Can Biden and Xi hit a turning point with US-China relations near ‘rock bottom’?

[Simone Del Rosario]

President Biden and China’s President Xi Jinping are coming together for the first time in a year. And what a year it has been. From a spy balloon to Pelosi’s Taiwan trip, many say the relationship between the globe’s two economic powerhouses is at a new low. So will this face-to-face make things better and which side has more to gain and lose? I’m joined by Dean John Quelch, University of Miami Herbert Business School professor and former dean at China’s leading business school and senior associate dean at Harvard Business School. Dean Quelch, how would you characterize the current relationship between the US and China?

John Quelch: I’d give it a three out of 10.

Simone Del Rosario: Wow, that’s pretty low. Would you say that’s the worst? In your experience?

John Quelch: I’d say we’re very close to hitting rock bottom. And I see the meeting in San Francisco following a series of cabinet visits to Beijing, it’s very encouraging that we will look back on this as the turning point, and that the relationship will be improving henceforth.

Simone Del Rosario: A lot riding on this meeting, what do you think has been the most damaging action in the past year that each side has taken when it comes to this relationship?

John Quelch: There was an incident where the US Defense Secretary reported that he had attempted to call his counterpart in China and had not been able to receive a return call, and military-to-military communication breakdown is an extremely serious threat to global peace.

Simone Del Rosario: Is there one side that you would say is more reliant on this interdependent relationship that these two countries have?

John Quelch: No, I think both are equally Reliant and should realize that global peace and prosperity depends on them both behaving in an appropriately adult fashion towards each other. I would say, for example, that China should be much more self-confident about its ability to compete with an economic level playing field. And on its part for its part the US should be not quite so alert to restricting all forms of technology on the grounds of national security.

Simone Del Rosario: Okay, so less than a month before this face-to-face, the Biden administration did tighten those export controls on semiconductors, that is, further blocking those advanced AI chips from getting to China. To say China isn’t happy about it is a bit of an understatement. A spokesperson for the CCP said the US needs to stop politicizing and weaponizing trade and tech issues, accusing the US of destabilizing global supply chains. Do you expect China to retaliate in any way for this?

John Quelch: The use of that rhetoric is absurd and unconstructive. And the Chinese should be called out for it. Secretary Biden as Secretary Blinken has made it very clear that the US wants to have a high fence around a small yard when it comes to restrictions on technology. The Chinese, of course, believe that the yard is anything but small, that it’s actually very significant and sizable and is blocking their ability to develop the new technology. So they’ve stated publicly for a number of years that they want to lead the world. And so I think, you know, retaliation at this point is not the language that should be used. The language that should be used is, let’s forge a pathway on as many issues as possible where our joint collaboration can achieve benefits for humanity and for global prosperity, you know, companies in multinational industries, let’s take the pharmaceutical industry, for example, cooperate and compete every day without any particular problems. I mean, occasionally, there are legal disputes, of course, but basically many companies in that industry are collaborating at the same time as they competing in other areas. Why nation states have so much problem doing what the private sector is perfectly adept at seeing it never ceases to amaze me.

Simone Del Rosario: Speaking a little bit about the private sector, for the first time in recorded history, China marked a quarterly deficit in foreign direct investment that was the quarter ending in September. Would you say this is derisking at work or more?

John Quelch: So I think that it’s, there’s no doubt that China’s internal investment has reduced in size and scope in the last five years. But that is actually what many economists recommended. They recommended that Chinese investment should go down and Chinese consumption should go up. What has happened though, is Chinese investment has gone down but for various reasons, including the COVID crisis. And the lockdowns, confidence among consumers in China has not increased, in fact, is diminished. And as a result, the Chinese consumer is not consuming, but rather saving. And so the much-vaunted shift from an investment-driven economy to a consumption-driven economy has simply not occurred as advertised. Now to your question regarding the foreign direct investment, foreigners typically aren’t excited about investing, when domestic investment is going down. I mean, if your own country can’t eat its own dog food, why should foreigners get into the game? So there needs to be a restoration of confidence internally in China, both among the investors and among consumers, once that begins to happen, and it hasn’t happened since COVID, whereas the rest of the world has rebounded. Once that begins to happen, then foreign investors will begin to go back into China. It’s an enormous market, it’s obviously 20% of the world’s population. And so it simply cannot be ignored by multinational players.

Simone Del Rosario: Going back to this meeting at hand, what would you say both sides are realistically looking for so that they can walk away and say, You know what, that was successful?

John Quelch: I would say number one would be a joint statement that restores joint leadership on climate change, ahead of COP28. COP28 looks like it’s going to be a non event. But if China and the US can come up with a plan that will lead the rest of the world that will be a big plus. A second area where I think President Biden will be looking for action is fentanyl. Because with an election next year, there’s no doubt that millions and millions of U.S. voters have been affected directly or indirectly know of a friend or a family member who’s passed away or been really badly affected by fentanyl coming in from China through Mexico. So that’s an election issue. That’s a hot button. And President Biden needs help on that. I think in in the third arena, there may well be a useful joint statement regarding restrictions on artificial intelligence being used as a basis for activating nuclear arms. So in other words, we won’t have auto pilot AI determining whether or not to press the nuclear button. That’s very simple, and I think easily, easily agreed to measure that will bring the visibility back to military to military collaboration.

Simone Del Rosario: Do you think there’s any instance where there wouldn’t be a joint statement at all leaving this meeting?

John Quelch: I think perhaps on tariffs, I think the Chinese would obviously like to see changes in U.S. tariff policy towards China, exports coming into the US. But I think from an election point of view, that would be probably a bridge too far for President Biden to excise the Trump tariffs, even though they’ve been entirely unproductive.

Simone Del Rosario: Before I let you go, I want to talk about something that you described in your latest op ed with the Tampa Bay Times. You talked about cultural asymmetry. And it really got me thinking because it wasn’t that long ago, where parents would say, you know, they want to give their kid a leg up in the world, they would stick them in Mandarin when they were, you know, three years old. The number of U.S. students taking Mandarin courses peaked in 2013. We’re seeing China’s economic influence and power grow in the globe. But the U.S., the UK, Australia, more countries, the interest in China expertise is waning. What do you think is behind the disconnect here? And does it give the U.S. a competitive disadvantage?

John Quelch: It’s definitely a disadvantage. As I said in the op-ed, the Chinese know vastly more about the United States than the US or Americans know about China, whether it be adults or school children or whatever group. The fact of the matter is that as you correctly say the interest in enrollment in Chinese language programs has gone down significantly in the last five years. And I think that it’s very unfortunate. And we need to, we need to encourage and motivate more study of China. to use language, culture and history, how does that happen? It has to happen through travel, it has to happen through cultural exchange and educational exchange, for example. But COVID and related visa restrictions have, of course, impeded progress in that era, in that area. So this is an issue which I hope will gain some visibility in the course of the conversations between the two leaders, I would like to see much more easy flow when it comes to visas. These are opportunities for tourism and for educational travel.

Simone Del Rosario: Because what do we have to gain by infusing more interest in these cultural studies?

John Quelch: Well, I think that being a, originally, Liberal Arts Undergraduate in history myself, you know, I have a strong belief that understanding the history and culture of a region is very important to understanding what the political dynamics of the present moment happened to be. And it’s also a matter of respect as well. If you, when I was working in China, whenever I used to go to a meeting, I always used to research the company or research the history of the city or region where Chai was visiting and make sure that my remarks included references to the context in which I was speaking, you know, it’s just a matter of respect. It’s a matter of common sense, and it doesn’t take that much time to do it. But Americans in general, are not that attuned to the need to behave in this way.

Simone Del Rosario: Dean Quelch, thank you so much for your time today.

John Quelch: Thank you.