US Treasury Secretary Janet Yellen is seeking to address over-manufacturing during her visit to China, which ends Tuesday. Yellen is one of the top US officials to visit China during Biden’s tenure.

On Friday, Yellen said at an American Chamber of Commerce event in Guangzhou that the problem of excess Chinese manufacturing capacity has intensified recently, Reuters reported.

It “is currently leading to production capacity that significantly exceeds China’s domestic demand, as well as what the global market can bear,” she said.

On Wednesday, Yellen said that other regions feeling the heat from China’s overproduction include Europe, Mexico, and Japan.

The concerns come on the back of China’s painful economic transition from one driven by lower-cost manufacturing and real estate to three new pillars of growth in the green tech sector: solar cells, electric vehicles, and lithium-ion batteries. But Chinese consumers aren’t spending as much as they used to at home.

“We see a growing threat of money-losing firms that are going to have to sell off their production somewhere,” an unnamed senior US Treasury official told Reuters on Thursday.

The European Union is already taking steps to protect its domestic manufacturing in emerging key industries including chips and EVs, while Thailand is imposing a 7% tax on all imported goods just to level the playing field.

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Production competition is even more intense now because of deflation in China, which started last year. China has become the only major economy in the world dealing with negative consumer prices.

There isn’t overcapacity in all sectors of China’s economy

To be sure, there isn’t overcapacity and overproduction in all sectors of China’s industry, as a Bloomberg analysis published on April 2 found. The problem is mainly in areas where China already had the upper hand over the West, like lower-tech goods and building materials after the recent property bust.

China’s production of solar panels and batteries also exceeds the demand for them. But the competition does not extend to a key emerging area of contention: electric vehicles.

Last year, China was neck-and-neck with Japan as the world’s largest auto exporter, in part due to the vast volume of EVs that the world’s second-largest economy was shipping.

But Chinese EV makers aren’t flooding the market from overproduction. They are simply efficient, Bloomberg’s analysis found. Even though China is making more EVs, there hasn’t been a significant uptick in inventory, per Bloomberg’s data.

While there is overcapacity in China’s auto sphere, it’s mainly for legacy internal combustion cars that have fallen out of favor in China, per Bloomberg.

Beijing is aware of overcapacity and pledged to address it

Beijing knows the country has an overcapacity problem in some sectors, which is also bad for its own economy.

After all, Chinese solar manufacturers are feeling the heat from solar panel overcapacity. In March, Longi Green Energy Technology, the world’s largest solar cell manufacturer, announced it was laying off thousands of workers amid overcapacity and low prices.

Following China’s annual parliamentary sessions last month, Chinese Premier Li Qiang pledged in his annual policy report to “prevent overcapacity” in key industries.

Still, China is framing the West’s concerns about overcapacity as protectionism and as moves to curtail the country’s economic development.

“While it is just basic economics that surplus products naturally seek out markets elsewhere once domestic demand is met, and Western nations have been doing that for centuries, when it comes to China, it becomes an ‘overcapacity problem’ threatening the world,” China’s Xinhua state news agency wrote in an opinion piece in late March, calling the West’s critique a “double standard.”