Taking the measure of Xi’s new team was a key reason Treasury Secretary Janet L. Yellen trekked to China this week and is seen as an essential step toward narrowing the diplomatic gap between Washington and Beijing. On Saturday, Yellen got her first chance for extensive talks with China’s new economic chief, Vice Premier He Lifeng, 68, who replaced Liu in March.
In an ornate conference room at the Diaoyutai State Guesthouse, where President Richard M. Nixon stayed during his historic 1972 visit to Beijing, Yellen and He led talks that were expected to address how each government is redrawing the line between commercial links that generate profits and those that create security risks.
U.S. aims are modest: reviving government-to-government communications that withered amid the pandemic and an increasingly open strategic rivalry. Yet Yellen, who was accustomed to dealing with the U.S.-educated Liu, an economist by training, may find it difficult to identify common ground with her new Chinese counterpart.
The treasury secretary, a familiar face on the global stage from her tenure as chair of the Federal Reserve, has urged China to “shift toward market reforms,” while He has a record of supporting state-directed investments during a government career spent mostly in city and regional posts. He backed a massive development project in Tianjin that drew criticism as a white elephant before heading China’s central planning agency, where he emphasized an outsize economic role for the state.
“He’s no Liu He,” said Scott Kennedy, a senior adviser on China at the Center for Strategic and International Studies. “Yellen and He look at the world through very different lenses.”
Welcoming Yellen on Saturday, He quoted Xi on the need for “a generally stable U.S.-China relationship” and expressed a willingness to work with her to bring that about. He also alluded to “difficulties” in the relationship caused earlier this year by the Chinese spy balloon that wandered across the United States until President Biden ordered it shot down off the South Carolina coast.
In her response, a beaming Yellen stumbled over He’s name, calling him “Vice Premier Hu,” before reiterating her call for the two nations to pursue “healthy economic competition that is not winner-take-all, but that, with a fair set of rules, would benefit both countries over time.”
That will take some work. The United States and China are at odds over a lengthy list of issues. Both countries are trying to realign their supply chains to promote domestic production rather than rely on each other’s factories.
Despite mounting national security concerns in both capitals, Yellen said “a wide swathe” of U.S.-China trade could nonetheless continue without controversy.
He’s links to Xi date to the 1980s, when the latter was deputy mayor of the port city of Xiamen, and He was the city’s finance director.
The two were so close that He reportedly attended Xi’s 1987 marriage to the popular Chinese singer Peng Liyuan, said Dennis Wilder, a former Central Intelligence Agency analyst who advised President George W. Bush on China policy.
When Xi became governor of Fujian province, He served under him again. In 2012, Xi succeeded Hu Jintao as China’s top leader and two years later promoted He to the post of deputy chairman of the National Development and Reform Commission, China’s powerful central planning agency.
Now, as one of four new vice premiers, He will be responsible for economic management, including the financial sector and foreign trade, two areas in which he “does not have any prior experience,” according to Minxin Pei, editor of China Leadership Monitor, a journal based in the U.S.
“He is the epitome of a Xi Jinping protégé,” said Wilder. “This means that He Lifeng knows Xi Jinping’s mind better than just about anyone else, including Premier Li Qiang. He is an ultimate insider and an ultimate loyalist. Whatever Xi wants of him, he will do without hesitation.”
Liu, He’s predecessor, also enjoyed a close relationship with Xi, serving as his top economic adviser, crafting his signature economic policies and acting as China’s top trade negotiator during the 2018 trade war with the United States.
But his influence began to recede as Xi increasingly turned to the state sector to lead economic development. Last year, state-owned enterprises accounted for 71 percent of China’s year-over-year investment growth, according to Gerard DiPippo, a senior fellow at CSIS.
“Liu is an internationally educated policy wonk. He was once a champion of market reforms, but that lost steam over time as it wasn’t the direction Xi was most inclined to go,” said Anna Ashton, director of China corporate affairs for the Eurasia Group. “He Lifeng is a domestically educated political animal with more of a day-to-day operational focus, and a reputation for getting things done and enforcing Xi’s preferences.”
Saturday’s talks — held in a high-ceiled room lit by eight square chandeliers — included other fresh faces on the Chinese side of the table, including Pan Gongsheng, the incoming central bank chief.
Yellen and He were expected to continue their talks over dinner Saturday night, before the treasury secretary heads home on Sunday.