WASHINGTON — Treasury Secretary Jacob Lew, attending a high-level dialogue in Beijing on Monday, praised China for undertaking significant domestic reforms but also pressed the Chinese government for more transparency and certainty in its foreign exchange policy.
“The Chinese economy is undergoing a necessary but difficult transition, shifting from a dependence on investment to fuel growth toward household consumption, a more sustainable path to achieve economic growth,” Lew said in opening remarks at the economic track of the U.S.-China Strategic and Economic Dialogue being held through Tuesday. “This transition depends on reforms that lead to greater openness and give the market a decisive role in allocating resources — reforms that have been included in China’s own five-year plan. But this is only effective if implemented well, and we look forward to hearing more about plans for implementation.”
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Lew is attending the dialogue with several cabinet members, including Secretary of State John Kerry. The dialogue comes at a time when China’s currency has hit a five-year low. China’s exchange rate has fluctuated significantly in the past year, causing uncertainty in global markets.
Lew said U.S. officials would like to see more “effective” communication from the Chinese government, in both policy development and implementation.
“This is especially true regarding foreign exchange policy. China has tools to support an orderly transition to a market-oriented exchange rate,” he noted. “A market-determined exchange rate with two-way flexibility will help foster a more efficient allocation of capital, and continued clear communication of foreign exchange policies and actions will build credibility with financial markets.”
Lew pointed to the turmoil China set off in global markets last August when it devalued its currency suddenly.
“As China has become more integrated with the global economy, its policies and economic management increasingly cause ripples and spillover into other markets and economies around the world,” he said. “Last August and early this year, we saw volatility in Chinese markets trigger investor reactions from Europe to the United States. For this reason, it is increasingly important that China provides all observers the ability to better understand developments in its economy and policies.”
Lew said China’s commitments to greater regulatory and data transparency are “welcome steps” and that the U.S. would be watching the implementation phase closely.
He also noted that U.S. officials planned to prioritize discussions around China’s reforms of state-owned enterprises, “where debt service capacity is weakening,” and opening up China’s market to more foreign investment, including in the service sector, and reducing excess industrial capacity in sectors such as steel, aluminum and coal, a top priority of several lawmakers, who called for the European Union last week not to designate China a market economy.
“As we have seen, concerns about the business climate in China have risen,” Lew said. “Candidly, foreign businesses wonder if they are welcome, and find China’s regulatory environment harder and harder to navigate. I hope that through this engagement we can continue to make progress in resolving trade barriers and regulatory hurdles, and increasing transparency and openness.”
He called on China to further open its markets by liberalizing investment rules through more immediate market openings, noting such steps would “go a long way to strengthening confidence in China’s reforms.”
“I hope to discuss means of advancing BIT [bilateral investment treaty] negotiations to encourage continued support from stakeholders in both of our countries,” Lew said. “High standards are hard to meet but will pay off in stronger economic growth going forward.”