6 issues worth paying attention to, Yellen's itinerary exceeds half of the Chinese side | Broken chain | Issues
On July 8th, the third day of Yellen's visit to China. Halfway through the itinerary, Yellen has held a series of meetings with the Chinese side. After Yellen began his visit to China, the Ministry of Finance first responded on behalf of the Chinese side. On the 7th, the Chinese side stated that the essence of China US economic and trade relations is mutual benefit and win-win, and there are no winners in trade wars or decoupling. In the meeting with the Chinese side on the afternoon of the 7th, Yellen also expressed the same attitude: the US does not seek to "decouple and break the chain".
How can China US economic and trade relations develop healthily, and how can they create a favorable environment for achieving mutual benefit and win-win results? Tan Zhu found an expert who has been following Yelen's itinerary recently, Li Chengwei. He is a researcher at the Global Risk Governance Research Center of the Chinese Academy of Financial Sciences. From the perspective of cooperation in resolving risks, he shared his understanding of China US exchanges.
Tan Zhu: During the visit of US Treasury Secretary Yellen to China, a detail released by Yu Yuan Tan Tian sparked widespread discussion: a rainbow appeared in the sky when Chinese Treasury officials picked up the plane. Someone commented that on rainy days, just looking at your feet may be a muddy road, and looking up at the sky may be a rainbow. This also reflects the attention of many people towards this visit. Could you please explain from a professional perspective the background of this series of meetings between China and the United States.
Li Chengwei: The Treasury Secretary holds a very important position in the United States, ranking next to the Secretary of State among cabinet officials. Among so many economic and trade officials in the United States, the first one to visit China was Treasury Secretary Yellen, which indicates from one aspect that the United States indeed attaches great importance to the economic and trade relationship between China and the United States.
The Chinese side is responsible for receiving this visit from the Ministry of Finance. In fact, there is a functional difference between the US Treasury and our Treasury. The most important difference is that the US Treasury, in addition to managing its domestic budget and revenue affairs, is more responsible for managing global economic and trade affairs, including international financial regulation, serving the US in global risk management. So we can also see that the US foreign economic and trade relations, US bonds, and many financial regulatory affairs are all managed by the Ministry of Finance, and its functions are very broad.
The US Treasury has a more global perspective, which also means that it needs to strengthen communication and exchanges with China to address global issues. With the increase of global exchanges, China's financial department is further strengthening its role in global affairs from a major country's fiscal perspective.
Tan Zhu: China mentioned on the 7th that the close integration of economic interests between China and the United States, mutual benefit and win-win are the essence of China US economic relations, and there are no winners in trade wars or "decoupling and chain breaking". How do you view China's statement? How do you evaluate the US response?
Li Chengwei: The position expressed by the Chinese side has always been consistent, and this emphasis is meant to be heard by Yellen.
Yellen also mentioned in the meeting on the afternoon of the 7th that the United States does not seek decoupling and disconnection, but seeks a mutually beneficial economic situation between the United States and China. This expresses her attitude. Yellen's visit must also be aimed at seeking a common divisor. Yellen has emphasized many times before that decoupling is not beneficial for the United States. I would like to reiterate that it is also in line with China's statement.
However, in these two days, foreign media have also been hyping up the use of non market tools in China. However, in reality, the logic behind this statement does not hold true.
The United States has introduced laws related to foreign investment review and strengthened subsidies for domestic industries under the pretext of national security. The United States claims to be a market economy, but it is a pioneer in undermining the market economy. All countries have national security issues related to industrial security and other aspects based on their own economic development requirements, and naturally, there are also specific actions based on defending national interests. The accusations from the United States are unreasonable.
Tan Zhu: Yellen met with representatives of American companies in China on the 7th. When Yellen set out to visit China, many American entrepreneurs were calling for cooperation between China and the United States. How does Yellen's visit release confidence for American entrepreneurs?
Li Chengwei: What companies most want to see is a stable investment and development environment, with stable expectations. Their biggest concern is uncertainty. If the United States wants to give its own businesses confidence, it cannot further deteriorate the relationship between China and the United States. According to the latest data, against the backdrop of a global decline in foreign direct investment, foreign direct investment entering China in 2022 increased by 5%, reaching 189 billion US dollars, which is the certainty provided by China. In fact, Yellen's visit is a visit by a high-level economic and trade official, which itself is an important signal release: the communication channels between China and the United States are smooth, and China and the United States are willing to control risks, differences, and try to stabilize the economic and trade relations between the two countries. This is precisely an important foundation for stabilizing corporate expectations.
Tan Zhu: We have noticed that some American media discussed Yellen's visit to China regarding the United States' own economic issues. Do you think there are any urgent economic problems in the United States currently?
Li Chengwei: Currently, there are various contradictions intertwined in the economic and social development of the United States, and it is necessary to consider the balance of risks in several aspects, especially the balance between economic growth, debt pressure, and inflation. The United States is currently in a state of wanting to balance them. The United States wants to control inflation by raising interest rates, but this will also affect the economy. At the same time, the major economies of the United States and the West are in a state of high inflation and low growth. So the policy space in the United States will become smaller and smaller, and it will be in a tightrope state. If a certain policy is not handled properly, it may lead to risk loss and imbalance, bring disasters to the economic and social development of the United States, and ultimately accelerate the amplification of global risks through its powerful risk spillover effect.
Solving these urgent economic problems requires cooperation with China.
Before the trade friction, the economic and trade relations between China and the United States were actually quite close. With the actions of the United States in recent years, bilateral economic and trade relations have been affected. However, China's economic and trade relations with other economies such as ASEAN, Latin America, and the European Union are quietly growing. The current global risks are increasing, challenges are constantly increasing, and a series of problems have emerged, including climate change, debt crisis, geopolitics, and so on. Many of these problems are related to the United States, but they quickly "backfire" on the United States, which is the so-called risk "flying tool" effect, which means that the risks brought to others will eventually affect oneself. Especially because the United States obtains resources and benefits globally, if such a situation occurs, it will have a relatively significant impact on the United States. So the United States still needs to work with China in many areas to manage global risks.
Tan Zhu: Many people's impression of Yellen is that she is an economist in the Biden administration. Previously, the United States hyped up decoupling from China, and Yellen clearly stated that decoupling from China was a disaster. Why would Yellen use "disaster" to describe "decoupling"? What will decoupling bring to the United States and the world?
Li Chengwei: Yellen has held multiple important positions in the United States, and now as the Secretary of Finance, he naturally understands the decisive significance of trade and investment in US China relations. With the emergence of trade frictions and other issues between the two countries in recent years, their economic and trade relations are facing tests.
The reason why the United States fought a trade war was that there was a large trade deficit with China, and China took advantage of it. But in fact, American companies are at the high-end of the "smile curve", which is the forefront of the industry chain, mainly focused on research and development enterprises. From the perspective of the industrial chain, the United States has gained more benefits from the trade deficit through the global economic cycle. But if China and the United States truly "decouple" and the economic cycle cannot flow, then the profit margins of high-end industries, including finance, services, technology, etc., in the United States will shrink. So we cannot simply look at decoupling from the perspective of trade volume, but rather at the losses of the United States from the perspective of global economic cycles.
Decoupling will also have a significant impact on the circulation of the US dollar, thereby causing a backlash against the United States. So the United States will feel that decoupling is not only a disaster for the world, but also a disaster for itself.
Tan Zhu: The trade war between China and the United States has been going on for five years now. Five years ago, the important goal for the United States was to return manufacturing. But we have noticed that before the pandemic, the US manufacturing PMI had already fallen to its lowest point since the financial crisis. Why did this result occur?
Li Chengwei: The return of manufacturing industry is not that simple. In addition to technology, it also requires the support of the industrial system. This is a long-term process, not formed in a day. It includes issues with the industrial chain and skilled labor. We can see that although the United States has made some attempts, such as using industry subsidy policies and introducing chip laws. These policy measures may have some short-term effects, but the real return is not so easy.
In my personal opinion, the biggest problem with the United States launching a "trade war" is the reversal of direction, which has undermined the foundation of the US global economic cycle and the advantage of the US high-end industrial chain. On the one hand, the United States restricts China's exports, and on the other hand, it imposes a technological blockade on China, which is actually undermining the global economic cycle of the United States and cutting off the path ahead. This impact is indeed catastrophic for the United States. So, what the United States should do is to reduce risks through cooperation, rather than adding risks to itself.
