Q&A: Robert Zoellick Says Increasing Scrutiny of China Reflects Nation’s Accomplishments

Recent criticisms of China’s lending to foreign governments are, in a way, “a measure of China’s accomplishments” because they reflect the heightened expectations that come with increased power, former U.S. Trade Representative Robert Zoellick said.

The country’s multi-continent Belt and Road Initiative and its increasing engagement with Africa in particular have come under fire from commentators who say many developing countries are becoming increasingly mired in Chinese debt. China has defended its overseas initiatives — which include lending, investments and aid — as cooperation aimed at win-win results.

Zoellick, who headed the Office of the U.S. Trade Representative from 2001-05 and the World Bank from 2007-12, called on China in a 2005 speech — just four years after the country’s accession to the World Trade Organization (WTO) — to become a “responsible stakeholder” that can “strengthen the international system that has enabled its success.” Zoellick’s “responsible stakeholder” concept has shaped much of the academic and even state media discussion of China’s role in the world.

A lot has changed since 2005, including the fact that “China is more powerful and more influential” now, Zoellick told Caixin during his recent visit to Beijing for the 2018 China Development Forum, where he spoke at a discussion session.

Zoellick spoke with Caixin about current U.S. perceptions of China, the continued relevance of the World Trade Organization, and multilateral cooperation, in an interview on Saturday. Below are edited excerpts from the interview.

Caixin: In 2005, you called for China to become a “responsible stakeholder” in the international system. Thirteen years later, it seems that the mainstream perception of China in the U.S. has changed significantly. Do you think the current circumstances would still allow a return to the mood that gave rise to the “responsible stakeholder” concept?

Zoellick: I think, in some ways, the current environment reflects some of China’s success. Because when China came into the World Trade Organization in 2001, it was a very different country from what it is today. And I think that the world has changed. There have been changes in the U.S. as well. But as China has been successful, it’s grown more influential in the world. And so that makes Chinese policies even more important.

I think what’s happened in the U.S. recently is there has been a convergence of events. Some of this obviously comes from President (Donald) Trump, but it runs deeper than President Trump. So part of my message to my Chinese friends is that while they will have difficult negotiations with the president and his team, it’s important to recognize that some of the anxieties in the U.S. extend beyond Trump. Even people who disagree with President Trump on his policies have some concerns about the future of China. Let me just give you some examples.

One, over the past five years, it appears that China’s state sector has grown in importance. The state-owned enterprises have been getting more credit than the private sector even though, as the work of Nicholas Lardy at the Peterson Institute shows, the return on assets from the state sector has been declining. That focus on the state sector has created a concern among some Americans and Europeans that China is turning to a model of state capitalism. And a state capitalist model isn’t fair for the private sector, either in China or the U.S., or Europe, so people worry about it as an alternative economic model.

Second, a number of foreign companies have done very well in China, but over the past few years, some of their frustrations have increased. The issue of forced technology transfer draws a lot of attention. That was clearly prohibited by the WTO accession. But companies are afraid to provide the evidence because they’re worried that there will be retribution or issues of intellectual property rights, or cybersecurity, or licensing. My guess is, some of the Chinese private sector firms face some of the same challenges. But the effect of that has been that the business community, which used to speak up for the relationship with China, has grown silent. And so one issue is whether China can win back some of their support with a return to some of the policies that I think would also help China.

A third issue is the Made in China 2025 initiative. Now my guess is there’s lots of reasons for this initiative. It may be a planning vision. I know that China’s labor force is actually shrinking about 0.6% each year for the next 15 years, because of the (now-defunct) one-child policy. So it’s understandable that China needs to move up the value-added chain. But to the outside world, they look at the papers on Made in China 2025 and they’re fearful that it’s an effort to try to dominate the technologies of the future.

So my point is that these topics have converged and are creating a worry because China is more powerful and more influential.

As you know, the U.S. administration has said, maybe it was a mistake to bring China into the WTO. I don’t believe that. But on the other hand, as some Chinese officials have said, the suit of clothes that fit China in 2001 no longer fits today. So the issues now that China faces are in part whether it will continue to support the international system along that idea of responsible stakeholder.

Do you think the labels that the Trump administration has imposed on China, such as “strategic competitor” or a “rival power,” reflect genuine thinking in U.S. strategic circles? Or is it just a reflection of the mentality of a small group of people who have taken power?

Well, I don’t want to debate the labels. As I’ve written in the United States, President Trump’s view is that the 70-year-old international order that the United States helped build and sustain has disadvantaged the United States. I don’t share that view, but that’s his view. And so he thinks the United States has sacrificed too much, and so he feels there needs to be greater balance. Now, that view converges with some of the other issues that I mentioned about state capitalism, access for foreign businesses, concerns about the Made in China 2025 initiative. And so you will find that people in the U.S. and also Europe and Japan may not agree with President Trump’s tactics, but they’re concerned about the openness of the Chinese system.

And so frankly, I think there will be very difficult negotiations ahead. One of the challenges will be who’s in charge on the U.S. side, short of President Trump. Because (Treasury) Secretary (Steven) Mnuchin may have a different view than (U.S. Trade Representative Robert) Lighthizer.

But my suggestion to my friends in China is, whatever happens, don’t get too defensive. Don’t let the tactical overwhelm the strategic. Don’t become an autarkic and closed economy because I think that China’s future depends on a healthy international economy, even as you continue to try to move toward high-income status.

So let me give you two examples. I thought that the idea for the Asia Infrastructure Investment Bank (AIIB) was a good idea. And I disagreed with the Obama administration when they opposed it. But the real challenge was for Jin Liqun, the president, to pursue it in a way that had good governance, transparency, anti-corruption, work with other countries to try to make it a good multilateral institution. From what I’ve seen, he’s tried to do that. He actually went and hired some former people from the World Bank to help develop its charter and structure. So that is a good example of China stepping in for an important topic such as infrastructure.

But there’s a big debate, on the contrary, about Belt and Road. Is Belt and Road a geopolitical aim? Is it to try to absorb some of the overcapacity of Chinese industries? Will it build up debt? I don’t presume to know the answers to that. And it could be a model that would help develop corridors across Eurasia. But my suggestion would be to use the approach that China used for the AIIB. Make it more transparent. China has fought corruption issues, so make sure you fight corruption in the process. When you develop investments in other countries, think about how it can create local jobs, how it can create linkages, make it a true development project as well.

And let me give you another specific example. Many developing countries have built up a large amount of debt. Just as someone who’s watched the international economy over decades, I’m afraid some of those debt problems are going to explode at some point. To deal with debt, you have to have transparency. You have to know how much is owed. China has been reluctant to be open about some of those loans. My own guess is, when the problems explode, there will be pressure on China to answer, “What loans have you made?” So my suggestion would be, get ahead of it. Explain it now. Some of the loans may be good. Some may not be good. I don’t know that, but my point is, in some ways, one of the challenges for China’s leaders is the reforms have been 40 years. To a young person, that seems like a long time. But in an international span, it’s a relatively short time. China has come a long way in a short period of time, and yet there will be pressure on China’s leaders to take account of some of these systemic issues because China is big and successful. And so in some ways, it’s a measure of China’s accomplishments, but it’s an added burden.

Do you think the WTO framework today is still resilient enough for the U.S. and China to settle their quarrels legitimately and calmly?

That’s a very big and very important question, and I’m afraid we don’t have a clear answer to that. I’m not here to represent the administration’s views. They wouldn’t want me to represent their views, because at home, I expressed my differences with them on some of these topics, and that includes the policies toward the WTO. But from China’s perspective, I think it’s important to recall that when China came into the WTO in 2001, its commitments to open its markets were actually more far-reaching than many other developing countries. But still, the average tariff rate for China is about 9.9%. That’s about three times higher than the U.S. tariff rate. The tariff China has on autos is 25%. The U.S. tariff is 2.5%. So when President Trump says to the American public, “How can this be fair?” you can understand why he gets some resonance on the issue.

But even more important than the market access is that in the WTO, there’s an area called rules. So this would be rules for state-owned enterprises, rules for technology transfer, rules for subsidies and others. And the development of those areas has been stuck for a while, and it’s not advanced far enough. And so I think one of the questions would be: At some point, as China thinks about its interest in the WTO, will it want to work with the European Union, Japan, I hope the United States — but that’s up to the U.S. officials — to really try to open up markets more, but also reform some of those rules? Because the world economy has changed. Not only China has changed, technology has changed.

China has reiterated that it sets no political conditions for overseas development-related assistance. How would you evaluate the combination of China’s traditional policy of nonintervention and the multilateral programs proposed by China, like the Belt and Road Initiative or the Asian Infrastructure Investment Bank?

Some of the concepts from politics, like nonintervention, may not quite work the same way in development. So for example, if you’re doing a project that allows government corruption to make people rich, but doesn’t help the poor people, should you go ahead and do that just because the government likes it? Or is that a form of intervention? If you build a dam that has very dangerous environmental effects, is that a form of intervention?

So I think one has to be careful. You have to treat your counterparts with respect, but you can learn some things from the international environment. So, you want to have a development project that doesn’t just help the powerful, but tries to support everyone.

Now, I do think that there are lessons from the multilateral development banks about how they became too complex. Projects can take too long. So there’s always ways you can improve. And I think ideas from China’s experience and others can be beneficial.

I remember, for example, on one of my visits to China, talking to people who were part of a reforestation project. The reforestation obviously helped with the environment, and the watershed and supplies. But one of the people who was part of it said to me, you know, what was most important was what we learned about the accounting and what we learned about trying to run the operations in a way that avoided problems of corruption or other issues.

So I think China’s experience with the World Bank, from what I saw, was very effective because China used projects as pilots. They used it to test, and then after the basis of their own learning, they would expand it to other cases. And, as you know, the work with China moved into a lot of the knowledge process. So the China 2030 report that we did with the DRC (Development Research Center) of the State Council became the basis for the third-plenum reforms. So it’s partly loans and projects in developing the private sector. But it’s partly the knowledge transfer.

I know many people in China still feel it’s a developing country. I know you’re trying to deal with issues of extreme poverty that continue. I know that there’s environmental problems, but to many other countries, China looks very big and powerful. And so therefore, as you bring your expertise or your money or your experience, it’s important to try to do it in cooperation with others. It’s the same for other countries, including the U.S.

Contact reporter Teng Jing Xuan (jingxuanteng@caixin.com)