Yellen is making her first trip to China as treasury chief, more than halfway through the president’s term. Over four days beginning Thursday, she is expected to have multiple meetings with members of China’s new leadership team, part of a joint effort by the two countries to step up high-level talks and halt a worsening of ties. Issues such as the global economy, developing country debt relief and potential cooperation on climate change will dot her agenda.
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The two sides may clash over the administration’s plans to “de-risk” the U.S. commercial relationship with China by relying on friendlier countries to produce critical materials, semiconductors, pharmaceuticals and electric vehicle batteries. Chinese Premier Li Qiang this past week blasted Western efforts to shrink 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 U.S.-China economic talks for the Obama administration, said: “The U.S. may say it’s not trying to contain China. But that is the message that not just the Chinese government, but the Chinese people, perceive.”
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Yellen intends to elaborate on comments she made in an April speech about preserving healthy economic ties between the world’s two largest economies, even as national security considerations dominate relations, according to a senior Treasury official, who spoke on the condition of anonymity to detail her plans.
While in Beijing, Yellen plans to meet with U.S. companies operating in China and “engage directly with the Chinese people,” the official added.
She also will be looking for insight into how Chinese President Xi Jinping’s new team is handling its mounting economic challenges.
After surging in the first quarter following the relaxation of Xi’s draconian zero-covid stance, Chinese growth has fizzled in recent weeks.
Weakness is evident at home and abroad. Consumers, who were expected to drive the recovery, have disappointed, with spending over the recent Dragon Boat holiday lower than in 2019, according to Mark Williams, chief Asia economist at Capital Economics in London.
As high interest rates slow the U.S. and European economies, China’s export orders in June contracted for the third straight month, the government said Friday. Industrial exports are down 15 percent from their recent peak, according to Capital Economics.
China’s currency, the yuan, is approaching its lowest value against the U.S. dollar since the 2008 financial crisis. The overbuilt property sector, which consumed enormous amounts of investment in recent years, no longer is driving growth. Demographics also are weighing on the outlook as China’s working-age population continues to shrink.
“The future isn’t what it used to be for both Chinese firms and consumers,” Williams said.
Chinese authorities are under pressure to stimulate the economy. But unlike in earlier downturns, such as the 2008 crisis, they are unlikely to do enough to rescue global prospects. The latest World Bank forecast calls for the global economy to grow by a paltry 2.1 percent this year, down from 3.1 percent last year.
A consumer spending rebound would benefit local businesses that deliver in-person services, such as restaurants and movie theaters. Officials are unlikely to increase spending on the infrastructure projects that would mean big purchases from commodity-producing nations.
The treasury secretary’s visit is part of a sequenced diplomatic offensive that began in November with a meeting between President Biden and Xi at the G-20 summit in Bali, Indonesia, and then was abruptly derailed earlier this year by the spectacle of a Chinese spy balloon drifting across the United States.
That incident prompted the United States to cancel a planned visit by Secretary of State Antony Blinken, who finally made it to the Chinese capital in June. Blinken, the highest-ranking U.S. official to go to Beijing since Biden took office, met with top officials including Xi. They agreed that senior officials from both countries would exchange additional visits, paving the way for Yellen’s trip.
John F. Kerry, the president’s special climate envoy, and Commerce Secretary Gina Raimondo also are expected to visit Beijing later this year.
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Yellen’s discussions, however, are not expected to produce any breakthrough in the relationship or result in concrete agreements.
Indeed, the administration’s ambitions are modest compared with earlier U.S.-China initiatives. A 2008 meeting of the Bush administration’s Strategic Economic Dialogue, for example, produced a five-page, single-spaced list of 24 agreements on energy, environment, trade, finance and investment issues.
Nothing comparable is expected from the current diplomatic thrust, which Blinken said last week is aimed only at “building back sustained lines of communication” with Chinese officials.
“The significance is they’re talking,” said Loevinger, now managing director for the TCW Group in Los Angeles. “It is striking — at all levels of both the U.S. and Chinese governments — how little communication is going on. We need to be able to talk and have relationships where people can pick up the phone.”
Routine contacts of that sort fell out of favor in recent years, first in Washington and later in Beijing.
The Trump administration rejected a decades-long bipartisan tradition of U.S.-China dialogues, saying the Chinese had ensnared U.S. officials in endless discussions that produced no real gains. The Trump team later engaged in lengthy negotiations, which produced a partial trade deal in January 2020.
Contacts dwindled again during the first years of Biden’s term. Last year, it was China’s turn to doubt the value of regular meetings as the administration dawdled over a review of Trump-era tariffs on Chinese goods and unveiled tough new policies restricting the sale to China of sophisticated computer chips.
“The Chinese side held out hope that the Biden administration would moderate some of the extreme Trump policies. That’s just not how it’s played out,” said Anna Ashton, director of China corporate affairs for the Eurasia Group.
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Yellen’s visit will be her first chance to get acquainted with Xi’s handpicked team, whose members are better known for their loyalty to China’s leader than for their economic savvy. Veteran officials who were familiar to their U.S. counterparts, such as former vice premier Liu He, are now retired.
The treasury secretary’s schedule has not been made public. But she could meet Li and one or more of China’s new vice premiers, such as Ding Xuexiang, a Xi confidant from Shanghai, or He Lifeng, an economist and former central planner, analysts said. A meeting with Yi Gang, the governor of the People’s Bank of China, also is probable.
Yellen can anticipate a warm welcome in Beijing, where she is regarded as supportive of constructive ties at a time when the political mood in Washington is resolutely hostile to China.
“She has a favorable image in Beijing,” said Myron Brilliant, senior counselor with Dentons Global Advisors-ASG. “They see her as a pragmatist at a time when that’s in short supply.”
Still, there will be points of friction. U.S. companies operating in China complain about arbitrary government actions, such as the recent investigations into two American consulting firms. And U.S. officials have warned that a Chinese counterespionage law, which took effect July 1, may turn normal business information-gathering into criminal spying.
Chinese officials are likely to have questions about the administration’s plan to issue regulations in the next few weeks limiting outbound U.S. investment in Chinese technology development.
The administration’s intention to reduce U.S. reliance upon Chinese suppliers also could cause sparks.
In the months leading up to Blinken’s recent visit, the administration adopted the “de-risking” slogan debuted by European Union President Ursula von der Leyen in March to distinguish U.S. plans from the comprehensive economic decoupling that some Washington hawks advocate.
Administration officials including Yellen have described their aim as protecting U.S. national security by reducing an excessive dependence upon Chinese suppliers without pursuing a complete economic divorce. Chinese officials insist that de-risking is just another word for decoupling, which in their view would hurt both economies.
“De-risking is a benign term for a much more contentious effort to weaponize their supply chains and to make sure their supply chains are not being weaponized against them,” said Michael Hirson, head of China research for 22V Research, a financial intelligence firm in New York.
Yet even as Beijing complains about U.S. plans to thin its links with China, the Chinese government also is emphasizing self-reliance. Imported goods and services now account for about 17 percent of China’s output, down from more than 28 percent in 2006, according to the World Bank.