US politicians are scared of China’s rapid rise: Shaun Rein
Published: May 09, 2021 05:23 PM
Photo: VCG

Photo: VCG

Editor's Note:

There is a popular phrase in US political and economic circles, "It's never a good bet to bet against America." But Shaun Rein (Rein), founder and managing director of the China Market Research Group, believes that wagering against China's innovation is a losing bet and China is going to be the major growth driver for the world for the next 10 years. Why is he so optimistic about China's innovation and economic power? Amid growing divergences between China and the US, some global brands are stuck in a tough position. Will they have to take sides one day? What suggestions could be offered to them? Rein shared his views with Global Times (GT) reporter Li Aixin.

GT: As a businessman, how would you bet on the China-US competition from a long-term perspective? Which country would you put the majority of your money in?  

I agree that businesses shouldn't bet against the US. But both countries have the potential to do well. China clearly is going to be the major growth driver for the world for the next 10 years. While I wouldn't bet against the US, I would certainly invest more in China, specifically because of what the Trump and Biden administrations have done to China - forcing China's industry to become more self-reliant. 

There are a lot of opportunities in the technology sector, and in indigenous innovation. Five years ago, Chinese companies were completely okay with selling to US companies, and completely okay with importing semiconductors and other electrical equipment from the US. But it's clear that Chinese firms can no longer rely on American firms in the supply chain, so they have to focus on self-reliance. What that means is tremendous opportunities for innovation, technology, health care, advanced manufacturing and consumption. So I would invest more in China in the next 10 years. 

GT: You predicted not long ago that "unless there's war, I don't see how China won't replace America as the world's largest economy within 7 years." What led to the estimate?

It's clear that COVID-19 is going to be the straw that broke the camel's back. I think the main reason is you can see that the Chinese government, the business community, and the Chinese people are all unified. They're very proud of how China has been able to contain COVID-19 so far. While we look at the US, I'm worried about civil war there. I'm worried about the Democrats and the Republicans fighting. The country is not unified. It's very hard for the US to move forward in a good direction, when the political parties are fighting. Biden had his speech to Congress recently. He came up with a radical new agenda. He is trying to raise the taxes on the rich, and that's going to get a lot of anger from the Republican side. 

So it's very hard for the US to move forward in a unified manner. Chinese people, on the other hand, are even more proud now about where the country is going than they were two years ago. I think they really feel there's a can-do optimism. China can replace the US as the world's largest economy. China can become more innovative than the US. China can do anything which they did not necessarily believe China could do before, they have seen how badly the US has reacted. 

For example, before, everybody thought the US has the best health-care system, the best education system, the best financial system, the best regulatory agencies. Now, I think Chinese realize the US doesn't, China might. 

Secondly, people underestimate how meaningful a lot of the reforms that have taken place in China are, reforms such as infrastructure spending. When you look at the spending on highways and high-speed trains, there will be an increase in a lot more economic productivity over the next 10 years. We haven't seen it yet because of COVID-19, people have been reluctant to travel. But once COVID-19 is over, travel and infrastructure will increase economic efficiency. The government has also made great reforms regarding the hukou. That's also going to unlock a lot of consumer spending in rural areas. 

GT: You are very optimistic about China's technological innovation. According to mainstream US media analysis, President Biden is putting tech at the center of his China strategy. And some say the US is shifting from Trump's "decoupling" to Biden's "small yard, high fence" tactic. How do you view this more targeted approach? What could it result in?  

What Trump did to China was awful. What Biden is doing is just as bad. It's clear that the US wants to destabilize and destroy China's high-tech industry. They want to control tech standards. It's not because Huawei or Douyin (Tiktok), or Chinese firms have done anything bad. I've seen no evidence yet from the US that these Chinese firms are doing anything overly bad that is not normal in other countries. It's clear that the US feels that future war is not conventional war, but over controlling tech standards, and whoever dominates the tech world will be the major global superpower. 

Over the last five years, China has become the most innovative nation in mobile APPs. Whenever I go back to the US, I feel like I'm back in the dark ages. 

China has Alipay and Wechat pay, which I think is one of the reasons why China is able to stop COVID-19. In the US, people are still using cash and physical credit cards. But because of what Trump and Biden have done to China - such as crippling Huawei - Chinese firms have to focus on semiconductor development. Four years ago they didn't need to, now they have to. This is a do-or-die situation. So you're going to see the government and business will all have to work together, in order to shed the yoke of American imperialism in technology, it's a very dangerous situation. 

I work with a lot of American software and technology companies. They are my clients. They're angry, because they sell to Chinese companies. They were generating billions of dollars a year in profits in China. All of a sudden, they are no longer allowed to sell to Huawei. They can't sell to these companies. 

China is the biggest market in the world for Intel, Qualcomm and Texas Instruments. Those businesses will be gone in five years, because Chinese companies will have to sell what Intel used to sell. So Biden is destroying the American tech sector. 

When it comes to semiconductors, China is five to 10 years behind the US. So basically hysteria has captured the US, in DC. You bring up anything about China, automatically Americans go crazy. They think that it's a new red scare. It's absurd that people aren't thinking logically right now. 

The US has a rotation between the government and the war machine. Take the new Defense Secretary Lloyd Austin. After he left the US military in Iraq, he worked for Raytheon, a weapons maker, as a board member. Now he becomes the secretary of defense. It's rotating between government and weapons, which is very dangerous.

GT: You tweeted recently, "It seems that there is never an equal partnership with the United States." Why? China is hoping for dialogue and interactions on an equal basis with mutual respect, yet the US regards China's stance as aggressive and calls it "wolf warrior diplomacy." What's your take?

The US needs to treat China from the perspective of an equal. But right now, the US needs to stop lecturing China on everything. The US has this belief in American exceptionalism. The world order was historically made by Caucasian nations. They have always limited the ability of yellow, brown, and black people to get a fair say in the world. 

It's clear that what Chinese government has done to help the Chinese people work. China's government is doing better for Chinese people than what the American government is doing for most Americans. It's really time for the US to stop lecturing other nations, bullying them, and to understand that it's natural for China to gain a more prominent say in global affairs. 

In 1989, China and India both had the same per capita GDP, about $300. Now, India's per capita GDP is only $2,000. China's figure has passed $10,000. Obviously, China has gotten a recipe for economic success. China has also been able to increase gender equality. When you looked at it in 1989, much more males were literate than females. Now, for people born after 1989, over 98 percent of both males and females are literate. 

For me, when I look at the success of a country, I look at gender equality, education, attainability, as well as economic improvement, and China is doing exceptionally well. In the US, the quality of life for most people has actually deteriorated over the last 40 years. So it's time for the US to learn from China rather than lecturing it. 

The US has criticized China for having aggressive "wolf warrior" diplomats, but the US has been far more aggressive, far more undiplomatic. That's one thing. On the other hand, China's government needs to learn how to say things in English to the Western world. Sometimes the word choice doesn't fit an audience in the West. When they say something in Chinese, I understand what they mean and it's well received in China. But when it's translated into English, it sounds aggressive. So I think that China should learn how to be a little bit more charismatic and use humor when they're criticizing as well. Certain words don't sit well with American audiences. 

GT: While the US is pilling growing pressure on Xinjiang and Hong Kong affairs, global brands seem to be confronting a conundrum - if they support Chinese stance, they will hardly be accepted by the Western world. And if they oppose China's stance, they will unlikely be embraced by Chinese consumers. How do you predict the future development of multinational companies in China? What suggestions or tactics would you offer?

Yes, Western brands are in a tough position. If they don't criticize China for certain labor practices, American and European governments and human rights organizations will criticize them. But if they do criticize China, Chinese consumers will criticize them and boycott them as you've seen the damage on Adidas and H&M that has been expensive. What we recommend to our clients is to try to be as apolitical as possible, but also show at all times that they respect the Chinese people, the Chinese government and China as a country.

Second, the reality is that China is their big growth market. Chinese consumers right now are sensitive to being oppressed by Western governments. Brands should take the stance of being friendly to the Chinese consumer. I'm kind of shocked that Adidas hasn't said anything. They've been quiet. Why have they not said that they like the Chinese people? That's going to have long term damage on its brand. 

Shaun Rein Photo: Courtesy of Shaun Rein

Shaun Rein Photo: Courtesy of Shaun Rein

GT: Will there be a day when Western brands have to take sides? 

Frankly, that day is here. 

The Chinese government still wants investment from Germany and the US. They rolled out the red carpet. They want investment from BASF and Apple because China is not as ideologically driven as the US. China just wants to create jobs, to create a better quality of life for its citizens. It's actually the US, the democracies and the Quad countries that are far more ideologically driven. They are far more political. 

But I think the reality is that these Western brands need to be investing in China. This is the market. They have to invest here and if they don't do it now, they're going to lose out, because Chinese companies are coming on strong. The "made in China" label is no longer a bad meaning anymore, "made in China" actually equals quality. You see now, Li-Ning or Anta is as good as Adidas. Shein is as good as H&M. Li Xiang, XPeng and NIO are as good as Tesla. So going forward, China is going to be dominated by Chinese brands, unless the Western brands invest more, and are respectful enough of the consumers and have good management. 

GT: Do you think Western brands will accept and adopt these suggestions? 

I think that they should adopt them if they're smart. But there are two problems. First, there is almost no Chinese or China-based people who are on the board of even the world's largest companies. That is really shocking. So they don't have people with China experience either on the board or at the CEO level. So they don't really understand what is happening in China and how to navigate. You see some of these companies generate 10, 20, 25 percent of their revenue in the Chinese mainland. How come they don't have a Chinese mainlander on their board? 

Secondly, you see absolute lies in the Western media. You can take a look at The Atlantic, Quartz or The Telegraph. It's just complete sensationalism and biased narratives in the New York Times or in the Wall Street Journal. So if you are an executive sitting in Germany, or an executive sitting in the US, and you've never really been to China, you don't have any senior executives around you who lived in China. How do you know what is going on? They've been lied to by their own governments and by their own media outlets. That is one of the problems. So China needs to be able to create a better narrative about the country and get more truths to be told to the international business community at the senior levels. 

GT: This year marks the 50th anniversary of Henry Kissinger's first secret visit to China. China-US ties witnessed a historic breakthrough 50 years ago. Compared with 1971, how do you view the current willingness to get to know each other between Chinese and US societies? Based on your experience in communicating and working with people from both countries, do you think the door of efficient and sincere communication is closing?

There's no willingness in DC. That's the problem. I always wanted to play a Kissinger-type role myself, and be able to do back-room meetings between the US and China. It's clear that people in the US and DC are so scared about China's rise. They don't want to get to know China. The US lacks great leadership. The US lacks great statesmen. Trump was crazy. People voted for Biden not because they liked him, but because they didn't like Trump. 

When you look at the people below, people like Kamala Harris, she lacks an international perspective. Both Democrats and Republicans all lack Asia experience, and all have very little international experience. Antony Blinken and Jake Sullivan have some European experience but not much. This is very different from the Nixon era. The Nixon era had Kissinger who was born in Germany. He was an immigrant to the US. You have people like Brzezinski, who was advising Carter, who was born in Poland. So the quality of the leadership and those advising presidents right now are really pathetic, provincial and unsophisticated compared to the Kissingers and Brzezinskis of the 70s and 80s. In those days, there were a lot of American ambassadors who were even born in China and spoke Chinese fluently. 

Secondly, The US was confident when Kissinger was the US secretary of state. The US was a powerful nation. It believed in itself and knew that it was the dominant global power. It would try to do deals with China, because it wasn't scared of China. It also felt that American-style democracy was the best and was a model that China would eventually adopt. That's very different from now. Right now, it's clear that China is on the way up and the US is in decline. So the US is scared. 

Thirdly, as I mentioned before, no one thinks that American-style democracy is necessarily the best in the world now. China has created an alternative political system that succeeds. It's not like in 1971, when the Soviet Union's economy was crumbling. So I'm quite concerned about war. I hope that rational minds will prevail in DC. 

The Trump administration stopped all communication by cutting things like the Fulbright Scholar Program. I hope that the doors of communication can open. I hope it will be done for the business community. I'd like to meet more Chinese leaders if there are opportunities and I wish I could do more behind the scenes.

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