Air China's Zhihang Chi Opines on Future of U.S.-China Relationship

Published in the June 2011 Issue

I understand that I'm perceived to be uniquely qualified to speak on U.S.-China bilateral issues because of my first-hand experience of China's past and my intimate contact with its present. But I cannot and will not claim in any way to have China completely figured out. If I did, I might as well claim to be able to time the market. As a matter of fact, the more I learn, the more questions I have, and the more often I say, I don't know. I care deeply for both countries. And I care deeply and harbor a measure of worry and concern about the U.S.-China relationship. As a practitioner and a stakeholder, I will share with you my thoughts on certain issues regarding this very important relationship.ooded, an unlikely party was watching closely with great anxiety: China. Why, because very quietly China has become the largest importer of U.S. agricultural products. China's import accounts for 15.1 percent of the U.S.'s total agricultural exports and is valued at $17.5 billion. A lot of it is soybean and other grains that are moved on barges along the Mississippi to grain terminals in New Orleans, where it's loaded on ocean-going ships that sail across the Pacific. Unbeknownst to most people, China relies on the U.S. to feed its enormous population. When the Mississippi was closed to barge traffic, China got anxious.

On May 20, 2011, there was an accident at a factory in Chengdu, a city in Sichuan Province in southwest China...The accident was an explosion that killed three people and injured 15 others. It's a shame that life was lost. But the accident was not a big one by any measure. It did, however, jolt the U.S. rather significantly, albeit quietly. This is because the explosion caused the company that owns the factory to suspend operations at all its factories for a safety overhaul. The company is called Hon Hai, and all iPad 2s and iPhones are made at its factories. This could potentially disrupt the supply of those hot Apple gadgets and produce bad publicity and even damage the Apple brand.

I hope those two events give you an idea how deeply the two countries are interrelated, often times in unobvious ways. Indeed, the United States and China are inextricably tied together. The United States is China's biggest single-country trading partner, at a volume of $457 billion in 2010. China is the United States's second biggest trading partner (after Canada). One is the world's sole superpower, and the other is the world's most populous country and the second largest and the fastest growing economy, predicted to be the largest by 2020.

A fundamental fact of life has been that China manufactures goods created and designed in the United States and uses the proceeds to finance our national debt. Today, China holds 10 percent of the U.S. debt. The U.S. has tremendous influence around the world, with China's influence ever increasing. A move made by one may very well have implications for the other. Any action without consultation or coordination could produce significant unintended consequences and ramification for both and for the rest of the world. The challenges we face are global in scale and scope and can only be solved with the help of global partners, including China. And those global challenges include Iran, North Korea, terrorism, environmental protection, energy policy, among others.

The good news is that Americans and Chinese get along very well. The two peoples genuinely like each other. We both work very hard. We both prize achievements. We pursue efficiency. We both strive for excellence. We both care about our family. We both are open and gregarious and love having a good time with our friends and family.

But I worry about the U.S.-China relationship. I must say what we read in the press and what we hear on the airwaves doesn't put us at ease. We hear criticisms of China all the time. It is probably a fair statement that coverage on China is dominated by negative reports. Even a supposedly unbiased media outlet such as NPR seems to have its focus on the negatives out of China.

I stand corrected if I'm mistaken, buts an avid NPR listener, I have my car radio tuned to NPR all the time during my daily 100-mile commute. Currency manipulation, trade imbalance, human rights abuse, jobs lost to China, pollution, IP theft, corruption-you name it. Accurate reporting, most likely yes. Am I complaining for China? Absolutely not. As a key cabinet member, Minister Wei, advised Emperor Taizong, who governed China about a thousand years ago and is arguably the most famous and accomplished emperor in Chinese history: "Listening to both sides will keep you enlightened, heeding one side only will misinform you." China will most likely benefit from these criticisms.

I'm voicing concerns on behalf of the American public because there is a dire need for them to understand the real China. Our schools don't teach our kids much about China, although that may be beginning to change. So the public relies upon our government and the media for knowledge and information about China.

How about the dramatically improved living standards? When I grew up in China, our family of four for the longest time lived in a room of 12 square meters. Today, the per-person average is 26 square meters. You think there's a housing bubble in China? No. How about the enormously improved personal freedom? How about their infrastructure? What about the tremendous efforts and investments in cleaning up their environment and developing alternative energy? How about tremendous enhancement in the efficiency of its bureaucracy? How about their speedy recovery from the global financial crisis? How about the status of Chinese women, who Mao said hold up half the sky? 38 percent of China's CEOs are women. I'm here because of a visionary woman who took the risk of hiring the first ever foreigner as a senior executive in the history of China's airline industry.

For U.S. companies in China, 71 percent expect an increase in revenue, 90 percent are optimistic for the future, 85 percent will increase investment in 2011. 87 percent of companies reported revenue growth, 79 percent companies are very profitable, and 61 percent increased market share for Chinese products/services. Again, the general public gets information about China mainly from our government and from the media. Unfortunately, if all they hear is negative sound bites, it's hard to see how they can develop the right perspective about the U.S.-China relationship.

Indeed, both sides have apprehensions about each other. The biggest fear that China harbors is being encircled and contained by the United States The biggest fear of the United States is being rendered irrelevant in the Asia Pacific region by China's fast-rising economic and military power.

The Chinese are undoubtedly intensely proud, for good reasons. They have an uninterrupted history of 4,000 years. In the last 2,000 years of its unified history, they were the wealthiest country in the world for about 1,800 of those 2,000 years. But unlike the United States, China has not been known for projecting its power or values overseas. What China demands is respect. In its 2,000-year unified history, the way it exercised its influence was through a tributary system. Indeed, today there are no Chinese boots on foreign soil. Culturally, a deep-rooted Chinese value is harmony. For anybody who has been to the Forbidden City in Beijing, the three main buildings in the royal palace are named the Hall of Supreme Harmony, the Hall of Central Harmony, and the Hall of Preserving Harmony. Everybody in China, I really mean everybody, is familiar with the expressions, "harmony is priceless" and "harmony yields wealth." The top priority of the current government in China is to achieve and maintain "harmony." China has not been known for seeking or initiating conflict with anybody, particularly with the United States.

Practically speaking, it is hard to see how they want to seek expansion overseas when they have tremendous challenges at home. China's development is severely imbalanced. In the words of Premier Wen Jiabao, the present mode of development is imbalanced, irrational, and not sustainable. The coast is as developed as any developed country in the world and the inland regions can be as backward as any developing country in the world. If we think we are going to be bankrupted by Medicare and Social Security, China will have a much worse problem, a crisis in the making, in less than 20 years as increasingly one working adult supports six retirees as a result of the one-child policy. Every year in China, millions of people move to urban centers, and the government needs to create 45 million urban jobs in the next five years to keep up with that migration. How many jobs did President Obama say he would create?

Years ago, Mr. Deng Xiaoping, the paramount Chinese leader who's mostly credited with where China is today, once stated that China must "dull the glow and stay inconspicuous." Today, in spite of the whisper that advocates seizing the moment, the current leadership under Mr. Hu and his top advisors has publicly stated that China will continue to dull the glow and stay inconspicuous.

The U.S. and China disagree on many issues. It would be inconceivable that two huge nations with different cultures and histories didn't disagree. The danger, however, is to let our disagreements dominate our agreements. And our politicians and the media have done a grossly inadequate job of helping the public understand what's really going on and helping them put things in perspective. Instead, barbs are lobbed back and forth on the airwaves and the atmosphere of the U.S.-China relationship continues to be poisoned.

For example, politicians and the media accuse China of stealing jobs from American workers by manipulating the Chinese currency. China started to peg the yuan to the dollar in January 1994. How did our politicians and the media just wake up to the currency manipulation issue now? Also, will the yuan's appreciation win back American jobs? Probably not, because the root of the problem is capitalism itself. Capital by nature will go after the maximum profit. Sure enough, as the yuan has been appreciating about 25 percent in the last few years, the unemployment in the export manufacturing sector in China has shot up as expected. But have those jobs come back to the United States?

We don't know. According to a Wall Street Journal article titled "Who Gains, Who Loses," some of them are going to Vietnam because American capital has found a new haven for low cost and cheap labor there, just as it has made its way over the years from Japan, to Singapore, to Hong Kong, to South Korea, to Taiwan, and eventually to China. We at Air China certainly have first-hand experience. My L.A. freighter used to make a stop in Portland, Oregon, to pick up Nike shoe parts (mostly soles) destined for Nike's factory in Qingdao, China. Well, that flight has been pulled down for more than a year now. Why? Because the volume had been dwindling and finally there was nothing to ship any more. The Nike factory in Qingdao has been relocated to Vietnam. Of course, when we pulled down our flight, some collateral damages in the form of lost jobs in Portland and lost airport revenues resulted. Incidentally, will our exports to China benefit from the yuan's appreciation? Again, we don't know. According to the same Wall Street Journal article, Japan will probably win because when the yuan appreciates against the dollar, it also appreciates against the Japanese yen, making Japanese exports cheaper. While we run a huge trade deficit with China, Japan enjoys a $49.6 billion trade surplus with China.

On human rights and democracy, frankly, this is not the best time to lecture China on our value system and our political system. Our credibility has suffered because of the financial crisis for two reasons. First, we all know that democracy is not the most efficient form of government that has existed. That's a given. But it is supposed to have an advantage that trumps all other systems, which is that it is well equipped with all the checks and balances that will prevent catastrophes. So then how did this meltdown occur? Worse, how come no one has been held accountable for the calamity and fat bonuses are back on Wall Street. Second, China has quickly rebounded from the crisis while our fragile recovery has been sputtering.

Now don't get me wrong. Should we raise those issues with China? Absolutely. Universality of freedom of speech, freedom of religion and freedom of assembly is one of our core values, which we believe is a missionary value that transcends cultures. As Americans, we simply have to express our opinion. It is also a fact that the exchange rate between the yuan and the dollar has been kept artificially low through government intervention.

Is it in our best interests to focus on issues that we disagree on and poison the atmosphere, especially when we suspect that forcing China's hand will not be very productive for either party at this point in time in history? The answer, in my opinion, is no. If we stick to our vision of a long-term relationship, and if we truly value our long-term strategic partnership with China, we must focus our attention on areas of agreement and work on them to generate real benefits for both countries and in the process strengthen the relationship and build trust that will enable us to tackle our differences more effectively down the road. Seek harmony and temper acrimony. I have no power or desire to suppress or interfere in freedom of the press. As a member of the public, I can only plead with our politicians and the media to provide well-rounded information for the real benefit of the American people, instead of catering to and fanning popular sentiment for their own benefits.

So if lobbing ideological barbs and waging a currency dispute won't produce concrete benefits any time soon, what will? My answer is a "feet on the ground" approach. It is advisable to have your feet on solid ground rather than being stuck in high-flying arguments...

...Figuratively speaking, we need to be pragmatic and tactful in dealing with China. Specifically, we need to focus on areas where we can generate real benefits for both sides and build trust. We can do just that by being good economic friends. Literally speaking, we have to have more Americans and Chinese visit each other more often because there's a desperate need for Americans and Chinese to understand each other better. Nothing comes even close to sight, feel and touch when it comes to achieve a good understanding.

With respect to being economic friends, I want to bring up the issue of FDI, which stands for foreign direct investment. Because I have zero expertise on investment, I'll be very brief. We all know what foreign direct investment does. It generates business and creates jobs. China's FDI in the U.S. is $2.3 billion in 2009. It rose quite sharply in 2010 to about $5.3 billion. Great, isn't it? Yes. But it's miniscule in the scheme of things. At any given moment, there's $2 trillion in foreign direct investments into the country. Furthermore, China is expected to invest $1 trillion to $2 trillion worldwide by 2020. Now we begin to wonder why our share is so small. Well, it's because our politicians and the media are crying wolf. The Chinese are coming and they're taking over our country and gaining control of our economy. Reuters ran a report two months ago called "The U.S. and China start an M&A Cold War." That doesn't bode well, does it? According to a recent Asia Society report on "Maximizing the Benefits of Chinese FDI," I quote, "Though the legally mandated screening organ for national security risks, the Committee on Foreign Investment in the United States (CFIUS), generally has operated in a fair manner, bad publicity stirred up by the threat of congressional interference is having a chilling effect on Chinese readiness to invest in the United States by sending confusing and unclear messages."

Nowadays, whenever a Chinese investment proposal is announced, the first question the media poses is not how many jobs it might create, but whether groups in Washington will try to block it, with little regard for whether there is actually any threat entailed. This is ironic, as most China-backed deals are not covered by CFIUS, and those that are almost always receive proper hearings. Moreover, because such hostile receptions scare away needed-and legitimate-investment, invite retaliation against U.S. firms abroad, and distract Americans from the serious task of assessing real security concerns, they are dangerous to the national interest. Here, the example of Japan is instructive. Japan's first investments in the United States during the 1980s were almost as controversial as China's, but in the following years, U.S. affiliates of Japanese companies invested hundreds of billions of dollars in the United States, and today employ nearly 700,000 Americans. The report concludes that "the recent growth of Chinese direct investment in the United States is proof of its great potential, but given the parade of political fear-mongering seen so far, those benefits likely will be squandered if steps are not taken to restore clear thinking." Again, it will be so unfortunate if we let fear and sound bites dictate our life and the U.S.-China relationship.