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US Treasury Secretary Janet Yellen said on Wednesday that businesses reviewing their supply chains should be mindful of the geopolitical risks surrounding China's threats to Taiwan as well as other Chinese practices that have raised US national security concerns.

Yellen told The New York Times DealBook Summit in New York that the Biden administration has made clear that it respects Beijing's "one China" policy, but it was "extremely important" to maintain a peaceful relationship between China and Taiwan and peace in the Taiwan Strait.

Asked what would happen to American businesses if China made good on longstanding threats to seize control of Taiwan by force, Yellen said: "So this is something that certainly we would not want to see happen. But we are seeing a range of geopolitical risks rise to prominence, and it's appropriate for American businesses to be thinking about what those risks are."

US companies are beginning to think about such supply chain risks more seriously, including over Taiwan and Chinese practices that have raised national security concerns, Yellen said.

The US Treasury chief has recently encouraged the diversification of supply chains away from China to market-oriented democracies such as India, a concept she has dubbed "friend-shoring".

But she said continued strong business ties between the United States and China were important for the global economy.

Yellen met with China's central bank governor two weeks ago at the G20 summit in Indonesia in her first in-person engagement with a high ranking Chinese economic official, and said she is hoping for more frequent engagement between the world's two largest economies.

"I expect, certainly hope and expect that there will continue to be very strong ties between China and the United States when it comes to mutually beneficial trade and investment," Yellen told the DealBook summit.

It would not be beneficial "either to the United States or to China or to the global economy to see that erode".

China says its armed forces have a right to operate around Taiwan as it is Chinese territory

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Yellen also said China's persistent Covid-19 lockdowns were disrupting production and hampering efforts to end disruptions to global supply chains and rebuild goods inventories.

"It certainly is a threat to the progress we've made on healing supply chain difficulties, and those have really contributed importantly to inflation," Yellen said.

She said that she does not know what the right strategy is for China to manage Covid-19, but Beijing's policies were having a global impact.

"Certainly there's a difficult situation that China faces in managing this and we can see that their economy is slowing, perhaps to the point where it will really negatively impact the entire global outlook," Yellen said.

(Reuters)