China US

Chinese Premier Li Qiang, right, shakes hands with Treasury Secretary Janet Yellen, left, during a meeting at the Great Hall of the People in Beijing, China, on Friday. Mark Schiefelbein/Associated Press via Pool

Making her first trip to the Chinese capital in seven years, Yellen met with several current and former officials who manage China’s economic affairs. She also heard from the American business community, which has been alarmed by a recent flurry of investigations of foreign companies.

Yellen arrived in Beijing on Thursday, days after the Chinese government announced new restrictions on exports of two metals needed to produce semiconductors. On Friday, she told members of the American Chamber of Commerce in China that the abrupt Chinese action illustrated the need for the United States to develop alternative supply chains.

Chinese officials have their complaints. The Biden administration this month is putting the finishing touches on regulations that would prohibit U.S. investment in Chinese technology sectors with military applications. In October, Biden also banned the export to China of the most advanced computer chips.

Yellen insists that such moves are tailored to protect U.S. national security, rather than holding back an economic rival. But Chinese officials are skeptical since such “de-risking” efforts affect technologies with both military and commercial potential.

Both U.S. and Chinese officials say they want to maintain a healthy trade and investment relationship amid their growing strategic rivalry. The current talks show the world’s two largest economies struggling to reconcile mutual suspicion with a desire to preserve as much of their lucrative commercial relationship as possible.

“The United States will, in certain circumstances, need to pursue targeted actions to protect its national security. And we may disagree in these instances,” Yellen told Chinese Premier Li Qiang in remarks witnessed by reporters. “However, we should not allow any disagreement to lead to misunderstandings that needlessly worsen our bilateral economic and financial relationship.”

Striking that balance is proving difficult. When China began its “reform and opening” policy in 1979, it was a strategic ally of the United States against the Soviet Union. For the next few decades, U.S.-China economic ties flourished. And companies designed their supply chains based on economic efficiency, not worst-case planning.

Now, the two governments are trying to feel their way toward a partial economic separation without tumbling into a costly divorce. And U.S. officials are urging companies to bear the cost of backup suppliers.

“I have made clear that the United States does not seek a wholesale separation of our economies. We seek to diversify, not to decouple. A decoupling of the world’s two largest economies would be destabilizing for the global economy, and it would be virtually impossible to undertake,” Yellen told representatives of U.S. companies such as Bank of America, Cummins, and Cargill.

Many foreign executives soured on China over the past few years of covid lockdowns, increased authoritarianism, and arbitrary government investigations. A growing number of U.S. companies have begun eyeing alternative locations for their operations, though most are staying put, according to surveys by the American Chamber.

The majority of U.S. companies operating in China have not been directly affected by Chinese President Xi Jinping’s emphasis on national security, including a new counterespionage law that some analysts warn treats routine market research as spying, said Michael Hart, the chamber’s president.

“But everybody’s aware of the clear impact on overall tensions between the two countries,” he said, adding that U.S.-China frictions have been his members’ top concern in recent years.

China over the past decade has been putting more emphasis on weaning itself from a reliance on foreign companies. In 2015, the government announced the “Made in China 2025” initiative, which set numerical targets for domestic production of a range of advanced technology products.

New localization requirements affecting industries such as medical devices, autos, and rail systems exclude foreign companies from bidding. Even companies that manufacture their products in China are affected, if they are foreign-owned, according to Jens Eskelund, president of the European Union Chamber of Commerce in China.

“It’s ironic that there is so much worry about the U.S. de-risking. China has been de-risking from the rest of the world for a very long time,” he said.

Amid mounting concerns, Chinese officials are trying to reassure foreign executives that their presence – and their cash – is welcome here. On Wednesday, Wang Wentao, the minister of commerce, met with representatives of a dozen global drugmakers, including Bayer and Merck, and promised “more development opportunities.”

That came one day after central planners at the National Development and Reform Commission announced plans for new consultations with private companies.

Yellen’s visit comes after a long drought in trans-Pacific dialogue. China largely walled itself off from the rest of the world during covid. The Biden administration spent its first year rethinking ties with China before events, including an errant Chinese spy balloon, derailed the resumption of traditional diplomacy.

On Friday, the treasury chief met with Liu He, the former vice premier who is well known to U.S. officials from previous trade and economic talks; Yi Gang, the outgoing central bank chief; and Li, the new premier, who is a close ally of Xi.

Friday evening, she is scheduled to attend a dinner hosted by Zhou Xiaochuan, the former head of China’s central bank. Yellen’s meetings continue on Saturday, before her scheduled return to the United States the next day.


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