China Defends Manufacturing Push, Says World Needs More EVs

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(Bloomberg) — China’s manufacturing capacity helps the world fight climate change and contain inflation, Vice Finance Minister Liao Min said, responding to U.S. Treasury Secretary Janet Yellen’s recent criticism of the country’s industrial surplus.

“For decades, China has been a force for lowering inflation in the world by supplying manufactured goods with good value for money,” Liao said in an exclusive interview in Rio de Janeiro, where he attended a meeting of G20 finance ministers and central bank governors this week.

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“New cars are also now providing green goods to the world as countries try to meet their carbon-cutting targets by 2030,” he added. Global demand for new energy-powered cars will reach 45 million to 75 million units by then, far outstripping current global supply capacity, he said, citing estimates from the International Energy Agency.

Liao spoke to Bloomberg News on Friday, a day after Yellen pledged to “continue to press China to address its macroeconomic model,” which she said directs “a lot” of savings and support to manufacturing and helps boost production capacity.

China faces rising trade barriers in advanced economies such as the United States and the European Union, which have complained about overproduction and its impact on their industrial sectors and companies.

The European Union is moving forward with tariffs on Chinese electric cars, while Donald Trump has threatened to impose tariffs of 50% or more on imports of Chinese goods if he wins the presidential election in November. Some developing countries, including Brazil and Turkey, have also imposed tariffs on Chinese products including steel and cars, though they have been less vocal in criticizing its industrial policy.

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Liao said that while China is paying attention to major economies’ concerns about overcapacity, it is also concerned about trade threats such as tariffs.

“We must communicate in a frank manner about the rules of the market economy and the real facts,” he said.

Liao was a key member of China’s trade war negotiating team that faced off with U.S. officials during Trump’s presidency. He traveled to the United States as an aide to then-Vice Premier Liu He and met with Trump in the Oval Office. Liao most recently hosted Yellen when she visited the country in April.

The differences in the approach of rich countries towards China compared to countries in the Global South were evident at the G20 meetings.

Yellen criticized China’s economic strategy, calling it a “threat to the survival of companies and workers around the world.” German Bundesbank President Joachim Nagel urged Brazil to maintain its ties with Western countries rather than betting exclusively on China to boost economic growth.

India’s chief economic adviser, Venkatraman Anantha Nageswaran, said the issue of China’s over-industrialization did not come up during any of his delegation’s bilateral talks, although he acknowledged it was an “issue” for his country.

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Brazilian Finance Minister Fernando Haddad said that while some countries’ reaction to China’s exports is “understandable,” it is not sustainable in the long run.

Government support is not the main reason why Chinese industries such as renewable energy have competitive advantages over their peers, Liao said in the interview, adding that the more important factors are institutional investment in research and development over the years, entrepreneurship and technological innovation.

“China’s more than 40 years of reform and opening-up experience has told us that no single industry can become a globally competitive sector simply by relying on government support,” he said.

He also claimed that some countries were late to develop electric vehicles because they had advantages in the traditional automobile sector and thus did not shift their focus to the emerging industry. In contrast, China had to seek growth in new sectors such as electric vehicles due to the lack of advantages in the traditional automobile market.

Liao said that imbalances between supply and demand are natural in any market economy, partly because companies make their own investment decisions, and they do so in the long run in the hope of meeting growing demand. Market forces will show whether companies have made the right or wrong decisions, he added.

Large capital flows into new industries are not uncommon either, he added, citing previous waves of investment in sectors such as information technology, shale gas and biopharmaceuticals, which have created a “cyclical” capacity surplus in developed countries.

—With assistance from Jana Rando and Martha Beck.

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