Dealing with China – Book Review

Dealing with China: An Insider Unmasks the New Economic Superpower by Hank Paulson. Published April 2015. 403 pages.

This book is true to its name.  Paulson has occupied a singular position of leadership in some powerful organizations, and there are plenty of tidbits drawn from his experiences:

  • CEO of Goldman Sachs (1999-2006)
  • U.S. Treasury Secretary (2006-2009)
  • Nature Conservancy (2004-2006)

The minor details that only he would have been privy to are the most fascinating – Zhu Rongji’s visible long-johns, Paulson’s irritation at Chinese leaders that read scripted remarks during meetings and then dozed off, or sharing take-out with Chinese and non-Chinese leaders during the sausage-making process that would shape a deal.  Even the origins around how Paulson assumed responsibility for China in 1990: after being named one of three co-heads of investment banking, he got China primarily because he was based in Chicago and was deemed to be “closer” to China than the folks in New York.

Each of the chapters is organized around a particular transaction or case study, and I found some of the specifics to be somewhat tedious at times, particularly in the first section that details Goldman Sach’s experiences with China.  While interesting to see what it was like to live through the drama surrounding some of those transactions (e.g., guiding companies in the telecom, energy and banking spaces through the IPO process, or considering making a strategic investment pre-IPO in a Chinese bank), much of it followed a similar theme: there was a massive opportunity, the Goldman team encountered some tough challenges operating in China, but through the hard work, intelligence and persistence of key folks within Goldman and the Chinese government, they were able to overcome those obstacles and get the task at hand done.  There is a remarkably high correlation between the Chinese leaders Paulson finds particularly praiseworthy and their current political standing.

The conclusions and observations did not seem to be particularly groundbreaking:

  • China’s objectives continue to be stability and economic development.  Paulson does not think they would jeopardize their economic interests through a military or security conflict.  China will continue to act more assertively, but they will look for ways to find a workable solution.
  • China’s leaders believe they live in a tough area, surrounded by countries that they have fought wars against in the last century, including Japan, India, Russia and forward-deployed U.S.
  • Two key China issues for the U.S.: (1) national security for cyber-war-making capabilities and (2) pilfering of American companies’ secrets.
  • Principles for the U.S. to keep in mind:
  1. “Help those who help ourselves”: help the Chinese reform on their own, and it will benefit us
  2. “Shine a light”: push for more transparency and adherence to universal standards
  3. “Speak with one voice”: be wary of over-complicating complex issues.  It’s better for there to be one go-to person to organize and lead the discussions
  4. “Find China a better seat at the table”: the U.S. should be pragmatic and prepared to compromise to encourage China to take a bigger role on global issues (e.g., WTO, open markets, greenhouse gas emissions)
  5. “Demonstrate economic leadership abroad”: China has taken the initiative in the developing world.  The U.S. must step up and compete with China from a position of strength
  6. “Find more ways to say yes”: better to devise new policies together with China than to attempt to persuade China to adopt our approach to everything
  7. “Avoid surprises but be alert for breakthroughs”: China combines thorough preparation with consensus-driven decision making, so the key to breakthroughs is to always be on the lookout for openings, to be opportunistic and creative
  8. “Act in ways that reflect Chinese realities”: need to focus on what is doable.


As an added benefit, this book gave me the motivation to get some more grounding on how the Chinese political structure is organized.  Paulson is very attuned to who holds power, and Chinese leadership can be very confusing.  I needed to refer to the Wikipedia entry on Chinese political leadership to get my bearings.  The Politburo Standing Committee is the most powerful body, consisting of 7 members who are the top leadership of the Communist Party.  It’s confusing because the members hold positions within the Communist Party as well as within the China state, although this has not always been the case.  For example, Xi Jinping is both the General Secretary of the Communist Party as well as the President of the People’s Republic of China.  Then you have Li Keqiang, the Premier of the State Council of the People’s Republic of China, or effectively the Prime Minister.  The President is the nominal head of state, but the General Secretary actually holds the highest political position.  Both positions are held by the same person, but this was not the case before 1993.  To add to the confusion, the post of Chairman of the Communist Party of China was the highest ranking position until it was abolished in 1982.  Most of the Chairman’s powers were transferred to the General Secretary.

Overall, I found the book good, but not great.  There are many detailed war stories, but you may find yourself skimming over sections to find something more interesting.

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