"Yellen, are we here to negotiate or go to war this time?" Xuan Changneng glanced at the American representative in the conference room and made this joke with a smile. However, U.S. Assistant Treasury Secretary Naiman replied with a blank face: "We don't plan to do that, but if we insist on it, it's a 'cold war' in the financial field." An eerie silence enveloped the room......
In these turbulent times, the battle between the two largest economies over financial issues seems to be intensifying. On April 16, 2024, the U.S.-China Financial Working Group held a new round of high-level talks in Washington, D.C. Although the atmosphere of the meeting was as "professional, pragmatic and frank" as ever, the differences between the two countries on many core issues were also exposed.
Monetary policy and financial stability remain the main topics of discussion between the two sides. Since last year, the Federal Reserve has accelerated the pace of interest rate hikes in response to inflationary pressures, while the People's Bank of China has sought to keep its policy accommodative to support the economic recovery. This contradictory operation has undoubtedly exacerbated the "decoupling" of the monetary policies of the two countries.
Some analysts believe that if the renminbi depreciates too quickly, it will further stimulate capital outflows and threaten the stability of the US financial system. There are also clear differences between the two sides on financial regulatory cooperation. The U.S. has repeatedly called for a unified cross-border regulatory mechanism to strengthen audit oversight of U.S.-listed Chinese companies.
However, China insists that financial regulation should respect the sovereignty of each country and opposes the "export" of regulatory standards to other countries. The sanctions imposed by the West as a result of the Ukraine crisis have exacerbated China's concerns about accepting "uniform standards". Sustainable finance is undoubtedly another hot topic in this financial dialogue.
While both China and the United States have pledged to step up environmental efforts, there are significant differences over what to do. China advocates multilateral coordination and calls on developed countries to provide financial and technical support for developing countries' green transition. The U.S., on the other hand, is trying to present itself as a "leader" and lead the global sustainable finance development process.
In addition, the two sides also exchanged views on issues such as anti-money laundering, counter-terrorism financing, digital yuan, and fintech regulation. However, due to various historical reasons and conflicting interests in reality, cooperation between the two countries is still quite difficult. "We must acknowledge that the current dialogue is unlikely to lead to any substantive, landmark outcomes. ”
Professor Xu Zongxian, director of the Center for International and Strategic Studies at Tsinghua University, said, "But even so, maintaining communication is crucial to manage risks and prevent further escalation." In fact, the "cold war" in financial relations between China and the United States has already quietly begun.
In 2021, the U.S. officially lifted its ban on investment in some Chinese companies, and in 2023, China introduced a negative list for foreign investment access, which for the first time included the financial sector. While "decoupling" in many fields such as trade, science and technology, and military, the two countries are making full preparations for financial "decoupling".
"Financial markets are the most critical lifeblood of contemporary capitalism. Qiao Muhan, a professor of finance at Peking University's HSBC Business School, said, "The game between the two countries in this field is a microcosm of the future global political and economic pattern." ”
In the face of a complex and severe situation, China needs to make its own efforts and preparations. On the one hand, it is necessary to speed up the pace of opening up the domestic financial market, improve the financial infrastructure and regulatory system, and create a fairer and more transparent environment for foreign-funded enterprises. The China-US High-Level Financial Dialogue once again reflects the differences and contradictions between the two sides in this field.
However, as Professor Xu Zongxian said, communication is still indispensable. In this "financial cold war", only continuous dialogue and mutual understanding are the only ways to resolve contradictions and prevent confrontation.
Epilogue:
The world is in the midst of turbulent changes, and the contest between the two major economies has become the new normal of great power wrestling. While the "decoupling" in trade, science and technology, military and other fields has intensified, the differences and contradictions in the financial field have become increasingly prominent.
Although China and the United States have major differences on many core issues such as monetary policy, financial regulation, and sustainable finance, it is still invaluable to maintain dialogue and communication. Only through continuous negotiations and mutual understanding of each other's positions and demands can we resolve conflicts, manage risks, and avoid falling into the next round of confrontation after the trade war.
There is no doubt that it will be a long and difficult process. In the face of the fact that the existing international system and rules cannot fully adapt to the new situation, both China and the United States will carefully prepare for a new order in the financial sector. For Washington, maintaining its existing dominant position is a top priority.
As far as Beijing is concerned, it is necessary to prudently guard against the transmission of external financial risks while carrying out reform and opening up. The curtain of a new round of "financial cold war" has begun, but what will be the outcome? No one can predict accurately. The only thing that is certain is that peaceful dialogue and mutual respect are the only way to achieve win-win results.
In these turbulent times, China and the United States are tasked with maintaining global financial stability, and unilateral actions by either side could lead to catastrophic consequences. Let's wait and see how this financial version of the "cold war" will play out.
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