U.S. Says It's Fed up with China's Overcapacity-and More Countries Agree

Dow Jones
Yesterday

American concerns about China's manufacturing and export juggernaut have gone global.

A Group of 20 statement implicitly criticizing Beijing for its overreliance on exports for growth marks a new stage in international pressure. The statement, issued Tuesday at the G-20 meeting of finance ministers and central-bank chiefs in Asheville, N.C., was a striking example of agreement in an otherwise-fractious affair that featured disputes over Russia and President Trump's policy toward Canada.

Countries across Europe and Asia worry domestic industries in areas such as autos, electronics and heavy machinery won't survive China's push to export its way out of domestic economic troubles.

"The G-20 has rarely spoken with this degree of consensus on nonmarket distortions and overcapacity," said Han Lin, China managing director for the Asia Group, a U.S. consulting firm. "It signals growing convergence among major economies that Chinese industrial policy is creating spillovers they increasingly feel compelled to address."

The statement, issued by the Treasury Department on behalf of the G-20 nations, didn't mention China by name.

It said "countries with excessive and persistent external surpluses" should end policies that "result in an overreliance on exports for growth" and cause harmful spillovers around the globe.

Those countries should "eliminate nonmarket policies" and "remove distortions that constrain domestic consumption," the statement said, echoing longstanding criticisms by some China critics of the country's economic model. China ran a $1.2 trillion trade surplus last year.

Any doubt about the identity of the unnamed malefactor was dispelled in the first footnote to the statement. The footnote said the statement's only dissenter was China because Beijing objected to several sections including the one about overreliance on exports.

Countries agreed that "pushing out a never-ending stream of cheap exports is not sustainable," said Treasury Secretary Scott Bessent.

When it comes to China, "everyone's feelings have crossed a threshold," said Japanese Finance Minister Satsuki Katayama, observing that even Russia didn't oppose the statement. "Even before Japan said anything, other countries came forward to say that we had better not wait any longer to make our direction clear."

A February report by the French government titled "The Chinese Steamroller" said China's export surge threatened the "very core of Europe's productive system." In Indonesia, one of the poorest G-20 members, government officials have said that a flood of Chinese imports is hurting domestic industry.

Beijing issued a relatively mild rebuke to the statement Wednesday, saying the G-20 should act in an impartial way based on consensus. Earlier this year, China's Ministry of Commerce said it opposed "hyping the so-called excess capacity of China" and attributed export growth to the country's economies of scale.

While the degree of G-20 consensus was unusual, analysts said it was too soon to say whether the statement would lead to more global coordination to stem China's export flood. The U.S. has erected a tariff wall against China, but other countries haven't followed suit. Many countries have their own disputes with Washington.

"It's not so easy to agree on what might be done about it," said Deborah Elms, head of trade policy at the Hinrich Foundation in Singapore. Countries are cautious about working with an unpredictable U.S. administration and worry about potential Chinese retaliation, she said.

Last year, China responded to American tariffs by restricting the export of rare earths to every country, pummeling global manufacturers. Beijing also cut off certain mineral exports to Japan after a spat over Taiwan.

Alicia Garcia-Herrero, chief Asia economist for the French investment bank Natixis, said she didn't believe the other G-20 signatories envisioned a confrontation with China. She said the language in the document was "generic enough that other capitals can sign without owning a bilateral fight with Beijing."

 

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