A Stable U.S.-China Relationship – Interview with Mr. Bob Hormats

On Thursday, October 6th, 2022, the China Focus Blog editorial team sat down with Mr. Bob Hormats to discuss the Ukraine War, the US-China relationship, and the financial system related to American companies. As a senior official in the administrations of five different American presidents, a top executive on Wall Street and a business leader working closely with American companies, Mr. Hormats is a pioneering figure in U.S.-China relations. We talked to him during his visit to San Diego in October when he attended Dr. Susan Shirk’s book talk (see our summary here ).

As Russia faces new challenges in its war against Ukraine, do you expect the Russia-China alignment to change at all? 

I was surprised that the language by Chinese officials before the Olympics was so broad in referring to the relationship. A “no limits” relationship suggested that Putin might have conveyed the message that Ukraine would just give up or the Ukraine government would fall — in effect, an easier success. However, the relationship has taken a different turn. Xi now may have some questions about the war. China wants to be a global leader. The prospect of getting too close to Russia’s atrocities must worry their diplomats. China still sees Russia as a major power and wants to keep reasonable relations with it, but this doesn’t imply that it agrees with everything Russia does.

Thinking back to your early diplomatic involvement in the U.S.-China rapprochement, are we in yet another period of triangular relationship and power jostling among the U.S., China, and Russia? Is this a new Cold War?

I think Russia is now in a hot war in Ukraine. Since the U.S. is supporting Ukraine in a significant way, the U.S.-Russia situation goes beyond the Cold War. In the long run, the U.S. has hoped that we could develop better relations with Russia. Inviting Russia to G7 was an attempt to integrate Russia into the global order. Russia was removed from G8 after the annexation of Crimea, not because the U.S. wanted to kick the Russians out. Neither is there a Cold War going on now between China and the U.S. There are of course tensions and the relationship is at its worst since we started working with China. There have been difficult times previously, but we have always kept the notion of cooperation and collaboration. Tensions have grown substantially over a short period of time, and divisions have grown and communication has deteriorated. I hold out the hope that we will find areas where our interests converge and the two great powers will figure out how to reduce and manage their differences better. For instance, the U.S. and China could work together on health, scientific research, and climate issues, all of which have resulted in real progress in the past.

Given that, as you say, tensions between the U.S. and China are at an all-time high, are there any policies that either side can adopt to ease tensions? 

China should gradually recognize issues such as the protection of intellectual property and trade secrets that are increasingly seen as threats to U.S. interests. A lot of American businesses have become less supportive and even turned negative on China. At the same time, China is struggling to curb its joblessness rate as well as to maintain its economic growth that’s been fundamental to a favorable environment for foreign investment/trade. Throughout the 1980s-1990s, American businesses were the strongest supporters of close ties with China, but their confidence has dissipated as they are expressing concerns over the deteriorating U.S.-China relations. 

The U.S., on the other hand, has the opportunity not to use relations with China for domestic purposes such as spreading anti-China sentiments. Such an approach only strengthens nationalistic rhetoric in China. 

Certainly, the U.S. and China don’t have to agree on all issues, but we should express our concerns through normal dialogue. A stable U.S.-China relationship has much greater implications for many areas in the world. In the global financial system, for example, China and the U.S. worked closely to bail out debt-ridden economies during the global financial crisis in 2008. More recently, the war in Ukraine has prompted Russia to militarize energy resources, and their actions have inevitably stirred the global energy market, in particular the economies that were energy-dependent on Russia. This also creates an opportunity where the U.S. and China can work together to prevent a free fall of global energy prices.

You had lots of experience in investment and finance, both in the government and in the private sector. If you were to advise a U.S. company today who is very interested in investing in China, what is your top advice for the company’s CEO?

There is significant interest for both sides in preserving the global financial system. There’s a large history of cooperation between American and Chinese financial authorities, so it is extremely important to maintain and develop this cooperation further. There can’t be any decoupling because it would ruin that system.

Be careful to ensure that the rules and protection of intellectual property are strong. Furthermore, find parts of China that are very supportive of the business and financial communities. American companies are under a lot of pressure to be more cautious about investing in China, in part due to human rights and supply chain issues. China needs the jobs, wants the companies, and knows American companies are assets. If Chinese companies come to the U.S., they also need to make sure that the trust factor is high.

Lawmakers in the U.S. are drafting new export control measures that could potentially impact China’s chipmaking industry. Do you think these export restrictions will be effective?

China is determined to grow as the major technological powerhouse in the next decade. Although China is becoming more technologically competitive, its development will nevertheless suffer from the withdrawal of key technologies by the U.S. Therefore, China needs to keep relationships smooth enough such that the supply chain of key components of technologies is not distorted or even destroyed. 

Total decoupling remains to be the worst option for both sides. Partial decoupling, however, in certain key technologies vital to each’s national interests, cannot be ruled out. 

How far do you think the U.S. can go in coordinating their policies toward China?  Can the U.S. bring its European allies and Asian allies together vis-a-vis China?

The notion of Cold War-like containment between the U.S. and Europe against China won’t work, even notwithstanding the lack of consensus within the E.U. China is far more integrated into the international system that’s also contributing to the economic development of NATO members and the broader Western community. 

In the recent NATO summit in Madrid, NATO categorized China as a strategic competitor, but not an adversary, since NATO wasn’t designed to counter China militarily; rather, its primary target is to prevent the European soil from an antagonistic Russia. However, NATO has been positive on the idea that Russia and China are collaborating to undermine the credibility of its role in regional security protection. Consequently, they desire to show non-military support for the Asia-Pacific region, where China’s presence is becoming more assertive. 

Do you have any upcoming projects that you’re working on?

There is a very important G20 meeting coming up in mid-November and Zelensky may attend over Zoom. It’s significant because we haven’t ever had a G20 meeting in the middle of a war. I helped with planning/sitting in meetings for 5 American presidents in the past. The G20 deals with global problems, unlike the G7. It will be very important for the interest of global stability that this is a constructive meeting. The G20 needs 2-3 positive areas to connect and make progress. Some areas that I think they should focus on include enhancing development assistance, helping deal with financial crises post-pandemic, working collaboratively on health and climate issues, and helping the poorest countries. These issues should be addressed bilaterally or plurilaterally under the umbrella of the summit. Diplomats can’t ad-lib it, they have to be prepared ahead of time to focus on these topics.

Do you have any practical advice for GPS students who are studying China and international relations and hope to work in the areas of international trade and diplomacy?

Get internships in Washington D.C., it helps to see how things work in government. You should find an area of a government agency or think tank where your expertise fits in perfectly. Furthermore, networking is critical. You learn a lot doing it, and it looks good on your resume to have this experience before you join the workforce.

Image Source: Financial Times

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Anna Kraemer

Anna is a Master of International Affairs student at UCSD’s School of Global Policy and Strategy, specializing in China and International Economics. She graduated from Cal Poly San Luis Obispo with a bachelor’s degree in political science concentrating in global politics. Her research interests include political communication, US-China affairs, and international trade.

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