U.S. Treasury Secretary Henry Paulson has been in China, trying to persuade the communists over there that the US current account, the housing market crash and the subprime catastrophe are actually problems that need a Chinese rather than US policy response. He thinks that if Chinese authorities deepen reforms of financial markets and to let in more foreign investors and investment banks, then the bilateral trade deficit might be resolved. Better Chinese banks will obviously stop Americans from buying crappy Chinese goods at Walmart.

In a 45-minute address to financial executives in Shanghai, Paulson urged Chinese leaders to speed up financial reforms in order to create more balanced economic growth, encourage innovation and make better use of natural resources. He told his skeptical audience that "I don`t know of a single economy in the world with a successful and sustainable well-balanced economy that does not have a strong capital market in place," Actually, he hadn't thought hard enough. The Chinese have been doing just fine without the kind of financial sector reforms that he had in mind.

Paulson also urged China to let foreign companies take majority control of domestic investment banks and asset management companies - where they are currently limited to 33 percent and 49 percent stakes respectively in joint ventures. He said Brazil, Russia and India had all eliminated ownership caps in the securities industry. "Experience demonstrates that the joint venture model does not work in the securities sector because investment banks are difficult to manage and control," he said.
Again, the Chinese experience suggests otherwise.