Secretary Paulson: Making Sense without Hard Numbers

Basic Argument: "The inextricable interdependence of China's growth and that of the global economy requires a policy of engagement."

On the Economy: "Approaching Beijing through economic issues of interest to both countries is an effective way to produce tangible results in economic and noneconomic areas."

On US Politicians: "The challenge for Washington is to understand China's perception of its self-interest, identify opportunities to persuade China that its interests and those of the United States often are the same, and narrow real differences whenever possible."

Strategic Economic Dialogue Accomplishment #1: "U.S. passenger flights to and from China will more than double by 2012, and air-cargo companies from both countries will enjoy full liberalization of the industry, including the lifting of restrictions on the frequency and price of flights, by 2011."

On Diplomacy Tactics: "U.S. officials are more effective when they understand the Chinese people's perspective." "Encouraging communication across stovepiped bureaucracies maximizes results. "

Market Approach to Emissions Limits: The Strategic Economic Dialogue "helped [the Chinese EPA] gain broad support among the senior Chinese leadership, paving the way for Beijing to announce at the third SED meeting, in December 2007, that it would develop a nationwide program on sulfur-dioxide-emissions trading in the power sector. This was a meaningful step toward using market forces to address pollution and provide cleaner air in China. [comment: We can't even agree to this in America!] The move will also expand U.S. export markets and create jobs for U.S. environmental companies, which lead the world in developing the kinds of technologies necessary for such a program."

A Warning to the Fear-Mongers: "Americans who worry that China might overtake the United States are worrying about the wrong thing. They should instead be concerned that Beijing may not make key reforms or that it will face significant economic difficulties down the road. Serious troubles in China's economy could threaten the stability of the U.S. and global economies."

On Inequality and Trickle-Down Economics: "One indicator of this inequality is enrollment rates in China's provincial high schools, for which parents must pay fees. Earlier in the reform era, there were only small differences in such rates across provinces, but by 2003 enrollment was nearing 100 percent in the wealthier provinces, compared with less than 40 percent in the poorer ones. With China's social stability anchored in the belief that the wealth boom will eventually filter down to everyone, continued growth remains Chinese leaders' most important priority."

On the Tough Road Ahead for Chinese People: "Individual Chinese [are trying] to compensate for the country's thin social safety net, limited options to finance major expenditures such as education, and few investment options other than bank deposits. Demographics will only exacerbate these trends: as China's population ages, the traditional source of support in retirement -- children -- will become increasingly scarce."

On Green Civil Society: "Approximately 1,000 disputes over environmental protection occur each week in China. Environmental damage there is so severe that according to World Bank estimates, the combined health and non-health costs of air and water pollution in China amount to $100 billion a year, or about 5.8 percent of the country's GDP."\

On the Ten-Year-Eco-Plan: "The United States and China are already cooperating on joint research on alternative and renewable fuels for transportation and on efforts to improve the water quality of China's rivers, lakes, and streams."

On 2009 and Beyond: "On every major economic, political, and security issue, the path that China chooses will affect the United States' ability to achieve its goals. This will also be true under the next U.S. administration."

Henry Paulson, Jr.
U.S. Secretary of the Treasury

Foreign Affairs, September/October 2008