Henry Paulson’s 8 Rules for Dealing with a Rising ChinaThe Honorable Henry M. Paulson, Jr.
By Henry M. Paulson, Jr.
(Wall Street Journal) – In the not-too-distant future, China is likely to surpass the U.S. as the world’s biggest economy, knocking us off a perch we’ve held for nearly 150 years. Increasingly, China has been flexing its newfound muscles in Asia and cracking down at home. It is also our biggest foreign creditor, owning nearly $1.3 trillion of Washington’s debt.
The U.S. and China have the most critical bilateral relationship in the world, and it serves America’s national security, economic health and environmental well-being to keep it strong. I’d like to suggest eight rules for dealing with China—offered not as a scholar or a theorist but as someone who has made more than 100 visits there and spent nearly 25 years dealing with senior Chinese officials.
1. Help those who help ourselves. When the U.S. negotiates hard to liberalize markets and open up China to real competition, we help reformers achieve their economic goals. Chinese leaders often use outside pressure to force domestic change: China joined talks towarda Bilateral Investment Treaty with the U.S. in 2013, in part to accelerate a stalled reform process at home. A successful treaty would require China to open more of its economy to U.S. firms and shift China’s economy toward consumer-led growth. That would be good for us too.
2. Shine a light; nothing good happens in the dark. Supporting reform in China means pushing for greater transparency and better adherence to universal standards.Transparency is the best way to fight corruption and strengthen the confidence of Chinese citizens—and foreign investors—in their government and the rule of law. We should urge the Chinese to disseminate reliable, accurate information across the board—from air- and water-quality data to the enforcement of environmental regulations to local government finances.
3. Speak with one voice. China’s decision-making process functions best with one senior person in charge so that clear direction from the top can help forge consensus below. Without one go-to person for the U.S., the Chinese often wonder who speaks for our president. I can’t count the number of times since leaving government that Chinese officials have asked me who President Barack Obama is relying on to manage his ties with China. On the U.S. side, that point person should probably be the vice president; in China, it could be the premier.
4. Find China a better seat at the table. We should want China to play a bigger, more responsible role in international groups like the World Trade Organization and thus to help support the global economic system from which it has benefited so much. We should be prepared to make pragmatic compromises (and reciprocate for Beijing’s) to get China to step up and take a leadership role.
5. Demonstrate economic leadership abroad.The U.S. must compete with China from a position of strength. We should reassert our status as a Pacific power, build on the North American Free Trade Agreement to create greater economic integration closer to home and move forward on the Trans-Pacific Partnership, or TPP, which aims to create a free-trade area across the Pacific. Nothing will get Beijing’s attention and cooperation more than progress on the TPP, but that will require a president willing to spend political capital working with Congress.
6. Find more ways to say yes. Rather than trying to persuade the Chinese to adopt our approach to everything, we’re better off devising new policies together—or recasting older ones in fresher terms. The U.S. can’t “fix” China’s growth model any more than China can “fix” our fiscal woes. But separate U.S. and Chinese efforts to repair our respective economies would put us on a more complementary footing.
7. Avoid surprises. I can’t recall a single Chinese business executive or government leader who didn’t come to meetings thoroughly prepared. Their careful preparation and consensus-driven decision-making leaves them particularly uncomfortable with last-minute changes on complex issues, which can impede a deal. We should not only avoid jolts but also cooperate on contingency planning on issues that could put us at odds—such as North Korea.
8. Act in ways that reflect Chinese realities. Facts, not wishes or dreams, should direct our dealings. China is very different from the U.S., and we cannot be guided only by the understandable desire that it become more like us. We need to know as much as possible about what is going on inside China—and to be self-confident and realistic enough to focus on what is doable.
The U.S. will deal best with China from strength, not weakness. We need to restore our economic competitiveness so that we can better lead by example.
— Mr. Paulson is chairman of the Paulson Institute, a former CEO of Goldman Sachs and a former secretary of the Treasury. He is the author of “Dealing With China” (Twelve Books), from which this is adapted.