Slightly edited (for coherence) transcript of a Frank Talk discussion with Bill Overholt, Senior Research Fellow, Kennedy School of Government, Harvard University, and Michael Easson for the International Institute for Strategic Leadership Dialogue, on Saturday 27 March 2021 in Sydney and Friday 26 March 2021 in Boston.
Michael Easson:
Bill, wonderful to meet you. I’ve heard a lot about you including from Rob Ferguson, one of the doyens of investment banking in Australia. And I first heard of you in the context of your writings on China and I read a few years ago your book China’s Crisis of Success and I went backwards in your career realizing that in 1993, you wrote a very influential book called The Rise of China and that book analyzed how economic reform was changing China for the better, that there would be global implications, a very optimistic assessment and now, I think you’ve got a much more nuanced approach to China because China has changed with the success it’s had, as your book indicated.
So, Bill, it’s great to meet you. And the purpose of today’s interview is really to get a perspective about China. We gather together in the Dialogue representatives, many parliamentarians and representatives and former representatives from the parliaments of the United Kingdom, Israel and Australia, and we have many friends of the Dialogue who’ve joined in over the years including myself. And, of course, every major country has to reckon with the implications of China, positive and bad. You’ve been a guide, a wisdom teacher. To you, it’s all about the nature of the emerging China. You’ve also been a dispeller of a number of myths.
Bill, wonderful to meet you. You are now a senior fellow at the Kennedy School of Government [at Harvard University]. You’ve been a businessman. You’ve been an economic analyst. You’ve been a person who had spent much if not most of your life in Asia including significant studies of Korea, Thailand, China and other parts of the region. So, welcome to this Dialogue discussion.
Bill Overholt: Thank you. I’m delighted to connect with you.
Michael Easson:
Thank you. Well, I’d like to explore how you got interested in Asia because I found it fascinating in your China’s Crisis of Success book, which was part memoir, as well as an analysis of what’s happening in China and the region. You described how you were educated at Harvard and Yale, how you worked on Jimmy Carter’s campaign and particularly focused on human rights. There must be a story associated with that, how you didn’t join the administration and perhaps under the influence of Herman Kahn you did some practical work to analyze the real people that you had been writing about and studying. Maybe, Bill, you can tell us a bit about that story.
Bill Overholt:
Well, I got interested in Asia in a very peculiar way. I was headed to be a mathematician or a mathematical physicist, was admitted to Harvard on that basis. And when I graduated from high school, my father took a sabbatical in the Philippines. So, I was at the Central Philippine University in the city of Iloilo which is on a different island, a couple hundred miles south of Manila. And I was obsessed with maths. So, I tried to enroll in the university and study maths, but it turned out I knew more maths than any of the local professors. So, I enrolled and studied Philippine Dancing. And it’s the only time I’ve ever been first in my class. And I also did some other things. Baptist missionaries, middle-aged ladies, would go up in the jungle in the mountains and visit these very primitive tribes and illegally teach birth control. And they were happy to have a tall young man accompany them, and I was fascinated by these primitive tribes. So, I went with them and I developed an interest in other things than maths. When I got back to Harvard, you couldn’t take a class on the Philippines, but I took a class on Chinese society, one on development, and decided I was more interested in that than maths. There’s a long story of how as an undergraduate I was focused on China and intended to become a China specialist but then when I got to Yale, they wouldn’t let me study Chinese. So, I studied a lot about Japan and Southeast Asia and particularly the Philippines and then joined up with Herman Kahn. My undergraduate mentor was Ezra Vogel, an expert on Japan and China.
Michael Easson:
Maybe for those who don’t know about Herman Kahn, he was the futurologist, a Japan expert and a polymath, but you knew him obviously better than anyone else that would be listening to this interview, I suspect. Tell us about how you came in touch with him and how he became your mentor?
Bill Overholt:
He came to my dorm at Harvard and gave a dinner lecture and I disagreed with a lot of what he said. I’m a kind of a Lyndon Johnson Democrat and he was pretty right-wing but he’s one of the most fascinating characters I’d ever encountered. When I was leaving graduate school, I was headed to being an academic, but the director of Graduate Studies tried to railroad me into a college that was just graduating first class to get me out of the way for one of his students to take a job at Yale and if I didn’t take it, I’d never work in academia again. And I said “okay” and I went to join the Foreign Service and simultaneously, I sent off a letter of interest to Herman Kahn at the Hudson Institute. I ended up number one on the Foreign Service list but got all entangled in this incredible bureaucracy. The thing was on, it was off, it was on, it was off, for incredibly stupid reasons. And I had an interview with Herman, which was the craziest discussion of my life. He was enormously fat, 350 pounds, and he would ask me a question about the cultural revolution in China. (I was the country’s expert on that at that point.) And then, because he was so fat, he didn’t get enough oxygen, he tended to go to sleep. So, he would ask me the question and lean back in his big recliner chair and go to sleep and snore very, very loudly.
Michael Easson: It would destroy my confidence in giving my answer, I think.
Bill Overholt:
Yeah. And I would give a long graduate student length answer and he’d harrumph himself back up with great snoring and give a devastating response. I never figured out how he knew what I was talking about. Did it penetrate through his snoring? Did he extrapolate what I was going to say from my first sentence and go to sleep? This went on for three and a half hours and it wasn’t a very satisfactory interview. So, I figured that it was all over, but the day before I was supposed to join the Foreign Service, he called up and said: “Bill, we have a quarter-million-dollar contract from the Pentagon on the future of the Nixon Doctrine in Asia and we need somebody to run it. Would you be interested?” I called the Foreign Service the next morning and said I wasn’t coming and started a career analyzing Asian issues during the Vietnam War, mainly feeding at the Pentagon trough.
Michael Easson:
[Kahn] used the line, I understand, that he would introduce you to people and say “Bill has been to Harvard and Yale but I think we can still save him.” And I think he meant by that that he hoped that you would learn in the field and that maybe your very interesting academic insights would be complemented by empirical research and perhaps something interesting would emerge.
You did work on the Carter campaign. That must have been interesting; and I wonder why you didn’t join the administration or pursue a life in politics as you indicated you were tempted, maybe as a Democrat, to get very involved.
Bill Overholt:
I ran an Asia policy task force for Carter, 16 people. For instance, Mike Oksenberg was a member of my team. And the response to our memos was very good. Dick Holbrooke would say in memos that my team was the only one that always met its deadlines and he never had to change a word before sending it on to the candidate. Well, then they won, and I thought “Well, maybe I’d join Brzezinski on the NSC staff” but Mike Armacost who was the overall Asian director had given a speech at Columbia University where I had an office and we had tangled over whether we needed nuclear weapons stationed in South Korea. I’d written the key argument for the Pentagon that later led to their being pulled out, but Armacost was very upset that I had taken him on. So, he wasn’t about to have me on the NSC staff. So, then Holbrooke was appointed as Assistant Secretary of State for Asia and he said I would be his principal deputy and he showed me my office, let me sit in my chair, behind my desk. But then the political winds started to blow, and he simply refused to answer the telephone for six months. Holbrooke was a great guy at managing up, but he was pretty ruthless toward subordinates and potential subordinates. So, I was enormously frustrated, enormously angry and stayed in the consulting world.
Michael Easson:
Well, maybe that was a lucky break because you had some very interesting opportunities. Before we get back to China, maybe you could tell us your experience. I read about you going to Korea, being told to go to the countryside by Herman Kahn — “tell me what you really experience” — South Korea being the poorest country in Asia in the early ’50s, which became a different country. You did a lot of study on the export-led recovery and development of many of the countries of Asia. And you eventually deepened your expertise in China. And along the way, you also worked with Bankers Trust which was a very large and influential investment house which did very interesting research on the countries of the region and you were involved in all of that. So, maybe you can tell us a bit about how you developed expertise and insights along that journey.
Bill Overholt:
Well, we had a Hudson Institute conference in Korea in February of ’73. I’d never been there. And we were putting together a book called Korean Futures which actually was published by Korea University later. And I wrote a paper with a typical liberal view of the time that that Park Chung-Hee’s lack of democracy and serious abuse of human rights would lead to political discord and inhibit the country’s economic growth. Herman said that was a typical Ivy League view of things, and he was going to take me to Korea and rub my nose in it. And he did. I went back and forth to Korea and saw how Park Chung-Hee’s government was just raising the level of the Korean people; it was one of the most incredible positive human transformations in world history. And I developed some close Korean friends, and actually was inducted into a group called the Gang of Five that was hoping to take power in Korea. Didn’t have much of a chance to take power, but it became an intensive tutoring lesson in how everything worked in Korean business, Korean politics, and Korean economy. So, I became a fan of what Park Chung-Hee had done to save the country. At the same time, I thought that the crushing of the main opposition leader and occasional attempts to kill him a really bad idea. It just offended me morally and I thought it would be terrible for the country’s future. So, every time I went to Korea, I went to visit with Kim Dae-Jung and the Korean CIA would follow me around everywhere and one time they put an armed soldier facing my door at the Chosun hotel 24 hours a day and put listening devices on the wall in the room next door. It became pretty heady stuff. At that time, I was still with the Hudson Institute.
In 1980, I joined Bankers Trust and we were the principal syndicator of loans to Korea.There was a big uprising in Kim Dae-Jung’s home province, the city of Gwangju, brutally crushed. The government of the time blamed Kim Dae-Jung for the uprising and sentenced him to death. Jimmy Carter appealed for his life and the Pope appealed and later Ronald Reagan appealed. None of it did any good, but the principal economic leader came to Bankers Trust wanting money. I had done a brief political risk analysis saying that Kim Dae-Jung’s being labeled a communist was nonsense. Actually, his politics and economics were more right-wing than Park Chung-Hee, who was actually very, very left. His brother was a communist leader. Park himself had flirted with communism. So, this economic leader came and said: “Kim Dae-Jung is a communist and he has to be executed.” I had advised my boss to be very polite, but he looked at this guy and said “Well, Mr. Overholt has told us the realities of your situation and we believe that executing the popular leader of the opposition will cause unrest and you’ll not be able to repay your loans. So, come back and talk to us when you’ve stopped that nonsense for at least 90 days.” Well, another group came and it was led by my best Korean friend from this Gang of Five, a guy named Kim Sejin. He was an intellectual guy, not a propagandist, and was a member of the Korean President’s National Security Council.
Michael Easson:
And you tell a story later on, that the head of the Korean CIA who had been one of the technocrats that president Park had brought back to Korea had actually had an interview with the president after he announced that he would be taking some draconian action including, again, threatening the leader of the opposition, and the president met his demise. Did you want to tell that story because I read the footnotes in the book.
Bill Overholt:
Well, just let me finish the other one. We ended up writing a letter from me to my Korean friend who was on the president’s National Security Council saying: “If you execute Kim Dae-Jung, there’s going to be no money and your government’s going to go bust within a year.” That meant that Chun Doo-Hwan, the president, would lose his job.” We didn’t know whether my friend would go to jail or be promoted. As it happened, he was promoted three ranks on the spot, sent to New York as Consul General with the informal rank of the president’s personal representative in the United States and his first task was to tell Bankers Trust they were “not going to execute Kim Dae-Jung. Please raise some money for us.” So, we did a 600-million-dollar syndication, which was huge for those days, and we raised our own exposure to a billion dollars. And my friend then went and negotiated the same deal with Ronald Reagan, which is what’s in the history books, namely that Kim Dae-Jung would not be executed if Ronald Reagan would meet Chun Doo-Hwan as the first summit meeting of the new Reagan presidency. So, my friend sold Kim Dae-Jung’s life twice, once to Bankers Trust and once to Reagan, a very successful mission. Out of all this, I ended up friends with both the Park Chung-Hee people and the Kim Dae-Jung people. So, then a couple years ago when it would have been Park Chung-Hee’s 100th birthday party, the professors in his hometown wanted me to keynote the celebration of his 100th birthday party and I said “Okay, I’ll do it but I’ll give equal credit to Park Chung-Hee and Kim Dae-Jung” and they accepted that, which put me in kind of a unique position because Korea is even more polarized than the United States.
Michael Easson: Yes, absolutely.
Bill Overholt: Anyway, I developed a love for Korea out of that whole process.
Michael Easson:
And then when president Park met his demise, you told an interesting story that he announced in the cabinet hardline positions and then the head of the Korean CIA, a local domestic organization, decided to take action by its own hand. Do you want to describe that?
Bill Overholt:
Well, there were a couple different things. I’m not sure which we’re talking about. Back in 1973 the Korean CIA had been beating up local dissidents and professors they didn’t like. I met Don Gregg, who was the second guy I’d ever met in an American embassy. He was the CIA station chief in Korea, and I went to learn from him about Korea and he said “Bill, I need your help with something.” He said “I need to deliver a message to president Park, and I’m not legally allowed to deliver it but you people from the Hudson Institute have access to President Park. So, here’s the message I need delivered.” And He said the Korean CIA was intimidating people in Cambridge, Massachusetts. It was beating up people in Washington DC and it was kidnapping people in Germany. And the message was “If your guys don’t stop this, our guys are going to start beating up on your guys.” I went back to Herman Kahn and said: “You know, we got to deliver this message.” Here’s Herman trying to get research contracts with the Park Chung-Hee government, and he wasn’t very excited about delivering that message. So, we fought about it and eventually we compromised. We knew there were two bugs in the radio in Herman’s room. So, we decided to have our argument about this in front of the radio with the bugs in it. We knew whatever we said would be reported to President Park. So, we handled it that way, but that night we had a dinner with a lot of the top Korean government and military people. Herman was introducing members of the staff and he said Gail Potter is our corporate secretary and Garrett Scalera runs our Tokyo office and Bill Overholt, he is a communist. And this was Herman’s way of handling things. He would always say such things and then go chuckle, chuckle, chuckle, but he sort of meant what he was saying at the time. So, it was always exciting dealing with the Koreans, and it was always exciting dealing with Herman.
Michael Easson:
Interesting. I thought it might be interesting to mention Korea because that was an area of in-depth experience that you’ve had and it’s also an example of a country that emerged from catastrophe, the Korean War in the early ’50s, and rebuilt its economy. And in some ways, China in 1978 onwards had to start from the catastrophe of the Cultural Revolution. And many people have commented about the amazing recovery of China, the Chinese are “naturally capitalists”, all this sort of talk we heard in the ’80s and ’90s. And we also saw an amazing lifting of people out of poverty and the development of a much more dynamic economy. So, the comparisons between Korea and China have been common among some scholars and observers of the region. And there’s also been an optimistic streak that just as a Korea emerged from an authoritarian type of government to a more democratic one and a vibrant and divided society with democracy a very important feature of keeping everything under control, that maybe China would emerge along that trajectory as well. And there was a lot of optimism, naïve and otherwise, about the potential of China to emerge like that.
I’m sure you’ve had in your own mind lots of thoughts and insights and comparisons between different countries’ emergence to prosperity and then the governance that follows from all of that, and everyone has a different history and a different trajectory, but maybe you could comment on the Korea and China comparison and what you think is uniquely and interestingly Chinese.
Bill Overholt:
Well, China was, in its miracle phase, essentially copying lessons from mainly Korea and Taiwan and to some extent Singapore and Japan and they followed a similar trajectory. And one of the things that happens when you create a middle-class society, and China’s middle class is now as big as the entire population of the US, is that you get all these different social groups who have their own opinions and they have money, they have education, they have organization and they’re no longer entirely focused on having enough to eat and keeping their kids alive. Personal dignity and personal values become very important, and this is what led to democratization in South Korea and Taiwan. Xi Jinping faced these same pressures. People in his government, senior people, spent a lot of time in the west. The vice ministers used to typically come and spend a semester at Harvard and get influenced by what they see and learn there. It doesn’t mean they buy everything. They don’t but they get a cosmopolitan perspective. You have a large number of lawyers who become very invested in the idea of the rule of law. You have accountants who need transparency and have high professional standards. You got professors and students who care a lot about academic freedom and so on. And so, you get pressures for a society more organized around personal dignity and even democracy. You could see these wonderful things happening in China at the end of the last century and the beginning of this one. The art was very iconoclastic for a long time. People were very outspoken. You either have to give into these pressures or you have to crack down hard. Taiwan and South Korea chose to let the pressures rip and their democracies have been very successful. Singapore and Japan have maintained systems dominated by one party, but they have escape valves. Xi Jinping’s approach was just to revolt against all these pressures, and he’s scared. People in the West don’t understand that. If you just listen to his speeches, he’s talking every week about the danger of the communist party losing its leadership role and “we got to crack down on this. We got to crack down on that. We got to crack down all sorts of things” and he overdoes it, tearing the crosses off Christian churches and telling Muslims in Xinjiang they can’t fast for Ramadan. This stuff doesn’t do him or his country any good but it’s the reaction of somebody who sees these pressures and is afraid of them.
Michael Easson:
That’s an interesting insight about fear being a significant driving force of the current leadership, meaning they fear what they’ve created. And hence, the delicious irony of your book title: China’s Crisis of Success. Now that all of these forces have been unleashed, there’s the dilemma of does the communist party lose control. And the reaction we’re now seeing is an answer to how the leadership is reacting to those pressures. Do you think president Xi and his cohort are immensely powerful and totally in control? Maybe the former is easier to observe than the latter, but what are your thoughts on that?
Bill Overholt:
Well, Xi Jinping has been very successful in consolidating his power. He’s very good at eliminating any contestants for his job and unlike his predecessors who very carefully groomed, first, a group of potential successors and then one successor. And the combination of his skill at eliminating competitors and his crackdown have led most people in the West to think of him as this all-powerful leader for life. The reality is that he’s not all-powerful and he’s not going to be there for life. I would characterize his position as structurally similar to that of Donald Trump. He has this vast mass base that he consolidates through nationalistic appeals, very much like Trump with “Make America great Again.” The difference is that even proportionately Xi Jinping’s base is about twice the size of Donald Trump’s but both alienated their own elites. There’s an awful lot of China that thinks that Xi Jinping was given the job, as they phrase it, to take China forward but instead he’s taking it backward. And so, he’s always running scared and he’s always cracking down on more and more groups. Even when five women organized to protest against being felt up in public, they’re put in jail. You can’t have any organized group that might be a threat. That’s the same psychology that is involved in these religious crackdowns. So, he’s riding high for now but when you ask is he all powerful, you see all kinds of resistance and you can see what a problem he has. His economic czar is Liu He and Liu He is a graduate of the Kennedy School [of Government at Harvard]. He’s a very market-oriented guy. His instincts for where to take China are very, very different from Xi Jinping’s statist approach, put everything in the hands of the state enterprises, be protectionist.
So, why is Liu He effectively the number two? Well, it’s because they bonded closely in childhood. And that childhood bond leads Xi Jinping to trust him. And Liu He won’t cross Xi Jinping either. He likes Xi Jinping, and he likes his job, but if you look out toward the end of this decade and say “Well, what’s going to happen?”, well, the things that have been giving China its really rapid growth – urbanization, huge investments in heavy industry and infrastructure, and building up the property sector, those are pretty much going to go away. They’re going to be obsolete. And at that point, China will be desperately trying to keep an economic growth rate around that of the United States today. But Xi Jinping’s emphasis on the state sector and his crushing of the private sector will slow growth further. Even though he talks a lot about supporting the private sector, the funding isn’t there, and he has put a communist party secretary in every business including private businesses with the authority to veto any strategic business decision of the company. These politicians often have a very different agenda from the CEO. Imagine if America put one of its politicians as the ultimate decision maker in Apple or the counterpart in Australia. That wouldn’t work well for the economy. And so, the economy is going to be growing at a much slower rate.
Michael Easson:
Do you see that crushing of the entrepreneurial spirit or the diminishing of the entrepreneurial spirit is one of the risks that president Xi doesn’t quite understand or maybe he’s prepared to take? And do you see that as having significant deleterious impact for China’s economy going forward?
Bill Overholt:
Yeah, he doesn’t understand how things work. First of all, he doesn’t want to crush the private sector. He and everybody else knows that China’s growth and its new jobs virtually all come from the private sector, but he has put these party secretaries in command, and he’s gotten rid of most of these local quasi-banks. There were risks in the shadow banks, but the private companies mostly got their funding either through these local semi-banks, quasi-banks, non-banks or through innovative things done by the state enterprises or local governments. Often the state enterprise funds a project and if it makes money, the CEO puts the money in his pocket; if it doesn’t, it becomes one more non-performing loan for the state. The mayor asks an entrepreneur to do something and promises to arrange funding. The anti-corruption campaign has eliminated a lot of that. Everybody’s scared. So, they’re not doing the entrepreneurial things. The spirit is there, but they’re scared.
Xi Jinping keeps telling the big banks to lend more to these local private enterprises, but he doesn’t understand it doesn’t work. Having been in a big bank, I could explain to him why it doesn’t work. We had an operation in Taiwan. Every year we made 30 million dollars lending to 30 companies and we lost 30 million dollars lending to one company. What would happen is this: this local family has half a dozen different businesses and one of them borrows money from the bank and distributes the money to the other enterprises and the one that borrowed goes bust. And they all have four sets of books. They all have these multiple enterprises playing games. If you’re a local bank in the community that knows the families, you can make out like a bandit, but if you’re a big bank headquartered in New York or a big bank headquartered in Beijing, the local yokels are just going to run away with your money. So, Xi Jinping is telling the bankers in Beijing “Don’t make bad loans or you’re dead” and he’s telling them “Lend more money to these local yokels.” You can’t have it both ways. So, his failure to understand how the system works is really going to be a big problem.
Michael Easson:
Interesting. A lot of focus in the West is also on China’s Belt and Road Initiative and the funding of infrastructure projects around the world. I’d like to play devil’s advocate on some of that. I wonder whether a lot of money is being wasted by China building infrastructure in countries in Africa and Pakistan along the so-called Silk Road. A lot of people say of China what used to be said of the old Soviet Union – “We play baseball. They play chess. They’re very strategic unlike us.” And I wonder whether a similar perspective might be applied to China. Are they clever in some of what they’re doing in the Belt and Road Initiative, especially in some of the African countries where many countries are indebted where you can imagine, in years to come, “forgive the debt!” will be a movement and also where maybe some of China’s relations with local populations have been aggravating to the latter. I wonder if you’ve got a perspective on the Belt and Road Initiative which is often seen in the West as incredibly clever and strategic and well directed. Is that right or do you have a different perspective?
Bill Overholt:
That is my perspective. It’s strategically brilliant. It’s actually copying what the US did in the Cold War. You’ve got development banks lending for infrastructure, call that the World Bank. You’ve got efforts to set common standards whether it’s railroad gauges or cyber coins or custom standards or a host of other things and that’s the counterpart of WTO and the IMF. There’s a system of currency swaps originally designed by Japan but effectively implemented by China, which is sort of the IMF financial rescue system. And you’ve got an effort to expand international trade and investment. They picked up the ASEAN concept of a regional comprehensive economic partnership. You notice how a lot of the BRI ideas are picked up from the neighbours and the core concept is picked up from the US. When you first look at the larger picture, okay, they’re creating a community of economies that are prospering together with a centre in Beijing and Shanghai. That’s the way Washington did that in the Cold War. So, they get 48 African leaders together and they talk about development. And then they deliver railroads and roads. Meanwhile, the US sends a special forces team to each country to fight local guerrillas and Islamists and it maintains an offshore naval presence. And guess who gets the love? It’s not the US.
Now, when you get down into the details, they’ve made a heck of a lot of mistakes. Belt and Road is very decentralized. It’s a bunch of big enterprises who don’t have enough work at home going abroad to look for work in Africa and contracting for big projects. Some of them work very well and a good many don’t. And they got into this in a really big way just before the COVID crisis which put a lot of these projects under water even if they wouldn’t have been under water otherwise. And so, it’s loaded the Chinese banks up with bad debt and big problems, but China has been very active at repositioning and reimagining Belt and Road and solving a lot of these problems. So, if you look overall at the African experience, it’s been very positive for Africa and it’s been very positive for China.
Now, a British academic and some of Trump’s people conceived of this concept of a debt trap that Belt and Road is trying to get these countries indebted and then when they can’t pay their bills, China seizes the infrastructure project and owns it and they use Hambantota Port in Sri Lanka as the key example of that. Research by people like Deborah Bräutigam at Johns Hopkins. And Meg Rithmire at Harvard have shown that is just a completely false narrative. There isn’t one case in the entire world where China has taken advantage of a debt squeeze and demanded ownership in return. What happened in Sri Lanka kind of looked like that if you didn’t bother to check out the facts. There was a party in power run by people who had long wanted this port. They contracted with a Chinese company to build the port. Another party then won the election and neglected everything about the port. So, the port looked totally useless. Subsequently, the other party came back in office and now the port is thriving, but Sri Lanka had built up a big overall national debt. And so, the Sri Lankan leadership decided they had to sell something. One of the valuable things that they could sell and still get the benefits was this port. So, they put a 99 year lease up to the highest bidder and a Chinese company gave the highest bid. So, there was one example of this debt-trap strategy in the entire world and that one example turns out to be entirely phony.
Michael Easson:
That’s a very interesting perspective. I hadn’t thought through that. And of course, the Trump administration missed out on the closer economic relations that might have been available with Asia excluding China with a free trade pact which admittedly both Obama and Hillary Clinton also opposed in 2016. A missed opportunity for America there and China filled a bit of that gap and continued to do so.
I wonder if you could tell us because we probably got another 10 minutes to go if that’s okay, if you could tell us a little bit about China’s relation with other countries. Around its borders, it’s not got the best of relations, with the exception of Burma. Not a neighbor, Cambodia and Brunei of all places are very strong allies of China in the region. And it has some difficult relations with everyone else. Is that anything you’d like to comment on?
Bill Overholt:
Yeah, it’s a total contrast with what happened in the Deng Xiaoping and Xiang Zemin era and the Mao era. They started off with 14 land border conflicts with their neighbors and they settled 12 of them to the satisfaction of the other party. And the two they couldn’t settle, one was India directly and one was an area controlled by India and India wasn’t about to settle. China’s purpose was to focus on economic development, not have to worry about all these geopolitical things. That was an incredibly successful strategy.
Well, by the time you get to the Hu Jintao era and especially the Xi Jinping era, they’re flexing their muscles and grabbing everything they can in the maritime area. So, their maritime behavior has basically been the diametric opposite of their previous land-based behavior. And they’ve created sovereignty issues with everybody from North Korea and South Korea and Japan all the way around to India down to Australia and now across the Pacific to Canada. So, these countries are in a situation of very much wanting Chinese trade, Chinese investment, Chinese money but fearful for their sovereignty. So, they’re getting their security mainly from the US and their prosperity mainly from China and they feel very conflicted and they’re not very happy with China because of its refusal to take their interests seriously. And they’re not very happy with the United States because the United States takes this ham-handed anti-China approach which many of them see as provocative to China and is trying to force them to choose between the US and China. So far, they adamantly refuse to choose and if I were in their shoes, that’s exactly what I would do. But Xi Jinping has crippled a lot of what would otherwise be the positive effects of Belt and Road and more broadly of the Chinese economic magnet by stirring up absolutely unnecessary trouble with such a huge number of maritime neighbors. And if he stumbles, China is going to pay a terrible price.
Michael Easson:
Exactly. And you’ve written about how you knew a number of the negotiators with the British prior to the 1997 handover how they would be disappointed by what has happened most recently. And you’ve written acutely about how China is burning a lot of good will under the current administration. But can I change the topic a little bit because you’ve also argued that there are a number of myths about China and notwithstanding all the valid criticism that ought to be made about the current regime that there are significant economic advantages and benefit in trading with China in relying on the integration of the Chinese economy with the American economy, for example, and other parts of the world, Australia included. And maybe you’d like to say something about that because you’ve written recently about some of the myths that need to be considered as well as the hard points associated with our relations with China. Do you just want to spend a moment on that?
Bill Overholt:
The Trump administration focused on the trade balance and said “Oh, if we cut off all our relations with China, we’d come out ahead by 500 Billion dollars.” Total nonsense. The trade balance reflects nothing about the economic net benefits. American companies are making not only huge profits in China, look at Boeing and Qualcomm and Apple, but huge increases in their global market share because they can use China as a domestic production base. And China is now the center of gravity of the world consumption market. If you’re selling cars, China is a big market. If you’re selling Gucci shoes, China is a big market. And that’s true for just about anything. And it’s also true that China in many key areas is much more open than other countries. For instance, in cars, General Motors sells 2.9 million cars a year in China. It sells 1000 cars a year in Japan. And that’s not for lack of trying in Japan. I was a consultant for Honda on their China strategy and was amazed to talk with the Chinese decision makers and they said “We decided it’s now a global market. We can’t be like Japan or South Korea, keeping all the international brands out. We have to join with them.” And that saved General Motors. General Motors was going bust. It was losing money in the US, losing money in Europe. Around the turn of the century, the Chinese market opened-up and GM started making tons of money in China. Now, the American car market supports 17.9 million jobs and General Motors is by far the biggest chunk of that. Imagine how many American jobs were saved when China opened its market to GM and saved that company. Nobody ever looks at that side of the balance sheet.
We have some very serious problems with China, intellectual property theft, over-reliance for rare earths, and so on, so we have to close off some things to deal with that; but if we were to cut ourselves off from China, that would be the end of the United States as a world economic leader. We need to look at both pieces.
Michael Easson:
Excellent. Well, Bill, we are almost completely out of time. It has been fascinating to get your insights. I am sure we could go for another hour, which means that we should chat again someday. Can I just end the conversation by asking you if you were advising the government of Australia which has prided itself on excellent relations with China until the last few years, what would you recommend?
Bill Overholt:
Well, I’d recommend sticking to your guns on efforts to curtail undue political influence and seizure of executives. Right now, the Canadians are the ones with the big problem there, but Australia has had that problem. And even on saying we really need to know where COVID-19 came from. At the same time, look for the opportunity to say: “You know, we’re going to defend our political interests, but we have a lot of mutual economic interest.” China is hurting itself quite a lot by the dumb things it’s doing to beat up Australia. Demand that the US and Europe support you as much as possible. You can say to Biden: “Okay, here you’re talking about getting back in bed with your allies. Here’s a chance, let’s talk about doing something real, not just in words.” China, in dealing with smaller countries, and unfortunately, even Australia is a smaller country in this context, really has an overbearing attitude and thinks it can blackmail and bribe. And the most important thing is to keep your domestic situation together to try to face China with a common front and say: “Look, we’re going to stand up for ourselves, but we’d like to do business with you. And so, let’s look for the opportunity to have a conversation.” China’s typical behavior is to come down very hard and then after a while, it sort of lets the thing fade off into memory, and I would expect that to happen with Australia too.
Michael Easson:
Thank you very much. And on behalf of Albert Dadon, who is the convener of the Dialogue, who could not be with us today, he was very keen to have you interviewed to share your thoughts which have been very interesting, provocative. Thank you for applying your knowledge and thinking about these important issues. Looking forward to continuing to know you. And Bill, I anticipate your next book, whatever that might be. It is a delight to read what you have written already.
Postscript (2021)
A link to the podcast is here:
Link to Podcast: https://drive.google.com/file/d/1jOY_1fNroyr1imxxhfnC9PqNzrTST_mW/view
This interview via Zoom was recorded for Albert Dadon’s International Institute for Strategic Leadership Dialogue’s Frank Talk podcasts which since 2020 feature interviews with interesting individuals who are experts in foreign policy, economics, politics, and/or security, the Middle East being an obvious subject of interest to Dialogue members.
The recordings include sessions from the last Dialogue (in December 2020).
As the transcript indicates, I first heard of Bill by reading one of his books; Paul Monk’s review in The Australian newspaper in October 2018 of various publications on the ‘new China’ highlighted The Crisis of China’s Success (Cambridge University Press, 2018), and I bought and read the book and then tried to track down Overholt’s other writings and background, and I made contact.
After I realised Bill had worked at Bankers Trust (BT), I asked Rob Ferguson, the former Australian CEO, whether he knew him. He replied: “Bill is a long-time colleague, extraordinary as a long-term thinker and writer on China and other parts of Asia, especially South Korea and the Philippines. …He is anything but ideological, the facts drive him. I knew him at Rand Corp, where we shared an advisory board, I met him at Bankers Trust where he started in country analysis, in regard to foreign debt by the bank. His books on China have been remarkably prescient over 50 years, none can beat him there.”
After my interview, Rob sent me a link to a very interesting discussion between Bill and Rob Johnston, of the Institute for New Economic Thinking, on ‘What Happened to Hong Kong’ which ranged far and wide on the new China, its mistakes, foibles, and successes. See:
Institute for New Economic Thinking. If only I saw that earlier: My interview might then have been more acute in its questioning.
Dr. William H. Overholt combines deep research expertise, and a commercial mind backed by decades of experience. Currently he holds a research position at Harvard University’s Kennedy School of Government, is a member of the University of Southern California’s US China Institute Board of Scholars, and is Principal of AsiaStat LLC, a consulting firm.
He previously held the Asia Policy Distinguished Research Chair at RAND’s California headquarters and was Director of RAND’s Center for Asia Pacific Policy.
During 21 previous years in investment banking, he served as Head of Strategy and Economics at Nomura’s regional headquarters in Hong Kong from 1998 to 2001, and as Managing Director and Head of Research at Bank Boston’s regional headquarters in Singapore. At Bankers Trust, he ran a country risk team in New York from 1980 to 1984, then was regional strategist and Asia research head based in Hong Kong from 1985 to 1998.
In an earlier phase of his career, at the Hudson Institute 1971 to 1979, Dr. Overholt directed planning studies for the U.S. Department of Defense, Department of State, National Security Council, National Aeronautics and Space Administration, and Council on International Economic Policy. As Director of Hudson Research Services, he did strategic planning for corporations.
Books include Political Risk (Euromoney, 1982), (with William Ascher) Strategic Planning and Forecasting (John Wiley, 1983), The Rise of China (W.W. Norton, 1993), Asia, America and the Transformation of Geopolitics (Cambridge University Press and RAND, 2007). He is principal co-author with Guonan Ma and Cheung Kwok Law of Renminbi Rising: A New Global Monetary System Emerges (Wiley, 2013).
He is also principal co-author of Asia’s Nuclear Future (Westview Press, 1976) and The Future of Brazil (Westview Press, 1978). With Zbigniew Brzezinski, he founded the semi-annual Global Assessment in 1976 and edited it until 1988.
