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    U.S. Officials to Visit China for Economic Talks as Trade Tensions Rise

    The recently established U.S.-China Financial Working Group is set to meet for discussions about financial stability and curbing the flow of fentanyl.A group of senior Biden administration officials is traveling to Shanghai this week for a round of high-level meetings intended to keep the economic relationship between the United States and China on stable footing amid mounting trade tensions between the two countries.The talks will take place on Thursday and Friday and are being convened through the U.S.-China Financial Working Group, which was created last year. Officials are expected to discuss ways to maintain economic and financial stability, capital markets and efforts to curb the flow of fentanyl into the United States.Although communication between the United States and China has improved over the past year, the economic relationship remains fraught because of disagreements over industrial policy and China’s dominance over green energy technology. The Biden administration imposed new tariffs in May on an array of Chinese imports, including electric vehicles, solar cells, semiconductors and advanced batteries. The United States is also restricting American investments in Chinese sectors that policymakers believe could threaten national security.The U.S. delegation, which is scheduled to depart on Monday, is being led by Brent Neiman, the Treasury Department’s assistant secretary for international finance. He will be joined by officials from the Federal Reserve and the Securities and Exchange Commission. They are expected to meet with the People’s Bank of China’s deputy governor, Xuan Changneng, and other senior Chinese officials.“We intend for this F.W.G. meeting to include conversations on financial stability, issues related to cross-border data, lending and payments, private-sector efforts to advance transition finance, and concrete steps we can take to improve communication in the event of financial stress,” Mr. Neiman said ahead of the trip, referring to the abbreviation for the financial working group.Treasury Secretary Janet L. Yellen pressed Chinese officials during her trip to China in April to stop flooding global markets with cheap clean-energy products.Pool photo by Tatan SyuflanaAmerican and Chinese financial regulators have been conducting financial shock exercises this year to coordinate their responses in the event of a crisis, like a cyberattack or climate disaster, that might affect the international banking or insurance systems.The Biden administration has been urging China to take action to prevent chemicals used to produce fentanyl from being exported to other countries and smuggled into the United States. There were signs of progress this month when China announced that it would put new restrictions on three of these chemicals, a move that the United States described as a “valuable step forward.”Other economic issues between the two countries continue to be contentious. Treasury Secretary Janet L. Yellen pressed Chinese officials during her trip to China in April to stop flooding global markets with cheap clean-energy products, warning that its excess industrial capacity would distort global supply chains.But after a meeting of Communist Party leaders last month, there was little indication that China would retreat from its investments in high-tech manufacturing or take major steps toward rebalancing its economy by bolstering domestic consumption.The talks this week are the fifth meeting of the financial working group and will be the second time the officials have convened in China. More

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    China’s Economic Rebound Hits a Wall, With ‘No Quick Fix’ to Revive It

    Policymakers and investors expected China’s economy to rev up again after Beijing abruptly dropped Covid precautions, but recent data shows alarming signs of a slowdown.When China suddenly dismantled its lockdowns and other Covid precautions last December, officials in Beijing and many investors expected the economy to spring back to life.It has not worked out that way.Investment in China has stagnated this spring after a flurry of activity in late winter. Exports are shrinking. Fewer and fewer new housing projects are being started. Prices are falling. More than one in five young people is unemployed.China has tried many fixes over the last few years when its economy had flagged, like heavy borrowing to pay for roads and rail lines. And it spent huge sums on testing and quarantines during the pandemic. Extra stimulus spending now with borrowed money would spur a burst of activity but pose a difficult choice for policymakers already worried about the accumulated debt.“Authorities risk being behind the curve in stimulating the economy, but there’s no quick fix,” said Louise Loo, an economist specializing in China in the Singapore office of Oxford Economics.China needs to right its economy after closing itself off to the world for almost three years to battle Covid, a decision that prompted many companies to begin shifting their supply chains elsewhere. Xi Jinping, China’s leader, met on Monday with the secretary of state of the United States, Antony J. Blinken, in an attempt by the two nations to lower diplomatic tensions and clear the way for high-level economic talks in the weeks ahead. Such discussions could slow the recent proliferation of sanctions and counter measures.China’s halting economic recovery has seen only a few categories of spending grow robustly, like travel and restaurant meals. And those have increased in comparison with extremely low levels in spring 2022, when a two-month lockdown in Shanghai disrupted economic activity across large areas of central China.Fewer and fewer new housing projects are being started in China.Qilai Shen for The New York TimesThe economy has been particularly weak in recent weeks.“From April to May to now, the economy has experienced significant unexpected changes, to the point where some people believe that the initial judgments may have been overly optimistic,” Yin Yanlin, a former deputy director of the Chinese Communist Party’s top economic policymaking commission, said in a speech at an academic conference on Saturday.Chinese government officials have been dropping hints that an economic stimulus plan may be imminent.“In response to the changes in the economic situation, more forceful measures must be taken to enhance the momentum of development, optimize the economic structure, and promote the continuous recovery of the economy,” the country’s State Council, or cabinet, said after a meeting on Friday led by Li Qiang, the country’s new premier.China’s economic weakness holds benefits and dangers for the global economy. Consumer and producer prices have fallen for the past four months in China, putting a brake on inflation in the West by pushing down the cost of imports from China.Travel is one of only a few categories of spending that are growing this year.Qilai Shen for The New York TimesBut weak demand in China may exacerbate a global slowdown. Europe already dipped into a mild recession early this year. Rapid interest rate increases in the United States have prompted some investors to bet on a recession late this year there as well.Beijing has already taken some steps to revitalize economic growth. Tax breaks are being introduced for small businesses. Interest rates on bank deposits have been reduced to encourage households to spend more of their money instead of saving it. The latest government measure is expected on Tuesday, when the state-controlled banking system is likely to reduce slightly its benchmark interest rates for corporate loans and home mortgages.But many economists, inside and outside China, worry about the effectiveness of the new measures. Consumers are hoarding cash and investors are wary of putting money into China’s companies. Private investment has actually declined so far this year compared with 2022. Housing remains in crisis, with developers borrowing more to pay existing debts and to complete existing projects, even as China already suffers from an oversupply of homes.Consumers have remained wary in part because the housing market, a source of wealth, is in a precarious state.Qilai Shen for The New York TimesChina’s housing market stands at the heart of its troubles. Construction has accounted for as much as a quarter of China’s economic output. But would-be homeowners have been put off as developers have defaulted on their debts and failed to finish apartments buyers had paid for in advance.Housing construction has fallen nearly 23 percent in the first five months of the year, compared with the same months last year. That suggests the real estate sector has further to fall in the coming months.Chen Leiqian, a 27-year-old marketer in Beijing, started looking for an apartment with her boyfriend in 2021 after five years of dating. But they then decided to stay put in a rental apartment when they married.“Housing prices across the country are falling, and the economy is very bad — there are just too many unstable elements,” Ms. Chen said.Two-thirds of Ms. Chen’s co-workers in her department at an online tutoring company were laid off after China cracked down on the for-profit, private education industry in 2021. She also had a friend who could no longer pay a mortgage after losing a job in the tech sector, and lost the home in foreclosure.The caution of middle-class families like Ms. Chen’s may pose the biggest dilemma for policymakers as they search for an effective formula for another round of economic stimulus.“You can throw money on people but if they are not confident, they will not spend,” said Alicia Garcia-Herrero, the chief economist for Asia-Pacific at Natixis, a French bank.As households struggle to pay their debts and refrain from big-ticket purchases, spending on restaurant meals is growing.Qilai Shen for The New York TimesHouseholds are not alone in struggling to pay their debts — so are local governments, which has limited their ability to step up infrastructure spending.The government is wary of starting another credit binge of the sort seen in 2009, during the global financial collapse, and in 2016, after China’s stock market plunged the preceding year.Although the sagging real estate sector has hurt demand inside China, exports have been flat this year and actually declined in May. The weakness of China’s normally powerful exports is particularly noteworthy because Beijing has allowed its currency, the renminbi, to lose about 7 percent of its value against the dollar since mid-January. A weaker renminbi makes Chinese exports more competitive in foreign markets.More exports help create jobs and could compensate for the otherwise slack domestic economy. But it’s not clear how much China will be able to count on exports to help as some of China’s biggest trading partners have moved some purchases to other countries in Asia.In the United States, the Trump administration imposed tariffs on a wide range of Chinese industrial goods, making it more expensive for American companies to buy from China. Then President Biden persuaded Congress last year to authorize broad subsidies for American production in categories like electric cars and solar panels. China’s exports to the United States were down 18.2 percent last month compared with May last year.The United States has enacted subsidies for American production of electric cars, trying to counter China’s exports. Qilai Shen for The New York TimesNow as China considers how to reinforce the economy, it must contend with a loss of confidence among consumers.Charles Wang runs a small travel company with eight employees in Zhangjiakou, in northern China. His business has almost fully rebounded after the pandemic but he has no plans to invest in expansion.“Our economy is actually going down, and everyone doesn’t have so much time and willingness to spend,” Mr. Wang said. “It’s because people just don’t want to spend money — everyone is afraid again, even the rich.”Li You More

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    The prospect of lockdowns in Beijing fuels more concerns about supply chain disruptions.

    The prospect of further lockdowns in China prompted a fresh wave of economic anxiety on Monday as investors and companies whose supply chains run through China contemplated the impact of 70 new virus cases that the Beijing government said it had detected over the weekend.The city government ordered one of its districts to test all 3.5 million of its residents for coronavirus in the coming days, a move that may be a prelude to a larger lockdown in China’s capital city. Shanghai, a major port and business center, has been locked down for roughly a month, part of China’s “zero Covid” strategy. Other Chinese cities both large and small have announced their own restrictions on the movement of residents in a bid to keep the virus from spreading.The lockdowns present yet another challenge for global supply chains that have been stressed by pandemic shutdowns and the war in Ukraine, leading to greater competition for goods and higher prices that are fueling inflation worldwide.While the Chinese authorities have sought to keep factories and especially ports operating by keeping workers on the premises in so-called closed-loop systems, the lockdowns have interrupted shipments and lengthened delivery times for many of the global companies that depend on Chinese factories.Phil Levy, the chief economist at Flexport, a freight forwarder, said in an email that while Beijing is an important city, “it is not at the heart of factory production or supply chain operations.” He said lockdowns there would have a more limited impact than previous restrictions in Shanghai and Guangdong, where ports continued to mostly operate.But the effects would depend on where outbreaks occurred — for example whether they shut down a port — and how long lockdowns persisted, Mr. Levy added. “This is a relatively slow part of the year, but there is plenty of catch-up to be done, and things will soon be due to build. The costs will mount the longer this lasts.”The disruptions that are still unfolding in Shanghai and other Chinese cities are likely to reverberate along global supply chains in the coming months. Andrea Huang, a senior director at Overhaul, which monitors company supply chains, said with lockdowns not expected to ease until early or mid-May, the ripple effects for industries like auto and consumer electronics would extend into June or July.In Shanghai, the local authorities on Friday selected some companies in the automotive, semiconductor and other key industries to restart production, but the vast majority of enterprises remain shuttered.Activity at the port has also slowed. According to data from Project44, a logistics platform, the number of vessels that were berthing at the Shanghai port last week had dropped by about half since the lockdown began, while the number of vessels seeking to call at the nearby port of Ningbo jumped as shipping companies tried to get around restrictions. The time that imported containers were spending in the port had also risen sharply, from 4.6 days on March 28 to 14 days on April 23, the company said, as coronavirus testing requirements for truck drivers limited the ability to get containers in and out of the port.Fears of broader lockdowns weighed on global stocks on Monday, while oil and other commodities also fell in anticipation of lower demand.Elisabeth Waelbroeck-Rocha, chief international economist at S&P Global Market Intelligence, said that, in addition to disrupting global supply chains and fueling inflation, coronavirus outbreaks and accompanying lockdowns had undermined Chinese economic growth in March and April, making China unlikely to reach its target of 5.5 percent growth in gross domestic product in 2022.The epicenter of the outbreak shifted from Jilin Province in the northeast to Shanghai, a manufacturing base for high-end auto components, but smaller-scale outbreaks in other regions have largely been brought under control, she wrote in a note. More