BEIJING - On her current trip to China, US Treasury Secretary Janet Yellen gained Chinese fans for dining in a public area, rather than in a private room, at a modest Sichuan cuisine restaurant in Beijing.

A video of her restaurant stop, where she ordered dishes such as mapo tofu, was widely viewed online.

That moment of cordiality, however, did not mask a renewed source of tension between the two major powers that was in a key message that Dr Yellen carried to top Chinese leaders – China’s industrial overcapacity, particularly in clean technology.

Beijing’s manufacturing prowess in such technology, including electric vehicles (EVs) and solar panels, has caused increasing concern in Washington. The US has argued that a flood of cheap Chinese exports would hurt producers in other countries, including America itself.

The subject was among the top-priority issues Dr Yellen raised with Chinese leaders, including Premier Li Qiang and economic czar He Lifeng, during her six-day visit that started on April 4.

This was her second visit to the country in nine months, as US-China ties show signs of stabilising amid a series of official visits since mid-2023.

At a press conference in Beijing on April 8, Dr Yellen said US-China ties are now on a firmer footing than a year earlier in 2023, thanks to the efforts of President Joe Biden’s administration to intensify diplomacy with China and “put a floor under the relationship”.

She stressed, however, that China’s excess capacity affects not just American jobs and firms, but is also a concern shared by the US’ allies and partners, including emerging markets such as Mexico and India.

“China is now simply too large for the rest of the world to absorb this enormous capacity,” she said of China’s EV, lithium-ion battery and solar panel industries, which have been touted as the “New Three” growth drivers in Chinese media for their strong export performance.

Premier Li, however, said the issue of production capacity should be regarded “objectively” and from the economic perspective, at a meeting with Dr Yellen on April 7.

Beijing has argued that economic logic dictates that producing more of what it is good at promotes international trade, and that the US is containing its development as it moves up the industrial value chain.

China controls around 80 per cent of the world’s solar panel supply chain. Chinese EV sales rose 82 per cent in 2022, making up nearly 60 per cent of such sales globally. About 70 per cent of global battery production capacity is located in China.

In particular, EVs have emerged as an area of contention. China filed a dispute with the World Trade Organisation on March 26 contesting “discriminatory subsidies” for EVs under the Biden administration’s signature law to fight climate change, the Inflation Reduction Act, saying that it resulted in the exclusion of such goods from China.

Professor of Political Science and International Relations Zhu Zhiqun said that Dr Yellen is unlikely to succeed in her mission, which appears to be asking for China’s cooperation in minimising the negative impact of its industrial overcapacity on the US.

“There is not much China can do in this competitive environment. China will not slow its tech development to help protect American jobs,” said Prof Zhu, who is from Bucknell University in Pennsylvania.

Prof Zhu said that in the short term, the Biden administration is concerned about the displacement of US workers. The 0.2 percentage point increase in the unemployment rate to 3.9 per cent in February was not a good trend for Mr Biden, who is seeking re-election in November. The jobless rate ticked down to 3.8 per cent in March.

In the longer term, the US is worried that China may charge further ahead in high-tech industries, which it has made significant progress in despite Washington’s restrictions and sanctions, he added.

Mr Bert Hofman, a professor at the National University of Singapore’s East Asian Institute, said China’s shift from over-investment in real estate to over-investment in manufacturing could lead to industries in Western countries being dislocated, because of China’s size.

He believes Dr Yellen has substantiated her argument on the risks of such global economic imbalances, although he does not think Chinese government officials share her analysis, judging by their public statements.

Rather than focusing on manufacturing, however, Mr Hofman believes it is in China’s interest to strengthen household consumption to stimulate services growth and employment. He noted that China’s shift to manufacturing has not resulted in a stronger job market as modern factories are highly automated.

Also, over-investment and regional protectionism within China can lead to duplication and waste, he said, adding that China now has some 140 car companies, of which probably at most 10 will be viable in the long run.

Mr Clifford A. Hart, a Singapore-based senior adviser at strategic advisory firm BowerGroupAsia, said that China’s export-led model that powered its growth in the past three decades is no longer tenable because it is causing friction.

“To gut the advanced manufacturing industries in the US or Europe isn’t politically acceptable; given the size of the PRC (People’s Republic of China) economy, it wouldn’t be even if we were just talking about trade in lower-value goods. Beijing has to get used to such responses from Washington and Brussels,” he said.

Mr Hart, a US diplomat for 33 years, noted that Dr Yellen did not give ultimatums in her meetings with Chinese officials on this issue, and that the signalling from both sides was that the discussions were useful, even if they disagree.

Some see Dr Yellen’s complaint as a precursor to raising US tariffs on such China exports, although she held back from making such suggestions at her press conference.

Both sides agreed on April 6 to hold more meetings on China’s excess capacity and other topics, starting as soon as next week in the US, she told reporters.

Mr Hofman said it is encouraging that both sides are willing to engage. But he warns: “Failing a solution, trade measures from the US and others will be hard to avoid – irrespective of whether they are justified or not.”