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Yellen’s China Visit Aims to Ease Tensions Amid Deep Divisions

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The last time the U.S. Treasury secretary visited China, Washington and China were embroiled in a trade war, the Trump administration preparing to label China a currency manipulator, and deteriorating relations between the two countries roiling global markets. .

Four years later, as Treasury Secretary Janet L. Yellen prepares to enter Beijing, the economy is deteriorating between the US and China even as the Biden administration’s hostile tone fades. Many of the policy concerns remain or have intensified.

Tariffs imposed by President Donald J. Trump on Chinese goods are still in place. President Biden is working to limit China’s access to critical technologies such as semiconductors. And new regulations are looming to curb U.S. investment in China.

Treasury officials have downplayed hopes of significant progress in Yellen’s four-day trip, which begins with her arrival in Beijing on Thursday. They instead suggest that her meetings with Chinese officials are aimed at improving communication between the world’s two largest economies. But tensions between the United States and China remain high, and dialogue between Ms Yellen and her counterparts is likely to be difficult. He met with Chinese ambassador Xie Feng in Washington on Monday, and the two officials had “frank and productive discussions,” the Treasury Department said.

Here are some of the most controversial issues that have created a rift between the US and China.

Chinese officials remain wise to the Biden administration’s 2022 decision to place drastic limits on the types of advanced semiconductor and chip-making machinery that can be exported to China. These restrictions hamper China’s efforts to develop artificial intelligence and other advanced computing that it hopes will help strengthen countries’ economies and militaries in the future.

The Dutch government, home to semiconductor machine maker ASML, announced on Friday new restrictions on machine exports to China. China on Monday restricted exports of germanium and gallium, two metals used to make chips.

The Biden administration is considering further restrictions on US investments in advanced chips and China’s cutting-edge technology.

Semiconductors have always been one of the largest and most valuable categories of U.S. exports to China, and although the Chinese government is investing heavily in domestic manufacturing capacity, it still lags behind the U.S. for years. ing.

The Biden administration’s subsidy program to bolster the U.S. semiconductor industry has also frustrated Chinese officials, especially since it includes restrictions on investment in China. Companies that accept U.S. government funding to build new chip facilities in the U.S. are barred from making new high-tech investments in China.

Chinese officials and some U.S. manufacturers also hoped the Biden administration would remove tariffs on hundreds of billions of dollars worth of Chinese imports, but that doesn’t seem likely any time soon. . While Ms Yellen has questioned the effectiveness of the tariffs, other officials in her administration see them as helping to encourage supply chains to move out of China.

The administration uses both carrots and sticks to implement policies of “risk aversion” or “friend-shoring”. That means attracting supply chains from China for key products such as electric vehicle batteries, semiconductors, and solar panels.

Companies doing business in China are increasingly concerned about negative government attention. The most recent target was US memory chip maker Micron Technology, which failed China’s security review in May. The move could cut off Micron from selling to Chinese companies that operate major infrastructure. about one-eighth A portion of the company’s global revenue is at risk. In recent months, Chinese consulting and advisory firms with international ties have faced crackdowns.

U.S. officials are increasingly concerned that Beijing is using economic repression against countries such as: Lithuania and Australiaand they are working with European officials Other governments will also need to coordinate their responses.

Companies are also wary of China’s increasingly stringent national security laws, including a tougher anti-espionage law that went into effect on Saturday. Foreign companies in China are reassessing their activities and the market information they collect because the law is vague about what is prohibited.

“I think that’s very unwise, and I’ve made that point to several people in the government here,” US Ambassador to China R. Nicholas Burns said in an interview in Beijing.

In the U.S., companies with ties to China, including social media app TikTok, shopping app Temu and clothing retailer Shein, have been criticized for their labor practices, use of U.S. customer data, and how products are imported into China. face increasing scrutiny. usa.

China’s currency, the renminbi, has often been a source of concern for U.S. officials, who have accused the Chinese government of artificially weakening the currency in order to sell its products cheaper abroad. rice field.

The recent depreciation of the yuan could pose the most difficult problem for Yellen. The currency has fallen more than 7% against the dollar and nearly 13% against the euro over the past 12 months. This decline has made China’s exports more competitive in the United States. China’s industrial goods trade surplus already accounts for a tenth of the economy’s overall output.

The yuan isn’t the only currency that has recently fallen against the dollar. The Japanese yen has fallen for a variety of reasons, including rising US interest rates as the Federal Reserve tries to keep inflation under control.

Chinese economists attribute that factor to the yuan’s depreciation. Zhan Yubo, a senior economist at the Shanghai Academy of Social Sciences, said the yuan’s depreciation was a direct result of the Fed’s recent rate hikes.

At the same time, China is cutting interest rates to help its sluggish economy. The interest rates banks reciprocate on overnight loans – the benchmark that tends to affect all other rates – are now just over 5% in New York and just 1% in Shanghai. This reverses a long-standing pattern of typically high interest rates in China.

The Fed’s rate hikes have made it more attractive for businesses and households to send money out of China and invest in the United States, despite the Chinese government’s strict restrictions on overseas money transfers.

Three years ago, as part of a phase one trade deal with the United States, China pledged not to seek trade dominance by devaluing its currency. In any case, however, if China allows its currency to weaken, the options for the Biden administration may be limited.

China has provided more than $500 billion to developing countries through lending programs, making it one of the world’s largest creditor nations. Many of these borrowers, including several African countries, have suffered financially since the pandemic and face the possibility of falling behind in their debt repayments.

The United States, along with other Western nations, is pressuring China to allow some countries to restructure their debts and reduce their debt levels. But for more than two years, China has insisted that other creditors and multilateral financial institutions absorb financial losses as part of the restructuring. This is slowing the loan relief process at a time when millions of people in developing countries are facing food insecurity and at risk of falling into further poverty.

International creditors, including China, agreed in June to a debt relief plan with Zambia that would include a moratorium on interest payments and extend loan terms. The deal does not require the World Bank or the International Monetary Fund to cancel debt, and global policymakers like Yellen say they can expect similar debt restructuring in poorer countries.

Tensions over national security and human rights have created an atmosphere of mutual distrust, spilling over into economic relations. The flight of a Chinese surveillance balloon across the United States this year has caused great anxiety among Americans, and members of Congress are pressing the administration to reveal more about what they know about the balloon. Biden’s recent labeling of Chinese leader Xi Jinping as a “dictator” also irritated Chinese officials and state media.

U.S. officials remain concerned about China’s human rights abuses, including the crackdown on pro-democracy protests in Hong Kong and the detention of mostly Muslim minorities in the northwestern Xinjiang region. A senior Treasury official, speaking on condition of anonymity before Ms.

Chinese authorities continue to protest the various sanctions imposed by the United States on Chinese companies, organizations and individuals for national security threats and human rights violations. Sanctions against Lee Sang Bok, Minister of Defense of China. The Chinese government has cited these sanctions as reasons for refusing high-level military dialogue.

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