U.S. Treasury Secretary Janet Yellen warned China on Monday that Washington will not accept new industries being decimated by Chinese imports, as she wrapped up four days of meetings to press her case for Beijing to rein in excess industrial capacity.

U.S. Treasury Secretary Janet Yellen in Beijing.

Yellen told a press conference that U.S. President Joe Biden would not allow a repeat of the "China shock" of the early 2000s, when a flood of Chinese imports destroyed about 2 million American manufacturing jobs.

She did not, however, threaten new tariffs or other trade actions should Beijing continue its massive state support for electric vehicles (EVs), batteries, solar panels and other green energy goods.

Yellen used her second trip to China in nine months to complain that Beijing's overinvestment has built factory capacity far exceeding domestic demand, while fast-growing exports of these products threaten companies in the U.S. and other countries.

She said a newly created exchange forum to discuss the excess capacity issue would need time to reach solutions.

Yellen drew parallels to the pain felt in the U.S. steel sector in the past.

"We've seen this story before," she told reporters. "Over a decade ago, massive PRC (People's Republic of China) government support led to below-cost Chinese steel that flooded the global market and decimated industries across the world and in the United States."

Yellen added: "I've made it clear that President Biden and I will not accept that reality again."

When the global market is flooded with artificially cheap Chinese products, she said, "the viability of American and other foreign firms is put into question."

Yellen said her exchanges with Chinese officials had advanced American interests and that U.S. concerns over excess industrial capacity were shared by Washington's European allies, Japan, Mexico, the Philippines and other emerging markets.

PUSHBACK

China's vice finance minister, Liao Min, told Chinese media that Beijing "has fully responded" to U.S. questions on overcapacity and expressed "grave concern" over restrictions Washington imposes on trade and investment.

Liao said China's "current competitive advantages are rooted in China's large-scale market, complete industrial system and abundant human resources," decrying the "escalation of green protectionist measures by some developed economies."

"China will not sit idly and ignore it," Liao said in remarks published on the ministry's website.

China's parliament, the National People's Congress, said in March the government would take steps to curb industrial overcapacity.

But Beijing says the recent focus by the U.S. and Europe on the risks from China's excess capacity is misguided.

Chinese officials say the criticism understates innovation by companies in China and overstates the importance of state support in driving their growth. They also say tariffs or other trade curbs will deprive global consumers of green energy alternatives key to meeting global climate goals.

WTO RULESTrade curbs on Chinese EVs would contravene World Trade Organisation rules, the industry and information technology ministry said in a statement carried by state media CCTV and China Daily.

The Chinese ministry added that it was committed to support EV exports and would help "accelerate the overseas development" of the industry including planning for shipping and logistics and support for firms to innovate and meet global standards.

Chinese Commerce Minister Wang Wentao voiced more pointed objections during a roundtable meeting with Chinese EV makers in Paris, saying U.S. and European assertions of Chinese excess EV capacity were groundless.

Rather than subsidies, China's EV companies rely on continuous technological innovation, perfect production and supply chain systems and full market competition, Wang said on his trip to discuss a European Union anti-subsidy inquiry.

Yellen suggested a possible short-term solution was for China to take steps to bolster consumer demand with support for households and shift its growth model away from supply-side investments.

Yellen spoke about the issue at length with Premier Li Qiang and also met Finance Minister Lan Foan on Sunday. She met People's Bank of China (PBOC) Governor Pan Gongsheng and former Vice Premier Liu He on Monday.

In a CNBC interview after the meetings, Yellen said she was "not thinking so much" about trade curbs on China, as much as shifts in its macroeconomic environment. But she reiterated she would not rule out tariffs.

US, China need 'tough' conversations, Yellen tells Chinese premier

US, China need 'tough' conversations, Yellen tells Chinese premier

U.S. Treasury Secretary Janet Yellen on Sunday raised her concerns about China's excess industrial capacity with Chinese Premier Li Qiang, telling him that bilateral relations were now more stable because the two sides can have "tough" discussions.

As they began a meeting in Beijing that ran 80 minutes, Li responded that the two countries needed to respect each other and should be partners, not adversaries, adding that "constructive progress" had been made during Yellen's trip.

Yellen said Washington and Beijing had a "duty" to responsibly manage the complex relationship,

"While we have more to do, I believe that, over the past year, we have put our bilateral relationship on more stable footing," Yellen said. "This has not meant ignoring our differences or avoiding tough conversations. It has meant understanding that we can only make progress if we directly and openly communicate with one another."

Yellen has made the threat that China's over-production of electric vehicles (EVs), solar panels and other clean energy goods will hurt producers and jobs in the U.S. and other countries a focus of her second visit to China in nine months.

A senior U.S. Treasury official said later that China's excess industrial capacity and the government support that has fueled it were discussed at length during the meeting and Li showed some willingness to have U.S. and Chinese economic teams explore the issue further.

Although there were some differences of opinion, "there was not ideological or inflammatory pushback," the official said. "It was a much more legitimate conversation of policymakers."

State news agency Xinhua on Sunday quoted Li saying the U.S. should "refrain from turning economic and trade issues into political or security issues" and view the issue of production capacity from a market-oriented and global perspective".

The development of China's clean energy sector, where overcapacity concerns are felt most acutely, will support the global energy transition, Xinhua quoted Li as saying.

WARM WELCOME

Following her meeting with Li, Yellen met with Beijing mayor Yin Yong and attended events at the elite Peking University, where students gave her a standing ovation.

Yellen has received a warm welcome on her second trip to China in nine months, which featured several social and cultural events, including a Pearl River boat cruise in Guangzhou and a private, after-hours tour of Beijing's Forbidden City.

Her first visit in July 2023 was all business as she sought to normalise bilateral economic relations after a period of heightened tension caused by differences over issues ranging from Taiwan to COVID-19's origins and trade disputes.

In a further sign of the ties stabilising, U.S. President Joe Biden and Chinese President Xi Jinping sought to manage tensions over the South China Sea in a nearly two-hour call on Tuesday, their first direct talks since a summit in November.

U.S. and Chinese military officials met in Hawaii last week for a series of rare meetings focused on operational safety and professionalism.

BALANCED GROWTH

On Saturday in Guangzhou, Yellen and her main economic counterpart, Vice Premier He Lifeng, agreed to launch a dialogue focused on "balanced growth". Yellen said she intends to use the forum to advocate for a level playing field with China to protect U.S. workers and businesses.

Beijing's support for battery-powered rides has helped homegrown companies such as BYD and Geely grab share in the world's biggest car market, and turn China into the world's largest auto exporter as production outpaces domestic demand.

The Economist Intelligence Unit forecasts China's battery manufacturing capacity will outpace demand by a factor of four by 2027, as its EV industry continues to grow.

But rapid growth has also meant China has created excess manufacturing capacity that could be between 5 and 10 million EVs per year, according to consultancy Automobility.

Still, far from curbing investment in manufacturing, China has doubled down on Xi's new mantra of unleashing "new productive forces" by investing in cutting-edge technology including EVs, commercial spaceflight and life sciences - areas where many U.S. firms hold advantages.

Yellen warns of sanctions against Chinese banks that aid Russia

Treasury Secretary Janet Yellen warned in Beijing on Monday that Chinese banks that facilitate support for Russia amid its war in Ukraine could face U.S. sanctions.

“We continue to be concerned about the role that any firms, including those in the [People’s Republic of China], are playing in Russia’s military procurement,” Yellen said in remarks during a press conference at the close of her trip to China.

“I stressed that companies, including those in the PRC, must not provide material support for Russia’s war and that they will face significant consequences if they do,” she continued. “And I reinforced that any banks that facilitate significant transactions that channel military or dual-use goods to Russia’s defense industrial base expose themselves to the risk of U.S. sanctions.”

The Biden administration has previously warned China against supporting Russia’s war against Ukraine, which has now stretched on for more than two years.

Secretary of State Antony Blinken revealed last year that Beijing had provided Moscow with nonlethal assistance and was considering sending lethal aid.

Blinken, Yellen and other administration officials issued stern warnings to the Chinese government, and the State Department sanctioned several Chinese companies that it said were violating export control measures placed on Russia.

The latest warning from Yellen to Chinese banks comes as additional U.S. aid to Ukraine has stalled in Congress in the face of opposition from Republicans.

Speaker Mike Johnson (R-La.) said over the weekend that the House would consider the long-delayed request for assistance “right after” its two-week Easter recess. However, the move could spark backlash, as Rep. Marjorie Taylor Greene (R-Ga.) threatens to force a vote on Johnson’s ouster.

U.S., China to hold more financial shock exercises, Yellen says

The U.S. and China are deepening co-operation on financial stability issues, Treasury Secretary Janet Yellen said on Monday, with more simulations of financial shocks due after a recent exercise on tackling the failure of a large bank.

Wrapping up four days of meetings in China, Yellen issued a stern warning to Chinese banks that facilitating transactions providing material support or dual-use goods to Russia for its Ukraine war effort would lead to "significant consequences."

Yellen said the financial stability exercises were developed by a U.S.-China financial working group formed last year when she first visited to try to rebuild economic ties.

The group, led by representatives of the U.S. Treasury and the People's Bank of China, last met in Beijing in January.

"Just like military leaders need a hotline in a crisis, American and Chinese financial regulators must be able to communicate to prevent financial stresses from turning into crises with tremendous ramifications for our citizens and the international community," Yellen told a news conference.

She discussed financial stability issues on Monday with PBOC Governor Pan Gongsheng at the central bank's headquarters in Beijing.

Speaking on condition of anonymity, a senior U.S. Treasury official said the new exercises would take place in April or May.

One would cover operational resilience co-ordination risks prompted by a major external shock, such as a natural disaster, a cyberattack on a bank, or a new pandemic, while the other would cover insurance system impacts from climate change risks.

There was no immediate comment from the PBOC.

The exercises will help establish lines of communication between U.S. and Chinese regulators and identify areas of potential cross-border contagion and other risks, the U.S. official said.

The official did not disclose specific results, but said both Chinese and U.S. officials made suggestions on how to better coordinate during episodes of stress.

NO NAMES MENTIONED

"It's generic in the sense that there was no trigger of concern about a particular bank. There was no name of a bank or anything like that used," the official added.

Risks from cross-border external shocks came into sharp focus last November, when a ransomware attack on the Industrial and Commercial Bank of China's (ICBC) U.S. arm disrupted its systems and left some $9 billion worth of trades temporarily unsettled in the U.S. Treasury debt market.

The Treasury has long held such simulations with other countries that have large financial systems, such as Japan, Britain and European countries. The official said the U.S. and China have not had such exercises and consultations so far.

Although direct financial linkages between the U.S. and China are not large enough for China's economic slowdown to affect U.S. growth, the official said it was important to start to map out risks.

"Countries with large financial systems need to do this with each other. And we simply hadn't been doing it with China. So now we've started in that direction," the official said.

On Friday in the southern city of Guangzhou, Yellen mentioned the large bank failure exercise as a tangible example of improved economic dialogue between Washington and Beijing.