FINANCIAL TIMES

The G8 Should Start Opening To China
By Matthew Goodman

2 June 2004

On Sea Island off the Georgia coast, leaders of the Group of Eight leading industrial countries will sit down next week for their annual summit on global concerns from managing the international economy to fighting terrorism. Like Banquo at Macbeth's feast, the spirit of one absent guest will hover over the proceedings: China.

China has become simply too big to ignore. Its economy is now the sixth largest in the world - larger than that of two existing G8 members, Canada and Russia. China is also the fourth-largest trading nation and the top destination for foreign direct investment. The giant sucking sound in the global commodity markets today represents China's voracious consumption of raw materials to feed its feverish growth. But China's growing role as a driver of global demand has also created new sources of anxiety for G8 policymakers. There are now clear signs of overheating in the Chinese economy. Global financial markets have been upset in recent weeks by fears that China could be headed for a hard landing.

While aware of these risks, Washington has been preoccupied with other challenges posed by China's emergence. Large and growing bilateral trade deficits and widespread concern about job losses to China have fuelled US protectionist pressures. The Bush administration has so far managed these pressures well. It has held Beijing accountable for fully implementing the commitments it made on joining the World Trade Organisation in December 2001, while resisting most domestic calls to limit China's access to the US market.

The Sea Island summit presents an opportunity to address the broader challenges of a rising China. By beginning to shape a role for China in the G8's deliberations on global economic management, several objectives could be advanced. Bringing China into the tent would give Beijing a greater stake in the good functioning of the global economy and help shape its macroeconomic, trade and other policies. Inclusion of a leading developing nation would also give the G8 more authority on crucial global issues. Moreover, China's involvement in the G8 would be consistent with a broader strategy pursued by various US administrations over three decades: integrating China into the global rules-based system. A centrepiece of this strategy was bringing the country into the WTO, which bound China into the international system of trade rules and reinforced the dynamics of domestic economic reform.

But WTO accession can no longer be the main driver of China's integration into the global rules-based system. The Chinese greyhound needs another rabbit to chase if it is to continue moving toward western norms and practices in trade and economics, and ultimately in the political and social arenas. The prospect of eventual G8 membership could be that new rabbit.

But is a country with China's human rights record and incomplete state of development worthy of membership of a club notionally designed for industrialised democracies? This is a valid concern - and one that could equally apply to Russia. Until it acts more like an advanced democracy, China does not deserve the public relations victory of an invitation to Sea Island - let alone full G8 membership.

Instead, China's gradual integration into the group should be geared to demonstrations of Beijing's willingness to assume the responsibilities of global leadership. The first step should be to invite China's top financial officials to join the economic core of the G8: the G7 finance ministers forum (the G8 minus Russia). The US Treasury secretary should invite his Chinese finance ministry and central bank counterparts to attend the next G7 meeting in October. Meanwhile, working with next year's G8 host, Britain, the Bush administration should use Sea Island to propose that China be offered the prospect of an invitation to the 2005 summit - the economic sessions - if it meets policy benchmarks such as implementing WTO commitments or introducing a more flexible exchange rate.

Critics say the G8 is an anachronism in a globalised economy with competing centres of economic power. But the group still has an important role, to force big economies periodically to justify their policies before their peers and attempt to co-ordinate policies at times of global dislocation. The opportunities and challenges posed by China's emergence represent the most powerful dislocation in the international economy today. It is time for the G8 to open its eyes - and doors - to this new reality.

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