G-whatever, China is here

2008-07-09Asia Times

BEIJING - It will be a strange meeting. Officially, the gathering that begun on Tuesday at Toyako, on Hokkaido in northern Japan is a Group of Eight (G-8) summit, drawing together the eight largest economies to discuss issues of mutual interest - mainly economics, but also security and environment - loyal to the American principle that size matters.

However, here is the conundrum: China, the world's fourth-largest and fastest-growing economy, is not officially included. The country is invited for some side discussions. If size matters, why is China not among the main participants? Or is it?

Chinese President Hu Jintao is there and surely his words will have more impact than those of representatives from some of the lesser countries among the eight "bigs", which are led by the US, and include Japan, Germany, the United Kingdom, France, Italy, Canada and Russia.

China is, in fact, a leading factor in many talks. In discussions involving the falling value of the US dollar against, for example, the euro, the view from Beijing can't easily be ignored since it is the largest single creditor of the US, holding perhaps US$1 trillion of its reserves in US dollars.

Similarly, the pace of appreciation of the yuan is a central concern to summit participants. All the "big eight" are concerned about the inflow of cheap Chinese exports and would like to see a rapid revaluation of the yuan to stem those exports. However, given the looming global danger of inflation, more-expensive Chinese exports, which would fuel domestic price increases, could be threatening to the economies of importing countries. A stronger yuan could enable China to buy up more oil and raw material imports, driving up international prices. Pundits already point at China's demand for energy and commodities as one of the main forces raising prices worldwide.

Then, there are the threats to the global environment. China has become the largest emitter of carbon dioxide, a leading factor in global warming, and could soon become the planet's largest overall polluter, overtaking the US. This is not lost on neighbor and G-8 host Japan, which complains of acid rain generated from China.

China also has a significant role to play in security matters, hosting talks that have helped to raise the prospects of North Korea's nuclear threat coming under control. Together with Russia, China could also help to influence Iran's nuclear future.

Finally, there are direct relations between China and Japan, America's key ally in the region. Bilateral ties have improved in recent months, with a notable agreement reached on oil extraction in seas between the two countries. Contentious issues, however, remain, not least in regard to their respective treatment of the second Sino-Japanese War from 1937-45.

This summit is very different from other G-8 occasions when, despite its size, China held back. This time, more than ever, it will be drawn into discussions more or less formally. Most importantly, because of the nature of the issues to be discussed, there is the serious chance that the many bilateral meetings between China and other countries could become more important than the plenary discussions of the eight bigwigs.

In a way, US President George W Bush has already indicated his attention to China. He made headlines before his departure for Toyako by saying he would attend the opening of the Summer Olympic Games in Beijing next month, saying that missing the Games would be "an affront to the Chinese people".

So, China's increased role on the world's economic and political stages makes this de facto the first real G-9 summit. That brings to the fore how to accommodate China in this and future sessions, and what should become of this organization in the future.

The G-8 was born as the G-5 during the Cold War, comprising the US, Germany, the UK, France and Japan, and soon took in Italy and Canada, whose economies were not much smaller than those of countries at the lower tier of the G5. After the fall of Soviet empire, Russia, economically weak but militarily strong with thousands of nuclear missiles, was admitted into the club as sign of goodwill and social promotion - moving from an outcast to "one of us".

China has been dragging its feet. Eager for promotion into the exclusive club, it is nevertheless unwilling to lose its status as an "emerging economy", which among other benefits allows it to distance itself from some of policies addressed at the G-8 and helps it to maintain its control of the value of the yuan, which is still not a fully convertible currency.

At Toyako, the fiction is certainly over, and China and the other eight summiteers will have to deal with the consequences.

Broader issues loom for the future of the organization itself. Rising oil prices and growing global demand for energy amid doubts over future long-term supplies are of central concern to all those present, yet Saudi Arabia, the world's largest oil producer, is not part of the group. Nor is India, widely seen as a leading economy in coming decades. Yet expansion of the G-8 may remove from this small grouping its personal touch, one of the defining characteristics. A round-table discussion with even eight participants is difficult enough, but an air of informality can still be maintained. A larger group will inevitably be more formal and require larger settings.

Perhaps different groupings, formal or informal, will have to be introduced. There is already talk of a Pacific 3 - US, Japan and China.

To replace the future G9-G11 with the P3 could be risky, as it could push European countries too close to Russia. But if the Pacific 3 were truly established - and if many economic issues were first agreed upon there - we would know that size matters. Europe is constrained and contained by the straitjacket of the euro, largely dictating its economic policies with the mantra of low inflation and a strong currency. Its voice can thus be easily surmised.

This is not true for the US, Japan and China. The three could easily discuss issues and establish understandings on sensitive matters. It would be even better than the G5 as the founders had originally envisaged it. With these three in place, who would really need the G-something?

This might be the legacy of Toyako: it might move the world from a de facto G-9 to a real P3 - maybe winking at Russia, because of its missiles and its oil and gas resources. In that case, there will be even bigger question marks for the future of the European Union and the individual members that are somehow stranded on the way to the Pacific Ocean. (2008-07-09 Asia Times)


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