Treasury Secretary Janet Yellen on Wednesday delivered a pointed warning to China on its alignment with Russia, suggesting potential economic consequences from the international community depending on how it approaches President Vladimir Putin’s invasion of Ukraine.
In some of her sharpest comments on China since taking office, the Treasury chief warned that “going forward, it will be increasingly difficult to separate economic issues from broader considerations of national interest, including national security.”
“The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia,” she said.
President Xi Jinping’s government has refrained from joining the U.S.-led sanctions on Russia, while calling for respect for the principles of sovereignty and territorial integrity. China has also declared that Russia’s moves on Ukraine are “not comparable at all” to Beijing’s determination to reunify Taiwan with mainland China.
‘Territorial Integrity’
“China cannot expect the global community to respect its appeals to the principles of sovereignty and territorial integrity in the future if does not respect these principles now when it counts,” Yellen said.
She also reiterated that for nations “sitting on the fence” over the international effort to punish Russia, any moves to undermine sanctions would draw the ire of the U.S. and its allies.
The speech comes a week before finance chiefs from across the globe gather — virtually and in person — in Washington for the spring meetings organized by the World Bank and International Monetary Fund.
In the face of moves by Xi to lay out China’s authoritarian system as a model for emerging and developing nations across the globe, Yellen said “the future of the international order” was at stake.
Dollar System
Yellen also rebutted any criticism that the efforts led by Washington to isolate Russia from the dollar-based global financial system were “motivated by any one country’s foreign-policy objectives.”
The U.S.-led neutralizing of about half of Russia’s foreign-exchange reserves, and cutting off a swathe of Russian institutions from accessing dollar-based financial infrastructure, has raised questions among some analysts about whether it’s abusing the greenback’s dominance.
Yellen in her speech suggested, however, that the U.S. and its allies were acting to safeguard international rules, rather than violate them. Russia, instead, is the one that’s broken with a global norms, the secretary indicated.
Principled Action
“We are acting in support of our principles — our opposition to aggression, to widespread violence against civilians and in alignment with our commitment to a rules-based global order that protects peace and prosperity,” she said.
Washington and its allies were successful in exacting deep damage even after Russia’s central bank largely removed U.S. dollars from its $640 billion-plus reserves — power that could potentially encourage some emerging markets to turn instead to other currencies for international trade and finance.
Saudi Arabia reportedly was last month considering accepting yuan payments for oil sold to China, for example.
Yellen also used the speech to call on governments to extend the cooperation shown in punishing Russia to other urgent global projects, from fighting climate change to upping the effort on vaccine distribution.
Modernizing Institutions
She urged the IMF and multilateral development banks to be modernized “so that they are fit for the 21st century.”
Nations also need to consider the governance of the IMF “to ensure that it reflects both the current global economy and also members’ commitments to the IMF’s underlying principles and objectives,” Yellen said.
The Treasury chief called for larger support for developing countries from development banks, bilateral official donors and creditors and the private sector, including for needed infrastructure and climate objectives.
“The response to date is not to the scale needed,” she said. “Experts put the funding needs in the trillions, and we have so far been working in billions.
