US: Chinese Economy Should Wean From Cheap Labor Model

WASHINGTON — The United States on Wednesday said China needs to move away from its cheap labor and export-focused economy to maintain growth in the years ahead.

U.S. Treasury Under Secretary for International Affairs Nathan Sheets also said Europe and Japan need to take action to boost domestic demand and further a global "rebalancing" that would help growth in countries that run chronic trade deficits.

"The historical record highlights that some countries have been able to engineer policies -- particularly policies to suppress domestic consumption -- that have allowed their current account balances to remain in meaningful surplus for long periods," Sheets said in a speech at the National Press Club in Washington.

"This asymmetry has unwelcome implications for the global economy," he said. "This is a 'lose-lose' proposition, with adverse effects on global employment and economic welfare."

He noted that China's powerful expansion over the past three decades was deeply founded on abundant cheap labor, massive investment and a focus on the export industry.

"This is no longer a viable model of growth for China, or for the world economy," he said.

He acknowledged though that Beijing has focused its economic reform program on making growth more sustainable by strengthening domestic household consumption and placing a lower emphasis on exports, and also boosting the services sector.

As for Europe, Sheets said, "the recovery remains fragile and uneven with weak demand, and some countries are still overly dependent on exports for growth."

"It is critical that countries with large external surpluses and fiscal space pursue demand-boosting policies, such as investment in infrastructure," he said.

Copyright Agence France-Presse, 2014