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China: President Xi may view 'America in strategic contraction,' expert says

Semafor Editor-at-Large Steve Clemons joins Yahoo Finance Live to weigh in on Chinese markets and what Xi Jinping's third term in office means for U.S.-China relations.

Video transcript

DAVE BRIGGS: Markets plunging today in Hong Kong after Chinese leader Xi Jinping solidified control over the ruling Communist Party and secured an unprecedented third term. Semaphore founding Editor at Large Steve Clemons joining us now for the first time on Yahoo Finance. Steve, good to see you. Let's first talk about the context of US-China relations, given that the Biden administration just really ramped up that trade war with chip restrictions to China. What does Xi's continued rule mean for US-China relations?

STEVE CLEMONS: Well, I think it means that we're at an inflection point, and Xi Jinping is reading the global map as one in which he sees America in strategic contraction. That may feel differently than how we see things in Washington or New York, but that's what he sees.

And he sees this as a time when China's got to get back to ideological purity, back to territorial re-acquisition of parts of China that had previously been with it like Taiwan, and that part of the message here is that while Deng Xiaoping, a previous Chinese leader, said it's good for China to be rich, well, now China is rich, and it's going to get back to ideology. And that is very uncomfortable for markets and many of the transnational firms that are based there.

So I think from a US-China perspective, it means competition and challenge are coming if we're not already in it, actually. It's going to be a fight over standards, and we're going to be fighting over that rising global middle class in the world.

- Steve, you mentioned the reaction that we're seeing in the markets, and markets are certainly taking this news very hard. You look no further than some of the largest US-listed Chinese companies. In terms of that reaction today, do you think that's justified?

STEVE CLEMONS: Well, I think markets fall when there's not trust in the future and there's doubt. And I think there's a lot of doubt right now on how much Xi Jinping is going to be friendly to this. Look, we all had this view-- and I did, too, at one point a couple of decades ago-- that the more China got interwoven into the World Trade Organization, became dependent on Chinese trade, held US debt, that it would become a better stakeholder in world affairs.

Well, it turns out that equation has some wobbliness to it. And I think right now, it looks like China is not going to be increasingly like us or the west. It's going to set standards in a new and different way. And right now, it's one of the reasons that explains why Xi Jinping is so focused on consolidating power. He does not want to be challenged. He knows it's going to be rough, and he's going to be asking his people for a lot of sacrifices as he basically takes on the west, in my view, for more leadership in world affairs and more consolidation within China. None of those are friendly to markets.

DAVE BRIGGS: He has cracked down on big tech leaders there in China. Our prior guest, Linda [? Dissell, ?] essentially said he does not care about the economy in the short term. Can you put that in context for us, how a President would not care about the growth of their economy?

STEVE CLEMONS: Well, I think right now, he has been focused on corruption. He's been focused on other elements. And at one level, you know, Xi Jinping has this theory of what he calls great power relations, or what it means for China to be great on the world stage. And that does not mean making Alibaba rich. That means taking the power and assets of China, which he thinks are awesome, and basically throwing all of his support behind that. But he's a bit disdainful that China's power is dependent upon its assets and markets being managed all around the world.

I saw him in Davos a few years ago. And this was right when the Trump Administration came in, and he gave a remarkable speech in which he said, don't worry, world. I'm going to be the one to protect markets and the market trading system in the world. And I'm going to be the one to save us all from climate change. And it turns out that part one he's not living up to.

- Steve, when you take a look at the fact that Xi Jinping has been so strict when it comes to COVID, the COVID zero policy, the number of lockdowns that have been instituted in China over the last two and 1/2 years. I guess, though, at what point will he need to start listening to the Chinese people, those that are sick of these types of policies? And we're obviously seeing that play out in the economy today.

STEVE CLEMONS: Well, it's really interesting because he's just elevated a number of people that were responsible for that policy. So I don't predict any real weakening of that. And I think it's going to be complicated for China as it tries to reopen next year. I mean, I think we have to be very careful of mirror imaging with China. We would say, don't they want tourists back? Don't they want their people back? Don't they want to have all of the benefits that come with transnational travel and exchange and tourism?

Sure, at one level they do. But the obsession with state control, the obsession with making sure. Now you have to understand, by basically shutting China off, it's also become much, much more vulnerable to a future variant or something. You do not have the antibodies, the natural immunity that has built up in places that have been hit hard by COVID.

So to some degree, China's got a staggering problem ahead in that it is basically created a Galapagos Island problem for itself, where its own population is now less prepared for a future variant from COVID than it might have otherwise been. And I don't know how they'll handle that. All I know is that this is a person very, very comfortable with asserting a lot of control over people's lives.

DAVE BRIGGS: That's good stuff. What does the third term mean for Taiwan? And if they're to take Taiwan, do they do it by force? Do they do it by economic blockade?

STEVE CLEMONS: Well, look, I think that we have to be careful with Taiwan. I do think there are things that we could do or they could do that could trip us into war, and it would be a very, very nasty war, and that there are geographic realities with Taiwan that are very complex.

But look, I think that China is, of the view that its incremental growth, the increasing investment it's made in its military power, its naval power, it's looking at how it is focused on what it could do by way of a blockade and others. I think we have to be very careful and remember the Taiwanese themselves may not, in fact, want this showdown. Some do, but some don't.

And I think we need to make sure that they're in the picture. 90% of the world's most advanced semiconductors come from Taiwan. China wants it back. But I think right now, we're basically trying to figure out, is the era of strategic ambiguity over Taiwan, which has actually been stable, is that coming to an end?

And this is one of the areas that could lead to an actual kinetic collision between American forces and Chinese forces if we're not careful. And I think it is one of the real hot points in the world. And I think Taiwan is in a vise between them, and we don't have many Henry Kissingers around to kind of put this deal back together.

DAVE BRIGGS: No, we do not. Speaking of competition, Steve, wanted to hear about your outlet, Semaphore. It's an interesting tech play. I'm just curious how you guys position yourself in an increasingly competitive media environment.

STEVE CLEMONS: Look, we love all of our sibling organizations that are out there working in the new media space. We launched about a week ago. We had, I think, largely really good reception from across all the verticals we do. And I help anchor and host the politics and policy division called Principle, so feel free to sign up.

But look, the big thing we're trying to say is there is a crisis out there in trust and confidence in news. It's also a market opportunity, honestly. And if we can come back to educating and interacting with the American public and the global public, frankly, and say, you know what, it's important to hear Steve Clemons' views on things, perhaps, or my analysis of the news or scoop. But I've got to be responsible to the fact that there are alternative views and opinions out there.

And we build that in. We build in a disagreement. We build in international perspectives into what we're doing. We show people that you can look at the facts and the scoop out there, but you can get a lot of different views out there, and you should demand it and expect it in your media. And that is not, as you know, what is typically happening. You're able to do it in the broadcast format much, much better than the typical print and journalism world that we're in.

And so by building in alternative reviews, by building this in. I think we'll have a richer and more trusted news form down the road. And I encourage people to check us out.

DAVE BRIGGS: Steve, you're talking to a guy who worked at Fox News and CNN, man. So I get it, and I appreciate very much what you are doing.

STEVE CLEMONS: Thank you, Dave. Thank you.

- And we look forward to following Semaphore. And of course, I have a feeling we will be talking much more about that in the future. Steve, great to have you. Thanks so much for joining us.