Economy

US-China conflict may be central at G20 summit

By Ding Qingfen (China Daily)
Updated: 2010-10-23 09:15

BEIJING - G20 finance ministers are unlikely to reach agreement on a proposal by the United States to limit trade imbalances, economists have predicted.

And possible disagreements could impact the settlement of currency issues and cause tensions at the upcoming G20 Seoul Summit - where conflicts between the US and China are expected to take center stage, they said.

Finance ministers and central bankers from the G20 members met on Friday in Gyeongju, Republic of Korea. The two-day meeting will focus on coordination of currency issues and trade imbalances. The meeting is meant to pave the way for the meeting of world leaders at the G20 summit at the beginning of next month.

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But Chinese economists and some sources from the Republic of Korea said they are not hopeful about solid agreement being reached during the meeting as the US proposal does not have the support of many emerging nations including China, Russia and India, and also Germany, which runs a huge trade surplus.

The US called for an accord on "norms" for exchange rate policies and also suggested nations limit any surplus or deficit on current accounts to 4 percent of their gross domestic product (GDP).

"I don't think it's an easy task to reach agreement in merely two days on such a specific target, as this has to get a nod from many nations, rather than some individuals," said Huo Jianguo, director of the Ministry of Commerce's Chinese Academy of International Trade and Economic Cooperation.

"Such a proposal seems to be more in favor of the US itself and a few nations, instead of most emerging markets and export-oriented economies. It is not reasonable for the US to demand that others make concessions for its own economic benefits," Huo said.

Last year, the ratio of China's trade surplus to its GDP was 4 percent, and sources drafting the 12th Five-Year Plan (2011-2015) said China expects to limit the ratio to 5 percent.

Pang Zhongying, a professor of international relations at Renmin University of China, agreed. "The US is doing nothing but issuing orders. But unfortunately, it probably cannot work. Everybody will say some nice and empty words during the meeting, but it's difficult to make substantive decisions, let alone implement them."

The US dollar index, a measure of the performance of the US dollar against a basket of other currencies, dropped 3.2 percent the past month. And as the nation launches the second round of a quantitative easing program early next month, the dollar is expected to further depreciate.

China's yuan has gained 2 percent against the dollar since June.

"The US' loose currency policy helps the dollar fall, which indirectly leads to appreciation of other currencies worldwide. Therefore, the US cannot find reasons to urge other nations to coordinate currency issues," said Pang.

The G20 source was quoted by Reuters as saying that the final communique would make a rather "subdued" reference to currencies and trade balances.

As its midterm election campaign draws near and its trade deficit with China widens, the US has been pressuring China to allow its currency to rise, and lawmakers from Congress are pushing forward legislation to charge high-level duties on Chinese imports because of the so-called undervaluation of the yuan.