Increase of mutual investments will strengthen the relations between US and China

Henry Paulson's speech in Hong Kong:

Mr. Henry Paulson Jr, 74th USTreasury Secretary was invited to a dinner event hosted by China United States Exchange Foundation. Mr. Paulson gave a short speech during the event and answered two questions posed by CUSEF Chairman Mr. Tung Chee Hwa and CUSEF Governing board member Mr. Ronnie Chan.

Date: April 11, 2011

Now, in terms of what I'm doing, I'm going to, working with Wendy, concentrate a lot of my efforts on conservation and the environment. And a very big part of my efforts are going to be on US-China relations. And I'm going to be quite engaged and I’m going to focus in two general areas. Economic, increasing the economic activities between our two nations, investment, you know, economic activity, jobs. There’s no doubt in my mind that more can be done to help clarify the investment process, because the more cross boarder investment we have, the more US investment in China and the more Chinese investment in US, the stronger the relations will be between the two countries. I also believe that this is a very important point in the world’s history. The pace of change is extraordinary. The risks we see, when you just look at what’s going in the Middle East, or what’s going on with oil prices, or the tsunami in Japan, it reminds us of how interrelated we all are.

And of course, a fundamental change is been the rise of China and the increasing importance of not just China, but big developing countries. That’s changed the world forever. And so, this means that I think that both the US and China need to operate a bit differently. And as I look at it and look at the certain fundamental problems we are dealing with, whether they are economical problem globally, whether they’re national security, whether the environment, that these issues will be easier to solve if you get the biggest developed nation and the biggest developing nation working well together and with others, and it’ll be impossible to solve if we don’t work together. And so there will be a real premium on innovation and the ways in which we work. Building on the mutual interest, there’s always going to be some differences, but we have many more common interests. And so building on those, so that’s going to be important to me.

And then I care a lot about the environment. And I am just telling everyone that would listen to me, that, you know, that sustainable development is not just a word or a phrase or something that is politically correct. That we are not going to have sustainable growth that benefits all of mankind, unless we have a clean environment. And a healthy ecology is, you know, is essential to growth, so you know two sides are the opposite sides of the same coin are good environmental practices and sustainable growth. And I think we’ve reached a tipping point right now. And it’s, you know, there’s so much public scrutiny, and there’s a wide spread public knowledge of you know, the threats to our planet. I really do believe when you look at the very best global companies, they’re going to be the ones that have got the best technology and the highest environmental standards. And it won’t be long before nothing else will be tolerated, for those companies are going to be global leaders. And so I was very encouraged by my visit to Beijing, cause I know I would. When you look at the Twelfth Five Year Plan, you know, it’s just what is needed, and you know the evolution, continued evolution of the Chinese economy, less reliant and low cost exports, more in high value added products, innovation, domestic consumption, and a big emphasis on alternative sources of clean energy. And very very important, because we’re, no way we’re going to solve the climate problem, unless we get the two biggest economies in the world, the two biggest importers of oil, the two biggest emitters of carbon, work together to develop and deploy new clean technologies. And we won’t meet the challenges with the technologies we have today. You know, we’re going to have to have new ones developed; they’re going to have to be cost efficient and deployed in scale. And I’m optimistic that they can and they will be.

So, again, I’m looking forward to not visiting China as much as I did, you know, when I ran Goldman Sachs. I was there four five, seven times a year, but I’m looking getting there several times a year, and coming regularly to Hong Kong and seeing so many friends and the other thing that I can just say, which very personally about Hong Kong. To see this economy doing so well, and to see the Hong Kong market, and the stock exchange and I just remembered, you know, that C.H’s early leadership and some of your leadership. And where it was ten years ago, and now to see it is absolutely world class, just absolutely, in terms of listing requirements, in terms of underwriting, in terms of disclosure, in terms of liquidity. And, you know, I am a loyal American, I am very proud of the US market, but my due about markets is we have a multi- polar world. And the way I think about banking and markets and market competitiveness is that capital markets are enablers. And what capital markets do is help create jobs and growth and prosperity and help allocate capitals efficiently and help economies evolve, so having several competitive markets, so more competitive markets the better. Because what we’re going to find is that a prosperous growing Asia is going to be very good for the US, and a prosperous US is going to be good for Asia. So, any of that, good to be here. Hope I didn’t talk for too long and if you’d like I’ll take a couple questions.

Q1: Hank, if today you are Mr. Bernake or Mr. Tim Geithner, is QE 2 going to be stopped very soon? Or is it something that is going to go on for some, a bit of time here?

A1: You’ll have to ask Ben Bernake and the Fed. I’ll say this about QE 2 though, and I probably shouldn’t comment because, you know, as a treasury secretary, I didn’t talk about monetary policies, so as a former treasury secretary I probably shouldn’t, but I’ll talk a little bit about it anyway. Because I do believe that the intend is have a healthy, growing US economy, and I have no doubt that that is going to be, over time to have a strong dollar. And I have always been a really strong advocate of a strong dollar, and an aggressive advocate of a strong dollar. Now, I recognize and when you’re travelling through Asia you see first hand, that we have very different economies and very different stages of the economic cycle and of development with different needs. I think the, after the crisis, the world came together and there was very very good coordination. And I think right now what we’ve got is, you know, China’s economy is doing very well, Asia economy is doing well, the US economy is growing and picking up some steam, further to go. There’s more issues and different spots in Europe so, so we’ve got different needs, and I think that, you know, that by enlarge what I see is I see the US and other countries looking to do what they can to strengthen their economy while recognizing that we’re all inter-related. So, this is I am, but I am positive about the US economy in the second half, I think the growth is, you know, unemployment will come down slowly and that is going to be a nagging problem for awhile but I see more growth in the second half and looking forward, and so that is as specific as I can be because other than that…

Q2: Over the years C H and I have always lamented the fact that most Americans really don’t understand China well enough, and in particular politicians. And so the businessmen tend to have to take the lead. And in the last generation we did have a few of those, but they are getting out of age. And so C H and I have always been talking about, “Hey, who is the next commercial ambassador to China”. And I am very happy tonight to tell you Hank that I have found it. You have a new job.

I have never been a US Secretary of Treasury and so I don’t know what an Ex-Secretary of Treasury does, but can you tell us a little bit more about your ideas on how you, given your very unique position, have known Chinese for 20 years, known Jiang Zemin and generations of leaders, what specifically can you do and will you do to better that relations? We here in Hong Kong, I’m sure, stand ready to be of help to you, and to do what we can. But we’d like to know more what you plan to do. And also, broaden that a little, in general, what do you plan to do? What do you plan to spend your time? Besides just environment, what else? And what institutional relationship if any?

A2: Well, I’m not prepared to talk about institutional relationships right now, that I am setting up. But first of all, I will spend a significant percentage of my time on conservation and environment. I mean even on this trip to China I spent a day with the Minister of the SFA, State Forestry Administration, out visiting a tree farm. Because in China they are going to plant 10 billion trees a year. When I say that to my US friends, they think, “Gee, there you are exaggerating again”, but it’s 10 billion a year and its really very commendable. So I’m talking with the Minister Jia of the SFA about some joint ventures, one on, you know, a tree farm , another a joint venture with the foreign countries to work to limit illegal cutting and trafficking in tropical hardwood, that kind of thing, so I got an interest there. I spent a day going to Tianjin with Fu Chengyu to Lishen, which is a battery maker, a lithium-ion battery maker for electric cars but also for storage, electric storage for solar, wind and so on. And I’ve been an investor in Coda, which is an electric car manufacturer, which is a joint venture partner. So I am interested in that.

Now, I guess what Ronnie would like to say is, I mean I care about this relationship, I will travel to China several times a year and I will be looking to engagements, because I am not, what I want to do and what I have always been pretty good at is getting things done, whether it is conservation projects, or privatizations or whatever getting things done. And so I will be looking for engagement in two broad areas, which are related. One is investment, OK? And Chinese investment in the US, and US investment in China. And I think, cause I am not working in the government anymore, I will be focusing on helping people demystify the investment process, clarify it, working it at grassroots level, provincial level in China with Governors or Mayors in the US. I had, I really enjoyed my work in China in some of the privatizations earlier on, early, you know, for China Mobile, PetroChina, Bank of China. And I remembered when Zhu Rongji gave an early speech just after he became the Premier, he said he looked forward to the day when some of the state-own enterprises will be private. Cause now they are making money hand over fist. But they are in the very early stages of becoming international companies. So I think that’s another area maybe I could be helpful. And I enjoy working with companies and helping them understand their ecological footprint and environmental footprint, and how to do things in a way, which would have got the highest environmental standards. And then when you look at US and China as I said before, two big, biggest importers of oil in the world, the biggest emitters of carbon, I think again engagement there at the…

One of the last things I did as Treasury Secretary was, together with Wang Qishan at the SED, put in place the ten-year framework for energy and environment. So I think there is a lot of ways to cooperate. So my ideas, I just, is nothing different than any of you are doing, which is that if you have, the more engagement you have, the more investment you have, that then when the inevitable difficulties take place, or whenever it is happening politically, in Washington or Beijing, it would be easier to bridge those, the more ties we have between our two countries. So, that’s it, but I have got to tell you I am also don’t want to work as hard as I did as Treasury Secretary or when I ran Goldman Sachs, I want to spend time with grand children, I want to fish, you know. And I want to look at birds, ride my bike, ski. Thank you all very much. Thank you very much.