U.S. Treasury Secretary Jacob Lew urged China to let its currency appreciate further and expressed confidence the world’s second-largest economy has the tools to manage a frothy real-estate market.

Speaking before a key U.S.-China economic meeting next week, Lew said he’s frustrated with the pace of policy changes, particularly to the exchange rate, market access for U.S. businesses and cyber security.

The yuan has declined 2.4 percent against the dollar so far this year, and Lew said more progress needs to be made letting markets determine its worth because preventing an appreciation hurts Chinese consumers as well as American exporters.

“It’s undervalued and that is something that hurts Chinese consumers, it reduces their purchasing power,” Lew said Tuesday in Washington. “It’s fundamentally not fair in terms of trading practices, which is why we press on it so hard.” 

Lew, who will be in Beijing on July 9-10 for talks with Chinese leaders as part of the annual U.S.-China Strategic and Economic Dialogue, also addressed concern over China’s excess real-estate supply and the possibility of a property bubble.

“I don’t think that it is something that looks like it presents any kind of a global threat to financial stability because we are not looking at a great deal of leverage or interconnectedness with other economies,” he said. “It’s clearly something that China has to focus on, but I do believe China has the capacity to manage.”

New-home prices in May fell in half the 70 Chinese cities tracked by the government for the first time in two years, the Bureau of Statistics said on June 18.

Lew said China needs to follow through on pledges to open its economy.

On a bilateral investment treaty the two countries agreed to last year, he said “we did see an agreement in principle to go from what was considered a presumptively closed market to a presumptively open market ― except that China then proceeded to list almost everything of any value to say that it would be closed.”

“So it is not just a conceptual move to go to an open market,” he said. “You actually have to have the open market.”

China already widened the yuan trading band and raised the target rate, steps that Lew praised, while calling on China for more transparency when it intervenes in foreign-exchange markets.

The yuan climbed for a fourth day in the longest run of gains since January as reports showed factory output picked up in June. The currency touched a 12-week high as the official Purchasing Managers’ Index for manufacturing released Tuesday showed a reading of 51 for last month, the highest since December.

“We seem to take two steps forward and at least part of a step back,” Lew said at an event hosted by the U.S.-China Business Council. “We need to keep making progress getting toward a market-determined exchange rate.” (Bloomberg)