China vs. the U.S. - Trade War to Cold War? (w/ Kyle Bass and Gen. Robert Spalding)
KYLE BASS: I'm here with General Spalding, who's just written the book, "Stealth War, How China Took Over While America's Elite Slept." General, it's a pleasure to be here with you today. ROBERT SPALDING: Great to be here. KYLE BASS: Very few books have been written, I think, unvarnished on what China's really doing, what their grand plan is, what their grand strategy might be and your journey through China is one that I think people need to hear about. That starts with the embrace and the hope, and the beauty of the people of China, all the way back to I guess 2002 with you taking Mandarin, learning Mandarin, and basically embedding yourself into China. Then over time, your view of that country and their leadership has changed. I'd love for you to walk our audience through your time in China. Now, first of all, give the audience a little background. You're an Air Force General, you were a B-2 pilot, I guess our B-2 pilot, and became the US DoD Attaché to China in Shanghai. Tell us about, just walk us through a little bit of your journey into China, taking their language, being immersive. Then when did you start to understand what China's grand strategy really was? ROBERT SPALDING: Yeah. I was selected back in 2001 to be an Olmstead scholar in China, it's really a wonderful program where three military officers in each branch gets selected each year to go live and study abroad in a foreign country for two years, and at the time, you have to say, "Hey, what country do you want to go to?" I thought first of all, number one, I wasn't going to be accepted, it's a very prestigious program. Number two, what country would I pick, and as I looked around the world in 2001, the most strategic country that I can think of where there's going to be a cooperative relationship, or an antagonistic relationship with the United States that was still yet to be seen, it would be China. KYLE BASS: It happened to be the year China was ascending to the WTO. ROBERT SPALDING: It was. I applied for the program, got selected unbeknownst to me and went home, told my wife, not only are we not getting out of the Air Force, like I said I was, we're going to go live in Shanghai. We moved to Monterey, California. I learned Chinese over the next year, 2001, 2002 at the Defense Language Institute. We moved into Shanghai, Pudong, which is the eastern side, which is the more modern side of Shanghai. It's a new side that the Communist Party built up in the '90s, and got to experience China for two years. I studied at Tongji University, which is the premier civil engineering school in China, and traveled all over the country. It was the most incredible experience. My kids loved it. My wife loved it, I loved it, we got to know the Chinese people. They were some of the most hardworking, resilient, friendly people that you'll ever meet. At the time, I was like, this place is incredible. All of my neighbors were building factories, the Fortune 100 companies were building factories in the Shanghai Special Economic Zone. Everybody was doing well economically, not just the foreign companies, but also the Chinese people themselves. They were happy, they seemed to love what was going on. The thing that was interesting, but I didn't challenge was that all the people told me, "Hey, we could never have democracy here in China, because the Chinese people really can't handle democracy. It would be too chaotic here." At the time, I never thought about it. You never thought to challenge that, particularly since Taiwan was across the street, and they were a very vibrant economy, but nevertheless, I thought when I left in 2004, after that two-year experience, I told my wife, I said, "I'm going to retire from the Air Force. I'm going to come back here and start-- move back to Shanghai." KYLE BASS: What changed? How did you start to see what their grand strategy is as a government, as the Communist Party's grand strategy? ROBERT SPALDING: It actually started at the Council on Foreign Relations. Over 10 years later, the Air Force decided this experience, this language, this culture that you understand China a lot better than most and we want to push you to be the Air Force's nominee at some point to be the Defense Attaché in Beijing. There's a process. It's a process to develop you to have the right understanding, knowledge, diplomacy, and other things to be able to do that. The first step of that process was to be a military fellow at the Council on Foreign Relations. That was the first time I was really exposed to the business community, the business to financial community. I had a really fateful lunch there with a gentleman that ran a hedge fund in China. He started-- we had a conversation about what's the future of China, and I believed at the time that their economy was going to stagnate, they had reached the end of their growth model and they were going to have a hard time establishing a high value added economy going forward. He said, "No, you're wrong, they're going to plateau for a bit, and then they're going to take off and then become the most powerful economy and the most powerful country in the world." I said, "That really doesn't make sense." There's still had a lot of hubris about the United States. We have the best system. We have the best model. We're going to come out of this, and that there's no way that this is going to be the case, but that began my education on another part of China that, quite frankly, I didn't realize. I moved from there to be the advisor to the chairman of joint chiefs on China. It was at that time that I began to learn what it was to be a military diplomat, I began to learn about the Chinese government and more importantly, I began to learn about the Chinese Communist Party, I read documents like the Chinese Communist Party constitution. KYLE BASS: You weren't coached, let's say per se, by the US military at the time, they just gave you a plethora of resources for you to figure this out on your own. ROBERT SPALDING: Actually, no. I was taught in the standard line of diplomats to have the same point of view that the last 40 years had been taking us. I was taught that if you want to tell the Chinese about something that's bad, like concentration camps or forced organ harvesting, always do it in private, never do it in public. In fact, the Chinese would tell us the same things. Yes, we understand that you guys believe in human rights and democracy and freedom and everything, just don't talk to us about that in public, please do it in private, it'll be much better for both of us. If you do it in public, then we have to be a little bit more [indiscernible] in our going against that, but we can certainly listen to your pleas in private. We were taught, essentially not to air dirty laundry in public. It really became, as I watch this back and forth, what I was supposed to say to my counterparts at the People's Liberation Army, and what they were telling me, we were saying the same things. In other words, they had co-opted the diplomatic language between the two countries, to the point where all of our talking points were, essentially, they're talking. They embedded their talking points within ours. KYLE BASS: It's interesting, you're saying that not only can they control their own narrative within China, and they can use the Global Times and Gangwa and Taichen, all over the world, they try to control the world narrative about China, you're telling me that they can control the US military diplomatic language, and control even that narrative when you're over there? ROBERT SPALDING: Right. One of the things that they'll say and what Xi Jinping frequently says, he says to Davos all the time is that globalization, we need globalization. We need to have open markets, we need to have-- everybody should be getting along. We should all be trading with each other. KYLE BASS: What he means is he wants global open markets everywhere. He wants to participate, but not at home. ROBERT SPALDING: I didn't understand that until-- so this fateful meeting that I-- and with all people I met while I was in New York, actually began to play into my learning about what was going on. In the fall of 2014, as I'm sitting in the Pentagon, reading the Chinese-- so there's a Chinese Communist Party constitution, and there's a People's Republic of China constitution. Most people don't know there's two constitutions. Now, when you think about-- KYLE BASS: Why is that? ROBERT SPALDING: If you think about a country, and you think about the sovereign of the country, so our sovereign, our State Department acts as a sovereign for diplomatic purposes. Another one, it goes across, it represents the Sovereign of the United States when it interacts. When you talk to the MFA, or when I as-- KYLE BASS: What's the MFA? ROBERT SPALDING: The Ministry of Foreign Affairs in China, or when you talk to the People's Liberation Army, which is like the Department of Defense in China, you're not interfacing-- at the government level, you're not interfacing with the sovereign. Now, in the case of the People's Liberation Army, they are actually not a member of the government, per se, they are the armed party, or armed component of the Chinese Communist Party. When you think about a sovereign, what do they do? They control money? They control the police force. They control the military. Essentially, all of those components are completely controlled by the Chinese Communist Party, as is everything else. When you go across, and you meet with Xi Jinping as the President, in reality, the component where he says, decides what happens in the country is actually as the chairman of the Chinese Communist Party. He's really the chairman. When you interface when our State Department Pompeo meets with the Minister of Foreign Affairs, he's not meeting with the sovereign. You only meet with the sovereign if you go to the Chinese Communist Party headquarters, or some privileged people have been able to go to Zhongnanhai, but of course, that's only if you're a special friend to the Chinese Communist Party. KYLE BASS: Haven't you been there? ROBERT SPALDING: I have actually been to the Chinese Communist Party headquarters once and I was taken there by Michael Pillsbury. I'm probably the only Defense Attaché that's ever stepped foot in the Chinese Communist Party headquarters. KYLE BASS: What went on in that meeting? This is a-- I'm not really a non-sequitur, but I'm very interested in total evidence. ROBERT SPALDING: What I found out in that meeting, I was actually quite surprised, the Chinese Communist Party since the fall of the Berlin Wall and the end of the Cold War, they realized that, "Hey, Chinese, or Communist Parties are going away." They used to interface on the internet on an international basis and on bilateral basis with communist parties all over the place, particularly when the Soviet Union still existed. Now that all the communist parties are going away, who are they interfacing with? Well, I was surprised to know that our Democratic Party and our Republican Party were going over on junkets to meet with the Chinese Communist Party in the Chinese Communist Party headquarters. That's one of the things that I learned. I was actually quite shocked about that. KYLE BASS: You saw congressmen and senators on Chinese cultural exchanges being invited into the Chinese Communist Party headquarters? ROBERT SPALDING: Well, I didn't see them but that's what they said, "Yes, we're doing outreach with your Republican Party. They come over and meet with us, and we're doing outreach with your Democratic Party. They come over and meet." I was actually quite shocked, I did not know that that behavior was taking place. What I was getting in addition to getting trained as a military diplomat, I was also had another education going on. I was reading these documents, the documents of the Chinese Communist Party, and understanding what actually was going on. I started to realize that, in essence, if you look at the way the Communist Party works, it is about controlling the narrative. It is about controlling what you think and how you speak about the word China and the Chinese people. Now, even in the United States, or in China, when you say China, dot, dot, dot, what comes after that is a Chinese Communist Party talking point. The narrative that says, for example, if you bring up things like concentration camps for Uighurs or forced organ harvesting, or the fact that Confucius Institutes do censorship of speech, and suppression of religion on university campuses in the United States, you are being racist. That is a Chinese Communist Party talking point. I've experienced it many times. Another Chinese Communist Party talking point is if you say something about Uighurs in concentration camps, or the force organ harvesting, then you just angered 1.4 billion Chinese people. They wrap-- the Communist Party wraps themselves into this wonderful people and culture in history that I got to know and love in 2002 and 2004, and really takes that mantle and says, "When you're talking about the evil nature of the Chinese Communist Party, you're investing that in the Chinese people." It's actually quite effective because it shields the Chinese Communist Party from scrutiny, because people really can't accept that 1.4 billion people would be that evil to want to have forced organ harvesting. In fact, what I began to tell my People's Liberation Army counterparts is, "Look, most people in China don't care what you're saying, stop saying I've angered one point 4 billion Chinese." I remember all my friends, when I'm walking around in Shanghai, I guarantee you, they were worried about living their life, they could care less what you thought as the People's Liberation Army. KYLE BASS: You're saying that the Communist Party creates its own safe harbor, and it's safe harbor is any criticism of any of the evil that the government is engaging in gives them that safe harbor to just say you're just a racist? Don't worry about what we're doing over here. You're just a racist. That's typical call it associate pathological behavior. ROBERT SPALDING: Because they're burying themselves inside the Chinese people. Because they've hijacked China and the Chinese people, only they get to speak for China and the Chinese people. The Chinese people don't get to speak for themselves. KYLE BASS: I want to go somewhere that you and I've talked about before, because I think the listeners are going to find this to be fascinating, but you've told me something that I actually can't believe happened behind the scenes. You've been in the US Embassy in Beijing and in Shanghai and when you meet with the Chinese counterparts, whether they're PLA or whether they're embassy staff, you told me something that I still can't believe. What did they tell you? What did they say to you about US-China competition when you would meet with them behind closed doors? ROBERT SPALDING: Well, what they'll say to you is that-- KYLE BASS: Again, in private. ROBERT SPALDING: In private, what they'll say to you is, it's our time. For 5000 years, we ruled the world. We had a bad hundred years. Most of it because of your fault, because you were-- KYLE BASS: Their century of humiliation. ROBERT SPALDING: Their century of humiliation-- but we're back and we are going to be on top and you, you are going to be responding to us. KYLE BASS: You meaning the United States, and you said they said, "We're going to clean you out." ROBERT SPALDING: We're going to dominate, we're basically going to dominate. KYLE BASS: The Chinese are telling the United States that they are going to dominate us. This is behind closed doors in the US Embassy or the Chinese embassies. ROBERT SPALDING: This is pervasive around not just within diplomatic circles, it's also in financial and corporate circles. In private, they'll say, "Look, you better figure out who is going to be running this world, and put yourself on the right side of that if you want to be profitable." I've had very wealthy billionaires in this country tell me democracy's dead, China has a far better model. If we want to be on the side of history, not only do we need to adopt that model, but we need to get on their side. KYLE BASS: That's fascinating to me. China is so good at using our own greed against us. You say these billionaires are telling you democracy is dead, we need to adopt their model. Those are the billionaires that China has given special access to and made them wealthier to become evangelical about the Chinese system with a complete disregard for US national security. There's the idea finance and the super billionaires and the people that run these companies that have big businesses in China and can't wait for more shackles to be invested over there. Then there's the national security apparatus here that realizes that China is our biggest competition. In fact, they're one of our "hard targets" in our defense intelligence analysis. There's this huge gap between the-- call it gap in perceptions of the billionaires that have special access and our national security apparatus. One of the things if we go back to-- let's go unpack a few things you said real quick first. Our audience, I'd imagine has heard something about the Uighurs in the concentration camps in Xinjiang up in the Northwest. Let's get into more about what's happening. I recently read, the UK had a tribunal and the tribunal was presided over by the QC that handled Slobodan Milosevic's war crimes trial. They interviewed hundreds of witnesses that had escaped from Xinjiang, that have been released from Xinjiang, and even doctors that were part of the live organ harvesting program there. When you read chinatribunal.com, and you go through the summary of what happened, China and the CCP are actually taking organs out of humans while they're still alive and they're just paralyzed. Why is this something that the world doesn't know about? Why is this something that the press hasn't carried? We talk about it because we follow these things daily, but how does this get out into the open so that these billionaires that say, democracy is dead, we need to adopt their way-- and does that mean we need to put two or 3 million people in concentration camps and rip their organs out of them while they're alive? What exactly are they saying to us? How do we bridge this gap? ROBERT SPALDING: Well, what you're talking about is so horrific, like when you're confronted with it, it is so bad that you really can't absorb it. Particularly, remember, as I said that they've taken the words China and the Chinese people, and you say, people couldn't be like this, but organizations, regimes can. We know the Nazi regime, we know the Stalin regime, and now, we know the Chinese Communist Party regime. KYLE BASS: Even now. ROBERT SPALDING: Killed millions, 10s of millions of people. You hear it for the first time, you're like it has to be-- KYLE BASS: It can't be true. ROBERT SPALDING: It cannot be true. KYLE BASS: Even you've read the horror that these people are going through, it can't be true. ROBERT SPALDING: Yet, we have one country to date that has banned traveling to China to do a transplant. KYLE BASS: To get an organ. ROBERT SPALDING: To get an organ. KYLE BASS: Who is that? ROBERT SPALDING: That is Israel. The reason Israel banned it is because a heart surgeon who happened also be the head of the Organ Transplant Association within Israel at the time, heard from his patient that he was going next month to get a heart transplant. KYLE BASS: He was making an appointment to get a heart transplant. ROBERT SPALDING: He had made an appointment. KYLE BASS: It was a month out. ROBERT SPALDING: It was a month out. KYLE BASS: Normally, if you're on the heart transplant waiting list, you get a call, and you have to fly somewhere within 12 hours to get a heart transplant. ROBERT SPALDING: You have to be in China, you can-- KYLE BASS: You can make an appointment to get a heart transplant. ROBERT SPALDING: You can get an appointment. The heart surgeon said, "What do you mean you've made an appointment?" He began to investigate. What he found was the Chinese Communist Party, in their People's Liberation Army hospitals, were essentially taking the Falun Gong and in some cases-- and the Uighurs and in some case, dissident Christians. It all depends on if you're a match. The reason that they know that this is going on, because some people leave that and they say, "Hey, my DNA was checked and they did an ultrasound on me." KYLE BASS: When China brings in what they call prisoners of conscience, which are various religious groups and dissident groups, they tissue type them, they blood tests and they ultrasound them. ROBERT SPALDING: They ultrasound them. KYLE BASS: They do it with every prisoner. They have a buffet line of organs to choose from. ROBERT SPALDING: What that heart surgeon found out is that this was going on. He also happened to be a survivor-- he came from survivors of the Holocaust. You clearly recognized the same conditions that existed under the Nazis with going on within the Chinese Communist Party. I think it just it goes to show you that there is no morals invested or human dignity or human rights invested in the Chinese Communist Party, it is really about as evil an organization, not because the Chinese people are evil, but because it seeks only power and control. Essentially, these are the things that-- so he got Israel to say, we're going to ban this. Now, you can't go from Israel to get an organ transplant, you can go get it from anywhere else. KYLE BASS: To be clear, if you're in the US or Europe, and you want to make an appointment to go get an organ transplant in China, you just-- ROBERT SPALDING: You can do it. KYLE BASS: You figure out who to call, you just call them up, make an appointment. ROBERT SPALDING: Right. It can cost you some money or a lot of money. By the way, the interesting thing about how Deng Xiaoping morphed communism in order to unlock the potential that China's experience was really to tie the human profit motive to the Communist Party's national interest. That's a very powerful formula for development and economic growth and social development. We have owned a patent on that, we had owned the patent on that. What they did is say, "Okay, we're going to in a very narrow area, we're going to allow you to get rich, but in all these other areas, we're going to dictate what it is. The Communist Party is going to dictate." KYLE BASS: I would say more importantly, we'll choose the people that we want to make rich. They'll become evangelists, and more importantly, lobbyists for the Chinese way, the CCP way of life and business in the US. Some of China's top lobbyists are US billionaires. ROBERT SPALDING: When you look at the end of World War II, and the world that we tried to create, this idea of democratic principles, civil liberties, human rights, rule of law, went hand in hand with the idea of free trade. There wasn't just free trade or globalization, there were principles built into that. Then selfdetermination. All of these things, it's in the land of charter, one page, you can read it, and you can see, "Hey, this is a template for what we wanted to build." Well, China took that and said, "Hey, throw all that other stuff away. We're going to go with globalization." KYLE BASS: We're go with a free trade, and forget about those other things. ROBERT SPALDING: We're going to create a culture that only is about getting rich, and then we're going to control that. When you do that, when you take morality out, when you take human rights and civil liberties out, and you turn people that the Chinese counsel [indiscernible] said, "Destroy the Falun Gong, literally destroy the people that practice Falun Gong." When he did that, he created an opportunity for the People's Liberation Army to make a profit. They created these things and said, "Hey, he said, destroy these people. He didn't say that we couldn't make a buck on it," and so they did, they created business. In China, if you want to create a business, as long as it doesn't challenge the Communist Party, everything's okay. Fentanyl. Fentanyl is a good example of this. It comes out of the pharmaceutical factories, the same factories that are producing-- the core factories that are producing all the drugs, generic drugs that come across from China, that's where they're producing the fentanyl, and just another business for them. KYLE BASS: What's interesting about the fentanyl? We've gone-- let me go back to cover one more item on the concentration camps, the Uighurs, the US intelligence believes it's up to 3 million people now. 3 million people in concentration camps and we have satellite images, Israel has satellite images, Europe has satellite images of what's happening in Xinjiang. It's one of the benefits of global technology. When they started building the crematoria there, that should have been an interesting, aha red flag moment, that you're building concentration camps and cremation facilities in the same place. I don't think that they're vertically integrating because they think it's a good idea over time to be able to dispose of bodies. Why hasn't the US banned, call it, organ travel? Why hasn't the West decided to do what Israel's done? Again, why are we not making this front page news all the time? The New York Times did a really interesting multi-day writeup on the Uighurs and the concentration camps, and then it just went away. Why aren't we talking about it more? ROBERT SPALDING: In addition to controlling the narrative on China and the Chinese people, they also are experts of this case. When you look across the world, and you look at the two biggest nations creating influence around the world, there's the Russians who do atomization. They basically break up populations, they create division between neighbor. The Chinese come in, and in that, underneath that, they hide everything they do, and the Communist Party is one of the best organizations ever in history of keeping a secret about everything it does. KYLE BASS: You mean a secret about its grand strategy. ROBERT SPALDING: A secret about everything. Us, even though our intelligence community has an almost impossible time trying to piece together what's going on because they have a great system of essentially hiding everything they do, everything's built in to how they operate the Communist Party, because it operates over as a veneer over the society. When you control the narrative on China and the Chinese people, and you hide everything you're doing, it's not exposed. We need facts. KYLE BASS: The secret of Xinjiang is none of our cameras are rolling inside there. The nightmare for the Communist Party has been Hong Kong, because in Hong Kong, they want to squash the rebellion. They want to basically annex Hong Kong-- ROBERT SPALDING: The cameras are there. KYLE BASS: The cameras are everywhere. ROBERT SPALDING: Rolling. KYLE BASS: No matter how they try to change the narrative, the West has been able to say, "You guys are foolish [indiscernible]." ROBERT SPALDING: They dress people in the uniforms of Hong Kong and whatever. KYLE BASS: In Xinjiang, they closed roads. The CNN tries to get in there. [Indiscernible] tries to get in there. They won't let you in. That's it. Basically, they're able to just hide 3 million people in political prisons and getting organs ripped out. ROBERT SPALDING: Right. Of course, if you land there, they'll put an app on your phone so that they're making sure that they know what you're doing with your phone. They basically locked everything down, both physically and electronically. Think about what the US Army soldiers experience when they walked in the Dachau. The horror that they witnessed and yet, this was known by people, and it was talked about, but even at the time, people could not imagine the Nazis could be so evil. It's very similar situations that's going on today. KYLE BASS: Let's move to fentanyl generic drug. When I look at fentanyl, and what's happening, and again, I'm not an expert in this space, but I've talked to experts, we lost like 75,000 lives to opioids last year alone, we think 48,000 to 50,000 of them were fentanyl deaths, 90% plus of the fentanyl that comes into the US comes from China. Just using deductive logic, the Chinese government is killing 40,000 Americans a year on purpose, i.e., just shipping us our own death drugs. We went to war in the Middle East over September 11th, which was a horrible day in the lives of our country, and the life of our country, and they killed about 3000 people. They're killing 40,000 a year, and what are we doing about it? ROBERT SPALDING: Well, not just killing 40,000 people a year, you have to go back to those same communities and say what happened first? What happened first is when they go in the WTO in 2001, we lost over 70,000 factories, 3.4 million manufacturing jobs, add four support jobs for each one of those so over 13 million jobs. They took away America's factories, took away their jobs and because those jobs were long-term jobs with healthcare, they took away their healthcare, and they took away their retirement funds. They left those communities destitute. Then they started sending in the drugs and killing them. Yes, it's not because Xi Jinping said, "Sell Americans fentanyl." What they said was, "We don't care what you do as long as it employs Chinese and makes money." I can tell you that the profit motive in China is alive and strong and those guys that run pharmaceutical companies are making a ton of money, they're cranking out fentanyl and shipping it to the United States. Now, the interesting thing is when you go and talk to our drug enforcement officials, like I have, they'll tell you, the Chinese are cooperating with us. I almost fell out of my chair. I said, they're shipping in 100% of the fentanyl that comes in the United States, either through the southern border, through the precursors, or directly shipped to you in the mail through the postal service, or coming as press pills from Canada. It's all coming from China. They said, "Well, yeah, but when we go over and we say hey they've changed the chemical composition of fentanyl, just to make it-- now, it's legal. Can you make that illegal and stop it?" They'll say, "Well, it usually takes us a year to get that through the process but for you, we'll do it in six months. We'll roll up a couple of these guys and we'll put them in jail." Of course two weeks later, they're out. Then certainly six months later, they say, "Hey, this thing's no longer legal," and then just change it formulation again, but we feel because of that, because they say that, those words to us, oh, they must be cooperating with us when in fact, they're not. The flow hasn't changed one bit. KYLE BASS: Yes, it has. It's gotten more, it's gotten greater. The flow continues to increase. It feels to me like a reverse opium war. ROBERT SPALDING: It is very much a reverse opium war. If you talk to them in private, I'm sure that they would giggle about it. To them, it's humorous. KYLE BASS: The story that I just read is they've genetically modified the poppy plant so that it can grow year round instead of just half the year. ROBERT SPALDING: I have heard of that. KYLE BASS: This is a story that just came out in one of the medical journals a week ago, where they said their poppy crop is now up 40% because they can grow plants around and why it hasn't doubled, I'm not sure. Maybe it's harder to grow in the wintertime. Point being is we have gross human rights violations, we have one could deem to be an attack on the United States, and then when we get out of fentanyl, we get into the generic drugs and what they're doing there with the residuals being carcinogenic, and they own that business, again, every time you look under a rock in our relationship with China, it just seems to get worse and worse. It gets worse everywhere I look. Why do you think we, as a country, why do you think we even engage with them? Is it only because our profit motive, because of our greed and our desire to chase Eldorado and then 1.4 billion Chinese? Why don't we open our eyes and say we're not going to interface with an evil regime? What's your view? How do we fix this? ROBERT SPALDING: I'll tell you why we don't recognize it. We don't understand China, or the Chinese Communist Party. Now, when I went over in 2002, and had my first meal in a Chinese restaurant, and I got the check, and I didn't get a fortune cookie, I was like, "Where's my fortune cookie?" I didn't know until I realized till that moment that fortune cookies don't come from China. They actually come from the United States. It was made by Japanese guy in San Francisco. Then all of a sudden, it caught on as a thing for Chinese restaurants in the United States, but it's not actually-- What we know about the Chinese people and the Chinese Communist Party, well, who was supposed to warn us about this? We're the experts on China. Now, why didn't the experts on China warn us about the Chinese Communist Party? They were going over on junkets. Paid for by the Chinese Communist Party, granted visas by the Chinese Communist Party. Bloomberg did a fantastic article on Xi Jinping's family when he took power, and how wealthy they had become, and Michael Bloomberg was warned, "If you don't stop this, your Bloomberg terminals will not work in China anymore." KYLE BASS: In fact, they turned them off for a while. This is the [indiscernible] story. ROBERT SPALDING: Then all of a sudden, all of a sudden, Bloomberg's self-censoring when it comes to reporting about the Chinese counterpart. KYLE BASS: It's actually worse than that. I think Bloomberg is gone on the offensive against China hawks. ROBERT SPALDING: Well, I think so, because if you think about it, globalization actually helps Wall Street. Because they earn a fee on equities or bonds. KYLE BASS: Bloomberg wants to sell more terminals. ROBERT SPALDING: Bloomberg wants to sell-- KYLE BASS: Blackrock wants more money. ROBERT SPALDING: Right, exactly. KYLE BASS: The casinos want more gambling. They want this financial integration [indiscernible]. ROBERT SPALDING: My point about tying the profit incentive to Chinese Communist Party national interest, it doesn't just work in China. It works here, too. It your works in Europe. It works in Africa. It works in Asia. All you have to do is figure out how do I get you incentivize financially or economically and then you'll do what I want? How do we fix it? You asked how do we fix it? Well, one of the ways that you could fix it-- and that I'm specifically talking about fentanyl, find what's-- we just recently in Philadelphia, at the port there, or might have been Baltimore found something like 100 million dollars' worth of fentanyl on a ship. Now, the first time that the US government says if we find one bit of fentanyl on any ship, we're turning every single ship back, and you won't get a ship in the port for a month. Not only that, we're going to charge you for everything that was offloaded a $1,000, fine. The next time it comes in, it's going be doubled. KYLE BASS: Why not charge them for the full value of the shipment? Why not say the shipping company is going to owe $100 million for this? ROBERT SPALDING: Then when you do, ICBC has got a great building in New York City. [Indiscernible] has a number of assets-- KYLE BASS: Bank of China has [indiscernible] in New York. ROBERT SPALDING: You say, okay, definitely, we're going to take that as compensation. When you start levering penalties on the Communist Party and on their assets and on the nation itself, because the Communist Party is a sovereign, then you get behavior to change. Until you do that, if you go after companies or individuals, which is what we tend to do in a country that's about the rule of law, they're going to say we don't care just like they can harvest your organs as a Falun Gong. If you're a fentanyl producer in China, and you happen to be rolled up by a US indictment, doesn't matter. KYLE BASS: The1.399 billion-- ROBERT SPALDING: We got more. Go have at it. KYLE BASS: Yeah. Okay. In your book, which your book is, I found your book, I hope this isn't a negative, but I found it to be a series of amazing short stories. It is telling a greater narrative but I found each chapter to be fascinating because it was a start and a finish at every chapter. In one of the chapters, you talked about how China's actually censoring and coming after voices of opposition in the United States. Talk to me about how they do that. ROBERT SPALDING: The first time I've experienced this firsthand, I actually came over with General Fang Fenghui, who was the Chief of the General Staff for the People's Liberation Army. KYLE BASS: Came over meaning from China to the US. You escorted the Chinese general here. ROBERT SPALDING: I escorted him to Mar-a-Lago for the first bilateral meeting between Xi Jinping and President Trump and on the way back, so we flew out of Miami, flew to New York, got transferred from New York, flew back to Beijing. From Miami to New York, I get in the plane, I'm in the back of the plane, all the POAs in the front of the plane. In the back of the plane, I noticed that-- KYLE BASS: Is this a commercial flight? ROBERT SPALDING: It's commercial flight. In the back to the plane, I noticed that there's all these Chinese people and they're speaking Chinese-- KYLE BASS: Which you speak. ROBERT SPALDING: Which I speak, so I started speaking to them, "Hey, how's it going? What's going on?" Then I noticed they had bandages and scraped up, I'm like, "Hey, what's going on?" KYLE BASS: What happened to you guys? ROBERT SPALDING: They said, "Oh, we're Falun Gong. The embassy sent some people down to beat us up. We were protesting Xi." KYLE BASS: The embassy sent-- the Chinese Embassy sent thugs to beat up protesters in the United States? ROBERT SPALDING: In the United States. What happens whenever you have a head of state, so Xi Jinping come to the United States, this happened in September of 2015, when he came to meet President Obama in Washington, D.C., is the embassy will make a call out to all the visa holders, students, business- - KYLE BASS: Any ethnic China in the US. ROBERT SPALDING: Anybody that's a Chinese national in the US, in the region come out, will line the streets of the approach. KYLE BASS: They're instructed to line the streets. ROBERT SPALDING: They're instructed to line the streets of the approach to ensure that no protests happen. If a protester shows up, what they're trained to do is essentially surround the protester and then beat them so that you can't notice. They are essentially establishing sovereignty in the United States, sovereignty over the territory where the Communist Party leaders, they were doing the same thing-- KYLE BASS: Did we arrest any of the people that beat these Falun Gong? ROBERT SPALDING: No, we didn't. In fact-- KYLE BASS: Why is that? ROBERT SPALDING: Well, primarily, the reason we haven't done any enforcement whatsoever, ZT [indiscernible], could have been done during the Obama administration, and the State Department said, "No, we're not going to do enforcement on them, because we want their-- we want the Communist Party to agree with us on North Korea and climate change." KYLE BASS: I see. We were willing to let many wrongs happen in the interest of maybe achieving some foreign policy goal. ROBERT SPALDING: Every wrong, every wrong. KYLE BASS: Execute all the wrongs. ROBERT SPALDING: All the wrongs, because it was more important that we had this what we viewed to be mutually beneficial, cooperative relationship with the Chinese Communist Party. Nobody went over to the Communist Party side and said, "Do you guys want a mutually beneficial cooperative relationship," because they would have said, "Hell, no, you are an enemy. You were the ones who forced us through the century of humiliation." KYLE BASS: That's important. Because the people that believe that we should just prostrate ourselves once again, and just get a deal done and deal with China and make another paycheck and earns more money for the billionaires, those people believe there's a symbiotic relationship when it's truly parasitic. ROBERT SPALDING: Yeah, and it's interesting, because they'll say what I just said now is not true, because there are reformers in the Chinese Communist Party. What they don't understand is the reformers still believe in what I'm saying. They're just willing to go a different way at. Rather than being in your face, like the hawks are-- KYLE BASS: They're not as arrogant. ROBERT SPALDING: --we want to be more subdued. We want to hide our capability and buy our time, and slowly, eventually, the Americans would go broke. That's what they're trying to do. What we did to the Soviets is to basically bankrupt them. KYLE BASS: That takes me to a point that we've discussed before, is Xi a Stalinist? Because it sure looks like that, to me. They believe their Communist Party is the greatest Communist Party and every other communist party should be below them, but should follow their lead. I guess the entire construct of that of the Stalinist era. If he is that person, can we ever really come to an agreement with him that is measurable, enforceable, and let's say mutually beneficial? Can we ever get there? ROBERT SPALDING: Okay, so set Xi aside, just as one person, because that would everybody would say, well, we will get another leader, and it'll be fine. KYLE BASS: Can we get somewhere with the Chinese Communist Party. ROBERT SPALDING: In addition to reading the Communist Party constitution back in 2014 and 2016, I read thousands of pages, one of the documents I read was an internal Communist Party document that was created in 2013, smuggled out translated, it's called Document No. 9. Now, if you look at the Bill of Rights, this would be the opposite of the Bill of Rights. KYLE BASS: The Bill of No Rights. ROBERT SPALDING: The Bill of No Rights. In Document No. 9, they say the Bill of Rights was basically created to destroy the Chinese Communist Party, and we must, at all instances-- KYLE BASS: Refuse all of those rights? ROBERT SPALDING: Not just refuse them, counteract them forcefully, not just within our own borders, but externally. When we talk about, and I talked about it in the book, what is 5G about? What is the Baidu, Alibaba, Tencent business model about? It's about creating the architecture, both technologically and business wise, that allows commerce to flow out of China along with the values that are built into Document No. 9. Getting you voluntarily to give up free speech for money, to voluntarily giving up freedom of religion for more money. Of course, eventually, there's going to be an end to it, because what's going to happen is the same thing that happened to the Soviets is we're going to be essentially bankrupt. That's where we're headed to. KYLE BASS: You say that and/or, one would think that the United States does have a moral compass at some point in time and at some point in time, money will not trump our moral compass pointing north or at least some version of north, so maybe that stops. ROBERT SPALDING: Well, I would actually say that that's what's going on in Hong Kong right now. They draw a direct line from 1997 which when they-- KYLE BASS: When the handover happened. ROBERT SPALDING: --to 2047 and you say, "Okay, what they believed in 1997 is that by 2047, certainly, the Communist Party is not going to be the same Communist Party." If you draw that straight line that you could almost predicted that once the Chinese people within Hong Kong realize, "Okay, they're not going to change," there is no way in hell that they want to live in that dystopian place in the Mainland. KYLE BASS: Just be another state in China. ROBERT SPALDING: They are not. People look at why can't you just get over this? KYLE BASS: Why can't they get over the democracy, the liberty and the freedoms that they've had for the last nine years? Why can't they just mortgage that and say you know what, we're going to go the Chinese way. ROBERT SPALDING: When we go over there, and even I lived there for two years, I lived two years in the country and it's so easy to not actually look under the covers and look behind the scenes and see what's going on. KYLE BASS: That's by design. ROBERT SPALDING: It's by design, and it's our inability to actually understand because, again, they're very-- they obfuscate everything they do. What the Chinese Communist Party is, and how it is, it built itself within that society. KYLE BASS: I'm going to finish our talk here with if you don't mind, talk about-- you were also one of the experts in telecommunications and in the need for the West and more importantly, United States to have a 5G network and talk to me about China's ascendancy in 5G and what their plan is with Belt and Road and comms, telecom, and owning the data versus what the US is doing, and what the US has got to do to compete on the 5G playing field and why it's so important, because I think a lot of people don't understand why that's, call it, vitally important to the United States national security. ROBERT SPALDING: We developed telecommunications. The Bell Labs, which was within AT&T, was the state of the art telecommunications. Then we got out of the business, we stopped investing, so back in the '60s, during the Cold War, we were spending 2% of our GDP on research and development and basic science research that was going into companies like Bell Labs. That technology is what drove our tremendous economic growth after the end of the Cold War. We stopped doing that. We basically said, we're not going to do R&D anymore. We're going to make private sector do R&D. We're not going to do federal grants for STEM education. The guys that helped put Americans on the moon, they were educated on federal grants, paid for by Uncle Sam. STEM education, we were paying for that, we stopped paying for that. We stopped investing in infrastructures, so now, the highway, the national highway system that we built-- the Eisenhower National Highway System, we're now $5 trillion in arrears on that. It's falling apart. Along all these areas, we just stopped investing in our country. What happened was, because we said the private sector should do investment, and you know what the private sector did? They invested in China. They built cities, they built roads, they built telecommunications, they built companies, they built high speed rail, and now, they're building the belt and road initiative all with our money. Huawei got to be what it is today by first of all, being able to steal all of Bell Labs technology and then having us money investment to help grow, and then they just worked out and started selling. Now, if you fast forward from the world that existed when Alexander Hamilton was basically coming up with the ideas that are in the Constitution. Then you say, "Okay, what is the purpose of the Second Amendment in the Constitution?" First of all, he went through and looked at any government on record to see what worked, what didn't work and his goal was to create a fashion of government where no person, party, organization or group could gain ultimate power. He said, "If we fail, we're going to give the citizens the means to resist that." That is the Second Amendment. If you look at what's going on today, you look at the elections in 2016 where the Russians used big data analysis, artificial intelligence bots, and social media to create protests within the United States, during the elections, right after the elections, you'll realize that we reach the point where in our world, and it's particularly the world that we're coming to in 5G, the ability to influence you as an individual, or another words to oppress you, without either knowing one, that you're being oppressed or two, who's doing the oppressing really means that our world in terms of how society functions has gone beyond the point where a gun didn't actually has any relevance in keeping you free anymore. Because who are you going to shoot? You're just as likely, say, the Russians for them to encourage you to shoot your neighbor, because you've been led to believe that your neighbor is your adversary. In that world and the world, this is the world by the way, we designed because we're the second country in the world to build a 4G network that's applied the platform, Android and Apple, built by two American companies were built actually to be private data devices. All the apps, services and business models that were built on top of that platform, all accrued to us because we were the second country to build a 4G network and the first country to build a smartphone. If you go back to 2007, when the iPhone came out, the top five in market cap, AT&T, General Electric, Exxon Mobil, Shell, and Microsoft. Fast forward 10 years, it's the Fangs, Facebook, Amazon, Netflix, Google and Microsoft. If you fast forward another 10 years from now, and you build the 5G network, well, what happens in 5G is smartphone goes away. You no longer need a phone, because the world's wired around you. You walk out the hotel today and you say, I want an Uber. A camera picks up your face, knows who you are, has facial recognition, reads your lips or a microphone picks up your voice, Uber shows up, you get in and it bills you. All of that data, right now, is accessible to the Chinese Communist Party. Then all of a sudden you decide, Kyle Bass, I'm going to point out something that the Communist Party did, so I'm going to tweet about it. All of a sudden, the next time you walk outside your door and ask for an Uber, Uber doesn't show up. This is the world. This is a world-- KYLE BASS: That's a world no one wants to live in. ROBERT SPALDING: It is a world that currently exists in China and actually if you go and live there as a digital citizen, as I have, they are so far advanced in front of us. KYLE BASS: It will make George Orwell blush. ROBERT SPALDING: It is literally incredible. You walk into a restaurant, and a camera picks you up and says, hey, and then the server says, "Hey, Kyle, here's your food." That's what's going on. It's like between a 4G and 5G world-- KYLE BASS: Why is 5G so important? ROBERT SPALDING: Because it is a platform. The mobile phone goes away so computing and networking will go down the pipe in the platform for building the app services and business models, that are currently being built in China. Baidu, Alibaba, and Tencent, just like Facebook, Amazon, Netflix, Google became dominant. You had AT&T and General Electric and Microsoft, now you want Facebook, Amazon, Netflix, Google, what's happening because China is building the first 5G network, the platform in China, and around the world, they've got 90 countries signed up now, their companies, Baidu, Alibaba, Tencent will build the app services business models on top of that, and they will become dominant over Facebook-- KYLE BASS: China will own the data, they own the data for 90 of their companies, and therefore, they'll be able to control the data. ROBERT SPALDING: The other thing that they're putting in there is electronic payments. They'll not only control the data, they control the financial flows. KYLE BASS: Whoa, that's their way out of their crazy money printing. If they can somehow get these African nations to start accepting their monopoly money, which so far hasn't happened. ROBERT SPALDING: Because as you know, as you said, the fact that they don't have dollars really precludes their growth unless they figure out some scheme. KYLE BASS: The world still hasn't accepted their currency. Less than nine tenths of 1% of global commerce happens in their currency. ROBERT SPALDING: Yeah. In the end, global commerce, finance is all about trust and nobody trust-- KYLE BASS: No one trust them. We need to work as a country with the whole of government approach to exposing let's say all the wrongs and the grand strategy of our biggest competitor, and stop letting the Wall Street elite and the Wall Street billionaires, evangelicalize-- or evangelize the potential profits of the Eldorado somewhere hiding in China. ROBERT SPALDING: FDR and Winston Churchill showed the way. Two countries leaders coming together saying democratic principles, rule of law, free trade, self-determination, this is a system, international system we want to build. What Secretary Pompeo's State Department officials are going around on a bilateral basis talking to our allies, either you need to get on board economically, trade wise, financial, internet, and work with us to fix to ride this ship or we can no longer be a military ally of yours, because you're essentially undermining our ability to protect ourselves. Because far more than playing ships and tanks today, protecting our data and protecting our economic and trade and financial systems really drives geopolitics today. Greece, and the Port-au-Prince really has more to say about how Greece responds to China than how many aircraft carriers we have. In fact, Greece doesn't care. Greece doesn't care about what-- KYLE BASS: They already sold the port. ROBERT SPALDING: They already sold the port. KYLE BASS: To sum things up, basically what you're telling me and telling the world here is China's already fighting being on three fronts. They're fighting on the information war side. They're fighting on the cyber war side, which is different. They're controlling the narrative, and then infiltrating networks and spying and doing whatever they do offensively with cyber. They're also fighting an economic war on a large scale against us today. The only thing they haven't done yet is launcher conventional weapon against us. To your point, the war, the next world war is going to be one of those three, or combination of the three and maybe not even have that fourth one happen. China wants world domination without ever firing a shot. We've just figured this out. Would you say that we've just as a country become woke in the last few years? ROBERT SPALDING: Yeah. We just become woke, worst, actually, the war has been going worse. I believe the way you characterize war has changed. It's fundamentally changed, and it's primarily about finance and economics and information. That information piece being so important is why we said in the national security strategy, we need to build a nationwide secure 5G network. In other words, not only does the government need to protect its own data, which we become very adept at, DoD and the intelligence community. We need to protect your data, because that's what guarantees your rights as a citizen to be free in a 21st century context, and until we figure that out, we can have the greatest Air Force in the world, greatest Navy, the greatest army, the greatest Marines, but if we're not protecting your data, we're not protecting your freedom in the world the way we need to today. KYLE BASS: General, thanks very much for spending the time. It was an honor and a privilege. ROBERT SPALDING: Thank you. KYLE BASS: Thank you.