U.S. Treasury Secretary Janet Yellen wrapped up four days of talks in China with a warning against any moves to bolster Russia’s military capacity.
“I stressed that companies, including those in the PRC, must not provide material support for Russia’s war, and that they will face significant consequences if they do,” Yellen said Monday in prepared remarks for a press conference at the U.S. ambassador’s residence in Beijing, using an abbreviation for the People’s Republic of China.
“Any banks that facilitate significant transactions that channel military or dual-use goods to Russia’s defense industrial base expose themselves to the risk of U.S. sanctions,” she said.
The Biden administration is trying to crack down on firms worldwide that help Russia evade the net of sanctions that the U.S. and its allies have imposed on Moscow since its invasion of Ukraine in 2022. While China has been the target of past warnings, Yellen’s Monday message, delivered in the Chinese capital, was unusual for its direct threat of sanctions.
It came on the day that Russian Foreign Minister Sergei Lavrov arrived in Beijing to discuss issues including Ukraine. While China describes its position on the war as neutral, trade with Russia has surged since it began.
“China and Russia do a lot of trade and much of it is non-problematic,” Yellen said in an interview with CNBC. “But anything that involves aiding Russia’s military in their brutal war against Ukraine is unacceptable to us and we have the ability to sanction it.”
America’s ultimate weapon against financial institutions is the Treasury’s ability to cut off their access to U.S. dollars, an existential threat for any bank operating internationally.
That such a threat now looms over Chinese lenders is another example of the way the two superpowers increasingly find themselves on opposite sides of geopolitical and economic fault lines — pushing even Yellen, arguably the least hawkish of senior Biden administration officials who deal directly with China, to go on the offensive.
For much of her trip, the Treasury chief has been busy scolding China about something else: what Washington views as excessive investment in manufacturing, especially in new green-energy technologies, to make up for a troubled property sector and weak domestic demand. Yellen’s message has been that Chinese overcapacity will swamp other economies if there’s no change of course.
That theme has dominated since day one, and it kept recurring through a weekend of talks that both sides termed candid and constructive. The Chinese played gracious hosts and never fired back with an angry response, even in the closed-door meetings, according to senior Treasury officials.
Beijing has acknowledged there’s too much capacity in at least some industries, though it also accuses the U.S. and other countries of trying to shield their own less-competitive companies.
Right now the U.S. has some leverage on such matters, because China’s economy is fragile and its leaders realize that many other countries agree with Yellen, according to Christopher Beddor, deputy China research director at Gavekal Dragonomics.
“That’s why even though Yellen is making harsh comments, they are not freezing her out,” he said.
On Monday, after a meeting with Chinese central bank chief Pan Gongsheng, Yellen returned to the issue.
“I am particularly worried about how China’s enduring macroeconomic imbalances — namely its weak household consumption and business overinvestment, aggravated by large-scale government support in specific industrial sectors — will lead to significant risk to workers and businesses in the U.S. and the rest of the world,” she said.
The Treasury officials said Yellen specifically urged China to do more to stimulate domestic demand. The Chinese responded, they said, by assuring Yellen they had already taken steps in that direction. They also agreed to launch a new set of talks focused exclusively on “balanced growth in the domestic and global economies,” a euphemism for addressing China’s over-investment in supply.
Yellen announced that the new talks will get underway next week with a meeting between two U.S.-China working groups in Washington.
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