China pledges to cut steel glut, avoid race to devalue yuan

BEIJING, China – China promised Tuesday to rein in steel production that is flooding global markets and to work with Washington to enforce anti-nuclear sanctions against North Korea, but the two sides ended high-level talks with no announcements of progress on simmering disputes in the South China Sea.

Envoys from the two sides also failed to agree on what to do about China’s aluminum producers, one of a series of bloated industries Washington and other trading partners complain are selling exports too cheaply, hurting foreign competitors and threatening jobs.

The two-day annual Strategic & Economic Dialogue ended with both sides acknowledging they still disagreed on significant issues including human rights. But they repeatedly stressed their desire for friendly, productive relations between the world’s two biggest economies.

“While efforts over the past several days cannot resolve our concerns, they do represent real progress,” U.S. Treasury Secretary Jacob Lew said at a joint announcement ceremony with Chinese officials.

For its part, Washington promised to boost its savings rate and investment, especially in infrastructure. The American side promised to pursue “fiscal sustainability,” a reference to narrowing its yawning budget deficits.

China’s commitment to persist with reforms to make its economy more balanced included shrinking its vast steel industry and opening its financial sector wider to U.S. companies, Lew told reporters.

China’s steel industry and complaints that Beijing has responded to a glut of unneeded supply by encouraging low-priced exports is a source of growing tension with Washington and other trading partners.

The government announced plans this year to shrink state-owned steel and coal producers at a cost of millions of jobs. But that is expected to take time, and the flood of low-cost steel has prompted protests by European steelworkers and was cited by Tata in its decision to sell money-losing British operations that employ 20,000 people.

Washington has responded by imposing anti-dumping tariffs and launching an investigation into whether Chinese mills are using stolen U.S. technology. The European Union has launched its own probe into possible dumping.

Beijing promised to avoid policies that might encourage growth of steel production and to wind down financially moribund “zombie companies,” according to Lew. He said Chinese officials also agreed to co-operate with Washington in a possible global steel forum to discuss industry issues.

There was no indication, however, that Beijing would change the pace of its overhaul, highlighting the limited impact of U.S. pressure on basic Chinese policies.

On Monday, the Chinese finance minister, Lou Jiwei, said expectations that Beijing could abruptly transform the vast industry were unrealistic.

“To some extent, the worst is over,” said Tian Yuan, an economist for the China Institute for Strategy, a Beijing research centre. “With the central government’s efforts to further adjust the economic structure, leaning toward technological innovation, the progress in reducing excessive capacity will certainly continue.”

Beijing also agreed for the first time to allow U.S. banks to join the growing number of institutions outside China that are allowed to clear transactions denominated in the country’s tightly controlled currency, the yuan.

Beijing also affirmed that it saw no reason for a sustained weakening of the yuan against the dollar, Lew said. He said Chinese authorities promised not to engage in “competitive devaluations” or use the exchange rate to help China’s exporters.

On the strategic side, U.S. Secretary of State John Kerry pointed to scant concrete progress on sensitive issues ranging from maritime security to North Korea.

A joint statement issued by the two sides made no mention of the South China Sea.

“We didn’t agree on everything,” said Kerry.

Still, the top American diplomat stressed the importance of co-operative relations.

“The U.S.-China relationship is absolutely vital,” he said. “It may well be the most consequential bilateral relationship of nations in the world.”

Chinese President Xi Jinping echoed that theme in a meeting later with Kerry and Lew.

“The key is always to bear in mind that our common interests outnumber our differences,” said Xi. “We need to respect each other’s core interest and major concerns, and on that basis try to work together to seek solutions.”

On North Korea, Kerry said U.S. and Chinese experts would study how to enforce U.N. anti-nuclear sanctions approved in response to North Korea’s development of nuclear weapons and missile technology.

In the South China Sea, where China and its neighbours have conflicting claims to territory and possible oil and gas resources, Kerry appealed for negotiations and “a peaceful resolution based on the rule of law.”

The two governments affirmed their commitment to freedom of navigation and overflight, Kerry said.

Kerry stressed that Washington takes no position on any government’s claim and appealed to them to “exercise restraint.”

State Councilor Yang Jiechi said Beijing wants to solve disagreements through negotiation. But he said such talks should take place among “the countries involved,” which would exclude the United States.

“China has every right to uphold its territorial sovereignty,” Yang said.

Beijing said over the weekend it would ignore an upcoming international arbitration decision in a dispute with the Philippines.

China also has conflicting claims with Vietnam, Malaysia, Brunei and Taiwan. Further complicating matters are suggestions China could establish an air defence zone over part of the sea, which the U.S. opposes.

Kerry also cited human rights and China’s crackdown on lawyers and freedom of religion.

He expressed concern about a new law on nongovernmental organizations, urging China to let NGOs function across the country.

The law puts foreign advocacy groups under direct police supervision and requires them to state where their money comes from and how it is spent. It bans groups that are deemed to be subverting the state.

Yang defended the law as necessary to protect the “legal rights and interests” of nongovernment groups.

“As long as they abide by Chinese laws, the activity of foreign NGOs in China will not be affected,” he said.