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US Official Warns China May Slow Economic Reforms

A U.S. trade official has warned that China's galloping economy may tempt Chinese leaders to slow down, or even roll back, economic reforms now underway.

U.S. Undersecretary of State Franklin Lavin says China might slow its economic reforms once the pledges it made to the World Trade Organization, to open its markets, are met later this year.

Addressing the American Chamber of Commerce in Beijing Monday, Lavin said China is more or less on course to meet its WTO commitments. After that, he said, the spectacular economic growth of recent years may convince Chinese leaders there is no need for further reform.

Lavin said foreign investment has fueled China's fast growth and is something the Chinese economy needs more of, not less. But he said Beijing plans to limit foreign direct investment, or F.D.I., and he called this another sign that China's will to carry on with reforms may be fading.

"If we look at some of the discussions lately in China about the need for F.D.I. caps, or the utility of F.D.I. caps…that's a worrisome trend," he said.

In mid-July, in an effort to cool the economy, China announced limits on foreign investment in real estate. The government is also considering introducing Chinese-developed technology standards, in such areas as mobile phones, rather than integrating with existing international standards.

Lavin says the government should step back and let the marketplace choose standards. He says such political meddling could spark a backlash in Washington, where the huge trade deficit with China has already led to calls for protectionism measures against Chinese imports.

"The single best way of guarding against any political push to close markets in the U.S. is to keep markets open in China," Lavin said. "The single best way of taking the political steam out of that issue and deflecting protectionism is for China to continue to open its markets."

Lavin says the overall trade relationship between the United States and China is quite good. He says China is set to overtake Japan this year as America's third-largest export market.

U.S. exports to China reached $41 billion in 2005, and Lavin said they are expected to grow by another $10 to $15 billion this year.

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