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Summit unlikely to achieve a breakthrough

By Huang Qing (China Daily)
Updated: 2008-11-14 07:52

The Group of 20 (G20) will hold a summit meeting in Washington tomorrow to discuss the financial market and global economy.

Heads of state from the Group of Seven (G7) nations and some other member countries of the European Union (EU) as well as from nations such as Russia, China, Brazil and India will attend the meeting to find ways to maintain financial market stability and fuel global economic development.

The participants represented at the summit are important economies in the world with a combined economic aggregate accounting for 85 percent of the world's total.

The latest financial summit was jointly called by French President Nicolas Sarkozy, British Prime Minister Gordon Brown and US President George W. Bush.

Its background mainly consists of two factors: The global economy is staring at an approaching worldwide recession as the financial tsunami triggered by the US subprime crisis has impacted all major economic entities of the world. And the international monetary system based on the US dollar is now struggling to stay above the water in a credibility crisis.

The crisis that the international financial market and the international monetary system are in reflects two major problems.

One is that in the past 20 years of development the virtual economy in the US and other developed countries has far outpaced the development of their real economies and they now have to suffer a crisis in order to get rid of the "swelling" and get back to "normal".

The other is that in the past 20 years of development an international division of labor has taken shape: the East Asian countries have become the main suppliers of commodities and Middle East nations and Russia have become leading suppliers of energy resources, while the US has become the main supplier of financial products such as currency.

The US has been taking advantage of the US dollar as the basic currency but not acting responsibly as it should have. It has been enjoying a good life by maintaining fiscal balance with borrowed money and, by doing so, it has created a structural paradox and imbalance in the international financial equilibrium. Such an international system of revenue and expenditure is unsustainable by nature and will throw the international monetary system into a crisis when something goes wrong.

A financial crisis is the symptom of financial imbalance, which requires appropriate adjustment and "resetting" whether one likes it or not. Amid the ongoing globalization a crisis will affect all nations on earth and can be addressed only by coordinated efforts of them all.

The financial summit represents the common need of countries all over the world. At the same time, the major adjustment facing the global financial system is also unavoidable to the status quo of national interests and powers.

It must reflect the latest major developments and changes of the world economy. It must reflect the current condition of the world economy and the status of all its entities' strengths. It should also reflect the commonalities and conflicts between national interests more or less.

The upcoming financial summit in Washington is not expected to achieve a lot. Why? The first reason is that the participating nations lack consensus on the objective because of significant differences.

France, one of the convener countries, has three goals: First, expanding the scope of supervision of the international financial system; second, increasing the ability to assess the management of the international financial market; third, reforming financial institutions such as the World Bank and International Monetary Fund (IMF) and improving the way they represent the interests of more nations.

Europe, as represented by France, believes the current financial crisis is rooted in the US and therefore warrants the overthrowing of the Breton Woods System for the rectification of the world economic and power structure. In Sarkozy's words, it is necessary to build the "second Bretton Woods System".

That is a measure that challenges the leading position of the US, which is not going to support it no matter how. President Bush is an unshakable advocate of liberal capitalism and, as far as international supervision of finance is concerned, in favor of maintaining the system of financial liberty, which allows countries to do whatever they want their own way. It is exactly the opposite of what Sarkozy is demanding.

The other reason is that the US is now in the period of power succession, as outgoing President Bush has become a lame duck after Democratic Party nominee Barack Obama won the presidential election last week. That means the continuation of what Bush advocates now may be in question and it will be hard for him to achieve much at the financial summit.

Two policy initiatives or paths may emerge at the financial summit this weekend: "emergency rescue" and "removing the root of the problem". If the international financial market finds itself in critical condition when the financial summit begins, the top priority would be "emergency rescue".

France was the first to call for "removing the root of the problem" and President Sarkozy was quite adamant about it. It was said that he had called Chinese President Hu Jintao almost daily about the issue recently. But, this is a very complicated issue on which nations have little, if any, agreement as far as the objective is concerned. That means it is highly unlikely that we will see a breakthrough at the financial summit

The Washington financial summit is the first gathering of heads of state on financial matters in recent history and China is taking part in a meeting like this for the very first time. This shows China has for the first time won the right to speak in the international monetary system. The nation, with its foreign reserve currently worth $1.9 trillion and as the second largest creditor to the US, is not to be ignored when it speaks up, and the world community is expecting a lot from it.

For China the greatest help it can give the world is to handle its own business well and sustain steady and relatively fast economic development. China will maintain a responsible attitude toward the international financial crisis, of which an example can be found in its actions during the Asian financial turmoil of 1997.

China is still a big developing country. Its per-capita economic aggregate remains way below developed nations' and its financial system is far from full-fledged. Renminbi, the Chinese currency, is not yet fully convertible, which means it is not an international currency. Therefore it is simply unrealistic and impossible for China to "pick up the tab with reckless abandon" at the height of this global financial crisis.

China will, however, take part in international consultations with a responsible attitude and do what its capabilities allow in response to the current financial crisis so as to reach the goal of maintaining world financial stability and pushing forward global economic development.

The author is a council member of China Foundation of International Studies

(China Daily 11/14/2008 page9)