China sees opportunity in failure By Antoaneta Bezlova
BEIJING - Differences between the United States and Europe over how to restore
global economic growth have given rise to speculation here on whether a failure
to agree on a grand strategy at the upcoming Group of 20 (G-20) summit might
create room for China to assert its national agenda.
"It is well remembered that the collapse of international talks at the 1933
London summit laid the foundation for the US's consequent emergence as a
dominant financial power," said an editorial in the China Business News at the
weekend.
"With the US-based financial system facing unprecedented challenges, could a
failure at the upcoming London meeting serve
to advance China's aspirations for the creation of a new financial order?" the
editorial asked.
Officially at least, China has declared low expectations regarding the outcome
of the April 2 summit of the leaders of the G-20 countries. Wu Xiaoling, former
vice governor of the People's Bank of China, told a financial conference in
Shanghai at the weekend that the summit was unlikely to bear much fruit.
"It is impossible for any concrete agreements to be reached at the G-20. We
should not put much hope on it," Wu said. "That's why we should have our voice
heard."
Low expectations aside, Beijing has invested substantial effort in preparing
for the global summit. Officials from the ministries of Commerce and Finance,
the Central Bank and the banking regulatory commission have been dispatched to
London since early March to forge and present a united strategy at the meeting.
Divided into working groups, they have been laying the ground for China's
participation in sweeping talks, including reform of the International Monetary
Fund (IMF) and other multilateral bodies, the size and timing of coordinated
stimulus measures and the inception of a global regulatory system.
Indications of China's stance came during the weekend's meeting of the G-20
finance ministers' preparatory to the April 2 summit. Finance Minister Xie
Xueren called on the global community to accelerate the reforms of
international financial institutions and to build a new financial system, which
is "fair and square, compatible and orderly".
Speaking from Shanghai, Wu Xiaoling echoed Xie's statement, saying developed
nations should shoulder greater responsibility in protecting the interests of
developing countries and give emerging economies more power in international
bodies like the IMF.
"The IMF should increase the share from emerging economies, and treat all
members equally," Wu said. "A new set of rules should be set up to regulate the
world economy, with a focus on global superpowers."
The meeting of the G-20 finance ministers revealed also the scope of existing
disagreements between the US and Europe. US officials, backed by Britain and
Japan, are seeking to line up global support for more government-backed
stimulus measures.
European nations, though, are wary of such debt-fueled stimulus measures and
have pushed for more regulation and oversight to prevent further deterioration
of the global economy.
The split between the US and Europe and the deepening economic downturn have
provided a distraction from the debate about China's role in creating global
economic imbalances that had dominated economic circles in late 2008.
But to China's chagrin, the divergence of opinions has also pushed the summit
agenda towards discussing an increase in financing to the IMF, instead of
debating the much-anticipated reform of the financing body.
"What should have been the core issue of the summit - how to reform the IMF -
has now been left by developed nations to fall by the wayside," Xu Mingqi,
economist with the Shanghai Academy of Social Sciences, told the financial
conference.
Xu argued that instead of debating how to redistribute voting rights inside the
body, world leaders should decide on the creation of a monetary mechanism to be
applied to countries issuing hard currencies that would work to protect the
interests of global investors.
A similar concern was voiced by Chinese Premier Wen Jiabao during his
once-a-year meeting with the press last week. Wen said he was "worried" about
the safety of China's assets in the US, and asked Washington to provide
guarantees that it would protect their value.
China is the largest holder of US Treasury bonds. As of December 31, the volume
of the country's investments had reached US$696 billion.
While China also grapples with the implications of slumping global demand for
its export-driven economy, Beijing sees the crisis as an opportunity to advance
its own priorities of raising the country's global profile and acquiring more
say in international financial institutions.
Over the past few months, Beijing has taken the first steps towards
transforming its controlled, partially convertible currency into a regional
currency by pushing loans and some trade settlements in yuan across Asia.
At the same time, China has said that it would use its huge foreign exchange
reserves to contribute to the bailout fund of the IMF on the condition that its
share of voting rights in the international body is increased.
Currently, the voting rights of the BRIC countries, namely Brazil, Russia,
India and China, in the IMF are 9.62% of the total, together accounting for
about half of the voting rights that the US holds.
Some Chinese economists have cautioned against committing any funds to the IMF
before the removal of the US's right to veto in the IMF.
"Even if China decides to inject a large sum of money, it is pointless to
increase its weight in the international financial organization," Yu Yongding,
president of the Institute of World Economics and Politics at the Chinese
Academy of Social Sciences, told the China Daily. This is because the US holds
veto rights in the decision-making process of the IMF.
But other experts see more room for advancing China's priorities by cooperating
directly with the US. "In solving the crisis I would place more hope in the
G-2, or the US and China, rather than in the G-20," said Liu Yuhui, economist
at the Institute for Financial Studies of the Chinese Academy of Social
Sciences.
"I expect few concrete results to emerge from this G-20 meeting," Liu said.
"Currently, the IMF is an institution of rigidly allocated financial power and
it would take a long time to change the status quo."
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