Get Janet Yellen to Beijing and let the healing begin
William Pesek is an award-winning Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”
Janet Yellen must be dreading her maiden trip to Beijing as U.S. Treasury secretary.
The two previous senior face-to-face talks between President Joe Biden’s team and their Chinese counterparts went about as well as a car crash. A March meetup in Alaska, for example, descended into recriminations and bickering over trade, global alliances and human rights.
Last month, Deputy Secretary of State Wendy Sherman got scolded for minutes on end live on camera in the northern Chinese city of Tianjin. Her deer-in-the-headlights crouch became a viral social media meme.
Yet signals that a Yellen-goes-to-China moment is finally being scheduled should come as a big comfort to Asia.
Not that Yellen relishes being a Communist Party punching bag. A Washington veteran, she is skilled at taking rhetorical incoming. From stints as Bill Clinton’s chief White House economist in the 1990s to Federal Reserve chair in the mid-2010s, Yellen knows how to handle fiery politicians. She was, after all, essentially fired by Donald Trump. In the U.S., respected central bankers always get a second term.
Yet Beijing will be something else entirely. It is the first chance President Xi Jinping’s economic team has to vent frustrations directly about the disastrous Trump years: the tariffs, the angry tweets, lies about trade deals that were not happening, corporate enemy lists, Republicans claiming to know more than Beijing about what happened with COVID-19 in Wuhan.
Yellen will just have to tolerate being a viral TikTok meme for a spell. But then the healing can begin.
China is disappointed that Biden’s White House did not scrap Trump’s trade barriers. Xi’s government has been shocked to see Biden tighten the screws on Chinese financial companies. Angry, too, that Biden is offering safe haven to Hong Kong residents amid China’s crackdown on the city.
But Xi knows well that Yellen is skeptical about perpetuating a trade war that hurts U.S. interests. When Trump left office in January, U.S.-China trade deficits were bigger than in 2016. The costs via higher import prices and multibillion-dollar bailouts to farmers were only trumped by the loss of global soft power.
Xi Jinping knows well that Yellen is skeptical about perpetuating a trade war that hurts U.S. interests. © Reuters
Yellen’s discussions with Vice Premier Liu He, China’s top economic official, would be the first step toward Biden softening the edges of trade relations. It also is a first move toward the two biggest economies finding common ground on climate change, cybersecurity, North Korea, Iran and even modest trade coordination.
Yet one of Yellen’s most important queries will be what, oh what, is happening with Chinese tech policy?
For nine months now, Xi has been pushing China’s top tech billionaires off the road. It started last November with Alibaba Group Holding founder Jack Ma. The same week Biden defeated Trump at the polls, Xi was wrecking China’s capitalist reputation. Beijing killed a planned $37 billion initial public offering by Ma’s Ant Group, which would have been history’s biggest.
More recently, Xi’s regulators ruined the post-IPO euphoria that Didi Global was enjoying in New York, where it listed. Next, Xi’s dragnet ensnared China’s $100 billion private education sector.
If you think Yellen is confused about all this, imagine the man who arguably made Ma: SoftBank billionaire Masayoshi Son. In 2000, Ma was an unknown English teacher in Hangzhou. Son bet $20 million on Ma, a gamble that was worth $50 billion by the time Alibaba went public in 2014.
Now Son, a man who bet big on Xi’s China, is calling a timeout. As of late July, 23% of Son’s $100 billion Vision Fund was invested in Chinese companies. By the end of this year, who knows? This is a moment when the interests of Washington policymakers and the most influential venture capitalist a world away are tightly intertwined.
But there is far more at stake. Xi’s tech crackdown is emblematic of the new economic model he is creating, for better or worse, in real time. It is unclear if it has a place for the U.S., Japan and Europe. Xi’s strategy, it appears, is to wall off Asia’s biggest economy from all outside leverage.
Might Xi force Chinese companies trading in New York to delist? Will multinational companies be subjected to regulatory crackdowns, taxes or new data requirements? Might Beijing stop buying U.S. Treasury securities, keeping state wealth at home? Perhaps Yellen can find out. Even better, perhaps she can talk Xi’s team out of it.
Xi’s increasingly harsh interventions in the private economy risk wiping trillions of dollars off global share prices. This could do more than just impede foreign investment — it could slam Chinese growth for years to come. That would cost Xi’s economy the clout he spent nearly nine years purporting to build. Increasing state control and opacity is incompatible with crafting a system that produces tech unicorns that harness global demand.
If the global economy were a zero-sum game, Xi’s sabotaging China’s boldest innovators might cheer Washington and have Silicon Valley popping Champagne corks. But Yellen knows better. She now has a chance at a reboot. The global community has much to riding on her rolling with the punches.