China needs to get “more economic reformers” into key jobs as part of its upcoming leadership reshuffle, in order to break up state-run monopolies and allow the private economy to boom, former US treasury secretary Henry Paulson says.
Paulson made the comments in an interview with the South China Morning Post covering a wide range of issues relating to Sino-US ties.
Paulson has long experience with China, having dealt with national leaders ranging from President Xi Jinping to anti-corruption tsar Wang Qishan in his decades as an investment banker and a Washington official.
He said China’s future economic success depended on breaking up oligopolies and putting state enterprises on a “level playing field” with private businesses. But he said this would be an uphill battle for the Chinese leadership due to resistance from the country’s vested interests.
“The reforms [Xi] has outlined are the right reforms. But to get some of these done will be very difficult and it’s going to take strong political will, particularly dealing with state-owned enterprises,” said Paulson, who was in Hong Kong to promote the Chinese version of his book, Dealing with China: An Insider Unmasks the New Economic Superpower.
“There is big resistance from vested interests in China that don’t want to open up to competition,” he said.
Paulson, who has served as the chief executive of Goldman Sachs and is now the chairman of the Paulson Institute at the University of Chicago, is often regarded as a key messenger between Beijing and Washington thanks to his extensive ties on both sides.
Paulson has spoken with Xi as well as his two predecessors, Hu Jintao and Jiang Zemin. His latest meeting with the current president took place in April – an extraordinary level of access for a former treasury secretary who no longer held an official position.
Paulson said there was “a difficult political climate” and “a tough period in terms of the challenges” for relations between the world’s two biggest economies. He blamed the tensions on rising sentiments of protectionism and populism, especially on the American side during a presidential campaign.
He said the two countries needed to work harder to turn their shared interests into tangible accomplishments.
In a roundtable discussion yesterday in Hong Kong, Paulson added that “Xi Jinping is a very strong and ambitious leader who is looking to make a lot of changes in China”.
“The bad news is it’s a big job,” he added, referring to a host of challenges Xi faced, from the economy to the environment.
For Paulson, the biggest risk for China’s economy in the short term is overcapacity and a slowdown, with rising debt among local governments and state-owned enterprises a problem for the medium term. He said China’s long-term challenge was to find new drivers of growth.
His reading of the nation’s economy is largely in line with Beijing’s own. China, at least on paper, has pledged to reduce excessive capacity, to cut its debt ratio and to empower growth with innovation instead of investment.
However, real progress remains elusive.
“I will tell you, China has some unprecedented challenges right now in terms of reforming the economy,” Paulson said. “The agenda President Xi Jinping laid out was the right one, but getting it done is proving more difficult.”
Paulson’s take on key issues:
Chinese President Xi Jinping
“Xi Jinping is a very strong and ambitious leader who is looking to make a lot of changes in China. He is not looking to follow a Western model based on universal suffrage. That is for sure.”
“Xi’s view is that the Communist Party is the only institution that is strong enough to maintain stability while modernising the economy and the government.”
“In terms of President Xi Jinping’s economic reform agenda, I’m very supportive of the agenda. The key challenge is to get it done.”
“I think the good news is he is a strong guy. The bad news is it’s a big job.”
“What I see is a difficult political climate, a tough period in terms of the challenges, but a need on both countries’ parts to find common ground … and turn those shared interests into tangible accomplishments so the public in both countries can see the benefits.”
US presidential candidate Donald Trump
“I do not believe the United States and the Americans are going to let Donald Trump become president … I think the challenge is Donald Trump, with his anti-China rhetoric and with his anti-trade rhetoric, is going to make the job for all of us more difficult going forward.”
The Chinese currency
“I look forward to the day when China has a truly market-determined solution … To get there, you need to have a currency that is market-determined, an open capital market, and you are going to need a competitive, open financial system.”
South China Sea
“When you look at territorial disputes, there are good arguments on any sides. I think it’s important that we don’t take sides on legitimacy… Economic integration and linkages in Asia are very very important, and I think tensions, or threat of force in the South China Sea threatens those economic linkages.”
“I am an American, I believe in universal suffrage … I think there is going to be toing and froing for some time between Beijing and different groups in Hong Kong as they develop the institutions here and as the political system evolves … There will be a lot of people in the world that will be looking at this. I know the Taiwanese people will be looking at this closely.”