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US Treasury Secretary Janet Yellen concluded her four-day trip to China on July 9, coming at a time of increasing tensions between the world’s two largest economies.
Striking a conciliatory tone, she said, “The US and China have significant disagreements. Those disagreements need to be communicated clearly and directly… We believe that the world is big enough for both of our countries to thrive.”
Yellen is among other senior US officials who have scheduled visits to China lately. US Secretary of State Antony Blinken was in China on June 18 and 19, and special climate envoy John Kerry will also visit soon. In November 2022, when US President Joe Biden met Chinese President Xi Jinping on the sidelines of the G20 summit in Bali, Indonesia, Biden highlighted the need for maintaining communication between the countries.
The Treasury Secretary met Chinese Premier Li Qiang, her counterpart and Vice Premier He Lifeng; Finance Minister Liu Kun, and senior banker of the People’s Bank of China, Pan Gongsheng.
The trip did not result in any major agreement or breakthrough in the many issues plaguing US-China ties – from raids on American businesses in China in recent months to the US leading the call to “de-risk” from the Chinese economy, which China had taken objection to.
However, many recent issues of concern were discussed. Here are some takeaways from Yellen’s visit:
1. US businesses interests were discussed
Yellen said in a speech that the US business community in China was concerned about its use of “non-market tools”, like subsidies for China’s state-owned enterprises and domestic firms, as well as “barriers to market access for foreign firms” that are meant to promote Chinese companies. She also spoke of the recent actions taken against American companies, where officials questioned and raided their premises for alleged violations of laws.
China’s recent decision on export restrictions for two critical minerals (used in technologies like semiconductors), gallium and germanium, was flagged. “We are still evaluating the impact of these actions, but they remind us of the importance of building resilient and diversified supply chains,” Yellen said.
2. Continued emphasis on “diversification and de-risking, not decoupling”
Repeating terms first used by European Commission President Ursula von der Leyen in March this year, the strategy of “de-risking” and “diversification” from China and not “de-coupling” was mentioned.
It has been interpreted as a desire to reduce the reliance on China in the economic sphere — for the supply of materials or as a market for finished goods — so that potential risks to trade and disruption of supply chains are reduced when ties are strained. But it would not mean an economic isolation policy (or de-coupling), the US has said.
Yellen said in China, “There is an important distinction between decoupling, on the one hand, and on the other hand, diversifying critical supply chains or taking targeted national security actions. We know that a decoupling of the world’s two largest economies would be disastrous for both countries and destabilising for the world. And it would be virtually impossible to undertake.”
Antony Blinken had also reiterated the ideas after his visit this year, noting the linkages between the two economies. He said, “Our trade relationship reached the highest number that it’s ever hit last year – about $700 billion in trade. American foreign direct investment in China has reached levels that we haven’t seen since 2014.”
3. Common interests of climate financing and net-zero carbon economies
US-China cooperation on climate finance was discussed, citing the countries’ positions as the world’s two largest emitters of greenhouse gases and the largest investors in renewable energy.
“It is also critical that we encourage economy-wide transitions toward net-zero, which needs to include the private sector,” Yellen said. She mentioned the Sustainable Finance Working Group of the G20 as one of the forums for this. The United States chairs the group, while China is the co-chair.
The group was given a mandate in 2021, to develop, in a collaborative manner, an initial evidence-based and climate-focused G20 sustainable finance roadmap, for “improving sustainability reporting, identifying sustainable investments, and aligning International Financial Institutions’ efforts with the Paris Agreement”.
Net-zero or carbon neutrality refers to a situation when a country’s greenhouse gas emissions are compensated by absorption and removal of those gases from the atmosphere. This can be through the creation of carbon sinks, such as forests, or the use of technologies such as carbon capture and storage.
Notably, China has said it aims to reach net-zero status by 2060, while the US has kept 2050 as its own deadline. China has also made massive investments in installing solar power, and in exporting solar panels to other countries, The New York Times reported.
But it also relies on coal for electricity generation and has said it plans to continue doing so.
Yellen said the G20 group Sustainable Finance group was a good example of “what bilateral cooperation can achieve” and that it should be taken forward. “Over the last three years, the Sustainable Finance Working Group has developed a roadmap for sustainable finance, held workshops on carbon pricing and non-pricing policy levers, developed a transition finance framework, and made a range of recommendations on climate finance,” she added.
An editorial article in China’s state-owned media agency Global Times welcomed Yellen’s “positive” message. It said this could aid a constructive economic and trade relationship and increase opportunities for stabilising bilateral ties.
But it also repeated China’s line on its issues with the US. “Washington’s actions in recent years have severely undermined outside world’s confidence in the China-US relationship to the point where it is difficult to trust anything the US says. This can only be changed through concrete actions by Washington,” it said.
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