Yellen faces difficult road ahead of China's overcapacity problem

US Treasury Secretary Janet Yellen traveled this Thursday to Guangzhou, the manufacturing center of southern China, with a harsh message for Chinese officials: they are producing too much of everything, especially clean energy goods, and the world does not can absorb it.

China is unleashing a flood of electric vehicles, batteries, solar panels, semiconductors and other manufactured goods on global markets, the result of years of huge government subsidies and weak domestic demand.

Global prices for many goods are sinking, putting pressure on producers in other countries.

“We see a growing threat that companies will lose money and have to sell their production somewhere,” a senior US Treasury official said of overproduction in key Chinese sectors.

In a series of meetings with top Chinese economic officials from Friday to Monday, Yellen will try to convey her view that excess production is unhealthy for China and that there is growing concern about it in the United States, Europe, Japan and Mexico, and other major economies.

The official, who spoke on condition of anonymity, added that Yellen would explain: “If there are trade actions around the world, it's not anti-China, it's a response to their policies.”

But Beijing appears to be doubling down on investing in more manufacturing capacity in its favored high-tech sectors, a stance that is also increasingly at odds with the European Union, Japan, Mexico and other major economies.

“I think the stage is set for renewed tensions with China,” said Brad Setser, a former trade official at both the U.S. Treasury and the U.S. Trade Representative's office. “It is an intrinsic question whether other countries want to import China's distortions.”

Setser added that Yellen's warnings about Chinese overproduction may be an initial step by the Biden administration toward new tariffs or other trade barriers on electric vehicles, batteries and other Chinese products.

En route to Guangzhou, Yellen declined to say whether she would raise the threat of new tariffs at her meetings in Guangzhou and Beijing with Chinese Vice Premier He Lifeng and Guangdong Provincial Governor Wang Weizhong, who has also presided over hundreds of billions of dollars in recent new projects.

But he said the administration Biden was determined to develop American supply chains on electric vehicles, solar and other clean energy assets with investment tax credits and would not “rule out other possible ways we would protect them.”

In March, China's leaders pledged to press ahead with President Xi Jinping's new mantra of unleashing “new productive forces” in China by investing in the development of technology industries, including electric vehicles, new materials, commercial spaceflight and life sciences. life, areas in which many American companies have advantages.

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