China Center Program Manager Shane Leary joins Miles Yu to discuss US Secretary of Treasury Janet Yellen’s visit to Beijing and its implications for economic relations between the US and China. They then discuss the significance of the CCP’s new Department of Social Work and how it further centralizes Xi Jinping’s power. They end with a conversation about the 2023 NATO Summit, and how Indo-pacific security fits into NATO’s priorities.
China Center Program Manager Shane Leary joins Miles Yu to discuss US Secretary of Treasury Janet Yellen’s visit to Beijing and its implications for economic relations between the US and China. They then discuss the significance of the CCP’s new Department of Social Work and how it further centralizes Xi Jinping’s power. They end with a conversation about the 2023 NATO Summit, and how Indo-pacific security fits into NATO’s priorities.
Miles Yu:
Welcome to China Insider, a podcast from Hudson Institute's China Center.
Shane Leary:
It's Tuesday, July 11th, and we have three topics for today. The first is Secretary Janet Yellen's, recent visit to Beijing and its implications for economic relations between the US and China. The second is the CCPs New Department of Social Work formed this past March and how it furthers the centralization of the party's domestic control. And lastly, we discussed the 2023 NATO summit and how Indo-Pacific Security fits into NATO's focus today. Miles, how are you?
Miles Yu:
Very good. Thank you, Shane.
Shane Leary:
Good to see you again. Well, so over the weekend for our first topic, treasury secretary, Janet Yellen, wrapped up her visit to Beijing. The trip was part of an attempt to stabilize and improve economic relations between the US and China, like Secretary of State Blinken’s recent visit, a major focus was developing clear lines of communication between Beijing and Washington. She met with China's new economic team headed by Chinese Premier Li Qiang, who was appointed to the position this past March. She reports that she pressed PRC officials on China's unfair economic practices, urge them towards a more market-oriented economic system, sought to find areas of common interest in which we could work together with the PRC such as climate change and criticize China for their unfair treatment of US companies, especially in the wake of the recent espionage law. What do you make of this trip? What were the main issues on the table and in your estimation, has it been a success?
Miles Yu:
Well define what the case actually means. You can spin it either way. You mentioned Secretary Blinken’s visit is in sharp contrast to this visit. Basically, they're dealing with two major different interlocutors. Blinken visit to China was meeting with the political team headed by Xi Jinping himself. So the atmosphere was pretty ferocious. I mean, he was treated pretty badly and China launches all kinds of complaints and unleashes the anger to the United States. So that one was not nearly as smooth as Secretary Yellen was to China. That's because Yellen deals with a totally different team. That's the economic team, and China's economy is in serious trouble, and China needs the United States much more than US needs China at this moment. So that's why the roll of the red carpet for Secretary Yellen Yellen bowed rather infamously three times. But then the talk did take place and there were some very serious conversations during this trip. I don't think it is the success in terms of any substantial issues have been resolved, but the fact that the sit down rather cordially to explain each other's position in that way, it sounds like there's no major confrontation.
Shane Leary:
As a follow-up among the issues raised and the statements made, Yellen took a hard stance against the idea of decoupling. Something we've spoken about in this show before. She stated, “we know that a decoupling of the world's two largest economies would be disastrous for both countries and destabilizing for the world.” She was quick to clarify that diversifying supply chains when it matters to key industries such as national defense is still very much our aim, but emphasize that these efforts should be narrow on this show. We've talked before about how decoupling is not really a matter of policy, but rather as you've stated, a natural consequence of an untrustworthy and unpredictable business environment in China. With that in mind, do you think any of Yellen's statements to the Chinese regarding their unfair practices went far enough? Do you think this trip made significant steps towards any meaningful guarantees that actually could curb the trend of decoupling?
Miles Yu:
Well, decoupling is a Chinese Communist Party jargon. I mean, nobody in the West is talking about decoupling. As you say, state policy decoupling is taking place in China. That's because of entirely China's own doing. It's created the hostile investment environment for foreign companies. It is almost impossible right now to contemplate any major infuse of foreign capital in China without being subjected to draconian national security laws and anti-espionage laws. So you cannot really find out the basic economic data on China upon which to make an investment advice. So that's why China tried to shift the blame as if no decoupling is a global restriction on China. No, it's not. So I think one of the major issues, you talk about substance major issues, China wants United States to lift technology export control on that ground. Secretary yell did not yield, and she tried to explain to the CCP leaders why national security should not be compromised in favor of economic interaction with China.
I think the Chinese were particularly concerned and worried about the upcoming presidential executive order. That may or may not come forth at this moment on targeting China's technological import from the United States. So all Secretary Yellen have to say was, well, it's coming, but we're going to narrowly targeted a ban on tech export to China. So she said it's coming, but they're going to be more selective. That basically suits China soul a little bit. But also I think the overall purpose of this visit is to figure out a new team with the CCP so that the both sides would have some kind of workable relationship. I don't think anything fundamental has changed because the reality is China is a non-market economy. So that's why to focus on the counter non-market economy measurements are absolutely necessary. And also we have to understand the fundamental reality of China is China is still a hundred percent communist country.
The party itself exerts enormous intervention on all aspects of Chinese economic operation. So those two realities have to be dealt with a clear sense of sanity. So any way to compromise that, it's going to be very, very difficult. And also Yellen being a very senior female official of the US government, and she did have this kind of solidarity touch. She met with several female economists in China. I mean it looks good optically, but listen, we have this kind of a political show in the past it normally didn't work. It reflects of a lack of understanding of Chinese reality. Chinese intelligentsia is under control of the Chinese Communist Party. When Biden was vice president, he interacted with the Xi Jinping quite a bit, who was really the discipline leader in waiting. And during one of his last visit, Vice President Biden met with four Chinese scholars. He thought this kind of people to people touch. It turned out all the four scholars were staunch anti-US fanatics. One of them is the leading anti-US voice today from the People's University. It is quite unhelpful in that regard, but overall, I think Secretary Yellen get a better treatment than the one that Secretary Blinken received.
Shane Leary:
That certainly seems to be the case. Just as one last follow up, as you've stated, nothing fundamental has changed. It seems that going forward there do need to be fundamental changes in our economic relationship with China. In your estimation, what would go far enough is a visit. Is that in any way sufficient? Are there specific policies you would recommend? How would you have advised Yellen to approach this situation
Miles Yu:
As again, we have to treat China as a non-market economy. That's number one. We also have to treat China be totally aware of the fact that the China is controlled by anti-capitalism Communist party. There is no such thing called constitutionally protected property rights. For example, in China, if you don't have a private ownership, you don't have property rights. What kind of trade partnership would you expect from that? And the Chinese state plays predominantly role in China's major trade economic policies, the state driven capitalism, but it's not really a capitalism in a way.
Shane Leary:
Turning to China's domestic politics this past March, the party unveiled a restructuring of the way in which we'll manage key areas such as finance, social affairs, and technological development. This brought with it the formation of new agencies, which centralize the party's control. And thus Xi Jinping's rule. Among these was the formation of the new Department of social work, which will oversee party interactions with civic groups, chambers of commerce and industry groups, and handle public petitions and grievances. Miles, could you talk a little bit about this new department? What is it really? What is it doing? Why was it formed and how significant is it?
Miles Yu:
This is actually very significant because as you mentioned, this is a new organization called the Department of Social Work is normally should be under the state council, which is basically headed by the Chinese premier. No, this one is directly under the central committee of the Chinese Communist Party. So it is a party organization under the General Secretary of Chinese Communist Party that Xi Jin himself not under Premier Li Qiang, which means the party is now going to take control of the massive or the mountain of social discontent. Because the nature of this Chinese communist system, there is absolute ineptitude and inability to uphold social justice and bureaucratic cruelty at the social level at the local and provincial level. So the result is that each year you have tens of millions of what we call petitioners, people who were treated really unfairly at the local level and they all go to Beijing, go to the central authorities to seek justice in fairness.
So that's why you have this major problem of one of the major human migrations each year. That is the mistreated petitioners in China. So this is out of control as Chinese economy worsens. So that's why the party now say no, we're going to take direct control. On top of that, you also have this mass of unemployed people in China. They become increasingly restless. So the new department is established to exert CCP party control center party sales at all levels of the down-trodden population, disenchanted the youth group for example. And there's another aspect of that that is there is a large part of Chinese economy that is a non-state, that is there are individual entrepreneurs. The party now wants to exert total control over this non-state economic sectors. The small business owners, the shopkeepers, the party believes that these were kind of a potential source of political instability. So all in all, the establishment of this new department directly at the Central Committee of China's Communist Party shows China's increasing confrontation between the state and the people and the population. So it is another measure of social control, except this time is much more centralized.
Shane Leary:
Switching gears to security concerns this week marks the beginning of the 2023 NATO summit in Vilnius Lithuania. Last year was the first time the four leaders of NATO's, Indo-Pacific Partner Countries, Australia, Japan, New Zealand and South Korea, joined the NATO summit for meetings at the head of state and government level. This year, that trend will repeat itself with the four countries formerly known within NATO as the Indo-Pacific four expected to attend. Obviously the most immediate concern for NATO at this moment is Putin's invasion of Ukraine. But of course, we've seen increased attention on the Indo-Pacific and threat posed by the Chinese Communist Party. How do Indo-Pacific security concerns fit into NATO's focus in this summit?
Miles Yu:
The aggression conducted by Russia against Ukraine is not the regional problem. It's a global problem. China, for example, is the most prominent candidate to join the rank of Russia because the two countries share exactly same logic of aggression. Russia invades Ukraine and China would like to take over Taiwan and the several other territories in dispute with the many of China's neighbors. And they use the exact same kind of logic evacuation. So that's why this is a very important, it's a global issue. Now, as you mentioned, I think the top agenda at this NATO summit this week will be Ukraine obviously, but I think they're trying to solve several dilemmas that is what exactly is the end game of the war in Ukraine. In other words, what a Russian defeat and Ukrainian victory would look like. And it's been very unclear and I think this is something that I think in the NATO allies will discuss.
Secondly, there will be increasing talk about the global threat of the Moscow Beijing Coalition to destabilize the existing international order for the United States. However, the dilemma exists. We want Ukraine to win, but we also do not want to be dragged into another European war where US will play a preponderant role but not the Europeans. That's because United States strategic focus has shifted several years ago away from Europe, away from the Middle East to focus on China in the Indo-Pacific. So that's why we have to tell the European allies that somehow, yes, we are the major player in NATO alliance, but there is an issue of burden sharing and there is an issue of US strategic priority and that should not be changed. Focus on China. You mentioned Japan. Japan is very important because Japan plays a crucial role in connecting. There are two separate alliances - the United States is leading - that is the European Security Alliance and the Asia Security Alliance system. The European Alliance system obviously is NATO. It's a multilateral collective defense organization. It's one of the most successful global security alliance in human history.
US also leads another alliance system in Asia Pacific that is not multilateral, but mostly, almost exclusively bilateral. US has a security arrangement with Japan, South Korea and the Philippines in certain degree with Thailand and Australia. But there is increasing sentiment to make US led aligned system in Asia multilateral. That's why you have so many new groupings like Quad or AUKUS. So, but that's in this sort of nascent stage. So Japan is now played the leading role in transporting that kind of multilateral collective defense alliance nature from NATO to Asia. So Japan had this amazing change in its defense posture a few months ago, announced by Prime Minister Kishida, who I think is really visionary. And so Japan now is the most forward-looking country in Asia Pacific, trying to play much major role in NATO. But Japan's not alone. South Korea, Australia and New Zealand, they're all more or less on the same length, particularly South Korea and Australia, I might say. So NATO alliance right now is also facing a serious challenge of redefining its mission. NATO was created primarily for European security, but global security is also crucial for European's security. So Europeans should abandon the idea that somehow Europe's problem is the world's problem, but the world's problem are not the European's problem, and they're all interconnected.
Shane Leary:
On this note, you've underscored in this conversation, but in the past, the degree to which in today's security environment, NATO's focus should extend far beyond Europe and North America. And so far the involvement of the IP4 has been yet, you've argued in the past for the necessity of formalizing their involvement in NATO going so far as to call for an expansion of the alliance to “NAIPTO,” a North Atlantic, Indo-Pacific Treaty organization. Are you seeing positive steps in this direction in terms of formal involvement, not merely informal involvement? In your estimation, what would it take for NATO to formalize its cooperation with Indo-Pacific Partners?
Miles Yu:
I see two pathways toward that eventuality. Number one is obviously extension of NATO membership to Asian Pacific country. It's not going to be like a blanket extension, but anybody who's willing to join, right? So that's why I proposed the concept of North Atlantic Indo-Pacific Treaty Organization in NATO. As you mentioned earlier, however, you will meet some resistance from within NATO, some of the parochial, very narrow-minded, the leaders from within NATO, particularly the French leaders, I mean they would not really like that. However, I think the extension of NATO to Asia Pacific can achieve without the existing NATO alliance. As long as we actually change the NATO-like nature of the alliance system that is a multilateral instead of bilateral. For example, US could lead the way to form a sort of a NATO-like multilateral alliance system in Asia. In other words, it's not just in the US-Japan, US-South Korea and the US-Philippines, this's just an altogether join one multilateral collective defense arrangement.
In other words, an attack on, say, the Philippines would also be attack on, Japan, South Korea and the United States. So this is basically - it is not only doable, but also it's imperative and necessary. Many countries in Asia realize the China threat is such that no one single country or not two countries could really deal with this severe challenge. That's why I see two ways to go forward. There are not really that farfetched, and I think leaders like Prime Minister Kishida and President Yoon of South Korea, the increasingly talking in those kind of languages, president Yoon said, Taiwan's problem is not just original, it's global problem, right? And the Japanese leader also said that even with more clarity on that point, so are Australian leaders past and present. So I'm cautiously optimistic about the ultimate formation of the NATO like alliance system in the Asia Pacific region.
Shane Leary:
Well, Miles, I think that's all the time we have for today. Thank you so much for talking with me and I'll see you again next week.
Miles Yu:
See you next week.
Thanks for tuning into this episode of the China Insider, a podcast from the China Center at Hudson Institute. We appreciate Hudson for making this podcast possible follow miles and all of the additional great work we do at www.hudson.org. Please remember to rate and review this podcast and we'll see you next time on the China Insider.