Treasury Nominee Paulson Has Supported China's Rise to Power...

President George W. Bush nominated Henry Paulson as Treasury Secretary. Paulson is chairman and CEO of the Goldman Sachs Group, an investment banking firm that counts the Beijing government and several state-owned Chinese firms as clients.

President Bush has shown that he doesn’t understand how national security and international economics interact ...



The close relationship raises serious doubts about whether Paulson can do his job without a paralyzing conflict of interest. Treasury is supposed to be pressuring China to halt its currency manipulation, which gives Chinese-based firms a competitive advantage in trade against U.S.-based companies. Goldman Sachs’ clients benefit from Beijing’s policy and do not want currency reform. The Treasury Department also chairs the Committee on Foreign Investment in the United States (CFIUS), which is supposed to police foreign acquisitions of American technology or industrial assets which have security implications. Will Paulson act to block Chinese attempts to use its massive dollar reserves (earned from its trade surplus) to buy strategic American assets, given the encouragement he has given Beijing to do this? Will Paulson use his position in the Cabinet to urge continued appeasement of China around the world to protect his business connections? Remember that it is standard Beijing practice to require firms to lobby in Washington on its behalf as the price of doing business in China. Just how responsive will Paulson be?

Goldman Sachs works to facilitate foreign investment in Chinese industry, and thus to help Beijing become a more formidable rival to the United States. It claims to have helped raise more international equity for Chinese firms (including state enterprises) than any other international investment bank, and to be the only international bank to have participated as a lead underwriter in every sovereign debt program of the Chinese government. Goldman Sachs is also buying for itself stakes in several Chinese banks.


Goldman Sachs has been tied to China for some time


Treasury Nominee Paulson Has Supported China's Rise to Power
William R. Hawkins
Wednesday, May 31, 2006

As required by Congress, the office of the Secretary of Defense issued its annual report on the Military Power of the People’s Republic of China on May 23. Exactly one week later, President George W. Bush nominated Henry Paulson as Treasury Secretary. Paulson is chairman and CEO of the Goldman Sachs Group, an investment banking firm that counts the Beijing government and several state-owned Chinese firms as clients. Goldman Sachs is not just in bed with the Beijing regime, they’ve married and raised a family. And predictably, once again, President Bush has shown that he doesn’t understand how national security and international economics interact – nor can he spot a conflict of interest staring him in the face.

Media coverage of the Pentagon report has focused on the growth of China’s air, missile and naval forces; the modernization of its army; and the development of new weapon systems. The military buildup is in support of a foreign policy at odds with the security interests of the United States on every front. Page 9 sums this up nicely, “China continues to dispute sovereignty claims in the South and East China Seas and is preparing for potential conflict over Taiwan. Chinese companies continue to play a negative role in the proliferation of advanced military capabilities, and continue to supply countries such as Iran with critical military technologies. Beijing has refused to join the Proliferation Security Initiative. China has not fully leveraged its close ties with Pyongyang to stem North Korean nuclear ambitions, and continues to maintain or strengthen political, economic, and military ties with Iran, Sudan, Burma, Zimbabwe, Cuba, and Venezuela, undercutting international efforts to influence those states.”

What has not gotten the attention it deserves is the role American business plays in supporting Beijing rise to power in world affairs. The Pentagon report makes clear that “the extraordinary economic success of the PRC is a central factor in its emergence as a regional and global power, and is the basis for China’s increasingly capable military. The Party has also relied on the successful transformation of the economy as a primary source of legitimacy.” The report cites a January 2005 interview with Lieutenant General Liu Yazhou, currently Deputy Political Commissar of the PLA Air Force. According to the Chinese general, “When a nation grows strong enough, it practices hegemony. The sole purpose of power is to pursue even greater power . . .when a country begins to rise, it should first set itself in an invincible position.”

Though the conflict between American and Chinese interests are global, attention has tended to focus on Beijing’s desire to capture Taiwan, the “renegade province, which has been a self-governing country for over half a century. In the 2005 Pentagon report, General Wen Zongren, Political Commissar of the elite PLA Academy of Military Science, is quoted as saying that taking control of Taiwan is of “far reaching significance to breaking international forces’ blockade against China’s maritime security. . . . [T]o rise suddenly, China must pass through oceans and go out of the oceans in its future development.” The new 2006 report notes that “China’s air and naval force improvements are scoped for operations beyond Taiwan....[China] has an expressed interest in developing capabilities that could hold at risk maritime targets out to the ‘second island chain’ some 1,000 miles from the Chinese coast. Over the long term, improvements in China’s C4ISR, including spacebased and over-the-horizon sensors, could enable Beijing to identify, track and target foreign military activities deep into the western Pacific.”

Where will China get the high-technology needed to make these improvements in weapon systems that can menace the region? The answer is clear: From foreign companies eager to make a profit by betting on China’s rise to great power status. “Most of China’s defense industries rely on foreign procurement and development. The exceptions are few, e.g., ballistic missiles and some space and aviation programs,” states the report, which continues, “foreign investment in physical plant, management, technical, and marketing expertise in some basic manufacturing sectors, such as strategic metals and electronics, has increased the prospect for spin-off with military and dual-use industries. Joint ventures in China also now manufacture semiconductors and integrated circuits used in military computers, communications and electronic warfare equipment, and missile guidance and radar systems.” Chapter 4, dealing with the resources available to Beijing, opens with a quote from Chinese President Hu Jintao, “We need to build an innovative system of defense science and technology... to create a good structure under which military and civilian high technologies are shared and mutually transferable.”

Hu was undoubtedly happy to hear of Paulson’s nomination. Goldman Sachs works to facilitate foreign investment in Chinese industry, and thus to help Beijing become a more formidable rival to the United States. It claims to have helped raise more international equity for Chinese firms (including state enterprises) than any other international investment bank, and to be the only international bank to have participated as a lead underwriter in every sovereign debt program of the Chinese government. Goldman Sachs is also buying for itself stakes in several Chinese banks.Paulson attended the Fortune Global Forum held in Beijing last year. Materials put out by the Forum stated that its focus was “how multinationals can tap into the enormous potential of China.” The October 4, 2005 issue of Fortune magazine was devoted entirely to China, in which it was reported that for Fortune 500 executives, China is “absolutely center stage right now.” According to the May, 17, 2005 issue of the Chinese regime’s newspaper The People’s Daily, Paulson told the Forum, “one thing which is critical to China now...is to move the economy from low-cost manufacturing to high-tech value-added” production.

Goldman Sachs has been tied to China for some time. When John Thornton stepped down as president in 2003, he became a professor at Tsinghua University in Beijing and director of its Global Leadership Program. Thornton endowed the Brookings Institution in Washington with the funds to start a new China Initiative program in 2004. The mission of the Initiative is to “explore the dynamics of China's transformation and emergence as a political and economic power and the implications for the United States, China, the East Asian region, and the world.” The output of this program has been almost entirely concerned with how to keep trade and investment flowing, while dismissing any concern about trade deficits or geopolitical rivalry.

The close relationship raises serious doubts about whether Paulson can do his job without a paralyzing conflict of interest. Treasury is supposed to be pressuring China to halt its currency manipulation, which gives Chinese-based firms a competitive advantage in trade against U.S.-based companies. Goldman Sachs’ clients benefit from Beijing’s policy and do not want currency reform. The Treasury Department also chairs the Committee on Foreign Investment in the United States (CFIUS), which is supposed to police foreign acquisitions of American technology or industrial assets which have security implications. Will Paulson act to block Chinese attempts to use its massive dollar reserves (earned from its trade surplus) to buy strategic American assets, given the encouragement he has given Beijing to do this? Will Paulson use his position in the Cabinet to urge continued appeasement of China around the world to protect his business connections? Remember that it is standard Beijing practice to require firms to lobby in Washington on its behalf as the price of doing business in China. Just how responsive will Paulson be?President Bush likes to talk about being Commander-in-Chief of the armed forces of the United States, but in nominating Paulson, he has reverted back to being nothing more than a useful tool of Corporate America. While the Pentagon redeploys naval, air and ground units in the Pacific to meet the rising Chinese threat, Bush and Paulson’s country club friends are helping to expand Beijing’s capabilities in ways that put these American forces – and lives – at risk. It is hard to imagine what the President was thinking or how he could have made a worse choice.






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William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.