Capitalism, Chinese Style I
China has traditionally, I think, looked up to the United States, particularly as it's begun to marketize and to allow its economy to open up. And they've viewed America as sort of the titan of the world, as most countries have also done.
So I think it's with some surprise that they saw this titanic country and the world's largest economy just kind of go into implosion. And it's taken a lot of adjustment for them, as it has for us, to kind of adjust to the fact that this country, which for so many years they were against and that they admired, that they loved, they hated, but that was always hugely important and seemingly implacable to them, that it could have been so fallible.
Orville Schell is the Arthur Ross Director of the Center on U.S.-China Relations at the Asia Society in New York. He is a former professor and Dean at the University of California, Berkeley's Graduate School of Journalism.
Schell is the author of fourteen books, nine of them about China, and a contributor to numerous edited volumes. His most recent books are, Virtual Tibet, The China Reader: The Reform Years, and Mandate of Heaven: The Legacy of Tiananmen Square and the Next Generation of China's Leaders. He is also a contributor to such magazines as The New Yorker, The Atlantic, The New York Times Magazine, The Nation, The Los Angeles Times Magazine, Granta, Wired, Newsweek, Mother Jones, The China Quarterly, and The New York Review of Books.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay. We're in Bretton Woods, New Hampshire, the birthplace of the International Monetary Fund, at the INET conference--hundreds of economists brought together to find a solution or debate solutions to the economic crisis. There's barely a panel or a sentence in this conference that doesn't mention the word China.
Now joining us is one of America's foremost China experts, Orville Schell. Orville's the Arthur Ross director of the Center on US-China Relations at the Asia Society in New York. He's a former professor and dean at the University of California Berkeley School of Journalism. Thanks for joining us.
So at the opening panel, George Soros starts by saying: I'm baffled. And he specifically says he's baffled that more corrective action hasn't been taken dealing with the causes of the financial meltdown, more or less the regulation of Wall Street. He says that his framework of looking at the world would have suggested after such a meltdown there would have been a push to take real action. So when China looks at the United States and sees it seem so little has been done to deal with some of the underlying issues, and given how many American T-bills China owns, how do they look at all this?
ORVILLE SCHELL, DIRECTOR, CENTER ON US-CHINA RELATIONS: Well, China has traditionally, I think, looked up to the United States, particularly as it's begun to marketize and to allow its economy to open up. And they've viewed America as sort of the titan of the world, as most countries have also done. So I think it's with some surprise that they saw this titanic country and the world's largest economy just kind of go into implosion. And it's taken a lot of adjustment for them, as it has for us, to kind of adjust to the fact that this country, which for so many years they were against and that they admired, that they loved, they hated, but that was always hugely important and seemingly implacable to them, that it could have been so fallible.
JAY: Now, China kept its cool, and in fact kept buying T-bills and kept sending signals that, well, we have faith in the US economy and it will all work out. They really had no choice but to say those things. But do you get a sense--what do they really think about it? There must have been some shaking of their confidence in where all this is leading.SCHELL: Well, I think the Chinese leadership was very rattled to find this sort of pillar of the whole financial architecture of the global economic system so unstable. And it's true that they've invested many hundreds of billions of dollars in Treasury bills and other forms of American securities. And they will continue to do so not because they aren't bothered by what they see, by the fragility of our own system, but because there's no other place for them to put it.JAY: Where else do they put all the capital?SCHELL: [incompr.] they're collecting huge amounts of foreign exchange, and they've got to park it someplace. And in a certain sense there is a kind of a symbiotic relationship that's almost like some drunk and their spouse, which is they lend to us, we borrow, we spend in a profligate manner, but we buy their stuff, they make the money, get the foreign currency, and give it back to us so that we can go deeper in debt to buy from them. That's what's been going on until the financial crisis. Now that's got to change. China recognizes it, and I think we do, too. They can't just be an export economy. They have to start generating a greater level of consumption within China. But there the Chinese run into a structural problem of their own, that they have a very high savings rate, which means people don't consume as much as they could. Why? Because they don't have a welfare system and a health care system that provides for people in their old age, so people lock up their money. So it's only to say--and one of the reasons why China comes up every other sentence here in Bretton Woods and everyplace else is because the US and China are insolubly locked together now with one set of sort of economic internal organs.JAY: Now, Soros's point about being baffled was that he was baffled that there wasn't more serious regulatory action taken to control Wall Street. Given how much at stake China has in all this, they must be more than baffled. Are they not concerned that the underlying reasons have not been addressed, this could all happen again, and they own so much American debt that--or do they just think this economy's just too big, that this is an American economy too big to fail?SCHELL: Well, here I think the Chinese leadership and George Soros are in accordance, strangely. They both believe the United States has been very reckless in escaping and refusing to sort of regulate itself in a way that would make the system safer for everybody. And, after all, it isn't just the Americans that suffer when the American financial system is shaken; it's the whole world, China included. So China looks at the United States with a good deal of trepidation. But it isn't like there are an awful lot of alternatives for them to go to. First of all, to buy T-bills, which are safe, I mean, unless the US defaults, which I think it--very small likelihood of that. Second of all, we're in this whole new world now where China's piling up capital that wants to go someplace, and it doesn't want just these low-yield Treasury bills or other kinds of securities. It wants mergers and acquisitions. It wants high-yield investments. And what better place to invest than the US? But, of course, here we run into a certain ambivalence.JAY: 'Cause what you're talking about is starting to buy stuff rather than to buy T-bills. In other words, you buy mines and you buy factories, and perhaps you buy banks.SCHELL: They want brand name, big league companies. They want to run with the big guys. And China's had a very difficult time getting any company to be sort of brand-known on a global scale. I mean, if I ask you how many Chinese companies do you know the names of, you might think of Lenovo [incompr.] IBM, or you might think of parts of IBM, or /haIr/, the, you know, whiteware, white goods company.JAY: Why would they--why don't they buy Wal-Mart, given that Wal-Mart is essentially--.SCHELL: I don't think Wal-Mart is for sale, but they might like to. But can you imagine the reaction in America? That would be like, you know, buying the Queen of England. These are very symbolic things that--. And America's not adjusted well at all at this point to the idea that someone else might start owning us, just the way we--.JAY: But there's no legal way to stop it, really, is there?SCHELL: No. Legally, one would have to say America is an open market. We believe in allowing foreign direct investment from around the world. It's a great virtue of this country, and also a great strength. However, we have certain neuralgia against certain kinds of countries, like sometimes Arabs, and China, because it's run by the Chinese Communist Party. So what happens is they'll want to buy a company, and there is a review process, but just for national security purposes. It's seldom used. But people just start talking. Congressmen start writing letters, investment bank gets scared, the Chinese investments don't want to have their name dragged through the mud, and poof, the deal evaporates. That's been the pattern--not a healthy one, I should say, for the United States or for China.
JAY: We go back to this issue we were talking about previously, which is, when China looks at the debate in American politics right now, this stimulus versus austerity, all the austerity hawks seem to be winning this debate. The Obama administration seems to have bought into this idea that the idea is pay down the debt. They're debating how much. In China, the issue, they understood there should be stimulus. And the austerity regime there was never their way out of the crisis. So if they look at this American debate, one would think if there's austerity and [incompr.] layoffs coming at the state municipal levels and the likelihood of employment not going down further--many people are saying it's going to go back up again once the real hit hits at the state level--what do they make of this? They didn't follow these policies in China, and they have so much American debt at stake.SCHELL: I think the Chinese, like many other countries, have a lot of catching up to do to figure out what's going on in America with these Tea Party people. Where did they come from? You know, what's this all about? How in the name--in their view of heaven has the United States of America, land of reason, freedom, scientific thinking, rationality, how has it been seized by people who believe in none of these things? And the Chinese really don't understand this well. They scratch their heads and they look at us, and they need a lot of help, as many Americans do, to understand what is happening to this great country.JAY: But clearly it's a section of the American elite that's behind the famous--the ones out front are the Koch brothers, but they can't be doing this all on their own. And there's this--you know, Karl Roves and others were all involved in the last November election campaign. There's a whole section of the American elite that sees the necessity, they think, of austerity. They make paying down the debt the big issue, and they're absolutely against paying any kind of taxes. So the Chinese, are they going to weigh in on this in any way? Or is it just too difficult for them to say anything?SCHELL: They don't believe in interfering in the internal affairs of other countries, because they don't want anyone to interfere in their internal affairs. So they're not likely to give us, you know, a lot of gratuitous advice about how to run our affairs. However, they are worried--as everybody must be worried--about America, because America sits at the center of everything. So as we go, in certain respects, so goes the world. So it's very important, I think, that America figure itself out better. In the meanwhile, it leaves a lot of other people around the world scratching their head. And that's why it's so important that our financial system remain open, as we always have been--that's been our great strength--and receptive to other countries investing in it, because if we begin to get into trade wars, you know, protectionism, tit-for-tat kind of deals--and we're particularly inclined to do that with China--it could be very deleterious not only to our health, but the health of the global financial system.JAY: Does China have a plan B? If they think the American politics is going to push American economics really into some downward spiral, have they got a plan B not to be drawn into it?SCHELL: Well, you know, there really is no plan B for anybody. America is too large on the sort of international economic scene. China is, of course, investing very vigorously in Latin America, Africa, Middle East, around the world, particularly in natural resources. But that still doesn't sort of take up the slack. They're doing that for energy security and resource security. But they've piled up, you know, an awful lot of foreign exchange reserves and they've got to do something with it. So the question is: what? The euro is a bit wobbly, and all these crazy countries, and Athens in, you know, Greece, and Portugal on the abyss, and Japan's no great shakes, the yen, where else do you put your money? There are a very limited set of options. So the US is still a good option. So one hopes that that partnership between the US and China can work its way out in a constructive manner, because in actuality the US now could use Chinese investment for job creation and infrastructure building. That's why it's so important. And that's why the US-China relationship simply cannot be ignored, because without it--well, there is no without it. There's only with it. So you've got to get it right.JAY: Thanks for joining us.SCHELL: Pleasure.JAY: Thank you for joining us on The Real News Network.