Yellen returns to China to tackle economic challenges bedeviling ties with US

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CNN
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Janet Yellen has kicked off her second visit to China as US treasury secretary to continue efforts to further stabilize ties between the world’s two largest economies.

On Friday, her first full day of meetings in the southern megacity of Guangzhou, Yellen said she would address the oversupply of Chinese goods in key industries, such as electric vehicles (EVs) and solar panels. The issue has quickly emerged as a major area of contention in the run-up to November’s US presidential election.

“Overcapacity isn’t a new problem, but it has intensified, and we’re seeing emerging risks in new sectors,” she told a group of China-based American executives.

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

US officials and lawmakers have expressed concern that China’s overinvestment and excess capacity could result in cheap products flooding global markets, affecting local industries and employment.

Asked by reporters on Wednesday whether she would consider trade barriers if China doesn’t heed warnings on overcapacity, Yellen said she “wouldn’t want to rule [it] out,” though she wasn’t planning any immediate measures.

Last month, on a visit to a solar panel factory in Georgia, Yellen said China’s excess capacity was distorting prices and production patterns and hurting American firms and workers. She added that China was following its old practice of flooding the global markets with cheap, state-subsidized steel and aluminum.

She also hinted on that trip that the surge in China’s exports of EVs, solar, and batteries was creating a problem at a time when the United States has invested heavily in reviving its own manufacturing sector.

For its part, Beijing is aware of the country’s overcapacity problem, having acknowledged it as a key challenge at an annual economic work conference in December.

But last month, several Chinese state-owned media outlets published editorials challenging the notion that China’s supply glut poses a threat to other economies. “What China exports is advanced production capacity that meets the needs of foreign customers,” the Xinhua news agency wrote.

At the meeting hosted by the American Chamber of Commerce, Yellen flagged concerns about what she called China’s “shift away from a market approach on the US and global economy” by providing state subsidies to some manufacturing industries.

She referred to her host city of Guangzhou to make a point about the importance of pragmatism and openness by invoking Deng Xiaoping, the late reformist leader who led China away from a planned economy and Maoist ideologies.

“It was a key stop on Deng Xiaoping’s 1992 Southern Tour, when he renewed China’s commitment to these [market-oriented] reforms,” she said. “It’s a fitting place for me to emphasize the strong economic ties between the United States and China, and the benefits these ties can bring for both the US and Chinese economies.”

The tour marked a critical point in modern Chinese history. That year, Deng, then 88, made a surprise visit to the special economic zones in Guangdong that he had established previously and confirmed China’s commitment to market-oriented reforms and economic liberalization.

The tour, which happened during a period of political uncertainty, is widely considered to have revived the process of China’s reform and opening up, which had almost stalled after 1989.

Yellen is scheduled to spend four days in Guangzhou and Beijing and is expected to meet Chinese Premier Li Qiang, Vice Premier He Lifeng, his predecessor Liu He, People’s Bank of China Governor Pan Gongsheng and Finance Minister Lan Fo’an.

Craig Singleton, senior director of the…