Contesting While Shaking Hands

After a nine-month interval, U.S. Treasury Secretary Janet Yellen returned to China. The 77-year-old official is highly respected in the country for her professional and pragmatic approach. Her “restaurant diplomacy” once again proved a success during this trip, which ran from April 4 to 9. Like her visit last July, Yellen chose to dine at popular local eateries in Guangzhou, Guangdong Province, and Beijing. The menus of her meals and photos of her outings were widely shared on Chinese social media platforms, and her friendly demeanor endeared her to many Chinese people.

Yellen was the first cabinet member of the Joe Biden administration to pay a second visit to China, and it was clear her intentions extended well beyond sampling the cuisine. Her recent six-day journey made significant progress from her previous visit in terms of scope, depth and breadth, and was notable for its extensive meetings and engagements. During her visit, she met with the premier of China’s State Council, the highest state administrative organ, and key economic and financial officials. She also met with academic figures as well as business heads from both Chinese and American companies.

While Yellen was in Beijing, China and the U.S. reaffirmed the agreements drawn up between their leaders during the San Francisco meeting last November. Moreover, two new consensuses were established during her visit: The first, steered by the financial departments of both nations, focuses on exchanging perspectives on the balanced growth of their respective economies, as well as the global economy; the second consensus, led by the People’s Bank of China and the U.S. Department of the Treasury, seeks to facilitate ongoing discussions on financial stability, sustainable finance, preventing money laundering and related matters.

However, some perspectives suggest Yellen’s visit may not have accomplished its primary goal. Prior to her departure, Yellen voiced her apprehensions about what she referred to as China’s industrial “overcapacity,” asserting her primary goal in visiting China was to compel Chinese authorities to manage “overproduction” in sectors including electric vehicles, photovoltaics and new energy industries. Contrarily, the Chinese standpoint is that China’s current capacity is significantly inadequate to satisfy market demand, particularly the immense potential demand for new energy products. As emphasized by China’s Vice Finance Minister Liao Min at a press briefing on April 8, the International Energy Agency’s projections indicate that global demand for new-energy vehicles will escalate to 45 million by 2030, marking an increase of 4.5 times from 2022; the demand for additional photovoltaic installations worldwide will surge to 820 gigawatts, roughly four times that of 2022.

In China, new-energy vehicles refer to vehicles completely or mainly driven by new energy sources, including battery electric vehicles, plug-in hybrid vehicles and fuel cell vehicles.

The U.S. concern over so-called overcapacity represents a novel form of trade protectionism, initiated in response to China’s burgeoning strength in these fields. Meanwhile, it is also seen as a campaign strategy adopted by the Biden administration to win over several swing states that rely heavily on their manufacturing sectors.

While it was not explicitly stated in official statements, it is generally believed that another key objective of Yellen’s trip was to coax China into increasing its holdings of U.S. treasury bonds. On March 19, the U.S. Department of the Treasury published the International Capital Flow Report for January. This report revealed a decrease in China’s holdings of U.S. treasury bonds by $18.6 billion from the previous month, dipping to $797.7 billion and once again falling under the significant benchmark of $800 billion. Despite the fact that China has been steadily reducing its treasury holdings over the past 11 years, there was a technical increase in November and December 2023. The decision on whether China is prepared to escalate its U.S. treasury holdings hinges largely on China’s own disposition and the kinds of incentives the U.S. is able to present.

The overarching trend in China-U.S. relations is unlikely to be fundamentally reversed through a couple of high-level official visits. If last year’s visits to China by senior U.S. officials can be characterized as an “ice-breaking journey,” then this year’s reciprocal visits from both countries aim to further reinforce the foundation of cooperation already established. China is hoping to expand its collaboration with the U.S., but insists on a basis of equality and mutual benefit. China is not averse to competition with the U.S., but insists it be fair and constructive. The paradigm of contesting while shaking hands, allowing each side to appreciate the other’s strength and stance, and providing policy flexibility for the other under the premise of safeguarding national interests, might well be the primary tone for bilateral ties in the future.