The Rebalance authors Mercy Kuo and Angie Tang regularly engage subject-matter experts, policy practitioners and strategic thinkers across the globe for their diverse insights into the U.S. rebalance to Asia. This conversation with Patrick Chovanec – Chief Strategist at Silvercrest Asset Management, frequent commentator on CNN, BBC, Voice of America, and Bloomberg, and contributor to Forbes, Foreign Policy, Al-Jazeera, among many others, and named one of the “102 Finance People You Have to Follow on Twitter” by Business Insider in 2014 – is the twelfth in “The Rebalance Insight Series”.
Has the U.S. rebalance to Asia been effective, and how do you see it evolving in under the next U.S. president?
People in the Asia-Pacific region hear the message about U.S. commitment, but they want to see the evidence. Can the U.S. deliver on TPP [Trans-Pacific Partnership], which it has made the centerpiece of its economic agenda in the region? Or does that get bogged down in Congress, because the president is unwilling to commit political capital to making it a priority? They hear the U.S. is focused on Asia, then they see Secretary of State [John] Kerry spending virtually all his time in the Middle East, and they have to wonder. Whether on security or economics, they want to know the U.S. is actually going to be there, and not cede the agenda to China. The next president will face the same test.
China’s establishment of the air defense identification zone, Asian Infrastructure Investment Bank, “One Belt, One Road,” and other initiatives reflects Beijing’s ambitions as a regional and global power. How would you describe Beijing’s strategic intent and assumptions behind these moves, and what are implications for Washington?
I think sometimes people get a bit over-awed by China’s assertiveness, without asking what constraints China faces, indeed what constraints might be driving its assertiveness. Some of the initiatives we’re seeing out of China are as reflective of its weaknesses, and the challenges China is facing, as of its strengths. Rather than the conventional view of China as an unstoppable juggernaut, the real risk I see is a China that is stumbling, and flailing around for ways, for instance, to fund overseas demand that will absorb its own industrial overcapacity, or compensate for a slowing economy with a show of military strength. I think the challenge for the U.S. is to lay out a proactive agenda that helps China address some of these concerns in ways that are stabilizing, and not destabilizing, for the prosperity and security of other countries.
What are the top three trends in China’s outbound direct investment that serve as indicators of target growth industries for Chinese investors?
Chinese companies have lots of money, but they face a very steep learning curve as they venture abroad, and this has shaped their investment strategy. Many try to stick with physical assets – natural resources or real estate – which they feel are more “secure.” In fact, what they often find is that the value of these assets can be anything but secure, especially when they are willing to pay top-dollar to acquire them. What Chinese companies really need to do is acquire assets – many of them intangible assets like brands and teams – that help them grow their business organically. Others may focus on opening doors to the Chinese market. These kinds of strategies take time and commitment, but they have a lot of potential to be win-win for everyone involved.
How would you assess the White House’s management of U.S.-China relations, and what key messages should U.S. President Barack Obama emphasize during Chinese President Xi Jinping’s state visit to the United States in September?
The toughest issue on the table, with the farthest-reaching implications, is cyber security. The United States and China need to start talking to each other about what the rules of the road should be. Right now, the conversation is about pointing fingers at each other, and it may be that there’s plenty of blame to go around, but it’s not impossible that we could be able to find common interests, common ground. And if we can’t, the U.S. has to engage other countries to start defining those rules of the road with or without China.
The U.S. and China have a mature relationship. We shouldn’t need to flatter or butter each other up – that’s a waste of time. We can disagree, and talk to each other about how we disagree, and that’s a good thing – in fact, it’s a vital thing. And I don’t think “resolving” these differences should be the benchmark for success. Sometimes the relationship needs to be as much about managing our differences as resolving them.
As 2016 U.S. presidential contenders debate China policy on the campaign trail, how should they convey the importance of U.S.-China relations to the American electorate?
Sometimes in political campaigns, there’s a tendency to “bash” China. I don’t mean being critical of China, which is fine, but over-simplifying and reducing China to a mere foil for our own concerns, instead of what it is: a big, complicated country that we’re going to be dealing with for a long time. I’d say we, as Americans, need to be confident about our values and our future as a country. We need to be willing to stand up for our values and our interests when necessary. We also need to be willing to work with China in ways that benefit both of us.
I think the best way the presidential candidates can talk about the real China, and our real relationship with it (as opposed to a parody of it) is in concrete terms: by telling the stories of Americans who have gone to China, and Chinese who have come to America. That includes individuals and companies, the good and the bad. What have we learned from each other? How have we benefited? What do we need to do better? What has to change? This is a vital conversation for Americans to have, and I think there’s a way we can have it.
Mercy A. Kuo is an advisory board member of CHINADebate and was previously director of the Southeast Asia Studies and Strategic Asia Programs at the National Bureau of Asian Research. Angie O. Tang is Senior Advisor of Asia Value Advisors, a leading venture philanthropy advisory firm based in Hong Kong.