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A fight worth having with China - The Washington Post https://www.washingtonpost.com/opinions/a-fight-worth-having-with-chi...

The Post's View

By Editorial Board June 11 at 5:58 PM

OF ALL the threats facing the global economy, none has more destabilizing potential than Chinas decelerating growth rate.
After years of booming by exporting and investing, the Peoples Republic has begun accumulating debt and excess industrial
capacity; yet the Communist leadership in Beijing seems unwilling or unable to make the necessary transition to greater reliance
on services and domestic consumption. Chinas bloated state-run industries, especially steel and aluminum, are desperately
trying to raise cash by flooding the United States and Europe with cheap products, a global fire sale that threatens jobs in those
countries, triggers retaliatory measures and adds to geopolitical tensions already high over the maritime boundary dispute in
the South China Sea.

The United States and China this month concluded their annual strategic and economic dialogue in Beijing, and Treasury
Secretary Jack Lew took the occasion to warn his hosts in terms that were relatively blunt, by the standards of such confabs.
Excess capacity has a distorting and damaging effect on global markets, he said, and implementing policies to substantially
reduce production in a range of sectors suffering from overcapacity, including steel and aluminum, is critical to the function and
stability of international markets. In response, China pledged to undertake further steps, even as senior officials protested
that they shouldnt be blamed for overcapacity because it resulted from Chinas stimulus spending during the global financial
panic in 2008 for which it was praised by the United States and Europe.

Beijing has a point about that; indeed, some state factories and mines have downsized in recent months, laying off thousands. No
one should doubt the sheer difficulty, both economic and political, of restructuring the vast Chinese economy or that U.S.
domestic political interests are behind the Obama administrations demands, just as the Chinese complain.

Nevertheless, those U.S. demands are legitimate, and the proof is that Beijing itself has repeatedly acknowledged the need for a
new economic model, based more on private-sector investment and private household demand. But entrenched special interests
enjoy privileges under the existing system and resist and undermine reform, with alarming success. Meanwhile, President Xi
Jinping steadily reduces the space for political debate in China, which decreases his governments legitimacy, which makes it all
the harder to disarm the special interests.

What leverage does the United States have beyond words such as Mr. Lews? More than you might think. China badly wants to be
recognized as a market economy by the World Trade Organization. This designation would entitle Chinese export industries to
greater legal protection from WTO-authorized retaliatory trade measures by the United States and Europe, thus relieving some

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A fight worth having with China - The Washington Post https://www.washingtonpost.com/opinions/a-fight-worth-having-with-chi...

of the pressure on them to restructure. Beijing claims that, under the 2001 agreement by which it joined the WTO, the market
economy designation should happen automatically at the end of this year. The United States and many of its Western allies are
balking, because they dont share Chinas view of the law, because they dont want to give up this particular source of clout and
because China is not, in fact, a market economy.

The Obama administration should not yield on this point, unless and until China shows irreversible progress on economic
reform, including, specifically, its subsidized excess industrial capacity. For the sake of prosperity in both countries, its a fight
worth having.

Read more on this topic:

The Posts View: Authoritative pessimism in China

Fred Hiatt: Chinas lawless path

David Ignatius: The U.S. is heading toward a dangerous showdown with China

Joshua Kurlantzick: Let China win. Its good for America.

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