United States Treasury Secretary Janet Yellen and Chinese Premier Li Qiang sounded a hopeful tone on US-China cooperation on Sunday, though the American policymaker noted both sides cannot shy away from tough conversations.

The US-China relationship can only move forward with direct and open communication, Yellen told Li, after arriving in the Chinese capital from the southern city of Guangzhou.

“China sincerely hopes that the two countries will be partners, not adversaries,” Li said in welcoming remarks to Yellen. He added that Chinese internet users have closely followed the details of her trip since her appearance in Guangzhou, showing “expectation and hope for the China-US relationship to continue to improve”.

Yellen held a series of meetings in the southern port city, including hours of discussions with her counterpart, Vice Premier He Lifeng.

Click to see more

Both countries have since agreed to hold talks on balanced growth under an existing working group, allowing officials to discuss the key US concern of overcapacity.

This refers to a situation where Chinese government support to industries fuels production capacity, but risks a surge of exports at depressed prices to the global market, undercutting international competitors. Washington is especially concerned about this phenomenon in new industries such as electric vehicles and solar energy.

Yellen’s trip marks her second visit to China in less than a year.

“While we have more to do, I believe that, over the past year, we have put our bilateral relationship on more stable footing,” she said in opening remarks to Premier Li as she began two days of high-level talks in Beijing.

Rather than avoiding hard conversations, this has meant “understanding that we can only make progress if we directly and openly communicate with one another”, the Treasury chief said. Yellen also stressed, ahead of talks with Beijing mayor Yin Yong, the need to engage with local officials to understand China’s “economic future”.

“Local governments play a critical role, from boosting consumption to addressing overinvestment and Beijing of course has particular importance,” she said.

A senior treasury official told reporters on Saturday that Washington believes household spending needs to be a bigger part of China’s economy.

Speaking to professors from the Peking University National School of Development, Yellen said she was keen to hear their perspectives on “the potential long-term impacts of today’s policy decisions”.

Tensions remain

Yellen told Li that the world’s two biggest economies have a duty to “responsibly manage our complex relationship” and show leadership when it comes to working on global challenges.

On Saturday, the Treasury also said US and Chinese officials would start talks under another existing working group for cooperation on tackling money laundering. The aim is to cut off financing for criminal organisations such as drug traffickers.

Despite the outcomes of meetings so far, China’s state-run Xinhua news agency warned in a commentary of the “spectre of protectionism” in the US. It criticised existing US tariffs on Chinese imports, while accusing Washington of “suppressing” China’s electric vehicle-related industries, signalling at tensions that remain.

Another state media outlet, The Global Times, pointed to “negative actions toward China” in an editorial, referring to US trade and tech curbs, and “an ever-growing list of sanctions against Chinese companies”.

‘Possibility for progress’

“Yellen’s visit has opened space to test the possibility for progress,” Brookings Institution senior fellow Ryan Hass told AFP. He added that her trip has “illuminated that the Chinese recognise a need to engage on overcapacity and are prepared to explore cooperation on anti-money laundering”.

But only time can tell if these efforts bring material progress, he said.

In meetings with Vice Premier He, Yellen also warned companies in China not to provide support for Russia’s war in Ukraine — including to Moscow’s defence industrial base — cautioning of “significant consequences”.

While in Beijing, Yellen will also meet with Finance Minister Lan Fo’an on Sunday. On Monday, she is due to speak with former vice premier Liu He and central bank governor Pan Gongsheng.