Kevin Rudd on U.S.-China Relations in 2019

good morning today in Washington DC the United States and the world marks the passing of President Bush Senior President Bush Senior was a truly remarkable president for those of us engaged in the business of the world the first Gulf War the end of the Cold War and the reboot of the us-china relationship in the early 90s after the implosion of 1989 President Bush Senior was a truly remarkable American a truly remarkable American president and we honor him this day over the last 12 months much of Asia has turned on its head through the new dynamics we witnessed in us-china relations and on North Korea it was only 12 months ago that the u.s. and North Korea appeared to be on the verge of armed conflict as Rocketman was threatened by President Trump with fire and fury over the North's continued nuclear weapons program that was only 12 months ago 12 months later President Trump and President Kim appear to be the best of buddies following their historic summit in Singapore and despite the fact that there seems to have been negligible substantive progress on denuclearization the Thor in inter-korean relations has been unprecedented 12 months ago President Trump had just returned from his state visit plus to Beijing where it seemed Trump's anti-chinese rhetoric of the 2016 campaign had finally been put to bed for 12 months later China in the US and now in the middle of a still unresolved trade war while the administration has declared America's 40 year long era of strategic engagement with China's now over and a new period of strategic competition has now begun 12 months ago the American European and Chinese economies and markets were roaring whereas 12 months later they were beginning to slow or be it for different reasons causing concerns about the sustainability of long-term growth employment and income levels if a week is a long in politics and I know from my experience it is in international politics in economics a year is an eternity and China remains the dominant driver and all three of these major unfolding challenges and changes that I've just referred to during the course of this year we've been all wrestling with three big questions how is China changing under siege in ping how is America changing under Donald Trump and to what extent have the traditional moorings of the us-china relationship the last 40 years now been severed in which case what if anything can now anchor the relationship into the future in other words are we now as Graham Allison warns us destined for war either cold medium or hot or is it a new strategic equilibrium now possible between the two based on a new common strategic narrative for the relationship which can be shared and observed in both capitals the truth is friends these are genuinely hard questions ain't any easy answers to any of the above anyone who says there is they've been drinking something and I'd like some of it these questions force us to think clearly about one another through the fog of perception and misperception they force us to think clearly about our values our interest in our identity they force us to think through carefully what is essential what is non-essential where there should be compromise and what should remain contestable I do not intend to answer each of these questions today because they require further thought although I'm deeply conscious of the fact that they must be analyzed and answered soon because we're now in a potentially dangerous terrain some sort of no-man's land between one set of strategic assumptions about each other that have stood for several decades and a brave new world where everything may be up for grabs I don't like brave new worlds over the last 12 months we have however made a start in a series of addresses aimed at analyzing core aspects of the collective challenge we are facing in March I spoke at West Point on the question of what does Xi Jinping want while in June at the Lee Kuan Yew School in Singapore I began to analyze the Marxist origins of Xi's emerging well view in September I spoke at Annapolis at the Naval Academy on America's response to Xi Jinping through its new declaratory doctrine of strategic competition and posed a series of questions to be answered by US policymakers as they seek to operationalize this strategy I've also spoken in Silicon Valley and what strategic competition might look like if allied to a high-technology war between the two countries and most recently in Jakarta I've sought to analyze where this emerging strategic cleavage between Washington and Beijing what that means for Southeast Asia which has now become the new great game of for strategic influence in the world as a Zeon itself continues to hedge against a rising China and what is perceived to be an indifferent uncertain and potentially unreliable America we need to also analyze other regions with the similar frame including Africa Eurasia the Middle East South Asia and Latin America there are commonalities but also differences between them all and we need to understand both in my remarks today part of the same series I want to look at the state of the relationship at year's end in the aftermath of the Buenos Aires summit the impact of the continuing trade war on China's unfolding domestic economic policy debate I believe this to be important and where that may lead in the future as well as one of the prospects for the overall us-china relationship for the year ahead Henry Kissinger enjoins us in strategic analysis to understand first and foremost what are we actually seeing unfold before us and to ask ourselves the question what are we also not seeing or at least not seeing clearly all before as Henry would say going on to the critical question of policy of what then is to be done the Buenos Aires summit what President Trump and Xi Jinping did in Buenos Aires was by time no bad thing three months worth in fact which is good when measured against the alternative which was a full-blown trade and broader economic war between the two countries starting next month I'm all for a three-month stay of execution and any in agreement which met which may come out of it any outbreak of a trade and economic war also had the potential to trigger a further collapse in global market sentiment particularly coming on the back of other negative trends emerging both in the US and Chinese domestic economies but even for those of us who have been arguing publicly for some time that on balance a deal of some sort between the Chinese and the Americans was more probable and not as Shakespeare reminds us one swallow does not a summer make much can unravel both Trump and XI have indeed bought valuable though limited time for themselves and the world albeit for a number of quite different reasons to begin with there are five complex baskets of policy disagreements to work through first the annual current 370 billion dollars bilateral trade deficit which needs to be reduced then there are the possible cuts to tariff rates themselves the Chinese average tariff rate currently stands at nine point eight percent compared with the American average tariff of three point four then there are those industry sectors that are most politically sensitive each economy led by agriculture Republican voting farmers in the u.s. matched by China's historical paranoia over national grain self-sufficiency then there are what I call the three hardy perennials intellectual property protection force technology transfer an American term and the use of the full resources of the Chinese state to support China's stated channel industrial strategy made in China 2025 aim to dominate global advanced technology markets and product standards by 2030 these three are what I call the three really ugly ones hard to solve setting a deadline of 1 March 2019 to resolve these five problems on balance is smart particularly if it's driven by the prospect of a further working-level summit with Trump and she later and March although I note the number of trade professionals have argued that 90 days is so ambitious that it's unrealistic and sets both sides up for failure this 90-day pause also serves Trump and XI in other ways by March Trump will have a fuller idea of the lay of his domestic economic and political landscape he will know the extent of any significant softening in the economy already induced by monetary policy tightening by the Fed and the extent to which the American economy could then sustain further tariffs should the efforts of Chinese and American officials have come to naught on the political front the Muller investigation should have reported by much if the results of the investigation are seriously bad for the president then we should be alert to the possibility of the president having a renewed interest post mother-in doubling down against China if in fact he's found then to have been compromised in his dealings with Russia that certainly would be an x-factor that our Chinese friends are worried about March who have also presents President Xi and his chief economic adviser Leo her with opportunities of their own on the international front March might enable Xi to take a bold message to Davos in January should he decide to go China has sought to mobilize already global sentiment and support of its efforts to uphold the global economic and environmental order a major Chinese announcement on trade liberalisation across the board not just on a bilateral basis with the US could indeed take the world by storm it would also send a stark signal to the world on the 40th anniversary of China's economy's reform and opening policy and that indeed could represent a serious new challenge to American leadership furthermore a serious commitment to trade liberalisation from Beijing accompanied by the underlying message of competitive neutrality between foreign firms and domestic firms as well as private firms and state-owned enterprises within China would reinforce Li or hers valiant efforts in recent months to prosecute the full implementation of China's stalled phase to economic reform program first announced back in November of 2013 this is something China desperately needs for its own economic interests this takes us to the core question of the relationship between any concessions that China might off the United States trade and economic negotiators bilaterally and those things that Chinese economic reformers understand need to be done in any case domestically if indeed the Chinese economy is to be able to have strong sustainable growth in the future let's talk about China's changing domestic economic narrative those who follow the Chinese economy closely understand the significance of the economic reform blueprint first released by Xi Jinping's administration in November of 2013 this came earlier in his period in office in fact very early after a fierce internal debate back then in the preparation of the document agreement was finally reached on its central organizing principle that and I quote the market play the decisive role in resource allocation big decision big debate big conclusion the decision also incorporated 60 different reform measures covering ten broad categories of trade cross-border investment state-owned enterprise reform competition policy reform financial system reform fiscal policy innovation policy labor environment and land reform this was a conscious effort by China's economic leadership at the time to transform China's historical economic growth model over the previous 35 years to became then universally known as the new model Cinda gingy more sure the old model as we are all familiar was based on two model two pillars first labor-intensive low-cost manufacturing for export reinforced second by high levels of public investment in national economic infrastructure the new model was based on three pillars high levels of domestic consumption private sector driven innovation following the completion of the SOE driven infrastructure build and third a sustainable development revolution green energy renewable energy energy efficiency and the whole kit and kaboodle implementation began in 2014-15 but the party's confidence in the market was dealt a body blow by the implosion of Chinese equity markets and broader financial markets in August of 15 from that time on as we at the Asia Society Policy Institute of tracked through our China economic dashboard the pace of implementation of the reform programme slowed dramatically dramatically and in most areas ground to a complete halt harsh capital controls were also imposed on China's capital account making it much more difficult for private firms to expand their operations abroad at the same time because of legitimate fears about the size of China's debt to GDP ratio driven in large part by an out-of-control shadow banking sector as well as ballooning local government debt the central government began a national deleveraging campaign which over the last several years has also resulted in credit being withdrawn indiscriminately sometimes bureaucratically from otherwise profitable private Chinese firms at the same time Chinese SOS have been given a new lease of life where the national deleveraging campaign has had less effect on SOS than their private sector counterparts furthermore there has been the rolling impact of China's anti-corruption campaigns fund for Bey it is fundamentally slowed government decision-making processes as officials perhaps naturally of to protect themselves from political exposure by not making decisions which meant that the private sector development projects long in the pipeline have begun to slow significantly - this was added Xi Jinping's emphasis on the central role of a party that prints the primacy of ideology resulting in an enhanced role for party secretaries operating within private firms and on top of all the above there's been considerable confusion as to the precise implications of China's so-called mixed ownership model rather it was an invitation for private firms to absorb poorly performing public trading enterprises or whether in fact it was creating a fresh opportunity for sa ways to nationalize while performing private firms we've seen both all these factors have been unfolding across the Chinese economy over several years prior to the beginning of the us-china trade dispute in the first half of 2018 the net effect of all the above has been a growing number of anecdotal reports pointing to a significant slowing of Chinese economic growth during 2018 as private sector firms concerned about an increasingly adverse policy environment a refrained to invest in further expansion of their enterprises either at home or abroad by the time the annual leadership retreat occurred in beta her in August this year reports had begun to come in from across the country that China was facing serious domestic crisis of private sector business confidence with potentially profound implications for future growth but out of adversity Springs opportunity a new approach to competition policy reform it was about at this time that those who have long understood the continuing imperatives of China's market economic reform agenda saw an opportunity emerging out of this adversity namely to bring about the next wave of competition policy reform within the Chinese economy by opening China to more foreign competition there by lifting long term productivity growth it will be recalled that competition policy reform had long been a key component of the original 2013 national economic reform blueprint but it too had been allowed to slide the need for a more effective competition policy was particularly felt within China's poorly performing financial services sector in any efficient market economy the effective allocation of capital across competing corporate needs based on the business case advanced by would-be borrowers and the associated risk taken on by lenders is fundamental to sustainable economic growth by contrast China's financial services industry has developed inefficiently despite the growing number of domestic private players within it because capital allocation decisions are driven less by market considerations than by political or administrative necessity China's economic reformers are smart they are fully seized to the dimensions of this problem which lies at the heart of the Chinese financial system the Reformers see the future line not just in bringing China's grossly indebted second-tier banks and SOE s back with in regional borrowing limits from their previous borrowing and lending habits they equally recognise the structural importance of introducing market disciplines for capital allocation decisions for the future in other words it's not just a matter of cleaning up decisions from the past that is bringing down the debt to GDP ratio it's also about creating a functioning market framework for the future so that scarce financial capital is allocated rationally and corporate debt burdens do not simply blow out once again China's reformers also see the great Greater introduction of wholly owned foreign financial institutions into the Chinese domestic market as being a new way of grafting these market disciplines into the Chinese system this differs qualitatively from previous Chinese approaches to allow limited foreign financial institution or participation within China where foreign present has largely been limited to minority stakes in second-tier banks with the limited policy objective of Chinese banking officials learning how Westerners do these things before eventually politely asking said Westerners to leave the alternative approach is to fundamentally shake up the Chinese system from the top down by introducing large-scale foreign competitors across the breadth of the financial services industry in order to force Chinese firms to be more efficient this is only just unfolding and it's unclear how it will end this year for example we've seen a number of foreign investment limitations eased for entry into China's forty five trillion dollar financial services sector these have included foreign investment limits in securities companies and mutual funds were raised to 51 percent in April and said on a three-year path to allow full foreign control indeed last Friday UBS became the first foreign securities firm to be approved for majority ownership with applications from JP Morgan and Nomura in process second foreign insurance firms are now to be allowed a controlling 51% ownership of domestic insurers as of May this year and German insurer Allianz was approved to be the first wholly owned foreign insurance company on November 25 just a week or so ago French firm AXA has quickly followed purchasing the outstanding share of their previous joint venture on November 26 and third foreign ownership limits on banks and other debt managers were also removed in August this year previous foreign firms were limited to 20% as a single entity or 25% as a group to date however no foreign firms have applied to use the new regulations what about additional support to the Chinese private sector financial services reform driven by increased foreign participation is one thing wider reforms to promote China's somewhat beleaguered private sector have also been forthcoming on 19 November the State taxation issued a policy note outlining 26 concrete measures centered on reducing the tax burden for private firms according to the State Administration for taxation these were not fully utilized yet nonetheless in the most recent quarter there were over 143 billion RMB that's 21 billion US dollars in tax deductions for Chinese SMEs a 41% increase from third quarter last year so something's happening on this question and beyond these various reform measures they've also been recent announcements from the central government aimed at improving credit availability to Chinese firms the party secretary of the People's Bank of China on 7 November outlined the new so-called 1 to 5 policy this was a directive for at least one-third of new corporate loans from large banks to be extended to private firms for at least two-thirds of new loans from small and medium-sized banks and over the next three years for at at least 50% of all new corporate credit across the banking system to be extended to the private sector again it's early days we don't know how this is going to operate to repeat the key to the success of this newly emerging political economy in China is the extent to which China's economic reformers are able to develop a domestic political narrative within the party and the country which explains any external concessions to the US administration as necessary internal reforms to undergird China's long-term economic growth prospects this is a tough challenge given that over the last several years at least Xi Jinping's political center of gravity has lain elsewhere namely his predilection for a stronger party for stronger politics and for more nationalist posture nonetheless it seems that Xi Jinping has now had a larger encounter with economic reality Chinese style namely of the Chinese private sector really does matter furthermore if this economic policy correction continues basically expressed in its crudest level from left to right then this may turn out to be indeed a seminal period of reform for the Chinese economy for the future driven by necessity there are grand precedence in recent Chinese history for such Economic Policy Corrections to occur barely three years after Tiananmen done shopping undertook his famous southern exhibition is none Shin where he told China to redouble its efforts in economic reform and opening to the world and guess what China did five years later Jiang Zemin in the midst of the Asian financial crisis said to China's emerging entrepreneurial class to go out into the world it's all choo-choo and they did in very large numbers and five years after that Jurong ji in 2002 secured China's admission to the WTO heralding the next phase of China's economic reform program including China's emergence as the global export superpower it has since become it may well just be that we are beginning to witness a porous policy redirection of a similar order of significance with what is now unfolding time will tell certainly a careful reading is warranted of Xi Jinping's speech of September 27 on the economy of Vice Premier Li or her speech of October 19 on the private sector and perhaps most significantly of all your hers comprehensive statement on China's future economic policy direction outlined in his address to the Hamburg Economic Forum in late November just recently on the eve of the g20 summit these are all worth a read for those of you who studied China and its economy closely of course many things can go wrong with all the above policy momentum may stall Chinese bureaucrats may simply hedge their bets and sit on their hands even worse they may simply resort the vast array of non-tariff barriers at their disposal to undermine the letter and the spirit of reforms China's overall trade and investment policy environment on the ground young children society eat certain and above all that China's private sector still facing significant restrictions on the capital account may not respond positively to what the party in the government are now telling them to do on the grounds that there is still too much policy and regulatory unpredictability for them to have sufficient confidence to invest in the future that's why I will be critical to see China's emerging data on private fixed capital investment to see whether Chinese firms have bought the Chinese leadership snoo policy message thereby unlocking a further period of reform opening and sustainable economic growth finally prospects for 2019 so against this general economic background what then are the prospects for the us-china relationship for 2019 by March it's probable that there will be an agreement between China and the United States on the quantum of bilateral trade deficit reduction and the import decisions that China will make to bring that about I'd be concerned if I was a I was an Australian LNG exported to China just at this time as for tariff reform by March that is possible although the degree of technical difficulty remains significant if it's a tariff line by tariff line approach given the multiplicity of tariffs which currently apply to the overall trading relationship this may well blow out well beyond March if however Chinese economic reformers take a more dramatic approach by committing to zero tariffs over time and challenging the Americans to do likewise that would be precisely the sort of measure that could be announced relatively rapidly it would however run totally against the grain of half a century of training of Chinese trade bureaucrats who give nothing away if at all possible let alone be seen to give everything away one fell swoop these are difficult times however the reform of so-called forced technology transfer within the contractual arrangements between Chinese American enterprises should be relatively straightforward this however is different to how contractual arrangements may be interpreted on the ground even in the absence of any specific technology transfer provisions in electoral property protection is deeply problematic not only are their traditional forms of commercial espionage there is also now cyber espionage as well previous agreements reached under the Obama administration could be reconstituted but the critical problem remains jurisdictional enforcement of breaches if and when discovered one possible mechanism for building confidence is for all relevant contracts between Chinese and foreign firms to be made automatically subject to international commercial arbitration regimes located in either Singapore Switzerland these could be designed at a manner specifically to deal with IP protection the recourse to international commercial arbitration is now relatively common across the world if China objected and many in China would and might also be possible to develop China's own nascent domestic international commercial arbitration system but for foreigners to have confidence in this system would require China to appoint qualified foreigners to its panel of arbitrators other countries already do this China could do the same I'm looking for a way through here but in the absence of an independent Chinese legal system even in the commercial law this would seem logically to me to be the only way through this continuing thorn on the side of the relationship finally on China's use of state subsidies in support of its national plan for domestic and international high-technology market domination it's difficult to identify any readily available solution the uncomfortable reality is that all countries use varying levels of government support for their indigenous technology industries even if we were to mandate a maximum proportion of state support for a given firm the problem would invariably arise as to how all of this is measured i'm not therefore confident of a negotiated outcome in this area america may simply need to out-compete china at its own game in terms of a radical increase in public investment in our and across the full spectrum of information technology biotechnology and other domains the major public universities would I'm sure welcome this with open arms as indicated above we should also not rule out the possibility in 2019 of China pitching any tariff reforms that it is prepared to implement to resolve the us-china trade war to the wider international community as well we should not rule out the possibility for example that if China was to undertake something dramatic like a commitment to zero tariffs over time that such a commitment would not just be made on the basis of reciprocal actions by the United States but by all WTO want member states indeed this would represent an almost irresistible geopolitical opportunity for China to champion global free trade and to arrest the global trend towards protectionism that currently threatens the wider global economy and furthermore we should not rule out the possibility that China approaches TPP 11 Member States to negotiate possible accession to the TPP this would comprehensively outflanked the United States within the asia-pacific region it would also turn out to be supremely ironic that a TPP originally designed by the Obama administration as part of its pivot to Asia ended up including China but not the u.s. itself the Chinese also have a gift for irony China when it sees a political and market opening in my experience can be remarkably fleet of foot other than that that can be slow as hell the technical negotiations would of course be formidable that there is already evidence of a softening and traditional Japanese reservations towards possible Chinese accession as evidenced during prime minister our BAE's recent visit to Beijing conscious of the time there are other projections I've made in my remarks concerning what may happen on the foreign and security policy front in the year ahead but let me conclude by saying this we as we look carefully at the future of the us-china relationship are dealing with profoundly complex questions indeed it's historically unprecedented to be in the midst of a debate about whether the world's largest economy and oldest continuing democracy that's you guys can happily coexist with the world's second largest economy and oldest continuing civil Asian civilization that's you other guys in the room who can come from China given that the latter has never exhibited in its history any attraction to Liberal Democratic norms in terms of degrees our difficulty this is right up there but grapple with the debate we must and resolve it we must one way the other despite the fact that the fact that we must do so in the midst of an increasingly polarized debate in both countries about each other Americans believe China is stealing their future many of them are angry and have been mobilized to be angry and they have finally woken up these Americans and they're fighting back the Chinese looking at this rule reverse prism whether they're from the right of the left of the spectrum within their own debate believe that Americans are now deliberately containing China because Americans cannot cope with the idea of ever being number two particularly if number one happens to be Asian doesn't take you long to have those conversations in Beijing after you've had a multi or two in my case three or four debate is therefore a highly charged one which is why we need to be careful about the manner in which we conduct this debate in our respective countries in America as in other countries I'm always concerned about the rise of neo McCarthyism in the debate which conflates concerns about the actions of the Chinese party and state on the one hand and the actions and attitudes of Chinese Americans on the other the recent report on foreign influence in the United States and a number of other countries is a case in point foreign interference from whichever country is an entirely legitimate subject of debate after all that's why democracies have laws why we have courts why we have law enforcement agencies why we have intelligence services and other institutions preserving the careful set of checks and balances guarding our civil liberties as well as protecting us against internal and external threats to our security but that's also why it's critical to constrain the terms the debate so that the patriotism of Chinese Americans is never brought into question I'm always concerned at the current febrile political environment this could occur I presume that's why this recent report on foreign interference has attracted dissenting submissions from among its authors namely Susan shirk and having read Susan's dissent I support her reflection I've also noted bill bishops observation about the title of the report in its conflation of the Chinese Communist Party with the simple word Chinese capable as bill says of sparking anti-chinese sentiment we need to be very careful about these things so as we advance this hard debate on this country's future with China let us learn from the events of the last Cold War Joe McCarthy and his Committee on on American activities this debate requires full candor not a show trial we're all much better than that I thank you thank you Kevin that was such a sweeping view you covered just about everything I'm gonna ask assuming there'll be many questions from the room and beyond so I'm gonna hold to my promise at the outset and just ask one question that came to me actually I hadn't prepared it but while you were somewhere near the tail end of your remarks I was reminded of something that was said on this stage I don't think you were here then but it was very soon after president Trump's election I think he was still president-elect and a point was made in a discussion about the us-china relationship that some unpredictability on behalf of Washington what might be a salutary thing visa via the Chinese and the relationship and this sparked the discussion and I it's a discussion that goes on I think constantly about whether it is good to wrong-foot the Chinese sometimes whether it's good to upset that applecart a little bit and not let them feel so comfortable in whatever these positions are or is that with the Chinese or anyone else whether you're playing with fire there and clarity and reliability our wanted where I can put you on the spot do you come down it is unpredictability visa vie Beijing a useful tool in the diplomacy between the two countries or is it a bit dangerous I think because of president Trump's approach which is deliberately unpredictable and because of his hard line and hard-headed analysis of the problems in the relationship President Trump actually has a high level of respect in Beijing that's my view I mean ideologically I don't have much in common with President Trump at all I'm making an observation about Trump the president the United States dealing with this Chinese reality and so based on multiple conversations in Beijing what are the Chinese want most of all predictability predictability and certainty followed by some more predictability because that way puts us all into neat boxes sure anyone likes that but Trump ain't like that and we've seen the multiple reams of newspapers written on the art of the deal and what he's done in business reflected and how he approaches international relations so I think that's that's all fine I think a hard-headed analysis which he has also had in part on the question of let's call it the trade relationship is fine the key challenge for the president and this is where our Chinese friends have a legitimate point is where does he actually want to land this thing does he want to land it given the different views within the White House from one end of the spectrum to the other from secretary minuchin through to Peter Navarro yes to a deal tomorrow no never do a deal ever and so I think the challenge in the president's entry now president Trump's is for him to take control of this negotiation directly in terms of where he wants to land it that I think is that actually would be the mark of a statesman and the current circumstances I think he's created it a set of circumstances which can yield a very significant result but he must take now direct role in landing it as an outcome otherwise this thing could spin off in so many different directions many of them really bad for everybody concerned but but for now just quick follow-up it appears that mr. light hi sir is gonna be taking the direct role and lighting it at least until March 1 right but laws on CNBC's Squawk Box I still can't say that in American English whatever that thing is the age of society Squawk Box the the other morning Tegrity minuchin was on just before me and he was doing a good job he is the best poker face I've ever met of any politician like he's he's a it's great and so anyway obviously Joe from squawk box says hey Steve I gather Bob light I was leading the negotiations to which secretary merchants impeccable replied delivered with the master pokerface was the president will be leading these negotiations and he will be leading a team of negotiators and of course Bob light Heiser's views will be welcomed as members of that team so these tensions I think are alive as an outsider to this and I'm not here to tell Americans how to do their business in the White House but I know a little bit about China I think given where we've gotten you've just heard the president of China in a room at the negotiation across the table with the Perot the United States for this to work president Trump's gonna need to land us himself he's gonna have to dig into it more than he would perhaps normally do and not just devolve it to the warring states that currently make up the internal machination to the White House well said let's go to the room maybe we start with the gentleman in the third row there our microphone so you can just say who you are and keep it brief as possible thank you I'm bill Franklin and mr. Dunn shall hang wouldn't having witness mr. mal did whatever he could before he departed to prevent another cult personality leading the country and to not concentrate so much of power and one individual presidency seems to wouldn't mind being a cult leader president for life how does that issue affect the possible outcome of what you're talking about I think a broader point is how solid is Xi Jinping in Chinese domestic politics my judgment is despite all the chatter that you hear from the Chinese equivalent of the chattering classes people sort of within the Beltway but not within the administration put it that way whatever chatter you hear about Xi Jinping having made some mistakes changing term limits mismanaging the u.s. relationship overreached in the South China Sea over reached with made in China 2025 etc I see no evidence in my travels in China and analysis over here from people who I trust around the place both here and in China that Xi Jinping is in any real political difficulty at all I don't see any evidence of that the on the question of cult personality Goren Tong by that I think is something which to the extent to which it's developed my judgment is you may begin to see less of one of the interesting observations I picked up at Harvard the other day I'm a member of the China working group up at a Harvard Kennedy School so we get together and we try not our way through this Graham Allison myself and others like what the hell's going on and what can we do about it and we're talking about this the other day and but scholars are coming back from China reflected on this but they seem much less evidence now of Chinese public political hoopla over the Belton Road initiative that it is not disappeared Chinese news coverage it's still there but it ain't mandatory in terms of this is the number one defining feature of the new leader in the new period so what I understand from Chinese politics is they are capable of shall I say this which is leaders in no political trouble sure there's some static from the edges and of course we will adjust our style appropriately and so I think though for anyone to assume in this country but they'll be dealing with a weakened Chinese president in the future radically and misunderstands Chinese politics thank you for your insights mr rudd I'm Erin from News Corp Australia oh good night how are you I always worry when rupert's people are following me never ended well in the past I was wondering how Australia's frequently changing leadership affected China's perception of Australia America's perception of Australia and I guess Australia's international standing more broadly I don't think Chinese would give a damn damn answer it's kind of metaphor democracies to deal with China deals with States and whoever happens to be the state whether they like President Obama or like president Trump these are deeply realist considerations on the part of the Chinese leadership which is we're dealing with the Australian state or the American state and for those reasons therefore they will treat any Australian Prime Minister American president with the respect due to their offers so I do not see that as being a relevant consideration in terms of Chinese statecraft as I as I know it there's a separate reputational question for Australia writ large given we've had three conservative prime ministers in five years in our country which i think is overdoing it that could they keep on doing it you know they'll be running out of people and I'll get a chance to go back that is irony by the way in case you run that on the front page to play that unpredictability of a different sort well just maybe bounce back and forth how wait for the mic if you would in response to what you think our looking to from an American point of view what our response should be to China and how to respond to China in order to do that we have to better coordinate the relationship between business and the government government is very disorganized in a way that's be handled cybersecurity and artificial intelligence is there a better way as this a timing the recognition of where the threat and the opposition is coming from for our country to try to get back to a relationship between business and the gun and the government in terms of respecting where we both we would go in that area to confront China with this well many people united states will tell me I'm not an American I've having lived among you for the last three and a half years understand a bit about Chile now it still baffled by some things but you know your founding fathers set up this thing called divided government and in fact some of them in the Jeffersonian tradition to the relief set up small government as well and so what my American interlocutors often say how is hey we don't do grand strategy for the simple reason we're not designed that way we designed in fact the reverse direction why does America work it's democracy constantly is reinventing itself we keep government relatively small and we in the private sector are always in the business of competitive renewal and there's a big history behind all of that but I do notice a big caveat to that which is when the United States decided with kanan's long telegram in 1946 that they had a problem with the Soviet Union they then analyzed in depth the nature of then content Riis Oviatt society and politics in the economy and embarked on a 40 year long strategy otherwise called containment in other words they are able through the American political establishment and bureaucratic establishment to forge a strategy and to adhere to it over multiple administration's and the man who we honor today in Washington presided over the end of that period fancy that a cold war ended peacefully between the two most armed countries in the world the Soviet Union as it then was and the United States now I'm not advocating a doctrine of containment at all towards China because I think it works remember the underlying proposition about containment in the long telegram by cannon about the Soviet Union way back then was the intrinsic fragility of Soviet the Soviet economy and society and the brittleness of its politics would cause it to implode from within given what we're dealing with with China it is an heroic judgment to assume that that would occur in China's case so but my broader point beyond the specifics of what a US let's call that grand strategy should be with with China is that it's entirely within the remit of the other States government at the time to bring together all its agencies of government around a common approach now the Trump administration would argue we've done that already through three defining instruments national security strategy of December last year US national defense strategy of January this year followed by a less reported document released I think by the Navarro or light Iser in the middle of this year on the future of US defense manufacturing industry so therefore if you're looking at the ingredients of a formal through the administration all agencies involved agreed final position on what American grand strategy should be here are three as it were building blocks for that but the caveat how when I conclude on this is these documents conclude that strategy engagement it over and strategic competition has begun they do not give us operational guidelines for what strategic competition means on the ground if you are the captains of two naval vessels in the South China Sea tomorrow morning and you come within 46 yards of each other what does strategic competition mean we knew what the rules of strategic engagement were which is true you miss each other at the last minute so that's where I asked the question where the new work must now be done and I'm sure if the administration was sitting here this morning they'd say we're doing that internally I've yet to see it but I'm not suggesting that it's not being done just a quick thing you know there's so many questions forget my follow-ups I live here I can ask given later let's go to the back of the room a little bit yes sir back in the back row there if you can wait for the microphone Bruce make ever what is the status or lack thereof of religious freedom in China the new policy toward it and I'm specifically thinking of what's going on with the wiggers and the camps to determine the recreational camps so they call or called it's a question which demands a non simple response when I measure Chinese religious freedom now across the board for Christians not Muslims against religious toleration when I was living in China as a diplomat in the 80s it's much better now than it ever was before that's just the truth of it I've stacks of friends who are Chinese Christians who go to church every Sunday there's a second debate about the nature of the church as they go to the so-called above-ground churches and so-called below ground churches the reality is it's kind of much more blurred than that with Catholics you will see this recent semi reconciliation with Rome on the appointment of Bishops that has a long way to go but it's a step in the direction of some form of normalization the Catholicism has not grown significantly from the 12 million adherents within the country that have been there for quite some time where the real growth is occurring is in Protestant Christianity and you see it right across the country but particularly south of the Yangtze judging province if you go to places like one jewel until recently it's he crosses sticking up all over the place this worried the the government and the parties so much that's a whole bunch of these churches were then demolished literally on the grounds that building approvals had not been obtained which leads me to the the answer to the part of the answer to the question on other religious traditions Buddhism because it's regarded as a semi indigenous religion within China even though it came from India and despite a very unhappy first 1000 years within China where they tried to persecute it and eliminate over three times basically the Buddha's won in the end then everyone became Buddhist well most people so Buddhism has hundreds of millions of adherents and you see temples all over the place it's not the scene in any way as threatening to the state really this brings us to Islam which is demonstrably like Christianity a foreign import is an Abrahamic tradition and historically the relationship between the Chinese party and state and Muslims has been quite reasonable however the rise of a more militant separatist movement within Shin Jung has caused the Chinese state to take extreme measures in response and we've seen the mastery education camps now being run and by the Chinese state in the northwest of the country so as I said it's a complex answer to the core question if I was applying the benchmark of 40 years ago it's infinitely better I remember going to mass in China mid-eighties at Easter I was up in a city called Chengdu up in Hubei anyone been to Chengdu here it's the old summer retreat for the Qing Emperor's place called Beach and Wong the the village in the hills reverting the heat literally translated which I think it's kind of neat it's a beautiful place but I remember going to mass then and running into the priests who had just spent 20 years in prison he'd been imprisoned in the anti-rightist movement of 1958 who's finally let out in about 1978 eighty wen dong chirping came back and always remember my conversations with him about how things had evolved since 49 is a fascinating conversation so I always have these kind of historical benchmarks in my mind things can be hard in various parts of the country today and they are for those who are being hit but against a historical benchmark of what was like in the Cultural Revolution or the anti-rightist movement and some of the events of post 49 it's better than it was yes come here in a moment we're gonna go till about 9:45 so we'll try to get as many questions as we can I'm gonna take a series of questions that's up to you don't take two or three and then I'll come okay let's take three then yes Lesley LT Guzman with des Vista Global Gazette Vasari you mentioned and you with a little bit of irony quickly that it could hurt Australian LNG exports if there was a deal in March the energy trade needs a lot of predictability for long term investments if you wear a u.s. LNG developer would you invest a march in your new project relying on Chinese LNG demand good I'll just check my share portfolio first before I answer that question take this man anything Michael thank good first thank you for a wonderful topical speech my question is about your interpretation of where President Xi stands on reforms you mentioned that early in his presidency he was Pro reform but when the markets equity markets fell he became less so where do you think he really is at this present time and then if the markets react badly over the next few months how do you think that would affect him would you mind just to hand the microphone to Peggy who's right in front of you that would be thank you Thank You Peggy Blumenthal from the Institute of International Education both Xi Jinping and President Trump have threatened to use Chinese students the United States as a lever in their negotiations and with thirteen billion dollars of investment from Chinese students in the US economy do you think they will either of them come to follow through on that right okay let me try and take those three I think about LNG projects I know a little bit about them coming from Australia and I've been in office both at a state and federal level when these gigantic projects are developed is that they take a phenomenally long period of time to bring to market speak to our Canadian friends about all that so at a geo strategic a sort of geo political level China will I think do two things one it sees these projects as the quickest easiest presentational means of demonstrating to President Trump that the bilateral trade deficit is rapidly coming down because these are big numbers okay secondly however China is not dumb China knows that it has a long term geopolitical risk in being chronically depend on the United States for the supply of its LNG in the event of a future crisis so this will be a militating factor so it's something that our two other American allies namely Australia and Qatar should be spending a lot of time analyzing as we speak I do not see a near-term challenge to other competitors a medium-term challenge maybe but there's a long term caveat here which China's assessment of its own country risk Xi Jinping stance as I said in my remarks are before and Xi Jinping in his heart of hearts and minds of minds is a party guy not party party party guy but a gun gun gun guy aid Chinese Communist Party guy and and in my conversations with him over the years it's quite plain his father politburo member Chitra moon with a pre 49 Revolutionary Army tradition so he is steeped in this tradition he's also what they say in Chinese as Himura died he's second-generation party leadership so for those reasons when this guy looks at challenges his number one reflecting point is this kind of challenge the authority that Chinese Communist Party in the future I don't think so and so they will go through thick and thin to resist any forces economic social political or foreign which in any way challenged the long-term survival the Chinese Communist Party and final point to bear in mind is and I said she's a party guy he's also not an economist and so it's very important understanding I think what is the most vital relationship within the Chinese system for the next four years which is his evolving relationship with vice premier Liu Liu someone with whom he's worked for a long time deal her who many of us know is quite a brilliant analyst he now has his own independent political authority having been promoted to the Politburo but he is running an argument about the need for long-term systemic market reform in the economy which will raise all sorts of political hackles and concerns on the part of his more conservative colleagues in the within the Politburo all of whom are thinking about the long-term implications for the party this is the central question of political economy for the future students um you know as well as I do that there's been pushes within the white house to impose either a blanket ban or a partial ban on students I therefore would think that if these things go bad in the bilat form the ghosts over the next three months plus you can't rule out the possibility of partial restrictions being imposed by this White House given my understanding of what they're like on this question and they're and they would be focused on particular categories of stem as you know do I think that's in the interest the United States which you didn't ask me I think us would be nuts to do that not just because it's a big American export but frankly if there is stuff that's being done in American public research institutions which is so as we would say in Australia super-secret squirrel that is you know highly sensitive national security stuff and for God's sake don't if foreigners go in there you know it's kind of pretty obvious to me not just trainee it Scott yeah like even people like me you know you know even that is it's a it's a very big system you have in America but you got a way of classifying research projects even within public universities whereby you can constrain those who participate in so my advise the administration is do that I understand their sensitive stuff I mean we we remember the five eyes we deal with the American intelligence community as Australians I understand these things so not offering a glib response but also I think it's just crucial for long-term processes of the maturation of the us-china relationship for there to continue to be hundreds of thousands of Chinese students in this country we have a hundred thousand 150,000 in Australia the second largest quantitatively to any other country in the world except the United States you have I think 320 thousand something like that so if we can survive that with population 25 million I reckon Uncle Sam's big enough and ugly enough to handle you can handle it that's just my view we take a couple more snapper secrets squirrel by the way that's a new one reading code language yeah take this lady right there yep I believe there should be Chinese to ask any questions in this occasion now that we talked about sino-us relationship good actually is a question from my daughter I believe it's quite serious it's last weekend she had assignment to read an OPEC from Washington Post said a farmer in Kansas lost about certain percentage of revenue because the retaliation tariffs of agriculture products from Chinese government so she asked me what shall I write and I told her well I'm twin until the Sun Saturday evening so I'm sorry evening I I give her the statement from the press secretary and I told her to coat this sentence president she agreed to acquire American agriculture and energy products immediately at the meeting and then last night it was actually we to read another Oh Pat from a Financial Times by mr. Lawrence Summers and she and he sat in his old pad said it's fairly to say that there will be no more Panda hugger existed nowadays in Washington DC so my daughter asked me if we buy more products agricultural products from America in the coming months or years or at least we achieve something in March well there are any more Panda huggers come back to DC then how old is your daughter our shielding her senior in the high school okay good okay pandas and homework I'm going to come to that we take a couple world yeah you know seriously quickly dance around the others on punches at the time and I'll give about these to throw this gentleman and then slide it over to yeah say who from Chinese to Mario's as you say don't know you mentioned the possibility of for new mechanism new vegetable states so we're creating your most from from the White House from the Congress or from the Capitol elbow from the Academy or just from the local level okay thank you then the gentleman here and we'll um this may actually be in relation to his question I'm wondering with what Pompeo said yesterday in his speeches about pulling out of the I and F treaty with Russia what do you think China's response is going to be especially given the fact that our Committee on Appropriations is allocating a lot of money to new nuclear technologies including low-yield nuclear warheads for naval ships and what do you think China's response it's gonna be me that gives a chimp to take those three or and then we do or did lung Wars on the Contras at the time so yeah yeah I don't keep people waiting thank you ken Wasserman I'm an attorney be interested in your views whether over the long term the Chinese growing competition and capitalism and the u.s. growing government size of government will cause the two countries to converge more I'm a non visual artist but I'm still relations in fact I'm just a non artist here should we do those there's some work yeah I'm just okay hi good morning thank you so much for the speech and that this is a shelf on UI and my questions you know mr. prime minister and you said this China and the US trade O'War trump created and but he has to land somewhere and from the Chinese perspective and from your knowledge point of view and you know our from our observation central Chinese government in this whole water tension is still in a reactive mode okay and so there's a lot of tariffs here back and forth and kind of each other much one I want but now there's a 90 days delay on another 10% to 25% which will have a significant impact from both country and to all rest of the world and I found your point of view my question is so what do you think any of Bill and a whistles or approaches still laughed for Chinese government to put on the negotiating table thank you so much thank you in other words what should China do to fix this mess okay that's a good one the as for your daughter if I was told on Wednesday night by my mother that I could delay doing my homework until Saturday night I'd be out party party party food I hope she was they were which means the ultimate triumph of an American lifestyle and and Chinese families sorry to give you a problem was the question you just need to reinforce some Confucian discipline within the household the on the pandering question Larry who I know quite well in fact he was with us at Harvard last week is I think representing the the sentiment in Washington which is just the reality at the moment we can have a long debate as to whether it's justified or not but I'm just old enough and ugly enough through my travels to DC on a regular basis Capitol Hill the administration and the the agencies of state to know that there is virtually negligible zero pro-chinese sentiment or even neutral Chinese sentiment across the American system right now so that's kind of a reality it's therefore part of the reality which plays into how this trade negotiation is finally landed and so if I was China recognizing that reality in the United States I can do either of two things complain about it because it's unjustified from a Chinese perspective or work with it given that's the reality and given how pragmatic Chinese political leaders are I think the latter which is why I think Xi Jinping is strongly predisposed towards landing an outcome which frankly meets the test which he Xi Jinping believes is alive in president Trump's head which is a big bilateral trade deficit reduction and some action some action yet unspecified on tariff reduction if I could flip to answer the last question in this same frame what should China do under these circumstances I as I indicated in the speech I think there's a great opportunity here for China given its relatively low formal protection levels through the tariff regime average tariff rate of nine point eight percent in China which for a country still classified as developing is relatively low for China too as it were outflank the United States in terms of the reality of its of its position on trend of protectionism so if over five years China was to take its nine point eight percent general tariff rate and say will actually reduce that year by year to zero in exchange for the Americans doing their three point four percent general tariff rate down to zero then I think we've been a whole new ballgame in terms of not just the political positioning but the substantive impact on market sentiment of real economy and if you threw into that a challenge the International economy saying oh by the way will go to zero with the rest of you if you do it reciprocally with us then you're basically in a position whereby you're opening the door to the TPP as well that's kind of interesting so if I was being creative in the let's call it the political creativity Department of the of the zone bug hunting of the party general office and I know the political creativity Department is often quite a small one I'd be looking at these sorts of lateral approaches if you go the traditional Chinese approach which is an army full of trade negotiators whose mission statement is to slowly beat down and suffocate every single US trade negotiator and then allow them to crawl in a bloodied heap from the I don't think I one's going to work this time around in the middle three questions there was a question about INF on the american decision to withdraw or signal signal that's withdrawal from the INF treaty there are complex nuclear arguments which the united states administration has advanced in support of that given the emergence of INF forces in other parts of the world beyond that which is being done with the soviet union what I observe in China has been a resolve probably for the last five years to engage in a program of the systematic modernization of its own strategic rocket forces through the air pol number two artillery Department of the PLA so the Chinese were in the process of modernizing their own strategic nuclear armed forces across a range of shall I say delivery systems and as you know China was not covered by the initial and the original INF treaty it was not party to it this was a us-soviet treaty so this is a complex one but I think it's therefore worthy of further analysis on the second last one which was about convergence sir between China and United States it's kind of interesting I think the great convergence between the United States and China has not been really spoken about much yet it's just called people getting old and the aging of our respective populations much as I like to postpone in my own personal case I've found empirically to be largely unavoidable and so I from wonder why American strategic analysts don't look at this massive budgetary budget burden rolling down the road to the Chinese system which is called its own retirement income burden its own healthcare burden in its own aged care burden as the logical consequence of a one-child policy which was put into force back in 78 and released only recently so when I look at the China's changing age demographics this has a massive impact on China's future budgetary capacity as it will do in the United States one final point on that I find it passing strange in the current American debate which is all about bilateral trade deficits that there is no debate in this country about the size of the US government deficit which frankly I find frightening I mean as a percentage of GDP looking at the scale of what's being embraced by the United States there's a question which our American friends need to begin to address which is yes for the foreseeable future US dollar reserve currency understand that you can continue to print money we've seen what quantitative easing does but you know at the end of the day there is a question mark which begins to emerge about the long-term sustainability of of a public debt to GDP ratio of the type that we're seeing in China were seeing in the United States finally for my friend from Xinhua on the question of McCarthyism I'm quite passionate on this question because not just to my student of history and I've seen what happened in the 50s in this country when Joe McCarthy ran riot and when you had a period where anyone who had once been in a room with a communist or had been to university with somebody who then became a communist was automatically the subject to a series of of frankly open persecutions judicially sanctioned in this country now the nature of Western democracies is that we should all feel deeply uncomfortable about that so I don't want to see that unfold in the current febrile fevered nature of the environment in Washington elsewhere in the country about the relationship between two states that's China in the United States the moment we start to see this translated into the semi-official questioning of the patriotism of a Chinese American for example I think is a very dangerous step I had similar things to say in Australia about debate launched by our then Prime Minister several back on foreign interference in Australia where I'm always concerned about the conflation of a legitimate discussion about the actions of states on the one hand and a triggering in the wider public almost a level of permission to begin questioning the patriotism of an our case Chinese Australians so I am ideological about these questions that is we are both United States and Australia profoundly multicultural societies we welcome those who come to our shores they become American Australian citizens and we should be able to entertain a debate therefore in this country and in mine about our own national security interests domestic and external without in inviting the demons of racism and ideological ideological witch trials into the public court great note to end on I thank you all for being here thank you Kevin

Channel: Asia Society

Views: 153,184

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Keywords: asia society policy institute, kevin rudd, video, complete, u.s.-china relations, trade

Id: fuX1L5Hq_r4

Length: 78min 33sec (4713 seconds)

Published: Wed Dec 05 2018