Yellen's China visit aims at 'new normal' with Beijing

[July 05, 2023]  By Andrea Shalal

WASHINGTON (Reuters) -Janet Yellen's first trip to China as U.S. Treasury Secretary will focus on recalibrating ties between the world's two largest economies as military communications remain frozen and Beijing's new restrictions on exports of some metals spark fresh tensions.

U.S. officials say they expect "candid" discussions during Yellen's July 6-9 trip, after Beijing's abrupt announcement on Monday of controls on exports of some gallium and germanium products widely used in semiconductors, as well as a new counterespionage law, both seen as potentially harmful to U.S. firms.

No major breakthroughs are expected, but Yellen will push to open new lines of communication and coordination on economic matters, and stress the consequences of supplying lethal aid to Russia, U.S. officials say.

Chinese officials are concerned about the Biden administration's plans to limit U.S. companies' China investments and what they see as moves to decouple the two economies. China's economy is recovering more slowly than expected from COVID lockdowns and the job market is tough.

Yellen's long-anticipated trip follows weeks after Secretary of State Antony Blinken visited Beijing and agreed with Chinese President Xi Jinping that the two countries' rivalry should not veer into conflict, and amid a freeze in military communications between the two nations.

"There is no substitute for diplomacy," said one senior administration official. "A phone call is just not the same."

Wu Xinbo, a professor at China's Fudan University, described Yellen as a "voice of reason" within the Biden administration, and said China hopes Yellen's visit can "improve the mood" for potential future talks with Commerce Secretary Gina Raimondo on tariffs and sanctions on Chinese tech companies.

But some critics said the meetings were sidestepping important issues.

Derek Scissors, a senior fellow at the American Enterprise Institute, said Yellen was embarking on "an empty trip," given China's refusal to engage on potentially dangerous military issues.

"They look like supplicants. On the security side, the Chinese won't talk to us, so it looks like the economic side is being used as a substitute," he said. "It's not unimportant, but it's unpleasant and odd."

IMPROVING COMMUNICATION

Yellen is expected to focus on economic issues, but she will remind Chinese counterparts that any move to supply lethal aid to Russia - in violation of sanctions on Russia over its war in Ukraine - could trigger sanctions on Chinese entities, one senior administration official said.

"We routinely hear Chinese assurances that they will not deliver lethal assistance. We are holding them to that, and we'll continue to watch," the official said.

The U.S. believes China is unnerved by last month's mutiny by Russia's Wagner mercenary group and the weakness of the Russian military, the official said, but Beijing relies on a stable Russia for food and fuel.

U.S. Treasury Secretary Janet Yellen discusses "U.S.-China Economic Relationship" during a forum hosted by the Johns Hopkins University at the Nitze Building in Washington, U.S., April 20, 2023. REUTERS/Sarah Silbiger/File Photo

Both Blinken and Yellen's visits are seen as critical to improving communication after the U.S. military shot down a Chinese spy balloon over the United States, and ahead of a possible meeting between President Joe Biden and Xi at the Asia-Pacific Economic Cooperation meeting in San Francisco in November.

"Secretary Yellen’s trip is more than a step toward preparation for a potential Biden-Xi meeting at APEC. The top economic officials of the world’s two largest economies have barely spoken to each other in over three years, and that is dangerous for the global economy," said Scott Kennedy with the Center for Strategic and International Studies.

TRADE TARIFFS REMAIN

National Foreign Trade Council President Jake Colvin said the trip could help define a "new normal" and establish a floor under the bilateral relationship. But it won't end $360 billion in tariffs imposed under former President Donald Trump, or export controls that have gathered steam under Biden.

Despite the cooling relations, trade between the U.S. and China grew in 2022 for the third year in a row, U.S. Commerce Department data show.

"There's still opportunity in China for American businesses, farmers and workers," Colvin said. "We can't just be looking at this exclusively through the lens of de-risking."

Yellen will emphasize the need to work with Beijing on climate change, pandemic preparedness and debt distress, even as Washington continues to take targeted actions over human rights or security concerns, a senior Treasury official said.

She will tell her Chinese counterparts that Washington is not seeking to decouple the two economies, which together account for 40% of global economic output, while reserving the right to protect human rights and U.S. national security interests through targeted actions, the official added.

Yellen will meet for the first time with China's new Vice Premier He Lifeng, after seeing his predecessor, Liu He, in Zurich in January, one administration official said, predicting a different dynamic with the new vice premier, a Xi loyalist who is less comfortable in English and hails from a planning background, not finance and economics. "I would suspect it will be more formal," the official said.

Two other Cabinet secretaries, Commerce chief Raimondo and U.S. Trade Representative Katherine Tai, met in May with Chinese Commerce Minister Wang Wentao. U.S. officials are also hoping to expand economic communication channels below the Cabinet level.

(Reporting by Andrea Shalal; Additional reporting by Michael Martina in Washington and Lun Tian Yew in Beijing; Editing by Dan Burns, Heather Timmons and Andrea Ricci)

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