United States Treasury Secretary Janet Yellen is expected to consult American companies on China’s industrial overcapacity, particularly in solar power and electric vehicles (EVs), at a planned meeting during her trip to China next week – a discussion that is likely to inform the tone of subsequent talks with her counterparts in Beijing, as both sides have deployed heated rhetoric on the issue.
03:44
Yellen hails ‘step forward’ in US-China ties despite national security concerns
Yellen hails ‘step forward’ in US-China ties despite national security concerns
On Wednesday, Yellen addressed the issue at a solar cell factory in Norcross, Georgia. “I will convey my belief that excess capacity poses risks not only to American workers and firms and to the global economy, but also to productivity and growth in the Chinese economy.”
She pledged to “press my Chinese counterparts to take necessary steps to address this issue” and create a “level playing field” for American companies and workers.
After her Guangzhou sojourn, Yellen will head to Beijing to meet with high-ranking economic officials, most likely Vice-Premier He Lifeng, commerce minister Wang Wentao and central bank governor Pan Gongsheng.
China’s overcapacity has already wrecked too many industries in America over the past two decades
Yellen, a former chair of the Federal Reserve, has many years of experience dealing with Chinese officials over her tenure in public office, including rounds of dialogue with former vice-premier Liu He on macroeconomic and financial issues.
But with excess capacity already a sore subject for many in the foreign business community, that relative peace may not last.
“China’s overcapacity has already wrecked too many industries in America over the past two decades,” said Scott Paul, president of the Alliance for American Manufacturing, a non-profit organisation jointly founded by American manufacturers and the United Steelworkers trade union in 2007.
“It’s critical that the [Joe Biden] administration and Congress proactively deploy existing trade tools and develop new ones to prevent job losses before it’s too late.”
That process seems to have already begun, generating friction in the bilateral relationship while also dampening China’s prospects for another year of blockbuster growth buoyed by the global green energy transition.
In a late February statement, the White House had strong language on the topic, labelling a potential glut of Chinese EVs as a looming threat. “China’s policies could flood our market with its vehicles,” it said, “posing risks to our national security”.
As US, EU anxiety grows, will overcapacity curb exports of China’s ‘new three’?
As US, EU anxiety grows, will overcapacity curb exports of China’s ‘new three’?
Beijing has spoken out emphatically against what it considers the politicisation of trade, firing verbal warning shots ahead of Yellen’s trip.
In a long commentary piece published on Monday, state news agency Xinhua lambasted some Western institutions for spreading fears of overcapacity in three products seen as drivers of exports and economic growth – solar panels, EVs and lithium batteries.
01:44
A first in 2 years: top economic officials from US and China meet face to face
A first in 2 years: top economic officials from US and China meet face to face
“The US-led West is exploiting its hegemony to strangle China’s efforts to move up the value chain and maintain dominance in the global economic system,” it said.
Foreign ministry spokesman Lin Jian said Thursday that China’s new energy sector has thrived through the quality of its products and innovation in an atmosphere of global competition, rather than through subsidies and protectionism.
“It is the responsibility of all sides, including the US, to protect the supply chain and oppose hegemony,” Lin said.
As the war of words rages, analysts said such tit-for-tat exchanges reflect a set of shared priorities – and a shared desire for an object of blame.
“Observers often miss the commonality in the ‘economic security’ thinking adopted by the US, EU and China: import substitution,” said Zha Daojiong, a professor at Peking University’s School of International Studies.
Furthermore, he said, each expansion of restrictions can be justified by one side insisting that the other party is the instigator. “That modus operandi is likely to continue.”
Others said this latest dispute could serve as a serious flashpoint, with a careful management of differences necessary to ensure an already damaged relationship does not deteriorate further.
Pang Zhongying, a chair professor in international political economy at Sichuan University, was less than rosy about the likelihood of reconciliation. The Biden administration’s restrictive measures were “obvious and visible”, he said, adding they indicated the “great divergence” between the China and US markets can be expected to continue over the next few years.