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March 2—It was hardly a coincidence that Russia’s President Putin waited until after the Beijing Olympics to invade Ukraine—a move that was clearly a courtesy to China’s President Xi Jinping. Under his leadership, the Chinese Communist Party exerts nearly unfettered control and instant ability to implement, leaving markets to simultaneously understand what’s happened and anticipate what’s next. What do investors need to know? Chief Investment Officer Tony Roth is joined by Chinese domestic and foreign policy expert Dr. Elizabeth Economy, a senior fellow at the Hoover Institution at Stanford University and author of The World According to China.

Please listen to important disclosures at the end of the podcast.

China: Is the World’s Second-largest Economy a Policy Wild Card?

Tony Roth, Chief Investment Officer, Wilmington Trust Investment Advisors, Inc.

Dr. Elizabeth Economy, Senior Fellow Hoover Institution, Stanford University

ELIZABETH ECONOMY: We want to continue to do business with China. We want our companies to compete and win business inside China. But our first priority has to be protecting our national and economic security and also advancing our core values around human rights.

TONY ROTH: That was Dr. Elizabeth Economy on how investors can make sense of and find opportunity in the Chinese policy environment.

TONY ROTH: Welcome to Capital Considerations, the market and economic podcast that’s fully invested in your success. I’m your host, Tony Roth, chief investment officer of Wilmington Trust.

There’s probably no topic I think that has garnered more attention over the last few years than what’s happening in China broadly and, specifically, the relationship between the United States and China.

More recently, the relationship has been quite critical as we think about what’s happening with supply chain, with the idea that China has adopted a zero-tolerance to COVID what that could potentially do if it continues with that policy to supply chain problems and the inflation issues that we’re seriously suffering here in the U.S. And, interestingly, it’s probably one of the few areas where there seems to be some level of broad bipartisanship around the need to do something, whatever that may mean. And the reason that it’s happening to a large degree is that there is—been a really fascinating change within China as the current president, President Xi, is pursuing a set of policies and philosophy that’s really quite different from the more progressive transformative approach that his predecessors have taken for quite some time.

And so, to lend insight to this topic around what’s happening in China and where the Chinese government is going, we have a wonderful guest today, Dr. Elizabeth Economy. Dr. Economy is a Senior Fellow at the Hooper Institute at Stanford. She is a leading expert on Chinese domestic and foreign policy. She was previously a Fellow at the Council of Foreign Relations, where she most recently served as the C.V. Starr Senior Fellow and Director for Asia Studies.

She is a noted author and has published a number of books on Chinese domestic, economic, and sustainability policies. Her latest book, The World According to China, was released just in January, just a month ago. And Dr. Economy is currently on leave from the Hoover Institute and she’s serving as a senior advisor for China to the U.S. Secretary of Commerce. Now, very important stipulation is that Dr. Economy is with us today not in her capacity as a servant of the U.S. government and as an advisor to the Secretary of Commerce, but more in her private capacity. And anything that she says today in the course of our conversation will reflect her comments as a private citizen and in no way reflect on any of the work she’s doing with the government or any government policies or positions. So, with that important clarification, I want to thank you very much, Dr. Economy, for being here today.

ELIZABETH ECONOMY: Thanks so much, Tony. It’s great to be with you. And, please, call me Liz.

TONY ROTH: Will do so. I think the place to start is how you see things, I guess, on a 100,000-foot perspective from a President Xi perspective. He seems to be so different from the way China has been managed for at least three decades. In his priorities, in his philosophy, he seems to be much more of a throwback to the true sort of communist roots of the country and very much focused on, if you will, the common good, the common welfare, and much less interested in the kinds of reforms around capitalism that we have seen for a while really starting to build momentum in China.

So, just from the highest level Liz, how do you see the President of China really just changing, changing up where that country’s going?

ELIZABETH ECONOMY: Yeah. I mean I think that is the hundred-million-dollar question, as you say, 100,000 feet. I think I want to come back to your point about Xi Jinping being focused on the common good and common welfare. I’m not exactly sure that that’s what’s going on. So, let’s circle back to that.

At the outset I would say he certainly has been a transformative leader. You’re exactly right. He came into power as General Secretary of the Communist Party back in the fall of 2012 and, was reselected again as General Secretary in 2017 and he’s up again in 2022, this fall in fact, where we fully expect that he will start his third term.

But over the course of the past almost decade now, he has really moved away, moved the country away fundamentally from the direction in which Deng Xiaoping, you know, had begun to move the country back in the late 1970s and early 1980s. That is to say he has moved away from the sort of collective and consensus-based decision-making process that Deng put in place to avoid the kind of concentration of power that Mao Tse-Tung had prior to Deng that led to so many disasters like the great leap forward and the cultural revolution.

But Xi Jinping has recentralized that power, right. He has amassed an enormous amount of institutional power in his own hands. He’s also reasserted the power of the Communist Party back into the Chinese economy and into the society. So, the sense that China, as I think you were alluding to, the sense that China is opening up its economy, that it’s pursuing market-based reforms, that it’s welcoming ideas and capital from the international system to come in, that is what Deng unleashed. Xi Jinping has reversed that as well. And, again, we see the party becoming much more intrusive.

And Xi Jinping also putting in place I think a network of rules and regulations that allow him to control much more closely what comes into the country and what goes out. And so, by way of example, you know, just look in 2017 when he passed a law on managing the role of foreign nongovernmental organizations in China, foreign NGOs, in China are very deeply involved in areas like environmental protection and health care and migrant-child education. They worked really closely with their civil society counterparts in China.

So, there were over 7,000 of those foreign NGOs operating in China throughout say 2014, ’15, ’16. Once the law was passed and now up until today, there are about 400. So, this really limits the opportunity, right, for the Chinese people to engage in sort of political activity with, again, their foreign counterparts.

And then, finally, and I think this is what’s most evident to people outside China, kind of the change that’s underway is really Xi Jinping’s ambition on the global stage and sort of what he calls the great rejuvenation of the Chinese nation, reclaiming Chinese centrality on the global stage. I think this is where we see a lot of the transformation underway today. I mean he’s accomplished a lot at home over the past decade and I think increasingly we’re seeing, you know, what he’s doing internationally as equally transformative.

TONY ROTH: When I think about what’s happening in China, it does feel like there are these two very distinct, spheres of goals. One is supremacy of the ruling party, the communist party, the elimination of any type of political dissent, sort of the standardization of life in China and that feels very Maoist to me, right? But what feels very somewhat un-Maoist, not knowing much about that stage of China’s history, is this very aggressive desire to be the dominant player on the global stage. And that feels very new.

Whether it be repression of the Uyghurs, whether it be the censorship, whether it be other forms of control of public opinion and such, you know, where would you put him on a scale of one to ten or where would you put the Chinese nation today and is it sustainable?

So, for example, are there concerns at some point that information does seep into the country and the Chinese people realize how deprived their political freedoms and lives are? Or is the level of nationalism just so great that this is really sustainable for a very long time?

ELIZABETH ECONOMY: Yeah. So, I mean really important question or actually sort of set of questions. I think to start off, yes, certainly we haven’t seen this level of political repression in China since Tiananmen, since 1989 and the crackdown on the democracy protestors in Tiananmen Square. So, I think that’s and that was a relatively short-lived period, right? So, for a few years you had a really repressive political regime in place, but the true repression, you know, was during the Maoist period and we haven’t seen anything since, as repressive since the Mao time as we see now under Xi Jinping.

And I think when he first came to power, there were some people who believed he might even be a political reformer in the sense of reform and opening, not reform and closing things down, in part because his father had been a senior political official during the Mao period and had been known as being politically open and sort of pro-reform. But Xi Jinping has not emerged in that light in the least. And he began with his anti-corruption campaign, which he used. Corruption was endemic within the Chinese Communist Party and just for sense of scale, there are about 90, maybe 95 million Chinese citizens who are members of the Communist Party out of a country of, 1.3–1.4 billion. And to date, over the course of the past decade, he has detained upwards of three million Chinese Communist Party members on grounds of corruption. Many of them are legitimate, but many of them also were tied to networks of his political opponents.

So, he’s used this anti-corruption campaign to eliminate any senior officials that could actually pose a challenge or a threat to him. Simultaneously, he’s moved to constrain the media. The internet is far more censored than before he came to power. If you look back to 2010–2011, the internet was really a virtual political space in China. You had people calling for political reform. There were polls about, what do you value most, environmental protection or anti-corruption or what interests you, Chinese civil society? You had newspaper editorials focused on, what more could China do to open its political system. You had salons going on with reform-oriented lawyers and billionaire entrepreneurs and scholars who would meet monthly to talk about what path forward China might take, again in the realm of political reform.

He’s closed all of that down, right? He has limited the amount of foreign knowledge that can come in. So, universities are—professors—are supposed to get a preapproval if they want to use a foreign textbook in their classes. The amount of foreign media content that’s coming into Chinese television has been diminished and often they won’t allow it during primetime viewing hours.

He is a micromanager. For a leader who manages a country of, again, 1.4 billion people, he gets very far down into the weeds in trying to control the political life of the Chinese people.

TONY ROTH: I remember when they recently said that people could only, kids could only, even adults, could only spend a certain number of hours per week watching playing video games. Do you think that came from him?

ELIZABETH ECONOMY: Exactly. Absolutely. Absolutely, because prior to that he had talked about how too many Chinese children have glasses, you know, from playing too many video games. I mean he really focuses in on the details.

I think that the point is really it is extraordinary the extent to which Xi Jinping is trying to, define for the Chinese people what they can and can’t engage with in terms of cultural material, in terms of the intellectual sphere. And so, I think for people involved in the entrepreneurial sector and the creative sector, the scholarly sector, anybody who depends on being able to think outside the box, to color outside the lines, this time of Xi Jinping is incredibly painful.

So, is it sustainable, to one of your other questions? Look. I think if you look back into early 2020 in the first month of or second month of the COVID outbreak in China after the death of the whistleblower, Dr. Li Wenliang, you look at what happened on the Chinese internet and you had, a million people complaining about the Chinese official treatment of Dr. Li and also many of them saying we want freedom of speech. And you had young people, young journalists traveling to Wuhan or other affected areas to try to ascertain what’s the truth of what’s going on. I think there is still within China very widespread desire for the ability to engage more directly in the political process in China, to be able to have open access to the world around them, not to have it be determined by Xi Jinping.

I have many friends in the scholarly, in the Chinese foreign policy community, who say now that they won’t even provide advice. They won’t even submit papers to the Chinese leadership that differ at all from the current leadership’s position, because they know their careers can be hurt by this. So, he’s not even getting information that’s necessary for him to do a better job of governing.

TONY ROTH: I would have to imagine that whether they’re the group in control or the group that’s out of control, you would tend to interact with the elite in China as an extraordinarily educated and a person positioned from the top of academia in the U.S. It almost feels like when the Main Street or the common man, if you will, type of situation is portrayed back to us in the Western world, that there is this massive monolithic wall of nationalism that exists within China. One wonders how fragmented the society might really be or whether or not they’re very happy in this sort of state of blissful benign ignorance of the rest of the world, if you will.

ELIZABETH ECONOMY: I think, look. Again, if you go back to the period before Xi Jinping, just to 2010, there were 180,000 protests in China. People marching in the streets to have better environmental protection, for example. Some of these protests were 10/20,000 people that crossed provinces.

So, China, the people in China haven’t all of the sudden become sheep, right? They’re still –

TONY ROTH: Right, right.

ELIZABETH ECONOMY: They still have their own interests. They still have their own ability to think critically. But they are under an oppressive regime. They are under a surveillance state, and I think nobody really anticipated the extent to which Xi Jinping would be able to move the country in this direction.

So, I think it’s one thing to think about Xi Jinping having amassed, as I suggested earlier, all this institutional authority, right? So, he holds the top levels of the leadership in his hands. But it’s another to say, you know, how does the rest of the population view him in terms of his own legitimacy.

And here, I just might distinguish between an unhappiness I would guess, hazard a guess, an unhappiness with the direction in which he’s moved China domestically as opposed to a fair amount of pride for what’s done for China on the international stage.

It’s entirely possible for some people not to like what he’s doing at home, but to be proud of sort of China’s rising star on the global stage.

TONY ROTH: And I mean I think about it as sort of a Mao 2.0 or cultural revolution 2.0. Even when you look at what happened 50–75 years ago, it took many years for that domestic repression to unravel, to Tiananmen Square even though those roots will always be there, it takes a long time for society to change back in the other direction when the pendulum does swing in the other direction.

So, let’s pivot to what we care about most as investors, which is the economic relationship between the countries. And when I hear your description of the uniformity of life in China in a sense, what really strikes me is that as an American, what really distinguishes our economy is the heterogeneity, is the dynamism, the pluralism of our society, the quality of the pluralistic education that we have and how that leads to open economic activity, if you will. And it almost feels like what’s happening in China and, of course, we can talk about appropriation of IP and all that kind of stuff, but it almost seems like the exact opposite of the type of economy that a country would need in this environment to try to create the innovation in all the various fields, whether it be AI or technology or medicine that allows a country to play a leading role. But, what’s your reaction to that observation?

ELIZABETH ECONOMY: So, I think there is a significant culture of innovation in China that is indigenous and there is a significant part of China’s innovation culture that has been trained in the United States and outside that then goes back to China, so brings that spirit of intellectual inquiry back into the country. And then there is, as you suggest also, a tradition of intellectual property theft. So, all three of those exist within China.

I think the challenge that we’ve seen in the past year really is that Xi Jinping appears to have focused his attention on a fairly critical sector, really probably the most globally dynamic and renowned sector of the Chinese economy, which is the area of fintech, or broader information technology, things like, you know, online tutoring also. But anything that exists in sort of the space of technology and information transmission and creation seems to have fallen awry, seems to have fallen on Xi Jinping’s bad side at this point.

And so, his desire to control has meant that he’s gone after these sectors, crushed them in many respects, and I think people outside China and people inside China have been stunned by his willingness really to cut off at the knees what has been seen as, again, one of the sort of really dynamic kind of potentially soft power engaging elements of China. That doesn’t mean though, and I think we need to be careful when we think about what this suggests for China’s innovation sector more broadly, it doesn’t mean that, you know, research in the life sciences has changed or into autonomous vehicles. All of these things are continuing. They don’t touch on the same, to the same degree on the sort of sensitive issues that these other areas do.

And so, there’s plenty of room for young Chinese, whether they’re growing up in China and stay there for their education or they’re coming to the West and going back, for them to develop, and to create in those spaces. We also still have upwards of 300,000 young Chinese studying in the United States alone. So, that process of intellectual exchange and dynamism is continuing despite sort of the crackdown that we see Xi Jinping, undertaking. Many middle, upper-middle class Chinese parents want their children to go abroad for education. So, that’s still a big part of that innovation cycle.

TONY ROTH: So, to ask a question that is probably crass, frankly, is it in our interests to invite, allow Chinese students given the idea that in sort of a bipartisan manner we have framed China as our singular opponent in the new world order, is it in our interests? I mean it would be contrary to our values to not allow them to come in. But as a purely economic matter, are we really hurting ourselves by not only having Chinese students trained in the U.S., but intellectual property appropriated illegally and brought back to China.

And if it wasn’t here, would they just go somewhere else? Although, I still believe that the U.S. is the leader of innovation and is probably the richest venue for them to learn in and to steal, frankly, ideas. is that something that we should think about differently or it’s just anathema to our values to think about that differently?

ELIZABETH ECONOMY: Well, I think the part that we need to think differently about is whether or not, postdoctoral candidates and PhD students from China should have access to university research or other research that has national security implications for the United States.

TONY ROTH: Doesn’t everything have national security implications given the way the conflict has been defined? We could have postdoctoral candidates in medicine that, it’s not a field that’s typically thought of as related to defense, national security. But if there will be appropriation of ideas in creating vaccines and will then, unfairly disadvantage our own life science companies. I mean I could pick any, I could pick any area of the economy.

ELIZABETH ECONOMY: The real point is that there’s a presumption though of guilt, right? And that’s a mistake, because the vast majority of Chinese students who come to the United States in all fields have no interest in stealing intellectual property from potential U.S. employer. And so, it means that we need to be vigilant. It means that we need to pay attention in our labs, in our industries.

But by and large, the United States has benefited enormously from Chinese students who have come here and have been at the leading edge in fields like AI. And they stay here, and they stay here for a long, long time. And they, some, and many of them never go back.

We are a nation built on immigrants and what makes us great is this infusion of fresh talent. We attract the best and the brightest from countries around the world and I think in no way do we want to dissuade the best and brightest from China to come here to the United States to learn in our open education system. And hopefully for the 70% or 80% that decide to stay, they become real contributors to our growing economy and economic dynamism.

I mean, the major Chinese scientists and others who’ve won Nobel prizes, have been in the United States. They haven’t been in China. They came from China, came to the United States and stayed. So, their accolades, right, their accomplishments redound to the United States, and I don’t think we want to miss out on that.

But we do probably want to do a better job, especially at the graduate and the postdoc level, of vetting people that come here to make sure, for example, that they are not coming from the People’s Liberation Army and posing as students, which happened, right? And the Trump administration uncovered that and that was really important.

So, we have greater awareness now. We need to take greater precautions. But I think by and large we benefit far, far more from what the Chinese students bring to our country than we lose.

TONY ROTH: Well, certainly there’s a mutual dependence between the countries on an economic level that’s very, very deep and almost impossible to unravel today, I would think. And, you know, it makes one think or conclude that we are really in many ways constrained in what we can do in order to manage the relationship with China. I mean we saw under the prior Administration they were able to get something done and I think that they deserve some real accolades for that. But it was an incredibly difficult process, and we really have no enforcement on what was agreed to we’re seeing today.

No one anticipated the pandemic. But due to the interdependencies of the countries’ economies, it’s really quite a difficult task to try to surgically carve out certain areas to either impose tariffs on or to control theft of intellectual property. And so, I think that the path ahead is going to be a tough one. So, I’m not posing that as a question, Liz. I’m sort of, because I know there’s only so much you can talk about around the future and our policy. But I pose that as a series of observations on the difficulty to manage this relationship given the necessary interdependence of the economies.

ELIZABETH ECONOMY: I mean I’ll just say I think you’re right. It is challenging. The Trump administration did a really important job in terms of identifying the full range of challenges that China poses for the United States in economics and security and even in the sort of political export of China’s political model.

But I think what we’re seeing with the Biden administration is a refinement of the Trump administration’s efforts and really trying to carve out those areas that are essential to our economic and national security that do really reflect gross abuses by China in terms of the human rights practices that we don’t want to participate in and we don’t want to be party to those, we don’t want our companies to be party to those kinds of activity. So, I think we are making progress.

It’s hard. Look, after 40 years more of an engagement, straight engagement policy, right, engage but hedge, our belief that China was moving in the right direction, it was becoming more open economically and politically. Bob Zoellick’s call for China to be a responsible stakeholder in international institutions, I think many of us believe that China, however haltingly, was basically on the right track and Xi Jinping has upended that.

Reversing U.S. policy, right, righting the ship, turning the ship that is U.S. policy toward China is a heavy lift. And then bringing along the U.S. business community, the U.S. public, and everybody else to understand the nature of the challenge that China poses, you know, that also has to come along with that because there’s a real education process that has to take place.

So, I don’t think we should be, frankly, too hard on ourselves, because I think, it just moved in a direction that we didn’t anticipate, that nobody anticipated. And now, we have to adjust. And I think, again, we made a big, wide adjustment during the Trump administration and now we’re basically figuring out how do we continue to coexist and to compete and to prevent this relationship certainly from derailing or devolving into kinetic conflict, which nobody wants to see.

TONY ROTH: Do you think that from a supply-chain standpoint, American companies, and indeed not just American but most of these companies are so international, but not Chinese international companies, are doing enough to, given the circumstances, diversify their supply chains away from China? Are they moving fast enough given the options that exist, whether it be onshoring, whether it be finding other areas in Asia?

ELIZABETH ECONOMY: Yeah. Again, a quick reminder that I’m speaking in my personal capacity, because this is an issue that—

TONY ROTH: Of course.

ELIZABETH ECONOMY: touches directly on Commerce Department equities. Look, I think the president, President Biden, has made clear that, we are, and we want to encourage American companies to invest at home and secondarily to think about our friends and allies, friend-shoring where that also makes sense, and to reduce our dependence on and our over-reliance on China.

We saw the risk, right, that we were at during COVID, whether it was for the personal protective equipment or whether it’s for the precursors to medicines in the pharm, our pharmaceutical industry. We don’t want to be dependent on China for critical minerals for the things that we need, again, to protect our national security and our health security and our continued innovation. We don’t want to be dependent on a country that has at some level such different values and in some cases directly threatens our national interests.

So, we want to continue to do business with China. We want our companies to compete and win business inside China. But our first priority has to be protecting our national and economic security and also advancing our core values around human rights.

As far as whether the companies are moving quickly enough, I guess I don’t know what quickly enough means. I think many countries are not investing anew in China but are putting new supply chain, parts of their supply chain in other countries. Some countries are reducing their dependence on China in part because the Chinese economy itself has become more difficult, more competitive because of things like non-market barriers to entry.

So, there’s a lot going on I think that makes this a very complicated process. But I think increasingly U.S. companies are thinking hard about what parts of their supply chain where they need to have greater redundancy, right? Especially with COVID what we’ve seen too with all the supply-chain blockages in Chinese ports and factories just shutting down anytime they’ve got like a city, an entire city gets shutdown because they’ve got two instances of COVID. This places different kinds of burdens on U.S. companies that might be manufacturing there. So, I think there’s a rethink underway broadly within the U.S. business community about the necessity of greater redundancy in their supply chains.

TONY ROTH: Liz, we’re running out of time but there’s maybe two more questions that I have for you.

The first question is I see a certain parallelism between our relationship with China and our relationship with Russia, which is to say that in either of the cases one could imagine a continuum of values, if you will, where we’re on the opposite side of the spectrum whether it be Russia or China. There’s a positioning that’s occurring, whether it be Russia or China, in trying to court the key remaining players around the globe, particularly Europe if you will.

it’s an area that the prior administration I feel completely missed. They wanted to do everything alone. And it seems that the new administration totally recognizes how important it is that in these relationships that we have solidarity with the Europeans.

So, in the case of China and the relationship between the U.S. and China, is the participation of Europeans sort of from our perspective and our values and their adherence to the kinds of things that we would like to see happen as critical as I’m suggesting?

ELIZABETH ECONOMY: I don’t think there is in fact any real competition between China and the United States and Europe at this point in time. There may have been. But the Europeans have woken up and, most of them anyway, and you see now that countries like Lithuania or the Czech Republic, some of these small European countries are establishing, enhancing their relationship with Taiwan at great economic risk in terms of their relationship with China.

The major European countries like the UK and Germany, France, have developed their own Indo-Pacific strategies. They were always just interested in the region, frankly, for the economics, for the trade and investment. This is the first time we’ve seen them recognize and articulate a vision that also says, look, this region is important from a security perspective; we are committed to maintaining a free and open Indo-Pacific, which is really the U.S. policy. And that means sending parts of their Navy to sail through in the South China Sea to send a signal alongside the United States to the Chinese that China’s claims in the South China Sea are not recognized by the rest of the world.

So, I’m actually seeing and, frankly, on the human rights front the Europeans have at times been ahead of us. So, in terms of going before the United Nations, bringing resolutions to the UN to censor China for what they’ve been doing in Xinjiang with the repression, the detention of a million-and-a-half Uyghur Muslims in these labor and reeducation camps, the Europeans often lead on this front as well. So, I think there’s a terrific partnership that is emerging.

You’re right that at certain points certain countries, Germany, I think represents 40% of all EU exports to China. The Germans have dragged their feet. They were most committed to China, the investment agreement that was supposed to be signed and ended up collapsing a year or so ago in the face of the sort of Xinjiang sanction issue.

So, the Germans really wanted that to come to fruition and it didn’t. But other countries have really stepped up. So, I don’t think the Chinese look at Europe now the way they did three or four years ago and think that they’re going to be able to separate the countries out from the United States. And also, we have NATO. The Chinese don’t have anything equivalent to that.

TONY ROTH: That’s reassuring. It’s great to hear you articulate that. So, the last question is, when I think about the future is there room for optimism, not in the sense that we can do some things on the margin. But can the overall relationship improve in a very foundational way? There’s this event this year in China, right, where he’ll be re-coronated perhaps is not the official word but the practical significance, as the Chairman of the community party

It seems like he’s, you know, he’s there for the rest of his life, is there as long as he wants to be. Is there room perhaps for some moderation of some of the things that he’s doing? If not that, are there other reasons to be optimistic or do we think that it’s going to be a tough situation for us for many years ahead in terms of their real desire to dominate sort of global affairs, economic, key economic sectors and such?

ELIZABETH ECONOMY: Yeah. So, let me start by saying never say never. There is a presumption that Xi Jinping will be there for as long as he wants. But, again, there’s a difference between the authority that he wields via his control of institutions and the level of legitimacy which we really don’t have the kind of insight into that we would like, simply because the political system is so opaque.

So. But accepting your premise that he will be there for the foreseeable future, I would say if that’s the case any moderation in policy that he might undertake will be tactical and will be designed to address some pretty serious domestic economic and political social challenges like the demographic issue that they’re facing or the real estate crisis or many other things that they’re confronting and will not, in fact, represent any real shift in his overall strategic ambitions, for example, to push the United States out of the Asia Pacific as a dominant leader.

I don’t think that, again, even if there’s some moderation around the margins in the sort of post-20th Party Congress moment, I don’t think that this will represent a sustained shift in the overall direction of Chinese domestic or foreign policy under Xi.

TONY ROTH: Thank you so much, Liz. So, I’m going to have to end it there in the interest of our time and your time. But let me just, as I always do, try to summarize a few takeaways from the conversation.

And I think I would start with that this is really a critical focus,

So, we know that this is an absolutely critical and vital relationship and probably the focus of our economic foreign policy in any case for many years to come. And companies are adapting and are really very seriously adjusting how they’re handling the situation in China.

Then I would move on to the idea that there have been some really critical things that have happened in China that have changed over the last five years that have brought us to this reality. On the negative side China’s moved to a regime of autocracy, of repression, but also one of incredible national pride and desire for supremacy on a global stage, which is really new and different I think from what we’ve seen in the past. And that singularly perhaps is the most important takeaway for us to all recognize from today’s conversation.

And one change that I wasn’t fully appreciative of, which I feel somewhat heartened by in the conversation, is that our friends over in Europe recognize what we see and there’s real hope and possibility for alignment between the remaining part of the world’s economy, primarily the U.S. and Europe and, of course, Australia and other areas, Canada, Japan, as a united front against China. And because it’s always to me that the more united that we are with these friends of ours, the more successful we’re going to be in affecting their behavior.

And then lastly, I would say the permanence and potential longevity of the state of affairs, that the situation is sort of ossifying, if you will. It’s becoming a real sort of bipolar world where you’ve got China and you’ve got the rest of the world, not just the U.S. really, but the rest of the world here. And it’s something that as investors we need to think about and take very seriously and we do here as we build portfolios for clients. We’re very, very thoughtful around which companies have dependency from a supply-chain standpoint, from a market standpoint, etcetera. It’s almost an ESG factor when we build portfolios now.

Liz, thanks again. It’s been a really terrific and enlightening conversation.

ELIZABETH ECONOMY: Thank you, Tony. Enjoyed it.

TONY ROTH: So, thanks everybody, again. And I encourage all of our listeners to visit wilmingtontrust.com for a roundup of all of our investment and planning ideas. You can subscribe to Capital Considerations on Apple Podcast, Spotify, Stitcher, or your favorite podcast channel to ensure you receive all of our episodes as we start our new season. Thanks again, everybody, for listening and we’ll talk to you soon.


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Dr. Elizabeth Economy
Senior Fellow, Hoover Institution, Stanford University

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