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POLITICS: U.S. Had the Last Word, But China Was the Winner at G20

Mitch Moxley

BEIJING, Jul 2 2010 (IPS) - U.S. President Barack Obama may have squeezed in the last word as the G20 summit wrapped up recently in Toronto, but it was China that came away looking like the summit’s winner.

Indeed, the U.S. president kept up the pressure many foreign governments were trying to put on China to help rebalance the world’s economy. He reminded Beijing’s leaders that the U.S. government expects the growing superpower to allow its currency, the yuan, to rise and to reduce the country’s massive trade surplus.

“My expectation is that they’re going to be serious about the policy that they themselves have announced,” Obama said, referring to Beijing’s recent pledge to end the yuan’s two-year peg to the U.S. dollar.

“A strong and durable recovery also requires countries not having an undue advantage,” Obama said at his post-summit press conference Jun. 27, demanding “currencies that are market-driven.” The G20 summit, from Jun. 26 to 27, brought together leaders of the world’s 20 largest economies.

China has long faced criticism from developed countries, particularly the United States, that it keeps its currency artificially low and that this helps fuel its export-driven economy by keeping production costs down.

But thanks to a recent announcement that its currency will be allowed to rise against the dollar, yuan revaluation remained in large part a sideline issue at the summit.

Indeed, China scored a big victory by having a line removed from the final G20 statement that said it would stop pegging the yuan to the U.S. dollar – a line that many G20 leaders had hoped to keep.

New reports said the line had been included in the statement until just prior to the summit’s final day, but was removed at the request of the Chinese. Economists have argued that the yuan is undervalued by about 20 percent against the dollar and that a revaluation is needed to help balance the world economy.

“Leading up to the summit, senior Chinese officials warned that ‘finger-pointing’ would undermine the objectives that world leaders had set out for the meeting,” wrote the ‘Economic Observer’, a weekly newspaper in China, adding that Chinese President Hu Jintao walked away from the meeting “a winner.”

The Chinese officials’ “message seems to have gotten through,” the paper said.

Hu reiterated at the summit that China will not be bullied into relaxing currency controls.

“It is appropriate to address trade frictions appropriately through dialogue and consultation and under the principle of mutual benefit and common development,” Hu said in Toronto.

For China, the biggest obstacle to global economic recovery is Western countries shielding their producers from competition from emerging economies. “We must take concrete actions to reject all forms of protectionism and unequivocally advocate and support free trade,” Hu said.

Indeed, reforming the global financial regulatory system was the central focus of conversation at the summit.

China is expected to surpass Japan as the world’s second biggest economy, and it will be transferred International Monetary Fund (IMF) voting shares accordingly. China believes the current voting structure favours Europe and the United States over rapidly-growing developing nations.

European countries, loath to see their voting share diluted, are putting up stiff resistance to reform. China currently has the sixth largest voting share at 3.7 percent, compared to the United States’ 17 percent share.

Another big topic of conversation at the summit was the so-called “bank tax.” European leaders – including Germany’s Chancellor Angela Merkel, French President Nicolas Sarkozy and British Prime Minister David Cameron – called for fiscal restraint and for a new levy on bank profits.

Here, China scored another victory by supporting Canada’s counterproposal, which called for enforcing tougher standards on banking capital. In return, Canada expressed its support for international financial institutions that “better reflect the emerging economies of the world,” and therefore gave a boost to China’s call for international financial institution reform.

Shi Yinhong, a professor of international relations at Renmin University, said G20 members still have a long way to go before true reform to the international financial system occurs.

“There were discussions of international financial reform (in Toronto), but actually I think none of the G20 countries have been seriously dealing with it,” Shi said. “The international community has been calling for reform since the financial crisis, but I can’t see any improvements.”

Zhang Xiaojing, an economics professor and the director of the macroeconomics department at the Chinese Academy of Social Sciences’ Institute of Economics, said China is increasingly accepting the role of leader of developing nations, spearheading calls for change in the global economic order through groups like the G20.

That is a role Zhang expects to become even more prominent in the future.

“The G7 and G8 no longer have an exclusive say over world affairs. China has become a much more powerful player and is beginning to have a strong voice in the international community,” Zhang said.