Rudd on Why U.S.-China Relations Under Xi Jinping Won’t Be ‘Business as Usual’

NEW YORK – Asia Society

7 May 2015

  DEBRA EISENMAN: Good morning and thanks for joining us. I’m Debra Eisenman and I’m Executive Director of the Asia Society Policy Institute. Welcome to April AsiaConnect briefing call. In the AsiaConnect series we offer compelling insights on policy related development in Asia and in US-Asia relations. This teleconference series exists thanks to generous of Asia Society Trustee, Mitch Julis. Mitch is with us on the phone for today’s call to introduce our featured speaker. Mitch. MITCH JULIS: Thanks Debra, it’s a real pleasure to join you for a discussion of what might be the most important international relationship of our age, the relationship between China and the Untied States. China will soon surpass the United States to become the largest economy in the world. With that shift in economic influence will come a shift in political power and a transformation of the relationship between the US and China. The question is, will these two powers be able to offer a common narrative of mutually beneficial achievements or will they drift toward conflict. This is an issue that Henry Kissinger has written extensively about and is very concerned. I can think of few people who are better positioned to help policy makers and business leaders understand the possible future of US-China relations than the Honourable Kevin Rudd, President of the Asia Society Policy Institute he served as Australia’s 26th Prime Minister and as Foreign Minister. As Chair of the Independent Commission on Multilateralism, Mr Rudd is leading a review of the UN system. A Distinguished Fellow at Chatham House in London,  Distinguished Statesman with the Centre for Strategic and International Studies in Washington, and a Distinguished Fellow at the Paulsen Institute in Chicago. He is proficient in Mandarin, Chinese, serves as a visiting professor at Tsinghua University in Beijing and Co-Chairs the China Global Affairs Council of the World Economic Forum. Over the past year Mr Rudd has been a Senior Fellow at the Harvard Kennedy School Belfer Centre for Science and International Affairs where he worked on a study of how the US and China see one another and how they can use mutual understanding to put their relationship on a stable footing even as it goes through a period of significant change. I’m pleased that he has joined us at today’s AsiaConnect call to share his conclusions which were unveiled on Monday with the launch of his Summary Report, ‘US-China 21: The Future of US-China Relations Under Xi Jinping’. You can find that report on the website of the Asia Society Policy Institute. Mr Rudd will offer his remarks for twenty minutes or so and we’ll leave about 15 minutes for questions and answers. This call is being held on the record. With that I’m pleased to introduce the Honourable Kevin Rudd. KEVIN RUDD: Thank you very much Mitch and thank you also for your sponsorship of AsiaConnect and this conversation about China’s rise, its engagement with the United States and its impact not just on that bilateral relationship but China’s impact also on the Asia Pacific regional order and in turn the global order as well. For those participating in this AsiaConnect call from the Asia Society Policy Institute I’ll be referring in large part to the report I’ve just released in the last several days which is entitled, ‘US-China 21: The Future of US-China Relations Under Xi Jinping’. The subtitle is, ‘Towards a New Framework of Constructive Realism for Common Purpose’. If you wish to have that in front of the precise web address is ‘asiasociety.org/uschina21’. In this report I do a couple of things. The first is I try to ask some pretty basic questions about where China under XI Jinping is going and the nature of his leadership, China’s strategic perceptions of America, American strategic perceptions of China as well as the likelihood of conflict between China and the United States and if not conflict, how it will be that China reflects its own growing influence in Asia and the Pacific region as well as in the wider global order. The second part of the report deals with what I recommend as a series of policy courses of action to deal with these emerging challenges for the US-China bilateral relationship but more broadly how these two countries could cooperate regionally and globally. I offer a strategic framework or narrative for organizing these disparate elements of the US-China relationship for the future in a concept and in a form of language which I hope to be as meaningful for the Chinese as it is for our friends in America as well. The structure of my remarks will follow that broad outline. On the core question that I start with it is along these lines, if we are going to talk about rising China and the sustainability of Chinese power we must reach some conclusions on balance about the sustainability of the Chinse economic development model. People participating in this call will have read all sorts of reports across the world about whether the current Chinese growth rate is sustainable or not. Of course, China over the last 35 years since they began their reform program in the late-70s by-and-large have averaged annual growth of around 10%. In the last several years we’ve seen that average annual rate come down, first to 8% and now in the most recent numbers published 7.4% and now in what the Chinese describe as, “the new normal” around about 7%. The question being asked around the international financial and economic community, and the political community, is does this represent a steady incremental slowing of the growth rate or something more rapid than that and the arresting of long term sustainable significant growth for China. The conclusion I reach in this report having looked at all those factors working for the Chinese economy at present as well as the formidable range of factors working against that economy is that my judgement is that for the decade to come, through until the end of Xi Jinping’s period in office in 2022-2023, it is reasonable to assume that we are going to have a Chinese average annual growth rate of something north of 6%. One of the reasons I have come out with that particular conclusion is that 6% is essentially the internally deliberated on figure within the Chinese Leadership as to the minimum growth level necessary to sustain social stability. Therefore, if the natural economic growth rate was to present itself to the Chinese authorities as being anything significantly less than that I believe it is probable that our Chinese friends would intervene with fiscal or monetary policy stimulus in order to fill that growth gap. Furthermore, despite the formidable range of policy challenges facing the Chinese, my argument is that none of these policy challenges are meeting with a zero response from Chinese policy leaders. In fact, there is a battery of policy responses to cover anything from the shrinking of the labour market, the ageing of the population, the level of local government indebtedness, the declining contribution of net exports to GDP as well challenges to total factor productivity within the Chinese economy which now is running at lower rates than it did before. The Chinese have evolved policy responses to each of these and it is an open question how successful each of their responses will be. Nonetheless, it is wrong to assume that China is simply sitting on its hands and doing nothing. Which brings me to my third point with some degree of confidence about China is doing. That is, the sophistication of their policy elites. China’s economic managers have been developing expertize in running a sophisticated, complex, mixed economy like China for now more than 35 years. Most of their leading economic advisors have been trained in leading universities around the world – the Ivy Leagues here in the United States as well as the Oxbridges in the United Kingdom and the LSE and from my own country Australia Universities of Sydney, Melbourne, the Australian National University. When you travel to Beijing you run into these policy elites and they are as sophisticated as any other set of policy managers which you would find in any other sophisticated economy in the world. So for that set of points, and I emphasize this at some length, it is important not to fall into the trap of assuming – as for example David Shambaugh has done most recently – that China is in real danger of a form of economic collapse or political implosion as a consequence of economic collapse. I do not subscribe to that thesis, I do not believe the evidence suggests that. At the same time I am not Pollyannaish about the range of difficult policy challenges the Chinese face, but based on 35 years of observations when I have read multiple predictions of imminent Chinese economic and political collapse or implosion – parson me for being sceptical that it’s about to happen any time soon. That leads me to the next question that I seek to address in the report. That is, if we can make an assumption on balance that China’s economy will continue to grow and therefore given the significance of China’s economic power as a basis for its aggregate national power, how then is this likely to be reflected under Xi Jinping’s leadership of China? My view there is not that we should just assume it is business as usual. Xi Jinping is a different Chinese leader to those China has had in the past. He is extraordinarily self-confident, he has a clear sense of national mission and he has deep sense of personal and national urgency about that mission. He describes that as the ‘China Dream’, in other words to turn China a moderately well-off country by the time China reaches the centenary of the establishment of the Chinese Communist Party in 2021 and by 2049 the centenary of the founding of the Peoples’ Republic. His aspiration is to see China as a rich and powerful nation in the world. The Chinese term being [Chinese]. This has been an aspiration, I should say, in historical context that Chinese reformers have had for their country since the 1890s in the late Qing Dynasty when so many Chinese leaders of the time were scrambling for ideas about how to preserve the unity of their country against the pressures of foreign occupation and attack and then subsequently, in the case of the Japanese, invasion. Xi Jinping, in his mind therefore, has a blueprint. The blueprint, I’ve often described as one which is close to state-capitalism. That is a programmatic, market based, economic reform program which has been detailed in the decision of the 3rd Plenum of the Central Committee a couple of years ago. That’s the blueprint. People interested in understanding what that is should frankly get a hold of it and I think you’ll find some analysis of it on the Asia Society website as well. On the politics of his model, Xi Jinping sees no contradiction whatsoever between a market based set of economic reforms on the one hand to sustain long term economic growth as an underpinning of long term Chinese national power, he sees no contradiction between that on the one hand and sustaining centralized political control on the other. That is why many foreign analysts are confused by what appears to be the increased marketization of the Chinese economy on the one hand, yet an increased concentration of political power in the hands of the Chinese Communist Party and its leadership on the other. My job is simple to describe and, therefore, that is what Xi Jinping seeks to deliver over the decade ahead. It is important for all analysts to understand that Xi Jinping believes deeply in the continued historical missions of the Chinese Communist Party as the only political entity capable of holding the country together and delivering the sort of reform program which we are now discussing in order to make China into a rich and powerful country, and also at a personal level, guaranteeing sufficient levels of employment and sufficient increases in living standards to make that real to average Chinese citizens. Xi Jinping I should conclude in terms of his leadership style is also a person who has extraordinary personal authority, in this sense he is different from his two most recent sets of predecessors through the Hu Jintao period and the Ziang Zemin period where the doctrine of collective leadership was firmly entrenched based on Deng Xiaoping instructions coming out of the horrors of the Cultural Revolution. Xi Jinping also ascribes to the doctrine of collective leadership. What we might describe in the great Latin phrase of being ‘primus inter pares’. My observation about Xi Jinping’s leadership style is that he is much more ‘primus’ than he is ‘inter pares’. In other words, he is number one. This is important for us to understand in terms of how and by what means and with whom the United States or any other significant international interlocutor could engage China on the question of any significant change or changing of the dial in the bilateral relationship, the regional relationship or the global relationship. Xi Jinping has the personal authority to do that. Let me turn to the next question I pose in the report which is, if the Chinese economy is a driver of China’s international economic power we can assume is still going to grow at a reasonable rate into the medium term future, and if we do assume also that Xi Jinping is a new type of Chinese leader – self-confident with a clear vision for the country’s future, and a person who exercises extraordinary individual levels of authority – then the question that we now need to address is, given the above, what then is China’s overall strategic perception of the United States? Here I think it is important to understand what informs the Chinese strategic mind. Here I talk about the aggregation of perceptions and conclusions across Chinese policy elites over many decades, but sharpened most recently subsequent to the rise of Xi Jinping himself. I think the first thing that our Chinese friends assume about the United States is that the United States will not simply sit on its hands and allow China to in anyway supplant it as the number one global power or the number one regional power in Asia. The Chinese have a deep, realist view of these things and they conclude, therefore, that when it comes to political power that the United States will not surrender its position readily. As a consequence, the Chinese in their deepest internal strategic dialogues take that as a given. More disturbingly in recent times, over the last twelve months, China has formed a broader view about the operations of American strategy towards China which they sought to summarize internally into five core points. Namely that the United States was pursuing an operational strategy designed to (a) isolate China (b) contain China (c) diminish China (d) internally divide China and (e) sabotage Chinese leadership. From a Western point of view, we might regard that as something of an absurd set of conclusions. However, when you look at reality through the lens of Chinese strategic perceptions and from their perspective when you begin to aggregate such things as the pivot or rebalance to Asia by the United States announced three years ago, the array of US alliances confronting China in Asia across North-East and South-East Asia and Australasia, when you look at the nature of the US Pacific Fleet operations across the Western Pacific and when you look at the expanding number of military partnerships short of alliances between the US and other regional countries including Vietnam and on top of that observe America’s proposal for a Trans-Pacific Partnership, a new free-trade deal for significant economies in Asia but at this stage excluding China. The Chinese take all these as evidence points towards the five point conclusion that I referred to before. I think therefore that is important for us to have a very realistic view about what China’s view is of America’s perceptions of China. The other question I’ve sought to address in this report is, given that, how then does America view strategically China and its own aspirations? Therefore, I believe that it’s important for us to recognize that American strategic perceptions and conclusions are of a different nature. Not only does America and its policy establishment reject each of the five propositions I’ve just referred to before by the Chinese, most particularly that concerning containment or any effort by the US administration to undermine the Chinese administration from within. Those in Washington conclude to the contrary that China’s operational strategy but not its declaratory strategy is to push the United States out of Asia. Hence if you look at the operation of China’s economic diplomacy and most recently initiatives such as the Asian Infrastructure Investment Bank, these are initiatives designed to entrench China’s position within the region, create a locus of economic power within the region quite separate to that of the United States. Furthermore, when you look at evolving Chinese concepts of regional architecture in Asia, our friends in America conclude, that most of the proposals put forward from Beijing exclude the United States. In other words, the American strategic conclusion remains that whatever China may say what it in effect is doing is pursuing a policy aimed to see the back of the United States as a significant actor in international security in the decades ahead. Furthermore, the American conclusion being that China instead seeks to create a zone of strategic influence for itself across the region. A few quick concluding points on this analysis before we begin to open to questions. We need to ask, well given the above and the dangers which present themselves from history, particularly those who we might describe in international relations literature as the Thucydides Trap – that is where you have a rising great power beginning to challenge the status of an established or an existing great power, historians tell us that in 12 of 15 cases studied in history that in fact over that last 500 year period that in those 12 cases the result has been crisis, conflict and debilitating war. Therefore, the question we’re posed with is given what is emerging between China and the United States in the security domain, is that likely to be replicable in terms of the armed forces and the command structures of both these countries as well? What I say in the report is that in the decade ahead this is highly unlikely. The reason being that it is not in the strategic interests of either country for this to occur. It is not impossible but it is highly unlikely. It is not impossible and the simple reason is you could have an incident between aircraft or vessels, between the Chinese or American armed forces where planes collide or ships collide and/or they crash and/or they sink. Poor crisis management and heightened levels of nationalism perhaps leading to a less than controllable incident between the two sides. Fortunately, the protocols for managing such incidents between the Chinese and the United States have been the subject of recent and significant improvement. Nonetheless, it cannot be removed entirely from the calculus. More worryingly, however, is the possibility of such conflict – accidental or designed – between the armed forces of, say, Japan and China over outstanding territorial disputes in the East China Sea. Until recently there have been no protocols between Japan and China for the management of such incidents. However, having noted those two possibilities I emphasize again that it is highly unlikely, it is unlikely in the extreme that there is any significant possibility of armed conflict between China and the United States in the decade ahead. Furthermore, from China’s perspective, they conclude that any such crisis, any such conflict, any such war would be contrary to its own national interest given the centrality of its own domestic economic transformation project. I think rather than continue this discourse on the matters I have addressed in the report what I would summarize with before going to question and answer is as follows. Number one, if you look at the thread of the analysis contained in my report it does, however, lead us to a conclusion in the absence of the development of a common policy narrative between China and the United States both bilaterally, regionally and globally that there is a scenario not in the decade ahead but perhaps beyond that perhaps we start to see a fundamental strategic divergence between China and the United States. We begin to see fundamental divisions within Asia between countries that line up with China on the one hand or with the United States on the other. And we begin to see this divergence also reflected in both countries’ approach to the existing global or rules based order and any changes which countries like China may seek to make to that order. That is why in summary in the report I spend a considerable amount of time outlining what I’ve described as a ‘new common strategic narrative’ for the two countries – what I describe as ‘constructive realism for common purpose’. The realism is that China and the united States need to recognize at the level of the two countries’ leadership – the Presidents – that there is a list of six or seven items that are, frankly, too difficult to resolve because the realist divisions between that at the moment are too great to manage in the direction of a sustainable solution. Questions such as arms sales to Taiwan, questions such as the East China Sea, the South China Sea and others. These are outlined in the report. The report also goes to not just the realist conclusions but also what can be done constructively in areas of common engagement between the US and China in the hope that these common engagements can build strategic trust over time. Bilaterally, projects such as the conclusion of the bilateral investment treaty between the US and China. Regionally, a conclusion that these two countries should begin to embark upon the development of common regional institution building such as the evolution of the existing East Asian Summit into something that we might call in time an Asia Pacific Community to manage regional tensions down rather than simply allow them to explode upwards. Finally, globally, taking the good agreement reached by Presidents Obama and Xi Jinping in Beijing last November on climate change, trilateralizing that with India in order to build a much more fundamental coalition of the policy willing on climate change in order to contribute to not just an effective conclusion at the Paris Conference of the Parties in this December but more broadly and most critically on bringing about sustainable greenhouse gas reductions into the future. The common purpose which I outline in the report is how these two countries can draw upon the diplomatic capital, the political ballast, by these cooperative areas of engagement bilaterally, regionally, and globally to draw upon the strength which comes from that level of cooperation in dealing with the residual, historical big problems in the relationship which I referred to earlier but at the same time realising that they have deep underlying, fundamental and continuing interests as great powers in the world of the 21 century to in fact strengthen the global rules based order together. The challenges against that order at present in the form of global terrorism, in the form of global challenges to cyber security, in the form of global challenges in pandemic diseases, also global challenges to climate, global challenges to food security and water security presenting sufficient external challenges to the continuation of an order altogether. But these begin to assume a larger significance in the minds of strategic planners in Washington and Beijing than those things that have historically divided the two. The framework that I’ve put forward is detailed in the report and I would commend it to your attention to reflect upon the recommendations I have made. 21 policy recommendations for the 21st century in US-China relations. Of course, it is up to those in Washington and Beijing whether they choose to read this or not and, if so, whether they choose to do anything about it. I look forward to our question and answer session now. EISENMAN: Thanks so much for those incredibly insightful remarks. Before we begin taking questions from out listeners I’d like to invite Mitch Julis to ask the first question. JULIS: Thank you, thank you very much Kevin for your remarks. I know that your focus has been on the United States and China in your analysis and recommendations. I would like to ask a question concerning how major players in both Asia and Europe, and beyond that, could affect the ability to reach a working relationship over this decade and beyond that? For example, what role or what problems and challenges could Japan pose given the historical alliance between the United States and Japan in our relations with China? Also another interesting challenge will be out of Europe, for example if Greece is pushed out of the Euro-Zone and Russia and China to financially support Greece, would China be so bold as to strike up a military alliance in return for that financial aid with Greece upsetting the whole geopolitical stability? So both those two actors, Greece and Japan, acting out of their own interests, how does that and other kinds of factors in that sense affect the ability of the United States and China to develop a balanced relationship? RUDD: Thank you Mitch for an excellent question. I believe the central pivot in the strategic stability in the region and the world for the next several decades through to mid-century lies in the dynamics of the US-China relationship in itself. Though I’m a former Prime Minister and Foreign Minister of Australia and we have our own national interests engaged in this question, the truth is that the two principle players are in Washington and Beijing and therefore the central importance of these two players having a common strategic narrative within which they can operate to prevent some of the things that you’ve just referred to before from happening is, in my view, fundamentally important. That’s why I suggest an overall strategic framework, a narrative, between the two which is capable of embracing deep differences on the one hand, but where there are sufficient commonalities of interests and values to act together, on the other. To go to the specific regional examples you gave of where this could all come apart, firstly on Japan. One of the recommendations that I put into the report is that, frankly, the time has come for us to try to put to bed, 70 years after the conclusion of the last World War, the residual impact of that war on the strategic thinking of both Tokyo and Beijing towards each other. Because in the absence of the resolution of that I fear that it will act as this permanent cloud over many of the other things that we seek to do collaboratively in the Asia Pacific region. One of the reasons I have a recommendation in the report concerning this is because I believe we need to heal this wound fundamentally from the times of the war, it affects the relationship between Japan and China, it affects the relationship between Japan and Korea and because of that it has the capacity to therefore infect broader relationships in the wider region and our capacity to put history behind and to craft a common future. So given the Chinese concerns and Korean concerns about Japan’s war record are so real and so readily transparent, one of the recommendations I make is that it is time for the United States and the former Pacific allies as they were in 1945 and the Japanese to work together to a common conclusion as to the causes of the war and the need, therefore, of a definitive and continuing text on the content of a Japanese apology which can be therefore entrenched into the historical record for the future. If we continue to beat around the bush on this and continue to avoid it because it is all too hard, frankly, this is going to remain a fundamental toxin in the Japan-China relationship which will affect all the rest of us including the US as well. The other point you make about Europe, I think we need to bear in mind that our Chinese friends also have a deeply pragmatic of where they are likely to invest their funds, how they are likely to deploy their considerable amounts of both state wealth and capital and private investable capital around the world. I don’t see a whole lot of evidence so far of the Chinese wanting to throw money around the world loosely unless it is in direct pursuit of national investments which make a reasonable return to the Chinese state or the Chinese investor concerned. So one the question of Greece that you raise, I stand to be corrected, but China already has significant assets in Greece – I think a Chinese port authority currently owns the port of Piraeus, that’s been an investment that has been held for a long time. The Chinese Silk Road initiative and Maritime Silk Road initiative seeks to connect South West and Western China across Eurasia and across Southern Asia back to the historical markets of Europe including Greece. I think it is more within that framework that you’re likely to see the evolution of Chinese strategic economic interests in Europe and in the countries that separate Europe from greater China itself. JULIS: Thank you very much Kevin. EISENMAN: Let’s go ahead and take the next question. OPERATOR: Thank you very much, our first question comes from Hank Wang from the China-EU School of Law. Your line is live. CALLER: Hi Kevin, thank you very much for the excellent lecture. I totally agree with you about what China thinks about the US, the five points. It’s always about conspiracy in the minds of the US. If you are talking about building the trust by mutual engagement, how can that – you know, the US has been doing this all along and then I recall when President Obama first came into office he reached out to the Chinese Government in asking that we should set up some kind of a G2. The two countries should deal with the global challenges in some kind of a common narrative, as you propose. So what’s the difference? Are you suggesting a similar approach as the G2 or this kind of thing? How do you think that we can change this mutual strategic distrust that’s deeply in the minds of each side and also do you think Russia would play a role? It seems that – RUDD: Just let me respond to that. I’m fully aware of the challenges that have confronted this bilateral relationship in the past. Particularly, aware of what China and the United States are currently doing together and one of the things that the states are currently doing together is just a massive volume of education exchanges, particularly on the part of Chinese students going to America. So the bottom-line is what I’m recommending here is a sufficiently broad conceptual framework which says that there are realist differences, let’s acknowledge them, let’s list them and let’s manage them. Look, G2ism which you referred to before, I think the world is either looking for G1 or G2 but I think we are concerned about G0 and as a consequence, when you’re looking at challenges to the regional and global order we do need principle players to be directly and consciously engaged. Secondly, the framework I’ve put forward is to be an organizing principle which is capable of tolerating difference and significant difference while advancing cooperating endeavour in a whole bunch of policy domains many of which are very difficult, these are not Polyannaish and my argument about strategic trust is you cannot issue a declaration saying you’re going to have strategic trust existing as of next Monday morning at 9am, it just won’t happen. What you can do, however, is grow strategic trust over time based on one step at a time. Of the 21 recommendations I put into this report on the US-China relationship for the 21st century, if we start implementing one, two, three or four of those and in six or twelve months there is measurable progress in each of these the consequence is – like any personal relationship – that the trust builds over time. That’s the basis of my recommendation. EISENMAN: Thank you Kevin for sharing your insights and thank you to all our callers for joining us. On behalf of the Asia Society Policy Institute let me again thank Mitch Julis for his support of the AsiaConnect series. Everybody have a great day. RUDD: Thank you everybody and thank you for participating in Asia Society AsiaConnect here at the Asia Society Policy Institute and to you Mitch for providing your important support for this conversation to occur.