BEIJING, April 7 (Reuters) - U.S. Treasury Secretary

Janet Yellen told Chinese Premier Li Qiang on Sunday that the

ability to have difficult conversations has put the two economic

superpowers on "a more stable footing" over the past year.

As they began a meeting in Beijing, Li responded that the

two countries needed to respect each other and should be

partners, not adversaries, adding that "constructive progress"

had been made during Yellen's trip.

Yellen said Washington and Beijing had a "duty" to

responsibly manage the complex relationship, as she brought her

case for reining in China's excess factory capacity to the

Chinese leadership.

"While we have more to do, I believe that, over the past

year, we have put our bilateral relationship on more stable

footing," Yellen said. "This has not meant ignoring our

differences or avoiding tough conversations. It has meant

understanding that we can only make progress if we directly and

openly communicate with one another."

Yellen "raised issues of concern, including industrial

overcapacity in China and the impact that could have on American

workers and firms," according to a U.S. Treasury readout.

Yellen has made the threat of China's excess production of

electric vehicles (EVs), solar panels and other clean energy

products to producers in the U.S. and other countries a focus of

her second visit to China in nine months.

She visited Beijing in July 2023 to try to normalise

bilateral economic relations after a period of heightened

tension caused by differences over issues ranging from Taiwan to

COVID-19's origins and trade disputes.

In a further sign of the ties stabilising, U.S. President

Joe Biden and Chinese President Xi Jinping sought to manage

tensions over the South China Sea in a nearly two-hour call on

Tuesday, their first direct talks since a summit in November.

U.S. and Chinese military officials met their Chinese

counterparts last week for a series of rare meetings in Hawaii

focused on operational safely and professionalism.

Following her meeting with Li, Yellen met with Beijing mayor

Yin Yong and attended an event with students and professors at

the elite Peking University.

BALANCED GROWTH

On Saturday in the southern export hub of Guangzhou, Yellen

and her main economic counterpart, Vice Premier He Lifeng,

agreed to launch a dialogue focused on "balanced growth". Yellen

said she intends to use the forum to advocate for a level

playing field with China to protect U.S. workers and businesses.

"As the world's two largest economies, we have a duty to our

own countries and to the world to responsibly manage our complex

relationship and to cooperate and show leadership on addressing

pressing global challenges," Yellen told Li.

The Economist Intelligence Unit forecasts China's battery

manufacturing capacity will outpace demand by a factor of four

by 2027, as its EV industry continues to grow.

Beijing's support for battery-powered rides has helped

homegrown champions such as BYD and Geely

grab share in the world's biggest car market, and turn China

into the world's largest auto exporter.

But rapid growth has also meant China has created excess

manufacturing capacity that could be between 5 and 10 million

EVs per year, according to consultancy Automobility.

Still, far from curbing investment in manufacturing, China

has doubled down on Xi's new mantra of unleashing "new

productive forces" by investing in cutting-edge technology

including EVs, commercial spaceflight and life sciences - areas

where many U.S. firms hold advantages.

Throughout her visit, Chinese state media have pushed back

against Yellen's message on excess capacity.

State news agency Xinhua on Sunday quoted Premier Li saying

the U.S. should "refrain from turning economic and trade issues

into political or security issues" and view the issue of

production capacity from a "market-oriented and global

perspective".

The development of China's clean energy sector, where

overcapacity concerns are felt most acutely, will support the

global energy transition, Xinhua quoted Li as saying.