Janet Yellen urges China to reform economic policies

US Treasury Secretary Janet Yellen has called on China to shift away from a state-driven economic model, expressing concerns that such an approach could discourage investors.

Yellen emphasized that an overemphasis on state-owned enterprises and security apparatus can hinder growth and dissuade crucial foreign investment.

Addressing the longstanding grievances of US companies, Yellen highlighted the unfair business environment in China, citing concerns over limited intellectual property protection and preferential treatment for domestic competitors.

This has been exacerbated by recent events, including a crackdown on consulting firms and changes to anti-espionage laws granting Beijing increased power.

Referring to a recent survey by the US-China Business Council, Yellen underscored that companies are reconsidering their investment plans, with a significant number signaling intentions to move operations out of China in 2023—a trend not seen since 2016.

Yellen suggested that these indicators point to potential benefits in China pursuing structural reforms.

Yellen’s call for change comes against a backdrop of escalating tensions between the two nations, with the US seeking to address longstanding economic disparities.

The Treasury Secretary emphasized the need for a level playing field, asserting that China engages in unfair economic practices, from non-market tools to barriers for foreign firms.

At the anniversary dinner, letters from US President Biden and Chinese leader Xi Jinping were read, showcasing competing views on the future of China-US trade cooperation.

Xi expressed optimism about strengthening ties and creating a market-oriented, rule of law-based business environment, countering Yellen’s concerns.

Looking ahead to 2023, Yellen outlined priorities for US-China economic relations, acknowledging the inevitable challenges.

She stressed the importance of resilient communication to prevent misunderstandings from escalating conflicts.

Yellen also disclosed plans for her upcoming trip to China, intending to discuss challenging areas and seek clarity on China’s economic policies, national security issues, and non-market practices.

In the ongoing efforts to ease tensions, the Biden administration has taken steps, including visits by high-ranking officials to China and an in-person summit between Presidents Biden and Xi in November.

Yellen reaffirmed the commitment to clear communication, seeking transparency on China’s economic plans and practices while fostering exchanges in financial regulation and climate cooperation.

As economic uncertainties persist, Yellen’s call for reform underscores the urgency of addressing disparities and fostering transparent communication between the world’s two largest economies.