Podcast Summary: LSE Public Lectures and Events – "Dealing with China"

Date: May 11, 2015
Host: LSE Film and Audio Team
Guests: Hank Paulson (former U.S. Treasury Secretary, former CEO Goldman Sachs, Chairman of the Paulson Institute) and Lionel Barber (Editor, Financial Times)
Moderator: Professor Danny Quah

Episode Overview

This episode features a rich, candid conversation between Hank Paulson and Lionel Barber on Paulson’s experiences "Dealing with China"—the subject of Paulson’s then-recent book. The conversation covers China's economic reforms, political leadership, the West’s engagement with China, and the challenges and opportunities of working with such a complex and evolving country.

Key Discussion Points and Insights

1. The Dual Narrative of "Dealing with China"

• Lionel Barber introduces the conversation by noting the unique insights in Paulson's book:

  “There are direct quotations. There are inside anecdotes about the Chinese leadership, the people who are making the decisions behind the scenes that you won't read anywhere else.” (04:57)

• The book is described as having two main halves:
  • Paulson’s experience with China’s opening and economic liberalization as Goldman Sachs CEO
  • His later role managing U.S.–China relations as U.S. Treasury Secretary

2. Building Trust and Transparency with Chinese Leaders

• Paulson shares how he was able to quote Chinese leaders and build relationships:

  “Everything in this book has to be true. But absolutely everything that's true doesn't have to go in the book.” (08:25)

• Confidentiality and judgment have been key to sustaining advisory relationships.
• Paulson attributes candor and direct communication to earning trust:

  “I tend to be pretty direct...there’s nothing they are hearing from me that they haven’t heard before.” (09:13)

3. Goldman Sachs’ Early Bet on China

• Paulson recounts early visits (late 1990s), meeting then-Chinese leaders, and the skepticism around expanding in China (10:22).
• A key anecdote:

  “He looked me right in the eye and he said, we need to learn more about U.S. accounting. And he said, assets equals liabilities plus equity. Now I almost burst out laughing because I wasn't sure Bill Clinton could have said that.” (11:00)

• The significance: serious Chinese intent to modernize and learn from the West.

4. Transforming State-Owned Enterprises and IPOs

• Early privatization efforts, like China Mobile and PetroChina, required nuanced structuring and cultural understanding (13:49–15:39).
• Chinese leaders wanted to learn from UK privatization models, with Lord Brian Griffiths (“It’s like a medieval village, and you can't float that in the New York Stock Exchange.” – 15:23).

5. The Global Financial Crisis and U.S.–China Cooperation

• Critical importance of high-level relationships when explaining U.S. financial system uncertainty to Chinese officials during the crisis:

  “Here’s a vivid example...I would be going up and testifying during the day and getting my brains beaten out. And then I'd be...on the phone with the Chinese and say, oh, you don't understand our system. We all do this. It's all theater. We're going to do the right thing.” (19:07–20:10)

• Chinese held firm on U.S. securities, helping prevent further instability (22:34).

6. Xi Jinping: Consolidation of Power and Reform Mandate

• The “new emperor” approach: Xi consolidated power rapidly, reduced the Politburo Standing Committee, and asserted control over the military and national security (24:36):

  “Now, the way it works is Xi claps, Xi waves, and all the other members of the Standing Committee clap.” (25:09)

• Xi’s ambition: transform China’s economy and society, especially the municipal finance system and legal modernization (26:18–28:10).

7. Contradictions in Policy: Market Liberalization and Political Tightening

• Xi advocates for "decisive markets" in economic reforms but tightens political control:

  “At the same time, he's saying, I want the markets to be decisive, I want more flexibility and freedom. When he's looking at the economy, he's moving to tighten up the political system.” (31:21)

• Transparency remains a challenge; economic stats are not always reliable (33:47).

8. China’s Slowdown and Reform Challenges

• Slower economic growth is seen as inevitable and healthy if it yields “higher quality” growth less reliant on infrastructure debt (33:22–34:09).
• Reforms require consensus, but even Xi’s power has limitations when challenging entrenched interests, e.g., state-owned enterprises (35:27–36:20).

9. The Anti-Corruption Campaign

• Remarkable in scale:

  “So far, in excess of a quarter of a million people have been punished...minister level, what is it, 75 or something?” (37:04)

• Not simply about eliminating corruption but also consolidating political power and accelerating reform (38:42).

10. U.S.–China Engagement: Policy Recommendations

• Paulson’s core message: constructive, pragmatic engagement is vital for both countries and for solving global challenges (climate, growth, security):

  “There are going to be maybe more tensions. And it's very important that...the choices our leaders make will sort of help determine the mix we have of competition and cooperation.” (41:50)

• On the U.S. response to the Asian Infrastructure Investment Bank (AIIB):

  “I think...the Asian Infrastructure Investment Bank was a mistake in policy and a mistake in execution. But I don't look at it as some huge watershed event.” (45:09)

Notable Quotes & Memorable Moments

• On Xi Jinping:

  “Wherever Xi was, you saw the private sector playing a big role. I'd had conversations with him about the need to have the private sector lead innovation. So he believes in that.” (29:43)

• On U.S.–China Strategic Dialogue:

  “There's nothing wrong with competition as long as it's healthy competition...But if you don't turn [common interests] into tangible results...it's no point in having them.” (41:50)

• On the Global Financial Crisis:

  “I was in China, and the Chinese tell me that the Russians had approached them with the idea that maybe they see whether we'll take the bazooka out or not, and let's start selling some of these securities. And the Chinese held firm...” (21:15)

• On Doing Business in China:

  “I think there's clearly a right way to do business in China and a wrong way...it takes training, real training for the people there. And it takes just all kinds of vigilance...” (50:28)

• On Innovation Without Political Freedom:

  “It's amazing the amount of innovation which is coming out of China today still...I don't think that it's sustainable, but I need to acknowledge that we are seeing innovation in China.” (51:12)

Q&A Session Highlights (47:32–end)

• On Corruption and Ethics:
  Paulson emphasizes the importance of strict compliance and training for western firms operating in China (50:28).

• On Innovation and Censorship:
  Paulson acknowledges China’s achievements in innovation but cautions that continued suppression of press and information could ultimately limit China’s potential (51:12).

• On Climate Cooperation:

  “There's no way we can really curb [climate risk] without China…So I just think it is essential that countries like the US and the UK work closely with the Chinese in this.” (54:49)

• On Domestic Consumption Model:
  Paulson argues that domestic-led growth is necessary for China due to the unsustainability of export- and investment-driven models (56:17–58:33).

Timestamps for Key Segments

• Introduction / Speaker bios: 00:00–04:52
• Why and how Paulson could quote Chinese leaders: 07:07–09:13
• Early Goldman-China stories: 09:41–17:34
• Financial crisis and U.S.–China relations: 17:55–22:41
• Xi Jinping’s rise and leadership style: 23:25–31:21
• Challenges of reform and transparency: 33:05–36:20
• Anti-corruption campaign: 36:20–41:01
• U.S.–China pragmatic engagement and global issues: 41:05–46:44
• Q&A with audience: 48:18–end

Original Tone & Language Retained

The dialogue throughout is candid, practical, and rich with first-hand anecdotes, reflecting Paulson’s straightforward style and Barber’s journalistic curiosity and occasional wit. Moments alternate between gravity (“How can you succeed in an information age...?” – 51:12) and well-placed humor (the “bazooka” metaphor for financial authorities – 21:02), keeping the session lively and highly informative.

This summary offers a comprehensive pathway through the episode, capturing its vital exchanges, policy insights, and personal recollections—especially valuable for anyone seeking an insider’s perspective on U.S.–China relations at a critical moment of global change.