The U.S. Ambassador to China—and long-shot Republican contender for President—talks about how and why decisions are made in Beijing
You're a man often mentioned as having a very bright political future. So President Obama comes to you and says: "I want you to be my ambassador to China." Why? And why did you say yes?
I like to think he did it because he cares about the relationship in the sense that bipartisan management matters. In 31 years of our diplomatic relationship, it hasn't given away to political extremes. It's been managed in a bipartisan fashion. And I accepted it because the President asked. If you can make a unique contribution, hardship though it might be, you stand up and serve.
Talk about the fear that China is expanding its military.
Of course they're expanding. They have the money to expand. We welcome their rise, so long as it is in keeping with standard rules of the road.
Is it your sense that they want to become a sea power?
They're building big ships. And they're very sophisticated ships. Their hardware is getting quite good, very advanced and sophisticated. And they have, of course, regional interests.
What are those interests?
If you get right down to the core interests, it's preserving the Communist Party. And how do you preserve the party? By delivering economic growth that is 8, 9, 10 percent per year, which they've been able to do for 30 years. So I would argue that first and foremost, they want a stable region...an environment in which one can grow their economy. That's, I think, Job One.
Their dominant position in rare earth metals has become a flash point.
What will ameliorate this problem somewhat is the fact that many countries in the world are bringing online, in 2012, greater production of rare earth products. The U.S. has plenty of rare earth products. It's [a question of] economic cost and environmental cost. How badly do you want your own indigenous supply of these products? All we're asking for is that [China] not use rare earth products as a trade weapon. They had a tussle recently with Japan over a fishing vessel. It could be argued that in fact it was used as a trade weapon. [China cut off rare earth shipments to Japan for two months last year.]
Is there now a sense that China recognizes its economic heft?
I think there is clearly evidence that they've been empowered with their newfound economic strength—[they're] now the second-largest economy in the world. They are about one-third of our own in terms of GDP, $5 trillion vs. $15 trillion. What we don't sometimes focus enough on when we look at and analyze China is their domestic challenges. So yes, they're growing, there's no question about that. But they're also transitioning 800 million farmers into a world in which they only need 200 million farmers. So what do you do...? You boost the economy. You put $600 billion in stimulus spending into the economy.
And you do it instantly.
Instantly. No deliberation needed.
What do you see happening with the U.S.-China exchange rate?
They're beginning [to revalue] once again...and you see a very gradual appreciation, I mean painfully slow, and I'm guessing that they're doing it not just because the U.S. and Europe and others are saying it's important to us from a trading standpoint to have a currency that is properly valued. They're doing it because they see it's in their immediate interest. Inflation is on the horizon. They're trying to transition from the largest export power ever assembled in the history of the world to a consumer-based model. In order to do that you've got to have a properly valued currency. They've got to convince their citizens that now's the time to take renminbi out from under the mattress.
Will we be able to compete for this rise in consumer demand?
I think without question.
So it's a plus for the U.S.?
When does China's political system finally evolve?
You'll have Xi Jinping rise to the top in 2012, and Li Keqiang will likely become the Premier. The stakes are enormously high. There'll be a level of ideological rigidity between now and the turnover...because you've got to wear the straitjacket in the runup to those leadership changes, and then you consolidate your power base, which may take you to 2013. Then you've got a few years in which you can actually engage in change and reform. I would say the years 2013 to 2015, 2016 are going to be pretty important from a reform standpoint.
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