in principle, does my right honorable friend think that statutory regulation could ever be compatible with the free press? >> well, my honorable friend is tempting me into commenting on what lord leveson might or might not recommend in his report to think it's important having set up the inquiry on an all party basis. we should allow him to produce his report to what i would say is i think one can obsess too much about how exactly these things are done. what matters most of all is are going to hav have irregular sysm in which the public will have confidence if there are mistakes make an improper corrections. if newspapers do the wrong thing they can get fined. there is proper investigation when things go wrong. that seems to be the most important issue for all of us to address so we'll put in place a system in which we can have confidence that the public will support but also will be simply have a free independent and very

vigorous press. >> mr. dave watts. >> is the prime minister aware that young people unemployment in my constituent has gone up by 1000%? what can we do about this scam to? >> what we're doing is putting in place to work program program and the his contract the biggest ever skin to help people get back into work. we have seen success in recent weeks and months where we see more people in more than at any time in our history. and the recent figures show a decline in the claimant count and a decline in unemployment, and a decline in youth unemployment. there's far more to do but we are heading in the right direction. >> mike crockart. >> thank you, mr. speaker. with the prime minister promised david unlike other leaders in other departments in the uk he will never spend 100,000 pounds placing legal advice he doesn't hold and never asked for? >> he asks a battling question about a truly baffling situation. which is that we were told i

believe the first minister in scotland that had legal advice about scotland's place in the european union in the event of independence but it turns out that they didn't have any legal advice at all. i think what this shows is when you shine a spotlight on the case for separation that they put. it completely falls apart. >> the prime minister has rightly expressed concern about child abuse in our institutions. last year, the government reduced child protection measure in schools, and changes means that some schools will never be inspected on their child protection procedures. will the prime minister now meet me and cross party mps for the all party child protection group to protect our children now and in the future to? >> i'm very happy to arrange a meeting between her and the new minister u.s. huge expense in

this area who i know will be divided to discuss it. what we have tried to do is take a set of rules and regulations that actually involve nine, 10 million pounds more pairs but it involved and try to simple and concentrate on what it needed to be focused there but i'm very happy to arrange that meeting. >> order. point of order. >> here on c-span2 we will live the british house of commons now as they move onto other legislative business. you've been watching prime minister's question time aired live wednesdays at 7 a.m. eastern apartment is in session. you can see this weeks question time and again sunday night at nine eastern and pacific on c-span. and for more information go to c-span.org and click on c-span series for prime minister's questions. post links to international news media and legislatures around the world. you can watch recent video,

including programs dealing with other international issues. >> we are covering two debates tonight on the c-span networks. >> i regularly watch "washington journal," watch the call-in shows in the morning, and whenever there is a hearing that is of any significance, i'll tune in. i also watched c-span online at c-span provides a source of unvarnished information to us. that is rare in today's spin

oriented society. we can't regularly get the kind of information we need to make decisions for ourselves. we often have to hear it and either left or the right. the great thing about c-span is you get the information directly from the policymakers so that you can make up your own mind about who is right and what's good for the country. >> gregory evans watches c-span on time warner cable. c-span, greeted by a america's cable companies in 1979. brought to you as a public service by your television provider. >> a new set of politicians will be taking over china's government on november 8, and will rule or a 10 year term. the heritage foundation at china's new leadership and what it means for the economy and foreign relations.

>> good morning. welcome to the heritage foundation. thank you for joining us here in our auditorium. we, of course, what those who joins our heritage.org website on all of these occasions. want to ask everyone in house as we prepare to begin, please check that cell phones have been turned off. it will be most appreciated. we will have to panel. they will follow back to back. our second panel will be hosted by ambassador kerry miller. ambassador now is director of our center for international trade and economics. he directs the center's ongoing research on the role of free markets and also oversees the publication at heritage annual index of freedom.

hosting our initial panel will be walter lohman. walters is director of asian studies center. prior to joining us here he was at the u.s. asean this is kansas will serving as serving on the senate foreign relations committee staff and an aide to senator john mccain. please join me in welcoming walter. [applause] spent i appreciate you all coming out today. i want to especially thank our guests for the first half, which will turn to here very shortly. i guess a couple of us are cover but is our usual institutional alliances to be here. to be together talking about this, what to expect from beijing when its leadership transition is complete. there's really no matter more important to peace, stability and prosperity in east asia, in my opinion. and i'm really proud that we can come together to assess developments there today.

hope i'm not taking too much liberty to also say that i think it'it's a no station about differences in washington assessments, particularly of chinese politics and behavior have collapsed in the last several years. that is, there's much more consensus i think year. there's at least a lot more agreement on concerns and apprehensions about where the chinese may be headed. that, you know, i do want to put words in anyone's mouth. you know my colleagues will correct me if i'm wrong about that, but that's at least an indication that we can all be in the same room, our differences are small enough we can be in the same room and talk about what we think is going on in beijing. as john mentioned, we're going to have two panels. we're going to cover politics and security and been turned over to terry miller, my colleague in our center for international trade and economics center. he will pick up on the economic side of the conversation. this panel first up will have turned to, trick of research and

they seem to fill out the john l. thorne china centered in foreign policy program at the brookings institution. is also director of the national committee on u.s.-china relations. dr. lee hasn't been a the university of california, berkeley. yes a ph.d in political science from princeton university. he is author of many books on the topic of chinese politics including nationally acclaimed rediscovering china commandant amos and the limits, reform from 1997. he is currently working on another two books, two at the same time. that takes a lot of talent and time. one is called chinese politics, and the other, middle-class, pioneering chinese global integration. not an exaggeration to say that dr. li is the steps foremost expert on china politics but we're very pleased to have them here. we are also pleased of doctor christopher yung. doctor young is a senior research fellow at the esta for national strategic studies at the university.

doctor young is the author of the book entitled china's -- that was published in 2010. chris has a ph.d international relations at the school of advanced international studies. he holds a masters degree in east asia china studies from the same institution. will then turn to dean cheng. he has been our senior fellow for china political security here at the heritage foundation pacificare asian studies center for by more than three years. i'm reminded every day how great it is to have him around because he's right down the hall from me and i can publish it in at any time and tap into his enormous enormously, enormously full brain. dean brings extraordinary talent

and expertise having worked 13 years as an analyst, first with science application international corporation, and then with the china study vision for the center of the naval analysis. dean earned a bachelor degree in politics from princeton university in 1986 and a steady for his doctorate at mit. so with that i'm going to turn it over to dr. li. he will get us started, and bridges go through, take maybe 10, 15 mins each and hopefully we can get to question and answer pretty quickly. thanks. >> [inaudible] >> can you see that the screen? great. thank you for the kind introduction and honor to speak to you today. i recall that i was hit twice over the past 10 years. month was on the eve of the 16th -- the other was five years ago on the eve of the

17th party congress. very nice to be back. each time i do a great deal. [inaudible] now, in my 10 to 15 minute presentation, it does not work at okay. for some reason it's very, very slow. i should hit 10 times to get -- that's about help? -- does that help? just a second. yeah, i will address three basic questions. first, who are the main candidates or competitors for

the new power bureau standing committee? what is the likely composition coming up for our? secondly, i will address who are the main competitors for a new military commission? what are the major issues regarding this change in military leadership? and finally, i will talk about how does the composition of the up-and-coming generation of top military officers affect the relationships with the civilian leaders? now, the first one, who are the main candidates? we certainly heard several versions at one point, 0.0, 3.0, finally 5.0. but i believe that a little bit too early, there will be a leak like what happened, but usually a week or 10 days before rather

than three weeks before, i think it's involved serious competition negotiation. this is quite long and there's so many issues. not only does a personnel issue but also related wisdom, the other issues like whether hu jintao will stay on as chairman, and -- stomach may have to retire to theaters and how to avoid this kind of two men interfere in politics behind us and. there's some law on regulation need to be adopted related with a personnel change. and also, when i look at the i i initially said that's not credible. why? because it's really out of balance between young people and hu jintao's people. there's really five, five among

the seven standing committee. hu jintao's people have only one, one and have. this is not right. immediately you can see i think there's a tremendous -- balance of power should be four versus three. or some other consideration. sometimes there's also last minute changes. this reminds me, when he was asked how could it be possible -- [inaudible] his brother's running mate, and then vice president, and he said we just involved very fancy discussion. we are so kind. [inaudible] and also there's something quite

new this time. it's a possibility -- [inaudible] since 1987 they have been -- central committee. there are 2000 delegates. but the power bureau, more candidates, but this time there's a possibility they want to get back to 25 members. then there are 20 people on the ballot. three of them would be a limited. this also becomes complicated one of them or two of them could be any candidate. so if they adopt this policy you really do not know for sure who will be on the standing committee. and also there's a consideration even maybe there's a possibility that the standing committee itself will be also members subject to election, like seven hours, eight people on the ballot. so there's a certain degree of

-- the candidates that we do know, we do know the candidates and we do know the candidates chance to be on the standing committee differ from each other. some people have a better chance than others. now, this is the 12 people i've worked out beginning -- [inaudible] it happened to be also the top seven people, top eight among the top eight now according to a leak. and the league through reuters there are seven of them. for on the left, and the three on the right topside. these seven people they consider, the standing committee. again, i am not sure. i think there'll be a lot of changes but certainly these people bowed well for very -- sound like now, but again, there will be some other changes and

for different consideration. it's very likely it's the case. now, the balance of power will be maintained. now, these lists on the left -- [inaudible] father, father-in-law or vice minister. on the right, all of them have career from chinese -- this is hu jintao's power base. this is the divide. this is clear-cut divide. so i think that the balance of power will be very important. now, let me go to the second question. who are the main competitors of the commission, and what are the major issues regarding this change in leadership? early on, when hu jintao stepped down as chairman, or whether he

will -- [inaudible] way of gradual retirement. so stay on for two more years. now, so if hu jintao steps done immediately, whether or not the protége would become a civilian vice chairman is also -- according to hong kong and elsewhere, this is a consideration. i do not know whether it is true or not, but there's a differen difference, signals. i'm not sure but i think 55% chance of hu jintao will stay at the this is based on several, maybe three evidence. one is if xi jinping -- [inaudible] two or three weeks ago. his absence in the major events seem to indicate that hu jintao will probably stay on.

second, according to an interview, he told media that hu jintao will stay on. and also based on my reading of chinese official discourse, this would be the case that but again, this is a 55%, and we do not know for sure. secondly, it's also consideration the military top leadership, too many officers, military operation rather than political affairs. because they have to distinguished career paths for military officers. usually they hardly switched to each other. some along the political affairs, personal appointment and ideology. the other our armed with chief of staff, commander among different levels, chief of staff, it's a. these are two distinct careers. now we see the top candidates, the majority of them, in the military operation career. i highlight there. also there's a balance of --

previously was dominated by the army, the leaders come from the army. but not easy the right of air force and navy, and you do need to maintain a degree of balance. and finally is the is is the isf princess. one difference between military and the civilian military and chinese, you have a distinction between -- [inaudible] and also protége. but in a military that organization is very, very week in a military. organization is very, very week in a military. so, therefore, there's no news leak in the military. [inaudible] usually they come together, although some of them

also is like each other. but generally they have same identity, same value system, similar, with some exception. but usually come together because they are more tempted, they move along their cover. they are very critical. now, as we know this is current 10 member of the military members of the same commission. as we know, seven of them will retire. only these three people still can remain because they will go on after 1945. according to previous party congress, anyone this time, you know, joint before 1944 should retire. these three people are still able to stay for one more term. now, who are their successors? is really unclear. here are the candidates. i divide them up. again, this is not a clear

defining line for facts to some princeling more closer to hu jintao. some of the also very close to xi jinping. but still it's very important way to look at tension with a note of these the eight candidates. now, this is including xi jinping. he at least will be vice chair. also 45% will become chair of the commission. he is currently a member and he will stay on. now, because of -- previously was a competitor but because of his ties, i think his chance become very, very slim.

the same case, previously could also be candidate but now whether you be a member. [inaudible] these leaders are also rising stars, both of them princeling. my most likely lineup. the only civilian vice chairman. promoted from members. now, the other eight people represent different services, departments. and with the two people i think

both are competing. both are debating for director. now let me move to the final question. the composition of top military officers affect relationship. with civilian counterparts. here i want to address three issues i think are very, very important. one is that this time is really very high -- very much expected in the military. we know the top leadership is a 70% chance in the power. standing committee and executive committee of the celtic but in the military it's also 70% top of the i will also show you the level next to the top has very

high speed. the cyclone is the growing power of military leaders with the trend of the. unprecedented high. i will show you a table. and, finally, you see the very -- on one hand it is -- [inaudible] or in the natural sciences. dominated by technocrats. nine members are seven members of standing committee. and all of hu jintao's team. also really all in the years, five years ago. [inaudible] but in contrast, military officers become increasingly technocratic. this will have a strong implication and table for china's decision-making process where military officers are

challenging the authority of civilian leadership. let me show you three tables. you can see that total number of the military members and the 357 central committee members, military count for 65 seats. but the party conference among them, 43 our new. so two-thirds are new members. so military always have a very fast rate in top leadership. i believe that this time will be similar, will be higher in military. to look at the delegates from military. now, this is the princeling. you see the percentage increase over these years from 13% in

1992, to 14% in 1997, 25% in 2002. this dropped 18% five years ago. but this time i believe it will be around 42%. previously still running, could be over 50%. this is really something very, very unusual. quite disturbing. may cost some of military officers very unhappy and there will be a lot of criticism. this is situation. the other is, as i mentioned about the decline of the technocrats and civilian leadership. this is the study i conducted over the past two decades about the rise and the fall of technocrats, focusing on mr., secretaries and governors. you can see 1992, only 2%

ministers, you know. but increase to about 30 or 40% in five years later. reached a peak in 1997, 15 days ago, about over 17% of technocrats being in these three important leadership parties. but start to decline in 2008, roughly between 26% to 41%. based on my study, i think they will be for the decline become about 25% in these institutions. but in contrast, military leadership you see rise of technocrats, particularly the major general level or even the colonel level. they did not have -- [inaudible] joined the pla after received ph.d in civilian universities.

work in science technology, navy and air force and aircraft. so that's an important very important economic. thank you very much. [applause] >> thank you all. thank you, jeanne, for the invitation to come talk to this i just agree but i also want to thank charlie for taking on a very, very difficult topic. the who's who in c&c and the bureau is a very, very intricate and detailed and complicated problem. ..

>> most likely see a continuation of policies that we've seen for the last decade. let me lay out my reasoning for why that's the case. first, if you look at all of china's assessments of their own strategic and security environment, by and large they make the argument that the security environment is relatively stable, however, there are or problems along the periphery, and there are definitely threats that the party and that the nation needs to deal with at lower levels. so by and large the chinese are arguing that we have largely a stable security environment, and they use the term we need to take advantage -- this is an era of strategic opportunity that we need to continue to take advantage of. when we go to beijing and we

talk to pla and chinese scholars, they consistently make that reference to an era or period of strategic opportunity that they need to take advantage of. that, to us, when we read between the lines, that essentially means there are going to be free riders on an international system that the united states has essentially created and that they will continue to develop their economy and their military capabilities along those lines. now, they specifically identify certain threats that they need to address, and i'll talk about those subsequently, but by and large, they see the environment as relatively stable and that they need to take advantage of that. secondly, another way of skinning this cat is looking at the party's guidance to the military. what is the party saying to the military in terms of how you need to prepare? the party has increasingly been making statements about the strategic guidance it needs to make to the party. and if you look at what the party has been directing to the military, that, to me, does not suggest significant change.

for example, the party has been arguing that the military needs to continue to professionalize itself, it needs to improve its capabilities to meet certain threats that the party's facing, it needs to -- the military needs to face certain threats further afield to protect the national interests, say, in the gulf of aden or further away from china. these are, essentially, tasks that the military can sign up to. these are tasks that naturally militaries like to take on versus during the cultural revolution or other periods when the party was constantly pushing the military to revolutionize, to engage in party struggle, etc. so the kinds of tasks that the party's been giving the military are certainly the tasks that the military can sign up to. um, a third argument for why we're going to most likely see a continuation is that the fact of the matter is over the last decade to 15 years the

modernization has worked out pretty well. if you look at chinese military modernization, we can, i think, all agree that it has pretty much been a success story. so, for example, the most recent example, of course, is china's aircraft carrier. now, we can talk about how effective that is and what else needs to be done, but that is certainly a symbol of the fact that china's come a long way in the development of its forces. but we can look at other examples. the sheer number of short-range ballistic missiles that china has required and can now inflict intense amounts of pressure and punishment upon taiwan is a testimony to how effective china's military modernization has been. the force modernization of china's navy and air force. if you simply look at the number of ships they're procure, the number of submarines they've been developing, so i don't think anyone can make an argument that china's military modernization has been a disaster.

now, you can point to certain problems, and we can certainly talk about that, but by and large, the military modernization over the last ten years has been relatively success. so i think a good argument can be made that that approach of modernizing the military will continue gradually. what pace, we can debate about that, but by and large, the approach the chinese have taken with regard to professionalizing and modernizing its military has been pretty successful. so if we were to look ahead, you need to make an argument about what generally has been guiding china's actions, its defense policies, its force structure over the last decade, and i think you can look at two general frameworks to do that. the first is, by and large, the party's guiding theory to the military. and two things come from all the things that the party is saying to the military. the first are the new historic missions that came out about eight years ago. hu jintao made a speech at the

cmc in 2004 saying here are the mission that we expect the military to take on. there's some evidence to suggest that these are based on some of the wars put out in 1997 on the party's historic tasks. this is an every louis their -- evolutionary tasks from what the party laid out at the end of the '90s, and hu jintao and the military then took on and laid out in very clear fashion the missions that the military needs to take on. and in addition, the other guiding strategic framework we could use is the, essentially, hu jintao's scientific development concept, and i'll talk about that in a minute. the new be historic missions. essentially, you can boil them down to four basic missions. the first is to provide a security guarantee for continued party rule. essentially, the pla's essentially being held to

continue to protect and make sure the party continues to function and rule. secondly, provide a security guarantee to safeguard national development. now, you can read a lot into that, and a lot of analysts have said what does that specifically mean, but a lot of missions could be pulled out of that. it could mean internal security missions u counterterrorism, but also mean that taiwan doesn't split off from mainland china, protecting china's maritime sovereignty interests in the south china sea or its sovereignty interests in the east china sea with japan. interestingly enough, you can also apply new domains, cyberspace missions. so if you look at the how the pla may be taking on some of these historic missions, you can see them in some of the things the pla's been doing over the last few years. the third historic mission has to do with providing powerful strategic support for national

development. that might mean protecting the national interests far and abroad from china itself, so being able to protect chinese citizens in countries like africa, so the counterpiracy mission that we saw at the end of 2008 could be a reflection of that mission. and then finally, the last historic mission is to play an important role in safeguarding world peace. sounds like a lot of fluff, but the reality is what's been going on over the last decade, actually longer, being involved in military diplomacy, sending out a hospital ship to do medical diplomacy. so although i'm reluctant to always take at face value things that the chinese commune party puts out -- communist party puts out, there's a blueprint for the missions that the military's being held to, and we see evidence that the chinese military's taking on that task

and actually conducting missions to do, to do, to support the historic missions. now, the scientific development concept is, doesn't receive as much play in the west, but in china it serves as a very, very important guiding principle for the chinese communist party and, in fact, many argue and that's who's basic and primary contribution to theory and to social development in china, basically, the concept comes down to the idea of comprehensive, coordinated and sustainable development. so i guess from a larger point of view this has implications for economic development, making sure that income inequality doesn't get out of control. but from the interspective of what this means for military development, army building, um, it has certain implications. and we know this has direct implications because the chinese constantly write about it. so in plenty of journals where

they talk about the implications of the scientific development concept towards army building, towards naval force structure, there are specific discussions about how hu's concept of scientific development has implications for the development of the military. and so what kinds of things do we see it affecting the way the pla thinks about development of its force. well, for example, the party's insistence that the pla professionalize its force, that they recruit highly qualified personnel, that they reform their training, um, and provide rational and effective training programs for the military. the reforms in, um, the military academies. all of those initiatives have been argued to link back to the scientific development concept. i was just at a conference on the pla this past weekend, and one other issue that was brought up at that conference which, by

the way, involved some of the best minds in the country on the pla all gathered to talk about the people's liberation army and its direction, but one of the concepts was the idea of, perhaps, china's revolution military affairs, their fixation on that idea related to science and technology and a system of systems very similar to our concept of these, of future warfare is related to the scientific development concept. so there are a number, a number of initiatives that are related to this, this concept that hu has put out. now, in terms of force structure implications, the forces that would be necessary to support the new historic missions, i think you can automatically draw them out. if you have a taiwan contingency

and you need to address that, it's very, very straightforward to look at what kinds of military capabilities do you need to support a cyber mission, a space mission, a taiwan contingency, addressing maritime sovereignty disputes? i won't go bullet by bullet to discuss that because i know we have a time limitation, but certainly in the q&a i can draft what those force structures are. but by and large, i think the bottom line for me is there's a good argument to be made about the continuity of policies that have been pursued by the chinese military over the next decade, and i guess we will know for sure when the party congress comes out, and they start making announcements about the state of play. and we'll know for sure if that's the case. by and large, i'm going to put money down that by and large there'll be a continuity of policy, and with that i'll, i'll stop. thank you. >> thank you. [applause]

>> is this on? seem to be having just a little bit of difficulty today with the technology. i wonder if it's made in china? [laughter] it's always extraordinarily daunting to share the podium with experts of this caliber because especially when you go last, the question then becomes, what the devil are you going to say that hasn't already been said and said better? um, so i make no promises regarding that, but i would like to make the following observations. um, the party that emerges at the 18th party congress, the party leadership including the military leadership will be in office if past president is anything to go by for about ten

years. now, if you think about how far china has come since 2002 when china was not the number two economy in the world, when it was -- nobody talked about the g2 at that point, when you consider between 1992 and 2002, min's period in power and how many changes occurred not only in china, but along the periphery among its relationships, we should be very careful in both what we hope for, but also in limiting our expectations. i think one of the things that we really expect, what we really do hope for is a return to pragmatism. um, especially over the last couple of years when china's relations with its neighbors seems to have deteriorated whether it's south korea, most recently with the shooting incident involving a chinese fisherman, whether it's the japanese over the issue of the -- [inaudible] south china sea, india.

we see china antagonizing almost all of its neighbors simultaneously. and there is, perhaps, the hope that, well, maybe it's politics. they're going to a power transition, no one wants to look weak. so when it comes out the other side, maybe everything then will calm down, and they will revert back to the line of hide your abilities, bide your time, don't take the leads, seize opportunities because success will eventually come. um, certainly that's something most people would hope for that the region will revert back to its normal boil rather than a higher-pitched boil. the problem is that it's quite possible that it won't, and part of the reason for this is that in a sense what we are seeing in china is the reintroduction of politics. um, now, that would seem very odd for a place that's 5,000 years old and has always had politics, of course. but over the last 30 years in a

sense politics was short circuited courtesy of dung cho ping. you could argue and have your tiffs and disagreements, but at the end of the day when he was alive you could go to him and say, almost like in a family, dad, will you make a decision, mom, will you make a decision. and dung in his position as a revolutionary leader -- after all, he was on the long march -- could make a final decision. and to some extent even after he passed on, hu jintao, importantly to remember, was picked, hand picked by dung. so there was dung, dung picks his successor, dung picks his successor's successor. presumably in the same knowledge that his policies would not be reversed. and then in the sense then there was that appeal, why am i doing this? because it's what dung would have wanted.

but with this new leadership no one can make the claim that they were what dung wanted, and what we instead see is the reemergence now with no final arbiter. instead, it's politics. it's making arguments, persuading people, etc. and that is part of a process that is going to be very different. when you have differences whether it's among the factions or by age or by other, by region, who will make that ultimate decision? within the central military commission, this is going to be further exacerbated by not only the things that cheng li identified, but consider that the central military commission serves as the leadership of both the pla as a whole, but also of the ground forces. and in particular the supplies of the four general departments. and so if you were to promote a navy or an air force officer to one of the general department

positions, in a sense you are having an air force or navy second artillery officer making policy for the ground force. now, back in the day when the services themselves weren't even on the cmc, that was perfectly okay because the ground forces have always had seniority in protocol and in precedent. so you had many navy officers who were really army officers who simply were promoted to admiral. but reversing that, that's a whole different proposition. and one of the things that we might look for is the possible promotion of a navy or air force officer not necessarily to one of the four general department positions, although it's certainly possible because you have such massive turnover, but at a min all -- min all at the region level. buzz no region has ever been commanded by a non-ground force officer. so this is going to create an

interesting opportunity on the one hand for jointness, but at the same time for bureaucratic politics in addition to the issues of princeling and technocrat and the rest. the problem of the technocrats versus fewer technocrats, by the way, is also going to be a real problem for security policies, and chris laid out a lot of the key issues here. but i would want to augment that with just one observation. the pla is the only source of military information for the top leadership. the top leadership in china, there is no rand corporation, there is no heritage foundation, there's no brookings, there's no civilian entity that is out there that can produce a separate analysis, military affairs. now, china has lots of think tanks, but here it's important to remember there are no private think tanks in china.

every think tank is affiliated in some ways controlled by a government bureaucracy. and so while certainly it's possible that they will produce objective analysis, it is at least theoretically possible that they will be influenced by their bureaucratic patron. and so in the event of a crisis, who will these less technocratic civilian leaders be turning to, but military officers who themselves are more technocratic and will have in some ways an ultimate argument, i know how tanks work or aircraft carriers or amphibious operations or cyber warfare and you don't. and so trust me when i say we need to do x. and that should be a source of concern over simply how the chinese will be making decisions about the ever more complex security environment that

they're finding themselves in. and so let me conclude my portion of these remarks simply by saying that we should probably be limiting our expectations. the new leadership that is coming in is going to be influenced in some ways more by politics, intraparty politic, interpersonal politics than perhaps has been true in the past, that any new leadership always has a test -- transition peerld, and as americans our timeline is always often shorter. so perhaps we shouldn't be thinking about the chinese first 100 days or even the first thousand days, um, especially if you think that they are going to have ten years in office. thank you very much. [applause] >> thanks, dean. i want to open it up to questions while you all think. i'll come out to you in just a

second, i wanted to follow up on something dean asked and maybe ask our other two panelists to comment on it, that is the issue of continuity. you know, i don't find that terribly reassuring, actually, given the last few years and given especially the last year. like dean said, a lot of what we've heard is whether it's just politics, south china sea, a matter of politics, and as soon as we get past this political situation, things will change. what do you think about that? do you think that on the things that we hope to see change on that is some possible approach to south china sea, some or sorf patching up things with the japanese, will we see some change by virtue of the political season having passed in the next couple years? do you want to start? >> well, i think it's an excellent question. just give me an opportunity to, you know, to say something maybe a little bit different from the

two distinguished panelists. i do see a change and also to see the challenge is so overwhelming, the leadership need to act very quickly. if they do not act very quickly, they are in big trouble. now, to certain extent look at each generation of chinese leaders. each has different emphasis from, you know, hu jintao's hard moan juice -- harmonious society/scientific development. you know, development at all costs to promote entrepreneurial z class. pay more attention to issues of environment, energy consumption

and the vulnerable social groups of migrant workers and etc. but i think the most important thing is the crisis china's leaders face now and the huge corruption it's revealed and use of power by elites. i think the very legitimacy of chinese communist party is in jeopardy, so for new leadership they need to do something very big, very quick and very decisive. and also at the moment chinese economy slow down. this is also unusual, and you cannot wait for another five years to see some new policies. and look at today's world, honeymoon period for every leader, every country is short. in taiwan's case, second term is no honeymoon, immediately receive criticism. so i think he will have his honeymoon, but only for a few months. in these few months he needs to

do a lot of things, particularly on the political reform agenda to entail that the corruption will be seriously dealt with, the rule of law will be respected, and he should have also provide a new team. now, also there's something that are new. if you look at the 1980s and today's china with a similar crisis, society act a little bit differently. chinese economy largely not disrupted. why? because of some new forces. new entrepreneurial class is new, legal profession is new, and commercialize and media is new, interest group is new. the politics is new. since early on there are many others, he reach out for public support, so the game is new. so i think that we probably will face some very, very dramatic changes in the months and the years to come, and some chinese

interaction say culture change take 60 years, economic change take six years, political change take six days or in a weekend. [laughter] >> i generally think that, um, the election cycle or this election environment did have a hardening effect on the chinese leadership, but i don't think that, um, what we can expect following this is a period of peaceful, nonconfrontational policies. i think those will erupt for the following reasons: one, china -- as i indicated, the chinese enlisted maritime sovereignty disputes as one of their historic missions. so by and large, the chinese have said this is an interest we will protect. what threatens those interests? by and large, the chinese are generally interested in keeping

maritime sovereignty disputes down because they want a peaceful strategic environment in order to develop. so what causes the chinese to then act aggressively and hostile? if you ask the chinese, they'll say a couple things normally trigger that. first, certain activities by our rival claimants in the south china sea will normally force be us to take action. the passage of some national territorial laws, allowing fishermen to fish in territorial waters that the chinese claim their own. so the chinese claim it's normally some sort of triggering event that causes us to have to react, and it's particularly acute during the selection cycle before a party congress. but that kind of behavior and activity can continue past the party congress, and so our leadership cannot afford to look weak given the fact that there are legitimacy, nationalism, etc. going on in china requires that

china has to look firm on a lot of these issues. so i do see a continuation of hard line policies when at certain actions or activities take place in the south south ca sea or the east china sea, perhaps the chinese would be more willing to negotiate and try and resolve these issues peacefully when you don't have a party congress coming up. but i also see the chinese willing to make use of force and make use of kinetic options like the use of law enforcement vessels to try and control a situation is and try and assert their sovereignty claims. so that's my basic view on that. so i do, i do think that, um, party politics, party congresses do have an effect be, but i don't -- i would not predict a very peaceful, tranquil time over the next decade or so, by no means. >> great. that's terrific. everyone's here to hear you guys, so i won't say much, but that's why, that's half of why i

think that this quick and easy analysis that everything just goes back to normal in u.s./china relations after the election on both sides is just mostly the chinese and a lot of interested parties in the u.s. trying to make themselves feel better to get through this, but i agree, i think we're in for a rougher time over the next several years. right in the back. >> yes. >> we've got a microphone, i think. >> yeah, hi, richard finney with radio free asia. this is a question for dean. just to follow up and continue with this question of domestic political reform, is the new approach to politics that you're observing in china, you know, persuasion, argument, is this going to create more of a space now for reform in domestic politics? >> well, i think that one can always hope for domestic reform in chinese politics, um, but as

my colleagues will tell you, i am probably the most pessimistic person in the office. and i would say the following: the chinese current leadership has often talked about the need for political reform, and we see very, very little evidence of political reform on the ground. and here we have only one degree of separation from dunk what ping because dung picked hu and hu's cab maine -- cabinet. the prospect of implementing reform with a new leadership that is more divided is difficult to imagine. but as important, political reform to what end? dung what ping supported economic reform because china needed to get its economy back on track. politics today with the

princelings, with the appointment of so many children to corporate positions in both state-owned enterprises and private sector means that political reform opens up potentially economic consequences, and here -- to borrow a line from an old movie -- never mess with a man's livelihood. political reform that carries with it the potentiality of beggaring senior party leaders or their children or their families is the sort of thing that probably would be more of a brake than an accelerant on serious political reform. >> cheng li, you wanted to make a point? >> well, it's a very good question talking about societal forces, the pressures. i think it's getting momentum. and we discuss early that i agree with my colleagues that we are going to see a collective leadership. this will be continuation. because of internal factional

tensions, sometimes very difficult to implement quickly about policy, so deadlock become quite often. now, people say this is bad system. some people ask for strong leader. now the strong leader, you have -- [inaudible] options, well, she lie like strong leader who can get things dope. do you want that option? no. but the important thing is there's something else. it's a system more democratic, reach out to public but also make the political system more accountable, more transparent, more accountable, more representative. that's the scenario, that's the scenario china should go and the more and more the discourse argue for that. now, early on -- [inaudible] but there's one thing i did not mention, is social media plays such an important thing. it's new, and my friend at microsoft told me that within 18

months china's a trader from 0 to 300 million. but still continues. now, this event we air c-span very quickly so many we talk thousands, thousands people in the twitter also will talk about our meeting. now, brookings will host an event this thursday -- [inaudible] [laughter] it's about tobacco and public health crisis. now, this is a very important issues. this is also become very, very sensitive about the public health security. so people with middle class, with commercialized media, with interest group politics, with the technology facilities is kind of slow, i think the leaders if they are smart, they understand they need to change. i'm actually optimistic. i do believe that the new leadership -- and it's not so much about they are democrats, but they're smart and understand if they want to survive, you

know, dean used the very right term, survive. they need to change. >> okay. other questions? can i come back to you on that, on the issue of collective leadership and those factional infighting and all? i mean, do personalities matter at all? i mean, say in the current race in the u.s. we're looking at, you know, who would be secretary of state if obama win, if romney win, who would be secretary of defense, how this would -- it's not the same, there's a little bit of factional stuff going on, but it really matters who the people are, personnel or policy basically. is it completely off the radar screen? does it matter at all in chinese politics? >> i can talk a little bit about that. i mean, one of the things we are, we are definitely seeing at least the party's at least stating that they're trying to make themselves more institutionalized, more

bureaucratic and their responsibilities shifting from a personality-based system to one that's more bureaucratic, institutionalized, professional. and so at least in terms of what's being said, the argument personalities should matter less. now, whether or not -- we all know that it's nice to say those things. whether or not that's the reality, i don't know. but from the perspective of party guidance to the military, party guidance to its own cadres, the idea that the purpose of the party is to essentially help china move into a certain national development level and the way we're going to do this is by trying to professionalize everything and make everything institutional, that's what you're getting in terms of the -- that's what you're being told. now, again, i defer to my colleagues in terms of whether or not that's reality or not. >> well, excellent question. this is why we pay so much attention to the -- [inaudible] among members.

their experience, their professional ties. of course, china is no democracy. these people do not agree to the campaign like we do, but still we know some of their views. actually, his behavior also widely known before the crisis, and also we know some of the leaders are more liberal. people pay attention. now, this kind of chinese check and balances is what i call one party, two factions. this is awfully important because you do need to have some conservatives to balance the liberal approach, the society can move forward. this is our political system -- [inaudible] very best balance. rather the current leader talk about two limited seats, the other is the police czar, one is the propaganda czar.

now, if that's the case, you really reflect the reform agenda and also the secretary general have more power to make initiative, otherwise -- [inaudible] like what happened in years, hu jintao's power always constrained by -- [inaudible] so to defy what's your responsibility, what's your power, what's your limitation, it's the things we need to discuss. so i think each and every individual are important if -- [inaudible] they will tell you which leader, which faction, what -- [inaudible] that's completely in the dark. >> interest. do you want to comment on that, dean in and before you do just as a wrinkle in the question is what about ministry of foreign affairs? do you see any sort of empowerment in the changeover to the new minister, and will it matter who he is, or is it just a bureaucratic thing? >> um, i was simply going to say that one of the interesting things about the social media aspect and the personalities is

if you think about it, chinese leaders tend to come in when they're fairly older, usually late 50s, early 60s. so for this generation of leaders n a sense, you are looking at people who grew up in the age of the telex in a twitter age. that's a completely different set of speeds between what you glue up in terms of how you got information how quickly and how quickly you translate information today. and so a modern leader, the chinese leader who understands social media, who can operate at the speed of twitter will are have -- that's partly personality and comfort with technology -- will have enormous advantages. potentially, li was one of those people who had that. now, of course, his individual personality plays into this. with regards to the ministry of foreign affairs and the like, it is important to recall that

there hasn't been a foreign minister on the poll lit borrow since back at the end of the 2000s, the beginning of the 2000s. so the foreign ministry has been bureaucratically neutered. um, now whether that will be true in the new party congress, at the new party congress in terms of the new leadership if, for example, you actually had the person who had the foreign policy portfolio being on politboro's standing committee, that would have enormous impact whatever the personality. now, of course, it would help if he was personable and had a good fashion sense, whether or not that was true, it would certainly alter china's face to the world than if there is no foreign minister even on the politboro. >> well, i'm going to leave et there for us. thank you very much, i really appreciate you guys being here

and leading such a great drug. [applause] i'm going to invite terry miller up here to take my place, and our next panel will get started. >> all right, let's get started with the second discussion that's going to focus on the economickish -- economic issues. i'm going to start this off just with four general observations that i think you all quite well know but perhaps people sometimes tend to forget. the first is that china is very large. this means that what happens in china matters for the rest of the world, and it also means that what happens in china

matters for a lot of people because a lot of people live in china, and their well being is an important thing for not only the chinese government, but for all of us who care about progress and humanity. the second thing is that china has been growing very fast. the chinese economy's growing, it's averaging double-digit growth rates for a very long period of time, and this means that they must be doing something right. but this can also mean that it's creating an illusion of doing something right, and in fact, could be hiding some very negative kinds of economic policies that are being pursued. so that's, i think, a question open for debate. the third thing is that china is still relatively poor compared to western developed societies. china's income per capita, on a

per capita basis is quite low compared to the standards that we enjoy in the west, and that's a gap that's going to be driving the chinese leadership. i think there certainly will be a recognition that they need to do something to close that gap with the west. and finally, of course, china is still very much a command and control economy. um, there's been little reform over the past 30 years, and i think a key question with new leadership coming in is can we see an actual resumption of reform to liberalize the chinese economy and fully integrate it into the global economy. it's partially integrated now, it's partially integrated with very large flows in some cases, but certainly not fully integrated. so we assembled what i think is

an an extremely distinguished and diverse panel here today to discuss this issue. arvind subramanian right here on my left is a senior fellow jointly at the peterson institute for international economics and also at the center for global development. his book "eclipse: living in the shadow of china's economic dominance," was publish inside september, 2011, and he's co-author this year of "who needs to open the capital account?" he advises the indian government including as a member of the finance minister's expert group on the g20. he previously was assistant director in the research department at the international monetary fund. he was, served with the gat during the uruguay round, he's taught at harvard university's kennedy school and johns hopkins

school for international studies. he holds a doctorate in philosophy from oxford. melanie hart's a policy adviser for chinese energy and climate policy at the center for american progress. she's also worked on qualcomm's asia pacific business development team, she was a project consultant for the aspen institute. she's worked on chinese domestic and foreign policies for the scowcroft group. let's see, and also for the university of california institute on global conflict and cooperation, and she's also worked as a chinese english translator. melanie has a ph.d. in political science from the university of california san diego. and finally, derek scissors is senior research fellow for economics and heritage foundation's asian studies center. he's an adjunct professor at george washington university where he teaches a course on the chinese economy.

before joining heritage in 2008, derek was at intelligence research, a global consulting firm. he has a master's degree from the university of chicago and a doctorate from stanford university. so i think we're going start off with melanie. >> good morning. i'd like to thank the heritage foundation for inviting me. our organizations often don't agree on things, particularly on domestic policy, but this past summer we invited derek and dean cheng over for a conversation on china, and we realized we do actually agree on some things on china. and so that was really fun. we have some remaining disagreements as well, but further dialogue is great, and i hope our politicians can do more of the same. i'm, we're here to talk about the economic side of china's leadership challenges, and the previous panel was talking about the pla and, basically, the message that i took away from that was that things are going pretty well with military

modernization. and the new leadership just needs to keep things going. on the economy that's not quite the case. .. now it's not. >> they spent billions going through, channeling money through state thanks primarily to state owned enterprises to roll a big new investment projects and keep the economy growing. that resulted in a bit of the

stimulus hangover. the big inflation that was increasing food prices and other consumer prices. the chinese government therefore had to tighten of monetary policy to bring the economy out of control and avoid creating a big bubble. they overcorrected just a bit. wound up triggering what we're seeing this year and slowing inflation. the problem is what they are seeing now, if you look at the grass on the scene of china's gdp quarterly growth over the last few years, what they are seeing now looks like, it's not quite as sharp trajectory of decline that we saw prior, printed with the global financial crisis but the problem is right now they cannot use the same tool that the used to pull the economy up in 2008 in 2009. that's because in addition to these short-term pressures they are facing a much, much bigger problem. that bigger problem is that their economic growth model is running out of steam. china, for the past two or three decades, has been in an early

stage of growth. many other countries have experienced that same growth stage including japan and taiwan. the way the early stage growth works is when a country has a big population, being underemployed and agricultural sectors, and they start moving the people over into industrializing modern sectors of the economy, productivity can increase their rapidly. you can produce very rapid first stage growth rates that china has experienced for the past two to three decades and other companies have experienced. but what happens is you eventually reach a point where you have a critical mass of their citizens that are no longer in that low-wage, unskilled agricultural growth goal. this is great for the chinese citizens, and they are finally reaching the point where they have a growing middle class, where more families are spending their -- cynic their children to college and want to have more higher wage postcollege jobs. and that's key production jobs in factories located far away from where the families are.

so china has a shrinking pool of labor willing to do these unskilled, low-wage jobs to generate product for export at low rate. so they have to, that means they're running out of workers at low rates. prices are going a. china is a less competitive exporter. the only way to move forward is to change the economic model to start relying more on industries that are more innovative and produce higher value added product. not making the ipad cheaper than we can make it here in the united states but rather making the next ipod, or ipods next challenger, so they get a bigger chunk of the rights at home. the middle class has good jobs. the problem is that is very, very difficult to do. that will require basically every structuring of their entire economic system. first of all, you cannot create good level playing field for innovation and less you reduce

the presence of state-owned enterprise. currently, chinese economy is very much dominated by as a we. as we output with six times that of private enterprise output in 2004. in 2011 it was 11 times. and so the s.o.e. sector, instead of shrinking has increased. that is a really big problem. because the managers and the top leaders of state owned enterprises are basically political appointees. they are appointed by the organization department just like a provincial governor or party secretary. and although we have a lot of problems with the way we select ceos and the way we pay ceos in the united states, china's party system for selecting these leaders is actually much worse than ours. and i recently was lucky enough to attend a talk with the founder of the nova in china and the way he was describing it is these leaders of state-owned enterprise and all i care about is implement the regulations and

those types of policies sent down from higher level leaders. they aren't focusing on disruptive types of innovation that might challenge other companies in the system. they are more plodding forward. they can to the process innovation. state-owned enterprises can find a way to make products like the ipad cheaper looking for efficiency gain. but they're just not good as those big breakthrough innovations china will need to keep the economy going and create high-paying jobs for chinese middle class. the second absolutely critical chance they have to do is to level the playing field for financing. currently, it is almost impossible for private sector enterprises to get financing from chinese state thanks. basically all of the financing goes to the well-connected state-owned enterprises and a few private enterprises that have a government of local government connections. for those companies that relatively soft budget constraints. they can get very big loans at very low interest rates, sometimes zero interest because the local government sometimes

reimburses them for the interest payment, but for private enterprises i hear from small to medium enterprises that big banks will meet with him. and the smaller banks either laugh at them or ask for a bribe to get a loan approved. a lot of private enterprises have no choice but to go over to the black market for lending. and as we found out with some of the big crises been happening over the past year, those lending rates are in the triple digits. the small to medium enterprise may have to pay 1% interest to get started. and so that's why we have a situation when their businesses were not looking good, we have ceos just laying and leaving everything in place or committing suicide. so we absolutely cannot underestimate the problems facing the growth of the private enterprise sector in china, and the fact is despite is unbelievable problems 80% of china's best innovations have come from the private sector, not from the s.o.e. even though the s.o.e. getting all the support. 90% of china's new growth, new

jobs creation is coming from the private sector, not the s.o.e. even though it's difficult on the private sector so when one man that shows how much growth china can generate if they can level the playing field and give the private sector more opportunities. but on the event it will be difficult. the third thing that actually have to get right is rule of law enforcement on ipr. for the past few decades, we've had this situation where the ipr conversation in china was usually a foreign enterprises versus chinese enterprises and government conversation. where the foreign enterprises were saying someone is copying my technology and this is a problem, and the chinese side was saying in public we understand this problem, it's going to be fixed. but in private single, a boy playing these fees through every means necessary. this is a david versus goliath situation. we've got to do everything we can to catch a. i found provincial level regulatory documents that stated the chinese companies avoid paying royalty and licensing fees on foreign technologies

through any means possible. so behind closed doors or even regular documents, i'm assuming they didn't the thing foreigners would become it was a policy that this was a sort of foreign government trick designed to keep us down. we should get around this. this is very different today. i've been fascinated on my recent visit to china to hear how strongly the chinese companies are actually pushing for stronger ipr enforcement. i heard from a chinese venture capitalist a few weeks ago, he was in a meeting, he was a financier and a meeting between two chinese tech companies. one of the tech companies was bragging about stealing this engineering design and using it to manufacture a product. it was the other companies design and they didn't even realize this. the other company was of course not very enemies. so this is a very new situation. we have no interest groups in china that are pushing for ipr enforcement because now that china is climbing up the ladder, they stand to benefit from it. we have some provincial level

governments as well that are spending all this money and effort in building up their technology champions. and now those companies are starting that some of their own ipr. we have provincial governments that are interested in protecting ipr. that's a very interesting and new situation. it will be very difficult to do because reforming the chinese court system and having independent courts across the board would mean the courts can challenge the chinese communist party and say that restrictions are unconstitutional. of course, that would be very problematic for the leaders in beijing were very concerned about stability. so what i'm hearing from some companies, some companies are encouraging some middle of the road solution might perhaps special course for ipr cases that are on a separate system than the rest of the court system. i've had some companies in china be so strong as to say if the government is really going to be spending all of this money on innovation, then they should understand that every single money spent as a complete waste and we get the ipr side right

because we won't own the output from all of those inputs a chinese society is making. that is not a message i was here in china say, eight years ago when i was working on technology policy in the telecom sector. from my experience this is very new, and i find this to be a very positive. >> host: see chinese companies pushing for this type of thing that many in the west have long-term, line -- longtime thought this would be the best path forward. the party leadership seems have gotten the message. particularly over the past summer what i can hear is that from hu jintao on down, there is a new understanding that the first phase of innovation policy from 2006 onward, beginning with his 2006 to 2020 meeting long-term plan for science and technology development, this understanding in beijing that that first win focus too much on the hardware side of innovation. basically throwing money at companies and engineers, trying to turn the money and expertise

that they have into new innovation output. there's an increasing realization at the various highest levels that they're missing the software side of innovation. that would be things like courts that enforce ip because they are hearing their companies and their investors in china that whenever you don't have to strong ip enforcement, the incentive to go with the lowest risk investment possible, and that's never going to be the biggest innovation. if you put a lot of money into r&d and you can protect the ipr and get a steady return afterwards, then no one will make that bet except for the enterprises which, of course, are not the best investors. it seems like beijing has gotten this message. they have to get to the software side of innovation right to actually do what they really want to be which is to encourage those novel innovations that can go chinese economy of the development chain from where they are now, upper middle income to an actual high income society. that has been reflected in actual policy statements starting in may with the beer on

innovation of the first ever politburo meeting on this topic. then in september 23rd we have a new document from the chinese communist party and the state council on innovation that focuses a lot on building a systemic environment to support innovation. that document does get into things like ipr enforcement and financing. unfortunately, it is also reiterate some of the ministry and science and technology opus on things like simulating and re- innovating, get a, id is generated in the west which we probably wouldn't consider to be novel innovation from western perspectives. what i'm hearing on the ground is more positive at this point than what i'm actually seeing in terms of policy output. i hope that what that means is when we get new leaders at the stage, we might see something a little more progressive. whether or not that comes out over the next couple of years is going to be really important in

determining whether china can move forward through not only the short-term dip in gdp growth but also longer-term challenge of avoiding the middle income trap and not follow the pathway of malaysia and philippines but rather steaming ahead from where they are now to a higher income society. that will, however, be very difficult to do. one case study we can look at is china's solar industry. a lot of people have heard about the trade conflict between the united states and china on solar panels. this is interesting prism through which we view the chinese economy more broadly. because this is a classic case of china really pushing hard for big innovation and winding up with little innovation that doesn't get in to where they want to go. part of china's innovation policy program is targeting strategic emerging industry. this is the industries that beijing thinks will be the industries of the future. the biggest is green energy including solar and wind and electric vehicles and other green energy technology.