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ADAM SMITH CHINA: CROSSROADS 2001 Initial Air Date: January 7, 2000 ADAM SMITH: [VO]: These are the faces of China. Military power. HENRY KISSINGER: It would be extremely dangerous for us to convince the emerging generation of China that we are Enemy Number One. ADAM SMITH: [VO] Unchanging village life. ADAM SMITH: Are you still a Communist? JI CHAOZHU: Sure. ADAM SMITH: [VO] Gleaming new cities. MINXIN PEI: When I was growing up in Shanghai, I didn't see any new buildings. ADAM SMITH: [VO] And China's young - eager to make a mark in the new internet economy. JASON WU: The internet is a wonderful thing. ADAM SMITH: [VO] Is China facing a crisis? Is it headed for NASDAQ? Or back to the barricades? This is CHINA: CROSSROADS 2001. GEORGE W. BUSH: The conduct of China's government can be alarming abroad, and appalling at home. Beijing has been investing its growing wealth in strategic nuclear weapons, new ballistic missiles, a blue-water navy, and a long-range air force. It is an espionage threat to our country. Meanwhile, the State Department has reported that all public dissent against the Party and government has been effectively silenced. ADAM SMITH: Hello, I'm Adam Smith. And that, of course, was George W. Bush, the leading Republican Presidential contender. China is a campaign issue. But China's importance is far greater than campaign rhetoric. Listen to Henry Kissinger. HENRY KISSINGER: Here is a country with the longest history, with the largest population, and with a culture that radiates out all over Asia to, to overseas Chinese. For the United States to turn this into a test of physical strength will condemn us to a conflict in which we can not even clearly define what the outcome is. If necessary, we will of course do this. ADAM SMITH: We'll hear more from Henry Kissinger later in this program. I've been going to China since 1976. The changes I saw on a recent trip were stunning. There are many Chinas. You could see one of them at the parade for the 50th anniversary of the People's Republic. ADAM SMITH: [VO] The 50th birthday parade was awesome. Tienanmen Square, Beijing. In front of China's leaders. WINSTON LORD: It seemed to me a throwback to earlier Chinese and even Russian parades. And the whole surrounding of the celebration seemed to me sort of, giving off a sense of insecurity by the leadership. ADAM SMITH: [VO] Is that why President Jiang Zemin, who usually wears a western-style suit, had on the same clothes his predecessor Deng Xiaoping used to wear? WINSTON LORD: I think this was an effort to align himself with his two major predecessors, Mao Tse Tung and Deng Xiaoping, and to show that he was in their class and their league in terms of Chinese accomplishments and Chinese history. ADAM SMITH: [VO] It was a spectrum of China itself. Its culture. Its industry. And most of all, its military. Eleven thousand uniformed men and women goose-stepped past the ancient Gate of Heavenly Peace. These are T-85 tanks, the same ones that rolled over democracy protesters a decade ago. Nuclear missiles. The Dong Feng 31, capable of reaching California. And these, the local militia, known colloquially as "The Flowers of Beijing." But what was the message behind the marching and the missiles? JAMES SASSER: I think the military portion of that parade was really meant to send a message to Taiwan. Our military experts who watched that portion of the parade, frankly, were not that impressed. ADAM SMITH: [VO] Three giant portraits were carried by the crowd -- the first, of Mao Tse Tung. Here, fifty years ago to the day, he announced the founding of the People's Republic. "At long last, the Chinese people have stood up," he said. JONATHAN SPENCE: I think the great strength that Mao demonstrated was, uhm, reunifying China under one government. ADAM SMITH: [VO] Mao's eventual successor, Deng Xiaoping, took the shackles from the Chinese economy, and ushered in an era of modernization and growth. "To be rich is glorious," he declared. The third portrait, China's present leader, Jiang Zemin. JAMES SASSER: I'm not sure that President Jiang Zemin himself didn't orchestrate a large part of this. He's a great devotee of American movie musicals of the late 1940's. He loves them - the costumes, the music - and of course, uh, the costumes in that National Day Parade were just breathtaking. ADAM SMITH: [VO] As China's children grow up and live through the next fifty years, what's in store for them? Where does China go from here? WINSTON LORD: A key question is how much the Chinese leaders themselves understand that they're at a crossroads -- a crossroads in terms of going from the easier reforms to the tougher reforms; a crossroads in terms of, how do you develop an economy and maintain tight political control over dissent and debate and information; a crossroads where the internet is intersecting with their domestic economy. I think they do; uh, I think they have different reactions to it. BENJAMIN GILMAN: Campaign donation violations, its violations of uh espionage, of our nuclear facilities -- I think uh these are the things we are endorsing when we say, "All right, China, go ahead, we forgive you for what you're doing, and the dollar is more important." ADAM SMITH: That was Congressman Benjamin Gilman, the Republican Chairman of the House International Relations Committee. Many Americans agree with what he has to say. Fifty years of turbulent history. What has it been like to live through those years? One thing I noticed again and again in China, is that people from different generations have lived different lives. While I was there, I met two people willing to share their experiences with me. A young man in his mid-thirties; and an older one, a distinguished elder of the Communist Party who, almost unbelievably, was my undergraduate contemporary at Harvard, though we never met then. ADAM SMITH: [VO] Ji Chaozhu is a retired diplomat. A decade ago, he was China's Ambassador to Britain. Coming from a background of privilege and wealth, his family fled war-torn China in 1939, and made a fresh start here. He graduated from high school in New York, and began undergraduate life at Harvard. When the Korean War broke out in 1950, he dropped out of Harvard, and went back to China, to join the foreign ministry; and became Mao Tse Tung's interpreter. JI CHAOZHU: He was like a god -- I mean, a living God. He comes in and the whole room is filled with the god; and he appeared to be very amiable to everyone around him . . . but rather in an aloof way. ADAM SMITH: [VO] Another Communist leader he knew well was Mao's number two, Premier Zhou Enlai. JI CHAOZHU: He was always a very tough taskmaster, but extraordinarily kind. I mean, he would consider the very minute requirements of his staff, including me, the lowliest of the low. I was a very junior interpreter. ADAM SMITH: Was having gone to Harvard a plus or a minus in your life here in China? JI CHAOZHU: Now for instance, the leadership in the Foreign Ministry, all said, "Ji, this was very useful for you and for us because you know the United States, you know English well, and we need people like you." But when the Cultural Revolution broke out in all its madness, they said, "Ji, you should come out -- frankly, candidly -- what did you do there, against the Chinese people? What are your reactionary thoughts that are learned in that reactionary institute of the U.S. imperialists?" ADAM SMITH: [VO] During the terrifying chaos of the Cultural Revolution, unleashed by Mao in 1966, millions of fanatical Red Guards, many only in their early teens, rampaged across China, waving their little red books full of Mao's revolutionary slogans. At age eleven, Shi Jun Bao was one of them. ADAM SMITH: What did you do as a Red Guard? SHI JUN BAO: We shouted a lot of slogans in the street. We participated in many political parades in the street, on a weekly basis, sometimes even daily basis. Classes were abandoned; and there were a lot of slogans at that time against Americans. ADAM SMITH: Did you parade in the streets, shouting anti-American slogans? SHI JUN BAO: I did, many times. Shouting slogans, "Down with American imperialism," "Down with American hegemonism." ADAM SMITH: [VO] Victims of the Red Guards' wrath were removed from their jobs, sent to the countryside, and sometimes beaten, or worse. Ambassador Ji was sent to work on a pig farm. JI CHAOZHU: When the Cultural Revolution started, I was constantly being hounded by the Red Guards. Happily it was the Premier who was directly responsible to the Foreign Ministry. And so, while the wild-eyed radicals in the Foreign Ministry would condemn me, would subject me to struggle meetings, and even send off, me off to the countryside to feed pigs, to transplant rice and do all kinds of menial tasks, including shifting manure, sometimes with my bare hands - nevertheless, the Premier knew about me; and that, of course, was a great plus for me. ADAM SMITH: [VO] With Mao's death in 1976, the chaos ended. His successor, Deng Xiaoping, took China on a new course, ushering in an era of order. The Chinese word for order is "Cu xi." Chaos, the opposite of order, is "Luan." JONATHAN SPENCE: The ideas of order and chaos comes very very early in Chinese culture. It sort of began to resurface somewhat even in the Cultural Revolution period, when you loosened many of the constraints from Beijing, and people formed their own power blocks. If you are over sixty or seventy in China, which many of the leaders are - most of the senior leaders are about seventy now - chaos to you represents two things above all. One is the last years of the Chinese Republic, and the other is the impact of Japan, during World War Two. ADAM SMITH: [VO] The Japanese invasion in the 1930's cost China twenty million lives. The civil war that followed, ending the Republic, cost many millions more. Ji Chaozhu returned to the foreign ministry, and was present in 1972, when President Nixon and Doctor Henry Kissinger secretly negotiated renewed U.S. contact with China . . . and in 1979, in Washington, when Deng Xiaoping and President Carter restored full diplomatic relations. At the end of the 1980s, he was appointed China's ambassador to London. ADAM SMITH: The 50th Anniversary, in Tienanmen Square. What feelings did it summon up in you? JI CHAOZHU: An extraordinary sense of great pride, at the long path which we have traversed over the past half a century. ADAM SMITH: There's a whole generation in China like you, who experienced what you did. Looking back on these experiences, how did they feel? SHI JUN BAO: Uh, it is -- the change came very slowly, gradually, I would say. Because our generation is a, I would say, serves as a bridge, between the old generation, my parents' generation, who were totally, how do you say, anti-Am, anti-foreign, anti-American in those days, especially in those days; and the young generation, who are just madly, sometimes, madly in love with America. ADAM SMITH: Ambassador, some people are now saying that, it's, to say China is Communist is just rhetoric; it isn't, really. Are you still a Communist? JI CHAOZHU: Sure. ADAM SMITH: What then does it mean to you to be a Communist? JI CHAOZHU: To be a good person. To be honest person. To feel that one's primary aim in life is not for one's personal advancement, but for the advancement of the country. And in that process, also to uplift yourself. ROLAND CAI: I wanted very much to be an investment banker initially, but I think being a venture capitalist would be more exciting. ADAM SMITH: [VO] Investment banker? Venture capitalist? In Communist China? We know this student is hardly typical. But the attitude is new. We'll hear more from students later. About the time this student was born, Mao's successor, Deng Xiaoping, offered China a new deal. His reforms, he said, were unstoppable, and would continue for a hundred years. His legacy is visible in places like this. ADAM SMITH: [VO] Shanghai. China's largest city and commercial hub. This coastal metropolis positively gleams like the emerald city of Oz, with huge new skyscrapers and vast new wealth. This, above all, is the face China wants Americans to see. Especially American business leaders. As part of its 50th birthday bash, China invited several hundred CEO's from around the world to a conference, organized by the business magazine Fortune. Among them, George Fisher of Kodak. GEORGE FISHER: This country is amazingly different today from what it was 10 or 15 years ago. And in general, I would say, the lives of its people, are much better today than they were then. ADAM SMITH: George, tell me a little bit about Kodak's plans in China. GEORGE FISHER: China was about the 17th largest country in the world for number of rolls of film that we sold; it is now, 4 years later, 5 years later, number three. It will soon be the second largest, and I'm sure, in my lifetime, it will be the largest, larger than the U.S. ADAM SMITH: [VO] Chinese consumers are familiar with Kodak commercials like this one. But Kodak is doing much more in China than just selling film. GEORGE FISHER: We also have camera factories, and the electronic board factories here in Shanghai. ADAM SMITH: How do you find the Chinese work force? GEORGE FISHER: Wonderful. In fact, we now have, at one of the facilities where we're putting up, we have a safety record in the construction and the development of this facility that's unmatched any place in the world. ADAM SMITH: Don't you get a lot of people complaining to you that America doesn't pay enough attention to human rights? GEOPRGE FISHER: There absolutely are legitimate human rights issues, and environmental issues, and intellectual property issues, and nuclear proliferation issues, that I think are legitimate issues for governments to talk about. ADAM SMITH: [VO] Fisher echoed many of the CEO's in Shanghai. They said, "Don't mix political issues with trade issues." Another American CEO I met there was Maurice Greenberg of A.I.G., the insurance giant. ADAM SMITH: Do you see a day when China will be a significant factor in A.I.G.'s profits and stock price? MAURICE GREENBERG: It could be in three or four years, it could be in ten years, but it's within that time frame. Look, when I first came to China, there were three colors that people wore -- brown, blue and gray. Now look at it today. None of this that you see in Shanghai, which looks like a futuristic city, existed. ADAM SMITH: You have met the present leaders of China many times. What do you think the biggest challenge facing them is? MAURICE GREENBERG: When you're feeding, clothing and sheltering a billion, three hundred million people, it's an enormous, it's a daunting task. ADAM SMITH: From the American standpoint, what's the biggest risk in engagement with China? MAURICE GREENBERG: I think that there's a lack of knowledge, unfortunately, on the part of many in our country, about Asia, and the cultures of Asia. And if we understood that better, we'd be far more patient in dealing with China. ADAM SMITH: [VO] When I was last in Shanghai, only six years ago, the new city across the river was mainly an architect's model. Today, it looks like this. It all looks to me like a movie set. Not quite real. To impress their guests, the authorities had rushed to finish the buildings, and remove the cranes. And from the outside they are impressive. On the inside, the truth is, they're still three-quarters empty. ADAM SMITH: The dreams of Kodak and A.I.G. are not new. A hundred years ago, the New England merchants thought, "If each Chinese only wore his robe an inch longer, our mills would hum forever!" A billion, three hundred million people. It's an old dream. But now, outside investment in China has slowed down. Only half the joint ventures funded by foreigners make any money at all. So, is China's economy really the high-growth miracle it's cracked up to be? Or is it a mirage? ADAM SMITH: [VO] The answer, according to one prominent Chinese economist, is a bit of both. The Chinese are famously fond of numbers and lists. Older Chinese can remember Mao's "Three Antis" campaign, his all-but-futile attempt to stamp out corruption, waste and red tape. As we stood by the busy Shanghai waterfront, Hu Angang, of the Chinese Academy of Science, gave me his own list of Four Chinas. HU ANGANG: [TRANSLATOR] The first China is the China behind me, the China of Shanghai and the other great coastal cities. Here people are beginning to become rich. But there's another China inland. Other large cities, much poorer; this is the Second China. The Third China is where a billion people live, 80% of the population, in small villages and farms. And lastly, the Fourth China. Here life is very hard and people are poor. This China is the China of the deserts, the mountains and the remote places. ADAM SMITH: [VO] The wealth gap between the coastal cities and the rest of China is growing. In this First China, the coastal cities, the average pay is approaching $5,000 a year, compared to a national average of only $800 a year. This is the Third China, a village north of Beijing. Sixty households. The people here grow millet, hawthorne apples, sunflowers for their seeds. There are some goats, and sheep. The village is called, appropriately, Goat Range. It's dry and less fertile than in the rainy south. But this hamlet is much better off than many other rural villages, because it's close to the Great Wall, and the backwash of tourist cash. On a blackboard, I found the five rules of family planning as directed by the Communist Party. Birth control is still a top priority. On the same board, a list of couples who have obeyed the Party's one child policy; and families that have incurred the Party's displeasure by having two. No one, here, has three. Fan Gang is one of China's most respected economists. FAN GANG: Before, the poverty means hunger; but now it's no problem for the majority, maybe a hundred percent of the people. Food is not, survive is not a pretty big problem; that is why the life expectancy is really high in China. ADAM SMITH: [VO] By American standards, these people are poor. But by the standards of the Third China, rural China, they are fairly prosperous. The average worker here makes only $250 a year. But no one goes cold or hungry, and incredibly, people still manage to save. How? Low-cost housing and other subsidies. Deng Xiaoping's "socialism with Chinese characteristics." MINXIN PEI: When I was growing up in Shanghai, I didn't see any new buildings. Today, Shanghai's skyline is completely dominated by buildings that did not even exist four or five years ago. ADAM SMITH: [VO] Shanghai-born Minxin Pei is a senior associate at the Carnegie Endowment for International Peace in Washington. MINXIN PEI: Some of my former high school classmates have done very well. One of them owns a pharmaceutical company, a small one; has his own chauffeur, and he has a mansion, has personal trainers. Again, when I was leaving middle school, my greatest ambition was to be a cotton farmer in Shanghai. Why? At that time, most high school graduates were being sent to Manchuria, to be wheat farmers. And Manchuria was very very cold; I did not want to work in a cold environment. But today, nobody wants to be a cotton farmer anywhere in China. They want to be doctors, lawyers, or internet entrepreneurs. They also want to send their children to the United States to study MBA's. ADAM SMITH: [VO] The exodus from the countryside is unprecedented in its scale. More than 100 million Chinese are leaving the farm to seek better lives in the cities. But their quest comes at a time of change for the worse in China's economic fortunes. There's deflation, unemployment, a weak fiscal and banking system, and corruption. MINXIN PEI: If you lose a court judgment, and you have to pay the losing party, you go to the judge and say, "What about giving me a 60% discount on the judgment? And in return I'll give you 10% of the judgment as a bribe." And the judge does that. And that corrupts the legal system. NICHOLAS LARDY: I don't think the rate of growth that has been achieved over the last couple of decades is sustainable. ADAM SMITH: Nicholas Lardy, a senior fellow at the Brookings Institution, is one of America's leading analysts of China's economy. NICHOLAS LARDY: To sustain reasonable rates of economic growth, they're going to have to have much more far-reaching reform to improve the, particularly the efficiency of their financial system, so that they allocate resources more efficiently. If they don't do that, the risk is, their economic growth could come down quite significantly. ADAM SMITH: China's traditional state-owned enterprises have been running on the wrong model and they are busted. The Chinese banks have been running on the wrong model and they are insolvent. When will the music stop, and what happens then? NICHOLAS LARDY: The savings rate is very high, the new money pours into the banks every day, and they can continue to make bad loans, propping up state-owned enterprises that are basically destroying value. ADAM SMITH: [VO] Without bank reforms, Lardy says, China's economic growth is threatened, and that could mean even more unemployment. China already has millions of people looking for work. Could reform bring even more? NICHOLAS LARDY: They're much more likely to face political implosion than a classic run on the banks. ADAM SMITH: [VO] Political implosion? What could that mean? NICHOLAS LARDY: We have substantial evidence of significant urban discontent, demonstrations, sit-downs, and so forth. And as unemployment rates go higher and higher, I think there will be more pressure on the government. FAN GANG: You Americans, Europeans, take a hundred years to develop the modern market economy; suffered a lot of the cycles, the crises, the upside down. But that's, China is on the way, but it's only 20 years. ADAM SMITH: In your own mind, when you look ahead, do you see China becoming more like a Western country, or imploding? MINXIN PEI: I see neither. I see China, if reform does not occur, going down the road of Mexico. You do not see rapid movement in either direction. You see stagnation punctuated with periodic crisis. ADAM SMITH: A big Asian Mexico. MINXIN PEI: Yes. ADAM SMITH: [VO] The Chinese symbol for a crossroads looks like this. When a society reaches a crossroads, that creates a crisis. "Crisis" in Chinese is made up of these two characters. One, "wei," means "danger." The other, "ji," means "opportunity. So what are the dangers and opportunities for us? ADAM SMITH: Late last year, the U.S. and China agreed upon the terms of China's membership in the World Trade Organization. This is the organization which held the besieged meeting in Seattle. Potentially, this opens the Chinese market to American companies, which means more profits and more jobs. But it comes at the cost of still other industries that may have trouble competing. Now Congress must consider China and the WTO. Critics like Ben Gilman worry about whether we can trust China to live up to the letter of international law. BENJAMIN GILMAN: Coming into an organization with laws is all well and good, but I think the proof is in the pudding. And to date, we haven't seen too much of a proof that China is prepared to abide by international laws, such as the WTO trade agreement would bring upon them. ADAM SMITH: Many American multinationals have a lot to gain. AT&T, MCI, Sprint, Microsoft, the automobile companies -- all would benefit from more trade with China. What do you think you'll say to them when they bring up these arguments in your office? BENJAMIN GILMAN: Business people, I think, naively assess their future with China by saying they are going to be able to do business with them, engage with them, and then slowly turn them around. It hasn't proved to be the ultimate result in our past dealings with China. ADAM SMITH: [VO] Are the critics right? Can we trust China? A lot depends on the top Chinese leaders -- President Jiang Zemin and Premier Zhu Rongji. I talked with two former American ambassadors who know these men best. Winston Lord served in the mid-1980's. Former Senator James Sasser returned to the U.S. last summer. ADAM SMITH: You got to know President Jiang Zemin probably better than almost any American in recent years. Tell me about him. JAMES SASSER: He is an extrovert, he enjoys the company of others. He likes music, singing, playing musical instruments. If you invited Jiang Zemin into your home, you would enjoy the encounter. WINSTON LORD: There's a tendency to think that maybe this guy isn't such a heavyweight. Well, whatever one thinks of his stature versus some other recent Chinese leaders, the fact is, he has emerged as the unquestioned leader of China now for several years. ADAM SMITH: I want to know about another leader, Zhu Rhongji. JAMES SASSER: The truth is that there's no one now that the Chinese government or the rulers of China can turn to other than Premier Zhu, there's no one to replace him. No one has his knowledge of the economy; no one has his driving energy and force. WINSTON LORD: He's very courageous. He has risen to the top purely on the basis of competence. He doesn't have any revolutionary credentials, he doesn't have any military credentials. He's just proven himself as someone who can get things done, as someone, in the vernacular, you can do business with. ADAM SMITH: Do you think the Chinese leaders see China coming to a crossroads? JAMES SASSER: China is presently ruled by an oligarchy. And it's a question of whether or not this oligarchy can be flexible enough and sensitive enough and perceptive enough to accommodate all of the changes, and still survive. WINSTON LORD: It's the classic dilemma that any Communist power or any authoritarian government faces. How do you develop an economy with outside help, foreign investors, free flow of information, the internet, satellites, fax machines, and still maintain political control over the people? JAMES SASSER: The present leaders of China were educated in China, or the old Soviet Union. They tend to be almost exclusively engineers. When you look past this present generation of leadership, what you see under them are young leaders emerging in their 40's and 50's, and many of these young leaders have studied abroad. They're more Western-oriented and they understand I think Western culture perhaps better than this older generation of leaders. WINSTON LORD: This doesn't automatically mean they are going to be friendly to the U.S., or Adam Smiths. But they should project, I think, a more pragmatic and hopeful future. ADAM SMITH: There are many in this country who still consider China an evil force in the world. What do you say to them? JAMES SASSER: They're interested more in trying to get a decent standard of living than, than anything else. WINSTON LORD: Right now we have a very distorted debate on policy toward China in America, in my view. And I think there are sort of two camps, not everyone is in these two camps, but too many people are. One camp I call the apocalypse crowd. These are people who demonize China, inflate its strength, assume it's going to be an enemy in the future, feel we have to deal with it like we did with the Soviet Union during the Cold War. I think equally wrong is what I call the apologists, who sanitize China, who excuse their transgressions, who rationalize their political repression. ADAM SMITH: [VO] China was already an ancient civilization when Marco Polo made contact in the late 12 hundreds. China's prolonged isolation, and its great age, set it apart still, making it hard for us to understand. One ancient issue long debated by its emperors and their advisors is how to handle foreigners. Today, that means us. ADAM SMITH: Visiting dignitaries are usually brought here, to the Great Wall. The icon of China; a remarkable achievement. It was meant to keep foreigners out. It never really worked very well. ADAM SMITH: [VO] As they looked south from the ramparts, the ancient Chinese believed they were gazing out on the only true civilization under heaven -- their own. As they peered north in the other direction, they saw what they believed to be an inferior world. They referred to all the people who lived beyond the wall as "fan," barbarian. Yale University Professor Jonathan Spence is one of the leading scholars of China's history. JONATHAN SPENCE: The language of dislike of foreigners, if you take that term very broadly, is present. There is a use of sometimes demeaning language for representing foreigners. ADAM SMITH: Going into the next century, is this xenophobia ingrained in the Chinese psyche? JONATHAN SPENCE: I don't think now that xenophobia is deep in China; it's something that can be built up by the leadership if it wants to. ADAM SMITH: [VO] "Ti" symbolizes the ancient culture and philosophy of China. And "yong" symbolizes technical assistance from abroad. Since they first made contact with the West 400 years ago, the dilemma for Chinese rulers was how to balance "ti" and "yong" -- their need for foreign know-how, with their fear of foreign ideas. JONATHAN SPENCE: The earliest versions of this I suppose were when Catholic missionaries brought high technical skills, because they were very highly educated, they were very good scientists. In their case, what they brought with them was the desire to convert to the Catholic religion itself. ADAM SMITH: Nothing symbolizes the unchanging essence of Chinese culture better than food. The time-honored techniques of preparation, and the joy of eating, have great symbolic and social significance. Even in the darkest and most puritanical days of the Cultural Revolution, the Chinese never gave up their habit of having hearty family feasts. I dropped in on one of the oldest and best known restaurants in Beijing, housed in a former royal pavilion. The unfamiliar food they offer here is so-called "imperial," recipes from cookbooks once used to create banquets for emperors. On the menu: camel's paw, bird's nest, turtle eyeball with two surprises. And in the kitchen, the master chef proudly prepares shark's fin and sea slug. The Chinese, of course, still enjoy their traditional foods. But today more and more this ancient, refined epicurean culture must compete with McDonald's. The U.S. fast food chain now has 250 outlets in mainland China. Nowhere are the new foreign influences rapidly sweeping China more striking and visible, than among students. There are now more than 3 and a half million of them, taking undergraduate courses in China, in over a thousand colleges. This is Shanghai's Fudan University. Despite a massive statue of Chairman Mao guarding the entrance, the campus and students look very familiar. Look at what they're wearing. This could be any campus in the U.S.A. I bumped into a bunch of Fudan seniors, some majoring in English, others in business, and invited them and some of their friends to tell me about their hopes and plans. They led me to a local hangout of theirs, appropriately named the Woodstock Bar. The first and probably most astonishing thing I noticed, is they've all taken English first names. SERENA WANG: I am Serena, I am a senior student from Fudan University, and I am 22, as Cathy. And I choose Serena as my name because that's my true character. ROLAND CAI: I'm Roland, 22, also a senior at Fudan University. Actually the reason I chose the, my name Roland is, it sounds like English. Actually it is a name of English gentleman who invented postage stamp. CATHY SUN: I'm Cathy, 21, and I'm also a senior in Fudan University. I picked my name because it reminds me of a famous book called Wuthering Heights, and I like the heroine very much. ADAM SMITH: I'd like to ask all of you, how do you differ from your parents? They lived in such a different time. What's the difference in their attitudes, and your attitudes? EDWARD WANG: So I suppose that the generation gap really exists, because I think my parents are a little conservative, so, especially for some money. They will say that you will not spend money too much or you will not so, spend your money so freely because the money is not earned so easily. So they will tell me. But I really told them; I think, and, first that you should, you should know how to earn money, and then you, then you will know how to spend it. ADAM SMITH: Tell me something about your plans, after you graduate from Fudan University. EDWEARD WANG: So after I graduate from the economic school, I will do some law, since I think that laws is what Chinese are now badly needing. CAROL LI: My father wants me to be a college teacher. He thinks it's a decent and a stable job. But I don't agree with him; I think I'd like to be accountant. I think it's a challenge, and I'd like to be a decision maker. ADAM SMITH: Cathy, what would you like to do? CATHY SUN: I'd like to be an author, a writer, because since I nowadays, I learn literature, so I like reading a lot, I think, at that time, if I can write a lot of interesting works, and also sophisticated and thoughtful works, I will be very glad. ROLAND CAI: I wanted very much to be a investment banker initially, but I think being a venture capitalist will be more exciting because you have these high-tech ventures to grow up. What we need here in China is somebody like Jerry Yang, who has a spirit of constant innovation, competition. What we lack actually is that kind of spirit. ADAM SMITH: Roland mentioned Jerry Yang as a role model. Jerry Yang is of course the Chinese-American co-founder of the internet portal Yahoo! And a 36-year-old multi-billionaire. To be rich is indeed glorious. And Roland was not the only twenty-year-old I met in China who named Jerry Yang as a local hero. The students we met have barely traveled inside their own country, even to Beijing and Hong Kong, much less abroad. Yet now, they're beginning to surf the net, and internet cafes are springing up in all the big cities. "Travelling without a passport," they call it, in a country where passports are hard to come by. Clearly what you could call "People's Republic Dot Com" is going to be huge. Could it actually change China? ADAM SMITH: [VO] Jerry Yang was born in Taiwan, raised in California. I caught up with him in Shanghai, where he had just announced Yahoo! was launching a new internet guide for China. How does Jerry Yang see the internet's future in China? JERRY YANG: Right now it's about 4 million users, depending, plus or minus, and by the end of the year it might be 7 million. In another year it will be, you know, ten million, twenty million, every other year. So it is very very rapidly growing. ADAM SMITH: You've established Yahoo! in China when no other American company in your field has done so. So you have a big head start, don't you?" JERRY YANG: We have a lot of competitors already in China that are local web sites that are doing the same functionality as we do. So in some ways we're late. ADAM SMITH: [VO] One competitor is Charles Zhang. He holds a Ph.D. from M.I.T. in solid state physics. In 1997, backed by 250,000 dollars invested by three M.I.T. faculty members, he began the first search engine in China, Sohu Dot Com. "Sohu" means "search fox." A cute, smart symbol for what has become the most visited site in China. CHARLES ZHANG: What we will do, and our competitive advantage, is that we are here, and our content or activities are very local, very tailored to the Chinese people. And we continue to move faster and faster so that, to basically leave our competition behind. ADSM SMITH: [VO] Sohu Dot Com offers a free search service, hosting, corporate web site design, free E-mail and a wide range of local and internationally branded content channels, many supplied by partners like the American corporation Dow Jones. And what's brand new for China, it was built entirely with venture capital. CHARLES ZHANG: Actually Sohu Dot Com contributed to this, it was the first example of a venture capital success. ADAM SMITH: [VO] Charles Zhang intends to do an IPO and take his company public one day. Another budding Chinese internet tycoon who intends to go public this year is Jason Wu. He was born in China like Charles Zhang. And he too came to America for his graduate degree, in his case to Stanford University. He has a Stanford Ph.D. in electrical engineering. NetFront is a U.S. corporation with a wholly-owned Chinese subsidiary that develops, markets and operates an online internet information and transaction security service for E-commerce worldwide. ADAM SMITH: How do you start a company in China? JASON WU: Initially the company, which is NetFront, was started in the U.S. I wanted to do a Silicon Valley start-up. But I wanted to find out how I could do it differently, and then I will have more advantage. And the wildest thing I thought of is to have a China subsidiary that would develop the technology for worldwide market. ADAM SMITH: [VO] NetFront's employees in Beijing make far less than their equivalents in Silicon Valley. But they're all owners. These people have a stake in the company through the stock options NetFront offers them. Jason Wu is pioneering an entirely new business model for the People's Republic, one not yet quite accepted, even by his own employees. JASON WU: Not all the employees will understand it from day one. I say, "Here is a stock option. I'd like you to value it, and work hard to make it grow." Some people think it's a negative thing. They might think, "Oh, you give me the stock option. You must want, you must have some other purpose." It will be a, it will be a long-term education process. And only when they understand do we offer them stock options. ADAM SMITH: [VO] If Jason Wu takes NetFront public later this year on NASDAQ, as he plans to do, some of his employees here in Beijing will become wealthy, by Chinese standards, at least. The original investors in NetFront will make a whole lot more. Most are venture capitalists in America, but one is in China. Meet 40-year-old Feng Lun. Feng is the first of a new breed. He claims to control 5 billion dollars n assets, and is undoubtedly rich, one of the richest men in China. But there was no M.I.T. or Stanford for him. His business textbooks were the works of Karl Marx and Mao Tse Tung. ADAM SMITH: To Americans, you're difficult to understand, because you still have some lingering belief in Marxism, and yet you devote all your energy to making megabucks. This does seem like a contradiction. FENG LUN: [VO TRANSLATION] It's a little like hypocrisy in religion. A man can believe in God, and at the same time commit a sin. Marxism actually helps me make money. Marx writes a lot in Das Kapital about how to save money in order to make it, how to cut costs, how to speed up cash flow, improve efficiency, accumulate wealth. A lot of that is in my subconscious mind as I go about my business. It's strange, but in China today there are many entrepreneurs who have no formal business training at all. All they have are the thoughts of Marx and Chairman Mao. Of course today that's not enough. Now we need proper MBA's. ADAM SMITH: [VO] So "dot com" fever seems to be changing the way China does business. But will it have a social and political impact as well? JASON WU: Oh I think it will. Internet is wonderful thing. People usually have to apply for passport. Now they don't have to do that. The door is right on their desk. CHARLES ZHANG: With the internet it's individuals now can have multiple sources of information, with broadcast information, with user-generated information; with communities that talk to other friends anywhere in the world. ADAM SMITH: In America, there's no government interference with the content on the Web. But we're told, in China, you could get a phone call from a Government minister censoring something that you're putting out. CHARLES ZHANG: There is some censorship, there is some, uh; but, uh, it has a very small effect over Sohu Dot Com's development. Even in the Chinese language the information is abundant. And it's almost impossible to censor anywhere on these sites. You know, it's almost like an ocean of content, how can you censor? ADAM SMITH: [VO] So, attempting to censor the internet may prove futile. But, at the Shanghai Business Conference, senior Chinese government officials were trying a different tack. A threatened ban on further foreign investment in China's information technology sector. Where would that leave Yahoo!? JERRY YANG: I think it's important not to get caught up in the, sort of, the microscopic set of events. Rather, from our perspective, China is going to be a big market. It's hard to conceive China building an internet market without foreign capital, foreign technology, or foreign management expertise. Uhm, and they, the government and the leadership here, have all looked at this as a way, the information technology industry, the IT industry, as a way of growing the country for the next fifty years. ADAM SMITH: Today, the Chinese word "wei ji" is spelled "dot com" -- danger, and opportunity. Henry Kissinger has seen crises in China since 1972, when his secret diplomacy re-established relations. ADAM SMTH: How do you think the leaders of China view the internet? HENRY KISSINGER: I think that, while the leaders of China by now have obviously learned rudimentary things about the internet, the deeper philosophical and historical impact of the Internet is something that will have to be absorbed by the next generation of Chinese leaders. ADAM SMITH: For Americans, what are the dangers and what are the opportunities, in a relation ship with China? HENRY KISSINGER: The nightmare of every Chinese leader for thousands of years has been that the inherent monolith is assaulted by disintegrating forces. When Nixon met Mao for the first time, he said to Mao, "The Chairman's teachings have changed the civilization." Mao said, "No. I have only changed Beijing and a few of its suburbs." And to develop a country in stages, not in time, but in geography, nobody has ever attempted it before. So they are building themselves into a gap between the developed parts of China and the underdeveloped parts of China; but they have no choice. So yes, there is a danger of an implosion; but I would say, from a foreign policy point of view, an imploding China that is weak, divided, cut up into provinces that are competing with each other, would tempt every one of the major nations surrounding it to gain a sphere of influence, and we'd be right back to the 1930's or earlier. And for the peace of the world this could be even more damaging. The opportunity for us is to attempt to have the emerging leaders understand that America is not hostile to a strong China per se; that there is an option for cooperative relations. ADAM SMITH: You have known a number of Chinese leaders. What's the Chinese leaders' view of us? HENRY KISSINGER: Early on, I called on Mao, and I made a classical American statement, which I said, "The good thing about our relationship is that we want nothing from each other." He said, "That is not my view. If I wanted nothing from you, I wouldn't have invited you. If you want nothing from me, you shouldn't come." The Chinese look at international relations as a balancing of interests, not as a love affair. They cannot understand American leaders saying to them, "I personally can be relied upon," when the American President changes, at the latest, every eight years. ADAM SMITH: What do you expect from China ten years from today? HENRY KISSINGER: I think the present leaders are more pragmatic, but they're still bounded by the system. But they're not the last word of the evolution. The next generation will have grown up entirely in the post-Mao period, and they won't remember these heroic ideological excursions. I can certainly in 10 years expect a much more clear cut legal system, a constitutional system, with some growing degree of popular participation. And whether it will have all the pluralistic forms of Western democracy, I cannot predict. ADAM SMITH: If you were going to be advising the next President of the United States on China, what would you say to him? HENRY KISSINGER: You have to understand that China has a long civilization that does not inherently think of America as an enemy. And that it would be extremely dangerous for us to convince the emerging generation of China that we are Enemy Number One. ADAM SMITH: [VO] Tienanmen Square, Beijing; the day after the birthday parade. A holiday mood. Children everywhere. As I strolled the square, I wondered, will these children grow up thinking America is Enemy Number One? Or will they think of it perhaps as a place to get a degree? ADAM SMITH: My college classmate Ji Chaozhu travels the U.S., and when the camera was turned off, he said to me, "You know, the Chinese know America better than the Americans know China. The risk is that we misperceive each other. My sense is that Americans see China as a mass of blue ants." China does have a crossroads coming up. But that will produce one for us too. How well will we know China when we act? As China emerges, will we see blue ants? Or people? I'm Adam Smith. ANNOUNCER: For more on China, and a transcript of this program, log on to www cot adamsmith dot net. CREDITS EXECUTIVE PRODUCER SENIOR PRODUCER RESEARCH CHINA RESEARCH PRODUCTION ASSOCIATE POST PRODUCTION FACILITIES VIDEO EDITING/BROADCAST DESIGN LOCATION TAPING LOCATION COORDINATOR - CHINA DIRECTOR OF PHOTOGRAPHY - CHINA DIRECTOR OF PHOTOGRAPY - NEW YORK ADDITIONAL CAMERA SOUND ARCHIVAL FOOTAGE PROVIDED BY: ITN ARCHIVE/REUTERS MUSIC LIBRARY SPECIAL THANKS TO Chinese Consulate, New York City The China Institute EXECUTIVE IN CHARGE OF PRODUCTION EDITOR-IN-CHIEF PRODUCED BY Adam Smith Educational Productions Ltd.
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