Dealing with China

The centerpiece of Paulson's China years was the reform of the state-owned banks, and it is where the memoir slows down to show how hard the work actually was. China's four big lenders were technically insolvent by Western measures, weighed down by decades of bad loans made to money-losing state firms for political rather than commercial reasons. Cleaning them up meant confronting numbers that had never been allowed to see daylight, and persuading a leadership that guarded control jealously to open these institutions to foreign investors and public listing.

Paulson recounts the delicate choreography of it. The Chinese side wanted the capital and the credibility that a New York or Hong Kong listing conferred, but they did not want to lose command of institutions they saw as arms of the state. Foreign investors, for their part, wanted assurance that the books were real and that reform would continue after the money was raised. Bridging that gap required trust that no contract could manufacture, and Paulson's value was that both sides believed he would tell them the truth even when it was unwelcome.

As Treasury secretary from 2006, Paulson set out to convert his personal network into an institution. The result was the Strategic Economic Dialogue, launched in late 2006, a recurring high-level forum where senior officials from both governments met to work through trade, currency, energy and financial issues together rather than trading complaints through the press. The idea drew directly on what Paulson had learned as a banker: that in dealing with China, sustained personal contact accomplished what one-off confrontations could not. His counterpart, Vice Premier Wu Yi, was as formidable a negotiator as he had faced anywhere.

The substance was genuinely contentious. Washington wanted China to let its currency rise, open its financial sector, protect intellectual property and rein in a trade surplus that was becoming a political flashpoint at home. China wanted respect, access to American technology and to be treated as a partner rather than a delinquent. Progress was incremental and often frustrating, and Paulson is candid that the dialogue produced fewer breakthroughs than headlines demanded. Its real achievement was keeping the two economies talking through moments when the temptation to escalate was strong.

Step back from the individual deals and what Paulson's career describes is a particular way the U.S.-China relationship was actually built — not chiefly through treaties or summits, but through a small number of financiers and officials who learned to operate inside a system that runs on relationships rather than rules. For a couple of decades, the most reliable channel between Washington and Beijing was often a phone call between people who had eaten a hundred dinners together. That is an unusual foundation for the most important economic relationship in the world, and Paulson's memoir is, among other things, a record of its strengths and its limits.

The strength is obvious in the crisis chapters. When markets froze in 2008, formal mechanisms moved too slowly; what mattered was that Paulson could get senior Chinese leaders on the line and be believed. Personal trust did work that institutions could not. The Strategic Economic Dialogue itself was an attempt to bottle that trust and make it survive any single individual, to turn a banker's Rolodex into a durable channel of state.

The man who took Bush's phone call in 2006 had already lived one improbable career and was about to live another. Paulson went from selling China to global investors to negotiating with it as a rival, then to leaning on it to help steady a collapsing American economy — three roles that would have belonged to three different people in most lives, held together by the same web of relationships he had spent years building in Beijing. The memoir's throughline is that continuity: the same access, put to strikingly different uses.