Update on U.S.-China Relations

Elizabeth C. Economy, C. V. Starr senior fellow and director for Asia studies at the Council on Foreign Relations, discusses U.S.-China relations, how the coronavirus pandemic is shaping the conversation, and implications for the states, as part of CFR’s State and Local Officials Initiative.

FASKIANOS: Good morning. Good afternoon, depending on where you are. I’m Irina Faskianos, vice president for the National Program and Outreach here at the Council on Foreign Relations. We’re delighted to have participants from forty-six states joining us for today’s conversation, which, as a reminder, is on the record. As you know, CFR is an independent and nonpartisan membership organization, think tank, and publisher focusing on U.S. foreign policy. Through our State and Local Officials Initiative we serve as a resource on international issues affecting the priorities and agendas of state and local governments by providing analysis on a wide range of policy topics, and we are the publisher of Foreign Affairs magazine.

Thank you all for taking the time to join us during this challenging period, unprecedented. We recognize that many of you are on the frontlines of responding to COVID-19 in your communities. Thank you for all that you’re doing on the ground.

We are pleased to have Elizabeth Economy with us today. We shared her full bio prior to this webinar, so I’ll just give a few highlights on her very distinguished career.

Elizabeth Economy is the C.V. Starr senior fellow and director for Asia studies at the Council on Foreign Relations. She currently serves also as a distinguished visiting fellow at Stanford University’s Hoover Institution. An expert on Chinese domestic and foreign policy, Dr. Economy is an acclaimed author. Her most recent book is entitled The Third Revolution: Xi Jinping and the New Chinese State. I commend it to all of you. And she was named one of the ten names that matter most on China policy by Politico magazine.

So, Liz, thanks very much for being with us today. I thought you could get us started by talking about the implications of COVID-19 for China and for the U.S.-China relationship.

ECONOMY: Great. Thank you so much, Irina. It’s really a delight to have the opportunity to speak with everyone about COVID-19 and its impacts on China and on the U.S. relationship with China.

So let me give you my bottom line up top. I see three trends underway right now.

First, China is continuing to struggle with reopening and rebooting its economy. It has been reluctant to date to provide a major new stimulus or a comprehensive initiative. Instead, it’s adopted really a piecemeal approach to trying to address the country’s economic concerns. Next week, when China launches its two sessions—it’s a big meeting where it brings together the equivalent of China’s congress, the National People’s Congress, along with an advisory group, the Chinese People’s Political Consultative Conference, so it could be as many as five thousand people; we don’t know how many are actually going to make the trip because of COVID-19—they’re going to meet for a week, and I expect that there will be a major new stimulus coming out of that meeting, likely around next-generation technology infrastructure. But so far, we haven’t seen the kind of stimulus coming out of China that we saw in the wake of the 2008 global financial crisis.

The government is also enormously concerned about its legitimacy and social stability as the pandemic continues to play out. On the domestic front, I think Beijing has enough social controls in place to manage any unrest. On the global stage, they’re working hard to salvage their reputation with what I would say are mixed results, and they are increasingly worried about a more permanent shift in the international economic order in a way that would close them out from some critical export-import markets.

And then, finally, with regard to the U.S.-China relationship, I think the coronavirus is clearly exacerbating preexisting tensions, accelerating the process of economic delinkage, and really contributing to drive the relationship to its lowest point, I would say, since 1989 and Tiananmen.

So let’s start with what’s going on inside China. Xi’s biggest challenge, as I suggested, is really rebooting the economy. The IMF estimates that Chinese growth will be about 1.3 percent this year. Estimates right now of unemployment in China range from the official number, which is 5.9 percent for April, but they go as high as 20 percent from unofficial sources within China. On top of COVID-19, Beijing is facing a massive outbreak of African swine flu, which has wiped out more than one-third of the country’s pig population, and there is reportedly a black plague outbreak in Inner Mongolia.

The economy is recovering very much in a patchwork fashion, so different industries and different parts of the country are opening on different schedules. New outbreaks, as we’ve seen, are forcing new shutdowns. And the flow of workers and business within China is complicated by the fact that if you’re traveling from one part of the country to another, you may be required to self-quarantine when you arrive in your new destination. So it’s as though you were going from, you know, California to Oregon, and once you got to Oregon you couldn’t work for two weeks; you’d have to self-quarantine. So that takes place in a lot of the country.

The consulting firm Gavekal Dragonomics has said that about two-thirds of the workforce is back at work now, but that people really haven’t returned to their pre-coronavirus consumption patterns; that they’re just not shopping and eating in restaurants the way that they would. So we haven’t seen the kind of bounce back in consumption that I think we would have hoped for.

There are also external sources of pressure on the Chinese economy. The United States, Japan, some countries in the European Union are calling to shift supply chains out of China. Belt and Road countries, a number of them in particular in Africa, have been asking for debt forgiveness. We see a lot of slowing down of Belt and Road projects. And of course, even as Chinese factories are coming back online, external demand in many countries remains weak as other countries are going through the pandemic and haven’t yet come out on the—on the other side. So that’s another source of pressure on the Chinese economy.

As I mentioned, Beijing has adopted a number of measures, but not really what I would consider to be a comprehensive plan. Just to give you some examples, you know, banks have cut the lending rate for rural and small businesses. Some businesses have been exempted from paying into pension funds. The state grid has lowered the price of electricity for most firms. Xi Jinping has ordered state-owned enterprises not to lay any people off. And private firms can get loans for hiring new workers, especially college graduates. I think the biggest challenge at this point is probably the few hundred million migrant workers, small and medium enterprises who are not part of the state economy; meaning that they’re borrowing outside of the state system in the shadow banking system, they don’t have, you know, social insurance, a social-welfare net. And policies to address these—this part of the economy, these people, their needs have been slower to emerge.

One thing that’s interesting is that China hasn’t been doing what the United States and other countries have been doing in terms of providing direct cash transfers. Apparently, the government is afraid if they do that the Chinese people will save the money and not actually spend it, and they want to get, you know, consumption back up. And so, instead, in many parts of the country they’re providing coupons which will pop up on your phone, and so in some places you can, you know, get $4 worth of groceries and other places—in southern China there have even been some cases where the local governments are providing as much as $1,000 toward buying a new car.

So it’s a different way of trying to address the consumption issues, kind of—kind of interesting. I don’t know that, you know, it’s working fully, that they have the policy mix exactly right. It’s kind of everything but the kitchen sink at this point. But again, next week, toward the end of the week when they launch those two sessions, their meeting of the congresses, I think maybe we’ll see some bigger initiatives come out of that.

Xi’s second priority is ensuring domestic stability. Within the past few weeks, Beijing established a new leading group. It’s called On Ensuring Peace and Stability. This signals that they are deeply concerned about the domestic political situation. While I think broadly speaking that most people in China buy the Chinese government narrative of their efficacy at home and their leadership abroad, I think there are probably four groups in particular that they are concerned about.

The first would be public intellectuals—so writers, professors, entrepreneurs—who have been directly attacking Xi Jinping and the system of government. One very well-known billionaire real-estate developer exactly called Xi Jinping a “clown” and said the government had completely mishandled its handling of the coronavirus. So, you know, I would say there are no more than fifty people who are in this group, but they have outsized reputations and credibility.

Second would be critical thinkers: people who want accountability for dead loved ones, lawyers suing for reparations, and people who are accessing information from outside the country and sharing it. So many of these people and many of the people in the first group that I mentioned have been detained or have even been arrested. Certainly, their voices have been quieted.

A third group would be people without a social safety net. This would include the gig workers, taxi drivers, migrant workers, small-business owners, for whom economic recovery is far from assured. We’ve seen already some small-scale protests among these groups, and so that is, of course, of concern to the Chinese government.

And then the final group would really be new college graduates who can’t find jobs. You know, students—college students and graduates have played a very special role in China’s history in leading—(laughs)—the charge when it comes to pushing for political reform and even revolution, and so the government is always very careful to try to ensure that these college graduates have enough opportunities once they finish school.

And then there’s the issue of how China’s managing its international environment. I think there are two issues here.

The first is, really, China’s reputation on the global stage. And this is important not just for China’s position internationally, but also for domestic consumption. So they want to make sure that a negative narrative doesn’t develop on the global stage that then feeds back into China domestically and somehow infects the thinking of the Chinese people about how China’s managed the pandemic. So on the one hand Beijing has reached out in a very positive way. We’ve seen them, you know, donate extraordinary amounts of PPE, or sell it as well. They now have—many of their doctors are out there doing teleconferences and videoconferences offering advice to other countries, other doctors about how to manage the pandemic, what are best practices. The Chinese embassies now have a link to a website that says “fighting COVID-19 the Chinese way”—(laughs)—with tips about how to follow China’s path out of the pandemic. So this is all very positive, I think.

On the other hand, we’ve also seen, you know, what’s been called “wolf warrior” diplomacy and disinformation, and this is really about just changing the international narrative. So the kinds of messages that we hear on this front are, you know, the virus didn’t come from China; it came from someplace else. There is no substandard PPE; other countries simply had different standards or just didn’t follow the directions properly. We’ve seen Chinese government officials threaten other countries’ trade if they called for an investigation or reparations. In fact, this is playing out with Australia right now, where China is curtailing Australia’s beef imports, punishing them for their calls for an investigation into the origins of the coronavirus. They’ll say Africans were not mistreated in southern China; this was a lie created by the United States to sow discord between China and Africa. Overall, I would say this type of diplomacy, this “wolf warrior” diplomacy, plays much better at home than it does on the global stage.

Nonetheless, I think China’s medical diplomacy and its provision of PPE is having a positive impact on China’s international standing.

The second issue of concern right now within China in terms of its relations internationally is with the U.S. relationship, and there is a pretty significant debate underway. One big issue is whether or not the world is on the cusp of a new international economic order in which you will have democracies coming together around efforts like trusted supply chains or restrictions on tech exports to China or Chinese foreign direct investment. Some scholars and officials in China are urging Chinese companies to go out, to make more acquisitions, and to integrate themselves more into the global supply chain, and for China to open its markets to forestall this kind of new arrangement, you know, sort of in opposition to China from emerging. Others, however, are saying China should just hunker down and focus internally on making itself strong.

Then there are single-issue debates. You know, should Beijing try to take over Taiwan in this moment? Should Beijing cancel the phase-one trade deal? Should it put in countermeasures in response to the U.S. restricting Chinese companies from acquiring advanced technology? All of these issues are being discussed and debated quite actively within China.

And then that leads to my—the last part of my remarks, which is, you know, what does the U.S.-China relationship look like right now? I think the impact of COVID-19 on the U.S.-China relationship, you know, has been overall quite clearly very negative; has been to push the two countries further apart as opposed to serving as a unifying issue, an issue around which the United States and China might find some common ground and some common purpose. I would say this is the way that, you know, most international-relations experts and China experts, if we had thought ahead of COVID-19, you know, what would be the impact of a pandemic globally in terms of the U.S.-China relationship, we would certainly have anticipated that it would have acted to bring the two countries together, and we probably would have hoped that both countries together would have stepped up to lead a global response. I would say that is—precisely the opposite is what has transpired.

The impact I think is most dramatic on the economic front. The White House is accelerating its push to decouple the two economies. Commerce, the State Department, Congress are all trying to figure out how to reshore U.S. manufacturing—you know, what should be reshored, how can they use tax incentives or subsidies or government procurement rules. There’s an—for example, there’s a bill proposed to give tax breaks to companies for building and then processing rare earths—building rare-earth mines and then processing the rare earths. There’s a proposal for the U.S. government to purchase only U.S.-made medical products. Congress is undertaking a study of pharmaceutical companies or asking them to report on how much of the active ingredients that they use in their drugs come from China.

Along these lines, the Trump administration has just announced that it’s exploring what is called an economic prosperity market. And this would be in conjunction with countries like Australia, India, Japan, New Zealand, South Korea, and Vietnam, where companies and civil-society groups would agree to the same standards on certain areas like digital business, or energy, or infrastructure, or education, trade. So this would be a kind of trusted supply chain, but really around rules and standards.

In addition to trade, U.S. investment in China is also under scrutiny, as we’ve seen over the past year or more. President Trump just ordered the Federal Retirement Thrift Investment Board not to invest in the MSCI Index that has Chinese companies on national security and humanitarian grounds. Both countries are busy developing entities lists, which means, you know, you’re not going to be selling or buying from those companies. For the U.S., for the most part these companies have been tied to national security or some form of human-rights concerns like surveillance equipment or the Xinjiang government. In China, what they seem to be looking at would be what they’re saying are companies that cut off supply for noncommercial reasons or damage the interests of Chinese companies. Damaging the interests of Chinese companies could encompass a lot of different things, but I think they are still in the formative stage of trying to figure out what they want to do. But the overall direction trajectory in both countries, I think, is moving in a quite negative way.

In addition to the economic issue, you know, neither China nor the United States really hit pause on other areas of conflict, you know, even as they’re trying to navigate the coronavirus. So we’ve seen, for example, you know, China has launched a massive crackdown in Hong Kong. It’s been assertive in the South China Sea, for example sinking a Vietnamese fishing boat. And there’s a major spat underway between both the United States and China around visas for journalists that we’re seeing play out right now.

The United States is also continuing to look at additional restrictions for Chinese students and academics. For example, there’s a new rule that’s under consideration that Chinese students wouldn’t be able to take advantage of the year that college graduates are allowed to spend working in the United States after they complete their education. So, again, keeping, you know, the gas pedal on all of these new restrictions and rules that really just act to pull the two countries apart.

Finally, I think the politics of the pandemic at the highest level are also acting to exacerbate tensions between the two countries. Both President Trump and President Xi are using the other country to distract and deflect attention from the challenges that they’re facing on the home front. President Xi is painting the United States as inept, as having wasted weeks that Beijing gave it to prepare for the virus, and saying, you know, just look at the number of deaths in the United States compared to that that we have in China, and that speaks volumes about the efficacy of China’s approach compared to that of the United States. President Trump, of course, has been speaking loudly and often about Chinese culpability for what the U.S. is facing now, China’s relationship with the World Health Organization, and its unwillingness to investigate the origins of the virus. Unfortunately, I would say, given domestic politics in both countries, the economic challenges they both face, and of course the U.S. election coming up in November, I don’t see the hard line in either country changing anytime soon.

So, unfortunately, on that rather pessimistic note, let me thank you. And I look forward to your questions and your comments.

FASKIANOS: Wonderful. I have a question, but I’m first going to invite people to ask their questions. If you go click on the participants tab or icon at the bottom of your screen, you can click “raise your hand” and I will call on you. And all questions are welcome.

So we do already have one question. And please identify yourselves. So let’s go to Timothy Horrigan.

Q: Now I’m unmuted. I’m Horrigan.

FASKIANOS: You’re—great.

Q: My names is Timothy Horrigan. I’m calling from New Hampshire. I’m one of our 424-member state legislature, which is dwarfed by the National People’s Congress.

First of all, you referred to the democracies versus China, so I’m wondering if you’re still including the United States in that. And also, you commented on how—President Trump’s very distinctive leadership style. So how does—how does that compare to President Xi’s?

ECONOMY: Sure. Thank you.

So let me begin by saying I think we’re still a democracy, yes. Let’s wait and see whether our election is held on the date that it’s supposed to be.

You know, look, President Trump—you know, on the face of it, President Trump and President Xi couldn’t be more different. President Xi certainly conveys an impression of—you know, of rectitude, of firmness, of, you know, knowing the direction in which he is, you know, moving the country, developing a plan and executing it, and having all of the different, you know, parts of the clock working together. I think underneath that it’s not quite so smooth.

And you know, all along the process of the pandemic, what we really saw were an enormous number of, you know, bottlenecks in information—in information-flow efforts to hide and to manipulate data and information that was coming out that didn’t serve the Chinese government’s needs or interest. You know, Xi Jinping disappeared for a while, seemed not to be taking responsibility for leadership on the pandemic, and then all of a sudden emerged and was completely in charge.

And then we have, you know, Xi Jinping blaming others, basically, for, you know, challenges—it’s not China’s fault, right, it’s, you know, other countries simply didn’t respond. China behaved a transparent way. It did everything it was supposed to do. You know, if other countries didn’t take advantage of the very generous gift that China provided them, then that’s their fault.

So I think, you know, President Xi on the surface, you know, looks like a much more competent leader. But you know, underneath the surface, I can tell you they are still in the process of arresting, you know, citizen journalists and others who are trying to get at the real truth. You know, think about it: We don’t actually know the number of cases, the number of deaths in China, right? There is no independent media, and people who are trying to get at that are routinely detained and arrested.

Obviously, President Trump has a much more unpredictable style of leadership, a much more spontaneous-seeming, a similar tendency to try to offload responsibility for things that have gone wrong.

I should have mentioned that the other thing that Xi Jinping did was to blame local officials, right? So it’s never Xi Jinping or the central government that have ever done anything wrong; it’s always local officials. And one of the striking things that played out in this particular instance was that a local leader in Wuhan, where the outbreak first occurred, stood up and said, actually, I gave the information to the central government in a timely manner—basically, it’s their fault for not doing anything about it. That was very striking and very unusual in the Chinese political system.

But here again, you know, in the United States, I mean, we’re fortunate to have a very vibrant media and, you know, full access to information, true and not. So, you know, they don’t—President Trump doesn’t have the same ability to control the narrative. Nonetheless, I think the efforts to control information and to shape it to suit domestic political purposes, there are, in fact, some similarities there as well.

FASKIANOS: Thank you. Let’s go to Clay Pearson.

Q: Hey there. My name’s Clay Pearson. I’m a city manager in Texas.

And curious, how do you see the subnational relations? I mean, there’s a lot of city-to-city links and relationships, individual associations. Is that going to be squashed, or that’s going to be able to be maintained? Or how do you see that moving forward? Thanks.

ECONOMY: Thank you. It’s a really good question.

I think the squashing of those kinds of relationships will not happen on the Chinese side. The Chinese will look to maintain those relationships. It’s very important from China there—they always enjoy the opportunity to engage with their counterparts, you know, in the United States and elsewhere. I mean, in part they want to try to shape the narrative here. I think it’s reasonable to assume that. They want to present a positive image and sort of, you know, ensure that all the negative press that tends to surround China, that there’s a counterbalance to that. But of course, there are a lot of concerns in the United States about influence operations, about, you know, what these seemingly independent organizations really are doing. And, you know, so they’re actually just vehicles for spreading government information.

At the same time, you know, we saw a pretty significant drop in Chinese investment in the United States. Last year I think it was only $5 billion. And U.S. investment in China has also diminished. And so, you know, it will take energy and effort, I think, to cut through what is beginning to see like, certainly on the side of Washington, really an effort, again, to decouple, to delink the two economies. And so if the Chinese—you know, if your counterparts don’t feel a though they’re going to be welcome, right? If there aren’t going to be opportunities for investment and partnership, then I do think you’re going to see some retraction on their part. And I do think that those ties are going to be more difficult to maintain. It will take mor work to ensure that there can be actual benefits emanating from those kinds of relationships.

FASKIANOS: Terrific. Let’s go to Rowan Kane.

Q: Hi. Thanks, Irina. CFR put out a great—sorry. Rowan Kane from the Connecticut Office of the Attorney General.

CFR Put out an interesting blog post a couple weeks ago about the health silk road. And I’m just wondering what you see as the future of the BRI and this health care initiative, and how the pandemic will influence that somewhat. Thanks.

ECONOMY: Sure. Right. So the Belt and Road, of course, for those who might not be as familiar with it, is China’s grand-scale infrastructure initiative that Xi Jinping announced back in 2013. And in the beginning it was hard infrastructure, but it has developed into a digital silk road, there’s polar silk road, and there is, as you just mentioned, a health silk road. And the health silk road in some respects is—has been an effort for advancing traditional Chinese medicine. So the Chinese are very interested—they think that this is a product that only they—that they can copyright—(laughs)—this is—that only they can manufacture and produce, and that they can then sort of sell and advance throughout much of the rest of the world, and using the Belt and Road as a vehicle for that.

They’re also looking to blend now the digital silk road with the health silk road, right? And so everything that we’re seeing with the tracking, and the tracing and, you know, China being, you know, one of the countries at the forefront in terms of, you know, having apps on your phone—color-coded, you know, apps that can tell anybody anywhere you go whether or not—you know, you’re green, you’re health. You know, you’re yellow, you need to go home. And you’re red, you need to be quarantined in a government facility. So this kind of tracking system is something else that this health silk road will promote. You know, Alibaba’s already out there, you know, providing—wants to provide cloud services around the health system. So I think we’re going to see that merging of the digital silk road and the health silk road.

I think if we’re looking—if we’re thinking more broadly about the future of the silk road, I think we will probably a see a step back from the hard infrastructure projects. As I mentioned in my remarks, already a number of countries in Africa are asking for debt forgiveness. The Chinese seem reluctant to do that. (Laughs.) You know, in the past they have, you know, just wholesale forgiven debt. But not this time. This time they’re open to renegotiation, but they’re looking to take collateral. For example, in Zambia they said: We’ll renegotiate, but, you know, we want your copper mines as collateral. So I think we’re going to see a slowdown in those hard infrastructure projects.

But I anticipate that Beijing will continue to push very hard on the digital silk road and the health silk road, sort of the next generation technology with Huawei, Alibaba, Tencent. These companies are, you know, nominally private. Of course, they have significant government engagement and investment. But they can—they can do the lead. You know, they can be in the lead for this kind of digital silk road and engaging the health silk road as well. So I think from Beijing’s perspective that’s only upside, because they’re really laying the foundations for the rest of the twenty-first century globally.

FASKIANOS: Terrific. Let’s go to Representative Marilyn Ryan of Montana.

Q: Good morning. This is Marilyn Ryan from Montana’s—Montana state representative.

Can you talk a little more in depth on the economic prosperity market? Who’s involved in negotiating that? Are they looking at specific products? Can you give us more information?

ECONOMY: I cannot, because they literally just announced it in the past two days. And so I don’t know where it stands. And in fact, some of the interviews in other countries suggested that they were not 100 percent sure what was going on. So I think this—as far as I can tell right now this is an initiative that has come out of the administration. I mean, I’m sure Commerce and State are both involved. And they’re going to try to figure it out. You know, it may be that certain countries—you know, the countries that they’ve named already, you know, India, to Australia, to Vietnam—they’re all in Asia. It doesn’t seem to involve any European countries at this point in time.

But because our partnerships—I will say, our partnerships with Asia around China have been particularly strong. So you know, if we’re looking for countries that are even ahead of us, for example, on the Huawei, you know, Australia and Japan both banned Huawei from their networks before the United States did and was even out there talking about it in a significant way. They just did it quietly, you know, and under the radar. So I think this is a group of countries that in general shares a number of the U.S.’s economic and security concerns. But I don’t know what the parameters are going to be exactly. They did provide that list that I mentioned—everything from, you know, education, to trade standards, to research, to energy, to digital standards. So we’ll have to wait to see exactly how it turns out. But I don’t have any more detailed information at this point.

Q: Thank you.

FASKIANOS: Thank you.

Let’s go to Pete Sheehey. There you go.

Q: I’m Pete Sheehey, a Los Alamos County councilor, New Mexico.

For years previous to the pandemic China has been taking a much harder line concerning Taiwan, as Taiwan has moved successfully in a democratic direction. At this point, we’re seeing some actually very radical proposals circulated in China to the extent of, well, let’s just get rid of all Taiwanese people and we’ll take that territory back. In this new situation with COVID, is there the prospect of military action? Is that a serious thing to worry about, if the United States lets down its guard?

ECONOMY: Thank you for that question. So I would say in the near term I don’t think that Beijing has any plans to launch either a major, you know, crippling cyberattack on Taiwan or some kind of military invasion. So I don’t think we need to worry about that right now, despite the fact that, as you suggest, there have been some rumblings around this, to the—to the point that a former very senior military official felt compelled to publish an article in which he said: We shouldn’t be talking about invading Taiwan. That would be a very bad idea. So you know when you see the counterargument that there’s a lot of stuff going on on the other side as well.

But I do believe that over the longer term that Taiwan is essential to Xi Jinping’s narrative—sort of control of Taiwan is essential to Xi Jinping’s narrative of the great rejuvenation of the Chinese nation. So the South China Sea, Hong Kong, and Taiwan—you know, China claims sovereignty over all of them. And, you know, for Xi Jinping to finish out his term, whenever that’s going to be—2035, 2040—(laughs)—whenever he decides—I think that is going to be something he is going to attempt to ensure. That, I think, he wants to be part of his legacy. So I do think that’s something that we constantly have to keep our eye on. And we have to very careful, and judicious, and smart about how we promote Taiwan and how we safeguard it, and how we integrate it more into the global system, but without trying—you know, without trying—without precipitating some kind of action from China.

FASKIANOS: Thank you.

Let’s go to Joel Hicks.

Q: Yeah. Joel Hicks, Carlisle Borough Council here in Pennsylvania.

This isn’t exactly directly COVID-related, but I know that, as you know, China’s population is aging fairly quickly, due to their one child policy. I’m curious if you think they have any plan in place, and whether that might include more emigration of younger folks from outside because, as you know, up to this point that hasn’t been really a strategy of theirs. So thank you.

ECONOMY: Sure. I think actually it’s unlikely, at least in the current context. You know, what the government has tried to do, of course, is it has relaxed its one child policy and has permitted all couples to have two children. And despite this, last year the birth rate in China was the lowest it had been since the founding of the PRC. So for a variety of reasons having to do with the expense of raising children, the fact that, you know, couples now live in urban areas, their parents may still be—may be in other places. You don’t have that same familiar infrastructure to help care for your children. People are concerned about pollution. Women are working and they don’t want to have, you know, a second child. It’s difficult enough. Apartments are small. So for a whole host of reasons, the government has not been able to persuade families to have more than one child, despite opening the door to that after so many decades.

But I think given the nature of Chinese society, of Han society, you know, they would welcome overseas—what they would consider the overseas Chinese. So if you’re Chinese living elsewhere and you want to come back, I think that would be of interest to them. But I don’t really see any interest or any proposals to increase the number of immigrants—young immigrants, unless you’re talking about highly talented, you know, scientists, and leading thinkers, people like that. Then, of course, you know, through their thousand talents program, you are more than welcome to come and work in China and contribute to the development of Chinese society. But I don’t see them doing what some other sort of wealthy and aging countries have done, like Japan, to open the door to other—workers from other countries. I don’t see any indication of that.

FASKIANOS: Thank you. And of course, questions and comments are not limited to just COVID-19. I neglected to mention that Liz is a leading expert on China’s environmental challenges and has written a seminal book called The River Runs Black: The Environmental Challenges to China’s Future. So with that, let me go now over to Michael Miner (sp).

Q: Thank you so much. Michael Miner (sp) here in the mayor’s office of Melrose, Massachusetts.

Dr. Economy, thank you so much for joining us today. I have sort of a big-picture question. The international relations theory Thucydides trap suggests that rising powers, in this case China, inevitably comes into conflict with status quo powers, in this case the U.S. Unfortunately, you’ve laid out drivers and trend lines that suggest relations are at their lowest point since 1989. From a policy perspective, what does the U.S. need to do going forward? How does the U.S. and China strengthen relations and avoid confrontation? What should we be focused on in terms of policy? Thank you.

ECONOMY: Thank you. Thank you for that question. So—right. So let me say, first off, that I don’t subscribe to the Thucydides trap. And as somebody who studied comparative politics, I believe that leaders can make a difference. And in both countries, domestic politics actually do matter and can drive things in very different directions. So do I think that we could adopt policies that would change, you know, if not the—would not necessarily produce a V in the relationship, you know, a sharp turn upward, you know, trajectory, I do think that we could at least arrest the downward spiral that we’re in.

I think, you know, to begin with, finding areas of common ground. You know, I actually think this administration has done a reasonable job of assessing China under Xi Jinping, recognizing that he has moved China in a very different direction since 2012 than the direction in which it seemed to be heading, which was one of greater political openness, greater economic openness, and has really put in place a number of repressive and regressive policies on that front, not to mention a much more ambitious foreign policy than we had seen in the thirty years prior.

But where I think this administration has fallen short is that there is no interest in finding areas of common ground. So, you know, I mentioned this pandemic, this COVID-19, could well have served as an area for cooperation. You know, we should have stepped up together with the Chinese—you know, the European Union held a gathering a week or so ago, a meeting, to pledge, you know, financial pledged, to work together to find a vaccine, to ensure that it could be distributed globally. The United States didn’t attend the meeting. And China sent this very low-level functionary—(laughs)—who basically said, yeah, we’re not going to do anything more. So, you know, forget about that.

So when you look at the United States’ position on global challenges—you know, taking the first steps to pull out of the Paris climate accord—you know, what happened there, you know, China’s CO2 emissions have increased every year since we pulled out of that. Without the United States, you know, centrally engaging itself, putting forth an effort to partner with China, you know, we’re not going to see a kind of floor placed under this relationship to keep it from just, you know, hardening, perhaps, into the sort of Cold War mentality. So I think the number one thing we should be doing is trying to find areas of common ground. And I think it would find some receptivity in China—certainly would find some receptivity in China.

Beyond that, I think, of course, we should just be, you know, using a scalpel and not a sledgehammer. So—and this is something, I think, that states could actually be thinking about in some very concrete ways. You know, I do think—should we be concerned about Confucius Institutes or, you know, intellectual property theft in university labs? All of these things are reasonable concerns that we in the United States should be thinking about and addressing. Is the answer to close down Confucius Institutes, to ban Chinese students and scholars from our labs? You know, I don’t think so, right? So what’s a scalpel—how do we use a scalpel instead of a sledgehammer?

Maybe we say we need to renegotiate these Confucius Institute contracts. You know, we retain—we, universities—retain the right to choose the professors and the curriculum, but we welcome Chinese financial support for this. And we’ll put a plaque outside the door of the classroom that says: Thank you very much to the government of China for its support of Chinese language training, you know, at our university. You know, can we put in safeguards, you know, in our labs, akin to the ones that we have in national labs, to prevent against IP theft for the, you know, two or three out of a hundred Chinese who might have malign intent?

So I think that there are things we can do. We can ratchet down the rhetoric. We can find some areas of common ground. And we can attack the challenges in the relationship in a more narrow, focused and, frankly, smart way than we have.

And the last thing I would suggest is that, you know, when we frame things—everything in a bilateral context with China, and make it all about this U.S.-China competition, it is very easy for China to stand up and say: This is just about the United States trying to contain us, and going back to that Thucydides trap argument. But when we work with our allies, when we have broad support on issues like human rights, for example, or on, you know, trade, then it’s much more difficult for China to take that kind of stance, right? It’s forced to respond to a collective saying: China, you are not adhering to international norms. You need to do a better job. Not about the United States saying, yeah, we’re determined to keep you down, and from challenging our position as a dominant power.

So I do think that there’s a lot that we can do, but it requires, I think, taking a step back, and lowering the temperature, and just beginning to open our mind to sort of new possibilities.

Q: Thank you so much, Dr. Economy.

FASKIANOS: Thank you.

Let’s go to Joy Garrett. And you need—there you go.

Q: OK. OK. This is—thank you. This is really informative. I’m a state representative in Albuquerque in New Mexico.

This is related. All these questions, as you know, are interrelated. But you talked about the example of China ramming the Vietnamese fishing boat. And in light of these kind of aggressive military actions and claims in the South China Sea, is the estrangement of the United States and China been official to some of these smaller countries that are obviously in China’s eye? How does this compare to building the common ground with other countries? You know, can you talk about that?

ECONOMY: Sure. So—and that’s an excellent point, because there are going to be some areas where building common ground means, you know, really taking—really bringing in a lot of other countries to make a concerted push against Chinese assertiveness. So in the case that you mentioned, you know, we already have the support of the other countries—Vietnam, Malaysia, even the Philippines where President Duterte has been a fan of Xi Jinping’s but the Philippine military is not a fan of China. We maintain very strong military relations with the Philippines. Taiwan, of course. So the other claimants very much depend on the United States to resist, to push back against Chinese encroachments and undermining norms around freedom of navigation.

What the administration has started to do, which I think is critically important, is to bring in as many other countries as possible. So Australia, India, Japan, even the U.K. and France have—you know, a couple of them have done their own freedom of navigation operations. Some of them have partnered to do military exercises. We need many more countries. It’s not enough. But we need to make this about the norms, right? Not about—you know, the U.S. has no claims in the South China Sea, per se. What we’re talking about is freedom of navigation, right? An enormous amount of trade passes through the South China Sea. And we want to ensure that those sea lanes remain open. So it’s about engaging as many countries as possible on the stance of the norm. Not an anti-China effort, but actually a support for a norm of the liberal international order.

So that’s how I think, you know, the U.S., working with other countries to push back against China, but we need more countries engaged in this. We cannot do it with just the countries that we have at this point in time.

Q: Thank you.

FASKIANOS: Thank you. Let’s go to Michael Radtke.

Q: Yes, hello. Sorry about that.

FASKIANOS: No problem.

Q: I’m a city councilman in Sterling Heights, Michigan.

I had a brief question about China’s—or, U.S.-China relations as it refers to the presidential election. Essentially, I have seen several strategy memos from different groups saying that there’s going to be an effort in the election to blame China for the current predicament of the United States. And I was curious about your perspective, ma’am, about how that might go about and what effect that might have on Chinese-American relations.

ECONOMY: Right. So I think that the way that it is shaping up, China is going to be an important issue in this election. You know, it’s interesting—(laughs)—every election China analysts and scholars—everybody’s like, oh, China’s going to be really important in this election. China’s going to be really important in this election. It never is important in the election. I don’t know why. People are always saying that it will be. It never does. I think this time—it never is—I think this time actually—(laughs)—it is going to be important. Look, I think it’s important—you know, obviously the trade issue, because the president, you know, has made, you know, trade and North Korea really were his two central issues when he came into office.

And both of them engaged China very directly. So that’s already front and center. We have the phase one trade deal. You know, if China tries to pull back from that because it—you know, it says external circumstances have meant that we’re not able to fulfil our obligations, it looks like the White House is not interested in accommodating that view. So, you know, how is that going to play into it? I think that’s going to be a central point. You know, everything that the administration has been doing about influence operations, around Taiwan, you know, the military. So a lot of what this administration has been doing on the foreign policy front and domestically, in one way or another, touches on China. And the COVID-19 pandemic just brings everything into, you know, sharp relief.

So what could be the president’s, you know, greatest failing at this point, right, sort of the, you know, extraordinary number of American deaths, right? How, you know, can the administration deal with that? How can it accept that, you know? So one way is to say that this is because of China, right? This epidemic started in China, they didn’t give us the proper information upfront, they are to blame. So I think that’s a way—and then the argument will be, I think, from the Trump administration that, you know, Vice President Biden was weak on China, and that in fact the Obama administration’s policies, you know, brought us to the point, you know, where the United States was disadvantaged in its relationship with China. So I think it is likely that China will be a centerpiece of the presidential election in one way or another. So everything—trade, COVID-19, all of these major issues, again, engage China very directly.

Q: I mean, as someone who has—wrote his dissertation on U.S.-China relations, I guess I’m also afraid of increased xenophobia as regards to China. I think it’s one thing to debate policies between our countries, but from what I’m seeing being rolled out, it seems like “blame the Chinese” is going to be the mantra for this election.

ECONOMY: I mean, I think you’re exactly right. And, you know, to the extent that officials, you know, at the local level, people like me can do everything that we can to push back against that narrative I think it’s extraordinarily important. Because what we don’t want is some kind of awful, you know, anti-Chinese sentiment to arise, first of all, against Chinese Americans, but more broadly against China. And that’s why I said I think we really need to be looking at using a scalpel instead of a sledgehammer. There are issues we need to address, but we should be addressing them very carefully and very thoughtfully. You know, a lot of good can come out of a robust U.S.-China relationship. It won’t be easy, right? I’m not Pollyannaish about this. But I think if we take the time and the effort, we can, again, arrest the downward spiral and improve the situation. But I think there’s very little likelihood of that happening between now and the election.

FASKIANOS: Thank you.

Let’s go to Nelson Dollar.

Q: Yes. Nelson Dollar.

So, and I’ll be very brief about this, but I would like your view on if you actually see China, as some of us do, as a declining power. It was talked about earlier, aging demographics, aging consumer base, a historically over-capitalized economy unlike we’ve ever seen in history, and such a dependence on imports and exports. I think of all the major countries, they are probably the most dependent on imports and exports. And again, with the changing global order, do you actually see China as a—and Xi’s problems in terms of his inability to answer the strategic challenges that are in front of him right now—would you not see China as a declining power? Not unimportant, but a declining power of the next ten years?

ECONOMY: I would say—I’m probably not ready to call China a declining power. I think they face a number of incredibly serious challenges domestically. You know, really rapidly rising, you know, levels of debt to GDP, as you mentioned, aging population. They still have many environmental challenges. They have huge unfunded pension issues—(laughs)—much in the same way that we do in the United States. But obviously in a very much lower level base of income. So I think they’ve got a lot of domestic challenges and, right now, a lot of external pressures on them as well.

But I don’t think we should underestimate the capacity of China to—remember, it’s a country of 1.3 billion people—to in some respects segment the country. So that you have the coastal cities, you have these Chinese technology companies, you have the Chinese military which has dramatically increased its capabilities over the past eight years or so, since Xi Jinping came into power. And one of his, you know, most important efforts has been to develop a People’s Liberation Army that is capable of fighting and winning wars. So I think you could see China having, you know, two very distinct strengths, right? Its technology sector and its military. And having that drive a continued rise of China, even as income inequality grew, as certain segments of the population were kind of left behind in a pretty significant way. I guess I would see that being the path more than a kind of China as a declining power.

I don’t think—I mean, I’ll make one last point on this. You know, to have the kind of external pressure really contain China in a significant way, you would have to have much stronger buy-in from many more countries, you know? So the United States tends to be the country that’s out there leading the charge for saying, you know, malign China in the South China Sea, you know, bad China on human rights, you know, China and Huawei. We can bring other countries along, but we don’t see the same degree of concern across the board in most of our partners. Some yes, but many not. So I think you need to have much greater buy-in from many more countries to have the kind of impact on, you know, sort of keeping China’s rise from the outside—you know, from outside external pressure.

FASKIANOS: Great. And that was Nelson Dollar, who’s a senior policy advisor for North Carolina Representative Tim Moore. So thank you for that.

Liz, we’re almost at the end of our time. I thought maybe you could wrap up with just a few takeaways or thoughts for state and local governments as they think about relations with China, dealing, you know, with trade, COVID-19, climate, and what can be done at the subnational level.

ECONOMY: Right. I mean, I think, you know, at the state level, you know, there has been good cooperation, Irina—since you just mentioned climate change—between California and China. And, you know, to the extent that Washington isn’t that interested in cooperation I think on issues like climate change, there is the potential, you know, for regional groupings within the United States to forge their own cooperative ties. Again, I think it’s going to be a challenging time. I think states are going to face a number of pressures over the next six months, emanating from the Trump administration, around trade and investment, you know, around—in the educational sector.

I think, you know, the greatest piece of advice I can offer really is for states to, you know, work with businesses—for state officials to work with their businesses and their universities to be proactive, to come up with their own ideas about how they want to, you know, both protect against any potential Chinese malign activity, but also to engage with China. Because to the extent that you have ideas that come up, you’re less likely to simply have to react to whatever Washington sends down your way.

So thanks very much. I really enjoyed the conversation.

FASKIANOS: This was terrific. Thank you so much to Dr. Elizabeth Economy. We really appreciate your being with us today, and to all of you for your terrific questions and comments. We will be posting the video and transcript of this webinar on our website, CFR.org. I also want to encourage you to follow Dr. Economy on Twitter at @LizEconomy. She also writes on the Council’s blog, Asia Unbound, which is also syndicated by Forbes.com. So you can subscribe to that on our website. And again, you know, on our website please go to CFR.org. We have ThinkGlobalHealth.org and ForeignAffairs.com for the latest analysis on COVID-19 and every other issue and region you can imagine. So please go there often.

We also encourage you to let us know how we can continue to support the work that you all are doing. You can email us at [email protected]. Stay well. Stay safe. And we will be reconvening again next week. So we look forward to that. Thank you all.

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