Yellen criticizes Chinese treatment of US companies during visit to revive relations

U.S. Treasury Secretary Janet Yellen criticized Chinese treatment of American companies and new export controls on metals used in semiconductors during a visit Friday to Beijing to try to revive strained relations.

Talking with a group of businesspeople, Yellen defended U.S. controls on technology exports that irk Beijing, saying they are necessary for national security. She rejected suggestions Washington is trying to decouple, or separate the U.S. economy from China’s. “The U.S. seeks healthy economic competition with China,” Yellen said, according to a transcript released by her department.

“I am communicating the concerns that I’ve heard from the U.S. business community — including China’s use of non-market tools like expanded subsidies for its state-owned enterprises and domestic firms, and barriers to market access for foreign firms,” Yellen said.

China has been stepping on the accelerator to fight what it sees as increased hostility from the United States. In the days prior to Yellen’s visit, the country adopted two far-reaching measures against Western restrictions. Although the recent visit by Secretary of State Antony Blinken in late June left observers thinking that both governments had reached an entente, the technology war between the two largest economies on the planet has only intensified.

The Chinese government recently tightened export controls on two critical minerals for the manufacture of semiconductors, and the state media has reported that “this is only the beginning,” citing high-placed officials. The announcement comes after a new Foreign Relations Law entered into force on Saturday, which aims to provide the country with more legal tools to defend itself against sanctions and other coercive measures by Washington, and which places the Communist Party unequivocally at the center of Chinese foreign policy.

The Chinese Ministry of Commerce announced on Monday that, as of August 1, it will not be possible to export gallium or germanium or more than a dozen of their derivatives without requesting a specific license from the ministry. Both minerals are classified by the US government as critical to national and economic security, as they are essential for the manufacture of fiber optic cables, electric vehicles, high-speed computer chips, radars, sensors, satellites, and military and radio communication devices. According to Bloomberg, although these two elements are not particularly difficult to find, they are expensive to extract, and China accumulates almost all of global production, with more than 95% in the case of gallium and 67% of germanium. According to the Chinese Customs database, the main destinations for its exports in 2022 were Japan, South Korea and India.

The decision to apply these export controls reflects a spirit of “protecting national security and interests,” says the official statement from Beijing, which also indicates that, in addition to fines, those who violate the measure could face prison terms. On Wednesday, in an exclusive interview for the China Daily newspaper, Wei Jianguo, vice minister of Commerce between 2003 and 2008 and current vice president of the Center for China Economic Exchanges think tank, said that “if the restrictions directed at China’s high-tech sector continue, counterattacks will also increase.”

This new blow comes after The Wall Street Journal announced, citing anonymous sources, that the White House is considering tightening exports of artificial intelligence (AI) chips to China, which would make it even more difficult for the Asian giant to obtain advanced technologies. More than 500 Chinese chip, AI and aerospace and aviation companies have been included by the Joe Biden Administration on the country’s blacklist, which prohibits them from accessing U.S. technology and components without Washington’s approval. This export blockade has been joined in recent months by allies such as Japan and the Netherlands, with the intention of preventing Chinese development of the most sophisticated weapons, such as hypersonic and nuclear weapons.

Yellen’s trip to Beijing is intended to redirect bilateral relations. Last April, Yellen launched the message that it is necessary to “always” put national interests before economic profit. After landing in Beijing on Thursday, Yellen said in a tweet: “we will take action to protect our national security when needed, and this trip presents an opportunity to communicate and avoid miscommunication or misunderstanding.” Although Yellen appeared to strike a conciliatory tone ahead of her trip, the Chinese ambassador to the United States, Xie Feng, urged her on Monday to “pay great attention” and take steps to address “China’s main concerns in the fields of the economy and trade.” Analyst Liao Chien-yu, from Capital Securities, said that “if the meetings are not fruitful, both Washington and Beijing could announce more sanctions,” a view shared by other experts quoted in both Chinese and Western media outlets.

Technological self-sufficiency is one of the most pressing challenges facing China amid the current “period of turbulence,” as President Xi Jinping has often called it. The Communist Party responded in March by reinforcing its control over the technology sector. In April, the government announced it was considering limiting Western access to certain materials and technologies for key industries where it has substantial dominance, such as smart cars and photovoltaics, and in May it banned the purchase of goods made by American memory chip maker Micron Technology.

The new restriction, which analysts describe as the biggest counterattack to date, comes two days after a new Foreign Relations Law came into force that tightens Communist Party control over the country’s foreign policy and provides the government with a “clear” legal basis to “counter interference” from abroad and “respond to sanctions” and “other actions that try to harm China,” according to Wang Yi, the head of the Chinese Communist Party’s Foreign Affairs Committee. and head of the country’s diplomacy. The new legislation stresses the right to “take restrictive measures” against acts that “endanger China’s sovereignty, security and development interests” and explicitly puts decision-making responsibility in the hands of the Party, not the state. on foreign policy, according to the copy of the text published by state media.

The law also includes China’s commitment to promote a “high-level opening” of its economy, develop foreign trade, and legally encourage and protect foreign investment. This is a message similar to the one sent by Prime Minister Li Qiang at a World Economic Forum summit held at the end of June in the Chinese city of Tianjin, where he rejected “the rhetoric of reducing dependence on China” and advocated a “dialectical” and “depoliticized” approach to avoid falling into “simplifications” between “interdependence and insecurity.”

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