C.V. Starr & Co. Annual Lecture on China: A Conversation With Kevin Rudd

Former Prime Minister of Australia Kevin Rudd discusses the ideological worldview driving Chinese behavior both domestically and on the world stage, as well as that of President Xi Jinping, who now holds near-total control over the Chinese Communist Party. Rudd argues that Xi’s worldview differs significantly from those of the leaders who preceded him, and that this ideological shift is reflected in the real world of Chinese policy and behavior.

The C.V. Starr & Co. Annual Lecture on China was established in 2018 to honor the trailblazing career of C.V. Starr and the Chairman and Chief Executive Officer of C.V. Starr & Co., Maurice R. Greenberg. This meeting is presented in partnership with CFR's China Strategy Initiative.

Copies of On Xi Jinping will be available for purchase.

DOSHI: Well, good afternoon. Thank you. Welcome to the Council on Foreign Relations. I’m Rush Doshi, director of the China Strategy Initiative here at the Council, and the C.V. Starr senior fellow for Asia studies.

We’re excited to welcome all of you for our distinguished speaker, Prime Minister Kevin Rudd. He’ll be giving the C.V. Starr and Company annual lecture on China today. This lectureship was established in 2018 to honor the career of C.V. Starr, the chairman and chief executive officer of C.V. Starr and Company, Maurice R. Hank Greenberg. Today’s lecture is also part of CFR’s new China Strategy Initiative. It’s one of our four cross-cutting initiatives launched by CFR President Mike Froman around which CFR is organizing its work. 

And of particular relevance to today’s lecture, one of the core pillars of our initiative is what we call, quote, “inside China,” an effort to better understand what Beijing thinks and China’s domestic developments. That’s not an easy task. Decades ago, when access was tough, that task required paying close attention to the publications of the Chinese Communist Party, the better to understand how its leaders think and what they might do. Those methods are back today as China becomes harder and harder to study from the outside in. 

That is why the timing of Prime Minister Rudd’s newest book on Xi Jinping, which you can pick up outside if you haven’t already—I have my signed copy right here. He’ll sign as many as he can, I’m sure. That’s why the timing of this particular lecture and the timing of this book could not be better. The book is an unparalleled deep dive into Xi’s thinking that spans more than fifteen chapters and nearly 200 pages of footnotes and sources that are invaluable for scholars and nerds like myself. Many of us in the community have been waiting eagerly for this publication, and the book is already having an impact on the debate. Copies, like I said, are just behind you out the door, and I encourage you to pick one up. 

I want to add, on a personal note, that we’re very lucky that Prime Minister Rudd took on the task of writing this book. There’s a famous sinologist who wrote under the name Simon Leys. And he was also the prime minister’s undergraduate thesis advisor, and the person to whom the book is dedicated. And he once said that reading Chinese Communist Party documents was like, quote, “munching rhinoceros sausage.” Or, and he wasn’t done, “swallowing sawdust by the bucket full.” So those of us who try to do this work, we have, unlike others perhaps, a weird palate. And a lot of people don’t want to sit near us when we’re eating. (Laughs.) So it flatters all of us when Prime Minister Rudd invites us, and now all of you, to join him for this metaphorical meal of sausage—rhinoceros sausage and sawdust. (Laughter.) 

Now, Prime Minister Rudd needs no introduction. He served as Australia’s Prime Minister from 2007 to 2010, the country’s foreign minister from 2010 to 2012 and again, its prime minister in 2013. He also happens to be one of the world’s top analysts of China. In 2015, he became the inaugural president of the Asia Society Policy Institute, which does fantastic work. And in 2020 he became the president and CEO of the Asia Society itself. In 2022, he also completed a DPhil at Oxford University, which is the basis for this book. He holds honorary positions, or did, at most institutions around the world. And on a personal note, he—I was mentioning to the Prime Minister earlier—gave a lecture at Harvard over a decade ago about China and the question of whether it might have a grand strategy that actually formed the basis or the inspiration from my own book, and allowed me to break the shackles of academia saying, work on the narrow topic. And I could say no, no, the prime minister told me to work on a broader one. (Laughter.)

Now, our moderator today is CFR President Mike Froman, whom you all know. From 2013 to 2017, he was the U.S. trade rep, where he led the conclusion of the Trans-Pacific Partnership and negotiations toward a Transatlantic Trade and Investment Partnership with Europe. Before serving as USTR, Mike was deputy national security advisor for international economic affairs and served as the U.S. sherpa at the G-20, among other roles. Mike was most recently vice chairman and president of strategic growth at MasterCard. 

Now, today’s event has attracted a bit of attention. We have hundreds of folks online tuning in. In terms of run of show, I’ll invite Prime Minister Rudd and CFR President Mike Froman to the kick things off in just a moment for a moderated discussion. And after that, there’ll be a Q&A session where most of you will have a chance to ask a question, but there are a lot of you so probably not everyone. And with that, let me turn it over to Kevin and to Mike. Thank you. 

FROMAN: Thank you. Thanks, Rush. (Applause.) It’s great to have Rush here, and see him launch our China Strategy Initiative, which is already getting a wide range of attention from other think tanks, universities, governments, and the like. He’s a great leader here.

Kevin—

RUDD: Rush is a great gift to the CFR.

FROMAN: Well, he is.

RUDD: And I say that because I’m at the Asia Society. (Laughter.) That’s why I say he’s a great gift for the CFR.

FROMAN: Great to have you here. As Rush mentioned, this book grew out of your doctoral thesis at Oxford. You’re a little old to be going back to school, aren’t you? 

RUDD: That’s very ageist of you. 

FROMAN: Yeah. When I was at Oxford, I spent a lot of time in the pubs and sort of rowing on the river. Did you do that, or did you just—

RUDD: I spend a lot of time in the pubs, less time rowing in the river. (Laughter.)

FROMAN: No, I see. OK, excellent. Well, let me give you a chance to lay out the fundamental thesis of the book, which is about, as I read it, under Xi Jinping China lurching to the left on economics and right on politics. But tell us, what did you find, after digesting all that rhinoceros sausage?

RUDD: Yeah. I liked Rush’s—first of all, thank you for having me here at the Council on Foreign Relations. And thank you for your leadership, and Rush’s work on China, both in the administration and now here at this important think tank, as we all try to struggle with the reality of what does Xi Jinping’s China mean for all of us, and how best we respond in policy terms to advance our collective interest and to maintain our fundamental values. I like the analogy about rhinoceros sausage and sawdust. The book’s attempt is to add ketchup—(laughter)—to this mix, to make your rhinoceros sausage, neatly crumbed in sawdust, more palatable. So tell me afterwards whether it worked, in a culinary sense. 

The reason for the monumental act of self-flagellation in going to Oxford at the tender age of fifty-nine to do a DPhil, in what Rana Mitter, my supervisor at Oxford, described as a late-blooming scholar—(laughter)—was I needed to appeal to the principles of male vanity, which is to force myself to complete the reading of the Xi Jinping canon. And the best way to do that is to publicly enroll in a Ph.D. program so that it’ll be too humiliating not to conclude it. And guess what? The principle of male vanity worked, because I was always humiliated into making sure that I had finished it. And so I did, in the end.

The thesis is in just four points. One, in the Chinese Communist Party system what we need to understand is that since 1921, the birth of the party, ideology has mattered and continues to matter. Sometimes in the United States and the collective West our eyes glaze over at that point. We either think, well, maybe in the past under Mao it did. Deng Xiaoping got rid of all of that. And the ideology is just an artifice for something else. My melancholy duty is to inform you that is not the case. It actually is a coherent body of Marxist-Leninist thinking adapted, to some extent, to China’s circumstances, which establishes a band of meaning within which each generation of Chinese leaders authorizes the rest of the party to think, act, and operate. That’s the first point. 

So how has Xi Jinping changed that band of meaning? What he’s done is three things. Number one, he’s looked at Chinese politics and said: I am going to take Chinese politics, ideologically and deliberately, to the Leninist left. That is because I, Xi Jinping, am concerned about the declining status, significance, and believability of the party. I’m concerned about its future relevance as an instrument of political and social control within the country, and economic control. 

And, thirdly, I looked hard at the Soviet Union, the collapse of the CPSU, the Communist Party of the Soviet Union, and concluded that the bottom line is that the fish rots from the head, in Xi Jinping’s analysis. And that means the ideology of the party begins to rot if the party ceases to believe in its own ideological mission. That’s change number one. So if any of the rest of you are engaging China and you wonder why the party is back across so many domains of the economy and society and culture and the rest, it does emanate from this single set of ideological conclusions on his part. 

The second element of the ideological change in the band of meaning is on the economy. And I dedicate three chapters of the book on this because it’s complex. My summary point is that he has deliberately taken the center of gravity of Chinese economic policy to the Marxist left—politics to the Leninist left, the economy to the Marxist left. And you see this manifest in multiple discourses at a policy and ideological level within the party. You see it in terms of the resuscitation of the state-owned enterprise sector over private terms, the reinvigoration of state industrial policy over the market, the reinvention of the concept of national economic self-reliance, the integration with the rest of global markets. 

And on top of that, a new doctrine of common prosperity in terms of income distribution, as opposed to a tolerance of unequal income distribution through the Deng, Jiang, and Hu periods. And he has done that for, I think, a single or two sets of reasons. One is he feared that, left untrammeled, the private sector and its largest private-sector operators would become two dominant forces within Chinese domestic politics; in other words, that Jack Ma would become bigger than Xi Jinping, and those like Jack Ma, and aspiring to become the next Jack Mas. And so he looked into the future, saw that as an unfolding trend, and said, no way, Jose. Well, not exactly no way, Jose, but—(laughter)—but he said bùxíng, which is Chinese for “no way, Jose.”

There’s another reason too. And that is if you look at the national self-reliance dimension, his taking of the economy to the Marxist left, it is also driven by a national security imperative, which is he sees the United States increasingly as an unfolding strategic adversary. And therefore, as a result, he, Xi Jinping, is preparing the country for a more nationally self-reliant, self-sufficient future against the future possibility of comprehensive economic sanctions, if there was a security crisis over Taiwan. 

The final point I’d make about summarizing the ideological change is politics to the Leninist left, the economy, to the Marxist left, foreign security policy to what I call the nationalist right. And you see this evidenced in his writings, his discourse, but importantly in Chinese policy documents and then subsequent changes in strategic behavior from about 2014 on, and some from late 2013 on. You will all be familiar in this room with Deng Xiaoping’s ancient nostrum of, hide your strength, bide your time, never take the lead. Which proceeded from Deng’s underlining ideological conclusion that for his period of leadership, and Jiang Zemin’s, and Hu Jintao’s, the principal party challenge always lay with the development of the economy. And that, therefore, required comprehensive engagement with the global economy.

Whereas, what Xi Jinping has concluded is that this period of hiding our strength, biding our time, had reached its natural conclusion point. And at the party central foreign affairs work conference in 2014, he said: That’s it. We’re moving on to a new era of, what he calls, striving for achievement. And that is beginning to test, push, and become more assertive against the United States and its allies around unresolved territorial disputes in the region affecting China, and more broadly in terms of a challenge to U.S. leadership of the international system.

And the very final point, in terms of the cliff note summaries, along these lines, what I’ve discovered in the last—looking at ten or twelve years’ worth of documentation, and got through to my full dietary limit in terms of sawdust, was ideology in their system is a reasonable predictor of policy. Ideological change, therefore, is a reasonable predictor of policy change. And policy change is a predictor of behavioral change—in politics, in the economy, and in the international domain.

Which is why I, you know, shed blood, sweat, and tears to write this thing. And, by the way, all these comments are in my private scholarly capacity, not as ambassador to the United States. 

FROMAN: Should have said that caveat up front, I suppose.

Was this change in perspective—was this something Xi always believed? Or was there something that happened—the global financial crisis, or something—that precipitated this view that it was now time to stop hiding and biding, but to stand up and seek the great rejuvenation of the Chinese nation? What caused it? Why now?

RUDD: I think there’s probably two or three factors. If you go to each of those ideological boxes, they have almost different causalities. One is just on pure politics and Lenin and the role of the party. Think of it in these terms: Xi Jinping has sat there and looked at the implosion of the CPSU, as I mentioned before, and saw what he regards as the great tragedy of the implosion of the Soviet Communist Party and of the Soviet Union, writ large, in 1991. And he’s traumatized, I think, from his writings, about the collapse of the 1917 Bolshevik revolution. So a galvanizing factor in terms of politics and the move to the Leninist left is, I’ve saw what happened when you have Gorbachev, perestroika and glasnost. And I have seen the future, and I’m not going to allow that to happen.

On the economy, when he begins in 2012-13, it’s a much more complex transition. Certainly, his national security views begin to change with the emergence of the Trump administration and the trade war. But also, in addition to that, what you see is Xi Jinping, I think, deeply traumatized by something Mike, which you’re deeply familiar with, which is the Chinese domestic financial crisis of 2015. When his critique of then-Premier Li Keqiang and the economics team was, I thought the market was supposed to work. And you’ve now generated something close to a domestic financial market meltdown. What went wrong?

This was like volume two of the global financial crisis story, where you and I first met, when we both lost a lot of weight and a lot of hair at the same time. I was prime minister—(laughter)—and this guy was senior economic advisor to President Obama. And so I think his aggregation on the—on the economic causalities between that galvanizing experience of 2015 domestically, plus what he sees as becoming a progressively more adversarial external foreign policy environment as well. 

Finally, what causes the change in terms of his international posture? I think if you read carefully the literature, and I try to cover it here in the book, in a Marxist-Leninist system they make rolling analysis of what is called comprehensive national power. Those of you who are familiar with the Soviet Union, you remember the old methodology called the correlation of forces. This is a deep set of methodologies within communist party systems, where they calculate, what is our ability to project power against others in the world? And this is a set of methodologies which would cause all of our eyes to glaze over, but they nonetheless are taken deeply seriously within the communist party system. 

And if you look at the changed language on comprehensive national power in this period, post 2013-14, and accelerating through until recent years, you see it becoming increasingly direct about the fact that China’s comprehensive national power is increasing at a great pace. And furthermore, we are now seeing the rise of the East, brackets, China, and the decline of the West, brackets, the United States. And that China, in another key phrase, has now moved to the center of the world stage. In other words, an empirical conclusion, using their methodologies, that they are more powerful and therefore now able to shape international outcomes in a way which they were less capable of doing before. I think the causalities of the ideological change are along the lines that I described. 

FROMAN: Well, let’s talk about those changes to the international system. President Xi is famously quoted or cited as having said to Vladimir Putin that they stand on the edge of a hundred-year change, and that that change will be the result of their work together. We certainly see that the two of them, plus perhaps North Korea, Iran, others potentially, are challenging the U.S.-led system, post-war system. Do they have an alternative that they’re proposing? Does President Xi have a coherent view of what should replace the current system? Or simply wants to make clear to other countries that they need not fall in line behind the United States, and the assumptions of the post-World War II system?

RUDD: I think, Mike, this proceeds in a phased approach. The first is to sustain the critique of the failures of the current, what we would describe as international rules-based order, most particularly from the perspective of the Global South. And whereas those who have long believed and supported the Washington consensus would say that, in fact, not all boats are rising, but most boats are rising, and that global poverty is—has been reduced, at least prior to COVID, the Chinese critique of the Washington consensus and the international economic system is that the level of inequality in the Global South is not sustainable. And that, therefore, we, China, are doing something about it, through things like the Belt and Road Initiative. 

So it begins with a critique. And that is how the current system is not working. And then it adds instrumentalities which seek to act. And I just mentioned, secondly, the Belt and Road Initiative, but others like it as well. And other, shall we say, lesser or greater, institutional innovations outside the system historically controlled by the United States and the West. For example, the Asian Infrastructure Investment Bank, Belt and Road Initiative, I’ve mentioned, the New Development Bank, and the other instrumentalities through the SCO, Shanghai Cooperation Organization, and others. 

Phase three is ideation. Which is, how do I then, at an ideational level, begin to innovate an alternative framework for an alternative system? And this is at its embryonic stage, but we’d be, I think, negligent not to recognize that the work has already begun. It’s not just the grand statements of things called the Global Civilization Initiative, the Global Development Initiative, the Global Security Initiative—which are now part of the Chinese international patois and now increasingly have found themselves into the normative language of Turtle Bay in terms of the United Nations system. But in addition to that, what you see is greater levels of, shall I say, emerging substantive coherence around what that might mean. 

When people ask me, what do these three things mean? The best way to look at it is in these terms: A, the Global Security Initiative: The age of American alliances as the dominant structure of international security is passing. And we, the Chinese, represent an alternative, more multipolar system. When you look at the global—

FROMAN: Does that mean new alliances, or—is China going to develop an alliance system like NATO and AUKUS?

RUDD: In their historical parlance, they say that, as a non-aligned country, they do not form alliances. But they form strategic partnerships, which in our language become increasingly tantamount to the same. And if you look carefully at the unfolding bilateral communiques between himself and Vladimir Putin over the last ten years, and last five years in particular, and certainly in the seminal events in 2022, this has gone from abstraction, to concrete, to proximity, to something getting close to levels of mutual, shall we say, assurance about mutual security assistance.

Global Development Initiative. It’s saying, Washington Consensus doesn’t work. That is, the destination point of liberal democracy and liberal capitalism has proven to be a failure. And therefore, there is an alternative destination. He doesn’t use this term, but I call it authoritarian capitalism, state capitalism. And if you look at the systems, whether it’s Russia, whether it’s Iran or China or elsewhere in this ecosystem, they have that certain commonality. And The Global Civilizational Initiative, if you’re trying to wrap something concrete around that, is, again, to go back to the aphorism, the rise of the East, the decline of the West. 

The whole notion that a Judeo-Christian/Enlightenment order is the end of history, as opposed to an alternative set of Confucian, Neo-Confucian, and Neo-Marxist values, is, in Xi Jinping language, a work in progress. And so within the academies in Beijing, I already identify a whole bunch of analytical work putting flesh on the bones of each of these propositions. And Xi Jinping, in a different context, begins to refer to this as the new Marxism of the twentieth century. Sorry, twenty-first century. Not the twentieth century. 

FROMAN: It’s a little ironic that this emphasis on the great rejuvenation is happening at a time when Chinese growth is slowing, the economy is in trouble, the demographics are declining. Are you more worried about a strong China or a weak China, going forward?

RUDD: I’ve never liked that question. (Laughter.) But it’s your prerogative to ask it. The—

FROMAN: I mean, people in China aren’t feeling particularly rejuvenated, right? You’ve got the laying down protests. You have high youth unemployment. Can you be rejuvenated if your own population doesn’t feel very optimistic about the future?

RUDD: If you were to go down the negative side of the ledger of what’s unfolding in China, it’s a formidable list. What I’ve sought to describe in this book and my remarks today is the ideological narrative for the future. Meshing it against the reality, which is what you’re just describing, is a different set of—a different set of realities. Sociologically, if you’re looking at where China stands today—and, Mike, you just used the term “lying flat,” when you’re starting to generate in the official numbers significant youth unemployment, to the point that those numbers are no longer being officially produced, you know you have levels of social disquiet. 

When you’re starting at a level of the economy, writ large, to generate not 5.4 percent growth but, based on, I think, real indicators of growth, something closer to 2 or 3 (percent), then you begin to have a material problem. When you look around the world at large and see that, courtesy of your new strategic partnership without limits with Vladimir the Impaler—I’m sorry, Vladimir Putin—(laughter)—in Russia, that you are, at the same time through that support, alienating Western Europe and all of Europe, by and large, then the levels of complexity begin to mount.

When you look at the demographics, as you’ve indicated, and so far the Chinese women are not responding with alacrity to the party’s call to have more babies. In fact, saying they’re saying, no. Then that provides no solution to the demographic challenge. Now, the core one, which you as an economist have long focused on, and I have in my period as prime minister of Australia, is the core challenge for all governments, is how do you lift productivity growth? And when you’ve got productivity growth falling, and failing, and flailing in China, that’s a problem, unless the macro investment, using state industrial funds into artificial intelligence, crosses that productivity divide in a way we can’t yet anticipate. And I hold that out as a possibility. 

So the negative side of the ledger is well known to our folks in Beijing. But I go back to the core argument of the book again, Mike, which is Xi Jinping, in my own analysis, looking at the texts over a decade-long period, is a Marxist-Leninist true believer. This is not an artifice. And when problems arise, and I’ve listed some of those problems, that does not, therefore, diminish his view in terms of strategic direction. And that, therefore, the means by which to realize that strategic direction and practice is greater and greater levels of party discipline, in order to crack the whip to get it done, as opposed to having a bunch of softies around the place who will melt at the first whiff of grapeshot.

FROMAN: As you said, part of this is to also help inform a policy response. Looking back, based on what we now understand as the ideological evolution China, was it naive for the West to engage in a strategy of engagement with China during the Jiang Zemin-Hu Jintao period? And, looking ahead, based on this, is engagement, containment—what’s the right strategy for the West to take vis-à-vis China?

RUDD: On the first question, no. It was not wrong at all. And it’s not just because you and I believed it at the time. Although, that may shape our analysis today. It’s a bit different than that. It goes to a big debate about agency and structure. And that is, is the Chinese Communist Party system inexorably headed in the direction in which Xi Jinping is taking it, because of its inherent structure as a Marxist-Leninist enterprise? Or is there something particular about the agency of Xi Jinping which has changed its trajectory? And certainly, my own analysis is that it’s primarily, but not exclusively, the latter.

If I was to look at the barometers of, shall we say, Chinese assertiveness in the region and the world up to 2012-13, and after 2012-13, the graph looks a bit like this: 2008, 2010, 2012, 2014, 2015, 2016. So was there a greater Chinese voice in the world, pre 2012-2013? Yes, there was. Did it radically change under Xi Jinping? Yes, it has. And I think, therefore, that underpins the question of did we get it right, or did we get it wrong, because in the framing of this international response to China’s rise, through the thirty-five years of Deng Xiaoping, Jiang Zemin, and Hu Jintao, from the Third Plenum of the Eleventh Central Committee in 1978 until the Eighteenth Party Congress in 2012 in November of that year, the band of meaning within Chinese ideology permitted and explicitly endorsed reform and opening. 

It did so because it defined the central parties—central ideological challenge of the party as growing the economy. To use their term, unleashing the productive forces and relegating what Marxists call the relations of production, which is a euphemism for class and class struggle. And so, for thirty-five years, that discourse permitted everything that we then saw unfold. And that continued. In fact, it continued really until the Nineteenth Party Congress in 2017. So I think our response, through until 2012-13, and arguably through until 2017, given it takes us all some time to come to grips with new realities, it was soundly based given the assumptions of the previous system over thirty-five years.

What should now be the response by the United States, and its allies, and the collective democratic world? The argument I put in an earlier book is called managed strategic competition. It’s H.R. McMaster, on behalf of the Republicans and the Trump administration, who redefined the parameters of the U.S. relationship with China as strategic competition along with strategic engagement. By and large, the Democrats under President Biden have sustained that framework and, in fact, populated it with a series of quite specific policy measures.

My argument is strategic competition is here to stay. The question is whether it is managed or unmanaged. I don’t like unmanaged strategic competition, for the simple reason in the absence of any ground rules mutually agreed then the capacity for escalation from incident to crisis to conflict to war becomes very easy. So what do I mean by managed strategic competition? Is anchor it in deterrence, which is why what the United States does through its military and with its allies is critical in causing Xi Jinping to conclude that it’s too risky and too costly to contemplate unilateral military action over Taiwan or elsewhere. 

Two, quite apart from reducing the risk of conflict by design, that’s deterrence, reduce the risk of conflict by accident by building between the two countries guardrails. By which I mean, regular and effective mil-to-mil cooperation—sorry—mil-to-mil communication, so that the risk of an individual incident escalating rapidly is reduced. And to give credit to the Biden administration and to the Chinese, since November last year those channels have been put back into place. Thirdly, in other domains, have nonlethal competition right across the economy—trade, investment, technology and ideas—because that’s the nature of the system which Xi Jinping has, frankly, unfolded. And may the best team win. 

And, finally, within managed strategic competition, leave sufficient bandwidth over here for the two sides still to collaborate on global public goods—whether it’s the next pandemic, whether it’s climate change, or whether it’s, God forbid, another systemic global financial crisis of the type you and I had to navigate back in the bad old days. 

FROMAN: Terrific. Let’s open it up for questions here, and also online. Yes, right here.

Q: Thank you. I’m Alexandra Starr with International Crisis Group.

And when I was a senior editor at Foreign Affairs, I had the pleasure of editing one of your excellent articles on China. 

FROMAN: That’s very kind of you. I hope you didn’t edit it too roughly. (Laughter.)

Q: Not at all. (Laughs.) A very light touch. 

I was wondering if you could comment on the news today that North Korea is sending troops to Russia to fight in Ukraine, and how China might be regarding this latest development. 

FROMAN: And maybe, more generally, how China views this burgeoning relationship between Russia and North Korea. 

RUDD: Yeah. Again, I go back to my overall caveat. I’m here in my scholarly capacity, not representing a particular position of the Australian government. Number one is, this is profoundly destabilizing. The destabilizing nature of North Korean engagement in Ukraine began with a massive supply of ordnance and other military hardware to the Russians following Putin’s visit to Pyongyang some time ago. But now to add personnel, and in significant numbers, it seems potentially for war-fighting purposes, is profoundly additive to the conflict and profoundly destabilizing. 

My own view, for what it’s worth, is that, absent North Korea’s military intervention with ordnance, hardware, and now with personnel, Putin would be in infinitely more challenging strategic circumstances in Ukraine than he currently is. This is not at the margins of the military balance on the battle space—in the battle space in Ukraine. It is significant. So therefore, the question arises as to what can be done. Certainly, I think the view of many of us who have monitored the China-DPRK relationship over a long period of time would be seeking our Chinese friends’ support in maximizing leverage in Pyongyang to get them to cease and desist, because the escalation potential of what is unfolding is not in China’s interests. It’s not in anybody’s interests, apart from Putin’s interests. 

More broadly, of course, as Mike added to your question, the complexity of this triangular relationship between Russia, Pyongyang, and Beijing is unfolding. I would think that Beijing would be looking with some concern at the speed, breadth, and depth of the unfolding geopolitical and direct military relationship between Russia and the DPRK. It does not lie exclusively, as you know, as an analyst, within China’s purchase. But because of China’s longstanding supply of resources, including oil, to the North, China is not without leverage. 

FROMAN: Let’s go to one online.

OPERATOR: We’ll take the next question from Rafael Reif.

Q: Yeah. Rafael Reif, MIT. Can you hear me?

RUDD: I can, from outer space. Yeah, it’s good to hear—

Q: Prime Minister and Dr. Rudd, it’s a delight to listen to you today. Thank you, Mike, for doing this.

Before it is too late, shouldn’t the U.S. and China sit down and try to work together on a new international order? Or that’s just a fool’s errand.

RUDD: I think, Raf, it’s a question of—within the reality of realpolitik, what is deliverable. My argument is, the framework that I ran through before called managed strategic competition, containing the elements of deterrence, strategic guardrails, economic competition, and global public goods collaboration, is the best set of arrangements within the frame of realpolitik that we can aspire for right now. 

On the optimistic side, the fact that President Biden and President Xi Jinping moved in this direction in the Woodlands (sic; Woodside) summit in November last year, at the time of the APEC summit, is itself encouraging. That’s why there is now more stability at a strategic level in the U.S.-China relationship than there was before. It is, however, very much a work in progress. However, to aspire for both sides to agree on the future architecture of a long-term international system I think is outside the realms of current political realism. That would be my response.

FROMAN: Yes, at the second table.

Q: Thank you for your illuminating remarks. 

I wanted to ask you about the U.S.’ efforts to restrict China’s access to advanced technology. Do those strategic restrictions in fact advance China’s long-term interests, along the Marxist-Leninist goals of self-reliance and technological independence? Thank you. 

RUDD: I think we need to have a keen sense of chronology here. China launched Made in China 2025, which is a national industrial strategy designed to place China in the premium position in the world’s top ten technology categories, including semiconductors. They launched that strategy in 2015. This is pre-Trump. This is when the Obama administration—second Obama administration was still working as collaboratively as possible with the Chinese system. 

So I think we need to bear in mind that the self-initiation of this was a view in Xi Jinping’s mind, particularly as it relates to the future of artificial intelligence, reinforced by a state council circular he authorized, I think from memory, in 2017—very early, frankly, in the Trump administration—that China, for its own future long-term, national economic resilience, national economic self-reliance, and own national security preparedness had to become competent in all these domains itself. So that’s fact number one.

Fact number two, I think, is the timing of the set of technology bans which you’ve just—or, limitations, which have been imposed by the United States, particularly during the period of the Biden administration. I am not in a position to assess from this stage what impact they’ve had in the material world on slowing down/accelerating the pace of China’s development in each of these technology categories. Now that is a textured, complex discussion, almost tech by tech. The AI response to that is different from the semiconductors response, is different from the quantum response, is different from the new materials research response, is different from autonomous systems response.

But what I can say is this: What has unfolded really in the period since 2017 is the China 2025 targets have now been buttressed by massive industrial guidance funds in China, of an order of magnitude which kind of IRA-like—that is, the Inflation Reduction Act-like—in terms of the quantum of cash. If you were to look at CHIPS and Science Act, IRA, put them together, frankly, these equal—broad sweeping generalization here—the depth and breadth of the industrial strategy determination the Chinese system to make a material difference. 

My final point on that, though, is the unknown factor here is, given those of us who can sometimes be skeptical about industrial policy in terms of its ultimate effective use of capital as opposed to the private sector doing it, when the Chinese private sector in Shenzhen, China’s emerging equivalent of Silicon Valley, gets stifled as a result of the ideological changes I referred to from the earlier part of my presentation, and they flip the switch instead to state industrial funds and state-owned corporations, and the so called mixed ownership models whereby I’ll mix it and have some of your ownership, thank you very much. You’re a successful private firm. I question the effectiveness of where that will land.

But the Chinese response to that, when I have had private conversations with them in the past in my days as a think tanker is, yeah, but if we waste 90 percent of it and 10 percent of it is productive, we’re still going to be ahead of the United States in each of these categories. So I do not know where this is going to land. I’m dubious about the effectiveness—effective deployment of capital. But the Chinese are playing a quantity game. And do they therefore produce, as I said, the productivity turbo charges, vis-à-vis artificial intelligence, for example, that the rest of us are also working on? 

And a caveat on the caveat is that in a country which has per capita income of 13K, if we’re concerned about the labor force adjustments coming out of the productivity revolution coming off the back of AI, where does that leave Chinese social stability and employment and unemployment in the future as well? I’m sorry to answer your question with a series of questions. That’s the best I can do. 

FROMAN: Let’s go online, and then here to the first table.

OPERATOR: We’ll take the next question from Bob Tuttle.

Q: Yes. My question is, if China was able to take over Taiwan it would glorify Xi in, at least, Chinese communist history. So do you think an invasion is possible in the next five or ten years?

RUDD: You don’t have to be a Rhodes scholar to work out that Xi Jinping wants to take Taiwan, ideally by peaceful means, because it is an article of religious and ideological faith for there to be national reunification with Taiwan. That has been clear from the get-go, prior to 2012 when he took over, but stated with greater and greater levels of sharpness since 2012. So that’s what we know. Secondly, China’s military capabilities around that particular objective have been enhanced significantly since Xi Jinping took over. And, thirdly, most acutely, the exercise pattern of Chinese forces in and around the island of Taiwan—take, for example, those which were conducted last week in and around the Taiwanese national day speech by President Lai Ching-te, these all point in one direction. They are wargaming an invasion.

None of us in the analytical business have sufficient confidence of the data, however, to point to a day and the hour, let alone a month and the hour, let alone even a year and the hour. What I do know, however, is that the ongoing single consideration which militates against Xi Jinping’s predisposition to act on Taiwan unilaterally militarily is the effectiveness of U.S. military deterrence and the effectiveness of Taiwan’s own national defense capabilities. These are huge factors which weigh on the mind of the Central Military Commission each day of the week. 

So therefore, the two considerations in Xi Jinping’s mind is the combined military capability of the United States, Taiwanese, and U.S. allies. And, secondly, U.S. political will. Those two constitute the deterrence equation. And those two, in fact, therefore, shape the likelihood or unlikelihood of Xi Jinping pulling the switch. Does he want to do it? Yes. But Xi Jinping is not a reckless risktaker. He’s what I describe as a calculated risktaker. The two are quite different. And the calculus lies in his ongoing calculus of the deterrence equation.

FROMAN: All right, here in the front—and then we’ll take one here in the front.

Q: Hello. It’s Raghida Dergham from Beirut Institute. It’s great to see you again.

RUDD: Lovely to see you.

Q: Thank you.

So we have—we see China as a diplomatic broker in the Middle East, between Saudi Arabia and Iran on one hand. And China goes on with a very mysterious relationship with Iran for that pact between them that Mike was referring to. What do we know about what’s going on in the collaboration with Iran? How do you look at the diplomatic initiative? And since the meeting in Moscow, the BRICS, is China going to succeed in making the BRICS as it wants to, or is India pushing back, and others refusing to join, going to, you know, sort of, basically abort China’s plans?

RUDD: Thank you for the question. And thank you for the work of the Beirut Institute as well.

I think, as I said before, one of the remarkable things that you trace in the evolution of Chinese foreign security policy under Xi Jinping is a decision from 2014 onwards, at an ideological level, that we’re now powerful enough, as China, to no longer hide our strength, bide our time, and ever take the lead. We will independently now launch a series of diplomatic initiatives in the world. And the origins of that is very much a series of ideological conclusions ten years ago. And there have been a proliferation of Chinese diplomatic initiatives since then, in one form or another. And not just in the Middle East, but in other areas of the world. What’s the meta message from China to the international system, in particular the Global South? That not all international diplomatic initiatives will come from the U.S. or the—or the P3, that is the U.S. plus the U.K. and France—or from NATO, or from, let’s call it, the historical collective West. 

I think the second point to observe is that, as I said before, China has still sought deliberately to evolve a series of political and economic institutions in the international system which are not a part of the U.S. system, and frankly are outside the U.N. system as well. The BRICS is a classic case in point. Some who look at the BRICS will say, well, these guys have a whole bunch of things which divide them rather than unite them. But nonetheless, what Xi Jinping is interested in is evolving a set of looser, and then over time closer, diplomatic and political institutions, which no longer have the U.S. at the center. However loose they may be for the period ahead.

Finally, specifically on the Middle East, I’d simply say this. China’s historical foreign policy and diplomacy, and it national security policy around the world, has always been shaped by the length and durability of its relationships with particular countries. What’s China’s most reliable foreign security policy partner in the world? Well, some would say North Korea. That’s not proving to be the case at the moment. It’s Pakistan. Why? Because of the historical depth, breadth, continuity of that relationship, reinforced by the geopolitics of both countries’ view of India. Similarly as in post-shah Iran. The depth of the PLA’s engagement with the Iranian Revolutionary Guard in the period after 1979 and the Iranian Revolution is of longstanding duration. And so the military links between the IRG and the PLA go back a long, long way. 

Therefore, when we look at Chinese diplomacy in the Middle East at present, whether it’s in relation to the current conflict involving Israel, whether it’s the question of the long-term relationship between Saudi and Iran, I think it’s very important for our friends and partners the Middle East to understand that the deepest strategic relationship which China has in the region is with Iran. And has been for the last forty years-plus. And it has a deep security policy and energy policy resonance which goes back that long.

FROMAN: Last question here, probably. Jim. 

Q: Hello, Kevin. 

RUDD: Good day, Jim.

Q: Welcome back to New York. We’ve missed you. 

RUDD: You look increasingly youthful, my friend. (Laughter.)

Q: No, not me.

But my question is, with Xi and the party at the center of the Chinese universe, as you described it, assuming Xi can outlast the bad news that Mike adverted to, what do you see as any prospect for a change in ideology or policy should something happen to Xi?

RUDD: Thank you for that most provocative question, Jim. What I try to do is apply my own medicine to myself in this book. If I have argued, as I’ve done with Mike here this morning, that ideology is a reasonable predictor of policy change, and therefore behavioral change—not just in politics and not just in the economy, but in China’s activity in the world, foreign policy, security policy, and I’ve sought to map that over his first ten to twelve years in office, then logically you’re left with the conundrum, OK, that’s very clever, Kevin. So tell us about the next ten years, given we’ve got these ideological settings now in place.

What I argue in the last couple of chapters of the book is that, given the deep-seated nature of the ideological change in what Xi Jinping describes as the new era—there’s been a Mao era, there’s been a Deng era, and there is now a Xi era, OK? The prospects of fundamental ideological change from the settings he’s put in place over the last decade are limited, because it would be too problematic domestically politically to undertake an ideological U-turn, as opposed to what I describe as tactical policy adjustments. Let me give you two examples of tactical policy adjustments. 

We all know in this room that the Chinese economy is underperforming. We know that domestic growth is down. I’ve argued that one of the reasons for that is the ideological changes brought about, which has disincentivized the private sector, which represents 61 percent of Chinese GDP. If you’ve got private fixed capital investment heading south, together with private domestic consumption heading south, then, frankly, you’ve just lost two huge drivers of growth. Simple Economics 101, but that’s kind of what we see. And then when you got a property sector in trouble, and you’ve got on top of that net exports encountering resistance around the world, you’re left with public investment. Now this is not a happy set of premises upon which to build a long-term growth strategy. And so I do not see, including the most recent party plenum, the Third Plenum of the Twentieth Central Committee, which is all about the economy, any evidence of ideological change. 

What I do see, however, are a couple of tactical policy changes, one of which is the flipping the switch on macroeconomic stimulus—that is, the changes in monetary policy or credit policy settings. And then, secondly, the foreshadowing of but no numbers yet on some fiscal policy loosening as well. But I think we all in this room, and those of you from the financial community in particular, understand full well that tactical adjustments in monetary and fiscal policy are fine to a point. That is, they can, shall we say, fill temporarily a growth gap. We’ve all done our Keynes, and we’ve all applied our Keynes during the global financial crisis in order to get through that systemic shock to all of our systems. But it does not equate with that fundamental policy change, which is to re-incentivize the Chinese private sector. That is my concern. 

The second policy shift, or tactical shift, that I see is an external one, Jim. And Xi Jinping’s literature on the difference between tactical and strategic change, which I cover in this book as well, it’s kind of interesting. Strategic change, he basically says, is driven by ideology. Tactical change can occur on a rolling basis. And therefore, the stabilization of the U.S.-China relationship from November last year is very much depicted in the Chinese internal literature as a tactical change. That is, it’s in our interest in China for there to be a more stable relationship with the United States for a period ahead. I would suspect and argue, probably while China rebalances in its own way it’s faltering economic performance.

But these tactical shifts do not add to—add up to strategic change, because strategic change in their system, this system and in Xi Jinping’s system, is driven by deep ideological conclusions. So we are going to have, I think, some tactical adjustments, some short-term adjustments. But I don’t see evidence yet of any long-term fundamental ideological change under his leadership. 

FROMAN: The Mao era, the Xi Jinping era. We are very fortunate to be living in the Kevin Rudd era. Thank you very much for your contribution of this book and for all you’ve said. (Applause.)

(END)

This is an uncorrected transcript.