Water Vortex. (Courtesy Creative Commons)

That phrase is of course associated with presidential candidate Ross Perot and what he believed would be the massive loss of jobs to Mexico after the signing of the North American Free Trade Agreement. Now it may best summarize the emerging view of congressional leaders about China and intellectual property.

Last week, in his opening statement, House Permanent Select Committee on Intelligence Chairman Mike Rogers called out Chinese economic cyber espionage: “A massive and sustained intelligence effort by a government to blatantly steal commercial data and intellectual property.”  As Ellen Nakashima pointed out in the Washington Post, that Chinese hackers are behind the massive theft of intellectual property is widely assumed. People just don’t say it so directly very often.

At almost the same time, Senator Jim Webb was introducing legislation that is supposed to stop the transfer of technology funded by the U.S.  government to China and other countries that “by law, practice, or policy require proprietary technology transfers as a matter of doing business.”  These transfers, in Webb’s view, “clearly and unequivocally place the competitive advantage of the American economy at risk.” In his statement, Webb offered the specific examples of Westinghouse and third generation nuclear reactors; General Electric and avionics; and Ford and electric vehicles.

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Commuters on a suburban train during the morning rush hour in Mumbai.Danish Siddiqui/Courtesy Reuters.

My latest column is out in India’s financial daily, the Business Standard. I used this month’s column to talk a bit about structural impediments hindering U.S. investment in India. These challenges will grow if, as many economists suspect, India’s growth continues to slow from its restored post-crisis clip of 8 to 9 percent a year to something more on the order of 7 to 7.5 percent. And in that context, it’s worth noting that Indian stocks have just completed their worst quarter since 2008. And of course food price inflation remains as stubborn as ever.

Here’s my argument, which reflects in part a perspective from my new perch in Chicago rather than Washington, DC:

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Rorschach Ink Blot Test. (Courtesy Wikimedia Commons)

John Kao has a six-part series over at CNN GPS on China as an innovation nation.  Just back from a study trip, Kao is a little breathless in his admiration of Chinese policymakers’ embrace of innovation.  At least in my view, he doesn’t add very much to the debate about how innovative the country truly is.  In fact, he seems pretty torn himself since he sees China’s ambitious planning and government intervention as great both a strength and a major pothole.  The whole series is a kind of Rorschach test: those already skeptical will find further evidence of weakness in the Chinese system, those sure of China’s rise will find some new awe-inspiring stories.

As one of the skeptical voices, I began amassing new evidence of what I call the weakness in the software of innovation—the social, political, and cultural institutions and understandings that help move ideas from lab to marketplace.  But I’ve begun to wonder how useful that is.  Sure, there have been some good stories out the last two weeks which suggest that the process of building an innovation system will be slow and uneven—60 percent of state R&D funds are lost to corruption; the president of China Agricultural University accused of plagiarism; and an outspoken neuroscientist rejected from the Chinese Academy of Sciences—but this back and forth must be getting a little stale.  Perhaps we can all agree that there are major weaknesses embedded in apparent strengths and that trends are clearer than outcomes.

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The Chicago skyline in fog caused by extreme cold temperatures of -21 degrees. Courtesy Reuters.

Regular readers of this blog will know that I’ve had a day job at Eurasia Group, a global political risk consulting firm. And they’ll know, too, that I’ve sometimes blogged or talked about the firm’s work, including what my time there has taught me about the relationship between politics and markets in Asia and around the world. For a guy with a background principally in foreign and national security policy, intensive exposure to the markets—and to financial market participants—has been a great experience. But today is my last day at Eurasia Group. I’ll remain an adjunct senior fellow at CFR and will, of course, continue blogging here at Asia Unbound. But I’m taking up a new job as the first executive director of the Paulson Institute, an independent center, located at the University of Chicago, established by former Treasury Secretary and Goldman Sachs CEO Hank Paulson. The institute will promote economic activity and cross-investment, leading to the creation of jobs, as well as encourage progress in environmental protection and the development of alternative sources of clean energy. Its aim is to promote sustainable economic growth and a cleaner environment around the world, focusing initially on concrete actions by businesses and governments in the United States and China—the world’s two largest economies and energy consumers. I’m readying myself for a steady diet of Cubs games, Bears tailgates, and a very cold winter. And I’m looking forward to continued interchange with readers of Asia Unbound.

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A resident cycles past the Wumen Gate of the Forbidden City in Beijing. Reuters/Jason Lee.

As Vice President Biden meets with Xi Jinping and other Chinese leaders this week, his number one economic talking point is almost certain to be about “rebalancing.”  Nearly all of Washington’s principal economic concerns, from currency valuation to Chinese industrial policy, touch this central issue.  But, quite frankly, rebalancing is not just an American goal.  It is, too, a Chinese objective because Beijing’s existing growth model—predicated on the two pillars of exports and capital-intensive investment—is delivering diminishing returns, and China’s savvy leaders know it.

A major new report from Eurasia Group, China Great Rebalancing Act, explains why.

First, a little truth in advertising:  I’m the head of the Asia practice group at Eurasia Group, so I helped write the report.  But our team’s report is well worth reading because it provides a very comprehensive overview of the forces and dynamics shaping the future of China’s political economy.

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A worker stands inside the shell of a wind turbine tower in the assembly workshop of the Guodian United Power Technology Company in Baoding, China. Courtesy Reuters/David Gray.

My latest “DC Diary” column in India’s financial daily, the Business Standard, focuses on Asia’s new geography of manufacturing:

China has unsettled its neighbors with naval displays and diplomatic spats. But could erstwhile Asian strategic rivals end up as big winners from China’s economic success?

In one sense, at least, Asian economies are already winning from Chinese growth: slack global demand has meant that China increasingly powers the growth of nearly every major economy in Asia.

But the question increasingly matters in another sense, as well: Chinese leaders are committed to rebalancing at least some elements of their country’s economy. And while that, in time, will mean a more competitive and powerful China, it will also create new opportunities for those countries in Asia that get manufacturing and investment policies right.

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Counterfeit goods seized by the U.S. government are shown on display at the National Intellectual Property Rights Coordination Center in northern Virginia on October 7, 2010. (Jason Reed/Courtesy Reuters)

Richard Suttmeier and Xiangkui Yao have just published a new and excellent paper on China’s intellectual property (IP) rights transition. It is well worth the read, and, until September 8, you can download it for free from the National Bureau of Asian Research’s site.

There is much good analysis of the 2006 Medium- to Long-Term Scientific and Technological Development, the 2008 National Intellectual Property Strategy, as well as the 2010 National Patent Development Strategy and how these and other policies fit into and help shape China’s emerging IP regime.  Suttmeier and Yao’s main argument seems to be that outside observers (and probably the Chinese themselves) have no idea which way China is going to go. We could be at the beginning of “harmonization”, with Chinese laws and, more importantly, practices increasingly coming to look more like the rest of the world’s. Alternatively, the rise of strategic behavior and techno-nationalist policies could promote “tit for tat behavior” and create “an IP security dilemma that would undermine China’s aspirations and make international cooperation much more difficult.”

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Cybersecurity Coordinator and Special Assistant to the President Howard Schmidt addresses the White House Launch of the International Strategy for Cyberspace in the Eisenhower Executive Office Building, May 16, 2011. (Lawrence Jackson/Courtesy White House)

The White House released its International Strategy for Cyberspace yesterday.  Many of the ideas and objectives have been expressed before by various officials, but newness does not seem to be the point.  Rather, the importance of the document rests in gathering all the United States’ goals for cyber in one place, signaling to both adversaries and friends what Washington is expecting from them and what it will do itself.

The strategy states that the United States will “work to promote an open, interoperable, secure, and reliable information and communications infrastructure.”  As Jason Healey at The Atlantic Council notes, the phrasing of these goals is important.  The strategy does not promise absolute security or reliability, which are unattainable, but says communications systems should be secure and reliable “enough” to ensure that users continue to have trust in them.  Diplomacy, defense, and development are to be the tools through which the United States pursues these four goals, and U.S. officials will be concentrating their efforts in eight areas: international standards and open markets; network defense; law enforcement and extending the reach of the Budapest Convention; military alliance and cooperative security; Internet governance; international development and capacity building; and the support of Internet freedom and privacy.

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Space shuttle Discovery lifts off from the Kennedy Space Center in Cape Canaveral, Florida on February 24, 2011. Six astronauts were aboard on a mission to the International Space Station. (Pierre Ducharme/Courtesy Reuters)

This does not look like a great idea.  According to Science (behind paywall), Representative Frank Wolf (R–VA) inserted two sentences in the bill that averted the federal government shutdown prohibiting “any joint scientific activity between the two nations involving NASA or the White House Office of Science and Technology Policy (OSTP).” It is not clear how sweeping the provision is, and it only extends until the end of fiscal 2011, but the article quotes Wolf as saying he would like to shut down all collaboration: “We don’t want to give [China] the opportunity to take advantage of our technology, and we have nothing to gain from dealing with them.”

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Earlier this month, I sat down with Harry Kreisler of UC Berkeley’s Institute of International Studies to talk about my new book,  Advantage.  Watch as we discuss the state of innovation in the U.S. and Asia, as well as how we can play to our strengths in what I call the “software” of innovation in order to maintain our lead in the global economy.

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