Yellen says US doesn’t want ‘winner take all’ fight with China

“We seek healthy economic competition that is not winner-take-all but that, with a fair set of rules, can benefit both countries over time,” the Treasury chief told China’s No. 2 official, adding that US actions to protect national security should be “targeted.” She also raised “issues of concern,” according to a Treasury statement.

Li also struck a note of optimism, telling Yellen he believed bilateral ties would eventually see a “rainbow,” after going through a period of “wind and rain.” He also urged Chinese entrepreneurs to brace themselves for “hardships” and “look further to the horizon.”

Yellen’s high-stakes visit comes as the US and China are locked in a tit-for-tat trade war that ramped up last year with US export controls on semiconductors and chipmaking equipment.

The Biden administration is preparing an executive order curbing US outbound investment in China, which could come as soon as July and cover certain investments in sensitive technologies including semiconductors, artificial intelligence and quantum computing.

President Xi Jinping’s government imposed controls on two critical minerals used in advanced technologies days before Yellen’s arrival. Earlier in the day, she told a roundtable of US business people operating in China she was “concerned” by those controls.

The US Defense Department announced Friday it was invoking the Defense Production Act to boost domestic mining and processing of gallium and germanium, Reuters reported, citing a Pentagon spokesperson.

Yellen’s trip is aimed at building longer-term communication channels with the Chinese government’s new economic team rather achieving any substantive breakthroughs. Despite that, her talks began with two old guards of China’s economy policy: retired Vice Premier Liu He and the People’s Bank of China Governor Yi Gang.

The Treasury’s readout of Yellen and Li’s meeting described it as “candid and constructive.” Besides discussing competition issues, Yellen emphasized the importance of Washington and Beijing “closely communicating on global macroeconomic and financial issues and working together on global challenges, including debt distress in low-income and emerging economies and climate finance,” it said.

The meeting lasted just more than an hour, according to a Treasury official.

The central bank’s appointment of Pan Gongsheng as party chief last weekend raised expectations he could soon take over from Yi. Liu retired from his role earlier this year, although the South China Morning Post reported last month he still has an influential hand in economic matters.

Yellen’s talks with both men were “substantive,” and covered the economic outlook in both their nations and globally, according to the Treasury department.

Restarting such dialog is key given recent clouds over China’s economy. Chinese authorities have cut interest rates and adopted measures to shore up the property market, which has suffered from an overhang of leverage and construction. Policymakers are also increasingly concerned about demographic issues including a declining population and a high youth unemployment rate.

Yellen will use her time in Beijing to discuss with her counterparts the importance of responsibly managing the US-China relationship, communicating directly about areas of concern, and working together to address global challenges, the Treasury said earlier. She is expected to sit down with more Chinese officials on Saturday, before departing on Sunday after giving a press conference.

The trip marks the first major test of a policy Yellen outlined in April that’s geared toward defending and securing US national security without trying to hold China back economically.

Responsible relationship

During her roundtable with executives from companies including Boeing Co., Bank of America Corp. and Cargill Inc., Yellen spoke of the opportunity China’s enormous middle class held for American businesses. But she also warned she was “troubled” by “punitive actions” China had taken against US firms in recent months.

The Chinese government in May banned US chipmaker Micron Technology Inc.’s products from some of its critical sectors, while authorities raided US consultancy Bain & Company and New York-based due diligence firm Mintz Group earlier this year.

That turbulence, along with years of Covid controls that disrupted supply chains and a series of regulatory shocks that hit the private sector, has rocked investor confidence in China. Xi said on Friday it was necessary for China to implement new measures to attract foreign investment, the official Xinhua News Agency reported.

Yellen said that US business leaders in Beijing had expressed concerns over China’s “non-market tools,” such as subsidies for state-owned enterprises and domestic firms. Despite all that, she reiterated her message that the US does not seek a wholesale separation of the two economies, stressing that it seeks to “diversify” rather than decouple from China.

“A decoupling of the world’s two largest economies would be destabilizing for the global economy, and it would be virtually impossible to undertake,” she said. “We seek to diversify, not to decouple.”

Yellen will meet and have dinner with Chinese Vice Premier He Lifeng on Saturday evening, according to a senior Treasury official. She will start they day with a meeting with professionals who work in sustainable finance, an area the US has staked out as key for cooperation.

She will also have lunch with a number of female economists, the official said.

(By Viktoria Dendrinou, with assistance from Xiao Zibang)