Rapprochement Or Platitudes?

Not surprisingly, Janet Yellen’s high-profile trip to Beijing was long on nebulous soundbites and short on concrete results. Or at least that’s the impression one might’ve come away with after perusing a series of short readouts released by Treasury on Saturday.

A meeting with Vice Premier He Lifeng was “candid, constructive and comprehensive,” while a chat with new PBoC boss Pan Gongsheng found the two exchanging views on “global macroeconomic and financial developments, including the disproportionate impact of recent economic shocks on low-income countries.”

“[F]or all the disagreements between our nations, I believe it is in the best interests of our peoples to put our relationship on a better track and to maintain open and honest lines of communication,” Yellen told a group of female economists and entrepreneurs. “Over the course of my career, I’ve seen how China’s adoption of market-based economic policies has transformed the country and lifted many hundreds of millions of people out of poverty,” she added.

And so on. You get the idea. Lots of familiar adjectives and perfunctory nods to the necessity of cooperation at a time of great uncertainty for the world, and very little in the way of policy proposals or breakthroughs.

Of course, no such breakthroughs were expected, but at some point, it’d be nice if the two sides agreed to do more than keep talking. Even an agreement to stop escalating various disputes would be welcome, or at least for markets. The White House would probably tell you that’s unrealistic. The hodgepodge of export curbs and investment restrictions are necessary to prevent China from diverting US technology and funds for military purposes, the administration says.

Yellen’s entire trip was captured in her contention that the US doesn’t intend for multi-front strategic competition between the two countries to morph into a “winner-take-all” (her term) contest for global hegemony. Everyone knows that’s where things are going, though.

“Chinese culture values peace above everything else, as opposed to hegemony and bullying,” Premier Li Qiang said, during a meeting with Yellen. “China’s development is an opportunity rather than a challenge for the United States, and a gain rather than a risk.”

To be sure, China should hope the Biden administration is sincere about cooperation and rapprochement. Although things may look very different a decade from now, China can’t currently compete with the US in key areas and Xi Jinping is struggling to bolster the economy halfway through a year which, according to macro “experts” was supposed to be defined by a robust Chinese recovery. Instead, the yuan is trading the weakest in 15 years against the dollar and Chinese assets are among the worst performers in the world.

A few days ago, Goldman spoke to onshore clients in Beijing about the situation. The bank’s Maggie Wei enumerated their concerns.

“Despite [a] seemingly less pessimistic view for the near-term growth outlook, local clients are still quite cautious about the long-term growth outlook for China,” she said. “They shared the same view as offshore investors on the lack of growth drivers for the Chinese economy in the long run.”

Views on the property market were “mixed” as clients fretted over “structural imbalances between top-tier and lower-tier cities.” Expectations for additional easing were muted, as were hopes for structural reform.

“While local clients agreed the overall policy stance would be more supportive in the near-term compared with Q2, they viewed these additional easing measures as a ‘policy put’ to reduce growth headwinds, rather than to generate strong growth,” Wei said, adding that “local clients did not expect major policy easing measures to be rolled out in the July Politburo meeting” and generally agreed that “any solutions to the property problem or local government financing challenges would not be announced soon.”

Remember: These are onshore clients, not “outside looking in” views. Wei also said that among “the most frequently asked questions” from local investors was the bank’s view on “US-China relations, and expectations on Yellen’s China visit.”

In a commentary dated July 7, Xinhua wrote that, “a rainbow was seen across the sky after a sudden shower when US Treasury Secretary Janet Yellen landed in Beijing for a high-stakes visit.”