Grading the Obama-Xi Summit

2015 Concordia Summit

7-10-15

ANDY SERWER: Thank you very much Matt, we really appreciate it at Yahoo! and this really is a great panel and a great topic. I couldn’t think of three better people to talk to on the entire planet than these three guys. The other thing that’s really kind of cool as you will see I hope is that they’re kind of like three amigos a little bit. They know each other, they’ve got a good rapport and I think they’re going to play off of each other very, very well. Again, of course they know the subject so very well. It’s almost hard to know where to begin with China because it touches absolutely everything – I mean: the Middle East, Janet Yellen’s decisions, deflation, Japan – you could just go on and on. I guess, Prime Minister, I’d like to start with you. Mr Prime Minister can I ask you how you feel, how sanguine are you, about the Chinese government’s ability to handle the economic situation in their country right now?

 

KEVIN RUDD: Two part response: can they manage a growth rate for the two to three years ahead which keeps it above what they need to maintain social stability (which is a figure of around about 6%)? And secondly, can they succeed in the prosecution of what is a well-prepared economic reform plan? And the question mark is not one of economics, it’s one of political economy and their ability to do it.

 

On the first question of ensuring the growth rate stays in and around 6%. They are working or a range of measures now to ensure that’s the case and, because you have the politics of the country at stake and the party, I believe they will do what is necessary and whatever it takes to bring about that number. I’m talking about real measures of activity, not other calculations.

 

The second point is, if you look at the blueprint for the transformation of the economic model which is a comprehensive document released just on two years ago at the third plenum of the Central Committee, called ‘The Decision’, it is a reasonable blueprint for reform to take China from labour intensive, low-wage, manufacturing for export plus high levels of state investment in infrastructure as the engine of China’s economic growth, into an economy which is more of a middle income economy based on high levels of private domestic consumption, a explosion in the services sector and jobs being created there, plus on top of that a more vibrant private sector. On that program, which they have announced two years ago, there are mixed results so far. What I would say on the question of state owned enterprise reform, which is critical to the transformation – creating market space of vibrant Chinese entrepreneurs to step in to the economy, as Jack Ma and Alibaba and people like that have done right across the breadth of the economy – it is too early to say whether they have fully bitten that bullet. So my answer to your question is: do they have what it takes on growth? Yes. On transformation – full transformation – a question mark at this stage because of the political difficulty of fundamental state owned enterprise reform.

 

[9.55]

 

KEVIN RUDD: Just to reinforce what Ambassador Huntsman has said and before Ian chips in, I think his analysis is broadly right. Firstly, the US-China relationship can only function at a level, a strategic level, involving total engagement by the most senior leaders – the President and the General Secretary of the Party. The good thing that has evolved in the US-China relationship in the last several years is we now have a series of working level summits. This began in Sunnylands a couple of years ago, last year was at Yanqi on the back of the APEC Summit and now this one. Frankly, the first summit was ‘getting to know you’. But frankly the amount of time that these two leaders have now spent with each other, the frankness of conversations (particularly in Yanqi last year and again this time) about basic questions of politics, economics and foreign policy means that it’s become quite a robust, frankly, engagement between the two and I’m from an old-fashioned school of diplomacy which says that it’s always better to have the lines open and the principals know each other in case something really bad happens or you actually want to pull off something good. Then the last point I’d make is just on the substantives coming out of the visit – I thought it was pretty good. Expectations prior to it were pretty disastrous in terms of the things going wrong in the relationship. But from a US point of view a couple of things, two or three things, come to my mind. One, that you have the outcome on cyber, which has been referred to in part by Ambassador Huntsman, as it relates to the IP element as well. There’s explicit language from the Chinese President in his own words on this subject, which we have not had before. Number two, you then have explicit language from the Chinese President that the renminbi will not be subject to competitive devaluation in the future. We did not have that language from the Chinese President before, we saw the partial devaluation of the renminbi by 3% over the last couple of months, that’s significant. And the third one is this fundamental groundshift on Chinese policy on climate change which is necessary for the planet, it’s necessary for them and their announcement of a cap in trade by 2017 (however flawed it may be in the start up) is I think good news. So on those three ones I see policy wins. A lot of stuff yet to be resolved.

 

[18.30]

 

ANDY SERWER: Prime Minister Rudd (I want to shift gears a little bit) as the former head of a country much closer to China than the United States, maybe this is salient and it comes from the audience so thanks for your questions. China’s military and its posturing in the South China Sea, is that really different and, if so, what does that mean for us?

 

KEVIN RUDD: I think to answer that question, and yes we have a sharper lens on what goes on in the region because that’s where we are as Australians (even though I now live here in New York). We watch it quite carefully. But I think it’s important to drill down into South China Sea posture, which is to understand what is the Chinese lens on the world, frankly, and what’s important to them? It dovetails with what’s just been said about disappointment about not having a more forward leaning Chinese posture on the Middle Eastern questions. The number one, two and three priorities of this Chinese government party is the items we began our conversation on today which is how do you successfully transform the Chinese economy for the future, so the economic underpinnings of China as a global great power, as potentially a superpower are set in place. That occupies so much, frankly, political time and energy in Beijing that we need to take pause sometimes before we leap to too many conclusions about dastardly Chinese plans to go do X,Y and Z, A, B and C. Their huge focus is trying to get the economy right.

 

Number two, and again look at the question of how they view the world and the region – and I partly disagree with Ian here and I do so advisedly – it’s because on global order question what I found fascinating about Xi Jinping’s speech to the UN general assembly the other day was that it is the most definitive statement we have seen from a Chinese leader about the centrality of the UN rules-based system for the future of the order. In the last several years since Xi Jinping has taken over there has been a lot of loose language in Chinese public commentaries and from some of the leadership about what sort of global order should there be in their assessment that the United States was irreversible decline. That is now changing and I think their language about the international rules-based system anchored in the UN is on balance pretty encourage. They’ve just nominated 8000 troops to become part of a ready-action force of UN peacekeeping responsibilities. Climate change, you’ve just spoken about. Also, development assistance operations. So, does that solve all the problems in terms of Chinese order? No. But when they look at the Middle East my friends and they look at the problems of Russia, the problems of the United States, the problems in the Gulf, the problems in Syria – they say there’s a certain toxicity to any power jumping into that if they are not prepared to be fully full participants in a long-term solution. And they don’t see that as being possible.

 

Finally, on the region, the box of trouble that is the South China Sea, there is no immediate solution. On the one hand, as we all know, long standing Chinese position since before the birth of Communist China – Chiang Kai Shek’s claim in 1948 – about the ‘nine-dash line’ around all of the South China Sea. Subsequently, the Chinese have maintained that as their position, they can’t be seen to be backing down and taking a position weaker than the Chinese nationalists before ’49. But in recent years it’s become much sharper. The only way through this, the only way through this, is to try and get to a stage where all parties realize that there has to be a negotiated accommodation which jointly shares exploration and extraction benefits and leaves the territorial questions to be resolved at some future point in history. Is that in prospect? No. Is that the only way to get through it? Yes.

 

[28.40]

 

ANDY SERWER: Prime Minister, you said back in the green room – we know who’s going to be running China in five years, we don’t know who’s going to be running the United States in five years. And that makes it difficult right?

 

KEVIN RUDD: The Chinese ask me about this all the time, I’m in and out of Beijing quite frequently. They say, “who’s going to win?” I say, “I’m not even a voter…” Any intelligent American analyst will quickly tell you it’s too early to say. But I’d say two things. One, is our Chinese friends have a deal of experience in dealing with the vicissitudes of American primaries politics – they’ve seen it all before, perhaps not quite as spectacular as this one, but they have a factored in element to their reaction to this. They know that there is a circus element, they know that the circus will come to a conclusion. The problem is if we see any of that theatrics sustain itself into the actual management of the United States government on the core question of China.

 

The second point I’d make is this, as a friend to the United States as I’ve been my whole life (Australia is an ally of the United States for 100 years), everyone who is a friend and ally to the United States wants this country to succeed and I think the great thing that the difficult, hard road to economic recovery post the crisis is that it set the world at large, including those in China who thought that the American economy was finished, that in fact there is a great underlying resilience to the economy and you know how to bounce back. This has been a great testament of American economic strength and the resilience of your underpinning capital system. If you can do the same in terms of the future management and resilience of the American political system, this would complement the former effectively. At present, if I look at the critique coming out of the Chinese and various other parts of the world about disfunctionalities in the American political system, they point to redistricting and how Congress ends up in the way it does, they point to campaign finance out of control and they begin to mount a systemic critique that this liberal-democracy, this ‘light on the hill’ is not as good as it’s described. So, as the world’s remaining superpower, and coming from another democracy as I do, the reengineering of elements of your democratic system is actually fundamentally important for the future of democracy across the collection West.