US-China decoupling ‘virtually impossible’: Treasury Secretary Yellen

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US Treasury Secretary Janet Yellen said on Friday that a decoupling of the world’s top two economies would be “virtually impossible”, in remarks made to American businesses in China.

While Beijing’s export controls underscored the need for diversified supply chains, Yellen said, “A decoupling of the world’s two largest economies would be destabilizing for the global economy.”

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Yellen’s trip is part of a flurry of visits aimed at calming tensions between Washington and Beijing after the US military shot down a Chinese government balloon over the United States.

Secretary of State Antony Blinken visited last month and agreed with Xi that the mutual rivalry should not veer into conflict, and Biden’s climate envoy John Kerry is expected to visit later this month.

The US diplomatic push comes ahead of a possible meeting between President Joe Biden and Xi as soon as September’s Group of 20 Summit in New Delhi or the Asia-Pacific Economic Cooperation gathering scheduled for November in San Francisco.

Yellen said she came to China to deepen communication and work toward a “stable and constructive relationship” between the two countries, while making clear that Washington will act to protect its national security interests and human rights.

“We believe that it is in the best interests of both countries to make sure we have direct and clear lines of communication at senior levels,” Yellen said in a prepared text.

Regular exchanges could help both countries monitor economic and financial risks at a time when the global economy was facing “headwinds like Russia’s illegal war in Ukraine and the lingering effects of the pandemic,” Yellen added.

Yellen said she would make clear to Chinese officials that Washington was not seeking “a wholesale separation of our economies,” but would raise concerns about their use of expanded subsidies for state-owned enterprises and domestic firms, barriers to market access for foreign firms, and recent “punitive actions” against US firms.

Yellen also expressed concern about new Chinese export controls on gallium and germanium, critical minerals used in technologies like semiconductors. She said Washington was still evaluating the impact of the move, but it underscored the need for “resilient and diversified supply chains.”

Market reforms

Yellen also took aim at China’s planned economy, urging Beijing to return to more market-oriented practices that had underpinned its rapid growth in past years.

“A shift toward market reforms would be in China’s interests,” the former top US central banker told the US business executives.

“A market-based approach helped spur rapid growth in China and helped lift hundreds of millions of people out of poverty. This is a remarkable economic success story.”

Yellen noted that China’s enormous and growing middle-class provided a big market for American goods and services, and stressed that Washington’s targeted actions against China were based on national security concerns.

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

US officials say they also expect Yellen to raise concerns about the impact of China’s new counterespionage law on US firms, and to warn Beijing about the consequences of supplying lethal aid to Russia.

Chinese officials, meanwhile, are expected to express concerns about the Biden administration’s plans to limit US companies’ China investments at a time when China’s economy is recovering more slowly than expected from COVID lockdowns and the job market is tough.

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