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Good evening. I'm Stewart Brand from the Long Now Foundation. A global business network where I work half time. We do scenarios, we work with corporations and governments, and departments of governments, and all kinds of people. Mostly doing scenarios about what's the sort of strategic environment that these large organizations are facing. In the next ten to twenty five years. And what they usually pose to us is, In what subjects do they really want to know about. And the answer is, China, China, China, China, and India. And so we often have Orville Schell who's an old friend and buddy from Balinas days and things like that. And Jerry Brown days. He did a book about Jerry Brown. If Jerry Brown had gone higher in politics you'd be reading his book about him. Orville has been in the thick of some of the best public talks given in the Bay Area in the last ten years, because he's been organizing out of the graduate school of journalism at UC Berkeley. And basically bringing in a series of major intellects to not only talk about what's going on in the world, going on in America, but going on with journalism. And so he's got a perspective not only on China, China, China, and China, but a perspective on how media and policy makers and basically the global frame of reference is shifting in relation to China, and China in relation to it. Please welcome Orville Schell. Well, welcome. It's great to be here at this very interesting lecture series and to answer to the call of Stewart, an old and dear friend, who in ways that have not always been apparent to me at the moment, is usually way out in front of things, and then later on you kind of come to realize how that was true. Well, tonight the topic is China, and in a curious way too, I think China has long been something of a long now. There is indeed no society that's had more millenia of history, and history that's curiously rooted in a kind of a nowness in that it didn't aspire to change much. It did change, but it didn't aspire to change, in fact when things went wrong, they'd always look back. They'd look back to the golden age of the Zhou Dynasty, when things were supposed to have been somewhat exemplary, as expressed through all the classics. And that's why it's such a curious fact that when China entered the 20th century, and the old imperial system which was basically a cyclical one, the dynasties would rise and fall and new dynasties would be formed, and they would try to emulate the best of the past. But it is so confusing that as China entered the 20th century, it sort of lost that gravity, that constancy, the sort of repetitiousness of its culture and sort of slightly involved and embroidered core and took off on this incredible tear of trying this, trying that, trying something else, revolutions, counter revolutions...and it went through this period of serial cancellations of what it thought it was. It's a very difficult thing for a culture or society to do. Particularly one like China, which was so deeply rooted in its past, its traditions, and had such a profound respect for the history and the notion that in history was embodied the model of the future. So in short order, we had the fall of the Qing Dynasty in 1911, we had the Mayforth movement in favor of democracy and science against the Confucian canon. Then you've got Chiang Kai-shek, the nationalist party, the republican movement, a kind of a mixture of Confucianism and Christianity, of Western political forms of governments and more traditional forms, and then of course, Japan came along. That was the critical moment. And so that nationalist experiment, republican experiment, ended and you got Mao. And Mao was a totally different tack. It was an imported ideology from Russia, Europe, and China set off ultimately before 1949 in the so called liberated areas and the Wall of China, on this incredible sort of magnificently mad experiment of revolution. And then you got Deng Xiaoping , who in effect came on board. And it was interesting, because I first went to China while Mao was still alive. While the cultural revolution still raged. And it was very interesting to have been able to do that and establish that as the baseline against which everything thereafter happened. So then Deng Xiaoping, you know he was sort of the epitome of rationalism, search truth from facts, black cat white cat what does it matter as long as it catches mice. You know, let's get it done, let's not be too political. And in effect it was a counter revolution. One that goes on today. The anti-Christ was let into the cathedral: capitalism. And yet the Communist party continued to rule. And then we have several other leaders since Deng too, who have been sort of variations on the theme. But if you look back over that stretch over that century of history, you find the society sort of in search of itself, or in search of some other way to be. And that I want you to remember, because it is a kind of uncertainty principle that lurks behind all of the extraordinary dynamism, change, all of the city skylines you see when you go there and the amazing facts of life, which you're all familiar with and which bring you here tonight. And how are they doing it. If you were a little bit confused, though, about what this whole proposition is all about, well, you've come to the right place. Now, I'm not going to answer it for you. But I'm going to try to help you think through it in a way that may help you make a little more sense of what are the dynamics at work in this society. It's a greatly hopeful society in many ways, increasingly wealthy, increasingly innovative, entrepreneurial, increasingly confident, indeed it's increasingly arrogant. And in a certain sense, it is as extreme a society today as it was during the cultural revolution. Except, rather than having politics in command, the market is in command. Profit is in command. Chinese do seem to have a curious way of, when they try something, they go at it hammer and tongs, there is a kind of a totalism to these experiments that they've undertaken over the last century, and that is something that is worth bearing in mind. Now let me just tell you what I want to do here. We can't tell where China's going, exactly. But we can see where it's been. And we can define the various sort of dynamic elements that are at work in the society. I mentioned the fact that probably some of you are a little confused about how to factor in all the things you hear about China that make it seem like such a miracle, a boom, of just amazing proportions, that's enabled it to flood the world with produce and goods and has enabled the middle class to rise, etc etc, we'll get into that, but on the other hand, there are an awful lot of things that are very destabilizing, that are unresolved, that are causing a tremendous amount of anxiety and nervousness within China. Indeed, the key word to remember here is Unresolved. And that China is a place where if you were not accustomed to sort of a multiple personality, if you're not accustomed to maintaining several things in your mind at once that are opposite, you probably won't have a very realistic appreciation of this place. So the contradictions are all real. And each of them, implicitly within them, is a different scenario. A different future. And that's important because everybody wants to kind of come to some term in terms of well all right, which is it, which is most likely, tell us. I mean, business wants to do diligence, governments want to do their form of appraisal, of what's happening, what are the trends. I think it's very difficult to do that in the case of China. In fact, it is by a long shot in my view, the most unresolved nation in society of consequence in the world. And it is that because it is in between things. And it is molting out of not just one system. Not just Communism, Marxism, Leninism, Mao's Revolution, it is also molting out of Confucianism, molting out of traditional forms of governance and ways of seeing things, and you know, leaders and wives, husbands, children, families, you name it. So it's got a huge amount of contradictory baggage, which it is trying to evolve out of, and it's very unclear where it's going. I have a friend who at one point I remember asking what he was doing, and he said well he said, I'm in between transitions. And I think that perfectly captures where China is today. So I want to sort of excuse your whatever sense of uncertainty you may have about how to analyze this country here at the outset. All right, let's consider just a few basic facts here. It's got a population of about 1.25 billion people, roughly, could be 1.3, the margin of error in the census of China is equal to the entire population of France. Now that just kind of gives you an idea what we're dealing with here. It has an army of 2.5 million people, it's the largest standing army, not the most technologically advanced, but the largest army in the world. It has roughly 800 million peasants, but it has an increasing number of those peasants coming into the cities. In the big cities like Beijing, and Shanghai have about a third of their populations are peasants who've come from the countryside, what they call the floating population. It is 160 cities over a million people. I mean, I wager, I don't even know, three quarters, you've probably never heard of them. Another statistic, that this is somewhat eye popping. It's the world's largest consumer, and one could go on and on, of agricultural and industrial goods of all different kinds. It has lots of cheap labor although it seems that it might be coming to something of the edge of the envelope in a certain respect on that. And if you don't fully understand the power of cheap labor, go to Wal Mart. My family and I, we always play a game when we go shopping at Home Depot or Wal Mart or wherever we go. To see, you know, you look at the thing and you say, all right, give me odds, was it made in China. And there are very few things these days, as you well know, that aren't made in China. And even fewer that are made here. This was once the sick man of Asia, it's now been substantially reborn. Okay, how do we analyze this. I'm going to do something that I hope will help you make a little sense out of the contradiction. I want to try to argue, first of all, on the bright side. The good scenario. China the miracle. China the boom, the indestructible force of the future. And then I want to turn around and put on another hat and show you some of the weak points, and then we'll see what we can make of that. China now has peaceful borders with almost every country that surrounds it, that used to have 4,000 mile border with the Soviet Union, and there were myriad Soviet divisions, it was very hostile border, and no longer. They had a war in 79 with Vietnam, relatively peaceful now. It's quite an accomplishment. They've had a peaceful transition to two leaderships following Deng Xiaoping, it's not exactly a political system we would recognize. No one quite knows how the leaders come to be chosen, it is sort of a consensus building process, but that is quite impressive. Whether they can continue to do that or not is another question, because it is an asystemic political system. They are, as you know, if you open your paper, they are on the march in Asia, Latin America, and the Middle East. You know, while we are hunkered down squandering our fortune and all of our intellectual firepower in Iraq, they're showing up in Chile, Argentina, Africa. They're setting up a whole new series of Confucius Institutes, they're marching around the world in terms of soft power, hard power, trade, interestingly enough, you know, when they go to another country, they don't ask questions about human rights. Doesn't matter what kind of governance. If there's good business to be done, they do it. Burma, Iran, Sudan, Venezuela, all fine. So there's a kind of a new sort of real economique that they've adopted. And this means that they can move into areas where Western countries, United States, would have some problems. And this gives them an amazing advantage, in terms of global markets. They've gotten to be friendly with Russia. They're talking with the Vatican, as you may know, the Catholic Church, as in the case of the Protestant Church, are under the control of the Communist Party, they're called the Patriotic Catholic Church, and the Protestant Church, they do not recognize the any connection to the holy see, and the bishop is not appointed by the Pope. They recognize Taiwan. That would be a great sort of moral, sort of psychic coup if they could get the Vatican to dump Taiwan and recognize them, and they've come very close. They're now playing a major role in talks with North Korea. They've started actually to have a kind of an ingÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â©nue role in some diplomatic conflicts. But they're still very wary about doing anything that in any sense would make it look like they didn't fully respect and recognize the absolute power of sovereignty as a sort of defense against any foreign intrusion. So they don't want to do anything in North Korea which would establish any precedence of international powers prevailing or invading or encroaching, that then might set them up at some point as being subject to similar kinds of foreign intervention. It's a very 19th century notion of sovereignty, very absolute. We're not quite sure of the number...200 million people taken out of poverty in the last 15 years, that's pretty impressive. Not quite joining the middle class in every case, but I don't think there's been any society, any country, that's had anything like that in terms of the level of economic benefit. Give or take 10, 20, 30, 40 million, there's 300 million people with cell phones. Reception's great. You can go up to the foothills of Tibet and loud and clear as a bell, I mean they really leapfrog all over the landlines. I mean, our cell phone service is just a pathetic snarl of dropped calls compared to China. There are roughly 150 million people online, and that number just keeps going up. An interesting question, though, because how do you control online media when you're a party that's used to doing that. That's a problem. We can talk about that. Every year they graduate 350,000 engineering graduates. That's about 5 times more than us. They're bigger, maybe their education isn't quite as good. This is one area of soft power the United States still has, but I fear we are squandering it. We should have a massive program of free fellowships and scholarships bringing, you know, hundred, two hundred Chinese students to this country every year. And we don't. It's just a patchwork of whatever anyone can throw together. If we wanted to really influence people, we'd do that. But we don't have such a thing, and we doubtless will not have it anytime soon. Shanghai has just for example, a few little factoids, the largest shipyard, the largest ferris wheel, the tallest building, I think this is a GVN factoid that I found in some book, and they also have the fastest train. I think it's the only magnetic levitation train in the world that the Germans built for them coming in from the airport. And they're talking about building one now in Beijing, or you know, they can do more. It's quite astounding. The infrastructural projects they've undertaken. They have plans for the tallest building. They are the largest producer of steel, cement, coal...one could go on. They garner every year roughly a third of the world's foreign direct investment. It's an amazing statistic. Yes, they have a problem with their banks and with their own financial markets, but still that's quite a statistic. Annually, they have a 17% increase in the rate of production. Not bad. Now, all of these numbers are a bit spongy, I admit, no one knows quite whether to trust them or not, but you know, give or take, it gives you an idea of incredible growth. If you've been in China recently, you'll see the amazing amount of new construction at airports, terminals, train stations, and railroad lines. And I think the most impressive thing of all is the freeway system. You get out there and start driving around China, it's quite astounding. When I first went there, there was nothing but two lane highways. You know, peasants would throw their wheat out on, and the trucks would winnow it as they drove over, and people going ten miles an hour. Of course there wasn't much traffic either. But now it's an entirely different situation. They've managed to do what this country did in the fifties, which is to really build very impressive and well built trunk roads across the country. The United States, somebody told me it was actually negative, but the statistics that I have seen, we have a 1% savings rate. You know what China's is? About 40%. Now, there's a reason for that too, because the welfare system is so bad they have to save to look after themselves, but of course it bespeaks of the other obvious fact, which is we're borrowing money, as China buys tea bills, and our debt has been subsidized by China so we can go to Wal Mart. It's a kind of a co-dependent relationship. On the one hand it does sort of work, on the other hand, there are all sorts of things implicit in that relationship which could be very dangerous. And of course, finally, China has a growth rate that 9, 10, 11, sometimes 12%. That's staggering. Japan was hovering around 0, 1%, you know if it gets up to 3%, boy that's great. And here's China chugging along, worried about overheating, not being too cool. There is a huge trade surplus, most of it with the United States. Is this good or bad for us, well many people are worrying about it. This August it was an 18.8 billion dollar trade surplus for the year, it looks like it's going to head up to 135, 150 even. Foreign exchange reserves are very high, almost a trillion dollars. We're at 900 trillion at this point. They have in our tea bill account about 250 and rising billion dollars in tea bills. That's a lot of leverage over the world's most powerful country. And if you go to the cities, you know it's hard not to be impressed. You look at the Olympic Village that's being built, that's really quite beautiful, beauteously designed Olympic stadium, I mean I don't think America could construct something on that scale. We try to build a bridge, and it's a big deal. One company bid on that bridge, and soon it will be the Chinese who are building that bridge. We are losing our ability to do that kind of infrastructural problem. And China's role in the world is growing, it's getting a much better reputation. It is a more constructive citizen and people are quite impressed and in some cases worried about it. All right, that's a good scenario so far. What does it suggest about the future. Well, let's talk about that. Now, I'm going to put on my other hat and I want to completely bum you out. And I want to sort of turn the thing over and allow you to look at the seamy side of China, that part of China which can be seen as quite dysfunctional, and actually menacing of this grand experiment. China has only 7% of the arable land and of course a quarter of the world's population. Bad start. And a lot of that arable land has been gobbled up in industrial parks and railways and freeways, and various other construction projects. They're not going to be self reliant in food, in fact what they tend to do now is import food for the coast and they're more self-reliant for food in the inland area, so they don't have the transportation bottlenecks. Car production, and this, one way, is a good scenario statistic, but in another way is a bad scenario statistic. 2000, they made 640,000 cars. 2005, 3.1 million. And this number has just skyrocketed. And those of you who've been to China know there isn't a car company in the world that isn't trying to get in there, and a lot of Chinese companies that are also building local cars, and every city is just crushed with traffic. It does not matter how many ring roads they build around Beijing, you still, it's gridlock during rush hours. It's a real problem. And you also know the consequences of automobiles. Not just traffic. A small fact, that just throw away chopsticks take some 70 million board feet of timber every year. Anything that China does is on a gargantuan scale, because of the population. Two thirds of all its energy is coal. That's a very significant figure, because coal is king in China. And as China turns, and the world turns, we will have to be mindful of coal, because that is what keeps this whole gyroscope spinning. It is also what could threaten the world, through climate change, acid rain, and various other kinds of pollutants. Already in China, because of coal largely, and to some extent other automobiles, 30% of the country has severe acid rain. That's a very serious number. People estimate, the Academy of Social Sciences, some 400,000 to half a million people have premature deaths because of the air pollution. If you've been to China you know you can go for weeks in big cities and never see the sky. I had a very interesting experience lately, I was there, I think it was May, and my kids were in school in China, and had a vacation. And we wanted to take a little vacation tour. So we got a van, got in, had a friend, and we went out to Shangshui province, which is sort of in the northwest, which is coal country. And I thought, well you know, we'd drive outside of Beijing, get past the Great Wall, then we'll see the sky. Well, we drove for, I don't know, four or five days, and never saw the sun. Never saw the sky. And in fact when you get beyond the Great Wall, and you get into coal country, what you see is one power plant after another, one cement factory after another, one sort of industrial plant burning coal. Indeed in China every week now, and again I've heard different statistics, one new coal- fired power plant comes online. I also heard a statistic the other day that said two. It doesn't matter: a lot. Those power plants are not retrofitted with anything. And they are going to be there for thirty years, or whatever their actual table is on coal-fired power plant. And it's a huge problem. 75% of China's lakes are polluted, and there is serious deforestation, causing floods and various other sorts of dilemmas. 75% of the river water adjacent to cities is undrinkable, and in many cases, it is unusable for industrial purposes, and what is even more shocking, is that an alarming number of rivers have stopped flowing. To wit, the Yellow River, which stops flowing in the summer about 200 miles up from its final delta. And as I drove across Shangshui province in May, I didn't see a single river with any water in it. You pass bridge after bridge after bridge, no water. So the ground table is being pumped out, it's the only refuge for industry and people who need water. And I should also say, that landscape in that province, which I visited a number of times, and the first time long ago. Was one of the most desecrated landscapes I've ever seen in my life. Piles of coal everywhere, fly ash, you know, cement factories with wind sort of whipping the powdered limestone off in piles like off the face of Everest, and you will go for mile after mile and there would be these incredible occursions of junky little shacks with restaurants and truck stops, you know, soil saturated with solvents and oil and all up and down these roads. Thousands and thousands of coal trucks. There was an article just a day before yesterday in the New York Times about this coal trucking industry. In fact, coming back into Beijing, it was May Day, a Communist holiday. And all of the coal trucks were being kept out of Beijing. They had to wait for a couple of days while the holiday got over. And so there were these armadas of these trucks with truck drivers, you know thousands of trucks just stopped along the road, waiting. And you got a sense of the incredible, the staggering dimension of this energy question for China. The one that coal is the answer, because China has a lot of coal. Unfortunately, it's very high sulfur content coal. And I should say that the mining industry in China is extremely primitive. And there are thousands of deaths every year for miners, it's very unregulated, and the Shangshui coal barons are of course famous for their wealth, and they all live in Beijing and drive big black cars, but you know, China's got the needle in its arm. But then so do we. 16 out of the 20 most polluted cities in the world are said to be in China, I've also heard 6 out of the 10 most polluted cities. I mean, in China you hear a lot of statistics that sort of blow your mind, and you don't know which is true, and sometimes they conflict, but most of them are on the uphill side of astounding. The trouble with these environmental statistics is that a large measure of unrest that is unfolding in China, grow out of environmental questions. They also grow out of corruption, confiscation of land by officials, but the environment is increasingly a cause of great restiveness. Pollution, you know, rivers being contaminated, fields being taken away from peasants, air pollution, one thing and another, toxic dumps, you know coastal waterways, coastal habitat destroyed, and this is something that the Party's getting very concerned about. In fact, last year, by the Party's own admission, there were 87,000 instances of notable public unrest. That isn't just somebody standing with a picket sign. The year before, as I recall, the figure was 74,000. That's very high. The year before that I think it was 50 or something. It's on the rise, and there are a lot of different reasons causing it. Corruption is a big problem in China. And one of the reasons corruption has such purchase on the way things are done in China is for this reason. When the revolution came about, the Communist Party confiscated everything. All buildings, all land. Everything was nationalized. And nobody was compensated. Now that the market is on fire, this land, these buildings, are worth a fortune. And the people who control them control these state assets are officials that don't get paid very much. And they get in league with the banks and form projects, and they are the keepers for what land gets sold to who and what goes into what project, and there's a huge temptation and a huge prospect to make an awful lot of money. It would be as if the government owned everything here and it fed it back into the economy, and the market place and officials determining where it went, and profiting from it. It's a very odd situation in China, because it's still, there's much state-owned enterprise. And you have the anomalous situation where you know the army or the air force or the public security bureau will own a hotel, or a series of restaurants, or a whore house. Or a casino, or whatever it is. Their playing would be as if the department of environmental protection here had a string of golf courses to raise a little income on the side. Very curious, and I've never seen any reputable economist address that situation. The state ownership and the way in which the state feeds property into the sort of the private side of the marketplace, how that influences the economic picture, and how do you build that in your mind. People estimate, reputable economists, that somewhere between 8 and 12% of GDP should be written down in terms of environmental cost, albeit perhaps long term rather than short term. That's a very high figure. That's almost the entire growth rate of China. And it is alarming because it suggests that in the long term there's going to be a real cost, that in other words, they're burning up assets now which they'll come back to pay for later on. Now, it's also a Leninist state, lest we forget. China's reformed economically. It hasn't reformed politically. And the real question is, what does it do with the institutions that are sort of on the political side of the ledger, that remain. If you walk to Tienanmen Square now, from the east, you'll pass a giant building on the left hand side just before you get there, right across from the Beijing Hotel, and that is the new public security building. I mean, it's vast. Not badly designed either. But the question that you finally have to ask when you think in terms of China's peaceful evolution, is What do they do with that? What do they do with the Party? What do they do with the military? What do they do with the state security? What do they do with the people's armed police? What do they do with these myriad institutions which have hundreds of millions of people in them, how do you reform that? That's a lot harder to reform than some of the things they've already tackled. It's a problem. China has twice as many people as they had fifty years ago. There's a problem. Twelve million new mouths each year, new people to get jobs for, it has an aging population, very much weighted on the side of people who have now retired. It also has a very weak pension plan. It used to be that everybody's welfare was taken care of by their state enterprise. If you worked in a factory, you had health care, your kids went to school, you got an apartment, they took care of you, you get married, you die, they got you a coffin, when you got sick you went to the hospital. And you got a little pension when you retired. That is melting away. And they have not managed to reconstitute a pension program that really will do the job. That's why there's such a high savings rate. That's a real problem. There's a broken health care system. It used to be that health care was free. But that came with your unit. Now hospitals are increasingly privatized, or they will take you out of the common wheel, and there is a price for an appendectomy, but you will never get that appendectomy performed unless you slip a substantial amount of money to the doctors under the table to get on the schedule. And they don't know quite what to do with that. It's a dilemma of transition. The new system is not born, the old system is not working. Banks, real problem. Huge amount of loans out that the state has made banks give. Banks are not commercial banks in the sense that we know them, that they look at an investment in terms of risk, and then they make the loan. Banks very often have to make huge investments just to satisfy the government. They're trying to wean them away from that, but constantly the government requires this to happen because they fear instability, they don't want to let a state owned enterprise with fifty thousand employees collapse if those fifty thousand people are going to be out on the street, so they loan it more money. So the non performing loans and banks are huge. Stock markets, traditional way as you all know that a capitalist society raises money. You sell stock. You have a company, you sell stock. China has two stock markets, and they've grown, but they're basically casinos. They get manipulated in a lot of ways. And one of the biggest problems of these stock markets is that companies early on learned, hey let's issue stock, we'll get a lot of money and we'll all buy cars and we'll buy houses and it'll be great. And they did. But one of the things they couldn't do because the market was so small, they couldn't put all of their stock on the market. They call it overhang. So half, two thirds, nobody quite knows, of all the stock that companies own isn't on the market, and the government won't let it go on the market, so in effect what you have is a rigged market. A market that doesn't operate according to market principles. But that is being controlled by the government. And the government feeds a lot of stock, the market usually goes down. So it's a, how do they get out of that trap, nobody quite knows. But without financial markets to finance their own development, they're forced to rely on the banks and outsiders. So it's a strange system that's not like anything financiers here would recognize. I might add, that doesn't weaken the armor of many invenstors who in my experience, many of them don't really want to know what's going on, they just want to get in. They figure they cannot but be there. And some of them make money, and a lot of them have come a croppin because the powerful sort of psychological urgency of getting into the largest and most dynamic market in the world. And then you know you have things lingering around in China like the legacy of 1989, that undigested massacre, that moment in history, greatly tragic, that nobody has been able to lay to rest. It's like an uninterred corpse. Does it matter, well, it all depends on what you think. Does it matter that human beings or societies come to terms with their past, does it matter that Villi Bront got down on his knees in a Warsaw ghetto to apologize for what the Germans had done during the war, who's to say? Does it matter that the Japanese repent and apologize? I think in some deep way it does, and there is no nation that has avoided its history more sort of consistently than China. And can it escape from what it's done? Can it escape what the Party did to the people? It's a great leap forward, 30 million dead in famine, whether it's a cultural revolution, whether you name it. Does it matter that-- can you just take that and say listen, let's not talk about it, let's not, we've got a good thing going here, let's not dwell on it. It depends on what you think is important and what you think is a state of health for a society. So. I could go on. But I won't. There you have these two very interesting sort of panels of facts, phenomena, dynamics, and there are many many others I haven't gotten to on both sides of the ledger. Now you probably sort of forgotten the first group, at the least that sort of light bulb in your mind after you turn it out is probably dimmed a bit as I've recounted this other group. So how do we reconcile these two kind of very contradictory lists of conditions? I don't think we can. I think what one can think in terms of is this. That the best possible scenario for China is what the Party is very wary of hearing called Peaceful Evolution. That means Piecemeal Change. Deng Xiaoping, when he was asked, you know, Where is China going? He used an expression that's now very common in China...We're feeling our way across-- No, "We're crossing the river by feeling our way over the stones on the bottom." And it does not bespeak of a tremendously highly evolved notion of destination. It's all in the process, and it's going there very rapidly, and if you want to talk to people about where it's going, you get a kind of deer in the headlights look. And if you then ask about well, politically, what's the aspiration. You get the same look. Maybe a little more democracy, what does that mean, well, who knows. And the interesting part of that aversion is this, that having had the big dream of socialist utopianism dangled over them for so long, with all the steps of how to get there, the bourgeois national revolution, the this the that, and then they're going to get to paradise, you know, I think the Chinese are a little sick of the picture. A little sick of grand visions. And a little wary at this point of charismatic big top rulers who run them over the cliff. And so in a curious way, not only does the party not find it expeditious to speak of grand visions of where they're going, but people too are just, you know, leave me alone, let me redecorate my bathroom. Let me get that car. Just as long as everything's okay, hey, I won't make trouble. But as we know in societies, there are always troublemakers, and what we also know, indelibly, that as long as economies are going up and expectations are hopeful, and people are on the escalator which they are in China now, you can get away with almost anything in terms of contradictions and unresolved institutions and lack of clarity of vision. The problem comes, as inevitably it does, and China has been incredibly lucky that it hasn't come yet, and it may not come, is in the cycles. We know there are business cycles, we know there are economic cycles, and even more important, we know the world is highly fragile in its construction, economically, and that some perturbation outside of China could have a very profound effect in China. Let's just take something that could happen here. The housing market goes south. Nobody can borrow money anymore. They're losing their houses. And their credit cards are run out. They can't go to Wal Mart. They can't go to Home Depot. That could have a very profound effect on China. So the thing to watch out for, and the thing I think ultimately China fears most, of course there are all these internal problems that they have to deal with, but what they fear most is that the economic situation will slow down to a point where they'll have more people in the streets and unhappy, and they'll have more people saying, who are we going to blame? Someone's got to be at fault. Why don't I have a job. And that, to me, is the main danger to look towards, because the legitimacy base of China's base very narrow in an economic sense. Nobody much believes in Communism or the Party and in fact the whole value system is rather vague. If you're Chinese, who are you? Are you Confucian? Taoist? Maybe you could be Christian? Are you Communist, are you Marxist, are you Maoist, are you Deng Xiaopingist, are you Adam Smith? I mean, what do you believe in? And where do you turn when you need to know how to do something right? How to relate to someone in the proper way. It's very vague now, very uncertain, and it creates a lot of not only instability, but a kind of murkiness in people knowing what to do when push comes to shove. Maybe I'll just end here and we can have some questions. China is a work in progress, and it is a country trying to molt out of one system into another system that is not too clear. And it is a country that's had incredible success and chosen incredible promise and it's an awful lot of extraordinarily bright young people in China, who have immense capacity and yet there are a lot of things that don't confront other countries by way of dealing with past business, past institutions, that nobody quite has an answer for. And that makes it very interesting. It makes it probably the most interesting country in the world. But it also makes it a very provisional country, whose future is not gloomy by any means, but whose future is not, let's say, assured, like give or take, Canada's going to be Canada, right? Growth rate'll go up and down. France, I mean you name it, most countries, they could have some problems, even Argentina, but they don't have built within them the kinds of structural anomalies and contradictions that China does. And China's challenge will be somehow managing to manage to keep evolving and to resolve those in a way that doesn't cause any sort of precipitous bump in the road. All right, I'll stop here, let's have some questions.