Yellen Warns China Against Relying on Export-Led Growth, Urges Diversification

United States Treasury Secretary Janet Yellen has warned that China is too large to try to export its way to rapid growth and would benefit by reducing excess industrial capacity that is pressuring other economies. Yellen said on Friday during a visit to China that she understands that Beijing’s direct and indirect government support for manufacturing is linked to domestic development objectives. But she told an American Chamber of Commerce in China-hosted gathering in Guangzhou that state subsidies were “leading to production capacity that significantly exceeds China’s domestic demand, as well as what the global market can bear”.

Yellen’s comments underscored her main objective in talks later on Friday with Chinese Vice Premier He Lifeng – to point out the problems that China’s excess factory capacity and growing exports are causing abroad, increasing potential trade tensions. Premier Li Qiang in March set an ambitious growth target of 5 percent for 2024, fuelled in part by more investment in new high-technology sectors as China struggles to overcome a property crisis and weak consumer demand. The International Monetary Fund currently forecasts China’s 2024 real gross domestic product (GDP) growth at 4.6 percent, falling to 4.1 percent in 2025.

The call for diversification echoes sentiments expressed by economists and policymakers around the world, who have cautioned against the risks of over-reliance on exports for economic growth. Diversifying the economy would not only make China less vulnerable to external shocks but also foster sustainable and inclusive growth domestically. As China navigates its economic future, the imperative to diversify away from export-led growth remains a pressing challenge for policymakers in Beijing.
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