Yellen Says new rules won’t stop China investment

U.S. Treasury Secretary Janet Yellen has stated that if the Biden administration implements anticipated new rules to restrict outbound U.S. investment in China, they will not significantly disrupt trade between the two countries. Yellen emphasised that the rules would primarily focus on national security concerns.

Yellen explained, “We are carefully examining outbound investment controls, which would complement the export controls already in place. The aim is to ensure that we address all channels through which technologies with potential national security risks could be transferred to China.”

The forthcoming rules, expected to be announced by the Biden administration this summer, will particularly target semiconductors, quantum computing, and artificial intelligence. Yellen clarified that these rules would be “narrowly scoped” and not broadly affect U.S. investment in China. She believes they will not fundamentally impact the investment climate for China.

Yellen’s remarks were made during an interview with Bloomberg Television on Monday, while she was attending a meeting of finance ministers from the world’s largest economies in Gandhinagar, India.

Yellen also indicated that she had discussed the rules with Chinese officials, aiming to clarify the U.S. intentions. She stated, “Our desire is to make these U.S. policies clearly national-security focused, transparent, and narrow. We are not attempting to stifle economic progress in China. We have, and want to continue to have, deep economic ties.”

Yellen took care with her language to suggest that a final decision on whether to issue the outbound investment rules has not been made.

In addition to export controls, the U.S. has been implementing measures over the past two years to prevent China from acquiring certain technologies. It has also worked to restrict participation by certain Chinese technology firms in critical infrastructure projects, such as 5G broadband systems. These efforts have drawn criticism from China.

Chinese Foreign Ministry spokesperson Mao Ning responded to the expected restrictions during a press conference on Monday. Mao stated, “China opposes the U.S. politicising and weaponising of trade and tech issues. It is not in anyone’s interest to impose arbitrary restrictions on normal technology cooperation and trade, violate market economy principles, and disrupt global industrial and supply chains.”

Mao added, “We hope that the U.S. will follow through on President Biden’s commitment not to ‘decouple’ from China, impede China’s economic development, or contain China. We hope for a conducive environment for China-U.S. economic cooperation and trade.”

The discussion surrounding U.S. restrictions on outbound investment in China occurs against the backdrop of increasing evidence of economic struggles in China. The country has experienced a sharp slowdown in economic growth, and the value of the yuan has weakened against other global currencies.

Official data released by Beijing on Monday revealed that the economy only grew by 0.8% from the end of the first quarter to the end of the second quarter of 2023, well below expectations.

Additionally, troubled real estate conglomerate Evergrande disclosed that it incurred losses exceeding $81 billion in 2021 and 2022, with outstanding obligations amounting to $340 billion, including $140 billion owed to raw materials suppliers and thousands of Chinese citizens who had pre-paid for unbuilt homes. Evergrande has become emblematic of the challenges faced by China’s troubled real estate sector, which is burdened with substantial debt.

Yellen acknowledged China’s economic struggles and expressed concerns about the potential global impact of its weakened economy. She said, “China has experienced slower growth than expected following the COVID pandemic. Consumer spending has been relatively weak, as individuals focus on rebuilding their savings. While growth has been slow, youth unemployment in China remains high.”

Yellen believes that the slowdown in China will only have a limited impact on the United States. She stated, “Countries, particularly in Asia, depend on robust Chinese growth to drive growth in their own economies. Slow growth in China can have some negative spillover effects on the United States, but our economy continues to be strong, and I do not anticipate a recession.”