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China should stick with reforms: US official

WASHINGTON -- China should keep up reforms as it tries to steer its slowing economy to a soft landing, a senior U.S. Treasury official said Wednesday.

“China has ample capacity to avoid a hard landing,” Lael Brainard, the Treasury's under secretary for international affairs, said at a Washington forum.

Brainard said that U.S. authorities have been working closely with Chinese authorities to support their efforts “to help engineer a soft landing.”

But it was “very important,” she said, “that they do so in a way that supports domestic consumers and continues the rebalancing, the very welcome rebalancing that we see, rather than again pushing too hard on the investment channel.”

In November 2008, China launched a giant two-year stimulus package of 4 trillion yuan (US$627 billion) on infrastructure and other projects to help the country weather a global financial crisis.

China has taken a number of steps recently to fine-tune monetary policy amid the current global slowdown, including two interest rate cuts in less than a month and three reductions in bank reserve-ratio requirements since December.

Growth in the world's second-largest economy dropped to 7.6 percent in the second quarter, the weakest pace in more than three years.

“We've seen some indications they are going to be much more focused on lifting domestic consumers,” a key part of rebalancing efforts away from an export-dependent economy toward domestic demand, said Brainard, who has represented the United States at U.S.-China Strategic and Economic Dialogue talks.

Brainard noted that China's current account surplus with the rest of the world has shrunk significantly, in part due to appreciation in the renminbi, as the yuan currency is officially known.

China's exchange rate policy is “a central tool” in lifting domestic consumer demand, spurring growth and rebalancing the economy, but progress in allowing the undervalued currency to appreciate was too slow, she said at the Center for American Progress think tank.

Washington has seen progress on the exchange rate and external imbalances but would like see a “much faster” pace, she said, reiterating the Obama administration's protest against the yuan, which critics say China has kept artificially low to spur Chinese exports.

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