One, I'd like to follow up on what Jack said. The impact of what we could do with a broader health program and particularly springing off of COVID now that it appears we're starting to get our legs underneath us as we move forward, I don't think you can underestimate the impact that that can bring to developing countries. As someone who has been involved in humanitarian efforts throughout my career to include responding to the tsunami in 2004 in the Pacific, the impact that that has on people on their lives, on their families, is just extraordinary. The way that Americans have been able to do that, working with our close allies and partners, really has an impact. I think that's something that we should never ever relinquish because we tend to want to take care of people, and I think we're very good in that.
The other area that I think is important is as we point out in the report, being able to provide the types of assistance to countries so that they can look at various projects that they think that they may need, that they may want to undertake, and to help them analyze it from the standpoint of economic feasibility, impact on population, impact on environment, and being able to go in and work with countries to analyze the risks that they may be undertaking as they bring in digital systems into their country whether it's in transportation networks, whether it's in power distribution grids, whether it's in port facilities.
I think that we can be an honest broker in that regard. Then the other thing that we can do is to lead in developing consortiums that can bring together different countries, public and private, with different technologies in ways that better serve the interests of the recipient countries. We have done that for decades. And I think that we need to get back into that game and offer an alternative to what China has been able to offer up as a good solution, but it may not be the best solution.
HU: Let me flip that around and ask Secretary Lew and then any panelist that wants to jump in, where are areas where the U.S. could work with China?
LEW: So, I think this is as hard a moment as we've had in the last fifty years to answer that question. And I tend to think, in general, if you look at where our interests overlap and where there are transnational issues, you're going to find the most fruitful areas to put effort into right away. I don't think it's an accident that coming out of the meetings in Anchorage the one positive takeaway is that there is going to be an ongoing process to work together on climate change. That's something where we have common interests. And to tie that to BRI, one of the goals that I think we should have is for China to keep its commitments to make BRI more green, which means no longer funding coal-fired power plants in developing countries creating a permanent problem in terms of demand for highly polluting fuels.
I think the COVID issue is certainly one where we need to both be part of a solution. I think there are also diplomatic issues. You know, in the Obama administration, we worked closely with China on the Iran negotiations. We didn't have identical interests. And right now with China purchasing more oil from Iran, bringing them back in is all the more important if we want to have a negotiation where the United States can have the kind of outcome that will be good. I actually think that on issues like North Korea, while we don't have identical interests, they overlap. So I think there are areas where even in conflicted times there can be progress.
I think there has to be some confidence building on multilateral issues before you're going to see meaningful breakthroughs on the bilateral issues. And I think that this whole BRI discussion is one where the more we can think of it as a global discussion, the more successful it will be. It shouldn't just be U.S., China. It should be this is what the nations of the world believe about using coal, about using business practices that are easy to fall into corrupt ways. Those are not things that are just U.S. issues, but the U.S. has to lead in a conversation like that to be effective.
HU: Jennifer Hillman, something that the report underlines is this idea that even though China is the largest producer of renewable energy in the world, it is exporting to its BRI countries a lot of dirty fossil fuel-powered sources like coal-fired power plants. And so, if the U.S. were to be able to offer a more a greener alternative, what does that look like? What does the report recommend?
HILLMAN: Again, I think you're exactly right. To me, this is one of the really missed opportunities because Chinese companies are absolutely the global leaders in producing solar and producing wind and producing hydro. So you would have thought as the leaders of renewable energy that this would have been a great opportunity. And let's be clear, the number one thing that has been built as a result of BRI has been power plants. I mean, that's been the number one need of many of these developing countries. They need power. They need electricity grids, and that's what's China's been building.
The problem is that it's been building it largely out of coal fire. Again, a couple new good developments. Just literally last week China announced that they would not renew or add to the funding in Bangladesh, one of the largest producers of coal-fired plants. And 2020 marks the first year where we've seen more financing of renewable than of coal, so at least the balance is slightly shifting. But to go to sort of how do we do this? I'm going to piggyback a little bit on what Jack has said, because this is one area where there has been sort of a nascent agreement on what are green investment principles.
How do we decide whether a project is or isn't green and whether or not we couldn't get more of a global agreement on that and then hold China to that? Do not invest in projects that don't, you know, fit within this category. So there really is a potential for a coalition to do that. I mean, secondly, to me, this is another area where we have to offer up alternatives. Again, we've begun a very significant program in Africa called Power Africa, which is designed to create clean energy and have it well distributed throughout Africa. We need to take that global. We need to, again, be moving those ideas of the way in which that private-public partnership with private sector, public sector, governments, everyone coming together for that clean energy. We need to take that show, if you will, on the road.
The other thing that where I think we can clearly work with China on is to insist on environmental impact assessments as part of their pre-lending, if they're going to give insurance to the project, do environmental impact assessments first. Again, try to get back to the standards that we've insisted on and that the World Bank and the other multilateral development banks have insisted on to include that. And then the last thing is, I think we need to do more of our own commercial diplomacy to help sell American technology and American companies who do also have the ability to come in and build clean power so that they get a more fair shake.
I mean, China said that it would open BRI projects up to bids from all over the world. The reality has been in 90 percent of the BRI projects Chinese companies are winning that bid. So I think we need to do a better job of helping educate the recipient BRI countries to the benefits of at least looking at American companies as the alternative, you know, that our companies can offer you a more economically sustainable and more environmentally sustainable quality and production of a facility. We need to make sure that we are doing all that we can to advocate for that alternative to a Chinese coal-fired plant.
HU: Thank you. Admiral Roughead, what do you believe the U.S. has done right so far, the Trump administration and the Obama administration before it, in responding to BRI that could be built upon?
ROUGHEAD: You know, I think that one of the things that has been helpful has been the elevation of the digital threats if you will and the impact of losing the ability to influence what that ecosystem is going to look like in the future. So I think elevating that has been helpful. As David mentioned, now the question is how do you bring people together to offer alternatives? I do think that it has also been helpful in the Obama administration and now we'll see another look is we've spent a lot of time talking about climate. I think that there are some opportunities here. Jennifer touched on a lot of them. But there's a great example in the report that talked about the Mekong River and the water issues there. Asia is going to face a significant water crisis in the coming decades. Obviously, you know, there'll be differing opinions as to who's causing what, but I think this is an area that is going to be hugely important, particularly to Southeast Asia and South Asian countries.
And China is going to experience many of the same problems; I could argue that they're causing many of the problems. But I think that this is an area that really needs to be picked up on and run and to bring the technology, the different methods of hydro engineering, the different methods of more efficient agriculture. I think those are areas that we could pick up on in the climate portfolio that anticipate a problem that is looming and that is going to be extraordinarily severe in my opinion. So I think that could be something. I also think that it has heightened the awareness of the need for the United States to get back in and have a voice in standard-setting bodies, particularly as they apply to digital technology.
I think it's also going to be important that we look with our friends and allies at the role that China is playing in global transportation, whether it's rail or maritime transportation and how do we want to look at supply chains and make them more resilient and potentially, in some cases, redundant. So I think there are some things that have heightened awareness, and it is no small work list for this administration to work through. But I think it must be worked through.
HU: I'm glad you brought up the supply chains because I'm talking to you all from Los Angeles right now where they're twenty container ships that are stuck out at port and they're going to be stuck there for who knows how long. We're in the middle of, like, probably an unprecedented shipping glut right now. And BRI, as originally designed, was hoping to sort of rearrange trade routes and create more efficient transportation networks for shipping and supply chains across the world. How successful would you assess that to be and what is the threat to the U.S. and the rest of the world if China is successful in sort of remapping these routes? Secretary Lew, do you want to go first?
LEW: You know, I guess I think the supply chain interruptions we're seeing right now are somewhat unique in the sense that the global economy was turned off, it was turned back on. There were interruptions of supply, and it's just going to take time to get things back in order. So I don't know that I would judge based on what's going on over the period right now. I think if you take a longer view both in terms of its domestic investment strategies and its global investment strategies through the Belt and Road Initiative, China has made investing in infrastructure of very high priority. The United States has not.
You know, we have legendary deficits in our infrastructure from seaports to rails to airports. And I think it's at our own peril that we allow that deficit to get deeper, and we need to invest to improve it. And now, that doesn't mean that we're going to erase the progress China has made, nor in general do I think we should think of BRI as something that we can turn off. You know, it's not going away. It is the signature program of President Xi Jinping. It's going to be there. The question is what do we do to compete? There are so many advantages of doing business in the United States and with the United States that if we make the investments in infrastructure and technology and innovation, we have every reason to be optimistic about getting through this moment where people answer the question, as Jennifer suggested they do, that China is dominant. If we don't do that, you know, we're making a mistake and we'll pay the price. So that investment has to begin as soon as possible.
HU: David, we haven't heard from you for a bit. So I'd like you to talk a little bit about that question that Secretary Lew outlined. What can we do to compete and what does the task force say about that?
SACKS: Yes, so first let me just jump in on what Gary was saying. I mean, I do think that we should also highlight that it was useful under the Trump administration via the Development Finance Corporation that was established as well as the authorization of EXIM Bank with a specific program that was tailored to compete with China. And so that was really a recognition that we had to offer an alternative and we weren't doing so. So I think that those are things that we recommend ways to build off of that in the report, and we should utilize those two institutions as some of the primary tools that we have at our disposal to respond to Belt and Road.
But I think the one thing that comes through in the report is that too long, you, now, speaking generally in Asia, we haven't really had a trade policy that has complemented and paired with what we're doing militarily and diplomatically. So of course we didn't join TPP. Now RCEP [Regional Comprehensive Economic Partnership] was signed and the U.S. is not a party to that. And so what we see is a lot of regional integration with China at the center, and the U.S. is still standing apart from that.
And so we have a couple of recommendations in the report from sectoral trade agreements, digital trade agreements, and things of that nature where we really need to get back in the economic game because that's really what's going to determine the shape of Asia. And these countries, what they're looking at is who is engaged economically. And right now they don't view the United States as really having an economic strategy for the region.
HU: What about you, Jennifer?
HILLMAN: Well, again, I would say we're all saying to some degree the same: We've got to get back in the game. And so what the task force report tries to say is what does that mean. I mean, literally down at the detail level, what does it mean? And again, I think David is exactly right. It means joining or rejoining trade agreements that would help set some of these rules for the road. And the one that we're saying start with is look at the U.S.-Japan Digital Trade Agreement and figure out a way to expand that to other countries within that area. There may be then other sectors where we should be reaching these sort of sectoral agreements in the area.
It also may mean, again, in things like the standard setting area, where again, there's a real concern that China is the one that has got a lot of Chinese national sitting at the International Telecommunications Union, at ISO, at, you know, all of these standards-setting organizations. So one of the other ways that we sort of have to get back in the game is to get much more engaged in the actual process of writing the standards that are going to govern a lot of these goods and services that are moving so that we are now sending more Americans to these international standards-setting meetings.
We're the ones sending in more proposals instead of, you know, if we look right now at the submissions, for example, for standards on 5G technology, you know, China submitted twenty thousand proposals for a specific technology. You know, we're down at submitting one or two thousand proposals. They have simply put a lot more effort into that. So we've got to get back into the standards-setting game. We've got to get back into the trade-agreement game. You know, and then the other part of it is on the macro issues that were discussed.
I mean, we've really got to get much more, I think, engaged in offering that alternative by, I would say, lifting up the World Bank and the other multilateral development banks to really encourage them to offer alternatives. And the point would be both that there is other funding available for these kind of infrastructure projects so that we are really getting back in the game of supporting and ensuring that the World Bank is there as a presence. But more importantly, that the World Bank is there with its high standards, with its commitment to doing environmentally sound and economically sound agreements. So again, to me, it's also really promoting a leadership role at the World Bank and other forums in which infrastructure funding can be made available to these countries.
HU: And I know that we're going to have the membership wanting to ask a lot of questions about current events and the ratcheting of pressure on China, especially on its domestic issues. And so just to kind of bring to a close the conversation about this report itself—for those who haven't read it, it was just dropped this morning—so cochairs Secretary Lew or Admiral Roughead, and maybe you guys can take turns, is there anything in the recommendations that the audience should know about that maybe is a little bit more counterintuitive in terms of advice for the Biden administration?
LEW: Well, I think, you know, what Jennifer was just describing in terms of reengaging in trade agreements is probably not the politically most popular thing. But it is really important that that lesson be taken from this report because if we see regional trade arrangements, agreements we’re not part of, agreements China is at the center of, we shouldn't be surprised at ten or twenty years later trade has been realigned in ways that disadvantage us.
TPP was well conceived and if I couldn't reach the approval that I thought was appropriate at the time, it needs to be reimagined to become conceivable because with, you know, RCEP out there and with China's bilateral agreements, we don't want to let the world just shift in that direction. I think that's a little counterintuitive at a moment when being for globalization is not a widely articulated belief. It's in our national security and our economic interest to figure out how to do that.
HU: Yes, it certainly seems like the idea, the post-World War II idea, that freer trade was sort of a universal and worthy goal in and of itself is no longer the prevailing view. So what should the vision be for trade then? Secretary Lew, real quick, if you just want to follow up?
LEW: Yes, no, look, I think that's a whole long topic on its own. But if it's not enough than if it is to rethink it, because the world will be carved up in a way where China will be part of creating groups that were not part of. I mean, that's a pretty good reason to rethink some of the well-set views. I think that if you just look at it from a trade perspective, we have to figure out how to make it clear that trade agreements will be negotiated and implemented in a way that's designed to spread the benefits fairly in society. And where there are pockets of disruption because of trade, there are policies aimed at relieving that disruption. We can't expect people to think it's better for the pie to be bigger if the broad perception is that they don't get a piece of the pie. So we have to do better. And that would take a degree of bipartisan cooperation. It's a challenge right now.
HILLMAN: Just really quickly, just to note, I mean, that what the report says, and again, I think it is important to remember that this came as a consensus report is to basically do four things on trade. I mean, first is, as I mentioned, to sort of take a digital trade agreement with Japan and go bigger and broader. Secondly, it is, and importantly, to come to an agreement that maintains a free and open internet. So it's clearly kind of putting that marker down that a free and open internet and an agreement to make sure that that continues to happen is sort of job number two.
Number three, it really does encourage the completion of the work that was begun between the United States, Japan, and the European Union to try to really think about what should be the disciplines on the use of subsidies and on the forced technology transfers that we've seen in China but to really come up with new rules, I think, presumably of ending up at the World Trade Organization. But nonetheless, to really think about this issue of when, where, and how much are you going to allow subsidies to become part of the agenda.
And then the last thing is to get where Jack started us, which is to signal an interest of the United States in improving and then joining what is now known as the CPTPP. I mean, so, you know, four very specific steps that I think outlines what the view of the task force was of where our trade agenda ought to be going as a way to respond to China's Belt and Road.
HU: Fantastic. Admiral Roughead, I'll give you the last word before we turn it over to audience questions. Advice for the Biden administration?
ROUGHEAD: Yes, I mean, I view our failure to join TPP as the biggest strategic misstep that we've made in decades and to be able to enter into an agreement like that, I think, would be hugely important. And also to keep in mind we, for the last two decades have talked about power largely through a military lens as it applied in the Middle East. And I think we have to remember that the military power that we have will be based on our economic power. And so the main thrust of this report really gets to more economic issues than military issues. But that is the fundamental foundation upon which American power will rest.
HU: Thank you. Thank you to all of the panelists and thank you to the task force for all of your work over the course of the year on this report. It's been a privilege to preside over this discussion, but it continues with the audience. So could we have the first question please?
STAFF: We will take the first question from David Merkel.
Q: David Merkel with the International Institute for Strategic Studies. I wanted to find out perhaps from the admiral what opportunities he sees for us in our challenge with China in Southeast Asia and Central Asia. You mentioned the Mekong, but just what opportunities does he see us have relative to China there? And then if the panelists could speak more to the opportunities to what the report says about the multilateral development banks, specifically the Asian Development Bank? Thank you.
HU: Admiral, why don’t you take the Southeast Asia question and then Secretary Lew, the Asian Development Bank.
ROUGHEAD: Okay. David, thank you very much. I think the, you know, I touched on one big looming issue that I think we could really be the catalyst to bring countries together and something that's going to be vitally important in the coming decades. I also think as we look at Southeast Asia, you know, what is the digital ecosystem and infrastructure that they would like to have there? And how can we, as Jennifer said, work with Japan and with other countries to provide alternatives that can contribute to their prosperity? And then I also think you mentioned South Asia and how our relationship moves forward with India is going to be defining for the Indo-Pacific. So there are plenty of opportunities with India, everywhere from supply chains to digital infrastructure, power, and also transportation. And I think that's going to be vital and a key relationship in the coming years.
HU: Secretary Lew?
LEW: In terms of the international financial institutions, generally, the report recommends that investment in things like digital connectivity, infrastructure, energy access, be prioritized and that the traditional international financial institutions have the resources to act with alacrity in the space. But it's not the idea that we think that there's a way to compete dollar for dollar with China's efforts. And it's also important to remember that a lot of the Chinese activities are commercial activities, and they don't do a lot of concessional lending. And part of this is China needs to be encouraged to do more concessional lending and to treat its investments in these regions more the way countries that are supporting the development of emerging economies to, which has not been China's practice.
HU: Operator, next question, please.
STAFF: We will take the next question from Cynthia Roberts.
Q: Thank you very much for doing this and, looking briefly at the report, for emphasizing the importance of trade. That can't be said strongly enough to bring this issue to the administration. I agree with your focus on this. It has been a huge failure for the U.S. But turning to the other side of the financial question, my question is for Secretary Lew. The report discusses Chinese fintech developments through BRI and having Chinese companies use their banking resources, their fintech, and settle transactions increasingly in RMB and Chinese digital currency. So I'm wondering what the U.S. responses to that, whether you think the U.S. should compete with Chinese digital currency in this type of activity? Thank you.
LEW: I'm not sure that there is a need for the U.S. to be in any rush to jump in with a digital currency in order to compete. The dollar and the U.S. as the financial hub is still dominant. It is a reason for the U.S. to remain very vigilant and engaged because it's not just the case of China. There are around the world developing pipelines to do business that in a way doesn't require dealing with the United States. I don't think that is the first choice of most countries to stop doing business with the United States or in dollars. I do think that U.S. behavior has something to do with that.
So I think going through a period of the United States being seen as unpredictable and unreliable is not a great thing separate from economics. So I think restoring the U.S. reliability is more important than thinking about competing with a digital currency. And I think, you know, if you look at China's own investment practices, even in the most recent Treasury report on holdings, China still is, you know, increasing not decreasing its holdings in dollars. So I don't think the dollar is going anywhere. I do think that the Belt and Road Initiative has given China an information base to mine, to be able to use electronic transactions with a kind of alacrity that is significant. I think that's separate from the question of digital currencies.
HU: Thank you. Operator, next question, please.
LEW: I think Jennifer may have wanted to jump in.
HILLMAN: If you want. I mean, I can really quickly add that I agree with that and the task force report focused a little bit on the digital currency. But the two big issues that were of concern with respect to fintech was, again, this notion of locking countries in to use China's technology, particularly in the electronic payments space where you see just a tremendous dominance by China. And if you look at just the size of the Ant Group, that's Alibaba and Alipay and Tencent, which is WeChat. I mean, Ant Group alone has 1.3 billion—billion—consumers that are connected into their app, connected into their mobile payment system. And again, the issue there is whether there's any room then if you look at all of the rest of the world combined has a billion customers.
So I mean, China is dominant in this area. And the concern there is twofold. One is that it does give this tremendous access to data. Now China knows, again, China has eyes on, you know, so many more financial transactions, so much greater ability for artificial intelligence, so much greater ability for surveillance and data mining. So again, that's sort of one whole area of concern in it. And the other is what China is doing on the blockchain ledgering side, the ledger technology, which is sort of part and parcel of how these fintech transactions get on round where China has again established its own blockchain network.
You're starting to see a lot of the other major blockchain networks join into that Chinese network. And again, the issue is also sort of the sheer dominance of market share, and then secondly, the surveillance, the data collection, the data mining that comes out of some of that fintech. So that's kind of where some of the concerns were. And I would agree with Jack far more so than the issue about China moving to a digital currency.
HU: Thank you. Operator, next question, please.
STAFF: We will take the next question from Barnett Rubin.
Q: Thank you, Barnett Rubin from Central International Cooperation, New York University, and the Quincy Institute. I'd like to point out, first, two points that were made by speakers, which are very important. One is Secretary Lew mentioned that U.S. has an infrastructure deficit domestically, as well as in terms of its international investment. And Admiral Roughead noted that we have spent so much money in the military side of our foreign policy and underinvested in economic and I would argue diplomatic as well.
As Secretary Lew, I'm sure, remembers, we were in the State Department at the same time in 2011 when Secretary Clinton, before there was a Chinese Belt and Road Initiative or economic Silk Road, announced the American New Silk Road Initiative. And as Wikipedia said, the New Silk Road Initiative would have links in Central and South Asia, would have done so, if we had actually invested in it. But actually none of the projects has been completed. And I think that's of a piece with the fact that we underinvest in domestic infrastructure.
We underinvest in nonmilitary international infrastructure. We have an over-militarized foreign policy. So it looks like we have some kind of systemic problem across administrations to underinvest in nonmilitary public infrastructure, which a set of piecemeal policy recommendations is unlikely to address. I wonder if you could contemplate what are the flaws in our system, which have allowed us to fall so far behind both domestically and internationally?
LEW: You know, it's good to hear your voice, Barney. It's been a long time. I think the fact that for so many years we've been in military conflict has led to a concentration of resources that it's very hard to unwind. And as we remove ourselves from those conflicts, it's very hard for foreign assistance and investment abroad to be high priorities even if they have a lot of bang for the buck. I think health has been the exception in the past, through administrations. We were really able to win a great deal of support around the world through effective dissemination of health support.
And I think we could do the same thing again on health and the same thing again on climate. I think in terms of sheer kind of ability to put bricks and mortar and steel to work, that's more of an international effort than a than a bilateral effort. And, you know, I think it's important to remember that a lot of the needs, as many of us have said, are very real and China was addressing those needs by coming forward with this initiative. If we provide alternatives to that either directly through the United States or through international institutions, I think that can be spread around. But again, I don't think that China's initiative will go away. It's a question of having it be a mix as opposed to increasingly China centric.
HU: All right. Thank you. Operator, next question, please. And just a reminder to the members that this is going to go until 2:15 Eastern, 11:15 Pacific. So we only have about 10-15 minutes left. Hope you can stay with us.
HU: We will take the next question from Mary Kay Magistad.
Q: All right. Thank you. Thanks for all your work on this report and for this rich discussion. I'm a former China correspondent for NPR and for PRX’s The World. Actually I just spent a couple of years putting together a podcast on the same subject called On China's New Silk Road and reported in the field in a dozen countries. This question is for Admiral Roughead. I mean, what I was hearing on the ground in many places with concern about the dual-use nature of what China is building out along coastlines and particularly in ports.
Chinese state-owned enterprises or entities have a ninety-nine year lease to 20 percent of Cambodia's coastline to the Sri Lankan port of Hambantota. There's a presence in Gwadar on the coast of [Pakistan]. There's a majority ownership of the port in Piraeus. I'm wondering from your perspective and your military experience as you look at this, how much should this be a concern for the U.S. on a strategic level? How much do you see this as being a military strategy as well as a trade strategy? And what do you think is perhaps the wisest way to address this or respond to it where it minimizes the risk of outright conflict but still protects U.S. interests?
ROUGHEAD: Right, thank you for the question and the report touches on this because I think that one has to not assume that because it's a port it can support military vessels as well as commercial vessels. We discussed that in the report. There are some, however, such as Gwadar that you mentioned that can support service and maintain military ships. So I think you have to look at the ports individually and be mindful of changes that could be taking place. But what we point out in the report is that there's much more of a second- and third-order effect, which is China's ownership, partial ownership, operational control of the port can affect the port operations.
So if we're trying to flow supplies and support a friend or an ally or even prepare for contingencies on, you know, for ourselves that those ports could be subject to slowdowns, maybe denials of access. But the other thing that comes from the Chinese control and operating in the ports is the amount, and Jennifer referred to this, of data that you get knowing what goes through, knowing what may be moving on, where it's moving to. And so I think there's that dimension.
The other aspect is with the maritime infrastructure that springs up around ports—repair, supply husbanding—the amount of information that can be gleaned from that provides significant intelligence. And then the final point and we stress this quite a bit, I think, where you have cables, which are carrying vast amounts of information and data. If they are proximate to Chinese-operated or owned ports, then what are the security measures that are in place to keep some of that data from being exfiltrated.
And so I think that we do touch on the ports. It's important not to think that because there's a port there's going to be a navy ship alongside anytime soon, but to rather think in a more complex way about the second- and third-order effects of how those ports could inhibit or could inhibit our freedom of action or provide information to China that would not be in our best interest.
HU: Thank you, Admiral, and thank you for the question, Mary. Next question, please.
STAFF: We will take our next question from Mikki Canton.
Q: Thank you very much. My name is Mikki Canton, Asia-Americana International. I'm based in Coral Gables, Florida. I wanted to make a point that I think that, unfortunately, the United States, not just in this past administration but many administrations throughout, has made a very tactical and strategic mistake in not recognizing that dealing with China is not only about economics, but it's about human relations and relationships and respect among countries. So I think we have as a country, perhaps through our leaders or lack of leadership at some points, not been able to recognize the psychology behind China and to Xi Jinping’s desire to bring China to a higher level on the world stage through this new Silk Road.
China has gone through tumultuous times in its history, the century of humiliation so to speak, with the ability to say, “Now we are a power.” And whether they conquer the United States and other countries that may not be friendly towards them is not so much militarily in their minds but through soft power, which they have done admirably. I think the focus has been incorrect in the United States looking at how China has developed this since 2013, so to speak. My comment would be that I would like to hear the task force members' recommendations on how to deal with China on more of a human relations and going forward in order to be able to, you know, be at the table with China. I think at this point, they can very easily say to us, "No, you can't play with us under your rules U.S.A. We're all over the world. And it's going to be our rules."
HU: Yes, panelists, this kind of gets to a lot of the more acrimony that was kicked up in Anchorage. So Secretary Lew, why don't you take it first.
LEW: I think the prevailing view that we're hearing from China today is very different than anything we've seen in decades. There's no reluctance to put China forward as a global power. There's no kind of deep-seated respect for the United States as a role model from which other countries, including China, can learn and benefit. Some of that is a response to the treatment that China got over the four years of the prior administration, where leaving policy aside, the tone of the debate and the spillover of that tone was very, very damaging. It was very offensive to many who want to be tough on China, not just the Chinese.
I don't think the tone of the Biden administration will reflect that kind of animus in terms of kind of cultural disrespect. I do think that the Biden administration, as it indicated in Anchorage, will focus on the issues that U.S. administrations of both parties have been concerned about in increasing terms over recent decades ranging from the economic actions that China has taken to the treatment of human rights issues and the treatment of countries in the region and areas to which China claims territorial control. Those are real issues. They're not going to go away just because of one meeting.
I thought, you know, the tone of the meeting was less surprising than others might have because in another capacity as the chairman of the National Committee on U.S.-China relations, I hosted a meeting with the senior foreign policy representative who was in Anchorage. That was the tone he had in those meetings as well. It's not just a one-meeting phenomenon. I think we have to engage with each other in a way that reflects we’re the two great powers of the world. There are things where we have interests where we need to work together.
There are issues where we're going to disagree, where we have to press on each other. And if it crosses a line we have to reserve the right to take action in our own national interest. I think it's going to be a long process. And when I said earlier, I really believe, I think cooperating on transnational issues is going to be a way to start to restore a combination of relationships, respect, and the ability to work together to deal with some of the hardest bilateral issues. I personally think it's a mistake to assume the inevitability of conflict between the two greatest powers in the world. So I'm not one who subscribes to the view that that is either desirable or an unavoidable outcome. But I think it's unrealistic to think that it's going to be a week or a month away to get into the kind of engagement that could be more productive.
HU: David Sacks, I'd love for you to jump in really quick on this question of will the Biden administration be able to forge a productive relationship with China going forward?
SACKS: I actually want to tie this a little bit into the report because one of the things we haven't really spoken about is that Belt and Road has a person-to-person component. And so there are Belt and Road scholarships that China has set up, it trains foreign officials, and it really does have a focus on kind of breeding the next generation of people who will be senior policymakers, PhD students, etcetera, and really imbuing them with the Chinese perspective, Chinese values, and the Chinese outlook on development for instance.
And so a lot of our recommendations get at that, for instance, reforming our immigration policies so that we continue to attract the best and the brightest to the United States so that those people continue to be trained here and not necessarily in China. And so it’s something that we were attuned to in the report, and I think it's part of the broader narrative we were trying to build on the report that just looking at Belt and Road as roads, ports, and railroads is really too narrow. And you need to look at the underlying technical standards, as well as the person-to-person interactions and kind of the political component as well in order to really grasp the significance of Belt and Road.
ROUGHEAD: I think the other thing that we can't discount too is the role and how we need to evolve our relationships and productive and cooperative efforts with our allies and partners. You know, we need to look at not just in the U.S. how do we facilitate and incentivize more aggressive public-private initiatives but also look internationally and how do we cooperate with our allies in ways that that they benefit and that we benefit and that we can put forth a collective option for other countries to take advantage of.
HU: All right, operator, next question. We only have time for a couple more questions. So please keep your questions to just questions.
STAFF: We will take the next question from Matt Spence.
SACKS: I'm from Guggenheim Partners and Arizona State University. This is a great discussion. Just building on the two things asked before a little bit. First, what's your sense of how the tone of what happened in Anchorage will impact this? I know when I was in the government, we talked quite a bit about when are you going to start being tough as a matter of substance as well as form. Do you think this is going to impact what will happen? Then the second question is on the Belt and Road Initiative. There's all the talk about this as an analogy to the Marshall Plan and some of the post-World War II changes. How much did you find in your report that those are helpful analogies for something that are just not really relevant at this time?
HU: Who wants to jump in?
LEW: So, you know, I think that the U.S.-China relationship as Matt said well is one that the parties that interact with each other know each other. They know that what they have to say in public, and it doesn't mean that they can't continue to talk behind closed doors in ways that can continue to move things forward in the right direction. I wouldn't overread the rhetoric from Anchorage as meaning there's not a process that can go forward. I do think it's going to be a challenge to engage in a meaningful way. And I think the kinds of issues we're discussing here on the Belt and Road Initiative are kind of indicative of the ways that we need to think about, as Gary just said, working with our allies and not having everything be just head-on U.S.-China choice.
I think that what's changed is you hear more and more that Chinese diplomats are concerned about how they're perceived at home. Are they going to lose face? Do they have the political space? You know, we tend to look in and see it as being a pretty authoritarian system where you can execute on a policy when you want to. I think that we need to kind of each understand the political space that each other have and that doesn't mean not pushing it. They're going to push and we're going to push. And, you know, I do think we have to be tough on the things where our interests lay.
I think it's a mistake to cross the line as we did on too many occasions in the last four years in terms of language, tone, and what that said even domestically beyond China about Asians more broadly. That's not the way for the United States to make progress in the world. And I think this administration is going to change that. They're going to engage in a different way. Whether China has room to make moves to create space for more American moves is what I am concerned about.
I think there's going to be a need for China to make some moves to create political space for real progress. So far we haven't seen a lot of signs. Maybe the kind of people-to-people stuff that David just referred to is a place where that can be done—letting students go back and forth, having consular offices open up a bit more. I'm a big believer in the people-to-people stuff.
HU: Fantastic. All right, we have time for one last question.
STAFF: We will take our last question from Eleanor Fox.
Q: Hello and thank you very much. I wanted to focus on the problem of economic power since the admiral mentioned that military power will be based on economic power. Much has been said about 5G and the fact that the United States is not ahead of the game. In fact, it is behind the game of 5G. So my question concerns are we moving towards more industrial policy? Do we need to move more towards industrial policy? Why hasn't the free market produced U.S. as the leader in 5G? And do you consider any of the Chinese, for example, subsidization and SOE support as being a problem that we must deal with not just by free market, but by public-private partnership or government investment and even picking winners. Thank you.
HU: How about David Sacks and then Admiral Roughead to close this out.
SACKS: Sure. I would just to say with 5G, you know, interestingly, we were at the forefront of 4G LTE. That worked out pretty well for us. We were also behind in 2G and 3G. So just because we don't have something in 5G doesn't mean we can't lead the push to 6G. The thing that I would say that our report talks about is that the federal government needs to make long-term investments in research and development that the private sector might not view as being commercially viable because the returns are too unsure or it's too long of a time horizon.
So there is a role that we identify in the report for the government to play in really stepping in and filling that void making those investments that the private sector is unwilling or unable to make. But 5G in particular seems like it's too soon to say that that's a systemic failure and we need to nationalize, you know, one of the companies or really have a U.S.-branded 6G for instance.
ROUGHEAD: I would just conclude by saying that we are the engine of innovation. And now I think we have to look at how do we look at ways to deploy those innovative systems. And to David's point, 5G is not the end of the world. I think technology is going to march forward very, very quickly. And so how do we put together the policies? And how do we look at the digital world as part of our vital infrastructure going forward? What are the investments that we have to make? What are the partnerships that we have to enter into in order to advance the deployment of new technologies in a way that comports with our values and with our interests and the values of like-minded countries around the world?
HU: Thank you. And a huge thank you to all the task force members and especially our panelists today, David Sacks, Jennifer Hillman, Admiral Roughead, and Secretary Jack Lew. I really learned a lot and really enjoyed this conversation and we encourage you to read the full report. You can find that at CFR.org/beltandroad and if you want to share more about this on Twitter or the socials, the hashtag is #beltandroadresponse. My name is Elise Hu. Thank you so much for joining us.