DisOrientated - A Weblog by Philip Sen

September 23, 2004

China to Join G9?

Reported at Bloomberg.com, China is going to guest at the G7 meeting next week.

Interesting, the Washington meeting of the US, UK, Canadian, French, German, Italian and Japanese ministers is going to take place on China's national day.

A few years back, eyebrows were similarly raised when Russia was invited for the first time and the former Soviet has since taken its place as a near-permanent member.

It does have to be said, however, that China can neither claim to be a democracy nor a true market economy. The WTO has criticized the PRC recently for its lax copyright law enforcement etc. But the invitiation is surely another sign that China can no longer be ignored.

"With China also invited to join part of the meeting, next week's G-7 statement could be more influential than usual,'' Goldman economists Binit C. Patel in London and Dominic Wilson in New York wrote in a note to clients.

What then of China's propensity to ignore everyone else? Despite being a permanent member of the UN Security Council since 1971 (when it replaced the 'ROC' Taiwan) China has regularly abstained from decisions, for example on Sudan/Darfur.

The footnote to the article is also of interest:

Last September in Dubai, the G-7 began calling for all nations to introduce market-based exchange rates. Taylor said today the Chinese government had taken steps to introduce a looser currency regime, yet refrained from setting a timeframe.
"There is movement toward a flexible exchange rate,'' he said. "The Chinese are aware of the importance of moving.''

The International Monetary Fund has also called on China to drop the yuan's peg, saying a flexible exchange rate would help the government to cool an economy that expanded 9.7 percent in the first half. Still, voluntary moves to more flexible currencies by 20 nations in the 1990s had little impact on growth and inflation, the IMF said today in its semi-annual World Economic Outlook.

China should raise interest rates for the first time in nine years to cool the economy because inflation at 5.3 percent is too high, the ADB said today. The government so far has relied on lending and investment curbs to curtail growth.

With economic and military power also comes geopolitical responsibility. In fact, China's responsibility to the world is dovetailing with its responsibility to itself - if China goes down, we all do. I wonder whether what the Chinese finance minister will be chatting about at dinner that night - the RMB exchange rate is going to be a big topic, I reckon.

The PRC's participation in the world economy must be two-way - let's hope the G-7 meet-up gets the ball rolling.

Posted by Sendover at September 23, 2004 10:53 AM | TrackBack

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