BEIJING – US Treasury Secretary Janet Yellen on April 7 raised her concerns about China’s excess industrial capacity with Chinese Premier Li Qiang, telling him that bilateral relations were now more stable because the two sides can have “tough” discussions.

As they began a meeting in Beijing, Mr Li responded that the two countries needed to respect each other and should be partners, not adversaries, adding that “constructive progress” had been made during Dr Yellen’s trip.

Dr Yellen said Washington and Beijing had a “duty” to manage the complex relationship responsibly.

“While we have more to do, I believe that, over the past year, we have put our bilateral relationship on more stable footing,” she said.

“This has not meant ignoring our differences or avoiding tough conversations. It has meant understanding that we can only make progress if we directly and openly communicate with one another.”

Dr Yellen has made the threat of China’s excess production of electric vehicles (EVs), solar panels and other clean energy products – which will hurt producers and jobs in the US and other countries – a focus of her visit.

A senior US Treasury official said later that China’s excess industrial capacity and the government support that has fuelled it were discussed at length during the meeting and Mr Li showed some willingness to have US and Chinese economic teams explore the issue further.

Although there were some differences of opinion, “there was not ideological or inflammatory pushback”, the official said. “It was a much more legitimate conversation of policymakers.”

State news agency Xinhua on April 7 quoted Mr Li as saying the US should “refrain from turning economic and trade issues into political or security issues and view the issue of production capacity from a market-oriented and global perspective”.

The development of China’s clean energy sector, where overcapacity concerns are felt most acutely, will support the global energy transition, Xinhua quoted Mr Li as saying.

Warm welcome

Following her meeting with Mr Li, Dr Yellen met Beijing Mayor Yin Yong and attended events at the elite Peking University, where students gave her a standing ovation.

Dr Yellen has received a warm welcome on her second trip to China in nine months, which featured several social and cultural events, including a Pearl River boat cruise in Guangzhou and a private, after-hours tour of Beijing’s Forbidden City.

Her first visit in July 2023 was all business as she sought to normalise bilateral economic relations after a period of heightened tension caused by differences over issues ranging from Taiwan to Covid-19’s origins and trade disputes.

In a further sign of ties stabilising, US President Joe Biden and Chinese President Xi Jinping sought to manage tensions over the South China Sea in a nearly two-hour-long call on April 2, their first direct talks since a summit in November 2023.

US and Chinese military officials met their Chinese counterparts in early April for a series of rare meetings in Hawaii focused on operational safely and professionalism.

Balanced growth

On April 6 in Guangzhou, Dr Yellen and her main economic counterpart, Vice-Premier He Lifeng, agreed to launch a dialogue focused on “balanced growth”.

Dr Yellen said she intends to use the forum to advocate for a level playing field with China to protect US workers and businesses.

The Economist Intelligence Unit forecasts that China’s battery manufacturing capacity will outpace demand by a factor of four by 2027, as its EV industry continues to grow.

But rapid growth has also meant China has created excess manufacturing capacity that could be between five million and 10 million EVs a year, according to consultancy Automobility.

Still, far from curbing investment in manufacturing, China has doubled down on Mr Xi’s new mantra of unleashing “new productive forces” by investing in cutting-edge technology, including EVs, commercial spaceflight and life sciences – areas where many US firms hold advantages. REUTERS