been positive. people may not like every little thing in the book that they have been pleased with the overall portrait and have been very nice about the book overall. >> do you know what your next project is yet? >> maybe. right now, the goal we have is to try to sell the book,. one of our strong beliefs from the beginning was although it is about a political campaign that this is not a book about politics or politicians so much as it is about interesting people who just happen to be involved in politics but it is a story about married couples involved in a great competition under a lot of pressure so our hope now is to extend people in comics than the book to people who don't necessarily think i want to read a book about politics but rather just a book about a great story. >> are you able to read any books while you are on the road trying to sell the book? ..

>> good afternoon. i'm joann myers and the director of public affairs programs and on behalf of the carnegie council gleick to thank you all for joining us. today it is a special pleasure to be introducing our speaker. zachary karabell is someone i've known for quite a long time.

he's a terrific writer with a wide range of interest in its complete with information on many topics. his articles have appeared in "newsweek," "the wall street journal," "the new york times," "the los angeles times," foreign affairs and the "washington post" or you can also catch them on cnbc where he is a regular commentator on international and financial concerns. we are delighted that he's here today. in his most recent book, "superfusion," how china and america became one economy and went to world prosperity depends on it, zak draws on his expertise as secretary of river research raisin in the list of economic and political trends to write about what happens when two countries, what a superpower, the other on its way to becoming one are dependent on one another for their economic well-being. he traces the 20 year history that began with the suppression of the protestants hannemann square in 1989 to tell us the incredible story about a developing country that opened its doors to the west and about a market economy to flourish.

so this remarkable tale is accelerated by the admission of china to the world trade organization in 2001, in the intervening years before china joins the wto, the chinese leadership adopted a policy of aggressive economic reform and courted u.s. companies such as federal asked rest, kentucky fried chicken, avon and wal-mart. no one realized how critical this initiative would be to china's success and important for its growth. however, as a reading at "superfusion" will reveal, while china was becoming a producer of low cost goods, the consumer and banker to america either the governments of china coming to the united states, nor the population of either country saw the implications for this was headed as these two countries were growing more and more reliant on one another. today both countries find themselves in an unfamiliar and challenging position. on one side of the pacific ocean with china who is began to question the wisdom of their union with the united states.

and on the other side of the pacific, there's the united states, which faces a level of dependency on china that has considerable anxiety. the association between the two has enhanced the global economy but undermine the sovereignty that governments have craved. at this stage i'm wondering if we were to redefine the relationship with china, assuming that it would not pose greater instability in the world, what would the implications before future, their future and the future of our global economy? sac may just have the answer. please give me a very warm welcome for the special guest. [applause] >> thank you, joanne. each had a wonderful job summarizing the back so i think we'll just go right to questions. thank you to joe rosenthal and the carnegie council. i was here for the first time 16 years ago as a graduate student speaking about something, which i wish i could remember. and it's interesting to have to

come back here over the years and to be speaking to you today. you know, i wrote a few books during the past decade of the 2000, a decade which i suppose is remaining nameless and although it is becoming known -- i think it should be called the zero spirit of one of the book i focus on religious coexistence between muslims, christians and called peace be upon you. and then i wrote this book about the relationship between china and the united states. topic switch on the face have no relationship to one another. and what's interesting about that and i'm in everton when one looks at one of the career is that in many ways, those are the two issues that have animated a lot of local politics and have led to no source tendering and agitation on people throughout the world except that the relationship between the faiths, the religious three monotheistic

religions in the challenge of terrorism, some of which stems from that it's very much an issue of the past. that doesn't mean that it's not also a crucial issue of the present in the future, but it definitely has its root in history. whereas, the evolving relationship between china and the united states and the evolution of china as an economic superpower is very much, in my view, the issue of the future. and it's both a cliché and a truism that in so far as any of us individually or collectively are trapped in the issues of the past versus focusing on the issues of the future, we do not develop the kind of dynamism and initiative to construct their future. so part of the concern and part of the reason that i wrote this book was a way of saying that while a lot of our public attention has gone to the crises of 9/11 and beyond, that what

was happening while the public attention was focused on iraq and afghanistan and terrorism and security issues, that stem from religious tension, that the evolution of china was happening, it's not beneath the surface, then certainly not receiving the kind of acute attention to that conflict with. and so that it's quite understandable. war, death, violence, troops in action, security on the way of focusing the mind in grabbing attention whereas fuzzy things like economics and money flows and capital unless it's a dramatic of events like the collapse of lehman brothers and are your atms going to work tomorrow don't tend to receive the same kind of attention. it ahistorical cultural equivalent of if it doesn't bleed it doesn't lead here don't know well from having written the book on religious coexistence called "peace be

upon you," to muslim, christian and jewish coalition didn't receive the kind of filth of the publisher would've liked or that i would've liked because it was about peace and pieces and boring. so when the paperback version, it was called peace be upon you, for two centuries of jewish conflict and cooperation presumably under the idea that if we can get the conflict in there you might get the animal spirits of readers to get them out to buy the book i suggested that it should've been called 14 centuries of muslim, christian and jewish con brittany spears, madonna and prince of lena, but that was rejected on the grounds of a relevancy. so i came to write this current book and part of that came out of an academic akram, part of that came out of managing an investment fund for the u.s. growth fund on chinese and u.s. companies that were in one way

or another benefiting from china's economic growth and job i mentioned a couple of those in passing, which i will talk a little bit about as we get further into this. and so a couple of contentions around this. one is that the emerging relationship between china and the united states is the defining relationship of the next generation and that the emergence of china as the global economic force is the defining global change back to her of this part of the century. i was told once that if you're going to make reductions about the future, just don't give date. so when i say this part of the century, i'm not entirely clear how long this part of the century laugh, that sort of for now and until then. and that our ability to manage grapple hour in the united states or i suppose you could say our citizens of the world ability to manage this evolution

constructively is going to define in large measure whether or not this is a peaceful rise, whether or not this raises one that enhances global prosperity or triggers a next wave of global tension. and i don't have a prediction about that. i simply am saying that as the change factor to be grappled with, how that changes managed domestically, internationally, collectively i think is going to shape the economic degree and to some degree the security of the united states as well as out of china as well about the world and we are a particular inflection point. none of this is to say that the issues have animated us and continue to animate us in the foreign policy realm about iraq, about afghanistan, about the challenges of global terrorism are not acute and important. it's only to say that that which seems most acute in important right now i don't think it's going to shape our domestic lies nearly as fundamentally as the rise of china.

and that even if you believe those things are important, that this is something to be attended to. again, what's difficult about it is there is an amorphous facets to it. in fact, what i want to do is just go back for a moment and talk about how this about because i think understanding how it evolved in this particular case is utterly central to understanding what actually we are in right now and therefore what to do about it going forward. i don't believe that history is predict this. i don't think history repeats itself. i think historians repeat each other. but it can be a source of information and awareness about the path we are on. one marker in this, which was unnoticed at the time, was asked to land mentioned, the december 2001 joining of china to the world trade organization. now if your member in december 2001 the attention of the united states was almost entirely on sending troops to

afghanistan and once again of course the attention of the united states and a foreign policy context of having just send troops to afghanistan. even if that had not been the case, a country joining a deliberative body with no geographic center represented by trade ministers of the world is not usually the source of what their prize-winning journalism for stirring histories so that china is joining the world trade organization in december 2001 even under the best of circumstances was not likely to be attended by fireworks of my god the world has changed. but in the greater scheme of things, my god, the world did in fact change and that was a germanic inflection point. but even that was simply the most important, i think, statutory moment that helps explain where we are today, that this really began after an 1889 and in many ways as a result of

how the chinese leadership managed the political protest at tiananmen square. now, i think that when people talk about the chinese u.s. relationship, certainly my sense of having too enough and radio and talk to run the country is that people are aware that china has evolved as an economic power. there were the thyrsus into relationship between china and the united states. but if they're aware of it, they are largely aware of it in a negative sense. that china makes cheap goods attainted drywall, poisonous to become a lead tainted toys that kill and improve the security of our children, they keep their currency undervalue, they develop a huge amount of reserves based on a devalued currency and flooding the market with cheap goods that lead to the erosion of the american manufacturing. that narrative, that story is pretty well ensconced in politics and in popular imagination. and chinese have their own version of the survey ship which as we thought that america was a good place to invest. we thought that if we embrace

the american model of capitalism we would have a constructive pathway to the future and lo and behold the crises of 2008 shows just how misguided that was that once again the west is trying to take china for an ace in the root and still money and return nothing in the goal line term is to detach from this pathway, go it alone and once again become the middle kingdom of peace, prosperity and cultural dominance. so if you talk to the public to be their part of this equation, you don't tend to get a warm and fuzzy feeling about the relationship. you get a really uncomfortable feeling. and in fact the chinese leadership has become even more kind of contentious and a little bit aggressive. there was a moment at the copenhagen a midway vice minister wag his finger at obama for think think coming into a meeting or some aspect of our demand about admissions versus china spirit first of all, what kind of an astonishing breach of call because vice ministers don't tend to lecture president.

and the fact it was a chinese vice minister for the chinese have nothing else are extremely rigid and respectful to diplomacy. some of you may remember a few years ago when who gentile visited the white house on the white house on their word what was seen to an american onions protocols that were in our view minor and president pushed who gentile's elbow because he was making an exit stage left and he was supposed to stay for a photo appeared there was a heckler the background and i think there was one other all of which were seen as less than adept protocol on the part of the united states, but no big deal particularly those in the out of the legacy of george bush. that was my one real partisan date for the evening. so i'm better now. but for the chinese, this was seen as a very purposeful humiliation and sticking it to the president and kind of trying to show that we were bigger than

them. so far vice minister the election of the united states was kind of a big deal. and you've got a lot of comments recently about the currency issues are there problems are our problem and we should attend to the mozart idea before we lecture china, another example of our version of the internet is our version of the internet and you have no idea to tell us what your version of the internet user to impose upon us. this is just another act of cultural imperialism. but i think in order to understand where this relationship involves you have to grapple with the reality that evolved first because the chinese wanted it, not because the united states wanted it and it evolved because of the aftermath enchantments squared the chinese leadership authorized -- are at a crossroads in the of the example of the soviet union very. cutely in mind, which is too much political reform will lead to chaos and collapse. and by the way, later in the

90's they also had the example of post-soviet russia which is too much economic reform will be to chaos and collapse. to the chinese leadership make this decision which is we cannot political reform or we can have economic reform, but we cannot have me there. and so will shut the door to political reform. you will not build to speak about your government if you're a chinese citizen. you will not be able to can't say what is done, though we'll gauge and hypercharged economic reform in the belief that if you can create prosperity and affluence and american fashion, you will maintain stability in society and allow for the continuance of party leadership. and in 1989, if you are china and you decide to embrace the market embracing the market is your embrace the united states because the 1990's particular with the end of the cold war the market is largely defined by the global capitalism emanating from the united states and france capitalism emanating from wall street. before wall street became as much of a dirty word or rather

interregnum one when wall street was as much a dirty word. it kind of comes and goes. china begins to the united states are at one time he says would be great if we could have a couple tens of billions of dollars of foreign reserves and deal to sell some products. flash forward 20 years later and chiming shining as $2.4 billion of reserves or does each one of $40 billion trade advantage or deficit in its advantage with the united states. china now accounts for 10% of all global trade. which is getting close to the amount of global trade the united states accounted for at its height in the 20th century. but in order to get to that point, they require china not only two were american companies but for american coming to invest in china. and in many ways that the missing part of this story because beginning in 1989 and stemming through 2008 annual bill to fight his calculations

because they don't exist on a spreadsheet or government data. by my calculations roughly u.s. companies were at large and some multinationals invested about a chilean dollars of china building factories or federal express buying up airlines and southeast asia in order to build up a network that would allow it to function on the mainland of china. a trillion dollars for an economy the size of china in the 1990's and even into the 2000 is an extraordinary amounts of money. it would have been on percentage terms over that period of time certainly close to $20 trillion if you thought about it in american terms. they would have paid for our health care costs twice. so that's a lot of money. and the fact that china was able to woo that money is one of the fundamental reasons why china now has the ability to have a $2.4 trillion trade deficit -- surplus and reserves here at

white has become a manufacturing powerhouse, why is able to build out internal infrastructure because in many ways trying to piggyback on the intellectual property and we can get to that to what degree i was and certainly in by the intellectual property of the west and also consume the capital in order to build upon itself. now the trade-off for these u.s. companies was also quite positive because a lot of the companies that go to china initially in the 1990's or the late 1980's by the companies that are feeling left out of the equation in the 1990's. they're kind of old economies that are born in the 1990's was the same rear has been. you know, they were the people who made stuff though was that like cell phones. and it's always easy to detect an attack, but you know, it's a talk about china, that's all the cell phones i made. including the apple ipod which is made by fox contact ologies.

so it was the caterpillars of the world. it was the general motors of the world heard it was young brands which was not then gone and with kentucky fried chicken. all of whom are feeling that the guys in flip-flops and hawaiian shirts are getting up in a stage they had no business plan i just have a great idea of how we're going to transfer in the future make the world in less listen want jennifer to $10 billion to senate capital or see other old economies who are devoted to me that the businesses were archaic that their product resurrecting a stick in there about to become antediluvian. so they all thought we were going -- china with their hail mary pass. we've got to find growth into impress shareholders so will go to china because china think i'm here. and companies have been going to china here and say i'm here. a lot of these companies start doing it. and what they do is not only do they begin to transform china and create a consumer culture industrial know-how in china

because again the story that really hasn't told about china and continues to be untold is how much the evolution of china is a domestic consumption store in china, either the government consuming or increasingly more certainly relative to what they have been, not relative to somehow start bar of how much they should. and the example of kentucky fried chicken is the kind of perfect one. the kentucky fried chicken in 1989 is nobody's idea of a cool,, hot or well-run company. it's a division run by rjr reynolds that decides to allow kentucky fried chicken to grow in the mainland having done okay in hong kong in parts of southeast asia and maybe on the assumption that if you get a lot of chinese people to eat greasy fried chicken, you could probably get them to smoke. so it authorizes local managers to grow in china and he gives them a lot of autonomy because unlike mcdonald's which was much

more centralized, kentucky fried chicken was run by franchises didn't have a real song vision. for they allow this most of the time american managers to go and open up a store in beijing. and they decide were going to throughout the world but. we're going to make this an entirely different brand in china. so personnel were not going to go at kentucky fried chicken because that would be as meaningless as calling something newer fried rice in shanghai. so they call a kfc, which is also meaningless but at least it's meaningless and meaningless. but they decide to open up in prime real estate. they went rent a 5000 square foot store 500 yards off of tiananmen square and they spend millions of dollars renovating it and each floor is adorned with extras of the united states. one for as the statue of liberty and the golden gate bridge and scenes of american life is what they're going to do with their going to brand it as an experience of the market.

granted this actually happens right before tnm and so it's in this direction. and they are going to have table service and readers piling in the reprint the kernel because colonel sanders didn't play well to test groups. anywhere throughout southeast asia when the first kentucky fried chicken opens up in hanoi, there were riots in theater now because they thought that the franchise was purposefully offending the legacy of ho chi minh. so he looks a little bit like a stern grandfather. and so they kind of reprint of the kernel and now if you look at colonel sanders in a chinese context, he looks a little bit like at colonel sanders and fu manchu had an affair. and because they are able to reprint this, they're able to charge four times as much money for the same food area and people flock there. airlines around the block in nobody likes the food, but they

say that they think is an experience of the modern world and people keep coming back and coming back and coming back in its a lot of money for someone in china at the time. it's like a month of disposable income did not amount of disposable income, but what you would spend on all your entertainment. a franchise keeps growing and growing and growing threat that 90's so it even by the middle of the past decade on the kentucky fried chicken and china represented less than 6% of all job areas global stores which includes pizza hut. it was 25% of their earnings of the revenue. and in the process it became a source of fast food in china. there is no fast food in china under mao although i suppose all food is fast because there wasn't much of a you had to eat quickly but there is no franchise, no restaurants, no branding and marketing. know i suppose from one perspective you could say this is all a negative. it was the importation of the worst aspects of consumer culture into a chinese context. but the world is the world is the world and that the world we happen to live in. we get to whether or not but it

is the world we do in fact inhabit. and the transformation of china was a product of a lot of these companies go in and in creating this metrics and motifs and ways of acting, which were very different than what i gone in china and other points of the saudi which the chinese began to innovate and adopted their own context. you know, but that then creates in terms of relationship it's true with a lot of chinese companies also make an stuff for sale in the united states. but it's not as if the chinese woke up and like and share capital of their own factories and figured out what products to make that would be appealing to a u.s. audience. most of what was produced with reduced because american companies set up factories in me so that they were making elsewhere. now again whether or not this trend benefit the american capital at the expense of american labor is an interesting question, but it's undoubtedly true that those isi and place on before china is on the horizon.

he does before china and with mexico and it was ross perot railing against the free trade nafta has created that giant sound that was going to lead all the jobs to go south and before mexico with taiwan and south korea. so the merge of favor to lower-cost areas have been going on for decades and is not a project of china even though china is the latest adoration of that. this is often not seen as a system that kind of undermines the american manufacturing base and enhances the competitive ability for china. but in my view, it's also a system essentially a n. ideas in motion and with the national statistics to an extremely poor job of encapsulating that much vaunted trade deficit figure to $300 billion a year assumes that every dollar of trade with china is a dollar that leaves the united states and goes to china here but a 50% of the trade deficit is wal-mart sourcing its good, a lot of that money doesn't go to china.

it was just wal-mart. it goes to people working on the port of long beach offloading the goods. it goes to burlington northern railroad which warren buffett just bought the rest of, shipping those goods throughout the country. it does not go in that direction. it's not even clear inside where things are actually made even though they always get to scratch one company or another because it she makes a washing machine and a plant in northern china with polymers and plastics other than initially made in malaysia and circuit boards that are produced in taiwan and some cloth that was sourced from cambodia with initially having been grown in texas that then gets assembled partly in a plant in southern china and then gets shipped to a plant in northern china via hong kong within the council's export to hong kong and a hong kong export to china and then it gets sent to the united states, where was that they made?

by a company who shares trade on the new york stock exchange or if it's a blackberry phone and you have the same thing, it is sent to the united states for a company that's incorporated in canada who shares trade on the new york stock exchange. national trade statistics to a batch of of capturing those realities. they also a great job of capturing emotions. you can see this more as a system and i want to do kind of a brief thought experiment and talk very, very quickly partly for a fact. and the numbers i'm going to give aren't actual, that they are representative. the one of the only sources of growth from about 2003 to about 2008 by wall street investment banks saw other than creating mortgage-backed securities with the possibility of doing banking and loan and lending underwriting business in china because by the world trade organization china to allow these to come in. so in around 2003 morgan stanley

seemed potential to do lots of underwriting business that i can make chinese families onto the fishers are former state owned chinese enterprises that are harmed enough they could then turn to western capital market for an infusion of capital. morgan stanley decides to invest $5 billion in one of china's banks, which it doesn't one of these banks and takes up $5 billion in the first is of a series of loans. from two government funds for projects to build infrastructures, roads and rail and urban infrastructure to create a competitive domestic economy and some two dozen factories. those factors that may make a dent in turn get exported to the united states. so morgan stanley gets $5 billion to a chinese bank which then decide billion-dollar stripper at a projects including companies that then focus to the united states. americans and by $5 billion of goods based on a $5 billion in funding which leads to $5 billion of foreign reserves and built in china. china ministers summit with

those readers become critical as current account and invest $5 billion of that with the u.s. government. come to the fall 2000 the financial system is imploding morgan stanley like the rest of the method makes its money because he is his visor turns to the u.s. government for infusion of capital for the bit about a business previous government and its morgan stanley $5 billion but of course with him and agreed to come from to the publics public publics which it does and the major foreign buyer of those treasury not as the government of china for the government of china does i billion dollars of u.s. treasury in order for the oscar went to get $5 billion which in turns if i billion dollars to chinese things are chinese things can give money to chinese factories who can then focus to the united states took up the great currency deposits in china so china could download the united states government money in order to go morgan stanley up here come the spring of 2009 morgan ailey needs to be the government back as the doesn't like the u.s. government money. so decides to issue shares to the public in order to guide u.s. government by $5 billion in on a sunday so people would notice the largest buyer of that issue is that the government of china in the form of the chinese investment corporation press which has a better corporatist

stanley morgan $5 billion making it the us government so they can service was at the chinese government which have led to $5 billion which about $25 billion because his factories have to produce a series of products to get to our consumers, too. [applause] the point of that is that what can be seen as a trade deficit and a current account and a train of capital from one direction and the other can just as well be seen. because everything i just says. those actual numbers are actual numbers and it's more like $4 billion, but it's about right. all of that is true. you know, i didn't make any of that. that in my view is a system of capital in motion here and for what can be seen as this negative rating between states and just as well be seen as a system that devolves. the problem is her ability to measure that system both in terms of the data that we have been in terms of our frameworks is limited. because we still conceive of things in terms of the

nationstate and our economy information state in their economy. and the chinese do the same thing. i mean, this is not like an american issue per se. this is an issue of how do we all perceive of systems and capital in the world and we so busy that but i'm starting from the nationstate. now, assuming that the system is in motion and assuming which i know is a debatable point that the presence of the system in my view created more global stability and liquidity than would otherwise have been the case at the heart of the financial crisis. others many people who say that the financial crisis fundamentally was caused by imbalances in the global system, the greatest imbalances in the global system stemming from the chinese u.s. relationship. i don't agree with that perspective. i think those who warned of imbalances are a little bit like her friend in southern california is always call you up saying the big one is coming, the big one is coming. you know, i'm on the national earthquake center and it seemed a little tremors and i'm telling you it's going to happen any day

now it's going to happen and that there a lot of people have been rallying against global bounces in front of this relationship between china and the united states was distorted economic system. so if i suffered got suffered a call to open them and then one day a small meteor hit southern california and post about this as you see i told you so. because in many respects the inclusion of the financial system while it may have been somewhat enabled by the liquidity created by this relationship in my view is much more a function of bonds and derivatives created on the basis of u.s. housing market and the presence of the china u.s. relationship alternately could much more balanced system which many more people now are signing on to particularly seen how much china has become much to people's disconfirmation of surprise a source of stability globals he in the last year. without which things might have been much worse. now clearly this has been a disruptive relationship to the

u.s. economy and disruptive to the u.s. perception of itself an impact to our ability to continue to generate the level of affluence commensurate with our needs and desires. so the argument is not that this is in a good thing. the argument here is this unalloyed name. but it is a reality. and that judging a negative or positive will not change the reality. there is a lot of talk today about a mutual desire for divorce, that both sides have come to the conclusion that this is a non-healthy relationship. one radio interviewer began his interview with the same that many have likened the relation to that between a junkie and his dealer, you know, the china is continuing to the sautéed america's overconsumption. another issue that want to take issue with it as it's not clear that the issue has been american overconsumption nor is it that there is chinese under conception. as to the figures look that way but at the 70% of the u.s.

domestic consumption about half of that is consumption that people have to do. nondiscretionary critical care caused and food. and of the 5% it does include the fact that people you have to pay for their health care costs or thereabouts of misalignment of statistics that lead to facile generalization that don't hold up underskirt me. but there's a lot of talk now that this was a non-healthy relationship that headed for divorce. maybe i know i think the question is where is this headed? first of all, if much like a 19th century marriage than a 21st century marriage. both sides can be unhappy, contented with their relationship, engaged in mutual cremations, but it's really difficult to get the voice message is china wants to talk about creating a new global economic system, having gotten into bed with a dollar in the first place they have to come home to the dollar in the

second. this is nothing about the long-term and i want to talk about both what is the long-term? because ict pathways here. one pathway inside of this relationship between the united states and china evolves industry make genius to emerge, it becomes somewhat like a european union, which seems highly unlikely today. but if you would talk to a french winemaker for an italian urban dweller or a german burger in 1965 and asked them if 40 years hence unelected bureaucrats in brussels would be making key economic decisions about their interest rates, their currency and the government spending, that would've seemed particularly in the context of european history, ludicrous. so the fact that an e.u. pathway seems unlikely does not say it's impossible. a couple of things mitigated against us is one of the state

you is conscious desires and the party leads where is the relationship between china and the united states has evolved largely without anyone in china and the united states knowing it, wanted or intending it. it is a super fusion as they argue in many ways an unloved one and it's difficult to create a cohesive set of governing institutions that people actually wanting this thing to exist and have it be governed. but it is certainly possible that these two societies continue to evolve together that they will be forced to eat together in ways that neither particularly like that but neither particularly like that but in their interest. that's not to see the e.u. is a perfect model, but it has created a in their interest. that's not to say the e.u. is a perfect model, but it has created a level of stability for 340 million people, all of whom have the month of august off. so that is on the balance of human history not about them. the other pathways more troubling ones and that assesses relationship evolves every capitulate to relationship

between the united states and great britain in the first half of the 20th century except in this case the united states is about great written and china plays the role of the united states. in february 1946 after the british had fought two wars against what it believed to be the proximal part of post-imperial and enough the german actress to the united states which had its closest ally, which i provided it with untold billions of dollars in funding which is the equivalent of trillions now for a loan because it was unable to meet short-term commitments having its coffers depleted by the war and the united they said no of the greatest comeback in february 9046 and 50 refused to give us the $5 million loan we need we will default on obligations and that will not be good for the international system. so the americans come back and say fine, you can have the money, but under two conditions. one can't abide by thread words and you the dollar not the pound sterling a global reference any preference and an assistant systems in perl preference which

allowed purdue to india and south africa and australia and a preferential fashion. basically the american siege of the british chicken of the money but you cannot have your entire. and that then begins a cascade of dominoes to fall quickly such within a few years britain's empire is ended and it enters decades. there are worse things than to be great britain. it's a lot of fun to be in london, it's a great country but there are better things as well. we are nowhere near in the china u.s. chip given chinese holdings statue in 1946 moment. the problem is we don't know how far along the path we are and we won't know how far along the path we are until it's too late to get off. the issue as far as i'm concerned is not how this china evil. china is going to do what china is going to do and it's largely going to do what it's going to do regardless of whether we like it or not and whether we try to contest it or not. it's the first time in the past

60 years there's been an economic force in the world that is significant enough in its own right that it is either course of old were changeable by the desires or actions of the united states, nor is it susceptible to military action. and i think it's highly unlikely that this tension, if it exists, retake the military dimension because china summit in trying to compete with the united is militarily. in fact, they would like to see the united states continue to spend $620 billion er aircraft carriers and divisions additions concern of building the set, they're just going to spend $60 billion for cyberwarfare taken advantage of the weapons of the weak to prevent the weapons of the strong from doing the damage that they can. so china is going to a china is going to do. the question is what is the united states going to do because if one assumes, as they do, that china's evolution is a fact much as the evolution of the united states from the late 1890's to the middle of the 20 century was the fact, not a fact without great internal turmoil.

so senseless and china set up for a real estate crash or that the resource intensity of china's investor growth will lead to untenable spikes in the price of oil and copper and industrial materials will then put a crimp on it or that there's to much violence being given in china to support the actual activity. the fact is all about could be true and the trajectory could still be incredibly rapid relative to the rest of the world, just as the trajectory of the united states in the 1890's to the 1940's was incredibly strong, even with the great depression. an effective you want to do a little historical frame and again, china has emerged from this past economic crisis much stronger, just as he understates emerge from the great depression and world war ii much stronger and relative to the rest of the world. insofar as units instruments innovative dynamic, compelling and a market that is both consuming and producing ideas that are traction boeing competitive, that relationship will continue because right now china summit in trying to

innovate the level of the united states is doing less of. even less innovation and research in the united states is more than china is doing or aspires to do because they are and the builder phase. they're not in the created face. that will last forever. but it is a competitive advantage and at the window that doesn't get shot. and so the more that our economy remains dynamic and innovative and creative that we think of a crate in the markets in the products and ideas in the world of tomorrow the more we will remain as competitive and dynamic and therefore a necessary partner just as the more china continues on its path will remain a vital source of both market and ideas and capital for the united states. whether or not we're able to embrace that without perceiving it as a relative decline is a much more troubling question. and whether or not will be able to exit the urgency that the rise of china demands is an equally troubling question. because for for instance in the earth grid technology they decide they're going to spend $20 billion a month in a

technology because we recognize the environment about the 1950's how industrial is a will be untenable sooner rather than later. for the next ten years china summit up with are going to use more and more cool and more and more industrialization said it other take that time while things are getting worse to rate this groundwork for people to be better spent on solar and spend not everything else. whereas we talk about green energy, but it takes us 18 months of the $20 million in toto on the books and another 18 months to disperse it. people say we have a democratic system and that means that we have to do with all the inefficiencies of democracy in china has the advantages of being autocratic system to which the answer is so? that's the answer we happen to be living in. did the advantages of an autocratic system. will is able to act with urgency in the face of that? and that i think is the open question and one that i don't because the absurd although i don't think those signs are

particularly hopeful. but we're not there yet and this relationship is still far too interdependent for either side to do anything other than wish it weren't, which is a good opportunity to act with the urgency the moment requires because i think still if that is done, this relationship can continue to be mutually constructive. but that if we don't in my view, china will continue to do what china does in the competitive ability of the united states to meet that will decrease and become increasingly difficult. so it's a fascinating moment. i think it is as dramatic as if we'd been talking about the rise of the united states 100 years ago and have united states troubles with that i think will be the defining issue but the domestic prosperity of this country is for the next generation or two. so thank you very much for coming and we have time for questions. [applause] and let me -- or a recognized word you want to recognize people and on the mac will come

to you. >> i just really want to thank you for that. you provided many facts but the fact remains that was a church of sick presentations by thank you for that. i just ask you into the microphone comes to them please identify yourself and try to keep your questions present to the point because we have limited time. jim. >> james starner, thank you for having this talk. what are your views of a counterintuitive new super fusion between japan, china and taiwan? >> that's a good question. clearly there is a fusion going on between taiwan and china that there was some question marks about for five years ago, but taiwanese politics and taiwanese policy has become so intertwined economically with china to the point where most of its technology manufacturing has gone to the greater shanghai area. a lot of the capital infusions

that haven't been in america have been taiwanese and the chinese economy and i think there is increasing recognition on the part of taiwan and its economic future really lies with a fusion with mainland china whether or not that takes the form of the hong kong system i.e. some autonomy with some joint integration, who knows. but it's on that pathway. japan is a really interesting one. i mean, japan's economic growth for the past few years has been totally derivative of china or so when china was spying -- is what japan imports more than china than it imports from china so that china has a negative trade balance for japan because it sends high-power equipment and earthmovers and high-end steel to china. and so when china is building and buying japan is doing okay and when china isn't, japan collapses for the promise court that japan hasn't solved any of the issue it's almost entirely dependent on how does china grow or not grow.

and there's much come them as less willingness to cast about with china because of this historical pride intention. so i wouldn't hold one's breath about that kind of fusion between japan and china except for the fact that already japan's growth is derivative and dependent on china for this kind of a de facto. but it's much less clear particularly ten years down the line if china does, which is likely to do, make a lot of this that japan is making. it's not clear what japan adds to that equation because it's not really a market. for all the discomfort, even in the hobbled state, china's trade with the united states dropped 10% this year so it's about word was in 2007. born may 2008, which is extraordinary to think about what's going on the world. japan doesn't offer that. so i don't see that as much. >> hairy -- harry liner and

basically getting it from the u.s. because your investing in the u.s. of chinese companies either partially or solely owned by the government and you're taking our technology and we are training our competitors. can you comment on where we are going simply because we haven't got enough capital in this country to do the research and development that the private sector needs to grow, that we have a terrible job shortage and the technical privacy. can you comment on that. >> of the first part of the probably to have enough capital to engage in research, we do start using it in that direction. there are a lot of constraints on our ability to utilize the capital we have us constructively, but with the

cultural constraints that were used used in the verses that were not. i mean, you could make a pretty good argument for is that more money on research and development in on the next way of things we probably also be created more jobs long-term. including government putting money in those directions which were trying to do but it's a very slow arduous and efficient process. again, not the best competitive advantage. on the issue of to what degree is china essentially piggybacking on taking and training from us in order to build good i mean guess there is in the past ten years a fascinating and disturbing global shift of capital that describe an allocation of our money to the rest of the world, whether it's our money to china and from best buy and their staff or money to resource producing in purchasing oil and commodities. was just meant that the result of the crisis in the past year has been a really bad time to the american labor. enough that you pretend to be american capital instead of really great time to be chinese and indian and resilient and chilean and lots of other things

because they're going to write the history of the past year as the great i don't know what's the opposite of the great procession. they are great recession, our great advantage. but on the competitive thing to me, what it is as a call for the kind of innovation because the amount of time that americans in particular spent agonizing over the theft of intellectual property to the degree which american companies go there've been two weeks later there making our stuff. it kind of misses the point. in an information technology world where ideas are relatively porous, most companies can't maintain an information advantage even with intellectual property regulations domestically whether it's biotech and drug having four or five years the pac-10 and the fact that an israeli company can back into their anti-dreck anyway and generics are being produced hither and yon peter requires increasing number to maintain that anyway. in most companies now assume we've got five years once we turn an idea into a product

before the product can be made by somebody you without assuming any money on the basis of it. and in china rather than spending time focusing on make up their cellular intellectual property most companies that are quietly doing this kind of recognize that we got about five years that we partner with the chinese company weather were gm or ge or anyone else who got tigers where they're going to work with us and often these deals are required to pass from intellectual property as part of the deal. which is the reason why you've got five years to renovate the next product because the chinese army been trying to innovate the next product of and as long as you maintain that edge company maintained a viable reason for being in that market and if we don't maintain that edge we have no viable reason for being in that market. and then that's just the imperatives of that and i think some good companies are recognizing that i think a lot of them are still stuck in the wouldn't it be great if there were enough force to enforce intellectual property? the chinese want for its intellectual property there's enough who don't want other

chinese company stealing from them until that happens they're not going to do it. [inaudible] well again, i would say we have been in a long process of exporting jobs to other parts of the world and that a lot of the source of job destruction has also been efficiencies in technology and it's easier to really against another country that it is a computer and that there's a lot of tries guys that go into that. >> dining bob adler. "the new york times" had two contradictory articles one was claiming that the g8 is seemingly a dark shirt and fragmenting them breaking up in and the g8 is becoming irrelevant and there needs to be much more weight given to the developing nations and therefore has got to be cheap 20 or maybe g. 30 or whatever. and the same paper had an

article saying that really the only two powers that matter the world economy are china and the united states has got to be achieved to. and i wonder whether any combination of these is likely to have an impact on the chinese government because it's policies clearly our mercantilist. it clearly is following the practice of beggar thy neighbor in terms of its trade and currency policies. at some point i wonder whether the leaders themselves might feel that it is in their own interest, not because the united states is pushing them or anyone else is pushing them but it's in their own interest to accommodate the needs of their partners, whoever they are, rather than impoverishing them according to a mercantilist is done. >> i feel like we should have a comment like wow i could've had a g8. i don't agree with the latter part of your contention that it's a bigger they neighbor

policy. adding about between 2005 in 2008 china allowed its currency to depreciate nearly 20% and was on a pathway of general depreciation of its currency becomes very much in the chinese government interest to increase the purchasing power of china and chinese consumers. although one of the consequences that would be if you really do see an appreciation of the currency would be a desire to utilize them in a pub in terms of domestic consumption but also purchasing assets in purchasing the software including investing in united states. and when china has invested in the united states, some of those have been greeted with sort of a xenophobic paranoia that my god china is going to come and this is a sign of weakness rather than again a sign of this is the kind of system we've created. and there are echoes of the japanese bank pebble beach and rockefeller center and sending pictures all of which turned out to be such stellar investments. so i think china actually does see it in its interest to

gradually alter this balance because i do think the chinese are aware that you cannot elusively beg your neighbor without impoverishing yourself in their pathway is deeply in time global prosperity a fact with which they are comfortable, not a decent other cultural desire to not beggar thy neighbor are really go well, building market and shut off. that kind of chinese culture is the although there are investments in africa might america in order to get resources comes from a kind of we need to be mischievous road because there's a lot that this world has that we need in order to continue to grow including our cultural, and these and industrial commodities. the poem is that it becomes an issue of pride it becomes a nonstarter server ten americans get up and say your plan of care you must revalue a currency that's almost a guaranteed worst possible pathway to working constructively. and part of what china's

evolution demands is that the modes of public diplomacy are very different. you know, americans tend to get out and make strong statements of principle of an ideal version of the world that we wish to be a and then end up being much more pragmatic and potentially hypocritical and actually dealing with the real world in private. the chinese tend to be completely anodyne and public and really engage something private. so the public face of things is not the right thing you to engage china, but it kind of way in which we are accustomed to engaging. but that the real inhibition on both sides because it leads to these and ability to actually discuss thinking because we with their week and it they think if we do it our way their week and that i think a typical navigation. but again, it's something we're going to have to get used to guess there's a lot of commonality there and it's often difficult to get to that in this includes things like values and

rights. i mean, there's an assumption that china is going to wake up in the next couple of years and because they're prosperous they're going to become democratic. and again, will see the one of the great test of the next ten years is going to be this particular historical pathway that the west should wear by liberalism, democracy, capitalism and affluence he were a part of same magical broth. it is just a particular pathway based on a couple years of history. they represent anything but human beings are human beings just other themselves in the lives of the families and have some sense of personal autonomy but don't necessarily need to vote and don't necessarily need to publicly speak about their government. because for china's going to be a decade from now the kids who grew up in china for growth into this world as normal. because if you're over 20 and china u.s. more personal influence than you ever thought she could have beat you can own an apartment, travel, buy stuff, buy cars from a byte maseratis if you have the money and judah about it if you don't.

the good things and bad things. the generation that grows up with this as normal. are they going to be like the 1960's which group is greater affluence and security than any generation ever never antwerp is that so it is that going to be china. i don't know. that's a big tangent to what your asking but it kind of gets to the assumptions that we enter that relationship and that they enter with their often that assumption of the world is and should be and the more we can ask which is still the world as it is other than the world as we think it is or should be, the more ability we're going to have two more constructively work together. >> last question. >> russell perkins. can you comment at all on the relationship with the russian economy and the chinese economy? where's it going? >> i think, you know, russia really is a commodity that case