Yellen’s Opening Salvo Shows No Let Up In Tensions
By Ye Xie, macro commentator at Bloomberg
If there were any expectations for a quick reset of the tense U.S.-China relationship under the incoming Biden administration, Treasury Secretary nominee Janet Yellen dashed those hopes on Tuesday.
At her confirmation hearing, Yellen said the U.S. is prepared to take on China’s “abusive” trade and economic practices, saying Beijing is undercutting American businesses by dumping products, subsidizing domestic companies and stealing intellectual property. These are harsh words, but they’re hardly surprising. After all, China-bashing has bipartisan support, as shown in a Morgan Stanley survey.
Interestingly, just a day earlier, China’s top financial regulator rebutted accusations that the country is pursuing “state monopoly capitalism” that distorts market relations, as if to preemptively push back against the U.S. criticism. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, pointed out that government subsidies to state-owned enterprises were actually negative. Their tax burden is twice as much as private firms, which like foreign companies have enjoyed preferable taxation and fees. He added that it’s impossible for China’s banks to subsidize state-backed companies amid intensified competition in the credit market.
The difference in U.S. and Chinese perspectives suggests that it won’t be easy to repair the trade relationship. The tariffs imposed on Chinese products during the Trump administration are likely to stay for a while, not least of all because the Biden administration is likely to prioritize domestic issues, such as Covid stimulus relief, in its early months.
It’s also clear that technology will be a key area of competition between the two countries. During the hearing, Yellen called China the U.S.’s “most important strategic competitor” and urged America to strengthen its own economy by investing in infrastructure and research and development.
It’s perhaps not a coincidence that tech firms account for a big chunk of companies that have been put on the U.S. black list in the final days during the Trump era, as shown in this chart compiled by economists at Natixis.
Ironically, the strategic rivalry and tech competition means it may be necessary for investors to get exposure to both the U.S. and Chinese markets as positioning for what Blackrock described as a “bipolar” world. Small wonder that mainland investors are busy buying those sanctioned firms in Hong Kong these days.
Tue, 01/19/2021 – 22:30