[Text/Observer Network Columnist Liu Ying]
After arriving in Beijing, I went straight to a Sichuan restaurant to communicate with entrepreneurs and college students...... During the visit, he also met with Premier Li Qiang, and held talks with He Lifeng, the leader of the Sino-US economic and trade sides, Vice Premier of the State Council, Lan Foan, Minister of Finance of China, and Pan Gongsheng, Governor of the People's Bank of China.
As the first female Treasury secretary in the United States, the first female chairman of the Federal Reserve and the chairman of the White House President's Council of Economic Advisers, U.S. Treasury Secretary Janet Yellen's second visit to China has attracted a lot of attention, and she has also left enough hot topics on social media to take the pro-people route.
As a dove on China in American political circles, Yellen once again emphasized her opposition to the "decoupling and breaking of the chain" between China and the United States when she attended an event hosted by the American Chamber of Commerce in Guangzhou and said that the decoupling of China and the United States is catastrophic, which seems to be sending a friendly signal. This is in stark contrast to her recent frequent references to China's overcapacity, and previous media speculation that Yellen's trip would put pressure on China over its alleged unfair trade practices and macroeconomic policies.
Yellen's trip, what is the drunkard's intention?
On April 7, 2024, in Beijing, U.S. Treasury Secretary Janet Yellen arrived at the National School of Development at Peking University for a closed-door symposium and exchange meeting with Peking faculty and students. (Image source: IC photo)
Yellen's visit to China - from an objective point of view, China-US relations oppose decoupling and breaking the chain
This year marks the 45th anniversary of the establishment of diplomatic relations between China and the United States, and the resumption of diplomatic relations between China and the United States coincided with Yellen's work. Despite the ups and downs, Sino-US relations are generally moving forward. In 2008, when the United States was mired in a deep financial crisis, China spent a huge amount of money to launch a joint bailout with many G20 member countries, and the world avoided a major recession. However, the situation took a turn for the worse in 2018, when Trump launched the "Sino-US trade war", the voices of decoupling and breaking the chain came one after another, and after the Biden administration came to power, it hyped up "de-risking" with Western allies, and China-US economic and trade relations fell into a trough, full of dangers.
As an economist, Yellen has repeatedly spoken out against the decoupling and breaking of the chain between China and the United States, believing that the decoupling and breaking of the chain will be catastrophic. Whether as Fed chair or Treasury secretary, Yellen has extensive contacts with experts in China's economy and finance. China and the United States are the world's largest and second largest economies, accounting for more than 40% of the global economy and contributing more than 40% of the global economy. China and the United States are the main engines of world economic growth and the stabilizers of the world economy.
This is also the reason why Yellen opposes "decoupling" in both theory and practice, and has visited China twice in less than a year, hoping to effectively manage Sino-US relations.
Although as early as December last year, Yellen herself said that she planned to visit China again, during which she made many noises, but it was not so easy. It was not until the evening of April 2 this year, when Chinese President Xi Jinping had a phone call with US President Joe Biden at the request, that Yellen's trip was "officially announced".
According to Biden's statement, Yellen's visit aims to "strengthen dialogue and communication with China, avoid miscalculations, advance cooperation, promote the stable development of bilateral relations, and jointly address global challenges", and is also to further promote the implementation of the San Francisco vision reached by Chinese and US leaders.
On November 15, 2023, while attending the APEC Summit, President Xi Jinping held a summit with President Biden at Philory Manor in San Francisco, USA, and reached more than 20 consensus and outcomes in the fields of politics and diplomacy, economy, trade and finance, people-to-people exchanges, global governance, and military security, and opened up the future-oriented "San Francisco Vision". In the next nearly half a year, various working groups of China and the United States have held dialogues, and the two working groups on economic and financial affairs between China and the United States, in which Yellen participated, have held three meetings so far, but they are still not enough to solve the various problems faced by both sides, and China-US economic and trade relations are still full of difficulties.
Yellen, a scholar-turned-scholar, is not only a staunch Keynesian, but also an advocate of modern supply-side reforms, not only supporting free market and free trade, but also supporting the government to play its due role, which is somewhat "stitched" in the current "anti-China" and conservative United States.
Not only is she an economist, but Yellen's teacher and husband are both Nobel laureates in economics, from theory to practice, from scholars to officials, adding more stories to her open life.
Yellen – New Keynesian
Yellen was born in 1946 into a modest Jewish family, the son of a teacher and a doctor. After graduating from Brown University with a bachelor's degree in economics, she went on to Yale University to study with Tobin, a neo-Keynesian scholar who would later become a Nobel laureate. Yellen earned her Ph.D. in economics from Yale University in 1971 and interned at the Federal Reserve in 1977, where she met her future husband, George Agrove, and married at the end of the year.
After their marriage, Yellen and Agrove left the Federal Reserve to teach in the United Kingdom for two years before returning to teach at the University of California, Berkeley. Although Yellen was a diligent and rigorous scholar, she was not a pedant, as can be seen from her later experience in government.
Yellen in high school
Yellen when she was young
In 1994, nominated by then-President Bill Clinton, Yellen served as a member of the Federal Reserve Board. From 1997 to 1999, Yellen served as Chairman of the President's Council of Economic Advisers and has been in politics ever since. Tobin once commented that Yellen has a gift for simplicity and articulating complex arguments clearly.
Yellen's first stop in China, Guangzhou, was a low-key and long-established restaurant, and she had previously said that "meeting people around the world is a key part of her job, and the best way to do that is through food and local restaurants." When Yellen was younger, a friend joked that she had to prepare to discuss economic issues when she had dinner, and she responded: "The main course of my dinner was rich economics and policy discussions, which many people found difficult to digest." Unlike other people who go surfing and strolling on the beach, the Yellen family often goes on vacation to the beach, often stuffing their suitcases full of books and reading books by the sea. His only son is also an economist and now teaches in the UK.
Yellen's obsession with economics is beyond imagination. When the 7.1 magnitude earthquake struck San Francisco in 1989, Yellen was working as a teacher at the University of California, Berkeley, doing research.
As a powerful person who has served as the chairman of the Federal Reserve, the chairman of the White House Council of Economic Advisers, and the secretary of the U.S. Treasury, Yellen's research covers the labor market, monetary policy, and macroeconomics.
Yellen's husband, Agerlof who won the Nobel Prize in 2001 for asymmetric information about the lemon market, wrote on the Nobel Prize website that Yellen and I are highly aligned on macroeconomics, with the only disagreement being that she is more pro-free trade.
Yellen's Way – When Economist Meets Politician?
Since serving as a member of the Federal Reserve's Board of Governors in 1994, Yellen's life has been closely linked to politics. Akerlof said jokingly, "Every day she goes through political storms, and my biggest help is to provide her with psychological support." ”
In Yellen's book "An Amazing Decade", she reviewed the beautiful performance of the U.S. economy in the nineties of the last century, the U.S. economy grew by 4% after stagflation, exceeding the average growth rate of 1.4% from 1973 to 1990, inflation fell to 2.9%, the unemployment rate fell to 4.1%, and the stock index rose from less than 3,000 points in 1990 to more than 11,700 points.
U.S. 10-year and one-year long-term and short-term yields from 1953 to 2024 (Source: U.S. Treasury, WIND)
However, the glory of the US economy has long since ceased.
As the former chairman of the Federal Reserve, Yellen is well aware of the current unbearable inflation in the United States, the current price index in the United States is still above 3%, and the core CPI is close to 4%. Yellen is all the more aware that the high tariffs on Chinese imports are ultimately reflected in the price level, which will be borne by American consumers. All of this is mainly due to the unlimited quantitative easing monetary policy adopted by the Federal Reserve in 2020 to save the market, and the high tariffs imposed on China and other countries since 2018 have finally been borne by American consumers, which has played a role.
U.S. Consumer Price Index and Core CPI Level from 1958 to February 2024 (Source: Federal Reserve, WIND)
During the 2008 financial crisis, the Fed adopted zero interest rates and three rounds of quantitative easing to bail out the market, followed by a round of distortions. When Yellen became Fed chair in 2014, she was faced with the need to normalize the Fed's monetary policy, but as a dovish Fed chair, Yellen wants to minimize the impact of monetary policy normalization. To solve the employment problem, the Fed under Yellen's leadership waited until late 2015 to raise interest rates once, and the second rate hike until the end of 2016, and the two rate hikes were modest.
Since the presidency of Trump in 2017, he has not only imposed high tariffs on steel and aluminum around the world, including China and US allies, but also launched trade wars, technology wars, and people-to-people wars, especially the relaxation of supervision of small and medium-sized banks, and even the more than 2,000-page Dodd-Frank Act enacted after the financial crisis to prevent financial institutions from repeating the mistakes of the past.
In Yellen's view, none of these are in line with economic principles, and she has repeatedly stressed that China and the United States cannot decouple and break the chain, otherwise it will be catastrophic. Although Yellen believes that the security of the United States and its allies should be ensured, she also advocates that China and the United States should strengthen economic and financial cooperation and strengthen cooperation in addressing global challenges.
Quarterly year-on-year GDP growth in China and the United States from 1992 to 2023 (data source: National Bureau of Statistics of China, U.S. Bureau of Economic Analysis, WIND)
As an expert official, her beautiful resume makes her the Treasury Secretary of the Biden Cabinet unique. After Biden was elected, in order to invite her out of the mountain, he sent two assistants to ask Yellen to serve as the US Treasury Secretary, but Yellen refused. Later, it was Biden who specially invited Yellen to talk for several hours before Yellen agreed to be the US Treasury Secretary.
And when Biden launched an active fiscal policy that included multiple rounds of trillions of dollars in economic stimulus, although Yellen expressed support, based on independent professionalism, Yellen had many exchanges with Biden and Fed Chairman Powell because of concerns about high inflation.
As mentioned earlier, during the Trump era, Yellen, as the chairman of the Federal Reserve, emphasized the need to strengthen banking supervision. Yellen disagreed with Trump's demand to deregulate the small and medium-sized banking sector and lift some of the restrictions of the Dodd-Frank Act in order to promote growth, and even failed to re-serve as Fed chairman. And Trump's deregulation has also opened a Pandora's box for the subsequent small and medium-sized banking crisis.
In March 2023, three banks including the prestigious Silicon Valley Bank in the United States went bankrupt and collapsed, and Yellen, as Treasury Secretary, on the one hand, called for the prevention and control of banking risks, and on the other hand, together with the Federal Reserve and the American Deposit Insurance Corporation, decisively took rescue measures.
Yellen's job – Modern supply-side economics complains about overcapacity?
Prior to her visit, Yellen expressed concern about the "new three" of Chinese exports – solar panels, electric vehicles and battery overcapacity, "which distorts global prices and production patterns." Europe is also following suit, with European Commission President Ursula von der Leyen launching a countervailing investigation into Chinese electric vehicles on the grounds of overcapacity.
China's new three exports once maintained double-digit growth. In fact, as the world's largest automobile production and sales country, China will become the largest exporter of new energy vehicles for the first time in 2023. But in fact, whether from the domestic or international, China's new energy vehicles do not currently have the problem of overcapacity, the market is the only standard for testing products, especially in the international market, consumers have the final say, the output is more because of the demand, good quality and cheap products are needed everywhere.
Yellen's overcapacity is because the production capacity exceeds the needs of the country, not to mention the strong demand for new energy vehicles in China, even if it exceeds the needs of the country, it is not overcapacity, otherwise international trade will not have to be done, and production and trade will be carried out according to the principle of absolute advantage, relative advantage or resource endowment, which is international trade or free trade, not overcapacity.
At the briefing on the evening of April 9, Vice Minister of Finance Liao Min also made it very clear: "According to the International Energy Agency's estimates, the global demand for new energy vehicles will reach 45 million in 2030, 4.5 times that of 2022, and the global demand for new photovoltaic capacity will reach 820 GW, about 4 times that of 2022." The current production capacity is far from meeting the market demand, especially the potential demand for new energy products in many developing countries. China's achievements are not only due to the advantages of "super-large-scale market, complete industrial system and abundant human resources", but also inseparable from the innovation and struggle of Chinese enterprises. The problem of production capacity needs to rely on the market to adjust according to the law of value, which Western countries should have already experienced.
Perhaps Yellen herself knows that what she calls "overcapacity" is no longer an economic concept at this time, but has become a political operation. From an economic point of view, even overcapacity needs to distinguish between absolute overcapacity in aggregate and relative overcapacity in structure. From the perspective of responding to global warming, according to the Chongyang "Compound Interest Report of the National People's Congress", it is estimated that by 2035, every third family in China will have a new energy vehicle, and almost all oil vehicles in the world will be discontinued around 2030.
There is no doubt that there is no overcapacity in the new three items such as new energy vehicles. Absolute overcapacity does not exist from the perspective of market demand, nor does it exist from the perspective of relative overcapacity, otherwise, Tesla's global gigafactory would not have chosen to start construction in China, and Yellen, as an economist, must be very clear about this. In the new energy vehicle and its industrial chain and supply chain, low cost, high efficiency, intelligence, green, and flexibility are the key to competition, rather than a sentence of "overcapacity", which can enhance the competitiveness of domestic enterprises and suppress the competitiveness of other countries.
In this regard, Vice Minister of Finance Liao Min also had a direct response:
China firmly opposes the "pan-securitization" and escalation of green protectionist measures by some developed economies, which are harmful to themselves and will seriously infringe on the legitimate development rights and interests of Chinese enterprises. In fact, protectionist measures have been common throughout history, but they do not help to solve substantive problems.
From the policy perspective, it can be seen that Yellen believes that China's new energy vehicles and other strategic emerging industries have overcapacity. In her April 2023 speech on China-US economic and trade relations, Yellen pointed out that the economic line pursued by the United States is modern supply-side economics, and the starting point of its policy is to expand the production capacity of the American economy, that is, to raise the upper limit of the economy's production capacity.
To this end, Biden signed three historic bills, Yellen believes that the Bipartisan Infrastructure Act is an ambitious measure in infrastructure construction, the CHIPS and Science Act will promote the historic expansion of semiconductor manufacturing in the United States, and the Inflation Reduction Act will reach the highest level of investment in clean energy in the United States. The three major bills and measures will consolidate the strength of the future industry of the United States and lay a more solid foundation for the long-term development of the American economy.
In fact, all three of these three bills are aimed at improving the competitiveness of American companies while suppressing the competitiveness of other countries. The CHIP Science Act will nearshoring, friend-shore, and even attempt to de-Chinaize the semiconductor industry chain and supply chain. The Inflation Reduction Act has nothing to do with inflation reduction, stipulating that new energy vehicles can only be subsidized if they account for more than 75% of local production in the United States, just like the USMCA, which is actually a disguised subsidy for domestic companies, which is unfair competition to new energy vehicles in China and other countries, and even the European Union has protested to the United States for this.
The Risk Pressures Behind the U.S. Debt Problem?
As the dovish chairman of the Federal Reserve and the head of the Treasury Department, Yellen is well aware of the inner mechanism of the US economy and finance. Whether as the president of the San Francisco Fed or the Treasury Department as one of the troika of Silicon Valley Bank's bailout, Yellen knows the U.S. economy and financial trends well, so she can be said to be the most eager ministerial-level official in the Biden administration to visit China.
If Yellen's tenure as Fed chair went through a critical period of normalization of U.S. monetary policy, then as U.S. Treasury secretary, Yellen navigated a difficult period of high inflation, high debt, high risk, and low growth in the U.S. economy. Although the nominal GDP of the United States will increase by 2.5% year-on-year in 2023, and the U.S. economy has shown some resilience under high inflation, the hidden risks of the U.S. economy and finance are still there: three bankruptcies of Silicon Valley Bank in the United States a year ago, and a thunderstorm in community banks in New York this year. Judging from the current price level of more than 3%, the Fed has once again postponed the entry into the interest rate cut cycle this year. The interest rate level maintained at a high level of 5.25-5.5% not only makes investment and consumption unbearable, but also makes institutions, including small and medium-sized banks, face high interest rates, high debt, and high risks.
Under the high interest rate, the U.S. financial risks are exposed, and small and medium-sized banks in the U.S. are facing a double squeeze on both the asset side and the liability side, which is still fresh in people's memories and even palpitations. In the first half of 2023, starting with the bankruptcy and collapse of Signature Bank, and then the bankruptcy and collapse of the prestigious Silicon Valley Bank and First Republic Bank one after another, the wave of bankruptcy and bankruptcy brought about a financial storm.
U.S. government deficit ratio, 1962-2023 (%) (Source: U.S. Department of the Treasury)
The bankruptcy and collapse of medium-sized banks such as Silicon Valley Bank is actually a squeeze on small and medium-sized banks from the asset side to the liability side by high interest rates. The top U.S. banks even jointly spent tens of billions of dollars to bail out First Republic Bank. But no bank can resist a run, and despite Biden's speech to appease the market, a large number of small and medium-sized banks are still facing a run. If it is not handled well, the banks are allowed to go bankrupt and fail, depositors cannot get their money, and once the dominoes fall, the financial crisis will strike immediately.
At this time, Treasury Secretary Yellen, who experienced the 2008 financial crisis, joined forces with the Federal Reserve and the FDIC to take unprecedented rescue measures on Saturday and Sunday, and quickly cut through the mess during working hours on Monday, solving the problem of the failure of three small and medium-sized banks including Silicon Valley Bank, and then preventing a wider range of small and medium-sized banks from going bankrupt. This is a thrilling leap in an environment of high interest rates, high debt, and high inflation, and it is a thrilling leap to clean up the mess.
Although the decisive bailout has temporarily alleviated the risk of failure of small and medium-sized banks in the United States, the current US government debt is still high, with the outstanding US debt as a percentage of GDP climbing by more than 121% in 2023, and the US government deficit ratio has exceeded 6% for many consecutive years. As China's second largest holder of U.S. Treasury bonds, Yellen's visit to China also hopes that China will buy more U.S. Treasury bonds to solve the urgent needs of the United States. Yellen's visit to Guangzhou and her frequent meetings with Chinese Vice Premier He Lifeng include balanced growth between China and the United States and the world, as well as macroeconomic policy coordination, including financial stability.
U.S. government outstanding national debt as a percentage of GDP (Source: U.S. Department of the Treasury, WIND)
Regarding Yellen's trip, public opinion on the Chinese Internet can basically be divided into several factions: first, they are happy to see it happen, thinking that it is better to come than not to come; second, they look at each other coldly, thinking that it is better to come in vain; and third, they scoff at it, thinking that it is better not to come.
It should be said that Yellen's trip has the purpose of strengthening communication with China, and at the same time, it also has the effect of helping Biden's election. China's consideration of Yellen's proposal to benefit the development of economic and financial cooperation between China and the United States will not have any effect on issues such as overcapacity and other issues such as pan-politicization.
The Biden administration sent Yellen to visit China because of her professional advice, but at a time when the United States is provoking the so-called Sino-US competition, Yellen also insincerely put forward the theory of China's new energy overcapacity, as well as raising national security and other pan-politicized and pan-national security topics, which are not the way to solve Sino-US relations.
In line with pragmatic, professional and constructive opinions, perhaps it is the way for China and the United States to get along in the current context of steady economic growth, financial risk prevention, geopolitical conflict prevention, and climate warming prevention that can stabilize and rebound China-US relations, and this is precisely the correct way to open up the relationship between China and the United States, which has been together for 45 years.
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