The US Treasury Secretary says market-based reforms will help the world's second-largest economy.
U.S. Treasury Secretary Janet Yellen has warned that China is too big to try to force its way to rapid growth and that it would benefit from shedding excess industrial capacity that is squeezing other economies.
Yellen said Friday during a visit to China that she understands that Beijing's direct and indirect government support for manufacturing is linked to domestic development goals.
But she told a meeting in Guangzhou hosted by the American Chamber of Commerce in China that government subsidies would “result in production capacity that significantly exceeds China's domestic demand and also exceeds what the global market can bear.”
Yellen's comments underscored her main aim in talks later on Friday with Chinese Vice Premier He Lifeng – to highlight the problems that China's excess factory capacity and growing exports are causing abroad, raising potential trade tensions.
Prime Minister Li Qiang in March set an ambitious 5 percent growth target for 2024, driven in part by more investment in new high-tech sectors as China struggles to overcome a housing crisis and weak consumer demand.
The International Monetary Fund currently forecasts real gross domestic product (GDP) growth for China of 4.6 percent in 2024, falling to 4.1 percent in 2025.
Yellen said that excess manufacturing capacity in China had been a problem in the past, but that it had recently been exacerbated by emerging risks in new sectors such as electric vehicles (EVs), batteries and solar energy products, undercutting competing workforces and companies in the U.S. and Mexico have and India.
“I believe it is in China's interest to address overcapacity and more generally to consider market-based reforms,” she said.
Drawing parallels to China's market-based reforms of recent decades that boosted growth and lifted hundreds of millions of people out of poverty, she said reviving them could make further gains.
Yellen also said she would express concerns expressed by American and international companies about a deteriorating business climate in China, including “unfair treatment compared to local competitors.”
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