Narrator: Imagine securing a massive, $180 million investment deal to build power plants in a rapidly growing Chinese province. All the necessary approvals from the regulatory commission are in place. Then, at a conference in Beijing, your partner gives a presentation outlining the deal's expected returns. In the audience sits the daughter of China’s Premier, Li Peng, a conservative leader wary of foreign influence. Shortly after, the deal is unceremoniously cancelled. It takes just one well-placed official to undo months of work. This is the high-stakes, politically charged world of dealmaking in modern China, a landscape where formal rules are often secondary to hidden influence and personal relationships.

In his book, Dealing with China: A Business Man's Adventures in the Last Great Market, former Goldman Sachs CEO and U.S. Treasury Secretary Henry M. Paulson Jr. provides an insider's account of navigating this complex environment. He reveals how China’s economic miracle was engineered, not just through policy, but through a series of audacious, high-stakes deals that transformed the nation and the global economy.

Narrator: In the early 1990s, Goldman Sachs was trying to gain a foothold in Asia. Paulson learned quickly that in China, a deal is not just a transaction; it is an extension of a relationship. This lesson was powerfully illustrated through his interactions with Li Ka-shing, the most influential businessman in Hong Kong. During a meeting, Li directly asked Goldman Sachs to spend $2 million on advertising for his son's new satellite TV venture, Star TV. For a firm that prided itself on advisory work, not ad buys, this was an unusual and uncomfortable request.

While some at Goldman saw it as a shakedown, Paulson understood it was a test of commitment. He argued that this was not an expense but a strategic investment in a crucial relationship. After much debate, Goldman Sachs agreed, purchasing the advertising and donating it to a children's cancer charity. This seemingly small gesture of goodwill paid enormous dividends. It earned Li Ka-shing’s trust and gave Goldman Sachs a seat at the table for major future deals, helping the firm make its name in Hong Kong and, eventually, on the mainland. It was a masterclass in the unwritten rules of Chinese business: putting your own money on the line alongside a partner is the ultimate sign of trust and the key to unlocking future opportunities.

Narrator: By the late 1990s, China’s state-owned enterprises (SOEs) were bloated, inefficient, and drowning in debt. Premier Zhu Rongji, a pragmatic and decisive reformer, knew that drastic change was needed. His audacious plan was to use the discipline of Western capital markets to force reform from the outside in. The test case was China Telecom. The challenge was immense: the company didn't even exist. It had to be carved out of the massive, bureaucratic Ministry of Posts and Telecommunications.

Goldman Sachs was chosen to lead the Initial Public Offering (IPO), a deal that had to be executed in the midst of the 1997 Asian financial crisis. The process itself became the reform. Preparing for the IPO forced the ministry to adopt international accounting standards, develop a business plan, and answer to the demands of global investors. To secure the deal in a volatile market, Goldman created the concept of "cornerstone investors"—influential corporate players who agreed to buy large stakes and hold them, signaling confidence to the market. When these investors wavered, Minister Wu Jichuan personally intervened, delivering a stirring speech that reassured them of the long-term vision. The IPO ultimately raised over $4 billion, proving that Western markets could be a powerful catalyst for modernizing China’s state-controlled economy.

Narrator: The success of the China Telecom IPO created a template for other SOEs, including the colossal China National Petroleum Corporation (CNPC). Restructuring CNPC for its IPO, which would be named PetroChina, was an even greater challenge. The company was less a business and more a self-contained society, responsible for over 1.5 million employees and their families, providing everything from housing and schools to hospitals. The reforms, driven by Premier Zhu Rongji, were brutal. The "iron rice bowl"—the system of guaranteed lifetime employment and social benefits—was shattered. Between 1990 and 2001, the state sector shed an estimated 40 million jobs, causing widespread social disruption.

The political pressures were immense. This was vividly captured during the final pricing meeting for the PetroChina IPO in New York. With demand soft due to low oil prices, the bankers advised pricing the deal at the low end of the range. The chairman, Ma Fucai, resisted, fearing he would lose face. The meeting grew tense and dragged on for hours until, in a moment of sheer exhaustion and pressure, Ma Fucai fell asleep at the negotiating table. It was only then that his deputy, trusting the advice of the bankers, agreed to the price. The incident was a stark illustration of the personal and political stakes involved in dismantling the old state-run system.

Narrator: For years, international lenders poured money into Chinese "window companies"—provincial investment arms—under the assumption that the government would always back their debts. This implicit guarantee fueled reckless borrowing and corruption. The bubble burst in the late 1990s in Guangdong, China's wealthiest province, where Guangdong Enterprises (GDE) was on the verge of collapse with nearly $6 billion in debt. Beijing sent in Wang Qishan, a rising star known as "the fire chief" for his skill in handling crises.

Instead of a bailout, Wang and Premier Zhu Rongji made a shocking decision: they allowed another major investment firm, GITIC, to go into liquidation. The message was clear: the era of implicit guarantees was over. Investors would now bear the risk of their decisions. Wang then tasked Goldman Sachs with the grueling, two-year restructuring of GDE. He forced international creditors to accept significant losses, famously invoking the phrase, "Capitalism without bankruptcy is like Christianity without hell." This painful process established a crucial precedent for market discipline in China, signaling a fundamental shift from a state-controlled to a more market-driven economy.

Narrator: When Paulson became U.S. Treasury Secretary in 2006, the U.S.-China relationship was managed through hundreds of separate, uncoordinated dialogues. To bring order to this chaos, he proposed the Strategic Economic Dialogue (SED), a high-level forum to address long-term strategic issues. To launch the initiative, Paulson once again relied on personal relationships. He bypassed formal diplomatic channels and reached out to his old contact, Zhou Yongkang, who was now China's powerful Minister of Public Security. Paulson asked Zhou to personally carry the proposal for the SED to President Hu Jintao.

This unorthodox approach worked. President Hu agreed, and the SED was born. The dialogue became a critical platform for tackling contentious issues, from China’s currency valuation to market access and environmental cooperation. It demonstrated that even at the highest levels of government, the principles of trust and direct communication that Paulson had learned in his business career were essential to making progress and managing the world's most important bilateral relationship.

Narrator: Paulson concludes that the U.S.-China relationship is not a zero-sum game. Cooperation is essential for tackling global challenges like climate change, pandemics, and nuclear proliferation. He argues that while the U.S. must push China to play by fair rules, its greatest leverage comes not from containing China but from strengthening itself. This means addressing its own domestic challenges, such as political gridlock, rising debt, and crumbling infrastructure.

A powerful example of the potential for mutual benefit is the story of Wanxiang Group, a Chinese auto parts maker. Starting as a bicycle repair shop, it grew into a global powerhouse. During the financial crisis, Wanxiang invested in struggling U.S. auto parts suppliers, saving thousands of American jobs. It later acquired bankrupt battery maker A123 Systems and Fisker Automotive, with plans to build electric cars in the United States. This story illustrates that cross-border investment can be a unifying force, creating jobs and prosperity in both nations. The competition with China, Paulson argues, should be a race to the top, not a race to the bottom.

Narrator: The single most important takeaway from Dealing with China is that the relationship between the U.S. and China is the defining geopolitical and economic reality of the 21st century, and it must be managed with pragmatism, not ideology. Paulson’s journey reveals that progress is made not through confrontation, but through patient, persistent engagement that recognizes the unique political and cultural realities of China while holding firm to core principles of fairness and market discipline.

Ultimately, the book leaves us with a challenging reflection. America's ability to effectively deal with a rising China depends less on what happens in Beijing and more on what happens at home. The most potent strategy for the United States is not to focus on slowing China down, but to focus on speeding itself up by revitalizing its own economic competitiveness, political unity, and national confidence. The question is not just how to deal with China, but how America will choose to deal with itself.