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A healthy US-China economic relationship

  • Secretary of the Treasury Janet L. Yellen at American Chamber of Commerce Event in Guangzhou, the People’s Republic of China.

This city holds a unique position in Chinese economic history. It was key to Chinese trade for centuries, and in fact to the start of US-China trade, with the first ship from the newly independent United States docking at Guangzhou in 1784. Then Guangzhou was at the heart of the market-oriented reforms and industrial development that drove China’s tremendous growth. And it was a key stop on Deng Xiaoping’s 1992 Southern Tour, when he renewed China’s commitment to these reforms.

[Today], as all of you know well, Guangzhou remains the top destination for foreign investment in China, including from Fortune Global 500 companies.

It’s a fitting place for me to emphasize the strong economic ties between the United States and China, and the benefits these ties can bring for both the US and Chinese economies. I’d also like to touch on concerns that I’ve heard from American businesses, which I intend to discuss with my Chinese counterparts this week.

By Janet L. Yellen

  • The importance of the US-China economic relationship.

One year ago, I laid out our Administration’s approach to China, outlining three key objectives. The United States will pursue a healthy economic relationship with China. We will seek to cooperate with China on global challenges. And we will deploy our economic tools when needed and in a narrowly targeted manner to protect our national security and that of our allies, as well as human rights.

President Biden and I firmly reject the idea that the United States should decouple from China. A full economic separation is neither practical nor desirable, as both the US and China have affirmed in public statements following our high-level bilateral meetings.

Indeed, America’s economic strategy is centered around investing in our economic strength. Over the past three years, our Administration’s policies have helped drive a historic economic recovery and laid the foundation for long-term economic growth. We are also deepening our ties with allies and partners around the world, while continuing to pursue the broad swathe of economic activities between the US and China that can benefit both countries.

Our conviction in the importance of a healthy economic relationship is rooted in an understanding of the roles that the United States and China play in the global economy. Together, the US and China represent 40 percent of global GDP. We have the world’s largest financial systems. Countries around the world watch both of our economies, but also our interactions, as they are crucial to global growth.

The US is China’s largest trading partner, and China is the United States’ third-largest trading partner, following Canada and Mexico. With a large and growing middle class, China represents a huge market for American manufacturers and other firms, including those represented in this room. Exports to China from transportation equipment to integrated circuits support over 700,000 American jobs, and Chinese companies employ additional American workers.

Put simply, the US-China bilateral economic relationship is among the most important in the world. Responsibly managing it is essential.

At president Biden’s direction, we’ve taken steps over the last two years that have put the US-China economic relationship on much surer footing. One of my key priorities has been to establish resilient communication channels between the US and China which I’ve done through engagements with my counterparts at home and in China. We launched and held regular meetings of the Economic and Financial Working Groups, bringing together policy teams from both our countries to discuss key aspects of our relationship, from monitoring economic and financial risks to identifying and pursuing areas of potential cooperation. For areas where we disagree, communication helps prevent misunderstanding from leading to unintended escalation and allows us to frankly convey concerns.

Concerns

It is in this spirit of continuing to move the US-China relationship in a constructive direction that I’d like to share my concerns about the business environment in China and the ability of American firms to compete on a level playing field.

I’ve heard from many American business executives that operating in China can be challenging. I understand that the Chamber’s recent survey found that one-third of American firms in China report experiencing unfair treatment compared to local competitors. We’ve seen the PRC pursue unfair economic practices, including imposing barriers to access for foreign firms and taking coercive actions against American companies. I strongly believe that this doesn’t only hurt these American firms: ending these unfair practices would benefit China by improving the business climate here. I intend to raise these issues in meetings this week.

I know that American businesses are also concerned about the impacts of China’s shift away from a market approach on the US and global economy. I’m especially concerned about overcapacity, which members of the Chamber identified as a concern in the Chamber’s recent survey as well. Overcapacity isn’t a new problem, but it has intensified, and we’re seeing emerging risks in new sectors.

Specifically, direct and indirect government support is currently leading to production capacity that significantly exceeds China’s domestic demand, as well as what the global market can bear. I understand these policies may be driven by domestic development objectives. But overcapacity can lead to large volumes of exports at depressed prices. This can undercut the business of American firms and workers, as well as of firms around the world, including in India and Mexico. And it can lead to overconcentration of supply chains, posing a risk to global economic resilience. This will be a key topic in discussions with counterparts in the coming days.

Overcapacity also poses challenges for Chinese firms and industries and can impact China’s productivity and growth. I believe addressing overcapacity and more generally considering market-based reforms is in China’s interest. As I’ve said before, China is too large to export its way to rapid growth. And if policies are oriented only at generating supply and not also at generating demand, global spillovers will result.

China’s implementation of market reforms generated one of the most significant economic success stories of our lifetimes, lifting hundreds of millions of people from poverty. There’s potential for significant gains from reform now as well.

Conclusion

I see today’s event as an opportunity to deepen my understanding of what’s needed by hearing from you – American businesses about the successes you’ve had and the challenges you face.

Throughout this week, I intend to communicate our commitment to a healthy US-China economic relationship. I’ll also raise concerns as part of further stabilizing the relationship and in order to realize greater benefits for the United States, for China, and for the global economy.

The Biden administration’s efforts over the past year to build a resilient foundation for the US-China economic relationship have made the constructive exchanges I hope to have possible. As I said when I spoke at the US-China Business Council in December, I am convinced that the course we are charting is not just pragmatic. It will lead to building a healthy economic relationship that benefits American firms and workers. And it’s what’s required of the world’s two largest economies if we hope to achieve the best outcomes for our people and for people around the world.

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