By Andrea Shalal and Joe Cash
BEIJING (Reuters) - U.S. Treasury Secretary Janet Yellen called on Friday for market reforms in China and criticized its recent tough actions against U.S. companies and mineral export controls, while China's premier called on her to "meet China halfway" and put bilateral relations back on track.
Yellen met with Premier Li Qiang on Friday during a visit to Beijing aimed at repairing fractious U.S.-Chinese economic relations, but made clear in her public remarks that Washington and its Western allies will continue to hit back at what she called China's "unfair economic practices."
Despite talk of U.S.-China economic decoupling, recent data show that the world's two largest economies remain deeply linked, with two-way trade hitting a record $690 billion last year.
"We seek healthy economic competition that is not winner-take-all but that, with a fair set of rules, can benefit both countries over time," Yellen told Chinese Premier Li Qiang in a meeting on Friday that the Treasury said was "candid and constructive."
China released a statement from Li calling for strengthened communication, consensus on economic issues and "candid in-depth and pragmatic exchanges, so as to inject stability and positive energy into Sino-U.S. economic ties."
"China hopes the U.S. will uphold a rational and pragmatic attitude, meet China halfway, and push China-U.S. relations back on track soon," Li's statement said.
It made no mention of recent semiconductor-related mineral export controls from both countries.
Yellen is due to meet with Chinese Vice Premier He Lifeng -- her direct counterpart as China's top economic official -- on Saturday, a U.S. Treasury official said.
Yellen also spoke to the American Chamber of Commerce in China (AmCham) after what a Treasury official called "substantive" talks with former Chinese economy czar Liu He -- He Lifeng's predecessor -- who remains a close confidante of President Xi Jinping. Yellen also met with departing top Chinese central banker Yi Gang.
Yellen and other U.S. officials are walking a diplomatic tightrope, trying to repair ties with China after the U.S. military shot down a Chinese government balloon over the United States while continuing to push Beijing to halt practices they view as harmful to U.S. and Western companies.
Yellen said she hoped her visit would spur more regular communication between the two rivals, and said any targeted actions by Washington to protect its national security should not "needlessly" jeopardize the broader relationship.
U.S. officials have downplayed the prospects for any major breakthroughs, while highlighting the importance of more regular communications between the world's two biggest economies.
China hopes the United States will take "concrete actions" to create a favourable environment for the healthy development of economic and trade ties, its finance ministry said in a statement on Friday.
"No winners emerge from a trade war or from decoupling and 'breaking chains'," the statement added.
Li told Yellen a rainbow that appeared as her plane landed from Washington on Thursday offered hope for the future of U.S.-China ties.
"I think there is more to China-U.S. relations than just wind and rain. We will surely see more rainbows," he said.
U.S. companies in China hope Yellen's visit will ensure trade and commercial lanes between the two economies remain open, regardless of the temperature of geopolitical tensions.
AmCham President Michael Hart welcomed Yellen's "extra firepower" in pressing for changes in China's policies, and said her visit could pave the way for more exchanges at lower levels between the two sides.
"I think if there was another year of no visits by top U.S. government leaders, the market would get colder," he added.
POSSIBLE BIDEN-XI MEETING
The U.S. diplomatic push comes ahead of a possible meeting between President Joe Biden and Xi as soon as September's Group of 20 Summit in New Delhi or the Asia-Pacific Economic Cooperation gathering scheduled for November in San Francisco.
Secretary of State Antony Blinken traveled to Beijing last month and agreed with Xi that the mutual rivalry should not veer into conflict. Biden's climate envoy John Kerry is expected to visit later this month, and the US Treasury believes climate finance is an area where Beijing and Washington can cooperate.
Yellen told the U.S. business executives a "stable and constructive relationship" between the two countries would benefit U.S. companies and workers, but Washington also needed to protect its national security interests and human rights.
Regular exchanges could help both countries monitor economic and financial risks at a time when the global economy was facing "headwinds like Russia's illegal war in Ukraine and the lingering effects of the pandemic," Yellen added.
At the same time, she said she would raise concerns with Chinese officials about Beijing's use of expanded subsidies for state-owned enterprises and domestic firms, barriers to market access for foreign firms, and its recent "punitive actions" against U.S. firms.
New Chinese export controls on gallium and germanium, critical minerals used in technologies like semiconductors, were also concerning, she said, adding the move underscored the need for "resilient and diversified supply chains."
MARKET REFORMS
Yellen also took aim at China's planned economy, urging Beijing to return to more market-oriented practices that had underpinned its rapid growth in past years.
"A shift toward market reforms would be in China's interests," she told the AmCham event.
"A market-based approach helped spur rapid growth in China and helped lift hundreds of millions of people out of poverty. This is a remarkable economic success story."
Yellen dismissed the idea of decoupling the U.S. and Chinese economies, nothing that China's enormous and growing middle-class provided a big market for American goods and services. and stressed that Washington's targeted actions against China were based on national security concerns.
A Treasury official said the vibrant U.S. business community in China was "a living embodiment that we are not decoupling."
"We have no interest in decoupling. We've got lots of leading American firms who have had a very long history and are deeply enmeshed into the Chinese economy," the official told reporters.