Yellen travels to China for the first time, seeking stronger relationships as supply chains shift
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Treasury Secretary Janet L. Yellen is flying to Beijing this week to test the Biden administration’s ability to improve ties with China while pursuing an economic strategy aimed at reducing US companies’ dependence on Chinese factories.
Their trip comes at a time when China’s economic recovery from its strict zero-Covid policy is showing signs of slowing down and the government is preparing to announce new restrictions on US investment in Chinese tech industries.
Yellen is making her first trip to China as chief financial officer, more than halfway through the president’s term. She is expected to hold multiple meetings with members of China’s new leadership team over four days starting Thursday. This is part of a joint effort by both countries to intensify high-level talks and halt deteriorating ties. Topics such as the world economy, debt relief for developing countries and possible cooperation on climate change will shape their agenda.
The two sides could clash over the administration’s plans to “low-risk” US trade relations with China by relying on friendlier countries for the production of critical materials, semiconductors, pharmaceuticals and batteries for electric vehicles. Chinese Premier Li Qiang last week slammed the West’s efforts to diminish China’s role in global supply chains, saying interdependence is “a good thing, not a bad thing” in a speech to a global audience in the port city of Tianjin.
David Loevinger, who helped coordinate US-China economic talks for the Obama administration, said: “The US could say it’s not trying to contain China. But that is the message that not only the Chinese government, but also the Chinese people are picking up.”
Yellen intends to elaborate on her comments in an April speech on maintaining healthy economic ties between the world’s two largest economies, even as national security considerations dominate the relationship, according to a senior Treasury Department official, who spoke on condition of anonymity. to explain their plans in more detail .
During her stay in Beijing, Yellen plans to meet with US companies operating in China and “engage directly with the Chinese people,” the official added.
She will also be looking for insights into how Chinese President Xi Jinping’s new team is dealing with the mounting economic challenges.
China’s growth has stalled in recent weeks after surging sharply in the first quarter following the easing of Xi’s draconian zero-Covid policy.
Weaknesses are evident at home and abroad. Consumers who were expected to spur the recovery have disappointed, according to Mark Williams, chief Asia economist at Capital Economics in London: Spending during the recent Dragon Boat holiday was lower than in 2019.
China’s export orders fell for the third consecutive month in June, the government said on Friday, as high interest rates slow the economy in the US and Europe. According to Capital Economics, industrial exports are down 15 percent from their recent peak.
China’s currency, the yuan, is nearing its lowest value against the US dollar since the 2008 financial crisis. Demographics are also weighing on the outlook as China’s working-age population continues to shrink.
“The future is not what it used to be for both Chinese companies and consumers,” Williams said.
The Chinese authorities are under pressure to stimulate the economy. But unlike previous downturns like the 2008 crisis, they probably won’t do enough to salvage the global outlook. The World Bank’s latest forecast puts the global economy growing a meager 2.1 percent this year, compared with 3.1 percent last year.
A recovery in consumer spending would benefit local businesses that provide personal services, such as restaurants and movie theaters. Officials are unlikely to increase spending on infrastructure projects, which would mean big purchases from commodity-producing countries.
The finance minister’s visit is part of a sequential diplomatic offensive that began in November with a meeting between President Biden and Xi at the G20 summit in Bali, Indonesia, and then was abruptly derailed earlier this year by the spectacle of a Chinese spy balloon passing through the United States to drive.
That incident prompted the United States to cancel a planned visit by Secretary of State Antony Blinken, who eventually made it to the Chinese capital in June. Blinken, the most senior US official to travel to Beijing since Biden took office, met with top officials including Xi. They agreed that senior officials from both countries would exchange further visits to pave the way for Yellen’s trip.
John F. Kerry, the President’s special envoy on climate, and Secretary of Commerce Gina Raimondo are also expected to visit Beijing later this year.
However, it is unlikely that Yellen’s talks will lead to a breakthrough in the relationship or to concrete agreements.
In fact, the government’s ambitions are modest compared to previous US-China initiatives. For example, a 2008 meeting of the Bush administration’s Strategic Economic Dialogue produced a five-page, one-line list of 24 agreements on energy, environment, trade, finance and investment issues.
Expect nothing of the sort from the current diplomatic initiative, which Blinken said last week aims only to “reestablish durable lines of communication with Chinese officials.”
“The importance is that they’re talking,” said Loevinger, now chief executive officer of TCW Group in Los Angeles. “It is striking how little communication there is at all levels of the US and Chinese governments. We need to be able to talk and build relationships where people can pick up the phone.”
Routine contacts of this kind have fallen out of favor in recent years, first in Washington and later in Beijing.
Rejecting a decades-old bipartisan tradition of US-China dialogues, the Trump administration said the Chinese have engaged US officials in endless discussions that have yielded no real gains. The Trump team later engaged in lengthy negotiations that resulted in a partial trade deal in January 2020.
In the early years of Biden’s tenure, contacts declined again. Last year, it was for China to question the value of regular meetings when the administration dwindled on a review of Trump-era tariffs on Chinese goods and unveiled tough new policies restricting sales of sophisticated computer chips to China.
“The Chinese side harbored hopes that the Biden administration would soften some of Trump’s extreme policies. It just doesn’t work that way,” said Anna Ashton, head of China corporate affairs at Eurasia Group.
Yellen’s visit will be her first opportunity to meet Xi’s hand-picked team, whose members are known more for their loyalty to China’s leaders than their economic savvy. Veteran officials who were familiar to their US counterparts, like former Vice Premier Liu He, are now retired.
The finance minister’s schedule was not made public. But she could meet Li and one or more of China’s new vice premier, such as Ding Xuexiang, a Xi confidant from Shanghai, or He Lifeng, an economist and former central planner, analysts said. Also likely is a meeting with Yi Gang, the governor of the People’s Bank of China.
Yellen can expect a warm welcome in Beijing, where she is seen as a supporter of constructive relations at a time when political sentiment in Washington is decidedly hostile to China.
“She has a positive image in Beijing,” said Myron Brilliant, senior counsel at Dentons Global Advisors-ASG. “You see her as a pragmatist at a time when that’s in short supply.”
Still, there will be points of friction. US companies operating in China complain about state arbitrariness, such as the recent investigations into two American consulting firms. And US officials have warned that a Chinese counterintelligence law that came into effect on July 1 could turn routine business intelligence gathering into criminal espionage.
Chinese officials are likely to have questions about the government’s plan to introduce regulations limiting foreign U.S. investment in Chinese technology development in the next few weeks.
The government’s intention to reduce US dependence on Chinese suppliers could also provide sparks.
In the months leading up to Blinken’s recent visit, the government adopted the “de-risking” slogan introduced by EU President Ursula von der Leyen in March to differentiate US plans from the sweeping economic decoupling advocated by some Washington hawks.
Government officials, including Yellen, have described their goal as protecting US national security by reducing over-reliance on Chinese suppliers without seeking full economic separation. Chinese officials insist that de-risking is just another word for decoupling, which they say would harm both economies.
“Risk mitigation is a harmless term for a much more controversial attempt to weaponize their supply chains and ensure their supply chains are not weaponized against them,” said Michael Hirson, head of China research at 22V Research, a financial information firm in New Zealand York.
But while Beijing has complained about US plans to weaken its ties with China, the Chinese government is also emphasizing its independence. According to the World Bank, imported goods and services now account for about 17 percent of China’s output, down from more than 28 percent in 2006.
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