Treasury Secretary Janet Yellen chided China’s government for “unfair” treatment of American and other foreign companies, and called on Beijing to return to the pro-market reforms of the past, at the start of her 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 on Friday (Apr 5) in the southern city of Guangzhou. “I intend to raise these issues in meetings this week.” She also said China’s factories risk producing more than the world can easily absorb. 

Ties between the two biggest economies have shown signs of improving since Presidents Joe Biden and Xi Jinping met in November. But deep differences remain and have been exacerbated by China’s drive to boost manufacturing investment, an effort to offset the country’s real estate slump. The US and allies have criticised Beijing’s subsidies for key industries, while China accuses them of trying to protect their own less-efficient industries.

For Xi’s team, the Yellen visit this week marks one of the final chances to shape American policy before November’s US 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.

Yellen began her trip in Guangdong province, a manufacturing and export powerhouse. She highlighted former leader Deng Xiaoping’s 1992 visit to the city 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, Yellen cited a recent survey by the organisation that found one third of American firms in China report unfair treatment compared with local competitors. International businesses have long complained of discrimination in areas including market access, government procurement and access to subsidies.

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“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 US businesses are concerned about “the impacts of China’s shift away from a market approach,” she added.

President 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 fuelled 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 US has been keen to frame this as an issue for other countries, too. When the Treasury chief met with foreign business leaders earlier on Friday, executives from Europe and Japan were among those invited. Responding to a question after her talk, Yellen said the US was hearing similar concerns from emerging nations as well as developed ones. 

“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, who participated in the morning meeting according to a list provided by US officials. 

“When it becomes a problem is when companies in Europe and elsewhere are being threatened on their survival, as we have seen with solar ten years ago and other industries,” he said, adding that it’s important to have discussions now before “folks get into retaliation and a negative spiral.”

Yellen will likely encounter plenty of pushback to that message during the visit, her second in nine months. China argues its companies are being unfairly excluded by developed nations that can’t compete on price. 

Last month Beijing accused the US 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. 

Later on Friday, Yellen began a series of meetings with Vice Premier He Lifeng, China’s economic policy czar. After a bilateral meeting with staff, the pair were scheduled to attend a dinner and an evening boat excursion on the Pearl River. 

They will hold another meeting and a working lunch Saturday before Yellen travels on to the capital Beijing. BLOOMBERG