Paulson and Rudd: China's Economic Reform Is the 'Engine Room' for Xi's Political Vision

Video: Highlights from Henry Paulson and Kevin Rudd's talk at Asia Society New York on Sept. 11, 2014. (4 min., 18 sec.)

On October 22, 2014, the Asia Society Policy Institute will launch a major report that clarifies the ambitions of China’s economic reform program, assesses the progress China has made in implementing reforms, and forecasts the impacts the program will have on China’s economy and the world economy.

NEW YORK, September 11, 2014 — In a wide-ranging discussion at Asia Society, Henry Paulson, former U.S. Treasury Secretary and chairman of the Paulson Institute, and Kevin Rudd, former Prime Minister of Australia, discussed China’s present and future in terms of President Xi Jinping’s vision for the country, China’s economic reform program, the country’s influence on climate change, and China-U.S. relations. (Watch complete video of the event.)

“President Xi Jinping is central because leadership matters in China — he is not a normal product of the collective leadership process as we’ve seen from China from the last 20 years. Xi has a long and reflective view of where China needs to go,” said Rudd.

Rudd described President Xi Jinping’s vision for the future of China as one comprising two parts: “the rejuvenation of the country” and “China’s dream and my dream for my future as an individual.”

Added Rudd, “This is not just an abstract political vision for a nation, but for a person as well.”

Rudd noted that the “engine room” for President Xi’s vision is the economic reform program announced at the Chinese Communist Party’s Third Plenum in November 2013. Paulson assessed the challenge that China will face in pursuing economic reforms and implementation, observing, “There is a real need to make dramatic change in the existing model, which is a very difficult thing to do with a $10 trillion economy.”

Paulson said he has been paying particular attention to how international companies can enter the Chinese markets and compete while also pursuing “constructive engagement.”

“It’s too early to tell, but if China’s going to succeed in achieving what it needs to achieve economically, it’s going to need a level playing field, predictability, and the rule of law. I think the principal battle will be between those reformers who want to open to international competition and regulators and domestic industry who want to have limited competition,” he said.

Rudd pointed to the profound implications that climate change, localized pollution, and other issues have had on China’s approach to economic reform and international relations. Reflecting on his participation in the 2009 United Nations Climate Change Conference in Copenhagen, Rudd noted the Chinese were decidedly absent from those negotiations, but have now come a long way from their previous stance.

“The impact of growth on the environment has been the single greatest radical change in the Chinese political economy over the past three years,” said Rudd.

“Both the policy reasons and for reasons of the actual Chinese citizenry on the center of gravity on the need for climate change in China has changed dramatically,” said Rudd. In tackling climate change, Rudd argued that the Chinese are heading in the right direction with the introduction of a cap and trade system, but also a newfound concern for the global implications of their environmental policies.

“We now have a massive global interest in how China manages this and how the U.S. manages this as the second-largest polluter. If China gets this right, the planet has a reasonable future. If China doesn’t get this right, I don’t know that we’ve begun to think through the broad implications for the world or the foreign policy dimensions of this,” said Rudd.

Paulson pointed to climate change as a topic in which the U.S. and China share major interests and should be able to commit to collaborative solutions without argument.

Speaking further about U.S.-China relations, Rudd said, “This is the relationship of central importance for the world and for the next half-century we either get it right or we get it wrong. We might be able to muddle through, but frankly this is going to require intellectual effort from both leaders.”

Paulson added, “When we construct policy in the United States [we] have to be aware of what’s going on in China. It’s dynamic. [We] have to understand what their domestic issues are, and out of that change will come opportunity. […] The Chinese, like anyone else in the world, understand strength, and we have to continue to repair our economy and be strong economically, militarily, and diplomatically.”