Former U.S. Secretary of the Treasury Henry “Hank” M. Paulson Jr. published a commentary in The New York Times recently, claiming that China’s economy is “Back on Track.” Is that really true?
As former secretary of the treasury, Paulson has a close relationship with the Chinese Communist regime leaders. Also important to note is that the company Paulson previously served as well as his own consulting company both have either huge investments in China or close ties with China’s high-level political and economic circles. Therefore, regarding Paulson’s statement, it is necessary to examine it, and him, with a magnifying glass.
Paulson and His Research Institute
Born in 1941, Paulson received his M.B.A. from Harvard Business School in 1970. He joined Goldman Sachs in 1974, and became chief executive of the company in 1999. Between 2006 and 2009, Paulson worked as the U.S. secretary of the treasury for the Bush administration.
Currently, he is chairman of the Paulson Institute, which claims to be dedicated to promoting sustainable economic growth, international investments, innovation, job creation, and environmental preservation in the United States and China.
On the front page of the institute’s website, four Chinese characters meaning “uniting knowledge and action” are displayed with prominence. The handwriting belongs to the current Chinese premier, Li Keqiang.
The Paulson Institute tries to promote economic activities, creating jobs, urban development, and environmental protection in both the United States and China at the same time. The question is, if China and the United States do not complement each other in those aspects, but rather contradict each other, playing out more like a zero-sum game, how could the institute carry out its mission?
For example, what if the institute finds out a U.S. manufacturer moved to China because the United States has a higher standard on environmental protection, while the local Chinese regime only emphasizes GDP growth, and ignores environmental issues? How can this conflict be solved, which country’s backyard should be polluted?
Let’s look into another example: Some U.S. factories moved to China because the labor cost is lower there. The move creates jobs in China, but takes away opportunities in the United States, what stance would the Paulson institute take on such issues?
When the United States and China have conflicting economic interests, how could experts at the Paulson Institute provide fair and reasonable suggestions to both countries? There are many institutes focusing their research on China-U.S. ties, and there are many think tanks in the United States and China, but the Paulson institute is the first one that claims to service both sides.
Paulson and his ‘Optimistic’ Attitude
Paulson has been dealing with China since 1992, so by now it should be easy for him to see China’s root problems and the core issues underlying these problems. It is unimaginable to promote China’s economic growth and environmental protection without addressing the country’s politics and the Chinese Communist Party (CCP) itself—you won’t make any progress.
International investors who are good at dancing with wolves might be able to fit in with the Chinese leaders. But, if one knows about the tyranny, corruption, and brutality, yet pretends to hear or see nothing, and still talks about “uniting knowledge and action,” one should not blame people for casting doubts on one’s ethics, particularly when one claims China’s economy is back on track.
Paulson openly admits that many researchers inside and outside China believe that the Communist Party’s coming third plenary session will not deliver an effective and detailed reform measure, but he himself thinks otherwise.
He believes China could restructure its economy, by creating opportunities for medium and small businesses and thus making the capital distribution more effective. Paulson gave four reasons for his optimism.
The first reason is that the CCP leaders know that China’s growth model needs changes, and they are actually making some changes, including trying out the free trade experimental zone in Shanghai and allowing more flexibility in interest rates.
The second reason is the CCP’s new leadership has “enough power” to make the changes. Paulson says that the CCP’s reform needs leaders with strong wrists. He admits that during the ten years since China joined the World Trade Organization in 2001, reform has stagnated.
The third reason is that China’s economy is at the edge of collapse and they simply cannot continue to delay its reform. He knows that the Chinese economy is slowing down, that the gap between rich and poor is widening, that local debts are rising, and that export enterprises are facing tremendous pressure, coupled with rising cost of labor.
The fourth reason Paulson gives is that Chinese people’s expectation of reform has reached its limit. Paulson notes that the honeymoon period is over for the current leaders, Xi Jinping and Li Keqiang, and, since Chinese people will compare Xi and Li’s actions with former leaders Jiang Zemin and Zhu Rongji, who brokered China’s entry into the WTO, there is more pressure on the new leadership to make the change happen.
Paulson’s Huge Negligence
Paulson has left out something very important. Although he explains the need for a revolution in the Chinese economy, he couldn’t actually say whether the changes he endorses would lead toward positive and benign development, or not.
In fact, Chinese people’s expectation for reform has indeed reached a peak. However, Paulson doesn’t understand clearly what the reform expectations of the Chinese people are. He also doesn’t know what Chinese people truly need. This is why the former U.S. treasury secretary and Goldman Sachs investment banker neglects the big picture.
The tough situation facing the Chinese economy is because of the CCP’s crony capitalism, authoritarian dictatorship, as well as intense repression throughout the whole society, as well as the overall economic plunder—all of which have reached the extreme. There is no room for the economy to continue on this course.
What Chinese people truly hope for is to disintegrate the CCP. That would remove the source of economic hardship and restore equitable social and economic order.
Why is Pauslon remaining silent on this issue? Is it because he cannot see it, or is there some other unspeakable reason?
Commenters Rebut
In the comments under Paulson’s commentary, a reader from Maine said that Paulson’s opinion on what is needed for China’s economy is precisely the same as what he advocated for that led to the U.S. recession. The commenter didn’t understand why people would listen to him anymore.
A professor from Jaipur, India commented that China’s reform slogan is being shouted very loudly under the new leaders, but in the Chinese Communist system, without political reform, talking about economic reform in this setting is useless.
Another reader from New York thinks Paulson should be put on the Voyager spacecraft and sent on a one-way trip out of the solar system because Wall Street tycoons like Paulson have moved millions of work opportunities to China, betraying the American people.
A reader from mainland China commented that “when someone from the elite class in America, who is heavily invested in China, writes how optimistic they are about the Chinese economic situation, I roll my eyes. Of course Henry is going to tell you he’s optimistic, while watering down the facts, because he doesn’t want the masses to panic and jeopardize his and his connection’s investments.”
It appears that for Chinese people who can break through the Chinese regime’s Internet censorship, they understand China’s real situation very clearly and are not fooled by the CCP propaganda. Foreigners advocating for the CCP cannot fool them either. It is a great pleasure to see that.
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