U.S.-China High-Level Talks on Yuan Transparency and Rare Earths Control

As China plays its rare earth control card, the U.S. has called for enhanced transparency of the yuan. This comes as both nations prepare for a series of high-level meetings, including the U.S.-China summit, and are vying for the upper hand in negotiations.

China’s Ministry of Commerce announced on the 7th that it will require real-time transaction information from importers of crude oil, iron ore, copper ore, and potash fertilizer, which require import licenses. This is an update to the ‘General Product Import and Export Reporting Statistics System’ established in 2021. According to the regulations, rare earth exporters must also submit shipment data, origin, contract date, and quantity information to the authorities. The regulation was enacted on the 31st of last month and will be implemented for two years.

China had previously announced export controls on gallium, germanium, and graphite in July and October, respectively, in retaliation for U.S. export controls against China. This is why there are concerns that this measure might be a preliminary step to include rare earths in the list of prohibited exports.

In particular, it seems that China is trying to gain an upper hand in the negotiations by announcing this measure ahead of the bilateral meeting between Vice Premier Liu He and U.S. Treasury Secretary Janet Yellen on the 9th and 10th, and the U.S.-China summit during the Asia-Pacific Economic Cooperation (APEC) summit from the 15th to the 17th, playing the ‘resource weaponization’ card.

According to the International Energy Agency (IEA), China mined 68% of the world’s rare earths last year. This means China has a grip on the global supply chain of rare earths, essential for advanced manufacturing industries such as electric cars and smartphones.

The U.S. has also pulled out its pressure card against China in preparation for bilateral economic talks. The U.S. Treasury Department designated China and five other countries as currency watch list countries in its semiannual currency report released on the same day. The Treasury Department criticized China for “not disclosing facts about foreign exchange interventions and lacking transparency in its exchange rate mechanism.”

The Treasury Department also said, “China’s lack of transparency and extensive use of tools complicate the Treasury’s ability to assess the impact of the authorities and state-owned banks’ actions on the exchange rate,” emphasizing, “The Treasury will closely monitor China’s exchange rate management, capital flows, regulatory measures, and potential impacts on the exchange rate in the future.”

The release of the currency report just two days ahead of the San Francisco meeting between Secretary Yellen and Vice Premier Liu is interpreted as an attempt to pressure China.

Citing a senior U.S. official, Bloomberg reported, “The Treasury Department is calling for yuan transparency from China as the meeting between Secretary Yellen and Vice Premier Liu approaches,” and “The Treasury Department plans to raise concerns about the lack of transparency in China’s currency management and monetary policy over the next few weeks.”

By. Lee Ji Won