U.S. Treasury Secretary Yellen and Chinese Vice Premier Agree to Launch Economic Exchanges

On the 21st of March, U.S. Treasury Secretary Janet Yellen and Chinese Vice Premier He Lifeng concluded a two-day economic dialogue in Guangzhou, China, reaching an agreement to initiate discussions aimed at achieving "balanced" economic growth. The discussions are intended to address U.S. concerns regarding China's excessive manufacturing capacity. Secretary Yellen expressed her intention to advocate for a level playing field for American workers and firms during these exchanges.

In addition to launching exchanges on balanced economic growth, Secretary Yellen and Vice Premier He agreed to establish a forum to collaborate on anti-money laundering efforts within their financial systems. The purpose of these exchanges is to facilitate discussions on macroeconomic imbalances, specifically their interconnection with overcapacity. Secretary Yellen emphasized the importance of these discussions in advocating for fair conditions for American workers and firms.

Productive Discussions and Concerns

Secretary Yellen characterized her discussions with Vice Premier He as productive and frank, lasting for four and a half hours. She reiterated her top priority to persuade Chinese officials to address excess production capacity in the electric vehicle (EV), solar panel, and other clean energy technology sectors.

While the Biden administration faces mounting pressure from U.S. lawmakers to impose tariffs on Chinese EVs to protect U.S. producers, Chinese state media dismissed the arguments on excess capacity as a "pretext" for protectionist U.S. policies. Nevertheless, Secretary Yellen did not issue threats of tariff increases or other trade barriers during the discussions.

Structured Forum and Bilateral Relationship

Elaborating on the forum, Secretary Yellen highlighted its role in providing a structured platform to address the complex issue of overcapacity. She emphasized that resolving these issues would be critical to the bilateral relationship and China's relations with other key countries.

Chinese news agency Xinhua described the discussions between Secretary Yellen and Vice Premier He as candid, pragmatic, and constructive. Beijing expressed concerns about U.S. economic and trade restrictions and responded comprehensively to the production capacity issue during the talks. Furthermore, they conveyed their confidence in addressing issues within the property sector and local government debt in the world's second-largest economy.

Future Dialogue and Potential Challenges

The U.S. Treasury official, speaking anonymously, indicated that the balanced growth forum was initially proposed in February during an economic working group meeting. However, former U.S. trade negotiator Wendy Cutler cautioned that while the forum focusing on overcapacity was a positive step, there is a risk of it becoming a stalling tactic to defer necessary actions.

Secretary Yellen reiterated that Chinese firms would face significant consequences if they provided material support to Russia's invasion of Ukraine. In response, the Chinese side clarified that their policy does not support such actions and expressed their desire to avoid turning this into a bilateral issue.

Impact on U.S.-China Economic Relations

Despite the potential for a major shift in Chinese policy, U.S. officials underscored the importance of conveying the economic risks associated with overinvestment in certain sectors and weak consumer demand, both within China and for its trading partners. Secretary Yellen emphasized the need to bolster U.S.-China ties to withstand challenging circumstances.

Secretary Yellen is scheduled to continue her discussions in Beijing, where she will meet with several high-ranking officials, including Premier Li Qiang, Finance Minister Lan Foan, and People's Bank of China Governor Pan Gongsheng.