Senior Chinese and US finance officials agree to ‘continue to meet regularly’ amid discord

Bilateral policy matters like financial stability, capital markets issues and anti-money laundering raised at meeting in Beijing
But analysts question potential for progress as US maintains hard line on a China beset by economic headwinds

US-China relations

Ji Siqiin Washington

Published: 3:06am, 20 Jan, 2024

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Senior finance officials from the world’s two largest economies pledged to continue communication and deepen engagement after two days of meetings in Beijing concluded on Friday.

The third meeting of the Financial Working Group between China and the United States ended with “both sides agreeing to continue to meet regularly”, according to a readout from the US Treasury Department.

But analysts questioned how much further progress could be made given political contrasts limiting the working group’s ability to resolve more fundamental issues.

During a separate meeting with the American delegation on Friday, Vice-Premier He Lifeng said China was willing to work with the US to implement the important consensus reached in San Francisco, according to Xinhua, referring to the one-on-one meeting between Chinese President Xi Jinping and his US counterpart Joe Biden on the sidelines of the Asia-Pacific Economic Cooperation forum last November.

Beijing was also willing to promote the development of bilateral relations in a healthy, stable and sustainable direction, the news agency reported.

“Both sides should continue to make good use of the Financial Working Group mechanism, continue to accumulate results and consolidate the momentum of cooperation in the financial field,” He was quoted as saying.

Dominic Chiu of Eurasia Group, a New York-based consultancy, said the meeting offered a good sign that the agreement from the Biden-Xi summit to keep communication channels open was being followed up in the financial realm, although it did not address more salient points of differences between the two countries.

“More deep-seated, structural challenges are unlikely to be tackled in working-group sessions unless there is the political will to do so at the leadership level,” Chiu said.

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The high-level dialogue comes at a time of serious economic headwinds for China and as the country sees a steep decline in its exports to the US.

Beijing’s challenges can be traced to a harder policy stance adopted by Washington. The Biden administration has moved to restrict US investments in China as it diversifies American supply chains away from the Asian giant.

However, the likelihood of the two sides resolving their differences appears limited, particularly because of political positioning in a US election year, according to Yun Sun of the Stimson Centre, a Washington-based think tank.

“There is no illusion that the [Biden] administration could remove things including investment restrictions, tariffs and de-risking measures. In fact, there possibly will be more,” said Sun, observing that “the Chinese understand that”.

US Treasury Secretary Janet Yellen (left) shakes hands with Chinese Vice-Premier He Lifeng during their meeting in Beijing on July 8, 2023. Photo: AP

“There could potentially be things that Washington will need Beijing to work with it on,” she added, including the purchase of US Treasury bonds as well as stable fiscal and monetary policy, with much depending on “the overall health” of bilateral ties.

The Financial Working Group, launched in September along with an Economic Working Group, aims to serve as a channel to facilitate progress on bilateral financial policy matters. He and US Treasury Secretary Janet Yellen lead the two groups.

The American side in its readout also indicated that Yellen, who visited Beijing in July, “looks forward to a return visit to China at the appropriate time”.

Officials attending the first meeting of the new working group held in China discussed financial stability and capital markets issues, international financial institutions, sustainable finance, cross-border payments and data, and anti-money laundering and countering the financing of terrorism, according to statements from both sides.

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The meeting included a review of technical exchanges that were held between the two sides in December and January on climate stress-testing and respective resolution-planning frameworks for global systemically important banks as designated by the Swiss-based Financial Stability Board of the Bank for International Settlements.

“The two sides had a professional, pragmatic and practical discussion on … issues of major concern to both parties,” according to a statement from the People’s Bank of China, the country’s central bank.

Meanwhile, “US officials also frankly raised areas of disagreement during the conversations”, according to the Treasury readout.

But the absence of further detail or a follow-up response from the Chinese side suggested disagreements were “still being discussed at a very early stage with no immediate solution in sight”, said Chiu of the Eurasia Group.

“While officials can use the working group to communicate these actions ahead of time to minimise misunderstandings, it will not be the primary platform to initiate resolutions,” he added.

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The PBOC led the meetings in Beijing, during which Pan Gongsheng, China’s central bank governor, attended. Pan was joined by officials from China’s finance ministry, securities regulators and foreign exchange watchdog.

American members of the delegation led by the Treasury Department included representatives from the Securities and Exchange Commission and the Federal Reserve.

Sino-American tensions have risen sharply in recent years amid ongoing trade disputes, a simmering tech war, Washington’s de-risking efforts as well as controversies over Taiwan, which Beijing sees as part of China to be reunited by force if necessary.

Most countries, including the US, do not recognise Taiwan as an independent state, but Washington is opposed to any attempt to take the self-governed island by force and is committed to supplying it with weapons.

The meeting in November between Xi and Biden was their first face-to-face encounter in a year, and it delivered modest deals on military communication, drug controls and artificial intelligence, hitting a pause on the deteriorating bilateral ties.