The United States Secretary of the Treasury, Janet Yellen, and the Chief Economist of the International Monetary Fund (IMF), Pierre-Olivier Gourinchas, have both expressed concerns about the latest economic policies of the Chinese authorities, stating that they have failed to effectively boost domestic demand and address the issues causing trade friction between the U.S. and China.
Yellen and Gourinchas made their remarks on Tuesday (October 22nd), highlighting that so far, they have not seen any measures announced by China that are sufficient to stimulate demand, absorb excess capacity, and promote economic growth.
At the IMF and World Bank Annual Meetings in Washington, Yellen emphasized the importance of increasing Chinese consumer spending as a share of GDP and taking measures to address issues in the real estate industry.
She stated, “So far, I haven’t heard of any policies from the Chinese side that can address these issues.”
During the IMF’s latest economic forecast press conference, Gourinchas mentioned that the fiscal stimulus measures taken by the Chinese authorities so far lack details and have not been factored into the IMF’s outlook for China’s economic growth, which has been revised down by 0.2 percentage points to 4.8%.
Gourinchas pointed out that the monetary policies announced by the People’s Bank of China last month to boost lending have limited impact on substantial growth.
In an earlier interview with Reuters, Gourinchas stated that while China’s subsidy policies may distort the scale of specific industries, overcapacity is not the main reason for the increase in Chinese exports and trade surplus.
He believes that factors such as insufficient domestic demand in China and strong consumption in the U.S. are the main drivers behind the increase in China’s trade surplus. One of the significant reasons is the subdued consumer spending in China, coupled with the crisis in the real estate market leading to a decrease in many Chinese households’ wealth, prompting excess capacity to flow towards exports.
Although Yellen agrees on the importance of boosting Chinese consumer spending and lowering the savings rate, she takes a stronger stance on China’s overcapacity issue.
She warned that “enormous” subsidies from China pose a threat to employment in U.S. manufacturing, especially in industries like electric vehicles, batteries, solar panels, and semiconductors. Last month, the U.S. significantly increased tariffs on these products.
Yellen mentioned that next week, the U.S.-China Joint Economic Talks will take place in Washington, where the U.S. hopes to reach consensus on China’s industrial capabilities.
Gourinchas acknowledged that Chinese subsidies can indeed affect some industries and distort trade, and IMF is working to measure the impact of industrial subsidies, but China’s transparency has always been a challenge.
He stated that support measures often do not itemize expenditure, making it difficult to accurately track government spending.
Gourinchas believes that the most effective way to reduce the trade imbalance between the U.S. and China is to promote domestic demand in China to absorb the current export-oriented capacity.
“It is essential to make Chinese households and businesses believe that they can increase consumption and investment while reducing savings,” Gourinchas said, requiring the development of social safety nets, providing pension guarantees for the elderly, and ensuring healthcare security.
Gourinchas also suggested that the U.S. should tighten fiscal policies to reduce excess demand and lower imports from China. The IMF has long advocated for Washington to raise taxes gradually and reduce federal debt.
(References to relevant reports from Reuters were included in this article)