 My name is Bernie Lowe from CNBC Asia, I live in Hong Kong, our network is all over the world though and I'm very pleased to be with all of you in Tianjin today. You are part of a reality, a real life reality TV experience today. How many of you have done reality TV before? Very few right? In an audience? Have you ever done that before? I know a lot of you have gone to these sessions you know where people talk and exchange ideas but we're actually going to go beyond the borders of the session today and we are going to rebroadcast it. It's going to be played out on CNBC the following weekend so for that reason you're going to feel and hear a lot of TV sort of things going on today. You know normally when we have interactive sessions we just start and we go all the way to the end and we let the audience participate and then we say bye bye and then we all clap our hands politely but we're actually going to stop and start and stop and start a few times because we have these things on the TV called advertisements or we hope we have these things that we call ads which keep the TV station going and that's what we're going to do. So from time to time I'm going to rudely interrupt this discussion which promises to be very involved and very invigorating and I'm going to say we'll be right back or something like that. And I say when we return we'll talk about blah blah blah blah blah blah blah blah okay and then if you hear and we'll be back in two or something like that when I say we'll be right back I want you all to go okay because it looks really good on TV it looks like it's very exciting so I'm going to try it all on you right now okay let's pretend we're at the end of ten or fifteen minutes folks when we come back we're going to talk about China versus the United States can there be only one superpower that's when we return all right very very good that's all you need to do okay we're going to do that three times and the last time you clap we're going to unlock the doors and you actually get to go out okay it'll go by very very fast okay all right we're going to start in a few seconds here the voice of God or Allah or whoever is going to say a few things sort of to set up the stage and that's how the program will start on TV so what you see on these two big monitors here is what is actually going to go on the program and that'll be the very start of it the lights will go down from time to time that's just for visuals you know so it's a little cleaner and neater don't get scared we're not having power failures the tangent municipal government would never never let that happen during a world economic forum okay so the lights will go on and off a little bit okay a few breaks here remember I want to practice it one more time because if you miss it I'm going to look really really bad on TV we'll be right back with more from the world economic forum all right yes okay here we go Martin we haven't started yet hmm I think everybody knows we're about to start except the TV guys they were just putting some last touches on the on the timings over here by the way I have a question for you one of the most difficult parts of any seminar forum meeting like this we get very nervous as moderators near the end when we ask we'd like to open it up to members of the audience to engage our participants and then six times out of ten I go anybody anybody anybody how many of you are pretty sure you would like to address some of these people up here on the on on the stage do I have people I mean early on one two three we're gonna send you a CNBC peacock if you in the in a lucky draw if you ask one of the questions okay okay oh okay shut up Bernie all right here we go China at the crossroads slowing growth in the world's second largest economy which expanded 7.6 percent in the previous quarter its slowest pace in three years but just how bad is the slow down and at a time when growth is slowing both at home and in its key export markets Beijing is making efforts to transition its export oriented growth model to one that's more driven by domestic consumption plus a once in a decade leadership change what do the transformations in the seven and a half trillion dollar economy mean for the rest of the world over the next hour we'll discuss and debate China the road ahead weighing in on our discussion Lee Dal Kwi director of the Center for China in the world economy Lee Kai-Fu chairman and CEO of innovation works Arvind Subramanian senior fellow at the Peterson Institute for International Economics Klaus Kleinfeld chairman and chief executive officer of Elkoa and Martin Soro chief executive officer of the WPP group ladies and gentlemen your host CNBC's Bernie Lowe hello everybody from beautiful Tianjin China at the World Economic Forum I am your friend moderator emcee and host and all the above Bernie Lowe the title of the forum today and the questions that we will delve into China the road ahead is at both times a loaded question and a very very open wide open concept we're gonna talk through a number of dimensions as they pertain to the future of the People's Republic in an hour of power pack discussions and very very deep thinking I can guarantee you that I've been doing this more than 20 years and we do have panel that is going to achieve everything that we hope for today we'll talk about where China is there's been a lot of debate over the past day or two about where they are is China going to be the savior for the world or is it facing a slowdown that's going to drag everybody else along with it we'll talk about the transition to being a market economy the usual perennial questions like currencies we'll also talk aside from hardware about the software in China the people factor lifting up the aspirational portion of the population and of course politics you cannot avoid politics in a year like 2012 we've got major political transitions in the power houses of the world the PRC and the USA you've been introduced here panelists for our session today and I'd like to start off with somebody who has no lack of opinion when it comes to things in the PRC and then I can guarantee you it's going to be the Wild Wild West here at the web because we're opening up there's no plan it's unscripted and it is by the pulse Martin Sorrell good to see you again my friend you want me to be combative on this to you I want you to tell me what is going on I didn't like the introduction at all to be combat you didn't like it not at all but why is that implied China's a lot of time on that it was implying China was slowing down in our experience China is not slowing down I would agree that the there is a question about what is going to happen with the new Politburo the new leadership and there is some uncertainty around that and we're waiting to see who's nominated and then his ratified in March and that six month period will be a hiatus as well but how can we how can we criticize in the West an economy that in our case is growing by 15 and a half percent in the first seven months of this year at a time when GMP growth is seven seven and a half percent when jubilee yesterday confirmed they will hit the CEO confirmed they will hit the numbers so to speak so I think it's really wrong for us to be critical and I had a conversation with one official here when I was talking about the the room that Mario Draghi has given us in Europe with his recent moves and talking about quantitative easing and there was a smirk and a and a chuckle we have got ourselves into this situation not the Chinese and I think one of the issues that we in the West have to deal with is explaining to the Brazilians the Russians the Indians and last but not least the Chinese what mistakes we made rather than what mistakes they made I have great confidence in the political leadership here they are to date all engineers I think in the Politburo and there may be something in having engineers running the country and state direct capitalism works and the irony of this is that we're moving in the West to a more a more state directed system we're trying to embrace you look at Vince Cable's words yesterday in the UK he's trying to get more government intervention in terms of whether the economy is written so I think the basic premise is wrong China is slowing down from some of the growth but two or five year plan is about higher quality growth switch to consumption right health care social security safety enough and last but not least from our point of view greater services okay sir Martin Sorrell says stay the course and he is an obviously obviously a consummate China blogging this way to this side professor supermonium you know Martin is saying don't look East look West how do you reply well I disagree with with Martin for two reasons one I think seven and a half it's much slower than the 10 10 and a half that China achieved over the last 30 years that's one that's just a fact you know we can go into who's responsible for that i.e. whether it's the Americans or the Europeans or the Chinese or the Indians but the fact is that this isn't the world economy has turned down and as a result China which is integrated with the world economy in a way that few economies are are paying the price for that that's point number one point number two it is not true that the quality of growth has been as good as the 12th plan wanted we're not only seeing growth slowing down but although China has rebalanced in the sense of relying less on exports than before you know the current balance came down from 10 not about 3% but there's an internal imbalance which is that China is still doing a lot of investment you know just throwing money at building infrastructure and what that has done is it is not improved consumption it is not I mean all this all this is relative it is not improved employment as it should have and above all what is politically a little bit alarming is that the share of the pie going to people as opposed to the well-connected and capital has been coming down okay Professor Soran and linear to somebody who knows industry the company that's first to report on Wall Street because of my virtue of their ticker symbol you're not upset at China and you sell what 45 almost 50% are you buy 45 50% of your product to China you have absolutely no complaints about the PRC do you let's clarify a couple of things we're reporting first not because of our ticker symbol but because we close the books first right so that's the reason that's the reason why and if you want to invest AA as our ticker symbol so secondly I mean 40 plus percent of world's demand for aluminum is here in China but I think I would agree with with with Martin's optimistic view when you look at the policy the stated policy there's a clear plan there how to change the economy in the short term which is a five-year plan and even in the long term which is a 30 year plan it has clear components upgrading the the economy making a sustainable ecological growth the real issue is how to match that with the realities and that's what we see every day you have an aluminum industry here although you really don't have the foundation a very good foundation for an aluminum industry here there's no box out here 60% of the box that gets imported there's a lack of energy here and most of the energy that is produced is coal fired energy which is a very dirty energy so the whole industry is extremely expensive nevertheless we see continued build outs right for mainly for the reason of this being state-run firms some local subsidies so the real question is how is the transformation from a great plan the 12 five-year plan to the realities and and that would require a couple of important chunks there is this tremendous need for more smaller medium-sized enterprises and there's a tremendous need for changing the financial system to make that happen today the realities are is if you are a state-run company a large company you pay about one to two percent interest rate on a loan if you are private company at least double the amount right that's a problem right if you're a state-run firm you can in our industry many are unprofitable today of more than more than we believe more than one-thirds of the capacity is unprofitable in China these days nevertheless they don't shut down why because provincial governments keep them afloat for a while for a while market dynamics in the end will kick in but it takes a long time takes a long time at the same time net resources are misused right and that's the issue okay now Klaus Klein felt that Lee Kai-Fu has been talking about the need for innovation the need to really enable and empower the small and mid-sized enterprise innovation is the end is your chosen industry and throughout your various tiles your various companies which you've worked with you've been working to really make that happen in China deep bow do you fall in the camp on this side I'm finding the left I'm sorry to the people on my left here you know seeing more positive more positive than negatives and maybe a little more cautious on this side at least from professor supermonium well I think numerically both sides make sense there used to be much larger growth now there will be smaller growth and I think more importantly is the the transition and the quality of change because as China goes from say nine to seven and half percent what's really not happening is everything slowing down by one point five percent but some of the pre-existing manufacturing exports and service industries are slowing down by perhaps more than that the question really becomes can the small medium businesses can the innovative businesses can the companies building products grow a lot more than that to create a healthy seven and half or hopefully a higher number and certainly from my perspective my company innovation works we invest in early-stage high-tech companies we are very optimistic and bullish about that for a couple of reasons first I think the there's generally a misunderstanding of what innovation means people generally say well kind China probably won't have an Apple Apple computer that is therefore it's not going to catch up but I think that's really the wrong question the question is can China build solid useful products that its people will use and drive up consumption and in the area of mobile internet e-commerce cloud computing and we're seeing that in space that people are being innovative they're building useful products and the growth is astronomical many companies we have are you know in two three years are reaching 100 million users so that part's going really well and I'm confident that kind of useful product you may or may not say that's innovative enough will pick up whatever deficit is made by the manufacturing service and export and lastly I would say the government has played a very positive stimulus role in making that happen they are able to provide assistance in terms of attracting talent in terms of tax reductions in terms of co-investing in venture capital funds and doing in a very hands-off way that lets the experts do what they do best okay we're actually delving into a lot of different perspectives here obviously you know the need for innovation there is there's obviously so there's overriding sense of a need to restructure of the economy and the capital capital allocation resource allocation is not optimized right now but it's still at early stages that'll quit as part of the opening here you know can you weigh in you've heard from the other four panelists the other four participants here where you know what have you heard so far and can you help us synthesize where we are in this well I'm based in China my research is about the most about the Chinese economy so for me I have no luxury for being optimistic or pessimistic the only choice for participants in the Chinese economy is to be pragmatic so in my eyes in my eyes we still have 1.3 billion hungry population being hungry I mean that they are willing to work hard to improve their living standard to grab any opportunity to to do better in the future however the problem is that there are many many many problems to be resolved perhaps the coming three to five years would be the most critical for the coming 20 years for the type of the market economy we are going to be so there are many many problems I can bore you with days of discussion of the problems in China but now I can see that summarize in my eyes two basic problems one problem is domestic domestically we still have a lot of institutions which are not conducive to creative activities to investment activities to environmentally friendly practice we have to certainly for the rule of law for example the independence of the court very important in order to resolve disputes about property rights in order to dispute even even controversies in the media lots of problems social problems to dispute problems about land acquisition a conversion of land use tremendous social problems can only be fundamentally resolved by the independent and a functioning court system so that is one right let me jump in there just while you were fresh on that thought reform of the legal system reform of the judicial system I you know it may be part of the midterm or longer term plan but it falls behind because right now everybody's focused on well they had seven point five well they hit eight will it be seven if they're lower than seven does I mean the country is falling off a hill or something like that when talking about China and I blame I would blame the media a lot of the mainstream media for this is a very very severe chronic case of GDP it is I mean a fascination and an obsession with top-line numbers instead of some of the factors and we will get into these that you're talking about here am I right I fully fully agree that too much attention is fixed upon GDP or the growth rate right which I can frankly speaking we can easily jack up zero point five percent very easily jack up the key issue is fundamentals of growth for the coming two decades or three decades whether China will be able to become another developed East Asian countries like Japan or Korea whether China will end up with another Latin American economy I'm sorry for people from Latin America business effect they only 35% of per capita wise per capita income wise of the US whereas our East Asian neighbors are 75% of the US per capita income now another thing I should quickly add in addition to domestic problem is international problem I do see I do see over the past one one half years that they are enhanced their enhanced anxiety about China especially among our neighbors that is that is very dangerous that can provoke domestically our super irrational nationalism which in turn will hamper what will impede our domestic reforms okay gentlemen thank you for setting the stage we will be right back obviously we are going to be talking about a lot of things we broach innovation we brought broach the restructuring of the economy big versus small versus middle-sized and the concept of bullying when it comes to China whether China is doing the bully or somebody's bullying back we back with more of China the road ahead brought to you by CNBC Asia and the World Economic Forum in just a couple minutes thank you very much very nice great crowd oh wow all right we're just gonna take a minute I think the audio people do you want to check yeah I think we've got one are we up oh is the audio up is it broadcasting okay me me is everybody else okay we're all okay this is another thing we don't do unless we're doing a reality TV show you normally don't see six men getting makeup on on a stage either folks we're gonna try something by the way I've asked you to clap three times I actually like you to do it a few more times when the lights come up and it's really bright again if you could just give me a round of applause and welcoming back it's gonna it'll make it seem like the price is right or one of the TV game shows that we grew up with welcome back you are watching China the road ahead brought to you by CNBC Asia in conjunction with the World Economic Forum well one thing was sure for sure we asked five people their opinion about China and you essentially get five different opinions because we certainly haven't achieved consensus thus far in the program we've set the stage we talked about you know the the rise of the small and middle-sized enterprises where China's role is not just economically but social politically in the world let's get back to the gentleman who helped us open this session because he's been raising his hands a lot and he's got a few opinions to the end because I wanted to correct this Latin American point that was just made very unfair brick bat at Latin America Latin America is on a growth spurt as well in fact if I look at our first seven eight months Latin America actually outperformed China particularly Brazil growing at about 16 or 17% and Latin America itself is takeoff this is a the whole thing we're talking about Bernie I think is a historical shift that we in the West find very difficult to come terms with the US the UK France Germany Italy in Spain to take it find it very difficult to stomach that the the rise of the East and the South meaning Latin America and the Southeast meaning Africa and the Middle East these are regions of the world that for 200 years have not been moving in the right direction in the early 19th century China and India was 50% worldwide GMP it will according to Jim Manuel and Goldman Goldman Sachs at some point in time in the very near future be 40 or 50% of world GMP again we will not be the top dogs in Western Europe and that's the uncomfortable truth that we're increasing coming terms with and I just want to come back to the 12 five-year plan it did set the stage and and I find it amazing that the Western press didn't cotton on to the 12 five-year plan until two years after it was announced I remember coming to the China Development Forum here and hearing when she bow explained the 12 five-year plan almost two years ago explain the need for a different type of growth to maintain social harmony which is a critical issue critical political issue and drive the economy forward so I think again we we miss reported for sensationalist reasons we miss reported because we're insecure now in a world that is increasingly dominated by forces that were not as dominant a few years ago okay but it is one thing though isn't it Mr. Klein filled the talk the talk right two years if it takes the media two years to pick up on the theme maybe it's because you're not acting on your talk you want to weigh in here I would actually say I would actually say and you start off with that if there's a country that has usually been following their talk you know extremely well in the last 20 years it's China you know and I think you can really take it to the bank the five-year plan is usually reached earlier than the five years are over you know so I have great confidence but also keep in mind we are going through a very unique phase in the history of China we're going through a historic leadership change you know that really only happens every decade you know and you see I mean some of the things that are happening around that so in a way I think in the on the execution of the plan by the way is extremely good it's extremely smart it has all the right things it has it has visionary power because it transforms the country into a higher value at country bringing more people into urban environments industrializing them giving them the opportunity for wages to rise giving them the opportunity to be part of what we in the West have enjoyed for many years that's what David Lee just said said also I think that's very good now the big question is how do you start the action in a time when you go through this gigantic leadership transition so in a way I would say currently we're probably two years behind in the execution right and it might take another year you know and I'd love to hear the view of the Chinese side you know there it might take another year until the power really comes in at the same time we have mounting issues we have mounting issues some we describe in our industry when you look at heavy industry these days which is in the five-year plan seen as an industry that should be reduced and for good reason I mean 41% of the energy is consumed in this country by the five top heavy industries although this industry's only have 2% of the total employment of the country right if you look at the reverse 40% of the reverse are polluted to a level that there's no drinking water that you can take out of it right you look at the fine particle count in Beijing on average 100 Los Angeles is at 14 so you are seeing some aspects you know which are critical which are reaching critical marks all of that is addressed in the five-year plan the real question is when can the central forces take over again and and and supplement the market forces right but the the general ideas I think are absolutely right absolutely are then I'm gonna come back to you I'm gonna come back to you before I let that Del Cui and that kite flew into the conversation because I know you're eager to comment I think what is critical about the present is you're getting a a combination of a number of factors one as you mentioned you know the leadership transition but I think there are two other I think really important kind of shifts taking place one is and that's what I think the opening video alluded to is that China's strategy for growth the development model there are now questions about that fundamentally you know externally oriented growth oriented you know does that have to change you know that's a fundamental question and how will that happen a related I think pointed let's not be too coy about it is that in the last one or two years there have been some serious serious doubts at least last six months some serious doubts about the legitimacy of you know the Communist Party let's not be coy about that because you know they've been corruption scandals have been you know all the oldest the kind of shenanigans that have been going on so the the old view that you know you know the Chinese leadership just has to deliver a growth and all will be okay I don't think that's fundamentally true there is this big challenge of delivering growth and consumption and employment and all of that but there's also this associated challenge of you know the institutions will have to change as you are saying you know you know political institutions democratic and economic institutions and so on so so one big I think question going forward is is it possible to reorient the growth model towards consumption the quality of growth without some accompanying political change hold on a second corruption and inequality are two issues that we have to deal with in the West as well I mean this is Martin Martin it's not a compare fest we're talking about China I mean for everything you say the West was a you know an Easter just of course that's true the point is that China has challenges domestically regardless of who brought it about or regardless of other countries are facing the problem and the central problem it seems to me now is that if you have to reorient towards a consumption oriented strategy can you do that without taking on the vested interest in the economy it's not a consumption oriented strategy I mean the 12th five-year plan does not talk about a consumption oriented strategy it talks about a higher value at strategy the consumption in my view comes automatically the more you give people the more they can consume right but but they but the the the the program basically says we first have to give them what we have to raise the general level but and that is the and the real critical thing there is to get more private industry there to get the entrepreneurship there and to get that done is super critical because so far the the pendulum has in the last five seven years has swung into the opposite direction the other state the state owned enterprises have played more of a role here and bringing the economy forward that has to change that is an unbelievably fundamental change all right let me bring kaifu let me bring kaifu into this conversation I'm not sure whether consumption is or is really that desirable or not we're having an actual actual debate about you know what the you know whether it's implicit in the 12 five-year plan or is it sort of a an end effect I mean you talk you talk specifically about creating things that people will want you creating a need not filling a need necessarily well I believe the Chinese consumers having had less time in selecting products than the say the American consumers are probably not as aware of what they want so smart companies will have to go a little bit farther out than just to do focus groups understand but maybe to anticipate a little bit that if I build this would you it's not so much as to to say no one wants this I'm gonna create it and surprise you right it's also not quite tell me what you want and I'll build it it's more like if we build this would you want it you do okay we'll build it so I think that kind of model of fulfilling consumption can be a very good way to innovate not so far out as the Apple Steve Jobs kind of thing but also not just reinventing the wheel and building the same things but I did want to address Arvin's other point about the political issues and stability that's not my expertise but I'm very active on social media so we certainly see a lot of discussions about that as well I would say that certainly the corruption is a big issue and some of it has become public to the world and some of it is discussed at a local level on social media and the like it is a significant issue but at the same time I think the the role of social media has been phenomenal it's brought up a lot of these things to the open so that I think the parts of the government that needs to address and deal with it understands that hey these things are these social media are very powerful and we need to pay attention to it so I think smart bureaucrats and government officials will move forward with the the right steps to to to reduce the corruption increase the transparency which I think are the enough of first steps for to satisfy the constituents to so so that this domestic consumption and the five-year plan can move forward you know one of the most interesting themes that came out during that very drawn out and very high-profile you know incident and it's not over yet involving Chongqing you know power chief Bo Xilai was people took a second look you know at the the people who hold power in China and then you know we did some cross cross comparisons in the media and we realized wow being in politics in China is quite capitalistic actually it can pay off the big dividends you know when you look at the kind of wealth they amassed compared to what happens in many Western countries now you know we seem to be veering toward innovation and you know kind of gauging what people's desires are and I found what Kaifu said very interesting that the Chinese haven't had the same amount of time or the same time horizon as Americans to know really what they want you know when I go back to the West and I go shopping there's too much of every everything period so I don't know if that's the opposite side of the problem but what where are we right now with this discussion in terms of innovation and you know creating creating a need where a need doesn't doesn't necessarily exist well I think the fundamental issue is not with our consumers consumers in China I think are equally smart as they are American or Western counterparts the problem in general are not also with our entrepreneurs or enterprises who are in general also extremely creative and industrial the problem still with our institutions if you compare today's China with what it was ten years ago I think it's good comparison right ten years ago people were if we had our conversation ten years ago we would be discussing about WTO what do WTO happen to China we all need to wipe out the our automobile industry well China's whole when you factory industry you wiped out right today's discussion is different what's different the difference is that ten years ago China just had around our fundamental institutional reforms WTO stayed on the enterprises reform and reforms of land conversion of reforms of public finance so on so forth so in the past ten years especially in the past maybe 15 years right China benefited from the dividends of institutional reform pushed out by the previous government right the government before this one however today we are facing a problem that we're running out of the dividends of institutional reforms so China is at a stage that in order to continue to grow we have to have a new round of institutional reforms and these reforms are dealing with burning questions burning issues for example stock market our stock market is now having negative 20 per easily 15 percent growth this year whereas our economy is growing 7.8 percent in the first half of this year where the US 3 percent growth GDP and the 15 percent of nest egg well all right nest egg index what's happening what fundamentally is because in our stock market we have lots of released companies who are not following the the rules and it's hard for them to seal them in the court okay and the court are controlled by local governments in which are protecting the local enterprises clearly that's the problem clearly the math doesn't work does it and you can't have some things going up and something sinking so fast like that we'll take that up again right after the break we'll talk about capital market development is China a little bit behind in the curveball and we are of course veering towards a possible do I dare say collision course on the political issue because I think we have some pretty strong opinions on either side China the road ahead continues in three minutes welcome back and thank you very much staying tuned to China the road ahead we have really gotten into a pretty heavy-duty discussion here and we're reexamining the tenets of what is at least a couple years old in the latest 12th five-year plan for China one point of contention which is emerged in this discussion today is the road map may be there it's like you're driving along you're not using a GPS you're actually using an old-fashioned ink to paper map and you know where you're supposed to go but you actually have various choices and various routes to actually get there there are different ways to arrive at the same location Martin I know you are a very strong proponent that China has an ironclad game plan that you really feel that they're gonna say I'm a little bit different to class because I do think the 12 five-year plan is essentially it's core is about consumption I mean I find it some ironic that we're passing judgment on an economy which has moved 200 or 300 million people or more out of poverty into lower middle class or middle class consumption habits within a shorter period of time as we've ever seen in economic history I don't think you can find another nation that has gone through it so quickly but the thing just before the break the ad break which I'm delighted that we've had it in such profusion during the course of this hour but I just want to ask Lee one thing he's mentioned the development of judicial judiciary he also mentioned just before the development of the stock exchange but my experience is that the leadership understands the need for change for example when we had the last China Development Forum which was when you both farewell session with the CDF he talked about the need for very significant change with the next leadership cadre is is that your belief that the leadership will embrace that change sure and also let me add that the social conditions perhaps are ripe to push for a new round of reforms in social media people are talking about changes people are complaining about corruption people are complaining about too much interference by the governments local and central in the approving process of investments so these conditions are right also I have strong belief that the younger leaders were educated in the honeymoon years of reform and opening up that is the year of the years of 77 78 so I believe that in the new in among the new leaders there's religious belief in reform without reform there's no no way for the country to be successful whatever defined success in the future so that I think would give us some hope that the fundamental changes will be upcoming let me also quickly add that the British model of gradual evolution of gradual improving institutions without undermining the whole system might be feasible in China take again the example of stock exchange currently what can be done I think easily is to establish a central court in Beijing right to deal with all the securities exchange issues problems take it away from local governments this reform alone in my opinion would literally boost confidence among investors whether abroad and domestic about our corporates and this reform is fundamentally legal reform okay it's political reform Arvin can they do it incrementally rather than with a big bang approach and a lot of drama see I don't think the question is incremental of big bang I think the question is whether you know there is the political willingness to take on the vested interest to to push to reform let me give you one example you know we all agree that you know the financial system needs to be you know reformed right but that means you have to take away some of the privileges that the state-owned banks have you have to take on those people who benefit from the cheap capital that the state-owned banks provide to the state-owned enterprises so this is a very concrete example of where you need reforms and who the vested interests are so the question is you know can these vested interests be taken on by the new leadership and what are the kind of costs and benefits and the underlying issues going on so it's an open question we don't know what's going to happen but but you know tell us why you think it's likely to happen very good question I would argue that today's calculus of reform is totally different from what it was five years ago today the social media the social media so powerful so that the reformist leader can easily rally support from grass road the devil to go against the interest group so that is a new dynamism of reform which I'm really looking forward to but Kai Fu this is a perfect opening to bring you in here I came here from from Hong Kong where I work and live where there has been an uproar lately and this is in Hong Kong not in the mainland itself over the concept of national education being included in the school curriculums I mean it basically brought the administration to a standstill and they had to completely do an about turn on that plan to introduce civic education or what people thought was going to be Communist Party brainwashing the micro blogs are getting more and more active they can shut them down from time to time they can scurry around you know people can close down VPNs you can force them on to another virtual private network and you know you can you can you can run in China and see cover but you can stay hidden too in China I'm kind of wondering because you keep talking you keep talking about the impact of social media is that going to be a revolution do you think in terms of making this these changes in the institutions in the politics well I I don't think there will be a revolution I think I think the role of social media has been phenomenal and I think Daokui agrees with me here that every intellectual is online and it's virtually addicted to Weibo or known as the the Chinese Twitter and that's where most of the intellectuals access information and express opinion and for those people who think there's no freedom of press in China actually people pretty much really say what they want on the Weibo and yes occasionally what they say don't show up anymore but but but this but largely largely you can say what you want and it's become a wonderful forum for exchange of information and I think the government recognizes that and the government has recently allowed seeing a Weibo to no longer call that product a beta product which means now it's I would take it as a sign that's here to stay and it's it's something that has to be managed and controlled not just be let people say everything they want but I think the happy medium will be found and and I think social media will really create a number of things first I think people the majority opinion will be heard and the people ruling the country do and will hear because while they don't usually the political the political leaders in China don't usually have Weibo accounts like Obama and others but most of them are using it underwater you know Qian Shui so they're using it just to watch and not to say so they know what's going on and I think you know the ruling party has to be responsible and care about their mandate so they will watch and listen and they will figure out which of the many changes to make and and also important thing is they watch and listen very carefully this may be the engineering background but they do they do watch our experiences being that they monitor it yes the weight of it and the opinion very carefully so the the timing of the Hong Kong demonstrations are very interesting in that context because with new leadership coming on board willing to do to look at change it's gonna be very interesting to see how they manage and of course social media are catalysts for change they don't create change they just catalyze it and emboldened okay so it's question I want to ask my Chinese colleagues is that you know what you hear very often is that in China major reforms like in most parts of the world a happened in response to actual or perceived crisis you know when you see crisis that hand you know change happens and that's been the history of China as well now is there a sense of crisis now that's going to along with social media as the catalyst that's going to trigger change so is there a sense of crisis and if so what is the set what is the crisis perceived crisis from the point of view of the party okay don't create that I don't think they are crisis however they are concerns about the crisis the concerns are so severe that changes what happened let me give you an example right about two weeks ago there is a government official who appeared in a highway accident and this official for some reason smiled on camera right and he was caught by the social media and people say this guy is responsible let's see what's going on with his life that happens to be the guy showed his watch that means that he also appeared in other in other camera on other occasions right and they wear he wore different kinds of expensive watches oh look this guy might be corrupt so these is an ongoing investigation about this guy's behavior so these kind of mini crisis for the governments are actually disciplining the behavior of the officials and the government I think it's a positive force for changes it is that is true can I add just on the Hong Kong situation also and the watch situation so I think the main issue actually I think a lot of people in the government recognize this and I think they want to figure out the change but the main issue they have is that of communication many of these people don't communicate well the person wearing the watches said I have five luxury watches then people found eight more so now he's not just buying expensive watches is lying right understating as well but on the Hong Kong case you know in Hong Kong case I think you know adding a education that you people in Hong Kong are Chinese citizens here's something to learn about China I think everyone would say that's a good thing but the way in which it became the textbook may not be the best way to explain to a you know former British Empire Commonwealth citizen that this is a one one track way of thinking so I think if people will open up and explain things in the more Western accepted way I think things can move forward much easier it's a protest become a national pastime you know we're very close we're more crowded and we were more high density in China in Hong Kong than China yeah and weekends nobody you know it's so crowded you know it's better to sit down in the middle of the government garden and just protest against something when we come back politics and innovation our final two subtopics as we explore more of China the road ahead we'll be right back and welcome back to the final segment of China the road ahead well it's actually a very short road the rest of this year with the political transitions going on here in the PRC and of course across the Pacific in the United States not that often because of the timetables that you know you get this convergence of political change when I get some final comments from our commentators our panelists today on what they see happening because we've been talking so far about China inside and the need to change inside but there's a lot going on outside that's going to affect China and that's going on inside China that's going to affect the outside Martin well I I think I think we have to adjust as I tried to indicate before to China being a g2 situation really and the the relationship between the United States and China is going to be the critical relationship that we have to cope with one would wonder what would happen if if Romney was to win the presidential election I mean there would be checks in Congress because of the House of Representatives will probably the Republican the Senate will probably be Democrats so you've got some checks and balances there but one would wonder what would happen there and indeed under President Obama I don't think relationships have exactly been warm in fact Wen Jibau in our session with him yesterday referred to the trust level between the US and China not being at the appropriate level or as high level as he would want it to be so I think that's the critical relationship I think the real big issue or the real big really interesting phenomenon has been the rise of China's soft power I'm not a great student of Chinese history but what from what I know China has not been expansionist from a military point of view whatever they might be spending as a proportion of GMP on on the military so I don't think it's a military threat but the soft power is very intense in Latin America in Africa in the Middle East the the incursion by the Chinese to secure food and energy resources and stability of supplies has been quite considerable and that's I think very interesting because whilst the US and the UK and Western European being focused on Iran Iraq and the Middle East the Chinese have moved into Africa and Latin America in a constructive way don't get me wrong not in a destructive way but in a very constructive way and have looked at what those countries and those regions are looking for and have provided it and it is the interesting thing about America's America deals with its deficit which I hope it will do as soon as possible it is going to have to establish priorities which means that American power over this part is going to become more limited because they will have to choose where they want to exert the influence which gives the Chinese even more opportunity and more openings to extend their influence so that relationship between China and the United States I think is the critical relationship Klaus, my thoughts on the political dimension here at the stake well keep in mind this is election time in the US and the US general population is interested in jobs and the economy and that's what plays these days the most the least important topic on a list of 10 or so in the US's foreign policy I think I would see the remarks that have been made in that light I also believe there is enough intelligence around whoever gets elected to establish a good policy with China understanding that these are the two superpowers and they have to find a way how to deal with each other one component that we haven't talked about is outside also is outside companies and the Western companies Western companies have played a large role and the Chinese government has been very very in the buildup of the last 20 years Chinese government has been very intelligent on bringing companies in I think that has to also continue to play a role in restructuring the industry I mean we see it in our industry two-thirds of the energy that we use for producing aluminum is hydro power it's totally clean you know and very very cheap there are other opportunities on this planet where one can can build aluminum smelters with hydro power we don't have to build it here with 100% coal fired and continue to pollute the environment and use the resources in an effective way technology to bring the to bring the industry up in many many areas value at industries there is technology needed technology that's currently not here Western companies have to continue to to help there the real critical resource there for China is the openness and the capabilities of companies here to cooperate outside of China to have a mentality to understand what how to do this right and that's I think that is currently the biggest bottle now okay don't create just a quick comment on where how you think politics is gonna sort itself out well as I already mentioned domestically I think it's critical for us to see in the coming three to five years whether the new leaders will be able to rally the grassroots support for reform to go against interest groups therefore to push out a new round off institutional reforms that domestic homework internationally there's also homework to be done that is leaders from China have to explain very explicitly very clearly in a very articulate way to the external world especially the Western countries the intention the future of China in the world right China's strategic intention but without explaining this the Western countries tend to use its colonial past to project the future of China and therefore cause a new round off containment on China and which in turn can you very easily stoke the fire of our traditionalism so that's I think that's homework carved out for our leaders yeah it doesn't help when you see all these island disputes and every all this all these over all the claims there's no new claims okay that's true yeah they're 30 years old right there's something like that are then go ahead and then I finally so I think you know history teaches us that all such transitions of superpower status tend to be difficult and even conflictual in some instances and I think this one hopefully will be less conflictual than before but I think Martin is absolutely right in saying that it's a g2 that's very important but the real danger is that if China on the one hand does not kind of play its part in maintaining you know the current rules of the game because it says it's no it's too poor you know Denkshap Yang said for example China must lie low for 50 years before challenging the United States I don't think China China can afford to do that so China has its own role to play the US on its part and again Martin was alluding to that I think the US has a fundamental problem in getting used to the fact that it is now a declining power and therefore to manage China as a declining power is a mindset that the US has not come to grips with so if China doesn't you know take on its responsibilities in its own self-interest and if the US doesn't allow this transition to pan out in a kind of way the big danger is that we get a g2 which is like a g0 with no one in control and we saw the interwar years when the same super power transition a declining UK and ascended to us not willing to take on the responsibility and we saw what happened then that g0 is what we need to avoid going forward. Arvin you're gonna give me sleepless nights the way you're talking you know you're just pressing me here Kaifu last last word yeah I think there are a lot of challenges ahead between the US and China relationship and trust I mean historically very rarely has two top superpowers really got along for a win-win situation and this pair of countries is further confounded by three major additional issues more than perhaps countries in the past superpowers in the past one is a perceived ideological difference and a second one is a lack of fundamental understanding for example not seeing how China could have moved so fast when US hasn't moved so fast and the third one also perhaps very damaging is a media sensationalism right both sides of the media want to say bad things about the other so I think it's hard to come up with these solutions on the fly but I suggest two things one is in terms of communication and letting journalists really go in deep the responsible journalists go in deep and report more responsible content and and encourage more and proper communication in a way the other side can understand the other suggestion is us is on business and finance really create a more open level playing field for the other country to come in and play where there's a Chinese company listing in the US without getting ridiculous attacks or an American company being able to come into China hope it's only a matter a short matter of time before leaders of China finally sign up and get their web all counts and start using them gentlemen it's been a an honor privilege and a pleasure thank you talking to all of you thank you very much and thank you to all of you for tuning in to China the road ahead I'm Bertie Lowe signing out here in Tianjin China