US-China officials to meet on economy, aim to ease tension

US Treasury Secretary Janet Yellen sits down with her Chinese counterpart on Wednesday in the highest-ranking contact between the two countries since their presidents agreed to look for ways to improve relations that have grown increasingly strained in recent years.

Yellen's first face-to-face meeting with Vice Premier Liu He comes as the US and Chinese economies grapple with differing but intertwined challenges on trade, technology and more.

The Chinese economy is reopening after a COVID-19 resurgence killed tens of thousands of people and shuttered countless businesses. The US is slowly recovering from 40-year high price inflation and is on track to hit its statutory debt ceiling, setting up an expected political showdown between congressional Democrats and Republicans. The debt issue is of keen interest to Asia, as China is the second-largest holder of US debt.

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There is also the Russian invasion of Ukraine, which continues to hinder global economic growth — and has prompted the US and its allies to agree on an oil price cap on Russia in retaliation, putting China in a difficult spot as a friend and economic ally of Russia.

And high interest rates globally have increased pressure on debt-burdened nations that owe great sums to China.

The debt issue is of keen interest to Asia, as China is the second-largest holder of US debt.

"A wrong policy move or a reversal in the positive data and we could see the global economy head into a recession in 2023,” said Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center. "Both countries have a shared interest in avoiding that scenario."

The World Bank reported last week that the global economy will come " perilously close ” to a recession this year, led by weaker growth in all the world’s top economies - including the US and China. Low-income countries are expected to suffer from any economic downturns of superpowers, the report said.

"High on the list is debt restructuring,” Lipsky said of Wednesday's talks. Several low-income countries are at risk of debt default in 2023 and many of them owe large sums to China.

"Leaders have been trying for two years to get some agreement and avoid a wave of defaults but there’s been little success and one reason is China’s hesitancy. I expect Yellen to press Liu He on this in the meeting,” Lipsky said.

Liu laid out an optimistic vision for the world’s second-largest economy in an address on Tuesday at the World Economic Forum in Davos, Switzerland.

"If we work hard enough, we are confident that in 2023, China’s growth will most likely return to its normal trend. The Chinese economy will see a significant improvement,” he said.