Businessweek Extra-Dan Blumenthal

congressionally mandated US China Economic and Security Review Commission. Well, he's got a new book out. It's called The China Nightmare, The Grand Ambitions of a Decaying State. Dan notes in his books introduction that he wrote his book mainly to accurately diagnose the exact nature of the challenge that China poses to the US and its allies. Check it out.

There's no doubt that China has viewed US as its main rival for global power for a very long time, and we've we've just woken up to for that in the last four or five years. Or I wanted to put out this book to argue just exactly what kind of libel it is. So it's it's not just defendant and strong although it's very formidable, but it also has it's beset by many weaknesses and frustrations, and because of that, it's compensating for some of these internal weaknesses by lashing

out on the world stage in very dangerous ways. So why do you call it the China nightmare? Then? Well, the nightmare scenario is that's strong enough, which it is right now, to cause lots of global instability to do what it's doing, lashing out in Taiwan straight taking over Hong Kong Australia. But it's also got a whole set of weaknesses inside that is accelerating its path to lashing out and trying to externalize insternal problems distract its population

from many of those internal problems. What's really fascinating to me is that they are at this point right where they want to play. It feels like more on the global stage be thought of, not for being the manufacturer to the world, but really developing those higher tech economies, industries, sectors, if you will. At the same time, it does feel like they're pushing back as well. That's right. There is

a contradiction there. On the one hand, they very much need international cooperation, cooperation with the U s US businesses, multinational businesses in order to move up the value chain of technology or success to our markets and so forth. But on the other hand, they've been acting in very provocative ways that is causing not just US but our allies in Europe and in Asia and Australia to say, uh, you know, we've had enough. You've been also responsible on

on COVID nineteen and we wanted investigations. So there is this big contradiction. So what's the role of government, spiess excuse me, of government specifically in all of this. Obviously we need to have a relationship China is you know when it's interesting. We did the Bloomberg New Economy Form and we talked about um finance and trade. We talked about global cities, we talked about the climate, we talked

about global health. And a question came out up during one of the many sessions, and it was like, well, do we have to think about China? Do you have to worry about China? And someone said, yeah, you've got to think about China with everything that's going on in this world. They matter. So how do we figure out the right strategy, the right policy for a nation, a government and economy that matters so much in our world, but one that I think it's safe to say that

many disagree with. Yeah, that's that's the big challenge. So we have areas where we absolutely do need to cooperate, and that's in commercial relations. They're a big market for so many of our own of our own goods, and the technology relationship is interrelated. But I think we've started and we can do a better job with this to to craft policies that restrict our highest end technology. And we have to do this in consert with our allies from getting into the wrong hands of China. Uh. And

we'll see more of that under the Biden administration. But but we also need to make sure that China knows, through our presence throughout Asia, throughout Japan, and around China, to our military presence and diplomatic presence, the China knows that there's a high price to pay for throwing out the order, the world order that has served it so well.

So it's it's extremely complicated. We have to we have to move along to diplomatic track and find ways to trade and and do commerce with China while at the same time not allowing China to overturn uh the order or bolio course countries into doing this bidding. So just about forty seconds we're gonna do some news will come back. So then for the incoming Biden administration, they need to continue to some extent the strategy with China of the

past administration. The Trump administration, well, all all signals say they will. In many domns, I think they want to lower the tone of the relationship, But in terms of the pushback against certain line behaviors, every indication is they want to continue with that, and there's broad by partisan political support from pushing back against various different kinds of malfeasance, Dan,

what worries you the most about China? What worries me the most about China is a great miscalculation in terms of it's it's pushing around Taiwan or or pushing around a country going too far thinking that the United States won't come to one of the allies or partners defense. I think that miscalculation on China's part is really worrisome.

I'm not as worried as Henry Kissinger is about an inevitable conflict, but there is so much military power being brought to there around China's periphery by China UM that I think China could miscalculate and that would be a catastrophe. Well, it's you know, it is really interesting. I mean, we obviously look at it from you know, China from a lot of different perspectives here at Bloomberg, obviously the political

perspectives and the trade perspectives UM. But it was really fascinating for us in the last few weeks to see the pushback against someone like a Jack Ma of Ali Baba, and of course the and financial I p O. Because it's interesting, as we talked about at the top, this contradiction that we kind of see from g and China in that they want to be on the global stage. They want to be perceived, you know, certainly as a much more developed economy. They want to play in the

big industry certainly developed them domestically. And there you have, you know, a star when it comes to um you know kind of the world and certainly the online world. And yet because of things that Ma said, you know, he was really reined in and it really put kind of a shutter over Chinese tech companies. Well, that's right, and China under shi Jing Ping is going in the wrong direction. There is no question that when Jack ma was coming up as an entrepreneur, China allowed for much

more free market activity and entrepreneur activity. The state sector and controlled by the party under shi jing Ping of businesses has just grown. And it's it's a trend that's going to hurt China. It's gonna trend that's gonna hurt the global economy. But that's a perfect example. Jack you would think is untouchable. He says the wrong thing about regulators, and he's the real band, as he said by shi

jing Ping. You know, and I also do wonder you know, what is one of the things that you think most probably Americans are most people don't understand about China and the mission it's on. I mean, I've always been kind of amazed, in awe a little terrified about about these ten year plans. But they do create a plan about where they want to go. And yet we have an economy here in the U S where it's often short sighted. Right if your public you're thinking about the quarters, it's

really hard to make those big investments. Um, what is it that you think that maybe some people are missing about the Chinese story and they and they have to

make sure that they don't well. I think one big thing, particularly if you're interested in the markets and the economy, is that kind of had this big reform market reform plan that it undertook from through through the accession to the w t O, But they really reversed much of that and in the latter parts of of let's say two two thousand nine, and they started taking on enormous amounts of debt. But they also started to change their political system in ways that wouldn't support market with them.

That became extremely afraid of if they opened up too much their free market too much, that other Russian influences about political liberty would would seep into the system. So they've clamped down. I don't think people know enough about that. They started clamping down on this type of behavior free markets, uh and and freeing of speech in two thousand and

two thousand nine. It's just been going downhill from there with China pursuing these strategies and all these things that you know, Dan, can they hit some of the growth rates that they have been laying out at this point, we know that recently Chinese President g so the economy can double in size by and that the country can reach high income status in the next five years. And this has to do with the Communist Party's ambitious plans

for the nation's future. You know, can they get there, especially when I see some of the and some of the tactics that you're laying out right now in terms of how they are clamping down, whether it's on human rights, uh, when they're pushing back on some of their successful business folks, Um, how do you see it? I don't think they can get there unless they unless they return to the path of of market reforms. So just from an economic efficiency

point of view, they're they're facing a lot of trouble. Also, you know, many times countries in in China situation which are um, you know, sort of trapped and you know what they call a middle income trapped innovate their way and innovate their way out of it. There's no question that China is spending a lot on R and D from from the state, you know, technology, and they'll have

some payoffs from that. But in terms of really setting up the rule of law, efficient capital markets, protection of intellectual property, letting entrepreneurs like Jack Mark continue to invent and innovate, that's going in the wrong direction, so I don't I don't see it. And then of course there's this huge demographic lab where getting old so quickly, I mean,

they will have the same demographic pictures Europe. And that wraps up our Bloomberg Business Week Extra podcast with Dan Bloomenthal, director of Asian Studies at the conservative think tank American Enterprise Institute, his new book, The China Nightmare, The Grand Ambitions of a Decaying State. You've been listening to Bloomberg Business Week Extra, be sure to listen to Bloomberg Business Week Radio, airing live Monday through Friday at two pm

Wall Street Time on Bloomberg Radio. I'm Carol Masser, and this is Bloomberg