US Treasury Secretary Janet Yellen on Wednesday met her Chinese counterpart and pledged an effort to manage differences and “prevent competition from becoming anything close to conflict” as the two countries try to thaw relations.
Yellen’s first face-to-face meeting with Vice Premier Liu He in Zurich is the highest level of contact between the two countries since their presidents agreed last November during their first in-person meeting to explore areas of potential cooperation.
Liu said he is willing to work together to find common ground between China and the United States. “No matter how circumstances change, we should always maintain dialogue and exchanges,” he said.
The US Treasury statement of their meeting said the two agreed that the US and China will cooperate more on issues related to financing to combat climate change and work to support “developing countries in their clean energy transitions.” The reading also indicates that Yellen plans to travel to China and welcome her counterparts to the United States in the near future.
Liu is expected to retire and be replaced as deputy prime minister at the next session of the National People’s Congress this spring. It remains unclear who Leylin’s main interlocutor will be in China going forward.
The meeting comes as the economies of the United States and China grapple with different but intertwined challenges over trade, technology and more.
In her opening remarks to reporters, Yellen told Liu: “While we have areas of disagreement, and we will bring them up directly, we must not allow misunderstandings, especially those stemming from a lack of communication, to unnecessarily aggravate our bilateral economic and financial relationship.”
Liu said that China and the United States need to communicate and coordinate seriously, Chinese broadcaster Phoenix TV reported. The radio said in an online report that both sides should look at the bigger picture and try to manage differences properly and work together to maintain stability in relations.
Both countries, Yellen said, “have a responsibility to manage our differences and prevent competition from becoming anything close to conflict.”
Both economies have challenges.
China’s economy is reopening after the resurgence of the COVID-19 coronavirus that has killed tens of thousands of people and closed countless businesses. The United States is slowly recovering from 40-year high inflation and is on track to reach its legal debt ceiling, leading to an expected political showdown between Democrats and Republicans in Congress. The debt issue is getting a lot of attention from Asia, as China is the second largest holder of US debt.
There’s also the Russian invasion of Ukraine, which is stunting global economic growth — and prompting the US and its allies to agree an oil price cap on Russia in response, putting China in a difficult position as Russia’s friend and economic ally.
Rising interest rates around the world have added pressure on heavily indebted countries that owe large sums to China.
“A wrong policy move or a reversal in positive data and we could see the global economy heading into recession in 2023,” said Josh Lipsky, senior director of the Atlantic Council’s Center for GeoEconomics. Both countries have a common interest in avoiding this scenario. “
The World Bank reported last week that the global economy will come dangerously close to recession this year, led by the weakest growth in all of the world’s major economies – including the United States and China. The report stated that it is expected that low-income countries will suffer from any economic downturn of the great powers.
“At the top of the list is debt restructuring,” Lipsky said of Wednesday’s talks. Many low-income countries are at risk of debt default in 2023 and many owe large sums to China.
Leaders have been trying for two years to get some agreement and avoid a wave of defaults but there has been little success and one reason is China’s indecision. “I expect Yelin will press Liu He on this in the meeting,” Lipsky said.
Liu laid out an optimistic vision for the world’s second-largest economy in a speech on Tuesday at the World Economic Forum in Davos, Switzerland.
If we work hard enough, we are confident that in 2023, China’s growth will most likely return to its normal trend. He said that the Chinese economy will see great improvement.
After a stop in Switzerland, Yellen will travel to Zambia, Senegal and South Africa this week in what will be the first in a series of visits by Biden administration officials to sub-Saharan Africa this year.
Zambia is renegotiating its $6 billion debt with China, its largest creditor. During a closed-door meeting at the Africa Leaders Summit in Washington in December, Yellen and Zambian President Hakinde Hichilema discussed “the need to address debt sustainability and the need to end debt processing for Zambia,” according to Yellen.
The Zurich talks are a follow-up to the November meeting between US President Joe Biden and China Xi Jinping on the sidelines of the G20 summit in Bali, Indonesia. The two leaders agreed to empower key senior officials to work on areas of potential cooperation, including addressing climate change and maintaining global financial, health and food stability. Beijing cut off such contacts with the United States in protest of then-Speaker of the House Nancy Pelosi’s visit to Taiwan in August.
“We are going to compete very hard. I am not looking for a struggle,” Biden said at the time.
US Secretary of State Antony Blinken heads to China in early February.
Among the economic sticking points, the Biden administration has blocked the sale of advanced computer chips to China and is considering a ban on investment in some Chinese technology companies, which could undermine a key economic goal Xi has set for his country. The Democratic president’s remarks that the United States would defend Taiwan against a Chinese invasion also added to the tensions.
And while the US Congress is divided on many issues, members of the House of Representatives last week approved more scrutiny of Chinese investments.
New House Speaker Kevin McCarthy, D-Calif., has identified the Chinese Communist Party as one of the two “longstanding challenges” to the House, along with the national debt.
“There is a bipartisan consensus that the era of trust in communist China is over,” McCarthy said from the House floor last week when the House voted 365-65 — with 146 Democrats joining the Republicans — to create the House Select Committee on China.
Last year, the US Commerce Department added dozens of Chinese high-tech companies, including makers of aerospace equipment, chemicals and computer chips, to a blacklist of export controls, citing concerns about national security, US interests and human rights. This move prompted the Chinese to file a lawsuit with the World Trade Organization.
Yellen criticized China’s trade practices and its relationship with Russia, as the two countries have strengthened their economic ties since the start of the war in Ukraine last February. On a July call with Liu, Yellen spoke “frankly” about the impact of Russia’s invasion of Ukraine on the global economy and its “unfair and non-market” economic practices, according to the US summary of the call.