Yellen says U.S. plans to ‘underscore’ need for China to shift policy

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US Treasury Secretary Janet Yellen said on Monday that future talks between the US and China will focus on Beijing's need to change its industrial and economic policies as she embarked on the fourth and final full day of her trip on April 8, 2024 China concluded.

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BEIJING – U.S. Treasury Secretary Janet Yellen said Monday that future talks between the U.S. and China will focus on Beijing's need to change its industrial and economic policies.

“We want to underscore the need for policy change in these discussions – building on the more than two hours I spent with the deputy prime minister on this issue last week,” she said in prepared remarks for a news conference on Monday as she concluded the meeting fourth and last full day of their trip to China.

She arrived in Guangzhou on Thursday and will leave Beijing on Tuesday.

Yellen said her conversations with Chinese officials during the trip discussed Beijing's plans for its economy, but she did not elaborate. Yellen also declined to say what tools the U.S. could use to prevent China's industrial policies from leading to American job losses.

She noted that U.S. talks with the Chinese would continue later this month at the spring meetings of the International Monetary Fund and the World Bank Group in Washington, DC

China's industrial overcapacity – or the overproduction of goods that undercut global competition in price – has increasingly become a cause of international concern. Other countries claim that this production is often heavily subsidized.

Instead of global trade, however, Beijing's concerns about oversupply tend to focus on the deflationary aspects, the deterioration of the health of the banking sector and the fiscal burden on local governments, said Yue Su, chief China economist at The Economist Intelligence Unit.

“We expect further anti-subsidy and anti-dumping investigations into Chinese manufacturing to take place later this year, particularly as inflation becomes less of a concern for many developed countries,” Su said. “These investigations could extend to Chinese factories abroad, including those in ASEAN countries.”

A call to stimulate domestic demand

Asked about possible solutions, Yellen pointed to how China could boost domestic demand relative to supply by adding support for retirement or children's education.

High costs of living, including housing and healthcare costs, have encouraged many Chinese to save rather than spend.

Yellen acknowledged that efforts to reduce industrial overcapacity or boost domestic demand would not be resolved quickly.

“This is an issue we have been discussing in China for more than a decade,” she told reporters.

Consumer demand in China did not recover from the pandemic as quickly as many analysts had expected. Unlike the US and Hong Kong governments, Beijing did not issue stimulus checks, instead focusing on cutting corporate taxes and fees.

National Security Conversations

China has also sought to strengthen its technological capabilities in the face of increasing U.S. restrictions on Chinese companies' access to the technology.

Both Washington and Beijing are increasingly citing national security as a reason for new measures.

Yellen said Monday that the two sides have shared information on the use of economic tools for national security and should continue to do so. “We don’t want any surprises,” she said.

During her trip, Yellen met with senior Chinese officials, including Prime Minister Li Qiang in Beijing and Vice Premier He Lifeng in Guangzhou.

“Over the past year, we have placed our bilateral relationship on a more stable footing,” Yellen said in prepared remarks for her meeting with Li on Sunday.

“This doesn’t mean ignoring our differences or avoiding difficult conversations,” she said. “It meant understanding that we can only make progress if we communicate directly and openly with each other.”

In a statement from China, Li said Beijing hoped the U.S. would adhere to market economy norms and avoid politicizing trade issues. He said the development of China's new energy industry will make an important contribution to global efforts toward carbon neutrality.

The United States and China agreed to “intense exchanges on balanced growth of the domestic and global economies,” according to a statement from the Treasury Department after Yellen's meeting with Vice Premier He.

The two countries also agreed to “start joint cooperation and exchanges between the Ministry of Finance and PBOC on anti-money laundering to expand cooperation against illicit financing and financial crimes,” the statement said.

The Chinese side did not specifically mention such arrangements but said both sides planned to maintain communication. Beijing also expressed “significant concerns” about US trade restrictions.

The Chinese newspaper described the talks as “constructive” and mentioned discussions on “balanced economic growth”, “financial stability” and “combating money laundering”. This comes from a CNBC translation.

During the visit, the US Treasury Secretary also met with Finance Minister Lan Fo'an, the mayors of Beijing and Guangzhou, representatives of US companies, and professors and students from Peking University.

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