China is the big winner from the G20 summit. But the prize might not be all it seems. The world’s third-largest economy should benefit more than most from last week’s global pow-wow. It’s a shame that the big questions, like how to unwind global imbalances, remain unanswered.
President Hu Jintao’s main trophy is the planned boost to global trade, which includes $250bn of import-export financing. Whatever benefits global trade flows benefits China, whose giant export system was hit hard by the financial crisis. A third of China’s growth comes from exporting cheap goods to foreigners.
Better trade financing is not a panacea. The global recession is probably too deep for China to attain its target of 8% GDP growth. But at least the new deal should stop the rot.
Hu’s other victory is winning China a global voice. Long-delayed reform of the IMF will increase China’s voting stake from 3% to 3.7%, with more to come later. Moreover, China was a pioneer in sketching out the contours of a post-dollar global world. When Beijing talks, much of what it says may be hot air, but the world now listens.
Still, the G20 made no progress on the global issue that probably matters most for China: getting world trade back into kilter. China, with its huge surplus, would like a coordinated transition to a more balanced world. It neither wants to let the renminbi rise too much, killing off its cheap exports, nor accept a share fall in the dollar. It has a $1.4 trillion portfolio of dollar-denominated assets to worry about.
China’s trade surplus and the US's deficit have both been falling. But those could be merely fleeting side-effects of the crunch in global trade than are signs of a durable rebalancing.
So G20 is unlikely to change China’s bad habits. But it should certainly make Hu feel more important. After last week, the world can wave goodbye to the primacy of the G8 group of world leaders – and say hello to the G9.
