Economy

US Treasury Secretary: Overcapacity is Distorting Global Market

June 6, 2016

The US Treasury Secretary told Chinese students at Tsinghua University that excess steel capacity is distorting the world market. The comments came ahead of talks in Beijing between the US and China on trade and security.

“Excess capacity is not just a domestic issue in China,” said Treasury Secretary Jacob Lew. “The question of excess capacity is one that literally has an enormous effect on global markets for things like steel and aluminum, and we’re seeing distortions in global markets because of excess capacity,” he said.

“Excess capacity ultimately is corrosive of an economy’s efficiency,” said Lew. “It means you have misallocation of resources, it means that ultimately, the only way to clear the market is to sell things at a price that is below what the world market price would otherwise be.”

The American Iron and Steel Institute estimates that global overcapacity in steel is about 700 million tonnes, 425 million tonnes of which is located in China.

During opening remarks at the annual Strategic & Economic Dialogue meetings, Chinese President Xi Jinping reaffirmed the country’s commitment to reducing overcapacity through production cuts.

“China will redouble efforts to promote supply side structural reform,” said Xi.

The meeting in Beijing is scheduled for Monday and Tuesday of this week with discussions focusing on a wide range of bilateral, regional and global economic and strategic issues. The meeting is chaired by US Secretary of State John Kerry and Treasury Secretary Jacob Lew and their Chinese co-chairs, State Councilor Yang Jiechi and Vice Premier Wang Yang.