Janet Yellen in Beijing

Secretary of State Anthony Blinken’s visit to Beijing laid the ground for other high-level contacts between the senior leaders of the two countries. Janet Yellen, Treasury Secretary, followed the Secretary of State to the Chinese capital arriving there for a four-day visit that began on July 5, 2023. The Chinese leadership was aware of the fact that hers was a more moderate voice in the Biden administration. For instance, she was in favour of withdrawing the tariffs the Trump administration had imposed on some Chinese imports into the US.

As a good economist, she saw these tariffs as a tax on the American consumers. In fact, the hardliners in the Biden administration had persuaded the president to impose even more restrictions on economic contacts between his country and China. He had restricted China’s access to critical technologies such as semiconductors. And, new restrictions curbing American investment in China were looming when Yellen traveled to Beijing. Before leaving for Beijing she met with Xie Feng, China’s ambassador, for “frank and productive discussions”, as described by her department. According to one assessment, one of the major issues that came up for her talks in Beijing was the Biden administration’s programme to strengthen the US semiconductor industry.

"It rankled Chinese officials, especially since it includes restrictions on investing in China. Companies that accept U.S. government’s money to build new chip factories in the United States are forbidden to make new-high-tech investments in China.”

The Chinese were reacting to the get tough policies of the Biden administration.

For instance, they targeted Micron Industry, a US memory chip maker that failed Chinese security in Mya, 2023. The move cut out Micron from selling to Chinese companies that operate key infrastructure, putting about an eighth of the company’s revenue at risk. Another issue that came up for Yellen’s discussion was the value of the renminbi, China’s currency. It had weakened by more than 7% in the past 12 months. But experts in China argued that the decline was not engineered by the government; it was the result of the rise in interest rates in the US. Yellen also took up the question of the huge amount of Chinese debt carried by poor countries. China had provided more than $500 billion to doubling countries through its lending institutions, making it one of the largest creditors. This had resulted in heavy debt burden that countries such as Pakistan, a major recipient of Chinese money, were finding it hard to service. In June 2023, international creditors including China agreed to a debt relief plan with Zambia that would provide a grace period on its interest payments and extend the dates when its loans are due. The arrangement did not require that the World Bank or IMF write off any debts, offering global policymakers such as Yellen hope for similar debt structuring in other poor countries. But China was reluctant to go alone and insisted on other lenders to join the initiative.

Yellen delivered a strong defence of American industry on her first day of meetings in Beijing. She opened her visit with a meeting with American executives from American businesses operating in China, underscoring the challenges the world’s two largest economies face as they struggle to reconcile their deep differences. US businesses were alarmed by China’s ever-tightening national security laws which include a stringent counterespionage law that took effect on during Yellen’s first day in the Chinese capital. According to one newspaper report, the US State Department issued a warning when Yellen began her China visit advising Americans to reconsider their travelling to China because of the possibility of wrongful detention.

Shi Yinhong, a political scientist at Renmin University in Beijing, said the US Treasury Secretary’s visit could not be expected to “really mitigate substantially” the numerous and broad differences between the two countries. But given those differences, he said, Chinese officials were unlikely to be surprised by Yellen’s remarks in support of American businesses in China.

Yellen also had an hour-long meeting with China’s newly appointed Prime Minister, Li Qiang. They met at the Great Hall of the People located on the edge of Tiananmen Square. Both sides struck positive tones in their summaries of the discussions. When Yellen arrived in Beijing she was photographed pointing to a rainbow in the sky and suggested that it was a sign that the relationship between China and the US could be mended.

She met most senior Chinese leaders involved in the making of their country’s economic policies. But she did not get to see the Supreme Leader, Xi Jinping. In reviewing the outcome of her visit, she believed that the US and China were on a steadier footing despite their significant differences. “We believe that the world is big enough for both of our countries to thrive.” She announced that the two sides would pursue more frequent communication at the highest levels, describing improved dialogue as way to prevent mistrust from building and fraying a relationship she called “one of the most consequential of our time”.

Hours before her pre-departure news conference, China’s official news agency, Xinhua, issued a report on her visit, describing the discussions she had with their country’s senior officials as constructive but reiterated some of Beijing’s misgivings about the way the American administrations were handing relations with China. “China believes that generalizing national security is not conducive to normal economic and trade exchanges. The Chinese side expressed concerns about U.S. sanctions and restrictive measures against China.” The agency recalled the US and Chinese economies together represent 40% of global output and remain integral partners in many ways. They sell and buy critical products from one another, finance each other’s businesses, and create apps and movies for audiences in both countries.

“Yellen’s trip will likely turn down the temperature on the economic relationship for a bit and remind the U.S. and China that they share some commercial interests, even if waning, and they need to talk through thick and thin — perhaps business relations will improve at the margin,” said Mark Sobel, a former longtime US Treasury official. But given national security concerns in both countries, there is a perception in China that the US seeks to take advantage of its position in the world surrounding China. “Yellen’s trip will hardly change the underlying dynamic and trajectory of the economic relationship,” he said.

Published in The Express Tribune, July 17^th, 2023.

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