Dealing with china an insider unmasks the new economic superpower. I am pleased to have hank paulson back at this table. Hank paulson terrific mr. Paulson terrific to be here. Charlie you are thinking about a third book. [laughter] mr. Paulson you and i were joking, when i told wendy i was going to write a second book she said i might date again. [laughter] this wasnt the crisis we got to relive emotionally. This was a harder book to write. The crisis was a beginning, a middle, and end. Charlie the thread that runs through it is china. Mr. Paulson it is all china. Charlie what is your love of china . What is your interest in china . Mr. Paulson i spent the time i spent there today i think Everyone Needs to ask themselves where can i make the biggest difference . The history i have their, the relationships that i built it made me really focus on this. This relationship, the u. S. China relationship, is by far are more still important bilateral relationship. I see this becoming more complex and difficult. During the time ive been working with china, china has emerged as a formidable competitor. It is much more active and muscular on the global stage. I think this consensus that chinas rise is good for the United States is beginning to break down. People are saying increasingly why should we be working with china . I look at it and say this is more important than it has ever been. We are going to be competing. There is nothing wrong with healthy competition. We dont want it to devolve into destruction. The important issues i see in the world today, whether they are Environmental Issues like Climate Change sustainable growth, peace, combating terrorism, they are easier to meet if we are working with china, more difficult if we are working cross purposes with china. I see a need to recalibrate that relationship but i tell the story, in this book the development of china and the other thing that keys me coming back is because i found the leaders that ive dealt with to be very pragmatic problem solvers, looking everywhere they can in the world for the best practices and often taking advice. I went and go there if i didnt think it made a difference on the issues that were important to me and i dedicated this to my grandchildren. Charlie its easy to say now that all the big problems are better off if the United States and china working together. Even though they may not agree on nuances and particular solutions, if they are working together they are more like he to raise the possibility of a better outcome. Mr. Paulson yes charlie . And if they dont a less good outcome. Mr. Paulson absolutely. Matter of fact, history has shown in the past, when you have an established power and a rising power, they come into conflict. There is nothing inevitable about that. But the mixed of competition and cooperation is going to be determined to a large extent by the choices are leaders make. I think this is very important. The other point i make here is that china is beset today by some colossal challenges. We can make as big of a stake by overestimating chinas strength as we can by underestimating their potential. The range of possible outcomes is getting wider. So again, i see this so often americans say to me, should we be concerned is china going to supplant the United States is the greatest power on earth . What i say to them all the time is we are the greatest power. The only threat is our inability to deal with some of the challenges we have and the things we need to do to restore our economy. Dont use china as a scapegoat. If we fix our problems we are going to be the power for a long time. If we dont, we wont. Charlie i want to talk about the three stages. The chapters you outline in this book. This point you already said, you fear we are growing apart. What is the evidence of that . Mr. Paulson it really is the conversations ive had, for instance, there is great concern in the United States by those that we would like to see, including me, the political system continue to open up, and continue to see Greater Press freedom and freedom of the internet. What we have seen is the leadership at the same time the general secretary what we see is he is working to free up the economy, let the market the decisive. At the same time he is tougher on the internet and more controls on the political system. There seems to be this paradox, which is disturbing to many americans. But what he sees is a party of a source of stability. I happen to think that is not going to work. Charlie he believes the survival of the party is important to the future of china. Mr. Paulson youve got that. He does that, and the challenging use he is working on is rebooting an economy that has run out of steam. Dealing with the big political problems he has corruption, a dirty environment, property rights, Food Security corruption, all of those things. Charlie he is committed to change. He is committed to change there. He is developing alternative energy sources. There are people who say they worry about a bubble in china. Both in terms of overbuilding as they did. Do you worry about that economic collapse . Theyve gone to doubledigits to 7. 4 Economic Growth. Mr. Paulson i look less at the Economic Growth number. I look at the source of their growth. You mentioned they need less reliance on exports. They also need less reliance on Government Investment in infrastructure. What we have seen happen, which is disturbing, is we have seen a country that doesnt have a municipal finance system that were today. That works today. If it doesnt have the revenues they need they take someones land and salads. They finance it with debt and invest in real estate. Debt has grown faster than the economy. That is on the one hand very disturbing. On the other the chinese leaders see this, and they are working to address it. What i look at is not the growth number i look at what they are doing to get that grows. I would press much rather see an economy grow more slowly. I think today, in answer to your question specifically, theyve got the capacity theyve got the knowledge. It got the tools to address it. But the longer they way in addressing that problem, the greater the risk when there is a reckoning, there are losses being built up that the government will have to be responsible for. The longer they wait the greater the risk is it spills over and does more damage to the underlying economy. Charlie do you have conversations about the issues you have suggested . Human rights issues, issues of the question of freedom . Mr. Paulson ive always been able to be very candid as you can see when i write the book. The issues they look to me for our Economic Issues, the Environmental Issues. But i tell a story in this book which was to do with one of the few really bright days i had in the middle of the financial crisis. I didnt have a lot of those. One of those days a week before we needed to step in and put fannie mae and freddie mac and the conservative ship, i was visited by an anti prodemocracy activists. He came to see me at treasure with his wife and young children. He came to thank me for what i had done in securing his release a year earlier. What i found is if you make progress with the chinese on the Economic Issues it is easier to deal with some others. We found Common Ground that had led to the release. Charlie you could do it casebycase. Mr. Paulson casebycase and in terms of the broader picture, he has been clear. He said i dont aspire to have western multiparty democracy. Im not looking to have western values. He wants a Good Relationship with the u. S. , but this is what he does instead right now he is focusing on the things the chinese care most about. The corruption, the environment the property rights, the income disparity. He has done away with the one child policy. As more people move up and become more prosperous, i think they are going have demands that he loosen up. Charlie hes an interesting man. He has written an interesting profile on xi jinping. The interesting thing about you, you singled him out before he became president and was a province leader. Why did you do that . Mr. Paulson i tell the story in the book. Some people in the government said how did you know . I should have said ill tell you later. I really didnt know. The reason i singled him out with this. Ive been very impressed with him. He was focused on economic reform, and he saw the private sector as being the key to chinas future. Where he had worked the private sector played a bigger role. I had said to him when i had one of the meetings in the United States, on my next or to china i will come and see you. I was treasury secretary. Ive visited him, and i wanted to do two things. I wanted people in china to know i didnt think the world revolved around beijing, just like i dont think it revolves around new york in the United States. I wanted to emphasize the private sector. They meet with the leader i very much respected. He had a great sense of history. He arranged, we met at west lake. We were photographed under the arch where president nexen met president nixon met. He emphasized to me at the same time the current government at that time, there was a 10 year hiatus when there was a lot of reform. There was 10 years where there wasnt a lot done. Now xi jinping has inherited an economy where they have waited almost too long. He is working to get some very difficult reforms done. Even though he has consolidated a great deal of power he still doesnt have the consensus he needs to get some of the most difficult things done. Charlie the big issue you point to which can be critical to the future, cyber security. How do we find a way out of that . Mr. Paulson thats a top issue. Cyber security, people inflated to include all kinds of things. Theres the espionage, which governments engage in. We do it, the chinese do it. There happens to be some people use it refer to the internet in curbing the access to information. I talk about in the context of cyber theft of corporate secrets. I think this is very disturbing. I know very few u. S. Companies that havent had their computer breach. Charlie the argument made is that in the chinese case, the government is engaged in it for the benefit of enterprise. Mr. Paulson you get it. Many people misunderstand that. I think the reason this is the most divisive economic issue is for two reasons. It plays to being viewed that the chinese are lawless and dont play fair. It is destructive and Economic Systems. I dont not how you have an Economic System function and china is it has these lawless behaviors. China has a big stake in this, also longerterm. I find it very difficult because so many of these issues have been conflated. The u. S. Has lost the high ground in this debate globally. I think it is one we have to tackle. The best way to tackle this is on a multilateral basis and the u. S. Working with other countries to come up with them. Charlie let me ask you this. What was their reaction to chapter two of this book . How you handled the incredible recessions out of the crisis in 2008, and did it affect their judgment of the United States . Mr. Paulson charlie, i write about this in the book, and yes it did. There was a tremendous lesson there. The lesson is how important it is to preserve u. S. Economic strength. What that means to our standing in the world. We need to lead by example, in addition to doing things. The story i tell, i write a whole chapter about the financial crisis through the u. S. China relationship. They were very supportive. Some of the relationships i had made a difference. In june of 2008 when i was pressing them to open their markets, he looked at me and said hank you have made my life difficult, you used to be my teacher. My teacher doesnt seem so smart anymore. I can give him all the points i had about the mistakes, or the cleanup program, but we need to maintain our string, keep our economic competitiveness. Everything starts there. Charlie you are beginning to see a certain sins of initiative by them. Im thinking of the Asian Infrastructure investment bank. We are not so enthusiastic. Then you found the rest of the world agreed to participate, and then we come along after that, suggesting the chinese have their own initiatives to play a bigger role, whether it has to do with reserve currency, or has to do with this kind of bank or world institution. Mr. Paulson we will to a large extent bring them into these global systems. Xi jinping view is he is not waiting for the world to declare them a major power. He is acting like one. Just like every other power before him has. Like the United States did. I think they received that issue a huge focus from their press, a watershed event. The u. S. Government has a lot of things right. That one we didnt get right. China is the leader in infrastructure and finance. We should have said we want to work with you and figure out how to be helpful. Charlie what are you recommending we do to make the relationship better . Mr. Paulson i think that the most important thing we could do is to get tangible things done where we have a common interest and where both populations can see the value of the relationship. The climate deal was a good example of that. I happen to think the most important thing we can do now is a bilateral investment treaty. We are negotiating this with china. This does two things. It helps the chinese reformers open up their markets. It can be a leverage. It is going to benefit u. S. Companies. It is going to benefit workers in the United States. It will help cross investment, which i think will be strong linkages between our countries. Charlie the book is called dealing with china an insider unmasks the new economic superpower. Thank you. Mr. Paulson thank you. Charlie good to see you. Back in a moment. Charlie steve wynn is here. He is the founder of dealing with china an insider unmasks the new economic superpower. Wynn resorts. A decade later he finished the when las vegas and encore. The company has pivoted east. I am pleased to have steve wynn back at this table. Welcome. In the interest of self disclosure he has been a friend of mine and a supporter from a long time ago. One of the things you identify with our big ideas. You change las vegas because you have big ideas. You sought as a place where people come for entertainment. As well as gambling. You saw the move to china. We have created ideas for what a facility ought to be about. Big ideas are a hallmark. You believe there are they are essential not only to companies, but to the country and to progress in science and everything else. Steve i do. As we build these hotels, each one of them successfully has broken all previous records of gaming revenue for a hotel that existed before it. Caesars had the record. Garage broken. Garagemirage broke it. Wynn and encore did 800. In each of those examples never was casino revenue as much as half of the revenue. It was always more money and noncasino revenue regardless. Last year, 870 million casino revenue. Charlie what do we mean . Steve hotels, spas, shopping, entertainment. Restaurants. Those relationships are possible. There is a slot machine and above it everywhere. You can be in a gambling room within an hour and a half. A gambler devise has no intrinsic power. It is a source of revenue if the place is populated by people who like that sort of thing read what brings people is something else. A fanciful environment. A chance to eat, and shop, to has fun and be well served. These fancy buildings like most institutions are what they are the day they open. That is 10 of the franchise going forward. What makes a place in during is people. Enduring his people. Charlie whats the most important thing happening in las vegas today . I see a lot of emphasis on nightclubs. Steve your show about hamilton was all about hiphop. The changing tastes musically and cultural expression generation to generation. So are the nightclubs with the disc jockeys, the wonderful guys like david togethguetta, and nightclubs have always been a mating dance. The more things change the more they stay the same. Charlie how is it different from las vegas . Steve discounting politics, in terms of the motivation of the visitor and the experiential aspiration they have, they are exactly the same as america. People come to live big and have excitement and if they like to gamble, and test lady luck, so the people, you get on an airplane and fly, you get off the plane, and you are home again. Mcdonalds, colonel sanders. My grandparents came to this country just before the turn of the last century. Charlie came from . Mr. Paulson steve russia, poland. They took whatever job they could get in the eastern cities. They started to have children before world war i. My parents were born in 1916. They never saw a good day. They came of age in the great depression. If they didnt go to war they had defense jobs. They came out of order were to in their 30s into one of the great periods of expansion. What is amazing is these people who had never seen a good day believe that anything was possible in america if their cake get a better education of banned them maybe even the president of the United States. It was founded on a mystical belief and opportunities here. We noticed during that generation they all had a pentup demand for the good life. The cadillac, a copacabana. The desire for the good life is a significant feature of firstgeneration well. When people make the first book in buck and their families history they have a very different attitude towards their disposable income. In china, today, all of this is firstgeneration well or early second generation. What were seeing in china is not a genetic predisposition to gamble. What were seeing in china is the same thing we saw. My father and my former wifes father were both gamblers. They loved to bet on baseball and football, and go to a casino. It is part of that first generation of success profile. That is still going on. Charlie you mentioned you lane, your wife who you married and divorced. She helped you very much in building wynn. There is a fight about membership on the board. In the interests of news, where does that stand . Steve where it stands is that my company is controlled really by outside directors. There are Seven Members of the board. They decide what the slate of