On May 12, 2021, CCG hosted a dialogue between CCG President Huiyao Wang and Martin Wolf, Chief Economics Commentator at the Financial Times. Wolf has had an illustrious career in journalism and is considered a leading authority on globalization. He previously worked at the World Bank and has been covering the world economy and global finance for the Financial Times since 1987. He is also the author of several influential books, including Why Globalization Works (2004), Fixing Global Finance (2008), and The Shifts and the Shocks: What We’ve Learned—And Have Still to Learn—From the Financial Crisis (2014). His forthcoming book deals with the crisis facing democratic capitalism.

A sought-after speaker on the global circuit, Wolf is a regular participant in the annual China Development Forum, where I have met him several times over the years, as well as at other events around the world. This conversation took place in May 2021, at a time when the global economy had begun its gradual recovery from the worst of the pandemic-induced global recession but still faced many challenges and uncertainties ahead. Our discussion covered a wide range of topics, from the economic impact of COVID-19 and the measures being taken to support the global recovery, to challenges facing global governance, whether China and the US can overcome their differences to reinvigorate multilateralism, and the evolving nature of globalization in the post-pandemic era.

Huiyao Wang: Good Morning, Martin, great to have you, and maybe you can say a few words to our audience to start.

Martin Wolf: I’m very pleased to have this dialogue on a crucial subject at a crucial time. We are going through extraordinary transformations in the world order because of economic developments, because of political developments, and of course, because of the pandemic. So, we are all being forced to rethink our view of the world and how it’s going to evolve. I’m just completing a book on the future of the West. But I have come to the view that this decade is looking increasingly like what one might call a “hinge of history,” one of those decisive moments in human affairs that will determine the future of our world for a long time. Will it be prosperous and peaceful? Will we manage our big challenges, above all, climate? Will we manage to cooperate satisfactorily or will the order we have created in the last 20 or 30 years—the order of global cooperation, and for all its failures, globalization—collapse?

I think those issues are very much alive and the next 10 years or so is likely to provide us with answers. I am very concerned about the developments we see. I’ve been around for a long time and I think this is possibly the most challenging period of my lifetime. I was born immediately after the Second World War, so I didn’t experience that catastrophe. But I’ve been alive now for 75 years and this is a very challenging period we’re now entering. The pandemic spurred technological advances but also intensified inequality and debt.

Huiyao Wang: Thanks, Martin. I agree with you, the current challenges we are facing are unprecedented. The pandemic has swept the world and the global economy is struggling to catch up. So, 2021 is to be a year of recovery. Maybe you could share a bit of your outlook. Is this pandemic crisis going to reshape the global economy, the political landscape, or the way global governance is conducted?

Martin Wolf: There’s so much to say, I’ll try and keep it brief. So, the first point is the one you noted; we’ve now had two very significant global crises in less than fifteen years. The last one was the financial crisis of 2007–2009, but it went on in Europe to 2015, so it was a long crisis. Just a few years later we were hit by the pandemic—an event that many had predicted, indeed it’s not at all surprising. Humanity has a long history of experiencing pandemics. Nevertheless, we didn’t know when the next one would happen, and then it happened, and that’s been another huge shock. In a way, it’s been the most global economic crisis there has ever been, in the sense that it has affected basically every country in the world more profoundly than any other comparable event, at least in modern times. When I think of modern times, I mean since the Industrial Revolution, so about the last two centuries or so. Of course, there have been much more damaging pandemics in the past, such as the Black Death in the fourteenth century, but that was so long ago that the memories of it have largely gone, except in the history books.

If we think of the pandemic, it was global, it was sudden, and it led to a very sharp contraction last year, particularly in the first half of last year, across a very large range of economies—particularly in the West, but also a bit earlier in China. What can we say about its social and economic effects? I think we can say the following things: the first, which in a way is the most interesting and important, is how big the economic damage was of a pandemic that—at least in terms of its fatalities—was historically relatively minor. I’ve been looking at the famous Spanish Flu of 1918, so just over 100 years ago. Nobody knows exactly how many people died then, but the central estimate is about 50 million, which given population growth, would be equivalent to 200 million now. So far, this pandemic has killed fewer than three million. So, it’s a much smaller pandemic in its health effects, but its economic effects have been much bigger, so far as we know. Of course, [a hundred years ago] we didn’t measure economies in the way we do today, but [the economic impact of the current pandemic is] still much bigger.

Why is that? The important point is that our societies, and I think this is a very good thing, put an enormous value on human life, and we are prepared to pay an enormous economic price to protect human lives. That was clear in China, where you closed down Wuhan, for example, in order to contain the virus, regardless of the cost. The same was true across the Western world, we basically closed down our economies and people stayed at home. Even in relatively poor countries there were lockdowns. So, we really care about human life, that’s the first big lesson and I think that’s fantastic.

The second thing we learned is that we have the means to do something about [the pandemic] because our technology has advanced so much. We have learned, as we’re now experiencing with this Zoom call, that we can now run much of our modern economy without physically meeting. That generates huge inequality in our societies because the people who can [work remotely] tend to be the more prosperous and have graduate degrees. With the great exception of the medical profession, by and large, people with degrees have been pretty safe. But people who must work face-to-face with other people have not [been safe] and that is creating huge social divisions as a result of the pandemic, and also great divergence among countries because some countries with more advanced economies are able to do much more online than others. That’s the inequality point we’ve learned, which is very important.

The third thing we’ve learned is about the immense advances in medical science and our ability, which nobody would have really believed a year ago, to create billions of vaccines, which work, and distribute them, [albeit] very unevenly and very unequally across the world. This is also an extraordinary lesson.

So, what does this mean? And this is my last point for the immediate future. The countries that have controlled the disease successfully—notably China, but also South Korea, Australia, and New Zealand—have reopened [their economies] pretty well. Economies that have managed mass vaccination programs like the US, and now the UK, and over the next few months Europe, will also expand very rapidly. I expect a big global recovery this year and next year, led by the big economies—basically, the big Western economies and advanced Asian economies like China, which together account for about 75–80 percent of the world economy. Unfortunately, there are lots of other countries which are in a much worse situation. They don’t have the vaccines yet and they’re very dependent on tourists, who are still not going to travel. They have some very big problems. Look at South America, India, or Africa.

Then there’s the final thing—the remnant of the crisis, which is a huge amount of debt, a lot of dollar debt. That’s going to be perfectly manageable, in my view, in the developed countries. But it will be much more problematic in emerging countries. So, we will emerge [from the pandemic] strongly but very unequally. Lastly, the crisis has generated a lot of ill will, political instability, and anger that will affect the shape of international relations in the future.

Huiyao Wang: Thank you for a very timely and broad analysis of the global pandemic situation. I think you’re right, we’ll see a recovery, but it won’t be smooth and linear—there will be zigzags and ups and downs.

Martin, you are something of a guru on globalization and in 2004 published the book Why Globalization Works. Over the last 100 years, globalization has generated enormous prosperity but has also now brought unprecedented challenges. Amidst the pandemic and complications over vaccines, more countries seem to have become susceptible to populism and nationalism. Many countries have closed borders or adopted protectionist measures. How do you see the future of globalization? Will it continue, can it be adjusted? Can we forge a more inclusive globalization, as you’ve often suggested?

Martin Wolf: Another very big question. When I analyzed globalization in Why Globalization Works nearly 20 years ago, [that book] was a defense of globalization. At that time, there were a lot of critics [of globalization] in the West. People were saying that globalization is very bad for developing countries, it’s exploitative and we should stop it. I said, well, actually the evidence is very clear: [globalization] is good for developing countries, with China the foremost example. China’s incredible growth couldn’t have happened without Reform and Opening-up.

In Why Globalization Works, I said there are two drivers: technology and policy. They do interact a bit, as in the long-run, technology is influenced by policy. But in the medium-run, [the drivers are basically] technology and policy. So, let’s look at where we are on technology and policy.

Technology is the underlying potential for globalization, given technological realities, and policy is what governments allow. On technology, one possibility has been to a substantial extent exhausted, quite naturally. That is the unbundling of supply chains across the world. This has been going for quite a long time—we had pretty clear evidence that 10–12 years ago after the financial crisis, [globalization in terms of supply chain unbundling] was slowing.

I think the reason it was slowing was that a large part of the opportunities to unbundle physical supply chains had already been exploited. Some supply chains that had been unbundled [in which China played a role] were actually moving into China, thus becoming “Chinese” supply chains. In addition, the enormous cost advantages that countries like China and Vietnam had in the 1980s and 1990s were diminishing because of a wonderful thing—wages were going up. The result was a completely natural slowing of the unbundling of physical supply chains. This won’t reverse until there are huge new technological improvements.

The globalizing potential of links such as transport, the Internet and telecommunications are [no longer] being transformed, with one exception we will come to in a moment. To give you an example, airplanes move basically about as fast now as they did 40 years ago. We’ve got huge container ships, but they are probably now about as big as they are ever going to get. Look what just happened in the Suez Canal [which was blocked by a ship in March 2021]. The shipping container was a great invention but it is now roughly 70 years old. Technologically, the unbundling of supply chains and the movement of goods may well have reached a natural plateau, relative to our economy.

But there’s another completely different potential, which is what I think of as “virtual globalization” or the globalization of ideas, broadly defined. We’ve discovered in this crisis that it’s possible to operate highly interactively without being in the same place. That will generate huge potential for interaction among human beings—economic interaction, cultural interaction, and interaction in terms of ideas. Here, the relevant divisions are linguistic more than anything else, and with advances in AI, even those will diminish. I’m sure we will soon be in a world in which I can talk in English to someone in China speaking in Mandarin, and we will both hear perfect translations by AI and be able to have a conversation. That may not be this decade, maybe the decade after, but I think this will happen. So, I think virtual globalization has tremendous potential. That is a wonderful thing. It will be very difficult to isolate yourself from the world, intellectually and culturally, something I’m in favor of, but it will also create some challenges.

Then there’s policy. Here, it’s pretty clear: we have become more suspicious of one another and that’s partly because of divergent political developments. I’m not going to talk about China, but I think this is pretty clear in that country. In the West, our societies have become more divided; that was happening before the financial crisis, but the financial crisis and now the pandemic have made it even more so. It’s made people more suspicious of one another and politics more populist and more deeply divided. And when people don’t really like one another in a country, the one thing they can often agree on, and this is age-old, is that they dislike foreigners even more. I’m afraid xenophobia could be the thing that brings people together. That could be true even in China and certainly in the West. As that’s happening, politicians may say, “It’s nothing to do with what’s going on in our country. It’s all their fault”, as when Mr. Trump said, “It’s all the fault of the Chinese.” People will listen to this and we see this happening, not to the same degree in Europe, but it’s happening. That’s the first thing.

Then, we are in the midst of a massive power shift. Let’s be completely realistic about it: the Europeans and their colonial offshoot, the US, have been used to running the world for hundreds of years. They don’t like to see this changing and they don’t know what to do about it. I think it’s also true that China has not yet worked out what it wants to do about its new position. This is creating tremendous political tensions—how do we “run the world” when we no longer [actually] run it?

This situation is creating more ill will and leading to a desire to protect themselves and make themselves more secure by reducing reliance on others and by making sure that they remain a world leader in technologies. This is all quite understandable, but from a policy view, it tends to work against globalization. You saw that in the trade war that Mr. Trump launched against China. You can see that in frictions in international relations and suspicion of one another that comes out in rhetoric on both sides, particularly in the US. This affects globalization because American companies then say, it looks like my government doesn’t want me to be involved in China and if I must choose, as an American company, I’ve got to do what my government wants. I think the globalization of goods and of supply chains is going to go into reverse, creating regional supply chains, whether they be Chinese- or Western-dominated. Then we have this overlay of the future of “virtual globalization” which is reinforced by one of the greatest technological developments of our era—Artificial Intelligence. So overall, it’s a very complex and very difficult and uncertain picture.

Huiyao Wang: I’m interested in your upcoming book, The Crisis of Democratic Capitalism. We see a huge wealth gap between the richest in society and the rest of the population. In a way, China has become a scapegoat for this kind of inequality, while multinationals reap large profits around the world but bring only limited benefits to their host and home countries. Has global governance fallen behind in areas such as ensuring multinationals do their fair share? I notice that recently President Biden has been discussing how to increase the wages of the lowest-paid workers and also proposed a global flat tax rate. Also, even during the pandemic, we have seen the top 1 percent become richer as Wall Street hits record highs. What is your take on these issues?

Martin Wolf: The questions you pose are very deep ones. Let’s start with the inequality issue. The statistics, such as they are, suggest that there’s a pretty high level of inequality in China, too. The big difference is that given the immense rate of growth in China, pretty much everybody in China has benefited substantially from growth, so rising inequality matters less.

In the West, particularly in America, rising inequality has coincided with pretty flat real income growth for a very large part of the population and particularly the bottom half, though this is a pretty complex and controversial topic and I won’t be able to go into all the statistics. The reason for that is you’ve got rising inequality of wealth and income when overall productivity growth has been fairly slow. In China, productivity growth has been shooting ahead at 6–8 percent a year for decades, until relatively recently, as it has slowed since 2012.

In the West, productivity growth has been much slower. One reason is that countries like the US are already relatively advanced so they can’t gain much from importing new technology from elsewhere. They have to develop within themselves. Also, I believe that given the structure of our economy—basically, the increasing domination of personal services which are difficult to automate—it’s more difficult to increase productivity than it used to be. I think that in the next 20 years, China will begin to suffer from the same problem as industry becomes a diminishing force in the economy, as industry is always one of the sectors where productivity growth is fastest. After that, you are left with the other activities—such as hospitals, schools, or looking after old people—where it’s really hard to raise productivity. So, you end up with an economy with a huge service sector, a lot of which is quite stagnant, productivity-wise. That may change in the future, but that’s where we are now.

So, productivity growth has been slow in the West and inequality has been rising. Logically, that means a large proportion of the population haven’t seen rising incomes, which causes anger. In societies with very diverse populations, this has created interethnic friction, allowing politicians to play on a kind of ethnic cultural war as part of their political strategy, what I think of as “blaming the other,” both internally and also externally—because the other “other” you can blame are foreigners. The characteristic of right-wing populism which has become so powerful is that you blame domestic “others” and foreign “others” for what’s gone wrong. That’s what Donald Trump represented and it’s what the Republicans now represent. You can see similar things, though not to the same degree, in Europe—in Britain, Italy, and France, much less in Germany, but it’s there.

This has a second huge consequence—the return of nationalism. I would like to suggest there is a fundamental moral underpinning to this, which brings us to a deep conceptual fact related to your question. The capitalist economy tends to be a global economy. This was true in the nineteenth century and Karl Marx wrote very well on this. The reason for this is very simple. If you are a capitalist, you are in the market and there are opportunities globally, huge opportunities. That’s why Chinese entrepreneurs have gone global and why American entrepreneurs went global and all the rest of it. So, the world capitalist economy is naturally cosmopolitan. That was Marx’s great insight. It’s a cosmopolitan system, which in many ways is a good thing, and it’s an effective system for developing growth.

But as the economy becomes more global, national control over the economy shrinks inevitably. Because the economy is more global, it’s not all under your control in the way it used to be. Whatever the political system is, government is national, not global. International government essentially rests on the voluntary cooperation of national governments, which have domestic legitimacy and domestic accountability. This creates a permanent friction in a globalizing system between the logic of the economy, which is global, and the logic of politics, which is national. Accountabilities are national and in a democracy, this is reflected in the election of people to power who are running against the global capitalists. The interesting thing about American politics is that the right and the left are both now running against the global capitalist, which is very extraordinary (though neither is doing very much against them, when in power).

This makes it very difficult to maintain cooperation among governments in support of global order, global governance, and global rules for things like trade, finance, or climate. Because all the political forces acting on these institutions are national and are forcing them to pay most attention to domestic citizens. So, it takes very wise and disciplined statecraft to say to people: “We are looking after you, but cooperating globally is the best way for us to do this. We can adjust the way we cooperate globally, but we can’t close off our economies, since that would impoverish us. By agreeing to do things globally, we will do better for you here at home.” That is the line I would take, but it’s not an easy line to sell. It’s a rather sophisticated and complex argument and it looks as though you’re abandoning national sovereignty. When people are frightened and angry and there are huge power shifts occurring, it’s very difficult to make that sort of sophisticated argument; that the best way to achieve domestic gains is through international economic integration and cooperation.

I think Biden clearly understands this better than Trump. But even Biden knows he has to satisfy domestic constituencies that have been “losers”—not of trade, but more of domestic political changes such as the failure to get rich people and corporations to pay their fair share of taxes. It’s striking that the richest people in America have the lowest tax rate. The way Biden has to deal with that is to make sure they pay taxes and to do that he has to deepen international cooperation, which is what he’s trying to do on things like global corporation tax. The route to better domestic policy goes through better global policy, but this is a very sophisticated idea, which is quite difficult to sell, especially when it comes to relations with a country like China—a superpower with a very different political system.

One of the things happening on what you might broadly describe as the “somewhat populist left” in the West is that it’s becoming alliance-oriented, not global. This orientation to Western alliances is fragmenting the world, not into countries, but into alliance systems. This is also dangerous by the way, but that’s where it seems to be going. It’s a halfway house between purely national economic sovereignty and globalization.

Meanwhile, China is working to establish itself as an advanced technology power by developing enormous strength in the technologies that the West has historically dominated, and quite a lot of Westerners regard this as threatening. So, it has become very difficult to balance national politics with global cooperation on economic and security, and that’s where we are now. The most obvious period with some echoes of this one is the period of international conflict when the West dominated the world, in the late nineteenth and early twentieth centuries. That led to a complete breakdown of the world system.

Huiyao Wang: Thank you, Martin. As you summarized in your book, capitalism is global, but democracy is local. There is a tension because global capitalism has mostly benefitted elites and there has been a lack of equal opportunity. This has spawned politicians that bash globalization. To get past this, we need more international cooperation on things like addressing the pandemic or climate change. We need to work together to build trust, otherwise, we are going to be driven apart over differences in ideology and values.

In my discussions with people like Graham Allison, Joseph S. Nye Jr., and Thomas Friedman, no one has really agreed with the idea that we have entered a new “Cold War.” It’s a flawed analogy because China and the US are so deeply entwined. One big question is, will the rest of the world be able to recognize and accept the peaceful rise of China? Anyone who visits China can see the transformation that has occurred in the last four decades since Deng Xiaoping opened up China. China now contributes one-third of global GDP growth and is the largest trading partner of 130 countries. It is the world’s leading producer of over 200 products as classified by the United Nations. Shouldn’t it be possible for the rest of the world to see China’s rise as a form of healthy competition, like in the Olympics, rather than insisting that only one model is the best? There may be some rivalry, but this could be “cooperative rivalry” or “rivalry partners” in the words of Joseph S. Nye Jr. and Graham Allison, respectively. Is that achievable, or are we doomed to a self-reinforcing trend toward conflict?

Martin Wolf: This is a huge question. One of the questions that I’ve been thinking about is, let us suppose China had a political system just like ours. Would we feel differently about it? It’s a very interesting question because it’s quite possible that the answer is no, though I don’t think it would be a simple “no.”

Such an enormous shift in the balance of global power, which you described very well, creates uncertainty and fear everywhere else. That’s what the “Thucydides trap” is about and it would happen even if there were absolutely no ideological elements at all. But of course, there are, and there’s also history. So, I’ve always assumed that some substantial degree of friction was inevitable. We just have to accept that; we do have nationally based global politics. The question is, are there any analogies from the past that help us to think about this? I agree with you completely that the Cold War is a hopeless analogy because it was an ideological competition. We had almost no economic relations between the West and the Soviet Union. They were almost completely independent entities and the Soviet Union was not really at any stage an economic rival, though it was a military rival without question. So, the Cold War is not a useful model; the West is enormously economically integrated with China and China is a huge economic power and will become a bigger one. We also share a world that we now know we have to look after together. That makes managed cooperation the only way we can possibly do this. One thing we do share with the Cold War period is that war is unthinkable. War has been unthinkable since the invention of nuclear weapons.

So, how does cooperation work? I think you must break down the elements in a pragmatic way and they have to be separated, they can’t all be dealt with together. The global commons—climate, the oceans, the protection of species—are all big issues in which China will be centrally involved and will have to do a lot more than it’s now planning in all these areas. That will be quite tough for China, as well as for us. That’s a huge challenge but it is in China’s interest too, so I think there’s hope.

Then there’s managing security relations in such a way that they are stable, so everybody understands what their fundamental interests are and manages them without friction. This is absolutely crucial and I don’t think it’s happening enough.

Then there’s economics. Here I believe the West has legitimate concerns with Chinese behavior and I’m sure China has legitimate concerns with Western behavior. My own view is that both sides need to define what they regard as their core security interests in technology, which are legitimate, and they have to say that these sectors are ones where we are going to make sure we are independent. We will agree on that, and that will have impacts for trade, and we will just have to accept it. It’s clear that’s going to have to happen. There are core technologies both sides want to control for their own sake. Everything else should be conducted according to normal rules of trade, but those must be reciprocal and equal. I think the way Trump went about this was mad, but there is a case for a profound negotiation between China and other major powers on a new trade order, a new trade system with new rules which are more legitimate and work better. Some of these rules will be tighter and some of them will be looser, but they will be different. We can’t go on as we have been and pretend the WTO system and the 2001 China accession is the last word on this economic relationship.

Then we have immensely important areas where we need to cooperate like health, development, and debt. The last is a big problem. China is a big creditor, Western countries are also big creditors. On these issues there must be active day-to-day cooperation that will require considerable changes in international organizations. This is a very broad agenda and it won’t do to just go back to where we were 15 years ago. We have to move forward and that will require imaginative statecraft in the West and in China.

Huiyao Wang: Thank you. You recently wrote an article “China is wrong to think the US faces inevitable decline,” which was widely read in China. You summarized the competitive strengths of the US, from universities and venture capital to corporate multinationals. One of the things I think Western countries are doing well is attracting global talent. Lee Kuan Yew, former Prime Minister of Singapore, noted how China is able to draw talent from 1.3 billion people, but that the US is able to draw on talent from 7 billion people. This is a major advantage for the US.

But China also has its competitive advantages. China’s population dividend will continue for some years. China is also doing well on other things, for example, according to the global innovation index, China has 17 of the top science and technology clusters, with the Guangdong-Hong Kong-Macao Greater Bay Area and Beijing. China has also surpassed the US in terms of patents applications and Chinese universities are catching up. Each country has its relative strengths. So, while the US is doing well in terms of innovation and global multinationals, China is doing well in terms of the size of its market, which already has a middle class of 400 million people. In the next 10–15 years, China may have a middle class of 600–800 million people, which will be great for the world. It would be better if we could benefit from each other rather than attacking each other because we have different systems.

Martin Wolf: Well, we can’t decouple, and we mustn’t decouple. I think having deep economic relations is a good thing, both because it makes us more prosperous and also because it gives us a strong interest in one another’s fate. It also leads to exchanges of ideas, knowledge, and understanding. All of these are very important.

But I also think that the reality of relations among states is always one of power. Kissinger, who after all is one of the great “bridge” individuals between the US and China, always talks about the balance of power. I think we are going to need to maintain a stable balance of power, because when it starts to be destabilized, possibilities of conflict arise—that’s what Graham Allison is arguing.

One aspect of power is obviously technological. I do expect an ongoing technological rivalry. How that should work out is important, but I don’t want to get into details such as whether the western attitude to Huawei made any sense—as far as I can see, it didn’t. But it seems obvious that Western powers, above all the US, are going to try and maintain technological autonomy in areas that they regard as central to their security. That’s normal and can be perfectly well managed within an open world.

I also think there should be movement of people. And this may be regarded as offensive, but I think that, in terms of information flows, we’re going to have to tighten up on what is allowed on our Internet, and [China] is going to have to loosen what is allowed on [the Chinese] Internet, so we are more even in that regard. The West has allowed the Internet to become a perfect medium for the dissemination of lies and this is dangerous for our stability. I also think that the level of censorship in China’s system has to decline. Openness to the world, in terms of knowing what’s going on, including via journalism, is very important and must be maintained on both sides. Journalists have to be allowed to report and the same applies to Chinese journalists in the West. We need to be open to one another in that fundamental respect.

I believe that in this rivalry we need to be realistic and it needs to be well managed, like a “cooperative rivalry,” in such a way that everybody benefits. But the situation is not what it was 30 years ago. The other side of this is that China is now a superpower and a rising one, and will have to say to itself, “What sort of world do we want? How do we feel about the institutions of the world order? How do we interact with them? How do we want to shape them? How can we do that in ways that give other powers a sense of security and can fit in with our system?” This is a completely new challenge. The challenge for the West is obvious, as we discussed. But there’s also a huge challenge for China.

Historically, for a large part of the last two to three thousand years, China was the biggest and richest place in the world. But, because of the state of technology at the time, it was largely isolated from the rest of the world, and its neighbors were much smaller. This is the first time in Chinese history that China is a great power within an integrated and interactive world. China is 1.4 billion people, but the world has about 8 billion, and there are other powers and other interests. So, China for the first time in its history is a great power, fully restored, operating within a global system that it cannot dominate. This is also true of the West and the US in particular. The West has been so used to dominating, it’s now almost impossible to get used to the idea that it can’t anymore. But I think the same problem, in a different way, arises with China. China must think through this: “Ok, we did incredibly well and rose to this immense stature in a world in which institutions were largely Western and in which the West thought it was dominant. That period is over. We don’t accept that anymore.” That’s fine, but the Chinese also have to consider: How do we fit into this world? We are different, we have different political systems. Everyone is different. So, how do we make a reasonable order from our point of view? Do we wish to merely maintain the autonomy of the Chinese state? Do we want to create a large number of tribute states around us? How do we relate to the other great powers? What is a sensible way of doing this?

I think a lot of thinking is needed beyond the “peaceful rise.” The peaceful rise has already happened. Of course, China has a long way to go—it’s still relatively poor, it needs a lot of development. But China is now a leading power. I think there’s a big challenge for China too in working out where China fits into the world and how it wants that world to be ordered. Take one specific example. It is pretty obvious that the World Trade Organization as it is now doesn’t really work. We haven’t had a successful global negotiation since 1995, except on China’s accession. The WTO is not able to handle the US–China conflict. So, does China want a new system and what would it look like? I don’t know. Does China think it will be OK if the system collapses? Probably not.

I think the first speech I ever gave at the China Development Forum was in 2010 and I asked, “What is China’s view on the future of the trading system?” I think there is still no answer to that question. I think the same is true for the monetary system, though the previous People’s Bank of China governor talked about that. I want China to be a leader. I want China to come forward with its ideas on how this new world is to run. I think that will be very challenging, it won’t be the way it was in 2005. But I agree with you completely that we need to have working relations and cooperative relations, despite immense differences and frictions which will never go away, like differences over human rights. I would be very grateful for clear Chinese positions on how you want to take this forward. You hear a lot from the US, but not much from China.

I think China is at a point where we want more leadership from China. We will probably disagree, but we will disagree about real things. That’s fine, I don’t have any problem with that as long as it’s peaceful and it’s ultimately aimed at managing relations.

Huiyao Wang: I agree that China should be more active internationally. The current international order was really made by the US, like the Bretton Woods system. It is largely an English-speaking system and based on Western legal traditions, so it will take time, but I agree that China should do more.

Martin Wolf: This has been a long and very deep discussion, fair and frank too. And I’ve enjoyed it enormously. I believe in the management of our shared planet. It’s our destiny and our duty to manage this planet in such a way that we pass it on to future generations in a good state.

There are many huge challenges and relations between China and the West will play an enormous role in determining how this plays out over the next few decades and indeed possibly centuries. I’m a Westerner and I have a very strong attachment to our core Western values, and that’s inevitable, but I think I do so without any illusions about what the West has done. Western history has its faults and crimes. But I am a Westerner and I won’t abandon our core values—individual liberty, law, and democracy. The great threat to that is internal, not from anyone else. Frictions of power and ideas between the West and China will continue, but I also think they’re manageable because what we share is more important than what divides us. We’re all human and we all want to lead better lives. We all want peace. We want our children and grandchildren to live fulfilled lives into the next century and that will demand close, intelligent corporation between China and the West. That will make big demands on both sides; we’re going to have to do things differently by taking the views and interests of each other into account, in a way that is very unnatural for great powers, especially great powers that are divided in so many ways by history and culture. But I think it’s possible, indeed, it is essential. The alternative is a catastrophe. If we end up in an ineradicably conflictual relationship we will not be able to manage the world and at worst, we will destroy it. So, what is at stake here is the future of everybody we care about.

Huiyao Wang: Great, thank you, Martin. You’ve said something very profound there; we’re all human beings living on the same planet and share this “global village.” We must work for a better future and manage our differences and coexist peacefully.