Beijing Watch: What Will Yellen Talk about in China?

The positive impact of U.S. Secretary of State Antony Blinken’s “icebreaker trip” in June is now emerging: Another heavyweight member of President Joe Biden’s cabinet, Treasury Secretary Janet Yellen, will be on Chinese soil this week.* The first female chair of the Federal Reserve and the first female treasury secretary in U.S. history has the important task of further easing China-U.S. relations and improving the economic and trade situation.

To some extent, the business community’s expectations for Yellen’s visit are even greater than they were for Blinken’s. Just as Yellen has argued in the past, despite the geopolitical and economic tensions between China and the U.S., the two countries “can and must work together.” China and the U.S. are two great powers and the two largest economies in the world. In the past, relations between the two have been characterized by “cold politics and hot economics,” but given the stalemates of recent years, economic issues have become deeply tied up with political issues, giving prominence to “cold politics and cold economics.” Nevertheless, the economy is still an easier area than politics, security or the military in which to find a breakthrough.

In Beijing last month, Blinken received a first-rate welcome and enjoyed plentiful dialogue with the heads of the Central Foreign Affairs Office and the Ministry of Foreign Affairs. Yellen, on the other hand, will deal mainly with the financial team that was formed after the new Chinese State Council took office in March, and in the meantime, important departments and establishments such as the National Administration of Financial Regulation and the People’s Bank of China have also made recent personnel adjustments. High-level finance and economics officials from the two countries met directly to rebuild dialogue and communicate face-to-face on issues such as macroeconomics, finance, investments and international economics, all of which are conducive to easing tensions, reducing misjudgments and constructing a positive environment for economic and trade cooperation.

A key issue before Yellen is what is known as “de-risking.” The U.S. is currently trying to replace decoupling and breaking supply and industrial chains with reducing dependence and de-risking, but this is really no more than old wine in new bottles. Since there are no clear boundaries to de-risking, it is difficult to control with any accuracy and is easily generalized and abused, thus intensifying protectionism and anti-globalization. Yellen believes that the idea of decoupling would be “disastrous,” but she also believes that de-risking is necessary. This represents the view of a considerable number of leading figures in the U.S.

The upper echelons of the Chinese government have recently stressed that reducing dependence and de-risking is a “fundamentally flawed notion,” and one that needs to be examined with the utmost caution. From tariff increases and the Special 301 Report to technology export bans and investment restrictions, artificial barriers have prevented healthy competition between the U.S. and China. Trade is the cornerstone of the China-U.S. economic relationship, and what China and the U.S. need most is to reduce the risk of conflict so as to seek mutually beneficial growth. Politicized and ideological de-risking, however, will ratchet up the risks instead. If China and the U.S. have a full exchange of views in the field of finance and make every effort to inject more certainty into the bilateral relationship, then Yellen’s trip will not have been in vain.

*Editor’s note: This article was published before Treasury Secretary Janet Yellen completed her visit to China, but the editors believe its perspective remains relevant.