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A place at the table

CHINA, the biggest global economy to skirt recession, will be seeking a bigger voice in the repair and regulation of international finance at today's Group of 20 summit in London, flexing its muscle as the possible linchpin of a world recovery.

"The very fact that all eyes are on the G20 summit is already a sign of how the balance of power is changing," said Gerard Lyons, chief economist at Standard Chartered Bank. "One thing is clear: the need for China and other large countries from outside the advanced economies to step up to the plate and play an active role."

Jeffrey D. Sachs, director of the Earth Institute at Columbia University, told Shanghai Daily that he thinks China should host its own G20 summit as a sign of its growing influence in the global economic arena.

The focus of London's summit may be summarized in three words: jobs, trade and trust.

British Prime Minister Gordon Brown, in advance of the meeting, said "the 40-year-old prevalent orthodoxy known as the 'Washington consensus' in favor of free markets has come to an end."

Leaders of the world's biggest economies are expected to discuss global stimulus measures, the reform of financial institutions, fight against trade protectionism and talk about new regulatory mechanisms for international financial institutions such as the International Monetary Fund and the World Bank.

China is emerging as a major player in the transition from the old order.

The People's Bank of China, the nation's central bank, last week issued statements setting out China's views on these major issues. The statements were released both in English and Chinese in a rare move clearly designed to reach an international audience.

Central bank Governor Zhou Xiaochuan called for a global currency based on the IMF's special drawing rights to supplant the United States dollar, the first time that a major central bank governor has publicly suggested that the costs of keeping the current system outweigh the benefits.

Balanced system

"The proposal is an excellent advance," said Sachs, an economist renown for his work as an adviser to developing countries and the author of the "Shock Treatment Therapy" used to help Poland and other former Soviet Union countries transition into a market economy. "A more balanced world requires a more balanced monetary system, rather than one based largely on the US dollar."

Ma Jun, Deutsche Bank's chief economist in China, agreed with Sachs.

"China is demonstrating its growing influence in reshaping the global monetary system, and is now on the offensive in the debate about who is responsible for global imbalances," said Ma.

Zhou's statement reflected the fact that China's massive purchase of US debt, which finances the US current--account deficit, is an inevitable result of the existing reserve currency system rather than a deliberate choice by China.

Ma said the greenback's dominant position as a global reserve currency is "clearly a reason, if not the only one," for the ongoing financial crisis. The US's global reserve currency status allows easy borrowing from other nations and has encouraged excessive spending by the US government and its consumers due to very low interest rates.

Economists acknowledged that monetary reform won't be easy.

"Of course, it's not the kind of change achieved from one day to the next. It now requires careful study," Sachs said.

Tommy Xie, an OCBC Bank economist, said a consensus may not be reached on the reform of reserve currency at London's summit.

President Barack Obama has already rebuffed the idea of a new global currency standard, calling the dollar "extraordinarily strong."

Ma remains optimistic: "Technically, it would be enormously complicated to implement the idea," he said of replacing the dollar as the world's currency. "Nevertheless, it will likely be one of the eye-catching proposals at the summit and may receive support from many emerging countries and at least a few developed nations." He added, "It has the potential to lead to one of the most profound reforms of the global monetary system in the coming decades."

Zhou last week also explained the cultural and historic reasons for China's burgeoning reserves and said changing China's foreign--exchange regime is not the sole therapy for its high savings.

He said the Chinese have a tradition of saving for the future, not just because of China's social welfare system.

While China is pressing for reforms in the international monetary and financial systems, it is also implementing its own stimulus programs to boost the domestic economy.

"Led by China, emerging economies need to rise to the challenge and commit to saving less and spending more. Signs from China in this regard are positive," said Lyons.

China, among major emerging markets, is expected to help lift the world out of the "Great Recession," as the IMF has dubbed the current crisis.

China is targeting what it calls "challenging but achievable" economic growth of 8 percent this year and is spending 4 trillion yuan (US$585 billion) on a two-year stimulus package.

The World Bank on March 18 lowered its forecast for China's 2009 economy growth to 6.5 percent from 7.5 percent.

"The main contribution of China should be a quick recovery from the slowdown, through the implementation of the bold stimulus program," said Sachs. "China really should shift to domestic-led growth for its own good, but also for the world's good."

Sachs said it is also important that China focuses on its investment commitment on sustainability.

"We need a green recovery, emphasizing climate change, biodiversity conservation, and sustainable water management," he said.

Q: What is the G20?

A: The Group of 20 countries account for 85 percent of the world's output. The group is made up of Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, UK, USA and the country that currently holds the EU Presidency (the Czech Republic).

Q: What's the purpose of the G20?

A: Although the G20 -assembled for the first time as a world forum in 1999, its meetings have rarely grabbed the headlines. But the G20 now is seen as the body best suited to address the global financial crisis.

World leaders are expected to make three commitments:

1. To take whatever actions are necessary to stabilize financial markets and to enable families and businesses to weather the recession.

2. To strengthen and reform the global economy and financial -system to restore confidence and trust.

3. To put the global economy on track for sustainable growth.

Q: What has China been doing in the run-up to the summit?

A: March 23

The Ministry of Foreign Affairs, the Ministry of Finance and the People's Bank of China held a briefing on China's role at the summit. Zhou Xiao-chuan, the governor of the People's Bank of China, called for a new global currency to supplant the US dollar.

March 24

Zhou argued that changing China's foreign-exchange regime is not the sole solution in trimming China's high savings.

March 25

The State Council adopted guidelines to build Shanghai into a leading financial hub by 2020 with more power to innovate and compete in the global arena.

March 26

Zhou, in a third announcement, called for a new global financial regulatory system.

The G20 London Summit Website and Shanghai Daily research.


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