“For decades, China has been a force of disinflation for the world through its supply of manufactured products with good value for money,” Liao said in an exclusive interview in Rio de Janeiro, where he attended this week’s meeting of G-20 finance ministers and central bank governors.
“It is now also providing green goods for the world as countries try to achieve their carbon reduction goals by 2030,” he said. Global demand for new energy cars will be 45 million to 75 million units by then, far exceeding the world’s current supply capacity, he added, citing estimates by the International Energy Agency.
Liao spoke to Bloomberg News on Friday, a day after Yellen vowed to “keep pressing China to address its macroeconomic model,” which she said is channeling “too much” savings and subsides into manufacturing and contributing to the overcapacity.
China is facing rising trade barriers in developed economies such as the US and European Union, which have been complaining about the excess output and its impact on their industrial sectors and companies.
The EU is moving forward with tariffs on Chinese electric cars, while Donald Trump has threatened to impose duties of 50% or more on imports of Chinese goods if he wins November’s presidential election. Some developing nations including Brazil and Turkey have also placed tariffs on Chinese products including steel and cars, though they’ve been less vocal in criticizing its industrial policy.
While China pays attention to concerns of major economies about overcapacity, it too is concerned by trade threats like tariffs, Liao said.
“We should communicate in a candid manner with respect to rules of market economy and true facts,” he said, adding that China and the US will “continue to discuss the issue at the China-US Economic Working Group meetings.”
Liao was a key member of China’s team of trade-war negotiators facing off against US officials during Trump’s presidency. He traveled to the US as an aide to then Vice Premier Liu He and met Trump in the Oval Office. More recently, Liao greeted Yellen when she visited the country in April.
The differing approaches to China by rich nations compared with countries from the Global South were evident at the G-20 meetings.
Yellen blasted China’s economic strategy as “a threat to the viability of firms and workers around the world.” Bundesbank President Joachim Nagel urged Brazil to sustain its relationships with western countries instead of betting exclusively on China to foster economic growth.
The Indian government’s chief economic adviser, Venkatraman Anantha-Nageswaran, said the topic of China’s over-manufacturing wasn’t brought up during any of his delegation’s bilateral talks, though he acknowledged it’s an “issue” for his country.
Brazil’s Finance Minister Fernando Haddad said that while the response by some countries to China’s exports is an “understandable reaction,” it’s not sustainable in the long run.
Government subsidies are not the main reason that Chinese industries such as the renewable energy sector have gained competitive advantages over their peers, Liao said in the interview. More important factors are corporate investment in research and development spanning years, entrepreneurship and technological innovation, he said.
“China’s reform and opening-up experience over the past more than 40 years has told us not a single industry can become a globally competitive sector simply relying on government support,” he said.
He also argued that some countries were left behind in terms of developing EVs because they enjoy advantages in the conventional auto sector and therefore didn’t shift their focus onto the emerging industry. In contrast, China had to seek growth in new sectors like EVs due to a lack of advantages in the traditional car market.
Demand-supply disequilibrium is only natural for any market economy, partly because companies make their own investment decisions and they do so for the long run expecting to meet higher demand, Liao said. Market forces will show if they made the right and wrong decisions, he said.
Large flows of capital funds into new industries is also not rare, he said, citing previous investment frenzies into sectors like information technology, shale gas and biopharmaceuticals that resulted in “periodical” excess capacity in developed countries.
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