Lew Sees Chinese Willingness to Reform, Urges Haste

America’s Treasury secretary expects economic reforms in China, if not at the pace he would like.

President Barack Obama speaks with his chief of staff, Jack Lew, in the Oval Office of the White House in Washington DC, June 4, 2012
President Barack Obama speaks with his chief of staff, Jack Lew, in the Oval Office of the White House in Washington DC, June 4, 2012 (White House/Pete Souza)

American treasury secretary Jack Lew recognized the Chinese leadership’s willingness to reform in an interview that was broadcast on Sunday but worried that “the pace will probably be slower than we would like or, frankly, would be good for the Chinese people.”

Lew, who was President Barack Obama’s chief of staff before he replaced Timothy Geithner at the Treasury Department in February, told CNN’s Fareed Zakaria that top Chinese officials agree with many of the economic reforms the United States have long advocated, ranging from improving intellectual property rights protection to reducing the state’s involvement in key industries.

“The things that we’re saying that China needs to do, at some level they deeply understand they need to do for their economy to be robust and to provide the opportunities within China that they need for the future,” he said. “It’s a challenge.”

Premier Li Keqiang recognized as much in a speech he delivered after taking office in March. “Nowadays,” he said, “stirring up vested interests is more difficult than stirring up one’s soul.” While making few concrete commitments, he promised to launch a “self-imposed revolution” to relax the state’s heavy grip on managing the world’s second largest economy.

Li might struggle as much as his predecessor Wen Jiabao, who was also considered a reformist, because liberalization would weaken state-owned enterprises and jeopardize the Communist Party’s monopoly on power.

The party recognizes that it must boost internal demand to maintain high growth rates but if China’s middle class continues to expand, it may no longer tolerate the lack of political freedoms which it has so far been willing to sacrifice in favor of rising prosperity. American calls for faster reform might be interpreted in China as attempts at undermining single party rule.

Echoing President Obama’s complaint last year that competitor nations don’t “play by the rules,” Lew nevertheless argued that Chinese subsidies for companies “don’t provide for a level playing field.”

It are usually manufacturers with allies in the Communist Party that manage to avoid reforms and interference as the government seeks to build “national champions.”

But similarly, automakers, banks and insurance companies in the United States that were deemed vital to the national economy received hundreds of billions of dollars in government support to stay afloat during the financial crisis of 2008-2009.

Moreover, while foreign investors in China must cope with a lack of transparency and tightly regulated capital account transactions, the Americans prohibit their companies from selling high technology and weapons abroad, forcing China to do business in Europe and Russia. If there isn’t a level playing field, both countries are to blame for it.

The United States export some $100 billion worth of goods and services to China every year, making it America’s third largest trading partner. China sells nearly three times as much to the United States.