Editor's note: Gao Zhijun is an assistant research fellow at the Chinese Academy of Social Sciences. The article reflects the author's opinions and not necessarily the views of CGTN.

The United States Secretary of the Treasury Janet L. Yellen has almost wrapped up her second visit to China since July 2023. During this trip, Yellen had extensive, frank, and productive meetings with China's key officials. Yellen stressed that the U.S. is not seeking to decouple from China and a healthy economic relationship will be beneficial to both countries and the world.

However, it is noteworthy that Yellen raised particular concerns with respect to "overcapacity" in addition to other issues. She argued that China's "overcapacity" resulting from government support has undermined the economic interests of the U.S. and its allies. Under the backdrop of the U.S. and European Union's intensifying allegations of China's "overcapacity", this issue will continue to be a main flashpoint of bilateral relations in the months to come.

New China-U.S. Initiatives

The bilateral meetings have achieved concrete outcomes. Two significant new initiatives have been launched: one is the Exchange on Balanced Growth in the Domestic and Global Economies; the other is the Joint Treasury-People's Bank of China (PBOC) Cooperation and Exchange on Anti-Money Laundering. The two initiatives are expected to facilitate the exchange of ideas on related issues and work together to enhance shared interests.  

The first initiative will be co-led by the U.S. Department of the Treasury and China's Ministry of Finance under the framework of the Economic Working Group, which was established last September and has held three formal meetings so far. The two sides will utilize this initiative to strengthen exchanges on issues including domestic demand, investment policies, aging populations and other related policies. The issue of "overcapacity" that Yellen has repeatedly raised is expected to be the focus on the initiative's agenda.

The second initiative will be operated under the framework of the Financial Working Group, which was established alongside the Economic Working Group. The first exchange is scheduled to be held during the fourth Financial Working Group Meeting. The efforts on this front will include (but not limited to) sharing best practices and closing regulatory gaps, aiming to block financial avenues for drug and human traffickers, fraudsters, and other criminal organizations.

Moving forward amid looming risks

At this crucial stage of the bilateral relationship, Yellen's extensive engagement with Chinese officials demonstrated the White House's willingness to stabilize the bilateral relationship and commitment to maintaining open communications. The launch of two new initiatives will facilitate the progress of working together on the common good and resolving differences in a pragmatic manner. The advantage of such exchanges is that they help foster creative ideas and feasible solutions, for they value input from policy practitioners and experts. Its technical nature will also mitigate political and ideological influences, ensuring both teams concentrate on the practical issues.

Meanwhile, it is critical to be fully aware of the structural differences still persist in the bilateral economic relationship. In her meeting with He Lifeng, Chinese vice premier and Chinese lead person for China-U.S. economic and trade affairs, Yellen repeatedly raised concerns with respect to "overcapacity", and "unfair trade practices", among others. Compared to her last visit, Yellen paid much more attention to the issue of "overcapacity". She argued that China's huge amount of production output in new sectors is caused by direct and indirect government support, leading to artificially depressed prices and harming the interests of foreign companies. She urged her Chinese counterparts to take action to address the concerns, which seems to be the U.S. primary consideration behind the launch of the first new initiative. China has responded to Yellen's accusation as unfounded, highlighting the country's rapid development in sectors such as electronic vehicles which is fuelled by innovation, well-established supply chains, and market competition, rather than subsidies. Given the two sides' discrepancies on this issue, it is foreseeable that the exchange through the initiative would be intensive and heated.

Amid the year of a U.S. presidential election, it is possible that the White House will deploy new sanctions to pressure the Chinese side to garner political support. This will hold back the progress of stabilizing the bilateral relationship. However, past experiences have shown that sanctions are never an effective solution to the dispute; dialogue based on economic laws and facts should continue to be the right approach.