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U.S. Treasury Secretary Janet Yellen meets Chinese Premier Li Qiang at the Great Hall of the People in Beijing, China, April 7, 2024.
EVs, economics, and a warning from Yellen in China
During her weekend visit to Beijing and Guangzhou, US Treasury Secretary Janet Yellen emphasized that the US-China relationship is on a "more stable footing" – but there are still imbalances to address.
Chief among them: China's industrial overcapacity and its effects on the global economy. Yellen and Chinese Vice Premier He Lifengagreed to kickstart formal talks to address China’s growing overproduction of electric vehicles and solar panels, which the US says is distorting global markets and undercutting American jobs.
“We can only make progress if we directly and openly communicate with one another,” Yellen said. Chinese Premier Li Qiang called for a market-oriented view of production capacity, including cooperation in the green and low-carbon energy transition and a potential partnership to address environmental challenges.
Tough talk on Russia: Yellen dropped the diplomatic gloves when it came to Beijing’s economic and military partnership with Russia.
"We've been clear with China that we see Russia as gaining support from goods that Chinese firms are supplying to Russia," she declared, warning of "significant consequences" for any material support lent to Russia’s war efforts against Ukraine.
We’ll see if this changes China’s tune like it did after Russia’s invasion in 2022, when US officials say their strong warnings prompted Beijing to walk back plans to provide military equipment to Moscow.FILE PHOTO: Chinese Premier Li Qiang delivers the work report at the opening session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China March 5, 2024.
China worries about falling behind on AI
Chinese researchers at the Beijing Academy of Artificial Intelligence have reportedly issued a warning to Chinese Premier Li Qiang that the country is falling far behind the United States when it comes to artificial intelligence.
The researchers said there’s “a serious lack of self-sufficiency” in the Chinese technology space, especially since researchers are dependent on open-source large language models like Meta’s LLaMA.
China is already playing catch-up when it comes to chips and the technological infrastructure necessary to train and run generative AI models, but this reporting sheds new light on the technical struggles to build capable models. The US is seeking to cut off China from as much AI technology as it can, but its aim is ultimately more about limiting its enemy’s military prowess rather than restricting its access to perhaps relatively harmless language models.
Chinese President Xi Jinping (L) converses with Premier Li Qiang on the first day of a weeklong meeting of the Chinese People's Political Consultative Conference, China's top political advisory body, at the Great Hall of the People in Beijing on March 4, 2024.
China’s Two Sessions: It’s a Xi show
On Monday, Beijing scrapped a closing press conference for its annual “Two Sessions” meeting of its rubber-stamp parliament, pausing a three-decade long annual tradition for China’s premier (the No. 2 guy). That means the foreign press will lose a rare chance to speak to Premier Li Qiang, one of China’s most powerful people.
But it also robs Li himself of a platform that other Chinese leaders have used to build their own brands. Li’s predecessor, Li Keqiang, earned himself the moniker “the people’s premier” after he railed against pervasive rural poverty during the 2020 Two Sessions presser.
The opacity reflects what Eurasia Group called "Maximum Xi” in its top risks report last year, as President Xi Jinping reacts to increasing challenges by centralizing his power even more.
"Under Maximum Xi, what Li Qiang might have said in the closing presser wouldn't matter anyway,” says Lauren Gloudeman, a China expert at Eurasia Group. “He was only going to say what was approved."
Chinese Premier Li Qiang speaks at his first press conference after his appointment to the post at the Great Hall of the People in Beijing last March.
China’s charm offensive: Li Qiang works to woo back foreign investment
China suffered an outflow of foreign direct investment last year (in Q3) for the first time since records began in 1979. It was a sure sign that foreign, particularly American, firms have chosen to “friend-shore” their business, pulling money out of China.
Investors are spooked by Xi Jinping’s vague national security laws and America’s policy of encouraging a reduction of investment in China, particularly in sectors deemed strategically important like semiconductors.
This helps explain why the Chinese are back in Davos in full force for the first time since Xi addressed the World Economic Forum in 2017. A delegation led by Premier Li Qiang will send the message that China is open to the outside world.
The consensus economic growth forecast for China in 2024 is 4.6%, which is strong by most countries’ standards but a slump from last year’s 5.2% and a shadow of its former ability to top 10%. A sluggish housing market and weak consumer confidence have not helped. Still, it is the geo-political chill that appears to have persuaded Xi to try to reverse the negative sentiment, starting with his meeting with President Joe Biden at the APEC summit last November.
Economists say that FDI only accounts for 3% of total investment but is important to China because it brings international best practices to domestic markets and enhances competition.
Li will be hoping that he can make up for lost Western dollars by persuading large Middle Eastern sovereign wealth funds from Saudi Arabia, Qatar, Oman, Kuwait, and the UAE to help reverse the FDI downturn.
Flags of the European Union and China are seen in this multiple-exposure illustration.
Viewpoint: Amid deepening divisions, EU and Chinese leaders set to meet this week
European Commission President Ursula von der Leyen and European Council President Charles Michel will visit Beijing on Dec. 7 for in-person meetings with President Xi Jinping and Premier Li Qiang. The two sides want to show a commitment to dialog at a time when their relations are coming under mounting strain, as underscored by the recent opening of an EU probe into unfair Chinese competition in the electric vehicle sector.
Similar to last month’s meeting between Xi and US President Joe Biden, this week’s EU-China summit is not expected to produce any major breakthroughs. To find out more, we spoke with Emre Peker, a director for Eurasia Group’s Europe practice, and Anna Ashton, a director for the China practice.
Why is this meeting happening now?
Emre Peker: The last time Xi and the EU’s top two officials met in person was in 2019 in Beijing, before the pandemic struck. They have met virtually a couple of times since. This week’s in-person gathering is meant to showcase Brussels and Beijing’s willingness to maintain a healthy dialog despite their growing differences.
Anna Ashton: Both sides have sought increased engagement since Beijing began lifting its strict COVID policies toward the end of 2022. The EU-China trade and investment relationship is crucial for both. Other issues of common concern include climate change, global health, and the Russia-Ukraine conflict.
What does the EU want to achieve at the summit?
Peker: Among other issues, the EU wants to address growing imbalances in its economic relations with China as well as the war in Ukraine. A key priority is to highlight the EU’s willingness to take measures to protect itself against Chinese industrial subsidies and overcapacity, which are contributing to a record-high trade deficit with China. Brussels will also seek greater Chinese collaboration on enforcing sanctions against Russia by presenting a list of Chinese companies that will be targeted for penalties unless Beijing helps halt the trans-shipment of dual-use goods. Lastly, the EU will seek to convince Beijing that Europe’s stance on China is distinct from that of the US, particularly on economic matters, to obtain more cooperation and avert escalating tensions.
What does China want?
Ashton: Protecting trade and investment ties with the EU has grown more important for Beijing given the economic headwinds it faces at home. Moreover, Chinese authorities worry about the EU’s drift toward China policies resembling those of the US and want to hammer out a distinct and more cooperative path for China-EU relations. But progress is likely to be limited given their differences on a range of issues. These include the flood of Chinese EVs entering the EU; EU steps to bolster export controls on dual-use goods — particularly tech products — and consider outbound investment screening; the obstacles faced by European companies to doing business in China; and European accusations of Chinese circumvention of sanctions on Russia.
What are the best-case outcomes we can expect?
Peker: On the economic front, a best-case outcome would be an agreement from Beijing to immediately remove trade barriers for certain EU products (such as medical devices and infant formula) and take steps that would facilitate greater market access and investment opportunities for European companies generally. On the diplomatic front, China would proactively collaborate in enforcing sanctions on Russia and commit to more diplomatic engagement on Ukraine’s 10-point peace plan.
Ashton: China’s ties with the EU are strained, but not as fraught as those with the US, so theoretically there is potential for deliverables that equal or surpass those of the Biden-Xi summit, where the two sides agreed to cooperate on bilateral irritants such as fentanyl precursors and military-to-military dialogue. China could offer narrow concessions on market access, but given the limited receptiveness shown to EU trade and investment concerns, does not appear likely to offer broad concessions. Though China and the EU continue to harbor sharply different views about the causes of the war in Ukraine and essential terms for its resolution, Beijing could signal a willingness to participate in future rounds of talks.
How do you expect EU-China relations to evolve over the medium term?
Peker: Given the expectation that the summit will not deliver any major breakthroughs, the EU will likely continue to harden its stance against China, raising the risk of Chinese commercial retaliation. The EU will not likely be able to convince Beijing of its autonomy from the US on China policies, hurting EU ambitions to establish more constructive engagement with China. Therefore, the EU is likely to seek open communication channels and stable commercial ties in the medium term, while trying to reduce dependencies on China in the long run.
Ashton: Beijing is unlikely to shift the EU away from its assessment that China has become an economic competitor. Therefore, China will continue its efforts to drive a wedge between the EU’s and the US’s approaches to relations with China, but its success in this regard will largely be determined by the politics of EU member states and the policies of the next administration in Washington.
Edited by Jonathan House, senior editor at Eurasia Group.