US and China fail to reach the agreement on overcapacity

High-level talks meant to steady fractious U.S.-China relations are instead showing the limits of cooperation in one of the Obama administration’s last major negotiations with Beijing.

On Monday, disagreements in the mainly closed-door talks among dozens of senior officials this week were on display. U.S. Treasury Secretary Jacob Lew took Beijing to task for its regulatory barriers on foreign businesses and urged it to cut the rampant excess capacity in steel and other industries that is having “a distorting and damaging effect on global markets.”

His counterpart, Chinese Finance Minister Lou Jiwei, later told reporters that China’s industrial overcapacity “has been the subject of much hype around the world.” He said that Beijing is “confronting the issue squarely.”

As for the agreement, China is encouraging U.S. companies to invest in energy-efficient projects through a 20 billion yuan ($3 billion) green finance fund, according to officials with knowledge of the matter. That initiative builds on the cooperation the two sides displayed in helping to forge the global accord on climate change in Paris last year.

China and the U.S. are dealing with an array of disputes, from duties on trade, Chinese currency policy and investment hurdles to cybersecurity and China’s new security laws and regulations that restrict foreign nonprofit groups and pressure businesses to transfer technology.

Even so, the limited expectations for progress in the talks, which end Tuesday, are in part being driven by rising tensions over the South China Sea, where the U.S. is challenging China’s assertive pressing of expansive claims, and by the intrusion of domestic politics.

This year’s strategic and economic dialogue, or S&ED as the talks are known, is the last for the Obama administration, leaving little time for major initiatives. With China policy—especially on trade—already a topic in the presidential election, Chinese analysts expect the next president is likely to start out with a harder line toward Beijing.

For many years the bedrock of U.S.-China relations, trade and investment have emerged as a new source of friction.

The Obama administration, given the sharp rhetoric in the presidential election, has issued trade complaints and levied duties on some Chinese goods, including the cold-rolled steel used in appliances and auto parts.

U.S. business groups are more vocal about what they see as an uneven playing field, with regulations restricting access to major sectors and pressuring them to share technology and other proprietary information with Chinese partners.

Chinese officials, who want to keep factories humming in the midst of an economic slowdown, have criticized the U.S. and other foreign governments for resorting to protectionist measures to protect home markets from China’s competitive exports.

Some of Beijing’s prickliness was evident after Mr. Lew took issue with the overcapacity that is sending a glut of steel, aluminum and other Chinese industrial goods onto global markets. Mr. Lou, China’s finance minister, said that he didn’t “feel any discomfort” with Mr. Lew’s criticisms and said that Beijing would rely on markets to deal with the capacity problems.

He reminded reporters that the problem is rooted in the massive infrastructure-building program China launched following the global financial crisis in 2008. In the three years that followed, he said, China accounted for more than half of the world’s economic growth.

 

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