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U.S. Treasury Secretary Jack Lew attends a discussion about the 2016 U.S.-China Strategic and Economic Dialogue and overall U.S.-China bilateral economic relations at Tsinghua University in Beijing, China, June 5, 2016. REUTERS/Jason Lee

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BEIJING (Reuters) - The United States supports China's efforts to cut excess industrial capacity and encourages its use of fiscal and lending policies to strengthen consumer demand as part of its economic transition, U.S. Treasury Secretary Jack Lew said on Monday.

"Excess capacity has a distorting and damaging effect on global markets," Lew said in prepared remarks at the start of high level bilateral talks in Beijing.

"Implementing policies to substantially reduce production in a range of sectors suffering from overcapacity, including steel and aluminium, is critical to the function and stability of international markets."

Lew said the two countries will discuss ways to promote sustainable and balanced growth and improve financial sector function and stability at the annual U.S.-China Strategic and Economic Dialogue this week in Beijing.

Chinese President Xi Jinping said on Monday China would continue with its structural reforms and improve its openness to the outside.

"We have full confidence that China can achieve its goals of economic and social development," Xi said.

He also said it was important to conclude a bilateral investment treaty with the United States.

"We must make our best efforts to achieve a mutually beneficial China-U.S. investment agreement at an early date and create new bright spots in bilateral economic and trade cooperation," Xi said in opening remarks.

The 8th China-US Strategic and Economic Dialogue will take place in Beijing on June 6 and 7.

(Reporting by David Lawder, writing by Elias Glenn; Editing by Simon Cameron-Moore)

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