The Deputy Secretary of International Affairs at the US Treasury Department, Jay Shambaugh, stated that the economic stimulus policy launched by Beijing this week may still be inadequate in its impact. If the Chinese authorities fail to stimulate consumption, the issue of overcapacity will remain unresolved, potentially leading to more international trade conflicts.
Shambaugh, in an interview with Bloomberg TV’s “Balance of Power” program on Thursday (September 26th), expressed his satisfaction with Chinese senior policymakers discussing the insufficient economic demand. He emphasized the importance of accelerating domestic demand growth and the necessity of consumer and domestic support for economic expansion.
However, Shambaugh noted that it is still uncertain whether concrete policies will be implemented to address concerns about economic growth sustainability.
Before Shambaugh’s comments, Chinese Communist Party leader Xi Jinping presided over a meeting of the Communist Party’s Central Political Bureau on Thursday. During the meeting, Chinese officials claimed their intention to stabilize the real estate market to prevent further declines.
Earlier this week, China’s central bank announced its largest stimulus measures since the outbreak of the pandemic, including interest rate cuts, reserve requirement reductions, and reductions in existing housing loan rates, aiming to pull the downward Chinese economy out of deflationary pressures.
Shambaugh mentioned that last week, he led a delegation of US Treasury officials to China and emphasized to the Chinese officials the high savings rate in China. He warned that failing to stimulate demand could lead to significant imbalances in the Chinese economy, with surplus funds being channeled into subsidizing manufacturing industries producing products for which there is insufficient domestic demand.
Shambaugh stressed the need for more specific policies to be implemented.
Regarding China’s reliance on export-driven growth strategies, US Treasury Secretary Janet Yellen has repeatedly cautioned against this approach.
Shambaugh highlighted that during Yellen’s visit to China in April, efforts were made to explain to the Chinese why improper subsidies are detrimental to both the global economy and China’s economy.
He explained, “Subsidizing large losses companies is not efficient; it’s a waste of fiscal resources and inefficient for the Chinese economy as well.”
Shambaugh acknowledged that Chinese officials may challenge claims of overcapacity but hoped they would understand that the US’s tariff increases on Chinese goods were defensive measures.
During the Trump administration, the US imposed comprehensive tariffs on imported Chinese goods valued at approximately $300 billion. The Biden administration further increased tariffs on strategically important products to protect American producers’ interests.
Starting from September 27th, the US doubled tariffs on Chinese-made electric vehicles, increased tariffs on solar panels by 50%, and imposed a 25% tariff on electric vehicle batteries, critical minerals, steel, aluminum, masks, and port cranes.
Shambaugh emphasized that Beijing needs to take responsibility in this matter.
He stated, “They can change their policies to prevent other countries from imposing tariffs on their goods.”