Podcast: The Global Impact of Coronavirus

TRANSCRIPT: The Global Impact of Coronavirus

Kevin Rudd:

A core element of risk right now is uncertainty, uncertainty about the trajectory of the virus, uncertainty about economic and financial impact.

Ian Bremmer:

Hello, and welcome to a special coronavirus edition of the GZERO World Podcast. Here, you'll find extended versions of the interviews from my show on public television. I'm Ian Bremmer, and today is a groundbreaking moment. In all the decades I've been examining global risk, this pandemic could be the most troubling near-term scenario I've ever seen, and I'll get into it with former Australian Prime Minister Kevin Rudd, who's got his own thoughts on the matter. Let's get right to it.

Founding president of Asia Society Policy Institute and former prime minister of Australia, Kevin Rudd. Good to be with you, Kevin.

Kevin Rudd:

Good to be with you, Professor Bremmer.

Ian Bremmer:

Yes, indeed. I'm going to start with your recent tweet, "If I were in office today, I'd pick up the phone to Washington and seek a meeting of G20 leaders, health ministers, and finance ministers. Markets need to see the world's 20 biggest economies are acting together in solidarity and will use stimulus as needed to overcome coronavirus." Not happening.

Kevin Rudd:

It isn't, and, well, for me, it's one of the most puzzling things. You see, markets are in the business of pricing risk and opportunity, but right now they're pricing risk, and a core element of risk right now is uncertainty, uncertainty about the trajectory of the virus, uncertainty about economic and financial impact. My experience from the events of '08-'09 is that markets were in free fall from the time we got the Lehman's collapse until March of '09, when we convened a G20 level, 20 largest economies in the world. And so, it was an agreed monetary fiscal policy approach. We agreed not to kill each other with protectionism, and we agreed on a future regulatory approach, including stress testing of major financial institutions. And markets at that point arrested their fall. And if you look at the graph, that's when they began recovering. That's the parallel timeframe I think we're in at the moment.

Ian Bremmer:

Do you see any remote possibility of that happening today?

Kevin Rudd:

I see some. You see, it wasn't just some global kumbaya moment where we all felt better in the morning. It was everyone's collective analysis, individual analysis of their national self-interest, which said, A, this thing's bigger than any of us. Even at that stage, bigger than the United States nationally. And B, no response would be greeted credibly by markets unless it was a collective response involving the major economies. Now the same logic applies now.

So your question is, is it possible now? Look, President Trump is President Trump. He's spent the last three years trashing most multilateral institutions. But if you look at the extent of the market collapse in America right now and around the world, and we know the president watches financial markets and stock markets acutely, it's sending a very big signal which is, Mr. President, we need certainty here. At two levels, what's the effect of global collaboration on virus management prevention and vaccine development? And on the public economic policy side, what are you going to do to deal with what will become a serious cash flow problem for a whole bunch of firms who are most exposed to the immediate impact of the virus and its consequences?

Ian Bremmer:

What do you think a plausible first step would be to get us in a direction of global cooperation? And who would take it?

Kevin Rudd:

I think the first step has to be a bilateral one between Beijing and Washington. And what I would recommend is a joint coronavirus task force between the White House and Zhongnanhai. But so long as America's friends and allies around the world, and some of China's friends, see Washington and Beijing had daggers drawn in this exercise, and the likelihood of pulling together a G20 summit, a virtual summit quickly by video link, even a working level summit at finance health minister's level, will be undermined.

Ian Bremmer:

There have been two narratives, very different, about China's role in all of this. First that they very desperately badly mishandled the initial phases of this outbreak; and second, that the Chinese are the only country that has been able to contain it, that the numbers are going down, and that actually more states should be looking to a Chinese model to be able to respond to coronavirus. Give me your initial reactions to that.

Kevin Rudd:

Well, to both the narratives you've just described, my answers would be yes and probably yes. Yes to the first, which is the outbreak of this evidences the worst elements of a top down hierarchical authoritarian political system where people at the bottom point, that is those at the service delivery point, were frankly unable to get a message out to the rest of the national system, early warnings, and to the world. In fact, the more you drill back, the more it was playing that there was work going on at a grassroots level from the early parts of December. So, that's a failure of their system.

Now when it comes to reacting to this thing at scale and with intensity, it's a bit like finally altering the course of the Queen Mary when it used to be the largest oceangoing ship in the world. Once it's gone bonk, then it's all systems go, all pistons driving in one direction. And with I'm sure massive abuses of human rights and civil liberties on the way through. But I look to carefully at what the recent WHO visiting mission of experts said recently, and they were strongly supportive of the disease management systems that the Chinese had put in.

Ian Bremmer:

This is by far the biggest crisis Xi Jinping has had to deal with under his leadership so far. What have you learned about him as a consequence of watching the last few months?

Kevin Rudd:

The first thing you learn about Xi Jinping through this is he rapidly concluded that this was a central threat to his own authority unless he handled the crisis effectively. And that is not just for external show. It's because they know and he knows in particular, that unless properly managed, what happens with a crisis like this, which affects the entire population potentially, is that it threatens the very nature of the social contract between a Communist party, which says, on the one hand, "Give me your civil liberties and your political freedoms, and on the other hand, I'll give you security and economic prosperity." So he very quickly deduce that this was a threat to him. So what's my estimation at this stage? Xi Jinping will continue. But those who are thinking of not allowing him to continue will have more arguments to throw on the table, including this.

Ian Bremmer:

How confident do you feel that the case numbers that we're now seeing come out of China in any way reflect the reality?

Kevin Rudd:

The more I read from Chinese sources and international sources, we I think can safely conclude that there are real question marks about the quantum of the Chinese reporting about overall infection rates. And you see, and the reason for challenging that is when you start to look at the rate of infection in non-Chinese environments, for example in South Korea and also in Italy, and if you were to apply those back into the Chinese system-

Ian Bremmer:

It exploded a lot faster.

Kevin Rudd:

... you would think that in the early phases it was much greater than has been reported. So I'm skeptical about that. What I'm less skeptical about is the actual mortality rate because that seems to be consistent between both reporting from within China and reporting outside of China. So where does that leave us? I think it leaves us with a conclusion that the overall number of people affected in China and by way of infection will be much greater. The total number of deaths will be much greater, but still with a constant mortality rate.

Ian Bremmer:

And does that give you any reason to believe that the Chinese government will be effective in restarting its economy in relatively short order?

Kevin Rudd:

I think the first quarter of 2020 will be negative growth. In fact, if we see-

Ian Bremmer:

In China, an actual contraction?

Kevin Rudd:

An actual contraction. If we see Chinese public data indicating positive growth, I think that it will invite a whole lot of question marks about the credibility of the data. And the reason for that is that you've seen all the traffic analyses of road density, of traffic density, as well as satellite imagery of what's happening in terms of pollution levels. This economy effectively ground to a halt. And so, therefore, we're going to see very bad data for the first quarter. Open question in terms of the second quarter.

Ian Bremmer:

What are the knock-on effects for Chinese foreign policy, for China's role in the world?

Kevin Rudd:

That is a global public relations exercise for the Chinese state. This has not been good. And it goes back to our earlier part of our conversation, which is how did this erupt? And with the system itself should have identified, notified, and contained us at an earlier level than it did. Of course, the Chinese state and party apparatus will be saying, "But hang on, we've had the most effective system in putting this under control." That'll be the counter narrative. But the third bit, which worries me more than the first and the second is this, it is actually at a popular level led to I think an even deeper poisoning of the US-china relationship. Again, a continued failure on the part of the US administration, in my judgment, to differentiate between Chinese people, the Chinese nation, and frankly the Chinese Communist Party. And even on the Communist Party front, I would not be engaging in an ideological war with the Chinese Communist Party in the middle of a national crisis.

Ian Bremmer:

And what about confidence inside China about the Chinese system?

Kevin Rudd:

Well, within China itself, if you go to Chinese social media, a bit like international reactions, there are two narratives. The internal narrative on the positive side, when they look at Xi Jinping's response, the most common term used in the Chinese social media response is "zheme lihai" which is how strong is that in terms of the measures in Wuhan, the measures in-

Ian Bremmer:

The hospitals that were built 10 days.

Kevin Rudd:

... the hospitals. Only Xi Jinping could do that. Now the other narrative is what we saw also in social media recently. Not just over the tragic death of Li Wenliang.

Ian Bremmer:

The doctor.

Kevin Rudd:

The young doctor who tried to notify, got sanctioned by the Communist Party and punished by the Communist Party, and then contracted the virus and died at the age-

Ian Bremmer:

The coronavirus whistleblower functionally.

Kevin Rudd:

Yeah, that's right. His age of 34. So when a Politburo member just in the last several days went on a walking tour of Wuhan, then from the tops of the apartments blocks where this Politburo remember was walking, you could hear through the social media people shouting, "Jiade, jiade, jiade" which means, "It's all BS."

Ian Bremmer:

BS.

Kevin Rudd:

And so, what's fascinating is how the Chinese official media then responded to these problems. So what have they done with Dr. Li Wenliang? From a guy who'd been punished by the local branch of the Communist Party before, he's now become a Communist Party hero.

Ian Bremmer:

And they've made him a hero because they have no choice. I mean, you might as well lionize the guy because it's already happening.

Kevin Rudd:

And the parallel to that, with the incident I've just referred to, with the citizen shouting out BS. The Communist Party media apparatus have now turned against the owners of that housing complex for misrepresenting the level of recovery within that particular area. So if you want evidence that this is a very sensitive and deeply contested internal political narrative, there are the two lines of argument that are being presented.

Ian Bremmer:

And I mean, just recently you saw this hotel that had been cleared out and the coronavirus victims were being housed in it, and it collapsed and many deaths. Has that been a really big issue in China or on the side of it?

Kevin Rudd:

It's say in the overall spectrum of things, it's a middle priority question in the coverage of the Chinese media. Not insignificant because it forms part of a long narrative about local corruption and building construction standards and building maintenance standards across the country. So if you're looking at it from an overall Communist Party legitimacy point of view, this creates big new questions. But those on balance who will try to give the benefit of the doubt to the system will say whatever happened with the cause of this thing and whatever happened with the failure for early notification, et cetera, at least we've had a massive effort-driven nationally in a no holds barred way, which presented this from becoming a total national disaster.

Ian Bremmer:

So I'm kind of hearing that this hasn't fundamentally changed your view of the stability or sustainability of the Chinese Communist Party.

Kevin Rudd:

I think that's basically right. A number of people have challenged the views I expressed a few weeks ago when I said, will this change the way in which China is governed? I tweet my response was, "No." The Communist Party's been around since 1921. It's been in office since 1949. Last time I looked there were 91 million members. It has a pretty significant 2.5 million strong People's Liberation Army, and probably as many people in the paramilitaries, the people's armed police, before you go to the intelligence network.

So therefore, a people suggesting that because we've had this, that that system will then turn on itself and fall apart from within, I don't think so. What I think is more credible is the analysis we discussed before Ian, which was what happens in terms of the internal debate about who becomes the next leader of the Chinese Communist Party, and whether that will be a person of similar ideological pedigree to Xi Jinping if it turns out not to be Xi Jinping himself.

Ian Bremmer:

Now, we've talked a little bit about what you'd like to see from the Americans and the Chinese and the opportunity that Trump should have in given that the Chinese are facing a really rough patch right now. Let's assume that doesn't happen, and that actually the Chinese opposition to the US, the patriotism that you see grows. We're in an election season right now in the United States. There's not a lot of support for a warm or fuzzier relationship with the Chinese. And if this gets worse and affects the US economy in a big way, that's probably going to become exacerbated. What do you think the implications of that could be for US-China? If this goes badly, how does it go badly?

Kevin Rudd:

I think where it goes badly is in intensifying the pace of economic separation, though I use that as opposed to the term decoupling.

Ian Bremmer:

Decoupling.

Kevin Rudd:

Because our Chinese friends will always calibrate what can be managed in terms of their own intrinsic national economic interests. Where I do not see it erupting is in a fundamental head-on-head geopolitical conflict. And there's a reason for that. The Chinese Communist Party and the leadership have concluded a long time ago, and again most recently, that they would not be prepared to take that risk with the United States in case an incident in the usual spaces, the South China Sea-

Ian Bremmer:

Taiwan.

Kevin Rudd:

... Taiwan Straits, et cetera, did erupt and China didn't prevail. Now that is a game over event for the Chinese Communist Party's system. So therefore, you're not going to risk that. So therefore, I do not see this as a credible likely extrapolation from a further deterioration of the relationship of the coronavirus. But I do see it intensifying, let's call it, the economic separation between the two, and where you'll see a harder posture adopted by both sides in relation to technology questions in particular.

Ian Bremmer:

So I mean, the integration of the US and Chinese economies in a year's time could look very different than what it does right now.

Kevin Rudd:

I think we're now in the process of an incremental separation. Always capable of being arrested by the most senior levels of leadership, but as premise for your question was that doesn't happen. What kind of natural trajectory is it on? Well, even before the crisis, Xi Jinping's mantra since the beginning of the trade war is we need to accelerate national self-reliance, including in the high technology sectors, including in semiconductors, because we don't know what these perfidious Americans are going to do next. That's the internal mantra, if you read it and consume it as we do at an analytical level.

Ian Bremmer:

They've already been threatened once. They can't be that vulnerable a second time.

Kevin Rudd:

Sort of thing. And so on the flip side, you see of course, those within this system for which the Huawei debate is the threshold one, but there are others too, in terms of the future of semiconductors, before we go in the whole wonderful world of artificial intelligence. But there are too many crown jewels there for the United States and the collective West to risk any further deeper level integration with China.

And so what I see is, frankly, the hawks in both systems increasingly driving a greater degree of economic separation. But the real crossover point will be not just technology, but what do financial markets do in both countries given that between them, they represent right now about a 5 trillion bilateral business. If you look at the respective engagements of both countries' financial systems, not just in terms of treasuries and the rest, but in terms of the other activities in financial market engagement.

Ian Bremmer:

Now in terms of the separation of the two economies, the Japanese, of course, the largest foreign holders of US paper right now, Chinese used to be number one. Do you think that that's something they see as a liability medium and long-term?

Kevin Rudd:

No, I don't. I think their holdings of US paper would be seen by them at present as an overall continuing strength and asset. A, because they would conclude internally that it is helpful, perhaps even slightly leverage delivering in their overall relationship with Washington.

Ian Bremmer:

So that's not part of the separation that you would expect to see?

Kevin Rudd:

Not at this stage; hence, my caveat about what financial markets do and of which holding of sovereign paper is a key element of that. So what I would see instead is that on these questions of mutual financial exposure, that it's unlikely to occur as far as sovereign paper holdings. In terms of private financial markets, however, if big firms in both countries begin to think that they're contemplating unsustainable risk with each other, country risk, geopolitical risk, sort of stuff you guys do in Eurasia Group, then it begins to cause a recalibration. And what the Chinese are doing geopolitically is doubling down now in their relationships with Japan and with Europe, and to a lesser extent with India, to diversify, let's call it their major economy external exposures both on financial markets and technology markets and the rest.

Ian Bremmer:

So final point, you have told me that in past trips, the Chinese leadership now believes that Trump winning a second term is better for them than not. Given where we are with the crisis right now, do you think that still holds?

Kevin Rudd:

Well, what I've said to you before is that when I've been in China in the past, it's been observed to me, not necessarily by Chinese leaders but just observed to me, that on balance-

Ian Bremmer:

Dutifully hedged, yes. Okay.

Kevin Rudd:

I've been in the game at least as long as you have, my friend. And judging by my gray hair, a little longer. Is that not withstanding the current difficulties ongoing with the trade war, not withstanding the current frictions concerning the coronavirus, their net assessment would be that Trump on balance is probably better for China's overall national interests than a Democrat administration with a fully consistent and coherent anti-China strategy across all agencies of the American state working in unison. I've seen nothing so far to suggest that they have a different view to that.

Ian Bremmer:

And if Biden is the nominee, do you think personally that Trump or Biden would actually be better for the US-China relationship?

Kevin Rudd:

I'm just a mere foreigner in your country. How could I express a preference for a Republican or a Democrat?

Ian Bremmer:

I don't know. Not a preference for who should win, just who might be better for the US-China relationship. I'm wondering if you have a view on that.

Kevin Rudd:

Well ...

Ian Bremmer:

I'm not saying who you'd vote for. That's a different story.

Kevin Rudd:

Well, I can't vote.

Ian Bremmer:

I know.

Kevin Rudd:

It's just kind of one of those things.

Ian Bremmer:

Exactly. We might change that.

Kevin Rudd:

Okay. Well, anything's possible in this country. Is there an amendment coming through, is there?

Ian Bremmer:

I'm told.

Kevin Rudd:

Okay. Well, some in Australia have always, because we're an ally, that we should get an early vote in your presidential elections because being out there in Asia we receive the first brunt of its impact.

Ian Bremmer:

It'd be just as representative as Iowa, so I don't ... from that perspective, it's true.

Kevin Rudd:

Look, Vice President Biden has won singular advantage. And that is, he knows Xi Jinping relatively well, and not least because he spent a couple of weeks with the guy when as vice-president of China Xi Jinping visited this country. And that Biden had the same opportunity running around China. So if there are two individuals who actually know each other well, it's these two because they have spent extended time with each other and in places other than across the negotiating table. So I think that's important. Secondly, I think the team that Vice President Biden is likely to assemble will be made up of people who are fairly hard line on China. But people whose length and breadth of foreign policy, international economic policy experience, is more likely to produce an integrated China strategy.

Ian Bremmer:

All the names that we know from Biden land for a long time.

Kevin Rudd:

So when you look at President Trump, by contrast, you have the announcement of a new national security strategy in November, December of 2017, which is the formal redefinition from engagement to China being-

Ian Bremmer:

Strategic competition.

Kevin Rudd:

... strategic competition. But since then, we seem to see arms of US strategy going every which way. Will a second term Trump administration get its act together and deliver a coherent strategy? Well, you're a keener observer of developments in Washington than I am, but that would be my overall on balance comparison.

Ian Bremmer:

Kevin Rudd, good to be with you. Thanks a lot.

Kevin Rudd:

Good to be with you.

Ian Bremmer:

That's it for today's edition of the GZERO World Podcast. Like what you've heard? I hope so. Come check us out at GZEROmedia.com and sign up for our newsletter Signal.