U.S. Treasury Secretary Janet Yellen called on China on Friday to address manufacturing overcapacity that she said risks causing global economic dislocation, and to create a level playing field for American companies and workers.
Starting a five-day visit in one of China’s major industrial and export hubs, she raised what the U.S. considers to be unfair Chinese trade practices in talks with senior Chinese officials.
“The United States seeks a healthy economic relationship with China that benefits both sides,” she said ahead of a meeting with Chinese Vice Premier He Lifeng and the central bank governor and other officials in the southern city of Guangzhou. “But a healthy relationship must provide a level playing field for firms and workers in both countries.”
Earlier, she said at an an event hosted by the American Chamber of Commerce in China that “Chinese practices … are tilting the playing field away from American workers and firms.”
China’s He didn’t get into specifics in remarks before the media but said that both sides “need to properly respond to key concerns of the other side.”
High on Yellen’s list is the overcapacity issue. Chinese government subsidies and other policy support have encouraged solar panel and EV makers in China to invest in factories, building far more production capacity than the domestic market can absorb.
The massive scale of production has driven down costs and ignited price wars for green technologies, a boon for consumers and efforts to reduce global dependence on fossil fuels. But Western governments fear that that capacity will flood their markets with low-priced exports, threatening American and European jobs.
Yellen, the first Cabinet member to visit China since President Joe Biden and Chinese leader Xi Jinping met last November, said that it is important for the U.S. and China to have open and direct communication on areas of disagreement.
“This includes the issue of China’s industrial overcapacity, which the United States and other countries are concerned can cause global spillovers,” she said during a meeting with the governor of Guangdong province.
Guangzhou is the capital of Guangdong, a Chinese manufacturing center that is home to telecom giant Huawei and BYD, China’s largest EV maker. Huawei has been hit hard by U.S. restrictions on semiconductor exports to China and is at the vanguard of Chinese efforts to become self-sufficient and a leader in technology.
Just as on her previous trip to China last July, Yellen got attention on social media for eating at a popular restaurant after her arrival Thursday evening.
A social media account run by Chinese state media posted a catchy video of her eating with the U.S. ambassador and other officials at Tao Tao Ju, a Guangzhou restaurant that dates to 1880.
The post, one of the most viewed on the Weibo microblog app the next morning, praised Yellen for holding chopsticks well but added, “as a U.S. official, Yellen needs to know more about China than just food. Only by knowing more about China can we set right the American view of the world, of China, of China-U.S. relations.”
Yellen, who heads to Beijing from Guangzhou, met with U.S., European and Japanese business representatives before her talks with He.
“I’ve heard from many American business executives that operating in China can be challenging,” she said at the American Chamber event at a marbled convention center.
Citing a recent survey by the Chamber that found that a third of American firms in China say they have experienced unfair treatment compared with local competitors, Yellen said the U.S. has seen China “pursue unfair economic practices, including imposing barriers to access for foreign firms and taking coercive actions against American companies.”
“I strongly believe that this doesn’t only hurt these American firms: Ending these unfair practices would benefit China by improving the business climate here,” she said in her speech.
China has pushed back against overcapacity concerns expressed by both the U.S. and Europe.
Foreign Ministry spokesperson Wang Wenbin said earlier this week that the growth in Chinese EV and solar exports is conducive to green development globally and the result of the international division of labor and market demand.
He accused the U.S. of interfering with free trade by restricting tech exports to China.
“As for who is doing non-market manipulation, the fact is for everyone to see,” he said. “The U.S. has not stopped taking measures to contain China’s trade and technology. This is not ‘de-risking,’ rather, it is creating risks.”
Yellen said at the American Chamber event that the concern about excess capacity is shared by many other countries, both developing as well as rich ones.
“This is not anti-China policy,” she said. “It’s an effort for us to mitigate the risks from the inevitable global economic dislocation that will result if China doesn’t adjust its policies.”
Scott Paul, president of the Alliance for American Manufacturing — an alliance of businesses and the U.S. Steelworkers union, said that expectations for the Chinese government’s response are low.
“One thing that Yellen hopefully can and should say is that the U.S. is prepared to use all the tools that we have available through policy to ensure that China’s industrial overcapacity doesn’t negatively harm our economic and national security interests,” he told The Associated Press ahead of Yellen’s trip.
The Alliance released a report in February that said the introduction of inexpensive Chinese autos to the American market “could end up being an extinction-level event for the U.S. auto sector.” The sector accounts for 3% of America’s economy, according to the report.
Yellen told reporters during an Alaska refueling stop en route to China that the U.S. “won’t rule out” tariffs to respond to China’s heavily subsidized manufacturing of green energy products.