Treasury Secretary Yellen Delivers Remarks in San Francisco 11/10/23 Transcript

Good morning everybody, and thank you for joining today. I’m very glad to have had the opportunity to welcome Vice Premier He Lifeng to California. I’d like to speak now to our economic approach to China and how we’ve advanced it through two days of productive discussions. The relationship between the United States and the People’s Republic of China is one of the most important relationships of our time. The path it takes will shape opportunities and challenges for people in both of our countries and around the world. As I said last week, President Biden and I are advancing vision of the world that’s grounded in values we share with our allies and partners across the globe. And while we will at times use economic tools to protect our national security interests, our vision also includes a healthy and stable economic relationship between the United States and China that benefits both sides and offers a level playing field for American firms and workers.

(01:49)
We know advancing this vision is not easy, but I believe that we have made significant progress since President Biden and President Xi’s meeting in Bali almost exactly one year ago. Following President Biden’s directive to deepen bilateral communications, I met with my former counterpart in January and then traveled to Beijing in July to build relationships with China’s new economic leadership. There I met with Premier Li, Vice Premier He and other senior economic officials. We had candid and constructive meetings on issues from macroeconomic developments to the nature of our economic relationship to challenges from climate change to debt distress in low income countries. In September, the United States and China launched the economic and financial working groups to provide ongoing channels for engagement on substantive economic and financial policy issues. Both working groups met for the first time in recent weeks and had their second meetings yesterday.

(03:11)
Over the past two days, Vice Premier He and I have built on this foundation with candid, direct, and productive engagements. There is no substitute for in-person diplomacy. And I was pleased to have had the opportunity to interact with the Vice Premier on a more personal level, as we did in our private meeting earlier today. During our discussions, we agreed that in-depth and frank discussions matter, particularly when we disagree. And I emphasize that the current uncertain global landscape makes it particularly crucial that we maintain resilient lines of communication going forward. This is not just communication for communication’s sake. It allows us to avoid misunderstandings and unintended escalation, make informed decisions, and work towards specific policy outcomes.

(04:19)
Turning to the details of our discussions, I spoke to Vice Premier He about our goal of achieving a healthy economic relationship that benefits both our countries over time. We do not seek to decouple our economy from China’s. This would be damaging to both the US and China and destabilizing for the world. But a healthy economic relationship requires American workers and firms to be treated fairly. I raised concerns about the breadth and depth of the PRC’s non- market policies and practices and their global spillovers. These are concerns that I hear frequently from US businesses. Vice Premier He and I also focused on the need for joint work on global challenges. The physical and economic impacts of climate change are mounting across the globe, including here in California. We discussed specific areas where we can enhance our cooperation on climate finance beyond our co-chairing of the G20 Sustainable Finance Working Group.

(05:42)
I also underscored that too many countries continue to face high risk of debt distress and a debt architecture that does not work as it should to support them. I emphasized the need for us to build on our good recent progress in the Zambia case, to make much faster progress on other debt restructuring cases. And we discussed the crucial roles we have to play in making the debt architecture work better and faster. We also spoke about our efforts to promote global financial stability, as well as the importance of strengthening the World Bank, IMF, and other parts of the international financial architecture. Earlier this week we took a positive step towards strengthening the IMF with the Executive Board’s approval of an equally proportional quota increase. This would bolster the IMF’s ability to fight crises at a critical time for the world economy.

(06:53)
Finally, the United States continues to clearly communicate how we’re using economic tools to protect our national security interests and those of our allies through transparent and narrowly scoped actions designed to achieve a clear national security objective. I reaffirmed the importance of directly communicating the design and intentions behind our national security actions to avoid the risk of misunderstanding and miscalculation, as the United States has done with our rollout of the Executive Order on Outbound Investment. We exchanged information about our respective outbound investment regimes. I also specifically raised our concerns about the PRC’s export controls on graphite and other critical minerals. And I stressed that companies must not provide material support for Russia’s defense industrial sector, and that they will face significant consequences if they do.

(08:08)
Today Vice Premier He and I are also taking the important additional step of laying out specific areas of the bilateral economic relationship where we agree. My hope is that this understanding will serve as a foundation for future mutually beneficial progress. First, we agreed to intensify communication, including continuing a regular cadence of contact between me and the Vice Premier. Second, we committed to work together on global challenges from debt issues to climate change-related economic issues. And third, both countries jointly stated that we welcome the objective

Of a healthy economic relationship that provides a level playing field for companies and workers in both countries and benefits the two peoples. Of course, there are many remaining areas of disagreement between our countries and we know that there is an important difference between words and actions, but the United States will live up to the understandings that we reached and we expect our counterparts to do the same. As I said at the conclusion of my meetings in Beijing this summer, I believe that my trip to China helped advance our effort to put the US-China relationship on a surer footing. The past two days of meetings in San Francisco have served as another step forward. I’m confident that our discussions have also helped lay further groundwork for a productive meeting between President Biden and President Xi. Next week, we will also chair – and China will participate in – the APEC Finance Ministers’ Meeting and Leaders’ Meeting.

(10:15)
In the coming months, our teams will continue deepening our communication through the working groups and Vice Premier He also told me that he welcomes a return visit by me to China and I look forward to traveling there next year. With that, thank you again for being here.

(10:38)
The United States may have begun as an Atlantic nation, but we have long been a Pacific one as well. California is a fitting place to mark the progress we’re making in our economic approach to China and to affirm our commitment to the work ahead. Let me stop there and I look forward to your questions.

We’ll start with Dave Lawder of Reuters.

Hi. Thanks, Secretary. I just wondering if you could describe a little more detail about your message to the Vice Premier about not providing material support to Russia in its war against Ukraine. Some details on that. Also, when Secretary Raimondo came to China about a little over two months ago, she made a remark that she was hearing that China was becoming uninvestable by American companies. Do you agree with that assessment?

Well, let me start with Russia’s war on Ukraine. We are concerned that in spite of a sanctions program that we’ve put in place, that equipment that is critical to Russia’s military effort is nevertheless evading sanctions and being delivered to Russia. And we are determined to do all that we can to stem this flow of material that aids Russia in conducting this brutal and illegal war. We have taken sanctions already against a number of firms in a number of countries, including China, and we do see evidence that there are Chinese firms, and I’m certainly not seeing with the knowledge of the Chinese government, but some Chinese private firms that may be aiding in the flow of this equipment and material to Russia as well as some financial institutions that could be involved in facilitating that flow.

(13:15)
So I stressed in our conversations that it’s critical to us that companies not provide material support for Russia’s defense industrial sector and that we were prepared to put in place further sanctions that we would like to see China crack down on this, especially when we are able to provide information.

(13:43)
You asked me about is China …

[inaudible 00:13:48].

Well, look, many American firms are investing in China and are finding very profitable opportunities for businesses there. On the other hand, American businesses do express concerns about actions by the Chinese government that are unanticipated that impact their businesses, and it gives them grave concern. So they are focused on trying to better understand what Chinese policy is and making sure that it’s predictable and based on principles that they understand. And so, we discussed the need to articulate such principles.

Next, let’s go to Viktoria Dendrinou at Bloomberg.

Oh, thank you. Hi. Hi, Secretary. You discussed the Chinese economy. I was just wondering based on what you heard over the past couple of days, whether you think the policies implemented by China right now are sufficient to support demand, address weakness in the property sector, local government debt, and just maintain the growth momentum that they have. Also, if deflation, the recent data, if that came up and how concerned you are. And just as a follow up to Dave’s question, based on what you heard about the state of the economy and the concern you have about market access that you mentioned, what would you advise US businesses that are considering investment in China? Thank you.

So we did have detailed discussions about the Chinese economy and the outlook for it. I’m really not prepared to give you a definitive view on whether or not the plans that they’ve set out are sufficient, but I think we now have a better understanding of the approach that the Chinese government is taking both toward short run issues of concern, namely weak growth and problems in the property sector, which I think they believe they are forcefully addressing and that they’re on top of that.

(16:13)
Of course, I’m sure they would be prepared to take further actions if that turns out not to be the case. But my understanding is that China is focused from a medium term perspective on quality growth, that it’s important to them not to recreate the problems that have led to problems in their property sector to overindebtedness of local governments and the like, that they’re trying to deal with those problems and they don’t want to put in place measures that would provide some short-term boost to the economy, but at the expense of exacerbating longer term problems. And they explain to us that their focus is going to be particularly on advanced manufacturing and developing their expertise and capabilities in that area.

(17:19)
Let’s see. I’m sorry. You asked me and … Oh!

Well, [inaudible 00:17:25] communication and also just US companies in terms of innovation and market access [inaudible 00:17:27].

So deflation concerns, they seem to feel that they have successfully addressed them and I think we’ll have to wait and see. And in terms of market access, American firms have good market access in many sectors. The Chinese indicated their intention over time to provide additional

No market access in other sectors. There are, as I mentioned, concerns that American firms have about what sometimes appear to be arbitrary actions by the Chinese directed at American firms that are of concern. But while there are sectors that have not been widely open, certainly many sectors where American firms do have good market access.

Let’s go to Andy Duehren, Wall Street Journal.

Hi, Secretary Yellen. I wanted to ask about the bond market, two things. One, there’s been some, I guess, speculation among analysts that China has been reducing their holdings of US treasuries as they’ve been intervening to support their currency. I’m curious what your view is on that, if that’s something that came up in these meetings with Vice Premier and then more generally on the bond market. Between quarterly refunding last week, there’s been this perception that Treasury is taking a more flexible approach to its regular and predictable issuance, particularly on the long end of the curve. There was a 30-year auction yesterday that saw soft demand. Is that something that Treasury is trying to actively grapple with right now? How flexible to be with its issuance plans given some of these concerns about supply and demand on the long end of the curve? Thanks.

Let me start with the Chinese currency. The Chinese currency has been under downward pressure, and I think that China sees that as a risk that if it isn’t contained, could exacerbate capital outflows and trigger unwanted and excessive depreciation. But we don’t really know the extent to which they’re intervening in support of their currency. They don’t yet publish, although I’m hopeful that this will change, information on their foreign exchange intervention. We really don’t have that information. But it would not be surprising if they are running down Treasury holdings to some extent in order to support their currency with respect to the bond market, the 10-year Treasury and longer term rates have come down some off their highs.

(20:36)
Our quarterly refunding, I think, did show some flexibility with respect to issuance. Regular and predictable are the core foundations of our issuance policy. But also we do confer regularly with market participants and try to understand demand and supply conditions in different points along the yield curve. Clearly, there seemed to be some unusual pressure at the long end. We are continuing to increase our issuance at the long end, we need to do that, but we increased it less in this last quarterly refunding than we did in August. That seems to have had a favorable impact.

Let’s go to Shouyaw Mu from Xinhua News Agency.

Thank you, Mrs. Treasury Secretary. My question is how does the US plan to stabilize its economic relationship with China from further deteriorating? Have the two countries found a common ground and in what specific areas that the two countries have agreed to enhance cooperation so as to address shared challenges faced not only by the two countries, but also the global community? Thank you.

Sorry, was the first question… I didn’t quite catch that. Was that about-

How does the US plan to stabilize its economic relationship with China from further deteriorating?

Well, we plan to stabilize our relationship by I first understanding what each other’s objectives and tools are for achieving those objectives. I think the Chinese feel that actions the United States has taken in some cases were surprises to the government and also to Chinese businesses. The United States, I think, feels the same way, and American firms feel the same way about China’s actions. Trying ourselves to discuss and deepen our understanding of what our objectives and tools are is the foundation for stabilizing the environment and providing a deeper understanding to firms so that they can make intelligent and rational decisions without… What we would not want to see is some private sector led decoupling from China, especially one that’s based on misinformation when our mutual desire, both China and the United States, is to create a level playing field and ongoing meaningful and mutually beneficial economic relations.

(24:09)
That is our main focus. Then you asked about areas for cooperation. Yes, we’ve certainly recognized that there are areas for cooperation. I would mention three. The first concern is climate and both countries are committed to the goals of the Paris Agreement. We are discussing concrete ways in which we can work together and partner to pursue this goal. We’ve tasked the economic and financial working group with coming up and coming back to us with specific suggestions for areas where we can better cooperate. The area of sustainable finance, we already work together in that area, but I think we agree that there are more things that we can jointly do that are not being addressed in other multilateral fora. Debt is another area I’ve talked about regularly. Mitigating the debt problems of low income countries with debt distress is an important objective, not just for the United States, but for the G20, the IMF, for the globe.

(25:49)
China, as a major creditor, needs to take part in that. The process has been moving too slowly, but we have agreed to cooperate in trying to speed it up. I’ve been pleased to see the progress that was made with Zambia. There are a number of other cases that are outstanding and we would like to see more countries that are suffering from an overwhelming amount of debt, an unsustainable amount, enter the common framework and seek debt relief. We’ve agreed to work closely on that, that’s a secondary. The third area concerns the multilateral institutions themselves. I mentioned in my opening remarks, the IMF quota decision. We were pleased to see that China joined most other shareholders in voting for an equally proportional increase in the IMF quota. This is something that’s quite critical to many developing

… Countries. And of course China is concerned about their own voting share. And I think it’s fair to say that as a result of the discussions that we’ve been having with our Chinese counterparts, that we better understand their concern and we’ve agreed in the next quota increase, what we need to see is a new formula to govern voting shares. And we’ve agreed to work together with China to try to accomplish that.

(27:35)
But more broadly, we want to see the multilateral development banks, starting with the World Bank evolve to take on a range of global challenges, particularly pandemics, climate change, and the impact of conflict in fragility. These are developments that have global spillovers. We want to encourage countries to borrow, to address these issues. We want to provide more resources, make sure that the World Bank is better resourced to address these issues. And I’ve set out in previous speeches and comments, an entire evolution agenda that we would like to see the MDBs take on. And I think we have agreed with China that we can work together constructively on this. There’s plenty of work yet to be done. And this is something that is not only in both of our interests, but also in the interest of the globe.

Let’s do Ryan McMorrow, Financial Times.

Hi. Thank you for taking the time to speak with us. China is currently holding up approval of US chip group Broadcom’s $70 billion acquisition of VMware. Did China’s stance on the deal come up during your meetings with the Vice Premier? And did you get any sense if Chinese officials would eventually approve the deal? And then one more question about, following the ICBC hack yesterday, was there any broader fallout for Treasury market functioning? And is the Treasury planning to take any steps to tighten up cyber standards?

So the particular deal that you mentioned was not a subject of discussion in our meetings and on the ICBC ransomware issue, that’s something we became aware of when we reached San Francisco. We have been working very closely with the Chinese, with the firm, and with regulators in the United States, with the federal government, the FBI and Caesar, our cybersecurity agency to address this, very good progress has been made. We’ve not seen an impact on the Treasury market. And this is something that I discussed with the Vice Premier, and I think it’s an example of why we need close communications. This is a situation where it’s critical to be able to pick up the phone and know that you’ll have a good response on the other end, and that we can trust one another to work together and cooperate. And we have given Treasury and the United States as much assistance as we possibly can to the firm in dealing with this issue.

This will be the last question, Michael Liedtke, AP.

Thanks. Can you elaborate on the conversations you had specifically about the rising US deficits and what kind of concerns China has as a major US debt holder about it?

Well, the US fiscal outlook was a topic that we discussed in our meetings. And what I’ve expressed is the importance that President Biden and I attach to making sure that the United States is on a sustainable fiscal path that does entail, especially in a rising interest rate environment, bringing down deficits. And I pointed out that we had just reached an agreement when we raised the debt ceiling for a trillion dollars of deficit reduction over 10 years. And the President has put forward proposals for an additional two and a half trillion dollars of deficit reduction over the next decade in ways that would enable us to continue investing in the US economy to promote growth and to address climate issues and in ways that would raise revenue, both by adequately providing funds for the Internal Revenue Service that have a huge payoff in terms of raising collections. And also raising taxations somewhat on corporations and wealthy taxpayers, which I think would not only address the deficit, but also be greatly in the interest of tax fairness.

Thank you.