Yellen makes first trip to China, seeks stronger ties as supply chains drift apart

Treasury Secretary Janet L. Yellen jetted to Beijing this week to test the Biden administration’s ability to improve relations with China while pursuing an economic strategy aimed at reducing the reliance of American companies on Chinese factories.

His visit comes as China’s economic recovery from its strict zero-covid policy shows signs of flagging and the administration prepares to announce new restrictions on US investment in Chinese technology industries.

Halfway through the president’s term as Treasury chair, Yellen has made her first trip to China. More than four days from Thursday, she There are expected to be several meetings with members of China’s new leadership team, as part of a joint effort by the two countries to step up high-level talks and stop a worsening of relations. Issues such as the global economy, debt relief for developing countries and possible cooperation on climate change will mark his agenda.

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The two sides could clash over the administration’s plans to “de-risk” the U.S. trade relationship with China, relying on allies to make critical materials, semiconductors, pharmaceuticals and electric vehicle batteries. Chinese Premier Li Keqiang last week blasted Western efforts to reduce China’s role in global supply chains, saying interdependence was “a good thing, not a bad thing,” in a speech to a global audience in the port city of Tianjin.

David Lowinger, who helped coordinate US-China economic talks for the Obama administration, said: “It can be said that the US is not trying to contain China, but that’s a message not only felt by the Chinese government, but also by the Chinese people.

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In a speech in April, Yellen wants to elaborate on the views of a senior Treasury official, who spoke on condition of anonymity to describe her plans, about maintaining healthy economic ties between the world’s two largest economies even as national security considerations dominate the relationship. .

While in Beijing, Yellen plans to meet with American companies operating in China and “engage directly with the Chinese people.”

He will also seek insight into how Chinese President Xi Jinping’s new team is handling its mounting economic challenges.

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Chinese growth has fallen in recent weeks after rising in the first quarter following the relaxation of Xi’s strict zero-covid stance.

Weakness manifests at home and abroad. According to Mark Williams, chief Asia economist at Capital Economics in London, consumers who were expected to rebound from spending on the latest dragon boat vacation than in 2019 have been disappointed.

China’s export orders contracted for a third straight month in June as higher interest rates slowed the US and European economies, the government said on Friday. Capital Economy reported that industrial exports fell 15 percent from their recent peak.

China’s currency, the yuan, is nearing its lowest value against the U.S. dollar since the 2008 financial crisis. The overhyped property sector, which has absorbed huge investment in recent years, is no longer driving growth. Population calculations weigh on the outlook as China’s working-age population continues to shrink.

“The future is untapped for both Chinese companies and consumers,” Williams said.

Chinese officials are under pressure to stimulate the economy. But unlike previous downturns such as the 2008 crisis, they are unlikely to do enough to restore global prospects. The latest World Bank forecast is for the global economy to slow to 2.1 percent growth this year from 3.1 percent last year.

A recovery in consumer spending will benefit local businesses that provide personal services, such as restaurants and movie theaters. Officials are unlikely to increase spending on infrastructure projects, which are big purchases from commodity-producing countries.

The Treasury secretary’s visit is part of a coordinated diplomatic offensive that began in November with a meeting between President Biden and Xi at the G-20 summit in Bali, Indonesia, and was abruptly derailed earlier this year by the sighting of a Chinese spy balloon. Moving across America.

That incident prompted the cancellation of a planned visit by US Secretary of State Anthony Blinken, who finally made it to the Chinese capital in June. Blinken, the top US official to visit Beijing since Biden took office, met with top officials, including Xi. They agreed that senior officials from the two countries would exchange additional visits, paving the way for Yellen’s visit.

The President’s special climate envoy, John F. Kerry and Commerce Secretary Gina Raimondo are also expected to visit Beijing later this year.

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However, Yellen’s discussions are not expected to lead to any progress in the relationship or concrete agreements.

Indeed, the administration’s ambitions are modest compared to previous US-China initiatives. For example, the 2008 meeting of the Bush administration’s Strategic Economic Dialogue 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 push Blinken said Last week it aimed to “re-establish continuous contact” with Chinese officials.

“It’s important that they speak up,” said Lowinger, managing director of the TCW Group in Los Angeles. “It’s striking — at all levels of the US and Chinese governments — how little communication is happening. We need to talk and have relationships where people can pick up the phone.

Those kinds of regular interactions have fallen out of favor in recent years, first in Washington and then in Beijing.

The Trump administration has rejected the decades-long bilateral tradition of US-China dialogue, saying the Chinese have engaged US officials in endless discussions that have produced no real gains. The Trump team then engaged in lengthy negotiations that resulted in a partial trade deal in January 2020.

Relations declined again in the first years of Biden’s term. Last year, it was China’s turn to question the value of regular meetings as the administration balked at a review of Trump-era tariffs on Chinese goods and unveiled tough new policies to restrict sales of sophisticated computer chips to China.

“The Chinese side was hoping that the Biden administration would moderate some of the more extreme Trump policies,” said Anna Ashton, director of China corporate affairs at Eurasia Group.

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Yellen’s visit will be her first chance to mingle with Xi’s select team, whose members are better known for their loyalty to China’s leader than their economic savvy. Senior officials familiar to their American counterparts, such as former Vice Premier Liu He, have now retired.

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The Treasury Secretary’s schedule is not made public. But he could meet with Li and one or more of China’s new vice premiers, such as Shanghai-based Xi confidant Ding Xuexiang or He Lifeng, an economist and former central planner, analysts said. There will also be a chance to meet Yi Gang, the governor of the People’s Bank of China.

Yellen can expect a warm welcome in Beijing, where she is seen as favoring constructive relations at a time when the political mood in Washington is decidedly hostile to China.

“She has a positive image in Beijing,” said Myron Brilliant, senior adviser at Dentons Global Advisors-ASG. “They see her as a pragmatist at a time when that’s in short supply.”

Still, there will be friction points. American companies operating in China have complained about arbitrary government actions, such as recent investigations into two American consulting firms. US officials have warned that China’s counter-espionage law, which took effect on July 1, could turn normal business intelligence gathering into criminal espionage.

Chinese officials may raise questions about the administration’s plan to release regulations in the next few weeks to limit outbound U.S. investment in Chinese technology development.

The administration’s intention to reduce U.S. reliance on Chinese suppliers could also cause sparks.

The administration adopted the “de-risking” slogan introduced by EU President Ursula von der Leyen in March to distinguish US plans from the broader economic cuts advocated by some Washington hawks.

Administration officials, including Yellen, have described their goal as protecting U.S. national security by reducing overdependence on Chinese suppliers without pursuing a full-blown economic divorce. Chinese officials insist that de-risking is another word for decoupling, which in their view will affect both economies.

“De-risking is an innocuous term for a very controversial effort to weaponize their supply chains and ensure that their supply chains are not weaponized against them,” said Michael Hirson, head of China research for financial intelligence firm 22V Research. In New York.

While Beijing complains about US plans to weaken its ties with China, the Chinese government also insists on self-reliance. Imported goods and services now account for about 17 percent of China’s output, up from 28 percent in 2006. World Bank.

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