 I'm Michael Green from Georgetown School of Foreign Service, Asian Studies and CSIS and I will be moderating this discussion with three of my good friends and three of the leading experts on security in Asia and China and economics. If the panel this morning was on China as a rule maker, our afternoon session is China as a rule breaker, so if you could picture the morning session with little angels over one shoulder for this session, picture all of us with little devils over the other shoulder and I know these three guys believe me, little devils over the other shoulder. We'll start with Dr. Derek Scissors who is at the American Enterprise Institute where he writes on China, India, Asian economics. I read his work, it's excellent. He is my favorite myth debunker on the Chinese economy in Washington, MA in economics, PhD from Stanford. We'll talk about economics and then Tom Menken at the Naval War College. We'll talk about maritime and security issues. Tom and I were classmates at CIS, PhD classmates, he knows a lot about maritime issues. When we weren't doing our dissertations which was about 40% of the time, we were playing the game of imperial diplomacy and I was Japan and you were Russia and although in real history Japan defeated Russia in 1905, I'm embarrassed to say that Tom crushed me, humiliated me, so he knows his neighbor of naval and maritime strategy. I know my history but it didn't help. And then James Mulvannon, another old friend and a very respected expert on cyberspace on China, his PhD is from UCLA and he is now the vice president, I'm going to have to find it, my apologies, but it's important for Irish music. The important thing you need to know about Jim Mulvannon is like me, he plays Celtic music. I play bagpipes, he plays guitar and sings drunken songs. I can't find it Jim, I'm sorry. It's Irish, isn't it? Here we are, vice president of, really that's impressive, vice president of defense group, INCS, intelligence division and director of their center for intelligence and research. Jim is an expert on cyber security. I think everyone who knows the field will agree that I'm an expert in this country on China cyber issues. So we'll go down the line beginning with Derek. We will want to, in the presentations in our discussion and in the Q&A I think distinguish between norms and rules, they're different, I think in the economic sphere there are clear rules, there are also norms. I think in the maritime sphere there are few rules, some norms and in the cyber sphere the rules aren't clear and the norms are heavily debated. We'll want to talk about perhaps law fair, China's effort to create domestic laws to challenge or balance against the international law that doesn't suit their interests. I also think we'll find a distinction when we talk about rules and norms between revisionism and free writing. My sense is historically, rising powers and you could say this of the United States in some ways as well but certainly Japan and Germany and now I would argue China, rising powers, tend to free ride on the global scale and be more revisionist in their own neighborhood. And so the regional versus global dimension will be important as well I think. So let's go down the line and then we'll have some discussion and questions from the audience. Am I supposed to go there? I think we, are you mic'd? Yeah, I think you can, if you're comfortable. All right. So this is the Bash China panel and I'll try to be a little, a little bit restrained for me anyway. The main point, we have two main points, one which is to remember when we're bashing China is a lot of this is just a function of China being big and the negative and I'll just say a little bit more about that and then the negative side of this is I'm going to argue that China is not improving on the econ side and this is the real problem. I think it's actually gotten worse with the caveat that we don't know what this government's going to do. So let's start with the big. When you're talking about China breaking rules, China is big enough in economics that it's understandable if they're at least starting to bend the rules or make new rules and they're not going to be very good at it when they first made new rules. We know the US was really bad at making new rules when we started on the econ side. So some of the rule breaking might be misinterpreted as just their big economy and the rules are going to have to change to some extent. They signed on to the existing international economic order when they were much smaller. Right to now they're less making rules that others can reasonably follow and more making rules that benefit China, which was something that was talked about in the earlier sessions. I'm sure we'll talk more about, but I do think there's some leeway that has to be given because we're in a transition period and China is not going to be good at rule making. And so it's going to look like it's rule breaking. Now I want to say something about size that I think we tend to forget. Let's compare China to India. It is not at all obvious that China is an economic rule breaker than India. I think I would actually pick India as the bigger economic rule breaker. What is obvious is China is much bigger and more important. So whatever deviations from the rules they engage in, we're going to notice a lot more. They're going to matter a lot more than Indian deviations. And I picked another big country. I'm going to talk about what little tiny countries do when they break the rules, nobody pays any attention. So a lot of the tax I'm going to put at China, the ammunition just comes from size. And the US should be sympathetic to this because the same thing is true with us. People will point out, oh, I can't believe, and I did this myself in a weekly standard blog last night, can't believe what the US is doing with Japan on autos. It's ridiculous. But it's also much more noticeable because the US is doing it. Some little country does it and nobody cares. It's not part of the TPP. It's not a crippling blow to the world trading system or anything like that. So I'm going to try to focus on Chinese rule breaking that passes understandable because they're in transition or it's exaggerated just because they're large and go to destructive. Trying to keep in mind, Mike's opening remarks about norms, which he didn't tell me about till 30 seconds ago. So I'm winging this. It's all his fault if it doesn't make any sense. We'll do the balance of payment side. The balance of payment side, and I'll get to some issues you're familiar, these are more norms. So we have currency manipulation. There's no rule on currency manipulation. We have an incredibly difficult time defining it. And from the straight economic standpoint, the Chinese pegged of the dollar, which is still in existence despite being scrapped four times, has never been scrapped, is much less manipulative than the US flooding the world with dollars due to our monetary policy. So there's not really a rule there. There's a norm. And we're violating that norm more than the Chinese are. That doesn't mean there isn't a problem. And I put it to my Chinese associates all the time. Like, you're now arguably, depending on what measure you use, the second biggest economy in the world, when are you going to get your own currency? This is ridiculous. Stop acting like you're a satellite of the United States economically. That's what a pegged currency does. I mean, Hong Kong has a pegged currency. It has 7 million people. Of course, it has a pegged currency. So that's not a rule, but it is a norm that China is violating. And it's one that exaggerates global cycles because the war on the dollar moved together instead of separately. So we get booms that are too big, 2005, 2006. We get contractions that are too sharp, 2008, 2009. I'm not saying China is primarily responsible. I'm saying the pegged of the dollar contributes to that. What also contributes to that is another norm violation, which China's accumulation of large balance of payments surpluses and foreign currency reserves. It's not a rule. There's no rule about this. But it is a norm. And they're contributing to global imbalances that way. The closed capital account, small countries or countries that are suffering financial instability are supposed to restrict the movement of capital. Not big countries that are not suffering from financial instability, which China hasn't been suffering from until recently. So is that a rule? Some of us would like it to be a rule, but it isn't a rule. It's more a norm. And China is, again, stretching the norm. So on the balance of payments side, we talk about currency manipulation in this country. There are a lot of more important issues. It's China's breaking norms more than rules. Let's talk about the WTO. And this is where there's a dispute about whether China's breaking rules or breaking norms. There's certainly breaking norms. I would also say they're also breaking rules. China's WTO accession negotiations were fake and important respects. And I want to talk fast, which I am doing. And I don't want to take up time because I want to have more question and answer and discussion. I'll give you one example, because I was sort of involved in this on the periphery. There was this big argument over whether we had 49% telecom joint ventures of 50% or 51% where they could be 49% and where it could be 51%. But they all required a Chinese partner. And guess what happened after China joined WTO? Sorry, you can't have a Chinese partner. That was just disingenuous. I mean, you could say there's not a rule about that, but you were making, you were agreeing apparently in good faith to allow telecom joint ventures, and you didn't. I mean, that's pretty close to breaking not an important rule, but a rule nonetheless. The disputes that we have now, for example, over rare earth elements, technically China's following WTO procedure, so you can say, well, they're not really breaking the rules, but they have a repeated pattern, not just rare earth, autos, other minerals. It goes on solar, it goes on and on and on, where they extend the process as long as possible. Then they don't implement the required corrections in a timely fashion. So they get years of altering industry conditions, and it's sanctioned by the WTO. Is it breaking WTO rules? No. Is it breaking the rules of an open trading system? Yes. And those are maybe not codified in the WTO, but there have been rules that most of the large traders, in fact, all the large trading countries have followed to now. Doha round, the ITA negotiations, the services. In all cases, you can't say there's a rule governing Chinese action where they're required to do something that they're not doing, but the rule of trade, you know, the rule that we're all trying to negotiate trade progression. The Chinese aren't trying to negotiate trade progression. They got what they wanted, which is membership in the WTO. And since then, the WTO has been used to protect their individual and mercantilistic economic interests. So the WTO side goes back and forth between breaking norms and breaking rules, but we're certainly getting some sort of violation from China. Now we're gonna get into straight rule violation, and the number one, easy one to start with is in the intellectual property rights. And here, this is a clear example of China not getting better. What we used to say about intellectual property until maybe 10 years ago, or even more recently is, as countries get richer and they start developing their own intellectual property, they protect intellectual property better. That is not what's happening. What China has done is they're using the technology they stole to steal more technology. I mean, that's literally true in several important cases. I'm not gonna emphasize cyber because Mulvennan's here and he can do it, but that's an example of rule breaking intellectual property and a deterioration on that front. I wrote in 2003, this is in prints for clients, saying that the Chinese had just started a, have intensified a strategy of acquiring foreign technology than pushing multinationals out. This latest was called, became famous as indigenous innovation. Respect for IPR at home is getting better, but respect for foreign IPR, if anything is declining, we have attacks on Qualcomm, Interdigital, other U.S. technology firms, basically which are coercive IPR attacks, and those are against TRIPS rules. And China gets away with them because they gained the WTO, which is why I gave you the WTO section beforehand, and because they intimidated foreign companies into not complaining. So on IPR, China is absolutely a rule breaker, and it's arguable because there's multiple dimensions of this, I would argue that they're getting worse at rule breaking. And then the last thing is state and enterprises, and I don't think you can call the whole effort, the fact of Chinese state capitalism and the subsidies of state and enterprises rule breaking because we don't have any rules on it yet, although the TPP is trying to establish one. And because Japan, Korea, some other countries did this to some extent with their national champions, but it's been taken to a much higher level in China, and some of the extensions that China has made are in fact rule breaking. So for example, regulatory protection, there are a set of, and I call them the state team, which is the state 18 sectors, where you're not allowed to beat state firms. And if there's a rule in international economics, you're supposed to have some sort of sense of open competition, and that rule is being broken to protect state-owned enterprises and more obvious and sweeping fashion than it ever was in Japan and Korea, which is not to say that they also didn't do things that were troublesome. Financial subsidies, this is not a rule because the WTO is flawed. Chinese financial subsidies don't tend to promote exports. What they do is block imports, which means they interfere with other people's exports, which is kind of the flip side of something we do have a rule on. So there isn't really a rule there. There should be, and it certainly breaks the norms. Another set of rules, and this is a violation of absolute violation of national treatment, and it has not been called on because I think because people are cowardly to be blunt, Chinese antitrust rules don't apply to standard enterprises. I mean, they apply to standard enterprises whenever they feel like it, but they apply directly to foreign firms and they're being used increasingly on foreign firms, including tiny little foreign firms who are said to have a monopoly in a tiny little market and are using that monopoly to coerce a much larger state-owned enterprise, which has a geographic monopoly in that market, which is not subject to the antitrust law. I'll say that again because I said it too quickly. Foreign firms which are literally 1% the size of the Chinese firms, their market is defined in such a narrow terms that the foreign firm appears to have a monopoly in China. They are subject to the antitrust law for pricing unfairly gouging a giant Chinese firm which has a huge geographic monopoly in China, which is not subject to the antitrust law. So we're violating what is a rule in WTO on national treatment. It's happening repeatedly and it's not being challenged. And so I'll just bring this back. There are lots of things we can point at. As Mike has pointed out, some of them are violations of norms, which can be important and maybe less dramatic, but some of them are violations of rules. Some of the rule violations are because China is large, but sometimes China gets away with rule violations because it's large. And I think that problem is actually getting worse. So that's my bashing China participation in the bashing China panel. Thank you. Okay, onto the security realm. I'd say in the security realm, there are very broadly two views of Chinese behavior. One is that the Chinese leadership is uneducated and poorly socialized. And the theory there is through engagement, dialogue, will bring the Chinese leadership to understand the correct way of doing things. The other view is that China has its own objectives and its own strategy. And it is, in other words, an independent actor that may see things differently, perhaps very differently than we do. Now, I state those two positions first to associate myself with the latter, but also to point out that I think that that former view is pervasive, either explicitly or more frequently implicitly in interactions with China and the security sphere. But I view the second as much more persuasive. And in trying to think through how China constructs its rules and its role, I wanna just offer three different lenses and tease out the implications in the maritime domain. And these three lenses for understanding Chinese behavior has to do first with a hierarchical view of international relations, second with a continental geostrategic outlook, and third, a historical narrative of victimization. So let's talk about the first, the hierarchical view of international relations. And here I'd wanna contrast that view with the dominant view in the West. The dominant view in the West is that states are de jura equal, even if they are de facto unequal, UN General Assembly being the epitome of that. Burkina Faso has the same vote as the United States. Let's say that the Chinese view has a heavy overtone of a hierarchical view. So China traditionally maintained hierarchical relations between it and states, vassals, tributaries on its periphery. And I think this view is manifest not only in historic Chinese statecraft, but also in more recent statements from Chinese Foreign Minister, among others. But I think it also colors the way China deals with disputes, including maritime disputes. We tend to favor multilateral dispute resolution. China favors bilateral, I think bilateral, because it allows China to try to get the maximum leverage over the small countries with whom it has disputes. I think an interesting test case for that will be to take a look at the agreement just signed this week in Qingdao as part of the Western Pacific Naval Symposium, where there's the rudiments of a code of conduct for incidents at sea. Too soon to tell, of course, I'd like to say, it's a good test case. But even now, I think there's some of the statements coming from the Chinese side seem to indicate that it'll be more applicable to some than to others. And that China may not feel bound by the code of conduct that it signed. That's number one. Number two is China acts according to what I would call a continentalist geostrategic outlook. And again, I draw the contrast to the outlook that I think most Americans just take as given. The United States is a maritime power. And for the United States, like Great Britain before it, sea power is a necessity. I think we view interaction in the maritime domain as positive sum, as win-win. We view the ocean in the words of Alfred Thayer-Mahan as a great highway, as a commons, as a avenue of international commerce. And it's a sense that the use of the sea brings benefit to all, brings trade, brings commerce, brings prosperity. China by contrast has historically been a continental power and continental powers view the seas differently. Whereas we are insulated to some degree from threats by the sea, continental powers like China must coexist with neighbors that pose the threat of invasion. And I think China sees, Chinese leaders see the sea as an avenue from which threats may emerge and thinks about the sea really from the land, from the land outwards. You see this in a number of different patterns of behavior. First, a neuralgic response to activities, maritime activities on China's periphery, right? And attempts by China over time to change the accepted patterns of maritime activity and air activity on China's periphery. You also see it in the development of so-called anti-access or counter-intervention capabilities to hold other powers away from China's borders. And you also see it in a territorial view of maritime disputes really anchored on territory. So, and I think that's actually a very, it's a pervasive view. And oftentimes we speak in Mahanian terms about the commons when the Chinese view things very, very differently. The third is what I call a historical narrative of victimization, the narrative of the century of humiliation. And I use the quotes and I use the term narrative because that narrative coexists, but sometimes uncomfortably with some of the historical facts, but nonetheless I think it is a governing narrative in China today. It leads to the belief that whatever the international norms and the international rules, they were created by someone else and that they may not always apply. It also, that view leads to historical claims of various salience and I'd say expanding historical claims. I think it also has fed into an anti-Japan narrative that is expressing itself I think in some dangerous ways in the maritime domain. So I guess my bottom line is China follows rules, but they are different rules. They're rules based on some different views of international relations, different views of strategic geography and also a different historical narrative. And I think where we fail to understand those, we risk real problems. Thank you. You wanna wave your little red book before you? Yeah, that's right. Over to you, Comrade. Well, you can't be a China Specialist without a little red book, right? So, well, let me begin. I wanna thank Oriana and Stephanie for inviting me to come here today. It was surprisingly difficult to get my remarks for today approved, but we'll soldier on. And as an homage to Kurt Campbell, I have three quick points. The first is that China has a long history in the modern era of being a rule breaker. Obviously a party born of revolution, which was clearly not a dinner party when it came to lopping off heads. And that from the beginning, the new PRC when it was inaugurated in 1949 explicitly rejected the international order by definition. It was something that was gonna be overthrown in a global revolution. And all of the existing order and all the existing order's rules were simply impediments and hegemony and imperialism that need to be overthrown. Why do I bring all this up? Well, because the same party is in power that used to believe that. And if you read Xi Jinping and you see the Neo Maoist push and the Mao Pins on government officials, lapels and everything else, it's tough not to sort of draw a direct line through all of that. And they clearly didn't write the rules. And even it's going so far as the UN Security Council arrangement with the Republic of China and how that had to be redone. But you see this all through the non-aligned movement in the 50s. You see this through the peaceful principle, the five principles of peaceful coexistence and the Bandung Conference and all of that good stuff. And they fomented revolution abroad. They tried to break other people's rules. I mean, 500,000 people died in 1965 and 1966 in Indonesia when the PKI, which had been supported by Mao's regime was slaughtered by Suharto and his leadership. And the PRC system, and this is a preview of something I wanna say at the end, also during this time, even broke its own rules. I mean, the great proletarian culture revolution is a perfect example of a party turning on itself, violating its own internal norms and trying to destroy itself. And I couldn't help but think this morning as we were listening to the lunch speech that one of the gravest violations of rules during this period was in fact the attacks on the British embassy during the Cultural Revolution, which violated China's commitments under the Vienna Convention and a number of other international laws. And so I want that to be a preview of my point number three, which talks about how China in a different way is now continuing to say one thing and do another to violate its own rules. But whereas the PRC as a matter of state ideology used to celebrate rule breaking, it now desperately wants to be seen as a status quo member of the international order while still selectively following the rules and breaking the rules and breaking the norms. Now, I will say as a caveat, as a citizen of a great power, that one of the perks of being a great power is selectively adhering to rules and breaking norms. So I'm not trying to be all judgy about this, but as China has been a rising power, they have crossed a transition point where they increasingly are less shy about asserting their imperatives as a great power. Now, I was asked to come here and talk about cyberspace and the cybersecurity issue. And if you look at this at the strategic level, what's very interesting about it, because Tom mentioned the commons. And I'm glad Kristen Lord isn't here because even though my name is on a CNASS report about the global commons, and I contributed to a chapter on cyberspace as a global commons, I'm here to tell you that cyberspace is not a global commons. In fact, the Chinese and some of the countries that are signed onto China's international code of conduct in cyber, I think actually have a much more accurate and realistic understanding of what sovereignty means in cyberspace than Hillary Clinton's State Department did and a number of other people. In this case, in cyber China, like in some other issues, China is more Westphalian than everybody else. They're trying to go as far to the right on Westphalianism as they possibly can in terms of adherence to sovereignty. In particular, they understand implicitly that the architecture of what we call cyberspace. And I'm not talking about the virtual avatar lives you all lead where you sit in chat rooms, talking to other people who also like on the weekends to paint themselves blue and run around in the woods with bow and arrow doing avatar cosplay. That's not what I'm talking about. That's your own business. But the bottom line is every switch, every router, every computer that makes up the architecture of the internet is within the sovereign boundaries of a nation state and therefore governed by its laws or that traffic travels on submarine cables or satellite connections that are owned by companies that are incorporated in countries and therefore governed by their laws. This is not the sea. This is not the air. This is not the space. There is no sovereignty less part of cyberspace. And the Chinese understand this and this is one of the main reasons structurally they're pushing to move international internet governance to the international telecommunications union under the UN because they understand this is not an issue that needs to be dealt with as a commons. Now the cyber espionage, I can very easily talk about this issue because there are no rules and there are no norms with regard to either espionage or cyber espionage. So it's not exactly fair to say that China is breaking rules or norms. We're just terribly upset about how good they are at stealing our crap. And but that's not the same thing as criticizing someone for breaking a rule. But I will didactically make the following distinction which I believe has been blurred in the last six to nine months as we've discussed, he who must not be named. And that is the distinction between traditional espionage and commercial espionage. And the United States before all of this recent kerfuffle as we say in the South, the recent unpleasantness, before all of this happened, we were very aggressively pounding on the Chinese side about this distinction between using cyber for traditional espionage against government military targets which is perfectly acceptable, although regrettable because everybody does it and using it against commercial targets which the United States government does not do. And I realized that recent information would suggest disclosures involving a Huawei or Petrobras would seem to suggest that that's not true. I'm here to tell you it is absolutely not true. And the United States is probably the only government in the world that does not do it. But they don't do it not out of any sort of moral imprimatur, but for the very practical reason that they wouldn't know how to share even if they did. Most of the countries we're dealing with have a single state-owned oil company, a single state-owned chemical company, a single state-owned telecoms company. If their intelligence service steals something, it's very easy to figure out who to give it to, okay? But let's just say notionally that somebody in the US government stole the newest networking technology from an unnamed Chinese company. Who would you give it to? Do you give it to Cisco? Do you give it to Juniper? What about the dozen or so networking startups in Silicon Valley? Here's the ironic thing about the US system. Any one of those companies finds out that they didn't get the technology? They actually have legal standing to go to the Department of Justice for an antitrust case. Is that crazy or what? So in the absence of an ability to share, and we all know sharing is caring, in the ability of an absence of an ability to share, we don't do it at all. But it is a little, I understand why the other countries find it incredible to believe that. But when there are allegations about stealing information from Huawei or Petrobras, you must remember that it is to support strategic economic intelligence to senior policy makers, not ExxonMobil and Cisco. And that is a fundamental distinction, and I will continue to argue about that until I am in the soil. Now, if you drill down on this issue, we're also very concerned about a whole set of behaviors that are related to this cyber espionage that fall, frankly, below legal thresholds. And this involves a very large volume of extra legal technology transfers that I and my co-authors documented in our book last year on Chinese industrial espionage. The Chinese system has hundreds of organizations that we identified, thousands of personnel that form a gigantic cadre devoted to large scale, planetary scale, open source exploitation of foreign science and technology and research material, as well as one way transfers of technology out of individuals through a huge network of pioneering parks and tech transfer parks and a gigantic infrastructure that is designed into prime the pump for the indigenous innovation that Derek mentioned earlier. Now, none of that behavior in, or the vast majority of that behavior technically falls below any of our EAR thresholds or any of our legal thresholds and therefore can't be described as illegal behavior. It could be reclassified as a trips violation, it can be reclassified as a lot of things, but it is deeply troubling, it is deeply injurious to American economic competitiveness and it is behavior that is seen as unacceptable and we are reforming the export control system, I think on one level, precisely because it's not that the Chinese were breaking rules but that they were exploiting gaps in our system that allowed them to steal U.S. companies, blind and universities. One way that I do believe in that, getting to the norms issue is the IT, global IT standards regime is a perfect case. The Chinese regime explicitly and in black and white letters uses the international standards regime as a trade weapon. They did not want to pay the royalties to Erwin Jacobs at Qualcomm and other people for CDMA and so had a state funded effort to put together all of the parallel technologies for all of the major international telecom standards. There's a Chinese HDTV standards, there's a Chinese Wi-Fi standard, there's a Chinese, you name it, fourth generation telecom standard. Almost all of these standards through legitimate international bodies like the international standards organization into the UN, the IEEE, the internet engineering task force have almost all of those standards have been rejected as technically inferior. But they nonetheless are appearing in products like the dual WAPI Wi-Fi chip that's in my iPhone 5 because all of the equipment is being assembled in China and China is using the full weight of its regulatory apparatus and its product certification apparatus to force Western companies that are building products in China to incorporate those inferior rejected technology standards in their products. That's the only reason there's a dual WAPI Wi-Fi chip in my phone is because Apple wanted a single unified global production chain for its phone. It didn't want to build a China phone and then arrest a world phone. And it couldn't because China wouldn't let them build it at Foxconn. But the real dilemma there is when you talk to the Apple developer connection about the WAPI side of that chip, they tell you they don't know anything about it. They say it's black boxed. They say three out of four of the crypto algorithms involved are state secrets and weren't shared with them by the state and encryption management bureau in China. That is not, in my view, a legitimate trade behavior. That is the manipulation of the international standards regime as a trade weapon. And we're gonna continue to see that, particularly given the recent revelations and the push to further divest all Chinese networks of non-domestic telecoms equipment and computer equipment. The third point though I'd like to make though is that China, and this is the part that troubles me the most, breaks its own rules or its own state and principles. In particular, I've noticed a phenomena that over the last 30 years, of course we've all read the magazines, right? There's been this huge rise in Chinese political and economic and military and social and diplomatic power. But the thing that's bothered me the most, and I think that we've seen periodically, is that there has been a dangerous and disturbing lag in two key areas, strategic communications and crisis management. And we've seen this again and again and again in our crises with China. The one of the difficulties we have on the strategic communications side is that the Chinese regime, even as it evolved from a rising power to a great power, has been trapped like a bug in amber inside its own rhetorical system dating from the pre-modernization era. In other words, things like the five principles of peaceful coexistence. Non-interference in the internal affairs of other countries. What? Give me a break. Again, one of the perks of being a great power is interfering in the internal affairs of other countries. And when China started its go-out strategy 10 years ago, all it's been doing is interfering in the internal affairs of other countries, buying $3 billion of a country's copper, building them a new soccer stadium, building them a new presidential palace, building them a new foreign ministry, siphoning off large amounts of money for their kleptocratic children so they can race Ferraris and Monaco. All of that is a piece of a part of an international go-out strategy that fundamentally involves the afeino. And we see this in Africa and other places, destruction of the domestic textile industry through Chinese imports and the labor problems they've had because they've insisted on using Chinese workers in these facilities rather than the locals and things along those lines. Stationing troops abroad. Well, it's a little difficult to maintain a constant rotation in the anti-piracy task force off the Horn of Africa. And then also claim morally, righteously that you're not stationing troops abroad. And it's really difficult to provide logistics and sustainment to those forces if you continue to insist that you don't have foreign bases. And so you have to do all of these ideological gymnastic backflips about places not bases and we're gonna pre-po equipment at Costco bonded terminals, but that's not really a base, even though it's military. And we're gonna use our leverage to make sure that the host country allows us to have a port visit so that we can replenish food stocks. So on the one hand, you have this set of clearly outdated principles that don't really conform to what China is doing in reality, but they are trapped by them for international reputation reasons. A good example was China's, for years China was advocating in the CD in Geneva in favor of the Paros Treaty on Space Weaponization. It's a little difficult to square that with their January 2007 anti-satellite test. But of course, after a week of ideological incoherence about that, they came out and said, and I quote, we tested an anti-satellite weapon in order to convince the United States to negotiate the banning of anti-satellite weapons. I would have loved to have been in the meeting when those talking points were approved because talk about a culture that is capable of holding two contradictory thoughts in their mind at the same time. It is, that is the essence of Mao Dunn in my mind. Similarly, no first use of nuclear weapons. Ironclad will never be revised, will never be changed, even as we watch on the ground, deployment after deployment of DF-31, Alpha Road Mobile ICBM brigades, a new generation of at-CSSBNs, and a whole force that to me from the outside looks like an accidental breakout into a limited war fighting force. Well, how the hell do you square that with Yao Yun-Ju's comments about how they're gonna have no first use forever? For some people in Washington that Derek spends a lot of time with, this plays into a strategic deception narrative, which says that the way you explain the difference between what China says and what China does is that it's a gigantic strategic deception and that there's somebody with a white Persian cat in their lap and they're floating volcano island headquarters that is sort of directing all of this, right? My argument is somewhat different, which is that it's the divergence between China's stated principles and its actual action that is the cause of serious Bob Jervian sort of misperception, will cause crisis instability and will cause escalation control problems with the additional absence of confidence building measures and other things. And so it is in our interest for China to frankly to embrace Confucius because Confucius is concept of the rectification of names, the Zhengming, because Confucius said there will not be harmony in the empire until the name of the thing matches the nature of the thing. That to me is the essence of China's problem right now. You have a Chinese Communist Party managing a state capitalist economy. You have a nuclear force that doesn't look like a no first use force and on and on and on. And so my one piece of advice to Beijing would be Zhengming, Zhengming, Zhengming, otherwise that there will be continued misperceptions of China's intentions and China's capabilities going into the future. Excellent, thank you. Oriana, remind me, how much time do we have? Two-thirty. Okay, let me ask one sort of speed round and maybe two and then I'll take some questions. None of you are liberal idealists or liberal institutionalists, so I'll dispense with the idea that somehow we're gonna come up with norms that through socializing and bureaucracies for peace, create yada, yada, yada, okay, that was the morning wimpy panel. So I'm gonna- You're the United States Institute for Peace. That's right. Apologies to our hosts. This is great, it's great. So let me get right to the- Which has tremendous perimeter security for some reason. Let me get right to the interest-based approach to this, national interest-based approach to this. So are we able to shape Chinese behavior in each of these areas you've discussed? And if we are, each of you will give me a number from one to 100, zero to 100%. What percentage of our ability to shape China's behavior in these economic norms and rules will be based on deterrence and what percentage will be based on self-interest? For example, China may wanna join TPP because it wants to use it for internal reform or in the maritime sphere. China may want some code of conduct because it has sea lane interests up to the Gulf or in cyber or outer space. So let me start with the Eric, we'll go down the line and give me a number. What percentage of our ability to change China's behavior in these areas is gonna be thrown out the window, socialization in norms and bureaucracies for peace. What percentage will be fear and what percentage will be greed? How much of it will be required us to be deterring and how much of it will be China's own self-interest? Okay, I mean, I don't actually make the question. Or are we really just- Even uglier and say you forgot compelence. I would say there's a five to 10% area in economics where China imports a lot of commodities, including soybeans, at the sufferance of the United States. So if you really, really wanted to get ugly, there's very high cost that could be inflicted upon China in that situation. It would also cost the rest of the world a lot and that gets to the real question here. I would put the number is quite high that our ability to influence China potentially is quite high, like 75, 80%, but all of those entail some sort of sacrifice, including the one where it's in self-interest. The way you get China to see it's in its self-interest to reform state-owned enterprises is have a TPP chapter on state-owned enterprises that they can meet in a reasonable time, which means we have to give up something. If you set the bar so high that the Japanese have trouble meeting it, include IP, the same thing. Issue was brought up in Tokyo over the weekend. Then the Chinese are gonna look at this and say, okay, I kinda like to join, but I mean, come on, you guys are not being reasonable here. So we can appeal, we have a lot of influence over China, both on the self-interest side and the deterrent side and the compelling side, all of them are gonna require sacrifices by the United States, including the self-interest part, and the sacrifices are gonna get uglier. In terms of what I would be short of compelence beyond self-interest is what we're trying to do and I think unfortunately failing in TPP, which is create an environment where we're hurting the Chinese in a certain direction by setting up these agreements that say, look, you can join, you can join, if you don't join, things are gonna get worse for you. That's not easy, we're having trouble with it right now, we're gonna have to make economic sacrifices or concessions to our TPP partners, to our TTIP partners and so on. So I think our influence over China is potentially very high, it all comes, including the self-interest part with a cost, and I think the question is not whether we can influence China, it's whether we're willing to pay the price to influence China, and that's a, you know, perfectly legitimate national interest question. Good, so TPP is key, how'd they go, by the way, in Tokyo? Yeah, don't start. More work to do. So if I was, I think the U.S. in the maritime domain has United States and its allies, I mean, have a great ability to influence Chinese behavior, whether we always exercise that ability as effectively as we could, is another matter. But if I was trying to think about the split between deterrence and I think Derek's right, deterrence slash compelence on the one hand and self-interest on the other, I mean, the split I would have is maybe about 70, 30, something like that. Which is 70? Deterrence slash compelence. Now. What about the self-interest part? Well, see, that's where it's tricky, right? Because this gets into perceptions of self-interest, versus, you know, the reality. Look, the reality is that I would say no country has benefited more from U.S. command of the commons and the globalization that it's brought on and the free flow of goods and services. No country has benefited more from that than China. And yet, I think- 70 United States. Well, no, I mean, in terms of, in terms of rise in incomes overall, I think China, because the gains have been from such a lower starting point. And yet, I think that is, it is a dissatisfying position to be in for China today as probably with Germany in the early 20th century to have one's economic destiny in the hands of others, even though others are invested in the, fundamentally invested in the system. So you don't see, so you haven't given any percentage to the possibility, even if it's small, that Beijing be interested down the road in a code of conduct, and so forth because of 80% plus imports of hydrocarbons by sea and so forth. No, that's my 30%. Oh, that's your 30%, I thought you said compelence. No, no, no, no, sorry, deterrent slash compelence at 70. Self-interest at 30, no, so that's- I never used quant methods in my PhD, I apologize. Yeah, that's right. That's about 30%, yeah, 30%. OK, yeah, I'd agree with that, by the way. Yeah, my late faculty advisor at UCLA asked me why I wasn't using game theory in my political science PhD. And I looked at him and I said, Rick, you'll see game theory in my PhD when it shows up in your work. So it was good for the goose. It's good for the gander. Cyber deterrence is extremely problematic. I see my old Rand colleague, Tom McNower, up there. And it reminds me of when I joined Rand in 95. And I was waiting to get my clearance. I was sitting out on a trailer out in the parking lot. And they handed me a big stack of con, wool stetter, shelling, and Ellsberg. We were still reading Ellsberg those days. And you sat out there and read the canon while you were waiting for the system to do its business. I have subsequently gone back through the canon and tried to apply it to cyber deterrence. And difficulties that you have attributing the origin of an attack really fundamentally undermine almost all the core pillars of the deterrence canon. You combine that with our inability for intended effects. I mean, out in the garage, I've got my wheel of death in my briefcase. So many pounds of overpressure at optimum burst height does the following to a wood building. I still have it with me. There is no such wheel for cyber. And there never will be because of the law of unintended effects. And so cyber deterrence is really difficult. I realize it's a goal. We've put out some pretty milk toast declaratory statements in the last four or five years. Basically, as you'd expect, the United States, when faced with a strategic cyber attack, will in a manner of in time of its own choosing respond with the full measure of US national power. The problem is cyber is not an area where we have escalation dominance. Because we're so wired, we're actually a big juicy target. And in fact, last year, we were trolling around in some Chinese cyber chat rooms. And we found a screenshot that a young Chinese hacker put up of his hack of the graphical user interface for the industrial control system that controls Washington gas here in the national capital region. That's what I mean by asymmetry. And so you can't just say you have a credible deterrent, because you say you have a credible deterrent. You have to have some Berlin airlifts and some Cuban missile crises along the way. So while that may be a good asymptotic goal for us, there's a good mole-lander word, right, Tom? An asymptotic goal for us, it's not anything we're going to achieve anytime soon. So I ascribe much higher percentage to China's own self-interest, which we're having difficulty getting them to, because they still maintain an asymmetric perception of this domain. In other words, that the US and other powers are asymmetrically vulnerable in cyber while they are not. And they are somewhat coming around to it. I mean, the fact that all Chinese credit card transactions are processed on servers in the United States, little things like that. China has set up its great firewall in a way that's fantastic for internal security. Frankly, terrible for waging cyber war. They've created bottlenecks on their own ability to actually be able to have follow-on attacks. So getting back to Derek's point, though, about China will start protecting IPR when it has IPR to protect. I think the point I don't agree with. Yeah, but there's an analog in cyber where people say China will begin to care about global cybersecurity when it has its own internal cybersecurity problems. It'll start caring about hackers when Chinese hackers from one company start hacking other Chinese companies. But I would actually not bet against the Chinese possibility of maintaining those two thoughts in their mind at the same time, which is that they have a domestic problem, but that what goes on in the international space is not a reflection of their domestic problem. And so I'm actually a bigger advocate of efforts by some to reduce the metaphysical certainty that the Chinese have and the veracity of the information that they're exfiltrating from our networks, such that their own system has to reform and that they realize that the game is up at some level and that they have to turn down the volume on the exfiltrations because they realize that they're simply not getting the same quality information as they were before and that we can find some sort of an equilibrium. But again, as I said before, in espionage in all cases, there are no rules, there are no norms. I've struggled for years to try and figure out what a Moscow rules in cyberspace might look like and it just makes my brain hurt. Excellent. We'll not take questions from the audience. I have to warn you that if you tell this panel that they're being hypocritical, they won't care. Yeah, and in fact, U.S. diplomats in Asia up until about December 1941 were authorized to say the United States stands by the principle of non-interference and internal affairs in spite of the intervention of the Boxer Rebellion and the annexation of the Philippines, intervention in Siberia, yada, yada, yada. So there's a little bit of China in all of us. Right, please identify yourself. And we have microphones and we have 15 minutes. So I'm happy to ask a question about what people make up their mind. I think you've scared them all in the back there. Steve Wenders, local researcher. This to the first speaker. This is probably a minor point, but with the authors of the new Chinese Economic Reform seem to be very concerned about this issue of hot money and its deleterious effect, perhaps, they're trying to find ways to prevent this from happening. How does that fit in with the open capital flows? What's your take on that? All right, it's a very important point. It's just a little hard to tie directly to the discussion today. The Chinese have created, I mean, this may be following on with Jim's point about breaking their rules. They've created their own hot money problem. All the capital flow in and out of China is due to their own rigidity, their own controls. It's nobody's fault, but theirs. There was this talk a few years ago that the US was causing inflation in China. Chinese money supply is two thirds larger than American money supply, even though the stock of wealth is one third the size. So this is China's problem entirely. And essentially, I think they are now using their own domestic weakness, and we've seen this in economics all the time. We do it, Japan does it for a long time. They're using their own self-inflicted domestic economic weakness to say, we can't follow your rules yet. It'll come later. So they're using the domestic side to say, I know, I know, we're supposed to do that, but we're not going to. That only works up to a point. The Chinese banking system, which is responsible for all these distortions, was getting stronger until 2008, and then they ruined it with the response to the financial crisis. So they're not getting farther away from being able to comply. So the way I would tie it back to this is, are we at the level of real rules here? No, they're pretty strong norms, and they kind of verge on don't mess with other countries during a crisis, which China's done a pretty good job of actually following that rule. But they're not getting closer to compliance, and it's because of their own actions at home. So along the lines of what Jim said, they're saying one thing, we want to follow these rules, we're moving in that direction, but at home they're doing things that are taking them farther away. I don't know if that helps in answer. Okay. Thank you. I can say much more outrageous things if you guys don't start asking questions. We'll take another question. Please, speak in tongues. Thank you. My name is Zhang Hong. I'm from China's Saching Media. I wonder if the panel can put this question into a broader context, because when China breaks a rule, actually there are also a bunch of free riders who also break the rule against the US-led or daughter. So can you put that into context and see how does this game play when there's a bunch of rule breakers perhaps led by China, the US on the other side? Thank you. Well, I'll say for instance that if I was a global hacker organization or a foreign intelligence service with a sighing capability, and I wanted to hack into the United States, I would route all of my attacks through Chinese servers. Yes, indeed. Yes, indeed. I mean, when it comes to maritime claims, the maritime domain, I think the big difference or the big contrast is in acceptance of dispute mechanisms. So there are plenty of dispute mechanisms for maritime claims. China stands out as one country that's opposed multilateral dispute resolution and sought to do it bilateral. So it's less the nature of the dispute than how it's dealt with. Nikon side, that's an excellent question. One of the functions of China being big is when China breaks a rule, everyone notices and they think, hmm, did they get away with breaking that rule? Was it beneficial to them? So for a little while, we had people talking about state capitalism is gonna take over the world. Now we have Chinese state firms being the most indebted of any large economy. So hopefully that is checked. But the point is when China did it, when China had this model, it got a lot more attention and more people following and more people bringing this up in international discussions than one other countries might have done and who were smaller. So I think you're absolutely right. That one of the reasons we emphasize China breaking rules so much beyond their behavior being bad is that it's China breaking the rule. We can all see it and others are going to copy. Yeah, and I will say that all the other countries in the world that are looking at this move of international internet governance away from ICANN, which by the way was never a PAH of the Commerce Department. That was the most ludicrous argument ever. Anyone who ever met Esther Dyson or Rod Beckstrom and asked them how they felt about the US government, they were clearly not a cat's paw of the Commerce Department. But as we move, you know, as China and its allies wanna move that to the ITU, there are a lot of countries that are gonna free ride on China and Russia's leadership on that in order to be able to change elements of the international order in that area to their liking. And there will no doubt be explicit or implicit payoffs to the countries who buy into that new sovereignty construct for cyber. I wouldn't say though, because you asked about in effect of a loose coalition of revisionist states opposed to the United States. And China, for all the reasons everyone's been saying, it's big and it's highly dependent on the international economy. China's not in the same category as Iran or North Korea or in some ways even India or Russia. So when people talk about China learning the wrong lessons from the Crimea, yes, there are some very impressive lessons on how to combine special forces in the economic and informational tools. But Russia doesn't care. Putin doesn't care as much about US relations or the international economy as Xi Jinping has to. And that's even more the case when you're talking about Iran. So there will be areas, I think, Jim pointed to one of the most important telecommunications slash cyber or human rights and democracy or general questions of interference and international affairs. There will be alignments of convenience but a coalition of revisionists, I think, is actually very contrary to China's interests in spite of my earlier statements about interdependence and so forth. I thought I saw another hand. Yes, right here. That's Bruce. Hi, I'm Bruce McDonald with the US Institute of Peace and I'm an adjunct at Johns Hopkins SICE. I'm a part of a couple of Track 1.5 dialogue groups and one of them is on strategic nuclear dynamics. I wanted to respond to a comment of Jim's, good Irish name and that's very good. One on your comment on no first use. I don't think the existence of mobile ICBMs per se is necessarily means that they are being hypocritical about no first use but I do think that the fact that there was no mention of no first use in their most recent defense white paper is interesting and also that if they start putting missiles to sea and yet they say, oh, we always keep our nuclear warheads de-mated from our missiles, how does that work? Now that, I think, in spades says how does that, how do they square that? But I wanted to, one thing in the dialogue that drives me nuts and this is not quite rule breaking per se but in line with your theme that of course the United States never tries to have it both ways but here where I think China does is China will very often make the point about, well, we're just, we're a smaller power, we are and yes, transparency in theory is nice but really the weaker powers and we are much weaker than the United States, we tend to benefit more from opacity than from transparency and at the same time they want to say that, well, we're a big power in other spheres so I guess my question to you or anyone in the panel there is do you see any signs that as China begins to more feel its oats as a major power and should be taking more responsibility as well as rights, do you see any signs of that tendency you want to have it both ways changing or are we sort of stuck with that for the duration? After all, they've gotten a lot of mileage out of it, if I were them, I might want to stick with it as well but I'd be interested in your perspectives on that. Well, I mean, I don't think it's an accident that the Track 1.5 on cyber that I'm involved in, your nuclear one, previous nuclear 1.5s I've been involved in, Space 1.5s, you have to say to yourself why do they prefer this track? Why do they want to have a track that's not Track 1, it's not GovGov, it's not Track 2 Pure Academic but they want to have this one that's sort of a mix of government officials and non-government officials can make non-statements and issue non-papers and do all these sorts of things and the argument is is because of their asymmetry. They want to be able to communicate in message but they don't want to be held to any deliverable that comes out of these meetings. So they feel like given their self-perception of that asymmetry, those are the ideal places for them to be. Now, they've all in various stages, the cyber one has basically morphed into a 1.1 at this point and it became the cyber working group under the strategic economic dialogue which still is having meetings about scheduling meetings about having more meetings about scheduling the meetings about the size of the table and the protocol arrangements of about the next meeting and the timing of the meeting but it nonetheless provided a channel but I think that is a manifestation, their use of those channels is a manifestation of their unwillingness to get beyond the plane at both ways that you're talking about Bruce. Now on the nuclear side, I realize the nuclear force is small. I'm just challenging people to think more creatively and more out of the box than they have historically as we see a sort of technologically determinist sort of modernization of this force and I'm not talking about intentional breakout. I'm talking about the leadership waking up one morning and looking at a very robust road mobile force and possibly an at-sea SSBN force and simply asking the question, hey, did we just wake up this morning with a limited war fighting force or a force to frappe and then the snowflakes start coming down into the Chinese policy system, tell me what I can do with this thing but they'll never abandon no first use and that's my point. So we read this Chinese book, this second artillery campaign operations book and there's two pages where they talk about the seven criteria under which China will fire first. And some of them, I'll apropos of the conventional precision global strike discussion, some of the reasons, some of the criteria where China will go first in nukes, it says, if we are attacked by conventional forces that attack our nuclear forces with an effect that approximates what a nuclear attack would be. Well, that's hypersonic glide. That's rail gun, that's a whole bunch of stuff that right here and now that would cause them to do that. But how do we negotiate with them? How do we deal with them bilaterally at the strategic level if there is this such a huge chasm between their stated doctrinal position and the facts on the ground of the forces that they have? So there, did you wanna say something on this? Yeah, I would chime in and I agree. I think, look, I think the concern is that I don't see the political statement of no first use going away, but that exists uneasily with a number of developments in force posture, but also these doctrinal statements that seem to point at least to some major qualifications in what that means. Your last point was them having it both ways. I think in part in the nuclear realm and related realms, they can have it both ways because we let them have it both ways. So on the one hand, the United States and Russia, not always, not currently on the best of terms, we have clarified our nuclear posture. They wanna play a big role and yet they're unwilling to clarify their posture, let alone participate in strategic nuclear arms negotiations. The United States and Russia eliminated a whole class of weapons and it's a class of weapon that China has deployed and continues to develop and deploy in great numbers. So, and yet, I don't hear discussions about globalizing the INF treaty, which I think would be warranted. I don't hear our diplomats engaging the Chinese in discussions along those lines. So we, I think we sometimes abet that type of having it both ways. I think across all three of your areas, the better play increasingly is gonna be multilateralizing, as you pointed out, code of conduct in South China Sea. To the extent we can get norms on cyber and space, a multilateral approach is gonna be more effective and then TTIP, TPP and broadening the rule making and norm making. That's gonna be the play. I wanna ask one really quick question before Oriana can get up here and pull this off of me. Look, the nuclear is a perfect example and you can give many more. There's no first use policy that's stated usually by the foreign ministry and then there's a war fighting doctrine usually that comes out of the Academy of Military Sciences or the PLA, which contradicts it. So, you hear two takes on that. One is stove piping, it's a problem, it's a good thing that Xi Jinping is creating a national security counselor at NSP. It's a good thing that he's centralizing economic reform and counter corruption. The centralization of authority is presidential style of decision making and strategy. It's good because it'll empower the foreign ministry and the nationalists and it'll get rid of these problematic gaps. The other view is, no, no, no. This is all quite strategic and deliberate. You centralize it under an NSC or you centralize economic reform and you end up with much more effective use of these state instruments to break rules and norms. So, we only have 10 seconds. But I'm gonna violate Oriana's norm for just two minutes and I'd be very interested in each of your takes on how much of this is an accident of stove piping that could be fixed by centralization with a strong leader like Xi Jinping or how much of it could actually get worse. I mean, in Econ, this is straightforward. There's a reform camp that's led by the People's Bank and then there's a centralization cap that's led by the NDRC. And if Xi Jinping comes in and says, I will adjudicate among these and you will follow my orders and he can be effective as Deng Xiaoping does when he initiated reform in a much more difficult situation than reinitiated it after Tiananmen, then, okay, well, they become more effective. And then the following question is they become more effective doing what? Well, they have this sweeping reform announcement that they say they want, but it's all very vague. It isn't going to work as it is. So, if you believe Xi Jinping is really committed to market reform, it's great that he would centralize power and make that decision. And if you think he's not, then we have, exactly as you pointed out, a more concentrated suppression of the reform camp and we have a China that will cheat more effectively internationally. So, unfortunately, we don't have enough information to answer about him yet. That's the risk. I think our perception is that China's leaders think about defense and national security externally much more than they actually do. Even in the discussions about the National Security Council, it's primarily domestically focused. And so, whether it's centralization or not, I don't see that changing. I think, look, the big military decisions get the attention of the leadership and other ones don't. So, I don't see that being as big a driver in defense. So, we had the Central Military Commission. That's all that mattered anyway. In cyber, the lack of centralization is a huge problem. And it's a huge problem because their system is very different than ours. They have this bottom-up entrepreneurial grassroots cyber espionage system. Go let a thousand, let a hundred schools contend. In sharp contrast to ours, which is top-down, tight sphinctered, heavily controlled, and we need to drive their system up that way because it's this grassroots decentralized system that has contributed to the volume and even the redundancy. Same different intrusion sets going up to the same targets, all kinds of interesting things. I wanna drive them to a centralized process but for a perverse reason. And that is because I know that the extent to which they centralized that decision-making, and next to every three PLA technical Reconnaissance Bureau operator is someone from the Inspector General's Office and a lawyer and an auditor, that their system will grind to the same halt that ours has and that by definition, because of all that paperwork that the volume of the intrusions will go down. And so, by pointing out to them what's going on in ad hoc level at the lower levels, I think it plays naturally into their desire to centralize the system. And I think that that will actually allow us to establish some sort of a Moscow rules in cyber, which we couldn't do as long as there were two dozen sets operating relatively independently and encouraged to just go out and be fruitful. Excellent. Jim, Tom, and Derek, thank you. That was great, but I don't know. Thanks for indulging me the extra two minutes and thanks for your participation. That's good.