Wang Huiyao in Dialogue with Yale Economist Stephen Roach

CCG | December 08 , 2021

On December 8, 2021, CCG hosted a virtual dialogue between Prof. Stephen S. Roach, Senior Fellow at Yale University and former Chairman of Morgan Stanley Asia, and Dr. Wang Huiyao, CCG President. Topics of discussion touched upon reflections on the relationship in 2021 and insights on economic relations, causes of the trade war between the two countries, as well as advice for managing and stabilizing this critical bilateral relationship.






For much of 2021, tensions between China and the US seemed to rise to new heights. However, bilateral relations received a boost in December as the two sides pledged to boost climate cooperation in a joint declaration in Glasgow, following a virtual summit between President Xi and President Biden.


As 2021 drew to a close, amid worries about the unknown Omicron variant of coronavirus and rising inflation globally, what does the future hold for the world economy? How will the US and China respond to uncertainties in the economic outlook and what are the implications?


Both China and America should “come together in a spirit of conflict resolution” in 2022


Wang Huiyao: Hi everyone, good morning, and good evening, depending on where you are. My name is Henry Huiyao Wang, founder and president of the Center for China and Globalization. Welcome to the special closing dialogue of the 6th China Global Think Tank Innovation Forum, live from CCG’s head office in Beijing. Thank you for joining us today. We’re honored and pleased to have Professor Stephen Roach with us today, whom I’ve known for many years. He is a renowned international expert in US-China relations and an economist. This is the 20th episode of CCG Global Dialogue, we have been engaging with a number of global opinion leaders this year.

As we approach the year end of 2021, it is time for us to reflect, and to conclude this year’s major development, achievement and events as well as to look at future trends in the development of US-China relations and globalization. Before we get into that, allow me to quickly introduce our guest today – Prof. Stephen S. Roach is a renowned economist with a distinguished career spanning nearly 5 decades in economic research, finance, and academia. He is currently a Senior Fellow at Yale University’s Jackson Institute of Global Affairs and a Senior Lecturer at Yale’s School of Management. He was formerly Chairman of Morgan Stanley Asia in Hong Kong and the firm’s Chief Economist in New York. Before that, he worked in the Federal Reserve and started his career at the Brookings Institution – I was once a visiting fellow at the Brookings and often heard your name. His most recent published book, Unbalanced: The Codependency of America and China, examines the risks and opportunities of what is likely to be the world’s most important economic relationship of the 21st century. I know in the last 6 months you’ve been working on another book, Accidental Conflict, which also analyzes the ups and downs, and potential conflict of China-US relations, we would love to hear about all of that. Welcome, professor Roach, your opening remarks.


Stephen Roach: Thank you very much, Henry, it’s a pleasure to see you again and to participate in the CCG Global Dialogue Program. I’ve had great admiration for your organization since its inception, it’s a pleasure to join those who have commented. As we near the end of the 2021, I can’t help but think back, a year ago – the end of 2020, on how the world look today than it did back then. Back in the end of 2020, we were still in shock over the outbreak of the COVID-19 global pandemic. The world had come back, at least started to come back, but many myself included were skeptical of the staying power of the economic rebound. We were continuing to express some concern about the aftershocks of the pandemic. As the year came to an end, the United States where I continue to be right now, we were in a very difficult period between the Trump Administration and the then incoming administration of Joe Biden. There was a lot of controversy after our presidential election, some of that controversy unfortunately remains a factor today. But there was a lot of hope as we transitioned from the Trump administration to the Biden administration that there will be a dramatic change and improvement in the US-China relationship. That has not happened and that’s been a surprise to many people. As we sit here at the end of 2021, we continue to see significant conflict on many fronts with respect to the United States and China, whether it’s trade, technology, or even escalating rhetoric that many believe is reminiscent of a Cold-War type of conflict. There’s good reason to worry about the future of the US and China conflict.



The US economy has performed very well over the past year. Our unemployment rate has fallen more sharply in the last 12 months than in any 12-month period in modern history. But we always have things to worry about, that’s why we’re called economists. We practice the dismal science and so we are programmed to worry. And in the US, we’re worried because we’ve had an outbreak of fairly significant inflationary pressures that has taken a lot of people by surprise, especially the Federal Reserve. And it looks to us that they’re going to have to tighten monetary policy to limit the acceleration of inflation and do that a-good-deal sooner than they had anticipated. So that raises questions about 2022 especially with respect to the financial markets, where the stock market and the bond market have enjoyed extraordinary support from easy money for a long, long time. And if the Federal Reserve begins sooner than expected monetary tightening, then that support will be drawn into question.


Meanwhile in your country, the Chinese economy has slowed after an extraordinary recovery from COVID-19 in the final three quarters of 2020. But you have a new problem that is personified by the significant pressures that have been brought to bear on Evergrande, your second-largest property developer company, a company that has a huge overhang of some $300 billion of debt. The Chinese government has moved aggressively and understandably in recent years to reduce the debt intensity of your economy. This so-called deleveraging campaign is important. It’s been underway now in one form or another for the past 5 years to make certain that China does not go down the road that Japan did in the 1990s when it was brought to a state of virtual stagnation after its own serious debt-intensive burst of economic growth that led to asset bubbles, which then burst and brought the Japanese economy into a three decade plus period stagnation where it still is mired today. So, in an effort to avoid a Japanese-like outcome deleveraging has become a high priority of the Chinese government. I’m hopeful the government as it’s doing with Evergrande stays with its focus on deleveraging to prevent a Japanese-like outcome. I think the Chinese economy is still in relatively good shape. It will withstand the Evergrande problems much better than many observers in the West believe. The US economy is also in pretty good shape., but it will need to address its inflation problem. The biggest risk in the two economies is not their own economies, but the conflict that has arisen between them. I’m hopeful as I look to 2022, that both nations could come together in a spirit of conflict resolution, rather than in a spirit of conflict escalation. That will require major steps on the part of leaders in both nations. We can only hope that they have the wisdom to do that. Why don’t I stop at that point and turn it back to you, Henry.


Biden’s challenge lies in finding ways to ease tensions with China amidst negative public and bipartisan sentiment


Wang Huiyao: Thank you for this excellent opening remarks. You outlined what’s going on in the US economy which is getting better. China has achieved quite substantial growth in its GDP in the first three quarters. And also, as you mentioned, the potential risk of Evergrande is kind of an obvious issue. I agree with you – the most danger and risk is this potential US-China conflict that you mentioned. We have Biden in the office now for almost one year now since he won the election. How much different is he from President Trump? What’s the expectation of the business communities and of course, the general society has on him on the US-China relations? Also, we see him suffering a bit from opinion polls. Now he’s having the democracy summit tomorrow, and today he met with President Putin virtually. Last month, he met with President Xi virtually as well. So we see a host of issues going on ever since the March meeting of Alaska between top diplomats in China and the US So where do you see this US-China relationship goes and what do you think about the business impact? That also goes to the pandemic fighting, climate change cooperation. But after all, I think business is the backbone and the pillar in this bilateral relations, which is also affected by these tense relations. What’s your analysis of the Biden Administration’s now and future? We’re having a mid-term election next year. He’s facing all kinds of challenges albeit he has managed to pass the infrastructure bill so at least he has something going for him. So how would you assess that?


Stephen Roach:
It’s sort of interesting to think about what President Biden has done. The election was a year ago. But he’s only been in office now for about nine and a half months. It seems like a much longer period of time, but he’s still a very new president. But what was particularly interesting is on the first day he took office, January 20th of 2021, he signed 14 executive orders that reversed many of the most unpopular policies that President Trump had put into place – the border wall with Mexico, the immigration issue, the ban on Muslim travel. Hrejoined the Paris agreement on climate change. He rejoined the World Health Organization virtually. Almost any of Trump’s most unpopular positions were reversed on the very first day of the Biden administration except for one thing, which is view on China – he has not changed the Trump Administration’s policy with respect to China. The tariffs are still in place. The sanctions on a large number of Chinese technology companies are still in place. And there continues to be a very difficult and tough rhetoric. If anything, it’s escalated over human rights and territorial issues from Taiwan to the South China Sea. You mentioned the meeting in Anchorage at the end of March. That meeting was a disaster. You had senior foreign officials in both countries talking as if we truly were in a Cold War. You have to ask yourself why did President Biden changed so many policies, but leave the Trump Administration’s policy in place with respect to China? I think it boils down to another point that you mentioned that President Biden certainly has a major problem in the public opinion polls in the United States right now. His approval rating is exceptionally low for a newly inaugurated president. Usually we give our new presidents what they call a honeymoon period where their popularity goes way up and they enjoy broad bipartisan support. For President Biden, the honeymoon was the shortest on record. Whether it’s the ongoing problems with Covid, the very contentious debate over vaccine and mask mandates, the inflation problem that I mentioned earlier, and some of the racial issues in the United States – whatever it is, he’s approval rating is at extremely low level. I think only about 40% of Americans approve of the job that he’s doing, which is too bad. Because he’s got a very thin majority in the US Congress and there’s very little he can actually do given the thin majority. And the fact that he has enacted this large infrastructure plan earlier on a bipartisan basis is a fairly significant accomplishment.


The final point I’d make in response to your question is that we have a lot of polarization in United States right now. The Republicans do not agree with anything the Democrats stand for in, and the Democrats don’t agree with anything the Republic stands for. But the two parties are united on one issue and that is their concern and their negative view on China. The Pew research organization in Washington conducts a poll twice a year on American sentiment toward China – it’s now at a record low, almost matching the level of negative sentiment that the American public has toward Joe Biden. If you look at the detail of the poll, it’s Republicans and Democrats, it’s old people, it’s young people, it’s college educated, it’s those who did not go to college – it’s widespread. And that’s too bad. I think it’s based on a number of incorrect impressions that Americans have formed with respect to China, which motivated me to write the book that I have been working on for the past six months. Because I think there are a number of false impressions that Americans have with respect to China, and I think there are a number of false impressions that Chinese leaders and the Chinese public may have with respect to the United States as well. These false impressions can lead to what my working title of the book concludes, “a state of accidental conflict”, the conflict didn’t have to happen. But it has happened. I think the negative sentiment in America toward China, again, bipartisan in support, together with President Biden’s own very low approval ranking is what keeps him and prevents him from really changing the Trump Administration’s policy with respect to China. With his pretty low point in the public opinion polling cycle and I think his political advisers say, why take on an issue where there’s such widespread support for staying tough on China? So I think President Biden is reluctant to risk political capital by changing policies that I think were wrong as established by the Trump Administration. The challenge is to figure out what it will take to bring this conflict to an end in this context.


On US-China trade war: “you can’t address the multilateral trade deficit by starting a trade war on a bilateral basis.”


Wang Huiyao: Thank you Stephen for the assessment there. What I can see is that for the four years with Trump in the office, he has really brought down these four decades of relatively stable Sino-US relations. He has actually projected China as taking advantage of the US here and there, all those accusations. So, even though Trump has left office, Trumpism is still very strong. However, the US and China, on the business side – there’s enormous business for the US and China in the last four decades. For example, for the last four decades, there’s about 70,000 US company has set up in China, making $700 billion in revenue a year in China. Just Apple alone makes $50 Billion a year in China, and Qualcomm makes 60% of its business in China. And I have just been to the Universal Studio here in Beijing, it’s been packed and flooded with tourists during the National Holidays. They’re opening the largest Universal Studio in the world in Beijing and now it has just opened one-third of it. So they’re going to expand here. Of course, Tesla is doing marvelously as well. Tesla’s almost become the largest company because they have this new technology and new clean vehicle manufacturing base in China. So I see all the good things of relationship. For example, in the last four decades. Four million Chinese students went to the United States and three million Chinese tourists went to the United States every year before the pandemic. That kind of narrative is not there. But when the US economy is suffering, China often takes all the blame.


One of the issues I’m thinking is that we are seeing that the top 1% elite – during the pandemic, their wealth is still increasing whereas the middle class has for the last 30 years has stagnated with zero increase. With all those dissatisfied middle class and blue collars continuously voting anti-globalization and anti-China politicians into the Congress and they actually formed the bipartisan (consensus), and China would be the easiest scapegoat for domestic politics of the US, for example, on how it handles the widening gap between the rich and the poor. And it’s not right that China has become the scapegoat for all that domestic issues. Of course, China has its problem too, but it’s not really affecting the US that much. It seems very ironic to see they all formed these negative opinions on China, but after all China is doing well. KPI-wise, it’s probably one of the best in the world, contributed over one third of global GDP and lifted 800 million people out of poverty, ten years ahead of time to realized UN’S SDG number one objective. So, what do you think? Now they are also comparing democracy now. The US is having a democracy summit, China just had the democracy forum itself. It’s interesting to see on this democracy forum that they all compared the bottom line. But how effective is the implementation and KPI? Let’s compare the KPI. So what do you think about all those argument that we see in the societies?


Stephen RoachYou touched on a lot of difficult yet very important issues, but I just want to pick up on a couple of strands and tie them together. You’re right that we have a serious problem in the United States with income and wealth inequality. And it’s gotten worse in recent years. We’re not alone in that. There’s been problems of rising wealth and income inequality around the world and in fact, President Xi Jinping has made this a centerpiece of his own campaign starting this summer for restoring “common prosperity” which is all about dealing with inequality that has been growing and worrisome problem in China as well. 


The point you made when you started this line of question is a very important one – that is, in the United States, the politicians have turned this problem into blaming it on China. The logic goes something like this: the American middle class has been damaged because of a large and growing trade deficit. And the biggest piece of that deficit is with China. I think the numbers were, as recently as 2016, China accounted for about 48% of the total merchandise trade deficit. The final piece of the argument that was made by earlier administrations but especially by the Trump Administration was that the Chinese trade deficit is an outgrowth of unfair trading practices that go back to allegations that are made with respect to technology transfer, industrial policy, innovation policy. And the narrative that’s come out of this is that the American middle class has been squeezed because China cheats. And therefore, the US administration is justified in imposing steep tariffs on China. I’ve analyzed this story for many years. Most of it is false. There are some elements of truth to some of the allegations, but let’s just look at the trade piece for example. The US does have a large trade deficit with China. Although it has gotten a good deal smaller since the tariffs were imposed in 2018. But the plain fact of the matter is that the data from our own US Department of Commerce indicates that we have trade deficits in any given year with roughly a hundred different countries. We have a multilateral problem, not a bilateral problem with China.


The multilateral problem reflects the fact that as a nation, we do not save. And the economics are very clear – when you don’t save and you want to grow you import surplus saving from abroad and you run a big deficit on your balance of payments and your current account to attract the foreign capital, and that’s what gives rise to a multilateral trade deficit. You can’t address the multilateral trade deficit by starting a trade war on a bilateral basis. If you do that but you don’t raise your level of national savings, then the deficit that you attacked through tariffs just gets diverted somewhere else. That’s exactly what’s happened – we’ve lowered our trade deficit with China because of Trump’s tariffs, but the overall trade deficit has gotten considerably bigger because it’s been offset by increased deficits with a large number of countries, such as Mexico, Vietnam, South Korea, Singapore. We’re shifting the Chinese portion of our trade deficit, to higher-cost trading partners, which tragically are putting pressure on American businesses and consumers.


You’re entirely right, Henry, over the last 35 years, trade and growing business ties between our two nations has been the anchor of the US-China relationship but the Trump Administration pulled up the anchor. That has backfired – it’s based on bad economics and destructive politics. What worries me is that the Biden Administration, by staying with the same policy of the Trump Administration, this so-called Phase One trade deal that was agreed upon by the two countries in January of 2020 – Biden doesn’t warrant change it. My advice is to tear it up. That deal is a destructive deal, there’s a better way to address our differences than that. It’s an outgrowth of bad economics trying to fix a multilateral problem through bilateral trade deficit. It won’t work. It won’t work in theory and it hasn’t worked in practice. 


Completing a US-China investment treaty would bring win-win benefits


Wang Huiyao: Thank you, Stephen. You outlined very clearly all those misconceptions. The narrative in the US actually has been shifted on China negatively because of this probably incorrect and inaccurate assessment of this deficit.


Stephen Roach:Can I just add one more thing? We did the same thing 30 years ago with Japan. In the 1980s, when we first had a trade problem, we discovered that the biggest piece of the trade deficit then was Japan, so we blamed Japan. And Japan made a number of mistakes in responding to US pressure that have led to serious problems in the Japanese economy. Chinese leaders have studied the Japanese precedent and they know full well what we’re doing by blaming China right now is almost identical to what we did in blaming Japan in the 1980s and you know the America has a hard time facing up to its own responsibilities, it’s much easier to blame others. I’m sorry I interrupted you.


Wang Huiyao: No, thank you, Stephen. Actually I can’t agree more with your assessment that, using a bilateral deficit approach to tackle the multilateral deficit is not really the right approach. Since the trade war, we see (trading with) neighboring countries like Vietnam has hugely increased, ASEAN became the largest trading partner with China because there’s a lot of things used to go out from China are now going from ASEAN and so ASEAN suddenly became China’s largest trading parter as well. And also you know this kind of deficit concept is not really analyzed scientifically because a lot of products were made in China, the price was calculated on China, but China only made the labor costs on that, and not counting those services, which for US is a huge plus. So, probably China but also the US – we haven’t really got these numbers correct whereas Trump’s 300 billion deficit with China has got very widely spread. You’re right, that has built up the concept of China taking advantage. But I think it’s time now we need a realistic assessment. We need to change that concept, and really coming to solving these key problems. I noticed that the Biden proposed this global flat corporate tax within G20 and then 130 countries agreed on that. So probably those are the ways – instead of a lot of companies making money overseas , maybe they could repatriate back, or leave to the Midwest or Rust Belt Statesrather than money staying overseas. The US government hasn’t got a really effective policy to handle those domestic issues and then China really becomes a scapegoat. So I think there’s a lot of ways to go ahead on solving those problems. But you are absolutely right, abandoning this tariff tactic is really important because after all, I think this competitive advantage, David Ricardo’s theory is still valid. Like now, during this pandemic time, we see the US key port was paralyzed almost, and then huge containers from China can not be loaded and supply the market. So China hasn’t made that crisis  but what you see the future of this crisis or whatever, and the trade tariff war we have – how we can get out of that gradually?


Stephen Roach: I express the view that they from the US side, there are enormous political pressures on President Biden to stay tough on China. But leadership is tricky the US we have all these public opinion polls that seemed to guide every step that politicians take, and yet, at the end of the day leaders succeed when they have the courage to take tough steps that don’t necessarily agree with the short-term polling results. So, if you ask me what President Biden should do, which is not something that he has asked me – by the way, in the interest of full disclosure, to tell you that, I’m not in communication with his China team at least directly, I certainly am through what I write and how I speak – I think the biggest issues that need to be addressed are many of the tough structural issues that in fact were raised by the Trump administration, not necessarily raised on the best of evidence but issues that ultimately are important to the long-term competitiveness and prosperity both countries. So things like innovation policy, technology transfer, subsidies to state-owned enterprises, cyber security, the monopolies of the issues that are addressed through outbound and incoming merger and acquisition activity, these are all really important issues where there is a good deal of disagreement between the two countries. And I would prefer to see us really focus on developing a framework to address the structural issues, rather than the bilateral trade issues, which are an outgrowth of our macroeconomic savings and balances. And what I write about in my book that will be coming out shortly, I hope, is a framework to address the structural issues by going back to the bargaining table in negotiating a bilateral investment treaty. We were negotiating a bilateral investment treaty between the US and China for about 10 years until Trump came into office in 2017 and he stopped, and we were probably 90 to 95 per cent of the way completebilateral investment treaty is important because it focuses on economic growth of two partners who can increase their access into each others’ markets, provided that access is negotiated and underwritten by stronglegally binding agreements and we were, again90 to 95 percent of the way there. I think if we can go back to that framework, we will be much more effective in resolving the major structural differences between our two economies, and do so in a pro-growthwin-win framework. The trade war is lose-lose. The Tech war is lose-lose. A new Cold War is lose-lose. So we need a new framework, Henry. By staying with the framework that we’ve been engaged in for the last four years of the Trump administration, and the first 9 to 10 months of the Biden administration, we’re going to stay in this condition of lose-lose. And we’ve got to come up with a new framework. And I write about this in this new book.


Potential areas for US-China cooperation include climate change, global health, and cyber security. A permanent US-China secretariat should be established.


Wang Huiyao: Stephen, you have proposed excellent ideas. As you said, this bilateral investment treaty in 2016, when they had the G20, was almost signed then. Our senior advisor, former vice minister of Finance, Zhu Guangyao, was co-ordinating the G20 meetings at the Ministry of Finance. He was telling me, it was almost done and he almost said on the television that we are going to sign this before G20 in Hangzhou that year. So absolutely we need a framework to really engage in dialogues, rather, now, we’re seeing the US keeps adding the entity list, even after President Biden came up, we see a number of more entities added to the sanctions list and that’s actually not only hurting Chinese business, but also hurting US business. For example, there’s the semiconductor and all those chips now you cannot buy from the US. It’s a huge loss to the US. That’s created this shortage of chips – many automobiles, many computers are not able to be manufactured at an old-style pace. It’s actually a lot of shortage and things like that. Further, we’ve probably crippled the international semiconductor industry, which is hurting both the world economy and US and China as well. So what do you think is the way that we can really work together? Of course, this investment treaty is an excellent idea, I think we should really come back to that, and we should really do more on those issues.


The other thing I was thinking was, now, what are the next biggest pie that all the countries can have a share ofLast week, the EU announced Global Gateway Program – 300 billion euro is going to be spent on the infrastructure. President Biden passed 1.2 trillion on the infrastructure bill. China has been doing BRI for infrastructure for the last 8 years. So this is probably, for the next 50 yearsthe biggest incentive for the world to come together, to upgrade our infrastructure and US have this B3W – build back better worldand there’s the Global Gateway of the EU. Of course, climate change of course is one area, too, and pandemic fighting is another area – China has paid billions of dollars, US has paid billions, vaccines and donations. We should coordinate the efforts and find something with common interest of the world. The two largest economy should really work together. So what do you think are the new initiatives that can bring us together? Of course, CPTTP is another angle, which was designed by the US, now China is willing to join that. Minister of Commerce has put CPTTP agreement on the MOFCOM website to show the Chinese companies that the standards are here and the target they should shoot for. The US helped with the designing of CPTPP. Let’s now talk on those terms, and why doesn’t the US coming back to CPTTP? And let’s work on the BRI and B3Wand let’s work on the pandemic fighting. So, what are the big incentives for us to work together, rather than, as you said, lose-lose, from all the decoupling?


Stephen Roach: You make a good point, Henry. There’re a number of areas of mutual interest with global impact that these two major powers have enormous incentives to work together. And I would just highlight 3 of them. Youu mentioned probably many more than that, but to me, the ones that are the most important are the ones that provide the greatest opportunity are global climate change, global health and cyber security. And those 3 areas, I thinkthe only area I can point to where we seem to be working together somewhat is climate change. Especially at the COP26 conference when there was a joint statement announced at the end of COP 26 by the US and China that didn’t really contain any new dramatic breakthroughs, but it did contain a joint commitment. That’s exactly what the type of thing you need.


On global health, this has been an enormous opportunity for the two countries to work together to deal with absolutely horrible pandemic. But in the United States, we focused more on the COVID origins debateand on blaming China for a global pandemic and that’s prevented us from the type of collaborative research and scientific discovery and sharing of public health practices. That we need to really address this issue globally.


I think this cyber security area, we’re nowhere in terms of really working together to address the major issues whether they’re ransomware or cyber related espionage or cyber hacking, this is a global issue. It’s not just an issue in the United States or just an issue in China – it’s an issue that affects all nations who are now operating in the cyber age – open architecture, global Internet platform, so there’s a lot we can do.


I would just say one other thing and I developed this point also in my book. Not only do we need a new framework to address structural issues but we need to find a new way of managing the dialogue between our nations. I was very pleased to see that President Biden and president Xi had a virtual summit last month. But we need more than just two leaders sitting in front of computer screens every six months, or when they can travel again, having dinner together or something like that. I have proposed that the two nations establish a permanent secretariat. That would be an office staffed by a large number of highlevel professionals from China and the United States. They would work jointly in an office in a neutral nationcall it Switzerland if you want. They work fulltime on all aspects of the US China relationship from some of the trade and tariff issues to the technology issues, to healthclimate, and cyber. And they develop joint proposals for policy, joint databasesAnd they manage disputes that arise between the two nations over agreements that they have signed into law. This relationship is too important to leave to a meeting that takes place  once a year or twice a year. Even before COVID when we had these strategic and economic dialogue – that was only once a year under Obama, twice a year under Bush. That’s not enough. We need a full-time secretariat to really raise the level of engagement to the level it needs to be at to avoid conflict. And that’s an important part of my win-win conflict resolution prescription that I write about. If I tell you more though, you won’t buy the book, there’s a lot more to it than that.


Wang Huiyao: Thank you Stephen, excellent proposal. I think you have done very well on that. I totally agree with you, this bilateral relation is so important, it’s the most important bilateral relationship in the world. It warrants a special office, special department to really look at that – a special office as you said, to be full-time coordinating all aspects of assignment in Sino-US relations and have meetings regularly – not just a summit between the two Presidents, but maybe on a regular and quarterly basis, and maybe travel to meet in person. I absolutely think that it’s really important and we need to emphasize it, because the two countries’ relations really impact on the two countries (themselves), but also the world. If it’s two bilateral offices – a special US office on China, a China office on US, can really be set up and coordinate all the aspects of bilateral relations, that would be right.


Stephen Roach: Just to clarify, I don’t want two separate offices – I want one office in a neutral country, where everyday Chinese professionals come to work alongside their American counterparts. They work together in one office, which is why I call it a secretariat. It’s not two silos operating separately, it’s an integrated approach to joint resolution of areas and issues of mutual interest. I think that would be far better than having the US side develop its own view, the Chinese side develop its own view and then they meet, they come together. I want them to be together on a full-time basis.


Wang Huiyao: That’s even further, of course, maybe also let’s have a G2 office, and then let’s mix with the staff and meet regularly daily if not weekly. So that’s a good idea. I think that absolutely, we need to really increase the intensity of the communication, dialogue, proposals and exchanges, not only in relation to both countries, but also to the world. That’s a marvelous idea. Regarding areas of collaboration, I have one more question to ask, is that, now US is the largest digital economyChina is the second largest. 38% of China’s GDP is now related to digital economy. So in terms of digital economy, digital infrastructureand the WTO Minister meeting that has been postponed, still, a digital agreement still hasn’t been reached, but actually we’re all digitalized. The international rules and regulations on digital governance and digital infrastructure is still, here and there, missing. But China and US, being the 2 largest digital economy, how about we come together to set some standards as a stimulus for the world and help other countries to go digital – internet plus? You said absolutely right that we need to work together on cyber security. But on digital economy, for that matterhow can we work on that ? And also currency, too – digital payment. In China now, we already don’t use wallet or cash anymore. We just use our phone, but what about other countries? How can we get efficiency of payment system? What do you think of those areas – digital or digital payment?


Stephen Roach: It’s critical again that we think about the digitization of economic activity from a collaborative and adtually, a global point of view. As the world’s two largest digital economies, this is my third area of mutual interest that I emphasized in my new book that would be of enormous potential for the United States and China to develop and work together. And it requires the type of ongoing full-time collaboration that I alluded to earlier when I spoke about my proposal for a secretariat – we need to set up bilateral working groups that meet on a regular basis to examine areas like privacy, data security. And I would say one of the most difficult areas that need to be addressed is the free flow of global information and this would be a very difficult issue for China, because of its strict regime of information control. And so once you get into this area, you open up a lot of issues that are very important to all countries, but they also touch on some highly sensitive issues in China and I think this will be a very difficult issue for China to address as well, but it needs to be done.


Sino-American relationship is at an important juncture and its impacts will be profound


Wang Huiyao: Thank you Stephen. We are now almost coming to the end and my staff was mentioned to me that through the CCG live portal and other social media, we have about 40,000 people joining us online and so it’s great dialogue. But we have actually 2 questions from China News Agency, who knew that we’re having a dialogue with you so they proposed 2 questions to you. I’ll just read them out. The first question is that, in terms of economic and trade relations, what do you think of the concept of re-coupling in China-US economic and trade relations put forward by Katherine Tai, actually the USTR? In the past few years has the 2 countries really decoupled? Question 2 is that, in your opinion, what’s the biggest misunderstanding and the biggest misjudgment of China by some people in the United States. And why does the misunderstanding seem to deepen in recent years?


Stephen Roach: The new US trade ambassador Catherine Tai actually said very little on the Biden administration’s China trade policy. She did give a long-awaited speech a couple of months ago, but it was not one that really broke any new ground nor did it really propose a new approach, and that was disappointing to me.  The Biden administration promised a very careful review of Trump administration policyin the first 6 months of 2021, and when the US trade representative Tai spoke – presumably after this review had been concluded, there wasn’t really much that she offered that gave me the confidence that this was a fresh new approach to addressing a deepening conflict. And as we’ve already talked about earlier, Henry, by keeping these tariffs in place at the level they are at right now, there’s enormous tax on American companies and on American consumers. And it has diverted trade away from China toward other countries, but it’s done nothing to resolve the large trade deficit, which politicians fear is taking such a toll on American workers. The two nations areover the yearsbecome heavily dependent on each other. And I’ve written about this for a number of years – I’ve called it co-dependency, where the US depends on China and China depends on the US. That condition still exists, but the trade war is unwinding their relationship and but it’s still a very deep one and let’s hope that we can get you know, a better approach.


In terms of the second question, the biggest misconception is the one that I addressed earlier – that is, the American middle class has been led to believe incorrectly that it is suffering stagnation in real wages because of China.


And that view has been examined very carefully by a number of academics, including myself, unfortunately, many academics, you know, have concluded that’s true. And with all due respect, I have to say they’re wrong. Because of the simple point I made to you earlier, Henry, just like we had with Japan 30 years ago, we had a similar state of affairs with China as the largest piece level of a growing trade deficit.


But this was much more a reflection of America’s own problems of weak savingwhich are getting worse because of the big budget deficits we have right now, rather than, a problem with Japan 30 years ago, or China today and yet you know the politicians in Washington, who are responsible, by the way, for our budget deficit, would rather blame other countries for problems they have created and that has led to a major misconception in the United States with respect to the role that China plays in affecting the middle class, hard-working American workers.

Wang Huiyao: Thank you Stephen. We have covered a very wide-ranging topics this morning, or this evening. We talked about Sino-US relations, the latest development from President Trump to President Biden, and what the misconceptions are and what the potential conflicts are, and Accidental Conflict, which is your new book. Also, we talked about what other areas that we are cooperate. You are such an excellent analyst of China-US relations. We benefit very often from your wisdom and recommendation. In particular, your idea of setting up a special office mixed by two countries’ high-level officials where we can regularly meet, discuss, and propose so that not only we can clear up lots of misunderstanding, but also put forward new proposals gradually, would reshape the narrative and maybe find the real problems that we can tackle, so that we don’t blame each owe on these issues. We have CCG’s chair session coming up next, before that, your last words – what’s your view for the next year, what do you think of the economic forecast for next year?

Stephen Roach: I’ve been a forecaster for about 50 years. And I spent the better part of my career on Wall Street as a forecaster. I got some right, I got some wrong, but I got more right than wrong because I never lost my job, which is something I can’t say for most of my competitors. But what I’ve learned is you know, every year is full of surprises. And a year ago, we had a view of the world that certainly turned out to be much different than we thought was the case at the end of 2020. And I think that looking out over the next years or so, I think we will be surprised that some of the changes that will occur relative to our expectations today. But I think, we’ve talked a lot about the United States and China, and I think we both agree that this relationship is the most important relationship in the world, it needs a lot of work. It’s in danger right now. This is the worst that the relationship has been since the advent of the modern relationship began in the early 1970s when President Nixon and Henry Kissinger went to China. It is bad right now and so it is incumbent upon us to change that dynamic. And if we don’t do a better job than we have been doing, I think a year from now, we will be in a more difficult place and will regret the opportunity that we have squandered. So this is an important juncture in the relationship between our 2 economies. We can’t just say, well we built a lot of connections between us, businesses benefited and we know that that’s not enough to keep this relationship on track, we have to do better, we have to come up with a new approach and I’ve tried to discuss with you some of my thoughts and ideas. I’m sure there are other ideas and other people who thought about this differently, but we’ve got to put an end to this conflict before it is too late.

Wang Huiyao: Thank you Stephen, you have outlined so well. Absolutely, the Sino-US relationship is the most important bilateral relation. That is not only going to impact today, but it will also impact next year, and it will impact us in the next 10 years or next half a century. We have seen the lowest point in the past half century. We need to work together to revive the normal relationship and also make it beneficial to both countries and to the world. So once again, Steve, thank you very much for joining us this evening. And also thank all of our audiences online. We hope to see you again and hope to see you visiting CCG when you come to China.

Stephen Roach: Thank you Henry, looking forward to seeing you again in person.

Note: The above text is the output of transcribing from an audio recording. It is posted as a reference for the discussion.