Lew Says China Should Roll Out Fiscal Stimulus to Buoy Consumers

  • President Xi needs to push through promised market reforms
  • Says yuan needs to be allowed to move both up and down

U.S. Treasury Secretary Jacob J. Lew has called on China’s leadership to roll out targeted fiscal stimulus designed to boost consumption and to stick with plans to push through key market reforms.

The comments by Lew came ahead of Chinese President Xi Jinping’s first state visit to the U.S., which begins in Seattle before Xi heads to Washington D.C. on Sept. 24.

With China set for its slowest expansion in 25 years, Lew said authorities will need to boost fiscal stimulus. The target of such spending should be the consumer as part of China’s wider plan to transform its model for economic growth away from a heavy reliance on debt-fueled investment.

"Beijing therefore should set its sights on policies that will further its reform agenda, such as targeted fiscal stimulus to boost consumption," Lew wrote in commentary published in the Wall Street Journal. "As China transitions to a more consumer-oriented economy, that figure should climb ever higher, creating real opportunities for American workers and firms. This is good for China and the U.S."

On China’s currency, the yuan, Lew said the currency should be allowed to move in both directions. A sudden move by the People’s Bank of China on Aug. 11 to allow the market a greater role in setting the yuan’s value triggered its biggest loss in two decades and sparked fears it was a competitive devaluation designed to boost exports.

"Chinese officials also need to demonstrate their intent to allow the yuan to be subject to upward pressure that would drive the currency up, not just down," Lew wrote.

Confidence in China’s economy has been shaken in recent months by a stock market rout that wiped $5 trillion in value off the nation’s stocks and by the sudden move to change the yuan’s exchange rate regime. The market turmoil has left the world’s second-biggest economy struggling for traction even after five interest rate cuts since November and other easing measures.

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