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BEIJING: U.S. Treasury Secretary Janet Yellen called on Friday for market reforms in China and criticized the world’s second-largest economy for its recent tough actions against U.S. companies and new export controls on some critical minerals.

Yellen arrived in Beijing on Thursday to try to repair fractious U.S.-Chinese relations, but made clear in her public remarks that Washington and its Western allies will continue to hit back at what she called China’s “unfair economic practices.”

Despite talk of U.S.-China economic decoupling, recent data show a trade relationship that is fundamentally solid, with two-way trade hitting a record $690 billion last year.

“We seek healthy economic competition that is not winner-take-all but that, with a fair set of rules, can benefit both countries over time,” Yellen told Chinese Premier Li Qiang in a meeting on Friday that the Treasury said was “candid and constructive.”

Yellen also spoke to the American Chamber of Commerce in China (AmCham) after what a Treasury official called “substantive” talks with former Chinese economy czar Liu He, a close confidante of President Xi Jinping, and outgoing top Chinese central banker Yi Gang.

“Strengthening cooperation is the realistic need and correct choice of China and the United States … to inject stability and positive energy into China-U.S. relations,” state media reported Li as saying.

Yellen and other U.S. officials are walking a diplomatic tightrope, trying to repair ties with China after the U.S. military shot down a Chinese government balloon over the United States while continuing to push Beijing to halt practices they view as harmful to U.S. and Western companies.

Yellen said she hoped her visit would spur more regular communication between the two rivals, and said any targeted actions by Washington to protect its national security should not “needlessly” jeopardize the broader relationship.

U.S. officials have downplayed the prospects for any major breakthroughs, while highlighting the importance of more regular communications between the world’s two biggest economies.

China hopes the United States will take “concrete actions” to create a favourable environment for the healthy development of economic and trade ties, its finance ministry said in a statement on Friday.

“No winners emerge from a trade war or from decoupling and ‘breaking chains’,” the statement added.

Li told Yellen a rainbow that appeared as her plane landed from Washington on Thursday offered hope for the future of U.S.-China ties.

“I think there is more to China-U.S. relations than just wind and rain. We will surely see more rainbows,” he said.

U.S. companies in China hope Yellen’s visit will ensure trade and commercial lanes between the two economies remain open, regardless of the temperature of geopolitical tensions.

AmCham President Michael Hart welcomed Yellen’s “extra firepower” in pressing for changes in China’s policies, and said her visit could pave the way for more exchanges at lower levels between the two sides.

“I think if there was another year of no visits by top U.S. government leaders, the market would get colder,” he added.

Teeing up possible Biden-Xi meeting

The U.S. diplomatic push comes ahead of a possible meeting between President Joe Biden and Xi as soon as September’s Group of 20 Summit in New Delhi or the Asia-Pacific Economic Cooperation gathering scheduled for November in San Francisco.

Secretary of State Antony Blinken traveled to Beijing last month and agreed with Xi that the mutual rivalry should not veer into conflict, and Biden’s climate envoy John Kerry is expected to visit later this month.

Yellen told the U.S. business executives a “stable and constructive relationship” between the two countries would benefit U.S. companies and workers, but Washington also needed to protect its national security interests and human rights.

Regular exchanges could help both countries monitor economic and financial risks at a time when the global economy was facing “headwinds like Russia’s illegal war in Ukraine and the lingering effects of the pandemic,” Yellen added.

At the same time, she said she would raise concerns with Chinese officials about Beijing’s use of expanded subsidies for state-owned enterprises and domestic firms, barriers to market access for foreign firms, and its recent “punitive actions” against U.S. firms.

New Chinese export controls on gallium and germanium, critical minerals used in technologies like semiconductors, were also concerning, she said, adding the move underscored the need for “resilient and diversified supply chains.”

Market reforms

Yellen also took aim at China’s planned economy, urging Beijing to return to more market-oriented practices that had underpinned its rapid growth in past years.

“A shift toward market reforms would be in China’s interests,” she told the AmCham event.

“A market-based approach helped spur rapid growth in China and helped lift hundreds of millions of people out of poverty. This is a remarkable economic success story.”

Yellen noted that China’s enormous and growing middle-class provided a big market for American goods and services, and stressed that Washington’s targeted actions against China were based on national security concerns.

“We seek to diversify, not to decouple,” she said. “A decoupling of the world’s two largest economies would be destabilizing for the global economy, and it would be virtually impossible to undertake.”

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