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A Conversation with Kevin Rudd

Speaker: Kevin Rudd, Former Prime Minister and Foreign Minister, Australia
Presider: Robert E. Rubin, Co-Chairman; Former Secretary of the U.S. Treasury
April 8, 2013
Council on Foreign Relations

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ROBERT RUBIN: I'm Bob Rubin, co-chairman of the Council, and it is my privilege today to introduce Kevin Rudd as former prime minister of Australia, and as is the practice at the Council, I will not recite his distinguished resume. I think you have it at your tables. But whether you do or you don't, it is highly distinguished. I'm not sure whether you do.

I'll make one personal observation, if I may. Some months ago, Gordon Brown called, and Gordon is a friend of Kevin's and also happens to be friend of mine, and he said that Kevin Rudd was an extraordinarily insightful, thoughtful and knowledgeable student of China, had been for a long time, and would be an excellent person to have at the Council. We then reached out to Kevin and we are most fortunate to have him with us today, since China is an issue obviously of vital importance to all of us as is its new leadership.

The way we're going to do this is I'm going to pose a few questions to Kevin for the first part of our session, and then we will open the discussion up to all of the members and take as many questions as we can in that period. If you get -- when called on, please state who you are, your affiliation, and then a question with relative brevity, so that we can get a bunch of questions in.

Let me start off, Kevin, with this. Most people who know a lot more about China than I do will say to you when you talk about China that the new leadership is facing a somewhat different set of issues than the leadership has since reform began in '78, and that they sort of have three pieces to them.

The economic model has to change to a domestic demand-led growth. Two, there is this question of political reform and will that have any energy. And the third, which is I think a kind of interesting one, at least to me, which is that a population that was very poor couldn't focus on much other than the daily struggle, but now you have an emergent middle class and they're very much focused on the environment, corruption, the princelings, inequality, rule of law, and all the rest. And so the question is, there'll be vested interests want to stay where they are, particularly with regard to economic issues. There'll be opponents of political reform. There'll be proponents of political reform. How is all this going to work out and how much stress and tension will it be within the leadership?

KEVIN RUDD: If you're sitting in the standing committee of the politburo at the moment, which none of us are likely to do, it's a meeting each week of seven guys who effectively act as the Cabinet of the country. It's always a worthwhile exercise for all of us engaged in international politics to ask ourselves this question: How's the view -- how's the world viewed from their prism looking out? And what's top of the pops, and to go to your point, what is new as opposed to what's continuing and do they have the political capital to deal with the challenges they confront?

Top of the pops for them, still, like previous Chinese administrations is how do you maintain the unity and sovereignty of the country and its territorial integrity. You may think that that is simply a matter which all nation-states take for granted. If you're China and you're concerned about what goes on in Tibet, what goes on in Xinjiang and what goes on in Taiwan, this is a fundamental and continuing concern. But if you look in those three domains, particularly the Taiwan question, it's frankly in its best state that it's been for a long, long, long time, and a combination of good diplomacies on both sides of the Taiwan Straits.

The number two issue, the number two priority is how do you make sure that you get the remaining couple of hundred people out of extreme poverty into a decent standard of living. And this is such a governing principle which hangs over the rest of the policy menu before the Chinese politburo that it overshadows all others, with the exception of the political unity, territorial integrity question. Because they know so much of their legitimacy as a Communist Party elite in the future hangs on their ability to deliver the economic goods, as they have done relatively successfully for the 30 years which have now transpired since Deng's revolution of '78-'79. And so this is so big, the transformation, the growth model, it's not something we should just roll off in a single sentence.

If you're looking at the formula which they've applied in the past and the distance they must go to the one for the future, which they have analyzed completely in the documents of the 12th five-year plan, this is not a challenge of policy: How do you build a consumption-based economy and move it from an investment-based economy, how do you generate new economic activity and new growth and employment out of the services sector, how do you create greater space for private firms, given the monopolistic or oligopolistic status of state-owned enterprises? This is big stuff. It's not a question of where the policy needs to go. They know that. This is a question of political economy.

And frankly, the politics of the great SOE constituency, state-owned enterprise constituency says two things to the government. Number one, if you guys ever want to pull the levers forward or back in terms of expansion or contraction, sure, like all those other Western folks out there, you can have some monetary policy, you can even have some fiscal policy. But if you control 50 percent of the activity through a bunch of state-owned enterprises, you've got a third lever as well and it's pretty good, they would say. A whole bunch of critiques against that, but we won't pause there. And the other argument is a more venal one, which is this is a great place to earn some money and to make sure that kids get decent jobs.

So Li Keqiang, the premier, one of the standing seven, standing committee's seven, that's in his in-tray and it's a massive task. And so this hasn't been faced by any Chinese administration, frankly, since about 1984-'86, the quantum transformation, the growth model, because it is massively political at the same time.

And the last thing I'd say is, and this is the big shift I've noticed in China the last three years, having sat around that Copenhagen conference in the end of 2009 and saw China's intransigence at that time, is the massive distance the Chinese have now traveled on climate change for their own national survival reasons. The Chinese have an active internal debate now whether they're going to have a carbon tax -- that's the Finance Ministry position -- or whether they're going to have a cap and trade system, which is the National Development Reform Commission position. But they're doing this not because they've discovered that the peace and brotherhood of humankind requires it. They're doing that because they fear that this has a capacity to fundamentally undermine their own growth trajectory.

Now, those adjustments are also very difficult. So on the politics, do they have the political capital to sustain one, do two, and manage issues like three? I think the great error in the past has been for all of us for the last 30 years to say this will come off the rails. The only prudent assumption for the rest of the world is that the Chinese will still summon the political and policy smarts to pull this off.

That ultimately may be proven to be incorrect, but based on the adjustments they've made over the last 30 years, I don't see a lot of historical evidence to suggest that they can't do it again.

RUBIN: Good. You know, I'm going to digress -- one thing -- I was going to ask you the next question which interests me a lot, but let me focus -- I'm going to digress. Do you think they're focused on climate change with the degree of intensity that I, at least, think it deserves, given that it could change life on earth?

RUDD: Three years ago, they were not.

RUBIN: I think we're not. I mean, that's -- I guess --

RUDD: Well, that's a separate matter for the good people in the government of the United States and I agree with you. (Laughter.) And it's going to be ironic, by the way, if the Chinese, in two months' time, for the National People's Congress, actually legislate -- so-called -- for a cap-and-trade nationally or a carbon tax and then turned around to the good people of the United States and saying, when are you going to start playing your role, because we are the two largest global emitters.

RUBIN: Absolutely right.

RUDD: But as I said, China's road to self-discovery on this question has been driven by its own national interests. They've seen the river courses change. They've seen the wells starting to dry up. They've seen the massive change in patterns for agriculture, which are by and large adverse. And they have seen the consequences of unrestrained development. And this (data ?) is flying back into them.

So I think this is the one that has surprised me.

RUBIN: That's really interesting.

RUDD: And I was there just last week. I were talking to a guy who's our full-time analyst of climate change in our embassy in Beijing, smart fellow, young fellow, and describing to me the contours of the current policy debate and where it's likely to land, suggests there's been a massive journey this last short period of time.

RUBIN: That is really, really interesting, Kevin. I should have mentioned it ahead, probably. Kevin speaks fluent Mandarin, so -- and he doesn't have to interact through the English language. He can do it through Chinese language, which is good.

RUDD: And occasionally, I really stuff up. (Laughter.)

RUBIN: Well, that's another matter. Let me ask you another question, something I just totally don't understand. China allegedly at least can have enormous effect on North Korea if it chooses to. North Korea's threatening to destabilize the region in which China lives. I don't understand why China is worried about the possibility of South Korea being on the border of the Yalu. I -- even if there are American troops, we're not going to invade China. So posing that, I'll pose (just the ?) North Korea.

RUDD: Well, again, if you're sitting in that standing committee of the politburo, where does North Korea fit in the galaxy of stars? It's now an increasingly difficult position from a pure Chinese national interest perspective because what the further priority of the Chinese leadership is, given the centrality of the economic agenda, is simply this. For the next 20 to 30 years, until they become a middle-income, prosperous country, which is a stated ambition of the leadership of the country, which for 1.3 billion people is a pretty sizable ambition, and I'm glad, therefore, they're going to have a carbon tax. The consequence of that is that they want a stable and predictable strategic order. The last thing they want for the next 10, 20, 30 years, is anything which undermines an order which would otherwise -- which has underpinned their prosperity to date and would basically collapse prosperity in East Asia,

Enter the North Korean problem. And so we all know the history with North Korea. There are three big downsides now, purely from a Chinese national interest point of view, of the North Korean phenomenon. Number one, because we've now had three sets of underground tests and we've had a range of missile tests, including a ballistic missile test of intercontinental range last November, and just as a Chinese new year present for the Chinese, their third underground test in the middle of the Chinese new year holiday, a bit like landing one on Christmas Day for us.

What the Chinese are now seeing is intensified ballistic missile defense cooperation across American allies in the region -- the U.S. and the ROK, the U.S. and Japan, the U.S. more broadly as well, including with countries like Australia. From China's aggregate national security interests, this represents a big challenge. Why? Because North Korea, from their perspective, is not their primary strategic future concern. They are still working through scenarios for how they project power across the Taiwan Straits. They're still working through scenarios about how they give effect to their broader maritime strategy. And suddenly this North Korean contingency has brought about a new set of strategic BMD cooperation, which they hadn't anticipated and which is therefore creating a whole lot of problems for people on the (hard ?) side of the shop within the Chinese political and military establishment. That is, the military themselves.

Second big problem -- it's more immediate, and that is Kim Jong-un himself -- inexperienced, seeking to consolidate his political position, producing this range of quite extraordinarily provocative remarks, but we've seen these things in the past from Kim.1 and Kim.2, and this is Kim .3 I suppose. And the danger he faces, and therefore the Chinese face, is the possibility that he simply miscalculates that he can get away with what his father got away with in last two or three years: sinking the Cheonan, South Korean naval vessel, the bombardment of the South Korean island, which of course is not a central attack on the South Korean state.

But if he reaches a calculation that he can get away with that again, then every temperature check I take in Seoul, including last week, when I had some time with newly elected President Park, is that this would be a radical miscalculation. I don't believe President Park has the domestic room to move simply to continue to turn the other cheek.

And once you get into the escalation business on the peninsula, none of us know where it stops. And you can see American concerns reflected on that question, given the demonstrative reinforcement of the South Korean strategic position by various actions in the last week.

And the last one which is really worrying the Chinese is this -- and it's longer term, but it really animates the foreign policy establishment -- is that North Korea as an ally of the People's Republic of China really gives their global foreign policy reputation a really bad name. It's like, on the one hand you've got Bashar al-Assad, and on the other hand you've got Kim Jong-un, and with friends like that, you know, who needs enemies in the business of trying to project a global foreign policy for China, where their strategic mission as a country is to be a great power globally and a respected great power globally.

And so the foreign policy establishment, frankly, internally is going nuts on this question. And the manifestations over the last three months, which I was talking to Win Lord about before -- who is an enormously experienced actor when it comes to China, back to the Kissinger days and since, and he was ambassador when I was a first secretary in our embassy in Beijing and he's a seriously accomplished tennis player, apart from anything else, used to beat every Australian who walked on to the court with him -- is that what you now see is the Chinese saying to themselves that this is beginning to be a price too high. And we have four or five manifestations of big public statements now, not just the most famous one concerning the editor most recently, who subsequently apparently lost his job, but others as well across the policy spectrum now speaking out on whether North Korea, frankly, as a very close ally of the United States -- close ally of China is any longer worth the trouble.

So this is a dynamic time and I think it's an opportunity, therefore, for the United States at a genuine geostrategic level to seek to engage the new administration of Xi Jinping on, frankly, a whole lot of contingency planning about North Korea. And the Chinese have resisted that up until now. I think there's a different atmosphere in Beijing on this at the moment. I don't know how it's going to turn out, but it's different to what I've seen at any time over the last 30 years.

RUBIN: Let me ask you a two-part question, then. Do you think the United States foreign policy community, which -- those in office, not this community -- those who are actually there, who I know you've interacted with -- do they recognize this? And do they think about this the sort of way you've just described, and more broadly, if you were advising President Obama how to deal with his relationship, how to structure his relationship with the new leadership, what would your advice be?

RUDD: I'm not to provide him with any public advice. (Laughter.)

RUBIN: Well, I agree with that.

RUDD: A visiting Australian, you know --

RUBIN: I agree --

RUDD: We're (actually ?) welcome, too -- (inaudible) --

RUBIN: Let's say he invited you to the Oval Office, he closes the door and said neither us will repeat what -- which still might not happen --

RUDD: Just apart from you, Bob Rubin, in a public forum like this and a bunch of television cameras.

The -- no, I think my view is this. The foreign policy establishment in Washington is acutely conscious of the debate on North Korea which is now raging in Beijing. And like myself, someone who watches this closely, we're not quite sure where it's going to land, but we do know it's a more open environment than it's been before.

Let's look at the calculus as it's been for years with China. What do we prefer? The odium that comes from being North Korea's number one supporter in the world or having a divided peninsula, which provides us with a strategic buffer -- that's China -- a strategic buffer against an ally of the United States being on the Yalu, as you said before. And up until now, the latter argument has always dominated. I think now these things are in genuine flux for the reasons I outlined before.

In terms of U.S. engagement with China more broadly on geostrategic questions, including on Korean questions, the article that I've written in Foreign Affairs magazine actually goes to this, which is I believe that we have a problem and an opportunity right now in the U.S.-China relationship. The problem is the yawning strategic trust deficit between the two. Australia, we're an ally of the United States. Australia, we have supported the rebalance. Australia, we support American active continued geopolitical and geo-economic participation in the region, American accession to the East Asian Summit as a full member. We're partners with you in the rollout of the Trans-Pacific Partnership when it comes to the economy and trade.

But beyond that, there is now, I think, a new opportunity for the U.S. to engage the Chinese on what I argue in the Foreign Affairs article as being a new strategic road map to incrementally build strategic trust step by step on issues where it is possible to obtain agreement through a program of work-agenda-based summits between the two heads of government, President Obama and President Xi Jinping. It's not starry-eyed. It's not some sort of widely idealistic view that we can proclaim peace and brotherhood for all humankind, signing it up 11:30 tomorrow morning. It's how you build trust step by step.

If you -- I was talking to Win Lord before about what it was like in the Kissinger days, and frankly, it didn't just happen overnight in '71-'72. A series of steps were taken, nanobytes of trust were established. Large bytes of trust were then bitten off and each became a building block into the future. I think that's the challenge and the opportunity now. And one of those building blocks could well be a genuine strategic dialogue on the future of North Korea, particularly against the contingency of regime collapse.

RUBIN: Why don't you just, before we go on to everybody else -- you had mentioned something to me on the phone yesterday about Camp David. Why don't you give your thought on that?

RUDD: Yeah, I think -- I think there is a real opportunity right now, given President Obama's re-election, not facing the challenges of re-election, and secondly, President Xi Jinping's appointment as Chinese president in the National People's Congress last month, that you have an alignment of the political terms. You don't have a presidential election starring at you or even primary starring at you for a couple of years.

He doesn't face the reappointment process in Beijing until five years hence -- four and a half, five years hence. I don't think we're actually going to find a time of, shall I say, politically clean air like you've got right now for a long time to come after this point of time.

So, secondly, I think this is a great and creative and perhaps unique strategic opportunity for President Obama to invite President Xi Jinping to Camp David for a very open strategic discussion about how can we build strategic trust step by step -- not a massively ambitious agenda, but work items. One or two things on the global rules-based order which aren't working at present, which together we could make work better. Regional rules-based order, simple confidence- and security-building measures in Asia and the Pacific, so you don't have unintended but potentially disastrous incidents at sea, which then rapidly escalate. And frankly, South China Sea at the moment, it's got more things floating around on top of it than we've seen since the Normandy landings. Sorry, that was Australian hyperbole, probably not.

And similarly, bilaterally, I think the time has come, for example, for the Joint Chiefs of Staff here in the United States to be meeting regularly with Chinese counterparts, quarantine that from political interference in the future in terms of the ups and downs in relationships. This is key and important stuff now to deal with, including the possibility of rules of the road for cyber, where, frankly, this is escalating out of everyone's control.

So I think there is a time frame, which is relatively unique. I think they're not scheduled to meet until in the margins of the G-20 summit in Saint Petersburg, in September. I think, despite the fact that Xi Jinping has been here as vice president and has met the president and spent a lot of time with Joe Biden, that there is a unique opportunity to use Camp David for the purpose for which it's historically been used, which is bringing people together to get to know you and to see whether in fact a cooperative agenda could be carved out.

My final point on that is the Chinese, in the last 12 months, have begun using a particular phrase to describe their characterization of the relationship with the United States in the future. It's a new one. It's six characters and it means a new model of Chinese -- a new model of great power relations. Now, what does that mean? Well, frankly, the analysts haven't quite worked it out yet. But it's a new phrase and it's now littered across all the Chinese official literature. This is how they are now proposing to frame the relationship with the United States.

What we do know is that they say the conflict is not inevitable between rising powers and established powers. And they think that conflict is avoidable. And that's one of the characteristics they attach to this concept. They attached a few other broad characteristics as well. But what I'm saying is there is an opportunity to fuse this new Chinese language, on the one hand, which is important in their own domestic politics -- means a whole bunch of things -- with what I would regard as being step-by-step building of strategic trust in the global, regional, and bilateral issues I referred to before.

I'm not saying that you therefore somehow relegate the hard security questions -- the hard security questions of alliances, military preparedness, and the rest. This is simply an intelligent, in my argument, rework of the strategic cooperation arm of a continued hedging strategy of which hard military preparations represent the other arm.

So lest I be misunderstood here, that's what I'm arguing. But I think it's an opportunity worth seizing.

RUBIN: We would now be open -- yes, sir. Somebody has a microphone, I think. Do they -- yeah, they do. There you go. State your name, affiliation, and question.

QUESTIONER: Jerry Cohen, NYU Law School and the Council. Is there room in this new idea about a new model for great power relations for international law? Are the great powers and the peripheral states of East Asia getting so desperate because of their inability to handle the current crises that China has been rather assertive in promoting that they might finally do what nation-states usually shun, which is turn some of the issues over to international law?

And as you know, I'm asking this question in the context of the South China Sea and the recent stunning Philippine government suit against China, challenging its nine-dash line that would give China over 70 percent jurisdiction over the South China Sea. China rejected that claim, unfortunately. I think it's mistaken and it violated its obligations under the Law of the Sea treaty. But it would be very helpful if you could give us your thoughts on this.

RUDD: Thank you very much, Professor Cohen. And it must be acknowledged, your internationally recognized expertise in the domain of -- recognizing your internally recognized expertise in the domain Chinese law, back in those days when it wasn't fashionable. And I know enough about sinology to know your eminence in the field.

I think at present, if you look at the slogan, a new form of great power relationship, which the Chinese have now put forward, it's got four bits to it. I won't run through all four, but the fourth of them is greater cooperation with the United States and others in global institutions. It provides, if you like, a head of power -- not quite a head of power, but at least a point under which a discussion could evolve with the Chinese about the use of international legal jurisdictions.

The second point, though, is this. The political probability of that happening any time soon is remote because hard power considerations within the Chinese leadership would conclude that if you began to submit any sovereignty claim to international jurisdictions, whether it's the UNCLOS tribunal on the one hand -- United Nations Convention on the Law of the Sea -- or the ICJ or whatever, then you're losing control of it. And the political risks in terms of the central Chinese leadership fearing that they would lose a case, lose face, and therefore lose power, are frankly the dominant considerations right now.

But what I would say to you is there is a line in the definition of a new form of great power relationships which enables the beginnings of a discussion of that point for the future. Unlike you, frankly, the reason we have these tribunals is to learn from the massive historical examples which confront us of enormous blood being spilled over territorial claims and maritime territorial claims as well.

QUESTIONER: My name is Peter Goldmark. Out of deference to our guest, I'll identify myself today as a member of the board of directors of Lend Lease, a multinational based in Sydney.

Would you share your thoughts on three other areas in which both Australia and the U.S., along with China, will be active: food, energy, and reform of the international global monetary system, if we can call it that?

RUDD: These are excellent questions on all three counts. There is a debate often in Australia about the future of global food security. In the case of China, if you look at the changes to calorific intake, you look at the problems of domestic climate change within China, you look at the problems of urban encroachment on arable agricultural land, you look at water supply difficulties as well, together with a massive domestic political issue in China, which is food safety standards, there is a massive global opportunity for farming communities in this country and in Australia to position themselves well with partners around the world to meet these challenges for the future. Not just for China, but frankly the global food deficit, which arises from the world population growing from 7 to 9 billion by the time we reach 2050.

Co-investment involving Chinese capital in farm production in Australia and other countries I think is something worth considering as well. Some of this is already happening in our country. I don't know about the United States. Of course, it raises all the local political sensitivity questions which you'd be familiar with here in America as well. But these can be dealt with so long as everyone is getting, you know, their fair share of the returns on investment. But I see a massive market opportunity globally and a huge need, given population growth and China's own agricultural development challenges.

Secondly, on energy, in terms of the new gas revolution under way here in the United States, the Chinese look at this very carefully and they're looking at their own capacity to replicate that themselves. China's strategic mission is to be as self-reliant as physically possible in terms of their long-term energy needs. They feel about as comfortable about being reliant on Middle East oil and gas supplies as the United States has always felt, and that is somewhat anxious.

They have sought to diversify their sources of supply, which is why one of the major outtakes of the Australian LNG industry have gone to Chinese clients, as well as Korean and Japanese clients as well.

And Australia itself will be developing, I think, the third largest natural gas supplier in the world before too much longer, with operations both off the Northwest Shelf, but other parts of Australia as well.

But the Chinese, apart from diversifying their energy sources around the world, including their continued and protracted negotiations with the Russians about pipelines into their own country and their associated security concerns with that, are doing whatever they can to replicate new gas, shale gas in their own country. There is a massive effort under way.

That's food and that's energy, and your last question was on the global monetary system. As someone who was at the first summit of the G-20 here in the United States in Washington in 2008 with President Bush, and then attended the subsequent four or five of those G-20s, now, what struck me in what were the darkest hours on the global economy and the global financial system from Lehman's through until frankly March of 2009 -- and this was a pretty white-knuckle set of moments around the world for those of us who were privileged and terrified to know what was actually going on -- is that the level of intense collaboration with the Chinese at that time, within the G-20 framework, would surprise many people in this room. The Chinese were deeply seized of how serious this was, were actively engaged with American and German and British and Australian counterparts on what they saw as the unfolding financial tsunami coming out of the failure of key institutions here and then elsewhere, and then reacted with us in a -- the commissioning of what then became the Financial Stability Board with a raft of financial regulatory recommendations and then decisions which you're familiar with in this country and which have been greeted somewhat negatively in various parts of the financial community here in the United States as well.

What struck me, though, is frankly how willing the Chinese were to collaborate on those financial system regulatory questions. Where it stands today, I'm less well briefed because it's been a while since I've been at one of these meetings. But speaking to all of the participants, the Chinese engagement still remains generally constructive. And the reason is the Chinese have massive international financial assets at play at any given time. And they, whether they like it or not, have become stakeholders in the global financial system, and therefore have a huge interest in minimizing global, structural, systemic risk into the future.

RUBIN: Just one quick follow up on Peter's question. The shale gas and oil in China -- this is a comment, but -- I mean, it's as a comment after your question -- my impression was that it was under deserts and under mountains and therefore not accessible the same way ours is.

RUDD: Well, and my brief on that is that the whole revision of the Chinese geological map that is under way right now, given the innovations in shale gas, has yet to produce its definitive conclusion, but it's more complex and I think the received wisdom up until now that it's too far away, too remote, and too deep to be exploitable. So -- but I would bow to experts in the room who know more about the industry in China or the potential industry in China than I do.

RUBIN: Professor.

QUESTIONER: Ralph Buultjens, New York University. So much of international politics also depends on personalities. So my question to you is this. Is the position of Xi Jinping primary? Is he first among equals? Has he enough political capital to overcome any opposition to his ideas? And what is your assessment of the position of Kim Jong-un?

RUDD: My analysis in terms of Xi Jinping is this. He's likely to turn out to be the most authoritative Chinese leader certainly since Jiang Zemin and possibly since Deng. Why do I say that? Two sets of reasons. He has nothing to prove to the military constituency within the country because of the strength of both his father's and his own military credentials. His father was a revolutionary general, pre-'49. His father is revered as such within Chinese politics and political history. Xi Jinping has also, unlike Hu Jintao, worn the military uniform himself and was private secretary to Defense Minister Geng Biao for about five years as well. And so when the military look at Xi Jinping, they don't look at a guy who they think they've got to educate in terms of the needs of the military establishment in the People's Republic of China. And so he comfortably wears that mantle of leadership.

Then, on the other constituency, let's call it the economic reform constituency, how you manage an economy -- a semi-market economy in the 21st century global economy. Again, he has a double advantage. His father was on the economic reform side of the agenda in the post-'49 period, worked closely with Deng in initial efforts to reform the economy in the 1950s, something which people have not researched adequately, but there is a pedigree there. Most spectacularly, he's known as having been Deng's implementation man for the Special Economic Zones when they were announced in about 1981. And Xi Jinping himself has been responsible for running the economies at a municipal and provincial level in some of the really big locations in -- up and down the East Coast, including, of course, Fujian. In fact, when I first met Xi Jinping, I think he was either vice mayor or mayor of Xiamen, back in the Mesolithic period of my own career.

So -- and so he has known on the ground what it's like to deal with foreign investors, to deal with development projects, to deal with cost of capital, and all those sorts of questions. So he doesn't have a whole lot to prove.

Third thing I'd say about Xi Jinping is that he's very comfortable in his own skin. He's -- he easily wears the mantle of leadership. This is a person who in my own meetings with him when he was vice president -- I was prime minister at the time -- would go through hours and hours of conversation without a note in front of him. And I think Vice President Biden's experience may have been the same when he hosted Xi Jinping in this country last year.

And the last point I'd make is this. The ease with which he -- within a week of becoming general secretary of the Chinese Communist Party last October, was saying, we're going to do things differently. We're not going to have motorcades every day. We're not going to have millions of pointless meetings which are all for show. We're not going to have banquets every second day to keep everybody well-fed and well watered with Maotai. It's actually going to be a lot simpler than that. This is actually -- had a pretty good result in retail politics in China where the taxi drivers and folks like that think this is not bad. It's quite new. But think of the authority it represents. Within a week of becoming leader, you go out there to the national body politic and say, I don't like the way in which my predecessors have handled themselves. I'm going to do it differently.

So therefore, my argument, including to the folks in the White House, is I think -- and I've said this for sometime -- is that we should give at this stage Xi Jinping the benefit of the doubt as someone that the United States could do business with.

It may be established through a process of sort of negotiations that I just referred to before and outlined as a new recommended strategic road map for U.S.-China relations, the work program and the summits that it proves not to work. But frankly I'd rather find that out through discovery, rather than simply projecting that that may be the case, therefore not try in the first instance.

QUESTIONER: North Korean leader?

RUDD: North Korean leader, I've never met him. I've not played pool with him. I've certainly not been in a theme park with him. And -- you've seen those photographs of him on the -- that's a curious way to reflect your leadership gravitas, which is to go on the whirligig at the downtown Pyongyang theme park.

RUBIN: Yeah, but who was going to object? (Laughter.)

RUDD: The guy pushing the whirligig. (Laughter.) Or, for that matter, some of the other more curious things that we've seen for him.

I know something about domestic Chinese politics. I cannot pretend to give you anything reliable in terms of what actually goes on in the North Korean regime. The simple reason is the level of opacity is still profound.

RUBIN: Yes, ma'am.

QUESTIONER: You've talked about the idea that the United States -- oh, KT McFarland from Fox News. When you've talked about the opportunities that might be there between the United States and China to have a strategic dialogue, if you go back and look at the 1970s, where it was triangular diplomacy -- United States-China-Soviet Union -- if the United States doesn't take advantage of that opportunity, do you see the Chinese leadership, as they did with Xi's first symbolic visit to Russia, would they go in that direction?

RUDD: This is a very good question which I've been thinking about a lot and can't claim to be able to deliver to you an extraordinary insight, but I would say this. Why did it all work with China and the United States in the early '70s, apart from the extraordinary interpersonal diplomacy of Win Lord and Henry Kissinger --

RUBIN: In that order?

RUDD: Yeah. (Laughter.) I know who's here. (Laughter.) And I'm not seeing Henry till later this afternoon, so -- (laughter) -- I'll invert the order then. The -- it's because of a very basic geostrategic question. The complete fracturing in strategic trust between China and the Soviet Union and a new strategic rationale which the Chinese leadership grasped and ran with. Of course, it was not an immediate process. From '71-'72 through until diplomatic recognition in '79, there were some bumps along the road. But that was the underpinning strategic rationale. So from '71, '72 until 1991, that was the rationale for the geostrategic relationship between United States and China.

Then the Soviet Union collapses. From 1991 to the present, that underpinning strategic rationale has not existed. And what we've noted, I think, is what I would describe as incremental drift in the relationship. That is not the fault of the United States. It's not the necessarily the fault of the Chinese. It's simply an objective reality. It's the trust deficit I've mentioned before. And let's also be very blunt about the fact that China is a rising power with greater economic power and flexing its geostrategic muscles. It's been out there asserting its own position as well.

That brings us to the present and I think the excellent nature of your question, which is: So, what is now the current Chinese view of strategic cooperation with Russia? I am not a student of Russian politics, Soviet history, though I probed Russian leaders on this question many times of their long-term geostrategic view of China. But I do read the official Chinese literature and there is enough in the literature to suggest that there is a possibility and desirability of these two, not just within the BRICs, but bilaterally to themselves form a much closer strategic partnership than we may have assumed possible in the past.

So it may be just one element in the overall equation for which I argued, but I think there is some importance for the U.S. and China to start talking turkey on trust-building exercises into the future between themselves.

RUBIN: Yeah, is that Jacob -- no, it's not. Is it? Yes. I can't see who it is, but in any event -- (laughs).

QUESTIONER: Nick Braget (ph) with -- (inaudible). In terms of territorial disputes, could you bring us up-to-date with the Senkaku Islands? It seems to have gone out of the headlines. So I wonder what went on behind the scenes.

RUDD: Quite a lot. The -- and most of which I don't know about and very few people would. I think things got to that stage, in fact, prior to the famous lock-on incident which occurred about, what, three to four weeks ago, when the weapon system -- the radar attached to the weapon system on a Chinese naval vessel locked on to a Japanese naval target less than three kilometers distant about some hundred kilometers north, I think, of the Senkaku/Diaoyutai. These deep impression(s) that I have picked up from friends in Tokyo and friends in Beijing as of last Christmas, when I was in China the previous time, was a mutual desire to manage this down and not allow it to continue to head in the reverse direction.

There has been a lot of interpersonal diplomacy and back-channel diplomacy between Tokyo and Beijing on this question, as I'm advised. And that's why I think you have seen a relative de-escalation of language and a relative de-escalation of incidents.

Of course, this is still highly febrile and this will require a lot of combined diplomatic work to be successful. Remember the pre-election commitment of Shinzo Abe was to install meteorological equipment on Senkaku. Frankly, if that was to occur, I think we're looking at a very, very, very difficult trajectory. I think there is wisdom in frankly simply anchoring things where they are, managing it down, and -- this is the real trick that has to be accomplished yet -- informally, quietly agreeing on future patterns of deployments in and around these couple of islands that you reduce, minimize, though you can never eliminate, the risk of further incidents at sea or in the air.

RUBIN: Way, way in the back. Yeah.

QUESTIONER: Thank you. Jonathan Tepperman, Foreign Affairs magazine. A simple question, what do you see as the prospects for Chinese domestic political reform in the next five or 10 years? It's certainly not something we hear much about these days, but do you see any prospect for a general opening?

RUDD: Within the next five, no. But in the subsequent five, possibly, depending on what you mean by political reform. The number one priority right now in terms of -- let's call it the political structure -- is to manage and to minimize corruption, as Xi Jinping explicitly acknowledged, I think, in his first speech as general secretary of the Chinese Communist Party. If we don't manage this and manage it to reasonable proportions, the party will collapse, and he gave a number of illustrations of similar parties around the world which had collapsed.

That's their current immediate political priority. That's why he's put his number one, you know, point man, Wang Qishan, who many in this room would know, senior vice premier, also on the standing committee of seven, in charge of the party's discipline inspection commission. Surprised many of us because he's an economy guy, but he's so trusted and so competent and so capable and frankly knows how businesses operate as well that he's been given this paramount responsibility.

Then you go to what might occur in the second term. And here, I based this on conversations and instinct rather than anything which I could describe as hard intelligence or fact. So that's my caveat, is that the Chinese leadership are smart. They know what is happening with this massive incremental rising middle class expectations. You speak to any Chinese person under the age of 35, and I saw a number of these kids yesterday at Harvard when I was up there giving some lectures, come up and say, you know, Kevin, when are we going to have democracy in China? When are we going to have meaningful democratization? And that is a common discourse with any person under 35 in the People's Republic of China today in the cities. I cannot say that for the countryside because it's a long time since I've been to the countryside. So they know that's happening.

Secondly, the barometers in terms of press freedom, despite, you know, ups and downs here and there, are frankly relatively positive. If I was to contrast Chinese press freedom with where it was when I had lived in China for the first time, 30 years ago, with where it is now, it's then on Richter scale of one to 10, it would have been -1. And now it's probably around about 4 to 5. It's quite stunning what is now openly discussed and debated in the Chinese print and electronic media.

So that's happening. Then, of course, you've got this social media revolution, which we're all familiar with. I'm on Weibo myself. I weiboed -- sorry, that's the Chinese Twitter. So I weiboed this morning about my joint presentation with Jon Huntsman last night at the Kennedy School public forum on China Rising. And there are 200 to 300 million on Chinese Twitter, Weibo. And look, I read this stuff. I know what's there. And it's pretty out there, a lot of it, and very direct stuff. People saying to you online, why don't our politicians do that, when I described my day in politics back in my constituency in Australia -- being out, talking to people at a local shopping center, you know, complaining about, you know, dead cats and live dogs and this sort of stuff that you do as a member of parliament, and correctly so.

So these are more than straws in the wind. There are deep structural forces at play. So what's the $6,000 question? Six-thousand-dollar question is will the Chinese Communist Party ultimately say. we are prepared to use whatever measures in the future to maintain the political status quo ante, or incrementally open up the political system? My hunch and instinct is that they will progressively, they would say privately to you, in an evolutionary way begin to open it up.

The thing they say to us and to their own domestic constituency, no one in this country being where we've been in the past wants to see revolutionary change. And so in his second term, it's an open question as to what form that might take. I have a private theory, which is supported by no one else I've met anywhere. And I'll be proven to be monstrously wrong, but that never stopped Australians from opening their mouth in the past. And that is in the Chinese constitution, you have the party, you have the National People's Congress, and you also have this other institution out here called the Chinese People's Political Consultative Conference.

The last one is called an advisory parliament. I would think it could make some sense for the Chinese to begin experimenting with some form of popular election to the advisory parliament in the future. Ultimately, its powers are purely advisory. They're not legislative. They are vested in the National People's Congress, which currently is totally appointed, as is the advisory parliament at present.

So if you wanted to begin to demonstrate that you were making some progress in this direction, that might be a relatively benign place to start. I've no evidence to base that on at all. It's purely a theoretical speculation.

RUBIN: We have time for one or two more questions. Way, way in the back, yes, ma'am.

QUESTIONER: Nice to meet you, Mr. Rudd. I am Hao Lu with Xinhua News Agency. And my question is about the U.S. antitrust litigation against the North China Pharmaceutical's vitamin C sales. So Mr. Rudd, do you think --

RUDD: Not a case -- (inaudible). (Laughter.)

QUESTIONER: So do you think similar cases will increase in the future? And how to resolve these problems between the two parties? Thank you.

RUBIN: Do you know anything about that?

RUDD: I don't know -- I've followed it in the broadest outline. Let me just say this in terms of antitrust actions. I'm familiar with the history of antitrust law in this country and where it all came from. I think it is a part and parcel to what we in all open economies around the world would describe as the proper functionings of competition policy. And we take antitrust -- we call it abuse -- anti-competitive conduct in Australia -- seriously in our own national laws as well, as do most economies in the world. And our laws and legal system are blind to who violates or doesn't violate. If there's an action to be taken, they undertake it. In this country, it is exactly the same. And I've seen some of the most spectacular cases in the past.

So I'm not going to comment on the details of the case and the likelihoods for the future, but I would say this, and flipping it almost into reverse to our friends in China, is that one of the great next steps for Chinese economic reform lies in the phased introduction of Chinese domestic competition policy law. It is by that means that you would begin to provide a greater level playing field for the emerging private firms in the Chinese economy when they find themselves in a legal position of not being on the same playing field as some of the very large state-owned enterprises.

I know of so many individual examples in China where you have brilliant entrepreneurs, who have started off new firms and grown them from nothing into something big purely by the sweat of their own brow and their own extraordinary enterprise and hard work, to run hard up against a state-owned enterprise which believed in that part of China or nationally they had some sort of natural monopoly or near oligopoly.

So I would say to our friends in China, this is always hard. It's difficult when you first do it. You are dealing with special interest groups, as in fact the antitrust legislation in this country, in the United States 100 years ago. But in terms of the health and vitality of the economy, what makes market economies work is a competitive environment. And I would strongly say to our friends in China that's what's going to be a large part of China's future economic strength, if you can bring about that reform. Otherwise, you'll see a flood of private capital out of the country.

RUBIN: We have time for about a half a question more. I'm going to ask it myself. I remember being in the embassy -- U.S. embassy in China in Beijing about two years ago and the chief of mission said that -- chief of station said to me that Chinese viewed us as yesterday's story and themselves as tomorrow's story. What is the perspective in China with respect to United States, given the financial crisis and the dysfunctionality of our political system?

RUDD: I think the baseline view on the -- (inaudible) -- in Beijing is this: They see you as both yesterday's and tomorrow's story. Yesterday and tomorrow's story. China and its leadership are fundamental respecters of strength. When China looks carefully at the profound strategic assets of the United States, at the hard edge of power, the People's Liberation Army understand what you can do and they are mightily impressed by that. That is not to say that China is not seeking to militarily modernize itself as rapidly as it can, but there is currently a light-year separating where China is today, where the United States is today across the full range of military capabilities.

On soft power questions, which is -- let's just pick one -- innovation within the economy, surely Chinese economy, perforce of the size of its population, is becoming a global force. And within the next decade -- it's sobering for many in this room to reflect on it -- we are lucky to have for the first time since George III the world's largest economy being a non-democratic, non-Western, non-English-speaking state. That's called the People's Republic of China. And norms will flow from that into the international economic system over time. Another reason why the kind of strategic engagement I've recommended before about global order cooperation between China and the United States is so paramount now.

But when you talk to the Chinese, apart from the quantity and the size of their economy, onto the qualitative questions about innovation as a future driver of Chinese growth, the Chinese in any private conversation, after one or two Maotais, will readily tell you, frankly, the massive problems they have in terms of domestic capacity for innovation. And they look at this country and its capacity economically to regenerate and to renew and to turn itself again into something else aided by the wisdom of your country, and ours for that matter, of maintaining open immigration policies such a long period of time, so that bright new people come from around the world, challenge us and add to our creativity. Chinese look at that and they think, wow, you know.

When they're sitting there, looking at all their information technology which they're using, looking at each item and where it was invented -- not necessarily where it was made, but where it was invented, it always also causes pause for thought.

So my message overall is this, is that the hardheads -- not people who just write, you know, trashy airport novels about America's gone, bye-bye, sayonara, that's it, but the people who really analyze the drivers of national power -- they still regard this country as a formidable place.

The challenge to the United States -- the challenge for all Western democracies today, given the extraordinary impacts of economic globalization and disruption of our financial systems is our ability for our political establishments, frankly, in a very challenging environment to provide the long-term national leadership necessary to deal with these challenges. It's not a partisan comment. It's a structural comment.

RUBIN: Kevin, we thank you and that was really a remarkably impressive discussion.

RUDD: Thank you. (Applause.)

RUBIN: You were terrific, really.