 Good morning. We're going to begin now. My name is Steve Levine. I'm a Schwartz fellow here at the New America foundation today We're doing a future tense event called arms race versus relay race Future tense just to start out future tense is a partnership between New America slate magazine and Arizona State University it explores emerging technologies and how they may transform society and public policy the China event that we're looking at today falls squarely Against the backdrop of the financial crisis when the financial crisis hit a few years ago China came in very very large and continued to be a juggernaut, but it also rose much more rapidly and much larger than many of us expected and larger than it expected and Fears rose around it was China going to come dominate the world Was the West declining? more recently we've We've heard about a new narrative and that's that the latest Pings of the financial crisis have struck China itself its growth has shrunk and and What we hear now is China may never come to dominate the World it has too many structural flaws That it has to deal with and so we may never see that Through all of this the fixed feature has been Chinese Innovation the question of whether China is going to become as it has been a Manufacturing juggernaut and innovation juggernaut. Is it going to become a bigger inventor and a predominant in inventor in the world and then the Converse question does it really matter whether that happens isn't incremental Innovation so-called process innovation in enough can't China continue to be a gigantic player and eventually Predominant player in the world just because it's ingenious at manufacturing at Tinkering in the lab and then the final question. Does it really matter? Can't we all just get along? So we're going to we're going to be exploring these questions today And we we have a fantastic group of panelists to look at that housekeeping matters this event is being live-streamed on The internet everything you say that you might say during the question and answer period Will be live-streamed so everything here is on the record. Please Switch off your Cell phones, please if you're on Twitter, you can join the conversation using the hashtag FT China for future tense China so we're going to start out with a 10-minute Presentation by one of our presenters today. His name is Yasheng Huang Yasheng is a professor of political economy and international management at the Sloan School of Management at MIT He wrote the book Capitalism and Chinese characteristics Entrepreneurship and the state it was selected as a book of the year by the economist in 2008 Yasheng founded MIT's China lab with which helps Entrepreneurs in China improve business management Yasheng. I Just realized I'm the only person with a PowerPoint presentation, so I apologize for that Thank you very much Steve my Topic is on knowledge production I'll be happy to have a discussion about the implications with the United States in the Q&A in a panel discussion, but my my own presentation is not going to be About that and let me just point out that this is ongoing work I'm doing with my colleagues at MIT Sloan School of Fiona Moray and Kenny Qing if you think about Innovation and economic development as a sort of a supply chain at the top of the chain there's the research university research and then patenting right some of the research spills into patents from their commercialization and then product development and marketing and all of that my presentation is at the sort of the first tier of that process university research I Won't say much about how much of that has been translated into products and patents if we draw the experience from MIT Fixed on my own institution. There's a study that shows that If you tabulate the sales the value added of all the companies founded by MIT professors, alumni, students and including the companies in which MIT has made investments. As of 2008 the value added of all these companies is equivalent to the 11th largest economy in the world Which is South Korea? South Korea is the 11th largest economy in the world So university research if you do it right if you do it right if it has complimentary Conditions can have a huge impact on the economy in a way for example MIT has in a way probably Stanford has I'm not sure China is there, but there there are potentials for that development Let me just because I only have ten minutes or the slides. They are about 19 slides So I'm going to go through some of these slides relatively quickly Let me just mention that China has has had Historically a very strong commitment to science and technology Starting from 1978 and there are different milestones of that commitment In terms of the R&D expenditure as a percentage share of the GDP And this is a sort of a common measure of a country's resource allocation to to science and technology In for many many years China's ratio stayed at 1% less than 1% But in the more recent years it has risen to you know 1.7% GDP in 2009 and last year I think it has reached a 2% So what does 2% mean 2% basically means that you are spending Roughly at the OECD level, right? These are OECD is basically Developed economies US, Japan, Europe and so there you are seeing the level between 2 and 3% So there's there's for for a country at a Still fairly low per capita GDP All right, China's GDP per capita is only about six thousand dollars using the PPP exchange rate As compared with almost 50,000 in the United States. So at a fraction of the US GDP China is spending quite a lot of money on R&D and that shows the policy and political commitments The issue here is what does the country get from this huge investments in R&D? If you look at other measures the number of college graduates in 2011 6.6 million massive increase in 1999 only 1.5 million lot of PhD students and master students And China has had a history of scientific achievements right even before the recent Increase of Investments in science and technology it is the only developing country that has participated in the human genome project And first the developing country to have a manned space program In terms of the publication scientific publications now It's ranked second in engineering publications the data a little bit old from 2005 and Probably the ranking has has increased in the more recent years and we have number of us have assembled a database on Chinese Scientific publications. So these are not you know Journalistic public these appear reviewed scientific publications Published papers published by Chinese scientists You see massive increase In the last ten years. So this is this is the the graph showing the number of the publications and As you can see that the huge increase started in the late 1990s and Now China is publishing over a hundred thousand papers a year in in what is known as SCI Indexed journals science scientific science Citation index journals. This basically the those journals that are viewed as Having high impact Let me skip some of these because I want to get There are definitely achievements, but there are also challenges and Problems one issue has to do with the quality vis-a-vis quantity of Chinese scientific publications and the Chinese educational system emphasizes road memorization and And there are problems with China is graduating all these college students, but the employment rate is is low so there's a issue of Whether or not there's a match between what the Chinese educational system is producing and what the Chinese economy is demanding and There's even corruption among academics and professors can be corrupt I have no idea how professors can be corrupt. So I need to learn How how it is done and they're cheating. So there are also some problems with the Chinese scientific educational institutions So so it's a mixed record. There are achievements. There are also problems The issue for us is we need to think about the net impact of These Developments for example if you look at the number of the publications China now is ranked second relative to the United States in terms of the number But if you Judge the impact of Chinese publications in terms of citation and all of that it's only ranked ninth Among countries in the world So and let me just point to one feature of this graph, which is that this is a measure called journal impact factor and The higher you go the more Impact the particular paper has right so it's really not the number of publications that matters It's really the impact What is amazing is that if you see many of these fields, this is divided by fields chemistry computer science Lot of the fields are actually pretty flat So you have this huge increase in terms of the number of the publications But in terms of the impact that has made remain quite stable over time except in life science and Biology and What is very interesting there is that in life science and biology It is the high impact is probably a completely a function of international collaborations and so this is a key difference between China and some people Now compare China with Soviet Union Soviet Union in the 1960s and 70s also had basic research but one key difference is that China is achieving some of this scientific accomplishments by Engaging deeply in international collaborations. We have looked at by biology and life science It's called nature X so the the the papers published in Nature magazine and it's Affiliated the magazines 80% of the Chinese publications there are done through International collaboration so I think this is a key so Steve frame the issue of sort of competition arms race But I think there is a collaborative Component to the relationship between China and the rest of the world that we should really emphasize Let me let me just with maybe two more slides to To demonstrate that that the problems They are problems with the Chinese R&D, but they are also Potentials one huge problem is that in the West we think about Universities as a Republic of science right so Freedom autonomy openness collaboration peer review in China basically is Republic of government government officials party secretaries University presidents the deans, you know, I US University as Dennis may disagree because he's a university official in the US University Officials deans and president they don't really matter that much I mean, it's really the professors and so but in China it's quite well except Dennis and And Well, then the matter in the in the sort of fundraising But they don't matter in a control way right whereas in China. It's it's there's very top control System even in the university system. My own view is that this is not a system conducive to breakthrough Development despite the fact that they have achieved quite a bit with whatever system that they have This is a cartoon showing this is another problem in the Chinese educational system, which is pursuit of money You can publish and then you get paid by the number of papers you publish right so this is a scientist Youngish looking scientist the scale is money and He's holding the papers that he has published so I think that's a that's a that's a problem because It is incentivizing short-term research repetitive research rather than Rather than truly Innovative research so let me just end by saying that that as China wants to move toward innovation and True technology true science the system has to change there has to be more freedom there has to be more protection of Intellectual property rights all this discussion about how unique China is and How successful the China model is how different it is from the West? I think all of that will go away when China needs to move toward an innovation Driven economy China has a lot of leeway now because it is basically catching up with the with the with the West Once the gap between China and the West is closing its narrow It has to adopt it has no choice, but who adopt a system that I think many people in this room are familiar with Whether or not it has to completely adopt the Western system. That's a separate Issue, but I think the larger point is that it has to move toward that system. Thank you very much That was a very good talk Thank you very much. Yes, sheng. We're gonna bring you up when we have the Q&A We're gonna move so let me introduce our panelists. So starting Right here to my right if a son is a professor of geography at California State University Northridge. I grew up one block really this university nice studying economic geography in China particularly in Analogical innovation and urban regional economic development. He edited the book global R&D in China Okay, all right, then we have We have Dennis Simon. He's the vice provost for international strategic initiatives and Professor of global studies at Arizona State University He previously worked in business consulting in China Serving as director of the China strategy group and general manager of Anderson Consulting China practice He's the co-author most recently of China's emerging technological edge assessing the role of high-end talent and Finally, we have Adam Siegel at the end He's a senior fellow at the Council on Foreign Relations specializing in technology and development in China and India He's the author of advantage how American innovation can overcome the Asian challenge It argues that the US can preserve its position as an economic powerhouse by strengthening its politics social relations and institutions He he argues that that Americans Software as he calls it will prevail and Chinese software is an impediment to a truly innovative economy the first thing I want I want to start out by asking I want to set a base of discussion and and that's that Is there even a reason to be having this discussion has the United States has the West? completely exaggerated this issue of an innovation and race with China as part of it of its concern about Rising Chinese juggernaut, Adam I think there has been a tendency to overstate where Chinese innovation is right now and what type of threat it faces now to us competitiveness but I think it's important to have the conversation because The issue isn't so much. I think is well Part of the issue is we'll try to become innovative but the other issue From the US perspective is what does the Chinese system look like is it going to be an open collaborative global system? Or is it going to be a more techno-nationalistic? mercantilist system and There's a debate in China about which of those systems best serves their purposes As Yasheng's presentation pointed out so much of the big breakthroughs have happened collaboratively But if you look at the policies on technology standards indigenous innovation IPR protection, there's a strong push towards these more techno-nationalistic arguments Okay, let me move to Dennis Follow-up to that question Yasheng framed the the question as the race Looking at this as a race is wrong. It's more we should look at our relationship as a collaborative one Do you agree with that? I Agree because in many ways do you think of the global problems that are out there in the world today? There probably is no global problem That's not going to require some kind of close intimate collaboration Between the United States and China in order to resolve that problem That means if you look at the evolution of our two systems increasingly the collaboration is happening at the faculty level at the researcher level and that even with all the Problems at the macro level in our bilateral relationship Science and technology cooperation continues to grow and expand every year So there is almost a natural force bringing the two countries together and that in many ways that we don't figure out How to leverage that and if we look at it a race rather than it's kind of a Plus-plus, you know win-win game I think that will end up having in ourselves faced with a self-fulfilling prophecy which will be China will become an adversarial player in the game rather than a collaborative one I wanted to just say to the degree that you would like to To address each other question each other feel free to do to do that one of the big questions that I've had looking at this issue is US labs US technology companies Science companies have moved into China IBM Microsoft Intel and Formed gigantic research labs. They employ local Scientists in these labs if China truly as as Yasheng has framed has made most of its breakthroughs in collaboration then then One one ought to see something going on in these labs I'm I'm wondering to to what degree are we seeing breakthroughs in those labs and What kind of innovations are they are they? Are they are they made by Chinese on their own are they collaboration? You ask me, right? Yes. Yes. Yeah. Thank you very much and I think It's kind of it's a trend who cannot deny it more and more Foreign or Western multinational corporations. They're moving their R&D into China And they're growing as it's not that denied a boy is a fact has been last for at least the decade and In terms of what they're doing China and I think there are two things maybe three things One is a basic research second is a productive benefit third is sales or service service basically so it's a marketing tool in terms of the level of Sophistication what they're doing are there any breakthroughs? No What essentially you say may people you know many of us here or in academic field thing when we think about a research You basically what that's super right? You're doing something big But you know you need to tell the subtle difference when I did the interview work on the project many years ago a few years And not many years ago and when I asked them why you guys start like a Microsoft? They did not start with a development lab in China IBM same thing. They started with the research. Why? Because research is a basic basket. It could put anything in it You could do nothing or you can do a lot research is just the slogan Okay to show hey, I'm doing something for you guys because Chinese government in the late 90s They start to realize that we cannot just Adop the market for technology strategy It doesn't work because foreign company won't do any substantial R&D work in China They seem to use the cheap labor and take advantage of the cheap The the regular environmental regulation those kind of things and make money and then leave so Chinese government say let's come over here Come here do something we're going to give you some good things So foreign company okay because in order to get get entry into the Chinese market The current Chinese government that you have to put some R&D here So the foreign company say okay, I would do some CC. I'm doing something research basic research You guys like a basic research, right? But it's nothing okay basically it's nothing and then gradually They found a wall we cannot just a show just to put up on the show We need to do something real because the Chinese market is growing We cannot deny that and the Chinese is like you also mentioned that the University in an education so the graduates do the engineering has been crazy crazy. Okay, so they have the talent with relatively good skill and Cheap relative to our cost here So why don't we do something good for the market even not just for the Chinese local market also for the global market? So it's you know, but you don't see big breakthroughs yet Maybe in the future. There's something in their pipeline, but I have not seen anything big from those labs So, you know most of the most the most of sophisticated stuff the research and development are still done Here in the United States talking about the Intel same thing We had the company we had the workshop many years ago We asked the director and R&D Intel research in engine and he did a presentation basically say what? Intel is different from other company. We're very conservative. We don't want to put the most advanced thing in China period Okay, Microsoft same thing. Okay, even now they have the largest facility outside United States in Beijing they call the Asian Research Institute they have development their research heavy engineering labs and They still not doing they're not breakthrough even in the media. They say oh, we have done this They that that try to make good face For who for the Chinese government? There are two things just to comment on one is that the Chinese government itself actually has mixed views about this There definitely is one contingent that believes that getting multinationals to move up the value chain Engaging in R&D that looks good It feeds into this drive to become an innovation economy But there is another group that seriously questions the value in the utility of of having these multinationals come and engage in sort of Enclave-like research that really doesn't spill over now If you go back and you look at the experience of places like Taiwan for example in the 70s and early 80s one of the advantages of having these R&D activities going on is the Career mobility so people will work for Microsoft people will work for Intel and then five years later They'll go out and they'll start their own companies and that was a very very powerful Inducement to the development of Taiwan's high-tech industries that same phenomenon is starting to happen The most famous individual is Kai Fuli You know who's now left the jobs at Intel and Microsoft and now become a leading technological entrepreneur He represents the vanguard of another a whole group of people that potentially could create that kind of capability But we must remember that even the Chinese government itself is uncertain about how much benefit They're really getting from these R&D operations at this point in time. Is the is the Chinese the Chinese government then is ambivalent about This dimension of the economy. What about this the whole matter the discussion we're having today about Innovation does it is there ambivalence that it's needed. There's no. Oh, there was absolutely no ambivalence whatsoever You know if you look at I mean one of the problems Chinese leaders faces that they have so many issues that they've got to confront But this transition to a knowledge economy is one of the highest imperatives It's it's an imperative because it it has to happen in order for China to Prevent it from having a long-term natural resource disaster a long-term environmental disaster and also having Tremendous amount of problems in terms of its future competitive position in the global economy There is no doubt that Chinese leaders recognize they can no longer sustain themselves as a cheap labor economy And they can no longer have that high degree of dependency on fossil fuel burning industries they can no longer have that high level of dependence on on Consuming large quantities of natural resources They've got to move away from an economic model that was built on their past success and start to Discover new sources of value creation in their economy if they don't do that They will find themselves at the bottom of the competitive Listing rather than somewhere near the top where they want and it's very clear by their hundredth anniversary, which is 2049 I mean they intend to have China as a one of the one or two top countries in the world in terms of innovation Capability and innovative performance. So this is not just a face question There are structural drivers that are pushing the Chinese economy in this direction Adam on the question of structural drivers. So a few years ago the China identified electric cars and batteries as an area in which it was going to make a technological leap This hasn't happened. And so the whole question of identifying in an area and being able you argue that the Structurally, there's a problem that China you suggest China cannot make this leap Under the current situation. Can you explain that sure? We've talked about all the strengths the Chinese system the strategic view the size of the market this increasing knowledge production But the argument that I make is that we've been overly focused on what I call the hardware of innovation right all of the inputs S&T spending Papers how many people we publish and we have focused less on the software Which is the social political and cultural understandings that help move an idea from the lab to the marketplace So then those are all of the other things that Yasheng mentioned intellectual property rights the ability for young scientists To choose their own projects as opposed to being told what they're going to focus on do they feel comfortable? criticizing their seniors Do they feel comfortable going off on wasting time on failing all these things that we see as a kind of more much more productive scientific Environment that the problem structurally is that right now this the state is so focused on innovation for all the reasons that Dennis mentioned plus the added feature of They don't want to be dependent on the West I think we have to we have to hammer that home is that they it's not that they only want to be Innovative they want to be they want to reduce dependence on the US and Japan and the EU for the technologies to make sure that they Can get out of this technology trap is that the government sets the incentives for the types of technologies? And we know that the Chinese government is no better than the US government in picking what technologies are going to succeed And so that you see those large failures in batteries much like the US has been having problems with solar panels and wind farms that you Just can't focus it from the from the top down The issue longer term is how do you build a platform for innovation? And those things are harder to do that that requires social and political change that's going to take time and I think Dennis is exactly right it's people like Kaifu Lee and the universities and in and faculty that are going to make those changes All right, but you know China is not going to innovate in the same way That the US has it's not going to do it in the same way that Europe has Why can't there be a collective form of genius a collective form of? Innovation I mean we definitely look I think in the US we tend to have a model of innovation That's based most recently on Silicon Valley, right? We think it's got to be universities and small startups and it's going to create the next big thing and That's not the only model right we know for example the Japanese model of much bigger firms Huge expenditures over decades right so the Japanese kept the same lab together in recession and growth And they made incremental change over time and maybe that Chinese SOEs when they start ramping up R&D spending which they're doing may adopt that model and they and there may be breakthroughs I think that the issue is when people say oh China is innovative or innovative We're not talking narrow sectors. We're talking about the entire system And that just doesn't seem to be in place No, I would make the argument that we have to look at where the discontinuities in the system are likely to occur So for example if you look at the array of state-owned enterprises that seem to dominate the economy Will they become the major sources of innovation? Or are we likely to see an entirely new industrial architecture emerge in China of which there are a series of firms that are just now Emerging that will provide the vanguard for this innovation now one argument would be well The state is over concentrating its resources and its attention on these state-owned enterprises with the expectation that they will become innovative Just two days ago for example the Chinese Academy of Sciences signed an agreement with a number of state-owned enterprises And in order to create this kind of almost a tight linkage to promote innovation inside the SOEs because it's sort of not not happening because of their quasi monopolistic position Over time one wonders is that going to be the genesis of innovation in China? Or are we likely to see a whole new series of companies begin to emerge for example all of these Returnees that are going back the young technological entrepreneurs who are under the 1,000 talent program and other kinds of programs like this It seems to me that these people are more likely to become this vanguard of technological entrepreneurship in China rather than the existing industrial organizations that continue to dominate the economy Particularly doing this first 30 years of the reform and opening up Adam was talking about the structure problem of the Chinese innovation system Which is somewhere to some extent I do agree there is a huge problem with the Chinese structure and which prevent creativity and Innovation but on the other hand I think we need to redefine some way we need to define innovation What is the innovation innovation means? Everyday we come up with iPod iPad or come up with some kind of nuclear weapon something like that if that means innovation or Something more incremental Data line which affects your data life Okay, so in China. I think Dennis mentioned there basically we we had a workshop last year We we think there are two modes of innovation Chinese is not the innovation system Actually, there's there's a no way to characterize the Chinese Innovation there are ways of innovation Chinese a way not away So one is a state dominated sector that sector in my personal appearance does not have so much hope Oh, it's broadcasting to China now. Okay, second part and Dennis Mention is about the private or long-stated because the private and it's kind of weird term in China You don't the pride thing covered wider range of activities all kinds of firms So that's the most vibrant Part of the economy if you go to the firms you talk to the business Those people are very entrepreneurship very at the venture risk taking they're waiting to do anything They like to move forward innovation most of firms don't have Innovations be honest with you even in the most important sector like information technology communication technology the industry They're not much but their pockets their pockets of excellence. They're firms who are doing excellent job Huawei Zhongxin it ZTE you learn about right? It's in the big hot spot now They're in the trouble. Okay, but also look at the return ease many many at the firm like in the ICT industry in the ICT design sector and also the fabrication sector you look at those firms Why there's something so many why you know how they're doing? I have to tell you many of them are many are very very successful Their strategy is not to compete with Apple. No, they're not competing with Microsoft They're not competing with Intel what they're doing is a tie to come up with a good enough project They look into iPod iPad. Oh, that's that's that's pretty good. Okay, but to price it. We cannot afford it What are we going to do? Lower the price come up with something Functionality there's no difference. Maybe just a subtle difference 90 percent 80 percent But it's a much much cheaper. How cheaper 50 percent Do you want it for the mess of Chinese market or for the majority of the world? That's a future because nobody not so many people can afford iPod iPad anyway This is a Time-tested model Japan Did it South Korea? What's what's wrong with this? What's why? Why does China have to become an innovative juggernaut? Why can't it just do this? It's a political question. It's a question of political desire China's a large continental economy It has global ambitions. It has had a history in which It's dependence on the West for everything from trade to technology has been a source of problems and difficulties And so just simply allowing itself to be in so-called also ran technologically is not something that's politically acceptable to the leadership So there was a book that's come out recently a run of the red Queen Which has basically talked precisely about this that China would be better off being an incremental innovator rather than a radical innovator and even if that was true in terms of the nature of Chinese capabilities the Reality is that it's unacceptable to the leadership the leadership itself sees China as becoming a major player in world science and technology Affairs and they are positioning the country in order to put to put themselves in that position So even if the reality you know if I was a consultant to the Chinese government And I said them no incremental innovation is the way you want to go. I probably would they would probably say well Thank you very much. We'll see you know we will see you again. All right. All right So China can get where it wants to go economically Based on tinkering so-called process innovation. However Politically speaking it's not acceptable. So the government is pushing for these gigantic leaps The structural impediments that you have that you three have described the cultural impediments Regulatory we're sitting in Washington They know that So why don't they just fix it? You mean a Chinese Chinese a Chinese leadership certainly knows before any of you guys knew it They know everything like the Because they are the insider right we know much less than president who or Premier willing knows Okay, and they have lots of people working for them. They have big sing tank. They know but to solve those problems Takes lots of lots of things Your courage Your political capital, okay, and even look at the current in China. It's not one party controls everything There's sacraments in the you Chinese own language. They have interested groups Which controls operation of the country even the leader? I Trust the president who I trust the premier to Win they do want to move the country forward. They know the political system has a problem, but how where to start There's lots of people you got the bull and the bull guy, right? And they try to surround them. Hey, don't do it. We're going to get you down first And then you end up with nothing so there's lots of concern just the president Obama He understand we need to move forward But how you got the capital heels are surrounding you say no, we don't want to move that direction The same thing is not the one person can choose everything So they know the problem, but they know also knows a solution But between the problem and the solution there is a huge gap and lots of hurdles and you need to figure out I mean if it's making an excellent point, it's right We're right in the middle of the succession struggle, which we don't have any idea how it's going to turn out We know that you know, basically everyone's going to be new and we know as if I was going to say it that the The next generation of leadership is going to be even more consensual than Wenjiabao and Hu Jintao Which means that the ability to force through difficult reforms is probably going to be decreased We we don't know for sure, but that's most likely So we the Chinese leadership is at this position where as Yasheng and other people have described that they have to make this shift to consumer-driven Economy they have to reign in the export-led model, but those are going to require difficult reforms of Increasing the size of the private market Shrinking the state market Reforming the financial system all these things that are they all know they have to do but how they're going to get there It's not an easy question that the 2006 mid to long-term science and technology plant Which lays out all these goals and is very very top-down and talks about indigenous innovation the second half of it is all no No, we need Property rights protection. We need to have small startups. We need to have better university industry collaboration So yes, they know all of this right? They've been to Silicon Valley probably more times than any of us right? They know that model But politically it's just not you know We have this vision that the Chinese can just snap their fingers and get there That's just not happening any longer. It's gonna get harder as they go forward So just this past July there was a major national science and technology and innovation conference It's held over two or three days all of the major leaders spoke but that conference was just the tip of a Process over the last 12 months at least in which Hu Jintao and Jabao and various other leaders have made Extremely critical speeches about the lack of performance of the innovation system more or less. They said we put money We've got enough people we bought a lot of new equipment and yet the performance is lagging when you look at even the indicators Whether Yasheng pointed to patents or citations the record looks very impressive But the reality on the ground in terms of commercial technologies just isn't there So the leadership has basically now tried to crack down one of the things that there are trying to do is emphasize more On small to medium enterprises as the source of innovative ideas innovative thinking again That's where these returnees become very very important in the business as they start But they're also trying to push the locus of innovation activities from the top down to the local level So you you started to see this year for example the Local government share of the expenditures on R&D actually exceeding that of the central government So if it was something like 51 52 to 49, you know just a little bit of a change But enough of a change to mean that more and more of the activity that's going to go on is Going to be supported and driven at the local level where the innovative activity actually takes place That is a systemic change because there's been too much power too much influence too much concentration in the Ministry of Science and Technology And there was even a proposal Running around through the through the rumor mill that this that the Ministry of Science and Technology should be abolished and That its function should be divided up between the Ministry of Industry and Information Technology and the Ministry of Education That probably wasn't practical But the fact that it this kind of radical idea even was broached and made its rounds through the rumor mill suggests that Radical radical thinking about how to fix this system is even going is making its way into the policymaking circles So that's a good sign. It's a good sign actually so It's good for China. It's good for Chinese if it if they do if it does make this jump you get this new age in 2049 as Dennis suggested Does it matter to the rest of the world? Should we? Yeah, why? Well, you've got a giant dragon over there in the wake and then you and some people would see as a positive sign Wow, we have a huge market now. You can't see so our stuff over there, right? But then For many others they see another world. That's a scary Dragon it has you know, we never see it before and we all you know, particularly in this country I think now there is it's in a panic mode my personal assessment Okay, it's alive. I know but you know because China's economy has been growing still growing at a pace like seven eight percent Even we call it very slow in Chinese standard. Okay, here. We're suffering. Okay, we're suffering So now we were used to be number one the one and the only one we had this former Soviet Union We beat it. It's gone. Now suddenly we got some guy like China. Okay, still under Communist Party's control and We are capitalism. We couldn't come but actually Chinese is more capitalist like you know, then in America I have to tell you we don't like socialism, right? But America is more socialist like than China and the Chinese government does not take care so many poor people We do here. So here's the question why we're in a panic In my judgment and the China's you know, it matters to the whole world to the United States And it will help to solve many problems on the one hand on the one hand on the other hand We're gonna have a strong competitor or collaborator. If we ignore it, that's not gonna work We won't be able to solve those big problem and then we may end up in bigger problem of ourself So we have to work together Do we this is a is a a an argument about race about the race Isn't it good for the United States of China grows really really big and innovative You know, I think it's it goes back to the point. I open with this It depends which system the Chinese build right and I think look we haven't even mentioned the claims about cyber espionage, right? If they're just stealing terabytes of data Then the issue is is that they are building a system. They're tilting the playing field in such a way that The growth of China doesn't is not a good thing for the United States, right? It attacks US competitiveness I mean, we have we have basically made a bet that We're going to build this global international system And we can all have this win-win situation that I agree with with Dennis that that is the goal But if the Chinese are basically exploiting that system Through cyber espionage through IPR theft through mercantilist policies, then then I think yeah, it's a clearly a threat It's clearly a risk to US competitiveness and it's one that the US has to respond to Mike Mike Lampden at the Nitsa schools written an interesting book about China He said that China can play one of three roles rule breaker rule maker rule taker So the question really is what are the terms and conditions upon which China's rise will occur And how will it play in the international system? So if it plays by the rules, you know and and again those rules were set You know as part of the Bretton Woods system and the post-war order that order now clearly has changed China now is going to shape the evolution of that system if we look at Chinese participation in the international standards Organizations the internet or health organizations environmental organizations, etc We now see a pronounced increase in Chinese presence in Chinese activism because China realizes that it must shape This new world order can no longer just simply sit in the back room You no longer sit on the side of the room, but now is really at the table actively Shaping in orchestrating how that that world were occur now clearly We're not going to have the the totality of power and influence that we once had to make those rules in Accordance with where we would like them to be But we'd also don't want China to be a disruptive force in terms of the international order to turn its on its on its head either So I think that we need to invite the Chinese into this system Have them feel comfortable that their benefits from playing by the rules or at least by the rulemaking processes And not engage in the kind of activities that Adam was referring to because those basically are destructive And whether it had a bilateral or multilateral level They're not going to win China a lot of friends and probably will preempt a great amount of the collaboration that could occur Because of the anxieties that that kind of behavior might create All right, so we should invite China into the room. We should have a civil discussion Not to steal our stuff Some wrist slapping here in the area, but but the discussion began with Collaboration and you are involved specifically in collaboration You guys have all talked down China's in inherent homegrown ability to contribute to to the innovative Superstructure and so I want you know, I shouldn't I care about my own country? Why should we collaborate with China? Why we should cooperate with China? I think it's good for China for sure because they're catching up Right, and you help them develop. That's one thing for sure Second, I think we have to recognize it's good for America here Americans benefit from collaboration with China like Dennis like me we're doing research, right? and we co-publish with our Chinese colleagues and What we do what we have is something here, but what we don't have is money and Also the labor What they have now the Chinese government you put lots of money into it The students are growing and they have time. They have money together We team up so in and both side benefit they learn the tricks how to publish how to do research American side we do we have the resource we tap into the Chinese source and Work on something bigger on our own simply it's impossible. That's the from my perspective academic Right from the industry the same thing and we work with China We work on the new next generation products technologies China, of course We'll have access to those technologies if we work with them if they work with us Okay, and American you know American companies they use Chinese sources as well the cheap relative cheap engineers a Scientist why not and we have in the world you improve our American companies Competitors in the whole world in the whole world, right? You say oh you're moving jobs to China I said no you may have jobs in China irony jobs in China But you need to think without those irony jobs in China where will US companies go? You want to go irony to the UK? You may but they don't have that many people if you don't do that other country other company Come from other country with good China and then they and American companies will you know We'll be in big trouble because we'll lose the competitiveness. So you know and American companies benefit from those kind of Activity and the American taxpayers American cities benefit from that because American company they're making money Well, we need to require them to pay us back. We seem to let them go. Oh keep money in your pocket Well, that's our own institutional problem, right? So I think both are aside and it's gonna be good for the world because US China those two big economy If they work together, they're gonna solve some big problems together for the human beings Not just for Chinese not just for Americans. It's for the all the human being. So that's my But Dennis I want the United States to be the biggest and the best why why should we do that? Well, because I think that in many ways that we look at the emerging technologies So for example, let's take clean energy So now there was a bilateral consortium between the United States and China to develop clean energy technologies in three areas clean buildings clean coal and electric cars and We negotiated over a 12 to 18 month period all the intellectual property Requirements to ensure that nobody was going to get an unfair advantage and that everyone's interest would be protected That was the most difficult negotiation in part of the bilateral relationship among many that we've had But we finally came to closure we reached that agreement and now we've set off a number of teams working together Collaboratively, I think you have to be careful not to isolate just this in terms of bilateral terms You have to look at the global innovation system as a whole innovation as a process is becoming more transborder More cross-cultural and more cross functional So it means that the research and new knowledge creation today is no longer the product of a kind of loan ranger phenomenon It's the product of collaborative networks that include researchers and scientists from all different domains You can look at US universities Professors get their salaries maybe at their university where they're physically, you know supposed to be located But really the successful scientists today are people who are really engaged and embedded in these groups all over the world And they're part of research teams where money resources knowledge are created Irrespective of time and place and so in many ways this is not just a dream anymore This is the reality of how things work. You look at the best universities You look at the best faculty if your faculty is sitting in their office 24 hours a day seven days a week They're doing something wrong They really need to be globally engaged and if they're not globally engaged what the Chinese are doing is they're sending their people all over the world They're expanding the engagements and level of interaction at the university level at the think tank level In a couple of weeks the Chinese Academy of Sciences for the 50 year will send a delegation to the United States of Senior Institute directors from their best institutes. They will be 25 or 30 of them They will go all around the United States. They'll spend time in Arizona. They'll be in Washington. They'll be in New York They're trying to gauge. Where's the state of the art? Whereas research processes going what are the new issues on the agenda in terms of potential collaborative arrangements with the United States? They'll take that back and they'll reformulate their strategies and thinking about how they're going to re-engage with the world One of the things that has to be clear is that despite all of this talk about indigenous innovation China has not retreated one step from engaging in the global economy in the global innovation system Every Chinese leader has made it clear that China's future success is dependent not only what they do domestically But just as much of what they do in terms of their international collaborative activity I mean, I think Dennis and Eve has hit the three main points The first is there's more science being done in China and and some of it's getting very good Yeah, she'll mention life science biology. I think you could also mention nanotechnology right there That's another area where they've really Did some big breakthroughs. We don't want to miss those breakthroughs, right? So that means you have to have American universities. You have to have to have to American companies there The second is as Dennis mentioned any any global problem is going to need a global solution And in particular you're going to need countries like China, India and Brazil to drive the price down Through large-scale manufacturing, right? We saw that we see this in the environmental technologies, right? What is China's role been is to bring solar panels prices down so they become almost economically viable for for those solutions going to be same true for For drugs and other kind of these other global problems The third is and you know here I'm less sure of myself, but we are as There is still a socialization process of China going on in China, right? So that we will all mention this this debate about how what is the best innovation system look like, right? Is it more open or is it more focused on China and I the collaboration I think reinforces Chinese views that yes, they can benefit they can gain from this system And that it's not stacked against them I am beginning to lose patience with that argument I mean that I've been making that argument for 20 years now, but I'm beginning to wonder, you know, that How that's much mistrust between the students two sides is large and growing and that After a while, we may have to start using the stick more than the carrot But I think those are the three main reasons why we should why why collaboration is the right reason But we may be hedging more often Let's let's open this up a shank. Can I invite you up? Adam should I what should just stay here? Okay, if you have a question, please identify yourself and just Indicate who you're addressing the question to sir Please please wait for the microphone yet my name is Edward I'm working at the European Union and the question is open for everyone What do you anticipate the role of Europe will be in the relationship between the US and China going forward? I'm in the middle of finishing the book about China in the global innovation system Which actually a good part of it's devoted to the China EU relationship. I think it is a very interesting triangular Relationship emerging a kind of competitive dynamic The EU in my view is trying to wean China away from its excessive dependence on the United States and Also, I think the EU realizes that having access to China's Scientific and technical talent pool is a very big asset potentially to help boost and support a lot of the initiatives That are going on in Europe at this present time So I think the collaboration in some ways between the EU and China is much more in-depth much more Extensive than it is with the United States in a number of areas and it's starting to grow faster So while we're slowing down in some areas particularly in the bilateral government the government side Europe and China seem to be moving much much much faster, and I think a lot of this has to do with the EU itself pushing and Trying to drive that relationship doesn't mean that everything is going very well There are a number of problems issues IPR issues are also very big with Europe as they are with the United States There are some legacies left over from in terms of arms sales issues that are also in the was standing in the way And then there was just some of the political issues that have to do with human rights and other kinds of things That affect that general relationship, but nonetheless. I think that Europe is in Moving much much more quickly and much more decidedly in seeing how to harness China's talent resources and intellectual resources in a way that we could actually learn from in some some situations Yeah, I think That your China's Innovation you know as Dennis mentioned even they have put up the slogan in dishes innovation This is a really really weird term to catarise the innovation. They want The people have some miss. I have to say people have some misunderstandings on this term When people look at this from all you want to lock you up You don't want you got to kick out kick us out. You don't need us anymore. Is that what I mean? No, no Dennis organized a workshop many years ago after the 2006 the minister of the Minister of the Ministry of Science Technology people ask what they meet the indigenous innovation What he's his answer was I still remember he said indigenous you know means innovation period Innovation why they want to put indigenous? It's a political term to piece the domestic some fragments of people We want our own technology right everybody wants that so that's a misunderstanding and then Europe is as Dennis We used to playing a significant rule in the US China relationship or maybe in Chinese innovation We just leave us aside for the time being Chinese system is open. It's not close It's not just open to the United States. It's open to everyone Okay, Europe particularly is very important look at the foreign companies already in China Germany the German companies are very active very very active in China Okay, they're doing something really big maybe bigger than what our company is doing in China and then putting to the question The China US relationship. I think Europe definitely China will try to use Europe as a leverage Hey, do you want to work with us? If you don't okay, we're gonna work with German What's the France company a French company right? So you definitely is playing a significant role in this process Next sir Hi, I'm Brian Fong. I'm a writer at the Atlantic and my question is for the entire panel In the past couple weeks. We've seen sort of protectionist and defensive Sentiments pick up in the United States toward China I'm just wondering whether you see that as more of a temporary hiccup or as sort of a sign That of the limits of economic cooperation between the two countries. I Think you probably have to differentiate. I think There's the there's the campaign rhetoric which I'm assuming is just Cyclical right that it's driven by the elections And that whoever wins is unlikely to dramatically change our economic relationship with China I think Huawei and the wind farm issue is not I think that's that's structural And the security side of that relationship the security side of the economic relationship is not going anywhere And it's going to continue to be difficult And we'll continue to to bounce along I think there's clearly a political component to the rhetoric Maybe the level of the rhetoric is a function of politics, but the issues are real issues, right? so the exchange rate issues the imbalance of the trade and things like that IP protection I Think you know leaving the politics aside I think there's a way to address these issues in a productive way, and there's a way to address these issues in an unproductive way and Either for political reasons or for ideological reasons, you know, there are people in this country who have an explicit agenda to to taint these fairly technical issues with Very very harmful rhetoric On my first day I'm going to declare China a currency manipulator. By the way my own Preferences not to see him as a that first day Quite a part from China and the the problem with that view is You know the exchange rate definitely is an issue But the thing is the exchange rate is really not driving the fundamental issues the imbalances between China and the United States China has a high savings rate US has a low savings rate They are struck. I actually think that the trade issues are structural rather than cyclical They just it's built in that In that in that in that structure if you consume a lot You don't save a lot. You have to borrow and the trade deficit is a way of borrowing from the rest of the world If you don't borrow from China, then you have to borrow from somebody else Right. So so the issue is really not about trade deficit per se The issue is really about this domestic imbalances between China Within the United States and also they are domestic imbalances within China, too The country is investing too much. The country is not consuming Enough so if you frame the discussion is that way there are people on both sides of the of the There are people in both countries who can have a very meaningful dialogue about how to solve these imbalances So I think it's really really not very helpful to have the kind of rhetoric that we hear from From some politicians in this country, you know, they have their own political agenda But to be that specific on my first day I'll do this and that Usually, you know campaign rhetoric is framed deliberately vaguely right to give you some room I mean, how do what do you do on the first day of the office? I thought on the first day of there are lots of other things you have to go to a Party and you know a ball and he has a time on the first day to declare China as a currency This is just just unbelievable bad Dennis yeah, I think also we want to look at something that's very very important We tended to see China coming out of the 2008 Olympics as much more assertive much more aggressive Much more self-confident and with that we sort of started to attribute to the rise of China a kind of an aggressiveness That in fact may not have been the full picture I think one of the things the US leadership has to understand whether it's a Romney administration or the next Obama administration is that there's also a deep-seated anxiety that runs through the leadership in China as well And that anxiety drives a lot of Chinese behavior It may drive the cyber threats that we're getting it may drive Chinese anxiety of making sure that their innovation economy is successful before fear of falling behind There's a lot of anxiety about being able to solve many of the domestic problems Including the potential for rural instability in China which grows every day The environmental problems in those of I'm a Chinese leader I have a heck of an agenda that I have to deal with on a day-in day-out basis And I'm not really sure I can get my arms around it the the data coming out about Domestic instability in China now is just going through the roof I mean it's it's grown tremendously over the last last couple of years So I think we want to be careful as we size up China and we deal with Chinese officials not to miss this element of Anxiety that is underlying a lot of that behavior and not just assume It's just a bunch of cocky behavior with China pushing at the edge I think there's a certain amount of Uncertainty on uneasiness and if we don't take that into account We're going to make a miscalculation and when we look at Chinese behavior. Let's let's move to the next This gentleman right here. Hello, I'm Derek Hill from the National Science Foundation I'm curious to hear your views on China's interest and the sort of status of its Collaboration with other Asian countries in innovation for example, you know China is the assembly point for High-tech manufactured manufactured products. Many of the components are supplied by countries like South Korea You have some manufacturing migrating to Vietnam where the labor is cheaper and so Is China's interest mainly collaborating with the US or What's the potential for a sort of Asian-centered collaboration network for innovation? Yeah, I Think at this point As a human being as an individual we always look to the leaders, right? We always want to work with Dennis like me. I want to work with Dennis because he's more senior. He got the experience He's very successful. I mean, yeah, I'm junior. So I have to learn from that's why Dennis helped me So if we understand that a psychology at the individual level and then we can understand at the collective level as well For Chinese as a garment as a nation. Where do they look to? They want to learn from the best so where are the best United States, Europe, Japan, maybe, right? You say oh, are there we need to work with the nearby the similar like the little brothers? Not now. Okay. My I said it's not now. They may work on some Issues about the resources and about the security issues But in terms of innovation not there yet only when China becomes a leader when the little brother look to China Well, you're big. We need to learn from you Okay, like you as I assume the rule now and then I guess that time is mature for that kind of collaboration for China Work with the little brothers, but not now. I've actually heard something slightly different that there's been a push on science diplomacy in particular a Lot of it seems to be strategically motivated So focused on Central Asia and water issues and some other other things and Mongolia as well So I think there has been a beginning to think about it science diplomacy the way we we think about it in the State Department kind of sense I've also I mean I know that certainly in the mid part of the last decade the Koreans were completely freaked out about the rise of China As a science technology power and they move very aggressively to kind of collaborate at the at the Government Research Institute level and of course, you know Samsung and LG are huge presences In China, so I think the Chinese are beginning to to shift that and focus out. They are huge production collaborations among Asian countries between China and Korea and Japan despite the Japanese Protest and all of that the the biggest supplier to Apple iPhone It's a Japanese company the second biggest consist of number of Korean companies the third biggest consist of Taiwanese suppliers the indigenous Chinese companies account for like 0.001% of the iPhone Value value added there was a professor at UC San Diego maybe Yeah, so who actually took out the iPhone and actually physically examined it so it's it's very it's it's it's kind of related to the question you asked about You were that United States going after China on trade deficit to some extent China. We have a accounting system international trade accounting system that is very old that is not accurately Reflecting how the global production arrangements are today. It was devised in 19th century 18th century When the production the nationality of production was super clear now It's not very very clear. So a lot of the trade deficits that China incurs a result of the production Facilities moving from the rest of Asia to China as China is beginning to move some of these operations out of Vietnam You're gonna see the migration of the trade deficit from From China to Vietnam, maybe not a big enough Migration to make a difference on the bilateral relationship between China in the United States We also see in our by the way national science. I'm reviewing the proposals for for you guys And we are also going to submit a proposal so I want to get your business card after this and And and the yeah, this is the diplomacy and and the and not so subtle and We we also see in our data set at us as Adam pointed out Some collaboration between Chinese scientists and other Asian Scientists, I really think collaboration is the theme And and and both between United States and China as well as among Asian This is the best way to go forward and we need to build a dialogue on that basis This to give you one very good example some very interesting collaboration going on between Japan Korea and China on the areas of Standards now software input standards for for a character Input systems for computers and other kinds of related standards like that now That's very interesting because that has potentially broad implications one of the things that we've assumed is that the Establishment of international technical standards has been a fairly a smooth process But now if we would begin to get something called an Asian standard for example or standards coming out of countries That are different than the interests of the United States and Europe for example We could have some very interesting developments in that whole area that could affect the competitive landscape for a long term So a lot of people are not paying very close attention to this They think it's sort of a trite example of sort of quiet S&T diplomacy but I would argue that as Asia begins to become more integrated and As China becomes much more of a standard setter itself that we can begin to see the emergence of Alternative locus of things like standard settings emerge over the future So these are the kinds of issues I think that we want to have on our radar to keep our lookout for and to be able to monitor So we understand what directions China is taking the regional system in to what extent other countries are going to follow and to What extent the United States is going to be that chief designer that it was over the last 30 40 years Or to what extent we're going to have to give way to a much more collaborative regime to do those kinds of things Scott Tong with marketplace public radio I have a win in a what question for you Recently back from China and I know you've all heard that the badge overuse joke that R&D there stands for receive and duplicate When does the catch-up end in other words When China has to move on from the good enough model selling three thousand dollar cars to Emerging economies and they hit the technology frontier. Maybe when the race actually starts The other question is what about the financial system? Do you think that's a problem to take ideas across the valley to market? You are asking a really tough question just like last night's vice president debate The as well are we going to hit the 6% unemployment rate? Nobody has a good answer They both were very big very very visible on that question. So when China is going to hit That mark you mentioned nobody knows present who doesn't know premier one doesn't know I don't think anybody here knows when they set the date of 2049 That's 100 years of China and is that going to be the date? We don't know we need to leave and see if we leave longer enough to see that happen Second question, what was the second question connecting ideas to capital? I think There's potential they're working on it as Dennis mentioned they start like the Copycat of Nasdaq this year and it's lots of small You know lots of small company innovative company. They're in the market now. Yeah, they're working But the dominant state-owned banks are the dominant will be the dominant force for a number of years The only thing they can change is to make sure those are the state-owned banks. They may have more autonomy Don't just support the big, you know, the SOEs they can provide money to the small and immediate enterprise as well I think it's a little bit You know, I I think China's Scientific research has a lot of issues, but I think it's not fair to say it's all duplication. It's all Just just just that I mean the the simple fact Dennis gave one answer why China wants to do science and technology The political imperative I agree with that, but it's also true that this is a country that has a very deep History of Scientific and technological capabilities, right? So the invention is all of that even in the more recent decades even during the cultural evolution There was you know quite a bit of science that was going on So in the 1930s China had some of the quite good universities in Asia So we're not really talking about a country that came from nowhere This is a country that has a history really matters and a capability really really matters So the issue here is whether or not you have the policy Platform an institutional platform to translate the capabilities into the actual achievements I think that translation is not perfect given the Talk about the financial given the other you know top-down control and all of that I would argue that if they relax the political controls and by the way China did experiment with University reforms in the 1980s giving the faculty, you know more Control over their research agenda all of that was changed in the 1990s. Now you have very centralized System that's really really So they put in a lot of money they get something, you know, it's not like they get nothing they get something I would say that the Ratio will be higher if they change to a different system And I would argue that the Chinese leaders have the objective of science and technology But I don't think they really in their heart know that the delivery mechanism is actually freedom It's really democracy is transparency. It is peer review It is lack of political control rather than they they think about this issue as a function of resource commitments And they have given the system a lot of resources But it's a necessary condition in this country. We have National Science Foundation The resource commitment is very very important But you need to you need to have the whole system including the financial system the financial system now is if you look at the R&D composition 5% only 5% is devoted to basic research. Maybe the recent figure has changed a little bit higher right, so it's it's not actually that high and But on the other hand the budget has increased dramatically so the absolute amount is is increasing dramatically as well and A lot of that control is with the president of the University Ministry of Science and Technology I have also heard the argument that they should abolish the Ministry of Science and Technology I don't know whether that will be a good thing, but but I think that that's the right discussion to have It's really thinking about the system Rather than thinking narrowly about resource commitment I would argue that in terms of commercialization China has a lot of private equity. Bank capital has done very well in China But that's in the private equity space Not in the venture capital space, which is an earlier stage and venture capital space is is yet to develop At Leakey-Fu those people are trying to do something about it Because massive amount of that kind of investment is in the later stage rather than in the early stage Would you like to see? Yeah, there's a quick comment I think one of the big dilemmas that they're facing as they try to answer that question really is that they look at this medium and long term plan For example, which is to define the landscape to 2020 So they're asking a really fundamental question. Is the problem one of simple implementation that we get different people in here We you know tinker with some organizations or again Is there really a major structural impediment in the way the system is configured and this national conference that they held in July Began to get at some of those issues is to begin to attack the basic fundamental Problem of the system which they have attributed to both Hongguan You know macro level and we go on at the at the local level and they've got to fix both those kinds of problems Because what's happening is that the system is not meshing together They've got orchestration at the top with inputs, but implementation at the bottom level is not very effective So if you get both of those working correctly, it's not a question of if China will become innovative I think it's it will be when and it's not in a question. Will China become innovative But maybe biotech will move faster than nanotech. Maybe chemistry will move faster than something else You know, we will see a very disynchronous set of Developments in China and a lot of this again will have to do with this collaborative model I think that will help drive some of those sectors faster than others Okay, we have time for two more questions Thank you. I'm Audrey winter. I'm a deputy assistant US trade representative for China I'm really a student of US law and a student of EU law And China is relatively new to me and one of the things that motivates my thinking when I think about the importance of the collaboration most of you are Stating should be the basis for this ongoing relationship with China what I see that lacks is a Confidence in the in the amount of state capitalism that exists in China and the level of that Compared to the US and the EU and when I think of it as a lawyer. I think of it in terms of our Constitution and the Very big footprint it gave to the Supreme Court and to the Congress to make sure that the states didn't get in the way of Competition there are thousands of Supreme Court cases that made sure of that and open the markets to the US players and all International players the EU 200 years roughly later created a similar system giving power to a court across now from six to 27 member states That has to be respected to reduce the role of government in the market and in the lives of people And what I see in the Chinese system kind of lacks that and I wonder if Some stronger force needs to be advocated in China in order for all of us to truly enjoy This collaboration that everyone wants because we all want peace in the world In a in a more equalized way, and I think the WTO rules have been Shown to be somewhat deficient in this capacity if we had the rules that we created in 1947 that never came to pass and died on the on the on the bed of Post-war concern about communism, you know Can we look back to that as a way to get where we could have gone and is there value in that in terms of both? Reducing frictions economic frictions, but also political frictions. Thank you So there's no question Yeah, I'm asking if you if you actually see this need for an additional force to remove some of the state Capitalism or the authoritarian recently called capitalism in China in order to give this collaboration a chance to really grow Systemically internationally and what would that force be? The comments on that I think This is a huge question. I was engaged in a discussion was in a with a P yesterday and My think on this is if you say to if you tell the Chinese leadership say get out of the way of the Economy that's mission impossible. I want to be frank to you. Okay. I'm not speaking on behalf of the president of the premier Okay, but I know they're hard. Okay, if you say don't take it Put your hands into the economic and those kind of issues or trade issues as mission impossible because the Communist Party's essential tasks are If you read their documents is to grow the economy That's the whole party's job Okay, they talk about all kind of reformed everything for what economy economy economy now you say move your hands away from economy That's mission impossible. So so I think if they say it is impossible. So should we stop working with them? The answer is no, we still need to work with them. How I think we just need we still need to adjust our own Mantanity we seem to kind of develop our like a Panic and like a sense of those kinds of sense of all communism monster We have that kind of sense in this in this country. Okay, communism or socialism monster, too, right? Those two are monster. We cannot touch it. We cannot talk to them I would say look go to China take a look at what comedy is how it works at the human beings They're not monsters. They don't have two, you know, four legs and the four hand stuff They're human beings. Okay as a human being level at the individual level You can have a really friendly cooperative discussion Once that happened if you trust now the problem between those two be honest with you I think from my judgment China US Russia Japan in the long term, they will be Competitors for sure. Okay for sure. They will be competitors. There will be competitions. The only question we don't want to be enemies We don't want China US and the Japan become enemy. They fight against each other, right? And that's the worst scenario. They need to work with others So we need to make an adjustment to ourselves and then try to convince them Hey, there are better ways to do things don't just put everything to the state enterprises And that's not that's not too good to you. But if he's just to move your hands from the economy issue You know Audrey, I think there's some good news on horizon Well, one of the things about this recent scandal with the Boschi lie was a sense and and we just picked it up in Beijing There's a lot of discussion on the street about that one of the things that Boschi lie represented was in the sense Almost an anti-reform platform That is that the need to bring these reforms to the next level It seemed that Bo was part of a group of people who said maybe the reforms have gone too far And that maybe we need to actually step back from some of them And there's been that discussion kind of ekeying through the the policy level now over the last couple of Years in fact and I think the fact that he was not only squashed but really squashed so hard Really is it is a reflection of the fact that these reforms in fact are not going to stop and that under Xi Jinping I I can't tell you by any degree how fast we will go But I think that we're going to continue to move ahead and I think that bodes very very well But we do know that there is one stopping point one parameter And that is the power of this present regime and present leadership of the Chinese Communist Party That is a parameter that basically is not going to be easy to move off center And I think that we can see much more political change Without having to you know alter that position of the party we can see much more economic change clearly But I think that we've also got to recognize at the end of the day. There isn't a parameter I think that is not very movable now whether or not the need to become an innovative economy will force that question Even faster to the agenda and bring it to the top. I think that's starting to happen But I think that at least over the next four or five years that that's it's we're not going to see that move and shift that much in that direction I would I would actually put a much more negative spin on the boss you like Situation I think what it shows us in fact is that the situation is much the the system is much less institutionalized than we thought Much less rule-based than we thought And the fact that both he managed to amass this power and they managed to take away this power In such a non-transparent way You know trials, you know his gookie lot gookie lies trial taking a day And who knows how long what she lies hearing is going to last it such to suggest to me that in fact We're probably farther away than we were when we thought we were I Think I think I can agree with both Simon Because because I think I think there was a I I think what Simon said is it's also right Which is that they went after both you lie harder than we with the many of us expected and and so that But on the other hand, I don't think that signals a fundamental rethinking about the system But at least some of the practices that he adopted are thought about more negatively more critically than So it's not just a mere power struggle, right? So I think that level of a signal Is there but I think but I I Think I'm more optimistic about the political change in China I think there are two forces driving the the political change. Why is the aspirational? Goal of achieving science and technology excellence and and Dennis Talked about this conference where they actually began to talk about those issues But the bigger change is actually what's happening on the ground and there are a number of things there If they don't change the political system that Distributional conflicts are going to be so severe that you lose any political stability from fast economic growth Right, so the distribution of conflicts are already very severe And I actually challenge the view that growing GDP faster is a way to preserve political It's exactly the opposite growing GDP faster in the way. They do it exasperates conflicts exasperates distributional issues the other Change and this is kind of related to technology is is a social media It's really it's really really bringing about a huge Change in the way that Chinese think about some of these political issues and institutional issues Previously without the social media, there's a way for the top to communicate with the people In the on the street and there's a way for the people on the street to communicate to the top There's no horizontal communication, right? So social media changes that tremendously if Twitter in this country is bringing about some changes Michael blogging in China has brought about changes that are multiples of the changes in this country Let me give you a personal example I don't even go on to Michael blogging in China very often this year I've written maybe four or five Michael blocks and this is already October and I have 10000 followers and I don't know why it's it's just the it's it's an entirely different game, you know No, I don't have the kind of you overestimate the MIT is capacity It's really so and it's very interesting I think of myself as a liberal and the people who are who have More followers tend to be liberal intellectuals rather than the The conservative one, so there is a there's a social preference for Change right in a way. I mean that the way I define Chinese conservative is defending the status quo Liberals are advocating change, right? So there's definitely a preference there because the contrast is so sharp between the liberal followers and the conservative followers Okay, we have to wrap up. I want to do I want to end though with a quick lightning round One sentence the year is 2049 Do we hit 2049 do we have an Chinese innovation juggernaut if a I hope so I Think we'll have a Chinese Nobel Prize winner by then at least we have a Nobel Prize yesterday We had it already. Hey Pockets of excellence. Yeah, I agree. Okay. Thank you very much. Can we give our gratitude? Thanks