Our Man in Beijing

Gerard Baker, writing in THE Times, discusses Hank Paulson’s China policy, which is pretty close to U.S. China policy. Paulson is thinking very big:

Mr Paulson’s regal style has upset other colleagues in Washington’s highly status-conscious political establishment. When he made his first trip to China last month as Treasury Secretary, a familiar stomping ground from his Goldman days, I’m told that he declined to travel as treasury secretaries have been wont to do in the past — business class on commercial airlines. . . He insisted on having a presidential aircraft and a sizeable chunk of the White House’s presidential advance team, the smart and important-looking people with heavy briefcases and folders who spend a lot of time talking into tiny mobiles.

Yet the biggest changes seem to be more in substance than in style. . . by far the most interesting and consequential of Mr Paulson’s changes has been on the biggest issue of all — China. The former banker has made, for the first time, the structural reform of the Chinese economy the centerpiece of US economic objectives. On his trip to Beijing last month. . . Mr Paulson initiated a new dialogue with Beijing, aiming to elevate the transpacific debate above the usual spats over trade and currencies. . .

[I]nstead of banging on about how China needs to revalue its currency to make it more competitive, as John Snow and Paul O’Neill did, Mr Paulson is focusing on a much bigger goal: achieving radical change in the Chinese economy to make it more transparent, to reform its creaky financial system and, in effect, to breathe more of the free-market spirit into the present communist-capitalist hybrid. That will, of course, presumably have the desirable effect of revaluing the currency and diminishing the trade deficit. But, in the Paulson view, it is important to get the causation right — reform the economy as the best way to get lasting international economic stability. . .

Paulson[‘s] approach makes sound economic sense. In the end the global imbalances in the world will not be addressed without real change in Asia’s patterns of consumption and its financial systems. . . [But] why should we think that Mr Paulson will have . . . success with the [inflexible] Chinese? It will, at least, be worth watching.