BOSTON--Economists are divided over China's role in helping the Group of 20 industrialized nations stabilize the world financial system.
Speaking after the historic meeting of G-20 leaders in London on April 2, Chinese Foreign Minister Yang Jiechi said that President Hu Jintao's proposals played "an important and constructive role," the official Xinhua news agency said.
In a lengthy 29-point communique, the G-20 nations agreed to fight the global recession and "do whatever is necessary to ... restore confidence, growth and jobs."
In the most significant measure, the group backed $1.1 trillion (7.5 trillion yuan) in International Monetary Fund financing as part of "a global plan for recovery on an unprecedented scale," according to the G-20 joint communique.
But China's part in the package appeared limited in relation to its size as perhaps the world's second-largest economy after the United States.
Although China holds some $2 trillion in foreign currency reserves, it has so far committed only $40 billion to the new IMF program, Reuters reported. That compares with specific pledges of $100 billion each from the United States, the European Union, and Japan.
China holds back
"China consistently plays well under its weight," said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics in Washington, in a Radio Free Asia interview. "They punched well below their weight in terms of any bold proposals."
Hufbauer cited hopes that China will match the other major contributions to IMF financing when quotas in the global lending institution are readjusted by the end of next year. Despite China's growing economic power, its share of drawing rights and voting in the IMF has remained at about 3.7 percent, compared with 6 percent for Japan and 17 percent for the United States.
On the key issue of a coordinated stimulus effort to restart global growth, Hu also held back, although China has announced a major 4-trillion-yuan ($586-billion) plan to jump start its own economy. Controversies over stimulus spending kept the G-20 from agreeing to any concerted move.
Despite a call from the United States, European officials resisted new stimulus pledges, emphasizing greater regulation of financial markets instead. The result was a setback for the stimulus approach.
"China didn't really press the way the U.S. was pressing ahead of the meeting for more fiscal stimulus commitments by a variety of countries including Europe, so that whole part of the program just withered away as the communique was being prepared," Hufbauer said.
China's influence was felt on the regulation issue as Beijing lobbied to keep its special administrative regions of Hong Kong and Macao from being listed as tax havens subject to regulatory crackdowns. On April 7, four havens in Costa Rica, Malaysia, the Philippines, and Uruguay agreed to new banking disclosure rules under pressure of being placed on an international blacklist.
'Quietly cautious'?
But aside from defending its banking privileges, much of China's influence on the G-20 remained in the background.
"That seems to be their preferred diplomacy for the moment, just to be seen to be a quietly cautious giant," said Hufbauer. "Bold leadership does not seem to be something they're willing to step out with."
But Harvard University economist Dale Jorgenson argued that China's agreement to support the IMF financing was significant.
"It's very important that China contributed to the refunding of the IMF," said Jorgenson.
"I think this is something that's quite surprising given the fact that the main beneficiaries of the financing offered by the IMF are going to be countries in Eastern Europe, which are countries that are at a considerably higher level of per capita income than China," he said.
Jorgenson said the move also indicates a willingness to invest in resuscitating international trade with emerging economies, in which China has a vital interest.
"China is extremely important in international trade," said Jorgenson. "If you look at the situation in Asia, China- Japan trade, or trade with other Asian countries, China really looms very large."
ASEAN trade
Last week, China gave further evidence of its effort to revive trade with the 10 members of the Association of Southeast Asian Nations (ASEAN).
On April 11, Minister Yang told Xinhua that Premier Wen Jiabao had planned to announce $25 billion in investment funding and credits for ASEAN countries at their cancelled summit in Pattaya, Thailand. Although the meeting was called off due to violent protests and civil unrest, Wen said cooperation would not be affected by the postponement, according to Xinhua.
The funding for ASEAN suggests that China may have planned all along to make its influence felt with an impact outside the framework of the G-20 meeting.
But Jorgenson and Hufbauer agreed there was little enthusiasm in the G-20 for China's proposal to replace the dollar as a reserve currency with IMF "special drawing rights," a unit of accounting linked to a basket of currencies and shares in the fund.
"It wasn't terribly well-conceived to begin with," said Jorgenson. "The idea of special drawing rights as a reserve currency doesn't make any sense, because that's essentially an internal currency among IMF members and it's not something that could really replace the dollar as an international reserve currency."
The global financial crisis has shown that the dollar remains the pre-eminent reserve currency for international markets, said Jorgenson. China may be showing some concern about over-investment in dollars, but its proposal to shift the world away from the currency looks like a nonstarter.
"I don't think that's going to get any traction any time soon," Jorgenson said.
Hufbauer said China's plan appeared dead on arrival in London.
"There's a lot of guessing as to why they raised the question now and how serious they are, but in terms of the G-20 meeting, that really didn't come up," he said.
