Charlie Rose: Former Australia PM Kevin Rudd

NEW YORK – Asia Society

17 February 2015

CHARLIE ROSE: Kevin Rudd is a former Prime Minister of Australia. He was in office from 2007-2010 and again in 2013. He is also a former diplomat and fluent Mandarin speaker. He is now President of the Asia Society Policy Institute. I spoke to him recently at the Asia Society. We talked about China’s Premier Xi Jinping, their national and global ambitions as well as US policy towards the region. Here is that conversation.

I’ve heard lots of conversations, people come to my table about Xi Jinping and talk about how he’s exercising power and how he’s planning to change China. We’ll get to that, but tell me about him, your impressions of him, how he came to power. Who and what enabled him to become President of China?

KEVIN RUDD: The first thing to bear in mind with Xi Jinping is his family background. He is the son of a former Politburo member Xi Zhongxun. Xi Zhongxun was a former member of Deng’s Politburo when Deng returned to the political scene in the late 70s. After that Xi Zhongxun was entrusted by Deng with a very important task. His task was to oversee the implementation of what is called the ‘Four Special Economic Zones’ in China in the 1980s. That’s what he set about doing. In other words, he was put in charge of what in China then was a highly controversial project. Putting it back into Chinese history it’s a bit like this – those four special economic zones coincided with the 19th century treaty reports, where foreign countries (namely, the British but a lot of others as well) demanded exclusive access to these treaty ports and what the Chinese described as the ‘Unequal Treaties’ between China and the West. So to go back to these after the revolution of ’49, and then to say (30 years after that in ’79), “Guess what we’re going to do, we’re going to open the doors to these treaty ports to the West.” So the Left of the Communist Party said, “You’re going to do what?” This was not welcome news. This was the vehicle through which China’s initial exploitation occurred in the internal historiography of this by the Chinese Communist Party. So Xi Zhongxun was tasked with this and, as a result, the economic zones were eventually expanded in scope, the number of special economic zones grew and in time the policies adopted in the special economic zones were adopted across the country. And so, in the economic reform tradition of China, his father represents what I’d describe as a liberal reform agenda.

But the other thing to say about his dad comes the other way around. Xi Zhongxun was also a revolutionary commander for the Red Army, for the Eighth Route Army in the lead up to the ’49 Revolution and so his father was a Party loyalist, strong on the Party’s role in bringing about the Revolution, strong on the Party’s role in holding the country together. So with his father you have this combination of a hardline political supporter of the continued role of the Chinese Communist Party, on the one hand. But at the same time, someone who understands that China’s future hinges on the continued reform of its economy in a market direction. We may find this to be an enormous contradiction in terms, but that very much explains, in part, the political worldview and the economic worldview of his son, Xi Jinping.

ROSE: And, as a leader, what have you seen so far?

RUDD: I’ve met Xi Jinping a number of times. In fact, when I was a junior woodchuck working in the Australian Embassy in China in the 1980s, I first met Xi Jinping when he was a Vice-Mayor of Xiamen which is one of those treaty ports, one of those special economic zones to the south of Fujian, again to the south east of Shanghai. He didn’t know me obviously but I knew that he was a significant figure in municipal politics back then. But rolling the clock forward to my meetings with him when he’s been Vice-President and my discussions with him since he’s been President of the country. Number one, he’s one of the few Chinese leaders since Deng who I’ve seen conduct all his engagements with foreigners without speaking notes. This isn’t a person who talks to a brief, this is a person who speaks extemporaneously and the people writing most furiously are the apparatchiks around him because they are discovering new things everyday. That’s number one.

Number two, what you discover with Xi Jinping is that he’s enormously steeped in his own country’s history and the history of his own Party in the country. So there is a profound historical frame of reference which affects his current worldview as well. Namely, that China, having been first occupied in the modern era by the British after the First Opium War when Hong Kong was ceded, through to the defeat of the Japanese in ’49 more than 100 years later – through what they call the ‘Century of Humiliation’. Foreign humiliation at the hands of the West plus Japan. This is burned deep into Xi Jinping’s worldview and, therefore, the need to cause China to go through its own national reawakening, its own national renaissance, its own national rebirth. The Chinese word for it is (CHINESE). This is a core part of what he describes as his dream for China’s future – which is to bring China back to a respected place in the global council of nations.

The last thing I’d say about Xi Jinping as a person – beyond his self-confidence, not using notes, his historical frame of reference – is that he is a deeply committed Party loyalist himself. Many in the West and in the US as well, assume because of what we’ve seen in China since Deng’s opening (when Deng wore the cowboy hat when he visited Houston in ’79 with Jimmy Carter and the rest). We often assume, because of the cowboy hat, through the ups and downs of Tiananmen Square and what occurred in ’89 but through the ‘90s and through the ‘00s that essentially there is a slow evolution to a more open economy, creating a more open society and a more open political system in China. Under Xi Jinping, the economy will continue. There will be a continued opening of society relative to a Maoist past. But his political frame of reference is very much a conservative Party view. And, therefore, what he will seek to advance – and I think it is his worldview – is what he calls the ‘China Model’. The China development model is not a liberal capitalist model, it’s more of a state capitalist model. And I think it’s very important that we in the Collective West understand that.

ROSE: What do you think misconceptions are amongst Western leaders are about him and his intent?

RUDD: I think there is always a predisposition on the part of any nation state looking at another nation state to think the worst. That’s basically how diplomats keep in business and I’ve been one of those in an earlier professional incarnation. Themselves and intelligence agencies and defence departments have about them this view as a nation state – whatever that country over there says is one thing, we are paid professions to assume the worst case scenario. Often you see that around the world in relation in China. I think the largest misperception is this – that somehow China has a growing military capability and military ambition to occupy in time parts of its region. The bottom-line is that, whatever negative things you can say about the Chinese tradition, it is not a substantial part of the Chinese tradition at all (as it was with the Europeans) to say, “Well, now we’ve got all this wealth and power, how do we go and conquer this bloke’s territory? Or the next one’s?” There is a deep civilizational view alive in Beijing through multiple dynasties that, frankly, there is enough to manage here under heaven (CHINESE), in the Middle Kingdom, to not require us to go out there and do as the British did and the French did and everyone else did and go and conquer the other half of the world. That, I think, is a big misconception.

ROSE: We see here clearly in the 21st century a rising power which began in the previous century but is coming full stride. And we see a country that has not yet decided whether it’s a stakeholder in the world but seems increasingly to want to be perceived as such…

RUDD: What are they up against and can they actually make it work?

ROSE: Right.

RUDD: And, as a consequence to that, where do they think they’re going? A lot gets lost in translation when we’re dealing with our Chinese friends. You mentioned the word before ‘stakeholder’. Bob Zellick (who is a good friend of mine and the head of the World Bank in days past) when he was Deputy Head of State, pointed out that China should become a responsible global stakeholder. This led to two lines of mistranslation in Chinese. One, around BBQs (I’m going to ‘hold a steak’? What the hell does that mean?), that wasn’t what Bob had in mind. Secondly, stake as in putting a stake through someone’s heart. This was not a good word and basically there was a long pause as China tried to work out what Bob was on about. The concept was a strong concept but that’s just how things get lost in translation.

On that core point it’s worth understanding this: we have an expectation in the US and the Collective West that China will increasingly follow and comply with the rules of the global system that we, the Collective West, have evolved for ourselves in the post-’45 period. To which the Chinese would say, “That’s terrific. We weren’t even there then. Thanks very much guys.” To which we say, “But you were.” China was one of the victors in 1945 to which they say legitimately, “That was the KMT, not us.” So their view is that the global rules based system should be the subject of continuing review and reform. If I look at a couple of the more recent speeches of Xi Jinping, he’s quite sharp on this subject – that the rules of the system need to be reformed in a manner that makes the system more just and equitable between states. That I think is a big challenge for us because we, the Collective West, much of the developing world has accepted the status quo with the rules of the international system as they exist. China is saying something quite different. We don’t know the answer to it yet. Which is, we are in the business of reforming (to use their terms, ‘changing’) the rules of the system over time as our power grows.

ROSE: An obvious example of that, I assume, is the reserve currency – the dollar as a reserve currency. But what else?

RUDD: It’s interesting, if you go to the detail of what China means by this. At this stage their public pronouncements on all of this it is still a little opaque. But let me give you one clear example. There has been a great debate across the world in the last six months or so about China’s decision to establish the Asian Infrastructure Bank. Of course, the response from the US, the West and the rest has been along the lines of, “Why the hell do we need that, we’ve got the Asian Development Bank? We’ve got a series of multilateral development banks around the world, ultimately with their parentage in the World Bank. These are run along international rules and it’s all gone fine and dandy thank you very much since the days of Bretton Woods.” To which the Chinese say, “No, not really.” They’ve gone out there and established their own Asian Infrastructure Bank to which we have objected. In other words, they’re establishing an institution outside of the UN and outside of Bretton Woods. Of course, its initial paid up capital is intended to be $100 billion so it’s not going to shake the earth in one go. But I wouldn’t be surprised at all if it continues to expand. My own view, for what it’s worth, about that is, given the global investment and infrastructure deficit in developing Asia, multiple sources of capital should be welcomed into the system so long as the governance of these institutions is along professional governance lines. We haven’t raised objections to the thing called the ‘Islamic Development Bank’ in the past, though it operates extensively across the Middle East. I think we need to be careful about saying ‘no’ to Chinese initiative, on the condition that governance is (as you would expect) a properly formed financial institution.

ROSE: What about militarily?

RUDD: Yeah, they’ve got a lot of those. It’s a phenomenon which is unfolding. Chinese military spending in terms of annual growth has outpaced that of the United States for arguably the last 25 years and with increasing intensity. But if you look, for example, at some of the international data released on this – say that put out by the CIPRI (Centre for International Peace Research Institute) which is normally regarded as a fairly neutral, credible, reliable institution assessing the hardware of each country’s military in the world. They would probably rank China’s total aggregate military expenditure at about one-quarter to one-third, at best, of that of the United States. But we need to be mindful of where that heads as it goes ahead. But the Chinese military planners do not conceive of a realistic point in the foreseeable future where the aggregate capability of US convention powers could ever be surpassed or equalled by that of China.

Mind you, their view of their foreign policy role is somewhat different. They see themselves as having an expanding policy footprint around the world and around Asia in particular, on the back of their enormous economic power. That’s happening as we speak.

ROSE: How was the military somehow part of that, the expansion of Chinese interest?

RUDD: Let’s start this with a narrow frame. The core interest that Xi Jinping has is the modernization of his military, given he comes from a military family in part. It’s to make sure this military is modern, is sophisticated and is capable of engaging in – and prevailing in – a military conflict in or around China’s periphery. Remember the first function of the military is to protect the Party in that country, under the Party’s and the state’s constitution. Always important to bear that in mind. The contingencies for which the Chinese military plan are still primarily those associated with the long term scenarios for the recovery of Taiwan to the mainland’s tender embrace. Of course, the Chinese want to achieve that through diplomatic means but if something happens or if something cracks in the meantime (like a unilateral declaration of independence by Taiwan which is always possible) then their wargaming is around how do you secure Taiwan and, therefore, defeat a US military or naval action in the Taiwan Strait? Of course, in planning for that you acquire a whole bunch of additional capabilities which provide further complexity for US defence and naval planners in the Pacific.

ROSE: Is the outlook for China less today than it was when they were growing at, say, 10 per cent for all those 18 or 20 years and or was it to be expected – that as they got larger, the base was larger, the growth would slow down?

RUDD: I think any of us who are students of economic history know that an expanding continental economy engaging in trade for the first time, you’re going to have extensive growth, rapid growth. As you did with the history of the United States and its continental economy – when it began exporting and trading with the rest of the world in great volumes itself in the 1870s, becoming the largest economy in the world. This is natural and slowly with the maturation of the economies you’ll more from developing to developed status the growth rate narrow to a historic median of between 2 and 3 per cent – like your economy, like the Australian economy. So the Chinese, in their planning, have been absolutely fixated oh how you actually transition a rapidly expanding developing economy into a long-term sustainable growth as a developed economy, while avoiding what they call the ‘Middle Income Trap’. Hence the growth strategy or change in the growth strategy you just referred to.

Here’s the kicker though: on the way through, can they sustain growth at sufficiently high levels to provide the necessary buffer for the transformations to occur? That’s been really tough. One, global markets have been so flat. Look at Europe – one of China’s principal export markets. Look, until the last twelve months, at the United States – China’s other principal export market. So net exports have turned out to be, frankly a minor and even negative contributor to Chinese growth. What they’ve done historically to try to fill that gap is pump prime by engaging in massive capital projects which has had the unfortunate consequence of, therefore, creating asset bubbles in the property sector – in real estate and redundant state construction. I give the government credit. As growth slows, not to engage on that on the way through. But there are some seeds, frankly, of a positive nature that are starting to look at with China’s growth model for the future. The one piece of data which has emerged in the twelve months or so since they adopted these new blueprints for long-term economic reform – moving from manufacturing and investment to the services sector and consumption – and that is the phenomenal increase in new business registrations. A phenomenal increase. This has been achieved in part through some regulatory changes which don’t require you to mortgage your wife and your house if you want to start up a new business, that’s been welcome. But as a result the big driver for growth, which they hope will take will take place in the future, is through an emerging small business sector, greater opportunity for private firms and if the reform goes according to plan a contracting size of the state owned enterprise sector relative to private firms.

ROSE: Levelling out the field a little bit?

RUDD: Well through their domestic competitive neutrality laws. You went through before, a list of what could go wrong and I would tick most of the boxes that you’ve raised including this one, and that is – the real question of the leadership now is will they continue to shrink the size of the state owned enterprise sector, given many of these are just sub-optimal economic performers and are distorting the resource allocation within the economy? Will they bite the bullet and allow that sector to further contract and yield more space to private firms or does that create too much of a political problem because the state owned sector of the economy becomes too small and their ability to affect decisions on the ground is reduced as well.

ROSE: What is the threat to future of the Chinese Communist Party? And what might be a threat or where is their paranoia justified?

RUDD: This is a very deep and searching question. Let me hazard a couple of answers. If you were looking at the world from Xi Jinping’s perspective, the number one priority – stated or unstated in their daily or weekly meeting agenda is, keeping the Party in power. So what are they, therefore, mindful of? They are very mindful of threats to the Party’s absolute position within and, therefore, what you are seeing increasingly is a tightening of the environment from the perspective of the activities of universities, the activities of cultural dissidents, the activities of political dissidents. This is occurring as we speak.

The second cause of concern is through the emergence of alternative centres of power and that’s why the Chinese economies will look with great scepticism at the great emergence of religious organizations in China which, from their perspective, become potentially significant sources of dissent. Not all but some.

That leads me to my third point, which is they are very much focussed on the separatist tendencies both in Xinjiang and Tibet. Now Xinjiang in particular because of the forms of violent jihadism that you see being played out in various part of China in what I would describe as this crescent of instability brought about by violent jihadism from Xinjiang in the northeast to Boku Haram in northern Nigeria and the great crescent of lands in between.

If you’re putting together the hierarchy of concerns it would be that and then finally a deep view held in China is that Uncle Sam is out there actively fermenting a lot of this and that Uncle Sam is also engaged in a de facto policy of containment to prevent China’s rise. I’m not going into the rights and wrongs of them at the moment, just seeking to describe. If I was the say that’s what animates China’s internal Party concerns about their ability to sustain the Party, they are big concerns – together with the environment and your ability to breathe the air in Beijing, and together with the sustainability of economic growth.

ROSE: And there’s been a lot of money spent on the search for alternative sources of energy.

RUDD: That’s true, if you look at the seachange in Chinese environmental policy in the last three or four years. I remember sitting in the room with President Obama and Chancellor Merkel and about 20 other global leaders in Copenhagen only about five years ago as we tried to bring about a global agreement on climate change. You may have read the newspapers, it didn’t work. I’ve got the t-shirt that says ‘I survived Copenhagen’. Well for a while anyway (that’s a comment on Australian domestic politics).

ROSE: There is life after being a politician though!

RUDD: Yeah, it’s political exile in the United States. It’s a good place to be in exile.

But the bottom-line is this – when I contrast the position which Chinese negotiators took then on climate change which was basically a collective ‘no’ to where they are now. The shift has occurred because the Chinese have calculated that a combination of plain old air pollution and its partner in crime, greenhouse gas emissions resulting in long-term climate change, that the science is in within China. They have the evidence and know it is happening. And if, to start with you only had 10 to 12 per cent of your country as constituting arid arable land and that becomes progressively degraded through the absence of water or pollution into the soil or other factors. This has brought about a seachange in Chinese policies and the world will wait, with anxiety I believe, to see if these policies will work because China now by a country mile is the world’s largest emitter of GHGs.

ROSE: What ought to be a constructive American policy towards the rise of China that would serve both countries?

RUDD: I’ve been to China about a dozen times, I’ve been to Washington a lot talking to the Administration, and chatting to leaders and those who advise them behind the scenes. I think there is a way through this. It might sound naively optimistic from a happy and sunny country like Australia but there’s a basis for my optimism. If I was to give it a name it would be for both sides to adopt a posture of ‘constructive realism’. What do I mean by that? One, be absolutely realistic or realist about where at this stage the two countries cannot agree on fundamental geopolitical questions, political values questions and some others as well. But also agree on a mechanism through which those differences can be managed short of conflict. That’s the realist bit.

The constructive bit is – the other side of your brain – which is engaged in, “hang on there’s a bunch of stuff we and the Chinese can work on together in order to advance not only our national interest, but our bilateral interests and frankly the world’s interests.” And that list is formidable. We’ve just been talking about China’s seachange on climate change. The two largest emitters in the world – People’s Republic of China and the United States – they will the Paris Conference of the Parties on Climate Change this December succeeds or fails by what they do. India will also be critical. That is one example of constructive engagement. And the second in the Asia-Pacific region is how do you evolve an institution in our region which is capable of, frankly, step by step building confidence and security building measures with each other. Like, working together on natural disasters in a more effective way. Like, elaborate protocols to not allow a minor bingle at sea – when one submarine whacks into another or an aeroplane whacks into another by accident because of the density of the hardware flying around out there – how do you prevent that through a system of sophisticated protocols from escalating. Down to a whole range of other bilateral cooperative endeavours. For example, the bilateral investment treaty between US and China because that will be good for both economies. If you start investing in each other’s economies, guess what, you have a great interest in the other’s economy succeeding because you have a bunch of cash there and it helps if they succeed. That’s what I’d describe as the constructive dimension.

The final dimension is to have, in the back of our minds, a view that if you develop sufficient political capital and diplomatic capital from the things that you work on constructively together over time that, as circumstances allow, you draw on that capital to solve some of the unfixable problems in the first realist box. These three elements – I believe you can hold them all together in a common strategic view on the long-term relationship. Often what we do though because we are human beings, is we go to one side of the brain and say, “uh uh problems, difficulties, clash of civilizations (thank you Huntington), off to conflict or worse.” And the others which can be pie in the sky by and by people which is, “Isn’t it wonderful, we’re all holding hands and doing great things together. Let’s just forget about the development of our respective navies which are facing each other off in the Pacific each day.” You need a strategic view which embraces both realities but I think we’re capable of doing that and the mechanisms are starting to evolve between President Obama and President Xi Jinping with annual working level summitry I think gives us an institutional capacity to make that work over time.

ROSE: How is that relationship? Do you think it’s a healthy relationship between the two? At least in comparison to the relationship with the President of Israel?

RUDD: I’m not even going to go there, Charlie. But between President Obama and Xi Jinping – I think the truth is, when President Obama invited President Xi Jinping to the first working level summit held in Sunnylands in California in June of 2013, it was a start. I think most people say it wasn’t necessarily the most back-slapping start that you could have had to bilateral summitry but, then again, when you’re dealing with China and the United States you can’t really expect that. Then I think it’s fair to say that the relationship went through a significant series of problems between that June and the November just passed which centred around the East China Sea and the South China Sea. But what I find interesting in this most recent meeting in Beijing – the two leaders spent at least eight hours, nine hours speaking to each other with a very limited number of people around the table. My advice is that the two leaders really got down to some tintacks on these questions of, “Are you American trying to domestically destabilize us? Are you really containing us? How do you give evidence about A and B above?”

Frankly, I know enough about international relations to know that unless you get down to some tintacks – unless you’re dealing with those – you can’t get to the second levels of constructive cooperation. My sense is that there is a working level of respect now between the two Presidents, which for the remaining two years of President Obama’s term, I hope we can turn into something more.

ROSE: A couple of things about the trip to Annenberg where the President went? Much was made perhaps just in the press about the fact that the First Lady did not accompany the President and that the Chinese were not pleased by that because the President’s wife had come with him.

RUDD: Well I have a slightly different take on that and that is, I spoke to the Chinese at length before Annenberg and a lot after Annenberg (lot of travel to Beijing last year). I think – and Therese and I know the President and Michelle reasonably well – the reality is that they’ve got two young kids. The Chinese are a very ‘family’ people, they understand when you’ve got kids and younger kids – from memory I think one of the kids had a birthday or some celebration at the time. But here’s the other point, neither President Xi Jinping or his wife Madam Peng has explicitly or expressly or solely come to the US, they’d been visiting Latin America. This was a working level summit on the way through. So Madam Peng would have been there for that anyway. Besides if there was any difficulty arising from it, I think Michelle Obama and the kids’ subsequent visit to Beijing as Madam Peng’s host smoothed all that away. The key thing in the Chinese leadership is the tintacks of the one relationship in the world which fundamentally matters to their future and that’s this one with the United States.

ROSE: And what are they prepared to do to make it better?

RUDD: Their first step in that direction will have been to see the President’s priority attached, since his re-election, to bringing about a global agreement on climate change. The Chinese, if I was to give you an example, could have said, “Okay, we’ve decided for national reasons to act on climate change. This is what we’re going to do. Number one, we’re going to announce a peaking year when our aggregate national carbon emissions will peak. And two, we’ll give you an indication as to what that quantum will be.” The Chinese could have announced that unilaterally, they could have announced it at the Non-Aligned Summit, they could have announced it in a bilateral with India, they could have announced it at Copenhagen itself or the preparatory meetings, which were run through this year at the UN General Assembly with September. I think as a significant gesture to the President and given the intensity of the two-way negotiations between the two, they chose to make this a core part of the announcement of the outcomes of the President’s visit in November. That’s a discretionary decision. At a substantive level – and I think it’s really important – at the viscera of the military relationship, the agreement of two transparency initiatives between the Chinese armed forces and the United States armed forces on how to prevent and manage incidents at sea or incidents in the air. We’ve been chipping away at that for decades. The United States had an agreement with the Soviets dating back to the ‘70s I think and maybe even a little earlier, but we never had been able to crack that between the US and China. Finally, the two militaries are able to come together on that and I think that is potentially one of a number of stabilizing elements which lie ahead of us for the US-China relationship.

ROSE: How do they view Russia?

RUDD: Well, as Tip O’Neill famously reminded us here in this country that politics is local. And I imagine an active conversation between Xi Jinping and Vladimir Putin is about what they both describe the as the ‘Colour Revolutions’ of Eastern and Central Europe, and the extent to which they have concluded that either the Europeans or the Americans or the Collective West were complicit in that. In other words, aimed at toppling their governments and their political systems. That is an active element of the political conversation, I think that’s true. As are their respective attitudes to the censoring of the internet in their respective countries as well. I think though that the relationship between China and Russia is at a deeper complexity. Sometimes in the cut and thrust of what is happening today we lose sight of the strategic shifts. What did Nixon do? You in your country know better than I but I studied it from afar as a kid. He fundamentally rewrote the strategic rule book by engaging China strategically and military against a common Soviet adversary and this actually fundamentally altered the strategic equation and was one element – one of many elements – given that that began in 1972 and we saw the Soviet Union collapse in 1991, that’s one of a number of elements which frankly rattled the pre-existing concept of the strategic status quo. What worries me though is that we look back at the strategic relationship between US and China since ’91 and the collapse of the Soviet Union is that we hadn’t and haven’t put in sufficient strategic effort into constituting a new long-term strategic rationale for the US-China relationship. The Soviet Union collapsed, in 1991. But if I look at the period through the ‘90s and the ‘00s, there’s no real evidence of a new strategic rationale for the US-China relationship.

Leave that to one side and roll into the present…

ROSE: So you’re describing this as a missed opportunity for the United States? That it did not take that moment to build a new relationship with China, that China would be more responsive?

RUDD: With a new global strategic rationale. The glue which held China and the US together in that period, the previous 20 years, was a common position against the Soviet Union. Take out the Soviet Union, what have you got left? We could make a lot of money together and that’s kind of what held together for a season but, frankly, there wasn’t a grander strategic narrative capable of uniting these two great countries into a common endeavour for the future. Maybe it would have been impossible, I don’t know. But what I do know, is that when you start to see this fundamental rift emerge between Russia and the US, the West and the rest that it didn’t take long for strategic cooperation to emerge and strengthen between Moscow and Beijing. I think that’s the other part of the strategic sandwich.

ROSE: They’ve shown a little bit of that in Afghanistan too. Is there enough interest in Afghanistan?

RUDD: It’s a complex question. There was an Aspen Strategy Group conference on this last August. I went up and participated and there was a little paper I wrote I think on a website about it but just understand, however, that both these countries have a very long view of each other. And the Russian long-term view, I went to Moscow last March to ask this question, what do you really think about China? They said, “It’s the best it’s been in the last 450 years. And how it will be in the next ten years we don’t know.”

ROSE: So in 25 years from now it’ll be 2040. What will China be and what will we be?

RUDD: This is a fundamental question for how we view these two countries future and critically what we do in the interim. Of course, the conditionality attached to your question Charlie is, on the assumption of no policy change. And that’s very important as an assumption. Because if that is the case and we do not have policy change either in Beijing or Washington what I do worry about is an incremental slow drift towards one form of conflict or another. The alternative narrative out to 2040 is one where the two nations through their leadership much sooner rather than later, develop a common narrative for their future along the lines I mentioned earlier. Constructive realism – here’s what we disagree on, here’s what we agree on, let’s maximize the latter, minimize the former and develop the political capital to solve the hard ones over time. That way I can see, frankly, us being much more able to secure the long term peace and security of the neighbourhood. One final point if you’re going out to 2040 is this, China will, in order to continue to emerge as global great power, have to deal with a raft of six or seven major challenges around the economy and its demography in that time in order for its rise to continue to be unabated. That involves a range of assumptions which assume that smart Chinese leadership and a bit of luck will prevail on the way through. But I’m into the realist business of how do you maximize the prospects for peace and stability and in Asia, where my country is located, we really want to see the emergence of a common narrative between the two of them.

ROSE: Prime Minister Modi said, when he was here, “No one doubts this is the Asian Century.” Well some do. “What we don’t know is whether this is China’s century or India’s century.” How would you assess India’s place?

RUDD: India’s place is huge and I’m glad we’re talking about a country other than China. This society, the Asia Society represents the totality of the region and of its five subregions of which China is just one – Northeast Asia. India and to some extent rising Indonesia represent two huge parts of the jigsaw as well as the continuing emergence of Japan. I think the world sits with bated breath to see if Prime Minister Modi succeeds with his domestic political reform program. If you follow Indian politics, the good people of Delhi in their most recent provincial elections said, “Thank you very much Mr Modi but not too far too fast.” Managing an economic reform program through the complexities of A, the Indian democracy and B, the Indian federation will require a high level of sainthood in order to navigate your way through. That’s before you encounter other arms of the Indian bureaucracy. I think the world wants Prime Minister Modi to succeed. I think the world wishes him well. It’s one of the reasons, as President of the Asia Society Policy Institute my first visit abroad will not be to Beijing but to Delhi next month because we will want to work as actively as we can with the Indian government to make sure we can cooperate with their policy success.

ROSE: What is your favourite Chinese proverb and what does it teach us about Chinese culture?

RUDD: I presume that excludes all rude expressions right? The Asia Society is a family society. I think the one that always captures my mind is a saying of Mao’s actually because it represents in so many ways all that China actually seeks not to be the case. Mao, at the height of the Cultural Revolution, said the following, “There is chaos in heaven, there is chaos under heaven, the political situation is excellent.” And Mao the great revolutionary from the pre-49 period and the Cultural Revolution, he was into this business of permanent revolution. If you were to look at the absolute antithesis of that, namely, a progressive, orderly, systematic reform program under regular forms of political leadership with no great surprises on the way through – that’s what the Chinese are now seeking to do. Whenever you quote that phrase at our Chinese friends they literally freeze, because they know what it was like to come out of the Cultural Revolution.

ROSE: Bo Xilai used to talk a lot about Mao before he was arrested and Xi Jinping talked about Mao. Yet most people believe that the person he most resembles is Deng Xiaoping.

RUDD: I’d agree with that. Remember, there’s a bit of symbolism attached to this. Chinese leaders rarely do these sorts of things on a whim, but the day after he became General Secretary of the Party (or it may have been after he became President of the country) he flew south to Shenzhen in order to lay a wreath at a statue of Deng Xiaoping – to honour Deng’s contribution to the opening of China to the outside world. When he did so he was simultaneously honouring his father who made a contribution in that sense. So I think there is a great reverence and respect for Deng and remember, Deng was a hardliner politically and frankly a big reformer economically – seeing that market based economic reforms were necessary for China’s overall accumulation of national economic power and improving the living standards of ordinary Chinese.

ROSE: There seems to be at some levels, that the Chinese are to put it mildly that the Chinese are displeased with the North Koreans and my question is what are they prepared to do about that?

RUDD: That’s a good and sharp question. The first part of it is true and the second part of it is hard to answer. On the first part, it is beyond analytical doubt that there has been a considerable rupture in the relationship between Pyongyang and Beijing because Kim Jong-Un, the new leader the DPRK, so early in Xi Jinping’s period decided to demonstrate his statecraft by letting off an underground nuclear test at around about Chinese New Year of 2013. This made China really grumpy. Capital ‘G’, grumpy. One, because what is Xi Jinping doing? He’s saying that our number one priority is to grow the Chinese economy, for that we need regional stability and now we have this renegade neighbour trying to blow up the furniture so thank you very much I really appreciate that. Number two, thank you in particular for doing it in Chinese New Year. I really enjoy spending my New Year trying to clean up a political mess globally because of what you’ve done.

This has led to deep angst on the part of the Chinese leadership and the clear evidence of it is, to date, Kim Jong-Un has not been invited to Beijing to visit and the clear further evidence of that is that Madam Park, the President of the South, has visited Beijing and Xi Jinping has visited Seoul. So this is happening – there is deep rupture. I’ve seen some diplomacy from Beijing trying to improve that again and the North in turn now is reaching out to Russia and other countries to obtain stronger international leverage internationally. Your description of displeasure is correct.

What can China do about it? Look, I have a personal view on this which horrifies most Chinese and American strategists but let me put it anyway, given I’m now working for the Asia Society and all collateral damage lies with me. There’s only one way that we can deal effectively with North Korea over time, on the two big policy interests of peaceful reunification and denuclearization, neither of which can be separated from each other in my view. And that is for there to be a grand strategic bargain between China and the United States about how the Korean Peninsula is to be governed in the future. What is the baseline Chinese concern about Korean reunification? That American troops south of the Parallel will then find themselves up bordering mainland China. A reunified Korea means American troops, American allies. One thing that is toxic to our Chinese friends is the idea that Americans actually being on a land border with China rather just being a maritime problem, as seen from the perspective of Beijing. Therefore, that has to be dealt with. If you can arrive at a compact which deals with the security of Kim Jong-Un and his regime in some sort of confederation with the South – the condition of which is the unilateral denuclearization of North Korea weapons program, for which the quid pro quo is the withdrawal of American forces from the Peninsula all together, you might be able to cook with gas (that’s an Australian expression – you might be able to produce a result).

If you’re a looking for what I think is an overall strategic concept that is possibly it. This is my one additional thought though Charlie. There’s something about Xi Jinping’s leadership style and his absolute authority within the Chinese political system which says that big strategic thinking like that should not be discounted. He sees himself in the mould of China’s great political leaders. Deng, you might remember, was the leader who actually did the deal with the Soviet Union in the chaos of Tiananmen in 1989 when Gorbachev visited – what did Deng do, in the midst of all this extraordinary outburst of protest movement within the Chinese capital? He finally sealed the Soviet-Chinese border with a comprehensive agreement. That more than anything else, frankly, has determined the future Russia-China relations. There is no disagreement on the border. It’s been done. Xi Jinping sees himself in a similar strong leadership mode. So if there was ever a Chinese leader who could entertain a grand strategic bargain on the Peninsula it might just be him.

ROSE: That’s a great way to end – on a grand strategic initiative. On behalf of everyone here, thank you so much.