Asia Update—Perspectives from International CEOs

Monday, October 12, 2015
Aly Song/Reuters
Gail Kelly

Former Chief Executive, Westpac Banking; Member, CFR Global Board of Advisors

Anand Mahindra

Chairman and Managing Director, Mahindra Group; Member, CFR Global Board of Advisors

Zhang Xin

Cofounder and Chief Executive Officer, SOHO China; Member, CFR Global Board of Advisors


President, Council on Foreign Relations

The chief executive officers of leading companies in Australia, India, and China discuss the geopolitical and geoeconomic issues facing Asia today.

HAASS: Welcome to the Council on Foreign Relations. And today I want to introduce you to these three individuals. Some of you know some of them, but not all of you do not know all of them. So I will do the introductions.

Far away from me is Zhang Xin, who comes from China, and she is the CEO and co-founder of SOHO China, which has got to be one of China’s and the world’s largest real estate development firms. Is that fair?

ZHANG: In commercial real estate.

HAASS: Commercial real estate, OK.

The gentleman sandwiched is Anand Mahindra from India. And coincidentally, he is the chairman and managing director of the Mahindra Group. It’s amazing how these things work out. (Laughter.)

And closest to me is Gail Kelly from Down Under, from Australia, and she’s the former chief executive of Westpac Banking, which is one of the largest financial institutions in Australia and beyond.

So it’s great to have the three of them for lots of reasons, one of which is these three individuals are founding members of the Council’s Global Board of Advisors, which was created in 2012. And for those of you who aren’t familiar with it, it’s a high-level advisory group made up of business leaders, academics, former government officials from around the world, from developed and emerging-market countries alike. And the great news for us is they give us an international perspective on what is going on, particularly about their own countries and regions. And we’re having our annual meeting of the Global Board tonight and tomorrow, and we thought we would add this to expose them to you, our members, and our members to them.

And what we thought we would do—as you’ve noticed, we’ve got three countries in the Asia-Pacific all represented here, although just to be clear none of these individuals represents their country in the sense of government and the rest. That’s why we have ambassadors and foreign ministers and the like. But they are of their countries. And the context—we’re talking about things Asia—could not be better. We’ve just had all sorts of visits here, most recently the Chinese leader, Xi Jinping. In about a week we have the leader of the Republic of Korea—of South Korea—or even sooner than that. We got TPP. The Trans-Pacific Partnership will be presented to Congress in less than a month, then Congress will have two months to look at it and the vote will happen presumably in January. We also have the visit, I should have mentioned, of Prime Minister Modi of India. In Australia, the government there has been playing musical chairs. So lots going on. And what I thought I would do is start off with a bit of conversation up here, and then we’ll open it up to you, our members.

So why don’t I start with Gail Kelly, which is, you just have had a change in leadership. Do you—sometimes when the person at the top changes there’s more continuity in change, and sometimes when the person changes there’s more change than continuity. So I guess the difference is, now that you’ve had this change at the top, so what? What difference is it likely to make for Australia, either for domestically or internationally?

KELLY: Thanks, Richard. And good afternoon, everyone. I must say it’s an absolute delight to be here and have an opportunity to meet with you and talk to some of the members of the Council. So thanks, Richard, for having us here.

HAASS: Well, thank you.

KELLY: Let me start by just making a few overall remarks about Australia, and then I’ll answer your specific question about our new prime minister.

Australia is often called the lucky country, and I think I can really understand that. You can no doubt hear from my accent, already you’re saying, is she really Australian? Well, I am. (Laughter.) But I was born in South Africa. I’ve now lived in Australia for close to 20 years, and I can certainly attest to the fact that Australia is the lucky country. It’s now into its 24th year, I think, of uninterrupted growth, and that’s its longest period of uninterrupted growth and I think longer than any other country.

And there are lots of reasons for that. Clearly, the wealth under the—under the ground is one big factor that accounts for the lucky country element. Also our geographic position and our very strong relationships within the region, and particularly, obviously, with China. Just to mention China, we do exports of over 100 billion to China each year, and that’s more—

HAASS: Is that Australian dollars or American dollars? (Laughter.)

KELLY: (Laughs.) I think that’s—I’m not sure, actually. That’s a good question. (Laughter.) It used to be closer to parity, now it’s not so much anymore. But that’s more than the total combined of what we do with the U.S., with Germany, with France, with the U.K., with South Korea and Canada. So it’s a very significant relationship that we have with China. So that’s part of the lucky country element.

The other, of course: a skilled population, it’s a safe environment, there’s a rule of law, there’s good social safety nets for people across the country.

Having said that, we’ve had a challenging time, like anyone else, over the course of the past few years, post the financial crisis. We came well through the crisis—a very strong banking sector, good regulatory environment, good supervisory environment, a budget that was in surplus going into the crisis—now in deficit, but in a modest sort of sense. The challenges, though, are clearly to do with a loss of confidence, both consumer and business confidence, and that’s clearly a function of what’s happened globally—the volatilities globally, the geopolitical issues globally. Also, both businesses and consumers found themselves very heavily indebted going into the crisis; sort of woke up one morning and said, my goodness me, I’m carrying far too much debt for my own comfort. We all know the Australian housing love and phenomenon. And so consumers and businesses have been busy getting their own balance sheets in order and de-gearing, which means of course much lower levels of consumer spending, which feeds into lower levels of overall economic growth.

So right now economic growth is sub-trend for Australia. It stands at around 2 percent, a little more. But that’s sub-trend for Australia. And I think we’ve become a little complacent in the—in the years over the past period. There’s no doubt that we’ve relied upon this resource boom and somehow I think thought that it would go on for longer than it has. And we’ve become a bit complacent. We didn’t do enough during those years of the resource boom to prepare the way for the structural changes that would be required to more of a services-based economy, and to build on the capabilities and the skillsets that we have and prepare our way for an aging population, the intergenerational challenges that are coming, to prepare the way for the technology changes that are sweeping the world—the interconnectedness sweeping the world, the transformations to businesses and industries sweeping the world. And I think Australia’s got a good role to play there, but we haven’t done enough to actually prepare the way for that.

So coming to your question—and of course, you know, you mentioned musical chairs. We are on the fifth prime minister in five years, which does sound quite amazing for Australia. (Laugher.) But to come to your question, I’m feeling actually quite optimistic at the moment, and perhaps more optimistic than I would have been six months ago or a year ago had I been talking about the next phase. And that’s because I actually think in our new prime minister, Malcolm Turnbull, we have—we have someone who’s smart, someone who’s experienced. He’s pragmatic in his approach. He’s centrist from a policy point of view. And he really understands business, having come from a business point of view. And most importantly, he’s started out with a message of optimism and a message of confidence, a message of positive energy for the future. And that’s what Australians want to hear.

We know there are things we need to do around productivity and we know there are things we need to do around structurally changing our economy. Those are difficult things that need to get done. But we’re looking for leadership that can articulate a vision, can build advocacy and coalitions around that vision, and can actually then articulate the path forward, what needs to get done, and how to go about that, building those coalitions. And I actually think that Malcolm Turnbull is best-placed to actually do that.

So structural change along the lines of labor force reform that’s going to need to take place; taxation reform that’s going to need to take place; more skills-building, especially in the area of STEM—technology, science, design skills; at school level—primary school, senior school, and then of course at university. So serious sets of changes that are required, but I’m actually feeling quite optimistic.

HAASS: Great.

Anand, let me turn next to you to get things started. There was tremendous optimism and expectation when Prime Minister Modi became prime minister, and some of that is gone. And you have something of a debate going on. It’s a little bit of the Indian version of the glass half empty, glass half full debate. And he’s run into some of the—you know, he’s—I mean, it’s—growing at 7 or 8 percent is a high-class problem. Most countries around the world wished they suffered from such problems. But yet, there’s still a sense of it’s not quite clicking in terms of creating the sort of environment that would attract the investment levels you want, the trade. It’s difficult to still govern, in many ways, in India, given the layer cake of Indian governance.

So what is it? Is the glass half full or half empty? How are we to understand, if you will, the reality, as opposed to either the promise or the hype?

MAHINDRA: Thanks. Richard mailed us saying that we were expected to give an opening statement initially for five to seven minutes. But now I’m learning, Richard, that you are the master of an expression maybe only Gail will understand—a master of the googly. (Laughter.)

KELLY: Cricket.

MAHINDRA: The googly is a tricky way to pitch the ball in cricket. (Laughter.) So I’ll get used to this. (Laughter.) He’s turned the tables on what I was prepared to say. (Laughter.) But—

HAASS: I told you, actually, that you can just ignore the question and say what you were prepared to say. (Laughter.)

MAHINDRA: You know, Gail did a masterful job of that, but—(laughter)—

HAASS: Actually, I’m going to tell—I’m going to tell a 30-second story. It was my first month at the Council and it was September, the U.N., and we had a leading visitor from a country not to be named, and we had negotiated for weeks about the terms of the meeting. And he had wanted to give a long opening statement, and we said we don’t like doing that at the Council, and so finally he relented. And I asked the first question, and I got a 60-minute answer. (Laughter.) So I’ve learned how these things work.

So give your opening statement. (Laughter.)

MAHINDRA: I gather you’re subtly telling me anything less than 60. (Laughter.)

But let me—let me come to your question. I was—I was talking to you just before we came for lunch that a very reputable firm, you said, Richard, called Pew, which does polls internationally, just did one recently and found that Prime Minister Modi’s popularity in India was up to 87 percent. So if you asked him whether the glass was half full, he would say it’s brimming over. (Laughter.) It’s not—it’s not half full.

I would definitely, and without any hesitation whatsoever, say it’s half full, and let me—let me just explain why. First of all, I suppose Marx used to believe that it was dialectics that drove history, that there was some kind of inexorable force that would make things move or not move. Frankly, in India, it’s just the opposite. If there is any chance at all of the economy moving, of transformation finally happening, it’s because of a change in leadership. So all those who believe that history is made from heroes and people, he’s a very good example of change. The jury is out whether it will change, but if it does it’s because of him.

Now, this man has a personal agenda, which is very simply that he wants to be the person in history after Swami Vivekananda, who was a quasi-spiritual leader who came to the U.S. and introduced India and its culture to the West, that’s what he wants to be. He wants to be the man who is going to introduce the new renaissance India to the West. So he’s got a very strong personal agenda.

Now, is that bad? Frankly, no. It’s been a long time since anyone defined any aspiration for India, and if it comes out of personal goals that’s fine. To be honest, the last prime minister, you have to approach him just to make sure he was breathing. (Laughter.) And at least this person is alive and energetic. (Laughter.) So to be honest—

HAASS: Now, remember, this meeting is on the record. (Laughter.)

MAHINDRA: You know, I am—I am close to retirement, so—(laughter)—I—

HAASS: You just got a lot closer. (Laughter.)

MAHINDRA: No, don’t forget, I was talking about the previous prime minister. (Laughter.) So I figured I have enough tenure left in this one to survive. (Laughter.) But, no, I’m used to saying what I speak, Richard, so that’s fine with me. But he—this gentleman has a personal agenda. And as—and as you can see, the Indians don’t mind that agenda. And I’ll just quickly talk about five things I think he’s done which are changing what’s happening in India, and why I think the glass is half full.

First of all, he’s changed the conversation around development. This is a prime minister who is unequivocal about the role of the private sector and free markets in taking our country forward. When he was in the U.S. last year on his first trip, he spoke at the USIBC in Washington, and I was astonished. He said in that large gathering that I’m from Gujarat, business is in my blood. I can’t remember when an Indian prime minister thought it would be politically correct to say something like that. Frankly, I don’t think any leader in the world has something that obvious, that business is in my blood. And he—and he means that. He really believes in free markets. So he’s changed the conversation around that. He’s changed—he’s got a new slogan of “Make in India;” at least that’s better than what it was earlier, which was putting the brakes on in India. And he really is talking about investment. He understands that infrastructure investment is required. His finance minister said that when he came here, right in this room if you recall, about infrastructure. So it’s not only one person.

There was a question, does he have a Cabinet worth anything at all? But frankly, the dramatis personae there are very strong. He’s got very strong ministers in railway and energy, in transport, in defense, in finance. So there is—there is a team out there that’s working. It’s not just this one man on a mission.

The second thing I think that he’s doing is he’s really taking India to the world. He’s gone around. There has been criticism that he is far too itinerant, he should be at home focusing on the domestic economy. I think he is very smart. What he is doing is that he knows it’s going to take a while to crank up the Indian economy, but he is going around the world letting Indians believe there is an agenda that India can be respected again. And for whatever it’s worth, he’s positioning himself as a global go-to guy for a lot of economies in the world, whereas earlier they were simply ignoring India.

I think the third thing he’s doing is really he’s setting targets. He’s setting very clear targets about what he wants to do. Again, there has been criticism about the number of things he’s trying to do. You want to do—you want to—you want to change this, you want to build a number of toilets, you want to do—you want to change the entire land acquisition bill, you want to do GST, and so on and so forth. But the fact is India—as you said, Richard—is horribly complex. If you want to get that flywheel moving, it’s not like there’s one silver bullet. You have to start actions on a number of fronts.

And as far as priorities are concerned, well, you know, frankly, he said himself that when he first came on, on the Independence Day, he said I want India to build toilets. And he said, which prime minister would come out here and talk about toilets? (Laughter.) But the fact is—and you know, everybody knows that—nobody says it out of the political correctness. But whenever India talks about becoming an emerging power, people say, for God’s sake, your people are defecating on the roads, by God. (Chuckles.) They won’t tell you that to your face, but it is about the lack of cleanliness that discourages people about believing India has a future. So this man is smart. He understands that this is a very important problem if he’s going to change India’s perception.

I think the other thing that he’s done, really, is to get into dealing with his problems one by one. You said that things have changed. Bollywood is always a good analogy in India. So you know, in the classic Bollywood film you have the hero, he comes in, he flexes his muscles, looks like nothing’s going to come in his way, and then he’s set upon by all the villains. And that’s the mid-part of the movie, where he’s struggling against all the villains in the world. And then, of course, he finds his way out. Modi is in the middle of this movie right now. (Laughter.) He’s got—he’s got everybody coming in and trying to set upon him, trying to pull him down.

And what I think he’s doing—I see only a sprinkling of Indians here, but maybe you’ll remember the movie “Sholay.” There is a classic dialogue where Dharmendra, in this melodramatic way, says “chun chun ke marunga,” which means I’m going to pick out my enemies one by one. And I think that’s what he’s doing. He’s picking very clear battles. He moves back when he needs to. Everybody wanted to talk about the land acquisition bill. He got tremendous opposition. He moved back and he said, you know what, I’m going to let the states do it. We are the united states of India, after all. Let them frame their land laws. And that’s happening very, very successfully.

So he goes in and then he says, I’m going to use digital India to make a detour. So I call it the digital detour is what he’s doing. He realizes—as you said, Richard—the bureaucracy, the opposition in India is very strong, doesn’t allow you to move. What is “digital India,” he calls it? It’s bypassing the bureaucracy. He’s getting subsidies through targeted subsidies directly to the people. He’s got a whole campaign on for people to sign up to having one digital number to themselves; 900 million people have signed up, which allows you to get rid of all the losses and the corruption that was happening.

And finally, I think, you know, he is moving to the center. Everyone knows that he comes from a background which is sort of right-wing. But as we know, anywhere in the world, when you become a leader, finally, you have to move to the center. He’s doing that. I think that’s where the criticism has been the most from the world: wherever there has been communal action, is he speaking out loudly enough? I think there, too, he will, in my opinion, recognize that he is going to have to be a leader of everyone and be inclusive. He’s saying all the right things, so I’m hopeful. But that’s the only place where the jury is really out right now.

So let me stop there.

HAASS: Well, thank you.

Let me turn to, last but not least, Zhang Xin. I often describe your president as having the toughest inbox of any world leader. And I look at all the things: trying to change the economic model, dealing with pollution, dealing with corruption, dealing with demographics, dealing with slower growth. You know, it’s a long list. So how’s it going? (Laughter.)

ZHANG: Pollution is actually, I’m happy to report, it’s getting a lot better. Because I run every morning, first thing I do is to check pollution level. And it’s really coming down a big way, so that’s good.

I think before he came in power, the two things people remember about China was corruption and pollution, and high growth. So high growth, accompany with pollution and corruption—which is a problem, right? So he came on power. He’s made himself very focused on anti-corruption. And also, because the anti-corruption, the pollution level also went down because it’s also related to corruption. So a lot of—

HAASS: Why is that? Why is pollution and corruption related?

ZHANG: Well, because if you pollute and you bribe your local government, you get away with that, you’ll continue to pollute. So the fact that pollution wasn’t able to be contained, it was related to corruption.

So that’s—if you just look at the anti-corruption, it’s going on really strong and it doesn’t look that it’s slowing down. It seems to be continue at the full steam. So that has achieved a few things.

One is, obviously, he’s achieved very concentrated power. People are fearful. Now, you can argue that’s good or bad, but the result is people are fearful and the corruption has gone down a lot. And it can manifest itself: even the pollution has gone down.

HAASS: We hear, though, with the concentration of power—sorry to interrupt—that it’s also, though, harder to get decisions made, that many people are worried about taking a decision on Monday because, given the anti-corruption drive, they’re worried that on Tuesday that the winds could change and they could be put into a vulnerable position.

ZHANG: That’s the byproduct. You know, when you have so much anti-corruption going on and the corruption has gone down, and in the same time that oil used to fill the growth and through corruption, that’s also come down quite a bit. So you do have people—companies don’t know what to do. And if you’re bureaucrats or if you had Chinese state-owned company—because so much of the economy is owned by state-owned companies, right?—and if you see so many people are—your ex-colleagues and so on arrested, being put in jail, I think you wonder what would happen. So your incentive is not that high.

HAASS: What did—what did you hear when the markets really got hammered? You know, for a couple of weeks the Chinese market wasn’t just falling, it was plummeting. A lot of people had invested—there was a lot of retail investing because a lot of people had been encouraged to put their money in the market. So what was—what was the—I mean, obviously people are unhappy, but what was—beyond that, what was the sense? Was there panic? Was there anger? What was the—what was the vibe in the country?

ZHANG: I get a sense that his focus is on stabilize the country, stabilize the power, making sure the Communist Party will continue to rule the country. That’s number-one priority, and probably less attention has been paid on economic growth. But it just happened at the time when the economy is slowing down in growth, so people used to—I mean, people used to get high growth, right—10 percent, 14 percent at one point, and then go down to 8 percent. And now, you know, we’re talking about a new normal which is even lower than that—maybe 7 percent, 6 percent. So as people are adjusting to the slower growth, one thing that’s happening is the money that used to channeled to ever-growing real estate prices has really not—has stopped and not going to real estate so much, and they went to stock market. For a short period of time that the stock market went doubled—double the—it went from 2,000 points to close to 5,000. And then I think—but the backdrop of this is a slower economy growth. And how can the stock market go up so fast when your economy is slowing down?

So then, I think, the State Council got worried about it, wanted to control it. And the minute they started controlling it, the market went down—collapsed, as you say; you know, went down so much. And at that moment, you know, the question is, do you go in to intervene? Because the fear seems to be so irrational. And obviously the State Council went in to intervene and then seemingly stabilize at where it is, the level, at 3,000 now. It’s still 50 percent higher than the 2,000 level.

Now the market seems to be relatively stable at that point. I’m sure they’re still supporting it. Now, how long will that take, don’t know. But the stock market collapse was more to do with the fast increase and then the government trying to manage it.

HAASS: Before I open it up, I want to ask you each a question. It’s in some ways the same question, but it will be slightly different for each of you, which—at the risk of being insular and self-referential, it’s about the United States. So I’ll start with Gail. We’ll do the same order. Which is, TPP, you’re the only person on the panel whose country is part of it. What is the sense in Australia as to their confidence it will pass? And what would be the reaction if it didn’t? What would Australians say about the United States if TPP, after all this, if it couldn’t—it couldn’t come into effect?

KELLY: Well, yes, Australia’s clearly an important participating player in the TPP arrangements, and for us it’s a very important agreement. We, as you might imagine, a very open economy, an export economy, very keen to facilitate and be part of liberalizing trade arrangements across the Asia-Pacific area.

By the way, one of the things we like about TPP is its open architecture. So, from an Australian point of view, we’d certainly like to have China and India, that are not in the TPP, actually become part of the TPP and—

HAASS: First we’ve got to get the Americans into TPP. (Laughter.)

KELLY: From an Australian point of view, I actually think it will be ratified and approved. I think this is going to get bipartisan approval.

From an American point of view, well, we are obviously hopeful that Obama’s going to be able to get the TPP through the Congress. I’d be keen on your perspective on whether that’s likely or not. But from—we think that there’s a clear benefit for the U.S., both commercial benefit as well as strategic benefit. There’s a commercial benefit because your products will be cheaper and be able to be more on a level playing field within the Asia-Pacific. And strategically, the TPP is much more than about trade and tariff reductions. It’s actually also about setting an international set of rules around trade that goes to intellectual property, that goes to environment, that goes to labor, that goes to services. So there’s an opportunity for the U.S. to be part of and facilitating that.

HAASS: And if for whatever reason Congress in its wisdom didn’t agree with you, would that change the way Australians see the United States?

KELLY: Look, we will just continue—no. I mean, the relationship with the U.S. and Australia is long and deep, and we’re allies, and there’s cultural ties and historical ties, and it remains really important.

But we will continue to pursue trade agreements on a bilateral basis, as well as on a regional basis within the region. So we are, for example, also part of that other major trade agreement that’s underway at the moment, called RCEP. I mean, that’s a very mouthful-ish set of words. So it stands for Regional Comprehensive Economic Partnership. And that’s being led effectively by China, but it includes China and India. And so the ASEAN nations; it’s China, Korea, Japan; and it’s Australia, New Zealand, and India. Now, that’s perhaps a little more trade-orientated, although it’s got some other elements. It goes to services and standards as well.

So from an Australian point of view, it’s a “both, and.” We very much want to facilitate trade relationships, the integration of trade flows within the region, the liberalization of economies within the region, the securities of the region. So it’s a “both, and.”

We’d like the U.S. to be involved. We welcome the U.S.’s interests in the—in the Pacific. But similarly, we have very strong relationships with our—with our partners India and China as well. So I think the ultimate for us—and our government’s on record on this; Andrew Robb, who’s the trade minister that’s leading our negotiations, is on record on this—we would like to see an overall APEC trade set of agreements. That’s going to take a while, so in the meanwhile we certainly hope that the U.S. gets us over the line.

HAASS: Anand, one of the clichés is that India is the world’s largest democracy and we’re the second-largest democracy. So how does the second-largest democracy—how do our politics look from the vantage point of the world’s largest democracy? (Laughter.)

MAHINDRA: I promise not to mention Donald Trump. (Laughter.) It’s probably been talked about all along, but you know, you’re entertaining the world right now with the whole process. (Laughter.) And I think—but there is a—there is a whole—I believe there’s a debate tomorrow or tonight—

HAASS: Tomorrow night.

MAHINDRA: Tomorrow night, so I’m looking forward to that.

But, look, people are just—the conversation around the world is—and seriously, not as a joke—how does a man like Trump get this far? And everybody has this conversation wherever you are in the world. I was in Singapore last week and I was in Italy after that, and everyone is asking this. And there are some very interesting, erudite analyses that have come out talking about the polarization in society and the anger that’s simmering. So most people outside are trying to understand it and make out what exactly this means.

But I think what’s not looking good to the world is that America is so divided. That is a very clear message that’s coming out. Nobody really believes Trump is going to be president, but what he symbolizes is a source of curiosity to the world. So I think the more this election becomes mainstream, the politics sort of begins to converge into a more recognizable, familiar pattern, the better it will be. Otherwise, the rest of the world is sort of bemused.

You asked me what—and I come to what we think of America economically. To be honest, the—and I said this, I think, the last time I was here, and it always get sort of a reaction—is that America, frankly, is the most resilient economy in the world, continues to be. And we sell agricultural tractors in one of our businesses, and we consider this our emerging market. And we are—we’ve been growing here at 30 percent a year selling tractors to the U.S. But despite all the talk about e-commerce and everything else that one likes to talk about—

HAASS: Where do you build them?

MAHINDRA: Where do we?

HAASS: Where do you build them?

MAHINDRA: We build them in India and then the final assembly line is here, where the accessories and everything else are put on, the tires and other stuff. There’s more integration going on here. We have about seven assembly plants, in fact, final assembly plants, around the U.S.

So everybody still—I think the world underestimated the U.S. Anyone who has lived here for a while—and I had the privilege of doing that as a student for a while—you get to understand the resilience of this country. You never give up on America. You always know it’s going to pick itself up and move on.

When I talk to my people back at home, I say we are making bets, frankly. Doubling our bets on India, obviously—which the jury was out a little while ago, until Modi came into power, but we are doubling our bets now. We are doubling our bets on America, especially when it comes to new-age businesses. We have designed an electric two-wheeler in California. It’s being made in Michigan. And we chose not to make it in India because when you do things like that this is the best place in the world to do, to incubate a startup. And ironically, we are betting on Europe because we think it’s a dark horse. We think that it’s, again, been undervalued how much the oil-price drop is doing to help European economies. And bets we’ve taken in Europe are beginning to pay off.

So coming back to the U.S., it’s our number-two bet after our home country.

HAASS: Interesting.

Xin, let me ask you a question, which is, you know, the United States I believe incorrectly, but in any case for whatever reason or reasons opposed the Asia Infrastructure Investment Bank, which was a Chinese initiative. We discouraged our friends and allies from joining it, unsuccessfully. Just recently we seemed to have acknowledged that was perhaps an unwise policy and we backed off.

But I want to raise the larger issue, which, in China, to what extent is the United States seen as somehow opposing China’s rise? How widespread is the view that we get up in the morning and we don’t really want China to emerge as a peer or as a global challenger to us? What’s the—either at the elite level or the popular level or both, what’s the take on how America views China?

ZHANG: I think this is widespread in China to believe. Most of Chinese, if you just interview people on the street, would say that America does not like the rise of China, and a good example is the Asia Infrastructure Investment Bank. You know, America went out of their way to persuade the allies not to join and only find out that the allies did join against the advice. And recently the TPP.


ZHANG: Right. The Chinese—at least I was under the impression; I may be wrong—that Chinese was not really seriously invited.

HAASS: Well, I think the issue would be that China doesn’t come close to meeting many of the requirements right now, but I think there’s—

ZHANG: Technically, yes.

HAASS: There’s other issues about signaling, about China’s—to what extent is China welcome, under what conditions, and so forth. And there’s a—

ZHANG: Well, I think the general perception was that America is competing with China in the regional—at least in Asia-Pacific to be the regional power, and China wants to play that role. And TPP, look at who is in TPP. Japan is in TPP. Australia is in TPP. And China is not. And there was a general understanding that China was just never seriously invited to be in. And given the tough technical requirements, which pushes China to open up everything, and that’s just clearly not the right moment to do that.

So anyway, so the general perception is that through the Asia Infrastructure Bank, through the TPP, that it’s evident—there’s enough evidence among the Chinese to believe that the Americans really do not want a rise of China.

And in the same time, you know, the complexity between the U.S.-China relations is that you have these competing powers, at least in Asia. You know, China has the ambition to be the Asia power—probably not on the global stage yet, but definitely in the Asia-Pacific, and America is competing with that. That’s on the one hand. But on the other hand, you have these—China’s economy, which is so connected with the rest of the world. So the American companies and Chinese companies are so connected that are beyond just which countries wants to be the regional head. So that’s how you have this complexity.

And I think the good part of it sums up, as a friend of mine told me. There’s always these American CEOs go to the White House to complain about China’s this and that problems, right. And one of the CEOs will go into the White House, pound on the table and Obama, and say you got to go to complain to Xi Jinping when he comes, and da, da, da, da, da. You know, the intellectual property issues, right? And then the minute that Xi Jinping came and invited the American CEOs, he was the first one to stand next to Xi Jinping and take the photo. (Laughs.) And of course, there he didn’t mention anything about the IP. So that gives you the complexity—the story gives you the complexity of the business is very connected, but the politics is very challenging. So that’s where it is.

HAASS: Just 30 seconds on TPP. I think there’s actually going to be a political dilemma for us. Selling it to some extent as anti-China trade accord might actually pick up a few votes. On the other hand, at a certain, shall we say, strategic price in terms of our relationship—

ZHANG: And that’s, however, just how China perceives it. (Chuckles.)

HAASS: OK. With that, as you can see, there is enormous breadth and depth up on this panel, at least these three individuals, so why don’t we open it up? As always, wait for the microphone, keep it short, and we’ll get as many questions as we can. And just introduce yourselves because not everyone up here may know everybody down there.


Q: Mia Chagon (ph).

I wanted to ask you a question about—both of you—about the TPP, but I think you answered.

I want to ask you, Mr. Mahindra, about the TPP. India is not member and is far from being able to meet the standards that are required to be part of it. But assuming that such a path in the future opens up—you know, kind of a lead in over a period of time—what we notice right now is all the trade pacts we have signed in Southeast Asia and even with China, the deficits are yawning and huge. In other words, we are simply not being able to compete and cut our own—make our own—you know, take advantage of these trade pacts that we have signed. So what happens with RCEP that Gail has mentioned? This is going to worsen. So how does the business community see this? I mean, how are we—how are we going to compete if we don’t have the basic infrastructure and all the other things that are required to be able to compete and, you know, hold our own in this relationship?

MAHINDRA: You know, I have always and very consistently been in favor of open trade, even at the risk of extinction of our own businesses. And frankly, when I joined our automotive company back in ’91, those of you who are familiar with Indian economic history will remember that was the year it was dramatically opened up. And I was running a business of automotives and tractors which was very unproductive. We were—it was predicted that we would die. And of course, that probably just added some fuel to our own energies, and we certainly didn’t die. I learned a very strong lesson at that point, that frankly the biggest spur to becoming productive and competitive is competition, no matter from where it comes.

So I’ve been a free sort of marketer ever since then. So it does worry me that India doesn’t seem to be in any of these groupings.

KELLY: You’re in the RCEP.


MAHINDRA: Well, RCEP hasn’t happened yet, but I was going to come to that. We are not in TPP. We are not in ASEAN. We are in some—one random—


MAHINDRA: Yes it was. WTO, yes. But I’m talking about these regional groupings. And we keep getting people who come and talk about bilateral. You know, Andrew Robb was in Mumbai recently again, saying why isn’t anything happening there. So we seem to be getting left out.

And I agree with you, I think there’s a business lobby against it. People are concerned. But frankly, I think we need to belong and I need—and I—and I think it is very far off that we will meet TPP standards. I’m told, Richard, that TPP itself might take a while for each member country to ratify. I asked, in fact, somebody recently, would that give a chance for India to come in? It looks very remote. So I think our best chance—

HAASS: Probably do that in a second phase.

MAHINDRA: Yes, but what I think might be interesting—and I’d love to hear your comments—is that we need to really be aggressive in moving with China on the RCEP. Make that happen. Make the RCEP members comply with the global standards that are required, and who knows, maybe there will be a happy wedding of TPP and RCEP at the same time. Then you won’t have a regional grouping; it’ll be one world trade bloc.

HAASS: There we go.

Who else has a question? Sir.

Q: Hi. Les Baquiran at Alpine Capital Advisors.

If you look on a map, in between your three countries is Southeast Asia, where my parents are from. And there’s a lot of important economic, cultural, national security linkages that your all three countries have with this region. I was wondering just your personal thoughts on the region as far as whether it be security initiatives, economic initiatives, your own companies’ corporate initiatives in Southeast Asia.

HAASS: Want to say something?

MAHINDRA: I just had so many time, so. (Laughter.)

ZHANG: I actually don’t know China’s on this—what did you just say, ACP, the Asia—



MAHINDRA: Yes, China is driving it, in fact.

ZHANG: Right. China in many ways is competing with Southeast Asia for—China is known for the world factory, manufacturing base. And a lot of it is moving away because the labor is becoming more and more expensive. Where is it moving to? They moving to Vietnam, Malaysia, even Indonesia. So in many ways China, in that sense, is competing with, but as much also exporting to these countries.

So that’s—I think generally in China the sense is that this government wants to be a regional power. That’s why they initiated this Yi Dai Yi Lu—(inaudible)—One Belt, One—

MAHINDRA: (Inaudible.) One Road, yeah, One—

ZHANG: Yeah. And that is clearly an initiative to create an economic zone that can be led by China’s investment. And whether that’s going to be successful to engage other economies to come in beyond China, it’s too early to say.

KELLY: I can perhaps answer for Australia. Clearly, the relationships within the region you’re talking about are critical. And I think our Foreign Minister Julie Bishop has been very proactive in engaging across the security issues, environmental issues, disaster preparation issues, a range of things, humanitarian efforts across the wider region. And businesses are actively engaged too. The business that I was the CEO of until earlier this year, Westpac—in fact, the name Westpac comes from Western Pacific—has had a long-standing business in the Pacific area and, again, very actively engaged in the commercial point of view, as well as the humanitarian point of view. So critical relationships for Australia.

HAASS: Sure.

Q: Hi there. Ella Goodwin with—(off mic)—Spring.

I was in India for Mr. Modi’s Independence Day speech, and came back to the office the next day. And the majority of our office are millennials. So they’re under 30. And I can’t tell you how jazzed they were. But I think the question I have is thinking about youth employment and the role of millennials in your own companies. I think we have a lot of talk in the U.S. about how they want to do well for themselves, but do well for their communities and for their country, and for the planet. And that means we need to engage them in different ways. I wonder if that resonates in your own labor force, and how it might change any of your own thinking about how you either recruit or engage them, or how they might be creating internal pressures in your own companies to do different things.

KELLY: Certainly, I’m happy to talk—or open the batting on that, to use your cricket analogy. (Laughter.) Critical—absolutely critical. And from the Westpac point of view, we discovered that we have five different generational groups. So we have active strategies to support and engage with each one of those five. And clearly, the millennials are the—are critical in that.

I think work needs to change. The whole concept of how work gets done needs to change, with the changes in technology that are occurring, interconnectedness that’s occurring. And so we’ve been, in Westpac, redesigning the models of how things get done from a physical point of view, from where work gets done to flexibility of work. Right now within Westpac it’s well-over 60 percent—I think it’s closer to 70 percent of our people across all age groups actually work in some shape or form flexibly. And we encourage that actively through the policies and strategies that we actually have.

It’s a strategy based on employing the right people, engaging the right people, having our people clearly understand what the vision is, what the strategy is, aligning their work to that strategy. But then essentially, there’s a big element of trust that those individuals will get on and actually do the work. Clearly, there’s performance management, methodologies and approaches that actually supports that engagement along the way. And we have little forums and workgroups and action groups that encourage the millennials to speak up, and frequently come to the executive committee, to the board, to talk about their thoughts, their objectives, their insights, what they would change, what they would do differently. So it’s fundamentally changing the way work gets done in a cultural sense in the organization.

MAHINDRA: We have a program where every year we take about six Americans from Ivy League colleges just after they graduate. Before they go to business school and become unaffordable—(laughter)—we get them to come into—they come in and spend a couple of years with us. And it’s very interesting that you ask this question, because just yesterday a young man who’s from Harvard via Brooklyn who’s working with us send me a wonderful essay he wrote about what it takes to market to millennials. And then ended it by saying, what’s the difference between U.S. millennials and Indians. It’s a fascinating study, but I won’t go into the details of it.

But he did—the one thing that came out at me, both from marketing to them and retaining them, was the word, authenticity. And he said, we want to come in and find meaning at work. Now, that sounds like a cliché. But he said, look, I mean it. We have the worst job opportunities, at least in America, since any generations before us. But despite that, we want to either buy goods from a company where when I come into work every day I have some meaning behind what I’m doing.

And what we have tried to do, about five, six years ago, was change our entire credo and come out with something called rise. So the tagline for Mahindra is rise. And it’s about actively saying, not just advertising, that we want to drive positive change, we want to think differently, and we want to—we want to really—the main goal of rise is to drive positive change or to create shared value, as Michael Porter calls it. And so the businesses we’re actively going into now do that—affordable housing, housing finance. We’re going into low-cost insurance for medical insurance. And I’m finding that what—that these are the kinds of businesses that are helping us to retain the millennials.

The last thing we have done is we’ve created a shadow board for the company. The shadow board is, nobody over 30 is allowed to join. We get people in from each one of our 10 sectors. And they form a board. And they meet on their own time. This is not something that’s paid for. They have to meet once a quarter. And then every year they have to come out and tell us what they would do differently, how they would run the company differently. This has been going on for almost 10 years now. So it’s not just the millennials we were targeting. And I’ll tell you, there are a couple of critical acquisitions we would not have made if this shadow board hadn’t encouraged us to do it. One of our most successful ones.

So it’s not only about ecommerce. It’s just how would you change business, how would you change the climate inside the company? And frankly, even though I am more and more hands-off as a chairman, this is one shadow—I mean, one board that I really listen to, perhaps—again, this is on the record so I shouldn’t say that—(laughter)—but more than my own board. I’m putting my foot in my own mouth. But that’s a board I listen to as well. (Laughter.)

HAASS: Duly noted. Xin, do you want to add anything to that?

ZHANG: Well, the thing about millennials, these days in China the brightest of the Chinese young people do not want to join a big company. They want to do their own start-ups. And they want to start—you know, do their own—create their own business and manage their own destiny. So witnessing this as a trend, we’ve come up with a new product called 3Q, which is a short-term rental office. You walk in, it’s like a Starbucks. You get free coffees and events, everything. And you can rent a desk by the week. And you can rent an office by the week. And it’s all online, you know, booking, payment, very simple.

So we get these amazing young people, all start-ups, right? Every day there are some events going on. They talk about their business and they invite—we invite other outside people to talk to them. So I actually—every time I go into 3Q I realize, these are the people who don’t care about politics, don’t care about, you know, all the things that we talked about just now, on what CFR cares about. These young people really—they only care about one thing, is they want to do their start-up well. They connect with the market. They sell their product. They have a lot of these, sometimes to me, some crazy, creative, innovative ideas.

Now, of course, many of them will not succeed. But some will become a brilliant company. So it’s a really exciting thing to go into see—when you go into a 3Q, that you realize that, you know, this is the part of China so not written about on the news, you know, by the papers, around the world, but it’s really vibrant and young. And that’s going to be the future.

KELLY: Just to add to something that Anand said, to the extent to which the millennials are joining big corporations, they really are looking for that authenticity. And therefore, forces and facilitates that organizations rethink their whole purpose, because the purpose has got to be about sustainability for the long run. And so everything that you do in your organization’s got to be focused on that. It’s not just about driving shareholder profit. That’s got to be an outcome of actually running your business in a completely different way. So sustainability is fundamental. And the authenticity that underlies that from every dimension—the way you process, the way you promote, the way you sell, the actions that you take, the lending policies that you might have, the environmental support that you might bring—every single thing’s got to line up behind your vision, your values and your purpose.

MAHINDRA: Absolutely.

HAASS: In the back.

Q: Andrew Klaber from Paulson & Company.

What is one potential event in each of your respective countries that people don’t think in the media, in the United States, will come to pass, but that you actually think is somewhat likely, something that’s surprising that we’re not thinking about?

HAASS: So it can be positive or negative, that fair?

Q: Yes.

HAASS: OK. What hasn’t been priced in? (Laughter.)

MAHINDRA: Well, it’s hard—I guess what I’m going to say is not something that hasn’t been accounted, but rephrasing—if I was paraphrasing your question, what keeps me awake at night, frankly is the region. I mean, that’s one of the things you had wanted us to talk about. But the region that we’re in in India, because you can talk about business all you like. I can—I can put all of that in the Excel spreadsheets. But if there is some kind of very, very strong up—situation in Pakistan, which is dangerous, where, let’s say, forms like ISIS come in and gain strength, that’s going to be a severe threat to the Indian economy.

Happily, the rest of the neighborhood is getting to look better. Sri Lanka, in fact, is booming. I would—I would way anyone who hasn’t looked at Sri Lanka should really do that. This is a second Singapore that’s coming up. Their insurgency made them miss the opportunity to become a second Singapore 20, 30 years ago, but they’re on their way. Bangladesh—150 million people. It’s a huge market. Our biggest export sales today of tractors and Jeeps are to Bangladesh. And funnily, you know, you haven’t been hearing much about Bangladesh, which frankly is good news. There isn’t anything, you know, tremendously negative going on there. It’s simply growing and developing as a market. Nepal has got some temporary unrest but, again, was booming. So happily, apart from Pakistan, the neighborhood is getting better. But if you ask me what is never priced in enough about India is the stability of our neighbor.

ZHANG: I think the—I like Richard’s analogy, saying that—what has not been price in. China currently has been priced in as a collapse situation, as a hard landing—not only hard landing, hard landing and collapse. So that’s the price for today. And I think most of us would be—you know, would not be too surprised in a couple of years if we wake up, actually, it hasn’t collapsed. And it’s because it’s so big. You know, the economy’s so big and so connected that the—to think that it’s completely collapsed, it’s—I personally think it’s way oversold.

KELLY: It’s hard to actually think about the positive when you ask a question like that. You immediately tend to—if you’ve got this business brain you immediately go to thinking, well, what are the things that could go wrong that I haven’t thought through or that I’m unable to properly plan for, prepare for. In that sense, I’d include the cybercrime phenomenon as something that sits on my mind, because it’s actually almost more difficult to put your arms around. It’s that enemy out there that’s more difficult to pin down, that can come from so many forms and so many different ways.

With the interconnectedness of communications these days, the social media elements, the drivers behind it—you know, whether you’re talking about denial of service or you’re talking about accessing data, the personal and professional damage that can be done to organizations and countries. So I worry a bit about that and I worry that we’re not doing enough internationally to actually coordinate and share efforts and collaborate to actually fight those forces—those negative forces that are inevitably out there.

HAASS: Sure.

Q: David Bard, American Securities.

Just building on that question, this—that sounds like exogenous factors. Let’s say you were in charge of your respective country tomorrow. What would be the most important thing that you would try to drive that you think you could affect the outcome?

HAASS: So if you were king for the day or queen for the day, what would you try to do?

KELLY: Well, I touched on it in with regard to Australia in my very opening set of comments. I think there’s a very positive vision for Australia because of the strong starting position we have of our resource base, our geographic positions, our strong trade relationships within the region, our strong historic and really important strategic relationships with the U.S., the skill base that we have, the quality of life that we have. I think there’s a very strong starting base that we have there.

And I think the challenges are manageable. And so it is articulating that vision for the future and then building the coalition around it and thinking about not so much how do we protect jobs of today, but how do we shape and find and source the new jobs of tomorrow? How do we more quickly restructure our economy towards the service economy? How do we drive the innovative change, build out the infrastructure for innovation, build out the skillsets for innovation that I think is going to transform the world?

HAASS: But let me—I’m going to push a little bit. I mean, like, if you asked me that question about the U.S., I’d have a long list. And I might say tackling entitlement reform, modernizing infrastructure, coming up with a serious immigration system—

KELLY: So it goes to productivity.

HAASS: —doing something about K through 12.

KELLY: OK, so it goes—I can do that. I can do that. So it goes to productivity, fundamentally. (Laughter.) And productivity across a range of things. As we are one of the worst countries in the world if you look at the World Economic Surveys around competitiveness with regard to red tape and regulation. We are bedeviled with it. So if could actually systematically try and improve that scenario, that’s one. Labor force reform is—I think our labor force is still set up more for the industrial age, the old way work gets done, not around the innovative new way work gets done. So innovation with regard to labor force—how work gets done, how it gets done. Taxation reform. We need fairer taxes, simpler taxes, taxes, again, that support growth. Our taxes are very, very complex and don’t do the trick.

HAASS: When do you announce for prime minister? (Laughter, applause.)

KELLY: But I think our prime minister actually has that vision and that slate of agenda items. But what he’s going to do—I think our previous prime minister had that set of agenda items as well. But I think under Malcom Turnbull we have the capability—he’s a good communicator, he’s a good negotiator, he will build coalitions and advocacy across the different bodies and industry and with the wider Australian population. Now, I hope I’m right, but I think we’ve got a better chance to build those coalitions and articulate that vision from the positive, rather than, look, if we don’t do this all these things will go wrong—from the positive.

HAASS: Anand, what would be the one thing you would change?

MAHINDRA: Well, I’ve referred to it already. So I would reinforce what’s happening in decentralization and what I call the digital detour, because India really in its current form, the size, is a very, very difficult place to govern. But once you decentralize power, which is one of the first things Modi did when he came in, and was to make states take a greater share of the fiscal receipts than they were taking earlier. But then the terms were now you better manage your situation.

I’ll give you just one example to make it concrete. The biggest thing everyone is waiting for is this land acquisition bill. It hasn’t been moving. You can’t get it through the upper house. So I don’t think he’s pushing on that. What he’s saying is, we have a model law. People know what we want to do. We’re going to leave it to the states. So you take a chief minister in a state like—called Andhra Pradesh, which he just came back in. What he’s done is he’s building a new city—31,000 acres.

How does he get land for this? He goes out and promises all the farmers sitting on the land which are meant to be the impediment that you come in as shareholders in this new city. Give me your land, I will give you at the end of a certain period of construction 30 percent of the land back, but in urbanized form. So the value will be 10X. In the meantime, he gives them an annuity of a nominal amount that keeps them going for a while, which incentivizes them.

Only a handful of people have gone in for public interest litigation. Everybody else has come in. The problem has been solved. And it’s been done at a statewide level. So what he’s shown is a new way to get this done. Now, he wouldn’t have been able to push this through parliament if he tried, but by letting the states do it, they have come up with the solution. I would just keep pushing on that. And I would really push to make sure that the rest of the people in the country—900 million have signed up. We were 1.2 billion. So the other 300 million sign up for their digital identity card, which allows people to give you benefits, subsidies, transfers directly, rather than have it eaten up by middlemen, which has been the problem with India.

Xin, you get the last word.

ZHANG: For China, you know, we became who we are in the last 30 years by opening up and pursuing economic reforms. You know, 30 years ago we were just like North Korea. So in this moment of containing corruption, containing problems—and it’s important to continue the commitment to the openness and economic reforms. And there is always a danger of thinking, oh, because we’ve grown so much and then, you know, we lost so much control, and let’s tighten the control, and then forgetting where we got to is really through the openness and economic reforms.

HAASS: Well, I’ve made a decision here. I don’t have a lot of power, but I have a little thing. And I’m going to institutionalize a meeting of this sort. This has been fantastic. And I want to thank the three of you for what you’ve done here today, but more broadly. This has been—(applause)—and again, this just gives you some sense about what this Global Board brings to the Council. So thanks very much.


This is an uncorrected transcript.

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