Stability, and in asia, where my country is located, we really want to see the emergence of common narrative of the future between the two of them. Rose kevin rudd for the hour next. Rose funding for charlie rose has been provided by rose additional funding provided by and by bloomberg, a provider of multimedia news and Information Services worldwide. Captioning sponsored by Rose Communications from our studios in new york city, this is charlie rose. Rose kevin rudd is a form are Prime Minister of australia. He was in office from 20072010 and again in 2013. Hes also a former diplomat and fluent mandarin speaker. He became the first president of the Asia Society Policy institute. I spoke with him recently at the asia society. We talked about chinas premiere, regional and global ambitions as well as u. S. Policy towards the region. Here is that conversation. Rose i have heard lots of stories, people have come to my table and talk about how jingping is exercising power how hes planning to change china, but tell me about him your impressions of him, how he came to power who and what enabled him to become the president of china. The first thing to bear in mind with xi jingping is his family background. He is the son of a former politburo member. He was in dengs politburo after he returned to the political stage, late 70s. After that xi jingping was entrusted by deng with a very important task. His task was to oversee the implementation of whats called the four special Economic Zones in china in the 19 it 80s. And thats what he set about doing. In other words, he was put in charge of what in china then was a highly controversial project. Putting back into chinese history its a bit like this those four special Economic Zones coincided with the 19th century treaty ports where Foreign Countries namely the british but a burn of others as well demanded exclusive access to these treaty ports and what the chinese described as the unequal treaties between china and the west. And so to go back to these after the revolution of 49 and then to say 30 years after that in 79, guess what were going to do . Were going to open the doors to these treaty ports to the west. The left of the Chinese Communist party said youre going to do what . This was not welcome news. This was the vehicle through which chinas initial exploitation occurred in the internal historiography by the Chinese Communist party. So xi jingping was given this job, and as a result the four Economic Zones were eventually expanded in scope. The number of special Economic Zones grew, and in time, the policies adopted in special Economic Zones were adopted across the country. So in the economic reform tradition of china, his father represents what i describe as a liberal reform agenda. But the other thing to say about his dad comes the other way around. He was also a revolutionary commander for the red army in the leadup to the 49 revolution. And so he is a Party Loyalist. His father is a Party Loyalist. Strong on the partys role in bringing about the revolution. Strong on the partys role in holding the country together. So with his father you have this combination of a hardline political supporter of the continued role of the Chinese Communist party on the one hand. But at the same time, someone who understands that chinas future hinges on the continuing reform of its economy in a market direction. We might find this to be an enormous contradiction in terms. But that very much explanation in part the political world view and the economic world view of his son xi jingping. Rose and as a leader, what you have seen so far . I have met him a number of times. In fact when i was a junior woodchuck working in the industrialian embassy in the 1980s, i first met xi jingping when he was vice mayor of one of the treaty ports, one of the special Economic Zones to the southeast of shanghai. He didnt know me, obviously, but i knew he was a significant figure in municipal politics then. Rolling the clock forward to my meetings with him when hes been vice property prt and my discussions with him since hes been president of the country number one hes one of the few chinese leaders i have seen conduct all of his engagements with politics, a person speaks extemp rainsly. He is enormously steeped in the history of his own country, in the history of his own party in the country. There is a profound historical frame of reference which affects i had current world view as well namely, that china having been first occupied in the modern period by the british after the first opium war, when hong kong was seated, through the defeat of japanese more than 100 years later, through what is called the humiliation, the foreign humiliation of the west plus japan. This is burned into xi jingpings world view and the need to cause china to go through its own national reawakening, its own national renaissance, the own national rebirth. And this is a core part of what he describes as his dream for chinas future to bring china back to a respected place in the Global Council of nations. The last thing i would say about xi gin ping as a person beyond his selfcches, not selfconfidence, not using notes, his historical frame of reference, he is a deeply committed Party Loyalist himself. So many in the and west in the u. S. As well assume that because of what weve seen in china when deng wore the cowboy hat when he visited china with jimmy carter when he visited houston. Thats right. When as i understand is in a state called texas. Im beefing up my american knowledge as we go by. The bottom slien we often assume since deng in the cowboy hat and the ups and downs of tiananmen square, that essentially theres a slow evolution of an open economy creating a more open society and a more open political system in china. Under xi gin ping the opening of the economy will continue. There will be a continued openness of society relative to a maoist past. But his political frame of reference is very much a conservative party view. And, therefore, what he will seek to advance and i think it is his world view is what he calls the china model, the China Development model not a liberal capitalist model. Its more of a state capitalist model, and i think its very important in that we in the collective west understand that. Rose what do you think misconceptions are among western leadersleaders about him and his intent . I think theres always a predisposition on the part of any nation state looking at another nation state to think the worst. Thats basically how dip lomats keep in business. And ive been one of those in an earlier professional incarnation. And themselves and intelligence agencies and defense departments have about them this view as a nation state whatever that country over there says is one thing. We are paid professionals to assume the worstcase scenario. And so often you see that around the world in relation to china. I think the largest pis meracception is this that somehow china has a growing military capability and military ambition to occupy in time part of its region. The bottom line is that whatever negative things you can say about the chinese tradition, it is not a substantial part chinese tradition at all, as it was with the europeans, to say, well, now weve got all this weg and power. How do we go and conquer the next blokes territory or the next ones or the next ones. Theres a view that frankly theres enough to messenger here under heaven, the middle kingdom, to not require us to go out there and do what the british did and french and everyone else did conquer the other half of the way. Rose we have seen here clearly in the 21st century a rising power which began in the previous century but is coming full stride. And we see a country that has not yet decided that its a stakeholder in the world but seems to want to increasingly be perceived as such. What are they up against and can they actually make it work. Rose right. And as a consequence of that, where do they think theyre going . A lot gets lost in translation when dealing with our chinese friend. And you mentioned the world before, stakeholder, which is bob zoellick, who is a good friend of mine and the head of the world bank in days past, and its to see jim wolfertson here, the previous head of the world bank bob when he was deputy secretary of state coined this phrase that china should become a responsible global stakeholder, which led to two lines of mistranslation in chinese. One around barbecues, like im going to hold a stake and what the hell does that mean . laughter that wasnt what bob had in mind. And secondly, as in stake, putting a stake through someones heart, stake. Rose they were confused when they heard that. This was not a good word, and basically there was a long pause as china tried to work on what bob was on about. The concept is a strong concept, but thats just how things get lost in translation. And i suppose on that core point its worth understanding this we have an expectation that in the collective west, in the u. S. That chine china will increasingly follow and comply with the rules of the global system, that we, the collective west have evolved for ourselves in the post45 period to which the chinese would say. Thats terrific. We werent even there then. Thank you very much, guys. Sowhich we say but you were. China was one of the victors in 45, to which they say legitimately that was the k. M. T. , not us. So their view is that the global rulebased system should be the subject of continuing review and reform. And as i look at some of the more recent speeches of xi gin ping hes quite sharp on the subject that the rules of the system need to be reformed in a manner which makes the system more just and equitable between states. That, i think, is a big challenge for us because we its collective west much of the developing world have accepted the status quo with the rules of the sp system as they exist. China is saying something quite different. We dont know the answer to it yet which is were engaged in the business of reform ago to use their terms changing to use their terms the rules of the system over time as our power grows. Rose the obvious example of that i presume is the reserve currency, the dollar is the reserve currency. What else . If at this stage their public pronouncements on all of this its still a little opaque. Let me give you one clear example. Theres been a great debate across the world in the last six months or so about chinas decision to establish the Asian Infrastructure bank. Of course, the response from the u. S. , the west, and the rest has been along the lines of, well why the hell do we need that . Weve got the Asian Development bank. We have a system of Multilateral Development banks around the world, ultimately with their parentage in the world bank, and these are run along international rules, and its all gone fine and dandy thank you very much since the days of britain woods. To which the chinese say, no not really. So theyve gone out there and established their own Asian Infrastructure bank to which we have objected. In order theyre establishing an institution outside of the u. N. And outside of britain woods. Its initial paid up capital is intended to be 100 billion so its not going to shake the earth in one go, but i wouldnt be surprised at all if it continues to expand. My end view, for what its worth bthat is given the Global Investment of infrastructure deficit around the world and developing asia, multiple sources of capital should be welcomed into the system. So long as the governance of these institutions is along professional governance lines. We havent raised objections to a thing called the Islamic Development bank in the past that though it praits extensively across the middle east. I think we need to be careful to just saying no it to any Chinese Initiative on the condition that governance sas you would expect of a properly formed financial institution. Rose what about militarily . Theyve got a lot of those. Its a phenomenon which unfolding. The Chinese Military expenditure in terms of annual growth has outpaced that of the United States for arguably the last 25 years. And with an annual growth. Annual growth, and with increasing intensity. But if you look, for example, at some of the International Data released on this, say that put out by the stock hiem International Peace research institute, which largely regarded as a fairly neutral credible, Global Institution assessing the hardware of each countrys military in the world they would probably put chinas total aggregate military expenditure at about onequarter, to onethird, at best, of the United States, in quantum. But we need to be mindful of where that heads in the decades ahead. But even the Chinese Military planners do not ceive of a realistic point in the conceivable future where the aggregate capabilities of u. S. Conventional power could ever be surpassed or equaled by that of china. Mind you, charlie, their view of their Foreign Policy role is somewhat difference. They see themselves as having expanding Foreign Policy footprint around the world and around asia in particular on the back of their Enormous Economic power. And thats happening as we speak. Rose how is the military somehow part of that . Are the expansion of chinese interests . If guto the military, lets start this in the narrative frame. The core interest which xi gin ping has in is to make sure the military modern sophisticated, of engaging in and prevailing in a military cop conflict and nand around the military. The first function of the military is protect the party under that country under the party and state constitution. Always important to bear in mind. The contingencies for which the Chinese Military plans, are primarily those associated with the longterm scenarios for the recovery of taiwan to the mains tender embrace. The chinese wish to achieve that by diplomatic means but if that doesnt happen, then under those circumstances, their war gaming is around how do you secure taiwan, and, therefore, defeat a u. S. Military or naval action in the taiwan straits rose is the outlook for china less today than when they were growing at 10 for all those 18 or 20 years, and or was it to be expect as they got large ethe base was large ethe growth would slow down. I think any of us who are students of economic history know an expanding economic economy engaging in trade for the first time will have extended, and rapid growth as you did with the history of the continental United States and its continental economy when it began exporting and trading with the rest of the world in great volumes itself from the 1870s effectively becoming the largest economy in t world. This is natural and slowly with a maturation, the economy as you move from developing to developed status, the growth rate narrows to an historical medium like 2 to 3 , like your economy and the australian economy. So the chinese in their planning have been absolutely fixated on how do you actually transition a rapidly expanding developing economy into a longterm Sustainable Growth as a developing economy while avoiding what they call the middleincome gap, and trap i should say in the middle. Hence, the Growth Strategy, or change in the Growth Strategy you just referred to, charlie. Heres the kicker, though on the way through can they sustain growth at sufficiently high lestles to provide the buffer necessary for the transformation to occur . And thats been really tough. One, Global Demand has been so flat. Look at europe at present, one of chinas principal export market. Look, until the last 12 months at the united stat chinas other export market. Net exports have turned out to be, frankly, a minor and even negative contributor to chinese growth. So what theyve done historically to try to fill that gap is pump prime by engaging in massive Capital Projects which has had the unfortunate consequence of creating asset bubbles in the property sector. Rose in real estate. Real estate and lets call it redundant state construction. I give them, the Government Credit as growth slows not to engage in that on the way through. But there are some seeds of frankly, i think of a positive nature to look at with chinas growth. The one piece of data which has emerged in the 12 months or so since they adopted the new blueprint for longterm economic reform moving from manufacturing and investment to the Services Sector and consumption, and that is the phenomenal increase in new business registrations. A phenomenal increase. Now, this has been achieved in part through some regulatory changes which dont require you to mortgage your life, your wife, and your house if you want to start up a new business, and thats been welcome. But as a result, the big driver for growth, which they hope will take place in the future, is through an emerging smawmbusiness sector, greater opportunity for private firms and if the reform goes according to plan, a contracting size of the standard enterprise sector relative to private firms. Rose leveling the field out a little bit . Through their own domestic and better neutrality laws. And thats another i went through a list of what could go wrong an