Yellen: China's overcapacity threatens all, G7 united

"This week, the G7 will discuss financial stability, macroeconomic policies, and how to prevent geopolitical issues from derailing economic growth. The US will seek progress on three priority areas: sustainable development, ongoing conflicts, and China's industrial overcapacity". This was said by US Treasury Secretary Janet Yellen before the summit of G7 finance ministers and central bank governors kicking off tomorrow in Stresa.

G7 finance ministers meeting until Saturday in the Piedmont town overlooking Lake Maggiore will also discuss their concerns about China's excessive industrial capacity and potential responses to Beijing. "This week will be a key opportunity to discuss how China's macroeconomic imbalances and excessive industrial capacity may affect our economies," Yellen said. "We will also discuss our responses and the approaches we are taking to talk about these concerns directly with China." Yellen called earlier this week for the US and Europe to respond to China's over-investment in electric vehicles, solar products, semiconductors, steel and other key sectors in a "strategic and united" way to keep manufacturers competitive on both sides of the Atlantic.

Expanding the scenario to all the world's hottest topics, Yellen stated that 'it is important that Russia realises that Western governments will not be deterred from providing continued support to Ukraine': one of the topics of the summit will, in fact, be the use of the profits from the Russian assets seized by Western countries after the invasion of Ukraine. Yellen emphasised that this aid should continue to flow not only in 2024 and 2025 but also in the years to follow. "Longer term," she said, "this is a secure source of funding and it is important that Russia realises that we will not be deterred from supporting Ukraine for lack of resources.

On the US proposal for a maxi-financing package, probably $50 billion, for Ukraine to be disbursed as early as this summer and before the US presidential elections, "a general consensus is being sought on the principle but the details of the proposal have not been decided," the US Treasury Secretary said. "If we can get broad consensus on the principle," Yellen added, "we will spend the next few weeks, leading up to the leaders' summit in Puglia, discussing the details. With regard to the figure, Yellen confirmed that '50 billion has been mentioned as a possible figure that could be reached with this proposal, but no decision has been made on a specific amount, and I do not believe that, in general, it is necessary to agree to freeze assets until the money is returned'. On the other hand,' he added, 'the G7 leaders have committed to keeping those assets frozen until Russia has paid the amount owed to Ukraine for the damage caused. Therefore, the prospects of these assets remaining immobilised for several years are quite high'.

The US Treasury Secretary also indicated that she was concerned about a threat by Israel to cut ties between Palestinian banks and their Israeli correspondent banks, a move that would close a crucial lifeline to the Palestinian economy. The US and its partners, Yellen said, must do everything possible to increase humanitarian assistance to Palestinians in Gaza, reduce violence in the West Bank, and stabilise the West Bank economy. Israeli Finance Minister Bezalel Smotrich indicated that Israel may not renew a waiver that expires on 1 July and allows Israeli banks to process payments in shekels for services and salaries related to the Palestinian Authority. "These banking channels are crucial for processing transactions that enable nearly $8 billion a year in imports from Israel, including electricity, water, fuel and food, as well as facilitating nearly $2 billion a year in exports on which Palestinians' livelihoods depend," Yellen said. "My team and I have also engaged in direct dialogue with the Israeli government to urge actions that would strengthen the Palestinian economy and, in my view, Israel's own security," Yellen stressed.