Scoop: Yellen's plan for a breakthrough with China

Treasury Secretary Janet Yellen will use improved communications with Beijing to discuss "contentious" issues, gain new insight into China's economy — and learn how leaders there plan to respond to issues, she tells Axios.

Why it matters: The Biden administration is taking a series of steps to try to repair relations with China's government, ahead of a potential meeting between President Biden and China's president, Xi Jinping, later this fall.

• At the same time, top Treasury officials want a better understanding of the fundamentals — and potential risks — in China's economy, the world's second-largest behind that of the U.S.
• "We want an opportunity to be able to ... pick up the phone and ask questions when issues arise that we need to understand — and vice versa," Yellen said. "It will provide some opportunity to discuss contentious topics."
• Yellen added that the aim is to "deepen our understanding of what's happening in [China's] property sector, the general economic problems that they face and the policy approaches that they're taking."

Driving the news: The nations' governments announced two new U.S.-China working groups working groups last week.

• The two sides also are discussing a potential U.S visit by Xi's top economic adviser, Vice Premier He Lifeng, to help pave the way for a Biden-Xi meeting at the Asia Pacific Economic Forum in San Francisco in November, according to the Wall Street Journal.
• The Biden administration hasn't officially announced Xi's participation, but a State Department spokesperson said, "There's no substitute for leader-to-leader communication."

Zoom out: The Chinese economy faces substantial challenges, which has scary implications for global growth.

• Its property market is in a free fall, and the construction giant Evergrande defaulted on $300 billion in liabilities in 2021.
• China's youth unemployment rate is above 20% — the government announced in August that it would stop releasing monthly data on it.

Zoom in: For at least 20 years, Democratic and Republican administrations have sought to formalize communications with their Chinese counterparts to manage global risks between the world's two biggest economies.

• That approach, the so-called Strategic and Economic Dialogue, led to big formal meetings where a range of topics were discussed.

• The new working groups are designed to discuss economic issues at a more technical level — and more frequently.

The big picture: U.S.-China relations soured in Biden's first two years and there were few high-level meetings, either at the economic or strategic level.

• In their first face-to-face meeting as presidents in November of 2022, Biden and Xi sought to improve the countries' relationship, with plans for a series of Cabinet -level visits.
• Yellen, meeting her Chinese counterpart in Zurich in January, announced plans to visit Beijing in the "near future."
• But her trip, along with one by Secretary of State Antony Blinken, was postponed, after a Chinese spy balloon drifted above middle America.

What we're watching: The two sides still haven't restored military-to-military communication, which was a key goal for Blinken when he visited in June.

• Yellen hopes to receive feedback from the Chinese on Biden's executive order to restrict outbound investments into China's semiconductor, artificial intelligence and quantum computing industries.