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The many tribulations of Liu He

June 3, 2021, 11:51 AM UTC

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On Wednesday, China’s top trade negotiator Liu He spoke by video conference with U.S. Treasury Secretary Janet Yellen. It was the first formal exchange between the two officials, each of whom is considered their nation’s most senior economic adviser.

The two governments didn’t disclose details of the conversation. China’s embassy in Washington, in a statement, reported that the two officials “candidly exchanged views on issues of mutual concern, and expressed a willingness to maintain communication.” The Treasury, in a brief readout, said Yellen discussed “the importance of cooperating on areas that are in U.S. interests, while at the same time frankly tackling issues of concern.”

For China, the substance of the talks may be less significant than the fact that the two sides are talking at all.

President Joe Biden has said he will “review” the U.S.-China trade deal signed by Donald Trump in January 2020. But it’s unclear how long that review, part of a broader reassessment of America’s relationship with China, will take. In the meantime, Biden has shown little inclination to undo provisions in the agreement that impose steep tariffs on hundreds of billions of Chinese exports to the U.S.

The call with Yellen also signals that Liu, a close ally of Chinese President Xi Jinping who hammered out the 2020 deal in round after round of negotiations with Yellen’s predecessor Steven Mnuchin and Trump administration trade representative Robert Lighthizer, remains China’s top economic envoy to the U.S.

The Wall Street Journal reported in May that Xi was considering replacing Liu, 69, with a younger vice premier who has little experience in trade matters or U.S.-China relations. Beijing promptly denied that. Liu’s call with Yellen demonstrates, as the Journal now puts it, “the continuation of his role as Beijing’s point man for U.S.-China economic relations, at least for the near term.”

As part of the phase one trade deal, China agreed that, during the two years from January 2020 through December 2021, it would expand its purchases of U.S. goods and services by a combined $200 billion above its purchases in 2017. Chad Bown, a senior fellow at the Peterson Institute for International Economics who keeps a monthly tally of both Chinese import and U.S. export data, says China has fallen far behind the deal’s commitments. It’s unclear how Biden will respond if, at the end of the two years, China comes up short.

Liu, who heads the recently-created Financial Stability and Development Committee that oversees China’s entire financial sector, has other headaches.

As I noted earlier this week, China’s currency has appreciated against the dollar to its highest level in three years—putting further pressure on Chinese exporters, and potentially slowing the nation’s economic recovery. On Monday, China’s central bank sought to rein in the yuan’s rise by ordering the nation’s financial institutions to increase the amount of foreign currencies they hold in reserve. But intervening to weaken the yuan is sure to set off alarm bells in Washington, where politicians from both political parties have long decried China for “manipulating” its currency to create an unfair advantage for exporters.

As Ken Cheung Kin-tai, chief Asian currency strategist at Mizuho Bank recently told Hong Kong’s South China Morning Post, Chinese policymakers face a dilemma: they want to stoke growth at home, but don’t want to risk antagonizing Biden by overtly curbing the yuan.

And as if that’s not enough, Liu is expected to decide the fate of Huarong Asset Management, the giant, state-controlled manager of distressed assets that has now fallen into distress itself. Huarong is one of four firms created by the Chinese government in the aftermath of the 1990s Asian Financial Crisis to help clean up a banking system that had become mired in bad debt. The companies were meant to serve as “bad banks,” state-backed repositories for bad loans made to state owned companies, which they then swapped for stakes in hundreds of other big SOEs.

The strategy worked, for the most part. But Huarong, which is majority-owned by China’s Ministry of Finance, used its implicit guarantee of state support to transform itself into a flashy, fast-growing financial conglomerate with an appetite for high-risk financial assets. In April 2018, investigators arrested Huarong’s brash chairman Lai Xiaomin on corruption charges. Lai was found guilty and executed in January of this year. Huarong missed a March deadline for filing its 2020 financial statements, spooking global bond investors who wonder how the company will make good on the billions it borrowed in overseas markets. (Bloomberg captures some of the drama of the Huarong saga here.)

It’s widely expected that the state will eventually ride to Huarong’s rescue. But Liu, who studied economics in the U.S. and earned a degree in public administration from Harvard’s Kennedy School, is considered an economic reformer. As Bloomberg‘s Tom Hancock reports, Liu’s past public comments suggest he hates bailouts and “believes allowing SOEs to default is a necessary step to force lenders to price risk based on a borrowers business prospects rather than its Communist Party links.”

The shape China’s financial sector takes from here is largely up to Liu—in more ways than one.

More Eastworld news below.

Clay Chandler

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at

Eastworld news

Tencent's empire

China’s tech industry is undergoing a reckoning, as Chinese regulators have introduced new anti-trust laws and vowed to crack down on the power of China’s largest tech firms. But Tencent, the social media giant that owns the popular messaging app WeChat, has thus far evaded the government scrutiny applied to rivals like Alibaba, in part due to its massive investment portfolio and the strong networks it has built in China’s tech sector. “Cozy relationships help cement Tencent’s power in China,” writes the New York Times.

WHO decides

On Wednesday, the World Health Organization (WHO) authorized Sinovac’s vaccine for emergency use, the second Chinese-made vaccine the WHO has approved in under a month after green-lighting a vaccine from state-owned manufacturer Sinopharm. China’s COVID-19 vaccine development process was unorthodox and somewhat risky, given widespread distribution efforts before the conclusion of clinical trials and lack of transparency. But the strategy appears to have paid off with the WHO approval, as both manufacturers have the opportunity to supply their much-needed vaccines to lower- and middle-income countries. Fortune

Crypto crackdown

India is skeptical about crypto. Earlier this year, India’s Parliament was set to decide on a bill that would've completely banned cryptocurrencies, punishing violators with potential jail time and fines. A vote on the bill has been delayed until July, giving Indian crypto firms time to convince the government of the potential benefits of blockchain technology and cryptocurrencies, such as sending money to remote villages in a transparent manner. Still, the crypto community is worried, and some enthusiasts are pulling their savings from crypto holdings in anticipation of a government crackdown. Fortune

No vigil

Hong Kong authorities have banned a candlelight vigil planned for Friday to commemorate those who died in the Tiananmen Square massacre on June 4, 1989 for the second year in a row as Beijing tightens its grip on the city. Last year, tens of thousands of mourners showed up even though Hong Kong authorities had cancelled the event, citing COVID-19 concerns. The government has since jailed dozens of activists for organizing last year’s vigil, and has warned that anyone who attends this year could face up to five years in prison for unauthorized assembly. Financial Times

Faster Fashion

Little-known Chinese online fashion startup Shein is arguably the most disruptive fashion company in decades, selling fashionable clothes at bargain prices and breakneck speed. Shein can bring new clothing products from conception to market in just five days, more than three times faster than Inditex, the world’s largest fashion group and owner of Zara, according to suppliers. Shein now ships to over 220 countries, outranks Amazon on global app downloads, and is valued at a reported $15 billion. Caixin Global 

Markets and movers

BMW – The German automaker is building 360,000 electric-vehicle stations in China as it ramps up efforts to capture a portion of China’s growing EV market. BMW plans to launch 12 new all-electric car models in China by 2023. Bloomberg 

Apple – China now holds the top spot on Apple’s list of suppliers for the first time, with 51 companies supplying Apple in China compared to 48 in second place Taiwan. The list signals that Apple is growing increasingly reliant on China’s supply chain even as Washington has urged U.S. companies to untangle relationships with China. Nikkei Asian Review

Tokyo 2020 – Ten thousand of 80,000 volunteers have told organizers of the Tokyo Olympics that they will not participate in the games, citing the country’s low vaccination rate and worries about contracting COVID-19 from athletes and other people coming to Japan for the games. Associated Press

The Serum Institute of India – The world’s largest vaccine maker is seeking government approval in India to produce shots of Russia’s state-backed Sputnik V COVID-19 vaccine. The Serum Institute is already producing doses of AstraZeneca and Novavax COVID-19 vaccines. Reuters

TSMC – The Taiwanese chipmaker said Wednesday that it has begun construction on a $12 billion chipmaking factory in Arizona. TSMC expects the plant to be ready by 2024. It marks the first factory that TSMC has set up in the U.S. in the last two decades. Nikkei Asian Review

Flash – Thai logistics startup Flash Group said on Tuesday that it raised $150 million in its latest fundraising round, pushing its overall valuation above $1 billion to become Thailand’s first unicorn. Flash boasts some 7,000 delivery points and 27,000 employees in the country. Reuters

Final figure


In 2020, musicians could not count on a stream of revenues from world tours and sold-out shows. But Hybe, the South Korean music and entertainment giant, grew its year-on-year sales by 36%. The success was largely due to the performance of BTS, its most popular band. During the first half of last year, BTS accounted for 87.7% of Hybe’s revenues. BTS was able to weather the pandemic and offset show cancellations with its merchandising revenues, album sales, and other content. Nikkei Asian Review

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