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Professor Ann Lee on her book, “What the U.S. Can Learn from China”

February 14th, 2012 Leave a comment Go to comments

Professor Ann Lee

Ann Lee, a former investment banker and hedge fund partner, and now an adjunct professor of economics and finance at New York University, recently sat down with Allen and I for a conversation about her book, “What the U.S. Can Learn from China.” (Also in our Recommend Read section.)

She discussed some lessons and also gave us her views about the misinformation in the U.S. media on various issues of contention between the U.S. and China. For example, as an insider at Wall Street, she was able to give an illuminating rundown of the ‘currency manipulation’ charge laid against China.

This article is a transcript of that conversation, edited slightly for readability. Allen plans to do a book review, but first, we’d like to share some endorsements and accolades she has already garnered for it:

“Ann Lee shows us how the United States can also learn much from the country that will soon have the world’s largest economy. Professor Lee foresaw the ‘Great Recession’ two years before it happened; we should all listen to her now as she describes how China and the United States can work together to shape a safer and more prosperous world.”
—Charlie Kolb, President, Committee for Economic Development, and former Deputy Undersecretary, U.S. Department of Education

“The author makes sensible points about all the topics covered and has interesting points of view about so many issues. A wide-sweeping book that makes engaging reading.”
—William Lewis, Founding Director, McKinsey Global Institute

“A refreshing departure from the unilateral perspective hobbling geopolitical debate. Even those who see major flaws in China’s system will find themselves agreeing with many of Ann Lee’s provocative prescriptions.”
—Joseph Menn, U.S. correspondent, Financial Times, and author of Fatal System Error

YinYang: Hello Prof. Ann Lee. Allen – one of the bloggers here at Hiddenharmonies – is with me on the line.

Ann: Thanks for contacting me. I checked out your blogsite, it looks great.

YinYang: Ok, thank you. We are recording you on skype. There might be some latency, but please treat this as a three-way conversation.

Ann: ok.

Allen: We put your book on our site. It’s part of a rotation of books we recommend.

Ann: Great … Thank you!

Allen: We actually have read parts of your book already. We plan to do a review soon. We haven’t read everything yet, but we are very impressed thus far!

Ann: Thank You. Have you checked out my website?

Allen: No…

YinYang: Yes, I have. I’ve checked it out. Liked it a lot, liked your thoughts.

Ann: If you can link to my website, that would be great.

Allen: How’s your book so far? The feedback you are getting.

Ann: The receptions I get when I speak at various venues have been terrific. I’ve spoken at a number of world affairs councils where over 100 people attend. And in general people are super enthusiastic, and pretty much every event has been sold out. The trouble is getting on the mainstream media, because, as you know, it doesn’t agree with their messaging. So, for instance, I put out a quick blog on the whole China-Russia veto on the Syrian resolution, and I pointed out the record of going in and invading countries and deposing an existing dictator just to put in a new one doesn’t solve anything. But such a message doesn’t sit well with a lot of folks in the media and government institutions. Even people such as Tom Friedman – whom a lot of people identify as liberal – don’t have a nuanced view when it comes to certain issues related to China. I just find it very difficult to penetrate mainstream media to air a thoughtful perspective that is legitimate but counter conventional.

Allen: This is interesting – about how difficult you are finding to get your message out. I want start with the quote your started your book with. Your started out chapter one with a quote about how it has always been a small group of thoughtful citizens that change the world. Now when I read that, I thought a lot of people reading would say, that’s the problem with China. Only big bad gov’t has a voice. People – especially thoughtful people – don’t. So two comments and we like to hear from you. In your experience in China, can small groups of thoughtful citizens actually make a difference in China? And back to America, assuming our message is thoughtful, why are people like you and us having so much difficulty getting your word out – at least through the mainstream media – even with a book and a blog. What do you think is the problem? Can thoughtful people really make a difference here? What’s your perspective on both sides?

Ann: Yes, I think I made it clear in my book that both China and the U.S. have to work towards reform. Neither nation has a perfect government at this point. And as far as whether small groups of people can make a difference in China, I think we are already seeing evidence it is. You can look at the land protesters, for example. Finally they are able to get the attention of the central government and get deals brokered. These people were heard, and they were all over the media which called a lot of attention to the local government corruption. I think it is because of these small groups of people protesting everywhere that they are starting to introduce elections in these various villages.

Allen: Are these protests being suppressed? Or are they legitimate ways for citizens to express their opinions? Or it is a mixture? What’s your take on the character of these protests?

Ann: Well I personally have not seen all of these protests. But from what I understand from having talked to folks who have worked with these people – such as human rights lawyers – they tend to be upset over land grabs, not democracy. The farmers and other citizens felt they weren’t paid enough for their property when the local government officials took over their land for other uses. The Chinese government needs to come up with a better solution than what they have today in order to make sure that their citizens are satisfied with the outcomes. It will take some time for them to figure out the right balance. I think the government in China is very worried like any other government where protests become more prevalent. We see evidence in the U.S. as well. These kids (in the U.S.) who weren’t even violent were being pepper sprayed by American police. Unfortunately, you see government crossing the line and getting abusive when it comes to protesters in almost all nations. There must be a better balance.

Allen: What about bloggers?

Ann: The blogosphere in China is also very active. There are millions of blogs out there. There are obviously hundreds of millions of Weibo accounts where people are blogging about everything. Yes, I understand some of these sites get taken down. They get into very controversial territory regarding certain sensitive areas. However when I was in China, I witnessed a lot of very ferocious debates about government and economic policies. I think that for the most part, there is pretty widespread freedom of speech and debate, even when it is obviously censored in certain areas. And I would say it’s probably the same thing in the U.S. You don’t find people advocating joining Al Qaeda in the U.S. Those would be taken down.

Allen: Those are probably illegal. They probably would be deemed terrorist cells.

Ann: Exactly. We call it censorship in China. At home, it’s national security. It’s the same exact thing, with different spins. It’s pretty much the same in all nations when you are talking about this freedom of speech. There is freedom as defined by the government.

Allen: How come it’s so difficult to get a certain perspective out? It’s not that they have to agree with us. But even just to get the word out – why is there so much resistance? What is wrong with the system here?

Ann: Well people can get the word out with social media – if you are blogging or tweeting about it. Do you mean the mainstream media?

Allen: Yes. So it’s only by going to the mainstream media that you can have real influence. Sure you can go viral through blogs or tweets, but I think the gateway for freedom of speech the majority of time is still through mass media. The social media sort of just reflects the norm set there most of the time.

Ann: Absolutely, but the large media companies are controlled by very powerful elites, and they clearly have their interests which are to maintain the status quo. They also have friends who are powerful in other industries so they don’t have an interest in offering the same platform to everybody. This is true for many other nations around the world too.

YinYang: Could you weigh in on what you think the amount of Western perspective that is in the Chinese mainstream press vs. the other way around the amount of Chinese perspectives in the mainstream western press.

Ann: Chinese perspectives in the Western mainstream press is almost non-existent. I cannot think of a single Chinese columnist here in the U.S. with the name recognition and reach of Tom Friedman or Paul Krugman. I know whenever I speak I have so many Asians coming up to me after my speeches thanking me. They say that I am making a space to articulate something that a lot of them have on their minds but are afraid to say. And then the older generation tells me that the Chinese basically have a problem of not sticking together. The Chinese are like a pile of sand where everyone just deals with their own issues; they will be model citizens like being a good doctor or a good engineer, but often stay clear from politics. And this has really obviously turned out to bite back because we know that all of government is about politics. Some of them are starting to recognize that their absence in politics is very damaging to the Asian American community. But most are slow in realizing that. It’s not in their culture, and the politics reflect it. It’s clear that whenever there is China bashing, another perspective on China is rarely heard. A similar Asian prejudice prevailed with Japan a couple of decades ago when they were painted as the villains taking over the world. Balanced reporting with an Asian perspective is missing, and the fault partly lies with Asian Americans historically not taking an interest in this area.

YinYang: And for that we really applaud you for your efforts and your book. So can you speak the other side, the Chinese media in your experience, how much of the Western perspective is being put out there within the Chinese mainstream media.

Ann: Well I’d say it’s much more open. When I was in China I saw plenty of American programs aired there. There was easy access to news like CNN, reality shows like American Idol, and sitcoms like Friends. So plenty of American culture was being exported to China. But not many Americans here can name a single Chinese program. And while many Chinese can speak English, I can’t tell you there are equal numbers of Americans who can speak Mandarin.

Allen: Yes, I agree. Also, when I am in mainland or Taiwan, I am always amazed that there, government report is considered standard; there people give it respect. Whereas here in the states, whenever it’s government related, it is snickered at and considered all about propaganda and all junk. Maybe it’s a cultural difference. Maybe it’s just that in U.S. that attitude toward government is so perverse. Everything about the government is bad. But definitely in China, people do routinely dial in to western outlets like CNN as another perspective. I was wondering in your book you criticized American media as too American-centric. It’s too reactionary and anti-China. But you sort of praised BBC. How do you characterize global media? YinYang and I think global media – Western media – are all messed up. What’s your take?

Ann: This is obviously just going to be observational. When I stay with friends in London or in Switzerland, sometimes I’ll be flipping through the TV channels to watch what’s on. And I’d notice that the news programs in Europe go into much more depth and tend to cover many more nations. In contrast, for the most part, a lot of the news in the U.S. covers little outside the U.S. Long form Charlie Rose-like interviews are common on many European news stations while they are one-off programs in the U.S.

YinYang: Could you give us your take on why you write this book and give us a gist of what you are hoping to achieve with your book?

Ann: I wrote the book because I was really concerned about the direction the U.S. is going. I care deeply about this country. My parents came here because they were fleeing the communist party, so they think of the U.S. as their savior. To this day, nobody can convince them otherwise. I am also thankful for all the things this country has offered us. However, as I said in my book, I remain concerned about the direction of things in the U.S., especially when a lot of people are taking things for granted. People are starting to get lazy about reform because they’ve become complacent about how much we’ve already achieved. In some ways, I worry that things are slipping backward. This concern really started in 2005 when I was on Wall Street and noticed there was widespread fraud being committed. The regulators were doing nothing about it. And of course it led to the crisis that nearly brought the financial system to collapse. It reached a point where the corruption was serious, which prompted me to write the book. Even though China is far from perfect and has lots of issues, the leaders there at least are still implementing policies to move the country in the right direction of improving their citizens’ welfare. The U.S., in contrast, appears to be going in the opposite direction. This worries me since the U.S. is still far from a perfect nation. As a professor where I speak to students from many nations, I humbly know that learning is a two-way street. Likewise, despite the fact that the U.S. is superior to China in many aspects, learning can still be a 2-way street. U.S. can still learn from the Chinese. I did not think this message would be very controversial and was hoping people would be receptive to it.

YinYang: Could you take us through a couple of specific things that China is doing well – that you feel the U.S. could take.

Ann: Sure, the idea of long-term planning for instance. I discussed China’s 5-year plans in terms of its ability to think in longer time horizons than the U.S. and set goals. The U.S. doesn’t really set performance targets for their gov’t agencies. This has basically led to unprecedented gov’t waste where the U.S. gov’t is running deficits into the multi trillions. We still have staggeringly high unemployment and still have the worst health care system in the developed world largely because there is no accountability and transparency here. Unfortunately a lot of corrupt individuals have access to the U.S. piggy bank sucking money out for pet projects. As a result, many view gov’t as evil. Gov’t doesn’t have to be evil if the incentives are aligned correctly. To make an analogy, you can just look at a poorly run company and compare it to a well-run company. A poorly run company has poor accounting controls that result in employees stealing money – that is basically what America is becoming. If you want to turn a poorly run company into a well performing one, everyone is held accountable for results. So it is with nations. Thus, if an agency is not delivering to citizen and taxpayer expectations, then that department ought to get axed.

YinYang: On this long-term planning if we look at the U.S., between democrats and republicans. The atmosphere is so divisive. We can see ad hoc basis Obama pledging to double exports by 2015, we see one-offs like that. Given the climate here, how do you see the political parties coming together and decide on a plan like that.

Ann: Most budgets and laws are handled behind the scenes by bureaucrats who are employed no matter which party is in power. They could be there their whole lives. They can provide the baseline assumptions for spending and other metrics. It is then up to politicians and policymakers to demand reasonable improvements if possible. By setting performance targets, incentives are put in place to align government motivations with the wishes of its citizens. It will drive more transparency and accountability, especially if it’s going to be posted on the web. Sadly, such a simple change will not happen overnight since those who benefit from the darkness will resist this with a vengeance. But hopefully change will come. Perhaps you will recall that the current rancor in Capitol Hill didn’t always exist. People in both parties were able to get to compromises and work out budgets in a civil way. So this current standoff too shall pass.

Allen: So government should try to take leadership. Set the agenda more. And rather than where we can cynical to political show or rather let the people come up political interest, you also mention earlier about experiment. IN your book you mentioned the different economic zones in China, different regulations, and you let them run their course, and adopt the best for the nation after we see how each work. Can you comment a little more? So a gov’t is to set the agenda but also let local regions experiment. How would that work in the U.S.? I mean people can be cynical and say we are not communists, we don’t have centrally planned economy. We are America, we are organic, innovative, and government should back off. Can you talk about meshing being organic and innovative and government setting agenda? Rhetorically I can just see people say that doesn’t make sense.

Ann: Yes, people do oppose my ideas on the notion that it’s against free market principles. I respond, first of all, that we don’t really have a free market in the U.S. anyway. We already have an economy set by a government agenda. It may not be transparent to everybody, but a large number of special interest groups work closely with government officials whom they put into office to put in legislation and regulations that benefit themselves. The U.S. economy is completely tilted toward the groups represented by special interests. They get tax breaks and tax write-offs [and grants, and special legal breaks and protections]. It’s not about the common good. The U.S. economy is already top down and centralized, but just done in a different way from the Chinese. It’s done through the elite interests with plenty of money to shape the situation in their favor. Laws and regulations favor the existing large companies and industries such as Big Oil or Big Banks. It’s just another version of a planned economy.

Allen: So who would drive the experiment that you talk about? Who drive them in China, and how should they be driven in the U.S. if it’s not top down – when we talk about experimenting different systems.

Ann: Citizens always drive change. Ideas of having a greener environment clearly came from the people who protested about environmental damage in China for instance. The Chinese government responded by first passing environmental laws, and now they are more rigorously enforcing them. By responding to citizen demands, the Chinese government is behaving democratically. But policies can be experimented first before they are rolled out to the entire nation. China tests these policies first in different provinces to see whether they have the intended effect. The U.S. can do the same by test driving policies in different states or cities. The federal government can work closely with each state to respect state’s rights by letting them bid on certain federal programs. Perhaps certain exemptions can be granted on federal taxes to try out certain programs or perhaps federal money can be provided directly to help pilot these experimental programs. These economic policy experiments could happen simultaneously in different states and independent observers, like academics from other countries. would be invited to record the results. That’s what China did.

Imagine getting real results as opposed to ideological arguments by politicians and policymakers.

Allen: My question is corruption which you brought up earlier. In many ways, I think America is systematically corrupt. It is not necessarily that people or politicians are evil. It’s just because they have different interests served. And then the duking out process – you get something that no-one likes in the end. When you talk about Confucian values or even meritocracy to solve the issue of corruption – I mean, I read it, I can understand it. But I can also see people when you say Confucian is the root of corruption because Confucian is about guanxi, friendship, and relationship building. And, it is at its essence corrupt.

One of our bloggers brought up this white paper from I think is from Denmark that talks about corruption in China. In China, relationships matter, and that’s why the whole system is corrupt. Goes to how Denmark can help companies do business in China. In my view, that is a scapegoat accusation. We don’t know any system that is not corrupt. Any system can become corrupt. Has nothing to do with Chinese per se.

Ann: First of all, the World Bank has already said that every country has corruption. The U.S. has plenty of corruption too as you pointed out. The idea that China is the only nation that relies on relationships is completely absurd. Most everything that goes on here in the United States is also influenced by relationships too.

For instance, many Ivy League schools provide seats to incoming freshmen whose parents are big donors to the universities. Their kids have to be smart, but there are more smart kids than available spots for admission so legacy relationships then play a determining role in who gets in or not. Just because there is no word called ‘guanxi’ in the United States doesn’t mean it doesn’t exist.

Even when I was in banking, I saw that certain deals were not subject to open bidding, but were instead given to folks who had strong relationships within the firm. So, “guanxi” happens all the time in the United States too. They are just more subtle about these things. Corruption exists everywhere, but we often just don’t hear about it in the U.S. until it makes headlines like MF Global. Since every nation has corruption, it is thus important that everyone works toward minimizing it to the best extent possible instead of pretending that it doesn’t exist in the U.S..

Another point to consider is that relationships will always be a a factor in people’s decision-making process. People are inherently social. They are always going to favor those with whom they have good relationships. They are always going to protect their own kids, families, their tribes first. This is a known fact. If you understand and accept that, but also require more transparency and justification based on competency, then corruption can be minimized. It’s when people attain powerful positions without merit as an objective basis that becomes really harmful.

YinYang: Anne, while we are on meritocracy – you know, that’s one of the lessons you also talk about in your book – that America could learn from China. Could you talk about the role it plays in Chinese leadership selection?

Ann: Yes, I explained in my book that Chinese leaders must first pass a competency test by the time they are 35. If not, then they can’t enter government service. The way they guard against the corruption associated with the revolving door syndrome in Western nations. Furthermore, they must prove that they can create positive change throughout their entire career before they would be considered for a top leadership position.

An analogy is like someone who has to work to become a CEO of a company. You don’t elect CEO’s. You have to earn your way to the top. And that’s the foundation of China’s governance. I argue in my book that you can borrow certain elements of this and port it to a democratic capitalist society.

I think it’s an anomaly that we don’t require civil service exams for all the people who go into government. Right now only the foreign service is required to take an exam. Anyone else doesn’t have to prove they are competent. Especially those plum positions – the plum book that the president gets to assign. He tend to go to people who are big donors and folks whom the President owes political favors. As a result, people can occupy very powerful positions without proving they have any relevant experience for the job. This is a serious conflict of interest and can really hurt society.

Allen: I think we can get into it a little bit more, but maybe from a slightly different angle. I think it is the same issue. When I read your book – if we think about the world – there are two major – at least when we look at China and America, there are two models. You have a top-down government like the Chinese one which is run like a company. The way to get better government is you have better control. You know, quality control of some sort. Make sure even the least important bureaucrats are in line with the policy, whatever the policy is set by the top.

In America, it seems like we don’t care about how government regulates itself, because it’s suppose to be the people’s job, right? That’s why you have NGO’s, special interests, bloggers, whatever you want to say. That’s why you rely so much on transparency to say, well, government – the governance of government is by the people that looks at it. People on top are not supposed to run the government. Government is not a company in the United States. You know, people just look at it. If there is a problem, people vote and that’s that.
In your book you talk about taking the best of East, taking the best of West, and trying to learn something – trying to start a conversation. We don’t have to agree on anything, but at least start the conversation. How do you merge those two models?

Company model. You know, just the CEO and whatever the board of directors are trying to say. Here is how we do things, like run a lean ship. Make sure there is no corruption, no bad apples.

Versus America, which is to say, no no no, government cannot impose and should do minimal. Minimal government. Any time there needs a change its done by some active citizens who say we need to do this or do that or done by election or done by protest or something.

How do you merge those two models?

Ann: You have two organizing structures here. I don’t think they necessarily can’t converge at some point. And I think they can converge incrementally over time, through trial-and-error. Ala the statistical experimentation model in which citizens everywhere can just try things out and keep what works and throw out what doesn’t work.
But the whole point of good government is that it is supposed to be something that governs a society or civilization that enables a sustainable way for the majority of people to maximize their wealth and happiness.

The whole reason why democracy was invented was to replace monarchy that only allowed a few privileged elites to benefit. A lot of people didn’t like that model so they left Europe and came to the United States. They demanded no taxation without representation. Today, we seem to be having the same conversation again.

Direct elections may have made sense when the country was smaller and there were far fewer people, and the world was less complex. Today, it is far more complex. To achieve true democracy in today’s world may require some overhauling of our present system so that the elites don’t game elections and turn our system of governance into only a democracy in name but a pseudo monarchy in disguise. We need to figure out a way to reform our government so that it meets the ends of what it was originally intended to do–that all men are created equal and that everyone has the right to pursue life, liberty, and the pursuit of happiness. But if the present system has become too manipulated by lobbyists and other special interests that it is no longer recognizable from its original intent, then we’ve got a problem on our hands.

Allen: I guess looking forward, why do you think America cares so much about what form of government China has? In your book, I think you mention that America has friends with democracies and non-democracies. But for China they seems to make it especially important that China is a non-democracy and we need to watch out! You have non-democractic friends everywhere. What do you think is the root of that?

Ann: What was the question again?

Allen: Obviously America has non-democratic allies. For example Saudi Arabia. Obviously there are democracies that are America’s “enemies.” Iran. You can look at Russia. But when it comes to China, people make it an ideological thing to say, well, China is not democracy and therefore they are our enemy or competitor – dirty competitor. Why do they carve out that ideology just for China?

Ann: It’s convenient to demonize China. It has nothing to do with whether China is a democracy or not. It is just an alibi. They demonized Japan. Japan was a democracy. When Japan was rising, they were demonizing Japan left and right. It’s probably springing more from prejudice against Asians.

The United States is friends with Saudi Arabia. They are hardly democratic. Pakistan. Are you kidding me? That’s hardly a model for democracy too. You have to understand the underlying politics. This is just all political posturing and rhetoric.

Allen: If democracy cannot be the test for whether China is a friend or not, what about human rights? And I know there are different types of humans rights. If your book you did criticize the Chinese government for Tiananmen for example. I don’t know if you criticize them for other things.

I can tell you, we are biased. YinYang and I, we think with 1.3 billion people in China, they can figure out what rights they want. It’s kind of absurd the American public can’t even figure out what they want for their own country and still pretend to know better than the 1.3 billion Chinese people what Chinese want. Despite our bias, should human rights in your perspective be a test whether China is a friend or enemy of the United States?

Ann: If you look at realpolitik in the world of international relations, the people who are deciding who are allies and who are enemies make their decisions based on whether their interests are aligned, not whether there are human rights violations. For instance, India has plenty of human rights violations., but the U.S. almost never bring them up. This is totally arbitrary again. This is just like the whole democracy excuse. Politicians and other talking heads use demagogeury to suit their needs and conveniently omit major facts.

How the U.S. chooses its allies has nothing to do with democracy or human rights. China was a worse human rights violator under Mao, yet President Nixon went with fig leaf in hand. Today, the U.S. is basically supporting the Egyptian military who is torturing all the protesters there. I would consider that a human rights violation, but the U.S. is not going to withdraw support from them. The U.S. also backed all the freedom fighters that took down Qadhafi in Libya. And now Amnesty International is basically saying there is widespread torture by these freedom fighters. How come the U.S. is not going back to intervene there over human rights now that they are U.S. allies? I don’t condone human rights violations. I think they’re terrible, but let’s not confuse human rights with the real reasons the U.S. is scapegoating China.

Allen: That’s very well articulated. Thank you. That was not a very fair question. In the book you did make it very clear. You are not writing about human rights. You are talking about what is expected of China and what we can learn from.

What is your next project? What do you want to do to promote better understanding? Or take some more time to digest this book.

Ann: Well, I hope it spreads through word of mouth by people like yourself who agree with the message. People need to be more aware that there are always two sides to a story and that thinking outside the box can be a useful exercise.

I have invitations to speak about it outside the country later on in the year. But you know, I can’t do it by myself. I need other people to support me because I can only do so much. Right now, I work every single day. To the extent other people are willing to spread the word, have people read my book, have people talk about my ideas, blog about them, tweet about them–all would be helpful.

Allen: Since this is an election year, I like to bring couple of issues up. One of them is economics. Economy. There is some job growth, recently the number is better. We are still pathetic. One of the things people talk about is all these banking reforms we did. Did we accomplish much? Did we not? I think I saw an interview by you recently where banks, whether should we nationalize them – you bring up a really good point, you know, if we socialize the risk but we privatize the gain, you know it is really an unstable system overall.

So, when we do that do you see it as a sign of corruption and also do you see that also a problem in China? I mean in China we say that they are communist but they are also capitalist. I am just trying to get to the bottom. I mean, economy is in the forefront of everyone’s mind. Is there is something systemically wrong with it if somehow we just want to privatize the profits and but then socialize the gains and the result is you are going to have more rich – and some more separation between the rich and poor. Do you think this is a problem in China and how do you solve it in the United States?

Ann: Okay, those are two different questions again. In terms of the U.S., no I think it’s terribly unfair to be socializing the cost while letting bankers keep the private gains. In China, the banks don’t operate that way. There’s government support behind the banks in China as well as the United States. At least in China, the bankers don’t get paid obscene amounts of money the way the bankers here get paid. No one there gets paid millions of dollars just to trade something. But, that’s what’s going on here.

I would argue it’s been the systemic of saving of these banks that has caused all these small to medium-sized businesses and manufacturing to disappear in the United States. Because you are systematically taking all the money from the poor through foreclosures and bankruptcies and transferring all their money and all the taxpayer money as bailouts to the rich who run the big banks. In the meantime, they continue to make billions in bonuses.

This is reverse Robin Hood at its worst. Until they fix that, this economy is going nowhere in the United States. Until they get rid off too-big-to-fail banks, this economy is just going to be the walking dead.

Allen: You think that’s the revolving door you talked about? You work in government for a while and then going to private sector?

Ann: That and private money is so important in politics in the United States. You pay to play here. It is not one man one vote. It is one dollar one vote. It’s very obvious. Since it’s so easy for the banks to make so much money, of course they are the biggest lobbyist in D.C.. And they are just going to protect their franchises this way.

This is at the expense of other companies that actually create value. But they are starved of capital.

In China there are state owned enterprises. But that used to be 100% of the economy while now it’s only 40% of its economy. China has been much better at systematically letting their state-owned enterprises go bankrupt and allowing the private sector to get bigger and bigger. And they recognize the importance of having more smaller banks serving the small and medium sized companies. There are efforts under way to create more of those smaller banks.

At least the Chinese leaders know that problem and are on it. The U.S. on the other hand won’t even recognize the problem, let alone correct it. We have this big to-do with Dodd-Frank, but the most important reform measure they should have included is to take away the too-big-fail clause, but that never got eliminated. All these banks basically went and gambled their hearts out before 2008 because they knew they would have the government bail them out. Today, that’s still in place so essentially it’s business as usual even with Dodd Frank.

Allen: I think some Americans recognize that the group of American economic issues are cause by policies here. Still a big substantial amount still also think China plays unfair. The exchange rate being one of them. Obviously these are complex economic issues and we can’t go through everything. How do you answer something like that? Some people they are rational they say yeah, we have a lot to clean up that can help us in the economy. Some people say no, other problems are really caused by China. They are playing dirty, right? The exchange rate is too low. They are able to sell us cheap stuff. That’s why we are going bankrupt.

Ann: No, there is no such thing as too low an exchange rate because, when the exchange rate is too low, it gets corrected pretty quickly through imported inflation. The inflation basically inflates all the wages which has the same effect as raising the exchange rate. It has the exact same effect. Wages in China has been appreciating on average 13% a year, whereas wages in the United States have been decreasing 3% a year. Therefore, any advantages China may have had from a lower exchange rate is quickly disappearing or is gone already.

Moreover, not a single economist can agree on what that exchange rate should because it doesn’t exist. Basically, any exchange rate could work because all the inputs and outputs in the economy adjust accordingly. Once businesses understand what the terms of exchange are, everything moves to the market prices anyway. Thus, if something is undervalued due to the exchange rate, then the price of the undervalued item would go up quickly because everyone will buy the cheaper item and drive up the price so that the price movement up corrects for the lower exchange rate. The exchange rate is just an established term of agreement. It has nothing to do with it being too undervalued or overvalued.

The bigger problem was labor wage suppression. The Chinese workers were so abused and were so cheap that U.S. corporations took advantage of that for a long time. However, blaming China for the loss of manufacturing jobs is basically deflecting from the responsibility from corporations who outsource to China. Corporations like Apple who wanted the fattest profits negotiated so hard with Chinese companies in China so they had no opportunities to make a profit. As a result, these companies started to cut corners which led to gigantic environmental pollution and labor abuses. If that happened in the United States, Apple executives would be thrown in jail. But because they were allowed to manufacture all their Ipads and Ipods outside of U.S. borders, suddenly Steve Jobs is worshipped as a hero. Then they blame China for the loss of jobs. Well, there is something totally hypocritical about that.

If the U.S. is going to promote open trade and encourage corporations to outsource, they should also have the same standards in labor and environmental laws as well. Unfortunately, only the bottom line mattered so now the rest of the world is suffering from these unbalanced policies. It’s a corporate governance issue, not just an issue with China since this environmental and labor arbitrage happens in other poor countries too. So, again, this is the way the Western policymakers and the media are spinning it.

In terms of currency manipulation, frankly the U.S. currency speculators are the real currency manipulators. If you look historically at what the definition of a currency manipulator is, it’s basically a nation that is depreciating its currency. First of all, China is appreciating its currency. Secondly, the world basically wanted to have a world currency coming out of World War 2.

Leading up to WW2, every nation was trying to actively depreciate their currencies. As they did that, there was no stability in price signals around the world. As a direct result, global trade came to a standstill because of this sort of currency warfare that was going on.

Thus the people who attended Breton-Woods unanimously said that they didn’t want to ever repeat that mistake again. They wanted one currency so that currencies couldn’t be manipulated. But the United States, who emerged as the most powerful nation, opposed that proposal and wanted to make the U.S. dollar the reserve currency.

The compromise solution that emerged was that all the other nations agreed to peg to the United States dollar, and the U.S. agreed to peg to gold at $35 an ounce to demonstrate that the U.S. would not depreciate its currency by printing money. This worked well until 1971 when Nixon was in power. He unilaterally decoupled the dollar from gold, and now we have the present system.

The U.S. has been the biggest currency manipulator ever since that point in time by depreciating and printing money like crazy. That’s why the Europeans decided, well, we better create our own Euro so that we don’t have to rely on the U.S. dollar anymore. This way they could conduct trade without the same currency fluctuation and depreciation that led to WW2 within the Eurozone.

China did the U.S. and whole world a big favor by pegging to the U.S. dollar because that stabilized foreign exchange between the two largest economies in the world which enabled global trade to flourish. To call them a currency manipulator is an unbelievable manipulation of words.

Until people understand this and fight back, politicians and other media pundits who have an agenda will continue their China-bashing and spread misinformation. More people must stand up and say that their characterization of globalization is totally wrong.

YinYang: Very well put, Ann.

Allen: So, what’s your outlook, Ann? You know, some times YinYang and I get depressed. What is your outlook on 2012? It seems things are getting uglier, especially with the election cycle. Your vantage point.

Ann: I don’t have a crystal ball so I refrain from making forecasts. I think people making forecasts for a living are the biggest charlatans out there. I don’t really make forecasts in my book.

Yeah, if things are going at the current trajectory, things are not too rosy. Given the presidential rhetoric so far, I think it’s really kinda sad and scary.

Allen: That’s well put. Thank you so much for spending time with us.

Ann: Thank you. I appreciate your interest and support.

YinYang: Ann, we see your efforts are very much in alignment with ours. The narratives are so wrong. We are taking this journey together. We will be following your work. Please stay in touch.

  1. Charles Liu
    February 15th, 2012 at 09:41 | #1

    Good to hear another alternative voice on the currency issue. Actually it’s a bizzaro world that overwhelming reality somehow takes a back seat to the political push to demonize china.

  2. February 15th, 2012 at 15:56 | #2

    I didn’t realize that one of the reasons the Europeans wanted a common currency within the Eurozone was so that they don’t need to go through the USD. They could have their own currency to conduct local trade.

    In China’s case, it looks like her strategy is to do currency swaps. For example, Russian-China last year (or perhaps the year before) agreed trade between them to be done entirely with their own currencies.

  3. LOLZ
    February 15th, 2012 at 21:00 | #3

    Thanks guys for the awesome interview.

  4. February 15th, 2012 at 21:47 | #4


    Europe doesn’t necessarily want to bypass the USD per se – they just wanted more stable currency exchange rates – not rates set by currency speculators. Countries that join get that – they get to set their currency to the Euro (exchanging for the Euro) at one rate and forget it.

    That doesn’t of course let each nation get away with setting their currency to be whatever value they want. What will happen is that price and cost in the country will adjust as capital flow in / out and trade becomes an important aspect of the economy.

    Without a Euro zone to latch to, China does the next best thing, pegging to the Dollar. China doesn’t get a “free ride” with weakened currency. Its labor costs and other prices in the economy have adjusted as China’s economy develops. Currency should be mostly about economics, not geopolitics.

  5. Wayne
    February 16th, 2012 at 04:47 | #5

    I expect that Prof Lee has a Chinese boyfriend?

  6. February 16th, 2012 at 07:08 | #6

    Wayne, there is no doubt that you are a hao3 han4. And I appreciate you fighting for China’s honour. However, you really don’t have to link everything to the idea that Asians are becoming emasculated. What has the race of Prof Lee’s boyfriend to do with the topic at hand? He could be a predator-xenomorph hybrid for all we care. The most important thing is that she is articulating a stance that is fair to China.

  7. February 16th, 2012 at 08:59 | #7


    Sigmar is right. And if this thread descends into a discussion about that, then it’s not fair to this article or the points Ann Lee trying to make.

  8. February 16th, 2012 at 11:26 | #8

    Ann Lee has been appearing in various media outlets in the U.S. in the last few months talking about China related issues. (Check out her web site for her appearances.) Skip forward to the 1-minute 50-seconds mark in the video below. This was couple of months ago – right before Christmas holidays 2011.

  9. Bardak
    February 20th, 2012 at 23:05 | #9

    What does she say in that RT appearance?

    – An economy in transition requires training… so China’s economy may slow down, but this isn’t bad news a stronger China would be in the interest of many countries.

    And that waffle about America exporting inflation! America buys Chinese goods and money flows into China equals exporting inflation?

    Poor, deluded woman. Still, I guess we all have to make our fifty cents somehow – even if it involves ranting on a news satire channel like Russia Today.

  10. February 20th, 2012 at 23:27 | #10


    I won’t answer your first question as I don’t know what your issue is. China has been a growth engine for the World; many still rely on it to spur growth for the foreseeable future. A strong growing China is good for the world. That should not be controversial.

    From WSJ: The Latest American Export: Inflation

    The Daily reckoning: America’s Leading Export: Inflation

    CNBC: Steinbock: Exporting an Inflation Tsunami

    There are many many others…

    Now you can argue, if China did not peg the yuan to the dollar, it would have the flexibility to resist. While that’s technically true, it would wreck havoc as the exchange rates fluctuate.

    As you can read in the articles above (and others), other currencies that are floating are also effected – because gov’ts even of freely floating currencies would intervene if the currencies fluctuate too much.

    You are probably saying: well that’s still the other countries’ fault – that they choose to peg to the dollar in some way.

    First that’s absurd. If China exports some poison food and someone calls it as that: China exports poisonous food – would you say, hey that’s America’s fault for importing? That someone America’s importing makes it a non-export?

    In any case, I won’t have time to give a lecture on international trade and economics, but suffice it to say that in practice, people always have some kind of peg to the dollar because the dollar is the international currency of the day. That gives the U.S. great benefits, but with great benefits come also responsibilities…

    See also my prior comment for more on currency stability.

  11. Citizen
    February 21st, 2012 at 01:26 | #11

    Um, why is she complaining about mainstream media? Huffington Post has her as ‘ widely published in mainstream media such as The Financial Times, The Wall Street Journal, Newsweek, and Businessweek and regularly guests on CNBC, Fox Business, Bloomberg, CNN and many other television and radio stations around the world’

    Her own website has her interviews on CNN, BBC, Fox, Bloomberg, articles from FT, WSJ, Newsweek. What’s going on?

  12. LOLZ
    February 21st, 2012 at 07:15 | #12

    Citizen :
    Um, why is she complaining about mainstream media? Huffington Post has her as ‘ widely published in mainstream media such as The Financial Times, The Wall Street Journal, Newsweek, and Businessweek and regularly guests on CNBC, Fox Business, Bloomberg, CNN and many other television and radio stations around the world’
    Her own website has her interviews on CNN, BBC, Fox, Bloomberg, articles from FT, WSJ, Newsweek. What’s going on?

    For each balanced (not even pro-China) China commentator the MSM you can find a dozen rabid China bashers. It wouldn’t be so bad if the later were right in their analysis of China. Take Gordan Chang for example. How many times can he reset his predictions about China’s collapse before Forbes drops his column, not for his anti-China views but because he has been wrong year after year? How many people have made false predictions about the Chinese economy, the state of the Chinese government, or the growth of the Chinese people over the years? In most other professions if one were to make this many mistakes in their forecasts they would have gotten fired long ago. For the MSM however the quality of analysis doesn’t matter as long as you are anti-China.

  13. Citizen
    February 21st, 2012 at 18:45 | #13


    I completely agree about Gordon Chang – discredited again and again.

    But why is Anne Lee making herself out to be some ‘rogue’? She’s certainly ambitious.

    Who do you think are the other high profile commentators on China in US media?

  14. February 22nd, 2012 at 00:53 | #14

    Ann Lee genuinely believes there are lessons to draw from China’s experience in application to the U.S.’ problems. There is nothing “rogue” about that.

  15. Citizen
    February 22nd, 2012 at 19:59 | #15


    The ‘rogue’ bit is her posing as some kind of dissenting voice, silenced by the vested interests in mainstream media – when in fact she’s all over the mainstream media. Isn’t she?

    But I would like to know who you think are the high profile commentators on China in US media?

    I don’t live in US, so I can’t really say,but I’m interested – and it seems from this site that you are perhaps more engaged by American media than what’s actually happening in China.

  16. February 22nd, 2012 at 22:31 | #16

    Ann Lee has had exposure, but as she said in the interview, it’s limited. I’ll quote what she said:

    I just find it very difficult to penetrate mainstream media to air a thoughtful perspective that is legitimate but counter conventional.

    Not enough airtime to put a thoughtful perspective out.

    Just to put that in context, the “high profile commentators” you are looking for are in fact the networks themselves. CNN, NYT, The Economist, and so forth. Read Melektaus’ article, “Collective Defamation” to see for yourself:


    If you look at the Banyan column at The Economist, it’s who? Gaddy Epstein, Dominic Ziegler, and who else? They don’t show their faces, but they sure day in and day out vilify this idea of a ‘China’ all they can.

  17. February 23rd, 2012 at 10:48 | #17

    Here is China Daily’s take on her book:

    “In praise of the Chinese way”
    Updated: 2012-01-13 07:50

    By Chen Weihua (China Daily)


  18. Citizen
    February 23rd, 2012 at 18:52 | #18


    So there aren’t any particular individuals who are known for their commentary on China issues in US media?

    The book looks promising. I’ll read it and hope that there can be some discussion here of the issues she raises.

    But I would add that when she comes up with non-sequiturs like:

    ‘”The Chinese believe that the privilege of leading a country should belong only to those who have proven that they can serve the country over long periods of time in a selfless way and accomplish a great deal. Thus the process of leadership selection in China at its heart is based on merit rather than mere popularity contests during elections.”

    …I am a bit cautious. Are we talking principles or reality here?

  19. February 24th, 2012 at 01:48 | #19


    Are we talking principles or reality here?

    The way it’s stated, it seems to me clear that it’s a principle. To the extent reality deviates from that, there must be further reform.

  20. March 1st, 2012 at 15:03 | #20

    Ann Lee’s response on CNC (Xinhua’s TV channel) about the WTO report recommending changes for China:

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