China Investment Symposium: The Geopolitical Implications of a Rising ChinaChinaInvestmentSymposium:TheGeopoliticalImplicationsofaRisingChina

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  >> Good morning, good afternoon, and good evening.  Thank you for joining us for part four of the PGIM China Investment Symposium.  My name is Keshav Rajagopalan, and I'll be your host for today.  Very, very excited about today's discussion; a lot to unpack obviously around the topic of "Geopolitical Implications of a Rising China".  With so many changes underway obviously here in the US with the new administration taking over, as well as changes in Europe, there's a whole lot to discuss, and I couldn't be more excited about this panel.  For those tuning in to our China Investment Symposium Series for the first time, I encourage you to check out our website at www.pgim.com/sic for more information and thought leadership regarding this event.  To kick off today's discussion, I want to start with a quick poll question, just to get audience sentiment on what we feel is happening right now in US/China relations.  So if we can bring up the poll question.  And the question is, "Under the Biden administration, do we feel that the US/China relationship in terms of tensions, where is that heading?  Are tensions going to stay the same, increase, or decrease?"

  And while we're waiting on results, I do want to now turn and introduce our distinguished panel.  Joining me as a moderator is my colleague and good friend, and PGIM's fixed income chief economist, Nathan Sheets.  And joining us as two preeminent China experts, we've got Sheena Greitens, a professor at UT Austin's LBJ School, and Michael Hirson, who is the practice head at Eurasia Group for China.  So results are coming in.  It looks like most people are saying "stay about the same", but also there's a heavy tilt towards "decrease".  So maybe there's some sentiment out there that the Biden administration will cool tensions.  With that, I wanted to kick it off with Nathan, just the first question, just to set some context for us on the macroeconomic backdrop.  Looking at back in 2020, China was obviously the only major economy that grew.  What does 2021 have in store for China versus the US, as well as other OECD countries?  Thanks, Nathan.

  >> Well, I think, Keshav, it's a pleasure to be here, and I very much look forward to hearing what Sheena and Michael have to say about the outlook for China and prospects for the US/China relationship over the next four years.  Now, in response to your question, I think as you indicated, 2020 was an extraordinary year for the Chinese economy.  They were hit hard by the virus early on, but rebounded strongly through the rest of the year, and very much benefited from being an exporter to the world.  When the rest of us were locked down, China was coming back and had substantial exports of medical supplies, of tech products, and frankly, of consumer goods more broadly.  Their share has increased over the last year.  When I look to 2021, there are some challenges for them that I'd love to discuss with Michael and Sheena.  One of them that I see is that rebound it was partially, largely even, driven by exports, but there was also a lot of stimulus that was supporting that rebound.

  And the Chinese authorities will be moving over the next year or so to moderate the amount of stimulus that they provided, particularly for monetary policy.  A second challenge that's related to it is even before the pandemic, doubt levels in China were very high, and were concerning to many international investors.  And like many other countries, China leads this episode with doubt levels that are still higher.  And I think a key question going forward is to what extent those doubt levels pose a meaningful risk to the Chinese outlook.  And in addition, to what extent the realities of that high debt and those risks will shape near-term Chinese economic policies and hence be a constraint on nearer term growth.  So those are some of the challenges that I see for 2021.  But all in the Chinese economy performed in an extraordinary way over the last year, but it also faces some notable challenges.  So with that, let me pivot.  And Michael I'd love to hear your views regarding where the Chinese economy is at present.

  Over the last 15 or 20 years, we've seen an extraordinary rise, both in terms of the absolute size of the economy, but also the speed of that growth.  Where do you see China likely to head, and what are the risks and opportunities for markets investment; very broad question to get us started here.

  >> Sure.  Thanks, Nathan, and great to be with everyone.  I mean, first of all, I definitely share your view that, you know, there are some fundamental strengths with China's recovery, but also some real challenges that will be a difficult balancing act over the next year.  You know, what's also interesting is that we will see the next five-year plan come out in March.  And, you know, the five-year plan doesn't have the same function that it did in the pre-reform period.  It's not central planning here.  But it does lay out the policy priorities.  And I think what's interesting is that this is going to be the most geopolitical of all of China's five-year plans, at least in recent memory.  This is really an agenda set by Xi Jinping, who's going to be in power at -- you know, at least through 2027, I think, unless, you know, health or some other kind of exigencies get in the way.  And, you know, his view is that the global environment has become more uncertain for China.

  And that this means two things, on the supply side China needs to reduce its reliance on US technology, de-risk its supply chain; and on the demand side, China needs to make further steps to rebalance, and to rely on domestic demand over external demand.  So you know, it's not hard to find some of the investment implications [inaudible] coming out of here.  Obviously it's going to be difficult in the medium term for a lot of US and even some other countries, technology companies as China moves towards self-reliance.  The rebalancing side is not going to be easy, but I think, you know, it's a positive momentum for, you know, consumption facing sectors in China.  So I think that's going to be a really important watch point here.  And then the other -- only other point I would make is in terms of the, you know, speed that you mentioned, and sentiency of China, what's I think so dramatic this -- over the past year has been China's emergence as a capital markets power.

  And this has been building for some time.  But the pandemic has really accelerated it with China almost becoming a safe haven, you know, over the last year.  And, you know, this is I think in some ways kind of going to be the next China shock to the global system; not necessarily negative, but you know, we've seen the China shock to global labor markets, to the global economy, to commodities.  And this looks like it might be the next one, with a lot of implications, including you know, just the simple fact that spillovers from China to the rest of the world to global markets are going to be significantly larger now.  And I think that's a reality that we're -- you know, that everyone is going to be coming to terms with in the next few years.

  >> Sheena, let's drill down a couple of those themes; that on the one hand I think there is a compelling narrative that in the world of strategic competition between the United States and China, and tariffs, and sanctions, and so forth, still being in place, that we're moving toward an outcome that's characterized by decoupling.  But at the same time, as Michael points out, China's growth in some sense is bringing us all closer together, and the Chinese are making a concerted effort to open up their financial market.

  >> Yes.

  >> And Chinese securities are increasingly being included in key international indexes.  So how do you see kind of these forces of decoupling versus integration likely to play through over the next few years?

  >> Yes, it's a great question, and I think you've identified exactly the two forces that are pushing against each other, you know, in the present and really for the rest of this year.  As I see it, you know, the United States and China, the economic relationship, has always been one of selective coupling, and selective decoupling, right?  And that goes back to the very beginning of reformative opening, that it's always -- you know, China has never been completely open in terms of its economy and the way that it interfaces with the outside world.  And so the coupling and the decoupling process are both selective.  And I think what we're likely to see, you know, that both sides right now are recalibrating where they want that coupling to be, and where they want it, as Michael put it, you know, to de-risk the coupling that they have; kind of big-picture conceptually.

  I mean, I agree that there are some real, you know, strengths that China and the Chinese economy have right now, and that they're the largest recipient of inbound FDI in the world, right, past the United States this past year.  And so I think what you're seeing is that despite some of the political risks, and in many ways the Trump administration's real emphasis on political risk, there is still some real steady demand outside of China for integration, and for financial integration in particular.
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  I guess what I'm looking at, you know, in the year to come is sort of two specific things.  One is how the Chinese side is trying to manage that process, and then one is how the Biden administration is likely to adjust this, you know, decoupling-heavy approach that was emphasized by the Trump administration.

  I don't see it as likely that the Biden administration is just going to, you know, pull the brakes and stop the process; but in part because it's -- this is not all executive action, right?  So the Holding Foreign Companies Accountable act that was passed toward the end of 2020, I think puts like a legislative backstop behind a lot of the Trump administration executive orders.  I do think the executive order on investment that could be linked to military companies or military affiliated companies, is likely to go through in some form.  I know the Biden administration has said they're reviewing it.  So you know, I feel like that's sort of in suspension right now.  But I'll be watching pretty closely.  That review is supposed to be completed by the end of May.  And I think that, you know, maybe done earlier than that.  They seem to be trying to organize the interagency playing field very, very quickly.

  And there's a call supposedly scheduled or in the process of being scheduled for President Biden and Xi Jinping either next week or the week -- early the week after.  And so, you know, I think that particular review process is likely to give us a lot more clues on how the Biden administration is going to approach this issue of selective coupling.  I think -- you know, originally there was some sense of like, "Oh, well maybe they'll loosen up and they'll back off."  And so far, as it relates not just to China policy, but the overall Indo-Pacific policy, there's not that much daylight between the Trump administration and this incoming Biden team.  I think there will be some eventually, but I think it will be more nuanced than people were originally expecting.  And so that review process I think will tell us a lot about where the more minor differences will emerge.  On the Chinese side, I think -- you know, I agree that there is some concern about managing risk on Xi Jinping's part, and on the part of the CCP as well.

  So for example, you know, this -- there was a headline a couple months back about the possibility that China could cut off supply chains.  But if you actually go and look at the language in Chinese, it turns out the initial translation of that was off, and the concern was about managing the risk that other countries would constrict China's supply chains.  And so I think there's very much a sense that, you know, international reaction to a whole range of Chinese behaviors, right, not just economic behaviors, but things like [inaudible] and Hong Kong and things could produce some effects that pose risk to China's supply chains, particularly in Intec and some related sectors.  So you know, I think you'll see attention to protecting, and as Michael said, to de-risking those particular supply chains.  The other thing is that I'm not -- I'm a little bit more skeptical about outbound investment; and in part because I see it very much as a function of Xi Jinping's anticorruption campaign.

  Right, so some of the crackdown or tightening on money leaving China had to do with Xi Jinping's perception that elites were using that as a way to essentially evade the controls of the party within China itself.  And we've seen that the anticorruption campaign has actually taken on an increasingly international dimension with the use of Interpol Red Notice's speech last year highlighted how useful Interpol had been for returning people to China under the anticorruption campaign.  And I also see things like, you know, the Comprehensive Agreement on Investment and RCEP as attempts in some ways to adjust and rebalance China's global engagements in order to limit risk.  And so I think, again, probably the million dollar question is what framework gets laid out in the five-year plan.  And so if I was looking for two indicators on each side, it would be the five-year plan and then the review of this investment executive order on the US side.

  And but overall I would very much agree that that's -- you know, both sides there is this sort of continued push toward financial integration with China, and that continues despite some of these risks.  So what we see is a lot of maneuvering on both sides to try to manage and navigate that risk in much more nuanced or specific ways.  I would not expect a sort of full decoupling or a full recoupling, but rather something in the middle; if that makes sense.

  >> Makes a lot of sense.  And I think you provide a very comprehensive and useful roadmap for thinking about the relationship over the next several years.  One final question here on the macro; and Michael, you mentioned concerns about debt and leverage in the Chinese economy.  How much do you think that those doubt levels are likely to influence the trajectory of Chinese macroeconomic policy?  Is managing debt a meaningful constraint for China as it thinks about growth policies and the trajectory of its economy in the future?

  >> I think it is a very real operable concern.  You know, I don't think Xi Jinping spends a lot of time on the economy.  But he has a long-term agenda, and he's very focused on -- you know, kind of riffing off some of Sheena's points, on risks.  And his advisors, in particular the Vice Premier, Liu He, you know, has convinced him that financial risk is something that could bring down the house if China is not careful.  And so we've seen really since the launch of the financial de-risking campaign in late 2016, that this has been a pretty decisive shift.  Now, doesn't mean that, you know, Xi and Beijing are moving aggressively on all fronts.  But I think the bottom line is, you know, financial risks are at the top of the agenda.  The degree to which there's a willingness to sacrifice growth to make progress on those risks changes.  But you know, all the talk in China about gray rhinos shows you just how much this financial risk has almost become a national security issue in China.  I think that's really the way the discourse is headed.

  So yes, we're in a period now where, you know, the policymakers are snapping back to an attention on financial risk.  They would like to make more progress, I think this year.  But I think there's a real concern that this recovery may not be solid; that it's still heavily reliant on stimulus.  The external environment is looking shaky.  And the public health situation, even in China, is you know, by no means guaranteed to be, you know, without risk as well.  So you know, we are in this balancing act.  The pendulum is shifting.  I think at the very least we will see an effort not to have debt levels grow significantly in the corporate sector and local governments.  But it is a difficult balancing act; no question.

  >> So in some sense to hold the doubt levels constant and allow the economy in some sense to grow into the debt that they've accumulated; which was broadly I think their strategy before the pandemic as well.  Keshav, let me check in with you to see whether we have any audience questions.

  >> Yes, thanks.  We've got one and encourage everybody to submit questions via the Slido tool next to their video player.  And you can also vote up questions that resonate with you.  But the one that's come up on the macro is, Sheena, you mentioned obviously two key trade-up agreements that were recently signed, the CAI, RCEP.  The CPTPP was signed a number of years ago.  All three, the US [inaudible] from.  Are these a big deal?  And the backdrop question is, "Given this, what -- and China's rise, what regions or countries are going to grow with China, and then which ones are maybe at risk of stalling a little bit if they're not part of that China fueled growth?"  So, Nathan, I don't know if you want to start and then maybe others can chime in.

  >> Great question.  Let me just turn to Michael and Sheena.  So any thoughts on that, Michael; and then we'll let Sheena chime in as well.

  >> You know, I think Sheena put it right earlier, and in terms of the RCEP and the CAI and other moves.  I mean, you know, part of this is, you know, China knows what the US playbook is, especially with Biden.  And they know that Biden is coming in and his goal is going to be to build coalitions on trade, on technology, on a number of other areas.  And so Beijing is moving I think fairly aggressively and nimbly to try to head that off and avoid being outflanked.  And I think RCEP partly reflects that.  RCEP is not a game changer, but what it does is help to anchor China's role in the Asian supply chains; especially Northeast Asia, because actually one of RCEP's most significant impacts is lowering tariffs between China and Japan, not necessarily China and Azion [phonetic], where that tariff reduction has already happened.  
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  And you know, the fact that China's talking about CPTPP shows you that there is still a risk -- they feel, a risk of being isolated, especially on tech issues.

  Now, I think the CPTPP is still a long shot for China.  There are some difficult reforms that China would need to do.  Other countries would have some issues.  But it shows you -- you know, it's an aspirational goal, and again, it shows you that Beijing is still worried over time about potentially being isolated.  So you know, we'll see more moves by China to avoid this -- avoid, you know, getting -- being -- avoid being outflanked by Biden in the years ahead.

  >> Sheena?

  >> Yes, thanks.  I guess I have two thoughts that go in somewhat different directions, but both bear on this kind of question.  You know, one is just -- I think Michael's hit on -- Michael emphasized something that is really worth highlighting, which is the degree to which Xi Jinping accesses the overall international environment very, very different than his -- very, very differently than his predecessors.  He sees it as more unstable.  And, you know, when I read the Chinese language sources and discussion of this phrase changes unseen in the world in a century.  There's been some discussion that that is occurring to China's advantage, but when you actually read through what Chinese scholars, and pundits, and the party state are saying, their assessment is much more nuanced.  It -- this is not entirely a good thing for China, from their perspective.

  And so I think understanding that perception of instability and risk -- and I agree with Michael that financial security has become securitized.  Xi Jinping has this comprehensive national security concept that includes almost everything under the sun at this point.  Although interestingly, he left out health security, and then I think he had to deal with that in -- about this time last year.  But you know I think that has produced two changes in terms of China's just overall approach to risk.  The conclusion that Xi Jinping has drawn from the idea that the international environment is more unstable is that China needs to be more proactive in risk management, and prevention of risks from getting too far down the road of escalating or emerging.  And so we think, I think, overall that Xi Jinping is willing to be more proactive, right, it's -- you know, we're not in the hide and bide -- hide your light and bide your time phrase anymore.

  That phrase has actually really declined.  If you just do a search of how many times it shows up somewhere like People's Daily, we're moving away from that mode.  It's pretty clearly like gets less rhetorical emphasis and I think less behavioral emphasis.  And so I -- and I -- and the other thing is that we have seen a pretty clear increased willingness to accept external cost to manage those risks; in a lot of different ways, particularly in Hong Kong probably would be the one I'd highlight.  So that's kind of, you know, point one is that I think that's part of what's driving this, you know, attempt to head off some of these coalitions.  I agree with Michael that that's part of what's going on here.  But I think this is also just a function of Xi Jinping's overall approach to risk management; which is different than his predecessors, and I think should -- is -- you know, I'm not -- at least on the geopolitical side I don't think we've always internalized how differently he views risk management.

  I guess the second point has to do with things like RCEP and CPTPP.  And just to point out that I think, you know, this is the big question mark for the Biden administration.  We know I think more about how they're going to manage the United States security commitments in Asia.  I think the early calls with allies and partners clarified that the US treaty commitments apply to the [inaudible], applied to the East China Sea, they apply to the Philippines and the South China Sea, both of which were things that they could -- that emerged, you know, as points of clarity or clarification during the Trump administration.  And they could have backed off; they chose not to.  But so we've had some initial answers already on the security approach.  What we don't have nearly as good as [inaudible] is how they're going to handle over economic strategy in the Indo-Pacific.

  And the reason that I bring that up is that with things like RCEP and CPTPP, regional integration has at least, you know, moved ahead considerably from 2016, right?  You can't pick up where Vice President Biden left off.  But at the same time, there are huge questions because the players that are missing from that sort of integration project has been largely driven by countries in Asia themselves -- right, in the region themselves are the United States, India, and then to a lesser extent, Korea.  Right; and so -- and those are two really important partners for the United States, both economically and on the security front.  And so how it is that not only the United States but whatever coalition the US assembles, you know, reacts to this -- the fact that integration has moved ahead without them, I think is probably the -- a bigger unanswered question for me right now than the security side.

  I feel like I've gotten a clearer sense of where the Biden team is headed on security, and they've held their cards a little bit closer to their chest on the economic piece.  I think we expect to see multilateral engagement in coalition building.  But that's pretty vague, and that could take a whole number of forms.  And I haven't seen enough specificity yet to really get a sense of how they're going to handle that challenge, which makes me a little bit nervous, to be perfectly honest.

  >> Well, that's exactly where I wanted to go with the next question, is I think consensus view is that the Biden administration will stay tough on China, but it will be a more multilateral, diplomatic-driven, ally-based kind of approach, rather than the more unilateral kinds of tools that President Trump was using.  But Mike, let me ask you, how far do you think the Europeans are willing to go here?  As the question for the audience emphasized, China is now a major growth engine.  And when you look, for example, at Germany, the evidence suggests that China is a very important export market for German manufacturing.  So how far along this path do you think the Biden administration will be able to convince the rest of the world to trod, particularly the Europeans?  And then also when you're answer, if you can say something about -- little more -- you mentioned it, but a little more about this investment agreement that Europe and China struck.

  >> It's a great question.  It also is a bit of an unanswered question right now with uncertainty because the European relationship with China is also a bit schizophrenic where you've got, you know, the EU talking about China -- labeling China as a systemic competitor, but also, you know, a key trading partner.  I think what -- you know, and your question about the Comprehensive Agreement on Investment ties in very well here.  You know, Europe also is looking to project a notion of a sovereign Europe, one in which, you know, the -- you know, Biden may be back, he's multilateral, he wants to work with Europe, but you know, who knows what's going to happen in 2024 from the European perspective?  Is this -- you know, was Trump a one-off, or is Biden the one-off?  And I don't think any of us can necessarily answer that with a great degree of confidence, let alone the Europeans.  So what we're, you know, seeing is Europe, again, looking to have strategic autonomy to work closely with the US.

  And I think it's going to be a bit of both.  They are going to -- they want to -- European leaders in particular, you know, folks like Macron and Merkel want to show that they can challenge China on some important geopolitical issues, but still maintain the trade relationship.  And this will be a point of differentiation with the US.  So I think it's going to -- you know, I think the Comprehensive Agreement on Investment is not a -- again, it's also not a game-changer.  It doesn't mean the end of transatlantic cooperation on China.  I think there is going to be quite a bit.  But it will be selective.  And I think the biggest impact for now is really a loss of momentum.  I think, you know, ideally the Biden team would have come in right out of the gate, working with Europe, looking to flesh out those issues, difficult issues that Sheena mentioned, you know, what does it mean to build a coalition on trade or technology?

  And that diplomacy is going to be happening, but in the meantime you've got European leaders who are going to want to sell this deal -- it still has to be ratified by the European parliament, and you've got Beijing, which is going to be handing out goodies to European firms, you know, German and otherwise, to also make sure this deal gets finalized.  That's going to sap the momentum.  And I think it's going to be another, you know, reason why, you know, this is not going to be easy.  I think over the next year it's going to be some real speed work that the Biden team is going to have to do to flesh out this concept of coalitions, to identify what this means, to think about what it means for trade and tech, and the CAA, you know, adds another challenge to that.
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  >> Sheena, do you have any specific thoughts on what they might do, what specific policies might be put in place by the United States that the rest of the world would be willing to go along with?  Is there any sculpt to say multi-lateralize sanctions, or would Europe consider some tariffs on China or coordinating inbound investment policies for Chinese investment?  Do you have any thoughts on the specifics of what this policy might look like?

  >> Yes; I mean the signal has been very generic so far, right, that there's a lot of theoretical or conceptual excitement about transatlantic cooperation and a willingness to engage with the Biden administration on, you know, transatlantic discussions of China.  I've actually part of a couple of track twos of people discussing, you know, where this could go.  But I think that, you know, very, very quickly, you run into some real divergence of opinion.  There was a document that was released.  The EU had a document that they released in December, and there was one -- a similar one for NATO earlier.  But it talked about China in a three-part formulation; that China was a strategic competitor and economic partner, and then a real systemic challenge to governance, which was the interesting part.  If anything that was probably a new articulation or one of the newer things about the way that Europe has framed its China issues.

  And I think here that the devil is really in the details.  One thing that I think could significantly complicate, you know, the transatlantic partnership is how, for example, the genocide designation on Xing Jiang plays out.  You know, because that puts some very real political boundaries on cooperation with China on the United States side.  We've heard a little bit of mixed signaling from the Biden administration.  Secretary of State Blinken has been very clear that he considers a genocide, and he said that, you know, multiple times.  But interspersed with that with the State Department -- I'm sorry, not the State Department, the White House spokesperson and the ambassador designate to the United Nations, Linda Greenfield-Thomas, talked about the fact that there was some sort of internal review of that going on.  It's normal for a new administration to do a review of almost everything that's kind of been left in train or on the table.

  But it's not 100% clear to me that that is language that the EU is going to be willing to use, especially not uniformly; nor necessarily will they be following, right, the whole idea of the comprehensive agreement on investment.  Right, forced labor was such a sort of contentious issue.  There was a fair amount of advocacy related to that.  And a lot of advocacy groups were really disappointed by the weakness of the provisions that were put into that unforced labor.  That may get revisited, but it suggests to me that that's an area where, you know, the United States and the EU may end up going in very, very different directions.  And so although you have this -- you know, theoretically you have commitment to -- shared commitment to democracy, I think if the United States is willing to impose a lot more economic penalties than the EU, that's going to make the transatlantic economic cooperation bumpier.

  And so, you know, I'm a little bit -- again, I think it's so early.  In some ways it would be great to have this conversation in a month, because I think we'd have a few more concrete signals to talk about.  Right now the issue with the administration is that we're still sort of generally at a fairly high level of generality.  The team is not all fully in place yet.  And so I -- it's hard for me to identify what those areas are.  Certainly one potential area where I think there will be a push to get cooperation with both China and Europe is on climate.  We just saw Xie Zhenhua, the counterpart to John Carey, was announced earlier this week in China.  There's, you know, reasonable popular support in the United States, upwards of half of Americans support some engagement with China to try to make progress on climate change; which is different than a few years ago.

  And but I think there the issue you might run into is that China's pretty clearly signaled that it may try to link climate -- progress on climate to the United States backing off some of these other issues.  My guess would be probably Hong Kong, Xing Jiang, maybe pressuring the South China Sea and things like that.  And the United States has said that they're not going to do the issue linkage or trade one issue off for the other.  And so that puts the Chinese strategy and the US strategy pretty much directly at odds.  And if -- it's not clear to me that Europe being onboard is going to break that deadlock, if that makes sense.  But the theory I would expect to see the initial effort.

  >> Great thoughts.  And Mike, let me get your perspective on some of the issues that Sheena raised.  First of all, the two of us in previous years attended a number of strategic and economic dialogues between the United States and China.  And they were very transactional, where China would say, "We would do X if you'll give us Y."  And we kind of got into that negotiating framework.  Do you expect that the relationship has likely returned to that kind of negotiated transactional kind of framework?  So that's part one.  And then the second part of the question -- and following up on the important comments from Sheena, is where do you see areas for cooperation, and how does that enter into the broader relationship?  And is that a softener, or is it more happening kind of in a parallel sphere?

  >> Great, great questions.  I think, you know, the willingness to engage and that kind of transaction I think is significantly reduced under the Biden team.  And I think it's going to be a very slow start in terms of reestablishing things like a bilateral dialogue.  You know, both Washington and Beijing are projecting a sense that the onus is on the other party to improve the relationship.  And you know, I think they'll work quickly to reestablish working level channels.  But the kind of summitry, you know, behind -- between Biden and Xi, or expansive bilateral dialogues I think is going to be slow to come.  You know, the US wants -- it's going to hold this out to -- as a carrot to the Chinese side, which, you know, tends to value the pomp.  They're going to want to see what China brings to the table.  The Chinese side, again, you know, thinks that the onus is on the US to take some initial first steps.  But it's going to be tricky I think on a lot of trade issues.

  I mean, you know, we used to -- I used to, you know, pooh-pooh the notion of having, for example, quantitative targets, that China would have to meet on US trade.  And you know, I think the phase one deal I don't think that that necessarily is very effective.  But you know, as China looks to reduce its reliance on the US, you know, we may find both sides, including the US, looking to use more creative measures.  And it may be that there is going to be a push to continue quantitative targets, but to do it in a more, you know, kind of comprehensive way, so there may be no avoiding the transactional aspect of this.  On the urge for cooperation, I think that what's going to be interesting is in most of the areas of cooperation we are also going to be seeing competition or attention.  Both are going to be there.  You know, climate, I agree, there's going to be cooperation.

  There's also competition, because this has become, I think, a strategic priority, and some of these technologies are going to be key to the future for both the US and China.  So you know, competition over standards, maybe over some of the raw materials, over technology will be there.  Other areas of, you know, cooperation will be, I think, on the pandemic where, again, there's competition, there's vaccine diplomacy, especially coming from the Chinese side.  On security issues like North Korea and Iran, these bring the US and China to the table, but they're also points of conflict and, you know, targets for US sanctions.  So it's all going to be in the mix.  There's going to be more cooperation, certainly than under Trump.  But even within these areas it's going to be I think some tough rowing.

  >> Yes.  In our last few minutes, I think it's really important to look at how these dynamics are likely to play through, specifically in the tech sector.  Are we expecting competition, and even fragmentation in areas like 5G, and AI, or is there scope for actual coordination and integration, and if you will, global economies of scale?  How do these various forces play through in this very loaded sector, which has been right at the heart of Trump's efforts over the last four years to stall China's rise?  Sheena, why don't you go first, and then like to hear Michael's view on kind of the outlook for technology and tech competition as it's related to this relationship.

  >> Yes; I mean, so I think it's going to remain a center point of competition; bottom line.  And I think you're going to see that very, very consistently, you know, with some changes in approach, but fundamentally that this is going to remain a domain mostly of competition.  I'm curious if Michael disagrees with that, but I just don't see a lot of room for optimism about cooperation there.  But again, this is in an area where the US and say for example, some of its natural geopolitical partners or partners in a governance coalition are a bit out of step with the United States too.
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  Right, GDPR is very, very different than the United States approach to data management, data security.  And so I think you're going to see, you know, maybe there will be an attempt to harmonize the US and the European approach.  I would probably work on that if I was sitting in government, but I'm not.

  And I think that's not going to be a short-term process, right, in part because the United States is in the middle of large debates about what the role of tech is that became very politicized in the last, you know, election cycle, with complaints about big tech and all of that.  And so some of that surface level stuff just tends to color the environment in which the overall conversation about the -- about US/China tech competition plays out.  But you also see that, you know, US tech companies are themselves arguing for a certain amount of -- again, selective decoupling.  And so you had some pushed from the tech side to try to get some more geopolitical cover from the US government.  So I think this is an area very much -- and on the Chinese side, right, you see a clear effort at cyber sovereignty, at making sure that, quote, unquote, "national champions" get protected, get, you know, sort of nurtured and promoted.

  And that really Chinese geopolitical interests and the market interests of a lot of big Chinese tech companies are pretty closely intertwined at this point.  So I look a lot at surveillance.  And one of the biggest predictors of where China is going to export sort of surveillance and tech platforms related to policing, and public security, and data integration is whether or not they have a strategic partnership with China.  You just take the list off the Ministry of Foreign Affairs website, run the regression, and that pops as the most significant driver of these exports every single time.  The interesting thing is that they actually don't appear to reduce crime, which is the big marketing point that [inaudible] uses.  Right, so that that means that this really is sort of, you know, a political and a strategic framework that's driving a lot of this nod of sort of like, "Oh, they're just market-competitive technologies."

  They actually don't appear to be.  And I would expect the Biden team, if they're smart, to start emphasizing that a little more.  Like same with vaccine diplomacy, right, okay well fine, does this work as well as the United States, which might be a little bit slower, or might be a little bit, you know, less cheap, and here you go tomorrow, but as something that the world can have higher confidence in.  So I think that's the sort of shift in competitive dynamic that I expect to see, but I don't expect the competition itself to go away, not just like I said, because of these factors on the US side, but also because it's -- we have very clear plans and indications already from China that they view this as competitive, and there's a long-term competitive strategy already set in place.

  >> Great.  Great.  And Michael, in our last couple of minutes, how do you see tech evolving?

  >> Yes; no a spoiler alert, I totally agree with Sheena.  I think, you know, on the US side the emphasis is not going to be a reversal on tech policies, it's going to be about more sustainable policies.  So in an area like export controls, not going to be softening things for Beijing for the relationship, but looking to have more industry inputs that these -- there's less pullback to long-term, you know, US tech competitiveness.  On the Chinese side, as Sheena said, a lot of this is [inaudible].  You know, Europe is really interesting.  Europe, you know, again, is trying to apply this notion of, you know, sovereignty and autonomy to tech as well.  They have real challenges with European alternatives on cloud computing, on semiconductors, and AI.  So it seems as though Europe is really using as its point of leverage, regulation, and being, you know, the standard setter; which means that we do have I think another factor pointing towards fragmentation.

  And you've got different tech ecosystems emerging.  You know, in Europe it's what, "Eurasia Group" we've been calling it, or "regulatory capitalism".  In the US it's still kind of an "America first" approach, you know, even though Trump is no longer president, protect -- you know, have US tech companies, you know, front and center protect their IP from China, look to defend their market share in Europe and elsewhere.  And then China, as Sheena said, it's very much a party state capitalism where tech is even getting even more firmly integrated in, you know, those geopolitical goals.  So I think "fragmentation" is the right word for it, and probably better than "decoupling" as a concept.

  >> Great.

  >> Let me just say, I would completely endorse what Michael said about the -
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  Attempt to put these policies on a more sustainable and systematic footing.  What we've seen under the Trump administration has largely been like a very specific, you know, company-specific use of executive orders.  And I think both the targets and the tools will shift a little bit under the Biden administration, and become more systematic, and therefore I hope more sustainable, like we've said, you know, avoiding some of the internal blowback that the Trump administration got with that particular company by company approach.

  >> Right.  So it's not only the evolution of the technologies themselves, but the evolution of the regulatory regimes in which these technologies are operating.  And one could even include the tax regimes in which these technologies are operating that will determine the extent of integration, or fragmentation going forward.  Well, thank you both for your wonderful thoughts and perspectives.  And Keshav, let me turn the floor back to you for any audience questions and the wrap-up.

  >> Yes; thank you both so much.  One question that has bubbled to the top of the audience voting, so it would be good to get kind of quick reactions is staying a little closer to the region itself in China is Hong Kong and Taiwan; what happens there, and you know, maybe in a quick sound byte or two where do we see that playing out, either/or both in terms of the financial implications of Hong Kong being a financial center, and then of course alliances that we have on the Taiwanese side in terms of protection.  So I don't know if Sheena if you've got a quick comment or two, and then Michael.

  >> I don't necessarily see a lot of change to Taiwan policy.  I think you may see a slowdown in the willingness to push the envelope, right, some of the things that the Trump administration was willing to do, like send a UN ambassador.  I would be surprised to see anytime soon in the Biden administration.  I don't know that I'd take it completely off the table, but I would be really surprised to see something like that in the next year.  But you know, I think you'll see continued support for Taiwan's international space, and an attempt to make sure that Taiwan has the ability to defend itself.  What you may see is coupling that with a little more signaling to China, probably quietly or privately, about what the US can offer.  Right, the flipside of deterrence is that you have to tell somebody, "Okay, if you don't take this step that we're trying to persuade you not to take, then here is what you gain."

  And so I think we may see, at least privately, some more emphasis on that positive incentive for restraint on the Chinese side.  But you know, on Hong Kong I really -- again, politically Xi Jinping has defined this as national security.  That means that the room for the CCP's willingness to sort of back down on the political controls it's imposing is very, very low, and its willingness to accept external costs for what -- the path its chosen to embark on is pretty high.  I think it's probably priced in a lot of international backlash.  So unless there's some sort of unexpected development in terms of people's willingness to use Hong Kong as a financial center, which I haven't seen evidence of so far, I just don't expect a real reversal or slowdown in what the CCP is doing there.

  >> Michael, any final thoughts on either of those topics?

  >> Completely agree.  I think Taiwan stays a flashpoint, but I think the risk of acute conflict for all the reasons that Sheena said is pretty low.  I don't think we're going to see, you know, China invade Taiwan anytime soon.  And, you know, Hong Kong I think just kind of continues to morph over time to be more of -- even more of a capital gateway to and from China, and less of a kind of global financial center.  But it's importance, you know, continues, especially with China's capital markets opening and as China looks to reduce reliance on US capital markets, given the geopolitical tensions.

  >> Great.  Well, thank you both so much.  And thank you to all for joining.  Just to close it out, I want to throw up a final quick poll question.  We obviously have an audience of investors, so we would just love to get now the sentiment in the audience.  Obviously, we heard a big discussion over this fragmentation, competition.  But there is investment opportunity we kicked off the bat.  So I wanted to see what people's feeling is in terms of allocation to China.  Are you planning to increase, stay the same, decrease some of the risk, and how you're thinking about it.  And as we wait for results there, again, I want to encourage everybody to check out www.pgim.com/cis for past recordings of our China Investment Symposium events, as well as other thought leadership.  And please stay tuned for our fifth installment, where I'll be hosting a fireside chat with Dr. Michael Pillsbury.  And as Sheena pointed out earlier, by having that conversation a month or so from now, we'll be able to even read more of these tea leaves of where the Biden administration is going.

  And Dr. Pillsbury is a noted advisor in Washington, and including being a close advisor to Former President Trump.  So it will be interesting to see his reactions to what the Biden administration has done.  Checking in on our poll, it looks like the voting is, you know, heading towards increasing, including a fair bit of people saying increasing substantially, but increasing moderately being the winner.  So obviously the audience is saying still an investment opportunity, but discussions like these hopefully help to read the geopolitical tea leaves.  With that, I just wanted to say thank you.  Thank you to Nathan for moderating.  Thank you to Michael and Sheena for joining us.  And thanks to all of you for joining.  There is a quick survey, if you wouldn't mind taking a look and offering feedback on the event.  But until then, on behalf of all of us for PGIM, I just wanted to say stay well, stay safe, and we look forward to seeing all of you soon.  Thank you.
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