All eyes on special guest China at G7 meeting
(Agencies)
Updated: 2005-02-03 10:03

A key focus of the upcoming G7 meeting in London will be invited guest China, with finance ministers eager to hear how Beijing plans to solve some of the nagging doubts about its economy, analysts.

China, the newest economic powerhouse, is a rising forcsaye that some analysts predict will overtake Japan, the European Union and even the United States within two decades.

The world's most populous country has averaged stunning 9.4 percent growth from 1979 to 2003, helping lift more than 400 million Chinese out of poverty as market-based reforms have driven its formidable transformation.

After notching up 9.5 percent growth last year, up from a revised 9.3 percent in 2003, China's economic czars again face the somewhat enviable problem of making sure the 1.65-trillion-dollar economy does not grow too fast.

Last year, China managed to allay some of the serious concerns about its economy overheating as it reined in easy credit that was fuelling a production boom and causing prices to rise.

"The world is focused on whether Chinas economic growth can be sustained, will it be good quality growth, or whether the economy will spin into a deflationary (crisis)," Li Ruoyu, economist at the State Information Center, a government think-tank, said.

"China is becoming stronger, its position in the world is rising," said Li.

The Group of Seven's invitation to meetings in London Friday and Saturday reflect China's growing economic clout but also concerns about how it will further integrate an economy that is still protected by the state.

Central to the debate is China's currency.

The yuan has been fixed since 1994 at around 8.28 to the dollar. It has increasingly aggrieved its trade partners, especially the United States, who argue that the yuan is now being kept artificially low to make exports cheaper and imports more expensive.

The United States record 148 billion dollars trade deficit with China in January to November last year has only lent weight to Washington's argument.

China has pledged to free up its currency system, but has not indicated a timetable or specific measures, saying that any eventual loosening of the narrow band will be gradual and stable.

These statements have caused billions of dollars in unregistered capital or 'hot money' to flood into the country on expectations of a yuan revaluation.

"Massive hot money inflows in the fourth quarter of 2004 ... are the biggest threat to price stability," ING Barings economist Tim Condon said.

Although central bank governor Zhou Xiaochuan and Minister of Finance Jin Renqing are not expected to make any promises at the G7 meeting, China will have to take action sooner rather that later if it is to control speculation pressuring its currency, analysts said.

"We expect the authorities will deal with higher inflation through market-based measures, raising interest rates and possibly allowing the currency to strengthen," Condon said.

For the G7 nations -- Britain, Canada, France, Germany, Italy, Japan and the US -- the yuan's valuation revolves around the larger, more complex demands of ensuring that China plays by the rules it promised to adhere to when it joined the World Trade Organisation (WTO) in late 2001, analysts said.

"Certainly there are huge areas of the Chinese economy that are open, especially after its admission to the WTO," said Brian Bridges, a China international relations expert at Hong Kong's Lingnan University.

"But there are other areas of the economy ... and that is part of the reason why China has not won the market economy status it seeks."

At the World Economic Forum in Davos this week, Chinese Vice-Premier Huang Ju appealed to foreign businessmen by saying that "the socialist market economy system has been basically viewed in China as far from perfect."

Addressing a long list of foreign grievances that continue to sully China's image, Huang promised to continue improving the investment environment and legal system, protecting intellectual property rights and increasing access to the country's massive pool of potential consumers.

Close

Today's Top News     Top China News
New stock hopes spark strong rebound         Chen invites ARATS chief to visit Taiwan         US urges EU to keep China arms embargo         Russia, China tighten security links         All eyes on special guest China at G7 meeting         All 30 law-breaking projects suspended	Chen invites ARATS chief to visit Taiwan       DNA of victims from Thailand tested       Beijing eases visa requirements       New forms of greetings help enrich festivities       Shanghai's stylish villas attract investors       Inquiry cracks "ice" drug ring cold