China and the United States are likely to discuss the Federal Reserve’s interest rate increases and the yuan’s weakness, among other bilateral and global issues, during this week’s long-awaited visit to Beijing by Treasury Secretary Janet Yellen, and analysts said it could serve to circumvent political wrangling between Washington and Beijing.
It is hoped that the four-day visit, which will start on Thursday, will also lead to further discussions over thorny trade issues, that include tech restrictions and tariffs on Chinese goods, they added.
The visit has raised hopes that China and the US can resume substantial dialogue to explore addressing economic headwinds to the global recovery, and even rediscover a path to prevent their problematic relationship from further derailing.
The yuan has substantially weakened against the US dollar and the US Department of the Treasury has kept China on its “monitoring list” for currency practices, although it fell short of designating its biggest trading partner as a foreign exchange manipulator in its report last month.
Both sides will find ways to overcome some political obstacles, and practically promote financial cooperation between the two countries
As the monetary policies of the world’s two largest economies have diverged, China has seen significant capital outflows from foreign investors since last year, which has also put pressure on the yuan.
“There is both cooperation and competition,” said Wang Jisi, a professor at the School of International Studies and president of the Institute of International and Strategic Studies at Peking University.
“I think the financial departments of both sides will find ways to overcome some political obstacles, and practically promote financial cooperation between the two countries,” he told the World Peace Forum in Beijing on Monday.
China is seen to need to expand its monetary policy to aid its economic recovery, which is losing momentum as its private economy and manufacturing sector are still struggling, while the US is focused on monetary tightening to tame inflation.
The Ministry of Finance in Beijing confirmed Yellen’s visit on Monday with a one-line statement, which added that it would include meetings with senior officials.
The US Department of the Treasury said Yellen would discuss “the importance for our countries – as the world’s two largest economies – to responsibly manage our relationship, communicate directly about areas of concern, and work together to address global challenges”.
The talks would also be the first major senior-level discussion between the US and the new Chinese government on economic and trade issues.
China is the second-largest foreign holder of US Treasuries, although its overall holdings have steadily declined since their peak in 2014 amid calls to diversify away from US government bonds amid deteriorating relations with Washington.
Talks between the world’s two largest economies have resumed recently, highlighted by the visit to Beijing by US Secretary of State Antony Blinken last month, although expectations are low among some analysts, who believe the current status quo in US-China relations will remain.
“I think this should be part of [a series of] face-to-face discussions between the economic teams of the two countries. We are still in the early days,” Professor Wu Xinbo, director of the Centre for American Studies at Fudan University, told Monday’s forum in Beijing.
“Regarding the Chinese economy, the American economy, the world economy, they may agree to establish a working mechanism to continue the dialogue.”
China’s focus will, he added, be its concerns over the US$300 billion of Trump-era tariffs that are still in place on Chinese goods, as well as Washington’s export controls and expanded military end user list targeting Chinese companies.
Wu, therefore, expects an anticipated meeting with US Secretary of Commerce Gina Raimondo to be “more practical”.
The two sides need to resume high-level exchanges, and only by resuming high-level exchanges, can we support [the talks between] the heads of states
“Raimondo will come this year, and [we] may have to wait for that,” Da Wei, director of the Centre for International Security and Strategy at Tsinghua University, also told Monday’s forum.
“The two sides need to resume high-level exchanges, and only by resuming high-level exchanges, can we support [the talks between] the heads of states.”
The US has, though, intensified tech containment on China, especially limiting its access to advanced chips.
Hours after the announcement of Yellen’s visit, the Ministry of Commerce said China would impose export controls on gallium and germanium – key metals used in the production of semiconductors – from August 1 to protect national security.
Stephen Olson, a senior research fellow at the Hinrich Foundation and a former trade negotiator with the Office of the US Trade Representative, believes Yellen will reiterate that the restrictive US policies are not aimed at containing China’s rise, although he does not expect a positive response from the Chinese officials.
What we’re now also seeing is that the bilateral relationship is increasingly tied to domestic political posturing. That makes de-escalation tricky
“Nonetheless, the discussions are positive and in the best interests of both the US and China. Both sides would like to avoid any major flare-ups that might scuttle or complicate a potential meeting between [Joe Biden] and [Xi Jinping] at the Asia-Pacific Economic Cooperation leaders meeting in San Francisco in November,” said Olson.
“Between now and then, every effort will be made to keep the waters calm. This is the primary short-term objective of the resumption of dialogue.”
Nick Marro, lead analyst for global trade at the Economist Intelligence Unit, said that while there is appetite for the two sides to steady the relationship, there are still too many issues that will keep it under pressure.
“What we’re now also seeing is that the bilateral relationship is increasingly tied to domestic political posturing. That makes de-escalation tricky,” Marro said.
“For example, any moves by the Biden administration to soften its position on China – whether that be in terms of reducing or eliminating certain tariffs, export controls, sanctions or other punitive measures – would expose the president to criticism from Congress, the Republican Party, or even the wider American electorate.
“Those dynamics will play an outsize role in influencing US-China ties, particularly as the US presidential election season approaches.”
In previous trade negotiations with Beijing, Yellen often spoke with then vice-premier Liu He, while she also talked with central bank governor Yi Gang in Bali, Indonesia, in November.
In a speech in April, Yellen said the US sought a healthy economic relationship with China that fostered mutually beneficial growth and innovation and expanded economic opportunity for American workers and businesses.
However, Yellen – who has long called for cooperation with China on global issues from debt relief to climate change – also vowed to secure national security interests along with those of its allies and to protect human rights through targeted actions.