US is at odds with China, but Janet Yellen says things could be worse

Treasury secretary is one of the strongest voices in the Biden administration for a measured approach to relations with Beijing

The United States and China are at odds over everything from territorial waters in the South China Sea to the future of TikTok, but as Janet Yellen noted in Beijing on Monday things could be worse.

“It is undeniable that the US-China relationship is on stronger footing today than this time last year. This was not preordained. It was the direct result of President Biden’s guidance to me and his cabinet to intensify our diplomacy with China and put a floor under the relationship,” she said.

The US treasury secretary was speaking to the press in the garden of the US ambassador’s residence at the end of a six-day visit to China, her second in less than a year. A popular figure in China, Yellen has long been one of the strongest voices in the Biden administration for a measured approach to relations with Beijing.

The visit produced an agreement to keep talking about the issues that divide the world’s two biggest economies and to deepen co-operation in areas such as combating money laundering and drug trafficking. But she delivered a stark warning that the US would not allow a second “China shock” to flood its market with competitively priced imports of electric vehicles, batteries, solar panels and other green energy technology.


Xi Jinping is shifting China’s economy away from traditional drivers of growth including construction and real estate towards what he calls “new productive forces”. This means more investment in high-end technology sectors such as space flight and life sciences as well as green energy, areas where US firms have enjoyed an advantage.

Yellen wants China to take steps to boost domestic demand so that Chinese consumers and businesses will buy more products that would otherwise move on to the export market. She made some specific proposals including making education more affordable and improving pensions so that Chinese people will spend more and save less.

Institutions like the International Monetary Fund (IMF) have made similar proposals and some Chinese economists agree that more should be done to boost domestic demand. But what Yellen is asking of China is no less than to change the direction of its economic and industrial policy.

Beijing’s problem is that even if it were to accept Yellen’s analysis there is no obvious alternative route to economic growth while the property market remains on the floor. She acknowledged on Monday that the problems she identified with China’s economy had built up over years and that a rebalancing, if it comes, will take time.