In Conversation with Thierry de Montbrial | Institut français des relations internationales
E&OE TRANSCRIPT
Thierry de Montbrial, Founder and Chairman of Ifri and the WPC
I would like to thank you very much, Kevin. We would have preferred to have you with us, but it was not possible this time. I will just remind our friends that you are well known of course as a former Prime Minister of Australia, as well as former Minister of Foreign Affairs, but you are currently the President of the Asia Society Institute and one of the most famous expert on China. I am going to give you the floor immediately because we want to hear your views on the political situation in China and the interface between domestic politics and international affairs. We just had a general panel on Asia with a variety of different views on what China is up to, its leader Xi Jinping and his foreign policy goals in the short, medium and long-term. The floor is yours and we are eager to listen to you.
Kevin Rudd, President of the Asia Society Policy Institute, former Prime Minister of Australia
Thank you very much, Thierry. Let me spend 10 to 15 minutes on one question, which is what is Chinese domestic politics looking like between now and 20th Party Congress at the end of 2022? Secondly, what does Chinese economic policy look like in that period given all the recent publicity about the return to socialism? Then thirdly, what does that mean for the long-term trajectory of Chinese foreign policy and strategic policy? I am going to spend about five minutes on each of those and then let us have a discussion.
On Chinese domestic politics, I think it is fair to say that Xi Jinping has moved the center of gravity of the Chinese Communist Party further to the left during his nine years in office. We see this of course in terms of the reassertion of the centrality of the Communist Party in every element of Chinese governance and in Chinese life as well as the assertion of himself as the Supreme Leader within the Communist Party. We also see it in a range of crackdowns against his political opponents through a series of Maoist-style Party rectification campaigns, of the type used by Mao way back in Yan’an in 1942. This, together with the anti‑corruption campaign, has been the means by which he has sought to eliminate any critical opposition against himself from within the leadership echelons of the party. As a consequence, if you look at the combined impact of these measures over the last nine years, it is quite a different set of Chinese politics now than we had very much at the end of the Hu Jintao period in November 2012.
Of course, one of the reasons Xi Jinping is doing that is ideological and as I have said to many analysts, Xi Jinping is fundamentally a Marxist-Leninist. As a consequence, he will not ultimately tolerate any diversity of view that undermines the centrality of the Party’s position as the Leninist vehicle of the Chinese revolution. In other words, he is contracting the private space for political dissent and contracting the space for the entrepreneurial class and the private sector. He is also contracting the space for what you can do in your normal lifestyle, with for example, restrictions on the gay and lesbian community in China; there are new restrictions on the number of computer games you can play, when you can play them and what their content should be. Ideology and the central role of the party has been a principal motivation for this move to the left.
However, this is also individual and political. That is, he seeks to acquire the reelection of himself as General Secretary at the 20th Party Congress and reappointment and as China’s President the following March. That is all about 12 months from now so there is quite an intensive political campaign by him against any would-be opponents to that extension of his term in office. In my view, he would like to see that term in office extended through to about 2035.
I said I would also address where Xi Jinping is going on the economy. Parallel to what I just said, the move to the left on the Chinese political spectrum has been matched by a move to the left on Chinese economics. We have seen this in both the ideological domain and the new configuration of concepts of China’s New Development concept, as a replacement concept for Reform and Opening. We have seen it in China’s new doctrine of the Dual Circulation economy, which is code language for greater national economic self-sufficiency and self-reliance and less dependency on the international market. Third, we have also seen it in the contracting space for the private sector and a reassertion of the role of the state-owned enterprise sector. Part of that is a new domain for Chinese industry policy that is state intervention in driving the new mega-corporations of the future in the new technologies of the future. All these shifts have occurred at much the same time as we have seen those unfolded in politics. Although the moves to the left on the economy did not start back in 2013. In fact, we have seen them intensify since 2017.
What are the motivations for that? Once again, it is ideological. Xi Jinping wants to see the reassertion of the Party-state. He does not like Chinese billionaires becoming the role models for China’s youth for the future. He also believes that to hold onto power he must see bigger wealth redistribution to China’s working classes and lower-middle classes. He also believes that this is all necessary in order to deliver the long-term realization of his national ambition for China to become a global superpower by 2049. He believes that that can only happen as a consequence of the state driving this.
Of course, this is a shift in the economic model from 35 years of reform and opening to what Xi Jinping now calls the new national development concept driven by greater reliance on the party-state within the middle of it rather than the private sector. The problem with this is whether this whole model and experiment will work or not or whether as a result we will see China’s animal spirits having been crushed and whether its economic growth numbers will start to come down. Right now, we are in this process of change and it is too difficult to predict how it is going to land. This new direction was articulated most clearly in the 14th Five-year Plan, which was promulgated by the Party in the country in March of this year. Much of what I have just described is articulated in the pages of the Plan, which of course is then taken down to the provincial and sub-provincial level.
Given that the private sector represents 60% of GDP and some 90% of all Chinese innovation, and of course 80% of all China’s employment generation, there is a question as to whether this move to the public sector, to the state‑owned enterprise sector, to the industry policy drivers of China’s “guided market” model now, there is a real question of whether this will actually backfire.
The last thing I wanted to spend four or five minutes on is what this all means in terms of China’s foreign policy and strategic policy. If I can put my summary position,it’s a bit like this: Xi Jinping has taken Chinese politics to the left for the reasons I have explained. He has taken economic policy more recently to the left for the other reasons I have explained. But at the same time, he is taking Chinese nationalism to the right and that is a reflection of his desire to have a more assertive Chinese foreign policy and to realize more foreign policy goals in the short to medium-term rather than the medium to long-term. It is also because Xi Jinping realizes that domestic nationalism provides another pillar for domestic political legitimacy for the Chinese Communist Party as well.
In the past, political legitimacy for the Chinese Communist Party, given that they do not have elections, proceeded from three pillars. One is traditional Marxist-Leninist ideology within the Party and all 95 million members of the Party. The internal orthodoxy, the internal language of orthodoxy and practice of that orthodoxy provides legitimacy in the eyes of the Party for its continued role, and also those who would voluntarily support the Party’s ideological mission. The second pillar of orthodoxy during the Deng Xiaoping period, given that Party ideology collapsed after the Cultural Revolution, was what happened with Deng’s economic transformation of the last 35 years. The new pillar of legitimacy was prosperity and, as prosperity rose, not just for the country but for individuals within it, then so the Communist Party was seen as delivering the goods. However, the third pillar of legitimacy has been nationalism and rising Chinese national power and the assertion of that power, particularly against the United States and Japan, as well as other members of the so-called West. This is becoming more important as a pillar for legitimacy as a question mark begins to rise over China’s slowing economic growth rate, the actions taken against the Chinese entrepreneurial class and whether in fact the economic miracle of the last 35 years may begin to slow down and deliver less in the future than it has in the past. That makes nationalism more important.
What does it mean in practice? It means that in the next decade, assuming that Xi Jinping is reappointed, we will see a progressively more assertive China over Taiwan, the South China Sea, the East China Sea, over its policies with its 14 neighboring countries. You will also see a more assertive Chinese international economic policy, a more assertive position by China in the international rules-based order and China seeking to enhance its position within the UN system, within the Bretton-Woods machinery, and also with new multilateral institutions that China itself creates.
Where will that land us by the end of the decade? I think we should not anticipate any early move by China against Taiwan. That is not because China has eschewed the use of force but because China believes that the balance of power will be more to its advantage against the United States by the end of the decade rather than at the beginning. The case is similar with the South China Sea and with both Japan and the US in the East China sea. I do not see any immediate flashpoints in the next year or two in any of these important theatres. However, I do see flashpoints emerging towards the end of the decade as the balance power slowly changes unless of course, the Americans can arrest that balance of power and partnerships with allies in this part of the world.
Thierry, I have spoken now for just under 15 minutes on Chinese politics, the economy, nationalism and its impact on Chinese foreign and strategic policy; I am happy to take any questions you may have.
Thierry de Montbrial
Thank you very much Kevin for this extremely clear statement. I have two simple questions for you. First, the economic political model of China – and I say economic political because, politics, the Party is everywhere – is it viable from an economic viewpoint in the long-term? It is a very important question because if the answer is positive, it would mean that the Western capitalist approach to economics, or to economic development, would not be the only possible one. That would be the first time in modern history that we have a real alternative model. The Soviet Union failed because of its inability to solve the economic problems within its political framework. Do you have some clear views on this very basic question?
I will put my second question at the same time because domestic and foreign policy are interrelated here. My second question is something we discussed briefly in the previous session. The traditional Chinese approach to strategy is in the spirit of Sun Tzu, which is to win without having to wage a war. In that sense, strategic patience could be enough to resolve the Taiwan problem. On the other hand, it is a fact that Xi Jinping has clearly and openly stated a number of times that the Taiwan problem would be solved during his mandate. Nobody knows exactly how long that will be but if we take him at his word, that means that in the next few years he wants the Taiwan problem solved. There is a contradiction there and my question is how do you explain the risk Xi Jinping has taken by being so assertive and precise in terms of the timeframe on Taiwan?
Kevin Rudd
Thank you, Thierry. I will take those in sequence. On the question of whether the economic model will work, the honest answer is that the jury is out. You are right to say that this is a very large gamble by Xi Jinping that China has found a new path to development, to overcoming the middle-income trap, without further liberalizing the economy or politics. In fact, within the economy itself, and you are right to call it the economic political model, Xi Jinping has been quite explicit about his formulations on this. He has said that China is now embarked on a period of a guided market economy - no longer a market economy or a socialist market economy, but a guided market economy. It is a new term. The mechanism for the guidance, for example, is the massive injection of industry guidance funds into the economy driven by state-owned enterprises, against the strategic definition of core innovation driven industry sectors for the future.
You are from la belle France and I know well the importance of l’état within the French economic development model, but this is something that is 10 times as big in scale and in relative scale to anything that our friends in France would have experimented with before, and it is to be driven by state-owned corporations. It is big. They can see that it is different. They also see it as the third phase in China’s socialist model evolution after the failures of the pre-1978 period, the capitalist excesses of the post-1978 period, we now have the moderation into the Xi Jinping period into a guided market economy with greater common prosperity. Of course, in Europe and the West we are familiar with the whole debate around the troisième voie in terms of capitalism and social democracy, and socialism. This is different because the debates in the West between capitalism, socialism and social democracy were within a liberal political system, a democratic political system. This is within an authoritarian political system.
The only thing I would say in terms of definitive political analysis of whether or not it will succeed is from reading the most active students of China’s economic development model in the international community today, like Nick Lardy at the Peterson Institute in Washington, and Barry Naughton, who I think is at the University of California on the US west coast in San Diego. If you read carefully what they have written in the last 12 months, they are skeptical about whether this can work. These are scholars not polemicists or classic think tankers as such, they are analysts of the Chinese economy. They are skeptical as to whether Xi Jinping can continue to generate the productivity growth necessary to actually engender long-term sustainable economic growth in China to break through the middle-income trap without falling victim to the economic and financial burden of an aging population, a shrinking population and shrinking workforce participation rate.
That is my attempt to answer the first question and I will be very brief on the second. On Taiwan, I do not think that Xi Jinping wants to go to war over Taiwan any time soon. I think he is very cautious. You just referred to Sunzi bingfa and article one in the Art of War, which Sun Tzu wrote, says that "War is a great matter of state which must be studied carefully, because if you lose a war, you lose the state". That is etched into the cerebral cortex of most Chinese leaders and as a consequence they take a highly cautious approach to the conduct of war. In my judgment, Xi Jinping intends to political leader of China through until 2035 and by that stage he will be 82 years old, still younger than Deng who retired from active politics around the age of 87. For those reasons, I suspect that his career planning personally and the strategic patience necessary to engender a bigger balance of power advantage for China during the course of this decade, would still enable him to threaten and, if necessary, take military action by the end of this decade or early in the 2030s to achieve his objective with much greater certainty of success than would that be the case anytime soon. I will leave my comments there.
Debate
Thierry de Montbrial
Thank you very much. We have time for maybe two questions.
Nicolas Véron, Senior Fellow at Bruegel, Senior Fellow at the Peterson Institute for International Economics
I was impressed by your presentation of the shift to the left of Chinese economic policy, which you dated back to 2007 and the point you made, if I heard correctly, that Xi Jinping is departing from the previous strategy of reform and opening up. I would like to ask you about the Chinese application to CPTPP, which on the face of it and rhetorically appears very aligned with reform and opening up. In the previous panel, if I am correct, we heard Marcus Noland of the Peterson Institute saying that he took the application seriously and expected it to succeed. We also heard Ambassador Lee of South Korea taking essentially the opposite view, which is that the application was just for the sake of applying but not for the sake of joining CPTPP. I would like your view from both the geographical standpoint and your experience. Is China serious about joining CPTPP or is just for show?
Kevin Rudd
Thank you, that is an excellent question. I think what we face with China on trade policy is China recognizing that it has a window of opportunity given protectionism within the United States Congress and the unlikelihood of the United States re-embracing the TPP anytime soon. That is even though, for example, my think tank, the Asia Society, has recommended that the administration begin to do so sectorially through a recent piece written recently by my Vice President, Wendy Cutler, the former Deputy US Trade Representative. You can find that on the Asian Society website, and it was published in Foreign Affairs magazine three or four weeks ago.
The Chinese estimation is that American domestic policies will prevent them from moving either comprehensively on the TPP and will probably impede them from doing so segmentally. I do not see that as just for show; I see this action by China as a bit like occupying a geo-economic vacuum created by a still protectionist America and to underline to the world that protectionism did not die with Donald Trump but continues today. That is at a level of international political symbolism. On the substance of it, I believe that the Chinese are serious if they can get away with it. The reason I say that is that this has been the subject of enormous internal analysis by Chinese think tanks since the TPP was first mooted, in fact at the end of my own period in political office. I had long discussions with President Obama at the time that the TPP was the natural economic pillar to what was then described as the American pivot to Asia. You would have the geopolitical pivot but, minus an economic pivot, frankly it would ultimately fail. For those reasons, the Chinese have been researching this possibility for themselves for the better part of the last five years. And the Chinese do not usually put up their hand for fun; they usually put it up with deep strategic purpose.
Will the Chinese actually succeed in being accepted? The current reorientation towards the left on economic policy makes China more protectionist at home and more mercantilist abroad, more interventionist at home on behalf of the state and less yielding to international market principles abroad. China is also continuing to cross-subsidize its major global state-owned enterprises now with massive injections of state industry funds, not marginal but massive, the equivalent of 10% to 15% of GDP, 1.5 trillion in dollar amounts. In those circumstances, I think it would be very hard purely at an analytical level for the open economies of East Asia, like the Republic of Korea, Japan and Australia, to say that China should be accepted. Of course, the critical decisionmakers here will probably be Japan and I think Australia. The current conservative government in Australia has already indicated that they would not support China’s accession. That is partly a product of the policy of economic coercion currently being adopted by China against Australia, but I think it also reflects a wider view across economists that China is now less amenable to a definition as being a market economy than it was when we granted China market economy status back in 2001-2002 in order to gain accession to the WTO. Therefore, on balance I am skeptical. But the open question is whether the prospect of TPP membership would enable the remaining economic reformers, who are now in the minority in the Chinese system, to regain a platform and a position of power. This would be in the same way as happened after China re‑entered the WTO or had the prospect of entering it 20 years ago, so that they could leverage more ambitious market reforms than would otherwise have been possible.
Thierry de Montbrial
Thank you very much. We are already over time, but I will briefly take two last questions from Karl Kaiser and Igor Yurgens.
Karl Kaiser, Senior Associate of the Project on Europe and the Transatlantic Relationship, Belfer Center for Science and International Affairs, Harvard University
As you contemplate the geopolitical structure that is emerging, could you share with us your views on how you see the role of Europe, besides the UK, France with its Indo-Pacific position and the European Union?
Igor Yurgens, Chairman of the Management Board of the Institute of Contemporary Development, Vice President of the Russian Union of Industrialists and Entrepreneurs
Thank you very much, Kevin, for an excellent analysis. Assertiveness at home means assertiveness abroad and that means proletarian internationalism and building up the blocs. The Shanghai Organization of Cooperation, the role of Russia in extending authoritarianism against liberal democracy, what do you think about that and where Russia steps in to help Xi Jinping to assert himself?
Thierry de Montbrial
If you will allow me Igor, your first question is closely related to mine about the two sides of capitalism. Anyway, Kevin you will conclude, and I will add a footnote, are you welcome in China anymore?
Kevin Rudd
Moi? Je crois, pas de problème.
Thierry de Montbrial
You can get a visa?
Kevin Rudd
Yes. I have a continued visa and I speak with Chinese think tanks all the time and in open forums with the Chinese Foreign Minister and various other Chinese ministers. I use my think tank capacity to do that whatever the current state of relations may be between the Australian conservative government and the Chinese government. I defend my autonomy, independence and freedom of travel and maneuver. As you can appreciate, Thierry, it becomes more and more interesting.
Igor, thank you for the question. It is always good to have a great, provocative Russian question at forums like this, which is why I always enjoy my times in Moscow and Petersburg and elsewhere, Vladivostok in recent times. Let me put it to you in a slightly different way and I am not trying to be provocative here, rather to explore a question. I think the American policy failure in Afghanistan is being quite damaging for American global prestige. That is my serious analysis and as someone who as Prime Minister of Australia loyally committed Australian troops to Afghanistan over a long time period of time, as did the French Republic and others. However, the emerging challenge in Afghanistan is China’s predisposition to have growing influence in Central Asia and Afghanistan as well, while not making the mistake, as they would see it of the former Soviet Union and the United States, in becoming so domestically embroiled in Afghanistan that there is no way to exit. However, China has a number of economic interests to pursue in Afghanistan, not least in minerals and at a very large scale. The open question is: can the Chinese prosecute a modus vivendi with the Taliban, which has alluded all previous external powers? It is an open question given that you know, Igor, the Taliban is not a single entity but a multifarious one. However, I make a broader point here in terms of the Russian Federation, China through both the Belt and Road Initiative and through its new Afghanistan strategy, will become a bigger and bigger geostrategic player across Eurasia. As an analyst not a politician, the question I have is at what point does that frankly create a fundamental tension with Moscow? I know that Vladimir Putin’s relationship with Xi Jinping is very good, but I am looking at the structural dynamics of where this takes us over the next decade and a half, as China rises in Central Asia, BRI, Digital Silk Road plus Afghanistan and the rest.
The second response is to the point raised about the role of the European Union and Europe more broadly. If I got the question right, that is in relation to China strategy. I have a view about this which is not shared by the current conservative government in Australia apparently and that is that Europe matters in a fundamental way. I say that not because I am a Europhile - as you have already heard, I speak very bad French - but the truth is that when the world is looked at through the lens of Beijing, they see a number of loci of power; they see primarily the United States and its Pacific allies; then they see the European Union led by Germany and France; then they see Mother Russia for historical reasons going back to Peter the Great, the whole problem of the non-resolution of the border until frankly Gorbachev and Deng; and also a combined community of interests with the United States. Therefore, in many respects geopolitically, Europe and the European Union represents the swing state in terms of China’s perception of global geopolitics for the next decade. Therefore, where Europe goes is really important. One of my big critiques, for example, of the Australian government’s recent handling of the so-called AUKUS arrangement, including the unilateral cancellation of the submarine contract with France and the French provider, is that it completely ignored the significance of France and the European Union in the future direction of global, as it were, China strategy. If Europe, led by France and Germany, is in the Indo-Pacific, that is better for all countries in terms of re‑establishing a future balance of power with China. To ignore Europe and to ignore and frankly insult France, in fact heads in the reverse direction. On this question, my view is that Europe is central to this equation. It is the swing state, maybe not in pure military terms, but I think it is the swing state I think in foreign policy terms and certainly in global economic terms. I will leave it there.
Thierry de Montbrial
Thank you very much, Kevin. I think we will stop here. Best wishes and we all hope to see you soon in person somewhere.