The exchanges "will facilitate a discussion around macroeconomic imbalances, including their connection to overcapacity, and I intend to use the opportunity to advocate for a level playing field for American workers and firms," Yellen said in a statement released at the conclusion of the talks.
She characterised four and a half hours of discussions with He on Saturday as productive and frank.
Coming into her four-day visit to China, her top priority was to persuade Chinese officials to rein in excess production capacity for electric vehicles (EVs), solar panels and other clean energy technology that threaten competing firms in the U.S. and other countries.
The Biden administration is facing growing calls from U.S. lawmakers to increase tariffs on Chinese EVs to protect U.S. producers.
Chinese state media pushed back on her excess capacity arguments, calling them a "pretext" for protectionist U.S. policies and "fear-mongering.
Yellen did not threaten to raise tariffs or impose other trade barriers if China failed to curb state support that has expanded production of EVs, solar panels and other clean energy products far beyond domestic demand, a senior U.S. Treasury official said.
"I think the Chinese realize how concerned we are about the implications of their industrial strategy, for the United States, for the potential to flood our markets with exports that make it difficult for American firms to compete," Yellen said. "And then other countries have the same concern."
She said the forum would provide a "structured" way to discuss a complicated issue but that it would take some time to resolve.
"It's going to be critical to our bilateral relationship going forward and to China's relationship with other countries that are important," she added.
She added Chinese officials were "more confident" about the world's second-biggest economy after putting in place policies to address issues in the property sector and on local government debt.
China's Xinhua news agency said in a statement that the discussions between He and Yellen were "candid, pragmatic and constructive", confirming both parties had agreed to further discuss balanced growth and financial stability.
Beijing also expressed serious concerns about U.S. economic and trade restrictions on China and made a full response to the production capacity issue during the talks, the statement said.
The U.S. Treasury official, who spoke on condition of anonymity, said the balanced growth forum was first proposed in February during an economic working group meeting.
Wendy Cutler, a former U.S. trade negotiator, said the forum focused on overcapacity was a positive development, but there was a danger that it could "turn into a stalling tactic" by Beijing to avoid needed actions to bring supply and demand back into balance.
Yellen also said she had warned Chinese firms faced "significant consequences" if they provided material support to Russia's invasion of Ukraine. The Chinese side emphasized that their policy was not to provide such support and did not want this to be a bilateral issue.
Protectionist pretext'
Xinhua criticized Yellen's stance late on Friday, saying that talking up "Chinese overcapacity" in the clean energy sector created a pretext for protectionist policies to shield U.S. companies.
In an editorial on Saturday, Xinhua said suppressing China's EV-related industries would not help the U.S. grow its own, adding that it hoped more headway could be made during Yellen's visit to break down barriers hindering mutually beneficial cooperation.
While Treasury does not expect a major shift in Chinese policy after Yellen's visit, U.S. officials believe it was important to explain the economic risks that overinvestment in some sectors and weak consumer demand present to both China and its trading partners.
Yellen said on Friday her trip was partly aimed at cementing U.S.-China ties to "withstand shocks and challenging circumstances."
Yellen will continue her discussions with Chinese officials on Monday in Beijing, where she is to meet officials including Premier Li Qiang, Finance Minister Lan Foan and People's Bank of China Governor Pan Gongsheng.
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