(The following has been edited to remove most unintelligible sections but may contain misunderstood or unintelligible words.)
SECRETARY PAULSON: Good evening, everyone. Sorry to keep you waiting. The banquet went a little longer than expected, but it was a good banquet.
As I said at the press conference that Madame Wu and I had, the relationship between the U.S. and China is the most important bilateral economic relationship in the world today. And that is why we have created this unprecedented dialogue, this unprecedented engagement that has the active, the ongoing support of both President Bush and President Hu. So we start there. The vision is a simple vision, and that is to take a long-term, a strategic view to managing this relationship where we focus on fundamental, long-term issues. We address these issues, talking about identifying areas of mutual benefit and building on those, dealing with the conflicts and the tensions on a long-term basis, and of course, addressing the short-term issues. Because only by addressing the short-term issues can we establish the confidence on both sides that is going to get us keep the relationship on track. So that's going to be very important.
Now, what President Bush asked me to do was to coordinate across the various economic issues. And it's important to do this, because only by doing this will we be able to prioritize it in such a way that I will be able to represent the best interests of the American people as effectively as possible.
And that is very important because as we look forward and as we manage this relationship, it's going to be very important that the benefits that come from economic growth are shared equitably in both countries. And regrettably, there's a sense in the U.S. that the Chinese don't play fair when it comes to trade and economics. And so it's going to be my job to get short-term results at the same time we're keeping our eye on the long-term objective. So with that, why don't I throw it open to questions? Yep. Yeah.
QUESTION: Some people think that on some level, this is like a consolation prize because you're going to leave here without anything concrete on the currency. Can you address that and also can you address what we're hearing from trade groups in the States who are concerned about what they say is a softening line on current trade.
SECRETARY PAULSON: All right. Yeah. Okay. Well, let me take both issues. First of all, in terms of the objective here, I think I've been pretty consistent from day one of saying when you're talking about something as important and fundamental as an economic relationship. I don't think I ever indicated to anybody that I was going to make any first trip to China as the Treasury secretary and bring home a solution to a long-term economic issue or come here and magically negotiate something. So this is -- when you talk about what we've accomplished, let's not confuse process with results. When we met the other day, I think you or someone who was with you -- I think it might have even been you, Peter -- asked the question and said, Well, how are you going to judge your success? And I said that I've got two and a half years, and I was going to judge my success by firstly putting in place a process where we had a better, more constructive tone and we've laid the framework for a relationship that's going to have to stand the test of many years.
And secondly, I knew there were going to have to be some results in the short term. And you always have to get through the night if you want to get to the longer term. So again, let's not confuse results with process. I think what we've done here is put a process in place which, based upon my experience, I believe gives us the best chance of getting the results that we're going to need to get over the next two years and for many years in the future. This is, I think, an important step, and it's a step that maximizes our chance of getting results.
To me, the key thing always in working with the Chinese is to be able to get access to all the right people at the right level and have a process where there's a real discipline. And the fact that we will have this dialogue in place and we'll have the big meetings twice a year and a lot of work in between gives us the best chance of maximizing our success. But again, I never expected and I think I've been pretty clear in saying that I never expected anything other than a first set of discussions. Yes?
QUESTION: I have three questions to ask.
SECRETARY PAULSON: Well, I think what we'll do is I may ultimately want you to ask all three questions, but I'm not sure. I may be here for a half an hour or 45 minutes or whatever, but I want to give everybody else a chance to ask questions, too. So I'll let you ask your first question and then I'll come back if we have time for others.
QUESTION: Okay. Which one do you prefer, the weak dollar or the strong dollar, and why?
SECRETARY PAULSON: What did you say?
QUESTION: Which one do you prefer, the weak dollar or the strong dollar, and why?
SECRETARY PAULSON: Okay. Well, I would say to you that – and I think I've been pretty clear on this – a strong dollar is in our nation's interest. And our currency values are always determined – and I believe they should be determined – in a fair, competitive marketplace based upon underlying economic fundamentals. And so what we do in the United States and what I very much advocate is policies that are going to increase confidence, maintain confidence in the U.S. dollar and in our economy. Yes? Right.
QUESTION: What steps have you taken or are you going to take to try to sell this project to Congress?
SECRETARY PAULSON: I don't think I have a need to sell this project to Congress. This is a process. Okay? And I think it's the President's job and it's my job to design a process for working with the Chinese that will give us the best results. And I think Congress is going to judge me by the results that I get and this administration gets over a period of time. I know there's a short-term mentality in the world today, but I don't think many people are going to judge me by what comes out of one visit. And if they do, heaven help this country. Yes…
QUESTION: Thank you. You talk about the need for China to become a flexible exchange rate regime. In your view, what do you think is a more flexible exchange rate regime? For example, would it be expanding the daily band or what would that be?
SECRETARY PAULSON: The -- of course in the longer term, we all know what it is. Okay? In the long term it is an exchange rate that is where the currency's value is set in the competitive marketplace. We're not going to be able to get there until we get China to get to the point where they have capital markets that are really competitive in an open financial system. That isn't achievable right away. I would say right now I, when I'm looking at something short of the perfect outcome, which is a freely tradable currency, I'm not going to get all concerned about what technique they use to get flexibility. I'm going to know flexibility when I see it and so are you. Yes?
QUESTION: Mr. Secretary, could you address the recent events in Thailand, the military takeover, and whether you fear that this could lead to instability both in the Thai economy and more further afield, in the regional economy as a whole?
SECRETARY PAULSON: I would say I've been traveling so I'm not on top of this on a minute-by-minute basis, but I would note that there's been very little dislocation in the Thai capital markets. No spill over in the global capital markets. So it's always very regrettable when you see a change take place this way in a democracy. From that standpoint it's something we've all got to look at with regret. But in terms of the economic impact – and I don't mean to say that an adverse development isn't possible – but if I'm thinking about the top five or six things I'm worrying about today, that isn't on the list. Yes?
QUESTION: Thank you. I'm from China Business News. I wonder, Citibank tried to merge with Guangdong Development bank, but they faced a lot of problems from China --
(Translated from Chinese) There are many restrictions from the Chinese government on the potential deal of Citigroup to acquire Guangdong Development Bank. How do you comment on this as the former Chairman and CEO of Goldman Sachs? In addition, can you update the status on the issue of possibly cutting off financial connections with Iran? Thank you.
SECRETARY PAULSON: Okay. Remember, I said one question, but I'm going to, just for you, do two questions, but that's the only one. From now on we're going to do one question. Now, in terms of the Citigroup transaction, which I haven't followed closely on a day-to-day basis, I will just say to you that I am a very strong advocate of this country opening up its capital markets to foreign investment. I believe when they open up and let foreign competition in, the biggest beneficiary will be China and it will mean more jobs in the financial services industry for Chinese people. It will mean better training. It will mean a more competitive capital market that will have all sorts of other benefits for the economy. And I've noticed as I've spent time in markets around the world that those economies that have healthy capital markets are stronger and it really takes a healthy capital market for long-term success. I can't think of a single example anywhere of a situation where a country has a strong capital market system and they haven't opened themselves up to competition. So that one, I see pretty clearly.
Now, in terms of the Iranian situation, I have nothing new to report other than what I said the other day, which is I'm a big believer in the fact that the role of the Treasury Secretary of the U.S. and financial ministers around the world is to keep our financial system safe, sound, and secure. And you can't have a secure financial system, you can't preserve the reputation of a financial system if you let people come in and abuse it and abuse it for illegal activities of any kind, whether WMD proliferation or terrorism. Iran is abusing the financial system.
Now as far as the effort I think you're referring to, there are two efforts and they're related, but they are different. Bank Saderat has been sanctioned. Separate and apart from that we had noticed that the Iranians were using a series of devices that were very misleading to infiltrate the system and trick a number of banks around the world. And so we went around and we talked to those banks and we talked to them as part of an educational program to help them understand the risks. And as far as I know, they all were very grateful for the assistance. A number of them learned things, and I think that that will be an important step in helping maintain the integrity of our banking system around the world. Yes?
QUESTION: Mr. Secretary, you alluded to voices in the U.S. who see China as an unfair trader, and you're trying to discourage people from expecting immediate results. But when would it be appropriate for people in the U.S. to expect some concrete results from this new channel that you've opened up today?
SECRETARY PAULSON: I wouldn't want to predict when there should be the concrete results, but I'm not famous for being very patient. Okay? Check with anybody who's worked with me. But I really don't believe it is appropriate to carry on negotiations in a public forum. Behind closed doors I'm pretty aggressive as a persuader, as an advocate. But I've spent my career doing negotiations, and where I come from, it's appropriate to do negotiations in private. Yes, the man at the back.
QUESTION: I'm from [inaudible] TV from Korea. My question is a little bit out of out of theme, but I'll ask something else about the -- is there any specific time frame, timetable for investigation into the Banco Delta Asia case as a sanction on the DPRK. And when you are --
SECRETARY PAULSON: I missed your question. Is there a time frame for -- for what case?
QUESTION: As a sanction on the DPRK, but was there any specific timetable for investigation into Banco Delta Asia? And when you met Korean President Mr. Roh, was there a request from Mr. Roh to hasten the speed of investigation on Banco Delta Asia?
SECRETARY PAULSON: Let me say that I met with President Roh. It was a very good meeting, but it was a confidential meeting. And again, it would be inappropriate for me to divulge publicly what I'm talking about when I'm meeting with an important head of state or when I'm meeting with anyone in private. That's number one. But to your question, no, there is no prescribed time frame. This is a law enforcement matter, and it will take as long as it takes to resolve it appropriately. Thank you. Yes, the woman in the farthest back.
QUESTION: Okay. Thank you. I'm from Xinhua News Agency. I know that you have met with Minister Ma Kai this afternoon.
SECRETARY PAULSON: Yes.
QUESTION: Yes. And later you will meet with the Chinese top leaders Hu Jintao and Wen Jiabao. So we just want to know that China has to do a lot of work to push forward its reforms. So what kind of message do you want to deliver to the Chinese top leaders, and how do you judge China's efforts to push forward its reforms? Thank you.
SECRETARY PAULSON: Yeah. Well, thank you for that question, because I think the one thing I have said that I'm going to talk about, because I don't think it's divulging any confidences and it's pretty clear how I feel, I'm going to encourage them to move ahead with all of their reforms and the things they said they were going to do and move forward even more quickly. And when I look at China and their reforms, what they've done is remarkable, and they move very quickly. I noticed it years ago in my former job when we'd work on a privatization in China. Something that historically would have taken well over a year in another country, we would sometimes get done in six months here.
The pace of change has been quick and it's been remarkable. But my view is that the biggest danger that China faces is not that they will go ahead too quickly with the reforms, but that they won't go ahead quickly enough. Because the economy is so big and complex that it's becoming, in my judgment, increasingly difficult to run it with administrative procedures, and particularly when they are partway between the planned economy and a market-driven economy. So the biggest message I would give is congratulations on what you've accomplished, and it will be in our benefit and your benefit if you move ahead even more quickly, because then you will do better. And when you do better, we in the U.S. will do better because our two economies are very interdependent. Okay? You're going to get your question in a minute. But I'll let this man behind you -- okay.
QUESTION: Yes, thank you. I'm from China Business Newspaper. I want to ask you some questions in Chinese.
SECRETARY PAULSON: Okay. Let me just see if I can figure out -- I'm not great at these high-tech things here, but I think I'll figure it out.
QUESTION: (Translated from Chinese) Thank you. I notice from your news documents that neither People's Bank of China nor China Securities Regulatory Commission nor China Banking Regulatory Commission is included in the dialogue mechanism. Before your trip to China, the Chinese government released some new regulations on foreign financial institutions that hope to enter China and on joint ventures in the investment banking sector. These new regulations raise the entrance criteria for foreign companies that hope to invest in China. What do you think is the most imperative issue that needs to be solved in China's opening of the banking sector? Why aren't Chinese financial regulatory bodies included in the dialogue mechanism? Another question is what was the result of your Hangzhou trip? Thank you.
SECRETARY PAULSON: Well, I got your question. The financial supervisors who are looking at the markets in China have a big and a complex job. I've got to begin by saying that it took the United States many, many years to establish the capital markets we have in the United States. So I know this isn't easy. But the -- in order to get the Chinese capital markets where they're going to need to get, I'd said that I really do believe they'll get there quicker if they let in foreign investors and let foreign firms come in and establish businesses there.
But to get more specifically to your question, the issues they confront are a domestic market that is really an equity market that is quite small relative to the size of the country. There's very little of an institutional market to speak of. It's largely a retail market. Most of the equities that have been issued in this market are state-owned enterprises where there's still the big overhang. Many of the best offerings have been sold outside of China, and there hasn't been enough high-quality equity issuance in China. The quality of the local firms is by and large not strong. Many of them have -- don't have strong financial positions. Many of them aren't well managed. So it is an equity capital market that's underdeveloped relative to the size of the Chinese economy. And the domestic bond market is even more primitive in its development. But it could be very important to develop a bond market because that will take some of the pressures off of the banks. Yes?
QUESTION: Thanks. Some members of Congress have promised to put through their legislation imposing some sanctions on Chinese products. If your visit doesn't give them what they want, what do you think the possible action is?
SECRETARY PAULSON: Well, I don't want to speculate about actions others may take. I know you're talking about Senators Schumer and Graham. They are knowledgeable about China. They share many objectives that I share. I don't agree with the tactics. You'll never have me favoring protectionist legislation and I will try to talk them out of it. Whether I'll be successful or not, I don't know. Yes?
QUESTION: Thank you. I'll speak Chinese. Can we…? (Translated from Chinese) Thank you. From your answers to the questions, I can see that you are very familiar with the current Chinese economic situation and economic development. As far as I know, you have visited China about 70 times. My question is what is your source of knowledge on China's economic situation? What's your personal impression of China's current situation after your 70 or so visits to China? Thank you.
SECRETARY PAULSON: Well, my source of knowledge is talking to a lot of people, reading a lot of things, but the best knowledge comes from being right here and having done business, having, as an investment banker, worked with the government on privatizations, worked with the private companies in the marketplace and experienced it on a firsthand basis. And I am a – like everyone else I know who has spent time here – I'm a huge proponent of and believer in the Chinese economy. And to me it starts with the people, the great human resource for quality and the talent and the commercial talent of the people. And then you get to a group of leaders who are very smart and knowledgeable, pragmatic, results-oriented, looking everywhere for best practices, finding things that will work and implementing them. And so it is a strong and growing economy.
My own view is, though, that you can't take the past success and automatically extrapolate it and just assume it's going to keep growing like this and pass all the other economies in the world, because this economy still needs to make the transition from being based on low-cost labor and assembling and manufacturing well-value-added products to developing a more complex economy. And I have every confidence that will happen. But in my judgment, for that to happen, you'll have to continue to make the transition to using market-based devices as opposed to administrative. And that means speeding up the reforms. It doesn't take any magic. Your leaders have already identified what needs to be done. They stated what needs to be done. I believe they're right. They just have to do it.
MODERATOR: Last question.
SECRETARY PAULSON: Okay. Last question. Who hasn't asked a question? Only put your hand up if you haven't asked one. Yes?
QUESTION: Secretary Paulson, you and Madame Wu have each been nominated to represent the U.S. and China to have the strategic talks. What do you think about the fact that she is not exactly your counterpart in terms of government hierarchy? I mean, she is a vice premier above the ministerial level. What do you think this says about the Chinese government's attitude towards this strategic topic? Thank you.
SECRETARY PAULSON: First of all, let me say I have got huge confidence in Madame Wu. She knows how to get things done. She's pragmatic. She's aggressive. As we say in the U.S., she comes to play every day. And so she wants results. That's number one. And number two, Madame Wu and I are just two parts of this, of a process – a process that begins with our presidents and a process where our presidents are going to be involved. It is a process where I am going to have access and going to be having substantive conversations on Friday with your premier, Wen Jiabao, and with President Hu Jintao. And where we're going to have a ministerial group, an inter-ministerial group in China that is at a very senior level. And again, it's been my experience in China that to get things done, you just don't go to one person to get it done; you go to a number of people. And so to me, the important part of this process was not to have different parts of our economic relationship siloed but to be able to have broad access to senior people where we could talk about issues that are all interrelated in a more complex way.
And so again, I'm very enthused about the process. But you're not going to get me declaring a victory because we set up a process. A process is only a process. It's a means to the end, and this process will be judged by the results it achieves.
Thank you all very much for staying here so late and have a good evening.
MODERATOR: Thank you.