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Economy

Interview with Charlene Barshefsky: Assessing Risk

Jan 25, 2024

Charlene Barshefsky, a former top U.S. official, discusses in the interview with China-US Focus the lengthy negotiation process for China's entry into the WTO and its lasting impacts on China's economy, global integration, and U.S.-China relations, despite current challenges in trade norms and geopolitical shifts. She also emphasizes the significance of international businesses having a presence in China and the considerations they need to evaluate when determining whether to expand to the Chinese market.  

Both China and the U.S. believe that protecting certain technologies is necessary for the protection of their own national security, says Charlene Barshefsy. She hopes that these definitions of national security don’t swallow up economic activity between the two countries.  

This interview is part of a special series of conversations conducted with speakers at the 2023 Hong Kong Forum on U.S.-China Relations. Click to watch the full interview here

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KJ Kerr, China-US Focus: 

Ambassador Barshefsky, thank you so, so much for being here with us today. We're so grateful that you were able to make the trip and be here in person at the Hong Kong Forum on U.S.-China Relations. With that, we will go ahead and get started. First off, during your tenure as the United States Trade Representative, you played a pivotal role in negotiating China's entry into the World Trade Organization. And we're wondering - how do you view the long-term impact of China's entry into the WTO? And what are insights you can share from your experiences that may be relevant to today's bilateral economic relationship? 

Charlene Barshefsky: 

Well, first of all, it's such a great pleasure to be here. I know the Forum was inaugurated by my dear old friend, C.H. Tung, Tung Chee-Hwa. And so it is really a matter of great pride for me that I am here, particularly in his honor. You know, negotiating China's WTO entry was a very lengthy process, both for the Chinese-side and the U.S.-side. Very detailed, very difficult, but always in the spirit of wishing to reach an agreement that could be mutually beneficial, but not only bilaterally…globally as well. And, of course, the Chinese-side was very ably represented. And the U.S.-side worked very hard to try and match the Chinese expertise and determination. I think for China, the result of WTO accession is still visible today. It propelled its economy forward. It propelled China's reform and opening, it helped to integrate China into the global economy, making it a critical feature of the global economy. And it strengthened U.S.-China bilateral relations, in many ways, quite beyond simply trade and economic policy. I think as we look at it today, we see a couple of different shifts that have occurred. One, of course, is geopolitical. That is to say, a China that has become very ambitious, as great nations are, but in ways that for the U.S. and many Western countries, has become difficult. And so that is going to have to be sorted out over time, obviously. Hopefully, in a positive and constructive way. But I think on the trade and economic side, what we have seen is rather than a continuing convergence with market economy norms, as predicted by WTO accession, we see a divergence from those norms, as China's economic system has changed over the intervening years. And that also poses challenges, I think not just bilaterally, but also globally. That also has to be sorted out in a constructive way. And I do think there are ways to do that. And hopefully, the two sides, as well as other countries can enter into a kind of informal negotiation to sort through these issues and see if we can find some resolution. But I think net-net, China's participation in the WTO is very positive for it and for the global economy. And so we look forward to that construct being further reinforced over time. 

KJ Kerr: 

Thank you very much. Looking at international businesses, what do you think some of the main issues some of these international businesses need to consider when determining whether to maintain or expand their presence in the Chinese market, which has become particularly complex over the last few years? 

Charlene Barshefsky: 

Yeah, it's become complex, but I think for business generally, put aside for a moment the geopolitical overlay, but for business generally, a predictable, regulatory, and legal environment is the single most important factor. If regulations change without notice, if the legal environment becomes idiosyncratic in nature, if business doesn't have confidence that the rules under which it operates today will exist tomorrow in the same form and in the same legal construct, it's very difficult for a business to remain in a country. It's very difficult for business to expand further in that country, as it will naturally seek to mitigate risk and diversify outside the country at issue. So for business, consistency, regularity, transparency, and a system in which they feel they can confidently do business are the most critical factors. If we have the geopolitical overlay, of course, for businesses, both U.S. and Chinese businesses, there is a certain political and government pressure on these businesses, which is not a welcome addition to doing business, but is nonetheless now a feature. It's a reality. And businesses have to navigate that, again, as they assess risk. 

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Click to watch the full interview here

KJ Kerr: 

Absolutely. What do you think is the significance of international businesses but particularly American businesses being in China and having a presence there? 

Charlene Barshefsky: 

Well, I think having a presence in China is critical for the growth, for the size of the market, for the positive competitive aspect of being in markets that are difficult markets, that are markets that are quite discerning. You want to be in those markets, because it helps you improve. And so business needs to be in China in a way that from a risk perspective is comfortable for them. And I think businesses will continue to be in China. They'll continue to invest in China. That seems quite natural and appropriate. 

KJ Kerr: 

Thank you. Transitioning a bit, how should the U.S. and China approach their trade and economic relationships with other Indo-Pacific nations? 

Charlene Barshefsky: 

Hopefully, on a more cooperative basis. Because fragmentation of the global economy, which is happening, is not a particularly positive trend. It's not positive for growth. It's not positive for global relations. I think we would like to see or I would like to see, I should say, an environment that is conducive to both countries operating in a more cooperative manner, particularly in the Indo-Pacific. This is the epicenter of growth globally. But it is also the epicenter of a variety of flashpoints globally, and so both countries being in the region in a compatible way, is of the utmost importance. 

KJ Kerr: 

Thank you. Let's see, I think we have time for about two more. How do you think the recent increases in U.S. export controls on semiconductors and artificial intelligence chips to China may influence trade dynamics between the two countries? 

Charlene Barshefsky: 

Both countries have a view of their national security. The U.S. view is encapsulated by the phrase, "high wall, small yard," meaning there are certain technologies the U.S. wishes to protect. That's a relatively small yard, because the U.S. definition of national security is quite narrow. High fence, meaning really protect those few technologies. China similarly has wanted to be self-sufficient in technology, self-reliant in technology. And so it's yard is rather larger and the walls are just as high. This is problematic for various reasons, but each country believes it necessary for the protection of their own national security. I don't see that changing in any significant degree. What I would hope is that these definitions of national security don't expand so much that they swallow up economic activity between the two countries. This kind of approach, of course, fragments, the global economy and fragments technology raises questions in the long-run about interoperability, raises the question further whether other countries will lean toward one side or the other, further fragmenting the digital commons. And that also poses enormous challenges. But for both countries, for both the U.S. and China. So again, I think the two sides now are beginning to talk about these issues, which is extremely welcome. And hopefully, they can reach some common understanding, at the least, about not letting security concerns, so overwhelm economic concerns that the relationship is swallowed by them. 

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Click to watch the full interview here

KJ Kerr: 

Thank you so much, Ambassador, we're so grateful for you for sharing those insights with us. And then lastly, we'd love to talk a bit about CUSEF's 15th anniversary. I think this is a huge part of our work and what we do: providing opportunities to engage in discussion, to foster communication. So we would love if you would to share perhaps your experience working with CUSEF, or even your thoughts on the significance of CUSEF's work, such as the Forum, in people-to-people exchanges, fostering dialogue, fostering communication during this time of increased tensions.  

Charlene Barshefsky: 

Well, this forum and these dialogues are a critical feature of the landscape now. And they are critical to forming an ecosystem where the two sides continue to engage, continue to talk, continue to try and work toward the resolution of issues. The prestige of the forum is very well known. And it is so well-regarded that it provides a critical focal point for a lot of these efforts. So I am thrilled to be back, thrilled to be here, of course thrilled to be in Hong Kong again, needless to say, and just delighted to see this Forum go from strength to strength, because the world needs it. And most assuredly the U.S. and China need it.

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