China has too much at stake in manufacturing drive to listen to Yellen

- Dr Janet Yellen got a respectful hearing in China in recent days for her main message – that Beijing’s manufacturing drive is a threat to other economies. But the warmth of her reception likely will not translate into the policy shifts she wants.

There is some overlap between her concerns and the agenda of Chinese leaders, who have recently warned about excess capacity in some industries. But they appear to see the issue as set to be solved by market forces over time, without the need for a wholesale shift in economic policy that entails a large-scale consumer stimulus or a rapid slowdown in manufacturing growth.

Vice-Finance Minister Liao Min told reporters on April 8 that China will rely on the market to remove overcapacity. That will not be helped by Dr Yellen also using her trip to warn about a key source of political disagreement: Russia’s war in Ukraine.Trade between China and Russia has surged since that conflict began in 2022 and Western companies pulled out. China’s Foreign Ministry said on April 8 that the country has not sought to gain from the war and will not do so.In public, the US Treasury chief spent most of the visit hammering home the argument that China should change course on economic policy.

During talks with Vice-Premier He Lifeng – the czar for economic policy – she suggested China could spur domestic spending by strengthening retirement security and making education more affordable. For now, both sides have agreed to keep talking, with economic teams holding further discussions in April in Washington, China’s Finance Ministry said.

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