United States International Relations

More stories

  • 113 Shares129 Views

    in Economy

    U.S. and China Agree to New Economic Dialogue Format

    by

    The regular talks are intended to give both countries a venue to resolve differences.The United States and China have created a new structure for economic dialogue in an effort to improve communication between the world’s largest economies and stabilize a relationship that has become increasingly strained in recent years.The Treasury Department said on Friday that the United States and China had agreed to create economic and financial working groups that will hold regular meetings to discuss policy and exchange information. The announcement follows visits to Beijing by three of President Biden’s cabinet members over the summer that were intended to ease tensions over economic and geopolitical matters that has been festering for years between the two countries.The Treasury Department said that the new working groups would create “ongoing structured channels for frank and substantive discussions.” Treasury officials will report to Ms. Yellen, who traveled to Beijing in July. China’s representatives, from its ministry of finance and the People’s Bank of China, will report to Vice Premier He Lifeng.“These working groups will serve as important forums to communicate America’s interests and concerns; promote a healthy economic competition between our two countries with a level playing field for American workers and businesses; and advance cooperation on global challenges,” Ms. Yellen said in a statement.The U.S. and China still have major economic disagreements on tariffs, technology controls and investment restrictions. The Biden administration has been especially concerned recently about the treatment of American companies operating in China.The creation of a working group linking the Treasury Department directly with Chinese officials on economic and financial issues represents the revival of a decades-long approach to bilateral relations that was dismantled under former President Donald J. Trump.Congress took away the Treasury’s authority over trade relations in the 1970s, transferring that authority to the newly created Office of the United States Trade Representative, which was also made a cabinet agency. Congress acted after complaints from American industries and labor unions that Treasury and the State Department had been making trade concessions to other countries to win allies against the Soviet Union in the Cold War.Under former Presidents George W. Bush and Barack Obama, the Treasury led interagency negotiating teams in talks with China. Treasury’s leadership limited the influence of American trade officials, as a succession of Treasury secretaries assigned a high priority to economic policy coordination with China and to opening China’s financial markets to Wall Street firms.Mr. Trump dismantled the interagency working group system and said that each agency would negotiate separately with China. Vice Premier Liu He, the predecessor of Vice Premier He Lifeng in handling international economic policy, tried repeatedly to reach trade arrangements with then Treasury Secretary Steven T. Mnuchin, bypassing Robert E. Lighthizer, who was Mr. Trump’s trade representative.But Mr. Trump did not endorse those arrangements and instead backed Mr. Lighthizer, who ended up negotiating a limited trade agreement that was signed by both countries in January 2020, and remains in place.In August, Gina Raimondo, the commerce secretary, announced during her trip to Beijing and Shanghai that the United States and China agreed to hold regular conversations about commercial issues and restrictions on access to advanced technology.A senior Treasury official said that a consensus was reached during Ms. Yellen’s trip in July to form the groups, which are meant to allow both sides to voice concerns and look for ways to work together. The economic group will focus on challenges such as restructuring debt for low- and middle-income countries in distress, while the financial group will delve into topics like financial stability and sustainable finance.Ms. Yellen said on Friday that the new structure was an important step forward in the bilateral relationship.“It is vital that we talk, particularly when we disagree,” she said. More

  • 163 Shares199 Views

    in Economy

    The U.S. and China Are Talking Again. Where It Will Lead Is Unclear.

    by

    Gina Raimondo, the U.S. commerce secretary, and her Chinese counterparts agreed to continue economic talks, but such dialogues have a disheartening record.Gina Raimondo, the commerce secretary, expressed hopes that American and Chinese officials would work on improving the countries’ business relationship.Pool photo by Andy WongWhen Gina Raimondo, the commerce secretary, visited China this week, she joined a long line of U.S. politicians who have come to the country to try to sway Chinese officials to open their market to foreign businesses and buy more American exports, in addition to other goals.Ms. Raimondo left Shanghai on Wednesday night with no concrete commitments from China to treat foreign businesses more equitably or step up purchases of Boeing jets, Iowa corn or other products. In a farewell news conference, she said that hoping for such an outcome would have been unrealistic.Instead, Ms. Raimondo said her biggest accomplishment was restoring lines of communication with China that would reduce the chance of miscalculation between the world’s two largest economies. She and Chinese officials agreed during the trip to create new dialogues between the countries, including a working group for commercial issues that American businesses had urged her to set up.“The greatest thing accomplished on both sides is a commitment to communicate more,” Ms. Raimondo said on Wednesday.She had also delivered what she described as a tough message. The Biden administration was willing to work to promote trade with China for many categories of goods. But the administration was not going to heed China’s biggest request: that the United States reduce stringent controls on exports of the most advanced semiconductors and the equipment to make them.“We don’t negotiate on matters of national security,” Ms. Raimondo told reporters during her visit.While she called the trip “an excellent start,” the big question is where it will lead. There is a long history of frustrating and unproductive economic dialogues between the United States and China, and there are not many reasons to believe this time will prove different.Forums for discussion may have helped resolve some individual business complaints, but they did not reverse a broad, yearslong slide toward more conflict in the bilateral relationship. Now, the U.S.-China relationship faces a variety of significant security and economic issues, including China’s more aggressive posture abroad, its use of U.S. technology to advance its military and its recent raids on foreign-owned businesses.Ms. Raimondo says she has the backing of the president and U.S. officials. And Biden administration officials argue that even the shift to begin talking has been significant, after a particularly tense period. Relations between the United States and China became frosty last August when Representative Nancy Pelosi, the House speaker at the time, visited Taiwan, and they froze entirely after a Chinese surveillance balloon flew across the United States in February.Ms. Raimondo’s trip capped a summer of outreach by four senior Biden officials. R. Nicholas Burns, the U.S. ambassador to China, who took office in January 2022 and accompanied Ms. Raimondo on the trip, said on Tuesday that American officials “literally were not talking to the Chinese leadership at a senior level, my first 15 months here.”“In a very, very challenging relationship, intensive diplomacy is critical,” he added.Not everyone views re-engagement as a good thing. Republican lawmakers, in particular, increasingly see the conflict between the United States and China as a fundamental clash of national interests. Critics view the outreach as an invitation for China to drag out reforms, or a signal to Beijing that the United States is willing to make concessions.“Of the more than two dozen great-power rivalries over the past 200 years, none ended with the sides talking their way out of trouble,” Michael Beckley, an associate professor of political science at Tufts University, wrote in Foreign Affairs this month. He added, “The bottom line is that great-power rivalries cannot be papered over with memorandums of understanding.”The space for compromise also seems narrow. Both governments have little desire to be seen by domestic audiences as making concessions. And in both countries, the share of trade that is considered off limits or a matter of national security concerns is growing.Ms. Raimondo at Shanghai Disneyland on Wednesday. She said her biggest accomplishment in her trip to China was restoring communication to reduce the chance of miscalculation.Pool photo by Andy WongMs. Raimondo expressed wariness at being drawn into unproductive talks with China — a persistent issue over the last several decades. But she also described herself as a pragmatist, who would push to accomplish what she could and not waste time on the rest.“I don’t want to return to the days of dialogue for dialogue’s sake,” she said. “That being said, nothing good comes from shutting down communication. What comes from lack of communication is mis-assessment, miscalculation and increased risk.”“We have to make it different,” Ms. Raimondo said of her new dialogue, adding that the U.S.-China relationship was too consequential. “We have to commit ourselves to take some action. And we can’t allow ourselves to devolve into a cynical place.”Kurt Tong, a former U.S. consul general in Hong Kong who is now a managing partner at the Asia Group, a Washington consulting firm, said Ms. Raimondo had offered China half of what it wanted. She sent a clear message that many American companies should feel free to do business in China, after years of receiving criticism for doing so during the Trump administration and still from many Republicans in Congress. But she did not agree to relax American export controls.“China is essentially forced by circumstances to accept that half a loaf,” Mr. Tong said, adding, “I do sense there is a real desire in Beijing to stabilize the relationship, both because of the geopolitical relationship but also, perhaps more important, the doldrums on the economic side.”The recent weakness in the Chinese economy may create some opening for compromise. The Chinese economy has only limped back from its pandemic lockdowns. China’s youth unemployment rate has risen, its debt is piling up, and foreign investment in the country has fallen, as multinational companies look for other places to set up their factories.In a meeting with Ms. Raimondo on Wednesday, the Shanghai party secretary, Chen Jining, admitted that the sluggish economy made business ties more crucial.“The business and trade ties serve the role as stabilizing ballast for the bilateral ties,” Mr. Chen said. “However, the world today is quite complicated. The economic rebound is a bit lackluster. So stable bilateral ties in terms of trade and business is in the interest of two countries and is also called for by the world community.”Ms. Raimondo met with Chen Jining, the Shanghai party secretary, on Wednesday.Pool photo by Andy WongMs. Raimondo responded that she was looking forward to discussing “concrete” ways they might be able to work together to accomplish business goals and “to bring about a more predictable business environment, a predictable regulatory environment and a level playing field for American businesses here in Shanghai.”Some of the issues that Ms. Raimondo raised during her visit — including intellectual property theft, patent protection and the inability of Visa and Mastercard to receive final approval for access to the Chinese market — are the very same ones that were discussed in economic dialogues with China more than a decade ago, including under Presidents George W. Bush and Barack Obama.For instance, China promised in 2001 as part of its entry into the World Trade Organization that it would quickly allow American credit card companies into its market, and it lost a W.T.O. case on the issue in 2012. But 22 years later, Visa and Mastercard still do not have equal access to the Chinese market.For more than three decades, commerce secretary visits to China followed a familiar script. The visiting American official would call on China to open its markets to more American investment, and to allow more equal competition among foreign and local companies. Then the commerce secretary would attend the signing of contracts for exports to China.That included Barbara H. Franklin, who in 1992, at the end of the George H.W. Bush administration, oversaw the signing of $1 billion in contracts and the re-establishment of commercial relations with China after the deadly Tiananmen Square crackdown in 1989.Gary Locke of the Obama administration oversaw the signing of a broad contract in 2009 for the provision of American construction services. And Wilbur Ross, who went to China on behalf of President Donald J. Trump in 2017, came back with $250 billion in deals for everything from smartphone components to helicopters to Boeing jets.These deals did little to erase China’s enormous trade imbalance with the United States. China has fairly consistently sold $3 to $4 a year worth of goods to the United States for each dollar of goods that it purchased.In a sign of how much the focus of the relationship has shifted, Ms. Raimondo’s trip contained more discussion of national security than of new contracts. She gave her final news conference in a hangar at Shanghai Pudong Airport near two Boeing 737-800s, but did not mention the contract for several Boeings that China has yet to accept, much less any new sales.China, the world’s largest single market for new jetliners in recent years, essentially stopped buying Boeing jets during the Biden administration and switched to Airbus planes from Europe to show its unhappiness with American policies. Ms. Raimondo said on Tuesday that she had raised the lapse of Boeing purchases with Chinese leaders during her two days in Beijing.“I brought up all those companies,” Ms. Raimondo said. “I didn’t receive any commitments. I was very firm in our expectations. I think I was heard. And as I said, we’ll have to see if they take any action.” More

  • 150 Shares99 Views

    in Economy

    U.S. and China Agree to Broaden Talks in Bid to Ease Tensions

    by

    During a visit to Beijing, Gina Raimondo, the commerce secretary, said the two sides would meet to discuss export restrictions and intellectual property, among other issues.The United States and China agreed on Monday to hold regular conversations about commercial issues and restrictions on access to advanced technology, the latest step this summer toward reducing tensions between the world’s two largest economies.The announcement came during a visit to Beijing by Gina Raimondo, the U.S. commerce secretary, who is meeting with senior Chinese officials in Beijing and Shanghai this week.The agreement to hold regular discussions is the latest move toward rebuilding frayed links between the two countries, a process that had already begun during three trips in the past 10 weeks by senior American officials: Secretary of State Antony J. Blinken, Treasury Secretary Janet L. Yellen and John Kerry, the president’s climate envoy.“I think it’s a very good sign that we agreed to concrete dialogue, and I would say, more than just kind of nebulous commitments to continue to talk, this is an official channel,” Ms. Raimondo said in an interview after four hours of negotiations with China’s commerce minister, Wang Wentao.Ms. Raimondo said on Monday night in Beijing that she’d had an “open” and “pragmatic” discussion with Mr. Wang and had raised the American business community’s concerns about China’s recent actions against Intel and Micron Technology, two semiconductor companies in the United States. The Chinese government has scuttled a large acquisition planned by Intel and has blocked some sales in China by Micron this year.She said two separate dialogues would be established. One would be a working group that included business representatives and would focus on commercial issues. The other would be a governmental information exchange on export control issues.Bilateral talks about trade, technology and other economic issues were once the norm between the United States and China, but those discussions have atrophied in recent years. China halted eight bilateral discussion groups a year ago in retaliation for a visit to Taiwan by Representative Nancy Pelosi, the California Democrat who was House speaker at the time.The flight of a Chinese spy balloon that traveled across the United States last winter and was then shot down over the Atlantic Ocean only deepened divisions between China and the United States, and resulted in Mr. Blinken’s initially canceling a trip to Beijing.But relations have begun to thaw as both nations, whose economies are tied to each other, have opened the door to resuming diplomatic ties.In a readout after the meeting, the Chinese ministry of commerce said Mr. Wang had expressed serious concerns about U.S. tariffs on Chinese imports, as well as the Biden administration’s efforts to bolster the U.S. semiconductor industry by providing government subsidies. Mr. Wang criticized those new subsidy programs, which are designed to lure manufacturing to the United States, as “discriminatory,” and he expressed concerns about U.S. sanctions on Chinese companies.China is willing to work with the United States to create a sound policy environment for business cooperation between the countries, he told the U.S. side, according to the readout.Even before Ms. Raimondo traveled to China, Republican lawmakers criticized her for planning a “working group” of U.S. and Chinese officials to discuss American export controls. Four senior Republicans contended in a letter last week that it was “deeply inappropriate for our foremost adversary to have any influence over controls on sensitive U.S. national security technologies that the American people charged her to protect.”Ms. Raimondo announced the new dialogue not as a working group but as an “information exchange.” She said that it had been set up to share more information about U.S. export restrictions on advanced technology, but that the group’s creation did not mean the United States would be compromising on issues of national security. The first meeting of the export control group was scheduled to take place in Beijing on Tuesday.Ms. Raimondo also said she and the Chinese commerce minister had agreed to meet with each other at least annually.He Weiwen, a former Chinese commerce ministry official who is now a trade specialist at the Center for China and Globalization, a Beijing research group, said the bilateral agreement to have more discussions showed a mutual commitment to pragmatism.“It means that both sides share the approach to solve practical issues,” he said.But in a sign of how politically fraught relations with China remain, plans for a formal dialogue structure between the two countries drew criticism from some China hawks in the United States.Matt Turpin, visiting fellow at the Hoover Institution and former China director of the National Security Council, described the move as a “real head scratcher.” He pointed to China’s unwillingness to take action to stop the flow of fentanyl into the United States, its alliance with Russia and its hacking of Ms. Raimondo’s email account before the trip as reasons China did not deserve such outreach.“It seems that Raimondo gave a significant concession to Beijing and got nothing in return,” Mr. Turpin said.A senior Commerce Department official said the Chinese had raised concerns during the meetings Monday about a trend toward declining trade and investment between the two countries, as well as issues around government subsidies.U.S. officials conveyed the concerns of American businesses and investors, including unfair requirements faced by foreign businesses and a declining transparency in China’s economic statistics. China suspended the release of youth unemployment data this month after the figure reached a record high this summer.Ms. Raimondo said that she had spoken to nearly 150 business leaders in preparation for her trip and that they had given her a common message: We need more channels of communication.“A growing Chinese economy that plays by the rules is in all of our interests,” she said.As the Chinese economy has faltered this summer, Chinese officials have begun softening their stance on some issues. In the latest measure, the foreign ministry announced on Monday that starting on Wednesday, travelers to China would no longer need to test themselves first for Covid.Michael Hart, the president of the American Chamber of Commerce in China, said there had been a change in direction from Chinese officials this summer, with an increased willingness to hold discussions.“It used to be at every meeting I went to, the first five minutes were ‘Everything is America’s fault,’” Mr. Hart said. “It’s definitely toned down now. Government officials understand the importance of U.S.-China trade.” More

  • 113 Shares129 Views

    in Economy

    What China’s Economic Woes May Mean for the U.S.

    by

    The fallout is probably limited — and there may be some upside for American interests.The news about China’s economy over the past few weeks has been daunting, to put it mildly.The country’s growth has fallen from its usual brisk 8 percent annual pace to more like 3 percent. Real estate companies are imploding after a decade of overbuilding. And China’s citizens, frustrated by lengthy coronavirus lockdowns and losing confidence in the government, haven’t been able to consume their way out of the country’s pandemic-era malaise.If the world’s second-largest economy is stumbling so badly, what does that mean for the biggest?Short answer: At the moment, the implications for the United States are probably minor, given China’s limited role as a customer for American goods and the minor connections between the countries’ financial systems.In a note published Thursday, Wells Fargo simulated a “hard landing” scenario for China in which output over the next three years would be 12.5 percent smaller than previous growth rates would achieve — similar to the impact of a slump from 1989 to 1991. Even under those conditions, the U.S. economy would shave only 0.1 percent off its inflation-adjusted growth in 2024, and 0.2 percent in 2025.That could change, however, if China’s current shakiness deepens into a collapse that drags down an already slowing global economy.“It doesn’t necessarily help things, but I don’t think it’s a major factor in determining the outlook in the next six months,” Neil Shearing, the chief economist at Capital Economics Group, an analysis and consulting firm, said in a recent webinar. “Unless the outlook for China becomes substantially worse.”A potential balm for inflation, but a threat to factories.When considering the economic relationship between the two countries, it’s important to recognize that the United States has played some role in China’s troubles.The United States is well past a boom in consumption during the pandemic that pulled in $536.8 billion worth of imports from China in 2022. This year, with home offices and patios stuffed full of furniture and electronics, Americans are spending their money on cruises and Taylor Swift tickets instead. That lowers demand for goods from Chinese factories — which had already been weakened by a swath of tariffs that former President Donald J. Trump started and the Biden administration has largely kept in place.How Much America Buys From (and Sells to) ChinaMonthly goods imports have fallen since a pandemic-era boom.

    Source: Census BureauBy The New York TimesFor years, China’s leaders have said they want to rely more on the country’s households to drive economic growth. But they have taken few steps to support domestic consumption, such as shoring up safety net programs, which would persuade residents to spend more of the money they now save in case of emergencies.That’s why some are concerned that China could again fall back on encouraging exports to foster growth. Such a strategy might succeed since the Chinese currency, the renminbi, is very weak against the dollar, and it’s possible to evade tariffs on most items by assembling Chinese parts in other countries — like Vietnam and Mexico.An export surge would have countervailing effects. It could lower prices for consumer goods, which — along with falling Chinese demand for commodities like gasoline and iron ore — would help lower inflation in the United States. At the same time, it could counteract efforts to resuscitate American manufacturing, raising the political temperature as the presidential election approaches.“My fear is that an export-based Chinese recovery will run up against a world that is reluctant to become ever more dependent on China for manufactures, and that becomes a source of tension,” said Brad Setser, a senior fellow at the Council on Foreign Relations.And what about goods flowing the other way, from the United States to China? It’s not a huge volume — China accounted for only 7.5 percent of U.S. exports in 2022. American businesses have long sought to further develop the Chinese market, especially for agricultural products such as pork and rice, but success has been underwhelming. In 2018, the Trump administration negotiated a compact under which China would buy billions more dollars in products from U.S. farmers.Those targets were never met. With appetite fading in China, they may never be. That could mean lower food prices globally, but farmers would be hurt.“If their demand for corn and soybeans is rising, that’s good for everybody who produces corn and soybeans around the world,” said Roger Cryan, the chief economist with the American Farm Bureau Federation. “It is something to be concerned about down the road.”Insulation for American institutions and investors.So much for general trade dynamics. But the U.S. economy is composed of millions of companies with particular concerns, and some may have more to worry about as China’s economy flounders.Tesla, for example, had made inroads in the Chinese market, but its sales there have tumbled in recent months in the face of tough competition from local brands with lower-cost models. Apple generates about 20 percent of its revenue in China, which could also take a hit as residents choose cheaper products.American banks that do business globally have noted slowing growth; Citigroup’s chief executive, Jane Fraser, said on the company’s second-quarter earnings call that China had been its “biggest disappointment.”Chinese tourists also pour money into U.S. cities when they visit, which they might do less of going forward. Glenn Fogel, the chief executive of Booking Holdings — which includes travel websites such as Booking.com and Priceline — said in his earnings call that their outbound business from China had been anemic.“I don’t expect a recovery in China for us for some time, significant time probably,” Mr. Fogel said.Those effects, however, are likely to be muted. Even if the economic picture darkens, the American and Chinese banking systems are separate enough to insulate U.S. institutions and investors, aside from the few who might have invested in property developers like Evergrande or Country Garden.“There aren’t realistic channels for financial contagion from China to the U.S.,” Dr. Setser said. While China’s central bank may hold off on buying U.S. Treasury bonds, he noted, any impact on the overall market could be contained. “There’s no real scenario where China disrupts the bond market in a way that the Fed cannot offset.”On the contrary, there may be some upside for American companies if Chinese investors, lacking domestic opportunities, move more of their money into the United States. China’s direct investment in U.S. assets is relatively low and could face new obstacles as states seek to erect barriers to Chinese purchases of U.S. real estate and commercial enterprises. But places that welcome it could benefit.“Given that the U.S. seems to be doing relatively well, you could have money coming to the U.S., both in search of higher yield and in search of safety,” said Eswar Prasad, a professor of trade policy at Cornell University.The wild card of geopolitics.Aside from any direct financial and economic spillovers, it’s worthwhile to consider whether a faltering China meaningfully alters geopolitical dynamics and American interests.Washington has long fretted that a China-dominated trading bloc could limit market access for American companies by setting rules that, for example, contain weak protections for intellectual property. Such a trade agreement came into force in early 2022 after the United States abandoned its push to form the Trans-Pacific Partnership.But if China appears less mighty, it may lose its attractiveness in a fracturing world. Countries that eagerly took loans from China for large infrastructure projects may turn back toward international lending institutions like the World Bank, despite their more stringent requirements.“The fact that the Chinese economy is seen as being in a rough spot, in addition to more aggressive outreach in Asia and elsewhere by the Biden administration, that has shifted the balance a little bit,” Dr. Prasad said.Could China’s economic condition affect its willingness to undertake any military adventures, such as an invasion of Taiwan? While the Communist Party leadership might seek to stir up patriotic spirits through such an attack, Dr. Prasad thinks a shaky economy would in fact make the use of military force less likely, given the resources required to sustain that kind of engagement.One thing to keep in mind: While China appears to be going through a rough patch, the outlook is uncertain. There’s a debate in think-tank circles about whether the country’s economic structure will be durable over the longer term or fundamentally unsound.Heiwai Tang, an economics professor at HKU Business School in Hong Kong, said it would be unwise to consider China the next Japan, on the brink of prolonged stagnation.“I remain optimistic that the government is still very agile and should be responsive to a potential crisis,” Dr. Tang said. “They know what to do. It’s just a matter of time before they come to some kind of consensus to do something.”Ana Swanson More

  • 113 Shares99 Views

    in Economy

    Commerce Secretary Gina Raimondo to Visit China Next Week

    by

    The trip by Gina Raimondo, the secretary of commerce, comes at a tense moment for the U.S.-China relationship and the Chinese economy.Gina Raimondo, the secretary of commerce, will travel to Beijing and Shanghai for a series of meetings next week, becoming the latest Biden official to visit China as the United States seeks to stabilize the relationship between the countries.Ms. Raimondo will meet with senior Chinese officials and American business leaders between Aug. 27 and Aug. 30, the Department of Commerce said in an announcement Tuesday. The department said that Ms. Raimondo was looking forward to “constructive discussions on issues relating to the U.S.-China commercial relationship, challenges faced by U.S. businesses, and areas for potential cooperation.”The visit comes during a period of tensions between Washington and Beijing, and amid extreme volatility in the Chinese economy, which is struggling with stalling growth, a real estate crisis and lackluster consumer confidence.The Biden administration has dispatched a series of officials to China in recent months in an attempt to restore some stability to the bilateral relationship, after the flight of a Chinese surveillance balloon across the United States early this year left ties badly frayed.Since June, Secretary of State Antony J. Blinken, Treasury Secretary Janet L. Yellen and the presidential climate envoy, John Kerry, have made trips to meet with counterparts in China. The meetings could potentially pave the way for a visit by China’s leader, Xi Jinping, to the United States this fall.As the cabinet official most responsible for promoting the interests of American businesses abroad, Ms. Raimondo is likely to try to expand some commercial relations, and express concerns about a recent crackdown on firms with foreign ties in China. A Chinese statistics agency announced that it has imposed fines of nearly $1.5 million on the Mintz Group, an American corporate investigations firm that had been raided in March, after finding that the company had engaged in “foreign-related” surveys without official permission.The meetings are also expected to touch on the technology restrictions that Ms. Raimondo’s department oversees, which have prohibited companies in fields like artificial intelligence and quantum computing from sharing their most advanced technology with China. China has strongly objected to those restrictions.Last month, U.S. officials said Chinese hackers, likely affiliated with the country’s military or spy services, had obtained Ms. Raimondo’s emails, in a hack that was discovered in June by State Department cybersecurity experts. The hackers had penetrated email accounts belonging to State and Commerce Department officials, the U.S. officials said.Li You More

  • 113 Shares99 Views

    in Economy

    Could U.S. Toughness on Chinese Business Have Unintended Consequences?

    by

    Businesses fear that efforts to look tough on Beijing, which have the potential to be more expansive than moves by the federal government, could have unintended consequences.At a moment when Washington is trying to reset its tense relationship with China, states across the country are leaning into anti-Chinese sentiment and crafting or enacting sweeping rules aimed at severing economic ties with Beijing.The measures, in places like Florida, Utah and South Carolina, are part of a growing political push to make the United States less economically dependent on China and to limit Chinese investment over concerns that it poses a national security risk. Those concerns are shared by the Biden administration, which has been trying to reduce America’s reliance on China by increasing domestic manufacturing and strengthening trade ties with allies.But the state efforts have the potential to be far more expansive than what the administration is orchestrating. They have drawn backlash from business groups over concerns that state governments are veering toward protectionism and retreating from a longstanding tradition of welcoming foreign investment into the United States.Nearly two dozen mostly right-leaning states — including Florida, Texas, Utah and South Dakota — have proposed or enacted legislation that would restrict Chinese purchases of land, buildings and houses. Some of the laws could potentially be more onerous than what occurs at the federal level, where a committee led by the Treasury secretary is authorized to review and block transactions if foreigners could gain control of American businesses or real estate near military installations.The laws being proposed or enacted by states would go far beyond that, preventing China — and in some cases other “countries of concern” — from buying farmland or property near what is broadly defined as “critical infrastructure.”The restrictions coincide with a resurgence of anti-China sentiment, inflamed in part by a Chinese spy balloon that traveled across the United States this year and by heated political rhetoric ahead of the 2024 election. They are likely to pose another challenge for the administration, which has dispatched several top officials to China in recent weeks to try to stabilize economic ties. But while Washington may see a relationship with China as a necessary evil, officials at the state and local levels appear determined to try to sever their economic relationship with America’s third-largest trading partner.“The federal government in the United States, across branches with strong bipartisan support, has been quite forceful in sharpening its China strategy, and regulating investments is only one piece,” said Mario Mancuso, a lawyer at Kirkland & Ellis focusing on international trade and national security issues. “The shift that we have seen to the states is relatively recent, but it’s gaining strength.”One of the biggest targets has been Chinese landownership, despite the fact that China owns less than 400,000 acres in the United States, according to the Agriculture Department. That is less than 1 percent of all foreign-owned land.Such restrictions have been gathering momentum since 2021 after Fufeng USA, the American subsidiary of a Chinese company that makes components for animal feed, faced backlash over plans to build a corn mill in Grand Forks, N.D. The Committee on Foreign Investment in the United States, a powerful interagency group known as CFIUS that can halt international business transactions, reviewed the proposal but ultimately decided that it did not have the jurisdiction to block the plan. However, the Air Force, citing the mill’s proximity to a U.S. military base, said this year that China’s involvement was a national security risk, and local officials scuttled the project.Since then, states have been developing or trying to bolster their restrictions on foreign investment, in some cases blocking land acquisitions from a broad set of countries, including Iran and North Korea. In other instances, they have targeted China specifically.The state moves, some of which also include investments coming from Russia, Iran and North Korea, have raised the ire of business groups that fear the rules will be too onerous or opponents who view them as discriminatory. Some of the proposals wound up being watered down amid the backlash.This year, Texas lawmakers proposed expanding a ban that was enacted in 2021 on the development of infrastructure projects funded by investors with direct ties to China and blocking Chinese citizens and companies from buying land, homes or any other real estate. Despite the support of Gov. Greg Abbott of Texas, a Republican, the proposal was scaled back to prohibit purchases of just agricultural land, quarries and mines by individuals or companies with ties to China, Iran, North Korea and Russia. The bill ultimately expired in the Texas Legislature in May.In South Dakota, Gov. Kristi Noem, a Republican, has been pushing for legislation that would create a state version of CFIUS to review and investigate agricultural land purchases, leases and land transfers by foreign investors. Ms. Noem has argued that the federal government does not have sufficient reach to keep South Dakota safe from bad actors at the state level.The legislation failed amid pushback from farming groups that were concerned about restrictions on who could buy or rent their land, along with lawmakers who said it would hand too much power to the governor.One of the most provocative restrictions has been championed by Gov. Ron DeSantis of Florida, a Republican who is running for president. In May, Mr. DeSantis signed a law prohibiting Chinese companies or citizens from purchasing or investing in properties that are within 10 miles of military bases and critical infrastructure such as refineries, liquid natural gas terminals and electrical power plants.“Florida is taking action to stand against the United States’ greatest geopolitical threat — the Chinese Communist Party,” Mr. DeSantis said when he signed the law, adding, “We are following through on our commitment to crack down on Communist China.”Gov. Ron DeSantis of Florida, a Republican presidential candidate, signed into law one of the most provocative restrictions against Chinese investments.David Degner for The New York TimesBut the legislation is written so broadly that an investment fund or a company that has even a small ownership stake from a Chinese company or a Chinese investor and buys a property would be violating the law. Business groups and the Biden administration have criticized the law as overreach, while Republican attorneys general around the country have sided with Mr. DeSantis.The Florida legislation, which targets “countries of concern” and imposes special restrictions on China, is being challenged in federal court. A group of Chinese citizens and a real estate brokerage firm in Florida that are represented by the American Civil Liberties Union sued the state in May, arguing that the law codifies and expands housing discrimination. The Justice Department filed a “statement of interest” arguing that Florida’s landownership policy is unlawful.A U.S. district judge, who heard arguments about the case in July, said last week that the law could continue to be enforced while it was being challenged in court.The restrictions are creating uncertainty for investors and fund managers that want to invest in Florida and now must decide whether to back away from those plans or cut out their Chinese investors.“It creates a lot of thorny issues not just for the foreign investors but for the funds as well, because some of these laws try to make them choose between keeping investors and being able to invest in those states,” said J. Philip Ludvigson, a partner at King & Spalding. “It’s really a gamble for the states that are passing some of these very broad laws.”Mr. Ludvigson, a former Treasury official who helped lead the office that chairs CFIUS, added: “You might want to get tough on China, but if you don’t really think through what the second- and third-order effects might be, you could just end up hurting your state revenues and your property market while also failing to solve an actual national security problem.”The state investment restrictions also coincide with efforts in Congress to block businesses based in China from purchasing farmland in the United States and place new mandates on Americans investing in the country’s national security industries. The Senate voted overwhelmingly in favor of the measures in July, which still need to clear the House to become law.The combination of measures is likely to complicate diplomacy with China and could draw retaliation.“Officials in Beijing are quite concerned about the hostility to Chinese investments at both the national and state levels in the U.S., viewing these as another sign of rising antipathy toward China,” said Eswar Prasad, a former head of the International Monetary Fund’s China division. “The Chinese government is especially concerned about a proliferation of state-level restrictions on top of federal limitations on investments from China.”He added, “Their fear is that such actions would not just deprive Chinese investors of good investment opportunities in the U.S., including in real estate, but could eventually limit Chinese companies’ direct access to American markets and inhibit technology transfers.” More

  • 125 Shares99 Views

    in Economy

    Biden Describes China as a Time Bomb Over Economic Problems

    by

    The sharply worded comments are the latest example of the president’s willingness to criticize China even as he tries to ease tensions.President Biden warned on Thursday that China’s struggles with high unemployment and an aging work force make the country a “ticking time bomb” at the heart of the world economy and a potential threat to other nations.“When bad folks have problems, they do bad things,” the president told a group of donors at a fund-raiser in Park City, Utah.Mr. Biden’s comments are the latest example of the president’s willingness to criticize China — often during fund-raising events with contributors to his presidential campaign — even as his administration seeks to ease tensions between the world’s two largest economies.Earlier this summer, at a fund-raiser in California, Mr. Biden called President Xi Jinping of China a “dictator” who had been kept in the dark by his own officials about the spy balloon that flew over much of the United States from late January to early February before being shot down by the U.S. military.On Thursday night, Mr. Biden said he was trying to make sure the United States has a “rational relationship with China,” but he signaled that he continues to view Beijing as America’s biggest economic competitor.“I don’t want to hurt China, but I’m watching,” Mr. Biden said in Utah.The remarks underscore the complicated diplomacy that the president and his administration are engaged in as they attempt to ease tensions with China while limiting the economic and military threats posed by the country and its Communist leadership.Relations between the two countries grew icy after the spy balloon incident and the more recent discovery that China has been inserting malicious computer code deep inside the networks controlling power grids, communications systems and water supplies around U.S. military bases.Mr. Biden has said he seeks “competition, not conflict” with China, taking steps to minimize the possibility of direct military clashes with Beijing over the South China Sea and the future of Taiwan.Top American officials have visited in recent weeks with their counterparts in China. Gina Raimondo, the commerce secretary, is expected to go there in coming weeks.But the president has moved aggressively to contain China’s rise and to restrict its ability to benefit militarily from the use of technologies developed in the United States.Mr. Biden signed an executive order this week banning American investment in some Chinese technology industries that could be used to enhance Beijing’s military capabilities. In response, the Chinese government hinted that it would retaliate and accused the United States of trying to “politicize and weaponize trade.”The president’s comments on Thursday could complicate efforts by both countries to schedule a face-to-face meeting between the two leaders in the coming months. Mr. Biden and Mr. Xi have not met in person since last November, during the Group of 20 summit of world leaders in Indonesia.The White House has not said whether the two men will have an in-person meeting at the Asia-Pacific Economic Cooperation summit, which is scheduled for later this year in San Francisco. Mr. Xi is expected to attend. More

  • 138 Shares109 Views

    in Economy

    Biden Orders Ban on New Investments in China’s Sensitive High-Tech Industries

    by

    The new limits, aimed at preventing American help to Beijing as it modernizes its military, escalate a conflict between the world’s two largest economies.President Biden escalated his confrontation with China on Wednesday by signing an executive order banning new American investment in key technology industries that could be used to enhance Beijing’s military capabilities, the latest in a series of moves putting more distance between the world’s two largest economies.The order will prohibit venture capital and private equity firms from pumping more money into Chinese efforts to develop semiconductors and other microelectronics, quantum computers and certain artificial intelligence applications. Administration officials stressed that the move was tailored to guard national security, but China is likely to see it as part of a wider campaign to contain its rise.“The Biden administration is committed to keeping America safe and defending America’s national security through appropriately protecting technologies that are critical to the next generation of military innovation,” the Treasury Department said in a statement. The statement emphasized that the executive order was a “narrowly targeted action” complementing existing export controls and that the administration maintained its “longstanding commitment to open investment.”Narrow or not, the new order comes at perhaps the most fraught moment in the U.S.-China relationship since President Richard M. Nixon and Secretary of State Henry A. Kissinger opened a dialogue with Beijing in the early 1970s. A series of expanding export controls on key technologies to China has already triggered retaliation from Beijing, which recently announced the cutoff of metals like gallium that are critical for the Pentagon’s own supply chain.Mr. Biden has stressed that he wants to stabilize relations with China following a Cold War-style standoff over a spy balloon shot down after crossing through American airspace and the discovery of a broad Chinese effort to put malware into power grids and communications systems. He has sent Secretary of State Antony J. Blinken, Treasury Secretary Janet L. Yellen and other officials to renew talks with Chinese officials in recent months. Gina Raimondo, the commerce secretary, is expected to go to China in coming weeks.Indeed, the president seemed intent on not antagonizing Beijing with Wednesday’s order, making no comment about his action and leaving it to be announced through written material and background briefings by aides who declined to be identified.Still, China declared that it was “very disappointed” by the order, which it said was designed to “politicize and weaponize trade,” and it hinted at retaliation.“The latest investment restrictions will seriously undermine the interests of Chinese and American companies and investors, hinder the normal business cooperation between the two countries and lower the confidence of the international community in the U.S. business environment,” Liu Pengyu, a spokesman for the Chinese embassy, said in a statement.Administration officials said the president’s order is part of their effort to “de-risk” the relationship with China but not to “decouple” from it. Wednesday’s announcement, though, takes that effort to a new level. While export bans and concerns about Chinese investment in the United States have a long history, the United States has never before attempted such limits on the flow of investment into China.In fact, for the past few decades, the United States has encouraged American investors to deepen their ties in the Chinese economy, viewing that as a way to expand the web of interdependencies between the two countries that would gradually integrate Beijing into the Western economy and force it to play by Western rules.U.S. government reviews in recent years, however, concluded that investments in new technologies and joint ventures were fueling China’s military and its intelligence-collection capabilities, even if indirectly. American officials have been actively sharing intelligence reports with allies to make the case that Western investment is key to China’s military modernization plans — especially in space, cyberspace and the kind of computer power that would be needed to break Western encryption of critical communications.Administration officials cast the effort as one motivated entirely by national security concerns, not an attempt to gain economic advantage. But the order itself describes how difficult it is to separate the two, referring to China’s moves to “eliminate barriers between civilian and commercial sectors and military and defense industrial sectors.’’ It describes China’s focus on “acquiring and diverting the world’s cutting-edge technologies, for the purpose of achieving military dominance.”(The text of Mr. Biden’s order refers only to “countries of concern,” though an annex limits those to “the People’s Republic of China” and its two special administrative areas, Hong Kong and Macau.)Mr. Biden and his aides discussed joint efforts to limit high-tech investment with their counterparts at the recent Group of 7 summit meeting in Hiroshima, Japan. Several allies, including Britain and the European Union, have publicly indicated that they may follow suit. The outreach to other powers underscores that a U.S. ban may not be that effective by itself and would work only in conjunction with other major nations, including Japan and South Korea.The executive order, which also requires firms to notify the government of certain investments, coincides with a bipartisan effort in Congress to impose similar limits. An amendment along those lines by Senators Bob Casey, Democrat of Pennsylvania, and John Cornyn, Republican of Texas, was added to the Senate version of the annual defense authorization bill.Several Republicans criticized the president’s order as too little, too late and “riddled with loopholes,” as Senator Marco Rubio, Republican of Florida and vice chairman of the Senate Intelligence Committee, put it.“It is long overdue, but the Biden administration finally recognized there is a serious problem with U.S. dollars funding China’s rise at our expense,” Mr. Rubio said. “However, this narrowly tailored proposal is almost laughable.”Representative Michael McCaul, Republican of Texas and chairman of the House Foreign Relations Committee, said the new order should go after existing investments as well as sectors like biotechnology and energy.“We need to stop the flow of American dollars and know-how supporting” China’s military and surveillance apparatus “rather than solely pursuing half measures that are taking too long to develop and go into effect,” Mr. McCaul said.The United States already prohibits or restricts the export of certain technologies and products to China. The new order effectively means that American money, expertise and prestige cannot be used to help China to develop its own versions of what it cannot buy from American companies.It was unclear how much money would be affected. American investors have already pulled back dramatically over the past two years. Venture capital investment in China has plummeted from a high of $43.8 billion in the last quarter of 2021 to $10.5 billion in the second quarter of this year, according to PitchBook, which tracks such trends. But the latest order could have a chilling effect on investment beyond the specific industries at stake.In a capital where the goal of opposing China is one of the few areas of bipartisan agreement, the only sounds of caution in Washington came from the business community. While trade groups praised the administration for consulting them, there was concern that the downward spiral in relations could speed a broader break between the world’s two largest economies.“We hope the final rules allow U.S. chip firms to compete on a level playing field and access key global markets, including China, to promote the long-term strength of the U.S. semiconductor industry and our ability to out-innovate global competitors,” the Semiconductor Industry Association said in a statement.Gabriel Wildau, a managing director at the consulting firm Teneo who focuses on political risk in China, said the direct effect of the executive order would be modest, given its limited scope, but that disclosure requirements embedded in the order could have a chilling effect.“Politicians increasingly regard corporate investments in China as a form of collusion with a foreign enemy, even when there is no allegation of illegality,” he said.The Treasury Department, which has already consulted with American executives about the forthcoming order, will begin formally taking comments before drafting rules to be put in place next year. But American firms may alter their investment strategies even before the rules take effect, knowing that they are coming.A series of expanding export controls on key technologies to China has already triggered retaliation from Beijing.Florence Lo/ReutersChina’s own investment restrictions are broader than the new American rules — they apply to all outbound investments, not just those in the United States. And they reflect a technology policy that in some ways is the opposite of the new American restrictions.China discouraged or halted most low-tech outbound investments, like purchases of real estate or even European soccer clubs. But China allowed and even encouraged further acquisitions of businesses with technologies that could offer geopolitical advantages, including investments in overseas businesses involved in aircraft production, robotics, artificial intelligence and heavy manufacturing.The latest move from Washington comes at a rare moment of vulnerability for the Chinese economy. Consumer prices in China, after barely rising for the previous several months, fell in July for the first time in more than two years, the country’s National Bureau of Statistics announced on Wednesday.While Chinese cities and some businesses have declared 2023 a “Year ›of Investing in China” in hopes of a post-Covid revival of their local economies, President Xi Jinping has created an environment that has made many American venture capital firms and other investors more cautious.Western companies that assess investment risk, like the Mintz Group, have been investigated and in some cases their offices have been raided. A Japanese executive was accused of espionage, and a new anti-espionage law has raised fears that ordinary business activities would be viewed by China as spying.The Biden administration’s previous moves to restrain sensitive economic relationships have taken a toll. China’s telecommunications champion, Huawei, has been almost completely blocked from the U.S. market, and American allies, starting with Australia, are ripping Huawei equipment out of their networks. China Telecom was banned by the Federal Communications Commission, which said it “is subject to exploitation, influence and control by the Chinese government.”At the same time, the United States — with the somewhat reluctant help of the Dutch government, Japan and South Korea — has gone to extraordinary lengths to prevent China from building up its own domestic capability to manufacture the most high-end microelectronics by itself.Washington has banned the export of the multimillion-dollar lithography equipment used to produce chips in hopes of limiting China’s progress while the United States tries to restore its own semiconductor industry. Taken together, it is an unprecedented effort to slow an adversary’s capabilities while speeding America’s own investment.Keith Bradsher More