China Comes to MIT

An edited version appeared in Asia Times.

“China Comes to MIT” is an exhibit celebrating the 140-year history of students from China that attended Massachusetts Institute of Technology. On display at the Maihaugen Gallery in the MIT Library until November, the exhibit contains an amazing collection of personal stories of students from China that attended MIT from 1877 to 1931. Along with individual profiles, the exhibit also explains the circumstances and developments that led to the special relationship between China and MIT.

Eight of the first nine to enter MIT from China were members of the Chinese Education Mission, sent by the Qing government to receive an American college education. The CEM was the result of Yung Wing’s tireless effort with the imperial court promoting the idea of exposing China’s youth to western education.

Yung, under the generous sponsorship of American missionaries, was the first Chinese to graduate from an American university—Yale, class of 1854. He recognized the value of a western education in helping China modernize and convinced the government to send young boys, ages 12 to 15 to live with missionary families in New England and begin their American education.

The first Chinese student to matriculate MIT was Mon Cham Cheong in 1877 just ahead of the young men from CEM. Cheong’s father was a progressive minded, wealthy merchant who sent him to the US under the guardianship of a similarly wealthy merchant in Boston. Thus Cheong was also the first self-funded student from China.

In all, stories of 38 individuals were profiled in the exhibit including the bio of the first Chinese woman to enter MIT. She was Li Fu Lee; she married Kuan Tung (MIT ’27) and followed him to MIT. She entered as a junior and received an electrical engineering degree in 1929. There were only 25 women in her class and she was made chairman of the social committee of the MIT Chinese Students’ Club—already enough attending to have a club.

The Wong Tsoo story was my personal favorite. Also known as Wong Tsu, he was among the first batch of students to graduate from the newly formed department of Aeronautical Engineering in 1916. Upon recommendations of others at MIT, William Boeing hired him sight unseen to be his first chief engineer.

In less than a year, Wong had designed a seaplane that Boeing sold 50 copies to the US Navy and that was how the Boeing Company got its start as an airplane manufacturing enterprise. (Maybe this is why as a MIT undergrad, I could always get a summer job at Boeing when I went home for the summers.)

Wong did not stay in Seattle very long but went back to China in the latter half of 1917. For services rendered, Boeing gave him a check for $50.77 as payment in full. The MIT exhibit picked up the rest of his story.

Upon arrival in China, Wong began to design and build many more planes while moving his factory several times to the interior to keep out of the grasp of invading Japanese troops. Because of the shortage of strategic materials during wartime, he even designed and built gliders out of bamboo for use as troop carriers.

Wong had a MIT classmate who shared his passion for aviation and was his partner in operating the first airplane factory in China. Japanese spies assassinated him and Wong took over managing the plant and adopted his friend’s son

He shared his enthusiasm for aeronautics by teaching in Tsinghua’s engineering college where he actively encouraged promising aeronautical engineers to pursue additional training at MIT. One of his students was Qian Xuesen, who would later become the father of China’s rocket science.

The MIT exhibit isn’t just about individual stories; it’s a comprehensive portrayal of China’s fascination with practical education available in the west at the turn of the 20^th century. After a century of humiliation at the hands of the western powers in the 19^th century, every aspiring student in China dreamed of additional training in the west so that they could acquire the skills needed to modernize China and catch up with the rest of the world.

As pointed out in the exhibit, “by 1914, engineering had become the favorite field for government students (i.e., funded by the Chinese government). In the eyes of many, engineering was not simply a practical skill, but a means of serving the nation.”

In 1914, MIT had 33 students from China, more than any other school in America. This tradition continues today. With a total enrollment of nearly 13,000 undergrad and graduate students, 30% are international students from over 140 countries. Nearly one out of every four comes from China; at a total of 888, China has more than twice the number from second place India.

Professor Emma Teng, head of MIT Global Studies and Languages, curated this exhibit. It’s obvious that she has put a lot of thought and energy in assembling the different parts of the display. The exhibit is a treasure trove of historical information and personal stories. Not everyone will be able to visit the display but all will be fascinated by the content of the companion website, www.chinacomestomit.org.

Whither the U.S. and China

Bay Area U.S.-China Policy Speaker Series

DATE & TIME VENUE Monday, March 20, 2017 5:45pm Check-in 6:30pm Program 7:30pm Book Signing The Commonwealth Club 555 Post Street, San Francisco, CA 94102 For many years after its reform and opening in 1978, China maintained an attitude of false modesty about its ambitions. That role has been set aside, asserts panelist Howard French, who says China has revealed plans for pan-Asian dominance by building its navy, increasing territorial claims to areas like the South China Sea, and diplomatically bullying smaller players. Hear from French and China analyst George Koo, who says that whatever China’s plans, following a western template to become a global hegemon is not a likely outcome, nor will “false modesty” necessarily find any validity. Come for a fascinating discussion about the historical context of China’s actions and what the future holds for the U.S. relationship with China under the Trump administration. Register Here FEATURED SPEAKERS Howard French, Former New York Times Asia Correspondent; Author, Everything Under the Heavens: Empire, Tribute and the Future of Chinese Power George Koo, Ph.D., Member, Committee of 100; Regular contributor, online Asia Times George Lewinski, Former Foreign Editor, "Marketplace"—Moderator The Committee of 100 is a non-partisan leadership organization of prominent Chinese Americans in business, government, academia, entertainment, and the arts. For over 25 years, the Committee has been committed to a dual mission of promoting the full participation and inclusion of Chinese Americans in all fields of American life, and encouraging constructive relations between the peoples of the United States and Greater China. www.committee100.org. See video excerpt at http://video.sinovision.net/?id=37897 See follow up TV interview in Putonghua, Podcast of the entire discussion and on YouTube.

Blowback is a lesson the Trump Administration should keep in mind

An edited version of this commentary first appeared in Asia Times and later reposted on SupChina.

“What goes around, comes around,” can be a critics comment on the blowback at the perpetrator whose action had misfired. The late Chalmers Johnson devoted an entire book criticizing American foreign policy based on “blowback.”

However, once in a while, what comes around could be a good thing. One example, remarkably enough, involves China and Japan. The story came from a speech by Daisuke Kotegawa given at the international conference organized by the Schiller Institute, held in June 2016 in Berlin. Mr. Kotegawa was a retired career bureaucrat from Japan’s Ministry of Finance.

He noted that after Fukushima in 2011, hotels in Tokyo had vacancy rates of 90%. But in recent years, tourists from China are filling the hotels. When the cherry blossoms are in bloom, Chinese tourists are overfilling the hotels.

In 2015, 5 million visitors came to Japan, double from just two years earlier. With average spending of about $3000 per person, that was a $15 billion injection into Japan’s economy.

“So thanks to those foreign tourists, our economy is now very good,” said Kotegawa. He went on to say that he was part of the team that agreed to provide economic assistance to China in 1989 to the tune of more than $10 billion per year for six years in the form of loans at 0.5% interest.

These loans were made to build airports in Beijing, Shanghai and Guangzhou, along with seven each of ports, railroads, fertilizer factories, dams and power plants. The telephone networks in Shanghai and Beijing were financed by these loans as well as the subway system in Beijing.

Thanks to the infrastructure put in place with Japan’s assistance, the Chinese people got wealthy and as Kotegawa-san observed, “Now we are actually getting the fruits in the form of huge numbers of Chinese tourists.”

This story has a couple of lessons for the Trump Administration. One is that a well-oiled economy needs a first rate infrastructure. The American Society of Civil Engineers just released their quadrennial “Infrastructure Report Card” on sixteen sectors of America’s infrastructure such as roads, rail, dams, drinking water and so on.

Most sectors earned a rating of D, which means the infrastructure is “in poor to fair condition and mostly below standard, with many elements approaching the end of their service life. A large portion of the system exhibits significant deterioration. Condition and capacity are of serious concern with strong risk of failure.”

Even though the category of bridges earned a C+, one of the higher grades from ASCE; nevertheless, 56,000 bridges in America are “structurally deficient”—in other words, potential catastrophes waiting to happen.

President Trump campaigned on fixing the infrastructure and members of Congress have known for years that the nation’s infrastructure is old and worn. But either Congress lack the intelligence to figure out where the funding can come from or lack the courage to propose taxes that would pay for the improvements. Kicking the can down to next election is what they do best.

According to ASCE, it will take a couple of trillion dollars to bring America’s infrastructure up to snuff; mind you, not at grade A state of the art but at least up to grade B enabling the American economy to start humming again. But if Congress can’t come up with the funding, how will Trump deliver on his promise?

This is where China comes in. They have gone from being a recipient of soft loans and foreign assistance to becoming the world’s largest investor, partner and builder of infrastructure projects. They have taken their Silk Road initiative around the world and countries are eager to work with China because China has developed the reputation for producing quality results on schedule and at low cost, and additionally with attractive financing terms.

All Trump Administration needs to do is to be willing to take a different approach to the bilateral relations with China, a new look based on what’s in national interest for America. How will sailing naval fleets on South China Sea benefit our national interest? How will launching a trade war with China benefit America? In other words, how will confrontation benefit America? Not much.

On the other hand, if Trump can invite the Chinese companies to help build and finance the infrastructure projects; that clearly would be in America’s interest. Trump can even stipulate that for every winning bid by a Chinese company, it would have to take on a joint venture partner drawn from the list of local American construction outfits. Since it’s been many years that American companies have undertaken large infrastructure projects, these JV projects will help bring them up to speed again.

By making sure that what comes around will benefit America, the Trump Administration will be well on the way to developing a winning relationship with China. Just keep in mind that the people of America and China have everything to gain by collaboration and nothing by confrontation.

Review of Task Force Report on US Policy toward China

This is originally posted on China US Focus

The Asia Society and UCSD under the co-chairmanship of Orville Schell and Susan Shirk, published a task force report on “US Policy Toward China: Recommendations for a New Administration.”  Schell is head of the Center on US-China Relations at Asia Society and Shirk is head of School of Global Policy and Strategy at UCSD.

Roughly two years in the making, the point of this report in view of the timing--published in February 2017--is obviously aimed to serve as a guide for the Trump administration. Near the beginning of the Executive Summary is the statement that reads: it is in the national interest of the United States to strive, if possible, for stable and mutually beneficial relations with China, and to maintain an active presence in the Asia-Pacific region.

As they read this report, the China bashing hawks within the administration won’t necessarily see any need to strive for “mutually beneficial relations with China.” The moderates in and out of the White House, on the other hand, may find the generally unfriendly (toward China) tone of the report surprising.

Aside from the two co-chairs, there are 12 members identified as “task force” co-authors. Many in this group are known not to hold warm and fuzzy feelings for China, at least not for the Beijing regime. This is clearly in contrast with the six task force participants that declined to sign on as co-authors of the report. The gang of six non-signatories is, in my opinion, among the faction of more empathetic China observers.

The Task Force Report identified six priority issues that the Trump Administration must deal with immediately while other issues can wait. Since I have just published my recommendation that President Trump has no choice but to collaborate with China, I would like to review the six issues that’s consistent with my published views.

Work with China to Halt North Korea’s Nuclear and Missile Program.

Former Secretary of Defense, Dr. William Perry recounted in his memoir that by the end of the Clinton’s administration, the US under his leadership was on the verge of reaching an agreement with North Korea. The provisions would have included Pyongyang agreeing to stop their nuclear program before getting the bomb.

Then the incoming Bush administration elected to ignore North Korea for two years and when contacts resumed, the White House added new demands on Pyongyang. By then Pyongyang had enough time to complete their development and test their nuclear weapon and thus became a bona fide member of the nuclear club. Once becoming an owner of the bomb, negotiations between the US and North Korea became even more difficult.

Trying to be helpful, Beijing organized six party talks to see if additional participants, namely China, Japan, Russia and South Korea, could help break the deadlock. The six party talks did not, but Washington can now conveniently blame China as the owner of the nuclear North Korea problem. Actually as I have pointed out in earlier issue of this publication, so long as China sits across the table from the US and South Korea, i.e., the interests of the three states are not aligned, China’s hands are tied. China needs North Korea as a buffer state and could not justify applying excessive pressure. Putting the survival of the Pyongyang regime in jeopardy would be against China’s national interest.

Unfortunately, recently South Korea’s president Park (before she was impeached) had agreed to allow the US to install Terminal High Altitude Area Defense (THAAD) inside South Korea. Since the THAAD missile defense system is effective against long range, high trajectory missiles, installing the system on South Korea will intercept missiles heading for Seattle or Los Angeles but won’t do much to protect Seoul over the border from low trajectory, short range missiles. Park’s muddle headed decision put her relations with Beijing on deep freeze and of course does not encourage Beijing to want to work with the US-South Korea coalition. 

Reaffirm US Commitments to Asia.  

By “commitment to Asia” the authors mean for the US to continue the role as the world’s hegemon. Someday, the Trump Administration may conclude that the benefits of “reaffirmation” (another word for Obama’s American exceptionalism) cannot justify the cost.

Deploy Effective Tools to Address the Lack of Reciprocity in US Trade and Investment Relations with China.

The benefits to the US economy from US-China trade and investment are substantial, but rising protectionism in China and job losses in the United States—some of which are attributable to trade with China—are undermining public support for the broader relationship. In the early days of the bilateral relations, China provided all sorts of incentives and tax breaks to entice American companies into investing in China. Now that China has become an economic peer relative to developing countries, they are taking away the incentives. I suspect some of the feeling of “lack of reciprocity” is caused by foreign companies having to compete with local companies, now without the benefit of subsidies.

The feeling of American companies is likely in part due to missing the incentive packages of the good ole days but certainly provides grounds for negotiation. The American Chamber and the National Business Council are quite capable of taking the lead in discussing fairness of American companies in China. We all know everything in China is negotiable.

As discussed in my piece in Asia Times, there is no direct linkage between trade with China and loss of jobs in the US. The Trump Administration should instead focus on how to generate a continuing supply of qualified workers that would meet the needs of plants in the US driven by high technology such as automation and artificial intelligence. Chinese companies are also looking for skilled workers in the plants that they wish to locate in the US. That’s where the employment gap is at and that’s where new jobs will be created.

Intensify Efforts to Encourage a Principled, Rules-based Approach to the Management and Settlement of Asia-Pacific Maritime Disputes.

Ironically, the US has been the greatest cause of tension in the South China and East China Seas. To calm the waters, the Trump Administration should remove the irritant of constant surveillance by American naval ships and planes off China’s coast. Malaysia, Philippines and Vietnam have all shown that they are capable of settling their disputes with China amicably without Uncle Sam in the room.

As for the East China dispute, it’s time the White House recognizes that the US had deliberately sown the seeds of discord when Washington handed administrative control of Senkaku (Diaoyu in Chinese) to Tokyo in 1971. Until that point, there was no basis that those East China islands belong to anyone else other than Beijing or Taipei. If there was to be a dispute, it should have been between the two parts of China.

Respond to Chinese Civil Society Policies that Harm US Organizations, Companies, Individuals, and the Broader Relationship.

Bill Gates famously said when operating in another country, you would expect to abide by the rules and regulations of that country. It certainly would be the height of arrogance to expect every country to abide by American rules because America is so exceptional. That said I do believe unfettered exchange between the people of the two countries would greatly benefit both countries—so long, of course, as the exchanges take place without hidden malice and evil intentions. Exchanges should promote mutual understanding and trust while culturally enriching each other.

The report further claims that the current situation allows China to exert an inequitable influence over US public opinion through an unfettered flow of its propaganda. Ha! The Trump Administration should continue to allow, nay encourage, the Chinese to exert its influence. Judging from the flow of negative portrayal of everything related to China that dominates the American media, China has been doing a terrible job and this matter should be the least of Trump’s worries.

Sustain and Broaden US-China Collaboration on Global Climate Change.

Amen to this recommendation. The world’s perception is that China has already assumed the leadership on dealing with climate change. For the US to regain their place, certain members of the Trump Administration need to first take a tutorial on basic scientific truths. They need to accept that the world is not 6,000 years old and evolution by Darwin is not some Marxist-Leninist propaganda. Then they should think about the kind of legacy they want to leave for the future generations.

To make America great, Trump must collaborate with China

This piece first appeared in Asia Times.

President Trump is apparently delivering on his campaign promises through a rapid-fire volley of executive orders. These one to two page orders are simple to do. His most recent example is to ban entry for travelers from 7 majority-Muslim countries and thus he can assure fellow Americans that they can go to sleep at night.

To deliver on his promise about China is more complicated and will likely take more than one executive order or three or ten. Astute observers that understand basic principles of economics have often pointed out that the two economies have grown deeply intertwined and the two countries are joined at the hip.

Everybody knows that when one Siamese twin inflicts hurt on the other, both will feel the pain. Or, going a step further, one can’t mortally wound the other and not be committing suicide.

The premise of this essay is based on rational analysis derived from common sense and street smarts and not based on fantasy from some alternative universe.

Take the assertion that China is stealing American jobs through unfair trade practices and manipulation of the exchange rate. This assertion did not originate with Trump. He merely repeated the accusation bandied about by both sides of the Congressional aisle for many years.

The history of RMB to dollar exchange rate

From 1995 to 2005, China’s Renminbi (RMB) was pegged to the dollar at roughly Y8.3 to US$1. For a while the peg worked well. During the Asian financial crisis of 1997-8, various Asian currencies had to drop their exchange rate to keep their economy afloat. They were grateful to China for holding firm and not match their devaluation, thus giving the neighboring countries their needed breathing spell.

Starting from 2002, the US government initiated a deliberate weakening of the dollar. Since the RMB was fixed to the dollar, it weakened along with the dollar. This was when the China critics in the US began to accuse of China of currency manipulation. These critics should have accused the Bush Administration of currency manipulation but China was the easier patsy.

In part cowed by Washington, starting in 2005 People’s Bank of China gradually let the RMB strengthen relative to the dollar. By January 2014, the dollar was worth only about 6 RMB. But guess what, the strengthening of the RMB did not cause the trade gap to narrow as the critics claimed it would.

Nonetheless, the critics continue to accuse China of currency manipulation and blamed for unfair trade practices.

Who will be hurt more by import duty?

President Trump’s solution is to threaten to slap import duty on goods made in China. It doesn’t matter if the added tax is 15% or as much as 45% or if the tax is justifiable or not. Let’s just look at which Siamese twin will be hurt more by this levy at the port of entry.

Since the typical seller from China works on a thin margin, if the import goods from China are assessed an import duty, the seller will likely have to raise the price to cover the cost of the tax paid at the border. Because of the higher price, the seller will probably sell less to the American consumer.

What will the American consumer get out of this levied surcharge? The American gets to pay more for the daily use consumer goods usually made in China. (According to one study by US China Business Council, a typical American household saves US$852 per year buying goods from China.)

Will jobs come back to America as a consequence of the import barrier erected by Trump? Not likely. Once American industry has forgotten how to make a particular product, it will be difficult to get back to making it.

Furthermore, the labor cost in the US is at least ten fold higher than China. Even if American companies can begin to make the product, the selling price will be at least as high as the imported good from China with added duty.

So the bottom line is that the import tax will not bring any jobs back to the US but the cost of living for every American will be higher.

So how will this hurt the China side? China will sell less to the American market. While the US still represents a major market for China, 75% of China’s trade is now with other parts of the world. The Chinese, with time, will be able to adjust and compensate for the reduction in export sales to America.

China moving up the value chain

One of the adjustments already on going in China is to move up the value chain and to manufacture higher valued, more sophisticated products that have never been indigenous to the US. Thus while Mr. Trump is running after containers from China to tack on import duty stamps, the Chinese will be quietly surpassing America’s manufacturing prowess.

German companies were recently surprised to see samples of the lowly ballpoint pen, wholly made in China. To the Germans, these pens meant that the Chinese has now developed the technology to produce steel of required hardness with the ability to control fine thinness and mastered the required precision machining to make the tip of the pen. Heretofore only German and Japan, not even the US, have the technology.

Aside from the fact that Chinese companies are no longer mere copy cat manufacturers, the Trump Administration better come around and recognize the importance of trade with China as it relates to keeping jobs in America, fair trade or not.

Importance of China trade to the US economy

The Washington based US China Business Council released a report that categorically asserted that the negative impact of China on the US economy alleged by politicians is misleading and exaggerated. US China trade supports 2.6 million jobs in the US including jobs created by Chinese companies in the US. In the event of a trade war, how will President Trump find jobs to replace those lost?

In 2000, China was the 11th largest market for US goods and services. Now China is the third largest market. Still think China is unfair because of the huge trade deficit? The report explained that the trade deficit is based on faulty data and assumption.

Products assembled in China contain components made outside of China. If the value of the components made outside of China were subtracted from the value of China’s export, then the deficit would be reduced by half, or about the same extent of deficit as the US has with the EU. In other words, since the US has trade deficit with everybody, there is nothing particularly unfair about China’s trade with the US.

Even the Congressional Commission on US China Economic and Security, never known as friends of China, reported that since China joined the WTO in 2001, US exports to China have increased by more than 600% while US exports to the rest of the world over the same period was only up by 80%.

The Commission also reported that by the end of 2015, around 2000 Chinese-owned entities in the US has employed more than 100,000 Americans, more than 500% increase from four years earlier.

Fuyao Glass as case study of what the future could hold

Fuyao Glass is a recent case in point. This company is the largest supplier of auto glass in China, claiming to own 70% of the market. GM encouraged this supplier to build a plant in the US to be closer to their OEM customers in America.

Fuyao bought an old shuttered GM plant in Moraine Ohio for US$15 million and received more than US$10 million in tax credits and other incentives from the State of Ohio. When completed, Fuyao will have invested US$450 million; the largest Chinese investment in Ohio history, and will owned the world’s largest auto glass factory. The plant will make glass for 4 million cars and 4 million replacement windshields annually.

The payroll will begin at 2500 jobs and expand to 3000 and the plant is expected to inject US$25 to US$30 million into the Ohio economy every month. The company will also bring their technical innovations to the US market to share with their US based customers. Innovations include sun blocking, energy saving glass; embedded wire, heating glass; and solar glass for the car top roof.

Fuyao began their presence in the US long before President Trump won the election, so their decision can’t be attributed to the desire to just please the president. The decision was driven by sensible business considerations such as to maintain their customer relations by being close to their assembly plants and save the cost of shipping heavy glass from across the ocean.

Many other Chinese companies are looking to invest in the US for much of the same reasons. Over 30 some state economic development offices, from Georgia to California, understand the importance of China as a source of job creating investors and have been actively promoting their state and competing for China’s attention.

It will be crucial for the Trump Administration to see the essential value of collaborating with China and continue to build on the economic cooperation. Only China has the potential to help Trump make America great again. The relationship is far too importance for anyone in the administration to indulge in xenophobia or play chicken on the high seas.