 COVID in China and the effect of COVID in China on China's economy, very important. And for this discussion, we have Carl Baker, who is a senior advisor at the Pacific Forum, who is going to tell us what's going on over there and how it affects the economy, the politics, and China's global reputation. And of course, it's also its reputation with North Korea. Yeah, it's kind of an interesting topic, and it's an evolving topic. And it also has become a very political topic, I think, in the United States, where there's a certain eagerness to show that this time China's going to fail. And I think that's almost the underlying narrative of some of the reports, when it says the Chinese COVID policy is unsustainable. And this is certainly the narrative that's coming from the US. But then when they're successful, then that narrative kind of dies down a little bit until the next time it comes up. And so where are we? I think that's kind of where we want to accomplish today is where are we? And as you were mentioning, just before the show is, in very stark terms, what's happened is China has fewer than or somewhere around 5,000 deaths. And of course, the United States just recently marked their one millionth death. And so really, look at the contrast. And if you want to hear it from the Chinese narrative, we're interested, we're protecting people's lives. And of course, from the American narrative, this can't be sustainable because now they have the Omicron variant, five, six, whatever the number is today. And they simply can't keep doing this. And I think there's truth in both sides of that story. Yeah, well, very interesting. I mean, if you look at it just as a tad pijing ping in the president of the United States, we would be better off today. In his own way, he has respected the science. During the Trump administration, we were not respecting the science. And even now, people, you know, they politicize vaccines and masks. It's terrible. I just came back from a trip to the East Coast. And I would say maybe a quarter or a third of the people on the street were wearing masks that in public places. You know, we shoot ourselves in the foot and then we wonder why we get sick. But in China, you know, or if pijing ping was the president of the United States, it wouldn't be like that. They'd all be wearing masks. I remember seeing a photograph, Carl, of the virus, the flu of 1918, 1918, 1919. And there's a woman holding a sign and it says, wear a mask or go to jail. Yeah. Yeah, but you know, I mean, if you think about it, you know, I was reading an article in Asia Times and, you know, it said had to say if pijing ping had been president had China followed the US, it would have now 4 million deaths. And it said have the US followed China, it would only have 1300 deaths. You know, so that's kind of the starkness of that contrast that that, you know, and in some ways it does follow the larger narrative about the United States in China, that the United States is going to demand individual freedom. It's going to skew to the side of individual liberties. And China is going to skew to the side of social responsibility of protecting the larger society and compromise the individual freedoms of the individual. And that's kind of what you're saying about the woman carrying the sign, is that that sign only works in the United States. You don't see that sign in China. So then the question is, is how how much societal pressure is there in China to change the policy. And, you know, then we always go back, the American articles always go back and they talk about, yeah, you know, in on Weibo, you know, the sort of Chinese version of Twitter, people are really complaining they're unhappy. But there's no, there's no organized opposition. It's individuals are unhappy and and they and they are being held prisoner in their own homes. But there's not anything more than that. There's no organized rallies. There's no organized resistance to, to the policies of the government. Yeah, it's anecdotal. And it's Western, the Western press gets a story and they, and they make it sound pretty bad. And they, they quote Chinese people as saying we want freedom and liberty and democracy and all this. But the fact is that there's a very low rate of death. And I don't, you know, it's they come from the same place that some of the people in the United States come from their, you know, their freedom and liberty and death is more important than trying to protect your neighbor. And I find it very interesting that that is, that's a global kind of thing that exists in large part of the US, but also in a smaller part in China. And I'm not sure that I would criticize the Xi Jinping all that much on this. He may be going off the side a little bit. Maybe he could cool it once in a while and not hold people hostage the way he does. But I think in general, the concept is, is good. Yeah, well, and again, you know, I think there is some, some indication that they're moving away from, you know, I mean, in this latest, in this latest iteration. Now, you know, now we have another lockdown and on we, which is halfway between Shanghai and Wuhan, you know, so now that's in that area. And then also as you were saying up in Xi'an, there's a there's a lockdown in Xi'an because they've found new, new cases up there. And so this becomes more and more difficult to sustain as, as you have these variants. And now, and now the problem for China becomes, how do you, how do you reach that herd immunity, which everybody else in the world have, you know, because if you look in Southeast Asia, they've dropped all the travel restrictions, they've dropped many of the controls that still are in place in China. And in the West, of course, you know, we've dropped those requirements. And so how does, how does this end, you know, at what point does, does China accept the fact that it has to allow these variants to infect the society, you know, with as long as they refuse, continue to refuse to take the mRNA vaccines from the West, they're going to have this problem that they are relying more on testing than they are on vaccines. You know, and so, you know, another part of the story in China, of course, is that they've, they've put together a machine that allows them to test up to a half of a half a billion people in 48 hours. You know, you think about, think about the amount of time and energy put into that testing program that they've put into place. And, and that's where they're spending their money. That's where they're spending their, their resources is on the testing rather than on the vaccines. They're spending $10 million a day in these semi permanent testing facilities and requiring everybody to go down every couple of days to get tested, which is really what, you know, one, you mentioned that the mRNA, you know, vaccines have not been accepted. China has some kind of limitation. I mean, they don't accept the Western vaccines and they, and their mRNA vaccines are still in trial. So nobody in China gets to use them. And we all know, at least I've seen in many times that the Chinese vaccines are not as good, right? Not as current. They don't work as well. And, you know, that's a really silly thing that Xi Jinping is doing. He should allow the mRNA vaccines in. He should buy them. He should stroke the West, you know, compliment the West for having done them. He should be ahead of him on that. And not to say that enough people in this country take them, but he could use those things and hold the rates down. If he wants to do that, that's what, if he wants to hold the rates down, he should take the vaccine. Well, I think that's where the dilemma is coming. And it fits into this larger pattern of the technology competition between China and the United States, where increasingly the United States doesn't want to share technology. China doesn't want to accept the Western technology, you know, and so, and so you're seeing, you're seeing the economic displacement occurring in China, but not to the extent that the United States would have expected, and not just because of the virus, but because of this larger trend between the two in competition over technology. Yeah. So propaganda is a big part of this. I mean, he said zero, zero COVID. We find a couple of cases here or there where it'll lock you down. And he doesn't want any, and, and he says, this is effective. This is working. This is an example of how the Chinese system is better than the West. And if you, if you speak, if you speak contrary to that, you say anything or write anything, or in the case of North Korea, they released a video, which is being played in, in China, about how they were doing so well, which I'm not sure I believe anyway. China squashed that, took it off, and it can't be played. And so, you know, it's a, it's a, again, a propaganda war, and he's determined to make China look good, even if it's not entirely true. Yeah. Yeah. And that's, and that, again, that's the dilemma is, is it's difficult to see exactly what, what, where the truth lies? You know, to what extent do we over, over emphasize the downsides of it? And to what extent are they underplaying what's really happening? And it's, it's really, really difficult to, to determine which, which is the right answer, because we're as much influenced by some of that propaganda as, as the Chinese. So I have a question for you, Carl. This propaganda war around this is politicization of, of COVID and medicine. Would it exist in China if it had not existed in the United States first? I don't, I don't think I understand the question. Are you changing the problem? COVID and anti-COVID medicine has been politicized. It's been made the subject of propaganda for sure. And he is expressing that globally. But we had it, we had the politicization of COVID early on and in the Trump administration and became very politicized to the point where half the country, you know, just like half the country thinks that Trump won the election and half the country thinks that that it's just a sniffle. Yeah. Now I get to get the intent. Well, yeah, but I, yes and no, I mean, because I think, I think both sides were, were going to politicize it from the beginning. And, and what we've seen is how each side has politicized it is slightly different. You know, so, so again, it goes back to this, this increasing competition between the United States and China. And really if you go back to the beginning, it, it starts when, you know, when, yeah, when, when we start talking about the Wuhan virus, you know, and the China virus, you know, and all the stuff that, that occurred early on in the Trump administration, but on its own, China was always prepared to, to, I think, develop its own narrative about how they were addressing the, the virus and, and that plays into this larger, again, this larger competition between technology development in China versus technology development in the United States. So the answer to the question is, I think it would be, regardless of how we played it out early in the United States, because China was, was also in recognizing this, this increasing competition in technology, and that's only exacerbated it. And so now we have these, these discussions about China supply chain resilience and, and the ability to, to work around Chinese supply chains. And I think that, that all is part of this, this competition between China and the United States over, over technology. Well, you know, it's, it's, it's more than the rhetoric and he has some good arguments. I mean, for example, we've known about the Omicron now for months. And yet we don't, we don't have any Omicron vaccines. They won't be ready until the fall. I mean, ideally, and, you know, if we had great medicine and great vaccines, we'd be ready already. We're supposed to be advanced on that. And I don't think it's a, it's a bad argument for him to say, you know, the sleeping giant over there, the United States can't seem to get, get the vaccines to comport with the latest version of the, of the variants. The other thing that he could argue, and I think successfully is that we have this political divide in the country where, you know, half the people in the country don't want to, don't want to do anything scientific. They don't believe it. You know, that's a sign of the weakness of America. So he can make some good arguments. He can make some good comparison. He shuts the city down. No fool around. And if you believe that that helps, it does. He can make it happen. Yeah. I mean, the statistic we started off with is, is compare the number of deaths in one versus the other. And that approach works. But at what cost to society in the United States, we say, oh, you can't do that because you're, you're impinging on individual freedoms and, and you're, you're creating a powerful administrative state, you know, all the things that you've just heard in the last couple of weeks about what's happening in the Supreme Court. You know, it, it, it absolutely comes right back to, to that whole mindset in the United States of individual freedoms, where in China, there are individual freedoms are only after you've satisfied the societal requirements to ensure a stable government. So, you know, these, these historical trends will modify over time. I think people will learn that I'm just a speculation, but people will learn that they really have to wear a mask and take a vaccine, not only for COVID for anything else that comes down the pike. If they want to protect themselves by protecting the community. And China will learn a Xi Jinping, if there's ever a successor to Xi Jinping, will learn, it's probably better to, you know, relax a little and, and not shut people down and lock them up over the sort of thing and take such draconian steps that they complain about it. I mean, don't you think that ultimately the, the two approaches will each resemble each other more? Well, they won't resemble each other, but they'll converge, converge from the different poles. And, you know, and I think that's right. I think that, you know, there, there is still a recognition in parts of the United States and some, some Americans realize that you do have to take some precautions to prevent infection. And, and, you know, the vaccine isn't going to do everything for you. You do still need to be careful in, in close settings and things like that. And, and I think increasingly, you know, China is giving indications that as, as people aren't getting as sick anymore, you know, once, once they have their virus closer, I think then you start seeing them move a little bit more towards, towards that convergence point where they will accept a few, a few cases that they don't have to test the entire city of Shanghai every 48 hours to make sure that they don't have a, a case of a mild case of the Omicron variant, whatever the number is today. It's interesting that there's not all that much vaccination going on in China. And what he has done as a matter of policy is to focus on masks and quarantine and testing, but not necessarily vaccines. Yeah, you know, and, and, I mean, and that's China is contract tracing God man. You know, if you look at, if you look at all the options that were available from the beginning of this, you know, it's so, it's so clear that China took one path and the United States took the vaccine path, you know, and now you have you, as you say, we're going to end up converging back away from these extremes at some point. And the question is, is can we really find a way to cooperate in that process. And, and to me, it's not at all clear. We can simply because this, this, this, this, this divergence has, has been exacerbated or and it has exacerbated the trend of moving away from each other in terms of supply chain. So, so then the real larger question for China US relations is how does this affect trade, you know, and what we're seeing today from the, from the Biden administration is more and more talk about moving away from from the sanctions and talking about building resilient supply chains that exclude China. And so now we're looking at some of the economic implications of what this means is that we're not going to, we're not going to go back and say, okay, now we're going to reengage China because the, the, the different paths that we've taken in this, in this pandemic has forced us into a further path away from each other in coordinating economic policies. And I think that that's going to continue and that's going to make that convergence that could have occurred in the, in the resolving the pandemic into a broader difference between China and the US in terms of economic policy and trade policy. Well, I mean, that's sort of an optimistic result of all of this. That I mean, if you look, if you looked at losing a million souls here in the United States, you know, that's going to affect the economy. If you look at hospitals being full and people being out of work and having to stay home, you know, that's going to affect the economy, and it has. I mean, you can blame, you know, oil prices in Putin, whatnot. But, you know, I think we, I think we knew that our economy would have issues and difficulties when COVID first started. It was an easy prediction. And likewise, likewise for China right now, if you, you're going to shut down Shanghai or Xi'an or any of those other cities and make everybody stay at home and not go to work. You know, that's going to have an effect on the economy. And if, if you have, you know, aberrations in the supply chain because of all that, you know global trade will be affected. So, I mean, I think it's perfectly reasonable for the two leaders to come together and say, wouldn't we both be better off if we stopped attacking each other, if we started to work together on this. But I don't see that happening. Okay. I don't, I don't see that happening because what I see, what I see happening is, you know, today, today's news is about the Biden administration clearly is getting ready. They're talking about a high level meeting between the foreign minister and Anthony Blinken again. And it's clear that we're going to move away from sanctions. But what's also clear is that the United States with its Indo-Pacific economic framework and China continuing to push the regional comprehensive economic partnership and trying to join the comprehensive and progressive what is a Trans-Pacific partnership. You know, the free trade agreements the United States is moving away from the United States is saying we're setting our own standards and technology is going to be hands off. We're not going to give access to advanced technology. China is going to, China is saying that's fine because we're going to continue to push free trade because free trade is in our interest. And so we have we have this divergence, this economic divergence and the pandemic is only exacerbated. It's exacerbated it by the fact that the United States and others have taken the pandemic as part of the rationale for moving supply chains out of China. So now you've lost that China as the central hub for Western imports and you've moved it to Southeast Asia and other parts of the world. So I think that it could have it could have resulted in a better opportunity for cooperation. But I think what's happening instead is both sides have said we can't afford to take that risk. We're going to continue to pursue alternative approaches to economic security. So here's a hard question for you Carl. Given all of that especially given the COVID element in it who comes out of hand? Yeah, that is a hard question because I don't think there's a straightforward answer at this point. I think both sides are deeply committed to the path that they're on to the point where in some ways they're a bit irrational because they've convinced themselves that they can't afford to cooperate. And so whose side is history on? Is it really to the point where we have to think about isolation national security interests based on economic trade? Or is it to the point where China is going to become the dominant economy because it's going to maintain free trade because it sees it as the solution to its problem? Yeah, how is that? No, I have no answer. I guess it's how you play the game. It's every day on its own merits. And we know that COVID has damaged the economy of both places. My own guess would be that it's damaged our economy in the U.S. more than it's damaged the Chinese economy even though they really don't like being cut down in all those cities. Yeah, I mean if you look at the numbers the World Bank put out some numbers that said that yeah, China got hurt but it didn't get hurt as bad as the United States. That's exactly what they're saying. And if you look at the 2020 versus 2021 China still has a booming export economy. But can it really resolve all this departure of economic activity due to COVID? One of the other numbers that I've seen is that they're saying that foreign direct investment is down in China. They're saying that foreign companies have left and they haven't renewed some of their operations on the East Coast where COVID has been a problem. So some of those things suggest that in fact China is going to get hurt. But clearly the United States is getting hurt from inflation, from disrupted supply chains and then of course you pile all the other things going on in the world on top of it and it becomes a real challenge I think for the West to see their way clear to return to economic growth when you're excluding a large part of the population in China. You're basically trying to run an economy and you're ignoring 1.5 billion people in China. That's going to become very difficult. Yeah, and who knows how much more difficult in the next few years. Now what about the sanctions? You mentioned that this administration was thinking about, has indicated that it would relax the sanctions and I guess that means the tariffs mostly. What's the benefit to us and what's the detriment to us and what's the benefit and detriment to China? Well, not surprisingly, the United States has now come to the realization that we do from the beginning that tariffs are inflationary. And the Trump administration knew this and they did it anyway and they said all the, because the Chinese companies are going to lower their price to retain access. Well, it's very clear now that as we knew it was going to happen, what happened is of course the prices were increased in the United States for somebody to pay for the tariffs. So in some ways it's beneficial and the Biden administration I think is doing this in its efforts to reduce inflation. China, on the other hand, is going to get away with not ever fulfilling its commitments to the promises it made to the Trump administration for increasing imports. If you look at the latest export numbers from China, their imports haven't gone up dramatically, but their exports have been pretty consistent. So I think that in the long run China probably benefits from the lifting of sanctions. But the counter to that of course is how impactful will these new ideas about supply chain resilience going to be. And then it becomes a question of how effective is this Indo-Pacific economic framework going to be in setting standards and reaching agreements in Asia over how to govern digital technology, how to govern the digital economy and how to actually ensure you have resilient supply chains that exclude China and to what extent can you do that and to what extent are the Asian countries going to be willing to play along with that sort of approach when in fact they're playing both sides off by joining the economic partnerships with China and promising to at least work with the United States on some aspects of the Indo-Pacific economic framework. Carl we haven't talked about the One Belt One Road initiative which is very ambitious which represents a kind of manifest destiny of what China and a huge step forward at least theoretically all the way to Spain and Portugal and what have you how has COVID affected how has the economic changes in China resulting from COVID affected the success the forward motion of Belt and Road? It's hard to say how to isolate the COVID effect on it but clearly what China is realizing is through inflation through bad management a lot of the projects aren't finished will probably never get finished there's a lot of there's a lot of bad debt sitting out there because of it so you've got these countries that signed on to Belt and Road and you're dating yourself by saying One Belt One Road remember China sort of figured out about two years in that that probably wasn't a good way to characterize it and so they went to the Belt and Road initiative. Yes yes I apologize yes you know and so I think you know the number that anticipated is happening that now you've got the G7 of course just last week signed on to the American proposal to what 600 billion dollars or something I think was the number that got floated about investment to counter Belt and Road but of course when you go looking for somebody to take on that debt that occurs when you do an infrastructure project they're all sitting in not very good shape because they're in debt to China over some of the projects that are never going to get finished so now you've got you know you've got developing countries with a debt load that isn't going to allow them to do much and so Belt and Road is still there you know it's still again everybody says yeah that's great if you want to give us infrastructure but pay for it well that's a that's problematic you know you have to follow the money yeah but I mean Belt and Road was extremely successful for it's the first years because everybody said wow this is great we're expanding the economy you know we're getting all this free money well of course money is never free you know there's always a cost and those costs are coming due then the question becomes can you know can China really really do anything with that debt I mean it's one thing to talk about taking over ports in Sri Lanka but you know are you really going to do that because it's just that's just chasing you know that's just pushing bad money after bad money a hole in the water into which you pour money yeah that's just it gets to be a problem so yeah I mean I think that Belt and Road is becoming problematic for them I mean their property market is bad they have a problem with their property they've got property companies that are basically shells that are you know zombie companies that are living off the largesse of the Chinese government so you know so you've got all the things that we have kind of in a different way that you've got a huge amount of money being put into testing you've got a huge problem with debt you still got this idea that you have to do something for the developed world and there's not a lot of room for maneuver so you know China isn't in great shape but the west as I say you look at the west and they're sort of in the same same kind of situation where you want to help the developing countries but you've got no way to serve us all the debt that's been accumulated up front one of the things that's been in the press is the Xi Jinping's current attention to Hong Kong with the two flags flying together and you know the essential propaganda statement we wanted to bring them into line with Chinese policy and sovereignty and we have we've succeeded. Is that true and how does it play with the economy of China? Well I mean Hong Kong is somewhat of a specific case in China because you know with the draconian measures for the lockdown the western companies that have been sort of sustaining Hong Kong as a financial center you know the western you couldn't get anybody to come in and work those senior positions in Hong Kong so you really lost a lot of the momentum for Hong Kong as a financial center and that's going to be very difficult to get back because they've moved out all over mostly to Singapore but also to Japan to some extent to Taipei you know so you've lost that momentum but you know so I think that again that's a point of loss for China. Well I wanted also to ask you about Ukraine but I think we're out of time and if you don't mind we'll have to tweak that separately Carl. There's another show because that is having a global effect not only on China certainly the US and Western Europe but the implications of Ukraine and the continuation of the war there I would really like to have another show with you and soon. Yeah and I think that's another aspect of this and of course there China is kind of the junior partner in some ways of the problem for the United States and so that's an interesting angle of how this whole competition between China and the US plays out because Ukraine creates its own set of problems. So you have COVID you have Ukraine you have this fear this growing fear of inflation but right around the corner is recession you know so yeah so it all plays into I think a larger picture of a very rapidly changing international environment. Yeah and this is only one day after July 4 I guess I'll close with asking you and how you felt and how you feel about July 4 and these very tumultuous and problematic times. As my daughter told me yesterday I guess we've seen the real July 4 celebration in Chicago. Oh no. And I say that only because you know I mean that's almost emblematic of what's happening I think in the United States that July 4 isn't sacred anymore either that we still have mass shootings even on July 4. Yeah and fireworks has taken on a different meaning. Yeah. Thank you Carl. Carl Baker, senior advisor of the Pacific Forum who joins us from time to time to discuss these very important issues. Issues about which you should be educated. Thank you so much Carl. I look forward to our next discussion. Yeah, thank you. Aloha.