By Peter Bergman (MoneyAmped.com)
U.S. Treasury Secretary Janet Yellen is set to visit China this week for further economic discussions with top Chinese officials. According to the Treasury Department’s announcement on Tuesday, the focus will be on the potential risks posed to global economies by China’s expanding industrial capacity.
During the April 3-9 journey, Yellen, who is serving as Treasury Secretary, will make her second in-person visit to China. The trip will encompass a visit to Guangzhou, a bustling city known for its manufacturing and export activities, before heading to Beijing. In July 2023, she made a trip to Beijing with the aim of renewing connections following a period of strained relations.
The announcement of her trip coincided with a significant event: a direct meeting between U.S. President Joe Biden and Chinese President Xi Jinping. This meeting, the first since November, focused on various important topics, including tensions related to Taiwan and the U.S. restrictions on the sale of high-technology goods to China, which are crucial for national security.
According to Xinhua news agency, Xi cautioned Biden about the potential consequences of impeding China’s trade and technology progress, emphasizing the importance of considering the associated risks.
The Main Objective Is to Relieve Tensions in the Relationship
Yellen’s discussions with high-ranking Chinese officials have been focused on alleviating tensions surrounding security restrictions related to China. She has provided clarifications that these restrictions are specific and not intended to separate the world’s two biggest economies.
During her visit to Guangzhou, Yellen is scheduled to have meetings with key Chinese officials such as Vice Premier He Lifeng and Governor Wang Weizhong of Guangdong Province. Additionally, she will also engage with executives from American companies operating in China, as stated by the Treasury Department. She will be informed directly about the difficulties in the business environment that are causing American companies to reduce their investments in China.
Yellen and He last had a meeting in November 2023, prior to the Asia-Pacific Economic Cooperation Summit in San Francisco, where Biden also had a meeting with Xi.
Since Yellen’s initial trip to Beijing last July, she and He have established economic and financial working groups that convene virtually. The current conversations have predominantly centered around the economic challenges experienced by different nations and their corresponding policy actions. For instance, significant attention has been given to China’s struggles in the property market, which have had a detrimental impact on consumer trust. Additionally, the failures of two prominent regional banks in the United States have also been a topic of discussion.
Challenge in Capabilities
The heightened focus in the United States on China’s surplus production capacity marks a change in the ongoing conversations. China’s growth in exports has coincided with a period of sluggish domestic demand. Xi has committed to unlocking untapped potential in China through investments in various technology sectors, such as electric vehicles (EVs), advanced materials, commercial space travel, and life sciences.
Last week, Yellen expressed her concerns at a Suniva solar module factory near Atlanta regarding the excessive investment in steel, aluminum, and other industries due to Chinese government support. This has resulted in an influx of low-cost exports, causing a decline in manufacturing in other market-driven nations.
“Currently, there is a noticeable increase in capacity expansion within emerging sectors such as solar power, electric vehicles, and lithium-ion batteries,” mentioned Yellen during her recent visit. She further highlighted that this phenomenon is causing distortions in prices and production trends, ultimately impacting workers in the United States, European Union, and other economies.
When questioned about the possibility of increasing trade barriers during her upcoming visit to China, Yellen expressed her reluctance to take retaliatory action. Instead, she emphasized the importance of pursuing constructive measures.
All Eyes on National Security Risks
The European Union is currently investigating the possibility of China’s electric vehicle industry receiving unfair subsidies. This inquiry could result in the implementation of tariffs aimed at safeguarding European car manufacturers. The U.S. Commerce Department is currently investigating the potential national security risks associated with Chinese vehicles and the data they transmit. In response to these concerns, U.S. lawmakers have called on President Biden to increase tariffs on Chinese electric cars.
A U.S. Treasury representative informed journalists that Yellen plans to emphasize the significant impact of Chinese industrial overcapacity on American manufacturers and global businesses during her upcoming visit to China.
The anonymous official mentioned that during their economic talks, U.S. and Chinese officials are expected to touch upon currency matters, which is a regular part of their discussions. However, they refrained from commenting on the recent depreciation of China’s yuan currency.
The official mentioned that Yellen aims to enhance collaboration in various areas that are advantageous to both nations. These areas include addressing climate change, combating illegal financing and drug trafficking, and offering assistance to developing countries burdened by debt.
