Treasury Secretary Janet Yellen’s trip to Beijing beginning today aims to “deepen communication” between the U.S. and the People’s Republic of China, but it also comes at a time of growing tension between the two countries over technology.
Just as Yellen was announcing the plan on Monday to visit Beijing from July 6-9, reports emerged that China was going to restrict exports of two minerals it produces that are critical to the semiconductor industry.
The controls, on exports of gallium and germanium, are aimed at protecting China’s national security and go into effect Aug. 1.
The move was interpreted as another escalation of the tit-for-tat between China and the U.S. over technology. The Biden administration intends to limit China’s access to cloud-computing services, according to The Wall Street Journal on Tuesday. That could affect major American tech firms such as
Microsoft
(ticker: MSFT) and
Amazon.com
(AMZN).
That news came a week after reports the U.S. was planning to ban sending chips for artificial intelligence to China without a license, something that could hit
Nvidia
(NVDA) and
Advanced Micro Devices
(AMD). The Biden administration earlier put restrictions on the sale of sophisticated chips to Chinese companies.
Yellen’s visit will build on a June visit by Secretary of State Antony Blinken and President Joe Biden’s meeting with China’s President Xi Jinping at the G-20 summit in November.
Goodwill generated by Blinken’s visit was overshadowed by Biden’s comments calling Xi a dictator, followed by news that China has reportedly struck a pact to build an electric eavesdropping facility in Cuba.
George Magnus, research associate at Oxford University’s China Centre, told Barron’s: “I think the best that can be said is that her visit continues initiatives that both sides have taken recently to re-establish dialogue,” but he added that the expectations for the visit are low. There aren’t many issues both sides are going to find agreement on.
Stephen Roach, a senior fellow at Yale University’s Jackson Institute for Global Affairs and a former chairman of
Morgan Stanley
‘s Asia operations, told Barron’s: “It is certainly good news that the two sides are talking again. But I remain concerned that there is no clearly defined agenda for progress.”
Roach said Yellen’s trip will mean an important exchange of views, “but no real actionable items on the agenda, except possibly debt relief for developing economies. Talk is good — especially after such an acrimonious five months. But without concrete action, there is always the risk that talk can be cheap.”
Here are some of the issues that have heightened investors’ worries:
Cloud-Computing Chips
With a possible restriction on Chinese access to cloud-computing services, tech giants might need U.S. government permission to provide services to Chinese customers using artificial intelligence chips. Such services allow customers access to powerful computing capabilities without purchasing restricted equipment, including chips, the Journal reported.
The Biden administration has been stepping up efforts to limit transfers of chips, computing products, and computing services to Chinese companies, citing national security concerns. China, for its own part, has banned Chinese companies from buying products made by
Micron Technology
(MU), the largest American memory chip maker.
Xi on Wednesday urged companies to stop decoupling their supply chains from foreign countries, arguing that it harms all sides, even though China is putting restrictions on metals that make up a critical component of the chip-making industry.
Chinese Premier Li Qiang has criticized Western efforts to shrink China’s role in global supply chains, saying interdependence is “a good thing, not a bad thing.”
Yellen has said that fully separating the U.S. economy from China’s would be “disastrous for both countries” and destabilizing for the rest of the world, adding that the two nations “can and need to find a way to live together and share in global prosperity.” She has urged cooperation on urgent global challenges despite geopolitical differences and disagreements over economic development.
Semiconductor Manufacturing
Industrial experts see China’s move to restrict gallium and germanium as retaliation against the U.S. export restrictions, but they say it is unlikely to immediately affect global semiconductor output, because too-strict controls would hurt China’s own technology industry, the Journal reported.
China produces about 60% of the world’s germanium and around 80% of its gallium, according to the Critical Raw Materials Alliance, an industry body. Materials using the metals, such as gallium nitride and gallium arsenide, are used for power chips, radio frequency amplifiers, LEDs, and other applications.
China’s restrictions serve as a warning shot “to remind countries including the U.S., Japan, and the Netherlands that China has retaliatory options and to thereby deter them from imposing further restrictions on Chinese access to high-end chips and tools,” analysts at Eurasia Group, a risk consulting firm, told clients.
Beijing’s announcement also prompted South Korea to hold an emergency government meeting on Tuesday to weigh the potential consequences of China’s restrictions on its sourcing of critical materials, and Japan’s government to consider what the restrictions would mean for its semiconductor industry, the Journal reported.
U.S. Industrial Policy
Since taking office, Biden has supported policies designed to move chip manufacturing back to the U.S., part of a broader vision of U.S. industrial policy aimed at reviving manufacturing with the help of federal government incentives.
The bipartisan CHIPS Act and the Inflation Reduction Act both provide federal investment in industries in partnership with the private sector, to encourage the domestic growth of the chip, electric vehicles, clean energy and other industries.
In meetings with senior Chinese officials, Yellen will discuss the importance of the world’s two largest economies to “responsibly manage our relationship, communicate directly about areas of concern, and work together to address global challenges,” the Treasury Department said.
Yellen said in April that the U.S. seeks to secure its national security interests and those of its allies and to protect human rights through actions that aren’t intended to gain economic advantage. The U.S. also seeks a “healthy economic relationship with China that fosters mutually beneficial growth and innovation and expands economic opportunity for American workers and businesses.”
Write to Janet H. Cho at [email protected]
Read the full article here
