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Washington has warned Beijing that the United States and its allies will take action if China tries to solve its problem of industrial overcapacity by dumping goods in international markets, according to American officials.
Two senior Treasury officials told the Financial Times that a U.S. delegation made its concerns clear during a recent visit to China, including in talks with He Lifeng, the vice premier in charge of China's economy.
“We fear that China's industrial support policies and macro policies, which focus more on supply than where demand comes from, are heading towards a situation where there is overcapacity in China.” . will eventually reach global markets,” said Jay Shambaugh, the undersecretary of state for international affairs, who recently led an economic team to Beijing.
The US is most concerned about advanced manufacturing and particularly clean energy sectors such as electric vehicles, solar panels and lithium-ion batteries.
Shambaugh said he emphasized that it was not just the United States that was concerned and that China should not view any reaction from the United States or other countries as “out of the blue.”
The undersecretary is leading the U.S. side of one of two working groups that Washington and Beijing set up after Yellen's visit to provide a forum to discuss difficult issues such as overcapacity in an effort to ease tensions.
“The rest of the world will react, and they're not doing it in a new anti-Chinese way, they're reacting to Chinese policies,” Shambaugh said in an interview with the Financial Times. He was joined by his colleague Brent Neiman, deputy undersecretary of state for international finance, who also recently led a team to China.
The EU launched an anti-subsidy investigation into China's electric vehicle industry last year. EU Competition Commissioner Margrethe Vestager said on Saturday the bloc was ready to use trade tools to tackle unfair Chinese trading practices.
An official said Washington wanted to ensure Beijing took the issue seriously. The issue will be an “important part” of the agenda when Treasury Secretary Janet Yellen visits Beijing later this year, he added. Yellen is also expected to address Chinese overcapacity with her G20 counterparts when they meet in Sao Paulo later this month.
Chinese officials point out that importing Chinese lithium batteries and electric vehicles is prohibitive due to the US Inflation Reduction Act. Some experts also point out that almost a third of China's exports of electric vehicles last year were cars produced by the US company Tesla at its factory in Shanghai.
Scott Kennedy, a Chinese economist at the CSIS think tank, said the U.S. should push China to boost domestic demand. “If all of this doesn’t change, Washington will have no choice but to follow the EU and launch investigations that would likely result in significantly expanded restrictions on Chinese imports.”
China has recognized the risks of overcapacity that have been a feature of its industrial development for decades, but has not outlined a clear plan to address the problem. President Xi Jinping said last December that overcapacity in some industries was one of the “challenges” that needed to be addressed to secure future economic growth.
China's Ministry of Commerce this month announced plans to support the “sound development” of electric vehicle penetration abroad, including increased cooperation with foreign partners.
Some experts saw this as a sign that the company wanted to allay international concerns about electric vehicle exports. But Beijing also criticizes what it says are increasing protectionist behavior and the West's abuse of trade dispute mechanisms. In response to the EU investigation, the company launched an investigation into French cognac sales to China.
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While the US and China discuss sensitive issues such as overcapacity, they are also increasing coordination of mechanisms to reduce risks in the global financial system and respond to future crises.
Neiman said the sides had begun holding technical exercises – similar to those the U.S. conducts with other countries – to consider how to handle crises.
“We conducted a technical exercise to discuss how we could deal with potential exposures at global systemically important banks in China or the US, and essentially make sure we knew who to call if something went wrong. “ he said and gave an example.
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