Bridging the Great Pacific Divide: Hank Paulson, Jr.’s Dealing with China

To see these same articles on my updated, prettier blog, check out: https://arrowsandolivebranchesblog.wordpress.com/

In Dealing with China, Hank Paulson explores opportunities for cooperation between the world’s two largest economies through an account of the former Goldman Sachs chief and Treasury Secretary’s longstanding relationships with Chinese business and political leaders. According to Paulson, despite increasing military and diplomatic tensions in the Western Pacific, cooperation between American and Chinese businesses can maintain close connections between the two nations.


Paulson’s work is an impassioned argument against popular anti-Chinese and anti-globalization rhetoric which has become common in Congress and the ongoing Presidential campaign. Paulson declares, “If we got the economic relationship right, the rest of our issues would follow…Alternatively, if economic relations spun out of control--through protectionist legislation that sparked a trade war…it would fray the overall relationship. We would find it easier to solve almost any major global problem with the Chinese on board” (Paulson, 183). He continues, “If we attempt to exclude, ignore, or weaken China, we limit our ability to influence choices made by its leaders and risk turning the worst-case scenarios of China skeptics into a self-fulfilling reality” (Ibid., 379). Paulson presents an honest call for strong past and future American-Chinese relations.

Hank Paulson emphasizes the importance of understanding Chinese motivations and perspectives, which differ significantly from those of American policymakers. Most current high-ranking Chinese leaders were forced into manual labor in the countryside during the Cultural Revolution of their youth, and some taught themselves while working long, hard days rather than attend college. As a result, Paulson notes “The Chinese think long term and strategically, we should do the same” (Ibid., 182). American leaders, on the other hand, tend to only think as far as the next election, often choosing options that are not necessarily best in the long term for a short-term boost in the polls.

Similarly, while American policymakers hope that increasing economic freedoms and growth will lead to a more open and democratic system in China, the Chinese understand the connection between economic growth and politics differently. Paulson relates, “The Communist Party…essentially made a deal with the people to provide prosperity in return for continued political power. The Chinese leaders’ credibility with their citizens [is] rooted in economic opportunity, job creation, and an ever-improving standard of living” (Ibid., 183).

Contrary to American hopes, the Chinese economic reforms have in some ways served to concentrate power. Chinese President Xi Jinping “created a small group in the Party to direct the design and execution of the reform process outside of normal government channels” (Ibid., 329). Given the size of the Chinese bureaucracy and intertwined relationship system that empowers many to take positions for which they are not qualified, leaders such as Xi feel the need to reach outside normal structures to enact change. As such, Xi said:

“The very essence of ‘socialism with Chinese characteristics’ is the leadership of the Chinese Communist Party. And this makes China quite different from the United States and other countries that believe we should have a multiparty system. Because we have one-party rule, we need to be a good party. So we have three tasks: self-improvement, self-purification, and self-regulation” (Ibid., 350).

To this end, Xi launched a major anti-corruption campaign across the country and consolidated power among his protégés and those loyal to them. In the interim, he has also consolidated power in extra-governmental committees to take on specific issues, as with economic reform.

Paulson notes that the major driver of corruption and illicit activity is a “flawed system that concentrates too much power in the hands of the Party and state, and leaves too wide a gap between the law and its enforcement” (Ibid., 363). Therefore, Xi’s centralization of control may increase the risk that his newly minted elite are tempted to profit from their influence. When discussing Xi’s closest allies, Paulson can be overly calculated, criticizing leaders who fell from grace but rarely mentioning anything negative about Chinese leaders in power.

Despite Paulson’s deep connection with China, he is candid about the tension surrounding China’s regional expansion. He writes, “Americans should have no illusions that over the next decade we will face not just an assertive and nationalistic China but a more potent and capable one” (Ibid., 388). To deal with this, he writes, “the U.S. must continue to invest in a state-of-the-art military capable of projecting power and bolstering deterrence” (Ibid., 388). He cautions would-be protectionists, however, that “to prevent security tensions from riding our relationship off the rails, it is more important than ever that we deepen our economic interactions” (Ibid., 388).

The centrality of the economic relationship is a key takeaway from Paulson’s narrative, and some might say career. In spite of the growing rivalry between the American and Chinese militaries, stoked by Chinese expansion into American allies’ island chains and waters in the East and South China Seas and divergent interests on the Korean Peninsula, the American and Chinese economies have become fully intertwined.

During the financial crisis, Paulson notes that Chinese government control of the major domestic banks and financial institutions was ironically crucial when keeping those entities from dumping securities of U.S. government and commercial institutions. He writes, “The ‘guidance’ given by the Chinese government stemmed some of the panic in the markets. And the financial world ought to be grateful for that” (Ibid., 255). However, Paulson is defensive about his own record in relation to the crisis: “I believe I had done my best to prevent the 2008 financial crisis from turning into another Great Depression, but the withering criticism we received from the press—and some in the Obama White House—stung me deeply” (Ibid., 271). The next time the developed economies are on the brink, whether it be in the financial world or in the global fight against terror, it will be important that Chinese and American officials again put aside their differences and work together to avert disaster. 

--By Benjamin Spacapan