Hank Paulson Debunks 5 Myths About China

April 21, 2015

CHICAGO – Former Treasury Secretary Henry Paulson Jr. says the West has plenty of misconceptions about China, and Monday, he went on to debunk some of them, including the notion that China’s autocratic government is a one-man show, and decision-making there is a swift, opaque process.

 

It’s not, he says. In his view—which is tinted by some 70 foot-on-the-ground visits to China over the years—it’s in our interest to address these myths because China is a serious economic might, and it’s undergoing major reform under the leadership of Xi Jinping.

 

Paulson, who spent time as CEO of Goldman Sachs, a three-year stint as U.S. Treasury Secretary and today is chairman of the Paulson Institute, spoke at the Union League Club here about his latest book, “Dealing With China: An Insider Unmasks The New Economic Super Power.”

 

“The reason I wrote the book is because I believe the U.S.–China relationship is the most important bilateral relationship in the world,” he said. “It will get more complicated because China is a formidable competitor in addition to being a partner, but it’s in our interest to work with them.”

 

Here are some key myths he sought to debunk:

 

China Will Take Over The World

“I often get asked if China is going to eat our lunch or surpass us,” Paulson said. “I always say that you can exaggerate China’s strength just as much as you can underestimate its potential.”

 

China’s economic model has run out of steam. That model is not going to continue to do the job, he said, but it is tough to reboot an economy that size. They need a new urbanization model. They have to fix the financial system. The legal system needs to be updated. It’s a country that is rife with corruption.

 

“It has many problems and challenges,” Paulson said. “But it has a leadership team that’s striving to remake China in a scale I’ve never seen before.”

 

China’s GDP Data Can’t Be Trusted

“Whether China’s GDP growth is 7 percent or less, there’s no doubt that the economy is slowing down dramatically,” Paulson said. “But I’m far less concerned with the rate of growth, and much more concerned with the quality of growth.”

 

China has been much too reliant on exports for too long, and also reliant on municipal debt to fund infrastructure investment. That is unsustainable, he says.

 

“That leads to bad debt, and right now it is manageable because they have $4 trillion in reserves,” he added. “But they need to change the economic model.” Finding a new form of municipal finance will be crucial for needed infrastructure development, and ultimately economic expansion that’s sustainable.

 

“I’m looking for what’s driving China growth rate rather than how much it’s growing,” he said.

 

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