A National Security Reckoning

How Washington Should Think About Power

By Hillary Clinton

November/December 2020

In a year marked by plague and protest, Americans are reckoning with long-overdue questions about racial justice, economic inequality, and disparities in health care. The current crisis should also prompt a reckoning about the United States’ national security priorities. The country is dangerously unprepared for a range of threats, not just future pandemics but also an escalating climate crisis and multidimensional challenges from China and Russia. Its industrial and technological strength has atrophied, its vital supply chains are vulnerable, its alliances are frayed, and its government is hollowed out. In the past, it sometimes has taken a dramatic shock—Pearl Harbor, Sputnik, 9/11—to wake up the United States to a new threat and prompt a major pivot. The COVID-19 crisis should be a big enough jolt to rouse the country from its sleep, so that it can summon its strength and meet the challenges ahead.

Among the highest priorities must be to modernize the United States’ defense capabilities—in particular, moving away from costly legacy weapons systems built for a world that no longer exists. Another is to renew the domestic foundations of its national power—supporting American innovation and bolstering strategically important industries and supply chains. These twin projects are mutually reinforcing. Modernizing the military would free up billions of dollars that could be invested at home in advanced manufacturing and R & D. That would not only help the United States compete with its rivals and prepare for nontraditional threats such as climate change and future pandemics; it would also blunt some of the economic pain caused by budget cuts at the Pentagon. Integrating foreign and domestic policy in this way would make both more effective. And it would help the United States regain its footing in an uncertain world.


For decades, policymakers have thought too narrowly about national security and failed to internalize—or fund—a broader approach that encompasses threats not just from intercontinental ballistic missiles and insurgencies but also from cyberattacks, viruses, carbon emissions, online propaganda, and shifting supply chains. There is no more poignant example than the current administration’s failure to grasp that a tourist carrying home a virus can be as dangerous as a terrorist planting a pathogen. President Barack Obama’s national security staff left a 69-page playbook for responding to pandemics, but President Donald Trump’s team ignored it, focusing instead on the threat of bioterrorism. They dismantled the National Security Council’s pandemic directorate, folding it into the office responsible for weapons of mass destruction, and filled a national medical stockpile with drugs for anthrax and smallpox while neglecting the personal protective equipment needed for a pandemic. The Trump administration also shut down the U.S. Agency for International Development program created during my time as secretary of state to detect viral threats around the world, and it has repeatedly tried to slash funding for the Centers for Disease Control and Prevention. The costs of this misjudgment have been astronomical.

The Trump administration has taken a similarly misguided approach to other nontraditional threats. It omitted any reference to climate change in its 2017 National Security Strategy and attempted to block Rod Schoonover, a senior intelligence official, from briefing Congress about it. The administration also deprioritized cyber-espionage in its trade negotiations with China and failed to confront Russia over its interference in U.S. elections. Unsurprisingly, both countries are at it again.

The problem runs much deeper than Trump, however. Administrations of both parties have long underappreciated the security implications of economic policies that weakened strategically important industries and sent vital supply chains overseas. The foreign policy community understandably focused on how new trade agreements would cement alliances and extend American influence in developing countries. Democrats should have been more willing to hit the brakes on new trade agreements when Republicans obstructed efforts to support workers, create jobs, and invest in hard-hit communities at home. When Republicans failed to use trade-enforcement tools to protect American workers—such as the safeguards against unfair surges of Chinese imports that my husband, President Bill Clinton, negotiated but the Bush administration refused to invoke even a single time—and blocked domestic investments in basic research, infrastructure, and clean energy, Democrats should have more forcefully called their intransigence what it was: not just bad economic policy but a national security liability.

The COVID-19 crisis should be a big enough jolt to rouse the country from its sleep.

Myopia about national security also manifests in the simplistic frames applied to complex challenges, such as insisting on seeing competition with China through the lens of the Cold War. In a speech in July, Secretary of State Mike Pompeo offered this pearl of wisdom: “I grew up and served my time in the army during the Cold War. And if there is one thing I learned, Communists almost always lie.” That’s a remarkably unhelpful way of approaching the challenge. Huffing and puffing about Communists may rile up the Fox News audience, but it obscures the fact that China—along with Russia—poses an altogether different threat from the one the Soviet Union did. Today’s competition is not a traditional global military contest of force and firepower. Dusting off the Cold War playbook will do little to prepare the United States for adversaries that use new tools to fight in the gray zone between war and peace, exploit its open Internet and economy to undermine American democracy, and expose the vulnerability of many of its legacy weapons systems. Nor will such an anachronistic approach build the global cooperation needed to take on shared challenges such as climate change and pandemics.

Meanwhile, the United States’ deep domestic fractures have hamstrung its ability to protect itself and its allies. Consider what happened after the Obama administration painstakingly built an international coalition to force Iran to the negotiating table, including winning the reluctant participation of China and Russia, and then secured a historic agreement to stop Iran’s nuclear program. Trump abruptly renounced the agreement. Now, predictably, Iranian centrifuges are spinning, Tehran is exploring a new alliance with Beijing, and the international sanctions regime is shattered. It’s a frustrating, self-inflicted wound and a reminder of the costs of inconstancy.

The problem is not always too much change; in some areas, it’s too little. The overmilitarization of U.S. foreign policy is a bad habit that goes all the way back to the days when President Dwight Eisenhower warned of “the military-industrial complex.” Many generals understand what James Mattis told Congress when he led U.S. Central Command: “If you don’t fund the State Department fully, then I need to buy more ammunition ultimately.” But many politicians are too afraid of being attacked as soft on defense to listen. So they pile mission after mission on the Pentagon and authorize ballooning military budgets while starving civilian agencies. And, it’s important to emphasize, for decades, right-wing ideological resistance has blocked crucial investments in American diplomacy and development abroad and American innovation at home—from foreign aid budgets to domestic infrastructure and R & D spending.


Like the broader government, the military itself can be slow to adapt to new threats. After the invasions of Afghanistan and Iraq, there were fatal delays in getting up-armored Humvees and lifesaving body armor to troops in the field. Now, the Pentagon is again at risk of being caught unprepared for the very different demands of competing with China. I saw how hard it can be to move a bureaucracy as sprawling as the Pentagon when, in 2004, I was asked to be the only U.S. senator on the Joint Forces Command’s Transformation Advisory Group, which was charged with helping the military re-imagine itself for the twenty-first century. The Defense Department had assembled an impressive team of military and civilian experts from a range of disciplines and told them to think as big and boldly as possible, yet our efforts to recommend reforms ran into some of the same obstacles that remain today. Powerful players in the Pentagon, Congress, and the private sector have built careers—and, in some cases, fortunes—doing things a certain way. They have a vested interest in maintaining the status quo.

To be sure, when lives are on the line, it can be more prudent to rely on proven practices than untested innovations. And decisions about military posture and procurement have profound economic and political implications that should not be overlooked. As a senator, I represented many New York communities dependent on defense jobs, and I did everything I could to keep bases open and factories humming, whether it was funding the production of new howitzer tubes at the Watervliet Arsenal and the development of advanced radar systems on Long Island or bolstering the 10th Mountain Division at Fort Drum. I knew how much the jobs meant for my constituents, and I was convinced that each of the appropriations had national security merit. Yet multiply that dynamic across 50 states and 435 congressional districts, and it becomes clear why it’s so hard to retire aging weapons systems or close bases that have outlived their usefulness.

Today, the poster child for this political reality is the F-35 fighter. Development of the plane ran way behind schedule and over budget, and it is estimated to cost $1 trillion over its lifespan, yet it is considered untouchable. The air force sank so much time and money into the project that turning back became unthinkable, especially since the F-35 is the only fifth-generation aircraft currently being manufactured in the United States. And because the plane directly and indirectly supports hundreds of thousands of jobs across hundreds of congressional districts in nearly every state, it has legions of defenders in Congress.


These obstacles to reforming the military are not new, but they are newly urgent. The Pentagon must adapt to a strategic landscape far different from the one it faced during the Cold War or the war on terrorism. New technologies such as artificial intelligence are rendering old systems obsolete and creating opportunities that no country has yet mastered but many are seeking. Then there are the particularly thorny challenges in East Asia. While the American military was fighting costly land wars in the Middle East, China was investing in relatively cheap anti-access/area-denial weapons, such as antiship ballistic missiles, which pose credible threats to the United States’ expensive aircraft carriers.

No one should make the mistake of believing that the People’s Liberation Army is ten feet tall or that the competition with China is primarily a military contest. China has relied on financial coercion and economic statecraft to gain influence as it builds infrastructure around the world. In recent years, while the Trump administration was gutting the State Department and undermining U.S. alliances in Asia and Europe, China was doubling its diplomacy budget and pouring untold billions into developing countries, now outstripping American aid. China today has more diplomatic posts around the world than the United States does.

That said, the military challenge from China is real. The United States should not be lulled into a false sense of security by its continuing firepower advantage or the fact that its defense budget remains orders of magnitude larger than Beijing’s. China’s advances mean that the United States’ air and sea superiority in the region is no longer ensured. This isn’t competition from a military equal but a new kind of asymmetric threat. Americans learned in the sands of Afghanistan and Iraq that asymmetry can be deadly, and the same is true in the skies and seas of East Asia. To make matters worse, the United States must meet this challenge with a military that has been damaged by Trump’s mismanagement. He has degraded civilian oversight of the Pentagon by leaving scores of key posts vacant. At the same time, he has attempted to turn the military into part of his political machine—pardoning war criminals over the objections of military leaders and deploying National Guard troops in Lafayette Square so that he could stage a photo op.

Modernizing and refocusing the military will take both vision and backbone. A big part of the effort will have to involve overhauling the defense budget. Deep savings—potentially hundreds of billions of dollars over the next decade—can and should be found by retiring legacy weapons systems. But choices about where to cut and where to spend must be driven by a clear-eyed analysis of national security needs, not politics. The United States can’t afford to repeat the mistakes of the 2013 budget sequestration, when Congress forced the Pentagon to slash budgets indiscriminately, with no overarching strategy. This work is going to require a president and a secretary of defense who are rigorous in their analysis and comfortable consulting with Congress and the military brass but prepared to make difficult decisions about which missions to prioritize and which to de-emphasize or eliminate. To insulate these decisions from political pressure, Congress should agree to take an up-or-down vote on a comprehensive package of defense reforms—a process that has been used in the past for closing military bases—rather than haggling over each adjustment.

Changes to the budget should aim to prepare the United States for asymmetric conflict with technologically advanced adversaries. For example, aircraft carriers still play an important role in U.S. power projection around the world but are vulnerable to Chinese antiship missiles, which cost a fraction of the price. In addition, only a handful of the U.S. Navy’s 11 aircraft carriers are usually operational and at sea at any given time, with onerous maintenance keeping others in port. Instead of continuing to expand the fleet of vulnerable surface ships, the navy should invest in accelerated maintenance and next-generation submarines. Similarly, as anti-access/area-denial weapons force U.S. aircraft carriers and guided-missile cruisers to stay farther away from potential targets, the U.S. Air Force will have to focus less on short-range tactical fighter planes and more on long-range capabilities. That means it won’t need nearly as many F-35s as planned, but it should welcome the arrival of the B-21 Raider, a long-range bomber under development that is designed to thwart advanced air defenses. These capabilities must be accompanied by mechanisms that allow for consultation with China and Russia to reduce the chances that a long-range conventional attack is mistaken for a nuclear strike, which could lead to disastrous escalation.

As the United States leaves behind a period dominated by land wars and looks ahead to potential air, sea, and space conflicts, the army should accept the risks that come with a smaller active-duty ground force. A force with fewer soldiers and heavy tanks would match the strategic moment and cost far less. Maintaining fewer active-component armored brigade combat teams, for example, could save tens of billions of dollars over the next decade. Instead of heavy tanks, the military should be investing in tools that will give troops an edge in the conflicts of the future, including upgraded communications and intelligence systems.

Modernizing and refocusing the military will take both vision and backbone.

Perhaps most important, the United States needs a new approach to nuclear weapons. For starters, it should not be deploying low-yield nuclear warheads on submarines or nuclear-armed cruise missiles, which expand the range of scenarios for the use of nuclear weapons and increase the risk of a misunderstanding escalating quickly into a full-blown nuclear exchange. Nor should the United States spend $1 trillion over the next 30 years on its nuclear arsenal, as is currently planned. Instead, it should significantly reduce its reliance on old intercontinental ballistic missiles, pursue a “newer and fewer” approach to modernization, and revive the arms control diplomacy that the Trump administration scrapped. A top priority should be to extend the New START treaty with Russia, which Ellen Tauscher, the State Department’s top arms control official, and I helped negotiate at the beginning of the Obama administration. It will also be important to persuade China to join nuclear negotiations.

A renewed commitment to diplomacy would strengthen the United States’ military position. U.S. alliances are an asset that neither China nor Russia can match, allowing Washington to project force around the world. When I was secretary of state, for example, we secured an agreement to base 2,500 U.S. marines in northern Australia, near the contested sea-lanes of the South China Sea. Yet Trump treats the U.S. alliance system as nothing more than a protection racket—for example, warning NATO partners that they must “either pay the United States for its great military protection, or protect themselves.” Although it’s appropriate to emphasize the need for burden sharing, it is more constructive to think of a division of labor. As the United States focuses on modernizing its air and sea capabilities, it will make sense for other NATO members to concentrate on strengthening their conventional ground forces so that they can deter incursions in eastern Europe or lead counterterrorism missions in Africa.


That is how the United States should modernize its approach to defense—one of the three Ds, along with diplomacy and development, that for more than a decade I have said should be integrated as part of a “smart power” strategy. Now, it’s time to add a fourth D: domestic renewal, the rebuilding of the country’s industrial and technological strength.

The United States’ dwindling industrial capacity and inadequate investment in scientific research leave the country dangerously dependent on China and unprepared for future crises. The problem goes back decades. When the USS Cole was bombed in 2000, I was shocked to learn that there was only one American company left that manufactured the specialized steel needed to repair the ship’s hull. Twenty years later, the pandemic has underscored how much the United States relies on China and other countries for vital imports—not just lifesaving medical supplies but also raw materials such as rare-earth minerals and electronic equipment that powers everything from telecommunications to weapons systems.

The United States should pursue a plan like the one proposed by former Vice President Joe Biden to invest $700 billion in innovation and manufacturing and impose stronger “Buy American” provisions, with the goal of jump-starting domestic production in key sectors—from steel to robotics to biotechnology—reshoring sensitive supply chains, and expanding strategic stockpiles of essential goods. It’s time for ambitious industrial policies. China does whatever it can to gain an advantage, including conducting industrial espionage on a massive scale, pursuing a range of unfair trade practices, and providing virtually unlimited resources to state-owned and state-backed enterprises. The United States doesn’t need to cheat or steal, but it can’t afford to compete with one hand tied behind its back.

The United States can’t afford to compete with one hand tied behind its back.

Although it is a mistake to use national security as a catchall justification for blanket protectionist trade policies, as Trump has done, policymakers should widen the range of industries and resources deemed vital to it. It’s not enough anymore to prioritize materials and technologies used for weapons systems and semiconductors; the United States’ security also depends on the control of pharmaceuticals, clean energy, 5G networks, and artificial intelligence. That’s one reason it’s crucial to reverse the long-term decline in the federal share of spending on R & D. Another reason is that investments in basic science and medical research can yield huge economic gains: economists at MIT have estimated that increasing federal funding for research in the United States by 0.5 percent of GDP, or about $100 billion per year, would create some four million jobs.

Massive new investments in advanced manufacturing and R & D will be expensive, but they are necessary for the United States’ long-term economic and security interests and will pay off for years to come. Critics will no doubt warn that running up the national debt is itself a national security risk. But at a time of historically low real interest rates and historically high unemployment, the country should not shy away from bold investments. There is a growing consensus among economists that Washington need not be paralyzed by fears of debt and that it can afford to spend heavily on critical national investments that bring high returns, especially during a crisis. Indeed, what the United States cannot afford is to defer these investments any longer.


These two agendas—military modernization and domestic renewal—should be integrated. Moving away from outdated weapons systems will cause economic disruption and real hardship. That’s why it should be done in tandem with targeted investments in economically struggling communities, bringing advanced manufacturing and R & D to the places most affected by defense cuts. In fact, as a study by economists at the University of Massachusetts, Amherst, has found, $1 billion spent on clean energy, health care, or education creates, on average, far more jobs than the same amount of military spending.

I’m not suggesting telling laid-off factory workers to reinvent themselves as coders; that’s fanciful and condescending. Previous pledges to support workers who lost their jobs because of defense cuts or trade policies have often fallen abysmally short. But the U.S. government can do more to help displaced workers and those leaving the military transition to the millions of new jobs that could be created through major new domestic investments. In 2008, when the U.S. Air Force retired the F-16s based at Hancock Field Air National Guard Base, in Syracuse, New York, I helped secure funding to turn the base into one of the military’s first major drone bases, saving hundreds of jobs. American history is full of examples of factories, communities, and entire industries pivoting when they had to. During World War II, the auto industry shifted gears with incredible speed to make tanks and bombers. At the beginning of the pandemic, it shifted swiftly again, to produce desperately needed ventilators and personal protective equipment. With the right long-term investments, communities can reinvent themselves successfully. Pittsburgh, once a center of steel production, has become a hub for health care, robotics, and research on autonomous vehicles.

Many legacy weapons systems are built or based in communities with skilled workforces that can and should be the backbone of the country’s renewed self-sufficiency. Think of Syracuse, which has long been a center of defense manufacturing, a bright spot in an otherwise difficult economic picture. In 2017, the Brookings Institution ranked Syracuse dead last for economic growth out of 100 U.S. metro areas, so it could ill afford to lose any of the defense jobs keeping the region afloat. Yet a 2019 ranking by a pair of MIT economists put the city as the third most promising technology hub in the country, thanks to its skilled workers and low cost of living. It’s exactly the kind of place where significant public investments in advanced manufacturing, clean energy, and R & D could create good jobs and help the United States outcompete China.

Washington need not be paralyzed by fears of debt.

So is Lima, Ohio. Hundreds of people work at the city’s Abrams tank factory. Even though General Ray Odierno, then chief of staff of the U.S. Army, told legislators in 2012, “We don’t need the tanks,” Congress kept the factory open. It’s true that the plant’s workers and their community have devoted themselves to protecting the United States, and the country absolutely must keep faith with them. It’s also true that the military still doesn’t need the tanks. But if the United States is to get serious about climate change, what it does need are more factories to churn out clean electric vehicles. The Pentagon alone should replace most of its fleet of 200,000 nontactical vehicles with electric. Some of those new vehicles could be built in Lima, which is already home to a large Ford engine factory. And that’s just one possibility. If Washington decides to boost domestic production of next-generation electric batteries, wind turbines, and other strategically significant products, Northwest Ohio is a natural place to do it.

No one should pretend that every defense job can be saved or replaced. Cutting hundreds of billions of dollars in military spending over the next decade will inevitably inflict a painful toll on families and communities across the country. But if the government can pair these cuts with major new investments in affected communities, it can minimize the economic damage and maximize the United States’ ability to compete with China and prepare for future challenges.

All of this requires leadership from the top. Having a commander in chief with no experience—and no empathy or vision—has been a disaster. But it’s hard to imagine a man better suited to lead the work ahead than Biden, a former chair of the Senate Foreign Relations Committee who has deep expertise in national security policy, a military father who knows how much the country owes its men and women in uniform and their families, and a champion of working people who fought to save the auto industry when others would have let it go bankrupt.

In the throes of a crisis as dire as any the United States has seen in many decades, it can be difficult to imagine what the world will look like in four months, let alone four years. But the country needs to be thinking now about the threats it will face in a post-pandemic future, as well as the opportunities it must seize. As former Secretary of State Dean Acheson recounted in his memoirs, when George Marshall led the State Department, he urged his team to look ahead, “not into the distant future, but beyond the vision of the operating officers caught in the smoke and crises of current battle; far enough ahead to see the emerging form of things to come.” The United States should endeavor to do the same today. To look beyond the current battle and prepare to lead the post-COVID world, it must broaden its approach to national security and renew the foundations of its national power.

Source: Foreign Affairs “A National Security Reckoning”

Note: This is Foreign Affairs’ article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.

Xi Speeds Up China’s Inward Economic Pivot in More Hostile World

  • ‘Domestic market first’ approach has self-reliance at core
  • China faces sluggish consumption, behind on tech goals
Xi Jinping during the National Peoples Congress  in Beijing in May.
Xi Jinping during the National Peoples Congress  in Beijing in May.

Photographer: Wang Zhao/AFP via Getty Images

In a series of remarks over the past few weeks he’s touted the so-called “dual circulation” development model, in which a more self-reliant domestic economy serves as the main growth driver supplemented by certain foreign technologies and investment. Following a Politburo meeting Thursday, Xi said China should speed up this approach in the face of an economic situation that “remains complicated and challenging with unstable and uncertain factors.”

For Xi, the strategy is to effectively reduce reliance on the West just as other nations seek to become less dependent on China for economic growth. While the world’s biggest economies still need each other for the moment, rising U.S.-China tension fueled by the pandemic looks set to persist even if President Donald Trump loses an election in November, as both major American political parties increasingly see Beijing as an ideological threat.

“China’s leadership doesn’t want to leave an impression that the country would just close its doors in the face of external challenges,” said Wang Huiyao, an adviser to China’s cabinet and founder of the Center for China and Globalization. “However, if the U.S. initiates a hard decoupling, such efforts could help boost China’s immunity from possible fallout.”

Global Execs

Xi has been out front driving the point home over the past month. In a letter to global chief executives in mid-July, he urged them to stay in China and pledged to improve the business climate. A week later he called on foreign and domestic companies to step up innovation and help stabilize employment, telling them to fully tap the potential of China’s market.

What Bloomberg’s Economists Say…

A subtle but important policy shift is underway in China. The government has highlighted ‘dual circulation’ in recent policy statements — a reference to the domestic economy and external trade. This suggests an official shift away from an export-led growth model toward a sharper focus on building an economy with stronger domestic drivers.

— Chang Shu, Chief Asia Economist

For the full note click here

On that trip, Xi called for boosting national auto brands, developing key technologies and stepping up research into drone warfare and training. And just on Friday, Xi announced that Beidou-3 navigation satellite system, China’s alternative to the U.S.-run Global Positioning System, had started operation.

China’s better-than-expected recovery in the second quarter demonstrated the kind of domestic resilience that the country’s leaders hoped will get its economy back on track. But that performance was bolstered by a splurge in government-led investment, a range of administrative orders aimed at spurring credit expansion and small exporters adaptive to the shifting global demand of protective gear.

Domestic Worry

The worrying figure remains weak consumption, which has raised concerns about the sustainability of the recovery. The country’s income distribution has worsened of late, with groups at the lower end of the income ladder seeing wages falling while millions of others who lost their jobs don’t show up as unemployed in the official data.

China Is Buying Up Chips Before Hong Kong Route Shuts

“China’s future growth will depend on domestic demand, domestic wealth re-distribution and internal circulation of materials,” said Liu Peiqian, a China economist at Natwest Markets in Singapore.

China also has a long way to go to master the core technologies it desperately needs for its development, from semiconductors and aircraft to new energy vehicles and artificial intelligence, despite a range of official programs from “Made in China 2025” to a push to build out 5G infrastructure.

Some experts say it could take more than a decade to catch the U.S. in terms of manufacturing computer chips, particularly after the Trump administration tightened supplies. Beijing is widely expected to miss a goal of domestic suppliers meeting around 70% of chip needs by 2025. That compares with about 16% now, according IC Insights, Inc., a semiconductor market research company headquartered in Scottsdale, Arizona.

Set Up to Fail

“I’m not sure why they set such aggressive targets, other than to try and encourage the industry to work harder,” said Stewart Randall, head of electronics at consultancy Intralink in Shanghai. “It feels like setting oneself up to fail.”

One sign of the inward shift was the exclusion of any mention of Xi’s Belt and Road Initiative — a major “turn outward” policy since 2013 — following Thursday’s Politburo meeting. That indicates a “clear digression from the previous national strategy,” Nomura’s Chief China Economist Lu Ting wrote in a research note Friday, adding that it likely stemmed from the wider U.S.-China clash. “A retreat might make sense for China, as it needs to adjust its role in the global arena,” he wrote.

Bricks and Mortar

Drove China’s rebound in the second quarter

Source: Nomura Holdings Inc

Building a more self-reliant economy could also pay dividends over the long haul for the Communist Party, which faces pressure both to deliver economic gains to the country’s 1.4 billion people and to prevent them from pushing for any Western ideas of democracy that could threaten its rule.

“This whole onshoring is just a reflection of a withdrawal that might be politically needed in order to keep Xi or the party in power,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China, who in the past has participated in discussions with senior government officials on economic policy.

Still, he said, Beijing’s leaders may struggle to pull it off: “Does China realize how difficult it is to make up the technology on which they built their success stories, and that it’s them against the world? Are they willing to pay the economic price?”

— With assistance by Colum Murphy, Yinan Zhao, Simon Flint, and Jing Li

Note: This is Bloomberg’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.

China to ease foreign investments curbs, won’t force tech transfers -vice minister

October 29, 2019 / 6:47 PM / Updated 3 hours ago

BEIJING (Reuters) – China will eliminate all restrictions on foreign investments not included in its self-styled “negative lists,” a vice commerce minister said on Tuesday, and also will “neither explicitly nor implicitly” force foreign investors and companies to transfer technologies.

FILE PHOTO: Chinese Vice Commerce Minister and Deputy China International Trade Representative Wang Shouwen attends a news conference ahead of the 70th founding anniversary of the People’s Republic of China, in Beijing, China September 29, 2019. REUTERS/Jason Lee

The statement to a news conference in Beijing by Wang Shouwen signalled possible upcoming directives.

Technology transfers have been a major source of tension between China and the United States, which have been embroiled in a trade war for over a year.

The ‘negative lists’ specify industries in which investors, foreign or domestic, are restricted or prohibited.

We will move faster to open up the financial industry,” said Wang, eliminating all restrictions on the scope of business for foreign banks, securities companies and fund managers.

Policies will also be fine-tuned to ensure foreign and domestic players have equal market access to manufacturing new-energy vehicles, he said.

The new measures are intended to ensure stable foreign investment and create a transparent, predictable investment environment, Wang said.

The U.S.-China Business Council said forced technology transfer requirements and investment restrictions that required joint ventures were a concern for many of its more than 200 member companies.

We are encouraged by the vice minister’s statement on eliminating forced technology transfer requirements in the China market,” said Jake Parker, the group’s senior vice president. “We look forward to these new liberalizations quickly resulting in transparent regulatory reviews that lead to licenses granted after narrowly defined review timelines.”

Chief U.S. and Chinese trade negotiators talked on the phone recently and will speak again soon, Geng Shuang, China’s Foreign Ministry spokesman, told a separate news conference. He did not give a timeframe.

U.S. President Donald Trump agreed this month to cancel an Oct. 15 hike in tariffs on $250 billion in Chinese goods as part of a tentative agreement on agricultural purchases, increased access to China’s financial services markets, better protections for intellectual property rights and a currency pact.

Leaders of the world’s two biggest economies are working to agree on the text for a “Phase one” trade agreement announced by Trump on Oct. 11.

Trump has said he hopes to sign the deal with China’s President Xi Jinping next month at a summit in Chile, but a U.S. administration official said on Tuesday the text of the deal might not be completed in time.

White House spokesman Judd Deere said both sides were still working to complete work on the interim deal.

Reporting by Huizhong Wu and Ben Blanchard; additional reporting by Andrea Shalal in Washington; Writing by Gabriel Crossley and Andrea Shalal; editing by John Stonestreet and Dan Grebler

Source: Reuters “China to ease foreign investments curbs, won’t force tech transfers -vice minister”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

China’s Xi Exploits Trade War for Further Reform, Opening-up

Socialism with Chinese Characteristics Consolidated
The preceding three posts titled “Xi Jinping Typhoon”, “Xi Jinping’s Education on Democracy” and “Xi Jinping’s Rectification of CCP” all described what Xi has done to have consolidated and been consolidating China’s socialism with Chinese characteristics. Jiang Zemin and Wu Bangguo’s establishment of the rule of law, Hu Jintao’s Scientific Outlook on Development for CCP to “put the people first” and Xi Jinping’s abolishment of the re-education through labor system, mass line democracy and rectification of CCP are all China’s major political reforms. Those reforms have improved CCP’s governance of China and made CCP and its leaders very popular in China. CCP owes its successes to Chinese people’s vigorous support.

Western politicians and media simply fail to understand or turn blind eyes to such political reforms so that they have time and again criticized China’s “lack of political reform” and urge it to conduct a “democratic reform” to establish messy Western multi-party democracy in China. Chinese people, however, will not do so as they are fully confident about their own wonderful political system of socialist democracy with Chinese characteristics.

China’s is a successful democracy where people are free to make suggestions and criticism and CCP welcomes their suggestions and criticism. China’s organs of letters and calls always listen to people suggestions and criticism after Xi’s reform of those organs.

The following simple facts prove which democracy is better: In China, new advanced infrastructures are being built daily but in spite of the huge wealth in the country, the US lacks funds to fix or rebuild thousands of its bridges in poor conditions.

Certainly, in order to achieve further economic growth, in addition to the above political reforms, China has to conduct further economic reform and opening up

Futher Economic Reform, Opening up Indispensable
Xi’s predecessor Hu Jintao has already realized the need of further reform to switch from export- and investment-geared economic growth to innovation-, creation- and consumption-geared economic growth. He had become especially aware of that after his premier Wen Jiabao’s injection of 4 trillion yuan to counter the recession caused by US subprime mortgage crisis in 2008. The injection had given rise to serious problems, including excessive production capacity, surplus of products without sufficient market, rocketing property prices, etc. though it had stopped the economic downturn caused by the crisis.

It has proved that their old tricks of seeking export- and investment-geared economic growth no longer worked. If China kept on adopting such old tricks, it would have to face dire consequences, but for quite a long time since China refused to adopt the old tricks, China’s economic growth rate has kept on dropping.

Xi’s Reform Efforts
Xi carries on Hu’s further reform and has made some progress but far from enough as the reform is a hard and even bitter transformation. Lots of export-oriented enterprises have either to move abroad to lower their labor cost or switch to products with higher technology through innovation and creation.

For those enterprises, Xi has put forth the Belt and Road initiative to build infrastructures in underdeveloped countries to facilitate transfer of export-oriented industries to countries with cheaper labor and the Made in China 2025 Plan to encourage and subsidize innovation and creation.

Xi has already begun to carry out the initiative and plan but it takes time to attain the goals. If Xi has already attained the above-mentioned goals, Trump’s trade war cannot hurt China. Now the trade war may give rise to quite serious hardship as the transformation needs more time. Quite a few enterprises focusing on export to the US may close down and lots of their employees may be unemployed.

Trade War Facilitates Xi’s Reform
As the hardship is caused by Trump’s trade war attacks, due to patriotism, Chinese people will stand the hardship courageously. Trade war will only facilitate Xi’s reform and opening-up and make Chinese people rally around Xi in fighting back.

On the other hand, Xi may make Trump happy by further opening up China,

On the surface, further opening-up may facilitate foreign enterprises’ entries into the Chinese market at the expense of Chinese ones. However, Xi knows well that protectionism can only protect backward enterprises. Foreign enterprises may bring into China products of more advanced technology than Chinese ones and thus stimulate Chinese enterprises to improve in order to win competition.

China’s achievements after its entry into the WTO have proved Chinese people’s talents and ability to compete with strong foreign competitors. Only economic liberalization can give full play to Chinese people’s potential and enable China to have a wonderful future and realize China Dream.

Moreover, China has abundant financial resources and gives priority to funding and subsidizing the research and development of science and technology. It has attracted lots of talent including talent from abroad with generous remuneration packages and made great efforts to implement its Made in China 2025 plan. Xi’s first priority is to realize his China Dream of national rejuvenation. How can he attain his goal if China cannot become the best in the world in science and technology?

Restration of Socialist Camp
The above is Xi’s domestic moves. Internationally, Xi as a communist will make efforts to restore the socialist camp. Due to the changes of times, the socialism in Xi’s camp will certainly be different from that of the socialism of the collapsed socialist camp of the Soviet Union. It will be the socialism adapted to the changes of times and the different national situation in various countries. Anyway, it certainly is not the socialism with monolithic public ownership. Like Xi’s socialism, countries in the camp will focus on lifting people from poverty, economic growth and improvement of people’s living standards. That will be discussed later.

Article by Chan Kai Yee

China further eases foreign investment curbs on manufacturing

June 30, 2019 / 11:29 AM / Updated 13 minutes ago

BEIJING (Reuters) – China’s state planning agency has reduced the number of sectors subject to foreign investment restrictions, as Beijing moved to fulfill its promise to open major industries.

The National Development and Reform Commission (NDRC) on Saturday further eased foreign investment curbs on sectors including petroleum and gas exploration and widened access to agriculture, mining and manufacturing.

NDRC published on its website the new, shorter so-called negative list that sets out industries where foreign investment is limited or prohibited.

The number of items on the negative list was cut to 40 from 48 in the previous version, which was published in June last year. The new list takes effect on July 30.

The long-anticipated announcement comes after Presidents Donald Trump and Xi Jinping met in Japan, rekindling hope of a deal after negotiations broke down last month.

Reporting by Yilei Sun and Norihiko Shirouzu; Writing by Yawen Chen in Beijing; Editing by Sam Holmes

Source: Reuters “China further eases foreign investment curbs on manufacturing”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

Despite Pains, Trade War Will Make China World Leader in Technology

What Trump Mainly Wants Is the Transformation China Has to Undergo
Initially, Trump only wants reduction of trade deficit, equal treatment for US enterprises in China, protection of technology and intellectual property and no significant devaluation of Chinese currency.

China has adopted a new foreign investment law for protection of foreign technology and equal treatment between foreign and domestic enterprises while should not devalue its currency as it wants its currency to become a major international currency.

As mentioned above, the transformation to innovation-, creation- and consumption-led economic growth is indispensable for China. Without that, China’s reformists will not be able to achieve further economic growth for the realization of their China Dream of the grand rejuvenation of China.

The Pains May Be Caused by China’s Economic Transformation
The economic slowdown and unemployment in the course of such transformation are the costs China has to incur. China will recover its fast economic growth when the transformation has been completed. However, due to the pains of the transformation, reformists cannot conduct their further reforms and opening-up as quickly as they want. They have to do so step by step in order to make people adapt to the changes.

Trump’s trade war attacks of tariff hikes, etc. enable China’s reformists to conduct the transformation at one stroke and thus greatly speed up the transformation. Trump believes that the hardship caused by his attacks will be the pressure heavy enough to bring China down to its knees. He is entirely ignorant that the hardship is what China has to suffer in the course of its economic transformation.

Trade War Enables Chinese People to Suffer the Pains Patiently
Without the trade war, it would be hard for Chinese people to suffer patiently the hardship caused by the transformation but it is now caused by a war, a trade war. The hardship is caused by a strong enemy’s attacks at China. It is now very easy for Chinese reformists to rouse people’s patriotism to endure the hardship and fight back with innovation, creation and domestic consumption.

All other countries in the world will be benefited by China’s transformation, i.e. China’s further reform and opening-up without any cost except the US. If the US had waited patiently for China to conduct its transformation gradually, it would also have been benefited without any effort or costs. Now, it helps China achieve the transformation but has caused its people to pay higher prices for their daily necessities due to its tariff hikes. Moreover, it is making a great people of 1.4 billion hostile to it.

From the above perspective, it is very clear that China is winning and the US, losing the trade war. China certainly has no urge to strike a deal soon with the US to end the trade war. It has to let the trade war fully play its role in facilitating China’s transformation to innovation-, creation- and consumption-led economic growth.

True such transformation may make China world leader in technology, but who can stop that?

Article by Chan Kai Yee

Why Is the US Losing to China in Arms Race 12

China has a centralized system. When there is a wise leader like President Xi Jinping, it is able to conduct a thorough reform of its outdated military system and organization structure that dated back to mid 1950s.

The West especially the US criticizes the Chinese system and calls it autocracy. However, they do not understand that it is centralism with democratic discovery, employment and trust of talents with a wise leader able and powerful to do so.

In addition, China has a culture of constant reform that has developed in its four decades of reform and opening-up.

China is now switching to innovation- and creation-led economic growth. It is especially so in Chinese military so that China is able to catch up and surpass the US so quickly. The US may invent the lies that China can catch up so fast because China has stolen US technology, but now China has been developing what the US does not have such as quantum telecommunication, aerospace aircraft, etc. It forces the US to improve and attach importance to innovation.

However, as pointed out in Defense One’s article “All This ‘Innovation’ Won’t Save the Pentagon” that US military’s organization structure is outdated. It hinders innovation.

According to the article US Defense Department is a hierarchy never intended to innovate. On the contrary, it imposes conformity that precisely prevents innovation. Therefore, “actual innovation in the national security sector is typically either smothered by bureaucratic antibodies or so detached from actual governance processes that it produces little aside from good press.”

For example, US acquisition of weapons “is roughly the opposite of how modern products are developed”. The article says, “It enumerates numerous, often overlapping or contradictory ‘requirements’ before production is even thought about. The process takes years, as shown by albatrosses like the Air Force’s F-35 and the Army’s Distributed Common Ground System.” Due to the long process of development, the weapons finally acquired “are artifacts from a bygone era before they’re ever even delivered”.

The US does not lack talents, but the military is unable and its organization structure and culture make the military unable to give play to US talents.

Comment by Chan Kai Yee on Defense One’s article, full text of which can be viewed at https://www.defenseone.com/ideas/2019/04/all-innovation-wont-save-pentagon/156487/?oref=defenseone_today_nl

China’s Xi says West has long-term economic, military superiority

April 1, 2019

BEIJING (Reuters) – Developed Western nations have long-term economic, technological and military advantages over China and the Communist Party has to realize that some people will use the West’s strong points to criticize socialism’s failings, President Xi Jinping said.

Since assuming power in China more than six years ago, Xi has ramped up efforts to ensure total party loyalty and discipline, including a sweeping crackdown on corruption, warning the party’s very survival is at stake.

This year, which is marked by a series of sensitive anniversaries including three decades since the bloody crackdown on pro-democracy demonstrators in and around Tiananmen Square, has seen a further increase in calls for party loyalty.

On Monday, leading party theoretical journal Qiushi, which means “Seeking Truth”, published lengthy excerpts for the first time from a speech Xi gave in early 2013 shortly after becoming party boss, warning of the dangers the party faces.

Citing Marx and Engels, Xi said socialism would inevitably vanquish capitalism, but that it would be a long historical process. China practises what it calls socialism with Chinese characteristics.

China must “fully appraise the objective reality of the long-term advantage Western developed countries have in the economic, scientific, and military fields, and conscientiously prepare for all aspects of long-term cooperation and struggle between the two social systems”, Xi said.

The party also needed to “face the reality that some people compare the good qualities of Western developed nations with the insufficiencies of our country’s socialist development and offer criticism of it”, he added.

While the party has committed “big mistakes” like the Cultural Revolution, when children turned on parents and students on teachers after Mao Zedong declared class war, the party’s history is “generally speaking glorious”, Xi said.

Those who criticize the revolution – which brought the Communist Party to power in 1949 – are simply trying to incite the overthrow of the party, he added.

But China needs to stick to its landmark economic reforms begun in 1978, without which the party could have fallen, Xi said.

The party “may even have faced a serious crisis, like the death of the party and the death of the country encountered by the Soviet Union and Eastern European countries”.

But China had proved the naysayers wrong, Xi added.

“Both history and reality tell us that only socialism can save China. Only socialism with Chinese characteristics can develop China. This is the conclusion of history and the choice of the people.”

Reporting by Ben Blanchard; Additional reporting by Gao Liangping; Editing by Nick Macfie

Source: Reuters “China’s Xi says West has long-term economic, military superiority”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

Will US Regret in Helping China’s Further Rise with Trade War?

There is the Chinese saying: “It is going to rain; Mother is going to remarry; there is nothing one can do to stop that.”

To entertain my readers, I would rather rephrase the saying as follows: “It is going to rain; China is going to rise; there is nothing the US can do to stop that.”

It is a sad world full of undesirable events, even wars to kill people. Even if the US had not launched its prolonged wars in Iraq and Afghanistan leading to the death of hundreds of thousands people there, there would still have been terrorist attacks and even accidents causing death and injuries.

We need some fun in our life. As what the US has been doing to stop China’s rise is ridiculous, I want to make fun of that in order to entertain my readers.

I said yesterday in my post “US Regrets Helping China’s Rise by Getting It into WTO” that the US believed Gordon Chang’ prediction of China’s collapse when China had jointed WTO so that the US got China into WTO. However, it now regrets that because China’s accession to WTO, on the contrary, has helped China’s rise.

As I said in the beginning, the US cannot stop China’s rise. That is because China relies on itself instead of the US to rise. In fact, what the US and other Western countries have done has only helped instead of enabled China’s rise. Without such help, China would still have risen but only a little slower.

Now, what the West, especially the US, is doing facilitates China’s rise again.

Western Pressures Facilitates Removal of Opposition to Further Opening-up
US current administration must be cleverer: It is conducting a trade war to force China to make concessions of opening its market wider, reducing US trade deficit with China, stopping “forced transfer” of technology, protecting intellectual property and preventing devaluation of Chinese currency.

China no longer needs the protective measures it has kept since it began to open up as Chinese enterprises have grown strong enough. In fact, such measures protect local industries from competition with outsiders. They reduce instead enhance Chinese enterprises’ incentive to improve themselves in order to win competition.

Protectionism only protects backward enterprises.

China’s labor costs have risen to the level that it is no longer able to maintain its labor-intensive products competitive on world market. There are two measures to resolve that problem:

1. Improve technology to reduce number of workers employed in production in order to reduce labor costs. That will cause enterprises to lay off some workers; and

2. Move labor-intensive industries to countries with lower labor costs. It will also result in unemployment of some workers.

Local governments certainly oppose such measures as both may give rise to the problem of unemployment.

Moreover, as moving factories abroad incurs some costs in moving equipment and training local workers, enterprises affected also oppose that.

Therefore vest interests in enterprises and local governments affected strongly oppose further opining up. However, US tariff hikes force them to adopt the above-mentioned measures. Removal of their opposition also facilitates China’s investment abroad, especially investment in and even takeover of foreign high-tech enterprises. Trump’s trade war and EU’s demand for further opening-up helps China overcome the opposition.

West Restriction to China’s acquisition of Foreign High Technology
The US has already imposed some strict restriction to Chinese investment and other Western countries have also been planning to do so. China has to further open up so as to enjoy other countries’ opening up to its investment there. US and Western pressure helps Chinese leaders overcome the opposition to further opening up.

In the past, China obtained lots of quite advanced technology through transfer of technology to its joint ventures with foreigners, but none of the technology is the best in the world as foreign companies are not willing to transfer their best technology for fear of losing their competitive edge. China has grown rich and is able to pay for the best technology or takeover of foreign companies that own the best technology. It also has surplus capital to invest in other countries.

The US strictly restricts China’s takeover and investment in high technology for fear that China’s further rise may make China a rival world hegemon or even surpass the US as the only hegemon in the world. Other developed countries that have some of the most advanced technology also fear China’s rise as they do not know what China will do when it becomes another hegemon.

Trade War Helps China Obtain High Technology
As mentioned above, China is no longer able to obtain the best technology through joint ventures. It has to buy technology from or take over foreign enterprises of high technology.

US trade officials want China to allow foreign enterprises set up enterprises or joint ventures without the requirement for technological transfer.

That is really stupid. A wholly owned foreign enterprise in China has to employ Chinese staff and workers as foreign ones are too expensive to employ in China. Chinese employees there will soon learn the technology of the foreign enterprise.

That is why international lawyers help foreign parties get Chinese joint venture partners and their employees to sign non-disclosure agreements to keep the technology they leant confidential. For joint ventures the agreements aim at preventing competitors not the joint venture partners from learning the secret as the technology has already been transferred or licensed to the Chinese partners.

A wholly foreign owned enterprise, however, can only sign non-disclosure contracts with its technical personnel, but a real expert may get employed in the enterprise as a common worker and learn the technology when he has only seen it with his professional eyes.

China can selectively provide preferential treatment for foreign enterprises to attract them to set up wholly owned high-tech enterprises in China. That will enable China to learn their high technology.

The US Helps China Protect Its Intellectual Property
China is now able to develop lots of its own intellectual property so that it has great need for protection of intellectual property. How can it expect other countries’ protection of its intellectual property if it cannot protect others’; therefore, US trade war demand for protection of intellectual property provides China precisely what China wants for reciprocal protection.

The US Helps China Reduce Financial Dominance of US Dollar
In the past, China might have the desire to reduce the exchange rate of its currency in order to stipulate its exports to earn foreign exchange it needs for import of foreign advanced technology, but there are no such needs now. China has already been able to earn trade surplus and accumulated world largest foreign exchange reserve. However, due to the financial dominance of US dollar, most of China’s foreign reserve has to be kept in US dollar. It is unable to get enough return as the US keeps interest rate very low to support its economy. There is also the risk of devaluation of US dollar due to the decline of US economy and US excessive issue of money for its excessive spending.

China needs to maintain the exchange rate of its currency stable and even make it rise a little to facilitate turning its currency into an international currency in order to reduce US financial monopoly. US President Trump’s trade war demand for China not to reduce the exchange rate of its currency is precisely what China wants.

From the above, we see what the West, especially the US, is pressurizing China to do will benefit China. Will the US regret what it is doing now later?

We know the US will be benefited by what it may get from China in forcing China to conduct further reform and opening-up, but China will also be benefited. If what the US wants is to stop China’s rise, it will regret even though it has been benefited. However, such regret is stupid, just as it was stupid to regret having China join WTO. China’s rise has enabled China to provide lots of cheap goods for US consumers. That has enabled them to make ends meet in spite of the hardship they encounter due to America’s declining economy.

Article by Chan Kai Yee