By David Lawder and Andrea Shalal
WASHINGTON (Reuters) -China should help end Russia's "heinous war" in Ukraine or face a loss of its standing in the world, U.S. Treasury Secretary Janet Yellen said on Wednesday, warning that those who seek to undermine Western sanctions face economic consequences.
Yellen said in a landmark speech that she "fervently" hoped that China would use its "special relationship" with Russia to persuade Moscow to pursue end the conflict, and that countries "sitting on the fence" about the war were shortsighted.
"The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia," Yellen said at the Atlantic Council think tank in Washington.
The remarks reflect Biden administration appeals for China to condemn Russia's invasion and side with Western democracies, with whom Beijing has enjoyed a lucrative economic relationship.
U.S. President Joe Biden also told Indian Prime Minister Narendra Modi on Monday that buying more Russian oil was not in India's interests.
China "firmly opposes" associating China-Russia relations with the Ukraine crisis, said Liu Pengyu, a spokesperson for China's embassy in Washington, adding that Beijing was "committed to promoting peace talks."
"China opposes all forms of unilateral sanctions and long-arm jurisdiction of the U.S., and will resolutely defend the legitimate rights and interests of Chinese companies and individuals," he said in an emailed statement.
Going forward, Yellen said that it would be increasingly difficult for China and the West to separate economic issues from broader national security concerns.
"Whatever China’s geopolitical aims and strategies, we see no benign interpretation of Russia’s invasion, nor of its consequences for the international order," Yellen said.
China cannot expect the world to respect any future appeals from Beijing on sovereignty and territorial integrity if it fails to respect these principles in Ukraine "now, when it counts," she added.
But Yellen said in a question-and-answer session that the United States needed to work hard with China to avoid a bipolar global financial system that pits market-driven democracies against autocratic, state-driven economies.
China's reliance on state-owned enterprises and other practices has damaged U.S. national security interests, she said, adding that maintaining the current relationship required changes and Beijing's cooperation.
"I would like to see us preserve the benefits of deep economic integration with China -- not moving to a bipolar world -- but I believe that's a danger we need to address," Yellen said.
Yellen also expressed concern that China's new strict COVID-19 pandemic lockdowns would cause a new wave of supply chain disruptions that could hurt the world's economic recovery.
Yellen also called for more "friendshoring," or shifting of supply chains to more trusted partner countries that are free of geopolitical conflicts.
The U.S. Treasury chief also said global economic growth would take a hit from the war between Russia and Ukraine and the Biden administration was resolute in its commitment to hold Russia accountable for its "horrific conduct" and its violations of international law.
MODERNIZING INSTITUTIONS
Yellen's remarks come just days before the International Monetary Fund and World Bank member countries convene their Spring Meetings in Washington next week, and she said the war in Ukraine will be "at the top of everyone's minds."
She called for these institutions, created at the end of World War Two, to be "modernized" to address 21st century challenges that have led to the current conflict, and help tackle other big issues including climate change, ending the COVID-19 pandemic, and supporting low-income countries.Last week, Yellen said Russia should be excluded from the Group of 20 major economies, whose finance leaders will meet next week in Washington.
Yellen also said that she plans to convene other leaders during the IMF and World Bank meetings to discuss possible solutions to food price spikes that are hurting the world's poorest.
"Some may say that now is not the right time to think big," she said, citing the war and the lingering pandemic. "Yet, I see this as the right time to work to address the gaps in our international financial system that we are witnessing in real time."