Senior US and Chinese officials hold talks on ‘industrial overcapacity’ and anti-money-laundering

Senior finance and economic officials from the US and China held talks under recently launched exchanges on “industrial overcapacity” and anti-money-laundering in Washington on Tuesday.

The fourth meetings of the Economic and Financial Working Groups between China and the United States included discussions on “balanced growth”, a new US-China dialogue to address what Washington considers China’s excess industrial capacity for electric vehicles, solar panels and other clean-energy goods.

They also included the first joint exchange on anti-money-laundering, conducted under the auspices of the financial working group. Both initiatives were announced earlier this month during US Treasury Secretary Janet Yellen’s trip to China.

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Yellen attended the working group meetings on Tuesday, which took place on the sidelines of the International Monetary Fund and World Bank spring meetings. She was joined by Liao Min, China’s finance vice-minister, and Xuan Changneng, deputy governor of the People’s Bank of China, Beijing’s central bank.

In remarks delivered ahead of the meetings, Yellen said she was focusing on “intensifying communication” with China at US President Joe Biden’s direction.

Since making her first trip to China as treasury chief last July, Yellen has met Chinese Vice-Premier He Lifeng – one of Chinese President Xi Jinping’s main economic advisers – two more times, most recently this month in Guangzhou.

During her most recent trip, Yellen said she was able to have “frank discussions” about China’s industrial policy practices and the negative spillovers that overcapacity can create for the global economy.

“I continue to believe that addressing overcapacity and broader macroeconomic imbalances can help China’s own economy,” she said on Tuesday.

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The Chinese embassy in Washington played down US concerns of overcapacity on Tuesday.

“True, China’s exports of electric vehicles, lithium batteries and photovoltaic products have increased in recent years, but that is the result of international division of labour and market demand,” said embassy spokesman Liu Pengyu.

“Balance between supply and demand is only relative,” he continued. “More often, imbalance is the norm. The best way to address such imbalances is to let the market forces play their role according to the law of value.”

The economic working group, led by China’s Liao and Jay Shambaugh, Treasury’s undersecretary for international affairs, agreed on Tuesday to regularly discuss “policies that support balanced growth of the domestic and global economies”.

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The two sides also discussed the latest macroeconomic situation in both countries, shared global challenges like debt issues and broached US concerns about China’s non-market practices and industrial overcapacity, according to a Treasury readout.

Meanwhile, the financial working group, led by Xuan and Brent Neiman, Treasury’s assistant secretary for international finance, tackled issues tied to combating money laundering, including regulation of virtual assets and corporate beneficial ownership.

“Since it is secrecy that enables criminals to flourish, our collaborative effort is a key step forward to advancing the security of Americans and protecting the integrity of two of the largest financial systems in the world,” Yellen said of the initiative earlier in the month.

Both sides agreed on Tuesday to continue to meet regularly and hold additional technical exercises on operational resilience in the financial sector.

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Other topics discussed by the financial working group on Tuesday included cross-border payments and data, swap-arrangement practices and sustainable finance.

Yellen praised the progress made on sustainable finance, noting that both sides had recognised the importance of transition finance to support environmental conservation, climate adaptation and the decarbonisation of various sectors.

Led by He and Yellen, the working groups were launched in September to facilitate progress on bilateral financial and economic policy matters.

“Despite the challenges that the US-China relationship may endure in the weeks and months ahead, President Biden and I are firmly committed to responsibly managing this relationship,” Yellen said on Tuesday.

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