Xi Jinping's Economic Reforms and Consolidation of Power

Thursday, January 29, 2015

Event Description

Madeleine K. Albright, chair of the Albright Stonebridge Group, Jin-Yong Cai, executive vice president and chief executive officer of the International Finance Corporation, David M. Cote, chairman and chief executive officer of Honeywell, and Jon Huntsman, chairman of the Atlantic Council, join Elizabeth C. Economy, CFR's C.V. Starr Senior Fellow and director for Asia studies, to discuss the political, economic, and security aspects of the U.S.-China relationship and their policy implications. The panel reflects on Chinese President Xi Jinping’s first two years in office, commenting on his consolidation of power, anti-corruption activities, changes in economic policy and rule of law, intellectual property issues, and the climate change agreement. The panel points to ways that the United States and China can effectively work together towards common goals and mutually-beneficial outcomes.

Event Highlights

Madeleine K. Albright on China’s political system under Xi Jinping:
“…an awful lot of what he is doing is trying to kind of restore an ideology and a sense of purpose and the whole kind of drive of who is China that he, in fact, has created a certain contradiction that he's going to have to deal with. …there is truly a problem between overly centralized government and a one party system and the forces of the market. And at some point, they're going to have to face that also.”

Jon Huntsman on the U.S.-China relationship during the 2016 election cycle:
“…I just wonder about the patience on the other side where Xi Jinping is consolidating power; he wants to strike some important agreements with the United States that will be part of his legacy. And if we're not in the game to play for the long term, which has always been a tough thing for the United States, he'll go someplace else. And then we're really behind in the game—and that's what I fear could result from the missed opportunity of 2016.”

David M. Cote on reaching a climate change agreement with China:
“We understand their needs to develop; they also understand the needs to drive improvements to prevent climate change and I think that's a nice way to start building ties and making sure this ends up being a peaceful economic evolution rather than the way it could go if both countries aren't smart about it.”

PAULSON: Good evening, welcome. Thank you very much for coming out on this icy evening. I'm delighted to be here in Washington.

For those of you who don't know, following my time as treasury secretary, I returned to my hometown of Chicago and I spend my time with the Paulson Institute -- an NGO that's focused on U.S.-China relations. So, that's -- that's really how I spend my time.

It's a think-and-do tank; it's focused on strengthening the relationship between the U.S. and China with an emphasis on economic growth -- sustainable economic growth in the environment and the intersection of those two.

Now, although we are active in Washington and we have several of our very important people here, that I think the last time we sponsored an event in Washington was 2011. So, we're just very honored to be cosponsoring this with the Council on Foreign Relations, to be here today.

And we have a panel of stellar speakers so I'm going to be quite brief here because we've got some -- I think some terrific experts on China you'll be hearing from in a minute.

But just a few words at the outset, which I think most of you know, that is the world's two largest economies, the United States and China, play a leading role in powering growth, rebalancing the global economy and ultimately tackling some of the biggest challenges we have in the world.

And, you know, we've got some huge ones; I happen to think that climate change is one -- one of the -- one of the very biggest ones. But in today's world, when you think about almost any of the major challenges, they're all easier to solve if our two countries are working together in a complementary way and they're much, much more difficult if we're not.

And, you know, on the economic front -- and that to me is a real fabric of the investment -- excuse me, the relationship; that's really -- that is where we have the most important bridge.

And here I think it is very important that we continue to work to strengthen that and -- and we have -- I'll just say a couple words about the bilateral investment treaty because I just think that's very, very important and it's -- it can be a key lever in opening up Chinese markets for U.S. companies and driving reform and to the extent we get more Chinese investment here and the right kind of investment, it's going to create -- create jobs.

I can think of no threat that poses a greater risk to the environment or just in -- generally an economic risk than, as I said earlier, climate change. And I think the key to solving this is having the U.S. and China work together in complementary ways and -- and frankly, I don't know how we're -- if we have any chance of solving it if we're not. And so, therefore, I was very, very encouraged by the breakthrough that -- that our two governments had at APEC and I think that's a terrific start on that.

I'll just say one word -- the Paulson Institute has a -- a number of programs; we have an air quality and climate program; we've put together a U.S.-China CEO Urbanization Council to work on these challenges of energy and we've got eight outstanding CEOs on each side and one of those, David Cote of Honeywell, is -- is here today.

We've got some -- our think tank is putting out, I think, some, you know, some papers that are very important on dealing with some of the fundamental challenges in the energy and policy area, and across investment.

So, the reason I say this is I think one of the things it's going to take as we, you know, work on these major challenges, it takes governments, it takes the corporate sector and it takes NGOs all working together -- and -- and hence the -- the panel tonight.

So, having said that, I'm going to turn it over to Liz Economy. And as you all know, she is a real China expert; she's a senior fellow here. I remember, although as depressing as it was, it was right, reading her first book, The River Runs Black. She's -- she's written another very important book and so, I'm, as all of you are, looking forward to listening to this panel moderated by Liz.

So, over to you, Liz.


ECONOMY: Thank you, Hank, for that lovely introduction. And let me thank you, as well, for all the work that you did as treasury secretary in -- groundbreaking work, really -- in establishing the foundation for the U.S.-China economic and environmental relationships.

And I know that everyone here is looking forward to hearing more about your work and about your thoughts when your new book dealing with China is released in April.

Now, on behalf of the Council on Foreign Relations and the Paulson Institute, let me welcome everybody here. We really are privileged to have such a distinguished panel of thinkers and doers to discuss this evening's topic, the China Challenge: Balancing Cooperation and Competition.

I'm just going to briefly introduce all of the speakers. You have their full bios before you and, frankly, if I were to take the time to do the full bios, it would take up all the time that we have this evening.

And then I'm just going to ask each of them a question or two to begin the conversation before opening the floor for questions from all of you.

Just a few housekeeping notes -- please, everybody, turn off your phones, your beepers, anything that may -- might make some noise. This meeting is on the record, so not traditional Council style, and we will end promptly at 7:15.

So, without further ado, let me introduce our speakers. To my immediate right, of course, is Madeleine Albright. Secretary Albright is chair of Albright Stonebridge Group, a global strategy firm, and chair of Albright Capital Management LLC, an investment advisory firm that's focused on emerging markets.

She was, of course, most notably the 64th secretary of state of the United States and she just returned from Beijing where she participated in a dialogue between the Aspen Strategy Group and the Central Party School in China. So, I know we're going to have some fresh insights from you on that.

To Secretary Albright's right is Dave Cote. Mr. Cote was named chairman and CEO of Honeywell on July 1st, 2002. Under his leadership, the company has grown from $22 billion in sales into a highly profitable technology leader with more than $40 billion in sales today.

Mr. Cote was unsurprisingly named 2013's CEO of the Year by Chief Executive magazine.

To my left, I have Jon Huntsman. Governor Huntsman began his career in public service as staff assistant to President Ronald Reagan. He has served each of the four U.S. presidents since then in critical roles around the world, including as ambassador to Singapore, deputy assistant secretary of commerce for Asia, U.S. trade ambassador and, most recently, U.S. ambassador to China.

He's currently chairman of the Atlantic Council Board of Directors and co-chair for No Labels.

And last but certainly not least, Jin-Yong Cai. Dr. Cai joined IFC as executive vice president and CEO in 2012 following two decades in the financial services industry. His experience includes twelve years with Goldman Sachs Group where he was part of the firm's global leadership team and he served as the top executive in China.

At IFC, which is a member of the World Bank Group, Dr. Cai's work is focused on bringing private sector solutions to the biggest development challenges in emerging markets.

So, let me begin by asking all of you the same question and have you focus on the internal dynamics of China and then we'll take a step back and talk about the U.S.-China relationship.

But as you look inside China today, how do you assess Chinese President Xi Jinping's first two years in office? What do you see as the most sort of salient political and economic features of a Xi-led China and what do they signify for U.S. interests?

I'll give each of you about four minutes or so to address this issue and then we'll move on from there. So, let me start with you, Governor Huntsman, and ask you to set the stage for us.

HUNTSMAN: Well, it's -- it's a -- it's a big question. And let me just begin by -- by saying this -- you know, I'm a practitioner; I see a lot of experts in the audience. We're going to put this relationship to the test, not necessarily during the years between elections but, indeed, as we approach 2016.

So, whatever we're experiencing now is likely to experience a little bit of tumult as we approach the presidential election, which is going to put Xi Jinping to the test, along with his new team. And it's certainly going to test our side of the system, as well.

I would say that the leadership style that I'm seeing out of Xi Jinping is rather unprecedented. I'm not sure that there was any analyst or expert who necessarily predicted the extent to which he would consolidate power, the extent to which he would lead out in a fairly unilateral and aggressive and assertive fashion.

I think it all kind of is somewhat reflective of the leadership style more under Mao Zedong or Deng Xiaoping as compared to anything that we've seen most recently. I think he's serious about consolidating power. He's not done yet. And I think we're likely to see the anti-corruption campaign pivot from retired senior cadre like Zhou Yongkang and others to currently-serving cadre and I think that's going to be a new and -- and -- and challenging phase for the system.

I also think his decisionmaking, which is far different than we saw under Hu Jintao who was very much by consensus as opposed to the unilateral approach that Xi Jinping takes -- I think it's -- it's -- it's facilitated and aided by a standing committee, which is different than the standing committee under Hu Jintao. It's smaller; I think they're more likeminded. I think he's got some pragmatic former provincial governors who are really intent on economic reforms that are absolutely critical to China's survival going forward.

But what I think I'm most intrigued by, other than all of the economic reforms that have been talked about -- teed up at the 18th party and then built upon at the Third Plenum -- is a little bit of what we're hearing out of the Fourth Plenum most recently, which was on legal and political reform.

So, you know, as we've seen a lot of backsliding and -- and behavior that has been I think unseen since 1989, we're beginning to hear a little bit more about (inaudible), you know, a country based on rule of law.

I'm not sure that anyone quite knows what that means but I think there's some sense of optimism, at least as I see it, that there is resistance to the old class struggle campaign and an attempt more to move toward economic development and a new approach to rule of law that first will be applied to economics and trade and inevitably move toward civil society. I don't know how -- how it won't; that will take some years to do.

But I think there -- there is a push on the part of Xi Jinping and some of his likeminded colleagues to begin to start that debate on rule of law and -- and even the constitutional implications of what that means. And I think we're beginning a very interesting phase here that again, like the anti-corruption campaign, is going to be very difficult for the China watchers to necessarily predict where we're going.

And then we'll hit the 19th party Congress and you can already feel it in the air -- the personnel transitions. An example would be Mayor Sun of Tianjin, also a member of the Politburo, who was just put in Ling Jihua's place as head of the United Front Work program.

So, I think we'll hear more about personnel issues that are being teed up for the 19th party Congress. I think that will represent the end of the consolidation of power in between the 19th and the 20th party Congresses -- so, 2017 to 2022. I think we're likely to hear a lot more about reform efforts. And you'll have -- she will have the solid base with which to go after the reforms in a fairly aggressive way.

So, I think the next -- the -- the period between now and the -- and the 19th party Congress is going to be very, very interesting to see who the new personnel selections are because that will have huge implications with respect to then the final reform drive up to the 20th party Congress.

ECONOMY: Great; that's a very positive and even exciting path forward I think that you've laid out for China.

Secretary Albright, does that resonate with you in your recent visit to China? And I know you've met with President Xi Jinping. How do you see situation evolving?

ALBRIGHT: Well, yes and no, frankly -- and I'm delighted to be here and also to be able to do something with Hank. Your institute is terrific.

I think that -- I -- I see a lot of what Jon has said absolutely true in terms of the strength of the leadership.

What was interesting -- the first time I met with Xi Jinping, I'd gone over there in a very peculiar meeting which was Democrats and Republicans meeting with the International Department of the Chinese Communist Party. And we were frankly trying to figure out what we were doing there and why they wanted the dialogue and they did introduce us to Xi Jinping.

Then what happened was when he came to the United States for his visit as vice premier at the time, he had a bunch of his former people over to talk for a dinner that he had set up. And I -- it was interesting because he was asking us questions in terms of what we had learned over the three decades of our relationship -- Hank, you were there -- you know, in terms of what we had learned about our relationship. And it struck me as a very kind of forthcoming, interesting way of trying to bring us into the whole process.

What -- I have followed everything very closely and I -- what I see is very much kind of the tough part that you were talking about, in terms of consolidating the party.

The meeting that we had -- David was there -- was one with the Central Party School. There were a lot of people, all who had exactly the same thing to say. And so, really kind of an example of keeping the order together.

I think that he knows that he is dealing with corruption in the country and he is using that, I think, very cleverly to rid himself of people that he doesn't want to deal with.

I think the question on -- we had some private discussions on the rule -- was it rule of law or rule by laws and what does -- which way is it really going and is the translation even correct and where -- he is providing a tool for himself, I think, to be able to do something.

I think there is huge desire within the ruling groups to have an outward relationship and to put China in a position where we regard it with respect. There's an awful lot about do we use the right words in terms of our discussion with them; are we condescending -- a number of kind of nuanced issues on that. But basically, China is here, China is in power.

What I found that was interesting was that this is not particularly a happy time for business in China because part of what is going on are some laws that make it more and more complicated.

So, the anti-monopoly law or issues to do with cyber -- you can probably talk about that more, David. But I think basically that makes it a little bit more complicated in trying to figure out how things really work.

And a desire to have American business or foreign investment and especially -- I mean, if one looks at the numbers of our trade relationship, you know, it used to be somehow the equivalent of Honduras and now it's $600 billion. So, this is a very important relationship to them and to us.

But some of the -- the laws and decrees that are coming out I think make it complicated and the regulations and which bureaucracy's in charge -- which I think there's a little bit to do with this sense of how do we obey the new way of looking at things. So, as everything that's ever been written about a bureaucracy is true...


And so, there is this kind of sense -- how to carry out the regulations and not delete their own power and yet be able to follow and do what the leader wants.

I think he's very impressive; there's no question. And I think that the possibility -- Hank, you were talking about the agreement on climate change. I think that's a really big deal -- that he could do that is definitely a sign of the power of somebody.

And this is the important part. Here is a man who sees himself in office for many, many years -- who thinks he's going to see a lot of different American presidents and that he -- our foreign policy comes in four year segments, his is going to come as a longer time and that kind of sense of being there for a long time I think is very important.

What is interesting despite what I said is that there is a desire to get American help in a number of ways. And domestically, for instance, I met with the health minister. She made it very clear that they have problems in their health care system; they would like to get some advice from the United States, try to figure out how we can work together...


It depends on who you're for. But -- or for instance, issues to do with food safety or farming that there are a variety of issues on which we can help.

I do think where there is an issue, and we'll talk more about U.S.-Chinese relations, there is no question that as one looks at the history of the U.S.-Chinese relationship, the business community has been the greatest supporter of it.

And if, in fact, it becomes more complicated to do business, then some of the issues to do with human rights and a variety of other issues will make it more difficult on the relationship.

So, I find it fascinating to watch what he's doing. I agree, in terms of he's much more like Deng Xiaoping or Mao. But here is a really, really strong leader who sees himself in there for a very long time, who has the tools to adjust the system in a way to refurbish the Communist Party and put it back central and also to deal with people that he doesn't like.

The question is -- and I always have this question anywhere -- if you create a middle class, which he has done, at what point do they want to be part of the system and have a voice and -- and -- and what happens to a political system that's top-down when you have created a middle class?

ECONOMY: I think we'll come back later and have you address just that question, because I think it is one of the most central questions in China today.

So, let me use your excellent introduction to the issues of business in China to ask Mr. Cote to talk a little bit about how you see the reform process underway in China today -- what it means for Honeywell in particular because I know you have your fingers in almost every part of economic pie in China, from infrastructure to energy to environmental technology. So, what do you see coming out of Xi's first two years?

COTE: Yeah, from my perspective, his first two years have been impressive.

And just to put it into perspective, we now have 12,000 employees in China. And two years ago, China became the biggest country outside the U.S. for our company sales. So, we've made a pretty big commitment because I really believe that China could be the economic story of the 21st century.

And the stuff that we've seen him doing has been I think very good. The whole anti-corruption push which we could say has a dark side to it also -- at the end of the day, is unbelievably needed and unbelievably supported by the population. I mean, my own employees talk about the stories that they see in the press every day, in the Chinese press, and how important they think that is to see this happening.

The commitment on climate change I thought was impressive. The population supports him in it.

The concern that I have about it is exactly what Madeleine was talking about -- is once somebody's accumulated and consolidated power, can they transition? And if they can't transition, well, a lot of the things that we hope are possible for China I think are going to be suspect.

When it comes to how are we looking at China, oftentimes the stuff I've read in the past showed China's development compared with Japan's and they look at it that way. And I've always thought that was the wrong analogy and that the real comparison for us is going to be this is going to be how the U.S. works with China in this century. It's going to be a lot more akin to what happened to the U.S. and the U.K. from 1830 to 1870.

The U.K. started off as the bigger economy than the U.S. Over that forty years, our population eclipsed them, our -- our regard in how we looked at business, how we encouraged business, caused us to really outstrip them. We were focused on the -- even though they started the industrial revolution, we really focused on it and Americanized everything, especially mass production. And we totally eclipsed their economy.

I think that same thing could happen in the 21st century because they already have almost four times the number of people that we do. And as long as they focus on the right things like they have historically, they could very well get there.

So, I really think eighty-five years from now when people look back on this century, the question is going to be how good a job did our two countries do getting along and how did we develop our relationship together? And I think it's entirely possible for those people who write all the books about confrontations eleven out of fourteen times when countries have been this big and this has happened -- I really just don't think that has to be the way this is.

And I keep pointing to the U.K. that I just described and how we look at them as our most important allies -- and it was 200 years ago that they burned down our White House.


It was 150 years ago that we worked to keep them neutral in the Civil War. And somehow, we've managed to make this work.

We need to be able to do the same thing with China. We need to build our own competitiveness agenda and we need to be doing a lot more in the U.S. than we are today.

But at the same time, we have to do everything we can to improve commercial and peaceful ties. That doesn't mean we just give up and -- and let them do whatever they want, but we need to always keep that in mind -- that this is going to be an important relationship to develop.

And it's one of the reasons I like to focus on climate change and the discussions that the president had because I think that's a nice, peaceful way to accomplish a common objective. We understand their needs to develop; they also understand the needs to drive improvements to prevent climate change and I think that's a nice way to start building ties and making sure this ends up being a peaceful economic evolution rather than the way it could go if -- if both countries aren't smart about it.


OK, Dr. Cai, you bring a unique perspective to the panel. You grew up in China, you've worked in China and you've worked with the Chinese government. Give us your perspective on Xi Jinping's reform plans. Where -- where is it succeeding, where is it lagging, what's -- what do you see?

CAI: First of all, I'm very humbled to be on this panel and in front of my -- my boss.


So, you know, I -- I'm very optimistic. I think so far for last two years, Xi Jinping definitely demonstrated he's the boss; he's going to lead the China to overcome many other countries have failed, which is called a middle income trap.

And when you look at all the issues -- corruption, environmental degradation -- and, you know, from my perspective, having the financial sector -- a huge accumulation of risk in the -- in the system. The fundamental issue is really over the last many years China has been lucky in benefiting the global economic progress -- you know, WTO, U.S. market -- and build up a system very hard to continue.

The business model is not going to work anymore in the future. But the key success factor in the past business model is really the relationship between the government and the -- and the market.

The (inaudible) remember -- they're always saying China is a different model, state of capitalism. By the way, you know, right now the Chinese is the first one to say it's not working.

So, you look at the 18th party Congress and also the Third Plenary Session -- there's a key phrase, which is, the center of the economic reform is allow the market to become the decisive means to allocate resources.

And when you look at the system, it's -- you know, we look at the -- the cadre of Chinese Communist Party for last thirty years -- what they know? They know to create GDP; and if you do a great job, 10 percent, 14 percent, get promoted.

And the -- everyone is like -- the mayor is a CEO; the provincial governor is a CEO. And when you have -- the governments believe they can -- they can do wonders. And that's where the corruption is; that's where the, you know, kind of -- I would say damaging the environment for my own promotion really at the expense of the future generation.

So, yes, there are all this political -- what they call -- pretty harsh anti-corruption. I think in a country of this size with the momentum, the leadership not only at the top -- actually, it's throughout the country -- the only I'll say means people know how to get promoted, how to really get recognized is creating new GDP; we need discipline. But how will we get that discipline?

And by the way, another very important development over last, you know, ten years, or twenty years, a lot of wealth has been created. So, there are a lot of entrenched interests.

So, in a way, the tough measure of anti-corruption, why it's so supported by the public is because people realize unless there's a fundamental governance reform, the country will get into deep trouble.

And I think if you look at the team he has, at least on the economic front, I think he has the A team in China -- and certainly you have Prime Minister Li. And equally important, you know, Hank knows  all of them and the governor -- central bank governor, the minister of finance and the -- what they call Council of Economic Advisors. These are the people, you know, I have been lucky to know; they are fundamentally market-based thinker.

But they are also not what I would call ideology-driven; they want to know in their next few years what are the decisive actions they can take to really stop this very rapid-growing moving train to really, you know, move the direction.

And if you are in China, Madeleine, you must have heard there's a phrase called the 'xin chang tai' -- new norm. Everyone talking about new norm -- what does that mean?

New norm from the economics angle really are very simple. GDP is no longer the target. If you read the newspaper, Shanghai government for the first time no longer set any GDP target.

Number two is, no one's going to be rewarded if you are keep doing business not serving the people, i.e., you are not really serving -- government has to be a service provider, not running a company.

And when you think of all the corruptions, it's mainly because there's too much power in the government, in the -- you know, in the mayor, in the provincial hands. They can go to the bank, they can do all this -- have a lot of ease -- very easy to make money. And they are also very focused on make sure the overcapacity, a massive amount of literally -- I will say mid-level products -- has to stop because it's creating huge risks for the financial system.

So, you know, you can do this in the very, you know, Wall Street type -- Wall Street Journal type of description. But there's one document I want to draw your attention -- I think it's critical to demonstrate the leadership determination. This is called the 'zhongyang yihao wenjian' -- the 43rd document of the State Council. It's called Strengthening the -- and the -- "Strengthening the Regulation of Local Government Debt."

This is a fundamental piece of document. I think will fundamentally change the -- how China can run between -- among different level of government, between the government and the business. Just give you a quick snapshot on this -- I'd really encourage you to -- to look at this.

And by the way, the -- the genesis of this document basically is saying, look, the local government has been financing this GDP, you know, through shadow banking, you -- you know, these wealth management products, and through variety of local government financing vehicles. Even the Chinese government at center they even do not know how many. Based on the current numbers, about more than 7,000 debt-issuing entities borrowing.

And they use this money to finance two things. One is really a -- infrastructure. Every city want to build the tallest building; everyone, you know, doing something. And another thing is trying to create a business because that's creating tax for them.

And because the government take away so much liquidity from the system, that has created a huge problem for private sector to develop. And the central government realized, Lou Jiwei in particular, and certainly the whole government realized this is not sustainable.

What they did is basically they say, OK, by the end of December 31st, 2014, we're going to call a  staff of any local government ability to raise debt. We're going to look at exactly what we have, basically -- about how much -- about 18 trillion RMB right now -- estimate; and that's more than $2.5 trillion, all at the local government level, spread at about more than seven (inaudible), you know, different variety of things.

Basically, they are going to say from now on, we're going to look at all this debt liability. If the debt liability is for the public, i.e., infrastructure, the central government will take over. From now on, local government cannot issue any debt unless you go to the People's Congress of your local community.

So, you open up a transparency and the local government right now -- they realize there's no more money -- free money anymore. And when you have your debt issued with approval, local People's Congress, what do you get? You're going to -- people are going to check what are -- what are you doing -- where the money has gone; what's your liability?

So, fundamentally, this has opened up the transparency of government at a county, at a city and a provincial level. This is, in my view, fundamental change in China. And in my view, it's going to really define the border between the government and market.

And most interesting thing is going forward, the governments -- you can still issue debt, by the way. But what you need to do is you have to say what is that for. Is building public, you know, public goods, or you are doing for your recurrent expenditure? Not that it would be allowed to issue for financing your so-called recurrent expenditure.

So, there are many, many fundamental change, only a -- you know, not really (inaudible) in Wall Street Journal, in my view. I think he's focused on the right thing. I think, you know, I feel if he continues this path, the leadership will be able to move the China into the right direction.

ECONOMY: Thank you.

So, one thing that I think we've sort of touched on but haven't really addressed, and I -- I'd like to get anybody's opinion on this before we transition to discussion of the U.S.-China bilateral relationship more explicitly -- is whether the political tightening that is clearly underway in China today, sort of the push through on the ideological front, through think tanks in universities and sort of the entire political system -- whether that is -- contradicts Xi Jinping's economic objectives -- his reform objectives, whether it's a sort of short-term strategy designed to assist in achieving those objectives -- what do you see as the sort of linkage between what's happening in the political sphere and the economic sphere? Any takers?

ALBRIGHT: Well, I would say that there is a result which I mentioned earlier, which is if you want to have a consumer society, if you want to figure out how to deal with the local places, to what extent can you really maintain centralized control?

And an awful lot of what he is doing is trying to kind of restore an ideology and a sense of purpose and the -- the whole kind of drive of who is China that he, in fact, has created a certain contradiction that he's going to have to deal with.

And one of the issues in China is obviously also the division between urban and rural, Communist or not, between rich and poor. And so, there are certain, I think, various things that we feel in other societies that are going to have to be dealt with in China and there is truly a problem between overly centralized government and a -- a one party system and the forces of the market. And at some point, they're going to have to face that also.

HUNTSMAN: I think the bottom line for Xi and the regime is you cannot get -- and Dave Shambaugh's written about this not so long ago -- you can't get to the next level of economic development without fundamental legal and political reform, period, because you cannot have a society based on innovation or creativity or rule of law or business adjudication; it's all ad hoc-ery and at the whims of bureaucrats. So, and -- and I think Xi Jinping knows it.

So, let's break it into phases. You've got -- you've got the first phase which is consolidation of power, which is what he's doing. And when you're consolidating your power, I don't care where -- where you are as a leader, I -- I never did this as governor, though...


When -- when you consolidate power, you know, you -- you cut off dissenting voices and opinions. And so, the real test will be as we kind of emerge beyond just the consolidation of power anti-corruption campaign into the 19th party Congress, are we seeing more of the green shoots as it relates to rule of law, maybe even talk of civil society?

I know that's way premature but you know, I'm an optimist or I wouldn't be in this business. I can't help but think that that ultimately is where the population will take this over time.

So, and I think Xi knows that without the economic reforms bolstered by certain rule of law and political reforms, China cannot create the economy necessary -- necessary to provide its long-term stability, which is his ultimate goal.

COTE: And I -- I would agree on the -- I think a lot of the things -- the changes that he's making could be very good for the economy because to get to the next level, I would agree -- you have to build trust in your institutions. People have to be able to trust those institutions and we can all complain about them and some of the decisions courts might make, at the same time.

But at the end of the day, if you've got some faith, some trust that people are trying to do the right thing in government, then that ends up being a good thing for development.

Anybody who's spent any time in China -- I always found it kind of interesting when even some people who might have spent some time there -- they would describe it as a totalitarian system. So, tend to think of it as a monarchy or a dictatorship and one guy decides what happens and then everybody goes and does it.

One of the problems they're running into is the fact that the provinces don't necessarily listen to the central command. And I always say if you want to get a sense for how well a people actually listen to the government, get a police escort in Beijing. And as you start driving down the street trying to go from the airport into the city, no one listens to the cops.


They're yelling at them through the megaphone and they're looking in their window, in their mirror...

HUNTSMAN: Kind of like Washington.

COTE: ...and they're not moving because they want to get their first. And you say, OK, other totalitarian systems I visited, people listen to the cops.


So, it's not exactly the way we describe it. So, I can understand the need to consolidate some of the power in order to be able to get things done.

The thing I really worry about, getting back to the trust in institutions, is, can he transition. At some point, when the time is done, can he pass it on to somebody else who can continue the good work and recognize where it is they're trying to go building faith in their institutions? But overall, right now I think it's a positive.

ECONOMY: OK, great.

So, I have a whole set of sort of U.S.-China issue-specific questions like cybersecurity and climate change but we have reached a moment where I think as chair, I really ought to open the discussion to all of you. And we have such an amazing audience that I'm sure there are going to be a lot of really terrific questions.

So, let me now open the floor for questions from all of you. We have microphones so please wait for a microphone to get to you. Please identify yourself before you ask your question and also just keep your questions and comments relatively concise.

Great, and I already see some hands. Why don't we start right here?

QUESTION: Thank you. I'm Dan Yergin.

Governor Huntsman, you diplomatically refer to the risk of some tumult in U.S.-Chinese relations between now and 2016. I wonder if you all would like to riff on what that tumult will be, and in particular, whether the South China Sea controversies could be something that could inadvertently derail the relationship.

HUNTSMAN: Thanks, Dan, for not asking a question on energy.


You know, having stood on the stage during the last election cycle, the narrative of the U.S.-China relationship goes south real fast because it's -- it's an easy villain for people to identify, to caricature and to threaten.

So, at a time when we need a discussion about a vision that bolsters the U.S. generally -- the most important relationship in the world, the one that gives context to our long-term aspirations together -- I fear that we're going to get a replay of what we had last time, which is opportunistic discourse on not what you're going to do with China, but what you're going to do to China.

And so, this does a couple of things. It sets us back in terms of the progress we -- we need to be making together, not on the issues where we disagree, the -- there are plenty of those and we have time to talk about -- but issues where we do agree and how we can help shape the world together because increasingly, it must happen between the two of us as participants. So -- so, it's lost opportunity on one side.

Second, I think when you have the -- the -- the totality of the candidates who begin to just take the opportunity, there then is the punishment period on the part of the Chinese when you come up on the other side. So, whoever wins the election is put kind of in the penalty box, if you will. Six month cooling off period -- is it a year cooling off period? You know what I'm talking about.


In -- in -- in which -- in which the work that really needs to get done shaped by a vision discussed with the American people during a campaign, which is what campaigns are supposed to be about, doesn't happen. So, it's lost opportunity for the next three years.

And I just wonder about the patience on the other side where Xi Jinping is consolidating power, he wants to strike some important agreements with the United States that will be part of his legacy. And if we're not in the game to play for the long term, which has always been a tough thing for the United States, he'll go someplace else. And then we're really behind in the game -- and that's what I fear could result from the missed opportunity of 2016.

ECONOMY: OK, I think you had your hand up next right there, in the middle?

QUESTION: Thank you. Don Clarke, GW Law School.

I have a question for Dr. Cai. So, you mentioned that Xi Jinping's goal is to replace the standard of assessment for government officials. Instead of, you know, how well do you produce stuff, you know, how much GDP in your district, et cetera, it's going to be how well you serve the people.

So, I mean, this raises the question of how you kind of operationalize that standard. You know, if -- the best people to judge whether you're serving the people, you know, are of course the people. But, you know, democratic accountability downward is really off the table.

So, China is sort of stuck with the current system, which is kind of bureaucratic ability -- sorry, accountability upward. And some things are easy to measure when you're doing that and some things are hard to measure. So, things like GDP -- that's very easy to measure and it's not easy to, you know, not -- relatively not easy to, you know, tweak through corruption.

But if you're doing -- if you're trying to measure serving the people, I mean, that's very hard to measure when you're trying to do it through numbers that are reported to your superior. So, how exactly could the standard really be operationalized?

CAI: It will be hard. And you talk about the risk, right? It's -- it's all the execution risk, right, not being -- look at the leadership, they talk about right things, they analyze the whole issues. I mean, not only on the GDP and the what to do with -- we talk about intellectual property. You know, it's amazing that they are talking about unless we protect intellectual property, no one's going to innovate; all these things.

I think there will be a, you know, from distance, look at -- China's truly a authoritarian  -- whatever we describe it. But there enough channel -- it's not on political issue in terms of challenging the party -- one party rule. But on a lot of other things, you do have a pretty good channel to say, hey, the traffic is bad; the water pollution -- the river runs black and the schools are not doing well.

So, I think -- let's start from basic health care. There -- the Chinese have spent more than 3 trillion RMB to reform the health care system; it's really not working out. The World Bank tried to be helpful. So, there are a lot of those things -- basic needs.

The middle class, right, now, they're looking for a better quality of service. So, this is not as hard as if, you know, we have to really go a long way to reflect because, you know, if you go to any Chinese hospital in any big city or small city, it's not a very comfortable experience. This has to be changed.

So, I would say there are a lot of visible program -- visible area -- they have to do it. And there are a lot of other areas not that easy to -- to discern. But, you know, let's deal with the low-hanging fruit first.

So, I think -- I'm not I'll say pessimistic as if there's no channel feeding up what's going on -- if progress has been made.

By the way, you know, one -- one of the biggest issues -- 250 million migrant workers -- they live in the city. Their children cannot go to school and this is a big problem. Really, is very, very -- you know, both make the people who live in the city and not in the city very uncomfortable.

So, these are the issues I think -- if you talk about many other issue we need to deal with, this probably the first thing -- basic needs of -- of the people.


Yes? And if you could stand, please, when you ask your question? Oh, it's David.

QUESTION: David Sandalow, Columbia University.

I'll ask the climate energy question. So, could you place the climate agreement in the context of the overall U.S.-China relationship? What does it reflect about the relationship, what are the implications for the relationship and what are the opportunities for U.S. business?

ECONOMY: Do you want to...

ALBRIGHT: Well, let me -- first of all, I do think that it was a -- a truly important agreement between two individuals, frankly, very important to each of them for their agenda.

I think knowing, however, how complicated the whole climate story is and where it's going in terms of the international -- the Paris meetings and all the various parts -- there's the bilateral and then the multilateral part of this that will be complicated -- but I think it's a big step forward. Having been in negotiations previously where we couldn't get anywhere, I think that it is a big step forward.

I think the issue generally, though, on issues -- when issues are complicated between two countries, you say they're multifaceted; this is definitely multifaceted relationship. And -- and I do think that one plays off of another.

There will be questions to do with energy and there will be questions to do with the South China Sea. And certainly those are the kinds of issues that will come up during a campaign.

And, I do think that one of the other issues that's out there in terms of domestic politics is that one of the ways that you globalize a population is by letting loose the whole concept of nationalism and that is partially what is going on in terms of the Chinese have been put upon by everybody, including mostly the Japanese.

But -- but basically, that nationalism is out there and will be brought forward if, in fact, in some of these negotiations it is evident that China has had to make concessions on issues. So, I think that that's where the domestic and foreign come together.

I do think from our perspective the climate change is a big deal, but it is the first step in a complex, multifaceted relationship.

ECONOMY: Do you want to say something? Yeah.

COTE: If I could, I -- for the same reasons I mentioned before, I liked the agreement because I thought it was a -- a peaceful commercial way to develop a -- a stronger relationship between our two countries.

I also liked it because I thought there was a recognition that China still needed to develop and as they developed, emissions would grow, but that they found a way to say "we'll peak in 2030" and then they'll start to go down. So, I thought that was a nice indication that the two countries could work together.

The potential for U.S. companies is quite good because we have a lot of technologies that could be helpful to them. If you take a look at the sulfur content of their fuel, for example, removing all that sulfur before they put it into their cars; turbochargers that can help them on miles per gallon; the new kinds of refrigerants that you can use that have GWP below 1.0 -- there's a lot of stuff that's developed in the West.

The smart cities development -- they've got, say, another 300 million people that need to move from the farms to the city. They're going to have a chance to develop cities that make a lot more sense than the ones that we all developed in the West over centuries. And U.S. technology can be quite important for them in thinking through how do you make a smart city work. So, I think there's a lot of play and opportunity for U.S. companies here.

ECONOMY: Can I just ask -- do you see those opportunities already for the U.S. environmental technologies? I remember a few years back, the market seemed to be largely one where the Chinese were saying, this is an area where we ourselves can make a lot of progress, we're not necessarily interested in opening up so widely to U.S. companies.

COTE: Yeah, I would have to put it on a continuum and say it's shifted a bit. But there's still, for example, low sulfur fuel technology -- something we have today but they're trying strongly to develop it internally. The problem is it never goes quite as fast because it's tougher than they -- than they think.

So, yes, that's still a problem, but I think you're going to start to see that shifting. And we see it in smart city development, for example, where they -- they really want a lot of perspective from the -- from the U.S.

HUNTSMAN: I -- I think it's a really big deal, David. We've worked on these issues before, we know the -- the complexity of it.

I was surprised, frankly -- although, when you look at it closely, you know, I can't help but think, you know, that what the Chinese like to say, you know, they never forget anything and we Americans never remember anything...


So -- so, who's going to be around in 2030?


I don't know. And -- and how do we work it out based on our domestic politics in America where Hank is one of the few Republicans I know who can say the words climate change without stuff being thrown at him.


I don't know how we move the issue through our system such that we have at least a policy response, regardless of who the next president is. It's important; the implications are enormous.

Peak levels by 2030 and effectively a renewable portfolio standard that goes with that, I think -- I think China inexorably is moving there, not because they think it's -- it's good policy as much as the political system is forcing them to -- the people of the country are forcing them in that direction because of the poor air quality. And so, we'll see how that goes.

CAI: OK, can I just comment on the...

ECONOMY: OK, quickly, quickly.

CAI: Yeah, there are two area -- I think one's a nuclear -- they talk about a view -- nuclear reactor. China has a plan to build fifty, five-zero, nuclear reactors. And they view that as a key part of reducing emission.

Another very important area is agriculture -- smart agriculture, you  -- has a lot of things to offer. You know, the one example is Smithfield -- right now I think produce a lot more pork in this country and export that to China. This has really spread into many other area in agriculture.

ECONOMY: Thank you.

OK, back there -- you've had your hand up for a bit.

QUESTION: Thank you. Richard Downie from Delphi Strategic Consulting. Thank you for a great discussion; very interesting.

A couple of you have obliquely mentioned cybersecurity and I'll touch on it because I think cybersecurity is really one of those issues that stresses this topic of competition versus cooperation.

I mean, the Chinese have tremendous capabilities in cyber and we've seen their ability to hack into our companies and they have made -- it's intellectual property that's very similar to some of ours. You know, it's -- cybersecurity, it's very difficult to -- to deter in this area. But, you know, intellectual property is -- is an issue.

I wonder -- are any of you optimistic that there is a framework that we can be cooperative in this -- this area, versus competition? Thank you.

ECONOMY: Let me ask you, Governor Huntsman, because...

HUNTSMAN: Yeah, I -- I would agree that it's -- it's an enormously important issue between our two countries. It's -- it's right now bad for both sides.

So, I -- we did a study, I co-chaired it with Admiral Denny Blair on particularly the intellectual property theft side, which is one that I think we ought to think more about. You have the espionage side -- that's going to have to be worked through channels that can draw red lines around whatever.

But the theft of intellectual property, which is robbing us of jobs, ideas and innovation, is a real deal. And we assess the level of injury to the United States to be about 300 billion bucks a year, which is a huge deal.

So, it's bad for China because, you know, why does China do -- why does anybody do it? Because they're low-hanging opportunities. You can take them; there are no rules of the road, there's no real punishment and you can advance your technology base.

The bad part of that is China's advancing some of their technology base without the ecosystem or the infrastructure that is needed to really give sustenance to those technologies. We built them here, we developed them, we nurtured them in research universities, we take them to the marketplace.

By China taking them, they don't have the support system that would really allow them to -- to be viable over time, even if there were equal rules of the road. So, that's bad for China. It's bad for us just because of the innovation that is stolen.

So, I'd say what do we do about it? It's a hard issue to talk about because we have no real answers. It's the Wild West still.

I look at the five PLA officers who were charged in May of last year for ripping off secrets from U.S. Steel, Westinghouse -- maybe there were one or two other companies. What's come of it? Nothing so far as I can tell. And I remember in 2006 when, you know, unit 61398 was stood up in Pudong right about when the indigenous innovation drive started.

And so, there -- it's a real issue. And I fear that the only answer long term -- and I wish we had something short term -- is the new generation of entrepreneurs and innovators putting pressure on their own government because it begins to affect their ability to globalize and to take a good name into the marketplace.

And, you know, so I lived in Taiwan in 1987, 1988 with the Hsinchu Industrial Park when the DRAMs were being built. And they turned pretty quickly in terms of their own respect for intellectual property rights because they had an indigenous movement that did so.

Finally, I'll just -- I'll just offer this -- we recommended in our report that you need leverage in the game to get anybody's attention on this. So, why not look at access to the marketplace, the U.S. marketplace, and make intellectual property theft through cyber means or any other means part of the SEC review process if you want to take a company public, part of the CFIUS review process, and part of financial transactions much like we do when we sanction banks who launder money out of, say -- say, North Korea.

So, what has the administration not done? Well, nobody's looked real seriously about how you respond based on market leverage. And then centralizing somebody who actually owns the issue within the administration, which -- and unless you do that, put in the hands of the national security advisor, I don't know how you elevate it high enough to where it really begins to take effect.


COTE: As a recipient of numerous attacks from...


All kinds of countries, I can say it's the -- to use an old Washington phrase, I guess, it's the known unknown that has always scared me the most...


Because you -- no matter how much you tried to protect yourself, you can't be sure that there isn't something already happening.

The issue that we run into is it's -- your border's no longer defined by a 200 mile limit. So, the -- the -- if all of the sudden a hundred people of another nationality landed on Long Island, we'd know what to do. When they sit in another country attacking with their computer, we don't know what to do.

And from my perspective, there needs to be a treaty of some kind. We need to evolve to the point where we can -- and we can figure out where an attack is coming from despite the point about servers attacking -- you know, everybody can figure out where it's coming from. We need some kind of treaty between countries to say that you -- they're not going to do this.

And I agree on the whole point of innovation. If you're going to have an innovation culture, you can't do it by stealing all the time. It doesn't -- it can help you get jumpstarted; remember, we did the same with the U.K.


But at some point, you have to stop and do it on your own if you're really going to evolve your system.

ECONOMY: Great. Yes?

QUESTION: (OFF-MIKE) Joanne Leedom-Ackerman from PEN International.

ECONOMY: Use the microphone -- sorry.

QUESTION: Joanne Leedom-Ackerman from PEN International.

I'll bring up the big word -- human rights and freedom of expression. Obviously a society doesn't develop if it cannot have free expression, dissent, et cetera. What do you think the most productive way is to go forward as America in our relationships with China with these issues without, you know, hounding in a way that's unproductive, but I don't think it's an issue that can be ignored?

ALBRIGHT: Well, I -- I think it's absolutely not an issue that can be ignored. And the bottom line is -- is that when you do have negotiations, if you don't bring it up, then you are not doing your job as an American representative.

And so, I think we do have to raise it; we have to always make clear -- and some of it does have to do with cyber, frankly, in terms of under what circumstances do they want all the -- the codes on people that are in banks; that's one of the stories that are coming up now. And I think that we need to link those issues. And I think it's a mistake if we decide that in this multifaceted relationship, that we will kind of be silent about it.

And -- and I think one of the issues here, and it goes a little bit to the question about what happens at the bottom of the pyramid -- because people are trying to express themselves with the problems that are there on water and food. And if there's some reason why we had these meetings with the international department of the party, I think they were trying to figure out how we relieve pressure at the bottom of the pyramid in terms of being able to have people express their views.

And so, I think we have to present the issue of the capability of -- and it has to do with innovation, et cetera, that a society is much better off if it, in fact, allows some expression of views. So, we have to present it not just as something that we care about but that ultimately that helps their society.

ECONOMY: Terrific. Yes?

QUESTION: Thank you very much. Teresa Barger from Cartica Capital.

We live in an era where it's very tempting to have competitive devaluations but we have not seen the Chinese engage in devaluing the renminbi when everyone else is getting devalued all around them.

And there's a debate raging among the pundits -- some say, oh, well they are going to once they get really terrified when their exports fall off. And there's another school of thought that says, this is a great opportunity for the Chinese to bring everybody up the value chain. And, in fact, a more expensive exchange rate is better for them to advance that agenda.

And so, I'm just wondering what the -- the -- since there are two views, what the views of the panel are.

ECONOMY: Dr. Cai, you want to take it?

CAI: Yeah, I think I agree with you. I think they are looking at this from much more automatic economy reform perspective. And the -- yes, there have been a lot of export in the past and the truth is they realize it's not worth it. They basically pollute the environment, pollute the water -- exports for very marginal kind of a gain.

And another very important consideration is really the RMB internationalization. If you want to be a credible currency, you better make sure you -- you have a market-driven kind of exchange rate or interest rate mechanism.

So, I feel, you know, the second thought is much more close to the decisionmakers' mind. When you look at what they are doing, it's very much focused on domestic reform to move up the value chain. So, I think the chance of competitive devaluation conducted by the central bank is very, very small.

ECONOMY: Great. Yes, right there, in the center?

QUESTION: Thanks, hi. Marty Weiss with the Congressional Research Service.

My question is about the bilateral relationship in the context of the IMF, the World Bank and the multilaterals. As, you know, quota reform at the IMF to increase China's share isn't going anywhere, China at the same time is playing a much more sort of role establishing the Asian -- the Infrastructure Investment Bank, and other type of entities, as well.

What should the right U.S. response be? How should the U.S. balance its interest in protecting our safeguards, our priorities? The -- the World Bank and the Asian Development Bank is, you know, in their role while also trying to shape China's choices as, you know, the inevitable occurs -- as they create these types -- these new entities?

ECONOMY: Governor Huntsman, you want to take that?

HUNTSMAN: Oh, I think -- I think China is very adverse to U.S.-centric institutions. I think they'd like to build some of their own. I think the Infrastructure Bank is the latest example -- maybe even a trial balloon in trying to do just that, to see how the region would respond. And of course Korea, Japan, and Australia didn't respond favorably.

I -- I think we took the wrong approach on that. I think instead of threatening, trying to create two separate worlds, why not shape it? Why not help to shape a common destiny? I think that was a fundamental mistake.

But we'll see where institution building goes. I think we're just on the front end of some other attempts by -- by China to create regional institutions, maybe headed toward global institutions, that help to balance America's role in the world. I think fundamentally, that's -- that's what they seek.

CAI: I have a -- because I work in the World Bank?



CAI: I think China want to -- to play ball. And, you know, this -- this -- the Chinese, when you think about it, they've gone through phases. I think the most recent indication is that they feel, you know, certainly they can do another bank. But they cannot substitute the quote-unquote reputation of the World Bank.

But I would say just one thing I found always kind of I will say frustrating -- and every time they  talk about China, they're always, you know, we lecture them  -- our safeguard.

My own view is working in the World Bank, I think we -- in the World Bank, we can do so much more for emerging market. If we just relax in terms of how we solve problem rather than insisting certain things, sometimes really in my view is not practical.

That's why for the longest time I feel -- you know, we talk about Ebola. I just with Dr. Kim went to Ebola countries. I -- is a -- you know, they're a lot of work to do. The truth is the World Bank -- we have been operating in many countries for so long; we need to see faster buildup on infrastructure. We need to do a lot of things.

I think I agree with the ambassador here. If we find a way to work with the Chinese and they have so much more capital to deploy, they're looking for some kind of a partnership because after all this trial -- if three years ago, if you said let's be partners, I don't think the Chinese -- hey, we can do it on our own. But right now, they realize it's not that fun; it's very difficult to do things on their own.

So, I think there's opportunity here. I'm not too sure -- call that mistake  -- you know, the partnership can be built, even starting from now. So, I feel, you know, at least from the World Bank perspective, we're have been a lot of positive inclination trying to be a partner with the new bank if that bank ever going to be in operation.

ECONOMY: Thanks. OK, right here, yeah.

QUESTION: Thank you. Jack Goldstone, Woodrow Wilson Center in George Mason University.

I have a question about the university sector. They just announced a crackdown on deviant thinking for universities. Now, my question is does the Chinese leadership really understand what's necessary for a knowledge economy and innovation?

They have set targets for patents and generated thousands of incremental, insignificant patents. They've set targets for faculty to publish in journals and unleashed a flood of plagiarism and massive duplication of submissions to journals. They've encouraged faculty to give lectures; they've turned them into junkets.

So, they understand setting targets. They don't seem to me to understand that a knowledge economy really requires freedom of expression, freedom of inquiry and open thought. Do you think they get that and are just sitting on it or do they really have to work to understand this?


HUNTSMAN: Dr. Cai...


COTE: If we eliminate deviant...

HUNTSMAN: That's tailor-made for you.

CAI: Here -- here -- here is the issue, right? At the beginning, I mentioned it -- the government for the last thirty years -- the government believes it can do wonders. Anything government want to do can be achieved. But this is one area that's not going to be that easy.

I would say there's a -- more and more recognition. Right now, you know, the university is almost like a bureaucracy right now, as exactly what you said.

So, while this can continue and there are a lot of new interesting development, I don't know if you -- I always follow this latest development.

Jack Ma just set up a new university. Who -- who is on his board? The (inaudible) -- Hank would know -- Dr. Chen, my good friend; he's the director -- I mean the dean of the school of economic management in the Beijing University. There's some U.S.-educated, I'll say leaders -- real education leaders, and they are getting on the board.

So, there -- I think -- look, it's -- it's a massive system; 7 million graduates each year. I mean, it's -- it's not going to be easy. But you start to see some interesting examples.

I think over time, I hope we will get to, you know, what's the bureaucratization -- whatever they call it -- that's the term they call it right now, yeah.

ALBRIGHT: There's one other side to this that I think is worth looking at. There are American universities that do not wish to deal with Chinese universities because of what you're talking about.

And I think that what happens then when there aren't exchange programs is we are basically undercutting our own issues by not allowing the people-to-people exchanges and having the kind of issues that students can talk about.

And so, that -- I definitely think there's a problem in terms of what they're doing. But I hope that it does mean that those that I teach -- those of us that are involved in education and people-to-people and student exchanges -- don't decide we don't want anything to do with them.

COTE: I'd say at the same time -- I have to add this -- given I guess that I'm an honorary professor at Beihang University...


And just outside of Beijing. And I -- what I find absolutely fascinating about their commitment to education -- so, not that the deviant thinking is such a great thing to I guess encourage or discourage; I wonder how many kids we'd have left in school if we took that out.


But at the end of the day, they still have this commitment to math and science education that is unbelievably impressive. And when I go there to talk to them, which is about once a year, everything's in English. So, all the kids are taught in English, all the math and science classes are in English; they're learning everything in English from the first day they get there and they have thousands of kids enrolled in this aeronautical university.

How many kids do you think we'd get in the U.S. if we said we're going to have an aeronautical university and you're going to learn everything in Mandarin? How many kids would go? Yet they have thousands who want to do this.

And I wouldn't lose sight of what their university system can produce.

HUNTSMAN: I would just say I think one of their longer-term aspirations is to create a research university. I think they envy our research university model.

Now, why do I say that? For all kinds of reasons, not least of all the -- the cyber intrusions into certain research universities here that are focused on translational research. They don't do it; we do, better than anybody in the world. And I think that's where they'd like to be in the future.

They'd love to incubate, nurture, innovate and translate it into the marketplace. I think that's something they -- they really envy about our system. And I do believe that on the educational side, they will move more and more in that direction along with other educational innovations that I think are going to be quite profound in the country.

COTE: I -- I agree with you.

CAI: And if I may add just one point here...



CAI: Very interesting. I...

ECONOMY: We're going to lose...

CAI: In the past, I never -- you know, always -- can China innovate. If you go to Shenzhen nowadays, it's amazing. I mean, when I was a banker, I always, oh, really good there -- any -- you know, (inaudible). This guy was educated in China, right? We called Beijing a German institute -- 5,000 young scientists.

I think China is on its way to become a leader in that -- bioengineering, bioscience. There are massive amounts of innovation, I -- technology; not necessarily in the other area, but at least in technology, I am very hopeful. I mean, I'm positively surprised.

HUNTSMAN: But it's certainly appropriate that Jack Ma, a friend...


HUNTSMAN: ...who failed the entry exam three times to get into college is leading the efforts toward reform. I think that's awesome.


ECONOMY: OK, this is unfortunately going to have to be our last question. Go ahead, sir.

QUESTION: Would you say a few words about the Russia-China entente and whether -- what -- how China views that? Do they see it as an opportunity to make Russia into a vassal state? Do they see Russia as a...


...as a -- as a -- as a tributary? Do they see it as an equal? I don't think so. But I'd love to have some comments on that. Thank you.

ALBRIGHT: Well, I think they are finding it very useful and the Russians are certainly going along with it. You have the expert sitting next to you in terms of building pipelines and trying to figure out how to deal with China's energy issues.

I do think that there is a reconstitution terms -- kind of a who's in power where, who are the global powers. And we have seen periods of history where the Chinese-Russian relationship has been close and others where they have gone opposite ways.

But I think it is a testing period and I imagine that at the moment, frankly, China is in a much stronger position in making deals than the Russians are, and trying to figure out what they can get out of it and how important it is to them. I think it's fascinating to watch and I bet you that they also talk about how we play in that game.

ECONOMY: And how do you think they talk about that -- about how...


ALBRIGHT: Well, I -- I think that they can often find that they have more in common with each other than with us, certainly in terms of length of borders and various issues. But I also think that the Chinese are smart enough to know that their most important relationship is with us, just as I believe that our most important relationship in the 21st century is with them.

ECONOMY: OK, I think that's an excellent note on which to end our discussion this evening. Let me please ask all of you to join me in thanking our wonderful panelists.


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