By David Lawder

SEOUL (Reuters) – U.S. Treasury Secretary Jack Lew said on Friday that China would see “very bad consequences” for its economy and bilateral U.S. relations if it backs away from its stated goals to open its markets and rebalance its economy towards consumer-led growth.

U.S. Treasury Secretary Jack Lew addresses the media during a visit at the Medical Center Hospital in San Juan, Puerto Rico, May 9, 2016. REUTERS/Alvin Baez/File Photo
U.S. Treasury Secretary Jack Lew. REUTERS/Alvin Baez/File Photo

Lew, in an interview with Reuters in Seoul, said he would “keep the pressure” on Chinese officials during talks in Beijing next week to stick to their reform commitments and execute pledges to reduce excess industrial capacity that is now distorting world markets.

“Frankly, if China takes a time-out or a step back on the reform agenda, that will have very bad consequences for China’s economy and it will flow over and not be good in terms of our bilateral economic relations,” Lew said.

The U.S.-China Strategic and Economic Dialogue meetings on June 6-7 in Beijing come at a time of increasing trade tensions between the world’s two largest economies.

The U.S. Commerce Department has recently imposed steep anti-dumping and anti-subsidy duties on a wide-range of Chinese steel products, while U.S. business groups have complained about new Chinese regulations they say favour local firms.

Meanwhile, the Chinese yuan <CNY=CFXS> is plumbing five-year lows against the dollar, raising concerns about the potential for another devaluation as the Federal Reserve prepares to resume its interest rate hikes after pausing for the past few months.

Lew said China has largely been keeping its G20 commitments to avoid competitive currency devaluations, adding that its action in recent months to spend reserves to support the yuan, also known as the renminbi or RMB, have been consistent with those commitments.

“China’s intervention in the last year has not been to devalue but to support the RMB,” Lew said. “I think the test of whether China’s moved decisively in an orderly way to a more market oriented exchange rate is whether they’re willing to tolerate movement in both directions.”

(Reporting By David Lawder; Editing by Kim Coghill)

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