No imminent US sanctions on Chinese banks for their trade with Russia: Janet Yellen

But American treasury secretary says the policy option is something Washington ‘would be prepared to use if necessary’
Yellen’s remarks come as top US diplomat visits China and both sides scale up official contacts to keep relations from fraying

US-China relations

Ji Siqiin Washington

Published: 1:40am, 26 Apr 2024

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American sanctions on Chinese banks for their trade with Russia are not imminent, US Treasury Secretary Janet Yellen said on Thursday.

“I have nothing to announce in terms of sanctions [on Chinese banks],” Yellen stated during an interview with Reuters.

But the policy option was something the US “would be prepared to use if necessary”.

“We’ve had intensive discussions with the Chinese about this. I think they understand our position, and it is a tool that’s available,” she said.

In December, US President Joe Biden signed an executive order giving the US Treasury authority to sanction foreign banks that facilitate the flow of military goods to Russia.

More recently, Washington was weighing sanctions against Chinese banks to help US Secretary of State Antony Blinken – now visiting China from Wednesday to Friday – persuade Beijing to halt commercial support for Russia’s military production, according to a Wall Street Journal report on Monday.

Blinken’s visit, his second to the country in 12 months, comes as the US and China scale up official contacts to keep their relations from fraying amid their ongoing disputes over issues like trade and Taiwan.

Yellen earlier this month travelled for a week to China, meeting with senior Chinese officials and members of the American business community. She voiced US concerns about China’s industrial overcapacity, especially in the new-energy supply chain.

US risks ‘gargantuan’ financial turmoil with threats against Chinese banks

“My responsibility is to emphasise the undesirable spillovers of excessive subsidies to everything in the clean-energy supply chain. And to make sure that that’s heard at the highest level,” she said in Thursday’s interview.

Chinese overcapacity was not just a US issue, Yellen added, describing it as affecting Europe, Japan and emerging markets like India and Mexico.

“We’re not trying to dominate the global market. We have no problem with China producing and selling globally and exporting,” she continued.

“But the United States and Europe and other countries also want to have some involvement in the ability to produce clean-energy products that are going to be of great importance.”

A Xiaomi SU7 sedan on display at one of the company’s stores in Shanghai. China now makes more than 60 per cent of the electric cars in operation worldwide. Photo: Bloomberg

In the past decade, China has grown into the biggest player in the global new-energy industrial chain, helped by policy support, heavy government subsidies and the world’s most complete manufacturing infrastructure network.

It now dominates 80 per cent of the global supply chains of photovoltaic products and automotive batteries, while more than 60 per cent of electric cars in operation globally were made in China.

As a result, the country’s perceived monopoly of the sector has evoked some backlash.

The US has largely kept Chinese EVs at bay, thanks to an additional 25 per cent tariff imposed since the administration of former president Donald Trump.

In 2022, the Biden administration enacted the Inflation Reduction Act that entails comprehensive subsidies for US domestic new-energy manufacturers.

How far did Janet Yellen’s trip move the ball for US-China relations?

Yellen said she has been engaging in “intense discussion” with Chinese senior officials on the issue of industrial overcapacity, including during the fourth meetings of the US-China economic and financial working groups that took place on the sidelines of the International Monetary Fund and World Bank spring meetings in mid-April.

“This is a problem that developed over many years. It’s not going to be solved in a day or a week,” Yellen said.

“So it’s important that China recognises the concerns and begins to act to address them. But we don’t want our industry wiped out in the meantime, so I wouldn’t want to take anything off the table.”

The treasury secretary noted her thoughts on comparative advantage – a foundational principle in international trade referring to an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners – has changed with respect to China, while denying it presaged further protectionism.

“It’s well documented that the United States experienced what’s referred to as a ‘China shock’, which was after China was admitted to the WTO, its exports to the United States utterly surged,” she said.

“And that really ended up with the huge loss of good manufacturing jobs in parts of the country that have really never seen employment recover,” she added.

“I’ve been in favour of free trade. But it has to be something that broadly benefits people throughout the country.”

On Thursday, He Yadong, spokesman for China’s commerce ministry, told a press conference in Beijing that Western “hype” over China’s overcapacity was “unreasonable” and that the country firmly opposed it.

“The issue of production capacity must be based on the background of economic globalisation, fully consider the reality of the global division of labour and the international market and uphold an objective, fair and scientific stance,” He said.

In the new energy sector, there was no overcapacity, he added, but rather a shortage of capacity from a global perspective, with China providing affordable, high-quality products for the world’s green development.

“Relevant countries and regions cannot hold high the banner of green development while wielding the big stick of protectionism,” said He. “This is a typical contradiction and double standard.”