Joe: Alright Lewis, I'm going to say a name: Henry Paulson, former CEO of Goldman Sachs and US Treasury Secretary. What's the first thing that comes to mind? Lewis: A guy in a suit so expensive it has its own financial advisor. Probably not someone who'd end up eating yak knuckles in a remote Chinese province to close a deal. Joe: That's exactly why we're talking about his book today. The man is full of surprises. We're diving into Dealing with China by Henry M. Paulson Jr. Lewis: I'm intrigued. What makes his take on China different from the countless other books on the topic? Joe: It’s his unique vantage point. What makes Paulson's perspective so compelling, and why the book got so much attention, is that he's one of the only foreigners who has seen China from both sides. First, as the ultimate capitalist dealmaker at Goldman Sachs, and then as the top US economic diplomat, the Treasury Secretary. He was in the room with three successive Chinese presidents. Lewis: Wow. So this isn't just an economics textbook. It's a collection of war stories from the front lines of global capitalism. Joe: Exactly. And his first lesson, the one that underpins the entire book, is that in China, the rules you think you know don't apply. It all starts with relationships.

Lewis: Okay, "relationships." That's a word that gets thrown around a lot in business. It usually means you take someone out for a nice steak dinner. I have a feeling it’s a bit more intense in this book. Joe: Oh, it's on a completely different level. Let me give you a perfect example from his early days at Goldman. He’s trying to win business from one of the most powerful men in Asia, the Hong Kong tycoon Li Ka-shing. Paulson and his team go in for a meeting, ready to talk strategy, numbers, markets... Lewis: The standard Goldman Sachs playbook. Joe: Right. But Li Ka-shing isn't interested in that. Instead, he basically says, "My son, Richard, is starting a satellite TV venture called Star TV. It's a great opportunity. I think Goldman Sachs should buy a $2 million advertising package." Lewis: Hold on. He just asked for two million dollars? In the first meeting? That sounds less like a business proposal and more like a shakedown. Joe: That's what it feels like from a Western perspective! Paulson is floored. He has no authority to spend that kind of money on advertising. His partners back in New York would think he’d lost his mind. It’s a test. Lewis: A test of what? How deep his pockets are? Joe: A test of commitment. Li Ka-shing wasn't just selling ads. He was asking, "Are you a short-term player who just wants to make a quick buck off me, or are you a long-term partner who is willing to put your own skin in the game and support my family's ventures?" It's about this concept of guanxi. Lewis: I've heard that term. It’s like a network of influence, right? Joe: It's deeper than that. It’s a web of trust, obligation, and mutual support. It’s not transactional; it's relational. So, Paulson goes back to his management committee and, against all logic, convinces them to do it. They spend the $2 million. And to show it wasn't about the ads, they donated the airtime to a children's cancer charity in Hong Kong. Lewis: That’s a classy move. Did it work? Joe: It worked spectacularly. That single act of putting money on the line, of showing they were invested in the relationship, opened the door. Goldman Sachs ended up doing billions of dollars of business with Li Ka-shing and his companies over the years. They helped his son sell that very same Star TV to Rupert Murdoch for a massive profit. That $2 million wasn't an expense; it was the price of entry into that inner circle of trust. Lewis: That's fascinating. But it also sounds incredibly risky. What happens when the politics get involved? It’s one thing to deal with a tycoon, but what about the government? Joe: That’s when the stakes get even higher, and the rules get even murkier. He tells another story about a deal in Shandong province. Goldman was putting together a major investment in a power plant. Everything was approved, all the local officials were on board, the deal was announced. Lewis: Sounds like a done deal. Joe: Until one of his junior bankers gives a presentation in Beijing and happens to mention the high rate of return foreign investors were expecting. In the audience, unnoticed, is the daughter of Li Peng, the Premier of China at the time, a very powerful hard-liner. Lewis: Oh no. I can see where this is going. Joe: She goes home and tells her father that foreigners are about to make a fortune off a Chinese state asset. Li Peng, who was already skeptical of rapid reform, was furious. The next day, the deal was dead. Canceled. Just like that. Lewis: Wow. So one person, in the right family, can kill a multi-million dollar deal that hundreds of people had worked on? Joe: That was the lesson. In China, it's not enough to get a 'yes' from the people you think are in charge. You have to get a 'yes,' or at least avoid a 'no,' from everyone who might have an interest. Power is diffuse and opaque. It's a lesson Paulson says they learned the hard way: it only takes one well-placed official to kill a deal.

Lewis: Okay, so you build the trust, you navigate the politics. But what do you do with it? It can't just be about getting more deals for Goldman Sachs. The book's title is "Dealing with China," not "Getting Rich in China." Joe: That's the perfect pivot, because this is where the story gets truly world-changing. Paulson and the Chinese reformers, especially the legendary figure Zhu Rongji, realized they could use Western finance as a tool—almost as a weapon—to force reform on China's broken state-owned enterprises, or SOEs. Lewis: How does that work? The SOEs were these giant, inefficient, state-run behemoths, right? They were more like social welfare agencies than businesses. Joe: Exactly. They employed millions, but they were bleeding money. Zhu Rongji knew he had to fix them, but the internal resistance from the Communist Party was immense. So he came up with a brilliant idea: take them public. Do an IPO. Lewis: Hold on. How does an IPO force reform? Don't you just sell shares to the public and raise money? Joe: That's the genius of it. To list a company on a major international stock exchange, like New York or Hong Kong, you have to play by their rules. Suddenly, you need to have transparent, audited financial statements that meet global standards. You need a real board of directors with independent members. You need a coherent business plan that you can sell to skeptical international investors. Lewis: So you're saying the process of preparing for the IPO is what forces the change. It's like a Trojan horse for capitalism. Joe: It's a perfect analogy. The IPO was the Trojan horse. The book details the monumental effort to take China Telecom public. This wasn't an existing company. They had to literally carve a new company out of a government ministry, the Ministry of Posts and Telecommunications. They had to figure out which assets were profitable, create financial records where none existed, and build a management team. All of this was happening during the 1997 Asian Financial Crisis, when markets were collapsing. Lewis: That sounds completely impossible. Joe: It almost was. The deal nearly fell apart multiple times. But Zhu Rongji and the reformers in China were determined. They saw this as a template. If they could successfully restructure and list China Telecom, they could do it for the oil companies, the banks, the airlines. They were using the discipline of the global market to do what was politically impossible to do from within. Lewis: So when we see these massive Chinese companies today, like PetroChina or ICBC Bank, their modern form was essentially forged in the fires of these IPOs that Paulson and his team were orchestrating? Joe: In large part, yes. The IPO for PetroChina was another epic struggle. They had to lay off over a million workers to make the company viable. There were protests, political backlash, and immense social pain. Paulson describes the process as gut-wrenching. But the reformers believed it was necessary to save the companies and, by extension, the Chinese economy. The IPO wasn't just a financial transaction; it was a form of shock therapy for an entire economic system.

Joe: And that ability to use finance as a tool for change is what led him to his next job: Treasury Secretary. But now, instead of just one deal, he's managing the single most important economic relationship on the planet. Lewis: And he steps into that role at a really tense time. The book talks about the rising anti-China sentiment in the U.S. Congress. People are worried about job losses, the trade deficit, and China manipulating its currency. Joe: Absolutely. He's caught in a classic bind. He knows that a trade war would be disastrous. The U.S. and Chinese economies are deeply intertwined. At one point, China held nearly $1.3 trillion in U.S. debt. We needed them to keep buying our bonds to fund our government. But at the same time, he has senators breathing down his neck, threatening to pass protectionist legislation if he doesn't get tough with Beijing. Lewis: This sounds incredibly familiar. This tension is exactly what we see in the news today—cooperating on climate change while fighting over technology and trade. It’s the ultimate tightrope walk. Joe: That's why he created the Strategic Economic Dialogue, or SED. His idea was to get the top-level decision-makers from both countries in a room together regularly, to move beyond the low-level squabbles and focus on the big, long-term strategic issues. Lewis: And his counterpart on the Chinese side was the formidable Vice Premier Wu Yi, known as the "Iron Lady of China." The book has a great story about their first real negotiation. Joe: The "Great Patio Debate"! It’s fantastic. He hosts her for dinner at his home in Washington, trying to build a personal connection. But he needs a concrete win on opening up China's financial markets to take back to Congress. The negotiations stall, and he pulls her out onto his patio for a one-on-one talk. He says it got very heated. He’s pushing, she’s pushing back, explaining the political realities in Beijing. Lewis: It’s amazing to picture the U.S. Treasury Secretary and the Chinese Vice Premier having a heated argument on a residential patio in D.C. Joe: It shows how personal these high-stakes negotiations are. In the end, he doesn't get everything he wants, but he gets enough to keep Congress at bay. The SED becomes a crucial channel for communication, especially during the 2008 financial crisis. Paulson had to call the Chinese leaders and essentially say, "Our system is melting down, but please, don't sell your U.S. bonds. Trust us." Because he had built that relationship through the SED, they listened. Lewis: That's a powerful point. The trust he built as a banker and then as a diplomat literally helped stabilize the world economy. But looking back now, was Paulson's approach of deep engagement the right one? The book has been criticized for being a bit self-congratulatory, and some argue his generation of leaders underestimated the competitive threat from China. Joe: The book doesn't shy away from that question. Paulson's ultimate argument is that we don't have a choice. The two countries are too big, too interconnected to simply disengage. The biggest global problems—from climate change to pandemics to financial stability—are impossible to solve if the U.S. and China aren't working together in some capacity. He argues that competition is inevitable, and even healthy, but it has to be managed to prevent it from spiraling into conflict.

Lewis: So when you boil it all down, what's the central takeaway from Dealing with China? It seems to be a story told in three acts: the dealmaker, the reformer, and the statesman. Joe: I think that's a perfect way to put it. And the core message that connects all three is that engaging with China is not a simple choice between being a friend or a foe. It's a constant, messy, and deeply complex process of managing contradictions. You have to be a partner and a competitor at the same time. Lewis: It’s about holding two opposing ideas in your head at once. The idea that China's rise is an incredible opportunity for American businesses, and also a formidable challenge to American leadership. Joe: Exactly. Paulson's journey shows that you can't rely on a single strategy. Sometimes, you need the soft power of guanxi, of building personal trust. Other times, you need the hard power of market rules to force change. And at the highest level, you need the diplomatic wisdom to know when to push and when to cooperate. Lewis: The book really makes you think about how much of global history comes down to these personal interactions—a heated debate on a patio, a snap decision to spend $2 million on ads, a quiet word in the right person's ear. Joe: It's a powerful reminder that history is made by people. And Paulson's argument is that for the U.S. and China, the future will be determined by whether our leaders can manage this incredibly complex relationship with wisdom and foresight. Lewis: It makes you wonder, in our own lives and work, where are we applying a simple, black-and-white, rule-based logic when the situation actually calls for building real, human trust and navigating the gray areas? Joe: A profound question to end on. Lewis: This is Aibrary, signing off.