China’s Lou Says Not So Fast on U.S. Calls to Cut Overcapacity

  • Private companies might not listen anyway, Lou Jiwei says
  • Lou Says China capacity gains led to praise after 2008 crisis

China’s finance minister pushed back against U.S. calls for his country to eliminate overcapacity, saying that while the government is addressing the issue, the economy isn’t centrally planned and private firms can’t just be ordered to cut output.

Speaking at a press briefing on the sidelines of the U.S.-China Strategic and Economic Dialogue in Beijing, Lou Jiwei acknowledged overcapacity in areas such as steel and said leaders are confronting the issue. He was responding to Treasury Secretary Jacob Lew, who said June 5 that China’s excess capacity is distorting global markets and the country hasn’t implemented the policies to deal with it.

“Some countries in the world want China to set up a quantitative target to ease overcapacity,” Lou said. “I want to say that China is no longer a centrally planned economy, actually 52 percent of the steel sector are private companies. They are not going to take any instructions from the government.”

China’s policy makers are grappling with how to rein in surplus production in industries from steel to coal without undermining economic growth. The U.S. is pushing China to give the market a greater hand in the economy, saying more openness is needed to create a level playing field for companies that want to do business there.

Lew made the comments after arriving in Beijing and reiterated them at the opening of the dialogue today, saying U.S. priorities included “undertaking further measures to reduce excess industrial capacity in key sectors such as steel, aluminum, and coal.”

Lou said China cut about 90 million metric tons of excess capacity in the steel sector in 2015 and will slash more. He said China built up capacity in the wake of the 2008 financial crisis, accounting for more than 50 percent of global growth in the subsequent three years.

“At that time the world applauded China’s move and thanked China for boosting world economic growth,” Lou said. “Now the world is pointing at China and saying that China’s overcapacity is a drag on the world, but it didn’t say so at the time China contributed to global economic growth.”

Group of Seven leaders agreed at a summit last month to work together to tackle oversupply in the Chinese economy. U.K. Prime Minister David Cameron told reporters before the summit that European anti-dumping actions against Chinese steel had been effective.

The annual dialogue is led by Vice Premier Wang Yang and State Councilor Yang Jiechi on the Chinese side, and Secretary of State John Kerry and Lew on the U.S. side. Ahead of the talks, Lew also urged China to improve monetary policy communication as it takes on an increasingly large role in the global economy.

— With assistance by Keith Zhai, and Kevin Hamlin

Before it's here, it's on the Bloomberg Terminal.