U.S.-China face-off looms at G-20
LONDON | No longer content to be the patient listener, China goes into this week´s Group of 20 summit armed with $2 trillion in foreign exchange reserves and intent on challenging the United States and demanding a greater role in managing the global financial system.
In advance of the summit Thursday, Presidents Obama and Hu Jintao hold their first face-to-face session. Given the clout and interdependence of the two economies, the encounter Wednesday between the leaders of what has been dubbed the “G-2” may overshadow the larger meeting.
Mr. Obama, who arrived in London on Tuesday, is also to meet with Russian President Dmitry Medvedev for the first time amid indications that the two will issue a major communique. U.S. officials declined to discuss the specifics before the document’s release on Wednesday but said it would deal with key issues between the two countries and on the global agenda.
China is likely to focus on efforts to revamp the system of voting rights in the International Monetary Fund (IMF), which would grant developing nations a greater collective voice.
Although China boasts the world´s third-largest economy and is the target of international pleas to rescue the global economy, its IMF voting power is only 3.7 percent, compared with 17 percent held by the U.S.
In return for increased voting rights, the U.S. is asking China to provide up to $100 billion to bolster the IMF. China argues that its foreign exchange pot of $2 trillion should not detract from its status as a developing country.
“I think we are going to see some positive action on the IMF in terms of increasing IMF funding,” said Steven Schrage, an international economics analyst at the Center for Strategic and International Studies in Washington. “China looks like it may give up to $100 billion in this tranche.”
Zhou Xiaochuan, governor of China’s central bank, has said China is ready to support the IMF but has not revealed to what extent.
Whatever the figure, China already has pocketed the support of one influential trade partner.
“Everyone is expecting China to put its money on the table,” Australian Prime Minister Kevin Rudd told Australian media last week. “That’s fine. But you know in the IMF China’s voting rights are currently the same as those of Belgium and the Netherlands. Now let’s just get up with the reality of the 21st century.”
For all the signs of its growing international clout, China still finds its fortunes intrinsically linked with those of the U.S. The lion´s share of its foreign exchange reserves is in U.S. Treasury bonds and China fears that more stimulus spending in the U.S. will spur inflation and weaken dollar-heavy investments.
“We are concerned about the safety of our assets,” Chinese Prime Minister Wen Jiabao said recently.
Central banker Mr. Zhou has advocated the establishment of a global reserve currency, managed by the IMF, to replace the U.S. dollar, but his comments have been dismissed by many here as pre-summit showboating.
Zheng Yongnian, director of the East Asian Institute in Singapore, said Mr. Hu is likely to use his first meeting with Mr. Obama to seek reassurances on the stability of the U.S. dollar and express his opposition to protectionism.
Mr. Zheng said he also expects the two leaders to “go beyond economic and political things and focus on the personal relationship. This has always been part of China´s big-power diplomacy. The Chinese leadership will work hard to nurture a good relationship with Obama.”