Yellen criticizes China over ‘coercive’ moves against American firms

Treasury Secretary Janet Yellen chided China for “unfair” treatment of American and other foreign companies and said its factories risk producing more than the world can easily absorb, as she began a four-day visit to the country.

China has pursued “unfair economic practices, including imposing barriers to access for foreign firms and taking coercive actions against American companies,” Yellen said Friday in the southern city of Guangzhou. “I intend to raise these issues in meetings this week.”

Ties between the two biggest economies have shown signs of improving since Presidents Joe Biden and Chinese leader Xi Jinping met in San Francisco last November. But lingering deep differences have been exacerbated by China’s drive to boost manufacturing investment in a bid to offset the country’s real estate slump. The United States and allies have criticized Beijing’s latest policy shift, while China accuses them of trying to protect their own less-efficient industries.

For Xi’s team, the Yellen visit marks one of the final chances to shape American policy before November’s U.S. election, in which both candidates are vying to look tough on China. Former President Donald Trump has already threatened a 60% tariff on Chinese goods if elected.

China wants to “create a favorable environment for businesses and will deliver benefits to our two countries and our two peoples,” Vice Premier He Lifeng, China’s economic policy czar, said before kicking off a series of meetings with Yellen. The pair, who also held talks during November’s Biden-Xi summit, were scheduled to attend a dinner on Friday followed by an evening boat excursion on the Pearl River.

Yellen highlighted former leader Deng Xiaoping’s 1992 visit to Guangzhou — a manufacturing and export powerhouse — as an important milestone in China’s transformation toward becoming a market economy, and urged a renewed focus on reforms from China’s current leadership.

Speaking at an event hosted by the American Chamber of Commerce in China, she cited a recent survey by the organization that found one-third of American firms in China report unfair treatment compared to local competitors. International businesses have long complained of discrimination in areas including market access, government procurement and access to subsidies.

“I strongly believe that this doesn’t only hurt these American firms: ending these unfair practices would benefit China by improving the business climate here,” Yellen said. Many U.S. businesses are concerned about “the impacts of China’s shift away from a market approach,” she added.

Xi in recent years has overseen a strengthening of the role of the ruling Communist Party in China’s economy, and championed state-led efforts to strengthen new industries such as electric vehicles and solar technology.

Yellen again flagged concerns about industrial overcapacity in China fueled by government subsidies, which is emerging as her No. 1 message for the trip. She said it’s resulting in “production capacity that significantly exceeds China’s domestic demand, as well as what the global market can bear.”

The United States has been keen to frame this as a global concern. When the Treasury chief met with foreign business leaders earlier Friday, executives from Europe and Japan were among those invited. After those talks, Yellen said the US was hearing similar concerns from developed countries, as well as emerging nations.

During that gathering, Yellen sought feedback for how to talk about overcapacity in a way the Chinese side can accept, according to a person familiar with the discussions, who asked not to be identified as they weren’t authorized to speak publicly. The Treasury chief is seen as among the less hawkish members of the U.S. government when it comes to China.

“If there is anyone that can raise this issue in a way that the Chinese are going to listen to, it’s Secretary Yellen,” according to Sean Stein, chair of the American Chamber of Commerce in China.

There’ll likely be plenty of pushback to Yellen’s message during the visit, her second in nine months, which will include a stint in Beijing. China argues its companies are being unfairly excluded by developed nations that can’t compete on price. Last month Beijing accused the United States of engaging in “classic protectionism” by seeking to erect barriers to Chinese EVs, and filed a case with the World Trade Organization over American subsidies for the industry.

Still, Yellen pointed out that China’s own leadership, in a report published after the nation’s annual legislative gathering last month, referred to “overcapacity in some industries” in a list of challenges facing the economy.

“No one in their right mind would expect China to not continue to upgrade its industry and climb up the value ladder,” said Jens Eskelund, president of the European Union Chamber of Commerce in China. “When it becomes a problem is when companies in Europe and elsewhere are being threatened on their survival.”

With assistance from Christopher Anstey