Welcome Professor President Rick Levin again. Thank you Ronnie. This can only be a disappoint after that generous introduction. I am grateful to be here. Thanks to Ronnie for the invitation and I am delighted in particular, your enthusiastic involvement with the support of Yale. Ronnie didn't mention that he and Barbara personally entertained the art delegation of 100 students and faculty in Beijing at the portion of the Forbidden City that Ronnie has been instrumental in renovating and it's been one of the real highlights of the trip for students and faculty. A real honor to be here once again. And I realize that that the very best step, the last time I was here I actually talked about the global University and what it was in concept. So this time I think, I want to focus more on what the challenges are sustained economic growth in China and say a little bit how Universities are assisting in that effort. If you really want to hear more about Universities we have a Question and Answer period afterward, I would be happy to elaborate. As Ronnie mentioned in April of 2006, when President Hu was at Yale he invited 100 members of our student body and faculty to visit China as his guests "to enhance mutual understanding between young people and educators of our two countries." And so last week, in response to this very generous display of friendship, I had the opportunity to lead a delegation of 62 students and 38 faculty and staff to Beijing and Xi'an and the groups is actually now in Shanghai. Most of our delegation, in fact 85 of the 100 had never been to China before and many of them had never been beyond the borders of the United States. All of us were awed by the remarkable progress that China is making, and truly inspired by China's culture, history and dynamism. China's economic growth is impressive, and in its magnitude historically unprecedented. Since 1978 more people have been lifted out of poverty than over the entire course of the Industrial Revolution in Europe and North America between 1780 and 1850, that's really a staggering fact. To sustain rapid growth over the coming decades China is going to confront some major challenges, and it is about that topic that I'd like to speak with you today. In particular, I'd like to discuss three challenges to sustaining rapid economic growth. One is the need to develop a more robust rule of law, second is the need to encourage independent and creative thinking, the type of thinking that supports innovative economy and finally the need to mitigate the adverse environmental impact of rapid growth without eliminating growth itself. So first let me talk about rule of law. China's growth has been fueled in very substantial part, by opening the country to trade and foreign investment. Outside investors everywhere are attracted, most attracted to environments that offer stable and predictable business relationships that have enforceable contracts and they have freedom from arbitrary and unforeseen government intervention. China's decision to enter the World Trade Organization signaled its own awareness of these requirements by obligating itself to numerous conditions that required reform of Chinese law, creation of a lot of Chinese law in fact. China has made remarkable progress in the past decade toward establishing a rule of law. The reforms of administrative law that were enacted by the National People's Congress in 2004, have introduced increasing regularity and new processes to the decision-making of government agencies. Some administrative decisions now involve as they do in US and other countries now involve notices of rulemakings and the opportunity for public comment; many actions of government agencies are now subject to appeal and review by courts. Limited rights of private ownership have been established by law, and for the first time, individuals have been empowered, and in a few cases have actually succeeded in defending their property rights against the state. These are impressive changes, but they are not yet comprehensive. Despite steady progress in the reform of commercial and administrative law, Chinese leaders are well aware that their judicial system is still incompletely developed, corruption is pervasive, and certain types of legal protection that are expected in modern commerce, such as enforceable intellectual property rights, are still for the most part absent. Freedom of expression remains unprotected, arbitrary arrests and detention continues to inhibit China's development in the political sphere. As China continues to grow, the demands for a stable and predictable rule of law will come increasingly not from outside investors, but from its own rising class of businessmen and women. As Chinese companies develop valuable trademarks and media products, enforceable intellectual property rights will no longer seem like an unreasonable imperative proffered by the U.S. government. China's leaders recognize that they will need to respond to the demands for an increasingly robust and pervasive rule of law, and take measures to reduce the corruption of government officials, or else the pace of investment and GDP growth will slacken. This is where Yale plays a role. At Yale, we have been very much honored by the Chinese government's interest in collaborating with our law school on legal reform. The China Law Center at the Yale Law School which was established in 1999 by former U.S. State Department official Professor Paul Gewirtz is deeply engaged with China's courts, law schools, administrative agencies, and the National People's Congress. We bring prominent U.S. officials, scholars, and judges into contact with their Chinese counterparts and encourage their collaboration on issues of reform. Among the Center's most significant contributions have been working with the People's Supreme Court on the structure of the Chinese judicial system and working with the National People's Congress on the reform of the administrative law that I mentioned. Later this month in collaboration with the China National School of Administration Yale will sponsor the third annual session of our China-Yale Senior Government Leadership Program. This is an intensive training program on how the "rule of law" functions in the United States. This program has attracted each year to Yale the most senior group of Chinese government officials to participate in the executive education outside of China. Participants in the program on our side have included Yale professors from a variety of fields, two Supreme Court justices from the U.S., current and former U.S. cabinet secretaries, the Governor of New York, the Secretary-General of the United Nations, and, last year, the President of the United States. So we - we are able to show these visiting Chinese administrators their, you know, very deep exposure to what's going on in our country. At Yale, we consider this involvement in China's efforts to widen the rule of law to be one of our most significant global undertakings. I will move now to the subject of innovation and creativity. Twenty years ago, many commentators in the United States were extolling the virtues of Japanese management practices and worrying about Japan's large trade surpluses predicting that Japan would soon overtake the United States as the world's leading economic power. In the first four decades after the Second World War, Japan's productivity and GDP rose more rapidly than that of the United States; in fact it was more than twice as rapid as much as the United States. And yet after 1990, Japan stagnated for fifteen years, only recently resuming a reasonable pace of economic growth. Well what happened to Japan? And you will see, I am coming back to China you will see. The conventional story is that excessive corporate debt and a rigid financial system, hampered by an unwise deflationary monetary policy put the brakes on Japanese growth. This is a partial truth; but if we end the explanation right there we would fail to recognize a more profound underlying cause of Japan's slowdown. In the 1950s and 1960s Japan's growth was propelled by the same fuel that drives China today, a high savings rate and a large pool of underemployed labor, which allows manufacturing to boom without driving up wages. By the 1970s, Japan had absorbed its surplus labor and a new growth dynamic took over, which was attention to quality and efficiency in manufacturing. But Japan's edge disappeared when the IT revolution came, in the 1990s. Innovation in software and communications technology gave the United States a decisive productivity advantage after 1990. Japan could not innovate fast enough, and it fell into a 15-year slump. If you are not convinced by this argument, try the following mental experiment. Imagine that Microsoft, Netscape, Apple, and Google were Japanese companies. Would Japanese growth in the 1990s have lagged so far behind the United States? I don't think so. The brilliance of China's leadership is that it has farsightedly recognized the reasons for the Japanese failure to innovate and it's already taking steps to prepare China for a future, which is perhaps still two decades away, in which China can no longer compete globally and win on the basis of low cost labor. To understanding what China must learn to innovate, President Hu Jintao has made innovation and creativity the centerpiece of this current five-year plan. Avoiding the fate of Japan won't be without its challenges. The secret, I think, lies in acknowledging the three principal factors that have contributed to America's decisive advantage in innovation, and then doing something about each of them. So the first requisite for China to achieve world-class stature in basic scientific research, not just in applied engineering which is what the Japanese did. Because basic science is the ultimate source from which all applied technology flows. The second requisite is that China's educational system must encourage its graduates to think creatively and independently to be capable of innovation. And the third is for China to develop a financial system with the flexibility to support high-risk start-up enterprises, which generate a disproportionate share of transformational innovations. Let me start with this third area, because in this third area China is already taking measures that Japan long resisted, by gradually opening up its major financial institutions to foreign partnerships and encouraging the rise by venture-capital and private equity within the economy. I want to dwell a bit longer on China's approach to the first and second requirements for innovation. So the first is basic science and China is truly investing heavily in science and higher education. Total central government investment expenditure on universities grew by a factor of seven between 1995 and 2002, astonishing. To set a couple of striking examples, Shanghai Jiao Tong University has built more than 275,000 square meters, that's over 3 million square feet for Americans like some of us, three million square feet of state-of-the-art science and engineering labs on its sprawling new campus outside Shanghai while IBM, Intel, and Microsoft have built major facilities in the adjacent industrial park. At Peking University the new Institute of Microelectronics and nanotechnology has built two state-of-the- art semiconductor fabrication lines, each employing a different advanced technology. No University, not MIT, not Stanford in the U.S. has a comparable pairing of these facilities. Some have one, some have the other, nobody has both. China's leading universities are also making a conscious effort to attract back to China the very best of those who have gone abroad for Ph.D. study. For established and even for established faculty from the West, several top schools in China have offered salaries and housing allowances that are designed to match the standard of living on U.S. campuses. Peking and Fudan Universities have established large laboratories for leading U.S. scientists who are of Chinese origin, in both cases Yale geneticists, one in plant biology, one in human biology. This type of investment in these labs by the way are, you know, factor of five larger than anything that could be supported in the grant system in the United States. This type of investment creates tremendous spillovers for China as it permits their younger faculty and graduate students to work in close proximity with some of the best scientists in the world. By the way these scientists are still Yale Professors. They come about one week in sixth to China where they supervise the activity of a lab. Their productivity is enormously leveraged by the better facilities and larger teams of researchers and China gets a lot of benefits in terms of building up its scientific capability. Even more interesting than China's investment in science is its recognition that its pedagogy needs to change. Some senior national leaders have come to believe that the traditional Chinese deference to the authority of the professor discourages independent thinking and thus potentially limits, in the long run, China's capacity as an innovator. These leaders understand that the top colleges and universities of the West encourage their students to speak up in class, to challenge their professors, to question conventional wisdom, to develop problem-solving skills, and to think for themselves. This pedagogical approach is believed to be more conducive than passive learning, and if rightly believed, to be more conducive than passive learning to producing the kind of flexible, adaptive, and creative engineers and business leaders who drive innovation. Elite universities in China are also looking with interest at abandoning the specialized undergraduate curriculum that they imported from Europe and the Soviet Union in favor of the American-style liberal arts curriculum, in which students study a variety of subjects to gain breadth and flexibility, before specializing in a major field of study. Some of these top universities are also experimenting with criteria other than scores on national examinations to admit students, in order to again identify students with high potential for creativity and contribution to society. Yale has been pleased and privileged to play a central role in the educational reforms that I just outlined. In collaboration with the Ministry of Education, we have worked with the presidents, party secretaries, and vice presidents of China's top universities for each of the past three summers, sharing with them best U.S. practices in the areas of strategic planning, recruiting faculties, supporting world- class research, curriculum, and pedagogy. Over the years of this program, the focus has gradually migrated from a study of U.S. practices to a dialogue on the very impressive progress of reform in China. And we are looking forward to continuing our involvement in this exciting evolution with another workshop this summer scheduled in Xi'an. Actually the last of the challenges I want to comment on and that is the, you know, mitigating the environmental impact of economic growth. China's economic growth labors under a handicap that did not burden the nations that developed much earlier. Western Europe, North America, Russia, Japan, South Korea all achieved industrialization at a time when the environmental impact of growth was still below the radar screen. The impacts were severe, to be sure, think about Los Angeles in the 1960s but global awareness of these impacts was limited until, roughly, forty years ago. China, unlike its more developed neighbors, must make the transition from an agricultural to an industrial and eventually to a knowledge economy in an atmosphere of worldwide pressure to mitigate adverse environmental consequences of growth. And it must do so with the full knowledge earlier countries didn't have of the adverse public health consequences of air pollution and contaminated water supply for its own citizens. This is a huge burden. China is soon going to surpass the United States as the largest producer of the greenhouse gas emissions that are causing harmful climate change. To accommodate its rapid growth, China is building coal-fired power plants at the rate of one per week and it is expected to account for one-third of the worldwide growth in energy demand between now and the year 2020. As many as 500 million people will migrate from countryside to city by mid-century, and hundreds of new satellite cities will be built in proximity to the large urban centers. It matters enormously for the future of the planets whether these cities are sprawling, automobile-dependent and energy inefficient, on the one hand, or on the other, "smart" cities dense and reliant on public transportation. Now it would be entirely unfair to place the full burden of mitigating the environmental impacts for the planet on to China and other emerging economies. The West of course, needs to do its part as well. We were recently visited at Yale by Professor Lu Zhi of Peking University and I think he stated quite correctly that China's environmental dilemma is the world's dilemma, and that if we want China to change, we all have to change. The United States and the rest of the developed world can't ask China and the other developing countries to halt their economic and social progress because we have already filled up the atmosphere with greenhouse gases and because we don't want their competition for the natural resources on which we all depend. So we need to work together. Global warming can't be averted unless both China and the United States make substantial reduction in their emissions of greenhouse gases. And while Europe has taken this challenge seriously, the United States still lags far behind, paralyzed by powerful interest groups supporting continued dependence on carbon-based fuels and by a public that resists the imposition of common sense high taxes on gasoline that is a reality every where else in the world. We need courage and leadership to confront this issue back at home, but we must. The last actually twelve months have offered the first sign of hope that a bipartisan coalition may actually be developing in the US to take global warming seriously. China actually has certain advantages in pursuing environmental remediation. It will be after all, planning large cities from scratch and this opens a wide range of possibilities for innovations that would be much harder to retrofit in established cities. And, because it will soon become the world's largest producer as well as consumer of coal, it has a powerful incentive to develop new technologies for the conversion of coal and the sequestration of the carbon by-products of coal in its combustion. China could with appropriate investment become the world leader in these technologies and these are technologies that are likely to have a huge market around the world. International collaboration of course, will be essential in confronting the environmental challenge and here, too, Yale is proud to have a role in doing its part to work with China, along with a number of leading U.S. Non-Governmental Organizations such as the Energy Foundation and the Natural Resources Defense Council. For the past three years, in partnership with Tsinghua University, our School of Forestry and Environmental Studies has been training Chinese mayors and vice-mayors who are responsible for urban planning and development. And, along with Tsinghua and Shanghai Jiaotong, and China's Center for Environmentally Sustainable Technology Transfer, we have also developed executive training courses in industrial ecology, promoting a comprehensive approach to recognizing and measuring and managing the environmental impacts of an enterprise's total activity. This gives you a sense of some of the challenges confronting China and this is a sense also of opportunities that international Universities have taken in trying to help and assist in thinking about these problems. The challenges that are confronting China's efforts to sustain economic growth in my view are substantial but they are not insurmountable. I think, we need to hope that we will have more of the farsighted leadership that China has displayed since 1978 and we should for continued openness to international collaboration, and for recognition elsewhere that China's continued rise benefits not just China but the whole world. So I thank you then. I am happy to answer your questions. Thank you Levin. Before we start the Q&A I just want to recognize a few more people here. We are delighted that Jim Cunningham the US Consul General can be here with us. Very pleased that he could join, also we have three University Presidents from local University Baptist University, Open University and the Hunan University we are happy to have you too. I just also mentioned that you know, Yale was really an interesting place. I think it's better that it come from me than from you. You know, at one point the other school north of you have four schools knocking on my door and they are you know, what have. And it was just too much. Yale managed yet to knock on my door. And that's why I you know, I feel a lot better. And you know, that you know, if But any way and also I think, Yale was another one as another thing that impressed is that you know, under the leadership of Rick they really understand the work. They have the internationalization effort is really unlike any I know. Recently they made a decision that all undergraduate students can have the opportunity of studying overseas for at least one semester I think no? Semester or summer yeah. Oh right. And if you don't - if they don't have money you are requested for pay for it. You have a totally what you call it deep aligned wherever it is, when they picked students they don't look at, your financial resources. They pick the student first and then look if you have the money and if not they would get to you. Of course, Rick had done a good job that is if many of us here on the investment business and the Yale investment team under David Swenson is one of the very, very best in the world and I think of a track record that lasts almost 15-20 years I mean, almost a match I believe, anywhere in the Universities of America. So I think that all those great things, you know, under the leadership of Rick there is a beauty to make the University a wonderful place. And also your professors somehow I just feel that they have a collegial sense among them. We have - I think, Asia Society Hong Kong Center I said more you have professors speaking from Yale, than from any other university. Jonathan Spence has spoken at least two or three times and then Siu has already spoken two or three times here. They are always extremely well attended and when I was visiting you recently at New Haven I saw Jonathan again and I said hey Jonathan time for another speech. So next time he is coming I expect to have him on the podium with you and Helen Siu also, Helen - Helen was telling me that she has now been studying a trade link between China, India and the Gulf States, the Middle East through the sea route and I was so intrigued. So I think that I will bring her up as well. I think that everyone would really benefit from it. I think you know, I am just reading the CV. I never read people's CV until after I introduce them. I didn't know that you - I did know that you have - honorary doctorate from ____, what I didn't know that you got one from up north, from one down under Princeton and from Oxford and of course, you studied in Oxford yourself. And then he also gave the centennial, there was a lecture celebrated in the 100th year of Fudan University in Shanghai and Rick was asked to give a speech there. And also I think you were chosen, Yale was chosen by China to interact with the top - the President and the Vice President of the top 14 Chinese Universities in order to help them in their effort to achieve excellence in higher education. So I think that you know, both Rick and as the President of Yale as an Institution under his leadership have really done tremendous amount of work for China and indeed for the rest of the world.
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