Yellen In Beijing

The financial media was awash on Thursday with coverage of Instagram’s Twitter competitor “Threads,” but I’ll confess to being wholly uninterested.

At the risk of suggesting readers adopt my ascetic aversion to mindless coverage of the meaninglessness, unless and until “Threads” is a revenue driver for Meta, it’s not obvious why anyone should care. Or why any market participants should care anyway. It’s just billionaires jostling for position in the surveillance capitalism wars. It turns out Elon Musk, for all his genius, is somewhat inept as a surveillance capitalist. So far anyway.

Much better that macro observers focus on Janet Yellen’s trip to Beijing, where she landed Thursday with a mandate to build on the foundation Antony Blinken laid last month. That’s the boilerplate, generic narrative. In reality, it’s not clear what Yellen hopes to achieve, other than making good on long-standing plans to make the trip.

Yellen’s effort to prod Beijing into being more helpful and proactive in debt relief discussions around developing nations has little relevance for most investors and no real bearing on the near-term macro narrative, although economists at multilateral institutions might beg to differ on that latter point.

More important, obviously, are the regular escalations between the world’s two superpowers in the ongoing tech war. In the days ahead of Yellen’s trip, reports indicated the Biden administration is set to toughen guidelines around curbs aimed at curtailing China’s access to advanced chips, and Beijing slapped export restrictions on key metals used in semi and EV production. You know the story.

In a marquee speech delivered in April, Yellen attempted to strike a balance between adopting the kind of stern, paternalistic cadence US officials typically employ when discussing competition with China in public, while reiterating the pitfalls of “de-coupling,” which Yellen generally views as a total nonstarter. She wasn’t a fan of the Trump era tariffs and related measures, most of which the Biden administration left intact, or even built on.

On Thursday, reports indicated officials from Yellen’s Treasury were in Hong Kong last month warning local bankers about facilitating tech shipments to Vladimir Putin’s war machine. In the days ahead of Blinken’s visit to Beijing, a trio of agents representing Treasury’s terrorist financing and financial crimes divisions exhorted city banks to enhance their due diligence.

HSBC, Standard Chartered, Bank of China Hong Kong and HKMA (the central bank) were among the attendees, sources told Nikkei, which noted that, “The meeting underscores Washington’s concerns that US-made chips are still finding their way into Russia, despite sanctions.” Hong Kong, the article noted, citing an investigative report, “has become a major hub of high-value exports of chips to Russia through small trading routes with the help of mainland China.”

The Treasury officials weren’t asking. They were telling. “It was very substantive. [I]t very much felt like they were readying some enforcement actions,” one source said.

That’s the dual-use technology problem. US officials have for months warned China against facilitating the transfer of related items to Russia, but a hodgepodge of media reports as well as US intelligence, plainly suggests China is a backdoor conduit for the technology. Much of it ends up on the battlefield in Ukraine. Some have suggested Chinese SOEs are involved in the shipments which, if true, implicates Xi in the effort.

Yellen has previously threatened a harsh response to any Chinese complicity in dual-use technology transfer to Putin, but enforcement is difficult given the nature of the items and the impossibility of establishing, definitively, that Beijing is doing anything other than looking the other way.

Meanwhile, China is rapidly expanding its footprint in the Russian car market, where Chinese brands accounted for a third of sales during the first half, according to new data.

China in Q1 exported more cars than Japan, a milestone aided and abetted by more than 110,000 deliveries to Russia. That total nearly eclipsed the full-year tally for 2022.

To be sure, no one expects any breakthroughs from Yellen’s visit to Beijing. It’ll be all handshakes and perfunctory readouts of various meetings with Chinese officials. Yellen will reiterate how imperative it is that the world’s two superpowers work together to solve problems common to humanity. She’ll also swear the US just wants “fair” competition, a contention that’ll go over like a lead surveillance balloon with critics of US foreign policy in China, many of whom view the tech curbs and export restrictions as quintessential examples of unfair competition.