Barrington Hills’ Henry Paulson, former Treasury Secretary of the United States, pens a dynamic new book of how to engage China’s leaders as they build their economic superpower.
Words by Donald Liebenson
In his new book, Dealing with China: An Insider Unmasks the New Economic Superpower, Henry (Hank) M. Paulson, Jr. recounts a recent visit he had in Boston with a group of financial executives. Smart and sophisticated, they peppered Paulson, former U.S. Treasury Secretary and prior to that, the CEO of Goldman Sachs, with questions about China’s economy. But one question pulled him up short.
“Hank, you’re a real patriot,” the executive asks. “Why are you helping China?”
This question is at the heart of Paulson’s book, which is garnering positive reviews (“An important book,” praised Financial Times) and sparking discussion about U.S.-China relations amid China’s growing economic standing on the world stage.
“That question really reflects what many Americans are asking as they look at China,” he says. “It is a country that has come into its own in many ways (to become) our biggest, most formidable economic competitor since the end of World War II. And it’s flexing its muscles in some pretty unsettling ways. That has Americans from all walks of life viewing China with increased apprehension and, in some cases, resentment.”
Paulson, a Barrington resident, ranks China’s rise to economic superpower among “the most extraordinary stories in history,” he writes in his book. In barely three decades, the once backward and insular country has transformed itself into the world’s second-biggest economy. It is also America’s biggest creditor, owning just under $1.3 trillion of our government’s debt.
And this, Paulson writes, has given risen to suspicions that could undermine a crucial economic and strategic relationship. What do the Chinese really want? Why are they spending so much money on the military? Are they friends or enemies, trading partners, or commercial and geopolitical adversaries?
Paulson says he wrote Dealing with China to “promote a better understanding of China and because I want my grandchildren to grow up in a safe, prosperous, and ecologically and environmentally sound world. And the odds of that happening are much greater if the U.S. and China are not in conflict, but are working in complementary ways.”
Rooting for China to succeed, Paulson maintains, “is more than ever in America’s own self-interest.”
During his tenure with Goldman Sachs, Paulson negotiated groundbreaking deals with China, including an unprecedented $2.6 billion investment in the Industrial and Commercial Bank of China. As Treasury Secretary under President George W. Bush, he helped create the Strategic Economic Dialogue between the two countries.
In his more than two decades dealing with and observing China and its political and business leaders, Paulson acknowledges China as “a land of superlatives” as it moves forward with relocating 100 million people into cities in the next five years, constructs more roads and high-speed rail lines and brings more people online than anywhere in the world. But lately, he says, he sees China’s growth model running out of steam.
In April, China reported that its economy grew just 7 percent in the first quarter of 2015, one of the lowest rates in a decade.
China’s days of double-digit economic growth “are over,” Paulson says. “Income gaps are leading to uneasiness among citizens and recent crackdowns on freedoms imperil China’s ultimate ability to succeed. It faces an urgent need to continue progress on economic reforms, and its failure to do so would have global economic consequences.”
Beyond economic trends, Paulson regards corporate cyber theft as the most contentious and potentially destructive economic issues America faces with the Chinese. “Virtually every U.S. CEO I know has told me about a Chinese attempt to breach his or her company’s computer system,” Paulson says. “This is the kind of thing that undermines our economic security and gives credence to the sense that China doesn’t play by the rules. It is very difficult to find common ground.”
China’s crippling air pollution in China is also alarming, he says. “Environmental damage is mounting. It’s literally killing the Chinese people and must be addressed.”
China’s leaders, he says, recognize the challenges and are tackling many of these problems. “The central leaders are striving to transform the economy to a model that is less reliant on exports and often wasteful government investment in infrastructure, which will be more environmentally sustainable,” he observes. “The recent agreement between China and the U.S. on climate change is (also) an exceptionally positive development.”
Paulson calls the U.S.-China relationship “the most important bilateral relationship in the world. Every issue faced, from climate change to terrorism to world peace, will be easier to deal with if China and the U.S. work together,” he contends. “Continuing to bring China into a rules-based international system and encouraging them to reform and open up their economy is essential. And the Bilateral Investment Treaty currently being worked on is the kind of initiative that can help achieve this.”
But America needs to deal with China, indeed the rest of the world, from a position of strength, Paulson emphasizes, and it will be incumbent on the next president to confront America’s own (economic) issues. “Our economy isn’t growing fast enough,” Paulson says. “We’re not creating the number and quality of jobs to provide opportunity and prosperity for our people. Income inequality is increasing. And the middle class is being hollowed out.”
As a topic of discussion, China has become something like the weather, which, as Mark Twain famously observed, everybody talks about, but nobody does anything. Paulson hopes that readers of Dealing with China will come away with a fuller understanding of China’s economic (r)evolution, and a clearer picture of its leadership.
“We’re all familiar with China’s great rise,” he says, “but China is now facing unprecedented challenges. As President Xi tackles these challenges, he’s taking on every aspect of Chinese life and government. But he’s not remaking China into a country that resembles ours. He doesn’t want China to look like the United States. So as China takes its place on the world stage, (America) needs to be strategic, and we need to work with China on common problems so that we’re working in complementary ways, not at cross-purposes.”