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                                      THE CHICAGO LITERARY CLUB

 

                                                  NOVEMBER 4, 2013

 

                         SOMETIMES THE GOOD GUYS WEAR GRAY HATS

 

                                                    JOHN A SCHRAM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      

 

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IN 1874, THE SAME YEAR THE CHICAGO LITERARY CLUB WAS FORMED, A SMALL MEN’S ESSAY CLUB STARTED IN SAN FRANCISCO.  THE SAN FRANCISCO CHIT CHAT CLUB LIMITED ITSELF TO WRITTEN ESSAYS, BEGAN WITH TEN MEMBERS- ALL MEN- ALL LAWYERS AND THE ESSAYS IN THE EARLY STAGES OF THE CLUB TENDED TO DEAL WITH ECONOMICS- LAW, HISTORY AND POLITICS.  MUCH HAS CHANGED IN REGARDS TO THE ESSAYS AND MEMBERSHIP MAKE UP.  PRESENTLY WE HAVE 25 MEMBERS: THREE JUDGES- THREE CLERGYMEN-FOUR OR FIVE PROFESSORS FROM BERKELEY AND STANFORD, A CALIFORNIA STATE HISTORIAN, SEVERAL MEDICAL DOCTORS AND LAWYERS AND THREE OR FOUR BUSINESSMEN.

WE DIFFER FROM THE CHICAGO LITERARY CLUB IN THAT WE ARE STILL ALL MEN, MEET JUST ONCE A MONTH AND A MAJOR DIFFERENCE IS THE PRACTICE OF MEMBERS COMMENTING ON THE PAPER AFTER IT HAS BEEN DELIVERED.  AN UNWRITTEN RULE: THE COMMENTS CANNOT BE CONTENTIOUS AND WE HOLD TO THAT MOST OF THE TIME! BECAUSE WE HAVE A MEMBERSHIP OF JUST 25, WE ARE EXPECTED TO GIVE A PAPER ABOUT ONCE EVERY THIRTY MONTHS.  I KNOW THE ALL MALE MEMBERSHIP MIGHT BE A MATTER OF CONCERN BUT WHEN I LEFT CHICAGO IN 1979, THE CHICAGO LITERARY CLUB WAS STILL ALL MEN.  MANY OF OUR SAN FRANCISCO CLUB’S PAPERS CONCERN THE WEST-SUCH AS DISCUSSIONS OF CALIFORNIA HISTORY – THE ARTS AND

 

 

ARCHITECTURE OF CALIFORNIA, LEGAL DECESIONS EMANATING IN THE NINTH DISTRICT FEDERAL COURTS, BUT NOT ALL. WE HAVE A EUROPEAN HISTORY PROFESSOR AND A BIO ETHISIST FROM BERKLEY AND YOU CAN IMAGINE THE GIST OF THEIR ESSAYS. I HAVE GIVEN PAPERS ON THE LINCOLN DOUGLAS DEBATES AS WELL AS THE ELECTIONS OF 1800 AND—OUR MOST RECENT PRESIDENTIAL ELECTION.  IF I REMEMBER CORRECTLY MY FIRST PAPER GIVEN AT THE CHICAGO LITERARY CLUB WAS A BOOK REVIEW ON ALEXANDER SOLZHENTSYN “ONE DAY IN THE LIFE OF IVAN DENISOVICH.”  I AM DEEPLY INDEBTED TO THE CLUB BECAUSE I WENT OUT AND BOUGHT THE SOLZENEITZEN BOOK EARLY IN ITS RELEASE- A FIRST EDITION. I STILL HAVE IT AND THINK ITS PRESENT WORTH MIGHT PUT ONE OF MY GRANDKIDS THROUGH COLLEGE!!!

 

                                                                                                                                               NOW THAT WE HAVE COVERED THE COMPARISON OF THE   ESSAY CLUBS, I ASK YOU ‘WHY DO WE WRITE?’  WHAT IS THE IMPETUS THAT DRIVES US TO WANT TO PUT OUR THOUGHTS DOWN ON PAPER?  PAUL ROBINSON, A RETIRED HISTORY PROFESSOR FROM STANFORD, A LITTLE FARMING SCHOOL LOCATED OUT MY WAY, PUBLISHED IN THE NEW REPUBLIC IN 1979 AN ARTICLE ON ‘WHY WE WRITE.” HE ANSWERS HIS OWN QUESTION AS FOLLOWS.  WHY WE WRITE CAN BE DIVIDED INTO TWO SUB- QUESTIONS.  WHAT ARE THE MOTIVES AND WHO IS THE AUDIENCE? 

                                                                                                                                  

SOME WRITE TO MAKE MONEY                                                                                                                                                              SOME WRITE FOR TENURE.

SOME WRITE TO ENHANCE THEIR REPUTATION.

A FEW WRITE TO TELL THE TRUTH—

BUT MOSTLY WE WRITE TO PLEASE OURSELVES.  WE ARE OUR OWN BEST AUDIENCE. HISTORICALLY, THE ESSAY IS ATTRIBUTED TO MICHEL DE MONTAIGNE, WHO IN 1580 PUBLISHED A COLLECTION OF SHORT LITERARY COMPOSITIONS UNDER THE TITLE, ESSAYS, THE FRENCH TRANSLATION WHICH MEANS TRIAL OR ATTEMPT, AND IN EACH COMPOSITION, MONTAIGNE EMPHASIZED HIS PERSONAL THOUGHTS OR OPINIONS ON A SUBJECT.

 WHEN –FRANK LACKNER CONTACTED ME AND SAID IT’S YOUR FIFTIETH ANNIVERSARY MEMBERSHIP OF THE CHICAGO LITERARY CLUB WHY NOT GIVE A PAPER – I SAID – WHY NOT

 

IN SEPTEMBER OF 1975 I MADE MY INITIAL VISIT TO CHINA JUST A SHORT TIME AFTER THE NIXON/KISSINGER OPENING. WITHIN TWENTY YEARS THE MIDDLE KINGDOM WAS WELL ON IT’S WAY TO BECOMING A WORLD POWER. BY THE MID 1990’S, I HAD WRITTEN A PAPER ON THIS PERIOD AND BEGUN TO LECTURE AT SEVERAL UNIVERSITIES TAKING THE CHINA SIDE OF THE ARGUMENT THAT SHE WAS READY FOR INCLUSION IN THE NARROW CLUB OF IMPORTANT COUNTRIES REGARDLESS OF CHINA’S MANY CULTURAL DIFFERENCES AND, IN SOME CASES, PREDATORY PRACTICES.  THE LECTURE WAS TITLED “SOMETIMES THE GOOD GUYS WEAR BLACK HATS.”  MOST OF US WHO WERE BROUGHT UP WITH BLACK AND WHITE TV SETS COULD ALWAYS TELL THE GOOD GUYS AND BAD GUYS BY THE COLOR OF THEIR HATS OR THEIR HORSES. THUS THE TITLE. TO GET THE ATTENTION OF THE STUDENTS IN THOSE MBA CLASSES, I WOULD TAKE THE POSITION THAT THERE WAS NOTHING WRONG WITH HIRING TEEN AGE WOMEN TO WORK IN CHINESE FACTORIES.  INVARIABLY ONE OF THE STUDENTS WOULD CHASTISE ME FOR THIS STATEMENT AND MY STOCK ANSWER TO THEM WAS, “DO YOU UNDERSTAND WHAT THE ALTERNATIVES WERE FOR YOUNG CHINESE WOMEN IN THE 1980’S, ESPECIALLY SECOND DAUGHTERS? HAVE YOU EVER SEEN THE INSIDE OF A HOUSE OF PROSTITUTION IN SHANGHAI?”  I NEVER LOST ON THAT ONE AND IT WAS ALSO A GOOD LEAD INTO MY MAIN THESIS,  SOMETIMES THE GOOD GUYS WEAR BLACK HATS. NO QUESTION, SOME OF THE MORES OF WESTERN BUSINESS WERE ABROGATED DURING THIS EARLY PERIOD OF CHINESE ADVANCEMENT BUT ONE COULD ATTRIBUTE MUCH OF CHINA’S ECONOMIC GROWTH TO SEVERAL PREDATORY PRACTICES.

 

NOW IN 2013, SOME FIFTEEN YEARS AFTER MY INITIAL PAPER ON CHINA, AND HAVING FOR THE MOST PART, HAVING MY PREDICTIONS  COME TRUE AND WITH THE ABILITY TO USE HIND-SITE, I THINK IT IS TIME TO CHANGE THE COLOR OF THE HAT!  LETS COLOR IT GREY, BECAUSE TO BE FRANK, I THINK CHINA IS NOT READY TO BE GRANTED THE WHITE ONE!!!

 

SO HOW DO WE APPROACH U.S./ CHINA RELATIONS IN 2013?  DO WE ADHERE TO THE VIEW THAT SOME U.S.HARD LINERS TAKE:–LOOK AT SOME POINT WE ARE GOING TO HAVE TAKE ON THE CHINESE IN SOME SORT OF ARMED CONFLICT- WHY NOT DO IT NOW WHEN THEY ARE LESS PREPARED THAN THEY WILL BE  20 YEARS HENSE?  THIS THINKING EMANATES FROM THE HISTORICAL PHILOSOPHY OF THE ARCH REALISTS THE GERMAN CHANCELLOR BISMARK AND BENJAMIN DISRAELI THE BRITISH PRIME MINISTER –BOTH LATE 19TH CENTURY EUROPEAN LEADERS.  THEY SAW POWER RATHER THAN PRINCIPLE AS THE DRIVING FORCE IN INTERNATIONAL AFFAIRS. RECENTLY OUR GOVERNMENT PUBLICALLY ANNOUNCED A “PIVOT” IN OUR INTERNATIONAL DEFENSE STRATEGY, CHANGING OUR EMPHASIS FROM THE MIDDLE EAST TO THE ASIAN SPHERE.   WE BROADCAST THIS CHANGE WIDELY AND IT WAS LIKE A SHARP STICK IN THE EYE TO THE CHINESE GOVERNMENT. 

 

 

 

OR SHOULD WE TAKE AN ALTERNATIVE APPROACH?

  THE ENGAGEMENT OF ASIAN SURROGATES: SIDING WITH JAPAN IN ITS FEAR OF CHINESE STRIDENT DEFENSE POSTURING- RECENTLY THE JAPANESE PRIME MINISTER SHINZO ABE HAS BEEN PUSHING FOR A RESURGENT JAPAN, TAKING A MORE ASSERTIVE ROLE IN ASIA TO COUNTER WHAT HE DEEMS AS A RISE IN CHINESE POWER. SHOULD WE BACK THE VIETNAMESE GOVERNMENT IN ITS BELOW THE SURFACE 800 YEAR FIGHT OVER GEOGRAPHY AND STRONG ETHNIC CHINESE BUSINESS INFLUENCE IN THAT COUNTRY-DO WE TAKE THE SIDE

OF THE SOUTH KOREANS WHO ARE FEARFUL OF THE NORTH AND KNOW THE CHINESE ARE NORTH KOREAS PAY MASTER. 

 

DO WE PUT PRESSURE ON THE CHINESE BY BACKING OTHER CONTENTIOUS BORDER COUNTRIES?  HOW DOES OUR RELATIONSHIP WITH INDIA SIT WITH THE CHINESE?  DO WE TAKE THE SIDE OF THE WESTERN PROVINCES IN CHINA –THE ONES THAT ABUT PAKISTAN AND AFGHANISTAN- WHO MAINLY MUSLIM, HAVE BEEN THORNS IN THE SIDE OF THE CHINESE GOVERNMENT.

 

RICHARD HAAS, THE CURRENT PRESIDENT OF THE COUNCIL OF FOREIGN RELATIONS FEELS THAT IT IS TIME FOR AMERICA TO TAKE A BREATHER AND ACTUALLY SCALE BACK ABROAD AND REBUILD AT HOME.  HE DOES NOT FEEL THE CHINESE ARE A GLOBAL THREAT. – AS HE QUOTES:  “A CHINA THREAT IS NOT IMMEDIATE AND EXISTENTIAL,” AND HE BELIEVES THIS TO BE TRUE FOR THE FORESEEABLE FUTURE.  HE THINKS CHINA’S GROWTH WILL SLOW, BASED ON AN AGING POPULATION, EXTREME CORRUPTION AND A TOP HEAVY POLITICAL SYSTEM.  HE FEELS THE CHINESE ARE MORE INTERESTED IN INWARD INTEGRATION.  I THINK HE MIGHT BE MISTAKEN!

 

MY 40 YEARS IN ASIA SAYS –THAT STRATEGY # 1 IS WRONG- WE DO NOT NEED TO START ANOTHER CONFLICT IN ASIA- MAYBE WE USE A BIT OF STRATEGY # 2- BACKING OTHER ASIAN COUNTRIES WHO HAVE SOME FEAR OF CHINESE HEGEMONY, AND ARE WILLING AND ACT AS OUR BUFFER, BUT LET ME OFFER A GRAY HAT SCENARIO – THE  SEMI GOOD INTENTION APPROACH.  KEEP THE CHINESE OFF BALANCE WITH THE CARROT AND A BIT OF THE STICK APPROACH WHILE SLOTTING THEM IN THE GRAY HAT PART OF THE STORE, BUT ENTICING THEM TO KNOCK ON THE DOOR OF THE WHITE HAT PART OF THE EMPORIUM.  AND THERE IS A WAY TO ACCOMPLISH THIS.  I MENTIONED THE CARROT AND THE STICK ANALOGY BUT THE CHINESE UNDERSTAND AND WILL CONSIDER THE GOOD AND THE BAD IN ANY KIND OF NEGOTIATION.  AN OLD HONG KONG FRIEND OF MINE ONCE TOLD ME WHEN YOU GIVE US THE CHICKEN- “WE EXPECT SOME OF THE MEAT, BUT WE KNOW WE WILL GET SOME OF THE BONE.

 

MY  PHILOSOPHY IN INTERNATIONAL BUSINESS HAS ALWAYS BEEN BASED ON INCLUSION AS OPPOSED TO EXCLUSION. .”  I HAVE FOUND THAT MUTUAL RESPECT ACCOMPLISHES MORE THAN PUBLIC HOSTILITY. BRING THEM INTO YOUR HOME- BE IT YOUR PERSONAL RESIDENCE OR SOMETHING AS IMPORTANT AS THE WORLD BANKING SYSTEM- BRING THEM INTO THE WORLD ORDER ALWAYS WITH THE CAVEAT THAT THEY MUST BEHAVE IN A WORLDLY MANNER.  THE BEST EXAMPLE OF THIS WAS THE RECENT SPAT BETWEEN THE NORTH KOREANS AND THE REST OF THE WORLD.  THE CHINESE, AS WE KNOW, ARE THE PRIMARY SUPPLIER OF FOODSTUFFS- BASIC NEEDS TO THE NORTH KOREA  POPULATION LIVING ON THE EDGE. WHEN THE NORTH KOREAN LEADER TRIED TO SOLIDIFY HIS POWER WITHIN HIS OWN COUNTRY AND THE REST OF THE WORLD ,WITH THE BLATANT SABER RATTLING ALBEIT 21ST CENTURY MISSILES, THE CHINESE WERE FORCED TO HOLD THE NORTH KOREAN GOVERNMENT’S HAND IN THE FIRE AND IT WORKED! THE CHINESE WERE LOOKED UPON WITH A BIT MORE FAVOR BY THE REST OF THE WORLD – AND THEIR LEADERSHIP LIKED THAT!!!  THIS PAST SUMMER WHEN EDWARD SNOWDEN THE FORMER NATIONAL SECURITY AGENCY CONTRACTOR WHO WENT ROGUE IN HONG KONG AND LEAKED WHAT OUR GOVERNMENT FELT WAS SENSITIVE INFORMATION TO THE REST OF THE WORLD, THE CHINESE GOVERNMENT IN BEIJING MADE THE CALL TO THE HONG KONG GOVERNMENT TO ENCOURAGE SNOWDEN TO LEAVE CHINESE TERRITORY AND HELP HIM GO TO RUSSIA.  MAYBE SNOWDENS DOMICILE IN RUSSIA IS NOT TO OUR ADVANTAGE BUT THE CHINESE MAIN CONCERN WAS, AND IS, STABILITY IN THE RELATIONSHIP WITH THE UNITED STATES.

 

WHEN I SAY INVITE THEM INTO OUR HOMES ITS REALLY A METAPHOR. ALLOW THEM TO INVEST IN OUR U.S. BASED COMPANIES-. - ALLOW THEM TO SIT ON OUR CORPORATE BOARDS IF THEY HAVE MADE THE PREREQUISITE INVESTMENTS TO EARN A SEAT- ALLOW THEM TO HAVE SECOND HOMES IN THE U.S. ALLOW THEM INVEST IN U.S. REAL ESTATE AS THEY HAVE BEGUN TO DO. WE KNOW THEY ARE BEGINNING TO REPLACE THE EUROPEAN BANKS AS THE LARGEST FOREIGN INVESTOR AND IF THEY HAVE ONE TRILLION DOLLARS IN U.S. BACKED TREASURY BILLS THEN LET THEM BRING SOME OF IT BACK TO THE U.S. YOU CAN BE SURE THESE INVESTMENTS ARE BEING MADE BY THE WEALTHY FAMILIES-INSIDERS- MANY OF THEM HIGH UP IN THE GOVERNMENT HIERARCHY AND THE LAST THING THEY WANT TO HAVE HAPPEN IS SEE THEIR U.S. INVESTMENTS GO SOUR.  THERE ARE THOSE WHO WILL DISAGREE WITH ME, POINTING OUT, THAT THE JAPANESE DID THE SAME THING IN THE 1990’S AND WHEN THE JAPANESE ECONOMY CONTRACTED THEY SOLD OFF MANY OF THEIR HOLDING’S IN THIS COUNTRY AND IT NEGATIVELY AFFECTED THE U.S. REAL ESTATE MARKET. THAT CAN HAPPEN AGAIN, BUT I AM SURE THE CHINESE LEADERSHIP IS THINKING  “IF THE ECONOMIC WORLD TURNS UPSIDE DOWN – WHERE DO WE WANT TO HAVE OUR SAVINGS?”   

 

WE HAVE ALSO ENCOURAGED THE OFFSPRING OF THE SENIOR CHINESE GOVERNMENT OFFICIALS TO SPEND TIME IN THE U.S.- TO MATRICULATE INTO OUR BETTER UNIVERSITIES, AND TO  WORK ON WALL STREET WITH THE HOPE THAT OUR FINANCIAL INSTITUTIONS CAN GET THEIR FOOT IN THE DOOR IN CHINA.  THERE IS ALSO THE HOPE THAT EXPOSURE TO OUR MANNER OF EDUCATION WITH REGARD TO FINANCIAL PRACTICES IN THE BUSINESS WORLD MIGHT CHANGE THE MANNER IN WHICH THE CHINESE VIEW BUSINESS ETHICS. MOVE THEM AWAY FROM THE BLACK HAT IDEAS AND INCULCATE THEM WITH ACCEPTABLE WESTERN BUSINESS MORES.  OF COURSE, OUR SIDE OF THE EQUATION BENEFITS IN MANY WAYS WITH THE HIRE OF THIS YOUNGER GENERATION.  AS THE WALL STREET JOURNAL MENTIONED IN MID AUGUST OF THIS YEAR – THE FLOW OF INTELLIGENCE IS IMPERATIVE IN STRUCTURING  “THE DEAL” IN CHINA- YOU NEED TO GET INTO THE INNER CIRCLE!!! OUR HOPE IS THE WESTERN EDUCATED CHINESE, UPON THEIR RETURN TO ASIA. WILL ASSIT US IN BREAKING INTO THERE MARKETS. I WAS PERSONALLY INVOLVED IN THE CREATION OF A NEW FACTORY SYSTEM IN VIET NAM, FINANCED BY THE CHINESE BUT WITH HONG KONG AND AMERICAN PARTNERS.  WE WERE “ENCOURAGED” TO HIRE – I USE THE WORD ENCOURAGED – (YOU CAN TRANSLATE THE WORD ENCOURAGED INTO  WHAT IT REALLY MEANS) – THE YOUNG CHINESE SON OF AN OFFICIAL OF THE BANK FINANCING THE PROJECT – AND- WE WERE ENCOURAGED TO HIRE THE SON OF THE VIETNAMESE MAYOR OF THE CITY WHERE WE WERE DEVELOPING THE FACTORY SYSTEM. WE NEVER SAW THEM – OR HEARD FROM THEM – UNTIL THE DAY OF THE RIBBON CUTTING –AND THEN THEY WANTED THEIR PICTURES IN THE PAPERS AND WANTED THEIR PIECE OF THE PIE!

 

 THE LEAD PERSON IN DIRECTING AND ALLOCATING CHINA’S INVESTMENTS INTO  ENTREPRENUERIAL HANDS AND INTO THE U.S. MARKET IS ZHU CHANGCHONG- AN UNLIKELY PERSONAGE FOR THIS JOB.  NOW 43, HE MOVED FROM THE COUNTRYSIDE OF CHINA TO THE UNIVERSITY OF CHICAGO AT AGE 20 TO STUDY QUANTUM PHYSICS.  PHYSICS WAS NOT EXCITING ENOUGH FOR HIM- SO HE BECAME A BOND TRADER HERE IN THE U>S. BOUGHT HOMES IN LOS ANGELES AND ELSEWHERE– THEN RETURNED TO CHINA IN 2009 TO GUIDE THE INVESTMENT ARM OF SAFE, A DIVISION OF THE COUNTRIES CENTRAL BANK THAT MANAGES CURRENCY RESERVES AND INVESTMENTS.  I BRING UP MR. ZHU BECAUSE HE PRACTICES A FORM OF INVESTMENTS THAT I AM FAMILIAR WITH- THE LIMITING OF EXPOSURE TO LOSS, A PRACTICE THAT HAS BEEN FORGOTTEN BY THE YOUNG COWBOYS WHO ROAM THE STREETS OF SHANGHAI AND BEIJING TODAY.  THE CHINESE ARE MOST FEARFUL OF LOSS OF FACE- EMBARRASSMENT.  SO MOST OF THE SOPHISTICATED CHINESE INVESTORS LIVE BY THE RULE THAT A MYRIAD OF INVESTMENTS ALWAYS CAN ABSORB ONE OR TWO LOSSES.  MR. ZHU PRACTICES THIS AGE-OLD POLICY- NO BIG SPLASHES – MANY LITTLE ONES. SOME OF THE BIG INVESTORS FROM CHINA WERE REALLY CAUGHT IN THE GLOBAL DOWN TURN IN 2008 INCLUDING THE SOVEREIGN WEALTH FUND, CHINA’S INVESTMENT CORP, AND MR. ZHU IS NOT GOING TO ALLOW THAT TO HAPPEN TO HIM.  HE PARCELS OUT PARSIMONY AND THEREFORE EXPERIENCES LITTLE LOSS OF FACE.

 

NOT TO BE CONSIDERED NAÏVE AND ONE –SIDED, IT IS IMPORTANT FOR ME TO BRING UP A FEAR FACTOR EMANATING FROM THE FINANCIAL INSTITUTIONS EMBEDDED IN CHINA: THE PRIVATE BANKS!  CHINA’S CLOSEST RELATIVE TO OUR WALL STREET IS A FINANCIAL CONSORTIUM CALLED CITIC- IT IS A CONGLOMERATE OF INSURANCE COMPANIES, SMALL BANKS, TRUST COMPANIES AND EVEN PAWNBROKERS.  THEY TEND TO LEND MONEY TO COMPANIES BIG AND SMALL- WHO CANNOT GET FUNDS FROM THE TRADITIONAL LENDING BANKS BECAUSE THESE BANKS ARE STATE OWNED, SLOW TO REACT, AND IN MANY CASES- EXPECT SOMETHING UNDER THE TABLE IN RETURN.  THESE OFF- THE- CHART INSTITUTIONS DO NOT HAVE TO REGISTER ALL OF THEIR LOANS AND IN FACT DON’T WANT THEM TO BE SCRUTINIZED. THEY CHARGE HIGHER THAN NORMAL INTEREST, AND CAN BE JUST AS CORRUPT AS THE BIG INSTITUTIONS.  A MAJOR CONCERN OF MINE: ONE OF THESE DAYS WHEN A REAL WORLD WIDE CREDIT CRUNCH COMES- THESE BANKS WILL FOLD OVERNIGHT AND THE OFFICERS WILL MYSTERIOUSLY DISAPPEAR- MAYBE SHOWING UP IN ONE OF THE APARTMENTS THEY BOUGHT IN YOUR CITIES NEW TRUMP TOWER.  ON THE OTHER HAND THE GREY HAT SAYS THAT THESE NON-RATIONAL BANKS ARE THE ENGINES DRIVING THE CHINESE ECONOMY – THEY TAKE THE RISK – THEY LEND AND THEY ARE ABLE TO DISTRIBUTE THE HEAVY AMOUNTS OF ASSETS THAT THE CHINESE GOVERNMENT HAS IN ITS VAULTS.  THE PROBLEM, AT LEAST FROM MY VIEW POINT, IS  WITH THE TREMENDOUS GROWTH IN LENDING THESE BANKS HAVE MADE IN THE PAST DECADE. SOONER OR LATER SOME OF THE LOANS ARE GOING TO GO THE WRONG WAY.  LACK OF REGULATION WHETHER IT IS ON WALL STREET OR IN SHANGHAI, CAN CAUSE AN ERUPTION IN WORLD MARKETS.

 

FOR ALL OF CHINA’S VAUNTED INFLUENCE IN TODAY’S WORLD FAMILY, ITS TOP LEADERS ARE DEEPLY FEARFUL OF LOSING CONTROL OF THEIR OWN COUNTRY AND ARE WILLING TO RISK GLOBAL CONDEMNATION TO HOLD ON TO ITS GEOGRAPHY AND POSSIBLY EXPAND ITS HEGEMONY.  WHILE THE DEVELOPED WORLD HAS BEEN CONCENTRATING ON THE PROBLEMS AND UNREST IN THE MIDDLE EAST, AND THE POSSIBLE EFFECT OF THESE PROBLEMS ON OTHER COUNTRIES IN THAT SPHERE, THE CHINESE HAVE BEEN MORE CONCERNED ABOUT THEIR OWN WESTERN PROVINCES’ BEING INFLUENCED BY THE MIDDLE EAST CONFLAGRATION.   HAN IS THE PREDOMINANT ETHNIC BACKGROUND OF THE PRESENT CHINESE LEADERSHIP, HOWEVER THE HAN’S ARE A MINORITY IN THE CHINESE WESTERN PROVINCES.  WITH THE DISRUPTION IN THE MUSLIM STATES  IN THE MIDDLE EAST, THE CHINESE ARE FEARFUL THAT THE UNREST WILL NOT STOP AT THE AFGHAN OR PAKISTANI  BORDER, BUT SEEP ACROSS INTO THE CHINESE WESTERN AND PREDOMINANT MUSLIM PROVINCES.  UNDER THE COVER OF THE SYRIAN CONFLICT THE CHINESE GOVERNMENT HAS USED SEVERE PHYSICAL PRESSURE WITHOUT FEAR OF CONDEMNATION FROM THE DISTRACTED WORLD, PUTTING DOWN ANY MOVEMENT OR UNREST IN THESE PROVINCES.  STRIKES AND UPRISINGS ARE QUELLED WITH QUICK AND SEVERE PUNISHING MEASURES. BEIJING HAS A “STRIKE HARD” POLICY WHEN ANY SIGN OF UNREST POPS UP EITHER RELIGIOUS OR ETHNIC.  STRIKE HARD DOES NOT MEAN WATER BOARDING!!  I HAVE BEEN ASKED BY MANY WHY THE CHINESE WERE NOT MORE VOCAL WITH REGARDS TO THE SYRIAN UPRISING AND WHY THEY ACQUIESCED TO THE U.S. STRATEGY OF PUTTING PRESSURE ON THE SYRIANS AND NOT OVERTLY BACKING THE IRANIANS IN THEIR QUEST FOR NUCLEAR POWER. MY ANSWER- THEY DO NOT WANT TO SEE THE REBELLIONS IN THE MIDDLE EAST FLAME THE FIRES OF REVOLT IN THEIR OWN PROVINCES. ALSO. THEY ARE MAJOR BIDDERS ON CONSTRUCTION PROJECTS IN ISRAEL AND DO NOT WANT TO SEE AN IRANIAN/ ISRAELI CONFLICT.  SO JUST AS IT IS IN OUR WAY OF THINKING, A FINANCIAL STAKE IN A CONFLICT SOMETIMES DRIVES A MORALISTIC STRATEGY.  THE DECLARATION OF HUMAN RIGHTS IS O.K. SO LONG AS IT APPLIED IN SOMEONE ELSE’S BACKYARD.

 

I REFERRED TO THE TERM HEGEMONY- SPECIFICALLY CHINESE HEGEMONY.  LIKE ALL COUNTRIES THE CHINESE LIKE TO REMEMBER WHEN THEIR INFLUENCE WAS AT A PEAK IN WORLD HISTORY.  WHEN YOU VISIT A FOREIGN COUNTRY TODAY YOU ARE CONSTANTLY REMINDED OF WHEN THEIR COUNTRY WAS A WORLD POWER – WHETHER IT IS PERSIA, THE TURKS - THE OTTOMAN EMPIRE, AUSTRIA -  HUNGARY OR THE MIDDLE EAST. THE CHINESE ARE TAUGHT IN THEIR SCHOOLS THE GREATNESS OF THE MIDDLE KINGDOM IN THE MIDDLE AGES.  YOU CAN BE SURE THE PRESENT LEADERS ARE WELL VERSED IN THAT HISTORY.

 

 GEO POLITICS MAKE STRANGE BEDFELLOWS.  OVER THE PAST 75 YEARS THE UNTIED STATES HAS GONE FROM PARTNERING UP WITH THE CHINESE IN AN EFFORT TO QUELL THE JAPANESE EXPANSION IN THE FAR EAST TO MAKING 180 DEGREE TURN AND NOW SIDING WITH OUR MID 20TH CENTURY ENEMY IN ITS EFFORT TO INHIBIT THE RISING TIDE OF CHINESE EXPANSIONISM. (I USE THE METAPHORICAL TERM RISING TIDE AS ANTIQUATED AS IT MAY SEEM BECAUSE IN THE 1950’S THE EXTREME RIGHT IN OUR COUNTRY USED THE TERM RED TIDE TO DESCRIBE THE ADVANCEMENT OF CHINESE COMMUNISM)  RECENT PUBLISHED STUDIES COMPARING OUR DEFENSIVE STRENGTHS NO LONGER LIST HOW MANY TANKS WE HAVE VS. THE RUSSIANS BUT HOW MANY SUB MARINES WE HAVE VS. THE CHINESE.  TO BE FAIR, RECENT STUDIES ALSO SHOW HOW MUCH WE EXPORT OR IMPORT FROM THE CHINESE AND TO BE FRANK HOW MUCH INTERNATIONAL COMMERCE IS ALSO CONDUCTED BETWEEN CHINA AND OTHER ASIAN COUNTRIES.  ASSUMING YOU BUY OFF ON MY THESIS THAT INCLUSION IS ALWAYS BETTER THAN EXCLUSION IN THE STRUCTURAL INTERCOURSE BETWEEN TWO NATIONS THEN THE BIG INCREASES IN CHINESE COMMERCE WITH JAPAN- KOREA- INDONESIA AND –YES EVEN  –TAIWAN- WE COULD COME TO THE CONCLUSION THAT THE CHINESE WILL NOT TRY AND DOMINATE THE EAST WITH PHYSICAL FORCE BUT WITH FINANCIAL ACUMEN.

 

 

THE MANTLE   OF CHINA LEADERSHIP IS PRESENTLY GOING THROUGH A

 

TRANSITION –ONE THAT SEEMS TO TAKE PLACE EVERY DECADE OR TWO

 

WITHIN THAT COUNTRY.

 

 THINK MAO FROM 1950 TO 1974 .  DENG XIO PING  THE ARCHITECT OF A MARKET ECONOMY FOR CHINA COMMENCING IN 1976, BUT ALSO THE ENFORCER AT TIN AMIN SQUARE IN 1989,  -THEN OVER THE PAST TWENTY YEARS STRONG WILLED CARETAKERS OF THE COMMUNIST PARTY, JIANG ZEMIN AND HU JINTO, BUT ALSO FORWARD THINKING LEADERS WHEN IT COMES TO THE ISSUE OF CHINA’S ENTRY INTO THE WORLDS ECONOMY.

 

  THE NEW LEADERSHIP, LED BY XI JINPING, IS POISED, I REPEAT POISED,

 

TO COMPLETE A TRANSITION THAT IS READY FOR AN ECONOMIC

 

TRANSFORMATION WILL DEPEND UPON THE INTEGRATION WITH THE

 

REST OF THE WORLD. THE FUTURE WILL ALSO DEPEND ON AN

 

OPEN SOCIETY, ONE THAT CHINESE MODERATES ARE TOUTING.   

 

ECONOMIC REFORM ALSO INVOLVES QUESTIONS ABOUT THE POLITICAL

 

SYSTEM BECAUSE EXCESSIVE STATE POWER IS A KEY ISSUE. XI IS FACING.

 

BALANCING THE OPENNESS OF AN ENHANCED CHINESE FINANCIAL

 

STRATEGY WITH THE TOUGH TALK ON TERRITORIAL DISPUTES . HE

 

 HAS IGNITED EXPECTATIONS OF BOLD ECONOMIC LIBERALIZATION,

 

BUT XI HAS ALSO CAST HIMSELF AS THE DEFENDER OF THE COMMUNIST

 

PARTY.  THE QUESTION REMAINS AS TO HOW FAR CAN HE PUSH THESE

 

CHANGES WITHOUT STRETCHING THE STATE PATRONAGE AND

 

UPSET THE STABILITY OF THE COUNTRY. HE HAS COMMENTED THAT

 

“CHINA WILL BECOME THE CHIEF MILITARY POWER IN THE PACIFIC

 

REGION BY 2049.”  HIS GOAL IS TO EXPAND MARKET DRIVEN REFORMS

 

AND THIS CAN ONLY HAPPEN IF THE STATE RELAXES ITS CONTROLS ON

 

THE FLOW OF INFORMATION AS WELL AS ITS INHIBITING IMPORT

 

RESTRICTIONS.  SOME SIGNS OF THIS REFORM ARE EMERGING AS THE

 

CHINESE FOR EXAMPLE, HAVE ANNOUNCED THAT THEY WILL

 

LOWER IMPORT RESTRICTION ON AUTO PARTS COMING INTO ITS

 

COUNTRY FROM THE U.S. AND EUROPE.  WHY??

 

LIKE ALL STRATEGIES THIS IS TWO SIDED.  IMPORTING PARTS

 

 INTO THEIR COUNTRY WILL ALLOW THE CHINA BASED AUTO INDUSTRY

 

TO FLOURISH, BUT YOU CAN BE SURE BEHIND THE DECISION IS THE

 

THINKING THAT THE  CHINESE AUTO INDUSTRY SOONER OR

 

LATER WILL BEGIN TO EXPORT FINISHED PRODUCT TO THE REST OF THE

 

WORLD.  THE CHINESE HAVE A HISTORY OF GROWING WORLD-CLASS

 

INDUSTRIES BEHIND HIGH TRADE BARRIERS AND THEN LOWERING THESE

 

BARRIERS WHEN THEY WANT TO EXPORT.  BUT SO DID WE!!! 

 

 

 

FRANCIS FUKUYAMA IN HIS 1992 BOOK, “ THE END OF HISTORY AND THE

 

LAST MAN”, ARGUES THAT WESTERN LIBERAL DEMOCRACY

 

REPRESENTS THE FINAL FORM OF HUMAN GOVERNMENT AND THE

 

ENDPOINT OF IDEOLOGICAL EVOLUTION.  FUKUAMA IS A SENIOR FELLOW

 

AT STANFORD AND SAYS THAT CHINA WILL FOLLOW THE PATH OF MOST

 

OTHER COUNTRIES, A GRADUAL LIBERALIZATION THAT YIELDS TO

 

DEMOCRACY.  IF THEY DO NOT, HE SAYS, POPULAR UPRISINGS THAT WE

 

ARE EXPERIENCING NOW IN THE MIDDLE EAST WILL FIND THEIR WAY TO

 

CHINA AND, AS I HIGHLIGHTED EARLIER IN THIS PAPER, THE CHINESE

 

ARE VERY CONCERNED ABOUT INTERNAL UNREST.  FUKUAMA CLAIMS

 

THAT THE NEW GENERATION WILL FORCE A MOVEMENT TOWARDS

 

DEMOCRACY AS IT HAS DONE ELSEWHERE IN OTHER SOCIETIES.  HE

 

EQUATES THE TWO-DECADE RISE OF THE CHINESE MIDDLE CLASS TO THE

 

RISE OF THE CHINESE IMPORTANCE IN THE DEVELOPED WORLD. 

 

INTERESTING THINKING ON HIS PART – I AM NOT LOOKING FOR SOMEONE

 

TO VERIFY MY MOVEMENT FROM BLACK TO GRAY HAT BUT IT SURE

 

HELPS TO KNOW YOU ARE NOT THE ONLY ONE WITH THIS OUTLOOK.

 

IT ALMOST GOES WITHOUT SAYING THAT IF WE ARE TO APPLY A GRAY HAT TO WHAT WAS ONCE AN AUTOCRATICALLY RULED COUNTRY THEN IN ORDER FOR IT TO MOVE INTO THE CURRENT STREAM OF SEMI DEMOCRATIC AND DEMOCRATIC SOCIETIES, WE HAVE TO EXAMINE THE POLITICAL AND MORAL FIBER OF THE COUNTRY AS WELL AS THE FINANCIAL. WITH OUT QUESTION ONE OF THE BIGGEST INHIBITOR TO FOSTERING BETTER U.S. CHINA POLITICAL AND FINANCIAL RELATIONS IS THE RULE OF LAW.  THE CHINESE SEEM TO HAVE A DIFFERENT OUTLOOK ON THE RULE OF LAW ESPECIALLY WHEN IT COMES TO OWNERSHIP OF INTELLECTUAL PROPERTY. SOME OF YOU ARE AWARE THAT I LIVE IN THE BAY AREA AND THE BIGGEST GROWTH ENGINE IN OUR PART OF THE COUNTRY HAS BEEN HIGH TECH.  APPLE- GOOGLE –FACEBOOK, ALL OF THE ABOVE SPEND AN INORDINATE AMOUNT OF TIME AND EXPENSE IN PROTECTING THEIR INTELLECTUAL PROPERTY.  GOING BACK TO THE 1970’S I REMEMBER WHEN IT WAS LEVI STRAUSS PROTECTING ITS LITTLE RED TAB –I CANNOT TELL YOU HOW MANY THOUSANDS OF PAIRS OF LEVIS WERE EXPORTED FROM ASIA WITH -LEVI- SPELLED L-E-V-Y- AND TODAY IT IS APPLE PROTECTING ITS EASILY RECONIZABLE APPLE.

 

IN A RECENT WALL STREET JOURNAL ARTICLE, CHINA’S BEST KNOWN ECONOMIST WU JINGLIAN, COMMENTED,  “CHINA’S REFORMS ARE A “HALF FINISHED BUSINESS.”  HE HAS LONG ARGUED THAT FAILURE TO COMPLETE THE REFORMS HAS LED TO PERVASIVE CORRUPTION.  THAT IN TURN HAS LED TO ECONOMIC WASTE AND INEFFICIENCY.  AS PROFESSOR WU SAYS “THE NEXT REFORM WAVE NEEDS TO TAKE DIRECT AIM AT THE POLITICAL SYSTEM TO BRING GROWTH ONTO A SUSTAINABLE TRACK.”  HE IS RIGHT, BUT IN MY OPINION SOMEWHAT OF A DREAMER.  THE POWER ELITE –THOSE WHO NOW HOLD POLITICAL POWER IN CHINA AND THOSE WHO ARE IN LINE TO ASSUME CHINESE IMMEDIATE LEADERSHIP, WILL NOT MAKE THE DRASTIC MORAL AND ETHICAL CHANGES THAT WOULD NEGATE THE POWER OF “THE PARTY” AND THEIR WAY OF LIFE.  NOW SHOULD WE BE HAPPY THAT WITHOUT THESE CHANGES CHINA WILL LOSE SOME OF ITS STATUS IN THIS INTERCONNECTED WORLD OR SHOULD WE BE ALTRUISTIC AND SAY, WITH A FIFTH OF THE WORLDS POPULATION, WE WOULD HOPE THAT SOME OF THESE DRASTIC CHANGES NEED TO OCCUR IN ORDER TO FOSTER A BETTER WAY OF LIFE FOR THEIR POPULACE AND ULTIMATELY A BETTER LIFE FOR MUCH OF THE WORLDS POPULATION. I OPT FOR THE LATTER.

 

AS I MENTIONED AT THE BEGINNING OF MY PAPER, SINCE MY EARLIER LECTURES, I HAVE HAD THE ADVANTAGE OF HIND - SITE IN REVIEWING THE RECENT 20 YEAR HISTORY OF CHINA AND U.S. FINANCIAL AND POLITICAL RELATIONS AND THE GROWTH IN THESE ARENAS. I ALSO MENTIONED THAT ABOUT FIFTEEN YEARS AGO I BEGAN TO SPEAK TO MBA CLASSES AT SEVERAL UNIVERSITIES’ SUGGESTING THE BLACK HAT SCENARIO AS A POSITIVE IN THE LECTURES.  I ALSO PRESENTED A PAPER, A BLACK HAT TREATISE, TO THE SAN FRANCISCO CHIT CHAT CLUB IN 1998, REVIEWING HOW U.S. AND CHINESE RELATIONS HAD EVOLVED FROM THE MID 1970’S TO THE LATE 1990’S. THE RULES OF BOTH THE CHICAGO LITERARY CLUB AND THE CHIT CHAT CLUB ARE THAT ALL PAPERS MUST BE ORIGINAL AND CANNOT HAVE BEEN PRESENTED IN THE PAST.  IN THAT ORIGINAL PAPER I DID DISCUSS THE IDEA OF CERTAIN RULES OF CIVILITY AND JUSTICE IN INTERNATIONAL COMMERCE. I CHECKED WITH YOUR LEADERSHIP AND HAVE BEEN ASSURED THAT I AM ALLOWED TO LIFT A PARAGRAPH OR TWO FROM THE ORIGINAL PAPER-BUT NO MORE.      IN THAT PAPER I WROTE---

IN THE REAL WORLD OF INTERNATIONAL RELATIONSHIPS INCLUDING BUSINESS AND FINANCE THERE ARE RULES OF CIVILITY AND JUSTICE BUT

THE REAL ISSUE IS HOW ARE THESE RULES INTERPRETED?  WITH WHOSE EYES DO WE VIEW THESE RULES?  CAN WE EXPORT WESTERN IDEAS SUCH AS UNENCUMBERED FREE TRADE TO POPULACE’S WITH DIFFERENT ETHNIC, MORAL AND CULTURAL TRADITIONS AND IS IT RIGHT FOR US TO ASK THESE DIFFERENT CULTURES TO ACCEPT OUR STANDARDS OF CONDUCT?  A COROLLARY TO THE FIRST QUESTION IS DO WE SOMETIMES, IN THE WORLD OF INTERNATIONAL COMMERCE IMPLEMENT TRADE DISCIPLINES ON NON DEMOCRATIC COUNTRIES IN ORDER TO ENCOURAGE THEM TO BE MORE RIGHTEOUS OR ARE WE RESPONDING TO DOMESTIC PRESSURES, POLITICAL AND OTHERWISE OR, IN FACT, ARE WE TRYING TO EXTEND VIRTUE AND HUMAN RIGHTS THROUGH THE MIRROR OF THE FINANCIAL WORLD?  WE ARE FAMILIAR WITH TIP O’NEIL’S QUOTE’  ‘ALL POLITICS IS LOCAL.’  SAMUEL JOHNSON PRECEDED MR. O’NEIL BY A COUPLE OF CENTURIES WITH HIS QUOTE  “VIRTUE IS OFTEN MERELY LOCAL.”  OVER THE PAST FORTY YEARS I HAVE CONSTRUCTED MY OWN RULES – KNOWN THROUGHOUT THE WORLD AS SCHRAM'S RULES OF ECONOMIC DIPLOMACY- WELL MAYBE NOT THE WORLD BUT HERE ARE A FEW.

MUTUAL RESPECT GOES A LOT FURTHER THAN OPEN HOSTILITY

 

NEGOTIATION IS THE ENGINE OF COMPROMISE

 

A VELVET HAMMER CAN ACCOMPLISH MORE THAN A JACKHAMMER

 

NEVER ASK FOR ANYTHING THAT IS NOT PROPERLY DUE

 

AND MOST IMPORTANT –NEVER BACK THE OPPOSITION INTO A CORNER THAT DOES NOT OFFER AN HONORABLE EXIT.

 

 

YOU HAVE, FOR THE PAST HALF HOUR, LISTENED TO MY REVIEW OF CHINA’S GROWTH OVER THE LAST TWENTY YEARS AS WELL AS COMMENTS CONCERNING ITS PRESENT POISTION IN THE DEVELOPED WORLD. IT IS NOW TIME FOR ME TO GO OUT ON A LIMB AND TRY TO PREDICT WHAT I THINK WILL OCCUR IN CHINA OVER THE NEXT 20 YEARS.  YOU CAN BRING ME BACK IN 2033 –PROP ME UP –BECAUSE BY THEN I WILL NEED BOTH MORAL AND PHYSICAL PROPPING, AND AT THAT POINT, YOU CAN REFUTE THE FOLLOWING PROGNOSTICATION.  IF YOU BELIEVE THE WORLD IS INTERCONNECTED TODAY, IN TWENTY YEARS IT WILL BE MORE SO AND THAT INTERCONNECTION WILL BE MORE THAN IN JUST THE ECONOMIC ARENA.   I MENTIONED EARLIER THAT THE ECONOMIST WU JINGLIAN STATED THAT CHINA’S REFORMS ARE A “HALF FINISHED BUSINESS.”  THE NEXT TWENTY YEARS WILL BE TUMULTUOUS- THE PRESENT SITTING POWER VS. THE UP AND COMING, EDUCATED- CONNECTED AND FORWARD THINKING NEW GENERATION.  THEIR MOVEMENT TOWARDS RESPECTABILITY IN THE DEVELOPED WORLD HAS TO HAPPEN OR THE CHINESE WILL RETREAT BACK TO THE ERA OF MAO AND THE INHIBITING OF PERSONAL FREEDOMS, WHICH, AS WE KNOW, RESULTED IN FINANCIAL AND POLITICAL INSTABILITY. BUT LET’S BE REALISTIC IN OUR THINKING. BE PREPARED FOR TWO STEPS FORWARD AND ONE STEP BACK, WITH THE KNOWLEDGE THAT THE STUDENTS IN TODAYS CHINESE EDUCATIONAL SYSTEM RANK QUITE HIGH WORLD -WIDE IN MATH AND UNDERSTAND THE DOWN SIDE OF TWO STEPS BACK AND ONE STEP FORWARD. IF YOU FIND DISAGREEMENT WITH THE THESIS I HAVE PRESENTED THIS EVENING IN THIS ESSAY AND WANT SOMEONE IN YOUR CORNER, THE WALL STREET JOURNAL ISSUE OF OCT 26-27, IN A LEAD ARTICLE, TAKES THE EXACT OPPOSITE VIEW OF MY “NEXT TWENTY YEAR PREDICTION” WITH REGARDS TO CHINA. IF THEY TURN OUT TO BE CORRECT, BRING THEM BACK IN TWENTY YEARS INSTEAD OF ME!

 

NOT QUITE FIFTY YEARS AGO DAVID MAHER A LONG STANDING MEMBER OF THIS CLUB PRESENTED A PAPER ON THE LIBRETTO OF AN ITALIAN OPERA- PLEASE FORGIVE ME FOR NOT REMEMBERING THE NAME OF THE OPERA.  I WAS THINKING ABOUT HIS PAPER LAST MONTH WHEN SITTING IN THE BUDAPEST OPERA HOUSE ATTENDING WAGNER’S TANNHAUSER. THE LYRICS WERE SUNG IN GERMAN A LANGUAGE THAT I TOOK FOR TWO YEARS AND NEVER GOT ABOVE A “C” AND THE LIBRETTO TRANSLATION SHOWN ABOVE THE STAGE WAS IN HUNGARIAN, A LANGUAGE I FIND IMPOSSIBLE TO TRANSLATE EVEN WHEN SEARCHING FOR THE MEN’S ROOMS IN A RESTAURANT. BUT, IT WAS EASY TO DETERMINE WHO WAS THE OPERA’S BAD GUY BECAUSE HE CAME IN WEARING A BLACK HAT AND A BLACK CAPE.!!

 

THANK YOU FOR INVITING ME BACK TO BE PART OF THIS PART OF THE CHICAGO LITERARY CLUB’S HISTORY.