US and China Lock Horns Again on Industrial Overcapacity Claims

Stacks of aluminum ingots sitting in a stockyard in Wuxi, China. Source: Bloomberg

(Bloomberg) — The US reiterated to China its concerns over what it sees as industrial overcapacity in the world’s second-largest economy, prompting Beijing officials to push back against that accusation.

“The US delegation continued to express concerns about China’s non-market practices and industrial overcapacity,” the US Treasury Department said after a meeting Tuesday of the economic working group between the two countries. At the meeting in Washington “both sides agreed to further discuss these issues,” according to the readout.

US concerns about what it sees as industrial overcapacity in China were the main topic of conversation during Treasury Secretary Janet Yellen’s visit to China last week. While there, she repeatedly framed China’s strategy of boosting its already huge manufacturing capacity as a widespread global concern, and urged Beijing to focus instead on revving up domestic demand.

However, there is little likelihood of a real change in Beijing’s policies due to US pressure. Beijing argues its companies are being penalized by developed nations that can’t compete on price, and has filed a case with the World Trade Organization over some American subsidies.

As well, Chinese leader Xi Jinping said Tuesday that a surge in clean-technology exports has helped the world tackle inflation.

That impact on prices has been a concern for US ally Japan, with Finance Minister Shunichi Suzuki saying Tuesday that China’s “overproduction” could damage Tokyo’s efforts to fully exit deflation.

After the working group meeting Tuesday, the Chinese embassy in Washington again rejected accusations of overcapacity, with spokesman Liu Pengyu arguing that the rise in some Chinese exports was due to the “international division of labor and also market demands.”

“To politicize overcapacity and link economic issues to security goes against the law of economics and undercuts one’s own industries and global economic stability,” Liu told reporters Tuesday. “China believes that all parties need to honor the basic principles of market economies such as fair competition and open cooperation.”

The economic working group is led by the Treasury and China’s Ministry of Finance, and was set up last year after Yellen’s first visit to China as Treasury Secretary.

–With assistance from Yoshiaki Nohara and Erica Yokoyama.

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