Bessent Urges China to Rebalance Economy in Friday Call

US Treasury Secretary nominee Scott Bessent is set to urge China to rebalance its economy during his call with Chinese counterparts on Friday. Bessent, who is expected to be confirmed as the next Treasury Secretary, has been critical of China's economic policies, particularly its reliance on trade and export-led growth. In a recent Senate hearing, Bessent accused China of "attempting to export its way out of a severe recession, if not depression," and called for a more balanced approach to economic development.



China's economy, the world's second-largest, has long been criticized for its dependence on exports and investment, with domestic consumption lagging behind. In 2024, China's nominal GDP growth slowed to 4.2%, the second-weakest pace since the country began transitioning to a market economy in the late 1970s. Prices across China fell 0.8% last year, the longest streak of deflation in decades. This lackluster domestic demand has resulted in a trade surplus that soared near an unprecedented $1 trillion last year, prompting protectionist countermeasures across the globe.



Bessent's call for China to rebalance its economy comes as the country faces increasing pressure from the US and other nations to address its trade surplus and promote domestic consumption. In a recent interview with Bloomberg, Bessent stated, "Free trade must be balanced against fair trade, and clearly what has happened is the trade has not been fair. That has fallen on the American workers... China is the most unbalanced economy in the world. They are in a recession and... they need to rebalance their economy."

To address its reliance on trade and stimulate domestic demand, China should consider the following measures:

1. Fiscal and Monetary Policy Stimulus: Implement a new round of consumer goods trade-ins and the issuance of ultra-long special treasury bonds to boost investment and consumption.
2. Promote High-Value Manufacturing and Services: Encourage investment in high-tech manufacturing and services, which expanded by 10.1% and 11.7% respectively in the first half of 2024.
3. Stabilize Foreign Trade and Investment: Promote the resumption of in-person exhibitions at home and support enterprises to participate in exhibitions overseas. Attract foreign investment by putting the new Catalogue of Encouraged Industries for Foreign Investment into effect at a faster pace.
4. Improve Business Environment and Consumption: Remain firmly committed to consolidating and developing the public sector, and to encouraging, supporting, and guiding the development of the non-public sector. Launch various activities to stimulate consumption and facilitate the early recovery of contact-based service industries.

These measures, if effectively implemented, could help China rebalance its economy towards domestic consumption and higher-end manufacturing, thereby reducing its reliance on trade. This shift would contribute to a more stable and sustainable economic growth trajectory, as indicated by the 5% GDP growth target for 2024.

In conclusion, Scott Bessent's call for China to rebalance its economy is a timely reminder of the need for the world's second-largest economy to address its dependence on trade and promote domestic consumption. By implementing the suggested measures, China can achieve a more balanced and sustainable economic growth path, benefiting both itself and the global economy.