China and the G-7

Paul Blustein reports in the Washington Post about a very important invitation:

China will participate in a special meeting with the Group of Seven industrialized countries on Oct. 1, the U.S. Treasury said yesterday, an announcement that could herald Beijing’s eventual membership in the elite economic club. John B. Taylor, the undersecretary of the Treasury for international affairs, said one major purpose of the meeting will be “high-level engagement” with the Chinese on their currency policy, which has become a politically charged issue in the United States. Beijing’s longtime policy of fixing its exchange rate at 8.3 yuan per dollar is viewed by many economists, manufacturers and labor groups as giving Chinese products an unfair price advantage in world markets, and the Bush administration has come under criticism for failing to press the matter more aggressively. Calling the meeting “a historic first engagement,” Taylor said it will be held over dinner in Washington after a regular session of top G-7 policymakers on global economic issues. Jin Renqing, the Chinese finance minister, and Zhou Xiaochuan, governor of the People’s Bank of China, will join counterparts including Treasury Secretary John W. Snow and Federal Reserve Board Chairman Alan Greenspan. Asked whether the Chinese will be invited to future meetings or given full membership in the group, Taylor declined to rule either possibility in or out. “The next steps will depend on how this meeting goes,” he said. But he strongly indicated that more such meetings are likely, saying that they “are useful in making progress on economic reform” and that the currency issue “is a very natural one for the G-7 to discuss with China” given its implications for global trade and finance…. Following the end of the Cold War, Russia was also invited to join the group’s annual leaders’ summit, which was re-christened the G-8. Russian officials also attend some of the meetings of finance ministers and central bank governors, though they do not participate in the sessions dealing with matters such as exchange rates. Russian officials will not attend the meeting with the Chinese, Taylor said.

I suspect it will be quite some time — if ever — before China becomes a full-blown G-7 member. Having participated in the G-7 process while at Treasury, it involves an intense and ongoing consultation among officials up and down the chain of command. This kind of close working relationship doesn’t always produce consensus, but there is a shared trust in the value of the consultation process. When the states in question are on the same page — or at least pretty close to each other — it’s a powerful coordination tool. The trillion-dollar questions are whether a) Chinese preferences are even close to the advanced industrialized states on global economic matters; b) Whether the G7 finance ministries are willing to trust their Chinese counterparts. You’d think I would have firm answers to those questions — but I don’t. Still, the outcome of this meeting will be very interesting to observe.