Lew Says China’s Overcapacity Skewing Markets; U.S. to Push Cuts

  • Treasury Secretary calls excess capacity a ‘central concern’
  • Lew’s remarks come ahead of U.S.-China dialogue in Beijing

The U.S. will push China to reduce excess capacity in its economy at upcoming talks in Beijing, with Treasury Secretary Jacob J. Lew calling it an “area of central concern” Friday in Seoul.

US Treasury Secretary Jacob J. Lew speaks to reporters in Seoul on June 3.
US Treasury Secretary Jacob J. Lew speaks to reporters in Seoul on June 3.
Photographer: Jacob Lew/AFP/Getty Images

The issue bears watching when “excess capacity is distorting markets and important global commodities,” Lew said in remarks to reporters ahead of the U.S.-China Strategic and Economic Dialogue, scheduled for June 6-7 in Beijing. China Vice Premier Wang Yang, State Councilor Yang Jiechi and U.S. Secretary of State John Kerry will attend the meeting along with Lew.

Jacob J. Lew in Seoul on June 3.

Photographer: Ed Jones/AFP via Getty Images

A senior Treasury official told reporters China has made a commitment to take serious action to reduce excess capacity in areas like steel and aluminum. It’s a tough transition, especially as millions of workers would have to find new jobs. However, if the actions aren’t taken, excess capacity will continue to erode China’s economic growth prospects, said the official, who asked not to be identified.

Steel Cuts

Chinese authorities are cutting excess capacity in industries including coal and steel while striving to keep growth above their 6.5 percent minimum target for this year. The economy has endured four years of factory-gate deflation, though forecasters expect that to turn around. Producer prices will improve in each of the next four quarters and turn positive in 2018, according to economists surveyed by Bloomberg in April.

Steel output shrank last year for the first time since 1981 amid waning demand. Even so, daily output rallied to a record in April as mills boosted production to capitalize on higher prices.

At the talks in Beijing, the U.S. will also press China to move forward with measures that would support domestic demand and increase household income as well as improve transparency into its economy and open up markets by liberalizing investment rules, Lew said.

Lew is in Seoul to meet with South Korean Finance Minister Yoo Il Ho and discuss economic issues shared by the two countries. The visit comes days after the Treasury Department listed North Korea as a place of “primary money laundering concern” and proposed a rule recommending further isolation of North Korea from the international financial system.

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