(Bloomberg) -- The US Treasury’s top international official welcomed fresh pledges from China’s leadership to bolster economic growth, while urging Beijing to follow up with meaningful actions.
“It’s an important step that they are acknowledging that domestic demand needs to go faster and that they need to support their growth with consumption and with domestic demand,” Jay Shambaugh, the Treasury undersecretary for international affairs, said in an interview on Bloomberg Television’s Balance of Power.
He spoke after Chinese President Xi Jinping earlier Thursday presided over a top Communist Party gathering where officials pledged to make the real estate market “stop declining” — their strongest vow yet to stabilize the sector that’s hammered Chinese consumer confidence. Earlier in the week, the central bank cut a raft of interest rates among other easing measures.
“I don’t know that I’ve seen anything concrete yet that I think would really answer” the question as to whether growth concerns have been addressed, Shambaugh said. One example of consumption-boosting steps China could take is strengthening pensions for residents in rural areas, where there’s a “very high propensity to consume,” he said in follow-up remarks to Bloomberg, adding that that would also help address inequality.
The Treasury undersecretary said that, in his meetings with Chinese officials on a visit to Beijing last week, the US delegation emphasized that “their savings rate is really high.” This “leads to this huge kind of imbalance in their economy,” with mass production of goods for which there’s insufficient domestic demand.
Treasury Secretary Janet Yellen has repeatedly warned China against pursuing a strategy of relying on exports for growth, and the Biden administration has added to the welter of tariff hikes that former President Donald Trump placed on Chinese imports, in order to safeguard American producers.
Shambaugh noted that Chinese officials “certainly push back on the narrative of overcapacity.” He also characterized US tariffs as “defensive,” and part of a broader international response to the course that China has pursued.
Asked whether Yellen will hold another meeting with her Chinese counterpart, Vice Premier He Lifeng, Shambaugh said, “I’m not sure.” He also said that both sides recognize that the economic channel of dialogue “is a really important one.”
Among other measures China could take to aid domestic demand is “a better social safety” that leaves households “less worried about having to save for the future,” Shambaugh said. Overhauling the domestic residence permit system, which leaves a swath of the population with reduced access to the safety net, could help bolster spending and home purchases, he said.
--With assistance from Kailey Leinz and Ramsey Al-Rikabi.
(Updates with further remarks starting in fourth paragraph.)
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