 We're delighted to have with us former Treasury Secretary Henry Paulson, who I'm sure is very well known to all of you. He is now the chairman of a think and do tank in Chicago, known as the Paulson Institute, which is working to advance global environmental protection and sustainable economic growth in both the United States and China and to improve relations between the two countries, better understanding. He was Secretary of the Treasury under President George W. Bush from July 2006 to January 2009, an inconsequential period in American financial history, and of course spent 32 years at Goldman Sachs, including his chairman and chief executive officer from 1999 until he entered the Treasury. He's also a lifelong conservationist and was chairman of the Nature Conservancy, among many other conservation related activities. So that's Secretary Paulson. And then with him on stage is David Wessel, who I think is also very well known to a Washington audience. David a few months ago joined the Brookings Institution as director of the Hutchins Center on Fiscal and Monetary Policy. But as most people know for a few years before that, 30, namely, he worked at the Wall Street Journal where he covered economic and many other issues. And he won two Pulitzers along the way, which is not bad. He is a frequent participant in NPR's morning edition, so I'm sure you've heard him there if you hadn't read his Wall Street Journal columns. So with that, I will leave the two gentlemen to take a minute. Thank you, Matt. Thank you very much. It's a pleasure to be here. Hank Paulson is just back from a trip to China, and I asked him how many times he'd been to China, and he paused for a moment and said more than 100 times, both at Goldman and at Treasury, and now in pursuing a third career, which is interestingly 100% non-profit. He has no investments in China, except I think maybe his heart a little bit. Mr. Paulson, I thought I would start with remembering that you presided over, you had the helm during a horrible financial crisis in the United States, and we're a country that, at least we thought, had a fairly sophisticated financial system with good people running it. It didn't turn out to be quite as good as we had been led to believe, but in some sense the Chinese are facing what is widely regarded as the potential for a financial crisis, perhaps with less expertise in handling them, although they do seem to have a few resources if they need them. So I wondered if you could talk a little bit about how big a risk you think there is in shadow banking, or credit boom, or housing, and how well prepared you think they are to manage it if it hits. Yeah. David, thanks, and thank you all, it's great to be here. Not surprisingly that was a question I got a number of times in China, and my view is that, of course, every economic system known to man, every economy from time to time are going to have financial crises, and the roots are almost always, probably always, in flawed government policies, and then they manifest themselves in the banking system. And of course when you have an economy like the Chinese that relies on, to a large extent, debt financing for infrastructure, for real estate, for fixed plant investment, the problem is inevitable. And they almost certainly are going to have bad debts, and this in many ways is similar to what happened there in 1998 and 2000. The part of the bad debts are related actually to our financial crisis because of their fiscal stimulus program and policy bank lending, part of it to shadow banking investments that are in that market often to the private sector, and a lot of it municipal funding. And so the way I look at it is that first of all, I don't think anyone doubts that the capacity or the commitment they have to prevent the failure of systemically important companies. And today, the problem is limited to municipalities, local debt, and to state-owned enterprises. The public don't have leverage, and the central government has got a huge capacity. So today I think the things that I tell the Chinese is they need, in a system with diffuse decision making, they need clear lines of authority, and they need to make some tough decisions about what institutions are systemically important and which aren't, and when there are losses, how those should be shared among market participants, and they need to make it clear where the government is on the hook and where the government isn't. I'm not making light of the current situation. I think it's manageable. I think of much more serious is the flawed government policies that have led to this, which need to be corrected. And here I would just point at two things. One is sort of that triangle between the banks, the government, and state-owned enterprises, and dealing with that. And then the other very significant problem is their system of municipal finance, which is overly reliant on real estate sales, municipal governments taking land from the farmers, selling them to developers, and they need a new system, and that's not sustainable. They need a new system of municipal finance. And it's easier said than done because right now it doesn't work, it won't work unless there's a new tax system and there's fiscal reform because what happens is mayors have huge obligations and they don't have access to sources of revenue, enough sources of revenue. So what they're doing is they're taking land and selling it and funding it in the shadow banking market from banks on a short-term basis. So it's going to take a while. Pretty big bumps on the way to a better system. Just like the state of Illinois, they have some problems. Well, I would say that the Chinese economy I wouldn't compare with the state of Illinois, but the state of Illinois, we have some very significant problems, but China does as their own problems and I think they, like any economy, are going to have bumps in the road. To step back and look at it even more broadly, there is a huge need in China to develop a new economic model and the current, the Xi administration is committed to do just that and really put their credibility on the line and laid out really a very broad program to do that, but it's a lot easier said than done, to take a $9 trillion economy and develop a new economic model and rebalance it and do all the things they're going to do. So I happen to think you can't do something like that without some significant bumps along the way. To what extent has the Xi reforms translated into change in incentives for local governments? We talked a little this morning about how for a long time if you wanted to be promoted you had to produce growth and it was all in service of the national GDP target. The rhetoric at the top is for balance growth and all the stuff, but have they changed the incentives for the local officials, do you think? I think it's going to take a while to do that. I think the incentives are critically important. The environment is an area where it sure looks like they've changed it, that they don't have the institutions they need to deal with environmental issues the way we do. They have a strong, you know, the Ministry of Environmental Protection with regulations that can be enforced. So the approach that the Xi administration is using is making the environmental protection clean air and clean water an important part of the way they evaluate officials. So it used to be when you would meet the party secretaries and mayors they would go through their litany of what they'd done with their GDP and job creation and now in addition to doing that they're all talking about the environment and if they believe that that's going to impact their career what they do and it's going to be a very important part of their performance evaluation I think that will make a big difference. Do they get measurable targets like reducing particulates or something like that or is it? That isn't clear the extent to which that but that is clearly something that needs to be done and I think that I'm frankly encouraged because I don't believe it's rhetoric. The party needs to do this if it's going to keep its credibility. You've been working a lot on the environment China. Give us some example of something that convinces you that this is more than just press releases from the top. I've just given you to me the best example I can give. I would say that they've to step back even further. If five or ten years ago someone had told me these are all the things that China is going to do in terms of investing in clean technologies and shutting down dirty plants etc. I would have expected them to have made more progress but what's happened is despite some pretty extraordinary steps they've taken that it's all been blown away by this breakneck growth and I think there's a real understanding today that the quality of the growth is much more important than just ramping up GDP and the Chinese people are demanding it. When I'm there it is the big issue and remember I was there at the end of February also and when I was here at the end of February you could hardly see the sun and it was the you know the TP 2.5 rating it's in the dangerous zone when it's above 300 and I had days when it was above 600. Remember the leaders are right there in Beijing breathing the same air and so there's a huge need. You look what they're doing they're doing important things with resource taxes and tax experimenting with tax and carbon they're doing a lot of things and so there's no doubt they're serious about it. One of the things that you've mentioned to me and it came up this morning is in the G leadership period the role of the party seems to have changed some. Talk a little bit about what you've noticed about the role of the party and through this leader as compared to the last couple. Well I think the party has always been predominant in China. I think some Americans because when we talk about reform we're thinking that the Chinese maybe in the back of our minds some people are thinking they're trying to create a system like we have and so when they look at market based reforms these are reforms that are good for China and good for us and when you look at what they're doing in modernizing the government it's good for China and good for us but the party is predominant and Xi Jinping came from a very prominent and powerful family in the Chinese Communist Party and he sees a strong party as a part and parcel is critical to his being able to achieve successes in the reform areas he's pursuing and he sees the party as really the only strong institution and so he's in China so he's done things and doing things to increase the credibility of the party and a whole lot of things including a very very strong and anti-corruption campaign but a number of steps so he's making the party and I so as someone who's been going to Beijing for a long time I hear in the conversation with officials you hear the party mentioned much more frequently than in the past is that a substitute for government? is he trying to break the gridlock of government that slowed things down and how do you build a strong government if the party is being so much strength? well that is the $64,000 question because what happens is a big look at the reforms most people in the US and most of the press are focused on the economic reforms which are very broad in scope and extraordinary which is all about giving the market a decisive role and things are going to be very good for China and good for us but there's also a huge agenda in terms of modernizing government and the institutions of government because China doesn't have the institutions the governmental institutions that it takes to govern a country with an economy as big and as diverse as China so there's work on restructuring so part of it is a structural issue for instance to take the Ministry of Environmental Protection you know in certain areas it's going to take more centralization which is counterintuitive to many Americans who think they're already being too much authority and top-down authority but how do you regulate the environment if it's not done centrally and you have consistent rules at the local level that are enforced part of it has to do with the legal system and more due process and the rule of law and restructuring that restructuring the disciplinary process which Wong Xishong who was my counterpart in the SED now heads up but then there's sort of the catch-22 that you alluded to which is the party probably is the only organization in China that is strong enough to get these things done and because there's huge vested interests there's going to be a lot of resistance and she has really consolidated power to really an unprecedented level we stood in my experience and I think he's going to need that to get it done but maybe because the party is so strong that's one of the reasons why they don't have the institutions and have built the institutions they need You mentioned the anti-corruption campaign do you look at this as a crude way for Xi to reward his friends and punish his enemies to say since I'm sure there's plenty of people who are corrupt in China and you know that the leadership can always target you that might make you a little more loyal or is it less about hard power and more about kind of clean up the system to keep the people happy Well first of all just for background for those David that haven't been following it as closely that the led by Wang Xishang who runs the Central Disciplinary Committee there's been really a highly publicized program to go after not just the you know to go after the Tigers not just the flies and so some very senior people you know have been targeted including Zhou Yongkang who used to you know a former standing committee member who and so in terms of what they're trying to accomplish first of all there is no doubt in my mind when you look at the Chinese people and the issues that they care about right up there with the environment is corruption property rights, clean air, clean water, food security and corruption and so there's no doubt that this increases the credibility of the party with the people no doubt about that number one and number two to the extent that some of the people being targeted are senior you know and some of the state-owned pillars of the economy I think will lessen resistance to some of the reforms and but I also believe that they are very serious about curbing corruption for domestic and international credibility and I think they understand that just although arresting people for past transgressions is certainly going to strike fear in the heart of a lot of people and they're going to curb their behavior going forward that this is a systemic issue and it's one that's got to be changed and it's got to be changed through sort of long-term policies emphasizing values and integrity changing incentive systems that you talked about part of which will be paying underpaid government officials more for doing the jobs they need to do part of it will be having clear rules on anti-corruption and a legal system that is more even as it enforces the law and I think a big part of it is doing what they want to do in terms of having the market play a bigger role in the economy and government playing a smaller role because I think the current system where the government plays such a big role is again is one that spawns corruption it sounds like you're saying there are kind of twin objectives and twin benefits of anti-corruption one is it might make the system cleaner and more popular and work better but on the other hand if it happens to weaken resistance to reforms from the thing well that's not such a bad thing either you will go after it if you are an officer well to get first of all it strengthens the party by credibility and also there's no doubt that I think that some of the vested interests and state owned enterprises and other places I think the fact that some of those people have been targeted will help get reforms done now I think the American view was always that you can't really have successful market focus capitalism without also having political freedom the Chinese leadership clearly doesn't buy that argument but do you see attention there are they going to feel pressure to have more political freedom are these demonstrations a manifestation of a kind of restlessness among the Chinese people or is it the alternatively if they can deliver the goods and clean air and save food for your kids and a few less reeducation camps that they can get away with having strong political controls well to first of all I would say that right now Xi is very popular in China and most of the people virtually all the people I talked to are really focused on delivering the goods and these other things that are going to be very, very hard to deliver I mean when you talk about the sorts of things that he's taking on they're going to be very difficult my own view has been for some time and it continues to be that the system is evolving and that ultimately as you move to have a market driven economy that's as integrated as China is with the rest of the world the system needs to evolve to become more open and inclusive it really does and so I believe that the government won't achieve the success that they expect it to achieve unless they move in that direction and I think there'll be pressure to move in that direction this is a pragmatic leadership and one of the reasons why I've gone to China as much as I have over the years is when they're focused on their economic objectives and reforms and that they are pragmatic they're not locked into ideology they're looking for what will work and again I think the system will evolve and it will need to evolve When you worry about China when you think about what could go wrong what's on your worry list? Well to me the big picture is this the big picture is that this is a country that has accomplished an extraordinary amount over the last 30 years and they've done it with an economic model that has run out of steam in my judgment that just plain isn't sustainable and so you can get a bunch of economists we can all sit around a room and talk about they got to do this, that and the other thing and when you talk about what they need to do in terms of reforming the labor market removing immigration restrictions all of the various social reforms the government reforms the economic reforms in order to unleash the potential of the private sector to rein in the state-owned enterprises to reform the financial system at $9 trillion economy to change the model is a difficult thing to do and so to me the good news is the leaders understand it it's not like talking to US politicians sometimes guess what the problem doesn't exist for people when you talk with them they're very pragmatic they know the problem exists they talk about it so the question is are they going to be able to get the things done because you've got and here I'm going to make it very big and an important point probably the most important thing I think I'll say because when you look at the scope of the issue and the scale that they've taken on and the personal credibility that she has put on the line a very unprecedented for a general party secretary to be the one that heads up this central reform in the leading group on economic reform so they've taken it on but the question is it's so complex to do this and they've done a lot how are we going to know whether they're going to be successful or not and to me it all comes down to competition just as plain and simple as that I'm going to define competition because economic competition so the things I'm going to look at are first of all are they going to open up the key sectors to private sector competition we're talking about energy we're talking about finance I think they will but are they going to do that secondly are they going to reign in the state-owned enterprises and continue the reform of them which isn't an easy thing to do at the time when they're really underperforming and you take away their subsidies and their special advantages and their regulatory protections and put them on a level playing field and make them compete that's going to lead to unemployment in those areas but it will get back to what it will do in a minute and then thirdly which I think is really important is are they going to open up to foreign competition and I think that is critically important there are two groups of reformers in China the pseudo reformers many of whom are the domestic companies that are all for competition as long as you let the foreign capital in but let us run our own companies and so that's why I have been as focused as I have been on this bilateral investment treaty because just like Zhu Anji used WTO admission you know to drive economic reforms internally that I think this is what the current Xi government would like to do I mean to use the treaty to introduce more competition within China because that's what you'd have to do to get a sign because it benefits China tremendously in terms of increasing the efficiency I don't think the reforms will be as successful as they need to be without it and it's the only way you're going to build healthy strong companies in China look what happened in every industry every country where you protect an industry we protected our auto industry for years with an import quotas and look what we got and so it is I just think that's critically important so to me what I worry about is this is such a big agenda and there will be strong vested interests ideological resistance political resistance that it's going to take some doing to get it done and it's complex how do you sequence these reforms I see it be difficult if growth is slowing and they're worried about not creating enough jobs then you tell them we want you to take away the protections from these state-owned enterprises so they have to lay off workers I could see the dynamic there will be right now I mean I've been looking at what they've been saying about growth and I was very encouraged by two things that Lika Chung the Premier said recently when I was at Boao first of all you know he's well aware that growth is slowing down and I don't see them slipping back into their old patterns of a bunch of lending stimulus building a lot of infrastructure some of which isn't needed and so I think they recognize you need higher quality growth and then he announced this this really I looked at it as a massive pilot project or program between the Hong Kong Stock Exchange and the Shanghai Exchange which is going to lead to a lot of two-way investment flow into each market and I think it's something that if it works could be replicated with other markets around the world so they're serious about doing this but what I think we all have to worry about is how easy is it to get done One of the things I've noticed when I visited China not nearly as much as you if you talk to very wealthy people successful entrepreneurs or companies that serve these people I sense a great deal of insecurity among that they're afraid that they will be accused of corruption or they all seem to be I'm buying a house in Vancouver I'm making sure my kid goes to Harvard and gets a green card Am I wrong about this? When you talk to private sector people is there kind of insecurity about their future in China? I wouldn't lump everybody together there's really quite a vibrant private sector and when I talk to my friends at just ten cents or with Jack Ma of Alibaba and look what they're doing in internet banking and taking on the banks a lot of private sector people are encouraged because they really believe that this is a government that understands the future of the country is the private sector Xi Jinping wherever he was in every province there was a big emphasis on the private sector as opposed to state-owned enterprises and of course there are other people that have accumulated a lot of wealth and people that have really benefited from the vested interests that have got concern and I think anybody who understands China and I gotta believe most people that are there understand it better than we do recognize that these reforms aren't going to be easy What role does the People's Liberation Army play in the economic reforms? Are they an obstacle to this because they are of vested interest or not? Well I would say that as you look at the state-owned enterprises or government-owned enterprises you have a group of central government-owned companies and when I talk about state-owned enterprises that's really what I've been focusing on but there's basically 100,000 plus entities in China owned by different pieces owned by different entities and some of them no doubt owned by the PLA in addition to municipal governments and so on and those entities need to be reformed they are underperforming I frankly think that they will be and a lot of them will be broken up be sold, be taken public restructuring because you look at the pressure on municipal governments to pay down debt right now and so I think that's going to be working in the favor and because they own some of these enterprises so they can sell them Oh yeah, because I think one of the things that when municipal governments have been under pressure to fulfill their mandate their go-to move has either been to take real estate and sell it to developers or lean on a local company which they all are part of to build some infrastructure or do something for some of which is not commercial so I think there will definitely be a pressure Let me turn you a little bit to the U.S. What is it that you think the U.S. should do either business or government to maximize the chances of successful reform in China that benefits them but also benefits us and the rest of the world? See, I start off with the proposition that to achieve the important things we want to achieve globally in terms of the economic objectives we have and the environmental objectives that we want China to succeed with these reforms Now, the many people that don't agree with me and there are some people today that always thought that what was good for China economically are beginning to question it because their relationship is becoming more complex I really believe now more than ever we need to because of some of the tensions in the national security area and the foreign policy area it's really important to think in that relationship and so it's quite important that we have complementary policies and the two things I would cite are first, bilateral investment trading to step back even further we have a lot of shared interests we have some things where we've got differences and we need to figure out how to manage those differences we're going to be competing in certain areas and in other areas we need to figure out we can't let that preclude cooperation where it benefits both of us and having shared interests is not enough unless you turn them into complementary policies so I look at the bilateral investment trade and I look at it and say if China identifies those areas where there is not market access that is going to add to the transparency and the predictability of the investment process and then if they narrow those areas rather than carving out big parts of their economy that aren't subject to competition that's going to be really good for them in terms of helping them have a more efficient economy and speed up the reform process and build stronger companies I think the U.S. needs to negotiate hard but recognize that's a big step forward and take a reasonable approach on transition and I believe that a bilateral investment treaty will also very significantly increase U.S. investment in China because it's going to increase trust and understanding and I actually think cross investment on an international treaty basis will take it to a larger extent away or help insulate it from the political cycle or the ups and downs and the tensions between Beijing and Washington and so I think we should welcome Chinese investment to this country and I think it's very important and then of course in the environmental area I think this is one that most people understand I mean part of the reason why the Paulson Institute works so hard on sustainable economic policies in China and the U.S. and sustainable urbanization is one of our thrusts the next 700 million people you know it's hard to even get your mind around that going to the cities in China is going to drive global not only economic outcomes but environmental outcomes and as we can't it's very important that we have I happen to believe climate is sort of the overriding social and economic issue of our day that's what I believe and I don't think there's anything we can do in the U.S. by ourselves to solve this problem and having worked with a number of developing countries I think the Chinese leadership gets this to a greater extent than any other major developing country I can find and I think there's a huge opportunity as the two biggest emitters of carbon the two biggest users of energy for us to really work together and cooperate and there's a natural fit no one innovates like we do right look at our national labs look at our major universities look at Silicon Valley look at all the financial legal infrastructure we have around that no one can roll out and test new technologies quicker and has a faster growing energy market than the Chinese but what are we doing we're exporting coal to them we're slapping big quotas when they want to sell us solar panels cheap and so there's a lot of policies that are hard to explain unless you look at politics but there's I think a lot of room for cooperation I think we can turn to questions so we have about maybe ten minutes there are a lot of people here so tell us who you are and remember that a question ends with a question mark can we have a mic over here stand up because the mic isn't working so narrowing the gap narrowing the gap and then do you think that inability will benefit China in any way for them to be between potential future trade negotiations in the future or does this TPP agreement what kind of impact will this TPP agreement will have on China so you're referring to the Trans-Pacific Partnership that the US is trying to negotiate with a number of Asian countries including Japan and the question is are the Chinese threatened by this so I would say first of all I happen to believe that it's very important when dealing with China for us to be strong economically to fix our own economy to be strong diplomatically and militarily and it's particularly important to be strong economically, diplomatically and militarily in Asia number one number two I see the TPP is very important top priority because it's really focused on economic integration it's not just looking across the border it's looking behind the border and some of the other restraints moving some of the other restraints to competition and I think that if we get a high quality TPP I would be surprised if the Chinese don't want to become part of it and I think we should welcome the Chinese I think they would benefit and we would all benefit so that's my view and I think you're starting to hear them talk more openly about being part of it so that is something else that would drive reform and be quite helpful but do you think the Chinese attitude is that the US has to choose between China and Japan particularly militarily or do they accept that we can be allies and partners of both? I'll look more broadly then I'll come to Japan in a minute I think very broadly they absolutely accept a relationship should be based on mutual respect and mutual interest and that there will be differences and that those differences should be managed and not preclude cooperation but this US, Japan this Chinese, Japan tension and conflict is quite disturbing to me because I think that there are two forces that are in conflict with each other you see it in the Pacific one, the need for economic integration and economic growth which Japan needs which China needs all of Asia needs we all benefit from and what is in conflict is that and putting that in jeopardy are the political tensions and so to me that is disturbing it's just really, really important that we have great communication and the US government just keeps pushing we have to have it at the political level at the senior military level and write down to the boat captain so you don't have a conflict and so that's I think very important and there's a lot of history there there's a lot of sentiment and nationalistic sentiment in both countries and I wouldn't underestimate the significance of it when I talked to some of my most to some friends in China people that have gone to US schools people that have really admire our system in our country and I raised that issue they talk about the history and gee we are allies in World War II they are on the other side we don't get it but the fact is we have a defense treaty with Japan they're an important ally we on individual disputes we don't take sides we try to be neutral but this tension is something I worry about and it's no doubt it's a concern over there in the back thank you my name is Doug Paul from the Carnegie Endowment recently the Treasury issued an advisory to China not to let its declining currency values get back into play when there's a concern about unemployment in China and yet many independent economists say China's currency has been etching into being overvalued and really does need to make some adjustment who's right? well I look back and say that I look forward to the day when we don't have that debate and the only time we're going to have not have it is when they have a market determined currency right and they don't so it's pretty clear to me only when they have a market determined currency are they going to have really globally competitive capital markets are they going to have an economy that is where the market is playing a decisive role they have the right price signals are they going to be able to move up the value added chain do all the things they want to do to rebalance their economy and I'm not the only one that thinks that there are plenty of Chinese leaders including Jo Xiaotran so I always look at it and I say well you can do two things right you can keep intervening in the currency market and or you can speed up moving to a the process of moving to a market determined currency and if you keep intervening what's going to happen you're going to keep accumulating foreign exchange reserves you're going to you're going to be funding these structural deficits in the US and Japan and you're not going to be rebalancing your economy or you can move ahead and do things that you need to do for your economy so I clearly think that they need to take action this is always a hot budget hot button issue in Washington DC and one of the reasons I'm you know it's when I'm outside of Washington DC I don't talk as much about that because it's simple it's easy to understand and I don't think it is I'm not downplaying the importance of currency and but I think even more important are the structural issues that lead to the imbalances the structural issues that cause them to over-save and the issues that we can't blame the Chinese for the fact that we borrow too much as a government and as a people and we have policies that have sent that David Dollar nodding he must be doing well Bob Keatley coming thank you you mentioned political reform but evolution is needed but this comes at a time when China is cracking down on the flow of information internet, media people who even agitate in favor of government policy can find themselves in jail is this undermining the need for diversity transparency working against the economic policy well as you as you know I'm an American and I love our political system and I've said pretty clearly I think that I'd like to see and I think it's important that they move towards something that's more open and more inclusive and what you've seen is you've seen the Xi administration at the same time they've put out a whole set of reforms which are badly needed they've also said we're going to deal with a number of hot button issues the one child policy labor reeducation camps and then focus on the major issues of the food, water, air corruption etc and they've done that at the same time that they've cracked down on the press and Weibo and some of the other things and so they've you know I look at it and I say the very strong view is that they're dealing with issues that the people care the most about today but again I I don't think that's a winning formula and I think that they will over time that they won't be as successful as they need to be unless they have a more open inclusive government as a woman here and then the gentleman in the back by the camera thank you Liya from VOA as China embarks on these economic reforms I'm just wondering if Secretary Paulson can talk about the sequencing of these reforms especially in the financial reform area thank you the sequencing is very very important of the reforms because for instance if you normalize the labor market with and and let everyone migrate to the big cities and take their benefits with them you would have them just flooding Beijing can't accommodate many more people than Shanghai can so how they do that and what they're going to do is they're going to normalize the market for second and third tier cities first the financial market reform mayors are going to need budget responsibility and have to be held accountable and have sources of revenue that they can call on but right now mayors don't have budget responsibility and they don't have financial statements that are transparent financial statements which are required to have a municipal market so if you need a municipal finance market they've got a ways to go before they can get there because they can have fiscal reform, tax reform give mayors the tools they need to manage a budget so these are going to be very that's why she has given himself he gave himself seven years from the time they announced these policies which was you know some time ago to get them done because it's going to take a while so what I look at are what are the things that can be done soon and are they doing them okay are they doing the things that they need to do right away and I focus a lot on the financial markets and the reason I do is these are things that have been studied debated in China they know what the issues are and so these reforms are very important and here I start with the idea of letting foreign financial institutions come in and compete because you're going to need world-class institutions and I've never ever seen a situation where I believe joint venture institutional investors or banks or investment banks work it's hard enough to run one where you have control so you're never going to get there with joint venture so opening up reforming the markets so that capital is allocated to households and the private sector rather than state-owned enterprises moving eliminating the caps on interest rates that savers receive there's a whole list of things in terms of developing a corporate bond market so those things are important the other things I'm going to look at is I said competition are they moving quickly to do the tough things with the state-owned enterprises it's not going to get easier as time goes on and so now I've been quite encouraged by not only what they've said about the markets playing a decisive role but some of the steps they've taken to roll back the red tape and the regulatory barriers they keep their private sector from getting in and competing in certain industries so they've done a lot in terms of laying out a very ambitious program they've moved very quickly in certain areas like the anti-corruption I think on the environment we'll have to wait and see and I think that's going to take some time let me ask you one final question you're talking to an American worker and yes I understand that the air I breathe has something to do with the pollution that comes across the globe from China but if I'm an American worker my wages haven't gone up my company has a lot of investments in China and they tell me it's good for me but I'm not so sure about that what do you say to American workers whose wages are stagnant who see who it's great if Goldman and Citi can do business in China what's in it for me what do you say to them make them feel they have a mistake I would say first of all to the American worker the American worker is struggling in manufacturing okay we have 8 or 9 times the output we had in 1950 with the same number of workers that we had then and when I go through plants in China right now I see very similar things to what I see the best companies in China in the US which is I go through manufacturing plants I don't see a lot of workers I see robotics and technology so I see technology this is an aside we need technological advances it's driving productivity but in almost every industry I look at architecture whether it's engineering whether it's almost any business technology and manufacturing is destroying jobs so we as the US need I think to really focus on this and focus on having the proper training programs etc but what I say to people in the US I think first and most importantly we need to fix our own economy you know that is going to be the key to our relations with China and everything else everything starts with our own economic strength and the things we need to do to become competitive and we could tick all these things off and there's a good number of them and then the other thing I would say to a US worker we should be fighting to open up a continued open up opportunities for US products in China and right now it's very interesting you talk with farmers and ranchers it's an easy sell because of course they look at what's happening and how fast that consumption engine is growing and the need to feed the Chinese people it's no longer you mentioned Wall Street I think it used to be Wall Street and a lot of the big global companies but I think right now the constituents you know clean tech companies and technology and at the state and city level there's a lot of people that are looking for Chinese investment to come in I was with a company in Fuzhou you know on last Friday which really wasn't that long ago and is a leading manufacturer of auto glass the Fuyou group they just bought a huge plant in China excuse me in Ohio and they're going to look at hiring a thousand people so I think that's what you the case we need to make now I think it's a hard case and I sure don't want to be the one that's trying to say this directly to someone who's lost his job on a plant but I don't think there's a lot of jobs that are products that are importing from China by and large products that we didn't import from China would be importing elsewhere exports to China are growing that's the fastest growing area but it's important and that's why we have to fight so hard about these markets and why I'm talking about competition with that please join me in thanking Hank Foster