By the time Henry M. Paulson Jr. made his first trip to China as the United States Treasury secretary in September 2006, he was well-acquainted with China. He had already clocked 70 trips during his time at Goldman Sachs, where he was chairman and chief executive. Many more visits came after, allowing Mr. Paulson to promote relations between the United States and China, but also to deepen personal links with China’s leaders.
In his new book, “Dealing With China,” Mr. Paulson’s cameos of senior officials provide a window into the mercurial politics at the top. He describes how he asked Zhou Yongkang, then the powerful head of China’s internal security apparatus, to encourage then-President Hu Jintao to approve setting up the U.S.-China Strategic and Economic Dialogue, a vehicle for consultation between the countries on strategic issues. In the meantime, Mr. Zhou has been arrested and is about to face trial on corruption charges.
Mr. Paulson writes about dining with Wang Qishan, whom he first met when Mr. Wang was a senior financial official and who now heads the anticorruption campaign that brought down Mr. Zhou. And it was Prime Minister Li Keqiang who drew the calligraphy for the “Uniting Knowledge and Action” logo for the Paulson Institute, the nonprofit group Mr. Paulson founded after his stint at Treasury to find solutions for environmental and urban issues in the United States and China. In an interview, Mr. Paulson explained why the relationship between the two countries matters:
You’re a dealmaker. What kind of deal is it for the United States that the U.S. is outside the China-led Asian Infrastructure Investment Bank that 57 countries have joined? The Obama administration criticized the bank and warned its allies not to sign up, advice that was ignored. Should the United States now accept China’s invitation to become a member?
I understand China’s interest in playing more of a role in the international development banks, and I think it’s smarter to work with the Chinese when they are trying to work with multilateral institutions. If we cooperate with the Chinese and help drive the conversation, then we can help promote best practices. While I was at Treasury, I helped to bring China into the Inter-American Development Bank, which allowed China to share responsibility for promoting development in that region.
It’s also important to note that the United States doesn’t really do infrastructure financing. The Chinese do. And their Export-Import Bank and the China Development Bank combined do more infrastructure financing than any other institution, including the multilateral banks. So while the administration is doing a lot of things right in the China relationship, this was not the United States’ finest hour.
What next? I believe the United States should become a member. Also, since the world needs a lot of infrastructure, I believe we should be working to transform the existing multilateral banks so that they can play a more important and effective role in providing high-standard infrastructure financing.
The Trans-Pacific Partnership, a free trade pact including the United States and 11 Asia-Pacific countries, is a signature policy of the Obama administration that you support in your book. Assuming the T.P.P. comes into existence, it will not include China. China is working with other countries, including Indonesia, to form another Asian free-trade area, known as the Regional Comprehensive Economic Partnership. How can T.P.P. be a major trade pact without China, Asia’s biggest trading country?
I am a strong believer that China should be encouraged to join rules-based organizations and institutions whenever possible. And clearly if T.P.P. is going to be effective over the long term, China should be a full member. The pace of China joining the T.P.P., however, is in many ways up to China. One important first step would be expediting the bilateral investment treaty negotiations — which are not as broad as the commitments required for T.P.P. — to bring this important agreement to a close.
The focus of the T.P.P. negotiations is not this or that country, but rather an attempt to agree on a set of high standards — on labor and environmental issues, for example — to facilitate increased trade. T.P.P. was not an American idea, but an idea that originated with some Asia-Pacific Economic Cooperation members, including Brunei, Singapore and New Zealand, who saw advantage in having some first-movers within APEC lead the way to regional trade liberalization. The U.S. embraced that idea because it saw the potential for such an agreement at a time when an APEC-wide free trade agreement simply is not realistic. And I’m struck that, in recent months, T.P.P. seems to be generating positive interest among some in China.
You recount that you first met Xi Jinping in 2006, when he was the Communist Party boss in Zhejiang Province and visited New Jersey, on a sister-state trip. You then met him several times when he was vice president, and now president. You say admiring things of him, particularly that he recognizes the value of free markets. But you also express serious concerns about China’s economy, and say the longer the government waits to address problems such as municipal debt, the more likely there will be serious disruptions.
Xi Jinping is a strong and ambitious leader, and he is taking on huge challenges, staking his reputation on a major transformation of the economy from an export-led, state-investment-driven model to a more sustainable, consumer-led one. Overhauling the $10 trillion economy is an enormous task. At the same time, he is starting to tackle the municipal debt problem that has led to valid concerns. I believe the government has the tools it needs to avoid crisis, but the longer the leaders wait on major reforms, the greater the risk that there might be serious disruptions.
It’s important to remember that Xi is not remaking China according to the American model. It may seem inconsistent and worrisome to us that the government is opening the economy more to the market while tightening controls over the Internet and political debate. But to Xi, there is no inconsistency. He has made it clear that he believes the Communist Party is the only institution that can both maintain stability and manage the complex process of modernizing the country’s economy.
Xi is attacking many problems that are of great concern to the Chinese public. He’s fighting the country’s huge corruption problem. He’s trying to deal with terrible pollution. He’s addressing serious property rights inequities and reforming the household registration system that has prevented rural migrants from getting social services in the cities. But ultimately, I believe that tightening of freedoms will be self-defeating, because you can’t have a vibrant, competitive economy in the information age without complete access to information, from economic to social and political. I ran a company, and I had to have up-to-the-minute information to make sure that we were truly competitive and making the wisest decisions.
You describe Wang Qishan, a member of the Politburo Standing Committee and now perhaps the closest official to Xi Jinping, as having a first-class mind, and you note his frugality: He wears a very inexpensive watch. Mr. Wang is now in charge of the anticorruption campaign. What attributes does he have for the role of anticorruption czar?
I have known Wang Qishan for many years — first in the early days of financial reforms, and then when he was my counterpart in the U.S.-China Strategic Economic Dialogue. Wang is a man who has earned a reputation for getting difficult jobs done. I saw that up close when he was overseeing the first mega I.P.O. of a state-owned company [China Telecom/China Mobile], working through the fiendishly complicated debt restructuring of Guangdong Enterprises and cleaning up the finances of that province in the 1990s. He showed tremendous resolve and courage when he took charge of Beijing in the middle of the SARS crisis in 2003. Wang has been crusading against corruption for many years.
American technology companies have been fighting to persuade China to withdraw new rules that the companies, and the Obama administration, argue are designed to exclude them from a $450 billion market and replace them with “industrial champions.” Why is China doing this?
For every country, there’s a balance between national security and openness, and that’s a difficult tightrope act. China is weighing its national security interests, too. But what’s important for the Chinese to remember is the fact that they also have a fundamental interest in not walling off their technology sector from the world, because that would be counterproductive in terms of creating truly competitive industry. I hope the Chinese see this, and that security concerns don’t overshadow the imperative for more open markets.
What do you believe Xi Jinping will be looking to achieve in his talks with President Obama in Washington in September?
Xi Jinping is facing enormous challenges at home, and he has made it clear that he wants to have a good relationship with the United States. The recent U.S.-China climate change agreement not only shows how serious China is about dealing with carbon emissions, it also signals that China is willing to work with the United States on solving global problems. Among other things, I believe President Xi will be looking for progress on a bilateral investment treaty, which will both help open Chinese markets further to U.S. businesses and force China’s economy to reform. Just as China’s entry into the World Trade Organization in 2001 helped Premier Zhu Rongji push economic reforms, a bilateral investment treaty would help Xi fight vested interests who are opposed to his reform agenda.
I will say to anyone who is rooting for China to fail, they should be careful what they wish for. Why? Because China has been a significant contributor to global economic growth, which has benefited all of us. Economic failure in China could be extremely damaging for the global economy and could lead to political instability that would further rock the markets.
You have said you would like your book to be published in China but will not agree to changes or deletions. When you were writing, did you have in mind that the book would have to go through China’s censors?
I focus in the book on the reformers, the change agents, the disruptors and, by and large, I have been impressed by the leaders who have the courage to tackle China’s enormous problems — usually without a playbook. The book accurately and candidly reflects my views. My work has focused on financial and economic reform, not politics, and so that is what I wrote about. I am hoping that my book can be published in China — of course, uncensored — and I see no reason that can’t happen.
You describe how the U.S. Navy planned to send ships through the Taiwan Strait while you were in Beijing negotiating the U.S.-China Strategic and Economic Dialogue. You were so concerned that would damage the talks that you woke Defense Secretary Robert Gates in the middle of the night and asked him to stop the ships. Do you miss having that power?
I have launched a new chapter in my life, in which I am hoping to make a difference in a different way. These days, I am thinking about my grandchildren and their children. I want them to grow up in a world that is environmentally healthy and prosperous, and the key to that future lies in the hands of the United States and China. As the two largest economies and the two largest emitters of carbon, they have got to work together to promote sustainable development and fight climate change, which I see as the greatest risk our planet faces. Because of my experience and longstanding relationships, I believe I can have the most impact in China. And so I am working on these issues through the Paulson Institute, which works at the nexus of the economy and the environment in both China and the United States. I believe that if we limit our carbon emissions and push for more responsible development today, we can still ensure that generations to come will live in a healthy, prosperous planet.