G20 seeks to nurture economic recovery

(China Daily/Agencies)
Updated: 2009-09-25 08:24

PITTSBURGH: Leaders of the world's biggest countries began arriving for the Group of 20 (G20) summit yesterday to seek ways to nurture a recovery from the worst recession since the 1930s and build safeguards against future catastrophes.

US President Barack Obama, hosting his first G20 summit, will lay out a massive agenda that includes tackling one of the thorniest problems facing the global economy - how to even out massive imbalances between export powerhouses such as China and the deeply indebted United States.

The sheer volume of problems the two-day summit is set to address - from the lopsided global growth model to climate change, tougher financial regulation and caps on bankers' pay - means expectations for any near-term action are low.

European Central Bank Governing Council member Axel Weber said yesterday he still expects the summit will provide long-term changes to global financial structures, proving more productive than previous meetings.

"I am happy that G20 leaders and regulators have a broad consensus on the issues and on the agenda," Weber, who is also the chief of the German central bank, told German radio.

Reforming the current international financial institutions will help stabilize world currencies, including China's renminbi (RMB), said Cao Yuanzheng, chief economist of Bank of China International, an investment service. That will benefit the Chinese people, he said.

The RMB's dramatic appreciation against the dollar during the past two years has taken a toll on some small- and medium-sized exporting manufacturers, whose profit margin decreased significantly. A stabilized yuan would help these Chinese exporters maintain their market share, he said.

Meanwhile, the yuan's rising value means Chinese people can buy more with the same amount of money on the international market.

Historical perspective

The G20 was formally set up in 1999 so major industrialized and emerging economies could discuss key issues in the global economy.

The founding members of the G20 were the finance ministers and central bank governors of 19 developed and emerging economies as well as the European Union, represented by the rotating council presidency and the European Central Bank.

In November 2008, in response to the global economic crisis, the G20 held its first leaders meeting in Washington. Then the leaders committed to an action plan, which was reviewed and renewed at the London Summit held in April 2009. The G20 leaders resolved to work together to:

strengthen transparency and accountability;

enhance sound regulation;

promote integrity in financial markets;

reinforce international co-operation;

reform international financial institutions.

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The summit in Pittsburgh, which has seen its own economic hardship as its once mighty steel industry lost out to global competitors, is the third G20 gathering since the collapse of investment bank Lehman Brothers a year ago sparked the global recession.

For Washington, however, the top issue at the summit will be its call for coordinated policies that would reduce the world's reliance on US consumers by boosting consumption in top exporting countries, while debt-laden nations save more.

US Treasury Secretary Timothy Geithner, who met with G20 officials yesterday, said Americans had to save more, meaning that countries that were counting on US demand to drive their own growth would have to look elsewhere.

Such rebalancing will take a monumental effort, given that China's private consumption accounts for little more than a third of its economy, while it exceeds 70 percent in the US and Britain.

By contrast, China's households saved about 40 percent of their disposable incomes last year, while the US savings rate was just over 3 percent.

Signs of growing support for the principles of a more balanced world economy and curbs on excessive risk-taking by banks have also yet to translate into agreement on how to achieve those goals.

Backgrounder

• Stances on climate change
• UN General Assembly
• EU's common positions for G20 summit

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• G20 to take bigger role than G8: Brown
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• Working toward a climate-smart future
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• Shifts in financial power play

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