Yellen Says US ‘Monitoring Carefully’ China’s Economic Woes but Sees No Significant Impact on US Economy

Treasury Secretary warned that East Asian countries may be affected by developments in China’s economy.

Treasury Secretary Janet Yellen delivers remarks on the Inflation Reduction Act after visiting the site of a new paperless processing initiative in McLean, Va., on Aug. 2, 2023. Stefani Reynolds/AFP via Getty Images

NEW DELHI—Treasury Secretary Janet Yellen says the United States is keeping a careful eye on the economic situation in China, but there is no reason to worry that it will have a significant effect on the United States.

Speaking at a Sept. 8 press briefing on the sidelines of the G-20 summit in India, Ms. Yellen said China faces a variety of short- and long-term economic challenges. She highlighted low consumer spending and long-standing problems in the property sector of China.

“We’ve been monitoring carefully, including the less of a pickup in consumer spending than had been anticipated in the aftermath of the COVID restrictions, as well as long-standing issues with respect to the property sector and debt related to that,” Ms. Yellen said.

“And longer term, of course, population growth is now turning negative, and the labor force is beginning to shrink. So, we see China’s growth as slowing over time.”

However, Ms. Yellen still believes that China has considerable room for maneuver in addressing these challenges. Hence, she predicts that there won’t be very significant direct effects on the United States.

“Countries in East Asia are more likely to be affected by the slowdown, but it’s something that we are keeping an eye on,” she said.

The world’s second-largest economy hasn’t significantly rebounded since the end of the nation’s zero-COVID policy and consumer spending isn’t showing any signs of recovery, baffling many economists. And evidence is mounting that China’s economy is in a worse state than previously thought.

One concern is that years of central bank stimulus promoted waves of infrastructure development—roads, airports, bridges, and power—in cities throughout China. As a result, local governments took out huge loans to pay for these expensive and, at times, wasteful projects. Now, Beijing is trying to manage the excess debt created by this bubble, which is on the verge of bursting, according to China experts. This massive debt is one of the reasons why the country is in jeopardy, as it poses a huge threat to economic stability, and Beijing is running out of options.

Economists believe that these challenges may have ramifications beyond China, particularly in emerging countries.

G-20 Summit to Begin Tomorrow

Leaders from the world’s richest and most powerful countries gather in India’s capital, New Delhi, on Sept. 9–10 for the summit of the Group of 20, where they will discuss a wide range of issues, from climate change to economic security.

President Joe Biden will also be attending the summit and plans to specifically tackle the Chinese regime’s “coercive and unsustainable lending” practices.

However, Chinese leader Xi Jinping won’t be attending the summit in New Delhi. Instead, Premier Li Qiang will represent Beijing at this year’s meeting.

While China has become the world’s largest creditor in recent years, its aggressive lending strategy under the Belt and Road Initiative has been criticized by other countries for its lack of transparency.

“We believe that there should be a high standard of non-coercive lending options available to low- and middle-income countries,” White House National Security Adviser Jake Sullivan said at a press briefing on Sept. 5.

That’s why the United States is championing “fundamentally reshaping and scaling up” multilateral development banks such as the World Bank, he said.

Ms. Yellen noted that President Biden asked Congress to provide additional funding to the World Bank in its latest supplemental budget request last month (pdf). She expects this funding to leverage around $25 billion in U.S.-backed financing for low-income countries.

She said that the administration is asking other G-20 partners to enhance the financial capacity of multilateral development banks.

“We have asked other countries to join with us to the extent that they’re able to in this initiative, and we are hopeful that other countries, depending on their financial capacity, will join us,” Ms. Yellen said.