 forced every member of Congress to decide what they think about Asia. And particularly after Japan and the U.S. began serious negotiations in the aftermath of or in the wake of Prime Minister Abe's February 2013 visit. And there was a sudden interest in Congress and Asia. And it wasn't just because of security problems in the South China Sea. It was because every member of Congress had to decide what they thought on a sensitive political vote about how important Asia was. And there was a lot of interest. It has also changed, I think, the U.S. experience thinking about Asia and our stakes in the region. Let me ask you a quick follow-up. The JETRO and also JBIC Japan Bank for International Cooperation surveys show that Japanese overseas direct investment has essentially dropped in half in China the last two years each year and essentially doubled into Southeast Asia, especially the so-called ASEAN plus one Vietnam India, which is not in this Indonesia and so forth. Do you think that membership in TPP will affect investment decisions by Japanese companies going forward? Do you think there will be some diversion depending on who is in and not in TPP within Southeast Asia? Well, thank you, Michael. The, as Mr. Ishige's presentation explained, some of the reasons why, you know, the Japanese investment had been, you know, diverting. Maybe one of the economic factors is that the raising labor cost and raising or increasing labor cost in China is quite phenomenal, particularly in those coastline cities. So maybe that's a kind of very politically neutral sort of factor why, you know, Japanese investment has been decreasing to China, but at the same time, you know, the Japanese companies are now engaged more and more not only within the region, you know, production networking or value chain to more kind of wider context. It's a wider sort of spectrum of, you know, value chains or production network. So Japanese companies are not only looking at TPP, TPP certainly, you know, in terms of maturity of negotiating results, negotiating results, it's really the most important element, but also Japan, EU, JCK, RCEP, all of these are being, you know, connected to the eyes of Japanese companies and they would like to have more kind of well integrated world value chain that they would like to realize through those respective inter-regional mega FTAs, that's how I look at that. Thank you. Professor Zhang, I want to ask you two questions, but first let's say TPA passes this week and maybe we have a TPP signing ceremony in Manila for APEC in November, which by the way is CSIS experts speculating. I don't think there's been any official announcement along these lines, however CSIS speculation is 80% probable, I'd say, wouldn't choose God. So let's just assume that this moves forward with APEC. What do you think the impact will be in China's own debate about reform and free trade agreements and international economic cooperation? In China now as a biggest exporter in the world, I saw as the second biggest economy. Meanwhile, China today is a world's manufacturing center. So promote both trade and investment, liberalization and facilitation that will benefit for China's development in the future. That's why now China is making a lot of efforts to promote and try to create our regional trade agreement network. You may find that in recent years, not only on the platform of APEC, but also in Latin America and in EU, you may find that more and more new free trade agreements has been signed. Also this year, China clear, China Australia will be the two new one. Meanwhile, along belt and routes, also you may find that China Sri Lanka, China Israel now is discussing how to promote bilateral free trade agreements, even if between China and Euro-Asia economic community concentrated Russia and those former solving the union economies. Between this community and China, now we already started to discuss the future free trade agreements. So I think that generally speaking, China will promote this type of framework. And then China's economic transition will be achieved. Meanwhile, China's huge market potential and China's high growth rate will be shared by other economies in the world. But regarding to TPP, China's attitude is quite clear. That is, we are very happy to see those TPP members can make consensus because we think that TPP will be a possible approach for promoting Asia Pacific economic integration. On the other hand, we also realize that there is a gap between China and TPP. China needs to reform and open up further. And maybe in the long run, we can discuss what will be the possible scenario for Asia Pacific economic integration. But for AFTAP goal, last year here, talking about my points, I said that in the future, there will be maybe quite different approaches to AFTAP. One is maybe possible TPP because from Japanese side and from the US side, you hope China and Indonesia, this type of country can join TPP. But you know that for China and for Indonesia, maybe we will feel not so comfortable for TPP because TPP has standard and very strict regulations maybe to some extent surpass the development stage for those developing economies in the region. That's why now we have to promote RCEP. In the future, maybe for developing economies, they prefer to choose RCEP track. The third possible approach will be maybe TPP track and RCEP track. They can work together to innovate a new template. That also would be possible. So what will be happened in the future? That's why a strategic collective study need to be conducted by all economies of APEC. So I think that a practical approach needs to be studied and need to be explored in the future. Excellent suggestion. And let me ask you now about the One Belt, One Road, and Asia Infrastructure Investment Bank. These are new for China. It's a new experience. It's a lot of money. It's investment in areas that are not altogether stable or well-governed. And it's an international institution that China has never had the experience managing before. So as you look at the One Road, One Belt, and AIIB initiatives, what are the areas that you think will be the most challenging for Beijing and other possible areas where we can cooperate to address those challenges? Yeah. So at the beginning, I'd like to correct one concept that is today in China, our officially name of not One Belt, One Road, our initiative. Actually, the formal name is the Road and Belt Initiative. Because that One Belt and One Road, this concept is too narrow. We just borrow the oldest concept in the past. But today, you may find that actually, there will be many roads and many belts. They can formulate an economic network covering Asia, Europe, and Africa. So based on this type of understanding, we think that the Belt and Road Initiative, this concept is more exact. For China, we realize that if we want to promote this type of initiative, the challenge is very big. You may find that along the route, so a lot of economies actually belong into poor country. And their per capita GDP may be below 5,000 US dollars and very poor infrastructure and very bad investment environment. So that's why, in the face of this type of situation, we think that because in the past, China experienced this type of status. So you know that in China, we have our two valuable experiences. One is if you want to be rich, the first thing is to pave road. This is the first one. And the second one is if you want, without industrialization, you will not be rich. And based on these two experiences, that's why now we need to have our AIIB and Silk Road found to making efforts in the field of infrastructure improvement. Of course, in that process, you may find that even if we can have AIIB, even if we can have another 100 billion US dollars from Japan, personally, I think that AIIB promoted Japanese government to provide another 100 billion US dollars. So this is a constructive role played by AIIB. But even like this, you know that actually, faced with trillion-dollar levels demand in Asia, you may find that 100 billion US dollars still not enough. Plus AIIB, 200 billion US dollars also not enough. In the future, we need maybe three, four, five, this type of more and more found. That's why we have to introduce PPP model. Because in the future, we have to promote infrastructure improvement by both public participation and private participation. Especially social capital will be critical for infrastructure improvement. If you look at China's experiences in the past, BOT model and the BET model, this type of PPP model has already been very popular in different fields, for in the field of energy projects, highway projects, even if high-speed train projects. So I think that PPP model also will be critical for both AIIB cooperation and One Belt and One Road initiative construction. Thank you. So if the model is going to be to expand the funds available for infrastructure to have public-private partnerships, you're going to have to have a governance model that's transparent and predictable. And that's, of course, one of the areas of concern for the US and for Japan about AIIB. Let me conclude before we turn to questions by asking Matt and then Watanabe Sensei. Is there room for us to work with China on governance? I don't think the US will likely join anytime soon for reasons with our Constitution. The Congress, I don't think, will go for it. But is there a role for us to help with governance or set some expectations? And then also Watanabe Sensei, will Japan join? So you want? Go ahead, Mr. Zhang. I was asking that, but please. Actually, in recent years, you may find that as a member of WB and ADB, also China has our own China Development Bank, as well as China Exam Bank. They already become international player in global market. In that process, I think that China has already realized that anti-corruption, transparency, or good governance are very critical for international development projects. For AIIB, I do believe that China's direction also will follow those international financial use. On the other hand, we also realize that today, WB, as well as ADB, actually, their efficiency has a problem. So how to balance these two aspects? I think that AIIB maybe will explore. For, I do believe that transparency and governance will be respected by AIIB. And also, recently, you may find that the new chapters of AIIB will be released. You may find that some of detailed regulations will follow international rules and regulations. From this point, from this regard, I think that in the future, in case both the U.S. and Japan can join, and then you may make rules and regulations better, you can improve governance and transparency. Thank you. I mean, it's an interesting point when you look back at Japan's proposal for an Asia Monetary Fund in the midst of the 1997-98 financial crisis, that proposal was essentially pushed into an IMF framework. But it did provoke debates within the IMF and the World Bank about efficiency, and in that sense, did have a kind of positive role. So maybe the AIIB will spark those kinds of debates. But Matt, and then Watanabe-Sensei, what do you think? So I think, first of all, the United States, you're right, will not join this bank for the indefinite future. Again, I think Congress is unlikely to approve multi-billion dollar funding for a Chinese-led bank, that just seems to me politically unrealistic in the near term. And secondly, the U.S. lost a lot of credibility, by the way, it handled this issue. And so we don't need to revisit all of that because even the White House, I think, acknowledges that now. But as a result, I think there are limits to what the U.S. can do to shape the governance of this institution. But, well, and one other thing, which is that I just would confirm what Dr. Zhang said, that the Chinese government and those involved with the AIIB have made strong assertions of an intention to be transparent and to govern this organization well. And there will be certain market pressures to do that. If they want this to be a bank with a credit rating that can raise money in the markets, there's gonna be a lot of pressure to conform to sort of a set of standards. So I think for all those reasons, there is some reason to take comfort. And on the other hand, there are questions about an institution that is going to have such a dominant role from China, because China's made clear it's gonna have veto power over this organization and at the margin. I think most loans are not gonna be problematic, but every so often there's gonna be a loan that is gonna come along that is gonna be problematic for other members of this group. And I think they're gonna have limited ability to shape that. So I don't think the U.S. is gonna be able to influence that either, except as a bank shot through its reliable G7 partners. That's a joke, given how reliable they were in terms of the strategy earlier. But seriously, I think there will be pressures from within, but they're not certain. So I think there are some reasons to wonder about how this is actually gonna be run. And then there are questions about the lending standards. I think, again, China's gonna be under a lot of pressure and there are gonna be some incentives for it to conform, because it's not gonna wanna lend to projects that go awry and create a huge environmental disaster or something, because they'll be criticized without and within this organization. And I think there's a question about what international standards are in these areas, because each, we were talking about this internally in a little thing we had a few weeks ago, that there are different standards, even for environmental standards and loans. The World Bank and the IFC have different standards. The China Development Bank and the China Export-Import Bank have different environmental standards. And of course those are different from the World Bank and so forth. So there may be a place for all of us to get together and talk about these things. So we've actually been kicking around the idea of, maybe in the G20, there ought to be some sort of new forum created to talk about what are best practices for infrastructure finance and to try to come up with some common, at least understanding, if not standards in this area. So I think that may be another place the US can play, but I think we're gonna have limited influence on this thing from outside. One more thing, if it's the Road and Belt Initiative, then with baseball in the mind, then I would propose a new acronym, which is RBI for this training. I was very glad that you mentioned about this post-97, 98 monetary crisis. Japan proposed Miyazawa initiatives or even creation of Asian Monetary Fund. And the Japan's approach then was something to cooperate with United States in the monetary crisis that took place in 97, 98. So there's more of a cooperation-oriented approach that Japan took. Whereas the AIIB, I think the, although I appreciate very much the considerations given by Chinese authorities about the scarcity of resource and abundant need for infrastructure investment, but I think there should have been more kind of preparatory process to bring all the stakeholders in, particularly those major stakeholders, such as United States and Japan, into the project. And 110 billion US dollars, that was mentioned by Prime Minister Abe at one speech, but this should not be considered as a kind of number competition, you see. In the same speech, Prime Minister Abe mentioned about quality, quality of infra-investment. He repeated this word of quality seven times in the same speech. Try to give you the impression that Japan should give priority to quality of infrastructure investment. And also, those things such as the situation of the host country of investment with regard to democracy, with regard to rule of law, human rights, and also environmental situation, those things are very much important when we are engaged in the infrastructure investment. So I think the AIIB should keep those elements in considerations and also transparency and the government of organization also, that's a source of concern for Japanese authorities. For instance, member of the board, they do not have permanent address in Beijing. It's not the case in ADB, ADB, all the members, they stationed literally in Manila and they engaged day-to-day sort of monitoring of the management of that organization, ADB. So we have some preoccupation about the effectiveness of governance of that new organization, AIIB. It's, you know, we have been told by press that more than 25% or 30% of fund would be provided by China, but that perhaps give quite something close to veto to Chinese authorities. And of course now we have our Western democracy such as UK, France, Germany, already supportive of AIIB, but they might get very marginal percentage of share and put together, put all together, even they cannot formulate kind of a blocking minority for any decision that might be considered not so appropriate for infrastructure investment. So that kind of thing still worries us very much. So, you know, I think Japan and United States now seemingly decided or determined to stay outside of the AIIB, but if, you know, ADB and AIIB, if they can cooperate in the infrastructure investment, that's already positive. And, you know, maybe, you know, by the fact that Japan and United States remain outside of AIIB will help the sound management of AIIB. In this way, Japan and the US contributes to AIIB by their own absence. Thank you. Very zen. So very quickly, I just wanted to add, you know, what's happening on the ground with business in this environment that we're talking about. I see a new development in terms of infrastructure. There's an infrastructure committee with a committee leadership going specifically last week to Indonesia, to Jakarta, and recently, earlier on in 2015, going to the Philippines. Earlier was mentioned about US engagement in infrastructure area, and these are two new developments in terms of a very specific infrastructure mission where companies go and have a deeper dive into these topics, such as infrastructure financing and public-private partnerships. So this is, again, a reaction or part of what's happening while we're discussing these larger issues that are at hand. I just wanted to bring that into the discussion. Thank you. This is going to, you know, watch this space. This is going to be a drama that will unfold, and I think there are two parallel things happening at the technical level. The people in the Chinese government who are responsible for creating this new bank are serious economists and serious people with experience in the World Bank and are talking to experts in international institutions and ifs and the bank and the age development bank and so forth. But at the same time, in China, this is an extremely political and strategic initiative, and the role of the leadership in China, the role of industry is very opaque still, and I guess we'll learn more as we go forward. Let's take some questions, and if you could briefly identify yourself and, yeah, Scott? Microphone, could, yeah, good. Thank you. Scott Miller, C.S.S., I want to raise, I don't know if there's a question or a thought experiment, but the general impression from all the presentations and all the discussion is that economic integration in the Asia Pacific is some natural phenomenon, that it proceeds almost automatically, it has only one direction to it, and you could come away with the idea that we're just like two or three acronyms short of Nirvana. Okay. That's the title of your next book. But I want to observe that on a global basis, that isn't the case. Globally, the trade and investment as a share of world output today is below the levels achieved in 2007. We have not yet recovered in trade and investment from the Great Recession. Also, I think you could observe regionally, you have some big economies, Matt mentioned this earlier, big economies that are either going sideways like India or going backwards when it comes to integration like Indonesia. So the question is, and just a panel reaction is, what policy would we recommend that is different if we presumed that this wasn't automatic, that we could sort of revert to the mean, that deeper integration is not automatic? How would our policy recommendations change if that were the case? Thank you. Actually, I'd like to emphasize one point. That is international regional economic cooperation does not mean regional economic integration. By another word, today you will find that in this world, for WTO member, actually WTO could be regarded as primary free trade agreement. And you may find that even today, more than 40 economies in the world, they are not member of WTO, because WTO just have 160 members. And if you look at the map on the website of WTO, you may find that a lot of countries concentrated in maybe West Asia and Central Asia, as well as North Africa, they are not member of WTO. That means given that they cannot become the WTO member, that means it would be very difficult for them to be involved in regional economic integration process. So from this regard, I think that regional economic cooperation also should consider diversified approaches and diversified policies. From this regard, I think that China's Belt and Road Initiative can play a constructive role on this aspect. Thank you. Well, thank you very much for very insightful questions, Scott. I really enjoyed that very much. Yes, the economic integration in East Asia started with foreign direct investment. And I think the ignition was Plaza Court of September 1985, when Japanese yen being much appreciated, about 25%. Then Japanese manufacturers looking at Asia, particularly those top five, six of ASEAN countries, because their national currencies have been linked to US dollars. So that was the best way to avoid the up and downs of the dollar yen exchange rate. So that was how FDI channeled into those ASEAN countries. And at the end, we had this kind of production network across all the ASEAN countries. Now what we are being faced with is that we are moving from that kind of de facto business driven FDI induced integration into more institution driven integration, legally minded, particularly with the FDA. So I said that the ASEAN's mentality is we agree first and talk later. But now this sequence has been changing. And also TPP has a major sort of influence on this. So that's one thing that I'd like to mention. We are getting into more institution driven or maybe rural oriented approach to this integration things in the region of Asia-Pacific. And I'd like to also refer to the very concrete example of the trade related investment measures. That's agreement also incorporated into WTO. But trims, we have only four of the prohibitive performance requirements, such as export-import balancing requirement or the local content requirements and so forth. But there are a lot more investment impeding investment measures performed by host country governments. So we need to look after all these. Because as you said, the trade and investment so far not exceeded the level of 2007, maybe due to those impediments. So perhaps we have to open our eyes to look at those investment-related measures and bring into bilateral FTAs or TPP, mega-FTAs, so that we could ameliorate, I mean, improve the situation of the investment across the Asia-Pacific. And perhaps with that experience, we can move forward to the all multilateral setting of investment in the near future. Thank you. So the short answer to your question is we'd be doing what we're doing, which is reducing impediments to investment in trade, maybe with a little more urgency. Yes, sir? Whatever color that is. I have a question for Mr. Goodman. You made two statements. One is, you said AIIB is not going to happen because of the US participation will not be there. Then you added something, a caveat. What is that we lost credibility? What is that we lost? The US lost credibility. Why did I say that? Because the US tried to get a coalition of countries, G7+, Australia, Korea, to keep this bank at arm's length and failed to do that. Britain joined, and then there was a flood of other countries that joined. And so in a word, I mean, the US was unable to achieve what it tried to do, which was to keep this bank at arm's length. And gave the impression that it was opposed to any sort of Chinese-led initiative, as opposed to, I mean, I think there are big mistakes where they didn't, a year ago, go public with the following statement. We agree with China on three points. There is a big infrastructure need in the Asian Pacific. The current institutions are not filling that need. And China has a lot to bring to the table. Money, capacity, experience with these activities. And so the United States welcomes China's desire to play a role in this. But do we need a new bureaucracy to address this problem? Is it a problem of money? If we're going to have a new institution, how should it be governed? How should it land? How should it procure? And I think if we had done that publicly, we would have been on much higher moral ground and might have actually ended up swaying some opinion on this. But we decided to remain silent and then gave the impression that we were trying to pressure people not to join because it was a Chinese initiative. And then if you're going to do that, at least win. At least keep everybody on side. And we failed to do that. So I think that's what I meant. I think we don't have as much as a result of that, we've lost a lot of ground. Bureaucratically, I think Treasury was staring at Congress and making policy instead of looking at the region and thinking about what was actually happening and what outcomes we wanted, which, by the way, is exactly what happened with the U.S. response in the 1997 financial crisis. So two strikes, two is the baseball metaphors. Maybe next time we'll get a little smarter. I think we can do one more and I'm going to look to the wings since I haven't called on our flanks yet. OK, back to the middle. Steve Winters, independent researcher. I'd like to direct this to Director Zhang. To what extent does China view the road and belt initiative as consistent with or an extension of the so-called hub and spoke model, where China is the factory floor of the world and so many of the supply chains sort of move up to China for the final thing? Because if I look at the transit and economic corridor that's proposed through Pakistan, which is really amazingly exciting, it also sort of looks like another spoke or could function as another spoke. Definitely. The first thing I'd like to say that the Belt and Road Initiative maybe will last for a few decades. Yeah, this is a long-term initiative because if you look at in Pakistan, in India, they have a huge population, but they are per capita GDP very low. And there is a very huge space for development in the future. Regarding the corridors, not except China, Pakistan, economic corridors, we also have another five corridors within China, Mongolia, Russia, and from China to Central Asia and from China to Southeast Asia. Yeah, something like that. Everyone is complicated and tough mission. And in that process, you know that any international cooperation will be welcomed, such as ADB, and such as World Bank, such as other international financial development agencies will be welcomed. We can work together. Otherwise, we know that. We are very clear. Only by China itself, we cannot finish. We cannot do this type of job. Of course, I'd like to mention one point that is, you know, faced with TPP two years ago. Here, I just talking about a lot of Chinese people regarded the TPP as a conspiracy made by the US, you know, faced with China's rising against China's rising. At that time, I criticized this point. I said that the US is not smart because, you know, that US is not the member of P4. If you are the member of P4, that means you are very smart. But you very regret you didn't produce this type of good idea. But this time for AIIB issues, I also think that US is not so smart compared with the EU. I hope that maybe after a few years, you could be smarter a little bit. Thank you. Our stupidity will be our salvation. On that note, thank you. This is a great panel. A lot of rich.