During this period of globalization, a symbiotic relationship developed between China and the US, in which the
Chinese sold Americans consumer goods that were produced extremely cost-effectively and sold inexpensively
and the Chinese lent the US the money to buy their consumer goods. It was a hell of a “buy now, pay later” deal
for the Americans. The Chinese liked it because they built their savings in the world’s reserve currency by owning
the American IOUs and the Americans got all the cheap stuff by borrowing the money to get it. It struck me as odd
that the Chinese, who were earning about one-fortieth of what Americans earned on average, would be lending
money to Americans to buy consumer goods since rich people are in a better position to lend than poor people. To
me it was a shocking reflection of how much more Americans were willing to get into debt to finance their
overconsumption and how much more the Chinese valued saving. It was also a reflection of how those in emerging
countries want to save in the bonds/debt of the leading reserve currency countries, which leads the emerging
countries to build debt assets and contributes to the reserve currency countries becoming overindebted.
At the same time the Chinese had to deal with an internal debt crisis that they allowed to grow. In 1991 the debt
and economic problems called the “triangular debt crisis”—because 1) China’s five major government-owned
banks had for a number of years lent to 2) large, inefficient, and unprofitable state-owned enterprises with the
implicit guarantee of 3) the central government—had to be dealt with to improve the system. Restructuring the
economy to become more efficient by “breaking the iron rice bowl” was led by Zhu Rongji, who was a bold
reformer at the top of the party. This process was extremely controversial and hurt a lot of people who benefited
from the old system, so it took a lot of courage and intelligence, as well as support from the top, to execute. World
best practices (e.g., using “bad banks” to take, sell off, and wind down bad debts) were used with practical
understandings for the Chinese environment. It went on to help clean the slate to start over in a better way, which
invigorated growth. He also led the putting into place of numerous other economic reforms. The most senior
economic policy makers today helped him back then and learned from those experiences, which are helping them
in their current jobs. He became premier in 1998 and in that capacity continued to aggressively pursue reforms to
modernize and make the Chinese economy more efficient. He retired in 2003.
In 1995 I had my 11-year-old son, Matt, go to China to live with Madame Gu and her husband and go to
what was then a poor local school (Shi Jia Hu Tong Xiao Xue).24 Matt had been to China with me many times
over the years since he was 3 years old. He would tag along to meetings in which the kind Chinese people I was
meeting with would give him cookies and milk while we met. He attended lunches and dinners that were fun
banquets and had gotten to know Madame Gu well, who was very loving with him so they had a wonderful
relationship. So he fell in love with the Chinese people and China. Madame Gu knew that I (and my somewhat
hesitant wife) would love for Matt to live in China and have the life of a local Chinese child. We all knew that it
would be very tough for him, but good tough. His living conditions would be basic (e.g., there was typically hot
water only two days a week). Schools in China then, like most everything else, were poor. He didn’t speak the
language so he would have to learn through immersion, which he did. Though his school was poor (e.g., there
wasn’t heat until late November so students wore their coats in classes), I saw how they had smart and caring
teachers who provided the children with an excellent, complete education that included character development.
While Matt’s lifestyle was poor, he was superbly educated, loved, and better developed than in our rich
community. He built deep attachments with his teachers and his friends that still exist. The experience changed his
life forever and led him to set up a foundation to help Chinese orphans that he ran for 12 years, which brought him
and me into many more experiences with Chinese people and Chinese culture in China. Because I was excited
about China and its prospects I, via my company Bridgewater, also hired a local investment team that was on
the ground to invest American institutional money in Chinese businesses that looked attractive to me, which
I pursued for a couple of years and discontinued because I found it too difficult to run it and Bridgewater at
home. I did a couple of tiny investments that were profitable and never called on the institutional investors for
their money to invest there. These experiences, plus those with the Chinese friends I previously knew, brought me
into contact with a wide range of Chinese people, from the humblest to the highest, whom I came to really like and
respect.
In 1995-96 it became widely known that Deng’s health was failing. I was told that Chinese leaders worried that his
passing would be viewed as an opportunity for those who opposed Chinese authority to challenge it, and they were
especially worried that the Taiwanese would have a referendum in favor of independence, which would be
intolerable. A new pro-independence leader in Taiwan (Lee Teng-hui) was just elected and treated in supportive
ways that were traditionally avoided. US-China tensions were rising. Madame Gu knew the Chinese official who