China's Economic Miracle: Can It Continue?

>> Elizabeth Economy: Welcome to China Considered, a podcast that brings fresh insights and informed discussion to one of the most consequential issues of our time, how China is changing and changing the world. I'm Liz Economy, Hargrove Senior Fellow and Co-director of the US China and the World Program at the Hoover Institution at Stanford University.

Every two weeks I'll be joined in conversation by senior government officials, business leaders and prominent activists and authors from around the world. We'll discuss China's most important political and economic trends, its foreign policy ambitions, and its relations with the United States and other countries. The China Considered podcast is produced by the Hoover Institution, and you can subscribe to it via the Hoover Institution YouTube channel or your favorite podcast platform.

Today I have with me, Dan Rosen, who is a co founder and head of the Rhodium Group, which for two decades has been one of the world's top data driven research providers and consultancies on the Chinese economy, as well as on issues related to energy and climate. Dan is the author of several books and reports on China's economy and on the US China economic relationship.

He also served as Senior Advisor for International Economic Policy at the National Economic Council and National Security Council during the Clinton Administration. Dan, thanks so much for joining me today.

>> Daniel Rosen: Liz, pleasure to be with you, thanks for having me.

>> Elizabeth Economy: So I want to start with your baseline assessment of the Chinese economy.

It often feels as though we're flooded with information about the Chinese economy and much of it's contradictory. What do you think are the most important things that we need to understand about the current conditions of the Chinese economy?

>> Daniel Rosen: Well, yeah, it's a hard one to get started on, but let's do it this way.

Let's just kind of level set what's a reasonable expectation for China's economic performance. And I think it's important to start there because there has been a political preferred narrative around that coming out of Beijing that is increasingly out of whack with what economic analysis would suggest is actually happening.

So the official line that Beijing takes is that the economy continues to grow at about 5% or better a year, year on year. So if you have a 17 or so trillion dollar economy growing 5% a year, you've got the better part of a trillion dollars of additional activity every year being added, if that's true.

I don't think the evidence suggests that it is true, although the International Monetary Fund continues to stamp that number and say, yep, looks good to us, but it's more and more difficult for most analysts to see how that can be the case. And I'll take three bites at that apple.

First, there's a structural slowdown taking place. When an economy gets to middle income level. It doesn't grow, you know, 6, 7, 8% anymore. It naturally will slow down. That's just the nature of every economy we've seen in history, number one. Number two, China has already thrown a lot of stimulus projects at growth over the past couple of years since the pandemic.

And it's, as we say, moved forward in time demand. So instead of an even distribution of trade-ins of automobiles or dishwashers, they announced big programs to do that a year ago or the year before that. And so that creates a cyclical slashing around where all of that was moved to the front of a three year period rather than being evenly distributed.

The result of that is that today we actually should expect to see some subsidence in those sectors that already got these cyclicals shot in the arm programs in 2022, 2023, the beginning of 2024. And then thirdly, how well an economy is growing is also a function of the quality of policy making.

Regardless of where you are in a structural kind of perspective or in a cyclical dynamic. There's the question of is government doing it well or are they not doing it well? And I think we can. The simplest way to speak to that is just to note that since the pandemic there have been many, many announced efforts to stimulate improve growth as there have been more and more questions about it internationally.

And yet just a few months later, there's always another program being announced. So something is not working, folks are aware of that and it's taking a big bite out of growth. I would say rather than 5%, the economy seems to be growing somewhere between 0 and 2% right now.

And the easiest way to substantiate that is just to look at how huge the numbers for stimulus that are being talked about are. We're talking 6 to 10 trillion renminbi. You don't need that much stimulus if you've got 5% growth. And if you back that out and ask, well, what is growth?

If you need that much to get to your target, it suggests that we're not doing any better than 2%. We might be doing much worse.

>> Elizabeth Economy: And we hear a lot about the drag on the Chinese economy from the property sector, the issues around local government debt. Have any of the programs that China has announced, let's say, beginning this past July and through until now, begun to address those in a meaningful way?

>> Daniel Rosen: Well, if we Go back to July, you're including the delayed third plenary meeting statement announcement documents, that happened nine months after it was normally scheduled to happen in the Chinese political calendar. And when it did come out, it was, I think, in the middle, you know, 15,000 words or so of material.

And none of it really changed expectations in the marketplace. So if you look at the behavior of investors, how they were trading on expectations about the things that go into property, steel, plate glass, aluminum for windows, all sorts of stuff that big, once every five years document didn't seem to move the needle very much.

Subsequent to that, in September and then more recently, even coming up to last week, there have been additional announcements which are focused more on cutting interest rates, for example, and providing more liquidity. Really we're on the verge of having to call it quantitative easing, something which just a few quarters ago, Beijing insisted it was never going to do that.

That was something that less prudent Western economies did. And yet that's essentially, what we see Beijing moving toward right now. It creates a little bit of speculative activity in the property market, but that's not a long term solution to anything. I mean, the basic reality here is that the whole complex of economic activity around property had come to be as much as a quarter of the total Chinese economy, which is just a unprecedented weight on one industry.

We can see and we know and everyone knows that a lot of the property built out was never going to be really valued by people. It was speculative in nature. And while we see a little bit of property speculative activity by investors right now, just in the past week, it's not the kind of signal that would suggest that we're sort of turning the corner and coming back.

We've worked through the property problem and we're in a healthier place right now. If you look at the full 2024 property sector set of indicators, in terms of new starts and sales of finished property, the year performed way underneath 2023 levels. 2023 was a shocker that changed the narrative, I think everywhere about just how serious China's economic problems were.

So whatever those 2023 problems, they were worse in property in 2024. At some point. It's gotten so bad that there's nowhere to go but up. And maybe we're starting to see that presently, but that's a weak beer, as we would say.

>> Elizabeth Economy: And one more point or one more question on this, on this point, you don't think that Xi Jinping's move to basically switch from invest, have, you know, significant investment in the property sector to the three news, you know, the battery technology and EVs and, you know, energy storage and sort of the whole idea of AI plus putting AI throughout the economy, that advanced manufacturing, that moving local governments from investing in the property sector to these new areas, that that's going to do much to sort of reboot the Chinese economy.

>> Daniel Rosen: Well, given enough time, it'll help. But, you know, inside the five years, we're looking, you know, we can look ahead to here right now, number one, the local government officials whose job it was to figure out which property investments to push support to over the past 10 or 15 years, I don't see how they're skilled to make good decisions about which battery manufacturers should get state support.

And so the quality of, you know, small business lending in the American context, we might call it something like that, or more targeted industrial policy support, such as we have in the Inflation Reduction act, the IRA way in the US over the past two years, the quality of support for these new industries is not really very high.

And if you look at even electric vehicle makers in China, the vast majority of them are not profitable. And what profitability they do have is over-dependent on exports right now, which I'm sure is a topic, Liz, you're gonna wanna come to in a second probably. But just suffice it to say that, again, I'm talking about the quality of policymaking being a new net negative to the China story rather than a net positive.

Which just a few years ago, Beijing not being tethered by all the regulatory drag and due diligence and all that kind of democratic nastiness, which we're occasionally reminded of in the United States, is that a plus or a minus on their growth potential? Well, it has been a plus since 1979, and today we're sort of at the point where what used to be a tailwind has become a headwind.

If you don't have, you know, some better governance, quality in how support is being doled out, you're just creating greater liabilities for the future. You're not actually putting some support under the economy. And then finally on this question of property versus the three news, over the past two or three years, 10 million jobs have been lost in the property sector.

Under nobody's good news story did the three new industries purport to create even, I think, a third or maybe a quarter of that many new jobs to make up for the hole in the economy that property left?

>> Elizabeth Economy: That's a really interesting point. So given what you've described, obviously you think the Chinese leadership is probably moving down the wrong path.

What should they be doing? I mean, we hear a lot from Western economists about the need for China to move away from this investment and export led growth to a consumer based economy. What would that look like, what would that necessitate in terms of reforms? And why do you think Xi Jinping and the rest of the Chinese leadership have resisted doing this?

>> Daniel Rosen: Well, the ironic answer is that in the first instance, Xi Jinping put the right set of ideas on the table back at the beginning of his tenure in 2013. We know what the way ahead ought to look like for China because they actually wrote it out in great length in something called the 60 decisions in November of 2013.

And it included all of the major elements that were necessary to put the economy on a better track. And it takes a two-day seminar to talk through all that, Liz, and we-

>> Elizabeth Economy: Okay.

>> Daniel Rosen: Just got a few minutes.

>> Daniel Rosen: But let me offer a couple things that are really crucial.

A lot of them start with finance. Economists, when economists talk about how the economy of tomorrow comes to be, we talk about factors that go into creating economic assets for tomorrow and the incentives that decide how those assets flow. And China as a lower income bounce back developing country, had a system in which finance was pushed to heavy industrial manufacturing build out at very low cost of capital.

The problem with a lot of that investment is that it doesn't create a lot of jobs. A modern steel mill has just a few dozen workers really after the construction is done, it's all, you know, technicians. Also, it's white collar, it's not a very labor-intensive industry. If you want to create a lot of jobs in an economy, you don't actually want to be building duplicative steel mills.

You want to be pushing money to retail, to education services, to medical services. A lot of service activity. That's the stuff that's labor intensive and pays higher wages. And only by creating that wage flow to a growing middle class population do you really set the table for sustainable consumption that's not dependent on finding people to consume that are just not even available in China.

And so that's where we are today. They never finish these changes. They stated very clearly in 2013, we need to change the incentives in our financial system and we need to change our center local fiscal system to what we tell local governments to do and how do we give them money to do it.

Those things were identified as clear and present dangers that a decade out from 2013, if these things weren't fixed, China would find itself in a dead end. And that's a quote from Xi Jinping, who was paraphrasing something Deng Xiaoping had said 20 years before him, okay? So we started to change the financial system.

There were efforts to make it more market decisive, more market oriented. And that started to cause too much instability for anybody's taste. And so by 2015, 2016, the principal financial reforms that had been discussed and laid out were suspended, delayed tax reform was suspended and delayed. So the incentives to buy property didn't change.

That was the only really thing to do with your savings for too many Chinese. And so there are these kind of deep questions about what does the finance system do? What kind of industries does it support, just strategic industries that are attractive to national security officials? Or does it really put the emphasis on the consumers and what they want down the road?

And those problems were diagnosed, and then they were not fixed. And here we are, it's 2024 and these things have still not been fixed. And until they are, this misallocation in the system and under support for creating a consumer economy is just going to get worse. Now, China is super dependent on consumers, just not its own-

>> Daniel Rosen: Because way too much of its growth is coming from foreign consumers right now, which is creating an allergic response not just in the United States. The European Union has imposed tariffs on Chinese electric vehicles, surprisingly. And countries all over the global south as well are asking themselves, you know, how do I avoid just becoming a taker of Chinese products, but have a chance to make some things for myself as well?

>> Elizabeth Economy: And that, to me, that issue of overcapacity which we've seen in other areas like solar panels and presumably we could see coming, you know, in the future in areas like legacy chips. So what we're seeing now with the EVs and the pushback, not only from Europe, but as you suggest, from some middle and emerging economies, do you think that could create a kind of feedback loop to the Chinese government that that would actually get them to change their policy?

Because now it's not just the United States saying, stop these huge subsidies and the overcapacity that results in the failure of of you to develop this consumer economy at home and your reliance on the rest of the world. But now China's hearing it from a lot of other countries.

So do you see this as potentially having, A, a negative impact on the Chinese economy itself with all the tariffs coming into place? But B, maybe changing the mindset and finally causing Xi Jinping and other Chinese leaders to move forward on the kinds of reforms that you've outlined?

>> Daniel Rosen: Definitely, there's potential for that. For that potential to be translated into reality, it's gotta be more than just common concerns abroad. There has to actually be coordination abroad. So, yes, European folks in Europe, Britain, the United States, Japan, Australia, throughout the OECD world, even Mexico and other parts of the oecd, South Korea today share these concerns about these systemic inefficiencies in how the Chinese economy is running and the problems that creates.

But are they really coordinating to take a kind of common action to put some pressure on China to prioritize domestic reform? Certainly they are not. Yet. There's been a lot of effort in that direction. I think there was pretty good sort of initial progress toward kind of scoping out the makings of a broader trade coalition, if you will, in the Biden administration.

I don't think that had a chance to fully gel yet or set by the time that Trump administration starts in January. And I don't think there's any high expectation that Trump administration's gonna prioritize, solidifying the sort of common position on the nature of China's trade problems, right? And so I think from the Chinese perspective, yes, they are concerned with how nations around the world are starting to react differently to Chinese overcapacity exports.

At the same time, given the political challenge, pain and difficulty and cost at home of making these necessary changes, it doesn't seem that Beijing is convinced yet that that's really the smart way for them to go for that reason because of foreign pushback, right? I think there's a much better reason why Beijing should immediately turn to a much more radical effort to address the imbalances in the economy that we're talking about.

And that is, regardless of what foreigners do, this is not a sustainable path for China to be on. And they're never gonna get out of this sort of under 3% GDP trap until they deal more fundamentally with this sort of misallocation between sort of pushing all their support to their supply side at home versus their demand side.

Which means consumers have to be the solution for sustainable Chinese growth into the future.

>> Elizabeth Economy: One of the other things that the Rhodium Group does really well, you have your Pathfinder Report, which looks at Chinese reform, sort of the progress of Chinese reform across six different metrics. And you also track sort of the situation in terms of foreign direct investment into China.

And we've seen a fall off in that over the past couple of years. How significant do you think that is? Is that something the Chinese government is worried about? I've certainly heard Chinese leaders saying we are open for business, multinationals come back. What do you think is the impact, the real impact of that drop in FDI into China and do you expect that to continue?

>> Daniel Rosen: Yeah, well, the FDI into China is a crucial story. I'll make offer, offer a thought on it. Chinese outbound investment is also a very big story that we're tracking and is also important to think about for all sorts of reasons on the inbound side. I think by 2021, 2022, up until that point, I think many foreign investors were willing to be patient until the pandemic sort of was in the rear view mirror.

And into 2023, there was an expectation that China was gonna get back. Beijing was gonna get back to addressing the necessary rebalancing between heavy industry and consumer future for itself, as we've been discussing. And there was also a sense, I think, that the economy would naturally find its way back to 5, 6% growth, maybe higher in a bounce back from, from COVID as we had seen elsewhere in the world.

Instead, 2023 suggested the opposite, that the economy was really stuck in the weeds and was not going to see consumers were not ready to go out and kind of get back to business as usual. They were concerned about their jobs, income growth was poor. And this required a decisive response from Beijing to acknowledge the nature of the problem and say very clearly we get it, we understand that we're going to address this the right way.

Instead, since that sort of moment of reckoning in the first half of 2023, the various proposals to restore growth that have come out have sort of denied the nature of the problem. And said, nope, we're gonna just stimulate a little bit here and there and we're gonna kinda get through this.

We're gonna export and the world should be happy for that. Leaders of international companies investing in China have looked at that and listened to that and decided that's not going to work. We're not putting any more money at risk and we need to diversify very quickly into other economies.

The most recent quarterly data we have is that net Chinese FDI flows are almost $100 billion outbound. That hasn't happened in all the time modern data's been kept since the 1990s. So this is quite a different pattern that we're seeing right now. Any given month you'll see a little bit of investment tick back in.

But it's increasingly kind of speculative money rather than a long only here for the long term in China sort of foreign direct investment that was characteristic for the past three decades. The problem for China of that is that foreign direct investment is not just about the money. It's about creating links that allow businesses in China to export back to where those companies came from.

It still brings in a lot of technological know how. And despite how advanced China's become in a lot of industries, there are still big gaps in China's technological capabilities. Nobody in the world can run semiconductor manufacturing equipment without a whole bunch of vendors from Europe, United States and elsewhere resident in their economy helping keep the equipment going.

Right. So it's really quite a brave new world if foreign firms are on net, taking money out of the country and putting it elsewhere. Rather than voting with their checkbooks and staying committed. There's a handful of companies that are running sort of counter to that story, and that Creates quite a bit of confusion, I think, in the media narrative and headlines.

A couple of German automakers, for example. But really, if you look at the sort of broad central tendency here, it is a lot of risk avoidance by global firms. And it's geopolitics is a big part of that. But the biggest surprise really in the present couple years has been, wow, the Chinese macro economy is just not as stable as we expected it to be and they're not doing what they need to do to stabilize that outlook.

>> Elizabeth Economy: And you mentioned Chinese outbound investment. I just want to ask about that before we turn to sort of US Policy and China and looking ahead. But you mentioned outbound investment. Obviously, one of the huge sort of Chinese initiatives has been the Belt and Road Initiative. Over $1 trillion reported in terms of investment in hard infrastructure, digital infrastructure.

They've got that Health Silk Road, and the Green Silk Road for environmental technologies. What about that? Is that going to be impacted by, you know, what you've described as a pretty bleak situation for China's domestic economy? How is China going to sort of change, if at all it's outbound investment?

>> Daniel Rosen: Yeah, well, so let's see. I mean, I think a very important starting point to look at the question is to note that on the past three years, more money of debt repayment is going from Belt and Road countries back to China than any new money from China is going to those countries, okay?

So the sort of steep kind of takeoff of Chinese wherewithal financial support for its Belt and Road partners, that is behind us, it's kind of leveled off quite a bit. A lot of debate inside China. Why are we throwing money at countries that we can't count on to stay there for in the future?

A lot of the investments that were happening were in extractive industries to bring minerals back to China that were going into the property sector. So if you kind of think back to what we were talking about in terms of property, if that sector has been way over invested and there's not going to be as much demand for all those minerals and materials as we thought, then it's never going to be possible to pay off that debt that's been built up in Africa, Latin America, Australia and elsewhere in order to create so much capacity to ship iron ore.

Iron ore dipped below $100 a ton today for the first time in I don't know how many years. And that's very much a China property story. So it kind of all ties together here. All that said, not least because of this sort of Shortfall against expectations for the Chinese consumer.

A lot of Chinese firms are looking for growth elsewhere and they can see the writing on the wall. It's not just going to be about exports, again, for the reasons we've already touched on. And so they're hearing from their regulators in Mexico. Maybe if you set up a manufacturing operation here, you'd be more welcome to stay engaged in a stream of activity that creates profits for you, right?

No surprise there. So, tremendous amount of new Chinese greenfield investing, building manufacturing around the world to have a plan B. If growing China's exports quarter after quarter after quarter is no longer a viable game plan, which I think for, you know, if Donald Trump is to even be half trusted in terms of what he's saying, that'll absolutely, that'll absolutely be the case.

So a lot of new drivers. At Rhodium's website, you'll find a lot of current research, by the way, on that topic of new patterns in China outbound investment, which are very important. Some of that is probably what we would call trans-shipment as well. There's not really a lot of new manufacturing happening in Mexico.

It's just Chinese exports briefly touching a third country before being shipped on to Europe or the United States. It doesn't take very long for regulators to see that nowadays given technology. And so those things are going to be sort of quick to come and quick to go, I think.

>> Elizabeth Economy: Yeah, I think that's a really important point. Because, of course, one of the hallmarks of the Biden administration policy toward China has been this effort to encourage US firms to diversify their supply chain. Some of which, as you suggested earlier on, they're doing, because it just makes smart economic sense.

But by the same token, if what we're seeing is the Chinese firms simply relocating to other countries and becoming parts of supply chains that otherwise would be hard to track them. Then we're not getting the same kind of benefits from the types of activities that the administration has been pushing forward.

 

>> Daniel Rosen: There's one underappreciated benefit, benefit of that relocation, though, that I think I've been thinking about a lot lately. I haven't figured out exactly how we want to research it. And that is that one of the problems with a very China heavy production chain was that it was made way too difficult for companies to do due diligence on their production chain.

Partners in China going into the factory, making sure that things that were being installed in the equipment were what was supposed to be in the equipment, and not anything else, right? You understand what I'm talking about, these sort of security concerns. If a Chinese firm, if that same Chinese firm has to relocate and operate in Thailand or Mexico or Vietnam or India or somewhere else, then that problem is resolved.

It is possible for reasonable, normal commercial due diligence on what's happening in a production facility to be undertaken in third countries in a way that people are no longer comfortable doing in China. So there are some advantages to that sort of relocation, even if it doesn't solve all of our trade balance concerns.

>> Elizabeth Economy: Yeah, I think you make an important point on the security front, but the other element of that is on the economic coercion part. And whether or not a firm, a Chinese firm, that has a joint venture in Mexico or is operating a plant in Malaysia, whether they're subject to the same types of sort of calls from Beijing, should Beijing decide to launch a boycott again, say, of exports or imports from Australia.

Is it possible that the Chinese government can turn off the spigot for those firms as well, causing pain to other countries? I think that's the other issue that you have to be concerned about when it comes to supply chains. We don't want China to control personal protective equipment, right, via manufacturing in Mexico, or Malaysia, either.

I think that would just be another potential issue that we would have to consider about the sort of relocation and trans shipment. Okay, but let's finish up by talking about what's next. We're about to open a new chapter on the US-China economic relationship. And there is probably no issue of greater interest and importance to President-elect Trump when it comes to China than the issue of trade and investment between the two countries.

He's talked about levying 60% tariffs on China, but he's also said he welcomes Chinese investment in the US, he has no plans to ban TikTok. How do you see the Trump administration moving forward on the economic relationship with China? What do you anticipate sort of over the first 100 days that they're gonna move Forward on.

>> Daniel Rosen: Yeah, that's great. It's the question, Liz, and I don't think I have answers. I have some observations that I think bear on the question, but we're very much still in learning mode here to get a sense of what this policy first hundred days is gonna look like I would say.

The first observation is that regardless of what the sort of big political announcement of tariff level is, that's rolled out say 60%. That doesn't mean that that 60% is gonna be enforced uniformly across all products. In the Trump 1.0 policy package, there were quite a few carve outs from the sort of top line level of tariffs imposed on products coming into the United States and certainly on the Chinese side, their reciprocal tariffs against the United States, up to I think 95% of those or so friends at MOFCOM told me, were not actually collected on products coming into China.

Quite a bit higher on the US side but also very significant amount of sort of waiving of things. And of course there was the de minimis rule as well, which accounted for a huge share of US Trade. And so first point is, whatever the big number is, don't you know, shut down your computer and go to lunch as soon as you hear that number because there's going to be a lot more questions that need to be answered before we know exactly how big a bite out of business as usual it's going to take.

Number two, almost any answer to that question is gonna be macroeconomically disruptive though. We're talking now about levels of intervention in international trade. 60% with China suggestion of 10% as a starting point with the rest of the world. Again, countries can be exempted from that, I'm guessing if they're willing to be aligned in certain ways, we'll see, right?

But anyway, I think you implement that, it is going to have pretty significant macroeconomic effects. What are macroeconomic effects? They are price instability, AKA inflation, which we have had a taste of in the past couple years coming off the pandemic. Former US trade representative Robert Lighthizer observed in a recent op ed that there wasn't really much inflationary effect from Trump 1.0 tariffs, narrowly speaking, during the period of the administration, given that they were mostly implemented in the second half.

And then we had a pandemic that was starting to change the nature of things. Well inside that period, we don't really know, I think what the actual inflationary impact of something like a 60% tariff level almost three times higher than the previous numbers used for China. So we really need to be acutely aware of what changes like that could do to our economic interests.

There's inflation, there is rapid shifts in investment activity. We talked a minute ago about how problematic it is for China that multinational companies are not sending investment and activity into China anymore. This kind of a delinking of the United States from international trade norms could have a deleterious effect on investment into the United States.

At the same time, as you noted, candidate Trump surprised, I think, his own party by saying no, actually, I'd like to see Chinese automakers investing in the US in those niches where we don't have necessary inputs to be competitive global electric vehicle makers, right? So I think that's actually quite encouraging that we could put that back in play because I think the wholesale exclusion of Chinese participation in the US Economy is a mistake.

And we should, if possible, try to find ways to pick and choose what is allowed in rather than just saying, we're just gonna gratuitously cut everything off and call it a day.

>> Elizabeth Economy: Okay, so I think, great advice. Don't press the panic button yet. Take a little bit of a watch and wait and see.

I think it sounds like there may be some, you know, disagreement within the Republican Party itself, as you suggest, over issues like, you know, Chinese investment in the United States. Maybe President Trump will, you know, find a good, a good balance moving forward. So. All right, fingers crossed.

All right, so let's just finish up with five quick rapid fire questions. First, must read book or article on China that you would recommend to our listeners.

>> Daniel Rosen: I thought about this one a lot. Liz, I think what I'm gonna offer is in the current issue of the China Leadership Monitor, there's a piece called Peak China, What Are China Beijing's Options Now by my partner and colleague, Dr. Logan Wright, which I think does the best possible job of helping people see the long sort of structural arc of China's economic growth numbers and why the sort of slower growth Chinese future opens up a lot of strategic opportunities for other countries to look after their economic and geopolitical interests differently.

So I'd recommend that.

>> Elizabeth Economy: Great, I think it's a brilliant and sophisticated piece. So agree. Job you would most want to have in a new, maybe different administration.

>> Daniel Rosen: Yeah, and you use the indefinite article A, not the new administration, I see. Give me a little bit of wiggle room to decide how I was gonna answer it.

If it was gonna be the incoming administration, I jokingly said to my colleague this morning, archivist, because I thought that would be fun, Liz. But if it were some theoretical future administration, I think it's clear from this electoral outcome that parties on the more kind of internationalist, progressive side of the spectrum have an awful lot to learn about how much outreach is necessary to the full American electorate and citizenry so that we can do a lot of educational work on why our enlightened self interest is different than what it might seem in the short run.

And so that's gotta be an oval office priority. Of course, I think it will be for many, many electoral cycles to come. And while it's not a job I've traditionally held or thought of myself as qualified for, like many people, I feel like I need to apply myself to that challenge in the period ahead.

And so I've been thinking about something like that.

>> Elizabeth Economy: It's great, I think many of us would agree with you there. What one thing do you wish that the Biden administration had done differently with regard to China policy?

>> Daniel Rosen: As a China wonk and expert, I gave the administration extremely high marks.

I thought it was very adept at getting the balance right between domestic investment to put America back in the game in next generation technology segments like electric vehicles and renewables, where we had really been kind of waiting on the sidelines, frankly. And I think that grade stands. As a Columbia professor, I'm happy to give the easy A for that.

However, I think, you know, the ultimate test is how well it holds up against popular opinion, public opinion, and I think, you know, with hindsight, we can say that much more effort needed to be put into communicating. Why? And simplifying why our policy was good not just for the middle class, but maybe for the lower middle class or people who felt like they were slipping behind the middle class.

And so big lesson learned there. And yeah, I think my answer lies in that direction.

>> Elizabeth Economy: Okay, what China issue do you think we don't know enough about?

>> Daniel Rosen: I've kind of already been using the time with you, Liz, to try to emphasize this. But it is a major element of the Chinese system that they don't air their dirty laundry in public and their problems in public.

And so a lot of our colleagues in the China watching community over the past decades have underappreciated the structural problems and headwinds that China's grappling with right now. A lot of nations that are behind China developmentally and are thinking, what's the right system, the right kind of political economy for them to enjoy economic development?

Poverty alleviation such as China did are over, over estimating how well the Chinese approach is working. And I think even in strategic America, where I've spent a little time trying to offer analytic perspective, there's an underappreciation of just how constraining China's past economic choices now are. And what opportunities that opens up for a smart, enlightened American foreign policy and economic policy going forward.

>> Elizabeth Economy: And then on a scale of 1 to 10, how likely are we to see a Nixon Mao moment in the US China relationship in the next decade?

>> Daniel Rosen: So this one was easy for me. It's a 1, Liz, for the simple reason that to be at a Mao Nixon moment, if I strictly kind of speak to that.

The Chinese side of that story would need to be at a certain point in its arc where it had exhausted other alternatives for how it saw its own interest going forward. And unfortunately, I would say from an American perspective, I think we're still maybe five or ten years away from Beijing seeing its interest in some sort of detent or rapprochement with the United States.

Also, of course, the dynamic in which the United States is the sole global hegemon, essentially. And the guy in second place, the USSR has started to show that it just is not going to be able to keep pace with that. That was essential to the Mao Nixon moment.

We just don't have those circumstances geopolitically right now, I don't think. Although I'm just an economist, so what do I know? Maybe the geopoliticians might think differently, but I'm certainly looking for some other grand, historic moment that we can define for the future. It won't be a Nixon Mao, just like China's story won't be Japan's lost decade story.

It won't be the Cold War as we knew it. It'll be new things that have characteristics and dynamics that'll be just as important anchors to how we train generations to come in American foreign policy and international economic policy. But I'm at the moment concerned that we get too stuck to those old metaphors about what worked, who's the new Kissinger, this kind of thing, I think time to let those go and figure out what comes next.

>> Elizabeth Economy: Dan, I cannot thank you enough. You are not just an economist. You are really an extraordinary, I think, scholar, scholar and expert on China and US China relations writ large. And I really appreciate your taking the time to with us today to talk about what's going on in the Chinese economy today.

Where it's likely to go in the future, and of course, the question on everybody's mind, what does the US what is the US likely to do moving forward in a Donald Trump 2.0 presidency? If you enjoyed this podcast and want to hear more reasoned discourse and debate on China.

I encourage you to subscribe to China Considered via The Hoover Institution YouTube channel or podcast platform of your choice. In the next episode, we'll continue our discussion of Chinese economy, exploring how foreign investors are looking at China today with Joerg Wuttke, former China Chairman of the German company, BASF, and now partner at DGA Albright Stonebridge Group.

Thanks very much.