Janet Yellen confronts China over flood of cheap goods

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Janet Yellen began her second trip to China as US Treasury secretary by warning of the risks to jobs and businesses from overproducing certain goods in the world’s second-largest economy.

Yellen, in her first full day of meetings in the southern metropolis of Guangzhou on Friday, said she would address the issue of oversupply of Chinese products in key industries such as electric vehicles (EVs) and solar panels.

The issue is quickly emerging as a major issue around the world and in the lead-up to the US presidential election in November.

“Overcapacity is not a new problem, but it’s getting worse, and it’s creating new risks in new areas,” Yellen told a group of American executives based in China. “This could hurt business not only for U.S. companies and workers, but also for companies around the world, including in India and Mexico.”

She first mentioned the issue in an earlier meeting with leaders of Guangdong province, the country’s economic powerhouse.

U.S. officials and lawmakers have expressed concern that China’s overinvestment and overcapacity could flood global markets with cheap products, hurting local industry and jobs.

Asked by reporters on Wednesday if she would consider trade barriers if China doesn’t heed warnings about overcapacity, Yellen said: “I don’t want to govern.” [it] However, she had no immediate plans in place.

During a visit to a solar panel factory in Georgia last month, Yellen said China’s overcapacity was distorting prices and production patterns, harming American businesses and workers. He added that China is following the time-honored practice of supplying large quantities of cheap steel and aluminum to the global market with state subsidies.

He also hinted during his visit that China’s surge in exports of electric vehicles, solar panels and batteries is posing a problem at a time when the United States is investing heavily in rebuilding its manufacturing industry.

Meanwhile, the Chinese government is aware of the problem of domestic excess production capacity, and acknowledged it as an important issue at the annual economic work conference in December.

But last month, several Chinese state media outlets published editorials challenging the idea that China’s supply glut poses a threat to other countries’ economies. “What China is exporting is advanced production capacity that meets the needs of foreign customers,” Xinhua News Agency reported.

At a meeting hosted by the U.S. Chamber of Commerce, Yellen expressed concern about what she called a “shift away from a market approach to the U.S. and global economy” by China providing state subsidies to some manufacturing industries. .

She referred to the host city, Guangzhou, and emphasized the importance of pragmatism and openness, citing the late reformist leader Deng Xiaoping, who led China away from a planned economy and Maoist ideology.

“This was an important stop during Deng Xiaoping’s 1992 Southern Expedition, and he renewed China’s commitment to them. [market-oriented] It’s reform,” she said. “This is the right place to highlight the strong economic ties between the United States and China and the benefits these relationships bring to both our economies.”

The tour mark Important points in modern Chinese history. That year, Deng Xiaoping, then 88 years old, made a surprise visit to the special economic zone in Guangdong province he had previously established, affirming China’s commitment to market-oriented reforms and economic liberalization.

The tour is This policy, which occurred during a period of political uncertainty, is widely considered to have revived China’s reform and opening process, which had been largely stalled since 1989.

Yellen is scheduled to spend four days in Guangzhou and Beijing, where she will meet with Chinese Premier Li Qiang, former Vice Premier Liu He, People’s Bank of China President Ban Gongsheng, and Finance Minister Lan Fongsheng.

On Friday afternoon, Yellen met with Vice Premier He Lifeng and emphasized the importance of a “level playing field” for businesses and workers in both countries.

After the meeting, he plans to host a dinner for Yellen.

Craig Singleton, senior director of the China program at the Foundation for Defense of Democracies (FDD), a nonpartisan think tank in Washington, said concrete results from the trip may be “limited.”

“For now, China’s main focus remains on projecting that it is open for business and alleviating growing concerns about the government’s poor response to date to the looming economic downturn,” he said. Ta.

Yellen told reporters accompanying her on her visit to China that the meeting should be seen as a “continuation of dialogue” between the United States and China since the meeting between Biden and Xi at the G20 in Bali in November 2022. Ta.

Biden administration officials have suggested raising tariffs on Chinese imports to “level the playing field” for trade. As the US approaches the presidential election, candidates from both parties are looking to take a tough stance on the Chinese government. Former President Donald Trump has threatened to impose 60% tariffs on imports from China if he is re-elected.

Trade tensions are rising as Chinese leaders increasingly leverage trade promotion strategies Manufacturing for export to compensate for weak domestic demand As the economy loses momentum.

The Chinese government is pouring money into new industries such as EVs and batteries We are looking for an alternative growth engine that goes beyond that. The real estate sector, a major pillar of China’s economy, has collapsed.

“China accounts for one-third of global production, but only one-sixth of global consumption. This reality risks destroying the global trading system,” said Eurasia Group’s head of China operations. Managing Director Rick Waters said.

“Even though President Xi emphasizes ‘new productive capacity’ as the engine of future growth, the situation will only get worse without policies to boost domestic consumption.”

Mr. Xi coined the term “new productive forces” last year to emphasize the need for a new model of economic growth based on technological innovation. “Forces” often refer to emerging industries such as EVs, new materials, and artificial intelligence.

Waters said the trade conflict is likely to escalate further before the election. He referred to the investigation of Section 301, which allows the U.S. government to impose tariffs, fees, and other restrictions to address unfair trade policies by foreign governments. And the possibility of rebalancing Trump-era tariffs to raise barriers to EVs and other imports is all on the table.

Other topics Yellen plans to discuss with her Chinese counterpart include bilateral cooperation on combating illicit finance and tackling global issues such as climate change and financial stability, the Treasury Department said.

But analysts say the Chinese government is unlikely to change its economic policies.

“Yellen’s upcoming talks will only extend the illusion of constructive engagement between the two superpowers and strengthen rather than resolve China’s contentious course,” Singleton said. Ta.

He pointed to the recent enactment of a national security law in Hong Kong, which tightens the Chinese government’s control over China’s private sector and international companies operating in China, while also tightening controls on supplies it deems sensitive. They believe they want to reduce the role of U.S. multinationals in the chain.

This story has been updated with additional developments.