US Secretary of the Treasury Jack Lew yesterday said that China would see “very bad consequences” for its economy and bilateral US relations if it backs away from its stated goals to open its markets and rebalance its economy toward consumer-led growth.
Lew, in an interview with reporters 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 distorting world markets.
China faces diminished economic prospects in the medium and long term if it fails to continue its reforms, Lew said.
“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 US-China Strategic and Economic Dialogue meetings on Monday and Tuesday next week in Beijing come at a time of increasing trade tensions between the world’s two largest economies.
Meanwhile, the yuan is nearing five-year lows against the US dollar, raising concerns about the potential for another devaluation as the US Federal Reserve prepares to resume interest rate increases after pausing for the past few months.
Lew said China had 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 have been consistent with those commitments.
“China’s intervention in the last year has not been to devalue, but it’s been largely to support the [yuan],” 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.”
Likewise, Lew said South Korea also needed to resist temptations to intervene in currency markets when there is upward pressure on the won.
He said Seoul had refrained from active interventions for the past six to nine months.
“We have made it clear that we’ve recognized that, but we’ve also said that that has to be a durable policy. It has to be a policy that can withstand pressure when markets are going in both directions,” he said.
He said South Korea’s interest in joining the Trans-Pacific Partnership (TPP) free-trade bloc, assuming the deal is ratified, would provide an incentive to improve its exchange-rate policy. A currency side-agreement to the TPP would require transparency in interventions and commitments to avoid interventions to gain trade advantages.
The US-China economic and foreign policy talks in Beijing are also to provide a forum to air US business groups’ concerns about regulations in China that they say favor domestic firms.
For example, foreign insurers have raised concerns about new cybersecurity regulations that require “secure and controllable” information technology.
“Whether it’s an anti-monopoly law, or a national security law, if it’s being either designed or implemented in a way that’s designed to create undue burdens on foreign competition, that’s problematic,” Lew said.
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Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
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