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28 March 2024

Germany hopes high despite Chinese opposition

Published
By Reuters

Germany held out hope on Saturday for a G20 deal on measuring global economic imbalances despite stiff Chinese opposition to some of the indicators proposed.

China rejected plans on Friday to use real exchange rates and currency reserves to measure imbalances and said trade figures rather than current account balances should be used to assess economic distortions.

A failure to agree even on how to measure mismatches in the world economy would augur badly for the G20 process, charged with finding ways to avoid future economic crises.

Late on Friday, after many hours of tortuous negotiation, officials struck an uncertain tone. "I cannot tell you what will happen tomorrow. Nobody knows," one G20 official said, adding that China was the only country which came out against accepting the list of indicators.

A senior G20 source said on Saturday that negotiators had worked all night but failed to make any breakthrough. But as ministers from the world's most powerful economies prepared to get down to work, German Finance Minister

Wolfgang Schaeuble said they had a "good chance" of breaking the deadlock. "I think we will reach agreement today on which indicators we (use to) measure imbalances in the future, to fight timely mis-developments, to come to a balanced growth," Schaeuble told reporters.

The hardline Chinese stance highlighted splits over how to define economic imbalances and prescribe action to remedy them, a key aim of France's G20 presidency.

Two other G20 sources said negotiators had failed to reach agreement and would leave it up to their finance ministers to try and seal a deal on specifics on Saturday.

Even then, agreement was uncertain, they said. French President Nicolas Sarkozy, who holds the G20 presidency this year, urged ministers on Friday not to get sidetracked by the indicators dispute and welcomed the fact that China had agreed to host a G20 seminar on reforming the international monetary system in Shenzhen in late March.

"I want to avoid your debates getting bogged down in interminable discussion about these indicators, which are distracting us from the essentials," Sarkozy said in a speech.

He said a joint approach was the only way forward. "Giving priority to national interests would be the death of the G20," he said.

Even if all the yardsticks are agreed, there is no sign of numerical targets even being broached. 

"Until April in Washington the process of implementation of indicators will be talked about," Schaeuble said.

France has also run into opposition with its two other G20 priorities - greater transparency and regulation of commodities prices and reform of the international monetary system.

On Friday, ministers said there was broad agreement over two indicators measuring public and private debt but France, and most of the group, wants a full slate covering not just those areas but the current account, the real effective exchange rate and currency reserves as well.

China's trade surplus has shrunk of late, perhaps explaining why it prefers that measure.

It has consistently pushed back against U.S. pressure to allow its yuan currency to revalue more quickly. Beijing has already raised interest rates to combat inflation and complains that "hot money" risks destabilising its economy, pointing the finger at theFederal Reserve's money printing via a $600 billion bond purchase programme.

One option mooted on Friday was to allow China to opt out of the balance of payments criterion and use its trade balance instead. But the two G20 sources said an opt-out was a non-starter. The G20 official said China's opposition left G20 deputies -- the experts who do the nitty-gritty negotiating -- with limited options to propose: either accept all the indicators or reject them; introduce a hierarchy where some indicators count more than others or use a time delay for their gradual introduction. But there was doubt whether the Chinese delegation was in a position to compromise.

With world shares at 30-month highs, investors seem content for the G20 to take its time, whereas at the height of the crisis two years ago markets were baying for policy action.