DR. JIN: Thank you so much. It's great to be with you.

MR. LYNCH: Well, we're delighted to have you. I've been looking forward to this conversation.

Now, obviously, China and its economic and political rise is not a subject that's gone undiscussed in recent years. So what are you hoping to add to our understanding of China? What do you think has been missing from the conversation?

DR. JIN: Well, you know, for the longest time, there have been a lot of predictions about China in the last 30 years, and every time we seem to have gotten it wrong. So maybe we have to ask ourselves, is our understanding of how the economic system work actually correct? Is there only really one model of market capitalism in the world that can work? And China has demonstrated that it hasn't.

But what I would like to add in this book is exactly how it works, including the nuanced mechanisms and the accountability of the government, the competition mechanisms, that even if it is not an electoral democracy, there are mechanisms in place to keep the government in check.

And most importantly, to summarize, the political centralization, economic decentralization where the local mayors play a huge role in reforms, innovation, growth, protecting the environment is something that's absolutely unique in the world, and with that framework, with that new unique framework, we can understand better how China is in the world trade in technology, in innovation, and what its aspirations are in the global economic order.

MR. LYNCH: So how well do you think the Biden administration, specifically, understands China, and conversely, how well do Chinese leaders understand the United States?

DR. JIN: No, I think the misunderstanding really runs deep from both sides, and from the U.S. side, I think the understanding is still very limited. Just to give one example, the importance of history and culture is so very prominent and important and one of the deep reasons for the deep chasm. People's preferences are different. For one thing, the tolerance of government is completely different between the two economies.

In China, it's expected that the government plays a big role. Whereas, the amount of government interventions could be completely intolerable to some other cultures. But if you just look at some of China's greenfield technologies that have been really globally successful, like the EV companies, the government installed 4 million EV chargers around the world, unlike the U.S. where there's only 140,000. So that demonstrates that the people might be different, to being receptive to the government's role.

And I think the Biden administration has a group of experts who understand China to a certain extent, and I think there, we underestimate in China that there is a group of very rational players, ­cold-headed players, also in the American administration. And what the Chinese don't really understand is that the U.S.'s sole goal is not just to suppress Chinese growth, but that there could be an improvement in relations, especially if China pursues a potentially different methodology in the global world order, plays a more positive role. I think there's room for dialogue, but I think the Chinese at some point, have thought that this is impossible to improve. And it's very scary that either side would kind of give up hope because that becomes just a virtuous cycle and self-fulfilling prophecy.

And so I think the dialogue channels have to be open. Communication has to be open. The U.S. has to recognize that if coexistence is not possible, we're in a very dangerous world, and China has a completely different political system. Its people are different. The market mechanisms combined with the government, the role of the government will look different, but there's a huge space and scope for further collaboration and competition, which is actually a really good thing. We need more competition in the U.S. and in China, not less.

And in fact, one of the main reasons that China's innovation has spearheaded in these last few years is the fierce domestic competition. We're talking about tens of thousand e-commerce companies, thousands of autonomous vehicle companies, hundreds of EV companies, and it's that domestic fierce competition that is driving forward technology, and competitive collaboration is really how we ought to think about U.S.-China economic relationships.

MR. LYNCH: You mentioned at the outset that we in the U.S. and in the West, perhaps more broadly, have often gotten China wrong. If you go back almost a quarter century when China was preparing to join the WTO, the expectations among politicians in this country were that that process of free trade and trade integration would lead to a political opening in China as well, that the system would become more pluralistic, more, quote/unquote "free." That obviously hasn't happened. It seemed to be happening in the early years of the 21st century when I lived in China, but certainly under Xi Jinping, if not before, some of those processes have reversed. Was the U.S. naive to expect political pluralism to some degree in China, or is the jury still out on where the system there is headed?

DR. JIN: Well, I think it's not so surprising that after the Chinese joined the WTO, the Chinese are still Chinese, and I think this is a common assumption that economic convergence means all kinds of other convergence around the world, and we just don't see that.

We do see a lot of superficial globalization where the Chinese young generation have picked up lots of Western cultures and habits and all around the world, but they're deeply tied to their cultural roots. And we're probably going to see that in all other countries as well in going forward.

So I think that--but I do believe that the kind of disputes over trade, especially, is part of the old playbook. This is why my book is called "The New China Playbook," where China is headed. We're often having dated assumptions on China and the West, and the old playbook was of a lot about industrial subsidies, was a lot about technology transfers. The industrial subsidies have kind of phased out. No more talk of manipulation of exchange rates, and actually the U.S. is the one who is now embracing more industrial subsidies with the recent CHIPS Act and Inflation Reduction Act. I think the new playbook is about something different.

And to answer your question about evolution, you're absolutely right. China is evolving all the time, and I think this is actually one of the key things that the West misses as well. Don't read the headline news. Don't read these statements or actions that the government take as something permanent. It's changing all the time. The Chinese party might not change, but policies change all the time, and this is exactly the opposite to the U.S.

And even though to the West and, indeed, it is a case that political reforms have significantly slowed down, there have been political reforms since the joining the WTO, less so in the past few years, but society as whole, civil evolution, a societal evolution has also changed quite a great deal as well.

But you are right. I think the challenge going forward for China is can we actually have more political reform, because I think, to speak about the economy going forward, lots of people in the West compare China to the Japan in the 1990s, and I simply don't agree with that. There is a huge amount of scope for development in China with the 600 million people that haven't reached middle income by international standards, service is only accounting for half GDP compared to 80 percent in U.S. or Japan, and the many, many distortions. But what's really important for China to actually realize these, economic potential, is further political reform, and that, I think, as you rightly pointed, has slowed down. And also, how do you manage an increasingly complex society like China?

In the past 40 years, the whole nation was geared around one national goal, which was growth; today, no longer. Diverse opinions, diverse desires in life, much harder to manage.

MR. LYNCH: I want to ask you about the innovation part of this as well in terms of economic development. As you suggested, there's been a flowering of competition and progress in the electric vehicle space and elsewhere, but the innovation record, I think, more broadly, is a bit mixed. The first flight of the long gestating C-919 commercial aircraft, which have been in development seemingly forever, finally occurred a week or so ago. But the engines are still made by U.S. and European manufacturers. The Chinese, I think, have struggled on that front, and efforts to develop the most advanced semiconductors, despite generous government subsidies, have yet to really bear fruit. So what do you see as the link, if any, between the need for greater innovation and the need for political liberalization at the same time? Can you have one without the other?

DR. JIN: Yeah. Actually, this is one of the--what seemed to be an irreconcilable paradox to the Western eye, that somehow you have more regulations from the government, and there is a perceived notion of anti-business in China in the last few years. And at the same time, the government is pushing for technology innovation when it is--whilst it is cracking down on its technology companies. This is why we need a much more nuanced view about China. That's why we need to separate the hype from the reality and the macro from the micro. These things can actually coexist.

So you've rightly pointed out that some of these traditional technologies in high tech where China has a latent disadvantage has taken a long time to catch to the world frontier, but Chinese technologies, especially successful in greenfield technologies, especially like renewables--and it's very important to distinguish, you know, application kind of technologies and high tech and groundbreaking technology.

So a point that I made in my book is that China can actually master high tech because that takes accumulation of skills, the STEM students, the engineers, the huge market, all of which China has, but groundbreaking technology is quite a bit a different thing. And this is where China lacks the U.S.

And I want to argue that it is, in part, because of the civil society. We in China have 5,000 years of history, but still an inpatient nation where they've seen quick results and easy wins very fast in the last 40 years. But for basic research, for these long and uncertain cycles of investment, you really need patient capital and patient nation.

MR. LYNCH: So in recent months, prominent lawmakers from both parties on Capitol Hill have advocated a ban on the social media app, TikTok. They have talked of prohibiting Chinese companies from acquiring U.S. farmland, and the argument in both cases has been, look, there's no such thing as a private Chinese company, that because of the nature of the Chinese Communist Party and the presence of party cells in Chinese companies, at the end of the day, the party calls the shots, and so we in the U.S. need to be on guard against this. Are the lawmakers who worry about this wrong to do so? How do you see the party's ultimate control over these private--ostensibly private companies?

DR. JIN: Well, I don't quite agree with this characterization that private companies are not private.

But it's true that when you get into a Chinese system where you have to deal with local governments all the time, you know, what do you call that? The local officials, some of them have a stake in your company, but many of them, they don't. But they help the companies coordinate supply chains, attract talent, and then build mini–Silicon Valleys all around the country, and they're helping the entrepreneurs. Sometimes they take a stake; sometimes they don't. Sometimes they cash out within a year. It's not these kind of long-term subsidies that really characterize the Chinese model today.

Now, that said, it is true that state-owned enterprises often have a minority or an indirect stakeholder in some of these companies, and if you look at the data, a lot of the capital has links to state-owned enterprises. But state-owned enterprises are also run like modern corporations these days.

And so I think it is--you are right that is a very blurred line. This is the kind of the point that I make in the book, but private companies in the end make their own decisions, otherwise they won't be that successful in China. So these companies are some of the most successful companies in the world. So that--you know, they have these modern organizations.

And one really important statistic is 30 years ago, 30 percent of the wealth belonged to the private firms, private sector. Today 70 percent of the wealth belongs to the private sector, which is also providing 80 percent of the jobs, 70 percent of national output, and the majority of innovation. So where do you draw the line?

But if you look at the U.S., the U.S. subsidies to firms--or companies are enormous. Tesla, SpaceX benefits billions, Amazon. The list goes on and on. GE. So how do we really draw the line?

MR. LYNCH: Right. But not to belabor this, but at the end of the day, doesn't the party call the shots? I mean, if I'm a Chinese executive running TikTok or XYZ Corp and the party wants me to do something in the interest of the nation or the interest of the party, I can't say no.

DR. JIN: Oh, you're probably right. I'm not sure that this is also not true for some companies in the U.S. or other places as well. I'm just not an expert on exactly how this goes, but we're talking about 20 million private companies. There are a few in certain strategic areas, sensitive areas, that I'm sure is the case, but, you know, we have to look at the wider scope, and you can't penalize every single private company and accuse it of having the state being--making the call. I don't think that's really realistically true.

MR. LYNCH: Okay. Let's talk about demographics. There's been an expectation until recently for some time that China inevitably would become the world's largest economy, surpassing the U.S., which has held the mark for some time. But China's working-age population has crested and is now in decline. Much of this can, of course, be traced to the controversial one-child policy that the party promulgated for the past several decades. How much of a of a problem will demographics be for the continued development of the Chinese economy?

DR. JIN: The country is worried about its aging, but I don't think demographics make it to the top three big economic challenges for China. I think there are a few more important others. If demographics didn't explain economic growth on the way up, it's probably going to not explain its way downward. I'm more worried about the huge education skill mismatch of the young. Imagine a young generation, new generation, the hope for China, 25 percent of the highly educated youth are not employed and even though they have bachelor's degrees. That is, to me, the more pressing issue today, not the 0.5 percent reduction in labor force growth in the future. I think that if the government can't handle this mismatch and expectations for the young and as well as their families, this can raise social stability issues in a very profound manner in China. But the pension issue, the demographics, aging, the pressure that creates is an ongoing problem.

But if you look at the new generation, they are many, many more times more productive than their parents' generation, because they have a better education. So I personally care more about the labor force productivity rather than the number of people employed in the population.

If you look at China's economy, there are 30 million manufacturing jobs yet to be filled by 2025, 300,000 jobs in semiconductors. The list goes on and on. It's just that you can't productively deploy this new generation. That's the most urgent issue.

MR. LYNCH: And so what's--you rightly put your finger on this youth unemployment issue, which has been persistent over the last year or so. As you say, 20 percent of those 16 to 24 are jobless. That is a big problem. What's the answer, and does the government have the right approach to address it?

DR. JIN: You know, it's interesting because the new generation is radically different from the older generations. This is also a theme of my book, and we need to think about China as how the new generation shapes its contours.

The generation that--of Foxconn workers that opted for three shifts per night is gone. This is not the new generation. They're highly educated. They're privileged. They're confident. They're not willing to work or take up a lot of these occupations, and so for me, this is also a cycle of a new renewal. It's not a bad thing for China, as some of these jobs are passed down to other countries and the neighboring countries.

But more specifically, what the government can do is expand service industry. Service industry actually absorbs 30 percent of college students--or 30 percent of the service workers are with bachelor's degrees as opposed to 12 percent in manufacturing, and this is in health care, culture, entertainment, finance, et cetera. This is the jobs that can be available to the new generation. Also, the blue collar, the vocational training, doesn't really have a high standing socially for the Chinese society, but China looks to Germany as a model. China does not look at the U.S. What it perceives to be a financialized, property-oriented, knowledge economy is not the model for the Chinese government, but instead the technical industrial power of Germany with their vocational schools is the right model. So the government is also expanding the quantity and quality of vocational training, and people, the households, have to look at these jobs in a slightly different way.

But it is worrying, and I think we also have to accept that, you know, the Chinese new generation is also more relaxed. They're less hardworking. Again, not a bad thing necessarily for China and the world.

MR. LYNCH: Now in the end of the book, you write that this new generation ultimately is going push back on the government's government-knows-best approach to running the country. What do you think is going to happen when this new generation demands a greater say in how things are done? Pushes for more "self-determination," I think was the term you used. What's going to happen when that demand collides with the party's traditional approach?

DR. JIN: This is an excellent question, and I can't say that I know the answer to this question for sure, but I think it's an important development to watch.

As many international surveys show, this generation is tolerant, more tolerant, much more open-minded, care much more about social values, and I think they are a bridge between China and the rest of the world. That's the positive force, that their values converge more with the values of the new generation of other parts of the world, much more than the previous generations.

But again, this mismatch, this high unemployment, this lack of wanting to be married and have kids because of the present anxiety are some of the real key challenges facing this generation, for the Chinese government as well.

But it would be also interesting to look at, politically, what their sense is, because I have to say that the new generation is also observing the West, the Western democracies, and how they're doing. I'm afraid to say that they do not find inspiration in that model either. If you look at the international surveys, again, ever since '27, the new generation have turned, have made a kind of a radical change in their view about the party systems and the democracy, electoral democracies in the West. And that sentiment is going--continually going to evolve along with U.S.-China relations, geopolitics, and of course, how democracies do all around the world.

So it's not clear that they desire is something completely and radically different for China, but what we can hope for is there has been political reform in the past, and there still might be more political reform in the future with a new generation of leaders.

MR. LYNCH: Yeah. Xi Jinping doesn't seem to have much of an agenda for political reform, but what sort of thinking do you think is going on below his level, perhaps in the Central Party school or Chinese think tanks, and what's--what would be a conceivable evolution of the Chinese political system? Because I take your point that many Chinese have no interest in the American model, but there had been thinking for a long time, I think, at least in the U.S., that China might perhaps someday follow the East Asian model, the sort of liberalization that you ultimately saw in South Korea, Taiwan, Singapore, admittedly smaller polities, but a changing, more pluralistic environment. When you look 10, 20 years into the future, what do you think is conceivable for China?

DR. JIN: This is a extremely hard question, I have to admit. Part of the reason is I'm not an expert, that I haven't delve deeply into these political reform issues.

But first of all, let me just talk about the short term. I think let's not underestimate, despite the headline news and all these grandiose rhetoric, et cetera, the economic pragmatism. Pragmatism has returned. It's going to take hold for the next three to five years, because China's economy is in a completely deplorable situation. There is some kind of rebound but just not at all as people expect, and it's probably going to be worse next year.

And this has a lot of implications on a number of issues. First, you will hear a lot about security concerns, but mind you, the security department, economics department are two separate departments in China, somewhat to a certain degree in the U.S. as well. They don't coordinate with each other. Once they are really encountering each other, encountering each other in major ways, then the top leadership will come out to coordinate. So watch out for economic pragmatism returning, meaning that China is going to try to balance out these issues, improve relations with the West, especially with Europe to the extent it can, and really embrace that local dynamism that we talked about on the ground. I think that will still take priority in the next few years.

Really in the long term, you know, China has this incredibly strong apparatus. The political economic apparatus, that has evolved a great deal, but the foundation is very similar to what it was, even a thousand years ago. There was economic decentralization that long ago, and I just don't see that kind of centralized political approach really changing much.

China is a very large country compared to South Korea or the likes of Singapore as an example. I'm not sure people are convinced, even inside China, that a full-scale liberalization is really feasible. I just don't see radical changes to the political system in the next 20 years unless something radical happens to the economy.

And I think, despite what people predict, the economy will muddle through. If they manage to push through these more reforms, like the financial system, for example, and having 600 million people becoming middle class, then the political system is more stable than ever. If there's something radical happening, then, you know, it's an open-ended question.

MR. LYNCH: And you mentioned the economic problems, and certainly China has a long list, been trying to make a transformation from the export-dependent, manufacturing-heavy system to something more oriented toward domestic consumption. That's had sort of fitful progress but not complete success yet. How great is the danger that China ends up, as many other developing countries have over time, stuck in what the World Bank has called the "middle-income trap," where you advance to a certain level about where China is today but never quite make the full leap to the level of Japan, Europe, the United States?

DR. JIN: Well, that is, indeed, a key risk, but if you look at some serious studies about how to avoid the middle-income trap, two things are very important. One is infrastructure. This could be physical infrastructure, but I would actually expand that to include digital infrastructure for the modern age. And the second is human capital. Lots of countries get into the middle-income trap because they can't have--they don't have sufficient measures in both. China is not the case. There is--both human capital is improving a bit, you know, a fact that diplomas have raced ahead of the economy, as we've seen with the youth education problems. I really think that with--and with China's innovation, really, the kind of--whether it's applications or the high tech that we have discussed, kind of the way to escape the middle-income trap is really there.

But what these studies do not take into account, the rising geopolitical uncertainties and macro uncertainties. This is really the first time that a large developing country has encountered such external constraints. So that might be a key thing in the watch.

But just let me say, look, you know, the U.S. shock to China, okay, this U.S. technology investment restrictions, is now becoming a new normal. The Chinese have accepted that, and how many more things can they really fight about at some point? We talk about balloons, and then the list seems to be endless, but they're not. At some point, it's just going to become a new normal, and my prediction is that they will stabilize the relationships because the U.S. also does not want to have confrontation with China, and China will focus on its economy but also developing a parallel technology system.

And don't underestimate China's huge domestic innovation ecosystem. It's so important to have these downstream players like the autonomous vehicle, EV, the clients be very close to upstream players like semiconductors, and that loop, closed-link loop, this huge demand, the proximity, the industrial supply chain is very, very critical for technological development, just as we look at Japan, where the semiconductors' rise was very much because of the rise of electronics industry in Japan as well, and Japan is a closed economy.

Now, China doesn't want that. To be very, very clear, China is open for business in the rest--to the rest of the world, embraces globalization, and by the way, half of China's export is in supply chain exports, okay, input trade. So imagine having China not participate as much in the global supply chain because of geopolitics. It would be absolutely disastrous to the whole world's economy.

MR. LYNCH: Well, Professor, I've only got another 30 or 40 questions for you, but unfortunately, we are out of time. So I have to thank you for joining us today. It's been a great conversation.

Thanks to all of you for joining as well. If you’d like to see what other interviews we have on tap, head over to WashingtonPostLive.com.

I'm David J. Lynch, global economics correspondent here at The Post. Thanks again for watching.

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