President Barack Obama has launched a stern challenge to China, using the big stage of the G20 summit of world powers to demand Beijing's help in rebalancing the world economy.
The G20 leaders, representing both the world's established economic giants and its dynamic emerging powers, agreed a package of measures to cut deficits, stimulate growth and return stability to financial markets. But Obama went further than the carefully worded joint statement, using his post-summit press conference to remind China that the United States expects it to allow its currency to rise and to reduce its huge trade surplus.
"My expectation is that they're going to be serious about the policy that they themselves have announced," Obama said on June 27, welcoming China's announcement last week that it will allow more flexibility in the yuan exchange rate.
As the world limps out of the worst recession since the 1930s, American policymakers fear the recovery will revive the one-sided trade across the Pacific in Chinese goods kept cheap by the low level of the yuan.
"After years of taking on too much debt, Americans cannot -- and will not -- borrow and buy the world's way to lasting prosperity," Obama declared, in an implicit swipe at export-led economies such as China's and Germany's.
"No nation should assume its path to prosperity is paved with exports to America. Indeed, I've made it clear that the United States will compete aggressively for the jobs and industries and markets of the future."
"A strong and durable recovery also requires countries not having an undue advantage," Obama said, demanding "currencies that are market-driven."
Despite allowing the yuan to rise to its highest level in five years on the eve of the summit -- in what was seen as a gesture to Washington -- China has insisted that it will not be bullied into relaxing currency controls.
Prime Minister Stephen Harper of Canada, the host of the Toronto G20, said China had even insisted that a draft phrase welcoming China's concession be stripped out of the summit final statement before its release.
"It is important to address trade frictions appropriately through dialogue and consultation and under the principle of mutual benefit and common development," Chinese President Hu Jintao said at the summit.
For Beijing, the greatest threat to the world economic recovery is not trade imbalances, but the developed world's attempts to shield its own producers from competition from the emerging economies. "We must take concrete actions to reject all forms of protectionism and unequivocally advocate and support free trade," Hu said.
The G20 statement, agreed by all the leaders and thick with exemptions and caveats, rejects protectionism and promises that unnamed "surplus economies will undertake reforms to reduce their reliance on external demand."
European leaders -- Germany's Chancellor Angela Merkel, French President Nicolas Sarkozy and Britain's Prime Minister David Cameron -- came to the talks calling for fiscal restraint and for a new levy on bank profits.
They made some headway on deficits, but will have to go it alone on the banking tax, as countries like Australia, Canada and India that were spared by the 2008 financial meltdown rejected the proposal out of hand.
The leaders' joint statement, released at the end of two days of talks in Toronto, warned that "failure to implement consolidation where necessary would undermine confidence and hamper growth."
"Reflecting this balance, advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016," it promised.
Some experts warned that Europe's fiscal austerity plans would also slow growth. But Dominique Strauss-Kahn, head of the International Monetary Fund, was quoted by The New York Times as saying he thought the risks of a new downturn were minimal. "We dont forecast any double dip," he said. "Double dip was not discussed at the meeting."
The group exempted Japan and its huge deficit from the pledge and noted that measures should be "tailored to national circumstances."
"Japanese debt levels while much, much higher than the rest of us, are also entirely financed domestically, so there has been some recognition that Japan's targets may be slightly different," explained Harper, the Canadian leader.
For the G20 leaders, the differing agendas reflected in the catch-all final statement was not a weakness, but a recognition of the need for countries with different problems to nurture growth in their own ways.
"The cohesion of the G20 was striking," Harper said at his closing press conference. "We're following different policies but with a single objective; to ensure growth and recovery in a durable and balanced way.
Copyright Agence France-Presse, 2010
