China will participate in a special meeting with the Group of Seven industrialized countries on Oct. 1, the U.S. Treasury said yesterday, an announcement that could herald Beijing's eventual membership in the elite economic club.
John B. Taylor, the undersecretary of the Treasury for international affairs, said one major purpose of the meeting will be "high-level engagement" with the Chinese on their currency policy, which has become a politically charged issue in the United States.
Beijing's longtime policy of fixing its exchange rate at 8.3 yuan per dollar is viewed by many economists, manufacturers and labor groups as giving Chinese products an unfair price advantage in world markets, and the Bush administration has come under criticism for failing to press the matter more aggressively.
Calling the meeting "a historic first engagement," Taylor said it will be held over dinner in Washington after a regular session of top G-7 policymakers on global economic issues. Jin Renqing, the Chinese finance minister, and Zhou Xiaochuan, governor of the People's Bank of China, will join counterparts including Treasury Secretary John W. Snow and Federal Reserve Board Chairman Alan Greenspan.
Asked whether the Chinese will be invited to future meetings or given full membership in the group, Taylor declined to rule either possibility in or out.
"The next steps will depend on how this meeting goes," he said. But he strongly indicated that more such meetings are likely, saying that they "are useful in making progress on economic reform" and that the currency issue "is a very natural one for the G-7 to discuss with China" given its implications for global trade and finance.
With member nations that account for well over half the world's gross domestic product, the G-7 has often played an influential role in steering and coordinating global economic policy, though some contend that its importance has withered in recent years. It was launched in 1975 with five members -- the United States, Japan, Britain, Germany and France -- in response to the world oil-price shock. Italy and Canada joined later.
Following the end of the Cold War, Russia was also invited to join the group's annual leaders' summit, which was re-christened the G-8. Russian officials also attend some of the meetings of finance ministers and central bank governors, though they do not participate in the sessions dealing with matters such as exchange rates. Russian officials will not attend the meeting with the Chinese, Taylor said.
Bringing China into the group -- at least the economic policymaking sessions -- is an idea that many analysts have long urged because of the enormous global impact of the fast-growing Chinese economy, the world's sixth largest. In an op-ed article published in the Financial Times in June, for example, Matthew P. Goodman, the recently departed head of Asian economic affairs at the National Security Council, argued for bringing Beijing to the G-7 table to give the Chinese a greater stake in addressing matters of global concern, including the overheating of its own economy as well as its trade and macroeconomic policies.
Yesterday's announcement is a "significant step forward," said Goodman, now vice president at Stonebridge International LLC, a firm that advises corporations on global issues. "I would stress that it doesn't necessarily mean that there's already a decision taken to invite China to become a permanent member of the group, but certainly that would be kind of a logical conclusion of this progression." Chinese officials have been attending some lower-level meetings with G-7 counterparts for quite a few months, he noted.
Goodman said he thinks the administration is partly motivated by politics because of the attacks that Democratic presidential candidate John F. Kerry, among others, have made on the White House for rejecting a tougher stance on the currency issue. "Treasury has very little to show" for its efforts to nudge Beijing toward changing its policy, "so they need to show they're engaging," Goodman said.
"But what this is really about goes back to the original reason for the G-5, managing the big supply shock of the day," Goodman said. "Arguably, China is the big supply shock in the world today, so to not have them in the room is a bit odd."
Defending the Treasury approach, Taylor said, "There is movement toward a flexible exchange rate," which China has said it would like to have. De-linking the yuan from the dollar would presumably allow the yuan to rise and make Chinese exports more expensive.
"They've been opening the banking sector, relaxing controls on capital movements. . . . These are all steps on the way," Taylor said, adding, "The best way to move toward that goal [of currency flexibility] is to have a meeting at this [G-7] level."