Opinion

Summit for global recovery

By Wu Miaofa (China Daily)
Updated: 2010-11-11 16:09

G20 leaders should work out specifics for a healthy world economy and to establish a financial monitoring system

The international community is pinning high expectations on the G20 summit to be held in Seoul, the Republic of Korea, on Nov 11-12.

On the second anniversary of the outbreak of the global financial crisis, the Seoul summit will be a larger gathering than the Toronto meeting and will hopefully have some far-reaching influence on the global economy.

Participating countries at the summit are likely to discuss measures for a faster global economic recovery and the establishment of a world financial monitoring system. Expanding the voting power of emerging economies at the World Bank and other international financial institutions and finding ways to curb trade protectionism are also likely to be on the agenda. If the summit advances in this direction, developed and developing nations can continue to join hands to boost global economic development as they did in the immediate aftermath of the global financial crisis.

However, at a time when the global economic order is firmly dominated by the West, this is far from certain.

There is another possible outcome of the summit: that the US-led developed countries continue to preoccupy themselves with self-development, choose to abandon the much-needed global coordination and shift the focus to China and other emerging economies in a bid to stage a new exchange rate war and promote protectionism. In that case, any global economic recovery will be delayed and people throughout the world will once again be in a difficult position.

On the whole, the global economic recovery is on track, but it is on an uneven basis, with output in developed countries remaining 2.7 percentage points lower than expected. Economic growth in the United States declined to 1.6 percent in the third quarter, and one-ninth of its enterprises have suffered losses. The unemployment rate in the world's largest economy is likely to return to 9.6 percent. In view of these pessimistic prospects, the Federal Reserve plans to push forward another economic stimulus package. Meanwhile, the specter of the sovereign debt crisis in Greece still hangs over the European Union. In the eurozone, manufacturing volumes have declined in the last two consecutive quarters despite a possible full-year 3.4 percent growth in Germany. The appreciation of the Japanese yen means Japan's economy is almost stagnant.

In contrast to the gloomy prospects of developed countries, emerging countries are enjoying a healthier economic recovery than anticipated. China is expected to have two-digit economic growth this year. In Argentina, India, Brazil and other emerging markets, economic recovery has also been on a robust footing. The African continent is expected to have a 3.9 percent to 4.5 percent economic growth.

At the Seoul summit, participating countries should confirm the World Bank's decision to transfer an additional 3.13 percent voting power to developing nations. That will increase developing countries' voting shares in the body to 47.19 percent from the current 44.06 percent. China's voting power will increase from the current 2.77 percent to 4.42 percent, behind only the US and Japan. India's share will also increase to 2.91 percent from 2.77 percent.

The International Monetary Fund (IMF) also plans to transfer an additional 6 percent of its voting power to some emerging markets. In the newly distributed IMF voting, China's shares will rise to 6.19 percent from the previous less-than 4 percent. In all, emerging countries will enjoy a combined voting power of 42.29 percent.

These reforms are the result of the changed international situation. The US demand that such reforms be linked to the interest rates in developing nations and to their international responsibilities is both illogic and absurd.

The US is heavily in debt, with its deficit reaching $1.35 trillion. The US also suffers a trade deficit. Its problematic financial institutions, excessive military expansion and deep-rooted Cold War mentality are to blame for its lingering economic woes. Two years after the global financial crisis, the US still fails to recognize the source of its economic difficulties and always tries to transfer the economic crisis or its domestic contradictions to other countries as a cure-all for its economic problems. With this mentality, the US has chosen a fast depreciation of the dollar and kept its cash-manufacturing machine in motion.

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At the same time, Washington has exerted pressure on China to raise the value of the yuan in a bid to realize its ambitious goal of doubling its trade volume within five years and creating US jobs. A continuing depreciation of the dollar will compromise its credit and status as the world's leading currency and ultimately undermine these aims.

Since the formation of its exchange rate mechanism in 1994, the yuan has risen considerably in terms of its real effective exchange rate. From May to October, the yuan has revalued as much as 3.39 percent. China will continue to push forward the reform of the yuan's exchange rate in a gradual and orderly manner.

As a sovereign country able to decide its own financial decision-making, China's achievements in this regard are noticeable. Any rushed decision to raise the value of the yuan by 20-40 percent, as some in the US have demanded, will not only cause enormous losses to China's economy but will also cause instability to its society.

All participating nations at the G20 Seoul summit should take a broader perspective and strive to make the event a big success in promoting global economic recovery.

The author is former counselor with the Chinese Permanent Mission to the United Nations.