August 14, 2021, Chair of the Global Asset Management Forum (GAMF) Executive Committee and Tsinghua SEM Dean BAI Chong-en spoke with John Thornton, Chair Emeritus of the Brookings Institution and non-executive chairman of PineBridge Investments, on the GAMF 2021 Beijing Summit. They talked about a variety of issues related to the China-US relations including trade, climate change, competition and cooperation.

To watch the video, please check on:https://mp.weixin.qq.com/s/N1c7wjh-oa_zZvnY0BsoPQ Below is the record of the conversation.

Sun Xiaoxia, the moderator:

I would like to ask Mr. Thornton the first question, then I will hand over the microphone to the two panelists.

My question is, since the establishment of diplomatic relations between China and the United States, the relationship between the two countries has gradually developed into one of the bilateral relations with the deepest mutual fusion, the widest areas of cooperation and the greatest common interests in the world. However, in the past few years, US-China relations have encountered unprecedented serious difficulties. Since the new US government came to power, the call to strengthen cooperation between the two countries is getting louder. How do you see the current situation and the future of US-China relations?

Mr. John Thornton:

First of all, I want to thank you all for inviting me to participate in this activity. I'm very, very happy to see many of my old friends, in particular, Dean BAI to share this particular session, and also Chairman Lou Jiwei, very, very good old friend, who has done so much for China and for the world.

Now, in relation to your question, I'm going to answer it in a rather curious manner, because I was kind of inspired by some of the comments made earlier by Chairman Lou and by Larry Summers. I was amused by Larry Summers' story of President Reagan and President Gorbachev and whether or not the Americans would help the Russians defend against an attack by Martians.

It makes me start to think about Jeff Bezos, Elon Musk and Richard Branson, competing to be the first into space. And wondering if you're up that high and you look down on this planet, what do you think? Surely, if you're up that high looking down on the planet, you're not thinking about these individual countries. You're thinking much more about the health of the planet. That got me thinking about the world today and the world, let's say, in 2050 mid-century. And I started thinking about the population growth between now and 2050. The population today is something on the order of 7.8 billion people. By mid-century, it'll be something on the order of 10 billion people with an incremental 2.2 billion. More than half of that will come from growth in just 9 countries: India, Nigeria, the Democratic Republic of Congo, Pakistan, Ethiopia, Tanzania, the United States, Uganda and Indonesia.

Now, if you think about that list of countries and then you think about the percentage of the global GDP represented by the top 10 countries today. These countries today represent something like 65% to 70% of global GDP. So today of the 195 countries in the world, 10 countries take roughly 2/3 of global GDP. And so when you think about the growth I just mentioned between now and 2050, where that growth is going to come from in population terms. And then, you think about these issues like climate change, like pandemics, like anti-terrorism, and so on. All of these are truly global issues that affect the planet equally. You have to ask yourself. Now let's see which makes the most sense. Does it make sense for the world's wealthy countries to be fighting one another? Or does it make sense for the world's wealthiest, most powerful countries to be looking out for the entire planet? To me, the answer to that question is so screamingly obvious. It's hard to imagine anybody thinking about the planet in any serious way to come up with any other answer.

And so when you frame the question that way, and then you start thinking about the United States and China, you have to ask yourself: how would it be possible that these two countries, which are the two most powerful and wealthiest countries in the world right now, and certainly will be in 2050, would be seeking to do anything other than cooperate as much as possible and lead the world into a safer, more prosperous, healthier world?

Now, to me, it seems so obvious that it's very hard to imagine what is the argument on the other side of that. Now, having said all of that as context, to get to your more pointed question about US-China relations today in 2021. It has to be said that the relations right now are not terribly good. I'm not in favor of making dramatic statements. I think that one is always tempted to make dramatic statements in the immediate context. However, when I think about US-China relations from the period when Nixon and Mao and Kissinger and Zhou Enlai opened them up, that long period seems really quite consistent.

Then the period of Trump, up until the very early months of the Biden Administration, that period seems less predictable, less reliable and less stable. Now, on the American side, that is very much, in my opinion, a function of domestic American politics driving attitudes towards China. There is a long standing aspect of the American culture, going back to the beginning of the country in 1776, and made famous by a book in 1963 calledThe Paranoid Style in American Politics. You can trace it back to the beginning of the country. That every so often, we get a populist leader who inflames the fears of ordinary Americans, typically towards some external force. That's exactly what's going on right now. Partially as a result of that and partially as a result of a number of other things. Right now, inside the United States, you've got quite a consistent view among both Republicans and Democrats about China and that view is not very positive. So think that's where it is at the moment. Now we can talk about maybe in a minute where it's going to go, but for the moment, at this minute, it's not very positive.

Professor BAI Chong-EN:

Thank you very much, John. It's nice to see you for the first time since last December when we had the Tsinghua SEM Advisory Board Meeting. I very much agree with your point that if we take a longer term view. If we think more about what the world would look like, what are the common challenges the world has to face in the next 30 years or 50 years, then things will become a lot simpler. I think what happened in the past between China and the US, when the two countries cooperated, was precisely because the leaders of the two countries and the peoples of the two countries took this longer term view.

You mentioned that when Nixon visited China in 1972. Mao Zedong, Zhou Enlai, Nixon and Kissinger worked together. I think they believed that the international order wouldn't be complete without China being an active stakeholder in the system. Then in 1979, the two countries established diplomatic relationship and that's when China started economic reform and opening up. Then the two countries became more intertwined, not only in international politics, but also in economy. Then even recently, in 2008, we faced the common challenge of the international financial crisis. The two countries actually did work together to coordinate the international response to the financial crisis, and in 2015, China and the US worked together to push for the Paris Agreement on climate change.

And in all these cases, the common theme is that there is this strong conviction that without China and the US working together, we cannot solve the world's problems, or we cannot face the common challenges to the world. So what's puzzling is that since 2015 and 2016, the relationship between our two great countries took a turn for the worse. And you didn't sound very optimistic for the near future. We were all hopeful that with the change of the administration, the relationship would have improved, but right now we don't see that.

Then the issue is how do we make people focus on the longer term issues instead of the shorter term issues. There is this feeling that some politicians use the confrontation between China and US as a force to unify the population. Some people believe that. If that's the case, that's terrible for the world. Because it's a very risky strategy to use the confrontation between our two great countries as the unifying force in domestic politics. First of all, it may lead to catastrophe to the world. Secondly, even politicians can be successful in utilizing that force in the short term, but in the longer term, it may lead to disillusion of the population, because the goals that are behind such a strategy are not going to be met. I think in 30 years, in the world, China will play a bigger role. The US will continue to play a very big role. The two countries just cannot work without the other. So I just hope that everybody works together to refocus attention to longer term visions instead of the shorter time political gains. So I wonder what do you think about that?

Mr. John Thornton:

I think, to be very practical and realistic, we're already 7 months into the Biden Administration. President Biden is 78 years old. There's some chance he may be a one-term president. I find it concerning that we are practically through the first year, there's been no discussion, no conversation, no dialogue of any meaning, of any real meaning between the two countries so far, I attended a conference like this. Maybe 6 months ago when the Biden Administration first started, and I said then, something I still believe. I'm going to say something which I know is unlikely to be followed. But I'm going to say it again tonight, which is you know we have in President Biden and President Xi, an asset that we've never had before.

That is a new president, when he came to office, already had a relationship with the Chinese president. The two of them spent, as we know, time with one another when President Xi was Vice President and President Biden was Vice President. This is a major major asset, which we would be foolish to let go to waste. And is there anybody in the world who thinks that if President Biden and President Xi were in a room together, talking one person to one person, and that wouldn't be a good meeting? We know that would be a good meeting. And so I have to say, I felt at the beginning of the Biden Administration, I still feel it should be a priority for both Presidents to be together in a personal manner as soon as possible. Because I think that's the only way in the two systems that you can get sort of an understanding at the top down. How do we wish this relationship to progress!

And I'll say one more point. We both have referenced the period of Mao Zedong, and Nixon, Kissinger and Zhou Enlai. I believe there's only one model that we know works between the two countries. It's exactly that model, that is to say, intensive trust-based relationships at the very highest level. It's an absolute precondition to good relations. We even thought in the Trump Administration between Vice Premier Liu He and Ambassador Lighthizer. You remember that in the beginning ofthe Trump Administration, everyone thought trade was going to be a big problem. In fact, because of the relationship developed between those two people who worked very hard, they actually turned trade into, by the end of the administration, it was the only channel that was functioning effectively. And so that model should be followed because we know that it works. I think therefore, the sooner the two Presidents are together, and have a meaningful exchange person to person, the sooner we'll get back on track to a healthier relationship. And to your point, to our relationship that is at least as focused on the long term as it is on the immediate term.

Professor BAI Chong-EN:

Thank you, John. I think that's a very good point. Do you have any specific suggestions about these high-level dialogues that you are proposing? When it's likely to happen? How to make it happen? What do we need to do to prepare for that?

Mr. John Thornton:

I guess we need to distinguish between what I think will happen and what I think should happen. What I think will happen is that the two Presidents will see each other for the first time at the G20 in Glasgow at the end of the year. You know my reaction to that is that's better than nothing. But frankly, I think that's too long. That means that we've gone an entire year before they've had any meaningful interaction. And I think that that ground is starting to be prepared now, and likely to happen then, and so we'll just have to make the best of that situation.

To your question about do I have any concrete suggestions, yes, I think that you know these big bureaucracies, they move very, very slowly. And so there's a big government of bureaucracy in China and there's a big one in the United States. And they're used to behaving with certain habits. Those habits are long standing. And the world is changing much faster than those habits of behavior. So I believe that the US and China need to put each other in a unique category. And they have to recognize that that relationship is unlike any other relationship in the world. Therefore, the ways in which they engage and the habits of behavior between the two governments need to change to catch up in the 21st century for the reality of what these two countries currently represent.

So for example, if you were to do an audit, let's say, the 10 most senior people in each government, you were to ask yourself: how well does each one of those 10 people know his or her counterpart? Whatever the answer is, the answer is much much less well than they should. And I don't think that changes until there's a conscious and intentional recognition that it must change, and they start to change their habits of behavior. There needs to be much more frequency of communication and much less formal communication, because that's the only way you're ever going to build sufficient trust on both sides, to get to a critical mass, where the two countries can operate much more fluently and much more sort of beneficially for both countries and for the world.

Professor BAI Chong-EN:

Thank you. And as Secretary Blinken said that "our relationship with China will be competitive when it should be, collaborative when it can be, adversarial when it must be" during his first major foreign policy speech. Do you think he still thinks that way? And how do you think about the current and future competition and cooperation between the two countries?

Mr. John Thornton:

Well, let me put it this way. I think that any serious person in either country, thinking about the relationship, will soon concludes that there are three categories of issues between the two countries. One are issues that we're not going to agree on any time soon, and maybe never. Second category are issues that we agree on rather easily. The third category, which is the largest category, are issues that are complicated and difficult, but can either be resolved or they can be managed. And I think for those three categories, both countries need to accept the fact that these three categories exist, that within each of those three categories, we know what goes where, and we know within a category, how we're going to behave in relation to one another. So that for the whole process and habits of behavior are all rather reliable, rather predictable, and unlikely to produce bad surprises.

Now being said all that, to go back to your question about Blinken, I have to say I don't like the idea, for example, that we should acknowledge that there will be times when we have to be "adversarial". I don't find that a terribly helpful way of thinking. I think if you and I decide we're going to be adversarial from time to time, then the likelihood is that's almost for certain going to happen. And I think the two leading countries in the world should be seeking in the most intentional and intensive way to be cooperative as much as possible, to accept the fact that our interests will not always be the same. There will be times when we will be in some form of "competition".

But that's okay. Competition can make us both better. But I don't like the idea of saying, let's agree from time to time we're going to be adversarial. Because I don't think that's the way the two leading countries in the world should behave. The two leading countries in the world should be kind of models for the rest of the world, and they should be showing the world that the two leading countries can and will cooperate on the most important issues facing the planet at any point in time, and that means that those issues are much much more likely to be solved or to be well managed. That's kind of our responsibility, that's what leaders do. So I'm hoping over time that Secretary Blinken and the Administration will, let's just say, refine their language.

Professor BAI Chong-EN:

You mentioned that competition is unavoidable. Sometimes it can even be good becasue competition makes everybody work harder. And competition needs to be guided or regulated by a certain set of rules. And I think the US Administration recently often say we need to be rule-based. From Chinese side, from the perspective of many people in China, we ask the question: what kind of rules? And are the rules set by the US and a few advanced economies only? Or the rules should be set when everybody can get together and improve the international system?

Earlier, when Larry Summers talked about the China-US relationship, he talked about the necessity for the two countries to work together to improve the international system. So I guess that's also an important aspect of cooperation, if the two countries can work together to improve the international system, to improve the rules that govern the competition, either economic competition or strategic competition, that would be great. How do you think we can push the two countries to work together to improve the international system? Where can we start?

Mr. John Thornton:

First of all, I certainly agree with the general principle that the rules should be set in some sort of collective fashion or consensus-driven fashion. That goes well beyond just the US and China. There are many other countries who should be either central to that or certainly be considered in that. I think that goes back to the point about some kind of intentional recognition that we all live on this planet together and if we're going to get along for as long as mankind will be alive, we have to get to a point where we have a kind of collective sense of what the rules are.

Now, I can even see a bilateral basis as an example. If you take, what is now becoming increasingly difficult, this whole area of technology, now, both countries, use this notion of national security in a rather expansive way to cover a lot of ground. I don't see any reason why, one can't, in effect, agree what are the rules surrounding when something is genuinely an issue of national security and when national security is used as kind of a protective weapon. And I think if we were to do that, what would happen as a practical matter is countries would have a much more refined, much narrower definition of what national security is. And then, other than that specific category, both competition and cooperation in the development of technology otherwise would be, I believe, much faster and much better. And it concerns me that right now, it's going in the other direction. I think in some ways, it's the best example of where the absence of cooperation on agreeing the rules leads to a bad result. Because right now we're headed to a very bad result. And if we don't head that off, we could go, you can imagine easily going through 5 years, 10 years, or 20 years of a very bad result, which gets worse and worse and worse.

So to me, there's overwhelming incentive to agree on your first point, which is, let's agree that we're all better off if we can collectively create rules that we are all willing to abide by. I think that we're moving, we have to remind ourselves we're moving into the 21st century, then in the 22nd century. We need rules for those centuries, not rules that worked 50 years ago, set by different people at a different time.

Professor BAI Chong-EN:

Yeah, let's hope that the two countries can work together to come up with these new set of rules that fit the new century. And earlier, you mentioned that we should probably divide all the issues into three categories. I guess at this moment, we probably should focus on the second category you mentioned, that is, the issues that the two countries can relatively easily reach an agreement. Do you think climate change issues, which is one of the themes of this summit meeting, is one of those issues that fall into the second category？If that's the case, what the two countries should do to make that happen, make collaboration happen in that area?

Mr. John Thornton:

I'm glad you asked this question. First of all, we need to remind ourselves that I saw a speech given by John Kerry recently, where he specifically said the following, which we all know is true. He said: "President Biden and President Xi have both stated unequivocally, that each will cooperate on climate despite other consequential differences". So both Presidents have said specifically, not withstanding we have a lot of differences, on this issue, we're going to cooperate. Now, I find that very encouraging and I find that very sensible. As we discussed earlier, this issue is so important to the world. It's a much bigger issue than just the US and China.

And so I was very very pleased to see that President Biden created a new job that didn't use to exist, and then he appointed John Kerry in that job. In our system, John Kerry is as senior as you get. This is somebody who ran for president, who was Secretary of State, who was a senator for many many years, Chairman of the Senate Foreign Relations Committee. He's exactly the same age as the President. They've known each other forever. He has exactly one job which is climate. He is a forward-leaning individual who likes to make things happen.

And I think in some ways from the standpoint of the United States, this is the perfect appointment. When I was in China in January, the appointment of Kerry had just been announced, and I said to my Chinese friends: "You know what President Xi should do? He should appoint somebody, the equivalent of Kerry". And then of course a few weeks later, that's exactly what happened.

So now, we have that model we discussed before. We have Xie Zhenghua and we have John Kerry, both of whom know each other quite well, both of whom are very senior in their systems, both of whom are totally trusted by the Presidents and they already have a preexisting relationship. And I believe, and I don't want to be unrealistic, but I believe that to answer your direct question, that's the two of them working hard together will, in fact, reach some kind of understanding that will be good for both countries and good for the world. We'll show the world that the US and China can lead on a very, very important issue and it will extend what happened in Paris in 2015, and will start to make a material difference on issues absolutely crucial to the world. So that's a long way of saying yes. I'm kind of quietly optimistic on this particular issue that we're going to see some good news, and if that turns out to be the case, I also think that will have a positive effect on the relationship as a whole and start to inject a bit of optimism into the current situation.

Professor BAI Chong-EN:

I guess in addition to optimism, also trust building, rebuilding trust between the two countries.

Mr. John Thornton:

Right, very very important. Yes.

Professor BAI Chong-EN:

Any other issues in the second category that you mentioned?

Mr. John Thornton:

Yes. I think. For example, I think you cited earlier, someone cited earlier, the experience that we all had in the 2008 and 2009 financial crisis, when certainly the US and China, but for that matter, many other countries as well. But the US and China cooperated extremely well in that situation. And you know very well, that the people, the individuals involved in both countries, in the financial systems, from the governor of the central bank, what you might call that the high level technocrats. They know each other very well. They literally speak the same financial language. Many of them are very strong economists.

I see no reason why Vice Premier Liu He and Treasury Secretary Yellen, for example, can't be very effective on a whole range of macro economic policies, financial system issues, even investment issues. It seems to me that was a point of light that should be encouraged and I think that it goes without saying that the US and China are cooperating well on economic and financial system issues. That's extremely important for the whole system globally. That to me is another obvious area in the second category, which should go well.

I'd also say, on issue of trade, which as I mentioned earlier, in the beginning of the Trump administration, everyone thought was going to be a very difficult issue. It was a difficult issue in the sense that it took a lot of work. But they did reach an agreement. It was a good agreement and it's a good starting point for the new US Administration. On the Chinese side, you have of course the same group of individuals who did a good job the first time around, they were all well steeped and still ready to go. On the US side, and it's a different group of different priorities. But I see no reason why that can't be worked on in a very intentional and intensive manner, and get to a good result.

Professor BAI Chong-EN:

Right. Recently, President Biden and G7 partners agreed to launch the new global infrastructure initiative, which is called "Build Back Better World". China initiated the Belt and Road Initiative (BRI), which also focuses on infrastructure building. Do you think these are potential opportunities for cooperation between the two countries and between major economies in the world, and between all countries in the world in improving infrastructure？

Mr. John Thornton:

You know I see my friend Jin Liqun from the Zoom here, and I have to cite the example of the Asian Infrastructure Investment Bank as a kind of precursor to this question. Because we all remember the history of how that was created and we remember that in the beginning, the leadership creation for infrastructure bank invited the United States to get very involved, but the United States declined to get involved, not only declined to get involved, but then also went around to rest of some of their allies, try to persuade them not to be involved. That never made any sense, and it turned out to fail.

And when the BRI started, the truth is that the President Xi, back in 2013, told directly to his American counterparts what his idea was, and was very open to the idea of the American being involved in the BRI. And then once again, the Americans did not decide to participate. That to me was another colossal mistake. So now, we're talking about building a new initiative. I think at least in some people's minds, it's sort of put forward as a kind of, in contrast to or in competition with BRI, that doesn't make any sense to me at all. I think that going back to the point where I first started. If you look at the year 2050, you look at the population of 10 billion people, you think about the economic distribution in the world in 2050. We all know there'll be many many many poor countries, and a small number of rich countries. Those ones that are wealthy and their leaders, the economic leaders and the political leaders, have a responsibility, as far as I'm concerned, to try to enact policies which will help many other countries lift themselves up.

And the two leading countries, the US and China, as far as I'm concerned, should be partnering together to do that. I don't understand for the life of me why that seems to be difficult, which is not that difficult. We all have been and any of us have been in business know, that if you want partner with somebody, all it takes is a little bit of effort and a clear sense of purpose, and it can be done. Right now, one of my other little hat I am wearing, the chairman of the leading mining company in the world and when I became chairman, I intentionally sought to build partnerships with some Chinese partners. And we did that very successfully in Papua New Guinea and in Argentina. It worked well for both companies, for both countries, and for the jurisdictions in which we're operating. Exactly the same principle, it's not that difficult. We know how to do this. We've done it many times over many years. I think there's really no excuse for not getting that done.

Professor BAI Chong-EN:

Right. I totally agree with you that there is no excuse for not getting that done. Before we end, let me cite a few numbers. One is that there is a report published by World Pension Council, which estimated that in Asia, just in Asia, excluding China, the demand for infrastructure investment is $900 billion a year. Right now, we are far from achieving that goal.

The second research result that's published recently is an analysis done by the Center for Economic Research in UK, they find that China's BRI boosts the global GDP by $7 trillion per year by the year of 2040. That will be about 4% of the world GDP, so the return to this investment is huge.

Thirdly, there is a lot of misinformation in the media about BRI. For example, there is this term called "debt trap". It seems to suggest that the Chinese government is deliberately taking these poor developing partners into the debt trap.

Recently, there is an article in theAtlanticwritten by a professor from Johns Hopkins University, and another from Harvard Business School. According to their research, let me just quote their research abstract: "Our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country, much less the port of Hambantota. A Chinese company's acquisition of a majority stake in the port was a cautionary tale, but it's not the one we've often heard from the news. With a new administration in Washington, the truth about the widely, perhaps willfully, misunderstood case of Hambantota Port is long overdue."

Let's hope that the world will get a more complete picture of BRI and with that China and the US can work together to improve the world infrastructure. Thank you very much, John, for your very insightful comments. Let's hope that more people will listen to common sense, to reasonable arguments. Let's hope that the two countries can get together to work together.

Background:

GAMF is a non-governmental global think tank jointly founded by Tsinghua University's School of Economics and Management, the Sun Yefang Economics Science Foundation and the China Wealth Management 50 Forum. GAMF aims to promote international dialogue that helps enhance mutual understanding and reciprocal cooperation boosting the development of the global financial industry.

Editor: RE Zhongxi