The United States and China need “tough” conversations, Yellen told Chinese Premier Li

U.S. Treasury Secretary Janet Yellen told Chinese Premier Li Qiang on Sunday that the ability to have difficult conversations has put the two economic superpowers on “a more stable footing” over the past year.

At the start of the meeting in Beijing, Li responded that the two countries must 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 have a “duty” to responsibly manage the complex relationship, as she made her case to the Chinese leadership to curb China’s industrial overcapacity.

“While we still have much to do, I believe that, over the past year, we have put our bilateral relationship on a more stable footing,” Yellen said. “This doesn’t mean ignoring our differences or avoiding difficult conversations. It means understanding that we can only make progress if we communicate directly and openly with each other.”

Yellen made the threat of China’s glut of electric vehicles (EVs), solar panels and other clean energy products for manufacturers in the United States and other countries the focus of her second visit to China in nine months.

He visited Beijing in July 2023 to try to normalize bilateral economic relations after a period of heightened tension caused by differences over issues ranging from Taiwan to the origins of COVID-19 and trade disputes.

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

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

On Saturday, in the southern export hub of Guangzhou, Yellen and her top economic counterpart, Vice Premier He Lifeng, agreed to start a dialogue focused on “balanced growth.” Yellen said she plans to use the forum to advocate for a level playing field with China to protect U.S. workers and businesses.

“As the world’s two largest economies, we owe it to our countries and the world to responsibly manage our complex relationships and to cooperate and show leadership in addressing pressing global challenges,” Yellen told Li.

The Economist Intelligence Unit predicts that China’s manufacturing capacity will exceed demand by a factor of four by 2027 as the electric vehicle industry continues to grow.

Beijing’s support for battery-powered racing has helped local champions such as BYD 002594.SZ and Geely 0175.HK gain share in the world’s largest auto market and turn China into the world’s largest auto exporter.

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

However, far from holding back manufacturing investment, China has doubled down on Xi’s new mantra of unleashing “new productive forces,” investing in cutting-edge technologies including electric vehicles, commercial spaceflight and life sciences – areas where many US companies have advantages.

During her visit, Chinese state media pushed back on Yellen’s message about excess capacity.

State news agency Xinhua said Saturday that talk of “Chinese overcapacity” in the clean energy sector had created a pretext for protectionist policies to protect American companies.

Suppressing China’s electric vehicle industries will not help the United States grow, Xinhua said, expressing hope that further progress can be made during Yellen’s visit to break down barriers to mutually beneficial cooperation.